CHAPTER FOUR

BUSINESS PLAN
• What is a business plan?
• Who should prepare the business plan?
• Scope and values of the business plan
• Basic elements of a business plan
• Why some business plan fails?
 What Is A Business Plan?
• It is a written document describing all relevant internal and
external elements and strategies for starting a new venture.
– functional plans such as research and development,
manufacturing, marketing, finance, and human resources
– expected results
– critical risks
• Business plan answers the questions:
– Where am I now?
– Where am I going?
– How will I get there?
• Potential investors, lenders, suppliers, employees and
customers require a business plan.
 Pitfalls to Avoid in Planning

• Pitfall 1: No Realistic Goals

• Pitfall 2: Failure to Anticipate Roadblocks
• Pitfall 3: No Commitment or Dedication
• Pitfall 4: Lack of Demonstrated Experience
(Business or Technical)
• Pitfall 5: No Market Niche (Segment)
 Benefits of a Business Plan
• Specifically for the entrepreneur;
– The time, effort, research, and discipline needed to
put together a formal business plan force the
entrepreneur to view the venture critically and
objectively.

– The competitive, economic, and financial analysis

included in the business plan subject the entrepreneur
to close analysis of his or her assumptions about the
venture’s success.
• Specifically for the Financial Sources:
– Details the market potential and plans for securing
a share of that market.
– Shows how the venture’s intends to service debt or
provide an adequate return on equity.
– Identifies critical risks and crucial events with a
discussion of contingency plans.
– Contains the necessary information for a thorough
business and financial evaluation.
 Guidelines to Remember
• Keep the plan respectably short
• Organize and package the plan appropriately
• Orient the plan toward the future
• Avoid exaggeration
• Highlight critical risks
• Give evidence of an effective entrepreneurial team
• Do not over-diversify
• Identify the target market
• Keep the plan written in the third person
• Capture the reader’s interest
 Questions to Be Answered
• Is your plan organized so key facts leap out at the reader?
• Is your product/service and business mission clear and simple?
• Are you focused on the right things?
• Who is your customer?
• Why will customers buy? How much better is your
product/service?
• Do you have a competitive advantage?
• Do you have a favorable cost structure?
• Can the management team build a business?
• How much money do you need?
• How does your investor get a cash return?
 Updating the Business Plan
• Financial
Changes
• Addition • Changes
al in
Financin • Reasons to the
• Launch
g Update the •Market
New
of a New Plan
Manage
Product
ment
or
• Reflect Team
Service
the New
Reality
 Who Should Prepare The Business Plan?
• The business plan should be prepared by the entrepreneur.
– Lawyers, accountants, marketing consultants, and engineers
are useful in the preparation of the plan.
1. Management – planning, organizing, supervising, directing, and
controlling.
2. Marketing – identifying customers, distribution channels, supply
chain
3. Financial – managing financial resources, accounting, budgeting
4. Legal – organization form, risk management, privacy and security
5. Administrative – people relations, advisory board relations
6. Higher-order – learning, problem-solving
 Scope and Values of the Business Plan

 The business plan should consider those parties who

determine its scope and value.
» employees,
» investors,
» bankers,
» venture capitalists,
» suppliers,
» customers,
» Advisors and consultants.
• There are three very essential perspectives that should be
considered in preparing the business plan. These are:
 The entrepreneur:
The entrepreneur should thoroughly understand what the venture
is all about as well as the technology and creativity involved in
the venture.
 The market:
Consider whether there are enough customers to buy the product
or use the service.
 The investor:
From an investor’s perspective, sound financial projections that
indicate the feasibility of the venture is better be included in the
business plan.
• Generally, the depth and detail of the business plan depend on the
size and scope of the proposed new venture.
 Basic Elements Of A Business Plan
 Section I: Executive Summary
• This is a concise summary of the business opportunity; however it
covers all important components of the plan.
 Section II: Business Description
• This part of the business plan includes the following components;
• General description of business
• Industry background-trends, analysis of competitors
• Company history or background
• Goals and potential of the business and milestones (if any)
• Uniqueness of product or service

- Form of business - Owners - Location

- Name of the business - Startup date
- Business operation - Business type
 Section III: Research and Analysis

• Different information about the market concerning;

1. Target market (customers) identified
2. Market size and trends
3. Competition
4. Estimated market share

Regarding the Marketing plan, the four P’s will be

considered
 Section IV. Research, Design, and Development

o Technical and engineering parts of a business plan

will be considered.
A. Development and design
B. Technical research results
C. Research assistance needs
D. Cost structure
 Section V: Manufacturing

o Comprises of the following components.

A. Location analysis
– Is the area desirable? The building desirable?
– Is it easily accessible? Is the public transportation
available? Is street lighting adequate?
– Are market shifts or demographic shifts occurring?
B. Production needs: facilities and equipment
C. Suppliers/transportation cost
D. Labor supply
E. Manufacturing cost data
 Section VI: Management

o Explain in detail who will run the business, what

skills and credentials these people have, and how
everyone will fit into the organization's structure.

• The plan encompasses:

A. Management team – key personnel
B. Legal structure – stock agreements, employment
agreements, ownership
C. Board of directors, advisors, and consultants
 Section VII: Critical Risks

o Critical risks of a business may include:

a. Potential Problems: effect of unfavourable trend in the
industry, design or manufacturing cost overruns, and longer
lead times in material purchases, unplanned-for competition.
b. What-ifs: are those conditions which may happen in the future
but not yet to be known about their occurrence currently.
• Some of them might be competitors’ price cut, inaccurate sales
projections, breaking up of management team.
c. Obstacles and risks
d. Alternative courses of action (i.e. contingency plans)
 Section VIII: Financial

Financial forecast
a. Profit and loss statement
• Provides you with an overall profitability summary for a
period of time and will determine your tax liability for the
year as it is depicted below.
Income statement
• Sales ___________________
• Expenses ____________________
• (Variable or fixed) ____________________
• Profit/ loss ____________________
• Tax owed ____________________
b. Cash flow statement
– This takes the predictions and estimates that you
have determined in your business plan
– Helps to determine whether or not the business is
viable
– Helps to know your monthly sales and expenses,
when to purchase equipment or hire staff
c. Break-even analysis
d. Cost controls
e. Balance sheet
Sources Of Finance And Application Of
Funds

• There are different of sources financing a new

venture. Basically the two major sources of
finance are;
• Debt financing
• equity financing
 Section IX: Milestone Schedule

A. Timing and objectives

B. Deadlines/milestones
C. Relationship of events
 Section X: Appendix

• Contains documents and other materials which

have been used for preparing business plan.
• This can be financial, administrative, human
resource or other related data.
 Why some business plan fails?
• People are afraid of taking risks
• Unachievable Goals and Aspirations
• Lack of Market Research
• Improper Budgeting
• Productivity and Motivation Issues
• Companies, big and small, tend to convince themselves that
their current product and services are “good enough” to keep
them afloat.
• Businessmen have a narrow view that, to be successful, they
should put more money to the shareholders pocket and be less
focused on creating new things.
• Business owners and top executives just don’t know what the
people want
 END OF
CHAPTER FOUR