Improve Your Business: Workbook (ILO, 1986, 96 p.) 8. PLANNING Part 1 - Questions Planning sales and costs New investments Part 2 - Business practice Part 3 - Action programme How to construct your action programme Answers to business practice

Improve Your Business: Workbook (ILO, 1986, 96 p.)

8. PLANNING

Part 1 - Questions

Planning sales and costs

		Yes	No
1. Do you plan your business at least one year ahead ?
2. Do you plan your business one or more months ahead?
3. Do you write your plans down on paper?
4. Do you usually set a target in terms of a certain value of sales or profit which you hope to achieve during the next year?
5. Do you know what a budget is?
6. If you plan ahead, do you make your plans by using :
	(a) Records of your past activities?
	(b) Information you can get from official publications and talks with other business people?
7. When planning, do you talk with your own staff and get their ideas?
8. Once you have drawn up the plan, do you check regularly that everything is going in accordance with that plan?
9. Do you prepare a written budget of what your various business costs are likely to be during the next year?

New investments

		Yes	No
1. Do you know which information about your machines and equipment you need in order to be able to decide when they must be replaced?
2. Do you keep written records about output, breakdowns and costs on all your machines and equipment?
3. When thinking about buying new machines or equipment:
	(a) Do you first make an estimate of your sales for the next few years?
	(b) Do you contact several dealers and suppliers for information on new techniques and processes?
	(c) Do you visit other businesses which are already using the equipment you want to buy, or similar equipment?
	(d) Do you obtain and compare detailed specifications and quotations from several manufacturers, either through local agents or direct?
	(e) Do you check in advance whether your new equipment can operate with the materials you are currently using and, if not, do you find out if the new materials you need are easily obtainable, and at what cost?
	(f) Do you ensure that spare parts for the new equipment can be easily and quickly obtained?
	(g) Do you find out whether your workers will need new skills to operate the new equipment?
4. Do you make sure that the contract spells out clearly the exact payment conditions, delivery dates, capacity, fuel consumption and so on, of the equipment, as well as the obligations of the supplier (guarantee conditions, etc.)?

Part 2 - Business practice

1. THE BUSINESS PLAN

A business plan is an estimate of the sales you think you can achieve with the resources you have in the business, i.e. with the machines, workers, cash and your own business skills or ability.

The business plan helps you to control the operation of your business. The plan is made up for the period of time ahead (e.g. for one year or for three years). It is then broken down into shorter periods (e.g. months). If it is done in this way, it is easier for you to check whether your business is running according to the plan. If necessary you can take action to correct any deviation from the plan.

In addition to the estimated sales figures which you have to calculate for your business plan, you also have to estimate the direct and indirect costs. Once you have made estimates of these costs you can get an idea of how much profit you will make in total for the whole period, and also for each shorter period within the business plan.

To give you an idea of what you have to do to make a business plan, we will ask you to complete the business plan for one year for a carpentry business.

Figure

Read the following and try to complete the sheet called “Business plan” over the page by filling in the following:

(a) Sales

Last year's sales in John's carpentry business were 2,500 chairs, at 45 NU a chair. As a result of improvements, the production capacity is now bigger. John has never had problems selling what he produces. His estimate for production and sales for the next 12 months (January-December) is 3,000 chairs at 50 NU a chair. Fill in the sales figure.

Figure

(b) Labour

The wages for his five employees (labour cost) will be 3,000 NU each month. Fill in the labour cost.

Figure

(c) Materials

John estimates that the materials cost will be slightly less than half the selling price. If the sales each month total 12,500 NU the materials cost will be just under half that figure (half is 6,250 NU so you estimate, say, 6.000 NU for each month). Fill in the materials cost.

Figure

(d) Gross profit

Now you can complete the estimated gross profit each month and for the whole year. Fill it in on the sheet.

Figure

(e) Indirect costs

The indirect costs (all other costs in John's business) were 15,000 NU last year. John knows that these costs increase every year. He must add an extra 20 per cent to his indirect costs (i.e. 20 per cent of 15,000, making 3,000). He adds 3,000 to 15,000 and gets 18,000 NU. This is the total indirect cost for the year to come. To get the monthly figure for indirect costs, 18,000 is divided by 12, giving 1,500 NU for each month. Fill in the indirect costs.

Figure

(f) Net profit

Now you are in a position to calculate easily the monthly net profit and yearly net profit totals for John's business.

This example of a business plan shows you the basic principles which have to be followed. In the Handbook you will find more detailed instructions on how to make a business plan.

BUSINESS PLAN

Details

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Total

Sales

Less: Production costs of which:

Labour

Materials

Gives: Gross profit

Less: Indirect costs

Gives: Net profit

Figure

2. MARGARET'S TAILORING BUSINESS

Margaret has a small tailoring business. When she started her business two years ago, she did not have the capital to buy a suitable sewing-machine. Therefore she borrowed a hand-powered machine from her aunt, who was quite glad to receive 20 NU per month as a rent for the machine.

However, Margaret is not very satisfied with the machine. The fact that it is hand operated slows down the pace of her work as the right hand has to be on the wheel all the time, and only the left hand is available to hold the cloth. She has plans to invest her money in a new sewing-machine. She has made up her mind that, to solve her present problem, the new sewing-machine should be either foot powered or electrical.

Margaret has never been in a situation like this before in her life. She does not know how to choose between the two types of machine. Can you help her by giving her some factors which she should consider before making the decision?

(a) ______________________________
(b) ______________________________
(c) ______________________________
(d) ______________________________
(e) ______________________________
(f) ______________________________

Now that you have completed the business practice exercises, turn to the pages which follow the action programme. There you will find the answers. Check your answers against the answer solutions which are given. How many correct answers did you get?

CHECK YOUR ANSWERS!

THEN GO TO THE HANDBOOK FOR MANAGEMENT IDEAS

Now go to the Handbook and read thoroughly the management ideas in the same section there. You will then find that all the business practice exercises become easier to answer.

Part 3 - Action programme

How to construct your action programme

Count the number of times you answered “yes” or “no” for each set of questions. How many times did you answer “yes”? The more “yes” answers, the better you are in business management. Now look again at those questions you answered with “no”. Those are possible problem areas in your business. Choose the one which you think is the most important for your business. Take the most urgent problem first. Don't try to solve everything at once.

Now write the problem into the action programme opposite, as we have done with the example. Then write in What must be done, By whom and By when in order to solve your problem.

Finally, go back to your business and carry out the action programme.

Figure

Problem	What must be done?	By whom?	By when?
Example:
Must set up targets for my business activities for the next 12 months.	Make up a Business Plan.	Myself	Next Saturday 4/7/86

Answers to business practice

1. THE BUSINESS PLAN

Details		Jan.	Feb.	Mar.	Apr.	May	June	July	Aug.	Sept.	Oct.	Nov.	Dec.	Total
Sales		12,500	12,500	12,500	12,500	12,500	12,500	12,500	12,500	12,500	12,500	12,500	12,500	150,000
Less: Production costs of which:
	Labour	3,000	3,000	3,000	3,000	3,000	3,000	3,000	3,000	3,000	3,000	3,000	3,000	36,000
	Materials	6,000	6,000	6,000	6,000	6,000	6,000	6,000	6,000	6,000	6,000	6,000	6,000	72,000
Gives: Gross profit		3,500	3,500	3,500	3,500	3,500	3,500	3,500	3,500	3,500	3,500	3,500	3,500	42,000
Less: Indirect costs		1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	18,000
Gives: Net profit		2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	24,000

Figure

2. MARGARET'S TAILORING BUSINESS

There are a number of factors which Margaret should consider:

(a) Afoot-operated machine is much cheaper than an electrical one. Will Margaret be able to make an investment in an electrical machine worthwhile?

(b) Are spare parts for the electrical machine readily available? And for the foot-operated machine?

(c) Is there a mechanic available to repair the electrical machine when it breaks down?

(d) Are there frequent power cuts?

(e) An electrical machine gives a lot of possibilities for making more sophisticated clothing which a foot-powered machine may not have. Is there a market for more sophisticated, fashionable clothes in Margaret's town?

(f) Will Margaret need additional training to operate the electrical machine? At what cost will the training be available?