Business Plan: Operation Plan | Operation With Excellence | Part 1

We've discussed the marketing and financials of a successful business plan. Next, we move on to the operations component of the plan. Success in your marketing and recouping any funds invested in your business will be dependent on how business operations are operated. 

You will need to consider who will actually be involved in daily operations, what the business hours will be, how many hours a day will you be open to gain the maximum profit, where you will be located, and include the technology plan you will implement. Deep thought should be given to this section as how you operate will distinguish you from competitors and hopefully give you an advantage over them as well. Your goal is to implement a strategy that will give you the most profit, use your time most productively, and capitalize on mistakes of others in your industry to make your business better. 

Think about what it is that causes customers to leave a storefront, or click off a webpage. What are things that cause you to feel companies are incompetent or very efficient? Never allow your business mind to over take your common sense and observations as a consumer. Find a balance between the two that allows you to use your business sense to the best of your ability and incorporate what you know from your experience with brands, vendors, and businesses. 

Key components to this section include:

• Facilities -- comprehensive information to include size, costs, location, lease terms, & any special considerations.
• Manufacturing / Production Plan -- how will you produce your product or service? Be detailed. Being specific will allow you to immediately notice processes that can be eliminated to make workflow more efficient. How many people will it take to produce your product? 
• Equipment and Technology -- This section will include everything you plan to use from a printer, fax, and copier, to mobile apps and scanners, desks, types of laptops, everything. To include everything, start from the beginning of production, to the end of your product / service. Write down every piece of equipment that is involved in making your business run. You will need price information as well. 
• Variable Labor Requirements -- Do you need the same workforce at peak hours that you need in the morning? How many part time or full time employees will you need? What types of skills will you need these people to possess? Try your best to gain the best value from your workforce as possible by hiring people with several skill sets, that can fulfill several roles. Make sure you have accounted for their cost to the company, and develop a salary to attract the most efficient and productive type of employee. 
• Inventory Management -- How will you maintain accountability? How you will make sure you always have what you need on hand?
• Supply and Distribution -- Where will you get your supplies? How will you get it to your market? What channels do you need to make the process as efficient and cost effective as possible?
• Order Fulfillment and Customer Service -- How will customers place orders and how will you deal with their needs, complaints, concerns, and questions? What steps can you take to develop FAQ's, customer feedback plans, and surveys beforehand to be prepared for the success of your company?
• Research and Development -- How will you stay abreast of the most cutting edge developments in your industry and make sure you are incorporating them into your business? How much money and time will you allocate to this? Some companies will only need to pay for conferences and classes to be competitive in the area while others will have to be more aggressive. Technological, medical, automotive, and technical fields must invest a lot of time and money in this area if they want to remain in business.
  
  
  
• Quality Control -- Deming was a business guru that was able to revitalize a dying industry because of his belief in continuous improvement. How will you maintain the standards of your product or service? Are there federal requirements? What process will you employ to keep the reputation of your business in good standing by producing quality products or services?
• Safety, Health, Environmental Concerns -- Extremely important section. What does the federal and local government require for operations and disposal of the materials you are using? Are there any posting requirements you must have in your facility. Time spent on this section will save you money with law suits and liability issues. Ignorance to the law is no excuse for the law; employees are entitled to work in an environment free from health hazards. Obviously, some industries have inherent risks involved, and www.OSHA.gov will answer any questions you may have about your workplace.

Other considerations and the technology plan specifics will be posted in part 2. Stay tuned.

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Contact ChrissyBiz today to discuss the impact that web marketing copy can have on your business.

Financial Plan - Your Balance Sheet

The Balance Sheet is exactly what it says, a sheet where you will show the balance between your assets and liabilities, and most importantly how much your company is worth overall. This sheet is included in your business plan to project the worth of your company, but also used by existing businesses to show the financial health of your venture. For the business plan, you will do the first year in quarters and second to fifth years annually. If you are already in business, you will need a current balance sheet and the past two years' balance sheets to include in your plan.

The balance sheet gives anyone who views it an easy yet thorough review of your company. Some companies are highly valued because of their land and building worth, while their accounts receivables is rather low. Other companies hold a lot of wealth in their inventory. Bankers and investors will want to know exactly how you derived the value of your company, or its projected value. This is also a place that unethical business people tend to "pad" their value. Your balance sheet is broken down as followed:

Assets

You will account for all the assets the company has and separate them between current assets and fixed assets. Current assets (more likely to fluctuate in value) will include:

•  Cash
•  Accounts Receivable
•  Inventory
•  Prepaid Expenses 

Fixed assets (will not fluctuate in value) are:

• Land
• Building
• Furniture / Equipment
• Fixtures
• subtract accumulated depreciation (choose a method, stick with it, and record it here)

Additionally, you may have other assets like patents, intellectual property, or what is referred to as intangible assets that you will record on the sheet to give you the total value of your assets. 

Current + Fixed + Other = Total Assets

Next, you will record your liabilities, separated as current liabilities and long term liabilities. Those willing to invest in you are entitled to know how much you already owe:

Liabilities

Current Liabilities: 

• Accounts payable
• Accrued Payroll
• Taxes Payable
• Short-Term Notes Payable

Long-Term Liabilities

• Long-Term Notes Payable (Could be loan or mortgage)

Current + Long-Term Liabilities = Total Liabilities

The difference between the liabilities and assets is the shareholder's equity. Then you will add any retained earnings (earnings that are not paid out as dividends to shareholders) to arrive at the companies total net worth. 

The information provided in this portion of your successful business plan shows that you have a good grasp of how to determine the health of your company, and separate those things that add value (assets) from those things that detract from the overall value of the company (liabilities). All companies will always have liabilities, but balance sheets help entrepreneurs see what percentage of their income is going towards debt vs being re-invested. In the simplest terms, the balance sheet shows what you have versus what you owe. It helps potential lenders understand how big of a risk you are, and how much ability you have to pay them back.

Financial Plan: Cash Flow & Projecting Sales

Cash Flow. Beautiful words to the entrepreneur, and a must for sustainability and growth. But how do you project these numbers when you have not opened your doors yet, especially for 5 years into the future?

Using the Modified Exponential Model (also used for population growth) allows you to set a sales growth percentage that you can determine based on the industry you are in. For example: you may find that painting jobs have seen an annual growth of 12% per year and want to express that monthly. Once you set the amount of painting jobs you project to perform per month, you can project a 1% growth per month in addition to the sales. Other services sold would need a similar analysis for accurate projection. Key things taken from projecting sales:

• Monthly income from sales
• When company will reach profitability

Always project your sales conservatively, unless you are in an industry that is guaranteed growth. I cannot think of any industries other than medical, law enforcement, etc. Even then, you will need to account for your competitors taking some of your market share or if you are in a community where business growth is historically slow. Technology is an ever-growing sector but also VERY competitive; your market analysis will help you in this section as well!

Cash Flow also addresses how you will pay your bills, how much you plan to have on hand for incidental expenses and your overall handling of cash in the company. 

You start with Cash Receipts: 

• Total Cash from Sales = Cash from Sales + Collections
• Income from Financing (If you are getting a Small Business Loan) = Interest Income + Loan Proceeds + Equity Capital Investments (Partner Investments)
• Other Cash Receipts (Other sources of cash income)

Cash Disbursements:

• Inventory
• Operating Expenses
• Commissions / Returns & Allowances
• Capital Purchases
• Loan Payments
• Income Tax Payments
• Owner's Draw

These added together will give you the total Cash Disbursements. Next, you subtract the Disbursements from the Receipts to get the Net Cash Flow. 

Having a strong cash position within your company allows you flexibility when negotiating credit terms and shows lenders that you are less of a risk. Additionally, unforeseen circumstances that arise can be taken care of without adding burdensome expenses. While you will not want to address all expenses with cash, it will give you more negotiating 

Guard the Owner's Draw with diligence and also any petty cash that you would allow administrative workers to use for small expenses / incidentals. Accountability and replenishment must be accounted for in your plan as well.

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Contact ChrissyBiz today to discuss the impact that web marketing copy can have on your business.

Financial Plan: Income Statement

Your financial plan will consist of many important figures compiled in sheets, with the Income Statement, Cash Flow Projection, and Balance Sheet being the most important. Each form will provide investors, the bank, or your internal financial team, an overall look at the health of your business. Now you can see why accounting is so crucial and they make so much money! Small mistakes or adjustments in the expenses of a firm can ripple through and cause huge losses. I suggest using Excel in the beginning. Quickbooks is another great program but excel will help you think through the steps more and see how crucial financial decision making is to the overall operation and profitability of your business. 

When you first start your business, the income statement helps to also help in determining what your break-even point must be (where profit - expenses = zero). While you may not be profitable for a year or so, you need to know how much of your product or service must be sold to keep your doors open.

Income Statement: This form shows whether or not you are profitable and details the sources of your income. Using the method of your choice to project your actual sales (Abrams Method, Modified Exponential Method) for 5 years helps you really get a clear picture of your capital requirements. A snapshot for your financial condition will be detailed with the following information:

INCOME

• Net Sales = Gross Sales - commissions, returns and allowances
• Gross Profit = Net Sales - COG's (Cost of Goods) 

EXPENSES

• Salaries & Wages
• Employee Benefits
• Payroll Taxes
• Professional Services (Outsourced functions you pay)
• Marketing & Advertising (Budgetary costs plus ongoing costs)
• Rent or Lease for Property
• Equipment Rental
• Maintenance
• Depreciation (This is based on how you choose to amortize your equipment)
• Insurances
• Telephone Services, Internet, etc
• Utilities
• Office Supplies
• Interest on Loans (Notes Payable)
• Parking Costs
• Principle on Loans

There may be other industry-specific expenses, so you will need to record all of them. Remember that for this sheet, use annual expenses for up to 5 years.

Net Profit = Your total expenses - net income before taxes - provision for taxes on income

Your Net Profit is the most important figure on this sheet. It is the bottom line and takes in account everything you have earned and everything you must pay. 

How does the financial planning of your business help you in determining the price?

ChrissyBiz Solutions provides clients with customized, results-driven web marketing strategies. Our primary business writing duties include: article marketing,  search engine optimized web copy, blog content, social media, press releases, and newsletters  designed to drive traffic to your website and influence buyers decisions when purchasing products and services.

Contact ChrissyBiz today to discuss the impact that web marketing copy can have on your business.

Financial Plan: Cash or Accrual Basis Accounting

The financial portion of your business plan is so comprehensive, I will have to break it up into several posts. How well you present this portion of your plan is very telling of your financial abilities, as well as how responsible you will be with any money invested or loaned to you. Use this and coming posts as a guide to assist you, but never be afraid to consult with an accountant. Consider the following:

• How will you fund your venture? 
• Are you seeking investors or a small business loan? 
• Or will you fund the venture on your own with help from your current job or savings? 

No matter your answer, getting a good grip on the financial plan of your business is essential. Do not wait until you are making transactions to consider how you will approach your finances! Accounting for your business must comply with the GAAP or Generally Accepted Accounting Principles. While your own method to keep your books may sound great to you, the IRS will not think so if you are ever audited.

First, you must decide which method of accounting will suit your business first: Accrual-Basis or Cash-Basis Accounting. **Be aware that it is not only unethical but also illegal to change methods during the reporting year. Using accrual basis in January and cash in March is a sure way to personally invite the IRS to your business doors.**

For small businesses, cash-basis accounting is recommended (based on advice from many professionals and college texts). This means that you enter all transactions at the time money actually changes hands. 

This is different from accrual-basis which allows you to enter your transactions in the books at the time they are transacted -- whether or not payment has been made. A sale in January for the amount of $1000 will be entered in the January books with accrual-basis. But if you allow a payment plan to be implemented, the cash-basis would require you to only enter the amount that was actually paid to you in January. Remaining payments will be entered in a like manner. 

As you can probably tell, the accrual-basis accounting is not always reflective of cash flow. Sales and actual cash paid will not be the same, and those making decisions to lend you money or invest will want to know which basis you use. 

In contrast, the cash-basis method has it's drawbacks as well. Sales made without cash to show for it may make your business appear less profitable than it really is to investors. Offering an incentive for early payment within your payment terms is a good way to encourage timely and early payments from customers. Now you know why companies offer "90 days same as cash" or similar deals. 

Taking a closer look at these methods we can also see that businesses have a task at actually collecting money from their clients. Once a product or service has been delivered and money is not completely paid, there is no guarantee it ever will be. We will discuss how to deal with this in more detail in later posts, but for now, you need to know that an iron-clad contract or sales agreement is very necessary. Your notes payables will not accept the excuse that your accounts receivables is late. 

So in what instances would the accrual basis be more beneficial than the cash-basis? If you are selling fairly low priced products or services, this might be beneficial. Breaking up a $100 payment over 3 months may work for you personally but not look so great on your books. Be sure to account for the interest you accrue on your bills within your payment plans as well. Time is money! Really it is; when we discuss discounted cash flow and net present value you will have a better grip on the value of money in relationship to time. 

Feel free to leave your specific questions or comments in the section below. Next I will break down the 3 most important forms of your business -- Income Statement, Cash Flow Statement, and Balance Sheet. 

ChrissyBiz Solutions provides clients with customized, results-driven web marketing strategies. Our primary business writing duties include: article marketing,  search engine optimized web copy, blog content, social media, press releases, and newsletters  designed to drive traffic to your website and influence buyers decisions when purchasing products and services.

Contact ChrissyBiz today to discuss the impact that web marketing copy can have on your business.