Topic 7: Business planning

May be defined as:

 Business plan is a document that describes the goals and objectives of the business and
clearly state how and when they will be achieved. It is a detailed document that acts as a
blueprint/road map for starting and owning a business.
 It is a proposal that describes a business opportunity for financing agencies or interests.
 The written document that details a proposed venture. It must illustrate current status,
expected needs and projected results of the new business.

It is written to:

• Obtain finance
• Guide in operation of a business
• Guide in management of a business
• Communicate clearly to the interested parties
• Marketing the business
• Act as a blue print to achieve business goals

When is a business plan written?

• After deciding to go into business/one with a business idea

• Before starting the business
• When updating is required especially when the owner wants to expand the business
• One looking for partners- serious partners will only accept if the business venture
promises success.
• When the business is facing troubles/challenges

Benefits of a business plan

• It is a financial tool that provides information if one wants to obtain a loan

• It enables potential entrepreneurs to assess the viability of their business opportunity on
paper.
• It forces entrepreneurs to establish written goals and objectives for the proposed business.
• It establishes the financial need of a business and suggests the possible sources of
financing.
• The business plan tests ideas on paper.
• It indicates the owners’ ability and commitment.
• A business plan is a blueprint or guidelines for starting and running a business.
• It attracts outside talents- a well written business plan can entice top level talent to come
aboard.

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 • It reduces risks of failure- it identifies areas of weakness and therefore provide insight
into the factors to enhance performance of the business.

Qualities of a good business plan

1. Simplicity and clarity- in order to be attractive and motivating to the reader, the business
plan should be simple and sentences should flow logically and each sentence should be
clear.
2. Brevity – should be brief and straight to the point.
3. Logic – ideas should follow one another in a logical sequence. Paragraphs should be
connected.
4. Realistic – do not overstate the facts.
5. Use of figures- words should be backed with figures especially in financial plan.

Components/elements of a business plan

They include; executive summary, business description, marketing plan, management

and organizational plan, production and organizational plan and financial plan.

FORMAT OF A BUSINESS PLAN

Sample Cover page

Business plan

Name of the business

P.O BOX…………..

Telephone

Email

Logo

Presented by

Admission number

Presented to…..(name of the institution)

In a partial fulfillment of the requirement for award of degree in ……..

Supervisor ……….

April 2019

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Preliminary pages

i. Declaration
I hereby declare that the business plan is my original work and that it has not been
presented for the award of a degree to any institution’
Name……………………………..
Admission number…………………………….
Signature………………….Date…………….

Supervisors’ Name………………………..
Signature………………………Date…………………
ii. Acknowledgement
iii. Dedication
iv. Table of content
v. Executive summary
 Summary of important points in each chapter and should not be less than 5-8 lines
for each component.
 It should not be more than one and a half pages.
 It should include summary of ; business description, marketing plan, management
and organizational plan, production and organizational plan and financial plan.

CHAPTER ONE

1.0 Business description

1.1 background of the owner

This is the details of the owner of the business are included e.g name of the owner(s), age,
marital status, address, occupation, education, professional qualifications and business
experience. State products/services that the business will offer, suggest when it will start
operating, indicate if it is a new business venture or otherwise. Include the business name and its
origin, the vision statement and mission of the business. Show their relevance to the business.

1.2 Business name

 It means the name of the business

 Need to describe how the name was selected
 One needs to come up with the logo of the business
 Logo identifies the business

1.3 Business location and address

 It means where the business will be located, the place and also the cite
 Include a map of the location

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  Physical address of business including email and website

1.4 Form of ownership

The form of ownership may include;

 Sole proprietorship
 Partnership
 Private company/public company
 Co-operatives
 Give reasons for choosing that kind of ownership
 Give advantages and disadvantages to show that you understand the business you are
going to start.

1.5 Type of business

 It gives whether the business is a start-up or on going

 Give some of the activities of the business

1.6 products and services

 What product(s)/service(s) are you going to offer?

 Describe clearly and include features of products and services for example indicate size,
color, shape, materials, quality, packaging of the product.
 What benefits will customers obtain from using your product/ service e.g consider the
performance, convenience, economy, comfort, durability, usage, flexibility, servicing,
warranties.

1.7 Justification of opportunity

The reasons for choosing that kind of business e.g exploit resources, nutritional value of the
opportunity, niche market, technology advancement, professional qualifications, unmet demand,
climate favorable, infrastructure and security etc.

1.8 Industry

Which industry does your proposed business belong? E.g matatu belong to transport industry,
consider the total number of firms in that industry or competitors.

What is the industry trend? Is the industry growing, declining or stable? Explain what is
happening in the industry.

Industry characteristics -that is capital requirements and kind of technology in that industry
including capital investment and labour requirements.

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1.9 Goals of Business/ Objectives

1.9.1 Goals

What does the business want to achieve in the long term? For example to become a quality
leader, market leader, penetrate in the other markets.

1.9.2 Objectives

What does the business want to achieve in the short term? For example to maximize profits,
increase sales, minimize costs.

1.10 Entry and Growth strategy

 It means how you will penetrate and gain acceptance in the market
 Need to consider the competitive advantages among competitors, pricing and distribution,
advertisement or promotional methods.

1.10.1 Entry plan/strategy

i. Competitive advantages of the business that what your business has, compared to
competitors
ii. Weakness of the competitors
iii. Price plan- how you will set your prices for your products
iv. Plans to attract consumers- methods you are going to use e.g promotions, advertisements

1.10.2 Growth plan/strategy

i. Trends which signal business growth/signs of business growth

ii. Opportunities coming from the trends/opportunities.

Carry out a SWOT analysis or use the 4P’s of marketing as strategies for entry and growth.

CHAPTER TWO

2.0 Marketing plan

2.1 Customer

 Understanding potential customers or current customers is important for any business

because there is a need to determine if your customers are; wholesalers, retailers, user/
individuals, households and institutions like schools, hospitals, churches etc
 You need to determine location of your customers e.g how many they are, their income,
age, size, education, occupation etc
 What will your customers be looking for in your product/ service? For example quality,
price, shape, efficiency etc

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2.2 Market share/size

It is the amount of unit sales, the estimated expected total sales in units per month or quarterly or
yearly. In estimating the market size, one needs to list down the businesses selling similar
products in the market; Before you penetrate in the market and after penetration. Market
share is expressed in %.

2.3 Competition

 Need to understand what your competitors are doing

 Analyze factors that have contributed to their success or failure
 Determine if there are gaps to be filled
 Determine your potential competitors and their size in terms of assets, sales volume and
market share of the major competitors
 Determine the strength and weakness of the competitors
 Plans to capitalize on the weaknesses of the competitors.

2.4 Methods of promotion and advertisement

i. How often will you advertise?

ii. How much will each advertisement cost?
iii. What promotion campaign will you undertake when introducing the product/service e.g
free samples or free introductory services
iv. What promotional methods will you employ on regular basis e.g trade shows,
sponsorships of competitions and the cost of promotion per events
v. How will you measure the effectiveness of your promotional campaign

2.5 Pricing strategy

i. The methods of calculating the selling price for your products/services

ii. Factors which will influence your price setting include; income of clients, prevailing
market prices, cost of raw materials, nature of competition
iii. Credit terms to be offered; what kind of credit will you give to loyal customers?, when
are you going to offer credit?, when will your customers pay back?
iv. Discounts offered; cash discounts when one pays promptly, trade discounts when one
buys in large quantity
v. Any after sales service; offered after purchase e.g transport, warranty, installation etc

2.6 Sales tactics

i. Selling tactics to employ e.g direct selling to the customers or personal selling or selling
indirectly (through an agent)
ii. If selling indirectly to customers through agents or distributors, how will you recruit,
retain, remunerate and motivate your sales force?

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2.7 Distribution strategy

i. How will your products/services reach your customers? E.g through sales representatives,
wholesalers or distributors?
ii. What means of transport will you use? e.g road, air, rail etc
iii. How much will the chosen means of transport cost you per month or for a given period of
time?
iv. What distribution problems do you anticipate and how will you solve these problems?

CHAPTER THREE

3.0 Organization and management plan

3.1 Management team

These are members of the management team for your proposed business e.g human resource
manager, managing director, production manager, marketing manager, finance manager etc

3.1.1 Description of the management team

 Duties and responsibilities

 Their qualifications
 Experience i.e years of work experience at a managerial level.

3.2 Other personnel

These include other employees who are not in the management team.

 Duties and responsibilities

 Their qualifications
 Experience i.e years of work experience

DRAW AN ORGANIZATIONAL CHART ( Fig. 1)

3.3 Recruitment, training and promotion

3.3.1 Recruitment

Describe how managers and other personnel will be recruited e.g poaching, advertising,
recruitment agencies, word of mouth.

3.3.2 Training

E.g induction training, on the job training, workshops, seminars etc

Explain the purpose of training

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3.3.3 Promotion

Criteria for promoting the personnel e.g promotion on basis of evaluation/merit, after training
and attaining qualifications and experience

3.4 Remuneration and incentives

Indicate firm policy on remuneration e.g to offer attractive salaries to employees so as to

motivate and retain them.

3.4.1 Remuneration and incentives

Title No. Monthly pay Allowances/benefits Total

Managing Director 1 40, 000 20, 000 60, 000

3.4.2 Incentives

They are bonus, commission, lunch, tea, overtime allowance.

3.5 Licenses, permits and by-laws

3.5.1 Licenses

Trading licenses are paid for in order to start trading. Where will you get the license and how
much will it cost you? City council license?

State the purpose of trading license

3.5.2 Permits

Depending on the nature of the business e.g milk business will need permit from Kenya Dairy
Board, for beer from Kenya Liquor Licensing Board, School from Ministry of Education or
District Education Board.

3.5.3 By-laws

The business need to comply with the by-laws issued by ; county council, municipal council or
city council.

Give reasons why your business needs to comply with the by-laws.

3.6 Support services

To enable it carry out its operations effectively.

3.6.1 Banking services

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The bank to open the account and the branch, type of account and purpose of the account

3.6.2 Insurance services

Firm which will insure your business, indicate what you want to insure against and how much is
it likely to cost

3.6.3 Consulting services

Indicate who will be your consultant and the kind of advice expected.

3.6.4 Legal services

Legal services will be required when writing contracts, drafting legal letters, interpreting labour
laws and employment.

Indicate the legal firm and the lawyer(s)

CHAPTER FOUR

4.0 Production/Operation plan

4.1 Production facilities and capacity

 Types of facilities required and the cost of each

 Explain plans for repairs and maintenance of the facilities/machineries
 Show your factory/office layout
 Levels of production (maximum and minimum)
 Explain expansion and future plans of the office/factory

Production, facilities and capacity

Item Quantity Cost Capacity

Office 2 rooms 40, 000 5 office personnel

Store 2 rooms 20, 000 1 ton of tools/removable equipment

4.4.1 Firm layout

Draw a firm’s layout

4.2 Production strategy

These are the methods used to produce the products/services

 Describe production development from idea to saleable product/service

 What changes do you in technology and will you cope with them?

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  Describe your material requirements, who will be your main supplier? what alternative
sources are available?
 Describe the monthly production cost for the products and services
 What will be the total production cost in a month?
 Purchasing and stock and stock control methods to use.

4.3 Production process

 Show stages in producing the product/service

 Production materials involved in production process
 What external factors are likely to affect the production process
 How will you ,minimize the effects of external factors
 Indicate factors that affect production process

4.4 Regulations affecting operation

4.4.1 Health regulations

The requirements of public health will be adhered to in handling all the company’s products

Regular advice that will be sought from the government departments

4.4.2 Safety

Necessary measures that are taken or followed to guard against physical injuries/health of the
workers e.g use of the mask, boots, jackets, helmet etc

4.4.3 Environmental regulations

These are the emerging issues in the running of any business.

Are there measures to conserve the environment?

CHAPTER FIVE

5.0 Financial Plan

The financial plan analyzes financial requirements of the business and also develop the financial
plans

5.1 Pre-operational costs

Pre –operational means the cost incurred before the start of the business.

ITEMS AMOUNT (KSHS)

Research / traveling xxxxx

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Designing the logo xxxxx

Licenses xxxx

Advertisement xxxx

Recruitment xxxxx

Professional fee xxxxx

Installation of electricity/plant xxxxx

Utility bills xxxx

Rent deposit xxxxx

Total xxxxx

5.2 Working capital

Current assets Amount Kshs

Stock at hand xxxxx

Cash at bank xxxxx

Debtors xxxxx

Total xxxx

Current liabilities

Bills xxxx

Salaries xxxx

Bank loan xxxx

Creditors xxxx

Total xxxx

WC= CA-CL

5.3 Projected income statement

Items Amount kshs

Cash sales xxxx

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Less cost of sales/purchases xxx

Gross profit xxxx

Expenses

Salaries xxxx

Electricity xxxx

Transport xxxx

Rent xxxx

Insurance xxxx

Total expenses xxxx

Net profit before tax xxxx

Less provision for tax xxxx

Net profit after tax xxxx

5.4 Projected Balance Sheet as at 31st December 2020

This is a financial statement that shows the financial position of the business for a certain period
of time (usually one year)

Balance sheet as at 31st December 2018

Fixed Assets Capital Liabilities

Item Amount kshs Item Kshs

Building xxxxx Owner equity xxxx

Land xxxx bank loan xxx

Motor vehicle xxxx Family contribution xxxx

Less depreciation xxxx Profit/loss A/C XXX

Furniture & fittings xxxx

Less depreciation xxxx

Total xxxx Total xxxxx

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Current Assets Current Liabilities

Stock xxxxx Creditors xxxx

Cash at bank xxxx Bills xxxx

Cash at hand xxxx salaries xxxx

Debtors xxxx

Finished good xxxx

Raw materials xxxx Total xxxx

Total xxxx

5.5 Break-even point

Variable costs Fixed costs

Item Amount Item Amount
Telephone bills xxxx Salary xxxx
Water xxxx Rent xxx
Power xxxx Loan payment xxxx
Purchase xxxx Insurance xxxx
Miscellaneous xxxx License xxxx
Transport xxxx
Total variable costs Total fixed cost

5.6 Profitability ratios

Gross profit %

Net profit%

5.7 proposed capitalization

Source Amount
Bank loan Xxxx
Cooperative /sacco loan Xxxx
Personal savings Xxxx
Equity finance Xxxx
Total Xxx

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5.8 Desired Financing

ITEM AMOUNT
Pre- operational costs Xxxx
Working capital Xxxx
Total Xxx

5.8 Projected cash flow statement starting from 31st January 2020

REFER TO THE SAMPLE BUSINESS PLAN PROVIDED.

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