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. 2 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 7 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 10 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 11 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 WHO EVALUATES THE BUSINESS PLAN  A firm's employees  Investors and  other external stakeholders 15 WHO EVALUATES THE BUSINESS PLAN & WHAT THEY LOOK FOR (CONT'D.) 16 Audience  Internal 1) Founders & initial management team 2) Employees 3) Board of directors What they look for 1) Write so have to think through &agree on key issues 2) What the entrepreneurial venture intends to accomplish &how to relate to company objectives 3) Benchmark for measuring top management performance WHO EVALUATES THE BUSINESS PLAN & WHAT THEY LOOK FOR (CONT'D.) 17 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 1) Strength of opportunity Quality of firms top management Other relevant investment information Return on the investment 2) How loan funds given at start will be paid Start –up collateral to support loans How a company will survive potential set backs 3) Business plan will convince them 4) Compensation scheme for employees future prospects of the firm 5) 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 (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 20 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. 22 WRITING THE BUSINESS PLAN (CONT'D.) V. Industry analysis VI. Marketing plan VII. Operations plan VIII. Financial plan IX. Critical risk factors X. Appendix 25 PRESENTING THE BUSINESS PLAN 1) The entrepreneur might have to present the plan orally to an audience of potential investors 2) The entrepreneur will be expected to provide a short presentation of the business plan 3) The entrepreneurs are expected to sell their business concept during this time and the audience is given the opportunity to ask very difficult and penetrating questions 4) Usually the presentation is made to a group of investors who can quickly make the final decision 26 PRESENTING THE BUSINESS PLAN (CONT'D.) 5) The focus is on why this is a good opportunity, an overview of the marketing program and results of this effort 6) The concluding remarks might reflect the recognized risks and how the entrepreneur plans to address them 7) The entire purpose is to sell to investors on why this would be a good investment for them 27