NEDBANK SMALL BUSINESS SERVICES MANAGEMENT GUIDE

Transcription

1 NEDBANK SMALL BUSINESS SERVICES MANAGEMENT GUIDE INTRODUCTION Do you feel adequately equipped to set up and run your own business? Are you a strategist, merchandiser, marketer, producer, human resources manager and financial expert? A few of all of the above skills are required to set up and run your own business. The task of establishing and managing your own business can be overwhelming. This business management guide will assist you in setting up and managing your own business effectively. The following may be some of the issues you are wrestling with right now: SECTION A HOW DO I VENTURE INTO MY OWN BUSINESS? 1. Starting your own business 1.1. Deciding on a registered name for your business What form of business should I set up? 2. Buying an existing business 3. Buying into a new or existing franchise All material copyright Nedbank

2 SECTION B When you have set the business up or have decided to purchase an existing business, there are various obligations to fulfil. Following this step-by-step business management guide will equip you for success in your new venture. 1. How do I go about preparing my business plan? 1.1 Confidentiality agreement 1.2 Details of your organisation 1.3 Details of your product/service 1.4 Analysis of your market 1.5 Key strategic options 1.6 Why would the business succeed? 1.7 What is your basis for growth? 1.8 The marketing plan 1.9 The production plan 1.10 Organisational plan 1.11 Financial plan 1.12 Strategy 1.13 Action plan 2. What are my obligations now that my business is ready to begin trading? 2.1 Value-added tax (VAT) 2.2 Regional Services Council (RSC) levies 2.3 Business tax 2.4 Your own tax 2.5 Employees tax All material copyright Nedbank

3 2.6 Unemployment Insurance Fund (UIF) 2.7 Skills Development Levy (SDL) 2.8 Workmen s compensation 2.9 Insurance and assurance 3. Staff issues 4. How do I go about financing the operation? 5. What will the bank look for in assessing an application for finance? 6. How do I analyse my own financial statements? 7. What controls do I need to have in place? 8. What risks should I be aware of? 9. What should I consider if I am looking to expand my business? 10. How do I plan for my retirement? SECTION C Other matters to consider for your business 1. Black economic empowerment 2. Donations tax 3. Capital gains tax 4. Retention of records All material copyright Nedbank

4 SECTION D SMALL BUSINESS SERVICES calendar SECTION E SMALL BUSINESS SERVICES dictionary SECTION F Useful website addresses SECTION A There are three ways of venturing into your own business: 1. Starting your own business 1.1 Deciding on a registered name for your business 1.2 What form of business should I set up? 2. Buying an existing business 3. Buying into a new or existing franchise All material copyright Nedbank

5 SECTION A YOU HAVE DECIDED TO START YOUR OWN BUSINESS! WHAT NEXT? 1.1 Your first priority is to decide on a registered name for your new venture. The name of your business should clearly identify what you are offering. It should give your customers a clear indication of what your business is all about. 1.2 You will then need to decide on what form the business will take. Each of the following structures has its own limitations and merits, therefore the decision will depend on the nature and complexity of your business. It would be best to consult with a lawyer or accountant when making this decision, taking into account the growth and expansion plans for the business. Sole Partnership Close Private Proprietor Corporation Company (CC) Who ow ns the You ow n and A partnership A close A private business? run the can have corporation company can business and betw een 2 can have have betw een make the and 20 betw een 1 1 and 50 decisions. partners and 10 shareholders (natural or members and a legal). (only natural minimum of 1 persons). director. All material copyright Nedbank

6 Complexity A simple form A simple form A more A very of trading of trading complex form complex form of trading of trading Legal Founding No legal Must fulfil the Must fulfil the formation documents requirements requirements requirements requirements are not but a legal of the Close of the necessary. partnership Corporations Companies agreement Act. Act. must be in place. Legal status No separate No separate Separate legal Separate legal personality personality personality personality from the from the from the from the ow ner partners members shareholders Accounts Should be Should be An accounting A firm of kept but no kept but no officer must registered formal audit is formal audit is be appointed accountants necessary. necessary. to prepare and auditors financial must be statements appointed to annually but audit the no formal financial audit is statements of necessary. the company annually. They need not be published. Taxation You, as the The Enterprise Enterprise ow ner of the partnership is pays tax pays tax business, pay not taxed and according to according to All material copyright Nedbank

7 tax. You need partners pay company tax company tax to register tax in their rates and w ill rates and w ill with the South personal pay secondary pay STC on African capacities. tax on the distribution Revenue Partners need companies of Service to register as (STC) on the profits (SARS) as a provisional distributions (dividends) provisional taxpayers with (dividends) made to taxpayer. SARS. declared to shareholders. members. The The company CC must be must be registered as registered as a provisional a provisional taxpayer, as taxpayer, as must the must the members. shareholders. Liability No protection No protection Members can Shareholders of limited of limited enjoy limited can enjoy liability. The liability, each liability, the limited liability risks of partner is assets and as the assets business personally debts of the and debts of extend to all responsible CC are its the company personal and for debts ow n property. are its ow n. business incurred by assets. the business. It is important to note that a close corporation can be converted to a private company and vice versa. All material copyright Nedbank

8 Now that you have decided on the structure of your business, you will need to consult with a legal expert with regard to setting up the enterprise, submitting the necessary forms and preparing the necessary agreements before you begin trading. You will then need to prepare a business plan for the planning stage of your business in order to set your objectives and determine how you will achieve them. This is an integral part of your business and can never be ignored. 2. BUYING AN EXISTING BUSINESS The most important aspect of buying an existing business is that you research the opportunity thoroughly with the help of a good accountant and lawyer. You need to be sure that you know what you are buying in order to obviate unexpected surprises when the sale has been finalised. SOME CRUCIAL ELEMENTS TO CONSIDER IN YOUR DECISION TO BUY A BUSINESS: 2.1 Ask the question - Why is the business for sale? The answer to your question may be obvious when the seller is emigrating or retiring but less obvious in other circumstances. Do not accept anything at face value and test its validity if you have any doubt. 2.2 Find out what form the business is trading in. All material copyright Nedbank

9 If the business is trading as a close corporation or private company, there is perpetual succession with a change of members/shareholders. You will need to do some investigation regarding the entity. A check with the Information Trust Company (ITC) or a copy of a bank report from current bankers will give you some indication of the trading history. 2.3 Request annual financial statements and the most recent management accounts. If you are buying the business from a private company, insist that you receive audited financial statements. Insist on a copy of bank statements for the same period. Be cautious in accepting anything older than three months when making your decision. Request a copy of the past three years tax assessments and VAT returns. 2.4 What are you buying? You need to be clear on what is actually for sale, for example: - Assets Current assets would include current debtors, stock and equipment, plant and machinery. - Request a list of the movable assets and physically inspect them. Insist on confirmation that these assets are paid up or obtain outstanding lease agreements and current statements. All material copyright Nedbank

10 - Request a list of debtors if applicable to the sale in order to assess their quality and to assess the risk of potential bad debts at any stage. Analysing the age of the debtors would give you a good indication of the controls within the business regarding the collection of outstanding accounts. Be careful of buying existing debtors. You are at less risk if you can start afresh at the date of sale unless, of course, they are AAA-rated debtors. The inventory value at cost must be determined, with a physical inventory count on the day the sale becomes effective. - Liabilities would include creditors: o Request a breakdown of creditors and check their ageing. Be cautious of buying creditors of an existing business as they can easily be disguised. If possible, ask that creditors be settled as at the date of sale so that you can start afresh. - Goodwill This is the intangible asset of the business, the brand value that the existing owner has built up over time. It includes the brandname, customer base and intellectual property that contributed to the success of the business. - Property This can be fixed property owned by the business. It would All material copyright Nedbank

11 be best to have a formal valuation done. A deeds office search would verify and confirm ownership. - Contingent liabilities: o Check on any outstanding contingent liabilities (any guarantees or obligations to third parties) and any current contracts in force. - Loan accounts and shares. If the business does not own its premises, review the current lease agreement to determine the expiry date of the agreement and any renewal conditions. Staff are vital to any existing business, so you need to investigate the following: - Which staff will remain in the business and who will have to be replaced? - Check the standard employment contracts, pension and other retirement benefit arrangements. - Check what incentive and bonus schemes are in place. - Check what trade union agreement or collective bargaining agreements are in place. 2.5 What is a fair price to pay? All material copyright Nedbank

12 This could be the subject of much debate as the seller could believe the business is worth more than you are willing to pay. At the end of the day, the more research you have done, the more negotiating power you will have. There are many ways of valuing a business and, once again, your accountant will add great value in this process. The following could help you as a guideline in assessing the worth of the business: Step 1 Look at the true earnings of the business and decide on what you think is a fair rate of return to expect. This will give you a super profits value. Step 2 Determine the intrinsic value of the business by subtracting its liabilities from its assets. This gives you the net asset value of the business. 2.6 Do your own investigations - Check that the business is licensed and has all the necessary permits etc. Check that all payments are up to date. - Check if there are compliance requirements and if these have been All material copyright Nedbank

13 met. - Talk to suppliers. This is a good way to assess how the business has been run and is also a good way to check the accuracy of the financial information given to you. - Talk to key staff, as this will give you a good insight into the business. Once you have decided to go ahead with buying the business, you should consult with your legal consult with ant/a tax expert/your accountant to best structure the agreement having regard to tax efficiency and legal requirements. You will also need to consider the following: - Advertising the sale in the Government Gazette. - A restraint of trade agreement so that the seller cannot open another business in close proximity and place your business at risk. - Ensure that you have legal recourse to the seller should any form of misrepresentation appear after the date of sale. A business plan will need to be prepared if you are buying an existing business in order to set your own objectives and plan how you will achieve these. This is an integral part of your business and can never be ignored. BUYING A NEW OR EXISTING FRANCHISE All material copyright Nedbank

14 A franchise is a business that involves the granting of a license by a franchisor to another party (the franchisee), which entitles the franchisee to trade under the established trade name. Some of the advantages of buying a franchised business are: - Buying an entire business concept that has been researched thoroughly thereby minimising your risk. - Buying into an established brand name. Brand equity in a business is the most difficult thing to create. - Induction and training in all aspects of running the business. - Trading in a business where operational efficiency already exists due to tried and tested methods by franchisors. This prevents you from incurring costly mistakes in an attempt to achieve operational efficiency. - The franchisor will provide you with the necessary skills and technology to run the business. - Your cost of supplies is normally lower as you receive discounts normally only offered to larger businesses because you are buying under the franchise name. All material copyright Nedbank

15 - Specialist assistance is offered e.g. labour consultants, market research and product development. - There is proven quality control in your product. - Financial assistance is frequently offered by the franchisor in setting up. Some disadvantages of owning a franchise are: - It limits your personal initiative as you are obliged to trade in line with the franchise head office s initiatives and strategies. - Your startup costs are normally higher to keep within the corporate identity. - Royalties, which are a percentage of your turnover payable to the franchisor, are an extra expense and can range between 9% and 11% for an established franchise. - You are obliged to keep in line with the advertising and promotions set by the franchisor. A business plan will need to be prepared if you are buying an existing franchise or setting a new one up in order to set your own objectives and plan how you will achieve these. This is an integral part of your business and can never be ignored. Some additional aspects to consider when buying a franchise: All material copyright Nedbank

16 1. Consult with a legal professional who specialises in franchises to scrutinise the franchise agreement before you sign. 2. If possible, choose a franchise registered with the Franchise Association of South Africa (FASA). FASA exists for the following purposes: - Promotes the concept of franchising; - Issues guidelines for the operation of franchise systems; - Applies a code of ethics to the industry; - Promotes franchises in the small business community; - Maintains a data base of all franchises; - Provides education on franchise matters; - Represents franchises in dealings with the government, the media and the public; and - Publishes useful handbooks on various aspects of franchising. All material copyright Nedbank

17 As South Africa does not have specific legislation governing franchises, FASA has devised a code of ethics for the governing of franchise businesses. 3. Consider the costs of opening a new franchise or buying an existing one. 4. Beware hidden costs. All material copyright Nedbank

18 SECTION B When you have set the business up or have decided to purchase an existing one, there are various obligations that you are required to fulfil. Following this step-bystep business management guide will equip you for success in your new venture. 1. How do I go about preparing my business plan? 1.1 Confidentiality agreement 1.2 Details of your organisation 1.3 Details of your product/service 1.4 Analysis of your market 1.5 Key strategic options 1.6 What will make the business succeed? 1.7 What is your basis for growth? 1.8 The marketing plan 1.9 The production plan 1.10 Organisational plan 1.11 Financial plan 1.12 Strategy 1.13 Action plan 2. What are my obligations now that my business is ready to begin trading? 2.1 VAT 2.2 RSC levies 2.3 Business tax 2.4 Your own tax 2.5 Employee s tax 2.6 UIF 2.7 SDL 2.10 Workmen s compensation 2.11 Insurance and business assurance All material copyright Nedbank

19 3. Staff issues 4. How do I go about financing the operation? 5. What will the bank look for in assessing an application for finance? 6. How do I analyse my own financial statements? 7. What controls do I need to have in place? 8. What risks should I be aware of? 9. What should I consider if I am looking to expand my business? 10. How do I plan for my retirement? SECTION B HOW DO I GO ABOUT PREPARING MY BUSINESS PLAN? You are now ready to start the planning stage of your business. The tool that any business should use for this task is a business plan. It is a road map which will outline the goals and objectives of the business and serves as its resumé. It states where you are now, where you want to go, how you will achieve your vision and why you have chosen to tackle the opportunity in a specific way. Many small businesses neglect this part of their planning process as they see it as a non-essential task, but without one you might not achieve the success you are striving for. Every business should have one and it should be updated periodically in line with your one-, three- and five-year plan for your business. All material copyright Nedbank

20 Time spent on your business plan at the outset is time and money saved later. Simply put, a business plan is an outline of objectives and goals and it defines how you are intend to achieve them. Take the time to prepare the plan, as it could identify any pitfalls before they occur, and update it as you move along your journey. It could also help in acquiring additional financial and operational resources, if required. The level of detail in the business plan will depend on the nature and complexity of your venture. The business plan will help you to assess your opportunity objectively and answer critical questions, some of which are: - What are the ingredients for survival in the industry? - What are the key ingredients for success? - How much time is required to build the business? - How can I ensure the business will be profitable? - How and when is it appropriate to harvest my business? The key components of a business plan are as follows: 1. Confidentiality agreement 2. Details of the organisation Your mission statement Your vision statement Organisational objectives Organisational values 3. Details of your product/service 4. Analysis of your market All material copyright Nedbank

21 SWOT analysis, looking at the business internally and externally in order to identify the strengths, weaknesses, opportunities and threats. 5. Key strategic options 6. Your sustainable competitive advantage 7. Basis for growth 8. The marketing plan Stating your marketing objectives and sales forecasts Developing your marketing strategies The marketing budget Marketing action plan and controls 9. The production plan Your competitive advantage Location and layout Production process and plan Production capacity Scheduling Supplies and inventory Equipment to be used Production budget 10. Organisational plan 11. Financial plan 12. Strategy 13. Action plan 1.1 Confidentiality agreement All material copyright Nedbank

22 If you intend to circulate the business plan to outside parties (your banker, a potential investor or shareholder), you may want to consider attaching a confidentiality agreement to protect your intellectual property. An example of a confidentiality agreement is given below or you could consult with a legal expert to assist in drawing up such agreement for you. Anyone who reads your business plan should sign this beforehand. All material copyright Nedbank

23 Confidentiality agreement I of.. hereby acknowledge that information contained in the business plan of (name of your business) is confidential to the owners of the. (name of your business). I hereby undertake not to use and to keep secret and confidential all such information and shall not permit or allow the same to be disclosed to any other persons or person. Signature.Date The organisation Now you are ready to begin with the hard work encompassed in your business plan by applying your mind to setting the business up the first step in making your business a success. This section of the business plan helps to structure the core of your business. It gives an overview of the activity, structure and history of the business, where it is going and who will be involved. The following areas should be addressed: - Registered name - Founders All material copyright Nedbank

24 - Business structure The legal structure and form Who are the owners of the business and, if applicable, note their percentage interest. If the business is organised around a corporate structure, who are the directors (and their voting rights), who is the chairman and if there is a shareholders agreement provide a brief overview. - Commencement date of operation - Principal activity of business - History What major events/milestones have occurred to date, what results have been achieved so far, what has the management team achieved? - Mission statement The mission statement defines what your business is or wants to be. It is the organisation's reason for existence. Some of the questions you should ask yourself in preparing your mission statement are: What business or activity are we engaged in? Who are we involved with? Where are we taking the business now and in the future? Why are we undertaking this particular business/activity? - Vision statement The vision statement provides the overall direction in which the organisation should be heading; it keeps all parties in the organisation on the same track towards the defined goals. All material copyright Nedbank

25 - Organisational objectives These should flow from your mission statement. The specific performance measures can now be quantified in measurable performance targets. - Organisational values Values represent what the organisation and its people stand for and are the underlying principles that shape and guide the organisation s interactions with suppliers, distributors, customers, employees, investors, community and other stakeholders The product/service This section should provide an overview of your product(s)/service, including the following information: - A brief description of your product/service in terms of its function and its unique application. - What is the status of the product/service e.g. does it still need to be developed or is it at a commercialisation stage? - A description of how the intellectual property is protected, who owns it and what consideration was paid for it. - How does the product/service satisfy a need? What benefits are there to the consumer and what are the principal markets? - What is the unique selling proposition for your product? - Who has tried or assessed the product/service and what was their feedback? Has it been tested? All material copyright Nedbank

26 - Are there any substitutes for the product/service? - How do the main features of the product/service compare with those of your competitors? - A brief history of what your team has achieved in enhancing the product/service to make it more suitable for the chosen market. 1.4 Market analysis The strategic analysis section of the business plan summarises the data you have collected on your business and its environment. From this data you will be able to identify the strengths and weaknesses of the business and the opportunities and potential threats in the environment. This process is called a SWOT analysis. In order to complete the SWOT analysis you will need to answer the following questions, based on an assessment of the business internally and externally. - What are the organisation's strengths and weaknesses? These are identified from analysing the business internally in order to identify those factors that influence how well or how poorly your business can service the needs of its customers and stakeholders. - Does your product/service have a sustainable competitive advantage? - What is the source of your sustainable competitive advantage? - What are your strengths? - What is your business not good at? - What areas require development? All material copyright Nedbank

27 - What opportunities and threats face the business? These are identified from analysing the business externally to identify those factors that affect your business e.g. economic variables such as inflation and foreign exchange rate fluctuations. Opportunities can be exploited and pursued while threats can damage, constrain or destroy your business! It is worth noting that internal factors can be controlled from within your business whereas you have no control over external factors but must be aware of their potential impact on your business. The SWOT analysis should be presented in summary form after you have done a thorough analysis of the internal and external environment. In analysing the organisation s internal environment, the following areas should be investigated: - Primary activities of the organisation - These would include all activities associated with supplying your product/service to your customer from start to finish, including production, delivery and marketing. - Support activities - These would include activities such as human resources and financial management. - Firm infrastructure - Financial analysis - Financial ratios are a good tool to use because they allow you to compare your company with industry standards. All material copyright Nedbank

28 - Organisational culture and leadership - Organisation s reputation In analysing the business externally, the following areas must be taken into account and their potential impact on your business should be understood: - Macroeconomic environment, which deals with the state of the economy nationally and internationally. This would include aspects such as interest rates, inflation, foreign exchange rates and gross domestic product growth. These are all indicators of the state of health of the economy. - Technological innovation affects most products and services as well as the way in which they are created and produced. This in turn has enormous cost implications, which could impact your offering and business. - Social trends encompass demographic and cultural changes. These changes may pose significant challenges to your business. - Changes in the political and legal environment may inhibit or enhance the freedom of a business to continue its activities. - Developments in the global environment may have positive or negative implications for your business. Are there any trade restrictions between two countries that may impact your potential customer or supplier base? An industry and market analysis specific to your business will enable you to answer the following questions: - Is there really an opportunity for your business in the industry? All material copyright Nedbank

29 - What are the industry characteristics? - What are the characteristics of your target market? - In what shape is the market you will be operating in? - What is the profile of your customers? - Will customers want to buy what you have to sell? - Who are your major competitors and what are their strengths and weaknesses? 1.5 Key strategic options Key strategic options are developed from an assessment of the interactions between the main strategic strengths, weaknesses, opportunities and threats. The SWOT analysis completed by you will provide the basis for developing the key strategic options for your business. The tools listed below can be used to separate strategic issues from operational issues. ISSUE FROM SWOT ANALYSIS IDENTIFIED OPERATIONAL IN NATURE STRATEGIC IN NATURE When will this issue Now After two years or more impact on the organisation? How great an impact will Small Very significant this issue have on your business? How broadly will this Will affect some parts of Will affect all of the issue affect your the business business business? How great is the risk Small Big All material copyright Nedbank

30 attached to ignoring the issue? Will strategies to address the issue involve changes in product/services, pricing, promotion, personnel or business? Minor change Major changes Now that you have identified the main strategic issues, you are able to formulate strategies to address them. Firstly, you need to identify any interactions between the issues you have noted on your short list and determine if any strategy can be put in place to combat them. The following table may be of assistance in this regard. Step 1. Identify interaction between: Step 2. Formulate strategies to take advantage of interaction Key strength and opportunity items What strategy can be formulated that will build on this strength item to take advantage of the opportunity item? Key strength and threat items What strategy can be formulated that will build on the strength item while reducing the threat item? Key weakness and opportunity items What strategy can be formulated that will either negate this weakness or develop this weakness into a strength so that the threat item is reduced? 1.6 Why will your business succeed? All material copyright Nedbank

31 You will now need to consider and document your sustainable competitive advantage. What is your business s competence? Why will customers buy from you? Why do your think your business will succeed? Why are you better than your competitors and will your product and product design meet these requirements? Sustainable competitive advantage is the value your business will create for its customers. It allows you to perform above average and to outperform your competitors. It is important for you to identify your competitive advantage in order to plan how you will compete in your market. This should be done in conjunction with your SWOT analysis. 1.7 What is your basis for growth? The final issue to consider in formulating the overall strategic direction of the business for the next three to five years is how your business can grow. Your business can grow in various ways but ultimately it will depend on your customers and your offering. You could consider the following growth strategies: TYPE OF GROWTH STRATEGY WHAT IS IT? HOW DO I GO ABOUT IT? Market penetration This is an increased usage of your existing offering in your existing customer market. 1. Price incentives on a sliding scale according to usage 2. Building on an additional service All material copyright Nedbank

32 New market development This is an increased usage of your product in new markets. with the existing offering - bundling your products/services 3. Identifying alternative uses for your existing offering 4. Increasing your promotional effort to attract clients from your competitors 1. Developing new geographical markets by expanding regionally, nationally or internationally 2.Developing new market segments by obtaining referrals or by advertising in alternative media forms 3. Converting potential clients who currently do not use your product/service by offering free trial use of your offering or by finding alternative All material copyright Nedbank

33 uses for your offering which may be attractive to them. New product This strategy is aimed at 1. Developing new development introducing new/varied features for your products to your existing product/service customer market. 2. Developing variations to your existing product/service 3. Developing new products/services aimed at your existing customer market Diversification This strategy entails the 1. Backward integration introduction of a new e.g buying an accounting offering to a new recruitment agency customer market. 2. Forward integration e.g buying a business that would make use of your services 3. Using your existing distribution network e.g. selling additional types of products/services through your current distribution network. This maximises All material copyright Nedbank

34 economies of scale. 4. Stability development e.g. buying a declining business with the objective of turning it around to make it profitable. 5. Moving into a completely new customer market with a totally different product. Market penetration and new market development strategies are seen as low-risk strategies as they are easy to implement and you will be familiar with the requirements. New product and diversification strategies have a higher risk as they contain an element of the unknown. Bear in mind that the rewards of a business are determined from your risk vs. return. Whilst too much risk may put your business at unnecessary threat, it is also worth mentioning that no one makes money the easy way without taking any risk at all! 1.8 The marketing plan Now that you are clear on what you want to do and how you are going to do it, you will need to decide how you are going to persuade your chosen customer market to buy/use your product/service. This is a very important step. There is no use in designing and producing your offering if no one is going to buy it. The key components of your marketing plan would be: All material copyright Nedbank

35 1.8.1 Stating your marketing objectives and sales forecasts Developing your marketing strategies The marketing budget Marketing actions plans and controls Stating your marketing objectives and sales forecasts - Ensure that your marketing objectives fall within the context of your mission statement and are consistent with your vision statement. - Be realistic, you must be able to deliver. - Give time frames for your objectives and sales forecasts. - State the assumptions about your customers and competitors which form the basis of your objectives and strategies. - Quantify your objectives. When formulating your sales forecasts it is a good idea to develop three different scenarios with which to work. It is also imperative to provide a five-year forecast. These could be: 1. The most likely results 2. Best-case scenario 3. Worst-case scenario Developing your marketing strategies Your marketing strategies will encompass the 4P s of marketing product, place, price and promotion. They will revolve around how you plan to penetrate and develop your chosen market and how you will grow your customer base by delighting them and exceeding their expectations. All material copyright Nedbank

36 PRODUCT PLACE PRICE PROMOTION How will your product be presented? How will your product be distributed to your customers? What is your pricing strategy? How will you promote your product so that your customers will know about it? The marketing budget You need to detail what it would cost to get your offering to your customer in terms of your marketing plan. Expenses incurred in these areas will flow into your financial forecasts. Some of these expenses could include: - Market research - Packaging and distribution - Brochures - Advertising Marketing action plan and controls The marketing action plan will provide details for the implementation of the marketing plan. State in priority order the tasks required, who is responsible for executing the tasks, the relevant costs to complete the tasks, and due dates for completion. Control factors to monitor the components and activities of the marketing plan should also be detailed i.e. customer satisfaction levels, competitor activity, customer buying trends. 1.9 The production plan All material copyright Nedbank

37 You need to decide how you plan the production of your offering and what resources will be required to get it to the customer. Production strategies focus on how to produce quality products and services at the right place, right price and right time. They also focus on how to competitively deliver the product/service to your customer. They will also create a competitive distribution network that delivers in good time. The key components of your production plan will be: Competitive advantage Location and layout Production process and plan Production capacity Scheduling Supplies and inventory Equipment to be used Production budget Competitive advantage Earlier in your business plan you identified your sustainable competitive advantage and what sets you apart from competitors in the industry. This needs to be carried forward in all aspects of the production plan. A manufacturing business has to consider quality in an efficient manner throughout the production process, from the receiving of materials to the final delivery of the product/service to the customer. This applies similarly to a service industry. People, procedures and policies all form the basis of a service business and quality must be reflected in all aspects of your production plan. Not only do you need to start with a competitive All material copyright Nedbank

38 advantage but it needs to be maintained and constantly improved. Examples of the areas you could focus on to develop a competitive advantage include: - distribution network - brandname - service network - reliability - product development - price competitiveness - staff training Location and layout In the case of a service business or manufacturing business, location will be influenced by access to raw materials used in producing the product as well as the ability to deliver the endproduct to your customer. You have to assess what will be best for your product/service and what is important to get the right product/service to the right customer at the right time. Proximity and availability of skilled or trained labour is vital. The plan and layout of the plant or service facility can be in the format of a drawing. It should show an arrangement of plant and equipment for production or delivery to occur with maximum ease. It should indicate the flow of activities from input, production and storing to delivery of the endproduct/service Production process and plan It all begins with the customer placing an order. For the production process and plan, you need to plan the production process systematically. All material copyright Nedbank

39 The easiest way to do this is by means of a flow chart and from there you can determine the timing and costing for each process or part thereof Production capacity Capacity planning begins with the demand for the various products and services your business intends to produce. You will need to consider production capacity in conjunction with the products and services to be offered to your market as well as the production processes Scheduling Scheduling is influenced by the customer s need for delivery and the delivery of raw materials/services from your suppliers. You need to equate these two factors and ensure there is sufficient lead time to allow for delivery in good time. This needs to be assessed in conjunction with the planning process and in particular with your staffing requirements so that your customer s waiting period is kept to a minimum, if any Supplies and inventory This will give you a clear indication of the required lead time for the delivery of raw materials and what stock to keep on hand. This will affect your cash flow and financing requirements and is a very important part of the control mechanisms in your business. Without tight controls over raw materials and finished products, you could face the threat of uncontrolled wastage, theft and an unnecessary amount of cash being tied up in finished products in storage waiting to be sold. All material copyright Nedbank

40 1.9.7 Equipment to be used This will depend on the production process and the output and efficiency requirements of the business. You need to research your input requirements in order to produce/deliver/fulfil your customers needs Production budget The expenses in this budget will flow to your financial forecasts later on in the business plan. Your production budget could look like this: Production Month Month Month Month Actual Budget Variance expense details Ytd Ytd Ytd Product costs Manufacturing overheads Quality assurance Information Systems Capital expenditure items Equipment purchases All material copyright Nedbank

41 This should also be done on an annual basis going forward The organisational plan Now that you have resolved the product/service, marketing and production aspects of your business, you are ready to consider the people issues. Areas to address include the following: - Brief resumés of the management team - Development of performance standards, measurement and feedback - Job and work designs - Occupational safety issues - Recruitment and induction strategies - Reward systems - Staff training needs analysis - Staffing requirements - Strategies for encouraging innovation in the organisation - Wage expense details - Other relevant human resources issues All material copyright Nedbank

42 To quantify your business plan, it is necessary to draw up a budget which include associated expenses, for example: Organisational Month Month Month Month Actual Budget Variance expense Ytd Ytd Ytd details Administrative Wages Incentives Recruitment Training Occupational safety Other TOTAL 1.11 The financial plan This is the final part of your business plan and consolidates the strategies you have established earlier in the plan. This section of the business plan can be complex so it might be a good idea to consult with your accountant. The following items need to be addressed in your financial plan: All material copyright Nedbank

43 Financial history This would apply to a continuing business Underlying assumptions These assumptions, which arose from your research, formed the basis of your financial projections Breakeven point You will need to determine your breakeven point, based on sales volumes, variable costs and the level of fixed expenses Sensitivity analysis This would flow from your SWOT analysis, providing the worst-case, most likely and bestcase scenarios. It is known as a cash flow analysis Key financial ratios You can derive these from your financial statements and industry standards, and comparisons should also be given Funding and expansion plan You need to determine how you are planning to source the funds required to begin production and how these funds will be spent. You should also include information about timing, what type of funding you require and how the funds will be repaid. All material copyright Nedbank

44 1.12 Strategy Given that you are just starting out, it may seem bizarre to consider what to do with your business eventually. The fact of the matter is that we all have to get out of business at some stage. Age or health could force this or your objectives could change over time. Hence, you need to devise harvest strategies to maximise your gain now in order to eventually dispose of the business with a maximum return. Possible harvest strategies could include the following: 1. Transfer/sell your business interests to siblings or other family members. 2. Appoint managers to manage and run your business and use the cash generated to pursue other activities - you could decide to embark on a cash cow. 3. Initial public offering a stock exchange listing 4. Merger/Acquisition 5. Outright sale of the business in the open market 6. Management buyout (MBO) Sell the business to management 7. Employee share ownership scheme. This would entail selling some of the equity of the business to employees. Each of the above harvest strategies would take your business in a different direction and require different actions whilst you are managing it The action plan The last aspect required to complete the business plan is the action plan. This is a major All material copyright Nedbank

45 list of tasks required to be implemented in order to achieve the objectives you have set out in your plan. Tasks need to be allocated to specific team members/outside resources, completion dates set, and follow-up dates and defined costs determined. Tasks should also be prioritised. Key to the successful execution of a well-defined business plan is the establishment of a definite action plan where individuals are held accountable, regular review sessions are held and further action is taken. Example of an action plan Revision date.. Task priority A B B WHAT IS THE TASK? Finance 1. Identify sources 2. Letters of introduction Manufacturing 1.Obtain suppliers quotes for comparison Responsibility for ensuring task is To be completed by completed M Guthrie 27 January 2004 M Guthrie 15 February 2004 K Lottreaux 17 February 2004 All material copyright Nedbank

46 Marketing A 1.Develop R Patterson 31 January 2004 B strategies J Herman 25 February See distributors Well done! You have now completed the planning stage of your new venture. 2. WHAT ARE MY OBLIGATIONS NOW THAT MY BUSINESS IS READY TO BEGIN TRADING? Legal issues - Licensing, registration and statutory obligations You are now ready to get the business registered and licensed so that you can start trading and creating wealth. 2.1 VAT VAT is an indirect tax charge on most transactions. The current rate is 14%. All material copyright Nedbank

47 If your business renders taxable supplies/turnover of R or more per annum, you will need to register for VAT and so become a VAT vendor. This means that you will add 14% onto your sales and in turn pay it over to the SARS in the form of output tax. This also means that you can claim the VAT back on your purchases for materials, capital equipment and any other expenses incurred by you as long as you have a tax invoice from your supplier. Even bank charges are vatable and may also be claimed as an input credit from SARS in your VAT return. Businesses who do not turn over R per annum may, however, elect to register for VAT. You should consult with your accountant as there are advantages and disadvantages in doing this as long as your turnover is over R What to do to register? You can obtain a VAT application form from the SARS website or your local SARS office. The following must be attached to your application: - Copies of the IDs of the owners of the business - A letter from your bank confirming the details of your bank account - A copy of your registration certificate/founding statement if a close corporation or company is being registered - A copy of the partnership agreement, if applicable - A copy of your business plan showing financial forecasts - A letter from your accounting officer confirming that they will be acting on your behalf All material copyright Nedbank

48 Remember, certain products are VAT exempt or zero rated. On VAT exempt products no VAT may be claimed back or paid and on zero-rated products no VAT may be added onto the selling price, but VAT may be claimed on the expenses that went into the production of these products. You will not be able to claim VAT on all your expenses and you should make yourself familiar with these exceptions at the outset. Your local SARS office will be able to assist in this regard. You will need to submit a VAT return to SARS by the 25th of the month following the end of your tax period. SARS will set out your tax periods for you once you have been registered as a vendor. If you do not submit your return or make payments in good time, penalties will be levied by SARS on your business. 2.2 RSC levies Two types of levies are applicable: 1. The service levy is calculated at the applicable rate on all remuneration paid to employees of the business and on drawings by the sole proprietor or partner of a business. 2. The establishment levy is calculated at the applicable rate based on he turnover of your business (excluding VAT). Monthly returns need to be completed and submitted to your local Regional Services Council and payment made monthly by the 20th in respect of the previous month. Levies are allowed as a tax deduction for All material copyright Nedbank

49 income tax purposes. Interest will be levied on late payments and submission of returns. Certain types of organisations (e.g.non-profit and charitable organisations) are exempt from registration for these levies, so it would be good idea to contact your local Regional Services Council before beginning your operation. 2.3 Business tax If you are a sole proprietor or partnership: A sole proprietor and partnership does not have separate personalities from the owners of the business and therefore does not need to register for tax. You, the sole proprietor or partner, will pay tax in your own right on the profits. Close corporations or private companies have separate legal personalities from the members/shareholders and have to register independently with SARS as provisional taxpayers. The current tax rate for close corporation/company is 30%. For small business corporations the current tax rate is 15% on the first R and 30% on taxable income exceeding R If you feel your business qualifies for the small business corporation relief from SARS, check with your accountant as certain types of business are excluded. The current turnover limit is R5 million. Members/shareholders may draw the remaining profits in the close corporation/company by means of a dividend. This is tax free in the hands of the member/shareholder, but the close corporation/company must pay 12, 5% on the net dividend in the form of STC. All material copyright Nedbank