Manpower and Capital Expenditure Components of a Business Plan

We will again continue with what we have been saying about the exercise of writing a business plan being a process of giving structure to your thoughts and the mental picture you have of how to run your business. When you formulated the Small Business Marketing Plan, as outlined in Part 2 of this series of articles, you knew that the first question you need to address while getting into translating this marketing plan into action would be, what kind of people do I need to employ in my business. When we say what kind of, we mean both the skill-set mix and the headcounts that will constitute the labor resources for your business.

Charting out the right Human Resources Plan for your business is a very critical part of the business plan. It will be a good idea to start with the organizational structure and then taking up the workforce requirement for each function as per your proposed organizational structure. Then for each function, you need to prepare a time-bound recruitment plan, in line with the marketing plan, so t

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• Sales (already covered in Part 2)
• Marketing support
• Production or Operations (depending on whether you are looking at products or services)
• Logistics Support
• Finance and Accounting
• General Administration

Definitely, you will use certain productivity norms to arrive at the headcount, just as we used the target per sales executive to arrive at the sales force requirement. For this you need to get a feel for how others in the industry operate and benchmark your requirements against the industry norms.

This exercise does not stop with deciding on your labor requirements against the three-year plan. There are some critical issues which will dictate your Human Resources Plan. As shown in the diagram, planning properly to attract staff in the first place, and more important, planning to motivate and retain the existing staff are very crucial. Thus the Human Resource Plan must address the Compensation Plan, Performance Appraisal Plan, and the Training Plan. All expenses towards these must be built into your business plan to get a professional and realistic picture of the appropriate labor resources you need for running your business.

Once your labor requirements are worked out, and the Human Resources Plan as given above is documented, you are now ready to prepare the Capital and Technology Plan for your business. The very first question you will address here will be relating to the space you need for your business. The space requirement must always keep the long-term requirement in mind. Again, you will generally use standard industry benchmarks to compute your space requirements. A ball-park estimate would be based on a rough-cut figure of 60-80 square feet of space per headcount in any of your offices. This will off course be modified to accommodate requirements for training rooms, laboratories, conference rooms, and so forth.

The space requirement will also be determined by whether you propose to operate from one location or from multiple locations, and multiple branch offices. If you are into products which will be produced by your firm, you will also need to determine the space required for your manufacturing facilities, which will depend upon your manufacturing process and the plant layout.

Given the space needed for your business, you will now come to the technology and infrastructure requirements. This will include the basic furnishing requirements for your office(s), such as seating, tables, filing cabinets, air conditioning/heating, utilities, power backup, telephone, fax, Internet and other office equipment requirements. For manufacturing facilities, you will also need to work out the machinery required to meet the manufacturing processed planned, the storage requirements, and on-site material movement equipments.

An ideal way to analyze and determine the infrastructure and technology requirements is to use a Value Chain Model as shown in the diagram alongside. The major activities of the firm can be looked upon as consisting of two categories:

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• The Primary or Mainstream activities, and
• The Support Activities

The infrastructure and technology requirements for each of these categories need to be planned, keeping in ming their Value addition to the firm. Thus some prioritizing will be required in assigning the capital planned against these requirements. Once this exercise is completed, you have a comprehensive list of your space requirements and the corresponding equipments and technology requirements.

Now to translate these into financial terms, you will need to decide on which components that you are investing in from this list will be purchased, and which of these will be leased. The items purchased (either with upfront capital, or with some financing scheme) will be considered as assets of the business, and the items leased will form part of your expenses.

Thus, your Capital and Technology Plan will include all the assets which will need capital for acquisition, and the items which you lease, which will require working capital to pay for these expenses.

Having worked out the Human Resource requirements and the Technology Plan, the body of the Business Plan you write will include details as above and the rationale for various decisions with respect to labor, technology and capital requirements. Besides this, for the purpose of assessing the impact of these plans on the finances of the firm, you will need to convert these to financial terms, specifying the assets and expenses, as explained.This, together with the Marketing Plan will form the key inputs for the three-year Financial Projections and the Accounting Model, covering the profit & loss Statements, balance sheet and the cash flow statements. We will examine these in Part 4 of this series.