MODULE 2

Business Plan

Learning Objectives:

After studying this module, the students should be able to:

1. define business plan;

2. understand and know the purpose of the business plan; and
3. know and explain the parts of the business plan.

Content:

What is business plan?

Before starting your business, know where you are going. As the old saying goes, “there are
a lot of people who have climbed the ladder of success only to find on reaching the top that it was
leaning against the wrong tree.” Know where you are going with your endeavor and know how you
are going to get there! One of the best tools in accomplishing this is to have a very good business
plan (Nunn, L. and McGuire, B. 2010).

There is no one correct formula for a business plan. After all, no one plan will work in all
situations. But, in general, a business plan is a document that outlines the basic idea underlying a
business and describes related startup considerations. A business plan is an entrepreneur’s game
plan; it crystallizes the dreams and hopes that motivate an entrepreneur to take the startup plunge.
The business plan should lay out your basic idea for the venture and include descriptions of where
you are now, where you want to go, and how you intend to get there (Longenecker, et.al. 2008).

In some other definition, business plan is a written document that describes the business
idea and all the relevant internal and external elements involved in launching a new venture. It
describes the nature and context of the business opportunities and the plans to exploit the
opportunity. It is usually an integration of functional plans in finance, marketing, manufacturing, and
human resources. It serves as a road map for the entrepreneur. Business plan is the blue print that
provides a clear view of what the entrepreneur wants to do and key variables influencing success. It
must describe where you are, where you want to go and how you propose to get there.

Advantages of Planning

1. Focus and Flexibility

Focus is about knowing what business you are in and what as a business you do best. This
includes knowing your customers and how to serve them well.

2. Improves performance
Planning helps improves a business’ performance because: it is oriented, it focuses on priorities,
it concerns the best use of resources and it is about problem solving – in relation to threats and
opportunities.

3. Improved coordination
Theoretically objectives can be considered to be hierarchically organized in a means-end chain
- what is a strategic objective at one level may be translated on a set of tactics at another level
for its eventual achievement. The better coordinated the objectives both vertically and
horizontally, the more efficient and effectively will the organization run.
4. Improved control
If the objectives of the business are clearly defined then it becomes vibrant to what needs to be
done to achieve those objectives. This makes the evaluation process as it becomes clear when
things miss the target to what corrective action need to be taken.

5. Time management
The job management is largely unstructured and there are pressures to deal with the immediate
rather than the important. Planning helps the owner or manager decides what are the important
and how to allocate time to their many commitments so that the strategically long-term issues
do not get overlooked.

Importance of business plan

The justification often used for not writing a business plan goes something like this:
“Companies that start up based on business plans are no more successful than those that do
not.” It is true that studies attempting to measure the success of entrepreneurs with business
plans against the success of those without have produced mixed results. Some findings suggest
a relationship; others find none. An entrepreneur must also find the right balance between
planning and adaptability. No matter how well your plan has been thought out, events will occur
that were not expected. One of the key attributes of a successful entrepreneur is adaptability,
regardless of what the business plan says to do.

The general importance of business planning is almost unanimously recognized, considering

that the planning system is a mechanism that the company management can use to steer the
future activity in pursuit of the proposed goals. The business plan offers a comprehensive image
of the whole activity of a company, making easier to run the business, offering the possibility to
evaluate new ideas and projects and allowing communication with different partners - suppliers,
clients, financers - current or potential (Ciumara, Tudor. 2010).

The following are also some points why is it important to write a business plan:

1. Helps you get money

Most lenders or investors require a written business plan before they will consider your
proposal seriously. Before making a commitment to you, they want to see that you have
thought through critical issues facing you as a business owner and that you really
understand your business. They also want to make sure your business has a good
chance of succeeding.

2. Helps you decide to proceed or stop

You, as the prospective business owner, are the most important person you must
convince of the soundness of your proposal. It is designed to provide answers to all the
questions that prospective lenders and investors will ask. It will also teach you how
money flows through your business, what the strengths and weaknesses in your
business concept are, and what your realistic chances of success are.

3. Let you improve your business concept

Writing a plan allows you to see how changing parts of the plan increases profits or
accomplishes other goals. You can interfere with the individual parts of your business
with no cash outlay. If you’re using a computer spreadsheet to make financial
projections, you can try out different alternatives even more quickly. This ability to fine-
tune your plans and business design increases your chances of success.
 4. Improve your chances of success
One way of looking at business is that it’s a gamble. You open or expand a business
and gamble your money and the bank’s or investor’s money. Writing a business plan
helps beat the odds. Most new, small businesses don’t last very long. And, most small
businesses don’t have a business plan. Is that only a coincidence, or is there a
connection between these two seemingly unconnected facts?

5. Helps to keep you in track

A written business plan gives you a clear course toward the future and makes your
decision making easier. The black and white of your written business plan will help you
face facts if things don’t work out as expected. For example, if you planned to be making
a living three months after start-up, and six months later you’re going into the hole at the
rate of Php1000 per day, your business plan should help you see that changes are
necessary.

Contents of business plan

The content of business plan depends upon the objectives and goals set for the business
undertaking. A business plan should include a description of the product or services that the
business offers, market and marketing plans, financial plan, management plan, and among
others.

I. Overview or Executive summary

It is usually containing a brief statement of the problem or proposal covered in the

major documents, background information, concise analysis and main conclusions. It is
intended as an aid to decision making by managers. Executive summary should be concise
a maximum of two pages and should summarize all of the relevant points of the business
venture.

II. The Company and its Industry

In industry analysis future outlook and trends of the industry needs to be looked into.
In this section, it states the purpose of the company, history of the company or how it the
company formulated, past successes of the company (if there is), and some discussions of
the its industry.

III. The Product/Services

The business plan should include the overall description of what the company is
going to offer to its customers in terms of product/services on offer. Product/service detail
should be written in a terminology-free style so that it is easy for others to understand. In
here also includes the distinctive competencies or uniqueness of products/services that the
company offers, license or patent rights of the product, and future potentials of the product
or services offers.

IV. Markets

The most important section in the business plan, the market analysis section should
include conclusive information of how the company will react to changes in the market,
generate sales, and explain why the company should be invested in. The market analysis
section should include:
a. Customers
 b. Market opportunity
c. Competition analysis (Strengths and weakness)
d. Market positioning – critical products/service characteristics or uniqueness in relation
to competitors
e. Marketing strategy
f. Market research
g. Pricing policy
h. Selling/distribution policy
i. Advertising and promotion
j. Sales forecasts

V. Design and Development (if appropriate)

In this section, it states the stages of development of the product. The purpose of
the design and development plan section is to provide investors with the progress within the
context of production of the product or services offered by the company.

VI. Manufacturing and Operations

In writing a business plan, if the business venture involves production of products,

the facilities, source of supply of key materials or workforces, use of subcontractors (if
applicable) and production or service capacity must be included.

VII. Management

The management team section should share in detail the management team, as
investors usually invest in people not their ideas. Provide a list of board committees and a
brief explanation of the responsibilities of each committee. Included within this section
should be:
a. Owner/directors and other key management
b. Expertise and tract record (detail CVs as an appendix)
c. Organizational chart
d. Training policy and strategy for employees
e. Consultants and advisors

VIII. Financial Plan

In this the source of capital whether it be fixed or working capital is elaborated.

Secondly, the capital structure in a broad-based manner should also be a part of the
financial plan. Thirdly, schemes and strategies to ensure financial control and financial
discipline needs to be drafted firsthand. Other details should be included such as:
a. Highlights of financial plan (sales, profit, return on capital, net worth, etc.)
b. Profit
c. Contribution and break-even analysis
d. Cash flow analysis
e. Balance sheets

IX. Appendices (supporting documents)

Exercises:

Direction: Do the task below and write your answer on a clean bond paper. Use ball pen with black ink only.
Deadline of submission is on or before October 18, 2021 (12:00 noon).

1. Define briefly what is business plan. 10pts

2. Discuss the importance of business plan (not less than 200 words). 10pts
3. Give and discuss (base on your own understanding) the parts of the business plan. 15pts
4. Why is it important to know and assess the market competitor/s? (in your own words) 15pts

Source:

Ciumara, Tudor. (2010). IMPORTANCE OF BUSINESS PLANNING IN AN ENVIRONMENT LACKING

ECONOMIC PREDICTABILITY. Studii Financiare (Financial Studies). 14. 147-151.

Longenecker, J., et.al. 2008. Small Business Management (Launching and Growing Entrepreneurial
Ventures. A published book. Thomson Higher Education. http://www.thomsonrights.com.

Nunn, L. and McGuire, B. 2010. The Importance of a Good Business Plan. Journal. Business of Economics
and Research. Retrieved at https://core.ac.uk/download/pdf/268111322.pdf.

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