David E. Gumpert’s concept and definition of a business plan.

A business plan is a document that convincingly demonstrates the ability of business to sell its products or
services to make satisfactory profit and be accretive to potential backers. A better definition: A business plan is a selling
that conveys the excitement promise of your business to any potential backers or stakeholders.
Other definition of a business plan from the books of entrepreneurship
It is thinking ahead of objectives, strategies, financing, production, marketing, profit prospects, growth
possibilities. However, business planning is based on the available resources and is responsive to the needs of
community. It is also:

What to do
How to do it
Planning When to do it
What to expect in the future

Business planning involves the attachment of goals and ways to accomplish such goals.
Principle of Planning
Here are some principles of planning which have general application, particularly for micro and small business:
1. Planning must be realistic. It must be based on the available resources: human, financial, and physical resource.
2. Planning must be based on felt needs. The objectives of an entrepreneur should needs of the people in
community. It can be known through observation, personal interview, and questionnaires.
3. Planning must be flexible. Resources needs and economic conditions change. Planning should be adjusted to
such changes to be effective and relevant
4. Planning must start simple projects.

STAGES OF BUSINESS PLANNING (by PROFFESOR PHILIP KOTLER)

1. Unplanned stage: At the start of business, the owner manager is busy looking for funds, customers,
materials, and equipment. He has no time for planning. His entire attention is devoted to the daily
operations of his business in his intense desire to survive.
2. Budgeting system stage. Eventually, the owner-manager realizes the need to develop and use a budgeting
system. Estimated income is made to facilitate to the orderly function of the growing enterprise.
3. Annual planning stage. The owner-manager drafts an annual plan. He can use either the top down planning
or bottom-up planning. In top-down approach, he provides the goal and let the employee comply with it.
While in bottom-up approach, he encourages his employees to participate in planning the goals and
strategies.
4. Strategic Planning stage. As the business enterprise becomes bigger, a lomg-range planning is needed.

COMPONENTS OF BUSINESS PLANNING

1. SWOT. The chances of a product or service can be evaluated through the SWOT analysis. Every product or
service has its own strength, weakness, opportunity, and threat. Planning should include the improvement of
the product/service in order to service competition.
2. Objectives. These should be specific and realistic. Such objectives can be daily, weekly, monthly, and yearly.
3. Strategies. These are ways of accomplishing the objectives. Such ways are stated in the financial, production,
marketing, and organizational plans of enterprise.
4. Time frame. In Business, time is gold. For this reason, an entrepreneur must be efficient in time management.

Analysis of the situations

 Resource analysis. These simply requires the would be entrepreneur to evaluate what knowledge, skills, and
material resource she has available to use in the business. These resources are known as the 7 “M”: Money,
Materials, Manpower, Machines, Methods, Management, and moment (time).
 Environmental analysis. There are factors which have a positive effect in your business and you may consider
them as opportunities. On the other hand, you may take note of conditions, which will affect your business
negatively; these are otherwise known as threats.
 Values Analysis. Doing this requires the would-be entrepreneur to examine his aspirations or vision and mission
about the business. It also represents the kind of service he wishes to provide his customers.

Market Plan - In preparing the market plan, the person first has to study the existing situations in the market, what the
competitors are doing in terms of product or service lines, their promotional activities, the middlemen who are handling
their products, and their pricing schemes
Organization Plan - The organization plan follows the marketing plan and the production plan. It describes the form of
ownership of your firm.

Financial Plan - translates into monetary terms the various plans you have for the business.

Financial Statements
The Financial Plan usually includes the following financial statements:
 Profit and Loss Statement (P&L) – presents details regarding sales and expenses incurred or will be incurred by
the business as of a given date.
 Balance Sheet – presents details of what the business owns (assets) and its value. It presents the equity
contributions of owners and liabilities to the creditors.
 Cash Flow Statement – presents in detail the projected cash expenses and disbursement for a given period
 Financial analysis basically consist of computations of profitability, liquidity, and marketability (if applicable) of
the enterprise based on the information from the profit and loss statement and the balance sheet.
 Social-cost benefit analysis requires you to look at the benefits and the costs that will accrue to society in
general if your prospective business is established.
According to Stanley and Morse, a small enterprise is sometimes defined as “a manufacturing or service enterprise”
wherein the owner manager is not actively involved in production but performs the varied range of tasks involved in
guidance and leadership without the help of specialized staff.
There are two kinds of small business:
 The small business, where the owner is the principal worker and he employs one or more assistant, which is
also called the Micro business.
 The other one is bigger small business, where the owner mainly directs the work of the employees.
The Magna Carta for Small Enterprise (R.A. 6977) defines small and medium enterprise as any business activity
or enterprise engaged in industry, agribusiness, and/or services, whether sing proprietorship, cooperative, partnership,
or corporation whose total assets are inclusive particular business entity’s office, plant, and equipment are situated,
must have value feeling under the following categories.
Micro: less than - Php 50,000
Cottage: Php 50,001 - Php 500,00
Small: Php 500,001 - Php 5,000,000
Medium: Php 5,000,001 - Php 20,000,000
Choosing Your Own Role in the Business
In choosing your own responsibilities and tasks in your business organization, consider the following factors:
1. Your education and training.
2. Your experience.
3. Your interest and aptitude.
4. Your time.
5. The advantage of having a broad view.
Choosing People to Work With You
How do you determine your employee requirements? The following guidelines may be used:
1. First of all, list down the different tasks that have to be done in the business. Some preliminary questions to ask
are:
 Marketing – Who will sell the products? Who will deliver the products to the buyers? To the distributor?
Who will handle promotion and advertising? Who will take care of the customers after the products
have been sold?
 Production – who will make the products or deliver the service? Who will operate the equipment? Who
will maintain them? Who will take charge of inspection and control quality control? Who will keep track
of raw material stocks and finished product inventory?
 Finance – who will keep the records? Who will do the accounts? Who will prepare the weekly payroll?
Who will collect the receivables and settle the payables? Who will hold the petty cash?
2. Translate the tasks into job designations or titles.
CHOOSING THE LEGAL FORM OF YOUR BUSINESS
o Sole/Single proprietorship - A sole proprietorship is a business owned by only one person. A form of
business organization initiated, organized, owned or capitalized and managed by single person.
o Partnership - A partnership is formed when two or more partners come together to be joint owners of a
business.
TYPES OF PARTNERS
 General Partner – is one who shares ownership and management of the business and is liable to the
extent of his separate property after all the assets of the partnership are exhausted.
 Limited Partners – refer to partners with limited financial liability and they do not take active role in the
management of the firm.
 Silent partners. Refer to partners who do not take active participation in the operation of the business
but them generally known to be partners of the business.
 Dominant Partner – they are neither active in the partnership nor they are generally known to be
associated with the business.
 Capitalist partner – this is the type of partner who contributes money or property to the common fund
of the partnership.
 Managing partner – this is the partner who is designated to manage the operations of the business of
the partnership.
 Industrial partner – this is a partner who contributes his knowledge or personal services to the
partnership.
 Secret partner – this is a partner who takes active part in the business, but is not known to be a partner
by outside parties.
 Nominal partner or partner by estoppel – this is partner who is actually not a partner but is held out or
represented as a partner.
 Liquidating partner – this is a partner who is designated to wind up or settle the affairs of the
partnership after dissolution.
o Corporation - A corporation or a company involves five or more persons owning the business. A
corporation is a “legal person” in the eyes of the law. It is called a legal person because the law allows it
to do most business acts that a natural person can do. The ownership of a corporation is divided into
units known as “shares of stock”. The buyers of these stocks, called stockholders, also become part-
owners of the business. Management of a corporation is vested on a board of directors elected by the
stockholders on a regular basis.
o Cooperative - A cooperative is a group enterprise. It is made up of a number of producers, traders, or
consumers who want to produce or trade as a group so that they may avail themselves of economies of
scale, which individually, they will not be able to obtain. Cooperatives are registered with the
Cooperative Development Authority (CDA).
Forms of Capital
1. FIXED CAPITAL. Refers to the money needed to purchase assets or capital goods. These include amounts meant
for the acquisition of machinery, building, office equipment and all those fixed assets or the items needed.
2. WORKING CAPITAL. Represents the money or hard cash to support its normal short-term operations.
3. GROWTH CAPITAL. Are needed when an existing business is set to expand diversity or change its directions.
 Owners’ Equity – the contribution of the owner to the capital of the business and is evidenced by the issuance of
stockholder’s certificate issued by the corporation.
 Long-term Borrowings – refer to organizations whose main businesses are generally meant for providing such
form of financial assistance.
 Mortgage (Pledging a designated property as security or collateral for the loan)
 Bonds (promises a fixed amount of interest to the bondholders upon maturity or call by its holders)
 Long-Term commercial papers (Do not carry ownership or controlling rights and voting privileges but
are given preference in settlement in case of the issuing company)
 Short-term Creditors – take the form of financiers on a short-term basis lasting to one year or less.
 Angel Investors – they are friends or relatives, means dividing your business ownership among investors who
contribute capital, who may or may not participate in the operation or management of the business.
The C’s of Credit
1) Collateral 2) Capacity 3) Character 4) Contract 5) Conditions
EXTERNAL SOURCES OF CAPITAL
1. Pawnshops 4. Lending Investors
2. Credit Cooperatives 5. Formal Sources of Credit
3. Money Lenders
Various types of Credit available from formal lending institutions:
I. Short-term loans – payable in 1year or less; normally self-liquidating; renewable if paid by the borrower
II. Intermediate loans – repayable in 1-3 years; available from banks and other financial institutions; is backed by
collateral securities
III. Long-term loans – loan up to 10 years
PRODUCTION: as the processing and/or assembling of raw materials by workers using machinery and equipment to
produce a product or provide service