ENTRPREPRENEURSHIP FOR ENGINEERS HAND OUT 4: BUSINESS PLAN A business plan is a document with contents which analyzes the objectives, opportunities, strategies, activities, key players and outcomes of a business comprehensively. A Business Plan helps you to! decide if you should start your business or not organize your ideas so that you will start and run your business in the best way possible present your bu ess idea to other people e.g. a bank to get a loan for your business, shareholders and investors ete, set objectives and bench marks for evaluation ‘Your business plan can be prepared and updaied at any point in time. It makes your business idea realistic and up-to-date. Besides this: a business plan: Enables an entrepreneur to plan for his business. Enables the entrepreneur to evaluate the feasibility of the business idea and allow him/her to make mistakes on paper, rather than in the market-place. Once completed, will make an entrepreneur feel more confident about his/her ability to set up and operate the venture. Will indicate how much money is needed, what it is needed for, when and for how long it is required. Gives an insight into the business planning process. This process is important to the long- term health of a business due to the fact that businesses are dynamic, as are the commercial and competitive environments in which they operate. Which is well thought-out and carefully prepared is a valuable way to introduée the entrepreneur to different sources of financing, Allows the entrepreneur to conduct an in-depth analysis of the enterprise’s economic capability and viability.ENTRPREPRENEURSHIP FOR ENGINEERS HAND OUT 4: BUSINESS PLAN Abus ess plan is a document with contents which analyzes the objectives, opportunities, strategies, activities, key players and outcomes of a business comprehensively. A Business Plan helps you to! © decide if you should start your business or tot + organize your ideas so that you will start and run your business in the best way possible ‘© present your business idea to other people e.g. a bank to get a loan for your business, shareholders and investors etc. set objectives and bench marks for evaluation, Your business plan can be prepared and updaied at any point in time. It makes your business idea realistic and up-to-date, Besides this, a business plan: 1. Enables an entrepreneur to plan for his business. 2. Enables the entrepreneur to evaluate the feasibility of the business idea and allow him/her to make mistakes on paper, rather than in the market-place. 3. Once completed, will make an entrepreneur feel more confident about his/her ability to set up and operate the venture. . 4, Will indicate how much money is needed, what it is needed for, when and for how long it is required. 5. Gives an insight into the business planning process. This process is important to the long- term health of a business due to the fact that businesses are dynamic, as are the commercial and competitive environments in which they operate. Which is well thought-out and carefully prepared is a valuable way to introduce the entrepreneur to different sources of financing. Allows the entrepreneur to conduct an in-depth analysis of the enterprise's economic capability and viability.10, W 12. Is an excellent too! for self-assessment. It enables entreprencars to assess their strengths and weaknesses. Forces the entrepreneur to formulate objectives in a more realistic manner at an early stage of operation. It is a guide to keep you focused and making progress during the business start up phase. Provides direction in the early days of operation and creates a framework for the entrepreneur to start and grow the business. Creates a measure for evaluating changes in the business industry. Helps the entrepreneur leam how to manage own business more effectively while becoming an expert in the industry and business. PARTS OF A BUSINESS PLAN The Executive Summary ‘The executive summary is a brief description of the business. Its purpose is to explain the fundamentals of the business in a way that informs the reader and to get an investor to want (© know more about the business opportunity. Therefore it has to contain all the vital information about the business, so the contents of the executive summary can include brief information on the following: © The significant products and/or services What makes the business unique or distinctive © The market analysis @ Anoverview of the management team ‘+ The company's strategies for future success The current competition in the market Requested funds and plans for their use + Ifthe business depends largely on technology, a brief overview of the technological capabilities should be included.Vision, Mission, Objectives and Key strategies Vision includes what will the business look like in terms of size, nature and depth of operations in five to ten years to come under ideal conditions. Key components of vision statement include: (i) * name of planned venture (ii) the product/service to be provided the target markets to be served. Mission statement is the description of the planned business. It defines the purpose of the venture, outlines the reason for being in the business and provides some understanding of how the business will be operated. Key components of mission statement include: (what the business will do (ii) ite market focus, niche or particular image (iii) planned location and the geographic market served (iv) the plan for business growth (v) what will distinguish the business from others on a long term basis, Goals/objectives provide yardsticks to measure the ability to achieve the vision using measurable targets that can help to achieve the mission of the business. Usually ‘objectives relate to: return on investment, market position/market share, projected stages of technological development, levels of financial performance, community development, personal and professional development. ‘The key strategies include actions in relation to key business functional areas such as markets, product/services, technology, finance, management and operations.5. Background ‘This includes details of what the company will be if the business is new. For an existing business, a brief history of the company is given. Information can include, an assessment of performance, company formation ~ for example date, location and founder, activities; ownership structure and features that distinguish the company from jts competitors. Business Information This includes: Company Name ii, Location and Telephone/Fax/Internet iii, Type of business and industry iv. Form of Business (sole proprietor, partnership, corporation) Principal product or service line vi Registered patents (copy-right), trademark (trade name/ brand) vii Number and name of owners/partners/shareholders viii. Length of time in business ix. Current and/or projected market share x. Funds invested in the business to date and their source xi, Additional Financing required xii. Total Value or net worth of the business xiii, Name of business advisors (legal counsel, accountant, others) The Industry This includes the industry analysis. An industry is a group of businesses that manufacture, distribute, or sell similar projects ot services. An industry analysis defines the: industry in which the business will operate (e.g., retail, information distribution, financial services) and the future prospects of the industry. Therefore information to be included are:Principal Characteristics-current status of industry-size, seasonal patterns, common costs & profit margins, standards & regulations affecting the _ industry GiMéjor —-Participants-whio = are._—sthey, == the_-—=—market_ share. iii) Industry Trends -growing? stable? what will happen in 5/10 years -any econamic/social technological regulatory trends plus opportunities & threats (iv) Growth potential & factors influencing the industry growth Product/Service Description ‘This is the description of the features and benefits of the product or service that will be sold and how the product will be used. It includes: (i) The produet's/service's unique features and value added features for example, characteristics such as functionality, design, styles, and colors. (ii) ‘The benefits of these features. (iii) Key success factors and how to exploit them (vi) How the product/service is positioned against the competition, what are the differences. (vil) ‘The history of the product/service in the marketplace. Market Analysis This involves: (Defining the market in terms of size, structure, growth prospects, trends and sales potentialGi) [dentification of the primary target market and customer segments addresses: - Potential customers in terms of who are they and their characteristics ic., age, gender, income, lifestyle, family status, interests, hobbies. “The buying criteria of the target market - i.e. what motivates this group to make the purchases can be included Competition Analysi This involves: (i) Description of competitors: Identification of main competitors, naming the companies and their trade marks, their size and locations, their annual sales and their market share, and how their products/services compare with yours in price, quality and other respects. Gi) Explanation of the relative strengths and weaknesses: Assessing the strengths and weaknesses of the competition in areas such as management, business image, marketing, distribution networks, technology, production capability, financial resources and cost/price advantages. Marketing Plan This includes information: about thé product, place/location, pricing and promotion and key marketing strategies. “The producti/serviee- It is a short description of the product, its size, colors, shape and the range of products to be offered, product features, uses and benefits and, whether itis anew or an existing product. ‘The product quality and price compared to competitors’ products -This is the information on the product/service uniqueness in the market. Will it be of better quality than what iscurrently available, or will the price make it easier to sell. What other features will make it different from those of competitors? Pricing- This is the information on how to price your products which should take into consideration all the costs of production, Also comparison should be made with the market price of similar products or serviees. In addition, there must be an explanation on how the pricing of your product or service is competitive. For instance, if the price you plan to charge is lower, why are you able to do this? If its higher, why would your customer be willing to pay more? Which pricing strategy will you employ so that your business be more competitive if you charge more, less, or the same as your competitors. Location, Geographical Coverage and Methods Of Distribution - This is the description of the business location, geographical coverage and methods of distributing the products/services. Location is essential to costs and it increases the chances of customers stopping at the business to purchase your products. If the business is retail or service oriented, it must be near the market. If it is production oriented, it may be better to be closer to its raw material source or near infrastructure facilities. The important factors to consider in location are: pro: ‘ty to essential raw materials, proximity to market and distribution channels, availability of transport facilities, availability of skilled labour. In addition, determining the geographical coverage depends on the nature of the product/services. How well does the product lend itself to transport and istribution, the size of the market in different localities, the presence of strong competitors and the existing contacts or channels of distribution ‘Then, how products and services will be made available to the customers, What distribution channel is going to be used? Direct? Wholesaling or retailing? What are the selling methods to be used? Advertising And Promotion -This is a description of how to deliver the Unique Selling Proposition to prospective customers, In advertising, What message that you want {0 senid to your targeted audience? Which media will be most effective in reaching your10, target market? The Internet, television, radio, newspapers, magazines, telephone books/directories billboards direct mail and the what is the advertising budget? In case you want to incorporate sales promotion activities ‘0 your advertising and promotion plan, which miethod would you use? offering free samples? product demonstrations? Type of marketing materials to be used ie, the business card, brochures, pamphlets should also be included. ‘A description of how you plan to generate publicity either through press release, product launches or community involvement is important. Other aspects such as development of a Business’ Web Site and taking part in Tradeshows can be considered depending on the type and size of the business. Production/operation plan ‘The following questions will lead to the formulation of a production plan a) What is the production process? b) What building and machinery are needed and what will be their cost? ©) When and where can machinery be obtained? 4) How will maintenance be done and ate spare parts available locally? ) How much capacity will be utilized? 1) What are the plans for using capacity? 2) Where will the factory be located and how will the factory be laid out? h) How will the production engineering/production flow be undertaken? So the operating plan describes the physical necessities of the business’ operation, such as the business’ physical location, facilities and equipment, It may also include information about inventory requirements and suppliers, and a description of the manufécturing process. The information can include the following:ie ‘The physical plant: Type of premises, plant/office/facilities layout, size capacity and utilization, location and main facilities, power and other utilities. Equipment: Description of the equipment necessary and how much is needed, sources, cost, utilization and maintenance. “Assets: A list of assets, such as land, buildings, furniture, equipment and vehicles ete, Materials: Types of raw materials needed to produce the product or service and other supplies and their prices and purchasing arrangements and their storage. Produ ‘on; Explanation of production techniques/methods and/or manufacturing operations, production cost, quality control, product testing, product costing, price testing. Other: Hours of operation, licenses/permits required, regulatory issues, business insurance required, Organization/management plan ‘The organization plan show how the business will be set up-up and managed. In this plan, one will have to consider the type of ownership of the business and the relevant licenses and regulations to comply with, The plan will show how the business will be managed, who is responsible for what and to whom (how will decisions be made), It includes the nuinber and qualifications of key staff members, responsibilities/duties and salaries and how the operation will be laid out for more efficiency including selling of the product/services. ‘Therefore the management plan consists of the following details: i. Ownership Structure- section describes the legal structure of a business If business is a partnership or a corporation, it should include a detailed explanation of the ownership structure in the company.ji Internal Management Team- This is a description of the main business management categories relevant to a business, including who's going to have responsibility for each management category, and the profile of person's skills. ‘The basic business’ categories for many small businesses include Sales and Marketing, Administration and Production work, Additional management categories such as Finance, Research and Development and/or Human Resources may also be included. A management team outline is important, it is an identification of key management people in the business and an explanation of what functions each team member will fill. This can be presented in form of an organizational chart. Salary and benefits of management team members are also included. Along with this outline, the management plan will include complete the curriculum vitae of each member of the management team. iii, Human Resources Needs- Number & type of staff required. Qualifications, age, personality, life experience, skills, wages, benefit. Employment policies, training & workers’ compensation schemes. Example: Management Team [Title ~~ [No Proposed Total monthly | Social salaries salary Security | per year and other benefits Managing | 1 [General business management. Director minis 1 jeneral administration and ind Financial panegemet of finance and other anager usiness resources. 1 geretarial duties purchases and general Secretary record keepin, 10Example: Other Employees Title No. Duties | Proposed monthly |Social security | Total annual payments services payments "Technicians 4 ‘Salespersons 4 Driver/messenger_ | T Security guards Total The financial plan This is the most critical part of the business plan. Information to be include in this part consists of the following: ‘The financial projections for a business are based on market analysis, marketing plans, and operational plans, These projections are used to create the projected financial statements including: i. Projected Cash Flow Plan which will indicate the anticipated cash incoming to @ business and cash out of the business. ii. Projected Profit and Loss Statement which will indicate whether the business will make profit. Balance Sheet which is a summation of the business's worth. Generally, investors want to see financial projections for three to five years. In addition there must be a Break-Even Analysis which is a prediction of the business sales volume, at a given price, required to recover total costs. ulOther important elements to be included are (i) Start Up Costs (ji) Operating costs (iii) Sales projections (iv) Business ratios. Start up costs and operating costs consist of anticipated funding required over the next two, three, and five years to maintain business operations and allow for growth, Plans for using flmds must be included and if applying for a loan, loan repayment plan is important, . Some business have higher material cost compared to operating costs and all costs should be considered carefully in the financial plan, An estimation of the sales for the period and business ratios such as profitability ratios are essential and have to be included. Examples of profitability ratios are: 13. Implementation Schedule Example: Event Expected start date Expected date of completion [Business registration Purchase and installation of machinery and equipment levelopment of selling ‘Raveriisement and recruitment of personne! Purchase of raw materials ‘Commencement of production 1214. Critical Risks And Potential Problems and Mitigation Meth ods Examples Risks and Problems | Mitigation methods interviews, checking employ Employing on-job skills training, Frnploying low skilled personnel | Usage of astute reeruittion™ methods including oral and practical yyment records and certificates. ‘methods to some employees. Tw production Y Good super avr materials and prope relations. jon, proper working schedule provision of adequate r working tools coupled with good work | ican GFiow ql Brodeas Coad supervision prowison ofa good gay Sn Masih ad proper working tools coupled with on-jab skills training Fcak down oF machinery and | Employing preventive and routine malrasoanes equipment Fchioas forall machinery and equipment Tow sales Usage of active advertising and promotion methods and good customer care Ton payment of editors | onaliaaton and usage oF policy on credit sales | Slower than expected adoption of the business products by customers. pereised promotion “THE BUSINESS PLAN-STEP-BY-STEP Effective business planning should include the following: [Fire and theft cise oF «Guat Seay system TaTading surance ofthe Business for fire and theft Tow working capital Tage of Sifferent methods oF inereasing working capital such as acquisition of short term loans "Taxation and legal issues ~“Tsage of consultants to deal with such issues 2, Identification of business ideas and stating one or two in terms that are very clear. Validation of a business idea. Market assessment has to be done to verify the economic viability of the idea, this includes the industry trends, competition, and potential for10. 10. growth, Accounting techniques such as break-even analysis and ratio analysis may be utilized to give a more effective indication of the soundness of the opportunity. Develdpment of a marketing plan on the basis of knowledge from market assessment, Determination of the legal form of organization either sole proprietorship, or corporation or limited company based on advice from a lawyer, accountant or any business consultant, Self assessment of the entrepreneur's strengths ‘and weaknesses, including skills, ‘education, qualifications and prior business experience, is essential ‘Assessment of the external and internal capabilities ‘of the venture to exploit the opportunity. This includes assessment of the skills and resources (strengths and wealinesses) as well as opportunities and threats from the external environment such a3 the external environments for opportunities such as new markets, subsidies or even tax exemptions and the external threats, such as competition and new trends. Development of an operational! production plan. Development of an organization and management plan. Preparation of a financial plan (sources and uses of money) and projections of financial results, This includes a monthly cash flow projeetion to demonstrate when the business will be able to generate a positive cash flow. It also may include pro-forma financial stdtements for the next 2 to 4 years, including income statement and balance sheet. Description of assumptions and benefits of the business. 14Ts 12. Risk assessment discussing opportunities and the positive & negative sides of the venture for potential investors. In addition, a description of how the entrepreneur is going to deal with potential risk elements dnd contingency plans must be included. Definition of the vision, mission and objectives of going into business. This should be fited together with the rest of the plan. 15‘THE BUSINESS PLANNING PROCESS 1. Business Idea Generation Why should we generate business ideas before starting a business? ‘We generate business ideas before starting a business in order to: Strengthen existing ideas you have in mind Find a more interesting business idea Adapt your business idea to be different to the competitors Have a stock of business ideas you can choose from if at first you do not succeed The business idea will tell: ‘What product or service your business will sell Why there is.a need for your business Who your business will sell to How your business will sell its services Business Idea ‘Name of business: The business is going to provide the following services/products: ‘The business will satisfy the following needs of the customers: 2. Business Idea Validation: Market Research Marketing is everything you do to find out who your customers are and what they need and want. It includes ways to satisfy them by: providing the products or services they need setting prices that they are willing to pay getting your services to them informing and attracting them to buy your services. A ‘need’ is Something that is necessary or that we inust have e.g. we need food and drink to stay alive. 16‘A ‘want’ is a cultural/social/economic expression of a particular need e.g. we all need to drink but the French want to drink French wine, the English want to drink Champagne, the Japanese want to drink whisky and the Tanzanian want to drink Doing Market Research Market research is used to determine the level of risk involved and therefore improve the probability of success of a business. This is also called validation of a business ideas. Market research is therefore defined as an objective identification and systematic collection recording; analyzing and interpretation of data on the existing potential markets of your business idea, marketing strategies and current products! services in the market for the purpose of assisting in decision making, Sources of Information: Information ‘on the market can be obtained from Chambers of Commerce, Trade Publications, Marketing Consultants, Small Business Centres, Business. colleges, the Central Bureau of Statistics, and Annual Market Statistical Abstracts, Trade Shows. Information can also be obtained from customers, competitors and suppliers through observation, talking to potential customers and competitors, leaming from suppliers and competitors, visiting trade shows and exhibitions and listening to public speeches and presentations including reading ‘magazine articles. Market research can be done in a simple way through personal contaets with your potential customers and other business stakeholders using methods such as observation, focus groups, interviews and questionnaires. Information to be found during this process on: Customers include: Needs and wants ‘Who and where they are, and how to reach them numbers (market size) characteristics i. age, gender, income & purchasing power ete. Competitors include (Who they are and their numbers 7(ii) Their strengths and weaknesses in terms of market share, management capability, financial capability, human resources capability, technology, quality of the product, its reputation and performance, pricing, promotion and distribution methods eic. Pricing: The amount of money that will be charged for the product/service include: (® Market prices for the product/service ) Prices which competitors charge for the products Laws and regulations on pricing. Inputs: Resources that will be needed for starting and operating the prospective business include: (0 Availability of technology and cost (Gi) Sources of funds (iii) Types of raw materials, availability and cost (iv) Premises /land availability and cost (v) Types of skills et. Advertising: This is the act of telling the potential customers important facts about the business include: (@ Methods commonly used (ii) Types of media eg. radio, television, newspapers (iii) Cost of advertising using different media: Sales Tactiés: Selling methods for products/services include: (i Types of inethods ie. personal selling through salespersons or selling through agents, internet selling, mail order selling ii) Cost involved for each method. Distribution-This is the process of supplying goods and services to customers include: (i) Types of distribution channels eg. représentatives, whole-salers, distributors (ii) Mode of transport ie. road, rail, air and sea 18(iii) Cost of distribution using different modes. MAKING A MARKETING PLAN ‘The marketing plan allows you to think about how to reach your intended customers. To develop a marketing plan it is important to virite information on four Ps, which are: PRODUCT: the particular goods or services to sell to your customers PRICE: how much to charge for goods or services PLACE: where to reach customers PROMOTION: how (o attract customers to buy your goods or services. Product A product is an object or a service that is mass produced or manufactured on a Jarge scale with a specific volume of units. We can distinguish three layers of a product: 8) Core product ~ includes the benefit, core advantage which determines the market decision. b) Actual product- includes the physical characteristics of a product ie. quality, brand name, features, style and design, packaging. A brand is a name, term, sign, symbol, or design, or a combination of them intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. ¢) Augmented product include post-purchasing services and additional services provided by the company/ industry which produces and/or sells the product/ service Price The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product. 19Place/distribution Place represents the location of the business or office, it can include any physical store as well as Virtual stores on the Internet while distribution is the physical movement of goods/services. In considering place is important to include all the costs associated with the location, the marketing importance of the location, potential for future growth at the location and the traffic flows of the potential location selected. Promotion Promotion means making the business known to potential customers using different methods to communicate to the target market about your products/services you have planned to offer. The aim of promotion is to make the target market to know what your business offers and the benefits of buying youwr products. ‘The Marketing Plan ‘Type of Product/service Quality se ‘Quantity 20SUPPLEMENTARY HANDOUT 4C Production costs for accounting purposes are divided into two categories namely 1, Direct costs 2. Indirect costs Direct costs: These are costs which can easily be seen to be created by payments for work done on a product or service at the point of which work is carried-out. These costs are grouped into three elements: i) Direct Labour: These are productive hours which are consumed when doing a job producing a service or making a product ii) Direct material: This is the cost of buying raw materials or partly worked materials which are consumed in doing a job or producing service. ili) Direct expenses: Any other payments which have to be made to produce a service or a job and which is used specifically for that job come into this category e.g. sub-contracted portion, special tools/ jigs or specifically purchased items. These three elements of direct costs are sometimes referred to as ‘Prime costs’ or ‘Variable Costs’ because they vary with level of production activity. Indirect Costs These costs embrace all other expenditure which has to be made to run a production unit or a business but which can not be easily indentified in connection with any single job, order or unit of service. These costs must be there and they benefit all jobs, orders or unit of service. These costs are sometimes referred to as ‘Overhead costs’ or Fixed Costs’ e.g. manager's salaries, clerical wages, cleaning, maintenance, rent and rates etc.As such the following can be projected for planning purposes: Sales Revenue (P.A) = Fixed costs (P.A) + variable costs (PA) + Profit (PA) Sales Revenue (PA) ‘No, of Units produced (PA) Total Cost (PA) No. of Units Produced(PA) Unit cost + Profit per Unit Price per Unit = Cost per Unit = Selling Price (SP) Total Gross Profit (PA) = Sales Revenue (PA) ~ Total Cost Less Selling Expenses (PA) Total Net Profit (PA) = Sales Revenue (PA) - (Total Cost (PA) + Selling Expenses) (PA) Total Net Profit after Tax (PA) = Total Net Profit (PA) — Tax (PA) REPORTED COMMONG CAUSES OF BUSIENSS FAILURES i) Charging uneconomic prices li) Making a faulty time estimate for market development and its costs iii) Starting with less capital iv) Starting with more capital and using it carelessly v) Borrowing in excess without worrying for repayment vi) Over trading. vii) Expanding at a pace not justified vili) Lack of proper control of finance ix) Personal extravagance financed from business x) _ Inadequate analysis of the project NB: A large number of these causes of business failures relate to financial management.SUPPLEMENTARY HANDOUT: $+ A SUMMARY OF A BUSINESS PLAN The following are the main elements/sections of a Business Plan Section 1: Summary - Business plan's purpose - How much money is required, where it will come from and what it will be used for - Brief description of the preduct and market highlighting customer benefits = Financial highlights including expected profitability Section 2: Background = Introduce the project and give a history of the idea or project development = Usage of the product in that area - Demand and supply position of the product/service in the market area you plan to serve - Entrepreneur's bio-data i.e personal information, education qualifications, professional training and work experience Section 3: The Product/Service - Product description (in Layman’s language) - What is to be sold and what it is used for - Advantages of the product: cheaper, better, unique feature etcLife span of the product Competitors’ products-present and future? = Any government approval required e.g. standards ete, Future product plans and time scales for their introduction if any - Profitability of the product/service NB: ‘The credibility of the sales forecast is often dependent upon the entrepreneur's perception of the product for sale. Section 4: Management and Personnel - Factory staff: number, monthly and yearly emoluments Administrative staff: number, monthly and yearly emoluments Sales staff: number, monthly and yearly emoluments - Details of management structure Section 5: Markets and Marketing = Marketing: pricing policy (cost or demand led?); future price: after sales service and warranty arrangements (if any); minimum order size; credit terms (if offered); promotion and sales incentives costs, - Competitors: Who are they, where are they, their size and potential, market segment they enjoy, their strengths and weaknesses and your planned market share = Distribution: How will the product be distributed; delivery costs and methods; own sales force and distributors/retail size and location - Premises: factory space, retail outlets and storage space (use chart/toble)Section 6: Production Process A brief step by step description of the production process - Layout details spelling out production process including technical aspects = Raw materials (main ones): availability and stock requirements (one year investment in stock) - Consumables/utilities: e.g water, fuel, electricity etc. and cost - Machinery: cost estimates (in table form); capacity; installation and acquisition costs. Section 7: Financial Information * Financial forecast - 3 to 5 years = Cost of land and buildings - Machinery and equipment (including installation costs) - Cost of raw materials and utilities - Cost of personnel emoluments - Other administrative expenses - Working capital * Raw materials stock (days/weeks) * Work in process stock (days/weeks) * Finished. goods stock (days/weeks) * Stores and spares * Monthly expenses * Total cost of the project - Fixed capital (land, building, M/C and equipment) - Preliminary/pre-operative expenses - Working capital - Provision of contingencies+ Financing of the Project (Sources) = Own contribution (equity) - Long-term loan (from banks/parents/friends) = Short term loan (from banks/parents/friends) = Trade creditors (if available) NB: Total financing must match total project cost + Estimated profitability and financial ratios i, 2, 3, 4. 5, 6. ¥. 8. gz Section 8: Enclosures (Certificates of registrs Sales revenue Estimated production expenses . Production profitability (1-2) . Other incomes (if any) . Profit before tax (%+4) Expected income tax to be paid Net profit . Net cash return (7 + depreciation + investment allowance) . Percentage of Net Profit - Onsales (7:1) x 100 - Oninvestment . Calculation of break-even-point and contribution + Financial inflow (refer H/out 4) + Financial outflow (refer H/out 4) ® Repayment of loans (1**, 2" and 3" year) + Project implementation plan ation, business, education), quotations of M/C and map of business location.PRESENTING YOUR BUSINESS PLAN FOR A TERM LOAN Expectations of a Financier (Bank, NGO etc) 1, Who are you? - Your education and work experience - Your accomplishments = Your managerial skills All this information is of interest to him/her to have an idea of what kind of management you are capable of giving to your business. 2. How will your business perform? Product/service proposed - How you have made your estimates and which are the assumptions you have made for the same - Anunderstanding of the competition (both internal and external) Complete/realistic calculations of financial liability wo |. What will your plan do for your business? > . What is your financial strength? = Your own contribution (Equity) = Financial strength of the project oa Your own strength as an Entrepreneur The greatest strength of the project is you the ENTREPRENEUR. You must convince your financial institutions/NGOs that you are the person who is going to manage the show and to manage it very well. The most strength is mainly in the area of technical competence and entrepreneurial capability in general. You should state this very clearly in your ‘Business Plan’ and stress upon it during personal interview.SUPPLEMENTARY HANDOUT 4B: MARKETING AND MARKET RESEARCH What is marketing? Marketing is identifying and satisfying customers’ NEEDS and WANTS at a PROFIT Marketing is both: 1. A series of “tools” such as market research product innovation and development, advertizing, marketing channels (distribution): and 2. Anattitude of mind which focuses on the needs and wantof others ‘Marketing is guided by 4Ps called the ‘Marketing Mix’ comprising: - 1. product 2. price 3. place 4, . promotion The following is the marketing process 1. Find out what people need/want in your targeted area 2. Make/do something that can meet the needs/wants better than what is currently offered. 3. Tell/inform people about it 4. Use peoples feedback to improve the product/service and introduce new product/service,What is Market Research? For a new/aspiring entrepreneur the risk of setting up an enterprise and managing it successfully depends mainly on how he/she makes decisions in conditions of uncertainty. Uncertainty involves both risk and opportunity. The market for the product/service of his/her business must therefore be EXAMINED and ANALYSED thoroughly before going into it. Market Research/survey is a tool through which (though it may not be possible to eliminate completely the risk or guarantee an opportunity) its intelligent and systematic use reduces level of risk and improves the probability of success. This is also called VALIDATION OF A BUSINESS IDEA. Market Research is therefore an Objective and Systematic collection, recording, analyzing and interpretation of existing potential markets, marketing strategies and tactics and interaction between markets, marketing methods and current or potential products/services. Marketing Research Process 1. Define objectives of the study and specify information required 2. Work out details of the study: i) Identify sources of obtaining information ii) Time and cost of the study iii) _ Methodology and Action Plan (to be presented on a Gautt Chart) 3. Select samples and decide contacts and visits.4, Prepare questionnaires and plans for survey and interviews (should focus on markets and should be simple but covering all relevant areas needed for assessment) 5. Collect data and analyze it 6. Prepare a report with findings Through Market Research we can find out the following information: - 1, The products/services that customers need/want. 2. The best location for the business. 3. The most appropriate promotional and adverting cost-effective and simple methods. 4. The price to charge which will assist in planning the cost of production of such product/service. KEY COMPONENTS OF A MARKET RESEARCH REPORT 1. Introduction - End products/services - End users - Suitability and strength of selecting particular product/service 2. Product/service - Specifications - Sizes - Brands - Packaging - Selling price; etew 2 . Assessment of Demand - Class and type of customers/clients Patterns of consumption and frequency of purchase Product life cycle and present status Past demand pattern Future/anticipated demand projections Buying criteria and influencing factors. Supply position Current availability of and production capacities Vs utilization Present local and imported supply sources their price comparisons, services etc Marketing practices Present prevailing marketing practices including distribution, packing/forwarding, credit policy, delivery and after sales services. Selling price, taxation structure and commission patterns (if they apply) Purchasing procedures, time and practices prevailing Own Market Plans and Strategies ‘Own marketing share of supply-demand gap Strengths and special services to be offered (if any) Possible clientage and their likelihood of buying from you.CONCLUSION These key components of Market Research Report are summarized as: IPASMO Individual Student Assignment: Carryout a Market Research to VALIDATE a Business Idea that you have identified. PREPARE A MARKET RESEARCH REPORT and indicate if your Business Idea will be a viable business undertaking on not.Ent}cejota ENTREPRENEURSHIP Entrepreiieurship can be defined as the actor process of identifving business opportunities and gathering the necessary resources to initiate and manage successfully a business activity. Entrepreneurship is a creative process which involves identifying problems, deficiencies, gap, missing elements and disharmonies, thus ‘identifying business opportunities and finding solutions for eventual implementation. ‘The art of being entrepreneurial involves comt ining personal characteristics financial means and physical resources within the environment in order to realise an economically sound productservice. In other words it isthe ability o form and run an enterprise. Enterprise ‘An enterprise is a commercial undertaking aimed at producing goods/services for profit. Such undertakings, usualy involve risks. Because an enterprise is subjected to threats of survival, a successful enterprise has to ‘be managed with a strong drive for achievement. This involves defining goals and searching for solutions. In doing so alternative solutions and possible obstacles are considered. In this way there is anticipation of what ‘would happen if there is success or failure, Entrepreneur ‘An entrepreneur is a person who sets and manage successfully an enterprise. Such a person has the ability to explore existing business opportunities and utilize them to start hiswher own business venture. Characteristics of an entrepreneur ‘There are a number of characteristics which are commonly displayed by successful entrepreneurs. These include: 1, Moderate risk-taking Entrepreneurs prefer to take moderate calculated risks. These are risks which provide a reasonable and challenging chance of success. 2. Achievement-oriented © Entrepreneurs are selfstarters who appear to be driven internally by astfong desire to excel and ‘succeed in business ventures and try to accomplish their goals. 3. Need to control and direct \; Entrepreneurs most exercise maximum responsibility and accountability. They demonstrate to themselves that they are in contol of both the present and future events to achieve their life goals, 4, . Tolerance of ambiguity and uncertainty. |. Enuepreneurs need to tolerate ambiguity and uncertainty. Constant changes of customer needs and lastes create ambiguity and stresses for the entrepreneur. 5. Using feed-back © Entrepreneurs are anxious o know how well they are performing. They actively seek out and use feedback to lear their mistakes and set-backs, This enables them to improve their performance, 6. Problem solving « Entreprencurs possess high levels of determination and desire to overcome hurdles, solve problems and reach their goals. They are extremely persistent, but they are also realistic in recognising what they can and cannot do.In addition to con:ributing to the growth of an economy, entrepreneurship will create new opportunities for the unemployed educated youths. It is generally accepted that, actions which encourage the formation of small firms also improve the entrepreneurial environment and create more benefits associated with new- venture initiative. These benefits can be summarised as shown hereunder: Job creation Ithas almost become a consensus for those who advocate the virtues of small firms to cite its contribution to the generation of jobs. This has been evidenced by studies e.g. David Birch study in 197° indicated that business with fewer people than 500 employees gencrated $0.7% of the private sector jobs in USA; the majority coming from companies of less than 26 employees. In another study conducted by White House Commission (USA), it was concluded that over 1000 largest corporations created less than one half of one percent of all the new jobs created in the economy between 1969 and 1976, Hence the conclusion "the leverage for public policy lies in spurring entrepreneurship and. ‘existing small businesses." Ih view of the current unemployment problem in the country, resulting from retrenchment taking, place in the civil service and parastatal organizations, entrepreneurship might contribute to the alleviation of this unemployment problem, 2. Innovation Entrepreneurship has a strong innovative force behind it, Because of the necessity to prosper in ‘business and be able to compete, entrepreneurs are compelled to develop new products or production techniques, secure new sources (less competitive) for materials or discover entirely new markets for ‘their products, Innovations can be achieved with little investment at the small business level. 3. Economic growth The participation of small enterprises in the economy diversifies the society's employment base more than larger firms. Sophistication of production techniques and automation tend to reduce new opportunities for employment rather than creating new ones. In this way, small businesses make substantial contributions in the diversification ofthe economy and hence brings about more balanced economic growth and a higher standard of living especially in rural settings. In Tanzania, for ‘example, the entrepreneurisl culture was frustrated by the type of polices the country had adopted including the Arusha Declaration of 1967 which favoured the promotion of large Public Sector (poorly financed and managed) at the expense of the small enterprise'sector. It might be prudent, therefore, to take deliberate measures in terms of policy options to ensure that small businesses are promoted beyond present policies to attend to the unsolved problem(s)" pertaining to the informal sector economy, Since entrepreneurs are "made and not born’, there is every need to develop the entrepreneurial culture within the society to direct the entrepreneurial capabilities towards stimulating development i the rural areas as well as in the urban centres where the majority of the youths have decided to settle as an “urban unemployed army" and hence the nation of "Wemachinga".10. iM 13, 14. 15, Optimistic < oenrreenton of entrepreneurs is focused on assur sucess and they are always hopefil. They do not get disappointed, discouraged or depressed by set-backs or failures. Sufficient emotional stability- Entrepreneurs have considerable self-control and are able (0 concurrently handle the anxieties and pressures of business and other problems of life, They are usually cool and effective even in stress situations Leadership . « 1 Entrepreneurs are naturally Teaders. They can lead and influence other people such as parmers, subordinsies and customers Goal - setting — Entrepreneurs usually set high but attainable goals. Having, achievable goals help entrepreneurs carers and provide them with measures of performing their functions wel Self confidence -© eteprencurs have high personal standards of inteprity and eit. They ae very sel conident Tetidency to analyse the environment. ~ ¢ Faneprencurs have the tendency to analyse their enviroment, Tey knov the value of nfonnaion eae ey go at length to obtain This elps then in planning and taking Appropriate and profitable decisions. i Time-management ~¢ Eneprencurs have a rong sense of personal commitment io meet deadlines, They peosive ime as an important resource and try fuse it inthe best possible way. Foresight - © Entrepreneurs are able to see an opportunity where others see chaos and confusion ‘They are able to prediz frre events abou the businestes and as sch Keep themselves prepares Long-term involvement - b Entrepreneurs are commited to their business ventures which arc usually longterm undercakings. ‘The need for entrepreneurship whe aan ad forenuepreneursip in the economic development ofa country can not be under estimated, «he in developed countries of Westem Europe, North Arerica, Asia or inthe ast ‘developed countries. ac cleped counties, entrepreneurship has become the rime mover in revolutionizing the pases of troduction of goods and provision of services trough exploiting the existing marke “The least developed countries need entrepteneurship in teir economies in view ofthe following social- conomic realities: sri sconoies are more or less stagnant and agricultural based activities which need ro be reorganized 50 as to F imulate growth. : “The industialization process needs innovative ideas ofthe entrepreneurs so thatthe pace of development and diversification can be accelerated.