Note: The instructions describe the preparation of four proforma forecast budgets for Facilities, Equipment, Manpower, and Operations Expense. ?Attac

Note: The instructions describe the preparation of four proforma forecast budgets for Facilities, Equipment, Manpower, and Operations Expense.  Attached below is an Excel file that contains templates for all of these four charts.

The following comments pertain to a business where you will be producing a product.  If your business involves providing a service or doesn’t require manufacturing, you should customize the content of your operations chapter accordingly.  Describe the operating elements that are applicable to your specific business while following the template provided.

Use this outline for your Operations Plan.

6.0     OPERATIONS PLAN

6.1 Description of Operations Strategic Plan

6.2 Business Location and Reasons for Site Selection/Advantages of Location

6.3 Facilities Requirements, Costs and Acquisition Plans

6.4 Equipment Requirements, Costs and Acquisition Plans

6.5 Staffing Headcount, Cost and Hiring Plans

6.6 Operating Expenses and Working Capital Needs

6.7 Project Management Chart – Development Tasks, Implementation Timeline, and Status

6.8 Business Development Challenges and Risks

6.9 Intellectual Property Required by the Business

The first two sections are broad in nature.  Dealing with the company's overall plan for executing its operations, and also its plan for where to situate itself geographically, the topics are wide spread and encompassing.

6.1 Description of Operations Strategic Plan

The Operations Strategic Plan section is the section where you describe how you will approach all the various activities included under operations.  Operations mean everything that isn’t related to Marketing & Sales, or to Finance.   Operations can include Research & Development, Engineering, Materials Management, Manufacturing, Distribution, Maintenance, etc.

Set up your Operations Strategic Plan section as a list of the Operations activities your business requires.  For each activity, describe that activity’s objective and then describe your strategy for how you will accomplish it.  

The key is to recognize that there is generally more than one choice for how you can execute each element of your Operations strategy.   Your company's task is to decide which option to use in your business.

To produce a product, there are several choices.  You can establish your own factory, meaning you require facilities, equipment, manpower, and inventory.  Or you can enter into a contract with a manufacturer to have your product produced.  There are many contract manufacturers, both in-country and abroad.

To package your product and ship it, you also have choices.  You can perform the warehousing, picking, packing, and dispatch functions in-house.  You would require facilities, equipment, and manpower for this.  Or alternatively, you can contract with a fulfillment company, such as Amazon, whose role is to receive goods that their customers (you) arrange to have sent to them, and then to turn around and ship those goods against your customers’ orders.  The current buzz term for this is called “fulfillment.”  

6.2 Business Location and Reasons for Site Selection/Advantages of Location

This section is where you describe the area that you have chosen to locate your expanded business and explain the reasons why you selected this location.  It doesn’t have to be the same location that you used for your initial startup.    To be fully complete, this section should explain your site selection not only in terms of its advantages but also in terms of how this site is superior to other sites that were considered.  If possible, focus the site selection to a specific address within a community.  Providing a specific address is tangible and will be very attractive to an investor, who can imagine the project completion with such specific details.

The next four sections, dealing with Facilities, Equipment. Staffing and Expense/Working Capital Requirements are very detailed.  These sections are the heart of your expansion plan.  Describe the details of what you plan to buy, build or lease to execute your expansion plan. And include the expenses you will incur and the working capital you will require to operate your business after the expansion plan is completed.  Don’t include any existing resources – these sections are to exclusively describe the net additions you will make to your business so that your expansion plan can be completed.  This gives the reader a good picture of the “hard goods” that the investment money will be spent on. Describe the items, their costs, and details of how they will be provided.

6.3 Facilities Requirements, Costs, and Acquisition Plans

Facilities mean the actual land and building.  Describe here the actual facilities you will either build, buy or lease.  Explain details about the facility and how much it will cost, where it is located, etc.  If you are leasing, include your leasehold improvements in this section. 

Show the cost of the Facility and the improvements to the facility in a spreadsheet that is timed over five years.  Your expansion project might involve all the expenditures and installation in the early part of the plan – the first year or two.  Or… you may have an expansion plan that just keeps growing, in which case the expenditures could be spread over the entire five-year period.

Use a spreadsheet to display your Facilities and Facility Improvements budget for the business plan period. The template is provided in the attachment below.

This cost information should be very helpful when developing the financial statements in chapter 7.

6.4 Equipment Requirements, Costs, and Acquisition Plans

Machinery and Equipment mean all the items that you require to be installed inside your facility so that you are able to produce your product.  This can include various factory machines such as presses, office equipment such as desks and computers, and any tools that you require in production.   Create a list of all the major machinery and equipment you need and show the cost, and your plan to acquire the equipment.  Indicate whether you have commitments or just estimates.

Show the cost of the Machinery and Equipment in a spreadsheet that is timed over five years.  Your expansion project might involve all the expenditures and installation in the early part of the plan – the first year or two.  Or… you may have an expansion plan that just keeps growing, in which case the expenditures could be spread over the entire five-year period.

Use a spreadsheet to display your Machinery and Equipment Budget for the business plan period. The template is provided in the attachment below.

6.5 Staffing Headcount, Cost and Hiring Plans

Staffing means all the manpower you will require to operate your expanded business.  It does not include senior management which was described previously in Chapter 5.  If you have existing personnel, the staffing is only the incremental requirement of employees needed to fulfill the growth strategy. 

Staffing should be identified by Operations Function, and the cost, as well as the anticipated hiring dates, should be indicated. Show the cost of the added staff in a spreadsheet that is timed over five years.  Your expansion project might involve all the staff to be added in the early part of the plan – the first year or two.  Or… you may have an expansion plan that just keeps growing, in which case the staff additions could be spread over the entire five-year period.

This section is about all the employees that you will require to staff all the functions in your operations plan.  This could include engineers, scientists, quality control techs, production workers, materials management workers, receivers, shippers, office staff, and any other functions that your specific business proposal may require.  

And you need to describe it as it is expected to change over time, from the beginning of the plan period through to the end of the plan period.

You previously described the business volume growth due to the expansion plan, in the Proforma forecast, you constructed in Chapter 3.   You need to describe your plan for adding people that corresponds to that growth curve.  You can start by describing your existing staffing pre-expansion.  Then proceed to lay out a timed analysis of the headcount additions you plan to make.   And, you need to then show how much this will cost.  That cost data will be used in Chapter 7 to construct Profit and Loss statements.  And if some of the manpower requirements will be outsourced rather than hired, you can show that as separate lines for contractors and retained professionals.

You can do this by constructing a chart that shows all your staffing needs over time.  The template is provided in the attachment below.

Be sure to add descriptions below the chart to explain the various line items you include on the chart.

6.6 Operating Expenses and Working Capital Needs

Describe all your operating Expenses at the levels you expect to incur after your expansion plan has been completed.  Carry forward the annual total amount developed in Section 6.5 for wages or salaries. Similarly, carry forward the Senior Management Team Compensation described in Chapter 5.  And carry forward the selling and marketing expenses described in chapter 4.  The resultant budget should represent a clear picture of your total expected operating expenses for your business. 

Describe your operating expenses by expense category and identify the amount by year, for each of the five business plan years.  Start by describing your current level of operating expenses.  In your explanations that follow the illustration, describe the reasons why the amounts change from year to year.   

In your Proforma forecasts, the expense amounts should correspond to the volume forecast you included in Chapter 3.

In addition to your operating expenses, describe working capital needs that will have to be met from new equity. Such working capital is generally to cover operating losses in the early years after launch, along with the build-up of Accounts Receivable not covered by corresponding increases in Accounts Payable.  Additional working capital needs can occur to pay for inventory buildup and for prepaid utilities and other expenses.  The amount to be shown is not the total working capital required, just the amount needed to keep the proforma Cash Flow balances from falling below a target minimum level.  Show this on the line titled Cash Reserves.

Time all of your expenses and working capital over the five-year business plan period using a spreadsheet.  The template is provided in the attachment below.

The last three sections relate to more general topics affecting the operations of the business.

6.7 Project Management Chart – Development Tasks, Implementation Timeline, and Status

This is where you describe all the various steps/activities that will have to be taken in order to complete your expansion plan. These activities might include such things as trademark product and business names, establish a board of directors, select advertising agency, select business site, design facility, construct a facility, purchase equipment, install equipment, test equipment, hire staff, train staff, pre-production test, production ramp-up, and full production achieved.  

The preferred display is a GANTT Chart.  There are numerous examples of GANTT Charts on the internet with instructions on how to complete the chart.   A simple list of activities with expected completion dates and status situation is adequate if you can’t find an example.

6.8 Business Development Challenges and Risks

Identify any significant business risks that your company can anticipate, the likelihood of their occurrence, and what steps you are taking to mitigate the effect of such risks. 

Also describe risks associated with completing the expansion plan project on budget and on schedule, and what you are doing to ensure that occurs.

6.9 Intellectual Property Required by the Business

Identify any intellectual properties you may require so your product can be brought to the market.

Identify your own intellectual properties and what you have done (or are doing) to protect them