Chapter Three: Business planning

3.1. The concept of business planning

Perhaps the most important step in launching a new venture or expanding an existing one is the
construction of a business plan. Such a plan must include your goals for the enterprise, both short term
and long term; a description of the products or services you will offer and the market opportunities you
have anticipated for them; and finally, an explanation of the resources and means you will employ to
achieve your goals in the face of the likely competition.

A business plan is a written document prepared by the individual entrepreneur or partners that describes
the goals and objectives of the business along with steps necessary to achieve those goals. Business plan
is also defined as a written summary of the entrepreneur’s proposed venture, its operational and financial
details, its marketing opportunities & strategy, and its manager’s skills and abilities.

3.2. The business plan

3.2.1. Purposes of Business plan

Preparing a business plan is one of the most useful things that you as an entrepreneur or potential
entrepreneur, can do. Basically, a business plan can serve as financing, testing mechanism,
building confidence, and insight to planning experience.

A business plan can serve as both a blue print to follow and as a tool that you can use to get
financing. Whether your purpose in preparing a business plan is for operations or financing, or
both, you will find that it will result in other important benefits.

The systematic planning that goes in to the business plan will enable you to make your mistake
on paper, rather than in the market place. It will test you to resolve about entering or expanding
your business, since preparing a comprehensive business plan takes time and effort.

Once you have completed this exercise, you will feel more confident about your ability to
operate a successful business. Finally, preparing a business plan can give you an insight in to
planning process.

i) WHEN :- business plan are produced

 At star-up of new business: after conception of idea & feasibility study, detailed planning stage
follows so as it develop operation guidelines.
 Buyout stage/business purchase : Risk benefit analysis undertaken
 Ongoing review stage: Review start up, buyout performance, matching against relatives changes
due to environment.
 Major decision- major decisions like new additional investment in machineries and equipment’s

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 ii) WHO: -
Threetype of person are interested in a business plan, the manager who run the business, the owner who
are prospective equity investor and the lenders who are considering loans for the business.
 Managers: involves both as producers and recipients of the plan. Interested in developing
strategies, establish standards & attracting capitals.
 Owners: evaluate prospective equity partner, venture capitalist and enhance of success.
 Lenders: Determining principles, risk involves in business.

iii) WHY (Purpose)

These three groups will have some shared and some more separate motives for using a business plan
managers, owners and lenders will all be seeking to investigate the following issues.
 Managers: - Clarifying ideas and finding strength, weariness, opportunity & threats.
-Building a team of committed people
-Assist in raising capital
 Owners:- Assessing feasibility & viability of business
-Setting objective & budgets:
-Calculating capital investments/how
 Lenders: - Evaluate risk us. benefits
- Appraise quality of managements

3.2.2. Scope of Business plan

Business plan includes information on the following aspects:
a) Economic aspects: Economic justification like market size, market growth, market share.
b) Technical aspects: Details on technology needed, equipment and match their sources
c) Financial aspects: Total investment, cost of capital, ROI, source of capital, enterprise
contribution
d) Production aspects: product, its design, standard of quality, usage, production aspect like
production process, schedule, technology.
e) Managerial aspects: Qualification & experience, commitment & planning

3.3. Developing a business plan

3.3.1. Formats of a business plan

The business plan is just like map reading; decide on where you are; the town you want to go and then
you can start to plan your route. You might decide not to go in a straight line because there are longer but
faster routes; you might be forced to take diversions because unexpected road works upset you plans; you
might not get to your destination as quickly as you expect because the car breaks down. Indeed it is just
possible that you will never reach your destination at all because of an accident. If you cannot decide
where you are or where you want to be, the map is of little use. If you know where you are and where you
want to go, a good map increases the chance of getting there. And planning the route will also help you
estimate the petrol you need and the money you will therefore need to buy it.

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The business plan describes the direction the company is going in, what its goals are, where it wants to
be, and how it’s going to get there. Therefore the key question that business plan looks like? What is
included and what is excluded? Will be answered by answering the following questions
1. Where we are now?
2. Where do we intend going?
3. How do we get there?

1.Where you are?

 Understanding your product or service and how it is better and worse than that of your
competitors – your competitive advantage:
 How do you compete in terms of price, quality and so on?
 Is the product or service differentiated in any way?
 How can this be reinforced?
 Can the product or service be easily copied?
 Can you distinguish any patterns in successful or unsuccessful competitors?
 Understanding who your customers are and why and how they will buy from you:
 Can you identify market segments and can you get to them?
 Are your existing customers happy with the product or service?
 What is good and bad about your marketing mix?
 Can more customers be found who are similar to your existing customers?
 Are you selling to a niche market?
 Understanding your own and your firm’s strengths and weaknesses:
 What are your own aims, your own strengths and weaknesses?
 How good are your people and your facilities?
 Are you good at leadership and communication?
 What are the critical success factors – those things that it is crucial that you get right if
you are to grow?
 What will be the critical problem areas if you grow?
 Do you have money of your own to put into the business?
 Understanding the opportunities and threats that the market might present you with:
 Are market tastes changing?
 Is the market growing?
 Are there changes in the social, economic, political or technological environment that are
likely to affect you in the future
 How easy is it for competitors to come into your industry? Do you have new product or
service ideas?

2. Where do we intend going?

 Decide the general aims you have for your business and for you.
Do you want a lifestyle or do you want to go for growth? For some firms, aims become ‘mission
statements’ – statement of what the owner-manager wants the business to become. For example, a
medical general practice came up with the mission ‘to provide the best possible healthcare for patients at

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all times by responding to needs, providing accessible medical and anticipatory care of the highest quality
and doing all that is possible to improve the social environment of the community’.
 Set some specific objectives that signal you have achieved your aims.
Objectives must be qualified, bounded in time and realistically achievable. They can then serve as useful
goals and yardsticks against which to judge your performance. For example, an objective might be to
achieve profit growth of 10 percent with a minimum return on capital of 15 percent. Objectives are the
milestones on your journey. They tell you where you are going and let you know when you have arrived.

3. How do we get there?

 Strategies need to be developed to enable you to achieve your objectives. Strategies are ‘how to’
statements. They are not complicated; they are just ‘joined-up’ tasks. Their development involves
co-ordination of the different management functions, marketing, operations, people and finance.
 In particular, you will need to develop a marketing plan that produces a consistent and coherent
marketing mix to address how to sell the product or service to the different customers.
 You will need to draw up financial budgets – profit and cash flow forecasts to see what financial
resources are needed to undertake the plan. Do you need to attract investors? Can you? If not,
your plans might have to be modified.

3.3.2. Elements of Business plan

i) Executive summary: it should be concise and should summarize all of the relevant points of
proposed deal. It is designed to capture the reader’s attention
ii) Company History: A brief history of the operation, highlighting the significant financial and
operational events in the company’s life. This section should concentrate on the
accomplishment of past objectives & should convey the firm’s image.
iii) Business Profile: This section should begin with a statement of the company’s general business
goals and a narrower definition of its immediate objectives. Together they should spell out
what the business plans to accomplish, how, when and who will do it.
iv) Business Strategy: This segment of business plan should outline the methods the company can
use to meet the requirements for success cited earlier Game-plan to compete with competitors
like cost leadership, innovation,, strong sales force.
v) Description of the firm’s product: It describes company’s overall product line, giving an
overview of how the goods/ services are used. Besides, a statement of the goods’ position in
the product life cycle may also be helpful. This section should include also a summary of any
patents, trademarks, or copy-rights protecting the product from infringement by competitors.
Finally, it should describe the production process, strategic raw materials required & sources
of supply used.
vi) marketing strategy: The plan must discuss the company’s target market and its characteristics. It
must show how the entrepreneur plans to turn the idea into a product that customers will want
to buy. Proving that a profitable market exists takes two steps:
a) Showing market place interest
b) Documenting market claims: target market, market size & trends, pricing, advertising
& distribution.

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 vii) Competitors Analysis: Demonstrate that the entrepreneur’s company has an advantage over its
competitors. What distinguishes ones product form others already on the market, and how will
these differences produce a competitive edge?
viii) Officers’ owners’ Resumes: The resumes of business offices, key directors, & any person
with at last 20 percent ownership in the company.
ix) Plan of operation: organizational chart identifying the business’s key positions & the personnel
occupying them; the steps taken to encourage important officers to remain with the company;
and form of ownership and description of any leases contracts other relevant agreements.
x) Financial data: A detailed outline of the loan or investment package. The owner should supply
copies of the firm’s major financial statements from the past three years audited by certified
public accountant; monthly projected financial statement for the operation for the next two to
three years, which includes income statement, balance sheet, cash budget, and schedule of
planned capital expenditures.
xi) Loan Proposal: the purpose of the Loan, the amount requested, and the plans for payment
3.3.3. Common Mistakes Committed during Business Plan Preparation
Raymond Loen offers the following list of the ten most common mistakes that business owners make in
using their plans- and the remedies for them.

i. Single-Purpose use: Entrepreneurs typically prepare a plan to raise money and seldom give
thought to actually using it.
 Remedy: stress implementation. The plan must include specific objectives for managers and plan
to accomplish them.
ii. One- person commitment: if one person writes the entire plan mangers are unlikely to be fully
committed to it.
 Remedy: Involve all members of management
iii. Being neglect: Once completed, the business plan sits on the shelf and collects dust. Out of
sight, out of mind.
 Remedy: Make following up the plan easy, schedule regular meetings to discuss the plan & the
progress made in accomplishing the goals & objectives established.
iv. Unworkable document: Managers create a plan that is so huge & complex that it discourages
everyone from actually using it.
 Remedy: Give the plan life by supplying one-page action summaries for each department.
v. Unbalanced application: Sometimes managers give a disproportionate amount of attention to
one portion of the plan.
 Remedy: Get balanced participation from managers & employees in all areas of the company,
and also focus 90 percent of management’s attention within the next year.
vi. Disillusionment: Managers become disillusioned when the scenario laid out in the plan fail to
develop.
 Remedy: Develop contingency plan- both positive and negative
vii. Too- action Oriented: Action oriented managers tend to forget about the plan once it is
completed. They want get back to the real world of business.
 Remedy: use these mangers’ action orientation to encourage them to develop plans for their areas
of responsibility.

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viii. No Performance Standard: Too often, managers fail to establish measurable standards in the
plan.
 Remedy: Encourage managers to establish specific, measurable objectives in their respective
areas.
ix. Poor progress Control: Implementing the plan is without control because progress reports are
lost in the jumble of everyday business.
 Remedy: Hold regular meetings to discuss progress on the plan & nothing else.
x. Early consumption: The plan becomes outdated because no one bothers to update it.
 Remedy: Update the plan every six months.

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