CHAPTER - THREE

BUSINESS PLANNING
3.1 The Concept of Business Planning
Business planning is the process of organizing and presenting the ideas associated with a
new business venture. This can include the starting of a new business or the continued
expansion of an existing business. Business planning is important for businesses, but few
take the time to plan using sound business concepts. Effective business planning requires
a focus on the organization's mission, vision and values, along with careful consideration
of the impacts on the organization from both internal and external forces. Based on data
gathered through a thorough situation analysis, a business then establishes goals and
objectives that they will plan to meet through effective strategies and tactics.

A situation analysis is a concept of business planning that involves a thorough review of

the internal and external environment to provide a foundation for businesses to determine
their goals and objectives. Situation analysis encompasses considerations about existing
and desired customers, existing and impending competitors, as well as industry and
environmental issues that could impact the business. The collection of this data is used as
an input into a SWOT analysis--the consideration of the strengths, weaknesses,
opportunities and threats that the business faces.

Alignment is a critical concept of business planning. Whether or not a business has a

stated mission and vision, its owners certainly have an idea of why the business exists,
what it offers and who it serves. Values provide an indication of the company's beliefs in
terms of how it operates. In business planning, goals and objectives should be aligned
with the mission, vision and values of an organization. Clear goals and objectives in
business planning ensure that everyone involved in implementing the plan know what
they are attempting to achieve. In addition, clear goals and objectives provide an
indication of the resources that will be necessary for success. The resources required to
sell $1 million in products will be significantly more than what would be required to sell
$100,000 in products, for instance. Measurable goals and objectives provide the basis for
implementation of the plan and measurement of plan progress.

Business’s strategies and tactics should be designed to achieve the goals and objectives
established. Strategies are broad and are designed to either capitalize on your strengths
and weaknesses or overcome your weaknesses and threats. For instance, a strategy might
be: "Leverage high customer satisfaction scores to attract new business." Tactics are more
specific and indicate specific operational tasks that must be accomplished to achieve
strategies. An example of a tactic might be: "Tweet about customer service satisfaction
scores.

3.2 Feasibility Planning

The go/no-go decision is one of the most critical in business development. It is the point
of no return. Once you have definitely decided to pursue a business scenario, there is
usually no turning back. The feasibility study will be a major information source in

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making this decision. This indicates the importance of a properly developed feasibility
study.

A feasibility study is designed to provide an overview of the primary issues related to a

business idea. The purpose is to identify any “make or break” issues that would prevent
your business from being successful in the marketplace. In other words, a feasibility
study determines whether the business idea makes sense. A thorough feasibility analysis
provides a lot of information necessary for the business plan. For example, a good
market analysis is necessary in order to determine the project’s feasibility. This
information provides the basis for the market section of the business plan.

An analysis of the ability to complete a project successfully, taking into account legal,
economic, technological, scheduling and other factors. Rather than just diving into a
project and hoping for the best, a feasibility study allows project managers to investigate
the possible negative and positive outcomes of a project before investing too much time
and money. A feasibility study is a brief formal analysis of a prospective business idea.
The goal of a feasibility study is to give the entrepreneur a clear evaluation of the
potential for sales and profit for a particular idea. Therefore, feasibility analyses focus on
the market size and shares, competing products or services, the pricing structure and,
given the three of these, the likely sales and profits of the prospective business.

Feasibility study is an analysis of the viability of an idea. It focuses on helping answer the
essential question of “should we proceed with the proposed project idea?” and primarily
it focus on proposed business ventures. A feasible business venture is one where the
business will generate adequate cash-flow and profits, withstand the risks it will
encounter, remain viable in the long-term and meet the goals of the founders. The venture
can be either a start-up business, the purchase of an existing business, an expansion of
current business operations or a new enterprise for an existing business. A feasibility
study is only one step in the business idea assessment and business development process

The feasibility study helps to “frame” and “flesh-out” specific business scenarios so they
can be studied in-depth. During this process the number of business alternatives under
consideration is usually quickly reduced. During the feasibility process you may
investigate a variety of ways of organizing the business and positioning your product in
the marketplace. It is like an exploratory journey and you may take several paths before
you reach your destination. Just because the initial analysis is negative does not mean that
the proposal does not have merit.

Feasibility Study vs. Business Plan

A feasibility study is not a business plan. The separate roles of the feasibility study and
the business plan are frequently misunderstood. The feasibility study provides an
investigating function. It addresses the question of “Is this a viable business venture?”
The business plan provides a planning function. The business plan outlines the actions
needed to take the proposal from “idea” to “reality.”

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The feasibility study outlines and analyzes several alternatives or methods of achieving
business success. The feasibility study helps to narrow the scope of the project to identify
the best business scenario(s). The business plan deals with only one alternative or
scenario. The feasibility study helps to narrow the scope of the project to identify and
define two or three scenarios or alternatives. The person or business conducting the
feasibility study may work with the group to identify the “best” alternative for their
situation. This becomes the basis for the business plan.

The feasibility study is conducted before the business plan. A business plan is prepared
only after the business venture has been deemed to be feasible. If a proposed business
venture is considered to be feasible, a business plan is usually constructed next that
provides a “roadmap” of how the business will be created and developed. The business
plan provides the “blueprint” for project implementation. If the venture is deemed not to
be feasible, efforts may be made to correct its deficiencies, other alternatives may be
explored, or the idea is dropped.

Conducting a feasibility study is a good business practice. If you examine successful

businesses, you will find that they did not go into a new business venture without first
thoroughly examining all of the issues and assessing the probability of business success.
These are reasons to conduct a feasibility study: it gives focus to the project and outline
alternatives, narrows business alternatives, identifies new opportunities through the
investigative process, identifies reasons not to proceed, enhances the probability of
success by addressing and mitigating factors early on that could affect the project,
provides quality information for decision making, provides documentation that the
business venture was thoroughly investigated, helps in securing funding from lending
institutions and other monetary sources, helps to attract equity investment.

3.3 The Business Plan

When a business plan is developed, it serves as the blueprint for advertising, budgeting,
marketing, organizational structure and the goals of the organization. Within the business
plan are the responsibilities of the management teams, and the projected growth of the
company or division. Your business plan is your compass. It will help you map out a new
course, and navigate through unchartered territory. A business plan is an essential
roadmap for business success. This living document generally projects 3-5 years ahead
and outlines the route a company intends to take to grow revenues.

Your executive summary is a snapshot of your business plan as a whole and touches on
your company profile and goals. It is a comprehensive set of guidelines for a new venture
which also said to be feasibility plan encompassing the full range of business planning
activities. It is an outline of potential issues to address and a set of guidelines to help an
entrepreneur make better decisions. This plan presents basic business idea and all related
operating, marketing, financial and managerial considerations. It layouts the idea and
describes where we are, where we want to go, and how we propose to go there.

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The purpose of the business plan is to minimize the risk associated with a new business
and maximize the chances of success through research and maximize the chances fo
success through research and planning. Whether you’re starting or growing your
business, you need a business plan. Your plan will provide the roadmap to achieve the
success you want. The question shouldn’t be IF you write your plan, but how to write a
business plan that will take your company where you want to go.

The Purpose of Business Plan

 It can help the owner/manager to crystallize and focus his ideas.
 It can help the owner/manager set objectives and give him a yardstick against which
to monitor performance.
 It can act as a vehicle to 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
that opportunity effectively.
 It entails taking a long term view of the business and its environment.
 It emphasizes the strengths and recognizes the weakness of the proposed venture.
 It offers a sound basis for operation of a business plan that can be used at different
times.
When Business Plans Are Produced?
1. At Startup of a New Business: after the initial stage of developing ideas and
feasibility study are over, a new business may start up through a detailed planning
stage of which the main output is the business plan.
2. Business Purchase: buying an existing business does not negate the need for an
initial business plan. A detailed plan tests the sensitivity changes to key business
variables. This helps to understand the level of risk that are accepted and the
likelihood of rewards being available for the buyers.
3. Ongoing Process: ongoing review of progress, against the objectives of either a new
business or a small business purchase is important in a dynamic environment. A
periodic review with the business plan is required in the constantly changing
environment. A business plan should be the live, strategic, and technical planning
focusing on how a small business responds to the inevitable changes around it.
4. Major Decisions: Even if planning is not carried out on a regular basis, it is usually
instigated at a time of major change.
Who Makes The Business Plans?
Three types of people are interested in a business plan:
1. The managers who run the business on a day to day basis
2. The owners, or prospective equity investors
3. The lenders, who are advancing loans for the enterprise
1. Managers: They are involved in small business planning both as producers and
recipients of the plan. The management of a small enterprise is the only people
likely to be sufficiently knowledgeable to produce a business plan. Business plans
are also written to aid small business managers.

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 2. Owners: The managers of a small enterprise may also be the owners and take a
keen interest in the planning process. A plan may be intended for prospective
equity partners, either a sleeping partner looking for an investment, or an active
partner looking to join an existing small business. Owners may also be lenders,
who take an equity stake in return for providing loans.
3. Lenders: Banks are the main recipients of business plan. They encourage the
production of business plans to justify overdrafts and loans offering literature and
advice and putting together business plans. Other lenders of money, from private
individuals to venture capital companies, will also expect to make their
investment decision after the presentation of a formal business plan.
Why Business Plans Are Prepared? The above three groups will have some shared,
and some more separate motives for using a business plan. Managers, owners and
lenders will be seeking to investigate the following issues:
 Assessing the Feasibility and Viability of the Business or Project: A project
feasibility analysis includes market analysis, technical analysis, financial analysis
and social profitability analysis. A market analysis is a method of screening project
ideas as well as means of evaluating a project’s feasibility in terms of the market. The
technical analysis of a project feasibility study establishes whether the project is
technically feasible or not, and whether it offers a basis for the estimation of costs. In
the financial analysis, the emphasis is on the preparation of the financial statements,
so that the project may be evaluated in terms of the different measures of commercial
profitability and the magnitude of financing required may be determined.
 Setting Objectives and Budgets: an objective is an important element in the project
planning. Objectives are concerned with defining in a precise manner what the project
is expected to achieve and to provide a measure of performance for the project as a
whole. Objectives are the foundations on which the entire edifice of the project design
is built.
The objectives should be;
 Specific  Established within resource
 Not complex bounds
 Measurable, tangible and  Consistent with resources
verifiable available or anticipated
 Realistic and attainable  Consistent with organizational
plans, policies or procedures.
Having a clear financial vision with believable budgets is a basic requirement of
everyone involved in the plan.
3.4 Developing a Business Plan- The Format It Includes
What should a business plan look like, and what should be included? Business plan
should answer straight forward questions;
 Where are we now?
 Where do we intend to go?
 How do we get there?

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A. Where We Are Now? -An analysis of the current situation of the market place,
the business concept and the people involved is a necessary first step. An evaluation
of what we are doing now helps to proceed to the future.
B. Where Do We Intend To Go? - The direction that is intended for the business need
to be clear and precise. Quantifiable targets and objectives help to 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.
C. How Do We Get There? - Implementation of accepted aims gives the final end
result. Plans for marketing and managing the business, with detailed financial support
are the advisable preliminaries before putting it all into practice.
Your business plan is essentially your answers to a comprehensive list of questions. The
first and most important question is this: where do you want your business to go? Stated
differently, what do you want your business to look like in three, five or even 10 or more
years? What level of revenues and profits do you have at that time? How many
employees? How many locations? And so on.
Likewise, your business plan should answer these questions for a shorter time period,
particularly one year. That is, what are your business’ goals for the current year, and what
must you accomplish to make the year a success. In answering these big business
planning questions, you naturally have to answer questions pertaining to each of the core
business plan sections as follows:
1. Company Analysis: what products and/or services do you offer now and/or what
will you develop and offer in the future?
2. Industry Analysis: how big is/are your market(s) and how are they changing? What
trends are affecting them and do these trends bode well for your future success?
3. Competitive Analysis: who are your competitors and what are each of their key
strengths and weaknesses? In what areas will you have or gain competitive
advantage? How?
4. Customer Analysis: who are your target customers? What are their demographic
and/or psychographic profiles? What are their needs?
5. Marketing Plan: how will your reach your target customers? What promotional
tactics and marketing channels will you use? How will you price your products
and/or services? What brand positioning do you desire for each?
6. Management Team: who comprises your current team and what key hires must you
make in order to execute on the opportunity in front of you. Will you build a Board
of Advisors or Directors, and if so, who will you seek?
7. Operations Plan: what is your action plan? What are the milestones you must
accomplish to go from where you are now to where you want to be at year’s end? At
the end of five years?
8. Financial Plan: how much external funding (if applicable) do you need to build
your company? In what areas will these funds be invested? What are your projected
revenues and profits over the next one to five years? What assets must you acquire?

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 Answering the questions in these eight key business plan sections helps you formulate
specific business goals. They also help you answer the most important question to include
when you write the Executive Summary of your business plan, which is this: why is
your business uniquely qualified to succeed?
There are many reasons why your business might be uniquely qualified to succeed. For
example, it could be the quality of your management team. Or unique technology and/or
partnerships you’ve created. But importantly, if you have no unique qualifications, it’s
too easy for competitors to steal your customers and market share at any time.
So, if you’re thinking right now about how to write a business plan, sit down and start
answering the questions outlined above. It’s the thinking and strategizing part which is
actually more important than the writing part. Sure, if you want others to read and/or fund
your business, your plan has to read well and be formatted properly. But it’s the content
in the business plan, your strategy and reasons why you’ll succeed, that will prompt
others to invest or otherwise join you in your conquest to build a thriving business!
A business plan is living document that uses as a road map reading and means of
communicating the business idea, the needed resources and activities. A business plan is
a written statement that describes and analyzes your business and gives detailed
projections about its future. A business plan also covers the financial aspects of starting
or expanding your business—how much money you need and how you’ll pay it back. All
business plans include eight common elements that are contained in the feasibility model
summarized below. This model is generally adaptable to most types of new ventures.

Eight Common Elements in a Feasibility Plan

Executive Summary 
Venture defined, products or services identified, market characteristics
summarized, founders introduced, and financial structure profiled
Business Concept  Purpose of the venture and the major objectives of its founders; description of
the distinct competency of the firm
Product or Service  Function and nature of products and services, proprietary interests,
attributes and technical profile
Market Research and Analysis  Customer scenario, markets, venture’s niche, industry structure,
expected competition, and sales forecast
Market Plan  Market strategy to compete, pricing, promotion, distribution, service and
warranties, and sales leadership
Manufacturing or Operations  Facilities, location, inventory and materials needed, human resources,
operational processes, technology, security, insurance, and safety
Entrepreneurial Team  Profile of founders, key personnel, investors and management roles
Financial Documentation  Financial statements for income and expenses, cash flow; assets and liabilities,
break-even projections, and start-up underwriting needed

I. Executive Summary: The opening section, called the executive summary, is a

synopsis of the proposed enterprise. It addresses five subjects as mentioned below.

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  Venture Defined: The Company must be identified to include when it was
formed, by whom and for what purpose. The entrepreneur should briefly extend
the definition to explain how the enterprise is unique.
 Product or Service: The entrepreneur must describe clearly what will be sold. If
there is a proprietary interest (patent, trademark, or copyright), this fact should be
stated. The executive summary should briefly describe how far the entrepreneur
has gone to develop the product or service. Products and services should also be
described in terms of quality image, pricing and distinguishing characteristics that
might demonstrate a distinctive competency.
 Market Characteristics: existing and potential markets must be briefly described
in terms of size and geographic characteristics. The plan must provide a summary
of data to validate projections. Market potential should be estimated over a
reasonable period of time (i.e. number of sales for the first three to five years).
Summaries on data on growth projections, such as regional trends in specialty
merchandising, may be required.
 Entrepreneurial Team: an entrepreneurial team may include only the founding
entrepreneur, but there are other key personnel essential for the firm’s success.
These individuals must be identified, and their skills and talents must be
adequately described. The executive summary emphasizes strengths of team
members and their qualifications.
 Financial Summary: critical financial considerations like start-up estimates of
revenue, costs, cash flow requirements, and profits or losses. These should be
extended in annual increments for at least three years. A good plan will identify
the break-even point in sales volume.
II. Business Description: following the executive summary, the plan will provide
detailed sections on each major topic. The first section is a thorough description of
the business. Essentially, the same points covered in the executive summary are
covered here, but they are covered in far greater detail. An important area to address
is the nature of market demand. Is the firm responding to an established demand, or is
it trying to establish a new product or service in untested markets? The entrepreneur
also needs to explain the nature of the business by clearly defining how the firm will
operate and what the founders intend to accomplish.
III. Products or Services: The plan must provide accurate description of a product or
service before attempting to explain how it will be marketed. Essential information
required to describe a product includes distinctive characteristics of the product itself,
how it works (or is used), materials, costs, methods of manufacturing, proprietary
protection (patents, trademarks, or copyrights), and potential competing (substitute)
products. Most new products also will require validated testing, and many will require
approval by regulatory agencies. A business is staged during the startup and early
growth periods. Staging refers to the manner in which products or services will be
introduced.
IV. Market Research and Analysis: The objective of market research and analysis is to
establish that a market exists for the proposed venture. Entrepreneurs may provide a

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 credible summary of potential customers, markets, competitors, and assumptions
about pricing, promotion and distribution.

Market Research and Analysis Activities

Identify Potential Evaluate Analyze Competitors Describe

Customers Markets Assumptions
 Existing competitors  Market niche for
 Demographic profile
 Future markets with similar products positioning firm
of customers  Future competitors
&trends or  Pricing approach
 Characteristics of changes ease of entry used in plan
customers, age, sex,  Window of  Industry structure  Distribution or
income etc. opportunity method of making a
 Buying habits and  Niche position market
relevant information information
for new venture
 Potential
 Customers: A customer profile includes demographic information such as age, sex,
family income, occupation and location of potential customers. Customer profiles can
include many characteristics but entrepreneurs should be guided by reason to provide
relevant information that could affect sales.
 Markets: A market exists only when there are qualified buyers, but the entrepreneur
must remember that the feasibility plan is a forecast of future markets. Therefore,
market trends are important to identify, including a window of opportunity for
introducing the new business.
 Competitors: It is essential to identify competitors and to analyze how competition is
likely to change when the new venture becomes established. The minimum
requirement is to identify existing competition and to explain their strengths and
weaknesses.
 Assumptions about the New Venture: A formal marketing plan comprises the next
major section of the feasibility plan. Entrepreneurs must identify the market niche,
price system, promotional effort, and distribution method to justify a basis for market
research.
 Market Niche: A market niche is a carefully defined segment of a broader market. It
defines the positioning of a product or service to create a distinct marketing focus.
 Pricing Systems: Describing the price system is essential for developing a customer
profile. Luxury prices for name-brand products sold through specialty stores indicate
customers that quality merchandise and individualized service are offered. Low prices
with frequent sales and discounts suggest the opposite. Prices will also be defined by
credit policies, location, methods of distribution, and market strategies devised by the
founders.
 Methods of Distribution: It is the manner in which products or services are brought
to market. The choice of a distribution system often defines the market niche,
influences prices, and delineates promotional activities. A creative method of
distribution gives a business its distinct competency.

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  The Sales Forecast: Marketing research must conclude with solid data on projected
sales. Sales forecast is the culmination of research to indicate the quantity of sales and
expected gross sales revenue during the planning period. A sales forecast includes
quantity of sales in numerical terms where the products or services can be
individually identified. A good plan will describe projected sales in the executive
summary, but present well-documented information here on specific market data and
how sales are expected to occur during the first three to five years of business.
V. The Market Plan: the market plan describes an entrepreneur’s intended strategy. It
builds on market research and distinct characteristics of the business to explain how
the venture will succeed. It focuses on specific marketing activities. It describes
pricing policies, quality image, warranty policies, promotional programs, distribution
channels, and other issues such as after sales service and marketing responsibility.
These are outlined in the figure below.
Elements of the Marketing Plan
Quality and reliability, use, and how the product or service will be
Product or Service positioned in growth markets

Pricing System Pricing methods, discounts, and quantity and bulk prices, methods
to set price

Strategy of combining appropriate uses of public relations,

Promotional Mix
advertising, displays, events, demonstrations, personal sales etc.

Distribution Channels Description of service- after-sales policies, repair services, guarantees,

and product warranties

Services & Warranties Use of market channels including retail, wholesale, catalog,
telemarketing, personal sales representatives, or other approaches

Marketing Leadership Define leadership roles, persons responsible for marketing and sales

VI. Manufacturing or Operations Plan

Facilities Inventor Human Resources Operation Other issues

y s
Opening inventory Operating personnel Research and Insurance
Purchase or lease Purchasing system Skill requirements development Legal
Renovations Sub contracting Supervision Manufacturing protection
Equipment and Inventory Service and support process Patents,
technology management Unusual Service structure Copyrights
Packing and Supplies and Quality control
requirements and trade
transport support Safety and marks
Legal and zoning maintenance Security
issues
Manufacturing and Operating Elements: systems

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  Facilities: Every business requires physical facilities. Retailers are usually involved
in choosing a location and either securing a lease or purchasing a store. Facilities
include fixtures, furniture, equipment, parking facilities, and renovations necessary to
open for business.
 Inventory Management: Retailers will describe beginning inventory required to
open for business and explain how merchandise will be replenished. Manufacturers
will describe raw materials and supplies needed in inventory prior to production, and
they will also describe projected finished goods inventory at opening
 Human Resource Requirements: From a manufacturing view point, human
resource requirements should be summarized with information on the number of
personnel and type of skills needed. If the business depends on unusually talented
personnel, then they should be identified.
 Operational Rationale: If the firm will engage in R&D, the plan should spell out the
extent of this effort. If operations include manufacturing, the plan should describe
vendor relations, supply requirements, maintenance expectations and transport
requirements. Manufacturers will also be expected to describe their quality control
policies, safety requirements, and other specific operations related to the enterprise.
 Legal Issues: Most businesses must consider insurance and legal protection to avoid
disasters. Specifically, entrepreneurs will need business liability insurance, and when
the business relies on a few talented people, the founders may want to purchase
personnel life and disability insurance on key people.
VII. Leadership and the Entrepreneurial Team: Entrepreneurs must take care to
profile of the entrepreneurial team honesty but effectively. They should emphasize
team member’s strengths, past successes, and positive characteristics, and they
should include brief resumes of the principals. Each person’s role in the new venture
should be described briefly, including board members or investors who may not be
involved directly in operations yet be able to influence decision
VIII. Financial Documentation: Since money is the objective measure used to gauge a
firm’s progress, it follows that financial statements come under close scrutiny.
Financial statements for a new venture are projections based on previously defined
operating and marketing assumptions. An income statement is required to show
revenue, cost of goods sold, operating expenses, and net income. Cash flow budgets
reflect information from the profit and loss statement adjusted properly for credit
sales, non-cash expenses and cash obtained and used outside of operational income.
A projected balances sheet will summarize assets and liabilities, and a break even
analysis will reveal when the enterprise begins to turn a profit.

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