LESSON 7 BUSINESS PLANNING Instructor: Dr. Antal Szabó

LESSON 7

BUSINESS PLANNING

Instructor:Dr. Antal Szabó

MANAGE YOUR BUSINESS FROM START YO FINISH

1. PLAN YOUR BUSINESS

2. START YOUR BUSINESS

3. MANAGE YOUR BUSINESS

4. GETTING OUT

Careful planning is fundamental to

success.

THE BUSINESS PLAN

A BUSINESS PLAN IS A DOCUMENT CONTAINING INFORMATION ON HOW YOUR BUSINESS IS RUNNING, HOW

YOU INTEND TO SELL YOUR PRODUCTS/SERVICES TO MAKE A SATISFACTORY PROFIT AND BE

ATTRACTIVE TO POTENTIAL CREDITORS/INVESTORS WHO WILL

REVIEW YOUR BUSINESS TO MAKE A DECISION WHETHER TO FINANCE IT

OR NOT.

THE AIMS OF THE BUSINESS PLAN(i) it is a guide for entrepreneurs to design a well

reasoned and logical framework to implement and manage her/his business ideas and strategy during the next 2-5 year period;

(ii) it serves as a basis for negotiation with the representatives of third party financial institutions such as government authorities, lenders, creditors, and bankers aimed at obtaining loans and/or capital investment; and

(iii) it provides a basis for comparison and measures achievements after the plan is put into implementation.

ITS THE BUSINESS PLAN JUST FOR CREDITORS?

• The business plan is not just to satisfy the curiosity of the creditors. A good business plan is first of all a managerial tool for the entrepreneur, because she/he takes the major risk in the undertaking. For this reason it is of utmost important to examine thoroughly whether the plan is feasible or not, when the expenditure can be recovered and what kind of profit and reward can be expected.

PRIMARY USER OF THE BUSINESS PLAN

Just remember that the most important audience for a business

plan is YOU!

You’ll be forced to be accountable to all of the statements, claims, stats

and facts inside of it.

MISTAKES No.1

• Too many businesses make business plans only when they have no choice in the matter. Unless the bank or the investors want a plan, there is no plan.

• Don't wait to write your plan until you think you’ll have enough time. "I can't plan. I'm too busy getting things done," business people say. The busier you are, the more you need to plan.

• If you are always putting out fires, you should build firebreaks or a sprinkler system.

PERSPECTIVES NEEDS TO BE CONSIDERED

• The entrepreneur's perspective

• The marketing perspective considers the venture through the eyes of the customer

• The investor’s perspective. The investor looks for sound financial projections.

A BUSINESS PLAN INCLUDES THE FOLLOWING:

(i) an analysis of the current market trends and competitiveness;

(ii) an analysis of the enterprise's market position and possibilities;

(iii) an analysis of the enterprise's operational performance;

A BUSINESS PLAN INCLUDES THE FOLLOWING:

(iv) Objectives for better performance, customer satisfaction and higher income rates; and

(v) Resource planning and utilization for exploiting market opportunities and for maximizing return on investment.

MISTAKES No.2 - Fear

• Doing a business plan isn't as hard as you might think. You don't have to write a doctoral thesis or a novel.

SOURCES OF INFORMATION for PLANNING

• Market Information: The first step is to define the market

• Operations Information Needs: considers manufacturing operations, materials, labor, overhead

• Financial Information: pro forma income statements, balance sheets and cash flow statements for the next 3 years

MODEL BUSINESS PLAN (SAMPLE)

The cover page

The table of contents

CONTENTS

CONFIDENTALY AGREEMENT

Chapter 1. PERSONAL BACKGROUND

Chapter 2. DETAILS OF THE COMPANY

• 2.1 Company legal structure and history

• 2.2 Business activities

• 2.3 Mission and objectives

MODEL BUSINESS PLAN (continue)Chapter 3. THE PROJECT Chapter 4. THE PRODUCTS AND/OR

SERVICES Chapter 5. MARKETS AND COMPETITION Chapter 6. MANUFACTURING • 6.1 The manufacturing process and

equipment • 6.2 Engineering and development support • 6.3 Quality assurance system • 6.4 Sources of supply • 6.5 Environment appraisal

MODEL BUSINESS PLAN (continue)

Chapter 7. MANAGEMENT AND ORGANIZATION

Chapter 8. FINANCIAL AND PLANNING DATA

• 8.1 Cost analysis

• 8.2 Expected turnover

• 8.3 Cash-flow analysis


Chapter 9. FINANCIAL REQUIREMENTS

• 9.1 Summary of operations prior to financing

• 9.2 Current shareholders and/or loans outstanding

• 9.3 Capital needed/finance plan


Chapter 10. CONTROLLING

Chapter 11. CRITICAL RISKS AND PROBLEMS

Chapter 12. LIST OF ITEMS TO BE ANNEXED

EXECUTIVE SUMMARY

COVER PAGE

(company Logo)BUSINESS PLAN(company name)

(address)(telephone, fax numbers)

(E-mail address and Internet link)Established: (date)

Contact person: (name and position)(His/Her telephone number and E-mail address)

(date of application)

PERSONAL BACKGROUND

Here, the entrepreneur(s) should describe his/her/their personal situation, including educational background and professional experience. Further, it should make reference to the bank holding the account of the business/enterprise. In some developed market economics the personal background should also contain a personal statement of the financial condition, including tax returns and a summary of the entrepreneur's assets and liabilities. If available, references by professionals can be added.

DETAILS OF THE COMPANY

• The information contained in this section should summarize all aspects of the company.

• Information on employees, particularly those involved in management, should be presented, highlighting all relevant experience. It should also explain the company's business activities,

• Mission and objectives:

Business plans include vision, mission statement, and objectives

• Vision: Defines the desired or intended future state of a specific organization or enterprise in terms of its fundamental objective and/or strategic direction. It outlines what the organization wants to be.

• Mission: Defines the fundamental purpose of an organization or an enterprise, basically describing why it exists. It concentrates on the present.

• The objective of the plan is the most important part. Every plan should spell out your goals. Every objective should specify results and activities that can be easily tracked.

JAPANESE PROVERB

"Vision without action is a "Vision without action is a daydream. Action without daydream. Action without

vision is a nightmare."vision is a nightmare."

GENERAL ELECTRIC VISION

We bring good things to life'. The corporate success depends on the vision

articulated by the CHIEF EXECUTIVE or the top management. For a vision to have any

impact of the employees of an organization it has to be conveyed in a dramatic and

enduring way. The most effective visions are those that inspire, usually asking employees

for the best, the most or the greatest.

"Leaders inspire people with clear visions of how things can be done better,“ writes Jack Welch, the former CEO of GE. “The best leader do not provide a step-by-step instruction manual for workers. The best leaders are those who come up with new idea, and articulate a vision that inspires others to act.

THE PROJECT

• Since the purpose of presenting the plan is to obtain funding for a project, precise details of the project should be provided. The project can take many forms, e.g. start‑up, expansion, restructuring/modernization, the introduction of a new line of products/services, etc. The essential purpose of this section is to show how the business will benefit, grow and expand by obtaining the funding sought. If appropriate, the unique aspects of the entrepreneur's strategy should also be outlined. Further, it should summarize the entrepreneur's overall and specific objectives, i.e. the short‑ and long‑term goals in terms of growth, revenue, market share, etc.

EXECUTIVE SUMMARY

The executive summary embodies crystallized thoughts setting priorities, providing the

foundation of the full plan and establishing the strategy for its implementation.

In essence, the executive summary is the most important part of the business plan, as it will dictate whether or not the remaining pages are read. Although the executive summary

appears as the first part of the plan, you should write it only after you have completed

the whole document.

SOME PRACTICAL ADVICE

(i) When reading this guide, keep an exercise-book at hand. If a question occurs to you, put it down in writing. It is not unlikely that you do not know the answer. In that case try to find the answer in the next couple of days. This is exhausting work requiring persistency.


(ii) A business plan cannot be prepared unless all the information required is collected and the analysis is made. This document provides you with a guide of what kind of information you need to prepare the plan. The entrepreneur must list all issues which are crucial for business success.


(iii) Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20 items is certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each


(iv) Most people think in terms of profits instead of cash. When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which equal profits. Unfortunately, we don’t spend the profits in a business. We spend cash. So understanding cash flow is critical.


(v) The first draft of the business plan should be prepared and written by the entrepreneur and the enterprise's management team. Each person involved should prepare that part of the plan for which they are directly responsible, e.g. the marketing director writes about markets and competition and the production director about manufacturing. Each section should be circulated for comments.

SOME PRACTICAL ADVICE(vi) Some entrepreneurs may require advice

and assistance in preparing the business plan. Do not hesitate to seek technical assistance. Whether you apply for assistance or not, it is advisable to request an independent expert to review the plan prior to applying for credit. There are good books to help, many advisors, the UNECE Guide, and there are also software

available to help you (such as Business Plan Pro)

http://www.smetoolkit.org/smetoolkit/en

developed by International Financial Corporation

offers free business management information and training for small businesses / small and medium

enterprises (SMEs) on accounting and finance, business planning, human

resources (HR), marketing and sales, operations, and information technology

(IT).


(vii) If the business plan is more than four or five pages long, include it a table of contents, number the points, and date the document to avoid any confusion with other drafts.


(viii) Avoid using jargon and try to use simple wording and clear explanations of the concepts, so an outsider can easily understand the project document. Leave out the vague and the meaningless babble of business phrases (such as “being the best”) because they are simply hype.


(ix) The optimal length of a business plan should be 20-40 pages. It may be necessary to prepare a separate volume of annexes. However, the main document should be kept to a minimum.


(x) The presentation of the plan is crucial. A well prepared plan is also considered as a testimony of the marketing capability of the entrepreneur. Therefore before sending it to any potential financing institution it should be carefully read. Misspellings, poor grammar and typing errors should be corrected.

Why do business plans fail?

• Goals are unreasonable.• Total commitment to the

business was never made.• Entrepreneur has

insufficient experience and knowledge.

• Customer need was never established.

• Entrepreneur has no sense of potential threats or weaknesses to business.

Documents

LESSON 7 BUSINESS PLANNING Instructor: Dr. Antal Szabó