Entrepreneurship/Leadership/Innovation- MGT 2251Y

UNIT 15:

THE BUSINESS PLAN

Unit Structure 15.0 15.1 15.2 15.3 15.4 Overview Learning Objectives Introduction The Business Plan within the Strategic Planning Process The Business Plan: Structure, Contents and Style 15.4.1 General Structure 15.4.2 Contents and Size 15.4.3 Format (or Type) The Constituents of a Business Plan 15.5.1 Cover Page and Table of Contents 15.5.2 Executive Summary 15.5.3 The Nature of the Business 15.5.4 Legal Forms of Ownership, IPR and Ownership 15.5.5 Industry analysis 15.5.5.1 Competitors 15.5.5.2 The Market/Potential Markets 15.5.6 Marketing Plan 15.5.7 Market Research and Competitor Analysis 15.5.8 Operations Plan 15.5.9 Financial Planning 15.5.9.1 Financial forecasts 15.5.9.2 Analysis of Financial Forecasts 15.5.10 Risk Planning The Entrepreneur and his/her Team Business Plan Outline Summary References

15.5

15.6 15.7 15.8 15.9

1

The following are critical steps in the strategic planning process (according to Schaper & Volery. 2 . you should be able to do the following: 1. 15. Describe the general outline of a Business Plan as applied to a proposed business idea. Follow the guidelines for writing a Business Plan in a logical order. It can be considered as a communications tool in that it serves the purpose of informing stakeholders as to the pertinence and scope of the plan. 2004). 15.Entrepreneurship/Leadership/Innovation.1 LEARNING OBJECTIVES By the end of this Unit.3 THE BUSINESS PLAN WITHIN THE STRATEGIC PLANNING PROCESS The Business Plan actually forms part of a sequence of steps followed by entrepreneurs in the strategic planning process. It enables the entrepreneur to plan how to exploit opportunities under environmental uncertainty while measuring future risks and threats. 5. A generic outline of a Business Plan is proposed.2 INTRODUCTION The Business Plan is can be viewed as a versatile tool in the hands of the Entrepreneur. Explain the position of the Business Plan in the Planning process. 2. It also serves as a strategic tool.0 OVERVIEW This Unit gives the SME owner-manager the general guidelines for building the Business Plan. followed by a description of contents/tasks under each heading. 4. The planning process is consequently a powerful learning opportunity for the entrepreneur. Realise the importance of each element in the context of the business plan as communications tool. Formulate the constituent elements of a Business Plan in a stepwise approach. being a forecasting instrument. 15. 3.MGT 2251Y 15.

conventional structure is suitable for 3 . Confirm goals from primary research Initial objectives are confirmed (or modified) following primary research. A straightforward. the original goals may be reassessed. If necessary. CONTENT AND STYLE The Business Plan is the first visible. allowing the entrepreneur ample room for his/her own creativity.4 THE BUSINESS PLAN: STRUCTURE. The plan needs to be flexible and responsive to changes in the environment. Evaluation as to consistence with original goals. a market survey. risks management and so on. 5. 3. 6. for example.MGT 2251Y 1. 15. Conduct initial secondary research by collecting information from existing secondary data sources Activity 1 Distinguish between secondary data and primary data in information search.4. 2.1 General Structure In most cases.g. Being given that investors or Bankers will rely upon it to make a decision whether or not to give support to the venture. Critically assess the proposed business plan through an independent collaborator or using a focus group. finance. content and style of presentation of the Business Plan. 15. 4.Entrepreneurship/Leadership/Innovation. “physical” aspect of a future venture. Conduct subsequent detailed research Market viability having been confirmed. operations. 7. it is important for the SME owner to measure the importance of the structure. if they appear unrealistic in the present context. Set preliminary goals by committing preliminary goals to paper. 8. it is now necessary to collect detailed information on the remaining aspects of the business e. Develop draft Business Plan which is a preliminary version of the proposed business plan as per his/her business plan outline. Business Plans are adapted from a standard template. Implementation of the plan according to original goals and objectives. for example.

They normally check problems of visibility of essential information and for spelling or grammatical errors which may alter the purported sense of the authors. number of pages should not be approached prescriptively as this is not a general rule. 15. the overall “between the lines” plan ought to project ambition. Certain information. Although the Plan should look formal and professional.4. thereby limiting spending on the visual aspect of the plan. a Business Plan can be written in 10-50 pages. entrepreneurs are so focused on technical content that they omit to include their address and phone number. drive and enthusiasm as being the personality traits of the entrepreneur. However. It can by itself arouse interest of stakeholders who generally won’t spend time reading the whole Plan. In presence of a plan lacking structure. This can be achieved only if the entrepreneur him/herself has personal inputs in the plan (even if the plan has been structured by a consultant). One perception is that entrepreneurs should use limited resources with caution. It is sometimes helpful to ask an independent collaborator to review a plan for inconsistencies.V of entrepreneur. drive and enthusiasm in his/her Plan? 15. Activity 2 How can an entrepreneur show ambition.Entrepreneurship/Leadership/Innovation. It is always advisable to ask collaborators to review the Plan. concise and accurate information on all the major aspects of the venture. Beyond the “facts and figures” structure of a Business Plan. the investor/banker may set aside a project if certain vital elements of the Business Plan are “hidden” out of place. At times. site plans and so on.3 Format (or Type) Appearance is an issue of psychological importance although the first impression is as important as the last. can be made to appear in Appendix instead of overloading general contents.4. It should be long enough to provide essential details and short enough to arouse and maintain interest.MGT 2251Y the busy investor to look for and easily find essential elements to be used in his/her assessment prior to decision-making. C. The executive summary is an accurate synthesis of the business plan. it should not give the impression that a lot of money has been spent on 4 . Depending on the size of the business.2 Contents and Size The Plan normally contains clear. for example.

In general. A balance should be struck between design and formality. request for funding. Barringer & Ireland (2008) propose the following distinctions: • Summary Plan 10-15 pages long. bold. giving essential information on the project and the reasons for sending the document e. or request for partnership.Entrepreneurship/Leadership/Innovation. clip art. font size and colour can end up giving a negative impression. • Operational Business Plan 40-100 pages. the more so that the Plan is a professional document and should not be constructed as an Art portfolio. a covering letter should be sent to prospective investors. italics. Depending on purpose. It spells out a company’s operations and plans with more structure and detail than summary business plan. works best for companies that are very early in their development.g. The length of the document follows a number of criteria. similar to a feasibility analysis prior to a full Business Plan. This is meant for management and staff (i.g. Activity 3 For what reason would an established entrepreneur looking for funds write a relatively longer business plan? 5 . timing. entrepreneurs distinguish between three types of Business Plan.MGT 2251Y presentation. partners and so on. • Full Business Plan 25-35 pages. Another perspective is that a winning presentation should have reasonable style and presentation for image and first impression reasons. an excessive use of word processing design elements e. In written business communications. in addition to the Plan.e. finance agencies. and processes with a view to providing guidance to operational managers. for internal use) and features a great deal of detailed information on procedures.

The Opportunity • B. The Description of the Business • Description of how the proposed business plans to solve the problem or fill the need C. From idea to Business Opportunity. D.5 BUSINESS PLAN OUTLINE Cover Page Table of Contents I.Entrepreneurship/Leadership/Innovation.MGT 2251Y 15. E. Mission and objectives Competitive Advantage • Description of the business model • How the business will create a sustainable competitive advantage Current Status and Requirements • • Description of where the business stands today Description of what the business needs to move forward D. Detailed description of the problem to be solved or need to be filled. H. • Company history or background • Company Vision. C. The Business A. 6 . Executive Summary A. • Can be a problem to be solved or a need to be filled. The Opportunity B. (if the plan is going to a potential investor/financer) Description of Business Needs Any exit Strategy for Investors (if the plan is going to investors) • G. II. F. Brief Description of the Business • How the business proposes to solve the problem or fill the need Source(s) of Competitive Advantage • Brief Description of the business model The Target Market (One or more segments) The Management Team Brief Summary of the Financial Projections The amount of capital needed and what the capital will be used for.

. Management Team • Management qualifications/experience • Management ability/competences • Technical expertise Board of Directors • Number of directors • Composition of the board and responsibilities Board of Advisers (if any) • Number of advisers • Composition of the advisory board Key Professional Service Providers B. Organisational Structure B. • Patents.Entrepreneurship/Leadership/Innovation. • Competitor analysis VI. C. Product Feasibility and Strategy • Concept testing • Product strategy Pricing Strategy Channels of Distribution 7 B. Marketing Plan A. and copyright applied for or already approved Industry Analysis A. C. size. Ownership and Intellectual Property A. Management Team A. Industry description • Industry trends. • Organisational chart Legal Structure • Legal form of business • Ownership of the business Intellectual Property C. attractiveness • Profit potential Target Market • Description of target market Competitive position within target market B. C. Organisation Structure. trademarks. V.MGT 2251Y III. D. • Law & Accountancy firms • Bankers IV.

Financial Risks E. Capital Requirements for the Next 3 to 5 Years B. F.V’s of founders and key employees Diagrams of product prototypes Other documents as appropriate 8 . Financial Plan A. Method of Production or Service Delivery B. Intellectual Property Infringement F. D. Other Risks as Appropriate X. Operating Risks D. Layout Plan Quality Control VIII. E. Availability of Qualified Labour Pool (may require separate HR Plan) C. Appendix A. Marketing Risks C.Entrepreneurship/Leadership/Innovation. E. Critical Risk Factors A. • Sources and uses of funds Overview of Financial Projections Profit & Loss Cash Flow Projections Balance Sheets Payback and Exit Strategy (if the business plan is sent to potential investors) IX.MGT 2251Y D. Management Risks B. Supporting Documents • • • C. Marketing Communications Strategy Customer Support • Customer support strategies • Customer support obligations VII. C. Operations Plan A. • Location Plan.

e. the executive summary can be the most critical part of the Business Plan. The elements are given for the sake of completeness and each entrepreneur must make a decision as to where to focus and what to disregard. even if it is a good plan. Bottom of cover page usually indicates confidentiality caution while the middle of the cover page can hold the logo or trade mark if any. Operational Plans need to be reviewed six monthly or yearly in order to keep pace with changes. If the summary fails to attract stakeholders (e. 15.1 Cover Page and Table of Contents Top of cover page to include name of company. etc…).6. Arguably. Specific. For example. address. Activity 4 How did the changes in labour legislation in March 2009 affect business? A Business Plan in general has the following elements: 15. The page next to the cover page contains the table of contents for ease of reference. trade name. 9 . Entrepreneurs often mistake the executive summary to be an introduction. It should in fact be a one to two page summary of the whole plan.2 Executive Summary Busy stakeholders will normally read the executive summary in toto even if they can overlook large chunks of detail in the body of the text.MGT 2251Y 15. Business Plans remain open for changes.6 THE ELEMENTS OF A BUSINESS PLAN The following is a general approach to the constituents of a Business Plan. logo. therefore.g. investors). then the Plan stands little chance to be read and approved. other contact details (phone.g.6. Following changes in the business environment. fax. Such contact information should also appear on the covering letter mentioned earlier. a change in Business Legislation.Entrepreneurship/Leadership/Innovation. website address. tailor-made plans may vary slightly in contents and depth of analysis and detail. The summary must therefore be a concise but accurate overview of the business plan.

4. including the major forecasted events. At this point the Vision and Mission (or Mission Statement) if any is to be spelt out along with the organisation objectives and values. the industry comprises the sum total of all competitive sellers. of the products (and their substitutes). industry statistics and so on.g.g.3 The Nature of the Business The Business may be introduced by describing the business idea and how it became an opportunity.6. 15.1 Competitors Entrepreneurs vitally ought to conduct a competitor analysis to assess their products/services (e. The challenge in this section is to convince the reader that the enterprise has a competitive advantage. The entrepreneur can explain how he/she plans to fill the gap in the market. influence of technology). industry life cycle or Porter’s Five Forces Model) and profit potential.6.MGT 2251Y 15.g. industry attractiveness (e. Other industry issues include the industry trends (e.4 Industry Analysis In order to accurately identify stakeholders. The status of the industry is a major issue. Much of this information is publicly available and can be searched from company annually published documents.6. that is. whether a monopoly. 10 . This may be followed by a brief historical background of the company. In general. market share. for quality). for example. press releases.Entrepreneurship/Leadership/Innovation. The product service should enable the firm to distinguish itself and gives it an edge over its competitors. an oligopoly or whether characterised by an open market approach. pricing strategies and other business policies. entrepreneurs need to clearly define the Industry they are in. Activity 5 What are the characteristics of competitive advantage? Give an example A conclusion to this section would summarise the company’s current status and propose what it needs to go forward. 15.

They need to be made aware and be informed of benefits of new products/services. Price. Effective Market planning is the key to success. On what market segments do they position themselves? 2. the entrepreneur has to investigate who are the likely customers. how the enterprise can be positioned in the 11 .4. 15. What are their strengths and weaknesses? 15. Therefore the entrepreneur must influence customers by advertising and promotions or branding. The first question to be answered by an entrepreneur is to know whether a sizeable market exists for his/her product/service. Marketers now realise (unlike former marketing thinking) that people may not be aware of their needs.2 The Market/Potential Markets The market is composed of actual and potential buyers. on product or on customers? 5. Thirdly.MGT 2251Y Some of the questions to be answered are: 1. manufacturing or just reselling? 3. Activity 6 Give examples of successful unsought goods. the 4 P’s. The target market also needs to possess the capability to buy (e.6 Market Research and Competitor Analysis Market research is the systematic process of gathering.6. Do they sell branded or generic products? 6. Are they importing. Secondly. Simply providing good service may not necessarily achieve this objective. Do they focus on price.6. The fundamental objective of successful marketing is customer satisfaction. Place (Distribution) and Promotion.g.Entrepreneurship/Leadership/Innovation. 15. People care little whether they buy from you or your competitor else unless you create psychological preferences for your products. recording and analysing data to assist in making marketing decisions.6. the disposable income and access to the product). What are their sources of competitive advantage? 7. What is their annual turnover? 4.5 Marketing Plan This is based on the Marketing Mix. referring to Product.

15. a company (limited liability) exposes only the firm’s assets while keeping personal assets shielded. day to day operations and issues other than marketing and finance are usually included here. It is therefore advisable that an entrepreneur consults an attorney and/or certified accountant to seek assistance in interpretation of business legislation. health and safety incidents and so on. become liable due to financial mishaps. 12 .6.6. whereby entrepreneurs may have to ascertain the tax bill under each option before engaging in any option.Entrepreneurship/Leadership/Innovation. businesses liable to affect the natural environment may require an EIA licence. Market research may also include analysing competitors’ strengths and weaknesses. It is recognised that entrepreneurs. Partnership. promote and distribute the product/service. in general. are not aware of all the intricacies of business law. 15.7 Operations Plan The organisation chart identifies the key positions and the persons occupying them along with the reporting relationships.8 Legal Forms of Ownership. Tax issues The Authorities usually have differentiated tax rates for each form of ownership. as well as HR issues (including a Human Resource Plan if necessary). A number of advantages and disadvantages are associated with each form of ownership (Company. whereby the attractiveness of this form of legal ownership. For example. Organisational details. during the course of their commercial activities. IPR and Ownership The business name (company name and trade name) and legal structure of the business are specified as well as the operating licenses the business requires.MGT 2251Y market and finally what strategies to be adopted to price. defective products. The following are typical factors an entrepreneur considers when choosing a legal form for his/her ventures. Liability exposure Businesses can. etc). Sole proprietorship. The entrepreneur makes a choice based upon the nature of the business and his/her personal circumstances. According to legislation.

whereby they can pool resources and benefit from inherent facilities/grants from the parent Ministry. while others may be simpler. Intellectual Property Innovative entrepreneurs constantly come up with creative ideas that bring innovation in products and services. Marketing and Finance. Managerial ability Owner/Managers can reasonably run a small sized business. Activity 8 Research on the provisions of Business Facilitation Legislation in Mauritius. the decline and failure of Internet companies in 2001 was directly linked to the lack of managerial skills. Patent A patent is a grant from relevant authorities (for example. whereby entrepreneurs must weigh the costs and benefits. In the U.S. for example. Innovators can protect such intellectual property from unauthorised use via three important tools: patents. Women entrepreneurs starting small businesses often choose to run cooperatives.MGT 2251Y Control Working as a sole trader. the entrepreneur keeps total control over the business. When the firm grows in size. giving the latter the exclusive right to use or sell the invention for a given period (usually 20 years) from the date of filing the patent.Entrepreneurship/Leadership/Innovation. Patent and Trademark Office) to the inventor a product. Activity 7 Why will owner managers resist handing over management to qualified professionals? Cost of Formation Some forms of ownership may be more complex and expensive to create. In a partnership. they must honestly assess their own ability to manage their companies successfully. HR Management. ownership and control are diluted. trademarks and copyrights. 13 .

type and make. employee training. access to public roads. design and accessibility of premises to customers. ISO standards (Certification and Accreditation issues. a separate HR Plan may be required). phone number and so on. life expectancy. logo. parking facilities and other infrastructure. Organisation structure and staffing: The organisation structure and reporting relationships.MGT 2251Y Design patents carry a shorter period of protection (3½ to 14 years). Trademarks A trademark is any distinctive word. the positions (the person specifications and job descriptions).Entrepreneurship/Leadership/Innovation. procedures. residential address. recruitment and selection strategies. The monopoly given to the inventor has the purpose of stimulating creativity and innovation.g. if any). (Sometimes. Owner/Partner/Management details: Personal and contact details about owners/managers and partners including full name. 14 . phrase. The innovator is a also given sufficient time to recoup investment in R & D. to specify the conditions as spelt out in lease agreement and so on. symbol. Copyrights A Right that protects creators of original works of authorship e. pay and compensation issues and so on. maintenance issues. running costs. etc… Production planning: A description of the production process. while plant (vegetal) patents can last for 7 years. It serves as a company’s signature in the market place. design. name.g. cost. If the building is leased. TQM). systems (e. normally a flow diagram and protocols. Location/Business premises: Geographical location of the business. Quality Assurance: Quality control systems to be put in place. musical and other artistic works. slogan that a company can use to distinguish a product/service from other goods in the market. Plant and Equipment: This part of the Plan specifies equipment numbers.

a fire outbreak.g.g. a summary of monthly amount of cash moving in and out of the business over a year.6. changes in e. Environmental risks (e.9. and take steps to reduce or eliminate them. Projected Profit and Loss Statement. however.6. loans. the financial statements e. This shows business revenue.1 Financial Forecasts These include the following: Cash flow forecast.g. 15. A number of basic assumptions about financial management need to be stated at the start.g. for example. Profit and Loss. inflation forecasts. for example.2 Analysis of Financial Forecasts From the financial statement data mentioned above. profitability ratios.MGT 2251Y 15. Financial loss. formulae). 15. Leaks from staff acting unethically (e. embezzlement. Balance Sheet etc. Balance Sheet: provides details about the assets (resources owned by the firm) liabilities (the claims against the business) and the net worth of the business. Technological obsolescence.g. Security in general is related to a broad range of possible occurrences. Efficient risk management includes a contingency plan i. pollution).Entrepreneurship/Leadership/Innovation. Theft of assets (equipment and ideas). liquidity ratios etc.9 Financial Planning In this section of the Business Plan. Defective goods/services. a number of financial ratios can be calculated for control purposes e.g. expenses and net profit for the coming years. etc.e. salaries within the year. depreciation rules. It is. a course of action (planned and tested) to operate when the threatened risk occurs e. finance overdrafts. 15. Health and safety incidents. 15 . Bank details fees charged.6. leases and terms and conditions are specified. interest rates. almost impossible for an entrepreneur to forecast with accuracy what can happen in future.10 Risk Planning Risk management requires owner/managers to identify risks in advance. are presented as well as the financial forecasts for coming years.9.6. critical information. Faulty equipment. to assess their probability of occurrence.

competences and experience of each team member. Design of plant and equipment. suppliers. employees. location and layout plans.V’s of founders and key staff. Copies of contractual agreements with partners. Emphasis is laid on the complementarity of competences in the team. Activity 10 Can a group of people with similar skills and competences start a business and claim to make it succeed? Why? What options are open to them? 16 . This may be perceived as a guarantee for the viability of the project.7 THE ENTREPRENEUR AND HIS/HER TEAM The purpose here is to demonstrate the strength of the management team. for example: C. This section contains a brief summary of the qualifications. Activity 9 How should an entrepreneur therefore decide what to insure and what not? 15.Entrepreneurship/Leadership/Innovation.6.11 Appendix A Business Plan Appendix contains a broad range of supporting documents. 15. customers etc.MGT 2251Y Most rules can be covered by different types of insurance although insuring against each and every risk could be very costly. Site plans.

but in general contain an executive summary. The legal structure of the organisation needs to be specified as well as the Organisation Chart.MGT 2251Y The composition of the Board of Directors should be mentioned. finances and so on).K.A. T. Technique. (1997). (1999).9 REFERENCES 1.B. Journal of Creative Behaviour. H. Timmons. Proctor. Burns. 7. 15. financial and other relevant details. 8. India. J. W. Macmillan. The Essence of Creativity. (1999).g. Bolton. 3. for example. 2. Mishaps in planning include erroneous decision-making based on uncertainty. The Creative Gap. The Entrepreneurial Process. Education for Innovation. prospective partners. inflexibility in approach (e. 15. Temperament. Scribner. service providers and so on. Planning advantages include informed decision making and assisting in raising finance and convincing stakeholders in general (e. Palgrave. operational. Arnold. 4. Plans vary from business to business. New York. Majaro (1988). W. Entrepreneurs. New York: John Wiley & Sons. J. (1962). incorrect assumptions. P. Prentice Hall. when conditions change) and unrealistic expectations following wishful thinking. marketing. Bygrave. 5. (2007). 17 . Entrepreneurship and Small Business. for an existing business’s growth or expansion project or for the purchase of an ongoing concern. It may be prepared for a new start-up business. any regular service providers.C. & Thomson. (2002).8 SUMMARY A business plan is a written outline of a business to demonstrate feasibility. a background of the firm and its founders. Irwin/Mc Graw Hill.E. Talent. Insurers. London: Longman.Entrepreneurship/Leadership/Innovation. New Venture Creation.g. Parkhurst. as well as lines of authority/responsibility especially in partnerships. accountancy firms. 6. Business planning is an ongoing process whereby the plan can and should be reviewed and evaluated periodically following changes in the business environment. J. (2000).

(1969). Von Oech. Wertheimer. A Whack on the Side of the Head. V. M. (1998). 10. R. 18 . 11. Bureaucracy and Innovation. New York: Warner Books. University of Alabama Press.MGT 2251Y 9. Productive Thinking. New York: Harper & Row. Thomson. (1945).Entrepreneurship/Leadership/Innovation.