4. A comprehensive plan

A COMPREHENSIVE PLAN 4

Chances  of success  for any  new business are greatly increased when attention is first directed to a comprehensive  business plan. A complement business plan provides a total  visualization  of the firm before  operations are started. When financial assistance is necessary  from bankers, trade creditors, or investors, their  first request will be to see the total  business plan.  With it they can visualize the creditworthiness of the business.

There is no one sequence of steps in planning that is agreed upon by all authorities in the field. The most important thing in planning a new small firms is that all phases of its operations must be considered.  The person planning a new firm should have very definite ideas about profits,  financing, accounting records, merchandising plans, location, market and customers, general method of operation, policies, advertising and promotion, amount and type of expenses, break-even point, legal form of organization, depreciation policies, and inventory valuation methods, among other factors.

The desired income approach to the entire planning process suggests  that the planner’s first question should be. “How much profit do I expect to receive from this  business in return fro investing my time and money in it?”. This approach is based on the conviction that this question has been neglected.  Much too often by new firm planners.  No commitments, contracts, or obligations  relative to a new business should  be undertaken without a clear idea of what  profits are possible over at least  the first year of operation.
Using the desired income approach, there are 14 major steps in planning.

STEP 1. Determine what profit you want from  the business, recognizing  the time you will give and the investment you will have. Then complete  a project income statement based upon  your decision.
With the profit figure  clearly in mind, it is possible, using statistics that are abundantly available, to calculate the sales volume that is necessary to produce that particular profit.

STEP 2. Survey and test the market you plan to serve to ascertain if the necessary sales volume required  to produce the profit called for in Step 1 is obtainable.
The basic objective  of Step 2 is to find out  what can reasonably  be expected in sales if the business is established within the intended market area.

STEP 3. Prepare a statement  of assets to be used.
A statement  of assets to be used is a list of assets that are essential to the operation of business. Value in monetary units should be attached to each asset.

STEP 4. Prepare an opening day balance sheet.
Step 4  involves close study of the asset needs of the business as determined  in Step 3 and decisions on how they are to be met.  Here we decide whether to rent  or buy the business building; whether to buy delivery trucks and on what terms, or whether to hire a delivery service or even eliminate such service.  Every asset  to be used, every liability  to be incurred, and the resulting necessary  investment by the proprietor must be clarified in this step.  This will involve knowing the various types  of financing available  in providing each asset and how they should be spent without fear of loss. Basic information provided by a balance sheet  and by an income statement  is necessary to do this task well.

STEP 5. study the location and the particular site chosen for specific  characteristics.
Too many small firms  are located  in space that just happened  to available  without any analysis  of the  sustainability  of that space as a location for the  specific type of firm planned.

STEP 6.  Prepare a layout for the entire space to be used for business activity.

STEP 7. Choose your legal form of organization.
Planners should not only study  the characteristics  of the three major legal forms  of organization ( proprietorship, partnership or corporations);  they should also seek the true management advantages of each.

STEP 8. Review  all aspects of your merchandising plan.
Merchandising  is a broad term. It is popularly known today as “the total marketing concept”. It covers many things – plans for products to customers, inventories in money terms and lines of goods, sales promotion  plans,  advertising  plans, pricing policy,  public relations, markups,  markdowns, seasonable variations in business, planned special sales, and other associated activities.

STEP 9.  Analyse your  estimated expenses in terms of their  fixed or variable  nature.
STEP 10. Determine  the firm’s break- even point.
STEP 11. If you are even considering sales on account, review  the advantages and administrative decisions involved. Then establish a credit policy.
The process of selling to customers on credit has many more implications than generally assumed. Credit – card sales cost money. Open accounts risk uncollectibility.

STEP 12. Review the risks to which you are subject and how you plan to cope with them.
The more we know  about the risks around us, the better we can prepare the firm to protect itself against them.
STEP 13. Establish a personnel policy at the outset.
How will you attract and keep good employees? Will you understand employees  needs and desires? How will you establish policies regarding them?

STEP 14. Establish an adequate system of accounting records.
Good accounting records are essential to decision making in any business. They are also necessary  for government reports, tax returns, and operations analysis. Every new firm should provide  for an adequate  system of accounting  records in the planning stage.