Lecture 2 - Developing a Business Plan PDF

PRINCIPLES OF BUSINESS MANAGEMENT BHR1101 LECTURE 2 – DEVELOPING A BUSINESS PLAN DR YVONNE TECLA EMAIL- [email protected] LECTURE OVERVIEW  What is a Business Plan  The Importance of Business Plan  Key components of a Business Plan WHAT IS A BUSINESS PLAN  A business plan is a d...

PRINCIPLES OF BUSINESS MANAGEMENT BHR1101 LECTURE 2 – DEVELOPING A BUSINESS PLAN DR YVONNE TECLA EMAIL- [email protected] LECTURE OVERVIEW  What is a Business Plan  The Importance of Business Plan  Key components of a Business Plan WHAT IS A BUSINESS PLAN  A business plan is a document describing a company's business activities and how it plans to achieve its goals. It’s a road map for the business.  Startup companies use business plans to get off the ground and attract outside investors.  For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.  There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.  Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself. THE IMPORTANCE OF A BUSINESS PLAN 1. It targets your problems - helps one to identify possible obstacles and challenges. It's one thing to aim for a goal of being profitable in the first year of operation, but how will you achieve that? A business plan forces you to get realistic and look at your numbers. 2. It enables one to be realistic - it crystallizes just what kind of help the business needs. 3. Organize your resources - A business plan is the primary guide for how you will structure and allocate your resources. It's here that you will see just how feasible it is to open an office, hire employees, and look at operating costs. The business plan can quickly show you whether you will be making a profit or running at a loss. 4. Raise Funding - Investors want to know that you know what you’re doing. This document can be presented to your investors to investors to provide the structure and confidence that they need to make decisions about funding and supporting your company. THE IMPORTANCE OF A BUSINESS PLAN 5. Create Milestones - A business plan is also a plan of action. By laying out milestones, you now have targets to shoot for in the short, mid and long term. These goals also mean that you can "course correct" with greater agility if you have targets and realize that you may need to make some changes in order to meet them. 6. Stakeholder Engagement - clarity when talking to stakeholders. COMPONENTS OF A BUSINESS PLAN 1. EXECUTIVE SUMMARY  The executive summary is one of the most important parts of a business plan. It’s the first thing potential investors will read and should therefore provide a clear overview of your business and its goals. It helps the reader get a better idea of what to expect from your company. So, when writing an executive summary of your business, don’t forget to mention your mission and vision statement.  Mission statement - This is a brief statement that outlines your objectives and what you want to achieve. It acts as a guiding principle that informs decisions and provides a clear direction for the organization to follow. For instance, Google’s mission is to “organize the world’s information and make it universally accessible and useful.” It’s short, inspiring, and immediately communicates what the company does. A mission statement should be realistic, and hint towards a goal that is achievable in a reasonable amount of time with the resources you currently have or are going to acquire in the near future.  Vision statement - While a mission statement is more actionable and has an immediate effect on the daily activities of the company, a vision statement is more aspirational and has a much broader scope. In other words, it highlights where the company aims to go in the future and the positive change it hopes to make in the world within its lifetime. COMPANY DESCRIPTION This component of the business plan is the company description. It provides a brief overview of the company, its products or services, and its history. You can also add any notable achievements if they are significant enough for an investor to know.  Overview – this offers a quick bird’s-eye view of things such as your business model, operational capabilities, financials, business philosophy, size of the team, code of conduct, and short-term and long- term objectives.  Products and services - The products and services part of your company description explains what your business offers to its customers, how it’s delivered, and the costs involved in acquiring new customers and executing a sale.  Company History is the timeline of events that took place in your business from its origin to the present day. It includes a brief profile of the founder(s) and their background, the date the company was founded, any notable achievements and milestones, and other similar facts and details.  If you’re a startup, you’ll probably not have much of a history to write about. In that case, you can share stories of the challenges your startup faced during its inception and how your team overcame them. MARKET ANALYSIS MARKET ANALYSIS The market analysis section of your business plan provides an in-depth analysis of the industry, target market, and competition. It should underline the risks and opportunities associated with your industry, and also comment on the attributes of your target customer. A great way to analyze the market is to conduct a SWOT analysis. It’s a simple yet extremely useful framework that helps identify your strengths, weaknesses, opportunities, and threats—putting into perspective the overall viability of your business idea.  Demographics and Segmentation - Understanding the demographics of your customers plays a big role in how well you’re able to identify their traits and serve them. By dividing your target audience into smaller and more manageable groups, you can tailor your services and products to better meet their needs. You can use demographics such as age, gender, income, location, ethnicity, and education level to better understand the preferences and behaviors of each segment, and use that data to create more effective marketing strategies. MARKET ANALYSIS  Target market and size - Understanding your target market lies at the core of all your marketing endeavors. After all, if you don’t have a clear idea of who you’re serving, you won’t be able to serve well no matter how big your budget is. For instance, Starbucks’ primary target market includes working professionals and office workers. The company has positioned itself such that many of its customers start their day with its coffee. Estimating the market size helps you know how much scope there is to scale your business in the future. In other words, you’re trying to determine how much potential revenue exists in this market and if it’s worth the investment.  Market need - The next step is to figure out the market need, i.e., the prevalent pain points that people in that market experience. The easiest way to find these pain points is to read the negative reviews people leave on Amazon for products that are similar to yours. The better your product solves those pain points, the better your chances of capturing that market. In addition, since your product is solving a problem that your rivals can’t, you can also charge a premium price. PRODUCT SUMMARY The product summary section of your business plan goes into detail about the features and benefits that your products and services offer, and how they differ from your competitors. It also outlines the manufacturing process, pricing, cost of production, inventory, packaging, and capital requirements. COMPETITIVE ANALYSIS  Unless you’ve discovered an untapped market, you’re probably going to face serious competition and it’s only going to increase as you scale your business later down the line. This is where the competitive analysis section helps; it gives an overview of the competitive landscape, introduces your immediate rivals, and highlights the current dominant companies and their market share.  In such an environment, it helps to have certain competitive advantages against your rivals so you can stand out in the market. Simply put, a competitive advantage is the additional value you can provide to your customers that your rivals can’t—perhaps via unique product features, excellent customer service, or more. MARKETING AND SALES PLAN MARKETING AND SALES PLAN One of the most important business plan components. It explains how you plan to penetrate the market, position your brand in the minds of the buyers, build brand loyalty, increase sales, and remain competitive in an ever-changing business environment.  Unique selling proposition - A unique selling proposition (USP) conveys how your products and services differ from those of your competitors, and the added value those differences provide. A strong USP will stand out in a competitive market and make potential customers more likely to switch to your brand—essentially capturing the market share of your rivals.  Marketing Plan - Your product might be unique, but if people don’t even know that it exists, it won’t sell. That’s where marketing comes in. A marketing plan outlines strategies for reaching your target market and achieving sales goals. It also outlines the budget required for advertising and promotion. You may also include data on the target market, target demographics, objectives, strategies, a timeline, budget, and the metrics considered for evaluating success. SALES AND MARKETING PLAN  Sales and distribution plan - Once people are made aware of your product, the next step is to ensure it reaches them. This means having a competent sales and distribution plan and a strong supply chain. Lay out strategies for reaching potential customers, such as online marketing, lead generation, retail distribution channels, or direct sales. Your goal here is to minimize sales costs and address the risks involved with the distribution of your product. If you’re selling ice cream, for example, you would have to account for the costs of refrigeration and cold storage.  Pricing strategy - Pricing is a very sensitive yet important part of any business. When creating a pricing strategy, you need to consider factors such as market demand, cost of production, competitor prices, disposable income of target customers, and profitability goals. Some businesses have a small profit margin but sell large volumes of their product, while others sell fewer units but with a massive markup. You will have to decide for yourself which approach you want to follow. Buyers in different regions have different purchasing power. Due to this, a strategy that works in one region might not work in another, so it’s essential to occasionally re-evaluate and adjust your prices.  Budget - Before setting your marketing plans into action, you need a budget for them. This means writing down how much money you’ll need, how it will be used, and the potential return you are estimating on this investment. A budget should be flexible, meaning that it should be open to changes as the market shifts and customer behavior evolves. The goal here is to make sure that the company is making the best use of its resources by minimizing the wastage of funds. OPERATIONS PLAN  This section provides an overview of how the business is run and its day-to-day operations. This section is especially important for manufacturing businesses.  It includes a description of your business structure, the roles and responsibilities of each team member, the resources needed, and the procedures you will use to ensure the smooth functioning of your business. The goal here is to maximize output whilst minimizing the wastage of raw material or human labor. MANAGEMENT TEAM At the core of any successful business lies a dedicated, qualified, and experienced management team overlooking key business activities. This section provides an overview of the key members of your management team including their credentials, professional background, role and responsibilities, experience, and qualifications. A lot of investors give special attention to this section as it helps them ascertain the competence and work ethic of the members involved.  Organizational structure - An organizational structure defines the roles, responsibilities, decision- making processes, and authority of each individual or department in an organization. Having a clear organizational structure improves communication, increases efficiency, promotes collaboration, and makes it easier to delegate tasks.  Startups usually have a flatter organizational hierarchy whereas established businesses have a more traditional structure of power and authority. FINANCIAL PLAN  Financials are usually not fun to deal with, but they are important nonetheless as they provide an overview of your current financial position, capital requirements, projections, and plans for repayment of any loans.  Your financial plan should also include an analysis of your startup costs, operating costs, administration costs, and sources of revenue.  Funding requirements - Once an investor has read through your business plan, it’s time to request funding. Investors will want to see an accurate and detailed breakdown of the funds required and an explanation of why the requested funds are necessary for the operation and expansion of your business and that indeed the business will be able to meet its obligation to pay back the funds in the case of a loan. APPENDIX  The appendix is the last section of your business plan and it includes additional supporting documents such as resumes of key team members, market research documents, financial statements, and legal documents.  In other words, anything important or relevant that couldn’t fit in any of the former sections of your business plan goes in the appendix. ASSIGNMENT 1  The business plan is basically designed to establish a new company as an entrepreneur. In this regard, it is required that a detailed business proposal plan is made to analyze the possibility in upcoming future. Hence, company plan can be defined as a proper outline of vision undertaken by business person/s followed by narration of operations and strategies that are to be taken to complete the venture. Thus, creation of a detailed business plan helps to offset the cost factors. It thus enables the owners and managers of company to give a thought about industry broadly. It also helps to discuss the business objectives to employees and lays path for future decision making (Bangs, 2002).  Against this background you are required to develop a business plan for a new venture. In groups of 4-5 individuals.  You will be required to have all components of the business plan.  You will be assessed on the submitted document –not more than 20 pages- and presentation – 15 minutes/10 slides.  Due date- Monday 26th August 2024 at 9am.