DEVELOPING A BUSINESS PLAN

Planning in plain and simple language is thinking ahead. In business, it is thinking ahead of
objectives, strategies, financing, production, marketing, profit prospects, and growth possibilities.

However, business planning should be realistic. This means planning is based on available resources,
and is responsive to the needs of the community. Otherwise, planning is no different from dreaming.
Not a few business and government projects fail because their objectives do not match their resources.

BUSINESS PLANNING EXPLAINED

What to do
Planning is how to do it
When to do it
What to expect in the future

Business planning involves the attainment of goals, and the way to accomplish such goals. A
time frame is needed in attaining the goals. Supposing you want to put up a poultry project. How do you
do it? Do you have the funds? Do you also have the skills and interests? Assuming there are problems in
money, skills, and interests, when are you going to start the project?

Starting the business is not the end of business planning, Ultimately, it is the consumer
satisfaction that requires planning. This should be properly planned because consumer satisfaction
means stability and growth. In financial language, consumer satisfaction is profit. Thus, business
planning is a continuous process until consumer satisfaction is maximized and sustained.

PRINCIPLES OF PLANNING

Here are the basic principles of planning which have general application, particularly from micro
and small business.

Planning must be realistic. It must be based on available resources - human, financial, and
physical resources. If these are not enough, then it would be impossible to implement the project
successfully. Any planning which is not supported by adequate resources is likely to fail.

Planning must be based on felt needs. The objectives of the entrepreneur should fit the needs
of the people in the community. Such needs can be known through observations, personal interviews,
and questionnaires.

Planning must be flexible. Resources, needs, and economic conditions change. Planning should
be adjusted to such changes to be effective and relevant. For instance, fundamental changes in
government policies requires changes in planning and the affected aspects of the business. Likewise,
planning should be responsive to the trends in consumer tastes and preferences.

Planning must start with simple projects. In the Philippines, many people are poor and have no
business experience. The most appropriate project for them is the micro business. This requires very
simple management and technology. It also needs simple and a few resources in terms of funds,
materials, and equipment. Such simple business enterprise has a greater possibility of success. More
importantly, it provides a good training experience for operating a business. Later, the operator can
engage in bigger business projects as he acquires more resources and management experience.

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STAGES OF BUSINESS PLANNING

Professor Philip Kotler, author of Marketing Management, said that there are four stages of
business planning. Businesses which have passed these stages are on their way to sophisticated
planning. Many enterprises are classified in each of these stages.

1. Unplanned Stage – At the start of the business, the owner-manager is busy looking for funds,
customers, materials, and equipment, His entire attentions is devoted to the daily operations of
his business in his intense desire to survive.
2. Budgeting -System Stage – eventually, the owner manager realizes the need to develop and use
a budgeting system. Estimated income from sales and expected expenditures are made. This is
done to facilitate the orderly functions of the growing enterprise.
3. Annual Planning Stage – The owner-manager drafts an annual plan. He can use either top-down
planning or bottom-up planning. In the top-down approach, the owner-manager provides the
goals and the employees comply with them. On the other hand, in the bottom-up approach,
employees are encouraged to participate in planning the goals and strategies of the enterprise.
4. Strategic Planning Stage – As the business enterprise becomes bigger, a long-range planning is
needed. This is a three or five-year plan. Such plan has flexibility to be able to adjust to0
changing conditions. An executive of the Xerox Corporation claims that some of their plans are
being revised every day of the year. At this stage, planning develops into a more strategic
character.

CRITERIA OF EFFECTIVE PLANNING

1. The plan should state clearly its objectives. Such clear statement is necessary so that those who
will be involved in the execution of the plan will understand, believe, and support it.
2. The plan should provide measures for a satisfactory accomplishment of the objectives in terms
of quantity, quality, time and cost. These help in delegating responsibility and measuring
results.
3. The plan should indicate what department or unit is involved in accomplishing the objectives.
It may or may not spell out the procedures for performing the required work.
4. The plan should indicate the times which should be allowed for each activity. It may be
necessary to establish the target date for completing the activity.
5. The plan should specify the required resources and their corresponding costs.
6. The plan should designate the officers who will be held accountable for the accomplishment of
the objectives. Sufficient authority should be delegated to such officers / executives.

COMPONENTS OF BUSINESS PLANNING

1. SWOT - The chances of a product or service can be evaluated through the SWOT analyses. Every
product has its own strength, weakness, opportunity, and threat. Planning should include the
improvement of the product/service to survive competition.
2. Objectives. These should be specific and realistic. Such objectives can be daily, weekly, monthly,
and yearly. For example, 10 percent sales after 6 months of operations. Environmental factors
should be considered in formulating business objectives. Peace and order, power supply, and
government policies affect business transactions.
3. Strategies. These are ways of accomplishing the objectives. Such ways are stated in the
financial, production, marketing, and organizational plans of the enterprise. For instance, the
objective of increasing sales by 10 percent after 6 months of operations. One way to attain it is
to advertise the product. Another is to improve customer relations. It can be also done by
reducing the selling price, or a combination of the three ways.
4. Time Frame. In business, time is gold. For this reason, an entrepreneur must be efficient in time
management. Every activity has its own time schedule. Activities which are completed on time
leads to more profit.

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CHARACTERISTICS OF A SOUND BUSINESS PLAN

1. Objective
2. Clear
3. Logical and simple
4. Flexible
5. Stable
6. Complete and integrated

OBTAINING THE FACTS FOR A BUSINESS PLAN

Facts about the prospective business can be obtained from research surveys, government
agencies, accountants, bankers and lawyers. Here are the questionnaires to get the necessary data:

1. What is unique about my product or service?

2. Who are my competitors?
3. How will my customers buy my product or services?
4. What is my share in the market?
5. What is the market potential?
6. Who are my customers and where are they located?
7. When will I put up my business?
8. How big should be my plant or my place of business be?
9. What equipment will I need and what size?
10. How will I create customers?
11. What personnel do I need?
12. How will I organize my enterprise?
13. What kind of records do I need?
14. How much capital do I need?
15. How profitable will the business be?
16. How financially healthy will I be?
17. What is my break-even point?

OUTLINE OF A BUSINES PLAN

 Cover Sheet: Name of business, names of principals, addresses and phone numbers
 Business Goals
 Strategies
 Table of Contents

Section 1: The Business

A. Description of Business
B. Product or Service
C. Market
D. Location of Business
E. Competition
F. Management
G. Personnel
H. Summary

Section 2: Financial Date

A. Sources and Applications of Funding

B. Capital Equipment List
C. Balance Sheet
D. Break-even Analysis

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 E. Income Projections (Profit and Loss Statement)
a. Five-Year Summary
b. Detail by month for first tear
c. Detail by quarter for second, third, fourth, and fifth year
d. Notes of explanation
F. Cash Flow Projection
a. Detail by moth for the first year
b. Detail by quarter for second, third, fourth, and fifth year
c. Notes of explanation
G. Deviation Analysis
H. Historical Financial Reports for Existing Business
a. Balance Sheets for past five years
b. Income statements for past five years
c. Tax Returns

Section 3: Supporting Documents

Personal resumes, personal balance sheets, cost of living budget, credit reports, letters of
reference, job descriptions, letters of intent, copies of leases, contracts, legal documents, and anything
else relevant to the plan.

STEPS IN BUSINESS PLANNING

1. Evaluate your personal resources and interests, and the resources of the community.
 Do you have the necessary funds?
 Do you have the skills or management experience?
 Does the government provide financial and technical assistance?
 Are raw materials available?
 Are you interested in such business?
 Do you have good human relations?

2. Analyze your market.

 Is there a good demand for your product or service?
 How many competitors are there in the market?
 What is your estimated share in the market?
 Who are your customers?
 Are they interested in the existing product or service?
 Is it possible for you to offer a better quality or a lower price?
 Is there a reasonable profit?

3. Choose a proper business location.

 Is it near your prospective customers?
 Are there facilities like electricity, water, transportation, and communication?
 Is the place clean, decent, and peaceful?
 Do you have good alternatives in case the best location is expensive?
 Is it accessible to raw materials and other supplies?

4. Prepare a financial plan.

 How much money do you need?
 How will you spend the money?
 Where will you get the money?
 What are your expenses?
 How soon can you recover your money or investment?

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 5. Prepare a production plan
 Is it more economical to rent or buy a production equipment?
 Can you ensure or improve your product design or quality?
 Can your production facilities meet your demand?
 Do you have inventory control?
 Do you have proper scheduling of production?

6. Prepare an organizational plan

 What type of business organization is most suitable?
 Do you know the corresponding laws, policies, and requirements of your organization?
 Are you aware of the advantages and disadvantages of each type of business organization?
 Who will be the officers and employees of your enterprise?
 What are their duties and responsibilities?

7. Prepare a manage plan.

 What are your goals and objectives?
 What are your strategies?
 Do you have business policies for your customers?
 Do you have human resources development for your employees?
 What is your program for social responsibility?

THE IMPORTANCE OF BUSINESS PLANNING

Putting up a business is not a game of chance. It is not a win or loss activity. However,
there are always risks in business. Some of these can be avoided. Others cannot be avoided like natural
calamities, but their effects can be minimized.

Planning can eliminate business risks because it carefully studies that competence,
interest, and resources of the entrepreneur against the needs of consumers, together with the presence
of competitors. Through marketing research or feasibility study, the entrepreneur can determine
whether it is profitable to set up a certain kind of business or not.

Planning can minimize cost of production. The resources of production such as money,
materials, machines, and manpower are properly used as scheduled according to the plan. Planning can
detect the weakness of the business operations. In the planning goals and objectives are formulated,
Alternative strategies are designed on how to attain the objectives and goals. The various resources or
inputs are also indicated to support the strategies. If the goals and objectives have not been
accomplished according to time frame, there is something wrong with the operation.

Planning can detect the weaknesses of the business operations. In planning, goals and
objectives are formulated. Alternative strategies are designed on how to attain the objectives and goals.
The various resources or inputs are also indicated to support the strategies. If the goals and objectives
gave not been accomplished according to time frame, there is something wrong with the operation. The
entrepreneur can then reevaluate his planning.

Successful planning is highly dependent on adequate and accurate information. This

is much needed in knowing the needs of consumers, and the strength and weaknesses of competitors.
Such data give the entrepreneur the ability to make the right goals and effective strategies. In addition,
any entrepreneur who follows the principles of planning is most likely to succeed in his business.

Review Questions:

1. What are the possible effects if there is no business planning?

2. What are the principles of planning? Explain one.
3. Differentiate top-down planning from bottom-up planning. Which is better?
4. Explain one criterion for effective planning?
5. Give an example of a business objective and its strategy to attain such objective.
6. Explain the role of accurate information in business planning.