Business Plan Preparation Study Notes

Introduction to Business Plan Preparation

  • A business plan serves as the roadmap for a new business and the entrepreneur, providing a written structure prepared prior to starting or expanding a business. It establishes clear direction.

  • An essential precursor to the business plan is the feasibility study, which evaluates the viability of the business idea.

  • The two tests a new business idea undergoes:

    • Possibility Test: Determines if the idea can materialize. If successful, it leads to a feasibility test.

    • Feasibility Test: Assesses whether the business will function in various environments. A positive result allows the entrepreneur to proceed with the business plan.

  • A business plan details activities in starting and operating a new business, while the feasibility study provides initial data, and the business plan explains in more depth how the business will be run.

Major Parts of the Business Plan

  1. Introduction

  2. Executive Summary

  3. Environmental Analysis

  4. Business Description

  5. Organizational Plan

  6. Production Plan

  7. Operation Plan

  8. Marketing Plan

  9. Financial Plan

  10. Appendix

Introduction

  • The introduction provides a general overview of the business, typically comprising one to two pages and includes:

    1. Proposed Name of the Business:

    • Should reflect the business identity and image.

    • Promote the philosophical values and culture significant to the business.

    • Represent the brand identity of the product.

    • Attract or influence target consumers.

    • At least three suggested trade names must be submitted to the Department of Trade and Industry for approval and registration.

    1. Address of the Business:

    • Correct address is crucial as all correspondence, deliveries, and supplies are sent there.

    • An email address must also be provided for communication with stakeholders.

    1. Name of the Owner or Owners:

    • Clearly indicate the name of the owner. In a sole proprietorship, this is a single person.

    • For partnerships, list partners along with their roles (for example, industrial partner, limited partner).

    • Corporations require the names, nationalities, and addresses of incorporators.

    1. Description of the Business:

    • Briefly explains the products or services offered, possibly including mission, vision, objectives, and other future offerings.

    1. Location of the Business:

    • No strict guidelines exist for choosing a location, but it should offer a strategic advantage.

    • Difference between Address and Location:

      • Address of the Business: Exact physical address without elaboration.

      • Location of the Business: Includes rationale for selected location, especially if related areas differ.

Example: ONLINE CLOTHING SHOP

  • Target Market: Teenage girls and young women aged 15-25, active on social media, interested in trendy fashion.

Funding Requirement and Sources

  • This section encompasses the total estimated cost to start the business, including:

    • Building costs

    • Equipment costs

    • Supplies costs

    • Working capital

  • Outlines sources for funds: whether sourced entirely from owner(s) or partially through creditors.

  • If creditors are involved, indicate repayment timeframe.

  • Key factors when deciding on business location:

    • Proximity to target consumers

    • Distance from raw materials, labor, and utilities

    • Availability and cost of transportation

    • Peace and order situation

    • Presence of direct competitors

    • Geographic and climatic conditions

Executive Summary

  • A concise summary covering the entire business plan and emphasizing the key elements:

    1. Business Idea: What the business is about, answering: "What kind of business is it and what does it offer?"

    2. Products/Services: Clearly outline what is being sold (goods) or provided (services).

    3. Target Market: Who the customers are, demographic details such as age group, gender, occupation, interests, lifestyle, and location.

    4. Goals: Specific objectives the business aims to attain, ensuring they are SMART (Specific, Measurable, Achievable, Realistic, Time-bound).

    • Example Goal for a Milk Tea Shop:

      • To become a recognized milk tea shop offering customizable drinks at student-friendly prices.

    1. Financial Highlights: Overview of expected financial performance, including:

    • Start-up Capital: Capital required to launch the business.

    • Projected Sales: Expected revenue from sales.

    • Expenses: Total costs incurred (materials, salaries, rent, utilities, etc.).

    • Net Profit: Earnings after all expenses.

Financial Highlights Example:

  • ITEM | Amount (₱)

  • -------------------- | ------------------

  • Start-up Capital | 150,000

  • Projected Monthly Sales | 120,000

  • Monthly Expenses | 85,000

  • Expected Monthly Net Profit | 35,000

Interpretation:

  • The store anticipates monthly sales of ₱120,000, leading to a projected net profit of ₱35,000 after expenses.

Environmental Analysis

  • Analyzes internal and external factors affecting the business.

    1. Competitor Analysis: Identifies businesses with similar offerings, categorizing them into:

    • Direct Competitors: Competitors providing identical products/services to the same market.

    • Indirect Competitors: Businesses offering alternatives or substitutes to the same market.

    1. Market Trends: Evaluates demand trends over time concerning the product/service, including:

    • Current demand: More people purchasing now?

    • Growth potential: Is demand anticipated to grow in the future?

    • Consumer behavior: Trends affecting purchasing decisions (health, convenience, etc.).

    1. SWOT Analysis:

    • Strengths: Advantages or what the business excels at.

    • Weaknesses: Areas where the business needs improvement.

    • Opportunities: External chances for growth or improvement.

    • Threats: External factors that may pose challenges.

SWOT Example:

  • Strengths: Fresh and healthy offerings, customizable options, affordability, strategic location.

  • Weaknesses: Limited store size, minimal marketing budget, few staff members.

  • Opportunities: Rising health awareness among customers, an increase in smoothie and detox drink trends, potential for delivery services.

  • Threats: Competition from local cafes, rising ingredient costs, changing consumer preferences.

Business Description

  • Provides detailed insight into the business, divided into sections:

    1. Vision: Long-term goals for what the business aspires to become.

    2. Mission: Short-term purpose explaining the business's operations, target audiences, and how it meets needs.

    3. Business Goals:

    • Specific achievable goals align with measurements and timelines, differentiating between short-term and long-term objectives.

    1. Product/Service Description:

    • Outlines what is offered, unique features, benefits, and distinguishing factors from competitors.

    1. Types of Ownership:

    • Outlines the legal structure of the business (sole proprietorship, partnership, corporation).

    1. Organizational Plan:

    • Details about management and operational structure, including roles and an organizational chart.

Production Plan

  • Explains production processes and materials involved:

    1. Raw Materials: Basic components or ingredients for production.

    2. Suppliers: Businesses or individuals providing the raw materials necessary for operations.

    3. Equipment: Tools and machinery essential for production.

    4. Production Process: The step-by-step method of transforming raw materials into final products.

    5. Production Capacity: Maximum output over specified periods (daily, weekly, or monthly), critical for strategizing production and inventory management.

Operation Plan

  • Covers the daily workings of the business:

    1. Business Location: Impact of location on sales and customer access.

    2. Store Layout: Arrangement optimizing efficiency and customer flow.

    3. Business Hours: Operational times for customer access and staff scheduling.

    4. Daily Activities: Routine tasks ensuring efficient business operations.

    5. Permits and Licenses: Governmental approvals necessary for legal operation.

Marketing Plan

  • Strategies for customer attraction and retention:

    1. Pricing Strategy: Methodology for determining pricing to cover costs and remain competitive.

    2. Promotion Strategy: Plans for advertising and distributing information about products/services.

    3. Place/Distribution: Channels for product delivery to the consumer.

    4. Competitive Advantage: Unique characteristics distinguishing the business from competitors, such as quality or pricing.

Financial Plan

  • Showcases the business's financial status and forecasts:

    1. Start-up Capital: Total funds needed before business operations commence.

    2. Projected Sales: Future expected earnings.

    3. Expenses: Costs incurred during operations.

    4. Income Statement: Financial overview reflecting sales, expenses, and profit over time.

    5. Cash Flow: Movement of cash in and out, detailing:

    • Beginning Cash: Starting funds available.

    • Cash Inflows: Income received, primarily from sales.

    • Cash Outflows: Expenditures such as rent and salaries.

    • Ending Cash Balance: Remaining cash post-transactions.

    1. Break-even Analysis: Identifies the sales volume at which total revenue covers total costs, delineated as follows:

    • Fixed Costs: Consistent expenses regardless of production volume.

    • Variable Costs: Costs that fluctuate with production levels.

    • Selling Price per Unit: Revenue received per product sold.

Appendix

  • This section includes relevant supporting documentation:

    • Permits and Licenses

    • Product Pictures

    • Owner's Resume

    • Contracts

    • Charts and Tables