Chapter Two

Business planning

Learning objectives:
After completing this chapter, students will be able to:
 Identify opportunity in the environment.
 Evaluate the opportunities in the environment.
 Generate business idea.
 Explain the concept of business planning,
 Identify components of business plan,
 Develop business plan,
 What is business and opportunity?
• Business idea refers a condition in which
operating a business is possible. It can be internal
or external.
• Business opportunities are Positive external
trends or changes that provide favorable
condition for business running such as unused
resources, unsatisfied demand, attractive return,
cheap raw materials, favorable commercial policy
etc.
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 2.2. Opportunity Identification and Evaluation
• It is the initial stage in the entrepreneurial process.
• It is principal activities that take place before a business is
formed or structured.
• five steps;
1. Getting the idea/scanning the environment.
• Idea is a thought or suggestion about a possible course of action.
2. Identifying the opportunity
• Opportunity is a favorable time or circumstances for doing something.
– It is the possibility of occupying the market with a specific innovative product
that will satisfy a real need and for which customers are willing to pay
• Business opportunity is a gap left in a market.
• Opportunity identification is ability to see, to discover and exploit
opportunities that others miss.
– It is important for the entrepreneur to understand the cause of the opportunity
» Different factors result different market size and time dimension.

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Continued…
3. Developing the opportunity
• Adaptation of that opportunity to suit actual market.
• It is the process of combining resources to pursue a market opportunity.
4. Evaluating the opportunity
• The most critical element of the entrepreneurial process
• To check whether the specific product or service has the returns needed
to justify the investment and the risk to be taken.
• Involves;
– looking at the creation and length of the opportunity.
– Real and perceived value.
– Risks and returns
– Fit with the personal skills and goals of the entrepreneur,
– Differential advantage in its competitive environment.
5. Evaluating the team
• A team with strong skills make a successful business

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 2.3. Business Idea Development
• Business idea is a short and precise description of the basic
operation of an intended business.
• Three types;
1. Old Idea – a copy of an existing business idea.
2. Old Idea with Modification – a modification of an old idea to fit a
potential customer’s demand.
3. A New Idea – This one involves the invention of something new for
the first time

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 Sources of business ideas:
 Own experience
 Brainstorming and Focus group discussions
 Market assessment/survey & customer feedback
 Trade shows and bazars
 Mass media
 competitors
 Business partners; suppliers, distributers etc
 Government publications & announcement
 Internal research and development
 Existing problems
 Success story of others
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2.6 Business Idea Screening
– Is the process to spot good ideas and eliminate poor one.
– Three approaches;
1. Macro screening: aimed screening down ideas to 10.
– Common criteria are:
» Are my own competencies (see strength detector) sufficient?
» Can I finance it to a large extent with my own equity?
» Will people buy my product/service (i.e. is it needed and can
people afford it)?
2. Micro Screening: aimed screening down ideas into 3.
– The common criteria used;
» Solvent demand
» Availability of raw materials
» Availability of personal skills
» Availability of financial resources

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Continued…

3. Scoring the Suitability of Business Idea:

– It is most appropriate when deciding on starting a business
Sample score card

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Continued…
- While to answer the above listed questions;
- It is important to conduct survey.
- There are four important groups that you should talk to:

1. Potential customers.

2. Competitors, suppliers and entities with financial resources

3. Financial institutions.

4. Key informants and opinion leaders

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2.7 Concept of Business Plan
– Planning is the first and the most crucial step for starting
a business.
– It is a road map for starting and running a business.
– A well-crafted business plan;
– Converts a simple idea/innovation into a successful business
venture.
– Scans the external and internal environment to assess the SWOT
and feasibility.
– Allocates resources in the best possible way.
– Provides information to stakeholders about the various functional
requirements (marketing, finance, operations and human
resources)

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 Continued…
A business plan intends to;
• Give directions to the vision formulated by entrepreneur.
• Objectively evaluate the prospects of business.
• Monitor the progress after implementing the plan.
• Persuade others to join the business.
• Seek loans from financial institutions.
• Visualize the concept in terms of market availability,
organizational, operational and financial feasibility.
• Guide the entrepreneur in the actual implementation of the
plan.

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• Identify the SWOT of the plan.
• Identify the resources that would be required to implement the plan.
• Document ownership arrangements, future prospects and projected
growth
• To assess ventures operating strategies and its output
• provides data about market potential and marketing plans.
• It illustrates the venture’s ability to provide adequate return.
• The plan identifies critical risks and crucial events with a discussion of
contingency plans.
• the business plan provides a useful guide for assessing the individual
entrepreneur’s planning and managerial ability.

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 Developing a Business Plan

• A business plan is a comprehensive guideline to

start new venture or to make major changes in
existing business.
• It is a written summary of an entrepreneur’s
proposed venture.
• A written business plan becomes entrepreneur's
business representative.
• A business plan should be a selling document and
operational compass.
• On average its length ranges from 25 to 55 pages
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 Why business plan is prepared?

• There is big difference between a mental plan

and a written plan. You can ensure this as you
faces challenges to transfer the plan in your
mind to paper. So preparing business plan is
vital.
• To start new venture: to describe required
actions/decisions, required resources,
profitability and possible benefits.
 To modify existing: business plan also
Prepared to restructure, expand or
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 Here BP is prepared to test the sensitivity of change in
variables & resources.

• To obtain needed funds from:

 MFI
 Banks
 Venture capitalists
• Arranging strategic alliances
to carryout joint research, production, marketing, and other
activities
• To win large contracts: business plan is prepared to reveal
possible future actions to convince the interest of host organization.

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 Cont’d…
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• Completing mergers and acquisitions

• Whether you want to sell your company or acquire
another one, a business plan can go a long way
toward helping you stand out from the crowd.
• To attract and motivate management team &
workers
– the plan serves as a motivational tool by laying out the
company’s financial, marketing, and production goals.
– to view the venture critically and objectively
– Used as roadmap to achieve business success.
 5.2 Elements of a business plan
1.Cover page
 Used to create ‘’ First Impression’’ of a venture.
 It is used to tell what the document is about.
 It should say the words ‘’business plan on…,’’ and
should include:
 Business name, Company logo, Address (place,
phone, email, fax etc) and The founder’s/chief
executive’s name
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 2. table of content

• Be sure to list headings for the major sections as

well as for important subsections place them in
table of content along with page number.
• It should follow professional format.

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 3. The executive summary
• The executive summary presents the essence of
the plan in a capsulated form, i.e. it is the business
plan in miniature.
• It should contain major points in summarized way
(usually one page & written in italics way)
• It is vital to most readers- especially lenders and
investors- turn to it first and decide whether to
read the rest of the plan seriously.

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 4. Industry Analysis

• Discussion of the industry outlook, including future

trends and historical achievements.
• The useful tool for analyzing an industry’s attractiveness
is the five force model of Michael porter.
• - Rivalry among existing companies
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of new entrants
- Threat of substitute products
These forces affect profitability of a particular industry in
general and each firm in particular: 20
 5. Description of the Venture

– Location of your operation and its affect.

– Legalities—business forms and types (based on legal
forms, size of business & nature of activity) Is it a new
business, a takeover, an expansion or franchise?
– Nature of your product or service
– Why your business will be profitable? What are the
growth opportunities?
– When your business will be open (day, hour)?
– What you have learned about your kind of business from
outside sources -(trade suppliers, bankers, other
franchise owners, publications). 21
 6. The marketing plan

Contains a description of:

• Market analysis
• Pricing strategies
• Promotion strategies
• Distribution strategies
• Competitors and their affect on firms operation.

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 7. Manufacturing/operation plan
• It contains description of supply sources,
equipment, capacity, facility layout, production
process, quality control and warehousing.
• Background and capacity of sub contractors, if any.

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 8. The management plan/Organizational Plan
• your company’s organizational structure;
• details about the ownership of your company;
profiles and qualification of your management &
employees.
• Future personnel needs.
• salaries/wages, benefits and leaves /vacations
provided.

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 9. Assessment of Risk
• Identification of major potential risks and
determining strategies to manage the risks:
Market risks
Financial risks
Technological risks
Shortage of raw material
Legal risk
Product liability
Stiff competition etc

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 10. The financial management plan
• How cash and profits are managed.
• Sources, amount & repayment loan, if any
• Projected Income statement and balance sheet are
prepared to show future financial position of the
venture.

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 11. APPENDIX:
• Because your business plan should be as concise as possible,
there may be certain material you want a reader to be aware
of that doesn’t fit into the body of the plan. The appendix is
where related documents and support materials are included.
• The appendix would include:
• Credit history (personal & business)
• Resumes of key managers
• Product pictures
• Letters of reference

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 Cont’d….
• Details of market studies
• Licenses, leases, permits, or patents
• Contracts
• List of business consultants, including attorney
and accountant

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 Key to Good Business plan

• Keep the plan respectably medium, not to short or long

• Organize and package the plan appropriately
• Orient the plan toward the future
• Highlight critical risks
• Give evidence of an effective entrepreneurial team
• Do not over diversify
• Identify the target market
• Keep the plan written in the third person
• Capture the reader’s attention

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