Chapter 2:

Business Planning
‘If you don't have the road map, you really are
putting yourself at a serious disadvantage”
If you fail to plan, you are planning to fail.
Introduction
 Planning is the first and the most crucial step for
starting a business.
It is the process of setting objectives and listing
activities to achieve those objectives.
It answers the questions such as:
 What business am I in?
 What finances do I need?
 What is my sales strategy?
Cont.…
 A company’s business plan is one of its most important documents.
 It can be used as the basis for loan applications from banks and
other lenders.
 It can be used to persuade investors that a company is a good
investment.
 Lack of proper planning is one of the most often cited reasons for
business failures.
 Business plans help companies to identify their goals and objectives
& provide them with tactics & strategies to reach those goals.
What is Business Plan
• It is the formal written expression of the entrepreneurial vision,
describing the strategy and operation of the proposed venture.
• A written summary of an entrepreneur proposed business venture,
its operational, financial details, marketing opportunities and
strategy, and its managers’ skills and abilities.
• Set of documents prepared by an entrepreneur to summarize his/
her operational and financial objectives for the future.
• A proposal for launching an entirely new business.
Con..
• The business plan is a bridge between an idea and reality.
• Business plan provide a clear visualization of what the
Entrepreneur intends to do.
Objectives of Business Plan
•Give directions to the vision formulated by entrepreneur.
Persuade others to join the business.
Seek loans from financial institutions.
•Identify challenges in terms of opportunities and threats from the
external markets.
Con..
The business plan should:
◦ Layout basic idea of the venture
◦ Describe where you are now
◦ Indicate where you want to go
◦ Explain the key variables of success or failure
2.1. Opportunity Identification and Evaluation
The initial stage in the entrepreneurial process is the
identification and refinement of a viable economic
opportunity that exists in the market
Without the recognition of an opportunity the
entrepreneurial process is likely to result in failure
The opportunity identification and evaluation stage
can be divided into five main steps namely:
1. Getting the idea/scanning the environment,
2. Identifying the opportunity,
3. Developing the opportunity,
4. Evaluating the opportunity and
5. Evaluating the team
 1.Scanning the Environment/ Getting the Idea
A business opportunity is a gap left in a market by those who currently serve it,
giving a chance to others to add unrealized value by performing differently from
and better than competitors in order to create new possibilities
Idea means Intention, concept, insight, suggestion
Opportunity is a favorable time or set of circumstances for doing something.
Synonymous with opportunity are chance, opening and prospect.
2.Opportunity identification is ability to see, to discover and exploit opportunities
that others miss
It is the most difficult task, as most opportunity do not just appear but rather
result from an entrepreneurial alertness to possibilities
In developing countries, problems may be changed to business opportunities
 3.Opportunity
Development
Opportunity development is the
process of combining resources to
pursue a market opportunity identified
This involves systematic research to
refine the idea to the most promising
high potential opportunity that can be
transformed into marketable items
 4.Opportunity Evaluation
It allows the entrepreneur to assess whether the specific product or service
has the returns needed for the resources required
This evaluation process involves looking at:
the creation and length of the opportunity,
its real and perceived value,
its risks and returns,
 its fit with the personal skills and goals of the entrepreneur, and
its differential advantage in its competitive environment
5.Assessment of the
Entrepreneurial Team
Regardless of how right the
opportunity may seem to be, it will
not make a successful business unless
it is developed by a team with strong
skills
Once the opportunity has been
evaluated, the next step is to ask
pertinent questions about the people
who would run the company
 2.2. Business Idea Development
There are three types of Business Idea Development

1. Old Idea – Here an individual copy an existing business idea from

someone

2. Old Idea with Modification – In this case the person accepts an old idea
from someone and then modifies it in some way to fit a potential
customer’s demand

3. A New Idea – This one involves the invention of something new for the
first time
2.3. Business
Idea Every All business ideas are not equally worth,

Identification Therefore to identify promising business idea

among others.
 Every business idea should be based
on knowledge of the market and its
needs

2.4. Methods The market refers to people who

might want to buy a good or
for Generating service; i.e. the customers
Business Ideas
Below are different approaches to
generating business ideas
1.Learn from successful business owners

You can learn a lot from in your area who have experience
2.Draw from Experience

2.1Your own Experience

Look at the list of your interests, your experiences and your
networks
Are there any possible business ideas that you can derive from your
own past experience?
Have you ever searched all day for some items that you could not
find in any store in your area?
 2.2 Other People’s Experience
The people around you are potential customers
Ask your family and friends about the things they would
like to find that are not locally available
Expand your social knowledge by talking to people from
different age groups, social classes, etc
3.Survey Your Local Business Area

Another way of discovering business ideas is to look around

your local community
Find out what type of businesses are already operating in your
area and see if you can identify any gaps in the market
If you live in a village or small town, you may be able to
identify all the fields of business in the whole town
4.Scanning Your Environment
Natural resources
Characteristics and skills of people in the local
community
Import substitution
Waste products
Publications
Trade fairs and exhibitions
5.Brainstorming
Brainstorming means opening up your mind and
thinking about many different ideas
You start with a word or a topic and then write down
everything that comes to mind relating to that subject
Get your family, friends or classmate together and ask
them to help by writing down ideas they have when they
hear the word or subject matter
2.5. Business Idea Screening

Idea screening is the process to

spot good ideas and eliminate
poor one
 2.6 Essentials Characteristics of a Sound Business
Plan
Comprehensive: the business plan has to fully and completely treat all the major
issues facing the new venture
Communicative: the business plan is a document for communicating to various
audiences the business’s concept and potential
Guidance: the business plan can be referred repeatedly to guide decisions of the
firm’s managers and employees
Flexible: the process of putting together a business plan, consulting it frequently, and
reviewing and revising it periodically can improve the venture’s performance
2.7 Developing a
Business Plan
Hiring someone to write the plan is
unacceptable
Entrepreneurs should undertake personally
Outside consultants, accountants and lawyers
should be tapped for their advice and expertise
 Essential Components of
Business Plan
1. Cover (introductory) page- include:

Name of the business,

Name(s) and address(s) of principals
The date the plan was issued,
Nature of business,
Statement of financing needed,
Statement of confidentiality of report
 2. Executive Summary
•A snapshot of the highlights of your business plan.
• It provides a general overview of the plan’s main points.
•It is a condensed abstract of a business plan used to spark
the reader’s interest and to highlight crucial information.
•It gives a one- to two-page overview of your entire plan.
• Prepare it last, after the business plan has been written.
•Make it professional, complete, and
concise.
 3. Industry Analysis
• Helps to know which industry the
entrepreneur will be competing in.
• Major competitor should be identified,
with appropriate strengths and
weaknesses
 Some key questions the
entrepreneur should consider :
 How many new firms have entered this industry
in the past few years?
 What new products have been recently
introduced in this industry?
 Who are the nearest competitors?
 What is the anticipated growth in the industry?
 4. Description of the
Venture
• Key elements are:
 The product(s),
 The location and size of the business,
 The personnel and office equipment that will
be needed,
 The background of the entrepreneur(s)
 5. Production Plan
• If the new venture is a manufacturing operation, a
production plan is necessary.
• This plan should describe the complete
manufacturing process.
• Need to describe the physical plant layout; the
machinery and equipment needed to perform the
manufacturing operations; raw materials.
 Cont’d…
• If the venture is not a manufacturing but
a retail store or service, this section
would be titled "merchandising plan" and
purchase of merchandise, inventory
control system, and storage needs should
be described
 6.Marketing Plan
• Marketing mix strategies are to be drawn.
• It describes how the product(s) will be
priced, promoted and distributed.
 7.Financial plan
• Determines the potential investment commitment needed for the new
venture and indicates whether the business plan is commercially
feasible.
• An income statement or profit and loss statement shows your revenues,
expenses, and profit for a particular period- a snapshot of your business
that shows whether or not your business is profitable.
• Balance sheet- A financial document that shows the assets, liabilities,
and owner’s equity for a business.
• Cashflow statement- a financial document that provides all cash inflow
and cash outflow during a given period.
 8.Management &
Organization Plan
 What is the educational background of the management
team members? What special skills and abilities does the
management team have?
 Sketch a diagram of lines of authority for your operation.
Who acts as the president/CEO.
 It indicates the pattern of flow of responsibilities and duties
among people in the organization.
 Describes the venture's form of ownership
 9.Assessment of Risk
• New venture will be faced with some potential
hazards.
• Major risks for a new venture could result from a
competitor's reaction, weaknesses in the marketing or
production, and new advances in technology.
• It is important that the entrepreneur makes an
assessment of risk and prepares an effective strategy
to deal with them
 10.Contingency plan
• What will you do if you can’t follow through with
your primary plan?
• How are you preparing for an emergency in your
business?
 11.Appendix
• The last section of the business plan
• It contains supporting documentation.
• It provide information about the Curriculum Vitae/
Resumes of key personnel/owners, Ownership
Agreement, References (from credible persons),
Space leases; other legal documents.
 Why Some Business Plans
Fail
 Goals set by the entrepreneur are unreasonable
and not measurable
 The entrepreneur has not made a total
commitment to the business.
 The entrepreneur does not have experience in
the planned business.
 No customer need was established for the
proposed threats or weaknesses of the business.
End of chapter two!