PROPOSED FORMAT FOR BUSINESS PLANS (CLUSTER VALUE-CHAIN DEVELOPMENT)

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PURPOSE The purpose of this document is to provide a draft proposal on a common format for business plans that should be prepared for every new development opportunity that is identified in terms of the seven cluster value-chains that are contained in the Limpopo Growth and Development Strategy. (Refer to step nine of the cluster mapping process). It is proposed that a preliminary business plan should be prepared at the scoping level for each project, because full-scale business plans can be expensive. Only business plans that appear viable at the scoping level should be approved for full business plans. Comments are invited on this proposal before a final business plan format is agreed upon.

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PRELIMINARY BUSINESS PLAN FORMAT (SCOPING LEVEL) A brief consideration of the market demand for the product or service in question and a rudimentary map of its value-chain. Estimated financial surplus, calculated on the basis of informed approximations of revenue and expenditure. The ease or complexity with which inputs will be accessed and production will be marketed. A superficial assessment of the degree of fit between the technology required in the implied production process and the

available infrastructure in the province. This assessment should also be applied to the degree of fit between staff skill requirements and available skills. 2.5 A broad view on the social acceptability of the proposal in terms of local life styles and trends and on the potential environmental implications. 2.6 An indication of the capacity of provincial and local government institutions to provide the infrastructure, skills development and operational support that would be required. 2.7 An estimation of the likely economic impact in terms of jobs created, productive capital invested, new turnover generated, SMME promotion, Black Economic Empowerment and relationships with other projects in the cluster value-chain. 2.8 A tentative ratio of risk versus return should finally be estimated on the basis of all seven issues considered in the pre-feasibility study. Preliminary business plans should generally be completed within one month and should not exceed three months, even for major projects. An authoritative project review committee should assess the preliminary business plan in terms of financial, economic, social and environmental sustainability. This assessment should determine whether the proposal is approved for a full-scale business plan or not. 3. 3.1 FULL-SCALE BUSINESS PLAN FORMAT Market Analysis 1. Prepare a segmentation of potential project customers and consider the demand patterns and trends, as well as the quality requirements, of each segment. The capacity of the market to

absorb additional production at a range of prices should be given particular attention. 2. Assess the competition and their anticipated response to the project. 3. Compile a list of suppliers and consider the availability of and access to production requirements. 4. Map the value-chain of the proposed activity, showing its suppliers up-stream and its customers down-stream. Competitors should be reflected in the side-stream. 3.2 Financial Analysis 1. Determine total capital requirements, access to and cost of capital. 2. Estimate operational costs and revenue. Production levels used for revenue calculations should be meaningful in terms of the market capacity to absorb the product. (Refer to the market analysis above). 3. Prepare a cash flow statement for the first year and for as many subsequent years as is practically possible, to determine operational capital requirements. 4. Consider the effect of national, provincial and local investment incentives on profitability. 5. Calculate the return on investment over the anticipated life of the project, using the present value of money method. 6. Conduct a sensitivity analysis of the major assumptions underlying the financial analysis, to highlight high-risk areas. 7. Add a worst-case scenario to the presentation of the results of the financial analysis. 3.3 Technical Analysis

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Establish the implications of competitiveness on scale and method of production, whilst emphasizing the need to promote SMMEs.

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Relate the scale of production to the market and financial analyses and the method of production to the available infrastructure, technology and skills.

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Consider alternative sites for the location of the potential project. Assess the need for additional infrastructure. Assess the availability of equipment and of support services for equipment repair and maintenance. Describe the research and development, as well as the logistical requirements for improved competitiveness.

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Economic Analysis 1. Assess the consistency between objectives of the proposed project and provincial, district, as well as municipal development policy priorities. Potential contradictions in the sub-objectives of the proposal should be given attention, in order to make adjustments and determine trade-offs. 2. Calculate the development impact of the proposed project in terms of job-creation and income distribution, capital formation, sectoral linkages and multipliers, organizational capacity-building and skills development; and technology transfer. The proposed project should also be analysed in a broader regional context. 3. 4. Describe the opportunities for SMME promotion and for Black Economic Empowerment. In the event of production being exported, the impact on foreign trade relations should be assessed.

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Social Analysis 1. Determine whether the proposed project and its product or services are consistent with the norms, traditions and preferences of local people. Proposals that run counter to these, ignore them or are totally foreign, will be severely compromised. 2. The unique requirements of women and handicapped persons should be considered and the extent, to which these are addressed by the proposal, should be highlighted. 3. Assess the risk of demonstrations against the proposal by stakeholders who may have different interests.

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Institutional Analysis 1. Assess the capacity of provincial and local government, as well as private sector institutions, to provide the infrastructure, skills development and support functions required by the proposed project. 2. Assess the managerial and organizational complexity of the proposed project and consider the local capacity to deal with these. 3. Consider any legal, regulatory or other stakeholder policy issues that may constrain the implementation and operation of the proposed project. 4. Assess the level of political commitment, indifference or resentment to the proposal. Lack of political commitment could compromise the project. 5. Consider the potential for conflict among alternative community institutions within the proposed project area and the effect that this may have on project success or failure.

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Environmental Analysis

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Assess the likelihood of any detrimental effects in terms of pollution, public health, occupational safety, water utilisation, conservation or cultural preservation.

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Summary and Recommendation 1. Compile a summary of all the assessments and make recommendations regarding implementation, monitoring and evaluation.

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IMPLEMENTATION Once the business plan has been approved, which generally could take three months but should ideally not exceed six months, the proposed project should move to implementation.