Written on the 8 February 2014 by National Australia Bank
Analyse the capacity and efficiency of your operations and your planned improvements.
Do you own or lease your premises? If you lease, do you have security of tenure or are you stuck in an unsuitable location? What are the advantages and disadvantages of the present location? Should the business expand or move?
Explain how you organise production and what equipment you use. How modern is the equipment and what is the capacity of your current facilities compared with existing and forecast demand?
Give an overview of the management information systems you have in place, such as databases, networks, servers, and accounting reports and processes. Are your systems reliable and can they cope with any proposed expansion?
Also identify any quality or regulatory standards that the business must conform to, including environmental standards.
Your financial forecasts translate your planned strategy and tactics into numbers.
Set out the historical financial information on your business for the last three to five years. Break total the sales figures down into component parts. For example, show sales of different types of product or to different types of customers and show the gross margin for each component of sales.
Highlight any major capital expenditure made in the period and provide both an up-to-date balance sheet and profit and loss account. Explain the reasons for movements in profitability, working capital and cash flow and compare them with industry norms.
Provide forecasts for the next three years. These should reflect the complexity of your business. A small business may need only a profit and loss statement, and sales and cash flow statements. A more complex asset-based business, or one with complex working capital requirements, will need balance sheet forecasts as well. Use the same format as for the historical information, to aid comparisons.
Clearly state the assumptions behind your forecasts. These should tie in with statements in the rest of the plan. For example, if the plan states that the market is becoming more competitive, then profit margins will probably be falling. Look at the overall trends of the historical and forecast numbers. Are they believable? Do the forecasts make allowance for possible problems and delays?
If you’re raising finance, use the cash flow forecast to predict your cash requirements. Add a contingency element to the funding requirement shown in the forecast (usually 10% to 20%). Consider what the mid-month peaks might be and include the likely interest or dividend costs of any new finance.