Business Planning

Unit 1: Influences in establishing an SME

1.1 Definition
- The exact definition is not defined, however it can be divided into categories such as
personalised service, local markets, independently operated, independently owned, closely
controlled by owner/operator, not dominant in the industry, locally based, bulk of capital
provided by owner, reliant on internal support services, owner responsible for decision
making and less than 20 employees for non-manufacturing and 100 for manufacturing.
1.2 Role
- The number of SMEs fluctuates over time according to the state of the economy.
- In recent years, SMEs have created many jobs, become more innovative and are
increasingly entering overseas markets.
1.3 Economic Contribution
- An economy is a system used to determine what to produce, how to produce and to whom
production will be distributed
- SMEs contribute to the economy through:
Gross Domestic Product (GDP)
- GDP is the total money value of all goods and services produced in Australia over a one
year period, measures economic growth.
- ABS estimates SMEs contribute about 50% to GDP.
Employment
- Employment keeps the economy healthy and employees spend their wages which support
other businesses.
- SMEs employ 73% of private sector employment and are more likely to maintain existing
employees during economic downturn.
- They contribute to revenue raised through tax which benefits society as a whole.
Balance of Payments (BOP)
- BOP is an accounting record of all monetary transactions between Australia and the rest of
the world over one year.
- SMEs are often more successful at exporting than large businesses as the adaptability and
flexibility of SMEs make them more responsive to the needs of overseas markets.
- To maintain a favourable balance of payments, exports must be greater than imports.
Invention and Innovation
- SMEs are the main source of most inventions and innovations in Australia.
- Invention and innovation are the heart of our economy as they improve efficiency and
increase productivity.
- SMEs spend a large amount on R&D.
- R&D is intended to develop new ideas and improvements in production however it is
difficult for SMEs to obtain adequate finance as they are perceived as high risk.
- Innovation among SME employees is much higher than larger businesses.
1.4 Success and Failure
- 4 out of every 5 SMEs fail within first year.
- Some factors that determine business success:
- Location.
- Book-keeping standards.
- Access to finance.

- Adaptability & flexibility to change.

- Access to information and resources.
- Demand.
- Entrepreneurial ability.
- A SME has failed when it is:
- unincorporated and declared bankrupt.
- incorporated and either forced into liquidation or voluntary cessation.
- The most common causes of SME failure are managerial inexperience and incompetence
undercapitalisation, and lack of planning.

Unit 2: Influences in establishing an SME

2.1 Personal Qualities
- Personal qualities, motivation, experience and entrepreneurship are the primary influences
on an individuals decision to establish a business.
- Business qualifications and skills can be attained through experience, education and/or
training.
- These factors will affect planning decisions on issues such as the type and size of
business, the business location, and the individuals own role.
- An entrepreneur is someone who starts, operates and assumes the risk of a business
venture in the hope of making a profit.
- An entrepreneur must have a range of skills and characteristics to own and operate a
business successfully.
- There are other influences at work, including cultural background and gender.
Qualifications
- No formal academic requirements to commence operating but there are tertiary courses
available that give you knowledge and understanding of what is required to successfully own
and operate an SME.
- Knowledge and understanding can come from experience and working for other
businesses.
Skills
- Can be attained through experience, education and/or training:
- Experience
- Working as an employee allows you to develop new skills as a result of
training or exposure to various aspects of the businesss operations.
- The best way to gain business experience is to work in the type of business
in which they intend to become self-employed.
- An experienced person will understand and be realistic about the financial
and personal demands that the business will have on them.
- Education and/or training
- Courses are available in many business and industry fields, however are
expensive and take a long time to complete.
- Some government agencies provide opportunities to learn about starting a
business (eg. the Business Enterprise Centres in NSW).
- Allow the business owner to develop the essential skills for establishing a
business such as accounting, computer skills, staff management, business
admin and marketing.
Motivation

- Desire to transform an idea into a successful product by capturing the attention of potential
customers.
- Business owners motivated by the rewards they believe can be gained from business
establishment in both monetary and non-monetary reward mediums.
Entrepreneurship
- Entrepreneurs must be:
- prepared to take a risk and incur the results of the risk, either success or failure.
- confident in decision making and be able to take responsibility for decisions.
- willing to succeed.
- creative and have flair, which allows them to create or seize new business
opportunities.
- able to set goals and have a vision for the future, including adjusting business to
changing environment and setting new goals as others are achieved.
- continually adjusting to changing business, economic and customer markets.
Cultural Background
- Communitys traditions and beliefs (e.g. high work ethic in family).
- Experience in certain trades or services (e.g. Thai person cooking Thai food).
Gender
- Women own approximately 1/3 of all small businesses in Australia.
- Women setting up business from home is the fastest growing sector of the Australian
economy.
2.2 Sources of Information
- SME owners need assistance from the government and private support agencies who
possess a variety of skills.
- A variety of support services exist to provide assistance to a business owner who lacks
experience. Some of them are free, and some are in the form of other businesses that
charge for their services.
Professional Advisers
- Accountants provide valuable advice on all financial management issues and taxation
obligations. They have access to the latest changes to taxation and financial reporting
requirements.
- Solicitors provide information concerning business formation and structures, registration,
contracts, leases, partnership agreements, patents and legislation
- Bank Managers provide information and advice on financial services, sources of finance
and basic business management
- Management Consultants provide advice on the best way to manage and operate business
while being more objective and unbiased
Government Agencies
- Local Government provide advice on land zoning, consider development applications,
assist with subsidised land.
- The State Government offers programs such as:
- NSW Department of State and Regional Development who provide information and
advice on starting a new business, buying a business, managing a small business
and enterprise agreements.
- Business Enterprise Centres Australia provides advice to SME owners on how to
establish a business and create business plans.
- Federal Government offers programs such as:
- www.business.gov.au which services businesses of all sizes with advice.

- AusIndustry provides advice on overseas exports and research and development of

new products and grants.
Other Sources
- Chambers of Commerce offers legal and financial help, economic and tax advice,
explanation of legislation and industrial relations information.
- Small Business Association of Australia and New Zealand is a lobby group of SME owners
that provide a forum for exchanging news and views relating to SME matters.
- Trade Associations have specific industry info and advice.
- Libraries and Reference Material allow access to reference material and the ability to locate
specific material.
- Australian Bureau of Statistics provides data on social, economic and demographic trends.
2.3 The Business Idea/Competition
- A business idea describes the core activities of the business, and the specific features and
value of the goods or services it provides.
- A business opportunity is something an entrepreneur can see as an avenue to success.
- Opportunities may arise due to either a gap in the market, or an interest or hobby.
- Successful identification of a gap in the market is the key to establishing an appealing
business. If there is no gap in the market, businesses need to do something exceptional to
draw customers away from existing businesses.
- Competition is rivalry among businesses that seek to satisfy a market.
- SME owners must decide how to make a business competitive. This can be done by either
reducing the costs of production or providing something not already available.
- Business needs to decide whether to target the product to the mass or a niche market:
- To help identify the level of competition and main competitors.
- To help decide how to market and achieve a larger market share.
- Ways to achieve competitiveness include:
- Lowering production costs, which attracts more customers.
- Differentiation of product and making it unique or better than competitors.
2.4 Establishment options
- Starting a completely new business or purchasing an existing business are the two main
ways of going into business.
- When purchasing an existing business, it is essential for the potential purchaser to know
why the business is for sale.
- Buying a franchise to make use of an existing brand name and reputation is also a popular
way to going into business.
New Business
Advantages

Disadvantages

- The owner has the freedom to set up

the business as they wish.
- The owner is able to determine the
pace of growth and change.
- There is no goodwill for which the
owner has to pay.
- If funds are limited, its is possible to
begin on a smaller scale.

- There is a high risk and uncertainty.

- Without a previous reputation, finance may
be difficult to access.
- Time is needed to develop a customer base,
employ staff and develop lines of credit.
- If start-up is slow, then the business may not
generate profits for some time.

Existing

Advantages

Disadvantages

- Sales to existing customers will

generate instant income.
- A good business history increases the
likelihood of business success.
- Easier to obtain finance.
- Stock has already been acquired.
- The seller may offer advice and
training.
- Equipment is available for immediate
use.
- Existing employees can provide
assistance.

- Existing images and policies may be difficult

to change.
- The success may have been due to the
previous owners contacts and personality.
- It may be difficult to assess the value of
goodwill.
- If the premises are leased, there may be
difficulties with the landlord.
- Some employees may resist any change to
the business operation.

Franchise
Advantages

Disadvantages

- The franchisor often provides training.

- The franchisee does not need to have
previous experience.
- The investment risk may be lower.
- Equipment and premises design are
usually established and operational.
- Well-planned advertising often exists.
- Volume buying is possible, resulting in
cheaper stock.

- The franchisor controls the operations.

- The threat of termination can be carried out
in certain circumstances.
- Profits must be shared with the franchisor.
- Contacts may be biased in favour of the
franchisor.
- The goals of the franchisor may differ from
that of the franchisee.
- The franchisee may merely feel like an
employee, but without benefits or security.
- The franchisor must share any burden of the
franchisors business mistakes.

2.5 Market
Goods and services
- Businesses will fail without a market to purchase their products.
- It is important for businesses to undertake a market analysis.
- Market analysis is collecting, summarizing and analysing information about the market.
Price
- If the price is too high, it leads to a decline in sales and is difficult to achieve a profit.
- Price-setting strategies:
1. Percentage mark up: increase cost prices by a fixed percentage to give a selling
price.
2. Recommended retail price: recommended price by wholesaler or manufacturer of
goods to be sold.
3. Price leadership and competition: making sure that the price is in line with
competitors.
4. What the market will bear: determining how much consumers will be willing to pay.
Location
- Different businesses are suited for different locations.
- Online Presence means businesses are no longer limited to dealing with people physically.
Some advantages of this is due to:

- It is easier to access
- Location may be considered unimportant
- Easy for home-based businesses.
2.6 Finance
- A business cannot commence without finance to enable it to pursue its activities.
- SME owners must determine how their business will be financed throughout the life of the
business.
- Businesses can obtain funds from either internal (equity) or external (debt) sources.
- Debt finance is money obtained through loans and must be paid back.
- Short term debt finance is less than one year and examples include bank bills, bank
overdraft and trade credit.
- Medium term debt finance is one to five years and examples include term loans, personal
loans and leasing.
- Long term debt finance is over five years and examples include mortgages.
- Equity is the funds contributed by the owner(s) of a business to start and expand the
business.
- The business owner must estimate the establishment costs (expenses that must be paid to
commence the business) and operating costs (the running costs for a full years operation).
- The type of finance will influence cost of capital.
- For debt finance the cost is interest.
- For equity finance the cost is the return (dividend for companies) paid at the end of
the financial year (if profit is made). The cost of equity finance could also be
measured in liability as unincorporated businesses can have business and personal
assets sold to recover debt, whereas incorporated businesses are limited to assets of
company and investments.
2.7 Legal
- All business owners have a legal obligation to observe the statutory regulations when
commencing and operating a business.
Business name
- Every business name must be registered (except when the name is that of the owner and
no Pty Ltd, Co, etc. at the end).
- If two traders want to register the same name, the first applicant for registration is accepted
but the second must register a different name.
Zoning
- Local government controls zoning regulations to plan areas for set purposes (eg.
residential, warehouse) and to assist planning.
- Owners must inquire with the local council to determine which zoning regulations may
apply to them.
Health regulations
- Local councils have requirements and standards for businesses to meet to receive a
license to operate their business.
- Health inspectors assess the business regularly, often without warning. This is to ensure
that the business maintains these standards.
- The Trade Practices Act 1974 (Cwlth) is a federal government statute that aims to:
- Promote fair trade and competition in the marketplace.
- Protect both consumers and businesses from deceptive or misleading practices.

2.8 Human Resources

- One of the most important influences when establishing a SME is staffing.
- If a SME owner decides to hire staff, many sources are available including advertisements
in media, temporary/casual services, schools, universities, TAFEs, internal searches, word of
mouth, private employment, recruitment agencies and Job Services Australia.
2.8.1 Skills
- Skilled employees are highly productive and result in creating wealth for the business. It is
important for businesses to maintain the skill level of their employees.
- Training is also an option to develop the skill base of existing employees.
2.8.2 Costs
- A business will only employ someone if the return is greater than the cost.
- On-costs are payments for non-wage benefits, including long service leave, workers
compensation, superannuation, sick leave and annual leave loading.
2.9 Taxation
- Taxation is the compulsory payment of a proportion of earnings to the government.
- In order to operate a legitimate businesses, all taxes must be paid.
- An ABN is given to every business and is used when dealing with government departments
and agencies (e.g. ATO).
Federal & State taxes
- Tax is an important source of funding for all levels of government.
- Federal Taxes include company tax, group tax (imposed on employee), GST and fringe
benefits.
- Goods and services tax (GST) is a 10 per cent value added tax imposed on most goods
and services.
- The customer pays GST when buying goods and services, which is passed on to the
business that in turn passes it on to the Australian Taxation Office (ATO).
- GST collection and payments to the ATO are recorded on the business activity statement
(BAS), which is also the means by which a business can claim input tax credits.
- State taxes include stamp duty (leases, mortgage, car registration), land tax and payroll
tax.
Local rates and charges
- Taxes imposed by local governments include:
- Local land rates.
- Water and sewerage.
- Waste management service.
- Development and building approval fees.

Unit 3: The Business Planning Process

3.1 Sources of Planning Ideas
- A business plan is a written statement of the goals for the business, and the steps to be
taken to achieve them. It is a summary and an evaluation of a business concept in written
form.
- A business plan will also assist the SME owner when arranging finance for the business.

- Some benefits of a business plan include:

- Identify business strengths and weaknesses.
- Assist the business to be proactive not reactive.
- Indicates the owner's ability and level of commitment.
- Forces the owner to focus.
- The internal and external business environments are sources of planning ideas.
3.1.1 Situational Analysis
- SWOT stands for strengths, weaknesses, opportunities, threats
- A situational (SWOT) analysis can be used at all stages of the planning process.
STRENGTHS
Internal factors
e.g. what is the business good at? Are
our employees motivated?

WEAKNESSES
Internal factors
e.g. poor technology, poor location,
unmotivated workforce

OPPORTUNITIES
External factors
e.g. economic boom, low interest rates,
potential overseas markets

THREAT
External factors
Competition is usually one
e.g. new regulations (impacting the
business)

3.2 Vision, Goals and/or Objectives

- The vision statement broadly states what the business aspires to become.
- Vision statements guide and direct the business owners, managers and employees.
- Once the goals have been established, a SME owner determines the objectives.
- Objectives are specific statements detailing what a business needs to do to accomplish its
vision.
- Strategic goals, tactical and operational objectives are determined by different levels of
management.
- Many businesses strive to achieve three broad goals:
- Financial (e.g. maximising profit, increasing market share, increase share price).
- Social (e.g. community service, provision of employment, social justice).
- Personal (e.g. individual preferences).
- Long term growth is the ability of a business to continually expand.
- Strategies to achieve long term growth:
- Customer feedback.
- Supplier and customer partnerships.
- Product innovation.
- Sigma six: management approach that attempts to improve performance by
improving quality, reducing costs and creating new opportunities and making 99.99%
of all manufactured products defect free.
- Longer term growth depends on a businesss ability to develop and use its asset structure
to increase sales, profits and market share.
3.3 Organising Resources
- An organisational structure is the framework in which the business defines how tasks are
divided, resources are used and departments are coordinated.
- Resource allocation is the efficient distribution of resources to meet established goals.

3.3.1 Operations
- Defined as transforming inputs into finished or semi finished goods.
- Necessitates the need to source equipment, supplies, knowledge, storage and
warehousing as well as delivery systems.
- Also determines the:
- Type of equipment and raw materials and their suppliers and cost.
- Storage, warehouse and delivery systems required to operate.
- Level of technical expertise required for maximum production .
- The business may need to utilise CAD (computer aided design) and CAM (computer aided
manufacture) to maximise efficiency.
3.3.2 Marketing
- All sections of the business must be involved in meeting customer needs and wants.
3.3.3 Finance
- New business ventures require funds to operate.
- It is necessary to compare various sources of finance to obtain the best rate.
- The amount of equity (business ownership) that the business owner is willing to hand over
in order to obtain financing must be determined, so that ownership is maintained.
- It is possible to explore government funding and grants that include monetary and financial
assistance that does not have to be repaid.
3.3.4 Human Resources
- Employees are an SMEs most important resource.
- A rigorous recruitment and selection processes is necessary to the functioning of the
business.
- All legislation must be abided by, including anti-discrimination and equal employment
opportunity laws.
3.4 Forecasting
- Forecasts are a business's predictions/projections for the future.
3.4.1 Total Revenue & Total Cost
- These forecasts attempt to predict the amount of money a business will receive from sales
(revenue) and the amount of expenses they will incur (cost). These estimates can be made
by determining the demand for the businesses product and the amount of competition.
- Total revenue is the total amount received from sales. This figure is calculated by the
quantity of goods sold multiplied by the price that theyre sold for or TR = P x Q
- Total cost is the sum of fixed and variable costs. It is categorised into two parts:
- Fixed costs are costs that do not vary regardless of how many units of a good or
service are produced.
- Variable costs are costs that depend on the number of goods and services
provided.
- The formula for total cost is FC + VC = TC.
3.4.2 Break-even Analysis

- A break-even analysis determines the level of sales that need to be generated to cover total
production costs.
- The formula for this is Break-even Sales= Fixed Cost/(Selling Price Variable cost per unit)
3.4.3 Cash Flow Projections
- The cash flow projection shows the changes to the cash position brought about by the
operating, investing and financial activities of the business.
- It is set out the same as cash flow statements but makes predictions.
- If a business has too much cash sitting idle, resources are being used inefficiently or the
business is underinvested.
- It also shows how much investment is needed and the health of the working capital in the
business and overall efficiency.
3.5 Monitoring and Evaluations
- Monitoring involves observing changes and looking at the external influences on the
business.
- Firstly, the business must establish a performance standard. A performance standard is a
forecast level of performance against which actual performance can be compared.
- Secondly, the actual performance is evaluated against the performance standard.
- By doing this, a business owner can evaluate the effectiveness of the business plan.
- Evaluating is about comparing against standards and planned goals.
- Some common evaluations include:
- Figures from past and present in order to track improvement
- A business plan in order to monitor goal progress
- A budget in order to compare figures
- The owner needs to evaluate whether the business operations achieved the desired
results and why.
- Monitoring and evaluating can ensure the long term success of the business.
3.5.1 Sales
- Sales management control involves comparing budgeted sales against actual sales and
making changes where necessary.
3.5.2 Budgets
- A budget is the businesss financial plan for the future outlining how the business will use its
resources to meet its goals
- A budget:
- contains projections of incomes and expenses over a set period of time.
- enables constant monitoring of goals and their progress.
- is used in planning and monitoring aspects of a business.
- needs to be regularly compared with actual revenue and expense amounts.
- allows for modifications if there are discrepancies.
3.5.3 Profit
- Reasons why profit must be carefully monitored and evaluated:
- Profit as reward: it is the return/reward that business owners receive for taking the
risks in business operations.
- Profit maximisation: main goal of a business.

- Profit as a source of finance: profits need to be reinvested to ensure that the

business can grow.
- Profit as a performance indicator: indicates business performance.
- Profit as a dividend payment: for incorporated businesses, some profit is allocated
to shareholders.
3.6 Taking Corrective Action
- Corrective action is important to ensure the business can continue to function.
- Modifying is the process of changing existing plans, using updated information, to shape
future plans
- If performance standards cannot be met, the situation cannot continue and the business
owner must undertake corrective action/modification.

Unit 4: Critical Issues in Business Success and Failure

4.1 Importance of a business plan
- Business plans are essential for owners/managers because:
- They allow the owner to clearly define the goals, and future projections.
- They assist in the securing of finance from banking institution or investors.
- They reflect the skills and abilities of the business owner.
- A business plan must:
- Have a concise statement of goals.
- Have detailed strategies for achieving goals.
- Have tools for measuring performance (break-even analysis, forecasted profit &
loss, market research).
- Be able to be presented to stakeholders, investors, potential sources of finance,
accountants etc.
- Reflect the skills and abilities of the owner.
4.2 Management
- Management coordinates resources (inputs) to achieve the stated business goals.
- Resources need to be allocated and used efficiently to maximise quality and minimise
costs.
- Management must make the best use of limited resources.
- Management is responsible for the business achieved its goals.
- A managers skill is the most critical factor in determining a businesss success or failure.
Staffing
- As employees are a businesss most important resource, necessary resources need to be
allocated to hire good employees.
- Outsourcing the recruitment process is becoming more common as it can be costly and
time consuming when done in-house.
- A skills audit details the skills base of all employees in order to get the right mix of
employees, plan skill acquisition and future training needs, identify weaknesses in skills.
- A skills inventory is a database that outlines the skills, abilities and qualifications of
employees.
- Appraisals are the process by which an employees work behaviour is evaluated and the
results are used to provide feedback, showing where improvements are needed and why.

- They can be used as a way of assessing skill base and determining training needs and
who will be promoted, demoted, retained or fired.
Teams
- Benefits associative of team work include:
- Idea sharing.
- Informed decision making.
- Less need for supervision meaning employees monitor each other closely.
- Employee cooperation.
- Improved output.
4.3 Trend Analysis
- Trend analysis is a process of investigating changes over time and looking for a pattern
(trend) in order to predict the future.
- Trend analysis is a powerful tool which assists SME owners achieve business success
helping with forecasts.
- A trend analysis highlights patterns and changes in business performance.
- Sales, revenue, operating costs, gross and net profit can be graphed.
- Trends are used to forecast changes when budgeting for the future.
4.4 Identifying and Sustaining Competitive Advantage
- Business success and failure is linked (in the long term) to a businesss ability to develop a
strategy that allows it to gain a competitive advantage over other competitors in the market.
- A competitive advantage is where a business does something better than a competitor and
has the edge on competitors in a particular area of production.
- Sustainable competitive advantage is a competitive advantage that is maintained over time.
Ways to maintain a competitive advantage:
1) Costing and pricing strategies

- Undercutting competitors
- Reducing production costs
- Reducing input costs
- Specialising labour in production
- Automation (replace labour with machines
- Outsourcing expensive parts of the process
- Increased production (in bulk) reduces unit costs
- Overseas production is cheap labour

2) Differentiate products

- Produce high end quality or low end throw away

goods
- Have an innovative design
- Brand name and image
- Location and level of service
- Market research pitching marketing at target
markets

3) Staying ahead of competitors

- Research & product development

- Patents and copyrights on inventions
- Creating barriers for entry to competitors
- Lobbying government and interest groups
- Exclusive contracts with other businesses

4.5 Avoiding over-extension of finance and other resources

- A business can overextend financially by:

- using hire purchase and/or leasing commitments made on cars, equipment etc.
- purchasing excess stock.
- employing too many staff for the business current needs.
- Overextending expenditure can create a high degree of business risk.
- To avoid overextending financially, a business should:
- undertake thorough planning.
- avoid over dependence on debt financing.
- engage in long-term financial planning.
- grow at a sustainable rate.
- Overextension of stock ties up a businesss cash and can lose revenue.
- Overextension of staff results in employing too many staff.
4.6 Using Technology
- New technology changes the way business operates.
- Advantages include :
- More efficient production times.
- Easier communication (resulting in reduced delays, reduced labour costs, realtime
sharing).
- E-business is using the internet to conduct business (e.g. emails, schedules, licenses)
- E-commerce is using the internet to buy and sell goods and services.
- Using new technology incur an initial cost however, the long term benefits are far greater.
4.7 Economic Conditions
- The economy affects the country as a whole. The better the economic situation, the more
willing customers are to spend money.
- A nations economy will experience periods of boom and recession.
- In periods of strong economic activity, consumer spending, sales of goods and services,
production, and profits are rising.
- In periods of weak economic activity, consumer spending, sales of goods and services,
production, and profits are falling.
- Economic indicators include:
- Inflation.
- Spending levels.
- Demand.
- Economic growth.
- Unemployment rates.
- Savings.
- Interest rates.
- Foreign investment.
- Currency.