Level 1
Business and Career
Planning Workbook
Basic and advanced
Professor Abiola O. Awosika-Fapetu
CONTENTS
Part 1: Basic Step-by-Step Workbook
Introduction
1
5
Section 1: Defining Your Business
13
Section 2: Defining Your Market
17
Section 3: The Marketing Plan
21
Section 4: The Production Plan
27
Section 5: The Financial Plan
31
Section 6: Ethics of Business
39
Part 2: An Advanced Step-by-Step-Workbook
Introduction
41
45
Section A: The Successful Entrepreneur
Section B: The Management Plan
53
Section C: Industry Analysis
57
Section D: Market Analysis
59
47
The Business Plan
65
Section E: Marketing Plan
67
Section F: Production Plan
77
Section G: Financial Plan
81
Section H: Final Steps
Appendix A
97
99
New Project Financing
Types of Financing
Appendix B
Business Plan
Index
127
99
99
107
107
Dedicated to my children and Grandchildren
ACKNOWLEDGEMENTS
To the Glory of God, a Grace-filled return from decades of sojourn and to a
renewed hope for the next generation of entrepreneurs.
PART 1
BASIC STEP-BY-STEP
WORKBOOK
PART 1 CONTENTS
Introduction
5
Self Assessment
The idea
7
11
Section 1: Defining Your Business
Self Assessment
The idea
7
11
Section 1: Defining Your Business
Self Assessment
The idea
13
13
7
11
Section 1: Defining Your Business
Your Type of Business
13
13
The Purpose of Your Business
The management Team
16
Section 2: Defining Your Market
The Product
17
The Industry
17
The Customer
15
17
18
The Competition
18
Section 3: The Marketing Plan
21
The Core and the Physical Product
Pricing Your Product
22
The Distribution Plan (Place)
The Production Plan
The Service Plan
25
25
Section 4: The Production Plan
27
Plant and Equipment
Process
Location
Layout
28
28
29
23
24
Customer Satisfaction
People
21
27
27
Section 5: The Financial Plan
Start-up Cost
31
Cost/Volume/Profits
Budgets
31
32
33
The Cash Budget
35
Simple Projected Financial Statements
The Balance Sheet
37
Section 6: Ethics of Business
Ethics f Production
39
Ethics of Marketing 40
Ethics of Finance
40
39
36
INTRODUCTION
This workbook is divided into two parts, basic and advanced levels, designed to aid new an
experienced entrepreneurs to focus and put their business and project ideas into concrete terms.
For those not desiring a future as an entrepreneur, the basic section has been adjusted for creating
a personal career plan. The basic handbook is divided into six sections. The first section helps to
define the particular business, its purpose section 4 we look at those, and its management/success
team. Section 2 deals with a description of the environment in which the business will operate;
for instance, a description of the product itself, the market, the industry, the customer, and the
competition will be given.
Section 3 examines the marketing plan which includes the 4 Ps of marketing, an S and a C of
marketing. In section 4 we look at the production plan where the people, the process, the plant,
and other equipment as well as the location of the business are examined. Section 5 deals with
the financial plan, the ultimate goal of which is to present a set of projected financial statements
usually required by banks and investors before they make a decision to invest in any business.
Finally, section 6 looks at the ethics of business.
The words “career plan” can be inserted wherever reference is made to “the business plan.” A
career plan is not very different from a business plan. The individual person’s skills and talents
are “products” that must be marketed, controlled, and monitored. The financial aspects are also
pertinent. The desired lifestyle determines the goals set for earnings potential.
SUPPLEMENTAL MATERIALS
For a quick overview and clarification of many of the topics contained in this workbook see:
1. Awosika-Fapetu, A. O. (2000) Business Made Easy 2nd edition (Kendall/Hunt 2.
Publishing, Dubuque, Iowa).
2. The Project Financial Analysis (PFA) Disc is an interactive file on Microsoft Excel that
students can utilize in setting up the financial planning for their projects.
SELF ASSESSMENT
Before going further, please complete the following self-assessment survey.
Personal Characteristics
1. Motivation-Why do you want to own your own business or go into the proposed
career? What is the driving force behind your desire?
2. Positive thinking – What are the things that make you believe you can succeed
as an entrepreneur r in your chosen career? Whose support and encouragement
can you count on?
3. High-risk propensity – Would you consider yourself a gambling person? If so,
how much of your business would you be willing to lose? Would you be willing
to consider another career if the chosen one failed? (An entrepreneur must be
willing to lose everything and start over again; so must a career planner.)
4. Focus – Are you able to start a project and see it through to a conclusion
without being distracted by other projects? __ Yes __ No
(An entrepreneur must learn to focus on one project at a time and not be spread
out too thin. So must a career planner.)
5. Realism – Do you know when to quit? __ Yes (Realistic) __ No (Unrealistic)
6. Humility – Do you consider yourself egotistical? __ Yes __ No
(To be successful, pride and ego must be shed.)
7. Drive – Are you self-driven? __ Yes __ No
Long-suffering – Are you a patient person? __ Yes __ No
8. Leadership – Are you comfortable being in charge? __ Yes __ No
9. Insomniac – Can you survive on short sleep? __ Yes __ No
10.Working Hours – Will you be willing to work more than eight hours a day?
More than five days a week? __ Yes __ No
(Entrepreneurs and successful career people often have to do this.)
11. Stress – Can you manage your stress? __ Yes __ No
12.Responsibility – Can you be relied upon to do your share of work?
__ Yes __ No
13. Trust – Describe an incident in which your trustworthiness was tested.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Are you usually trusting or cynical? State which.
14.
Health – Do you eat well? __ Yes __ No
Do you rest well? __ Yes __ No
Do you exercise regularly? __ Yes __ No
16.
Experience – Do you have relevant experience? __ Yes __ No
17.
Education – Do you have relevant educational qualification? __ Yes __ No
18.
Support – Will you have relevant family support? __ Yes __ No
Financial support? __ Yes __ No
Government support? __ Yes __ No
Administration program supports minorities and female-owned businesses.)
Industry support? __ Yes __ No (For instance, Wal-Mart has a made in
U.S.A. and minority/female program for their suppliers.)
Community support? __ Yes __ No
19.
knowledge of the business – Do you know the business/career and the
industry you plan to enter works?
__ Very well __ Vaguely __ Not at all
20.
outsourcing –Will you have outside support in areas in which you
Have a weakness? __ Yes __ No
THE IDEA
All businesses start with an idea and the beauty of it all is that it does not have to
originate from you. An idea can come from observing a need, your hobby, or your
current work situation. A good business idea must meet the following criteria:
1.
2.
3.
4.
5.
It must be legal.
It must be executable.
There must be a current and potential need for it.
Customers must be willing and able to pay for it.
It must be profitable or at least cover all costs.
Your Idea
Is your idea legal? __ Yes __ No
Can you successfully carry out your idea? __ Yes __ No
Is there an apparent need for your idea? __ Yes __ No
If yes, explain in the space below:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
Would customers want your type of product? __ Yes __ No, and could
they afford it? __ Yes __ No
Before an idea becomes reality, it must go through the following stages:
1. Brainstorming sessions – Identify other possible alternatives.
What other alternatives do you know that will satisfy the same needs?
2. Screening – Eliminate unprofitable ideas and develop the good ones to a
product concept.
What makes your idea the best way to meet the need?
3. Testing – Test the chosen idea through market research or on friends and
family.
How do you plan on testing the viability of your idea?
SECTION
1
DEFINING YOUR BUSINESS
1
YOUR TYPE OF BUSINESS
Describe your type of business or career.
Service:
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
Merchandising:
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
Manufacturing:
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
THE PURPOSE OF YOUR BUSINESS
What Purpose Are You in and Why?
By defining your goals/purposes, you are able to focus your efforts on how to
achieve them. This section will help you articulate your reasons for going into
business/career and how to set about accomplishing your goals.
1. What is your mission statement?
________________________________________________________________
2. List 3 to 5 goals for your company or yourself.
________________________________________________________________
3. How do you plan to achieve each one?
The management team
Your business is only as good as the people who manage it. This section will
help you identify the key players in the management of your company. If you
know who they will be, you can include their names and a brief profile. If not,
you can describe the type of individual you would need to employ. Career
planners should identify key individuals or organizations that could contribute
to their success.
1. Name ________________________________________________________
Position ______________________________________________________
Qualification __________________________________________________
Must have the following abilities and character traits:
2. Name ________________________________________________
Position _____________________________________________
Qualification __________________________________________
Must have the following abilities and character traits:
3. Name ________________________________________________
Position ______________________________________________
Qualification __________________________________________
Must have the following abilities and character traits:
SECTION
________________________________________
DEFINING YOUR MARKET
2
_________
The external environment of your business is very important. The decisions made
by the government, your competitors, and your customers will usually have an
impact on your business. The impact may be either positive or negative. You need
to scan your environment to see those issues that my affect your success. We begin
by describing your product.
THE PRODUCT
Describe your product/service clearly and concisely without giving away any
proprietary information. Career planners; describe your skills and talents as they
pertain to your desired career.
THE INDUSTRY
Describe the industry in which your company operates, or one in which you hope
to work (size, structure, rapidity of change, trends, etc.).
THE CUSTOMER
Describe your typical customer or employer (age, income, geographical location,
psychographics. Behavior patterns, etc.).
THE COMPETITION
Describe your direct and indirect competitors. Career planners should highlight any
obstacles and possible stumbling blocks in the chosen career path.
1. List 3 things you do better than your closest competitor. Career planners should
list their top three marketable skills.
2. List 3 things your closest competitor does better than you. Career planners list
the top three areas of your life needing improvement.
3. List 3 ways to overcome your competitor’s strengths. Career planners list 3
ways to improve on the 3 areas mentioned above.
DIAGRAM
SECTION
THE MARKETING PLAN
3
This section deals with what is know as the 4 Ps, an S, and a C of marketing
(Product, Price, Place, Promotion, Service, and Customer satisfaction). We
begin with the product.
THE CORE AND THE PHYSICAL PRODUCT
Describe the need that your product is supposed to fill. This is
known as the Core Product. For example, a Black and Decker drill
is supposed to fill the need for making a hole. Career planners
should explain what they plan to bring to the job market. What
can you do for an employer?
Now describe the Physical Product.
Content / Qualifications
Appearance/Personality traits
Sizes/Relevant experience
Shapes/Educational background
Packaging/Interests
Colors/Computer skills (if any)
PRICING YOUR PRODUCT
What will your pricing strategy be? Will it be a Low Cost or a Differentiated
strategy? Career planners, state your desired earnings potential.
Explain how you will determine the price to charge for your product
(skimming, cost-plus, competitive pricing, consumer pricing). Career
planners should describe their plan for achieving the earnings potential
above.
THE DISTRIBUTION PLAN (PLACE)
Describe how you will get the product to your customers. You may decide to
use one or a combination of the following: retail store, catalog sales,
Internet sales, distributorships, agents/brokers, door to door sales. Career
planners; describe how you plan on marketing your skills to potential
employers.
THE PROMOTION PLAN
What incentives will you be giving your customers to encourage them to buy
your goods? How often will you be using each one?
Advertising/Resumes
Sales promotion/Internships
Direct selling/World Wide Web or Home Page
Public relations/Volunteering
THE SERVICE PLAN
Describe any service plan you will have for your customers (warrantees,
delivery, after sales service, etc.).
CUSTOMER SATISFACTION
How do you plan to keep your customers happy and coming back? Career
planners, how do you plan to keep your employers happy, and thus become
the obvious choice for promotion? How do you plan to make yourself
indispensable?
SECTION
THE PRODUCTION PLAN
4
This section helps you articulate the resources and the process for making
your product or rendering your service.
People
How many people will be involved in your operations or career plan and what
role(s) will they play?
Position
Duties
How Many?
1.
2.
3.
4.
5.
Plant and Equipment
List the plant and equipment needed for your operations. Career planners,
what skills must you acquire to reach your desired potential?
1.
2.
3.
Business:
Plant/Equipment
Size
How Many
Career:
Education/Experience
Level
How Long?
4.
5.
Process
Describe the process of product manufacture or service without giving way
proprietary information. Career planners should describe the describe the
precise steps to be taken in order to achieve the desired potential.
Location
Describe the location and layout of your business. Include a layout diagram if
possible. Career planners should describe all institutions and organizations
that form part of their career strategies.
Layout
Business planners should describe their business layout below and use the
space on the next page to draw proposed layout of their business.
Career planners should use this section for a description of the process for
getting involved with the organizations they mentioned above.
Diagram(s)
SECTION
5
THE FINANCIAL PLAN
This is the moment you’ve been waiting do! Will you be making any money
from this operation? This section compares your expenses with your revenue
to determine the profits you can expect from your business or career. We
begin with your start-up costs. Start-up costs include the cost of any licenses,
permits, consultant’s and other fees, plant and equipment, construction,
landscaping, etc. Include the cost of anything needed in order for you to be
ready to open your doors for business. This amount usually determines your
initial capitalization. It is advisable to include at least 6 months’ salary for the
owner and perhaps 6 months’ rent on the premises. Career planners should
determine any expenses for training and education, job search, appropriate
clothing for interviews, automobile (if needed), rent, etc.
Start-up Cost
Type of Cost
Amount
1. _________________________________________
2. _________________________________________
3. _________________________________________
____________________
____________________
____________________
4. _______________________________________________
_______________________
5. _______________________________________________
6. _______________________________________________
_______________________
_______________________
_______________________________________________
7. _______________________________________________
8. _______________________________________________
_______________________
_______________________
_______________________
10. _______________________________________________
_______________________
11. _______________________________________________
_______________________
12. _______________________________________________
_______________________
Total
$ ____________________
This is the amount of funds you need to raise before your business/career
development can start.
Cost/Volume/Profits
This is where you determine your production costs, the volume of sales
needed, and the level of profits you can expect. You will need to list all your
operating expenses including raw materials. Wages and salaries, rent, utilities,
advertising, etc. you will also determine the level of production based on
anticipated sales. You will then compare the revenue and expense to
determine your production costs first. This will form the basis for your pricing
and ultimately, your profits, your goal whenever possible is to make sure you
are “key-stoning.” To keystone is to be able to charge a price that marks-up
your production costs 100%. In this section, you will also determine the
break-even point for your level of operation by finding out how many units of
output you need to break-even (the point where you merely cover your costs).
Determine your expenses: (rent, utilities, supplies, materials, wages, etc.)
Expense
Amount
1. _______________________________________
_______________________
2. _______________________________________
_______________________
3. _______________________________________
_______________________
4. _______________________________________
_______________________
5. _______________________________________
_______________________
6. _______________________________________
_______________________
7. _______________________________________
_______________________
8. _______________________________________
_______________________
9. _______________________________________
_______________________
10 _______________________________________
_______________________
Total
$______________________
Determine how many units you have to sell to cover the above costs by
dividing the amount by the price you plan to charge for the product.
Total Operation Expense
___________________________________
= Simple Break-even Units
Unit Price
Determine if you can keystone, i.e., are you able to double your cost-per-unit
of production or will this make your product too expensive?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Budgets
Budges are needed for planning and control. The master budget is
combination of the sales, purchases of raw material, expense, and cash
budgets. You would usually prepare budgets for the next 6 t0 12 months.
The Sales Budget: This budget is usually based on sales, people’s
expectations, the company’s prior experience, industry norm, economic
conditions, or seasonality. This is the most important budget because it
determines what happens with the other budgets.
Following is a typical set-up:
Sales
Jan.
Feb.
Mar.
Apr.
May
June
$
$
$
$
$
$
Total
$
Or Salary
The purchase Budget: the level of production is determined by the level of
sales, which in turn determines the amount of purchases. You may also need
to factor into your purchases some inventory to keep on hand unless you are a
just-in-time manufacturer.
Jan.
Purchases $
Feb.
Mar.
Apr.
May
June
Total
$
$
$
$
$
$
The Expense Budget: This budget lists your monthly expenses. Not all the
expenses listed will be needed. Feel free to add any pertinent expenses in
relation to your plan.
Rent
Utilities
Advertising
Insurance
Wages
Salaries
Jan.
Feb.
Mar.
Apr.
May
June
Total
$
$
$
$
$
$
$
Commissions
Depreciation
Interest
Misc.
Other exp. _____________________________________________________________________________
Total
$ ____________________________________________________________________________
The Cash Budget: This budgets shows the cash payments and cash
collections expected for each of the months. Only cash items are include in this
budget. The usual set-up is s follows:
Jan.
Feb.
Mar.
Apr.
May
June
$
$
$
$
$
$
Total
$
Beginning
Cash balance
Cash collections/
Salary
_________________________________________________________________________
Total cash
Available
_________________________________________________________________________
Less
Disbursements:
Purchases
Rent
Utilities
Advertising
Insurance
Wages
Salaries
Commissions
Depreciation
Interest
Miscellaneous
Other expenses
Capital
Expenditure
_____________________________________________________________________
Total
Disbursements $ _____________________________________________________________________
Balance before
financing
+/- Financing
Ending Cash
Balance
$ _____________________________________________________________________
$ _____________________________________________________________________
$ _____________________________________________________________________
SIMPLE PROJECTED FINANCIAL STATEMENTS
This is the point at which the sales, purchases, and expense budgets are
brought together. Financial statements include the Income Statement and the
Balance Sheet. The Income Statement measures the profits for given period
while the Balance Sheet shows the company’s worth at a point in time.
The income statement
XYZ, INC.
Income Statement for the Year Ended December 31, 2000
$
Sales / Salary
Less cost of goods sold
(Not applicable for career planners
and service business plans)
gross margin (gross profit)
(Not applicable for career planners
and service business plans)
less operating expenses:
Rent
Utilities
Advertising
Insurance
Wages
Salaries
Commissions
Depreciation
Interest
Miscellaneous
Other expenses
_________________________________
_________________
Net income before tax
Less tax
Net income after tax
_________________
__________________
The Balance Sheet
Here you list what you own on the left side of a “T” account and what you owe
on the right side of the same account. Both sides must be equal.
XYZ, IN C.
Balance Sheet As Of December 31 2000
Assets (what you own)
Liabilities (what you owe outsiders)
Equity/Capital (what you owe the owners)
SECTION
ETHICS OF BUSINESS
6
This section is to help you articulate your opinion of what is right or wrong
when doing business. You will express those things you will or will not do
when it comes to making money there are three main area addressed: ethics
of production, marketing, and finance.
What is your stand on the following?
ETHICS OF PRODUCTION
Using low quality materials
Over producing
Reducing the size of the packaged product
Using cheap labor
Using child labor
ETHICS OF MARKETING
Over shipping orders
Over pricing
False advertising
Undercutting competitors
Selling hazardous products
ETHICS OF FINANCE
Overbilling
Delaying payments to vendors
Smoothing accounts
Keeping two or more sets of books of accounts
PART 2
AN ADVANCED STEP-BY-STEP
WORKBOOK
PART 2 CONTENTS
Introduction
45
Section A. The Successful Entrepreneur 47
Personal Characteristics 47
The idea 50
Section B: The management Plan 53
Mission Statement 53
Section C: Industry Analysis 57
Uncontrollable Environment 57
Section D: Market Analysis
59
Controllable Environment 59
The Unknown
60
S. W. O. T. Analysis
60
Competitors 61
Consumers
62
Demographics
Suppliers
62
63
Financial Institutions
The Business Plan
63
65
Section E: Marketing Plan
67
Market Segmentation
67
Segment Basis
67
Total Market Demand
Target Market
68
67
Market Share
68
Sales Forecast
68
Market Positioning
Marketing Mix
Advertising
69
69
72
Sales Promotion
74
Personal Selling
74
Public Relations
74
Direct Marketing
75
Section F: Production Plan
77
Section G: Financial Plan
Section F: Final Steps
Appendix A
81
97
99
New Project Financing
Debt Financing
99
99
Equity Financing
100
Internet Resources
Appendix B
107
INTRODUCTION
Most people at one time or another have entertained the thought of owning a
business even if for a flitting moment. Many with good ideas never start
because of low risk propensity. Others actually start but do not succeed due to
several reasons such as a lack of managerial know-how, a lack of knowledge of
the business, and a lack of sufficient working capital (Dun an Bradstreet’s
Business Failure Record, 1996). Some businesses that could have succeeded
fail because of the personality of the owner. This workbook aims at a step-bystep process for starting a small business operation. It examines the
prerequisites for a successful; business, the personality of the entrepreneur,
the costs and benefits of owning a small business, forms of businesses,
preparing a business plan or project evaluation, an sources of finance.
The advanced section digs a little deeper into business planning. The concepts
in the basic section are examined with more details. Not only is this section
good for start-up businesses, it works well for project planning in a wellestablished organization.
SUPPLEMENTAL MATERIALS
1. Awosika-Fapetu, A. 0. (2000) Business Made 2nd edition (Kendall/Hunt
Publishing, Dubuque, Iowa)
(For a quick overview of many of the topics)
2. Project Financial Analysis (PRA) Disc
An interactive file on Microsoft Excel that could be utilized in setting up the
budgets and proforma financial statements.
SECTION
A
THE SUCCESSFUL ENTREPRENEUR
Following are some of the prerequisites for a successful small business (fill in
the blanks with your own information).
PERSONAL CHARACTERISTICS
1. Motivation – Why do you want to own your own business or go into the
proposed career? What is the driving force behind your desire?
2. Positive thinking – What are the things that make you believe you can
succeed as an entrepreneur or in your chosen career? Whose support and
encouragement can you count on?
3. High-risk propensity – Would you consider yourself a gambling person? If
so how much of your business would you be willing to lose. Would you
be willing to consider another career if the chosen one failed. (An
entrepreneur must be willing to loose everything and start over again, so
must a career planner.)
4. Focus – Are you able to start a project and see it through to a conclusion
without being distracted by other projects. ___ Yes ___ No.
(An entrepreneur must learn to focus on one project at a time and not be
spread out too thin. So must a career planner.)
5. Realism – Do you know when to quit? ___ Yes (Realistic) ___ No
(Unrealistic)
6. Humility – Do you consider yourself egotistical? ___ Yes ___ no
(To be successful, pride and ego must be shed.)
7. Drive – Are you self-driven? __ Yes __ No
8. Long-suffering – Are you a patient person? __ Yes __ No
9. Leadership – Are you comfortable being in charge? __ Yes __ No
10. Insomniac – Can you survive on short sleep? __ Yes __ No
11. Working hours – Will you be willing to work more than eight hours a day?
More than five days a week? __ Yes __ No
(Entrepreneurs and successful career people often have to do this.)
12. Stress – Can you manage your stress? __ Yes __ No
13. Responsibility – Can you be relied upon to do your share of work?
__ Yes __ No
14. Trust – Describe an incident in which your trustworthiness was tested.
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
Are you usually trusting, or cynical? State which.
15. Health – Do you eat well? __ Yes __ No
Do you rest well? __ Yes __ No
Do you exercise regularly? __
Do you rest well? __ Yes __ No
Do you exercise regularly? __ Yes __ No
15.
Experience – Do you have relevant experience? __ Yes __ No
16.
Education – Do you have relevant education qualification? __ Yes __ No
17.
Support – Will you have family support? __ Yes __ No
Financial support? ___ Yes ___ No
Government support? ___ Yes ___ No
(For example, the U.S. Small Business Administration program Supports
minorities and female-owned businesses.)
Industry support ___ Yes ___ No
(For instance, Wal-Mart has a made-in-U.S.A, and minority/female program
for their suppliers.)
18.Knowledge of the business – Do you know how the business/career and the
industry you plan to enter works? ___ Very well ___ Vaguely ___ Not al all
19.Outsourcing – Will you have outside support in areas in which you have a
weakness? ___ Yes ___ No
THE IDEA
All businesses start with an idea and the beauty of it all is that it does not have to
originate from you. The idea can come from observing need, your hobby, or your
current work situation, a good business idea must meet the following criteria:
1. It must be legal.
2. It must be executable.
3. There must be a current and potential need for it.
4. Customers must be willing and able to pay for it.
5. It must be profitable or at least cover all costs.
Your Idea
Is your idea legal? ___ Yes ___ No
Can you successfully carry out your idea? ___ Yes ___ No
Is there an apparent need for your idea? ___ Yes ___ No
If yes, explain in the space below:
Would customers want your type of product ___ Yes ___ No, and could
they afford it? ___ Yes ___ No
Before an idea becomes reality, it must go through the following stages:
1. Brainstorming sessions – Identify other possible alternatives.
What other alternatives do you know that will satisfy the same needs?
2. Screening – Eliminate unprofitable ideas and develop the good ones to a
product concept.
What makes your idea the best way to meet the need?
3. Testing – Test the chosen idea through market research, or on friends and
family.
How do you plan on testing the viability of your idea?
SECTION
THE MANAGEMENT PLAN
B
All businesses must identify the following elements before starting their
operations:
(For reader-friendly details on the concepts described from here on, please
consult Awosika-Fapetu’s Business Made Easy (2000). Dubuque, Iowa,
Kendall/Hunt Publishing or any other introductory business text.)
Mission Statement
What business are you in?
Why are you in business?
What are your goals
People
(Discuss competitors, suppliers, an employee involvement.)
Who will you be dealing with? List.
Process
What will you be doing (retailing, manufacturing, service or other)?
Explain your process step-by-step without giving away proprietary
information.
Structure
What will be the structure of your organization (organizational structure –
line, functional, line and staff, mechanistic or organic structure).
Business Prerequisites
1. Financial budgets – for planning and control
2. Sufficient capital – needed for success and sustainability
3. Location – perhaps the most important
4. Building – to but, lease, or build
5. Equipment – type (new or refurbished); buy or lease
6. Suppliers – single, few or many
7. Security – for people, property and process
8. Knowledge of laws and ordinances – needed so as to be a legal and
responsible corporate citizen.
9. Form of business –sole proprietorship partnership or corporation (Ccorporation; S-corporation; or limited liability company (LLC))
10. Start-up format – (franchise, purchase, or fresh start?)
SECTION
C
INDUSTRY ANALYSIS
UNCONTROLLABLE ENVIRONMENT
How would the following affect your business?
Politics _________________________________________________________________________________
Economics _____________________________________________________________________________
Social/Culture ________________________________________________________________________
Technology ____________________________________________________________________________
Environmental issues ________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Natural environment _________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
SECTION
MARKET ANALYSIS
CONTROLLABLE ENVIRONMENT
How will the following affect your business?
D
Competition___________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Consumers ____________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Product ________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Price ___________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Place ___________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Promotion _____________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Suppliers ______________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
The Unknown
Future: what is the future outlook for the industry you’re in?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
What strategic plans do you have for coping with the challenges in the
company’s future?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
S. W. O. T. Analysis
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
What are your company’s Weaknesses?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
What are your company’s Opportunities?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
What are the Threats to your company?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Competitors
Complete the following charts for all your competitors.
Name
Strength
Your strategy against their strength?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
SECTION
E
MARKETING PLAN
The marketing plan, which is the subject of this section, deals with marketing
strategy, market segment, target market, market positioning, marketing mix,
and sales forecast.
Market Segmentation
Which segment of the market does your company aim to serve? Mark those
that apply.
_____ Industrial
_____ Institutional
____ Consumer
Segment Basis
What is the basis of your segmentation? Mark those that apply.
_____ Geographic ______ Demographic
______ Psychographics (life-styles)
_____ Behavioral
Total Market Demand
Total market demand is a combination of market segment definition and
segment basis. For example:
“The total market comprises of individual consumers with a gross
income of $30,000 a year an above in the mid-western part of the United
States. This is estimated to be about 80 million people.”
The market potential for this example will therefore be $30,000 x 80 million.
Now define your total market.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Target Market
Target market is the proportion of the total market demand on which you
plan to focus. For instance, the target market for the above example could be
all individuals with an income of $30,000 and above in the state of Wisconsin
which could be approximately 8 million people.
Now specify your target market
__________________________________________________________________________________________
__________________________________________________________________________________________
Market Share
Market share is the percentage of the target market demand that the company
hopes to capture. For example, “This Company hopes to serve 0.1% of the
target market which represents 800,000 (0.1% of 8 million) people.”
State the percentage (and number it represents) of the target market demand
your company expects to serve. ____________________________________________
Sales Forecast
Sales forecast is the dollar amount of sales represented by market share. In
the above example, if the company’s product sells for $8.00 a piece, and it is
able to sell to all 800,000 people per year, this amounts to 800,000 x $8.00 =
$6,4000 per year of sales. Then divide this by twelve in order to determine
sales per month, and thereafter, to figure out the number of units to be
produced each month.
Now determine your annual sales and subsequent monthly sales. Remember
to allow for seasonal variations.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Market Positioning
Market positioning is how the company wants the consumer to perceive the
product.
Indicate how you want your customers to perceive your product:
__ Health and Safety __ Convenience __ Inexpensive __ Pure/Natural
__ Luxury __ Time saving __ Other
Marketing Mix
Marketing mix is the combination of product, price, place, and promotion
strategies favored by the company.
Product. Three classifications for product. (1) the core product (the core
product (the need being met), (2) the actual product (physical attributes of
the product), and (3) the augmented product (support services for the
product). For example:
Actual Product
Core Product
Physical Product
Augmented Product
Beauty soap
Hope
Features
None
Packaging
Color
Design
Quality
Brand name
Hand Drill
Hope
(As above)
Credit
Warranty
After sales service
__________________________________________________________________________________________
Refrigerator
Convenience
(As above)
Delivery
Installation
Credit
Warranty
After sales service
__________________________________________________________________________________________
Computer
Communication
(As above)
(As above)
Now give a detailed description of your product.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Price: the unit of exchange that affords the company a profit in addition to
covering its cost. The customer must perceive the price as being fair relative
to the satisfaction derived from the product.
The following factors affect the price of a product:
a. Product cost
b. Marketing mix strategy (company policies on the 4 Ps)
c. Marketing Objectives:
Survival
Profit maximization
Market share leadership, or
Product quality
Pricing strategy determines the basis for product pricing. “ Productbased” strategy calls for a cost-plus pricing (cost of production plus
profit margin). “Customer based” strategy needs vale based pricing
(what the customer is willing to pay based on the perceived value of the
product). Finally, “competition based” strategy uses the “going rate”
(what competitors are charging for the same product).
Describe your pricing strategy below.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
Place: distribution channels, and modes of transportation
Distribution channels
a. Direct sales
b. Wholesale
c. Brokerage
d. Agency
Consider the following when choosing a distribution channel:
a. Logistics – inventory, costs, order processing, warehousing, etc.
b. Transportation – air, rail, pipeline, water, and trucking. These must
be chosen based on speed, dependability, capability, availability, and
cost.
Describe the distribution process for your product below.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Promotion: presenting the product to the potential buyer. The following
should be considered:
Promotion Mix: (1) Advertising (2) Sales promotion, (3) Personal selling, (4)
Public relations, (5) Direct marketing.
Advertising
Advertising is introducing a product to the general public at the same time.
There are three key things to consider:
Media: word of mouth, opinion leaders, events, major media such as print,
broadcast, display, etc.
Budget: determined by desired coverage or what the company can afford.
Schedule: timing (consider seasonality and demand for the product), reach,
impact, and specific media vehicle, e.g., monthly magazine, bi-weekly
magazine, daily newspaper, etc. the following decisions have to the made:
1. How much to spend
2. What media to use
3. What to say
4. How often to say it
These are referred to in advertising as media strategy, budget strategy,
copy strategy, and frequency.
Media include:
a. Newspaper
b. Radio
c. TV
Billboards
d. Flyers
e. Direct mail
f. Store signs
g. Calendars, pens, pencils, desk pads, etc.
Budget
The advertising budget depends on cost and coverage desired or what the
business can afford.
Indicate below your proposed advertising media, how often you plan to use
each one, an anticipated cost of each medium.
Medium
Coverage Frequency
Total $ Budget
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Sales Promotion
Sales promotion includes incentives given to customers to encourage
purchase of the company’s products. Examples include discounts samples,
contests, coupons, rebates, and special offers.
Indicate below the sales promotion tools you intend to use.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Personal Selling
Direct or personal selling is the use of sales people, catalogs, web site,
telemarketing, etc., to communicate the usefulness of a product with the intent
to make a sale. Requires a one-on-one contact and be very costly.
Indicate whether you will be doing any personal selling.
Personal Selling:
____ Will use
____ Will not use
Public Relations
Public relations is another expression for free advertising. When a product is
mentioned on the news, or in a newspaper article, or on a TV magazine
program, it gives the product wide exposure without the company having to
pay for it. Any opportunity to mention your product while making a
presentation should be seized. Local newspapers are a good bet. Most of them
will spotlight a new business or product in the area.
Indicate any possible public relations opportunities for your product.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Direct Marketing
Direct marketing includes on-line marketing, direct mail, catalog,
telemarketing, and TV marketing. Indicate with a check mark your desire to
use any form of direct marketing below.
Yes
On-line marketing
No
Direct mail
Catalog
Telemarketing
TV marketing
F
SECTION
PRODUCTION PLAN
1. Describe your production process without jeopardizing the security of
your patent or process.
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
2. Plan future production from sales forecast. Indicate number of units to be
produced each month based on sales forecast and the seasonality of your
product.
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
3. Determine the resources needed. Resources include people, materials, and
equipment. Set the policies for materials acquisition for current production
and for inventory (unless Just-In-Time inventory is used).
4. Estimate cost of each input.
5. Determine specific operating activities and necessary steps to carry them
out.
Plan activities in sequence. For example:
a. Rent space (plant, and/or shop) – where, when, and cost.
b. Purchase equipment – from whom, when, and at what cost.
c. Employ workers – how many, type (skilled/unskilled), wage rate(s)
etc.?
d. Order materials – from whom, at what cost per unit, and what
quantities.
e. Begin production – when?
Enter the details for your company below.
Facilities
Where
When
Cost
Payment Plan
Cost
Payment Plan
a.
b.
c.
Equipment
Supplier
Delivery
a.
b.
c.
d.
Employee Type
a. Management
b. Clerical
c. Assembly
d. Stockers
Number
Wage/salary
Benefits (if any)
e. others
Materials
Suppliers
Delivery
Quantity
Cost
Payment Plan
a.
b.
c.
d.
e.
Begin Production
When
6. Assign jobs and activities to personnel, machines, and departments upon
beginning production.
7. Make necessary design, schedule, and output changes.
SECTION
FINANCIAL PLAN
G
The financial plan consists of budgets and projected final accounts. The
following budgets are usually prepared.
1. Master budget – incorporates the marketing, productions, and financial
plans in monetary terms.
2. Sales budget – includes sales forecast in units and in dollars.
3. Production budget – includes materials budget in units and dollars,
manpower (labor) budget in hours and in dollars, and overhead budgets
in dollars.
4. Selling and administrative budget – incorporates all administrative
expenses including advertising, supplies, commissions, utilities, etc.
5. Cash receipts schedule.
6. Comprehensive cash budget and financial schedule.
7. Projected financial statements.
Selling Plan
1. Determine best selling price.
2. Determine monthly sales forecast
3. Determine credit policy (e.g., all cash, all credit, some credit, and some
cash sales, and what percentages).
4. Determine collection policy. What percentage of credit sales must be
collected in the month of sale and in subsequent months (e.g., 75% in
month of sale and 25% the following month)?
To determine the best selling price, consider the following:
a. Direct cost – this includes costs of direct materials, direct labor, and
manufacturing overheads.
b. Non-manufacturing overheads.
c. Profit margin – at least 40 to 50% is recommended.
d. Contribution margin.
The size of the contribution determines the best price to charge. Contribution
is the amount left to cover manufacturing overheads, non-manufacturing
overheads, and profit, after direct costs have been deducted from selling price.
The price that brings in the highest contribution is the best price to charge.
Contribution = Selling Price – Direct Costs
Examples: If direct cost = $4.00, and the following quantities can be sold at the
estimate selling prices, what will be the best price to charge?
ESTIMATING THE BEST SELLING PRICE
Selling price (proposed)
$10.00
$8.00
$5.00
Projected sales in units
At these prices
8,000
15,000
30,000
$80,000
$120,000
$150,000
a. Projected dollar sales
(units x selling price)
b. Direct Costs (units x direct costs)
In this example ($4 x units)
$32,000
$60,000
$120,000
Contribution (a – b)
$48,000
$60,000
$30,000
Best price = $8.00 if 15,000 or more units can be sold.
A comprehensive illustration now follow. The illustration covers the first 6
months of operation, from April to September. Wherever it is necessary for
September computations, figures for the month of October are given.
ILLUSTRATION
The assumptions in this example are as follows:
1. Sales – All credit sales: 75% to be collected in month of sale, 20% to be
collected the following month, and 5% will be uncollectible.
2. Production – Desired ending inventory for each month to equal 20% of the
following month’s budgeted sales.
3. Materials (units) – Three yards of material are needed for producing each
unit. Company policy is to have 10% of following month’s materials on
hand.
4. Materials (dollars) – Cost per yard of materials is $.50, and 50% of
purchases are paid for in the month of purchase, and the remaining 50% to
be paid the following month.
5. Direct labor – time required to produce each unit is 5 minutes or .08
hr/unit.
6. Manufacturing overhead – Variable-manufacturing overhead equals $1.00
per unit. Fixed manufacturing overhead equals $5,000 per month. This
amount includes depreciation of $1,000 per month.
7. Selling and administration – Variable selling and administrative expense
equals $.10 per unit. Fixed selling and administrative expense equals
$100.00 per month. This amount includes depreciation of $20.00 a month.
8. Cash budget and financing schedule –
a. The company requires a minimum cash balance of $2,000 at any time.
b. It has a $20,000 line of credit from which it can borrow at the beginning
of the month and pay back at the end of 90 days. Interest on the loan is
3%.
c. Equipment of $28,000.00 will be bought. Of that amount, $15,000 will
be paid in May, and the balance of $13,000 will be paid in June.
SALES BUDGET
Using the best selling price of the $8.00 figured on page 82, the following
sales in units and dollars are expected.
Estimate # units
April
May
June
July
Aug
Sept
Oct
2000
2000
4000
4000
3000
3000
2000
Dollar Sales
($8.00 x units)
$16,000 16,000 32,000 32,000 24,000 24,000 16,000
PRODUCTION BUDGET (UNITS)
Note: Ending inventory for each month should equal 20% of following
month’s budgeted sales.
April
May
June
July
Aug
Sept
Oct
a. Sales (units) 2000
2000
4000
4000
3000
3000
2000
800
800
600
600
400
2800
4800
4600
3600
3400
2800
400
800
800
600
600
400
2400
4000
3800
3000
2800
2400
b. Desired ending
inventory (20%
of next month’s
sales)
400
800
c. Total units
required
(a+b)
2400
d. Less beginning
Inventory*
0
Units to produce 2400
*The last month’s ending inventory is the current month’s beginning
inventory.
MATERIALS PURCHASES BUDGET (UNITS)
Note: 3 yards of material are needed for producing each unit. Company policy
is to have 10% of following month’s materials on hand.
April
May
June
July
Aug
Sept
Oct
a. Units to produce
(from production
budget)
b. Yards per unit
2400
2400
4000
3800
3
3
3
7200
7200
12000 11400 9000
8400 7200
720
1200
1140
720
3
3000
3
2800
2400
3
c. Production
needs (a x b)
d. Required
ending inventory
(10% of next
Month’s
Production)
900
840
3
Total needed
(c + d)
7920
8400
13140
12300
9840 9120
Less beginning
Inventory*
0
720
1200
1140
7920
7680
11940
11160
900
840
To be purchased
(e – f ) yards
8940 8280
*The last month’s ending inventory is the current month’s beginning
inventory.
PURCHASES DISBURSEMENTS
Note: cost per yard $.50
Payment Plan:
50% in the month of purchase
50% the following month
April
a. Materials
Purchased
(yards)
b. Cost per yard $
7920
.50
May
June
7860 11940
.50
.50
July
11160
.50
Aug
8940
.50
Sept
Total
8280
.50
55920
.50
4140
7960*
Total cost
(a x b )
$
3960
3840
5970
5580
4470
Disbursements:
April
1980 1980
May
1920
June
1920
2985
July
2985
2790
Aug
2790
2235 2235
Sept
2070
Oct
Total
2070**
$1980
3900
4905
5775
5025
4305 2070
*To income statement (C.O.G.S.)
** Accounts Payable (to Balance Sheet)
DIRECT LABOR BUDGET (HOURS AND DOLLARS)
Note:
Time required/unit = 5 minutes or .08 hr
Wage rate/hour = $5.00
April
May
June
July
2400
.08
2400
.08
4000
.08
(axb)
192
d. Wages per hour
$ 5
e. Total direct labor
(cxd)
$960
192
5
a. Units produced
b. Hours per unit
Aug
Sept
3800
.08
3000
.08
2800
.08
320
5
304
5
240
5
224
5
960 1600
1520
Total
c. Hours required
*To income statement (C.O.G.S)
1200
1120 7360*
MANUFACTURING OVERHEAD BUDGET(CASH)
Note:
Variable manufacturing overhead = $1.00/unit
Fixed manufacturing overhead = $5000/month, includes $1000 for
depreciation.
April
May
a. Units produced 2400 2400
b. Variable
O/H rate
$ 1
1
c. Variable O/H
Cost (a x b )
$2400 2400
d. Add fixed O/H $5000 5000
June
July
Aug
Sept
4000 3800
3000
2800
1
1
3800 3000
5000 5000
2800
5000
1
4000
5000
1
Total
e. Total
manufacturing
O/H
$7400 7400
f. Less depreciation**
$1000 1000
9000
8800 8000
7800
$48,400
1000
1000 1000
1000
$6,000*
8000
7800 7000
6800 $42,400!*
g. Manufacturing
O/H ( cash )
$6400 6400
*To income statement (C.O.G.S.)
** Depreciation is a non-cash item and is therefore deducted from the
total.
! To comprehensive cash budget.
SELLING AND ADMINISTRATIVE EXPENSE (CASH)
Note:
Variable S&A = $.10/unit
Fixed S&A = $100.00 a month, including depreciation of $20.00.
April
May
June
July
Aug
Sept
Total
a. Units sold
2000
b. Variable O/H
Rate
$ .10
2000
4000
4000
3000
3000
18,000
.10
.10
.10
.10
.10
.10
c. Variable O/H
Cost (a x b)
$200
d. Add fixed O/H $100
200
100
400
100
400
100
300
100
300
100
300
500
500
400
400
1,800
100
e. Total manuFacturing O/H $300
f. Less
2,400
Depreciation** $ 20
g. Manufacturing
O/H (cash)
$280
20
20
280 480
20
480
20
380
20
380
120*
$2,280!*
* To income statement (C.O.G.S)
** depreciation is a non-cash item and is therefore deducted from the total.
! To comprehensive cash budget.
CASH RECEIPTS BUDGET
Note: All credit sales
Collection patterns: 75% in month of sale; 20% in month after sale; 5%
uncollectable
April
May
June
July
Aug
Sept
Total
Budgeted revenue
(from sales
budget)
144,000*
$16,000
16,000 32,000 32,000 24,000 24,000
Receipts:
Month’s Credit
Monthly Collections
Sales
April
$16,000 $12,000
May
16,000
June
32,000
July
32,000
Aug
24,000
Sept
24,000
3,200
12,000 3,200
Total Collections $12,000 15,200
24,000 6,400
24,000 6,400
18,000 4800
18,000 4800**
27,200 30,400 24,400 22,800
*Revenue total (to income statement)
**Accounts receivable
Uncollectable debt = $7,200 (5% of $144,000)
COMPREHENSIVE CASH BUDGET
AND FINANCING SCHEDULE
Note:
1. Owner introduced $2,000 at the beginning.
2. Money is borrowed at the beginning of the month and paid back at the
end of 90% days.
3. Interest is 3%.
4. $15,000 of equipment purchased is payable in May, and $13,000 is due
in June.
5. A minimum cash balance of $2,000 must be maintained.
April
May
June
July
Aug
Sept
Total
$
$
$
$
$
$
$
2,000
4,380
2,000
2,000
a. Beginning cash
balance
7594
17,580
b. Cash receipts 12,000 15,200 27,200
30,400 24,400 22,800 132,000
c. Cash available 14,000 19,580 29,200
32,400 31,994 40,380
Less cash disbursements
d. Materials
1,980 3,900
4,905
e. Labor
960
960 1,600
f. Manufacturing
overhead
6,400 6,400 8,000
g. Selling &
Admin.
280
280
480
h. Equipment
15,000 13,000
5,775
1,530
5,025 4,305
1,200 1,120
25,890
7,360
7,800
7,000 6,800
42,400
480
-
380
-
380
-
2,280
28,000
i. Total cash
disbursements 9,620 26,540 27,985 15,575 13,605 12,605 105,930
j. Balance before
financing (c – i) 4,380 (6,960) 1,215 16,825 18,389 27,775
Financing
Funds available
-
8,960
785
4,380 2,000
2,000
Repayment
Interest payment
-
-
-
16,825 19,389
27,775
-
-
-
(8960)
(785)
-
(271)
(24)
-
295!
2,000
7,594
Balance after
financing
4,380 2,000
17,58 27,775*
*Cash Balance to Projected Trial Balance.
! Interest payment to Trial Balance and Income Statement.
PROJECTED TRIAL BALANCE
ACCOUNT
Cash
Accounts receivable
Equipment
DEBT
CREDIT
$
$
27,775
4,800
28,000
Accumulated depreciation O/H
6,000
Accumulated depreciation S&A
120
Stockholder’s equity
2,000
Revenue
144,000
Accounts payable
Materials
Labor
2,070
27,960
7,360
Manufacturing overhead
42,400
Selling & administrative
2,280
Interest expense
295
Bad debt expense
7,200
Depreciation expense O/H
6,000
Depreciation expense S&A
120
$154,190
$154,190
Ending inventory is 720 yards at $.50 = $360
PROFORMA INCOME STATEMENT
$
Revenue
Materials Purchases
Less Ending Inventory
Materials Used
Add Direct Labor
144,000
$27,960
360
27,600
7,360
Add manufacturing O/H 42, 400
Cost of Goods Sold
77,360
Gross profit
66,640
Less Expenses
Selling and Administrative
2,280
Depreciation
6,120
Bad Debt Written Off
7,000
Interest Expense
295
15,895
Net Profit Before Tax
50,745
Less Tax at 40%
20,298
Net Profit After Tax
30,447
PROFORMA BALANCE SHEET (REPORT FORMAT)
Assets
Cash
27,775
Account receivable
4,800
Inventory
Equipment
Less depreciation
Total assets
360
28,000
6,120
21,880
54,815
LIABILITIES &
STOCKHOLDERS’ EQUITY
Account payable
2,070
Accrued Tax
20,298
Retained earnings
30,447
Stockholder’s equity
Total liability and equity
2,000
54,815
SECTION
H
FINAL STEPS
Having gathered all relevant information about your market, determining the
strategies to follow, and after preparing the budgets and final accounts, you are
now ready to look at sources of financing. You may borrow money from a bank,
your family, or find a partner, or a venture capitalist to contribute to the venture.
Explain how, where, and when you hope to finance your business below.
Type of Financing
Personal savings
Private loans
Lending institution
Partnership
Venture capital*
Government (e.g.,
Small Business
Administration)
From Whom
When
Why This Type
*Venture capitalists have a vested interest in your project and are known to back
superior products. They sometimes will contribute management skills and are
usually reliable partners.
Now prepare a report in prose format using the information from the complete
workbook and following the example in Appendix B.
REMEMBER, poor planning, poor management, poor product, bad economy, spell
disaster, so
1.
2.
3.
4.
5.
6.
Plan ahead;
Acquire the necessary management skills;
Strive for excellence in your product/operations;
Monitor the economic environment;
Watch your costs; and finally,
Do not settle for mediocrity
Good Luck!
APPENDIX A
NEW PROJECT FINANCING
A contribution to the Appalachian College Association’s Entrepreneurship Web
Site.
By
Dr. Abiola O. Awosika-Fapetu
Montreat College
Having gathered all relevant information about your market, determined the
strategies to follow, and after preparing all the necessary budgets and projected
income statement and balance sheet(s), you are now ready to consider the
sources of financing available to you. This section will discuss
 The types of financing available to you
 When to use each type
 The advantages and disadvantages of using each type
___________________________________________________________________
TYPES OF FINANCING
Debt Financing
This involves borrowing money from different sources. Lenders will usually
require interest on the loan. You may also be required to provide collateral and to
contribute a certain percentage of the initial capital needed to start the business
to assure the lender that you have a vested interest in the project and will strive
to make it successful.
Debt financing should be used cautiously. If the entrepreneur or new project
manager is relatively sure of a successful venture, it is better to use debt. This
essentially is using someone else’s money to create more wealth for the owner. It
also means that necessary interest payments will be covered adequately. If debt
is used in an unsuccessful venture, it puts the owners in deeper trouble because
they have to make interest payments whether or not the company makes a profit.
Equity Financing
Equity financing does not involve interest payments, neither do you need
collateral. It however means that the investor can claim ownership of the
business. Equity financing requires the payment of dividends when the company
is successful, and management deems it necessary to do so. This is a clear
advantage over debt financing because a bad year or a slow economy will not put
the company into deeper trouble since there are no mandatory interest expenses
to deal with. It is necessary to point out, however, that a company that does not
pay dividends regularly runs the risk of losing its investors to other companies
that pay dividends.
Sources of Debt Financing
Bank Loans
 Many banks will finance new ventures while others will only lend money to
well established businesses. The entrepreneur needs to confirm that the
bank being dealt with will fund a new venture.
 Bankers usually require a business plan with an executive summary,
financial plan, and a repayment schedule.
 They usually require that the owner contribute 20 to 30 percent of the
initial cost of the new venture.
 Long-term and short-term loans are available through the banks.
 Banks usually provide Accounts Receivable loans (factoring), Inventory
loans, Equipment loans, and Real Estate loans. Note that the above
mentioned bank loans have assets as the basis of the loans. Those assets
serve as collateral.
 Bankers are looking for Character, Capacity, Capital, Collateral, and
Conditions (The five Cs of lending). Character deals with the owners’
credibility and credit worthiness. Capacity deals with the availability of
necessary resources to make the venture successful. Capital deals with the
owners’ financial contribution and vested interest in the project. Collateral
is something the bank can hold on to and sell should the entrepreneur
default on the loan. Conditions deal with the general outlook of the
business, the industry, and the economy as a whole. It also deals with the
entrepreneur’s ability to abide by the terms of the loan applied for.
Private Loans
 Private loans include loans from friends and family. Such loans must be
dealt with cautiously.
 Simple contracts should be drawn out for such transactions. The terms
and conditions of the loan should be spelled out.
 If friends and family wish to relinquish their rights to interest payments,
the funds should then be considered equity funds which makes them art
owners of the business. If this is the case, the limits of their involvement
and the risks involved in the venture should be spelled out in writing.
 Personal loans are easier to find and manage than bank loans. The terms
are not as stringent as those of the banks.
 The down side is that it could destroy good relationships if not handled
well.
Informal Risk Capital
 Informal risk investors are also known as “Business Angels.” These are
individuals or groups with money to invest.
 They are usually well educated.
 They look for non-secure ventures that will yield high returns.
 They can usually end from $10,000 to half a million dollars.
 They like to see a business plan and some of the some documents a bank
needs to see.
 They are usually very selective in what they invest in.
Venture Capital
 Venture capitalists are similar to Informal-Risk investors.
 They invest in high-risk ventures not usually funded by banks.
 They want to see a well-written business plan presented in a professional
manner. The plan must be good enough for them to give it a second look.
Poorly written plans usually end up in the recycling bin 5 minutes after the
venture capitalist opens it. They do not have the time to try figuring out
what the entrepreneur is trying to say.
 Each venture capitalist has preferences usually based on geographical
locations, specific industries, or specific projects. Entrepreneurs need to
find out if the venture capitalist being dealt with has an interest in their
area of interest.
 Venture capitalists have a vested interest in any business funded by them
and are known to back superior products.
 They sometimes will contribute management skills and are usually reliable
partners.
 The down side to using a venture capitalist is the conflict of interest that
may arise when the company is in trouble. The venture capitalist may want
to take over control of the business, or even demand liquidation, whereas
the owner may be interested in trying to keep the business afloat at all
costs.
 Loans usually start from $500,000 to several millions of dollars.
Small Business Administration
 The Small Business Administration (SBA) is a government agency that
among other things guarantees loans for small businesses. Entrepreneurs
are required to find a bank that will grant them loans. The SBA will then
serve as guarantor for the loan. The SBA rarely gives direct loans to small
businesses.
Insurance
 Entrepreneurs can borrow against their insurance policies where allowed.
401k
 Some employee retirement plans will allow employees to borrow against
their 401k contributions. This should not be used unless there is some
assurance that the business will generate enough funds to pay back the
loan.
Credit Card
 Credit card companies should be lenders of last resort for a new venture
unless the rate of return on the business exceeds the rate of interest on the
credit card loan. Small businesses can take advantage of some windows of
opportunity presented by credit card companies that offer very low rates
for a short period of time for new accounts. If the entrepreneur expects to
have enough money to pay off the car balance before it changes to high
interest rate, such an opportunity should be taken.
Thrift and Commercial Lenders
 These are usually small brokers or thrift organizations willing to lend for a
short term.
 Such loans usually come with high interest rates similar to credit card rates.
 They should only be used if there is an assurance of an early retirement of
such loans.
Sources of Equity Financing
Personal Savings
 Most new ventures will have some elements of equity financing.
 Owners may use their savings or investments.
When personal savings are used, owners must ensure that they have enough
money left to cover 12 to 18 months’ living expenses. This will avoid the need
to live off the business before it has had time to be well established.
 Owners should also pay themselves a salary. They must avoid drawing
money and goods off the business.
Partners
 Many new ventures involve partnerships. Partners usually bring in funds
and know-how.
 They also must share in the profits and responsibilities since they are
part owners.
Other Sources
Suppliers
 Some suppliers will extend credit to their customers sometimes
up to 90 days.
 Others may allow their customers to pay only after the goods
have been sold.
This is a rare occurrence unless the customers are well known.
Agents and Distributors
 Agents or distributors may be required to pay a deposit before
products are shipped out to them. Again this is usually available to
well known or well-established businesses or to new businesses
with an essential commodity or a superior product.
Customers
 Customers are sometimes required to pay before goods are
delivered. Such funds can be used to produce the goods before
delivery to the consumer.
Internet Resources
Following is a list of Internet resources available to entrepreneurs seeking
business financing.
Web site 1 – America’s Business Funding Directory: The First Business Capital
Search Engine
Location: http://www.businessfinance.com/index.shtml
Content Rating: ****
A simple page which contains both membership and free access to data and
resources for raising capital. This site contains a library of business resources and
links to pages designed to assist in locating financial resources. The goal of the
page is to connect capital resources with businesses.
Design: *****
Quick to use, no timely downloads, good resource for links to small business
development centers. Page assists in defining different resources for different
businesses.
Overall: ****
A good start in finding capital resources. Provides information pertinent to
businesses of all sizes and helpful for small businesses.
Web Site 2 – Idea Café: The Small Business Channel
Location: http//www.ideacafe.com/getmoney/finResources.html
Content Rating: *****
This page provides resources, information, and links pertaining to financing small
business ventures. Contained in the page are links to sources on the web,
addresses for off-line help, and book titles geared towards helping anyone with
an entrepreneurial spirit to find financing.
Design: *****
The site is fun and quick to use. Provides a lot of interesting information for the
business-oriented individual. A refreshing change from the hard-line business
oriented web sites. You don’t need a tie for this site.
Overall: *****
Enjoyable resource for the budding entrepreneur and the seasoned veteran alike.
Provides a lot of useful information including links to current business news.
Web Site 3 – SBA – U.S. Small Business Administration
Location: http//www.sbaonline.sba.gov/finance/
Content Rating: *****
A wealth of information concerns alternative sources of financing for small
businesses, sponsored by the U.S. government.
Design: *****generally a user-friendly site as it is easy to access. A little heavy on
the content at times but still a valuable resource for business financing.
Overall: *****
A unique site for a government agency because it provides an alternative means
for a small business to secure financing when normal lending channels are not
open.
Web Site 4 – Entrepreneur Magazine’s Guide to Raising Money
Location: htt//www.entrepreneurmag.com/resource/raising-money.hts
Content Rating: *****
This page bills one section as an assembly of “the most comprehensive funding
source on the web.” This web0based companion to Entrepreneur Magazine
provides a wealth of information through various resources and links for
individuals interested in seeking funding for all type of new ventures and business
opportunities.
Design: *****
Easy to use with a pleasant layout. Provides several quick assessments to assist in
defining capital needs and proper sources.
Overall: *****
Close association with the periodical publication assures up-to-date information
and resources. Following in line with their extensive resources, they can provide
valuable information for all aspects of the entrepreneurial world.
Web Site 5 – Entrepreneurial Edge Business Resources
Location: http//www.edgeonline.com
http//www.edgeonline.com/main/resourcepage.index2.shtm
Content Rating: *****
Entrepreneurial Edge magazine provides this web site to compliment their
periodical. While not as extensive as other publications, this site provides links to
straightforward functional sites and those that offer advice on creative, nontraditional methods of capital funding.
Design: *****
This site provides easily maneuverable pages to attain information pertinent to all
aspects of small business financing and management.
Overall: *****
Close association with the periodical publication assures up-to-date information
and resources. Following in line with their extensive resources, they can provide
valuable information for all aspects of the entrepreneurial world.
Other useful sites
http://www.geocities.com/wallstreet/2172/business.htm
http://www.datamerge.com/business-financing-loans/venturecapital/lenders.htm
EDUHUB BUSINESS PLAN
BUSINESS PLAN PREPARED FOR
by
Professor Abiola O Awosika
Olawoyin Awosika School of Innovative Studies
September 6th, 2013
This business plan contains confidential and proprietary information
Belonging exclusively to Incubator Africa
CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
Executive Summary
Vision and Mission Statement
Company Overview
Products/Service Plan
Marketing Plan
Management Plan
Operating Plan
Financial Plan
EXECUTIVE SUMMARY
The Education Hub is situated on the 1st Floor of the newly renovated and refurbished Lagos City Hall.
Incubator Africa’s desire is to create a new state of the art space providing products and services to the
education sector that will have impact. The Education Hub is 308 sq m of valuable real estate centrally
located on the Lagos Island for easy access. There are three large rooms and 3 medium-sized rooms; a
wide corridor and balcony space.
The Vision
To create a Centre of Innovation for developing and delivering solutions in education that will ignite and
drive monumental change in the educational sector
Our Goal
Our Goal is to build something new; a Centre that is designed to be a place of Innovation; of Creativity
and knowledge acquisition. The Education Hub is about National Development. This will be a space
dedicated to educational solutions. There is demand for major reform and our desire is to ignite this
change by equipping Nigerian education stakeholders with the tools to proactively transform teaching
and learning for the growth of the Nigerian economy.
The Users
It will be a place for teachers, school owners and administrators, students, parents, managers of school
systems in government and Life-Long Learners – those with a thirst for knowledge. A place for training,
equipping, empowerment and social impact. Incubator Africa’s desire is to create a new state of the art
space, providing products and services to the education sector that will have impact. It will be a place for
teachers, school owners and administrators, students, parents, managers of school systems in
government and Life-Long Learners – those with a thirst for knowledge. A place for training, equipping,
empowerment and social impact.
Centre for Future Ready
Education
Imaginal Leaders
Transformation
workshops
Models of the future e.g
Early Childhood Creative
Centre
Training and equipping
Design Studio for
Creative Thinking and
Actions (Quiet area)
The Knowledge
Exchange Hub
e-learning studio
e-library
Policy Centre
Research Centre
Resource Centre
Learning Store with
products for sale
Technology space:
Video conferencing
facilities
Career and Business
Development Centre
A Career Exploration Centre:
A Window to the World of
Opportunities
Transition
management:
Living Your Dream
Business Support and
Incubator Offices for
Education Start-ups
IA Secretariat (IA Office)
Reformer’s Hang-Out
A Meeting Place: a place
of convergence
A Connector:
connecting people and
institutions: Volunteers
A Café; Lounges;
Exhibitions; seminars
VISION AND MISSION STATEMENT
The Education Hub is situated on the 1st Floor of the newly renovated and refurbished Lagos City Hall.
Incubator Africa’s desire is to create a new state of the art space providing products and services to the
education sector that will have impact. The Education Hub is 308 sq m of valuable real estate centrally
located on the Lagos Island for easy access. There are three large rooms and 3 medium-sized rooms; a
wide corridor and balcony space.
The Vision
To create a Centre of Innovation for developing and delivering solutions in education that will ignite and
drive monumental change in the educational sector
Our Goal
Our Goal is to build something new; a Centre that is designed to be a place of Innovation; of Creativity
and knowledge acquisition. The Education Hub is about National Development. This will be a space
dedicated to educational solutions. There is demand for major reform and our desire is to ignite this
change by equipping Nigerian education stakeholders with the tools to proactively transform teaching
and learning for the growth of the Nigerian economy.
COMPANY OVERVIEW
Eduhub is a limited liability company founded by………….
Core Competencies
•Management expertise
•International outlook/customers
•Negotiating skills
•Strong brand
•Dealings with leaders in the industry
•Strong new product development skills
•Understanding of the market
SERVICE PLAN
Incubator Africa’s desire is to create a new state of the art space, providing
products and services to the education sector that will have a positive impact.
The Hub will be a place for teachers, school owners and administrators,
students, parents, managers of school systems in government and Life-Long
Learners – those with a thirst for knowledge. A place for training, equipping,
empowerment and social impact. Incubator
Centre for Future Ready Education
Imaginal Leaders Transformation workshops: A think tank of transformational leaders for the
future of education in Nigeria and Africa.
Models of the future e.g Early Childhood Creative Centre
Training and equipping: Training teachers of the future
Design Studio for Creative Thinking and Actions (Quiet area)
The Knowledge Exchange Hub
e-learning studio
e-library
Policy Centre
Research Centre
Resource Centre
Learning Store with products for sale
Video conferencing facilities
Career and Business Development Centre
A Career Exploration Centre: A Window to the World of Opportunities
Transition management: Living Your Dream
Business Support and Incubator Offices for Education Start-ups
Educational Consulting services
IA Secretariat (IA Office)
Reformer’s Hang-Out
A Meeting Place: a place of convergence: Membership subscriptions will allow members to come in and use
services. Subscription levels will determine the services members are entitled to. This should attract serious
minded people and create an exclusive imagery.
A Connector: connecting people and institutions: Volunteers
A Café; Lounges;
Exhibitions; seminars
MARKETING PLAN
Market Analysis
This is a one of a kind business that caters the macro as well as the micro needs of
educators in Nigeria. It emphasizes policy framework needs as well as individual
teacher/learner needs. It must therefore be mindful of both the political and market impact
on its operations.
The Competition
If there are competitors with the same service, it is not known at this time. The closest
competitors may be organisations like Chams which is just an electronic examination
center. Other similar organizations would be the technology hub which functions as idea
generation hub for technology buffs. Other companies have learning resource centers but
such centers are usually part of a university or higher institution. The Education hub is
therefore the first of its kind in Nigeria with a robust and far reaching array of services for
its customers.
Marketing Strategy
The strategy will be to attract like-minded businesses and organisations to set up their
operations within the hub.
The following channels of advertising will be used:
 Newsletters
 Network Marketing:
o Search engine optimization
o Facebook
o Tweeter
o LinkedIn
o Blogs such as Bela Naija, Linda Ikeji, etc.


Flyers, Banners
TV scrolling advertisiments
MANAGEMENT PLAN
This section identifies the key players –active investors, management team, and directors –
citing the experience and competence they possess. This section should offer the following
descriptions:
(1) Management Team and their qualifications
(2) Directors and their qualifications
(3) Outside resource people and their qualifications
STAFFING PLAN
a. Volunteer staff will be engaged on a voluntary basis and will have free membership
in lieu of wages.
b. Three consulting staff; 2 admin staff with one responsible for the management of
the education Hub. The consulting staff will be working on projects outside the
Education Hub so the Hub will not be carrying the total cost of this staff. The
projected cost of these staff is approximately N1.5m per month.
FINANCIAL PLAN
The Education Hub must be financially sustainable. A key objective is to cover cost
and give a return of at least 30-40%.
The Costs as at August 26 2013 include:
One year Rent
One Year Service Charge deposit
Legal, Professional & Caution Fees
TOTAL
6,167,600
3,083,800
2,728,716
11,980,116
Rent for 2nd Year is due in December 2013. So we need to generate income that
covers the rent or raise sponsorship. Second year service charge is due August
2014.
Funding
Funding is required:
 To prepare the space for use
 To create a state-of-the-art centre using materials that is not overly
expensive and is cost effective.
The Budget for renovation and branding is approximately N20,000,000.
Proposed Revenue Streams:
1.
2.
3.
4.
5.
6.
7.
8.
Rental fees for use of 2 Training rooms (Need to determine cost per use)
Rental fees from Incubator Offices 4-6 Incubator offices
e-learning courses (international and local)
Video –conferencing facilities
Sale of learning Materials for Early Childhood
Sale of Educational products e.g DVDs
Career Counseling Sessions and use of Career Exploration Centre
Use of Café to run seminars and also eat
The following revenues and expenses are anticipated.
Revenue
 Training room
rent
 Incubator rent
 E-learning center
rent
 Vid con rentals
 Learning
materials
 DVDs
 Consultation
 Café rentals
 Creative center
rental
 Membership
subscription
 Counseling
Recurrent Expenses
 Rent
 Website
 Staff
 Electricity
 Internet
 Maintenance
 Phone
 Office supplies
 Entertainment
 Travel
 Insurance
 Interest
 Miscellaneous
 DVD production
Capital Acquisitions
 Equipment
 Automobile
 Furniture/Fittings
 Software
 Computers
 Routers
 Small Appliances
 Power
Generation
 Library
Resources
 Please see excel
spreadsheets for
the cashflow
statement
INDEX
A
Advertising, 24, 34, 35, 72
B
Balance sheet, 36,37, 86
Brain storming, 12, 51
Budgets, 36, 55
Business plan, 65, 107
C
Customer satisfaction, 3
Competitors, 18, 43, 61
Core product, 21
Cost of goods sold, 36, 73
Costs, 31, 36
Customer, 3, 18, 21, 71
Customer satisfaction, 21, 25
D
Direct selling, 24
Distribution, 3, 23, 71
E
Entrepreneur, 7, 47
Ethics, 3, 39, 40
Expenses, 31-34, 36, 94
External environment, 17
I
Idea, 11, 50
Income statement, 36, 94
Industry, 3, 17, 57
L
Layout, 29
Location, 28
M
Management team, 3, 16
Mission statement, 15, 53
Motivation, 7, 47
N
Net income, 36
O
Outsourcing, 9, 49
P
Personal characteristics, 7, 47
Physical product, 21
Position thinking, 7, 47
Pricing, 22, 31, 71
Product, 3, 17, 21-23, 32, 59
Production plan, 27, 77
F
Facilities, 78
Financial plan, 31, 81, 125
G
Goals, 15, 53
Gross profit, 36, 94
Promotion, 3, 21, 24, 60, 72, 74
Public relations, 24, 72
R
Realism, 8, 48
Risk propensity, 8, 47
S
Sales forecast, 68
Self assessment, 3, 7, 47
Start up cost, 31
Strategy, 22, 61, 119
Structure, 17, 55
T
Target market, 43, 68
Trends, 18
Trial balance, 93