Session 12: Preparation of Business Plan Learning Objective - Guide the participants on how to prepare the business plan
Important Terms - Business Plan
- Critical success factor
Business Plan A business plan is a written document that contains information, an organization that has collected converted into comprehensible and workable plans that can be understood by all parties involved with the business. All aspects concerning the business are addressed by the business plans, including what, why, how, when and where of the business opportunities, as well as all the activities, goals and strategies thereof.
This is a well written statement which outlines the major activities of the business and any future plans for the business. This will act as a guideline when various annual operational budgets are formulated. Business plan manly is presented to financial institutions when sourcing finance. Before releasing their funds, the financiers would want an assurance from the business that it is a going concern and what ever project they want to venture in will be viable. Business plan is supposed to involve all line managers and employees of an organization. The use of expert help may be important but the entrepreneur’s own input is of vital importance as the plan should contain achievable targets of which the owners and employees are capable of setting. Business plan should be based on achievable assumptions. As the plan relates to the future there is a need to make a careful assessment of the current and future economic and political conditions which may have a direct impact on the operations of the business. Targets set should be achievable and supported with previous achievements made by the business. There is no universal way of producing a business plan but here are some of the important sections which are supposed to be found in an ideal business plan. The uses of and reasons for a business plan: - It gives direction to the business management and activities
- It helps to identify objectives, problems and also opportunities
- Performance standards are set
- Performance is evaluated and monitored
- It provides a written business tool that can serve as a decision-making tool
- A backing for obtaining capital or finance
- Both the entrepreneur and employees use the business plan for guidance
- It is used for obtaining new business
The format and contents of a business plan: - Cover sheet
This contains the basic information about the business, such as name of the business. There is a need to have an attractive cover which will captivate the read to read more from the business plan. - An executive summary
This contains a summary of the information which is contained in the overall business plan. As reader may not be able to scrutinise every detail of the plan, the executive summary should present an overview of what information the business plan is going to relate. The executive summary need to be brief as it is just an abbreviated version of the business plan. - Table of contents
The table of contents is an important section which is always undermined. The table of contents assist the readers of the plan to quickly trace where to find a particular section or a specific issue. - Business background
Contains information about the entrepreneur or members of the venture team, together with an indication of the contribution of each person to starting or acquiring business. Would be investors, financiers and the future managers of the business are interested in the details in respect of how the idea for the product or service was developed, why it was decide to start or acquire the a business and what process of the business acquisition or start up entailed. The background gives the appraisal or the financier an understanding of the original mission envisaged by the entrepreneur and whether there has been any positive or negative deviation from those original objectives of the business. The business background section contains basic information about the proposed business which is about to be sold if it is for privatisation or the projects which the business require to venture in. The contents are: - the name of the current owner of the business,
- location of the business,
- objectives of the business, and
- the reasons for sale of the business.
- the description of any proposed project.
- registered address of the business.
- owner’s personal details.
- business form.
A well written background helps to give the appraiser of the business plan the impression that the bidder knows the operations of the business. - Organogram
An Organogram is simply a chart of the organisational structure. Primarily, the Organogram shows the lines of authority and the way in which information flows in the enterprise. Its role is to communicate that the bidder understands the operations and information flows in the organisation. It is therefore important to include the current organisational structure.
Besides the current organisational structure, the entrepreneur should include a structure that he or she intends to put in place after taking over the business (the proposed business chart) or after the major project. Inclusion of the proposed business chart: - Helps to show the intention to improve the operations of the business.
- Helps to highlight the impact that the enterprise is going to bring about in terms of employment levels in the country which is one of the objectives of the privatisation process.
- Shows how the funds acquired will be utilised in changing the organisation structure.
- Strategies to be adopted
A strategy is a means of achieving the plans. In this section of the business plan, the bidder tries to highlight the strategies that are going to be implemented. The section should include the following: - A description of proposed activities such as the rehabilitation, renovations or replacements that are going to be made to the machinery to increase the efficiency of the operations.
Note that there is need to have details of the current machinery in terms of age and conditions of the machinery. This shows an understanding of the current position of the target enterprise. - The range of products to be produced - these should include current products that the enterprise will continue to offer and new products that may be developed and added to the product portfolio.
- An understanding of the potential market and customers and their specific needs and a statement of how the customer needs and expectations are going to be met.
- Marketing strategies to be adopted in order to overcome competition and penetrate into the current market and how they will identify and develop new markets (such as export markets). There must also be a description of distribution channels in the case of manufactured products and the bidder must also be able to show how they will be different and better than his competitors.
- An understanding of threats poised by the environment that may affect the strategies and measures to be taken to overcome those threats. A SWOT analysis should be done to demonstrate a clear understanding of the sector and the business environment.
- The critical success factors. Those factors which must go right if the business is to flourish.
The strategies should be backed by reference to the financial projections in the appendix as well as the experience and expertise of the proposed management team. These activities will involve cash out flows. It is important then to highlight the method or source of financing these activities. The strategies may include the following elements: - Product/ service
Explain the benefits and uses of the business product or services. Include all product features such as colour, size, weight and cost. The proposed changes anticipated to the project. - Industrial analysis
There is a need to have an understanding of the industry in which a business is operating. There is a need to explain aspects like - The growth of the industry.
- Which factors causes growth and decline.
- The role of technology in the industry.
- Where the business fits in the industry.
- Any legal limitations in the industry.
- Human resources plan
The following, amongst others are important aspects here: - The personal needs
- Maintaining personnel
- The remuneration policy
- The intended number of employees
- The training and development of employees
- Marketing plan
There is a need to set up the marketing plans and these should be well illustrated in the plan as it shows how the entrepreneur has prepared about the future operations of the business.
Emphasis should be on the following issues: - Potential client and how they will be contacted.
- The needs of the clients.
- The size of the market.
- Estimated market of the would be business.
- Strategies to be used in maintaining or gaining new market share.
- The competitive advantages of the business.
- Operations plan
This section outlines the internal operations of the business, its assets, production process. There information includes: - Premises (purchased, rented, any outstanding mortage, present value .etc.
- Any future need for machinery, vehicles and other fixed assets.
- Labour, number needed, full time or part time, hours of operation and salary levels.
- Accounting system to be used, name and address of auditors, current and future financial advisors.
- Suppliers, their addresses, specific trade terms, reliability.
- Impact on the enterprise performance
This section is normally used to indicate how the management is going to turnaround the business. This should include improvements in terms of productivity, efficiency and profitability of the business. The statements can be supported by referring to the projected financial statements as well as the ratios calculated based on those forecasts: e.g. - Profitability ratios.
- Liquidity ratios.
- Efficiency ratios.
- Gearing ratios, etc
- Impact on the country’s economic conditions
One of the objectives of privatisation is to increase the productivity and efficiency of the private sector and hence to improve the economic conditions of the country. In addition providers of funding will always be eager to finance a project which has a positive contribution to the national economic and social issues. Therefore, there is a need to highlight how the country is going to benefit from the sale. Areas to be included are: - Changes in employment levels, considering that Government is interested in increasing employment opportunities for Malawians.
How the business is going to improve the foreign exchange position of the country either directly or indirectly. The foreign exchange may positively be affected if the enterprise will be producing for local consumption. Malawians will not be importing thereby reducing the supply of the kwacha at the foreign exchange market which may have a positive impact. - Human resource development, such as staff training, if it is in your plan.
- Any activity that will help Malawians either directly or indirectly.
- Capability statement
The purpose of this section is to prove that the proposed management team is capable of turning around the business. Therefore, the section should include the history of the team or enterprise that is going to purchase the business. Past performance of the team or the enterprise is used to back up the capability statement. There is a need to explain any prior experience in the proposed project.
The curriculum vitae for the proposed management team are included in the capability statement. - Financial projections
This has three parts; - The projected trading, profit and loss account.
- The projected balance sheet.
- The projected cash flow statement.
These are normally projected for a five year period, and in these projections the cash outflows. This is a very important section especially for the sourcing of financing as it outlines how the payment will be effected. The projections should highlight the business strategy. Care should be taken on the inclusion of inflated projections which can not be achieved. It is important to show the effect of the project to the overall profitability and cash flow of the business. - Summary and concluding remarks
The section is a round up of the business plan and briefly explains why the business plan is going to be successful. This should give a very good impression of the business. The summary should also give an indication of why the finance should be provided or why if it is the bidder is more qualified to be successful.
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