Establishing a business

C. King
Reasons for preparing a business plan

(a) to ensure that careful research is conducted into the feasibility of the
business;
(b) to attract potential investors;
(c) to source financing; and,
(d) to guide the operations of the business when making decisions.
What is a business Plan

A business plan is a document outlining the goals of a business and the strategies
to achieve these goals. It is mainly prepared by new businesses or by ones
making major changes.
It is normally associated with new businesses, but can be used by anyone at any
time e.g. To start the business, to expand, developing new products, obtaining
financing, making management decisions, as a tool for control/checking if goals
are met
Basic elements of a business
plan.

 Executive Summary - The Executive Summary is a synopsis of the full business

plan. It presents the salient points of the plan. It contains information on the
purpose of the business, its methods of operation and future expectations.
Basic elements of a business
plan.

 The Production Plan - Gives description of the goods and services, labour skills requires,
technology requires, describe type and level of production, suitability of location of the
business.

 The Marketing Plan gives a description of the potential customers and nature of competition. It
also deals with how the marketing department is organized, market research, pricing strategy,
promotion strategy, distribution strategy, consumerism, etc.
Basic elements of a business
plan.

 The Financial Plan- Deals with the purpose for which fiancé is needed, production
cost, projected performance, financing required, collaterals, etc
- Financial forecast (projections or estimates): sources of finance, sales, cash
flow, profit and loss forecasts.

 The Operational and Management Plan - Deals with the organizational structure and
the required and available human resources and their duties and responsibilities.
The business and its objectives – name, address, legalstructure, aims and objectives.
Personnel, suppliers, equipment necessary.

 Mission Statement -The Mission Statement gives the overall goal of a business as well
as its values. It serves as a guide to the operation o the business. For example:
providing the highest quality goods and services.
Sources of Research in establishing a
business

Firms embark on research to uncover information about consumer preferences, the

level of competition in the market, responses to advertisement etc.
 Sources of Information
Data may be collected from primary or secondary sources.
 (a)Primary Data
Primary data is originally collected data. This data will be obtained by interviewing,
observing or distributing questionnaires to the sample population.
 (b) Secondary Data
Secondary data is information that has already been collected by someone else
originally. This data will be therefore obtained from books, newspapers, magazines,
libraries and publications of various institutions.
Significance of conducting a feasibility
study

A feasibility study is research done to ascertain the viability/feasibility of a

business idea or any other venture. It asses the business idea in terms of its
operational costs, expected revenue flows, level of competition etc. Its main
purpose is to find out if the business idea will be workable. If the business idea is
found to be feasible a business plan may draft to obtain financial support.
Process between planning and the operation of a
business

Planning is defined as a decision making process by which an organization

decides what it want to achieve, how it intends to achieve it and in what manner
 Importance
i) Planning gives direction – provides a guideline
ii) Planning forces managers to look ahead and anticipate possible changes.
This helps them to make better decisions
iii) Planning helps to avoid mistakes and waste
iv) Planning helps to set the standard for control purposes i.e. it provides a
measurement or target to compare what actually happens in the business
Process between planning and the
operation of a business
Managers must continue to plan in order to ensure that its operations meet all
long – term, medium- term and short- term goals.

 Importance of Planning
 Long- term plans (Strategic) are made for 3 to 5-year periods. Long-term
plans determine the direction of the company. These plans set out the firm’s
overall strategy to move from its present position to where it intends to be.
Long-term plans include expansion plans and plans to create new products
and services. Long-term plans (Strategic) are made by the directors or
persons in senior management positions of a company.
Process between planning and the
operation of a business
 Medium-term plans (tactical) range from 1 to 2 years. They are made by
department managers or persons in middle management positions. Medium
term plans include increasing the efficiency of a department in order to
increase the quality and quantity of output. This would involve implementing
training programs for staff and identifying equipment that would increase
efficiency.
 Short-term plans (Operational) are made daily, weekly and monthly by
supervisors or persons in lower level management positions. These plans are
centered on meeting daily, weekly and monthly production targets.
Evaluation 1

 Define the term ‘feasibility study’ (2 marks)

 Outline THREE instances where feasibility studies are useful (6 marks)
 Differentiate between primary and secondary data and give two examples of
each.
 Outline three features of a business plan.