6. The Balance Sheet

The last financial statement you need is the Balance Sheet.

The balance sheet is normally stated as a situation on a particular date. It is a summary of all the financial information, broken down into three areas:

1. ASSETS
2. LIABILITIES
3. EQUITY

So the Balance Sheet is divided into 3 sections.

The TOP portion lists your organisation's assets. Assets are classified as current assets and long-term or fixed assets. Current assets are assets that will be converted into cash or will be used by the business in a year or less. It includes: Cash, accounts receivable, Inventory = TOTAL CURRENT ASSETS.

Other assets that appear in the balance sheet are called long-term or fixed assets. These include: Capital and plant, Investments, Other assets = TOTAL LONG-TERM ASSETS

After the assets are listed you need to list the liabilities of your business. Again they are listed as current on the one hand and long-term on the other.

Current liabilities are: Accounts payable, Accrued liabilities (for example salaries not paid by the close of books) taxes = TOTAL CURRENT LIABILITIES.

Then long term liabilities: bonds, mortgage, other long term liabilities = TOTAL LIABILITIES

Once this is done the owner's equity is calculated as the difference of the two.


Talk to me if you need any further help. proplib@tiscali.co.za

Charl Heydenrych.
Johannesburg
22 June 2008

5. Constructing the INCOME STATEMENT

Constructing the INCOME STATEMENT

To determine one’s sales you have to list your products, list your selling prices, “guestimate” how many you are going to sell – that will give you a turnover figure.
This forms the basis of your pro forma income statement.

The next thing to do is to determine your cost of sales. You can only do that if you know what things cost. You do have to do a supplier “recci” – talk to suppliers, get price lists, check the market out. Find out what acceptable mark-ups are for the industry? Visit sellers of the product – what do they sell the item for?

Here is a bit of a mock up of the process:

Calculating sales:

Product A sell R200 Quantity sold pm 4 800

Product B sell R250 Quantity sold pm 6 1500

Product C sell R210 Quantity sold pm 2 420

Product D sell R 50 Quantity sold pm 3 150

Product E sell R 20 Quantity sold pm 8 160

Product F sell R20 Quantity sold pm 1 20

Product G sell R620 Quantity sold pm 2 1240

Total sales 4290

If your markup is 100%

Then your cost of sales* will be 2145

That gives you a GP of 2145

If your (indirect) costs are 1000

Your net profit is (before tax) 1145


* You will also calculate your costs of sales separately from your knowledge and quotes that you obtained from you suppliers. Then one would extrapolate it over the whole year to get an annual figure.

================================================================================

Here is more:

The income statement is a simple and straightforward report on the proposed business’s cash generating ability. It gives the sales made within a given time period and how much it costs to generate those sales.

It gets its information from other financial calculations that one would have developed earlier – such as sales and revenue forecasts, expense forecasts, depreciation on capital, loan repayments and cost of goods. By putting these things together, the income statement shows how much your business makes or loses during the period. One does that by subtracting the cost of goods from revenue to arrive at Gross profit and then subtracting the other costs to arrive at a net result – which is either a profit or a loss.

Normally, for the business plan one would at least show the profit and loss statement for the first year. This is constructed by listing ones financial projections in the following way:

1. Income
2. Cost of Goods
3. Gross profit
4. Operating expenses
5. Total expenses
6. Net profit
7. Depreciation
8. Net profit before interest
9. Interest
10. Net profit before taxes
11. Taxes
12. Profit after taxes

Here is a simplified Income Statement:

Income Statement for the period XXXX to XXXX

Sales (turnover) XXXXXXXX

LESS Cost of sales (variable cost) XXXXXXXX

(opening stock + plus purchases – closing stock – applicable for retail businesses)

= GROSS PROFIT XXXXXXXX

LESS Expenses (overheads)
Eg.
Rent
Telephone
Transport costs
Owners salary
Wages
Advertising
Insurance
Depreciation
= NET PROFIT before INCOME TAX

LESS Income tax
= NET PROFIT after tax

4. CASH FLOW STATEMENT

CASH FLOW STATEMENT

This is one of the most important information tools for your business. It shows how much money you need to meet obligations, when it is to be needed and from where it will come.

It shows money coming into the business and money going out.

The result is a cash balance at the end of each period.

The Cash Flow statement rests on calculations done elsewhere.

The cash flow statement begins with cash on hand and the revenue sources. The next item lists expenses including those incurred in the manufacture or purchase of the product. Any capital requirements paid in cash are then listed. The last figure is a net cash flow and the balance of cash to be carried over to the next period.

In the business plan the cash flow is normally done on a projected monthly basis for the first year.

CASH FLOW FOR THE BUSINESS FROM (DATE) TO (DATE)
Month 1 Month 2 Month 3
Balance brought forward yyyyyy ZZZZZZ AAAAAA

Cash inputs (eg. Loan from Branson) XXXXXX

PLUS Cash sales XXXXXX XXXXXX XXXXXX
PLUS Receivables (accounts paid to you) XXXXXX XXXXXX XXXXXX
PLUS Other income XXXXXX XXXXXX XXXXXX

TOTAL available cash XXXXXX XXXXXX XXXXXX

LESS

Material/Merchandise XXXXXX XXXXXX XXXXXX
Production labour XXXXXX XXXXXX XXXXXX
Overhead XXXXXX XXXXXX XXXXXX
Marketing/sales expenses XXXXXX XXXXXX XXXXXX
Admin costs XXXXXX XXXXXX XXXXXX
Taxes XXXXXX XXXXXX XXXXXX
Capital expenses XXXXXX XXXXXX XXXXXX
Loan repayments XXXXXX XXXXXX XXXXXX

Total cash out XXXXXX XXXXXX XXXXXX

= CASH FLOW
(Difference between total income ZZZZZZ AAAAAA BBBBBB
and total expenses)

The cash flow is either added or subtracted from the beginning balance and this amount is then carried over to the beginning of the next period as the brought forward cash balance available.

QED

Regards - Charl Heydenrych proplib@tiscali.co.za

3. Read this - Interesting set of services.

http://www.realworldbusiness.com/

119670 Produce a business plan for a new venture

Core 119670 Produce a business plan for a new venture Level 2 8

119669: Match new venture opportunity to market needs

Core 119669 Match new venture opportunity to market needs Level 2 6

119672: Manage marketing and selling processes of a new venture

Core 119672 Manage marketing and selling processes of a new venture Level 2 7

Marketing – The Market Research Process

1. People have needs and it is the task of the marketing function of a firm to define these needs and relate them to the products and services the firm produces or advise the firm to change a product or service to better meet the needs of a given target market.
2. Since consumers differ in many ways it is also possible to group a given population into different categories related to these differences – this process is called market segmentation. This helps to adapt the marketing message to a specific segment or target market.
3. Two similar words are used: marketing research (US English) and market research (British English) – Market Research is a form of applied sociology that concentrates on understanding the behaviours and preferences of consumers in a market-based economy. It tries to define key characteristics of a particular market or market segment.
4. Through market research one might want to establish the size of a particular market for a certain product, to position a product in the market, to attempt to uncover special needs in the market, to reveal opportunities for new products and to evaluate the marketing strategies being used.
5. Market research also reduces the risk of having a product fail in the market, it helps to fine-tune features of a product and to adapt the advertising and PR message.
6. CONDUCTING MARKET RESEARCH

Define the problem or opportunity
Define the research objectives
Develop the research design
Decide on the type of data to be used
Design the questionnaire
Gather the data
Analyse the data
Interpret the data
Write the research report

119674 Manage finances for a new venture

Core 119674 Manage finances for a new venture Level 2 10

119668 Manage business operations

Core 119668 Manage business operations Level 2 8

119667: Knowledge of Industry/sector & Procurement systems

Core 119667 Identify the composition of a selected new venture`s industry/sector and its procurement systems Level 2 8

119673: Entrepreneurial ideas and opportunities

Core 119673 Identify and demonstrate entrepreneurial ideas and opportunities Level 2 7

119666: Financial requirements of a new venture

Core 119666 Determine financial requirements of a new venture Level 2 8

11495 Professionalism in a business environment

Core 114959 Behave in a professional manner in a business environment Level 2 4

114974 Customer Service

Core 114974 Apply the basic skills of customer service Level 2 2

113924: Business Ethics

Core 113924 Apply basic business ethics in a work environment Level 2 2

1. EthicsSA website - http://www.ethicsa.org/
2. Terms relating to ethics: http://www.ethicsa.org/glossary.php

2 . The Unit Standards for the Level 2 New Venture Creation Qualification

UNIT STANDARDS:
ID UNIT STANDARD TITLE LEVEL CREDITS
Core 113924 Apply basic business ethics in a work environment Level 2 2
Core 114974 Apply the basic skills of customer service Level 2 2
Core 114959 Behave in a professional manner in a business environment Level 2 4
Core 119666 Determine financial requirements of a new venture Level 2 8
Core 119673 Identify and demonstrate entrepreneurial ideas and opportunities Level 2 7
Core 119667 Identify the composition of a selected new venture`s industry/sector and its procurement systems Level 2 8
Core 119668 Manage business operations Level 2 8
Core 119674 Manage finances for a new venture Level 2 10
Core 119672 Manage marketing and selling processes of a new venture Level 2 7
Core 119669 Match new venture opportunity to market needs Level 2 6
Core 119670 Produce a business plan for a new venture Level 2 8
Fundamental 8963 Access and use information from texts Level 2 5
Fundamental 9009 Apply basic knowledge of statistics and probability to influence the use of data and procedures in order to investigate life related problems Level 2 3
Fundamental 7480 Demonstrate understanding of rational and irrational numbers and number systems Level 2 3
Fundamental 9008 Identify, describe, compare, classify, explore shape and motion in 2-and 3-dimensional shapes in different contexts Level 2 3
Fundamental 8962 Maintain and adapt oral communication Level 2 5
Fundamental 8967 Use language and communication in occupational learning programmes Level 2 5
Fundamental 7469 Use mathematics to investigate and monitor the financial aspects of personal and community life Level 2 2
Fundamental 9007 Work with a range of patterns and functions and solve problems Level 2 5
Fundamental 8964 Write for a defined context Level 2 5
Elective 9964 Apply health and safety to a work area Level 2 3
Elective 14343 Investigate the structure of an organization as a workplace Level 2 8
Elective 14341 Keep informed about current affairs related to one`s own industry Level 2 4
Elective 14340 Maintain an existing information system in a business environment Level 2 4
Elective 114976 Operate and take care of equipment in an office environment Level 2 2
Elective 14346 Process numerical and text data in a business environment Level 2 2
Elective 119671 Administer contracts for a selected new venture Level 3 10
Elective 119713 Apply basic HR principles in a new venture Level 3 4
Elective 13912 Apply knowledge of self and team in order to develop a plan to enhance team performance Level 3 5
Elective 117837 Assemble, install and dismantle exhibition stands Level 3 5
Elective 13929 Co-ordinate meetings, minor events and travel arrangements Level 3 3
Elective 13915 Demonstrate knowledge and understanding of HIV/AIDS in a workplace, and its effects on a business sub-sector, own organisation and a specific workplace Level 3 4
Elective 13930 Monitor and control the receiving and satisfaction of visitors Level 3 4
Elective 13936 Outline the legal environment of a selected industry Level 3 2
Elective 13934 Plan and prepare meeting communications Level 3 4
Elective 13933 Plan, monitor and control an information system in a business environment Level 3 3
Elective 13932 Prepare and process documents for financial and banking processes Level 3 5
Elective 119712 Tender for business or work in a selected new venture Level 3 8


http://allqs.saqa.org.za/showQualification.php?id=49648

1. Starting and running a business

Starting and running a business.



- making money only with an idea




A guidebook for New Venture Creation learners (NQF level 2).



7 June 2008

Note

This document was developed as a handbook for Branson School of Entrepreneurship learners

So the overall aim of the book is to help the NQF level 2 learners achieve the three goals of the programme:

a) To start a money making activity.

b) to draft a business plan that will give them funding

c) to attain the New Venture qualification.

Obviously there are secondary objectives for a programme of this nature – apart from giving young persons the skills to gain financial independence it also encourages a range of other life skills and relevant work and business skills. This book will therefore also be useful to anybody else that wishes to start and run their own businesses.


Table of Contents

1. Goals of the programme 4
a) To start a money making activity. 4
b) to draft a business plan that will give you funding 6
Starting A Business In South Africa: Overview 6
Write A Business Plan. 7
2. Step-by-step recipe book to attain the New Venture qualification. 12


Chapter 1. Goals of the programme

The goals of the programme is threefold:

a) To start a money making activity.

b) to draft a business plan that will give you funding

c) to attain the New Venture qualification.


a) To start a money making activity.

What do we mean by a money making activity?

All business is essentially about buying and selling something.

So, to start a money making activity you need to start by finding a product or service that you think there will be a need for and then you buy the product or design the service and then you sell the product or service, and there you have it – the start of a multi million rand business! All you now have to do is improve the way you go about doing you r business so that it can make sufficient money for you to live on and achieve your other goals in life.

What is the problem with this? Why don’t people just get on and do it? What is holding the back?

Often people say that they haven’t got the money to start even the smallest business. This just cannot be true. If they say this they do not understand the concept of an entrepreneur. An entrepreneur is a person that starts and grows a business with only one thing at his or her disposal – an idea. This could be an idea to solve a problem, an idea to improve some aspect of society, an idea to make money.

Armed with this idea he starts – this may mean that he scrounges around to make a prototype, this may mean that he “sells” his idea to someone to fund him, this may mean that he starts studying a situation in more depth, this may mean that he partners with other to help him bring the idea to fruition, this may mean that he saves up money by working to fund the first purchase of a machine, it may mean that he uses money that he doesn’t have on his credit card to get going – it may mean many things – but it definitely does not stop him from taking the actions necessary to move from reality to practice.

Many authors writing on small business development and entrepreneurship will mention the value of a business plan. Now, a business plan can either help or hinder the process of turning an idea into a business. Let us start by saying that a business plan is definitely not a prerequisite for a business start up. A business plan however does have a place in the process but should not be used as an excuse to take the hundreds of other acvtins that a person could take to turnd his or her idea into reality. One shouldn’t do anything without some idea of the steps that one intend to carry out and definitely one would not build a multi million rand factory without some sort of a business plan. The complexity of the plan should be in relation to the size of the project.

Other things that may keep people from taking the actions necessary to turn ideas into action may be referred to as hidden or psychological. Individuals often do not know why they have an inability to become the people they envisage or wish to be. All these hidden reasons often vanish once the decision is made and action is taken! I believe one should not dwell on the reasons why not, but rather concentrate on doing the things that we know will lead to success!

And here it is here is the recipe to get going:

Step 1: Decide on the product and service that you want to sell.
Step 2: Think through (write down your plan) the essentials of what you want to do
Step 3: Put your plan into action (buy and sell)
Step 4: Keep a record of your activities
Step 5: Revise and improve your actions

Decide, Plan, Act, Record, Improve (Dead people are really important)


b) to draft a business plan that will give you funding

Starting A Business In South Africa: Overview

Starting a business may seem overwhelming at first. There are just so many things to do!

This guide is designed to help you make your dream of starting a business a reality. You can use it a guide to the steps you need to follow when starting a business, or as a checklist while you're going through the process of starting a business to make sure that you haven't overlooked anything.

1) Come up with a good business idea.

There are many books and websites that will show you how to discover winning business ideas on your own. Or browse through the Business Ideas collection for ideas for starting a business (Annexure A). Often however the best business ideas sit in your head because of your unique background and experience – do some data mining in your head!

2) Write a business plan.

Working through a business plan will tell you whether or not your idea for starting a business is viable - and is necessary for securing funding.

There are many websites that will give one business plan templates and free sample business plans - see annexure B. There are even business plan development template software available online. You can find more information about the need for a business plan when starting a business in the next section titled:"Write A Business Plan".

3) Decide on a winning name for your business.

A business name doesn't have to be short but it should be snappy. You want a name that's memorable and is going to encapsulate what your business does for marketing purposes.

4) Choose the form of business you're going to start.

You should understand the differences between a sole proprietorship, partnership, and incorporation to be able to decide which form of business to choose.

5) Get a business licence (if necessary for your type of business).

While not necessary for all businesses, many new businesses will need to get a business license before they can operate legally within their municipality. If your city or town doesn't have a web site, you can find the information in the blue pages of your phone book.




Write A Business Plan.

Writing a Business Plan is necessary for a number of reasons:

• To formalize your thoughts
• To help you think through problems and issues
• To help communicate your plans
• To obtain funding
• To act as a blueprint for business operations
(This Business Plan template is based on the one designed by Business Partners).

The aim is to build a well-motivated business plan from which a thorough understanding of your existing or proposed business, your own goals and objectives and your financing requirements can be obtained.

Specific attention should be given to four key areas:

1. the business itself
2. the management of the business (the entrepreneurs involved)
3. the market in which the business operates
4. the financial management and planning - the risks and rewards associated with the total investment in the business.

NOTE: Although a guide to writing a business plan is being made available here, circumstances vary considerably and you will need to tailor your business plan depending on the type of business — technology, manufacturing, service or retail. But, the basics remain the same.

Every business plan should comprise the following sections:

Cover page
Executive summary
Business overview
business profile
the product or service
Management
the entrepreneurs
the management structure
The Market
industry analysis
market analysis
Sales and Marketing strategy
Financial statements and projections
Legal and regulatory environment
SWOT analysis and risk/reward assessment
Appendices and supporting documentation
Let us deal with each in a little more detail:

Let us have a look at each section in turn:

EXECUTIVE SUMMARY
The executive summary is the MOST vital part of the business plan — it has to sell your strategy for success to the investor.
The summary is an overview of the entire plan and must contain the highlights of the business plan and summaries of each section. Therefore, although it is at the beginning of the document, it is usually written last to capture the essence of the plan.
The summary stands alone and should not refer to other parts of your document.

BUSINESS OVERVIEW

1. Write a business profile, including the following:
• information on the background and history of the business
• indicate the business form (proprietorship, Close Corporation, Company)
• Is it a new business, take over, expansion, franchise?
• The mission, and the company's long and short term objectives in terms of business growth and development, as well possible exit strategies (for example: buy out investors, sell to larger company, go public, etc)

2. The product or service
• describe in full the product or services offered by the business and the innovative features of these products and services and the competitive edge they afford the business over rivals in the market.
• the expected product life cycle where applicable
• include descriptions of key technologies employed and current and future research and development

3. Describe the location, premises and — where applicable — production facilities

4. Production and technology
• describe production processes and capacity, identifying any existing constraints and possible problem areas
• include a detailed analysis of the process of installing and commissioning any new technologies and production processes
• include information on quality assurance systems and procedures, and certification
• details of suppliers and sub-contractors, and any contractual arrangements governing the supply of key inputs

5. Elaborate on the business's past achievements and strengths and past problems and weaknesses, and critical success factors

COMPANY MANAGEMENT

1. The entrepreneurs
• include a description of the skills and experience of the entrepreneurs covering the key areas of technology and product development, production, sales, marketing, finance and administration
• describe the position and the specific functions and responsibilities of each entrepreneur and/or manager
• attach a detailed curriculum vitae of each entrepreneur
• indicate the financial contribution of each entrepreneur to the business, and the current shareholding structure.

2. The management structure of the business
• show company ownership structure, business units and subsidiaries where applicable
• attach an organisation chart showing the functions and responsibilities of directors, key management and staff
• formulate remuneration, incentives, share options, and conditions of employment of key management and directors
• analyse of any deficiencies in management and how these positions are to be filled
• comment on current and future employment levels, labour relations and union membership
• include details of systems to be implemented: information technology, accounting, administration, management information and stock control systems
• include details of auditors, attorneys, bankers and professional advisers
3. Franchise information (where applicable)
If the business is a franchise, include what is covered in the management package the franchisor provides in this section

THE MARKET

1. Industry analysis
Summarise the industry in which you will compete. Find most of the facts from government statistics and trade organisations. Discuss topics such as:
• current trends and developments in the industry
• large and important players in the industry
• how the industry is segmented
• problems the industry might be experiencing
• national or global events influencing the industry
• national and global growth forecasts
• how legislation affects the industry (for example, how the law limiting smoking in a restaurant affects the industry)

2. Market analysis
• describe the existing market and its potential for growth
• include a detailed analysis of the size and maturity of the market, trends and seasonality exhibited by the market, and the business's current and expected market share together with an analysis of the time, resources and actions required to achieve this desired market share
• list existing and potential customers, supported by letters of intent, orders on hand, contracts, where applicable
• include a detailed analysis of competitors, the price and quality of their products, service and delivery, and their expected reaction to your activities
• highlight and discuss your competitive advantage

SALES AND MARKETING STRATEGY

1. elaborate on current and planned sales and marketing strategies and promotional activities (advertising, exhibitions, promotions, public relations, etc.)

2. describe your distribution strategy and channels

3. formulate sales staffing, recruitment, remuneration and commission structures

4. include a detailed motivation and substantiation of sales projections (in monetary and physical terms) with a comprehensive analysis of the lead time expected to reach sales targets and milestones (e.g. break-even point)

5. elaborate on your pricing strategy and how it compares with your competition

6. where the business is a franchise, include the full marketing strategy of the franchisor

FINANCIAL STATEMENTS AND PROJECTIONS

1. Include only a summary of the financial statements and projections in the body of the business plan — attached detailed analysis as an appendix

2. Include operating budgets, cash flow projections (click here to see example of cash flow statement), income statements (click here to see example of income statement) and pro forma balance sheets (click here to see example of balance sheet) for at least three years (recommended five years). Provide monthly projected figures for the first and second year, quarterly figures for years three and four and annual projections thereafter.

3. Where applicable, provide:
• historical financial performance as shown by at least the last three sets of audited annual financial statements and up to date management accounts comprising income statements (monthly and year-to-date), balance sheets, and debtors and creditors age analysis
• costing methodology employed, or to be employed, and detailed costings giving a full analysis of cost of sales
• pricing policies giving a full analysis of theoretical and actual mark up and gross profit percentages
• rebates, discount structures and terms offered to and received from costumers and suppliers respectively
• break-even and sensitivity analysis
• details of overdraft and factoring facilities (bank, limit, security and interest rate) and medium and long term loans

4. Ensure that your financial projections agree with any other statements in the business plan (for example, costs involved in your proposed marketing strategy)

5. Formulate and motivate your capital requirements

LEGAL AND REGULATORY ENVIRONMENT

Include:
• details of any licences, copyrights, trademarks and patents registered (or in the process of being registered)
• details of any legislation and regulations governing the industry, product and production processes
• proof of compliance with tax and labour legislation (VAT, PAYE, RSC, UIF, COIDA, Employment Equity Act, Skills Development Act, etc) where applicable
• details of duties and tariffs to which inputs or products are subject if the business is a regular importer or exporter



SWOT ANALYSIS AND RISK/REWARD ASSESSMENT

1. Discuss definite and possible strengths, weaknesses, opportunities and threats

2. Give an honest assessment of the risks faced by the business, entrepreneurs and investors in relation to the potential for growth, profitability, and capital appreciation

3. Discuss strategies that can be implemented to address the risk factors highlighted


APPENDICES AND SUPPORTING DOCUMENTATION

The following supporting documentation, inter alia, should be included where applicable:
• newspaper clippings, promotional literature, product brochures, market research, trade and industry publications
• partnership, association or shareholders' agreements
• offers to purchase, purchase and sale agreements
• contracts, orders, letters of intent
• memoranda of understanding, lease, franchise, agency or distribution agreements
• documentation relating to licences, copyrights, trademarks and patents
• quotations or pro-forma invoices for capital items to be purchased
• detailed personal balance sheets of the entrepreneurs
• copies of identity documents and marriage certificates of the entrepreneurs
• schedules of life assurance and endowment policies of the entrepreneurs
• copies of company or close corporation certificates and registration documents
• drawings, work flow charts, plans, factory layouts, maps, etc
• a list of persons to whom reference can be made regarding creditworthiness, product and service quality, and the skills, abilities and integrity

Chapter 2. Step-by-step recipe book to attain the New Venture qualification.

Ask Charl for a copy of this chapter – he will give it to you once you have read the first one.