THE CONCEPT OF BUSINESS PLAN

By

Jaafar Muhammad Bello

(PGS/02/23202624)
Department of Computer Science
BUSINESS PLAN

MEANING OF BUSINESS PLAN

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. The business plan is prepared by the
entrepreneur in consultation with lawyers, accountants, consultants, engineers, etc.

The focus and contents of the business plan will differ from one venture to another depending
on its nature and size.

Three main perspectives must be considered in every business plan.

(1) The perspective of the entrepreneur who must articulate what the venture is all about.
(2) Marketing perspective.
(3) Investor’s perspective.

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.

IMPORTANCE OF BUSINESS PLAN

The business plan is a valuable document for the entrepreneur, potential investors and even
for the employees. The business plan is important to these people due to the following
reasons:

1. It helps determine the viability of the venture in a target market.

2. It guides the entrepreneur in starting the enterprise.
3. The thinking involved in the preparation of the business plan makes the entrepreneur
aware of the issues that could impede the venture’s success.
4. It serves as a guide to investors and thereby helps in obtaining finance.
5. Writing the business plan forces the founders to think about all aspects of the venture.
6. A clear business plan articulates the vision and goals of the founders.
7. A business plan communicates to all stakeholders. They can judge the venture’s
future on the basis of the business plan.
8. The business plan helps identify the important variables that will determine the
success or failure of the firm.
9. The business plan is used as a selling document to outsiders.

SIGNIFICANCE OF WRITING THE BUSINESS PLAN/PROJECT PROPOSAL

Business Plan is a formal documentation which contains the set of business goals which are
attainable for the business. It can be regarded as significant because of the following reasons:
1. Helps in Setting Objectives for Managers: A detailed business plan helps in setting
short and long range objectives for the business. Specific objectives can be set and
appropriate strategies can be built around within a limited time frame.
2. Managing Workforce: With business plans the managers have the luxury to pre-
determine the requirements of the organizations in terms of the total manpower
required. The rationale for hiring people should be there in the business plan.
3. Creating a New Business: A business plan is a must have document when an
entrepreneur is planning to have an entirely new business in place. What could be the
right steps in starting a business, what are the pre-requisites and what are the
resources which need to be arranged should be necessary part of a business plan.
4. Providing Credibility: A good business plan converts a good business into a
credible, understandable and attractive business.
5. Makes Prospects Familiar: The business world is dynamic and diverse at the same
time. A good business plan brings in familiarity for people who do not know much
about the business.

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 market plan, financial plan, human plan,
resource plan, etc.

1. Title Page and Table of Contents: A business plan is a professional document and should
contain a title page with the company’s name, logo, and address as well as the name and
contact information of the company’s founders. Many entrepreneurs also include the copy
number of the plan and the date on which it was issued on the title page.

2. Executive Summary/Management Summary: It will usually contain 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.

3. Business Description, Vision & Mission Statement: Business description summarizes

the key technology, concept, or strategy on which the business is based. The mission
statement clearly states the company’s long- term mission. In the mission statement the use
words should be such that which would help direct the growth of the company. For example
McDonald’s mission statement reads like this- “To provide the fast food customer food
prepared in the same high-quality manner would world-wide that has consistent taste, serving
time, and price in a low-key décor and friendly atmosphere.

4. Business and Industry Profile: In industry analysis future outlook and trends of the
industry needs to be looked into. A proper analysis of the competitors in the market and
industry should also be carried out properly and the results should reflect in the business plan
drafted.
5. Description of the Company’s Product or Service: 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.

6. Market Analysis: 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:

1. Market opportunity
2. Competition analysis
3. Marketing strategy
4. Market research
5. Sales forecasts

7. Management Team: The management team section should share in detail the
management team, as investors usually invest in people not their ideas. Included within this
section should be:

(a) Management Talent and Skills

(b) Organizational chart
(c) Policy and strategy for employees
(d) Board of Directors and Advisory Board

8. Managerial and Structural Aspects: In this the entrepreneur needs to decide which kind
of organization structure should be adopted. Further, the authority responsibility relationship
also needs to be planned out. It is also necessary for the organization to specify the type of
business process being followed.

9. Technical Analysis: In technical analysis the results of the technical feasibility carried out
earlier is drafted. In this generally the requirements of the plant and machinery, plant capacity
utilization, location of the plant etc. is analysed and drafted.

10. Production Analysis: In this a comprehensive budgetary proposal with sub-budgets for
all necessary elements is drafted. In addition to this thequality control system of the
organization and inventory control systems detail should be there in the business plan.

11. 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 such as agreements or Memorandum of
Undertakings (MOU) with banks, financial institutions, underwriters etc. should also be a
part of the financial plan.

12. Human Resource Plan: The manpower planning and the need of human resource for the
organization should be analysed and assessed. Business would do well to draft the procedures
for recruitment, selection, placement, career advancement plans, training and development
programmes, system of personnel compensation etc. in the business plan to draw in clarity
about the priorities of the business.

BUSINESS PLAN FORMAT

Every business plan is unique, reflecting its own elements and circumstances. However,
certain elements are universal and commonly followed.

1. Executive Summary (should not exceed 2 pages)

A. Name, Address, Contact Information of the Company,

B. Contact details of key people of the organization
C. Description of the business, its products and services, and the customer
problems being solved
D. Description of the market for the products and services on offer
E. Overview of the venture’s competitive advantages
F. Mentioning the brief description of managerial and technical expertise of key
people
G. Highlighting financial forecasts through charts and graphs

2. Vision and Mission Statement

3. Company history (if venture is existing)

4. Business and Industry Profile

A. Industry Analysis
1. Industry background and overview
2. Significant trends
3. Rate of growth
4. Essential success factors in the industry
B. Outlook of the Future stages of growth
C. Goals and objectives of the venture
• Operational Goals
• Financial Goals
• Other Goals

5. Business Strategy

A. Desired Image and Position in the Market

B. SWOT Analysis
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats

C. Competitive Strategy
• Cost Leadership
• Differentiation
• Focus

6. Company Products and Services

A. Description
B. Patent or Trademark Protection
C. Description of Production Process
D. Future Product Offerings

7. Marketing Strategy

A. Target Market
B. Customers motivation to buy
C. Market Size and Trends
D. Advertising and Promotion
E. Pricing
F. Distribution Channel

8. Location and layout of the Plant (if applicable)

9. Analysis of the Competitor

10. Management Team Description

11. Plan of Operation

12. Financial Forecasts

13. Loan or Investment proposal

14. Appendices (supporting documents etc.)

ERRORS TO BE AVOIDED IN WRITING A WRITING PLAN

1. Submitting a “rough copy”, perhaps with coffee stains on the pages and
crossed out words in the text, tells the banker that the owner does not take his
idea seriously.
2. Outdated historical financial information, or industry comparisons will leave
doubts about the entrepreneur’s planning abilities.
3. Unsubstantiated assumptions can hurt a business plan, the business owner
must be prepared to explain the “whys” of every point in the plan.
4. Too much “blue sky”- a failure to consider prospective pitfalls- will lead the
banker to conclude that the idea is not realistic.
5. A lack of understanding of the financial information is a drawback. Even if an
outside source is used to prepare the projections, the owner must fully
comprehend the information.
6. Absence of any consideration of outside influences is a gap in a business plan.
The owner needs to discuss the potential impact of competitive factors as well
as the economic environment prevalent at the time of request.
7. No indication that the owner has anything at stake in the venture is a particular
problem. The lender will expect the entrepreneur to have some equity capital
invested in the business.
8. Unwillingness to personally guarantee any loans raises a question: If the
business owner is not willing to stand behind his or her company, then why
should the bank?
9. Introducing the plan with a demand for unrealistic loan terms is a mistake.
A. The lender wants to find out about the viability of the business before discussing loan
terms.
10. Too much focus on collateral is a problem in a business plan. Even for a cash-
secured loan, the banker is looking towards projection profits for repayment of
the loan. The emphasis should be on cash flow.