PROPOSED FORMAT FOR BUSINESS PLANS (CLUSTER VALUE-CHAIN DEVELOPMENT

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PURPOSE The purpose of this document is to provide a draft proposal on a common format for business plans that should be prepared for every new development opportunity that is identified in terms of the seven cluster value-chains that are contained in the Limpopo Growth and Development Strategy. (Refer to step nine of the cluster mapping process). It is proposed that a preliminary business plan should be prepared at the scoping level for each project, because full-scale business plans can be expensive. Only business plans that appear viable at the scoping level should be approved for full business plans. Comments are invited on this proposal before a final business plan format is agreed upon.

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PRELIMINARY BUSINESS PLAN FORMAT (SCOPING LEVEL) A brief consideration of the market demand for the product or service in question and a rudimentary map of its value-chain. Estimated financial surplus, calculated on the basis of informed approximations of revenue and expenditure. The ease or complexity with which inputs will be accessed and production will be marketed. A superficial assessment of the degree of fit between the technology required in the implied production process and the

7 An estimation of the likely economic impact in terms of jobs created. 3. 3. of each segment. 2. new turnover generated.8 A tentative ratio of risk versus return should finally be estimated on the basis of all seven issues considered in the pre-feasibility study. The capacity of the market to . 2.1 FULL-SCALE BUSINESS PLAN FORMAT Market Analysis 1. This assessment should also be applied to the degree of fit between staff skill requirements and available skills. Prepare a segmentation of potential project customers and consider the demand patterns and trends.available infrastructure in the province.5 A broad view on the social acceptability of the proposal in terms of local life styles and trends and on the potential environmental implications. 2. SMME promotion. productive capital invested. skills development and operational support that would be required. even for major projects. An authoritative project review committee should assess the preliminary business plan in terms of financial. social and environmental sustainability. as well as the quality requirements. economic. Preliminary business plans should generally be completed within one month and should not exceed three months. This assessment should determine whether the proposal is approved for a full-scale business plan or not. 2. Black Economic Empowerment and relationships with other projects in the cluster value-chain.6 An indication of the capacity of provincial and local government institutions to provide the infrastructure.

using the present value of money method. Consider the effect of national.absorb additional production at a range of prices should be given particular attention. 3. 3. Estimate operational costs and revenue. to highlight high-risk areas. 7. provincial and local investment incentives on profitability. 4. Competitors should be reflected in the side-stream. Determine total capital requirements.3 Technical Analysis . Production levels used for revenue calculations should be meaningful in terms of the market capacity to absorb the product. 5. 6. showing its suppliers up-stream and its customers down-stream. Conduct a sensitivity analysis of the major assumptions underlying the financial analysis. Map the value-chain of the proposed activity. 3. 4. Compile a list of suppliers and consider the availability of and access to production requirements. Assess the competition and their anticipated response to the project. 3. access to and cost of capital. (Refer to the market analysis above). 2.2 Financial Analysis 1. Calculate the return on investment over the anticipated life of the project. 2. Prepare a cash flow statement for the first year and for as many subsequent years as is practically possible. Add a worst-case scenario to the presentation of the results of the financial analysis. to determine operational capital requirements.

Describe the opportunities for SMME promotion and for Black Economic Empowerment. 6. the impact on foreign trade relations should be assessed. Calculate the development impact of the proposed project in terms of job-creation and income distribution. whilst emphasizing the need to promote SMMEs. 4. 5. Potential contradictions in the sub-objectives of the proposal should be given attention. as well as the logistical requirements for improved competitiveness. 3. Assess the need for additional infrastructure. 2. in order to make adjustments and determine trade-offs. 3. Describe the research and development. Assess the availability of equipment and of support services for equipment repair and maintenance. The proposed project should also be analysed in a broader regional context. district. technology and skills. In the event of production being exported. Establish the implications of competitiveness on scale and method of production.1. and technology transfer. 4. Assess the consistency between objectives of the proposed project and provincial. . Relate the scale of production to the market and financial analyses and the method of production to the available infrastructure. as well as municipal development policy priorities. Consider alternative sites for the location of the potential project. 3. organizational capacity-building and skills development.4 Economic Analysis 1. 2. capital formation. sectoral linkages and multipliers.

3. will be severely compromised. 2. Assess the risk of demonstrations against the proposal by stakeholders who may have different interests. 3.3.7 Environmental Analysis . indifference or resentment to the proposal. should be highlighted.5 Social Analysis 1. The unique requirements of women and handicapped persons should be considered and the extent.6 Institutional Analysis 1. ignore them or are totally foreign. 3. 4. to provide the infrastructure. regulatory or other stakeholder policy issues that may constrain the implementation and operation of the proposed project. 2. skills development and support functions required by the proposed project. Assess the managerial and organizational complexity of the proposed project and consider the local capacity to deal with these. Consider any legal. 3. to which these are addressed by the proposal. traditions and preferences of local people. Consider the potential for conflict among alternative community institutions within the proposed project area and the effect that this may have on project success or failure. Assess the capacity of provincial and local government. Proposals that run counter to these. Determine whether the proposed project and its product or services are consistent with the norms. Assess the level of political commitment. 5. as well as private sector institutions. Lack of political commitment could compromise the project.

public health. the proposed project should move to implementation. monitoring and evaluation. Compile a summary of all the assessments and make recommendations regarding implementation. Assess the likelihood of any detrimental effects in terms of pollution. water utilisation. IMPLEMENTATION Once the business plan has been approved. conservation or cultural preservation.1.8 Summary and Recommendation 1. occupational safety. 4. which generally could take three months but should ideally not exceed six months. . 3.