Unit-3

Developing a business plan

Chapter 3
Learning objective of the chapter
Understanding the meaning and merit of business
plan
ADMASfor business
UNIVERSITY Business plan
The right time
FACULTY OFtoHRMhave a business plan
Who and how it can develop
The time when plan is required
Deciding on Eid
Lecturer: Zakeria theIsmail
format and common elements of
business plan
MSc of Economics

Developing a sample business plan

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 Objectives:
Understanding the meaning and merit of business
plan for business
The right time to have a business plan
Who and how it can develop
The time when plan is required
Deciding on the format and common elements of
business plan
Developing a sample business plan

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 Introduction
• Once you have worked out the details of your
business, you need to put everything down on
paper.
• Writing out these details will help you visualize
all the aspects of your business.
• It will also help you convince banks and other
people to invest in your business idea.
“If you don’t know where you’re going, you may
end up somewhere else.”-Casey Stengel
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 Major questions for business
1: What is Business plan
plan
• A business 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.
• A Business Plan is a written document that defines the
goals of your business and describes how you will attain
those goals.
• A Business Plan sets objectives, defines budgets, engages
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partners, and anticipates problems before they occur.
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.
2: What is the purpose of business plan
1. It can help the owner/manager to crystallize (come
together) and focus his ideas
2. It can help the owner/manager set objectives and give
him/her a yardstick(measure) against which to monitor
performance
3. It can also act as a vehicle to attract any external finance
needed by the business 5
4. It can convince investors that the owner/manager
has identified high growth opportunities, and that he
has the entrepreneurial talent 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

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 3: 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 contradict 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.
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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 initiated at a time of major change.

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 4: 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.
 

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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.
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III. Why business plans are prepared? Cont..
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. 11
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
E. Established within resource bounds
F. Consistent with resources available or anticipated
G. Consistent with organizational plans, policies or procedures

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 The format of a business plan

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.
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Where do we intend to go?
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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 5: How we can write Business Plan
Common elements of 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.

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 Common elements in a Business Plan
1.Executive summary: Venture defined, products or services
identified, market characteristics summarized, founders
introduced, and financial structure profiled
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 place, industry structure, expected competition, and
sales forecast
5. Market plan: Market strategy to compete, pricing, promotion,
distribution, service and warranties, and sales leadership 16
 Common Elements..
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
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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.

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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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 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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 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.
 
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 Entrepreneurial team
 Expertise:
 Highlights the business expertise of your management and
senior team.
 You may also include special knowledge of budget control,
personnel management, public relations, and strategic
planning.
 Skills Gap:
 Highlights plans to improve your company’s overall skills or
expertise.
 In this section, you should discuss opportunities and plans to
acquire new information and knowledge that will add value.
 Personnel Plan:
 Highlights current and future staffing requirements and
related costs.
 VIII. Financial documentation

Since money is the objective measure used to

gauge a firm’s progress, it follows that financial
statements come under close examination.
Financial statements for a new venture are
projections based on previously defined operating
and marketing assumptions.

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 Financial…

•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 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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 Mistakes in Business Planning
• Many entrepreneurs will not take the necessary time to
carefully plan their business and prepare their
business plan. This can contribute to difficulties in
getting their business started as well as business
failure.
• To create an effective business plan, avoid making the
following common mistakes.
• Unrealistic Financial Projections
• An Undefined Target Market
• Poor Research
• Inconsistencies in the Business Plan 29