Production costs in the business plan
It is difficult to imagine a business plan for which you would not have to create calculations. All parts of a business plan require certain calculations: marketing, operational, production.
But the most important in terms of calculations is the financial part of the business plan. It is she who allows you to identify how profitable and sustainable the created business will be.
The financial part should answer the following questions:
- How much money will you need to start a business?
- How much profit will it generate?
- How soon will the business pay off?
- How sustainable and profitable will it be?
Each of these questions is answered by one part of the business plan. This means that the structure of the financial part of the business plan will include such sections as investment costs, profit and loss forecast, cash flow and project efficiency assessment.
The first thing to do when drawing up a business plan is to calculate in detail how much it will cost to create a business. This will allow the entrepreneur himself to understand how much money is required to start a business and whether it is necessary to attract loans.
In this part of the business plan, you must take into account all the items of costs associated with starting a business. For clarity, consider an example. Consider a business plan for the construction of a car wash for two posts. You will have to invest in both the construction itself and the purchase of equipment. In general, the list of investment costs for this business will look like this:
- Design work
- Purchase of building materials and construction work
- Connection to electricity, water supply and other utilities
- Equipment purchase
- Equipment installation
According to Aydar Ismagilov, owner of the Moidodyr car wash network in Kazan, the construction of a car wash will cost 30-35 thousand rubles per square meter, taking into account design work and communications. As a result, the amount turns out to be quite solid, so now rent is more popular among novice businessmen, and not turnkey construction. In this case, the investment plan will include both rental payments before starting a business and renovation of the premises.
Equipment costs will depend on the type of wash. If the car wash is of a manual type, then 400 thousand rubles will be enough for the equipment. But for an automatic car wash, the costs will be at least 300 thousand euros.
For calculations, it is better to take a certain average price for each of the expense items. For example, if you need to calculate the cost of renting real estate, you should take into account not the highest and not the lowest price per square meter, but the average price on the market. You can determine it by studying the rental offers in your city.
It's another matter if the supplier and its price are already known in advance. For example, a car wash requires only equipment from a strictly defined manufacturer. Then the calculations need to include exactly the prices that he offers.
Knowing the required amount of investment will allow not only to estimate how much money will be needed to start a business, but also how quickly it will pay off.
Among all sections of the business plan:
- Cover Page
- Confidentiality Memorandum
- Executive Summary
- Investment Plan
- Marketing plan
- Production plan
- Organizational plan
- Financial plan
- Risk analysis
The production plan describes the production process. Of course, if you are not opening a factory or factory, but a clothing store, this description will be less detailed and will exclude items on production, but this does not mean that you can do without this section in your business plan.
Structure of the production section of the business plan
In fact, the purpose of this chapter is to familiarize the investor with the production process, the list of required equipment and the number of personnel. In other words, the production plan must show that you are able to organize the production of the required volume of high quality goods, as well as to establish the implementation process and prepare the necessary areas within the planned time frame.
If we are talking about an enterprise that is focused on the production of a certain product, the first thing you need to do is to clarify whether you are the owner of an already operating production facility, or are just planning to open it.
Often, the key reference point for writing this section is the sales plan. Therefore, you need to describe in detail exactly how you plan to manufacture products and consider in detail all the stages of creating your product or service. At the same time, each described position should include approximate terms, as well as the costs that will be required to organize it.
Description of the production process
If you are planning to open a production facility, you definitely need to describe all the stages and features of the technological process, starting with the purchase of consumables and necessary raw materials, and ending with the sale of finished goods (even if you plan to open a store, then a shortened version of the process from the delivery of the product to its placement in the store and sale is simply necessary).
Think about how you can modify this process. Describe your considerations and any activities and costs involved. Particular attention should be paid to the structure and composition of production facilities. If you are planning to open a factory or, for example, a plant, this information should be stated in a special appendix attached to the plan.
Description of raw materials and their suppliers
Supply issues should be a separate item. Describe what raw materials and materials are required for production, how exactly you plan to transport and store them. Moreover, you should also indicate exactly how you are going to carry out quality control and monitor the timeliness of deliveries, whether there are alternative suppliers of raw materials in case of problems with the existing ones.