PREPARATION OF BUSINESS PLANNING
8.1 Business Plan
These sections discuss how a
business plan functions, and the preparation of key sections of a business
plan.
8.1.1 Writing a Business Plan
The adequacy, relevance, and
soundness of an entrepreneur’s business plan can make the difference between a
successful company and an unsuccessful one. It should be noted that it is
nearly impossible for a business entrepreneur to foresee everything that will
happen to his company via his business plan. Additionally, no business plan
provides an absolute roadmap to success in any business concern. Therefore, the
entrepreneur should be prepared to revise his business plan as the relevant
conditions facing his company change and as more accurate data and information
become available. Therefore, a small business plan should be flexible enough to
accommodate some pertinent business variations. Generally, poor business
planning is a major reason for small business failure.
A business plan serves three major
functions, which include:
Ø A planning tool and technique for
the growth of the business concern.
Ø A document to convey relevant
information to prospective investors in the business concern.
Ø An index base to measure and
monitor the company’s performance over time.
According to Gumpet (1997), the
reasons small business entrepreneurs write business plans include:
1. For selling the interests of the entrepreneur and other
stakeholders to the relevant audience.
2. To obtain bank funding.
3. To obtain investment finance
4. To arrange joint venture agreements (strategic alliances)
5. To obtain substantial business contracts from vendors
6. To attract major human resource/personnel
7. To tidy-up mergers and acquisition deals.
Some of the salient issues a small
business entrepreneur should consider when writing a business plan include:
Ø The business plan should be as
concise as possible. The relevant audience may not want to read a long-winded
document. As a rule of thumb, a business plan should comprise thirty-five
single spaced pages at most, excluding the appendices.
Ø A business plan should be easy to
read and comprehend, without typographical or grammatical errors.
Ø A business plan should inform the
relevant audience concerning the large and profitable market opportunities for
the business enterprise.
Ø A business plan should convey the
strength and depth of the company’s management team, among others.
8.1.2 Format of a Business Plan
According to Burns (1990), any format for a proposed business plan
should be seen as providing only general guidance, since every business is
unique. As a result, any perceived standardized business plan is substantially
inappropriate in most business situations. However, the forms and structures of
all good business plans tend to possess some general basic features. The
format ofa business plan may be relatively standardized, and typically contains
the following major sections:
Cover page: This contains contact information
and a confidentiality statement concerning the business plan/document for the
business in question.
Table of contents: This enables readers of the
business plan document to quickly find the exact information they are looking
for, in terms of pages and sub-titles.
Executive summary: This explains, briefly, the
company’s business’s prospects, needs, and situation in a capsule form.
Company description: This contains a background and
historical account of the company as well as its future prospects, and other
cognate issues.
The product or service: This explains what is distinct
about the products, ideas or services, which the business will deliver.
The market: This creates a picture of the
relevant market segment(s) in which the business concern wants to compete.
Marketing: This section of the business plan
informs reader of the business plan of how the business entrepreneur plans to
capture his company’s potential market segment(s) via packaging, pricing, mega
marketing, distribution and advertising policies and strategies, among other
strategic marketing practices.
Management/ownership structure: This section introduces the people
holding (or likely to hold) leadership/responsibility positions in the business
concern.
Competition: This focuses on strengths and
weakness of company’s competitors.
Financial statements and
projection: This
section of the business plan includes such issues as the company’s balance
sheet, income statement, cash flow statement, and financial forecasts, among
others.
Appendices: This section of the business plan
contains resumes of key personnel of the business concern, an organizational
chart with positions and responsibilities, extended market information, and
other data to back up claims made in the business plan.
Each of the above-stated major
sections of a business plan is now explained below:
Cover page
The small business entrepreneur’s business plan’s cover page
should look professional and informative. Additionally, the cover page should
contain an appropriate confidentiality statement. Although the confidentiality
statement may not be legally binding, the business entrepreneur, in the cover
page, wants to let the readers know that he expects them to keep the data and
information in the business plan confidential.
The executive summary
The executive summary is the introduction to a company’s business
plan and may be seen as the most important section in a business plan,
especially for busy corporate executives. Although it comes first in a business
plan document, it is advisable to write it last, because it summarizes the
entire business plan, including other relevant sections.
Executive summaries of business plans are expected to cover the
following major issues:
Ø The company’s
origin/background/history.
Ø The products, ideas, or services
offered (or to be offered) by the company, including their uniqueness or competitive
advantages.
Ø The company’s goals and
objectives.
Ø The market potential for the
products or services of the company
Ø A three to five year summary of
key financial forecasts, especially sales and profit/loss. If the business
operator is in a new business, he may have to do some research on his market of
interest in addition to the relevant environments, and then make some realistic
assumptions about how his business can compete, be efficient and effective, and
forecast of likely performance measures.
Ø The management team for the
business concern and its track record\.The financing policies and strategies
required for the business to survive and grow
Ø Other relevant issues, policies
and strategies.
The company description
The company description section of the business plan should convey
a sense of the history and origins of the company, as well as its goals.
Relevant pieces of information that can be included in this section are:
Ø When was the company founded and
by whom?
Ø What is the company’s form of business
organization?
Ø How did the concept for the
company’s product or service originate?
Ø Is the company’s product or
service protected by patent, copyright, or trademark?
Ø Why is the product or service
worthwhile and viable?
Ø What sales have been recorded to date,
and what markets has the product/service penetrated?
Ø How much money has been invested in the
company to date?, among other cognate issues of interest.
Also, a summary of the company’s principal objectives (both its
long term statement of purpose as well as its specific, obtainable, interim
goals) should be included in this section of a business plan.
8.1.3 Management Team
The management team section of the business plan identifies the
key members of the company’s management team, describes their responsibilities,
and documents the relevant experience and accomplishments of each member of the
team. This section of a business plan should emphasize each person’s unique
abilities and the synergy created by the combination of talents in the team.
Also, a complete resumes of the management team members that
stress accomplishments and relevant track records should be included in the
appendix.
The product
If the company is producing a product or service, the product
section of the business plan describes not only what the product/services is or
will be relative to competing products/services, but also why the
product/service has potential penetrate into the existing or developing market
segments. For example, if a company is marketing a new type of black belt,, it
should be able to discuss, in this section, how this belt may be useful to
delivery men, dock workers, among others.
The product description should discuss the product’s use and
function, in addition to the needs and wants, which the product/service serves.
The distinctive features of the product/service, including the advantages and
disadvantages of those features should be highlighted. In addition to the
product’s attributes, cost quality, reliability, and price are significant
issues that should be included in this section of the question.
The market
This section of the business plan describes the relevant market
segments for the company’s products or services. If the market is small or
stagnating, investors are less likely to invest in the company. The market
section of business plan can also discuss the following:
Ø Trends in the market,
Ø Market receptivity to new products
or services.
Ø Characteristics of typical
customers or clients forming the market
Ø Market shares held by different
competitors,
Ø The significance of price,
quantity, performance, service, and warranty to the relevant\ market segments.
Ø Feedback about the product or service from
potential customers or clients.
Ø Independent market studies, data, information
or statistics,
Ø How the market is attended to or
serviced.
Ø The appendices can include more
detailed supporting information/documents on the major sections of a business
plan.
EXAMPLE 1: A BUSINESS PLAN FOR
NASCOMVILLE RESTAURANT
Section 1: Introduction
- Name of the business
- Address of the business
- Ownership
- Product to be offered/supplied
- Nature of the business/mission
Section 2: Management Team
- People required for the business
- Duties and responsibilities
- Monthly annual cost of labour.
Section 3: Marketing Strategy
- Marketing strategy to be used.
- The customer for the product
- Pricing strategy
- Packaging system
- Promotion strategy
- Competitors – weakness and strengths.
Section 4: Production Plan
- Product development
- Production process
- Machinery
- Raw materials.
Section 5: Financial Management
Strategy and Issues for the Business
- Source of capital
- Capital outlay and analysis
- Financial and economic plan.
Section 6: Assumption on
Environmental Factors
- Internal environment factors
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