The EBN-BICs, due to their experience writing Business Plans with the companies' promoters, recommend that before starting to make and edit the Business Plan, they must assume four points:
First: The promoter must perfectly know what a Business Plan is, what its form and content are like and why it is so useful.
Second: The promoter must assume the task of writing the Business Plan, or at least be the person to coordinate and organise its writing.
Third: All the essential administrative proceedings needed to start the activity must be known.
Fourth: The information on its company, market, competitors, clients and environment, must be as comprehensive as possible.
This is the point that CEEI CASTILLA Y LEÓN stresses. We encourage the entrepreneurs to make an effort and sacrifice some of their time and resources to search for information that will become the first intangible asset of their company.
It is important to remember that for any company looking to be competitive, having information is vital in a market economy.
Therefore, it is important in this stage previous to the writing of the Plan, when conceiving the idea for the project, to carry out an evaluation of the project as a whole, with the aim of carrying out an inventory of useful information for the future Business Plan.
The information available can be internal information or of the company and external or of the sector.
It is typical to find in all the business creation guides different questionnaire models which allude to the personal capacity of the promoters, the company, the product or services, the commercial capacity and the manufacture process. In short, the key factors must always be analysed before starting the activity, since they will show if the future business is good or bad, if it is attractive, innovative or original.
CEEI CASTILLA Y LEÓN proposes a Preliminary Evaluation model that must be covered by the project promoters and reviewed by the advisers in charge from the BICs.
This model is supported by a computer program (web and CD-ROM versions) with the aim of evaluating the viability of the project according to reflection and systematic assessment of the idea through the information available.
This process makes us cover two phases:
1st.- Subjective Evaluation:
Meditation and information search process.
2nd.- Objective Evaluation:
Use of the previous information to apply it to the computer program CEEI Emprende®-EVALUACIÓN PRELIMINAR. The program will diagnose the quality of the entrepreneurial project.
|CEEI Emprende® - Evaluación Preliminar program.|
CEEI Emprende®-EVALUACIÓN PRELIMINAR uses a system based in the scoring of weighted factors. To do so, nine groups of factors have been established, and within each of them we can find other weighted sub-factors. Each one of these sub-factors is evaluated on a 1 to 6 scale, using 0 as a mark for the absence of evaluation. A high number of zeros may mean that the project cannot be evaluated because there isn't enough information.
The factors to be considered are:
1) Market Interest:
The aim is to evaluate if the target market has enough characteristics to make it attractive for an entrepreneurial project. The sub factors are:
-Size of the market as a whole. The size of the target market has to be evaluated, taking into account that what is important is the size in monetary terms, and not so much in the absolute number of clients.
-The market's growth rate. The pace at which the target market is expected to grow, in relation with the previous period and not in absolute numbers.
-The cost of entering the market. The strength of the entry barriers to the market. These can be from:
Cost advantage of the companies already established.
Economies of scale.
Difficulties to access the distribution channels.
-Risks of depending on the suppliers. These risks will be higher if: The purchases are accumulated in a small number of suppliers. The purchases to a certain supplier represent an important part of the production costs.
-Risks of depending on the clients. These risks will be higher if: The sales are accumulated in a small number of clients. The product represents a very important part of the costs of the clients (in the case of industrial clients).
-Substitution Risks. These are the risks of new products, materials or techniques appearing in the market that excel your product or service, leaving it in a situation of obsolescence.
-Sector margins. How big are the current profit margins of the target sector.
-Appeal of the market as a whole.The aim is to consider if the market's environment is appealing (considering aspects like transparency in its actions, competition behaviour, interventions from other sector or the administration, etc).
- Capacity to respond to the market. As set out in the project, if it is possible to make the most of the potential offered by this market and to adapt to its changes while growing at the same time.
-Market stability. The number of changes that take place in the market, how quickly they happen and how sudden or predictable they are.
2) Innovation level
-Technical innovation of the product. The aim is to evaluate how the product contributes to the market with its composition, shape, operation, etc., according to the following scale:
1. Very weak. It is not innovative. It imitates existing products.
2. Weak. Provides minor or detailed novelties.
3. Somewhat weak. It's a new use for already existing products.
4. Somewhat strong. New technologies and new uses are added to the product.
5. Strong. The product is new, with some of the already existing technologies.
6. Very strong. The product is radically new, with new technology.
-Process innovation. The aim is to evaluate the technological novelty of its production process, according to the following scale
1. Very weak. Old-fashioned processes.
2. Weak. Processes that are being abandoned in the sector.
3. Somewhat weak. It is the technology normally used in the sector.
4. Somewhat strong. Tested technologies, but new for the sector.
5. Strong. It's the technology used by the most advanced companies of the sector.
6. Very strong. Cutting edge technology, not available for other companies.
-Commercial innovation. The aim is to evaluate the innovation of the commercialisation, according to what it takes to enter new markets, use new channels, new promotion and communication means, etc. If it uses the normal means in the sector, it gets a score of three.
-Financial innovation. The aim is to evaluate the innovation in its way of managing charges and payments.The more financial novelties introduced, the stronger it will be. If it uses the normal ones in the sector, it gets a score of three.
-Management innovation. That is, the innovation in the administration and management of the project. If the management will be similar to other companies in the sector, it gets a score of three.
3) Entrepreneurial Factors
This factor reflects the preparation of the entrepreneurs, or potential entrepreneurs, in technological, entrepreneurial and managerial aspects. The sub-factors it includes are:
-Technological knowledge and experience. Training and experience in the technologies used in the target sector. If the entrepreneurs have experience working in similar positions in the same or similar sectors and have been trained in the technology, the valuation will be high.
-Entrepreneurial knowledge and experience. Entrepreneurial training and experience in management positions. If they have been managers or even entrepreneurs in the same or similar sector and have been trained in management, the valuation will be high.
-Entrepreneurial capacity. Personal ability to run a company, the ability to lead and manage.
4) Degree of the development of the idea or project.
It is completed according to the following scale:
1. Very weak. It is only an idea.
2. Weak. It is an advanced idea. Prototypes are being prepared.
3. Somewhat weak. There are working prototypes.
4. Somewhat strong. It is in the trial production phase.
5. Strong. It is in the market test phase.
6. Very strong. It is ready to be produced and marketed immediately.
5) Cost of the project's development
It is divided in various cost elements, like:
-Cost of developing the product or service. The costs of positioning the product or service in the conditions needed for its production and commercialisation (design and construction of prototypes, tests, licenses, etc).
-Cost of the project's development. Costs that have to be assumed before the project even starts (such as the information research, market studies, advice, funding search, technical projects, etc.)
-Investment needed to start producing. The volume of investment needed to start the continuous production of the product or continuous rendering of the service. Consider the investments in machinery, plant, land, equipment for storage, transport and management, etc.
-Cost of getting into the market. Costs of finding a gap in the market: creation of a distribution network, training of the sales team, initial advertising, promotion of introduction sales, incentives for testing, etc.
-Cost of investment in working capital. The volume of investment needed in non-fixed assets. Especially, supply of raw material and finished products, liquid assets, financing the first sales until paid, initial salaries, etc. In general terms, it can be said that all the payments to be carried out in the first six months must be financed.
The aim of this section is to measure how the competitors within the sector act, through the:
-Competition degree. Evaluate the rivalry among the companies competing in the market. If it is stagnated or in decline, with a high number of competitors and there are high fixed costs, no differentiation of the product, excess in the installed capacity, barriers to abandon the sector and presence of foreign companies, the competition is very strong. In the opposite case, the competition is normally very weak.
-Concentration of the competition. The proportion of the total sales of the sector carried out by the first companies. An extreme case is when only one company accumulates the sales in their entirety (the concentration degree would be very strong; it would score a six). The opposite is when the sales are shared homogeneously among a high number of companies (very weak concentration; it would score a one).
-Risk of the product being forged. The chances of the product being forged. They will be high if it is, for example, a service that does not differ from others, and very low if it is very complicated technically.
-Risk of new competitors entering the market. The chances of new competitors entering the market. This probability will be low if the are important economies of scale or experience, the product is different, the capital requirements are very high, it is difficult to access the distribution channels, the clients are very loyal, the cost disadvantages of finding a gap are high or there are legal limitations, the prices are very low or the reaction of the competition is very strong.
-Advantages of the competition over the studied project in technological aspects, financial power, market share, client loyalty, image, etc.
7) Industrial protection
The aim is to measure the current protection for the project. When evaluating the legal protection, the entrepreneurs must consider the legal and formal aspects but also how to put them into practice. This can come from.
-Knowledge (know-how) available, experience, etc.
-Legal protection of the product. The following scale can be used:
1. Very weak. The product is in the public domain.
2. Weak. It has a trademark.
3. Somewhat weak. It has a production licence.
4. Somewhat strong. It has an exclusive production licence.
5. Strong. It has patents over some of the product's components.
6. Very strong. The product is patented and the brands are registered in all the possible epigraphs.
-Legal protection of the production process:
1. Very weak. The production process is common knowledge.
2. Weak. Parts of the process are used under licence.
3. Somewhat weak. The whole process is used under licence.
4. Somewhat strong. The entrepreneurs have an exclusive licence over the process.
5. Strong. Parts of the production process are patented.
6. Very strong. The whole production process is patented.
-Legal protection of the brand with goodwill. If the entrepreneurs have a brand with goodwill (it has market value because of its prestige, fame, image, etc), they must evaluate its protection according to the following scale:
1. Very weak. The brand is not protected.
2. Weak. A brand with licence is being used.
3. Somewhat weak. There is an exclusive licence over the brand.
4. Somewhat strong. The brand is registered only in Spain.
5. Strong. The brand is registered in all the countries where it operates.
6. Very strong. The brand is registered under all the possible sections in all markets.
-Own technological barriers. The sophistication level of the technologies owned and the difficulties of the competition to access them.
8) Influence of Environmental factors
How changes in the environment can affect the project. These can be:
-Political factors. An analysis of how political changes could seriously affect the evolution of the project, at a national level (of the target countries) but also regional or local levels in the areas where the production plants will be located.
-Economic factors. An analysis of how economic changes could affect the project, such as national income and its distribution, inflation, unemployment and interest rates.
-Technical factors. Are there any foreseeable technical changes that could seriously affect the conditions of the sector? Consider new materials, production processes based on new technologies, miniaturization, mass media, etc.
-Regulation and legal changes. If the sector is highly controlled and regulated, the project will be very sensitive to any changes in the regulation. This will also happen if the regulations affect the clients and suppliers. Features like licences, authorizations, tax regulations, working aspects, hygiene-health regulations, security, consumer protection, etc.
-Changes in the preferences. If a product can be very sensitive to variations in trends, tastes, preferences, styles, etc. of the consumers.
-Demographic changes. We are referring to the variation in the age pyramid (the aged population is exceeding the young), habitat (more urban and less rural), family size, duration and distribution of education and work stages, etc.
-Religious changes. There can be sectors in which changes in the religious beliefs of the consumers can be decisive. Especially in the case of religious images or products related to their use in certain religious practices.
-Cultural changes. There are variations in the values and behaviours that deeply affect consumer patterns. The importance of the environment and ecology, sexual habits or the use of leisure time by the elderly are only some examples of recent cultural habits that affect the demand in some sectors.
9) Resources available
The aim is to evaluate the resources available to start the project.
-Local raw material. The availability, very close to the area chosen for the location of the company, of the basic raw material used in the production process.
-Supplies. If the sources for raw material, energy, etc. are located and ready to be supplied.
-Location and accessibility. Is there a place to locate the company close to the consumer markets and supply sources? Does it have quick and suitable access and communication routes?
-Capital goods. How quickly and easy can capital goods be accessed (machinery, tools, installations, etc.) in order to start production and commercialisation.
-Skilled workers. Are there in the market enough skilled workers for the project and at reasonable cost? Is there already any kind of relationship, even contractual, with workers with enough qualification? Which is the level of preparation and experience of the available skilled workers?
-Unskilled workers. Is it possible to obtain enough unskilled workers for the project? How high is their cost?
-Funding. The funds available, taking into account what is needed to invest in the project. It is also important to consider how the external funding sources can be accessed (banks, institutions, etc.). -Local and regional incentives. Are there any economic incentives for the installation in the chosen location? They can be local (Town Hall, Council), regional, national or European. Evaluate the amount of the incentives for which the project is qualified.
-Administrative and procedure facilities. Evaluate the support the project can receive for all the bureaucracy procedures in the Administration and the application for the available grants. Have the entrepreneurs been in contact with any institution that can help with these tasks?
Finally, CEEI Emprende®-EVALUACIÓN PRELIMINAR offers a result of the pre-evaluation, which can be negative, evaluating the project as wrong; good or very good, giving the go-ahead for the next step; evaluate again, advising to search for more information to consider the project again.
If your project has not been accepted by CEEI Emprende®-EVALUACIÓN PRELIMINAR you will have to search for a new project or idea or give us through the following module (CEEI Emprende-MARKETING®) information that can help us evaluate the project again. If the project is rejected again, we recommend abandoning the idea.
|Administrative and legal procedures when setting-up a company|
This last section has been saved to outline the legal and administrative steps to be taken before starting an entrepreneurial project, once the entrepreneurial idea has been established and turned into a project.
The entrepreneurs must know about three information areas before starting a business:
- The choice of a legal status.
- The administration procedures needed to start the company.
- The accounting, fiscal and labour duties of the entrepreneurs.
Next, we quickly mention the basic information the entrepreneurs must know before starting their own company. The entrepreneurs don't have to be experts in these topics, but they must at least be aware of them.
The choice of a legal status is one of the first decisions the project promoters must make: natural person or legal entity? Trading company or cooperative? Public limited company or limited liability company? The following factors must be taken into account:
-Kind of activity: the activity of the future company will condition the choice of a legal status in those cases when the applicable law is established in a specific way (example: security companies, travel agencies, banks,...)
-Number of promoters: depending on the type of partnership, the number of required promoters will vary (example: for public limited companies the minimum is three).
-Liability of the promoters: the liability of the partners can be limited by their contribution to the company's capital, like in public limited companies; or unlimited, like in general partnerships or in the case of the individual entrepreneur, answering for all the social debts with all the personal and mercantile assets.
-Economic needs of the project: The commercial regulations establishes for each case, different capital minimums for the setting up of a partnership. For example, for public limited companies the minimum capital is 60 thousand Euros, and for limited liability companies, 3 thousand Euros.
-Fiscal aspects: legal aspects such as the complex fiscal administration or the double taxation of the corporation tax can condition the choice of a legal status for the company.
-Access to public allowances: the regulations of public subsidies must be taken into account if the entrepreneurs want to access them.
Both individual entrepreneurs -natural person-, and trading companies -legal entity-, have the legal capacity to act in the goods traffic.
For those able to act - being of age and with free disposition of assets-, there is no previous procedure that can condition them to become an individual entrepreneur, except having a business activity.
Nevertheless, for a trading company to obtain its own legal status, there are several administrative procedures to carry out. Thus, generally there are six common steps that any society must carry out if it wants to have its own legal status:
1. Apply at the Business Register for a certificate to reserve the business name for exclusive use of the company.
2. Writing of the Corporate Charter of the company and By-laws.
3. Execution of the Corporate Charter with a notary.
4. Payment of the Property Transfer Tax and Stamp Duty Regulations for partnership transactions.
5. Obtain the fiscal ID code in the appropriate Inland Revenue office.
6. Registration in the Business Register (obtain the legal status).
Within the process of creating a company, the section for administrative procedures is very important, not only because it is essential for the companies' start-up, but also because it will oblige the promoters to carry out many procedures and prepare many documents.
This chapter will not study in depth each of the procedures of the Spanish Legal system. It will only bring to the attention of the reader how important they are and also let the entrepreneurs know which ones are needed to start-up a company.
Next, we enumerate the most important administrative procedures with a general nature in a company's starting-up process:
1. Census declaration: register for tax liabilities, declaration of start operations date (Inland Revenue).
2. Business tax.
3. Building permission (Town Hall).
4. Starting licence (Town Hall).
5. Permissions and special registers.
6. Renting or buying premises (Land Registry Office).
7. Declaration of workplace opening (Regional Office of the Ministry of Employment).
8. Demand for employees and drawing-up of work contracts (Job Centre).
9. Registry of the company in the Social Security, together with its employees, or register as self-employed (Social Security offices).
10. Legalization of the company's books: minute book, shareholders book,... (Business Register).
11. Buy and seal the visitor's book (Regional Office of the Ministry of Employment).
12. Other procedures and paperwork: electricity, water, telephone, etc. supply.
The accounting, fiscal and labour duties of the entrepreneurs.
Once the company is legally set up, the entrepreneurs have a series of obligations to face up to. For example, they must keep the books according to what is established by the Commercial Code, fulfil a series of fiscal obligations (corporation tax, formal obligations when making invoices, VAT, personal income tax...) and labour duties such as hiring employees, social security, work conditions...
Although the entrepreneurs don't have to be experts in each of these areas, they must know or get advice from experts in the previously mentioned areas, to minimise the possible problems or risks for the company.