Chapter Four - Business Planning

4.1 The Concept of Business Planning

B usiness plan is a comprehensive set of guidelines for a new venture. It is also called a
feasibility plan that encompasses the full range of business planning activities.
A business plan (feasibility plan) is an outline of potential issues to address and a set of
guidelines to help an entrepreneur make better decisions.
This plan would present basic business idea and all related operating, marketing, financial and
managerial considerations. It should layout the idea and describes where we are, where we want
to go, and how we propose to go there.
4.2 The Purpose of Business Plan
1. It can help the owner/manager to crystallize and focus his ideas
2. It can help the owner/manager set objectives and give him/her a yardstick against which to
monitor performance
3. It can also act as a vehicle to attract any external finance needed by the business
4. It can convince investors that the owner/manager has identified high growth opportunities,
and that he has the entrepreneurial flair and managerial talent to exploit that opportunity
effectively
5. It entails taking a long term view of the business and its environment
6. It emphasizes the strengths and recognizes the weakness of the proposed venture
7. It offers a sound basis for operation of a business plan that can be used at different times
Major questions of business plan
I. When business plans are produced?
1. At the start up of a new business
After the initial stage of developing ideas and feasibility study are over, a new business may start
up through a detailed planning stage of which the main output is the business plan.
2. Business purchase
Buying an existing business does not negate the need for an initial business plan.
A detailed plan tests the sensitivity changes to key business variables.
This helps to understand the level of risk that are accepted and the likelihood of rewards being
available for the buyers.
3. Ongoing process
Ongoing review of progress, against the objectives of either a new business or a small business
purchase is important in a dynamic environment. A periodic review with the business plan is
required in the constantly changing environment. A business plan should be the live, strategic,
and technical planning focusing on how a small business responds to the inevitable changes
around it.
4. Major decisions
Even if planning is not carried out on a regular basis, it is usually initiates at a time of major
change.

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II. Who makes the business plan?
Three types of people are interested in a business plan:
1. The managers who run the business on a day to day basis
2. The owners, or prospective equity investors
3. The lenders, who are advancing loans for the enterprise
1. Managers
They are involved in small business planning both as producers and recipients of the plan. The
management of a small enterprise is the only people likely to be sufficiently knowledgeable to
produce a business plan. Business plans are also written to aid small business managers.
2. Owners
The managers of a small enterprise may also be the owners and take a keen interest in the
planning process. Equity partners, either a sleeping partner looking for an investment, or an
active partner looking to join an existing small business.
3. Lenders
Banks are the main recipients of business plan.
Other lenders of money, from private individuals to venture capital companies, will also expect
to make their investment decision after the presentation of a formal business plan.
III. Why business plans are prepared?
The above three groups will have some shared, and some more separate motives for using a
business plan. Managers, owners and lenders will be seeking to investigate the following issues:
1. Assessing the feasibility/possibility and viability of the business or project
A project feasibility analysis includes market analysis, technical analysis, financial analysis
and social profitability analysis.
A market analysis: is a method of screening project ideas as well as means of evaluating a
project’s feasibility in terms of the market.
The technical analysis: of a project feasibility study establishes whether the project is
technically feasible or not, and whether it offers a basis for the estimation of costs.
In the financial analysis: the emphasis is on the preparation of the financial statements, so that
the project may be evaluated in terms of the different measures of commercial profitability and
the magnitude of financing required may be determined.
2. Setting objectives and budgets
 An objective is an important element in the project planning. Objectives are concerned
with defining in a precise manner what the project is expected to achieve and to provide a
measure of performance for the project as a whole.
 Objectives are the foundations on which the entire structure of the project design is built.
The objectives should be;
A. Specific
B. Not complex
C. Measurable, tangible and verifiable
D. Realistic and attainable

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 E. Established within resource bounds
F. Consistent with resources available or anticipated
G. Consistent with organizational plans, policies or procedures
4.3 Developing a business plan
The starting point for raising or securing capital resides in one simple document: the business
plan. This document represents management’s foundation and justification for birthing, growing,
operating, and/or selling a business based on the economic environment present. Without a
business plan, management is left to operate a business in the dark, attempting to guess or use its
intuition on the best course of action to pursue.
Different business type can develop different plan to run their business; but, the format of
business plan in different business is highly similar. Business plans come in a variety of shapes,
sizes, forms, and structures and often take on the characteristics and traits of the business
founder(s). Different sections of the business plan may be developed in more depth, while other
sections are presented in a quasi summary format because the needed data, information, or
knowledge isn’t readily available for presentation.
What should a business plan look like, and what should be included? Business plan should
answer straight forward questions;

 Where are we now?

 Where do we intend to go?
 How do we get there?
Where we are now?

An analysis of the current situation of the market place, the business concept and the people
involved is a necessary first step. An evaluation of what we are doing now helps to proceed to
the future.

Where do we intend to go?

Show the direction that is intended for the business need to be clear and precise. Quantifiable
targets and objectives help to clarify and measure progress towards the intended goals.
Identification of likely changes to the business environment will build on the opportunities
outlined, and assess possible threats.

How do we get there?

Implementation of accepted aims gives the final end result. Plans for marketing and managing
the business, with detailed financial support are the advisable preliminaries before putting it all
into practice.

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Common elements Business plan

All business plans include eight common elements that are contained in the feasibility model
summarized below. This model is generally adaptable to most types of new ventures or business
enterprise.

1. Executive summary: Venture defined, products or services identified, market characteristics

summarized, founders introduced, and financial structure profiled. This represents a brief
overview of the market opportunity present, the operational logistics required to bring a product
and/or service to market,
2. Business concept: Purpose of the venture and the major objectives of its founders; description
of the distinct competency of the firm

3. Product or service: Function and nature of products and services, proprietary interests,
attributes and technical profile

4. Market research and analysis: Customer scenario, markets, venture’s niche, industry
structure, expected competition, and sales forecast

5. Market plan: Market strategy to compete, pricing, promotion, distribution, service and
warranties, and sales leadership

6. Manufacturing or operations: Facilities, location, inventory and materials needed, human

resources, operational processes, technology, security, insurance, and safety

7. Entrepreneurial team: Profile of founders, key personnel, investors and management roles

8. Financial documentation: Financial statements for income and expenses, cash flow; assets
and liabilities, break-even projections, and start-up underwriting needed. In a sense, this section
brings all the elements of the business plan together from an accounting and/or financing
perspective.
Financial forecasts are prepared to project the anticipated economic performance of the business
concept based on the information and data presented in the business plan.

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Figure 1: activities of executive summery

III. Products or services

The plan must provide an accurate description of a product or service before attempting to
explain how it will be marketed. Essential information required to describe a product includes
distinctive characteristics of the product itself, how it works (or is used), materials, costs,
methods of manufacturing, proprietary protection (patents, trademarks, or copyrights), and
potential competing (substitute) products.

IV. Market Research and Analysis

The objective of market research and analysis is to establish that a market existence for the
proposed venture. Entrepreneurs may provide a credible summary of potential customers,
markets, competitors, and assumptions about pricing, promotion and distribution.

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 Figure 2: market research and its activities

V. The market plan

The market plan describes an entrepreneur’s intended strategy. It builds on market research and
distinct characteristics of the business to explain how the venture will succeed. It focuses on
specific marketing activities. It describes pricing policies, quality image, warranty policies,
promotional programs, distribution channels, and other issues such as after sales service and
marketing responsibility.

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Figure 3: elements of marketing plan

Figure 4: activities of manufacturing plan

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 VII. Leadership- the entrepreneurial team

Entrepreneurs must take care to profile the entrepreneurial team honesty but effectively. They
should emphasize team member’s strengths, past successes, and positive characteristics, and they
should include brief resumes of the principals. Each person’s role in the new venture should be
described briefly, including board members or investors who may not be involved directly in
operations yet be able to influence decisions.

VIII. Financial documentation

Since money is the objective measure used to gauge a firm’s progress, it follows that financial
statements come under close scrutiny. Financial statements for a new venture are projections
based on previously defined operating and marketing assumptions.

An income statement or profit and loss statement is required to show revenue, cost of goods sold,
operating expenses, and net income. Cash flow budgets reflect information from the profit and
loss statement adjusted properly for credit sales, non cash expenses and cash obtained and used
outside of operational income. A projected balance sheet will summarize assets and liabilities,
and a break even analysis will reveal when the enterprise begins to turn a profit

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