ee canetee THE BUSINESS PLAN of problemns that may be felt when the small bu operation may just overwhelm the entrepreneur. If he is g003 enough, cy happen one at a time. Hower ficult for him if problems occur simultaneously. forded by Jems occur, some tf thera require immediate solution, leaving no sufficient time for the entreprenas © ‘The entrepreneur is not entirely hopeless, however. The benefits a! ipusiness planning may help him achieve his objectives. When prob) rly. Effective business planning is used to eliminate this difficulty. This alone justifies engagement in business planning. Planning may be viewed as a systematic approach to achieve certain objectives. {tis an attempt to eliminate mistakes inherent to “on-the-spot” decisions. Planning provides the decision-maker with ample time to consider relevant variables before 2 decision is reached. This is important because the resources required must be identified asearly as possible to preclude shortages arising from procurement difficulties. Planning is useful not only to big business. Small business may also reap the benefits of planning if it is undertaken even on a small scale basis. - What Is a Business Plan ‘The business plan is a document that helps the small business owner determine shat resources are needed to achieve the objectives ofthe firm, and provides a standard against which to evaluate results. The business plan is a sort of a business blueprint and it 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. Purposes of a Business Plan ‘A business plan is written for two main purposes. They are the following: 1. toserve as managements 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 the business plan, the small business operator (SBO) is afforded sufficient time to consider all factors relevant to operating the business. Through analyses of the environment and derivation of what can be expected to happen, decisions about various aspects of business operations can be considered in advance. Scanned with CamScannery ne at a time, the business pja, ee : lished 01 is achieved, p,¥s, s periodic objectives are accomp! inst what wa: eved. Dj. % nee ring what was planned against or making adjustmens a, a useful tool for compai chang ing cies will provide the bases for implementing : business plan. re. The timetable indicated in performing the various spe 4, very useful guide for the management of the firm. Tool for Securing Funds igi i enc ven When the SBO needs initial or additional funding fo thy investors. In man) eae ders and invest my business plan is a handy means for convincing len sflly aware of what he ig pS. i i the business plan indicates that the proponent SBO oF cuments that indicate the 8 into. Lenders will be more comfortable to see various ra form of financial Projection rower can repay the loan. Such documentation takes Which are usually included in the business plan. Sn iss The business plan will serve as a means of providing some assurance that jy, ‘Investor will place his funds in a worthwhile investment. ‘Revising the Plan A business plan is prepared in consideration of the current _ Se tons. In the proces of implementing the pla, however the Se arene changes in the environment may not happen fully or even partially. Tn that case, the business plan or Portions of it may no longer be relevant. When that happens, a revision of the business plan is in order. The implication is that even with a business plan, the SBO must strive to be well informed about what is happening to his business and to the industry where his busi- ness belongs, Necessary steps must be undertaken to adjust to changes. For instance, if the usual source of labor has become unreliable, the corresponding portion of the | business plan must be revised Parts of the Business Plan The contents of the business plan will depend upon the purpose. Usually, how- ever, they contain the following: 1. Title page and contents Executive summary Description of the business The product or service Market strategies Analysis of the competition Operations and management Financial data CPN AH ew Supporting documents 88 Scanned with CamScannerqitle Page and Contents ‘Vhe business plan nv i " lan must be easily de rover pase with a listing othe followings ly Identifiable through a cover page with 1B a, the name of the b, business; the name or names of the Proponents (in this case, the $BO); address; d, telephone number; e, e-mail and website address; f, the date; and the . e per i « name of the person who prepared the business plan. _ The next page should provide a table of contents so the readers can easily find the information they need, ‘The 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 borrow money oris seeking capital from investors, the following must be indicated: 1, the capital needs of the business how the money will be used; what benefits will be derived by the business from the loan or investment; and Ser 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. ashort explanation of the industry; and 2. 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. Statements about the following will be useful in describing the business: 1. the industry sector where the business falls into (examples are retail, manu- facturing, education, entertainment, and others); 89 Scanned with CamScannerlished; : ess (sole proprietorship, partnership, o, whether the business is new or es 3. the ownership status of the busin corporation); 4, information on who the customers are; 5. information on the size of the market; and ae 6. 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: bas the main i e t or service, such as the maintenance. 1. The important features of the product or s Su free feature product, or the home delivery service for products ordered through the phone. 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 product or service description is to show that that firm has a competitive edge over the others. If the business plan is able to show that edge, lend- ers 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 described. Some of these positive factors that are worth describing are: superior organization of the business; the latest equipment that are currently used by the superior location of the company; the fair price of the product or service; and the superior customer service offered by the company. vy the company; Fen a o Market Strategies Market strategies refer to what the SBO plans to do to achi ji , ; eve the mark: - tive of the firm. These strategies are formulated afte pecs fer undertaking market research, Market strategies consist of the following: definition of the market; determination of the market share; positioning strategy; Pricing strategy, distribution strategy; and a7 REN Promotion strategy. Scanned with CamScannerVotinition of the Market, ‘The objective of market definition Is to siteting which ACE OF the total potential market will be served by the firm, Hence, the market anvat be detinedt i torms af sive, demographics, structure, growth prompecta, 4 , anal sates potential, To determine the total potential market, the total aggregate sales job tho eempotitons mast be presonted (gure 21), Determination of the Market Share, The business pl the reader, especially lenders and investors, if the projected market share of the presented, ‘To determine the firm’s market share, the 1. 2 SAL Company —_——> 50,000 units A Company 65,000 units 8 Company 80,000 units c > 10,000 units ‘THE MARKE FOR —_— ( 205,000 units PRODUCT X Figure 21. The Market for Product X lan will be more useful to firm is following steps may be used: determine the number of prospects in the target market; determine the number of times the product ot service is purchased by the target market; figure out the potential annual purchase; and determine the Percentage of the potential annual purchase that the firm can attain (Table 5) * Scanned with CamScannerT Tablo 5 Dotormintng tho Firm's Markot Sharo (an oxampto) Number of Prospeets in the larget market ae families Frequency of purchase por year (average) yi inn Total number of purchases per year Prtnn Average payment per purchase Pasiow Projected total industry sales per year " Percentage the firm can attain ps THEPIRM'S MARKET SHARE 24,000,000 Positioning str ategy, Po Or service ositioning refers to how the firm from those of the Competitors and serving a niche, Positioning Strategy is one where the fi develops TO LMeBY mix to address the desi Honing is to establish the firm’s pro differentiates its produc, im identifies a target market Segment ang) res of that segment. The objective of Posi- duct or service identity in the mind of the buyer, Before ad, 9 Positioning strategy, the following questions must first be Considered: ay apting What does the Custom er really want to buy from the firm? Apart from Prod. Uct quality, the answer could Vary from fast and efficient friendly eny, Service to dean and utation, and the like, N unique? The firm’s Product or Service vays. Itmay only be the One that is delivered freete, Se or it may be the only product that Provides a tradein, mer, Pricing Strategy. How the firm prices its Product oF service ; i Tice is a y Component of the business Plan. If the firm Wants to, achieve its obje ane hear Price for its Product OF service must be Maintained, In determin g ‘actors must be Considereq: mining the 1. the Customer’, the costs the Profit obje tives of the firm, r Scanned with CamScannerThe firm’s price may 1 be es © established through any of the following methods cost plus pricing = this ver! s in cont 3 his method cove Sil _ increment to deliver profit demand pricing - th on buyer desires ased sires, Tk is a method of pricing where the firm sets prices b s. The range acceptable to the target market is determined. competitive pricing ee Pl icing ~ this method of pricing, calls for price-setting 0" the ‘es charged by competitors market pricing - prenge e firm i s a form of cost-oriented pricing in which t Sea eee ee whic desired pa adding per-unit merchandise costs, operating, expenses and Each of the vari nesses. In a given pris 9 methods of pricing has corresponding stengths and weak- ation, one pricing method could be the most effective. Distributi . cbeiberati ee Stategy Distribution refers to the process of moving, goods and e firm to the buyers. The distribution channel that will be adapted must provide a strategic advantage to the firm. Common distribution channels are the following: 1. Direct sales - If the plan is to move goods directly to the ultimate users, this is the most effective channel. Original eqixipment manufacturer sales - This channel involves selling a manufactured product to another manufacturer 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. wholesalers employed by one or Manufacturer's representatives — They are according to quantity sold. several producers and paid on commission ers that sell to retailers or other Wholesalers - These are channel mem ‘e channel until they reach the final agents for further distribution through th users. Brokers~ They are distributors who buy directly from distributors or whole- sgalers and sell to retailers or end users. Retailers - They sell directly to consumers. printed materials used in a targeted campaign to rt directly to consumers. These include catalogs, sct appeals. Direct mail - These are consumers. These are se letters, e-mail, and other dire Scanned with CamScanner1 ! 16 Halon 5 ‘cain bid Hiquipmen! Manifactine? fitlen C PRODUGHR Channel ULTIMArt USER Original fequipnant Manufacturer va Final Product Manufacturer 4. Wholewaley Channet Manufacturor Conww) 5. Broker Channel Mh — Retaller/ End Use Figure 22. Common Distribution Channels 4 Manila, ] Herp een " Marprrenannyyy,, Chinn) [ Mnuiticiiny, | 9 S 2 = 2 e g z Company Consumer Scanned with CamScannerBe notion Strategy How the company’s ant com- spent of the marketing er rod ; et Products or services will be promoted is an im| ing: he following: trategy: Th Ne promot y must include # 1. _ advertising aspects Promotion strategy must inc a, advertising budget b. positioning message c. first year’s media schedule soem a : : 2, _ packaging which describes how the company’s products will be packaged: : ‘ oo 3, Put le fae this will be a detailed presentation of the publicity stratepy the firm’s messa Will include a list of media that will be tapped t0 convey essage to the target market. The schedule of special events like product launching will also be included. 4. _ sales promotions ~ these are means used to support the sales message like special sales, coupons, contests, premium awards, trade-in, among others. 5. oe sales ~ these present the sales strategy including a. ‘pricing procedures b. rules on returns and adjustments c. methods of sales presentations d. generation of leads e. policies on customer services compensation of salesmen, and g. responsibilities of the salesmen. Analysis of the Competition ‘The small business operator (or the entrepreneur) will find it difficult to compete it his competitors are unknown to him. This makes it necessary to make an analysis of the competitors. In competitive analysis, the following must be determined: 1. the strengths and weaknesses of the firm’s competitors; 2. _ strategies that will give the firm a competitive advantage; 3, barriers that can be developed to prevent competitors or would-be compe- titors from exploiting the firm’s market; and 4. any opportunity that can be exploited. The competitors of any business may either be or both direct and/or indirect. A Sirect competitor offers a similar product. For example, Nescafe is a direct competitor i Kopiko Coffee. Both will cater to the same target market. An indirect competitor will tke away sales from a company in an indirect manner. For instance, RC Cola is an indirect competitor of Great Taste Coffee. Scanned with CamScanner= i also be analyzed. Syq) irm’s competitors mus! oan of etaret market the firm must Serve ony is to reach its target market by forging agree. tempt to reach such market by using alternatiy, ip the servi retail stores located within f retail s' ce tl he services of ‘The marketing strategies of bi action will provide cues as to hid For example, if the competitor's str f ments with big malls, the firm may al rm may taj D channels, For instance, the firm may t the ee an wil area where its target market is situated. Of course, ity toi t such. strategy if it has the strength and capacity to implement Fae is i irm ; i it lysis is to determine how the n The aim of competitor analysis i 1 Fe taal of ts sheng a ining i ition, the firm must take st Stre' ition, After determining its position, ust tal fs Ree Posies and craft an appropriate strategy to achieve its business obj < an will benefit fro, signi i i trategy, the entrepreneur n mt In designing an effective business s\ Se using a prepared table of comparative strengths and weaknesses of competing firms, An example is shown in Table 6. Table 6 / A Comparison of the Strengths and Weaknesses of Competing Firms Key Assets and Skills Our Company Competitor A Competitor B Superior product strength weakness strength Good business location weakness strength weakness Strong sales team weakness strength strength Strong financial capacity strength weakness weakness Operations and Management How the firm will be operated on a continui ing basis is an important component of the business plan. As such, the plan must cont ain the following: 1. organizational structure; 2. operating expenses; 3. capital requirements; and 4, cost of goods sold. Organizational Structure the business plan. Investors Particular aspect. Generally, they will b the following concerns: 1. Marketing (including sales, custoy Production (including quality ass Research and dey lopment; Management; and sy Human resources, Scanned with CamScanneroperating Expenses Projections of S Of operating, pusiness plan. This is a aid “penses are important aspects in the preparation of a jnvestors are especially interested ite in projecting financial statements, Lenders and in scrutinizing In determinin 7 ing such statements. 18 Operating ex) saat expe : organizational structure is HE expenses, labor and overhead must be considered. The ; i Pir expenses. Overhead: whee tevin information in the determination of ich may be fixed or variable, includes the following: 1. rent; 2. advertising and sales promotion; supplies; : utilities; packaging and shipping; maintenance and repair; equipment leases; payroll; eS PrXag es payroll taxes and benefits; 10. bad debts; 11. _ professional services; 12, insurance; 13. loan payments; 14. depreciation; and 15. travel. Capital Requirements Capital equipment are necessary items in operating businesses. The business plan will not be complete unless a listing of capital 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. Cost of Goods 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 consist of products purchased for resale, while the cost of goods of manufacturing firms refer to total expenses incurred in manufacturing the products that are intended to be sold. Scanned with CamScannerexpenses include the foll 1. material 2. labor 3. overhead In both types of busines those that are Nol sold are cateporiz Financial Data Financiers satisfy plan: 1 2 3. are most inte this requirement, the the income statement the balance sheet the cash flow statement The Income Statement The income st Period of time, cerlain year, quarte analyze the re statement ‘alement shows ¢ Lis also alternative 880NS forthe proje MI Projected In For the Ye; 4 oF month. It prov lowing: icated as cost of °8,all merchandise sold are indicated ay co das inventory, rested in the financial aspects of the aoe plan, following statements must be presented in the he income, expen: ses, ly called “state DM Food Shop come Statement ‘ment of ides basic data to hel ted profits, Figure 23 is an 0018, ang ty business and profits of a firm earnings.” It may Ip the prospective fi example of a firm’s over 4 cover g Mancier income ‘ar Ending Dec, 31, 2012 Gross Annual Sales P 12,000,000 less: Food Cost 4,800,000 Gross Profit 7,200,000 less: Operating Costs Rent 864,000, Salaries 1,920,000 Utilities, insurance overhead 600,000 Owner salary 2,400,000 Net Profit 5,784,000 P1416, Figure 23, Sample Income Statement =e Scanned with CamScannerne Balance Sheet ‘The balance sheet is th anicial sition of the bus at type of fi condition the busines asofaginer “ financial statement that shows the fin jeuseful not only to the entrepre nate, The information provided by this tater nt A scrutiny Hythe balance sheet will gi neue but also to the prospective cediturs ° give the prospective credilot eof the items listed, owner et soene click if modifications are reected so _Asummary of financial y of Financia gestae are broken d al information about the busine Fin the balance : doa ne business is contained in the bal ets liabilities areas, namely: ie ae 3. owner's equity The Assets. The ass . The assets portion of onder of liquidity, te. assets portion ofthe balance sea the assets of the firm i subdi ded into the following: most liquid to the least liquid. As such, this portion & 1. current assets a. cash—which i . ich includes cash in checking, savings, and short-term invest- ment accounts; b. accounts receiv ts receivable — these refer to income derived trom credit accounts; Js used to manufacture Ngehiory —this inventory - this refers to the inventory of mate a product not yet sold. fixed assets — these are durable assets and will last more than one consist of the following: a. capital and plant this refers to the book value of all capital equi se others sach as land and building, if owned by the firm, less depte- ciation. year. These pment b. investments - these are investment accounts owned by the company that cannot be converted to cash in Jess than a year. s classified as current The Liabilities. The liabilities portion of the balance sheet is include the follow- or long-term. Current liabilities are due in one year or Jess and they ing: red by the business that 1. accounts payable - these refer fo all expenses incur! dare due for payment are purchased on an ‘open account from suppliers an 9. acctued liabilities these refer to operational expenses that Examples are overhiead and salaries. re not yet paid. 3, taxes that are due and payable. Long term liabilities are-due in mom than one onds due and payable over one year: 1. bonds payable - these are b ayable —this-refers to loans used for the purchase of real estate of over one year. year. They include the following: 2. mortgage P’ and is repaid for a period Scanned with CamScanneryproented hy a writen documey whieh | He pays ae ho yy unwe yoad Wyble tan y period wh ayer ane y he Owy Wyn Oe prajucty y Wh the owner Jas in the 1p we tivo rehire lar how pou 8 oan aie Py Me's Kawi, De A the enmpany, Vigon 7A} 00 Wustraiy. Wes 1 uefal mwans ned " N Dalanen shed, Dug Hey, snterprives ela Manasacsuring, Ba vialced Halance hheet Hatemen As of December 41, 2002 Assuls \ Aye Cash ZANGNA Accounts ecelyabhe 4,76 Inventories 2 9) Prepaid Vepences 94397 Not Vined Assets ‘Total Assets Mablitien and Ovmner's Kguity Motes Payable P 497,643 Accounts Payable 47,605 Accrued Sabilities 112,164 Langptermn deb 2, 638,737 ‘Total Liabilities P 3,296,209 Owner's Kquity P 2,087,602 ‘Total Liabilities and Owner's Equity P5,383,8) 1 Figure 24, ‘The Cash Flow Statement The cash flow » jects what the buy ning Sample Balance Sheet italement is also a ‘ines plan means in torn and estimates the amount of cash ji Specified period the business during a Offi, A proper balance between the cash inflows and outflows wil] Feoull Wo profits, The following items are listed ina cash flow statement: 1, Cash which is the cash on hand in the firm, 2 Cash wales which are income from sales Paid for by cash, 3 Receivables which are income collected from credit sales, 4 Other income which are money income derived fro 9 loaned to borrowers m investments, interest on * and on cash derive, d from sale of assets, Scanned with CamScannerSample Cash Flow Statement ae Mikaela Enterprises Tojected Cash Flow Statement 2012 to 2014 (000) 2012 2019 amis Cash sales 5,000 7,000 10,000 Receivables on i.f00 1,500 Other income ‘0 fe 100 Total Income P5280 P1100 Material 700 900 Direct labor 600 700 850 Overhead 900 400 450 Marketing and Sales 250 300 400 Research and Development 100 150 200 General and Administrative 400 400 400 Taxes 55 80 110 Capital 130 150 Loans 50 50. Total expenses P2,901 3,500 Cash flow 5,340 8,300 8,865 17,165 Cumulative cash flow Figure 25, Sample Cash Flow Statement 5. Total income — is the sum of each cash, cash sales, receivable, and other income. 6. Material or merchandise refers to a. raw material used in the manufacture of the product, or b. the cash outlay for merchandise inventory of trading firms, or c. the supplies used in the performance of a service. 7. Direct labor refers to labor required to manufacture a product or perform a service. Overhead — this refers to all fixed and variable expenses required in the day- to-day operations of the business. 5 — these refer to all salaries, commissions, and other 9, Marketing expense d with the marketing and sales departments. direct costs associate’ Scanned with CamScannerq t the research, ang equired to suppor! 10. Rand p expenses ~ are labor expenses required evelopment efforts of the firm. the gone and Gand a expenses ~ refer to those required to suppo . MNistrative functions of the firm. . F ing taxes, paid to the 12. Taxes — refer to all taxes, except payroll withholding taxes, P Boy, ernment, national and local. | . in any equipment ne 13.” Capital — represents the fund requirements to obtain any eq edeg to generate income. luce or eliminate a 14. Loan payments ~ refer to total payments made to red! ny long-term debts, ai ai ; overhead, 15.° Total expenses ~ refer to the sum of materials, ime ber ayia mar. keting expenses, R and D, Gand A, taxes capital, and loan pi i total ex 16, Cash flow —refers to the difference between total income and to Penses, i Vt 17. Cumulative cash flow ~ refers to the difference between current cash flow, and cash flow from the previous period. The cash flow must be carefull ly analyzed and a short summary must be Presenteg in the business plan. Supporting Documents The business plan would be more meaningful if supporting documents are included. The documents usually consist of the following: . 1. the owner's resume; 2. contracts with suppliers; 3. contracts with customers or clients; 4. letters of reference; 5. letters of intent; 6. a copy of the firm's lease; 7 a copy of copyright or patent acquired, if applicable; and 8. tax returns for the past three years, Summary The business plan is a very useful document in managing an entrepreneurship ot small! business. It provides information on how the Owner will undertake the various activities necessary in Operating the business, ‘he plan enumerates the va it relieves the owner of spur-of-the: in operation. Scanned with CamScanner