The Business Plan

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INTRODUCTION
In October 1993 I stood in front of the managing director of an international computer company. I was
terrified, but prepared to deliver my presentation. After weeks of product analysis, market research,
drawing up organisational structures and constructing financial models, I was ready to present a
comprehensive business plan.
My aim was to convince the director that we - the financial company I was working for and a local
computer company - were the best suited to become sole distributors of his product in South Africa.
Shortly after I started the slide show, he cut me short. "I have read your business plan in great detail," he
said. "I'm here to ask you questions, not to hear a repeat of your written proposal."
This was my first lesson in business development. I had become so wrapped up in compiling the
business plan that I had forgotten why I had done it. The aim of any plan - whether it is to obtain money
for a venture, or to convince a buyer that your company is the only firm worth looking at - must never be
neglected. This director had flown from Paris to see how we ran our operations, to ask questions and to
make up his mind about whether we were capable of selling his products.
Afraid that his irritation had hampered our chances of winning the contract, I switched the slide
projector off and awaited his questions. After we had answered the queries, he stood up, shook our hands
and said our application had been successful.
Often, however, the person or people you are presenting your plan to might want time to think
about the proposal. It is advisable, therefore, to ask when you can expect to receive an answer. This will
enable you to assess whether they are interested in financing your plan.
Toasting our new venture later with cocktails, the Frenchman told me he had made up his mind to
go into business with us before the presentation. He said he wanted to be associated with a company
which could draw up a plan in such "a concise, literate and logical form."
His comments were the last things on my mind when I was drawing up the business plan, but
there is no doubt that these issues are crucial. However, they would be worthless if the financial
institution you have approached for aid does not read your plan. If a document is 300 pages long, contains
spelling errors and obvious inaccuracies, you can be sure it will not even be read by the clerk assigned to
the project.
This book is in three parts. Part One looks at factors which limit and impede entrepreneurs from
entering business and obtaining funds for their ventures in South Africa and explains differences between
business plans, feasibility studies, due diligence, business profiles and information documents. Part Two
discusses how to conduct business and market analysis, which factors to include in your plan and how to
pull it all together. Part Three is an example of a business plan.

Jacques Magliolo
January 1996

The Business Plan

CONTENTS

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PAGE

Introduction

PART 1: WORKING IN A DIFFICULT BUSINESS ENVIRONMENT

CHAPTER 1: A STARTING POINT

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Critical spheres for using business plans

Is the plan practical and achievable
The plan as an evaluation tool
A marketing mechanism
Corporate success rates
Liquidations and de-registrations
Registrations
De-registrations
Registered firms less de-registrations
Ratios: De-registered to registered
Companies listed on the Johannesburg Stock Exchange
Self-evaluation questionnaires
The need to start a business
Characteristics of successful entrepreneurs

CHAPTER 2: TARGETING A MARKET

Economic activity
Sector Gross Domestic Product
Assessing the effects of wages
Using statistics
The Value Added Statement
Labour costs and productivity
Sector growth potential
Primary
Secondary
Tertiary
General perceptions
Stores and retailing
Building and construction
Manufacturing
Service industries (or the informal sector)
Market opportunities
Taking advantage of a transitional phase in our history

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CHAPTER 3: THE EXPERT INDICATOR

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Rely on your own expertise

The Chairmans Office Principle
Business and technical advice
Financial advice
Legal advice
Other advisors

CHAPTER 4: TYPES OF BUSINESS ENTERPRISES

Factors to consider
Financial factors
Financing the firm
Tax
State succour
Operational considerations
Management structures
Constancy
Delegation of responsibility
Legal aspects
Companies with no limited liability
Sole proprietorship
Partnerships
Companies with limited liability
Formalities
Company formation and registration
Licences and other consent forms
Closed Corporations
Co-operatives
Closed and open co-operatives
The three forms of co-operatives
Private companies
Public companies

CHAPTER 5: PREPARING TO WRITE A BUSINESS PLAN

Essential Steps
Writing the plan
The log book - noting key issues
First step
The SWOT analysis
Timing your proposal

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External factors

Final note

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PART 2: THE BUSINESS PLAN

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CHAPTER 6: WINDOW TO THE BUSINESS PLAN

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The financial market

The political arena
Economics
Industry dominated by monopolies
A technological age

Structure of a business plan

Getting lenders to read the plan

The selection flow chart

Guidelines
Section one of the business plan
The Introduction
The Contents Page
The Executive Summary
Main issues to include in a summary
The Company Profile
Tabular method
The prose method
Other considerations

CHAPTER 7: TECHNOLOGY, PRODUCTS & MARKET ANALYSIS

Technology
Products/services
Market Analysis
Clients
Trends
Target market
Common errors
Other factors
Sales Forecast
Market Forecast
The Market Sales Forecast Table
Sales Forecast graphs
Research and Development

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The Business Plan

CHAPTER 8: DRAWING UP MARKETING & SALES STRATEGIES

Overall Strategy and Implementation
Marketing Strategies
Sales Strategies
Sales Forecast
The Three Year Forecast
Sales Forecast Chart - Split between Cash and Credit
Milestones and Schedules
The Assessment Method
Setting out goals graphically

CHAPTER 9: PERSONNEL, GROUP STRUCTURES AND LOCATION

The Personnel Plan
Staffing requirements
Management and ownership
Group structures
Shareholders and proposed venture
Group and competitors
Location
Site of business
Prerequisites
Financial consideration

CHAPTER 10: FINANCIAL PROCEDURES

No alternative
General information
Financial data
Assumptions
Pro-forma income statement
Balance sheet
Cash flow section
Financial ratios
Profitability
Activity
Debt
Liquidity
The Break-even Chart

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PART 3: A SAMPLE PLAN

138

CHAPTER 11: THE DEVELOPMENT PROJECT

The business plan

139
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Glossary

166

Bibliography

173

Assembling data
Structure of the report

The Business Plan

PART 1
WORKING IN A DIFFICULT BUSINESS ENVIRONMENT

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The Business Plan

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CHAPTER 1: A STARTING POINT

A business plan is a valuable management tool for a variety of situations.
Most people believe business plans are once-off studies aimed at raising funds to start a new
business or to expand into new markets. Successful businessmen will tell you this is only one of its uses.
They attribute their success not to once-off business plans, but to an ongoing plan which is kept updated
to achieve management's targets. Initially, a business plan is a tool to obtain finance for your business.
Thereafter, a continually updated plan should be used to outline and achieve objectives and obtain more
financing. The key to successfully obtaining money to start a business lies in how well you can convince
the lender that your project is worth financing.
Before we discuss how to draw up a successful business plan, it is important to determine whether
you have made the right decision to enter business. Drafting a plan means that you believe you are ready
to be a boss, to run your own company, to take responsibility for others and to risk possible failure or
bankruptcy. Are you ready for that? Do you know our business environment, which sectors are
profitable, who to ask for advice and how to use a business plan? This chapter looks at the reasons for
drafting a plan, outlines corporate trends of successful South African companies and helps you to
ascertain whether you are ready to tackle the business world in a questionnaire.
Definition: The business plan is a written document which provides detail regarding a proposed
opportunity that the entrepreneur wants to exploit. The plan must describe the project, marketing,
research and development, manufacturing, risks associated with the project, financing
requirements, time schedules and milestones achieved and how the entrepreneur will attain success.

Critical spheres for using business plans

Managers, directors and shareholders use business plans for a multitude of reasons, including funding
new projects and expanding existing business. There are at least three critical spheres in which a plan will
help management in everyday situations.

Is the plan practical and achievable?

Without a business plan, it is impossible to determine whether a new business idea to expand into new or
unknown markets will have a chance of success. Without a comprehensive plan, Sun International (no
matter how successful they have been in the past) could not have raised nearly R1-billion to fund its Lost
City project in Bophuthatswana, nor could Gencor subsidiary, Alusaf, have raised R1,45-billion to fund
its Hillside Smelter Project in Richards Bay. In the case of listed companies, owners are shareholders and
such a venture would be outlined in a prospectus. Whereas in a one man venture, the owner would have
the most to gain or lose by the success or failure of the proposed venture. It would be foolish to raise
funds for a project without first scrutinising the benefits and possible pitfalls.
A business plan can test (in theory) the financial feasibility of a concept. There will always be
unknown factors which contribute to the ultimate success or failure of a project. Acts of God, political
upheaval and deaths of key business personnel often cannot be quantified. However, prospective business
owners should always demand analysis of the capabilities of their business concepts.

The plan as an evaluation tool

Once a business is up and running, it is difficult for the owner or manager to keep a long-term plan in
mind. For instance, if the business plan says the company will market its product to at least one new
client a week, over time it may become difficult to achieve that target. The manager could easily become
side-tracked with personnel problems or faulty machinery, but he must not ignore his business plan.
If he forgets to keep to the plan, the entire success of the venture will be at risk. Not only will he
be pressurised by lenders for early repayment of his loan, but they will probably not finance another
project.
It is of paramount importance, therefore, that the business plan is used for guidance. The
entrepreneur must be able to delegate problems so that his mind is focused on achieving targets.

The Business Plan

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In South Africa, there are thousands of things that can go wrong. Entrepreneurs often give up too
easily, rather than persevere in the face of difficulties. A document by international accounting firm, Ernst
& Young, entitled How to prepare a business plan, says: In the heat of daily operations, you may find it
difficult to take an objective look at the performance of your business. Often, the trees you encounter
daily obscure your view of the forest in which your company operates.
The bottom line is that a business plan can provide management with pre-determined, well set out
objectives to assess whether the venture is on track to meet the goals and objectives you have set.

A marketing mechanism
A well prepared business plan is not only an idea for a venture, but it can also be used to successfully
market yourself as an individual. Financial institutions will not fund a project solely if the idea is good.
All aspects of the venture should be clearly outlined and understood.
If your plan is badly written or illogical, it will be assumed that you are incapable of successfully
running a business. First impressions count. The plan, therefore, is your means of marketing your
professionalism and abilities.
The plan should communicate how all the functions of your company will fit together as a single
operation, which can attain its goals and objectives.

Corporate success rates

This section outlines the low success rate of new companies registering in South Africa. The following
statistics show that 33,3 percent of companies are placed in liquidation annually - a trend which has not
changed in the last decade.

Liquidations and de-registrations

In 1994, there were 10,906 private and public companies registered in South Africa, which is 41 percent
higher than the 1990 figure of 7,711. However, last year saw 4,386 companies de-register and a further
1,225 companies placed in voluntary liquidation, 601 under provisional liquidation and another 844
declared bankrupt by the State.
As a ratio of annual companies deregistered and liquidated to companies registered, the figures are
shocking. In 1994, the ratio was 65 percent, which means nearly two-thirds of companies registered in
that year went out of business. In addition, in 1994 there were 42,747 closed corporations registered, but
10,032 were de-registered by the end of 1994 - a 22 percent fall.
Statistics from the Registrar of Companies do not identify which sectors are most affected, but
they show that South Africa is a difficult environment to operate in. A business analyst once told me we
do not take prisoners here. He was referring to the vast number of new companies formed each year,
which (in his opinion) meant that we can be selective - and we certainly are.
To understand the volatility of working in this environment, two sets of statistics have been
collated i.e. annual number of companies and closed corporations registered since 1990 and the number of
these firms which have been de-registered since 1990. A third graph has been drawn up to establish the
net effect of registration and de-registration on companies and closed corporations. It must be noted that
statistics can often be misleading and the following will highlight irregularities.
In drafting the graphs, a number of assumptions were made:

The Business Plan

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The term "companies" includes private and public companies and the term "firm" includes sole
proprietorships, partnerships and closed corporations

De-registration includes voluntary de-registration and liquidation (provisional and final)

Companies represent large-scale operations, while closed corporations are smaller businesses

The figures for 1995 have been annualised for comparative purposes

Registrations
REGISTRATION OF COMPANIES AND CLOSED CORPORATIONS: 1990 TO 1995
000
70

+ 65,7%

60
50
40

Companies

30

CCs

20

Total

10
0
1990

1991

1992

1993

1994

1995

Actual numbers

1990

1991

1992

1993

1994

1995

5-year growth

Companies

7711

7421

7469

7957

10906

13629

+ 5918

CCs

36197

33069

33681

31881

42747

52399

+ 16202

Total

43908

40490

41150

39838

53653

66028

+22120

Growth (%)

1990 to 1991

91 to 92 92 to 93 93 to 94 94 to 95

5-year growth

Companies

-3,8

0,6

6,5

37,1

25,0

+ 76,7

CCs

-8,6

1,9

-5,3

34,1

22,6

+ 44,8

Total

-7,8

1,6

-3,2

34,7

23,1

+ 50,4

Source: Registrar of Companies

Total number of companies and closed corporations registered in South Africa increased by over 65
percent between 1993 and 1995, which stopped a slow decline over the previous three years and coincides
to a turnaround in the economic upswing. A five-year trend indicates a 50 percent rise in total firms
registered since 1990, while a breakdown shows that there are 76,7 percent more companies registered in
1995 than in 1990 and 44 percent more closed corporations.
The higher growth in company registration over that of the cheaper and smaller closed
corporations illustrates the strong desire of individuals to opt for the more expensive type of business
organisation as their starting point in business. This is usually not the way to go, which will be explained
in Chapter 4. In addition, it is important to note that these figures can be misleading, as displayed by the
table depicting de-registrations.

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If figures are taken annually, instead of using a five-year trend, it can be clearly determined that
there is very little difference between growth in registration of companies and closed corporations.
Between 1993 and 1994 each experienced similar high growth, which was repeated in 1995. A possible
explanation for the distortion in five-year growth statistics could be that the number of companies
registered in 1990 was small - about 17 percent of the total number of firms registered, i.e. off a low base,
a relative growth in numbers could be distorted if percentages are used.
For the prospective entrepreneur, the graph and table highlight the vast number of new businesses
which start up every year. Years of sanctions against South Africa, strike action and other fundamental
factors have lead to a substantial increase in unemployment figures. Consequently, it is not surprising that
so many people want to have their own business.
However, the optimism of a rise in registrations is tempered by equally startling figures for the
number of companies and closed corporations that have de-registered during this five-year review.

De-registrations
DE-REGISTRATION OF COMPANIES AND CLOSED CORPORATIONS:
1990 TO 1995
000

- 8,3%
18
16
14
12
10

Compani es
CCs

8
6
4
2
0

Total

1990

1991

1 992

1993

1994

1995

Actual numbers

1990

1991

1992

1993

1994

1995

5-year growth

Companies

6575

7329

8419

8256

7056

6024

- 551

CCs

4978

6840

9092

8587

9413

10038

+ 5060

Total

11553

14169

17511

16843

16469

16062

+ 4509

Growth (%)

1990 to 1991

91 to 92 92 to 93 93 to 94 94 to 95 5-year growth

Companies

11,5

14,9

-1,9

-14,5

-14,6

- 8,4

CCs

37,4

32,9

-5,6

9,6

6,6

+ 101,6

Total

22,6

23,6

-3,8

-2,2

-2,5

+ 39,0

Source: Registrar of Companies

In sync with the economic upswing in 1993, the number of de-registrations in companies and closed
corporations started to fall and in that year 1,9 percent less companies and 5,6 percent less closed
corporations de-registered. Between 1993 and 1995, the total number of de-registrations fell by some
eight percent.
However, the 44 percent increase in the number of closed corporations that registered between
1990 and 1995 was offset by a doubling of de-registrations, i.e. there were twice as many de-registrations
in 1995 than in 1990. Total de-registrations during this period rose by nearly 40 percent.

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These figures suggest that South Africa is not an easy country in which to operate a business.
However, to get a better picture, it is important to relate de-registrations to the number of companies
which register and, secondly, to compare the two in a ratio of de-registered firms to registered firms. This
latter will highlight how many new firms stop operating annually and this estimated figure is a warning to
new entrepreneurs of the difficulties of operating a business.

Registered firms less de-registrations

NET NUMBERS OF COMPANIES & CLOSED CORPORATIONS REGISTERED:
1990 TO 1995
+ 117%

000
70
60
50
40
30
20
10
0

Registered
De-registered
Net

1990

1991

1992

1993

1994

1995

Actual numbers

1990

1991

1992

1993

1994

1995

5-year growth

Reg. - de-registered

32355

26321

23639

22995

37184

49966

+ 17611

Growth (%)

1990 to 1991

Reg.- de-registered

-18,6

91 to 92 92 to 93 93 to 94 94 to 95 5-year growth
-10,2

-2,7

61,7

34,4

+ 54,4

Source: Registrar of Companies

Using the same statistics, it is possible to look at the numbers in a different manner. If the annual number
of de-registered firms are subtracted from the number of re-registered firms, one can work out net growth
per year and also establish a five-year trend.
Between 1990 and 1993, the net amount of companies registered in South Africa fell, indicating
the extent of financial strain placed on entrepreneurs to keep their businesses afloat. With the economic
upswing came a renewed optimism in business circles and a massive 61,7 percent rise in net registered
firms indicates the strong desire of individuals to work for themselves. However, this growth fell to 34,4
percent the following year and reflects the difficulty in finding a bank which is prepared to finance
projects.

Ratios: De-registered to registered

Ratio

1990

1991

1992

1993

1994

1995

5-year trend

Company
CC

85
14

99
21

113
27

104
27

65
22

44
19

Total

26

35

43

42

31

24

79
21
32

This is the most pertinent statistic to use to determine success rates. The following table shows that over
five years 79 percent of all companies and 21 percent of closed corporations ended up being deregistered. This gives us an average failure rate of nearly one in three companies.

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Another trend is a decline in the net growth rate in the number of closed corporations registered
from 1993. Despite an economic upswing in that year, volumes started to slide. A similar trend is
observed for company registrations. The reason is that many individuals believe an economic upswing is
the answer to their prayers and the right time to register a company. Many believe an economic upswing
is a guarantee of success. The problem lies in inadequate planning, poor business plans and lack of
discernible direction. Individuals fail to get the funding they expected and end up de-registering their
firms - many even before they have a chance of opening the doors to their business.

Companies listed on the Johannesburg Stock Exchange

Number of companies listed on the Johannesburg Stock Exchange
+83.5%

-3.0%

1000
900
800
700
600
500
400
300
200
100
0
1990

1991

1992

1993

1994

1995

Number of companies listed on the JSE

M arket capitalisation (Rbn)

JSE statistics

1990

1991

1992

1993

1994

1995*

Listed companies

781

740

683

647

640

627

Market capitalisation (Rbillion)

434,0
508,3
501,3
737,6
919,8
892,8
* Period to August 1995 and excludes companies which have been suspended from trading
Source: JSE
A misnomer frequently expressed by the public is that big business has the complete support of the
financial community and, therefore, the small operator is forced out of the market. While this may be true
in many instances, one fact cannot be disputed - that big business has also suffered in the past five years.
In 1990, there were 781 companies listed on the JSE, yet there were only 627 listed in August,
1995 (excluding 20 companies which were suspended from trading). This is a whopping 20 percent
decline, despite positive signs that the economy would continue to rise. This shows a number of factors
could have taken place during this period. Companies could have rationalised and streamlined operations,
de-listed some subsidiaries, gone bankrupt or stopped trading for a number of reasons. Between 1990 and
1994, prior to South Africas first multi-racial general election, a number of companies unbundled. This
term was created by business to denote conglomerates selling off its shares in a number of subsidiaries.
Unbundling should have created more listed companies on the JSE, but it didnt, so the effect of
de-listings is greater than first envisaged. The bottom line is that there are now fewer listed companies
operating on the stock market, and the total value of these companies (in market capitalisation) more than
doubled between 1990 and 1995. There is no doubt that a period of "nervousness" followed the 1987
equity crash and the market remained quiet until the unbanning of the African National Congress. The
atmosphere on the trading floor became euphoric when government unbanned the ANC and other

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political organisations. Strong belief that South Africa would become an international player, that
sanctions would immediately be lifted and that international funds would return to our shores sent the JSE
equity market into a bull run. That jubilation was extremely short lived. In contrast to the previous year,
1990 saw the number of companies formally removed from the JSE board double to 30 across all sectors.
In 1991, this number rose to about 43 and then climbed to 55 the following year.
For an entrepreneur to list his fledging company, even if he fulfilled JSE listing requirements,
would be foolhardy. If you have a solid product and a line of credit, why should you expose yourself to
public scrutiny? In addition to unnecessary media and public demands, you would also be placing your
company in the line of fire for those managers who would, without a second thought, target your
companys products and skills. After all, it is easier to take over someone elses resources, than to
develop your own.

Self-evaluation questionnaires
The need to start a business
The aim is to determine whether you are in a suitable frame of mind to start your own business. You
should not have to spend more than 20 seconds per question. There are no right answers, only
guidelines. If there are more combined No and Unsure answers than Yes answers, it would be wise
to shelve your business concept until a more suitable time.
QUESTIONS
1

Do you want to be self-employed?

Would you enjoy producing your own profits?

Do you want to be responsible for producing profits?

Do you feel responsible when things go wrong?

Do you have the patience to draw up a comprehensive plan?

Are you more concerned with typographical errors than contents?

Are you confident beyond doubt that your plan will succeed?

Do you understand and enjoy business jargon?

Are you able to successfully manage your time and that of others?

10 Can you meet deadlines or are you consistently late?

11 Are you able to manage money?

YES

NO

UNSURE

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QUESTIONS CONTINUED

- 17 YES

NO

UNSURE

12 Do you enjoy working with other people?

13 Do you take charge when working in a team?
14 Do you take risks and act on your own assessments?
15 Do you apply yourself equally to all tasks undertaken?
16 Are you dissatisfied with your achievements to date?
17 Do you want to improve your financial lifestyle?
18 Do you care what clients think of you?
19 Do you have set goals for the next five years?
20 Do you have control over these goals?
21 Do you believe you can influence your own future?
22 Do you solve problems and put them behind you?
23 Do you care how long investors will they have to wait for profits?
24 Are you adequately compensated for work you do?
25 Do you perform well under pressure?
26 Does your family support your goals and aims?
27 Can you achieve success in our volatile political system?
28 If the situation is adverse, do you carry on?
29 Life as an entrepreneur and related stresses bother you?
30 You know what economic & financial issues affect your business?

Characteristics of successful entrepreneurs

Impossible as it may seem, bank and other financial institutional funding managers are at times swayed to
finance a project if they believe the entrepreneur has strong personality traits. They base their decisions
on a number of characteristics, which they believe will see the businessman ultimately succeed in
undertaking a venture.
These traits are totally subjective, vary to a great extent between lenders and there is no absolute
method of determining what type of personality a particular bank manager will look for in an
entrepreneur before extending a helping hand. However, there are general traits which psychologists
believe are part of the make-up of successful entrepreneurs.
Now that you know how difficult it is for a firm to survive in South Africa and if you have
completed the self-evaluation test and still have a strong desire to be your own boss, there is one final test
for you to do.
The question is whether you have similar personality traits to entrepreneurs who have achieved
international success. Banks and other financial institutions embrace different criteria by which to judge

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entrepreneurs, but these are thus by no means carved in stone. It is, however, good to know how you fare
against those who have preceded you.
Although obstacles may deter entrepreneurs and at times knock them off their objectives (which
causes a variation in the business plan), strength in personal determination results in obstacles not killing
the company. New businesses die for a variety of reasons, but if entrepreneurs possess most of the
characteristics listed here, they tend to succeed. If entrepreneurs possess only 50 percent of these
characteristics, but have perseverance, determination and courage, the company will thrive.
The table is divided into five categories. The first describes general appearance and the next
section looks at the entrepreneurs origins, which are important in determining whether he has the drive,
the strong desire to become rich and to do financially better than his or her parents did. The next step is to
assess how the entrepreneur was brought up, whether he had the support of his parents and their
attendance at functions which would be important to him or her.
The table also shows whether successful entrepreneurs have to obtain a string of academic
qualifications and the important intangible characteristics which most possess. It is this latter section
which should be carefully studied, as these are traits which ultimately lead to success or failure.

PERSONALITY TRAITS
Age and Marital status: Between 27 and 33 years of age; married or divorced (but never a bachelor)
Appearance: Dress simply with no tie pins or pocket handkerchiefs. They have short hair and
frequently have beards and moustaches. Speak quickly to save time
Origins: Poor to middle-class homes. In deprived families, upward mobility is often replaced by the
obvious need of making ends meet. This drives some children to achieve more than their parents. Rich
surroundings can create an environment where children have a need to create a world for themselves,
but rather look to ultimately moving into the family business
Childhood:
Parents: Those who do not attend functions which are important to their children (e.g. sports or
school) learn to live without a safety net. Successful entrepreneurs are generally raised in homes
where parents are absent to cheer great and small achievements. This can in later years be converted
to entrepreneurial drive and perseverance
Deprived childhood: A highly successful corporate trouble-shooter once told me: I had three
older bothers and, when my father died, my mother had to support us. When she sent me to the
shop to buy a bottle of milk, the owner would loudly tell me in front of other customers,
Remember to tell your mother that she owes me money. Ive been chasing that grocer ever
since.
Education:
Graduates: many entrepreneurs are university drop-outs
Guilty feelings: entrepreneurs feel guilty for not meeting parents expectations of being

professionals
Driving force: not to disappoint those important to them (spouse, parents, friends). Trying to prove
themselves as socially useful tends to make them workaholics. The greater their feeling to prove
themselves, the more powerfully they drive themselves

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PERSONALITY TRAITS CONTINUED

Other traits:
Singly minded: the word no is not part of their vocabulary
Courage: this quality ensures that failure is not easily accepted and obstacles will not stop them.

As David Padwa, founder of the US Agrigenetics Corporation, once said about the entrepreneurs
attitude towards obstacles: Shoot at me. It doesnt matter. Im going to do it anyway.
Creative: entrepreneurs see market opportunities, see various levels of demand and then create

solutions to provide people with viable answers

Insight: US author and business guru, Peter Drucker, said: Entrepreneurs must do the right thing.

They can hire people to do things right. They have a sixth sense about their customers
Happy people: While entrepreneurs may be too busy for cocktail parties, hobbies or even a good
book, they are still happy people, because any victory (from bartering for flowers at a market to
getting a bank loan) drives them and makes them happy

Source: The Entrepreneurial Life: How to go for it and get it by A. David Silver

CHAPTER SUMMARY: Operating a business in South Africa is not easy, as shown by the past
five years. During this period, an average of one out of three companies were de-registered.
Ultimately, the same was found for small, medium and large public companies.
If you strongly believe that you have the characteristics and ability to be a successful
entrepreneur, you now have to decide what market to enter into. The next chapter deals with
types of industries and highlights important factors that relate to those industries.

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CHAPTER 2: TARGETING A MARKET

So, youve decided that a volatile market cannot deter you, that your determination to make it in business
gives you the right balance of qualities that makes entrepreneurs succeed. There is no doubt in your mind
that the burning desire to start and run your own business will not falter at the first hurdle and you believe
your craving to be rich and famous will drive your ambition to become another self-made billionaire like
computer giant Microsofts Bill Gates.
That could be the case. But for those who dream of being self-employed, rather than wealthy, the
next step to reach your goal is to choose a market to operate in. You must decide what market (kind of
business) you intend to enter and assess how competitive this market is.
As outlined in chapter one, this country has a failure rate of one company in three and it is thus
crucial for the entrepreneur to choose a market which shows potential and not one which is already on a
downward economic slide.
It is thus important to be able to continually draw on the multitude of economic statistics available
in South Africa, so that you are able to assess how a particular company will operate in those various
sectors. For instance, statistical information can be obtained from the South African Reserve Bank
(Quarterly Bulletin), Central Statistical Services (Gross Domestic Product), banks produce monitors of
economic activity and stockbrokers research departments have quarterly economic forecasts.
The following section uses Gross Domestic Product (GDP) to highlight the importance of
undertaking research before setting up shop. How wise would it be to set up a construction company if the
economic cycle was past its peak? The entrepreneur would be extremely hard pressed to find a bank that
would be prepared to finance capital intensive projects during or after the economic cycle had reached the
last stage of its upswing, called The Investment Phase.

Economic activity
In using statistics, the entrepreneur faces some problems. These can be interpreted in various ways and,
therefore, there is a risk that he or she could unintentionally (or intentionally) misinterpret the results of
statistics. For instance, an entrepreneur who wants to set up a research company to provide information to
a number of select clients may base his business plan on limited quality research in South Africa caused
by years of 'brain drain'. His argument may be sound if he already has a qualified staff. If he hasnt,
where will he find the professionals to produce the research? Even if he does have professional analysts
working for him, will he be able to retain their services as demand for quality research - and therefore
salary packages - spiral?
Alternatively, excessive use of statistics can dampen brilliant and profitable ideas to a point where
the entrepreneur is so disillusioned that he does not pursue his plan. Similarly, to avoid any statistic which
outlines supply and demand for goods and services in the various sectors of the economy is as senseless.
To highlight the importance of using statistics, two sets of GDP figures are used. The first is a
breakdown of economic activity for the period 1988 and 1991 (graph 1) to show the split in growth of
wages and in net profit for the various sectors of the economy. In South Africa, entrepreneurs simply
cannot avoid undertaking a thorough investigation of the effect of wages on bottom-line profits,
especially in an environment prone to massive strike action, violence, stayaways and go-slows.
Stores listed company Pick n Pay is a prime example of a company which for decades provided
investors with steady capital growth. In 1994, wage negotiations stalled and workers went on strike, and,
in some instances, violence erupted. The strike lasted for nearly eight months and not only did the share
price halve during this period, but the company suffered a net profit decline of nearly 40 percent.
Two methods to assess wages are outlined in the following section. The second set of GDP figures
show growth in the various sectors of the economy between 1987 and 1994 (graph 2) and is used to
determine which sectors have future growth potential.

Sector Gross Domestic Product

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Assessing the effect of wages

The entrepreneur needs to know what costs are associated with the sector in which he wants to operate.
He has to have a firm grip on whether these costs fluctuate, how labour or capital intensive the business is
and whether equipment will have to be imported. In addition to capital required in setting up any new
business (or revamping an existing one), there are volatile costs associated with a labour intensive
business.
While labour costs are unavoidable, there are ways to reduce the net effect of possible strike
action against the company. It is thus imperative that the entrepreneur knows, before setting up shop,
precisely how expensive labour costs are and to outline how he proposes to handle these in a business
plan.
The following text shows the effects of labour wages on economic activity. Businessmen can
assess the effect of wages on the quality of growth in their own company by using a method called the
Value Added Statement.

Using statistics
Graph 1: Labour to profit split
1988

1991
Labour

R'billions

Operational

Operational

70

120

60

100

50

80

40

Labour

R' billion

60

30

40

20

20

10

0
Primary

Secondary

Primary

T ertiary

Sectors (%)

Secondary

1988

Tertiary

1991

Labour

Operational

Labour

Operational

Primary

34,5

65,5

40,9

59,1

Secondary

55,2

44,8

54,0

46,0

Tertiary

68,0

32,0

69,8

30,2

Total

57,6

42,4

60,5

39,5

Source: Central Statistical Services

Figures: taken at current prices and relate only to income , i.e. not net of expenditure

Labour = Total gross salaries & wages + employers contributions to staff funds
Operational = Net interest payments, depreciation allowances and net profit

While the overall value of economic activity increased between 1987 and 1991, a greater percentage of
overall wealth went to satisfy increasing demands for wages; businesses were faced with declining gross
operating surpluses (net profit, interest payments and depreciation allowances). Only the secondary sector
of our economy revealed a decline in remuneration compared to operational surpluses.

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These figures are the latest available from Central Statistical Services (CSS) and the entrepreneur
can use the same approach for future updates - figures can be obtained directly from the CSS (see contact
list in Appendix 1).

The Value Added Statement

Another way that the entrepreneur can assess the cost of labour in a particular industry is to obtain the
annual report of a company (which is similar to the one he intends to operate) which is already listed on
the Johannesburg Stock Exchange.
Most annual reports contain a section called Value Added Statement, which provides investors
with a breakdown of value added to the firm on an annual basis. It is split into two sections. The first
gives a breakdown of how a company gets its funds (how much value was added to the firm in the past
year) and the second shows how this value was spent. The former is calculated by subtracting the costs of
goods and services (plus Value Added Tax) from turnover, which also includes VAT. The statement
shows that money is spent through payment to employees (salaries and wages), to providers of capital
(loans and shareholders) and taxes. Any amount which is left over is retained in the business for growth
or replacement of assets.
The following is an example of a Value Added Statement and highlights the high level of labour
costs in South Africa:
Value Added Statement for ABC Ltd as @ end December 1996

1996

1995

(Rm)

(Rm)

52,5

54,6

528,0
475,5

498,6
444,0

Notes
TOTAL VALUE ADDED
1
2

Turnover (including value added tax)

Less: Cost of goods and services (including VAT)
DISTRIBUTION OF VALUE

3
4
5

Value

1996

Value

1995

(%)

(Rm)

(%)

(Rm)

72,2
11,6
8,4

37,9
6,1
4,4

69,8
17,6
7,5

38,1
9,6
4,1

Interest on loan account

3,2

3,0

Dividends to ordinary shareholders

1,2

1,1

7,8

4,1

5,1

2,8

100,0

52,5

100,0

54,6

Employees
Government
Providers of capital

Retained for growth and replacement of assets

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Notes to Value Added Statement

Turnover

Gross income derived from sale of goods or services

Cost of goods and services

Also known as cost of sales, this includes transport of goods to sale

points and freight charges

Employees

Payment of wages and salaries to employees for services rendered to

the firm

Government

Payment of taxes

Providers of capital

All interest amounts owing to those who have invested in your

company. This includes dividends per share and interest on bank loans

Retained growth and replace- Calculated as follows: Total value added - (Employees + Government
ment of goods
+ Providers of capital). Once all these have been paid, if there are any
funds left over this will be used to maintain and develop operations
Comment:
While in 1996, 72,2 percent of this firms total value created went to fund wages and salaries, only 7,8
percent has been retained for future growth and repairs. While this may be a fictitious company, large
numbers of South Africas large organisations have shown similar trends in recent years, particularly after
the volume of strike action in the late 1980s, which ended in substantial wage increases. Examples of
such companies include company Boumats 1994 annual results, which show the company paid nearly 77
percent of all value added to workers. Similarly, Amic paid 67 percent of its value added to employees in
that year.
This type of assessment does not take a long time, is relatively simple and the information is
readily available. Annual reports can be obtained directly from listed companies public relations
departments or from their transfer secretaries (see Appendix 1), which act as an intermediary between the
company and shareholders. They undertake, among other things, to send letters to shareholders (dividend
payments, change of name, updates on corporate issues) and help produce and distribute annual reports.

Labour costs and productivity

Index: 1990 = 100

Index
110

Labour productivity

105
100
95

Real remuneration per employee

90
1989

1990

1991

1992

Source: Reserve Bank Quarterly Bulletin - June 1995

1993

1994

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Businessmen prefer to start up a new business or undertake corporate finance negotiations at the
beginning of an economic upswing. They believe they are assured of a surplus demand for their product
over available supply, which usually helps to establish the firm in its market niche.
However, entrepreneurs who are just starting out have no safety net from a holding company,
which would help it along if the new operation ran into difficulties. One such difficulty would be to pay
for increasing labour costs which accompany an economic recovery.
The above graph highlights the importance of wages and productivity in a business plan. While
this type of graph is limited to the period between 1989 and 1994, the entrepreneur will be able to assess
future trends from economic statistics. This graph shows that real remuneration declined from a high of
19,5 percent in 1993 in line with the start of the economic upswing, but the year-on-year rate of increase
in remuneration per employee rose sharply to 14,0 percent in 1994.
The rate of increase in nominal remuneration per employee slowed to 13,0 percent in the second
half of 1994. As a result of rising labour costs, the real remuneration per employee began to rise rapidly in
1994.
These statistics enable the entrepreneur to ascertain average levels of wage increases and factor
these into his business plan. This is especially important when assessing pay per employee relative to
productivity.
Internationally, businessmen would be less concerned with these statistics if productivity was
high. This means that the ratio between sales and operating profit is such that it affords the company room
to grow, spend money on improving sales turnaround and also enables them to offset unexpected falls in
turnover. Take the example of ABC Company Ltd.:

Annual turnover in 1995 was R1 million

Operating profit in 1995 was R100,000
Profit margin of 10 percent: calculation = ([Operation profit turnover] x 100)
ABC expects to maintain the same ratio for 1996
The company has two factories, each working at full capacity, i.e. three shifts daily in a sevenday week
ABC has no other forms of operation
Each factory manufactures and thus contributes an equal amount to turnover
At the beginning of ABCs financial year, Factory 1 burns down.

Can the entrepreneur maintain operating profits and what happens to productivity?
Half of turnover has literally burned to the ground and, therefore, we can theoretically deduce that the
company will make half of its annual operating profits. Or can we assume this? Surely, if productivity is
maintained at 10 percent then 10 percent of R500,000 is R50,000, which is half of the forecast R100,000.
Not so. While the factory burned down, ABC still has to pay the workers at Factory 1. These
employees cannot be incorporated into Factory 2 as it is already operating at full capacity. So they are
paid without producing a single item. If the company undertakes a retrenchment programme, this cost
would not be included as an operating expense, but the likelihood of workers from Factory 2 going on
strike is high.
Whichever way the businessman looks at this problem, he can expect a diminished turnover and
operating profit, and thus net profit, for that year. However, a 10 percent profit margin has afforded him
the luxury of being able to absorb the fall in turnover.
What would happen if the company has a profit margin of one percent? These are factors which,
among others, have to be set out in a business plan. High labour costs are expected to continue for at least
the next five years and, therefore, the improved productivity level achieved between 1993 and 1994 (in
line with an economic upswing), will diminish if strike action and man hours lost continue. The June
1995 Reserve Bank Bulletin puts it this way: Growth in labour productivity tapered off sharply from a
year-on-year rate of increase of 4,0 percent in the fourth quarter of 1993 to 1,8 percent in the third

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quarter of 1994, when widespread labour unrest resulted in a significant increase in the number of mandays lost because of strikes and other work stoppages.
Another reason for assessing the effects of rising labour costs is that these force up the rates of
increase in both the production and consumer price indices. This means that, ultimately, everything costs
more and factors of production needed to run a business have a greater negative impact on revenue.
Factors which the entrepreneur will have to look at before he can determine a pricing structure
will depend on the type of company he intends to set up. For instance, if he wants to operate in the food
sector, he will have to look at the impact of adverse weather conditions on food prices.
Or, if he intends to operate across borders, he will have to assess how a depreciation of the value
of the rand will affect his business and have a plan to offset these negative movements. Another factor
would include international crude oil prices, which - together with a weaker exchange rate - were the two
main forces driving import prices higher in 1994.
If the entrepreneur intends to fund the major portion of an operation with bank loans, how will an
increase in the Bank prime overdraft rate affect his business? In an income statement, operating profit is
reduced by interest payment and taxes to calculate income before extraordinary items. This means that the
higher your debt, the higher the annual interest bill will be and thus the lower the profit. These issues are
outlined in Part 2.

Sector growth potential

After nearly 40 months of economic downswing, the South African economy turned in 1993. The
question entrepreneurs have to ask themselves is whether an economic upswing brings business
opportunities or have these bypassed the entrepreneur? Along with an upswing comes differing
performances from the various sectors of the economy. In the case of South Africa, the weak (but
positive) performance in the economy in 1995 was mostly brought about by developments in the primary
sector, while output growth in the secondary and tertiary sectors slowed down but remained positive.
However, at an annualised real growth rate of three percent, economic activity in the non-primary sectors
still had upward mobility.
Entrepreneurs do not need to be economists. However, they should understand which sectors offer
growth potential and it is therefore important to understand basic macro and micro-economic principles.
The first relates to general economic trends and the second on particular sector supply and demand trends.
Without a sound understanding of such issues, a companys lifespan may be very short.

Graph 2: Three sectors of GDP growth - 1987 to 1994

Primary
Secondary
Tertiary

R'billion
250
200
150
100
50
0
1987

1988

1989

1990

1991

1992

1993

Sector GDP growth

87 - 88
88 - 89
89 - 90
90 - 91
91 - 92
Primary (%)
16,1
8,1
2,9
6,9
-1,0
Secondary (%)
21,1
20,5
16,7
9,8
7,8
Tertiary (%)
17,5
21,8
18,5
15,8
16,5
Source: South African Reserve Bank Bulletin - June 1995
Figures: taken at current prices and relate only to income , i.e. not net of expenditure

1994

92 - 93
14,9
9,3
12,0

93 - 94
12,2
10,7
10,7

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Primary
Sector

Industries

Primary

Agriculture, hunting, forestry and fishing

Mining and quarrying

Between 1994 and 1995, both agricultural and mining production contributed to the decline in the real
value added by the primary sectors. The real output of the agricultural sector contracted at an annualised
rate of 12 percent in the first quarter of 1995; caused by lower gross income from field-crops in the
summer rainfall areas. This was a result of poor weather conditions and higher input costs.
If an entrepreneur plans to buy a piece of land, equipment to farm and the required seeds or
animals without a clue of weather conditions, knowledge of planting techniques or soil sampling, he can
still succeed. It is possible that the business plan will include management structures which will convince
a bank to finance such a project. However, If economic trends are adverse, if weather conditions do not
bode well for the future and if input costs are prohibitive, then the business plan is unlikely to be
accepted. The issue is to display knowledge in a business plan, but not to exaggerate to the point where
you will not be able to answer questions from the banks business analyst. If you do not have the required
knowledge, then find personnel (or partners) who do. If this cannot be achieved before submitting the
plan to the bank, then state how you intend to go about finding the required expertise, i.e. advertise,
headhunt, train etc.
Another primary sector area the entrepreneur may want to enter is mining. Statistics show that the
sector declined by two percent in 1994 and in the first quarter of 1995 decreased at an annualised rate of
eight percent. This was caused by a substantial contraction in the output of gold mines, which more than
offset increases in the real value added by the rest of the mining sector.
As difficult as it may be to believe, there are still mines which can be purchased in South Africa
and, while the sector does not show promise for the immediate future - quantity and quality of ore milled
is declining - an aspiring businessman can still develop a plan which can make a fortune. Originality
seems to be the key to succeed in business.
Consider the following actual case studies. While working as a business development analyst in
1992, I met two determined individuals who, against all expert advice, were convinced that the primary
sector was the area to make money.

Case Study - Primary Sector - Business Plan

Without fail, economic and mining experts told him to avoid buying this
Case 1:
Purchase of an aban- particular mine, as "there was no coal left". He disagreed and his plan
doned coal mine
showed that the thousands of pillars holding up the tunnels were practically
made of solid coal. He intended to blast the mine apart, and thus mine the
pillars.
His business plan was simple, but effective. It showed that he had the
expertise to complete the task, had obtained all required licences (including
mining rights) and options to buy the land (on which the mine was situated).
Not only did he have a clear and precise plan, but showed originality,
perseverance and - by getting an option to buy the land - had been prepared
for unforeseen circumstances - like someone else stealing his idea.
The bank funded the project and he was able to carry out the plan
quickly and without delay, achieving forecast profits within time frames.

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Case Study - Primary Sector - Business Plan - continued

A chance meeting with a industrial chemist led this individual to devise a
Case 2:
Purchase of gold mine business plan to fund a multi-million rand project. The chemist had told him
dumps
that he had devised a method to extract gold dust from the dumps and, on
proving this, the individual got options to buy the land on which the dumps
rested, then obtained an agreement to sell the extracted gold back to the
mining companies.
He drew up a business plan, went to several banks and was able to
fund the entire project, which included machinery to remove the dumps, and
the factory to process the gold. Once the dumps had disappeared, he sold
the land to industrialists to build warehouses.
He was able to use the funds from the sale of gold dust and the land, to
repay the loans and to buy the next dump.
Admittedly, these are exceptional cases. The primary sector is not an easy area to enter and it is also
expensive, but ultimately a solid and realistic business plan can find financial backing. The two cases
outlined prove this.

Secondary
Sector

Industries

Secondary

Manufacturing
Electricity, gas and water
Building and construction

The secondary sector of the economy deals with the construction of infrastructure. While the primary
sector is committed to production of raw materials (forestry and mining), the secondary sector consists of
actual building of, among others, hospitals, roads and laying down of electricity. This area rests in the
Investment Phase of the economic cycle, which is the last phase of the upswing. This is best explained by
highlighting the three different phases of an economic cycle.
The cycle usually undergoes the same process. At the commencement of an upswing, individuals
enjoy little purchasing power, with almost no surplus funds. As they find it difficult to meet expenditure,
they are unlikely to buy more than just basics. However, as overseas demand for local goods increase,
exports rise and capital flows into our country. This causes a chain reaction; the greater demand for these
goods from overseas has to be met somehow, so businesses expand, hire more staff and increase numbers
of shifts.
Greater purchasing power in the hands of employees means greater demand for goods and
services. As demand for these goods continue to exceed supply, manufacturers borrow more from banks
to expand operations. So the cycle continues, to a point where demand for houses increase. Building and
construction companies come into the picture. At the point, bank reserves have diminished and eventually
reach a point where - as a means to dampen demand for loans - interest rates are increased.
And so the downswing starts. Of course, the above explanation is simplistic and does not take into
account a host of economic factors, like government interference, closed markets and monopolistic
control.
In 1995, the above cycle was evident. The rate of increase in the real value of the secondary sector
accelerated as expansion of electricity services and building and construction activities continued.
For the entrepreneur to assess whether he is in a position to enter the building and construction
sector, he needs to look at a number of other economic variables, including GDP, Gross Domestic Fixed

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Investment, building plans passed and building plans completed. These statistics will help him assess
whether he is in a position to enter the secondary market, and to display what his chances are to obtain
financing for his project. The following data is an example of statistics pertinent to companies operating
in the Building and Construction industry:
PERCENTAGE DIFFERENCE BETWEEN 1995 AND 1996
Gross Domestic Product (real average growth)

3,2

Gross Domestic Fixed Investment (real average growth)

9,9

Consumer Price Index (as @ February 1996)

9,0

Producer Price Index (as @ February 1996)

i.

General industry

8,3

ii.

Building and construction

7,0

Building plans passed (valued at current prices)

Residential
i.

Dwelling houses

10,5

ii.

Flats and townhouses

26,9

Non-residential

Additions and alterations

6,7

TOTAL PLANS PASSED

11,7

27,7

Buildings completed (valued at current 1993 prices)

Residential
i.

Dwelling houses

ii.

Flats and townhouses

10,8
3,9

Non-residential

2,8

Additions and alterations

6,1

TOTAL BUILDINGS COMPLETED

Note: The data is fictitious, but the CSS provides actual statistics

4,3

The following text explains the above statistics.

Gross Domestic Product (GDP)
The importance of analysing the economic cycle is to assess the present position of the cycle so that the
next phase (and timing of that phase) can be assessed. This will enable the entrepreneur to determine if
the next cycle is the Investment Phase and thus know when Building and Construction companies will
benefit from boom conditions.
Once the economic cycle has reached this investment stage (nine to 12 months into the upswing),
demand for building and construction would rise. For entrepreneurs who want to start up hardware stores,
there is approximately a three month delay between an increase in the construction of buildings and
demand for hardware.
For instance, if an upswing starts in 1994 - as per above table - then 12 months hence the
Investment Phase would begin and three months later hardware wholesalers and retailers would see an
increase in demand for their goods. This would mean that by end 1995 hardware companies could see an
improvement in turnover.

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Gross Domestic Fixed Investment (GDFI)

GDFI is the figure which tells you how much money is going into infrastructural development. In South
Africa we have seen GDFI decline between 1982 and 1993; a result of lower investment by the mining
houses, government and overseas investment. This problem is often tackled by government through the
introduction of normative economic packages, which are aimed at bringing the Investment Phase forward,
i.e. to have an investment-lead strategy to induce a recovery phase.
The minister of finance would do this by lowering corporate taxes, introducing a tax on
attributable income, printing money (M3 supply would increase) and setting up tenders for infrastructural
works. The latter tax is supposed to discourage companies from paying out dividends and to re-invest
these funds into industry.
The entrepreneur should note government speeches on the subject of normative packages, such as
implementation of Reconstruction and Development Programmes, as these are aimed at building low cost
housing, hospitals, schools and generally improving infrastructural works. These would all affect GDFI
and, in turn, distort the normal economic cycle. Under such conditions, the upward cycle would be short,
but strong.
Consumer Price Index (CPI) and the Producer Price Index (PPI)
While CPI indicates the level at which prices increased in South Africa during the month of February
1996, compared to the same month in 1995, PPI shows the average increase in the price of producing a
unit of goods. A basket of goods is used to measure CPI and PPI, with each item given a weighting
according to the level of importance associated to particular items. CPI is often referred to as the inflation
rate.
PPI is a leading indicator of the inflation rate and, if lower than CPI, forecasts a decline in prices
within a nine-month period. Entrepreneurs should keep a constant vigil on economic factors which could
affect future production prices. For instance, if the March 1996 Budget called for an increase in VAT to
17,0 percent from the present 14 percent, then the lower PPI figure of 8,3 percent - which denoted a
future decrease in the inflation rate - would be distorted. A higher tax or petrol price would cause
production prices to increase in the near term.
Building plans passed and completed
The positive figures corroborate the positive GDFI figure.
Building plans passed is a leading indicator of the building industry. The more plans passed, the
more construction is being researched, planned and commissioned. The positive figure shows that there
was an 11,7 percent rise in the amount of plans permitted by government and which should ultimately be
implemented. For those with hardware interests, the 6,7 percent rise in additions and alterations is not
significant or enough to conclude that investing in a hardware related project would be profitable,
particularly if there is a 15-month delay.

Tertiary sector
Sector

Industries

Tertiary

Wholesale, retail, catering and accommodation services

Transport, storage and communication
Financing, insurance, real estate and business services

Community, social and personal services

General government

Other producers

This sector of the economy is difficult to assess, as there are literally hundreds of factors which could
affect your business. From strike action to factories burning down, problems with suppliers, transport
delays, diminishing natural resources and lack of expertise. Remember that the initial problem is to get a

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bank to accept your business plan and to provide finance, so dont state hypothetical problems in the plan,
but concentrate on how you intend to set up your business and how you will run it.
For instance, if you dont have a personnel officer, state that you intend to employ one as soon as
your firm has expanded to more than, say, 10 staff members. Dont say that due to a lack of expertise in
South Africa, I intend to incorporate this function into finance. This argument is seeing as postulating
and shows up any inability to lead. Your job must be perceived as one of leadership, not one to
continually plug holes. This is also called "crisis management" and is when the owner is continually
running around trying to solve problems instead of enhancing and expanding his business.
In terms of the economic cycle, the tertiary sector is affected most during the second phase of the
economic upswing. As individuals purchasing powers improve, so do their spending on essential and
luxury goods. They tend to go on holiday (accommodation services), businesses expand (financing,
transport) all improve. Transport, storage and communication sectors improved in the first quarter of
1995 due to the rise in international trade.

General perceptions
The Registrar of Companies does not keep a breakdown of target markets of new companies registered.
While specific trends cannot thus be outlined, discussions with economists, analysts and companies which
compile statistics show a number of trends.
Among the thousands of would-be entrepreneurs hoping to make it in business, the most popular
activity is constantly the retail sector, while the next few favourites are the building industry, the
professions, transport, wholesaling and - for sole proprietors - cafs and catering.
The following text is an outline of these general perceptions.

Stores and retailing

Retailing tops the popularity charts. However, the trend has moved away from the solitary, isolated shop
to establishing shopping centres (malls), which provide security, parking and access to a variety of shops
within the same complex. The one-stop shopping trend has been the death of the small operator. When
Napoleon called the British "a nation of shopkeepers," he could have been speaking of South Africans.
Pick n Pay is South Africas largest retail chain and, in the last 10 years has increased its total
number of stores by 186 percent to 269 stores. Yet the trend of larger shops is displayed in the groups
total selling area. Supermarkets have reduced in size from 224,000m in 1985 to 130,000m in 1995,
while the larger hypermarkets increased in 10 years to 121,000m from 82,000m. Similar trends
occurred in the United Kingdom, where the number of individual shops has fallen by 45,000 over the last
23 years.
Small shops are on the way out and chains stores are now providing most of the new jobs. Within
a decade, retailing has changed and continues to change. The entrepreneur who wants to operate in the
retail market has to compete against chains which sell practically everything from sewing kits to hardware
and food to electronic goods and carpets.
Not only are stores already large, but they are getting larger as foreign competitors realise that
they can set up and supply their own chains with goods in other countries. Superior service and technical
superiority have made KMart and Wal-Mart super retailers in the United States, but now these retailers
are using their expertise to move across borders to establish a strong presence in countries as far apart and
diverse as Mexico and South China.
Other large retailers which have gone international include Makro, a Dutch wholesale club
operator, which has now become South-East Asia's largest store group with sales in excess of US$2billion in 1994. France's manufacturer Carrefour has stores in Shanghai, Brazil and Argentina. So, instead
of simply supplying foreign markets with goods, international retailers are moving into these territories
with their own brand names, much like Coke and Pepsi did decades ago.
In a sense this protects retailers from supplying goods to different stores and thus running the risk
of creating price wars against themselves. There is no doubt that retailing is a tough business, but success
stories are still possible. After all, Raymond Ackerman did it with Pick n Pay and Christo Wiese did it
with Pepkor - so why cant you?

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Building and construction

This is an industry which is infamous for a high rate of bankruptcy, particularly among small businesses.
While this market is rapidly changing in South Africa, with more opportunities for the small operator, the
difficulty still exists in obtaining skills and equipment in a market which has been controlled by
oligopolies and cartels.
However, two important issues have developed since South Africa entered its democracy phase,
which has creating numerous opportunities for the small company.

In 1994, the Competition Board declared that South Africas largest cement cartel was an unfair
labour practise and had to close down.

Governments focus on its Reconstruction and Development Programme.

These two factors could lead to an investment-lead economic recovery. The first allows smaller
enterprises into a market which was previously closed and the second is expected to have to advantages
for builders. The RDP is estimated at R135 billion and every facet of its focus deals with building. From
inexpensive homes to new schools and hospitals, upgrading existing infrastructure such as roads and
building new ones, i.e. electrification of previously designated black townships.
In addition, to create jobs it is expected that government will stipulate that tenders be awarded to
companies with RDP focus, affirmative action in place and those which are labour intensive. Therefore,
the reality is not quite as bad as popular folklore suggests. A well-organised, financially astute
businessman with a keen eye for the opportunities available in this sector could find himself on the road
to a fortune. Property has traditionally been seen as a way of making a lot of money in a relatively short
period. But losing it quickly is also possible. Remember that to ultimately succeed the entrepreneur has
to have a long term vision. Without one, you are unlikely to survive in the world of business.

Manufacturing
The new entrepreneur faces a daunting task of competing against established manufacturing companies,
which have entrenched lines of communications with retailers, filled order books and economies of scale.
Indirectly, retailers demand that items are made in large volumes so that their business benefits from the
accompanying discounts obtained from economies of scale. To produce in such quantities requires largescale financing, which can be derived either from profits or from investment.
The usual method of entering this market is to start in cheap industrial premises. However, with
the merging of Europe into the European Economic Community and South Africa lifting trade barriers
with other countries and with Southern African nations, the trend is to allow competition across borders
and even for that competition to set up shop within this country.
This reduces the availability of cheap (and safe) premises as these are quickly taken up by
foreigners. Business development analysts would today be prone to advise new entrepreneurs, who want
to design and produce goods, to manufacture items for which the public is prepared to pay a high
premium. However, manufacturers who produce such products must accept that these items have limited
lifespan before large-scale operations produce a similar product at a fraction of your cost.
A business plan must, therefore, show how you will keep one jump ahead of the competition, i.e.
that you have a number of other high premium products which you can manufacture with the existing
machinery - without too many changes.
The advantage of setting up a new company - as opposed to buying a going concern - is that it
enables the entrepreneur to use the latest in hi-tech equipment, which does make short runs of small
batches economical and profitable. These are issues which have to be set out clearly and to the point in a
business plan.

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Service industries (or the informal sector)

Throughout the First World there are high expectations that service-based businesses will provide the
lions share of all new employment for the next decade. Some estimates suggest that in the United States
as much as two-thirds of the workforce are now involved in the distribution of goods which are produced
in a garage type environment.
That trend is being repeated in the United Kingdom and other European countries and it has been
estimated that in Britain a third of the workforce is now employed in the service sector, contributing
almost a third to gross domestic output.
However, accurate analysis is extremely difficult and, at times, near impossible. Not only do
definitions vary in different countries, but even among economists within designated boundaries these
definitions often differ. The scope for lumping a wide variety of services is enormous, i.e. service
industries range from investment banking to hawkers. In South Africa, the definition has been changed to
include those working in the informal sector, such as road-side fruit sellers and the proliferation of open
markets. The bottom line is that it has become a dominant factor in reducing unacceptably high levels of
unemployment worldwide.
For the entrepreneur who is about to establish a new informal sector business, it is advisable to
start with absolute basics and to forget about industry classifications - for the time being. For this type of
business there are only two broad types of buyer for your product. The first is the buyer who will be
paying for your service/product out of his monthly earnings (taxed income) and the second type of
consumer is the business who pays for your service/product and charges this as a company expense
(against tax).
The advantage of the individual buyer is that he will be paying in cash, but usually this is a onceoff income. The company pays more and will usually re-use your services, but demand for a more
professional service is high.
The decision is up to you. If you decide that you are happy with keeping your business small, but
cash generating, then draw up a business plan to say so. It would be advisable to approach your bank
manager and outline your intentions. This type of business does not cost millions and the bank manager
could arrange a personal loan. This would, of course, depend on how well you have managed your
personal finances to date.
If you decide that you can service both individuals and businesses, your business plan will have to
be more detailed. For instance, if you are to operate in an area where there is existing competition, you
have to state how they operate, how you expect to fare against them, how large is the market, what
percentage market share do you believe you can obtain in the first year and do you believe that your
business can be expanded into other spheres of business.
One type of profitable service industry, which seems to be constantly needed in South Africa, is
the catering industry. I have looked into problems relating to running this type of operation and have
found no specific reason to justify poor service or even the lack of interest in successfully running the
business.
There are thousands of buildings being erected in South Africa every year. Surely there must be a
need for a well run, clean and organised restaurant - or even small canteen? A possible reason for the lack
of interest in someone fulfilling this market opportunity is that the entrepreneur needs to be wellorganised, meticulous, hard-working, imaginative and patient. Yet these criteria should apply to all forms
of businesses. In searching for a target market always adopt these characteristics and ALWAYS
remember that a get rich quick scheme is usually a scam.

Market opportunities
Taking advantage of a transitional phase in our history
The essence of success is not simply spotting a gap in the market or a need that was not being either
partly or fully supplied. Spotting that market opportunity is the first step to success, but ultimately real
success rests in how quickly you can secure project financing to execute your business plan and to do this
without delay. As an old journalist friend used to repeatedly say: If I can think of a front page story idea,
Im sure somebody else has thought of it too. To delay is simply to give up your potentially fabulous
profit making opportunity away to somebody else.

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Since 1990, South Africa has undergone rapid and, to say the least, extreme change. At the
beginning of that year the ruling National Party Government started a process of negotiations, which
resulted in the release of political prisoners, the unbanning of their parties and finally bringing full
democracy to this country. However, it took four years of intense negotiations to bring us the 1994
election.
During this time, Government also started a process of moving away from controlling the
economy. They began to de-regulate the oil industry, they broke up a long standing cement cartel and
have recently announced plans to undertake infrastructure development that will lead to a sell-off of State
owned assets, i.e. Telkom, Eskom and Transnet.
What does this mean for entrepreneurs? A transitional period means benefits and disadvantages
for businessmen. Firstly, the difference between de-regulation and privatisation is that, in the former, the
State controls the sector through legislation, but does not own organisations operating in those sectors. In
the latter, the State transfers ownership of its assets to the private sector by selling these assets.

De-regulation offers advantages to both big business and to individuals. For instance, prior to the deregulation (in part) of the South African telecommunication sector, Telkom was the only organisation
permitted to sell telephones in South Africa. With de-regulation, individuals could set up and operate
businesses offering the public an alternative to Telkoms coin-operated telephones. Another example
is the introduction of cellular telephones, which only came about once the State had made necessary
changes to South African legislation. This led to a multi-million industry springing up, creating
thousands of new jobs. For big business, the industry offered them an opportunity to diversify into a
new area of electronics. It also offered individuals the opportunity to establish manufacturing plants to
produce the various cellular telephone components and retailers to sell these telephones. Alternative
advantages are the creation of small businesses making leather telephone covers etc.

Privatisation also offers business and individuals an opportunity to establish their own businesses.
For multi-million rand organisations, the sale of State assets means being able to enter sectors of our
economy. Full privatisation of Telkom could see the introduction of more satellite technology, leading
to cheaper products on the market and ultimately new jobs. However, the extent of benefits tends to
depend on the mechanism that the State will use to sell its assets. If they opt for privatisation via the
stock exchange, then individuals can benefit from owning shares in the new company. Another
possibility is for the State to sell its assets directly to a consortium of businesses.

Disadvantages are numerous during de-regulation and privatisation. While the entrepreneur can set
up divisions to tackle new opportunities, with a changing market comes changing market demands,
i.e. if a market is de-regulated or privatised, it becomes part of the private sector and, as such, is
usually streamlined. This means retrenchments, change in pricing structures and demand-supply
mechanisms. Isolated, these issues are not normally a problem for businessmen. In fact, higher
unemployment should mean cheaper labour and, therefore, less strain on company income statements,
but businesses do not operate in isolation. Retrenchments and higher cost structures are almost always
met with union resistance. This affects not only firms directly involved in the sector, but also those
dependent on these firms, i.e. If Telkom is privatised and retrenchments undertaken, a strike in the
telecommunication industry could bring the whole country to a standstill.

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Important issues and trends that usually takes place during a transitional phase include:
1. The introduction of new Government structures that could offer entrepreneurs
opportunities. In South Africa, the New Constitution Bill will - from 1999 - replace the Senate
with a National Council of Provinces. This means that the nine provinces will have a say in
Parliament and we can expect a re-distribution of wealth from the wealthier provinces to the
poorer one.
2. It is important to understand and keep abreast of changing political structures. The ANCs
announcement (in June 1996) of a new economic policy for South Africa - called Growth,
Employment and Redistribution - will provide ample opportunities for entrepreneurs,
including greater access to foreign markets as a result of a lifting of exchange controls etc.
3. A greater Government focus on economic growth means changing relationship between the
State, business and labour. If you can understand how these factors will affect sectors and
your potential or existing business, you are likely to stay ahead of other entrepreneurs.
4. More details are provided in Chapter 5.

As a general rule, when normal patterns of trade are changing, or are about to change, the chance of
providing new services presents itself. In todays difficult working environment, opportunities are being
created every day. Those with imagination and quick wits are more likely to win. This applies in every
sector, from gambling to fishing and from mining to State enterprises.

CHAPTER SUMMARY: Look around and notice how many companies have hived off specific
tasks to independent companies. These include building security, cleaning staff and even, in some
instances, accounting staff. At one time or another, these were all departments within
corporations. To employ independents to do these jobs requires less effort, no maintenance of
pension funds and less personnel problems. What is stopping you from offering such a service?
The answer: there is nothing stopping you. If there is a market, act on it. Draw up a
business plan, get finance for the project and submit your proposal to the business. The point is
that finding a target market should not be difficult. There are enough problems associated with
setting up a company and running it successfully, without creating initial mind set problems.
It may take time to get money, and signed contracts, but persevere. Nothing worthwhile
ever comes easily.

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CHAPTER 3: THE EXPERT INDICATOR

While working for the Mail & Guardian in 1995, a number of JSE industrial analysts refused to be quoted
in stories I was writing. Surely," I asked, "it would be to your advantage to promote yourself through
the media? One analyst's answer was astounding. He said the private investor was being driven out of
the market by a growing sense of distrust and scepticism towards advice provided by market pundits.
He said shareholders were tired of receiving information from experts who had their own
agendas, which meant their guidance suited their personal circumstances and not that of the client.
Naturally, this goes against all formal principles which experts should follow as they should be concerned
about the best interests of clients at all times.
It boiled down to this: structural changes within the stockbroking fraternity to allow banks and
other institutions to become stockbrokers led some analysts to recommend only popular safe shares.
These have little short-term upward movement, but they do remove the analyst from the limelight. In this
way, they avoid being noticed by the directors of the stockbroking firm during a period which could lead
to retrenchments.
This resulted in the public obtaining information from experts which was of little use. When
compared to the volume of financial information investors received from the media, investors were faced
with an alarming amount of contradictory advice on which way the market was moving. The point is that
there is generally no shortage of free advice and the same can be said for those entrepreneurs who want to
start up in business.
Most successful businessmen are asked by the media at some stage for helpful advice and tips.
The result is often platitudes which dont actually tell you which form of enterprise is best suited to your
needs, or how to get that big order, where to get vital equipment, how to compile your business plan, who
to appoint to perform essential tasks, and why some things have to be done in a particular order and way.
The Small Business Development Corporation provides valuable advice, which - with banks, large
institutions, the Receiver of Inland Revenue and Customs and Excise - can help you with general
information on how to start your business. However, their main function is to provide a helping hand to
small growing concerns and not to set up a company for you. They are there for you to turn to when the
going gets tough or when you come across a problem you dont know how to handle.
Friends and relatives who have started up or run smaller businesses are also useful advisors. It has
been discovered that new enterprises are more likely to start and flourish in areas where there is a history
of such enterprises, which is part of the culture that exists in those communities. Having a relative or
neighbour who works for himself helps to establish the normality of enterprise and provides answers to
basic questions.
However, individual advice for specific problems is seldom readily available and usually costs
money.

Rely on your own expertise

How serious are you? Are you serious about setting up the right structure and running your company in
the most effective manner possible? Are your ideas about being your own boss realistic or idealistic?
Thousands of entrepreneurs say they are, but they use consultants to draw up their business plans.
They use expert help because they believe it will help them to obtain the financing they need to set-up
their dream company. The problem is that a plan entails more than just financing. It enables the
entrepreneur to see his proposed business as a whole, to fully understand how all the parts fit together and
to have a working knowledge of each aspect of the business.
By drawing up the business plan yourself, you will be more aware of your shortcomings and it
will be obvious which areas need to be attended to by an expert in the field. While you may find it easier
to employ someone else to write the business plan for you, dont be tempted to do this. Admittedly, you
may need a consultant to take you through the planning process, but you should draft the plan.

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The Chairmans Office Principle

The most successful entrepreneur is usually one with foresight. Telling yourself that you dont have all
the expertise necessary to succeed, knowing it is easy to lose sight of the overall picture and
understanding how it is easy to get embroiled in everyday operational problems takes sound business
perception.
However, to solve all these problems before starting out in business takes real business acumen.
There is a way to do this, particularly in medium to large sized companies where diversification often
becomes necessary. In 1991, I was hired as a business consultant by a Cape Town-based textile company
to undertake an investigation into how to conduct a hostile takeover of a competitor. Part of the report
dealt with the management of the target company. They had lost focus, the company's activities had
become too diversified and the directors were so geographically divorced from the factories that the
entire group had become ripe for a takeover.
In the report, I suggested a different form of management structure. Instead of having a full board
of directors at head office, with each member sitting on a host of other boards of subsidiary companies, I
recommended that a "chairman's office" be created. This would consist of the chairman, deputy chairman
and financial director.
These three people are the driving force behind any organisation. They see to the overall target
objectives of the group, look to new markets, negotiate corporate finance deals and focus on expansion,
profitability and generally policy making.
The next step is to create a full board of directors for each subsidiary and for each to run the
company as if it were their own. The chairman of each of these boards reports back to the chairmans
office. Now, for the new entrepreneur the situation is the same. He needs to have focus and this can be
achieved by using the chairmans office principle. Find two partners, each with specific skills. Preferably,
one should be a financial accountant and the other an expert on economics, market trends or analysis or a
corporate financier.
Once this team has been assembled, discuss each part of the business plan and decide who will
draft which sections. The team members should be responsible for all aspects of their sections, including
finding expert help to fulfill those functions which cannot be sorted out by the chairman's office.
At the first meeting of the members of the office, the following factors should be assessed:

THE CHAIRMANS OFFICE - FIRST MEETING

Set up management structure. Decide who will be the chairman, deputy chairman and financial
director
The focus of the business plan. State main objectives and mission statement
Why it is being drawn up, i.e. to obtain financing, to target a specific new product, to conduct a
takeover
The structure and time to complete a business plan, i.e. it should be less than 30 pages long and it
should be completed within two months
Divide up the work load and delegate this among the members
Decide on a short, medium and long term strategy, i.e. what products or services should they be
making, selling or providing now and how this could change in the future. To whom will you
provide the service and how will you do this
What information is needed to draw up the business plan
Draw up a working schedule to assess progress, i.e. meetings should be weekly or at most
fortnightly
Initial information members will need includes general data about the business environment, such as who
customers are, how many there are, products and services already being provided, whether there is still

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room for an additional service, level of availability of skilled labour and what the factor costs of
production are. Of course, if you product is unique, a number of the above facts are obviated, but replaced
with potential consumer demand for such a product. Always remember that walls have ears and that a
secret today could become someone elses business tomorrow. The bottom line is not to waste time.
Gather the information quickly, assess the data and move on.
As the business plan takes shape, it will often necessitate changes in initial market and customer
perceptions. This is normal and means that drafting a plan has worked. It has given the team new insight
into their intended target markets which they would not have obtained if a consultant had drafted the
entire business plan.

Business and technical advice

In drawing up a business plan, the first stop over is with a business development analyst. He is the person
who will provide the overall picture in terms of what information is needed, how it must be compiled and
set out in a business plan. The larger accounting houses all have development departments, which would
assist you in drawing up a business plan. Part 2 of this book outlines which factors have to be assessed by
the entrepreneur and also explains how to compile such information.
There are companies which charge a lot less than the accounting houses and often provide similar
advice on tax and business structures. The Institute of Chartered Accountants of South Africa can
provide details of their members and the areas in which they specialise. A list of business consultants is
attached in Appendix 1 of this book.
Another source for advice, both technical and management, can be obtained from universities and
technikons. Over the last decade, government funding of universities has decreased and this has forced
some institutions to finance their work through consultancies for the private sector. However, it is
important to remember that most consultants charge by the day (some by the hour), so it is imperative that
you give them a clear brief outlining exactly what the kind of advice or report you expect them to
produce. You are paying for specific expertise, whether it be of a tax structure, where to locate your firm,
marketing or of an engineering (technical) nature, so it is important to ensure that the advisor knows and
understands what you intend to do in business.
Always try to negotiate a fee up front, rather than accept terms with unlimited time frames. Many
consultants will be willing to negotiate a price rather than lose your business.

Financial advice
The difference between business and financial advisors is marginal. While the business expert will outline
issues like where to locate your business, which management structure to adopt and advice on sales,
personnel, marketing and other such issues, the financial advisor will tell you how to spend your money
efficiently. He will be able to advise you on taxation, pension or provident funds, customs and excise, the
benefits and drawbacks of different forms of business enterprises, how to deal with staff, annual returns
and audited accounts.
The best advice will come from someone who is thoroughly versed in accounting methods and
financial management techniques. While you may believe you are qualified to handle your own affairs,
there is no substitute for a good financial advisor. Establishing contact with a good advisor is an essential
step to successful financial management. It is crucial to find someone who is adept at your particular type
and size of business.
He could be a local bank manager, a merchant banker or some other financial consultant - as
outlined in the list of consultants set out in Appendix 1.
Once you have found business and financial advisors, the next step is to contact your bank
manager. You have no choice; you will have to deal with him on a continuous basis so it is advisable to
outline your plans at an early stage. If you are unhappy with your personal bank manager, you could
approach another bank. You will be surprised at how helpful the manager can be, providing you with

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practical and sound advice on who to contact for loans. He could make useful suggestions and arrange
introductions to contacts who can help you, such as suitable accountants for your firm.
You may be able to judge from his general demeanour and level of enthusiasm for your project or lack of it - whether you want his bank to manage your business account. Just because he is your
personal banker does not mean he has to handle your corporate work as well. Of course, much will
depend on your existing relations, such as your track record regarding bank cheques and re-payment of
loans. Have you always kept him in the picture about your financial affairs - warning him, for instance
about when you needed an overdraft? Much of his judgement about your business will be based on your
record of dealing with his bank.
In the past, investment gurus used to advise smaller businessmen to rely on their accountant,
especially when it came to issues relating to money. However, today investment advice is usually split
into business and financial roles. How you view these functions will affect the extent to which you will
need and use an accountant. For instance, if you use a tax consultant, your accountant is limited to
compiling accounts books and is no longer required to provide advice on important financial decisions.
The more limited role for the accountant is usually adopted when a company has a partner who has
extensive financial expertise or when the company can afford to have a financial director to co-ordinate
an accounts department.
Your decision will depend on financial constraints. However, accountants are usually well versed
in drawing up business plans and introducing sources of finance, so it may be prudent for the aspiring
businessman to use his accountant's advice on the setting up of accounts, budgets and reporting structures,
the appointment of key financial staff and the taxation implication of any given decision.

Legal advice
Whatever type of business structure you ultimately use to run your business - from sole proprietorship to
public company - there will be some form of legislation involved. Depending on the type of enterprise
you choose, you will need to register the company. In addition, a time will come when you will need a
lawyer to draw up sales/purchase agreements, register trademarks, copyright and patterns or you may
have to sue debtors for unpaid accounts. You must therefore have a lawyer on your books as an advisor,
but find out which lawyers deal with corporate issues, particularly those who practice and understand
your area of specialisation.
For instance, if you are involved in producing or supplying goods or services to the public, you
will need a lawyer with experience in consumer protection and product liability law. If you become
involved in major takeover or merger deals, expertise in contracts is essential. When your company has
expanded to require more staff, experience in employment law is desirable. If you will be dealing in
property, conveyancing skills will be needed. Your accountant will probably be able to recommend an
attorney; alternatively names can be obtained form the Law Society, though you may need to dig to
discover areas of expertise. In addition, depending on the type of product you intend to sell, you may need
an attorney who is well versed in patent laws and legislation on trade marks.

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Other advisors
MULTITUDE OF ADVISORS
Experts

Why you need them

Property

Part of the business plan deals with the location of your business and you will,
therefore, need an estate agent. It is important to choose an agent who specialises in
the type of property you need - office, shop, industrial or agricultural. It is also better
to choose an agent in the area where you intend operating from as this person will
know the advantages and disadvantages of certain locations - traffic, access to
highways and levels of crime
The estate agent can also give advice on a range of other pertinent issues, such
as rentals and even negotiate these for you. He should be knowledgeable about
planning regulations, rates & taxes and insurance valuations. In addition, ask the estate
agent for the name of a reputable surveyor and architect, so that if you need to
expand or change the layout of the premises to suit your needs, you will have an
experienced advisor on your contact list

Insurance

These companies will gladly provide a wide range of diverse insurance against theft,
fire, water damage etc. It is a commodity which is fairly easy to obtain, but it is crucial
that you go to a reputable insurer. This reduces the risk of future problems in the
eventuality of the insurer being declared insolvent. These agents will be able to give
general advice on property, equipment, employers liability and specialist advice on
life assurance and pension/provident matters

Advertising

An agency will be best suited to provide advice on which media to focus on. Should
you use radio, television or the print media? They provide a full service and will
prepare the advert for you

Business
confidence

Local chambers of commerce (SA Chamber of Commerce - Appendix 1) can provide

advice on markets, confidence indices and point you in the right direction

Marketing

To gather and assess data about the marketplace, customers and their needs, approach
marketing companies. Self assessment can be done through analysis of government
survey statistics (see Chapter 2)

Personnel

Agencies provide advice on the availability of skilled, semi-skilled and unskilled

labour, labour costs, methods of recruitment for different types of staff and will
undertake to do all the interviews and provide you with a short list of possible
candidates

Stockbroker You are unlikely to need their services in the near future, but is important to establish
& merchant contact with a reputable stockbroker, who also has a research team. As a client, you
would receive their research, which enables you to keep abreast of market and sector
banker
movements. For instance, if you want to set up a furniture shop, stockbrokers reports
on the furniture sector and on specific listed furniture companies (e.g. Ellerines, JD
Group) will provide you with added insight into the industry

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CHAPTER SUMMARY: Find advisors whom you trust and respect and who understand your
particular business needs. While it will take time to build up a solid, trusting relationship with
advisors, the benefits of having these contacts cannot be emphasised enough. It is, therefore,
beneficial to appoint them at an early stage and - if finances permit - to pay them a retainer for
ongoing service. This helps to keep advisors fully informed on how the business is progressing,
which will enable them to continually respond with the best advice.

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CHAPTER 4: TYPES OF BUSINESS ENTERPRISES

Choosing a particular type of business structure should be undertaken with due consideration to your
specific needs. I have seen individuals start up their businesses as private companies, instead of sole
proprietorships, simply because it sounded grand to be the chairman of a company. For this privilege,
the individual had to spend thousands of rands in setting up the structure of his firm before he even
commenced business.
There are as many reasons for selecting a sole proprietorship as a form of business enterprise as
there are for electing to operate under a company structure. Each company construction has over time
been designed to account for the size and complexity of an operation and the norm is for entrepreneurs to
use the simplest structure which suits them. Choose a structure which would be most conducive to
management and cost efficiencies, i.e. the simplest form is called a sole proprietorship (cafs, small
coffee shops) and the most complex (available to the man-in-the-street) is a company listed on a stock
exchange.
Therefore, in addition to selecting a form of business enterprise which best suits the entrepreneur's
needs, a number of criteria should be investigated to help determine what the advantages and
disadvantages are in choosing a particular form of business structure.
The following diagram shows that forms of business enterprises start with sole proprietorship and
end with statutory bodies, called utilities (e.g. Telkom, Eskom and Transnet). Criteria in choosing a
company structure will change over time as the firm becomes more complex and profitable.
FORMS OF BUSINESS ENTERPRISES

Companies with no limited liabilitiy

Companies with limited liabilitiy

Level of complexity in forming a new company structure

Least complex/expensive

Most complex/expensive

No legal status

Legal status

1. Sole proprietorship

1. Closed Corporation - CC

2. Partnership

2. Co-operative

> Unlimited liability

> Limited liability

3. Company
> Private - (Pty) Ltd.
> Public - Ltd.
4. Utility - State-controlled organisation
> eg. Eskom, Transnet, Telkom

Most beneficial

Least beneficial

Least beneficial

Most beneficial

Best long-term structure to obtain financing, operational & legal benefits

Best short-term structure to obtain financing, operational & legal benefits

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Before I outline forms of business structures, here are some issues to consider before selecting the
framework which would best suit your needs.

Factors to consider
The kind of business structure you choose depends on a number of factors, which have to be scrutinised
before a final decision is made. If you are in a high risk environment and could incur high profits, but
equally high losses, it would be wise to protect yourself by choosing a business form which has limited
liability. Weigh up a simple, cheap structure against any possible tax advantages, protection from
financial losses or the ability to raise finance on the open market all enter into the equation.
You should discuss this with expert advisors (as outlined in Chapter 3) at an early stage in the
planning of your venture.

Financial factors
Financing the firm
The cost of setting up a firm increases as the organisational structure becomes more complex. In a sole
proprietorship, the firm is owned and run by one person, while in a partnership more than one person
makes a financial contribution in setting up the firm and to daily expenses. A co-operative usually obtains
its funds from the share capital of members. These funds may be supplemented from two sources:

Institutions e.g. Land Bank. The government maintains a fund to pay for problems encountered in
the financing of activities; and
On-going capital. A percentage of a members contributions is retained every year by the cooperative to finance operations.

It must be noted that the function of co-operatives is changing worldwide and is no longer used to the
extent it was during the 1970s and 1980s. Many free market countries are moving away from Stateassisted ventures.
The owner of a private company has to approach investors directly for funds, while a public
company uses a marketplace to sell its shares; called a stock exchange. This form of enterprise is selected
in cases where the company can fulfill stock exchange listing requirements and where it is difficult to
persuade investors to fund a private company.
To obtain funds from the public, a company would have to fulfill strict stock exchange listing
requirements (outlined under Companies with Limited Liability). Certain sectors of the JSE - in particular
those listing under the Development and Venture Capital Markets - have requirements which are less
tough to fulfill.

Tax
Three of the forms of enterprises available in South Africa have particular tax implications for the owner
of a firm. Sole proprietorships and partnerships are not legal entities (they do not have a separated,
independent legal status from the owners) and, therefore, taxes which the owner or partner has to pay on
business profits increase on a progressive scale. Much the same way as individuals pay taxes, the higher
your annual income, the higher the tax bracket you fall under.
In contrast, a company with limited liability pays a fixed rate of income tax on profits, regardless
of the size of the profit. If a company thus has a marginal operating income (after interest charges) of less
than R10, 000, a far larger portion of this is paid out in tax than would be the case for the owner of a sole
proprietorship or a partner.
As the companys profits and an individuals annual income increases, the opposite applies. If
there are no other deductions and the net profit/net annual income to be taxed is, say R14,000 and
R500,000, the full tax implication is outlined in tables on the next page:

Taxable income

Company

Individuals

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@ 1995 rates of 35%

@ 1995 rates*

R14,000

R4,900

R2,510

R500,000

R175,000

R215,100

* Individuals rates as @ 1995:

Taxable income

Tax rate

Tax payable

R10,000 to R15,000

R1,750

+ 19%

for amounts over R10,000

R1,750

+ R760

= R2,510

R80,000 and above

R26,100

+ 45%

for amounts over R80,000

R26,100

+ R189,000

= R215,100

For the entrepreneur who aims at low net profits, it would be better to use a sole proprietorship or
partnership to get tax advantages, but the entrepreneur who believes his enterprise will continuously yield
high profits, an organisational structure which has limited liability (i.e. private or public company) would
be the better choice.

State succour
Companies with strategic minerals or products (military or hospital equipment) can at times secure State
support in developing the product or enterprise through grants. For instance, if a pharmaceutical company
was close to finding a cure for the HIV virus, it could approach government for funds to increase research
and development. Whether it would receive such funds would be determined by the strength of the
companys argument for funding, which would have to be in the form of a business plan.
In terms of types of companies which would be most likely to obtain State financial aid, it can
safely be said that it would be easier for a co-operative or a large company to persuade the State to
support a particular development or enterprise.

Operational considerations
Management structures
Depending on the type of operation an entrepreneur decides to enter into, he could be limited in his choice
of management structures. For instance, if the amount of daily operational decisions which have to be
made are vast, he will have to hire staff. To offset losses incurred as a result of human error, negligence or
fraud, he would have to establish a company with some form of limited liability. If certain technical skills
are required, a partnership could be the answer.
A practical rule to follow when looking at management criteria is that volume of transactions is
usually smallest in the case of a sole proprietorship and largest with companies. It therefore follows that
the larger the firm becomes, the more advantages the entrepreneur will glean from adopting a company
structure.
In addition, as the firm grows, more skilled managers will be needed as departments are formed,
staff requirements grow and the firm moves into new product ranges. Ultimately, the benefits of
diversification into new fields could lead to new subsidiary or associate companies being formed. A
company which is expanding, particularly if growth is rapid, places pressure on firms which have no
legal status to become private or public companies.

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Constancy
A firm can either have legal status or not. This means that an entrepreneur can choose to register his firm
in such a manner that it has its own identity. In South African law, if a business has its own identity, then
it is a legal person, incurring debts and profits apart from the natural person (the owner).
In the spectrum of business enterprises, a sole proprietorship and partnership do not have legal
status, which means all company debts are coupled with those of the owner/s. If this type of company is
declared bankrupt, the owner/s's assets would be sold to recoup losses.
Another advantage of operating a firm with legal status, is that its lifespan is not limited to that of
the owner. This means that if the businessman dies, the firm would not be closed down until the estate has
been wound up, but would continue operating under a curatorship until the estate and wills were wound
up..
In the case of a co-operative, company and utility all have legal status.

Delegation of responsibility
The entrepreneur who wants to run his own business, and not use professional managers, would prefer to
use a sole proprietorship. This may be fine while the firm is small, but to expand the business he would
have to delegate some of the responsibility if the firm is to run efficiently. A businesss activities have to
be continually checked against a business plan, the firm has to have a captain at the helm to guide it and
this cannot be achieved he is worrying about menial tasks.
Therefore, if an entrepreneur wants to start his business with total control, he would choose a
company with no limited liability.

Legal aspects
When determining which form of business enterprise to adopt, there are a number of legal requirements
and procedures which have to be undertaken. If the entrepreneur does not want to become involved with
the volume of requirements which accompany forms of enterprises with limited liability, he may select a
sole proprietorship. No specific legal requirements are prescribed for a sole proprietorship, except for the
normal agreements which would have to be signed to operate a business, e.g. lease forms for the place of
business and agreements with suppliers. However, these relate to the actual operations of the firm and not
directly to the formation of the business enterprise.
The same can be said of partnerships, except that the partners need to have clear cut agreements
drawn up to outline their respective responsibilities and obligations and how profits and losses will be
handled.
The procedures for the establishment of a co-operative, company and utility are prescribed by
legislation and thus have their own legal personalities. It is, therefore imperative that certain aspects of
the running of its operations and how profits and losses are distributed, are legislated for greater
shareholder transparency and accessibility. In the case of a private company, the shareholders would have
sole access to the financial statements, while in a public company these results have to be published in a
newspaper and are available for all to scrutinise.
Similarly, utilities can only be formed through legislation as their creation may impact on the
general public. For example, if a statutory body was formed to market and sell all fresh water fish
harvested in South African rivers, all producers of that product would be compelled to use set channels
and to pay certain levies to government. This interference in the free market mechanism would
undoubtedly affect the general public in some way. Legislation would thus be necessary to ensure that
such State intervention would be warranted, that it would be in the interest of the majority of producers
concerned that such a body was formed and that it is, if not beneficial, at least not harmful to the general
public.

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Companies with no limited liability (or legal status)

Sole proprietorships
This form of enterprise is undertaken by an individual who finances the business from his own or
borrowed funds. The firm is usually managed by the individual and he reaps all profits, but he is
personally responsible for any loss incurred by the business. It is a simple procedure to establish such a
business as its assets are not legally separated from the private assets of the individual owner.
There are only two requirements in forming a sole proprietorship. The name of the firm must
fulfill the requirements of the Business Names Act of 1960. This states that a name cannot be abusive,
rude and against moral standards and it cannot be the same or similar to an existing title. For instance, the
Registrar of Companies could turn down a request to call a company Link Estates if Rink Estates is a
well-known and profitable company within the designated area of operation. The second requirement
deals with the product or service the entrepreneur intends to sell. He may need a licence in terms of the
Licensing Act of 1962.
In practice, sole proprietors can separate business assets from personal ones by using two
different bank accounts. In this way, the owner builds up a track record of his business and, if he later
wants to move into the sphere of limited liability, he will be able to approach shareholders armed with a
company financial profile and history.
Some of the benefits/drawbacks of a sole proprietorship as a form of business enterprise are
outlined:

BENEFITS OF USING A SOLE PROPRIETORSHIP STRUCTURE

Simple and flexible trading structure

Can avoid having accounts filed or audited
Losses incurred by the business can be offset against the owners other sources of income
Owner has no one to report to and, thus, has full control

DRAWBACKS OF USING A SOLE PROPRIETORSHIP STRUCTURE

Unlimited liability status

All profits are taxed as personal income and, therefore, the individual is placed on a
progressive tax rate system
There is also no tax relief on profits retained in the business
Financial institutions are hesitant to finance this type of business structure
Owner has to employ skills he lacks

Partnerships
When a group of individuals or a sole proprietor decides to merge his business with one or more other
individuals, this is called a partnership. It usually takes place when there is a need to merge skills or assets
(or both) to establish a single, larger and more powerful firm. This new structure has the same
characteristics as the sole proprietorship in terms of ownership, liability, profit and losses and legal status.
In some countries there are legal prerequisites to govern the registration of partnerships, but in
South Africa the norm is for all partners to be jointly and severally liable for all debts of the partnership.
This means the company does not have its own legal status and, therefore, the debts of the firm would
have to be paid out of the partners private funds.
However, there are exceptions to this rule. In certain cases, a partnership can be formed to limit
the liability of certain partners. This is usually carried out when a particular partner wants to contribute
more funds to the partnership, but will only do so if the additional exposure is excluded from possible
liabilities.

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Such a person is called a limited partner. Under these conditions, the partner cannot incur
expenditure or sign agreements on behalf of the partnership. With the exception of the limited
partnership, the partnership enjoys much the same advantages and disadvantages as the sole
proprietorship, but the main difference rests in each partners responsibility to each other and to the firm
as a whole.
Where the individual took full responsibility for his actions, in a partnership each partner is
expected to contribute funds, a product or service, specific managerial or other skills, carry out the labour
or have expert knowledge which will help the firm operate efficiently. The total skills level should be of
benefit to all the partners and the objective of the business should be to make a profit. This would, in turn,
be divided equally among all partners.
Legal contracts are not required to set up a partnership and the only statutes the partners have to
be concerned with, other than those mentioned under the sole proprietorship, are the Stamp Duties Act of
1968 and the Companies Act of 1973.
However, when more than one person is involved in any form of business deal, it is crucial that
some sort of legal agreement exists between the partners and the terms and conditions of ownership and
areas of responsibility of each of the new partners should be outlined in writing. While the contract may
be written, verbal or tacit, corporate lawyers will always advise that contracts be written down clearly,
each page initialled and that the contract is dated and signed by all partners and then submitted to an
attorney for safekeeping.
A partnership agreement should thus at least include the following aspects:

THE PARTNERSHIP AGREEMENT

Provide the following detail:
Name and address of each partner
Name, address, telephone and fax numbers of the firm
State when the firms financial year begins and ends
Nature of the business and target markets
Outline each partner's job description and area of responsibility (e.g. financial director responsible for administration and accounts)
If there are consultants to the firm, state names, nature of position and amount of time or
quantity of reports expected and when (weekly/monthly)
Outline all partner benefits (remuneration, bonus schemes, car allowances etc.) and ability to
withdraw cash from the firm
Provide details on how profits or losses will be handled by the firm, i.e. carried forward to the
next financial year or paid to (profits) or by (losses) the partners
Provide an outline on how disputes will be resolved i.e. through voting or arbitration
Outline an organisational structure for the firm (who will be managing director, financial
manager etc. and how these positions will be reviewed)
The firm must pay for life assurance for each partner
Give details of how the firm will continue operating if a partner dies (winding up an estate can
take months)

It is important to set out each partners rights and obligations in writing. That way, if one partner does not
wish to be a part of a certain function, he can stipulate that in the contract, called a management
agreement. For instance, a businessman who is asked to become a partner in ABC Partners - for his

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invaluable skills in corporate finance - can stipulate that he will only provide industrial advice and not be
a part of the daily operational functions of the business.
The members of a partnership are free to choose their own relationship to the business by means
of this management agreement. Unless otherwise stated, each partner has certain rights and obligations
which are automatic and inherent in the formation of a company and which cannot be excluded in a
partnership agreement.
For instance, he has the right to undertake transactions with outsiders on behalf of the partnership,
take part in management decisions, use partnership assets, have constant access to accounting records
and, if the firm is liquidated, to share in the final division of assets.
In addition, each partner shares in the profits of the partnership as stipulated in a partnership
agreement. For instance, if the partners contributed different amounts and skills to the firm, it could be
stipulated that each partner participates equally in all profits and losses. This is illustrated in the following
example.
The partners of ABC Retailers contributed the following to the partnership:

Partner
L. MacKenzie

Start-up contribution Share of profits/losses

Rands % of total
%
200,000

25,0

25,0

25,0

S. Malebe

100,000

12,5

25,0

B. Wilson

500,000

62,5

25,0

Total

800,000

100,0

100,0

K. Lorrie

It does not seem fair that L. MacKenzie will receive the same proportion of profits as he contributed to
the firm, nor does it seem right that B. Wilson will receive only 25 percent of profits after contributing
62,5 percent of the partnership funds. At first glance, it seems that S. Malebe and particularly K. Lorrie
will ultimately be the main beneficiaries. After all, they contributed less (or nothing) to start the
partnership and yet will each obtain a quarter of the profits.
Not so. The above example does not outline what skills each of the partners have to contribute. K.
Lorrie may have been the one who drew up the business plan and approached the others for their money
or skills or both.
One way to sort out such inequalities is to state in the partnership agreement that these funds are
loans to the firm and will be repaid to the partners over a stated period of time and a specified interest
rate. In the absence of any particular clauses in the agreement, the general rule is that profits/losses will
be shared in the proportion of contributions made by each partner. However, if specific contributions
cannot be assessed, profits are shared equally.
In terms of obligations, each partner must adhere to the partnership contract and management
agreements. He must at all times act in the best interests of the firm and fulfill his fiduciary duties with
care and diligence. While they have the right to use company assets, each partner must provide details of
these transactions to the other partners.
It is important to understand that the rights and obligations set out above belong to the partners
and not to the partnership. As such, the partnership cannot own land or other assets and cannot buy or sell
products and services. The partnership is merely the conduit for the partners to trade through.
Some of the benefits/drawbacks of using a partnership as a form of business enterprise are
outlined:

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BENEFITS OF USING A PARTNERSHIP STRUCTURE

Less expensive and easier to establish than companies with legal status
Greater source of funds available (from a number of people) than in a sole proprietorship

Various skills from different partners can contribute to the success of the firm, i.e. various
partners can focus on specific tasks

A partnership is not subject to Secondary Tax on Companies

Profits become part of each partners personal wealth and, thus, the partnership itself is not
taxed

DRAWBACKS OF USING A PARTNERSHIP STRUCTURE

Unlimited liability status places partners personal wealth and assets at risk

Petty jealousies may arise. This could affect efficiency, trust and good faith in each other
Who manages the firm?
There is no constancy in business operations and, ultimately, the structure will have to be
disbanded
Financial statements have to be audited. This can lead to creative accounting methods

Companies with limited liability (or legal status)

Formalities
The problem with choosing a limited liability company is the host of forms and regulations that
have to be filled out and compiled with prior to forming the company and then undertaking to
uphold the (at times) rigid rules and regulations which have to be adhered to if you are to
continue running your business.
The general principle is that Closed Corporations have the least rules, while a public
company has the most. The following text will explain some of the documents needed to form a
limited liability company. Depending on the form of company chosen, you may not have to
complete some of these forms.
Company formation and registration
Despite the ease with which a limited liability company can be set up, many people wisely prefer to
entrust the task to business and legal professionals. The problem is not one of making a mistake, but one
of time. The more you do yourself, the more likely it is that some detail will be left out and thus delay the
formation and registration of your company.
For instance, many law firms have what they call "self companies". They register a host of
companies under nonsensical names, e.g. Company Legal A (Pty) Ltd., Company Legal B (Pty) Ltd. etc.
When a businessman wants to form a private company, the lawyer already has a company registered,
which can save time. The lawyer then applies for a change of name and provides all the necessary details
relating to new directors, addresses and so on.
The lawyer would effectively change the Memorandum and Articles of Association to suit your
needs and intentions. There will usually be at least one director and one company secretary.
For a company to be registered and therefore operate, it needs a Certificate of Incorporation,
which has to be issued by the Registrar of Companies. In order to obtain this document, a number of
documents (depending on the form of enterprise) have to be filled in and submitted. These are outlined on
the next page:

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Memorandum of Association

This contains details of what the company is empowered to do. Apart

from the name and other details, the memorandum also sets out the
objectives of the company

Articles of Association

This contains internal rules and regulations of the company, controls

the right of shareholders to sell their shares, giving the directors a
veto on the transfer of shares and can stipulate how future directors
shall be appointed

The Statute

Appointment of directors and secretary. The document which

contains the rules and regulations which govern the management and
domestic rules of the company is called the statute. The contents of
the statute are concerned with matters such as the issue and transfer
of shares, the keeping of a share register, changing of the capital of
the company, procedures for general meetings, powers and duties of
directors, the declaration of dividends and administrative duties

The Prospectus

Shares cannot be offered to the public unless such an offer is

accompanied by a prospectus which complies with the requirements
of the Companies Act. This document outlines details such as the
name and address of the company, nature of business, details of the
directors, company prospects and details of the share capital. It also
has to outline details of the companys financial year

Licenses and other consent forms

When the limited liability company has been incorporated, directors can sign and buy on behalf of the
company. This means that when legal documents have to be signed, such as property, the company will
be the owner of the asset and not the director. The various forms of permission relating to property and its
use will probably be the most common form of consent forms the entrepreneur will encounter.
The first step is to ascertain whether the premises have business rights. If it has, then find out what
type of business can operate on the premises, i.e. retail, offices, industrial or distribution. For instance, if
you want to turn an old building into a restaurant or night-club, the property rights may relate to retail and
not catering.
To complicate matters, there are sub-categories within these property rights. Retail premises can
be classified for catering purposes or restricted to the sale of food or other types of merchandise.
Industrial premises can be defined as heavy, medium or light industrial works. Obviously, in South Africa
you will need permission to change or alter the nature of one of these main or sub-categories.
Another problem centres on building design. Most new entrepreneurs would insist on computer
terminals and network stations. The owners of the building may not have given you the permission to
make alterations.
When there is doubt about a licence or legal requirement, find an adviser to solve your problems.
This could save considerable time and expense.

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Closed Corporations
Before the Close Corporation Act was promulgated in 1984, there was a chasm between partnerships and
private companies. The difference between the two types of organisational structures was so vast that it
was often difficult for businessmen to move out of unlimited liability status companies to that of
establishing a company with legal status.
While the partnership structure is relatively easy to establish, there are a host of formalities
regarding formation, function and running of a private company. An intermediary structure was thus
formed to bridge the gap between the two forms of enterprises and a close corporation was established to
provide entrepreneurs with a means of trading through a company with its own legal persona and
constancy.
However, legal personality does not exempt members from prosecution if they commit fraud and,
therefore, the Act provides for creditor protection.
Some general characteristics are outlined:

CHARACTERISTICS OF THE CLOSED CORPORATION

Limited liability
Name of closed corporation has the suffix CC (e.g. ABC Retailers CC.)
Owners are called members and not shareholders
Members are limited to between one and 10 persons
Membership is restricted to natural persons (i.e. not companies)
A membership can be bought with the assistance of the CC
CCs do not have to be audited, but financial statements have to be prepared
Annual general meetings are not required
embers are free to transfer their interest to other natural persons
A CC can only be formed by submitting the required documentation to the Registrar of

Companies (Close Corporations)

An association agreement is not submitted to the Registrar, nor is it a public document and
may thus not be inspected by the public
Members have an equal right to share in the management of the firm and to represent the CC
Members have a right to vote, in the proportion of the percentage of interest held in the CC

Steps in forming a Closed Corporation are outlined on the next page.

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Steps

What to do

Name of CC

It is important to reserve the CC name through the Registrar of Companies

and Close Corporations. The application should consist of at least 10 names
as one you desire may already be in use. List these names in order of
preference. This is usually done before the form is submitted

Incorporation

To register the company, a Founding Statement, called a CK 1, has to be

completed and submitted to the Registrar
The CK 1 must include:
Full name of corporation: Even if you intend to use only part
of the company name, you must register the full name and the

Other factors

All documents must:

be written in block letters or typewritten
be in black ink
lodged in triplicate

Trading as a CC

type of operation
Abbreviated form of name: If the shortened version of the
name is to be used, it is important to include it in the
registration, i.e. register both South African Business
Organisation Software and SABOS
Description of principal business: A complete description is
required

include a power of attorney when members sign for other

members
include relevant signatures when members do not have legal
capacity to sign (i.e. guardians, administrators, curators etc.)

Once your registration has been successful, the Registrar will issue a
Certificate of Incorporation (includes a registration number), and thus the CC
has been incorporated and you commence business

Some of the benefits/drawbacks of using a CC are outlined on the next page:

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BENEFITS OF USING A CLOSED CORPORATION STRUCTURE

It possesses a legal/corporate personality. This means it can do business and enter into
contracts in its own name
There are very few legal requirements to establish and manage a corporation in comparison
with a company

To establish a close corporation is relatively inexpensive and simple

It has limited liability
Dividends declared by a CC are not taxable in the hands of the members
A member may have a debit balance on his loan account without being taxed thereon, whereas
a shareholder with a debit balance on his loan account is taxed thereon

No statutory audit is required

The legal personality of a CC provides for continuity

DRAWBACKS OF USING A CLOSED CORPORATION STRUCTURE

Membership limited to 10 persons
A member who shares in the management of a CC must act with reasonable care and skill
If the CC loses its corporate identity because its liabilities exceed its assets, a member
becomes jointly and severally liable with the CC for the corporations debts
All the members have to give their consent to the disposal of a members interest
A CC cannot be sold to, or to become a subsidiary of a company. Company tax at 50 percent
is payable by a CC, which is higher than that of an individual

Co-operatives
This form of enterprise is used by a group of people who do not have business skills (marketing,
management or financial) but who want to concentrate on their product. Through a co-operative,
members can use their time on their product, while the organisation markets, prices and sells the product
on behalf of the members.
The gist of forming a co-operative is to voluntarily bring together people who need to have a
particular product sold in an efficient and economical way. This form of organisational structure is not
suitable for entrepreneurs who want to run their own operations, who desire high profits and who have to
share equally in the rewards of the business.
Institutions usually avoid financing this type of operation, as experience has proved that they
seldom achieve their desired target, which is to market and sell a common product for its members at the
best price it can possibly obtain.
In this country, co-operatives are usually linked to the trade of products and seldom to services.
Under the Co-operatives Societies Act, there are two general types of co-operatives (close consumer cooperative and the open co-operative), but these take three forms, namely agriculture, special and trading
co-operatives.
Different formation provisions exist for each type of co-operative, but all obtain limited liability
status through registration and are subject to provisions laid down by the Co-operatives Societies Act as
well as the Co-operatives Statute.

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Some general characteristics are outlined:

GENERAL CHARACTERISTICS OF CO-OPERATIVES

Enjoys limited liability
Consists of individuals who share a mutual interest and who voluntarily set up shop to achieve
similar economic objectives on a collective basis
Main objective is not highest possible profit, but net income is divided among the members
according to a ratio of transactions between co-operative and member
A board of directors is voted in by members and they, in turn, elect all officials
All members have only one vote
The co-operative functions according to its founding statement (sets out objectives and
regulations) and the Co-operative Societies Act

Closed and open co-operatives

The closed consumer co-operative trades solely with its members and, as such, benefits from tax
exemptions. This form is not usual and more an exception than the norm. Consumers co-operatives
main objective is to obtain and pass on to their members the advantages of bulk buying. The capital to
set up this type of co-operative is obtained through members buying shares in the organisation.

The open co-operative is the more conventional type of co-operative and is owned and set up by
members to trade with outsiders.

The three forms of co-operatives

To set up an agricultural co-operative, the members have to both fulfill the requirements of the Cooperative Act and actually be farmers. The main aim of the co-operative is to market members
produce, but it can help farmers with packing and storing goods and generally provide information
and counselling services for farmers.

Special co-operatives, such as those in the service industry, have been established in South Africa,
but are not often successfully set up. There does not seem to be any real, set out format or special
requirements laid down by the Act for the membership of such co-operatives, except to state that the
organisation has to have a minimum of seven natural persons as members.

Similarly, there seems to be no special requirements for trading co-operatives, which targets the
manufacturing of products for sale. It also has to have at least seven natural persons as members.

Steps in forming a co-operative are outlined on the next page:

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Steps

What to do

Application for

Must be submitted to the Registrar of Co-operatives within two months of

founding meeting and must include:
copy of regulations

registration

names and addresses of founding members

name and address of registered office

expenses already incurred

members shares

Statute

Document must contain:

name of co-operative (co-operative limited or co-operative
ltd)
type of co-operative
objectives of co-operative

Steps for approval

co-operatives internal code of management

Send Statute to:

Registrar of Co-operatives: If he approves document, it is
forwarded to relevant Minister

Minister can:
1. approve document
2. reject document
3. provide conditional approval, i.e. prescribe conditions
for its function
4. ask for more information
When Minister grants approval, sends document back to
registrar
Registrar registers the co-operative

Some of the benefits/drawbacks of using a co-operative as a form of business enterprise are outlined:
BENEFITS OF USING A CO-OPERATIVE STRUCTURE

Enjoys limited liability status

Frees co-operative members (e.g. farmers) to concentrate on their skills
The name co-operative suggests that members do not compete against each other
The co-operative can sell members products in large quantities, thus providing discounts to buyers
There is no need to pay middlemen
Depending on the size of a co-operative, it may have funds to offer additional services to its members, e.g. have
business advisors, crop storage facilities, collection of crops to central co-operative warehousing and loans
The co-operative should be run using sound business principles
Members provide capital required to start up the firm and there is, therefore, no need to approach financial institutions
for loans. It is important to state in a business plan how much the collective sum acquired by the co-operative amounts
to
Members receive interest for the capital they invest in the co-operative
Profits are divided among the members in proportion to their transactions

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DRAWBACKS OF USING A CO-OPERATIVE STRUCTURE

The ultimate objective of employing businessmen to run the co-operative is seldom achieved.
Committees are then set up by inexperienced co-operative members
Consequently, these committees seldom achieve a sufficient level of efficiency to:
1. produce large-scale sales and thus benefits for its members
2. reduce internal management costs
Failed promises - such as less than expected annual sales - reduces members level of support for the
co-operative. This raises chances of members looking for other buyers
The ability of members to fully finance the co-operative is limited. This leads to a shortage of startup capital
Members shares have to be sold at the same price at which they were obtained
Unlike companies, shares in a co-operative cannot be freely transferred to outsiders
There is no logical method of voting. Each member - irrespective of the amount of capital he
contributed - receives only one vote
There are no capitalistic motives in making a profit as the initial aim of a co-operative is to help its
members
Products are sold at controlled market prices, which sometimes do not reflect market prices

Note: The Registrar of Companies (Co-operatives) can supply information on how to form and control
such ventures. To date, these services have been free of charge.

Private companies
An entrepreneur who wishes to use the private company structure to run his business has three ways of
finding the capital. He can obtain loans and set up the firm on his own, which would give him total
control. He could offer shares to a select number of persons or place an advert in the local press asking for
private subscribers. The latter should not be construed as a public offer of shares (this is the premise of a
public company), but should be worded as asking the public to invest directly in the firm. A financial and
legal expert would provide advice.
There are a limited number of methods of raising capital, but this form of business has benefits
when drawing up a business plan. The individual is taken more seriously by a financial institution and it
seems to be the right vehicle to finance a venture.
While the Companies Act regulates the formation of such an enterprise, the entrepreneur may
encounter additional acts and provisions. This is dependant on the sector he has chosen. For instance,
control boards regulate the establishment and running of about 20 statutory bodies in South Africa and, if
your business falls within this ambit, you would have to fulfill the requirements of that specific board.
It would thus be wise to contact your business advisor or the Registrars office (Appendix 1) and
ask whether these restrictions apply to your business. There are two general ways in which the individual
can assess for himself whether his company would be bound to some additional form of regulation:

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Does your companys success depend on government support and protection? If

the entrepreneur cannot get this support and protection from the market, his
business may fall within a control board
Can your business be construed to be of national interest? For instance, if you
intend to buy and sell oil, has the State de-regulated the industry to allow private
individuals into that market or would you have to obtain special Government
clearance to operate your business?
Under the private company status, entrepreneurs have to understand that there are strict rules and
regulations to adhere to and that they can no longer consider the organisation as theirs. Even if they own
the entire shareholding, the company still has its own legal personality, which separates it from the
entrepreneur. Such a shareholding only permits him to control the firm and to give it direction without
interference from other shareholders, but it does not allow him to merge the firms assets with his own.
Another problem rests with future transactions. If additional capital requirements are needed, the
entrepreneur may have to get additional shareholders, which would necessitate some audited accounting.
If you do not get used to the idea that the company has a life of its own, you could run into serious
problems when those accounts are requested from prospective shareholders or the Receiver of Revenue.
General characteristics are outlined:

CHARACTERISTICS OF PRIVATE COMPANIES

Shareholders enjoy limited liability as the company has its own legal status. This enables it
to sign contracts and do business in its own name. The exception is a private company formed
under Section 53b of the Companies Act. In this form of private company, the directors and
the company are completely, jointly and severally liable for debts incurred during their term

of office. This form of company name ends with Incorporated (Inc.)

Can be set up by one to 50 natural persons
It may have profit making as its objective
There is constancy of operation as the lifetime of the company is not dependant on the
lifetime of its shareholders
Shares are transferable, but not as freely as in a public company
The name of a private company has the suffix Pty (Ltd) - (Proprietary) Limited

The private company must have at least one director

The general public may not purchase shares in the company
Profits are distributed as dividends, which are based on number of shares held

The private company does not have strict requirements in terms of the disclosure of
information
Shares are made available (not to the public) in the private company through which capital is

raised
A certificate on incorporation is necessary before the company can commence business

The constitution needs to be registered

The Registrar then issues a certificate that the company may begin trading

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Necessary documentation to set up a private company

Documentation

What it means

The constitution

Consists of two components:

The memorandum of incorporation
The constitution

The memorandum of

This regulates the relationship between the company and

outsiders. It includes the name of the company - which must

be unique and which must be displayed on all stationery and at
the place of business
It also includes details regarding the share capital and main

incorporation

objectives of the company

The articles of
association

The articles of association refer to the internal management. It

regulates the issuing of shares and meeting procedures, as well
as the duties of the directors and the managing director.

There are two forms of capital:

Capital

Share capital

Loan capital

Consists of two forms of capital:

Share
loans
Private companies are not permitted to issue shares to the general
public. They may issue shares to their members. A share
certificate is issued as proof of ownership.
Dividends are paid to the shareholders out of the profits of the
company. They are paid out per share that the member has
The private company can also make use of loans and other forms
of borrowed capital

Benefits and drawbacks of using a private company structure are outlined:

BENEFITS OF USING A PRIVATE COMPANY STRUCTURE

Legal personality enables the company to trade for itself, providing limited liability to members
There is orderly management, i.e. duties are divided between a board of directors and the members
The private company allows for more members than CC's and partnerships
Tax advantages
Because a private company can have more members, it is possible to obtain more sources of
financing than the sole proprietor
A company can borrow money on its own account

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DRAWBACKS OF USING A PRIVATE COMPANY STRUCTURE

The prerequisites of the Companies Act must be met. Failure to do so can result in
criminal proceedings and civil liability
Private companies do not receive tax rebates, unlike individual taxpayers. The taxable
income is taxed at a fixed rate and the dividends are also taxed in the hands of the
members, hence, double tax is paid
The shares in a private company are not freely transferable

Public companies
To establish a public company, the entrepreneur has no choice but to get assistance from a corporate
financier as there are severe and restrictive listing requirements (set out by the Johannesburg Stock
Exchange), which have to be fulfilled before an individual can list his company to obtain funds from the
public. This advice can be obtained from a stockbroking firm, which has a corporate finance department,
or from most merchant banks.
Once the entrepreneur has decided on a public enterprise, he has to choose what type of public
company he wants. The most common form is the companies with share capital, but another form exists
in the limited liability public company.
This form of company is limited by a guarantor, where the shareholders stipulate that they will
undertake to contribute a specific amount in the event of liquidation and this is stated in the companys
constitution.
The following general characteristics of public companies outline the complexity of using a public
company structure and highlights the need for professional help:
GENERAL CHARACTERISTICS OF PUBLIC COMPANIES

The name of the company ends with Limited (Ltd)

There are more than seven shareholders and it may have an unlimited amount of shareholders
Capital is raised via a sale of shares to the public and other organisations on stock exchanges
The company is managed by two or more directors who are elected by the shareholders
The public company may only start business once it has received a certificate to do so
Limited liability and legal personality, as well as unlimited continuity of the company
The assets belong to the company, not to the shareholders
The shares are freely transferable
All shareholders can vote at a shareholders meeting according to the share percentage that they own
The books of the company have to be audited and published. These include:
1. Balance sheet
2. Income statement
3. Cash flow statement
4. Notes explaining financial statement
The powers of the company are described in the constitution
Prior to listing, companies must:
1. have a subscribed capital of at least R2 million in the form of not less than one million shares in
issue
2. have a three-year profit history with a pre-tax profit of at least R1 million
3. have a public shareholding of at least 30 percent of the first million shares issued and the number
of public shareholders must amount to at least 300
4. have an issue price of at least 100 cents

A number of documents have to be competed prior to the company being incorporated and these are
highlighted on the next page:

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Documentation

What it means

The Constitution

Describing rights and obligation and capital base

Constitution covers:
Name of company

ends in Ltd (Limited)

must be registered
must be displayed at place of business, on
letterheads and all documentation

Avoid illegal words, e.g. Government

must be unique

Company objectives State main objectives

Limited liability
Value of issued
shares
Number of shares All promoters must buy at least one share
the promoter
buy

will

Signing the constitution:

There must be a minimum of seven promoters and one witness who sign
the constitution
Articles of asso- Relates to internal management of the company
ciation
Articles cover:
Share certificates and the amendment of rights
Meeting procedures
Directors
Dividend policy
ccounting records
Signing the articles of association:
Signed by the same people who signed the constitution, giving their
residential and business addresses
Once the above documents have been drafted and submitted to the Registrar of Companies, the
entrepreneur has to wait for a certificate of incorporation. If all documents have been drafted correctly
and the company fulfills the requirements of the Johannesburg Stock Exchange listing department, a
certificate of incorporation is sent to the entrepreneur.
Once received, shares can be issued to the public to raise capital, but first a prospectus has to be
drafted to invite the public to buy shares in the company. The entrepreneur can have a prospectus
drafted by a corporate financier, but it is prudent to gather the following details before approaching the
consultant especially if you are being charged by the hour.

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DRAFTING A PROSPECTUS
Must include:
Declaration of registration on the cover page

The date of incorporation

Address of the registered office

Main objectives of the company

The names, occupations, addresses and terms of office of the directors
The share capital of the company
The options on shares
Amounts payable to promoters

Provisional expenses
Contracts engaged in before the issue date of the prospectus
A copy of the prospectus must be signed by all the directors and submitted to the Registrar
within two weeks. Auditors, bankers and stockbrokers agreements must be in writing and
they must be submitted with the application
Once registered, the prospectus can be distributed to the public. This has to take place
within three months of being registered and applications for shares must be received within

four months of registration

There are different forms of capital which can be obtained to finance company start-up and activity.
These are outlined:

Type of capital

Explanation

Own capital

Capital built up by the company after years of operations. This is usually

placed in a non-distributable reserve in the balance sheet

Ordinary shares

Shares are issued to the public at a nominal value. This is called issued
share capital in the balance sheet

Preference shares

Preference shareholders receive dividends before ordinary shareholders

and there are four types:
Ordinary preferential shareholders

Loan capital

Preferential shareholders who have no right to claim income in any of

the following years

Cumulative preferential shares which can transfer earnings.

Participating preferential shares

Loans include long and short-term debt, bonds and letters of credit

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Benefits and drawbacks of public companies are outlined:

BENEFITS OF USING A PUBLIC COMPANY STRUCTURE

Legal personality enables the company to enter into contracts and to act in its own name.
This provides limited liability to its members
The public company has unlimited continuity
Shares in the public company are freely transferable. This makes expansion fairly easy

The management functions are divided between the directors and shareholders
Financing possibilities are favourable, as this can be obtained by issuing shares

DRAWBACKS OF USING A PUBLIC COMPANY STRUCTURE

The cost of issuing shares could be very expensive. Listing fees are also payable
Disclosure of financial statements and other records as prescribed by the constitution makes
the business of the company public knowledge. Hence competitors will know about its
activities
The Companies Act lays down requirements which must be compiled with. Failure to do so
can lead to criminal proceedings and civil liability
Employees may not have the same measure of interest in the success of the business,
especially if they do not own shares in the company
The company does not receive the same measure of tax rebates as the personal taxpayer.
The taxable income of a company is calculated at a fixed rate. The dividends are taxed in
the hands of the shareholders. Thus a double tax is paid

CHAPTER SUMMARY: Taken individually, each of the forms of enterprise hold benefits and
drawbacks for an entrepreneur. However, the general principle is to use the form of enterprise
which best suits your personal needs. Do not take on a structure simply because your family or
fiends have one. Rather be an individual and choose the structure which makes you most
comfortable, both financially and in ability to control.

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CHAPTER 5: PREPARING TO WRITE A BUSINESS PLAN

All sorts of people need to write business plans for different reasons. The entrepreneur can, among others,
write a report for a new venture, to keep operations on track or for expansion into new fields, while
business development analysts write business plans for clients.
In each of the above cases, there are a number of steps which have to be undertaken to prepare for
the actual writing of the plan. These assume that all necessary research has been completed and that you
are sitting down to write the plan.

Essential steps

Note key issues: Once all the research has been completed, use all available managerial and
consultant skills to identify what the important issues are and set them out in the manner outlined in
Part 2 of this book. Elaborate only on issues which the lender will find important. For instance, you
do not need to write a five page outline on staff, when a single page will suffice. However, a five page
review of operations or of future profitability would make more sense.

Identify target audience: It is pointless undertaking months of research if the reader has no intention
of funding the project, i.e. the lender is known to finance only certain types of ventures. Writing the
report is not meant to impress friends and colleagues, but to raise finance. The bottom line is to ask
yourself what the reader wants to know and then to highlight this in a concise, well written document.

External factors: Assess how the political, economic, financial, social and technical environment
will affect your existing or proposed business. Take this into account in your plan and highlight how
you intend to offset potential problems. The manner in which you say how you intend to resolve
external factors can be highlighted in a plan as operating strategic decisions.

Writing the plan

The log book - noting key issues
In writing the plan, it is important to keep a record of who you have spoken to, when you spoke to them
and what the result was. Keep a log book containing this information and continuously update it. While
this may seem like a waste of time, you will eventually need to confirm that some discussion took place,
or you may be asked by the lending institution for details of certain elements of your research.
If this occurs, you can answer the business development analyst quickly and efficiently, by merely
looking at your log book. If you are a member of a development team, you will need to write a progress
report to management and this becomes difficult if you have little to report. For instance, you could have
come to a standstill in your research or you could be waiting for financial statements from target
companies, market research organisations or for government statistics. Write this in point form in the log
book and safeguard yourself against being caught unawares. Nothing seems less professional than not
knowing the answer to a question, e.g. When did you meet Pharm Lands managing director Mr. Login?
This may seem like an irrelevant question, but if you cannot remember or you guess, the lender may
know Mr. Login and may have been playing golf with him at the time you guessed you were with him.
This could create doubt about your honesty or integrity. It is better to whip out your log book - if you
cannot remember - and look up the answer.
The log book should contain a record of meetings (held and postponed), telephone calls (times and
content), negotiations (outcome of talks) and any other project related data. It is also a means of
prioritising events and keeping to a tight schedule. Obviously, the order in which particular elements of
the plan are written depends on when negotiations are held or when research has been completed. The log
is, therefore, a way of co-ordinating schedules and writing the plan. The new and inexperienced
entrepreneur will find that it takes longer than expected to complete research (on any particular subject)
before he has enough information to write about it.

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Here is an example of a log book.

Log Book 1
01/09/95
Project: Takeover of Pharm Land

Log Book 1
Project: Takeover of Pharm Land

Date Subject
2/9
Collected historic data re. PL

Date Subject
20/9 Arranged

5/9
7/9
7/9
12/9
15/9
-1-

Arranged meeting with PL directors

for 8/9
Meeting postponed by PL - rearranged
for 12/10
Phoned and arranged meeting with
SACOB re. market trends
Started negotiations with potential
partners re. (Pty) Ltd company
Historic data collated

22/9
23/9
24/9

meeting

with

01/09/95

business

consultant re. tax - 22/9 and lawyer re.

Partnership agreement 24/9
Attended meeting re tax structures
Meeting with PL directors changed to
14/10
Held meeting with lawyers - Agreement
expected to be ready by month end
.
ETC.

-2-

It is useful to note that institutions prefer to see that a team is involved in the formulation of a plan. The
general belief is that no individual can possibly know everything there is to know about business and it is
thus doubtful that one person can do a full analysis well. If you try to impress the lender by claiming that
you did all the research yourself and drew up the plan, you could end up being the loser. Of course, if you
did do all the work, tell the lender that, but only if he asks.
However, the unbreakable rule is that the entrepreneur writes the report. One way to avoid
duplication in a report, or saying something that is nonsensical, is for the entrepreneur to complete the
report and then have it reviewed by a professional business consultant. You will find that this prevents
you from being ridiculed by business development analysts or directors - it depends how far down the
lenders selection process your report has reached. Remember, if you are not prepared, the discussion is
less effective and your application is less likely to be successful.

First step
Assuming the entrepreneur has already established the fundamentals for his business (taken essential
steps), one way to start the research writing process is to initially concentrate on two issues. Firstly, start
collecting historical financial information on the target company and market. Secondly, while waiting for
the information to arrive, start negotiations, phone and arrange meetings etc. It is relatively easy to obtain
historical data and you can thus commence with the plan.
However, the entrepreneur may find that no matter how much work he does on a particular sector,
he will probably need more information before he can complete his plan. If this occurs, it means he has
been reviewing his base assumptions and, as such, his strategies have in the process been altered. Another
possibility is that negotiations can unwittingly change direction at any given stage.
In 1994, a Johannesburg businessman had spent a week wining and dining a group of Korean
businessmen, had taken them to potential business sites, shown them warehousing and management
structures, business plans for various options and the deal was ready for signing. The businessman
suggested lunch and drinks before finalising the agreement. Within this period the entire business deal
collapsed and all further negotiations were suspended. What happened? Unforeseen and unexpected, the

The Business Plan

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Inkatha Freedom Party decided to march to Shell House, the headquarters of the African National
Congress. The ensuing violence, sniper attack and resulting deaths shocked the Koreans and they
immediately left South Africa - without even collecting their luggage.
The lesson is that it is important to be firm and to set strict deadlines for all aspects of the business
plan. Dont delay, otherwise you will simply never finish the research, negotiations or the plan. To
obviate wasting time and going around in circles, complete the historical financial statements and this
should provide you with a solid foundation for drafting business strategies. Once again, make sure that, as
the financial statements are developed, you keep detailed notes on your assumptions in the log book. This
will assist you when preparing notes to financial statements, which banks will insist on when looking at
the business plan.
Part 2 will set out what details are needed to write the business plan.

The SWOT analysis

In the case of a business development analyst - or the first time entrepreneur - a starting point in deciding
whether a project is worth pursuing is the Swot analysis. This acronym stands for Strengths, Weaknesses,
Opportunities and Threats of the proposed venture. Make two columns on a sheet of paper and divide
them in half. On the upper part of the page list all strengths and weaknesses of the company in point form
and do the same for opportunities and threats on the lower part of the page.
Note that while these are not in-depth assessments, but general perceptions, they do represent the
foundation of your research into the sector you want to enter, the company you want to buy or factory you
intend to set up. So, how do you draw up a Swot analysis? The method is the same as that taught to junior
journalists. Ask the right questions and you have the basis for conducting further research to get the final
story.
Consider the following newspaper scenario:
Jones, go to corner of main & Small Street. Something about a man killed by falling
bricks.
Any details?
Jones:
Just go!
Editor:
Jones goes to the scene and approaches a policeman
What happened here, Officer?
Jones:
Policeman: This man was just unfortunate. He was standing here and a pile of bricks fell from
that scaffolding and killed him.
Who is he?
Jones:
Policeman: ID suggests that he is Mr. Larry Potter.
When did this happen?
Jones:
Policeman: Oh, about an hour ago.
How did this happen?
Jones:
Policeman: Apparently the main cable broke
Can you tell me why this happened?
Jones :
Policeman: Thats under investigation, but we believe that it could be faulty equipment and thus
purely an accident.
Editor:

By asking What, Who, When, How and Why Jones was able to get a clear picture. A man had been
standing and a number of bricks broke loose and fell on his head, killing him. That is a basis, now he
needs to go an do the research, which would include interviewing the owners of the scaffolding, the
mans family, competitors to find out if this sort of accident took place often or not at all and contact
suppliers and enquire as to the reasons for such an accident having taken place.
The same can be said about a planned takeover. Before undertaking major research, it is necessary
to determine whether it would be beneficial or not. To achieve this, the entrepreneur undertakes a Swot
analysis and asks the same questions, but - of course - related to the business at hand. The following
example is of a fictitious company. An entrepreneur wants to expand his aeroplane service, which flies
hunters between Johannesburg to inaccessible areas of the wild. His business consists of four aircraft and

The Business Plan

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the business that he is considering buying has a further six. In addition, the owner is willing to remain as
manager for a period of one year after the sale of the business.
Question
Who

Strengths
Who has the main
strengths in this industry?

Weaknesses
Who would offer
the lest resistance
in a take-over?

What

What strengths will

the addition of this
target company add
to my own?

What are their

weaknesses?
Do
they have any?
Will these affect
my company? Can
I overcome these?

Why

Why do these com- Why do they have

petitors
have weaknesses?
strengths?

How

How did these

companies
get
these strengths and
do they offer my
company the same?
i.e. will there be
synergistic benefits
in
merging
strengths?
When will these
strengths
benefit
my company?

When

How did these

companies
get
these weaknesses?
How will these
weaknesses affect
my company?

When will I be able

to negate weaknesses if I takeover
this company?

Opportunities
Who offers the best
opportunities
for
external growth in
this business?
What opportunities
will the addition of
this company offer
me? If I dont buy
this company, will
I ever be able to regain these opportunities
Why do they offer
my business an opportunity to grow?

Threats
Who offers the
greatest threat to
my survival, if I
dont expand?
Will the buy-out
threaten the existence of my own
business?
What
threats are there in
not pursuing the
venture?

When will these

opportunities come
on-stream? In the
near-term,
longterm. never?

When will threats

materialise? In the
near-term,
longterm, never?

Why do they pose a

threat
to
my
business if I dont
expand?
How does a buy- How
do
out offer me an competitors pose a
opportunity
for threat
to
my
growth?
company?

The analysis will give you a starting point picture of whether the project is worth following up and
undertaking time-consuming research or whether the threats and weaknesses of the company (venture,
takeover, expansion) are so vast that they swamp any strength or opportunity the venture might offer.
Take note that it is easy to fall into the trap of doctoring the Swot analysis in favour of Strengths and
Opportunities - of a company that an entrepreneur really wants. That is not only a stupid thing to do, but
would also render all research totally useless.
The sample results of the entrepreneur's Swot analysis is outlined on the next page:

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Strengths

Weaknesses

Size: enables personalised service for clients, i.e.

Size: six planes limit the firm to a specific area of

owner's pilots are willing to do night flights

service. Type of planes reduce market to hunters,

Competition: there are few other players (only

i.e. corporations not targeted

two?) who provide this type of service

Cheap rates: compared to other modes of

the Free State, but office is in Johannesburg?

transport to these "wild" areas, firm offers a unique

Advertising: not reaching target market. The firm

service

operates a stand at Johannesburg International -

Present operations: operation is "tight" and there

this could be incorporated into existing travel

seems to be few problems. Staff are happy and

agents kiosks

professional

Location: planes are housed at ABC Airport in

Present operations: poor structure could cause

Financial: profitability, liquidity and solvency

problems in future, i.e. present manager controls

seem adequate - but will need audited results

all functions

Limited cash resources: firm seems to be

operating on credit and cash flows are poor

Opportunities

No vision: the firm has no future strategy

Threats

Synergy: ability to source clients from

overseas contacts (wild life foundations)
provides a base for this firm succeeding

Size: success in this venture could lead to

competition - six planes do not effectively
cover all wild life areas at the outset

Captive market: association to African

countries's environmental ministries places the
firm in a strong position to obtain "captive"
business

Market perception: growing negative

perception towards hunting, i.e. could result
in boycott action against the firm

New

political

dispensation:

growing

disposable incomes open up the local market.

International hunters more willing to come to
SA

Age of planes: this has to be checked out

Economic upswing: there are doubts that the

upswing will last for more than 12 months?

Corporate opportunities: the planes are not

suited for corporate travel, but they could be
adapted

Timing your proposal

Venture capitalists, banks and other money lenders in South Africa are, like the entrepreneur, besieged by
difficult and often impossible odds in which to operate. Following this country's first democratic elections
in April 1994, growing levels of crime turned many places into no-go areas and, as such, money lenders
will no longer invest in ventures located in certain areas. No matter how profitable a business venture
promises to be, financial institutions hesitate before financing a project which could face interminable
strike action, theft or are potentially dangerous for future clientele.

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There are always factors outside the proposed business plan which need to be investigated even
before a plan is drawn up. Businesses and institutions have to compete in an environment which is strewn
with political, socio-economic and business risks, so they have become wary of investing in companies
which are not listed on the Johannesburg Stock Exchange. Institutions are even hesitant to fund projects
brought about by well-known and respected businessmen, if they are not linked to their businesses. The
reason is that public companies provide structure and financial history and thus offer a measure of
protection against risk.

External factors
If the business plan was a theoretical, economic study, you could use the term all else being equal. But
it is not and therefore you have to assess external factors which have and could affect your companys
development.
There is, however, no need to panic. Forecasting these external (also called environmental factors)
is a little like forecasting the weather. No matter how technical you get, it is still a doubtful operation. All
that is really required is to show the lender you are aware what these external factors are and that you
know how to steer your company through them, i.e. try to determine which issues are likely to continue
and what possible impact they could have on each aspect of the business.
To show professionalism, you need to assess both the local and international market, as they are
becoming more integrated (and difficult to distinguish in some instance). In investigating these factors,
ask four questions:

Will the external factors continue? Will violence in South Africa subside or will it continue to worsen.
Are these factors volatile?
What will the impact of these factors be on your industry and business?
Do these factors have a multiplier affect on other external factors?

For instance, a change in the economic cycle often means growing or worsening personal disposable
incomes, which boils down to changing demand patterns. This could affect your company positively (if
customers buy your product) or negatively (if customers buy another product).
Political violence could see individuals aspirations change, see professionals move to other areas
or changing technology could improve or worsen demand for your product.

The financial market

The South African market is by world standards an extremely illiquid one. This means that financial
institutions tend to invest in projects offered by major conglomerates or to support these organisations by
buying shares in these companies, but not trading them. They acquire shares to establish a position of
power and then keep the equity. Part of the problem is that years of sanctions have prevented foreign
investors from setting up joint venture operations with local businessmen or, as occurs in the United
States, venture capitalists establish fund accounts to help entrepreneurs set up and operate companies.
While business development departments are usually separate units from investment teams (which
buy shares), the perception still exists among institutions that it is better to stay with those companies you
know and to reduce business and financial risks to a minimum when dealing with unknown, unlisted
private companies.
Apart from these problems, exchange controls have prohibited South African portfolio managers
from purchasing stocks overseas. This places a great strain on the local stock market, with demand for
quality stocks far exceeding supply. Yet institutions continue to search for quality companies to invest in
and seldom turn their massive weight of funds to the unlisted, although higher risk markets, which have a
great need for venture funds.
The following table illustrates the difficulty entrepreneurs face in trying to find someone who will
be willing to finance his project. Note that the more illiquid a market is, the less shares are traded and the
less institutions become willing to trade those stocks. It is a vicious circle. The shares dont perform as
well as they could, given the lack of trade, and the fund managers argue that if conglomerates cant
provide capital growth, how can a newcomer promise riches?

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Stock Exchange

Capitalisation

June 1995

R'billions

Liquidity*
%

Ranking by:
Capitalisation

New York
16,524
50
1
Tokyo
5,472
30
2
London
4,176
80
3
Nasdaq
2,880
170
4
Paris
1,728
40
5
Germany
1,548
140
6
Hong Kong
1,224
30
7
Toronto
1,188
40
8
Switzerland
1,008
80
9
Austria
792
30
10
Johannesburg
737
10
11
* Shares traded as % of market capitalisation. Currency rate R3,0 = US$1.00
Source: United States-based equity research firm Innova Securities

liquidity
4
6
3
1
5
2
6
5
3
6
7

Compared to the Nasdaq, the JSE has no trade and it is, therefore, not surprising that under such illiquid
conditions investors are often unwilling to sell shares and use the money for potentially more profitable
projects - such as funding an entrepreneurs business venture. Note that this also takes place when a
company has become overvalued on the JSE and displays bearish signs. The philosophy of many
investors is that they will be unable, at a later stage, to re-establish their control of the company through
shareholding.
However, as stated before, things are not equal and nor are they static. The JSE has recently
adopted a Big Bang approach, i.e. they have moved from the open cry system of trading to a
computerised Electronic Trading system, which will see liquidity improve in the near term. By the end of
1997, we can expect a lifting of exchange controls, which should free our markets and see liquidity climb
to about 15 percent.

The political arena

Another (often) unknown factor relates to politics. In 1994, the general election voted in a new
dispensation at both central and provincial levels. Prior to the date of voting, there were rightwing attacks
and threats of civil war. In 1995, the electorate were asked to vote again, this time to for local authorities.
Under both instances, many companies almost came to a standstill. Many negotiations were
placed on hold, new project plans stalled and many businessmen conducted business nervously and not
with the same vigour. To highlight the extent to which South African businessmen have to endure
political factors, a table was compiled with information obtained from, among others, The Mail &
Guardian, The Labour Brief and The Council of South African Trade Unions (Cosatu) official
newsletter, The Shopsteward. Despite our markets becoming extremely volatile, political factors have - in
general - been received positively by the international community.
The following graph highlights just how positive our new political dispensation has been for our
markets: The Overall Index was sluggish between 1987 and 1990, but when the ANC was unbanned and
Nelson Mandela was released from prison in that year, the Overall Index started to move rapidly upwards
- by as much as nearly 200 percent to June 1996.

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Political factors move markets

Index
8000
7000
6000

Industrial Index

5000
4000
Overall Index

3000
2000
1000
0

88

90

91

93

94

95

97

Source: Johannesburg Stock Exchange

POLITICAL QUAGMIRES

1990: The ANC, PAC and the SACP were legalised in Parliament and the Overall Index fell from 2795
(Jan.) to 2640 (Oct.), but moved to above the 3500 level by year-end after Nelson Mandela was released
from prison.

1991: Nelson Mandela was released from prison after 27 years, South African President FW de Klerk
repealed apartheid laws, the National Peace Accord was signed and Codesa was launched. The Index moved
to 4047 in July from the 1990 high of 3500 and continued to climb to 4500 by year-end.

1992: Last all-white referendum was announced, Cosatu held stayaway and talks slowed down. The index
fell back to 4031.

1993: Resumption of talks, multilateral negotiations began and a date for the general election was set and
renewed focus on SA offset negative effects of the death of Communist Party general secretary Chris Hani.
In addition, Mandela called on the international community to lift sanctions against South Africa and an
agreement was reached on the interim constitution. Consequently, the markets boomed - lifting the Index
from 4359 to 5742 by year-end.

1994: Markets became volatile as the IFP withdrew from the election, the Shell House sniper attacks and
deaths took place, a State of emergency was imposed on KwaZulu-Natal. These factors moved the Index
from 5596 in January to 6140 in March, but fell to 5617 in April. After the IFP rejoined the elections and
Buthelezi signed the election deal, the first democratic general elections took place in South Africa and the
Index recovered to 6977 by year end.

1995: Despite arguments over municipal boundaries, markets moved strongly that year, increasing by over
1000 points - from 6975 in January to 7987 by year end.

1996: Markets became volatile as political factors moved swiftly between positive and negative. President
Nelson Mandela admitted that he had ordered the protection of Shell House, and the ANC announced their
Growth Plan. Markets. The Index moved from 8009 in January to 8794, back to 8528, falling to 8123,
climbing to 8611 and back down to 8037. All in the space of six months.

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To assist you in determining how political factors can influence your company, answer the following
questions:

QUESTIONING THE POLITICAL ENVIRONMENT

Does government interfere with business? Do they control the reforming of the economy (how),
creating a more competitive business environment, removing tariff and duty barriers, to stimulate
growth or to redistribute wealth?
Is there a health and safety act? Does the State concern itself with external (environmental)
factors and consumer protection?
Is there national legislation relating to pensions/provident funds and fuel prices?
Does the State legislate and set out minimum employment conditions such as wages? Do you
have to deal with a particular union?
How militant are unions in your sector? Will union demands affect your business?
Does legislation force you to train staff, i.e. in addition to that relating to work?
Does government legislate over equality of opportunity, i.e. affirmative action?
What government departments are particularly relevant to your business? In what areas are they
developing policies that should be of interest to your firm?

To get answers to the above questions, ask political analysts (at banks, stockbrokers or universities) or
telephone trade unions or source government statistics or pose these questions to relevant government
departments - see list of Appendix for contact numbers.

Economics
When looking at economic factors and how they could affect your business, the first step is to assess what
stage of the economic cycle your product has reached. There would be little chance of persuading an
institution to invest in your company if your product was a highly cyclical one, with the cycle already past
maturity stage. Or, if you intend setting up a construction company, dont bother looking for finance
during the Investment Stage of the economic cycle. One bank manager put it this way: Come back when
you understand fundamentals.
The second step is to understand that economics in South Africa is always volatile and must be
monitored. In your planning, you have to consider how you will deal with different economic scenarios.
One method of doing this is to put alternative figures (for example, for inflation, interest rates, exchange
rates) into your calculations and see what effect they have on, say, cash flow, profit margins and net
income. This technique has a number of names, but the most popular are what if or sensitivity
analysis. The first is a way of answering questions before they are asked, e.g. What if interest rates are
increased? How will it affect your net income? These are issues which are usually asked by a lender and
you need to complete the analysis - if you cant, ask your business consultant to do it for you.
In this example, an increase in interest rates would be negative if you have borrowed funds to start
up your business, i.e. the interest bill is subtracted from operating income in an income statement, which
gives you income before tax. The higher the loan account, the greater the reduction in pre-tax income.
The other side of the coin is that if you have no loans and this is the first time you are approaching
a financial institution, a rise in interest rates would affect pre-tax profits marginally. Of course, if you
have capital in the company and the loans you are requesting dont exceed the capital (the bank loan is
less than the cash you have with the bank), a higher interest rate would be better.
Sensitivity analysis enables you to see how sensitive your business is to a change in external
factors. There are many computer software packages which will do the analysis for you and all that you
need to do is plug the figures into the spreadsheet. Any business consultant of note can do this or - if you
wish to plug figures into a computer model yourself - one of the best software packages available in
South Africa at present is the Financial Analyst produced by McGraw-Hill.

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The following graph best expresses how entrepreneurs have to operate under dismal economic
levels of expenditure in South Africa. It shows percentage growth rates in durable, semi-durable, nondurable goods and services. For the businessman, a falling level of expenditure means fewer buyers for
his product and thus less income.
GROWTH RATES FOR REAL PRIVATE CONSUMPTION EXPENDITURE : 1961 TO 1994
Percentage
8
7
6
5
4
Durables
Semi-durables

Non-durables
Service

Total
1
0
1961 - 1969

1970 - 1979

1980 - 1989

1990 - 1994

-1

Note how the line expressing total growth has fallen sharply since the 1980s. Entrepreneurs must take
note that spending patterns are unlikely to return to levels achieved in the 1960s and 1970s. While
economists say the economic upswing started in 1993 and should continue for at least another 12 months,
entrepreneurs have to look at their particular product and assess how likely it would be for a bank to
finance the venture.

GETTING TO GRIPS WITH ECONOMICS

Do economic indicators affect your industry and company marginally or significantly?

How does the exchange rate affect your company - impact on customers, competitors and
suppliers?
What are unemployment levels in your country, province and region? Is there a lack of skilled,
semi-skilled and unskilled labour in your market and industry?
Is your industry expanding or declining? Will you be able to get required numbers of skilled

people?
How does the removal of influx control affect your industry and company?
Is there a movement of workers geographically and how does this affect demand for your goods?

Which province offers the most opportunities relative to skills levels, high budgets?

It is also crucial to assess future economic development by investigating whether Government intends to
make significant changes to economic policies. In June 1996, the ANC announced a plan to restructure
our economic model, so that jobs would be created, high growth achieved and investment stability
achieved. Ask yourself: How do these factors affect my business? How will these factors benefit or
weaken my business?

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Industry dominated by monopolies

MONOPOLISTIC CONTROL OF THE JSE

Public

1985

Pep Group

1995

Other
Government
Overseas
Anglovaal
Directors
Liberty Group
Market participants
SA Mutual
Rembrandt
Sanlam
0

4
6
8
Percentage control

10

12

14

1985
1995

Anglo
0

10

20

30

40

50

60

Sources: JSE Handbook and MacGregor's Who Owns Whom (1995)

Looking at the above table it is even more important for the entrepreneur to find a niche in this market,
rather than trying to compete against these giants - Anglo American controls 40 percent of the companies
listed on the JSE. Ask yourself how can you start off an operation under such conditions? The only way is
to find a product and a market which is marginally influenced by the big boys.
However, help is on the way in the guise of greater competition from overseas companies. This
should occupy our conglomerates, which will now have equal competitors fighting for the same slice of
market share. This, together with growing demands for affirmative action, should preoccupy businessmen
for a while to come, particularly as South Africa returns to the international community through lowering
tariff and duty structures and ultimately removing exchange controls.

A technological age
An obvious, but often neglected, external factor is the rapidly changing field of technology. Many
businessmen are now finding it difficult to operate without cellular telephones, when these were but a
dream at the beginning of 1990. There are still fewer firms which operate without fax machines - these
were not in existence in the 1970s and today are already becoming obsolete. Computer fax/modems
enable businessmen to communicate internationally - at the price of a local telephone call - through the
Internet.
What is next? That is a question which you do not have to answer in your business plan. What you
have to do is to state how a change in technology could affect your business. This would be most relevant
for companies which are highly capital intensive.

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HOW DOES CHANGING TECHNOLOGY AFFECT YOUR BUSINESS

Is there a chance that communication methods will improve in the short, medium and long term?
How will this affect the way in which you communicate with customers and suppliers?

Will such communication changes affect other people? For instance, if a housewife can buy an air
ticket via her home computer, will this affect travel agencies?

Will technology change to the extent that it will affect jobs i.e. retrenchments due to fewer labour
needs or upgrading to higher skilled levels.
Can improvements help in reducing stock and other internal controls?

Final note
At first, the thought of drawing up a business plan seems daunting. There are many topics to cover, far
too many specific skills required, too much time needed to write the plan and so on. While all these
statements are true, if you are serious about starting up a business, then you (or the team) must gather the
information, delve through it, identify those bits which are pertinent to you and your company and then
write it down. You have no choice!
A list of issues is outlined on the next page to help you get started. It can be used as a list of
issues that will ultimately be covered, so get stuck in. Once your business plan has been completed - as
outlined in Part Two - this itemised schedule can be used as a check list against a completed plan or
against an existing business. It is a useful means of seeing that nothing has been left out of the final plan.
However, this list does not represent the full plan, but a means of commencing your research.
Remember that the plan can always be revised, changed, reduced or lengthened. The point is that
you will not get it right the first time, but without starting, there is no hope - and no business!
Have you fully considered the following issues
1

What products and/or services you intend to provide

What opportunities exist for you now and in the future

Is there reasonable growth potential for your proposed

company

List unique characteristics of you business

Outline potential customers that you intend to serve

State the size of the market that you intend to enter

Outline personnel issues (staff numbers etc.)

What licenses will you require

Set out a list of obstacles and limitations

10

Set out expected income for three years

11

Work out what your total financial requirement will be

12

Have you established a security for the loan

13

List competitors, their strengths and weaknesses

Completed

Date

The Business Plan

Have you fully considered the following issues - continued

14

How will your sales be stimulated

15

What market share do you expect to have after a year

16

Have you established pricing policies

17

Have you completed an advertising & promotion strategy

18

Description and cost of R&D

19

Estimates of wage structures

20

Have you take government regulations into consideration

21

Risk calculation

22

Monthly cash flow for three years

23

How will you source financing for your venture

24

Set out schedules and milestones

25

State who will provide technical expertise

26

State location and reasons for such a site

27

Describe production activities

28

Who are your suppliers

29

State legal status of business

30

Availability of labour and are they unionised

31

Will you need consultants/what kind and how much they cost

32

Do you foresee potential problems

33

Have you developed alternatives to your main business idea

34

Have you estimated a break-even point per product

35

Application of capital

36

Provide plans and diagrams for the plan

- 74 -

Completed

Date

CHAPTER SUMMARY: Given economic, financial, political and technological constraints, it is

important to look at the macro picture before approaching a financial institution with your a
business plan. Companies listed on the JSE can thus provide entrepreneurs with a number of
leading indicators, which can provide insight and timing to present a plan to an institution.
The entrepreneur should make sure that he devotes at least one page of the plan to explaining
how he intends to overcome these obstacles.

The Business Plan

PART 2
THE BUSINESS PLAN

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The Business Plan

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CHAPTER 6: WINDOW TO THE BUSINESS PLAN

This section of the book discusses the writing of a business plan in chronological order, which is how it is
set out in an actual plan. It starts with an explanation of the executive summary and contents page and
works through to the financial forecast and historic statements in appendices.
The methodology adopted in setting out and explaining how to write a business plan is as follows:

METHODOLOGY

A general statement is made at the start of a section to highlight the main reason for including the
text in the business plan. This is an overview of the text that follows

The main body of the sections will mostly be in the form of questions, rather than answers. It is up
to you to undertake and complete the analysis

It is crucial to remember that the final business plan which is submitted to the lender will be a
condensed form of the original. The latter is always more comprehensive and includes information
which is for your eyes only. This section looks at many of the important points, but it is up to you to
omit those which you feel are not relevant to you or your company

Note:
This section is a guide on how to write a plan and does not purport to have all the answers.
Each business plan has its own peculiarities, which depend on the nature of business, the people
involved, scarcity of resources etc.
The general principle used is that anything that is superfluous should be left out.

Structure of a business plan

The structure of a business plan can be divided into three parts. The first is a window to the main body of
the plan and consists of the Introduction, Contents page, Executive Summary and Company profile.
Lenders often start with the Executive Summary and go no further. It is thus important that the Executive
Summary is easy to find. This section must be clear and concise, but not terse. It must include enough
information to get the lender to read the next section, which consists of the main body of text.
Section two outlines in greater detail what the company is all about, who owns it, when it will
make a profit and how it will achieve its targets. Section three consists of Appendices, which includes
administrative details such as directors' curriculum vitae, financial histories and other details which do not
fit into the main body of text.
While there is no correct way to draw up a business plan, there are essential guidelines to push the
lender into reading the entire plan and not just parts of it. This chapter therefore first looks at the
complicated process which some institutions undertake to determine which projects they will fund. The
answer seems to lie in Section One of the business plan, which aims to give the lender an outline - or a
window - to the whole plan.

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Getting lenders to read the plan

There are numerous methods to lay out the summary and none are incorrect. There are, however, a few
general rules which help to make it easier for the lender to read the document.
The summary is the lender's first impression, but if it is sloppy, incoherent and littered with
grammatical errors, he will assume you are as inept as your report. Development analysts receive
hundreds of reports a month. If your plan is not clear and concise, he will move on to the next project.
The following flow chart highlights the laborious selection process which is undertaken by some
institutions before they decide to fund a business plan.

The selection flow chart

Selection process flow chart

Report submitted by client

Financial institution

Assessment
Department

First check point.

All reports are assessed for possible validity
Criteria depends on institution.

Selected number of reports are submitted to Head of Investments

Second check point.

Head of Investments

Criteria usually depends on Institution's present strategic direction

Reports passed are submitted to Stage One.

Junior analysts assess overall viability - place porject through a filter

STAGE ONE:
The Filter

STAGE TWO:
Business Development

STAGE THREE:
Strategic

Analysts

Considerations

Project rejected/shelved

Project rejected/shelved

PASSED

PASSED

Project rejected/shelved
PASSED

Request more information

DECISION MAKING BOARD
Reject/shelve project
Project Funded

While institutions have varying forms of selection processes, the above diagram is merely an example to
highlight the complicated process which new entrepreneurs face to get financing from lenders. Obviously,
the more successful businessman has less steps to face.
Here is an example of an entrepreneur submitting a business plan to a financial institution:
John Mullens is a young man with a brilliant idea which he hopes to develop into a full business.
He has drawn up a business plan and has made an appointment with Gauteng Bank to see a consultant,
hoping to get funding for his idea. His appointment date finally comes and he dresses conservatively in a
dark suit as he is aware that institutions tend to be old-fashioned. He arrives at the Bank with a slide
show, sales, marketing and financial forecasts, curriculum vitae of senior personnel and other relevant
data.

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What a disappointment he is in for. He is ushered into a small waiting room and a clerk asks him
for general information. Some banks will ask for personal banking details and will run a personal credit
check while the entrepreneur is waiting. The consultant, who is in reality only a clerk assigned to collect
information, promises to have "an answer" within the next few weeks. Mullens leaves the bank
disappointed.
But the process is more complicated than that. This first check point - conducted by an
assessment department- can include credit checks, verify that it contains essential items such as
executive summary, financial details, outline of sales and marketing plans and so on and checks on legal
and financial contracts. Some institutions insist that the first 10 percent of the requested loan is made by
the entrepreneur before the plan is even assessed. This first check point would make this request and the
entrepreneur would have to submit a bank note to that effect before the plan proceeds through the flow
chart.
It must be noted that the criteria is set by the lender and venture capitalists have different sets of
rules. Mullens is one of the lucky ones and his plan makes it through the first stage. Out of the 100 reports
submitted to the bank's consultants weekly, less than 50 make it through to the head of investments. This
person tends to read only the executive summary, as this is only one of the many reports he has to read
daily. If the summary appeals to him, he would set it aside to assess later.
The head of investments would assess reports bearing in mind a set of rules which have been
drawn up by a combination of directors' wishes, economic, political and financial circumstances (drawn
up by experts in these fields) and his gut feel that these plans will make a profit. For instance, a plan that
has all the necessary information - as assessed in Stage One - may not have pre-determined institutional
targets. The institution might only be willing to fund projects in excess of R1 million or only established
companies not new ones.
He would then decide which of the plans he would like his department to pursue and hand these
over to his clerks to place the reports through a "filter" system. This is the first part of a three phase
system to detect whether the proposed project will suit "the present needs" of the institution.
The filter is a method of cutting off those projects which are not worth pursuing. These filters are
set up at the discretion of the institution and can often seem illogical. For instance, if one filter states that
the institution will not invest in companies with forecast profit margins of less than 10 percent, it does not
mean that the proposed venture will not be profitable. All it says is that anything below that margin will
not be financed by the lender.
This filter enables the lender to quickly sift through the continuously growing pile of business
plans and to concentrate on those they are interested in pursuing. Once the business plan has been placed
through this filter and passes these tests, it is then handed to the business development analysts to
conduct a feasibility study, which is a means of testing the actual project for future viability. The analyst
looks at the project in much greater detail and is concerned with the owner's ability to make the project
successful, to repay the loan, to expand the company and to continue to do so until all debt has been
repaid.
Once he has assessed the viability of the plan, he will look at strategic considerations. What does
the owner want? Is he looking for partners or just funding? How the bank handles the business plan
depends on the project and its future potential to generate cash and profits.
Strategic considerations relate to the external environment and they are continually changed.
Sometimes the emphasis is on financing business which is "politically correct," while at other times it is a
matter of economic cycles. For instance, a financial institution would not put cash into building a steel
mill at the end of the world steel cycle.
Once the analyst has determined that a project is sound in all respects (which could take months of
interviews with the owner and waiting for more information to be supplied by the owner ) and the
business plan has been set off against the institution's strategic considerations, it is submitted to a
Decision-Making Panel. This board has the final say as to whether the plan will be funded, rejected or
re-submitted to the business analysts for more information.
It is important to note that, at times, the different stages are merged, while at other times the
business development analyst is only expected to assess the viability of the plan without undertaking time
consuming feasibility studies. Some institutions will have business analysts completing filters, while
others have a simple filter - invest only in listed companies.

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The above diagram is an example to highlight the lengthy process to get your plan passed through
all the stages. The following guidelines will help the inexperienced entrepreneur set up the business plan
in a structure which will be easy for the lender to read and, therefore, capture his interest.

Guidelines
To give you assurance that the business plan will at least get through the initial stages of the selection
process, a set of guidelines have been set out, i.e. to get the plan to the business development analyst and
to encourage him to read it by getting the executive summary right.

Approach prospective lenders: Before you submit your business plan it would be wise to ask a
number of institutions what criteria they require. You can then incorporate these into your plan and
not delay the selection process by waiting for the lender to ask for more information.

Keep the summary short: Up to two pages. The summary must be more than just a list of key
points. It is your opportunity to stress your business's main features and strengths. As such, it is
prudent to include at least one graph on profits and some ratios. Make the summary interesting, but
don't provide too many details.

Salient issues: Without a clear-cut definition of what your business is about, who you are targeting or
what your location will be, the reader of your business plan will not read any further. He will simply
return the plan to you, often without an explanation of why his organisation will not fund your project.

Provide a Business Plan Accent chart: Highlight important elements of the business plan, such as
turnover, operating profit and profit margin. This would be best placed under the Company Profile,
which is outlined in this chapter.

Don't waste time: While fancy and distinctive fonts, graphs and charts do give the report a look of
professionalism, you could waste an inordinate amount of time with extravagant computer layout
programs. It is more important to get the report to the lender on time than to delay the process because
you have employed a layout artist to improve your report. Most computer software packages
incorporate a link between spreadsheets and word processors and most incorporate systems within the
word processor to create tables, charts and other graphs.

The mission statement: If you cannot conclude what your mission is, don't include it in the plan.
Usually a mission is related to doing things for mankind and are associated with "higher goals" like
helping staff fund their own homes or setting aside sums of money to build schools. Missions are not
objectives. However, if your company does have a mission and you have historic proof that you are
achieving your mission, then state what it is in at most a paragraph.

Objectives: Business goals are objectives and it is important to set out your goals in point form. Don't
elaborate as you already do that in the business plan. Common objectives include market share, sales
targets and profit objectives. It is important to be specific and to state percentage levels where
possible. Never be obscure and don't say something which cannot be backed up, i.e. stating an
objective as "I intend to be the main player in this field by the year 2000," is asking for your plan to
quickly hit the dust bin.

Where to find the summary: It is the fourth item in a business plan. After the title page,
introduction and contents page, the executive summary is set out. And, as odd as it may seem, it is
usually before the contents page. Some analysts place the summary on the first page. It is up to you.

Section One of the business plan

Consists of The Introduction, Contents Page, The Executive Summary and Company Profile.

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The Introduction
This section is simply a precursor to the business plan and is a means of introducing the
company and yourself to the lender. It sets the tone of the report and must be clear, brief and
state what you intend to achieve in the business plan.
It must not be confused with a covering letter, which would be a way of introducing yourself. The
Introduction usually consists of the aim of the report, its objectives, timeframe and explains how the
report will be set out, i.e. the structure of the business plan. The following is an example of a business
plan drawn up to assess the possibility of undertaking a hostile takeover of a small Central African oil
producing company.

Introduction
This report was written without interviewing the directors of New African Oil, without seeing its
oil fields or talking to major shareholders. Recent political upheaval in Central Africa has placed
pressure on the company's share price, which has fluctuated wildly since the beginning of May
1995.
To assess the strengths and weaknesses of the Central African
Aim of report:
petroleum industry, with specific reference to New African Oil, which
is a petroleum company listed on both Wall Street and on the London
Stock Exchange.
This business plan includes an analysis of the economic, financial and
Objective
political environment of New African Oil, looks at the viability of
acquiring a major stake in this company and a final recommendation
will be outlined to determine whether such a venture is plausible.
Structure of re- The report assumes a logical approach to analysis, starting with New
Oil World's recent performance, followed by economic variables (and
port
how such factors could affect the venture), fundamental, ratio and
technical analysis. The latter looks at timing and future performance of
the share price. All the information is used to assess the group's future

Time frame

potential and to forecast financial results. In this report the forecast is for
the group's financial year to end-August 1996.
State when the report is due and what period the report covers

The Contents Page

This page is the guide to the main body of the business plan and should never be omitted.

While the Introduction sets the tone of the report and the Executive Summary is important as a means
of highlighting all crucial elements of a plan, the Contents Page is a list of headings and subject matter
that is contained in the body of the business plan.

The Contents Page should be designed to help readers (particularly as you are targeting lenders) in
finding specific sections and points in the plan. This page is found either before or after the Executive
Summary, i.e. it is up to the writer of the plan where to place the Contents Page.

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It should be clear, concise and not longer than a page. The main chapter headings should be in bold
and in slightly larger type setting. In addition, make sure that each section is marked to indicate
specific page numbers, even though the main heading and sub-headings may have the same number.

Here is an example of a layout for a contents page:

CONTENTS

PAGE

Introduction
Executive summary
Company Profile

1
2
3

1.

Analysis of environment

1.1
1.2

4
5

2.

Financial forecast
2.1
2.2

2.3

3.

Political trends
Economic cycles

Historical perspective
Pro-forma statements
2.2.1 Income statement
2.2.2 Balance sheet
2.2.3 Cash flow
Forecast for 1996 and 1997

7
7
8
12
14
15
19

Appendices:

21

A.
B.

21
22

Directors' curriculum vitae

Proposed shareholder structure

The Executive Summary

The executive summary is the first part of the window to your business plan. It is usually
the place lenders will start reading (and often only) and a vague outline or general
comments will immediately place the plan in the dustbin.
The summary is the key that opens the door to the rest of the plan. If you do not have all the pertinent
facts set out concisely and easy to read, the reader will not bother to read any further. I conducted a brief
survey of financial lenders among institutions and individual venture capitalists and discovered that less
that 10 percent of all business plans they look at are considered past the executive summary.
Some lenders even admitted that if the front page did not look professional, or if the report was
not bound and typed in at least a one and a half paragraph setting, they simply stamped the report
"Rejected" and sent a standard letter to the entrepreneur.
A similar survey undertaken by US-based Price Waterhouse High Technology Group resulted in
the group stating: The executive summary is critical. This two to three page summary of the plan is
where most investors turn first; it is where they decide to read on or to decline the opportunity. Another
accounting house's research provided a similar guide. Arthur Young Entrepreneurial Services Group
suggests: "The summary should not be a mere listing of topics, but the high points of your proposal."

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Main issues to include in a summary

In addition to communicating ability and skills - it is never easy to set out in at most two pages the crucial
elements of an entire business plan - the Executive Summary should include:

MAIN ISSUES TO BE INCLUDED IN AN EXECUTIVE SUMMARY

Objectives and definition:

Company information:

Market Analysis & future

market potential:
Marketing & Sales Activities:

Product/Service Research &

Development:

Organisation & Personnel:

Financial Data:

To outline a plan to control finances and operations

To test the feasibility of a new business venture
To finance a venture or to set up a charity etc.
Aim of your company, i.e. target market
Products/services you intend to offer to the target market
Outline essential characteristics of target market, i.e.
demographics, size of market, geographic location,
import/export potential etc.
Marketing strategy
Sales strategy
Salient points on why success is possible in the target
industry
Milestones (if any) of the company
Ongoing research (if any)
Main features of the product/service
Set out (if any) how the product was developed
Organisational structure (in words - not graphics)
Brief description of owners
Key managers
Key operational/financial employees
Brief outline of historic financial performance
Funds required
How you intend to use funds
Pro-forma financial statements

The Company Profile

This section should include a description of the type of business to be started (or already
operated), an outline of the product/service, a brief history of the firm, shareholder structure
and whether the firm has previously been funded.

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Similar to the executive summary and contents page, the company profile should be brief and even in
point form. The general principle is to leave out anything in the profile that will be described in detail in
the main body of the business plan and this can be done in two main methods.
The first is in tabular form and is often preferred by lenders over the second method, which is a
written summary of the report. Either way, the profile must be kept to a maximum of two pages.
Tabular method
This method provides a birds eye view of the company and does not give details, organagrams,
shareholder structures, fancy graphs or detailed market and company financial forecasts. These are
subjects which should be adequately covered in the main body of the business plan.
Remember that an overview of the entire venture has already being outlined in the Executive
Summary. In addition, the contents page will tell the reader exactly where to find every section and subsection of the business plan, so the Company Profile should be a taste of the "juicy bits" of the whole plan
and, therefore, show potential investors that you are the only one worth investing in as there is no doubt
that you will succeed.
Put simply - institutions dont need you. They have hundreds of other viable projects to invest in,
so it is up to you to show that your chances of success are better than any alternative they are thinking of.
The Company Profile should include the following:

COMPANY PROFILE

Necessary details

Business and market Outline the nature of the operation and sector targeted, e.g. Building
& Construction sector - to serve Free State municipalities.
information

Provide details of Say whether the company is a sole proprietorship, partnership,

private or public company, closed corporation or co-operative.
company structure

Products/services
information

State the name of the company, its registration number, address,

telephone and fax numbers.

List all products/services and markets targeted and explain why you
are targeting these markets, e.g. The 1995 State survey shows there
are 1,5 million individuals in the Northern Province without water
facilities. I have approached the Minister of Housing and obtained a
tender to supply piping for this project. We expect this to generate
about R700,000 net profit per year for a period of five years.

the Have you secured contracts, what expertise do the directors have to
institution fund your offer and state future plans, e.g. Our skills in software technology
enables us to convert/upgrade outdated machines into more
project
sophisticated systems at less than the cost of buying a new system.
Why

should

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The prose method

The following section is a draft of what should be included in a company profile. The numbers indicate
the sequence of paragraphs:
1. Describe existing and prospective ownership structures of the company. State where it has legal
status as in the case of a private and public entity, closed corporation and co-operative. Is it a sole
proprietorship or partnership and, therefore, has no legal status? Do you intend to change its structure
in the future?
2. Who formed the company and when was it set up? Why was it formed and how has the company
progressed since its founding? Where is the company based and why is it there, i.e. is it near raw
materials or close to transport and clients? Has the company always operated from those premises? It
is important to include information on sales, products, and markets serviced, and how they have
changed over time.
3. Outline what the company makes and for whom? Describe product demand and supply patterns
and highlight the main benefits of manufacturing these particular products. Once these have been
briefly described, set out customer market segments. While the entrepreneur obviously knows his
product well, it must be assumed that the lender knows absolutely nothing about the item. It is thus
important to outline what the product or service is, how and where it will be sold and to whom, i.e.
describe what your channel network is and how you derived it. Give an outline of all target markets
and, in the case of an existing company, provide details of sales and profit history. Has the company's
product mix changed over time and, if so, how?
4. Include Business Plan Accent chart. This is a chart which highlights important financial elements of
the business plan, such as turnover, operating profit and profit margin. It is the first financial chart the
lender is expected to see and is, therefore, a means of heightening interest in the business plan. An
alternative method to the chart is to include a set of financial statements in Appendices, but you
should refer to these in the Company Profile and include a summary of the company's past
performance.
Use the Business Plan Accent Chart only when it serves a purpose. If it is an existing company
and a financial summary is not included, it may give the impression that you are trying to avoid
discussing financials and the plan will certainly hit the "reject/shelf" part of the selection process. In
addition, a chart is useful in that it helps with layout by breaking up text with graphics. It is a visual
method of presenting a summary of past performance instead of using too much (and laborious) text.
BUSINESS PLAN ACCENT CHART
Rands (millions)
1,20
Sales
Gross margin

1,00

Net profit
0.80
Cash Flow
0.60

0.40

0.20

0
1993

1994

1995

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5.

Entrepreneurs should not undermine the importance of including past performance items as these
are frequently used by lenders to compare past to projected future performance. Lenders can assess even before they read the full plan - whether forecasts are realistic. Under Company Profile only the
highlights should be included and not the entire statements. These are outlined in Chapter 10.

6.

Location of the company, its main operating plants and all its subsidiaries must be outlined preferably in tabular form; including nature and function of each firm, size in metres square and
lease arrangements. The following is an example of the type of table which would be useful to
lenders, as they can then see that the plan is real and has substance. If the plan is for a new firm,
highlight prospective business locations and state whether they have been secured. (See Chapter 9).

Item

Location

Headquarters

64 Harbour Road, Chairman, MD & financial 12,000

Cape Town
directors' offices.

Owned by company.

Annex

64A Harbour Road, Houses marketing, sales and 10,000

Cape Town
finance staff

Building is owned by
company.

R&D Division 2 Canal Road,

Cape Town

Utility

Size (m) Lease arrangement

Research team of engineers and 1,500

business development analysts

Factory
& 76 Robben Avenue, Warehouse, assembly, product 26,300
assembly plant Cape Town
testing, and shipping.

Rental at R340pm per

month. Renewal in
November 1997.
Rental at R40pm per
month. Renewal in
October 1999.

Other considerations
Like the Introduction, Executive Summary, Contents Page and Company Profile, there are other
considerations to consider before submitting the report to a lender. These are important as getting these
incorrect would negate the good work carried out in the window to the business plan.
Consider the following:

Be careful not to be guilty of "passing off" when naming your business. This occurs when it is
perceived that you are trying to ride on the success of another company, e.g. You name your
company "AA Hunters" and is based in the same city as another extremely successful firm called
"AA Huntors." Two things can happen if you are considered to be passing off your company as
another. Firstly, the lender could stop all negotiations and, secondly, the company you are
pretending to be could sue you. It is totally irrelevant whether you are aware that the other company
exists or not.
There are two ways in which to avoid this happening. Firstly, register the name of the company with
the Registrar of Companies before you complete the business plan and, secondly, make sure that the
name is distinctive in some personal way, such as naming the company after yourself, like Disney
Studios.

Identify all trademarks and register them.

The business plan must be printed using at least 1,5 times spacing and have the plan bound.

Keep a careful check and record of the number of business plans printed and distributed. Plans
should only be distributed to co-entrepreneurs and lenders. They should not be given to friends,

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family or colleagues Make sure it is marked "Private and Confidential" to limit the number of people
who see it.

Mark the plan with a (copyright) so that the plan will not be taken and used by someone else.
New authors have the problem in South Africa of having to trust that a publisher will not steal his
work as there is no means of registering a copyright in this country. The best advice to protect
yourself to ensure that someone does not take the business plan (or book) and use it themselves is to
post an original copy (registered mail) to yourself, but do not open it once you receive it. That way
you would have proof that the piece of work was yours to start off with. There is, however, no
means of protecting yourself against someone stealing an idea.

When drawing up appendices, ensure that different topics are placed on different pages. In addition,
appendices should include at least curriculum vitae of key owners/managers, references from
professional contacts, significant contracts and a copy of your market study. Optional appendices
can include pictures of the product, copies of promotional material, articles from trade journals and
other pertinent published information and patents.

CHAPTER SUMMARY: This section sets out the process by which an entrepreneur can ensure
a large amount of success in getting a lender to at least read his plan. Given the vast quantity of
business plans lenders receive daily, it is important to write the plan in such a manner that the
lender will be interested enough to proceed with his own due diligence study. The chapter sets
out the window to the plan, which is established through an Introduction, Contents Page,
Executive Summary and Company Profile.

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CHAPTER 7: TECHNOLOGY, PRODUCTS AND MARKET ANALYSIS

By now the thread of how to write a business plan should be clear. The gist is to write without being
verbose, keep detail to a minimum, don't detract from the section you are outlining and be sure that the
standard of information is high, but use as little technical terminology as possible. The latter is
particularly pertinent to this chapter, which deals with highlighting information to the lender about your
product and how you have analysed your potential markets.
Many entrepreneurs believe their commodity is the only important item in the business world, but
to the lender it is just another venture that could possibly be income generating in the future. It is
therefore important for the entrepreneur to explain terms and jargon without being patronising,
particularly in a business venture which deals with a multitude of engineering, mechanical or scientific
terminology.

Technology
There are two important issues which have to be made absolutely clear in this section and
should be set out in the first paragraph. Firstly, explain what type of technology your product
needs to operate, e.g. special computer software. Secondly, make sure that the technology and
designs are legally protected with appropriate patents, copyright and trademarks.
Information, services and production techniques change so rapidly in the business world that a specific
technology proposed in a business plan today may be obsolete tomorrow. It is thus extremely important to
start this section of the business plan with an outline of your technology.
However, if you are operating a company which does not require any special technology, leave this
section out of the business plan or, alternatively, set out the method of operation that you intend to use,
e.g. service company that distributes information via the Internet. If the business plan outlines the
manufacture of a product it would be best to answer a number of questions, as outlined in the following
table.

Technical issues

Questions

Operation

What type of technology do you require to produce goods or provide a

service?

Work

methodology

Will all production be conducted with your equipment?

Will you hire sub-contractors?

Could technology change in the short, medium and long term?

Do you, your product or service have distinct advantages over competitors?

If so, are they related to technical superiority, director work experience and

Competitive
advan-tages

contacts, economies of scale or better cost structures.

Costs

Present & future

capacity

Set out the different cost levels for each item manufactured or sold.
What is the maximum level of work orders that present structures can cope
with and what is your present level of order books?
In the case of a new firm, have contracts been secured?
Can present capacity be expanded in the short, medium and long term?

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Technical issues

Questions continued

Technical environ-
ment

Is the required technical hardware, software and machinery readily available

in South Africa?
Does it have to be imported?
What is the level of expertise in SA to run the hardware, software and
machinery?
How many suppliers are there of this technology? How long would it take to
install?

Products/services
This section must include a description of the product/service that your company intends to
sell, an outline of the target market, highlight a product comparison and how that product
will be created in terms of labour and capital costs.
Set the section out as follows:
1. The first paragraph should be a summary of the entire product section. It should consist of a single
paragraph which starts with a product description.
2. The second paragraph starts with an outline of the target market. For instance, to whom do you
intend to sell and where will you sell the product. Do you have the funds to market your company, are
there enough potential clients and are there export opportunities to ensure viability. This section is not
a market analysis, but an outline of your product - Market Analysis is dealt with later in this chapter.

TARGET MARKETS
Sections to highlight in a Business Plan

2. Where do you intend selling your product?

1. To whom will you sell your product?

Individuals

Businesses

Combination

4. Will target markets respond?

3. How do you intend to distribute it?

Directly to end-users

Through middle men

Combination
See Product Comparison Matrix

Domestically

Internationally

Combination
5. When do you intend to...

Nationally

Regionally

Combination
Start selling your product
Expand:
i. product range
ii. product into foreign markets
iii. business into different fields

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Target market

Explanation

1. To whom do you intend Explain whether you are targeting sales to the public, directly to
to sell your product?
businesses or whether you will use a combination of the two.
2. Where do you intend to Will you be selling your product locally? If so, state whether you will
sell your product?
concentrate on particular areas and why. Is there enough demand for
your product? Do you have to look elsewhere? If you have overseas
contracts, state where these are.
3. How do you intend to Describe whether you company will sell the product directly to the enddistribute your product?
user and how you intend to achieve this. If you intend to use middle
men explain what the advantages are of using such a system.
4. Why will the market See Product Comparison Matrix.
respond to your product?
5. When do you intend to:

start selling your product: give a brief outline of your product and
economic cycles. If you estimate the market will respond to your
product in 10 months - when the cycle reaches a trough - state this.
It shows research and professionalism.
expand existing product range and into new markets. Briefly
outline what your plans are for the future.

3. Outline why your commodity is saleable, i.e. do you have any competitive advantages in terms of
price, quality or quantity? Overseas, the trend is to compare your product with your competitors'. This
diagram should include a contrast of price, where the product was made, product quality, delivery
times and follow up service, as shown in the following example of a company named XYZ Limited
which produces and sells computer software to link computers to telephones:

PRODUCT COMPARISON MATRIX

Product

Notes Price/unit Where produced

(Rands)
(local/imported)

Quality

Delivery
time

Follow up
service

XYZ Limited

89.00 Local

Good

Excellent

Excellent

Jack Partners

89.00 Local

Good

None

Average

Software House

95.00 Local

Poor

Average

Poor

ABC Limited

100.00 Imported

Average

Good

Good

Computers Limited

250.00 Local & imported

Excellent

Excellent

None

Software Tools

255.00 Imported

Average

Poor

Poor

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Notes
XYZ Limited

An intensive recruitment drive in the US and UK has enabled us to obtain

specialised skills in the telecommunications and computer systems fields. This has
resulted in our being able to provide not only excellent delivery time, but also
excellent follow up service

Jack Partners

Offers the product at the same price, but does not deliver the product to clients and
follow up service is at best average

Software House

Appraised as a below average company, with financial problems

ABC Limited

This product is imported from a neighbouring country and is thus only slightly
more expensive and its service is reasonable

Computers
Limited

The product software is formatted in the US and the product is assembled in South
Africa. While it has excellent delivery time, its diverse operations limits follow up
service only to those operating the product in the US and thus provides no follow
up service in this country

Software Tools

In addition to being extremely expensive, it has a poor track record

SUMMARY: Before setting up XYZ Limited, no domestic company in this country could produce and
rapidly distribute a software programme to link computers and telephones, which was inexpensive, of
good quality and had an excellent follow up service.

4. Outline the ratio between labour and capital costs in creating the product. This section should not
be a detailed financial analysis, but an outline of the split between labour and capital in producing the
item. The importance of highlighting this is outlined in Chapter 5. The information shown will depend
on the type of company you are proposing. For instance, manufacturers should set out standard costs
and overheads, while distributors should show discount and margin structures. Service companies
should highlight costs of service obligations. The following table is an example of Company QAZ,
which produces three items.

The Business Plan

Products

- 91 -

Components

Production costs (Rands)

Capital

Product 1

100.00

50.00

150.00

2.0 : 1.0

Gadget 2

12.00

6.00

18.00

2.0 : 1.0

Gadget 3

5.30

2.60

7.90

2.0 : 1.0

Gadget 4

4.00

1.90

5.90

2.1 : 1.0

121.30

60.50

181.80

Gadget 1

110.00

115.00

125.00

1.0 : 1.1

Gadget 2

12.50

18.90

31.40

1.0 : 1.5

Gadget 3

15.30

19.00

34.30

1.0 : 1.2

137.80

152.90

290.70

Gadget 1

300.00

200.00

500.00

1.5 : 1.0

Gadget 2

149.00

130.00

279.00

1.2 : 1.0

449.00

330.00

779.00

Total cost
Product 3

Capital : Labour

Gadget 1

Total cost
Product 2

Labour Total

Ratio

Total cost

SUMMARY:
Product 1

121.30

60.50

181.80

2.0 : 1.0

Product 2

137.80

152.90

290.70

1.0 : 1.1

Product 3

449.00

330.00

779.00

1.4 : 1.0

Total

708.10

543.40 1251.50

1.3 : 1.0

It is necessary to include an explanation of this table in a business plan, as follows:

To produce Company QAZ's three products it costs R1,251.50.

The overall cost is split so that for every R1.00 spent on labour, R1.30 is spent on capital
equipment.
Divisional breakdown shows it costs Company QAZ twice as much in capital (than for labour) to
produce Product 1 than to produce Product 2 and 3. There is an almost even split in labour:capital
for Product 2 and a slight slant towards capital for Product 3.
5. Other capital:labour related information that must be provided include:
Capital

Labour

Type of equipment required

Skills

Reference
required,

i.e.

semi-skilled, See Chapter 9

unskilled etc.
Cost of acquiring equipment

Numbers of employees required

See Chapter 9 & 10

Budgets to maintain operations

Cost of labour

See Chapter 10

Space

required

to

install -

See Chapter 6

equipment
Availability of skills to operate Availability of staff
equipment

See Chapter 9

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The Business Plan

6.

- 93 -

State whether the target market is large enough to fulfill your supply? Most ventures lack the
resources and skills to market their product effectively. This is particularly significant in the light of
smaller markets and the need in many ventures to develop export markets to obtain a viable scale of
population. This section of the business plan should consider both the domestic and export markets
available to the company, where the domestic market is too small to ensure the products ideas
viability.

7. Do you have a strategy for the future? Do you have a long term product strategy? Do you plan to set
up a product development division? When? Have you determined whether there is a link between
your product, market demand and consumer needs for your product?

Market Analysis
This section should focus on recent market performance, projected growth and the value of the
total market. The latter should be stated in both quantity and value.
1. The first paragraph should be used to summarise your full market analysis, from recent market
performance to forecast market growth.
2. This section of the business plan should start with general industry information such as an outline
of clients, trends and target markets. Once you have answered the questions set out below, you have
established a basis for your market forecast.
3. The general industry information should reflect your understanding of the industry and present an
analysis of your market research. Answer questions outlined in the following three tables, but note
that these tables do not represent your in-depth analysis. This should be included in the appendices.

Clients
Without someone to sell to, the lender will be dubious that you can get your product off the ground in a
reasonable time, which means a delay in participation of future profits etc.
Provide the following details
businesses (listed or private companies or cross border conglomerates etc.)
Type
individuals
both
signed contracts?
Initial target

Reaching clients

Clients & products

telephone directories (yellow pages)

trade association publications
mail order catalogues
advertising in trade and other publications
radio and television broadcasts
marketing drives
initial orders
realistic percentage of clients who will re-order

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Trends
Once it has been established who your clients are, the next step is to outline trends to show when you
intend to sell your product, what the best times are, whether there is potential for growth and so on.
Provide the following details
Industry

size of industry in rands and sales capacity

general cyclical, market trends and age of industry i.e. define maturity
stage

potential for growth of this sector in the medium to long term

distinguishing features of the trend, i.e. seasonal or flat demand
who the main players are in this field

Product

Competition

cyclical product trends

how the product fits into this cycle (leads or lags economy)
demand/supply patterns of product in the medium to long term
how pricing/supply flows will change after your entrance
how you compare with your competitors, i.e. staying power, drive,
experienced personnel etc.
how your product/service compares with other similar items
barriers to entry, i.e. start up costs, time, technology, difficulty in finding
key personnel, brand loyalty, existing patents and trademarks

Target market
Once you have persuaded the lender that you have clients lining up to buy your product and that it is the
right time to produce and sell it, you have to explain what the market is all about, why you have targeted a
particular segment of the population and why they will buy from you and not from a competitor.
Provide the following details
Characteristics

Who are the main competitors? See Product Comparison Matrix.

Specific target market, i.e. Furniture sector would be meaningless; say

targeting low income furniture buyers
household and business demographics

Numbers

actual location
factors which influence consumers
number of possible buyers
where these buyers are
number of similar products/services on the market

The Business Plan

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Provide the following details - continued

Penetration

Regulations

how you intend to enter this market

why you believe you will be successful

what your market share could be after one year

how you intend to expand this market share

initial number of customers

what market regulations will affect your company, e.g. licences, permits,
patents etc.
how you will meet these requirements

what time is involved in meeting these requirements

what the cost of meeting these requirements will be
whether they could change in the near future

general market price levels and price of your product/service

expected gross profit margins

Do you have a discount structure for volume, prompt payment, etc.

Price structures

Common errors
When compiling a market analysis, a number of common errors are often made. In undertaking market
analysis many entrepreneurs make a number of assumptions which are fundamentally incorrect and,
consequently, the entire business plan falls flat. For instance, in many segments of the business world, a
minor portion of the client base represents the majority of demand for a particular product, e.g. High
income households consist of less than 20 percent of all households, but represent more than 80 percent
of all purchasing power in most Western countries. Therefore, if 20 percent of the entire market buys 80
percent of a specific product, to believe that this market is sown up and not penetrable in any way is to
tell the lender that you do not believe you can succeed. At the very least, you would have placed your
market analysis in doubt.
Another common mistake is to be unrealistic when assessing the amount of market share you
could control, or believe you can control. There are some extremely successful companies in South Africa
and around the world which have a small slice of the market cake and the directors of these companies are
never loath to admit they have only a small portion of market share. It would be better to say that you can
control two percent of a R1 million industry and to capture 10 percent by the end of the first year of
operation, than to say 10 percent and end up with two percent at the end of the first year. It is common
among new entrepreneurs to define the market as broadly as possible instead of determining the true
target market.
For instance, to say your new shoe design will be successful "because all women wear shoes" is
not only a truism, but bluntly stupid. A lender would look at this statement and immediately throw the
plan into the dustbin. However, to define the market through carefully assessment of the type of women
who would be interested in your shoe design would be to filter and isolate a target market that is true and
real.

The Business Plan

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The following table emphasises other common pitfalls in conducting and compiling market analysis:

COMMON PITFALLS IN UNDERTAKING A MARKET ANALYSIS

To discuss a product/service at length without first (or at all) providing a clear definition as to what

the item is, what it does and who would use it and why
Write about the product in a vague and illogical manner. This gives the impression you are unsure
of your goods
To avoid providing profitability estimates for each product/service. It creates uncertainty in the
mind of the lender about your confidence in your product
To make assumptions without thoroughly checking these out first. For instance, to assume that the
size of your customer base will be normal is fatal, i.e. the average customer will not necessarily be
the average earner of the distribution graph you have drawn up. If distribution is abnormal, as much
as half of the customers may not be average earners and only three percent of earners in your
distribution graph may be able to afford your product
To ignore factors that prohibit entry into a market could result in a business without a market
To ignore an analysis of political, economic and financial factors which affect your country would
show navet
Other factors
1. How are goods distributed in this industry? Is it dominated by a cartel, monopoly, oligopoly, the
State, or does it have reasonable access? Is it dependant on large direct sales to corporations to survive,
or can it prosper on sales to individuals. Will you have to set up, train and run your own sales force or
will you work with product representatives? Remember not to repeat what you have stated under
previous sections of this chapter.
2. What are the keys to brand name success in this industry? Include factors such as brand names,
customer loyalty to particular products, what these products are and do, why they succeed and where
you find these products (in shopping centres or only through mail order?).
3. Undertake a SWOT analysis of your main competitors (see Chapter 5) and include product, price,
distribution channels, reputation, management, financial position and technology and in what segments
of the market they operate.
Sales Forecast
In the business plan it is possible display the market forecast (also called Sales Forecast as it deals with
units of your product sold and the price it is sold for) as either a table or as graphs. However, it is easier to
start by creating a spreadsheet. Divide the information into three sections; the first represents quantity of
items sold or expected to sell in the future, the second section outlines the price of items sold and the third
is a multiplication of the first two figures, which equals the market value of that item.
The information typed onto the spreadsheet can be copied onto a word processor as a table,
divided into the three sections with a row to highlight a total market value for the company's products
(addition of Products A to C in the following table). Notes to the product must be provided to explain
how figures were derived, as highlighted by the following fictitious company market forecast table.

The Business Plan

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The Market Forecast

The aim of this section is to show and highlight gross sales trends for the entire market, i.e. it does not
relate to the company being set up.

The Market Sales Forecast table

The following table is an example of a market where three products with different pricing structures are
sold:
MARKET SALES FORECAST TABLE
Historic Financial Data
Notes

Forecast

1993

1994

1995

1996

1997

Sales
Product A

1.1

10,000.00

14,000.00

18,000.00

22,000.00

26,000.00

Product B

1.2

10,000.00

22,000.00

32,000.00

42,000.00

52,000.00

Product C

1.3

33,000.00

53,000.00

73,000.00

93,000.00 113,000.00

53,000.00

89,000.00 123,000.00 157,000.00 191,000.00

Total
Price (Rands)

Product A

2.1

10.00

11.00

12.10

13.30

14.60

Product B

2.2

100.00

105.00

110.25

115.76

121.55

Product C

2.3

120.00

126.00

132.30

138.92

145.86

Gross Sales Value (R000)

Product A

3.1

100.00

154.00

217.80

292.60

379.60

Product B

3.2

1000.00

2,310.00

3,528.00

4,861.92

6,320.60

Product C

3.3

3,960.00

6,678.00

9,657.90

12,919.56

16,482.18

5,060.00

9,142.00

13,403.70

18,074.08

23,182.38

Total

NOTES
1
1.1

Sales:
Product A

This sections represents the quantity of units sold.

Being the cheapest product sold, sales were high in the past, as a
consequence of high inflation, interest rates and low purchasing
power. An economic upswing in 1993 saw clients move to more
expensive products and growth dropped from 40 percent (1993 to
1994) to 22 percent in 1996. Forecast growth for 1997 is 18 percent,
where it is expected to plateau.

1.2

Product B

A drop in sales of Product A were captured by the more expensive

Product B, which climbed by 120 percent between 1993 and 1994.
The following year sales rose by 45 percent, but have since fallen to
31 percent. Forecast sales in 1997 are 23 percent - also a plateau.

The Business Plan

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NOTES CONTINUED
1.3

Product C

Similar trends to Product B, with Forecast for 1997 at 21 percent

growth.

Total

Equals the total volume of sales per year and shows that the market
has a high growth of above 20 percent a year.

Price (Rands)

This is the price charged for the goods and does not represent net
income, i.e. it omits costs involved in selling the products

2.1

Product A

Annual increases equal 10 percent to cover packaging costs. The

product has a low pricing structure and only represents a small portion
of the market's present and projected income.

2.2

Product B

Pricing for this product is based on a five percent annual increase. The
low yearly rise is due to a low cost base, with little chance of labour
unrest and, as such, the product represents a significant portion of total
annual income.

2.3
3

Product C

Similar to Product B.

Gross Sales Value (R000) This is the multiplication of units sold and price charged for those
units. It is equal to the income derived from the sale of your products.

3.1

Product A

Displays an overall annual decline between 1993 and 1996, but a

forecast growth of 30 percent in 1997 is higher than in other sectors.

3.2

Product B

Similar to Product A.

3.3

Product C

Similar to Product A and B.

Total

Equals the total income derived from the sale of Products A , B and C
and shows a market value forecast in 1997 of R23 million - a 358
percent increase since the economic turnaround of 1993..

SUMMARY: This table shows the number of units sold and prospects for growth in the future. It
displays the value of each item sold and, from these two figures, a market value can be calculated. This is
not an income statement Turnover figure, but a Gross Sales figure for the market.

Sales Forecast graphs

From the spreadsheet, use quantity of products sold and value of total sales to draw graphs. Remember
that notes to the graphs have to be added, but these would be the same as those in the Market Forecast
table. There is a twofold advantage in using graphs instead of tables. Firstly, graphs break up text and
bring relief to lengthy business plans. Secondly, they give information without divulging too much.

The Business Plan

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GRAPH 1 - UNIT SALE FIGURES

Units (000)
120

100

80
Product A
60

Product B
Product C

40

20

0
1993

1994

1995

1996

1997

Forecast

Note: The figures for Product C were multiplied by a factor of 10 for display purposes

GRAPH 2 - GROSS SALES VALUE

Rands
18000
16000
14000
12000
Product A

10000

Product B
8000

Product C

6000
4000
2000
0
1992

1993

1994

1995

1996

Forecast

Note: The figures for Product C were multiplied by a factor of 10 for display purposes

Research and Development

Do you have a long-term product development strategy? Is there a relationship between market
segments, market demand, market needs and product development?

The Business Plan

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As the business plan develops, you will re-write (several times) different sections of the plan. This is quite
natural, particularly as you start paying more attention to the end-user of the plan. Too much and
laborious detail will have a negative impact on most external users of the plan. The same must be said
about product development.
In drawing up a research and development section of the business plan, two problems can very
easily be done.

The first is that this section can be turned into a policy and procedures manual for your
employees, instead of a practical outline of the present status of your technology, whether
and what company patent and copyrights are, if you have contracts with specific staff
members and what future product developments are.

The second is to compare your future technology with what the competition has now. You
should compare what you will have by the time you are in the market with what others will
have then. After all, competitors also have Research and Development departments which
are also working on a future product.

The following diagram provides a minimum outline of the type of information a lender would require:
Issue

Provide the following details

Status of technology

Product/economic cycle

Patents, copyrights

Contracts

Restrictions

Did you develop the product? How?

Can the lender see the prototype? When?
Is the product suitable to small production runs?
How expensive will it be to go through one run? 10 runs?
What is the present position of the product relative to the economic
cycle? How cyclical is the product?
Are there any factors (political, financial, economic, other) which
might change the nature of these cycles in future?
Can your product be patented? Have you done this?
How much protection will a patent or copyrights provide?
Have the products and their names being registered?
Are there similar (or better) types of technology on the market? Who
owns them?
In addition to trademarks, are there other ways of protecting your
product, i.e. registering it as a State strategic product?
Are there existing legal agreements between owners and employees?
What are they?
Does the State restrict entry into your proposed market?
Are there State/regional requirements that must be met prior to setting
up shop and while operating your product, e.g. health regulations etc.

The Business Plan

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Issue

Provide the following details - continued

Future

Do you foresee technological breakthroughs in the near future?

How will they affect your production?

Has your company undertaken any development research? What are
they and are you close to a breakthrough?
What factors limit their development or acceptance?

What key future research and development activities are required?

What are the benefits and risks in undertaking R&D?

CHAPTER SUMMARY: The aim of this chapter is to get the lender to understand your
product, to show that you understand the technology, to establish that there is a market for the
product and that all factors, such as trends, pricing and forecasts have been taken into account
when drawing up the business plan. It establishes a foundation for Chapter 10, which
concentrates on the financial aspects of your company.

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CHAPTER 8: DRAWING UP MARKETING AND SALES STRATEGIES

Although some of the information set out under marketing and sales strategies seem to be the same as in
previous chapters, it is unavoidable. However, a focused entrepreneur would shun repetition as much as
possible. For instance, what is the difference between Market Analysis of a product (See Chapter 7) and
Marketing Strategy?
The first deals with an assessment of the market the entrepreneur is about to enter, while the
second deals with the entrepreneur's method of marketing (promotion, advertising etc.) his product to
those he believes would be the most likely to buy these items. This chapter therefore deals with the
entrepreneur's strategy to market and sell his product or service.

Overall strategy and implementation

What is the most outstanding feature of your idea? How do you intend to push aside street wise
competitors, who have years of experience? This section of the chapter should be an overview of
your strategic thrust.
Start with an overview of the essence of your business strategy. Without one, the plan will look weak and
incomplete. You cannot approach a lender and tell him that "I think my idea is good and could, possibly
... maybe make money in the future." Be wary of making broad unfounded statements which mean
nothing, e.g. "I intend to make Company XYZ the biggest in the country within a decade."
So, the first issue to complete must be to draw up a Business Strategy, which is different to a
Mission Statement (discussed in Chapter 6). The entrepreneur has to establish what his overall strategic
thrust is and then to relay this to the lender. Some examples of strategies which could make you succeed
include:

EXAMPLES OF STRATEGIES WHICH COULD BE USED IN A BUSINESS PLAN

Company XYZ's Business Strategy is to:
enter the market with a new, more efficient and cost effective technology
introduce a new product to a target market
introduce new, improved product features
introduce new machinery which cuts down on space, is cost efficient and produces greater
quantities more quickly than conventional means
market the product internationally through new computerised methods
produce conventional products at a substantially lower price
produce goods and to sell them via a highly organised, efficient distribution network
provide a far superior service to existing clientele
The above table gives examples of a company's Overall Business Strategy, but what does the word
"strategy" mean in business circles? Lenders usually look to see whether the entrepreneur is focused,
ambitious and hungry for success, but tempered with insight into his proposed market. The new
entrepreneur must, therefore, define his own terms on how he sees himself. For instance, a man who
produces motor parts must know whether he is in the motor sector or the parts sector. While many critics
suggest this is merely semantics, in practice it is not. Consider the following scenario:
An entrepreneur has seen his business plan pass through all the stages of the selection process and
is now standing in front of a panel of directors. One director, who is keen to fund the project, asks a
seemingly innocent question: "What value do you have to offer us?"

The Business Plan

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The entrepreneur, who is proposing a strategy to introduce expensive, new, highly technical
machinery run by computers, says: "There is little short-term benefit because the price of the machinery is
high. But in five years we will see substantial profits."
What is wrong with his answer? In a simple one line answer, he killed the entire project. A
strategy must have short, medium and long-term benefits, otherwise the strategy is not complete. It is
most likely that in five years all competitors will have the same technology. In addition, the business plan
would have outlined the expense involved in undertaking the venture, so - if the decision-making board
had invited him to discuss final details - it means they are interested despite costs.
So how does the new entrepreneur set up a strategy? There are four essential elements which have
to be taken into account when drawing up a general business strategy. They are:

SETTING UP A GENERAL BUSINESS STRATEGY

Know exactly what business segment you want to be involved in?

What are the main issues (keys), which will result in your success?
What value do you have to offer financial institutions, shareholders etc.?
Complete a personal and business SWOT analysis, but only state
competitive strengths and weaknesses in a business plan.

The general business strategy is the basis for creating a foundation to develop marketing and sales
strategies. They are outlined in the following sections.

Marketing strategies
This section should concentrate on how the entrepreneur targets a specific market to promote his
product and sets out how he will achieve this.
Two tables are used to outline marketing strategies. The first looks at general marketing tactics and the
second highlights more specific strategies. When writing down answers to the first table, keep answers to
one line, e.g. Question: Will you market your product locally, internationally or both.? Answer:
Internationally. However, answers to the second table have to be more comprehensive.

GENERAL MARKETING STRATEGY

What methods do you propose to use to penetrate the target market? i.e. television, newspapers etc.

What promotional methods do you plan to use, i.e. advertising, public relations, door-to-door
promotions or print media?

Will you market your product locally, internationally or both.

In marketing the product, what benefits will you offer clients? i.e. product support,
discounts.

Have you set marketing priorities for your different products? i.e. have you decided which products
to market first?

volume

The Business Plan

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DETAILED MARKETING STRATEGIES

Issue

Questions to answer

Set out target markets Which markets and segments of that market will you target? Why?
& segments
How does your marketing mix (product, price, promotion, perception and
distribution) compare with present market demands?
How does the company propose to market its products?
Promotion Strategy

What is your initial promotional strategy? Will you use mass promotion,
i.e. offer clients products at cost price for a number of months? This
method is effective to spread the word about your business to potential
customers, but there are no guarantees that clients will continue to buy
your product when prices are increased.

What promotional means will you use and why? i.e. advertising, direct
mail orders, radio etc.

Distribution Strategy

Marketing Programs

Outline and explain present and future distribution channels.

Outline and explain what method you will use to sell your product, i.e.
retail, wholesale, distribution networks, professional salesmen?
Is your distribution structure better than competitors? Can it become one?
Do you have a marketing programme? What are they?
Define these programmes, showing objectives, employee responsible to
carry out programme, present and future budgets, schedule and milestones.

Sales strategies
How do you intend to sell your product and how will you maintain those sales? Do you need a
sales force and, if so, how many salesmen will you require?
Similar to Marketing Strategy, this section uses two tables to set out sales strategies.

GENERAL SELLING STRATEGIES

How will you sell your product? Through a sales force, middlemen, retailers?

How will you identify prospective customers? Consider all types of companies, i.e. from sole
proprietorships to listed companies. Who are your main clients?

Do you already have signed contacts. From whom and for how much?

What is the commission structure for your sales force?

The Business Plan

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DETAILED MARKETING STRATEGIES

Issue

Questions to answer

Service and Support

Sales Programme

Each programme should include:

a definition of the sales program
its objectives

How do you propose to service the products you sell?

who is responsible for undertaking the programme?

establish what the sales programme will cost
set out the schedule and milestones
Strategic Affiliation

Pricing Strategy

Does your company rely heavily on other companies for supplies or on a

few customers for sales?
Is there a restraint of trade to prevent the sale of goods to particular areas?
Is there any advantage to these strategic affiliations?
Highlight main price lists, mark-ups, discount structures and credit terms

Compare them to customer demands and to competitors' structures

Will they change in the future? Can higher mark-ups cause the company
to price itself out of the market?
Prices are derived based on volumes of expected sales and business risk
Sales force

Distribution channels

What is the split between sales personnel hired on contract and hired full
time?
What is the size of your sales force? Will you train them?
What efficiency do you expect, i.e. calls per hour, per salesperson
Explain your present and future distribution channels.

Sales Forecast
Many entrepreneurs believe that to forecast sales without a company financial history is guesswork and,
therefore pointless to add to a business plan, because lenders will not fund these projects. These
pessimists say that without a solid sales history and forecasts based on these trends, lenders will not be
interested. This is patently untrue. Without a sales forecast, there is no means of forecasting profits
(income statement) or drawing up a financial profile of the company (balance sheet).
The way to approach the problem in forecasting sales is to clearly state the assumptions you have
made in undertaking the forecast. There are two sets of figures that have to be assessed, namely the
expected quantity of sales the entrepreneur will achieve and, secondly, average prices for products sold.
These two figures are multiplied to calculate sales values and, in this manner, the entrepreneur can create
a value for a number of products, i.e. calculates sales values for different product lines.

The Business Plan

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One criteria that has to be carried out for a lender to look at the business plan, is to include a
month-by-month breakdown of sales for the first year of your plan, followed by another two years of
forecasts. The question is how do you forecast sales without some form of history from which you can
create trend lines. While you may not have a profit history, there will always be statistical sources from
which to draw information that can be used in your forecast.

INFORMATION SOURCES TO COMPILE SALES FORECAST

Published statistics from government organisations, like the Central Statistical Services. This
organisation will provide a variety of details on different products (volume, price, indices),
demographics and new building plans passed gives an idea of areas where people are concentrating
and the types of businesses that are being established etc. Find published data that is similar to the
product you intend to sell and draw on this information to determine your own trend.

There are societies/organisations that collate statistics for most products and industries, i.e. The
Textile Federation would have details on their sector etc. These statistics are useful in that it can tell
you whether companies are under-recovering costs or not. For instance, if it costs Company XYZ
R10 to buy raw materials to manufacture Product X and it costs the company an additional R10 in
labour and fixed costs, it has effectively cost Company XYZ R20 to manufacture the product. If the
company can only sell the item for R18 due to falling demand (other environmental factors), it has
under-recovered costs by R2 or by 10 percent. This information can be used in your forecast.

Results from your own market analysis will provide a feel for the sector, how well it is doing and
how it could do in the near future. Use this information to determine whether environmental factors
(outlined in Chapter 5) will affect the trend and by how much?

The Three-Year Forecast

Once the entrepreneur has determined what his realistic sales targets are and how he will achieve them, he
must include this in his business plan as "assumptions" to the forecast. Lenders would look at them before
the forecast and, if they are realistic, would accept them at face value. Of course, if the institution funds
your venture, they would hold you responsible for achieving these forecasts, which ultimately become
sales targets.
It would be foolish to say you can accomplish a 25 percent rise in turnover and then only deliver
12 percent. The lender would not be impressed and they could call in the loan (your targets could be
placed in a contract), which would place you in an unenviable position.
Now that assumptions have been made, the entrepreneur is ready to draw up a Sales Forecast. In
forecasting sales, there are a variety of ways to set up the table. Business development analysts suggest
that a new company should keep the forecast table as simple as possible, as outlined in the following
table, whch shows the first year forecast per month, followed by forecasts for Years 2 and 3. It is
pointless to forecast more than three years in South Africa, given its volatile environment.

The Business Plan

- 107 YEAR 1 - MONTHS

SALES

Yea

Year

r
1

10

11

12

Total

100

110

100

112

110

115

110

122

123

127

132

138

1399

1540

1693

Product A

100

110

100

112

110

115

110

111

112

115

120

125

1340

1283

1411

Price (R)

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.1

1.1

1.1

1.1

1.1

1.04

1.2

1.2

500

440

440

450

500

500

500

500

510

520

520

530

5910

6800

7820

Product B

50

44

44

45

50

50

50

50

51

52

52

53

591

680

782

Price (R)

10

10

10

10

10

10

10

10

10

10

10

10

10

10

10

Gross Sales

600

550

540

562

610

615

610

622

633

647

652

668

7309

8340

9513

FORECAST

SALES:
Sales A

Sales B

UNIT COSTS OF SALES:

Product A

100

100

100

100

100

100

100

100

100

100

100

100

1,200

1320

1452

Product B

50

50

50

50

50

50

50

50

50

50

50

50

600

660

726

Total cost

150

150

150

150

150

150

150

150

150

150

150

150

1800

1980

2178

Net sales

450

400

390

412

460

465

460

472

483

497

502

518

5509

6360

7335

Gross Sales derived as (Rands):

Cash

400

360

360

374

406

410

406

414

422

430

434

445

4861

5000

5700

Credit

200

190

180

188

204

205

204

208

211

217

218

223

2448

3340

3813

600

550

540

562

610

615

610

622

633

647

652

668

7309

8340

9513

Gross sales
i.

is equal to units sold, multiplied by the price charged for the item

ii. excludes any expenditure incurred in selling the products

iii. all products are sold in that year, i.e. no stock is carried over to the next year.

Gross sales revenue: Year 1 = 66,6% Cash : 33,3% Credit. However, a forecast rise in interest rates in Year 2 and
Year 3 has prompted a change in sales mix. Year 3 = 60% Cash : 40% Credit sales.

Cash received versus credit sales. Advantage of credit sales over cash sales results in clients being charged for the
delay in receiving cash for the article (Hire-Purchase). The disadvantage lies in debtors failing to pay and thus bad debts
accrue to the company. The main factor that affects gross cash revenue is discounts for quantity purchases by clients.
The best scenario would be to have a reasonable portion of sales on credit, but the main income must come from cash
sales (discounts and credit terms must be clearly stated in the business plan)

Prices: In Year 1, the price of Product A was increased in August to R1.10 from R1.00 and further increased to R1.20 a
product in Year 2 and maintained at this price in Year 3. There were no increases in the Price of Product B, due to all
sales been taken up by a corporation and virtually the entire product is manufactured by new, computerised equipment.
No work stoppages are foreseen for this sector and high productivity is forecast.

Demand for Product A is forecast to grow by 10 percent a year and Product B by 15 percent a year. The higher increase
for the more expensive Product B, is due to predicted greater purchasing power as the economic upswing takes effect.

Unit costs are unchanged for Product A and B. A 10 percent rise is expected in Year 2 & Year 3.

Total sales are calculated by deducting the value of sales from cost of sales.

The Business Plan

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Note that the above table is not meant to be a substitute for an income statement, but an outline of forecast
sales, to show the lender the value of gross sales. The full income statement is outlined in Chapter 10.
The table can also be displayed as a graph, but entrepreneurs must note that lenders prefer - often
insist - on a sales forecast table. It is thus better to include a graph in a business plan as an extra visual
effect and not in place of the table.

Sales Forecast Chart - split between cash and credit

YEAR 1

YEAR 2

Credit

33%

YEAR 3

Credit

Cash

40%

67%

Credit

Cash
60%

40%

Cash
60%

Milestones and Schedules

This is the part of the business plan where the entrepreneur has to place his entire project on the
line. He does this by including a list of milestones achieved to date and a schedule of future
events that link dates to objectives.
A list of milestones, with dates when these were achieved, gives lenders an immediate view of your
professionalism in achieving targets on time, managing these targets, delegating work and achieving
forecasts.

The Schedule creates an impression that you are forward thinking and analytical. It shows that the
entrepreneur is able to translate and transfer theoretical planning into practice, i.e. show that strategies
outlined in a business plan can be carried out. This should be made one of the most important sections
of the business plan as it forces the entrepreneur to think issues through logically and systematically
when answering: What should be done (set out in priorities), when should it be done and by whom
should it be done?

Milestones are used to fix specific dates and objectives for all the business activities included in the
plan. This is where what might be time wasted in theoretical planning and long-term strategy
becomes time invested in concrete planning and implementation.

A sample Schedule & Milestone list is shown in the following tables:

Project objectives

Who is responsible for carrying out the objectives

Dates for achieving these goals

These are examples and, as such, do not include all issues that would be included in a list of schedules
(also called a Business Plan Timetable). Table 1 is used to help new entrepreneurs picture what a business
plan path looks like, i.e. from idea to implementation. Table 2 shows business objectives in date
sequence, while Table 3 is set out per department. The fictitious Company ASAP (Pty) Ltd. intends to
start operations on June 1, 1997.
Table 1: Milestones & Schedules - Date sequence path

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IDENTIFYING A BUSINESS OPPORTUNITY

DETERMINE:
Step 1:

IMPORTANT DATES
When should the viability study ...
... commence
... be finalised

Step 2:

Who should represent the firm legally to ...

... draw up company contracts, register
company name
... other legal requirements/ obtain
commercial licenses

Step 3:

Who will be financial manager to ...

... determine funding requirements

... when these funds will be needed

Step 4:

Location of business premises ...

... whether to rent or buy
... draw up building contracts

Step 5:

What equipment ...

... will be required
... purchased or leased

Step 6:

Other issues ...

... establish personnel needs, hire staff
... move to new premises
... date for setting up equipment
... Final installation, receipt of stock

The Business Plan

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Table 2: Milestones & Schedules - Target dates

Company ASAP (Pty) Ltd

Responsibility

Dates

Name

Department

Target

A. Fords

General Manager

11-01-97

11-12-96

2. Head up Business Plan

P. Somms

Business Analyst

3.

1. Create corporate identity/mission

Completed

statement

Research undertaken on:

technology

O. Human Engineering

03-01-97

02-01-97

product development

R. Passat

Director: Products

05-01-97

04-01-97

target markets

A. Fords

General Manager

05-01-97

05-01-97

sales strategies

J. Lock

Director: Sales

11-01-97

08-01-97

marketing strategies

K. Jones

Marketing

11-01-97

08-01-97

4. Set up organisational structure/personnel

B. Todd

Managing Director

18-01-97

18-01-97

5. Financial profile of company

A. Kenny

Director: Finance

20-02-97

28-02-97

6. Patent prototype

L. Alan

Company lawyer

03-03-97

7. Final presentations/signing client contracts Z. Sanerson Chairman

15-04-97

8. Signing contracts with suppliers

A. Fords

20-04-97

9. Presentations to financial institutions

Z. Sanerson Chairman

15-05-97

A. Fords

General Manager

30-05-97

all analysis

P. Somms

Business Analyst

11-01-97

08-01-97

internal structures

B. Todd

Managing Director

18-01-97

18-01-97

financial profile of company

A. Kenny

Director: Finance

20-02-97

28-02-97

signing client contracts

Z.Sanerson Chairman

15-04-97

signing suppliers' contracts

A. Fords

General Manager

20-04-97

all legal documentation

L. Alan

Company lawyer

03-03-97

10. Product promotions undertaken

General Manager

Overseers

The Business Plan

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Table 3: Milestones & Schedules - per department

Company ASAP (Pty) Ltd.
BUSINESS PLAN DEVELOPERS
Department

Name

Responsible for:

DATES
Target Completed

Head office:
Chairman

Z.Sanerson

Final presentations/signing client

contracts

15-04-97

Presentations to financial lenders

15-05-97

Managing Director

B. Todd

Set up organisational structure

and personnel

18-01-97

18-01-97

General Manager

A. Fords

11-01-97

11-12-96

Create corporate identity/mission

statement
Signing contracts with suppliers
Product promotions undertaken

Financial profile of company

20-02-97

28-02-97

technology
product development
target markets
sales strategies
marketing strategies

03-01-97
05-01-97
05-01-97
11-01-97
11-01-97

02-01-97
04-01-97
05-01-97
08-01-97
08-01-97

03-03-97

20-04-97
30-05-97

Director: Finance

A. Kenny

Business Analysis
Business Plan co-ord
Engineering
Director: Products
General Manager
Director: Sales
Marketing

P. Somms
O. Human
R. Passat
A. Fords
J. Lock
K. Jones

Company lawyer

L. Alan

Overseers
Business Analyst
Managing Director

P. Somms
B. Todd

all analysis
internal structures

11-01-97
18-01-97

08-01-97
18-01-97

A. Kenny
L. Alan

financial profile of company

all legal documentation

20-02-97
03-03-97

28-02-97
-

Director: Finance
Company lawyer

Patent prototype

Chairman
Z.Sanerson signing client contracts
15-04-97
General Manager
A. Fords
signing suppliers' contracts
20-04-97
Both tables have to include a "Notes" section to explain what the Milestones & Schedules mean. These
would be the same for both tables, except for the sequence of information.

The Business Plan

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Notes to Tables 1 and 2

Table 1 sets out the milestones in the order of dates, which shows nearly all research was
completed prior to deadlines set by management. Financial profiles often fall behind schedule as
the process of compiling the information is usually laborious and requires the impute of a host of
employees, consultants and other financial experts.

Table 2 sets out the same information, but concentrates rather on department success in achieving
these target dates.

The advantage of the second table is that it shows the amount of work delegated to any particular
department.

These columns are merely examples and the entrepreneur should establish his own criteria.
Remember the dates and objectives which have already been achieved represent milestones, while
objectives that are still been completed are called Schedules.

In a company which has been in operation for several years, it would be better to separate
milestones and schedules.

The role of an overseer is to control the flow of information. For instance, if an employee is slow
in producing the goods, the overseer can shift the workload to another staff member.

The intention of setting out a schedule is to show financial lenders that you are confident you can achieve
objectives and that you are not afraid of committing yourself to objectives and deadlines. This is
especially true for companies with a history that establishes it as having achieved milestones regularly
and timeously.
Once milestones and schedules have been drawn up, it is fundamental to review these at least
every quarter. This has to be relayed to lenders, but for personal use, it is important to undertake an
assessment of milestones and schedules - discussed under the following section.

The assessment method

After the review, the business development department would be able to report back to management on
whether the targets set by the board have been met. If they have, the next quarter's schedule is drawn up
and distributed to relevant directors and staff members. The following diagram shows that an assessment
system is necessary to sort out problems when they arise.

The Business Plan

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ASSESSMENT SYSTEM
Milestones & Schedules
Regular reviews

Review schedules
YES

Have schedules been met?

NO
* staff
member

Find the problem

* Department
Is the problem ...

* Subsidiary/associate
* Company
* Group

Derived within ....

Make necessary changes

YES
Can the problem be solved?
NO

NO

Are Schedules realistic?

YES
There is a fundamental problem which needs immediate action by the Board

Explanation:
If the list of schedules has not been met, the analyst has to assess where the problem lies. He would start
at the bottom of the triangle, i.e. Can the problem be from the group policy, structure or communications
network? If not, the analyst narrows his search to the company, followed by subsidiaries/associates,
departments and finally individuals. The analyst would be looking for some form of pattern, such as the
inability of a staff member to keep to deadlines. Maybe a certain person within a specific department has
constantly not achieved set goals?
Once the problem has been uncovered, he has to assess whether it can be solved, thus he would
look for steps to correct it. If the problem can be corrected, he would make recommendations to
management on how to resolve it. Usually necessary changes would be made and the list of schedules
would be drawn up for the next quarter.
However, if the problem cannot be solved, the analyst has to determine whether the list of
schedules was realistic. If he decides they are not, he would make recommendations on how to alter
schedules to be "more realistic." For instance, if a schedule said a market analysis would have to be
completed within two weeks and be submitted to directors on December 31, 1995, it is most likely not
going to happen.

The Business Plan

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The person who set up that schedule either had a malicious intention behind the goal, or was
simply not thinking that South Africa almost comes to a standstill in the two weeks prior to and after New
Year. If this was the case, the goal was unrealistic and the analyst would suggest a postponement to at
least the end of January.
If the problem cannot be solved and the schedule is realistic, there is a fundamental problem
within the group, i.e. the problem is deeper than a lax department or individual. The analyst would ask for
a board meeting, where he would ask for assistance from financial experts and for this to be given top
priority.

Setting out goals graphically

One method used to expound success in achieving objectives is to draw up a chart showing graphically
what your goals are for the next quarter. The graph must show past performance and future goals (or
forecasts) and must include turnover, gross profit margin, operating income, accounts receivable days and
turnover days. All of these critical factors are discussed in detail in Chapter 10, so the intention of
incorporating these graphs under this chapter is to provide an immediate, visual comparison of past and
projected future goals and is not a financial assessment of the company.
However, this chart can not be used for new companies as they do not have past performance.

Financial Comparison
Forecast results relative to actual past performance
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Turnover

Gross Profit

Operating income

ACTUAL RESULTS
1993

1994

1995

Accounts Receivable Days

Turnover days

FORECAST
1996

1997

CHAPTER SUMMARY: This section of Part 2 of the book explained how to draw up a general
business strategy, which creates the foundation for a marketing and sales strategy. These were
outlined and explained. A list of milestones and schedules was set out, showing that these
ultimately become targets for the entrepreneur.

The Business Plan

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CHAPTER 9: PERSONNEL, GROUP STRUCTURES AND LOCATION

This chapter is broken up into a number of parts to differentiate between concepts which are often
confused as similes. For instance, what is the difference between a Personnel Plan and a Group Staffing
structure? The first relates to the number and cost of employees, while the latter deals with skills required
within different departments of a company.

The Personnel Plan

Your financial expertise or general business acumen has to be uppermost in a Personnel Plan. It
is in this section of the Business Plan where you tell the lender about your personal leadership
ability, your staff and your management teams talent and skills.
It is in this section of the plan that the unique aspects of your company and your employees can be
outlined. For entrepreneurs who want to use the plan to get financing - and not as a management tool to
keep to targets - a Personnel Plan is imperative to stress why you have chosen certain staff members. You
are able to stress that these members give your company a distinct advantage over your competitors.
The head of research at a South African stockbroking company once told me: "Investors don't
invest in companies, but in share prices." The same can be said about many lenders, who invest in people
and not ideas. If a lender believes you have a profitable idea, but has no trust in your ability, the project
will not be funded. Therefore, remember you have to tell the lender about your abilities, although it may
sound pompous and arrogant to do so.
Human resource planning is important for a number of reasons, but mostly so because hiring the
incorrect number of people, or incorrectly experienced and skilled staff is likely to lead to disaster.
Systematic human resource planning has to be done on a continual basis, as environmental factors
change, as the business grows and as labour issues become more prominent. It must, therefore, become an
integral part of the Business Plan and should include:

A statement of how many staff are needed today and in the future.
An outline of how enviromental factors will change staff requirements, i.e. skills needed.
An overview of where you will find such staff and how you will train them for their specific
tasks.
A detailed synopsis of how the department will promote and train employees and how they
will deal with hiring and firing of staff.

Staffing requirements
There are different reasons for including a section on employees in a business plan. The first is to state
which specific employee will implement your business plan schedules. This has already been discussed in
Chapter 8. However, that chapter dealt with schedules rather than an outline of your proposed plan for
hiring staff, for securing specialised employees with skills that have to correspond with your prospective
financial statements (See Chapter 10). Remember, employing the right staff will show investors that you,
as the entrepreneur, have the ability to understand and combine economic, technological and other
environmental factors before making a choice of staff.
There are a number of general areas that have to be addressed before employing staff.

The Business Plan

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EMPLOYEE CONCEPTS AND POLICIES

How many employees will you need? Who are your key managers?
What are their skills and experience? How will this contribute to the success of the venture?

What will their main duties be and in which department will they be based?
How will employees be recruited? e.g. offer competitive salaries, share options, incentive or
productivity bonuses, 13th cheques or profit sharing
Will you need to train staff and, if so, what training method will you adopt?
Do you have a system to work out future employee compensation?
Highlight your present and future organisational structure (see Group Structure in this chapter).
These are not issues that can be lightly dismissed. Any accountant will tell you that wages and salaries
form a major part of expenditure and over staffing can create not only financial problems, but place you
in a predicament with unions. You cannot simply fire staff at will! So, consider the above table carefully
when drawing up your business plan - some lenders will require a Personnel Expenditure Statement.
This statement must include a staff head count, costs of staff and other expenditure including
medical aid, pension or provident funds. It is important to break down the table into type of staff, numbers
employed and to provide a line for a total staff expenditure. The first year must be split into months and
the totals for an additional two years must be added. The table must therefore reflect an organised and
logical listing of numbers of staff and payroll expenditures per department. The following Personnel
Expenditure Statement Table is only an example and entrepreneurs must fill in their own requirements
and expected expenditure. If you use a spreadsheet, the table can be used as for "What-if" scenarios.
Consider the following before assessing the Personnel Expenditure Statement

There are only four departments (Production, Marketing, Sales and Administration) in this
example.

Management remuneration are not usually included in this table as they would be included under
Director remuneration in an Income Statement and not under wages and salaries.

The totals outlined in the table have to be consistent with your Financial Statements. It would be
wise to consult a financial consultant once you have drawn up your business plan.

Notes to the Personnel Plan should be included after the Table.

The Business Plan

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Table 1 - The Personnel Expenditure Statement

YEAR 1 - MONTHS

Year

Year

10

11

12

Total

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

48,000

52,800

90,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

12,000

13,000

15,000

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

61,200

61,200

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

20,400

20,400

500

500

500

500

500

500

500

500

500

500

500

500

6000

24,000

24,000

500

500

500

500

500

500

500

500

500

500

500

500

6000

12,000

12,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

12,000

12,000

12,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

12,000

12,000

12,000

10

12

Total wage

8,500

8,500

8,500

8,500

8,500

8,500

8,500

8,500

8,500

8,500

8,500

8,500

* Other

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

12,000

12,000

12,000

9,500

9,500

9,500

9,500

9,500

9,500

9,500

9,500

9,500

9,500

9,500

9,500

114,000

162000

199200

Notes
1. Production
Ave. wage
Staff
2. Marketing
Ave. wage
Staff
3. Sales
Ave. wage
Staff
4. Admin.
Ave. wage
Staff
5. Total staff

5. Total cost

* Other = company's portion of pension fund & medical aid.

102,000 150,000 187,200

The Business Plan

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Notes

Staff requirements

Wages

Net effect of increases

1. Production

The company expects

to
have
four
production
crew
members in the first
year of operation, but

Wages are increased

by 10% in Year 2 and
by 15% in Year 3.
More production in
Year 3 means double

Year 1 staff costs equalled

to R48,000. A 10% rise in
Year 2 pushed staff costs to
R58,200. But another two
members, plus a 15% wage

will increase staff to shifts - thus higher increase, pushed the total
six by Year 3 - forecast costs are incurred
demand rises.
2. Marketing

3. Sales

bill up by 70% over Year 2.

In Year 1 only two Wages are expected to The slight wage increase in
staff are required to rise by 13% in Year 2, Year 2, plus the additional
market the company.
As production increases, it is forecast
that an additional
member will be needed

but no increase is staff member has pushed

shown in Year 3, as costs to R61,200 - an inthe com-pany intends crease of 70% over Year 1.
to
go
onto
a
"commission-based"

in Year 2 and 3.

payroll. These funds

will be attributed to
relevant projects, i.e.
not the company.

Only one member is

required in Year 1 as
the
firm
starts
operating. One more
member will be hired

The R500 a month is The R12,000 cost is marthe basic payment ginal and not of concern.
made to sales staff.
Other income is derived
from
com-

in Year 2, but from mission on sales.

Year 3 consultants will
be hired to sell the
product (commission
basis).
4. Administration

Only
one
admin. Wage of R1,000 is No increase is foreseen until
employee is needed as low, but within market Year 4, when we expect to
bookkeeper
demands.
hire a financial director

5. Total

Despite marginal staff Wages increased as A slight rise in staff, wages

increases - from eight outlined above and are and "Other" in Year 1
to 12 - the effect on not out of proportion (Policies to change in Year
salaries has been sig- to our competitors.
nificant.

2 & 3), the net effect is a

75% rise in total wages
between Year 1 and Year 3.

The Business Plan

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Management and ownership

These two concepts do not necessarily mean the same thing. To be an owner does not translate into being
a capable manager and to be a successful manager does not relay into positively running your own
company. These are issues that must be carefully assessed and outlined in a business plan. In 1992, I
found it extremely frustrating - when reading business plans - not to be able to distinguish between who
the manager was and who the owner was; or, stated differently, it was difficult to differentiate between
the manager's and owner's roles - even when the owner was the manager. For instance, if I needed to
discuss a problem relating to the group communications network, the owner-manager wasn't at the office
because he was out trying to negotiate a deal. And no one else was "Allowed to talk about the firm".
The problem with being the owner and manager is that one task could ultimately suffer. It is thus
crucial to state what the respective roles of the manager and the owner are. If the owner believes it is
pointless to hire a manager "because there would not be enough for him to do..." arrangements must be
made to ensure the company is seldom without someone at the helm.
This can be done by each director completing a Curriculum Vitae and attaching these in the
business plan appendices, but make sure that each CV is no longer than two pages.

The first page should hold personal details (contact numbers/address/date of birth/nationality and
marital status) and an outline of your employment history (start with current position and work
backwards to about three positions back - state name of firm/telephone number/job description/dates
employed/remuneration package)

The second page is used to outline academic qualifications/interests/computer literacy/interests/

societies and reference names and numbers.

Other management-ownership details are outlined in the following table:

GENERAL ASPECTS OF MANAGEMENT AND OWNERSHIP

Who are the directors of this firm? State names, what their functions will be and who are founder
members of the company? State percentage shareholding of each member.
Will you need other directors in the near future? Indicate in the business plan which positions you
still have to fill and when you intend to do this. If you have weak areas, state what these are and
how you will solve them.
Are there any restraints of trade restricting any directors? How do you intend to keep these
directors with your company, i.e. golden parachute or handcuffs?
Who will constitute your Board of Directors? Have you planned what kind of person you want on
your board? i.e. it is pointless having a person on the board, simply because he is a friend. It is
important to have people who will help the company in its quest for success. For instance, do you
have an accountant, a stockbroker, a banker, an entrepreneur and lawyer on your board?
What is the legal structure of the business? (See Chapter 4)
Who are the shareholders and what shares do they own? See Group Structure in this chapter.

There is a crucial point that needs to be highlighted separately:

Never use the management-ownership section of the business plan to negotiate

new partners. A lender can see the potential of a venture; besides, you have sent
him the plan, so your intentions are obvious - you are looking for a partner!

The Business Plan

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Group structures
Shareholders and proposed venture
There are numerous methods of drawing up and explaining organisation diagrams. The first method is to
have a diagram which highlights the existing group and shareholder structure and proposed structure for
the new venture.
The following diagram highlights this. Note, however, that it is up to the entrepreneur what he
adds to the diagram. Again, this is not a means of negotiating a deal with a lender, but a way of
highlighting your existing structure and future growth - the reason why you drew up the business plan.

JONES & X HOLDINGS - EXISTING AND PROPOSED GROUP STRUCTURE

ULTIMATE SHAREHOLDER

100%

ABC BANKS

ABC Industrial Holdings

51%
Jones & X Holdings (Pty) Ltd.
90%

PROPOSED NEW VENTURE

51%

J & X Industrials

100%
Subsidiary A

SHAREHOLDERS

75%

Subsidiary B

Holden Books (Pty) Ltd

Subsidiary C

51%
100%

Chairman: X. Ronald

Subsidiary D
Financial director: A. Jones
MD: D. Jones

Proposed offer to new shareholders

15% = Chairman X. Ronald
15% = Managing director D. Jones
49%

10% = Financial director A. Jones

5% = ABC Banks
4% = employees

Explanation:
The diagram shows who the ultimate shareholder is. Being a well respected bank, through its own
industrial subsidiary, provides a base for other support. The lender would look at the structure and
know that their support for the group's ventures was a safety net during recessionary conditions.
It highlights Jones & X Holding's subsidiary, J & X Industrial's, venture into the print media. It
intends to keep control of the venture through a 51 percent holding, but is offering the remainder of
the shares to a select number of shareholders.
The diagram highlights proposed management structure for the new venture.

The Business Plan

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Group and competitors

Another method is to outline the group structure within its competitive market, as follows:

GROUP STRUCTURE - COMPETITIVE MARKET FOR NEW VENTURE

UK Investments

PROPOSED NEW VENTURE

60%

58%
SA Banks Limited

Holden Books (Pty) Ltd

THOR BOOKS
R1,5-billion annual turnover market
100%

100%

MacHolds

Provides entry into Fast East market

40%

Pioneer Books

Printers

Has backing of Bank of Japan

Funny
Comics

Proposed Business Plan

40%

10%

33,3%

33%

Proposed Business Plan

80%

50%

75%

BOOK, MAGAZINE AND COMIC INDUSTRY

Foreign books

50%

Text book market

Magazines

33,3%

20%

Comics

Fincancial books

25%

50%

TIME AND LEISURE HOLDINGS

Proposed Business Plan

J & X Industrials

JONES & X HOLDINGS

AL Investments

ABC Industrial Holdings

MAIN COMPETITORS

ABC BANKS

Explanation:
There are three main competitors - Time And Leisure Holdings, Thor Books and J & X Industrials for the proposed venture to acquire Holden Books
Each of the competitors have local market share, but none in foreign markets.
The diagram shows the three companies shareholdings of the main markets, foreign books, text books,
magazines, comics and financial books.
The advantage of this diagram over the previous one is that it shows the lender there is urgency in
coming to a decision to fund the project.

The Business Plan

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Location

In this part of the business plan, you have to define what you will use your premises for, state
reasons for having them there and outline factors which influence your decision.
A business address is important for a multitude of reasons, not all of them financial. This part of the
chapter aims to highlight some of the more crucial elements in choosing premises. The one reason seldom
mentioned in text books is the snob value of having offices in "expensive" areas. The "right" address
often impresses lenders, simply because some believe that if you can afford expensive office suites, then
you must surely know how to run a business. There is, in fact, a grain of truth in this somewhat arrogant
statement.
In South Africa, with its volatile political and socio-economic climate, many top businessmen
refuse to hold meetings in areas they consider unsafe. This may only be their personal views - and often
incorrect as political upheaval can take place anywhere and at any time - but they are valid in that they
will only deal in those areas. In addition, many businessmen will not fund or be part of ventures where the
factory or manufacturing plant is situated in these unsafe areas. Therefore, when selecting premises, talk
to estate agents and get them to find suitable accommodation - not too expensive, but with some snob
value, i.e. those areas which are considered safe (See Chapter 3). The following three tables highlight the
main areas that have to be covered under this section of the business plan. Each question has to be
answered for each product or service you intend to produce and sell.

Site of business
Depending on the type of business you intend to operate, you may need to separate the head office from
the plant, or have different legal and State requirements to fulfill. Obviously, the more sites you have, the
more complex the communication network becomes and the more expensive it is for the directors to visit
the different divisions of the group. Entrepreneurs starting out in business usually find it easier and less
expensive to have the head office and plant at the same site.
However, this is not always possible. If your plant has to be placed near a river, for instance, but
your main clients are in the metropolitan areas, then you may be forced to have the plant outside town and
the head office in the city centre.

SITE OF BUSINESS

Where will your headquarters be situated?

Will you have other offices? Where?
Will you separate offices from manufacturing plants? If geographically, state where.
What type of operations will you be running?
Do you have plans for expansion in the near future?
Are your offices or plants near suppliers or customers?
Are your offices or plants near labour sources?
Will your proposed area be acceptable to business partners and employees?
Will employees and customers be able to get to your offices and plants easily? i.e. what is the
public transport like to these sites?

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Pre-requisites
Have you undertaken a thorough inspection of all legal requirements? Are you sure you have all the
correct documents signed and sealed before you undertake the expense of moving machinery onto the
premises? Here is where you have to consult experts (see Chapter 3), including lawyers, estate agents and
quantity surveyors and conclude contracts, check on safety and other State requirements etc. Have you
asked the local municipalities whether they have any intention of building a road through your proposed
business? That the required telephone lines are already in place, that the area has all necessary roads, gas
works, electricity etc.? Answer the following questions for each of your proposed premises.

PRE-REQUISITES

Do the sites have business rights? If not, can they be obtained?

Are there building restrictions? What are they and can they be overcome?
State area of space required.
Are all normal services available, i.e. water, sewerage, electricity, telephone lines?
Are the roads developed to take heavy duty vehicles?
Will you require special entrances and exits for specific vehicles?
Will any of the properties need alterations? What are they and will building permits be granted?
Do the sites fulfill safety requirements and other legal/government legislation?

Financial Considerations
What are your forecasts for the future of the area in which you have decided to do business? If you
believe the area has growth potential, it may be better to buy the property than to rent. This would be an
investment, but it would tie up capital. One way to solve the problem of renting and then not having
future lease contracts renewed, is to negotiate with a property company to acquire the property (in full or
in part) and to lease the location to you for a pre-determined period of time. Include an option to renew or
to buy. Answer the following questions and then refer these to experts for verification.

FINANCIAL CONSIDERATIONS

Will you own or rent the business sites?

How much will it cost to buy the premises and how will the funds be raised?
Have the premises been surveyed? If not, how much will it cost to have them properly checked by
quantity surveyors, health inspectors etc.?

What will the monthly bond payments be if you buy the property? What will the rental be if
leased?
What insurance and other policies will be required to maintain the premises in good condition?

If leased, when do the contracts run out and do you have an option to re-new or buy?

CHAPTER SUMMARY: Together with Chapters 6, 7 and 8, this chapter sets the basis for the
final section of the business plan. The lender now understands who you are, what you are
planning to sell, how you will market this, where you will be based, what your group structure
will be and who will run your business. The final chapter outlines how all this will be financed.

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CHAPTER 10: FINANCIAL PROCEDURES

Here is where your business plan lives or dies. Until now, all previous sections have had a twofold aim,
these were to relay information to the lender about your business and to state it in a manner that will get
him to this section - your financial procedure. This chapter will show the lender how all business
segments (outlined in the previous chapters) will be funded. This is not, however, a textbook on how to
draw up financial statements, but gives you details that have to be assessed so the financial statements can
be assimilated.

No alternative
As stated before, financial information must cover at least three years, no matter how small or
large the proposed enterprise is. This is not a simple task, but it is important if you are to get a
lender to part with enough funds to set up and maintain your business.
Business analysts understand that new entrepreneurs find it difficult to sit down and draw up boring
financial statements, particularly when there is no financial history. Like all brilliant ideas, the
entrepreneur wants to be out there, operating and managing and making money. But first things first - a
few financial figures stated for a few months is simply not good enough to get venture capitalists to give
your business plan more than a cursory glance.
The idea of business is long-term survival and prosperity and not a short-term, get rich quick
scheme. It would be very easy to establish a company to sell informal sector-type goods and to make a
profit over a few months. After all, you could get all your friends and relatives to buy your products, but
can you survive for one year? What about two years? If your company is successful, will competitors
enter the market and saturate demand? Will the product sell as well in the winter months as it did during
the high demand before the Christmas holidays?
Another reason for a three-year forecast is that most new firms take time to reach break-even and
then produce a profit. Start-up costs may take months to recoup, so your business plan should show that
profits can be made within this three-year period, or lenders will also lose interest. Smaller businesses
should make a profit by Year 2, while larger businesses should break even in that year.
By Year 3 all viable firms should show a profit. To sum up, in Year 1 you are expected to make a
loss as you absorb start-up costs, break-even in Year 2 and make a profit in Year 3. To reflect this in
financial statements takes considerable expertise, therefore it is suggested that once you have collected all
relevant information, hand it to a financial consultant who can pull the statements together. Do this before
approaching potential investors and lenders, as it may take time for him to complete the statements.
If you approach a lender first, he would expect you to deliver the completed business plan within a
specified time. If the consultant cannot complete the statements before the due date, it would reflect a lack
of professionalism.

General information
New entrepreneurs must outline general financial data before drawing up financial statements, as they do
not have a financial history. For existing entrepreneurs, the financial history must be outlined. However,
both entrepreneurs must present a plan showing how they intend to obtain required capital and what they
estimate their return on capital will be. For listed companies, say what the effect will be on the share price
and how an increase in the number of shares issued will affect (dilute) future dividend payments.
It is crucial when trying to attract new investment that you do not alienate existing investors, who
are concerned that the future value and liquidity of their investments will be affected by new investment.
You can address their concerns by holding a General Meeting to discuss the expansion or entry into new
projects. You could also make an offer to existing shareholders first - as would be done by a listed
company. The following table highlights the type of questions that have to be answered when drawing up
a general financial information profile.

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GENERAL FINANCIAL INFORMATION

What is the exact amount of funds that you require?

Do you have a budget for the next three years? Will you need additional capital? How

much?
Provide the split between equity and debt. Give a breakdown of each, outlining terms and

conditions established.
How will you use these funds? Provide a breakdown, i.e. for capital expenditure, working
capital, repayment of debt, acquisition of new machinery or new project funding.
Do you plan to list your company? When?

Financial Data
This part of the business plan is the financial picture of all information presented in the other sections of
the plan and details five financial statements that have to be presented . These are historical financial
statements and projections for the next three years:

STATEMENT

MEANING OF STATEMENT

Income statement (Also It reflects revenue (sales and interest received from money in the bank)
called a Profit and Loss and expenditure paid during the year - made up of actual amounts paid
account)
(not incurred), e.g. owed R100 for repairs, but paid R90. The latter figure
would be stated in Income Statement.
This profit and loss statement is broken down by month for the first year
and annually for the second and third years.
Balance sheet

This is a statement of assets and liabilities, i.e. what assets you have and
how these were funded. It is a "picture" of the firm's financial strength at
the end of each year. The figures reflected in the balance sheet are
amounts actually owing and not paid, e.g. repairs owing R100 at the
beginning of Year 1. R80 paid during Year 1, so the balance sheet
amount at the end of Year 1 = R20.

Cash flow statement

This is another name for Source of funds and Application (use) of funds.
It reflects flow of cash, e.g. Repairs owed = R100 in Year 1. During the
year R80 is paid (R20 in cash and R60 with credit) - affect on cash flow
in Year 1 = R20.

Capital budgets

Set out a statement outlining requirements for equipment and other assets
and how they will be paid.

Break-even point

Although not necessary, it is often interesting to graphically show lenders

at what stage the firm will break even, i.e. where net income equals net
expenditure.

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Assumptions
This section is a precursor to the financial statements and is important as it gives the lender an
understanding on how you derived the figures. These assumptions should reflect your understanding of
the market and how you will participate in that market. Some business analysts will insist on three
financial scenarios. The "best case," "the worst case," and the "most likely case," financial forecast.
However, one does not have unlimited space in writing a business plan, so it would be better to undertake
the three forecasts, but only include the "most likely case" in the plan.
The meaning of the three types of forecasts is:

FORECAST SCENARIOS

The best case scenario is when all factors are positive, i.e. you believe there will not be political
upheaval, interest rate hikes, sanctions or other negative market forces during the period of your
forecast. This is an optimistic outlook, but does set a ceiling on the maximum profit or loss that
you expect to incur during the period under review.

The worst case prediction looks at operating in a market where everything that can go wrong does
go wrong, which could include violence exceeding acceptable limits, demand for goods will drop
and the economic cycle will stagnate. This pessimistic outlook is unrealistic, but sets a minimum
floor for forecasts.

The most likely case scenario is somewhere in-between the best and worst cases. It is more
realistic and takes cognisance of the economic, political, financial and fundamental factors as
outlined n Part One of this book in analysing and determining forecasts.

Use the following guidelines to draw up key assumptions for your prospective financial statements.

GUIDELINES IN DRAWING UP KEY ASSUMPTIONS

Always err on the side of caution. It is better to understate profit projections than to be optimistic
and end up incorrect and place doubt on all your other projections and projects.

Say less. The more you say, the more things can go wrong. This is a general principle used by many
analysts in forecasting company results.

Be positive. Doubt will be obvious when you relay your forecast.

Check your sources, market surveys and all data on which you base your assumptions to determine
your financial forecast.

Refer to and do not repeat assumptions made in other sections of the business plan, i.e. the sales
forecast (in Chapter 8) and the personnel plan (Chapter 9).

State the projected financial statements (income statements, cash flow and balance sheet) for the first
12 months and for the next two years.

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Draw up assumptions for the business plan financial statements:

ASSUMPTIONS IN FINANCIAL STATEMENTS

State the month and year you intend to start your company

Indicate what figures you intend to use for your forecast:

1. Interest rates (used to calculate interest on the balance of short/long-term notes in the balance
2.
3.
4.
5.

sheet)
Commission rates (used to calculate commissions costs in the Sales and Marketing Expenses)
Collection days
Split between cash and credit sales
Inventory turnover

6. Tax rates (used to calculate taxes in the profit and loss analysis)
For existing companies, plug in past performance data. This will enable the entrepreneur to
compare his projected plans to past performance and draw up Financial Comparison Charts (See
Chapter 8).
There are five sections which follow the assumptions and draw on figures highlighted in previous
chapters. These are the pro-forma Income Statement to outline your projected profit and loss for Years 1,
2 and 3, the balance sheet, cash flow, financial ratios and the last section is a break-even analysis.

Pro-forma Income Statement

This is another name for a projected income statement or a projected profit and loss account. The
following is an outline of New Africa Oil's Income Statement for a three year period. Remember that a
12-month breakdown must be provided for the first year.

NEW AFRICA OIL HISTORIC FINANCIAL STATEMENTS

Income statement (R'000)

Notes

1993
Months 1 - 12

1994

1995

Turnover

2605

6100

Operating profit
Net interest received

2
3

198
1

463
42

199
-10

505
118

Income after tax

Extraordinary items

209
-45

380
-93

Attributable income

164

287

76

160

76

60

100

Retained income -- for year

Retained income beginning of year

88
138

127
22

Retained income -- year end

226

149

Income before tax

Taxation

Other appropriations
Transfers to non-distributable reserve
Dividends

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Notes to financial statements

1. Turnover: It is too early for New Africa Oil's exploration operations to contribute significantly to
turnover, i.e. Niger and Congo oil fields have yet to come on stream. However, phase two of
exploration has been completed and production started in early January and has already
contributed to turnover.
Total turnover in the projected statement must be the same as the total turnover and cost of
sales calculated in the sales forecast (See Chapter 8).
2. Operating profit and operating profit margin: Based on a profit margin of 7,6 percent and
substantial increases in oil production, operating profits doubled in fiscal 1995. Operating profit
margin is forecast to increase in 1996 as a R100 million cost reduction (20 percent cut in staff
compliments) comes into effect.
In a Profit & Loss account, expenditure would be subtracted from net revenue. The Personnel
Plan (Chapter 9) links with the operating profit under salaries and "other" - medical aid,
pension funds etc. - must be put as an expense under Administrative expenses.
3. Net interest received: The interest bill is calculated on the company's level of debt and forecast
interest rate. However, despite greater capital expenditure due to Phase Two, debt:equity will
nearly halve in 1995 to 12 percent. This is a result of a share issue in 1995. Income before tax is
calculated by subtracting interest from Operating Profit - if the net interest is payable. However, if
the company has money in the bank, net interest will be receivable.
Calculated from interest rate stated under assumptions
4. Tax rate: An increase in the tax rate is expected as a result of a reduction in timing differences,
i.e. a cut in plant and equipment allowances.
The tax rate is outlined under Assumptions. For existing companies, state whether there are tax
incentives which reduce the current tax rate. Calculated by subtracting profit before tax by tax
payable.
5. Extraordinary items: Relates to sale of fixed assets.
Denotes the sale of items which are not part of the company's regular income or expenditure,
i.e. sale of assets.
6. Attributable income: This is the amount of taxed profit available to lenders of capital.
This is the profit available for distribution to shareholders, i.e. company owners

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The entrepreneur must understand that the above statement and notes are merely an definition of how to
calculate the figures - it is not an accounting textbook explanation, but a means of helping the
entrepreneur to gather information so his accountant can draw up the relevant financial books. Before you
move on to the Balance Sheet, make sure the following figures have been checked:

Wages & salaries (Personnel Plan) are used in the income statement. These must include
Administrative Expenses.

If necessary, enter additional cost of sales assumptions (other than those in the Sales Forecast) in the
income statement.

Use Cost of Sales to calculate Gross Margin [ Sales - Cost of Sales]. Acceptable gross margins depend
entirely on type, size and nature of your industry, but make sure your company has similar ratios to
close competitors.

Enter other general and administrative expenses - other than salaries - under Operating Expenses. If
you use an Income Statement add a "Note" to Operating Income and then add an explanation of how
you derived the total figure. Operating expenses include water and electricity, rent, stationery and
telephone accounts.

Once operating expenses has been calculated, interest expenses and tax expense items are the next two
items to be subtracted. Make sure the rates in assumptions have not been changed in the Statement "to
make figures fit."

The Balance Sheet

This shows the balance sheet section of your financial model. Each item in the Balance Sheet is the actual
value of assets and liabilities you have incurred during your year of operation, i.e. it shows your
businesss cash balance, assets and liabilities at a specified time. The balance sheet is effectively split
into two parts:

On the one side, state how your capital has been obtained (employed). This is how you have funded
your business and consists of capital and loans.

The second part of the Balance Sheet consists of how you have used (employed) the capital. These
are the investments you have made, fixed assets you have bought and working capital (current assets
less current liabilities).

Gather the net, updated value of all your assets (remember to state what depreciation method you intend
to use) and hand all these figures to your financial expert, who will draw up not only the accounts, but
also the important notes to the financial statements. He will do them in the prescribed accounting method.
An example of a Balance Sheet is outlined on the next page.

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COMPANY XYZ LTD.

Balance sheet (R'000)

1994

1995

790
9
304

1870
9
531

1103
2
265

2410
3
253

Total

1370

2666

EMPLOYMENT OF CAPITAL
Fixed assets & Investments

1039

1539

1419

2246

1000
419

1136
1110

1088

1119

10
633
377
68

50
804
151
114

1370

2666

CAPITAL EMPLOYED
Share capital and premium
Non-distributable reserve
Distributable reserve
Ordinary shareholders interest
Minorities
Long-term liabilities

Current assets
Stock
Accounts receivable
Current liabilities
Bank overdraft and short-term loans
Accounts payable
Taxation
Dividends due to shareholders
Total

The Cash Flow Section

The pro-forma cash flow is a statement that outlines a company's future cash movements and it can
effectively be used to control and manage cash expenditure and, if used in conjunction with ratios, can
prevent future liquidity problems. The essence of a cash flow statement is to adjust net profit - in the
profit and loss account - for cash items not included in the profits.
Adhere to the following principles:

increases in capital and liabilities generate cash, i.e. capital refers to shares issued, new
partners' contributions among others, while liabilities refer to an increase in long-term
loans

increases in assets absorb cash, i.e. purchase of vehicles, buildings and equipment

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Cash flows are divided into two sections, but the structure is only laid down by law for listed companies.
The first example is a better form for the entrepreneur who is just starting out in business, while the
second is more conventional and is used by companies with a profit history.

CASH FLOW STATEMENT - FORM 1: FOR NEW ENTREPRENEURS

Notes

1996

Net Profit

1,000

PLUS:

60

Depreciation

10

Accounts payable

10

Payment of current loans

10

Other liabilities increase/(decrease)

10

Payment of long-term loans

10

Capital input

10

Sub-total

1,060
50

LESS:
Accounts Receivable

10

Stock

10

Other short-term assets

10

Capital Expenditure

10

10

Dividends

11

10

Net Cash Flow

1,010

NOTES - FORM 1
Notes

Explanation

Function of first part of cash flow: All cash items that do not show on a profit and loss account, i.e.
depreciation, new capital and loans - are added to Net Profit
Depreciation

Subtracted in profit and loss account, but not in cash flow. It is

a non-cash item, so has to be added back to net profit in cash
flow

Change in accounts payable

Accounts payable are subtracted in the profit and loss account,

but cash hasn't been paid. These subtractions have to thus be
reversed in cash flows

Payment of current loans

Add back to profits any loan which is not interest-bearing, i.e.

accrued taxes, loans from founder members etc.

Other liabilities

Add back any short-term liabilities that are non-interestbearing

Change in long-term loans

An increase in new debt adds cash, while a decrease in debt

consumes cash

New capital

Issuing shares or new partners' loans adds cash to the business

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NOTES - FORM 1 - CONTINUED

Notes

Explanation

The second section of cash flow: subtracts items that absorb cash, i.e. purchase of assets absorbs cash,
while sale of assets generates cash
Change in accounts receivable

Sales shown in profit and loss account, but cash not yet
received, i.e. should thus be subtracted from cash flow

Change in stock & other

short-term assets

8/9

Purchase of stock and other assets absorb cash

Capital expenditure

10

Purchase of machinery, vehicles etc. are paid in cash

Payments of dividends

11

Dividends are paid in cash

CASH FLOW STATEMENT - FORM 2: FOR EXISTING BUSINESSES

Notes

1996

Cash retained from operating activities

Cash generated by operations

10,370
1

Investment income
Utilised to increase working capital

1,000
2

Cash generated by operating activities

-300
3

Cash available from operating activities

Dividend paid

-10
10,990

Finance costs
Taxation paid

10,000

-200
10,490

-120

Cash utilised in investing activities

-596

Investment to maintain operations

505

Replacement of fixed assets

-45

Proceeds on disposal of fixed assets

550

Investment to expand operations

-1101

Additions to fixed assets

-300

Other capital expenditure

-480

Patents purchased

-321
9,774

Cash effects of financing activities

Decrease long-term loans

-17,000

Increase short-term loans

10

2,000

Proceeds of rights issue

11

5226

Cash utilised

-9,774

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NOTES - FORM 1 - CONTINUED

Notes
Cash generated by operations

Explanation
1

Figure is made up of operating income before interest and tax

and adjusted for depreciation, profits or losses on sale of fixed
assets and investment income

Utilised to increase working 2

capital

Working capital is defined as current assets less current

liabilities, i.e. increases in current assets are subtracted, while
increases in liabilities are added to cash flows

Taxation paid

The net tax figure paid in cash has to be calculated as follows:

Add tax amounts unpaid at the beginning of the year to the
figure stated in the profit and loss account, and subtract the
figure unpaid at the end of the year (stated in the balance
sheet).

Dividend paid

Use the same method as 'note' 3.

Replacement of fixed assets

Show in the notes the breakdown of assets replaced

Proceeds on disposal of fixed 6

assets

Add the book value of assets sold and the profit (subtract
losses) made on the sale

Additions to fixed assets

Show in the notes the breakdown of new assets bought

Other capital expenditure

Provide a breakdown of cash cost of assets acquired, i.e. fixed

assets, non-cash portion of working capital, cost of goodwill
and cash outlays

Long-term loans

Show the net amount of long-term loans repaid, or increased

Short-term loans

10

Show the net amount of short-term loans repaid, or increased

Rights issue

11

State the amount of shares issued and at what price

Financial Ratios
The use of ratios tends to get vehement reaction form entrepreneurs and financial experts alike. They are
either seen as a means of building up financial models and solving problems when they arise or are
dismissed as useless and dangerous. The latter surfaces because different ratios apply to various industries
and businesses, depending on the nature of the business. However, the use of ratios can be useful if
assumptions on their application are set out first.
The general principle is to look at ratios for a particular industry and a specific company within
that industry over a period of time. You can then assess a company within its own industry and can, with
reasonable accuracy, determine the financial strength of the company. It is important to look at the ratios
and changes to those ratios over at least a three-year period. This is how the business analyst determines
whether it would be feasible to invest in a company.
While there are a multitude of financial ratios available to entrepreneurs, only the standard ones
are explained in this book.

Profitability
Return to equity or return on investment (ROI) is one of the indicators the lender would look at first. The
lender looks at the yield and compares this with other investments at his disposal. If your company does
not yield more than the relatively risk free bond rate, the lender is likely to advise you to sell your
business and place the money in better, higher yielding investments. Return on assets and net profit

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margin provides a solid basis to compare your company with others in the industry and gives a fair
evaluation of how the company has performed and how it will perform in the future.

Ratio

Calculation

Gross profit margin

[Operating income Turnover (sales - cost of sales)] x 100

Net profit margin

[net profit Turnover] x 100

Return on Total Assets

[Net profit Total asset] x 100

Return on Equity (Return on Investment)

[Attributable profit Net worth] x 100

Activity
If your company cannot collect its debt within an acceptable time, either the quality of debtors - the
method you use to select who gets credit - is weak or your collection methods are inefficient. It is
generally considered excellent if your administrative staff can collect debt within one month. Two months
is considered adequate, but three months and longer places the debt in a "bad debt" situation. The length
of time it takes to collect debt varies between industries, but 90 days or longer can be considered a
problem for any business.
Financial analysts calculate the average time it takes to collect debt by using a businesss sales on
credit and accounts receivable balance. However, when drawing up a set of financial statements, it is up
to the entrepreneur to insert his own collection period - one he believes he will achieve - in pre-financial
statement assumptions. Entrepreneurs should remember that when the average collection period is
increased, you effectively are decreasing the cash you would receive monthly. The opposite would
increase the cash received.
The accounts payable days calculations are opposite to the collection days. As the payment period
increases, so cash outflow drops. There is a simple method to determine realistic payment days - ask
yourself: how many days, on average, do you wait to pay accounts that are due? If you use this
assumption to determine most general concepts, you are bound to be quite near the mark.

Ratio
Accounts

Calculation
receivable Accounts receivable [Turnover 365]

days
Days sales outstanding

Explanation
An

efficiency measure for debt

collection
[Accounts receivable x 360] Turnover

Alternative efficiency measure for debt

collection.

Stock turn

Group turnover Ave. balance of stock

The higher this ratio, the more efficient

management is in its control of cash
flow and working capital

Accounts payable days

Accounts payable [Turnover 365]

An

efficiency measure for credit

payment
Total assets turnover

Turnover Total assets.

To compare performance with industry

averages. Manufacturers have low asset
turnover,
turnover.

but

retailers

have

high

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Debt
This highlights a company's ability to pay its debt. It is particular important to lenders and - for listed
companies - shareholders. The higher the debt relative to its equity base, the higher the risk of a company
defaulting on debt repayments, i.e. the higher the debt, the higher the interest bill.

Ratio

Calculation

Debt to net worth (assets - liabilities)

Total liabilities Total net worth

Debt to net worth adjusted

As above - but allows for deduction of owners' loans

Short-term debt to liabilities

Short-term loans Total liabilities

Liquidity
These are all measures of the overall financial position of a company and its ability to pay short-term debt
out of current income and is, therefore, important to lenders. While there are various reliable methods to
test liquidity, many business analysts believe the acid test is the most reliable measure of a companys
ability to pay all its obligations without problems.

Ratio

Calculation

Current asset ratio

Current assets short-term Highlights firm's ability to meet short-term

liabilities.
debt

Current
adjusted

asset

Explanation

ratio Current assets (short-term Used for small businesses, to allow debts
liabilities + owner debt)
owed to founders

Quick
ratios
(also [Current assets - stock] Liquidity means ability to convert from
called Acid Test Ratio) short-term liabilities
asset to cash - inventory is often difficult to
convert, it is thus is considered a better
measure of liquidity
Quick ratio adjusted

As above, but subtracts founders debt from liabilities

Net working capital

Short-term liabilities - Short- An alternative way to measure liquidity

term assets

Net working
adjusted
Interest cover

capital As above, but subtracts founders debt from liabilities

Op. profit Total interest bill

A measure of how debt affects profits

The Break-Even Chart

Few entrepreneurs go to the trouble of including a break-even chart with the financial statements. The
reason for this is probably that assumptions have to be drawn up and a number of variables have to be
calculated, i.e. company's fixed and variable costs and unit price.
There are several ways to draw up break-even charts, such as using standard fixed costs or
operating expenses, which is a better indicator for new businesses as the entrepreneur is better off
knowing what the break-even points are on real operations, rather than on what he perceives could be
fixed costs.
So, consider the factors and formulae outlined on the next page:

The Business Plan

- 137 -

Factor

Calculation

Formula

Average unit sale

Sales total units sold

Fixed Cost [1- (Unit Variables Cost Unit Price)]

Average unit cost

Cost of sales total Fixed Cost [Unit Price - Unit Variables Costs]
units sold

THE ABOVE WAS CALCULATED USING:

Fixed costs

= [Production costs + Sales & Marketing salaries + Administration expense +

other operating expenses] 12

Unit variable cost

= Cost of selling a unit units sold

It is difficult to draw assumptions as there are no obvious figures which can be easily read from a
financial statement. You have to take annual estimates of the first year (sales or operating profit whatever you are trying to calculate) and divides these figures by 12 to assess monthly fixed expenses.
Even this figure is not the accurate fixed cost figure, but it can be used to determine a break-even point.
Once this has been done, break-even points can be determined for any month or year. The following
example is a break-even analysis of a new company's first 12 months of operation. Note, no sales were
made in the first month.
The following has been calculated from assumptions and financial data:
Fixed costs
=
R15,000
Variable unit costs
=
R100
Unit price
=
R1000
Profits
=
Sale income - (units sold x unit variable cost) - Fixed costs
Operations
Units sold
Sales income
Profit

MONTHS
1
0
0
-15,000

2
2
2000
-13,200

3
4
4000
-11,400

4
6
6000
-9,600

5
8
8000
-7,800

6
10
10000
-6,000

7
12
12000
-4,200

8
14
14000
-2,400

9
16
16000
-600

10
18
18000
1,200

11
20
20000
3,000

12
22
22000
4,800

Break-even calculation:

Break-even (monthly)
Units Break-even

Calculation
=

Fixed Cost

[Unit
price
[ R1,000
900

Unit Variables Costs]

=
R15,000
100]
=
R15,000
=
16,67
= Fixed Cost
[1
- (Unit Variables Cost Unit Price)]
Sales Break-even

= R15,000
[1
(R100 R1,000)

= R15,000
[1
R0,10 ]

= R15,000
0.9

= R16,667
It takes + 9 months to break-even, i.e. 16,67 items are sold & sales income = R16,667

The Business Plan

- 138 -

The above calculations are graphically displayed in the following two charts:

Break-even analysis - Units sold

Profits R'000
6
4
2
0
2

-2

10

12

14

16

18

20

22

-4
-6
-8
Units sold
16.67

-10
-12
-14
-16
Unit sales

Break-even analysis - Sales

Profits (Rands)
6000
4000
2000
0
-2000
-4000
-6000
-8000

R16,667

-10000
-12000
-14000
-16000

2000

4000

6000

8000

10000

12000

14000

16000

Sales (Rands)

The lines on the above charts show:

Profits increase and break-even when 16.67 units are sold

Profits increase and break-even when sales reach the R16,667 mark

18000

20000

22000

The Business Plan

- 139 -

CHAPTER SUMMARY: The Financial Plan is the last section to be assessed by venture
capitalists and other lenders. It is the essence of the business plan and, as such, must reflect how
much the venture will cost. It must include how and when profits are expected (profit and loss
account) and when the company will break-even. The company's financial profile must also be
reflected.

The Business Plan

PART 3
A SAMPLE PLAN

- 140 -

The Business Plan

- 141 -

CHAPTER 11: THE DEVELOPMENT PROJECT

In the first two parts of this book, issues were outlined to help both existing and prospective entrepreneurs
to draw up a plan for their business to achieve a number of objectives; including how to get funds to help
you to enter new markets or to start up a new company. The sections warned that this country is not an
easy environment to work in, and asked the question "are you ready for the world of finance?"
The second part of the book looked at a multitude of factors that need to be incorporated in the
actual plan and also set out how to compile the business plan in a manner that would get lenders to set
your plan aside and to give it preference over other plans. In part 3, all these factors are merged in a
practical format to illustrate the mechanics of drawing up a business plan.
The idea is to show the entrepreneur that there are various methods and reasons for drawing up a
business plan. Remember that this is only a sample plan and that other plans would be different to the one
outlined in this Part of the book. It would depend on the type of business and market the entrepreneur
wished to enter. The report would also be different if an entrepreneur was setting up a new venture or if
the plan was updated, i.e. a business development analyst would look at a prospective client's report and
make a recommendation to the financial institution's board of directors.
The report outlined has the following theme:

KEY ISSUES TO NOTE PRIOR TO READING THE REPORT

The business plan is being drawn up for a company called Van Rykes Investment Holdings (Pty)
Ltd. This is an electronics company that produces industry-specific electronic components called
SilicoFonts, which has a different microchip structure from standard SilicoFonts. Its main clients
are Building & Construction companies that supply raw building materials to rural areas.

The development department has allocated the task of the plan to analyst Peter Sommers, who is
responsible for reviewing and updating the business plan according to the Rhine Portfolio's board of
directors' objectives and targets. This company is the major shareholder of Van Rykes. The analysis
is for the second quarter of 1996 and the plan has to be submitted by the end of May 1996.

The business plan has to be submitted to Mr Robert Plains, the chief executive of Rhine Portfolios.
This company controls 53 percent of Van Rykes Investments shares.

The company has had phenomenal growth in the past year, due to strong capital inflows into the
Building & Construction industry from government initiatives to build 300,000 new homes a year
in rural areas. In addition, the economic upswing has reached the investment stage of the cycle, with
demand for new offices and homes surpassing Van Rykes's expectations.

The second quarter forecasts have to be reviewed in view of higher than expected demand in the
first quarter.

The Business Plan

- 142 -

Assembling data
Before the business analyst can start reviewing Van Rykes's objectives, the following information has to
be obtained:

Information, discussions and research

Forecasts of the latest economic trends and the effect of such trends on Van Rykes
Investment and the Building & Construction sector.

Undertake an analysis of political trends, i.e. will government's focus on building homes in
rural areas finally take off?

Discussions were held with Van Rykes and Rhine Portfolio directors to assess new target
objectives, which included fundamental factors that could affect the firm and target markets,
technical factors (new competitive products coming onto the market), financial forecasts, ratio
analysis and risk-to-return profiles.

Market, sales and employee trends were reassessed. The development department has
access to international markets and other information via the Internet and full use is made of
these systems. In addition, the department has direct contacts with stockbrokers' research
departments, government-controlled statistics (at provincial level) and others, such as Central
Statistical Services.

Financial forecasts have been reassessed for the second quarter of 1996. These include the
balance sheet, income statement, cash flow and ratio analysis.

Structure of report
A number of objectives have to be fulfilled and outlined in the report. These include:
Word
structure

A well written report should always achieve three things:

Whether a clerk or director reads the report, it must be understood, i.e. omit

technical terms and acronyms wherever possible.

Don't try to be clever in your use of fancy grammar - this will only irritate

directors.
Writing in a simple form does not mean that you have to be patronising.

The Business Plan

Layout

Contents

- 143 -

Use a logical approach to analysis, i.e. the report must be structured so that any item
can be accessed without more than a cursory search
Information must be clear, yet concise - market surveys can always be handed in to
venture capitalists on demand
Make full use of tables and graphs to break up text.
Make effective use of Appendices.

Cover page
Name of the company being analysed - Van Rykes Investment Holdings (Pty.) Ltd.
Title should reflect the aim of the report, i.e. revision of business objectives.
Sub-title - For the second quarter of 1996.

Names - who wrote the report and the name of the person the report is submitted to.
Date - when the report is submitted.

Main body
Introduction. Outlines who the principal players are, the nature of the report and the
peculiarities involved in producing the report.
Table of contents facilitates easy access to various sections of the report.
Executive summary should follow the table of contents. This provides the reader
with a quick reference to the contents of the document.
Company Profile provides a succinct overview of the company being assessed
Other
The report should be typed on a 1.5 times spacing, with clear fonts

Reports should be bound before submission

While the structure is important, it must always be uppermost in your mind that information is continually
changing and, therefore, the business plan will have to be upgraded and changed over time. The lender's
first impression of a company business plan is crucial, but ultimately the entrepreneur must show that the
plan is a starting point for his business and not a once-off means to obtain venture capital. The following
text is a sample report to the directors of Van Rykes Investments and Rhine Portfolios.

NOTE:
The following report is only a sample - the company and
its "product" are fictitious. The example does not
purport to have all the answers, but shows what a report
should look like, i.e. figures are fictitious and financial
books do not correspond.

The Business Plan

- 144 -

The business plan

VAN RYKES INVESTMENT HOLDINGS (PTY) LTD.

Business Development Department

REVISION OF BUSINESS OBJECTIVES

For the second quarter of 1996

Submitted to:

Mr. Robert Plains - Chief Executive, Rhine Portfolios

Submitted by:

Mr. Peter Sommers - Business Development Analyst

Date:

May 31, 1996

The Business Plan

- 145 -

Introduction
This report was written after extensive discussions with the directors of Rhine Portfolios, VRI, our
economic division, political consultants and engineers. Recent political upheaval in urban areas,
particularly in KwaZulu/Natal and in the Eastern Cape, has placed pressure on building supplies to these
areas, which indirectly affects demand for our product. These factors are taken into account in reviewing
this company's business objectives for the second quarter of 1996.
Van Rykes Investment is an important constituent in major shareholder Rhine Portfolios group
structure. The extent of cross directorship in both companies leaves little doubt that Rhine intends to
continue imposing its will on the company. In the past year, this control has been illustrated in strong
directorship and maintenance of business plan targets.
Business development believes that Van Rykes's engineering division - income is derived from
sales to the Building & Construction companies - will continue to perform well into the year ahead, but
expectations are being downgraded for this period. The Building and Construction Index displayed a
phenomenal 80 percent compound annual growth to April 1996, while the Overall Index climbed by just
over 50%. Growth in the Building & Construction Index was 30 percent higher than expected, thus the
downgrade for the second quarter.
INDUSTRIAL SECTORS

Performance to end April 1996

Ten best performing sectors in 1995 - 1996

IN PERCENTAGE TERMS
'95 - '96

'94 - '93

'93 - '92

Steel & Allied

194

89

22

Manganese

157

39

Building & Construction

80

38

11

Coal

79

50

21

Investment Trusts

71

Stores

57

32

Mining Houses

55

14

Hotels & Leisure

50

27

Paper & Packaging

46

13

Mining Holdings

39

-2

Objective:

To review the strengths & weaknesses of VRI and to update the business plan.

Structure of report:

Assumes not all directors have seen VRI previous business plans, so this report is a
full plan, written to include updates. It was therefore necessary to take all factors
into account, including VRI's recent performance, economic variables, fundamental,
ratio and technical factors. All the information is used to assess the group's future
potential and to update financial forecasts.

Timeframe:

Outlines factors that could affect VRI's finances for the second quarter of 1996.

The Business Plan

CONTENTS

- 146 -

PAGE

Introduction
Executive Summary

143
145

Company Profile
Product history
Location and facilities
Financial profile

146
146
146
147

Technology

147

Product
Description
Competitive advantages
Product sourcing
Research & Development

147
147
148
148
149

Market Analysis
Industry analysis
Participants
Market segmentation
The economic environment
Distribution channels
Keys to success
Main competitors
Market forecast

149
149
149
150
150
150
151
151
152

Strategies
Marketing strategy
Sales strategy
Assumptions and strategies
Sales forecast
Milestones & Schedules

152
153
154
154
155
155

The organisation
Structure
Management
Personnel plan

156
156
156
156

Financial Profile
Assumptions
Forecast

157
157
157

Appendices
1. VRI Promotional Schedule
2. Market Forecast
3. Sales Forecast
4. Time Table
5. Personnel Plan
6. Financial Forecast
A. Income Statement
B. Balance Sheet
C. Cash Flows

158
158
159
160
161
162
163
163
164
165

Executive Summary

The Business Plan

- 147 -

Definition & Company

information

VRI

produces

industry-specific

electronic

components

called

SilicoFonts, which have a different microchip structure from standard

microchips.
Its headquarters are in Johannesburg, but its factories and assembly
plants are in Cape Town, Groot Brak Rivier and in the Eastern Cape.
This business plan is part of our regular business planning process. We
revise this plan every quarter.

Objective

To develop two new products by the end of 1997

Target market & future

Our target market is to produce and deliver important electronic

potential

components for the building and construction industry.

These components are used in the building of homes in rural areas and

discussions are now underway to export to India.

Promotions
Activities

&

Sales

Products are sold through distributors and direct-response marketing.

Promotional teams regularly visit building and construction companies.
Copies of Van Rykes Investments advertisements (radio and television)
are attached in an appendix to this document.

Research & Develop-

ment

In 1992, founder John Van Rykes developed a unique microchip

processor which halves the time involved in installing electrical
facilities, which are most suited to rural homes.

Ongoing research includes developing a similar product for urban

homes.

John Van Rykes sold a percentage of his firm to Rhine Portfolios in

1995.

Van Rykes heads the company as chairman.

For sales to reach R250,000 monthly by December 31, 1996, and

R500,000 monthly by August 31, 1997.

For the next three years, we intend to increase revenue by 10 percent
per annum and profits by 15 percent per annum.

To control expenditure to limit new equity inputs to R100,000.

Organisation

Financial Data

The Business Plan

- 148 -

Company Profile
VRI develops and manufactures microchips for the building and construction sector. It was formed by
Van Rykes as a private company in Johannesburg in 1982. Two years later, he formed a partnership with
Burt Blank. Following Blank's death in 1993, Van Rykes continued operations for a further two years
before selling a majority stake to Rhine Portfolios.
It has two major shareholders, namely founder John Van Rykes and Rhine Portfolios. There are
several minority shareholders, who also sit on the board of Rhine Portfolios. They are:

James Cohen, a political consultant

Kerry Johnson, a corporate lawyer

Product history

VRI's product line grew from a combination of existing market needs

illions of small homes are needed in rural areas
These homes need inexpensive electricity
These homes need inexpensive installation costs and easy maintenance
VRI's products provide the exact needs of defined small home buyers
There are plans to develop new product lines to include urban homes in the near term and
corporations in the long term
VRI is registered to operate in the United States, Canada and India. In these countries, it operates
under its acronym, VRI. Plans for export to India are under discussion, but negotiations are also
under way to manufacture its products in these areas.

Locations and Facilities

Headquarters are too small and new premises will be obtained in the new financial year.
Item

Location

Headquarters

11 Walters Avenue, Chairman, MD & financial 10,000

Johannesburg
directors' offices

Factory
assembly
plants

Utility

Size (m) Lease arrangement

& 66 James Avenue, Manufacturing, warehous- 44,300

Salt Rock, Cape ing, assembly and shipping
Town

Owned by VRI
Rental at R20pm per
month. Renewal in October
1999.

1 River Road, Groot Factory and assembly

Brak Rivier

20,000

Owned by VRI

21

55,000

Owned by Rhine Portfolios

St

Andrew's Factory and assembly

Road,Port Elizabeth

The Business Plan

- 149 -

Financial profile
This chart highlights historic turnover, operating profit and profit margin for the years 1993 to 1995.

BUSINESS PLAN ACCENT CHART

Rands (millions)
1,20
Sales
Gross margin

1,00

Net profit
0.80
Cash Flow
0.60

0.40

0.20

0
1993

1994

1995

The appendix includes basic financial data for the past three years, including income statements, sources
and uses of cash, balance sheets and financial ratios.

Technology
For competitive reasons, no details are provided in this report regarding the technical aspects of how
the product is manufactured.
Some detail and confidential product information will be made available to lenders on signing loan
agreements.
All relevant patents, trademarks and copyrights have been obtained in South Africa and in countries we
expect to operate in the near term , i.e. India, the US and Canada.

Product
Description
During 1995, VRI developed two new versions of its product. Demand for the different versions came
when problems surfaced in installing the product under different atmospheric altitudes. The three versions
of the SilicoFonts are:

The Business Plan

- 150 -

The Van Ryke SilicoFont

The first product to be developed, manufactured and successfully

sold to the market. These microchips are made of a combination of
non-toxic coatings that can be plated and installed in half the time it
takes to install standard products

The anti-freeze chip

Used in high lying territories, this chip incorporates an anti-freeze

liquid coating. These gadgets are assembled by VRI at its
Johannesburg plant

Heatless Microchip

The Heatless chip was developed to offset problems encountered in

desert-type areas

Competitive advantages
The VRI products include several important features that set them apart from other products which may
be considered competitive:

PRODUCT COMPARISON MATRIX

Product
manufacturers

Notes Price/unit Where produced

(Rands)
(local/imported)

Quality

Delivery
time

Follow up
service

Excellent

Excellent

Excellent

Van Rykes Invest.

1,000.00 Local

Micro-processors

889.00 Local

Good

Good

Excellent

Software Place

995.00 Local

Poor

Average

Poor

XYZ Limited

1,000.00 Imported

Poor

Excellent

Good

Age-old Computers

1,250.00 Local & imported

Excellent

Excellent

None

Tools & hardwares

1,255.00 Imported

Excellent

Poor

Poor

Note to readers:
Make sure "notes to tables" are included to state why you are set apart from competitors

Product Sourcing
VRI develops, manufactures, assembles and ships its own products. It uses local contractors, employees,
materials and services. All documentation and print materials are sub-contracted to AP Jones Printers, but
plans are underway to print all materials in-house from 1997.

The Business Plan

- 151 -

Research & Development

Obviously, product development is confidential, so the following outline is brief and without explanation.

Term

Plans

Short to medium-term

The three existing SilicoFonts will continue to be produced and

distributed in South Africa

Plans are underway to extend operations overseas and locally with

government assistance

Short-term development work depends on Rhine Portfolio's funding

for R&D

Long-term

The three products will be expanded to include urban households and

corporations

Electronics in the aeronautics field is been assessed. We believe

SilicoFonts are suited to that environment

Development is reliant on shareholder support and funding

Market Analysis
The microchip market was worth about R10,5 billion per annum at end 1995. We forecast a minimum
growth in this market of 15 percent a year, which has been calculated by our in-house industrial and
development team in association with political and economic consultants. The VRI Association, a
division of Rhine Portfolios, estimates total sales of R15 billion in 1996, of which 70 percent market
share is taken up by standard microchips. Our prediction for 1996 is a 23 percent market share, up from
18 percent in 1995. We forecast further inroads into market share of up to 37 percent in 1997 and further
in the long term.
Present market leaders are Jones Corporation, KK International, Landon Software and Jackson
Corporation. However, the industry is changing as demand for homes increase. Present systems are
unable to cope and it is for this reason that VRI has grown so quickly.

Industry Analysis
Consists of outlining who the market participants are, market segmentation, an overview of the economic
environment and distribution channels.
Participants
Industrial microchips for home electrification are new and an almost untouched industry in South Africa.
Little research has been conducted overseas, so VRI forecasts high growth rates, high barriers to entry
internationally and few competitors in this new field for the short to near term. The industry has only been
in operation since VRI founder explored and developed the product between 1982 and 1992. It only came
to the fore when Rhine Portfolios saw its potential and bought a major stake in the company, providing
funds to develop and manufacture the microchip.

The Business Plan

- 152 -

The following table displays market participants and the technology they use:

Participants

Technology

VRI

Uses new technology - there are no competitors in this

Market share
23%

field
Jones Corporation

Uses standard microchip technology

40%

KK International

Uses a slightly altered form of standard microchip

technology

10%

Landon Software

Uses standard microchip technology, but has shown

sudden secrecy in research & development

12%

Jackson Corporation

Uses standard microchip technology

8%

Market Segmentation
The microchip industry is renowned for its fast pace and competitive forces. It is usually a matter of time
before competitors enter a new market and improve on it. To assess the potential of new competitors
entering the VRI MicroFont market, the economics environment and buying patterns were assessed as
these incorporate product type differences in a practical manner.
The economic environment
Large companies are continuously emerging with power to become major threats for small companies.
Unfortunately, these new electronic firms seldom become giants. They are usually swallowed up by the
main players, but not before there are a lot of losers left behind.
Despite the host of new companies trying to enter this sector, it is not a concentrated market. Even
the largest companies report low net revenues, with only four companies controlling 70 percent of the
market. Another 10 additional companies control the remaining seven percent and they have incomes of
less than R70,000 a year.
Developing a new product costs in time and substantial funds, with no guarantee that the result
will be successful. Marketing costs that follow are high and it generally takes a large corporate brother to
continually fund the project to fruition. As such, the "big boys" grow stronger, with better channels of
communication and distribution networks. Their products become known in the market and consumers
favour these products as they perceive that they are better, simply because they are known quantities.
For a competitor to break into a new market, perseverance, dedication and a keen belief in the
product is a priority. Therefore, the composite financial performance of these market leaders is usually
better than for smaller companies. However, the advantages for newcomers are low fixed overheads, few
employees and marketing costs.
Distribution Channels
Changing political attitudes, new trends of non-payment for services rendered in rural areas, the
inaccessibility of roads and difficulties in delivering materials have caused serious supply bottlenecks.
These factors affect delivery of our products to the building and construction industry, which has told us
that orders will remain low until these problems are ironed out.
In addition to problems stated above, VRI has suffered from a further slowdown in demand. These
problems are outlined on the next page.

The Business Plan

- 153 -

Buyers want brand names, so they demand standard microchips. Selling and promotional costs have
thus been high. However, using Rhine Portfolio distribution networks has expedited delivery of
SilicoFonts and has proved to be efficient and cost effective

While buyers prefer brand names, once persuaded that a product works well and saves time and
money, they tend to change their minds and start a cycle of referrals. VRI has already benefited by
referrals, as highlighted by an increase in market share.

Keys to success
VRI has four keys to its success. These are:
Unique product

Cost effective, saves time and easily installed, hard wearing and can be sold
internationally

Management

The company produces and delivers on time, has excellent follow through
customer support

Product quality

Since its inception, 300,000 homes have been built with the SilicoFont
electrification method and less than one percent have been returned due to a
manufacturing fault

Marketing

Team can sort out channel problems and barriers to entry quickly and
efficiently

Main Competitors
VRI has started a new era in microchips and intends to become the market leader in this new technology.
Our competition comes only from manufacturers of standard microchips. A complete SWOT
analysis has been undertaken and this is available on demand. However, only the strengths and
weaknesses of our main competitors are outlined on the following page:

COMPETITORS

STRENGTHS

KK International

n a price-sensitive area they

are strong

Product is not very useful

for growing businesses

Sellers of cheap microchips

for business planning and

Too simplistic
Cannot be used in extreme

business forecasting.
Most successful product is
BusChip
established

climates (hot or cold)

among partnerships

WEAKNESSES

The Business Plan

- 154 -

COMPETITORS

STRENGTHS

Landon Software

WEAKNESSES

Well liked by professional

Tend

people
Company provides solid
back-up service
Used by local authorities

shipping and cannot be

distributed outside the main
region
Not very useful for industries

and is thus a threat

other than corporations

Software cannot exceed 1000

to

break

down

in

clients
NOTE TO READERS
A COMPLETE SWOT ANALYSIS IS IMPORTANT FOR EACH COMPETITOR
Market Forecast
General market analysis was carried out and the final forecast displayed:
The largest growth segment is in the rural home industry and this projected an annual grow rate of at
least 15 percent in 1994. An unchanged growth rate has been forecast for 1995 and 1996. This
represents a total market value of R15 billion or an annual growth of R2,25 billion per annum.
The market forecast table is included in the Appendices and is based on the following important
assumptions:

MARKET ASSUMPTIONS

Continued growth in the South African economy. VRI does not expect any significant fluctuation in
stock markets, interest rates and political violence
No unexpected entrance of new competitors into the SilicoFont market
No unexpected production cost increases
Little or no labour unrest

Strategies
The main strategies include marketing and sales, which are based on:

STRATEGY ASSUMPTIONS

To remain market leaders by expanding the existing product into new spheres

To explore overseas markets

To tailor-make products when necessary, i.e. offer full backup service 24 hours a day

VRI's marketing and sales strategies are based on customer care with quick and efficient service
The rural home industry remains our niche market, but other markets are being explored

The Business Plan

- 155 -

Marketing Strategy
Strategy starts with general assumptions, followed by an assessment of target markets, pricing strategies,
product promotion and distribution and an outline of marketing programmes.

GENERAL MARKETING STRATEGY

To continue to use television and radio to market the product. To use newspapers in the future
Promotional methods include strong public relations from Rhine Portfolios

VRI will continue to focus marketing locally, but in 1997 will enter the international market
VRI will continue to offer strong 24-hour product support
All three of VRI's products will be marketed equally from 1997

DETAILED MARKETING STRATEGIES

Target markets

Pricing strategy

VRI is focusing on government contracts for the rural industry. Reasons

are that government's focus on building homes in the rural areas will
stabilise demand for SilicoFonts
While standard SilicoFonts still dominate the market, VRI's new
technology is set to capture greater market share

The price remains competitive, but market perception must still accept
that the new technology is superior to present standards
VRI products are priced low enough to attract new buyers, and, once
captured, should retain these clients
In the long term, VRI has plans to use ABC Consulting to generate sales
volume. Their royalty fee for each 1000 products sold will represent a 0,1
percent increase on present prices

Promotion Strategy

Short-term goals: Continue to expand and capture market share and to

promote the product to government, building and construction companies
and to new markets

Long-term goals: To leverage the product line into urban and corporate
industries, and to enter the overseas market. VRI intends to achieve this in
two ways:
1. Through our strong public relations services
2. Television and radio advertising and a promotion to financial
journalists

The Business Plan

- 156 -

DETAILED MARKETING STRATEGIES - CONTINUED

Distribution Strategy

VRI's marketing strategy should work with targeted distribution. In South

Africa, VRI manufactures and distributes its own product directly to all
customers

In future, we plan to use XYZ Corporation, a subsidiary of Rhine

Portfolios, to distribute the product nationwide
At present, the product is sold by VRI's team of professional salesmen, but

in the future Rhine's distribution network will be used, which is far

superior in costs and time to deliver than competitors
Marketing
Programmes

The one area that has still to be addressed is VRI's corporate image. There
is too much secrecy surrounding the company. Plans are underway to
draw up a marketing programme to iron out this problem
VRI's promotions department is planning a new programme to market
SilicoFonts overseas, and completion is expected by the end of 1997
Direct mail promotion is being considered, but no programme has been
drawn up

Sales Strategy
Assumptions and strategies
The overall sales strategy is first outlined, followed by more specific plans:

GENERAL SELLING STRATEGIES

VRI's product is sold through a sales force, but plans are underway to use Rhine's distribution
network to move products to end-users. This will facilitate the expansion of the department or
sourcing all sales to a consultant firm. No plans have yet been decided on
Nearly all sales are to building and construction companies at present, but corporate clients will be
targeted from 1997
All sales take place only after contracts have been signed. No product is sold to individuals

DETAILED MARKETING STRATEGIES

Service and Support

Support is crucial to overall corporate strategy. VRI has grown rapidly by

building a foundation for excellent service and client support and we
intend to continue this practice

Sales Programme

The programme consists of promotions, sales and follow through service

However, strong sales growth has prompted VRI to consider hiring a
sales director to motivate and co-ordinate a sales programme

The Business Plan

- 157 -

DETAILED SALES STRATEGIES - CONTINUED

Strategic Affiliation

VRI has a strong strategic affiliation with major shareholder, Rhine

Portfolios, which provides legal and financial support.
As controlling shareholder, Rhine has placed server restraints of trade on
all pertinent directors. This will only apply if they leave VRI.

Pricing Strategy

Sales force

All clients are charged the same price per product, but new policies will
take discounts for mass sales into consideration

All personnel are full-time employees of VRI, but future plans are to
possibly source out sales.
There are 18 employees.
Each sales team is expected to complete five appointments per day. This
has been consistently achieved over the past year as the team is thorough
and persistent.

Distribution channels

Present channels are inadequate and negotiations are underway with

Rhine Portfolios to use their national distribution channel. In the long
term, VRI expects to have access to Rhine's international channels.

Sales forecast
See Appendices

Milestones & Schedules

VRI has been in operation - in different legal structures - since 1982. The milestones have been discussed
at length in previous sections of this business plan. VRI therefore provides a timetable of events for 1996
and 1997. See Appendices

The Business Plan

- 158 -

The Organisation
Structure
VRI is organised into a number of main divisions. These include:

Divisions

Responsibility

Product development

Research & Development forms a sub-division of this

department

Sales and marketing

Responsible for drawing up programmes to penetrate target

markets and investigate promotional methods

Business development

Responsible for updating forecasts and drawing up business

plans for new ventures

Finance and administration

Responsible for controlling finances and administrative

functions

Corporate finance

Controls all negotiations with local and overseas target markets

Management
The following text highlights the main directors of VRI and areas where management needs improving.

VAN RYKES INVESTMENT (PTY) LTD BOARD OF DIRECTORS

Name

Position

Age

Qualification

Details

John van Rykes

Chairman

52

CA (SA)

Founder

Harry Rhine

Managing director

49

B.Com

Ken Show

General manager

60

B.Dip

Don Law

Financial director

45

B.A (Lit)

Peter Gag

Company secretary

40

CA (SA)

James Cohen

Political consultant

39

BA (Politics)

Kerry Johnson

Corporate lawyer

55

B.Juris LLB

MANAGEMENT PROBLEMS

The present team needs a sales director to manage and control sales
Business development needs experienced analysts

A lack of engineers and scientists has slowed down the pace of development of SilicoFonts into
new areas

Personnel Plan
See Appendices
VRI does not hire personnel often. This is due to good pay scales, which tend to create a loyal and
focused team. Short-term personnel plans are directed at finding a sales director, who will draw up a plan
for a sales staff to tackle overseas markets. This plan will be highlighted in the next business plan.

The Business Plan

- 159 -

Financial Profile
Consists of assumptions to forecast and the forecast, i.e. revision of financial performance for the second
quarter of 1996.

Assumptions
ASSUMPTIONS

We want to finance growth mainly through cash flow, which will lead to a slowdown in growth,
therefore the revision of financial forecasts

VRI intends to issue new shares to Rhine, further diluting founder Van Rykes's control over the
company

The cash from the share issue will be used to expand the research and development team

Financial assumptions include 90-day payments of accounts payable and 60-day collection of
accounts receivable

It is unlikely that prices of staff, raw materials and manufacturing costs will change beyond that
taken into account in the plan

It is assumed that the trend for demand for goods will not fluctuate wildly

Interest rates are not expected to change, but under our conservative accounting methods VRI
assumes a one percentage rise in the prime overdraft rate. Therefore, short-term interest rates are
assessed at 18 percent a year and the long bond rate at 15 percent per annum

The tax rate is assessed to remain at 40 percent

Forecast
See Appendices

The Business Plan

- 160 -

APPENDIX 1: VRI PROMOTIONAL SCHEDULE

Fill in the table for the different products in your organisation

Include the following:
Type of
promotion

When and
where it
appeared

Cost of promotion

Expected returns
and exposure

Notes

VAN RYKES INVESTMENTS - PROMOTIONS SCHEDULE

Promotion

Note

Details
Date

Item

Expected returns/exposure

Cost

The Business Plan

- 161 -

APPENDIX 2: MARKET FORECAST

Fill in the table for the different products in your organisation

Include the following:
Unit sales

Unit price

Gross sales achieved

Totals

Notes

MARKET SALES FORECAST TABLE

Historic Financial Data
Notes
Sales

The Van Ryke SilicoFont

1.1

The anti-freeze chip

1.2

Heatless Micro-chip

1.3

Total

Price (Rands)

The Van Ryke SilicoFont

2.1

The anti-freeze chip

2.2

Heatless Micro-chip

2.3

Gross Sales Value (R000)

The Van Ryke SilicoFont

3.1

The anti-freeze chip

3.2

Heatless Micro-chip

3.3

Total

1993

1994

1995

Forecast
1996

1997

The Business Plan

- 162 -

APPENDIX 3: SALES FORECAST

Fill in the table for the different products in your organisation
Include the following:
Unit sales per product
and total gross sales

Unit price per product

and total cost of sales

SALES FORECAST

Split between credit

and cash sales

YEAR 1 - MONTHS
1

SALES:
Van Ryke SilicoFont
Unit sales
Price (Rands)
Anti-freeze chip
Unit sales
Price (Rands)
Heatless Micro-chip
Unit sales
Price (Rands)
+ Gross Sales (Rands)
Cost of Sales (Rands)
Van Ryke SilicoFont
Anti-freeze chip
Heatless Micro-chip
Total cost
Net sales *
Gross Sales derived as (Rands):
Cash sales
Credit sales
Total sales

* Net sales = Gross Sales - Total cost of sales

10

11

12

Total

Notes

Year
2

Year
3

The Business Plan

- 163 -

APPENDIX 4: TIME TABLE

Fill in the table for the various sections of your organisation's business plan
Include the following:
Issues that have to
be completed during
the following period

State who will

be responsible
for the project

Time Table for 1996 and 1997

Establish and outline target dates

for submission of plans to coordinator and state when this was
completed

Person in charge

DATES
Target

Drawing up the business plan

Co-ordinating drawing up business plan
Revision of financial forecasts
Restructure of personnel
Drawing up sales programme/forecasts
Employing sales director
Drawing up marketing
programme/forecasts
Undertaking negotiations with government
Undertaking negotiations with corporations
Undertaking market research
Responsible for economic updates
Political analysis
ETC.

Notes

completed

The Business Plan

- 164 -

APPENDIX 5: PERSONNEL PLAN

Fill in the table for the different divisions of your organisation
Include the following:
Breakdown
of personnel
costs per
division

Breakdown must
include staff numbers
per division and
average salary per
staff

State figures for a period of at least

three years - Year 1 must be broken
down per month. Include a summary
for total staff requirements and total
cost for such staff numbers

YEAR 1 - MONTHS

Notes
1. Production
Ave. wage
Staff
2. Marketing
Ave. wage
Staff
3. Sales
Ave. wage
Staff
4. Admin.
Ave. wage
Staff
5. Total staff
Total wage
* Other
5. Total cost

10

11

12

Total

Notes

Year

Year

The Business Plan

- 165 -

APPENDIX 6: FINANCIAL FORECAST

6A. Income Statement

Fill in the table for the Profit & Loss Forecast

Include the following:
Information from Sales

Breakdown must include Sales,

Forecast must be

Forecast, Personnel Plan

Cost of sales and expenses

for three years

Notes

VAN RYKES INVESTMENT HOLDINGS (PTY) LTD.

Income statement (R'000)

Y 1 - Months
Notes

Turnover

Operating profit

Net interest received

Income before tax

Taxation

Income after tax

Extraordinary items

Attributable income

Other appropriations
Transfers to non-dist. reserve
Dividends
Retained income -- for year
Retained income beginning of year
Retained income -- year end

10

11

12

The Business Plan

- 166 -

APPENDIX 6B: Balance Sheet

Fill in the table for the Balance Sheet

Include the following:
Information from Sales
Forecast, Personnel Plan

Breakdown must include Sales,

Cost of sales and expenses

Forecast must be
for three years

Notes

VAN RYKES INVESTMENT (PTY.) LTD.

Balance sheet (R'000)
CAPITAL EMPLOYED
Share capital and premium
Non-distributable reserve
Distributable reserve
Ordinary shareholders interest
Minorities
Long-term liabilities
Total
EMPLOYMENT OF CAPITAL
Fixed assets & Investments
Current assets
Stock
Accounts receivable
Current liabilities
Bank overdraft & short-term loans
Accounts payable
Taxation
Dividends due to shareholders
Total

Year 1

Year 2

Year 3

The Business Plan

- 167 -

APPENDIX 6C: Cash Flow

Fill in the table for the Cash Flow
Include the following:
Net profit figure from
profit & Loss Account

Add back amounts owing to the

company but not yet received and
subtract amounts owing but not yet
paid

Include a period of
at least three years

Notes

VAN RYKES INVESTMENT (PTY.) LTD.

Cash Flow Statement

Notes

Net Profit
PLUS:
Depreciation

Accounts payable

Payment of current loans

Other liabilities increase/(decrease)

Payment of long-term loans

Capital input

Sub-total
LESS:
Accounts Receivable

Stock

Other short-term assets

Capital Expenditure

10

Dividends

11

Net Cash Flow

Year 1

Year 2

Year 3

The Business Plan

- 168 -

GLOSSARY
Like all professions, business development analysts use a host of jargon in the course of their job. In
addition to common accounting terms, they have their own peculiar words for profiles, plans, targets,
takeovers, mergers and ventures. It would be a valuable exercise to be familiar with their terminology
before approaching institutions with your business plan.

Accounts payable

Bills which have to be paid as part of the normal course of

business

Accounts receivable

Debt owed to your company from credit sales

Accumulated depreciation

Total accumulated depreciation reduces the book value (formal

accounting value) of assets. The value of an asset is reduced each
month by a predetermined amount and time frame. An asset
worth R100, depreciated by R10 per month, would be written off
over 10 months.

Acid test

A ratio used to determine how liquid a company is. It is

determined by subtracting short-term assets from accounts
receivable and inventory, which is then divided by short-term
liabilities.

Asset turnover

Sales divided by total assets. Important for comparison over time

and to other companies of the same industry.

Break-even Point

The unit sales volumes or actual sales amounts that a company

needs to equal its running expenses rate and not lose or make
money in a given month. Break-even can either be based on
regular running expenses, which is different from the standard
accounting formula based on technical fixed expenses.

Burden rate

Refers to personnel burden, the sum of employer costs over and

above salaries, including employer taxes and benefits

Capital assets

Long-term assets, also known as Fixed Assets (plant and

equipment).

Capital expenditure

Spending on capital asset (also called plant and equipment, or

fixed asset).

The Business Plan

- 169 -

Capital input

New money being invested in the business. New capital will

increase your cash, and will also increase the total amount of
paid-in capital.

Cash

The bank balance, or checking account balance, or real cash in

bills and coins.

Collection period (days)

The average number of days that pass between delivering an

invoice and receiving the money

Collections Days

See Collection period

Commissions percent

An assumed percentage used to calculate commissions expense as

the product of this percentage multiplied by gross margin.

Cost of sales

The costs associated with producing the sales. In a standard

manufacturing or distribution company, this is about the same as
the costs for people delivering the service, or subcontracting costs

Creditors

People or companies that you owe money to. This is the old name
for accounts payable.

Current assets

The same as short-term assets.

Current debt

Short-term debt, short-term liabilities.

Current liabilities

Short-term liabilities.

Debt and equity

The sum of liabilities and capital. This should always be equal to

total asset.

Debtors

People or companies that owe your company money. It is the old

name for accounts receivable.

Depreciation

An accounting and tax concept used to estimate the loss of value

of assets over time. For example, cars depreciate with use.

Dividends

Money distributed to the owners of a business as profits.

Earnings

Also called income or profits, earnings are the famous bottom

line: sales less costs of sales and expenses.

The Business Plan

- 170 -

EBIT

Earnings before interest and taxes.

Equity

Business ownership; capital. Equity can be calculated as the

difference between assets and liabilities.

Fiscal costs

Running costs that take time to wind down: usually rent,

overhead, some salaries. Technically, fixed costs are those that
the business would continue to pay even if it went bankrupt. In
practice, fixed costs are usually considered the running costs.

Fiscal Year

Standard accounting practice allows the accounting year to begin

in any month. Fiscal years are numbered according to the year in
which they end. For example, a fiscal year ending in February of
1992 is Fiscal year 1992., even though most of the year takes
place in 1991

Going concern

A company which is operating, i.e. has not stopped producing

goods or providing a service and one which has not been placed
under liquidation or curatorship.

Gross Geographic Product

Gross margin

A statistic which shows the remuneration received by the

production factors (land, labour, capital and entrepreneurship) for
their participation in production of goods and services in a
defined area.
Sales less cost of sales.

Gross margin percent

Gross margin divided by sales, displayed as a percentage.

Acceptable levels depend on the nature of the business.

Interest expense

Interest is paid on debts, and interest expense is deducted from

profit as expenses

Inventory

Another term for stock

Inventory

Goods in stock, either finished goods or materials to be used to

manufacture goods.

Inventory turnover

Sales divided by inventory. Usually calculated using the average

inventory over an accounting period, not an ending-inventory
value.

The Business Plan

- 171 -

Inventory turns

Inventory turnover (above).

Labour

In Business Plans the word "labour" often refers to the labour

costs
associated with making goods to be sold. This labour is part of
the cost of sales, part of the manufacturing and assembly

Liabilities

Debts; money that must be paid. Usually debt on terms of less

than five years is called short-term liabilities, and debt for longer
than five years in long-term liabilities.

Liquidity

A companys ability to pay short-term debt with short-term assets

Location

In a Business Plan the term denotes a place of work

Long term assets

Assets like plant and equipment that are depreciated over terms of
more than five years, and are likely to last that long too.

Long term interest rate

The interest rate charged on long-term debt.

higher than the rate on short-term debt.

Long term liabilities

This is the same as long-term loans. Most companies call a debt

long term when it is on terms of five years or more.

Materials

Included in the cost of sales. These are not just any materials, but
materials involved in the assembly or manufactured of goods for
sale.

Monopoly

When one company controls and dominates a particular company.

Net cash flow

This is the projected change in cash position, an increase or

decrease in cash balance.

Net profit

The operating income less taxes and interest.

This is usually

The same as

earnings, or net income.

Net worth

This is the same as assets minus liabilities, and the same as total
equity.

The Business Plan

- 172 -

Oligopoly

When a few companies controls and dominates a particular

market.

Other short-term assets

These are securities and business equipment .

Other ST liabilities

These are short-term debts that dont cause interest expenses. For
example, they might be loans from founders or accrued taxes
(taxes owed, already incurred, but not yet paid)

Overheads

Running expenses not directly associated with specific goods or

services sold, but with the general running of the business

Paid-in capital

Real money paid into the company as investments. This is not to

be confused with par value of stock, or market value of stock.
This is actual money paid into the money as equity investments
by owners.

Payment days

The average number of days that pass between receiving an

invoice and paying it

Payroll burden

Payroll burden includes payroll taxes and benefits. It is

calculated using a percentage assumption that is applied to
payroll. For example, if payroll is R1,000 and the burden rate 10
percent, then the burden is and extra R100. Acceptable payroll
burden rates vary by market, by industry and by company.

Plant and Equipment

This is the same as long-term assets, or fixed assets, or capital

assets.

Product Development

Expenses incurred in development of new products; salaries,

laboratory equipment, test equipment, prototypes, research and
development, etc.

Profit before int. and taxes

This is also be called EBIT, for Earnings Before Interest and

Taxes. It is gross margin minus operating expenses

Receivable turnover

Sales on credit for an accounting period divided by the average

accounts receivable balance.

The Business Plan

- 173 -

Retained earnings

Earnings (or loss) that have been reinvested into the company, not
paid out as dividends to the owners. When retained earnings are
negative, the company has accumulated losses.

Return on Assets

Net profit dividend by total assets. A measure of profitability.

Return on Investment

Net profits dividend by net worth or total equity, yet another

measure of profitability. Also called ROI.

Return on Sales

Net profits dividend by sales, another measure of profitability.

ROI

Return on investment; net profits dividend by net worth or total

equity, yet another measure of profitability.

Sales Break-even

This sales volume at which costs are exactly equal to sales

Sales on credit

Sales on credit are sales made on account, shipments against

invoices to be paid later.

Scrape value

An amount left after an asset has been fully depreciated, i.e. If an

asset of R115 is depreciated by R10 per month over 11 months,
the scrape value would be R5

Short term

Normally used to distinguish between short-term and long-term,

when referring to assets or liabilities. Definitions vary because
different companies and accountants handle this in different ways.
Accounts payable is always short-term assets. Most companies
call any debt of less than five-year terms short-term debt. Assets
that depreciate over more than five years (e.g. plant and
equipment) are usually long-term assets.

Short term assets

Cash, securities, bank accounts, accounts receivable, inventory,

business equipment, assets that last less than five years or are
depreciated over terms of less than five years.

Short term notes

This is the same as short-term loans. These are debts on terms of

five years or less.

Starting year

A term to denote the year that a company started operations

The Business Plan

- 174 -

Tax rate percent

As assumed percentage applied against pre-tax income to

determine taxes.

Taxes incurred

Taxes owed but not yet paid.

Unit Variable Cost

The specific labour and materials associated with single unit of

goods sold. Does not include general overhead.

Units Break-even

The unit sales volume at which the fixed and variable costs are
exactly equal to sales

Write-off

Debt that cannot be collected and finally written-off as bad. The

debt is a loss to the company, and the greater the level of bad
debts, the less likely an entrepreneur will be able to obtain bank
financing. Maintaining bad debts to a minimum is seen as the
ability of a company to run efficiently and to have efficient
systems in place.

The Business Plan

- 175 -

Bibliography
Name
1 A Guide to Business Growth
2 Corporate Strategy
3 Economics of the Firm
4 How to Prepare a Business Plan
5 Its your Business!
6 New Venture Creation:
Entrepreneurship for the 21st Century
7 Preparing a Business Plan: A Guide for
the Emerging Company
8 Principles of Accounting
9 Privatisation in South Africa
10
11
12
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14
15
16
17
18

Profit from Successful Selling

South African Company Practice
Starting your own Business in South
Africa
The 24 Hour Business Plan
The Entrepreneurial Life: How to go for
it and get it
The Environment of South African
Business
The Mini-Business Manual
The State of the Art of Entrepreneurship
Venture Capital: The Complete Guide
for Investors

Author
Touche Ross
Ansoff, H.
Thompson, AA
Ernst & Young
Pithey, Maureen
Timmons, JA

Publisher
Touche Ross & Co
McGraw-Hill
Prentice-Hall
Ernst & Young
Chameleon Press
Irwin Press

Date
1986
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1994

Ernst & Whinney

Ernst & Whinney

Helmkamp, John
Edited by
McGregors
Henderson, Bill
Britzuis, Oscar
McLeod, Guy

John Wiley & Sons

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