Small Business Strategic Marketing Plan for Beginners
Request your feasibility plan
To request the Viability Plan, the entrepreneur or entrepreneur must download the viability plan questionnaire here . Once completed with the expected data of the activity to be carried out, it must be delivered personally to the nearest Advice Center at any of the offices of the Chamber of Commerce.
Essential tool for the success of your company
When starting up a company, it is essential that you carry out a market study and check if your business idea is technically and economically viable, and has possibilities for future expansion. You should know if your company is well funded, calculate your business margin, make a good estimate of purchases and sales, income and expenses, according to the market analyzed, the population, the location of the premises, competition etc.
What is a feasibility plan?
It is a written document that each entrepreneur prepares with the objective of planning, evaluating and controlling all the most important aspects of the business from the idea to those related to the start-up of the company. There is no concrete model or standardized script of the Business Plan.
However, the majority includes the following sections; project presentation, market analysis, a marketing and marketing plan, a production and operations plan, organization and human resources (HR), an investment and financing plan, an economic and financial viability plan, ratios, as well as A start-up plan.
It is recommended that the document does not have an extension of more than 50 pages, that it is clear and concise, that it does not use excessive terminology and that it be done objectively. In addition, it is usually advisable to be cautious with the forecasts of demand and sales, as well as making loose forecasts of expenses since they always arise unforeseen and usually, less often than expected.
The function of the Business Plan is to organize and quantify the activities and resources (human, economic and technological) available to the entrepreneur. In this sense, it is also a simulation tool since different scenarios can be proposed based on different levels of investment, or income-expense forecast.
In addition, the Business Plan is a communication and marketing tool for the business project, especially useful in the search for partners, collaborators, investors or to request public or private aid. For the implementation of the business initiative, it is necessary to analyze certain elements that traditionally respond to a series of questions, basically the following:
- The product or service .
What to produce? What product or service do we want to introduce in the market?
- The market .
Who is it produced for? That is, what audience do we target and how are we going to sell?
- The production process .
How is it manufactured and how much does it cost to do or produce?
- The team .
What people are necessary for the operation of the project?
- The location of the company .
Where to locate my business?
- The economic – financial plan .
What means are necessary and how are they acquired or obtained?
Every company, and to a greater extent those that begin, base their credibility on the capacity of their promoters and especially on their knowledge of the sector. The capacity of the promoters must refer to the three fundamental areas of management: administration, production and commercial areas, and a realistic and attractive summary of the same should be made, highlighting its strengths.
As a guide, we can structure the promoter’s curriculum in four sections:
Personal data : name, age, address, marital status, sex, ID number
Training : studies, duration, complementary training and additional knowledge in matters of interest.
Work experience : work done, work performed and time spent in it. The usual order is inversely to the chronological order.
Other relevant data related to the project you wish to carry out.
As in any curriculum you will have to start by providing the identifying data of the company, among which are the following:
Address and telephone
Partners and social capital
Business Object Summary
This section aims to expose the basic idea of the business project, as well as explain the business opportunity and identify it. It will be necessary to comment on the risks and key factors that support the success of the idea.
Make a brief description of the reasons or objectives that are pursued in the short and medium term by creating the company (money, self-employment, independence, professional strength …).
At the same time, it is about raising the repercussions of being a personal entrepreneur, (more responsibility, more dedication, …).
Some reasons to create the company are:
- Be your own boss
- I had an idea to launch / detected an opportunity
- Take advantage of grants
- Improvement of personal economic situation
- Single collection of unemployment benefit
- Family tradition
- Personal circumstances were conducive
- Inability to find a job
Objectives to be achieved
In addition to personal objectives, the promoter defines a series of business objectives for your company. Some examples of the company’s objectives are the forecasts of business growth in terms of facilities and personnel, the expected market share, the number of products to be marketed, the geographical scope of sale, etc.
Company Activity Description
The activity of the company is the declaration of the entrepreneur about the products and services to be marketed immediately, to whom they will be sold (customers), where they will be sold (geographical scope) and how they will be sold (competitive advantages and unique capabilities). Summarize what the business you want to start is.
The business idea will be compared with existing ones; similarities and differences. In this sense, it will be commented if similar ideas are known from other promoters who wanted to launch a business project and did not come to fruition, as well as comment on the causes that caused the failure. The novelties or competitive advantages that our product or service will bring in front of other similar ones existing in the market will be detailed.
Business Lines / Products / Services
It is also important to offer an enlarged image of the product, which defines not only its characteristics, but also its usefulness, explaining its mode of operation, highlighting the innovative aspects and the advantages that it may have derived from the after-sales service, customer service , etc. regardless of whether it is paid separately from the product, explain how it differs from products already in the market.
A classification of products and services will be carried out in lines, ranges or business units. Comment on the specific products or services, their main characteristics, as well as the specific needs they will cover and for which markets.
The objective of this section is to demonstrate the commercial viability of the project. For this, it is necessary to determine the geographical scope, quantify the potential market, group the market into homogeneous groups or segments with the same customer profile, divide the segments into subgroups called niches, select the niches in which we are interested in positioning ourselves and calculate their demand Potential and sales. The motivations and buying behavior of customers and their needs will be analyzed. Finally, a reflection on the expected future evolution of the market will be included as far as possible.
In this section we will detail the characteristics of the market (legal, technical, logistic, marketing, production aspects), its structure, barriers to entry, geographical areas (countries, regions, islands, municipalities, neighborhoods), size (number of total clients , degree of concentration or dispersion of these clients in the region), as well as the forecasts of evolution (trends in demand growth).
Company Market Segments
Market Segments: Consumer Profile
Segmenting means dividing the market into homogeneous and differentiated groups since each segment has its own consumer profile that describes its specific characteristics.
In this section, we will identify the market segments, as well as their main characteristics.
To segment the market we can use one of the following criteria:
- Geographical. Market division by geographic location of customers: by streets, neighborhoods, areas, municipalities, towns, islands, regions, countries, continents, etc.
- Demographic. Market division by the demographic characteristics of the clients: age, sex, marital status, number of children, etc.
- Socioeconomic. Market division by the socio-economic characteristics of the clients: social class, education level, purchasing power, etc.
- Psychographic Market division by the psychographic characteristics of customers, their behaviors, habits, lifestyles, etc.
Once the different segments of our market have been identified, we can analyze their characteristics, their behaviors and their consumption habits. The goal is, in short, to identify the particular needs of each group. Each segment in turn can be divided into smaller subgroups called market niches.
Next, we will select the most profitable and viable market segments based on the following criteria:
- Sales performance (the difference between costs and revenues generated by a certain segment).
- The volume of sales you can generate (measured by the number of potential customers that each segment has).
- The growth potential of each market segment.
The objective of this section is to know what are the needs of the clients to later analyze what motivates them in their consumption and to be able to offer it to them. In this sense, the general and specific needs that the product or service must meet must be identified for each segment or niche of the market.
In addition, we must answer the following questions; What need does it solve? Why, at what time and where does it meet that need? How is the need satisfied? And what needs does the product offered not cover?
Types of Consumers
Depending on the time between accepting the product or technology we offer and the customer to buy it, we find different types of consumers:
- Those who adopt new ideas before the rest of the people in their social environment. It is the pioneers who risk trying new things. They usually represent between 2% and 3% of its segment.
- Those who take initiatives to try new products but are more cautious than innovators. They are usually the opinion leaders of their environment. They represent between 12% and 13%.
- Group that adopts new ideas but having matured them, although earlier than average. They are not usually opinion leaders, and they represent 34% of consumers.
- Skeptics adopt innovation only after most have done it. They also represent 34% of consumers.
- Group reluctant to change, traditional, who adopt innovation only when it is imposed by the tradition itself. They represent approximately 16%.
Customer Purchase Motivations
We must comment on the motivations that affect different customer profiles. That is, the why of their purchases, how and when they make their decisions to purchase a product, and where and how much they buy. In this sense, some motivations are; price, fashion, ostentation, emulation, comfort, safety, affection for people, the attractiveness of things, etc.
Customer Purchase Process
Depending on the price of the product with respect to the client’s income, the decision-making process will be immediate or on impulse, or will require more time. In addition, in this process there may be other people who recommend or influence customer decision making.
Customer Behavior and Conduct in Purchase
Normally, when the product / service is new to the customer, it will go through all the stages of the purchase process. This will probably affect the maturation period of the sale.
Attributes in the Purchase
Finally, we think it is essential to determine why the customer buys, that is, determine the criteria that condition the purchasing decisions of the target audience. These criteria determine the preferences of the clients between the different products or services and constitute the starting point of the commercial policy that we propose to develop to reach the market.
Potential Demand and Trends
This section will quantify the total market volume as well as the market attractiveness or potential demand for the company. In this sense, the potential demand we expect will be determined for each niche or market segment. There are many techniques to try to anticipate the potential market demand but they depend mainly on the activity and the type of specific business.
If the product or service is not new, we can obtain data from the Administrations and calculate the size of the market in terms of units sold and turnover.
If the product is an innovation or is innovative worldwide, we can determine the potential market based on similar or substitute products. In addition, we can extrapolate the data if the product is marketed in other regions, countries or markets.
Finally, we must evaluate the attractiveness of the total market for our company, that is, the potential demand in units of product and service, the price and the turnover.
In this section it is necessary to analyze the trends for each market segment and for each geographical area. Trends can come from changes in economic, technological or fashion cycles for example. The objective is to position the company’s products and services in a differentiated way and adapted to the new demands of the customers. To perform the analysis of demand trends we must look at the commercial actions of the leader or main competitor.
Seasonality of the Demand
In this section we must determine the possible times of the year of low sales to decide how to increase them.
In addition, we must consult experts, analyze and take into account the legal requirements to sell in that market, as well as the distribution channels.
This section will identify which is the direct competition or companies that sell the same or similar product, it will analyze how it works and how it sells, if there is an important direct competitor to consider, etc. and what are the strengths and weaknesses of the company and the competition.
In addition, specific information must be obtained from competitors:
- First name.
- Product lines, elements of differentiation.
- Key success factors.
- Market share of the different competitors.
- Global objectives and by segments.
- Sales volume in units and in euros.
- Cost structure: analysis of the costs incurred in its value chain and its production process.
- Means of financing and solvency.
- Innovation capacity: observe the evolution of innovative capacity and changes in the ways of doing things.
- Technology level: technological level, patents, licenses, secret processes, quality systems, equipment, etc.
- Degree of differentiation of its products with respect to those of our company.
- If they have economies of scale: that is, the operational advantages associated with the large size of the company.
- Communication strategy: transmitted image, perceived image and reputation in the market.
- Brand loyalty: consumer preferences over the different market alternatives.
Concrete information can be obtained from the competitors, obtaining through the Chamber listings of companies registered in the same activity by areas, or in the Insular Mercantile Registry, balance sheet data of competing companies.
Indirect Competition and Substitute Products
Substitute products are those offered by other companies in the market that play a similar function to ours for the same group of consumers to whom the company will go. They represent a constant threat that can be accentuated by changes in the environment, such as variations in price or quality.
Substitute products pose a threat. Therefore, the evolution of these products and the improvements made to them should be closely monitored.
In addition, the risk of our customers changing suppliers is quite high if they find any additional advantage in the substitute product since their propensity to change is quite high. In addition, it is necessary to consider whether substitute producers maintain a very aggressive commercial policy which may motivate some of our customers to decide to start buying from these competitors.
Potential Competition and Entry Barriers
The difficulty or ease of entry of new competitors in the market will be conditioned by a series of intrinsic factors of the sector, by barriers raised by the companies themselves or by the combined effect of the individual actions of those operating in the sector.
Some of the variables that will help us establish what are the barriers to entry in the sector are economies of scale, product differentiation, identification of specific brands by customers, exchange costs, capital requirements, curve of learning, etc.
Due to the importance that the costs of buying products from suppliers or subcontractors can represent for some businesses with respect to the sale price of the company, summarize the company’s policy on them as well as the most relevant aspects for the business.
Identify and Classify Suppliers
First, we must make a list of suppliers detailing the products it offers,% of the market it controls, prices, qualities, payment conditions and delivery times.
Secondly, they must be classified in order of importance that will be given by the products they supply if they are critical to the process, if there are alternative products, or if the expected volume of their supplies is very significant in relation to the total.
Supplier Selection and Evaluation Criteria
In this section, we will select the most important suppliers in order to establish a preferential relationship with them. These suppliers must meet the following requirements: competitive prices, specialized in the products they deliver, reliable in quality and delivery times, better technical service and infrastructure, proximity and proximity to the company.
In addition, we must periodically evaluate suppliers to know their degree of compliance with the levels of quality required.
A purchasing policy must be established that includes the criteria and aspects related to the evaluation and selection of suppliers, necessary quality requirements, delivery times, payment policy (cash or credit, and in this case set the payment term), etc.
This section will discuss the facilities and resources available for the storage of raw materials and purchases.
Term of Payment to Suppliers
It involves breaking down 100% of purchases from suppliers based on the number of days they grant us as credit; cash, 30 days, 60 days, …
Risks and Key Success Factors
Key Factors of Environment Success
Once the creation of the company has been completed, with all the procedures and requirements, the entrepreneur is faced with the challenge of surviving in the market and this is a job he must do every day. At this stage the Business Plan is very useful, it will show its usefulness as a planning tool and especially work.
Given this situation, knowing what are the factors that affect both the failure and the success of a business project help the entrepreneur, giving him some room for maneuver. For guidance purposes, the following could be highlighted:
- Regulatory barriers : the creation of a company is a process of certain complexity, which is subject to a set of requirements, involves spending time and addressing direct and indirect costs.
- Skills and training: deficiencies in training and lack of motivation. Lack of capacity prevents potential business opportunities from creating new businesses.
- Competition policy : tacit agreements between established companies.
- Bankruptcy legislation: good bankruptcy legislation is essential to ensure that if necessary, companies can exit the market, allowing a reallocation of efficient resources, and at the same time, all parties recover the maximum of their investment.
- Fiscal and labor barriers : the existence of high tax rates and high social charges reduce the incentive to start businesses.
- Delays in payments : the financial vulnerability of companies makes the delay in payment have a strong impact on their growth.
- Financing : difficulty accessing the capital market.
- Intellectual property rights : insufficient protection of intellectual property rights, companies do not invest in research because they fear that their results end up in the hands of competition.
Key Factors of Sector Success
In addition, we have to analyze the factors of the sector that are based on the characteristics and nature of the activities carried out in it. This information can be extracted through interviews with people related to the activity sector, professionals, suppliers, distributors, potential customers, etc., describing the possible applications of the product as well as the reasons that will encourage customers to buy it and what is the Size of our market.
Reflect, the important thing is to compete in markets where the company has a long-term sustainable competitive advantage.
Some examples such as:
- price or cost structure of the organization
- fair market moment
- design or the degree of innovation
- technological innovation or efficiency in the execution of productive activities
- environmental respect
- commercial aggressiveness or the ability to market
- brand image.
Its objective is to specify, in a summary chart or table, the evaluation of the company’s strengths and weaknesses (competence or ability to generate and sustain its competitive advantages) with external threats and opportunities, consistent with the logic that The strategy must achieve an adequate adjustment between its internal capacity and its position.
SWOT (Weaknesses, Amenzas, Strengths and Opportunities) or SWOT in English (Strengths, Weakness, Opportunities and Tretas)
The SWOT analysis has achieved great importance within the strategic direction of the company.
Its objective is to specify, in a summary chart or table, the evaluation of the company’s strengths and weaknesses (competence or ability to generate and sustain its competitive advantages) with external threats and opportunities, consistent with the logic of that the strategy must achieve an adequate adjustment between its internal capacity and its external competitive position.
The important thing is to think what is necessary to look for to identify and measure the strengths and weaknesses, the opportunities and threats of the company, key issues that are gathered in a table.
Internal strengths and weaknesses are important since they can help us understand the competitive position of our company in a specific business environment. A first step, therefore, is to analyze the competitive environment that surrounds our company. Each company has to decide which are the variables (critical success factors -FCE-) appropriate to use according to the markets and segments in which it competes.
Once the FCEs are defined, a benchmarking or comparative analysis process must be carried out with the best competing companies. This process can even lead us to identify new opportunities.
Finally, a graph is established that includes the possible strategies to adopt. This graph is carried out from the elaboration of a 2 x 2 matrix that includes the formulation of these most convenient strategies.
In this SWOT matrix by columns we will establish the analysis of the environment (1st column: Threats, 2nd column: Opportunities) and by rows the diagnosis of the company (1st row: Strengths, 2nd row: Weaknesses). Thus we establish 4 quadrants that reflect the possible strategies to be adopted by the company:
1-1 Defensive Strategies
1-2 Offensive Strategies
2-1 Survival Strategies
2-2 Reorientation Strategies
The practical development of the matrix is completed by analyzing each quadrant in isolation. That is, if the first one is chosen (1-1 … Strengths-Threats), each of the strengths that the company in question has and each one of the threats it has from abroad will have to be identified, so that Each intersection should be analyzed to study the consequences and actions that may arise from said situation. With this information, the future formulation of the strategy can be guided.
1-1 Defensive strategies : the company is prepared to face threats.
1-2 Offensive strategies : it is the position in which every company would like to be. You must adopt growth strategies …
2-1 Survival strategies : the company faces external threats without the internal strengths necessary to fight competition.
2-2 Reorientation strategies : the company is presented with opportunities that it can take advantage of but nevertheless lacks adequate preparation. The company must establish a program of specific actions and reorient its previous strategies.
Analyze project opportunities. Some examples;
- enter new markets or segments,
- serve additional groups of customers,
- expansion of the product portfolio to meet new customer needs,
- rapid market growth,
- diversification of related products,
- removal of trade barriers in attractive foreign markets.
Analyze project threats. Some examples;
- entry of new competitors with lower costs,
- increase in sales of substitute products,
- slow market growth, change in the needs and tastes of consumers,
- increased barriers and costly regulatory requirements,
- increasing bargaining power of customers and / or suppliers.
Analyze the strengths of the company. Some examples;
- capabilities in key activities, adequate financial resources,
- superior technological skills and resources,
- property of the main technology,
- cost advantages,
- important R&D program,
- good image in consumers,
- leader in the market,
- directive capacity
Analyze the weaknesses of the company. Some examples;
- there is no clear strategic direction,
- inability to finance the necessary changes in the strategy,
- R&D delay,
- lower than average profitability,
- weak image in the market, limited product portfolio,
- obsolete facilities,
- Weak distribution network or inefficient systems – excess internal operational problems.
Economic and Financial Plan
Financial Planning consists in the preparation of medium and long term forecasts, in a horizon of 3-5 years. Being forecasts for more than a year, they have a high degree of uncertainty, but nevertheless it is convenient to carry them out to be better prepared and to direct the company with more precision, when marking the directions that it must take. A subsequent control will allow us through deviations, analyze and correct trends.
The financial analysis consists of evaluating the current economic-financial situation of the company and projecting its future. In short, to prosecute the business management of the economic unit to predict its future evolution and to be able to make decisions with the least uncertainty.
With the financial plan we try to find out the future liquidity of the company , translating it into a Treasury chart, which we can prepare in the most timely way to highlight its components:
As a cash budget (from the Provisional Results Accounts).
From the provisional results. (Initial balance of treasury, collections, payments).
The financial planning of the company is materialized through the realization of the so-called Feasibility Study of the company that will agglutinate all the studies that the employer has to perform on the income and expenses, as well as on the payments and payments, of a project, to determine if it can be carried out, for which it must be met that it generates positive and sufficient results in line with the investment made and with the hope of the investors, that we assume it above the normal market interest, as well as that generate sufficient liquidity so that the continuity of the company is not jeopardized.
We must be clear about the two final objectives of the project to make it viable:
To carry out a feasibility study we must prepare the following budgets:
Provisional income statements (Income and Expenses)
Financial plan (treasury budget)
Once made, the following circumstances must occur:
The financing budget must cover the investment budget
The provisional income statement must be positive and, as we have said before, sufficient.
The financial plan must show positive liquidity every year and in all the months of the first year.
The objective of the financial analysis is to evaluate the current economic-financial situation of the company and project its future.
To judge the business management of the economic unit to predict its future evolution and to be able to make decisions with the least possible uncertainty.
This section aims to analyze the economic and financial viability of the business during the planning period. Normally, the planning period will be between 1 to 5 years, being a standard 3 years.
For this, an Investment Plan will be carried out for the start-up of the company, detailing the assets and a Financing Plan with the sources of own or external resources necessary to make the investments, as well as the operation of the company.
In addition, an Income Forecast will be made with the sales of products and services of the business activity, as well as other extraordinary income. In addition, an Expense Forecast will be prepared that includes purchases of raw materials and components, supply supplies, personnel expenses, taxes and general expenses.
From the Income and Expense Plan, we will prepare the Treasury or Cash-Flow Plan with the objective of guaranteeing the liquidity of the company’s company in the short term and financial solvency in the medium and long.
From these pension plans, the Balance Sheet and the Income Statement will be prepared. Finally, certain economic and financial analyzes based mainly on ratios will be carried out, with the objective of guaranteeing the viability of the start-up and operation of the company.
Once the initial investment budget for the start-up of the company and the conditioning of the premises has been made, specify a budget with the planned investments during the first year (calendar year) as well as in the following 5 years contemplated by this feasibility plan. For this, we must identify and compare the offer of the different manufacturers, suppliers or distributors of the different investment goods. We will prepare a table with these suppliers comparing them, by product, types or models of products, characteristics, technical specifications, production, prices, payment method, delivery time, availability or stock, etc. Then, the most appropriate offers will be selected in terms of the binomial value for money
For the realization of the Investment Plan we will use the amounts without IGIC (Canary Islands Indirect General Tax). However, for the purpose of financing the investment, it must be taken into account in a separate section. In this way, the total IGIC supported must coincide with the account “Public Finance IGIC investments” in the Balance: Active.
The Financing Plan includes the company’s own resources and the long-term financing of the company in general, intended to finance the permanent asset and cover a reasonable margin of the working capital; It also includes the income to be distributed in several years, own shares and other transitory situations of basic financing.
There are two main sources of financing defined in the Financial Economic Plan: own resources and external resources.
They are integrated by the contributions of the partners in the form of capital; the results of the different exercises that will remain within the company in the form of reservations; and finally, the possible public funds or grants to fund lost received by the project that have as objective to finance investments of the business project.
They are the component of the financing composed of financial funds, with or without cost, that will have to be returned within a certain period of time. The cost of these will constitute the overall financial cost of the project.
Reciprocal Guarantee Companies
Short Term Financing
The revenue forecast details among others the sales of the company, month by month, product by product, in physical units and in euros.
This budget is made by the commercial department or directly by the entrepreneur depending on the size of the company. For this, the market, competitors, customers, etc. must be taken into account. In addition, we must carry out a study of the sales units of each product, the price of each of them and the commercial margin.
The sales forecast is not about how much we would like to sell, but how much it is possible to sell, depending on the market we will attack and in relation to the structure of our company and resources. In short, we will determine the sales objective for next year.
This objective must be:
Realistic (adjusted to market and company conditions)
Notification to company staff
The sales forecast can be defined in different ways, as many as companies, so some determine it based on the historical (how much we sold last year and how much we are going to sell this year, for example 10% more), others based on plans strategic they own.
It is convenient to use a process that is as objective as possible, such as determining the total purchase volume of the market and marking the portion that we will fight to achieve (for example, a town of 5000 inhabitants consumes 4 million breads a year, depending on to the competition and of my resources I can set my sales forecast at 2% quota, that is, 200,000 loaves, that would be my sales forecast in product units).
The sales forecast should be set based on:
Profitability of these sales
Market share to reach
That sales forecast will determine my business actions and strategies to achieve economic results. Also, we must not forget that these results are achieved through customers, so we will always keep them in mind. It is no use setting this goal and sitting down to come and buy our bread. It is necessary to have a proactive attitude in the search of customers and satisfaction of their needs.
Once the sales forecast is set, seasonality will be determined. This concept means that it will be necessary in the planning to determine how sales will be developed throughout the year, by months, depending on the weather, typical holidays, traditions, time of year, etc. For this, we have to have a deep knowledge of the business.
Sales of Product or Services
This section includes the company’s sales of products or services and that will be adapted to the characteristics of the operations they carry out, with the specific designation that corresponds to them.
Sales . For transactions, with departure or delivery of the goods or services trafficked by the company, by price.
Returns of sales and similar operations . Remittances returned by customers, usually for breach of the order conditions. This account will also count discounts and the like originating from the same cause, which are subsequent to the issuance of the invoice.
” Rappels ” on sales. Discounts and the like that are based on having reached a certain volume of orders.
Seasonality of Sales
Analyze the demand to detect possible times of the year of low consumption of our product or service. In general, the seasonality of demand is related to the climate and customs of our region, for example; coats, ice cream, etc.
Finally, in the event that our product is strongly conditioned to the seasonality of demand, we will have to search and decide how the estimated sales will be achieved in the months of low activity.
Customer Collection Form
Specify in this section if cash is charged or if the customer charge is postponed. In general, the payment is deferred in periods of 30, 60 or 90 days, depending on the size of the product or service offered and the sale price thereof.
Income from equity interests. Income in favor of the company, accrued in the year, from equity interests.
Income from fixed income securities. Interest on marketable fixed income securities in favor of the company, accrued in the year.
Credit Income Amount of interest on loans and other credits, accrued in the year.
Discounts on purchases for prompt payment. Discounts and assimilates granted to the company by its suppliers, for prompt payment, whether or not they are included in the invoice.
Benefits in negotiable securities. Benefits produced in the sale of fixed or variable income securities.
Positive exchange differences. Benefits produced by changes in the exchange rate in fixed income securities, credits, debts and cash, in foreign currency, in accordance with the criteria established in the Valuation Standards.
Another financial income. Income of a financial nature not collected in other accounts of this subgroup.
Those granted by the Public Administrations, companies or individuals for the purpose, in general, of assuring them a minimum profitability or compensating “operating deficit”.
Official operating subsidies. Those received from Public Administrations.
Other operating subsidies. Those received from companies or individuals.
Purchase of merchandise / raw materials forecast
Purchases are the company’s supply of merchandise, raw materials, other supplies, ongoing products, semi-finished products, finished products and by-products, waste and recovered materials. It also includes the works that, being part of the own production process, are entrusted to other companies. These accounts will be charged for the amount of the purchases, upon receipt of the remittances from the suppliers or on the way they are placed if the goods and goods are transported on behalf of the company. It will be charged upon receipt of the work commissioned to other companies.
From what we plan to sell, once estimated sales, we will take out the amount in units and price of purchases, taking into account the following points:
What services are not purchased.
Average stock that we must have in order not to be left out of stock.
Cost of container transport and type of merchandise.
Logistics of merchandise distribution.
Reminder: Purchases will always be greater than or equal to sales.
As with sales, depending on the type of business and product we sell, we must keep in mind that not everything that is bought is sold. Therefore, sometimes it will be necessary to maintain a stock in order not to be left out of stock. Here it is also good to contemplate that in the Canary Islands it is not so easy to supply and transport the merchandise, as to risk not having stock.
On other occasions, when the product we sell is perishable, it will not be necessary to store it since it is released before it is inventoried.
In the case of services, these are not purchased, they are only made, that is, only the part of sales, not purchases, should be filled.
The items will be adapted by the companies to the characteristics of the operations they carry out, with the specific denomination that corresponds to them.
Other purchases and supplies necessary for the development of the activity
Fuels . Energy materials susceptible to storage.
Parts . Parts intended to be mounted in facilities, equipment or machines in substitution of other similar. Those with a storage cycle of less than one year will be included in this account.
Various materials . Other consumer materials that are not to be incorporated into the manufactured product. Packaging. Covers or wraps, generally unrecoverable, intended to protect products or merchandise to be transported.
Containers . Containers or vessels, normally intended for sale together with the product they contain.
Office supplies . The intended for the purpose indicated by its name, unless the company chooses to consider that the office material acquired during the year is subject to consumption in it.
Returns of purchases and similar operations . Remittances returned to suppliers, usually for breach of the order conditions. This account will also count discounts and similar originating from the same cause, which are subsequent to the receipt of the invoice.
” Rappels ” for purchases. Discounts and the like that are based on having reached a certain volume of orders.
Payment Method to Suppliers
The Supplier Payment Policy includes discounts for prompt payment as well as financing.
It is a form of automatic financing, since normally no negotiation is usually carried out to obtain such financing, as in the case of bank financing. It is very interesting to know the possibilities and limits of financing of suppliers, although obtaining these facilities is usually without interest charges, we must know how much it costs us opportunity to give up the discount for prompt payment, to be able to compare it with the cost of other short-term alternative financing.
It is the most current financing of the company, representing in most of them an important support to finance part of the Exploitation Cycle, shortening the Middle Maturation period.
Services of a diverse nature acquired by the company, not included in purchases or that are not part of the purchase price of fixed assets or temporary financial investments.
Research and development expenses for the year . Research and development expenses for services commissioned to other companies.
Leases and fees. Leases, those accrued for the rental of movable and immovable property in use or available to the company. As well as the fees, fixed or variable amounts that are satisfied by the right to use or concession of use of the different manifestations of industrial property.
Reparations and conservation.
Services of independent professionals . Amount that professionals are satisfied for the services provided to the company. It includes the fees of economists, lawyers, auditors, notaries, etc., as well as the commissions of independent mediating agents.
Transport . Transportation by the company carried out by third parties, when it is not appropriate to include them in the purchase price of fixed assets or stocks. This account will include, among others, sales transport.
Insurance premiums . Amounts paid for insurance premiums, except those referring to company personnel.
Banking and similar services . Amounts paid for banking and similar services, which are not considered financial expenses.
Advertising, propaganda and public relations s. Amount of expenses paid for the items indicated in the name of this account.
Supplies . Electricity and any other supply that does not have the quality of storable.
Other services . Those not included in the previous items such as travel expenses of company personnel, including transportation, and office expenses not included in other accounts.
The tax is a monetary benefit that the State or other public entity requires in use of the power attributed to it by the Constitution and the Laws of those to whom it is subject. Taxes are classified into fees, special contributions and taxes.
The rates are those taxes whose taxable event consists in the private use or special use of the public domain.
Taxes are taxes required without consideration, whose taxable event is constituted by businesses, acts or events of a legal or economic nature, which show the taxpayer’s taxable capacity, as a consequence of the possession of a patrimony, the circulation of the assets or the acquisition or expense of the rent.
In the national tax system, and especially for the regional level, the following taxes stand out:
The Income Tax for Individuals (Personal Income Tax) , Corporate Income Tax (IS) , Property Tax and Inheritance and Donation Tax on Direct Taxation.
The Canary Islands General Indirect Tax (IGIC) , the Tax on Patrimonial Transfers and Documented Legal Acts (ITPAJD), the Special Taxes and the taxes of the Customs Debt on the Indirect Taxation.
The Canary Islands Economic and Fiscal Regime (REF) establishes a set of economic and fiscal measures that encourage and promote the economic and social development of the Canary Islands, adapting it to the new economic and political circumstances prevailing. The main fiscal and economic instruments of the REF are the Reserve for Investments in the Canary Islands (RIC), the Deductions for Investments in the Canary Islands, the Investment Incentives, the Production Bonuses, the Arbitration AIEM on Imports and Delivery of Goods in the Canary Islands , as well as the Canary Islands Special Zone (ZEC).
With respect to the Local Haciendas, the Tax on Real Property (IBI) and the Tax of Economic Activities (IAE) will be, of obligatory levy by the City Councils, however, to indicate that with the reform of Law 39/1998 it is established to from 2003 the exemption of this tax (IAE) to certain taxpayers. To them other minor tax figures are added.
What is it?
The Profit or Loss Account is a financial statement that is of great importance as it is an indicator of the effectiveness of business management, although it is not the only one, much less sufficient. It represents the difference between income and periodic expenses (this means that they must correspond to the period, current year). This implies the need to accrue to know what income and expenses are to be attributed to this period and which are to be attributed to another, even if they have been generated in this period.
Expenses are classified by their nature. The results are classified into operating results, which include those of the typical activity of the company and of complementary activities generated regularly. Another result would be that of financial activities. Here flows from financial activities would be collected. It also implies regularity. The result of exploitation + the financial result constitutes the result of ordinary activities. If we add to the result of ordinary activities the extraordinary result we will have the result before taxes. After subtracting the income tax, the result after tax is finally left. It will include the benefit or loss of the year.
As in the case of the balance sheet, next to the figures for the current year, the previous ones must be recorded. Greater aggregation of items is allowed for the sake of clarity. And, as we could imagine, the criteria followed from one exercise to another cannot be modified without due justification.
The Income Statement will include the Income and Expenses for the year, and by Difference, the Result. Distinguish operating results from ordinary ones. As a result of the operations carried out by the company, income and expenses are produced, the difference of which results in the period. The result is the difference between income and expenses.
What is it for?
The income statement serves to know the reason for said result. In this sense, analyzing this account and its composition, companies can know if the progress of their exploitation is the desired one.
The analysis of the income statement, and its distribution, allows to know the results generated by the company itself (self-financing) in the period. On the other hand, obtaining a profit or a loss and where they have been generated offers essential information for the analysis of the management carried out, the evolution of the current situation and the forecast on the future of the company.
What is it?
The Treasury Forecast is a plan that details the collections (real cash inflows) and payments (real cash outflows) that the company makes monthly and annually. It is a useful tool to analyze if we will be able to face the monthly payments, as well as the interest. Includes collections and payments related to the investment, distributed by years.
What is it for?
The Treasury Forecast has two objectives:
Capture financial resources to cover a deficit situation (or, proper placement of leftover resources).
Estimate the minimum liquid money that should always be in the company.
What is it?
We can define the Balance as the representation and mediation of the assets of the company at a given time and the static description of investments and resources. It is an economic photograph taken at a given time, taking into account that the Assets will be collected in the Assets and rights, where we have invested the money, and in the Liabilities the obligations of the company with respect to the capital contributed by partners or shareholders, as well as Debts with creditors.
The Balance Sheet, from the legal point of view, represents, on the one hand, the assets and rights in favor of the company at a given moment of time (active); on the other, the obligations contracted at that date (liabilities) and, as a difference, the assets belonging to the owners (net worth).
From an economic perspective, the Balance represents the sources of financing of the company at a given time, from both third parties outside the company, as well as the owners of the company and the investment or application that has been given to that financing.
The Balance Sheet is divided, therefore between assets and liabilities.
We order the asset based on its liquidity, placing those less liquid goods and services at the top until reaching the most liquid at the bottom of the Balance sheet asset. Assets and rights that have a liquidity of more than one year are called fixed or fixed assets, while those that need less than one year to be recovered in money are called current assets. In the Balance Sheet, assets are presented from lower to higher liquidity. First the elements of fixed assets are placed and then those of circulating character.
In the balance sheet, the asset items are ordered from lowest to highest enforceability.
- Tangible real assets : Company assets of a tangible nature. His permanence in the company exceeds the year.
- Intangible real fixed asset: Intangible assets and rights of the company. Its permanence is also superior to the exercise.
- Actual fixed assets in progress : It is in the manufacturing process. A very important detail is that it will not begin to amortize until it is put into operation.
- Real financial assets : Investments of the company of a financial nature for the purpose of permanence for more than one year and control.
- Fictitious fixed asset: This asset does not support the production process or generate returns. It has no realization value. It consists of expenses that the company had to make in order to establish itself and without which it would not exist. For this reason they are considered to have an impact on more than one fiscal year. The PGC forces you to systematically unsubscribe them in a maximum of 5 years.
- Deferred expenses : they are activated because they are considered to have multiannual economic projection. You have to unsubscribe following a financial criterion.
- Current assets, debtors : Collection rights of the company against third parties, with short-term maturity.
- Current assets, stocks: Inventoried materials for further processing or sale.
- Current assets, temporary financial investments : Investments of a speculative nature and with no intention of remaining long in the company.
- Current assets, available : Company liquid. It does not imply any cost for this.
Regarding the liabilities of the Balance sheet, the obligations of the company with third parties are placed according to enforceability or maturity, placing resources with a longer repayment term in the upper part of the liability and in the lower part those of nearest expiration They can be of two types, depending on their enforceability. All those debts with third parties, other than the partners, regardless of the term of repayment of the debt, or foreign funds. All initial and subsequent contributions of the company’s partners and the benefits that have not been distributed, or own funds. The liability appears in the Balance Sheet ordered according to the degree of enforceability of the obligations, placing in the upper part the non-enforceable liabilities and, in the lower part, the most enforceable.
What is it for?
The balance balances investment and financing. It determines the financial position of the company at a given time.
The balance will be square with all the information that we have entered in the previous sections, being the Profit and Loss account that will make this block real.
The analysis of the Balance will allow evaluating aspects such as: liquidity situation or payment capacity, indebtedness, financial independence, capitalization, etc. This analysis can be done with a single Balance (static equity analysis) or to see the evolution of the company through several balances (dynamic equity analysis).
The economic and financial analysis will allow us to study and diagnose the different aspects that will define the profitability and viability of the project, the ultimate goal of our business plan, to define the weaknesses and strengths of the business idea raised from the beginning.
Economic analysis. The economic analysis aims to analyze the profitability of the business project, its evolution through magnitudes of the Income Statement (sales, personnel, etc.), economic structure, profitability threshold, as well as conducting a study of efficiency.
Financial analysis. If profitability is analyzed through the Income Statement, the financial analysis (liquidity and solvency) is produced through the Balance Sheet. These two factors study the structure and composition of the rights and obligations of the company, as well as their relationships over time. The use of the ratios in the financial analysis is very effective and illustrative for those who have to carry out their study.
The analysis is done through ratios. The main economic and financial ratios are detailed below.
Solvency and Financial Balance
The main solvency and financial balance ratios are:
Working capital . It is defined as the part of current assets financed with permanent capital. The working capital or revolving fund constitutes the amount of current assets that are permanently found in the company in average terms. That is, it is the amount of current assets that remain immobilized during the operating cycle to make the operation of ordinary activity possible. They provide financial tranquility. Its value must be greater than zero.
Static solvency . Understood as “capacity”, which means that the company has enough assets in its assets to meet its debts. Indicates the liquidity of the company to deal with short-term debts. A normal ratio is considered a 2.
Availability or Liquidity . . Indicates the liquidity of the company to deal with short-term payments. A normal ratio is considered a 1.
Total indebtedness . Indicates the relationship between own and foreign funds.
– The optimal value is between 0.5 and 0.6.
– A ratio higher than 0.6 indicates that the value of debts is excessive.
– Less than 0.5 indicates an excess of own capitals. Foreign Funds / Own Funds
Importance of Long Term Debt
Guarantee or distance to bankruptcy . Long-term debt, having a further maturity, is indicative of the quality of the debt, so that the lower this ratio, the debt is of better quality.
Interest coverage by RGO (Resources Generated by Operations)
The Profitability Analysis focuses its attention on:
- The analysis of the structure and evolution of the Income Statement.
- Analysis of the components of economic profitability.
- Financial profitability and indebtedness. The main ratios for profitability analysis are detailed below:
Economic profitability of exploitation. It measures the capacity of the company’s operating assets to generate value.
Economic profitability . It measures the ability of a company’s assets to generate value, regardless of how they have been financed and fiscal issues. It allows a more appropriate comparison between companies from the economic point of view. It also measures the profitability of the company’s total investments, regardless of how they were financed. Indicates the benefit generated by the Company’s Asset, regardless of how it is financed. It allows to know the evolution and factors that affect the productivity of the company’s Asset.
Rotation of investments . It is a kinetic ratio and as such is a relationship that instead of measuring a relative value, serves to analyze a specific rotation or level of activity. Therefore, it reflects the times that the total assets have been used in obtaining sales. It is of interest that its value be as high as possible, since it means a good use of the available resources.
Financial profitability . It measures the Net Profit generated in relation to the investment of the owners of the company. It measures the efficiency with which the company remunerates the capitals entrusted to it by the shareholders or owners of the company.
Economic and Financial Structure
Financial Balance Analysis. Focus your attention on:
– How the company obtains the necessary financial resources to carry out its activity.
– And also, in how the company uses these resources.
The main economic and financial structure ratios are detailed below:
• Importance of Fixed Assets : It indicates the increase in fixed assets (assets already acquired and owned by the company) with respect to the total assets. The higher this indicator, the better the economic structure of the company.
• Importance of current assets: It indicates the increase in current assets with respect to the total assets. The higher this indicator, it can indicate something good or something bad, we should look at the items that compose it, since it would not be good to have accumulated a lot of treasury or to increase our debtors, which would mean that we are not charging, or having excess of stocks, which will produce an important cost of stocking.
• Importance of Own Funds . It tells us how capitalized the company can be, that is, the ratio of Own Funds to the total assets. The older the better.
• Importance of debt to L / P: Measures how investments in the asset are financed. Must be financed to L / P, taking into account that loans of more than one year are fixed assets investments.
• Importance of C / P debt : Measures how the company is financed the investments of the asset. It must be financed with credits or loans ac / p, taking into account that the repayment term is less than one year, those investments in current assets. The ac / p debt should not be very large, we must try to transfer the ac / p debts to the l / p as far as the company allows us, since if the ac / p debt is greater than 50% of the Total liabilities will mean that our company is poorly financed with the risk of its decapitalization.
The main growth indicators are detailed below:
• Investment growth : It indicates the growth of total assets (fixed assets + expenses to be distributed in several years + current assets) compared to the previous year. This indicator is given to us by the Balance.
• Sales growth : It indicates the growth of total sales (Revenue from sales + Revenue from service provision + Operating subsidies + other operating income) compared to the previous year. This indicator gives us the results.
• Growth of own funds : It indicates the increase in the company’s own funds compared to the previous year. This indicator is given to us by the Balance.
• Workforce growth : It indicates to what extent the workforce of hired workers of a specific year has grown compared to the previous year.
• Net profit growth : It shows us in what percentage the result of the year has increased (once the corporate tax has been applied) with respect to the previous year. This indicator is given to us by the income statement.
Obviously, all these indicators that indicate the growth of our company, must be positive to interpret that each year the value of the company is greater, which indicates that investments are being well managed and that it is not undercapitalized.
Financial Indicators on Investment
The main financial indicators are detailed below according to the classification method: Static Methods: They consider collections and payments without taking into account when they occur, giving the same value to the receipts received in year 1, 2 and 3. The most known are:
Net Cash Flow : It consists of the sum of all collections except the sum of all payments.
Recovery Period or PAY BACK : It is the time it takes to recover the investment. The payback shows the number of years the investor will take to recover the initial investment. It is a value that we must observe very cautiously, since if we set a very short investment recovery period as an objective, we may reject very interesting investment alternatives simply because they take longer to give great benefits. However, we can see how good investments in which we soon recover the invested capital, but nevertheless in the long term its profitability is very low. If we have several investment projects, the one with the shortest recovery period will be chosen. This method has two very clear inconveniences:
– Does not take into account cash flows after the recovery of the disbursement.
– Nor does it take into account that the value of money is different at different times of time. Therefore, we should not take this value separately, but in a broader analysis together with the Net Present Value. Dynamic Methods: It takes into account the moment in which payments occur, therefore, even if they have the same amount, it has different current value, depending on when it occurs. The most used are:
Net Present Value (NPV) : The current value of an amount to be collected or paid in the future in its conversion to today’s euros. To convert today’s euros into future euros, you have to take into account its update rate, which is generally considered at 10%. In short, the current value of an investment is the current of all collections except the current value of all payments. An investment is advisable when your NPV is positive and inadvisable when your NPV is negative. Being: A: the initial disbursement and Q the initial disbursement.