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Business Planning and Financials

R147.00

Description

Proper planning prevents poor performance. These are the five P’s of planning. With proper planning, the results of your business efforts will be pleasing. With this book, your next business planning efforts will be greatly improved and you will prepare a winning business plan.

Proper Planning Prevents Poor Performance. These are the five P’s of planning. With proper planning, the results of your business efforts will be pleasing.This book is about business planning, which results in a business plan.
It covers three main areas:
FIRSTLY: The legal requirements of financial statements. What every business owner and entrepreneur needs to know about the law and financial statements is discussed, as well as the public interest score, which in terms of the new companies act 2008, makes a determination as to whether the financials of a private company or a close corporation must be audited or independently reviewed.
SECONDLY: Using a practical example, step by step guidance is given on how to prepare a balance sheet, income statement, as well as a projected income statement, which are critical components of business planning.
LASTLY: The 18 elements of business planning are discussed, and a business plan outline is provided. With this guide, your next business planning efforts will be greatly improved, and you will prepare a winning business plan.

This book is ideal for a new or small and medium-sized entrepreneur who needs to understand how to prepare a business plan and also to understand financial statements.

The book guides readers with examples, in easy language, how to prepare the Income Statement, and the Balance sheet. The book also discusses that the complexity of financial statements varies based on the size of a business. A business that is run by an owner who is either a hairdresser or a motor mechanic, will find value in this book.

This book is definitely not for large businesses that have over 50 employees, as these business owners have in their employ accountants who understand the basics included in this book.

Students who are in their first year of studies in Accountancy and business management will also find value in the easy explanations of this book.

Introduction …………………………………………………………. 9
A: FINANCIALS INTRODUCTION………………………. 11
Definitions used …………………………………………………… 13
Importance of proper financials ………………………………… 15
Legal framework …………………………………………………. 17
What are financials? ………………………………………………. 19
South African Law extracts ……………………………………… 23
B: PREPARING FINANCIALS ………………………………. 37
The balance sheet …………………………………………………. 39
The income statement ……………………………………………. 47
Profit distribution …………………………………………………. 63
Budgets and forecast ……………………………………………… 67
C: BUSINESS PLANNING INTRODUCTION …………… 75
Business History ………………………………………………….. 77
The lie of “capital” ……………………………………………….. 81
Business Planning Reasons ……………………………………… 87
D: MACRO ENVIRONMENT PLANNING ………………. 89
Element 1: Customers …………………………………………… 95
Element 2: Substitutes …………………………………………… 97
Element 3: The complementors ……………………………….. 99
Element 4: Competition ………………………………………. 101
Element 5: New Competitors ………………………………… 103
Element 6: Suppliers ……………………………………………. 105
Element 7: Legislation and Government ……………………. 107
E: MICRO ENVIRONMENT PLANNING ……………… 􀀒􀀒􀀒
Element 8: Objectives ………………………………………….. 113
Element 9: Operations …………………………………………. 115
Element 10: Marketing and Sales……………………………… 117
Element 11: Service …………………………………………….. 119
Element 12: Technology ……………………………………….. 121
Element 13: Infrastructure …………………………………….. 122
Element 14: People Partnerships ……………………………… 123
Element 15: Public relations …………………………………… 125
Element 16: Research and development …………………….. 127
Element 17: Business Risk …………………………………….. 129
Element 18: Finances …………………………………………… 131
F: BUSINESS PLAN OUTLINE ……………………………. 133
Final thoughts……………………………………………………. 141

 

Introduction
Business planning, which results in a business plan, is what every entrepreneur should do before embarking on a business venture, not when they are thinking of raising finance from the bank. An important element of a business plan is the projected financial statements of the business venture.
In my consulting business, I encounter a lot of aspirant business owners seeking advice, and the first thing I always ask them to do is to determine the viability of their idea. If the venture proves to be viable, then proper research gets done, a business plan gets prepared, and the plan gets implemented to start the business. I must re-emphasise that a business plan is not meant to be prepared when the entrepreneurs needs a loan. Its purpose is to take an aspirant business owner or entrepreneur through a planning process.
The 5 P’s of planning are: PROPER PLANNING PREVENTS POOR PERFORMANCE.
With proper planning, the new business venture is guaranteed success. Depending on the type of business proposed, preparing a business plan can be an exercise that requires substantial resources. I always suggest that the prospective business owner undertakes the following:
1. Develop a forecast income statement, and a balance sheet, for two or three periods. If the business shows profitability, proceed to step 2.
2. Undertake business planning and prepare a business plan, including the findings of relevant research (Macro environment planning or research). If there is acceptable profit expected, proceed to step 3.
3. Start the business.
4. Periodically (monthly, quarterly or annually), measure results against the business plan, revisit the assumptions made, review the forecasts, update the business plan, and take appropriate action.This book looks at the first two steps above.

Importance of proper financials

The majority of companies and close corporations registered in South Africa are owner-managed, and, even though they are exempt from both the audit and the independent review, they still need to maintain the accounting records, as well as prepare the financial statements on annual basis.
There are various reasons why every entrepreneur should keep proper records as required by the law. Here are some of them:
1) Financials are a management tool, for you to know how your business is doing, to regularly review, and take appropriate action.
2) In terms of the Close Corporations and the Companies Acts, it is an offence not to keep proper accounting records, and the members or directors could be liable as stipulated.
3) The Income Tax act requires that the income tax returns of businesses be based on the annual financial statements.
4) When your business is growing, and you need to attract equity investors, you will need to present the history of the company, and substantiate your successes with proper records.
5) When your business is growing, and you need to attract debt financing, you will need to present the history of the company, and substantiate your successes with proper records.
6) Depending on your industry, several other laws and regulations require the financials of the business.

Business History

A business plan is the result of business planning. Business planning can not be done without a proper understanding of what a business is.
Wikipedia defines a business as follows:
A business (also called a firm or an enterprise) is a legally recognised organisation designed to provide goods and/or services to consumers.[1] Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk.
What we currently know as business of today has its origins in the desire of people to specialise in the production of certain products, and through specialisation, become good at that which they specialise in.
Early in the history of economics, people used to meet their needs on their own, be it for food, clothes or shelter. Then as time progressed, an alternative was discovered. People started servicing each other and specialising in certain fields. This latter option became more popular over time and birthed the concept of bartering whereby people exchanged goods and services.
Over time, coins were introduced as a means to store value, to make trade, or business easier. Instead of the farmers carrying fruits or vegetables around to go look for clothes they need, and barter them for their produce, it was easier to carry coins around. Later the coins were converted into paper “money”, and in 2012 value is “stored” in debit cards, credits cards, and EFT’s are a common method used in business.
Irrespective of the advancement of business today, the basic principles have not changed, these being:
1. A business must specialise in the production of a particular good or service. In doing this, the enterprise becomes better and better at producing economically, or at the lowest possible cost.
2. The particular good or service must meet the needs of people. The idea of “competition” was born out of realising that certain people, businesses, or nations are not best at the production of certain goods and services, for a variety of reasons. When a particular business is able to produce a product at a lower price, this indicates efficiency and effectiveness, all other things being equal. Another business producing the same product at a higher cost indicates that they are not as effective or efficient as their “competitor”