BUSINESS PLANNING

General Guidelines in Preparing the Business Plan

Business plan should use simple direct language. It is advisable to place all paragraph “topic
sentences” at the beginning of each paragraph. All major headings should be clear and followed by
“topic paragraphs” which highlight the key points of the section.

All business plans should, however, address the following major areas and contain the following
elements:

 Introductory contents
 Business description
 Development & production description
 Market analysis
 Organization and management
 Financial documents
 Appendix

1. Introductory Contents

The cover page, executive summary, and table of contents will determine what kind of first
impression one makes on readers. In many cases, the introductory elements, especially the
executive summary, will influence whether readers read the rest of the plan at all.

1.1. The Cover

The cover of the document is often the “First Impression” of a business for any interested parties or
investors. The purpose of a cover is to tell the reader what the document is about. Your cover
should say the words “Business Plan,” and should include:

1. Name and business name

2. Company logo
3. Address
4. Telephone number
5. Fax number
6. E-mail address
7. Other contact information

1.2. Executive Summary

The executive summary is what most readers will read first. This section tells your reader
where your company is and where you want to take it. Lenders in particular read executive
summaries before looking at the rest of a plan to deterring whether or not they want to learn
more about a business. An executive summary may also be used singularly to attract
potential curiosity in your company and can be “followed up” with a complete plan if
investors are interested. The executive summary is the first part of your plan, but it should be
written last.

PREPARED BY:- FIREHUN A. 1

Contents of the Executive Summary

 The Mission Statement

 Date on which business began
 Names of founders and the functions they perform
 Number of employees
 Location of business and any branches or subsidiaries
 Description of plant or facilities
 Products manufactured/services rendered
 Banking relationship and information regarding current investors
 Summary of company growth including financial or market highlights
 Summary of management’s future plans

1.3. Table of Contents

To assist the reader in locating specific sections in your business plan, include a table of contents
directly following the Executive Summary. Make sure that the content titles are very broad. In other
words, avoid detailed descriptions in your table of contents. All pages of your business plan should
be correctly numbered and the table of contents should include page numbers. Be sure to list
headings for the major sections as well as for important subsections. Thumb tabs for the documents
headings are a nice feature and indicate a professional document.

2. Business Description

The business description is the “Business Vision”, and includes: who the company is, what it will
offer, what market needs it will address, and why the idea will work. A business without vision is a
business that will not know what it is doing! The description should include:

a. An overview of the industry the business will be in.

b. A description of the company
c. The company’s positioning.
d. Descriptions of the company’s products or services.
e. The company’s pricing strategy.
2.1. The Industry Overview

Begin the business description with a brief overview of the field the company will be competing in.
this is not a discussion of your competition. One is providing an overview of the industry where it
and other companies like it will vie. Describe trends in the industry, some history and projections.
Do not rely on “best guesses,” but use actual industry data from trade associations, government
reports and trade journals to support the descriptions. Do not just report the positive side of the
industry, include the negative too!
2.2. The Company Description

Begin with your mission statement-a one or two sentence description of the purpose of the business
and to whom the product or service is targeted. It is vital that an entrepreneur knows what business
he is in. Not being clear in the mission statement indicates that one is not clear about the purpose of
one’s company. It can also indicate that a business is not prepared for the market. When the
railroads failed to recognize that they were in the transportation industry, and not the “train”
business, they lost out to trucking and airlines for market share. A businessperson should pay very

PREPARED BY:- FIREHUN A. 2

close attention to this statement, as all else hinges on it. If during the building of the rest of the plan
one discovers that the plan is into correlating to the mission statement, then the mission statement or
the plan must be modified.

Describe the Business

Give a brief history and include information like whether it is a corporation, a retail, or service
business. Be complete as to ownership status, location of operations and other pertinent
information.

When discussed the company’s principals, one doesn’t need to provide a complete resume it can be
included in another section. You can, however, point out interesting qualities of the principals.

2.3. Positioning

Position is your place in the marketplace. How the customers and your competitors perceive your
company’s product or service refers to its position. This is based on your customers and
competitors, not your product or enterprise alone. It is the relationship to customers and competitors
that is emphasized. A business does not have to be the leader or potential leader to be profitable; it
does, however, need to know where it stands or will stand in the industry. This understanding of
positioning will aid in the promotion of the company.

2.4. The Company’s Products or Services

Describe each of the products or services. Go into as much detail as necessary for the reader to get
an understanding for what the enterprise will be. Make it interesting. It is important to point out
how your particular enterprise is different from other similar businesses. Just saying, “it is better” is
not enough. You must tell how it is better. Every business claims to be “high quality, better service.
“While a business must have quality and good service, it is no real selling point since the consumer
is bombarded with that claim at every turn. One cannot bore a reader into buying their proposal!
One must convince them about their product or service. If it cannot be done here, it won’t be done
in the market place when the business starts.

2.5. Pricing

Describe what the charge for the product or service is, and how one calculates the price. Once the
pricing rationale is explained, discuss where this pricing strategy places the company in the
spectrum of the other providers of this product or service. Also, explain how the price will affect
getting the product or service accepted. Tell also how price will affect the companies’ market share.
It is not necessary to assume that lower pricing increases market share. Sometimes higher prices, as
with prestige items, may have the effect of increasing the product’s market share. Remember that
lower prices require higher volume to achieve the same sales totals. A slightly higher price may not
affect the total number of sales but may greatly influence gross profits.

3. Development and Production

In this section, describe the current state of the company’s product or service and the plan for
completing the development. This is also where one familiarizes the reader with how their product

PREPARED BY:- FIREHUN A. 3

 is created or services sold. New processes must be contrasted to the old ways, with emphasis on
effectiveness and efficiency. Under this section the following points should be indicated:
i. Development Status: Describe the current status of the company’s product or service and
what remains to be done to make it ready to be marketed.
ii. Production Process: An investor will only provide money for a business he or she
understands, so explain the stages of production from the inception or the idea to when it
can be sold.
iii. Cost of Development: Present and explain a design and development budget. This budget
should include the cost of the design of a prototype as well as the expense to take it into
production. Testing and evaluation expenses should also be included. Be sure to include
labor, materials, consulting fees, and the cost of professionals such as patent attorneys.
iv. Labor Requirements: Address how many people are required and what skills they need
to possess. Be sure to cover the important issues such as labor pool, recruitment,
training, cost of labor, and future labor pool. Training and evaluation of employees, and
having enough support personnel to accomplish the mission of business must be planned
for.
v. Expenses and Capital Requirements: One must also create at least three financial forms
that will build a foundation for the financial section of your plan: operating expenses,
capital requirements, and cost of goods.
4. Market Analysis: The Market Analysis section should illustrate your knowledge about the
particular industry your business is in.

This section should include:

a. An industry description and outlook:- include: a description of your primary industry, the
current size of the industry as well as its historic growth rate, trends and characteristics
related to the industry as a whole (i.e. what life cycle stage is the industry in? what is its
projected growth rate, etc.), as well as the major customer groups within the industry (i.e.,
businesses, governments, consumers, etc).
b. Target market information:- In this section, you should gather information which identifies
the: Distinguishing characteristics of the major/primary market you are targeting, Size of the
primary target market, The extent to which you feel you will be able to gain market share
and the reasons why, Your pricing and gross margin targets, Resources for finding
information related to your target market, Media you will use to reach your target audience,
Purchasing cycle of your potential customer, Trends and potential changes, which may
impact your primary target market and Key characteristics of your secondary markets
c. Market test results:- include: the potential customers who were contacted; any information
or demonstrations that were given to prospective customer; how important it is to satisfy the
target market’s needs; and the target market’s desire to purchase your business’s products or
services at varying prices
d. Lead times:- Lead-time is the amount of time between when a customer places an order and
when the product or service is actually delivered. When you are researching this information,
you need to determine what your lead-time will be for the initial order, for recorders, and for
volume purchases
e. An evaluation of your competitors:- you need to identify your competition by product line
or service as well as by market segment, assess their strengths and weaknesses, determine
how important your target market is to your competitors, and identify any barriers which
may hinder you as you are entering the market
Regulatory Restrictions

PREPARED BY:- FIREHUN A. 4

The final area that you should look at as you’re analyzing market is regulatory restrictions. This
would include information related to current customer or governmental regulatory requirements as
well as to any changes that may be upcoming with regards to regulatory requirements. Specific
details that you need to find out include: the methods for meeting any of the requirements which
will affect your business, the timing involved (i.e. how long do you have to comply, when do the
requirements go into effect, etc.), and the costs involved.

5. Organization and Managements

This section should include: your company’s organizational structure, details about the ownership
of your company, profiles of your management team and the qualifications of your boards of
directors.

 Who does what in your business?

 What is their background and why are you bringing them into the business as board members or
employees?
 What are they responsible for?
 Reassure your reader that the people you have on staff are more than just names on a
letterhead.
A. Organizational Structure
B. Ownership Information
 Names of owners
 Percentage ownership
 Extent of involvement
 Forms of ownership (i.e. common stock, preferred stock, general partner, limited partner)
 Outstanding equity equivalents (i.e. options, warrants, convertible debt)
 Common stock (i.e., authorized or issued).
C. Management profiles

Name
Position (include brief position description along with primary duties)
Primary responsibilities and authority
Education
Unique experience and skills
Prior employment
Special skills
Past track record
Industry recognition
Community involvement
Number of years with company
Compensation basis and levels (make sure these are reasonable – not too high or too low)

D. Board of Directors’ Qualifications

If you have a board of directors, be sure to gather the following information when developing the
outline for your business plan:
 Names
 Positions on the board
 Extent of involvement with company

PREPARED BY:- FIREHUN A. 5

 Background
 Historical and future contribution to the company’s success
E. Support Services
Strong support services, including consultants, attorneys, accountants, advertising agencies, as well
as industry-specific services also help to indicate other’s faith in the business.
6. Financial Documents:- If one is writing a plan for investors, be sure to include the
following sections:

i. Risks
ii. Cash Flow Statement
iii. Balance Sheet
iv. Income Statement
v. Funding Request and Return

7. The Appendix

The appendix would include:

a) Credit history (personal and business)

b) Resumes of key managers
c) Product pictures
d) Letters of reference
e) Details of market studies
f) Relevant magazine article or book references
g) Licenses, permits, or patents
h) Legal documents
i) Copies of leases
j) Building permits
k) Contracts
l) List of business consultants, including attorney and accountant

PREPARED BY:- FIREHUN A. 6