CHAPTER 1: PLANNING THE ENTERPRISE

WHAT IS A BUSINESS PLAN FOR?

Entrepreneurs who plan to enter any business endeavor must have a business plan on hand to guide
them throughout the process. Different business plans are prepared for different purposes. There are
business plans written prior to setting up an enterprise, which are similar to a prefeasibility study and a
feasibility study. Many new enterprises need to convince prospective business investors about the
soundness and potential of their business. They need to convey the capabilities and competencies of
their owners and managers. They must also be able to ‘sell’ the proponent and the business proposition
to this audience. These are situations when a good business plan is needed.

There are business plans that are written during the first few years of the enterprise in order to guide
the entrepreneur on which strategies would be most beneficial for the enterprise to take. And there are
business plans that are focused on bringing the enterprise to a higher level of growth, a period where
the enterprise has already reached its peak and would want to enter into another endeavor by
recreating and re-establishing itself.

Clearly, a business plan serves many masters. First, it serves the entrepreneur who must set a
navigational course. Second, it serves investors and cautious financiers. And third, it serves the
managers and staff of the organization so that they will know the strategies and programs of the
enterprise.

The business plan must have a specific audience in mind and what important questions do this audience
want answered. In order to aid the entrepreneur in getting his or her business plan organized, the
following format may be a good start:

I. Introduction

A. The Business Concept and the Business Model

B. The Business Goals: Vision, Mission, Objectives, and Performance Targets

C. The Business Offering and Justification

II. Executive Summary

III. The Business Proponents: Organizers with their Capabilities and Contributions
IV. The Target Customers and the Main Value Proposition to the Customer

V. The Market, Market Justification based on the Industry Dynamics and the Macro Environmental
Factors Affecting the Opportunities and Threats in the Market, the Size, Potential and Realistic Share of
the Market

VI. The Product and Service Offerings

VII. The Enterprise Strategy and Enterprise Delivery Systems: Business Competitiveness

VIII. The Financial Forecasts and Expected Returns, Risks, and Contingencies

IX. Environmental and Regulatory Compliance

X. The Capital Structure and Financial Offering: Returns and Benefits to Investors, Financiers, and
Business Partners

Table 1.1. Enterprise Delivery System

Input Throughput Output Marketing Desired Outcomes

- Harnessing of human, money and physical resources Conversion of input into output and the
transformation process within the factory or service shop Goods produced or services delivered
Positioning Product Packaging Place People Promotion Price Customer satisfied Sales
volume attained Profits generated People performance

The EDS involves the harnessing of human, money, and physical resources from well-selected sources.

These resources become the input (money, men, machines, materials, methods, and management)
which the Operations unit within the EDS (i.e., the manufacturing or service delivery personnel) will
convert or transform into output.
The output will then be delivered to the customers through the Marketing unit of the EDS. The
products/services of the enterprise are positioned to meet the requirements of the selected market
segment by choosing the right packaging, pricing, promotions, people for selling and distribution, and
places or locations where the targeted customers can best be found.

The Operations and Marketing units are supported by the Finance, Administration, and Human Resource
Management units, which oversee the flow of money, the procurement and maintenance of machinery
and materials, and ensure the proper deployment and development of people.

The EDS serves as the enabler of the Enterprise Strategy. The business plan must demonstrate how the
EDS and the ES tandem lead to the attainment of the desired enterprise outcomes.

These business outcomes should reasonably include:

high customer satisfaction levels;

high sales volume, market share, and market reach;

high financial returns; and

high people performance, productivity, and morale levels.

1.2 CONTENTS OF THE BUSINESS PLAN

The Business Concept and the Business Model

A business concept contains the essence of the enterprise in a concise but powerful manner. It stresses
the value of the product offering to the target customers who would most likely buy it.

The product concept must then be translated into a business model. A business model is a formula on
how the enterprise exactly plans to make money out of the business. There are four areas of
moneymaking which the business model must address:

1. How will the business raise revenues? What critical factors will cause the revenues to materialize?

2. What will be the costs of the enterprise products and other costs of doing business? How will these
costs be managed to ensure comfortable profits? What critical factors will drive the costs? How can
these factors be controlled?
3. What will be the major investments of the enterprise? Why will these investments give the enterprise
a competitive edge?

4. How will the enterprise finance the investments? How will the enterprise fund its growth?

The Business Goals: Vision, Mission, Objectives, and Performance Targets

The business goals show the future and long-term prospects of the enterprise. It is composed of the
vision, mission, objectives, key result areas, and performance indicators of the enterprise.

To illustrate, let us examine the vision of Double Happiness. Double Happiness is an eatery in a bus
terminal. It has three outlets located at bus terminals in Central Luzon.

Case Example 1: Double Happiness

The vision of Double Happiness is “to establish a commanding presence and market leadership as a food
chain servicing major bus terminals in Central Luzon within the next five years.”

The Business Goals are communicated by articulating the basic purpose of setting up the enterprise in a
mission statement. Needless to say, all business enterprises are established for the purpose of making
money for its investors.

For Double Happiness, its mission statement is “to provide quality food and passenger convenience
services that would generate sufficient profits for the stockholders and improve the lives of its
employees.”

The vision and the mission statements must then be translated into measurable end results, more
popularly called objectives.

Objectives must be more specific than the vision and mission statements. They should be measurable,
achievable, and time-bound.

For Double Happiness, their stated objectives are:

1. To establish a strong market presence in Central Luzon;

2. To earn good financial returns for its owners;

4. To make Double Happiness a happy and rewarding place to work in.

The objectives should then be translated into key result areas or KRAs. KRAs are the qualitative
manifestations that the objectives are being achieved.

Objectives and Key Result Areas

Objectives Key Result Areas

1. To establish a strong market presence in Central Luzon 1a. Number of food outlets in major bus
terminals in Central Luzon 1b. Sales volume attained 1c. Market share in Central Luzon

2. To earn good financial returns for its owners 2a. Amount of net profits realized for the next five years
2b. Return on equity (ROE) 2c. Return on assets (ROA) or return on investment (ROI) 2d. Return on sales
(ROS)

3. To delight customers with high-quality food and services 3a. Growth in sales per outlet 3b.
Percentage of repeat customers 3c. Number of customer commendations or complaints 3d. Awards and
recognition given by the community or the government for excellent service 3e. Customer survey rating
to ascertain customers’ degree of delight

4. To make Double Happiness a happy and rewarding place to work in 4a. Compensation and benefits
of managers and workers are above industry rates 4b. Management and employee turnover 4c. Number
of job applicants compared to other similar establishments

In turn, the key result areas must then be rendered into quantified performance measurements,
otherwise called performance indicators. These performance indicators or PIs serve as the aspirational
scorecard of the enterprise managers and the motivational results of the investors. However, the PIs
must actually be credible to the business audience in mind.

Performance Indicators for Double Happiness

Key Result Areas Performance Indicators

1b. Sales volume attained ₱7 million / ₱13 million / ₱60 million

1c. Market share in Central Luzon 2% / 3% / 12%

2a. Amount of net profits realized for the next five years ₱1 million / ₱2 million / ₱10 million

2b. Return on equity (ROE) 30% / 40% / 60%

2c. Return on assets (ROA) or return on investment (ROI) 15% / 20% / 30%

2d. Return on sales (ROS) 14% / 15% / 16%

3a. Growth in sales per outlet 20% / 20% / 20%

3b. Percentage of repeat customers 30% / 40% / 50%

3c. Number of customer commendations; number of customer complaints 4 out of 20, 1 out of 20
/ 6 out of 20, 1 out of 50 / 10 out of 20, 1 out of 100

3d. Awards and recognition None / One by Bulacan Chamber / Two by Central Luzon Provinces

3e. Customer survey rating (scale of 1 to 5) 3.5 / 4 / 4.5

4a. Compensation and benefits Same as industry / 5% above industry / 15% above industry

4b. Management and employee turnover 3 out of 10 per year / 2 out of 10 per year / 1 out of 10
per year

4c. Number of job applicants compared to other similar establishments 10% more / 20% more / 30%
more

The Executive Summary

The executive summary contains everything that is relevant and important to the business audience. It is
a synthesis of the entire plan. It must contain the major argumentations of the business proponent on
why the business will work and succeed. It should provide the business plan audience all the arguments
on why they should participate in the business venture.

The executive summary should then introduce and highlight the good qualities of:

1. The business proponents and their partners;

2. The enterprise organization and its capabilities;

3. The technology providers and their expertise and experience; and

4. The suppliers and all the major service providers.

The Executive Summary should then proceed to discuss and justify the Enterprise Strategy and
Enterprise Delivery System. The Enterprise Strategy builds and develops the game plan for attaining
competitiveness. The Enterprise Delivery System is the entire process of converting input (resources)
into output and these outputs into outcomes.

It should then render all the major institutional, market, operations, and organizational strategies
previously cited into financial strategies and forecasts.

Investment requirements should be presented along with the summaries of the projected income
statements, balance sheets, cash flows, and funds flow, and their analyses and conclusions. Yields and
returns, along with risks and contingency measures, should round up this section.

The Executive Summary should also contain a section on the environmental and regulatory compliance
of the proposed business, as well as the more proactive programs to become a more responsible
corporate citizen.

Finally, the Executive Summary should present the capital structure of the proposed business and show
how this structure will respond to the investment programs and financial forecasts of the enterprise.

However, the Executive Summary can only be written last in order to capture the findings and insights of
the other parts, but for presentation purposes, it is placed in the first part of the business plan.

The Business Proponents

The third section of the business plan contains information about the business proponents or
stakeholders. There are four types of stakeholders:

1. Resource mobilizers and financial backers

2. Technology providers and applicator

3. Governance and top management

4. Operating and support team

If the business plan readers are the resource providers, then they will want to know who else are on
board to share the burden of raising money to see the whole thing through.

If the readers are the technology providers, they will want to know if there will be sufficient funds to pay
for the technology
If the readers are the governance and top management team, then they will want to know what
strategies and performance indicators are being proposed.

If the readers are the implementing, operating, and support teams, they will want to know what
programs, activities, tasks, and resources would be in place.

The Target Customers and the Main Value Proposition

The fourth section of the business plan is the Target Customers and the Main Value Proposition.

The business proponent must be very precise about the target audience or target customers. Target
Customers must be of sufficient size, sufficient paying capacity, and sufficient interest to purchase the
products being offered by the enterprise. The Main Value Proposition is the unique selling proposition of
the enterprise.

Knowing where the target customers are exactly concentrated, the business plan should then pinpoint
what the customers buy, how they buy, when they buy, where they buy, and what convinces them to
buy. These information should then be used to justify the exact locations and marketing channels to be
employed by the enterprise.

Market Demand and Supply, Industry Dynamics, and Macro Environmental Factors

The fifth section of the business plan is the market demand and supply, the industry dynamics, and the
macro environmental forces affecting the business of the enterprise.

It is normal for enterprises to actually expand their product offerings to include the other segments of a
bigger market. The business proponent should examine all the opportunities in this bigger market in
order to determine what exactly influences this bigger market.

The business plan should estimate the total market supply and demand for the product offerings of the
enterprise. The business plan should then determine the major critical factors that influence this market
demand and supply.

Once these critical factors or variables are determined, the business plan should then forecast the future
demand and supply. If these physical factors are expected to remain the same, then most likely, the
future forecast will follow the past trends. If not, the future estimate of demand and supply should be
revised according to the new variables influencing the demand and supply.

The market analysis and forecasting exercise should lead to a quantification of the current and
prospective size of the market. Both the current and potential consumptions should then be dissected.
The business plan should discuss the relevant industry dynamics:

Who are the competing enterprises in the industry and what are their comparativeadvantages and
disadvantages? What business models and strategies are they employing?

Who are the suppliers in the industry and what are their capabilities and bargaining power?

What are the channels of distribution being used by the industry? How effective are these channels?

Product/Service Offering: Description, Evolution, and Justification

The sixth section of the business plan is the product/service offerings that should contain a description,
evolution, and justification of the product/service offerings.

The products/services must be described by highlighting the features and attributes that would most
appeal to the target customers. The business plan should also prove that the products/services would
be accepted and carried by the distribution channels.

Enterprise Strategy and Enterprise Delivery System

The business plan should expound on the Enterprise Strategy (ES) by mapping the competitive landscape
and by situating the enterprise and its competitors as to their strategies and chosen positionings.

The business plan should then show how the Enterprise Delivery System (EDS) would enable the
business to implement the Enterprise Strategy.

The Enterprise Delivery System starts from the Input (resources mobilized), proceeds to the Throughput
(the transformation process where input are converted to output), and produces the Output (the
products/services). The Output are then marketed to the customers (in the case of goods) or
experienced by the customers (in the case of services). Customer satisfaction level, profits generated,
and the performance of people from the transaction are the Outcomes of the EDS.

Financial Forecasts: Expected Returns, Risks, and Contingencies

The eighth section of the business plan is the financial forecast including the financial returns, the
financial risks, and the financial contingencies.

The business plan must translate everything that we have discussed so far into financial forecasts and
outcomes.

From the financial forecasts, the business plan should then calculate the expected returns from the
business. The important return calculations are the following:
(1) expected return on sales;

(2) expected return on assets or investments; and

(3) expected return on stockholders’ equity.

The business plan should also calculate the long-term returns, using the time value of money. This
means estimating the internal rate of return and the expected net present value.

The business plan should then evaluate both the business risks and the financial risks involved.

Environmental and Regulatory Compliance

The ninth part of the business plan is composed of the environmental and regulatory compliance.

The business plan must articulate the laws, rules, and regulations governing the business, and the
industry that the enterprise is in. It should ascertain that all the necessary permits, licenses, and
authority to use proprietary intellectual capital had either been secured or would definitely be secured.

The business plan should also assure the reader that all the necessary local government ordinances and
barangay ethics would be followed by the enterprise.

Capital Structure and Financial Offering: Returns and Benefits to Investors, Financiers, and Partners

The tenth section of the business plan contains the capital structure and financial offerings of the
enterprise including some discussions on who are the investors, the financiers, and the partners of the
enterprise.

Finally, the business plan must appeal to its target audience. It must highlight for them the main
features of the business plan that they are looking for.

Challenge Yourself

Challenge 1: How does your Business Plan look like?

Prepare an initial outline of how you want your own business plan to look like. This assumes that you
already have a business endeavor that you would want to enter into. In order to prove its business
viability, the next chapters will show you how to do the step-by-step process of discerning whether the
business idea you have will be worth your while.

Feel free to add contents to your initial outline as you go about the next chapters of this book. The rest
of the book will go through the entire process of establishing an enterprise. The insights that you will
gain will definitely be a good input in completing your business plan.

You may have to answer the following questions:

What will be the contents of each section?

How extensive will each section be?

Which audience will you prioritize in terms of customizing the contents of your business plan?

As you continue your entrepreneurial journey with the aid of this book, keep this outline handy and be
prepared to change and adjust the contents accordingly, based on you are going to find out in the next
challenge await you.