[MUSIC] We now going to talk about the Operational Plan and we're going to explain the daily operation of the business, its location, equipment, people, the processes and the surrounding environment. Your particular business may not include production but if there's production going on, you need to address how and where your products or services are going to be produced. You need to explain the various methods of production. Know those techniques, the cost that are involved. Issues surrounding quality control, customer service, stock or inventory control, key aspects. The product development. Do you expect your product to last or will it be continue to developed? Especially in the technology industry. Those types of industries you've always got continuous research and development going on. The location. What qualities do you need in a location? So, you need to describe the type of location you will have. And in this we're talking about the actual physical requirements. What amount of space will you need? To ensure your business runs smoothly, efficiently and effectively. What type of building? What are the planning regulations? What about simple things such as electricity other utilities, is the infrastructure there? Access, access is important it need to be convenient to transport networks or to suppliers. Do you need walking access? What are your requirements for parking? Proximity to airport, rail or shipping links, etc. All these things need to be born in mind when developing your plan. This potential here not necessary, but potential for you to include a drawing or layout of your proposed location if it's important to you. This potentially could be important especially if you're going to be a manufacturer. What about construction? Most new companies should not put capital into construction. But if you're planning to build then cost and specification will be a big part of your plan. This can be quite expensive. And therefore, costs are really important. What about everyday running costs on expenses, rent, maintenance, utilities, insurance, electricity? All the day to day running costs of the business. What about refitting cost that makes the space suitable for your needs. These figures will become part of your financial plan. What about your business hours? When is it you plan to actually operate? The legal environment, I think this is quite key here, you need to describe the following aspects. Is there any licensing or mortgage requirements? Any permits needed for you to operate? You need to have a good knowledge of work and safety and health environmental issues at work, all the regulations. Special regulations covering your industrial profession maybe needed as well, particularly if you're dealing with chemicals, etc. Planning or building code requirements, what about insurance? Trademarks, copyrights or patents, are these pending or do you already have them? Of course, a key element of most businesses are the employees and we need to talk about staff. What type of staff do you require, skilled, unskilled, professional? Where and how will you find the right employees? What's the quality of the existing staff that potentially that you may have? And what about your pay structure, training methods and needs? Who does which task? This is a key point here, having a hierarchy of who does what within your organization. Have you prepared schedules or written procedures? That's also another key point. And have you compiled job descriptions for each employee? If not, it's worthwhile taking the time to write some. They really help your internal communication with employees. For certain functions, you will use casual part time workers in addition to employees. Okay, let's look at stock or often called inventory. What kind of stock will you keep? What materials, supplies, finished goods, are you expected to be a manufacturer? Holding lots of raw materials or you were just expected to be a retailer. In other words just holding stocks of finished goods. What about the average value of that stock? What sort of investment will you need in your stock? What about the rate of turn over? Now this of course depends on the type of industry that you're in. But if turn over is relatively slow but you need to hold stock, then you have to think about storage and the costs associated with that. And what about those rates of turnover? How will it compare with industry averages? So it's good to know what sort of turnover, on average, your competitors have. Will there be any seasonal peaks or trust? Are you planning, for instance, to sell toys, when in November and December maybe you can see peak sales. So you might need to stock up for those to meet the demand. What about lead times for ordering? This is a key point. In other words if you are ordering particular supplies, how long does it take to get them to you in order especially for a manufacturing organization to put them onto your production line. No point ordering them if you need, if your customers need them next week. No point ordering those raw materials now if they're going to take two weeks to be delivered. So you need to have a relationship with your suppliers about knowing their lead times, etc. Moving on to suppliers, I think it's key that you identify who they are. In other words, their names and addresses, very similar to your customers. The type and amount of inventory which they supply. What about the credit and delivery policies? Now we spoke earlier on about having giving credit to your customers. What about you taking credit from your suppliers, in other words buying on credit. It's unlikely that you're going to get favorable credit terms initially particularly for new startup. But those relationships can be developed, and as your business grows, you'll find that those credit terms become more and more favorable. What about the history of your supplies, they'll be a liability. Is there anything you can base your assumptions upon? Should you have more than one supplier for critical items, this could be used as a back up for instance. This can be maybe not so cost effective because by sticking to one supply, you might be able to take advantage of economies of scale, etc or even sort of certain agreements that you have. However, if they become unreliable, I think it is good that you should have someone's back up in the background if you wish, a new supplier in the background just in case. What about the genuine environment in terms of those suppliers? Do you expect shortages or short term delivery problems? This is particularly notable in things like the oil industry, where at times there is a shortage of supply. This can be deliberate or it can be unexpected such as strikes, etc. So you need to have your eye on the ground here making sure that you're aware if there are any potential short term delivery problems that might cause you problems. Are supply costs steady or fluctuating? If they're fluctuating, how would you deal with those changing costs? This is particularly important if you're particularly dealing with a commodity for instance, where you've got fluctuating prices on a daily basis. There are certain techniques that you might want to think about such as hedging and forward thinking about those particular prices. I wouldn't want to see too much detail in that on the business plan but I think it's worthwhile you're stating if your particular business will be affected by those issues. We've already spoken about this but a little bit more on your credit policies. Especially if you plan to sell on credit. Now, if you're selling on cash, may be you don't need so much in here. But as I said, most transactions are business to business, and therefore, those terms will be on credit. Do you really to sell on credit? That's the first thing. Is it customary in your industry? Is it expected by your clientele? If yes, then you need to state in the business plan what policies you will have about who gets credit and how much. It's important that you had checks in place to assess the credit willingness of any new applicants. What terms will you offer to your costumers? How much credit? When will payment be due? The normal credit terms will be payment due 30 days off the delivery of the goods or service. However, one way to increase your sales is maybe to extend that period, it's at least initially. That can cause you financial problems particularly with your working capital investment. We'll speak about that a little bit later on. Will you be prepared to offer discounts for prompt payment or even early payment? I think this is only something you should look at if it's customary within the industry in which you plan to operate. Of course what that means is a reduction in your cash received. But if you are having cash flow problems, it does mean that you receive that cash earlier. A little bit more on that once again later on when we look at cash flows. Do you know what it will cost to extend credit? In other words, by lengthening that particular credit period. Have you built those costs into your prices? You really do need to think about that. We spoke earlier about managing your debtors or accounts receivable. But particularly when you're selling on credit. I think it's important that you keep a record of what's going on, particularly with your customers. And if you do extend credit, then you should perform an aged debtors analysis. This should be done on a monthly basis and it's just a way of keeping track of how much of your money, of your cash, is tied up, in credit, that you've given to your customers. And one thing it does do, it alerts you to any customers who are a little bit slow and who maybe having payment problems. So an age debtors table is always a good idea. Well with that you'll also need to maybe develop a policy for dealing with slow paying customers. As I said before, one way to increase your sales is to offer favorable credit terms. But if they're a little bit slow in paying you, when is it you make the phone call? You need to have a policy in place. What about sending a letter? Maybe sending a second letter, maybe with a big red heading on it. What about asking your lawyers to get involved? Maybe getting them to send a letter. Of course that can cause the relationship between you and your customers to break down. So you really do need to be aware of what it is you are doing in terms of your credit policy with your customers. And what about you? What about you paying your suppliers? I think it's also important that you should have an aged suppliers list, saying what it is that you owe to your suppliers. How much you owe them and how long do you have owed that money for? Paying too early gets rid of your cash so really what we would like to do is delay payment as much as we possibly can. But of course if we do that we may alienate our suppliers and we might therefore find that our credit that our suppliers are affording us isn't cut off. So, I think it's also important that you don't damage that particular relationship as well. And it's therefore worthwhile developing an aged creditors list as well. Just like you have with your aged debtors. Sometimes your suppliers will offer you payment discounts. Of course what this tells once again is having effect on your cash but it does mean that you're paying less. [MUSIC]
