THE BUSINESS PLAN

What is a Business Plan?

• The business plan is a document that helps the small business owner
determine what resources are needed to achieve the objectives of the firm,
and provides a standard against which is to evaluate results.
 Purposes of a Business Plan

• To serve as management`s guide during the lifetime of the business

• To fulfill the requirement for securing lenders and investors.
 The Plan as a Guide

• In the source of writing the business plan, the small business operator(SBO)
is afforded sufficient time to consider all factors relevant to operating the
business.
 A Tool for Securing Funds

• When the SBO needs initial or additional funding for his business venture,
the business plan is a handy means for convincing lenders and investors.
 Revising the Plan

• A business plan is prepared in consideration of the current and expected

situations.
 Parts of the Business Plan

• Title page and contents;

• Executive summary;
• Description of the business;
• Description of the product or service;
• Markets strategies;
• Analysis of the competition;
• Operation and management;
• Financial data; and
• Supporting documents.
 Title Page and Contents

1. The name of the business;

2. The name/s of the proponents(in this case, the SBO);
3. Address;
4. Telephone number;
5. E-mail and website address;
6. The date; and
7. The name of the person who prepared the business plan
 Executive Summary

1. The capital needs of the business;

2. How the money will be used;
3. What benefits will be derived by the business from the loan or
investments; and
4. In case of loan, how it will be repaid with invest, and in the case of outside
investment, how profits will be generated.
 Description of the Business

1. A short explanation of the industry; and

2. A description of the business.
 Statements about the following will be useful in
describing the business.

• The industry sector where the business falls into ( retail, Manufacturing,
education, entertainment, and others);
• Whether the business in new or established;
• The ownership status of the business;
 Statements about the following will be useful in
describing the business.

• Information on who the customers are;

• Information on the size of the market; and
• Information on how the product or service is distributed.
 Description of the Product or Service

1. The important features of the product or service, such as the maintenance

free feature of the product, or the home delivery service for products
ordered through the phone.
2. A detailed description of how the product is used.
3. What makes the product or service different from others available in the
market.
 Market Strategies

1. Definition of the market;

2. Determination of the market share;
3. Positioning strategy;
4. Pricing strategy; 
5. Distribution strategy; and
6. Promotion strategy.
 Definition of the Market

• The objective of market definition is to determine which part of the total

potential market will be served by the firm.
 Definition of the Market Share

• To determine the firms market share, the following steps may be

used.

1. Determine the number of prospects in the target market.

2. Determine the number of times the product or service
purchased by the target market.
3. Figure out the potential annual purchase; and
4. Determine the percentage of the potential annual purchase that
the firm can attain.
 Positioning Strategy

• Positioning refers to how the firm differentiates its product or service from
those of the competitors and serving a niche.
• Positioning strategy is one where the firm identifies a target market
segment and develops a strategy mix to address the desires of that
segment. The objective of positioning is to establish the firm`s product or
service identify in the mind of the buyer.
• Before adapting a positioning strategy, the following questions must first be
considered:

1. What does the customer really want to buy from the firm?
2. How is the product or service different of the competitors?
3. What makes the product or service unique?
 Pricing Strategy

• How the firm prices its product or service is a very important component of
the business plan. If the firm wants to achieve its objective, the right price
for its product or service must be maintained.
• The firm`s price may be established through any of the following methods:

1. Cost plus pricing- covers all costs, variable and fixed, plus an extra increment
to deliver profit.
2. Demand pricing- is a method of pricing where the firm sets prices based on
buyer desires. The range acceptable to the target market is determined.
3. Competitive pricing- calls for price-setting on the basis of prices changed by
competitors.
4. Markup pricing- is a form of cost-oriented pricing in which the firm sets
prices by adding per unit merchandise costs, operating expenses and desired
profit.
Distribution Strategy

• Distribution refers to the process of moving goods and services from the
firm to the buyers. The distribution channel that will be adapted must
provide a strategic advantage of the firm.
• Common distribution channels are the following:
1. Direct sales- is the most effective channel if the plan is to move goods
directly to the ultimate users.
2. Original equipment manufacturer sales- involved selling
manufactured products to another manufacturer who, in turn, incorporates
the same to his product and which is later sold as a finished product to the end
user. An example is the sound system incorporated into cars.
3.  Manufacturer`s representative- are wholesalers employed by one or several
producers and paid on commission according to quantity sold.
4.  Wholesalers- are channel members that sell to retailers or other agents for
further distribution through the channel until they reach the final user.
5.  Brokers- are distributors who buy directly from distributors or wholesalers and
sell to retailers or end users.
6.  Retailers- sell directly to consumers.
7.  Direct mails- are printed materials used in a targeted campaign to consumers.
These are sent directly to consumers. These include catalog, letters, e-mail, and
other direct appeals.
• Direct Sales Channel
PRODUCER---------> ULTIMATE USER

• Original Equipment Manufacturer Sales Channel

OEM---------> FINAL PRODUCT--------> END USER

• Manufacturer`s representative Channel

MANUFACTURER-------> REPRESENTATIVE-------->
WHOLESALER/END USER
• Whole Saler Channel
MANUFACTURER------> WHOLESALER------->RETAILER------>END USER

• Broker Channel
DISTRIUBUTOR/WHOLESALER------>BROKER--------> RETAILER/ END USER

• Retailer Channel
RETAILER-------> CONSUMER

• Direct Mail Channel

COMPANY--------> CONSUMER
Promotion Strategy
The promotion strategy must include the following:
1.  Advertising Aspects
• Advertising budget
• Positioning message
• First year’s media schedule
2. Packaging
3. Public Relations
4. Sales Promotions
5. Personal Sales
• Pricing procedures
• Rules on returns and adjustments
• Methods of sales presentations
• Generation of leads
• Policies on customer services
• Compensation of salesmen
• Responsibilities of salesmen
• Analysis of the Competition
• In competitive analysis, the following must be determined:
• Strengths and weaknesses of the firm’s competitors
• Strategies that will give the firm a competitive advantage
• Barriers that can be developed to prevent competitors or would
be competitors from exploiting the firm‘s market
• Any opportunity that can be exploited
Operations and Management
The business plan must contain the following:
1.  Organizational structure
• Marketing (including sales, customer relations and service)
• Production (including quality assurance)
• Research and development
• Management
• Human resources
    
2.  Operating expenses
• Rent
• Advertising and sales promotion
• Supplies
• Utilities
• Packaging and shipping
• Maintenance and repair
• Equipment leases
• Payroll
• Payroll taxes and benefits
• Bad debts
• Professional services
• Insurance
• Loan payments
• Depreciation
• Travel
• 3. Capital requirement
• 4. Cost of goods sold
• Material
• Labor
• Overhead
 Financial Data

• Income statement
• Balance sheet
• Cash flow statement
Income Statement (Income, Expenses and Profit)
 Balance Sheet (Assets, Liabilities and
Owner’s Equity)
THE ASSETS
1.  Current Assets
• Cash – checking, savings, and short term investment accounts
• Accounts receivable – credit accounts
• Inventory – materials used to manufacture a product not yet sold
 Balance Sheet (Assets, Liabilities and
Owner’s Equity)

• 2.  Fixed Assets

• Capital and plant – land and building less depreciation
• Investments – cannot be converted to cash in less than 1 year
 Balance Sheet (Assets, Liabilities and
Owner’s Equity)
THE LIABILITIES
1.  Current Liabilities
• Accounts Payable - all expenses incurred by the business that are
purchased on an open account from suppliers and are due for payment
• Accrued Liabilities – operational expenses that are not yet paid
• Taxes that are due and payable
 Balance Sheet (Assets, Liabilities and
Owner’s Equity)

• 2.  Long-term Liabilities

• Bonds payable – bonds due and payable over one year
• Mortgage payable – loans used for purchase of real estate and is repaid for
a period
• Notes Payable – loans represented by a written document 
Balance Sheet (Assets, Liabilities and Owner’s
Equity)
 Cash Flow Statement

The following items are listed in a cash flow statement:

1.  Cash – the cash on hand in the firm
2.  Cash sales – income from sales paid for by cash
3.  Receivables – income collected from credit sales
4. Other incomes – income derived from investments, interest on money
loaned to borrowers, and on cash derived from sales of assets
• 5.  Total income – the sum of each cash, cash sales, receivable,
and other income
• 6.  Material or merchandise
• Raw material used in the manufacture of the product
• The cash outlay for merchandise inventory of trading firms
• The supplies used in the performance of a service
 Cash Flow Statement
7. Direct labor – labor required to manufacture a product or perform a service
8. Overhead – all fixed and variable expenses required in the day-to-day
operations of the business
9. Marketing expenses – all salaries, commissions, and other direct costs
associated with the marketing and sales department
 Cash Flow Statement

• 10. R and D expenses – labor expenses required to support the research

and development efforts of the firm
• 11. G and A expenses – those required to support the general and
administrative functions of the firm
• 12. Taxes – all taxes except payroll withholding taxes, paid to the
government, national and local
 Cash Flow Statement

• 13. Capital – represents the fund requirements to obtain any equipment

needed to generate income
• 14. Loan payments – total payments made to reduce or eliminate any long-
term debts
• 15. Total expenses – sum of materials, direct labor, overhead, marketing
expenses, R and D, G and A, taxes capital and loan payments
 Cash Flow Statement

• 16. Cash flow – difference between total income and total expenses

• 17. Cumulative cash flow – difference between current cash flow and cash
flow from the previous period
Cash Flow Statement
 Supporting Documents

The documents usually consist of the following:

1. The owner’s resume
2. Contracts with suppliers
3. Contracts with customers or clients
4. Letters of reference
5. Letters of intent
6. A copy of the firm’s lease
7. A copy of copyright or patent acquired
8. Tax returns for the past three years
THANK YOUUUU