BUSINESS PLAN

DEFINITION OF A BUSINESS PLAN

Business plan is a document that describes the goals and objectives of the business and
clearly how and when they will be achieved.
It is a structured guideline to achieve a business goal.
Its a roadmap to owning and operating a business.
Its a proposal that describes a business opportunity for financing agencies or interests.

WHY WRITE A BUSINESS PLAN?

a)
b)
c)
d)

To obtain financing
It guides in operating a business
Iut guides in managing a business
It communicates clearly to the interested parties

WHEN IS A BUSINESS PLAN WRITTEN?

a)
b)
c)
d)
e)

After deciding to go into a business

For wholesale business
For services business
For menu business
For any other type of business

HOW IS THE BUSINESS PLAN WRITTEN?

(i).By identifying all the questions that could be collected relating to the business.
(ii). By determining what further information needs to be gathered to answer all the questions.
(iii). By comparing various alternatives
(iv). By making a decision on each question
Source of information for a business plan
a) From the customers
b) From the consumers
c) Suppliers
Benefits of a business plan
i.
ii.
iii.

Its a financial tool that provides information if one wants to obtain a loan.
It enables potential entrepreneurs to assess the viability of their business opportunities on
paper.
It forces entrepreneurs to establish written goals and objectives for the proposed business.

iv.
v.
vi.
vii.

It establishes the financial need of a business and suggests the possible sources of
financing.
A business plan tests ideas on paper.
It indicates the owners ability and commitment.
A business plan is a blueprint or guidelines.

Qualities of a good business plan

1. Simplicity and clarity in order to be attracted and motivating to the reader, the business
plan should be:
Be simple
Sentences should flow logically
Each sentence should have one idea
2. Brevity one should be brief and straight to the point.
3. Logic ideas should follow one another in a logical sequence. Paragraphs should be
connected.
4. Truth one needs to be frank and not overstating the facts.
5. Use of figures words should be baked by figures especially in financial plan
Simple cover page

Business plan
Name of the business P.O Box.
Telephone.
Email
Logo
Presented by
Admission number
Presented to..(Name of the institution)
In partial fulfillment of the requirement for award of degree in business admission
Supervisor:(for example Kennedy Otieno)
August 2011
i. Declaration

I hereby declare that the business plan is my original work and that it has not been presented for
the award of a degree or diploma to any institution.
Name .
Adm No..
Signature . Date
Supervisor Name

Signature Date .
ii.

iii.
iv.

Acknowledgement
Acknowledge: lectures, institutions and employer for their financial and moral
support. This part is stated as:
I wish to acknowledge the following people who assisted me in ensuring that the
business project report was successfully done;
Dedication: .
Table of contents

Components of a business plan

1.
2.
3.
4.
5.
6.
7.

An executive summary
Business description
Marketing plan
Organization and management plan
Production/ operational plan
Financial plan
Risk plan (not necessary if included in every chapter)
Executive Summary

Summary of important points in each chapter and should not be less than 5 8 lines for each
component.
It should be one and a half to two pages. It should include summary of:
1.1
1.2
1.3
1.4
1.5
2.1

2.2

2.3

Business description
Marketing plan
Marketing and organizational plan
Production and operational plan
Financial plan
Business description
Background of the owner
This is where the details concerning the owner of the business are included e.g. Name of
the owner(s), age, marital status, address, occupation, education, professional
qualifications and business experience. Show their relevance to business.
Business name
It means the name of the business
Need to describe how the name was selected
One needs to come up with a logo of the business
Logo identifies the business
Business location and address
It means where the business will be located, the place and also the site

2.4

2.5

2.6

Location is general
Site is specific
Include a map of the location
Physical address of the business including, email and website.
Form of ownership
The form of the business may include
Sole proprietorship
Partnership
Private company/ public company
Co-operatives
Give reasons for choosing that kind of ownership
Give advantages and disadvantages to show that you understand the business you
are going to start
Type of business
It means whether the business is a start-up or ongoing
Give some of the activities of the business

Products and services

What product(s) are you going to offer?
Describe clearly and include features of products and services for example indicate size,
color, shape, materials, quality, packaging of the product
What benefits will customers obtain from using your product/service e.g. consider the
performance, convenience, economy, comfort, durability, usage, flexibility, servicing and
warranties.
2.7 Justification of opportunity
The reasons for choosing that kind of business e.g. exploit resources, nutritional value of
opportunity, niche market, technology advancement, professional qualifications, unmet
demand, climate favorable, infrastructure and security.
2.8 Industry
Which industry does your proposed business belong to? E.g. matatu belongs to transport
industry, consider the total number of firms in that industry or competitors. What is the
industry trend? Is the industry growing, declining or stable? Explain whats happening in
that industry.
Industry characteristics that is capital requirements and kind of technology in that industry
including capital investment and labor requirements.
2.9 Gaols of business/objectives
2.9.1 Goals
what daes the business want to achieve in the long term? For example to become a quality
leader, market leader, penetrate in the other markets.
2.9.2 Objectives

What does the business want to achieve in the short term?for example to maximimize
profits, increase sales, minimize costs.
2.10 Entry and growth strategy
It means how you will penetrate and gain acceptable in the market
Needs to consider the competitive advantages among competitors, pricing and
distribution, advertisement or promotional methods.
2.10.1 Entry plan
i. Competitive advantages of the business that is what is your business has, compared
to competitors
ii. Weakness for the competitors
iii. Pricing plan how you will set your prices for your products
iv. Plans to attract consumers methods youre going o use.\
2.10.2
Growth Plan
(i). Trends which signal business growth/signs of business growth
(ii). Opportunities coming from the the trends/prevailing opportunities.
(iii). Plans to take advantage of the opportunities.
Carry out a SWOT analysis or use the Ps of marketing as strategies for entry and growth.

3.0 Marketing Plan

3.1 Customer
Understanding potential customers or current customers is important for any business
because theres a need to determine who your customers are; wholesalers, retailers,
user/individuals, households and institutions like schools, hospitals, churches.
You need to determine location in terms of income, age , size , education, occupation etc.
What will customers be looking for in your product or service? For example ;
i. Product consideration/characteristics; price, quality, appearance, colour, shape, material,
Size weight, volume and efficiency.
ii. Business considerations
Advertisement and promotion
Variety of goods and services
Credit facilities
Capability of employees etc
Method of selling
Examples of customers that need to be analyzed.
3.1.1 Wholesalers
3.1.2 Retailers
3.1.3 Institutions
3.1.4 Individuals/households

3.2 Market share/size

Its the amount of unit sales e.g. what is your estimated expected total sales in units per
month or even quarterly or even yearly. In estimating the market size , one needs to list
down the business selling similar products in the market for example assuming that we
have the following firms:
Before you penetration the market
A

Total

Sales

20,000

40,000

40,000= 100,000

Market share

20%

40%

40%

100%

After penetration
A

Total

Sales

20,000

40,000

40,000

30,000= 120,000

Market share

16.7%

33%

33%

16.7%

100%

3.3 Competition

Need to consider what theyre doing

Analyze factors that have contributed to their success or failure
Determine if there are gaps to be filled
Determine your potential competitors and their size in terms of assets, sales volume and
market share of the major competitors
Determine the strengths and weaknesses of the competitors
Plans to capitalize on the weaknesses of the competitors
Assuming that we have three firms A, B, C;
Table 6: Competition
A

Assets

200,000

100,000

200,000

Sales volume

400,000

500,00

300,000=

80,000

100,000

60,000

Market share

Profit earned

1,200,000

No. of Employees

Methods of promotion and advertisement

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.

Media to use which can be electronic and print media

How will you portray your products? What image do you want to project in the mind of
consumers?
How often will you advertise your products or services?
How much will each advertisement cost?
How will you measure the effectiveness of your advertisement?
What promotion campaign will you undertake when introducing the product or service
e.g. free samples or free introductory services
What promotional methods will you employ on regular basis e.g. trade shows,
sponsorships of competitors and the cost of promotion per events.
How will you measure the effectiveness of your promotional campaigns?

Pricing strategy
i).
ii).

iii).
iv).

v).

vi).

The methods of calculating the selling price for your products or services
Factoers which influence your price setting include:Income of clients targeted
Prevailing market prices
Cost of raw materials
Nature of competition
Actual selling prices of product or services
Credit terms to be offered
What kind of creditwill you give to loyal customers or the ones you know?
When are you going to offer credit? Is it at the end of the month?
When will yur customers pay back?
Discounts offered
Cash discount when one pays promptly
Trade discount when one buys in large quantities
Any after sales services
Offered after purchase e.g transport, warranty, installation. Etc.

3.6 Sales tactics

i).
ii).
iii).

iv).

Selling tactics you will employ e.g direct selling to the customers or personal selling or
selling indirectly (through an agent)
If you intend to sell indirectly to the customers, how will you recruit, retain and
renumerate your sales force.
If you intend to the distributors or agents, how will you select and motivate them? E.g. for
middlemen, you can use one already used by many competitors, select ones who have a
high reputation. Motivate the middlemen by giving them them high profit margins.
Which geographical areas will your agents cover?

3.7 Distribution strategy

i).

How will you get your products to reach your customers? E.g. through sales
representatives, wholesalers or distributors?
What means of transport will you use e.g road, air, rail etc?
How much will the chosen means of transport cost you per month or for a given period of
time?
What specific distribution problems do you anticipate?
How will you the problems do you anticipate?
How will you solve the problems that anticipate?

ii).
iii).
iv).
v).
vi).

4.0 Organization and Management Plan

4.1 Management team
Need to include the members of the management team for your proposed business e.g. Human
resource manager, managing director, production manager, marketing manager, finance manager
etc.
4.1.1 Describe each of the managers stated above e.g. Managing director (MD)
Duties and responsibilities
Qualifications of the MD. One must have a masters degree and C.P.A (K),
depending on the nature of the business
Experience;. 15 years work experience at a managerial level.
4.1.2 Purchasing Manager
Duties and responsibilities
Qualifications
Experience
4.2 Other Personnel
These include other employees who are not in management team:
Table 7: Other Personnel
Title

No.

Qualification

Accountant

. Com, CPA (K)

Duties
Budgeting, Financial reports
Payment of salaries

Sales rep

K.C.S.E (C)

Distributing products

Dip in Sales and marketing

Security officer

Sales promotion

K.C.S.E atleast
Experienced

Premises Security.

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4.3. Recruitment, training and promotion

4.3.1. Recruitment
Need to describe how managers and other personnel will be recruited;
For management team one can use;
Use poaching.
Advertise
Word of mouth
4.3.2 Training
Induction training will be given to the newly employed staff and also for those who are
promoted
On the job training
Off the job training that include workshops and seminars for the staff.

Explain the purpose of training.

4.4.1 Promotion
Criteria of promoting personnel e.g. promotion on basis of evaluation/merit, after training
and attaining qualification and experience..
4.41 Remuneration and incentives
Indicate firm policy on remuneration e.g to offer attractive salaries to employees so as to
motivate and retain them
Tabled 8: Remuneration and Incentives
Title

No.

Monthly pay

Allowances/Benefits

Total

MD

40,000

20,000

60,000

HR

30,000

15,000

45,000

Marketing manager

25,000

25,000

50,000

Security

5,000

3,000

8,000

4.4.2 Incentives

Bonus
Commission
Lunch
Tea, overtime allowances

4.5 Licenses, permits and by-laws

4.5.1 Licenses
Trading licenses are paid for in order to starting trading
Where are your going to get the license and how much will it cost you? City council
license?
State the purpose of trading licence
4.5.2 Permits
Depending on the nature of the business e.g. milk business will need a permit from Kenya Dairy
Board, for Beer from Kenya Liqour Licencing Board, school from Ministry odf Education or
District Education Board.

4.5.2 By-Laws
The business will need to comply with the by-laws issued by: county council, municipal council
or city council.
Give reasons why your business needs to comply with the by-laws.

4.6 Support Services

The business will require support services to enable it carry out its operations effectively. These
services will include;4.6.1 Banking Services
The Bank to open an account and the branch
Type of account
Purpose of account
4.6.2 Insurance Services
Firm which will insure your Business
Indicate what you want to insure against
How much is it likely to cost you?
4.6.3 Consulting Services
Depending on the nature of business , for a school yu need advice from teachers/lectures
Indicate who will be your consultant and the kind of advice expected.

4.6.3 Legal Services

Legal services will be required when writing contracts, drafting legal letters, interpreting
labour laws and employment.
Indicate the legal firm and the lawyer(s)
Indicate the registered office

4.63. Consulting services

Depending on the nature of business, for a school you need advice from teachers/
lectures
Indicate who will be your consultant and the kind of advice expected

4.6.3. Legal services

Legal services will be required when writing contracts, drafting legal letters,
interpreting labour laws and employment ,
Indicate the legal firm and the lawyer(s)
Indicate the registered office
5.0. Production/Operation Plan
5.1 Production facilities and capacity
Types of facilities required
List all equipment, machinery, and show the cost of each
List any other facility required to set up the business and show the cost
Explain your plans for repairs and maintenance of the machinery
Show your factory/office layout
Levels of production (maximum and minimum)
Explain expansion and future plans of the office/factory
Table 9-:Production, facilities and capacity
Item
Quantity
Cost
Office
2 rooms
40,000
Store
2 rooms
20,000
Pick-up
1
200,000
Electricity
3 phase
30,000
Pangas
5
2,000

Capacity
5 office personnel
1 ton of tools/removable equipment
CC1800
1000 kw
5persons

5.1.1 Firm layout

Draw a firm's layout
5.2. Production strategy
ft means the methods used to produce the product
Describe production development from idea to saleable product or service
Indicate the cost that you will incur when developing your new product
What kind of method(s) will you use?
What changes do you anticipate in technology and how will you cope with them?
Describe your material requirements, who will be your main supplier?
What alternative sources are available?
Describe the skills required for efficient production both for direct and indirect workers
Describe the monthly production cost for the products and services
What will be the total production cost in a month?
PURCHASING AND STOCK CONTROL METHODS TO USE

5.3.
production process
SHOW STAGES IN PRODUCING THE PRODUCT OR SERVICES
PRODUCTION MATERIALS INVOLVED IN PRODUCTION PROCESS
WHAT EXTERNAL FACTORS ARE LIKELY TO AFFECT THE PRODUCTION PROCESS
HOW WILL YOU MINIMIZE THE EFFECTS OF EXTERNAL FACTORS
INDICATE FACTORS THAT AFFECT PRODUCTION PROCESS
5.4.

production affecting operation

5.4.1.
health regulations
THE REQUIREMENTS OF THE PUBLIC HEALTH WILL BE ADHERED TO IN HANDLING ALL THE
COMPANY'S PRODUCTS
REGULAR ADVICE THAT WOULD BE SOUGHT FROM THE GOVERNMENT DEPARTMENTS
5.4.2.

safety

NECESSARY MEASURES THAT YOU WOULD TAKE OR BE FOLLOWED TO GUARD AGAINST PHYSICAL INJURIES OF THE
WORKERS E.G. USE OF THE MASK, boots, JACKETS, HELMET ETC

5.4.3.

environmental regulations

ENVIRONMENTAL CONCERNS ARE ONE OF THE MAJOR EMERGING ISSUES IN THE RUNNING OF ANY BUSINESS. TODAY
ENVIRONMENTAL LEGISLATION SET BY THE GOVERNMENT WILL BE ADHERED. REGULAR AUDITS SHOULD BE DONE
TO CHECK THE AVAILABILITY AND THEIR EFFICIENCY. ARE THERE MEASURES TO CONSERVE THE ENVIRONMENT?
FOR INSTANCE, WHAT ENVIRONMENTAL CONCERNS WILL BE HANDLED BY PLANTING TREES?

6.0. FINANCIAL PLAN

THE MAIN REASON OF PREPARING A BUSINESS PLAN IS TO RECEIVE FUNDS. THE FINANCIAL PLAN COMPRISES
ANALYZING FINANCIAL REQUIREMENTS OR BUSINESS AND DEVELOPING FINANCIAL PLANS.

objectives of financial plan

I) MAINTAIN A HEALTHY LIQUIDITY POSITION THROUGHOUT THE TRADING PERIOD.
II) MAINTAIN RETURN ON OWNERS EQUITY FOR EXAMPLE AT 25 PERCENTAGE
III) REALIZE A STEADY GROWTH ON INCOME THROUGHOUT THE PERIOD
IV) MAINTAIN AND CONTROL EXPENSES
V) MAINTAIN AN EFFECTIVE ACCOUNTING SYSTEM

Financial Assumptions
I) THE EXPENSES ARE EXPECTED TO RISE BY FOR EXAMPLE 5 PERCENTAGE AS BUSINESS OPERATIONS EXPAND ,
II) CREDITORS ARE TO BE INCREASED BY A CERTAIN PERCENTAGE PER YEAR

III) DEBTORS ARE TO INCREASE BY A CERTAIN PERCENTAGE PER YEAR

IV) NET PROFIT IS EXPECTED TO INCREASE by A CERTAIN PERCENTAGE PER ANNUM
V) NET PROFIT REALIZED WOULD BE PLOUGHED BACK TO THE BUSINESS SO AS TO EXPAND THE BUSINESS

6.1.
PRE-operational costs
PRE-OPERATIONAL MEANS THE COST INCURRED BEFORE THE START OF THE BUSINESS
ITEMS
RESEARCH/TRAVELING
DESIGNING
LICENSES
ADVERTISEMENT
RECRUITMENT
PROFESSIONAL FEE
INSTALLATION
RENT DEPOSIT
UTILITY BILLS
Total amount
6.2.

COST
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

Pro-forma Balance Sheet

A BALANCE SHEET IS A FINANCIAL STATEMENT THAT SHOWS THE FINANCIAL POSITION OF THE BUSINESS FOR A
CERTAIN PERIOD OF TIME (USUALLY ONE YEAR)

Balance sheet As At 31 December 2011

Assets (fixed)
BUILDING AT COST
XXXX
LAND
XXXX
MOTOR VEHICLE
XXXX
LESS DEPRECIATION (XXXX)
FURNITURE & FITTINGS XXXX
LESS DEPRECIATION (XXXX)
XXXX
Current assets
STOCK
XXXX '
CASH AT BANK XXXX
CASH AT HAND XXXX
DEBTORS
XXXX
PAYMENTS
XXXX
XXXX
Less Current liabilities
CREDITORS
XXXX
CENTALS
XXXX

SANK OVERDRAFT
Working capital
Financed by:
OPENING capital
ADD NET PROFIT
LESS DRAWINGS
CLOSSING CAPITAL
LOANS

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

6.3.
Working capital
Working capital is the current assets- current liabilities
i.e. WC=CA-CL
Current Assets
Cash at hand
XXXX
Cash at bank
XXXX
Debtors
XXXX
Stock
XXXX
XXXX
Less Current Liabilities
Creditors
XXXX
Bank overdraft
XXXX
Accruals
XXXX
XXXX
Working Capital
XXXX
6.4.
Cash flow projection
It is the financial statement that shows cash in and cash out of the business. Transactions that
generate cash in a business include: Sales, payments from debtors, discount received, rent
received, loan received.
Transactions that may reduce cash in a business include:
Purchases, salaries/wages, rent payments, payments to creditors, standing orders,
discount allowed etc

6.4.1. Cash flow projections for the year 2012

Receipts
Jan
Feb
March...........................................Dec
Loan 50,000

Sales
Debtors
Discount received

Payments
Purchases
Salaries/wages
Creditors
Discount allowed

Cash flow
Balance b/d
Balance c/d
6.5.

25,000
25,000

30,000
20,000
5,000
105.000

70,000
20,000
5,000
95,000

80,000
35,000
4,000
119,000

30,000
10,000
30,000
10,000
80,000

40,000
10,000
30,000
10.000
90.000

45,000
15,000
34,000
LMQ
102,000

5,000
25,000
30,000

17,000
30,000
47,000

Pro-forma income Statement (Trading, Profit and Loss Account)

Item
Sales
Cost of sales
Gross profit c/d

Year 1
XXXX
XXXX
XXXX

Year2
XXXX
XXXX
XXXX

Year 3
XXXX
XXXX
XXXX

Gross profit b/d

Add any income
Expenses
Salaries & wages
Rent
Water
Telephone
Postage
Transport
Total expenses

XXXX

XXXX

XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

Net profit before

Tax
XXXX
Taxation (%)
(XXXX)
Net profit after
Tax
XXXX .

XXXX
(XXXX)

XXXX
(XXXX)

XXXX

XXXX

6.6.
Break Even Analysis
Break even analysis is where the total revenue is equal to the total costs. The firm is earning
normal profit or zero profit. If total revenue > total costs, the firm makes abnormal profits or
supernormal profit. If total revenue < total costs the firm will make losses. Break even analysis
is also known as Cost Volume Analysis.
Assumption of break even point analysis
1. Fixed cost will remain constant. It means that the fixed cost does not change as the output
changes
2. Cost and revenue behave in a linear fashion or linear manner. It means if output increases
then revenues will increase proportionally
3. That, the only factor affecting cost and revenue is volume (turnover) 4. Technology, production methods and efficiency does not change
5. For graphical methods the analysis relates to one product or to a constant product mix
6. The closing stock is valued at marginal cost only
Usefulness of break even point analysis
As a management tool, it has the following benefits
i) Helps to find specific level of output
ii) Shows behaviour trend of cost and sales
iii) Information can be used to make proper decisions
iv) The analysis shows the safety level of a particular level of activity. Safety level means
the quantity which it is safer to produce
Limitations to break even point analysis
i) Only done within specific levels of activity
ii) Fixed costs may change at different levels of activity especially in the long run
iii)Variable costs may not give a linear trend
iv)The relevant time factor can affect break even analysis
Formula of break even point (B.E.P)
a) B.E. Pin units

fixed costs

Contribution/unit
b) B.E. Pin value(shs)

fixed cost
x selling price/unit
Contribution/unit

ic) Contribution/sales ratio -

Contribution/unit
Selling price

x 100

d) Number of units for target profits

= fixed costs + target profits
Contribution/unit
e) Sales for target profit

fixed costs + target profits (selling price)

Contribution/unit

A company makes a single product with a price of shs 10 and a marginal cost of shs 6 and the
fixed cost of shs 60,000 p.a. Calculate:
a) Number of units to break even
b) Contribution per sales ratio
c) What number of units would need to be sold in order to achieve a profit of
20,000 p.a?
d) Which level of sales will achieve a profit of 20,000 p.a
Solution:
a) Number of units to break even point (B.E.P) B.E.
Pin (units)
=
Fixed cost
Contribution/units
Contribution = Selling price- marginal/variable cost = 10-6= 4
B.E.P in units = 60,000
= 15,000 units
4
b). Break even point in (Sh) value -

Fixed costs selling price/units

Contribution/unit

60.000 x 10 =
4

c) Contribution per sales ratio =

4 x 100 =40%
10

150,000 (value)

d). Target profits = ' 60.000 + 20,000

=80,000 = 20,000
4
4
e) Sales for target profit = 60.000 + 20,000 x ( 10) = 200,000 value
4
5

Desired financing Item

Item
Pre-operational costs

Amount
XXXX
XXXX
XXXX
XXXX

Working capital
Fixed assets

6.8.
Capitalization
Item
Amount
Owners contribution
XXXX
Borrowed funds
XXXX
Total investment
XXXX
6.9.

Profitability ratios

i) Gross profit ratio

GP x 100
Sales

ii) Net profit ratio

Sales
iii) Return on equity

NP x 100

NP x 100
Owner's equity
Owners equity = (opening capital + net profit) less withdrawing
iv) Asset turnover

v) Quick ratio

vi) Liquidity ratios

=
Sales revenue (total sales)
Assets (CA+FA)
current asset- stock (closing stock)
Current liabilities
Current assets
Current liabilities