Entrepreneurship

Entrepreneurship
Business plan
Definition: A business plan is a written summary of your proposed business. It includes information about the plans,
operations and financial details, its marked opportunities and strategies, as well as the entrepreneur’s personal background.
A business plan is a document used to summarize an entrepreneur’s business aspirations, secure legal authority and
mobilize resources to launch the business. Just as you need a map to help you find the route to an unknown destination,
you need a plan to help you determine in which direction to go to get your business up and running. Written document
explains your overall strategy and objectives in words and numbers. Your first plan should estimate your goals, your
expenses, and how much you plan to charge for your services. It should also show how you plan to attract and keep
customers. After you actually begin your business, you will find that the plan needs to be reviewed on an on-going basis. A
business plan is a changing, dynamic document. There are no guarantees that your business will succeed but a well-written
and well-researched business plan plays an important role in a business’s success.
Why business planning is necessary
• Business plans show you if the business can expect to make a profit in the future. It shows what money to expect to come
into and out of the business. For instance, if your costs are expected to be high, there would be need to increase prices.
• A plan will be able to identify parts of the business that require improvement. In so doing, one will be forced to think about
every part of the business. To work out a plan, one must therefore think carefully about everything that affects the business
• A business plan makes it possible to access a bank loan because most banks are interested in knowing the expected
sales, costs and anticipated profits as well as cash flows before offering a loan.
• It forces you to think deeply and plan every detail properly before you start your business.
• It helps you to determine the direction you want to move in.
• A business plan serves as a map against which you can determine your process.
• A business plan provides details of resources required and can be given to potential investors/financiers.
• A business plan indicates chances for success and potential critical points.
Why Write a Business Plan?

 A Business Plan helps to evaluate the feasibility of a new business idea in an objective, critical, and unemotional way.
• Marketing – Is there a market? How much can you sell?
• Management – Does the management team have the skill?
• Financial – Can the business make a profit?
 It provides an operating plan to assist in running the business and improves probability of success.
• Identify opportunities and avoid mistakes
• Develop production, administrative, and marketing plans
• Create budgets and projections to show financial outcomes
 It communicates idea to others, serves as a “selling tool,” and provides the basis for your financing proposal.
• Determine the amount and type of financing needed
• Forecast profitability and investor return on investment
• Forecast cash flow, show liquidity and ability to repay debt
A business plan serves many masters

1. It serves the Entrepreneur who must set a navigational course
2. It serves investors and cautious financiers
3. It serves the managers and staff of the organization so that they will know the strategies and programs of the
enterprise.
Basic Business Plan Guidelines

A typical plan will have three sections:
Section One: The Business
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Section Two: Financial Data
Section Three: Supporting Documents
Business Plan Outline

Cover Sheet: Business Name, Address, Phone Number, Principals
Executive Summary or Statement of Purpose
Table of Contents

A. Description of Business
B. Products/Services
C. Market Analysis
D. Marketing Plan
E. Location
F. Competition
G. Management and Operations
H. Personnel
I. Application and Effect of Loan or Investment
A. Projected Financial Statements
Income Statements
Cash Flow Statements
Balance Sheets
Assumptions to Projected Financial Statements
B. Break Even Analysis
C. Sources and Uses of Funds
Section Three: Supporting Documents
Historical financial statements, tax returns, resumes, reference letters, personal financial statements, facilities diagrams,
letters of intent, purchase orders, contracts, etc.
A. Description of the Business

Basic Questions:
1) What general type of business is this?
2) What is the status of the business? Start-up, expansion or take-over?
3) What is the business form? Sole Proprietorship, Partnership, Corporation or Limited Liability Company?
4) What are your products?
5) Who are (will be) your customers?
Additional Questions for Start-Ups:

1) Why will you be successful in this business?
2) What is your experience with this type of business?
3) What will be special or unique about this business?
4) Why will your business be successful?
Additional Questions for Purchase of Existing Business:

1) When and by whom was the business founded?
2) Why is the owner selling?
3) How was the purchase price determined?
4) What are the current financial conditions and trends?
5) How will your management make the business more profitable?
B. Products/Services
Basic Questions:
1) What products/services are you (will you be) selling?
2) What are the features and benefits of what you sell?
3) What Position do you have (or want to have) in the market?
4) How do your products/services differ from the competition?
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5) What makes your products unique and desirable?
6) Why do (will) customers buy from you?
C. Market Analysis
Basic Questions:
1) Who are the purchasers of your products or type of products? (Geographic,
Demographic and Psychographic characteristics)
2) What is the size of the market? Is it growing?
3) What is (will be) your share? How will your share change over time?
4) What is the industry outlook?
5) Are there segments of users who are under-served by competition?
6) Do any of these under-served segments present opportunities?
D. Marketing Plan
Basic components of a Marketing Plan are:
What are you selling? (What benefits do you provide and what position or image do you have?)
· Who wants the things you sell? (Identify Target Markets)
· How will you reach your Target Markets and motivate them to buy?
(Develop Product, Price, and Promotional Strategies)
 Product Strategies
1) How will products be packaged?

2) How broad will your product line be?
3) What new products will you introduce?
4) What Position or Image will you try to develop or reinforce?
 Pricing Strategies
1) What will be your pricing strategies? (For example: Premium, Every Day Low Price, Frequent Sale Prices, Meet
Competitor Price, etc.)
2) How will you compare with competition and how will they respond?
3) Why will customers pay your price?
4) What will be your credit policies?
5) Is there anything about your business which insulates you from price competition?
6) Can you add value and compete on issues other than price?
 Promotional Strategies
1) Who are your Target Markets?

2) How will you reach your Target Markets? (What Media will you use?)
3) How will you motivate them to buy? (What Message will you stress?)
4) What is the cost and timetable for implementation of the marketing plan?
E. Location
Basic Questions:
1) What is the business address?
2) Is it owned or leased? If leased, what are the terms?
3) Are renovations or modifications needed, and what are the costs?
4) Describe the property and the surrounding area.
5) Why is this a good location for your business?
F. Competition
Basic Questions:
1) Who are (will be) your largest competitors? List them.
2) How will your operation be better (and worse) than your competitors?
3) How are competitors doing? What are their sales and profits?
4) (If Start-Up) How will competition respond to your market entry?
G. Management and Operations

Basic Questions:
1) What is the business management experience of the management team?
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2) What are the functional areas of the business?
3) Who will be responsible for each functional area?
4) Who reports to whom?
5) What will salaries be?
6) What management resources outside the company are available?
7) How will your products/services be produced? (Describe manufacturing processes, proprietary technology and key
supplier relationships.)
H. Personnel
Basic Questions:
1) What are the personnel needs now? In the future?
2) What skills must they have? What training will you provide?
3) Are the people you need available?
4) What is their compensation? What fringe benefits will be provided?
I. Application and Effect of Loan or Investment

Basic Questions:
1) What is the total investment required?
2) How will the loan or investment be used?
3) How will the loan or investment make the business more profitable?
4) When will the loan be repaid?
5) If you are seeking equity (selling part of the business to an investor): - What percent of the company are you willing to
give up?

A. Projected Financial Statements
The basic purposes of financial projections are:
• Establish the profit potential of the business, given reasonable assumptions
• Determine how much capital the company needs and how it will be used
• Demonstrate the business can generate the cash to operate and re-pay loans
Steps in Financial Projections

1) Estimate fixed asset requirements for the first year.
2) Estimate any start-up or one-time expenses.
3. Define each “unit” of your product or service and estimate the selling price and direct cost per unit.
4) Estimate sales by month for at least one year.
5) Estimate monthly Cost of Sales and Gross Profit based on the percentages of sales calculated in #3.
6) Estimate and itemize fixed expenses by month for at least one year.
7) Describe the amount of inventory (if any) required to support the sales forecast.
8) Describe your credit, sales, and collections policies.
9) Describe how fast you must pay your vendors
10) Also: - Estimate obligations for Income Taxes.
- Businesses already in operation will need the latest Balance Sheet.
B. Break Even Analysis

1) Determine Contribution Margin Percent. Contribution Margin (CM) equals Sales minus Variable Expenses. CM% equals
CM divided by Sales.
2) List and total all Fixed Expenses for a specific time period (usually one month.) Fixed expenses do not rise or fall with
sales volume. Examples: rent, insurance, utilities, etc.
3) Break Even Sales is Fixed Expenses divided by Contribution Margin %.
C. Sources and Uses of Funds

The Sources and Uses of Funds is a statement of how much money you need (and where it will come from) and how that
money will be used.

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Why business planning is necessary

• It helps you to determine the direction you want to move in.

Why Write a Business Plan?

A business plan serves many masters

Basic Business Plan Guidelines

Business Plan Outline

Section One: The Business

Section One: The Business

A. Description of the Business

Additional Questions for Start-Ups:

Additional Questions for Purchase of Existing Business:

1) How will products be packaged?

1) Who are your Target Markets?

G. Management and Operations

I. Application and Effect of Loan or Investment

Section Two: Financial Data

Steps in Financial Projections

B. Break Even Analysis

C. Sources and Uses of Funds

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