CHAPTER THREE

Developing a Business Plan

A business plan is a comprehensive set of guideline for a new venture. A business plan is also
called a feasibility plan that encompasses the full range of business planning activities, but it
seldom requires the depth of research or detail expected for an established enterprise. A business
plan (feasibility plan) is an outline of potential issues to address and a set of guidelines to help an
entrepreneur make better decisions. This plan would present your basic business idea and all
related operating, marketing, financial and managerial considerations. In a sense, it would
represent your”game plan”. It would crystallize the dreams and hopes that provide your
motivation. It is sometimes called a “deal” by those who invest in new ventures. Whatever the
name, it should lay out your idea, describe where you are, point out where you want to go, and
how you propose to go there. The business plan may present a proposal for launching an entirely
new business. More commonly, perhaps, it may present a plan for a major expansion of a firm
that has already started operation.

3.1 Importance of the business plan

 It helps the owner/manager crystallize and focuses his ideas. A moment’s reflection
would alert a prospective entrepreneur to the danger of jumping into a business venture
with a “half- backed” idea or “wild eyed” proposition.

 Any activity that is initiated without adequate preparation tends to be haphazard and
unsuccessful. Although planning is a mental process, it must go beyond the realm of
thought. Thinking about a proposed business becomes more rigorous as rough ideas must
be crystallized and quantified on paper.

 It can help the owner/manager set objectives and give him a yardstick against which to
monitor performance. It can also attract any external finance needed by the business.

 It can convince investors that the owner/manager has identified high growth
opportunities, and that he has the entrepreneurial flair and managerial talent to exploit

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 that opportunity effectively and that he has a rational, coherent and believable program
for doing so.

 It entails taking a long term view of the business and its environment. It emphasizes the
strengths and recognizes the weaknesses of the proposed venture. The plan can uncover
weaknesses or alert the entrepreneur to sources of possible danger.

 The well conceived plan thus offers a sound basis for operation a business plan can be
used at different times, with benefits for several audiences. The below idea illustrates
when a business plan can be used, by and for whom, why.

1. When:

 Business plans are produced:

a) At the start up of a new business:

b) Business purchase:

c) Ongoing:

d) Major decisions:

2. who:

 Three types of people will be interested in a business plan:

a) Managers: who run or intend to run the business on a day to day basis

b) Owners: prospective equity investors

c) Lenders: who are considering loans for the enterprise

3. Why

 These three groups will have some shared, and some more separate, motives for using a
business plan. Managers, owners and lenders will all be seeking to investigate the
following issues:

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 a) Assessing the feasibility and viability of the business or project: will it work and
become commercially and financially viable? It is in every one’s interests to make
mistake on paper, hypothetically testing for feasibility, before trying the real thing.

b) Setting objectives and budgets: what is the overall direction and financial target set by
the plan? Having a clear financial vision with believable budgets is a basic requirements
of everyone involved in a plan.

c) Calculating how much money is needed: what level and type of finance is required to
make the plan work? A detailed cash flow with assumption is a vital ingredient to
precisely quantify earlier guest mates of the likely funds required.

 Managers involved in producing the plan can, in addition, gain from the process itself in
the following ways;

 Clarifying ideas

 Finding out the unknown

 Building a team

 Practice in using analysis and presentation

 To assist in raising money

 Lenders of finance will look to a business plan to provide them with additional
information, particularly;

 To evaluate the security offered for funds versus the risks involved

 To appraise the quality of management see figure 3.1

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 Figure 3.1 purpose of a business plan and the when, who, why?

Start up Ongoing review Business purchase

When?

Major decisions
Who?

 Why?
Managers Owners Lenders

Why?

Clarifying
Assessing Evaluating
ideas
feasibility and security vs. risk
viability

Finding out the Setting (and

unknown monitoring)
objectives and Appraising quality of
management
targets
Building a team

Practicing analysis
Calculating how
and presentation
much money
needed

Assessing in
raising of money

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3.2 The Format of Business Plan

The three key questions

 What should a business plan look like, and what should be included or excluded?

 To do its job business plan needs to answer three straightforward questions.

1. Where are we now?

2. Where do we intend going?

3. How do we get?

1. Where are we now?

 An analysis of the current situation of the market place, the competition, the business
concept and the people involved is a necessary first steps. It will include any historical
background relevant to the position to date.

2. Where do we intend going?

 The direction that is intended for the business need to be clear and precise, if others are to
share its vision for the future.

 As well as qualitative expression of the objective, quantifiable targets will clarify and
measure progress towards the intended goals. Identification of likely changes to the
business environment will build on the opportunities outlined, and assess possible threats.

3. How do we get there?

 Implementation of accepted aims is what all the parties to a plan are interested in as a
final result. Plans for marketing and managing the business, with detailed financial
analysis are the advisable preliminaries before putting it into practice.

3.3 Outline of a Business Plan

 The precise format of a business plan depends on the particular business and the intended
audience of the plan. It is not possible to suggest subject headings for a plan which would
have application.

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  However the below discussion suggests an outline which follows standard practice in
answering the three key questions above.

Figure 3.2 the format of a business plan

The key people

The nature of Where are we now? The business identity

business

THE BUSINESS PLAN

Where do we
Strategic influences How do we
intend going? Money: financial analysis
get there?
(future
(Implementa
direction)
tion direction

Management of
Strategic direction resources

Marketing plan

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Outline of a business plan
A) Analysis of the current situation(where are we now?)

i. Identify of the business:

1. Introduction . Relevant history and background, date or proposed date for

commencement of trading/ beginning of a plan

2. Names . Names of business and trading names

3. Legal identity . Company/sole trade/partnership/ cooperative

4. Location . Address- registered and operational, brief details of premises

5. Professional advisors . Accountants, solicitors, bank

ii. The key people

1. Existing management . Names of the management team

. Outlines of background experience, skill and knowledge

2. Future requirement . Gaps in skills and experience and how they will be filled.

. Future requirement intentions

iii. The nature of the business

1. Product or service(s) . Description and applications

. Breakdown of product line as % of sales

.Outline of any intellectual properties- patents, trademarks, design

registrations, copyrights,

. Guarantees and warrantees offered

2. Market and customers . Definition of target market, trends in market place, classification of

customers, need of customers, benefit offered by business to target

customers.

3. Competition . Description of competitors

. Strengths and weakness of the major competitors.

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B) Future direction (where do we intend going?)

i. strategic influences

1. opportunities and threats in trends . Socioeconomic

the business environments . Technological trends

. Legislation and politics

. Competition

2. strengths and weaknesses . In its industry

. In the general environment

ii. Strategic direction

1. Objectives . General and specific

2. Policies . Guidelines and rules

3. Activities . Action plan, time table of key activities

C) Implementation of aims (how do we get there?)

i. Management of resources

1. Operations . Premises, materials, equipments, insurances management

information systems

2. People . Employment practices, recruitment, retention and motivation, payroll

and personnel system, team management, training.

ii. Marketing plan

1. Competitive edge . Unique selling point of business (critical product or service

characteristics or uniqueness in relation to competitors)

2. Marketing objectives . Specific aims of product or service in the market place

3. Marketing methods . Product- core and extended, product mix, product development

. Pricing- basis, margins, discount policy

. Promotion- methods to be used, consistency of image

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 . Distribution- channels used, direct or intermediaries

4. Research . Confirmation of demand,

. Future research planned

iii. Money : financial analysis

1. Funding requirements . Startup capital, working capital, asset capital, timing of funds

required, security offered

2. Profit and loss . 3 years forecast, sales, variable cost, gross profit, overheads, net

profit

3. Cash flow . 3 years forecast, receipts, payments, monthly and cumulative

cash flow

4. Balance sheet . use of funds, source of funds

5. Sensitivity analysis . Breakeven point, “what ifs”

6. Summary . Main assumptions, performance ratios

A sample of business plan

 Contents of business plan:

Executive summary

1. The business

1.1 Introduction 4.1 General

1.2 business mission 4.2 key suppliers

1.3 objectives – short term 4.3 quality control

1.4 objectives – long term 4.4 staffing

1.5 key personnel 4.5 wages

2. Markets and competition 5. Financial data and forecasts

2.2 selected market segment 5.1 cash flow, profit and loss accounts and balance sheets

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2.3 customer benefits 5.2 financing requirements – loans, overdrafts

2.4 competitors Appendices

2.5 competitive strategies

3. Selling

4. Premises

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