Developing A Business Plan

Developing a Business Plan

Unit 1
Developing a Business Plan
The entrepreneurs are not discouraged with the constraints along the causes of our
economic malady. It should be turned into positive note and new solutions must be
made to make them different from other individuals. There are lots of opportunities
for entrepreneurs who are hardworking, creative and resourceful, and would like to
take the calculated risk. Business opportunities are wide open for people who would
like to invest their money into gainful business activities. They need to find out this
new venture that interests them and how they can harness their technical knowledge
of the trade.
The search for business opportunity should start with the individual entrepreneur.
He has to find out the skills and talent for that particular type of business activity. His
talent and skills are the beginning of his great investment in the trade. He must have
the passion for independence and willingness to work hard and long to keep up with
his dream of being an entrepreneur.
Factors to Consider of a New Entrepreneur
1. Know your Product or Service.
First, you must believe on the product or service that you will offer to your
customer. If it is a new idea or concept then you must be able to convince that you
have a unique product that would satisfy customers’ needs and wants. Customers
want to try new products but it must be better than those existing in the market.
2. Analyze the Market Potentials.
The customer base will determine the success of your business venture. The
wider the market potential, the more chances of growth and success. The
entrepreneur must know his needs and wants and figure out how to satisfy these
needs. Analyze customers’ profile as to their buying habits, their income, and
social status.
Factors to Consider of a New Entrepreneur
3. Determine the Marketing Strategy.
A unique product or service needs effective distribution strategy to
get customer into the basket of demand potential. Continuous supply
determines product growth. Customers must have to access to the
product when they need it. Outlets must be developed that would
answer customers’ demand. The customers must be able to make
suggestions as to product quality and availability as they are the kings
and queens of entrepreneur.
Factors to Consider of a New Entrepreneur
4. Know the Competitors.
In launching a product with existing competitors you must know
their strengths and weaknesses. Develop new product and marketing
strategy and turn their weaknesses as new opportunity for your
product. Continuous innovation and research would mean better
quality products or service. Make things better and serve your
customers with loyalty and dedication and it will make a great
difference.
Factors to Consider of a New Entrepreneur
5. Do not set on your Laurels.
The landscape of business is continuously changing. Your initial
success in your business activities needs more proactive analysis for
expansion and growth and overcome possible competitions. Develop
advertising and promotion strategy to penetrate the wider market.
Develop budget for expansion and diversification either horizontally or
vertically. Get new resources and develop new materials. Invest in
research projects that will enhance the quality of your products.
Environmental Scanning
The environment of business is vast opportunities and the
entrepreneur must have a greater look into this potential as well as the
conditions prevailing in the community. The entrepreneur’s ultimate
objective in diving into the business world is to make profit. Investment
in money and effort should generate financial gain for the
entrepreneur. To generate income for his product or service he must be
able to deliver customer satisfaction.
The following factors are contributory to the
development of customer satisfaction:
1. Business Location for Small Entrepreneurs
A retail outlet would need a site that is convenient to prospective customers in
terms of parking space or availability of transportation. A restaurant or an
entertainment center would need ample parking area where customers would
not worry on where to leave their cars while enjoying their stay. The same could
be true with a grocery store.
In choosing the location, the following factors must be looked into by the
entrepreneur:
a. Rent and Space – the cost of rent is a regular monthly expense and it must be
sustained with the possible income that will be generated. It is the operating
cost that will be added to the price of the product or service. The price input
must be competitive enough with those in the same location.
The following factors are contributory to the
development of customer satisfaction:
b. Terms of Lease Agreement – The term lease must be studied
carefully as some owners of space might take advantage of lessee. The
owners increase the rent of the space when the business condition
becomes favorable and then take over the business.
c. Type of Goods or Merchandise – A convenient store is located
where there are pedestrians passing by. They need quick and easy
access to the store and would not spend a lot of time to purchase their
goods.
The following factors are contributory to the
development of customer satisfaction:
d. Income Level of Prospective Customer – The type of pedestrians
and the income level of customer must be taken into account. A good
barber shop or a beauty salon with facilities of air conditioning units
and other amenities need to be located in the community with higher
income bracket.
e. Prospective Sales Volume – High density sales volume need to be
located in shopping area where customers conversed to buy essential
goods. Lower sales volume could be located in the community or
secondary areas like subdivisions or the BARANGAY.
The following factors are contributory to the
development of customer satisfaction:
f. Municipal or City Ordinances including taxes and fees – The
location must not violate city or municipal ordinances and the taxes
and fees must be reasonable for the owners of business. Excessive
taxation will not encourage the growth of business in the area.
g. Location of the Areas – The area must be free from floods and
other calamities that will endanger the business. It must be free from
the fire hazards or other environmental factors that will disturb the
operation of the business.
The following factors are contributory to the
development of customer satisfaction:
2. Location for Small Industrial Plant or Manufacturing Facilities.
Environmental factors in locating a manufacturing plant or industrial facilities
need to be studied carefully as plant location is a great factor in the investment of
funds and its profitability in the long run. The industrial facility must be suitable to
the kind of operation. It must comply with government zoning regulations related to
pollution and environmental laws.
The following are important factors to consider:
a. Land Area – The contour of the land, its size, and shape must be suitable to the
plant site. It must be free from floods or other environmental hazards that will
disturb operation. The assess value of the property must be reasonable as expenses
to start up of operation requires a lot of money. The assess value is also a factor in
the payment of taxes.
The following factors are contributory to the
development of customer satisfaction:
b. Facilities for Expansion – The land area must have ample space for
plant expansion and provisions for parking facilities for customers and
employees. Anticipation of growth and expansion in plant facilities
should be considered as additional site in the future may create a
problem.
c. Power and Utilities – Availability of power supply and the cost of
electricity involve in the operation and great factors in the production of
goods. Continuous power supply is needed to keep the plant in operation
for its target production. Water supply is also needed and the proper
disposal of waste must be put in place to comply with environmental
laws.
The following factors are contributory to the
development of customer satisfaction:
d. Building and Other Utilities – The building must be within the
restrictions code of the municipality or city. The utilities like canteens and
other employees’ facilities must be put in place in compliance with the
labor code. Sidewalks and gutters are important component in
employees’ safety while in the plant site. Fire safety and hazards signs
are mandatory requirements.
e. Plant Site Accessibility – The plant site must be accessible to public
or service transport for its employees and valued customers. It must be
near highways or expressway to provide ease in travel time and reduce
cost in the transport of raw materials and finish product. Delay in
transport systems are added cost that must be avoided.
Strength, Weaknesses, Opportunities and
Threats (SWOT)
SWOT ANALYSIS is an entrepreneurial tool in determining the profitability of
the business operation. Opportunities carries with it some risk involved and this
should be look into carefully. The strengths and weaknesses are internal factors
to the entrepreneur while the opportunities and threats are external factors.
The entrepreneur must look at how he is to combat the weaknesses on his
side and this needs strong determination to succeed with caution. He may need
long working hours and advanced thinking to overcome the possible threats.
Planning and environmental analysis is needed to keep opportunities moving to
his side of profitability. Investment in money and effort should turn the tide of
profit to the side of the entrepreneur and this needs careful study and analysis.
The product must be evaluated along the
following areas:
1. Product Strength in the Market must have the following:
a. Available Technology in Product Processing – Technology is an important
component in producing the product as the economies of scale determines
the price index. The more products are produced, the lower the price it can
be offered to the market. Technology, on the other hand, improves product
quality and customers want those items with technical standards.
b. The Source of Raw Materials must be Abundant and at Lower Price – The
constant supply of raw materials is an important factor in the production of
the product. Cheap raw materials that are processes into good products
would be able to penetrate the market as its price could be competitive.
Continuous production will eliminate distribution disruption hence
maximum supply to the target market.
The product must be evaluated along the
following areas:
c. Skilled Workers must be Available - Technology must have the
component of skilled workers that shall operate the machineries and
other equipment. They may need training in machine operation as
quality products also come from skilled workers. workers efficiency and
productivity must be looked into as they are the lifeblood of any
production line.
d. Capital Investment in Machinery and Operating Expenditures - A
starting venture may have little investment in terms of machinery and
equipment but starting with small capital should generate profitable
operation. As the enterprise expand to meet the growing demand of the
customer.
The product must be evaluated along the
following areas:
e. Expertise and Technical Skills of the Management Team - A good product is
the making of a well conceived idea of the management team. Improvements
in product quality is a continuing process and it must be the management
objective to get customers patronage. Customers seek better products and the
taste for quality changes over time.
2. Characteristics of Weak Products and Weak Management:
a. Poor Quality and High Price - The entrepreneur should not launch a poor
product in the market as it will surely fail to advance in the sales and profit. It is
not wise to invest in the production of poor products. The entrepreneur must
see to it that product has undergone customer taste and acceptable before it
gets into the production line.
The product must be evaluated along the following areas:

b. Product Design and Appeal - Product design should appeal to customers

demand. Poor design of the product is the making of people with no technical
expertise in handling customer wants in terms of features. Artistic designs are
conceptualized and approved by the possible users. Product appeal in terms of
color and features are important ingredients for customer patronage.

c. Production Cost - Production cost is the price determinants. Entrepreneur

cannot make maximum profitability on products whose production cos cannot
survive market competition. Production cost may be attributed to high labor
cost and the availability of cheap raw materials.
The product must be evaluated along the following areas:

d. Supply and Demand - Intermittent supply to the market will make

customers shift to other products. The supply chain management must be put
in place to make the products available to valued customers. The supply chain
managementt must be able to capture the widest market possible to sustain
product development.
e. Weak Product Management - Weak management is created when
people at the top of the organization fail to sustain a vigorous effort for
expansion and growth when management sets on his initial laurels and
ventured on vices and other extra activities that will lose his total investment.
Some people, who acquired money, became too complacent and forgot all
about expanding thereby competition gets them out of the market place.
The product must be evaluated along the following areas:

3. Sustainable Product Opportunities in the Market:

a. Product Demand - Product demand is the greatest opportunity of
the entrepreneur. Demand is the essence of profit and this must be
sustained by the entrepreneur before wide competition appeared in
the market place. The absence of other products will expand
production operation and thereby generate opportunities to expand
into other ventures of vertical and horizontal expansion.
The product must be evaluated along the following areas:

b. Presence of Poor Quality in the Market - The presence of poor quality

product in the market place is an opportunity for the entrepreneur. The
alternative is on the side of the entrepreneur to supply the market with quality
product and sustain patronage. The product must be superior in quality and the
price must be reasonable compared with that of the competitor.
c. Government Policies and Support - The government support to local
entrepreneur is an opportunity for greater expansion. The government should
support the local entrepreneur in terms of taxes and government incentives.
Regulating on the importation of foreign products where local products are
available is one important government program that will sustain economic
growth of the local enterprise.
The product must be evaluated along the following areas:

d. Liberal Credit Terms and Interest Rates - Liberal credit terms by banks and
other government institutions will generate expansion for the local entrepreneurs.
Banks and financing institutions serve as conduit of business in their expansion
program. Credit terms given by suppliers of raw materials and other production
inputs are opportunities for the growth of the business.
4. Threats to Product Profitability and Market Expansion:
a. Entrance of Competition - The entrance of many competitions in the market
place will definitely give problem to the entrepreneur. Competition will reduce
profitability as the price has to be competitive with those in the market place.
When profit drops, expansion will be limited and innovation will drain the
opportunity for growth. Advertising and promotion cost has to be sustained in
order for the product to get patronage.
The product must be evaluated along the following areas:

b. The supply of raw materials will be limited as other competitors will

be getting the same suppliers. As demand for raw materials become
competitive in prices, production inputs go higher and this will affect
product pricing. Increased production cost means changes in product price.
c. The emergence of Leftwing Labor Unions - Many companies close
shops with the advent of labor unions with leftist philosophy as they want
more wages and benefits that the company could not give. Company strikes
and lockouts are deterrent to the expansion and company's growth. Most
entrepreneurs would try to avoid Unions if possible, as leftist elements
usually come into the picture that ill affect the opportunities of business
growth and expansion.
Business Plan
The following steps in the business formation have been done by
entrepreneurs that applied a more scientific study of the business conditions. A
business project either new or an expansion must undertake a careful planning of
the project which will serve as guide in the implementation.
In creating or searching to business opportunities, one must consider the
following factors:
1. The needs of the society
2. Availability of capital resources
3. Business inclination
4. Clientele
5. Availability of raw materials
6. Human resources
7. Nature of product or service
Basic Phases of Business Plan
1. Marketing and Distribution Study
The Marketing and Distribution Study shall deal with product
demand analysis. It should show the competitive product advantage
over existing product or service and designing the marketing program
of the enterprise. It should analyze market share and system of
promotion, distribution, advertising media and other marketing mix
strategies to ascertain product market acceptance and patronage.
Basic Phases of Business Plan

2. Production and Technology Study

Production and Technology Studies refer to the need in making the
product or service. Thus refers to the machineries, plant location, and
other technical aspect in the making of the product. It shall describe
the physical layout of the building and the eqipment that will be used in
production. For services it shall specify the equipment that will be used
and the manpower needed to render the activity.
Basic Phases of Business Plan

3. Financial Management
The Financial Management aspect refers to the capital investment
and sources of funding the operation of the business. It shall show
financial projections over a period of one year and five years program
and shall determine the rate of return on investments. It must be able
to show the return on equity and break even sales as well as pricing
sensitivity test.
General Format of a Comprehensive Business
Plan
I. INTRODUCTION
The Introduction contains the rationale and the background of the
study undertaken. It should include the importance of the project and
the proponent's background and their desire to establish the business.
II. PROJECT SUMMARY
A. Name of the Firm
B. Business Location
C. Brief Description of the Business
1. Brief history or how the business was organized.
2. Highlights of the findings in every phase of the business study.
General Format of a Comprehensive Business Plan

III. MANAGEMENT AND PERSONNEL COMPONENTS

IV. MARKETING STUDIES
A. Marketing Profile - This refers to the market segmentation for the
distribution of the product or service. The study must cover the
possible users of the product and how to reach the particular
segments.
B. Demand Analysis
1. Projected consumption in the first year of operation, then
Five years and Ten years operation.
2. Major segment users of the product and their location.
General Format of a Comprehensive Business Plan

C. Supply Analysis
1. Source of Product Supply
a. Foreign Suppliers
b. Local Suppliers
2. Factor Analysis of the Past and Future Supply Chain.
D. Competitive Analysis
1. Selling Price - This refers to the selling price of the product.
2. Competitions - It refers to the competing product in the markets
as to its quality and market acceptability.
General Format of a Comprehensive Business Plan

3. Distribution and Cost of Transportation - It refers to the transfer

or movements of products from the producer to the ultimate user. The
usage of different vehicles and ways to transport the product should be
easily defined.
4. Channel of Product Distributions - This refers to the means of
reaching the target maket or it is the method or strategy to penetrate a
particular market segments.
5. General Competitive Practice - It is the analysis of how
competitors distribute the products to existing end users.
General Format of a Comprehensive Business Plan

E. Program Analysis of Marketing Strategies

1. Geographic Segmentation Strategy - this refers to the place of
target market and the approaches to penetrate the market niche.
2. Psychographic Strategy - this refers to the educational
background and the lifestyle of target market.
3. Demographic Segmentation Strategy - this refers to the target
market as sex, age, income and other personal factors of the target
market.
4. Pricing Strategy - this has something to do with the price index
of any pricing strategy that will attract customers.
General Format of a Comprehensive Business Plan

5. Channel of Distribution - the choices could be retailers,

wholesalers, dealership, franchise, or direct marketing.
6. Promotion and Advertising - media network, personal selling,
billboard, or any media penetration strategy.
V. PRODUCTION
A. Product Specification - It tells about the product or service that
the entrepreneur will offer to its target market. It is an elaborate
presentation of the properties of the products and the benefits related
therein. It is the service that will be offered to the target customer.
General Format of a Comprehensive Business Plan

B. Production Process - It is the detailed layout of the production

process as the products goes into the production line indicating the flow
process, materials and equipment to be used and the normal time table
that the product will be finished.
C. Plant Rated Capacity - This refers to the volume of production per
shift per day or a monthly basis considering target market consumption. It
must also make projections for five years forecast and the technical factors
involved.
D. Machinery and Equipment - It involves the kind of machine to be
used, its sources, spare parts, working guarantees, rated capacity per day,
and the cost estimates involved in its purchase.
General Format of a Comprehensive Business Plan

E. Plant Location - A drawing or plant location and the vicinity map

as to its accessibility to supply or raw materials, and the transport of
finished product to the market. It must show advantages and other plus
factors for employees and other services.
F. Building and Facilities - It must describe the type of building that
will be constructed or sketch of the building plan, electrical plants,
drainage, and other utilities. It must contain the cost estimates involved
and the total floor plan.
General Format of a Comprehensive Business Plan

G. Raw Materials - It deals with the raw material requirements and

its specification, its source, cost and terms of payment, availability and
the possible long term supply. It must also show alternative suppliers of
other sources.
H. Power Supply and Utilities - Utilities refer to the supply of
electricity, water, and its availability in the processing of the product. It
also has to do with environmental disposal of waste and compliance
with government requirements. Drainage system has to comply with
sanitary requirements imposed by municipal and national laws.
General Format of a Comprehensive Business Plan

I. Production Cost - This refers to the direct labor and administrative

cost in the processing the products. Unit cost must be computed as basis
for pricing and marketing strategies.
VI. FINANCIAL STUDIES
A. For New Business Venture
1. Total Project Cost - This has to do with the entrepreneur fixed
cost and the working capital in the operation of the business.
2. Capital Investments Required.
3. Pre-operating cash flow and its relation to time table - financial
projections for the first year of operation, for the first five year operation
in projected balance sheets and income statements.
General Format of a Comprehensive Business Plan

4. Supporting Schedules in the Financial Statements and Income.

a. Collection Schedules in the Financial Statements Income.
b. Inventory Levels
c. Payments for Purchases and Expenses
d. Production Costing, Administrative Expense and Cost of Sales
and other Projected Financial Expenses.
5. Projected Financial Estimates showing return on investments,
return on equity, break-even analysis, price analysis.
General Format of a Comprehensive Business Plan

B. For Existing Project

1. Audited Financial Statement - last 3 years
a. Balance Sheets
b. Income Statement
c. Cash Flow
2. Fixed Assets, Capital Investments, Depreciation used in Capital
Assets.
3. Tax Assessment, Liabilities, and other Payables.
4. Financial Trends and Ratio Analysis.
General Format of a Comprehensive Business Plan

5. Financial Cost for Administrative expenses, production and

Selling Expense.
6. Financial Projection for the Next Five Years.
7. Financial Analysis for Return of Investment, Return of Equity,
Break even Analysis, Production Volume and Price Analysis.
Micro Business Plan
The major objective of business plan is to assess, examine and analyze the
viability or feasibility of the study. Business plan is the ticket to success. It is also
a blueprint to success and document details what you plan to do with your
venture, and how exactly you want to achieve them. It is your road map to your
business, according to Elizabeth Manuel, Chief of the Business Management
Division of the government run Philippine Trade Training Center. (p. 18
Entrepreneur book: Ultimate Guide to Starting Your Own Business 2011
copyright)
Validate your business concept, instead of doing a business plan outright.
Identify the business SWOT, business planning begins before it has materialized
on paper. Have clear goals, your end goal must be clear to you and your team.
Evaluate not only the business idea but also your capacity to handle and nurture
it.
Micro Business Plan

A. Executive Summary
Synopsis of your business plan so ideally, this part should be
written last in order to include all the necessary information and target
points of the document. You must possess the ability to predict the
financial path of your venture in correlation to the present economy. If
your external analysis tells you what you can and cannot do, your
internal analysis tells you what you are able or not able to do.
Micro Business Plan

B. Marketing Plan
Push or Pull, you must be able to tell how fast or slow your
product will move in the market, whether it would make use of a push
or pull strategy or both. The push strategy tells how I will move my
products to the marketplace, while the pull strategy tells how I will
make customers ask for my product. The pull strategy promises, the
push strategy outlines what makes the business stay.
Micro Business Plan

C. Operations Plan
Ernesto Pineda, director of the UP, Institute of Small Scale
Industries, defines the operations plan as the company's expected sales
for the coming year and the costs of running the business in general. It
keeps track of the business performance for its conception down to its
purchase. Determining the number of people to hire to keep your
perspective business running smoothly is also a must. Managing your
inventory and computing the production costs are crucial at this point
so you can project possible profits.
Micro Business Plan

According to Dr. Alejandro Ferreria, entrepreneur and faculty

member of Ateneo Graduate Scxhool of Business, “Your main concerns
in your operations plan are the key areas of quality, delivery and
productivity, both in keeping and improving.” This section of the
business plan provides the competencies necessary to get things done.
D. Financial Plan
According to Dr. Ferreria, “Your financial plan must show how
much money is needed to generate sales; how much is going to be
spent on a particular item; and how much will be borrowed and paid.”
The income statement describes your company's ability to generate
Micro Business Plan

cash by computing for sales and expenses. The balance sheet shows
your financial condition by accounting for your assets (cash,
receivables, inventory, equipment, property, investments) and liabilities
(accounts payable, salaries, taxes, and bonds, notes and mortgage
payables.)
Although your business plan does not guarantee you the results you
want to achieve, it's still a step closer to making things work in your
favor. After all, any business venture is a risk and any entrepreneur
must be ready for a series of trial and error tests.
Micro Business Plan
The Presence of Double Taxation - The government already
imposed a lot of taxes to the entrepreneur. Honest
businessmen could not profit in their operations as there are
lots of taxes that the government would like to collect. Still
related are the unfavorable treatment given by the tax
collectors to businessmen that they have to put in grease
money for a little favor. Taxes are collected by the government
and another tax by unofficial tax collectors.
Micro Business Plan

Peace and Order in the Area of Business Operation - Peace and

order are components of business growth. Criminality and killings
would drive away investors. Killing competitors by those riding in
tandem syndrome scares people to go into the business. Hold up gangs
and robbery syndicates are not good to business growth.
Coupled with this problem is the revolutionary tax collected by the
leftist elements. If you do not pay the revolutionary tax surely your
business will go into flames. These are some greater threats to the
expansion of business in the countryside.
Micro Business Plan

The Cost of Power Supply - Cost of production increases with the

cost of utilities like current and water. The government private
partnership in the operation of power and water utilities has increased
the cost of power by about 400 percent. This contributed to increased
production cost and pose threat to our competitiveness in the world
market. Power and water utilities should be regulated by the
government in order to sustain growth in our industries.