BUSINESS

PLAN

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What is a BUSINESS PLAN?
 The primary value of your business plan is
to create a written outline that evaluates
all aspects of the economic viability of
your business venture including a
description and analysis of your business
prospects.
 A well-written, honest-to-goodness
document prepared by the entrepreneur
that will convince the investor to invest.

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o From Hisrich and Peters
 It is an integration of functional plans such
as marketing, finance, manufacturing, and
human resources.
o From David E. Gumpert
 A business plan is a selling document that
conveys the excitement and promise of
your business to any potential backers or
stakeholders.

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o From Entrepreneurship Book
 It is thinking ahead of objectives,
strategies, financing, production,
marketing, profit prospects, and growth
possibilities.
 It should be realistic. This means planning
is based on the available resources and is
responsive to the needs of the community.
 Planning is asking
 What to do?
 How to do it?
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  When to do it?
 What to expect in the future?

 Business planning involves establishing

and attainment of goals and the ways to
accomplish such goals. 
 Many entrepreneurs use their business
plan for the  critical start-up and expansion
so that they will stay both on target and
within the budget.

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Components of Business Plan

1. SWOT
 The chances of a product or service can be
evaluated through the SWOT Analysis.
 Every product or service has its own
strength, weakness, opportunity, and
threat.

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2. Objectives
 These should be specific and realistic.
 Such objectives can be daily, weekly,
monthly, and yearly.

3. Strategies
 These are ways of accomplishing the
objectives.

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 Such ways are stated in the financial,
production, marketing, and organizational
plans of the enterprise.

4. Time Frame
 In business, time is gold.
 For this reason, an entrepreneur must be
efficient in time management

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Characteristics of a sound
BUSINESS PLAN
 Objective
 Clear
 Logical and simple
 Flexible
 Stable
 Complete and integrated

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Importance of a BUSINESS
PLAN
 Serves as :
• Blueprint /Roadmap for building an
enterprise
• Vehicle for describing the goals in
business: (why goals are economically
and technologically feasible)
 Means to:
• Eliminate business risks
• Minimize cost of production
• Delineate individual responsibilities
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 Explain to employees what is expected of
them
 Detect the weaknesses of the business
operations
 Improve company performance
 Assists managers in decision making
 Plan for new product development
 Raises capital for a business or securing
capital
 Project sales, expenses, and cash flows
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Some Rules to Observe

1. Make it neat
 Appearance is important and it can reflect
the personality of the maker.

2. Make it grammatically correct

 Be sure to have a final version of the write
up corrected or edited by professional or
qualified editors.
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3. Make it honest
 Do no exaggerate or lie.
 Tell or write exactly as it is.

4. Write in layman’s language

 Communicate in simple language and not
in technical jargon, unless it is really called
for.

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5. Do not over emphasize your product or
your business
 Product or service is just part of the
business itself, and it requires a lot of
other resources that are dependent on
one another.

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A Business Plan (BP) is not merely a report
that is proposed and then forgotten and
left on the shelf to collect dust.

Rather, it is a working document that

entrepreneurs should use (weekly or
monthly basis) to ensure continuity or
success in business.

The preparation of a B. P. makes a better

entrepreneur and ensures business success.

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Outline of a BUSINESS PLAN
 Cover Page
 Table of Content
 Executive Summary
 Marketing Plan
 Production Plan
 Organization and Management Plan
 Financial Plan
 Appendix
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 COVER SHEET
 aka Title Page
 The first page of the business plan and
should contain the following:
o Company name, Address, and Phone
number;
o Logo, if available;
o Name, addresses, and phone numbers
of the owners.

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 TABLE OF CONTENT

 It follows the cover page and lists the

major components of the plan and
corresponding page numbers.
 It is written when the business plan is in its
final draft.

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 EXECUTIVE SUMMARY

 Although appearing first in the order of

presentation in the Business Plan, is actually
the last to be prepared, that is, after the four
sections have been completed.
 It should be short (not more than two pages,
single space) but loaded with vital
information about the project and the
proponent.

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1. Description of the Project – the nature
of the project
 The product
 The market
 The location
 Legal form
 Plan of operation
 Financing plan
 Performance – Sales, profitability, solvency

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2. Profile of the Entrepreneur – the
entrepreneur’s competencies and
qualifications
 Introduction of yourself as entrepreneur
 Your background
 Your past track record
 Business experience and training
 Qualities and skills needed by or related to
the project

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3. Project’s Contributions to the
Economy
 Socio-economic and developmental
contributions
 Towards community, households,
business/industry, government and
environment
 For example: employment generation,
utilization of local skills and materials,
income generation, import substitution,
export earnings, etc.
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 Section I
MARKETING PLAN
 The part of the business plan outlining the
marketing strategy for a product or service.
 It includes information such
as the product or service
offered, price, target market,
competitors, marketing
budget, and promotional mix.

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1.1 Description of the Product
 Its size
 Color
 Shape
 Range of products to be offered
 Product features
 Uses and benefits
 A new or an existing product?

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1.2 Comparison of the Product with Its
Competitors
 What makes the product unique in the
market?
 Will it be of better quality than what is
currently available?
 Will the price be significantly different to
make it easier to sell?
 What other features will make it different
from competitors, products?
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1.3 Location
 Proximity to essential raw materials
 Proximity to markets and distribution
channels
 Availability of transport facilities
 Availability of efficient and cheap skilled
labor
 Existence of related industries
(forward/backward linkages)
 Infrastructure facilities
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 Communication facilities

 Most crucial factors in market

development – should therefore be
carefully considered.
 It is differentiated in terms of marketing
outlets or factory location.
 In most small businesses, marketing
outlet and factory location may refer to
one and the same location.

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1.4 Market Area – where to market the
product?
 Depends on the nature of the product;
 How well it lends itself to transport and
distribution;
 The size of the market in the different
localities;
 The presence of strong competitors;
 Willingness to travel;
 Familiarity with existing contacts or channels
of distribution.
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1.5 Main Customers – to whom the
business sell its products?
 Specific target group of market segments
among the population.
 Their characteristics and profile in terms of
age, sex, income, buying practices,
consumption pattern.
 To ensure that the product does indeed
suit their taste, needs, wants, taste,
income, lifestyle, etc.

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1.6 Total Demand
 Start by estimating consumption, usage or
sales per head of the population in your
market area.
 Eliminate certain segments (specific groups
in terms of age, sex, etc.) who may not be
your consumers so that a reasonable figure
can be assumed to be correct.
 If possible, check some statistics, if
available.

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 If reliable statistics (secondary data) is
unavailable, make a simple and low-cost
sample survey, i.e., gather primary data.
 For example, identify the number of shops
which sell your or similar products and ask
them regarding their sales, then estimate
the total sales of the product.

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 Consider the equation:
Q=nxq
where n = number of customers likely to buy
your product or avail of your service
q = average quantity to be purchased by a
customer in a given period
Q = represents total demand for your
product.

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 Projected Monthly Sales Volume
Month Total
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
n
q
Q

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1.7 Market Share
 Depends on your ability as an entrepreneur
to sell your product,
o your network,
o the effectiveness of your marketing
strategy and
o your aggressiveness in pushing the
product combined with business common
sense.

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 Depends on the extent and strength of
competition.
 Some guidelines to follow:
o whether there are few or many
competitors;
o Whether they are large or small in size;
o Whether their product features are similar
or not similar to one another;
o Whether their product features are similar
or not similar to yours.

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1.8 Sales Forecast
 Make an estimate of your targeted sales
 Every month for the first year and yearly
for the next five years
 Generally a fraction of the estimated
market share and could be anywhere from
60 to 80 % of the market share in the
beginning
 To gives allowance for some errors in
estimating the market.

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 Planned Sales Volume/Sales for a Single
Product Line Business
Year 1 Year 2 Year 3
Planned sales
volume (in
units)

x Planned
selling
price/unit

Total Sales

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1.9 Selling Price
a. Cost-plus method
 Adding a reasonable profit margin (say
20% to the final total product cost i.e.,
marketing cost + production cost +
administration cost + finance cost).
 Cost per unit = Total Product Cost/Total
number of units
 Selling price = Cost per unit + profit margin

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b. Comparative method
 It compares your product with others in
the market and then,
 Based on your product’s quality and other
features, you may fix your price lower,
higher or the same as your competitors.

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c. What the market will bear method
 Based on supply and demand of the
product.
 For instance, there is scarcity of the
product in the market (sellers’ market), you
can set your selling price high, hence your
profit margin could be higher.
 If there is surplus of the market in the
market (buyers’ market), you may be
forced to lower your price, and your profit
margin.
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 Two alternatives to avoid reducing profit
margin
1. to reduce the product cost by identifying
which areas under marketing, production,
administration and finance can be
reduced.
2. to identify other market segments who
can afford to buy at the original price.

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1.10 Promotional Measures
Promotion – one of the most neglected
aspects of marketing a product.
 It is necessary to entice and convince
buyers to purchase your product and not
your competitors’.
 Generally divided into advertising, sales
promotion, publicity, personal selling and
direct marketing.

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 Advertisement on radio and TV, newspapers,
magazines
 Posters
 Billboards
 Signboards
 Free samples
 Free trial
 Buy one – take one
 Raffles
 Coupons
 Participation in trade fairs and exhibits
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1.11 Marketing Strategy
 Formulating of it means proper planning,
balancing and integration of the
business’s:
a. Product strategy
b. Pricing strategy
c. Promotion strategy
d. Distribution strategy

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 In order to market effectively, you must;
o Identify your market
o Know your product
o Study your competitors
o Spend some amount for promotion
o Price your products correctly and
o Distribute effectively and efficiently
 Don’t assume that because your product is
good, consumers will automatically buy
your product.
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1.12 Marketing Budget
 It includes the marketing cost such as
o Promotion
o Distribution
o Salaries of your sales force, if any.

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 Section 2
PRODUCTION PLAN

 A section of the
business plan that
details how products or services
will be manufactured or
completed.

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2.1 Production Process
 How the raw materials are received and
gradually, step by step transformed thru
various processes (e.g., cutting, mixing,
assembling, finishing, packaging, etc.).
 It should cover all the major operations.
 A process flow chart is a useful tool to
depict the production process.
 It also clarifies how many workers are
required at each stage and what skills are
needed.
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Symbols used in drawing the process flow
chart

Operation
Inspection

Transport
Delay

Storage

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Sample Process Flow Chart
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Sample Process Flow
Chart Cont’d…

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2.2 Fixed Capital – building and machinery
(fixed assets)
 Identify the items carefully and estimate
their cost accurately
 If the requirements are overestimated, it
may results to:
1. too much production occurs and stocks
are built up;

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2. excess capacity means that you are
investing in some assets or paying interest
on building and equipment that are not
giving you any return.
3. there is also the possibility that the
project may not be financed at all because
it appears too expensive.

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2.3 Life of Fixed Capital
 Depend on the materials used to make the
building (i.e., whether made of wood,
concrete structure, etc.) and machinery
and on how much you use your fixed
assets.
2.4 Maintenance and Repairs
 Maintenance service and spare parts
should be available locally to ensure
continuous production.
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 Estimate the cost as it is part of the
production cost.
 MC is part of the factory overhead cost.
2.5 Sources of Equipment
 Check machinery suppliers.
 Estimate accurately the delivery time of
the machinery as this is vital in preparing
your pre-operating schedule.

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 Include the cost of the machinery,
transport cost to the factory, the import
duty (if imported), insurance, and
installation charges, if any.

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2.6 Planned Capacity
 100 % capacity utilization?
 8 hours a day? 24 hours a day?
 6 days a week?
 Is there seasonal fluctuations?
2.7 Future Capacity
 Extra or spare capacity?

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2.8 Terms and Conditions of Purchase of
Equipment
 Cash?
 Instalment?
 Credit?
 Guarantee?
 After-sales service?
 Training of operators?
 Free delivery?

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2.9 Factory Location and Layout
 The same location as the business address
among small industries.
 Determine the floor space required –
production, office, store room, toilet, etc.
 Arrangement of the machines and
equipment.
 Determine the size of the machines and
space it will occupy (including allowance
for movement).
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Sample of Factory Plant Layout

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2.10 Raw Materials
 Find out the type, quality and quantity of
raw materials needed.
 Find out the input-output ratio or
conversion ratio, e.g., how many kg of
flour would be required to produce 1,000
pieces of pan de sal.
 Specified according to kilogram, ton,
pieces, litre, gallon, square meter, meter,
etc.

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2.11 Cost of Raw Materials
 Find out their unit costs, e.g., Php25.00 per
kilogram, Php1,000 per cavan, etc.
 List all the costs for every materials and
compute for the average monthly raw
materials requirement.
 Include duties and relevant taxes, if raw
materials are imported.

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2.12 Raw Materials Availability
 Three critical factors:
o The price should be as low as possible,
o Accessibility of the source to the
production site,
o Reliability of the source.

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 Seasonal raw materials
o Reduce production
o Build up stock of raw materials when
available
o Increase production when raw materials
is in season.

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2.13 Labor
 Direct and indirect labors
Direct laborers – those who are directly or
intimately involved in production.
Indirect laborer – those other workers who
facilitate production such as utility men,
foremen, maintenance workers, etc. who
are not directly involved in the production.

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2.14 Cost of Labor
 Estimate monthly labor cost.
 Include basic salary, wage, fringe benefits,
paid leaves, free meals, social and medical
insurance, transportation allowance, etc.
2.15 Labor Availability
 Are there factory workers available
throughout the year?
 With related skills and experiences?

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2.16 Labor Productivity
 How will the workers be motivated?
 It may come in several ways like; humane
treatment, good working environment,
awards for deserving workers, bonus, meal
allowance, etc.
 Estimate the cost and include in
computing the overheads.

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2.17 Factory Overhead Expenses
 Include such costs as rent of factory space,
maintenance and repair cost, depreciation
of factory machines and equipment, cost of
utilities (water, electricity, salaries of
cleaners and maintenance men), other
indirect labor cost.
 Costs that do not change or vary much
according to the level of production.

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2.18 Production Cost
 Includes the cost of direct materials, direct
labor and factory overhead.
 Production cost per unit
= Total Production Cost
Number of Units
 (Total production cost = Direct materials +
Direct labor + Factory overhead)

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 Cost of Production
Year 1 Year 2 Year 3
Direct materials
Direct labor
Production overhead:
Indirect materials
Indirect labor
Repair and maintenance
Depreciation of production
equipment
Transportation expense
Light and power
Water
Total Cost of Production

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2.19 Waste Disposal System
 How waste are to be disposed?
 Proper waste segregation
 Biodegradable?
 Non-biodegradable?
 Can it be recycle and or reuse?

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 Section 3
ORGANIZATION
AND MANAGEMENT PLAN

 Describes the form of

ownership and the lines
of authority and
responsibility of
members of a new
venture.
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3.1 Form of Business
o Sole Proprietorship
o Partnership
o Corporation
o Cooperative
 Business Name/Trademark
 Business Address
 The Owner

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3.2 Organizational Structure
 How will the business be managed?
 Structure of authority and responsibility
(Chain of Command)
 Division of labor (Job Distribution)
 Definition of the job (Job Description)
 In a small business, one person can handle
several functions – general manager as
well as production manager.

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3.3 Business Experience and
Qualifications of the Entrepreneur
 The proponent/owner/entrepreneur
 Business qualifications
 Skills and related business experiences
 Business competencies
 Related trainings and/or seminars
attended
 Entrepreneurial characteristics/attitudes

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3.4 Pre-Operating Activities
 Attendance to training program (skill-
related, management or entrepreneurship)
 Preparation of Business Plan\
 Building construction
 Conducting market survey and testing
 Canvassing of fixed assets

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 Looking for sources of raw materials
 Installation of equipment/facilities
 Registering the business
 Hiring/training of workers

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Sample of Gantt Chart

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3.5 Pre-Operating Expenses
 Include expenses needed to plan and to
prepare for the business operation.
3.6 Office Equipment
 Includes the fixed assets needed by the
business to maintain its administrative
aspects.
 It may include computer, furniture and
fixtures, filing cabinet, air con, etc.
 Compute for the depreciation cost.
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3.7 Administrative Expenses
 The administrative activities support the
production and marketing activities of the
business.
 It is classified under operating expenses.
 Include the salary of the office secretary,
bookkeeper, driver, security guard,
depreciation of office equipment, office
supplies, electricity, communications, etc.

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 Administrative Expenses
Year 1 Year 2 Year 3
Salaries and wages
Office supplies
Rent
Utilities
Depreciation of non-
production equipment
Repair and maintenance
Professional fees
Total administrative
expenses

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 Section 4
FINANCIAL PLAN

 A section of the business

plan providing an account
of a new company’s
financial needs and sources
of financing and a
projection of its revenues,
costs, and profits.

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4.1 Project Cost /Capital Requirement
 It composed of fixed assets, pre-operating
expenses and working capital.
Fixed assets – the sum total of all costs of
land, building, machinery, equipment,
vehicle, etc.
Pre-operating expenses – those necessary
expenses which are incurred before the
business starts operating.

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Working capital – the amount of money
needed in cash or in kind to keep the
business operating while it is awaiting for full
payment of goods sold to customers.

4.2 Financing Plan and Loan Requirement

Financing plan – how the total requirement is
going to be sourced.
 What project cost components are being
funded by the various financial sources.

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Particulars Loan Owner’s Total
Equity
Fixed Capital

Pre-operating
Expenses
Working Capital

Total

Proportion of
Debt to Equity

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Sample Total Project Cost

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4.3 Security for Loan
 What security (collateral) can be given to
the bank?
 Normally, it includes land and building.
 For some credit institutions, especially
those catering to small loans, accept
personal property e.g., jewellery, private
car, refrigerator, sewing machine, etc. as
collateral.

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4.4 Profit and Loss Statement /Income
Statement
 Revenues/Sales/Income
 Cost of Goods Sold – includes the raw
material cost, labor cost and factory
overhead expenses.
Raw materials cost – the sum of all raw
materials used to produce the products.
Labor cost – the sum of all the direct labor
costs.
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Factory overhead – the sum of all the
miscellaneous costs such as indirect labor,
maintenance and repair cost, depreciation of
fixed assets, etc.
 Gross Profit = Sales – Expenses
 Marketing cost – the sum of all selling and
promotional costs, including distribution cost
to retail shops, commissions, etc.
 Administrative cost – the sum of all
administrative costs, including office supplies,
security guard’s salary, telephone bills, etc.
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Income Statement of manufacturing business

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91
Income Statement of business providing services

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Income Statement of merchandising business

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Sample of Projected Income Statement

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4.5 Cash Flow Statement
 It shows the sources (inflows) and
applications (outflows) of cash in the
business during the year.

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Sample of Projected Cash Flow Statement

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4.6 Balance Sheet
 It gives a picture of the business as of a
given date.
 It shows the firm’s assets, liabilities and
owner’s equity at a specific point in time.
 Assets = Liabilities + Owner’s Equity

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Sample of Projected Balance Sheet

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4.7 Loan Repayment Schedule

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4.8 Break-even Point (BEP)
 The breakeven point is the level of
operation at which a business neither
earns a profit nor incurs a loss.
 BEP Sales = Annual Sales x Annual Fixed Cost
Annual Sales – Annual Var. Cost
 BEP Production = BEP Sales
Unit Selling Price

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4.9 Return on Investment (ROI)
 “Will my money be better off in this
business or in the bank where it can earn a
fixed interest in long term bonds or
savings or time deposits?”
 Return on Project = Net Income
Total Capital Requirement
 Tells how much profit a company
generates for each peso of the project cost
that it invests.

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 Return on Owner’s Equity = Net Income
Owner’s Equity
 Measures the owner's rate of return on the
investment in the business.

4.10 Financial Analysis

 The feasibility of starting the business.
 Deciding to continue or not the business.
 Conclusion.

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 APPENDIX
 Provides supplementary materials and
attachments to the plan.
o Key investors and management team
biographies and/or resumes;
o Company policies;
o Photos of the products, facilities and
building;
o Other important supporting data.

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The End!!!

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