UNIT : BUSINESS PLAN

OBJECTIVES

1. Explain the meaning of a business plan

2. Explain the purpose of a business plan

UNIT OUTLINE AND DEFINITION

1. 1. INTRODUCTION TO BUSINESS PLAN

 Meaning of business plan

 Purpose of business plan
 Features of a business plan
 Guidelines for developing an effective business plan

1. 2. BUSINESS DESCRIPTION

 Business name
 Business location
 Forms of business ownership
 Products/ Services
 Justification of the opportunity
 The industry
 Business goals and objectives
 Entry and growth strategy
 SWOT analysis

1. 3. MARKETING PLAN

 Customer Identification
 Competitor analysis
 Market share
 Promotion
 Pricing strategy
 Sales targets
 Sales tactics
 Distribution strategy
 Customer service

1. 4. ORGANISATION AND MANAGEMENT PLAN

 Organization structure
 Management team /Business personnel
 Recruitment, training and promotion
 Remuneration and incentives
  Legal and statutory requirements
 Supporting services

5. OPERATIONAL / PRODUCTION PLAN

 Production facilities and capacity utilization

 Production and operations strategy
 Production process
 Regulations affecting operations
 Operational timetable/ Production schedule

6. FINANCIAL PLAN

 Pre-operations cost
 Working capital
 Cash flow projections
 Pro-forma income statements
 Pro-forma balance sheets
 Profitability ratios
 Proposed capitalization
 Potential risks

7. BUSINESS PLAN WRITING

DEFINITION

A 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 business plan is also a road map that provides directions so a business can plan
its future and helps it avoid bumps in the road. The time you spend making your
business plan thorough and accurate, and keeping it up-to-date, is an investment
that pays big dividends in the long term.

A business plan is a document setting out a business's future objectives and

strategies for achieving them.

It is a roadmap for your business that outlines goals and details how you plan to
achieve those goals.

At its heart, a business plan is just a plan for how your business is going to work,
and how you’re going to make it succeed. Good businesses always keep their Lean
Plan up to date.

PURPOSE OF A BUSINESS PLAN

A business plan serves as your blueprint for how you will operate your business.
While you need to have a business plan to seek investors or get a loan for your
company, the plan is actually for your benefit. It provides a step-by-step guide as
you start a new business or grow your current company, and it directs every
decision you make going forward.

1. GET ORGANIZED

Writing down your business plan helps you clarify your thoughts and organize the
steps you need to take to be successful in your business. There are a number of
pieces that all have to come together to make your business profitable. A business
plan ensures that you won’t skip any important steps that could derail your efforts
down the line. Be specific (even if the plan is for your eyes only); Use measurable
milestones, accountable responsibilities and track able performance expectations,
for starters. When your plan is clearly spelled out in writing, it helps you see the big
picture and identify potential problems before you make blunders.

2. STAY ON TRACK

After your business plan is developed, referring to it periodically helps you maintain
a long-range view as you make daily decisions. The plan makes it easier to follow
each business development step in order so you don’t miss any important elements
along the way. A well-written plan provides you with a starting point and outlines a
timetable that drives your activities, keeping you grounded, focused on your target
market, strategically aligned with your main business tactics and on track as you
progress.

3. CLARIFY GOALS

A business plan is an effective means of defining your goals and the steps needed
to reach them. It spells out your purpose, vision and means of operation. It also
serves as your company’s resume, explaining your objectives to investors,
partners, employees and vendors. A good business plan clearly states the amount
of capital you need to make the company work and where the investment is coming
from. It clarifies the means by which you will pay back borrowed money, your sales
forecast, spending budget, cash flow and how you will invest profits.

4. PREPARE FOR THE FUTURE

By outlining your goals and how you will reach them, your business plan helps you
prepare for the future. Market research in the business plan should include
projections based on consumer needs and your ability to fulfill those needs. A well-
developed business plan also documents actions the company will follow in case the
projections turn out to be too optimistic. Scenarios should be developed to identify
potential obstacles, including possible changes in the market, so that the company
will be prepared to make operational decisions that remain in line with the overall
business strategy.
ASSIGNMENT:

WHAT IS A BUSINESS PLAN? WHAT IS THE PURPOSE OF A BUSINESS

PLAN? WHAT IS A GOAL?

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

FEATURES OF A BUSINESS PLAN

OBJECTIVES

By the end of this topic the learner should be able to:

3. Outline the features of a business plan

FEATURES OF A BUSINESS PLAN

Generally, a business plan has the following components:

Every business needs to have a written business plan. Whether it’s to provide
direction or attract investors, a business plan is vital for the success for your
organization. A business plan include :

1. 1. TITLE PAGE AND CONTENTS

2.
A business plan should be presented in a binder with a cover listing the name
of the business, the name(s) of the principal(s), address, phone number, e-
mail and website addresses, and the date. You don't have to spend a lot of
money on a fancy binder or cover. Your readers want a plan that looks
professional, is easy to read and is well-put-together.

Include the same information on the title page. If you have a logo, you can use it,
too. A table of contents follows the executive summary or statement of purpose, so
that readers can quickly find the information or financial data they need.

1. 2. EXECUTIVE SUMMARY. It tells the reader what you want and why,
right up front. Are you looking for a loan to remodel and refurbish your
factory? A loan to expand your product line or buy new equipment? How will
you repay your loan, and over what term? Would you like to find a partner to
 whom you'd sell 25 percent of the business? What's in it for him or her? The
questions that pertain to your situation should be addressed here clearly and
succinctly.

THE SUMMARY OR STATEMENT SHOULD BE NO MORE THAN HALF A PAGE

IN LENGTH AND SHOULD TOUCH ON THE FOLLOWING KEY ELEMENTS:

 Business concept describes the business, its product, the market it serves
and the business' competitive advantage.
 Financial features include financial highlights, such as sales and profits.
 Financial requirements state how much capital is needed for startup or
expansion, how it will be used and what collateral is available.
 Current business position furnishes relevant information about the company,
its legal form of operation, when it was founded, the principal owners and
key personnel.
 Major achievements points out anything noteworthy, such as patents,
prototypes, important contracts regarding product development, or results
from test marketing that have been conducted.

1. 3. DESCRIPTION OF THE BUSINESS

2.
3. The business description usually begins with a short explanation of the
industry. When describing the industry, discuss what's going on now as well
as the outlook for the future. Do the necessary research so you can provide
information on all the various markets within the industry, including
references to new products or developments that could benefit or hinder your
business. Base your observations on reliable data and be sure to footnote
and cite your sources of information when necessary. Remember that
bankers and investors want to know hard facts--they won't risk money on
assumptions or conjecture.

When describing your business, say which sector it falls into (wholesale, retail, food
service, manufacturing, hospitality and so on), and whether the business is new or
established. Then say whether the business is a sole proprietorship, partnership, C
or Sub chapter S corporation. Next, list the business' principals and state what they
bring to the business. Continue with information on who the business' customers
are, how big the market is, and how the product or service is distributed and
marketed.

1. 4. DESCRIPTION OF THE PRODUCT OR SERVICE

2.
3. The business description can be a few paragraphs to a few pages in length,
depending on the complexity of your plan. If your plan isn't too complicated,
keeps your business description short, describing the industry in one
paragraph, the product in another, and the business and its success factors
in two or three more paragraphs.
When you describe your product or service, make sure your reader has a clear idea
of what you're talking about. Explain how people use your product or service and
talk about what makes your product or service different from others available in the
market. Be specific about what sets your business apart from those of your
competitors.

Then explain how your business will gain a competitive edge and why your business
will be profitable. Describe the factors you think will make it successful. If your
business plan will be used as a financing proposal, explain why the additional equity
or debt will make your business more profitable. Give hard facts, such as "new
equipment will create an income stream of $10,000 per year" and briefly describe
how.

Other information to address here is a description of the experience of the other

key people in the business. Whoever reads your business plan will want to know
what suppliers or experts you've spoken to about your business and their response
to your idea. They may even ask you to clarify your choice of location or reasons
for selling this particular product.

1. 5. MARKET ANALYSIS
2.
A thorough market analysis will help you define your prospects as well as
help you establish pricing, distribution, and promotional strategies that will
allow your company to be successful vis-à-vis your competition, both in the
short and long term.

Begin your market analysis by defining the market in terms of size, demographics,
structure, growth prospects, trends, and sales potential. Next, determine how often
your product or service will be purchased by your target market. Then figure out
the potential annual purchase. Then figure out what percentage of this annual sum
you either have or can attain. Keep in mind that no one gets 100 percent market
share, and that a something as small as 25 percent is considered a dominant share.
Your market share will be a benchmark that tells you how well you're doing in light
of your market-planning projections.

You'll also have to describe your positioning strategy. How you differentiate your
product or service from that of your competitors and then determine which market
niche to fill is called "positioning." Positioning helps establish your product or
service's identity within the eyes of the purchaser. A positioning statement for a
business plan doesn't have to be long or elaborate, but it does need to point out
who your target market is, how you'll reach them, what they're really buying from
you, who your competitors are, and what your USP (unique selling proposition) is.

How you price your product or service is perhaps your most important marketing
decision. It's also one of the most difficult to make for most small business owners,
because there are no instant formulas. Many methods of establishing prices are
available to you, but these are among the most common.
  Cost-plus pricing is used mainly by manufacturers to assure that all costs,
both fixed and variable, are covered and the desired profit percentage is
attained.

 Demand pricing is used by companies that sell their products through a
variety of sources at differing prices based on demand.

 Competitive pricing is used by companies that are entering a market where
there's already an established price and it's difficult to differentiate one
product from another.

 Markup pricing is used mainly by retailers and is calculated by adding your
desired profit to the cost of the product.

You'll also have to determine distribution, which includes the entire process of
moving the product from the factory to the end user. Make sure to analyze your
competitors' distribution channels before deciding whether to use the same type of
channel or an alternative that may provide you with a strategic advantage.

Finally, your promotion strategy should include all the ways you communicate with
your markets to make them aware of your products or services. To be successful,
your promotion strategy should address advertising, packaging, public relations,
sales promotions and personal sales.

1. 6. COMPETITIVE ANALYSIS
2.
The purpose of the competitive analysis is to determine:

 the strengths and weaknesses of the competitors within your market.

 strategies that will provide you with a distinct advantage.
 barriers that can be developed to prevent competition from entering your
market.
 any weaknesses that can be exploited in the product development cycle.

The first step in a competitor analysis is to identify both direct and indirect
competition for your business, both now and in the future. Once you've grouped
your competitors, start analyzing their marketing strategies and identifying their
vulnerable areas by examining their strengths and weaknesses. This will help you
determine your distinct competitive advantage.

Whoever reads your business plan should be very clear on who your target market
is, what your market niche is, exactly how you'll stand apart from your competitors,
and why you'll be successful doing so.

1. 7. OPERATIONS AND MANAGEMENT

2.
The operations and management component of your plan is designed to
describe how the business functions on a continuing basis. The operations
 plan highlights the logistics of the organization, such as the responsibilities of
the management team, the tasks assigned to each division within the
company, and capital and expense requirements related to the operations of
the business.
3.
4. 8. FINANCIAL COMPONENTS OF YOUR BUSINESS PLAN
5.
After defining the product, market and operations, the next area to turn your
attention to are the three financial statements that form the backbone of
your business plan: the income statement, cash flow statement, and balance
sheet.

The income statement is a simple and straightforward report on the business' cash-
generating ability. It is a scorecard on the financial performance of your business
that reflects when sales are made and when expenses are incurred. It draws
information from the various financial models developed earlier such as revenue,
expenses, capital (in the form of depreciation), and cost of goods. By combining
these elements, the income statement illustrates just how much your company
makes or loses during the year by subtracting cost of goods and expenses from
revenue to arrive at a net result, which is either a profit or loss. In addition to the
income statements, include a note analyzing the results. The analysis should be
very short, emphasizing the key points of the income statement. Your CPA can help
you craft this.

The cash flow statement is one of the most critical information tools for your
business, since it shows how much cash you'll need to meet obligations, when you'll
require it and where it will come from. The result is the profit or loss at the end of
each month and year. The cash flow statement carries both profits and losses over
to the next month to also show the cumulative amount. Running a loss on your
cash flow statement is a major red flag that indicates not having enough cash to
meet expenses-something that demands immediate attention and action.

The cash flow statement should be prepared on a monthly basis during the first
year, on a quarterly basis for the second year, and annually for the third year. The
following 17 items are listed in the order they need to appear on your cash flow
statement. As with the income statement, you'll need to analyze the cash flow
statement in a short summary in the business plan. Once again, the analysis
doesn't have to be long and should cover highlights only. Ask your CPA for help.

The last financial statement you'll need is a balance sheet. Unlike the previous
financial statements, the balance sheet is generated annually for the business plan
and is, more or less, a summary of all the preceding financial information broken
down into three areas: assets, liabilities and equity.

Balance sheets are used to calculate the net worth of a business or individual by
measuring assets against liabilities. If your business plan is for an existing business,
the balance sheet from your last reporting period should be included. If the
business plan is for a new business, try to project what your assets and liabilities
will be over the course of the business plan to determine what equity you may
accumulate in the business. To obtain financing for a new business, you'll need to
include a personal financial statement or balance sheet.

In the business plan, you'll need to create an analysis for the balance sheet just as
you need to do for the income and cash flow statements. The analysis of the
balance sheet should be kept short and cover key points.

1. 9. SUPPORTING DOCUMENTS
2.
In this section, include any other documents that are of interest to your
reader, such as your resume; contracts with suppliers, customers, or clients,
letters of reference, letters of intent, copy of your lease and any other legal
documents, tax returns for the previous three years, and anything else
relevant to your business plan.

Some people think you don't need a business plan unless you're trying to borrow
money. Of course, it's true that you do need a good plan if you intend to approach
a lender--whether a banker, a venture capitalist or any number of other sources--
for startup capital. But a business plan is more than a pitch for financing; it's a
guide to help you define and meet your business goals.

Just as you wouldn't start off on a cross-country drive without a road map, you
should not embark on your new business without a business plan to guide you. A
business plan won't automatically make you a success, but it will help you avoid
some common causes of business failure, such as under-capitalization or lack of an
adequate market.

As you research and prepare your business plan, you'll find weak spots in your
business idea that you'll be able to repair. You'll also discover areas with potential
you may not have thought about before--and ways to profit from them. Only by
putting together a business plan can you decide whether your great idea is really
worth your time and investment.

REVIEW QUESTIONS

1. What is a business plan?

2. Explain the reasons why a business plan is prepared
3. Identify the distinguishing features of a business plan

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com
GUIDELINES FOR DEVELOPING AN EFFECTIVE BUSINESS PLAN

OBJECTIVES

1. Describe the guidelines for developing an effective business plan

2. Identify the users of the business plans

However, getting started may be difficult to do. So, here are some steps for writing
a perfect business plan.

1. RESEARCH, RESEARCH, RESEARCH.

“Research and analyze your product, your market and your objective expertise,”
William Pirraglia, a now-retired senior financial and management executive,
has written. “Consider spending twice as much time researching, evaluating and
thinking as you spend actually writing the business plan.

“To write the perfect plan, you must know your company, your product, your
competition and the market intimately.”

In other words, it’s your responsibility to know everything you can about your
business and the industry that you’re entering. Read everything you can about your
industry and talk to your audience.

2. DETERMINE THE PURPOSE OF YOUR PLAN.

A business plan, as defined by Entrepreneur, 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.” However, your
business plan can serve several different purposes.

As Entrepreneur notes, it’s “also a road map that provides directions so a business
can plan its future and helps it avoid bumps in the road.” That’s important to keep
in mind if you’re self-funding or bootstrapping your business. But, if you want to
attract investors, your plan will have a different purpose and you’ll have to write a
plan that targets them so it will have to be as clear and concise as possible. When
you define your plan, make sure you have defined these goals personally as well.

3. CREATE A COMPANY PROFILE.

Your company profile includes the history of your organization, what products or
services you offer, your target market and audience, your resources, how you’re
going to solve a problem and what makes your business unique. When I crafted my
company profile, I put this on our About page.

Company profiles are often found on the company’s official website and are used to
attract possible customers and talent. However, your profile can be used to
describe your company in your business plan. It’s not only an essential component
of your business plan; it’s also one of the first written parts of the plan.

Having your profile in place makes this step a whole lot easier to compose.

4. DOCUMENT ALL ASPECTS OF YOUR BUSINESS.

Investors want to make sure that your business is going to make them money.
Because of this expectation, investors want to know everything about your
business. To help with this process, document everything from your expenses, cash
flow and industry projections. Also, don’t forget seemingly minor details like your
location strategy and licensing agreements.

5. HAVE A STRATEGIC MARKETING PLAN IN PLACE.

A great business plan will always include a strategic and aggressive marketing plan.
This typically includes achieving marketing objectives such as:

 Introducing new products

 Extending or regaining market for existing products
 Entering new territories for the company
 Boosting sales in a particular product, market or price range. Where will this
business come from? Be specific.
 Cross-selling (or bundling) one product with another
 Entering into long-term contracts with desirable clients
 Raising prices without cutting into sales figures
 Refining a product
 Having a content marketing strategy
 Enhancing manufacturing/product delivery

“Each marketing objective should have several goals (subsets of objectives) and
tactics for achieving those goals,” states Entrepreneur.

“In the objectives section of your marketing plan, you focus on the ‘what’ and the
‘why’ of the marketing tasks for the year ahead. In the implementation section, you
focus on the practical, sweat-and-calluses areas of who, where, when and how. This
is life in the marketing trenches.”

Of course, achieving marketing objectives will have costs. “It would be beneficial for
you to create separate budgets for internal hours (staff time) and external costs
(out-of-pocket expenses).

6. MAKE IT ADAPTABLE BASED ON YOUR AUDIENCE.

“The potential readers of a business plan are a varied bunch, ranging from bankers
and venture capitalists to employees,” states Entrepreneur. “each type of reader
does have certain typical interests. If you know these interests up-front, you can be
sure to take them into account when preparing a plan for that particular audience.”

For example, bankers will be more interested in balance sheets and cash-flow
statements, while venture capitalists will be looking at the basic business concept
and your management team. The manager on your team, will be using the plan to
“remind themselves of objectives.”

make sure that your plan can be modified depending on the audience reading your
plan. However, keep these alterations limited from one plan to another. This means
that when sharing financial projections, you should keep that data the same across
the board.

7. EXPLAIN WHY YOU CARE.

Whether you’re sharing your plan with an investor, customer or team member, your
plan needs to show that you’re passionate and dedicated, and you actually care
about your business and the plan. You could discuss the mistakes that you've
learned, list the problems that you’re hoping to solve, describe your values, and
establish what makes you stand out from the competition.

When I started my payments company, I set out to conquer the world. I

wanted to change the way payments were made and make it easier for
anyone, anywhere in the world to pay anyone with few to no fees. I
explained why I wanted to build this. My passion shows through
everything I do.

By explaining why you care about your business you create an emotional
connection with others so that they’ll support your organization going forward.

WHO NEEDS A BUSINESS PLAN

1. STARTUP BUSINESSES

The most classic business planning scenario is for a startup, for which the plan
helps the founders break uncertainty down into meaningful pieces, like the sales
projection, expense budget, milestones, and tasks.

The need becomes obvious as soon as you recognize that you don’t know how
much money you need, and when you need it, without laying out projected sales,
costs, expenses, and timing of payments. And that’s for all startups, whether or not
they need to convince investors, banks, or friends and family to part with their
money and fund the new venture.

In this case, the business plan is focused on explaining what the new company is
going to do, how it is going to accomplish its goals, and—most importantly—why
the founders are the right people to do the job. A startup business plan also details
the amount of money needed to get the business off the ground, and through the
initial growth phases that will lead (hopefully!) to profitability.

2. EXISTING BUSINESSES

Not all business plans are for startups that are launching the next big
thing. Existing businesses use business plans to strategically manage and steer
the business, not just to address changes in their markets and to take advantage of
new opportunities. They use a plan to reinforce strategy, establish metrics, manage
responsibilities and goals, track results, and manage and plan resources
including critical cash flow. And of course they use a plan to set the schedule for
regular review and revision.

Business plans can be a critical driver of growth for existing businesses.

For existing businesses, a robust business planning process can be a competitive

advantage that drives faster growth and greater innovation. Instead of a static
document, business plans in existing businesses become dynamic tools that are
used to track growth and spot potential problems before they derail the business

REVISION QUESTIONS

1. i. What is a business plan?

2. ii. Discuss the purpose of a business plan
3. iii. Outline the features of a business plan

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

TOPIC TWO: BUSINESS DESCRIPTION

LESSON FOUR

OBJECTIVES

1. i. Determine how to provide a business name

2. ii. Explain factors to consider when choosing a business location

1. BUSINESS NAME
When choosing a name for your new company, you’re going to be concerned with
finding the name that best suits your business, and making sure you pick a name
you can legally use and protect.

The two main concerns for startup business names are the legal requirements, and
the commercial use.

Now, in terms of legal requirements, full disclosure: We are not attorneys. We do

not give legal advice, so be sure to check with an attorney early on as you build
your business.

We are talking about the name of your business in this section, not your
trademarks, service marks, logos, or slogans. Trademark law protects product
names, logos, trade names, even some slogans as trademarks or service marks.
Copyright law protects works or art, fiction, movies, art, sculpture, and other
creative works.

Business law, however, does not fully guarantee you the exclusive use of your
business name. To get close to exclusivity, you have to be first, you have to be
national, and you have to be alert.

Owning and establishing a business name

The most common misunderstanding about business names is in terms of

registering, protecting, and reserving your business names.

You can’t reserve a business name completely—that is to say, you can’t have
exclusive use.

DIFFERENT WAYS OF ESTABLISHING YOUR BUSINESS NAME:

1. Using your own name

The first and simplest business name is your own name, which might be enough for
John Smith using Smith Consulting or hosting Smith’s Restaurant. This kind of
business name normally requires no additional paperwork, although most business
owners end up registering a name anyhow to establish their legal claim to it.

2. Registering a DBA

The second normal common level of business names is called DBA (for “Doing
Business As”) or fictitious business name, which gives an individual the right to
operate under a business name with signs, bank accounts, checks, and so on.

These are generally registered and legalized by county governments within states.
There might be a McDonald’s Hardware Store as a DBA in many counties within a
given state, and across many different states.
To register a business with a fictitious business name, call your county government
for details. You can expect that you’ll have to visit an office in the county
government, pay a fee of less than $100, and do some legal advertising, also less
than $100, probably using forms you can fill out in the same office. Somebody will
probably look up the registry to make sure that yours is the first business in the
county with that name. Details will actually vary depending on which county you’re
in.

3. Registering your corporate structure

The third level is the corporation, regardless of its various corporate entities.
Whether they are S corporations, C corporations, LLCs, or whatever, a corporation
is registered at the state level and no two can have the exact same name in each
state.

However, there is no guarantee that there won’t be many businesses registered as

McDonald’s Hardware Store in several counties in a state, and a corporation
registered as McDonald’s Hardware Corporation. This kind of duplication happens.

To establish a corporation, you can use national services such as The Company
Corporation, or a local attorney. The corporate forms will go to the state, and
details will depend on which state you’re in.

What if someone copies your business name?

Even though duplicate business names are very possible—and quite common—you
do still have the right to protect and defend you own business name, once you’ve
built the business around it.

The key to this is confusion and confusing identity. As we said above, one John
Smith can sue another John Smith for purposely confusing their identities. So too,
McDonald’s Hamburgers can and should sue anybody who starts a new restaurant
named McDonald’s serving fast foods.

On this point, when one business is confused with another, being first matters.
When somebody tries to establish a second McDonald’s Hardware where it would
confuse people with the first, then the first McDonald’s has a legal right to prevent
it.

If the second store puts up a sign, then the first store should take quick legal action
to stop it. The longer the first store ignores the second, the better the case of the
second store. When the whole mess goes to court, the first one to use the name is
likely to win, but if the first one sat quietly while the other one built the name, then
there is more doubt.
An existing business should always watch out for people using the same or
confusingly similar names, because the sooner it complains, the better for its legal
arguments.

RESEARCHING A NAME’S AVAILABILITY

So you see you can’t absolutely guarantee that nobody has the name you want, but
you can at least try. The fastest and simplest way to start researching a name is to
do an internet search.

Run some Google searches, and see whether or not the name you’re considering is
already taken. You don’t want to name a business with a name that can cause
problems later, because it confuses you with other businesses.

Okay, so choosing a name that isn’t already taken may seem obvious, but how do
you research a name to make sure there won’t be a conflict? There is no single sure
way, but here are some suggestions:

1. Run several different online searches

Do a few searches, and see whether anything turns up on the company name
you’re considering. You can also go to the Office website, as well as
using KnowX.com or similar searcher sites.

2. Check out the domain names that are available

There are several searchers that offer access to the “whose” database of internet
sites; the most traditional site for this is the one at VeriSign, Inc.

Checking the domain names associated with your potential business name
is important; not only because you’ll want to avoid a confusing and duplicate name,
but also because you’ll likely want to pick a name that you can use for your
business website.

As such, if your chosen business name already has a blog attached to it, for
example, you might want to go in a different direction.

3. Talk with an a lawyer

Since you probably want to talk to an attorney about the correct business entities
and other start-up matters, you may also ask your attorney about checking on
business names.

CHOICE OF BUSINESS LOCATION

There are many things to consider when choosing a location for your business
venture, whether setting up an office or a shop for the first time, or looking to
expand into new areas.

1. Accessibility

Does your business rely on frequent deliveries? If so, it’s important to consider local
transport links, particularly main roads and motorways. Property rental and
purchase prices are often steeper in higher density, more commercialized areas, so
there are certainly cost benefits to seeking a more out of town location, providing
your daily business operations won’t be hampered by poor transport links. Equally,
if you rely on high customer footfall, then ensuring your location is accessible by
car, bus and even train will all be important considerations. Don’t forget your
employees too, as a good location is often a critical factor in recruiting the right
people into your business, particularly if they have been offered several jobs and
need to evaluate the pros and cons of each.

2. Security

Believe it or not, your location can increase your odds of being affected by crime,
which in turn can influence your insurance premiums, as well as the additional
security measures you made need to take to keep your premises safe. It’s fair to
say that in business, we all make decisions based on information, intuition and
probability mixed in with a little luck. But knowing the chances of crime in the areas
you are considering is an important part of the decision making process.

3. Competition

Your proximity to other competing businesses could be crucial to your success.

Could they provide a benefit to your business or cause a hindrance? Establishing
which competitors are in your area and their offering could help guarantee you
choose the right location for your business. If there is too much competition then it
may be a warning sign to expand your horizons to a new location. There are
exceptions to this such as car dealerships who want to be near each other as
customers compare and choose the best car deal, hence their close proximity.
Likewise, if you have an element of your offering that is unique or offers some kind
of new innovation, then choosing an area that already has a ripe market could be
the ideal way to pick up customers very quickly and establish a presence in a new
area in a relatively short time frame.

4. Business Rates
Cash is king! Cash flow is critical as it determines the viable ability for a business to
survive and pay its bills. Therefore, it is important to research the average Business
Rates including rent, utility bills and taxes in the area to ensure you can afford the
premises. Simple hidden costs such as deposits and whether you need to pay to
park need to be snuffed out before committing to a location. Estimating the living
cost of the location will prevent a commitment outside your means.

5. Skill base in the area

Find out the skill base in the area - can it fulfill your needs? Take into account
employment rates as well. If you rely on skilled workers it is best to go to where
there is a healthy bank of talent. Employees are often a business’s biggest asset
thus choosing a location that’s lacking in required talent may be the start of your
business’s downfall. Some recruitment agencies will happily send you CVs on spec
to gauge the market, only charging if you subsequently decide to interview and hire
someone. Alternatively, posting a free job via an online jobsite will quickly show
you the caliber of employees in a particular area.

6. Potential for growth

Will the premises be able to accommodate business growth or a spike in demand?

Moving premises is a big upheaval and can be time consuming and costly. A
decision needs to be made as to whether the premise you are choosing is a short-
term location or if you would like to stay there for the long haul. Consequently, a
location’s flexibility could be a very important factor regarding the premises’
suitability for your business needs.

Whilst a perfect business location is different for every business, covering these
crucial areas will certainly give you the best chance of beating the odds and keeping
your business on track for future success.

REVIEW QUESTIONS

1. Outline different ways of coming up with a viable business name

2. Explain the measures you would take in any case someone copies your
business name
3. Discuss the factors majorly considered when coming up with a business
name

STUDY LINKS

-www.entrepreneur.com

- www.score.org
- www.bplans.com

TOPIC TWO: BUSINESS DESCRIPTION

LESSON FIVE

OBJECTIVES

1. Explain various forms of business ownership

FORMS OF BUSINESS ORGANIZATION

One of the first decisions that you will have to make as a business owner is how the
business should be structured. All businesses must adopt some legal configuration
that defines the rights and liabilities of participants in the business’s ownership,
control, personal liability, life span, and financial structure. This decision will have
long-term implications, so you may want to consult with an accountant and
attorney to help you select the form of ownership that is right for you. In making a
choice, you will want to take into account the following:

•Your vision regarding the size and nature of your business.

•The level of control you wish to have.
•The level of “structure” you are willing to deal with.
•The business’s vulnerability to lawsuits.
•Tax implications of the different organizational structures.
•Expected profit (or loss) of the business.
•Whether or not you need to re-invest earnings into the business.
•Your need for access to cash out of the business for yourself.
An overview of the four basic legal forms of organization: Sole Proprietorship;
Partnerships; Corporations and Limited Liability Company follows.

1. Sole Proprietorship

The vast majority of small businesses start out as sole proprietorships. These firms
are owned by one person, usually the individual who has day-to-day responsibility
for running the business. Sole proprietorships own all the assets of the business
and the profits generated by it. They also assume complete responsibility for any
of its liabilities or debts. In the eyes of the law and the public, you are one in the
same with the business.

Advantages of a Sole Proprietorship

• Easiest and least expensive form of ownership to organize.

• Sole proprietors are in complete control, and within the parameters of the law,
may make decisions as they see fit.
• Profits from the business flow-through directly to the owner’s personal tax return.
• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

• Sole proprietors have unlimited liability and are legally responsible for all debts
against the business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds
from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are
motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner’s medical insurance premiums are not
directly deductible from business income (only partially as an adjustment to
income).

2. Partnerships

In a Partnership, two or more people share ownership of a single business. Like

proprietorships, the law does not distinguish between the business and its owners.
The Partners should have a legal agreement that sets forth how decisions will be
made, profits will be shared, disputes will be resolved, how future partners will be
admitted to the partnership, how partners can be bought out, or what steps will be
taken to dissolve the partnership when needed; Yes, its hard to think about a
“break-up” when the business is just getting started, but many partnerships split up
at crisis times and unless there is a defined process, there will be even greater
problems. They also must decide up front how much time and capital each will
contribute, etc.

Advantages of a Partnership

• Partnerships are relatively easy to establish; however time should be invested in

developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners’ personal tax
return.
• Prospective employees may be attracted to the business if given the incentive to
become a partner.
• The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death
of a partner.
Types of Partnerships that should be considered:

i. General Partnership
Partners divide responsibility for management and liability, as well as the shares of
profit or loss according to their internal agreement. Equal shares are assumed
unless there is a written agreement that states differently.

ii. Limited Partnership and Partnership with limited liability

“Limited” means that most of the partners have limited liability (to the extent of
their investment) as well as limited input regarding management decision, which
generally encourages investors for short term projects, or for investing in capital
assets. This form of ownership is not often used for operating retail or service
businesses. Forming a limited partnership is more complex and formal than that of
a general partnership.

3. Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single
project. If the partners in a joint venture repeat the activity, they will be
recognized as an ongoing partnership and will have to file as such, and distribute
accumulated partnership assets upon dissolution of the entity.

3. Corporations

A Corporation, chartered by the state in which it is headquartered, is considered by

law to be a unique entity, separate and apart from those who own it. A Corporation
can be taxed; it can be sued; it can enter into contractual agreements. The owners
of a corporation are its shareholders. The shareholders elect a board of directors to
oversee the major policies and decisions. The corporation has a life of its own and
does not dissolve when ownership changes.

Advantages of a Corporation

• Shareholders have limited liability for the corporation’s debts or judgments

against the corporation.
• Generally, shareholders can only be held accountable for their investment in stock
of the company. (Note however, that officers can be held personally liable for their
actions, such as the failure to withhold and pay employment taxes.
• Corporations can raise additional funds through the sale of stock.
• A Corporation may deduct the cost of benefits it provides to officers and
employees.
• Can elect S Corporation status if certain requirements are met. This election
enables company to be taxed similar to a partnership.

Disadvantages of a Corporation

• The process of incorporation requires more time and money than other forms of
organization.
• Corporations are monitored by federal, state and some local agencies, and as a
result may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders
are not deductible from business income; thus this income can be taxed twice.

Subchapter S Corporation

A tax election only; this election enables the shareholder to treat the earnings and
profits as distributions, and have them pass through directly to their personal tax
return. The catch here is that the shareholder, if working for the company, and if
there is a profit, must pay his/herself wages, and it must meet standards of
“reasonable compensation”. This can vary by geographical region as well as
occupation, but the basic rule is to pay yourself what you would have to pay
someone to do your job, as long as there is enough profit. If you do not do this,
the IRS can reclassify all of the earnings and profit as wages, and you will be liable
for all of the payroll taxes on the total amount.

4. Limited Liability Company (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible
in most states. It is designed to provide limited liability features of a corporation
and the tax efficiencies and operational flexibility of a partnership. Formation is
more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when
the organization papers are filed. The time limit can be continued if desired by a
vote of the members at the time of expiration. LLC’s must not have more than two
of the four characteristics that define corporations: Limited liability to the extent of
assets; continuity of life; centralization of management; and free transferability of
ownership interests.

WHAT'S INCLUDED IN THE PRODUCT AND SERVICES SECTION OF A

BUSINESS PLAN

The product and services section of your business plan format discusses your
product or service, why they're needed by your market, and how they compete with
other businesses selling the same or similar products and services. Your product
and services section should include:

 A description of the products or services you are offering or plan to offer

 How your products and services will be priced
 A comparison of the products or services your competitors offer in relation to
yours
 Sales literature you plan to use, including information about your marketing
collateral materials and the role your website will play in your sales efforts
 A paragraph or so on how orders from your customers will be processed or
fulfilled
  Any needs you have to create or deliver your products, such as up-to-date
computer equipment

 Any intellectual property (i.e., patent) or legal issues you need to address.
 Future products or service you plan to offer

This section of your business plan should excite those you're hoping will fund your
business or work with you. To that end, here are a few tips to create a product and
services section that appeals to the reader:

 Indicate why your product or services are needed. Especially if you're

venturing into a new concept or invention, or a place where there is no
current market, you need to explain the need for your product or service.
 Highlight your features. A crucial part of success in business is the ability
able to set yourself apart from businesses that sell the same or similar
products and services. What features, such as price point or level of service,
do you offer that is unique to you?
 Focus on benefits. Unique features are important, but even more so is how
those features provide value to consumers. Translate your features (i.e.,
faster or cheaper) into benefits (i.e., get it now or save money). The goal is
to highlight how your product or service will fix a problem or improve a client
or customers life.

 Be clear and concise. Don't let your business plan get bogged down in too
much description and information. You can even use bullets or numbered
lists.
 Show off your expertise, experience, and accolades. You not only want
to describe your products and services but also share why you're the best to
provide them. Include anything in your education or experience that makes
you the expert in this business. If you have testimonials, awards or
endorsements, share those. Finally, if you've applied for a patent, copyright
or trademark, include that as well.

 Be the expert but talk in layman terms. You should know your
product/service and industry well, but don't expect your potential funders
and partners to have the same level of knowledge. Assume the reader
doesn't know as much as you when you explain what you're offering. Avoid
acronyms and jargon when outlining your products and services.
 Indicate anything extra special about what or how you'll provide
your product or services. Will you be offering a special guarantee or
refund policy? Do you have a quicker or more unique way of delivering your
product or service?

 Write as if you're talking to your customer. While you don't want to

write an advertorial, you do want to be customer-oriented when you write
your product and services section.

REVIEW QUESTIONS
 1. Identify the four major business organizations
2. Differentiate a limited liability corporation from a partnership
3. Elaborate on the features of a sole proprietorship

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

TOPIC TWO: BUSINESS DESCRIPTION

OBJECTIVES

1. Explain various business goals and objectives

IDENTIFICATION OF BUSINESS OPPORTUNITY

THE ENTREPRENEURS SELECTED THEIR PRODUCTS OR PROJECTS BASED

ON:

a. Their own or partners’ past experience in that business line;

b. The Government’s promotional schemes and facilities offered to run some

specific business enterprises;

c. The high profitability of products;

d. Which indicate increasing demand for them in the market?

e. The availability of inputs like raw materials, labor, etc. at cheaper rates;

f. The expansion or diversification plans of their own or any other ongoing business
known to them;

g. The products reserved for small-scale units or certain locations.

One of the ways employed by most of the intending entrepreneurs to select a

suitable product/project is to firstly generate ideas about a few products/ projects.
Accordingly, what follows next is a discussion idea generation about products.

IDEA GENERATION:

SOURCES OF IDEAS:
In a sense, opportunity identification and selection are akin to, what is termed in
marketing terminology, ‘new product development.’ Thus, product or opportunity
identification and selection process starts with the generation of ideas, or say, ideas
about some opportunities or products are generated in the first instance.

The ideas about opportunities or products that the entrepreneur can consider for
selecting the most promising one to be pursued by him/her as an enterprise, can be
generated or discovered from various sources- both internal and external.

THESE MAY INCLUDE:

(i) Knowledge of potential customer needs,

(ii) Watching emerging trends in demands for certain products,

(iii) Scope for producing substitute product,

(iv) Going through certain professional magazines catering to specific interests like
electronics, computers, etc.,

(v) Success stories of known entrepreneurs or friends or relatives,

(vi). Making visits to trade fairs and exhibitions displaying new products and
services,

(vii) Meeting with the Government agencies,

(viii) Ideas given by the knowledgeable persons,

(ix) Knowledge about the Government policy, concessions and incentives, list of
items reserved for exclusive manufacture in small-scale sector,

(x) A new product introduced by the competitor, and

(xi) One’s market insights through observation.

In nutshell, a prospective entrepreneur can get ideas for establishing his/ her
enterprise from various sources. These may include consumers, existing products
and services presently on offer, distribution channels, the government officials, and
research and development.

a. CONSUMERS:

No business enterprise can be thought of without consumers. Consumers demand

for products and services to satisfy their wants. Also, consumers’ wants in terms of
preferences, tastes and liking keep on changing. Hence, an entrepreneur needs to
know what the consumers actually want so that he/she can offer the product or
service accordingly. Consumers’ wants can be known through their feedback about
the products and services they have been using and would want to use in future.

b. EXISTING PRODUCTS AND SERVICES:

One way to have an enterprise idea may be to monitor the existing products and
services already available in the market and make a competitive analysis of them to
identify their shortcomings and then, based on it, decide what and how a better
product and service can be offered to the consumers. Many enterprises are
established mainly to offer better products and services over the existing ones.

c. DISTRIBUTION CHANNELS:

Distribution channels called, market intermediaries, also serves as a very effective

source for new ideas for entrepreneurs. The reason is that they ultimately deal with
the ultimate consumers and, hence, better know the consumers’ wants.

As such, the channel members such as wholesalers and retailers can provide ideas
for new product development and modification in the existing product. For example,
an entrepreneur came to know from a salesman in a departmental store that the
reason his hosiery was not selling was its dark shade while most of the young
customers want hosiery with light shade. The entrepreneur paid heed to this
feedback and accordingly changed the shade of his hosiery to light shade.
Entrepreneur found his hosiery enjoying increasing demand just within a month.

d. GOVERNMENT:

At times, the Government can also be a source of new product ideas in various
ways. For example, government from time to time issues regulations on product
production and consumption. Many a times, these regulations become excellent
sources for new ideas for enterprise formation.

For example, government’s regulations on ban on polythene bags have given new
idea to manufacture jute bags for marketing convenience of the sellers and buyers.
A prospective entrepreneur can also get enterprise idea from the publications of
patents available for license or sale.

Besides, there are some governmental agencies that assist entrepreneurs in

obtaining specific product information. Such information can also become basis for
enterprise formation.

e. RESEARCH AND DEVELOPMENT:

The last but no means the least source of new ideas is research and development
(R&D) activity. R&D can be carried out in-house or outside the organization. R&D
activity suggests what and how a new or modified product can be produced to meet
the customers’ requirements.
Available evidences indicate that many new product development, or say, new
enterprise establishments have been the outcome of R&D activity. For example, one
research scientist in a Fortune 500 company developed a new plastic resin that
became the basis of a new product, a plastic molded modular cup pallet. Most of
the product diversifications have stemmed from the organization’s R&D activity.

METHODS OF GENERATING IDEAS:

As seen above, there could be variety of sources available to generate ideas for
enterprise formation. But, even after generating ideas to convert these into
enterprise is still a problem for the prospective entrepreneur. The reason is not
difficult to seek.

This involves a process including first generating the ideas and then scrutinizing of
the ideas generated to come up with an idea to serve as the basis for a new
enterprise formation. The entrepreneur can use several methods to generate new
ideas. However, the most commonly used methods of generating ideas are: focus
groups, brainstorming, and problem inventory analysis.

These are discussed as follows:

ii. FOCUS GROUPS:

A group called ‘focus group’ consisting of 6-12 members belonging to various socio-
economic backgrounds are formed to focus on some particular matter like new
product idea. The focus group is facilitated by a moderator to have an open in-
depth discussion. The mode of the discussion of the group can be in either a
directive or a non-directive manner.

The comment from other members is supplied with an objective to stimulate group
discussion and conceptualize and develop new product idea to meet the market
requirement. While focusing on particular matter, the focus group not only
generates new ideas, but screens the ideas also to come up with the most excellent
idea to be pursued as a venture.

iii. BRAINSTORMING:

Brainstorming technique was originally adopted by Alex Osborn in 1938 in an

American Company for encouraging creative thinking in groups of six to eight
people. According to Osborn, brainstorming means using the brain to storm the
issue/problem. Brainstorming ultimately boils down to generate a number of ideas
to be considered for the dealing with the issue/problem.

However, brainstorming exercise to be effective needs to follow a modus operandi

involving four basic guidelines:

1. Generate as many ideas as possible.

2. Be creative, freewheeling, and imaginative.

3. Build upon piggyback, extend, or combine earlier ideas.

4. Withhold criticism of others’ ideas.

There are two principles that underlie brainstorming. One is differed judgment, by
which all ideas are encouraged without criticism and evaluation. The second
principle is that quantity breeds quality. The brainstorming session to be effective
needs to work like a fun, free from any type of compulsions and pressures.

Each member needs to have willingness and capacity to listen to others’ thoughts,
to use these thoughts as a stimulus to spark new ideas of their own, and then feel
free to express them. As such, efforts are made to keep the brainstorming session
free from any sort of dominance and obstruction derailing and inhibiting discussion
to proceed in a desired manner to serve its purpose. A normal brainstorming
session lasts for from ten minutes to one hour and does not require much
preparation.

OPPORTUNITY/PRODUCT IDENTIFICATION:

After going through above process, one might have been able to generate some
ideas that can be considered to be pursued as ones business enterprise.

Imagine that someone have generated the five ideas as opportunities as a result of
above analysis:

1. Nut and bolt manufacturing (industry)

2. Lakhani Shoes (industry)

3. Photocopying unit (service-based industry)

4. Electro-type writer servicing (service-based industry).

4. Polythene bags for textile industry (ancillary industry)

An entrepreneur cannot start all above five types of enterprises due to small in size
in terms of capital, capability, and other resources. Hence, he/she needs to finally
select one idea which he/she thinks the most suitable to be pursued as an
enterprise. How does the entrepreneur select the most suitable project out of the
alternatives available? This is done through a selection process discussed
subsequently.

Having gone through idea generation, also expressed as ‘opportunity scanning’ and
opportunity identification, we can distinguish between an idea and opportunity. We
are giving below the two situations that will help you understand and draw the line
of difference between an ‘idea’ and an ‘opportunity’.

BUSINESS GOALS AND OBJECTIVES

Successful businesses are based on both goals and objectives, as they clarify the
purpose of the business and help identify necessary actions Goals are general
statements of desired achievement, while objectives are the specific steps or
actions you take to reach your goal. Both goals and objectives should be specific
and measurable.

Goals can involve areas such as profitability, growth and customer service, with a
range of objectives that can be used to meet those goals.


1. BUSINESS PROFITABILITY OBJECTIVES

A common business goal is to run a profitable operation, which typically means

increasing revenue while limiting expenses. To reach this goal, objectives could
consist of increasing annual sales by 10 percent or landing three new accounts each
month. Expense objectives could involve finding a new operating facility that
decreases your rent by $200 a month or cutting monthly utility bills by 15 percent.


1. CUSTOMER SERVICE OBJECTIVES

Customer service goals could include reducing complaints by 50 percent over one
year or to improve resolution times to customer complaints to a minimum of one
business day. To meet customer service goals, objectives could include increasing
your customer service staff from one to three workers by the end of the year or
implementing a policy where customers are guaranteed to receive a return phone
call before the end of the business day.


1. RETENTION OF EMPLOYEES

If you've experienced a problem with employee turnover, your overall goal could be
to improve retention. To make this goal specific, you could measure the current
turnover rate, like one employee in five leaves after three months, and decide to
double this figure to six months. Objectives to meet this goal could include
implementing a training program that details new-hire activities for the first 90
days on the job. You also could implement one-on-one bi-weekly meetings with
your employees in an effort to build rapport and find out what's on their mind.


 1. EFFICIENCY OF OPERATIONS

Another goal could be to become more efficient in your business operation as a way
to increase productivity. To improve efficiency, you could set a goal of increasing
shipping times from three days to two days. Objectives to meet this goal could
include finding a new shipper, or improving production times to have units ready to
ship before 10 a.m. each morning.


1. GROWTH OF THE BUSINESS

Perhaps your goal is to grow your business operation. If you own a franchise unit,
for example, your goal might be to open three more units within a five-year period.
If this was the case, your objectives could include scouting a new city once each
quarter, or reducing your franchise fees by 25 percent for the next six months.

1. ASSIGNMENT:
2. What are the possible sources of business ideas that an individual would
prefer before coming up with a business?
3. Explain the methods of generating business ideas
4. Provide some of the objectives you would work out with in order to stabilize
your business.

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

ENTRY AND GROWTH STRATEGY OF A BUSINESS

TOPIC TWO: BUSINESS DESCRIPTION

OBJECTIVES

1. Explain various entry and growth strategies of a business

2. Perform the SWOT analysis of a business

ENTRY AND GROWTH STRATEGY OF A BUSINESS

The business can use any of the following ways to grow its portfolio
 1. MARKET PENETRATION STRATEGY

One growth strategy in business is market penetration. A small company uses a

market penetration strategy when it decides to market existing products within the
same market it has been using. The only way to grow using existing products and
markets is to increase market share, according to small business experts. Market
share is the percent of unit and dollar sales a company holds within a certain
market vs. all other competitors.

One way to increase market share is by lowering prices. For example, in markets
where there is little differentiation among products, a lower price may help a
company increase its share of the market.

1. MARKET EXPANSION OR DEVELOPMENT

A market expansion growth strategy, often called market development, entails

selling current products in a new market. There several reasons why a company
may consider a market expansion strategy. First, the competition may be such that
there is no room for growth within the current market. If a business does not find
new markets for its products, it cannot increase sales or profits.

A small company may also use a market expansion strategy if it finds new uses for
its product. For example, a small soap distributor that sells to retail stores may
discover that factory workers also use its product.

1. PRODUCT EXPANSION STRATEGY

A small company may also expand its product line or add new features to increase
its sales and profits. When small companies employ a product expansion strategy,
also known as product development, they continue selling within the existing
market. A product expansion growth strategy often works well when technology
starts to change. A small company may also be forced to add new products as older
ones become outmoded.

1. GROWTH THROUGH DIVERSIFICATION

Growth strategies in business also include diversification, where a small company

will sell new products to new markets. This type of strategy can be very risky. A
small company will need to plan carefully when using a diversification growth
strategy. Marketing research is essential because a company will need to determine
if consumers in the new market will potentially like the new products.

1. ACQUISITION OF OTHER COMPANIES

Growth strategies in business can also includes an acquisition. In acquisition, a

company purchases another company to expand its operations. A small company
may use this type of strategy to expand its product line and enter new markets. An
acquisition growth strategy can be risky, but not as risky as a diversification
strategy.

One reason is that the products and market are already established. A company
must know exactly what it wants to achieve when using an acquisition strategy,
mainly because of the significant investment required to implement it.

SWOT ANALYSIS

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a

SWOT Analysis is a technique for assessing these four aspects of your business.

You can use SWOT Analysis to make the most of what you've got, to your
organization's best advantage. And you can reduce the chances of failure, by
understanding what you're lacking, and eliminating hazards that would otherwise
catch you unawares.

HOW TO DO A SWOT ANALYSIS

First, draw up a SWOT Analysis matrix. This is a 2x2 grid, with one square for each
of the four aspects of SWOT.


1. STRENGTHS

Strengths are things that your organization does particularly well, or in a way that
distinguishes you from your competitors. Think about the advantages your
organization has over other organizations. These might be the motivation of your
staff, access to certain materials, or a strong set of manufacturing processes.

Your strengths are an integral part of your organization, so think about what makes
it "tick." What do you do better than anyone else? What values drive your business?
What unique or lowest-cost resources can you draw upon that others can't? Identify
and analyze your organization's Unique Selling Proposition.

Then turn your perspective around and ask yourself what your competitors might
see as your strengths. What factors mean that you get the sale ahead of them?

Remember, any aspect of your organization is only strength if it brings you a clear
advantage. For example, if all of your competitors provide high-quality products,
then a high-quality production process is not strength in your market: it's a
necessity.


1. WEAKNESSES
 Be honest! A SWOT Analysis will only be valuable if you gather all the information
you need. So, it's best to be realistic now, and face any unpleasant truths as soon
as possible.

Weaknesses, like strengths, are inherent features of your organization, so focus on

your people, resources, systems, and procedures. Think about what you could
improve, and the sorts of practices you should avoid.

Once again, imagine (or find out) how other people in your market see you. Do
they notice weaknesses that you tend to be blind to? Take time to examine how
and why your competitors are doing better than you. What are you lacking?


1. OPPORTUNITIES

Opportunities are openings or chances for something positive to happen, but you'll
need to claim them for yourself!

They usually arise from situations outside your organization, and require an eye to
what might happen in the future. They might arise as developments in the market
you serve, or in the technology you use. Being able to spot and exploit
opportunities can make a huge difference to your organization's ability to compete
and take the lead in your market.

Think about good opportunities you can spot immediately. These don't need to be
game-changers: even small advantages can increase your organization's
competitiveness. What interesting market trends are you aware of, large or small,
which could have an impact?

You should also watch out for changes in government policy related to your field.
And changes in social patterns, population profiles, and lifestyles can all throw up
interesting opportunities.


1. THREATS

Threats include anything that can negatively affect your business from the outside,
such as supply chain problems, shifts in market requirements, or a shortage of
recruits. It's vital to anticipate threats and to take action against them before you
become a victim of them and your growth stalls.

Think about the obstacles you face in getting your product to market and selling.
You may notice that quality standards or specifications for your products are
changing, and that you'll need to change those products if you're to stay in the
lead. Evolving technology is an ever-present threat, as well as an opportunity!
Always consider what your competitors are doing, and whether you should be
changing your organization's emphasis to meet the challenge. But remember that
what they're doing might not be the right thing for you to do, and avoid copying
them without knowing how it will improve your position.

Be sure to explore whether your organization is especially exposed to external

challenges. Do you have bad debt or cash-flow problems, for example, that could
make you vulnerable to even small changes in your market? This is the kind of
threat that can seriously damage your business, so be alert.

1. ASSIGNMENTS
2. Highlight five factors to consider when choosing a business
location
3. ii. A part from sole proprietorship, explain other various
forms of business ownership
4. iii. Explain various entry and growth strategies of a
business
5. iv. Discuss various pricing strategies that a business entity
can use

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

TOPIC THREE: MARKETING PLAN

LESSON EIGHT

OBJECTIVES

1. Explain customer identification by a business

2. Do the competitor analysis of the business

CUSTOMER IDENTIFICATION

The customer identification process is globally known as KYC, which stands for
Know Your Customer or know your clients. It is the process of identification and
authorization of the customer considering risk factors related to the business.

KYC is generally practiced by banking and financial institutions as part of the

regulation of general banking and anti-money laundering activities. However, some
enterprises are also practicing KYC to control the risk factors and ensure the anti-
bribery compliant assessment with their clients
A critical part of a successful business plan is identifying your customers and the
competition. Solid business plans incorporate research on potential customers and
competitors. Begin by asking the following questions, and then apply the tips on
how to become a winning business:

Three Customer Questions

 Who is buying?
 What do they buy?
 Why do they buy?

Three Competitor Questions

 How big are they?

 Which customers are they after?
 What is their strategy?

Three Ways to Win

 Cut costs to the bone

 Offer something unique
 Focus on one customer group

COMPETITORS ANALYSIS

Competitor analysis in marketing and strategic management is an assessment of

the strengths and weaknesses of current and potential competitors.
This analysis provides both an offensive and defensive strategic context to identify
opportunities and threats.

The following are steps to do competitor analysis:

1: LIST YOUR COMPETITORS

Start by listing at least three of your main competitors. These are the businesses or
people who provide a similar product or service to yours. They also tend to serve
the same market.

It’s also best to look for those businesses that are of a similar size as yours. For
example, if you’re a solo entrepreneur selling handmade potholders online, big
chain grocery stores usually aren’t your direct competitors, even if they might carry
handmade potholders in their inventory. Instead, look for other small to medium
scale producers of handmade potholders and similar kitchen accessories.

2: WRITE A BRIEF OVERVIEW

Write a brief description of the competitor’s business and why you think they’re a
competitor.

Also, how much do you know about each competitor in the first place? Do you know
the business well enough to fill up most of the worksheet without research or do
you have to dig deeper?

Note if you've made contact with each competitor, whether as a customer or by

meeting them at industry events. Having that information near the top of your
competitive analysis will help you quickly see how much you do know about your
competitive climate.

3: KNOW THEIR TARGET CUSTOMERS

Next, identify the customers that your competitors tend to attract. You can do this
by going through their marketing materials, social media pages, website, blog,
seeing where they advertise, etc. This material will help you figure out who they are
trying to reach.

SOME QUESTIONS YOU TO ANSWER AS YOU ATTEMPT TO IDENTIFY YOUR

COMPETITOR’S TARGET MARKET:

 Based on your competitor’s marketing message, what kind of

customer does the viewer have to be for these messages to appeal to
him or her? What is their age range? Where do they have to be located?
What's their profession, if any? What other customer demographics can you
infer? You're essentially trying to come up with a "buyer persona", a
character who best represents the person your competition is trying to reach.
 Do their marketing materials appear gendered? This just means: do the
marketing materials specifically refer to men or women? This could be in the
form of the language they use, the images, and illustrations in their ads and
other marketing content. Or do they appeal to a broader audience?
 Are they targeting low, middle, or high income customers? Look at
their pricing information, including how they phrase it. If they use words like
discounts, sale, affordable, or cheap, then they aren’t targeting the high
income crowd. Also look at the marketing materials themselves, whether it’s
a brochure or online banner. Are they attention-grabbing or elegant?
 What is the main messaging of their marketing materials? What
common customer problems or goals do they often refer to? Let’s say you’re
a pet sitter going through a rival business’ brochure. There is a huge
difference between a brochure emphasizing frequent real-time online
updates, and another brochure emphasizing pet pampering and grooming.
The group of clients who are attracted by frequent real-time online updates
are often focused on the safety and welfare of their pets, while those looking
for more pampering and grooming services are focused on comfort and
appearance.
 Do they have separate marketing messages for different
segments? Sometimes, you might see a stark difference between how your
 competitor markets their business for one type of customer versus how they
present themselves to another type of customer. For example, if you're
trying to sell services as a math tutor to high school students who are
struggling to pass their math subjects, you'll be making a completely
different pitch than you would to those students who need additional help
with their SAT math so that they could get into prestigious universities. Your
message to the struggling students might be closer to "I'll help you finally
pass your math tests!" While your message to the other market will be
similar to "I'll help you get into the school of your dreams!" Also, be sure to
note if your competitor does something similar with their own customer
segments.

4: LIST THEIR PRICING

Don’t forget to list how your competitors price their products and services. Include
other information such as pricing for installment plans, pricing for product and
service packages, as well as shipping fees. Note in your worksheet how their prices
compare with yours—if you’ve already set rates for your products and services.

5: ITEMIZE THEIR MARKETING STRATEGY

Though you and your competitors will be running your businesses independently,
marketing is one of the areas where you’ll be going head to head.

Most small businesses might not have the resources or the opportunities to execute
detailed and expansive marketing plans, but your marketing is essentially the
message that your customers’ see. The more they are familiar with your message
and find an affinity with it, the more likely they are to choose you.

This is why it’s important to have an understanding not just of your own marketing
messages, but your competitors as well.

DECONSTRUCT HOW THEIR MARKETING WORKS. ANALYZE THE

FOLLOWING:

 Print marketing methods such as brochures, posters, billboards, etc. Make

note not just of the content but also the materials. Do they use high quality
ink and paper? Are they glossy and in color or were they just photocopied?
 Social Media. Note the social media channels where each of your
competitors have a presence. How many fans or followers do they have? How
many comments or shares do their posts get?
 Website. What’s the first thing visitors see in your competitor’s website? Is
there much text on the website, and if there is, what does it emphasize
about your competitor’s business? Do they have customer reviews and
testimonials? Make note of the design as well. Is their website static and
minimalist, or does it have animation and other interactive features? Apart
from judging the copy, design, and features of the site itself, does the site
rank well for relevant search terms that you think your potential customers
 could use? If you’re selling handmade leather wallets, try doing a Google
search for “handmade leather tool wallets” and see if any of your competitors
are in the first few pages.
 Blog. Do they have a company blog? If they do, how often is it updated? Are
there comments or social media shares on the blog posts?
 Advertising. Have you seen any of their ads online, in local newspapers, or
in the yellow pages? What is the call-to-action on their ads, is it to call a
number, visit a store, or check out a website? Are there coupons attached to
the ads? What product features are they promoting?
 Promotions, Sales, or Events. Do your competitors hold any recurring
sales, promos, or events meant to attract new customers? Do they attend
trade shows or sponsor third-party events?
 Partnerships. Do they partner with other businesses or individuals? What
types of partners do they choose and what do they typically cross-promote
with these partners?

6: IDENTIFY THEIR COMPETITIVE ADVANTAGE

Next, find out what makes each competitor unique. This is their “competitive
advantage,” the aspect of their business that could help them outperform you and
the other businesses on the list. What do they offer that the other businesses on
the list don’t? Why would some customers pick them over you or your other
competitors?

 targeting an underserved market (these are the people whom most of your
competitors don't address or explicitly sell to)
 targeting a highly specific market
 lower prices
 frequent discounts and promos
 location
 a long company history
 a famous or high-profile founder
 an interesting company story (interesting founding stories tend to be profiled
by the media)
 compelling marketing (such as memorable imagery, taglines, or jingles)
 large online audience via their website, blog, or social media accounts
 broader range of products and services

As you’re filling up this section, you’ll start thinking about what your own
competitive advantage will be. Go through the list above and try to spot areas
where you can do much better than the competitors you’ve researched.

7: FIND THEIR STRENGTHS AND WEAKNESSES

This section serves as a summary and analysis for all of the research you've done
so far. You'll review all the aspects of your competition's business and determine
whether they are strengths or weaknesses. List their strengths and advantages
under: “Strengths" in the worksheet. Note down how equipped you are to deal with
these strengths. Can you do better than them or would it serve you better to outdo
them elsewhere?

The same goes for their weaknesses. Do their weaknesses present an opportunity
for you? Will they be able to overcome these weaknesses easily? If so, how will
it affect your business if a competitor turns their weaknesses into strengths?

If you need additional information for this portion, look for any reviews of each
competitor’s product or service. Search for their business name or products on
social media and see what people are saying. This can help you see a business’
weakness and strengths based on what their customers see.

MARKET SHARE

Market share is the portion of a market controlled by a particular company or

product.

Market share is the percent of total sales in an industry generated by a particular

company. Market share is calculated by taking the company's sales over the period
and dividing it by the total sales of the industry over the same period. This metric is
used to give a general idea of the size of a company in relation to its market and its
competitors.

PROMOTION

The Product Promotion is the disseminating the information about the product,
product line, brand and company to the prospective buyers with the intent to
generate sales and develop a brand loyalty

The Promotion is the fourth element of the marketing mix (Viz. Product, price,
place, promotion) which is considered as a mode of communication that business
adopts for achieving the specific set of objectives such as:

 To provide information about the availability of features and uses of the

product to the prospective buyers.
 To stimulate demand for a product by creating awareness and interest
among the customers.
 To differentiate the product from the competitor’s product by creating the
brand loyalty.
 To stabilize sales by highlighting the importance and features of the product.

THERE ARE FOUR KINDS OF PROMOTION THAT COMPANIES ADOPT:

1. Informative promotion
2. Persuasive promotion
3. Reminder promotion
4. Buyer Behavior Modifications
THE BASIC PURPOSE OF PROMOTION IS TO PERSUADE CUSTOMERS TO
BUY AND PRIMARILY INCLUDES THREE TYPES OF SALES ACTIVITY:

-Advertising,

-Personal Selling, and

-Sales Promotion.

The importance of product promotion lies in the fact that no firm can survive in the
market without reaching the customers effectively and could not compete with
other market players if no unique benefits are offered to the customers.

There are several types of promotions such as above line

promotions (Advertising, press releases, schemes, discounts, etc.) and below the
line promotions (trade discounts, freebies, awards, etc.)

REVIEW QUESTIONS

1. Discuss on consumer identification of a business

2. Explain why it is important to perform a competitor’s analysis before
venturing into business
3. Describe the reasons promotion is key to a business

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

TOPIC THREE: MARKETING PLAN

LESSON NINE

OBJECTIVES

1. Explain various pricing strategies that a business enterprise can use

PRICING STRATEGY

Pricing strategy refers to all of the various methods that small businesses use to
price their goods or services. It’s an all-encompassing term that can account for
things like:

 Market conditions
  Actions that competitors take
 Account segments
 Trade margins
 Input costs
 Consumers’ ability to pay
 Production and distribution costs
 Variable costs

Pricing strategies are useful for numerous reasons, though those reasons can vary
from company to company. Choosing the right price for a product will allow you to
maximize profit margins if that’s what you want to do. Contrary to popular belief,
pricing strategies aren’t always about profit margins. For instance, you may opt to
set the cost of a good or service at a low price to maintain your hold on market
share and prevent competitors from encroaching on your territory.

In these cases, you may be willing to sacrifice profit margins in order to focus on
competitive pricing. But you must be careful when engaging in an action like this.
Although it could be useful for your business, it also could end up crippling your
company. A good rule of thumb to remember when pricing products is that your
customers won’t purchase your product if you price it too high, but your business
won’t be able to cover expenses if you price it too low.

EXAMPLES OF PRICING STRATEGIES

1. PRICING FOR MARKET PENETRATION

As a small business owner, you’re likely looking for ways to enter the market so
that your product becomes more well-known. Penetration strategies aim to attract
buyers by offering lower prices on goods and services than competitors.

For instance, imagine a competitor sells a product for $100. You decide to sell the
product for $97, even if it means you’re going to take a loss on the sale.
Penetration pricing strategies draw attention away from other businesses and can
help increase brand awareness and loyalty, which can then lead to long-term
contracts.

Penetration pricing can also be risky because it can result in an initial loss of income
for the business. Over time, however, the increase in awareness can drive profits
and help small businesses stand out from the crowd. In the long run, after
penetrating a market, business owners can increase prices to better reflect the
state of the product’s position within the market.

2. ECONOMY PRICING

This pricing strategy is a “no-frills” approach that involves minimizing marketing

and production expenses as much as possible. Used by a wide range of businesses,
including generic food suppliers and discount retailers, economy pricing aims to
attract the most price-conscious consumers. Because of the lower cost of expenses,
companies can set a lower sales price and still turn a slight profit.

While economy pricing is incredibly useful for large companies like Walmart and
Target, the technique can be dangerous for small businesses. Because small
businesses lack the sales volume of larger companies, they may find it challenging
to cut production costs. Additionally, as a young company, they may not have
enough brand awareness to forgo custom branding.

3. PRICING AT A PREMIUM

With premium pricing, businesses set costs higher because they have a unique
product or brand that no one can compete with. You should consider using this
strategy if you have a considerable competitive advantage and know that you can
charge a higher price without being undercut by a product of similar quality.

Because customers need to perceive products as being worth the higher price tag, a
business has to work hard to create a perception of value. Along with creating a
high-quality product, owners should ensure that the product’s packaging, the
store’s decor, and the marketing strategy associated with the product all combine
to support the premium price.

An example of premium pricing is seen in the luxury car industry. Companies like
Tesla can get away with higher prices because they’re offering products, like
autonomous cars, that are more unique than anything else on the market.

4. PRICE SKIMMING

Designed to help businesses maximize sales on new products and services, price
skimming involves setting rates high during the initial phase of a product. The
company then lowers prices gradually as competitor goods appear on the market.
An example of this is seen with the introduction of new technology, like an 8K TV,
when currently only 4K TVs and HDTVs exist on the market.

One of the benefits of price skimming is that it allows businesses to maximize

profits on early adopters before dropping prices to attract more price-sensitive
consumers. Not only does price skimming help a small business recoup its
development costs, it also creates an illusion of quality and exclusivity when you
first introduce your product to the marketplace.

5. PSYCHOLOGICAL PRICING

Psychological pricing refers to techniques that marketers use to encourage

customers to respond based on emotional impulses, rather than logical ones.

For example, setting the price of a watch at $199 is proven to attract more
consumers than setting it at $200, even though the actual difference here is quite
small. One explanation for this trend is that consumers tend to put more attention
on the first number on a price tag than the last. The goal of psychology pricing is to
increase demand by creating an illusion of enhanced value for the consumer.

6.BUNDLE PRICING

With bundle pricing, small businesses sell multiple products for a lower rate than
consumers would face if they purchased each item individually. A useful example of
this occurs at your local fast food restaurant where it’s cheaper to buy a meal than
it is to buy each item individually.

Not only is bundling goods an effective way to reduce inventory, it can also increase
the value perception in the eyes of your customers. Customers feel as though
they’re receiving more bang for their buck. Many small businesses choose to
implement this strategy at the end of a product’s life cycle, especially if the product
is slow selling.

Small business owners should keep in mind that the profits they earn on the
higher-value items must make up for the losses they take on the lower-value
product. They should also consider how much they’ll save in overhead and storage
space by pushing out older products.

7. GEOGRAPHICAL PRICING

Geographical pricing involves setting a price point based on the location where it’s
sold. Factors for the changes in prices include things like taxes, tariffs, shipping
costs, and location-specific rent.

Another factor in geographical pricing could be basic supply and demand. For
instance, imagine you sell sports performance clothing. You may choose to set a
higher price point for winter clothes in your cold-climate retail stores than you do in
your warm-climate stores. You know people are more likely to buy the clothes in
the winter environments, so you set a higher price to take advantage of demand.

8. PROMOTIONAL PRICING

Promotional pricing involves offering discounts on a particular product. For instance,

you can provide your customers with vouchers or coupons that entitle them to a
certain percentage off the good or service. You could also entertain a “Buy One Get
One” campaign, tacking on an additional product as an add-on.

Promotional pricing campaigns can be short-term efforts. For instance, you may run
a promotional pricing strategy over an extended holiday, like Memorial Day
Weekend. By offering these deals as short-term offers, business owners can
generate buzz and excitement about a product. Promotional pricing also
incentivizes customers to act now before it’s too late. This pricing strategy plays to
a consumer’s fear of missing out.

9. VALUE PRICING

Value pricing occurs when external factors, like a sharp increase in competition or a
recession, force the small business to provide value to its customers to maintain
sales.

This pricing strategy works because customers feel as though they are receiving an
excellent “value” for the good or service. The approach recognizes that customers
don’t care how much a product costs a company to make, so long as the consumer
feels they’re getting an excellent value by purchasing it.

This pricing strategy could cut into the bottom line, but businesses may find it
beneficial to receive “some” profit rather than no profit. An example of value pricing
is seen in the fashion industry. A company may produce a product line of high-end
dresses that they sell for $1,000. They then make umbrellas that they sell for $100.

The umbrellas may cost more than the dresses to make. However, the dresses are
set at a higher price point because customers feel as though they are receiving
much better value for the product.

10. CAPTIVE PRICING

If you have a product that customers will continually renew or update, you’ll want
to consider a captive pricing strategy. A perfect example of a captive pricing
strategy is seen with a company like Dollar Shave Club. With Dollar Shave Club,
customers make a one-time purchase for a razor. Then, every month, they
purchase new razor blades to replace the existing one on the head of the razor.

Because the customer purchased a DSC razor handle, he or she has no choice but
to buy blades from the company as well. Thus, the company holds customers
“captive” until they decide to break away and buy a razor handle from another
company. Businesses can increase prices so long as the cost of the secondary
product does not exceed the cost that

ASSIGNMENT: STUDENTS SHOULD RESEARCH ON:


1. Sales tactics
2. Distribution strategy
3. Customer service

REVISION QUESTIONS

How does a business entity identify its customers?

What is meant by the term “market share” of a business? Explain how to
determine it

Explain how to improve customer service provision of the business

……………………………………………………………………………………………

………………………………………………………………………………………………………

LESSON TEN

OBJECTIVES

1. Explain the sales targets of a business

2. Explain how to improve customer service provision of the business

SALES TARGETS STRATEGIES OF A BUSINESS

What comes to mind when thinking about a successful sales strategy?

We have all been in meetings talking about coming up with a successful sales
strategy when someone says, “We can sit around planning forever, or we can just
get going and do something.” And, rightly so. Strategy without execution is a waste
of time.
I believe in strategy. More importantly I believe in a well thought out, successful
sales strategy. I have seen what happens when sales teams of all sizes forge ahead
without a clear plan. In short, it’s chaos.

A business strategy, market strategy or successful sales strategy should deliver

these critical results:

 Clear priorities everyone understands

 Clear outcomes everyone can measure
 Clear guidelines everyone can follow
 Clear goals everyone can work toward

Without a strategy, sales teams and leaders make decisions based on what is best
at the moment. Not because they are selfish or short-sighted, but because they
don’t know the big picture.

The best analogy I can think of is a ship. A strong crew works most effectively when
they are well trained, have clear instructions, and know where they are going. If
any of those elements are missing, then that’s a recipe for a shipwreck.
YOUR SALES TEAM NEEDS TO KNOW THE FOLLOWING FOR A SUCCESSFUL
SALES STRATEGY:

 A clear Ideal Customer Profile

 A SWOT analysis
 A clear market strategy
 Clear revenue goals
 Clear positioning
 Clear action plan

Too often, sales strategies start with someone at the top coming up with an
arbitrary growth number based on investor demands, new product development,
operational capacity, or some other factor that has absolutely nothing to do with
sales. That growth expectation gets divided among regions and reps in ways that
are equal, arbitrary or based on some often-unsubstantiated belief about which
markets or reps can support the most growth. Unfortunately, these poorly-planned
strategies often result in declining morale, increased attrition and ultimately poor
business results.

Whatever orders come from above, they must become a strategy that can support
the desired growth.

The secret to sustained growth is creating a powerful sales strategy to support it.
Here are the seven steps I recommend to create this type of strategy.

1. ASSESS WHERE YOU’VE BEEN AND WHERE YOU ARE NOW

Before you can begin to plan the future, first look toward the past. Do an
assessment of the previous year of business and ask questions such as:

 What did you do last year? Dig into your sales numbers as well and look at
key indicators such as:
o How much did your team sell?
o Who sold it?
o To whom did they sell it?
o How much will result in repeat business?
o Which clients brought in the least and most profit? Make sure to add in
support time!
o Which clients had the shortest sales cycles?
o Which clients had the highest revenue?
o What has changed?
o How are you positioned to achieve the revenue targets you have
identified?
o Where is the most logical place to look for growth?
o What exists to support the desired growth?
o What additional support will your team need to achieve the desired
increases?
By understanding where you have been, you can begin to determine where you
should go.

2. CREATE A CLEAR IDEAL CUSTOMER PROFILE

For most companies, 80% of revenue comes from 20% of clients. By reviewing
your previous year, you can figure out which clients spend the most money, buy
more than one product, are the easiest to work with and have the shortest sales
cycle. Figure out what your top clients do and make a list of those criteria. This will
become your Ideal Customer Criteria. Dig into the demographics and
psychographics of your ideal customer to create a complete profile for your reps.

An ideal customer profile provides guidelines for your sales reps that help them
spend their time efficiently on prospects who are most likely to convert and deliver
repeat business quickly.

3. TIME FOR A SWOT ANALYSIS

How well is your company positioned to grow existing accounts, find new accounts
like the ones you have, and land new ideal customers? Pull your sales, marketing,
and product teams together to do the SWOT.

A SWOT is not an exercise in imagination. It should be as rooted in reality as

possible. Your job is to figure out how to leverage your strengths to capitalize on
opportunities. Consider your weaknesses and threats, the internal and external
obstacles that will hinder your ability to achieve those goals. Ask yourself and your
team what needs to be done to minimize these threats and weaknesses. Be specific
in your efforts. Look for the reasons you are not selling more to existing clients,
and the reasons reps are having a hard time closing business. Understand which
products sell well and why. You will need this information to build your plan.

4. SET A CLEAR MARKET STRATEGY

Now that you have assessed where you have been and what has worked start
thinking about where you are going.

This is the time to think about a market strategy. Consider the following questions
based on your work so far:

 How much can you grow existing accounts?

 How can you leverage existing accounts to get referrals?
 How much can you increase revenue inside existing territories with existing
products?
 How much can you increase revenue inside existing territories with new
products?
  How much can you increase revenue outside existing territories with existing
products?
 How much can you increase revenue outside existing territories with new
products?

It is likely that the cheapest, fastest revenue will be from existing accounts, then
referrals, and on down the line. The slowest and most expensive new revenue will
result from cultivating sales for new products in new territories. I would start this
process with large account plans for your top 10 clients.

5. CREATE CLEAR REVENUE GOALS

When you combine your given revenue targets with the market strategy you’ve
created based on an assessment of the past and current situation, you can
generate realistic revenue goals for territories and individuals.

Now is time to think about what support your sales team needs to reach these
goals. Get your marketing team, sales team, and product team together to work on
a plan.

Handing your sales team new quotas with no basis, in reality, will leave all parties
disappointed and frustrated.

The market strategy you created will help determine how you need to position your
company and products to achieve growth. Remember, you have different market
segments that each need a clear positioning plan.

 Large Accounts
 Opportunities inside existing accounts with different product lines
 Opportunities inside existing territories and markets
 Companies that meet your ideal customer profile
o How will you identify them?
o How will you make them aware of your product?
o How will sales and marketing work together to prospect and sell
o New Markets, New Products.

It is not sufficient to ask salespeople to figure out the positioning. The sales,
marketing, and product teams need to work together to create buyer personas or
positioning statements and value propositions that meet each different need.

7. CLEAR ACTION PLAN

We tend to send sales reps out to prioritize their work alone. If you want your sales
reps to be successful, it is time to implement a well-functioning funnel and
opportunity planning process.
Now that you know how much revenue you need to get, and where it should come
from, each sales rep will need to create a funnel that shows how they intend to
generate that revenue. They may be more successful working with marketing and
including existing leads that support specific goals.

When your sales reps create their funnel, coach them to ask themselves the
following questions:

 How much of each type of revenue do I need to make?

 How many sales does that represent?
 How many calls does that represent?
 How much time does that represent?
 If I am calling on existing clients, how many calls do I need to make to close
10 existing clients on new products?
 How many new ideal customers will I need to call on to close?

Capture the answers to these questions on each rep’s funnel, along with the next
actions and timelines. But, worry less about close dates and more about next
actions and next action dates.

These seven steps are the basis of an executable sales strategy. At the end of this
process, your sales team will have clear priorities everyone understands, clear
outcomes everyone can measure, clear guidelines everyone can follow and clear
goals toward which everyone can work.

REVISION QUESTIONS

 How does a business entity identify its customers?

 What is meant by the term “market share” of a business? Explain how to
determine it
 Explain how to improve customer service provision of the business

STUDY LINKS

-www.entrepreneur.com

- www.score.org

- www.bplans.com

LESSON ELEVEN

TOPIC FOUR: ORGANISATIONAL AND MANAGEMENT PLAN

OBJECTIVES
 1. i. Describe an organization structure of a business
2. ii. Describe the management team and other business personnel

An organizational structure is a system that outlines how certain activities are

directed in order to achieve the goals of an organization. These activities can
include rules, roles, and responsibilities. The organizational structure also
determines how information flows between levels within the company.

WHAT TO PUT IN THE ORGANIZATION AND MANAGEMENT SECTION

This section of your business plan covers two main areas:

1. The organization, or how your business is structured and the people involved
2. The management team, or details about what your team brings to the
business

Within these sections, you have specific areas to cover about how your business is
structured and who's involved.

In the opening of the section, you want to give a brief summary of your
management team, including size, composition, and years experience (i.e., Our
management team of five has more than 20 years of experience in the widget
industry.)

ORGANIZATIONAL STRUCTURE

The organization section sets up the hierarchy of the people involved in your
business. It's often set up in a chart form. If you have a partnership or multi-
member LLC, this is where you indicate who is president or CEO, the CFO, director
of marketing, and any other roles you have in your business.

If you're a single-person home business, this becomes easy as you're the only one
on the chart. While technically, this part of the plan is about owner members, if you
plan to outsource work or hire a virtual assistant, you can include them as well. For
example, you might have a freelance webmaster, marketing assistant, and
copywriter. You might even have a virtual assistant whose job it is to work with
your other freelancers. These people aren't owners but have significant duties in
your business.

THE MANAGEMENT TEAM

This section highlights what you and the others involved in the running of your
business brings to the table. This not only includes owners and managers but also
your board of directors (if you have one) and support professionals. Start by
indicating your business structure (i.e. partnership or LLC), and then list the team
members.
OWNER/MANAGER/MEMBERS

Provide the following information on each owner/manager/member:

 Name
 Percentage of ownership (LLC, corporation, etc.)
 Extent of involvement (active or silent partner)
 Type of ownership (stock options, general partner, etc.)
 Position in the business (CEO, CFO, etc.)
 Duties and responsibilities
 Educational background
 Experience or skills that are relevant to the business and the duties
 Past employment
 Skills will benefit the business
 Awards and recognition
 Compensation (how paid)
 How each persons' skills and experience will complement you and each other

BOARD OF DIRECTORS

A board of directors is another part of your management team. If you don't have a
board of directors, you don't need this information. But even a one-person business
could benefit from a small group of other business owners who might be willing to
provide you with the feedback, support, and accountability that comes from an
advisory board.

This section provides much of the same information as in the ownership and
management team sub-section.

 Name
 Expertise
 Position (if there are positions)
 Involvement with the company

SUPPORT PROFESSIONALS

Especially if you're seeking funding, let potential investors know you're on the ball
with a lawyer, accountant, and other professionals that are involved in your
business. This is the place to list any freelancers or contractors you're using. Like
the other sections, you'll want to include:

 Name
 Title
 Background information such as education or certificates
 Services provided to your business
 Relationship information (i.e. retainer, as-needed, regular)
 Skills and experience making them ideal for the work you need
  Anything else that makes them stand out as quality professionals to have
helping you in your business such as awards

HELPFUL TIPS

Writing a business plan seems like an overwhelming activity, especially if you're

starting a small, one-person business. But writing a business plan can be fairly
simple and straightforward.

The point of this section is to be clear to yourself, and those who work with you or
for you, or will be funding you, who's involved and in charge of what, as well as the
background and skills that will be contributing to the success of the business.

Like other parts of the business plan, this is a section you'll want to update if you
have team member changes, or if you and your team members receive any
additional training, awards or other accolades that benefit the business.

Because it highlights the skills and experience you and your team offer, it can be a
great resource to refer to when seeking publicity and marketing opportunities.

MANAGEMENT TEAM/ BUSINESS PERSONNEL

Structure the management team section to include an organizational chart of your

small business, including departments, department managers and
employees. Biographical information about you, the owner, and any other
owners. Specify your ownership percentage and exactly what your day-to-
day responsibilities will be. Biographical information on your management
team.* The credentials of any advisers who will be at your side providing expert
advice, such as an accountant and a lawyer.

You should devote only about one paragraph to each person you profile in the
management section. But in the end, that should be one substantive paragraph,
and it will require some finesse to pull it off.

Name and title, Education and professional credentials and some personal
information and Primary responsibilities at your small business

Providing names and titles should be the easy part. The most robust part of your
paragraph should proceed with ease if you include:

 Education credentials, including college and major, and any relevant

certifications. Employment highlights. Pick the last or last two titles and
company affiliations unless there is something truly stellar in someone's past
worth mentioning. Skills or specialties, meaning those things that someone
truly excels at or is known for.* Notable accomplishments, which can
serve as a subliminal message that they can be repeated at your small
business.
  Personal insights, which may include anything from community
involvement to someone's rationale for joining your company. You have a lot
of latitude here, so try to think in terms of what conveys the mark of a can-
do, energetic person. If you're impressed by it, chances are someone reading
your business plan will be too.

RECRUITMENT, TRAINING AND PROMOTION OF PERSONNEL IN A

BUSINESS

To enhance transparency, processes and criteria for appointments and promotions

should be documented and shared in a guideline or policy document. Recruitment
guidelines could describe the recruitment process as follows: Review of
vacancy: When a post becomes vacant it will be reviewed by the manager.

 Recruitment request form: When the decision to recruit for the post has
been made, a recruitment request form will be completed by the service co-
coordinator, finance officer and signed by the manager before the
recruitment process is commenced.
 The job description and person specification: Job descriptions and
person specifications will be reviewed and prepared for each post to ensure
that they accurately and adequately reflect the skills, qualities, experience
and attributes required for the post. As roles, duties and responsibilities
change over time, where an advertisement, job description and / or person
specification are already in existence; they must be checked and updated to
ensure they clearly reflect the current requirements of the job. Job
descriptions and personnel specifications and advertisements must be
approved by the manager and or [responsible] coordinator.
 Advertisement: Vacancies will be advertised as openly and as widely as
possible. The advertisement will state the overall purpose of the job and give
clear guidance on the required method of application.
 Shortlisting: Shortlisting will be undertaken by a minimum of two people
and referenced against the person specification.
 Interview and selection: Interviews will be undertaken by a minimum of
two people and referenced against the person specification.
 Reference checks: References will be taken up.
 Vetting: If applicable, posts are subject to vetting prior to commencement.

ASSIGNMENT:

Students to research on:

1. How does the business do remuneration of its employees

2. Legal and statutory requirements of a business operation in Kenya
3. Supporting services to a business

STUDY LINKS

-www.entrepreneur.com
- www.score.org

- www.bplans.com

LESSON TWELVE

TOPIC FOUR: ORGANISATIONAL AND MANAGEMENT PLAN

OBJECTIVES

1. i. Describe the remuneration and incentives for

personnel
2. ii. Highlight the support services of a business entity

REMUNERATION AND INCENTIVES FOR PERSONNEL

The term “compensation” refers to the combination of wages, salaries and benefits
an employee receives in exchange for work. Compensation may include hourly
wages or an annual salary, plus bonus payments, incentives and benefits, such as
group health care coverage, short-term disability insurance and contributions to a
retirement savings account. A total compensation package can have several
components. An “employee compensation plan” collectively refers to all the
components in addition to the manner in which the compensation is paid and for
what purpose employees receive case bonuses, salary increases and incentives.

HOURLY WAGE COMPENSATION

Employees classified as non-exempt receive what employers usually call wages,

which are calculated on an hourly basis and require overtime payment for work in
excess of 40 hours per week. Overtime is one and a half times the hourly rate.
Employees who have a collective bargaining agreement with management – often
called a labor union contract – have wages set by contract terms for a certain
period.

For example, a sample labor union contract may require employers to pay master
plumbers, licensed plumbers and apprentice plumbers hourly wages of $19.75,
$17.95 and $15.50, respectively, pursuant to the terms of a collective bargaining
agreement.

ANNUAL SALARY COMPENSATION

Although there are salaried employees who are classified as non-exempt and,
therefore, entitled to overtime pay, the term “salary” generally refers to an annual
salary the employee receives or a method of employee compensation that does not
require overtime pay. For instance, the reference to a “salaried employee” is
generally used to describe a worker who does not receive overtime pay.

An example of an employee compensation plan for salary levels is one based on a

salary scale that considers education, years of professional experience, credentials
and qualifications such as job competency and functional expertise. Salary levels
such as the wage tables published annually by the U.S. Office of Personnel
Management contain annual wages, as well as increases based on step and grade
promotions for federal government employees paid according the General Services
and Senior Executive Service wage scales.

RETIREMENT SAVINGS PLANS

A sample compensation scenario gives employees the opportunity to participate in

the employer-sponsored 401k plan. Employees designate pre-tax contributions to
be deducted from each paycheck. For employees who contribute 5 percent of their
gross salary or wages, the company matches 50 percent of the employee’s
contribution. In other words, the employer’s matching contributions equal 2.5
percent of the employee’s gross salary.

Vesting refers to the amount of time before which the employer’s contribution is
fully available to the employee. Vesting periods range anywhere from one to five
years. A five-year vesting period means that for the first year after the employer
makes its contribution to the employee’s 401k plan, 20 percent of the money
actually belongs to the employee.

In the second year, 40 percent belongs to the employee, and in subsequent years,
60, 80 and 100 percent of the employer’s contributions become vested and
available to the employee. If the employee leaves his job before completing five
years, he forfeits the appropriate portion of the non-vested employer’s
contributions.

RAISES, BONUSES AND INCENTIVES

The employer's performance management system is usually what drives a

compensation plan's salary increases. Employees receive annual raises based on
performance ranking and ratings. For example, an outstanding performance
appraisal could result in a 5 percent salary increase.

Sample employee bonus and incentive plans include cash incentives based on a
percentage of the employee's gross salary or an employee's share based on a
discretionary pool of funds designated for distribution to employees whose
performance contributed to business success. Many executive bonuses and
incentives are tied to improvement of the bottom line or even increases in the value
of shares for publicly held companies.
GROUP HEALTH BENEFITS

A total compensation plan may include group health-care benefits. Many employers
pay a sizeable portion of the total monthly premium, leaving a portion of the
premium to be deducted from the employee’s pay. Premiums for employer-
sponsored health care plans are deducted from pre-tax income, which are gross
earnings.

Group health coverage may include supplemental coverage for dental and vision
care as well. Some employers pay the total cost for short-term disability insurance
and offer coverage for long-term disability insurance as part of an employee’s total
compensation.

BUSINESS SUPPORT SERVICES

The secretary of yesteryear needed to know how to take shorthand, type and
answer the phone. Today's secretary deals with dictation using a tape recorder and
transcription equipment; instead of simply typing, she inputs data into a computer;
and the office telephone she uses is actually a complex communications center.

What we now call the business support services industry has experienced a similar
and perhaps even more remarkable evolution. It began as secretarial services or
typing services, and typing was pretty much all they did. But those operations have
gone the way of the horse and buggy, replaced by modern, techno-savvy
entrepreneurs who want to take advantage of a virtually limitless market.

Though the term "secretarial service" has a strong degree of consumer

recognition, it's no longer an appropriate description of the industry. While typing
and transcription (historically typical secretarial services) are still a mainstay,
consumers often don't think of a secretarial service as providing desktop publishing,
spreadsheet design, Internet-related services, and other sophisticated product and
service packages. The phrase "business support services" does a much better
job of conveying what the industry is all about today and still leaves flexibility for
the changes that are likely to occur in the future. You'll also hear terms such as
"administrative support services" and "office support services" applied to this
industry.

In 1998, the National Association of Secretarial Services changed its name to the
Association of Business Support Services International. Executive Director Lynette
M. Smith says, "We felt that 'business support services' did a better job than
'secretarial services' of covering the scope of our members' services and bringing
more respectability to the profession."

To understand the future potential, take a look at how the industry has evolved.
Over the span of the 20th century, the administrative demands of doing business
have grown tremendously, creating a need for secretarial and clerical support.
At the same time, the general business landscape has changed dramatically. Big
businesses are looking for ways to streamline their operations, and one popular
option is outsourcing, where they retain another company to provide a service that
may have traditionally been done by employees. Small companies want to stay lean
and profitable, so they, too, are turning to outsourcing, rather than fattening up
their payroll.

Combine the obvious need with the new way of operating in the business world,
and you have a dynamic young industry wide open with opportunity: business
support services. In fact, there is so much opportunity that if you don't have a clear
plan, specific services and a target market, your chances of success are slim. But
with a lot of thought and preparation, and a minimal amount of cash, you can
quickly be on the road to profitability.

TYPES OF SERVICES

You can offer a wide range of services. The following list encompasses what we
found on the market, but it is by no means exhaustive. Some of these services
could be businesses in and of themselves; others are ancillary to a primary
service. Listen to your clients; they'll let you know what they need, and then you
can decide if you can provide it.

 Word processing
 Tape transcription
 Phone-in dictation
 Desktop publishing
 Spreadsheet design
 College papers and reports
 Telephone answering
 Mail receiving and forwarding
 Packing and shipping
 Database/mailing list management
 Bookkeeping, check preparation and billing
 Resume preparation
 Proofreading
 Print brokering
 Fax sending and receiving
 Photocopying
 Notary
 Internet research
 Web page design and maintenance
 Event planning
 Consulting
 Training

TARGET MARKET
You have three broad markets for your business support services business: the
general public; small commercial and homebased businesses; and large
corporations.

 General Public. By "general public," we mean individual clients who are not
businesses. The two largest segments of this market are people needing
resume preparation and college students.

A job hunter creating or updating a resume may actually write the document and
bring it to you for layout and printing; he or she may need you to assist in writing
the content as well. Even when the unemployment rate is low, the resume market
is significant because people don't have to be unemployed to need a resume.

There are thousands of higher-learning institutions in the United States with a

collective enrollment of millions of students. Although many students prepare
reports and papers themselves, enough of them will turn to a professional word-
processing firm to make this market substantial.

Students working on particularly long papers, such as graduate theses or

dissertations, are strong candidates for your service. And, of course, once they
graduate, they may come back to you for assistance with their resumes.

In addition to students, the academic community may also be a source of business

(think professors who need word processing, editing and proofreading services for
their books and articles).

 Small Businesses. Chances are, the majority of your clients will fall under
this category. These are companies that require secretarial and
administrative support but do not have the money, space or need for a full-
time employee. Or they may prefer to outsource specific tasks rather than
invest in the talent and equipment necessary to get the job done right. And
hiring temporary employees can be more costly than small businesses' needs
demand.

As the number of small businesses continues to grow, so does your potential

market. And the list of services they use is limited only by your imagination and
personal preferences. As you develop relationships with small businesses, you'll be
in a position to make suggestions that will increase the volume--or even expand the
scope--of the work you do for them.

Typically, small businesses turn to business support services firms for word
processing, faxing, photocopying, shipping, desktop publishing, mailing list
management, dictation and transcription.

 Large Corporations. Even fairly large operations with full-time secretaries

and administrative assistants may be candidates for your services. If a
company has a temporary situation where they have more work than they
can handle in-house, they may turn to you to pick up the overload. Or, like
 the small businesses mentioned earlier, they may prefer to outsource special
projects rather than hiring temporary workers. This is a smart move, because
hiring temporary employees means training them and providing them with an
adequately equipped workstation. Sending the work to you eliminates that
hassle and cost.

Large companies also use business support services when their own staff members
are unavailable due to vacations or illness. They may not actually need a "temp,"
that is, someone to come in and be present in the office, but they may need
someone who can handle all or part of the work of the absent staffer.

FINDING A NICHE

It's a good idea to select one or more key market groups to target. There are a
number of very valid reasons for choosing a well-defined market niche. By targeting
a very specific market segment, you can tailor your service menu, marketing efforts
and customer service system to meet that segment's needs. You can refine your
marketing efforts and gain a reputation within the industry for expertise in certain
areas--which means you can charge more. Think about it: In the medical field, who
earns more--a family practitioner or a neurosurgeon? The neurosurgeon, naturally,
because he's a specialist, and what he does requires greater skill.

SOME MARKET NICHES YOU MIGHT CONSIDER INCLUDE:

 Other business support services. Let existing business owners know

you're available for overflow or to work on a contract basis. Expect to have to
sign confidentiality and noncompete agreements, but be sure any such
contract limits you to only being prevented from marketing directly to the
service's clients whose work you actually do. You might have to discount
your rates to allow them to make a profit, but your marketing and sales costs
will be minimal, which offsets the discount; however, be sure you are
compensated for rush jobs.

 Specific professions or industries. If you have expertise in a specific field,

you may target your service to that field. Two of the most common are the
legal and medical fields, particularly transcribing for these groups, because
you'll need to be familiar with a long list of special terms and formatting
requirements. Or you may want to target professional salespeople, such as
manufacturers' reps, who work from their homes and need occasional
administrative support. Chicago's Joann V. focuses on the insurance industry,
and Cindy P. in Irvine, California, targets the legal field.

 Geographic areas. If you are in a densely populated area, perhaps an office

center or a light industrial park, you may want to choose your market by
geography. Determine your parameters, and then market to the companies
within your service area, emphasizing the convenience of using your service.
  Academic. If you are near a college or university, you can serve a number
of academic-related niches, including students, instructors and even
administrators.

STARTUP COSTS

One of the most appealing aspects of the business support services industry is its
relatively low startup costs. If you have a decent credit rating, you can be ready to
start serving clients with virtually no cash out of pocket--although you'll certainly be
on firmer ground if you have some startup capital.

Most of the business support services entrepreneurs we talked with used their own
personal savings and equipment they already owned to start their businesses.
Because the startup costs are relatively low, you'll find traditional financing difficult
to obtain--banks and other lenders would much rather lend amounts much larger
than you'll need and are likely to be able to qualify for.

N:B

Many operators start their businesses on the side while working full-time jobs, so
their personal living expenses are covered. But if you plan to plunge into your new
business full time from the start, be sure you have enough cash on hand to cover
your expenses until the revenue starts coming in. At a minimum, you should have
the equivalent of three months' expenses in a savings account to tap if you need it;
you'll probably sleep better if you have six to 12 months of expenses socked away.

Irvine, California's Cindy P. paid $10,000 to buy an existing business; that fee
included the client list and the lease on the office, but no furniture or equipment.
She spent another $4,000 on initial equipment purchases and has added more over
the years.

Joann V. in Chicago started her business before the days of PCs. "Originally, all I
needed was a typewriter," she says. "I bought an electronic typewriter for $500 and
some paper, and someone loaned me a transcription unit. That was it--that was all
I needed to start."

As you consider your own situation, don't pull a startup number out of the air; use
your business plan to calculate how much you need to start your ideal operation,
and then figure out how much you have. If you don't have all the cash, you need to
start playing with the numbers and deciding what you can do without.

OPERATIONS

As a solo operator, expect to spend at least one-fourth of your time on general

business management and administration, marketing, purchasing and billing. The
bigger your business and the more people you have, the more time you'll spend
managing them rather than actually doing the work yourself. With four employees,
Irvine, California's Cindy P. spends very little of her time working on projects for
clients. And Chicago entrepreneur Joann V. hasn't actually transcribed anything
herself in years--she has a team of five full-time employees in the office and nearly
50 part-time transcribers who work from their homes.

No matter how small or large your company is, it's critical that you not neglect the
administrative side. It won't do you much good if you do the work but never get
around to sending out the invoices so you can get paid. Poorly maintained records
can get you into trouble with the IRS and other government agencies. And if you
aren't marketing on a regular basis, your business will eventually dry up.

Running a business support service takes a lot of energy. It helps if you enjoy
people but are also able to work alone or in small groups. You'll need to be able to
juggle several projects at the same time, and always make each client feel as
though he or she is the most important person to you.

LOCATION

When it comes to the actual site of your business, you have two choices:
homebased or a commercial location. A business support services company can be
extremely successful in either venue; your decision will depend on your individual
resources and goals.

As you consider the issue of location, keep a few things in mind. Depending on the
specific services you offer and market you target, you'll possibly be dealing both
with the general public, who will need access to your office, along with small-
business owners and managers in larger corporations who may also want to visit
your facility or have their employees or a messenger pick up and deliver work.

In any business, but especially in this one, a professional image is a critical element
of success. Homebased operations are very accepted in today's business world (in
fact, many customers prefer dealing with homebased suppliers because they have
lower overhead and can therefore charge less), but you still need to present the
appearance of being a serious business, even though you choose to work from your
house. And if you opt for a commercial location, be sure it's one that is compatible
with your goals.

In the mid-1990s, about half the members of the Association of Business Support
Services International (ABSSI) were homebased; by the turn of the century, an
estimated 70 percent were homebased, one-person operations. "Many of our
previously office-based members are simplifying their lives by moving back to a
residential location," says Lynette M. Smith, ABSSI's executive director. "They
acknowledge that a homebased business is no longer the exception but the norm.
In the perception of clients, there no longer is a stigma associated with being
homebased."

While conceding that operating from home can make growth challenging, Smith
says, "At home, one cannot expand through the traditional means of hiring
employees. However, it's becoming more realistic to subcontract out work--
especially transcription--to others."

Income & Billing

You have a number of options when it comes to deciding on your approach to

pricing. Some operators simply call around, find out what other companies are
charging and set their prices in that range. Others decide what they want to earn
and set their prices based on that without regard to how it relates to the
competition. Then there's the issue of pricing by the project, the page or the hour.

The best approach is a multifaceted one that considers the skill level of the work,
your profit goals and the market. You need to set up a system that gives you a
structure to work within so you can quote consistent, reasonable and fair rates.

MULTIPLE HOURLY RATES

If you're going to charge by the hour, consider that different rates should apply
depending on the complexity of the service and skill level required. For example,
Cindy P.'s hourly rate ranges from $28 for straight word processing up to $40 for
complex desktop publishing.

THE ASSOCIATION OF BUSINESS SUPPORT SERVICES INTERNATIONAL

SUGGESTS A STRUCTURE SIMILAR TO THE FOLLOWING:

 Level 1 (lowest hourly rate): Basic word processing, routine clerical

services, simple proofreading
 Level 2: Enhanced word processing, copyediting, proofreading, basic
spreadsheet design, internet research
 Level 3: Desktop publishing, spreadsheet design, simple web page design,
simple web page maintenance
 Level 4: Graphic design, writing (academic, business, resume, technical),
web page design, web page maintenance
 Level 5 (highest hourly rate): Consulting, training

Note that the same basic task might fall into more than one pricing level, and you'll
need to make a judgment call based on the particular project as to which rate to
apply.

HOUR POWER

When the Association of Business Support Services International surveyed its

members, it found that the hourly rate ranges for the most popular services offered
by respondents were:

 Basic word processing - $7-40

 Enhanced word processing - $7-50
  Copyediting - $7-75
 Database entry - $18-50
 Transcription, general - $15-45
 Consulting/training - $7-90
 Spreadsheet design - $15-75
 Desktop publishing - $7-75
 Graphic design - $14-100
 Web site design - $20-150
 Internet research - $7-75

ESTIMATING THE JOB

Many new business owners find estimating one of the most challenging things they
do, but if you approach the process systematically, it's simple. You just need to
determine an appropriate hourly rate, calculate the length of time the project
should take, and do the math.

Regardless of the format you use to provide the quote (in writing or verbal), it's a
good idea to make notes for yourself so you know what you quoted and how you
arrived at that figure. This will be necessary if the actual project turns out to be
different than what the client described, or if the client questions the invoice later,
even though they agreed to the quote. You may even want to create an estimate
form that you can provide to the client and keep a copy in your own files.

MARKETING

Marketing is an area where your creative side can shine. It's something many
people don't like to do, but it's essential if you're going to build a successful,
profitable business.

Don't be discouraged if your marketing efforts don't produce an immediate

response. It's rare that someone will have a need for your services at precisely the
moment you contact them, but if you put together a professional, attractive
information package, they'll keep the information on file and call you when they
need you--or they'll refer you to a colleague who may have the need. It's not
unusual for a sales contact not to generate a response for months--or even a year.

You can find out how to create a basic marketing plan here, but there are issues
and ideas specific to business support services that you need to know as you
develop your plan. For example, check with your local phone company to find out
its advertising deadline and directory distribution date and, if possible, plan to
launch your business in time to be included. Your Yellow Pages listing will be an
important source of new business, especially in the early days, so don't get so
distracted by other startup tasks that you miss this opportunity.

Another important point is to be sure all your marketing materials are professional
and letter-perfect. Many business support services that do a great job in this area
for their clients often forget to do the same for themselves. Consider hiring a
graphic designer and/or professional writer to help you with your marketing
package; you may be able to negotiate a trade-out that will benefit you both.

REFERRALS ARE ESSENTIAL

Referrals will likely be a primary way you get new clients, so it's a good idea to
have a systematic approach to the process. You should be able to identify who is
making referrals that ultimately turn into business so you can cultivate and reward
those referral sources.

Complementary businesses are great sources of referrals. For example, print and
copy shops often have customers who need word processing or desktop publishing
but don't have the equipment, skills or staff to handle these services.

Your referral arrangements can be set up to provide cash compensation for new
business, or you may simply have an agreement where you and other cooperating
businesses refer clients to each other as the need arises.

According to Lynette M. Smith, executive director of the Association of Business

Support Services International, typical referral fees are 10 percent of the first six to
12 months of business from a new client; 15 percent of the first three months; or
25 percent of the first transaction only.

Of course, many referrals involve no compensation at all--satisfied clients will be

happy to refer others to you simply because you do a good job. And you'll probably
also get referrals from friends and associates. Charlene D. says a major portion of
her Winter Park, Florida, company's business came through referrals from people at
her church.

ADVERTISING

Advertising is a great way to bring in new business, but choosing effective media
may take some experimentation. Probably the single best place to advertise is in
your local Yellow Pages, because that's where people look when they need a service
and don't know who to call. Many communities have more than one telephone
directory publisher, so you may need to do some research to determine which
directory (or directories) should carry your listing and ad.

Don't limit yourself to the telephone directory. Bill H. in Iowa City, Iowa, does some
radio ads on a local news and talk station, and although he can't credit much
specific new business to them, he says his current customers do hear and mention
the spots. He also places ads in the university newspaper classified section and gets
a good response from that.

REVIEW QUESTIONS

1. What are business support services?

 2. Outline some of the services you would embrace within your business to
ensure you are making some profits
3. Explain the reasons for strategizing on remuneration scheme to employees

LESSON THIRTEEN

TOPIC FIVE: OPERATIONAL/ PRODUCTION PLAN

OBJECTIVES

1. a. Outline production facilities and capacity

2. b. Explain how to develop production and operation strategy
3. c. Explain the production process of the products
4. d. Discuss the regulations affecting operations of a business
5. e. Determine how to prepare operation timetable/ production
schedule

PRODUCTION FACILITIES AND CAPACITY UTILIZATION IN A BUSINESS

Capacity utilization or capacity utilisation is the extent to which an enterprise or

a nation uses its installed productive capacity. It is the relationship between
output that is produced with the installed equipment, and the potential output
which could be produced with it, if capacity was fully used.

The capacity utilization rate measures the proportion of potential economic output
that is actually realized. Displayed as a percentage, the capacity utilization level
provides insight into the overall slack that is in an economy or a firm at a given
point in time. The formula for finding the rate is:

(Actual Output / Potential Output ) x 100 = Capacity Utilization Rate

This part of business plan should also enlist all the production facilities that will be
used in a business.

REGULATIONS AFFECTING OPERATIONS

All government regulations on business require companies to comply with federal,

state, and local statues and regulations administered by legislative bodies and
carried out by regulatory agencies. Some regulations impact the ways in which
businesses report income and pay taxes; others regulate how they dispose of their
excess materials or waste. For just about any kind of industry and transaction,
there are government regulations on business.

MAJOR GOVERNMENT REGULATIONS ON BUSINESS

Federal business laws and government regulations fall into eleven basic categories.
Note that each might not impact your business the same way—entire categories
might not be a huge concern for your business, depending on your industry.

Your business lawyer can help you out to figure out what, exactly, applies to you.

For most small business owners, government regulation questions almost always
begin with taxes. But there’s more to taxes than merely paying them—knowing
which business taxes to pay, when to pay them, and how to set up your business to
account for future tax payments can spare you a ton of headaches when it comes
time to write the government a check.

Every company registered within the United States has to pay federal taxes. Most
companies will also have to pay state taxes, depending on the state in which the
company is registered. These are unavoidable. Avoiding taxes—or deciding not to
pay them outright—comes with hefty penalties and potential jail time.

But the kinds of taxes you’ll pay depends on how you formed your business. In this
regard, not all businesses are treated the same. Sole proprietorships pay taxes
differently than, say, S-corporations. Here’s a full rundown of the different taxes
for business structures to help you determine what your business needs to file.
Despite the differences between each kind of business, there are a few general
terms you should know:

 Income tax: Most businesses file an annual income tax return. Businesses
must pay income tax as they earn and receive income, and then file a tax
return at the end of the year.
 Estimated tax: Estimated tax payments offer an alternative to paying
income tax throughout the year as your company earns money. Sole
proprietors, partners, and S-corporation shareholders must usually make
estimated tax payments if they expect to owe $1,000 or more once they file
their return. Note that corporations are usually required to make estimated
tax payments if expect to make more than $500 or more in income.
 Employment tax: Companies that have employees are expected to pay
taxes related to having staff on their payroll. These include Social Security
and Medicare taxes, federal income tax withholding, and federal
unemployment tax. For more information, see the IRS page on Employment
Taxes for Small Businesses.
 Excise taxes: Excise taxes are paid when your business makes purchases
on specific goods, and are often included in the price of the product. One
common example of excise tax is the purchase of gasoline, where applicable
taxes are baked into the price per gallon rather than as a tally at the end of
the transaction. You may be under certain excise tax law if you manufacture
or sell certain goods, use various kinds of equipment, receive payment for
certain kinds of services, and much more. For additional information, refer to
the IRS guide on Excise Taxes.

Some businesses also have to collect sales tax, which we’ll cover more in a bit.
2. EMPLOYMENT AND LABOR LAW

There are also many government regulations on businesses that employ workers
and independent contractors, in the form of federal and state labor laws.

Here are the most common labor laws:

 Wages and hours: According to the Department of Labor, the Fair Labor
Standards Act (FLSA) prescribes standards for wages and overtime pay. This
act affects most private and public employment, and requires employers to
pay covered employees at least the federal minimum wage and overtime pay
of one-and-one-half-times the regular rate of pay (unless they are exempt
employees).
 Workplace safety and health: The Occupational Safety and Health
Administration (OSHA) requires that employers, under the OSH Act, “provide
their employees with work and a workplace free from recognized, serious
hazards.” The OSH Act is enforced through workplace inspections and
investigations.
 Equal opportunity: Most employers with at least 15 employees must
comply with equal opportunity laws enforced by the Equal Employment
Opportunity Commission (EEOC). The EEOC mandates that certain hiring
practices, such as gender, race, religion, age, disability, and other elements
are not allowed to influence hiring practices.
 Non-US citizen workers: The federal government mandates that
employers must verify that their employees have permission to work legally
in the United States. There are several employment categories, each with
different requirements, conditions, and authorized periods of stay (for
employees who are not legal residents or citizens).
 Employee benefit security: If your company offers pension or welfare
benefit plans, you may be subject to a wide range of fiduciary, disclosure,
and reporting requirements under the Employee Retirement Income Security
Act.
 Unions: If your business has union employees, you may need to file certain
reports and handle relations with union members in specific ways. See
the Office of Labor Management Standards’ website for more information.
 Family and medical leave: The Family and Medical Leave Act (FMLA)
requires employers with 50 or more employees to provide 12 weeks of
unpaid, job-protected leave to eligible employees for the birth or adoption of
a child, or for the serious illness of the employee or a spouse, child, or
parent.
 Posters: Some Department of Labor states require notices to be shared or
posted in the workplace for employees’ view (for example, alcohol warnings
and hand-washing reminders). Fortunately, the elaws Poster Advisor is an
easy way to determine which posters you need, and you can use it to get
free electronic and printed copies in multiple languages.

3. ANTITRUST LAWS
Any time a company conspires with its competitors, third-party vendors, or other
relevant parties, it may run afoul of antitrust laws. These are the issues antitrust
laws strive to address, such as the following:

 Conspiring to fix market prices: Discussing prices with competitors—even

if it affects a small marketplace.
 Price discrimination: Securing favorable product prices from buyers when
other companies can’t.
 Conspiring to boycott: Conversations with other businesses regarding the
potential boycott of another competitor or supplier.
 Conspiring to allocate markets or customers: Agreements between
competitors to divide up customers, territories, or markets are illegal. This
provision applies even when the competitors do not dominate the particular
market or industry.
 Monopolization: Preserving a monopoly position through the acquisition of
competitors, the exclusion of competitors to the given market, or the control
of market prices.

If your company runs afoul of any of these regulations, the federal trade
commission might contact you.

4. ADVERTISING

A good advertising strategy can do wonders for your business. But before you dive
in, you’ll need to make sure that you’re playing by the rules and government
regulations. For example, you have to make sure the claims in your ads are not
untruthful or purposely deceptive. Using testimonials in your ads comes with
additional regulations. Violating these rules can result in fines, which defeats the
purpose of your advertising in the first place.

HOW YOU CAN AVOID MISLEADING CUSTOMERS:

 Comply with labeling laws for consumer products, meaning that you list out
ingredients and chemicals within your products.
 Know the specific rules for advertising and selling products over the internet.
 Understand the rules for advertising specific products—whether it be
alcoholic beverages or 900 numbers. This’ll be specific to your industry, and
where working with a lawyer who knows the rules around your business will
really benefit you.
 Understand the rules for marketing and advertising over the phone or via
email.
 Learn the rules for making environmentally friendly or “green” claims in
advertising. More on that below.
5. EMAIL MARKETING

Closely related to advertising is email marketing. If your business engages in email

marketing, there are separate regulations you’ll need to comply with under
the CAN-SPAM Act.

There are several things that this Act regulates, but some of the main components
are as follows:

 Don’t use false or misleading headers

 Don’t use deceptive headlines
 Indicate that the message is an advertisement
 Include your business’s name and address
 Show the customer how to opt out of emails, and honor the opt-out requests
promptly

Each separate email violation is subject to hefty fines, so make sure you know the
ins and outs of this law before you set up your email marketing strategy.

6. ENVIRONMENTAL REGULATIONS

You might need to acquaint yourself with various environmental protection laws,
depending on your industry or business. This is especially pertinent if you’re
marketing, say, cleaning products, food, or anything with claims to be natural,
organic, or eco-friendly. You’ll find dozens of environmental rules and regulations
that might affect your small business, both at the federal and state level.

The EPA Small Business Gateway is a great resource to make sure your business is
in compliance with environmental law. Note that you may also need to consult your
state environmental protection agency to make sure you meet their requirements
as well.

7. PRIVACY

Businesses with staff and employees wind up amassing a ton of sensitive personal
information about their employees. As a result, there are a variety of rules and
regulations about how employers must save and secure this data.

If your business discloses an employee’s private information, including Social

Security number, address, name, health conditions, credit card, bank numbers, or
personal history, not only do various laws exist to keep businesses from spreading
this information, but employees can sue for disclosing sensitive information. For
instance, the Health Insurance Portability and Accountability Act (HIPAA) prohibits
the release of health data without a patient’s permission.

Although employees have clear and specific rights to privacy in the workplace, the
rights are balanced against the employers’ privileges to monitor their business
operations. It’s important to understand what rights you have as a business to
monitor employees, and to be clear and transparent about that monitoring to your
employees.

8. LICENSING AND PERMITS

We’ve focused on federal laws and government regulations on business so far, but
that doesn’t meant that there aren’t ample state regulations to consider for your
small business. Many state and local governments have their own requirements for
businesses, and they’re just as important to understand as their federal
counterparts.

You might be wondering, “do I need a business license?” Indeed, in many states
and localities, you do need a business license to operate. This can be particularly
important for businesses in heavily regulated industries, such as childcare or health.
Without the proper licenses, states can fine your business or even revoke your
authority to operate.

9. INSURANCE

As soon as you hire your first employee, you’re legally obligated to purchase
workers compensation insurance. All states, with the exception of Texas, require
businesses with employees to purchase workers comp insurance.

Workers comp insurance protects both you and your employee in the case of an
accident on the job. The employee will receive medical care and compensation for
some of the income they lose while injured, while the insurance company will
defray the costs of any lawsuit filed by the injured worker.

Other types of insurance generally aren’t required, but it depends on the

circumstances. For example, if your business contracts with the government or gets
a government-guaranteed loan, then you’ll need to show proof of certain types of
business insurance.

10. REPORTING PAY DATA

If you employ more than 100 people (or more than 50 if you’re a federal
contractor), you’re required to report how much you pay each of them, broken
down by race/ethnicity, job category, and gender, to the Equal Employment
Opportunity Commission each year.

This is to ensure that you’re complying with federal nondiscrimination laws (i.e.,
that you’re not paying a woman significantly less than a man with exactly the same
job title and responsibilities). The report, which is known as the EEO-1 form, has to
be submitted by the end of each May.

11. COLLECTING SALES TAX

Most businesses that sell physical goods must collect sales tax from customers and
submit the tax to their state’s revenue department. A few states do not collect sales
tax.

In general, the law specifies that a business must collect sales tax in any state with
which it has a physical connection (known, in legal terms, as a “nexus”). That
nexus might mean a physical retail shop, or hiring employees in the state. Even
online sellers might have to collect sales tax in any state that they sell to.

If your business has a nexus, you need to collect sales tax. If you live in Alaska,
Delaware, Montana, New Hampshire, or Oregon, you don’t need to collect sales tax
anyway—those states don’t have sales tax. Depending on what you’re selling, you
might be exempt to begin with.

REVISION QUESTIONS

1. What is a production facilities and capacity

2. Explain how to develop production and operation strategy
3. Explain the production process of the products
4. Discuss the various regulations affecting operations of a business

LESSON FOURTEEN

TOPIC SIX: FINANCIAL PLAN

OBJECTIVES

1. i. Determine pre-operation costs of a business

2. ii. Describe the working capital of a business entity
3. iii. Explain the cash-flow projections of a business
4. iv. Explain the potential risks of a business
5. v. Explain the proposed capitalization of a business
enterprise

PRE-OPERATING EXPENSES

Means the investigative fees, costs and expenses incidental to the creation of the
Company and the fees, costs and expenses incurred in starting a business

They are Costs that are incurred before income has been reported on the balance
sheet.

These costs include items like payroll, rent, office supplies, utilities, marketing,
insurance and taxes. Operating expenses are essentially the costs to keep the
business running.

WORKING CAPITAL
Working capital, also known as net working capital (NWC), is the difference
between a company’s current assets, such as cash, accounts receivable (customers’
unpaid bills) and inventories of raw materials and finished goods, and its current
liabilities, such as accounts payable. Net operating working capital is a measure of a
company's liquidity and refers to the difference between operating current assets
and operating current liabilities. In many cases these calculations are the same and
are derived from company cash plus accounts receivable plus inventories, less
accounts payable and less accrued expenses.

POTENTIAL RISKS OF A BUSINESS

These are the possible risks that a business can face. The most common ones are
as explained below

1. THEFT & LOSS

You may feel your business premises are pretty safe when you lock up and head
home for the night, especially if it’s alarmed. But no property is infallible and theft,
plus ensuing loss of equipment, is something that every business owner needs to
think seriously about. Failing to adequately insure your business for theft and loss is
putting your whole enterprise at risk, especially if you don’t have the capital to
replace vital equipment.

2. DAMAGE & LOSS OF INCOME

If you have the type of business that’s operational online and all you need is a
laptop and WiFi, then you can escape the rigors of storm season simply by being
portable. But if your business is office or shop-based, then a particularly nasty
weather system can impact your ability to operate due to damage of premises,
power outages and a lack of customers.

While storms are physically damaging for businesses, the downtime can be even
more damaging due to loss of revenue. Fire is also another unforeseen catastrophe
that businesses have no control over, but can potentially put you out of operation if
you don’t have insurance.

3. Changes in Infrastructure

Cities are ever changing places, and if your business relies on its location for
success, then a change in infrastructure can be disastrous, either immediately or
further on down the track. Examples can be a zoning law change, a new highway
being constructed or the customer base you cater to changing over time. These all
have the potential to impact directly on your business now or in the future.

4. Operational Risk
The first three risks we’ve looked at stem from external factors but every business
has internal risks that need to be considered such as technical failures (equipment
breakdowns) and human error (staff making mistakes that cost the company
money). These can mean a potential loss of revenue as well as customer loyalty if
you can’t sort out the problem immediately. Risk insurance can help to bridge the
gap and keep you operational during this period.

5. Reputational Risk

If you want your business to be a success, then you have to invest time and effort
into exceptional customer service and build a reputation for being reliable and
trustworthy. You may take your reputation for granted, but if it is damaged the
knock on effect can be almost instant, resulting in loss of revenue, loss of staff, loss
of advertising offers and negative online reviews. But many a business has survived
a loss of reputation and come out the other side stronger, simply because they had
adequate insurance.

REVISION QUESTIONS

1. What is the pre-operation costs of a business

2. Explain the cash-flow projections of a business
3. Explain the potential risks of a business
4. Explain the proposed capitalization of a business enterprise

LECTURE FIFTEEN

FINANCIAL MANAGEMENT

OBJECTIVES

a) Explain the meaning of financial management

b) Identify the various sources of business finance

c) Identify types of business records

d) Record business transactions in the books of accounts

e) Prepare financial statements

f) Interpret financial statements for business decisions

g) Explain the importance of budgeting to a business

MEANING OF FINANCIAL MANAGEMENT

This is the process of controlling the financial resources within a business
enterprise. To achieve this objective, the entrepreneur must come up with formal
plans called budgets and cash flow statements.

SOURCES OF BUSINESS FINANCE

Business finance refers to the funds necessary to start, run and expand a business.

When looking for business finance it is important to realize that some sources of
finance may be appropriate while others may not. There are various sources of
business funds available to the entrepreneur some of which are:

i) Personal finance- personal savings are a major source of capital

during the start-up stage. The personal savings may be obtained from former
employment, money saved in savings/ fixed deposit accounts, sale of personal
assets such as land.

ADVANTAGES

- It is the least expensive since no interest is paid.

- It does not involve legal process of acquiring

- It allows for flexibility on the use of funds

DISADVANTAGES:

- It may be inadequate for business needs.

- May be used without proper planning.

- May take too long to raise adequate capital.

ii) Family and friends contributions – The family may provide funds
and/or free without necessarily taking up a share of the business. Sometimes, it is
possible to ask for financial assistance from friends. If they do not require to be
paid back, then this would be a form of equity capital

ADVANTAGES:

- Funds can be made available to the entrepreneur without conditions.

- The funds may carry little or no risk to the business

- Re-payment period may not be fixed.

- Family and friends may contribute to the management of the
business.

DISADVANTAGES:

- They might interfere in the business management.

- They might claim part of the profits.

- It may result in differences which may lead to serious consequences.

VENTURE CAPITAL

Venture capital is a type of private funding mainly provided for start-ups with a
high potential for profitability and growth. Venture capital typically comes from
institutional investors and high-net worth individuals.

ADVANTAGES:

i) Entrepreneurs can enjoy value addition activities that come with the capital e.g.
mentoring, business alliances, management assistance.

ii) Entrepreneurs planning to source venture capital must embrace creativity

and innovation.

DISADVANTAGE:

i) Venture capital ties the borrower to the lenders condition thus limiting
the entrepreneur from making certain personal decision.

iv) GOVERNMENT GRANTS

These are grants that the government has put in place from time to time for
onward borrowing by entrepreneurs through intermediaries such as financial
institutions. In the past these have included the youth enterprise fund, the disability
fund, women enterprise fund, fresh graduate funds and so on.

ADVANTAGES OF GOVERNMENT GRANTS:

i) Lending conditions are more friendly compared to commercial lenders.

ii) Minimal interest rates are charged.

iii) Business Development Services( e.g. training, mentoring, incubation)

are provided to borrowers
DISADVANTAGES:

i) There is high competition for the funds.

ii) Bureaucratic processing procedures leading to red tapes.

iii) Political patronage may interfere with the lending process.

iv) The amounts of credit available are limited.

v)BANKS AND NON- BANK FINANCIAL INSTITUTIONS

A bank is a financial institution that accepts deposits, gives loans and other financial
services. Non- bank financial institutions provide banking services without meeting
the legal requirements of a bank. These institutions provide both short term and
long term credit at their prescribed conditions.

ADVANTAGES OF SUCH INSTITUTIONS ARE:

i) Entrepreneurs can borrow large amounts of money to start or even expand

a business.

ii) An entrepreneur can get different types of loans from these institutions

iii) The entrepreneur may receive non-financial services e.g. networking,

marketing information, business best practices, training etc.

DISADVANTAGES:

i) The entrepreneur must have collateral to borrow any funds.

ii) High interest rates are charged.

iii) There are some hidden loan charges.

BORROWED FUNDS (LOANS)

The government, micro finance institutions and commercial banks offer funds to
small and medium businesses. Some loans require security (collateral) while others
do not. Interest rates on loans vary from one lender to another. Such funds are
available from the following institutions;

MICRO-FINANCE INSTITUTIONS/ LENDING NON-GOVERNMENTAL

ORGANIZATIONS (NGO’S)

Such institutions include: Kenya women Finance Trust, Faulu Kenya, K-Rep, World
Vision, Plan International and Strengthening Informal Sector Training (SITE).

ADVANTAGES OF THESE INSTITUTIONS ARE:

- Available at grass root level.

- Provide training in managerial skills.

- They lend to groups and individuals.

- Flexible lending rates

- Collateral may not involve physical property.

- May offer marketing assistance

DISADVANTAGES:

- May not operate in all regions of the country

- May limit the entrepreneur to operate as a group.

- Some of the institutions may target specific groups e.g.

women/men/orphans/the challenged.

- There is a limit to the funds they lend.

- Regulations of getting funds are rigid.

OTHER SOURCES OF BUSINESS FINANCE:

There are other borrowing opportunities open to small businesses such as:

Merry-go-rounds: These are informal groups the entrepreneur may belong to.

Advantages of such groups are:

- No securities are necessary.

- It is simple to obtain a loan.

COMMERCIAL BANKS:

Advantages of commercial bank loans are as follows:

- Can lend out large amounts of money.

- Repayment periods can be re-negotiated.

- They also offer non-financial advice on business operations.

DISADVANTAGES:

- The collateral required is higher in value than the borrowed amount.

- High interest rates are charged.

- The amount to be borrowed is restricted to the ability to repay.

- Some costs on the borrowed loan may be hidden.

- Some loan conditions are ambiguous.

TYPES OF BUSINESS RECORDS

Business records are essential for survival of any business. Records are important
for various reasons such as taxation, decision making among others.

The following are some of the basic records that an entrepreneur should use :

THE CASH BOOK.

The cash book is a record in which cash received and paid are recorded. It is
divided into two sides. The left side is used for recording cash received while the
right side is used for recording cash payments.

Format of a cash book

Date Particulars Fo Cash Bank Date Particulars Fo Cash Bank

ii) PURCHASES
JOURNAL.

This is a diary in which all stock bought on credit is recorded on a daily basis. It has
three columns which include the date, detail, and amount.

- The date column records the date when the goods were purchased.

- The details column records the person or organization that sold the goods
on credit.

- The amounts column records the value of goods purchased.

FORMAT OF A PURCHASES JOURNAL

Date Details Amount

ii) Sales journal.

This is a diary in which all goods sold on credit are recorded on a daily basis.

Like a purchase journal it has three columns: the date, details and amount column.
The details column records the names of persons to whom goods were sold on
credit.

Format of a sales journal

Date Details Amount

Recording business transactions in the books of accounts

BOOK KEEPING

This involves recording all the transactions, which can be expressed in money,
arising from the business activities as they occur and entering them in the
appropriate books.

Systems of bookkeeping

There are two systems: the single entry and the double entry. The double entry
is most commonly used in industry and commerce.

THE DOUBLE ENTRY SYSTEM IS BASED ON TWO PRINCIPLES.

1. The principle that every transaction has two parts, therefore two entries are
made in the books of account in respect of each transaction.

- One entry to record the item coming into the business

- One entry to record the item leaving the business

1. The principle that the value of the item(s) coming in is equal to the value of
item(s) going out.

Value coming in =value going out

Thus, a transaction involves an exchange of items and the items exchanged have
the same value i.e. Assets= liabilities and owner’s funds.

DEBITS AND CREDITS

The terms debit and credit are used to describe an increase or decrease in the
categories of the accounting equation (assets, liabilities and capital) and incurred
expenses.

The following are the rules of double entry system

Type of account Debit Credit

 Assets To increase To decrease
Expenses To increase To decrease
Liabilities To decrease To increase
Income To decrease To increase

THE RULES PROVIDE THAT

- Debits are recorded on the left side of the ledger

- Credits are recorded on the right side of the ledger

Preparation and interpretation of financial statements

INTERPRETING FINANCIAL RECORDS

Understanding financial statements is important to an entrepreneur in determining

financial health of his business.

ENTREPRENEURS NEED TO BE ABLE TO:

i) Prepare simple statements.

ii) Interpret and analyse the information contained in the statements

iii) Identify strengths and weakness in the financial conditions of the business
based on the statements

iv) Identify strengths and weakness in the financial conditions of the business based
on the statements

v) Make changes in business operations to improve the financial conditions of

the business.

THE TWO MOST IMPORTANT STATEMENTS AN ENTREPRENEUR REQUIRES

FOR SOUND FINANCIAL DECISIONS :
i) profit and loss account

ii) balance sheet

PROFIT AND LOSS STATEMENT

A profit and loss statement helps to determine whether a business is operating at a

profit or a loss for a given period of time e.g. one year.

THERE ARE FIVE STEPS TO CALCULATING:

i) Determining sales- including sales for credit and cash.

ii) Cost of goods sold- this refers to the price paid by the business for
goods merchandise sold. It can be compared by adding the value of the goods
purchased during the period to the initial stock.

iii) Gross profit- This is determined by subtracting the cost of goods sold
from sales.

iv) Expenses- These include labor cost and other cost of operating the
business.

v) Net profit- This is the amount remaining when the expenses are deducted
from the gross profit.

AN EXAMPLE

KOSKEI’S PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING

31ST DECEMBER 2009-10-15

Purchases 150,000 Sales 200,000

Expenses: Gross profit 50,000

Rates 1,500

Rent 5,000

Wages 5,000

Electricity 3,500
 Water 800

Advertisement 4,500

Transport 6,000
Therefore Koske’s
Total expenses 25,300 net profit of ksh
24,700 is the return
Net profit 24,700 _____ on capital invested
in the business. In
50,000 50,000 order to make his
financial decisions
he has to compare
one year’s profit
with those realised in other years.

If Koske had invested Ksh. 100,000 in the business, he could calculate his profit
turn-over as follows;

Net profit × 100 = 24,700 × 100 = 24.7%

Capital 100,000

This would guide Koskei whether it is profitable to continue with the business or re-
invest elsewhere.

It is also important for koskei to calculate the net profit to gross profit.

ii) BALANCE SHEET

The balance sheet is a financial statement which indicates what the business owns
and what it owes on any day of the business life.

The financial figures on the balance sheet change from day to day because money
is always coming in and going out of the business.

The formula used to prepare a balance sheet is

Assets = liabilities + capital (Net worth)

Assets
These refer to everything a business owns e.g. cash, buildings, equipment, stock.
Assets can be current or fixed.

Liabilities

These refer to anything that the business owes e.g. loans, credit notes, taxes.
Liabilities can be current or long term.

Networth

This is what a business owes after subtracting liabilities. It represents the owners
claim in the business.

IMPORTANCE OF BUDGETING TO A BUSINESS

A budget is a plan that outlines an organizations financial or operational

goal. It is an action plan. It helps a business allocate resources, evaluate
performance, and formulate plans. Understanding the importance of
budgeting is the first step in successful financial planning.

A regularly reviewed budget enables an entrepreneur to compare actual

performance and quickly identify losses and take remedial action.

Budgets are intended to provide a basis for evaluating expenditures that will impact
the business for more than one year.

REVIEW QUESTIONS

i) Carry out a field study to identify different sources of financing a

business stating the benefits and limitations of each source.

ii) Discuss the kind of products offered by financial institutions which are
beneficial to local businesses.

iii) Select a business enterprise within your locality and highlight some
appropriate and inappropriate management practice by the enterprise.

STUDY LINKS

 www.crectirupati.com
 www.biu-edu.com

 learning.uonbi.ac.ke

FINANCIAL PLAN
LECTURE SIXTEEN

OBJECTIVES

Prepare financial statements

Interpret financial statements for business decisions

Explain the importance of budgeting to a business

PREPARATION AND INTERPRETATION OF FINANCIAL STATEMENTS

INTERPRETING FINANCIAL RECORDS

Understanding financial statements is important to an entrepreneur in determining

financial health of his business.

ENTREPRENEURS NEED TO BE ABLE TO:

i) Prepare simple statements.

ii) Interpret and analyse the information contained in the statements

iii) Identify strengths and weakness in the financial conditions of the

business based on the statements

iv) Identify strengths and weakness in the financial conditions of the business
based on the statements

v) Make changes in business operations to improve the financial conditions of

the business.

The two most important statements an entrepreneur requires for sound financial
decisions are :

i) profit and loss account

ii) balance sheet

PROFIT AND LOSS STATEMENT

A profit and loss statement helps to determine whether a business is operating at a

profit or a loss for a given period of time e.g. one year.

There are five steps to calculating the profit and loss statements:
i) Determining sales- including sales for credit and cash.

ii) Cost of goods sold- this refers to the price paid by the business for
goods merchandise sold. It can be compared by adding the value of the goods
purchased during the period to the initial stock.

iii) Gross profit- This is determined by subtracting the cost of goods sold
from sales.

iv) Expenses- These include labor cost and other cost of operating the
business.

v) Net profit- This is the amount remaining when the expenses are deducted
from the gross profit.

AN EXAMPLE

KOSKE’S PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING

31ST DECEMBER 2009-10-15

Purchases 150,000 Sales 200,000

Expenses: Gross profit 50,000

Rates 1,500

Rent 5,000

Wages 5,000

Electricity 3,500

Water 800

Advertisement 4,500

Transport 6,000

Total expenses 25,300

Net profit 24,700 _____

50,000 50,000
Therefore Koske’s net profit of ksh 24,700 is the return on capital invested in the
business. In order to make his financial decisions he has to compare one year’s
profit with those realised in other years.

If Koske had invested Ksh. 100,000 in the business, he could calculate his profit
turn-over as follows;

Net profit × 100 = 24,700 × 100 = 24.7%

Capital 100,000

This would guide Koske whether it is profitable to continue with the business or re-
invest elsewhere.

It is also important for koskei to calculate the net profit to gross profit.

ii) BALANCE SHEET

The balance sheet is a financial statement which indicates what the business owns
and what it owes on any day of the business life.

The financial figures on the balance sheet change from day to day because money
is always coming in and going out of the business.

The formula used to prepare a balance sheet is

Assets = liabilities + capital (Net worth)

ASSETS

These refer to everything a business owns e.g. cash, buildings, equipment, stock.
Assets can be current or fixed.

LIABILITIES

These refer to anything that the business owes e.g. loans, credit notes, taxes.
Liabilities can be current or long term.
NETWORTH

This is what a business owes after subtracting liabilities. It represents the owners
claim in the business.

IMPORTANCE OF BUDGETING TO A BUSINESS

A budget is a plan that outlines an organizations financial or operational

goal. It is an action plan. It helps a business allocate resources, evaluate
performance, and formulate plans. Understanding the importance of
budgeting is the first step in successful financial planning.

A regularly reviewed budget enables an entrepreneur to compare actual

performance and quickly identify losses and take remedial action.

Budgets are intended to provide a basis for evaluating expenditures that will impact
the business for more than one year.

REVIEW QUESTIONS

i) Carry out a field study to identify different sources of financing a

business stating the benefits and limitations of each source.

ii) Discuss the kind of products offered by financial institutions which are
beneficial to local businesses.

iii) Select a business enterprise within your locality and highlight some
appropriate and

inappropriate management practice by the enterprise.

STUDY LINKS

 www.crectirupati.com

 www.biu-edu.com

 learning.uonbi.ac.ke

 LESSON SEVENTEEN
 TOPIC; BUSINESS PLAN WRITING

 OBJECTIVES

 By the end of the lesson, the learner should be able to:
 - clearly write out the cover page of a business plan
 - come up with a proper format on writing an executive summary
 - prepare the business description of the business plan.
 COVER PAGE
 Name of business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Address and telephone:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Name of owner:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Date:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Signature:


...........................................................................................................
...........................................................................................................
..................................................................................................
 EXECUTIVE SUMMARY
 Summarised statement on:
 i) Business description
 ii) Opportunity and entity
 iii) Target market
 iv) Management team
 v) Financial plan
 vi) Critical risks and problems and solutions

 BUSINESS DESCRIPTION
 i) Owner Details


Name:..................................................................................................
...........................................................................................................
................................................................................................


Age:.....................................................................................................
...........................................................................................................
................................................................................................


Address:...............................................................................................
...........................................................................................................
...............................................................................................


Occupation:...........................................................................................
...........................................................................................................
..............................................................................................
 Education/Professional Qualifications:
................................................................................................................
...........................................................................................................
.............................................................................................
 Business Experience:
................................................................................................................
...........................................................................................................
.............................................................................................
 ii) The Business Venture
 Name of business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Location of business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Legal form of business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Major activity of business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Principal customers


...........................................................................................................
...........................................................................................................
..................................................................................................
 Location of customers:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Amount to be invested by owners


...........................................................................................................
...........................................................................................................
..................................................................................................
 Amount to be borrowed:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Total amount needed for the venture:


...........................................................................................................
...........................................................................................................
..................................................................................................
 iii) The Product/Service.
 Name of product/service:
................................................................................................................
...........................................
 Features of product/service:
................................................................................................................
...........................................
 Benefits obtained from product/service:
................................................................................................................
...........................................
 Unique features of product/service:
................................................................................................................
............................................
 iv) Entry Plan
 Competitive advantage of the business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Weakness of competition:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Pricing plan:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Plans to attract customers:


...........................................................................................................
...........................................................................................................
..................................................................................................
 v) Growth plan
 Trends which signal business growth:


...........................................................................................................
...........................................................................................................
..................................................................................................


 Opportunities arising from this trend:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Plans to take advantage of the opportunities:


...........................................................................................................
...........................................................................................................
..................................................................................................
 LESSON EIGHTEEN

 TOPIC; BUSINESS PLAN WRITING
 OBJECTIVES

 - come up with an appropriate marketing plan for a business
 - prepare a proper organizational plan for a business

 MARKETING PLAN

 i) Potential Customers
 Type of customers (individuals, institutions):


...........................................................................................................
...........................................................................................................
..................................................................................................
 Total target market population:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Number of customers who can buy product/ service:


...........................................................................................................
...........................................................................................................
..................................................................................................
 ii) Competition.
 Names of the key competitors:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Location in relation to your business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Size of the competitors:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Comparisons between your product(s) or service(s) and those of the
competitors:


...........................................................................................................
 ...........................................................................................................
..................................................................................................

 Strength and weakness of the competitors:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Plans to capitalize on the weakness of the competitors:


...........................................................................................................
...........................................................................................................
..................................................................................................
 iii) Pricing.
 Methods of calculating the selling price of your product/ service:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Factors which will influence your price setting e.g. competitors prices:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Actual selling price(s) of your product(s) or service(s):


...........................................................................................................
...........................................................................................................
..................................................................................................
 Credit terms to be offered:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Discounts to be allowed:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Any after-sales service(s) and relevant costs:

 ...........................................................................................................
...........................................................................................................
..................................................................................................
 iv) Sales Tactics.
 Method of direct selling or personal selling:


...........................................................................................................
...........................................................................................................
..................................................................................................


 Method of indirect selling:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Method of recruitment and retention of the sale force:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Utilization of distributors or agents:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Ways of selecting and motivating distributors or agents:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Geographical area you intend to serve:


...........................................................................................................
...........................................................................................................
..................................................................................................
 v) Advertising and promotion.
 Media to be used:
................................................................................................................
...........................................................................................................
.............................................................................................
 Product/service image to be portrayed:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Image to be projected regarding business:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Frequency of advertisements:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Cost per advertisement placement:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Measuring effectiveness of the advertisements:


...........................................................................................................
...........................................................................................................
..................................................................................................

 Plans for initial promotional campaign:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Plans for regular promotional methods:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Cost of each promotional event:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Measuring effectiveness of promotional campaigns:
 

...........................................................................................................
...........................................................................................................
..................................................................................................
 vi) Distribution
 Channels to be utilized:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Means of transport you will use:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Transport cost per month:


...........................................................................................................
...........................................................................................................
..................................................................................................
 Anticipated distribution problems:


...........................................................................................................
...........................................................................................................
..................................................................................................


 Overcoming distribution problems:


...........................................................................................................
...........................................................................................................
..................................................................................................
 LESSON NINETEEN
 TOPIC: BUSINESS PLAN WRITING
 OBJECTIVES
 - prepare a proper production plan for a business
 - compile a financial plan for a viable business.

 PRODUCTION PLAN

 i) Production and sales

No Item Total Quantity per Sales per Capacity/Utilisation

 year year



 ii) Machinery/equipment

No Item Unit Price Total Value Maintenance Costs

Total:



 iii) Raw Material Requirement

No Item Quantity Total Annual Requirement

Value Source

Total:






 iv) Utilities / Infrastructure

No Item Annual Total Maintenance

Requirement Annual
Costs
 Total:


 v) Labour

No Particulars No. of Staff Annual Further Training

Wages/Salaries Required
Skilled
Semi-skilled
Unskilled
Owner’s Salary
Total:


 vi) Administrative and Selling Costs

No. Item Quantity Amount



Total:
 Summary of Production Cost

TYPE OF COST MONTHLY COST

Source of materials
Materials required
Transportation
Workers/labour
Overhead expenses
Cost per unit
TOTAL COST

 FINANCIAL PLAN
 i) Pre- operational Costs

ITEM COST
Transport
Market research
Plan properties
Meeting people
Photocopying
Installations
TOTAL COST
 
 ii) Working Capital.

ITEM AMOUNT
Stock of raw materials
Work in progress
Stock if finished goods
Debtors
Cash
TOTAL WORKING CAPITAL





 SUGGESTED LEARNING ACTIVITIES
 i) Carry out a field study to identify different sources of financing a
business stating the
 benefits and limitations of each source.
 ii) Discuss the kind of products offered by financial institutions which
are beneficial to local
 businesses.

BUSINESS PLAN

LESSON TWENTY

TOPIC; REVISION

1.
You have been requested to assist Jamii Bora ltd. to write out its business
plan
covering the next three years. Briefly explain how you would go about
assisting them
and explain the major sections this plan should cover taking care to use
relevant
examples where appropriate.
2. When developing a business plan, explain the key issues to keep in mind in
order
to come up with a winning business plan
3. Describe at least five different target groups to whom a business plan may
be sent
and for each group, what would be the purpose of giving it to them?
4. Highlight five factors to consider when choosing a business location
5. A part from sole proprietorship, explain other various forms of business
ownership
6. Explain various entry and growth strategies of a business
7. Discuss various pricing strategies that a business entity can use
8.

1.