WHY HAVE A BUSINESS PLAN?

In discussion with my colleague Wal Reynolds we formulated a structure for a business plan as written analysis of your business. It will look at:

• your operations
• your resources
• your markets
• your plans for the future.

While a business plan can be seen simply as a management tool to help your business survive and grow, it also provides you, as a B&B operator, with a surprising array of benefits.

It should allow you to manage your business more effectively, set your business goals, measure your performance against your targets and allow you to recognise and cope with change.

The biggest benefit to you, however, will come from the process of writing the business plan, rather than the actual written plan itself. In writing the plan, you have to answer three questions:

• 1.Where is my business right now?
• 2.Where do I want it to be?
• 3.How will I get there?

To answer these questions you need to research your business and your market, to decide what to do, how to do it, when to do it and discover the resources you will require, which, naturally, include finances. At first glance the analysis seems daunting, but this book is designed to assist you at every step to write your own plan. It will provide you with the format, the worksheets and the sources of help and information you will need.

Out of all this, the key benefits you will receive are confidence and control and a basis for sound decision making.

Writing your own business plan will give you confidence in your ability to effectively manage and control your B&B operation.

Once you have written a plan, it can be used to help you obtain finance and loan funds from your bank or financial institution. Your plan can also assist you in your approach to potential suppliers, potential investors in your business, or even as support documents for tender submissions and applications.

Finally, the time may come when you will want to sell your B&B, guest house or lodge. The fact that you have a current business plan will immediately enhance the sale of your business to any potential purchaser.

YOUR STARTING POINT

It is not enough to simply say, ‘Yes, I’ll write a business plan’, and try to fit it in amongst all your other work priorities. Writing a plan requires full commitment, and will require the allocation of resources such as time, money and staff. It may well mean that you have to find back-up for yourself while you leave your normal operational duties to research and write your plan.

Once you have set a completion date, consider promoting this date to family and colleagues; your partners, your staff and your professional team. In this way you are creating a self-discipline tool to ensure that:

• you actively use the planning time you have allocated yourself
• you stick to your deadline of producing your completed plan.

It is also important that you accept the fact that you can and should obtain help in writing your plan. Don’t try to do it all yourself – use your partner, your staff and your professional support team to assist you in getting your plan on paper.

By involving your team in the creation of your plan you are also ensuring their co-operation and commitment in implementing the plan once it is written.

The next step in the preparation of your plan is to organise your approach and your information. This means you should be deciding on a format for it. There is no universal model for business plans, but you should remember that it needs a base, or foundation, which is simply an audit of where your business is -right now. This will enable you to decide where you want to go, what you want to achieve, what you have to change and what actions you should take. It will also allow you to measure the current and future costs, revenues and financial returns of your business.

The apparent complexity of this task is perhaps the main reason why most B&B owners avoid writing their own business plan. However, the process is surprisingly simple if you divide your plan into components, such as:

• index
• executive summary
• mission statement
• current status
• objectives, strategies and milestones
• forecasts
• appendices.

The following sections will look at each of these components in turn. Worksheets, which have been designed to help you create your own plan, are included.

Your business plan should be a fluid working document and an evolving process. You can gather information on more than one section at a time, and data gathered in the later stages may alter your thinking and any conclusions developed during your earlier work.

Remember that it is important to keep written notes on all key points and arguments to provide an effective audit trail for your assumptions.

THE BUSINESS PLAN STRUCTURE

The index

This section is the organiser for your plan and it should contain the standard information that is normal in any business plan.

Title sheet

The title page is your cover sheet and is preferably shown on your letterhead, with a standout centered heading, e.g.

BUSINESS PLAN FOR BED & BREAKFAST BUSINESS NAME – 200X TO 200Y

It is strongly advised that a confidentiality notice be displayed at the bottom of this page.

The list of contents

This page is a road map for your plan. It is designed to tell the reader what is included in your plan and where to find it. It is traditionally the first page following the title page. When you start to write your plan, create a draft version of the contents page to help you organise your approach. As your planning evolves, so too will your contents page.

The following pro-forma shows sections your own business plan should contain.

Contact information

This is simply gives the details of the people who may be contacted for further information on the plan or the business. Don’t forget to include the email address where appropriate.

Professional support

All that is required in this section is a single page that outlines the names and contact details of your professional advisers. These advisers should include:

• your accountant
• your solicitor
• your banker
• your business adviser/mentor
• your B&B association or tourist association
• your insurer.

The executive summary

This one-page summary is the key to your plan. Unless you get it right, your target readers will not want to proceed any further.

Its contents depend upon the goal of your plan, i.e. to attract potential investment, to support a loan facility or maybe it is simply the internal control you want for your operation, or perhaps support for a tender proposal you are submitting.

Your first paragraph should contain the name of your B&B, together with its location. The paragraph should continue to define clearly the nature and purpose of your plan, stating exactly what you want to do and what precisely you need. Then, we suggest that you continue your executive summary with a brief (but general) outline of who you are, your management team and their skills and a summary of the market you are serving. Briefly mention what makes you special or unique, that is, your distinctive competence, which is the recognition of a particular skill, resource or asset of your organisation. It is the factor that makes you stand out from your competition. Then, outline your main objectives and your strategies for success.

Finally, include your projections of sales (bed nights and revenue), profitability estimates and other key financial information.

You should write the executive summary in draft form before you start to write your plan. This will give you a focus. Write your plan, and then, when it is written, go back and amend your draft summary.

The current situation

The purpose of this section is to establish a planning base and to provide the readers with an understanding of your business.

It should start with an overview of your business then expand to outline your staff and organisation, and then proceed to examine the market in which you operate.

The business overview

Also known as your business profile, your business overview is a short (one page) snapshot of your business. The first paragraph should provide key essential information such as the business name of your establishment, trading names, your location, legal structure, taxation numbers, web site address (if applicable), and membership of any B&B or tourism authority.

The next paragraph should expand to give the reader a quick insight into your actual operations, i.e. style of building, lettable rooms, main facilities, industry rating, seasonality etc. Given this outline, you should then talk about your trading history, highlighting key achievements and developments. It is at this stage that you spell out your distinctive competence – i.e. what skills, abilities, strengths or assets you have that your competition lacks.

Many business plan writers find the ideal way to conclude their business overview is by formally writing their mission statement and presenting it before or after the executive summary.

To develop a mission statement, look firstly at your vision and ask, ‘How would I like my business to be seen and remembered?’ This mission is simply a broad, philosophical explanation of your business. A typical example of a mission statement for your Bed & Breakfast could be:

Vision statement

To put your mission into practice, you should develop a vision statement which is a brief, realistic and achievable outline of what you have to do to achieve your goals, i.e. your mission. This can go at the end of your business overview.

The vision statement is also a concise way of defining exactly the business that you are in. Focus on your customer needs and the benefits you can, or should, provide. If you do this you will realise that you are in the business of hosting guests, not in the business of Bed & Breakfasts.

Your vision statement should be no more than two sentences, and it should explain:

• why your business exists
• what it does
• what it hopes to achieve.

As an example, consider the following:

Once you have provided the reader with an overview of your business, the next step is to look at the elements of that business.

You and your team, and your administration

Any business is only as good as its people, and this is particularly so in a service business such as a Bed & Breakfast, guest house or lodge.

There is no set format for writing this section, as each business is unique. Many B&Bs are just one or two person operations. In these cases this section would contain a short explanation of this fact and show:

• 1.A profile of the owner(s). This outline should highlight the skills and experience that the owners are bringing into the business, together with any other qualifications and relevant achievements.
• 2.Back-up arrangements such as locums or casual staff and/or family who can be put into place if the principals were absent or incapacitated.

In larger establishments, this section should still contain profiles of the principals and key staff where appropriate. It should be backed up by:

• An organisation chart showing lines of authority and responsibility.
• A list of employees containing names, classifications and rates of pay.

A weekly roster will ensure that all areas are able to be serviced. This roster should contain the names and contact details of back up staff who could be called upon as required.

More detailed information, such as emergency contact details, employee records and position descriptions should not be included, but they should exist in your confidential filing system.

While it is critical to have good people to run your B&B, it is also vital to have effective administration. Comment should also be made in this section of your procedures for handling and converting enquiries, the registration and billing systems and programs, record keeping (including taxation), and cash handling procedures.

Your market outline

Your existing market

This section is designed to provide an overview of the market in which you operate. Perhaps the easiest way to write this section is in two stages, firstly as a broad outline, then as a detailed analysis of your performance, and that of your competition. Where is it? How big is it? Is it growing or declining? Who are your competitors? When are your high and low periods? What type of guests does your business service and where do they come from?

You should also highlight any key factors that you believe, have or will, affect your market e.g. legislation, larger community events, e.g. Olympic Games, or socio-economic factors such as airline collapses or natural disasters.

Remember that this is a summary only in general terms, but you may care to support it with a map showing your location and that of your competitors, and key attractions and features. Industry performance can also be supported by graphs of visitor numbers, total sales, etc.

To get this information you will need to analyse your own records as well as conducting market research from industry and association reports, the Internet, government departments, directories, and so on. Remember, however, that your outline presents a general picture. It is important not to confuse the picture with too many details, or too many words.

Your current market position

Once you have an overall picture of your existing market, you should be looking at examining, in detail, your current market situation. What has been your trading history and what are you selling, to whom, and why?

In writing this section it is perhaps timely to remind yourself of a few basic but pertinent facts:

• Your guests are customers – they are the source of your income.
• Not everyone wants to stay at your B&B or guest house.
• You have competitors who are trying, non-stop, to take your clients from you.
• There is no client loyalty – they will only come back as long as you are giving them what they want.
• Discount levels must be balanced – protect your bottom-line. There is no such thing as a ‘profitable loss’.
• The percentage of repeat business will have a bearing on how you allocate expenditure, for example, advertising.
• The average pound or euro spent per person is another important consideration.

The first information you should be extracting from your records is a trading history. What were your sales, by month, over say the last 12 months? Or over two years? See if you can provide a trend of your trading activity that you can use as a base to estimate future income. You may have the information readily available from your computer.

Develop a worksheet that allows you to identify any factors that may have affected your occupancy and income, e.g. local shows, adverse weather, special television promotions, etc. The worksheet should also allow you to dissect your income into key source areas – e.g. room hire, restaurant, sales of gift lines, commissions, equipment hire, etc. These avenues of income are often neglected or overlooked by B&B operators.

Once you have established a trading history the next questions refer to your market groups or segments:

• 1.What type of clients do you attract? If you were to analyse them, could they be grouped as:
  • corporate clients
  • more affluent guests
  • middle-income couples/singles
  • short-break holiday market
  • families
  • budget market
  • gay/lesbian
  • overseas visitors
  • groups?

• 2.Further dissection could also be considered, for example,
  • the short-break market categories
  • romantic holidays
  • celebrating special occasions
  • visiting friends and relatives
  • fishing trips etc.

Don’t just assume that you know the answers. Ask the question – ‘Why did they stay with you?’ Check your records, especially your visitor book to make sure you know the real story.

Competition

Once you have this information, you can then establish what your competition is doing – what type of clients they are attracting and why they stayed with them rather than with you. You are then in a position to move to the next stage of your planning, i.e. the construction of a SWOT analysis.

SWOT analysis

SWOT is simply a shorthand description of the Strengths, and Weaknesses of your own business, and the Opportunities and Threats it is facing in the marketplace.

Your SWOT analysis is a two-stage exercise. In stage one, you look at your business and ask, ‘How do my clients (actual and potential) see my business in relation to my competition?’ plus ‘What is important to them and why?’ and ‘What are the main points on which they will focus?’

Make a list of these key points and then analyse each one to decide if your clients would see each individual point as either:

• a strength that your business has and your competition does not
• a weakness that needs to be addressed.

Typical key points you might consider are:

Reputation	value for money, repeat clients, outstanding meals
Rating	by tourism authority or Bed & Breakfast association
Managers and staff	friendly, efficient, experienced, trained, client focused, receptive
Location	proximity to attractions, isolated, easily found, views
Facilities	secure parking, dining room, restaurant, grounds, pools, equipment, e-commerce
Décor and rooms	style, room size, presentation, themes
Promotion	coverage, effectiveness, web site, association membership, signage
Price	relative to target market
Profitability	good or bad, high or low
Rooms	size, maintenance, inclusions, access
Meals	quality, quantity, uniqueness, flexibility, use of local produce.

Involve your staff in creating this list and don’t exclude any points simply because ‘everyone knows that!’ What is obvious to you could turn out to be a critical factor that none of your competitors have discovered.

Once you have completed your list of strengths and weaknesses, create two short lists of six key strengths and six key weaknesses, ranked in order of importance.

In stage two of your SWOT analysis, you should look at your business again, but with a different focus. Instead of looking at the internal factors of your business over which you have control, look this time at the industry and identify external factors that will affect or influence your future operations. As you identify each factor, ask ‘What’s in it for me?’ and decide whether these factors provide you with either an opportunity for growth and profitability, or a threat to your existence or profitability.

When constructing your worksheet, stand back and think ‘outside the box’. Look for changes in the marketplace, e.g. in regulations, in competitors and their activities, in economic development, technology, etc. Be aware of emerging trends in the B&B industry overseas and try to forecast the possible impact on your market.

Some examples of key points are:

Competition	development activity, closures, new competition, change of ownership, upgrades
Legislation	new requirements for B&Bs, occupational health and safety changes, award rate increases, taxation changes, insurance
Technology	e-commerce, reservation and billing software
Economic factors	recession, industry moves, industrial disputes, changes in demand
Industry promotions	new tourism bodies and regional promotions
Other	local news (good/bad), local and special events, e.g. conferences.

Again, involve your staff in creating and analysing these points and create a short list of opportunities and threats to focus your thinking and planning. From this SWOT analysis you have identified:

• your key strengths – which you want to protect and promote
• your key weaknesses – which you want to address and fix
• your opportunities in the marketplace – which you would like to exploit
• the potential and actual threats – to the profitability and survival of your business which must be addressed.

The issues identified in the SWOT analysis should be addressed and incorporated in your business plan. You should now know where you are. The next stage in the planning process is to look at the future and decide:

• where you want to be (your objectives)
• how to get there (your strategies)
• proof of your progress (your milestones).

Some people actually do make money in spite of themselves, but most successful people plan for success.

Objectives, strategies and milestones

Key objectives

Objectives are concise and measurable statements, which outline what you want to achieve within a given time span. The direction and focus of your business objectives will come from key areas, namely:

• your mission statement
• your personal objectives
• your current position analysis
• your SWOT analysis.

As we stated earlier, your mission statement encapsulates your philosophy.

Your personal objectives should be explained in your vision statement; why your business exists, what it does and what it hopes to achieve. It is the final point – what it hopes to achieve, that is critical in setting your objectives. In the example we gave, the emphasis was on the desire ‘To maintain our ranking in the nation’s list of Top 20 most romantic venues’. This statement sets the focus on the style and theme of operation and the type of guests to be targeted, the promotion to be undertaken and the quality of the accommodation and surroundings that must be maintained.

In simple terms your private life must take precedence over your business life – even though in practice, the reverse seems to happen more often than not. Your personal objectives could well impact on your business objectives by limiting your business hours, influencing your investment decisions, balancing family and guests’ usage of your facilities, etc.

Your current position analysis will give you a base for setting your business objectives, and your SWOT analysis will give you focus.

The mechanics of setting objectives are not difficult. Instead of thinking of your business as a whole, try breaking it down (in your mind) into a few key areas. Pick a date in the future, say six months, 12 months or even three years ahead and visualise how you perceive that key area at that time.

To work though an example, start by selecting your key areas, say:

Your operation

• facilities, systems
• management and staff
• marketing – clients
• promotions, offers, services
• finance and funding results, e.g. profitability, return on investment, occupancy
• industry ratings, etc.

Then (after consulting your vision statement, your current situation analysis and the key points in your SWOT analysis) write down what you want to achieve. Examples could be:

By ../../....

• To have new computerised booking and billing systems.
• To increase total occupancy by x%.
• To upgrade our industry rating to say four stars.
• To conduct a six week study tour of B&Bs in the European community.
• To increase gross takings to an annual level of .....
• To lift net profit from the existing x% to y%.
• To establish a corporate clientele of at least 50% of total monthly sales.

While it is vital that you include a completion date in your objectives, remember that you don’t have to achieve all your results immediately. Some objectives will require a longer time frame. Your worksheet should make provision for current, medium- and long-term objectives, (short-term: six months time period, medium-term: six to two years and long-term objectives: two to five years).

Also, don’t try to be too ambitious. Pick out the objectives you consider to be most critical to your operation – say three to four objectives from each key area, e.g. operational, staff, marketing and financial.

Strategies for success

A strategy, in lay terms, is simply a planned course of action designed to achieve a given objective. The easiest way to develop a strategy is to look at your objective, ask the basic question, ‘How are we going to do that?’ and start brainstorming.

Involve your partner/s and your team and don’t dismiss any ideas in the initial stage as ‘no use’, or ‘too hard’ or ‘can’t be done’. It is often the ‘way-out’ or ‘stupid’ ideas that breed genius and results.

Once you have all the ideas on paper, then analyse them and come up with a summary of your proposed course of action. As an example, let us assume that your analysis of your current position has shown your major client segment to be from the budget market, and despite the high quality of your offerings, you are catering for few of the more affluent guests. Furthermore, despite your proximity to the central business district (CBD) you have no corporate clientele. Just to make the situation worse, your SWOT analysis also reveals that the three nearby hotels are displaying ‘no vacancy’ signs on a continuous basis.

On the strength of this information, you and your team can see an opening in the corporate market, which can command a better room rate, midweek occupancy and a different type of guest. You and your team develop an objective – ‘To develop a corporate clientele of at least 50% of our average monthly bookings within the next 12 months’.

To achieve this objective, the strategies you develop could be summarised along the lines of: ‘To establish the accommodation needs and preferences of corporate clients and use the results of this research to change our image, our offerings and our promotional activities and effectiveness’.

From this strategy statement it is obvious that much has to be done before the objective can be achieved. A list of jobs, or action steps, should be created and responsibility should be allocated for their completion. In creating this list, allocate completion times to each action step and also try to estimate the cost of each step.

Such a list could look like the example on page 280.

As you can see, this example is not exhaustive – but it goes a long way towards organising a plan of action to achieve the objective of attracting corporate clients. It is all very well to have such a plan, but what can you do to make it work?

Milestones

Milestones, as the name implies, are physical guides to advise you of your location and progress along your journey. In the implementation of your business plan, milestones serve the same purpose, i.e. to advise you of your progress with your action steps.

The milestones for the action steps in our example could be simply:

• client list created
• customer survey completed
• analysis mechanism established

Action step	Reponsibility	Due date	Cost £€
Research
List of potential corporate clients	sw	18/7/..	NA
Needs audit of clients	sw	18/7/..	NA
Establish origin of clients	sw	18/7/..	NA
Conduct own promotional audit	SH		NA
Create a business event diary for next 12 months	SH	18/7/..	NA
Promotion
Design and develop new publicity folder	ADS	20/8/..	1,500
Print and distribute new folders	ADS	27/8/..	2,500
Inclusion in community web site	RDA	20/8/..	400
Implement changes suggested from own promotional audit	ADS	Set program	TEA
Premises upgrade
Provide work centres in each room	CD	1 month	800 each
Install ADSN facility	CD	24/7/..	500, + 130/mth
Selling activity
Join Chamber of Commerce	SW	Now	250
Join Rotary Club	SW	Now	300
Visit ten potential clients per week	All	Ongoing	NA
Place follow-up call with all guests within two weeks to obtain feedback and solicit referrals	JA	Ongoing	NA
Attend all major events on business calendar	All	Ongoing	TBA
Price policy
Decide on new policy and discount offers where applicable	All	Now	NA
Staff
Create new roster to service new client needs	BA	13/9/..	NIL
Reports
Generate monthly reports on corporate clients average billing. Repeat clients, etc	SW	Monthly	NIL

• business diary created
• promotional brochure printed
• web site complete
• connection of high speed data access for PC
• others.

Create a worksheet to assist you to achieve each of your objectives by:

• 1.Stating your objective in writing.
• 2.Summarising your strategies.
• 3.Listing your action steps.
• 4.Identifying each milestone required.

Because each strategy can have a large number of action steps, your worksheet should be presented in two pages to accommodate the listing of all steps and milestones.

Forecasts and reports

Predicting the future is not an accurate science; rather it comes down to having the best guess of what you expect to happen, based on your current information. The reliability of your forecasts will depend upon your understanding of several factors, namely:

• Your base data and its quality.
• The factors you expect will influence your base data.
• Your ability to read these factors effectively.

To relate this to your own B&B operation, the base data we are talking about is from your own records, especially your sales income and operating costs. This base data provides the foundation for establishing reports used for analysis, reporting of your profitability or otherwise, taxable income, your ownership (assets and equity) and debts and liabilities.

Once you have the base data, you can identify the key factors, which you expect will influence the future performance of your operation. Examples of such factors could be:

• Weekly, monthly and seasonal trading patterns.
• Changes in your establishment, i.e. additional rooms or offerings, management approach or staff.
• The weather.
• Special events, e.g. gatherings, exhibitions.
• Changes in your image and ratings.
• Promotional activity.
• Sensitivity to price changes.
• Changes in demand, i.e. type of client, average holiday duration, competitor activity.
• Economic conditions, i.e. local, national and international.

The next step in forecasting is to consider the type of factors listed above and make value judgements about which of these factors will affect your future operations. Your SWOT analysis should have already highlighted many of these factors. Furthermore, your SWOT worksheet should have identified the main factors in order of importance.

Now comes decision time! In what way do you anticipate these factors will affect your operation and by how much?

Don’t forget to ask for help in this exercise. Involve your partner(s) and your team and use professional support as a sounding board and also for specialised professional input. The final decision is yours, however – as it is your business.

Let’s see how it all comes together in practice. The key forecasts you should be looking for are sales, profitability and cash.

Sales forecasts

Earlier on we talked about your trading history and suggested you use a worksheet to provide information on your sales to use as a forecasting base.

Ask the question, ‘What changes to this sales history do I expect in the next twelve months?’ If the answer is nil, you already have your sales forecast.

This, however, will probably not be your answer, as you should have set some objectives to reflect a change in sales history based upon your SWOT analysis and strategies.

To build up your sales forecast, start with last year’s figures as a base and simply add to or subtract from these figures any changes you expect. For example:

• Increased occupancy over the Easter period (let us say, 15%) – was in April last year, but will be in March this year.
• A price rise of, say, 10% to commence in November.
• Your promotion for corporate clients should provide an additional . . . bed nights per week (Monday to Thursday) from September onwards.
• You will be offering picnic lunches from March and anticipate an acceptance rate of say ten lunches per week at . . . per time.

All this information can be easily assembled, by constructing a simple spreadsheet as shown below.

Forecasting worksheet

Activity sales period ending .../.../...

Item	Jul	Aug	Sep	Oct	Nov	Dec	Total
Previous year
Summer boost
Price increase				+ 10%	+ 10%	+ 10%
Corporate clients				+ y	+ y	+ y
Picnic lunches				+ x	+ x	+ x
Total

Once you have this sales forecast you can use the information to assist you in your financial planning, starting with profit and loss.

Income and expenditure

Profit and loss

The formula used to measure the profitability or otherwise of your B&B operation is:

We have discussed sales income previously.

Direct costs are the actual costs you incur in the direct production of the service you provide, i.e. the food and provisions you use. They do not include all your operating expenses, which have to be paid from your margin or gross profit. Our experience in the B&B industry is that direct costs should be no more than 25% of revenue, allowing a healthy margin to cover all the other expenses.

In the past most B&B operators relied on their accountants to produce profit and loss reports for them. Today, most B&B operators are using computerised accounting systems that facilitate easy and quick access to profit and loss reports, which makes financial control and analysis of your operation so much easier. You should still involve your accountant however, in checking your computerised results and advising you of the ramifications of your profit and loss reports.

Once you have a current profit and loss report on your operation it is easy to project your future profitability. Earlier on we looked at the techniques of forecasting your sales month by month. It is just as easy to apply the same forecasting principles to forecasting your expenses and therefore your profitability.

The following table illustrates the areas to be considered when projecting your profit and loss.

Forecast profit for period ending ../../../

Item	Jul	Aug	Sep	Total
Sales income
Cost of goods sold
Gross profit
Less
Accountancy
Advertising
Association fees
Bank charges
Cleaning
Commissions paid
Ground upkeep
Insurance
Internet payments
Laundry
Postage and printing
Power
Repairs and maintenance
Telephone
Training
Travelling
Vehicle costs
Wages and salaries
Sundry
Total operating costs
Net profit
Drawings

Note: depreciation estimates are not included.

All your expenses are shown on one-line totals in this report. For example, if you want to look at advertising, use a worksheet to estimate the expenditure you expect to incur and the month you will have to pay for it. By spelling out when you expect to pay, it is easier to estimate cash flow – but more on that later.

Forecasting worksheet – advertising

Item	Jul	Aug	Sept	Total
Newspaper
Association magazine
Yellow Pages
Folders
Business cards
Internet advertising
Car signs
B&B signage
Giveaways
Other
Total advertising

This same worksheet can also be used to summarise all your other expense areas into one-line summaries for your profit and loss reporting. Whilst your computerised accounting system can provide all this information readily, one of the advantages of doing the exercise manually is to get a ‘hands-on’ feel for your business. Also, while you are forecasting your expenses, make sure you keep copies of your assumptions, and even your working papers. This will enable you to back check your estimates and also to upgrade your estimates as required.

Cash flow

While your budgeted profit and loss report allows you to predict the profitability or otherwise of your operation, cash flow looks at your ability to pay your bills. Your cash flow projections will show:

• your income and when you expect to receive it
• your expenditure and when you expect to pay
• your projected bank balance.

In simple terms, your cash flow is constructed along the following lines:

Your closing bank balance must equal your opening bank balance at the start of the next month.

Therefore to create your cash flow projections:

• establish your actual bank balance
• record all monthly income as you expect to receive it (refer to your sales forecasts)
• record all monthly expenditure summaries as you expect to pay them.

While much of this information will come from your budgeted profit and loss report, you are looking at cash flow, and will therefore have to include all cash movements, for example:

• other non-trading income, e.g. sale of assets, other income, etc
• direct production costs (cost of producing sales)
• purchase of assets
• loan repayments
• owner’s drawings
• taxation payments, etc.

In your cash flow projections, remember that each entry is a one-line summary, and we have shown you how to use the forecasting worksheets to arrive at these one-line summaries. Your cash flow projection could look like this:

Item	Month 1	Month 2	Month 3	Month 12
Income
Sales
Other
Total Income
Expenditure
Purchases
Direct costs
Running costs
Drawings
Loan repayments
Asset purchases
Taxation
Other
Total expenditure
Opening bank balance
Plus total income
Less total expenditure
Closing bank balance

In the preparation of your business plan, your cash flow projection plays a major role as it ties everything together financially. The resultant income and expenditure from your existing operations, plus from the strategies you employ to achieve your objectives can be viewed together for the first time in your cash flow. This information allows you to play ‘what if?’ scenarios if you want to see the implications of clarifying your strategies, time frames, assumptions, or whatever. It also allows you to see if you can pay your bills when they fall due or whether you should consider deferring expenditure until the funds you require are available.

The cash flow projection will also assist you to see the need for additional funds or perhaps reorganising your finances. Should you need to borrow, any potential lender will want to see:

• 1.A business plan – to understand your business and why you want the funding.
• 2.Cash flow projections – to establish your ability to repay the loan you are seeking.
• 3.Profit and loss statements – to establish your ability to earn a profit and thereby stay in business.
• 4.A balance sheet – which shows your equity in the business, and the assets you have that can act as security for any loan.

Balance sheet

A balance sheet is a financial report designed to show what a business owns and what it owes. Your balance sheet will show a list and value of current assets, e.g. cash, debtors, stock (which your business intends to convert into cash within 12 months), etc. It will also show a list and value of other assets, e.g. plant and equipment, land and buildings, vehicles and goodwill (which is an intangible asset).

On the other side, your balance sheet will list and value all liabilities the business has to repay, e.g. to lenders, suppliers, and to you (as the owner of the business). It will traditionally show debts to others as current liabilities (e.g. bank overdraft, short-term loans, creditors, etc. that have to be repaid within 12 months) and long-term liabilities which include all the long-term loans, mortgages, etc. that the business has to pay back.

Finally, it will show your equity (or proprietorship) in the business, i.e. your investment plus any profits you have retained in the business.

To summarise, a balance sheet is traditionally presented as:

Assets		Liabilities
Current	__________	Current	__________
Long term	__________	Long term	__________
Intangible	__________	Total liabilities	__________
		Equity	__________
		Total liabilities
Total assets	__________	and equity	__________

Total assets must always equal total liabilities plus equity. In looking at your balance sheet, you and any potential lender, partner or purchasers can see very quickly such things as:

• Your shareholding in the business and its relative size.
• The value of your business (current assets minus current liabilities) in the event of a forced sale of your business.
• Your borrowing ability, i.e. do your assets exceed your liabilities or otherwise?
• Your financial management (e.g. debtors v creditors), the size of your overdraft, and much more.

In summary, it is the financial reporting section of your plan that ties your whole business plan together. Your planning base is contained in the profit and loss statements and balance sheet of previous years. Your forecasting of the effects of your strategies will be displayed in your projected reports in which you and others will be able to see:

• 1.The future profitability of your business (profit and loss).
• 2.The ability of your business to pay its bills (cash flow).
• 3.What your business owns and what it owes (balance sheet).
• 4.Your equity in the business (balance sheet).

It is only when you put these reports together that you can see whether or not your plan can and will achieve your objectives.

Appendices

The appendix section of your plan is simply a section designed to accommodate detailed working papers and other support information. It allows you to present your plan in a professional manner and avoid the trap of ‘losing the plot’, with too much detail in the main body of the plan. Should the reader of your plan wish to have more detail they can readily go to the appendix section. Furthermore, when you want to upgrade your business plan in the future, your working papers are easily located.

Typical support information that readers would expect to see in the appendix section are:

• Previous audited financial reports, e.g. profit and loss statements and balance sheets.
• Industry, marketing and other reports and articles referred to in the plan.
• Competitor publications and information, e.g. brochures, publications, etc.
• All other information vital to the understanding of the plan by the reader.

The appendix section should also have, as its first page, an index or contents page, for obvious reasons.

SUMMARY

We began this section by stating that a business plan is a structured analysis of your business, in writing, that looks at:

• your operations
• your resources
• your markets
• your plans for the future.

We have provided a suggested structure for your plan along with suggestions and examples to assist you as you work through and plan your own business. The real benefit to having the plan is, not surprisingly, the finished business plan, but the knowledge and control that you obtain as you analyse your operations and your market and set strategies and controls for your future performance.

This section includes extracts from the title A Business Plan for B&B Owners by Stewart Whyte with Wal Reynolds. The entire book can be purchased in a down-loadable, interactive format that enables you to create your own business plan. To obtain a download go to www.bnb-central.com – click British Flag then Order Publications.