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Qualitative and quantitative labor requirements planning

Labor requirements planning

With a regular, systematic labor requirements plan, you can ensure that your company is able to continue operations and secure its long-term success.

Qualitative and quantitative staff planning means you will have the right number of the right people with the necessary qualifications – at right time and place.

The experts at Ingenics offer decades of project experience in factory and production planning. With the right tools, Ingenics can also actively support your company when it comes to efficient and successful labor requirements planning. The resulting staff structure is made transparent for all the relevant areas.

Based on this requirements plan, your potential can be identified and quantified. Appro-priate measures are then established to achieve this potential over the long term. These include regular audits and inspections using key performance indicators (KPIs). Offering added value, Ingenics will also present you with the optimal organizational structure for your production and administrative departments.

Methods of qualitative and quantitative labor requirements planning

First, basic information is collected and analyzed so that a requirements plan can be developed. This basic data should include relevant information such as the number of units to be produced, the shift pattern, and the number of working days per week and year.

The qualitative perspective takes into account responsibilities concerning work tasks as well as the mental and physical demands on employees. One tool that is used here is a qualification matrix to identify skills and qualification levels.

Furthermore, quantitative staffing needs play an especially important role in labor re-quirements planning – the determination of gross and net staffing needs, among other things. With respect to net staffing needs, a further distinction is made between direct and indirect employees.

The results of the qualitative and quantitative labor requirements plan are documented in the form of job charts, organizational structures, and organizational charts. At the same time, the required staffing needs are monitored over defined periods in a process known as “calendarization”. This breakdown of capacity planning makes it possible to determine in advance which (and how many) employees have to be available in the immediate future, and in what areas of the company.

Appropriate measures are derived from the labor requirements plan so that the company remains sufficiently staffed at all times now and in the future, while also avoiding expensive overstaffing situations. Ingenics actively supports your company with the creation of a structured, clear, and transparent labor requirements plan. This also serves as an early warning system so that you can estimate future developments, identify risks, and introduce new measures where appropriate.

Johann Kablutschkin

Johann Kablutschkin

Associate Partner Phone: +49 731 93680 225

what is labor requirements in business plan

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Labor requirements for business

The following laws are in place to protect workers and potential hires, and require that you treat your workers fairly, provide them with benefits and a safe workplace, and contribute to California’s unemployment insurance.

Understand whether they should be employees or independent contractors

Understanding the labor laws for different types of workers–employees, independent contractors, and volunteers–can be confusing. Sometimes employers improperly classify employees as independent contractors, which have different rules on payroll taxes, minimum wage, overtime, and other labor laws.

If you aren't sure how to classify a potential hire as an employee or independent contractor, you can use this "test" to help you figure it out:  https://www.dir.ca.gov/dlse/faq_independentcontractor.htm

Some questions are off limits

During the hiring process, it is unlawful to ask about a job applicant’s age, sexual orientation, marital status, religious affiliation or race. Additionally, questions related to a physical, emotional or mental handicap can only be asked if an applicant will need special accommodations for performing a specific job. The  US Department of Labor  and the  Equal Employment Opportunity Commission  explains these rules in more detail.

Give potential hires a fair chance

Businesses located or doing business in the City, that have 5 or more employees (regardless of the employees’ locations), cannot discriminate against potential hires who may have a criminal record. Learn more about the  Fair Chance Ordinance  from the SF Office of Labor Standards Enforcement.

Set up employee benefits

If your business has established employee benefit programs like health insurance or a 401(k) plan, you’ll need a sign-up procedure so employees can enroll, name their dependents, and select options.

Follow San Francisco labor laws

Minimum wage.

The San Francisco minimum wage is higher than most cities to reflect the cost of living in the city. The current minimum wage is  updated every year .

  • Paid sick leave

All employers must provide paid sick leave to each employee (including temporary and part-time employees) who performs work in San Francisco. Learn more about the  Paid Sick Leave Ordinance  from the SF Office of Labor Standards Enforcement and the  Healthy Workplace Healthy Family Act  from the CA Department of Industrial Regulations.  

Flexible work arrangements

Employees with families in San Francisco have the right to request a flexible work arrangement (though employers also have the right to refuse for legitimate business reasons). Learn more about the  Family Friendly Workplace Ordinance  from the SF Office of Labor Standards Enforcement.

Healthcare security spending

In San Francisco, you must pay toward health care coverage for all your employees. The size of this payment depends on the size of your business, where a small business has 19 employees or less, a medium business has 20-99 employees, and a large business has over one hundred employees. Learn more about the  Health Care Security Ordinance  from the SF Office of Labor Standards Enforcement.

Commuter benefits

Businesses located or doing business in the City that have 20 or more employees must provide commuter benefits to encourage their employees to take public transit, bike, or rideshare to work. Learn more about the  Commuter Benefits Ordinance  from the SF Department of the Environment.

Retail employees

Beginning July 3, 2015, all  Formula Retail Establishments  with at least 20 retail stores, must follow the  San Francisco Retail Worker Bill of Rights . These employers must provide schedules in advance, give prior notice for schedule changes, and offer  predictability pay  among other requirements. Sign up for  updates and reminders about Formula Retail Labor Protections  through the SF Office of Labor Standards and Enforcement.

Provide workers’ compensation insurance

In California, if you have one employee or more, you must have workers’ compensation insurance to protect workers who might suffer on-the-job injuries. If your employees get hurt or sick because of work, you are required to pay for workers' compensation benefits. Workers’ comp insurance provides six basic benefits: medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits or vocational rehabilitation and death benefits. 

You may obtain workers’ compensation insurance in California in the following ways:

  • Through a broker
  • Directly with an insurance carrier 

If you currently do not have a broker or insurance carrier and would like to search for a list of carriers, you can learn more from the  CA Department of Industrial Relations . 

NOTE: If you are a roofer and don’t have any employees, you are still required to carry  workers’ comp insurance . 

Deduct temporary disability insurance

Employers are required by law to withhold and remit State Disability Insurance (SDI) contributions and to inform their employees of SDI benefits. To inform employees, you must provide them with the publications listed below. You can find these publications through the  CA Employment Development Department . 

  • Notice to Employees: Unemployment Insurance/Disability Insurance Benefits  (DE 1857A)  – Advises employees of their right to claim Unemployment Insurance (UI), DI, and PFL benefits.
  • State Disability Insurance Provisions  (DE 2515)  – For new hires and again when the employee notifies the employer they need to take time off from work due to their non-industrial medical condition.
  • Paid Family Leave Benefits  (DE 2511)  – For new hires and again when the employee notifies the employer they need to take time off from work to care for a seriously ill family member or to bond with a new child.

Register with the state

Once you bring on employees, you must pay California unemployment insurance taxes. First, register with the  CA Department of Industrial Relations . Later, at tax time, your payments will go to the state’s unemployment compensation fund, which provides short-term relief to workers who lose their jobs. 

Unemployment Insurance (UI) is paid by every employer in California. Tax-rated employers pay a percentage on the first $7,000 in wages paid to each employee in a calendar year. The  UI rate schedule  and amount of taxable wages are determined annually. 

Adopt workplace safety measures

Almost every employer must comply with the requirements of the  Occupational Safety and Health Act  (OSHA) by, among other things, providing a workplace free of hazards, training employees to do their jobs safely, notifying government administrators about serious workplace accidents, and keeping detailed safety records.

Post required notices

Employers are required to display certain posters in the workplace that inform employees of both their rights and employer responsibilities under labor laws. California employers must post all state and federal required posters, but San Francisco has some additional notices that must be displayed. 

City-Required Posters

  • Minimum Wage Ordinance Official Poster.  Find poster and read more . 
  • Fair Chance Ordinance Notice.  Find poster and read more .
  • Paid Sick Leave Ordinance Official Poster.  Find poster and read more .
  • Health Care Security Ordinance (HCSO) Notice.  Find poster and read more . 
  • Family Friendly Workplace Ordinance Notice.  Find poster and read more .

State and Federal Required Posters

The CA Department of Industrial Relations maintains an  updated list  of the following posters, which are required for all employers. The list also includes notices that only apply to specific business types and sizes.

  • Payday notice
  • Safety and health protection on the job
  • Emergency phone numbers
  • Notice to employees – injuries caused by work
  • Notice to employees – workers’ compensation carrier and coverage
  • Whistleblower protections
  • No smoking signage
  • Discrimination and harassment in employment
  • Notice to employees – unemployment insurance benefits
  • Notice to employees – time off to vote
  • Equal employment opportunity
  • Notice to employees – Employee Polygraph Protection Act

Posters required by the US Department of Labor (DOL) and other federal agencies can also be found using the  DOL FirstStep Poster Advisor  search tool.

Featured resources

Hire your first employee.

The US Small Business Administration (SBA) explains how to start the hiring process and ensure you are compliant with key federal and state regulations.

Nolo, formerly known as Nolo Press, is a Bay Area publisher that produces do-it-yourself legal books and software that reduce the need for people to hire lawyers for simple legal matters.

Hiring Your First Employee: 13 Things You Must Do

A to-do list for new employers produced by Nolo, a Berkeley-based legal advice publisher.

Recruitment assistance to find local talent

The Office of Economic and Workforce Development  (OEWD) knows that finding good talent in a market like San Francisco can be a challenge—but the Employer Engagement Team is here to help. Services range from presenting qualified and screened candidates that match your job requirements to assisting you in scheduling interviews in our recruitment facilities. OEWD can also help connect you to local hiring events. 

Tax credits and incentives

Certain employers can be eligible for thousands of dollars in Local, State, and Federal tax credits and incentives based on hiring and other business expenses. 

CityBuild Employment Networking Services

The Office of Workforce and Economic Development' s CityBuild Employment Networking Services connect contractors with qualified San Francisco resident trades workers. CityBuild maintains a database of over 4,000 local workers and can assist contractors in meeting workforce hiring requirements.

Layoff response assistance

The Office of Economic and Workforce Development can provide services through the Rapid Response Program that will assist you in easing the transition of your workforce when a downsizing event cannot be averted. Staff will conduct on-site or virtual orientations and inform your employees about resources and services that can assist them with applying for unemployment, access to career coaching, and healthcare options.

The following requirements are in place for reporting and tax purposes. They ask that you obtain an EIN, verify your worker’s eligibility before hiring and registering them with the state, and that you withhold taxes.

Find out where to begin, what you need, and how to plan for success.

Scott Legal, P.C.

How Do You Draft the Personnel Section of the Business Plan? The Personnel Section of a Business Plan Explained.

what is labor requirements in business plan

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what is labor requirements in business plan

What Is Labor Forecasting? (And Why Do You Need It?)

Klaudia Dzierza

Whether you manage a restaurant or an entire production line of automobiles, labor forecasting is a critical managerial process that can save your company thousands in labor costs. If you’re not quite familiar with labor forecasting, here is a look at what it is, why your company needs it, and different methods for forecasting labor that you can try today.

What is labor forecasting?

Labor forecasting is simply a formal process for anticipating how many staffing hours your company will require in the future. This is particularly useful for organizations as it helps them to make sure that they are not understaffed – which can negatively impact sales, or overstaffed – which creates unnecessary labor costs.

Finding the perfect balance is not always easy, but it is worth it for the many benefits it can bring to an organization.

Why your company needs labor forecasting

In addition to preventing your company from being overstaffed or understaffed in the short term, successful workforce forecasting also has many other long-term benefits. Some of the main long-term benefits of labor forecasting include:

  • Improved overall customer service experience . When your team is working at optimum productivity, they are able to focus on performing their job at its very best. For customer-facing employees, that means they can provide a much better service experience to your customers and clients. For example, if your restaurant is low on wait-staff for the evening, other employees will have to pick up the slack. This can cause frustration, resentment, and can oftentimes lead to mistakes.
  • Prevention of employee burnout and improved retention . Working environments that are chronically understaffed can cause employees to feel mentally stressed and drained. Too much stress can cause burnout, which can then lead to increased absenteeism or even more complex mental health problems. On the flip side, an overstaffed environment may make employees feel unfulfilled in their role. In some cases, an employee may feel motivated to seek employment elsewhere if they feel like they are not making an impact.
  • Improved managerial capacity to make strategic, long-term decisions . When the day to day staffing runs smoothly, managers are able to focus their energy on more important, long-term matters. Some of these matters include business growth and development projects, process optimization activities, and upskilling for themselves or for their staff.

5 Common Labor forecasting Methods

Whether they are aware of it or not, most managers already perform basic labor forecasting techniques in their day to day managerial duties. Here are five of the most common methods used in the workplace today.

1. Historical Analysis

If you’ve ever made a staffing schedule for an upcoming month based on your staffing needs from the previous month, you have conducted a historical analysis – and it’s one of the best ways to plan ahead for your company’s labor requirements.

Simply put, historical analyses take into account past information and trends, and then future labor planning is based on any patterns that you may find.

Some questions to consider when doing a historical analysis:

  • What days/times is your business the slowest/busiest?
  • Do you have any particular seasons of the year which are slower or busier?
  • Is your company affected by any holidays or special events?

Historical analyses are particularly helpful with restaurant forecasting, as it is easy to identify ‘busy phases’ throughout the day and week – i.e. around mealtimes, special events, and weekends.

2. Market Research

If you are a brand-new business, you may want to conduct some market research to determine what the future staffing needs of your business may be. You can always research the schedule forecasting trends of other companies in your industry, and then apply those trends to your business. You can also reach out to similar business owners to see if they have any advice on staffing, scheduling, or seasonal trends.

Some questions to explore when researching:

  • What are the typical daily staffing needs of similar-sized businesses in your industry?
  • Are there any particularly slow or busy seasons in your industry?
  • Are there any particularly slow or busy seasons in your geographical location?

3. Delphi Method

The Delphi method is another classic forecasting technique that can be beneficial for companies that have multiple leaders making decisions about staffing and scheduling. In this technique, each decision-maker is sent a series of anonymous questionnaires regarding future labor needs. The answers are then collected, and a conclusion is made based on the group’s collective, aggregated responses.

This method is ideal for longer-term staffing decisions that may be sensitive or political. Because participants must submit their responses anonymously, they will answer honestly and with good judgment, without feeling worried about what the other leaders may think.

4. Advanced Quantitative Methods

More advanced forecasting techniques use statistical analysis to form a trendline based on historical data, future events, and other variables such as economic conditions and broader business trends. These methods are particularly useful for larger organizations in need of more sophisticated insights about their anticipated labor needs.

Some of the most common advanced quantitative methods for labor forecasting include regression modeling techniques, the Box-Jenkins technique, econometric modeling, and life-cycle analyses.

5. Managerial Judgment

At the end of the day, nothing beats managerial judgment when making staffing decisions, and good managers will know first-hand when they need staff, and when they do not need staff.

Good managers can also help plan ahead for anomalies that traditional forecasting methods may not catch. Is there a new event in your area that may attract lots of new foot traffic? Have you implemented a new system that may alleviate work required by some of your staff? Do they have first-hand knowledge that an employee may leave soon due to personal reasons ?

All of these questions are potential blind spots that only managers will have the insight and responsibility to act on.

It’s Okay to Use Multiple Forecasting Techniques

Remember, it’s okay to utilize several different forecasting techniques for your business. Each method is useful in its own way, and there may be different points in time where one method is more practical to use than another. You may even find that some methods work better for short-term planning, while others work better for long-term planning.

As a conclusion, the most important takeaways regarding labor forecasting are to:

  • Be aware of how your company predicts and plans for labor needs
  • Implement policies that include a variety of labor forecasting methods and best practices

Labor forecasting is the process of estimating the future labor needs of a business based on projected customer demand, sales data, and other external factors. It is crucial for businesses because it helps ensure they have the right number of staff, with the appropriate skills, available at the right times to meet customer demand, optimize workforce management, and maintain high levels of customer satisfaction.

Forecasting labor demand is directly related to forecasting customer demand, as understanding the volume and timing of customer demand allows businesses to accurately predict their labor needs. By analyzing trends in customer behavior and historical sales data, businesses can align their labor forecasting efforts with expected customer demand, ensuring they are adequately staffed to meet peaks and troughs in business activity.

Effective methods for accurate labor forecasting include the use of historical analysis methods, advanced quantitative methods, and labor modeling. These approaches involve analyzing past data, such as historical sales data and trends in customer behavior, and applying statistical techniques to predict future demand. Additionally, labor forecasting software can automate and refine these processes, providing more accurate and timely forecasts.

External factors, such as economic conditions, industry trends, and seasonal variations, can significantly impact labor forecasting efforts by influencing customer demand and labor availability. Businesses must consider these factors in their labor forecasting strategy to ensure they can adapt to changes in the market and maintain the ability to meet customer demand effectively.

Historical data plays a pivotal role in labor forecasting by providing a foundation for predicting future labor needs. By analyzing historical sales data, customer demand patterns, and past workforce performance, businesses can identify trends and patterns that help accurately forecast future demand and labor requirements. This historical analysis method is essential for developing a reliable labor forecasting approach.

Labor forecasting software enhances workforce planning and management by automating the analysis of sales data, customer demand, and other relevant factors to produce accurate labor forecasts. These tools often incorporate advanced quantitative methods and algorithms to predict future demand more accurately, enabling businesses to optimize their workforce scheduling, reduce labor costs, and improve overall efficiency.

Accurately forecasting labor needs is crucial in achieving customer satisfaction because it ensures that businesses have sufficient staff to meet customer demand without delays or compromised service quality. By effectively matching labor supply with projected customer demand, businesses can maintain high service levels, minimize wait times, and enhance the overall customer experience.

Yes, advanced quantitative methods in labor forecasting can predict future demand more accurately than relying on historical analysis alone. These methods use statistical and mathematical models to analyze not only past data but also current trends and external factors, providing a more comprehensive and forward-looking perspective on labor needs. When combined with historical analysis, these advanced methods offer a robust approach to labor forecasting, enabling businesses to prepare more effectively for future demand.

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Manpower Requirements and Operations in a Business Proposal

  • Small Business
  • Running a Business
  • Operating a Business
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How to Create a Business Plan as an Entrepreneur

How to write a proposal on the introduction & marketing of bakery products, 6 types of business plans.

  • Professional Service Agreement
  • How to Develop an Organizational Plan & Strategy to Get Project Staff

Writing a winning business proposal can be a critical part of expanding your business. An informal meeting with a potential new client sets the stage, but a thoughtful, personalized business proposal can help you seal the deal. As you craft your business proposal, two important areas to consider are the manpower requirements of the project and the operational requirements of the project. These areas will help inform the project deliverables, milestones and overall budget.

Writing a Business Proposal

The purpose of a business proposal is to win new business, so it should be written with sales in mind. Some industries have a specific template that’s commonly used, so if you’re uncertain of the correct format, connect with peers in your network to find out proposal specifics. In particular, federal and state governments bids may have specific requirements that you need to meet.

In general, business proposals have five to six sections. These include an introduction, an executive summary, details about the project, deliverables and project milestones, a breakdown of the budget for the project and the conclusion. In the introduction, you can provide a brief overview of your business and why it’s well-suited for this particular project. In the executive summary, you can provide an overview of the project itself. Next, give more details about the project, including your operational and manpower planning.

Your deliverables and project milestones can be spelled out in the simple table. Your budget breakdown can also be delivered in a table and should include your manpower proposal for the project. Overall, business proposals tend to be relatively short and easy-to-read.

Manpower Proposal Considerations

Before you write your business proposal, consider the manpower you’ll need for this project. Your manpower requirements definition may include managers, front-line employees and employees with special skill sets required for this project. Define the roles of each member of your proposed team and how they will interact with each other. Estimate how long it will take for each team member to complete their portion of the project. Use that estimate to determine your manpower costs, keeping in mind their salary, their employee benefits, payroll taxes and other costs associated with their employment.

When you address manpower requirements in your business proposal, you may not need to include this level of detail. This level of planning can help you develop an accurate budget, though. Be sure to include a cushion for unexpected costs such as overtime.

Operations Proposal Considerations

Your operational plan will influence several areas of your business proposal. For example, it will play a large role in the section where you spell out the details of your project. You may want to include a brief description of how your product is made, as well as your supply chain. You should also describe the quality control measures you have in place to ensure a high-quality product or service.

As you develop your project budget, keep in mind operational requirements such as the type of physical space you’ll need, any special equipment you will need to purchase, any special materials you’ll need to obtain, storage costs and delivery costs. You may not need to go into this level of detail in your proposed budget, but using a high level of detail for planning ensures a higher level of accuracy, which can help prevent cost overruns.

  • Fundera: How to Write a Business Proposal in 6 Steps to Win Clients
  • Inc.: Business Proposals
  • The Balance Small Business: Including Management and Human Resources in Your Business Plan
  • The Balance Small Business: The Operations Plan Section of the Business Plan

Melinda Hill Sineriz is a freelance writer with over a decade of experience. She specializes in business, personal finance, and career content. She has worked in sales and has managed her own small business for more than a decade. She has also written content for businesses in various industries, including restaurants, law firms, dental offices, and e-commerce companies. Learn more about her and her work at thatmelinda.com.

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How to Forecast Personnel Costs in 3 Steps

One male and one female employee standing together in front of an espresso machine. Represents people that are part of a personnel plan.

Noah Parsons

9 min. read

Updated October 25, 2023

For many businesses, the people you employ are your most valuable—and most expensive—asset. Payroll often makes up a large portion of a business’s expenses, so it’s important to spend some time working on this portion of your forecast.

But, if you’re just starting out or are working on a business plan for a new idea, you probably don’t have anyone on the payroll yet and maybe don’t even know what your staffing plans are. That’s OK and the exact reason why you should work on a personnel forecast. We’ll take you step-by-step through the process so you can figure out what your payroll costs are going to be and how that will impact the bottom line of your business.

  • What you need to know to forecast personnel costs

A personnel forecast is all about planning for the people you employ to help run your business. Your goal is to figure out what your monthly payroll will be and how that may change over time.

To create a good personnel forecast, you’ll need to have thought about a few things:

Your team makeup

You’ll need to know your current team, if you’re already up and running, and the positions that you plan on hiring for. It’s helpful to think about the different teams that make up your business and they may grow over time. 

Now, if you don’t have a team yet, think about the key positions and teams you will need to run your business. Will you need marketing, customer service, or service staff? Think about your business, who will help you operate it, and when you’ll likely hire them.

Employee benefits 

For most businesses, the cost of employees is more than just salaries. If you  offer any benefits , you’ll want to know what those are and what the rough costs of those benefits are.

Payroll tax obligations

Payroll taxes vary by location. If you don’t know what your payroll tax obligations are, it’s useful to do a little research or ask an accountant about the typical payroll tax rates and requirements for your region.

Any other required costs

Many cities and states require additional spending for employees, such as funding a workers compensation insurance program. If you have (or are planning on having) employees, it’s important to have a sense of what these additional costs might be for your region.

  • How to forecast personnel costs

With the information above in mind, you can begin forecasting employee costs & expenses in just a few simple steps. 

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1. List out key roles and teams

If you have a small team, you can simply list out your employees and their salaries. 

For companies with teams that are made up of people who do a similar job, you should think about creating a forecast for that entire team, instead of listing out each individual employee. For example, if your business has a customer service team, you don’t need to list out every single customer service employee. Instead, just include an entry on your personnel forecast for the “customer service team” and then include the total salaries for that team.

It’s OK for your personnel forecast to have a mix of teams and individuals. For example, you should list out the members of your management team individually, but then you could use teams to forecast payroll for customer service, manufacturing, design, etc. The important thing is that the mix you land on accurately reflects your business and is useful for you to easily track and analyze employee costs over time.

If your personnel forecast covers several years, you’ll want to think about and include future raises and bonuses that may be issued at the appropriate points of your forecast. For example, if an employee is making $50,000 in the first year that they work with you and you plan on giving a 7% raise, then their new salary would be $53,500 the following year.

If you’re a startup or a growing business, you may have plans to hire employees in the future. Be sure to list those future positions and add their salaries in the month or year that you plan on filling those roles. 

2. Define and separate direct, indirect labor, and contract labor 

In a personnel forecast, there are three different types of expenses: direct labor, indirect (or regular) labor, and contract labor. Each type impacts your financial forecast in different ways. So, it’s important that you understand how they function and forecast each type separately.

Direct labor is associated with your sales. It’s labor that is required to produce your product or make your sale. If sales go up, your direct labor costs go up. If sales go down, your direct labor costs go down. Direct labor is most common in manufacturing businesses, but can also be used in consulting and other service-based organizations. Direct labor is part of  your direct costs  and impacts your gross margin in your financial forecast. 

Indirect labor is also called “regular” labor and includes any salaries that your business will pay regardless of what sales your business makes. For example, a business will pay the salaries of its management team, marketing team, and product development team regardless of what is going on in sales. These are salaries that are needed to run the business on a day-to-day basis. For many businesses, all of their salaries are classified as indirect (or “regular) labor. These salaries are regular expenses and will show up on your  profit and loss statement .

Contract labor is used to forecast expenses for people who do contract work for your business and who are not employees. The reason you want to separate out contract labor from direct and indirect labor is that you don’t pay payroll taxes, benefits, or other expenses for contractors. Contractors are often independent businesses of their own and your business is not responsible for paying additional taxes for contract labor. Contract labor is also an expense and will be included in your profit and loss statement.

3. Find your burden rate

In addition to salaries, your personnel plan will include a forecast for other employee expenses such as taxes, benefits, health insurance, worker’s compensation insurance, and more. This section of your personnel plan is often called “other employee expenses”, “employee overhead” or “employee burden”.

You could figure out what the exact costs are for each employee. But, when forecasting, it’s often easier to figure out a percentage of salaries you’ll pay for the typical employee—this is called the “burden rate”.

For example, if an employee’s salary is $50,000 per year, you might pay an additional 15% to cover taxes, insurance, benefits, etc. That 15% is the burden rate. Because taxes and other employee expenses often grow with salaries, it’s useful to use a percentage so that as you forecast salary changes, your employee burden expenses will automatically rise accordingly.

For most businesses, a burden rate of 15% to 25% is considered normal, but it all depends on what kinds of benefits you plan on offering and what your local payroll taxes are. 

  • Completing your personnel forecast

To complete your personnel forecast, you’ll add all of your labor costs together (direct, indirect, and contract) to get your total salaries. 

You’ll then calculate your burden using the burden rate that you defined. Multiply your direct and indirect labor costs by your burden rate to figure out what your employee overhead (burden) costs are. Add this number to your total salaries, and you’ll know your total personnel costs.

Your personnel costs will show up in your profit & loss statement and impact your profitability.

  • Tips to budget for personnel

Personnel budgeting might seem complicated, but it’s much easier when you just think of it as calculating your payroll. You just need to know who your employees are, what you pay them, and what kinds of benefits you provide. Here are a few other tips to help you with your forecast:

Find the right mix of individuals and groups

In your personnel plan, you can list both individual people as well as groups. You’ll probably want to list out key people and other highly paid employees, but group together other departments or groups of people that do similar jobs and have similar salaries. For example, you might list out your management team, but then group together departments like Marketing, Customer Service, and Manufacturing.

Don’t forget to pay yourself

A key mistake many entrepreneurs make is not paying themselves. In your forecast, don’t forget to include a salary for yourself. You don’t need to actually take the money out of the business in the early days, but it’s important to keep a record of the compensation that you are deferring. 

Forecast for employee gaps

If you are forecasting revenue growth, it’s likely that you’ll need to expand your team at the same time. Don’t forget to forecast for this growth. 

It’s also common in the early days of a business for a few people to do many jobs. You might wear the CEO hat, and be the director of marketing, and also the VP of sales. But, eventually, you’ll grow and you should include plans to hire for these positions in your forecast.

  • A part of your larger financial plan

Your personnel forecast feeds into your profit and loss projections and has a direct impact on your profitability. For many businesses, personnel is the largest expense, so it’s important to think through the forecast and make adjustments to the timing of planned hiring based on your revenue projections, profitability, and the cash you have available to meet payroll obligations.

Of course, you’ll also want to think about how your business is organized and what the management structure will look like. You can use tools such as an  organizational chart  to help figure out your personnel plan and then add that to your business plan. You can also use the “team” section of your business plan to discuss key employees that you plan to hire in the future and any gaps that your organization currently has.

Your completed Management and Organizational Structure section of your business plan will include info from your personnel forecast as well as descriptions of your organization. Along with your full forecast, it gives readers a full understanding of where your business is today and how you plan to grow your team in the future.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Content Author: Noah Parsons

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

what is labor requirements in business plan

A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.

Key Takeaways

  • A business plan is a document describing a company's business activities and how it plans to achieve its goals.
  • Startup companies use business plans to get off the ground and attract outside investors.
  • For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
  • There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.

Investopedia / Ryan Oakley

Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.

Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."

Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.

Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.

While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.

These are some of the most common elements in many business plans:

  • Executive summary: This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
  • Products and services: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
  • Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
  • Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
  • Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.

The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.

2 Types of Business Plans

Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

  • Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
  • Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.

Why Do Business Plans Fail?

A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.

How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.

Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.

A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

U.S. Small Business Administration. " Write Your Business Plan ."

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5.4: Labor Supply and Demand

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  • Page ID 47033
  • Nina Burokas
  • Lumen Learning

Learning Outcomes

  • Discuss how to determine the demand for and supply of labor

Predicting the demand and supply of labor in the future requires an understanding of not only business requirements and current resource capabilities but the availability or supply of relevant talent in the market. The organization’s demand for labor will be based on a range of both macro- and micro-level factors including the economy, geopolitical relations, government and regulatory policy, industry growth, competitive factors, and trends in technology and consumer preferences. These assumptions will be factored into the organization’s strategic planning process and provide broad guidance as to the quantity of labor and types of expertise that will be required over the planning horizon.

Perspective point

As Investopedia notes, “in the private sector, the type and quantity of demanded labor is a function of the total demand for products and services in the economy.” That is, at both the industry and individual business level, “it is the consumer who controls labor and not the employer.” [1]

Evaluate Current Resources

Photo of a business woman. She is standing in front of an illustration of four people and a chart indicating growth.

The first step in determining the demand for labor involves an evaluation of current resources (as described above) or the internal supply of labor. That is, current employees should be evaluated based on their ability to meet projected future requirements, factoring in training, reskilling, lateral transfers and promotions. Estimates of internal labor supplies also need to factor in terminations and voluntary turnover (e.g., resignation and retirement).

Businesses tend to use one or a combination of qualitative or quantitative approaches to analyze internal labor supplies. For example, a qualitative approach is using management judgement based on market and industry experience and an understanding of the organization’s competitive position as a business and performance as an employer (i.e., development and retention). Management judgement also comes into play when evaluating current resources relative to future requirements. Specifically, if there are significant skill or expertise gaps, determining whether current resources—either individually or at scale, as we will discuss in Module 7: Onboarding, Training & Developing Employees—are capable of closing the gap with training and development is often a matter of judgement. Another labor demand forecasting method used is the Delphi Technique, originally developed by the global policy think tank RAND in the 1950s to forecast the impact of technology on warfare. [2] The Delphi Technique uses a panel of experts to arrive at a consensus based on multiple rounds of questions and review of a statistical representation of the consolidated responses.

Tracking Potential Talent

Human resource management may develop replacement charts to keep track of high potential talent, as illustrated in Figure 1. A graphical technique can also be applied to succession planning, where HR develops and manages the pipeline for senior executive and other critical positions. To distinguish between replacement and succession planning, succession planning has a broader development objective; that is, the purpose is to develop high potential individuals for positions in the organization broadly.

See image caption for link to alternative text.

A common qualitative method used is Markov analysis, named after Russian mathematician Andrei Andreyevich Markov. In an HR context, Markov analysis can be used to track the pattern of employee movements within the organization and develop a transitional probability matrix for forecasting internal supply by specific categories, such as job title, role and gender.

Using Analytics

Given the availability of data and data processing capabilities, it’s likely that analytics will become an integral part of the workforce planning process, from assessing current resource capabilities or supply to forecasting demand. In an article for HR Technologist, analytics educator and consultant Chiradeep BasuMallick states that “with the global workplace facing a skills shortage and the emergence of roles that were once unheard of, workforce planning is now a major differentiator.” [3] Specifically, he argues that using descriptive, predictive and prescriptive analytics “can give HR professionals a deeper understanding of current movements, future shifts, and the best ways forward.”

From a workforce planning perspective, one of the key opportunities in using analytics to spot talent trends and gaps. In particular, performance management data can identify underutilized resources, upskilling opportunities and leadership training needs.

External Labor Supply

The external supply of labor is a function of a range of economic and qualitative factors including the availability of housing, transportation, the quality of life and the number and quality of local/regional educational and training educational institutions. Wages, competition for labor, demographic and immigration trends, and policies and individual preferences and perceptions of utility as well as the structure of jobs will also impact the availability of labor and labor force participation. We will discuss these factors in greater detail in Module 6: Recruitment and Selection.

Practice Question

  • Ross, Sean. " How Are Labor Demand Forecasts Made in Human Resources Planning? " Investopedia. November 20, 2018. Accessed September 10, 2019. ↵
  • " Delphi Method ." RAND Corporation. Accessed September 10, 2019. ↵
  • "4 Ways Analytics Can Improve Workforce Planning in 2019." HR Technologist. April 16, 2019. Accessed September 10, 2019. ↵

Contributors and Attributions

  • Modification of Business Woman. Authored by : Maura Barbulescu. Provided by : Pixabay. Located at : pixabay.com/photos/business-woman-business-man-business-2071342/. License : CC0: No Rights Reserved . License Terms : Pixabay License
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Elements of a Business Plan There are seven major sections of a business plan, and each one is a complex document. Read this selection from our business plan tutorial to fully understand these components.

Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn't include, how to work the numbers and additional resources you can turn to for help. With that in mind, jump right in.

Executive Summary

Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you're asking for in the summary.

The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no longer than one page. Within that space, you'll need to provide a synopsis of your entire business plan. Key elements that should be included are:

  • Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what will be sold, to whom and why the business will hold a competitive advantage.
  • Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment.
  • Financial requirements. Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity, you should also specify the source of collateral.
  • Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel.
  • Major achievements. Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.

When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.

Business Description

Tell them all about it.

The business description usually begins with a short description of the industry. When describing the industry, discuss the present outlook as well as future possibilities. You should also provide information on all the various markets within the industry, including any new products or developments that will benefit or adversely affect your business. Base all of your observations on reliable data and be sure to footnote sources of information as appropriate. This is important if you're seeking funding; the investor will want to know just how dependable your information is, and won't risk money on assumptions or conjecture.

When describing your business, the first thing you need to concentrate on is its structure. By structure we mean the type of operation, i.e. wholesale, retail, food service, manufacturing or service-oriented. Also state whether the business is new or already established.

In addition to structure, legal form should be reiterated once again. Detail whether the business is a sole proprietorship, partnership or corporation, who its principals are, and what they will bring to the business.

You should also mention who you will sell to, how the product will be distributed, and the business's support systems. Support may come in the form of advertising, promotions and customer service.

Once you've described the business, you need to describe the products or services you intend to market. The product description statement should be complete enough to give the reader a clear idea of your intentions. You may want to emphasize any unique features or variations from concepts that can typically be found in the industry.

Be specific in showing how you will give your business a competitive edge. For example, your business will be better because you will supply a full line of products; competitor A doesn't have a full line. You're going to provide service after the sale; competitor B doesn't support anything he sells. Your merchandise will be of higher quality. You'll give a money-back guarantee. Competitor C has the reputation for selling the best French fries in town; you're going to sell the best Thousand Island dressing.

How Will I Profit?

Now you must be a classic capitalist and ask yourself, "How can I turn a buck? And why do I think I can make a profit that way?" Answer that question for yourself, and then convey that answer to others in the business concept section. You don't have to write 25 pages on why your business will be profitable. Just explain the factors you think will make it successful, like the following: it's a well-organized business, it will have state-of-the-art equipment, its location is exceptional, the market is ready for it, and it's a dynamite product at a fair price.

If you're using your business plan as a document for financial purposes, explain why the added equity or debt money is going to make your business more profitable.

Show how you will expand your business or be able to create something by using that money.

Show why your business is going to be profitable. A potential lender is going to want to know how successful you're going to be in this particular business. Factors that support your claims for success can be mentioned briefly; they will be detailed later. Give the reader an idea of the experience of the other key people in the business. They'll want to know what suppliers or experts you've spoken to about your business and their response to your idea. They may even ask you to clarify your choice of location or reasons for selling this particular product.

The business description can be a few paragraphs in length to a few pages, depending on the complexity of your plan. If your plan isn't too complicated, keep your business description short, describing the industry in one paragraph, the product in another, and the business and its success factors in three or four paragraphs that will end the statement.

While you may need to have a lengthy business description in some cases, it's our opinion that a short statement conveys the required information in a much more effective manner. It doesn't attempt to hold the reader's attention for an extended period of time, and this is important if you're presenting to a potential investor who will have other plans he or she will need to read as well. If the business description is long and drawn-out, you'll lose the reader's attention, and possibly any chance of receiving the necessary funding for the project.

Market Strategies

Define your market.

Market strategies are the result of a meticulous market analysis. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to garner its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and promotional strategies that will allow the company to become profitable within a competitive environment. In addition, it provides an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future of your business.

Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential.

The total aggregate sales of your competitors will provide you with a fairly accurate estimate of the total potential market. Once the size of the market has been determined, the next step is to define the target market. The target market narrows down the total market by concentrating on segmentation factors that will determine the total addressable market--the total number of users within the sphere of the business's influence. The segmentation factors can be geographic, customer attributes or product-oriented.

For instance, if the distribution of your product is confined to a specific geographic area, then you want to further define the target market to reflect the number of users or sales of that product within that geographic segment.

Once the target market has been detailed, it needs to be further defined to determine the total feasible market. This can be done in several ways, but most professional planners will delineate the feasible market by concentrating on product segmentation factors that may produce gaps within the market. In the case of a microbrewery that plans to brew a premium lager beer, the total feasible market could be defined by determining how many drinkers of premium pilsner beers there are in the target market.

It's important to understand that the total feasible market is the portion of the market that can be captured provided every condition within the environment is perfect and there is very little competition. In most industries this is simply not the case. There are other factors that will affect the share of the feasible market a business can reasonably obtain. These factors are usually tied to the structure of the industry, the impact of competition, strategies for market penetration and continued growth, and the amount of capital the business is willing to spend in order to increase its market share.

Projecting Market Share

Arriving at a projection of the market share for a business plan is very much a subjective estimate. It's based on not only an analysis of the market but on highly targeted and competitive distribution, pricing and promotional strategies. For instance, even though there may be a sizable number of premium pilsner drinkers to form the total feasible market, you need to be able to reach them through your distribution network at a price point that's competitive, and then you have to let them know it's available and where they can buy it. How effectively you can achieve your distribution, pricing and promotional goals determines the extent to which you will be able to garner market share.

For a business plan, you must be able to estimate market share for the time period the plan will cover. In order to project market share over the time frame of the business plan, you'll need to consider two factors:

  • Industry growth which will increase the total number of users. Most projections utilize a minimum of two growth models by defining different industry sales scenarios. The industry sales scenarios should be based on leading indicators of industry sales, which will most likely include industry sales, industry segment sales, demographic data and historical precedence.
  • Conversion of users from the total feasible market. This is based on a sales cycle similar to a product life cycle where you have five distinct stages: early pioneer users, early users, early majority users, late majority users and late users. Using conversion rates, market growth will continue to increase your market share during the period from early pioneers to early majority users, level off through late majority users, and decline with late users.

Defining the market is but one step in your analysis. With the information you've gained through market research, you need to develop strategies that will allow you to fulfill your objectives.

Positioning Your Business

When discussing market strategy, it's inevitable that positioning will be brought up. A company's positioning strategy is affected by a number of variables that are closely tied to the motivations and requirements of target customers within as well as the actions of primary competitors.

Before a product can be positioned, you need to answer several strategic questions such as:

  • How are your competitors positioning themselves?
  • What specific attributes does your product have that your competitors' don't?
  • What customer needs does your product fulfill?

Once you've answered your strategic questions based on research of the market, you can then begin to develop your positioning strategy and illustrate that in your business plan. A positioning statement for a business plan doesn't have to be long or elaborate. It should merely point out exactly how you want your product perceived by both customers and the competition.

How you price your product is important because it will have a direct effect on the success of your business. Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:

  • All prices must cover costs.
  • The best and most effective way of lowering your sales prices is to lower costs.
  • Your prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.
  • Prices must be established to assure sales. Don't price against a competitive operation alone. Rather, price to sell.
  • Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.
  • Prices must be set to preserve order in the marketplace.

There are many methods of establishing prices available to you:

  • Cost-plus pricing. Used mainly by manufacturers, cost-plus pricing assures that all costs, both fixed and variable, are covered and the desired profit percentage is attained.
  • Demand pricing. Used by companies that sell their product through a variety of sources at differing prices based on demand.
  • Competitive pricing. Used by companies that are entering a market where there is already an established price and it is difficult to differentiate one product from another.
  • Markup pricing. Used mainly by retailers, markup pricing is calculated by adding your desired profit to the cost of the product. Each method listed above has its strengths and weaknesses.
  • Distribution

Distribution includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose will depend upon the industry and the size of the market. A good way to make your decision is to analyze your competitors to determine the channels they are using, then decide whether to use the same type of channel or an alternative that may provide you with a strategic advantage.

Some of the more common distribution channels include:

  • Direct sales. The most effective distribution channel is to sell directly to the end-user.
  • OEM (original equipment manufacturer) sales. When your product is sold to the OEM, it is incorporated into their finished product and it is distributed to the end user.
  • Manufacturer's representatives. One of the best ways to distribute a product, manufacturer's reps, as they are known, are salespeople who operate out of agencies that handle an assortment of complementary products and divide their selling time among them.
  • Wholesale distributors. Using this channel, a manufacturer sells to a wholesaler, who in turn sells it to a retailer or other agent for further distribution through the channel until it reaches the end user.
  • Brokers. Third-party distributors who often buy directly from the distributor or wholesaler and sell to retailers or end users.
  • Retail distributors. Distributing a product through this channel is important if the end user of your product is the general consuming public.
  • Direct Mail. Selling to the end user using a direct mail campaign.

As we've mentioned already, the distribution strategy you choose for your product will be based on several factors that include the channels being used by your competition, your pricing strategy and your own internal resources.

Promotion Plan

With a distribution strategy formed, you must develop a promotion plan. The promotion strategy in its most basic form is the controlled distribution of communication designed to sell your product or service. In order to accomplish this, the promotion strategy encompasses every marketing tool utilized in the communication effort. This includes:

  • Advertising. Includes the advertising budget, creative message(s), and at least the first quarter's media schedule.
  • Packaging. Provides a description of the packaging strategy. If available, mockups of any labels, trademarks or service marks should be included.
  • Public relations. A complete account of the publicity strategy including a list of media that will be approached as well as a schedule of planned events.
  • Sales promotions. Establishes the strategies used to support the sales message. This includes a description of collateral marketing material as well as a schedule of planned promotional activities such as special sales, coupons, contests and premium awards.
  • Personal sales. An outline of the sales strategy including pricing procedures, returns and adjustment rules, sales presentation methods, lead generation, customer service policies, salesperson compensation, and salesperson market responsibilities.

Sales Potential

Once the market has been researched and analyzed, conclusions need to be developed that will supply a quantitative outlook concerning the potential of the business. The first financial projection within the business plan must be formed utilizing the information drawn from defining the market, positioning the product, pricing, distribution, and strategies for sales. The sales or revenue model charts the potential for the product, as well as the business, over a set period of time. Most business plans will project revenue for up to three years, although five-year projections are becoming increasingly popular among lenders.

When developing the revenue model for the business plan, the equation used to project sales is fairly simple. It consists of the total number of customers and the average revenue from each customer. In the equation, "T" represents the total number of people, "A" represents the average revenue per customer, and "S" represents the sales projection. The equation for projecting sales is: (T)(A) = S

Using this equation, the annual sales for each year projected within the business plan can be developed. Of course, there are other factors that you'll need to evaluate from the revenue model. Since the revenue model is a table illustrating the source for all income, every segment of the target market that is treated differently must be accounted for. In order to determine any differences, the various strategies utilized in order to sell the product have to be considered. As we've already mentioned, those strategies include distribution, pricing and promotion.

Competitive Analysis

Identify and analyze your competition.

The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.

The first step in a competitor analysis is to identify the current and potential competition. There are essentially two ways you can identify competitors. The first is to look at the market from the customer's viewpoint and group all your competitors by the degree to which they contend for the buyer's dollar. The second method is to group competitors according to their various competitive strategies so you understand what motivates them.

Once you've grouped your competitors, you can start to analyze their strategies and identify the areas where they're most vulnerable. This can be done through an examination of your competitors' weaknesses and strengths. A competitor's strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market.

To determine just what constitutes a key asset or skill within an industry, David A. Aaker in his book, Developing Business Strategies , suggests concentrating your efforts in four areas:

  • The reasons behind successful as well as unsuccessful firms
  • Prime customer motivators
  • Major component costs
  • Industry mobility barriers

According to theory, the performance of a company within a market is directly related to the possession of key assets and skills. Therefore, an analysis of strong performers should reveal the causes behind such a successful track record. This analysis, in conjunction with an examination of unsuccessful companies and the reasons behind their failure, should provide a good idea of just what key assets and skills are needed to be successful within a given industry and market segment.

Through your competitor analysis, you will also have to create a marketing strategy that will generate an asset or skill competitors don't have, which will provide you with a distinct and enduring competitive advantage. Since competitive advantages are developed from key assets and skills, you should sit down and put together a competitive strength grid. This is a scale that lists all your major competitors or strategic groups based upon their applicable assets and skills and how your own company fits on this scale.

Create a Competitive Strength Grid

To put together a competitive strength grid, list all the key assets and skills down the left margin of a piece of paper. Along the top, write down two column headers: "weakness" and "strength." In each asset or skill category, place all the competitors that have weaknesses in that particular category under the weakness column, and all those that have strengths in that specific category in the strength column. After you've finished, you'll be able to determine just where you stand in relation to the other firms competing in your industry.

Once you've established the key assets and skills necessary to succeed in this business and have defined your distinct competitive advantage, you need to communicate them in a strategic form that will attract market share as well as defend it. Competitive strategies usually fall into these five areas:

  • Advertising

Many of the factors leading to the formation of a strategy should already have been highlighted in previous sections, specifically in marketing strategies. Strategies primarily revolve around establishing the point of entry in the product life cycle and an endurable competitive advantage. As we've already discussed, this involves defining the elements that will set your product or service apart from your competitors or strategic groups. You need to establish this competitive advantage clearly so the reader understands not only how you will accomplish your goals, but also why your strategy will work.

Design and Development Plan

What you'll cover in this section.

The purpose of the design and development plan section is to provide investors with a description of the product's design, chart its development within the context of production, marketing and the company itself, and create a development budget that will enable the company to reach its goals.

There are generally three areas you'll cover in the development plan section:

  • Product development
  • Market development
  • Organizational development

Each of these elements needs to be examined from the funding of the plan to the point where the business begins to experience a continuous income. Although these elements will differ in nature concerning their content, each will be based on structure and goals.

The first step in the development process is setting goals for the overall development plan. From your analysis of the market and competition, most of the product, market and organizational development goals will be readily apparent. Each goal you define should have certain characteristics. Your goals should be quantifiable in order to set up time lines, directed so they relate to the success of the business, consequential so they have impact upon the company, and feasible so that they aren't beyond the bounds of actual completion.

Goals For Product Development

Goals for product development should center on the technical as well as the marketing aspects of the product so that you have a focused outline from which the development team can work. For example, a goal for product development of a microbrewed beer might be "Produce recipe for premium lager beer" or "Create packaging for premium lager beer." In terms of market development, a goal might be, "Develop collateral marketing material." Organizational goals would center on the acquisition of expertise in order to attain your product and market-development goals. This expertise usually needs to be present in areas of key assets that provide a competitive advantage. Without the necessary expertise, the chances of bringing a product successfully to market diminish.

With your goals set and expertise in place, you need to form a set of procedural tasks or work assignments for each area of the development plan. Procedures will have to be developed for product development, market development, and organization development. In some cases, product and organization can be combined if the list of procedures is short enough.

Procedures should include how resources will be allocated, who is in charge of accomplishing each goal, and how everything will interact. For example, to produce a recipe for a premium lager beer, you would need to do the following:

  • Gather ingredients.
  • Determine optimum malting process.
  • Gauge mashing temperature.
  • Boil wort and evaluate which hops provide the best flavor.
  • Determine yeast amounts and fermentation period.
  • Determine aging period.
  • Carbonate the beer.
  • Decide whether or not to pasteurize the beer.

The development of procedures provides a list of work assignments that need to be accomplished, but one thing it doesn't provide are the stages of development that coordinate the work assignments within the overall development plan. To do this, you first need to amend the work assignments created in the procedures section so that all the individual work elements are accounted for in the development plan. The next stage involves setting deliverable dates for components as well as the finished product for testing purposes. There are primarily three steps you need to go through before the product is ready for final delivery:

  • Preliminary product review . All the product's features and specifications are checked.
  • Critical product review . All the key elements of the product are checked and gauged against the development schedule to make sure everything is going according to plan.
  • Final product review . All elements of the product are checked against goals to assure the integrity of the prototype.

Scheduling and Costs

This is one of the most important elements in the development plan. Scheduling includes all of the key work elements as well as the stages the product must pass through before customer delivery. It should also be tied to the development budget so that expenses can be tracked. But its main purpose is to establish time frames for completion of all work assignments and juxtapose them within the stages through which the product must pass. When producing the schedule, provide a column for each procedural task, how long it takes, start date and stop date. If you want to provide a number for each task, include a column in the schedule for the task number.

Development Budget

That leads us into a discussion of the development budget. When forming your development budget, you need to take into account all the expenses required to design the product and to take it from prototype to production.

Costs that should be included in the development budget include:

  • Material . All raw materials used in the development of the product.
  • Direct labor . All labor costs associated with the development of the product.
  • Overhead . All overhead expenses required to operate the business during the development phase such as taxes, rent, phone, utilities, office supplies, etc.
  • G&A costs . The salaries of executive and administrative personnel along with any other office support functions.
  • Marketing & sales . The salaries of marketing personnel required to develop pre-promotional materials and plan the marketing campaign that should begin prior to delivery of the product.
  • Professional services . Those costs associated with the consultation of outside experts such as accountants, lawyers, and business consultants.
  • Miscellaneous Costs . Costs that are related to product development.
  • Capital equipment . To determine the capital requirements for the development budget, you first have to establish what type of equipment you will need, whether you will acquire the equipment or use outside contractors, and finally, if you decide to acquire the equipment, whether you will lease or purchase it.

As we mentioned already, the company has to have the proper expertise in key areas to succeed; however, not every company will start a business with the expertise required in every key area. Therefore, the proper personnel have to be recruited, integrated into the development process, and managed so that everyone forms a team focused on the achievement of the development goals.

Before you begin recruiting, however, you should determine which areas within the development process will require the addition of personnel. This can be done by reviewing the goals of your development plan to establish key areas that need attention. After you have an idea of the positions that need to be filled, you should produce a job description and job specification.

Once you've hired the proper personnel, you need to integrate them into the development process by assigning tasks from the work assignments you've developed. Finally, the whole team needs to know what their role is within the company and how each interrelates with every position within the development team. In order to do this, you should develop an organizational chart for your development team.

Assessing Risks

Finally, the risks involved in developing the product should be assessed and a plan developed to address each one. The risks during the development stage will usually center on technical development of the product, marketing, personnel requirements, and financial problems. By identifying and addressing each of the perceived risks during the development period, you will allay some of your major fears concerning the project and those of investors as well.

Operations & Management

The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business. In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section.

The financial tables that you'll develop within the operations plan include:

  • The operating expense table
  • The capital requirements table
  • The cost of goods table

There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.

Organizational Structure

The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses. This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.

Although every company will differ in its organizational structure, most can be divided into several broad areas that include:

  • Marketing and sales (includes customer relations and service)
  • Production (including quality assurance)
  • Research and development
  • Administration

These are very broad classifications and it's important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals.

The four stages for organizing a business are:

Calculate Your Personnel Numbers

Once you've structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals. In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure: C / S = P

In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements. For instance, if the number of customers for first year sales is projected at 10,110 and one marketing employee is required for every 200 customers, you would need 51 employees within the marketing department: 10,110 / 200 = 51

Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense. The factors that need to be considered when calculating labor expense (LE) are the personnel requirements (P) for each department multiplied by the employee salary level (SL). Therefore, the equation would be: P * SL = LE

Using the marketing example from above, the labor expense for that department would be: 51 * $40,000 = $2,040,000

Calculate Overhead Expenses

Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed. These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed (those that must be paid, usually at the same rate, regardless of the volume of business) and variable or semivariable (those which change according to the amount of business).

Overhead expenses usually include the following:

  • Maintenance and repair
  • Equipment leases
  • Advertising & promotion
  • Packaging & shipping
  • Payroll taxes and benefits
  • Uncollectible receivables
  • Professional services
  • Loan payments
  • Depreciation

In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee. Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead (OH) expense: OH = NE * EE

Develop a Capital Requirements Table

In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase the equipment you'll use to establish and continue operations. It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.

In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.

Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: testing equipment, assembly equipment and packaging equipment.

With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle. This is important because capital requirements are a product of income, which is produced through unit sales. In order to meet sales projections, a business usually has to invest money to increase production or supply better service. In the business plan, capital requirements are tied to projected sales as illustrated in the revenue model shown earlier in this chapter.

For instance, if the capital equipment required is capable of handling the needs of 10,000 customers at an average sale of $10 each, that would be $100,000 in sales, at which point additional capital will be required in order to purchase more equipment should the company grow beyond this point. This leads us to another factor within the capital requirements equation, and that is equipment cost.

If you multiply the cost of equipment by the number of customers it can support in terms of sales, it would result in the capital requirements for that particular equipment element. Therefore, you can use an equation in which capital requirements (CR) equals sales (S) divided by number of customers (NC) supported by each equipment element, multiplied by the average sale (AS), which is then multiplied by the capital cost (CC) of the equipment element. Given these parameters, your equation would look like the following: CR = [(S / NC) * AS] * CC

The capital requirements table is formed by adding all your equipment elements to generate the total new capital for that year. During the first year, total new capital is also the total capital required. For each successive year thereafter, total capital (TC) required is the sum of total new capital (NC) plus total capital (PC) from the previous year, less depreciation (D), once again, from the previous year. Therefore, your equation to arrive at total capital for each year portrayed in the capital requirements model would be: TC = NC + PC - D

Keep in mind that depreciation is an expense that shows the decrease in value of the equipment throughout its effective lifetime. For many businesses, depreciation is based upon schedules that are tied to the lifetime of the equipment. Be careful when choosing the schedule that best fits your business. Depreciation is also the basis for a tax deduction as well as the flow of money for new capital. You may need to seek consultation from an expert in this area.

Create a Cost of Goods Table

The last table that needs to be generated in the operations and management section of your business plan is the cost of goods table. This table is used only for businesses where the product is placed into inventory. For a retail or wholesale business, cost of goods sold --or cost of sales --refers to the purchase of products for resale, i.e. the inventory. The products that are sold are logged into cost of goods as an expense of the sale, while those that aren't sold remain in inventory.

For a manufacturing firm, cost of goods is the cost incurred by the company to manufacture its product. This usually consists of three elements:

As in retail, the merchandise that is sold is expensed as a cost of goods , while merchandise that isn't sold is placed in inventory. Cost of goods has to be accounted for in the operations of a business. It is an important yardstick for measuring the firm's profitability for the cash-flow statement and income statement.

In the income statement, the last stage of the manufacturing process is the item expensed as cost of goods, but it is important to document the inventory still in various stages of the manufacturing process because it represents assets to the company. This is important to determining cash flow and to generating the balance sheet.

That is what the cost of goods table does. It's one of the most complicated tables you'll have to develop for your business plan, but it's an integral part of portraying the flow of inventory through your operations, the placement of assets within the company, and the rate at which your inventory turns.

In order to generate the cost of goods table, you need a little more information in addition to what your labor and material cost is per unit. You also need to know the total number of units sold for the year, the percentage of units which will be fully assembled, the percentage which will be partially assembled, and the percentage which will be in unassembled inventory. Much of these figures will depend on the capacity of your equipment as well as on the inventory control system you develop. Along with these factors, you also need to know at what stage the majority of the labor is performed.

Financial Components

Financial statements to include.

Financial data is always at the back of the business plan, but that doesn't mean it's any less important than up-front material such as the business concept and the management team. Astute investors look carefully at the charts, tables, formulas and spreadsheets in the financial section, because they know that this information is like the pulse, respiration rate and blood pressure in a human--it shows whether the patient is alive and what the odds are for continued survival.

Financial statements, like bad news, come in threes. The news in financial statements isn't always bad, of course, but taken together it provides an accurate picture of a company's current value, plus its ability to pay its bills today and earn a profit going forward.

The three common statements are a cash flow statement, an income statement and a balance sheet. Most entrepreneurs should provide them and leave it at that. But not all do. But this is a case of the more, the less merry. As a rule, stick with the big three: income, balance sheet and cash flow statements.

These three statements are interlinked, with changes in one necessarily altering the others, but they measure quite different aspects of a company's financial health. It's hard to say that one of these is more important than another. But of the three, the income statement may be the best place to start.

Income Statement

The income statement is a simple and straightforward report on the proposed business's cash-generating ability. It's a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred. It draws information from the various financial models developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of goods. By combining these elements, the income statement illustrates just how much your company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result--which is either a profit or a loss.

For a business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second, and annually for each year thereafter. It's formed by listing your financial projections in the following manner:

  • Income . Includes all the income generated by the business and its sources.
  • Cost of goods . Includes all the costs related to the sale of products in inventory.
  • Gross profit margin . The difference between revenue and cost of goods. Gross profit margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue.
  • Operating expenses . Includes all overhead and labor expenses associated with the operations of the business.
  • Total expenses . The sum of all overhead and labor expenses required to operate the business.
  • Net profit . The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities.
  • Depreciation . Reflects the decrease in value of capital assets used to generate income. Also used as the basis for a tax deduction and an indicator of the flow of money into new capital.
  • Net profit before interest . The difference between net profit and depreciation.
  • Interest . Includes all interest derived from debts, both short-term and long-term. Interest is determined by the amount of investment within the company.
  • Net profit before taxes . The difference between net profit before interest and interest.
  • Taxes . Includes all taxes on the business.
  • Profit after taxes . The difference between net profit before taxes and the taxes accrued. Profit after taxes is the bottom line for any company.

Following the income statement is a short note analyzing the statement. The analysis statement should be very short, emphasizing key points within the income statement.

Cash Flow Statement

The cash-flow statement is one of the most critical information tools for your business, showing how much cash will be needed to meet obligations, when it is going to be required, and from where it will come. It shows a schedule of the money coming into the business and expenses that need to be paid. The result is the profit or loss at the end of the month or year. In a cash-flow statement, both profits and losses are carried over to the next column to show the cumulative amount. Keep in mind that if you run a loss on your cash-flow statement, it is a strong indicator that you will need additional cash in order to meet expenses.

Like the income statement, the cash-flow statement takes advantage of previous financial tables developed during the course of the business plan. The cash-flow statement begins with cash on hand and the revenue sources. The next item it lists is expenses, including those accumulated during the manufacture of a product. The capital requirements are then logged as a negative after expenses. The cash-flow statement ends with the net cash flow.

The cash-flow statement should be prepared on a monthly basis during the first year, on a quarterly basis during the second year, and on an annual basis thereafter. Items that you'll need to include in the cash-flow statement and the order in which they should appear are as follows:

  • Cash sales . Income derived from sales paid for by cash.
  • Receivables . Income derived from the collection of receivables.
  • Other income . Income derived from investments, interest on loans that have been extended, and the liquidation of any assets.
  • Total income . The sum of total cash, cash sales, receivables, and other income.
  • Material/merchandise . The raw material used in the manufacture of a product (for manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.
  • Production labor . The labor required to manufacture a product (for manufacturing operations only) or to perform a service.
  • Overhead . All fixed and variable expenses required for the production of the product and the operations of the business.
  • Marketing/sales . All salaries, commissions, and other direct costs associated with the marketing and sales departments.
  • R&D . All the labor expenses required to support the research and development operations of the business.
  • G&A . All the labor expenses required to support the administrative functions of the business.
  • Taxes . All taxes, except payroll, paid to the appropriate government institutions.
  • Capital . The capital required to obtain any equipment elements that are needed for the generation of income.
  • Loan payment . The total of all payments made to reduce any long-term debts.
  • Total expenses . The sum of material, direct labor, overhead expenses, marketing, sales, G&A, taxes, capital and loan payments.
  • Cash flow . The difference between total income and total expenses. This amount is carried over to the next period as beginning cash.
  • Cumulative cash flow . The difference between current cash flow and cash flow from the previous period.

As with the income statement, you will need to analyze the cash-flow statement in a short summary in the business plan. Once again, the analysis statement doesn't have to be long and should cover only key points derived from the cash-flow statement.

The Balance Sheet

The last financial statement you'll need to develop is the balance sheet. Like the income and cash-flow statements, the balance sheet uses information from all of the financial models developed in earlier sections of the business plan; however, unlike the previous statements, the balance sheet is generated solely on an annual basis for the business plan and is, more or less, a summary of all the preceding financial information broken down into three areas:

To obtain financing for a new business, you may need to provide a projection of the balance sheet over the period of time the business plan covers. More importantly, you'll need to include a personal financial statement or balance sheet instead of one that describes the business. A personal balance sheet is generated in the same manner as one for a business.

As mentioned, the balance sheet is divided into three sections. The top portion of the balance sheet lists your company's assets. Assets are classified as current assets and long-term or fixed assets. Current assets are assets that will be converted to cash or will be used by the business in a year or less. Current assets include:

  • Cash . The cash on hand at the time books are closed at the end of the fiscal year.
  • Accounts receivable . The income derived from credit accounts. For the balance sheet, it's the total amount of income to be received that is logged into the books at the close of the fiscal year.
  • Inventory . This is derived from the cost of goods table. It's the inventory of material used to manufacture a product not yet sold.
  • Total current assets . The sum of cash, accounts receivable, inventory, and supplies.

Other assets that appear in the balance sheet are called long-term or fixed assets. They are called long-term because they are durable and will last more than one year. Examples of this type of asset include:

  • Capital and plant . The book value of all capital equipment and property (if you own the land and building), less depreciation.
  • Investment . All investments by the company that cannot be converted to cash in less than one year. For the most part, companies just starting out have not accumulated long-term investments.
  • Miscellaneous assets . All other long-term assets that are not "capital and plant" or "investments."
  • Total long-term assets . The sum of capital and plant, investments, and miscellaneous assets.
  • Total assets . The sum of total current assets and total long-term assets.

After the assets are listed, you need to account for the liabilities of your business. Like assets, liabilities are classified as current or long-term. If the debts are due in one year or less, they are classified as a current liabilities. If they are due in more than one year, they are long-term liabilities. Examples of current liabilities are as follows:

  • Accounts payable . All expenses derived from purchasing items from regular creditors on an open account, which are due and payable.
  • Accrued liabilities . All expenses incurred by the business which are required for operation but have not been paid at the time the books are closed. These expenses are usually the company's overhead and salaries.
  • Taxes . These are taxes that are still due and payable at the time the books are closed.
  • Total current liabilities . The sum of accounts payable, accrued liabilities, and taxes.

Long-term liabilities include:

  • Bonds payable . The total of all bonds at the end of the year that are due and payable over a period exceeding one year.
  • Mortgage payable . Loans taken out for the purchase of real property that are repaid over a long-term period. The mortgage payable is that amount still due at the close of books for the year.
  • Notes payable . The amount still owed on any long-term debts that will not be repaid during the current fiscal year.
  • Total long-term liabilities . The sum of bonds payable, mortgage payable, and notes payable.
  • Total liabilities . The sum of total current and long-term liabilities.

Once the liabilities have been listed, the final portion of the balance sheet-owner's equity-needs to be calculated. The amount attributed to owner's equity is the difference between total assets and total liabilities. The amount of equity the owner has in the business is an important yardstick used by investors when evaluating the company. Many times it determines the amount of capital they feel they can safely invest in the business.

In the business plan, you'll need to create an analysis statement for the balance sheet just as you need to do for the income and cash flow statements. The analysis of the balance sheet should be kept short and cover key points about the company.

Source: The Small Business Encyclopedia , Business Plans Made Easy, Start Your Own Business and Entrepreneur magazine.

Business Plan Guide

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How to Write a Business Requirements Document (BRD)

ProjectManager

It’s easy to get lost in the weeds when you’re managing a project. There are day-to-day operations that the project manager obsesses over, but they also need to see the big picture. That’s why a business requirements document is so important.

To prove this point, let’s define what a business requirements document (BRD) is and what its components are. Plus, we’ll give you tips on how to write a better one before showing how project management software can make the process even more efficient.

What Is a Business Requirements Document?

A business requirements document offers an overview of what a business does and why it needs the project deliverable to be undertaken. It outlines the business solutions for project requirements that are necessary for the project to deliver value and becomes the foundation of the project’s life cycle.

The business requirements document highlights what the end result of the project should be. When a change request is introduced to the project, the business requirements document must be revised to reflect this change.

The main purpose of a BRD is to show what the system will look like from a business perspective. It includes both the business solution and the technical solution to the project. The business requirements document helps answer the question of what is needed for the business. It also answers how the project will be delivered and contains a prioritized list of features and business requirements that the delivered software, product or service must provide.

Think of the business requirements document as the defined steps you should follow to reach a result that serves both the customers and stakeholders for the delivered product, system or service. The project team is involved in this process to help determine how to implement the delivery of the project and fulfill what the business needs. Stakeholders are also involved and must agree on the plan before it’s implemented.

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Business Requirements Document Template

Use this free Business Requirements Document Template for Word to manage your projects better.

Business Requirements vs. Functional Requirements

It’s common to confuse business requirements with functional requirements. They’re both requirements, but they serve different purposes. To review, business requirements explain the final results of a business goal in the project and why the organization should initiate that project.

A business requirement isn’t about offering or proposing a solution, only defining the task at hand. This includes defining the short and long-term goals, the company vision and the scope of the business problem.

On the other hand, the functional requirement is about how a system needs to operate in order to achieve its business goal. It proposes subjective solutions based on the organization’s strengths and limitations as well as being technically focused. A functional requirement is also presented with a use case.

It’s not always easy to tell the difference between a business requirement and a functional requirement. Project activities can be both a business requirement and a functional requirement or even neither.

To accomplish this, you’ll need project management software that can organize tasks and connect the entire project team. ProjectManager is online project management software that delivers real-time data across multiple project views that lets everyone work how they want. Our interactive Gantt chart can be shared with teams and stakeholders as tasks are organized on a timeline. You can link dependent tasks, add milestones and filter for the critical path. Then, set a baseline and track your business requirements document in real time over the life cycle of the project. Get started with ProjectManager today for free.

ProjectManager's Gantt chart

What Should Be Included in a BRD?

Why should you create a business requirements document? It reduces the chances that your project will fail due to misalignment with business requirements and connects the organization’s business goals with the project. It brings stakeholders and the team together and saves costs that accrue due to change requests, training, etc.

You’ll want to create a business requirement document, and even though it’s an involved process, it can be broken down into seven key steps. They are as followed.

1. Executive Summary

To begin, you’ll need to create an executive summary that provides an overview of the organization and the challenges facing the business. You’ll explain the issues and what the organization is trying to achieve to ensure everyone is on the same page. This section should be short, like an elevator pitch, summarizing the rest of the business requirements document.

2. Project Objectives

After summarizing the issue you plan to address in the project, you’ll want to clearly define the project’s objective . This helps define the project phases, creates a way to identify solutions for the requirements of the business and the customer, gains consensus from stakeholders and the project team and describes how you arrived at the objectives.

3. Project Scope

The project scope should define in detail what is covered in the project and what would make it run out of scope. This creates a clear boundary for the project and allows stakeholders and teams to agree on the business goals and high-level outcomes. Note what problems are being addressed, the boundaries for implementing the project and the expected return on investment (ROI).

4. Business Requirements

Here you’ll want to list the business requirements or critical activities that must be completed to meet the organization’s objectives. These business requirements should meet both stakeholder and customer needs. This can include a process that must be completed, a piece of data that is needed for the process or a business rule that governs that process and data.

Related: Free Requirements Gathering Template for Word

5. Key Stakeholders

Now you’ll want to identify and list the key stakeholders in the project. Once you have that list, assign roles and responsibilities to each. These might be people outside of your department so you should define their role in the success of the project. This information needs to be distributed in order for everyone to know what’s expected of them in the project. You can even use this section to assign tasks.

6. Project Constraints

At this point, you’ll want to explore the project constraints . Define the limitations of the project and share those with the project team so they know of any obstacles earlier than later. In order for them to clear those hurdles, you’ll want to provide any necessary training or allocate resources to help the project stay on track.

7. Cost-Benefit Analysis

You’ll also want to do a cost-benefit analysis to determine if the costs associated with the project are worth the benefits you’ll get. This requires first determining the associated costs of the project, such as upfront development costs, unexpected costs, future operating costs and tangible and intangible costs. You’ll also need to figure out what benefits derive from the project.

3 Key Tips to Write a Business Requirements Document

As noted, the best way to begin writing a business requirements document is to meet with your stakeholders and team to get a clear picture of their expectations. But that’s only the start. There are many other best practices for writing a BRD. Here are a few.

1. Start With Thorough Requirements Gathering

Requirements gathering is the process of identifying all requirements necessary for the project. That means everything from the start of the project to the end of the project. You’ll want to address the length of the project, who will be involved and what risks are possible.

2. Differentiate Between Business Requirements and Functional Requirements

Remember, business requirements are what needs to be done, such as the project goals, and why that’s important for the organization. Functional requirements are how the processes, be they a system or person, need to work in order to achieve the project goals.

3. Use a Stakeholder Matrix

An important aspect of any business requirements document is identifying stakeholders . In fact, this should be done early in the process and a stakeholder matrix can help you analyze those stakeholders. It helps you understand the needs and expectations of your stakeholder in terms of their power or influence and the level of interest in your project.

ProjectManager Helps You Track Business Requirements

Once you have your business requirements document, the real work begins. There are many project management software tools that can help you plan and measure your project. ProjectManager is unique in that it adds real-time tracking to make sure your business requirements are being met.

Monitor Project With Real-Time Dashboards

When you make your plan on our interactive Gantt charts , the last thing is to set the baseline. Now you can track project variance across many of our features. Keeping projects on time and under budget is critical to meeting the business requirements of your stakeholders. To get a high-level view of the project, simply toggle to the dashboard where you can view six project metrics. Get live data on costs to tasks, and workload to health, all in easy-to-read graphs and charts. Unlike other tools that offer dashboards, you don’t have to waste time setting ours up. It’s plug-and-play.

Share Progress Reports With Stakeholders

Being able to view your progress and performance in real time is important for stakeholders and project managers. We have customizable reports that can be generated with a keystroke. As stakeholders don’t need all of the details, filters make it easy to focus on only the data they need to see. Then, easily share the report as a PDF or print it out, whichever delivery method your stakeholders prefer. We have reports on status and portfolio status, time, cost, timesheets and more. It’s a great way for project managers to dig into the data and keep stakeholders updated.

ProjectManager's status report filter

ProjectManager is award-winning project management software that helps you plan, schedule and track your project in real time. Use our tool to make sure you’re meeting all the business requirements in your BRD. Our collaborative platform makes it easy to connect with teams to help them work more productively and stakeholders to keep them up-to-date. Get started with ProjectManager today for free.

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Construction cost estimating: a step-by-step guide.

Last Updated Mar 12, 2024

Construction Estimating

Construction estimating is the process of calculating all of the required costs for a construction project, including direct costs (e.g. materials and worker wages) and indirect costs (e.g. equipment depreciation and office worker salaries). Professional construction estimators perform this essential step in the preconstruction process, which helps ensure that owners and contractors are able to complete a construction project profitably.

Estimating project costs accurately requires detailed knowledge of construction materials, specifications, techniques, codes, and pricing trends. We'll walk through all of the steps professional estimators use to determine costs on a project—from reviewing a bid package all the way through accounting for contingency and profit.

Table of contents

The importance of accurate estimating

Accurate estimating is essential for the success of any construction project. Both owners and contractors rely on cost estimates to move a project from preconstruction to completion. 

Without an initial understanding of a project’s costs, owners cannot determine whether a project is feasible within the allotted budget. After a preliminary estimate, design or scope modifications may be required in order to alter project costs. 

Contractors also depend on accurate estimates in order to prepare bids that are competitive and profitable. A contractor that underestimates the cost of a project could be forced to cut into their own profit margin to cover project costs. 

On the other hand, overestimating the actual project costs could lead a contractor to submit a bid that’s too high to be selected. Even in negotiated bidding scenarios, construction estimates need to be accurate in order to strike a balance between the owner’s budget and the contractor’s profit. 

8 steps in construction estimating

Construction estimators follow the same basic steps whether they work for a general contractor, specialty contractor, or owner. When making a construction estimate, estimators are typically working to come up with an accurate price for a specific project as part of a competitive or negotiated bidding process. 

In general, construction estimators follow a process that begins with reviewing bid documents, including construction specifications and contract documents, and includes steps to account for every known cost, including materials, labor, insurance, and overhead. By the time an estimator is finished, they will have prepared a construction estimate that takes into account all required costs as well as a markup for profit and contingency.

1. Review bid package

The bid package contains all of the documents necessary for bidding: owner-contractor agreements, bond forms, general conditions , supplementary general conditions, and construction specifications. Contractors who bid on a project are bound to complete the work laid out in the bid package, so a professional estimator spends a significant amount of time to ensure they are familiar with every aspect of the project. 

Drawings are typically subdivided according to their purpose: site, architectural, structural, mechanical, electrical, and more. 

Both general contractors and specialty contractors will review the documents, but specialty contractors often refer only to the documents that are relevant to the work they will perform on the project. 

When reviewing the bid package, construction estimators generally follow a standard process:

  • Ensure that all drawings and specifications are present. Documents may be numbered sequentially or subdivided according to the preference of the design firm, so estimators take care that they have everything necessary for an accurate estimate.
  • Get an overview of the project. With a quick scan through the specs, estimators get a rough idea of the scope of a project, its material needs, and the quality of finishes.
  • Evaluate structural requirements. By reviewing structural drawings, estimators begin to understand the material and equipment needs of the building.
  • Review mechanical, electrical, and plumbing (MEP) requirements. Estimators take into account the ways in which a building’s MEP needs will influence the construction process for the building, including potential underground work.
  • Identify any nonstandard items. Contractors tend to specialize in certain types of work, so estimators need to pay special attention to unusual floor plans, features, or finishes that could affect the project’s cost.

Throughout the estimating process, the estimator will continually refer back to the bid documents to ensure that their estimate encompasses every aspect of the stated specifications and requirements. By getting an overview of the documents, the estimator takes their understanding of the project through every phase of building a comprehensive and accurate estimate.

After getting an overview of the documents, an estimator for a general contractor will also subdivide the project into work packages. Work packages may be later assigned to specialty contractors, and they also serve the important purpose of ensuring that all work is accounted for and no work is assigned twice. 

By reviewing the technical specifications (also called construction specifications or specs ), the estimator can clearly see the scope of work according to various divisions of the Construction Specification Institute (CSI)’s MasterFormat : concrete, masonry, metals, finishes, plumbing, and dozens more. 

For example, the estimator may create one work package that includes the materials and labor for rough-in plumbing and another that covers windows and installation. Many such work packages will be created for a single construction project. 

Dividing the project into work packages requires extreme attention to detail:

  • The estimator must also be sure that no project detail is included in multiple work packages , or the ultimate bid may be too high to be competitive since costs are multiplied unnecessarily.
  • In cases where an aspect of the project is divided into multiple work packages, the estimator must clearly define the scope of each work package to ensure that each portion is adequately completed by the parties responsible.

Once an estimator has divided all of the work into packages, the general contractor can solicit bids from specialty contractors for some or all of the required construction work. 

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2. Conduct a site visit

In some cases, a site visit is required before submitting a bid. However, a site visit is recommended in nearly all cases, as estimators can get a better sense about site conditions from a thorough visit rather than simply relying on elevation drawings or photographs of the proposed construction site. 

Depending on the type of project, a specialty contractor may be less likely to perform site visits, relying instead on the documentation provided by the project’s owner and general contractor. 

The main purpose of a site visit is for the estimator to better understand the conditions of the site and how those are likely to influence the project costs.

For example:

  • A site with poor drainage , difficult subsurface soil conditions , or adjacent buildings could add complexity and cost to a project.
  • A site lacking easy access could make it more difficult to maneuver equipment and materials, increasing costs.
  • A site with poorly located utilities (water, electricity, etc.) could add underground work requirements that raise the cost.

During a site visit, an estimator will make notes, take photographs, and collaborate with contractors to determine the potential influence the site may have on delivering the project successfully.

In addition to the site itself, the estimator should also familiarize themselves with the surrounding area if they aren’t already aware of:

  • Local requirements (codes, permits) or regulations (noise, working hours, parking)
  • Availability of specialty contractors and construction equipment rentals
  • Nearby roadways, which may need to accommodate heavy equipment or delivery vehicles

Overall, the site visit is critical for estimators, who must determine the feasibility and cost of delivering the project according to specifications in a set location. 

3. Perform a material takeoff

Estimators perform a material takeoff (also called a quantity takeoff) by reviewing the construction documents and counting every item that is required for the project. Material needs are typically listed according to the way they are measured. For example:  

  • Quantity (e.g. doors)
  • Area (e.g. drywall or flooring)
  • Volume (e.g. concrete)
  • Length (e.g. wire)

On large construction projects, the owner or engineer may create a bill of quantities (BOQ) to simplify the bid leveling process. This document breaks down the scope of work into an itemized list of activities and materials. Even when a BOQ is provided, most contractors still perform a takeoff to verify the quantities and identify discrepancies. 

General contractors will typically do a takeoff in order to create accurate work packages—either to complete themselves or assign to specialty contractors. A specialty contractor typically reviews the specifications to perform their own material takeoff in order to ensure they have an accurate count before reaching out to suppliers and vendors.

After completing a takeoff, estimators have a comprehensive list of every material that will be required to complete the project. Additionally, estimators will use information from the takeoff to determine what equipment will be needed for each work package. 

Estimators may perform a manual takeoff, which involves using paper copies of drawings, rulers, highlighters, digital measuring tools, and pencils to count and measure the required materials using the specifications. Nowadays, most estimators rely on digital takeoffs using construction estimating software , which greatly speeds up the process. Nonetheless, many estimators still double-check the accuracy of the digital takeoff to ensure that their estimate is accurate.

With this information, contractors are able to work with material and equipment suppliers to get pricing information that they can use while creating a bid. 

4. Solicit pricing from suppliers and vendors

With a definitive list of materials and equipment, specialty contractors begin to work with suppliers and vendors to get pricing information. 

Specialty contractors have to be mindful of a few things when pricing materials:

  • Material waste requires ordering extra materials . Contractors should work to eliminate unnecessary material waste, but some waste (due to material sizing, for example) is inevitable. Ideally, a contractor will be able to look back at past projects to calculate the expected amount of waste.  
  • Bulk pricing may dictate order sizes . For instance, a contractor may need 37,000 cubic yards for a project but find it is more cost effective to purchase 40,000 cubic yards due to supplier pricing structures.
  • Quotes have limited lifespans. A specialty contractor who receives a quote for materials needs to ensure that quote is valid long enough to have their bid accepted and order materials for the project.

Contractors who do not already own equipment essential for the project will also need to reach out to equipment vendors to determine pricing for leasing or renting for the duration of the project. 

Since equipment may be owned, purchased, leased, or rented, contractors must determine how the project affects associated equipment costs (for example depreciation or maintenance) and build this information into their estimate.

At this point in the estimating process, contractors will have the first definitive dollar figures that need to be included as project costs. From here on out, estimators will add more direct, indirect, and overhead costs to understand the true financial burden of the project from the contractor’s perspective. 

5. Evaluate labor requirements

With information from the takeoff, estimators can also determine the labor necessary for a project. In short, the estimator needs to specify:

  • Which roles are required for the project.
  • How many hours of labor will be used to complete the project.
  • How productive the crew will be given data past projects and information about the current project

For specialty contractors, the crew mix usually consists of tradespeople, laborers, and assistants. For general contractors, there may be project-specific managers or other professionals whose roles are considered direct costs because they are tied to one specific project.

In either case, estimators must be sure to calculate the loaded labor rate for wages rather than simply multiplying total hours by hourly wage. The loaded labor rate includes:

  • Insurance (including health, dental, vision, or life insurance as well unemployment and worker’s compensation insurance)
  • Retirement contributions
  • Sick or vacation leave

Estimators must include all of the costs associated with employing someone for the duration of a construction project, otherwise the estimate will not reflect the true cost of labor. 

6. Determine insurance and bonding costs

Insurance and bonding mitigate risk for owners and contractors alike, but this benefit comes with a cost that must be included in project estimates.

Nearly all construction companies require general liability insurance, and depending on company size, scope, and role, they may also have other policies, including:

  • Builder’s risk insurance
  • Errors and omissions or professional liability insurance
  • Inland marine insurance
  • Commercial auto insurance

In addition to insurance, contractors working on public projects (and some commercial projects) may require a variety of construction bonds , including:

  • Payment bonds
  • Performance bonds

Both bonds and insurance cost money for contractors, which means that the costs must be covered by the projects they complete. 

Generally speaking, bond and insurance coverage have annual costs, which contractors then spread across projects throughout the year. However, contractors may need to secure additional bonding capacity or insurance coverage for a specific job. 

In any case, estimators must add the cost of bonding and insurance requirements to the project estimate.

Illustration showing framers assembling a wooden wall

7. Calculate overhead and indirect costs

In addition to the direct project costs, estimators must also consider the indirect field costs associated with construction as well as the overhead costs required for running a construction business. 

Indirect field costs could include:

  • Trailers or temporary offices
  • Site cleaning
  • Professional services
  • Equipment costs (depreciation, insurance, maintenance, taxes, and fuel)

These costs, while not clearly laid out in the bid package, are necessary for the construction of a project. Therefore, estimators consider the rate for each of these items as well as the duration for which they’ll be needed (for example, in the case of a temporary site office). 

In addition to these indirect project costs, there are also general overhead costs, also known general and administrative (G&A) expenses. These are the cost of doing business—whether or not a contractor has projects to work on, they need to pay these expenses. 

To ensure that the business can keep operating, contractors need to wrap overhead costs into their estimates by spreading them out over all of their projects annually.

A few common overhead expenses include:

  • Rent for office space
  • Administrative salaries
  • Software subscriptions
  • Depreciation

Generally speaking, estimators consider the total expected annual revenue of the company as well as the total expected annual overhead cost. With these two figures, the estimator can allocate with reasonable accuracy a specific percentage of the overhead cost to each project. 

8. Account for profit and contingency

After calculating all of the costs for a construction project, the estimator will adjust the total to account for both profit margin and contingency. The profit is the fee that the contractor earns for the contract—and that money can be reinvested to continue growing the business. Contingency, on the other hand, is a portion of the contract set aside for overruns and waste—which are generally to be expected on a construction project. 

Each construction business determines its own minimum attractive profit margin by considering growth goals, market conditions, and more.

Similarly, contingency numbers vary significantly across the industry depending on type of construction, company size, and project risk. Many construction businesses usually add anywhere from 5-10% of the contract price to account for contingency. 

At the end of this process, the estimator has determined the sales price that covers all of the project costs—materials, labor, equipment, indirect field costs, overhead costs, and contingency—and returns a healthy profit. With this number in hand, contractors are prepared to submit a competitive bid or begin negotiations with a project owner or general contractor. 

Turning an estimate into a bid proposal

Once the sales price is determined, a bid manager will typically create a construction proposal that details everything included in the bid price in clear and concise terms. Because bid reviewers will try to ensure that everything in the scope of work is included in the bid price, it is important to use the same language shared in the construction specifications and drawings. 

Using the CSI format in the estimating process makes it easy to compare each section of the bid price to a section of the specifications. Even when the bid is for a lump sum contract, using a standard format makes it easier to create a schedule of values while also improving the integration between estimating software and accounting systems. 

Types of estimates

Estimators don’t only prepare construction estimates for the bidding process. Different types of estimates serve different purposes depending on where it’s used in the project lifecycle. For instance, an early estimate may simply provide a developer with the rough cost for a particular project, giving a sense of whether it will be viable to get financing.

Or a project in the midst of design may receive an estimate that helps determine whether finishes need to be modified to keep the project in scope for the expected budget. 

The American Society of Professional Estimators (ASPE) details five levels of detail in estimating. 

When referring to estimating, most contractors are referring to a bid estimate, which is a precise evaluation of the costs associated with a particular project with a finished design.

Construction estimating software

Construction estimating software can help streamline the process of creating a construction estimate by automating certain aspects. That said, a skilled estimator is still generally required for the process. Software tends to help with calculation and tabulation, but a talented estimator has knowledge of construction projects, prices, processes, and productivity rates that dictate which costs are entered into the software.

In any case, construction estimating software has greatly reduced the burden faced by estimators—and it has made it easier to make small adjustments without having to manually recalculate entire projects. 

Here are a few ways that estimator software supports the construction estimating process:

  • Automated takeoffs powered by machine learning can automatically determine the quantity of materials needed by scanning project drawings and documents.
  • Computer calculations reduce human error and enable estimators to make small changes to costs that are reflected across the entire estimate instantaneously.
  • Productivity increases for estimators using software, as they are able to focus on the human aspects of estimating (determining which equipment is necessary, finding better pricing information, etc.) rather than the manual aspects.

Along with other construction management software, estimating software is key to increasing productivity—and thus increasing the competitiveness of future bids.

Data-driven estimating for long-term growth

Construction estimating is a crucial process for any construction business. Financial management principles dictate that a business must understand its costs and turn a profit in order to continue to grow — and that begins with excellent estimating processes. 

Financially sound construction businesses have a data-driven estimating process. Job costing data from past projects as well as detailed understanding of indirect and overhead costs enable companies to create estimates and submit bids that are both competitive and profitable.

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Bruno Pasini

Bruno Pasini is a Solutions Engineer at Procore, where he develops new tools to simplify and streamline the preconstruction process. He spent nearly 20 years as an estimator and project manager for general contractors and specialty contractors in New York and California. He currently lives in San Diego.

Daniel Gray

27 articles

Daniel is an educator and writer with a speciality in construction. He has been writing construction content for Procore since 2022, and previously served as a Procore Content Manager before continuing to pursue an education career as an Assistant Headmaster for Valor Education in Austin. Daniel's experience writing for construction — as well as several clients under an agency — has broadened his knowledge and expertise across multiple subjects.

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Labor Requirements

Subsection of:  Creating an Effective Business Plan

Adapted from content excerpted from the  American Express® OPEN Small Business Network

Your management team is outlined in the management section. This section provides details of other labor you will need to start up and run your business. Address how many people you require and what skills they need to possess. Be sure to cover the following issues:

  • Is there sufficient local labor? If not, how will you recruit.
  • Is labor trained? If not, how will you train them.
  • Cost of labor, current and future.
  • Plans for ongoing training.

See sample  labor description .

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How to Calculate Labor Costs: The Small Business Owner’s Guide

Deskera Content Team

Did you know many small businesses were shut down in 2021 because they were unable to keep the labor cost low?

Depending on the industry, business owners must deal with a variety of significant operational costs such as rent, inventory, labor cost calculations, and a few others.

Labor cost calculations must be appropriately accounted for by business owners who want to stay on budget and optimize earnings.

Otherwise, it's all too simple to overspend or undercharge, which isn't a good way to operate a company part of labor cost calculations.

Let us look more into details in this article:

•What is labor cost, and why is it important for business owners to figure it out?

•Why Calculate Labor Cost?

•How to calculate labour cost?

•The importance of total labor costs

•Employee Labor Percentage: How to Work It Out?

•Labor Percentages for Groups of Workers

•Different Types of Compensation

•As a small business, how do you pay an employee?

What is labor cost, and why is it important for business owners to figure it out?

  • The total amount spent on employees by your company includes salary for hourly and salaried workers, as well as employee perks and taxes.

If you run a manufacturing or production-oriented company, the amount you spend on labor costs has an impact on your company's prime cost, which includes the total cost of products sold plus other expenses.

Many business owners use this statistic to evaluate their company's efficiency and profitability of labor cost calculations. As a result, it's critical to keep in mind that labor cost calculations are far higher than hourly or salaried pay.

Payroll taxes, overtime, employer national insurance contributions, bonuses, sick days, maternity and paternity pay, training costs, and more are all included in labor cost calculations.

Anything that has anything to do with employee compensation can be considered a labor cost calculations. In small-business operations, labor cost calculations are a crucial component.

It's normal for a business owner to hire staff to execute specific tasks that are critical to the company's success - especially as the company grows.

For labor cost calculations, there are several types of business labor, and each business labor expense can be ascribed to one of them. Accounting software is used by most managers to compute labor cost calculations.

Variable labor, fixed labor, direct labor, and indirect labor are the four categories of labor cost calculations.

•Variable Labor

Variable labor expenses fluctuate according to the entire amount of production output, as the name implies.Hourly employees are the most popular sort of variable labor for small firms of labor cost calculations.

The variable labor cost calculations move in lockstep with the increase or fall in demand for these businesses.While most organizations hire these personnel directly, some use a temporary employment agency to recruit and hire new variable labor staff of labor cost calculations.

Small organizations frequently utilize variable labor staff to keep labor cost calculations  down and ensure that pay does not exceed projected income.

It's uncommon for business owners to guarantee working hours to these personnel since they desire to preserve the right to reduce hours if sales and production output fall short of labor cost calculations.

•Fixed Labor

According to the Small Business Administration, fixed labor cost calculations  stay constant regardless of a company's production output.Fixed labor cost calculations are apparent examples of owners and employees that earn a fixed compensation regardless of total hours worked.

One advantage of constant labor cost calculations is that owners don't have to pay overtime to managers and supervisors.

Lowering fixed labor cost calculations without sacrificing the efficiency or efficacy of business operations, on the other hand, is usually difficult.

•Direct Labo r

Direct expenses are costs associated with a specific cost object, such as raw materials needed in the development of a specific product or software used to ensure the quality of a consumer good or service. Labor and direct materials account for the majority of direct expenditures of labor cost calculations.

Variable and constant labor cost calculations  can be classified as direct or indirect labor costs, according to the Financial Accounting Standards Board, which is the authority on the generally accepted accounting principles.

All employees who are responsible for generating a company's products or services are considered direct labor part of labor cost calculations. Quality control engineers, assembly line employees, production supervisors, and delivery truck drivers are all examples of direct labor.

Direct labor, as opposed to indirect labor, refers to the costs associated with each consumer goods or service produced by a corporation part of labor cost calculations.

To determine a portion of the cost of products sold, direct labor is often managed through the use of precise time clock codes that can be linked to various manufacturing departments.

•Indirect Labor

Indirect labor refers to labor cost calculations  that cannot be linked back to a specific product or service, or that are otherwise labor expenses that are shared across the firm, such as administrative function expenses.

Office managers, accountants, sales team members, maintenance personnel, and administrative assistants are some such examples part of labor cost calculations.

While indirect labor contributes to a firm's indirect manufacturing overhead, it is a sort of labor cost calculations that is not allocated to the company's products or services because it affects the entire company.

Because employees provide auxiliary services to the company's overall manufacturing process, this labor cost, unlike direct labor expenses, cannot be ascribed to a single product or service.

It's crucial to remember that indirect labor must be paid for using gross income from product sales part of labor cost calculations. Within your overall business running costs, labor cost and labor cost percentage are two of the most important variables to monitor of labor cost calculations.

Why? Because labour is one of the most expensive aspects of running a restaurant.

According to Chron, restaurant labor cost calculations account for 30-35 percent of overall income on average in the foodservice industry. Furthermore, the labor cost calculations is rising all the time.

In a 2019 research, over half of restaurant operators cited rising labour costs. As a result, several businesses have had to raise menu pricing or cut personnel.

So, what is the difference between labour cost and labour cost percentage? And how can restaurateurs accurately calculate them? The amount you spend on labour has an impact on your prime cost, which is the metric that many restaurateurs use to assess their restaurant's efficiency.

Labour expenditures must be weighed in with your other continuous expenses, such as rent and food. Because labour is by far the largest expense most firms encounter, knowing how to calculate labor cost calculations is critical if you want to run a profitable organization.

Labor cost calculations vary per industry, although they typically account for roughly 60% of overall expenses in most industries.

Employers paid an average of $37.73 per hour worked by non-government workers in March 2020. That figure rises to $52.45 per hour for federal employees.

There is no way to tell how much each extra employee costs your company unless you have a solid labour cost formula.It's impossible to accurately forecast your existing and future hiring capabilities without this information. If you don't know how much labour costs to produce your goods or services, you won't be able to price them correctly.

While it may appear that calculating labour costs is simple, many organisations take a very narrow approach, only accounting for the cost of employee compensation.

This is included in the labour cost formula, but your total labour cost includes all of the costs associated with hiring, onboarding, training, and retaining personnel. This comprises payroll taxes, benefit packages, and other employee-related costs like space and equipment.

Why Calculate Labor Cost?

You wouldn't sign a lease for new office space without first performing the arithmetic to check if the monthly rent was affordable, right? Similarly, you should not hire a new employee unless you have completed a thorough analysis of whether the benefits of hiring them outweigh the financial cost.

Many businesses run into problems as they grow because they overestimate their personnel demands and underestimate the true labor cost calculations.

In the best-case scenario, this reduces profits, and in the worst-case scenario, it necessitates layoffs.Using a labour cost formula, you can get a specific dollar figure for how much each hour of labour cost calculations.

It's far easier to figure out how many full-time and part-time staff you can afford to hire with this amount in mind than it is to estimate. Knowing your labour expenses allows you to determine the best prices for your products, maximizing your revenues. If you undervalue your labour costs, you'll establish prices that are too low and end up with margins that are insufficient to keep your business afloat.

If you overestimate labour costs, you'll end up with excessively expensive prices and won't be able to compete effectively, you should have marketing skills.

When determining how much to charge, consider labour expenditures as well as the cost of goods supplied.Finally, assessing your labor cost calculations might assist you in identifying revenue leaks that are eroding company profits. Employee mobile phone usage, company vehicle mileage, and hiring costs are just a few examples.

Monitoring expenditure patterns in these areas can also aid in the detection of possible fraud.

How to calculate Labour Cost?

It's a little more complicated to calculate the overall cost of labour than just adding up the entire cost of all the payments. The following is a step-by-step guide to calculate an employee's total labour cost with the formula for direct labor cost.

● Calculate the gross paymen t

The gross remuneration for an hourly employee is just the number of hours worked multiplied by the hourly rate with the the formula for direct labor cost. It is essentially the salary that an employee receives during a certain period for a salaried employee.

When an employee works full-time, for example, they may work 2,080 hours in a year (40 hours x 52 weeks). As a result, you'll begin with the following equation, the formula for direct labor cost.

Gross Pay = Pay Rate x Gross hours

Gross Pay = £15/hour x 2,080 hours

Gross Pay = £31,200

● Calculate the additional labour costs

Add the costs of each payment or benefit with the the formula for direct labor cost, such as non-salaried employees' overtime pay, employer-paid payroll taxes, bonuses, sick pay, vacation days, paid training, employer contributions to retirement plans, and employer-paid health and life insurance of the formula for direct labor cost.

● Calculate the total cost of labour

To calculate the total labour cost for each employee use the formula for direct labor cost, add the gross payment and any additional labour cost calculations.

Gross pay with additional labour costs equals total labour cost calculations. You can compute the overall labour cost calculations for a year, a week, or the projected time frame of a given project, depending on what you're doing.

• Recruitment

Before you even recruit your first employee, you start incurring labour cost calculations. After all, maintaining a website, promoting job postings, attending job fairs, and other recruitment efforts all cost money.

Some specialist roles may be more expensive to fill than others, such as entry-level employment. The cost-per-hire is the average cost of attracting a new employee for any position with the formula for direct labor cost.

The total of your internal and external recruiting expenses is used to calculate your recruiting costs with the formula for direct labor cost.

Job board fees, background checks, drug tests, career fairs, the setup and maintenance of your career's website, and fees paid to recruiters are all regular recruitment expenses to include in your calculations with the formula for direct labor cost.

This is the most obvious personnel cost, and it's also the simplest. This is the total cost of all of your employees' salaries or hourly wages with

Make sure you use the same period for all of the other categories described below, regardless of the unit of time you use to assess pay costs.

•Benefits and Health Insurance

Another significant labor-related cost is employee benefits. Benefits accounted for $11.82 of the $37.73 hourly employee cost that we mentioned before. This equates to around 30% with the formula for direct labor cost.

In general, the more employees you have, the lower your per-employee benefits will be with the formula for direct labor cost.

Benefits calculations should include health insurance premiums, employer retirement contributions, retirement program administration costs, paid time off, and extra income such as overtime with the formula for direct labor cost.

•Employment Taxes

Your business pays taxes on every employee it hires. This includes federal income taxes, Social Security and Medicare taxes, as well as unemployment compensation. We don't include federal income taxes because they are deducted from the employee's pay.

Employee wages are also withheld for Social Security and Medicare taxes, but the employer is responsible for paying a matching sum on top of that with the formula for direct labor cost. Use the IRS guidance described here to calculate your percentage of the expense for each of these taxes.

In most cases, new employees are not productive straight away. Rather, you'll have to invest time and money in educating them, which should be considered into your labour expenditures with the the formula for direct labor cost.

According to a survey published by Training magazine, the average cost of training per employee in the United States is $1,075 per employee.

Consider travel, training materials, equipment, software, and other digital programs, and payment for outside aid when calculating your training costs with the the formula for direct labor cost.

You can also include loss of productivity, which is the amount of money you are not making since the employee is not completely productive yet if you want to be more exact.

These numbers may be more readily available in some professions, such as sales, but not in others, such as service-based industries with the formula for direct labor cost.

You're probably aware of overhead expenditures like rent and utilities, and you're probably under the impression that they're separate from labour cost calculations.  In reality, the number of staff you have has a direct impact on your overhead.

Because the more employees you hire, the more desks you'll need, and the more square footage of space you'll need, it's best to include overhead in your labour cost calculations.

The cost of your physical workspace, property taxes, electricity, office supplies, equipment, and upkeep are all elements to consider when calculating your overhead costs with the formula for direct labor cost.

If you supply business vehicles, cell phones, laptops, or other equipment to employees, be sure they're included with the formula for direct labor cost.

•Additional Costs to Consider

In addition to the above-mentioned recurrent expenditures, don't forget to account for variable costs such as seasonal or temporary labour, as well as one-time costs such as Christmas bonuses with the with the formula for direct labor cost.

Consider the cost of contractors, such as freelance graphic designers or consultants, and keep in mind that these costs may decrease as you hire more people.

What Is Job Costing?

The practice of recording expenses and revenue for each particular project is known as job costing, sometimes known as project-based accounting.

Job costing examines each project in-depth, separating labor, material, and overhead expenses. Compared to other costing methodologies, it makes fewer assumptions.

In the construction sector, where costs vary greatly from work to job, job costing is a frequent practice. Manufacturers, creative agencies, law firms, and others use it as well.

Job costing can be a useful tool for small business owners to examine specific jobs and determine if any spending can be lowered on similar projects in the future because it monitors costs in detail for each job.

The Importance of Total Labor Costs

  • For small enterprises and small business owners, total labor costs have numerous advantages.

•Calculating overall labor expenses correctly might help you budget for prospective projects and price your products or services effectively.

•It can also assist you in determining how many staff you can afford to hire, how many projects you should do, and which ones are worthwhile.

•When preparing estimates for customers who pay your small business on a per-project basis, it's vital to use entire labor costs.

•You will be under budget for labor if you solely consider gross labour costs in your estimate.

•When the project is finished, you'll either have to raise the labour cost, which will disappoint your customer, or deduct the higher labour costs from your profits, which will frustrate you.

Employee Labor Percentage: How to Work It Out?

Employee labor percentage, also known as cost of labor percentage, represents a company's overall payroll expenditure as a percentage of gross sales.

Payroll is a significant expenditure for any company, and in some industries, it is the most significant cost.

Employee labor percentage tracking is especially crucial for small business owners since it is a critical measure they must understand to spot problems and chances to save money on payroll.

Employee Labor Percentage Overview

The employee labor or labor cost percentage relates the amount of money a company spends on payroll to the amount of money it makes.

Payroll covers all labor costs, not just salaries and wages. Payroll taxes, such as the Social Security tax, and benefit allocations should also be included.

The gross sales of a company are referred to as revenue. Use gross sales from your company's income statement to calculate the employee labour % for a year. You can use information from interim sales reports when measuring over a shorter period, such as a month or week.

Labor Percentage Calculation

A company's labour cost percentage is calculated by dividing its total payroll by its gross sales. Payroll is a substantial expenditure for most firms; in certain cases, it may be the most significant cost.

Use gross sales from a yearly income statement to calculate the annual employee labour percentage. You can run sales reports if you're measuring a shorter time, such as a week or month.

Gather Sales Information

The top of a company's yearly income statement contains this information. You can locate gross sales on intermediate reports or compute it by aggregating sales figures from daily or weekly reports to figure out employee labor proportion for different periods.

Find Labor Cost

Add up all of your wage and salary expenses. Bonuses, commissions, and other forms of payment should be included. Remember to factor in payroll taxes and employee perks of labor cost calculations.

Determine the percentage

Multiply the labor cost by the gross sales and multiply by 100. Assume total sales are $500,000 and labor costs are $140,000. Multiply $140,000 by $500,000 to get a total of $140,000. The percentage of labour provided by your employees is 28%.

Labor Percentages for Groups of Workers

Calculating employee labor percentages for specific groups of workers is sometimes useful. Manufacturers, for example, must calculate the cost of production, and analyzing this measure can aid in the analysis and control of labor cost calculations.

The employee labor percentage is calculated in the same way, with the exception that you only add the labor cost calculations for the specific group of employees you're interested in.

The Significance of Labor Cost

The ability to successfully regulate the cost of labor is crucial for a small organization. Labor costs typically range from 20 to 35 percent of gross sales of labor cost calculations.

Employee percentages vary by industry; a service business may have a percentage of 50 percent or higher, whereas a factory must maintain a ratio below 30 percent.

Cutting labor costs, on the other hand, is a delicate balancing act. Payroll cuts that are too drastic can make it difficult to recruit and retain effective staff of labor cost calculations.

Effective labor cost control entails discovering cost-cutting opportunities without jeopardizing employee motivation or productivity.

Tips to Reduce Your Labor Costs

Keeping your labor expenditures under control is an important aspect of your company's expense management. This should not imply lowering staff compensation or cutting shortcuts on additional labor expenditures.

It does, however, necessitate being vigilant and establishing clear guidelines for attendance, overtime, and time reporting.

Get Time Tracking Right

Accurately tracking staff hours is one of the most significant techniques for lowering labor costs. Time tracking errors can have major and costly ramifications for your company.

Keep an Eye on Overtime Hours

Most of the additional labor expenditures, such as payroll taxes and benefits, are beyond your control.

You do, however, have control over your team's schedule. This implies you can control how many overtime hours your workers work.

Of course, there are times when overtime is unavoidable, but if you want to cut labor expenditures, keep it to a minimum.

How to pay the staff?

Learning how to pay your staff may seem difficult if you're a new business owner. You can't just hand them a wad of cash from your bank account, after all. You must keep legal records of every dollar that travels from your hands to theirs.

Different Types of Compensation

There are three main ways in which companies pay their workers:

•Hourly Compensatio n

Hourly pay is calculated on a per-hour basis. The amount of time an employee works during a pay period determines their salary. You may, for example, pay an associate $20 per hour for their services. They are owed $1,600 if they work 80 hours in a pay period.

A part-time employee or someone who does not have a steady schedule, such as a restaurant server, would benefit from an hourly wage.

Hourly workers are typically considered non-exempt, which means they are eligible for overtime compensation.

If you're still getting your firm up and running and figuring out how many employees you'll need and how often you'll need them, you can decide to pay a new hire an hourly wage.

•Salaried Compensation

Salaried personnel are paid a set amount each payday, which is calculated by dividing their annual wage by the number of pay periods.

With a $60,000 yearly salary and a bi-weekly pay period, for example, an employee will receive $2,307 in pre-tax wages per payday.

Salaries are most appropriate for corporate jobs where the employee's time contribution is predictable. Overtime pay is usually not available to salaried staff.

•Commission-Based Compensation

Employees can also be paid on a commission basis. They may be paid a low base rate, which could be hourly or salaried, with bonus compensation if they met predetermined sales targets .

A full-time salesperson at your organization, for example, might earn a base yearly pay of $35,000. They also get paid a commission depending on a proportion of the agreements they close.

Employees in sales roles benefit from commission-based income since it motivates them to achieve specific objectives.

To verify that you are properly rewarding your employees while complying with minimum wage and overtime requirements, see the FLSA.

How Much to Pay an Employee?

The amount you should pay your employees is determined by how much your competitors pay for similar jobs and the type of business you own.

Conduct market research to find out how much other companies in your area and location pay for the position you're hiring for or the type of labor you require.

As a small business, how do you pay an employee?

Set up payroll to begin paying personnel, and be sure to select a payroll system that makes sense to you.

Decide if you'll pay your staff weekly, biweekly, semimonthly, monthly, or on a different schedule entirely. After that, calculate your employees' gross salary for the pay period as follows:

Multiply the hourly rate by the number of hours worked during the pay period for hourly employees. Remember to remove any unscheduled time from your estimates if they took any unexpected time off.

Employees who are paid on a salary: Multiply their annual salary by the number of pay periods in your annual payroll plan.

Commission employees: Determine whether they are paid on an hourly or salaried basis. Then, based on your company's compensation structure, add their commission earnings for that pay period.

How to Pay an Employee?

•Calculate Net Pay

You've calculated your employees' gross salary and the amount of tax withheld from their paycheck. Subtract the amount deducted from their gross salary to arrive at their net pay.

For example, if an employee's gross compensation for the pay period is $2,500 and $680 in taxes must be withheld, the employee will receive $1,820 on payday.

•Paychecks should be distributed to your employees

It's now time to pay your employees their owed net compensation. The most common methods of paying an employee are checks and direct deposits.

If you use direct deposit, consult the bank details provided by your employees. Alternatively, you can have checks cut for employees by your bank or payroll provider.

•File Taxe s

Paying taxes on behalf of your W-2 employees is your responsibility. Take the part of the employee's paycheck that has been withheld and distribute it to the appropriate places for tax filings.

File taxes with the IRS, your state's tax collection agency, and the tax collection agency for your municipality. It's worth noting that some taxes are solely paid by the employer.

•Pay Into Benefits

The government will not receive all of the withheld salaries. A portion of your salary may go toward employee benefits, depending on your firm. Deposit into the appropriate accounts on behalf of your employees if you offer any employee benefits programs.

•Update Payroll Records

In the event of an audit, you'll need to retain your payroll records for several years. Maintain an up-to-date, well-organized, and easily accessible payroll register.Include details on who was paid, how long they worked, how much they were paid, and what taxes were deducted.

Best Payroll Solution for Small Businesses

Payroll appears to be a difficult task, doesn't it? How do small business owners deal with the situation?

Businesses at the enterprise level have in-house teams dedicated to paying personnel. Small firms may not be able to afford a payroll specialist or may not have enough employees to justify the labor cost calculations.

In the majority of cases, however, even one-person enterprises are responsible for labor law compliance and tax withholding.

In a small firm, payroll software is the most efficient way to pay staff. It saves both money and time. Payroll software automates every stage of the detailed payroll process we just went through, including payment distribution.

Paying a 1099 employee is as simple as paying them their gross wages. To put it another way, keep your standard payroll procedures in place but don't withhold their taxes.

1099 workers aren't officially employees. They are referred to as independent contractors.

It is the responsibility of independent contractors to pay their payroll taxes. They'll be responsible for filing all of their state and federal taxes part of labor cost calculations.

If the person paying for the work has control over the ultimate product or outcome but not over how the work is done, the person is classed as an independent contractor.

The contractor, not your company, would handle quarterly tax payments to the IRS and state and local governments. While you can pay independent contractors a set fee, you can't offer them a salary; otherwise, they'd be deemed non-exempt workers, and you'd have to provide them with a W-2.

If you're unsure whether someone is an employee or an independent contractor, you should seek legal advice from a lawyer who can explain how federal labor regulations relate to your business. You must ensure that you are paying your employees by the FLSA to avoid any potential litigation or legal difficulties.

How Deskera Can Assist You?

As a business, you must be diligent with employee leave management. Deskera People allows you to conveniently manage leave , attendance , payroll , and other expenses . Generating payslips for your employees is now easy as the platform also digitizes and automates HR processes.

what is labor requirements in business plan

Key Takeaways

  • Labor expenditures must be appropriately accounted for by business owners who want to stay on budget and optimize earnings.
  • Variable labor expenses fluctuate according to the entire amount of production output, as the name implies.
  • If you don't know how much labour costs to produce your goods or services, you won't be able to price them correctly.
  • Finally, assessing your labour costs might assist you in identifying revenue leaks that are eroding company profits.
  • It's a little more complicated to calculate the overall cost of labour than just adding up the entire cost of all the payments.
  • Keeping your labor expenditures under control is an important aspect of your company's expense management.
  • It is the responsibility of independent contractors to pay their payroll taxes. They'll be responsible for filing all of their state and federal taxes

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  • Business Terms

What is Labor in Business?

Labor refers to the workforce within an organization. It includes all the people that are employed in a company and contribute to its operations through their skills and labor. The term can also refer to the efforts expended by employees to produce goods or services.

The Role of Labor in Business Operations

Labor, or workforce, refers to the people employed by organizations to carry out the activities necessary for successful operations. Businesses rely on skilled workers to manage resources, produce products and services, as well as grow their customer base and revenue streams. Through the use of labor, businesses can produce goods and services with greater efficiency, precision, and cost-effectiveness than is possible without it.

Labor isn’t limited to manual labor either. Highly skilled workers and independent contractors are increasingly needed to develop and maintain a business’s technological infrastructure, as well as create new products and services that align with modern trends. Labor also includes “psychological capital” – the way an organization invests in and rewards its people to create long term business growth.

Labor Rights and Regulations: An Overview

Labor regulations ensure that workers are protected from potential abuse from employers and that they are paid fairly for their services. Labor laws vary from country to country, but generally, they guarantee workers eight-hour work days, vacations, holidays, and overtime pay. They also aim to protect workers from discrimination, sexual harassment, and wrongful termination.

In the United States, the main labor regulations are the Fair Labor Standards Act (FLSA) of 1938 and the Occupational Safety and Health Act (OSHA) of 1970. They protect employees from unfair practices and guarantee hours and wages, health and safety rights, and protections against workplace discrimination. The US Department of Labor is responsible for enforcing these regulations and protecting the rights of all workers.

The Impact of Labor Costs on Business Finances

Labor costs are typically a business’s largest expense and can include salaries, wages, bonuses, payroll taxes, and benefit expenses. While labor costs are a necessary component of business operations, they can quickly become a financial strain if not managed properly. It’s important for employers to budget for adequate labor costs without overspending.

Labor costs can be reduced through automation, outsourcing non-core business functions, and through intelligent workforce planning. This involves forecasting labor needs and ensuring that only the people necessary to fill those needs are hired, with no extra personnel to fill the budget .

Frequently Asked Questions

How does labor productivity affect a business.

Labor productivity is an important measure of a business’s success. It measures the efficiency of the workers, and how much output is produced for each hour of labor. A productive workforce can significantly reduce costs and increase profits.

How do labor laws protect workers?

Labor laws are designed to protect workers from exploitation and ensure they receive fair compensation and access to safe working conditions. Labor laws also protect workers from discriminatory practices in the workplace, such as discrimination based on race, gender, religion, or disability.

What are some common challenges in labor management?

Common challenges in labor management include finding and retaining quality personnel, managing cost-effectiveness, maintaining employee morale, and meeting fluctuating production demands. Other issues include the effective implementation of labor laws and regulations, and ensuring worker safety.

How can a business improve labor relations?

Businesses can improve labor relations by providing competitive pay and benefits to employees, maintaining open lines of communication, instituting discipline fairly and consistently, and focusing on team-building activities.

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What Is Labor?

what is labor requirements in business plan

Definition and Examples of Labor

How labor works, how labor is measured, how labor affects the u.s. economy.

The Balance / Maddy Price

Labor is the amount of physical, mental, and social effort used to produce goods and services in an economy.

Labor is the number of workers in the economy, and the effort they put into producing goods and services. 

Labor can be categorized in many different ways. First is by skill level; the most basic is unskilled labor that does not require training. Though it's usually manual labor, such as farmworkers, it can also be service work, such as custodial staff. The next type is semi-skilled labor, which may require some education or training. An example is manufacturing jobs.

Labor can also be categorized by the nature of the relationship with the employer. Most workers are wage employees. This means they are supervised by a boss. They also receive a set weekly or bi-weekly wage and often receive. benefits.

Contract labor is when a contract specifies the work to be produced. It’s up to the worker to define how it gets done. The amount paid is either commission or a set fee for the work. Benefits are not paid.

In return for their labor, workers receive a wage to buy the goods and services they don't produce themselves. Those without desired skills or abilities often don't even get paid a  living wage . Many countries have a minimum wage to make sure their workers earn enough to cover the costs of living.

Labor is one of the four  factors of production  that drive supply. The other three are:

  • Land: This is short for the natural resources or raw materials in an economy. 
  • Capital: This is an abbreviation of the capital goods , such as machinery, equipment, and chemicals that are used in production.
  • Entrepreneurship: This is the drive to profit from innovation.  

In a  market economy , companies use these components of supply to meet consumer demand.

  • The economy runs most efficiently when all members are working at a job that uses their best skills. It also helps when they are paid according to the value of the work produced.

The ongoing drive to find the best match between skills, jobs, and pay keeps the supply of labor very dynamic. For this reason, there's always some level of natural unemployment. For example, frictional unemployment  allows workers the freedom to quit a job in search of a better one.

Labor is measured by the labor force or labor pool. To be considered part of the labor force, you must be available, willing to work, and have looked for work recently. The size of the labor force depends not only on the number of adults but also on how likely they feel they can get a job. It is the number of people in a country who are employed plus the unemployed.

Not everyone who is jobless is automatically counted as unemployed . Many are jobless by choice and aren't looking for work. Examples include stay-at-home moms, retired seniors, and students. Others have given up looking for work. These are discouraged workers. 

The real unemployment rate measures everyone who would like a full-time job. It includes the discouraged workers. It also includes those who are working part-time only because they can't get a full-time job. It's called the real unemployment rate because it gives a broader measure of unemployment.

The labor force is used to help determine the unemployment rate. The unemployment rate formula is the number of unemployed divided by the labor force. It tells you how many people in the labor force are jobless but are actively looking for work.

The labor pool shrinks during and after a recession. Even though many would like a job, they aren't looking for work. They aren't counted in the labor force.

The labor force participation rate is the labor force divided by the civilian non-institutionalized population. It tells you how many people are available and looking for work.

The amount of goods and services that the labor force creates is called productivity. If a certain amount of labor and a fixed amount of capital creates a lot, that's high productivity. The higher the productivity, the greater the profit. High productivity gives the worker, company, industry, or country a competitive advantage.

The U.S. has a highly skilled and mobile labor force that can respond quickly to changing business needs. But it's facing more competitive labor from other countries that can pay its workers less. They can do this because they have a lower standard of living.  

The U.S. Department of Labor manages compliance with labor laws and the U.S. minimum wage. It also provides job training and enforces workplace safety. 

The U.S. Bureau of Labor Statistics is a DOL division that measures labor. It provides the monthly employment report and the nation's unemployment rate.

Key Takeaways

  • Labor is the amount of physical, mental, and social effort used to produce goods and services in an economy. It supplies the expertise, manpower, and service needed to turn raw materials into finished products and services.
  • In return for their labor, workers receive a wage to buy the goods and services they don't produce themselves.
  • Labor is one of the four factors of production that drives supply.

Bureau of Labor Statistics. " National Compensation Survey: Leveling Guide for Evaluating Your Firm's Job and Pay ," Page 4. Accessed June 24, 2021.

Bureau of Labor Statistics. " Independent Contractors Made Up 6.9% of Employment in May 2017 ." Accessed June 24, 2021.

Federal Reserve Bank of St. Louis. " Factors of Production - The Economic Lowdown Podcast Series, Episode 2 ." Accessed June 24, 2021.

Corporate Finance Institute. " Frictional Unemployment ." Accessed June 24, 2021.

Bureau of Labor Statistics. " Glossary - Labor Force (Current Population Survey) ." Accessed June 24, 2021.

Bureau of Labor Statistics. " Table A-15. Alternative Measures of Labor Underutilization ." Accessed June 24, 2021.

Census Bureau. " Import Competition from and Offshoring to Low-Income Countries: Implications for Employment and Wages at U.S. Domestic Manufacturers ," Page 3. Accessed June 24, 2021.

Labor Department’s New Overtime Rule Likely Coming Soon: Your 8-Step Plan to Prepare

Fisher Phillips

More of your employees may be eligible for overtime pay under a new rule that is likely to be finalized in April and could take effect soon. As proposed in August, the Labor Department intends to significantly raise the exempt salary threshold for the so-called “white-collar” exemptions from about $35K to about $55K – meaning your workers will need to earn at least the new threshold to even be considered exempt from OT pay. The White House budget office recently announced that it is reviewing the rule, which is the final step before it is shared with the public. Although the final rule will likely face legal challenges, you can’t bank on a court halting its implementation. Moreover, the higher exempt salary threshold is expected to impact 3.6 million workers, which means you should start planning now. Here’s an eight-step action plan to help you prepare as the rule is finalized.

1. Review Pay Practices and Prepare for Compliance

Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid an overtime premium of 1.5 times their  regular rate of pay  for all hours worked beyond 40 in a workweek — unless they fall under an exemption. One of the criteria to qualify for an exemption is earning a weekly salary above a certain level.

Currently, the salary threshold for exempt employees is $684 a week ($35,568 annualized) for the administrative, executive, and professional exemptions — collectively known as the “white-collar” exemptions. The DOL’s proposal, if finalized in its current form, would raise the rate to $1,059 a week ($55,068 annualized) or high depending on cost-of-living adjustments. The proposed rule would also automatically update the salary threshold every three years, which means you’d have to adjust your budget accordingly. These are big changes that will require some planning if you have exempt employees under the white-collar exemptions who earn less than the proposed amount.

2. Work Through Your Decision Tree

Start by creating a list of your exempt employees who currently earn between $35,568 and $55,068 a year. You will have to decide whether to raise their salary to meet the new threshold or convert them to non-exempt status. If you decide to convert them, there are many considerations to take into account and you should work with legal counsel to review:

  • how much you will increase pay for affected employees;
  • how you’ll calculate the “regular rate”;
  • how you’ll handle incentives and bonuses;
  • how you will track working hours; and
  • how benefits will be affected.

Additionally, you may want to start tracking their actual hours worked  now  to help you understand the potential impact of converting to non-exempt status as those individuals will need to be paid overtime.

3. Consider the Impact on Employee Morale

Reclassifying employees to non-exempt could have a negative impact on morale. Many employees associate prestige with being classified as an exempt-salaried employee, they like the flexibility that comes with being salaried, and they don’t want to track and record their hours worked. Therefore, employees may view a switch to non-exempt status as a demotion. 

4. Plan to Provide Advance Notice of Changes

In addition to developing communications focused on employee relations and morale, you’ll want to provide a written communication to each employee about the specific changes to their compensation and what new responsibilities come with the changes, such as timekeeping and record keeping.

5. Review Your Policies on Company Equipment and Personal Devices

Do you have different policies for exempt and non-exempt employees when it comes to issuing company equipment and using personal devices? Exempt employees may have more leeway to use company laptops or their own personal devices – such as smartphones – to conduct business while traveling or outside of their regular office hours. You will have to determine how to address these policies moving forward.

6. Develop a Training Plan for Managers and Newly Non-Exempt Employees

We highly recommend that you provide detailed training to newly reclassified employees  and  their managers prior to the changes taking effect. There’s a lot to learn. The specifics may vary from business to business, but you’ll want to cover scheduled hours, OT approval policies, timekeeping procedures, rules about meal and rest breaks, and more.

7. Ensure Exempt Employees Meet the Duties Test

Besides the salary test, exempt employees also need to satisfy certain duties requirements. Neither their job title nor job description alone determines whether an employee qualifies for a white-collar (or any other) exemption. This is a good opportunity to ensure they meet these standards as well.

8. Review Applicable State Laws

It is important to remember that other jurisdictions can have higher, stricter, or different wage and hour requirements. For example, some states already have a higher salary threshold for the white-collar exemptions than the FLSA’s $684 per week.

You can click here for a more detailed compliance plan and background about the federal overtime rule.

Related Posts

  • Labor Department’s Proposed Overtime Rule Could Raise Salary Floor to $55k: Here Are 8 Ways Employers Can Prepare Now

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Biden adopts new emissions rules for US cars, gives automakers a break in early years

what is labor requirements in business plan

The Biden administration on Wednesday finalized tough new greenhouse gas standards for cars sold in the U.S., but gave automakers worried that they might be too strict to comply with a break in the first few years before they increase more steeply.

The decision, however, was a blow to Midwest farm and ethanol groups. They complained the federal government failed to consider the environmental benefits the largely corn-based renewable fuel could provide as the nation seeks to slash carbon emissions.

“This decision will not only severely hamper the administration’s ability to reach its own climate goals, but it will also hurt family farms and rural communities that rely heavily on the sale of biofuels," said Minnesota corn grower Harold Wolle, president of the National Corn Growers Association board.

Automakers praise changes in plan

Nearly a year ago, the U.S. Environmental Protection Agency (EPA) shocked the auto industry and heartened environmentalists by proposing tailpipe emissions standards so strict that, by model year 2032, automakers would virtually be required to ensure that two-thirds of all new cars and light-duty trucks sold would need to be electric vehicles or potentially face stiff fines.

The final standards released Wednesday didn't back off that ambitious 2032 target in terms of the fleetwide reduction in greenhouse gases including carbon monoxide, hydrocarbons and others that are considered dangerous to human health and contribute to climate change.

But they did change the amount by which those reductions occur beginning with model year 2027, making them somewhat less strict compared to the current standards in the first couple of years, before ramping them up more steeply later. And while the original proposal — which was always technology-neutral in theory, meaning automakers could sell any cars and light-duty trucks they wanted as long as they hit the fleetwide reductions — noted that the likely and least costly path toward hitting them meant an enormous growth in the sales of plug-in electric vehicles (PEVs), which accounted for only a portion of the 9% of new car sales last year, the final rule outlined several pathways that could work.

For instance, the EPA said, under one likely pathway, the percentage of light-duty trucks and cars powered by internal combustion engines could drop from 64% of new vehicle sales in model year 2027 and 58% in model year 2028, to 29% in model year 2032; while the percentage of battery-only electric vehicles could increase from 26% in 2027 and 31% in 2028, to 56% in 2028, with other EVs — pure hybrids and plug-in hybrids — making up the difference.

In the proposed rule last year, however, the pathway foresaw battery-only EVs needing to account for 36% of new cars in 2027 and 45% in 2028 — a much steeper sales curve.

That change didn't sit well with some environmental groups: Dan Becker, director of the  Center for Biological Diversity’s Safe Climate Transport Campaign, said the EPA "caved to pressure from Big Auto, Big Oil and car dealers," allowing more damage to the planet and public health upfront.

But many other environmental groups cheered the plan as historically strict and automakers and the United Auto Workers Union said it recognized the challenges facing the industry in the move to get the public to embrace EVs.

"Pace matters to automakers, it certainly matters to consumers," said John Bozzella, president and CEO of the Alliance for Auto Innovation, a trade group that represents most automakers doing business in the U.S., including Ford, General Motors and Stellantis.

He noted that while automakers are committed to an electric future, "choppy" sales, supply chain issues and a nationwide charging infrastructure that still must be built warranted the more gradual change in standards. The end product, he said, is "much improved over what was originally proposed."

Ethanol proponents say requirements ignore EV-related environmental hazards

Farm and renewable fuel groups said the EPA ignored EVs' "upstream" emissions tied to electricity generation and mining and processing of rare minerals needed to make batteries.

“While we share the Biden administration’s vision for reducing carbon emissions and increasing energy efficiency, today’s final rule certainly isn’t the best way to accomplish that goal,” Renewable Fuels Association CEO Geoff Cooper said in a statement.

"Today’s final rule effectively forces automakers to produce more battery electric vehicles, based on the false premise that they are ‘zero-emission vehicles,’" Cooper said. "At the same time, the regulation would strongly discourage manufacturers from pursuing other technologies — like flex fuel vehicles and engines optimized to operate on high-octane, low-carbon ethanol — that could achieve superior environmental performance at a lower cost to American consumers.”

The concerns weigh heavily in Iowa, the nation's largest corn grower and ethanol producer. About half of the state's annual corn crop is used to make the biofuel.

The Renewable Fuels Association said the industry is on its way to net-zero carbon emissions by 2050. Among the paths is carbon capture and sequestration, a controversial issue in Iowa, where two companies seek to build carbon capture pipelines. Advocates say the projects are vital to ethanol remaining viable, but opponents say the pipelines are unsafe, trample on landowner rights and damage farmland.

Biden's EV emphasis already a presidential campaign issue

President Joe Biden, whose administration worked with environmentalists, the automakers and the UAW in reaching the final rule — and who has been chastised by Republicans and former President Donald Trump for implementing what they have called an EV "mandate" — issued a statement saying he's following through on a promise to try to make half of all new cars and trucks sold by 2030 be zero-emission.

"Today, we’re setting new pollution standards for cars and trucks," he said. "U.S. workers will lead the world on autos making, clean cars and trucks, each stamped 'Made in America.' You have my word."

EPA Administrator Michael Regan also noted that, with transportation sources making up the largest percentage of greenhouse gas pollutants, the new standards will protect public health while creating new jobs for workers building vehicles that comply with them.

"The standards will slash over seven billion tons of climate pollution, improve air quality in overburdened communities and give drivers more clean vehicle choices while saving them money," Regan said.

But the greenhouse gas requirements, which were rolled back by the Trump administration before being replaced when Biden took office in 2021, have become a sharp issue in this year's presidential rematch between Biden and Trump. The former president is arguing that the vehicles are too expensive, though they are eligible for tax breaks and can save thousands in fuel costs, and that they don't travel as far as internal combustion vehicles, which is not true in the case of many models.

Trump also has argued that auto workers will lose their jobs because of the new standards as China dominates the EV market. Over the weekend, he said at a rally in Ohio t hat there will be a "bloodbath" in the auto industry with foreign-made cars flooding the U.S. unless he is elected. But U.S. automakers have been investing billions, much of it sparked by incentives proposed by Biden and passed by Congress, in new EV plants domestically.

Union says new rule 'taking seriously' labor issues surrounding EV production

The report also specifically mentioned that while union workers may be adversely effected by the transition to EVs — since they typically require fewer workers to assemble, with much of the labor associated with the manufacture of the batteries — the UAW in its successful strike of the Detroit Three automakers last year negotiated contracts making more workers involved in EV production eligible to be unionized.

In a statement Wednesday, the union said the final rule represented "significant progress" from the first proposal. "By taking seriously the concerns of workers and communities, the EPA has come a long way to create a more feasible emissions rule that protects workers building ICE vehicles, while providing a path forward for automakers to implement the full range of automotive technologies to reduce emissions," it said.

The EPA's final rule also set tough new standards for medium-duty vehicles like vans and both sets of standards still need to be coordinated with fuel economy standards — generally set in terms of miles-per-gallon of fuel and their equivalent for electric vehicles — set by the National Highway Traffic Safety Administration, which is expected to happen in the next several months.

Des Moines Register staff writer Donnelle Eller contributed to this article. Contact Todd Spangler: [email protected]. Follow him on Twitter @tsspangler .

United Steelworkers union endorses Biden, giving him more labor support in presidential race

The United Steelworkers Union has endorsed President Joe Biden, giving him support from another large labor union

PITTSBURGH -- The United Steelworkers Union has endorsed President Joe Biden , giving him support from another large labor union.

The announcement Wednesday by the Pittsburgh-based union came less than a week after Biden voiced opposition to the planned sale of U.S. Steel to Nippon Steel of Japan , saying it's vital that the company remain American owned and operated.

The USW, which represents 850,000 workers in metals, mining, rubber and other industries, said Biden has a track record of supporting retirement security, affordable health care and laws that help workers, all important issues to its members.

The AFL-CIO, United Auto Workers, and several other unions previously endorsed Democrat Biden in his race against Donald Trump , the presumptive Republican nominee. The Teamsters union has talked with both candidates and has yet to announce its pick.

By opposing Nippon's planned acquisition of U.S. Steel, Biden chose to support unionized workers at the risk of upsetting the business community and an essential ally in Japan. Also, U.S. Steel is headquartered in Pennsylvania, a key swing state in this year’s election .

The USW has said it's concerned about whether Nippon would honor existing labor agreements.

Trump said earlier this year that he would block the U.S. Steel acquisition, saying that it would a “horrible thing” for a Japanese company to buy it.

Nippon said the deal would benefit U.S. Steel and union workers, as well as U.S. national security. The purchase would drive greater quality and competitiveness while strengthening American supply chains, the company said.

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New College of Florida to receive millions from state, but money comes with requirements

New College of Florida is slated to receive tens of millions of dollars in a budget approved this month by the Legislature — but will face requirements tied to some of the money. The proposed 2024-2025 state budget, which needs approval from Gov. Ron DeSantis, includes $10 million for “operational enhancements” at the school.

New College President Richard Corcoran and the school’s Board of Trustees would determine the way the money is spent. But $5 million would have to go toward providing scholarships to students.

Increasing enrollment at the small liberal-arts school has been a goal of Corcoran and trustees, who have made major changes at New College over the past year. An additional $15 million would have to be spent for specific purposes laid out in the budget, with $10 million going to temporary student housing; $2 million to scholarships “to support student recruitment;” $2 million to “technology upgrades and improvements, academic coaches, and library resources;” and $1 million to improve campus security.

To receive the money, New College would have to submit a detailed business plan to the state university system’s Board of Governors that “describes the institution’s long-term student enrollment goals and how it will use the funding provided by the state to achieve these goals.” The plan would be required to include specific strategies and initiatives that New College would take over the next five years to boost enrollment and maintain academic standards.

The Board of Governors also would be required to submit quarterly “status reports” to the chairs of the Senate Appropriations Committee and the House Appropriations Committee. The reports would have to detail things such as New College enrollment counts, money spent for each strategy in the business plan and “corrective actions or changes in strategies necessary, if any, to reach the milestones identified in the business plan.”

Specialty medical injectable drug program, requirements and drug policy updates for March

New specialty medical injectable updates and requirements announced March 2024.

Review the following tables to determine changes to our specialty medical injectable drug programs.

SPECIALTY MEDICAL INJECTABLE DRUGS ADDED TO REVIEW AT LAUNCH For UnitedHealthcare Commercial business

Review the UnitedHealthcare Commercial Plan Review at Launch Medication List .

For questions, please contact your broker or UnitedHealthcare representative.

SPECIALTY MEDICAL INJECTABLE DRUGS ADDED TO MEDICATION SOURCING FOR OUTPATIENT HOSPITAL PROVIDERS ONLY For UnitedHealthcare Commercial business

Review the UnitedHealthcare Commercial Plan Medication Sourcing List .

UPDATES TO DRUG PROGRAM REQUIREMENTS AND DRUG POLICIES

For UnitedHealthcare commercial business effective April 1, 2024

Upon prior authorization renewal, the updated policy will apply. UnitedHealthcare will honor all approved prior authorizations on file until the end date on the authorization or the date the member’s eligibility changes. Providers don’t need to submit a new notification/prior authorization request for members who already have an authorization for these medications on the effective date noted above.

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what is labor requirements in business plan

Biden’s Budget for Labor Agencies Seeks to ‘Empower’ Workers (1)

By Diego Areas Munhoz and Rebecca Rainey

Diego Areas Munhoz

President Joe Biden is requesting that Congress raise the US Department of Labor’s budget by $318 million, a 2.3% increase for fiscal year 2025 from the currently enacted 2023 level.

The proposed increase, announced Monday, would leave the agency with $13.9 billion in base discretionary spending—over $1 billion less than what he requested for the agency last year, according to the Office of Management and Budget. Biden had asked for $15.1 billion for the DOL for FY 2024.

With the resources Biden has requested, the DOL “can fulfill the promise to empower all workers to succeed in our growing economy,” acting Labor Secretary Julie Su said in a statement. “We are laser-focused on building the high road in employment,” while combating “the low road to deliver access to high-quality jobs, fairness, safety and dignity in every community.”

Beyond asking for more funding for the DOL, Biden is requesting that Congress enact a series of policy changes to expand workplace benefits and increase penalties for employers that violate labor laws. But the president is facing roadblocks on both fronts, as the narrowly divided Congress is poised to cut spending, and bills tackling those issues haven’t gained much traction.

Biden’s proposal comes as Congress continues to hash out overdue appropriations bills. It has only passed six out of the 12 bills that fund the federal government in FY 2024, leaving several agencies, including the DOL and the National Labor Relations Board, functioning under FY 2023 budgetary levels. Lawmakers must pass the remaining bills by March 22 so the agencies don’t run out of funds.

But the White House’s even more modest request for the Labor Department may not convince the divided Congress to raise the agency’s funding. The DOL will likely face some cuts, as both the Senate and House budget proposals would reduce the agency’s spending in FY 2024.

The budget request also seeks a bump of over $33 million for the Equal Employment Opportunity Commission in FY 2025. Congress kept the EEOC’s funding flat at $455 million for FY 2024 in the first package of appropriations bills passed last week.

Meanwhile, Biden is seeking $320 million for the NLRB in what would be a $20.8 million increase for the agency. The NLRB, which has been asking Congress for more funding for several years, received a much-awaited increase for FY 2023. Lawmakers have yet to pass a budget for the agency for the current fiscal year.

Policy Priorities

Despite the uncertainty of the budget proposal’s path through Congress, the blueprint does lay out policy priorities the administration plans to tackle in the coming year.

The proposal calls for “significantly increasing” penalties at the DOL, the EEOC, and the NLRB for employers that violate workplace safety and health, wage and hour, child labor, equal opportunity, and labor organizing rules. The administration aims to “create meaningful deterrence for employers from violating workers’ rights, ensure those who do violate their rights are held accountable, and level the playing field for responsible employers,” it said.

The DOL’s worker protection agencies, like the Wage and Hour Division and the Occupational Safety and Health Administration, would get $2 billion in FY 2025 under the Biden budget request, a slight boost from the $1.8 billion those agencies received in FY 2023. The budget also seeks additional funding for the EEOC to enforce the Pregnant Workers Fairness Act and to fund the collection of employer pay data.

The budget request also includes funding for a new artificial intelligence policy office within the DOL, led by Chief AI Officer Louis Charlier, that oversees and manages AI-related work at the agency. Biden required many federal agencies to establish chief AI officers in his wide-ranging October AI executive order .

The budget blueprint would also establish a national paid family and medical leave program providing up to 12 weeks of leave for workers to recover from an illness, care for a new child or a sick family member, or cover other situations. The program would be administered through the Social Security Administration, but the DOL’s Women’s Bureau would assist state agencies in accessing paid leave benefits.

Biden is also calling on Congress to enact legislation providing workers with seven job-protected paid sick days annually. Currently, the Family and Medical Leave Act permits workers to take up to 12 weeks of unpaid, job-protected leave each year.

While a bipartisan group of lawmakers from the House and Senate is working on paid leave legislation, a federally run program as laid out in the proposal is unlikely to get through Congress.

Also in terms of benefits, the proposed budget would ensure “that plans have an adequate network of behavioral health providers, and improves DOL’s ability to enforce the law,” asking for $275 million over 10 years to increase the agency’s “capacity to ensure that large group market health plans and issuers comply with mental health and substance use disorder requirements, and to take action against plans and issuers that do not comply.”

The DOL has been critical of group health plans sponsored by employers, twice saying in reports to Congress that the plans aren’t complying with the Mental Health Parity and Addiction Equity Act by not providing sufficient analyses to justify mental health coverage that differs from coverage for medical and surgical needs. The DOL has issued a proposed rule ( RIN 1210-AC11 ) to try to rectify the situation.

Here’s the budget breakdown for the DOL subagencies:

  • Biden is asking for $3.9 billion for the Employment and Training Administration, less than the $4.1 billion currently enacted for FY 2023.
  • The Wage and Hour Division would get $349.9 million under the request, a $20.8 million increase the administration says the subagency needs to combat child labor.
  • The Occupational Safety and Health Administration would receive $655.5 million, over $20 million more than the current level.
  • The Employee Benefits Security Administration would get $205.7 million, an increase from the $191.1 million currently enacted.
  • The Office of Federal Contract Compliance Programs would get about $116.1 million, up from the roughly $111 million it received in fiscal 2023.

— With assistance from Sara Hansard .

To contact the reporters on this story: Diego Areas Munhoz in Washington, D.C. at [email protected] ; Rebecca Rainey in Washington at [email protected]

To contact the editors responsible for this story: Genevieve Douglas at [email protected] ; Rebekah Mintzer at [email protected] ; Laura D. Francis at [email protected]

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IMAGES

  1. 3. Labor requirements matrix

    what is labor requirements in business plan

  2. 10 Tips for Effective Requirements Management

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  3. Capacity Planning with reference to McDonlds

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  4. PPT

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  5. How to write a business requirement document

    what is labor requirements in business plan

  6. PPT

    what is labor requirements in business plan

COMMENTS

  1. Reaching the goal with Labor requirements planning

    Methods of qualitative and quantitative labor requirements planning. First, basic information is collected and analyzed so that a requirements plan can be developed. This basic data should include relevant information such as the number of units to be produced, the shift pattern, and the number of working days per week and year.

  2. Labor requirements for business

    Post required notices. Employers are required to display certain posters in the workplace that inform employees of both their rights and employer responsibilities under labor laws. California employers must post all state and federal required posters, but San Francisco has some additional notices that must be displayed.

  3. Business Plan

    A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan: 1. Title Page. The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date ...

  4. Personnel Section of a Business Plan

    The Personnel Section of a Business Plan Explained. One of the key sections of a Business Plan is the section that describes the plan to grow or scale the business. This often involves hiring staff and staff often represent the single largest ongoing expense that a company will have. As such, it is important to plan exactly who will be hired ...

  5. What Is Labor Forecasting? (And Why Do You Need It?)

    Labor forecasting is the process of estimating the future labor needs of a business based on projected customer demand, sales data, and other external factors. It is crucial for businesses because it helps ensure they have the right number of staff, with the appropriate skills, available at the right times to meet customer demand, optimize ...

  6. Manpower Requirements and Operations in a Business Proposal

    A well-written business proposal can help you win new clients. Manpower planning is critical to developing an accurate business proposal and a realistic budget. Operational planning also plays an ...

  7. How to Forecast Personnel Costs in 3 Steps

    Multiply your direct and indirect labor costs by your burden rate to figure out what your employee overhead (burden) costs are. Add this number to your total salaries, and you'll know your total personnel costs. Your personnel costs will show up in your profit & loss statement and impact your profitability.

  8. How To Write the Operations Plan Section of the Business Plan

    The operations plan is the section of your business plan that gives an overview of your workflow, supply chains, and similar aspects of your business. Any key details of how your business physically produces goods or services will be included in this section. You need an operations plan to help others understand how you'll deliver on your ...

  9. Accurately Plan Your Manufacturing Labor Requirements

    Job shops and manufacturers must have a plan that considers their workforce's skills and the production demands of their customers. Creating a detailed labor plan based on skill sets is one way to ensure that your team is utilized effectively and efficiently. This schedule should consider the workers' specific skills and the customers ...

  10. Business Plan: What It Is, What's Included, and How to Write One

    Business Plan: A business plan is a written document that describes in detail how a business, usually a new one, is going to achieve its goals. A business plan lays out a written plan from a ...

  11. 5.4: Labor Supply and Demand

    External Labor Supply. The external supply of labor is a function of a range of economic and qualitative factors including the availability of housing, transportation, the quality of life and the number and quality of local/regional educational and training educational institutions. Wages, competition for labor, demographic and immigration ...

  12. Simple Business Plan Template for Entrepreneurs

    The standard business plan consists of a single document divided into several sections for distinct elements, such as a description of the organization, market research, competitive analysis, sales strategies, capital and labor requirements, and financial data. Your plan may include more or fewer sections to best represent your business.

  13. Elements of a Business Plan

    The sum of capital and plant, investments, and miscellaneous assets. Total assets. The sum of total current assets and total long-term assets. After the assets are listed, you need to account for ...

  14. Labor Force Staffing: A Guide to Labor Planning ...

    SwipeClock demystifies labor force staffing and forecasting for small to mid-size businesses. We have custom employee scheduling solutions for manufacturing, construction, retail, food and beverage, healthcare, and hospitality. Contact a schedule forecasting expert at SwipeClock to learn more. Simplify HR management today.

  15. How to Write a Business Requirements Document (BRD)

    These business requirements should meet both stakeholder and customer needs. This can include a process that must be completed, a piece of data that is needed for the process or a business rule that governs that process and data. Related: Free Requirements Gathering Template for Word. 5. Key Stakeholders.

  16. Construction Cost Estimating: A Step-By-Step Guide

    Construction estimating is the process of calculating all of the required costs for a construction project, including direct costs (e.g. materials and worker wages) and indirect costs (e.g. equipment depreciation and office worker salaries). Professional construction estimators perform this essential step in the preconstruction process, which ...

  17. Labor Requirements

    Labor Requirements. Subsection of: Creating an Effective Business Plan. Adapted from content excerpted from the American Express® OPEN Small Business Network. Your management team is outlined in the management section. This section provides details of other labor you will need to start up and run your business.

  18. How to Calculate Labor Costs: The Small Business Owner's Guide

    Determine the percentage. Multiply the labor cost by the gross sales and multiply by 100. Assume total sales are $500,000 and labor costs are $140,000. Multiply $140,000 by $500,000 to get a total of $140,000. The percentage of labour provided by your employees is 28%.

  19. Labor Requirement

    The primary factors that will determine the labor requirements in your plant are (1) the size and complexity of the plant; (2) the number and redundancy of critical plant systems; (3) the number of spares and repair parts required; and (4) the starting condition of your maintenance and inventory control functions.

  20. What is Labor in Business?

    Labor, or workforce, refers to the people employed by organizations to carry out the activities necessary for successful operations. Businesses rely on skilled workers to manage resources, produce products and services, as well as grow their customer base and revenue streams. Through the use of labor, businesses can produce goods and services ...

  21. What is a 'Feasibility Study' and How to write a technical ...

    Calculating Labor Requirements. You cannot run a business, offer services, or manufacturer Products for free. Even if you start your business with you as your only employee, at some point, if you ...

  22. What Is Labor?

    Labor is the number of workers in the economy, and the effort they put into producing goods and services. Labor can be categorized in many different ways. First is by skill level; the most basic is unskilled labor that does not require training. Though it's usually manual labor, such as farmworkers, it can also be service work, such as ...

  23. Description of machine and labor requirements for a process

    The system consists of several interconnected modules. First, the user visually models a workflow describing the production of some item. Then the user specifies which items and how many of them ...

  24. Labor Department's New Overtime Rule Likely Coming Soon: Your 8-Step

    The specifics may vary from business to business, but you'll want to cover scheduled hours, OT approval policies, timekeeping procedures, rules about meal and rest breaks, and more.

  25. Cal/OSHA Workplace Violence Prevention for General Industry (Non-health

    On September 30, 2023, California Senate Bill 553 (Cortese) was signed into law and California Labor Code section 6401.9 will be in effect and enforceable on July 1, 2024. Employers that fall within the scope of this law must establish, implement, and maintain an effective written Workplace Violence Prevention Plan that includes but is not limited to the following:

  26. Biden gives automakers more time to hit tough new emission rules

    Automakers praise changes in plan. Nearly a year ago, the U.S. Environmental Protection Agency (EPA) shocked the auto industry and heartened environmentalists by proposing tailpipe emissions ...

  27. United Steelworkers union endorses Biden, giving him more labor support

    By opposing Nippon's planned acquisition of U.S. Steel, Biden chose to support unionized workers at the risk of upsetting the business community and an essential ally in Japan.

  28. New College of Florida stands to receive tens of millions in funding

    To receive the money, New College would have to submit a detailed business plan to the state university system's Board of Governors that "describes the institution's long-term student ...

  29. Specialty medical injectable drug program, requirements and drug policy

    New specialty medical injectable updates and requirements announced March 2024. .. ...

  30. Biden's Budget for Labor Agencies Seeks to 'Empower' Workers (1)

    President Joe Biden is requesting that Congress raise the US Department of Labor's budget by $318 million, a 2.3% increase for fiscal year 2025 from the currently enacted 2023 level.. The proposed increase, announced Monday, would leave the agency with $13.9 billion in base discretionary spending—over $1 billion less than what he requested for the agency last year, according to the Office ...