Business Plan Guidelines

General
The drafting of a business plan should always be done with the aim to convince a financier or potential investor of the success of the business venture, so much so that they are willing to invest in it. With this in mind, it is crucial that the foundations of the business plan are based predominantly on facts and market research, as opposed to opinion and belief. The more facts in the business plan, the easier it is to make a decision whether or not to invest in a business. The plan should demonstrate that it is workable and that all those involved in the project, from management to employees and consultants, are able to deliver on the plan. It is also crucial that, as far a possible, all commitments are formally put in writing. These would include contracts with customers for the supply of goods and service, letters of intent from customers, lease agreements, offers to purchase and so on. A good business plan should consist of the following:

Legal entity
Copies of: 1. All registration documents to confirm that a legal entity has been set up (CM1, CM22, CK1, CK2 etc). 2. Income Tax and VAT documents to confirm that entity has been registered for Income Tax and VAT with SARS. 3. Income Tax and Vat clearance certificates for an already existing business.

Shareholders and management

4. Detail CVs of all shareholders, directors and senior management/key personnel. In the case of a Close Corporation, this would apply to members. 5. Details of shareholders involvement in the business. 6. Motivation that management has the necessary experience to successfully manage the business, including manufacturing, operational, administration, human resources, finance and marketing Signed shareholders agreement. For a new business, this should be in draft form at least. 7. Amount of funds that shareholders will be injecting into the project as their own contribution and source of these funds (FICA purposes). 8. Personal balance sheet of all shareholders. 9. Other business interests of shareholders and directors. 10. Details of any other professionals assisting management, such as auditors or lawyers.

Organograms
11. Include organograms of the following: a. Group structure (if there is more than one company); b. Hierarchy of staff; and c. Operational/manufacturing processes.

Technical
Capital Expenditure: land and buildings, furniture and equipment, plant, motor vehicles, computer equipment, and so on 12. For a new business ensure that a site has been identified and a draft lease agreement or Offer to Purchase/Purchase and Sale agreement has been obtained. It is preferable

that exclusivity be obtained for the purchase of the site, and sufficient time be given to allow for finance to be obtained without the seller/lessor selling or leasing the property to someone else in the interim. 13. For land and buildings to be purchased, a recent valuation is necessary. This will need to be performed by a registered valuator. 14. Current quotations for all building work to be performed. This should preferably be approved by a quantity surveyor or other suitable person in the construction industry. 15. Technical drawings for all building work to be performed. This should be done by a qualified architect. 16. Construction contractor to be engaged should be registered with the National Home Builders Registration Council (NHBRC). 17. Current (recent) quotations from suppliers for all other fixed assets to be purchased (preferably not older than 2-3 months). 18. Ensure that the fixed assets to be purchased are sufficient to meet production forecasts from a capacity point of view. 19. For assets to be imported, cognisance to be taken of the following: a. Forward Exchange Contract (FEC) cover on such assets b. Commissioning details; c. Repair and maintenance arrangements; and d. d) Upfront letters of credit or deposits that may be required by the supplier 20. Be sure to budget adequately for other soft assets such as office furniture, photocopy and fax machine, etc which are not directly related to the production process. 21. Ensure that all necessary regulatory approvals have been obtained. This would include Environmental Impact Assessments (EIA), rezoning of property if required, etc. For new businesses these should at least have been applied for. Copies of all approvals or applications to be included in business plan.

Production process
22. A copy of the production process, and process flow diagram. 23. A copy of the factory layout. 24. A detailed copy of the bill of materials, together with recent quotations for all raw material input cost. 25. Key staff involved in the production process and a transfer of skills plan.

Staffing
26. Full details of existing and new staff to be employed. These should be split into categories of staff, rates of pay, benefits, etc. 27. Staff to also be split between salaried vs. waged employees and full time vs part time employees. 28. Process of identifying and hiring of new staff. 29. Ensure that staff numbers are adequate and in line with production capacity and forecasts. 30. Ensure that salaries and wages are preferably market related and not below minimum wage guidelines for the industry. 31. CVs of all key management staff.

Marketing analysis
32. Projected turnover levels need to be based on secured contracts, letters of intent and/or detailed market research. Copies of all contracts with customers (these may

still be in draft form), letters of intent from potential customers and market research to be included in business plan. 33. Turnover levels projected without any marketing back up or based purely on verbal agreements will be significantly discounted, which would likely result in the business forecasts being non-viable. 34. For existing businesses, include full details of existing contracts being serviced and remaining periods on these contracts. 35. For existing businesses, also include full details of major customers, existing networks and relationships formed, and work done for major customers over the past 12 months, which is not contract based. 36. A detailed marketing strategy and market research is required. It is imperative to distinguish between general and specific marketing research and strategies (i.e. retrieving information from National/International databases, internet etc. on general status of the industry your business is involved in is important and comprises the general marketing compilation.) Over and above this, it is vital that there is a specific marketing strategy in place that encompasses how the business in question is going to attract market share and achieve projected turnover levels. 37. Some of the areas that the marketing research should focus on are: a. Competitor analysis; b. Competitive edge of the business in question; c. Demand vs supply; d. Sustainability of the business; e. Future developments (technological, new market entrants, alternate products etc); f. Contracts with customers; g. Letters of intent from potential customers; h. Other networks and relationships that might have been created; and i. Strategic location of the business. Also ensure that there is an adequate and constant supply of raw materials available for example, suppliers, alternative suppliers, raw material prices, historical and expected price trends, availability, etc. 38. For existing business also detailed historical financial statements for 2 years (audited where applicable) and latest management accounts.

Financial forecasts
39. Include a detailed five-year forecast of: a. The income statement; b. The balance sheet; and c. The cash flow statement. 40. Also include a start-up source and application of funds statement. 41. If possible, show monthly forecasts of income statement, balance sheet and cash flow for the first 12 months.

Balance sheet
Key points 42. Include all existing assets and liabilities as well as assets and liabilities that will be brought into the company as per the current application for finance. 43. For new loans to be taken, budget on realistic payback periods. These would normally be in the region of 5 years for IDC purposes and will depend on the companys cash

flow forecasts. Note the loan term may also vary based on the industry your business operates in. 44. Working capital levels (debtors and creditors) to be budgeted for in terms of companys debtors and creditors payment policies, or for a new business this will be based on terms negotiated with debtors and creditors. 45. Stock to be budgeted for based on anticipated stock levels to be held (include raw materials, work in progress and finished goods). 46. Owners contribution into the business to be included as shareholders/members loans in the balance sheet. This needs to be unencumbered, interest free and with no fixed repayment terms. 47. Non distributable reserves must be based on valuations performed by a registered valuator. This may be discounted for financing purposes. 48. Any Goodwill on the balance sheet may also be discounted for financing purposes (depending on value and nature of Goodwill).

Income statement
49. Sales projections in the income statement should tie in closely with any contracts and letters of intent obtained from potential customers, marketing research performed and other networks and trade relationships created. Sales should be conservatively phased into expected levels over a reasonable period to allow for the time it will take to penetrate the market. 50. If possible, perform sensitivity analysis on sales forecasts and avoid placing too much reliance on a single major customer, unless a signed contract is in place. Note if the business is highly reliant on a single customer, this could present a going concern risk and is not the ideal situation, unless a binding contract has been signed. 51. Cost of sales to be accurately costed and budgeted for per product item. 52. Take all possible expenses into account. Expenses frequently omitted include: a. Depreciation; b. Rates and taxes; c. Security costs; d. Insurance costs; e. Bank charges; f. Audit fees; g. Marketing, Advertising and Entertainment; h. Interest costs; and i. Royalties and commissions. These are often omitted as they are not directly linked to the operational processes of the business. 53. All expenses in the income statement should be adequate for the size of the business and its operations. For example, the salaries and wages bill should be directly linked to the number staff (including directors) to be hired multiplied by their total cost-tocompany. 54. Interest rates on all new loans to be taken should be budgeted for at a minimum of prime. 55. Normal company tax to be factored into the income statement.

Source and application of funds statement

56. Include a start up source and application of funds statement. This will highlight the total project cost split into the various needs (assets, working capital, etc) and the source of the funds (owners, financiers). 57. The total project cost should equal the anticipated funds coming in from owners and/or financiers. Other key points with regard to business plans and obtaining finance

For acquisitions:
58. Where you intend acquiring into an already existing company, you need to obtain the past three years historical financial statements and latest management accounts for the current year (not later than three months old). 59. The valuation will be based on the Discounted Cash Flow method (that is valuing the operations of the business based on its income-generating potential based on historical and projected future performance) and not necessarily the value of the assets. This discounted cash flow calculation will need to form part of your business plan. 60. For acquisitions, it is advised that you speak to potential financiers once you have obtained the historical financial statements and latest management accounts to determine if the selling price is reasonable, prior to even drawing up your business plan. 61. Note for IDC purposes, the following will apply for all acquisition transactions: a. The purchaser must be an historically disadvantaged person. b. The IDC would require at least 50% of the total IDC funding required to be reinvested into the company for growth and expansion. c. There must be an expansion phase which forms part of the acquisition, i.e. an increase in the industrial capacity base and an increase in employment. d. The selling price needs to be to the satisfaction of the IDC as determined by the discounted cash flow method of valuing a business. e. The selling price may be paid to the seller over a period of 2-3 years, subject to pre determined targets of profitability being achieved.

Other
62. The financing requirements above are designed to ensure the smooth operation and sustainability of the business post financing. 63. 63. The above is not an exhaustive list of requirements, and further information may be required based on the specifics of the application and the industry in which the business operates in. For further clarity on how to prepare a business plan, please contact us.