07 introduction to Business Plans

Learning Objectives
At the end of this session,
participants should be able to:

" Understand the basic concepts of Business Plans

Develop business plans from the provided ternplate

7.1Defining Concepts
Business Plan
A business plan should be a work-in-progress. Even
successful, growing
businesses should maintain a current business plan. As any good
salesperson
knows, you must know everything you can about your products or services in
order to perSuade someone to buy them. In this discussion, you are
thne
salesperson, and your products represent your business.

Your customers are potential investors and employees. Since you

want your
Custonmers to believe in you, you must be able to convince them that you knoW
what yOuare talking about when it comes to your business.

Every successful business plan should include something about

each of the following areas:
The executive summary
Executive summary provides an overviewof the total business plan. Written after
the other sections are completed, it highlights significant points and, ideally.
creates enough excitement to motivate the reader to continue readina.

Entrepreneurship Training Manual - Intermediate Module

 visionand Mission Statement
Vision and mission statement concisely
business
philosophy for making the vision describe the intended strategy and
includedinthis section. happen. Enterprise values can also be
Enterprise overview
#exolains the type of enterprise, Such as
ackaround information on the enterprisemanufacturing, retail, or service; provides
if it already exists; and
oroposed form of enterprise sole describes the
proprietorship,
coction should include enterprise name and partnership, corporation. This
or
and primary prOduct or service of the
location, enterprise objectives, nature
business, current status (start-up, buyout, or
exDansion) and history (if applicable),and legal form of enterprise.

Product and/or service plan

This describes the product and/or service and points out
any unique features, as
well as explains why people will buy the product or service. This section should offer
the following descriptions: product and/or service; features and benefits of the
product or service that provide a competitive advantage; available legal protection
patents, copyrights, and trademarks.

Marketing plan
The marketing plan shows who the firm's customers will be and what type of
Competition it will face: outlines the marketing strategy and specifies the firm's
Competitive edge; and describes the strengths, weaknesses, opportunities, and
threats of the business.

This section should offer the following descriptions: analysis of target market and
profile of target customer; methods of identifying, attracting, and retaining
CUstomers: aconcise description of the:selling approach, type of sales force, and
dlstribution channels: types of marketing and sales promotions, advertising, and
projected marketing budget: product and/or service pricing strategy; and credit
and pricing policies.

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72
 Management Plan
This identifies the key players active investors, management team, board members,
and advisors citing the experience and competence they possess. This section
should offer the following descriptions: manggement team, outside investors
and/or directors and their qualifications. outside resource people and their
qualifications, and plans for recruiting and training employees.

Operating plan
The operating plan explains the type of manufacturing or operating system to be
Used and describes the facilities. labor. raw materials, and product-proCessing
requirements. This section should offer the following descriptions: operating or
manufacturing methods, operating facilities (location, space, and equipment),
quality-control methods, procedures to control inventoryand operations, SOurces of
supply, and purchasing procedures.

Financial plan
it specifies financial needs and contemplated sources of financing. as well as
presents projections of revenues, costs, and profits. This section should offer the
following descriptions: historical financial statements for the last 3-5 years or as
available; pro forma financial statements for 3-5 years, including income
statements, balance sheets, cash flow statements, and cash budgets (monthly for
first year and quarterly for second year); financial assumptions; brekeven analysis
of profits and cash flows; and planned sources of financing.

Appendix of supporting documents

It provides materials supplementary to the plan. This section should offer the
following descriptions: management team biographies; the enterprise's values:
information about the enterprise culture (if it's unique and contributes to
employee retention); and any other important data that support the information
in the business plan, such as detailed competitive analysis,
custome
testimonials, and research summaries.
 importance. of the Business Plan
Z2
Business plans show you if the business Can expect to make a profit in the
future. For instance, if your costs are expected to be high, there would be need
toincrease prices.

" Aplan
will be able to identify parts of the business that requireimprovement.
nso doing. one will be forced to think about every part of the business.

, Abusiness plan serves as a map against which you can determine yOur
procesS.

.A business plan provides details of resources required and can be given to

potential investors/financiers.

. Abusiness plan indicates chances for success and potential critical points.

7.3 Steps in Developingyour Business Plan

Step 1: Describe your business idea
about which needs
All business plans are based on one single business idea. It is
the products or services will satisfy, what product you are going to produce, what
you are
Service you are going to provide or what goods you are going to sell, who
going to sellit to and how you are going to sell it to them.

Step 2: Prepare your marketing plan

Atter you have described your business idea you should think in detail about how
You are going to market your products or services. Marketing is everything you do
to find out who vour Customers are, what they need and want and how much they
are willing to pay. Marketing is about knowing how to reach and satisty your
Customer while making a profit with your business.
 Step 3: Estimate your sales
AS SOOn as you knOW your customers and products or serviCes betTer and yoi,
Khow how to get these to vour Customer. vou will be dbie to estimate yOur
monthly sales (in volume and value) These sales estimates form the basis for ol
Turther calculations about costs gnd theprofit the business WIll moOke.

Step 4: Know how much to buy and to

produce
When you know your sales plan., vou should be able to work out your production
plan and subsequently be able to calculate what materials and services you
need, how much you need and when you need it.

Step 5: Decide what and how many staff you need

Based on your business idea and your sales plan you will now need to think about
the staff you need for this business. What skills and experience are needed? How
many workers do you need? You will then also need to find out how much you
need to pay for salaries and salarycosts (including your own).

Step 6: Identify the fixed assets you need to acquire

Most businesses need certain land, buildings and equipment to be able to
produce or to provide the intended services effectively. Fixed assets are those
items that will last longer than one year and their value is reduced over the
lifetime of the asset. This reduction in the value of fixed assets is called
depreciation.

Step 7: Knowyour costs and plan for profit

The previous steps have provided you with most information about the costs you
will incur by runningyour business. You willnow need to complete and summarize
the costs, in order to plan for profit. By making acash-flow plan you make sure
that any shortfalls in finance will be avoided as these will negatively affect your
business performance and the planned profit.
 tep 8:Calculate your
.abe able to set your prices
product costs and set your prices
and not correctly, to plan for the best possible profit
justpassively respond to prices set by your competitors, you need margin
estimate the cost of to
your products
or services
as accurately as possible.

step 9: Estimate your start-up

capital
start-Up capital is the financial resources you need to start your
need money tor fixed assets, but you also need
business. YoU
money to cover your expenseS
during the first two or three months after the business has
started, as very ittie
money Coming in yet. When youknow how much start-up capital you need, you
iS
make Sure that the full amount is available. If your financial
resOurces are
insufficient, you decide about how much of the required start-up capital should
be obtained through loans.

Step 10: Choose the legal form and know your responsibilities
There are different legal forms to choose for your business. They all have
advantages and disadvantages and which form you choose depends on the
characteristics of your own business, the ownership structure you wish to pursue
and the amount of capital you wish to invest in the beginning.

Developing a Competitive Analysis

When youare doing acompetitive analysis, 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.

Be sure to identify all of your key competitors for each of your products or
services. For each key competitor, determine what their market share is, then try
to estimate how long it will take before new competitors enter into the
marketplace. In other words, what is your window of opportunity? Finally, identify
any indirect or secondary competitors which may have an impact on your
business' success.

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 The strengthsof your Competitors are also competitive advantages
too, can provide. The strengths of your competitors may take many which
forms, butyou,the
most common include:
" An ability to satisfy
customer needs
" Alarge share of the
market and the Consumer awWareneSs that Comés with it
Agood track record and
" Solid reputation
financial resources and the subsequent stoaying power which that
provides

Key perSonnel Weaknesses are simply the flip side of strengths.

In otner words, analyze the same aregs as you did before to
determine what vor
Competitors' weaknesses are.
Are they unable to satisfy their customers' needs?
Do they have poor market
" Is their track record or
penetration?
reputation not up to par?
Do they have limited financial resources?
" Can they not retain good
people?
All of these can be red flags for any
business. If you find weak areas in your
competition, be sure to find out why they are having problems. This way, you
avoid the same mistakes they have made. can
If your target market is not
important to your competition, then you will most likely
have an open field tO run in if your idea is a good
one - at least for a while.
However, if the competition is keen for your target
Overcome some barriers. market, be prepared to

Barriers to any market might include:

" Ahigh investment cost
The time it takes to set up your
business
Changing technology
" The lack of quality personnel
Customer resistance (i.e., long-standing
EXisting patents and trademarks that you relationships, brand loyalty)
can not infringe upon.

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Market Research
Morket research is the gathering of information that ties a small enterprise to its
stomers. It provides the information that is necessary for companies to
correctly position their product in the marketplaceand offer the best conbination
of product, price, place/distribution, promotion, and person. Well-designed
market research gives a person an edge on their competition, reduces their risk,
and improves the effectiveness of their enterprise activities.

Ouality market research is the key to success for the small entrepreneur. If a
person does not understand their customer and their needs they will likely fail in
their enterprise.

Why Conduct Market Research?

To develop product, price,promotion, place/distribution, and people plans
To identify problems in their marketplace and discover new opportunities
" To learn about competitors and how they are mnarketing their products.
" To find out what consumers think about their product Category
" To gauge the performance of existing products

Market research involves the systematic, objective collection and analysis of the
above data. It is often conducted as the first step in identifying the feasibility of
an enterprise idea. It always incorporates some form of data collection and is
either secondary research (often referred to as desk research) or primary
research (direct from an individual).

How to conduct market research

Talk topotential competitors to find out:
" Their products or services (for example quality and
design)
What prices they charge
What exactly they sell
Howtheir product/services differ from yours
Where they get their inputs?
Where do they sell?
How they promote their product/
Any particular
service
" How you can
approaches to customer Care
compete