Plan to Succeed

a business planning guide

Small Business
Victoria
The business plan

INTRODUCTION 4

THE BUSINESS PLAN

1. Primary objectives 5

2. Business plan summary 5

3. Business description 6

4. SWOT analysis: Strengths, Weaknesses, Opportunities and Threats 6-7

5. Market analysis 7

6. Marketing strategies 8

7. Sales and production targets linked to working capital 8

8. Business growth and development 9

9. Production facilities 9

10. Business structure 10

11. Financial requirements 10-13

12. Costings of products, hourly rates and overheads 13-14

13. Break-even analysis 14

14. Return on investment 14

15. Management and ownership 15-16

16. Quality certification 16

17. Administration 17

18. Supporting documentation 17

Attachments

1. Canterbury Renovations projected profit or loss – first year 18

2. Canterbury Renovations projected cash flow – first year 19

3. Canterbury Renovations projected profit or loss – second year 20

4. Canterbury Renovations projected cash flow – second year 21

5. Statement of financial position 22

Small Business Victoria 3

 Introduction
A comprehensive guide to the process of A business plan is simply the strategy to achieve the objectives
preparing a business plan.
A business plan is essential when applying for
bank loans or a lease on business premises.
The following information will assist you through document. It plainly sets out all the important facts about
the process of researching and preparing a
business plan.
Always seek sound professional advice (legal,
accounting and commercial) before making
important business decisions.
Business people who do their own planning not only save a lot of
money, they learn a lot about how to build a successful business.
They also have a greater sense of ownership of their business plan
and are more likely to utilise it as an ongoing part of good business
management. However, preparing a business plan for the first time is
not as easy as it seems.
Although there are many information products available and
consultants offering assistance with business planning, this booklet
is designed specifically to assist new and existing small business
operators plan their businesses with minimal external assistance.
This booklet sets out the key features of a business plan and provides
prompts and examples of how a business plan is written.
The sample case study used in this booklet is a new business in
kitchen, bathroom and laundry renovations to be run by a husband
and wife team. The business will require:
• existing knowledge of building technology and the building industry
• determination to build a small business and learn about business
management, and
• adequate capital.
The basic operations will be obtaining contracts by competitive
tendering, the purchase of raw materials and equipment, the
manufacturing of fittings, their installation and finishing.
4 Plan to Succeed
What is a business plan?
of the proprietors of the business. A business plan prepared
for a bank or investors will need to include evidence of
the market potential supporting the projected sales of the
business. Preferably a business plan takes the form of a written
the business, its history (if relevant), the current position, the
objectives and the business activities to be undertaken.
Why do a business plan?
It is becoming increasingly tough to survive in business. It is not good
enough to have a good product or service. Business people, whether
they be panel beaters, manufacturers or doctors must also be good
managers. Successful business managers have clear objectives,
produce good products or services, understand the market, manage
their money properly and are good employers.
Accordingly, the primary reason to formulate a business plan is to
address all the issues that make a successful business. In the case
of a new business, a business plan will assist in determining the
feasibility of the proposal. For an existing business, comparing actual
outcomes against projections will assist in refining the business plan
and improving performance.
But there are other important reasons to formulate a business plan.
For a start, no bank will lend money to a business unless it has
a business plan that demonstrates how the business proposes
to service the interest and repay the loan. The involvement of
stakeholders such as staff, family and partners in the formulation of
a business plan is also a good way of securing their commitment to
the business.
Important note
The sample business plan in this booklet about how to write a
business plan is provided as a guide only. The statistical and financial
information in this booklet are assumptions for the case study and
should not be used for an actual business plan. Intending and existing
business people must undertake their own research and use reliable
data for the preparation of their business plans.
The business plan
Following are the usual section
headings for a business plan
The text of a sample business plan for Canterbury
Renovations is bordered like this.
Not every section has to be addressed in the same degree of detail.
For example, a person buying a well established business might have
to pay much more attention to the valuation of the business than to
the market analysis.
Conversely, a new starter wanting to break into a competitive
business such as road transport, building construction or the legal
profession should pay particular attention to market research and
marketing strategies.
1. Primary objectives
The proprietors have agreed to establish a building business,
initially specialising in domestic kitchen, bathroom and laundry
renovations and progressing in two to three years to residential
construction. The emphasis will be on high quality products and
service, the reinvestment of profits in business growth and the
development of a business identity separate from the proprietors.
Their aim will be to complete every job on time and within budget.
2. Business plan summary
The concept
The proprietors Frank and Julie Walter have a building
background combined with considerable flair in interior design.
Their proposal is to establish a new business providing kitchen,
bathroom and laundry renovations for home owners.
The product / service
The business will supply and install domestic kitchen,
bathroom and laundry equipment and fittings and carry out all
associated building services. A free design and quotation service
will also be provided. The products and services will be of high
quality and include a wide range of built-in equipment such as
ovens, microwaves, cooktops and dishwashers.
Market analysis
Market research carried out by the proprietors reveal increasing
activity in home renovation by home owners who subcontract the
more complex work to builders, especially in the inner suburbs.
Many existing kitchen, bathroom and laundry renovators do
not have a good reputation, so the proprietors believe their
competitive advantage will be the provision of top quality products
and services, access to speciality items and innovative designs.
Marketing strategy
The proprietors believe the best marketing strategy is a
combination of a good network of contacts, a reputation
for quality and reliability and personal referrals. This will be
complemented by brochures, direct contact with home buyers in
selected areas and a small display in a local rented shop.
Financial data
The initial funding will be $85,000. The proprietors will
provide the initial $40,000, and will arrange an overdraft of
$45,000 secured by a mortgage over their home. They expect to
achieve a turnover of $300,000 in the first year yielding a gross
profit of $50,000 after Frank’s salary has been paid. This will be
sufficient to pay overhead expenses such as rent, interest
and advertising.
See Attachment 1.
Small Business Victoria 5
 The business plan
3. Business description
Provide a brief description of the core activities of the business. In the
case of an existing business, state its history, current position and
future business activities. For a new business, outline the proposal,
where the proprietors want the business to be in two to five years and
how they will achieve their objectives.
The business will be called ‘Canterbury Renovations’. shortcomings, exploit opportunities in the marketplace and minimise
The name has already been registered as a business name and
an application has been lodged for a trademark. The core activity
will be the renovation of kitchens, bathrooms and laundries. The
business will provide a complete service ranging from design,
quotation and installation to after sales maintenance and a seven
year guarantee over the workmanship. Although the proprietors
intend to concentrate on their core business, they will also accept
shop fitting and general renovations if opportunities arise.
The proprietors will establish a small showroom in the inner
eastern suburbs. There are a number of premises available at a
modest rental. These premises will also be used for the storage of
materials and equipment. One such shop is available for rent and
outgoings of $14,000 per annum. Some manufacturing work will
take place at the proprietors’ residence. This has been approved
by the council as a home occupation.
The proprietors’ objective is to achieve an operating turnover
of $300,000 by the end of the first year. In the second year, the
proprietors expect the annual turn over to be $450,000, with the
employment of two more staff. This growth will result from the
marketing strategy and reputation for the provision of excellent
products and services. The manufacturing works may have to
be relocated to an industrial site and additional finance will be
required in due course.
6 Plan to Succeed
4. SWOT analysis: Strengths,
Weaknesses, Opportunities
and Threats
A SWOT analysis highlights strengths and weaknesses within the
business and identifies opportunities and threats in the external
business environment. This will enable the proprietors to make the
most of their competitive advantages, take steps to overcome their
their exposure to external threats.
Provide a list of the strengths, weaknesses, opportunities and threats.
Strengths
• Technical competence of the proprietors
• Dedicated staff
• Complete agreement by the proprietors on their objectives
• Financial resources
• A good network of contacts for potential clients, suppliers
and tradespersons
• Ability to respond to the needs of the market
• Business located within the target market
Weaknesses
• Lack of management skills
• Size of premises
• No track record in business
• No plan for management succession
• Inefficient equipment
• Lack of research and development facilities
• Limited security with which to raise finance for future growth
and development
• The business is principally dependent on one person during
the formative stages
Opportunities
• Rapidly growing market because of a preference by home
owners to renovate rather than shift
• Poor reputation of many existing renovation businesses and
building tradespersons
• Large number of older but valuable homes within the target
market are a
• Availability of casual staff and tradespersons
• Availability of display and manufacturing premises within the area
• High disposable income within the target market
• Expansion of the business into other areas and/or franchising
The business plan

5. Market analysis
Threats
It is essential to show that there is a sound customer base for the
• Poor reputation of the industry regarding quality and reliability
business. Provide a description of the market in terms of the following:
• Economic downturns
• Who are the customers?
• Existing and future competitors within the industry • What is their geographical location?
• Increasing cost of materials, equipment and subcontract • How many customers are there in this location?
tradespersons
• What is their purchasing power?
• Difficulties of getting good staff and reliable subcontractors
• How are they accessed?
• Possible government regulation
• What is the stability of the market and expected growth
• Geographically diverse market (or decline)?
• What are the seasonal trends?
• What influences the customers?
• What is the price sensitivity?
• What is the competitive edge?

Market analysis
The proprietors have completed considerable research of
the market over recent years. Statistical information has been
obtained from the Australian Bureau of Statistics and local
council records. In addition, extensive personal networking by the
proprietors has provided the information to build a profile of the
market for the business.
According to the Australian Bureau of Statistics, building
renovation is the most stable sector of the domestic construction
industry. Many home owners who want to improve their living
environment choose to renovate rather than move. Relocation
costs – such as legal and estate agents’ fees, mortgage costs,
lodging fees, and stamp duty are significant deterrents to moving.
Saving these costs makes a sizeable contribution to the cost of
renovating an existing home.
A survey of councils in the inner eastern municipalities of
Stonnington, Boroondara and Whitehorse revealed that in the
1995/96 financial year approximately 2,500 permits were issued
for home renovations. Approximately half were issued to home
owners. About a third of owners/renovators were people who had
recently purchased a home with a preference for locality rather
than condition.
Most owners/renovators in the areas surveyed were in the middle
to high income bracket with at least two sources of income
for each household. There was usually higher than average
disposable income, which was spent improving their quality of life.
There was a definite preference for home renovation because of
immediate and enduring financial benefits.
The proprietors have surveyed the existing competitors and
identified their weaknesses as follows:
• Large overheads which mean higher prices
• Most are not located close to the target market
• Usually subcontract their manufacturing to external contractors
• Few have strong personal contacts within the target market

Small Business Victoria 7

 The business plan

6. Marketing strategies
The competitive edge
A good marketing strategy is vital to the success of a business.
The competitive edge will be superior service, customers dealing
Customers must know about the product/s and service/s of the
with the proprietors (not employed sales staff), free design and
business and be encouraged to buy them.
quotation, quality of the product, after-sales service, seven
Describe the strategies that will be used to achieve sales. years’ guarantee, the location of the business, and the range
The following points should be considered: of materials, finishes and equipment available. The proprietors
will ensure these benefits are emphasised through promotional
literature and word-of-mouth referrals.
First-class customer service
Canterbury Renovations will provide a first-class customer service
in terms of:
• Responding to enquiries
• Hours of service to meet customer needs, within the limited 7. Sales and production targets linked
geographical location
• Providing clear and comprehensive job specifications and
to working capital
fixed prices Most businesses are underpinned by cash. Usually, materials, stock,
• Starting and finishing the jobs on time and to budget labour, and subcontract work will have to be paid for before the
customers pay for the work, equipment and services they receive.
• Minimal disruption to the household during installation
Therefore the more sales that are achieved the more money will be
• Guarantee of quality product required to finance the production. The money required to pay the bills
• Site clean-up on job completion as they fall due is called working capital.
• After-sales service Working capital requirements are derived from the projected cash
Promotional literature flow. The cash flow is based on a monthly schedule of ‘money in’ less
Promotional literature will be produced and distributed as follows: ‘money out’.
• The literature will illustrate styles, ideal dimensions, and provide However, another way of calculating working capital requirements is
classic names illustrated as follows:
• It will include information about the proprietors to create a
‘personal feel’ about the business
Canterbury Renovations will, during the first year, achieve the
• It will be distributed in the area to all home buyers, applicants
following levels of sales and production in average figures:
for permits for renovations and respondents to local advertising
25 renovation jobs for $12,000 each.
The advertising and promotional budget in the first year will
be $12,000. Total sales – $300,000. Each job will last four weeks
(one week production and three weeks installation)
Means of advertising
• Selective and specialised market promotion and local print i.e. 25 x 4 = 100 weeks production and installation time
media and direct marketing to home buyers/renovators ÷ 48 effective working weeks per year = approximately
• ‘Word of mouth’, which has proved to be one of the best forms two jobs concurrent.
of promotion and, as a result of the ‘close knit’ community the
proprietors work in, they believe this will be the most effective Due to the fluctuating nature of the industry it is possible that there
form of advertising could be between zero and four jobs concurrent. If four jobs are
concurrent the financial requirements would be the total contract
Pricing policy prices less deposits received.
The proprietors believe that because of the high disposable
income in the location they intend to target, clients will not four jobs x $12,000 = $48,000 – deposits of 15%
be particularly price sensitive, rating quality of product and ($7,200 ) = $40,800. Therefore the maximum working capital
service more important. Accordingly, the business will base its required will be about $41,000 which is predicted to occur in April
competitive advantage on quality rather than cheap prices. according to the cash flow.
Location and visibility of the business
The business will be located in the geographical centre of the
market, with its display unit and manufacturing facilities no further See Attachment 2.
than 10 kilometres from the farthest boundary of the market.
Only one similar business is located close to the market.
Otherwise all competitors are located in outer suburban areas
which is inconvenient to clients.

8 Plan to Succeed
The business plan
8. Business growth and development
Business growth and development means increasing sales,
optimising the use of the business infrastructure, increasing buying
power, improving efficiencies through internal specialisation and
continually improving the product and service. Businesses that do not
have a strategy for growth and development will soon be overtaken by
competitors. Describe how the business will be developed.
The proprietors will keep abreast of new products, technology
and production methods. They will continue to liaise with local
and overseas suppliers. Marketing techniques will be monitored.
Those that are successful will be expanded and the others will
be abandoned.
The proprietors are especially conscious of the need to continually
monitor the financial position of the business. Sales, profitability
and especially cashflow will be compared against projections
on a monthly basis. The costs of each job will also be compared
with the estimates to ensure profitability is being achieved and the
estimates are accurate.
The business will not be profitable in the first year. But expected
profits in subsequent years will be applied to business
development by the expansion of production facilities, expenditure
on promotional activities and reserving cash to pay for more
materials, labour and subcontract work associated with a higher
level of business activity.
The proprietors will analyse all unsuccessful quotations.
Prospective customers will be asked to provide comment on why
they rejected the quotations, and information gained this way
will be used in monitoring the effectiveness of the pricing and
marketing strategy.
9. Production facilities
Provide an outline of how the products and services will be produced:
• The skills, qualifications and experience of the proprietors
• The equipment required
• Sources of raw materials
• Subcontracting
• Technical requirements
• Personnel
The proprietors will produce the units partly with their own
resources and partly with sub-contractors. Initially, the installation
will be carried out by Frank, with electrical and tiling work
subcontracted to experienced tradespersons. As the workload
increases more installation work will be subcontracted.
Frank has the carpentry and plumbing skills to produce the basic
units, but work such as laminating veneers will be outsourced
to specialist suppliers. The proprietors have a large garage at
their premises and woodworking equipment – such as a router,
a docking saw, planer, benches, jigs – and a large range of hand
tools. They also own a four wheel drive vehicle and a trailer.
The proprietors have satisfied the council that the production
activities will be a home-based occupation and no planning
permit will be required, provided that noisy machinery will only be
used between 9:00am and 5:00pm Mondays to Fridays.
The proprietors have obtained design details and technical
specifications for fittings such as stoves, hot plates, ovens, sinks,
dishwashers, hoods, baths, basins and toilets. They have also
established contact with suppliers of innovative kitchen and
laundry products.
The proprietors envisage that after the first year of business, the
production facilities will be relocated to a small factory close to
the market. The showroom will also be moved to these premises.
The factory will be an extra expense to the business, but can be
afforded with the higher level of business and profitability in the
second year of business.
Small Business Victoria 9
 The business plan

10. Business structure 11. Financial requirements

Business proprietors may choose to operate their businesses under Business establishment costs
one of a number of structures with different options for identifying the
It is vital to assess total funds required to set up a business and cover
business and its products and services. These include:
its operating costs until it becomes profitable. At first glance, it may
• Business structures appear that all that is required is stock, basic fixtures and perhaps the
– Sole trader first month’s rent. However, there are many other costs and expenses
– Partnership in starting a business and the items on the following lists should
– Limited partnership be considered.
– Proprietary company
Note: all items in the following tables should include
• Identifying features
GST as applicable.
– Business names
– Company names
– Trademarks
Pre-business costs
– Designs
– Patents • Accommodation
• Accounting fees
Provide a clear description of the proposed ownership structure and
why it was chosen. • Business planning
• Consultants
• Entertainment
The business will be established as a proprietary company.
• Legal fees
The company will be acquired as a shelf company for a cost of
• Market research $2,600
$1,000 plus $200 to change the company name to ‘F & J Walter
Nominees Pty Ltd’. The name ‘Canterbury Renovations’ has been • Publications
registered as a business name in the names of the proprietors • Samples
but will be transferred to the company after incorporation. The
• Telephone, fax, letters, photocopying
proprietors have also applied for a trademark to secure the name
• Translations
of their product and service.
• Travel
• Valuation fees
A company structure was chosen over a partnership or sole trader
Add up pre-business costs here: $2,600
because a company would provide the best possible protection
of the proprietors’ personal assets in the event of a failure of the
business. An allowance has been made for the higher compliance
costs in the projected operational costs. It has also been recognised
that the proprietors/operators will be deemed employees, which will
involve statutory responsibilities, such as WorkCover, superannuation
payments and long service leave.

10 Plan to Succeed
The business plan

Initial costs Capital costs

• Lease $2,500 • Business structure $1,200
– Legal costs – Registration
– Stamp duty – Professional fees
– Rent in advance • Office equipment $2,800
– Bond – Desks
• Electricity, gas and phone $500 – Chairs
– Connections – Safe
– Security deposits – Computers
– Fax, telephone system
• Opening stock $4,000
• Insurance premiums $800 • Vehicles $4,000
– Property damage • Plant and machinery $2,000
– Public liability – Purchase price/deposit
– Vehicle – Delivery
– Theft – Repairs
– Personal disability – Installation/commissioning
– Professional indemnity • Building costs $600
• Printing and artwork – Shop front
• Wages – Partitions
– Electrical wiring and fittings
• Credit card establishment fee
– Floor coverings
• Initial promotion – Toilets, plumbing and drainage
• Promotional cost – Painting
• Loan establishment cost – Signs
• Stationery and office supplies • Display materials $1,500
$1,600
• Computer software • Purchase price of business Franchise fee
– Installation • Training shop fittings
– Training – Counters
• Statutory charges – Racks, shelving
– Licences – Storage
– Permits – Decorations
$600
– Registrations • Security system
• Subscriptions for publications • Trademark/design/patents
• Association membership fees – Registrations
– Patent attorney fees
Add up initial costs here: $9,400
– Reference materials
• Land
Add up capital costs here: $12,700

Small Business Victoria 11

 The business plan

Note: all items in the following tables should include Projected profit/loss
GST as applicable.
Calculate the expected profit/loss for the next twelve month period on
Possible direct/renovation costs a quarterly basis for an existing business or on a monthly basis for a
• Subcontractors $103,300 new business as follows:

• Materials $84,300 Revenue from all sources within the business (renovations, sale of
trading stock, interest earned, etc.)
• Wages $50,400
Less renovating costs (subcontractors, materials, wages directly
• WorkCover
related to renovations, etc.)
• Group tax/payroll tax
Equals gross profit/loss
• Maintenance and repairs
• Waste disposal Less overhead expenses (exploratory costs, initial costs, rent, finance
$12,000
charges, marketing costs, vehicle costs, wages for management and
• Commissions
administration, etc.)
• Royalties
Equals net profit/loss
• Freight
Notes:
Add up renovation/direct
costs for the first year here: $250,000 1. The business structure will be a proprietary company so the profit/
loss projections will include wages for working owners/proprietors.
2. Use actual receipts and expenditure of money to calculate profit/
loss. This is simpler than using earnings and commitments, but
Possible overhead expenses for the first year
some expenses such as annual insurance premiums should be
• Rent $14,400 amortised (or spread equally) over the whole year.

• Outgoings $1,600 See Attachment 1.

• Interests $2,250

• Motor vehicle expenses $9,600 Projected cashflow

• Advertising and promotion $12,000 Irrespective of the profitability of a business it is necessary to ensure
• Bank charges that the business does not run out of cash. This can happen because,
for example: when too much stock or materials are purchased; clients
• Hire purchase payments
do not pay when they should; the owners/proprietors draw too much;
• Lease payments funds have not been set aside to pay tax or too much has been
• Insurance premiums borrowed to set up the business; and there is insufficient profit on
• Accounting fees hand to make the capital repayments.

• PAYG TAX The projected cashflow highlights surpluses and shortfalls of cash
$10,800
• Legal fees and is a vital part of good financial management of a business.
It is calculated as follows:
• Staff amenities
• Electricity and gas Cash receipts from all business sources (revenue, loans, sale of
equipment, etc.)
• Postage
• Entertainment Less cash payments (renovating costs and overhead expenses, set
up costs, capital repayments, taxation, etc.)
• Travel and accommodation
• Subscriptions Equals surplus/shortfall of cash

Add up overhead expenses for See Attachment 2.

the first year here: $50,650

Add pre-business and initial costs $12,000

Total overheads for the first year $62,650

12 Plan to Succeed
The business plan

Initial funding of the business 12. Costing of products, hourly rates

The projected cashflow will show how much money is required to
support the business during the establishment phase. What is the
and overheads
source of this money? Show how the prices of the products and services will be established

The owners have $20,000 of their own to invest in the business
and have been offered an interest free loan of $20,000 from
Frank’s parents with no specific commitment for repayment. But
the closing balances in the projected cash flow shows that some
$41,000 of additional funds will be required over the first year of
the business. The owners have had preliminary discussions with
their bank manager and subject to the provision of a properly
documented business plan and the provision of a mortgage over
their home, they will be provided with an overdraft of $45,000.
The business will be involved in the following:
• Purchase and supply of equipment
• Purchase and conversion of raw or partially finished materials
• Provision of manufacturing and on-site labour
• Provision of subcontract work
The following assumptions are made in preparing quotations:
Direct costs $368,500

An overdraft was agreed as the most suitable arrangement for Overhead expenses $73,150
the first year as the financial requirements will vary substantially Business profit $8,350
from month to month and there will be no profits with which to Total $81,500 +$ 81,500
repay capital.
Annual business turnover $450,000
After the first year trading levels will be more predictable and the in the second year
finance arrangements will be reviewed.
Therefore to cover profit overheads, the average mark-up on all
direct costs, equipment, materials, labour and subcontractors’
costs will be 25%.

Accordingly, quotations will be prepared on the following basis

(see below) for a typical job of e.g. $10,000:

Note: all items should include GST as applicable.

Item Direct cost $ Mark-up % Mark-up $

Equipment 2,500 15 375
Material 1,500 35 525
Labour 2,300 30 690
Subcontractors 1,700 25 425
Total $8,000 (ave) 25% (approx.) $2,000

Small Business Victoria 13

 The business plan
Note: all items should include GST as applicable.
Labour rates will be calculated as follows:
Costs
Hourly rate (according to award or workplace agreement)
Add on costs, e.g. WorkCover 5%
Medical costs, e.g.
Superannuation
Payroll tax
Sick pay allowance, e.g.
Annual leave allowance ($18x52÷48) -$18
Tools allowance
Total
Allowance for non-productive time, e.g. industrial action, maintenance,
travelling, tool maintenance, training injuries, etc., e.g. 10%
Total
Therefore, the hourly rate for estimating work will be
$28.00 plus 25 per cent mark up = $36.50 per hour.
13. Break-even analysis
A break-even analysis is a calculation to show the level of sales
or business required to pay for all the overheads of the business
and at least come out even. The break-even point for Canterbury
Renovations is calculated as follows:
The average mark-up on direct/renovation costs is 25%.
e.g. a $10,000 job will have a direct cost of $8,000. Therefore the
gross profit will be $2,000, i.e. 20% of the value of the job.
The projected overheads for the business in the first year will be
$62,650. To break even the business would have to achieve sales
of which 80% pays for the direct/renovation costs and 20% pays
for the overheads of $62,650.
If sales x 20% = $62,650, then the sales to reach break-even
would be $62,650÷20% or multiplied by 5, i.e. $313,250.
Therefore, the break-even point of sales in the first year will be
$313,250. This will not be achieved in the first year. However, in
the second year the profit margin of 18% of the projected sales
of $450, 000 (i.e. $81,500 gross profit) will cover the overheads
of about $73,150 and produce a net profit of $8,350.
14 Plan to Succeed
$
18.00
0.90
1,700
$8,000
(N/A)
2.00
1.50
1.00
25.48
+ 2.55
28.03
14. Return on investment
The proprietors’ money tied up in a business is an investment.
If it was not tied up in the business it would, presumably, be earning
interest in some other form of investment. Will the business provide
a return on the investment at least equal to fixed deposits in banks or
blue chip shares?
The projected net loss in the first year means the proprietors will
not receive any return on the money they invested in Canterbury
Renovations. However, the expected profit in the second year
will be $8,350 (after proprietors’ salaries which are part of costs
and expenses).
Therefore the return of $8,350 on the proprietors’ original
investment of $40,000 is about 21%. Whilst better than the
current rate of return on more secure investments the proprietors
are conscious of the risks and insecurity of small business,
particularly in the building industry and aim to increase the return
on investment to 25% in future years. This is particularly important
as the proprietors plan to retain profits to partly finance future
growth of the business and so increase their investment in
the business.
The business plan
15. Management and ownership
Describe the background of the key persons in the business and
what other staff or contractors will be required. Also briefly state the
roles of the key persons, the methods of remuneration, methods of
recruitment (where applicable) and training programs.
The proprietors will be Frank and Julie Walter. Frank has a trade
certificate in plumbing and is a registered builder. He has been
employed as a project manager by a leading home builder for
ten years and is thoroughly familiar with building technology. In
the last two years, Frank also worked part time for the same firm
as a sales consultant developing good customer relations skills.
Julie studied home economics at RMIT and is now a teacher at a
private school in the inner eastern suburbs. Both Frank and Julie
are enthusiastic home renovators, with particular experience in
classical and period style homes. Julie will maintain her job for the
next six months but will work part time for the business mainly in
administration and marketing. Julie has an extensive network of
acquaintances through her employment and membership of a
number of associations. Frank and Julie have one infant child, but
regular childcare is provided by their extended families.
It is not anticipated that the business will employ any staff other
than the proprietors within the first year. During that year, most
of the work will be subcontracted to reliable tradespeople whom
Frank knows through his employment in the industry.
Frank will however, personally undertake the plumbing and closely
supervise the other work. It is expected that after the first year, the
workflow will have increased and the employment of a carpenter/
joiner and a sales assistant/administrator for the showroom will
be required. Employees will receive remuneration in accordance
with the relevant award or the minimum employment conditions
prescribed by the Workplace Relations Act 1996. In addition, they
will be entitled to participate in an incentive scheme based on
personal performance and business profitability.
Management succession
Describe the arrangement that will be made for the business to
continue in the event of disability of the proprietors.
The proprietors agree that within the first six months, it would
be impractical for Julie to continue the business in the event
of Frank’s disability. Frank’s insurance would cover the non-
recoverable investments in the business (stock, advertising,
tools, etc.), repayment of the loan and subcontracting of current
contracts (approximately $50,000).
Julie also has a strong personal commitment to ensure that the
business will become successful and has decided that when she
resigns from her present position after the first year she would
continue with the business in the event of Frank’s disability.
His insurance would cover the re-financing of the business to
subcontract the manufacturing, and hire suitable tradespeople for
the installation. Having been closely involved with the design and
technical aspects of renovating their own homes over a period of
eight years, Julie feels confident that she can take over a
management role.
Key person insurance
Ascertain the financial impact on the business, if one of the key people
could not continue to provide their services because of disability.
Both Frank and Julie will be insured to cover the loss of their
contribution to the business in the event of disability. In the first
year, the business and the family will be substantially dependent
on Frank and accordingly, his continuing good health will be
insured for $250,000. Julie’s role, albeit a supportive one, is
equally important and her continuing contribution will be insured
for the same amount as Frank’s .
Small Business Victoria 15
 The business plan

Personnel management
The proprietors and staff are the most important resource of a The proprietors plan to develop their basic business skills initially
small business and good arrangements between the business and by both attending the eight-week course ‘Planning and Starting a
its personnel is necessary to ensure the success of a business, Small Business’ at the Box Hill College of TAFE. The proprietors
especially in the long term. The following matters need to will join the Master Builders Association and attend relevant
be considered: industry courses. The proprietors will also attend trade shows and
subscribe to business and trade magazines.

• Arrangements between the proprietors As the business and staff develop deficiencies in certain areas,
The proprietors have reached agreement on their principal these will be identified and addressed through a formal
objectives and their respective roles which are set out training strategy.
elsewhere in this Business Plan. They agree to be bound by
this agreement for the first year of the business. Any variation
to this must be by mutual consent and be in writing.
• Involvement of family members. 16. Quality certification
The proprietors’ extended family have agreed to assist by
Will quality assurance certification be undertaken? If so, for what
providing childcare as and when required. If the business
purpose, how will it be undertaken and at what cost in time
is retained long enough, the proprietors’ children will be
and money?
encouraged to take an active role in the business.
• Assessment of staff and subcontractors’ performance.
The performance of the staff, including the proprietors and Canterbury Renovations, as a new business, will be developed
subcontractors, in relation to key results such as quality of in accordance with a comprehensive business plan. As there is
workmanship and customer service, effective use of time and no anticipated requirement by clients in the immediate future,
accuracy will be reviewed every three months in the first year of quality assurance certification will not be undertaken at this
the business. stage. However, this aspect will be kept under review as the
• Contribution of staff to the development and business develops.
implementation of business plans.
The staff will be consulted regularly in relation to the business
planning process, particularly in the areas of production,
customer service and marketing. This will be both ongoing and
in formal meetings every three months in the first year of the
business.
• Training programme.
Skills maintenance and development are essential in building a
bigger and better business. The priority areas for staff training
will be:
- Building and production techniques
- New products: fittings, materials, equipment, etc.
- New machinery: outputs, operation, efficiency, etc.
- Marketing skills
- Market analysis
- Selling
- Customer service
- Financial skills
- Analysing financial statements
- Estimating and pricing
- Preparing cashflow projections
- Comparing actual expenditure
- Bookkeeping

16 Plan to Succeed
The business plan

17. Administration 18. Supporting Documentation

Management information systems You should provide copies of applicable documents which support
the business plan:
• References, qualifications
The business will maintain proper and sufficient business records
• Licences and permits
to show the financial position of the business on a monthly basis.
Financial records will show overall profitability and cash flow and • Business or company incorporation certificate
compared with projected profit/loss and cash flow statements of • Partnership agreement
this Business Plan. Records will also be kept for each job to show • Research data, promotional literature
its progress and cost in labour, materials, and subcontractors and
• Product drawings, designs or photos, locality map
compared with the estimate for that job.
• Projected profit/loss - first year
(see example - Attachment 1)
The following specific records will be kept: • Projected cashflow - first year
• Cash book (see example - Attachment 2)
• Receipt book • Projected profit/loss - second year
• Invoices, received and sent (see example - Attachment 3)

• Bank deposits and statements • Projected cashflow - second year

(see example - Attachment 4)
• Petty cash expenditure
• Statement of financial position
• Wage, WorkCover, superannuation, long service leave records,
(see example - Attachment 5)
and employee details
• Capital assets register
• Materials purchased and allocated to each job or temporarily as
floating stock
• Contact details of all enquirers, existing clients, suppliers and
subcontractors
• Individual job records showing progress
• Job estimates

Small Business Victoria 17

18
Canterbury Renovations
Projected profit or loss – first year (excluding GST)

Plan to Succeed
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

Revenue
Renovating revenue 0 15,000 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 32,000 38,000 300,000
Other revenue
Total revenue 0 15,000 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 32,000 38,000 300,000
Attachment 1

Less renovating costs

Subcontractors 5,250 7,000 8,750 10,500 2,800 4,200 10,500 14,000 17,500 11,200 11,600 103,300
Materials 4,200 5,600 7,000 8,400 2,240 3,360 8,400 11,200 14,000 8,960 10940 84,300
Renovation wages 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 50,400
Misc renovating costs 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Total renovating costs 5,200 14,650 17,800 20,950 24,100 10,240 12,760 24,100 30,400 36,700 25,360 27,740 250,000
Gross profit (5,200) 350 2,200 4,050 5,900 (2,240) (760) 5,900 9,600 13,300 6,640 10,260 50,000
Less overhead
expenses
Rent 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 14,400
Outgoings 400 400 800 1,600
Bank Interest 0 70 150 200 230 170 130 240 320 340 240 160 2,250
Motor vehicle expenses 800 800 800 800 800 800 800 800 800 800 800 800 9,600
Advertising & promotion 3,000 2,000 1,000 500 500 500 500 2,000 500 500 500 500 12,000
Other overhead expenses 900 900 900 900 900 900 900 900 900 900 900 900 10,800
Exploratory costs 2,600 2,600
(advert./prom.exclud) 9,400 9,400
Initial costs
Total overhead expenses 17,900 4,970 4,450 3,600 3,630 3,570 3,530 5,540 3,720 4,540 3,640 3,560 62,650
Net profit (23,100) (4,620) (2,250) 450 2,270 (5,810) (4,290) 360 5,880 8,760 3,000 6700 (12,650)
 Canterbury Renovations
Projected cash flow – first year (make appropriate allowance for GST)

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

Cash receipts
Renovating revenue 15,000 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 30,000 260,000
Other receipts 0
Total cash received 0 0 15,000 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 30,000 260,000
Cash payments
Subcontractors 5,250 7,000 8,750 10,500 2,800 4,200 10,500 14,000 17,500 10,500 12,300 103,300
Materials 4,200 5,600 7,000 8,400 2,240 3,360 8,400 11,200 14,000 8,400 11,500 84,300
The business plan

Renovation wages 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 50,400
Misc renovating costs 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Rent 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 14,400
Outgoings 400 400 800 1,600
Bank interest 0 70 150 200 230 170 130 240 320 340 240 160 2,250
Motor vehicle expenses 400 300 500 500 400 300 200 300 400 500 200 700 4,700
Advertising & promotion 3,000 2,000 1,000 500 500 500 500 2,000 500 500 500 500 12,00
Other overhead expenses 900 900 900 900 900 900 900 900 900 900 900 900 10,800
Exploratory costs 2,600 2,600
(advert/prom. excluded) 9,400 9,400
Initial costs
Capital costs 12,700 12,700
Total payments 35,400 19,120 21,950 24,250 27,330 13,310 15,690 29,140 33,720 40,940 27,140 32,460 320,450
Bank balance
Opening balance 40,000 4,600 (14,520) (21,470) (25,720) (28,050) (11,360) (19,050) (36,190) (39,910) (40,850) (17,990) 40,000
Plus receipts 0 0 15,000 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 30,000 260,000
Less payments 35,400 19,120 21,950 24,250 27,330 13,310 15,690 29,140 33,720 40,940 27,140 32,460 320,450
Closing balance 4,600 (14,520) (21,470) (25,720) (11.360) (19,050) (36,190) (39,910) (17,990) (20,450)

Small Business Victoria

19
20
Canterbury Renovations
Projected profit or loss second year (excluding GST)

Plan to Succeed
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

Revenue
Renovating revenue 20,000 30,000 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 30,000 450,000
Other revenue
Total revenue 20,000 30,000 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 30,000 450,000
Attachment 3

Less renovating costs

Subcontractors 7,000 10,500 14,000 17,500 22,750 21,000 5,250 8,750 14,000 14,000 12,250 10,500 157,500
Materials 5,600 8,400 11,200 14,000 18,200 16,800 4,200 7,000 11,200 11,200 9,800 8,400 126,000
Renovation wages 5,500 5,500 5,500 5,500 5,500 6,500 5,500 5,500 5,500 5,500 5,500 5,500 67,000
Misc renovating costs 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000
Total renovating costs 19,600 25,900 32,200 38,500 47,950 45,800 16,450 22,750 32,200 32,200 25,050 25,900 368,500
Gross profit 400 4,100 7,800 11,500 17,500 14,200 (1,450) 2,250 7,800 7,800 5,950 4,100 81,500
Less overhead expenses
Rent 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 2,400 2,400 2,400 18,000
Outgoings 400 400 800 1,600
Bank Interest 110 100 160 210 240 200 150 0 30 70 50 30 1,350
Motor vehicle expenses 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Advertising & promotion 800 800 800 800 1,690 800 800 2,000 800 800 800 800 11,690
Other overhead expenses 1,900 1,900 1,900 1,900 1,900 1,900 2,610 2,900 2,900 2,900 2,900 2,900 28,510
Total overhead 5,010 5,000 5,460 5,110 6,030 5,100 5,760 7,500 5,930 7,970 7,150 7,130 73,150
expenses
Net profit (4,610) (900) 2,340 6,390 11,020 9,100 (7,210) (5,250) 1,870 (170) (1,200) (3,030) 8,350
 Canterbury Renovations
Projected cash flow – second year (make appropriate allowance for GST)

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

Cash receipts
Renovating revenue 40,000 20,000 30,000 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 460,000
Total cash received 40,000 20,000 30,000 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 460,000
Cash payments
Subcontractors 7,000 10,500 14,000 17,500 22,750 21,000 5,250 8,750 14,000 14,000 12,250 10,500 157,500
Materials 5,600 8,400 11,200 14,000 18,200 16,800 4,200 7,000 11,200 11,200 9,800 8,400 126,000
Renovation wages 5,500 5,500 5,500 5,500 5,500 6,500 5,500 5,500 5,500 5,500 5,500 5,500 67,000
The business plan

Misc. renovating costs 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000
Rent 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 2,400 2,400 2,400 18,000
Outgoings 0 0 400 0 0 0 0 400 0 800 0 0 1,600
Bank Interest 110 100 160 210 240 200 150 0 30 70 50 30 1,350
Motor vehicle expenses 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Advertising & promotion 800 800 800 800 1,690 800 800 2,000 800 800 800 800 11,690
Other overhead expenses 1,900 1,900 1,900 1,900 1,900 1,900 2,610 2,900 2,900 2,900 2,900 2,900 28,510
Total payments 24,610 30,900 37,660 43,610 53,980 50,900 22,210 30,250 38,130 40,170 36,200 33,030 441,650
Bank balance
Opening balance (20,450) (5,060) (15,960) (23,620) (27,230) (31,210) (17,110) 20,680 5,430 (7,700) (7,870) (4,070) (20,450)
Plus receipts 40,000 20,000 30,000 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 460,000
Less payments 24,610 30,900 37,660 43,610 53,980 50,900 22,210 30,250 38,130 40,170 36,200 33,030 441,650
Closing balance (5,060) (15,960) (27,230) (31,210) (17,110) 20,680 5,430 (7,700) (7,870) (4,070) (2,100) (2,100)

Small Business Victoria

21
 Attachment 5

30/06/96 30/06/97 30/06/98

Assets $ $ $
Cash 40,000
Debtors 40,000 30,000
Capital costs 7,800 7,800
Total assets 40,000 47,800 37,800
Less liabilities
Loan 20,000 20,000 20,000
Bank O/D 20,450 2,100
Total liabilities 20,000 40,450 22,100
Net assets 20,000 7,350 15,700
Proprietors’ equity
Shares 20,000 20,000 20,000
Retained earnings (12,650) (4,300)
Total proprietors’ equity 20,000 7,350 15,700

Statement of financial position Who can help?

The statement of financial position or balance sheet brings together For further assistance and information contact
the results from the profit or loss statement and the cashflow • Victorian Business Line 13 22 15
statement to identify the proprietors’ net worth and how that net worth • business.vic.gov.au
is made up.
• Your local Victorian Business Centre
The first column shows that when the business started Frank and Julie
paid cash for $20,000 of shares in the business, and then borrowed
$20,000 from Frank’s parents which gave the business an initial
$40,000 cash in the bank at the end of June 1996. For simplicity, we
have assumed these activities were undertaken before establishment
and commercial costs were incurred.

Column two shows that in the first year of operation all this initial cash
is used plus an overdraft is required to run the business. The loss of
$12,650 means that proprietors’ equity of $20,000 has been reduced
to $7,350.

Developing a business plan in this manner highlights the initial risks

associated with starting a new business and the importance of
proprietors having sufficient equity in the business. If the business
were to close at the end of the first year Frank and Julie would only
have $7,350 left from their $20,000 and they would still owe Frank’s
parents their $20,000.

Column three shows the $8,350 profit in the second year improves
Frank and Julie’s position with their equity building back up to $15,700,
while the bank overdraft has been reduced from $20,450 to $2,100.
In the third year of operations the proprietors’ equity should be more
than their original $20,000, and there should be cash in the bank.

22 Plan to Succeed
Victorian Business Centre Network

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