The Business Plan,

starter

Emmanuel Adegbite, PhD

Visiting Professor, CU

for a business

Learning Objectives

To understand the scope and value of the business plan

To provide information on how to construct the main sections of a business

plan

Key points to note about planning

Planning is a process that never ends for a business: Planning continues

throughout organisational life

Extremely important in the early stages of any new venture

The business plan can become finalised when you have a better sense of the
market, the product or services to be marketed, the management team, and
the financial needs of the venture

Plans can be short term or long term; strategic or operational

Plans can also differ depending on the type and size of the business

The aim of a plan is to provide guidance and structure to management in a

rapidly changing market environment

The Start-up Process

Business planning is a process of doing,
committing yourself to actions, then
revising them as new information comes
along.
Business planning is knowing where you
are going, when and how you are going to
get there.

The Start-up Process

The business plan is a written document
prepared by the entrepreneur that
describes all the relevant external and
internal elements involved in starting a
new venture
An integration of functional plans such
as marketing, finance, manufacturing
and HR
A business plan is divided into
components which are inter-related.

Stages of business planning

Decide to go into business and
analyse yourself
Pick a product or service

Research market

Sales forecast

Production plan or
subcontracting
Personnel and staffing

Select site/location

Marketing plan

Legal, taxation and

insurance aspects
Develop the financial plan and
complete the business plan

Administration

The Business Plan

Why plan - before start-up
- Helps you to state clearly what your
objectives are for a period of time.
- Defines the business environment in which
you operate and highlights constraints.
- Helps you look to the future by providing a
framework for doing so.
- Brings all of the varied tasks together so that
you can see them in relation to each other e.g.
location and sales forecast.

The Business Plan

Why plan - before start-up
- It should show how much finance you
require, what it is for and for how long.
- Will be required by potential lenders and
investors. However the business plan should
primarily be developed for yourself as a
guide.
- Reduce the risk - once completed it should
give you confidence to set up your venture.

The Business Plan

OMC
Why plan - after start-up
- Operation: It is an operating plan for
the first year -provides a blue print for
you to follow.
- Monitoring - it lets you see how well
you are doing compared to target.
- Control - variances can be
investigated, enabling you to take
corrective action where necessary.

The Business Plan

Benefits
- Provides a very detailed knowledge about
your business environment.
- Provides a clear picture of how you intend to
supply your product or service.
- Allows you to make your mistakes on paper
rather than the market.
- Gives bank mangers, other lenders and
investors confidence.

The Business Plan

It is a selling document, it should present
a good impression of the entrepreneur(s).
It should be concise, well written, not too
technical or too long.
20-30 pages is usually sufficient
(maximum of 3000 words for our
assignment).
If it is required to raise finance, the plan
might be required to be adjusted for each
potential funder.

The Business Plan - Content

There is no prescribed format, the following
sections useful
- Executive summary.
-

Introduction
Market research, analysis and competitors
Operations and production plan.
SWOT analysis.
Competition
Competitive strategy.
Critical success factors
Financial assumptions and requirements
Sensitivity analysis
Conclusion

1. Executive summary
If your plan is carefully researched, constructed and written,
then an ES will be useful for readers and potential
funders/partners
Should ideally be the first section of the plan; but you will likely
write it at the very last
Can be difficult because you have to summarise the main
content of the plan
Clearly you need to make decisions re...which part (s) are
important to include.
You can build the ES around your competitive strategy analysis

2. Introduction

Give some background to the business, the key people, and an intro. to the
nature of the business (product or service) and the sector

Main aims and objectives of the business: in a separate section

- State why you are in business.
- For what purpose is the business plan? To start a new business or expand?
- Objectives should be S.M.A.R.T. - specific, measurable, achievable, realistic,
timescale, for example:
- Profit/growth - to produce net profits of 50,000 in year 2.
- Sales growth - to achieve total sales of 1m in year 5.
- Owners security - to produce return on investment of 15% pa.
- Common mistake: too much background without specifying the main purpose
and activities of the business

Desirable
Entrepreneurial Vision

This is the mental image of the business future that is carried around by the
entrepreneur in his/her head.
It is usually at a high level e.g. Bill Gates envisaged a computer on every desk in
every home.
Provides a guiding sense of direction.
Helps the entrepreneur define goals.
Guides the strategy of the business.
Provides a sense of warmth when the going gets tough.
Schumpeter (1934, p.85) highlights the importance of imagination
the capacity of seeing things in a way which afterwards proves to be true even
although it cannot be established at the moment.
Schumpeter also emphasises the complexity of the task of translating the vision into
a feasible plan of action and see this as an obstacle to entrepreneurship.

Entrepreneurial Vision
Timmons (1999, p. 278) states the
capacity of the...entrepreneur to craft a
vision, then to lead, inspire, persuade
and cajole key people to sign up for and
deliver the dream makes an enormous
difference between success and failure.
Thus translating the vision into
objectives and action is vital to the
success of the venture.

Desirable

Personal Mission statement

- Articulates the entrepreneurs vision.
- Succinctly sums up what the business sets out
to do and for whom.
- Usually in qualitative terms.
- Should be realistic, achievable and brief.
- Should explain what business you are in,
purpose, strategic goals and business values.

3. Market analysis and research

Report on your market research: Marketing research and sources of information

- Primary sources - questionnaire (survey), telephone surveys, interviews, focus
groups, observation, product sampling.
- Secondary sources - e.g. officially published data by government, banks,
Patent Office, trade and industry journals, Mintel, on-line and CD/rom data
bases, the Internet.

Not too much info. But just the main findings

Conduct a market opportunity analysis

- Show that your idea has potential to become a profitable business by:
- determining how the products are to be made or service provided.
- finding out effective forms of promoting and advertising.

3. Market analysis and research

Outline a brief Marketing plan
- Sets out how sales will be achieved
- Marketing mix (4 Ps):
- Product and production - can you provide what
the
customer wants.
- Pricing policy - right price and quality.
- Promotion - how do you communicate to you
potential customers.
- Place - location of business.
Extras: the other 3 Ps
Also, take into account barriers to market entry, potential
outlets and distribution

4. Production Strategy

Operations and production

- How are you going to produce the product or provide the service at a
profit e.g. manufacture or sub contract out.
- What resources are required - premises, staff, equipment. How will
you get these resources?
- How do you ensure the right quality.

Tasks and action plans

- Aid the planning process.
- Map actions against time
- Maps out the sequential timing of decisions against production/sales
levels
- Tasks - work needed to achieve objectives e.g. locate suppliers

5. SWOT analysis

SWOT - Strengths, Weaknesses, Opportunities and Threats.

- Usually short bullet points (up to six in each section).
- Short, can be easily read, but elaborate enough for the reader
- Take time to identify them: A long list is not necessary
- Fit the business plan.
- Your personal statement on the SWOT of the business launch
Strengths
Weaknesses
Internal e.g.
Internal e.g.
knowledge of new technology by lack of selling experience.
the owners.
Opportunities
External e.g.
growing demand for product.

Threats
External e.g.
unforeseen changes in technology
making product obsolete.

6. Competition

Competition
- Identify major competitors and their strengths.
- What strategies have they used - developed niche
markets or aggressive market penetration or by word of
mouth?
- What are the sources of future competition
?
Competitive Strategy

- Maps out strategy for survival, development and

growth to meets its aims and objectives.
- Derived from nature of the product, market
research, SWOT and competitive analysis.
- Porter (1980) identifies 3 generic strategies, which
are responsive to the businesses environment.

7. Competitive strategy
Perhaps the most important section of the business plan
- Maps out strategy for survival, development and growth in order to meets the aims
and objectives of the plan.
- Should be derived from nature of the product, market research, SWOT and
competitive analysis.
Competitive Strategy - Porter (1980) identifies 3 generic strategies, which are
responsive to the businesses environment.
- Cost leadership - maintaining cost advantage over competitors which generates
additional income. Be careful of price competition
- Differentiation - Diversity production or services to maintain growth, usually
applies to mature products. (not likely to be your option)
- Focus - Identification of niche markets that have not been exploited by existing
producers. You can gain a quick reputation.
Think of Kay (1993) typology of value added strategy e.g. Tesco. No right or wrong
strategy, depending on your industry. Get your strategy right!

8. Critical Success Factors

- Very useful; place this towards the end of the report
- Personal reflection on the most important factors that are critical
to the success of the business e.g. is there a key supplier.
- Ask yourself:
- What factors does the success of the business hinge upon?
- How important are the key personnel? What if one leaves?
- Does the success of the business depend on recruiting skilled staf
- Does the success of your strategy depends on competitors
reaction
- Allows you to adopt strategies to allow alternatives if required e.g.
investigate alternative supplies.

9. Financial requirements and assumptions

Cashflow forecast
- Projection of the cash inflows and outflows of the business
- Inflows - sales, commissions, capital, loans, grants, other income, VAT
reimbursement, opening balance if applicable. Outflows - purchases of materials,
salaries and labour, overheads, equipment, VAT payments, taxation, owners
drawings/dividends.
- Shows the cash requirements of the business.
Forecast Profit and Loss Account: not essential
- Trading income (sales) - (Cost of sales + Overheads and general expenses ,
including depreciation) = Budgeted net profit for the year.
Forecast Balance Sheet; not essential
- Statement of assets and liabilities as at a particular time i.e. on a date.
Assumptions (financial forecasts): Should be listed in the business plan: Show the
basis of many of the items in the financial forecasts e.g. assuming borrowing at x%,
purchase of assets second hand, allowing and receiving one months credit to debtors
and creditors.

10. Sensitivity analysis

Sensitivity analysis
- Shows the consequence of changing some of
the forecasts (usually income) i.e. asking
what if questions.
- For example what if sales dropped 10% or
there were no sales in the first six months.
- Optimistic and pessimistic scenarios can be
developed.

10. Conclusions

Summarise and sell your idea yet again

The Business Plan

Users of the business plan
- Other partners in the business.
- Lenders e.g. bank.
- Support agencies and soft loan providers.
- Trade creditors, HP creditors.
- Other investors e.g. business angel, venture
capitalists.
- Me, to assess your plan
- YOU to launch and run your business.

The Business Plan

- The business plan has become a widely used

document, and an important part of the start-up
process and on-going planning process within a
firm.

FURTHER READING AND BIBLIOGRAPPHY: ENTREPRENEURSHIP AND

SMALL FIRMS, DAVID DEAKINS AND MARK FREEL, 2009, MCGRAW-HILL
EDUCATION, UK.