CHAPTER 4

PLANNING, ORGANAZING AND

MANAGING A SMALL BUSINESS

 LEARNING OBJECTIVES
After studying the material in this chapter, the student should be able
to:

1. Tell why planning is important in small business.

2. Explain the role of strategic and operational planning.

3. Explain the role of financial planning.

4. Tell why a business plan is needed and what purpose it should

serve.

5. Prepare a sample business plan.

Why is Planning So
Important to Small
Business
 Planning
• Planning is the process of setting objectives and determining
actions to reach them.
• To become an effective business owner-manager, you must
look ahead.
• Six (6) criteria to follows for planning a business (Terry
Thomas):
 Be prepared
 Be patient
 Know when to get help
 Form your own support system
 Know the power of vertical integration
 Never rest on your own laurels
How Planning Relates to Other Managerial Functions
PLANNING
Deciding or choosing organizational objectives and setting programs, policies and
strategies to achieve them.

ORGANIZING
Deciding what resources and activities are needed to meet organizational objectives,
setting up work groups and assigning authority and responsibility to achieve them.

STAFFING
Selecting, training, developing, placing and orienting needed employees where they can be
most productive
How Planning Relates to Other Managerial Functions

LEADING
Getting employees to do what you want them to do by communicating with them and
motivating them to perform, leading them towards goal achievement and informing them
about their work assignments.

CONTROLLING
Setting standards measuring performance against standards and taking corrective action
to see that planned performance is achieved.
Why Small Business Owners Need to Plan

Well-developed plans can:

 Interest moneyed people in investing in your business.

 Guide the owner and managers in operating the business.
 Give direction to and motivate employees.
 Provide an environment to attract customers and
prospective employees.
Why Small Business Owners Neglect Planning
Many small business owners neglect planning because:

 Day-to-day activities leave them little or no time for

planning.
 They fear the problem and weaknesses planning may
reveal.
 They lack knowledge of how to plan.
 They feel that future changes cannot be planned for.

Planning requires original thinking, takes time and is difficult to

do, but it does help one prepare to take advantage of promising
opportunity and cope with unexpected problems.
THE ROLE OF
STRATEGIC
PLANNING
 The Role of Strategic Planning
• Strategic planning provides comprehensive long-term direction to help
a business accomplish its mission.
• Small business owners need to seek help with strategic planning as the
business grows and prospers.
• Some examples of strategic planning:
 Selecting the type of business to enter
 Formulating the mission of the company
 Deciding whether to start a new business, buy an existing one or
franchise
 Choosing the product or service to sell
 Deciding on the market niche to exploit
 Choosing the type of organization to use
Most Important Types of Plans and Planning Functions
SWOT ANALYSIS
 Swot Analysis
• A SWOT is stand for Strengths, Weaknesses, Opportunities and
Threats.
• SWOT is a tool that most strategic planners use to scan the business’s
environment and base objective.
• SWOT analysis allows the owner to identify new markets and to
prepare for perceived down-turns or competitors.
• A study is made of the opportunities and threats in the external
environment and the strengths and weaknesses in the internal
environment.
• The key is to eliminate weaknesses and threat and to capitalize on the
strengths and opportunities.
 Mission and Objectives
Mission

• A business’s mission statement defines the present business scope and

broadly describe the organization’s present capabilities, focus and
activities.
• It is concerned with broad concept such as the firm’s image, with the
basic services the firm plans to perform and with long-term financial
success.
• A clear definition of mission enables business owner to design results-
oriented objectives and strategies.
• A good mission statement defines exactly the identity of your business
and allows all of your planning to flow from it.
 Strategic Umbrella
• The umbrella shows graphically how important it is to have a mission statement
and major objectives that will interrelate and provide guidance for a cohesive and
meaningful organizational structure.
 Mission and Objectives
Objectives

• Objectives are the purpose, goals and desired results for the business
and its parts.
• Objectives are more specific than missions and are revised more
frequently.
• Example of objectives might include “To increase total sales by 8
percent a year”/
• Creating mission and defining objectives for a small business involve
two (2) important considerations:
 The business’s external environment
 The internal resources and competitive edge.
 Mission and Objectives
Two (2) important considerations in creating mission and objectives:

i. The External Environment

 Competitors
 Foreign competition
 Clients
 The economy
 Legal
 Political factors
 Changing demographics
 Mission and Objectives
• Two (2) important considerations in creating mission and objectives:

ii. Internal Resources and Competitive Edge

 Human resource
The personnel that make up the business’s work force. To keep
the company competitive, both management and non-
management people must be motivated, imaginative, qualified and
dedicated.
 Physical resources
The buildings, tools and equipment and service and distribution
facilities that are needed to carry on the business. To be competitive,
these resources must be strategically located, be productive, be low
in operating cost, be effective distributors and make the proper
product.
 Mission and Objectives
• Two (2) important considerations in creating mission and objectives:

ii. Internal Resources and Competitive Edge

 Financial resources
The cash flow, debt capacity, and equity available to finance
operations. To be competitive, company finances must be adequate
to maintain current levels of activities and to take advantage of
future opportunities.
• Good resources that is effectively used, it can have a competitive edge
over its rival.
• A competitive edge is a particular characteristic that makes a firm more
attractive to customers than are its rivals.
• The proper evaluation of a competitive edge can make a small
business’s planning more realistic and lead to greater profitability.
THE ROLE OF
OPERATIONAL
PLANNING
 The Role of Operational Planning
• Setting up policies, methods, procedures and budgets:

 Operational planning sets policies, procedures, and standards for

achieving objectives.
 Policies are general statement that serve as guides to managerial
decision making and supervisory activities.
 Methods and procedures provide standing instructions to
employees on how to perform their job. They comprise detailed
explanations of how to do the work properly, and in what order it
should be done.
 Budgets are detailed plan, expressed in monetary terms, of the
result expected from officially recognized programs for a given
future period.
 Planning to Operate the Business
• The second part of operation planning includes:

 Choosing a location
The type of influences most your location decision as they relate
to access to customer, supplier, employees, utilities and
transportation as well as compliances with zoning regulations and
other law.
 Planning operations and physical facilities
The ability to sell its product is based on its ability to produce that
good or service as well as on market potential. Good selection and
efficient arrangement of physical facilities are also important. Proper
balance between production and sales volume is needed. Planning
starts with the estimate of sales and the operations needed to
produce the product(s).
 Planning to Operate the Business
• The second part of operation planning includes:

 Developing sources of supply for goods and materials

The largest expenses for companies selling products usually is
purchasing materials , supplies and goods. The ability to
purchase these essential at favorable prices can lead to
profitability.
 Planning human resource requirement
Human resource planning is the process of converting the
business’s plans and programs into an effective work force. The
less time you can devote to the business, the more important it will
be to have capable employees who must be able to work with
less supervision than in larger firms.
 Planning to Operate the Business
• The second part of operation planning includes:

 Setting up the legal and organizational structure

The organizational structure must be developed taking into
consideration the legal and administrative aspects of the business.
In Malaysia, all business must registered with SSM.
 Determining approach to market
The volume of sales and income of a small firm depends on its
marketing and strategies and activities. Plans must be made to
capture enough of the market. Once a target market is chosen, you
must provide for sales promotion and distribution to it.
 Planning to Operate the Business
• The second part of operation planning includes:

 Establishing an efficient record system

Simple records and information systems must be used. But they
must be designed to help you to control your business by keeping
track of activities and obligations. Example of data such as date each
employees is hired, hours each one works and the wages paid,
inventories, account receivable and account payable, taxes paid and
owed, units each product sold
 Setting up a time schedule
To provide and orderly and coordinated program. The schedule
should probably include the prior planning steps.
THE ROLE OF
FINANCIAL
PLANNING
 The Role of Financial Planning
• Financial planning involves determining what funds are needed, where
they can be obtained and how they can be controlled.

• Financial planning involves three (3) elements:

 Estimating income and expenses

 Estimating initial investment required
 Locating sources of funds
 The Role of Financial Planning
• Estimating Income and Expenses

 Income from sales/revenue can be estimated by studying the

market.
 Expenses/costs can be calculated from past experience and other
sources.
 Net profit is the amount of revenue over and above the total
amount of expenses of doing the business.
 Variable expenses change in relation to volume of output: when
output is low, the expenses are low, and when output is high,
expenses is high.
 Fixed expenses do not vary with output, but remain the same.
 The Role of Financial Planning
• Estimating Initial Investment

 Business will need money to start the business to pay items such
as buildings, equipment, materials, personnel, inventory, machines,
business forms and sales promotion.
 To keep the investment and borrowing low, cash flow projections
must be made.
 Cash flow is the amount of cash available at a given time to pay
expenses.
 Refer figure 6.6 for logical method of calculating initial cash need of
a new business.
 The Role of Financial Planning
• Locating Sources of Funds

 Using your own funds – the owner prefer to invest only their
personal funds and not borrow to start or operate the business. To
be a main controller, owner must continue to invest more personal
funds than all the other investors combined.
 Using funds from others – Both run the risk of losing money.
 Equity investor are those who actually become part owners of
the business.
 Lenders are those outsiders who provide business owners
money for a limited time at a fixed rate of interest. 2
 THE ROLE OF
BUSINESS PLAN
 Business Plan
• A business plan is a formal plan prepared to serve as tool for attracting
the other components of the business formation package, including
people and money.

• The purposes of the plan:

 Keep on target
 Keep the creativity on track
 Concentrating in reaching the goal
 Money-raising tool to attract venture capital and venture funds.
 Business Plan
• The plan should include:
 The proposed product
 The expected market for it
 The strength and weaknesses of the industry
 Planned marketing policies, such as price, promotion and
distribution
 Operations or production method and facilities
 Financial aspects including expected income, expenses,
profits/losses, investment needed and expected cash flow.

• Components of the plan – please refer figure 6.8

 Business Plan
• Writing the plan:
 Be Honest – revealing what you actually feel about the significant
of the plan
 Use The Third Person – avoid I or WE
 Use Transitional Words – such as but, still and therefore
 Avoid Redundancies
 Use Short, Simple Words –plan will be easy to understand and
follow
 Use Visuals – such as tables, chart, photo and computer graphics.

• The plan should be reviewed by people outside the firm such as

accounting, business consultant, professional writer, editor or English
teacher.
 Business Plan
• Oral Presentation – present the plan in person to investor or lenders
• The plan should be delivered from the listener's perspective not the
business owner.
• Business owner should provide visual aids for specific questions
concerning the following:
 Adequacy of research & development behind the product
 Validity of market research
 Understanding of your business
 Financial projections and why they will work
 Relative priority of objectives
 Ability to “make it happen”

• Last stage is implementing the plan by obtaining facilities and

THANKS!
Any questions?