The Business Plan

Introduction

Venturing into a new business or doing any form of innovation in a business

organization demands or necessitates a plan. A business plan that is well-researched
and well-done is by itself an insurance against the illusive success that every
entrepreneur is looking forward to.

Preparing a business plan is not easy. It is a well-written, honest-to-goodness

document prepared by the entrepreneur that will convince the investor to invest, or it
is a tool to sell your business story to financial resources and should be recognized. It
is the direction and guide of the entrepreneur as to what is to be done and how to do it.
It details out what is to be achieved over a certain period of time.

Planning and organizing enterprise demands proper evaluation of the resources,

skills, interests and attitudes together with the needs of the community and degree of
competition.

Objectives

At the end of this session, the students can:

a. identify the importance of business planning and its advantages, as well as the step
by step procedure in preparing a business plan; and
b. enumerate the factors and other necessities on how to manage and start a business
successfully.
c. create a business plan.

Concept of a Business Plan

“A well written business plan is one that contains all the information necessary
for-the financing source to make a decision even without talking to the entrepreneur,“

--Anonymous

Authors Hisrich and Peters concretely defined or described the business plan as a
written document prepared by the entrepreneur that describes all the relevant external
and internal elements involved in starting a new venture. It is often an integration of
functional plans such as marketing, finance, manufacturing, and human resources. It
also addresses both short-term and long-term decision making for the first three years
of operation. The business plan also takes care of the concerns of the potential
investors in the business project, the suppliers, the funding requirements and all what
it required to commence the business and hopefully make it a successful business
venture.

David E. Gumpert defined business plan as a document that convincingly

demonstrates the ability of a business to sell its products of services to make
satisfactory profit and be attractive to potential backers. A better definition: A
business plan is a selling document that conveys the excitement and promise of your
business to any potential backers or stakeholders.
Principles of Planning

Here are some principles of planning which have general application, particularly
for micro and small business:

1. Planning must be realistic. It must be based in the available resources: human,

financial, and physical process.
2. Planning must be based on felt needs. The objectives of an entrepreneur should
fit the needs of the people in the community. It can be known through
observation, personal interviews, and questionnaires.
3. Planning must be flexible. Resource needs and economic conditions change.
Planning should b adjusted to such changes to be effective and relevant.
4. Planning must start with simple projects.

Stages of Business Planning

1. Unplanned stage. At the start of the business, the owner-manager is busy

looking for funds, customers, materials, and equipments. He has no time for
planning. His entire attention is devoted to the daily operations of his business
in his intense desire to survive.
2. Budgeting system stage. Eventually, the owner-manager realizes the need to
develop and use a budgeting system. Estimated income is made to facilitate the
orderly function of the growing enterprise.
3. Annual Planning stage. The owner-manager drafts an annual plan. He can use
either the top-down planning or bottom-up planning. In a top down approach, he
provides the goal and let the employee comply with it. While in a bottom-up
approach, he encourages his employees to participate in planning the goals and
strategies.
4. Strategic Planning stage. As the business enterprise becomes bigger, a
long-range planning is needed.

Criteria of Effective Planning

1. The plan should state clearly its objectives. Such clear statement is necessary so
that those who will be involved in the execution of the plan will understand,
accept, and support it.
2. The plan should provide measures for a satisfactory accomplishment of the
objectives in terms of quantity, quality, time, and cost.
3. The plan should state the policies, which should guide people in attaining the
objectives.
4. The plan should indicate what department or unit would be involved in
accomplishing the objectives, It may or may not spell out the procedures for
performing the required work.
5. The plan should indicate the time, which should be allowed for each activity. It
may be necessary to establish a target data for completing the activity.
6. The plan should specify the required resources and their corresponding costs.
7. The plan should designate the officers who will be held accountable for the
accomplishments of the objectives.
Components of Business Planning

1. SWOT. The chances of a product or service can be evaluated rough the SWOT
analysis. Every product or service has its own strength, weakness, opportunity,
and threat. Planning should include the improvement of the product/service in
order to survive competition.
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. Such ways are stated
in the financial, production, marketing, and organizational plans of the enterprise.
4. Time Frame. In business, tine is gold. For this reason, an entrepreneur must be
efficient in time management.

Characteristics of a Sound Business Plan

1. Objective
2. Clear
3. Logical and Simple
4. Flexible
5. Stable
6. Complete and Integrated

Why the need for a business plan?

A written business plan or feasibility study is necessary or needed for the

following reasons:

a) to project a general picture of the business project.

b) to serve as a guide in implementing the business or project.
c) to serve as major input to investment decisions or major expenditures.
d) to serve as reference or guide to policy formulation and development.
e) to serve as a guide for operational matters.
f) to serve as a reference for bank loan or financing purposes.
g) to determine/estimate the detailed technical and financial requirements.
h) to serve as an overall guide for the proponent or entrepreneur.

For David Gumpert, a business plan is a selling point. With a business plan, you
sell the entire company as a package. Gumpert cited the following reasons for doing a
business plan as follows:

a) to sell yourself on the business

b) to obtain a bank financing
c) to obtain investment funds
d) to arrange strategic alliance
e) to obtain large contracts
f) to attract key employees
g) to complete mergers and acquisition
h) to motivate and focus your management team
 Obtaining the Facts for a Business Plan

Here are questionnaires to get necessary data:

1. What is unique about my product/service?

2. Who are my competitors?
3. How will my customers buy?
4. What is my share in the market?
5. What is the market potential?
6. Who are my customers and where are they located?
7. Where will I put my business?
8. How big should be my plant or place of business?
9. What equipment will I need and what size?
10. How will I treat customers?
11. What personnel do I need?
12. How will I organize my enterprise?
13. What kind of records do I need?
14. How much capital do I need?
15. How profitable will the business be?
16. How financially healthy will I be?
17. What is my break-even point?

Writing the business plan

For some business proponents, one of the most difficult aspects of raising money
is to get their story in formal or written form. In the era of visual age and information
technology, entrepreneurs must learn to communicate or relate business proposals
verbally and in writing. Writing a business plan effectively can spell out a big
difference between a success and failure in raising a capital for the business and
operating a business itself. As Blechman and Levinson puts it, communication is the
key. These authors point out that financiers will base 50 percent of the decision to
lend to or invest in a project on the presentation it receives, both oral and written. If
the written presentation is poor, you may never get called to a meeting or the chance
to further present orally your business proposal-- and you loose the financing
opportunity altogether. Learning how to communicate effectively, in person and in
writing, is necessary if you want to raise the money.

Because of the importance of putting in writing a business plan particularly for

prospective financiers, it is a must that the proponent may have to engage the services
of third parties or consultant to do this for him.

A well-written business plan

Just like a dissertation or a thesis presentation back in school, the business plan
must be convincing during the oral presentation and worth reading further. After
reading or listening to the business plan, there must be a decision to pursue the
business project or not. While there is no hard and fast rule for writing the business
plan or it may not be that strict in terms of format, it must contain all information
needed to make a final decision on the part of investors or financiers.
 Someone said that a well written business plan is one that contains all the
information necessary for the financing source to make a decision even without
talking to the entrepreneur. Such a plan should stand by itself without the proponent
or the entrepreneur being physically present. If the proponent has written a business
plan that can stand on its own, the proponent should have created an excellent written
presentation and will have a good chance of getting the funding for the business. It
must be remembered further that a well written business plan that can pass the acid
test of a financier is by itself a form of corporate policy. A well written business plan
is a corporate manual or policy guidelines that is already more than half done. The
business plan is by itself an important reference document in doing _ the standard
operations procedures(SOP), internal policies, and other written policies as the
business gets implemented.

Outline format of a Business Plan

I. Executive Summary
1.1 Name of Business
1.2 Business Address
1.3 Nature of Business
1.4 Company Vision
1.5 Company Mission

II. Marketing Plan

2.1 Product/Service to Sell
A. Product Description
B. Unique Selling Proposition
C. Benefit
D. Core Competencies
2.2 Target Market
A. Consumer/Costumer
B. Area of Coverage
2.3 Demand and Supply Analysis
A. Total Potential Demand
B. Present Supplier/Competition
C. Projected Sales
2.4 Marketing Program and Strategies
A. Practices of Competitors
-- Product Strategy
-- Price Strategy
-- Place Strategy
-- Promotion Strategy
B. Own Marketing Program/Strategies
-- Product Strategy
-- Price Strategy
-- Place Strategy
-- Promotion Strategy
-- Distribution Strategy
C. Marketing/Selling Expense
III. Production Plan
3.1 Technical Operations Description
3.2 Production Process
A. Step by Step Procedure
B. Duration per Step per Batch
C. Labor and Machine Requirement per Step
3.3 Production Schedule
3.4 Labor Requirement
3.5 Equipment Requirement
3.6 Plant/Factory Location
3.7 Plant Layout
3.8 Waste Disposal
3.9 Quality Control
3.10 Production Cost

IV. Organizational Plan

4.1 Company Description
4.2 Legal Form of Business
4.3 Organizational Structure
4.4 Qualifications of Officers
4.5 Office Equipment
4.6 Gantt Chart of Activities
4.7 Administrative Expense

V. Financial Plan
5.1 Total Project Cost
5.2 Sources of Financing
5.3 Projected Financial Statement
A. Projected Cash Flow Statement
B. Projected Income Statement
C. Projected Balance Sheet
5.4 Profitability Indices
A. ROI
B. Payback Period

VI. Appendices
A. SWOT Analysis
B. Resume

Steps in Business Planning

1. Evaluate your personal resources and interests, and the resources of the
community.
-- Do you have the necessary funds?
-- Do you have the skills or management experience?
-- Does the government provide financial and technical assistance?
-- Are raw materials available?
-- Are you interested in such business?
-- Do you have good human relations?
2. Analyze your market.
-- Is there a good demand for your product?
 -- How many competitors are there in the market?
-- What ts your estimated share in the market?
-- Who are your customers?
-- Are they interested in existing products or services?
-- Is it possible for you to offer better quality or a lower price?
-- Is there a reasonable profit?
3. Choose a proper business location.
-- Is it near your perspective customers?
-- Are there facilities like electricity, water, transportation, and communications?
-- Is the place clean, decent, and peaceful?
-- Do you have a good alternative in case the best location is expensive?
-- Is it accessible to raw materials and other suppliers?
4. Prepare a financial plan.
-- What are your objectives?
-- How much money do you need?
-- How will you spend the money?
-- Where will you get the money?
-- What are your expenses?
-- How soon can you recover your money or investment?
5. Prepare a production plan.
-- Is It economical to rent or buy production equipment?
-- Can you ensure or improve the product design or quality?
-- Can your production facilities meet demand?
-- Do you have inventory control?
-- Do you have proper scheduling of production?
6. Prepare an organizational plan.
-- What type of business organization is most suitable?
-- Do you know the corresponding laws, policies, and requirements of your
business organization?
-- Who will be the officers and employees of your enterprise?
-- What are their duties and responsibilities?
7. Prepare a management plan.
-- What are your goals and objectives?
-- What are your strategies?
-- Do you have business policies for your customers?
-- Do you have human resources development for your employees?
-- What is your program for social responsibility?

Importance of Business Planning

1. Planning can eliminate business risk.

2. Panning can minimize cost of production.
3. Planning can detect the weaknesses of the business operations.

Some rules to observed

Depending on the nature of the business proposal and the prospective fund
sources, formats in writing a business plan may vary in some instances, the
prospective financiers (e.g. banks) may provide the prospective entrepreneur the
format which could be in the form of a feasibility study or project study.
 Where there is no prescribed format for writing the business plan, Blechman and
and Levinson recommend the following rules or guide that can be used in writing the
business plan.

a) Make it neat. Appearance is important and it can reflect the personality of the
maker. Make it simple and avail of latest technology available in the market.
b) Make it grammatically correct. Be sure to have the final version of the write up
corrected or edited by professional or qualified editors.
c) Make it honest. Do not exaggerate or lie. Tell or write exactly as it is. Financial
sources are looking for integrity and honesty. Everyone admires a person who can
overcome mistakes or is above adversity. Be sure to support your assumptions.
d) Write in layman's language. Communicate in simple language and not in
technical jargon, unless it is really called for. Take note that finance people are more
concerned with financial viability and technical soundness is really | more of your
own lookout.
e) Don't overemphasize your product or business. Product or service is just part of
the business and the business itself requires a lot of other resources that is dependent
from one another. However, no financial source want a full course on your product
line but these organizations are interested on how the business will be run and how it
will make money. Here, do not sell the product or service (to the financier) but sell the
company or the business venture. A clear example is Ray -Kroc's McDonald business.
McDonald is not really about selling hamburgers but the company is into the business
of value for money emphasizing cleanliness, economy, atmosphere, product quality,
consistency, speed, and convenience. Ray Kroc was selling the business (i. e., the
McDonald system) and not really the various physical products per se.

Musts for Business Plan and Feasibility Study

1. It must be arranged appropriately, with an executive summary, table of contents,

end its chapters or major topics in the right order of sequence.
2. It must be of right length and have the right appearance not too long and not to
short, not to fancy and not to plan.
3. It must give a sense of what the founders and the company expect to accomplish in
the immediate (3 to 7 years) and into the future.
4. It must explain in quantitative and qualitative terms the to the user.
5. The company's product or service and the business as a whole.
6. It must present hard evidence of the marketability of the product or service.
7. It must justify financially the means chosen to sell the product or service.
8. It must explain and justify the level of product development that has been achieved
and describe inappropriate detail the manufacturing process and associated costs.
9. It must portray management as a team of experienced people with the
complementary business skills.
10. It must contain believable and verifiable market as well as financial projections,
with the key data explained and documented under assumptions.
11. It must be easily and concisely explainable in a well-orchestrated oral
presentation.