Chapter 6: Business Plan, PDF

# CHAPTER 6 ## Topics Covered: - The Business Plan - The Importance of Making Business Plans - Users of Business Plans - Types of Business Organizations in the Philippines ## Intended Learning Outcomes At the end of this unit, students must have: - Known the importance of a Business Plan in bu...

# CHAPTER 6 ## Topics Covered: - The Business Plan - The Importance of Making Business Plans - Users of Business Plans - Types of Business Organizations in the Philippines ## Intended Learning Outcomes At the end of this unit, students must have: - Known the importance of a Business Plan in business. - Explain the different types of plans under the business plan - Prepare and Create a sample of Business Plan - Understand, Distinguish and Identify Types of Organizations & businesses ## Time Allocation: 3 hours ## CONCEPT OF A BUSINESS PLAN ### What is a Business Plan? A business plan is a roadmap describing a business, its products or services, how it earns (or will earn) money, its leadership and staffing, its financing, its operations model, and many other details essential to its success. ### Importance of Making A Business Plan Investors rely on business plans to evaluate the feasibility of a business before funding it, which is why business plans are commonly associated with getting a loan. But there are several compelling reasons to consider writing a business plan, even if you don't need funding. - **Planning.** Writing out your plan is an invaluable exercise for clarifying your ideas and can help you understand the scope of your business, as well as the amount of time, money, and resources you'll need to get started. - **Evaluating ideas.** If you've got multiple ideas in mind, a rough business plan for each can help you focus your time and energy on the ones with the highest chance of success. - **Research.** To write a business plan, you'll need to research your ideal customer and your competitors—information that will help you make more strategic decisions. - **Recruitment.** Your business plan is one of the easiest ways to communicate your vision to potential new hires and can help build their confidence in the venture, especially if you're in the early stages of growth. - **Partnerships.** If you plan to approach other companies to collaborate, having a clear overview of your vision, your audience, and your growth strategy will make it much easier for them to identify whether your business is a good fit for theirs—especially if they're further along than you in their growth trajectory. - **Competitions.** There are many business plan competitions offering prizes such as mentorships, grants, or investment capital. To find relevant competitions in your industry and area. ## PARTS OF THE BUSINESS PLAN ### A. TITLE PAGE - The title, or heading, of the plan, and very brief description of the business. - The date - The name of the owner - The company name and location - A copyright or confidentiality notice ### B. TABLE OF CONTENTS - A list of the individual sections and their page numbers, starting with the Title Page and ending with a section for Special Materials (references, etc.). ### C. SUMMARY/OVERVIEW - A brief, but focused statement (a few sentences or paragraphs) stating why the business will be successful. This is the most important piece of a Business Plan because it brings everything together. ### D. DESCRIPTION OF THE COMPANY - A close look at how the different components of the business fit together, such as: - Information about the nature of the business and the factors that should make it successful. - Special business skills and talents that provide the business with a competitive advantage, such as a unique ability to satisfy specific customer needs, special methods of delivering a product or service, and so on. ### E. ORGANIZATIONAL & MANAGEMENT PLANS - The company's organizational and legal structure, Is it a sole proprietorship? A partnership? A corporation? - Profiles of the ownership and management team: What is their background, experience and responsibilities? ### F. MARKETING & SALES PLANS - The company's process of identifying and creating a customer base. - Identifies specific knowledge about the business and its industry, and the market (or customers) it serves. - An analysis that identifies and assesses the competition. ### G. PRODUCTION PLAN - A detailed description of the product or service - from the customer's point of view: - How they will benefit from the product or service? - Specific needs or problems that the business can satisfy or solve, focusing especially on areas where the business has the strongest skills or advantages. ### H. FINANCIAL PLAN - The amount of current and future funding needed to start or expand the business. Includes the time period that each amount will cover, the type of funding for each (i.e., equity, debt), and the proposed or requested repayment terms. - How the funds will be used: For equipment and materials? Everyday working capital? Paying off debt? - Explains or projects how the company is expected to perform financially over the next several years. (Sometimes called a “pro-forma projection.") Because investors and lenders look closely at this projection as a measure of your company's growth potential, professional input is strongly recommended. ### I. APPENDICES - Provides specific information that certain individuals (such as creditors) may want review. It allows the addition and/or deletion of information as needed, such as: - Credit histories (personal & business) - Resumes of key personnel and partners - Letters of reference - Details of market studies - Copies of licenses, permits, patents, leases, contracts, etc. - A list of business consultants, attorneys, accountants, etc. ## WHEN SHOULD YOU WRITE A BUSINESS PLAN? A Harvard Business Review study found that the ideal time to write a business plan is between 6 and 12 months after deciding to start a business. But the reality, it depends on the stage a business is in, or the type of business plan being written. **Ideal times to write a business plan include:** - When you have an idea for a business - When you're starting a business - When you're preparing to buy (or sell) - When you're trying to get funding - When business conditions change - When you're growing or scaling your business ## HOW OFTEN SHOULD YOU UPDATE YOUR BUSINESS PLAN? A business plan isn't a homework assignment to complete and forget about. At the same time, no one wants to get so bogged down in the details that they lose sight of day-to-day goals. But it should cover new opportunities and threats that a business owner surfaces, and incorporate feedback they get from customers. So it can't be a static document. For an entrepreneur at the ideation stage, writing and checking back on their business plan will help them determine if they can turn that idea into a profitable business. And for owners of up-and-running businesses, updating the plan (or rewriting it) will help them respond to market shifts they wouldn't be prepared for otherwise. It also lets them compare their forecasts and budgets to actual financial results. This invaluable process surfaces where a business might be out-performing expectations and where weak performance may require a prompt strategy change. The planning process is what uncovers those insights. ## HOW LONG SHOULD YOUR BUSINESS PLAN BE? Thinking about a business plan strictly in terms of page length can risk overlooking more important factors, like the level of detail or clarity in the plan. Not all of the plan consists of writing – there are also financial tables, graphs, and product illustrations to include. But there are a few general rules to consider about a plan's length: - Your business plan shouldn't take more than 15 minutes to read. - Business plans for internal use (not for a bank loan or outside investment) can be as short as 5 to 10 pages. A good practice is to write your business plan to match the expectations of your audience. If you're walking into a bank looking for a loan, your plan should match the formal, professional style that a loan officer would expect. But if you're writing it for stakeholders on your own team—shorter and less formal (even just a few pages) could be the better way to go. The length of your plan may also depend on the stage your business is in. For instance, a startup plan won't have nearly as much financial information to include as a plan written for an established company will. ## POTENTIAL USERS OF BUSINESS PLANS? The potential readers of a business plan are a varied bunch, ranging from bankers and venture capitalists to employees. Although this is a diverse group, it is a finite one. And each type of reader does have certain typical interests. If you know these interests up front, you should be sure to take them into account when preparing a plan for that particular audience. ### 1. VENTURE CAPITALISTS VCs see hundreds of plans in the course of a year. Most plans probably receive no more than a glance from a given venture capitalist before being rejected; others get just a cursory inspection. Even if your plan excites initial interest, it may receive only a few minutes of attention to begin with. It's essential, when courting these harried investors, that you make the right impression fast. Emphasize a cogent, succinct summary and explanation of the basic business concept, and don't stint on the details about the impressive backgrounds of your management team. That said, make it concise and to the point. Remember, time is of the essence to venture capitalists and other investors. ### 2. BANKERS Bankers tend to be more formal than venture capitalists and more concerned with financial strength than with exciting concepts and impressive resumes. For these readers, you'll want to give extra attention to balance sheets and cash-flow statements. Make sure they're fully detailed and come with notes to explain any anomalies or possible points of confusion. ### 3. ANGEL INVESTORS Angel investors may not insist on seeing a plan at all, but your responsibilities as a businessperson require you to show them one anyway. For such an informal investor, prepare a less-formal plan. Rather than going for impressive bulk, seek brevity. An angel investor used to playing their hunches might be put off by an imposing plan rather than impressed with your thoroughness. ### 4. POTENTIAL PARTNERS If you were thinking about becoming a partner in a firm, you'd no doubt be very concerned with the responsibilities you'd have, the authority you'd carry and the ownership you'd receive in the enterprise. Naturally, anyone who's considering partnering with you is going to have similar concerns. So make sure that any plan presented to a potential partner deals comprehensively with the ownership structure and clearly spells out matters of control and accountability. ### 5. CUSTOMERS Customers who are looking at your business plan are probably doing so because they're contemplating building a long-term relationship with you. They're certainly going to be more concerned about your relationships with your other customers and, possibly, suppliers than most of your readers. So deal with these sections of your plan in greater depth; you can be more concise in other areas. Customers rarely ever read a company's business plan, so you should probably have your miniplan available for these occasions. ### 6. SUPPLIERS Suppliers have a lot of the same concerns as customers, except they're in the other direction on the supply chain. They'll want, above all, to make sure you can pay your bills, so be sure to include adequate cash flow forecasts and other financial reports. Suppliers, who naturally would like their customers to order more and more, are likely to be quite interested in your growth prospects. In fact, if you can show you're probably going to be growing a lot, you may be in a better position to negotiate terms with your suppliers. Like customers, most suppliers don't take the time to read lengthy business plans, so again, focus on the shorter version for such purposes. ### 7. STRATEGIC ALLIES Strategic allies usually come to you for something specific-technology, distribution, complementary customer sets, etc. So any plan you show to a potential ally will stress this aspect of your operation. Sometimes potential strategic partners may also be potential competitors, so you may want to present your plan in stages, saving sensitive information such as financials and marketing strategies for later in the process when trust has been established. ### 8. MANAGERS Managers in your company are using the plan primarily to remind themselves of objectives, to keep strategies clear and to monitor company performance and market conditions. You'll want to stress such things as corporate mission and vision statements and analyses of current industry and economic factors. The most important part of a plan intended for management consumption is probably in the financials. You'll want to take special care to make it easy for managers to compare sales revenue, profitability and other key financial measures against planned performance. There's one caution to the plan-customization exercise. Limit your alterations from one plan to another to modifying the emphasis of the information you present. Don't show one set of numbers to a banker you're trying to borrow money from and another to a partner you're trying to lure on board. It's one thing to stress one aspect of your operation over another for presentation purposes and entirely another to distort the truth. ### 9. EMPLOYEES Employees need clear direction in both their job duties on a daily basis and their long-term purpose within a company. A business plan describes clearly and concisely for employees as they seek to increase individual productivity and that of the business as a whole. ## OWNERSHIP and ORGANIZATION IN THE PHILIPPINES ### INTRODUCTION Have you ever felt that you might want to be your own chief? Might you want to claim your own spa, café, or corner store? Business is the goal, all things considered, and it is never as well right on time to investigate the chances. In this undertaking, you will consider how to begin or secure your own business. You will likewise discover more about what business visionaries do and realize where to find support on the way to progress. At the point when you start a business, you have a decision with respect to how the business is lawfully coordinated. Business possession can take one of three authoritative form: sole proprietorship, partnership, or cooperation. It is critical to choose the most proper type of possession that best suits your requirements and the necessities of your business. This segment will look at the 4-initial type of business ownership. ### A. Sole Proprietorship The word sole means "single” or “one.” The word proprietor means “owner.” A sole proprietorship, therefore, is a business owned by one person. The sole proprietorship is the oldest and most common form of business ownership. The sole or single proprietorship is a form of business organization initiated, organized, owned, or capitalized, and managed by a single person. Most sole proprietorships are small-business operations, each owned by an individual. An individual who starts a business is known as an entrepreneur. Many of these businesses provide services, such as auto repair, house cleaning, carpentry, or plumbing. They generally operate out of homes, small offices, or storefronts. Some sole proprietorships become quite successful, but many go out of business. In all cases, however, the owners of sole proprietorships are pursuing their dreams of running their own businesses. ### B. Partnership Some people choose to form a partnership when starting a business. A partnership is a business owned by two or more persons. Partners as co-owners agree voluntarily to operate the business for profit. When a partnership is formed, the partners sign a special legal agreement. A partnership agreement is a written document that states how the partnership will be organized. The agreement includes the following basic information: - Names of the partners - Name and nature of the business - Amount of investment by each partner - Duties, rights, and responsibilities of each partner - Procedures for sharing profits and losses - How assets will be divided when and if the partnership is dissolved In a partnership you and your co-owners decide how to divide profits and losses from the business. You also outline the duties and responsibilities of each partner. All partners must agree to the conditions stated in the partnership agreement. The purpose of this written document is to prevent later disagreements among the partners. ### C. Corporation A Corporation is an artificial being,invisible, intangible, and exists only in contemplation of law.You have probably heard the word corporation. Several large corporations exist nationally and globally. A corporation is another form of business ownership that is different from a sole proprietorship or a partnership. A corporation is a business organization that operates as a legal entity that is separate from its owners and is treated by law as if it were an individual person. A corporation can do everything that a sole proprietorship or a partnership can do—own property, buy and sell merchandise, pay bills, and make contracts. It can also sue and be sued in the court system. To create a corporation, you must file an application with the state for permission to operate. - **Articles of Incorporation** - the application to operate as a corporation. - **The application includes information such as the corporate name and the type of business in which the corporation will be involved.** In addition to the articles of incorporation, you must write a set of corporate bylaws. - **Corporate bylaws** - are the rules by which a corporation will operate. Items in the bylaws may include how the company will elect directors of the corporation and when stock- holders will meet. When the state approves the application, it issues a corporate charter. - **A corporate charter** - is a license to operate a corporation. It states the purpose of the business and spells out the laws and guide- lines under which the business will operate. ### D. Cooperative A cooperative (also known as a co-op) is a business owned and controlled by those who use its services. Individuals and firms who belong to the cooperative join to market products, purchase supplies, and provide services for its members. A duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required, and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. (Republic Act 6938, Cooperative Code of the Philippines). A not-for-profit corporation (sometimes called a nonprofit) is an organization formed to serve some public purpose rather than for financial gain. As long as the organization's activity is for charitable, religious, educational, scientific, or literary purposes, it can be exempt from paying income taxes. Additionally, individuals and other organizations that contribute to the not-for-profit corporation can take a tax deduction for those contributions. The types of groups that normally apply for nonprofit status vary widely and include churches, synagogues, mosques, and other places of worship; museums; universities; and conservation groups. #### Principles of Cooperative - **Open and Voluntary Membership** - **Democratic Member Control** - **Cooperative Education** - **Cooperation Among Cooperatives** - **Capital division on net surplus** #### Advantages of Cooperative - Tax privileges. - Ability to provide direct benefits to its members and the entire community it serves in the form of relatively cheaper products and services consistent with its mission of providing services, rather than existence for purely profit motives. #### Disadvantages of Cooperative - Inequality of profit distribution. Profits are distributed according to the number of stocks. - The pro-masses or pro-poor bias of the cooperatives appears diametrically opposed to the entrepreneurs' idea of servicing a market niche that is well-off enough to address its dream of profit. ## Summary of Advantages of Business Ownership | Type of Business | Advantages | |---|---| | Proprietorship | Simplicity in creation, Low cost to establish, Owner receives all profit, Owner retains all decision-making authority, No special legal restrictions | | Partnership | Ease of establishment, Division of profits based on partnership agreement, Larger pool of talent than proprietorship, Ability to attract limited partners, Little government regulations | | Corporation | Limited liability of stocks, Ability to attract larger amount of capital, Ability to have perpetual life, Ease of transfer of ownership, Larger pool of skills, talents and knowledge, Potential for economies of scale operation | ## Summary of Disadvantages of Business Ownership | Type of Business | Disadvantages | |---|---| | Proprietorship | Unlimited personal liability, Limited skills and capabilities, Limited access to capital, Lack of continuity of the business | | Partnership | Unlimited liability of general partners, Limited capability for capital accumulation, Difficulty in disposing of partnership interests without dissolving, Lack of continuity, Potential for personal and authority conflicts, Partners are bound to law of legacy | | Corporation | Cost and time involved in the incorporation process, Subject to corporate taxes, Potential for diminished managerial incentives, Potential loss of control of partners, Legal restrictions and regulatory red tape | ==End of OCR==