ISL453U-ENTREPRENEURSHIP
Chapter 4: Business Plan
Business Plan
A business plan’s primary purpose is to determine how and when entrepreneurs will carry out activities to achieve specific goals in the business establishment process. It is a document which reveals the financial details, marketing opportunities and strategy, management skills, and business abilities.
A detailed business plan shows how to access the funds and why the entrepreneur will be successful. The business plan is a guiding document requested by both investors and fund providers, enabling the entrepreneur to start a business. This guide provides investors and funders with all events that will affect the company to be established.
Why is a business plan necessary and what does the content of the business plan consist of are important questions should be answered. The detailed information is given in the chapter.
Objectives of a Business Plan
A business plan is a tool that can be used for three primary purposes. These are: communication, planning, and management.
As a communication tool, the business plan is used to raise funds, attract investment, and find strategic business partners.
As a management tool, the business plan helps determine the ways to be followed depending on the development stages of the enterprise, monitoring the results, and evaluating the development.
As a planning tool, the business plan guides at every stage of the business. It also helps eliminate obstacles that arise due to developmental stages and in creating new alternatives used.
Benefits of a Business Plan
Business plans have various benefits not only for start-up businesses but also for existing businesses. The most important advantage of business plans is to determine the goals of the company. The business plan explores the market and demand characteristics, the funds needed by the business, the expected return, and the level of profitability. Besides, it is an important document that determines financing, production, sales-marketing, management and organization strategies, and possible risks. More detailed information can be seen in the chapter.
Elements of a Business Plan
Business plans are reports that cover all aspects of the business with elements such as marketing, production, management, and financing. A detailed business plan generally consists of eight sections. These sections are executive summary, company description, product or service, market, marketing plan, operations, organization and management, financial projections.
Executive Summary
An executive summary is a snapshot of the business plan. It is the last section to be written in the plan. This section should keep the reader impressed. The section should include the type of work to be done, financial needs, and some estimates. The executive summary is vital to increase the chances of the potential investor to read the entire project. Most investors can decide whether to support or not just by reviewing this section. The executive summary is like the core of the whole business plan.
Company Description
When defining a business, the first thing to focus on is its structure. This section should describe the type of operation (wholesale, retail, manufacturing, or service- oriented). Whether the business is a partnership or a sole proprietorship, who the managers are and their contribution to the company should be detailed. It should also specify who the customers are, how the product will be distributed, and the business’s support systems. In the Company Description section of a Business Plan, the purpose of the establishment should be clearly stated.
Product or Service
Although the product is technical, complex concepts should not be used. It is vital that even someone unfamiliar with the subject can understand and get excited. Therefore, the product should be described using terms anyone can understand. However, if it is a very new field or industry, it may be necessary to give some basic information. Products known in detail by the entrepreneurs may not be standard information for potential lenders or investors
Market
Markets and market dynamics are always changing. For this reason, an entrepreneur must continuously and carefully monitor the target market it addresses and the business environment in general. Target market selection and activities should be revised according to changing conditions. Market research reveals where customers, competitors, and business are today and where they will be in the future.
The market analysis includes information about consumer behavior and market needs, the demography, and the target market’s geographic location. The company can present numbers and resources to give an overview of the target market size. This section provides demographic information about the target group, including age, gender, and income level. The section also contains information about the potential market’s size, how much it can spend, and how to reach potential customers.
Marketing Plan
A marketing plan is a report that determines the marketing goals of a business and the activities it plans to do to achieve these goals. During the preparation of the
marketing plan, the current situation is analyzed first. What do readers want to see in the business plan? Later, marketing purposes are determined by considering Every reader will want to be attracted to your company’s which product will be sold to whom. In the next step, the potential and be satisfied with the ways risks involved are strategies to be used in achieving these goals are addressed. determined, and how these strategies will be implemented are planned. Thus, an entrepreneur who prepares a An organization that will provide funding, such as banks, marketing plan will have planned who, when, where, will want to know the answers to the following questions: which activities and how to achieve marketing goals. From this perspective, a marketing plan is an essential tool • What do you want the money for? in regulating and managing marketing activities. • How much do you want to borrow? • How long will you be able to repay your debt Operations realistically?
The operations plan is designed to explain how the • Are you able to pay the interest? business is currently running. This section should start • Is your company strong enough to cope with a with the definition of the location of the company. The potential setback in its plans? location chosen should be appropriate in terms of • What guarantees can you provide for borrowing? workforce opportunities, wage rates, proximity to producers and consumers, and community support. Venture capitalists are often the most demanding readers Additionally, local tax obligations and support for new of a business plan. This approach is not only because these initiatives should be addressed. Besides, the production investors invest in risky situations. They generally have needs should be specified in terms of the required limited knowledge of your company.
buildings (factory, warehouse, office) and equipment For these reasons, they seek answers to the following (special tools, machinery, computers, and vehicles). The questions: labor supply, wage rates, and the required qualified workforce should be shown. Finally, data on production • Where does the company make money? costs should be presented. All financial information • How long has it been operating? related to production used here will also be used later for • What are the operating results and profitability? financial forecasts. What are the forecasts for the future? • What amount of funding is the company seeking, Organization and Management and what will it use for? The company’s organizational structure is an essential part of a business plan because it provides a basis for Their answers to these questions allow investors to decide estimating operating expenses. The function of each task whether to read the rest of the business plan.
is then determined, and how these functions will be associated with revenue generation within the company is stated.
Financial Projections
The financial plan is vital in determining whether the enterprise will receive the necessary financing from financial institutions, investors, or venture capitalists. This section should show that the business is feasible and generate enough income to meet its financial obligations. Some of the information presented in the financial plan is a projected income statement, balance sheet, and cash flow.
Evaluating a Business Plan
The business plan establishes a reliable benchmark for measuring the entire enterprise’s performance or its units or managers. Besides, the business plan and its development process are tools to train and motivate its employees. It is also useful to provide information to external stakeholders and obtain funds from external sources. The elements to consider while evaluating the business plans include: the entrepreneur and the team, opportunities, the business’s content, and the risks and benefits.