6.

0 BUSINESS PLAN DEVELOPMENT

In this chapter, we shall discuss the structure of business plain which entails business description,
product/service description, definition of the product or service, marketing plan, organizational and
management plan, financial statement ( personal), executive summary and appendices.

General Objectives
By the end of the course the learner should be able to develop a business plan.
Specifically the learner should:
1. Explain the motives for capital expenditure and the steps followed in the capital budgeting
process.
2. Define business plan
3. Explain the importance of business plan
4. Explain the components of a business plan

1.1 Planning for the Business Venture

✓ Planning is a predetermine cause of action. It is a statement outlining an organizational mission
and future direction, short and long term performance, targets and strategies
✓ Planning as a formal document contain a mission statement description of the firm’s goods and
services, a market analysis, financial projections and description of management strategies
together with policies for attain the goals.
✓ Planning is a process of determining the goals and objectives of the enterprises for a future
period of time developing the strategies guiding the firms operational and utilizing the available
resources towards achieving the set goals and objectives.
✓ Planning involves;
o Predicting into the future by defining the enterprise mission statement
o Determining the organizational goals and objectives
o Formulating strategies towards achieving and objectives
o Assigning of responsibilities and functions
o Allocating resources
o Monitoring and evaluation
o Taking corrective action or re- designing the original.

Need for Planning

✓ Planning is the cornerstone and backbone of management.
✓ It covers all the functional levels and activities of the entrepreneurs/ enterprise.
✓ It involves predicting and projecting the future and making adequate arrangements on
how to reach there.
✓ Planning helps entrepreneurs in the following ways:
a. To develop the most effective way of achieving maximum growth.
 b. To properly informed about the competitors and the able to predict their next cause of
action
c. To meet up with the consumers’ needs and income
d. To meet up with the frequent changes in the market
e. To be acquitted with the market forces of fluctuations
f. To have adequate knowledge of the financial requirements of the business.

The planning function

✓ The planning function covers all activities of the business i.e finance, sales, marketing, personnel
management, research and development.
✓ Planning functions involve formulation of the enterprise goals, objectives, strategies, policies
standards, budgets, procedures and programmes to be embarked upon towards fulfilling the business
mission statement.

The components of planning function

a) Objective - is the measurable, verifiable, specific and attainable
- The objective gives focus and direction to a business mission statement.
b) Strategies - are a scheme & methods which an entrepreneur hopes to deploy in order to move
the enterprises from its present position to arrive at its targeted goals
c) Policies - are overall guides to action which must be followed consistently for the achievement of
organization goals
- they act as rules & regulations which an entrepreneur imposes on the enterprise
in order to achieve the major objectives.
d) Standards - are a planning function that permit an entrepreneur to use values as forms
(acceptable standards) when certain things have been adopted as norms in the entrepreneur, they acts
as control measures for evaluation of performance.
e) Budgets – are quantitative expressions of future cause of action. They usually show cash flow
of an organization and act as a guide especially for the entrepreneurial spending i.e
- sales budgets
- purchases
- experiences
- cash
f) Procedures - help and entrepreneur to chart the sequence or related tasks to be performed
for the accomplishment of the enterprises objectives
- it enables the entrepreneurship determine how a particular task will
performed and when it should be done.
g) Methods reveal the manner of performing specific tasks. It mainly prescribes how one step of a
procedure should be carried out.
h) Programme - are a set of activities undertaken to accomplish objectives e.g a production
programme may specify a production objective
Production standard or even production policies.

1.2 Business Plan

Definition: a business plan is a document that convincingly demonstrate that your business idea can sell
enough of its products and services so as to make products and services so as to make satisfactory profit
and attractable to potential financiers.

In other words a business plan in a road map you can follow to start and manage a successful business. It
shows step by step on how to start, fund, manage, monitor, and evaluate a successful business.

Business Plan as a Tool

1. Objective and goal creating tool
2. Management tool
3. Training tool
4. Promotion tool
5. Fund raising tool/capital
6. Staffing tool
7. Monitoring and evaluating tool
8. Business creation tool
9. Weakness/ omissions identifying tool
10. Measuring performance
11. For motivation

Why Prepare a Business Plan

1. To avoid silly mistakes
2. It defines and focus business objectives and goals
3. As a tool for fundraising, marketing, monitoring, evaluation, staffing
4. To be realistic on our intentions
5. To clearly communicate your vision/ ideas to other within and outside.

Who should writes a Business Plan?

1. should be written by entrepreneur since he/ she is the owner of the business idea and is
the custodian of the vision
2. Can be written by consultants and employees.

What is a “good” Plan?

1. a good plan should be dynamic document which should be available for reference for
decision making evaluation and future plans
2. it should clearly communicate visions and ideas
3. should show the evidence of understanding of target customers
4. Appealing to the potential financier.

Benefits
1. It forces would be entrepreneur to establish written goals and objectives for their
proposed businesses.
2. It enables potential entrepreneur to assess the viability of their business opportunity on
 paper
3. It assist in identifying the potential customers, marketing opportunities, pricing strategy,
promotional activities, distribution strategy and a competitive conditions needed for
business success.
4. It identifies the number of employees needed, the skills they should possess, the task they
will perform and the methods of remuneration to be adopted.
5. It establishes the financial needs of a business and suggests the possible sources of
financing
6. It helps to identify critical factors for successful entry and growth of a businesses in a
given market place.

Components of a business plan

Business plans include details under the following main sections;

1. Executive summary
2. Business description
3. Marketing plan
4. Competitor analysis
5. Management plan
6. Business operation (production/ service, delivery plan)
7. Financial plan
8 Appendices

Executive Summary
N/B. This should be done last
It includes the;
1. Type of venture
2. Products/ service to be offered ‘
3. How unique
4. It there a major opportunity for products/ services
5. The business status/ stage
6. Legal form of business
7. Location of business
8. Target market
9. % share of market
10. Competitor strength and weakness
11. Strategy of entering the market
12. Managing staff and their qualifications and experiences
13. Time frame for accomplishing your goals.
14. How much money needed for starting and running the business
15. What type of financing are seeking
a. Loan
b. Grand
16. The strength of the business that will make it succeed
17. Future plans of the business
Business Description
For a new startup business it will include
1. objectives, vision, mission statement and goals
2. specific objectives (SMART)
a. service objective (qualify of service)
b. profit objective (actual % and amount targeted)
c. growth objective
d. social objectives (corporate responsibility)
3. type/form of business venture
4. date of commencement
5. physical location
6. advantages of the location
7. postal address, physical address/street/buildings/road
8. telephone contact/ email/ fax/website
9. brief history of the business (company)
10. experiences of the owners

Marketing Plan
1. description of the target market (customer segment)
2. description of products/services
3. prices of products/services
4. distribution of products/services
5. promotion of productions/services

Competitor Analysis
1. internal analysis both strength and weakness
2. external analysis (opportunities and threats)
3. environmental analysis (political, social, economic, regulatory factors that can impact on
your business)

Management and Organization

1. key management staff
a. their positions/designations and responsibilities
b. qualification and experience
2. other staff
a. their positions/designation and responsibilities
b. qualification and experience
c. Their number.
3. Human resources practices
a. Staff recruitment
b. Motivation
 c. Training and development
d. Reward and recognition
e. Staff appraisal

Business Operation
1. Product/service development design and facilities.
2. Description of premises
3. ownership status
4. renovations/facelifts/medications
5. products and services to be offered
6. machinery, tools, equipment and other facilities required
7. implementation
a. procurement
b. repair and maintenance
c. repair and maintenance
d. future expansions
8. legal requirements: business name, tax compliance, labour laws, by-laws e.t.c
9. monthly overhead expenses
10. professional and support services

Financial Plan
1. Pre-operational costs (costs before start-up)
2. Working capital
3. Projected monthly cash flow statement
4. Projected annual cash flow statement
5. Projected proforma income statement
6. Projected balance sheet

Appendix
1. brochures and advertisement materials
2. maps and photos of location
3. copies of lease and contracts
4. company certificates of registration
5. list of assets available as collateral for a loan
6. copies of licences
7. research and marketing results
8. any other materials needed to support your business plan
9. list of equipment owned or to be purchased

How does Potential Lenders and Investors Evaluate the Plan

✓ Potential readers or evaluators should reflect on the strengths of management and personnel, the
product or service and the available resources.
✓ Suppliers who may want to see a business plan before signing a contract together with customers who
 may want to see the business plan before buying the product or service and the available resources
✓ Suppliers who may want to see a business plan before signing a contract together with customers who
may want to see the business plan before buying the products pay more attention to the
o experience of the entrepreneur
o Market projections
✓ Lenders will primarily be interest in the ability of the new venture to pay back the debt of together
with the interest within a designated period of time.
✓ Banks want facts with an objective analysis of the business opportunity and all the potential
risks associated with a business
✓ Lenders focus on the 4cs of credit i.e
o Cash flow
o Collateral
o Character
o Contribution of equity
✓ The business plan must therefore reflect the entrepreneur’s credit history, the ability of the
entrepreneur to meet the debt and the interest payable (cash flow) the collateral or tangible assets
being secured for the loan and the amount of personal equity the entrepreneur has invested in the
business.
✓ Investors on the other hand place more emphasis on the entrepreneur’s character then lenders.
✓ Investors want to make sure that the entrepreneur is complaint and willing to accept this involvement.
✓ They also demand a high rate of returns and will therefore focus on the market and financial
projections
✓ In preparing a business plan it is important for the entrepreneurs to consider the needs of external
sources and not merely provide their own perspective.

Presenting the Business Plan

✓ It is often necessary for an entrepreneur to orally present the business plan before and audience of
potential investors – in this case the entrepreneur is expected to provide a short presentation of the
business plan.
✓ The entrepreneurs are expected to sell their business concept in this short period – try and persuade
potential investors that his is a good investment
✓ The focus of such presentation is why this is a good opportunity – an overview of the marketing
program.
✓ Concluding remarks might reflect the recognized risks and how the entrepreneur plans to address
them.
✓ Unlike oral presentation –written presentation requires the entrepreneur to consult where necessary the
services of lawyers accountants, marketing consults and engineers in preparation of the business plan.
✓ The plan must give a detailed account of the needs of the expected readers.

Information Needs
✓ Before committing time and energy to preparing a business plan, the entrepreneur should do quick
feasibility study of the business concept to see whether there are possible barriers to success.
✓ The information obtainable from the many sources should focus on
 o Marketing
o goals and objectives
o finance
o production

Goals and Objectives

✓ Before beginning the feasibility study the entrepreneur should clearly define the goals and objectives
and also provide frame work for the business plan, marketing plan and financial plan.
✓ Goals and objects that are too general or that are not feasible make the business plan difficult to
control and implement.

Market Information Needs

✓ One of the initial and important elements of information needed by the entrepreneur is the market
potential for the product or service
✓ In order to ascertain the size of the market it is important for the entrepreneur to define the market e.g
the consumer group men, women, youths e.tc.
✓ The consumers income – high or low- are they rural or urban deadlier.
✓ The education level is another important aspect of consideration
✓ A well defined target market will make it easier to project the market size and subsequent market
goals.
✓ In order to build a strong marketing plan with reasonable and measurable market goals and objectives
the entrepreneur will need to gather information on the industry and market.
✓ Most entrepreneurs have difficulty with this stage and do not of tern known where to begin. The best
way to start is to first visualize the following process of gathering market information.

An upside –down pyramid approach to gathering information (for a food business)

✓ This means that we start with very broad –based data and information and work down until we
develop a positioning strategy and quantifiable goals and objectives.
✓ We begin the process by evaluating the general environments trends – this would include household
income trends.
o Population shifts
o Food consumption habits and trends
o Travel trends and
o Employment trends
✓ The next step is to assess the trends in the national food service industry- here the points of interest
would be;
o Total food sales
o The commercial restaurant sales etc.
✓ This first two stages focuses on the national market and the located
✓ This consists of the general local economic trends and as assessment of the local food industry
✓ The final step is an analysis of the local competitive environment by analyzing each competitors
strengths and weaknesses.
✓ Once this analysis is completed, the entrepreneur is ready to clarify the product of service he/she
would offer, the actual market positioning in the competitive environment and the market objectives –
in order to form the marketing plan.

Writing of a Business Plan

✓ The time of writing a business plan depends on the experience and knowledge of the writer
(entrepreneur) as well as the purpose it intends to serve.
✓ It should be comprehensive enough to give any potential investor a complete picture and
understanding of the new venture
✓ The following is a simple outline of a business plan.
Outline of a Business Plan
1. Introducing page;
a. Name and address of the business
b. Names and addresses of the principal owners
c. The nature of the business
d. Statement of financing needs
e. Statement of confidentiality of the report
2. executive summary
3. description of the venture ( business )
a. the product/services offered
b. the size of the business
c. the background of the entrepreneurs
4. the production plan
a. the manufacturing process
b. the physical plant and machinery
c. the suppliers
5. the marketing plan
a. the pricing
b. the
distribution
c. the promoters
6. competitors analysis
7. Management plan
8. Financial plan
9. Appendices

Introductory page
✓ This is the title of cover page that provides a brief summary of the business plan’s content. The
introductory page should contain the following:
o The name and address
o The names of entrepreneurs (Tel, Fax , Email , Box etc)
o A description of the company and the business nature
o The amount of finance needed
o A statement of the confidentiality of the report.

Executive Summary
✓ This section of the business plan is prepared after the total plan is written – normally to maximum of
two pages.
✓ It should stimulate the interest of the potential investor and therefore should not be taken lightly
✓ The executive summary should be concise and convincing, addressing issues such as
o The business concept or model
 o The unique aspects of concept
o The individual starting the business
o How the money will be made and how much
✓ Any supportive evidence that may give it strength are included
✓ The section is only meant to highlight factors and provide a strong motivation to the person reading
the plan.

Description of the Business

✓ The description of the venture should be detailed so as to enable the investor to ascertain the size and
scope of the business
✓ This sect ion should begin with the mission statement and vision of the business venture
✓ The statement basically describes the nature of the business and what the entrepreneur hopes to
accomplish
✓ The definition will guide the firm through long –term decision making
✓ After the mission statement a number of important factors that provide a clear description and
understanding of the business venture should be discussed.
✓ Key elements are the
o Products or services
o The location and size of the business
o The history of the venture.

Production Plan
✓ The plan should describe the complete product. If some or all of manufacturing process is to be
subcontracted
✓ The plan should describe the sub-contractors, including location, reasons for selection, costs and any
contracts competed.
✓ Others include – manufacturing operations and layout the raw materials the suppliers, costs capital
equipment etc.

Operation Plan
✓ This section goes beyond the manufacturing process and describes the flow of goods and services
from production to the customer
✓ It includes storage, shipping, control procedures, customer support services
✓ Others include renovations, product service, machinery and tools etc

Marketing Plan
✓ The marketing plan- is an important part of the business plan since it describes how the product or
service will be distributed, priced and promoted.
✓ Marketing plan – is an important part of the business plan since it describes how the product or
service will be distributed, priced and promoted
✓ Marketing research evidence to support any critical marketing decisions as well as forecasting
sales should be described in this section.
Organization Plan
✓ The organizational plan in part of the business plan that describes the ventures form of ownership
✓ That is, proprietorship, partnership or corporation
✓ The details the shares of stock authorized, share options as well as names and resume of directors
✓ It details the organizational structure.

Financial Plan
Is an important part of business plan since it determines the potential investment commitment needed for
the new business venture and indicate its economic feasibility