CHAPTER 4: BUSINESS
PLAN: CREATING AND
STARTING THE VENTURE
By: khalid Nour Hassan
IR&DS, MBA, II&B
LEARNING OBJECTIVES: After successfully
completing this Chapter, students will be
able;
1. To define what the business plan is, who prepares it, who reads it,
and how it is evaluated.

2. To understand the scope and value of the business plan to
investors, employees, suppliers, and customers.

3. To identify information needs and sources for each critical section
of the business plan.

4. To enhance awareness of the value of the Internet as an
information resource and marketing tool.

5. To present examples and a step-by-step explanation of the business
plan. 6. To present helpful questions for the entrepreneur at each
stage of the planning process.
PLANNING AS A PART OF A BUSINESS
OPERATION

Planning is a process that never ends for a business.

It’s extremely important in the early stages of any new
venture when the entrepreneur will need to prepare a
preliminary business plan.

The plan will become finalized as the entrepreneur has a
better sense of the market, the product or services to be
marketed, the management team, and the financial needs
of the venture.
WHAT IS THE BUSINESS PLAN?

Business Plan: A written document describing all relevant internal and
external elements and strategies for starting a new venture.

It is often an integration of functional [plans such as marketing, finance,
manufacturing, and human resources.

It also addresses both short-term and long-term decision making for the first
three years of operation.

Business plan- or road map-answers the questions, where am I now? Where I
am going? And how will I get there? Potential investors, suppliers, and even
customers will request or require a business plan.
WHO SHOULD WRITE THE PLAN?

The business plan should be prepared by the entrepreneur; however, he or
she may consult with many other sources in its preparation, Lawyers,
accounts, marketing consultants, and engineers are useful in the preparation
of the plan.

Some of these needed sources can be found through governmental
institutions of Somaliland, chamber of commerce, ministry of
commerce and industry, services offered by small business
development centers, International and UN organizations involved
in business skills training, Universities, local market, Friends or
relatives.

The internet also provides a wealth of information as well as actual sample
templates or outlines for business planning.
HOW DO POTENTIAL LENDERS AND
INVESTORS EVALUATE THE PLAN?

The business plan must reflect:

The strengths of management and personnel.

The product/service.


Available resources.
Lenders are interested in the venture’s ability to pay back the debt. Focus on
the four Cs of credit - Character, cash flow, collateral, and equity
contribution.
INFORMATION NEEDS

Before committing time and energy to preparing a
business plan, the entrepreneur should do a quick
feasibility study of the business concept to see
whether there are any possible barriers to
success.

The information, available from many sources,
should focus on marketing, finance, and
production. Before beginning the feasibility study,
the entrepreneur should clearly define the goals
and objectives of the venture.
MARKET INFORMATION

One of the initial pieces of information needed by the
entrepreneur is the market possible for the product or
service.

To ascertain the size of the market, it is first necessary for
the entrepreneur to define the market.

To build a strong marketing plan with reasonable and
measurable market goals and objectives the entrepreneur
will need to gather information on the industry and
market.
OPERATIONS INFORMATION NEEDS
The relevance of a feasibility study of the manufacturing operations
depends on the nature of the business.

Location. The company's location and its accessibility to customers, suppliers, and
distributors need to be determined.

Manufacturing operations. Basic machine and assembly operations need to be
identified, as well as whether any of these operations would be subcontracted and to
whom.

The raw materials needed and suppliers' names, addresses, and costs should be
determined.

Equipment. The equipment needed should be listed, with its cost and whether it will
be purchased or leased.

Labor skills. Each unique skill needed, the number of personnel required for each skill,
pay rate, and an assessment of where and how these skills will be acquired should be
determined.

Space. The total amount of space needed should be determined, including whether the
space will be owned or leased.
FINANCIAL INFORMATION NEEDS

Before preparing the financial section of the business
plan, the entrepreneur will need to prepare a budget that
includes a list of all possible expenditures in the first
year and a list of all revenue sources, including sales
and any external available funds.
WRITING THE BUSINESS PLAN

The business plan could take hundreds of hours to prepare,
depending on the experience and knowledge of the
entrepreneur as well as the purpose it is intended to serve.

It should be comprehensive enough to give any potential
investor a complete picture and understanding of the new
venture, and it should help the entrepreneur clarify his or her
thinking about the business.

The outline for a business plan is illustrated in Table 4.3. Each
INTRODUCTORY PAGE
This is the title or cover page that provides a
brief summary of the business plan's contents.
The introductory page should contain the following:

The name and address of the company.

The name of the entrepreneur(s), telephone number, fax
number, e-mail address, and Web site address if available.

A paragraph describing the company and the nature of the
business.

The amount of financing needed. An illustration of this
page can be found in Table 4.4.
questions for the entrepreneur at each
stage of the planning process.
Generally the executive summary should address a number
of issues or questions that anyone picking up the written
plan for the first time would want to know. For example:

1. What is the business concept or model?

2. How is this business concept or model unique?

3. Who are the individuals starting this business?

4. How will they make money and how much?
Environmental and Industry Analysis
It is important to put the new venture in a proper context by first
conducting an environmental analysis to identify trends and changes
occurring on a national and international level that may impact the new
venture.

Economy. The entrepreneur should consider trends in the GNP,
unemployment by geographic area, and so on.

Culture. An evaluation of cultural changes may consider shifts in the
population by demographics

Technology. Advances in technology are difficult to predict. However,
the entrepreneur should consider potential technological
developments determined from resources committed by major
industries.

Legal concerns. There are many important legal issues in
starting a new venture.

Competition. Most entrepreneurs generally face potential
threats from larger corporations.
Description of Venture
The description of the venture should be detailed in this
section of the business plan.

This will enable the investor to ascertain the size and
scope of the business.

This section should begin with the mission statement
or company mission of the new venture.

This statement basically describes the nature of the
business and what the entrepreneur hopes to accomplish
with that business.

This mission statement or business definition will guide
the firm through long-term decision making.
Mission Statement

A mission statement is a short statement of why
an organization exists, what its overall goal is,
identifying the goal of its operations: what kind of
product or service it provides, its primary
customers or market, and its geographical region
of operation.
Production plan

Production Plan [Production plan details how the products
will be manufactured]

If the new venture is a manufacturing operation, a
production plan is necessary.

This plan should describe the complete manufacturing
process. If some or all of the manufacturing process is to
be subcontracted, the plan should describe the
subcontractor(s), including location, reasons for selection,
costs, and any contracts that have been completed.
Production plan
Marketing Plan

Marketing plan describes market conditions and strategy related to how the
product(s) and service (s) will be distributed, priced, and promoted.

The marketing plan (will be discussed in details in Chapter 5, Marketing
research evidence to support any of the critical marketing decision strategies
as well as for forecasting sales should be described in this section.

Specific forecasts for a product(s) or service(s) are indicated to project the
profitability of the venture.

Marketing planning will be an annual requirement (with careful monitoring
and changes made on a weekly or monthly basis) for the entrepreneur and
should be regarded as the road map for short-term decision making.
Organizational Plan

{Organizational plan describes form of ownership and lines of responsibility
of members of the new venture}

The organizational plan is the part of the business plan that describes the
venture's form of ownership-that is, proprietorship, partnership, or
corporation.

If the venture is a partnership, the terms of the partnership should be
included.

If the venture is a corporation, it is important to detail the shares of stock
authorized and share options, as well as the names, addresses, and resumes
of the directors and officers of the corporation.
Financial Plan

{Financial plan projects of key financial data that determine economic
feasibility and necessary financial investment commitment}

Like the marketing, production, and organization plans, the financial plan is
an important part of the business plan. It determines the potential
investment obligation needed for the new venture and indicates whether the
business plan is economically feasible.

(The financial plan is discussed in more detail in Chapter 7.) Generally, three
financial areas are discussed in this section of the business plan. First, the
entrepreneur should summarize the forecasted sales and the appropriate
expenses for at least the first three years, with the first year's projections
provided monthly.
Measuring Plan Progress

During the introductory phases of the start-up, the entrepreneur should
determine the points at which decisions should be made as to whether the
goals or objectives are on schedule. Typically, the business plan projections
will be made on a 12-month schedule.

The entrepreneur should check the profit and loss statement; cash flow
projections; and information on inventory, production, quality, sales,
collection of accounts receivable, and expenditures for the previous month.
Count..

Inventory control. By controlling inventory, the firm can ensure maximum
service to the customer. The faster the firm gets back its investment in raw
materials and finished goods, the faster that capital can be reinvested to
meet additional customer needs.

Production control. Compare the cost figures estimated in the business plan
with day to-day operation costs. This will help to control machine time,
worker hours, process time, delay time, and downtime cost. Quality control.

Sales control. Information on units, dollars, specific products sold, price of
sales, meeting of delivery dates, and credit terms is useful to get a good
perspective of the sales of the new venture. In addition, an effective
collections system for accounts receivable should be set up to avoid aging of
accounts and bad debts.
WHY SOME BUSINESS PLANS FAIL


Generally, a poorly prepared business plan can be blamed on one or more of
the following factors:
Goals set by the entrepreneur are unreasonable.

Objectives are not measurable.

The entrepreneur has no experience in the planned business.

The entrepreneur has no sense of potential threats or weaknesses to the
business.
The end.
Thank you.
Any question.