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by Phil Bartle, PhD

Training Handout

Good planning will increase potential for success of a micro business


A micro enterprise will not prosper unless its management (however modest) looks ahead to the future. New opportunities arise; changes take place in the environment which make it necessary to adapt. What is profitable today may not necessary be profitable tomorrow. So an entrepreneur needs to plan.

Business planning means thinking and working out what to do about something in the future, to start and to improve on your income generating capacity. Planning a micro enterprise, therefore, involves, among other things, forecasting costs, inputs, outputs, sales, profits and cash flows. Recall "How to make a Work Plan" for community mobilizers.

There are four reasons why a person engaged in a micro enterprise should make a plan:
  1. A plan shows you if your enterprise can expect to make a profit in future;
  2. A plan shows you which part of your micro enterprise can improve;
  3. A plan shows the creditors (banks, NGOs, finance organizations, individuals) how well your micro enterprise can expect to do in future; and
  4. A plan shows you what money you can expect to come to and go out of your micro enterprise.

Why Plan?

Business planning is necessary because:
  • Prices and availability of inputs may change;
  • Customers change their consumption habits;
  • Machines and equipment wear out and need replacement;
  • Machines and equipment may become out of date;
  • New competitors; and
  • Decision is needed about direction the business should grow.

Planning a micro enterprise is like planning a journey. Ask yourself:
  • Where am I today?
  • Where do I want to go?
  • What am I going to do there?
  • How do I ensure that I get there?
  • How long will it take me to get there?
Recall the four key questions of management training.

How to Make a Plan:

There are two kinds of plans useful for your micro enterprise:

  1. A sales and costs plan, a forecast of your sales and costs per month. This indicates how much profit to expect in a specified period of one month; and
  2. A cash flow plan: This helps to ensure that the enterprise does not run out of cash at any time.

When you make plans:
  • Make them simple, easy to use and achieve;
  • Choose the most suitable period;
  • Divide them into weeks or months;
  • Make them before you need to use them, don't wait until one plan is finished before you begin the next plan (roll over your plans); and
  • Look for information, do not guess.

Steps in Making a Plan:

Steps for making a sales and costs plan for your micro enterprise:

  1. Forecast indirect costs for each month of next year;
  2. Forecast direct material costs per item;
  3. Forecast sales for each month;
  4. Calculate total direct material costs; and
  5. Complete your sales and costs plan.

Note: indirect costs include: rent, transport, licences, insurance, stationery, electricity and water, repairs and depreciation.

Month ─>
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

A Cash Flow Plan:

A cash flow plan is a forecast which shows how much cash to expect to come into the enterprise and how much cash to expect to go out of the enterprise each month. A cash flow plan helps an entrepreneur to make sure that the enterprise does not run out of cash at any time, (ie this is a projection of expected incomes and expenditures in a stipulated time period).

The micro enterprise should not run out of needed cash. The cash flow plan can be used to make sure that the enterprise always has enough cash to pay for costs. An enterprise can make a good profit in a year but still run out of cash during that year.

There are several reasons why a micro enterprise may run out of cash. For example:

  • the business must buy goods or raw materials before it sells anything. This means cash goes out before cash comes in;
  • If the business gives credit to its customers it does not get paid immediately. The business will often have to buy more goods or materials before these credit customers pay; and
  • The business needs cash to buy equipment. The equipment will help the business to make a profit in the future. But the business usually has to pay cash for the equipment now, before it has earned the profit.
When you plan your cash flow:
  • You get a warning in advance about future cash shortages;
  • You have more control over the flow of cash;
  • You can solve or avoid problems before they happen; and
  • You can have cash ready when you need it.

How To Make A Cash Flow Plan:

To make a cash flow plan, you forecast: How much cash will come in; and How much cash will go out.

Cash Flow Plan

Month: Jan Feb Mar Apr May Jun Total
In Flows:
Cash at start of month:
Cash in from sales:
Any other cash in:
Total cash in:
Out Flows:
Cash out for direct material cost:
Cash out for direct labour costs:
Planned investment in equipment:
Any other cash out:
Total cash out:
Net (In-Out):
Cash at the end of the month:

Exercise: Prepare a Cash Flow Plan

South Side Women's Group Maize Mill project, with seven members, had cash on hand at the beginning of January totalling 20,000/=. The enterprise makes average sales of 150,000/= per month. It receives members' monthly contributions of 15,000/=. It spends 70,000/= every month to purchase 2,000 kg of maize. The monthly pay for workers is 20,000/=. The enterprise spends 12,000/= every month to pay for transport.

Note: In Uganda and Kenya, the currency is in shillings, and the currency sign, placed at the end of the amount, is: /=

Prepare a cash flow plan for South Side Women's Group Maize Mill project for six months and show:

  • Total cash in;
  • Total cash out; and
  • Cash at the end of every month.

Do this as an exercise, using the previous table as a model.

A Planning Workshop:

A Planning Workshop

© Copyright 1967, 1987, 2007 Phil Bartle
Web Design by Lourdes Sada
Last update: 2012.06.27

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