Entrepreneurship Business Planning

http://www.elateafrica.org/elate/entrepreneur/businessplan/businessplanintro.html

COMPONENTS OF A BUSINESS PLAN

A business plan includes a study and plan on various aspects of a business commonly referred to as "elements of a business plan". These elements include general description of a business, statement of the mission, goals and objectives, marketing, production, management/organisational and financial plan.

General description of the business

The general description of a business is a summary statement which shows:

• The type of business an entrepreneur is planning
• The needs of the market it seeks to fulfil
• The unique features of the business from other businesses
• The strengths, weaknesses, opportunities and threats (SWOT analysis) the business is likely to face

SWOT ANALYSIS

(a) Strengths

These are things, features and qualities which put the entrepreneur’s business products at an advantage compared to competitors. They include:

• High quality products
• Customer friendly but profitable prices
• Ability of the product to meet the customer’s tastes
• Efficiency and effectiveness in serving customers
• Ability to attract customers
• Good business location
• Good and well trained marketing staff
• High entrepreneurial spirit, etc.

(b) Weaknesses

Weaknesses are the limitations or constraints that the business products may face in the market. They include:

• Being new in the market and having a weak market image
• Weak distribution image
• Below the average marketing skills
• High overall unit costs relative to competitors
• Inability to finance needed marketing changes
• A narrow product line
• Inaccessible location to customers, etc.

 (c) Opportunities

Opportunities are external possibilities or chances that may occur and benefit the business. However, the business has no control over such occurrences and they may or may not happen. They include:

• Possibility of getting business offers from the government
• Sudden shifts in customer’s tastes, which favour the entrepreneur’s products
• Changes in market trends due to new developments such as a new school opening in the neighbourhood
• Falling trade restrictions and barriers in attractive overseas markets
• Faster market growth

(d) Threats

Threats are undesirable occurrences in the market and are disadvantageous to the business. They include:

• Entry of low cost companies into the market
• A rise in the sale of substitute goods
• Adverse shifts in foreign exchange rates and trade policies
• Costly regulatory requirements
• Growing bargaining power of customers and suppliers
• Changing customer/buyer needs and tastes
• Changes in demographics
•  Negative changes in government policies

 The business description allows the writes to prove that they know their business by providing information and numbers to sell their business case. An important aspect of the plan is the management team; effective managers make a business grow and prosper.

2) STATEMENT OF MISSION, GOALS AND OBJECTIVES

(a) Mission statement

A mission statement is a brief statement which indicates the purpose of the business. It seeks to address the following questions:

• What business are we in or what business do we want to be in?
• What customer needs are we satisfying and how do we intend to satisfy them?
• What type of work environment do we intend to provide for our employees?
• Who are our shareholders and what do we expect in terms of returns to the investment?
• What is our community and what do we expect to contribute to the external community?

(b) Goals

Goals are medium and long-term aspirations which an entrepreneur wants the business to achieve, based on his/her mission statement. An example of a goal statement:  ‘To maximise profits’.

(c) Objectives

Objectives are specific targets set by an entrepreneur to move him/her into the direction of achieving his/her goals. Objectives are derived from the goals, and one goal may have more than one objective designed to achieve it. Examples of objectives include:

• To increase sales by 10 percent per year over a five year period;
• To realise a 20 percent increase in profits per annum.
•  

The marketing plan

The marketing plan is an analysis of the possible position and business opportunities being planned in the market. Such information is collected by an entrepreneur through a market survey. The marketing plan covers the following key areas:

• The on-going trends and opportunities in the main and secondary markets which the business will target, such as the market segments, customer needs, buying patterns, etc
• Qualified statements of the market size, growth and expected market share
• Competitor's standing and position
• An analysis of the product and its value to the consumers, i.e., what needs are being satisfied by the product? How are they being satisfied?
• Analysis of the various ways of communicating with and influencing the customers through advertising and sales promotion
• Identification of distribution channels
• General statements of the current prices of similar products, possible prices that the market can afford, etc
• Expected sales
• Plan for recruiting the marketing sales force so as to achieve the target in sales

The marketing plan should outline the business’s strengths; weaknesses, opportunities and threats (SWOT) in comparison to its competitors. The marketing plan should also outline sales, advertising, promotion and other marketing programs. The costs in this section should agree with projected numbers in the financial statements.

The Production and operations plan

The production plan is an analysis of the projected needs for producing or buying the proposed goods and services. They include:

• Business premises and location
• Manufacturing process, flow and layout
• Plant capacity required to meet the demands of the market
• Estimated quantities to be produced and services delivered
• Production standards and quality objectives
• Machinery, tools and equipment needed
• Required raw materials
• Labour requirements
• Packaging requirements
• Purchasing plans
• Production control requirements
• Any research and development plans
• Plans for monitoring external technology and process changes

This section allows the writer to discuss the operations of the business, such as hours of operation, equipment and inventory requirements and the physical location of the business.

Organisation/management plan

This is the frame around which the people, machines, equipment and other parts of the plan are put together to have an operating business. Organisational planning seeks to answer the following questions:

• Who will be the workers and the supervisors in the business?
• What will be there tasks?
• Who will be the administrator? What are their tasks?
• What skills and knowledge should they possess?
• How much will they be paid?
• What fringe benefits will they receive?

This component of the business plan allows the writer to determine what staff are required to run the business, as well as the training and salaries associated with each position.

Financial plan
The financial plan covers the financial requirements of the proposed business. It includes projections of income and profit, balance sheet and cash flow of the proposed business. The financial plan should provide answers to the following questions:

• What is the total cost to set up and run the proposed business?
• How will the proposed business be financed?
• Which sources of funds will be tapped and what will be the associated costs?
• What is the break-even sale of the business?
• Is the proposed business profitable?
• What is the return on investment?
• How will the income be used?

The financial section is the heart of the business plan. The financial plan is aimed at lenders – people who think in numbers. It is important to be able to show where the numbers have come from (backed up by research data).

Student Activity 2

1. State the components of a business plan.

2. Ask students to identify areas in a business plan, which they think should be considered thoroughly by entrepreneurs when preparing a business plan. Ask them to give reasons for their suggestions.

3. Ask students to prepare all components of a business plan, using a business of their choice.

4. Ask them to present their completed business plan to the class.
 
Uses of a business plan to various stakeholders

A business plan is useful to entrepreneurs, financiers, employees and the government, as shown below.

(a) Uses of a business plan to entrepreneurs

• A business plan encourages an entrepreneur to think through his/her business thoroughly in a systematic and focused way
• It helps an entrepreneur to define specific goals and objectives, which serve as a benchmark to measure the progress of the business
• If facilitates the monitoring of the business performance based on the set goals and objectives as a standard of measurement
• It encourages an entrepreneur to be focused by thinking about the business he/she is engaged in and wants to be in future

(b) Uses of a business plan to financiers

A business plan helps financiers such as commercial banks, micro-finance institutions, and credit institutions to decide whether to give the business a loan or not. A good business plan will help them to develop assurance that the business has the capacity to repay the loan and that the owner has adequate experience and competence to manage the business successfully.

(c) Uses of a business plan to employees

A business plan projects how the business will be in both the medium and long-term. It is useful to the employees in that:

• It helps them to know their expected production targets
• It provides employees with information about where the business is going and their role in it
• It shows them how they will be encouraged with the business and gives them a sense of job security

(d) Uses of a business plan to government

A business plan is a basis for determining government revenue/tax from the business profits. It also helps the government to gauge the trend of business activities in the country and plan accordingly.

Student Activity 3

1. Ask students to explain the importance of a business plan to:

(a) An entrepreneur

(b) Financiers

(c) Employees

(d) Government

Steps in preparing a business plan

A business plan should be prepared carefully. The entrepreneur should ensure that all steps involved are carefully thought through and checked. The following steps are important in the preparation of a business plan:

• Select a business, for example manufacturing, trading, services, etc
• Conduct a market survey
• Gather other relevant data, e.g., cost of machinery and equipment, environmental protection regulations, zoning laws, raw materials and other operating and administrative requirements
• Draft a business plan
• Discuss the draft business plan with a knowledgeable or experienced person in a similar business
• Finalise the plan
• Prepare an action plan for implementation of the business plan

Student Activity 4

1. Ask students to identify the steps in preparing a business plan.

2. Ask them to give reasons why they should have a business plan for their business.

3. What would be the consequences of starting and operating a business plan without a business plan?

Action plan for implementing the business plan

An action plan is the most crucial aspect for starting a business. It is the careful laying out of the sequenced steps towards achieving the business goal. Emphasis is on getting things done following a logical and linear approach and often uses specific, measurable and time phased objectives.

Once the business plan has been prepared, an entrepreneur needs to think about when he/she is going to implement the business activities envisaged in the plan and draw up a timetable or an action plan for them. The main purpose of the action plan is to guide and help him/her become and remain focused in the implementation of his/her business. The action plan will help an entrepreneur:

• Find business barriers in advance such that appropriate steps to remove them can be taken
• Locate sources of information and resources needed
• Obtain information on the progress toward enterprise establishment

Action Plan format

(a) Business enterprise

Area of focus	Answer
My enterprise is in the business of:
Products I deal in:
My strengths lies in:
I possess competencies like:
My product because:
My location:
My relationship with:
My management capabilities of:

(b) Business implementation plan

Activity	Timeframe
Preliminary survey of the product/service
Market research and finalisation of the business plan
Loan/trade credit application
Selection of business site and other formalities
Ordering of machinery and other equipment
Construction/renting of factory and other buildings
Installation of machinery and equipment
Selection of personnel
Application for utilities (power, water, telephones)
Production trial
Commercial production
Necessary training
Publicity
Inauguration of factory/business, etc

(c) Personal challenges and how they will be overcome

Personal difficulties	How they will be overcome

External difficulties/issues	How they will be overcome

Possible sources of assistance/support	Nature of support

(d) Other information required

Area of need	What is being done

(e) Expected help, assistance or counselling

Nature of help/assistance	By whom	When

(f) Reasons for feeling confident about being able to successfully implement the planned business

i)

ii)

iii)

Student Activity 5

1. Ask students to prepare an action plan for a business of their choice.

Presentation of a business plan

A business plan is mainly used by an entrepreneur and a number of stakeholders. Once an entrepreneur has prepared a business plan, he/she may need to present it to some stakeholders for various reasons, for example, to a financier to seek a loan; to regulatory bodies like the National Environment Management Authority (NEMA) to get clearance, etc. The entrepreneur should therefore be prepared to meet these stakeholders to present, discuss and at times to defend his/her business plan. At this time, an entrepreneur should consider the following issues:

• He/she should study and be thoroughly conversant with his/her business plan. He/she should know the assumptions underlying the figures and totals therein
• The entrepreneur should have a solid knowledge about his/her market
• The entrepreneur should know how much is required for financing his/her business, the sources of the required finances, the implication of such financing and how he/she will meet the commitments arising from there. He/she should know possible alternatives in case any one of them fails to materialise
• In his/her discussions with the prospective financier, the entrepreneur should always assume that the financier is intelligent but uninformed about his/her business
• The entrepreneur's presentation should remain focused at what he/she requires from the financiers and should avoid meandering
• The entrepreneur should know his/her abilities, challenges and how he/she plans to use or manage them in the course of implementing his or her plans. The entrepreneur should be confident about setting up and managing his/her business successfully
• In his/her presentation, the entrepreneur should be seen or heard as someone seeking to establish relationship with the financiers not a beggar

Student Activity 6

1. Ask students to form into two groups; one groups represents financiers, another groups represents entrepreneurs.

2. Ask students who are acting as entrepreneurs to present their business plans to a panel of credit officers (the financiers) who have to approve/accept it for credit
 
3. The financiers should give reasons why they accept/refuse to fund the proposed business plans.

LEARNERS' ACTIVITIES           

Activity one

Teamwork

Over the term, you will work as part of a team to develop a business plan. Your team will formulate an idea for a business to be formed near your school. You might want to think about some of the following types of business to get your business plan ‘thinking process’ moving:

Youth community centre

Delivery services

House cleaning service

Computer service business

Travel services

Musical group

Repair services (telephone, shoes, electrical equipment, cars, clothing, etc)

You may follow the order below:

Executive summary

In one or two pages, summarize your business idea. Remember, one of the purposes of your plan is to persuade investors or financiers that your business idea is a solid one. Make your executive summary interesting and positive so that your readers will continue past the first stage.

Mission and objectives
           
Explain the purpose of your business and what you hope to accomplish.

Company and industry

Give full background information on the origins and structure of your venture and the industry you will be competing in.

Products and services
           
Give a complete but concise description of your product(s) and service(s), focusing on what makes your product unique. What benefits will customers gain from your product that your competitors do not offer?

Market and competition

Provide information that shows potential investors or financers that you understand your target market well enough to succeed. Be sure to identify strengths and weaknesses of your competitors.

Management

Summarize the background and qualifications of the principals, directors, and key management personnel in your company. Include curriculum vitae in an appendix.

Marketing strategy

Provide projections of sales and market share, and outline a strategy for identifying and contacting customers, setting prices, providing customer service, advertising, etc.

Design and development plans

If your product requires design or development, describe the nature and extent of what needs to be done, including costs and possible problems.

Operations plan

Provide information on the facilities, equipment, and labor needed.
Overall schedule
           
Forecast completion dates for major aspects of the business plan.

Critical risks and problems

Identify all negative factors and discuss them honestly.

Financial projections and requirements

Include a detailed budget of start-up and operating costs, as well as projections of income, expenses, and cash flow for the first three years of business. Identify the company’s financial needs and potential sources.

Exit strategy

Explain how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or buyback of the investors’ interests. When covering these points, remember that the audience wants short, concise information and realistic projections for growth.

Activity two

Presentations

Students will plan a new business and present it to a panel of local entrepreneurs.

Materials:

Business Plan Form

What to do:

Let students offer ideas on how they would start a new business. Tell students that one starting point would be consulting people who have opened up new businesses.

Inform students that they are going to work in teams to develop ideas for a new business and present it to a panel of business people. Together with the students, make a list of local entrepreneurs who have started their own businesses. Invite at least five such local entrepreneurs to participate in the panel.

Let each team brainstorm ideas for a new business. To help students develop their ideas, they can use the Business Plan Form below.

Let each team present its idea. Have the class vote to narrow down the final number to three. You may present these plans in advance to the panelists. Or choose a spokesperson from each group to make the presentation to the panel.

In preparing for the panel, let students draw up general questions about entrepreneurship. These might include asking panelists how they started their businesses, where they got the ideas, what difficulties they encountered, and what general advice they would offer new entrepreneurs.

Have someone to take notes on the ensuing discussion. Later, students can use these notes to summarize what they learned about setting up and developing a new business.

Business Plan Form

Business plan for:
 ________________________________________________________
Drawn by:
 _______________________________________________________________

1. What product or service will you provide?
___________________________________
2. How do you intend to produce this product or service?
 _________________________
3. Why are you thinking of starting this company?
 _______________________________
4. Who are your potential customers?
 _________________________________________
5. Where will you locate your company?
 ______________________________________
6. When would you expect to open?
 __________________________________________
7. Write a general description of your proposed business and how it would work.