Professional Documents
Culture Documents
Business Plan and Pre-Feasibility Study
Business Plan and Pre-Feasibility Study
PRE-FEASIBILITY STUDY
Sun Tzu says,
If you know the enemy and know yourself,
you need not fear the result of a hundred
battles. If you know yourself but not the
enemy, for every victory gained you will
also suffer a defeat. If you know neither
the enemy nor yourself, you will succumb
in every battle.
This is the essence of planning.
“Sometimes things left to chance
turn out well. Most people,
however, don’t leave important
things to chance. If you value your
time, effort, and money, you will
plan”.
- Meyer and Allen, 2000, 81
What Is A Business Plan?
A business plan is any plan that
works for a business to look
ahead, allocate resources, focus
on key points, and prepare for
problems and opportunities.
- Tim Berry
Why Make A Business Plan?
• To obtain financing;
• To serve as a living guide to the
business;
and,
• To provide a start-up blueprint.
- Allen and Meyer 2000, 80
Two Dimensions:
Sustainability and Growth
Feasibility
Stages of Enterprise Development
S V Expand or
I E
Diversify
E D N
L E T
F A U
Exit
- R
A G E
S E
C D
S
N Sustaining and Growing (Managing)
Feasibility R E
E The Enterprise
E E C
R Study
A
S L
A T
M I
T I
E N
I O
N E
O N
T N
The BUSINESS PLAN Format
I. Executive Summary
II. Market Aspect
– Service [Product] Offerings
– Target Market
– Demand
– Supply
– Demand-Supply Gap
– Market Share
– Marketing Strategy [Marketing Mix]
– Pricing [Price of Products and Services]
– Place – Channels of Distribution
– Promotion [Promotional Strategy]
– Projected Sales / Revenues [3 Years]
The BUSINESS PLAN Format (continued)
V. Financial Aspect
– Total Project Cost
– Proposed Sources of Funds
– Proposed Collateral
– Projected Financial Statements
– Financial Analysis
VI. Social Benefit / Desirability
Enterprise Flow
A. Business Idea B. Product Ideas
Aspects:
• Market
• Production and Operations
• Organization and Management
• Financial
Feasibility: Market
Threats of Substitutes
Availability of attractively priced substitutes
How satisfactory are the substitutes in terms of quality
Performance and other relevant attributes
Cost of switching
Enriquez 2007, 49
Competitive Grid
http://www.marketingforsuccess.com/marketing-ideas/5marketing-
principles.html
On Pricing Strategies
Costs discussed
OERATIONS
Designing Processing Treating Storing Advising
OUTPUTS
Products Services
Examples: Examples:
Clothing Dry cleaning
Baked Goods Appliance Repair
Paint Automobile Painting
W1 W2 W3 W4 W1 W2 W3 W4
T1
T2
T3
Progress
PERT-CPM: Performance Evaluation Review Technique –
Critical Path Method ( Network Path Analysis)
()
()
() ()
Start
Key: Completion of
Activity
()
()
Critical Path
() Time
Work-Flow Process Symbols
Operation
Transport
Inspection
Storage
Position: Code:
Job Description:
Job Specifications:
Source:
Some Guidelines To Help You Find A Good Location:
• Know the population of the trading area. Is the neighborhood starting to
be run down? Is the population moving away? Or is it new and on the way
up? Determine the purchasing power of the population. Do they own cars?
Big, affluent homes?
• Study the competition - How many stores look prosperous in the area?
How many look as though they are barely getting by? How many similar
stores went out of business in this area last year? How many new stores
opened last year? What price line does competition carry? Pinpoint which
stores will be your greatest competitors. If you intend to put up a variety
store, you may find it profitable to locate your store adjacent to that of your
competitors’ because the combined appeal of two or more similar stores
creates greater customer traffic.
• Study the location's accessibility – See if the location is accessible to your
customers, employees and of course, to you. Ask yourself the following
questions: How close is the store to jeepney and bus, and other transport
facilities? Are there adequate parking spaces near the store? Are the
sidewalks in good repair? Is the street lighting good? (DTI)
Specific Considerations for Site Selection
Retail business:
• If you start a retail business, you will be selling
directly to consumers. Therefore, you will need
to be accessible to your target market. You will
need to determine your trade area, the region or
section of the community from which you can
expect to draw your customers (Meyer and Allen
2000, 143).
Specific Considerations for Site Selection
Availability of moderately-
priced utilities (power, water,
fuel)
Combined cost of transporting
raw materials and fuel to the
plant site
The proximity to distributing
outlets
Operations/Production
Raw Materials needed listed and described
Machinery and equipment discussed
Facilities discussed
Location criteria established
Labor requirements and source discussed
Start-up
Permits Employees’
Licenses Equal Employment
Contracts New Opportunity
Business Hours and
Compensation
Health and safety
Location Taxes
Zoning Laws Sales Tax
Building Codes Payroll Taxes
Leases VAT
Contracts for Real
Estate Purchase
Characteristics of Business Forms
Sole Proprietorship
• A business owned and managed by one
person;
• Proprietor means owner: therefore,
proprietorship means owned by one
person;
• From the legal point of view – the sole
proprietor is subject to unlimited liability
from the debts of the business.
Characteristics of Business Forms
Partnership
• The term “partners” implies two or more people;
• Partners jointly provide capital required, share in the
management of the business concern, and share in the
profits and losses;
• The partners are subject, jointly to unlimited liability for
the debts of the business. This means that a partner with
many personal assets could lose all her private property
if other partners have few possessions or personal
assets to be seized by the court.
Characteristics of Business Forms
Corporation
• A corporation is a legal entity with power to sue or be sued in its
own name;
• It has its own finances or capital;
• It acts through human agents who sign documents, etc.;
• It is often called an “artificial person”;
• It is owned by persons called shareholders;
• Shareholders elect directors on the basis of one vote for each share
owned;
• A person with more shares can have more control of the company;
• Directors appoint managers who are usually not owners;
• The liability of each shareholder for the debts of the company is
limited to the share capital invested in the company.
Characteristics of Business Forms
Cooperative
• Regulated by the Cooperative
Development Authority;
• Primary objective of the cooperative is to
provide maximum benefits to each
member (at least 15 members);
• Has limited liability feature .
(Gaston, 2007, 71)
Registering the Business
• Corporations and Partnerships: Securities
and Exchange Commission (SEC)
• Sole Proprietorship: Department of Trade
and Industry
• Cooperative: Cooperative Development
Authority (CDA)
-Gaston 2007, 76-78
Working Management Plan
Meyer and Allen:
“You’ll need an effective management plan
to keep your daily business focused and
your long-term goals attainable (2000,
245)".
Policies to Consider:
• Day to Day Operational Policies
• Hiring Policies
• Personnel Policies
• Policies are general statements of intent about
how to run your business. They simplify day-to-
day management so you don’t have to make the
same decisions over and over again.
• Procedures are steps and sequences.
• Rules tell employees exactly what they should
or should not do (no room for interpretation)
- Meyer and Allen 2000, 283
Human Resource Requirements
The Management Team
Position: Code:
Job Description:
Job Specifications:
Source:
Creating the Organizational Chart
Position
Fixed Expenses
= B – E Point
Weighted Average-
Unit Contribution Sales Mix is used for computing a
Margin weighted average-unit contribution
margin
Note:
Avoid the following common mistakes when preparing
your Income Statement and Cash Flow Statement:
• Projecting overly optimistic sales growth - most
businesses grow gradually
• Ignoring seasonality - is your business busiest during
summer or rainy season?
• Underestimating increases in expenses or cash outflows
that come with an increase in sales
• Assuming that collections will always be made in 30-60
days
In Summary…
Project Costs and Financial Strategies
Cash flows
Income statements
Balance sheets
Payback period
Return on Investment
Break-even point
Aspects:
• Market
• Production and Operations
• Organization and Management
• Financial
Stages of Enterprise Development
S V Expand or
I E
Diversify
E D N
L E T
F A U
Exit
- R
A G E
S E
C D
S
N Sustaining and Growing (Managing)
Feasibility R E
E The Enterprise
E E C
R Study
A
S L
A T
M I
T I
E N
I O
N E
O N
T N
Managing the Enterprise
Managing the Market
Product
• If you have a good product, getting the other three Ps right will be
that much easier. The ‘product’ includes both the actual physical
product as well as product decisions such as function, appearance,
packaging, labeling, and warranty. The word ‘product’ also
encompasses any services you may provide. The service you
provide is your product.
Price
• If your price is too high, not enough people will be able to afford it. If
your price is too low, you will not make any profit. On the other
hand, if your price is too low, many will not buy it because they may
see it as an inferior good. To best manage these forces and
optimize your net profits, you will have to test many different prices
of your product(s).
Managing the Market
Place
• Place is essential to building sales. Place essentially
rests on positioning—the positioning of your marketing
message and the positioning of your product.
• In both retail stores and online, how to properly position
your product is a very important skill. Without proper
positioning, no one will know you exist. If you are hidden
in the back corner of a store on the bottom shelf and
your web site is number 3425 in the search engines for
your targeted keywords, you likely will not make many
sales, no matter how good your product is.
Managing the Market
• The positioning of your product is also known as
your distribution strategy. A distribution
strategy is developed by determining where on
the value chain you want your business to be
positioned, and who the buyer will be. You may
sell your product to a retail store who then
resells it to the buyer, a manufacturer who sells
exclusively to jobbers and regional
representatives, or directly to your end
consumers. We’ll talk more about distribution
models and strategies later in this section.
Managing the Market
Promotion
Promotion is an essential part of the
marketing process. Promotion decisions
include those related to communicating
your message, advertising, and public
relations.
Sample Marketing Budget Worksheet
January February… …December Total for 200_
Brochures
Media Advertising
Broadsheets
Magazines
Radio
TV
Others
Tradeshows
Direct mail
Promotional Items
Others
Total Cost
Pricing the Products
Product # 2
Product # 3
Total Sales
Product # 2
Product # 3
Total Cost
Bases for sales forecast:
• Pricing policy
• Economic outlook and conditions within
your industry
• The company’s position in the company
Managing Your Operations
• Review Policies
• Training and Development
• Motivating Employees
• Succession Planning
(Creation of Replacement charts)
Managing Purchasing and
Inventory
“At the start, you will be handling only a
small amount of goods but as you grow,
you inevitably increase quantities. You will
need to keep supply and demand, quality
and profitability in mind (Allen and Meyer
2000, 254)”.
Minimum and Maximum Rated Capacity
12
= Inventory Cost
Average Stock Turnover Rate
Inventory Systems
• Perpetual
• Partial Inventory Systems
• Just-in-Time Inventory Systems
Managing Finances
“Understanding your financial documents
will help you keep control of your
company’s financial situation.”
(Meyer and Allen 2000, 338)
“If you have been in business
for over two years and have
been operating profitably, you
would have a good chance of
getting loan from the bank
when you need it.”
(Henry Ong 2007, 20)
What bankers look for:
• Character: credibility and the value of a
good management team;
• Capacity: the ability to pay in view of its
income and obligations (sufficient cash
flow);
• Capital: stable capital structure;
• Collateral: things of value they can claim if
a business could no longer pay its loan.
-Meyer and Allen
• If you are creating a business plan for an
ongoing business, include financial
statements from previous years.
• It's important to be realistic in your
financial projections and be skeptical of
overly optimistic projections. You may
even want to include best, worst and most
likely case scenarios. (RBC)
“Understanding your financial
documents will help you keep
control of your company’s
financial situation.”
- Meyer and Allen 2000, 338
Gross revenues
less returns
Advertising expenses
Expenses
Supplies incurred when
Depreciation running the
business
Rent
Telephone
= Net Profit The BASIS for
computing your income
tax
The Income Statement
BALANCE SHEET
ASSETS LIABILITIES
Current Assets: Current Liabilities:
Cash Accounts Receivable Accounts Payable
Inventory Salaries Payable
Prepaid Expenses Accrued Expenses
Total Current Assets: _______ Total Current Liabilities:______
Fixed Assets: Long-term Liabilities:
Land Mortgage Payable on
Equipment
Building
Less: Accumulated
Depreciation OWNER’S EQUITY (O.E.)
Current Assets
= Current Ratio
Current Liabilities
- Current Liabilities
Working Capital
% of total amount provided by
creditors. Owners prefer a higher
debt ratio with others financing the
business.
Total Liabilities
= Debt Ratio
Total Assets
The profit gained for every Peso
of Sales after expenses and
income taxes.
Expense
= Operating Ratio
Sales
Shows whether a company is
liquid without having to depend
on inventory.
= Quick Ratio
Current Liabilities
Represents the Amount of
Money earned for every peso
invested by the owner
Net Income
= Return on Equity
Total O. E.
Payback Period
Investment
= Payback Period
Cash Flow
http://www.odellion.com/pages/online
%20community/Payback/financialmodels_payback_definition.htm
Keeping Records
Daily Record Keeping
Journals
– Cash Receipts Journal
– Cash Disbursements Journal
– Sales Journal
– Purchases Journal
Summary of Sales and Cash Receipts
Keeping Records
With this…