Business plan lecture notes for first year first semester, Lecture notes of Business Economics

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TOPIC: L 13-BUSINESS

PLANNING

Foundations of

Entrepreneurship

BSc Entrepreneurship

1

INTRODUCTION  This lesson is a culmination of all that you have been learning in previous lessons.  It seeks to put your new-found knowledge and skills into practice in the form of a business plan.  (^) The lesson will therefore require you to demonstrate what you have learnt by requiring you to put all what you have learnt in one neat document that you can present to different stakeholders.

RESULTS EXPECTED



Explain the concept of business

planning



Outline the key elements

involved in a business plan



Prepare a sample business plan

for your business idea

WHAT IS A BUSINESS PLAN?  (^) A written document prepared by the entrepreneur that describes all the relevant internal and external elements involved in starting a new venture  (^) A written summary of an entrepreneur’s proposed business venture, its operational & financial details, its marketing opportunities & strategy,& its managers skills and abilities

IMPORTANCE OF PLANNING AS

PART OF BUSINESS OPERATION

 Activity; Business planning is an endless business activity  New venture; It is extremely important in a new venture  Finalizing a business plan - generally finalized when the entrepreneur has a better understanding of the market product or service to be marketed, the management team and the financial needs of the venture. 5

IMPORTANCE OF PLANNING AS PART OF BUSINESS OPERATION (CONT'D.)  Assists in the realization of both the short term and long term goals of the enterprise  Business organizations , financial plans, marketing plans, sales plans, human resource plans, production plans among others will be found. (^) 6

IMPORTANCE OF PLANNING (CONT'D.) 

Rapidly changing market

environment: Provide guidance and

structure to management  Visualize goals : assists the entrepreneur to visualize how entrepreneurship may help in achieving goals set at start-up

TYPES OF BUSINESS PLANS Business plans could be internally or externally focused **An internal business plan

1. Development;** developed in conjunction with a balanced scorecard or a list of critical success factors. 2) Measure; this allows success of the plan to be measured using non financial measures.

TYPES OF BUSINESS PLANS (CONT'D.) Externally focused business plans

1. target goals that are important to external stakeholders’ particularly financial status.
2. They typically have detailed information about the organization or team attempting to reach the goals.
3. They cover the development of a new product, a new service, a new system a restructuring of finance, or a restructuring organization.

ROLE OF A BUSINESS PLAN  (^) Develop business model and solidify goals ; It is an internal document that helps a new venture flesh out its business model and solidify its goals--Identifies the opportunity -Helps you to understand the customer how to reach them -Helps to imagine the future in implementing the plan -Helps to identify the skills necessary to implement the business successfully

ROLE OF A BUSINESS PLAN (CONT'D.) -it guides an entrepreneur by charting the enterprises future course of action and devising a strategy for success  Selling document ; It is a selling document for the company -Attracts lenders and investors -It is a reflection of its creator

WHO SHOULD WRITE A BUSINESS PLAN?

1. The entrepreneur should write the business plan however may consult; lawyers, accountants, marketing, consultants and engineers.
2. At times the business development centers, Universities and friends or relatives may write the business plan for the entrepreneur.  (^) The determination of whether to use a consultant or you write it yourself should depend on you skills analysis. (^) 12

ENTREPRENEURS SKILL INVENTORY Skill Excellent Good Fair Poor Accounting/taxes Planning Forecasting Marketing research Sales People management Product design Legal issues Organising

SCOPE AND VALUE OF A

BUSINESS PLAN

 Audience ; the scope of the business plan basically points out to those who may read it.  The business plan may be read by employees, investors, bankers, venture capitalists, suppliers, customers’ advisors and consultants.

WHO EVALUATES THE BUSINESS PLAN

 (^) A firm's employees  Investors and  other external stakeholders

WHO EVALUATES THE BUSINESS

PLAN & WHAT THEY LOOK FOR (CONT'D.)

Audience  Internal

1. Founders & initial management team
2. Employees
3. Board of directors What they look for
4. Write so have to think through &agree on key issues
5. What the entrepreneurial venture intends to accomplish &how to relate to company objectives
6. Benchmark for measuring top management performance

WHO EVALUATES THE BUSINESS

PLAN & WHAT THEY LOOK FOR (CONT'D.)

Audience  (^) External Audience

1. Potential investors
2. Potential bankers
3. Potential alliance partners & major customers
4. Key recruits for jobs with new firm
5. Merger & acquisition candidates What they look for
6. Strength of opportunity Quality of firms top management Other relevant investment information Return on the investment
7. How loan funds given at start will be paid Start –up collateral to support loans How a company will survive potential set backs
8. Business plan will convince them
9. Compensation scheme for employees future prospects of the firm
10. Company's grow through acquisition & engage in divestiture in a way of gaining liquidity  (^) Business plan is first screening tool for interested parties in firm

INFORMATION NEEDS

1. First do, the venture screen to determine whether there are any possible barriers to the success of the business concept before committing time & energy to preparing a business plan
2. Information obtained should focus on marketing, finance and production
3. Internet could be a valuable source of information

INFORMATION NEEDS (CONT'D.)

4. Before commencing the venture screen the entrepreneur should clearly define the goals and objectives of the venture
5. The goals will help define the path to be followed in the development of the business concept
6. The goals provide the framework for the business plan components; marketing plans, finance plans
7. If the goals and objectives are too general or not feasible, will make the plan difficult to control and implement

INFORMATION NEEDS (CONT'D.) Market Information  (^) Macro level ; market & industry attractiveness & potential for the product or service  (^) Micro level; to ascertain the market size define the market & assess the industry sustainability  (^) Sources of information; to assess the total market potential the entrepreneur should examine the trade association government reports, internet sources & published studies  (^) Other demographic information; other demographic information about the market is likely to be available

INFORMATION NEEDS (CONT'D.) Operational information needs: information may be needed on the following aspects; 1) Location; customers, suppliers & distributors should be determined 2) Manufacturing operations; machines &assembly operations 3) Raw materials; requirements and sources 4) Equipment; identify, if to be leased or purchased 5) Labour skills ; Kind, number, pay & source 6) Space; amount, owned or leased 7) Overhead ; tools supplies, utilities & salaries should be determined  (^) The above information could require some research, however each is necessary to the evaluation by potential investors in the project. 21

INFORMATION NEEDS (CONT'D.) Financial: a complete evaluation of the profitability of the venture is a must before start-up Assessment; will enable the potential investors to determine how much funds will be required to start the business, meet short term financial needs & sources of these funds.

INFORMATION NEEDS (CONT'D.)

Areas of financial information

1. Expected sales and expense figures for at least the first three years,
2. cash flow figures for at least the first three years and
3. Current balance sheet figures & pro-forma balance sheet for the first three years

COMPONENTS OF A BUSINESS PLAN

 (^) Title page  (^) Table of contents I. Executive summary II. The business III. Management team IV. Company structure, intellectual property &ownership

WRITING THE BUSINESS PLAN (CONT'D.) V. Industry analysis VI. Marketing plan VII. Operations plan VIII. Financial plan IX. Critical risk factors X. Appendix