Objectives:

To be able to:

1. Identify business plan

2. Explain the purpose of business plan
3. Describe reasons for writing a business plan when starting a new venture

Chapter 1: Creating a Business Plan

Business Plan is:

 a written document describing the nature of the business, the sales and
marketing strategy, and the financial background, and containing a projected
profit and loss statement

 a road map that provides directions so a business can plan its future and helps it
avoid bumps in the road

 a document that outlines the basic concept underlying a business and describes
how the concept will be realized

 It is an entrepreneurs’ game plan, crystalizes the dreams and hopes that

motivate an entrepreneur to take the startup plunge.

 Should lay out business idea of the venture, include descriptions where you are
now, where you want to go, and how you intend to get there.

Elements of a business plan

1. Logical statement of a problem and its solution

2. Significant amount of cold hard evidence

3. Candor about the risks, gaps and other assumptions that might be proved
wrong.

David Gumpert:

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  Business plan is a document that convincingly demonstrates that your business
can sell enough of its products or service to make a satisfactory profits and
attractive to potential backers

 Or a selling document used to convince key individuals, both inside and outside
the firm that the venture has real potential

 An opportunity to convince yourself that what appears to be good idea is also a

good investment opportunity

Objectives of business plan

1. Identify nature and context of the business opportunity

2. Outline the approach the entrepreneur plans to use to exploit the opportunity

3. To recognize factors that will determine whether the venture will be successful

Business plan

 is used to provide a statement of goals and strategies to be used by company

insiders (owners, employees) and aid in the development of relationships with
outsiders (investors) to help achieve its goals

 Business plan may be called loan proposal, venture plan or investment

prospectus,

 “Plan your work well, so you can work your plan well”

 “Nothing is more terrible than activity without insight”

 Business plan becomes a model that helps the entrepreneur’s team focus on
important issues and activities for the new venture

Kinds of business plan

1. Dehydrated plan – a short form of a business presenting only the most important
issues and projections for the business like market issues on pricing, competition
and distribution channels

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 2. Comprehensive plan – is a full business plan that provides an in depth analysis of
the critical factors that will determine a firm’s success or failure

Costs of planning

1. Developing and writing the plan takes time, money and energy

2. Deal with economic uncertainty risks, psychological strain of everything can go

wrong

3. Fear of prematurely closing off the new venture’s strategic direction

Benefits of business planning - Reduces anxieties, tensions and the fear of facing an
unknown future

1. Conflicts

a. Planning and performance – the firms that plan are more likely to succeed
than firms that do not

i. Comprehensiveness – fully and completely treat all the major issues

facing the new venture

ii. Communication – help attract resources to the new venture

iii. Guidance – sets goals and milestones, intentions, values and guides
decisions of management

iv. Planning process – improve the venture’s performance by collecting

information, sharing analysis, developing norms, and reviewing
objectives.

2. Preparing a business plan

a. Conducted a feasibility study

i. Strong market potential

ii. Attractive industry

iii. Right individual or team members to execute the plan

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 3. Content of a formal business plan

a. The opportunity should reflect the potential and the attractiveness of the
market and industry

b. Critical resources – money, human assets (suppliers, accountants, lawyers,

investors) hard assets (accounts receivable, inventories)

c. Entrepreneurial team – must posses integrity and depth of experience

d. Financing structure – how a firm is finance through debt or equity

e. Context or external factors of an opportunity are the government rules,

interest rates, demographic trends, inflation and other factors

ENTREPR
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OPPORTU
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FINAN
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Elements of a business plan

1. Preliminary section
a. Cover page
i. Company name, address, telephone and fax numbers, email address
ii. Name and Position of the contact person
iii. Date the business was established (Established 2019)
iv. Name of the organization from which funding agreement is sought
v. Copy number of the plan (copy 2 or 7 copies)
vi. Company’s logo and tagline
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b. Table of Contents – sequential listing of the plan sections with page
numbers

c. Executive Summary – most important part of the business plan and must
catch the attention of the reader or investor, it must consist of clear and
concise picture of the plan

d. Type of Business – 10 words are necessary to describe the firm’s industry

or sector
i. Company summary – sketch of your firm’s history and background
focusing on the positive aspects about the product or service

ii. Management – describe top two or three people and emphasize the
industry experience

iii. Product Service and competition – illustrate the niche that your firm
occupies

iv. Funds Requested, Collateral, Use of proceeds – how much money

you need to raise, what is the investment vehicle is it debt or equity

v. Financial history– show major categories on revenues, net income,

assets, liabilities and net worth

vi. Financial projections – three years projection is sufficient and must

match in the main body of the plan

vii. Deal structure – combination of investment instruments are used to

raise money
Bank Loan P2,000,000
Subordinated debenture 1,000,000
Preferred stock 750,000
Common Stock 250,000

Total P4,000,000

viii. Exit – how and when the investor is most likely to make money by
selling their interest in the business
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2. Major Sections – contains the strategic and operating details of the new
venture

a. Background and purpose – context for understanding the business and its
opportunity, how far the firm has come and where it is now in the new
venture creation process

i. History – briefly describe the history of the venture and its product or
service

ii. Current situation – describe what your product is, to whom it will be
marketed, the technology necessary to make and deliver their
product

iii. The resource based concept – briefly describe the key resources that
contribute to the firm’s success
b. Objectives – are desired outcomes of the new venture
i. Creation
ii. Survival
iii. Profitability

1. Short term – achieved in one year

2. Long term – require more than 1 year to achieve but not over 5
years

a. Quantitative measures – stated in numbers on return of

sales, return on equity, employee turnover, degree of
firm’s efficiency in operation

b. Qualitative measures – effectiveness of the new venture

or the extent to which the firm is able to maintain and
expand its position

c. Market Analysis – must convince the reader that the entrepreneur

understands the competitive environment and the macro environment in
detail

i. The market for the product or service is substantial and growing

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 ii. Can achieve a defendable competitive position

1. Overall market – describe the overall market for the firm’s

industry, its current conditions and projections for sales, profits,
sales of growth and other trends

2. Specific market – narrow the focus to the target markets,

segment or niche which your firm will operate, describe the
current and projected conditions and leading competitors

3. Competitive factors – describe and explain how each of the

factors covered and affects the firm’s sales and profitability

4. Macro environmental influences – describe the impact of the

macro environmental factors and analyze the political,
economic, technological, socio demographic and ecological
factors that affect the firm

d. Development and Production – emphasizes and describes the most

important elements relating to the research development and production of
your firm’s basic product or service

i. Production processes – outline the stages in the development and

production of the product or service and its stages, how time and
money are allocated at each stage in the production process or
service delivery system.

1. Discuss the difficulties and risks encountered.

2. Create a flowchart to illustrate how the core function is
accomplished

ii. Resource requirements – analyze each type of resource employed in

the production process and describe, include financial, physical,
human technological reputational and organizational resources

1. Venture with valuable resources, hard to copy and non-

substitutable

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 2. Present the cost/volume economics of the production process
or service delivery system

3. Describe trends in the cost of resource procurement

iii. Quality assurance – discuss the quality dimensions (product, user,

process, value)

1. Specify how the firm will measure quality of the production

process

e. Marketing – describes the actual marketing strategy or the firm’s new

venture and must be consistent with the objectives

i. Overall concept and orientation – describe the venture’s marketing

focus through a statement of customer orientation
1. What benefits and positive outcomes will the customer derive
from interaction with the firm?

ii. Marketing Strategy and resources – describe the primary product or

service along with your competitors
1. How will it exploit your competitors’ weaknesses
2. Identify your target market and show evidence of market
research
3. Why are you competing in this segment
4. How does your product appeal to the consumers?

iii. Sales forecasts – Provide figures to indicate how many buyers are for
the firm’s products where they are located
1. How purchasing decisions are made
2. Present your sales forecast in an exhibit or chart
3. Prepare forecast in terms of units of products and pesos

f. Financial plans –represent the top line of the plan that illustrate the bottom
line to be evaluated by the investors and bankers if venture is an attractive
investment

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 i. Financial statements –summarize past and current performance by
calculating ratios that highlights the profitability, liquidity, leverage
and activity

1. Projected profit and loss statement – show monthly for first

year, quarterly or the next 2 years and annually

2. Projected cash flow statements and analysis – show monthly

for the first year and until the firm has positive cash flow

3. Projected balance sheet for the end of the first 3 to 5 years

ii. Financial resources – Discuss the start-up cost for the business in a
detailed list of all the physical assets the firm needs to purchase or
lease

1. Statement of organizational cost of legal, architectural and

engineering

2. How much money the business will need

3. If debt is being sought

g. Organization and management – reviews its objectives, market and

strategy for reaching its objectives.
i. The financial portion indicates the funds that will be required to
launch the venture and the size of sales, profits and growth that are
predicted

1. Key personnel resources – provide an organization chart with

the names and titles of the key executives, synopses of the
individuals previous experience, education, and related
qualifications

ii. Human Resource management strategy – state and discuss the firm’s
basic philosophy concerning human resources and management

1. How many employees does the firm have and required?

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 2. What equal opportunity employment regulations and other
government requirements affect the firm?

h. Ownership- describes the legal form of the business, contractual obligation

of the owners to the firm and each other

i. Form of business – describe the legal form of the business (sole,

partnership, regular corporation)

ii. Equity positions – present an exhibit to show the amount that the
founders and executives of the company have invested in the
business or will be investing in the near future.

iii. Deal structure – describe the financing required to start up the

business to fund the development or expansion of current business
activities

1. Number of shares of stock available for the offering

2. The price per share of each unit
3. Revised number of shares

i. Critical Risks and Contingencies – Reveal all material and relevant

information that investor needs to know

j. Summary and Conclusions – Briefly summarize the highlights and key

features

i. Include the firm’s overall strategic direction

ii. Reasons for believing the firm will be a success

k. Scheduling and milestones – outline a number of actions that will be taken

in the future.
i. Seeking legal counsel and accounting services
ii. Filing the documents
iii. Completion of research
iv. Completion of working prototype
v. Purchase or lease facilities

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 l. Appendices – suggested items, exhibits and documentation
i. Photographs or drawing of product
ii. Photographs or drawing of intended location and layout
iii. Sales and profitability
iv. Market surveys
v. Sample advertisements
vi. Sample press releases
vii. Price lists, catalogues, and mailing lists
viii. Fixed asset acquisition schedule
ix. Tax returns
x. Resume of founders
xi. Letters of recommendation
xii. Additional information

Critiiquing the plan:

1. Management – Reader must find a way to assess the entrepreneur’s honesty ,

character and integrity.

2. Resources – demonstrate how it will keep the profits generated

3. Projections and returns – justify the assumptions on sales forecasts, cost

estimates, administrative costs and net profit figures

4. Exit – how to recoup their money and investors can exit by mean of
alternative mechanisms

Format and Presentation – first impression on the reader

1. Physical appearance – not too fancy nor too plain, 40 – 50 pages, should be crisp
and clean
2. Writing and editing – should be well written and edited
a. Prewriting – begin by writing information and thoughts in an outline to
organize what you know and need to know
b. Revising – convert the outline into a well-articulated rough draft
c. Editing – use all tools in the computer for checking the grammar, spelling,
sentences and paragraphs.
3. Advise for writing a business plan – in making effective written presentation:

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 a. Emphasize the quality of the business plan
b. The quality of the business opportunity
i. What is your target market?
ii. How large is the target market?
iii. What problems concern the target market
iv. Are any of these problems greater that the one you’re addressing?
v. How does your product or service fix the problem?
vi. Who will buy your product or service?
vii. How much are they willing to pay for it?
viii. Why do they need it
ix. Why would they buy from you?
x. Who are your competitors?
xi. What are their strengths and weaknesses?

Provide solid evidence for any claims

 Factual support must be supplied for any claims or assurances made.
 Detailed computer generated financial projections that entrepreneur can
predict with great accuracy what will happen

Think like an investor

 To maximize potential return on an investment through cash flows that will
be received while minimizing the risk
 Investors are more market-oriented

Don’t hide weaknesses – identify potential fatal flaws

 What is the possible impact of new technology, ecommerce or changes in
consumer demand on the new venture?

Maintain Confidentiality
 Be cautious in releasing proprietary information
 All information in the plan is proprietary and confidential

Remember that the little things are the big things

1. Use good grammar
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 2. Limit the presentation to a reasonable length
3. Go for an attractive professional appearance
4. Describe your product or service in lay terms
Understanding the business model - important in a start up
 Begin by developing the venture’s mission statement, goals and principles to
guide its operations
 3 key elements that make up the business model
1. Revenue model – defines the nature and types of a company’s sources
of revenues
a. Single stream – the firm’s revenues come from a single product or
service
b. Multiple streams – revenue is from a combination or multiple
products and service
c. Independent streams – revenue come from selling one or more
products or services like printer and cartridges
d. Loss leader – one or several revenue streams are sold at a loss to
create sales in a profitable revenue stream
e. Common types of revenue model
i. Volume or unit based revenue model – consumers pay a
fixed price per unit in exchange for a product or service
ii. Subscription membership revenue model – examples are
cable and telephone services
iii. Advertising based revenue model – customer pay only a
fraction of the true value of the product
iv. Licensing revenue model – customers pay one time licensing
fee to use or resell the product or service

2. Cost structures – drive the company’s costs and expenses that affect a
firm’s cost and expenses that vary with time or volume of sales such as:
a. Fixed costs – rent expenses, salary,
b. Variable costs – vary directly proportionately with the changes in
volume like sales commission
c. Semi-variable costs – both variable and fixed costs

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 3. Maximum investment that will be required to make the business
profitable and cash flows positive

Resources for business plan preparation

1. Computer aided business planning

2. Professional assistance I business planning
a. Hire consultant
b. Get referrals
c. Look for a fit or expert
d. Check references
e. Have a legal contract

Assignment:

1. Present sample business plans next meeting

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