Developing an Effective

Business Plan

SUNDAY O.J.
 Looking Ahead
After today’s class, you should be able to:
1. Answer the question “What is a business plan?”
2. Explain the need for a business plan from the
perspectives of the entrepreneur, the investor, and the
lenders.
3. Describe what determines how much planning an
entrepreneur and a management team are likely to do.
4. List practical suggestions to follow in writing a business
plan and outline the key sections of a business plan.
5. Identify available sources of assistance in preparing a
business plan.
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 What Is a Business Plan?
• Business Plan is:

 A document that sets out the basic idea underlying a

business and related start-up considerations. It
• Identifies the nature and context of the business
opportunity;
• Presents the entrepreneur’s approach to exploiting the
opportunity;
• Identifies factors affecting the venture’s success; and
• Serves as the entrepreneur’s tool for raising capital

Writing a business plan is an ongoing process, not just the means

to an end product or outcome

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 The Need for a Business Plan
• Primary Functions:

 To provide a clearly articulated statement of goals and

strategies for internal use.
 Imposes discipline on the entrepreneur and management
team.
 To serve as a selling document to be shared with outsiders.
 Provides a credible overview for prospective customers,
suppliers, and investors.
 Helps secure favourable credit terms from suppliers.
 Opens approaches to lenders and other sources of financing.

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 Users of Business Plans

Exhibit

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 Common Business Plan Flaws
• Overly optimistic financial projections,
inadequate competitive analysis and/or weak
environmental assessments.

• Vague marketing strategies

• Lack of research

• Unprofessional presentation

• Hazy timelines, vague risk assessment

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 The Investor’s Perspective
• Plans that speak the investors’ language:

 Are concise, not extremely long in written length.

 Have an attractive overall appearance.
 Are well-organized with a table of
contents and numbered pages.
 Are market-oriented in meeting
customer needs; are not
product-oriented.
 Show evidence of customer
acceptance of the proposed
product or service.

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 Features of Plans that will Repel
Investors
• Plans that create unfavourable reactions:
 Show an infatuation with the product or service and
downplay market needs or acceptance.
 Are based on financial projections at odds with
accepted industry norms.
 Have unrealistic growth projections.
 Contain a need for custom or
applications engineering,
which makes substantial
growth difficult.

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 Business Plans that Attract
Investors
•Recognize the investors’ needs for required
rates of return on investments.
•Demonstrate evidence of focus on a limited
number of products or services
•Have a proprietary market position
through patents, copyrights,
and trademarks

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 The Lender’s Perspective
• Bankers assess business plans on the
following 5 Cs of Credit:

Collateral assets to put toward credit

Capacity strength of cash flow
Capital personal investment in business
Conditions industry risk and conditions
Character competence and credit history

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 Influencing Factors of a Business
Plan
• Factors affecting the extent of a business
plan:
 Cost in time and money to prepare the plan
 Preferences of the management team
 Complexity of the business
 Competitive environment
 Level of uncertainty

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 Preparing a Business Plan
• Two issues critical in preparing a business
plan:
 The basic format and effectiveness of the
written presentation.
• Clear writing that presents the concept in an accurate,
comprehensible and enthusiastic way
 The content of the plan.
• Factual support for the concept
in the form of strong supporting
evidence

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 Deciding on the Content of a
Business Plan
• The People
Those involved in starting and running the venture
• The Opportunity
The business’ profile—products, customers, expected
growth, profitability, and anticipated challenges and
problems
• The Context
The big picture—the firm’s competitive environment
• Risk and Reward
Assessment of potential problems and responses

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 Business Plan Overview
• Business plans must help investors understand
and gain confidence on how you will meet your
customers’ needs.
• Seven common parts of a good Business Plan
are:
1. Executive Summary
2. Business Concept
3. Market Analysis
4. Management Team
5. Marketing Plan
6. Financial Plan
7. Operations and Management Plan
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 Executive Summary
• The Executive Summary of a Business Plan is a 3-5 page
introduction to your Business Plan.
• The Executive Summary is critical, because many individuals
(including venture capitalists) only read the summary.
• The Executive Summary section includes:
– A first paragraph that introduces your business.
• Your business name and location.
• A brief explanation of customer needs and your products or services.
• The ways that the product or service meets or exceeds the customer
needs.
• An introduction of the team that will execute the Business Plan.
– Subsequent paragraphs that provide key details about your
business, including projected sales and profits, unit sales,
profitability, and keys to success.
– Visuals that help the reader see important information, including
highlight charts, market share projections, and customer demand
charts.

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 The Business Concept
• The business concept shows evidence that a product or
service is viable and capable of fulfilling an
organisation's particular needs.
• The Business Concept section:
– Articulates the vision of the company, how you plan
to meet the unique needs of your customer, and how
you plan to make money doing that.
– Discusses feasibility studies that you have conducted
for your products.
– Discusses diagnostics sessions you had with
prospective customers for your services.
– Captures and highlights the value proposition in your
product or service offerings.
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 Market Analysis
• A Market Analysis defines the target market so that you
can position your business to get its share of sales.

• A Market Analysis section:

– Defines your market.
– Segments your customers.
– Projects your market share.
– Positions your products and services.
– Discusses pricing and promotions.
– Identifies communication, sales, and distribution
channels.

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 The Management Team
The Management Team section outlines:

– Organizational Structure: Highlights the hierarchy and outlines

responsibilities and decision-making powers.
– Management Team: Highlights the track record of the company’s
managers. You may also offer details about key employees including
qualifications, experiences, or outstanding skills, which could add a
competitive edge to the image of the business.
– Working Structure: Highlights how your management team will operate
within your defined organizational structure.
– Expertise: Highlights the business expertise of your management and
senior team. You may also include special knowledge of budget control,
personnel management, public relations, and strategic planning.
– Skills Gap: Highlights plans to improve your company’s overall skills or
expertise. In this section, you should discuss opportunities and plans to
acquire new information and knowledge that will add value.
– Personnel Plan: Highlights current and future staffing requirements and
related costs.
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 The Marketing Plan
 The Marketing Plan section details what you propose to
accomplish, and is critical in obtaining funding to pursue
new initiatives.
 The Marketing Plan section:
– Explains (from an internal perspective) the impacts and
results of past marketing decisions.
– Explains the external market in which the business is
competing.
– Sets goals to direct future marketing efforts.
– Sets clear, realistic, and measurable targets.
– Includes deadlines for meeting those targets.
– Provides a budget for all marketing activities.
– Specifies accountability and measures for all activities.
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 The Financial Plan (Slide 1 of 2)
• The Financial Plan translates your company's goals into specific
financial targets.

• The Financial Plan section:

– Clearly defines what a successful outcome entails. The plan isn't

merely a prediction; it implies a commitment to making the targeted
results happen and establishes milestones for gauging progress.

– Provides you with a vital feedback-and-control tool. Variances from

projections provide early warnings of problems. When variances occur,
the plan can provide a framework for determining the financial impact
and the effects of various corrective actions.

– Anticipate problems. If rapid growth creates a cash shortage due to

investment in receivables and inventory, the forecast should show this.
If next year's projections depend on certain milestones this year, the
assumptions should spell this out.

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 Financial Plan (Slide 2 of 2)

• The Financial Plan is the most essential part of your

Business Plan. It shows investors the timeframes you
have scheduled to make profits.
• Some elements of the Financial Plan include:
– Important Assumptions
– Key Financial Indicators
– Break-even Analysis
– Projected Profit and Loss
– Projected Cash Flow
– Projected Balance Sheet
– Business Ratios
– Long-term Plan

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 Different Financial Planning
Options (Slide 1 of 2)
 Short-term Forecast: Projects either the current year or a rolling 12-
month period by month. This type of forecast should be updated at least
monthly and become the main planning and monitoring vehicle.

 Budget: Translates goals into detailed actions and interim targets. A
budget should provide details, such as specific staffing plans and line-
item expenditures.

– The size of a company may determine whether the same

model used to prepare the 12-month forecast can be
appropriate for budgeting.

– In any case, unlike the 12-month forecast, a budget

should generally be frozen at the time they are approved.

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Different Financial Planning Options
(Slide 2 of 2)

 Strategic Forecast: Incorporates the strategic goals of the

company into the projections. For startup companies, the
initial Business Plan should include a month-by-month
projection for the first year, followed by annual
projections for a minimum of three years.

 Cash Forecast: Breaks down the budget and 12-month

forecast into more detail. The focus of these forecasts is
on cash flow, rather than accounting profit, and periods
may be as short as a week in order to capture
fluctuations.

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 Operations and Management
• The Operations and Management section outlines how your
company will operate.
• The Operations and Management section includes:
– Organizational structure of the company. Provides a
basis for projected operating expenses and financial
statements. Because these statements are heavily
scrutinized by investors, the organizational structure has
to be well-defined and realistic within the parameters of
the business.
– Expense and capital requirements to support the
organizational structure. Provides a basis to identify
personnel expenses, overhead expenses, and costs of
products/services sold. These expenses/costs can then
be matched with capital requirements.
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 Resources for Business
Plan Preparation
• Computer-Aided Business Planning
 Word-processing
 Spreadsheets
• Specialized Business Plan Software Packages (BizPlan)
• Professional Assistance
 Lawyers
 Marketing specialists
 Engineering and production experts
 Accounting firms
 Incubator organizations
 Small business development agencies

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 A Business Plan Checklist
• Executive Summary
• Marketing Section
• Operations Section
• The Management Team
• The Financial Section
• Appendixes

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 Research to Support the Plan
• Both primary and secondary research must be carried out
by the writer of the business plan.

• Secondary Research
– secondary published sources
– books, published reports, newspaper, journal articles,
statistics databases, and Internet sites
• Primary Research
– derived directly from people
– experts in the field, professionals such as lawyers and
accountants, industry contacts such as trade association
representatives or suppliers and potential customers

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 Key Takeaways
• Business Plans are critical for the success of a company.
• Different businesses will require different types of Business Plans.
• All Business Plans have some essential sections that explain the core
aspects of the company.
• In order to help your company have a better chance of gaining interest
and investors, a Business Plan should include seven essential sections:
1. Executive Summary
2. Business Concept
3. Market Analysis
4. Management Team
5. Marketing Plan
6. Financial Plan
7. Operations and Management Plan

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 Enterprise Resource Planning

• What are the resources of an enterprise?

• How do we plan for these resources?
• What is the nature of environment within
which these resources are obtained?
• How are these resources transformed to
the desired output (product or service)?
• What are the basis for Enterprise Resource
and Production Process Planning?
 Enterprise Resource Planning

• Every enterprise operates with a

combination of resources. These
resources could be successfully
categorized into four (4) major types:
• (1) Financial Resources
• (2) Human Resources
• (3) Technological Resources
• (4) Others such as raw materials, etc.
Model of Enterprise Resource Analysis
 Enterprise Resource Planning
• Each of the categories of the enterprise’s
resources are peculiar in their own ways.
• However non of these resources can operate
without the other.
• This therefore explains why there is a connection
between each of the resources as depicted in the
model above.
• The financial resources, capital, cash, credits,
loans, etc are on their own of no value. The value
attached to them is as a result of the other
resources that they give the enterprise the
capacity to acquire for the accomplishment of the
purpose of the establishment of the enterprise.
 Enterprise Resource Planning

• Each of the categories of the enterprise resources

should be analyzed and appraised on the basis of the
following:
• (a) Sources; What are the sources of finance,
manpower, technology, raw materials, etc.?
• (b) Availability; How easy can the enterprise obtain
the various required resources?
• (c) Uses or Usefulness; What are the uses of these
resources, and
• (d) Relevance; How relevant are these resources to
the accomplishment of the enterprise’s mission?
 Enterprise Resource Planning

• The resources identified above requires

planning to achieve the purpose of the
enterprise.
• Planning is a formal process of setting
objectives and determining the means of
achieving them.
• It involves decisions, in advance, with regard
to:
• (1) What to do? (What to produce?)
• (2) Who to do it? (Resources to be used)
• (3) When to do it? (When to produce?)
• (4) How to do it? (What technique to use?)
 Enterprise Resource Planning
• The process of planning involves the specific commitment of
the organization’s resources to specific course of action.
• This process is carried out at the three level of management
(top, middle and low).
• Strategic Planning takes place at the top level of management
stipulating the long run relationship between the organization
and the environment
• Management Planning otherwise known as functional
planning involves decisions on how organizational resources
could be acquired and used to accomplish the strategic goals
• Operational Planning or Tactical Planning involves defining
rules and standard for performance at each routine level of
operation
 Enterprise Resource Planning

• The objectives of enterprise resource planning

could be summarily presented in relation to
the operations and products of the enterprise.
• From the operations perspective, enterprise
resource planning’s targets are:
• (1) Cost Efficiency
• (2) Technology Effectiveness
• (3) Product Quality
• (4) Customer Satisfaction
 Enterprise Resource Planning

• To achieve these targets, the operations process

and strategies become significant. It is therefore
important that the ability of any organization to
adequately combine the enterprise resources
(inputs) into the desired output or result is tied to
how effective and efficient the strategy of
operating the organization is.
• In other words, the variability of production, the
cost effectiveness, cost efficiency methods or
techniques, product quality are all factors derived
from the organization’s ability to adopt
acceptable operations strategy that improves
productivity.
Model of Operations Management
 Enterprise Resource Planning

• Enterprise Resource Planning is not only targeted

at achieving the above results through the
efficient and effective combination of these
resources, but also involves the understanding of
the organization’s strengths and weaknesses,
building competitive advantage to achieve
sustainable profitable.
• Enterprise Resource Planning must be concerned
with the purpose and use of the resources which
the organization takes from the environment,
adds value to and deliver back to the same
environment as its product.
Model of Product Analysis
 Production Process Planning
• As we have seen thus far, the essence of an
enterprise resources is to enable the enterprise
take these resources (mainly inputs) through a
process of transformation to produce the
required outputs. The production process is
therefore that transformation process used in
achieving this objective.
• The production process therefore requires as
much planning as the gathering of the enterprise
resources. This is because the ability of the
enterprise to make efficient and effective use of
the resources gathered is demonstrated through
the quantity and quality of the products of the
enterprise.
 Production Process Planning
• The production process is the operations function
of the organization. It is also at the core of the
activities of the organization, i.e. central to the
existence of the enterprise.
• It consists of all activities directly related to
producing the goods or services (as the case may
be) of the organization.
• The main essence of the operations function is to
add value during the transformation process.
• Basically, value added is the difference between
the cost of inputs used and the value or price of
outputs
Model of Production/Operations Process
 Enterprise Resource and Production Process Planning

• Ultimately, the process of production should be

such that will:

• (1) Optimize the Utilization of Resources

• (2) Maximize the Production Capacity
• (3) Optimize the Product Quality
• (4) Maximize Organizational Profits
• (5) Maximize Shareholder’s Returns

Anything short of the above is unacceptable

 ASSIGNMENT II
• Having considered the nature of your proposed
business, the management team and target
customers, you are now to:
 Conduct a competitive analysis of the industry
you will operate;
 The strategies you will adopt;
 Pricing policies and strategies that will work,
and
 Align the above with your business model.

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 ASSIGNMENT II
• Carry out a financial projection for three years
for the business in question considering the
Proforma;
 Cash flow;
 Income statement
 Balance sheet
 Break even point

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 CLASS ASSESSMENT
• As part of your learning programme you are likely to
have considered several options for starting a micro
business and have to use sources of advice and guidance
to help you decide on and develop your idea. Select the
most appropriate idea and write a section of your
business plan headed:
1. A description of the product or service you would offer
2. A description of the group of customers to whom you
plan to sell your product or service
3. How the product or service would meet the needs of the
group of customers
4. A vision of what your business could look like at some
point in the future
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 CLASS ASSESMENT CONT.
1. How your customers would buy your product e.g directly from
you via-a web- site via wholesalers.
2. A list of at least two sources of advice or information you used
and how this helped you to develop the idea
3. An assessment of the feasibility of your business proposal
which include
• Resource required
• Any barriers to entry
• How likely you are to able to gain access to enough customers
• Benefits of developing the business
• The reason you think the business is feasible

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 CLASS ASSESMENT CONT.
Now you need to undertake market research. The following should
be presented in a section of your business plan headed ‘Market
Research’
a) Decide on how you are going to undertake market research into
customer needs.
b) Describe what market research you are going to undertake.
c) Explain the reasoning behind the decisions you made about what
methods of market research to use.
d) Carry out the market research
e) List the conclusions you can draw from carrying out the market
research.
•
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 CLASS ASSESMENT CONT.
• This task is about developing your marketing and sales
plan. You should present the following in a section of
your business plan headed ‘Marketing and Sales Plan’.
a) State the main segment of the market you are targeting
b) Explain what you understand about your customers’
needs drawing on what you learned from your market
research
c) Explain what you understand about your competitors
drawing on what you learned from your market research
d) State what you understand about the size of the market

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 CLASS ASSESMENT CONT.
e) Explain the impact of external factors such as trends,
legislation etc., on your market.
f) Describe how you are going to design the elements of
the marketing mix: product/service, price, place,
promotion.
g) Describe the methods you plan to use for making
sales.

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