Business Planning Guide: Practical Application for SMEs

Information Paper

Business Planning Guide: Practical Application for SMEs

Published by the Professional Accountants in Business Committee

Professional Accountants in Business Committee International Federation of Accountants 545 Fifth Avenue, 14th Floor New York, New York 10017 USA

This information paper was prepared by the Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC). The PAIB Committee serves IFAC member bodies and the more than one million professional accountants worldwide who work in commerce, industry, the public sector, education, and the not-for-profit sector. Its aim is to enhance the role of professional accountants in business by encouraging and facilitating the global development and exchange of knowledge and best practices. This information paper may be downloaded free-of-charge from the IFAC website: . The approved text is published in the English language. The mission of IFAC is to serve the public interest, strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant.

Copyright ? May 2006 by the International Federation of Accountants (IFAC). All rights reserved. Permission is granted to make copies of this work provided that such copies are for use in academic classrooms or for personal use and are not sold or disseminated and provided that each copy bears the following credit line: "Copyright ? May 2006 by the International Federation of Accountants. All rights reserved. Used with permission." Otherwise, written permission from IFAC is required to reproduce, store or transmit this document, except as permitted by law. Contact Permissions@. ISBN: 1-931949-58-1

Foreword

The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) identified a practical business planning guide as a very useful tool for management, principally but not exclusively, operating in the Small and Medium-Sized Enterprise (SME) area of the market. The topic was selected in recognition of the role and importance of SMEs in the development of an economy. This project was carried out in collaboration with the Malaysian Institute of Accountants (MIA). IFAC acknowledges their contribution in developing the guide. Special thanks to Brian Wong and Lawrence Hwee of Pannell Kerr Forster Consultants Sdn Bhd who assisted in researching and drafting the publication.

The publication provides practical guidance that will help SMEs to understand their own business and industry, enabling them to better evaluate the business potentials and their associated risks. It will also be useful to Small and Medium-Sized Practitioners (SMPs) that are providing professional accounting services to SMEs.

The publication: ? discusses the concepts and techniques of writing business plans; ? provides a business plan checklist; and ? provides an example of a business plan.

It complements an earlier IFAC publication, Setting Strategic Directions in the Small and Medium Enterprises: A Guide for Professional Accounting Advisors which was aimed at assisting managers working in SMEs and the practicing accountants engaged in advising SMEs.

IFAC encourages its member bodies to promote the value of this publication to their members, which is available for download from the IFAC website at .

Members of the PAIB Committee project team who provided valuable help in bringing this project to fruition were:-

Malaysia

Yeo Tek Ling (Convener) Malaysian Institute of Accountants

Australia

John Petty CPA Australia

France

Henri Giot Conseil Superieur de l'Ordre des Experts-Comptables

Iran

Ghasem Fakharian

Iranian Association of Certified Accountants

May 2006

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BUSINESS PLANNING GUIDE: PRACTICAL APPLICATION FOR SMES CONTENTS Page

I INTRODUCTION ............................................................................................................ 4 II THE PURPOSE OF PREPARING A BUSINESS PLAN................................................ 4 III STRUCTURE OF THE BUSINESS PLAN ..................................................................... 8 1 Executive Summary: Snapshot of Your Business Plan .................................................... 8 2 The Business in Detail ...................................................................................................... 9

2.1 Business Overview................................................................................................... 9 2.2 Vision Statement...................................................................................................... 9 2.3 Mission Statement.................................................................................................... 10 2.4 Corporate Values ..................................................................................................... 11 2.5 Vision, Mission and Values Statement .................................................................... 13 2.6 Business Goals and Objectives ................................................................................ 13 2.7 Business Strategy and Keys to Success ................................................................... 14 2.8 Risk management, Business Continuity and Succession Planning.......................... 18 2.9 Scenario Planning .................................................................................................... 19 3 Organizational Structure and Management: Introducing your Business and your Management Team ............................................................................................ 19 3.1 How to Put Together an Effective Organizational Structure ................................... 19 3.2 Core Organizational Competencies ......................................................................... 21 3.3 How to Present Your Management's Capabilities................................................... 25 4 Presenting Your Business's Operational Plan .................................................................. 26 5 Industry Analysis: Analyzing Your Business's Environment .......................................... 27 5.1 Methods of Presenting Your Industry Analysis....................................................... 27 6 Presenting your Business's Products or Services: Your Revenue Generators ................. 31 6.1 Product Portfolio Analysis: Analyzing Your Business's Products or Services...... 31 7 Market Analysis: Defining Your Products or Services and That of Your Competitors.............................................................................................................. 33 7.1 Identifying Your Target Market............................................................................... 33 7.2 Market Segmentation and Positioning of Your Products or Services ..................... 34 7.3 Competitor Analysis ................................................................................................ 35

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BUSINESS PLANNING GUIDE: PRACTICAL APPLICATION FOR SMES

8 Marketing Strategy: Presenting Your Strategies.............................................................. 37 8.1 The Four Ps of Marketing Strategy.......................................................................... 37

9 Constructing Your Business's Financial Position and Projections.................................. 39 9.1 Income Statement..................................................................................................... 39 9.2 Cash Flow ................................................................................................................ 42 9.3 Balance Sheet........................................................................................................... 44 9.4 Financial Assumptions............................................................................................. 46 9.5 Financial Budgeting ................................................................................................. 46 9.6 Financial Ratios and Key Performance Indicators: Translating Figures Into Meaningful Information ................................................................................... 47 9.7 Project Financing ..................................................................................................... 48

Appendix 1: Business Plan Checklist ..................................................................................... 50 Appendix 11: Sample of a Business Plan ............................................................................... 56 References............................................................................................................................... 83

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