3.1

Explain the purpose content and format of a business plan

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A Business Plan is a document in
which a business opportunity, or a business already under way, is identified,
described and analysed, examining its technical, economic and financial
feasibility. The Plan develops all of the procedures and strategies necessary
in order to convert the business opportunity into an actual business project.
Moreover, it should serve as a business card for introducing the business to
others: banks, investors, institutions, public bodies or any other agent
involved, when it comes time to seek cooperation or financial support of any
kind.

?In
reality, there is no standard format for the presentation of a good
business plan. Business plans vary in content and size according to the
nature and size of the business concerned and on the emphasis that is
placed on certain critical areas as opposed to others. The plan should
include the following sections:
 
·        
Executive
Summary? and Enterprise Description
·        
Product or
Service Description
·        
Industry
Analysis, Competition Analysis, Swot Analysis
·        
Marketing
Sub-Plan, Operations Sub-Plan, Human Resources Sub-Plan, Financial Sub-Plan
·        
The Budget
·        
Liquidity
·        
Selected Options
and Critical Measures
·        
Milestone
Schedule?

 

3.2

Explain
the business planning cycle

 

 

The business planning cycle is a
planning sequence designed to give structure to organisational and business
planning. Typically, it has the following stages in the ongoing sequence:

Plan: Develop and
establish (or review in the case of an existing plan) viable operational plans
that address all elements of the business. Set goals.

Action: Implement
the Plan.

Investigate:
Examine the efficacy of the Plan against measures of success defined in the
planning stage, look at increasing economy, efficiency and effectiveness in
processes.

Refine: Make
changes as required to perfect processes in delivery of the plan.

 

3.3

Explain
the purpose of a budget

 

A budget is a plan for income and
expenses, which allows a business to operate within its means. A budget is
usually drawn up for each financial year on the basis of estimated sales and
costs. The actual performance of the business can be monitored and measured
against this proposed plan. Different budgets can be created depending on what
particular aspect of the business requires focus.

The most common budget operated
at team leader level would be a cash budget for a particular purpose: for
example, a stationery budget or a discrete project budget, which would be
monitored and managed to ensure that the allocated cash is not exceeded and any
underspend is declared such that it can be redistributed as required. One way
of monitoring a cash budget is to use a Budget Control Chart: in this chart,
all the activities have a budget assigned and during the year, the variance
Budget VS Actual Spend is tracked; when a variance arises, a manager can decide
whether or not formal corrective action is required.

 

3.4

Explain
the concept and importance of business risk management

 

In business it is reasonable to
assume that things will go wrong either through omission (we forget to do
something or fail to anticipate a potential problem), or, commission (we do
something that we should not). These occurrences are collectively known as ‘risks’.

The risk management process
effectively comprises 2 distinct phases: risk analysis and risk management. The
first phase (risk analysis) involves identification and evaluation of a risk,
and assessment and selection of a suitable response. The second phase (risk
management) is concerned with resourcing the response (carrying out the actions
necessary to prevent or manage the risk) and reviewing what effect the response
had.

In risk management, it is
customary to specify each individual possibility rather than adopt a ‘one-size
fits all’ approach. Having done that, each risk is evaluated on the basis of
its probability – the likelihood of the risk occurring – and the impact – the
consequence of that risk occurring. The grid below illustrates how to evaluate
probability and impact:

Evaluation of the risk and its
significance will effectD1  on the response that is selected. There different
responses to a risk, which include:

3.5

Explain
types of constraint that may affect a business plan

 

A plan rarely comes to fulfilment
exactly as it has been envisaged. Things go wrong due to changes in the
expected circumstances; thorough consideration of possible constraints enable
contingency plans to be prepared and for potential setbacks to be overcomeD2 .

Examples of constraints include:

Legal Constraints
– All UK business operate within the UK legal framework; laws can change and
new ones can be introduced that may affect plans. For example, an increase in
rates of corporation taxation would impact business.

Financial Constraints – Unforeseen events would be likely to put pressure on limited funds.
Similarly, expected sales may not materialise, making outgoings less
affordable.

Social Constraints
– Businesses rely on having suitably qualified and experienced staff available.
If people leave the organisation there is no certainty that a suitable
replacement can be immediately found.

Environmental Constraints – Businesses need to comply with environmental legislation
and this may impose a constraint on preferred working practices.

Technological Constraints – Technology is rapidly developing and it is important
for businesses to be able to compete for business online, having web sites
optimised for search engines so that potential customers can find the business.
The absence of a good web presence can be a significant restraint.

Competitive Constraints – It can be difficult for businesses to predict the
actions competitors will take in reaction to business activity. Competitors
with bigger budgets may react to your marketing activity and swamp projected
growth as a result.

 

3.6

Define a
range of financial terminology

 

 

The Profit & Loss Statement – The Profit & Loss (P&L) Statement is a summary
of transactions over a period. It shows income generated, costs incurred &
either a profit or a loss for the period. It records relevant transactions to
determine various levels of Profit (or Loss) from the organisation’s activities
over the period. In outline, the main sections of a P statement are:

·        
Sales

·        
Less direct costs of
sales

·        
Gross Profit

·        
Less Expenses

·        
Net Profit

 

The Balance Sheet
– The Balance Sheet is a snapshot of an organisation’s financial position at a
given point. It shows all the assets, liabilities and accumulated reserves
showing the organisation’s net worth. It shows what is owned and owed by the
business. In outline, the main sections of a Balance Sheet are:

·        
Fixed Assets

o  
Current Assets
(Stock, Debtors people that owe money, Cash)

o  
Current Liabilities
(Trade Creditors money owed, Other Creditors)

·        
Net Current Assets

o  
Less Long Term
Liabilities

·        
Total Net Assets

·        
Financed by:

o  
Initial Capital

o  
Retained Profits

o  
Shareholders’ Funds

 

The Cash Flow Statement – The Cash Flow Statement lists the inflows and outflows of cash
(cash is all money in actual notes or cheques, bank transfers, etc.) for an
organisation over a given period. It can be either a forecast or a record of
historical data. It records net cash flows, along with opening and closing
balances. It helps businesses to manage funds, monitor cash needs and provides
an indicator ofD3  solvency – ie. how much cash is available.

Costs – All
businesses incur costs and it is important to minimise costs to improve
profitability. As a team leader you will have considerable impact on
controlling costs. The main categories of cost within a business include:

·        
Employee Costs

·        
Property Costs

·        
Materials Costs

·        
Supplies Costs

·        
Support Services
Costs

·        
Storage Costs

·        
Selling Costs

·        
Transport and
Delivery

·        
Administration Costs

·        
Depreciation Costs

·        
Maintenance Costs

·        
Overheads

 

Different Types of Cost Classifications:

·        
Variable costs:
costs that move with changes in the volume or activity of the business.

·        
Fixed costs: costs
that remain constant in the short term irrespective of the level of activity.

·        
Direct costs: costs
directly attributable to a product or process. Indirect costs: costs which are
not directly attributable to a product or process.

·        
Capital Costs: costs
of acquiring or upgrading physical assets such as property, industrial
buildings or equipment.

 

 

 

 

 

3.7

Explain
the purposes of a range of financial reports

 

The principal statements of
account or reports are the profit and loss statement, the balance sheet and the
cash flow statement. Reports are prepared by businesses for 2 main audiences:

External Audiences
– Financial accounting: concerns the preparation of the annual accounts for
filing in line with legislative requirements for reporting and taxation.

Internal Audiences
– Management accounting: concerns information for monitoring and control of the
business and for making associated management decisions. They are produced
throughout the reporting year – typically monthly.

Beyond the necessity for upward
reporting of information, it is incumbent on team leaders and managers to
disseminate information to other stakeholders. Provision of open, timely and
relevant information to those who it affects is an essential element of
effective management.

Dissemination of information
should take account of:

·        
What you need or
plan to disseminate – the message

·        
To whom – the
audience

·        
Why – the purpose

·        
How – the method

·        
When – the timing

 

The purpose of the dissemination
activity may be to:

·        
Raise awareness

·        
Inform

·        
Engage

·        
Promote results

 

4.1

Explain
methods of measuring business performance

 

1.
Check the progress against objectives. It might be obvious to
re-examine the business plan if we are pitching for investment or launching a
new product; but it’s just as important to assess the objectives on an ongoing
basis.

 

2.
Review financial targets. Consider whether poor sales or
profitability can just be blamed on market conditions or this can be attributed
to staff poor performance.

 

3.
Assess staff levels and performance. If staff productivity is
down, business should establish the cause. Business should consider whether
they have all the skills needed in the teams – it might be time to launch a
training drive or bring in some new recruits.

 

4.
Benchmark the firm. Weighing up the firm’s position against competitors will help
identify gaps in the offer. Business should look at what’s driving success in
the sector and try to pinpoint what enables a successful local competitor to do
so well. Is it price, customer service or a recent advertising campaign?

 

5.
Establish whether the customers are satisfied. Business
should talk to customers and we will quickly discover if we are keeping up with
their expectations and demands. Even if the majority of feedback is positive,
they will always highlight areas where we can improve. Business should take
note and act quickly on anything important.

 

6.
Encourage staff feedback. Business should listen to the
employees – they can provide you with insight into where we are working well
and where we are not performing, and why.

 

4.2

Explain
the uses of management information and reports

 

Nowadays, all medium and large
companies have developed management information systems that are able to
extract all numeric data (financial, project receive and delivery dates, etc.)
with a simple click of a button. This has enabled a new visibility to project
data to key internal and external stakeholders via reports. The role of the
team leader is to present such reports and highlights in a simple way and show
pattern and trends of data to the stakeholders; the team leader can also
understand if there are shortfalls in the team performance so that issues can
be addressed.

 

4.3

Explain
how personal and team performance data is used to inform management reports

 

When data are grouped together
into reports, a team leader can understand if the team is performing well. For
example, the financial reports are flagging that the gross margins in a quarter
are 30% against a target of 40%; at this stage, the team leader will start
going more deeply into the raw data and finds out that few suppliers (that do
most of the work) have a high hourly rate. The team leader can now address 2
issues: they can ask the team members to try to use cheaper suppliers and/or
they can contact the expensive suppliers and negotiate a new cheaper hourly
rate with the promise of sending them more work.

 

4.4

Describe a
managers responsibility for reporting to internal stakeholders

 

The manager is responsible for
bridging the gap between the stakeholders and the internal stakeholders of the
organization will always ask for more information in order to make business
decisions. Since the manager is the person who is getting the information from
different sources and providing the information to internal stakeholders, he or
she must assure that the information incorporated in reports should be
validated by authentic sources for accuracy.

The manager should keep in mind
that internal stakeholders might misinterpret the information.  A
responsible manager will invite all the relevant stakeholders in a meeting to
give them understanding on the provided reports to bring everyone on the same
page. Internal stakeholders might have some queries or need further
clarification regarding the reports and it’s manager responsibility to provide
the platform or communication channels where internal stakeholders can raise
queries and get the earliest feedback on it.  The decision maker in the
organization may seek project manager’s input in decision making, because he or
she has the detailed understanding of the information provided to management.

5.1

Explain
the principle of accountability in an organisation

 

Every employee/manager is
accountable for the job assigned to him or her. In practice it requires the
person to complete the job in line with agreed (or commonly understood)
expectations and inform his superior accordingly. Accountability is the
liability created for the use of authority. It makes the person who is
accountable, answerable for performance of the assigned duties. When authority
is delegated to a subordinate, the person is accountable to the superior for
performance of assigned duties. If the subordinate does a poor job, the
superior normally remains accountable for the poor performance. Accountability
requires the subordinate to explain the factors causing poor performance.

 

5.2

Explain
the difference between ‘authority’ and ‘responsibility’

The authority is “a power that is delegated
formally. It includes a right to command a situation, commit resources, give
orders and expect them to be obeyed, it is always accompanied by an equal
responsibility for one’s actions or a failure to act” (from Business
Dictionary).

An essential component of
management, authority confers power to a manager to enable organisational
objectives to be achieved, including making decisions and giving instructions
to subordinates. A manager will not be able to function efficiently without
sufficient authority. Authority is delegated from above but must be accepted by
subordinates.

Responsibility is a task which
someone is expected/nominated to complete. For example, it is a quality
manager’s responsibility to ensure the quality of goods produced.

5.3

Explain
the meaning of delegated levels of authority and responsibility

 

Authority and responsibility is
usually delegated such that the person being delegated to has a specified set
of parameters within which they can act. This concept of delegated levels of
authority is used widely in financial delegation. For example authority and
responsibility might be delegated for an office stationery budget. In this case,
responsibility would include, say, ensuring that the budget is properly
administered. The delegated level of authority, for example, might be for
individual items up to £50 in value. Beyond that value, it would require
referral and approval by the line manager it would be the individual’s
responsibility to ensure that this is done.

 D1affect

 D2You
have made some good points in this section, now you need to relate them to and
consider how they can affect a business plan, giving examples of a scenario is
a good way to do this.

 D3You
have made a good start, giving a strong definition to cashflow statements
(turnover) You now need to define the terms you have used above such as:

Gross profit

Net profit

Debt

Credit

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