• How-to

The operations plan section of your business plan is aimed at describing just how your company will function smoothly and for long. It lays out the charter for responsibilities of the managements, division goals and the capital and expense factors related to the functioning of the company.

Build the ranks
The most important section of the operations plan is to fix the organizational structure of your company. Your financial statements will be based on this structure and hence, it must be fixed, based within a realistic framework, given the parameters of the business. Broadly, you can classify your business in about four divisions—marketing and sales, research and development, production and distribution. A company may have more or less divisions depending upon the nature of its business.

Take them to task
No, don’t go all Rambo on them. Here, I mean that you should establish a list of the tasks using the broadest of classifications possible, which need to be accomplished for the business to run smoothly. Divide these tasks among the divisions and establish a way for them to work with the management on these. Figure out the type of people required to perform each task.

How many soldiers?
For each division task and then the overall goals of the company, you will need a certain number of people. This number should be optimal not only for the task but also should correlate to the company’s budgets. To do this, you’ll need to apply the following equation to each division: C/S=P. Here, C represents the total number of customers, S represents the total number of customers that can be served by each person, and P represents the personnel requirements.

And at what cost?
Once you calculate the number of people you will need for each division and then consequently for the company, you will need to determine the labor expense. That can be calculated with the following equation: P*SL=LE. Here, LE is labor expense, P represents the personnel requirements for each division and SL stands for the employee salary level.

Arms and ammo
Expenses associated with the operation of your business are refereed to as overhead expenses. Essentially, these are the non-labor expenses like travel costs, repair costs, rent costs, supply costs, utility costs etc. To calculate this, you must use the equation OH=NE*EE, where NE represents the number of employees and EE is the expense per employee, and OH is the overhead expense.

Now that you have these numbers, your next job will be to build a couple of tables that would explain the running costs of your business. Watch out for that in the next issue.

This is the seventh of a multi-part series.

©Entrepreneur August 2010

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business plan, How-to, operations plan