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Learning Objectives After studying this chapter you should be

ready to describe:

1. The format of a business plan.

2. The marketing aspects of new

ventures.3. The operational aspects of new

ventures.

4. The financial plan of new ventures.

5. The sources of financial and business

support systems.EUW 224 ENGINEERING

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The Importance of Planning

Planning is essential to the success of any

undertaking. Critical factors that must beaddressed when planning are:

Realistic goals. These must be specific,

measurable, and set within time parameters.

Commitment. The venture must be supported by

all involvedfamily, partners, employees, team

members.

Milestones. Subgoals must be set for continualand timely evaluation of progress.

Flexibility. Obstacles must be anticipated, and

alternative strategies must be formulated.EUW 224 ENGINEERINGENTREPRENEURSHIP 3


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What is a Business Plan? A written document that details the proposed

venture:

Describes the current status, expected needs, and

projected results of the new business.

Covers the project, marketing, research anddevelopment, manufacturing, management,

critical risks, financing, and milestones or a

timetable.

Demonstrates a clear picture of what that venture

is, where it is projected to go, and how the

entrepreneur proposes it will get therea

roadmap for a successful enterprise.EUW 224 ENGINEERING

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Individuals Who Need a

Business Plan

Entrepreneurs

Shareholders

Bankers/Creditors/Financial InstitutionsInvestors

Management/ Employees

Clients/Customers

Suppliers

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Benefits of a Business Plan

For the Entrepreneur: The time, effort, research, and discipline

required to create a formal business plan

forces the entrepreneur to view operating

strategies and expected results critically and

objectively.

For Outside Evaluators:

The business plan provides a tool for use in

communications with outside financial

sources.EUW 224 ENGINEERING

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Benefits of the Business Plan

(contd)

Specifically for the Financial Sources:

Details the market potential and plans for securing

a share of that market.

Shows how the ventures intends to service debt

or provide an adequate return on equity.

Identifies critical risks and crucial events with adiscussion of contingency plans.

Contains the necessary information for a thorough

business and financial evaluation.EUW 224 ENGINEERING

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Developing a Well-Conceived Business Plan The Five-Minute Reading

1. Determine the characteristics of the venture and its

industry.

2. Determine the financial structure of the plan (amount of

debt or equity investment required).

3. Read the latest balance sheet (to determine liquidity, networth, and debt/equity).

4. Determine the quality of entrepreneurs in the venture

(sometimes the most important step).

5. Establish the unique feature in this venture (find out whatis different).

6. Read the entire plan over lightly (this is when the entire

package is paged through for a casual look at graphs,

charts, exhibits, and other plan components).EUW 224 ENGINEERINGENTREPRENEURSHIP 8


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Putting the Package Together

Appearance

Length

The cover and title page The executive summary

The table of contents


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Guidelines to Remember

Keep the plan respectably short

Be focused

Organize and package the plan appropriately

Orient the plan toward the future

Avoid exaggeration

Highlight critical risks

Give evidence of an effective entrepreneurial team

Do not over-diversify

Identify the target market

Capture the readers interest


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Questions to Be Answered Is your plan organized so key facts leap out at the reader?

Is your product/service and business mission clear and

simple?

Are you focused on the right things?

Who is your customer?

Why will customers buy? How much better is yourproduct/service?

Do you have a competitive advantage?

Do you have a favorable cost structure?

Can the management team build a business?

How much money do you need?

How does your investor get a cash return?EUW 224 ENGINEERING

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Elements of a Business Plan Section I: Executive Summary

Section II: Business DescriptionA. General description of business

B. Industry background

C. Goals and potential of the business and milestones (if any)

D. Uniqueness of product or service

Section III: Marketing

A. Research and analysis

1. Target market (customers) identified

2. Market size and trends

3. Competition

4. Estimated market shareEUW 224 ENGINEERING

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Elements of a Business Plan (contd) Section III: Marketing (contd)

B. Marketing plan

1. Market strategysales and distribution

2. Pricing policy

3. Advertising and promotions plans

Section IV: Operations

A. Identify location

1. Advantages

2. Zoning

3. Taxes

B. Proximity to suppliers

C. Access to transportationEUW 224 ENGINEERINGENTREPRENEURSHIP 13


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Elements of a Business Plan (contd) Section V: Management

A. Management teamkey personnel

B. Legal structurestock and employment agreements, and

ownership

C. Board of directors, advisors, and consultants

Section VI: Financial

A. Financial forecast (pro forma financial statements)

1. Profit and loss

2. Cash flow

3. Break-even analysis

4. Cost controls

5. Budgeting plans EUW 224 ENGINEERINGENTREPRENEURSHIP 14


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Elements of a Business Plan (contd)

Section VII: Critical Risks

A.Potential problems

B.Obstacles and risksC.Alternative courses of action

Section X: Appendix or Bibliography


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Updating the Business Plan


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FinancialChanges

Changes in

the Market

AdditionalFinancing

Launch of a NewProduct or

Service

NewManagement

Team

Reflect the NewReality


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Presentation of the Business Plan:

The Pitch Know the outline thoroughly.

Use key words that help recall examples, visual aids,

or other details.

Rehearse the presentation to get the feel of itslength.

Be familiar with any equipment to be used in the

presentationuse your own laptop.

The day before, practice the complete presentation

using all visual aids and equipment.


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MARKETING PLAN

This marketing plan should immediately

follow the industry analysis and should

provide details about the new firms

products or services.

After reading this section of the plan, an

investor should be confident that the firms

overall approach to its target market and its

product strategy, pricing strategy, channelsof distribution, and promotional strategy are

in sync with one another and make sense.


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Marketing is a process of creating and

attracting customers to the company

Elements needed in a marketing plan:

1. Description of products or services.

Describes the products or services offered by the

company in detail (the uniqueness).

2. Target market

Explain about the customers profile in the target

market.

Do a segmentation: demographic factors such as

age, occupation, gender, education level, social

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3. Market Size

Is usually estimated in unit of products or

sales(which would be in RM) or both.

4. Competitors

List at least 3 competitors in the same target

market, together with their strengths and

weakness.5. Market Share

Is computed as a percentage of the market size.

6. Sale Forecast Is done on a monthly basis for the first year of

business and extended to cover sales for the

second and third year on a yearly basis.EUW 224 ENGINEERING

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7. Marketing Strategy

Is a stage to determine whether the business

is able to enter the market or compete withother competitors in the market and in the

same business sectors.

It involves the following marketing mix:i. Product/service strategy

Brand, quality, packaging, protection,

ease of use, product differentiation,attractiveness, safety, labeling, design.


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ii. Pricing strategy

Cost-based pricing, value based

pricing, competition-based pricing

and factors affecting price.

iii. Distribution strategy

Sales directly to customers, through

retailers, wholesalers or agents.

iv. Promotion strategy

Advertising, sales promotion,

publicity through flyers, pamphlets,

business cards.EUW 224 ENGINEERING

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8. Manpower Planning

Lists the employees in the marketing

department in terms of their positions

and the number of employees in each

position.

9. Schedule of Tasks and Responsibilities

The main tasks and responsibilities for

each position in the marketingdepartment.


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10. Remuneration Plan

EPF and SOCSO11. Marketing Budget

List all the administrative expenses

under the following categories:

capital expenditure/fixed assets

expenses

working capital/monthly expenses

other expenses


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OPERATIONAL PLAN

This section of the plan deals with the day-to-day

operations of the company.

An overview of the manufacturing plan (or service

delivery plan) should be followed by a description

of the network of suppliers, business partners, andservice providers that will be necessary to build the

product or produce the service the firm will sell.

Any risks or regulations pertaining to the

operations of the firm should be disclosed, such as

nonroutine regulations regarding waste disposal

and worker safety.


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The entrepreneurs should focus on areas where

a distinct advantage exists.

1. Operational /innovation Process

The key steps in the operational process towards

producing the products or services of the

company.

2. Process Flow Chart The operational process of the company is

depicted in the form of a flow chart.

3. Production Schedule/Capacity Planning

Operational outputs

4. Material Requirements

Raw materials(price, quantity, name of suppliers)EUW 224 ENGINEERING

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5. Manpower Planning

All the employees under the operation section of

the business are listed according to the relevant

position.

6. Schedule of Task and Responsibilities

Lists the main tasks and responsibilities of each

position.7. Remuneration Plan

EPF and SOCSO.

8. Machines and Equipment All machines and equipment must be listed

together with the estimated price, number of

units and suppliers name.EUW 224 ENGINEERING

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9. Operational Layout Plan

Draw the floor plan of the operational space.

10. Location of operations Site of business operations(building)

11.Operational Overheads

Consist of water, electricity, telephone and gasfacilities.

12.Operational Budgets

Capital expenditures/fixed asset expenses Working capital/monthly expenses

Other expenses


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FINANCIAL PLAN The financial section of the plan must demonstrate

the financial viability of the business. A carefulreader of the plan will scrutinize this section.

The financial plan should begin with anexplanation of the funding that will be needed by

the business during the next three to five yearsalong with an explanation of how the funds will beused.

This information is called a sources and uses of

funds statement. The next portion of this section includes financial

projections, which are intended to furtherdemonstrate the financial viability of the business


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Financial Reporting

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Common mistake among business owners:

Failing to collect and analyze basic financial

data.

One-third of entrepreneurs run their

companies without any kind of financial plan. Only 11 percent of business owners analyze

their companies financial statements as part

of the managerial planning process.

Financial planning is essential to running a

successful business and is not that difficult!

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Basic Financial Reports

Balance SheetSnapshot. Estimates the firms

worth on a given date; built on the accountingequation:

Assets = Liabilities + Owners Equity

Income StatementMoving picture. Compares

the firms expenses against its revenue over a

period of time to show its net income (or loss):

Net Income = Sales Revenue - Expenses

Statement of Cash Flowsshows the change inthe firm's working capital over a period of time

by listing the sourcesof funds and the usesof

these funds.


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Format of:

Balance sheet

Income Statement

Statement of Cash Flow

(lecturer will show on the whiteboard)


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Breakeven Analysis

The breakeven point is the level of operation atwhich a business neither earns a profit nor

incurs a loss.

It is a useful planning tool because it shows

entrepreneurs minimum level of activity

required to stay in business.

With one change in the breakeven calculation,

an entrepreneur can also determine the salesvolume required to reach a particular profit

target.

Calculating the Breakeven


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Calculating the Breakeven

Point

Step 1. Determine the expenses the business can expectto incur.

Step 2. Categorize the expenses in step 1 into fixedexpenses and variable expenses.

Step 3. Calculate the ratio of variable expenses to netsales. Then compute the contribution margin:

Contribution Margin = 1 -Variable Expenses

Net Sales Estimate

Step 4. Compute the breakeven point:

Breakeven Point$

=Total Fixed Costs

Contribution Margin


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Breakeven Chart

Sales Volume

Total Expense

Line

Revenue

Line

Fixed Expense

Line

Breakeven Point

Sales = $682,212

$682,212

$682,212

0


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The Importance of Getting Financing or Funding The Nature of the Funding and Financing Process

Few people deal with the process of raising investment

capital until they need to raise capital for their own firm.

As a result, many entrepreneurs go about the task of

raising capital haphazardly because they lack experience

in this area.

Why Most New Ventures Need Funding

There are three reasons most new ventures need to raise

money during their early life.

The three reasons are shown on the following slide.

SOURCES OF FINANCING


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Al i f R i i M f


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Alternatives for Raising Money for a

Start-Up Firm

Personal Funds

Family and friends

Banks and OtherFinancial InstitutionsGovernment Loan

RetirementLoan

Stock Market


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Personal Funds/Personal savings

First source of capital.

Example: savings account, current

account and money in a safe at home or

cash .Family and Friends

Family members, friends or colleagues

who are in position to lend money.

The terms of the loan should be written

down clearly and precisely.EUW 224 ENGINEERING

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Retirement AccountsEntrepreneur would have saved funds for retirement

purposes. He can use this money to fund the

development of his venture.

Stock Market

Offering stock in the entrepreneurs venture to the

public.

Investor will be able to share any profits equal to the

value of the share they contribute (dividends).

Government LoansGrants and Government subsidized loans.


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Banks and Other Financial InstitutionsBanks and financial institutions offer loans to

individuals who have assets that can serve ascollateral for the loan.

There are 3 types of financing provided by

banks and financial institutions :

i. Long-term financing

525 years

ii. Medium-term financing 27 years

iii. Short-term financing

OverdraftEUW 224 ENGINEERING

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Business Support System

1. Financial Support System2. Entrepreneur and Management Training

3. Technological Support

4. Infrastructure Support (location andpremise)

5. Marketing Support

6. Research and project Recognition7. Informational Support

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Fi i l S S


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Financial Support System

Majlis Amanah Rakyat (MARA)

Commercial Banks

Bank Pembangunan Infrastruktur Malaysia

Berhad (BPIMB)

Malaysian Industrial Development Finance

Berhad (MIDF)

Bank Pertanian Malaysia Berhad

SME Bank


E t d M t


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Entrepreneur and Management

Training


Malaysian Entrepreneurship

Development Centre (MEDEC)

State Economic Development

Corporation (SEDC) National Productivity Corporation (NPC)



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Technological Support

Palm Oil Research Industry Malaysia

(PORIM)

Forest Research Institute of Malaysian(FRIM)

Malaysian Institute of Microelectronic

System (MIMOS)


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Infrastructure Support (location

and premise)

Urban Development Authority

(UDA)


State Economic Development

Corporation (SEDC)



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Marketing Support

Federal Agricultural Marketing Authority(FAMA)

Malaysian External Trade Development

Corporation (MATRADE)Ministry of International Trade and

Industry (MITI).



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Research and Project Recognition


Standard and Industrial Research Instituteof Malaysia (SIRIM)

Malaysian Palm Oil Board (MPOB)

Research Rubber Institute Malaysia(RRIM)

Malaysian Agricultural research and

Development Institute (MARDI)

Informational Support


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Informational SupportInformational assistance is offered to an

entrepreneur in the form of business

opportunities, statistics, discovery, researchdevelopment and technological development.

Example:

Forest Research Institute of Malaysia (FRIM)

Malaysian Industrial Development Authority

(MIDA)

Malaysian External Trade DevelopmentCorporation (MATRADE).

Standard and Industrial Research Institute of

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Chapter 3 Ee