The Business Plan
A business
plan is a document containing a written summary of the proposed venture, its
operational and financial details, and its manager’s skills and abilities.
Purposes of a Business Plan
1.
to help the
firm’s management
2.
to attract
potential investors
3.
to serve as
a legal document with which funds are raised
Parts of a Business Plan
1.
Definition of the business
a. Nature of the Company
b. Products/services offered
c. Nature of the industry
d. Opportunities available that can be exploited by the product or
service to be offered
e. The rationale for the creation of the company
f. The rationale for
catering to the specific market
There is a need to elaborately describe the foregoing topics to provide
a clear understanding of what the business is to the various users of the plan.
2.
Market research and analysis
a.
Situational
analysis and target market
A detailed description of the environment or the company and the
product, product line, or service line at the time the plan will be initiated
and implemented.
b.
Marketing
objectives and goals
To attain the objective, a goal or goals must be established like
being able to sell to a certain area or group of establishments.
c.
Marketing
strategies and tactics
Strategies are actions taken to reach the objectives. Example is
direct marketing.
Tactics are how strategy will be carried out. Example is
recruiting salesmen.
d.
Schedule and
budgets
A marketing plan schedule must be prepared showing in detail every
marketing activity and how much money must be allotted.
e.
Financial
data and control
The financial data section must contain:
a.
Sales
estimates on a monthly basis
b.
Cash flow
requirements
c.
Break even
analysis
d.
Estimate of
inventory turnover
e.
Measures of
profitability
3.
Development plan
This will show how the proposed product will be developed before
it is finally scheduled for production.
4.
Manufacturing plan
This includes a description of: manufacturing facilities,
location, rentals, and other manufacturing costs.
5.
Distribution and service plan
This provides the steps required to effectively bring the product
to the market. Pricing, sales, service policies, market penetration, and timing
are indicated.
6.
Organizational plan
This indicates how the total job is broken down into man-size jobs
which are provided with specific job titles.
7.
Development schedule
This will provide information on the series of activities required
to make the business idea a fully operational undertaking. Each stage must
indicate the amount of time required for completion. The use of charts will
help depict the stages in the schedule.
8.
Financial plan
A document indicating the financial requirements necessary to
support a given set of plans in other areas.
Main components:
Projected Income Statement &Balance Sheet, supported by cash
budget, personnel budget, production budget, purchasing budget, and break even
analysis.
a.
The projected income statement is a forecast
of all items in the income statement of the firm for a given period.
b.
The cash budget is the projection of future
cash receipts and cash disbursements of the firm over various intervals of time
.
c.
The
personnel budget consists of salaries, outlays for supplies and equipment, and
other related costs under the personnel department.
d.
The production budget is a projection of all
expenses and costs related to production.
e.
The purchasing budget shows the total costs
of purchases for direct materials considering the desired final and initial
inventory.
f.
The
break-even analysis shows the minimum sales volume needed to cover all costs at
a certain price level. The purpose of the analysis ( cost-volume analysis) is
to estimate the income of an organization that will occur under different
operating conditions.
9.
Executive Summary
The executive summary section of a business plan is a summary of the highlights of your business plan. Even though
the topic appears first in the printed document, most business plan developers
leave the writing of the executive summary until the end. This summary is the
doorway to the rest of the plan. Get it right or your target readers will not
go further than the executive summary.
For a standard business plan, the first paragraph of the executive
summary should generally include:
Business
name, Business location, What product or service you sell, Purpose of the plan.
10.
Appendices( Contains backup materials)
a.
Resumes of
principals
b.
Letters
c.
Market
research data and survey results
d.
Leases and
contracts
e.
Price lists
from suppliers
f.
Facility
layout
g.
Draft
Marketing brochure
h.
Structure or
e-marketing thrusts. If any
There are independent factors critical to every new venture and
should be highlighted
in the business plan
1.
The People
The most important
determinant of success. The men and women starting and running the venture, as
well as, the outside parties providing key services or important resources for
it, such as its lawyers, accountants and suppliers.
An ordinary plan can
succeed if the execution is immaculate, but an outstanding
plan will surely flop without effective execution. Thus, the
people involved in the
new venture are most important.
Arthur Rock, a Venture
Capitalist legend associated with companies like Apple, Intel and Teledyne
states, “I invest in people, not ideas”
Three important questions need to be answered in every business
plan
(a)
What do they know (about business)
(b)
Whom do they know (the
customers, the people in the govt, etc)? and,
(c) How well are they known
(their reputation that can be leveraged with
various stakeholders of business like suppliers, employees and
govt
officials)?
Thus, a business plan should describe each member’s knowledge of
the new venture’s type of products and markets – from competitors to customer
2.
The Opportunity
A profile of business
itself – what it will sell and to whom, whether the business can grow and how
fast, what its economics are and who and what stands in the way of success.
A good business plan
begins by focusing on two aspects of opportunity –
(a) Is the total market for the venture’s product large, rapidly
growing or both?
(b) Is the industry now, or can it become, structurally
attractive?
Investors look for a
large and rapidly growing market because it is much easier to obtain a share of
a growing market than to fight with entrenched competitors for a share of a
mature or stagnant market.
The business plan
should establish the attractiveness of the industry in terms of growth
potential. Building and launching of the product in the market place is the
next emphasis point in the project report.
If it were easy to spot
the opportunities, they would have become extinct. They will
be killed before they are born.
3. Pricing
Difficult to guess but
inevitable for any project report. Cash
flow is equally important. The project report should include
(a) When does the business have to buy resources, such as
supplies, raw materials and people services?
(b) When does the business have to pay for them?
(c) How long it takes to acquire a customer?
(d) How long before customer sends the business cheque?
(e) How much is the investment for each rupee of sale?
Growth opportunities in
terms of place, product, customer base, etc needs to be elaborated.
Project plan also needs to discuss the
mouse traps that the business can get caught into and plan to avoid them.
Competition is the next issue that
should be addressed in great detail. Following questions should be answered
(a) Who are the new venture’s current competitors?
(b) What resources do they control? What are their strengths and
weaknesses?
(c) How will they respond to the new venture’s decision to enter
business?
(d) How can the new venture respond to its competitors’ response?
(e) Who else might be able to observe and exploit the opportunity?
(f) Are there ways to co-opt potential or actual competitors by
forming alliances?
4.
The Context
The big picture – The regulatory environment, interest rates, demographic
trends, inflation and the like – basically factors that change inevitably but
cannot be controlled by the entrepreneur.
5. The Risk and Rewards
An assessment of
everything that can go wrong and right and a discussion of how the
entrepreneurial team can respond.
The business plan
remains same irrespective of the fact whether it is an entrepreneurial
venture or being launched by the established company. After all
the market does not differentiate on the basis of whose money it is; whether of
the investor or the shareholders.
ICST MANUFACTURING COMPANY
Manufacturing
Plan (detailed)
For the Year Ending Dec. 31, 1996
Period Required Add Final Total Less Initial Units to be
For Inventory Required Inventory Completed
Sales Finished Goods Finished Goods
January 100,000 200,000 300,000 200,000 100,000
February 110,000 200,000 310,000
200,000 110,000
March 120,000 200,000 320,00 200,000 120,000
__________________________________________________________________________________________________________
Total
1st quarter 330,000
200,000 530,000 200,000 330,000
2nd quarter 320,000
190.000 510.000 200,000 310,000
3rd quarter 310,000
180,000 490,000 200,000 290.000
4th quarter 300,000
170,000 470,000 200,000 270,000
__________________________________________________________________________________________________________
Grand
Total 1,260,000 170,000 1,430,000 200,000 1,230,000
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
Distribution
And Service Schedule
Cy1996
Steps Date
Responsible Person
1.
Coordinate
with production
And determine production output
Jan 2-3 Sales Unit c/o A. Yap
2.
Hire
additional Salesman Jan 5 Sales
Unit c/o B. Uy
3.
Direct
Salesmen to commence selling Jan
15 Sales
Unit c/o C. Tan
Development
Schedule
1996
Activity Month
J- F-M-A-M-J- J- A-S-O-N-D
A-E- A- P- A-U- U-U-E-C-O-E
N-B-
R- R- Y-N- L- G-P-T-V-C
1.
Complete
Planning Process
……
2.
Arrange
Financing
…….
3.
Locate secure
Facilities
…….
4.
Purchase
Equipment
…….
5.
Hire
Workforce
______________
6.
Commence
Operations
Purchase
Materials
______
Commence
Marketing
________
Future
Develop Branch Distribution Centers
Hire Management Personnel
………………… initial concentrated effort
__________
ongoing maintenance
Purchasing
Budget Summary
For the year Ending Dec. 31, 1996
Direct Materials
A B
Units
required for production
P 500,000 P
600,000
Add Desired
Final Inventory
Dec. 31, 1996 200,000
200,000
Total Units
required
700,000 800,000
Less Initial
Inventory
Jan. 1, 1996
280,000
310,000
Units to be
purchased 420,000
490,000
Planned unit
purchase price
P 1.50
P 1.50
Total Cost
of Purchase
P 630.000 P
784,000
Organizational Chart
Cash
Budget
For the Year Ending Dec. 31, 1996
1st quarter 2nd
quarter 3rd
quarter 4th quarter
Beg. Cash
Balance P
600,000 P 2,100,000 P 3,100,000 P 5,100,000
Add: Cash
Receipts
9,000,000
8,000,000 10,000,000 12,000,000
________________________________________________________________________
Total
9,600,000
10,000,000 13,100,000 17,100,000
Less: Cash
Payments
7,500,000 7,000,000 8,000,000 8,450,000
________________________________________________________________________
Ending Cash
Balance P 2,100,000 P 3.100,000 P 5,100,000 P 8,650,000
_________________________________________________________________________
_________________________________________________________________________
Projected
Income Statement
For the Year Ending Dec. 31, 1996
Sales
Revenue P
39,460,000
Less: Cost
of Goods Sold 20,884,000
Gross
Profits 18,576,000
Less:
Operating expenses 7,854,513
Operating
Profits 10,721,487
Less:
Interest expense 230,000
Net Profit
before taxes 10,491,487
Less:
Taxes 3,619,195
Net Profit
after taxes P 6,872,292
______________
Projected
Balance Sheet
For the Year Ending Dec. 31, 1996
Assets
Cash P
300,000
Marketable
Securities 800,000
Accounts
Receivable 650,000
Inventories
Raw Materials P 203,480
Finished Goods 601,000 804,480
Total
Current Assets P 2,554,480
Net Fixed
Assets 5,439,742
TOTAL ASSETS
P
7,994,222
Liabilities and Net Worth
Accounts
Payable P 350,230
Taxes
Payable 25,450
Notes
Payable 200,000
Other
Current Liabilities 18,542
Total
Current Liabilities P
594,222
Long-Term
Debts 2,400,000
Total
Liabilities 2,994,222
Net Worth 5,000,000
TOTAL
LIABLITIES AND NET WORTH P 7,994,222
_____________
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