Do you really need a Business Plan?
Yes. You do.
A business plan is a document that aims to establish whether or not a business idea will bring in money that is greater than what it cost to start and operate it. Your business idea may look attractive to you at first. But beware! Not all business ideas are “doable.” Some look brilliant while others are just too absurd.
Therefore, no matter how good your business idea will seem, you still need to make a business plan for the following reasons:
Six (6) reasons why the business plan is important
1. Reduce, if not remove, the risk of losing money invested in a poorly researched or unstudied business idea.
Shouldn’t you first find out where your money is going before you let go of it? This way you reduce, if not remove, the possibility of losing your money on some activity that you should not have gotten into in the first place. Preparing a business plan will enable you to measure the prospects of a business idea before parting with your money.
2. Avoid costly mistakes.
Every spur-of-the-moment or careless decision you make for the business entails cost that you might not be able to recover. It is never advisable to engage in a trial and error or on a hit-or-miss activity. You can actually save on costly mistakes by looking carefully at the details of the business in advance and determining your actual requirements.
For instance, you may have thought that you will need two units of a high speed industrial sewing machine to complement your two regular motorized sewing machines and make full use of your estimated production capacity. After making a business plan, you realize that one unit of the industrial sewing machine and three seamstresses were all you needed to run in full capacity.
3. Anticipate your financial requirements.
Money is the blood of any business. Without it no business can start or even survive. It is always wise to foresee sudden increases or decreases in the demand for your product or service so you can prepare for them. Through the business plan you can plan for the lean months and ensure that the business will have enough resources to meet business obligations during the periods when sales are low.
In the same manner, the business plan will help you get ready for the peak production months so that you avoid losing any business opportunity.
4. Organize your activities beforehand.
A business plan will serve as your road map to an unfamiliar territory and as such, minimize or avoid unpleasant surprises. The business plan will allow you to estimate how your business will perform in the future and to prepare for contingencies in case things will not turn out as planned.
5. Assess actual performance against set goals.
A business plan will enable you to set targets in terms of sales volume and revenues, as well as expenses, among others. Once you have put up the business, you can always go back to your business plan to measure actual performance against your set goals.
6. Apply for financing from lending institutions.
You could be lucky to have a family to lend you money to start your business right away. But under normal circumstances, no one will lend you a sum if they are unsure about the prospects of your business idea.
You should be able to convince possible sources of capital, especially banks, that something good will come out of your business idea. A well-prepared business plan can be your back-up support.
13 Steps in Preparing the Business Plan
After you have made the preliminary decisions, you can start preparing a business plan. There is no such thing as an all-purpose business plan. You should write your business plan according to the unique factors and conditions of your enterprise.
The business plan has four main components: the marketing plan, the technical plan, the organizational plan and the financial plan.
The following guidelines may help you in writing your business plan:
1. State your objectives.
This section, which precedes all business plans, tells your reader who you are, what your business goals are, and when you expect these goals to be accomplished. If your business has a track record of say, three years, then you can approach a bank and indicate how much you want to borrow and what you plan to do with the funds.
2. Describe the business.
This section gives background information on your business and how it is currently doing. For a new business – Instead of a brief history, explain what the business will be, how the idea for your business was conceived, and how the business is expected to develop. For an existing business – Provide the following information: business name, date and place of registration, date when operations began, brief history of the business, names of owners, partners or major investors.
THE MARKETING PLAN
3. Describe your products or services.
Give a detailed description of your products or services to give the reader a clear idea of what you are selling. Describe, as well, applications or uses of your products that may not be apparent. This section of your plan is also for presenting the competitive advantages your product has over similar products as well as for identifying the products you will compete with. State your product’s advantages and disadvantages.
4. Identify your potential market.
Determine who are your present or projected customers and how many. Be as specific as possible. Are you selling to bookstores? Grocery Small ladies’ boutiques? If you are selling to the general public, you may need to group potential customers according to age, gender, income, education and other demographic factors. You then ask yourself how you can make use of the information. If, for example, you know that your potential customers will likely be children aged three to ten, what does this tell you about your location? your advertising? your prices?
5. Identify your competitors.
Competition need not be a threat. Rather it should spur you to do your best. Learn as much as you can about your competitors. Include the following information in your plan:
a) Description of competitors. Identify businesses likely to become your competitors.
b) Size of competitors. Determine your competitors’ assets and sales volume.
c) Profitability of competitors. Which of your competitors are making money? Which are losing? By how much?
d) Operating methods. Determine the operating methods of each of your major competitors in terms of pricing strategy; quality of products and services; servicing, warranties and packaging; methods of selling
e) and channels of distribution; credit terms; location; advertising and promotion; reputation; and, inventory levels. Discuss only the items relevant to your business
6. Consider your pricing policy.
In pricing your goods and services, all relevant factors should be considered, like cost of production and distribution and the degree of acceptance by the market. Another factor to account for is the pricing structure of your competitors. Of course, the aim of your pricing policy should be to set the price at a level that maximizes profit in the long run.
7. Determine your marketing methods.
Selling a good product at a reasonable price is not enough. Your business plan must answer the following questions:
a) How will you promote or advertise your business?
b) How will you sell your product? Will you employ sales people? Will you have your own outlet? Will you engage marketing agents?
c) What channels of distribution will you use to reach your customers?
d) What do your customers think of your product? How can you improve your image as an enterprise?
THE TECHNICAL (PRODUCTION) PLAN
8. Identify your material requirements and sources of supply.
List down what materials you will need and where you will get them. Include only direct materials and office supplies. Other indirect materials should not be included in the list. Tabulate your material requirements. For each item, state how many suppliers there are, who your main supplier is, and why. Your readers will see that you have carefully thought out who your best suppliers will be.
9. Determine the process and equipment you will use to manufacture your product.
Give a detailed explanation of your production process. For each step, explain the work done, as well as the equipment and materials used. If you are presenting a complex process, include a diagram showing the work flow.
THE ORGANIZATIONAL PLAN
10. Determine your key personnel.
Identify the key people in your business, including you as owner and manager. If your business is a corporation, list the names and addresses of all directors. If your business is a partnership, list the names and addresses of all the partners.
11. Identify your work force and support personnel.
List down the skills and positions you need, the number of people for each position, and their corresponding salaries and wages
THE FINANCIAL PLAN
12. Determine your financial requirements.
Prepare a forecast that outlines all your capital requirements. There are three: fixed capital, working capital and pre-operating capital. Fixed capital includes cost of land and building or lease deposits on them; cost of improving the land or renovating the building; furniture, furnishings and fixtures; and machinery and equipment. These are usually one-time expenses, and will generally last the lifetime of the business. Working capital is the reserve money you need to run the business until it becomes self-supporting. This may take from one to six months or even longer. You need working capital to purchase your raw materials, compensate your workers, and pay for transportation, telephone, electricity and water bills.
Pre-operating capital includes money you spend to register your business, acquire licenses for franchises, or pay a consultant or lawyer. This is money that you spend before your business begins to operate. Be sure that no significant item is overlooked. Be realistic and do not underestimate your requirements. Provide for contingencies and a margin of safety to avoid cost overruns later.
13. Prepare a budget.
The budget should include marketing, production and general and administrative expenses.
Marketing, which provides the revenues of the business, requires expenses in selling and distribution, storage, discounts, advertising and promotion.
Production cost includes cost of materials and components, labor, and manufacturing overhead.
General and administrative expenses include salaries of administrative staff as well as legal and accounting costs.
Projections should be prepared every month during the first year of operations and every quarter for the second and third years.
At this point, you are ready to implement your plan. It is time to raise funds, register your business, find a suitable location, purchase equipment and supplies, hire and train people, and start operating. In other words, from here on, you put what you have written into action.
This guide is intended mainly to familiarize you with some basic business concepts, procedures, and methods that you, as a beginning entrepreneur, must know before you decide to actually put up your business. If you want to learn more, you can always read business books and seek help from an SME counselor at the DTI office nearest your place.