CHAPTER 4

DEVELOPING BUSINESS PLAN

WHAT IS A BUSINESS PLAN?

 One of the most important steps in
setting up any new business is to develop a
business plan.
A business plan is a written document
that sets out the basic idea underlying a
business and related start-up
considerations.
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 The business plan is also the “blue print” for

creating a new venture for the entrepreneur
activity, in essence, it is a bridge between an
idea and reality.
 without first mentally visualizing the
desired end result, the entrepreneur is not
likely to see the venture become reality.
 writing a business plan should be thought of
as ongoing process and as the means to an end
product.
 CONT…

For the entrepreneur starting a new venture, a

business plan has four basic benefits:
• It identifies the nature and context of the
business opportunity
• It presents the approach the entrepreneur
plans to take to exploit the opportunity.
• It identifies the factors that will most likely
determine the success of the venture,
• It also serves as tool to raise financial sources .
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A business plan should;

 explain your basic idea of the venture,
 Describe where you are now,
 Indicate where you want to go, and
 Outline how you propose to get there.
Above all, a business plan should explain the key
variables of success or failure, thereby helping
you prepare for both the good and the bad.
 SCOPE AND VALUE OF THE BUSINESS PLAN

- The depth and detail of the business plan

depends on the size and scope of the proposed
type of new venture.
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The planning process forces the entrepreneur to bring

objectively to the idea and answer on such questions
as:
Does the idea make sense?
Will it work?
Who is my customer?
Does it satisfy customer needs and wants?
What kind of protection can I get against imitation by
competitors?
Can I manage such a business?
Whom will I compete with? And so on.
 USERS OF A BUSINESS PLAN

The users of a business plan will vary based on its

function.
The business plan has two major functions,
First, it provides a clearly articulated statement
of goals and strategies for the entrepreneur and
those called as internal users.
Second, it serves as a selling document to be
shared with outsiders such as investors,
government officials and interested parties.
 STAKEHOLDERS OF A BUSINESS PLAN

Insiders
 Firm’s management/entrepreneurs
 Employees
Outsiders
 Customers
 Suppliers
 Investors
 Bankers
 Government
 INFORMATION NEEDS OF AN ENTREPRENEUR

Information an entrepreneur needs while he/she

is developing a business plan.
Before consuming time and energy in
preparing a business plan, the entrepreneur
should do a quick feasibility study of marketing,
finance, and production /operations.
Before beginning the feasibility study, the
entrepreneur should clearly define the goals and
objectives to be done.
 CONT…

 Market Information Needs

the market potential for the product/service.
information on competition, margins for distribution,
market trends, growth potentials and important
marketing mixes.
The entrepreneur should consider trade associations,
government reports, and other published studies.
Operation Information Needs
Manufacturing operations: Information with regard
to basic machines and assembly operations needed
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Raw material: quantity of raw materials

needed and supplier’s names, addresses, and
costs should be determined.
Space and Area: space and area needed should
be determined, including whether the space and
the area will be owned, leased.
Over heads: such as tools, supplies, utilities,
salaries and so on, should be clearly determined.
Each item may require some research.
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Financial Information Needs

Expected sales and expense for at least
the first three years
Cash flow figures for the first three
years; and
forecasted balance sheets for the first
three years.
PREPARATION OF BUSINESS PLAN AND ITS
MAJOR PARTS
Format and organization of a business
plan
 There are a number of points that require special attention, as

discussed below.
The cover
Your cover should bear the words "Business Plan" and should
include:
 The legal name of the business

 The entity's logo. motto

 The date of preparation

 The address;

 The telephone number;

 The fax number;

 The e-mail address and website (Internet address) if applicable;

 Other contact information, if any.

Table of contents.
 Your table of contents provides readers with a quick

and easy way to find individual sections in the plan.

 Be sure to list headings for major sections as well as

for important subsections.

 If your table of contents is more than one page long,

reconsider the length of the entries

Paper. Print the plan on good-quality paper.
Print on one side of the paper only.
 Contact person.
identifying information for the business and to
name the person who should be contacted
regarding the plan. 
Fonts. Use a typeface that is easy to read and a
font size that is large enough to prevent eye
strain..
Margins.
Terms and acronyms.
Page numbers.
be sure that these numbers are correct in the
table of contents. 
Size of document. Keep the plan short and
concise.
 Executive summary
The executive summary is probably the most significant

part of the entire business plan.

It is what most readers will read first.
 Lenders or investors in particular read executive

summaries before looking at the rest of a plan

This section of the business plan is prepared after the total

plan is written.
highlight concisely and convincingly the key points in the

business plan
 Description of the Venture:
Brief explanation aboutProduct(s) or service(s),
The location and size of the business,
The personnel and office equipment that will be
needed, The background of the entrepreneur(s),
and the history of the venture.(reasons for going
to business)
Industry Analysis:
Future trends and historical achievements,
Competitive analysis, with appropriate strengths
and weaknesses of each major competitor
Who is the customer? SWOT, PEST
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Production Plan:
the physical plant lay out;
the machinery and equipment needed to perform the
manufacturing operations;
raw materials and suppliers’ names, addresses, and terms;
costs of manufacturing;
If the venture is not a manufacturing operation but a
retail store or service, this section would be titled
“merchandising plan” and purchase of merchandise,
inventory control system, and storage needs
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Marketing Plan:
how the product(s) or service(s) will be priced, promoted
and distributed. Target customers
Specific forecasts for product(s) or service(s) are indicated
in order to project profitability of the venture.
The budget and appropriate controls needed for marketing
strategy
 Mkt plan
A. Introductory remarks 
The aim of this section is to convince investors and
lenders that:
 You have a comprehensive understanding of the market.
 There is a demand for your product or service.
 Your company is sufficiently competitive to get a good

share of this market.

@ 2018 FTTI, By Gebrekiros and

Teklemariam 06/11/2021
B. Market characteristics
 Market characteristics. This should be a

description of your target market, using

lifestyle, sex, age, occupation, geography,
income other characteristics to describe the
consumers or company clients likely to buy
your product or service.

@ 2018 FTTI, By Gebrekiros and

Teklemariam 06/11/2021
 Market size. summarize current size of your
target market and its growth potential in the
short, medium and long term.
 Support any growth estimates with factors such as

industry trends, new technological developments,

socio-economic trends, government policy,
population shifts and changing customer needs.
 Clearly state the sources and assumptions used

and try to be realistic in the estimates.

 Do not overstate either the size of the market or

the potential share you expect to get, otherwise the

credibility of the entire business plan will be in
question
@ 2018 FTTI, By Gebrekiros and
Teklemariam 06/11/2021
C. Clients
 outline the existing and identified target client groups

Particular issues to be covered are:

 Who they are?
 Where are they located?
 Why do they buy?
 When and under what circumstances do they buy?
 What types of concerns do they have?
  What are their expectations concerning price, quality

and service (are they primarily cost- or quality-

sensitive)?
  

@ 2018 FTTI, By Gebrekiros and

Teklemariam 06/11/2021
D. Competition
   indicates where your products or services fit in

the competitive environment of the market.

 shows that you understand your industry and are

prepared to cope with some of the challenges to

your company's success.
In this section, you should provide the following:
 Description of competitors. A description of the

main competitors, naming the companies and their

trade marks, their size and locations, their annual
sales and their market share, and how their
products/services compare with yours in price,
quality and other respects.
@ 2018 FTTI, By Gebrekiros and
Teklemariam 06/11/2021
 Relative strengths and weaknesses.
 Where possible, assess the strengths and weaknesses

of the competition in areas such as management,

image, marketing, distribution networks, technology,
production capability, financial resources and
cost/price advantages.
 If you think that there are competitors a share of whose
business you can capture, explain why you can do it better and
how you will do it.
 Describe also how your competitors could possibly react to

your strategy.

@ 2018 FTTI, By Gebrekiros and

Teklemariam 06/11/2021
 Organizational Plan:
the venture’s form of ownership-that is,
proprietorship, partnership, or corporation.
an organization chart indicating the line of authority
and the responsibilities

 Company structure
o Organizational charts.
o responsibilities and lines of reporting of middle and
higher management

@ 2018 FTTI, By Gebrekiros and

Teklemariam 06/11/2021
@ 2018 FTTI, By Gebrekiros and
Teklemariam 06/11/2021
 CONT…

Assessment of Risk:
Major risks for a new venture could result from
a competitor’s reaction;
weaknesses in the marketing or production and
new advances in technology that might render the new
product obsolete.
prepare effective strategy to deal with them.
Financial Plan: ..\Doc1.docx
Expected sales and expense for at least the first three years
Cash flow figures for the first three years; and
forecasted balance sheets for the first three years.
 THE BALANCE SHEET

The balance sheet is which indicates what you own and what you
owe on any given day in the life of a business
Assets:
These include everything a business owns, such as cash, equipment,
buildings and inventory.
Current assets include cash and anything that can be converted into
cash within twelve months. Current assets include cash, bank accounts,
accounts receivable (what people owe you), and inventory
Fixed assets include land, buildings, machinery, equipment, and
vehicles.
Liabilities:
These include anything that the business owes.
Liabilities might include loans, credit notes, taxes and mortgages.
.
 NET WORTH:

This is what is actually owned by the business after

subtracting liabilities.
It represents the initial investment of the owners and
retained earnings.
..\balance sheet.docx
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Appendix :
any backup material that is not necessary in the text
of the document.
Letter from customers, distributors, or
subcontractors are examples