A Very Good Business Plan PDF

A Very Good Business Plan The next step for the entrepreneur is to have a very good business plan. It is a wise thing to do in order to chart the course of the business properly and to focus the efforts of the entrepreneur. The entrepreneur must flesh out, into more specific details, the information...

A Very Good Business Plan The next step for the entrepreneur is to have a very good business plan. It is a wise thing to do in order to chart the course of the business properly and to focus the efforts of the entrepreneur. The entrepreneur must flesh out, into more specific details, the information that a good business plan contains. Likewise, it is important to know what the business plan’s purpose is; for whom it is being written (target audience); and what would be the coverage of the business plan (in terms of depth and breadth). The purpose of a business plan is to: First, entice partners, investors and bankers to fund a business venture; Second, communicate what the enterprise is all about, what market it wants to serve; And third, show what financial returns it could muster. The business plan should contain important information about the following: the business itself, the organizers, the management and technical people, the financial structure, its market potential, its target market, its projected sales, expenses and profits and its probable risks The business plan should begin with the business concept and the vision for the enterprise in the next three to five years. It should then declare the business purpose or the mission statement of the enterprise. This could be accompanied by a statement of values or business philosophy. The business plan should proceed to an enumeration of business objectives, key result areas and performance indicators. An overall enterprise strategy should then be articulated to show how the performance indicators could be attained. Next, the business plan should contain an executive summary of the following: 1. First, the organizers and the key people behind the business and why these people have the resources, talents, skills and technology to achieve success; 2. Second, the market being targeted and why there is enough market potential to justify the business; 3. Third, the products or services to be offered and why they are right for the market; 4. Fourth, how the business will be operated and organized, including all outsourcing, subcontracting, franchising and licensing agreements; 5. Fifth, the investment capital required for the business and what exactly it would be used for; 6. Sixth, the technology, the technical expertise, the equipment and materials suppliers to be utilized; 7. Seventh, the capital structure (short and long term debt, stockholders’ equity) of the business; 8. Eighth, the operating budget, financial projections (income statement, balance sheet, cash flow) and return on investment prospects; and 9. Ninth, the risks in the business and the contingency measures to counteract them. Organizing and Structuring the Enterprise The Business Plan must be able to estimate the capital required by the enterprise. The capital required would be dictated by the investment in the assets of the enterprise. These assets are composed of the following: 1. One, the current assets which are short-lived assets. They are composed of cash, inventory, accounts receivables and other current assets. 2. Second, the long-lived or fixed assets. They are composed of property, plant and equipment. 3. Third are the other assets composed of organizational and pre-operating expenses. A sole-proprietorship A partnership A corporation A sole-proprietorship has one owner who has unlimited liability for the business. A partnership involves two or more people who combine resources for the business and share profits and losses. A corporation is considered to be a separate legal entity from its shareholders. For tax purposes a corporation is a “Person”. Format of a Business Plan 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 Customer 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 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 customer 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 money-making which the business model must address: 1. How will the business raise revenues, and 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. 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 applicators 3. governance and top management 4. operating and support team 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 customer. This Target Customer must be of sufficient size, sufficient paying capacity and have 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. This 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 and 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, then the business plan should 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, then the future estimate of demand and supply should be revised according to 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 consumption 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 comparative advantages 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, which 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 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) will enable the business to implement the Enterprise Strategy. 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: expected return on sales, expected return on assets or investments, and 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, which 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, barangay ethics will 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 discussion 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.  APPENDIX B CASE STUDY JOANNA’S PARLOR Joanna Marquez was considering an investment in a small beauty parlor. She could get all the required equipment second hand from her cousin at a price of only Php 750,000. Her cousin was leaving for the United States. She decided to convert her unused garage to a beauty parlor. This would cost her another Php 750,000. For working capital, Joanna needed about Php 150,000 more. Joanna figured that she could service about five beauty clients a day on weekdays (5 days) and 10 beauty clients a day on weekends (2 days). (There are 52 weeks in a year.) Each client would pay an average of Php 500. Aside from the beauty clients, Joanna could earn Php 10,000 a week from haircuts which required no materials. Joanna determined the following expenses: Variable Costs (Materials) per Beauty Client Php100 Salary of Helpers (13 months) Php 30,000/month Electricity and Water (12 months) Php 20,000/month Others (12 months) Php 15,000/month Joanna would depreciate her equipment and leasehold improvements over five years. With these numbers, Joanna determined her income statement. (She made no provision for taxes). The question in Joanna’s mind was – would the investment be worth it? Would her time be worth it considering she was not charging any salary from the business? How soon would her cash payback be? What would be her Net Present Value at a discount factor of 20% if her project had a lifespan of five years?  How Do I Organize An Enterprise? Selecting a Suitable Market A business is more likely to succeed if it is based on a product or service that enough customers will buy to generate a profit. In other words, for a business to be successful and profitable there must be an adequate market for its products or services. Market Information What is a market? The market for a business is all the people within a specific geographical area who need a product or service and are willing and able to buy it. Every business sells some type of product or service to people. Potential customers can be described as: 1. People who need or want the product or service. 2. People who are able to buy the product or service. 3. People who are willing to buy the product or service. Competition must be considered. If competitors are serving the same market, it must be decided if the market is large enough to support another business. It should also be determined how the product or service is different from that of the competitors. What should entrepreneurs know about potential customers? a. Know the customers: The market can be segmented either by dividing it into meaningful buyer groups or dividing it according to characteristics such as age, sex, marital and family status, employment, income and trends in any of these characteristics. b. Know what the customer wants: By segmenting the marketing into groups, it is easier for entrepreneurs to determine what products or services each group wants or needs. c. Know where the customer buys: Entrepreneurs need to find out where the customers in their market are presently buying, and determine what factors will cause them to switch and buy from the new business. d. Know when the customer buys: By knowing when customers buy (daily, weekly, monthly, yearly, seasonally), entrepreneurs will be able to determine such things as possible hours of operation, when to advertise and quantity of merchandise to have on hand at specific times of the year. e. Know how the customer buys: Knowing how the customer pays for products and services can help the entrepreneur to determine a credit policy as well as a pricing policy for the business. What is the marketing concept? a.Determine the needs of their customers (market research); b. Analyze their competitive advantages (marketing strategy); c. Select specific markets to serve (target marketing); and d. Determine how to satisfy those needs (marketing mix). 1. Products and services: effective product strategies for a small business may include concentrating on a narrow product line, developing a highly specialized product or service, or providing a product-service package containing an unusual amount of service. 2. Promotion: this marketing decision area includes advertising, salesmanship and other promotional activities. In general, high quality salesmanship is a must for small businesses because of their limited ability to advertise heavily. 3. Place/distribution: the manufacturer and wholesaler must decide how to distribute their products. Working through established distributors or manufacturer’s agents is generally more feasible for small manufacturers. Small retailers should consider cost and traffic flow as two major factors in location site selection. In other words, low-cost, low-traffic location means spending more on advertising to build traffic. 4. Price: determining price levels and/or pricing policies (including credit policy) is the major factor affecting total revenue. Generally, higher prices mean lower volume and vice-versa; however, small businesses can often command higher prices because of the personalized service they can offer.  Question Factors Elements 1. Who are my Demographics Population: numbers, growth, decline, movements (in and out), customers? age (average, trends), marital status (numbers, trends) Education: number of schools (all levels), education levels (average, trends) Family structure: numbers, composition, trends Economic: individual income levels, ownership (land, homes, autos, capital) Housing: age, starts, ownership patterns, rental units numbers, trends 2. What do they require? Product or service Market surveys (formal) Informal observations 3. When do they buy? Timing Business cycles Product cycles Customer cycles 4. Where do they buy? Location Market Your labor force Transportation Suitable site (personal factors) Community interest 5. Why do they buy? Effective demand Purchasing power of population Purchasing habits and trends Conducting a Market Survey You may have an excellent product or service to offer to the public. One key to success or failure in business is determining whether there are enough customers willing to buy your product or service on a regular basis. The price of the product or service must give you an adequate profit margin to allow you to survive and further develop the business. Before committing your resources to the business, you should measure whether there is a sufficiently large unsatisfied market. The following questions need to be answered to determine what your competitors are doing in your proposed area of business. Is the market growing at a rate that allows another new business to enter? In a declining market, how will you capture business from competitors? How do your products or services differ from those of your competitors? Have you identified a market segment that needs servicing? Steps in Conducting a Market Survey The process of conducting a market survey involves the following steps. 1. Define market survey objectives and specify what information is required. 2. Work out details of the market survey, such as: sources for obtaining information, time and cost for conducting the study, methodology to be used in gathering information, development of a plan of action. 3. Select samples and decide what contacts and visits should be made. 4. Prepare questionnaires and plan for survey interviews. 5. Collect and analyze data. 6. Prepare a report of findings. Exploring Customer Insights Each group should decide on specific objectives for their survey. For example: Determine customer preferences for products/services. Identify factors influencing purchasing decisions. Assess awareness and perception of competitors. Each group will create a survey with a mix of question types: Closed-ended questions: (e.g., multiple choice, rating scales) Open-ended questions: (e.g., “What features do you value most in a product?”) Aim for 10-15 questions total. Decide on the demographic and location of the participants.  How could you improve your survey techniques in the future? What insights did you gain from one another? Developing a Sales Plan An important element of the market survey report is the sales plan. An entrepreneur who is in business must have a realistic idea as to how many products or services her/his business can sell during the near future. For this purpose, based on the findings of the market survey she/he prepares a monthly sales plan in general for the next twelve months. If the business offers several products or services with different prices, the forecast should be made for each product or service individually. However, a wholesaler or a retailer with a large number of products will make the sales plan for the main groups of products with an average price. A sales plan contains three elements: the quantity of products to be sold, the price of the product and as a multiplication of the quantity, and the price of the turnover. The turnover is the amount of money that a business receives from its sales during a month (monthly turnover) or during a year (yearly turnover). The sales plan will also reflect seasonal variations of the business, e.g. a restaurant on the beach will have more customers in summer than in winter, or a tailor shop that sells school uniforms will sell most when the school year starts. From the sales plan an entrepreneur will know when he needs to buy raw materials or goods and how much money he/she can expect every month. An entrepreneur who has been in business for long time will know from the past how the business will function during a year. However, a market survey should be done regularly, in particular when the planned sales are not reached or the entrepreneur wants to expand the business and offer new products. Someone who wants to start a new business must pay a great deal of attention to the market survey because she or he must be quite sure that the products or services can be sold in the number and for the prices that were set in view of the development of a realistic sales plan.