Entrepreneurship and Enterprise development

Chapter Three

Business Planning

3.1 The concept of business planning

A business plan is a comprehensive set of guidelines for a new venture. Small business that
do not have external funding requirements tend not to write formal business plans. The
reasons for this include:
 A lack of understanding of the process or benefits of business planning
 Pressure on ‘doing’ rather than ‘thinking’ or gathering information, in the small
business environment.
 The belief that strategic planning is for larger organization and big business resources
and not necessary for smaller firms who can plan effectively ‘on the back of an
envelop’.

3.2 Feasibility planning

A business plan is also called a Feasibility plan that encompasses the full range of business
planning activities, but it seldom requires the depth of research or detail expected for an
established enterprise.

A Feasibility plan is an outline of potential issues to address and a set of guidelines to help an
entrepreneur make better decisions. This plan would present your basic business idea and all
related operating, marketing, financial and managerial considerations.

The business plan may present a proposal for launching an entirely new business. More
commonly, perhaps it may present a plan for a major expansion of a firm that has already
started operation.

Example: An entrepreneur may open a small local business and see the possibility of
opening additional branches or extending its success in other ways.

3.3 The business plan

Many managers already involved in the small business or those considering it as a possibility,
perceive the business plan, the first and foremost, as a Document that is produced for the
bank manager, investor or venture capital company in order to raise money.

One of the most important steps in establishing any new business is the construction of a
business plan.

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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The well conceived plan thus offers a sound basis for operation a business can be used at
different times, with benefits for several audiences. When a business plan can be used, by
and for whom and why can be clearly constructed in the following table.

Business plans are produced:

1 When  At the start up of a new More detailed planning stage
business
 Business purchase Understanding level of risk

 Ongoing Focus on live, strategic and

tactical planning
 Major decisions The need for major investment
in equipment or funds to open a
new outlet.
2 Who  Managers Involved in small business
planning
 Owners Prospect equity partners

 Lenders Bank manager

3 Why  Assessing the feasibility and Will it work and commercially

viability of the business or viable?
project
 Setting objectives and budgets What is the overall direction
and financial target set by the
plan?
 Calculating how much money What level and type of finance
is needed. is required to make the plan
work?

3.4 Developing a business plan

The format of a business plan

The business plan needs to answer three straightforward questions.

1. Where are we now?

The first step is an analysis if the current situation of the market place, the
competition, the business concept and the people involved.

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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 2. Where do we intend going?
The direction that is intended for the business need to be clear and precise. A
qualitative expression of the objectives and quantifiable targets will clarify and
measure progress towards the intended goals.

3. How do we get there?

Implementation of the plans for marketing and managing the business with detailed
financial analysis.

Outline of a Business plan

The precise format of a business plan depends on the particular business and the intended
audience of the plan. It is not possible to suggest subject headings for a plan which would
have universal application. The outline of a business plan which follows standard practice in
answering the three key questions above are:

I. Analysis of the current situation (Where are we now?)

i. Identity of the business
1 Introduction  Relevant history and background
 Date or proposed date for commencement of
trading / beginning of a plan.
2 Names  Names of the business and trading names
 Name of managers / owners

3 Legal identity  Company / sole trade / partnership /

4 Location
5 Professional advisors
cooperative
 Details of share or capital structure
 Address – registered and operational
 Brief details of premises
 Accountants, solicitors and bank

ii. The key people

1 Existing management
2 Future requirements
 Names of the management team
 Outlines of background experience, skills and
knowledge
 Gaps in skills and experience and how they
will be filled
 Future recruitment intentions

iii. The nature of the business

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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 1 Product(s) or service(s)
2 Market and customers
3 Competition
 Description and applications
 Breakdown of product line as % of sales
 Outline of any intellectual properties –
patents, trademarks, design registrations,
copyrights
 Key suppliers
 After sales service or guarantees and
warrantees offered
 Planned developments of product or service
 Definition of target market
 Trends in market place
 Classification of customers
 Need of customers and influences in their
buying decisions
 Benefits offered by business to target
customers
 Description of competitors
 Strengths and weakness of the major
competitors.

II. Future direction (Where do we intend going?)

i. Strategic influences
1 Opportunities and  Socio – economic trends
threats in the business  Technological trends
environments  Legislation and politics
 Competition
2 Strengths and  in its industry
weaknesses  in the general environment

ii. Strategic direction

1 Objectives  General
 Specific
2 Policies  guidelines and rules
3 Activities  action plan
 timetable of key activities

III. Implementation of aims (How do we get there?)

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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 i. Management of resources
1 Operations  Premises
 Materials
 Equipment
 Insurances
 Management information systems
2 People  Employment practices
 Recruitment
 Retention and motivation
 Payroll and personnel system
 Team management, Training
ii. Marketing plan
1 Competitive edge  Unique selling point of business

2 Marketing objectives  Specific aims for product or service in the

market place

3 Marketing methods  Product  Core and extended

 Product mix
 Product development
 Pricing  Basis
 Margins
 Discount policy
 Promotion  Methods to be used
consistency of image
 Distribution  Channels used
 Direct or intermediaries
4 Research  Confirmation of demand
 Future research planned

iii. Money : Financial analysis

1 Funding requirements
2 Profit and loss
 Start – up capital
 Working capital
 Asset capital
 Timing of funds required
 Security offered
 3 years forecast
 Sales

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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  Variable costs
 Gross profit
 Overheads
 Net profit
3 Cash flow  3 years forecast
 Receipts
 Payments
 Monthly and cumulative cash flow
4 Balance sheet  Use of funds
 Source of funds
5 Sensitivity analysis  Break even point
 “What ifs”
6 Summary  Main assumptions
 Performance ratios

Risk analysis
Seasoned entrepreneurs and investors know that things rarely unfold as planned.
Investors want to understand the risks, and that you have thought about those risks and have a
plan to address them should they occur.

Type of Risk Risk Mitigating Strategy

Product Risk The product won’t work We have a backup product

Market Adoption Risk The customers won’t buy it
Market Size Risk The market is smaller than
we estimated
Competitive Risk The competition may lower
their price to protect market
share
Financing Risk We may not be able to
sufficiently finance the
company
Execution Risk This is the first earlystage
venture for the management
team.
Follow these guidelines when writing your business plan:
We have completed market
research to position the
product
We have identified additional
markets for future growth
We have built in enough
value to command a
premium price
We have developed alternate
financing scenarios to
ensure that we meet the key
milestones
We have supplemented our
team with industry leading
advisors

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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  Print the following information at the top or bottom of every page:
i. date of current version of business plan
ii. the statement “Draft: For discussion purposes only”
iii. the words “Company confidential”
 Write concise and specific sentences and paragraphs.
 Highlight important points using bold or italic type.
 Break up the text with bulleted lists, tables, charts and bulleted lists.
 Add images and colour where appropriate.
 Include sales and marketing literature with the document.
 Insert customer testimonials.
 Provide newspaper and trade journal articles or reviews of your technology
products or services.
 There are many templates available to help you draft your plan.

Note on presentation:

 Though business plans can be long, they should not be an unmanageable length for an
external audience.
 A summary and perhaps a timetable of activities is advisable.
 Where detailed information is necessary it should be given in appendices so that the
main body of the report can be kept as concise and clear as possible.

Complied by:
Dr. Saravanan, Department of Management, Ambo University, Woliso Campus.
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