CHAPTER 5The Business Plan Presented by: Mae Casumpang
“ a well written business plan is one that contains all the information necessaryfor financing source to make a decision even without talking to the entrepreneur”.
Coverage of Chapter 55.1 Concept of a business plan5.2 Why the need for a business plan5.3 Writing the business plan5.4 A well – written business plan5.5 Some Rules to be observed5.6 The Financiers Viewpoint5.7 business plan format5.8 The financial plan5.9 The principle of due diligence5.10 The Feasibility study or project study
Coverage of Chapter 55.11 Formats and contents of the feasibility study5.11.1 Project summary5.11.2 Market Study5.11.3 Technical study5.11.4 Financial aspect5.12 Musts for business plans and feasibility study5.13 Who should prepare the plan or project study?5.14 The role of consultants5.15 Summary and conclusion
Hisrich and Peters5.1 Concept of Business Plan- They defined or described the business as a written document prepared by the entrepreneur that describes all the relevant external and internal elements involved in starting a new venture.- It also addresses both short-term and long-term decision making for the first three years of operation.- Road map that answer the questions: “Where am I now?” “Where am I going?” “How will I get there?”, etc.
5.1 Concept of Business Plan• The business plan covers a wide range of details that should justify the “raison d’etre” (reason for being) of the business and how to make the business and how to make the business a continuing or an on going concern.
5.1 Concept of Business Plan• When funds from external sources is necessary, the proponent has to live with various requirements one of which is a business plan or feasibility study. In order to raise any capital, the business proponent must be able to put in writing what particular business endeavor will be pursued.
5.1 Concept of Business Plan• The Business Plan is a written story of the business plan includes a detailed analysis of the market, production process and service delivery system, management, organizational structure and many other information that could help the financiers to decide on funding the project.
5.1 Concept of Business Plan• Needs external funding, the business plan is a marketing tool.• The business plan is guerilla marketing weapon created to sell a business proposition to a lender or investor.
5.1 Concept of Business PlanDavid E. GumpertHas the following concept and definition of a business plan.Good definition:A business plan is a document that convincingly demonstrates the ability of a business to sell its products or services to make satisfactory profit and be attractive to potential backers.
5.1 Concept of Business PlanBetter definition:A business plan is a selling document that conveys the excitement and promise of your business to any potential backers or stakeholders.
5.2 Why the need for business plan?• A written business plan or feasibility is necessary or needed for the following reasons: a. To project a general picture of the business projectb. To serve as a guide in implementing the business or projectc. To serve as major input to investment decisions or major expenditures.
5.2 Why the need for business plan?d. To serve as references or guide to policy formulation and development.e. To serve as a guide for operational mattersf. To serve as reference for bank loan or financial purposes.g. To determine/estimate the detailed technical and financial requirementsh. To serve as an overall guide for the proponent or entrepreneur
5.2 Why the need for business plan?• For David Gumpert, a business plan is a selling point.Gumpert cited following reasons for doing a business plan as follow:a. To sell yourself on the businessb. To obtain a bank financingc. To obtain investmentd. To arrange strategic alliance
5.2 Why the need for business plan?e. To obtain large contractsf. To attract key employeesg. To complete mergers and acquisitionh. To motivate and focus your management team
5.3 Writing the Business Plan• Writing a business plan effectively can spell out a big difference between a success and a failure in raising a capital for the business and operating a business itself.• Blechman and Levinson puts it, communication is the key. These authors point that financiers will base 50% of the decision to lend or to invest in a project on the presentation it receives, both oral and written.
5.4 A well-written Business Plan• Someone said that a well written business plan is one that contains all the information necessary for the financing source to make a decisions even without talking to the entrepreneur.
5.5 Some Rules to Observe• Blechman and Levinson recommend the following rules or guide that can be used in writing the business plan.1. Make it neat.- Appearance is important and it can reflect the personality to the maker. Make it simple and avail of latest technology available in the market.
5.5 Some Rules to ObservedBlechman and Levinson recommended the following thefollowing rules or guide that can be used in writing businessplan:a. Make it neat – appearance is important and it can reflect the personality of the maker.b. Make it grammatically correct – be sure to have a final version of the write up corrected or edited by professional or qualified editors.c. Make it honest – do not exaggerate to lie, tell exactly as it is, financial sources are looking for integrity and honesty.d. Write in layman’s language – communicate in simple language and not in technical jargon, unless it is called for.e. Don’t overemphasize your product or business – it requires a lot of resources that is dependent from one another.
5.6 The Financer View PointDue to misguided View Point, some business proposal were not entertainedor unfunded. A prospective entrepreneur seeking external funding must foreverremember that people or Financiers who make decision making about lendingor investing think differently than the proponents. A common reason any business proposal or business plan fails tocommunicate is that it is written from the entrepreneurs point of view, whichis not the lender’s or investors point of view.
5.7 Business plan formatA typical format for a business plan is shown on Table 5.1In the case of a franchising scheme, the franchisor usually provides the guideline offormat in preparing the business plan. Table 5.2See photocopy
5.8 The Financial planFor purposes of making the business plan as a marketing tool and convincing prospectiveFinanciers, the financing plan is the most important aspect of the business plan.a. Total amount of funding neededb. amount to be financed and equity componentc. purpose of financingd. specific use of fundse. Description of collateralf. historical financial record of the businessg. financial projection and assumptionsh. schedule of major assets and liabilitiesi. management/ ownership structurej. financial status of owners/ stockholdersk. bank referencesl. personal reference of company officersm. other supporting documents
5.9 The principle of due diligenceDue diligence is the homework investors of financiers complete before a finalinvestment decision is reached. process typically includes background checks on the management team,industry studies, analysis of competition, identification of major risk and otherreasons, often intangible, why the investment should or should not be made.
5.10 The feasibility study or project studyThe feasibility study or project study is by itself a form of business plan. feasibility study is generally focused on the technical aspect without dueregards to the idea of the true feasibility as a marketing tool.
5.11 Format and contents of the feasibility studyA feasibility study (F/S) or sometimes referred to as project Study( PS ) is essentiallyA thorough and systematic analysis of all the factor that affectsthe viability and/ or success of a proposed undertaking orproject.
5.11.1 Project SummaryThis portion contains following information:a. name of the projectb. objectives of the projectc. location of the projectd. brief description of the projecte. production capacity or project size scalef. project indicators
Project indicators• 5.11.2 technical study – address the engineering, technologicalOr technical aspects of a proposed project.• 5.11.3 market study – discusses the demand and supply situationFor the environment or industry that the business project is part of.• 5.11.4 financial aspect- addresses money matters for the project, the financial aspect itself with how much project needs.
5.12 Must for business plans and feasibility study1. It must be arranged appropriately .2. It must be of right of length and have the right appearance.3. It must give a sense of what the founders and the company expect to accomplish in the immediate period ( 3-7 years).4. It must explain in quantitative and qualitative terms the benefit to the user.5. The company product or service and the business as a whole.6. It must present hard evidence of the marketability of the product or service.7. It must be justify the means chosen to sell the
5.12 Must for business plans and feasibility study8. It must be explain and justify the level of product development that has been achieved and describe inappropriate detail the manufacturing processes and associated costs.9. it must portray management as a team of experienced people with the complementary business skills.10. It must contain believable and verifiable market as well as financial projection, with the key data explained and documented under assumptions.11. It must be easily and concisely explainable in a well- orchestrated oral presentation.
5.13 Who should prepare the plan or Project Study?- It must be prepared by the entrepreneur himself being the proponent of theBusiness project.
5.14 The Role of ConsultantsA well written business plan is needed particularly in fund sourcing and loan purposes. Notall perspective entrepreneurs have the penchant and qualifications as well as experiences toBe able to prepare a well written Excellency conceptualized business plan.