PREPARATION OF BUSINESS PLANNING

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

- External environment factors.