Business Plan Disclaimer Please refer to the following terms and conditions before using this business plan template. By using this template, you agree to the terms and conditions set out below. This template is jointly compiled by ACCA (Association of Chartered Certified Accountants) Hong Kong and the Trade and Industry Department of the Government of Hong Kong Special Administrative Region (collectively referred to as "the Compiler") for use as general reference only. While every effort has been made by the Compiler to ensure the accuracy of the information delivered in this template, the Compiler shall not be liable for any error, omission or misrepresentation in such materials. Moreover, the Compiler shall not be liable for any economic or any other loss or damages (including without limitation to any real or anticipated increased costs or expenses, loss of profits, business contracts and revenues, and business interruption) incurred or suffered by any person using this template. To encourage a wider distribution of business planning information for general reference purpose, the Compiler would have no objection for users to disseminate or reproduce the materials or part of the materials on this template, provided that the users indicate the materials are obtained from ACCA and the Trade and Industry Department, and that the re-dissemination or reproduction is for a non-commercial purpose. BUSINESS PLAN Purpose of a Business Plan As the owner of your business, you probably have an extensive knowledge of your business and the industry you are in. Nevertheless, regardless of your current business stage, it is worthwhile for you to take one step away from your daily operations and spend some time to prepare a business plan and review it regularly as you work along. A business plan visualizes your thinking process about your own business and helps you to focus on where you want to go. It also acts as an operating tool to help you to evaluate your business performance. Hence, during the process of preparing your business plan, you will be able to assess how viable your business is, and what options and alternatives you may have for future business growth. In practice, a business plan can also serve a critical role to obtain funding for development and growth of the business. It is an effective tool to facilitate your communication with external parties including banks, financial institutions and potential investors by means of a systematic presentation of your business. While we stress the importance of a business plan, business owners should not deem that the preparation of a business plan ensures any financing opportunity. Each financial institution and investor has its own guidelines and criteria when considering a financing proposal, so conducting a business plan itself DOES NOT guarantee a higher chance in getting external funding. General Principles of Writing a Business Plan 1. Make your business plan user-friendly, easy to read and understand. 2. Use charts and figures along with descriptions and interpretations. 3. Decide who is the reader: bank or investor, and tailor your business plan for specific purpose. For instance, you should focus on cash flow adequacy for banks and potential return with payback period for investors. 4. Follow a complete structure to present your business in an organised way. 5. Include a general market overview / market analysis to show your understanding of the industry and your business position. 6. Emphasize your business uniqueness, strengths and competitive advantages. 7. Develop realistic but aggressive projections, explain use of fund and expected payback period. 8. Complete all the sections of a business plan first, then put all the highlights in the Executive Summary concisely. 9. Review and edit before presenting it. Tips to write a Business Plan 1. Tailor your business plan to suit different readers. 2. Focus on what the reader is looking for in a business plan, e.g., payback period, return on investment, etc. 3. Emphazise your real strengths. 4. Write in plain words, get to the point and make it clear and comprehensive. 5. Use figures, percentage and quantifiable information. The attached template is only for reference. BUSINESS PLAN (Sample for Illustration) Oi Fat Tat Ltd EXECUTIVE SUMMARY General guidance This is the most important part of your business plan. It provides a summary of the highlights of your business plan and tells the readers what you want. The length of this statement depends on the complexity of the business. Although this statement is put at the front of the document, it is the last section to be written, bearing in mind the following tips:  Have a concise statement to emphasize the main points of your plan.  Technical jargons should be avoided.  Tailor your business plan to suit different use.  When using your business plan to raise finance, highlight the investment / loan amount required, how the funds raised will be used, how your company is going to generate sufficient cash flow to service the loan, and / or how your company is able to generate an acceptable rate of return for investors. Oi Fat Tat Ltd (“the Company”) operates a Hong Kong style café (Cha Chan Tan) for over 10 years in Quarry Bay, known as “Ah Oi Cha Chan Tan” (AH OI) (阿愛 茶餐廳) that has become very popular because of its delicious breads, sandwiches, milk tea and coffee. Whilst its major customers include office workers and students around the area, it attracts people outside the district during holidays as well. In spite of fierce competition in the district, including 2 other Hong Kong style cafés and a big fast food chain café, AH OI has to deal with long queues of customers for most of the time. Whilst the existing tenancy of the Company in Quarry Bay is based on a percentage on turnover and it has quite a significant impact on the Company’s profit, the Company is considering purchasing its own premises in Quarry Bay. The Company intends to raise HK$25 million to finance the purchase of its own premises and another bread oven. Section 1: THE BUSINESS General guidance You have to tell what your business really is, such as the nature and substance, the type of operation, to whom you sell, how the product is distributed, and the business’ support systems. You should be specific in showing how you give your business a competitive edge. When preparing this section, the following points could also be noted: (1) Mission1 (2) Eco-coalition2 (3) Attraction3 (4) Trade situation4 (5) Social relation5 The mission of the Company is to operate a Hong Kong style café, “Ah Oi Cha Chan Tan” (AH OI)( 阿愛茶餐廳), which provides good quality and hygienic food. The owner-operator of the café, Ms Lee Oi, believes that food should be prepared with fresh ingredients and with heart. The target clientele of the Company is office workers and students around the area of the café. Since its opening in Quarry Bay 10 years ago, its business has been quite good, especially after the food commentators appraised the café in magazines and newspapers in recent years. It is a small scale Hong Kong café operated by 20 staff. Its signature foods include the crispy bun with kaya, peanut butter and milk, as well as the pineapple bun. In spite of the reasonable level of business, the Company’s profit margin has been eaten up by the rental, which is directly proportional to its turnover. The Company therefore intends to buy its own premises in a nearby location within 1 year. In light of the high demand for its food, the Company also intends to purchase another bread oven to increase the variety of food to be offered. As the café is well-known in the district, the Company is confident that the café at the new location will still attract customers. 1 This is the core value of the business. Apart from generating profit, how the business can create betterment of the community could also be considered. 2 Eco balance and environmental protection is a very popular topic nowadays. Things like sewage control, recycle fuels could be considered. Label your business green, it helps. 3 Tell people the niche, selling point of your business. 4 This refers to the macro-environment of your business. 5 How do you manage to carry out your social responsibility by being the owner of your business? How do you get involved in the local community? SECTION 2: INDUSTRY ANALYSIS General guidance There are two elements to consider in preparing this section: an overview of the industry and a summary of your business' position within the industry. It helps to footnote major observations and sources of information for the data provided where appropriate, to show the reliability of the information. 2.1 Industry overview General guidance You need to understand the industry in which your business operates. Points to cover the industry include size, major players, the entry barriers6, the markets and customers, the profit margin, the national, economic and technological trend affecting it, any special regulation relating to it, and its long-term outlook, etc. [Figures in the following two paragraphs are only for illustrative purpose. In writing your plan, you should footnote In Hong Kong, there are about 600 quick sources of information for the figures provided.] service restaurants serving roughly 43 million customers a month, primarily in the 19 to 39 age group. There are even more Hong Kong style cafés selling Hong Kong style breads, sandwiches, milk tea and coffee to an age group of a broader range, from 18 to 60. Even though restaurateurs face enormous challenges, the Company perceives that the local food service industry still offers plenty of room for growth. The fast food sector suits the fast-paced Hong Kong lifestyle well, as evidenced in the fast food group's revenue share of the market, which jumped from 7% in 1986 to 17% today of the food and beverage receipts. Nonetheless, the percentage is still low when compared to other economies such as the U.S. and Japan, where the fast food industry accounts for 40% and 25% respectively of the total café receipts. Whilst the entry barrier to this industry is not high and the average gross profit margin is in the range of 65% to 70%, the net profit percentage as compared to sales is normally trimmed down to 5% to 10% because of the high rentals and staff costs. Given the current economic condition, it is expected that some of the market players will not be able to survive. 6 Factors such as government policy, capital requirements for the particular industry, switching cost, changing technology, competitive pricing, existing patents and trademarks, etc, are to be considered. 2.2 Position in the industry General guidance Whilst the previous section covers the industry as a whole, this section refers more particularly to your own business. The mostly adopted way of presenting the company’s position within the industry is by means of an analysis of the company’s strengths and weaknesses, as well as the opportunities and threats in the external environment. The Company is a small player in the industry. Its pricing is slightly higher than other Hong Kong style cafés, but is comparable to that of quick service restaurants. Whilst the Company has successfully established its brand name “AH OI” because of its delicious food and beverages, a nearby big fast food chain café was opened three years ago. It took away the Company’s business at the beginning, when there were some special discounts offered. However, the Company refused to compete by undercutting prices lest it would sacrifice the quality of food. “AH OI” believes that food should be prepared with fresh ingredients. In the end, the old customers came back again. Another threat to the Company is the current poor economic condition. Quite a number of its customers might decide not to eat out. However, the Company also sees opportunities in face of the economic downturn. Some new customers who used to visit expensive restaurants may be attracted by the better deals at “AH OI” given its relatively lower prices and the option of take-away foods. SECTION 3: MARKET ANALYSIS General guidance In this section, you need to demonstrate your knowledge about the marketplace you operate in, as well as the important trends and drivers. It helps if you can show that you have done the market research to justify what you say in this plan. 3.1 Target market General guidance You need to define the group of customers you want to target, characteristics of this group of customers such as their gender and income level, the geographic location of the group, the size of the group, the estimate of your share of this group, as well as your pricing strategy to achieve this share, and any factors which may cause your customers to switch to other products / services, etc. You can also indicate whether the particular market segment is growing or declining. Important trends and the reasons behind should also be illustrated. The target customers of the Company are the office workers and students of the age group from 15 to 45. Although offices in Quarry Bay bring in a large group of office workers, due to the economic downturn, some of these office workers might lose their jobs because of cost control measures or even closing down of companies. For the students, they might have to bring lunch boxes instead of eating out because their parents want to save money. Nonetheless, situated in an area with newly developed commercial buildings and two secondary schools, the market is anticipated to remain, though slightly affected by the current economic downturn. 3.2 Market segmentation and positioning General guidance You will need to identify a specific group of customer amongst your target group, and assess how your product / service is perceived and evaluated as compared to your competitors. “AH OI” is quite confident that it serves a niche market for those customers with a preference for better food, service and ambience at a reasonable price. The Company is confident that its clientele will remain in spite of the current poor economic conditions given its good food quality, relatively cheaper price, cozy environment and good service. Besides, amidst the recent economic downturn, some customers may tend to spend less on eating out and shift from a la carte restaurant meals to take-away fast food at Hong Kong style cafés. This high-growth market segment also brings opportunities for AH OI’s business expansion. Moreover, the Company perceives that there is still room for its expansion and further growth along the fast food industry given that the fast food group's revenue share of the Hong Kong market is only 17%, as highlighted in the Industry overview section 2.1. 3.3 Competitor analysis General guidance First of all, identify who your competitors are. For each competitor, determine what their market share is, and estimate how long before new competitors enter the market. Identify your competitors’ strengths and weaknesses. If possible, try to understand your competitors’ operations such as their cost structures, major markets, size, sales, production methods, etc. It is not only important to understand why and how a competitor is doing so well, but also important to know what mistake a competitor has made. There are two other Hong Kong style cafés in the district selling Hong Kong style breads, sandwiches, milk tea and coffee. However, one of them does not bake its own bread. For the other one, the food quality is not particularly good. Through some unofficial discussion and on site visits, it is noted that the services of both Hong Kong style cafés are not good. The waiters there are not very attentive to the customers and are slow in service. For the nearby big fast food chain café opened three years ago, according to the customers who came back to AH OI, whilst it offers a broader range of food and efficient service, it lacks the coziness of AH OI. In addition, these customers find the food quality of AH OI better and prefer its food.