The members of my group and I have been
working on the development of a business plan for a business named Rising Sun
and whose main business would be to provide solutions for celebrations such as
weddings. The main components of a business plan include the description of the
market, the development of the marketing strategy, the staffing plan, and the
financial plan (Barney, 2010). The plan often involves an intensive research
with the purpose of finding credible evidence which would provide an indication
on whether or not the business idea is viable. Research is therefore crucial in
the process of developing a business plan. I was assigned the task of working
on the financial plan where I was to find out what it would cost to start and
run the business. This crucial task would have to be involved lengthy
consultations with other members of the group whose inputs would be crucial in
ensuring that the financial figures provided were not only realistic but also
comprehensive. As compared to group responsibilities where the burden is shared
among group members, I was solely responsible for this task and would therefore
have to ensure that the overall project does not fail due to my lacklustre
contribution. The main difficulty that I faced had more to do with getting some
pieces of information from businesses conducting similar businesses since some
of the information was considered confidential. I was forced to do an extensive
secondary research to try and come up with comprehensive calculations.
My part in the preparation of the
business plan was the preparation of the financial plan. This is one of the
most important components of the business plan as it is the one that brings out
the reality of how the business is expected to operate and how it can achieve
its financial goals. The need to recoup investments and realise good returns is
the primary goal of every investor (Casson, 1995). Anyone who decides to invest
in a business does so with the expectation that their investments can grow into
the future. It is on the basis of the prospects for this growth that they
become willing to invest in the business idea (Casson, 1995). The financial
plan should therefore be clear in terms of figures and the other parameters
set.
The financial plan requires that the
entrepreneur has some basic understanding on how to prepare some of the
component statements as the knowledge on how to do so can greatly influence how
the business plan is perceived by financiers and target investors (Coulthard,
1996). The plan must also outline the basic assumptions made in terms of
projections for the future and other operational terms (Galindo and Miguel,
2008). For instance, financial projections are normally made on the assumption
that the prices of raw materials either remain the same or are adjusted by a
given percentage per year. The assumptions adopted must be consistent with
industry trends where materials whose prices are under normal circumstances
expected to rise are projected to rise in accordance with the past trends. The
other assumption that was made is that the rates of taxation of products would
remain the same over the long term. Any changes observed would occasion a
periodic re-estimation of the cash flow forecasts.
Assumptions on the economic status of a
national or global economy are also relevant to the financial plan. Where the
economy is projected to grow significantly, higher sales volumes can be
projected in the future (Galindo and Miguel, 2008). Other relevant trends such
as social trends are also important in that they can help in determining to
what extent the assumptions taken can hold. These were assumptions that I
considered when coming up with the financial plan where it was projected that
no major legislative changes that would come into effect in the next few years.
I also took the assumption that the economy would continue with its moderate
growth rates of between 2-5% annually in the next 5 years. The projection on
sales also factored in the increasing effects of globalisation where the entry
of international players into the industry in question is expected to heighten
the level of competition. The sales revenues forecasted were therefore moderate
with the provision that they could be revised upwards in subsequent annual
reviews.
The research on the various aspects of
the financial plan was mainly conducted through secondary research. Academic
sources such as books were found to be particularly useful in outlining the
components such as the financial statements which include the balance sheet,
the profit and loss statement and the cash flow statement. These are financial
statements whose preparation must follow the required accounting standards and
such standards must therefore be mastered (King, 2000; Zecharakis, 2011). Many
investors are conversant with the standards and I therefore found it critically
important to ensure that the projected statements were not only well done, but
also a reflection of the reality. I was also able to get tips from
entrepreneurs already operating in related industries on how to make the
financial plans credible. The input of my fellow group members was also very
helpful.
The process of preparing a business plan
should also factor in the sources of the funds to be used in starting up and
funding initial operations. One must always take cognisance of the fact that
the business may in many cases take time before it can break even and therefore
be able to run without suffering any liquidity problems (Karlson, Johansson and
Stough, 2006). I conducted a research by surveying the loan offers of various
commercial institutions as well as authorities mainly concerned with funding
new ventures and exposing good business plans to interested investors for
evaluation and subsequent funding. These were crucial elements of the process
as; it is in understanding the preferences of the target investors that I was
able to come up with a financial plan that they would find to be satisfactory. I
was able to identify the main sources of funds as the contributions from
initial shareholders are well as financiers such as mutual funds, banks, and
interested investors.
The process of collecting information
was not without its fair share of challenges. Some of the information that is
considered as ‘insider information’ by many players in the industry was not
available even after extensive secondary search. The financial plan therefore
had to work with intelligent estimations based on observed realities. Such
information related to factors such as the organisation of work and the cost of
production per unit. Information on how sales can be projected and how
different phenomena can impact sales volumes was also not readily available.
The preparation of the financial plan also requires that one understands a
little about other factors such as the availability of raw materials, the cost
of buildings to be used as premises, the legal costs, and other factors.
Consultations with group members, especially when it came to determining which
raw materials were to be used and their prices were therefore central to the
research process. Some inefficiencies within the group threatened to paralyse
the exercise of information gathering and I therefore had to do the necessary research
albeit begrudgingly.
There was also the challenge to ensure
that the information collected was sufficient for the preparation of the
financial plan. This would ensure that I would not need to go back into
research and that the process of preparing the financial plan is smooth. To
this end, I came up with a check list whose purpose was to ensure that all the
information required was collected. All information on the start up expenses,
start up expenses, operational expenses, sales revenues as well as the crucial
performance ratios were itemised to ensure that no important piece of
information was left out.
This was the smoothest of all the
components of my work. Having gathered all the information I would require,
this part of the work proved to be flawless. It was also the most enjoyable
part of the work as I began to realise how comprehensive my research had turned
out to be. I started by stating the assumptions in order to ensure that the
financial plan is validated on the basis of some observed realities. These
assumptions related to the rate of economic growth where I took the position
that the moderate levels of economic growth currently being experienced in the
market would remain steady for the next 3-5 years. It is also expected that the
current corporate taxes and other legislations regarding the conduct of
business will not change significantly. The globalised nature of the UK economy
and the subsequent improvements in emerging markets is expected to lead to an
entry of additional market players who could heighten competition. The
projections into the future are therefore conservative at best.
The next step involved the preparation
of the cash flow statements which comprised of projections of incomes and expenses
for the next 12 months. This statement was important in drawing a picture on
the profitability levels expected at different times. The inputs in this
statement were then used in the preparation of the profit and loss statement
where the net incomes were compared to the next expenses and taxes to come up
with net incomes. The balance sheet which is a reflection of the status of the
organisation was then prepared. This projected balance sheet after 12 months
was aimed at showing the prospective investors what their net worth is likely
to be after 12 months of operation. After these statements were conducted, I
then proceeded to prepare analytical data on some of the crucial ratios that
are useful to investors.
The most important ratios were identified
as the current ratio and the quick ratio to measure the liquidity of the
business. Other analyses important to the investor were determined as the
earnings per share ration and the dividend yield. Some ratios were also
determined to be crucial for assuring the smooth running of the business and
important indicators of the operational efficiency of the business and they
included the asset turnover, stock turnover, creditors’ collection period, and
the debtors’ collection period (McDaniel, 2002). Some of the ratios were mere
estimations of the target ratios in the given period due to the inadequacy of
the data at this point. I exposed the financial plan for scrutiny by other
group members in order to ensure that there are no inconsistencies and that all
the figures were realistic.
Every group member was charged with the
responsibility of working on the presentation for their respective parts and
have the presentations done satisfactorily. This was only logical as it was
expected that the persons who had worked on the various components would be
most informed about them. The process of coming up with power point
presentations was flawless as the information was already in my possession and
all I needed to do was to transfer them to the rightful application. I was also
keen to ensure that the different highlights were presented using visual aids
such as graphs in order to make them easily understandable among the users of
the information.
My knowledge and experience with power
point applications served me well and I was able to come up with good
presentations which I was able to articulate with no difficulties.
The most significant part of the
business plan presentations was the receipt of feedbacks and factoring them in
the subsequent adjustments. My presentations proved to have been well
researched and there were no significant adjustments needed in terms of the
material contents. Criticism was mainly directed to the style of presentation
where observers pointed out that it could be improved in terms of giving it a
professional look.
These adjustments were done and the
final version factored into the overall group report in order to make a
complete business plan.
The business plan development was a
group responsibility. However, each individual was allocated specific
responsibilities. This was seen as a good way of ensuring that each member of
the group plays a significant role in ensuring the success of the group effort.
The task was divided into the main components of the business plan and I was
assigned the responsibility to work on the financial plan. This is perhaps the
most technical part of the business plan and one that must be done with the
highest standards of professionalism and keenness.
At first, I was in awe of the enormous
responsibility. I had felt that it was an unfair distribution in the sense that
this part of the plan would require me to understand all other sections deeply
while my group members would only need to understand their respective sections
and be able to come up with good presentations. However, I took it as a
challenge to ensure that I can come up with a comprehensive financial plan that
could be used to source for funds to get a new business idea running. I took up
the task and got to work immediately.
The first step I took was to gather as
much information as I could. This also served as a learning process where I was
able to master the art of preparing financial systems as well as the
appreciation of how the financial statements can be used to woo investors to
fund a project. I was also able to gather invaluable information regarding the
financing opportunities available in the market as well as how to ensure that
the business plans are acceptable to them. Through this research, I was able to
discover the presence of certain groups whose primary role is to encourage
entrepreneurship and this is information I know will be useful to me in the
future. The research conducted also helped me understand how other businesses
in the industry operate and how they react to competition; how various laws
affect the demand for products; and the effects of the growth in globalisation
on the operations of local firms. In other words, this exercise enabled me to
have a better perspective of the business than if I had taken up any of the
other components of the business plan.
After gathering all the information I
needed, I proceeded to prepare the financial plan: a process I found to be most
enjoyable of all the activities. It was basically easy due to the fact that I
had done a good job gathering the information needed. The financial plan was
thereafter presented to the group for critical analysis. This stage was crucial
in order to ensure that the whole business plan was comprehensively done and
that any inconsistencies between the various components were eliminated before
the final group report was prepared. In my opinion, I was able to draw
invaluable insights about the preparation of business plans that I wouldn’t have
been able to have through any other learning process.
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For more theory and case studies on: http://expertresearchers.blogspot.com/
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