BUSINESS PLAN Guidelines

These guidelines contain information on how to use the document businessplan found on the altinn.no web pages. Both the business plan template and this document are to some extent translations of the Norwegian documents available from Innovation Norway (www.innovasjonnorge.no). The numerical examples (section 6.1) are identical to the calculations in the Norwegian guidelines as published 01.12.06, with the exception that the VAT calculations have been altered to reflect the current regulations. Download and save the template document and use it as a template for your own business plan. If you find some of the sections not relevant for your business, or, if you need more space to complete other sections, feel free to modify the document to your satisfaction. There are many different business plan templates found on the Internet and elsewhere, and it is by no means necessary that you use the one suggested here. The main consideration is that you write a plan that helps you clarify if the business idea is viable. In addition, the business plan should help possible partners, investors/banks and others evaluate your business concept.

What is a business plan?

The business plan is a document that describes your business idea and how you intend to run your business. It will serve as a working document and guideline for the business and should be used actively. In order to stay relevant, it is important that the plan is revised regularly according to changed circumstances. The business plan should be sound and accurate, and it must be implemented in your business (i.e. communicated to and accepted by possible employees). Often the business plan is a kind of "sales or promotion document" to possible partners, investors and others. Nevertheless, the most important user of the business plan is you!

Some advice related to the writing of the business plan

To write a comprehensive business plan is a challenging exercise. It is important that you invest enough time and resources to make the plan as accurate as possible. A sound result will give you necessary insight both in the business idea itself and its potential in a market place. Further advice: Write your business plan yourself. Do not buy writing services from some consultant. However, it is strongly advised that you seek assistance from experts or professionals when necessary. Also, engage someone as discussion partner during the process. Relating the idea(s) to someone else will often help clarify the idea as well as provide useful perspective. The discussion partner may well be a family member, friend, colleague, entrepreneur, business adviser, accountant, auditor, lawyer or someone else with insight in your line of business. Write correctly! Use a language that is easily understood and have someone proof reading the plan. If you have to include difficult or not commonly used terms, explain their meaning, for instance in footnotes. Make sure the business plan is well-structured and easy to navigate. Do not include too many details. Detailed market analyses, budgets etc. may be given as appendices. Refer to sources and documentation where relevant. This is particularly important when you argue the market and economic potentials.

The different sections of the business plan in some detail

1. The Business Idea
Start by describing your business idea, the products and/or services you intend to offer and the market needs that will be satisfied. Next proceed to the basic information relevant for your business.

2. Personal Information
If you have an up to date curriculum vitae, it may replace some of the details in section 2. However, it is very important to include information on the expertise, knowledge and experience possessed by you and/or persons in your network that will enable you to start and run the enterprise.

3. Products/Services
Describe the products and/or services your enterprise will offer. Try to focus on and describe as accurate as possible the products unique properties. How to produce or manufacture the product? If you are going to sell services, try to describe the essence of the service and how it will be produced. Also, if someone is going to assist you in the delivery of the service, this should be included in the business plan. Are you producing all parts of the product (or service) yourself, or will all or parts of the production be handled by others? Make sure to describe accurately what sub-contractors you intend to use.

4. The Market
Description of the market and potential customers is an important part of the business plan. Try to give short and concise answers to the questions in the business plan template. You should know the purchasing criteria of your customers. Purchasing criteria are the features the customers value when they select a provider of a certain type of product or service. Your ability to satisfy the most important criteria will determine if you are the chosen provider. You have to be at least as good as your competitors in satisfying the essential purchasing criteria. Such criteria may be design, functionality, the providers trustworthiness, service and follow up, personal relations, price, delivery time and accuracy, availability etc. Ask potential customers what they are looking for when they buy the type of product or service you are going to offer and evaluate your ability to satisfy these criteria compared to 2 - 3 of your most important competitors.

5. Marketing and Sales Activities

How to make the customers know you exist? By advertising, brochures, personal sale or by other methods? Do not forget that you and your associates are important marketing assets. Also, the more you know about your customers, the easier to direct the marketing activities precisely. You should produce a market plan in order to describe how you will make yourself and your products/services known to the customers. A market plan is meant to serve as a statement on how much work and money you are willing to invest in order to: Influence potential customers to buy your product. Find partners in order to reach your customers.

We suggest that first you list what products and/or services you will offer and what market segments you want to attract. These two conditions are entered into a product/market matrix such as the one in section 9 in the business plan template. Next you list the actual market activities you have to apply to reach the different market segments. Enter the activities in an action plan (section 10 in the business plan template) and calculate how much resources you have to invest in these activities. Also describe how you will sell your products/services, e.g. direct sale or through distributors.

6. Finances
For simple paper based calculations you may use the forms provided in the business plan template. If you wish to produce more detailed calculations, we recommend the budget tools provided by the web site www.altinn.no/starte og drive bedrift (in Norwegian only). Select "Guider", followed by "Budsjettguiden". This guide in Norwegian offers explanations and examples of calculations, accounting plan, operating and cash flow budgets. In addition, you may simulate the effect of different activities such as new investments, new loans, changed payback time, variation in the inventory etc.

6.1 Products/Services Price Calculations

You need precise calculations for each product manufactured and sold in order to appreciate what products generate a profit and the extent of that profit. The calculation is used for pricing and budgets. Below you will find a few simple examples of calculations for a manufacturing enterprise and an enterprise that sells services by the hour. Calculations for a manufacturing enterprise: The example shows product calculations for a business that makes signboards. The enterprise is run as a sole proprietor business (self-employment business). The fixed operating expenses are 180 000 NOK, of which 30 000 NOK is salary to the owner. 800 signboards are produced each year. The product calculation refers to a middle sized signboard and in this calculation the fixed costs are equally divided between the boards. For smaller or bigger boards the variable costs will differ and you will have to decide on how the fixed costs should be divided between the units. The business is run by a single person on full time. Variable costs (i.e. costs related to each unit manufactured) will vary with the size and type of signboard. The variable costs for the middle sized board are as follows: Raw materials per signboard + + + = Packaging Delivery costs/transport Wages (own work), 2 hours at NOK 120.00 Variable costs per manufactured signboard NOK NOK NOK NOK NOK 640.00 30.00 270.00 240.00 1 180.00

Price for a single manufactured signboard: Variable costs (the sum above) + = + = Allocated share of the fixed costs Calculated sales price VAT (for businesses obliged to pay VAT) Calculated sales price, including VAT NOK NOK NOK NOK NOK 1 180.00 225.00 1 405.00 351.25 1 756.25

In reality the sales price must be set with a fair glance to the price of comparable products from the competitors. Nevertheless, work out the product calculation to get an overview of the profit generated by the product. In the simplified version, the budget assumes that only middle sized signboards are manufactured and that the total number produced is 800. The budget must be adjusted according to the actual types of boards sold. Operating budget: Calculated sales price (exclusive of VAT) NOK 1 405 x number of units (800 pcs.) = Total earnings = = Variable costs Gross profit (contribution margin) Fixed costs Net profit/Net loss NOK NOK NOK NOK NOK 1 124 000 944 000 180 000 180 000 0.00

In the above case the profit that should cover future investments and development of the enterprise is zero. That is most likely not acceptable in this business enterprise. The owner's personal income:

Wage: NOK 240 x 800 signboards + = Salary for administration, sales and planning Sum personal income

NOK NOK NOK

192 000 30 000 222 000

Calculation of service production: A number of services enterprises, such as professionals, mechanics, cleaning service businesses, machine contractors, consultants and others sell their services by the hour. An hour sold should cover fixed costs as well as generate a profit. How many hours can be invoiced per year? You have to consider carefully what constitutes the hourly rate and what may be specified separately on the invoice. The pricing and invoice strategy depends on the type of business. We recommend that both the hourly rate and what is included are agreed upon before the work starts. The following is an example of a product calculation for a small cleaning service company. The fixed costs are set to 50 000 NOK per year. The company has one full time employee and two part time employees. Hourly rate: Calculation of the hourly rate often starts by considering the fixed costs. This company is organized as a limited liability company, and all wages may be treated as fixed costs. In addition the hourly rate must generate a profit: Wages + + = Other fixed costs Profit Sum Costs No. of hours invoiced per year = Hourly rate NOK NOK NOK NOK NOK 500 000 50 000 50 000 600 000 2 700 h 222

Price per job: The cleaning company had a job consisting of cleaning of a community building before a scheduled paint job. The job took 90 hours and the employer paid for all cleaning articles used. Hourly rate NOK 222.00 x 90 hours + + + = + = Cleaning articles Travel expenses Transport of machines Calculated price for the job VAT Calculated price inclusive of VAT NOK NOK NOK NOK NOK NOK NOK 19 980.00 1 200.00 0.00 1 500.00 22 680.00 5 670.00 28 350.00

Operating budget per year: Fees 2 700 hours per year at NOK 222 + = = Invoiced variable costs (materials, travel expenses and transport) Gross profit Variable costs (materials, travel expenses and transport) Contribution margin Fixed costs NOK NOK NOK NOK NOK NOK 599 400 36 000 635 400 36 000 599 400 550 000

Profit/Loss

NOK

49 400

6.2 Sales Budget

The sales budget is meant to indicate how much you expect to sell of the different products/services per month. The figures are calculated from the price per unit or hour multiplied by the volume.

6.3 Operating Budget

The operating budget must show the overall income and expenses per year. All figures should be exclusive of VAT, if the business is VAT eligible. We suggest you generate a budget for the first three years of your business operations. It is important that you have a realistic approach to the budgeting. The sales income is entered from the sum in the sales budget. If the business generates other income, this is added separately. The variable costs are bound by multiplying the variable costs of the product calculation by the number of units (or hours) you expect to sell. Wages may be treated as variable or fixed costs depending on whether they are directly related to the production/manufacture or not. Social benefits are costs related to holiday allowances, social security insurance premiums, pension schemes as well as payroll tax to mention a few. The rate of the payroll tax depends on where in the country the employee lives. The correct rate is listed on the employee's tax deduction card. The contribution margin is the sum of all income minus the variable costs. The fixed costs are all costs not dependent on the number of jobs, units or hours sold. Depreciation is an assessment of the reduced value of buildings, machinery and equipment. Altinn offers explanation of the depreciation rates used for tax purposes. However, the information is presently available in Norwegian only. Remember to include the extra costs related to the actual start-up of the business. These are found under section 7 (see below) as capital requirements. Such requirements may be marketing costs, wage/salary in the start-up phase and other non-depreciable investments. The net operating profit equals the contribution margin minus the fixed costs. In the finance costs/income you must enter interest on loans plus other finance costs/income. If you run a self-employment business, enter your personal income under the "Owner withdrawal" section.

6.4 Cash Flow Projection

The cash flow projection shows when the actual cash inputs and withdrawals take place. As such, the cash flow projection chart is an important tool to deduct if you have enough available funds to pay the bills on time. All figures are inclusive of VAT. Remember to include down payments on loans and/or new loans. Also include owner's withdrawal if you run a self employed business (sole proprietorship). Note that VAT, payroll tax and advance tax payments have different deadlines. Check information at the English version of www.bedin.no (main topic "Tax") or the web pages of the Tax authorities -www.skatteetaten.no and select "International".

7. Capital Requirements and Finances

Enter all capital needed for the start-up. Specify if the figures are inclusive or exclusive of VAT. If in doubt whether your business is VAT eligible or not, check the English version of www.bedin.no or contact your County Tax Office. Having obtained an overview of the capital needed, you then have to consider and enter how you intend to fund your capital requirements, e.g. by owner equity, loans, operating profit or otherwise (specify).

8. Management
Regardless of the size of the business there are many managerial tasks that have to be attended to. In many businesses these tasks are handled by the owner. Try to describe how the business is organized and managed. Enter an overview of the most important partners, including description on how the collaboration is regulated. Describe furthermore what these partners mean in terms of value added to your business, especially related to competence. Also enter who is the contact point in your business.

Sections 9 11
The last three sections of the business plan template are forms that either may be included in or used as appendices to your business plan:

9. Product/Market Matrix
Enter the different products/services in the column headlines and the market segments in the row headlines. Use the form to specify the sales of the different products to different market segments. Example: Product 1 Market segment 1 Market segment 2 Market segment 3 120 000 50 000 50 000 15 000 Product 2 Product 3 75 000 Sum 195 000 50 000 65 000

10. Action Plan

The form is intended as an aid to get an overview of the activities that must be carried out. For instance, when you produce your business plan, the action plan form may be used to control and time the different activities of the start-up process.

11. Business Plan Summary

The last form is a summary of the business plan. It may be smart to use this form when you present your business.

Final Comments
Don't forget that these guidelines are just that - guidelines, and the business plan template is just a template. The essential message we want to convey is that you must write your own plan, adapted to your requirements and your purposes. On the other hand, using a document template familiar to those who possibly are going to evaluate your plan cannot constitute a drawback. Any errors in this document are entirely our responsibility. We want to wish you good luck with your plans!