Edexcel International
A Level Business
2.3.1 Planning a business and raising finance
1 PLANNING
Revisionstation
Worksheet
From the specification
a) Content of a business plan.
b) Relevance and uses of a business plan.
What is a business plan?
What is a business plan?
• A document which sets out the
future plans for a business
• It is how an business owner will
explain how they will turn their
idea into a successful business
• The owner may then show the
plan to a bank or another
investor (angel, VC) to ask for
finance to help the business
grow and expand
Why does a business write a business plan?
• To persuade lenders that the business will
make enough profit to be able to pay back
interest and loan capital on any finance taken
out
• Attract potential investors to the business
• To give the owners some direction – once a
plan is written down it is more likely to be
followed
• To set targets (smart) and objectives that can
be followed
Why does a business write a business plan?
continued
• To identify early on any problem
areas that the business might
face
• To monitor their effectiveness -
if they knew what they were
aiming for at the end of the year
they could see if they have
achieved it
Content of a business plan
What’s included on a business plan?
?
Specification Covers the Following
• Executive Summary
• Elevator Pitch
• The business and its Objectives
• The Business Opportunity
• Owners Background
• The Market
• Personnel
• Premises and Equipment
• Costing and Financing
• Financial Forecasts
Executive Summary "An extraordinary work—pure excitement." —New York Times Book Review
One Ring to rule them all, One Ring to find them, One Ring to bring them all and in the
darkness bind them
In ancient times the Rings of Power were crafted by the Elven-smiths, and Sauron, the Dark
Lord, forged the One Ring, filling it with his own power so that he could rule all others. But
the One Ring was taken from him, and though he sought it throughout Middle-earth, it
remained lost to him. After many ages it fell by chance into the hands of the hobbit Bilbo
Baggins.
From Sauron's fastness in the Dark Tower of Mordor, his power spread far and wide. Sauron
gathered all the Great Rings, but always he searched for the One Ring that would complete
his dominion.
Back Page Blurb When Bilbo reached his eleventy-first birthday he disappeared, bequeathing to his young
cousin Frodo the Ruling Ring and a perilous quest: to journey across Middle-earth, deep into
the shadow of the Dark Lord, and destroy the Ring by casting it into the Cracks of Doom.
The Lord of the Rings tells of the great quest undertaken by Frodo and the Fellowship of the
Ring: Gandalf the Wizard; the hobbits Merry, Pippin, and Sam; Gimli the Dwarf; Legolas the
Elf; Boromir of Gondor; and a tall, mysterious stranger called Strider.
Specification Covers the Following
• Executive Summary
• Some argue this is the most important section of the plan
• A summary of the whole plan and should be written last
• Anyone who only reads parts of the plan such as potential
investors/banks will always read this
• Briefly describes the business opportunity, marketing, and sales
strategy, operations, and finance.
• The purpose is to trigger interest and stimulate a reader to
want to know more
Elevator Pitch
• Imagine you're in an elevator with your ideal investor, a perfect customer, or your
dream boss. You only have a minute of that person's time – what do you say?
• Activity – You will prepare to deliver a elevator pitch for a product/business of
your choice
• An elevator pitch is a brief, persuasive speech that you use to spark interest in
what your organization does
• Used to pitch the idea to investors, money lenders, and customers
• Should be a summary, quick and concise, and delivered in a time an elevator ride
would take (approx. 2 minutes)
• Should introduce the business. Its aims. Its name, what it does, how its different
from competitors etc.
The Business and Its Objectives
• Name, trading address
• Legal structure and objectives
• All the planning process is driven by the businesses aims and objectives
• Early objectives for a new business or product may be break even or
survival
The Business Opportunity
• What it plans to sell
• Very important as readers may not be familiar with the products
• May be of a highly technical nature or outside the reader’s interests
• Possible to provide visual material
Owners Background
• Are entrepreneurs competent and trustworthy?
• Motives for setting up the business
• Level of Commitment
• Nature of their training and experience
• Qualifications
• Skills and characteristics
The Market
• Size of potential market
• Methods of advertising and promotions
• The role played by social media
• Business website
• Literature such as leaflets
• Role [played by word of mouth advertising
Specification Covers the Following
• Executive Summary
• Elevator Pitch
• The business and its Objectives
• The Business Opportunity
• Owners Background
• The Market
• Personnel – numbers needed and skills
• Premises and Equipment
• Costing and Financing – set up and running costs
• Financial Forecasts – sales forecast, cash flow forecasts
What’s included on a business plan?
• A cash flow forecast on the plan will
show the expected income and
expenditure of a business over the
coming year
• Cash flow forecast will help to show a
bank that the interest rates can be
afforded on any finance that they
borrow
• Cash flow forecast will show the liquidity
of the business (how quickly it can raise
cash) and its ability to pay its bills
• A business plan will NOT improve cash
flow that will be down to how well the
business trades
What else goes into a business plan?
A. Name of the business (“Cutting Crew” or “curl up
and dye” for hairdressers)
B. Product or service and the market it is aimed at
C. 4 Ps of marketing
D. Human resources; who will be working there,
managers, owners etc.
E. Production costs and potential suppliers of materials
F. Premises and how it will be financed; rent,
mortgage, bought outright, leased from council
G. Financial information; projections on revenue, costs
and profits
Relevance of a business plan in
obtaining finance
Purpose of a business plan
1. To help set up a new business
2. To help the business raise
finance
3. To help the business to set
objectives
4. To outline how functions of
the business will be organised
#1 To help set up a new business
• A business plan will help an
entrepreneur to decide what resources
they need to start their business:
Human resources; For example the
staff needed for a clothes shop
Equipment; For example scissors and a
sewing machine
Raw Materials; for example cloth or
lace
Technology: for example the till or
business computer
Vehicles; for example the company van
#2 To help the business raise finance
A business plan may help to
persuade lenders that the
business will make enough profit
to be able to pay back interest
and loan capital on any finance
taken out
A business plan should include a
cash flow forecast and sales
forecasts
#2 To help the business raise finance
A business plan may help to obtain
finance from; from venture
capitalists, banks, angel investors, or
even family members
The lenders are going to want to see
numbers that say the business will
grow and that they can make a
profit
The better the financial information,
the more confident they will be in
investing – this will reduce the risk
for the investors
#2 To help the business raise finance
A business plan may help the
business to negotiate a lower
rate of interest on a bank loan
Alternatively the business plan
may help the owner to negotiate
a lower percentage of equity to
the venture capitalists or angel
investors (see video)
#3 To help the business to set objectives
A business plan can show how a
business aims to achieve its goals
For example it may show any
planned activities of the business
e.g. a launch night for a new
restaurant
It should also show any potential
investors what amount of sales
and profit the business aims to
achieve
#3 To help the business to set objectives
• A business plan should set
targets (SMART) and objectives
that can be followed for the
business
• The business owner can then
monitor if they are meeting their
objectives
• The business plan may also set
out how the company aims to
grow and develop in the future
#4 To outline how functions of the business
will be organised
• The business plan may show • In a small business this may not
how many staff and location of be relevant as it may just be the
the following departments; business owner carrying out all
Production the functions
Marketing
Purchasing
Human Resources
Accounting and Finance
Sample practice questions
(a) Define the term executive summary. (2 marks)
An executive summary is an overview of the business start-up. It describes briefly the business opportunity to be exploited, the
marketing and sales strategy, operations and then finance. For example, in this case, Instant Road Rescue (IRR) is a 24-hour
breakdown recovery service based in Kochi, the largest city in Kerala, with a population of over 2 million. IRR will respond to
breakdown calls within a 30 km radius of Kochi and transport broken down vehicles to any location within 200 km.
Also, in relation to marketing, IRR will be promoted by listing the service in appropriate directories, using roadside posters
highlighting the easily memorable contact number (IRR 0484 448844) and placing leaflets on parked cars in the city (in the hope
that many drivers will see the leaflet.) The use of social media by callers will be encouraged to inform friends and relatives about
the service. IRR will also have a transparent pricing policy. This is a unique selling point.
Callers will be charged a Rs 2000 call-out fee plus Rs 20 per km. There are also some brief details about market research,
operations and the financing needs of IRR. Ideally, after looking at the executive summary a reader will be keen to know more.
The executive summary should be written last because it is a summary of the whole plan. Some would argue that this is the most
important part of the business plan. This is because anyone who reads only part of the plan will always look at this particular
section.
(b) Explain the purpose of an elevator pitch in a business plan. (4 marks)
Some business plans contain an elevator pitch. Entrepreneurs will be expected to tell others about their business idea –
particularly investors, money lenders and potential customers. Therefore, a useful section in a business plan will be the
elevator pitch.
This is a summary that can be used in a ‘pitch’ about the business. This is likely to be a 2-minute talk introducing the
business – its name, what the business does, its aims, how it is different from competitors, and who it is for. Jagbir and
Kafar will have to repeatedly explain to people such as the bank, suppliers, subcontractors, potential customers and new
employees what the business is all about. If they have written an elevator pitch in their business plan and learnt it, they
will be able to communicate their business idea quickly and clearly. Like the executive summary, the elevator pitch should
also be written after the business plan has been completed.
(d) Assess the purpose and relevance to Instant Road Rescue of a business plan. (10 marks)
For many people, setting up a business is a life-changing decision and will have wide-ranging consequences. Therefore, it is necessary
to spend some time carefully planning the whole process. Indeed, research has shown that start-up businesses that have prepared a
business plan are more likely to succeed than those which have not. The business plan is how the business will develop over a period
of time, like 1 or 2 years. A business plan will also be needed to support applications for funding, both at the start-up stage and in the
future. Money lenders and other investors are not likely to invest in a business unless owners can provide a clear, concise vision of
the future of the business. In particular, investors will want to know how the finance is going to be spent and when, and how it is
going to be repaid. Writing a thorough business plan will improve the chances of success for IRR.
In particular, it will force Jagbir and Zafar to take an objective, critical and unemotional look at the whole business idea. A business
plan will also provide a strategy for the development of the business. Further, it will provide an action plan which identifies key tasks
which must be undertaken and goals which must be met to improve the chances of success. The Singh brothers have been involved
in a business before but never taken responsibility for running such an organisation. Therefore, they will need a clear vision. A
business plan will also help to highlight potential problems in advance so that solutions can be found.
In this case, Jagbir and Kafar wrote a comprehensive business plan before they started trading. The plan was also used to help raise
finance for the venture – a Rs 1 million bank loan. Kafar said ‘Writing the business plan was a bit of a chore. It took a long time and all
we wanted to do was to get trading. However, writing the plan ensured that we were well prepared when the launch eventually
came. It made us think through a lot of important issues and helped us to avoid mistakes. For example, if we had not written the plan
we would have overlooked the importance of social media in our marketing. The plan also helped us to get finance for the business.
The bank could tell that Jagbir and I were thorough, committed, honest and realistic.’ Finally, the business plan will help show
readers that Jagbir and Kafar are cautious, responsible, serious and trustworthy entrepreneurs. Their venture is ambitious and a lot
of money is at stake. To begin such a venture without a thorough business plan could have been disastrous
Case study
for
question 1
Sample question 1
Knowledge Application Analysis
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Answer
sample
question 1
Glossary
• Business plan; A document that describes a businesses aims and
objectives and how they can be achieved, and how the business
intends to develop over time.