Chapter 8 – DRAFTING AND FINALIZATION OF BUSINESS PLAN

THE NEED FOR A BUSINESS PLAN

The business plan is prepared using a scientific approach in determining possible business
situations considering the different perspectives of people who are interested in the business.
The business plan is actually the roadmap of the new business. It is the roadmap of the
entrepreneur. It is the only single written document that must be prepared before opening a
new business or expanding an existing business. It provides a clear direction to any uncertain
business endeavor.

Business plan is defined as a detailed and integrated written document that describes the
various activities involved in opening and operating a new entrepreneurial venture.

MAJOR PARTS OF THE BUSINESS PLAN

The following are the major parts of the business plan:

1. Introduction
2. Executive Summary
3. Environmental Analysis
4. Business Description
5. Organizational Plan
6. Production Plan
7. Operation Plan
8. Marketing Plan
9. Financial Plan
10. Appendix

INTRODUCTION

The introduction presents the general perspective of the business. It may consist of one to two
pages. It includes, among others, the following sections:
1. Proposed name of the business
2. Address of the business
3. Name of the owner or owners
4. Description of the business
5. Location of the business
6. Funding requirement and source
Proposed Name of the Business

The formulation and drafting of the proposed business name are not as simple as it sounds. It is
a delicate and important entrepreneurial task. Remember that the name of the business may
exist in the market for many years. Careful and in-depth planning is of prime importance.

The proposed business name must:

1. Reflect the business identity and image
2. Promote the philosophical values and culture that the business values the most
3. Profess the brand identity of the product
4. Attract or influence the target consumers

At least three suggested trade names must be submitted to the Department of Trade and
Industry for approval and registration.

Address of the Business

It is important that the address of the business is correctly written because all business
correspondences are mailed to the business address. Raw materials and other manufacturing
supplies are also shipped by the seller to the designated business address.

Name of the Owner

The name of the owner must be properly stated. In a sole proprietorship, there is only one
owner. In case the venture is a partnership, the names of the partners, including the extent of
their liabilities, must be indicated. For example, if a partner’s contribution takes the form of a
service, a description like industrial partner or limited partner must be properly mentioned.

For business ventures that will operate as a corporate entity, the names, nationalities and
address of the incorporation must be given. Incorporators are persons who originally formed
the corporation.

Description of the Business

A brief description of the business must include information about the type of product or
service that the business intends to produce or provide. It may include a brief information
about the ultimate mission, vision, and objectives of the business. The other products or
services that the organization or entity plans to produce or provide must also be mentioned in
the description of the business.
Location of the Business

There are no rigid rules in the selection of the business location since several variables affect
the selection of the business location. The basic entrepreneurial consideration is to place the
proposed business in a strategic location that will assure competitive advantage.

What is the difference between the sections Address of the Business and Location of the
Business?

The Address of the Business simply states the exact business address. No additional description
is provided to highlight the exact business address. The Location of the Business indicates the
reason or reasons for the selection of the location. In case the processing plant Is not within the
vicinity of the business, its exact location must also be described.

The following factors should be considered when deciding on the location of the proposed
business:
1. Proximity to the largest consumers
2. Distance from the sources of raw materials, labor and utilities
3. Availability and cost of transportation
4. Peace and order situation
5. Presence of direct competitors
6. The geographic and climatic condition

Funding Requirement and Source

The estimated total initial cost of the business venture must be clearly indicated. It should
include the projected breakdown or allocation of the total cost, example, how much will be for
building, fixtures, equipment, supplies, and working capital. This section also presents the
source or sources of funds. The initial cost of the investment may be provided solely by the
owner or owners or partly by the owner and creditors. The estimated period to settle the
funding source provided by creditors must also be mentioned.

EXECUTIVE SUMMARY, ENVIRONMENT ANALYSIS, AND BUSINESS DESCRIPTION

EXECUTIVE SUMMARY

Although the executive summary is commonly the last section to be written after all other
major parts have been completed, it is the next major part of the business plan after the
introduction. It points out the overall highlights of the business plan as well as a bird’s-eye view
of the section. However, the executive summary must not, in any manner, provide a summary
of the different major sections of the business plan. It must be written in simple language that
can be easily understood and at the same time attract the attention and influence the decision
of the reader.
Investors, creditors and other significant parties usually proceed to the details of the business
plan once they find the executive summary interesting, convincing, and worthy of further
reading. Although there is no standard format as to its sections and contents, the executive
summary must include the following sections:
1. Vision, mission, goals and objectives of the business
2. Business model
3. Business and product position
4. Wealth improvement approaches
5. Parties supporting the business

Vision, Mission, Goals and Objectives

At the very outset, the business plan must depict the fundamental characteristics, nature,
philosophical values, identity, and image of the business. These important concerns are
embodied in the Vision, Mission, Goals, and Objectives (VMGO) of the business. The VMGO
must be clearly stated and easily understood. They must be reviewed and revisited at least
every 3 years to determine whether they are still reasonable and achievable in view of the rapid
changes in the business community.

Business Model

Below is a sample business model.

BUSINESS MODEL

Partner Key Offer Customer Customer

Network Activities Relationship Segments

Key Distribution
Resources Channels

Cost Structure Revenue Statements

The business model defines the perspective of the business in terms of its structure,
production, operation, and financial activities that will lead to the achievement of the VMGO.
There is no standard model that will exactly fit all types of businesses because they have
different strengths and weaknesses, infrastructures, networks, and value propositions. The
business model must basically reflect certain innovations that will indicate the competitiveness
of the business in the industry. It must define how the business gives importance to its relations
with customers, creditors, suppliers and internal human resources.

Business and Product Position

The business and product position will help determine how the business defines its course and
the process of accumulating wealth. It tells the size of the market and the target market share
of the business and product. The business and product position must be able to convince the
readers that the proposed business has a competitive advantage in the market.

Wealth Improvement Approaches

This section of the executive summary describes the methodologies or approaches that will be
taken by the business in order to:
1. Maintain a competitive advantage
2. Position the business in the market
3. Improve the market share
4. Maximize the utilization of resources

This section also includes a brief discussion of the marketing policies and financial operations of
the business, and the profitability level of the industry and of the business. Standard
benchmarks are good indicators in assessing the economic performance of the business.

Parties Supporting the Business

The last section of the executive summary is a description of the parties that strongly support
the business. The parties that have a direct relationship with the business are as follows:
1. Consumers
2. Creditors
3. Suppliers
4. Employees and staff

Relevant information about individuals and parties that support the business is important since
the proposed business may conduct transactions with them later.

The executive summary must cover at least three pages but must not go beyond five pages. An
executive summary that is either too short or too long may discourage the reader to continue
reading.

ENVIRONMENTAL ANALYSIS

The next major part or section of the business plan after the executive summary is the
environmental analysis. It is a strategic tool that helps determine the external and internal
factors affecting the performance of the business. These factors may be political, economic,
social, or technological in nature. The environmental analysis may consist of at least 20 pages
including the graphical representation, tables, and computations. The environmental analysis
section is considered the heart of the business plan.

Since the business that you intend to open in this entrepreneurial course is considered small in
terms of capitalization, the industry analysis will focus mainly on the consumers and
competitors. The presence of the consumers, after all, is the ultimate reason for the existence
of any business endeavor.

In today’s competitive business environment, an environmental analysis is already a necessity.

It is perceived as the basic element for business survival. It may consist of global analysis,
society analysis, and industry analysis.

Global Analysis

The environmental analysis section may begin with a description of the global business
situation to provide enough knowledge about the global perspective or horizon of the business.
A common mistake in this section is describing a business entity that operates in the global
environment because a global analysis evaluates the business trend in the worldwide market.
As a future entrepreneur, you should not devote the whole section of the global analysis by
simply describing the business trends, for example, in the whole Asian region, in European
communities, or even in mainland USA. Remember that it is not the business trend that has the
most significant bearing on the global analysis but rather the possible business opportunities or
ideas that the global business trend offers.

The trend in the global market is the result of what happened in the past, while a possible
business idea is the expected event that may happen in the future. Investors are more
interested in what will happen in the future. The global trend simply acts as an indicator of any
favorable sign for a business idea.

Societal Analysis

After describing and possibly convincing the reader of the bright business prospect in the world
market, the next step is to present the societal analysis and determine the different variables
affecting the societal environment. These variables include:
1. Political forces
2. Economic forces
3. Socioeconomic forces
4. Technological forces
5. Ecological forces
6. Legal forces

Most business plans fail to mention the probable levels of effects of the various forces to the
proposed business, and the frequency of occurrence of the environmental factors. They simply
describe the different variables or forces. A mere description of the various environmental
factors does not provide any brilliant idea to the reader. The societal analysis must tell how the
environmental forces affect the proposed business and how great their effects are.

Industry Analysis

The third level of environmental analysis is the industry analysis. The industry analysis basically
involves three important related tasks as follows:
1. Conducting a critical evaluation of the forces in the industry that affect the proposed
business.
2. Evaluating the probable position of the business in the industry.
3. Determining the most appropriate strategy that may be adopted by the proposed
business.

Conducting a Critical Evaluation

Conducting a critical evaluation is the most delicate, tedious, and difficult task in industry
analysis. There are some business plans that do not even show any indications that a critical
analysis has been conducted, but rather, the evaluation appears to be a mere play of words.
The industry analysis in all instances must not fail to evaluate and describe the target
consumers and the competitors. Data and information on these two important forces in the
industry are usually the results of research work. Research work on the target consumers
applies the concepts of market segmentation, market targeting, and market positioning to
determine the total demand of the industry. Research work on the competitors identifies the
total expected supply. The gap between the consumer demand and the competitor supply
represents the unsatisfied demand.

The unsatisfied demand may be considered the market share of the proposed business under
the following conditions:
1. The proposed business has the capability to produce the product.
2. There are no expected new entrants to the industry other than the proposed business.

The industry analysis needs substantial work in the process of establishing the projected
demand and supply. The demand and supply analysis, also called the consumer and
competitor analysis, is the backbone or the foundation of all other analyses. Where there are
no consumers or buyers of the product, the business will never be created. The presence of the
consumers is the ultimate reason for the existence of any business endeavor.

Evaluating the Business Position

After conducting a critical analysis of the factors in the industry environment that primarily
affect the proposed business, the next step is to evaluate the possible business position in the
industry. This deals with market share and growth. Entrepreneurs may use a perceptual map,
also called positioning map, to help them understand their position against their competitors in
the market. It shows how the consumers respond to their products and services.
Determining the Most Appropriate Business Strategy

The last important task in the industry analysis is to describe the most appropriate strategy that
may be adopted by the business. The strategy is highly influenced by the analysis of the
business strengths, weaknesses, opportunities, and threats. The reason for the selection of the
strategy must likewise be clearly indicated.

BUSINESS DESCRIPTION

The business description section presents the nature and form of the business to be
undertaken, and may cover two to three pages. As to nature, the business may be a
merchandising, service, manufacturing, or a hybrid. The description must include the innovative
features of the business. As to form, it may either be a sole proprietorship, partnership, or
corporation. The reason/s for the selection of the form must also be indicated.

In case the study is about an already existing business, the present status of the business must
be provided, including the intended innovation.

In addition, the business description also includes the following information:

1. Product or service that it plans to produce or serve
2. Various plant and office equipment
3. Size of the proposed business
4. Future parties with whom contracts may be necessary
5. Personnel requirement
6. Administrative operation

ORGANIZATION PLAN, PRODUCTION PLAN, AND OPERATION PLAN

ORGANIZATION PLAN

The organization plan provides a detailed description of the business in terms of the following:
1. Form of the business organization
2. Liability of the owner or owners
3. Organizational structure
4. Roles and responsibilities
5. Salary requirements

Form of the Business Organization

A business organization can come in the form of a sole proprietorship, partnership, or

corporation. There must be a purpose for the selection of the most appropriate business form.
In other words, the mere statement, “The OPQ Manufacturing shall be in the form of sole
proprietorship,” is an incomplete description of the business organization.
The factors affecting the selection of the most appropriate business form include the following:
1. Capital requirement
2. Liability of the owner or owners
3. Management and supervisory skills
4. Tax implications
5. Government intervention
6. Nature of the business
7. External financing requirement

Liability of the Owner or Owners

The section describes the extent of the owner’s financial obligations with creditors. The
creditors can be in the form of individual persons, suppliers of raw materials and supplies, or
financial institutions. The extent of financial liability can either be limited or unlimited.

The term limited liability means that in the case of business dissolution and there still remains
unsettled financial obligation of the business, the creditor cannot go after the personal property
of the business owner. The liability of the owner is only up to the extent of his or her financial
contributions to the business. On the other hand, the term unlimited liability means that the
creditors can run after the personal property of the owner in the event that the business fails to
fully settle its financial obligation during business dissolution.

The extent of liability of the owners in a sole proprietorship and partnership is usually
unlimited. In a corporate form of business organization, the shareholders have limited liability.
They are only liable to the extent of their investments in the corporation. The investment of the
shareholders is represented through ownership of shares or stocks.

Organizational Structure

The organizational structure of the business is usually shown or reflected in the organizational
chart. It shows and defines the hierarchy of the different positions in the organization and the
interrelationships of the different offices or departments. The organizational chart depicts the
flow of communication within the organization, and the line and staff authority that must be
observed and executed.

A corporation has the most complicated organizational structure, since most corporations are
composed of a huge workforce and also if the corporation operates across the different parts of
the Philippines. On the other hand, a small business, like the business that you intend to open,
has a very simple organizational structure – the owner acts as the president or general manager
and, at the same time, the head of the production and marketing operations.
The entrepreneur prepares the structure that best fits the organization and hires the most
qualified people to do the tasks.

Roles and Responsibilities

The role and responsibilities of the various position in the business organization must be clearly
defined in order to minimize and avoid misunderstanding and overlapping of functions. The
educational requirements and experiences required of the workers must also be specified.
Complete information about the expectations of a particular job or position facilitates
evaluation and hiring of qualified personnel and the assessment of performance of existing
workforce. Furthermore, a clear set of selection criteria for every position in the organization
eases the hiring process and assures the organization that only qualified personnel are hired. It
will be better if the entrepreneur prepares early a list of positions together with the respective
job specifications.

Salary Requirements

The organizational plan must show the total estimated monthly and annual salary requirements
of the business. All other mandatory benefits like the employer’s contributions to the Social
Security System (SSS), Pag-ibig, and Philhealth must likewise be specified.

PRODUCTION PLAN

The production plan presents or describes activities related to the production of goods. The
production plan is the result of the industry analysis, particularly the study of supply and
demand and consumer behavior.

The production plan usually includes the following:

1. Production schedule
2. Production process
3. Processing plant and equipment
4. Sources of materials
5. Production cost

This section basically applies to manufacturing entities. For service entities, this section must be
modified and labeled as Service Provision Plan.

Production Schedule

The production schedule presents the total number of goods to be produced and the expected
time to produce them. The total number of units to produce, however, is usually affected by
the following factors:
 1. Demand for the product
2. Availability of resources
3. Capacity of the plant

The primary factor that influences the number of goods to be produced is market demand. The
entrepreneur must produce goods based on the total demand of the consumers. The second
consideration is timing. Producing the goods exactly at the time when the consumers need
them is an excellent production practice.

Production Process

The different processes or stages involved in the production of goods must be clearly spelled
out in this section, as well as the description of the following:
1. Exact processing procedure
2. Materials, parts, or ingredients required
3. Expected time to process the product

Processing Plant and Equipment

This section of the production plan describes the manufacturing plant, the machinery and
equipment, and the various tools to be used in the production of goods, including their
respective estimated costs. It also talks about the location of the processing plant and the
reason for the selection of the site. In most instances the layout of the processing plant and the
factory building is illustrated. The general perspective presents the general view of the
manufacturing plant.

In the selection of the machinery and other equipment, the entrepreneur must consider the
following factors:
1. Capacity of the plant or machinery
2. Model of the machinery or equipment
3. Availability of spare parts
4. Cost and terms of payment

Sources of Materials

The possible sources of raw materials and manufacturing supplies must be described in terms
of the following:
1. Proximity of the source to the processing plant
2. Payment terms and conditions
3. Discounts and damages
4. Terms of shipment

The quality of raw materials plays a very significant role in the production of quality products.
That is why most businesses get their materials from reliable and reputable suppliers. Some
businesses assign certain personnel to check and assure the quality of deliveries. Such practice
poses as an additional expense to the business. It is, nevertheless, a safety measure especially
when the suppliers are relatively new or less known by the entrepreneur.

The terms of shipment, including the freight, discounts, and mode of payment, have a direct
hearing on the cash position of the business. The entrepreneur must find trustworthy suppliers
and maintain good relationship with them.

Production Cost

This section of the plan must show the estimated cost of production. The three elements of
cost, namely, labor, direct materials, and factory overhead must be properly described and
accounted for. In the event that the final product involves the use of several direct or indirect
materials, all the materials used in the production of goods must be properly listed and
provided with the cost. The total cost of the proposed product may serve as the basis in setting
its selling price, which must not be lower than its production cost.

OPERATION PLAN

The operation plan is a major section of the business plan that outlines the various activities,
from the acquisition of raw materials to the delivery of the products to the target consumers.
The operation plan commonly covers the following areas:
1. Evaluation of suppliers
2. Materials requisition and receiving procedures
3. Storage and inventory control system
4. Shipment system and control
5. Functions of support services

Evaluation of Suppliers

The new basic entrepreneurial concept of quality management is that control starts from the
suppliers of raw materials. It used to be a common practice that a business starts to implement
its control system upon receipt of the materials. The suppliers of raw materials must practice
total quality management to minimize or avoid defects or damages in the supplies.

Materials Requisition and Receiving Procedures

The procedures in requisitioning raw materials and other manufacturing supplies and receiving
them must be explained in the operation plan. The person assigned to conduct inspection upon
receipt of the materials must also be included.

This section covers the following areas:

 1. Basis of receiving the raw materials
2. Companies of the order and receipt
3. Quality of materials received

The basis of the receiving report is the purchase order of the business. It must be signed by
authorized personnel. After the inspection, the person receiving the materials usually prepares
the receiving report.

Storage and Inventory Control System

The operation plan describes how the business stores the finished goods and products its
inventory against possible theft and losses. Goods that have been completed in the processing
plant are transferred to the warehouse or storeroom.

This section deals with the following:

1. Owning or renting a warehouse
2. Management of the warehouse
3. Procedures in the transfer of goods
4. Control of inventory in the warehouse

Under the just-in-time manufacturing system, also known as JIT production system, storage and
warehousing are eliminated because only actual orders are produced at the exact required
time.

Shipment System and Control

The basis of sales invoice and other shipment documents are the purchase order received from
the customers. The sales contract and shipping documents must be properly approved before
the product is shipped to the customers.

This section covers the following:

1. Approval of shipping and sales documents
2. Terms of shipment
3. Manner of shipping the product
4. Other terms and conditions like sales contract

The proper operation plan on the shipment of goods must be clearly defined. It would be too
costly on the part of the business to lose millions of pesos on shipment. For example, who owns
the products in transit that cost ten million pesos? In transit means that the product is no
longer in the custody of the seller, but the buyer has not yet received it. In situation like this
where the shipment terms have not been clearly defined, problems will definitely arise.
Normally, the seller will opt to collect the amount from the buyer since the goods have already
been shipped, but the buyer may refuse to pay because he or she has not yet received the
goods.
Functions of Support Services

The operation plan defines and describes the functions of other support services relative to the
acquisition, processing, and shipment of goods to the consumers. It also includes the important
role of other support services such as the maintenance personnel and the security officers and
staff.

Most businesses consist of three or four functional areas as follows:

1. Finance
2. Marketing
3. Operation
4. Human resources

MARKETING PLAN AND FINANCIAL PLAN

MARKETING PLAN

The marketing plan details how the proposed business will sell its product to the target
consumers. It may consist of some or all of the following important sections:
1. Product
2. Place
3. Price
4. Promotion
5. People
6. Packaging
7. Positioning

Basically, the business plan describes the factors of the marketing mix in its various sections,
such as product and people in the business description section, place or location in the
introduction, and positioning in the environmental analysis section.

FINANCIAL PLAN

The last major section of the business plan is the financial plan. It accumulates and describes all
the data expressed in monetary units from the other sections of the business plan. For
example, the amount of salaries that appears in the projected statement of comprehensive
income comes from the organization plan, and the cost of machineries and equipment that
appears in the noncurrent asset section of the projected statement of financial position comes
from the production plan.
The financial plan simply collates and describes the various sets of information derived from the
other sections of the business plan. It is composed of the following important areas:
1. Major assumptions
2. Projected statement of comprehensive income
3. Projected statement of cash flows
4. Projected statement of changes in equity
5. Projected statement of financial position
6. Financial statement analysis

Major Assumption

The financial statements in the business plan are not actual but rather projected, thus,
requiring some major assumptions based on reliable data or information.

BUSINESS PLAN OUTLINE

The following is an outline of the business plan and its various sections.
a. Title Page
b. Table of Contents
c. List of Tables
d. List of Figures
e. List of Appendices
f. Introduction
1. Proposed name of the business
2. Address of the business
3. Name of the owner or owners
4. Description of the business
5. Location of the business
6. Funding requirements and sources
g. Executive Summary
1. Vision, mission, goals and objectives of the business
2. Business model
3. Business and product positions
4. Wealth improvement approaches
5. Parties supporting the business
h. Environmental Analysis
1. Global analysis
2. Social analysis
3. Political forces
4. Economic forces
5. Socioeconomic forces
6. Technological forces
 7. Ecological forces
8. Legal forces
9. Industry analysis
10. Customers
11. Competitors
12. Creditors
13. Suppliers
14. Government
15. Shareholders
16. Employees
17. Trade associations
18. Market forecast
19. Market share
20. Market position
21. Market strategy
i. Business Description
1. Nature of the organization
2. Product or service that it plans to produce or serve
3. Various plant and office equipment
4. Size of the proposed business
5. Future parties with whom contracts may be necessary
6. Personnel requirements
7. Administrative operation
j. Organizational Plan
1. Form of business organization
2. Liability of the owner or owners
3. Organizational structure
4. Roles and responsibilities
5. Salary requirements
k. Production Plan
1. Production schedule
2. Production process
3. Processing plant and equipment
4. Sources of materials
5. Production cost
l. Operation Plan
1. Evaluation of supplier
2. Materials requisition and receiving procedures
3. Storage and inventory control system
4. Shipment system and control
5. Functions of support services
m. Marketing Plan
1. Product
2. Place
 3. Price
4. Promotion
5. People
6. Packaging
7. Positioning
n. Financial Plan
1. Major Assumption
2. Projected statement of comprehensive income
3. Projected statement of cash flows
4. Projected statement of changes in equity
5. Projected statement of financial position
6. Financial statement analysis
o. Appendix