Lesson 12 - The Business Plan PDF

LESSON 12 - THE BUSINESS PLAN Some people say that opportunities knock only once. But the truth is, opportunities come in many forms and sometimes, in disguise. Whether any of these two is true, do you need to wait for another knock on your door or will you be the one out there chasing them? In thi...

LESSON 12 - THE BUSINESS PLAN Some people say that opportunities knock only once. But the truth is, opportunities come in many forms and sometimes, in disguise. Whether any of these two is true, do you need to wait for another knock on your door or will you be the one out there chasing them? In this module, you will have an idea of the different sources of opportunities that will help you as you take your first step in running your own business. Identifying your entrepreneurial traits, skills and competencies is a significant factor before you start a business venture but having been able to identify these, can you start an enterprise right away? The answer is NO. An entrepreneurial venture starts with an opportunity that an entrepreneur needs to exploit. The ways for you to uncover or discover these opportunities are limitless: from noble ideas through utilization of new technologies or ideas to observing emerging trends and patterns and identifying specific customer segments. Market refers to a group of people or organizations that has an interest on a product or service (satisfying their needs and wants), has resources and, permitted by law and other regulations to purchase the given product or service. One way to recognize a potential market is to analyze the market need and opportunities through its environment. Macro Environmental Sources of Opportunities This refers to the big (external) forces that affect the area, the industry, and the market which the enterprise belongs to. This is categorized as follows (Morato, 2016): 1. Socio Cultural Environment This includes the demographic and cultural factors including beliefs, tastes, customs and traditions. a. Social forces – These are elements of the society resulting from human interactions that can influence the thoughts, behaviors, attitude, actions, and even the beliefs and customs of the people. This may include values, traditions, literacy level or consumer psychology. Feminism, the advocacy of gender equality that supports giving women significant tasks in the community. Subsequently, some religious groups which follow certain doctrines such as non consumption of blood or pork may affect the customers’ purchase of products. b. Cultural forces – These basically refer to the integrated characteristics of a group of people or ethnic group in a particular society. Cultural diversity is clearly manifested in the Philippines due to the presence of different ethnic groups with different languages and traditions. A certain practice of one group might be unacceptable with another group. Pinikpikan of the Cordillera region is a chicken dish wherein during the preparation, the chicken is slightly hit on its neck and wings for its blood to coagulate. This process is considered a tribal ritual that their people use to identify the fate of their tribe regarding a particular course of action. However, this preparation might not be acceptable to some animal advocates. 2. Political Environment This depicts the governance system of an area or the local region of the business enterprise. It includes but not limited to laws, rules, and regulations that control their business practices along with permits, approvals, and licenses required to manage a business. In some cases, voluminous documentary requirements in every government office and the amount of fees and taxes in processing them may contribute to the loss of interest of the entrepreneur on opening a venture. 3. Economic Environment This is characterized by the income level of a region which in turn dictates the purchasing power of the customers. Competitiveness of its industries and enterprises also defines this type of environment. Bataan is known to be an industrial province with all the industries that can be seen here: from garments to fuel to power plants. This in turn creates employment to its citizens, improving the quality of their lives. This opens opportunities for business such as food, transportation, house rentals or laundry services. 4. Ecological Environment This includes living and non-living things around us. A growing environmental awareness for taking care of our planet and prolonging of lives opens opportunities for business. Drives for a clean and green earth and healthier living gives birth to ideas such as air filters, energy saving devices and the likes. Envirotech Waste Recycling gathers plastic trash such as chips packaging, plastic straws, shampoo sachets, plastic bags, candy wrappers and the likes and transform them into building materials and even furniture. a. Climate - This refers to the average weather in a particular area over a long period of time. Philippines as a tropical- maritime country has a climate characterized by relatively high temperature, high humidity and abundant rainfall visited by several typhoons in a year. Batanes is frequently visited by typhoons making it difficult for farmers to grow crops such as corn or rice. Instead, they grow root crops like ube, gabi, garlic, ginger and onions that have lower destruction risk. b. Physical Resources - These include tangible items that are necessary and available for a business to function. Abundance of seafoods in Bataan gives birth to business opportunities such as fish trading, bagoong, dried fish and smoked fish (tinapa) making and similar products. c. Wildlife - This pertains to flora (plants) and fauna (animals). Wildlife preservation must also be taken into consideration during opportunity seeking. Continuous cutting of trees and hunting animals cause imbalance in the ecosystem. Paper, as simple as it seems, brings damage to the environment. Trees are being cut down to be used as material for paper production. Even after use, it emits carbon dioxide in the atmosphere when burned and releases methane when rotten. Business enterprise such as Countryside Trading manufactures newsprint (recycled papers) as an alternative to the usual papers that we use for printing and writing. 5. Technological Environment One of the nightmares of entrepreneurs is to be left behind by the newest trends and technological discoveries that will make their own products obsolete. Thus, technological offerings for the improvement of their own ventures is unavoidable for them. From upgrading of systems, processes or new equipment integrated in your product, it will surely be a blast. Online applications Paymaya or GCash are widely used for cashless payments. Brought about by the current situation we are in (You might have experienced washing money you received when you went to a grocery store, right?) and the ease it brings on transacting with online stores, utilization of these apps is a huge advantage among businesses nowadays. Let us analyze the example below.  Relevant Opportunities and Threats to a Small-Scale Food Enterprise Factors Opportunities Threats 1. Social ∙ Increase in the ∙ Health of ∙ Pandemic brings about demand of healthier entrepreneurs might awareness on healthy food. be at risk. living to improve body resistance. ∙ Food to be delivered at ∙ Community doorsteps is quarantines obliged attractive to the people to stay at home. customers. 2. Political ∙ Exempted amount may ∙ Increased competition ∙ Tax exemption to online be utilized for since the exemption is sellers with earnings other expenses of the attractive to other not exceeding ₱ 250 enterprise budding small-scale 000 yearly enterprises 3. Economic ∙ Ease of access to ∙ Increased competition ∙ Fast growing online market for community of online purchase of raw sellers materials 4. Ecological ∙ Opportunity to start a ∙ Increased risk in ∙ Environmental “greener” advocacy product handling. awareness on the use of New packaging might ecobags and the affect profitability in removal of plastic terms of cost incurred straws and utensils on the use of new packaging 5. Technological ∙ Utilizing social media ∙ Potential for customer ∙ Increased usage of platforms to increase disappointments and gadgets market reach in bashing of netizen’s terms of marketing on poor product and and food delivery service quality services Now that you have an idea of the different sources of business opportunities that you may explore, you are ready to plan your own business venture. “If you fail to prepare, you are preparing to fail”. This is a famous statement of Sir Benjamin Franklin, one of the Founding Fathers of the United States. Our “Pambansang Kamao”, Manny Pacquiao prepares for months before any fight for him to be ready with no other goal in mind but to win. This is also true in starting any business venture. This can be done through writing a business plan. A business plan is a formal written description of your business future by defining your goals, strategies to meet the goals, and the time frame for the achievement of those goals. Is it necessary for you, as an entrepreneur, to write your own business plan? As cited by Edralin (2016), the Department of Trade and Industry through the Bureau of Small and Medium Enterprise Development mentioned the following reasons of writing a business plan. 1. Minimize or remove risk of losing money. Investment on poorly researched business that may result to financial instability should be avoided. You must see all sides of the venture before letting go of any resources. 2. Avoid costly mistakes. Unplanned decisions may result to negative outcomes that may hurt the business. 3. Anticipate the financial requirements. Futuristic view of the increase or decrease of demand on the given product/service will prepare you in meeting business obligations. 4. Organize the activities beforehand. Thinking in advance, you must look at the near and distant future. Contingency plans must be present for anticipated concerns that may arise. 5. Assess actual performance against set goals. Having a clear goal will help you achieve your target in terms of sales, revenues or even expenses. 6. Apply for financing from lending institutions. There are cases that financial assistance from other people or organization is needed to start a business. A good business plan may encourage investors to entrust you their resources but remember to be wise whenever you are lending money and make sure to use the money for its intended purpose for the growth of the business. In writing a business plan, you must have a specific audience in mind and answers to possible important questions that may arise. To start, you may follow the format below (Edralin, 2016). Parts of a Business Plan I. Executive Summary II. Management and Organization III. Product/Service Plan IV. Market Plan V. Financial Plan Let us discuss the individual parts and its contents. I. Executive Summary This part can be found at the beginning of the plan but is the last to be accomplished since this synthesizes the whole plan. This contains a brief introduction and summarizes everything that is relevant and important to the prospect business audience. These are the information needed to guide you:  description of your proposed business and business model  description of the market opportunity you want to capture or market problem the business solves  reasons why this is an attractive business opportunity  key distinctions or differentiators of your business versus competitors ∙ overview of the sales, marketing, and operations strategy and plan ∙ description of your executive planning timeline  overview of the projected financials containing revenues, cost, profits, and assumptions of your business II. Management and Organization This part includes all the basic information of your business. This also describes the workflow (organizational structure; the background, experience and role of each) of your business from the highest position up to the lowest. These are the information needed to guide you:  Company Name, Logo, and Address  Vision and Mission Statements  Key Personnel  Organizational Chart  Ownership Capitalization, Compensation, and Incentives  External Management Support III. Product/Service Plan This part describes the highlight of the product or service offered to the customers so that they will be encouraged to patronize your product or service. It also explains how the products or services will be accepted and carried by the distribution channels. These are the information needed to guide you:  Purpose of your Product or Service  Product’s/Service’s Unique Features  Material Requirements and Sources of Supply  Processing Equipment that will be Used to Manufacture the Product or Render the Service  Production or Service Process and Controls  Distribution Logistics  Regulatory and Other Compliance Issues IV. Market Plan This includes your business strategies, the target market, value proposition of your product or services that may increase the company sales (Chen, 2019). These are the information needed to guide you:  Market Analysis  Marketing and Sales Strategies  Product or Service Characteristics  Pricing Policy  Sales Projection Market Analysis This includes the process of how you divide the total market into smaller groups seeking similar needs and wants (market segmentation) and the characteristic analysis of the business in relation to internal and external factors. (SWOT Analysis) An example of market segmentation is shown below. Food is a physiological need, but the cravings depend on each consumer. Chicken wings offered by The Wing Hub of Limay even come in different flavors. Consumers who crave for samgyupsal may turn to Super Boink of Balanga City while those who want to have a taste of Vietnamese food would probably go to Loleng’s Hu Tieu-An in Morong. SWOT Analysis, on the other hand, is a popular tool to evaluate the internal environment pioneered by George Albert Smith Jr. and Ronald Christensen, two Harvard business professors (Aduana, 2016). SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths refer to strong attributes or capabilities of the business that provide great advantage in exploiting the business opportunity. Weaknesses are poor attributes or deficiencies that give disadvantage to the business. Both strengths and weaknesses are considered internal origins, meaning they are attributes inside the business venture. On the other hand, opportunities are business situations that must be exploited due to their potential in terms of profit and growth. Threats are possible external factors that may harm the business. Both opportunities and threats are outside origins and are attributes outside the business. Below is a sample SWOT Analysis of a Small Online Bakeshop. Strengths Weaknesses Opportunities Threats ∙ Reasonable ∙ New in the ∙ Growing ∙ Other Price of Industry population Bakeshops Products ∙ No of ∙ Other online ∙ Wide Variety of Reputation customers food Cakes and yet online businesses Cupcakes ∙ Homemade ∙ Products are for delivery with minimal delivery fees. Marketing and sales strategies These are also known as the product PUSH. These have three key characteristics that allow to perform marketing function of persuading customers to buy right away. (Go, 2010) 1. Temporary – Sales promotions are conducted at short periods creating a sense of urgency on the part of the customers. 2. Better value – Sales promotions are used to create short-term differentiation by offering a better product value. 3. Beneficial – Sales promotions promote growth sometimes even at artificial level. 7-11 stores offer promotional sales, such as “Buy1-Take1” of products at particular period. At the same time, they offer Cliqq Rewards to loyal customers by getting Cliqq points in every purchase which in turn can be exchanged to free or discounted items. Product/Service Characteristics This includes value proposition of the product/service. Value proposition answers the question, why should your customers buy from you and not from other similar businesses? These contain the convincing reasons that buyers should see that will make them purchase your products/services. BDO: “We find ways”. Before this pandemic, while other banks operate from 8AM-3PM Mondays to Fridays, BDO offers services until 6PM and even operates during weekends fulfilling their promise of “finding ways” for the customers. Pricing Policy This part specifies the price of the product/service. It must be noted that quality and price cannot be separated in marketing (Aduana, 2016). You must be careful in setting the price of your product/service considering the costs of production, competitors’ pricing, and customers’ perception. Filipinos are generally price conscious. We tend to check the price tag of a product first before whether to buy or not to buy a commodity. “SALE” and “PROMO” tags are consumer magnets. In cases wherein the prices of the product cannot be decreased, the entrepreneur should be able to give emphasis on the benefits of his/her product to convince the customer of its value. Sales Projection This is also called sales forecast or the prediction of the amount of revenue your company expects to earn at some point in the future. This shows the quantity of product sold or service rendered and its corresponding amount within a given period. V. Financial Plan This is a document containing your current financial situation as an entrepreneur and long-term monetary goals, as well as tactics to attain those objectives. You may create a financial plan on your own or with the assistance of someone who is knowledgeable about handling finances such as certified financial planner. These are the information needed to guide you:  Start-up costs requirements – These are expenses that you will be needing during the course of creating a new business.  Financial projections – These are estimates of your future profits and expenses.  Break-even analysis – This is a financial tool that will help you determine at what stage (or period) your company will start gaining profit.  Budget – This includes the amount needed for business operations as well as sources of such funds (equal shares or through a creditor).