BUSINESS PLANNING

INTRODUCTION
Virtually to start any type of business or expand the existing one needs to work on
opportunity identification and evaluation, business idea development and then prepare
business plan. Lack of proper opportunity identification and evaluation, idea
development process and business planning are the most often cited reasons for
business failure. The various sections and sub-sections of this chapter will also
summarize opportunity identifying and evaluating processes, business idea
development process, and the feasibility study, importance and preparation of a
business plan.
By the end the lesson, the learner should be able to;
 Explain the concept of business planning,
 Identify components of business plan,
 Develop business plan,

Concept of Business Plan

Planning is the first and the most crucial step for starting a business. A carefully charted
and meticulously designed business plan can convert a simple idea/innovation into a
successful business venture.

A business plan is a road map for starting and running a business. A well-crafted business
plan identifies opportunities, scans the external and internal environment to assess the
feasibility of business and allocates resources in the best possible way, which finally
leads to the success of the plan. It provides information to all concerned people like the
venture capitalist and other financial institutions, the investors, the employees. It
provides information about the various functional requirements (marketing, finance,
operations and human resources) for running a business.

A business plan is the blueprint of the step-by-step procedure that would be followed to
convert a business idea into a successful business venture. A business plan first of all
identifies an innovative idea, researches the external environment to list the
opportunities and threats, identifies internal strengths and weakness, assesses the
feasibility of the idea and then allocates resources (production/operation, finance,
human resources ) in the best possible manner to make the plan successful:.

The objectives of a business plan are to:

a) Give directions to the vision formulated by entrepreneur.
b) Objectively evaluate the prospects of business.
c) Monitor the progress after implementing the plan.
d) Persuade others to join the business.
e) Seek loans from financial institutions.
f) Visualize the concept in terms of market availability, organizational, operational
and financial feasibility.
g) Guide the entrepreneur in the actual implementation of the plan.

h) Identify the strengths and weakness of the plan.

i) Identify challenges in terms of opportunities and threats
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 j) Clarify ideas and identify gaps in management information about their business,
competitors and the market.
k) Identify the resources that would be required to implement the plan.
l) Document ownership arrangements, future prospects and projected growths of
the business venture.

Business Plan as a Tool

1. Objective and goal creating tool
2. management tool
3. training tool
4. promotion tool
5. fund raising tool/capital
6. staffing tool
7. monitoring and evaluating tool
8. business creation tool
9. weakness/ omissions identifying tool
10. measuring performance
11. for motivation

Why Prepare a Business Plan

1. To avoid silly mistakes
2. It defines and focus business objectives and goals
3. As a tool for fundraising, marketing, monitoring, evaluation, staffing
4. To be realistic on our intentions
5. To clearly communicate your vision/ ideas to other within and outside.

Benefits
i. It forces would be entrepreneur to establish written goals and objectives for their
proposed businesses.
ii. It enables potential entrepreneur to assess the viability of their business
opportunity on paper
iii. It assist in identifying the potential customers, marketing opportunities, pricing
strategy, promotional activities, distribution strategy and a competitive conditions
needed for business success.
iv. It identifies the number of employees needed, the skills they should possess, the
task they will perform and the methods of remuneration to be adopted.
v. It establishes the financial needs of a business and suggests the possible sources
of financing
vi. It helps to identify critical factors for successful entry and growth of a businesses
in a given market place.

Developing a Business Plan; -Business Planning Process

A plan, which looks very feasible at the first instance, might actually not be when the
details are drawn. Hence documenting the business plan is one of the early steps that an
entrepreneur should take. As discussed above, the successful entrepreneur lays down a
step-by-step plan that she/he follows in starting a new business. This business plan acts
as a guiding tool to the entrepreneur and is dynamic in nature – it needs continuous

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review and updating so that the plan remains viable even in changing business
situations.
The various steps involved in business planning process are discussed here below:

1) Preliminary Investigation
Before preparing the plan entrepreneur should:
 Review available business plans (if any).
 Draw key business assumptions on which the plans will be based (e.g. inflation,
exchange rates, market growth, competitive pressures, etc.)
 Scan the external environment and internal environment to assess the strengths,
weakness, opportunities and threats.
 Seek professional advice from a friend/relative or a person who is already into
similar business (if any).

2) Opportunity Identification and Idea Generation

Entrepreneurship is not just limited to innovation (generation of an entirely new
concept, product or service, but it also encompasses incremental value addition to the
concept/product/ services offered to the consumer, shareholder and employee).
Opportunity identification and business idea generation is the first stage of business
planning process. It involves generation of new concepts, ideas, products or services to
satisfy demand.

3) Environmental Scanning
Once a promising idea emerges through idea generation phase the next step is
environmental scanning, which is carried out to analyze the prospective strengths,
weakness, opportunities and threats of the business enterprise. Hence before getting
into the finer details of setting up business it is advisable to scan the environment both
external and internal and collect the information about the possible opportunities,
threats from the external environment and strengths and weaknesses from the internal
environment.

4) Feasibility Analysis
Feasibility study is done to find whether the proposed project (considering the above
environmental scanning) would be feasible or not. It is important to demarcate
environmental scanning and feasibility study at this point. Environmental scanning is
carried out to assess the external and internal environment of the geographical
area/areas where, entrepreneur intends to set up his business enterprise, whereas
feasibility study is carried out to assess the feasibility of the project itself in a particular
environment in greater detail.

5) Report Preparation
After environmental scanning and feasibility analysis, a business plan report is
prepared. It is a written document that describes step-by- step, the strategies involved
in starting and running a business.

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Essential Components of Business Plan
a) Cover Sheet: Cover sheet is like the cover page of the book. It mentions the name of
the project, address of the headquarters (if any) and name and address of the
promoters.

b) Executive Summary: Executive summary is the first impression about the business
proposal. As the saying goes, the first impression is the last impression. A careful
presentation of information should be done to attract the attention of the evaluators.
It should be in brief (not more than two or three pages) yet it should have all the
factual details about the project that can improve its marketability. It should briefly
describe the company; mention some financial figures and some salient features of
the project. Generating interest in the minds of the readers is the prime motive of the
executive summary. It includes;
N/B. This should be done last

It includes the;
1. Type of venture
2. Products/ service to be offered ‘
3. How unique
4. It there a major opportunity for products/ services
5. The business status/ stage
6. Legal form of business
7. Location of business
8. Target market
9. % share of market
10. Competitor strength and weakness
11. Strategy of entering the market
12. Managing staff and their qualifications and experiences
13. Time frame for accomplishing your goals.
14. How much money needed for starting and running the business
15. What type of financing are seeking
a. Loan
b. Grand
16. The strength of the business that will make it succeed
17. Future plans of the business

c) The Business: This will give details about the business concept. It will discuss the
objective of the business, a brief history about the past performance of the company
(if it is an old company), what would be the form of ownership (whether it would be
a single proprietor, partnership, cooperative society or a company under company
law). It would also label the address of the proposed headquarters. It will also
specify the following;
1. Objectives, vision, mission statement and goals
2. Specific objectives (SMART)
-service objective (qualify of service)
-profit objective ( actual % and amount targeted)
-growth objective
-social objectives ( corporate responsibility)
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 3. Type/form of business venture
4. Date of commencement
5. Physical location
6. Advantages of the location
7. Postal address, physical address/ street/buildings/ road
8. Telephone contact/ email/ fax/website
9. Brief history of the business (company)
10. Experiences of the owners

d) Funding Requirement: Since the investors and financial institutions are one of the
key bodies examining the business plan report and it is one of the primary objectives
of preparing the business plan report, a careful, well-planned funding requirement
should be documented. It is also necessary to project how these requirements would
be fulfilled. Debt equity ratio should be prepared, which can give an indication
about how much finance would the company require and how it would like to fund
the project.

e) The Product or Services: A brief description of product/services is given in this

subsection. It includes the key features of the product, the product range that would
be provided to the customers and the advantages that the product holds over and
above the similar products/ substitute products available in the market. It also gives
details about the patents, trademarks, copyrights, franchises, and licensing
agreements. Others will include;

f) The Plan: Now the functional plans for marketing, finance, human resources and
operations are to be drawn.

i. Marketing Plan: Marketing mix strategies are to be drawn, based on the market
research. It specifies the following;
Description of the target market ( customer segment)
Description of products/ services
Prices of products/ services
Distribution of products /services
Promotion of productions/ services
Competitor Analysis
 Internal analysis both strength and weakness
 External analysis ( opportunities and threats)
 Environmental analysis ( political, social, economic, regulatory factors that can
impact on your business)

ii. Operational Plan: The operational plan would give information about (i) Plant
location: why was a particular location chosen? Is it in the vicinity of the market,
suppliers, labor or does it have an advantage of government subsidies for that
particular location or are there any other specific reasons for choosing the
particular location?, (ii) Plan for material requirements, inventory management
and quality control are also drawn for identifying further costs and intricacies of
the business. Finally, the budget for operational plan is also drawn.
It specifies the following;
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 Product/service development design and facilities.
Description of premises
Ownership status
Renovations/ facelifts/medications
Products and services to be offered
Machinery, tools, equipment and other facilities required
Implementation
o Procurement
o Repair and maintenance
o Repair and maintenance
o Future expansions
Legal requirements: business name, tax compliance, labour laws, by-laws e.t.c
Monthly overhead expenses
Professional and support services

iii. Organizational Plan: The organizational plan indicates the pattern of flow of
responsibilities and duties amongst people in the organization, it provides
details about the manpower plan that would be required to put life into the
business and it would also enlist the details about the laws that would be
governed in managing the employees of the organization. In the end the
organizational plan is also budgeted. It specifies the following;
o Key management staff
o Their positions/ designations and responsibilities
o Qualification and experience
o Other staff; their positions/ designation and responsibilities
o Qualification and experience
o Their number.
o Human resources practices
o Staff recruitment
o Motivation ‘
o Training and development
o Reward and recognition
o Staff appraisal

iv. Financial Plan: The financial plan is usually drawn for two to five years for an
existing company. For a new organization the following projections are drawn:
 Projected Sales
 Projected Income and Expenditure Statement
 Projected Break Even Point
 Projected Profit and Loss Statement
 Projected Balance Sheet
 Projected Cash Flows
 Projected Funds Flow
 Projected Ratios

g) Critical Risks: The investors are interested in knowing the tentative risks to evaluate
the viability of the business and to measure the risks involved in the business. This can

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further give confidence to the investors as they can calculate the risks involved in the
business from their perspectives as well.

h) Exit Strategy: The exit strategies would provide details about how the organization
would be dissolved, what would be the share of each stakeholder in case of winding-up
of the organization. It further helps in measuring the risks involved in investing.

i) Appendix: The appendix can provide information about the Curriculum Vitae of the
owners, Ownership Agreement and the like. Other components includes;
Brochures and advertisement materials
Maps and photos of location
Copies of lease and contracts
Company certificates of registration
List of assets available as collateral for a loan
Copies of licences
Research and marketing results
Any other materials needed to support your business plan
List of equipment owned or to be purchased

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Sample Business plan Format

Quiz

Summary
Virtually to start any type of business or expand the existing one needs to work on
opportunity identification and evaluation, business idea development and then prepare
business plan. Lack of proper opportunity identification and evaluation, idea
development process and business planning are the most often cited reasons for
business failure.
Opportunity identification and evaluation are the initial stages of the entrepreneurial
process and principal activities that take place before a business is formed or structured.
The opportunity identification and evaluation process have five main steps namely,
getting the idea/scanning the environment, identifying the opportunity, developing the
opportunity, evaluating the opportunity and evaluating the team.

After opportunity is recognized, you need to have a clear idea of the sort of business
you want to run. Your business idea will address: Which need will your business fulfill
for the customers and what kind of customers will you attract?; What good or service
will your business sell? Who will your business sell to? And how is your business going
to sell its goods or services? All business ideas are not equally worth. Therefore, to
identify promising business idea among others, it is important to answer the raised
questions so that to proceed into the phase of preparing plan on the selected business
idea.

Business plans help companies identify their goals and objectives and provide them
with tactics and strategies to reach those goals. It is not historical document; rather, they
embody a set of management decisions about necessary steps for the business to reach
its objectives and perform in accordance with its capabilities. Business plans have
several major uses. These include internal planning and forecasting, obtaining funding
for ongoing operations or expansion, planned divestiture and spinoffs, and
restructuring or reorganizing. While business plans have elements common to all uses,
most business plans are tailored according to their specific use and intended audience.
Business plan is an outline of a business giving details of the finance, assets, staff,
products or services and markets. It guides the entrepreneur, identifies possible
problems and is also used in funding applications. The business plan sets out how the
owner of a business intends to realize its objectives. Steps in a business plan include:
Idea Generation, Environmental Scanning, Feasibility Analysis, Functional Plan
(Marketing plan, financial plan, organizational plan and operational plan), Project
Report Preparation, Evaluation, Control and Review.