Basics of a Business Plan
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Transcript of Basics of a Business Plan
The basics of a The basics of a Business planBusiness plan
What is a business plan ?What is a business plan ?•A business plan is a comprehensive set of A business plan is a comprehensive set of
guidelines for a new venture.guidelines for a new venture.•It is a feasibility plan that encompasses the full It is a feasibility plan that encompasses the full
range of business planning activities.range of business planning activities.•It is an outline of potential issues to address It is an outline of potential issues to address
and a set of guidelines to help an entrepreneur and a set of guidelines to help an entrepreneur make better decisions.make better decisions.
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The purpose of a business plan
• For internal users - a business plan serves as a basic guideline and framework to managers and employees.
• For external users - it serves as a selling document.
It is a document that is produced for the bank, investor or venture capital company to raise money and for concerned government body.
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Importance of the business plan• Helps to refine ideas and make them tangible
ones.• It helps the operators to identify their objectives
which will serve as measures of performance.• It serves as a tool to convince investors,
customers and government bodies to have funds.• It helps the operators to undertake a SWOT
analysis of the environment.• It therefore serves as a sound basis for operation• It provides a structure for communicating the
entrepreneurs mission to current and prospective employees of the firm.
• It becomes a model that helps the entrepreneur focus on important issues and activities for the new venture.
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Essentials in preparing a business plan
• It should identify the variables that can affect the success or failure of the business.
• The entrepreneur requires relevant market information.
• It should be precise enough and contain all the necessary issues.
• Its overall appearance should be attractive to readers.
• It should be well arranged.• It should address investors market
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The content of a business plan
Four independent factors should be given consideration:-
• The people: the operators of the business as well as outsiders such as lawyers, accountants , customers and suppliers.
• The opportunity: a profile of the business itself-what it will sell and to whom, how much and how rapidly it can grow, what its financial outlook/position is, the constraints etc.
• The context: the macro and micro environmental factors that are out of the control of the organization.
• Risk and reward: an assessment of everything that may adversely affect the business and how the operators plan to respond to.
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Business plan format
1. The title page : provides ,• Name and address of the venture.• Name and address of the owners • Date of preparation 2. Table of contents : provides page numbers
for the key sections of the business plan.3. Executive summary: provides a one-to two
page overview of the total business plan.
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3. Executive summary continued
• Brief Description of the intended business or Project
• Brief Profile of the Entrepreneur• Project's Contributions to the
Economy• up to two pages• Write this last. It's just a page or
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4. Company overview :explains• Mission and Vision statement of the
firm – Mission and Vision: concisely describes
the intended philosophies and strategies of the business.
– A mission statement is a brief description of a company's fundamental purpose.
– A mission statement answers the question, "Why do we exist?“04/28/23 8
4.Company overview continued
Example of mission statement– A Business Development
Consultants mission statement:
“To provide one stop progressive economic development services through partnerships on behalf of shareholders and the community.”
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4.Company overview continued
– A Vision Statement: called a picture or image of your company in the future
– It is your company inspiration, the framework for all your strategic planning.
• is a form of values statement• Clearly outline a specific goal and
direction of the company, but not details how that goal will be reached
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4.Company overview continued
Example of vision statement-A vision of Gateway Computer company:
“To be the leading marketer of personal computer products in the world.”
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4.Company overview continued
• Company name and location.• Type of company and form of
ownership.• Company objective.• Nature of primary products.• Current status ( startup, franchise,
expansion).• Reasons why the business will be
successful
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5. Products plan : explains,
• The products or services intended.• Points out the unique features of
the product as to why people should prefer them.
• Competitive advantage.• Product variety.• Product attributes.• Quality features etc.
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6. Market Research and Analysis• This section describes the dynamics of the
overall market and how it operates today. • Include information about the market size and
growth rate• Describe what market needs are being met
and by what products, • What market needs are not being met, who
the major competitors are ?• What segments exist? Identify specific target
market and its adequacy
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Market Research continued• Explain distribution strategies by the market
and why. • The company’s product or service should be
described and how it will meet specific unmet market needs.
• Identify specific competitors and their products
• Define product’s value proposition• Are the competitive advantage and barriers to
entry described?• Are potential strategic relationships
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7. Marketing plan: shows ,
• Target market and profile of customers.• Methods of identifying and attracting
customers.• Selling approach and sales force.• Methods of promotion.• Methods of pricing and price ranges.• Credit and customer service policies • Distribution systems and channels.• The firm’s competitive edge.
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7. Marketing plan continued• The type competition.• Avoid the “we have no competition”
syndrome• Define dimensions of competitiveness
– Cost, Technology, Quality, Brand, …
• The information from this section must be directly traceable to the assumptions used to drive the financial model.
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8. Management and organization plan
• Management team.• Outside investors.• Outside resource people.• Recruitment and motivation strategies.• Plans for training employees.• The organization structure.• Motivation and reward systems.
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8. Management and org. continued
• contain summary biographies of the key management personnel,
• members of the Board of Directors and Board of Advisors.
• also acknowledge deficiencies in the management team and list the new requirements for any new positions.
• Are future staffing needs addressed
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9. Operations plan • Operating or manufacturing methods.• Operations facilities ( location,
equipment , facilities etc.,).• Quality policies and control systems.• Sources of supply and purchasing
policies.• Inventory management and control
techniques.
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10. The financial plan• Financial statements balance sheet income statement/P or L statement statement of owners equity cash flow statement• Break even analysis.• Planned sources of finance and
repayment plan.• Financial feasibility indicators
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10. The financial plan continued
• Present the company’s financial position,
• List major assumptions used to generate financial statements
• Include capital requirements.• Are the capital needs and
milestones clearly stated?
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10. The financial plan continued
• Revenue plan• Capital Expenditure Schedules• Operating Expenditure Schedules• Manpower Plan
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10. The financial plan cont’dExample of Income Statement
1st Year - Months 2nd Year - Quarters 3rd Year - Quarters1 2 3 4 5 6 7 8 9 10 11 12 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Sales
Less: Discounts
Less: Bad Debt Provision
Less: Materials Used
Direct Labor
Manufacturing Overhead (2)
Other Manufacturing Expense (Leased Equip.)
Total Cost of Goods Sold
Gross Profit (or Loss)
Less: Sales Expense
Engineering ExpenseGeneral and Administrative Expense (3)
Operating Profit (or Loss)
Less: Other Expense (e.g., interest, depreciation)
Profit Before Taxes (or Loss)
Income Tax Provision
Profit (Loss) After Taxes(1) See also the Financial Statement Guidelines you received at the workshop, to decide which is more appropriate for your venture.(2) Includes rent, utilities, fringe benefits, telephone.(3) Includes office supplies, accounting and legal services, management, etc.
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Pro forma Cash flows EXHIBIT 2
PRO FORMA CASH FLOWS1st Year - Months 2nd Year - Quarters 3rd Year - Quarters
1 2 3 4 5 6 7 8 9 10 11 12 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Cash Balance: Opening
Add: Cash Receipts
Collection of Accounts
Misc. Receipts
Bank Loan Proceeds
Sale of Stock
Total Receipts
Less: Disbursements
Trade Payables
Direct Labor
Manufacturing Overhead
Leased Equipment
Sales Expense
Warranty ExpenseGeneral and Administrative Expense
Fixed Asset Additions
Income Tax
Loan Interest @___%
Loan Repayments
Other Payments
Total Disbursements
Cash Increase (or Decrease)
Cash Balance: Closing
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Pro forma balance sheet
EXHIBIT 3PRO FORMA BALANCE SHEET
1st Year - Quarters 2nd Year 3rd Year1Q 2Q 3Q 4Q
ASSETSCurrent Marketable Securities Accounts Receivable Inventories Raw Materials and Supplies Work in Process Finished GoodsTotal Inventory Prepaid ItemsTotal Current Assets Plant and Equipment
Less: AccumulatedDepreciation
Net Plant and Equipment Deferred Charges Other Assets (Identify)
TOTAL ASSETS LIABILITIES AND STOCKHOLDER'S EQUITY Notes Payable to Banks Accounts Payable Accruals Federal and State Taxes Other
TOTAL CURRENT LIABILITIES Long Term Notes Other Liabilities Common Stock Capital Surplus Retained EarningsTOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
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11. Appendix of supporting
documents • e. g., Executives Profiles/ owners
profile
– Provides supplementary materials to the plan
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The roads to establishing businesses
1.Identify sources of new business ideaSeveral sources are used to generate new
business idea. some of them include:-• Work experience.• Hobbies: photographing, film-making,
beauty service, sanitation and environmental cleaning, restaurant and meal services etc.
• Deliberate search: through market research and capability analysis.
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2. Evaluate and Refine a new venture ideaidea refinement is one of the most important
and challenging tasks of new business development.
• Extensive discussion with experts , friends and investors is required.
• Market analysis is required.- Customer base.- Competitors.- Profitability.- Future prospect.- Growth potential.- Technology , facility and labor availability.
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• Technical and conceptual skill availability should be assessed.
- Educational qualification.- Inclination.- Business attitude.- Commitment.3. Select the best one Based on• Marketability.• Future prospect.• Operators inclination and potential.• Investors interest.
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4. Deciding on the nature of the business.• New establishment.• Buying an existing firm.• Franchising.5. Deciding on the form of the business.• Sole-proprietorship.• Partnership.• Share company.6.Study of the legal requirement including its
financial and facility requirement.7.Provision of capital.8. Selection of place .9. Writing the business plan.
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