South East Asian Institute of Technology, Inc.

Business Administration Management Department

National Highway, Crossing Rubber, Tupi, South Cotabato

LEARNING MODULE FOR

BA 211
ENTREPRENEURSHIP

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COURSE CODE : BA 211
CREDIT UNITS : 3 Units
TITLE : ENTREPRENEURSHIP
TARGET POPULATION : All BSBA Marketing Management Students
INSTRUCTOR : MR. CARLO JOHN F. PANES

Learning objectives:
On completion of this chapter, shall help the students to;
1. Discuss the importance of a business plan;
2. Enumerate the parts of a business plan;
3. Understand the importance of operation management;
4. Determine the financial needs of the proposed business plan

Week 6. Business Planning

Planning the Business to Establish

Planning is the defining of the goals for future organizational performance and
deciding on the tasks and resources needed to attain them. Applied to manufacturing, it
involves planning for (1) the product, (2) the process, (3) the facility location, (4) the
facility layout, and (5) jobs. Facilities are the location and layout.

1. Product planning Involves determining:

a. How the product meets customers’ needs.
b. How long it takes for the product to make and to be marketed, and
c. The total cost to the customer.

2. Process planning deals with determining the specific technologies and

procedures required to produce a product or service. (The broad definition of
product includes service. However, in the discussions in this book, product refers
to the physical object of business, whereas, service refers to the intangible or
non-physical object of business.)

3. Facility location planning deals with the identification of the place where the
manufacturing process will be situated. The criteria that should serve as guide in
facility location planning are:
a. Proximity or nearness to customers
b. Business climate
c. Total costs
d. Transportation facilities (or infrastructure)
e. Quality of labor
f. Supplies
g. Location of company’s other facilities
h. Peace and order condition
i. Government laws, rules, and regulation
j. Environment regulation
k. Hoist community
l. Competitive advantage

4. Facility layout planning involves the placement of departments, workstations,

machines, and inventory storage within the factory. The objective of facility layout
planning is to ensure smooth workflow. The factors to consider in facility layout
planning are:
a. objective or purpose of the system in terms of output and flexibility
b. product and service demands
c. number and volume of operations
d. space availability

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 5. Job planning or Job design is the function of specifying work activities of an
individual or group in an organizational setting. The objective of job planning or
job design is to develop job structures that meet the requirements. The areas to
consider in job planning or job design are:
a. Task to be done
b. Qualification of worker
c. Physical location
d. Working time
e. Reason for hiring
f. Performance measurement
g. Motivation
h. Training

What is Business Plan

The Business Plan is a document that helps the small business owners determine
what resources are needed to achieve the objectives of the firm, and provide a standard
against which to evaluate results.

The business plan is a sort of a business blueprint and keeps the entrepreneur on the
right track. It gives a sense of purpose to the business. It also provides guidance,
influence, and leadership, as well as communicating ideas about goals and the means of
achieving them to partners, associates, employees, and others.

Purpose of a Business Plan

A business plan is written for two main purposes. They are the following:

1. To serve as management’s guide during the lifetime of the business; and

2. To fulfill the requirement for securing lenders and investors.

The plan as a Guide

In the course of writing a business plan, the small business operator (SBO) is
afforded sufficient time to consider all factors relevant to operating the business. Through
analysis of the environment and derivation of what can be expected to happen, decisions
about various aspects of business operations can be considered in advance

A Tool for Securing Funds

When the SBO needs initial or additional funding for his business venture, the
business plan is a handy means for convincing lenders and investors. In many cases, the
business plan indicates that the proponent SBO is fully aware of what he is getting into.
Lenders will be more comfortable to see various documents that indicate the barrower
can repay the loan. Such documentation takes the form of financial projection which are
usually included in the business plan.

The business plan will serve as means of providing some assurance that the investor
will place his funds in a worthwhile investment.

Revising the Plan

A business plan is prepared in consideration of the current and expected situations.

In the process of implementing the plan, however, the expected development or changes
in the environment may not happen fully or even partially.

Parts of Business Plan

The following of the business plan will depend upon the purpose. Usually, however,
they contain the following:

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 1. Title page and contents;
2. Executive summary;
3. Description of the business;
4. Description of the product or service;
5. Market strategies;
6. Analysis of the competition
7. Operation of the management;
8. Analysis of the competition;
9. Financial data; and
10. Supporting documents

• Title Page and contents

The business plan must be easily identifiable through a cover page with a listing of
the following:

1. The name of the business;

2. The name/s of the proponents (in this case, the SBO)
3. Addresses;
4. Telephone number;
5. Email and website address;
6. The date; and
7. The name of the person wo prepared the business plan

The next page should provide a table of contents so the readers can easily find the
information they need.

• Executive Summary

The executive summary is a portion of the business plan that summarizes the plan
and states the objectives of the business. If the SBO is intending to barrow money or is
seeking capital from investors, the following must be indicated:

1. The capital needs of the business;

2. How the money will be used;
3. What benefits will be derived by the business from the loan or investment; and
4. In case of loan, how it will be repaid with interest, and in the case of outside
investment, how profits will be generated.

The executive summary is prepared after the business plan is written.

• Description of the Business

This particular portion of the business plan is very useful to the SBO, as well as
prospective investors and lenders.

This is divided into two parts:

1. A short explanation of the industry; and
2. A description of the business.

In describing the industry, it is important to present the current situation and the
outlook for the future. Information must be provided regarding the various markets within
the industry, as well as new products or developments that could affect the business. The
sources of information must be indicated.

Statement about the following will be useful in describing the business:

1. The industry sector where the business falls into (retail, manufacturing, education,
entertainment, and others);
2. Whether the business is new or established;
3. The ownership status of the business (sole proprietorship, partnership, and
corporation);
4. Information on who the customers are;

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 5. Information on the size of the market; and information on how the product or
service is distributed.

• Description of the Product or Service

The product or service must be described clearly in the plan. To achieve this, the
following must be presented:

1. The important features of the product or service, such as the maintenance free
feature of the product, or the home delivery service for products ordered through
the phone.
2. A detailed description of how the product is used.
3. What makes the product or service different from others available in the market.
Examples are the availability of the product or service 24 hours a day, or the
water-based feature of the product insect repellant.

The objective of the product or service description is to show that the firm has a
competitive edge over the others. If the business plan is able to show that the edge,
lenders and investors may just respond favorably. It is very important to explain that the
business will be profitable. Factors that will make the business successful must be
describe. Some of these positive factors that are worth describing are:

1. Superior organization of the business;

2. Latest equipment that are currently used by the company;
3. Superior location of the company;
4. Fair price of the product or service; and
5. Superior customer service offered by the company.

• Market Strategies

Market strategies refer to what the SBO plans to do to achieve the market objective of
the firm. These strategies are formulated after undertaking market research.

Market strategies consist of the following:

1. Definition of the market;
2. Determination of the market share;
3. Positioning strategy;
4. Pricing strategy;
5. Distribution strategy; and
6. Promotion strategy.

Definition of the Market. The objective of the market definition is to determine which part
of the total potential market will be served by the firm. Hence, the market must be defined
in terms of size, demographics, structure, growth prospects, trends, and sales potential.
To determine the total potential market, the total aggregate sales of the competitors must
be presented in figure 8.1.

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 SALES

Company
50,000 units
A

Company
B 65,000 units

Company 80,000 units

C

Other
Companies 10,000 units

________________________ _______________

THE MARKET FOR 205,000 Units

PRODUCT X

Figure 8.1 The Market for Product X

Determination of the market share. The business plan will be more useful to the
reader, especially lenders and investors, if the projected market share of the firm is
presented.

To determine the firm’s market share, the following steps may be used:
1. To determine the number of prospects in the target market;
2. Determine the number of times the product or service is purchased by the target
market;
3. Figure out the potential annual purchase; and
4. Determine the percentage of the potential annual purchase that the firm can attain
(table 8.1.)

Number of prospects in the target market 1,000 Families

Frequency of purchase per year (average) 48 time
Total number of purchases per year 48,000
Average payment per purchase ₱1,000
Projected total industry sales per year ₱48,000,000
Percentage the firm can attain 15%
THE FIRM'S MARKET SHARE ₱7,200,000
Table 8.1 Determining the Firm’s Market Share (an example)

Positioning Strategy. Positioning refers to how the firm differentiates its product
or service from those of the company competitors and serving a niche.

Positioning strategy is one where the firms identifies a target market segment and
develops a strategy mix to address the desires of that segment. The objective of
positioning is to establish the firm’s product or service identify in the mind of the buyer.

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 Before adopting a positioning strategy, the following questions must first be
considered:

1. What does the customer really want to buy from the firm? A part from product
quality, the answer could vary from the fast and efficient service to clean and
friendly environment, to good reputation, and the like.
2. How is the product or service different from the competitors? A product or service
may be different from competition in terms of quality, maintenance requirements,
number of uses, ease of operation, among others.
3. What makes the product or service unique? The firm’s product or service may be
unique in may ways. It may only be the one that is delivered free to the customer’s
house, or it may be the only product that provides a trade-in option to the
customer.

Pricing strategy. How the firm prices its product or service is a very important
component of the business plan. If the firm wants to achieve its objectives, the right price
for its product or service must be maintained. In determining the right place, the following
factors must be considered:

1. Customer’s perception of value in the firm’s kind of business:

2. Costs involved such as, overhead, storage, financing, production, and
distribution; and
3. Profit objectives of the firm.

The firm’s price may be established through any of the following methods:

1. Cost plus pricing- covers all costs, variable and fixed, plus an extra increment to
deliver profit.
2. Demand pricing- is a method of pricing where the firm set prices based on buyer
desires. The range acceptable to the target market is determined.
3. Competitive pricing- calls for price-setting on the basis of prices charged by
competitors.
4. Markup pricing- is a form of cost-oriented pricing in which the firm sets prices by
adding per unit merchandise costs, operating expenses and desired profit.

Each of the various methods of pricing has corresponding strengths and

weaknesses. In a given situation, one pricing method could be the most effective.

Distribution strategy. Distribution refers to the process of moving goods and

services from the firm to the buyers. The distribution channel that will be adopted must
provide a strategic advantage to the firm.

Common distribution channels are the following:

1. Direct sales- is the most effective channel if the plant is to move goods directly to
the ultimate users.
2. Original equipment manufacturer sales- involves selling a manufactured product
to another manufacture who, in turn, incorporates the same to his product and
which is later sold as a finished product to the end user. An example is the sound
system incorporated into cars.
3. Manufacturer’s representative- are wholesalers employed by one or several
producers and paid on commission according to quality sold.
4. Wholesalers- are channel members that sell to retailers or other agents for further
distribution through the channel until they reach the final users.
5. Brokers- are distributors who buy directly from distributors or wholesalers and sell
to retailers or end users.
6. Retailers- sell directly to consumers.
7. Direct mails- are printed materials used in a targeted campaign to consumers.
These are sent directly to consumers. This includes catalogs, letters, e-mail, and
other direct appeal.

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 • Promotion Strategy

How the company’s products or services will be promoted is an important

component of the marketing strategy. The promotion strategy must include the
following:

1. Advertising Aspects:
a. Advertising budget;
b. Positioning message; and
c. First year’s media schedule.
2. Packaging- describes how the company’s products will be packaged.
3. Public Relation- will be a detailed presentation of the publicity strategy of the firm.
This will include a list of media that will be tapped to convey the firm’s message
to the target market. The schedule of special events like product launching will
also be included.
4. Sales Promotion- are means used to support the sales message like special
sales, coupons, contest, premium awards, trade-in, among others.
5. Personal sales- present the sales strategy including:
a. Pricing procedures;
b. Rules on returns and adjustments;
c. Methods of sales presentation;
d. Generation of leads;
e. Policies on consumer services;
f. Compensation of salesmen; and
g. Responsibilities of the salesmen.

• Operations and Management

How the firm will be operated on a continuing basis is an important component of

the business plan. As such, plan must contain the following:

1. Organizational structure;
2. Operating expense;
3. Capital requirement; and
4. Cost of goods sold.

❖ Organizational Structure. A well-defined and realistic organizational

structure is an important element of the business plan. Investors and
lending institutions will be interested to look at this particular aspect.
Generally, they will be concerned how the firm is organized along the
following concerns:

1. Marketing (including sales, customer relations and services);

2. Production (including quality assurance)
3. Management; and
4. Human resources.

❖ Operating Expenses. Projections of operating expenses are important

aspects in the preparation of a business plan. This is a prerequisite in
projecting financial statements. Lenders and investors are especially
interested in scrutinizing such statements.

❖ Capital Requirement. Capital requirement are necessary items in

operating businesses. The business plan will not be complete unless a
listing equipment needed to be purchased is drawn up.

Equipment needs vary from business to business. Manufacturing firms

will need more elaborate types of equipment. Service businesses usually
require less equipment. A firm engaged in transporting elementary and
high school students, for example, will need buses or jeepneys only.

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 ❖ Cost of Goods Sold. Businesses which carry inventories like those
engaged in manufacturing and trading must provide a list showing cost of
goods. The cost of goods of trading firms consists of products purchased
for resale, while the cost of goods of manufacturing firms refer to the total
expenses incurred in manufacturing the products that are intended to be
sold.

These expenses include the following:

1. Material;
2. Labor; and
3. Overhead.

In both types of business, all merchandise sold are indicated as cost of goods,
and those that are not sold are categorized as inventory.

Financial Data

Financiers are the most interested in the financial aspects of the business plan.
To satisfy this requirement, the following statements must be presented in the business
plan.
1. Income statement;
2. Balance sheet; and
3. Cash flow statement.

• Income statement. The income statement shows the income, expenses, and
profits of a firm over a period of time. It is also alternatively called “statement of
earnings”. It may cover a certain year, quarter, or month. It provides basic data to
help the prospective financier analyze the reasons for the projected profits.

• Balance Sheet. The balance sheet is a type of financial statement that shows the
financial condition of the business as of a given date. The information provided by
this statement is useful not only to the entrepreneur but also to the prospective
creditors. A security of the balance sheet will give the owner some clues if
modifications are needed in some of the item listed.

A summary of financial information about the business is contained in the balance sheet
and are broken down into three areas, namely:
1. Assets;
2. Liabilities; and
3. Owner’s equity.

These three areas are already discussed on your previous subject course which is
accounting 111.

• Cash Flow Statement. Is also a very useful tool for business planners. It projects
what the business plan means in terms of pesos. It is used for operational
planning estimates the amount of cash inflows and outflows of the business
during a specific period of time. A proper balance between the cash inflows and
outflows will result to profits.

The following items are listed in a cash flow statement:

1. Cash- is the cash on hand in the firm.

2. Cash sales- are income from sales paid for by cash.
3. Receivables- are income collected from credit sales.
4. Other incomes- are income derived from investments, interest on money loaned
to barrowers, and on cash derived from sale of assets.
5. Total Income- is the sum of each cash, cash sales, receivable, and other income.
6. Material or Merchandise refers to:
a. Raw materials used in the manufacture of the product; or
b. The cash outplay for merchandise inventory of trading firms; or
c. The supplies used in the performance of a service.

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 7. Direct labor- refers to labor required to manufacture product or perform a service.
8. Overhead- refers to all fixed and variable expenses required in the day-to-day
operations of the business.
9. Marketing expenses- refers to all salaries, commissions, and other direct costs
associated with the marketing and sales departments.
10. R and D expenses- are labor expenses required to support the research and
development efforts of the firm.
11. G and A expenses- refers to those required to support the general and
administrative functions of the firm.
12. Taxes- refers to all taxes, except payroll withholding taxes, paid to the government,
national and local.
13. Capital- represents the fund requirements to obtain any equipment needed to
generate income.
14. Loan Payments- refers to total payments made to reduce or eliminate any
long-term debts.
15. Total expenses- refers to the sum of materials, direct labors, overhead, marketing
expense, R and D, G and A, tax capital, and loan payment.
16. Cash flow- refers to the difference between total income and total expenses.
17. Cumulative cash flow- refers to the difference between current cash flow and cash
flow from the previous period.

The cash flow must be carefully analyzed and a short summary must be presented in
the business plan.

End of eight week

-------------------------------------------Nothing Follows-------------------------------------

References:
Banastao, C. & Frias, S., (2010), Entrepreneurship, KATHA Publishing Co., Inc
Medina, R. (2014), Entrepreneurship and Small Business Management, Third edition,
Rex Book Store.

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