SAMPLE. Not for training purposes. Student Workbook. BSBSMB404 Undertake small business planning. 1 st Edition 2016

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1 Student Workbook BSBSMB404 Undertake small business planning 1 st Edition 2016 Part of a suite of support materials for the BSB Business Services Training Package

2 Copyright and Trade Mark Statement 2016 Innovation and Business Industry Skills Council Ltd All rights reserved. Apart from any use permitted under the Copyright Act 1968, no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise, without written permission from the publisher, Innovation and Business Industry Skills Council Ltd ( IBSA ). Use of this work for purposes other than those indicated above, requires the prior written permission of IBSA. Requests should be addressed to Products and Services Manager, IBSA, Level 11, 176 Wellington Pde, East Melbourne VIC, 3002 or sales@ibsa.org.au. Innovation and Business Skills Australia, IBSA and the IBSA logo are trade marks of IBSA. Disclaimer Care has been taken in the preparation of the material in this document, but, to the extent permitted by law, IBSA and the original developer do not warrant that any licensing or registration requirements specified in this document are either complete or up-to-date for your State or Territory or that the information contained in this document is error-free or fit for any particular purpose. To the extent permitted by law, IBSA and the original developer do not accept any liability for any damage or loss (including loss of profits, loss of revenue, indirect and consequential loss) incurred by any person as a result of relying on the information contained in this document. The information is provided on the basis that all persons accessing the information contained in this document undertake responsibility for assessing the relevance and accuracy of its content. If this information appears online, no responsibility is taken for any information or services which may appear on any linked websites, or other linked information sources, that are not controlled by IBSA. Use of versions of this document made available online or in other electronic formats is subject to the applicable terms of use. To the extent permitted by law, all implied terms are excluded from the arrangement under which this document is purchased from IBSA, and, if any term or condition that cannot lawfully be excluded is implied by law into, or deemed to apply to, that arrangement, then the liability of IBSA, and the purchaser s sole remedy, for a breach of the term or condition is limited, at IBSA s option, to any one of the following, as applicable: (a) (b) if the breach relates to goods: (i) repairing; (ii) replacing; or (iii) paying the cost of repairing or replacing, the goods; or if the breach relates to services: (i) re-supplying; or (ii) paying the cost of re-supplying, the services. Published by: Innovation and Business Industry First published: 2016 Skills Council Ltd 1 Level 11 st edition version: Wellington Pde Release date: 2016 East Melbourne VIC 3002 Phone: Fax: reception@ibsa.org.au ISBN: Stock code: BSBSMB4041W

3 Table of Contents Introduction... 1 Features of the training program... 1 Structure of the training program... 1 About the unit... 1 Assessment tasks... 2 Recommended reading... 2 Section 1 Developing the Business Plan... 3 What skills will you need?... 4 A business plan... 4 The real causes of business failure... 4 Components of a viable business opportunity... 6 Feasibility... 8 A formal business plan Business and product definition Business name and number SWOT analysis Section summary Further reading Section checklist Section 2 Operations What skills will you need? Time span for each objective or stage in your plan SMART goals and/or objectives Satisfying interests and objectives of various stakeholders Location Employing staff Soft skills Duty of care Hazard management Establishing your specialist services network Section summary Further reading Section checklist Section 3 Marketing and promotion What skills will you need? Market research and the marketing plan BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd

4 Market research methods and where to find information Profile the market Identify and define the target market Research your target market Marketing strategy Promote the product or service Identify trends Section summary Further reading Section checklist Section 4 Finance What skills will you need? Financial planning Strategies for obtaining finance Liquidity Cash flow spreadsheet The break-even point Monitoring business progress Section summary Further reading Section checklist Section 5 Risk and contingencies What skills will you need? Principles of risk management Risk reduction strategies to consider Contingency planning Section summary Further reading Section checklist Glossary Appendices Appendix 1: Cash flow spreadsheet Appendix 2: Financial performance indicators Appendix 3: Answers to select learning activities st edition version: 1 BSBSMB404 Undertake small business planning Innovation and Business Industry Skills Council Ltd

5 Student Workbook Introduction Introduction Features of the training program The key features of this program are: Student Workbook Self-paced learning activities to help you understand key concepts and terms. The Student Workbook is broken into several sections. Facilitator-led sessions Challenging and interesting learning activities that can be completed in the classroom or by distance learning that will help you consolidate and apply what you have learned in the Student Workbook. Assessment tasks Summative assessments where you can apply your new skills and knowledge to solve authentic workplace tasks and problems. Structure of the training program This training program introduces you to writing a business plan suitable for a small business or department of a larger business. Specifically, you will develop the skills and knowledge in the following topic areas: 1. Developing the business plan 2. Operations 3. Marketing and promotions 4. Finance 5. Risk and contingencies. Your facilitator may choose to combine or split sessions. For example, in some cases, this Training Program may be delivered in two or three sessions, or in others, as many as eight sessions. About the unit This unit is designed for persons who either: are currently operating a small business many small businesses have put together a rough plan for their businesses, but often this has been prepared as a part of an application for finance or for assistance from a government subsidy, and this brief plan no longer provides a framework for future decision-making OR have an idea to establish or purchase a business and need to develop a plan to assess the viability of the business idea. BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 1 of 124

6 Introduction Student Workbook As part of this training program, you will learn effective strategies for evaluating the requirements of a small business and for developing a business plan that is suitable for presentation to a financial institution or government department. Assessment tasks There are three assessment tasks that you will complete throughout the unit: 1. Duty of care: requires you to research resources, legal and compliance requirements in relation to this area. 2. Contingency planning: requires you to rate the impact of a possible scenario occurring in the operation of your business and assess the severity of its impact. You will also form a plan that will either minimise the impact or remove the possibility of the event occurring. 3. Business plan: requires you to develop a business plan in accordance with the template provided. The learning activities in this Student Workbook provide a step-by-step approach to researching and preparing the many aspects of a successful business plan. Work through all of the learning activities in this Student Workbook. These activities will provide evidence of how you developed your business plan. The case study that you select for your learning activities should be the same case study that you use for your assessment. Recommended reading Some recommended reading for this unit includes: Print resources Covey, S.R., 2013, The seven habits of highly effective people, Free Press, Illinois. Covey, S.R., 1992, Principle-centred leadership, Free Press, Illinois. Websites Bizfilings, Understanding the benefits of a written business plan, < BPlans.com, Free sample business plans, < sample_business_plans.php>. Business.gov.au, < Marketing Teacher, Marketing plans, < marketing-plans>. Tutor2u, Business planning Introduction, < reference/business-planning-introduction>. 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 2 of 124 Innovation and Business Industry Skills Council Ltd

7 Student Workbook Section 1 Developing the Business Plan Section 1 Developing the Business Plan This section establishes why a business plan is essential when considering any business idea; whether the business idea has merit as a viable business opportunity; the basics of a business plan; and types of plans for different purposes. Case study: Sally starts a business Sally is a good dressmaker and clothing repairer. To help put her children through school, Sally worked from home in her garage, dressmaking for neighbours and completing some overflow work for a local designer. Just over 12 months ago, with her children almost grown up, Sally decided to rejoin the workforce and began looking for full-time employment. After many unsuccessful applications and interviews, she found that no one wanted to employ someone who had been out of the workforce for over 15 years, regardless of her skills. Nearing despair one afternoon, she visited the local shopping strip on an errand and saw that a shop was advertised for lease. Feeling positive that now was the time to start the business she had always dreamed of, she immediately went to the centre management and secured the shop. Sally justified her actions with the thought, Why wait? These opportunities don t come up very often worry about the details later. Sally was sure she had the details covered. She and her husband had enough savings to pay the bond and even the first month s rent. Over the years she had acquired enough sewing machines and other essential equipment to open the shop and start trading. Within the first month, it became obvious that the majority of passing traffic were stayat-home-mothers looking after their children, and they did not have the money to pay someone else to do their clothing repairs and dressmaking. Sally s business would not be viable with only this income. Becoming desperate, she approached designers and fashion houses for work. However, before she could apply for any contract she had to submit proof of minimum volumes and infrastructure support way beyond her means before they would even talk about passing any work her way. Sally often reflected: if only she had stopped and researched the local market, drawn up a business plan and then made her decision based on the facts, she would not be at risk of losing the shop, all their savings, and extending the mortgage to meet the lease commitments. Sally feels like a complete failure. On opening her business, she had placed a bottle of champagne on the shelf above her office desk, ready to celebrate 12 months in business. She told a friend over coffee recently that whenever she looks at this bottle, her fears deepen. Sally regards her venture into small business as no more than just a bad joke! BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 3 of 124

8 Section 1 Developing the Business Plan Student Workbook Reflect on the following questions. How much did Sally s frustration with finding employment have to do with her decision to launch a small business? What are some of the challenges when moving from employment to owning and running a small business? With the value of hindsight, how valuable would a decision-making process have been to Sally before she spent substantial time and money on starting her small business? This workbook will take you step-by-step through such a decision-making process. What skills will you need? To effectively operate a small business or a small department within a larger organisation, you must be able to: identify the purpose of the business identify what a business plan should include assess the resources a small business will require assess available resources. A business plan A good business plan is like a map, guiding you to find the best path to achieving your business goals. Setting business goals helps you to use your time and resources more effectively. By planning ahead you are more likely to be able to take advantage of business opportunities and anticipate future problems. A business plan is also essential for raising finance. A business can operate without a formal written plan; however, the processes of researching and preparing the business plan can highlight shortcomings and test the accuracy and validity of beliefs, conclusions and ideas. The real causes of business failure Business problems are usually the result of a number of underlying smaller problems. For example: no business structure in place no achievable dividend (profit) objective no sales and marketing systems or procedures for achieving the dividend objective 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 4 of 124 Innovation and Business Industry Skills Council Ltd

9 Student Workbook Section 1 Developing the Business Plan running the business tactically, not strategically working in the business, not on the business no staff training program in place. 1 Developing a business plan covering all of the aspects covered in this workbook should minimise the risk of these problems occurring. A lack of planning in business may result in: not identifying the most profitable segment of the market not supplying the products or services that the customers want not having the right staff with appropriate skills and product and market knowledge underestimating the cost of a change in direction of the business lack of appropriate resources to successfully operate being left with unsaleable stock not being able to maintain existing clients turning away an existing set of customers without being able to replace them. Businesses that fail usually fail to plan. Learning activity: Working on the business Watch the video BSBSMB404A: Working on the business on IBSA s YouTube channel at < Answer the following questions. This workbook lists one of the reasons for business failure as working in the business, not on the business. What strategy did Steel Blue implement to overcome this problem? 1 R. Hartnett and K. Keisler, 2008, Small business, big opportunity, Sensis, Melbourne. BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 5 of 124

10 Section 1 Developing the Business Plan Student Workbook Comparing the two businesses, what steps could Bindoon Bakery take in order to improve their business planning processes? Components of a viable business opportunity Determining the viability of a business opportunity is dependent on many factors, but the primary ones include the following. Business acumen the entrepreneurial skills to establish a business, project management skills to build its infrastructure, or management skills to ensure ongoing sustainability of the venture once started. Technical skills the understanding, experience and skill sets required to efficiently and effectively deliver the goods or services in sufficient quantity to meet quality expectations of the market. Personal attributes the necessary personal strengths and attitudes required to deliver successful results. While there are many attributes required, hard work, persistence, good health and being a creative problem-solver are just a few of the critical attributes. Learning activity: Examine your business features Note: Before you begin this activity, you need to write down your business idea. This will be used as a case study throughout the learning activities in this Student Workbook and as a basis for the three assessment tasks. 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 6 of 124 Innovation and Business Industry Skills Council Ltd

11 Student Workbook Section 1 Developing the Business Plan Now that you have identified your business idea, you are required to examine your product or service and describe how it meets the following: appeal of convenience to the customer quality safety benefits to health and wellbeing useability value for money prestige/status environmental friendliness. Appeal of convenience to the customer Quality Safety Benefits to health and wellbeing Useability BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 7 of 124

12 Section 1 Developing the Business Plan Student Workbook Value for money Prestige/status Environmental friendliness Feasibility At some point, the decision is made to go ahead with a business or not. That is, a decision is made to commit resources to the project that would be lost if the venture proves to be unprofitable and unsustainable. The feasibility study is usually the trigger point at which this decision gets made. These studies can be highly detailed and involved, particularly for huge government projects. Yet again, they may be made by an experienced entrepreneur identifying the next big thing by reading the market and marshalling the resources to exploit the evolving opportunity. This section looks at the concept of feasibility studies and provides some worksheets to help you complete one for yourself. Components of a feasibility study A feasibility study is often confused with a business plan. While a business plan is a formal statement of a set of business goals that describes an organisation's current status and plans for several years into the future, a feasibility study is simply an assessment to determine just one thing do we proceed? Typically a business plan will consist of such things as a general company description; products and services; marketing plan; operational plan; management and organisation; personal financial statement; start-up expenses; and capitalisation and financial plan. A feasibility study looks at the major sectors that make up a successful and sustainable business and asks the question is it feasible? 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 8 of 124 Innovation and Business Industry Skills Council Ltd

13 Student Workbook Section 1 Developing the Business Plan These sections could be broadly grouped into the following: Finance Operations Market Personal There are several ways to measure feasibility. Financial feasibility Operational feasibility Market feasibility Personal feasibility Operational feasibility Operational feasibility may look at: How long until the venture breaks even? Can you support the venture financially until it breaks even? Is the amount of capital required incapable of being raised? Will the venture, when it is established, provide a reasonable return for effort? Do we have or can we secure the necessary resources to establish the venture? Do we have the right people with the key strategic skills to establish the venture? Are the legal requirements for this opportunity too prohibitive? Do initial customers exist and is there a viable demand to warrant the investment? Is the broad industry outlook suitable for this opportunity at this time? Have we correctly identified the target market, product/service pricing option and position? Are the venture activities a good match for your personality? Are the risks just too great for you? Is this the right time to be taking this step to establish a venture? manufacturing management production within time, cost and quality constraints inventory control control of work-in-progress as well as finished goods purchasing supply source, negotiated contracts, discounts quality control inspections and standards corporate, contract, patent and tax laws work health and safety laws and environmental laws. And ask questions like: can the product or service be patented? are the initial production costs realistic? We will look at this further in Section 2. BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 9 of 124

14 Section 1 Developing the Business Plan Student Workbook Financial feasibility Financial feasibility may look at: the capital raising forecast of financial needs and identification of possible sources of funds money management financial controls, money management skills, reporting requirements specific measures cash flow analysis, break-even analysis, budgeting, return on investment, payback period overall financial skills experience and finance skills of the founding team. And ask questions like: is the time allocated to reach break-even realistic? are the development costs and calendar times realistic? can the product and the need be understood by the finance community? what are the resource requirements? what is the projected cash flow? We will look at this further in Section 4. Feasibility matrix Learning activity: Determining whether to proceed At this stage you may now be excited about your potential plans, or you may have an uneasy feeling about what you thought was a sure thing. It is important in both these instances to determine the feasibility of your idea by asking the following questions. Key areas Financial feasibility How long until the venture breaks even? Can you support the venture financially until it breaks even? Is the amount of capital required incapable of being raised? Will the venture, when it is established, provide a reasonable return for effort? Operational feasibility Do you have, or can you secure, the necessary resources to establish the venture? Feasible Not Feasible 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 10 of 124 Innovation and Business Industry Skills Council Ltd

15 Student Workbook Section 1 Developing the Business Plan Do you have the right people with the key strategic skills to establish the venture? Are the legal requirements for this opportunity too prohibitive? Market feasibility Do initial customers exist and is there a viable demand to warrant the investment? Is the broad industry outlook suitable for this opportunity at this time? Have you correctly identified the target market, product pricing option and position? Personal feasibility Are the venture activities a good match for your personality? Are the risks acceptable? Once a feasibility plan has been developed and the viability of the business idea assured, then the decision can be made to go ahead with the business venture. This is the point at which the business plan can be developed. A formal business plan There are a number of reasons for developing a formal business plan. Business plans are essential when you are: starting up a new business repositioning your business buying an existing business buying into a franchise expanding or upsizing your business consolidating or downsizing your business. A new business idea, regardless of the context that it is being applied to, needs to be clearly defined before it is brought to life. The owner/s must be focused and agree on the goals and objectives of the business. Anyone who invests money into a new or existing business should have a clear understanding of the business intentions and the return that is expected. Proper business planning helps all of this to happen. BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 11 of 124

16 Section 1 Developing the Business Plan Student Workbook The written business plan formalises the mission, goals, strategies and policies of the business through: focusing the owner s efforts on planned business activities providing employees with a better understanding of the business in which they work informing finance providers about the business and its likely future success informing potential investors about the business they are considering investing in. Your business plan will indicate: where you want to go how you intend to get there what you will need in order to get there how you will know when you get there. It will help you to: think out exactly what you are going to do build your business according to researched steps and tasks assess your business s performance over a period of time provide a basis for applying for financial assistance interest investors in your business; showing evidence of research and planning. Learning activity: Lending money to a friend to start a business If a friend or family member asked you to lend them money to start a new business, what sort of information would you ask them to provide before you made your decision? For example: a business plan containing research of the market financial statements. List your answers below: 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 12 of 124 Innovation and Business Industry Skills Council Ltd

17 Student Workbook Section 1 Developing the Business Plan General layout The layout of a business plan should include the information required to plan the many aspects of the business. As a general guide, the section titles of a business plan should include: the business identity the business owner/s the mission and goals of the business the marketing plan the operational plan the financial plan. The business plan layout in the appendices of this unit takes the reader through logical steps when constructing a business plan. Different types of business plans and purposes Business plans are written for different purposes. The content of a business plan will depend on the purpose or audience for which it is being written. Some of the purposes or audiences for which a plan is written can include one or more of the following. A strategic plan A strategic plan covers the mission, goals and objectives of a business. It sets the broad strategic direction, leaving the finer details to other types of plans. Strategic plans are used mainly by managers to stay focused on the bigger picture. A feasibility study A feasibility study is a research report into the viability of a particular business idea. These are also often used when a business expansion is planned. If the result is positive, a more complete plan is constructed. A tactical plan A tactical plan deals with specific actions in marketing, production, finance and general resource management that can realise the goals of the strategic plan. Tactical plans are used to respond rapidly to strategic needs and changes in the business environment. A venture capital plan A venture capital plan provides investors with information from which they can determine potential returns from the business. The plan must focus on risk versus reward, especially highlighting marketing potential of a new or expanding business concept. Departmental plan Business units in larger organisations often have to do business planning as part of an overall strategic plan. Such plans may also be used to make a case to executive management for additional funding for the department. Bank funding application A bank funding application highlights the financial stability of the business. Historical trading figures are most important. Many applications for new business funding are overlooked because they lack the historical trading information that banks require. BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 13 of 124

18 Section 1 Developing the Business Plan Student Workbook Brief plan If the purpose of your plan is to just outline a rough idea to make a proposal to a prospective partner or other stakeholder you should also detail: why you wish to pursue the business idea qualifications which display your capabilities and legal ability to undertake the core activities of the business experience and skills that you already have that are relevant to the business venture (this may include relevant experience on a voluntary or casual basis, or as a hobby) qualifications and experience that shows capacity to manage a business resources; for example, relevant assets and capital that the business can utilise. Clearly state the details without elaborating too much. You may be excited about your business idea, but a long-winded, meandering explanation, and side issues of little relevance are uninteresting to the reader, and may reflect negatively on your plan. Core business activities Many businesses become distracted by the flavour of the month. Identifying your core market or activity at the start, in the planning stages of your core market, will help you focus on what you do better than anyone else. This will make it far easier to convince prospective customers that you stand out in your market, providing that your research confirms that there are enough prospective customers in the market that need your idea and can be informed of your existence. Decide: what does the business do? what are its main business activities? Where is your business at now? If your business has already begun trading, detail the current stage of your business operation. Is the business still at the formation stage? Has the business commenced trading as a hobby? Is the business fully operational? Are you buying into a franchise or an existing business? Is the business looking to expand? Is the business looking to downsize? Don t confuse readers with too much information. Focus on the main points. 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 14 of 124 Innovation and Business Industry Skills Council Ltd

19 Student Workbook Section 1 Developing the Business Plan Business structure What structure will your business initially take? The most commonly used for small businesses are the following. Sole trader the business is owned by one person who has unlimited liability. The owner is liable under law and taxed as an individual. Partnership is between from two to twenty people who all share unlimited liability. Legal and tax obligations are similar to the sole trader. Proprietary limited (Pty Ltd) company this is a private company that is not listed on the stock exchange. It is a separate legal entity taxed at company tax rates. The liability of the owners (the shareholders) is to the extent of their investment in the business. Principals of the business The principals of the business are the business owners. For a sole trader, it is the single owner. For a partnership, it is all of the partners. For a Pty Ltd company, it is the directors and the people managing the business. A comprehensive business plan A comprehensive business plan attempts to describe in detail all research, environmental factors, strategies, tactics, special requirements, procedures and policies, financial forecasts, legal structures, work schedules and task allocations across the whole operation. The federal government offers assistance programs for eligible new businesses; for example the New Enterprise Incentive Scheme (NEIS) which requires that a comprehensive business plan is prepared. For information regarding the range of government grants and assistance available, visit: < Most small business owners and managers find that a comprehensive plan at some point in the life of the business helps to provide perspective. It can demand a fair amount of time and effort, and sometimes expense in research, but potentially it saves many thousands of dollars in avoiding mistakes when faced with the plethora of decisions required to start a business. There are many generic business plan templates on offer. For a comprehensive plan template for use when applying for government funding, and in order to determine the viability of an idea, visit: < BSBSMB404 Undertake small business planning 1 st edition version: 1 Innovation and Business Industry Skills Council Ltd Page 15 of 124

20 Section 1 Developing the Business Plan Student Workbook Learning activity: Government services available to small businesses Watch the video BSBSMB404A: Government services available to small businesses on IBSA s YouTube channel at: < What are some of the benefits of accessing government services when planning a small business? Vicki Brown, Small Business Field Officer, describes the business plan template as a smorgasbord. What does she mean by this? List three types of information you should include in a comprehensive business plan, as mentioned in the video. 1 st edition version: 1 BSBSMB404 Undertake small business planning Page 16 of 124 Innovation and Business Industry Skills Council Ltd