Toolkit on how to Start and Improve your Business

Business Implementation

Toolkit for the creation and follow-up of your business

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back to Business plan 2  I  Executive Summary
Sales and Marketing  I  Production  I  Financial Plan

3. Instruction to Organisation and Management
 

3.1   How will the Business be organised?
There are four common forms of business organisation: (1) sole proprietorship, (2) partnership, (3) private limited company (closed corporation), and (4) public limited company (public corporation). 

However, most small and medium businesses are registered as sole proprietorship, meaning that the owner / manager or the entrepreneur is the owner as well as the general manager of his business. 

Partnership involves co-ownership of the business by one or a few partners who may be a family member or close friends. Partners may bring their capital or expertise, or both into the business. 

A private limited company involves ownership of the business by a limited number of people (usually relatives and close friends) who band themselves for purposes of the business.  Ownership is based on shareholding, which can be transferred to other shareholders with the consent of the existing owners.

A public limited company (public corporation) involves many persons owning the business who may not be affiliated with one another. Ownership is determined by shareholding which are floated on the stock exchange and transferable to the public. A corporation has a legal personality and has limited liabilities. A corporation may be managed differently from its owners. 

Countries have various regulations regarding the registration of business under each form. It is important that you know them - the relevant laws (e.g., taxation, liability, etc.), the forms to be filled in and the licenses/permits to be acquired (and paid for) before you can legally operate as a business.

3.2   How will the Business be managed and operated?
For the business to operate smoothly and efficiently, there must be certain structures of authority and responsibility (a chain of command), division of labour (job distribution), and definition of what each entity must do in the business (job description). Therefore, the business needs an organisational structure. This is mostly depicted through an organisation chart.

In designing the organisational structure, it is important that the various functions of the enterprise (marketing, production, organisation and management and finance) be performed well. In a small business, one person can handle several functions. For instance, the entrepreneur may ‘double up’ as general manager as well as production manager.

In small and medium businesses it is also common to have family members holding positions of responsibility in the business or even perform production work. For instance, the wife may be the treasurer and marketing manager, while the older children help out as part-time production workers.

3.3.  What are the Business
Experiences and Qualifications of the Entrepreneur?
To ensure business survival and growth, it is important that the people who run the business must have the proper qualifications and suitable experience. The survival and growth of the business depends on the competence and ability of management. A class B (medium potential) project managed by a class A (highly competent) manager will mostly turn out to be successful, while a class A project (high potential) run by class C (incompetent) management will fail.

In particular, if the proponent wants to borrow money from the bank or if he wants to get trade credit from his suppliers (raw material, machinery), he must be able to convince them about his ability, competence and integrity.

Therefore, it is of utmost importance that the proponent includes the highlights of his bio data as well as that of the other key officers involved in the business and being relevant to business operations. 

If possible, the proponent should include bank references, former employers, or well-known and respected community leaders who can vouch for his integrity as well as his abilities.

3.4   What pre-operating
Activities must be undertaken before the Business can operate?
Before the business can start actual operations there are many preparatory steps that have to be carried out. The entrepreneur must be aware of these and plan their execution, so that costs, time and energy can be saved. 

A few of these preparatory activities include attendance in a training program (whether skill-related, management or entrepreneurship), preparing your business plan, doing market survey, making trips to machinery and raw material suppliers, registering the business, hiring a consultant, etc.

It is advisable that the proponent lists down all these pre-operating activities and decides when and how long each activity will last. A few of these activities can be carried out simultaneously (e.g., drawing up market survey and contacting suppliers), while others have to be done sequentially (purchasing the machinery before their delivery and installation in the factory). 

To aid the proponent he can prepare a Gantt chart, which depicts in one column all these pre-operating activities and a further illustrating the timetable (in weeks, preferably) when each activity will start and be completed. 

3.5   What pre-operating Expenses will be incurred?
Pre-operating expenses are those expenses which are needed in order to plan and to prepare for the business operation. These include worker training, market surveys, testing, travel to source suppliers of raw material and machinery or to negotiate with potential market outlets, etc.

In a few cases, you may be able to find workers who do not need any training, but in many cases some form of training is required. As an owner / manager you should have a good idea of the manufacturing process. You may have acquired this knowledge and skill from your previous work, business experience or training. Or this may require that you spend some time in another factory of similar size for exposure and gaining of experience. In most cases, it makes sense to hire at least one good technician who is familiar with the process and who can give on-the-job training to the workers below him. However, this will take some time and as we all know, time is money. Therefore, these costs should be estimated. It may be necessary, for instance, to pay workers a stipend during their on-the-job training before they start full production on a piece rate basis. These pre-operating costs have to be accounted for as part of the total project costs (project's total capital requirement).

3.6   What fixed Assets will be required for the Office?
Aside from the fixed capital needed to manufacture the products or to facilitate and maintain production operation, the business needs other fixed assets to maintain the administrative aspects of the business.

These assets include a typewriter, furniture and fixtures, cabinets, electric fans, calculator, computer, vehicle, etc.  These fixed assets also have to be depreciated according to their useful life. 

3.7   What administrative Costs will be incurred?
To support production and marketing activities of the business a few administrative activities have to be performed and costs have to be incurred in the performance of these activities. For this reason, administrative costs are also termed operating expenses.

Administrative costs include the salary of the office secretary, bookkeeper, driver, security guard, depreciation of fixed assets, furniture and fixtures used in the office, communications, etc.

back to Business plan 2  I  Executive Summary
Sales and Marketing  I  Production  I  Financial Plan