Business Plan

What is a Business Plan?

A written document which sets out a business’s plans and objectives, and how it will achieve them,
e.g., by marketing, development, production, etc.
A document that summarizes the operational and financial objectives of a business. It is a business's
road map to success with detailed plans and budgets that show how the objectives will be realized.

What are the Components of a Business Plan?

There are five components of a Business Plan:
1. Executive Summary and General Company Description
2. Marketing Plan
3. Production/Operations Plan
4. Management and Organization Plan
5. Financial Plan
EXECUTIVE SUMMARY
The Executive Summary, although appearing first in the order of presentation in the
Business Plan, is actually the last to be prepared, that is, after the four sections of the business
plan (marketing, production, organization & management, and finance) have been completed.
It should be short (not more than two pages single space) but loaded with vital information
about the project and the proponent.

1. What is the nature of the project?

Briefly describe the project - the product, market, location, legal form, plan of operation
and financing plan.

2. What are the entrepreneur's competencies and qualifications?

Give a brief introduction of yourself as an entrepreneur, your background, your past
track record, business experience and training, especially mention those skills and
qualities needed by or related to the project, and how you plan to use this knowledge
and skills into the business, etc.

3. What are the project's contributions to the local and national economy?
Describe the important socio-economic and developmental contributions of the
proposed project to the local and/or national economy. These contributions should be
significant factors and priority concerns of the government, banks and society in general.
These contributions may include employment generation, utilization of local skills and
materials, income generation, import substitution, export earnings, etc.

This reading material is adopted from CEFE International-Manual for Trainers, 2018
SECTION 1- MARKET PLAN
1.1 What is the product?
Give a short description of the product, its size, color, shape and the range of products to be offered.
Describe product features, uses and benefits, whether it is a new or an existing product.
1.2 How does it compare in quality and price with its competitors?
In answering this question, determine what will make the product unique in the market. Will it be of
better quality than what is currently available, or will the price be significantly different to make it
easier to sell? What other features will make it different from competitors' products?
1.3 Where will the business be located?
Location of the business is essential to either reduce costs, or increase the chances of customers stopping
at the business to look at your products or at least make inquiries. If the business is retail or service
oriented, it must be near the market. If it is production oriented, it may be better to be closer to its raw
material sources or near infrastructure facilities (e.g., port), transport and utilities (e.g., power) centers.
The important factors to consider in location are:
- proximity to essential raw materials
- proximity to markets and distribution channels
- availability of transport facilities
- availability of efficient and cheap skilled labor
- existence of related industries (forward/backward linkages)
- infrastructure facilities (e.g., road, power, port, etc.)
- communication facilities (e.g., post office, telephone, fax, telex, etc.)

Good location is one of the most crucial factors in market development, hence choice of location should
therefore be carefully considered. Location should also be differentiated in terms of marketing outlets
or factory location. In most small businesses, marketing outlet and factory may refer to one and the
same location.
1.4 What geographical areas will be covered by the project?
Determining the geographical coverage (that is, where to market the product) depends very much on
the nature of the product; how well it lends itself to transport and distribution; the size of the market in
different localities; the presence of strong competitors in the areas under consideration; your
willingness to travel and, of course, on existing contacts or channels of distribution you are familiar
with.
In general, it is easier to deal with a limited market area, since travel time and distribution costs can be
kept to a minimum.
1.5 Within the market area, to whom will the business sell its products?
Here we are really talking about a specific target group or market segments among the population,
within the specified market area you have chosen, to whom you will aim to sell your products. Identify
these customers as clearly as possible (e.g., their characteristics and profile in terms of age, sex, income,
buying practices, consumption pattern, etc.) in order to ensure that the product does indeed suit their
taste, needs, wants, taste, income, lifestyle, etc.
Will you sell to wholesalers, retailers, and if so, what are the consequences? If you plan to have a retail
outlet, choice of location is critical.

This reading material is adopted from CEFE International-Manual for Trainers, 2018
1.6 Is it possible to estimate how much of the product is currently being sold?
This estimate should be possible to do in a number of ways. Basically, the approach is to move from
the general to the particular. For example, you can start by estimating consumption, usage or sales of
the product per head of the population in your market area.
Then, one by one eliminate certain segments (specific groups categorized by age, income, location, sex,
habits, etc.) of the population who may not be your consumers so that, in the end, a reasonable figure
can be assumed to be correct. If possible, it is good to check some statistics, if they are available. If you
cannot avail of any reliable statistics (secondary data), it may be better to make a simple and low-cost
sample survey, i.e., gather firsthand or primary data. For example, if you know how many shops there
are which sell your or similar products, and if you question a few of them regarding their sales, you can
estimate the total sales of the product.

Market Survey
Checklists

The following is a series of checklists which can guide you in your interview with wholesalers, retailers,
and consumers (people who use the product) or customers (people who buy your product). The
questions are intended to be illustrative and you should learn how to begin your interview (by building
rapport with your interviewees so that they will open up and not feel suspicious or threatened) and pose
your questions diplomatically, politely and clearly to get the desired information and accurate answers.
If the questions are adequately answered, you can make a preliminary estimate of the total demand in
your market area and the share of the market which you can realistically capture, given an effective
marketing strategy. If similar products are distributed mainly by wholesalers and retailers, conducting
such a survey is really the first step in establishing a relationship with your customers and finding out
their needs.
There are two main reasons for doing the survey:
a) accurate collection of information so that a reliable level of sales and production can be
forecasted;
b) establishment of good relations with your own potential customers or buyers.

I. Wholesalers/Importers' Checklist
Most consumer products such as biscuits, sugar, toothpaste, matches, etc., find their way to the
consumers through wholesalers who purchase the goods in bulk from a factory or distributors and then
sell them in smaller quantities to grocery stores and retail shops (customers).
Since there are usually few wholesalers and many retailers, it is often best to start your market survey
by seeing the wholesalers. Once you have defined your market area, try and locate all the wholesalers
who supply your area and ask the following questions:
1) How many wholesalers are there in your market area? What are their names and where are their
locations?
2) What market areas does each wholesaler cover?
3) How much of your product does each sell per year? Is it increasing every year? If yes, by how
much?

This reading material is adopted from CEFE International-Manual for Trainers, 2018
 4) Are there seasonal fluctuations?

For example: 1 2 3 4 5 6 7 8 10 11 12 months High

Medium

Low

5) What about the extent of competition? Are they large in size, are their product features the same,
what are their quality standards? What are their marketing practices?
6) What about product improvements, i.e., do they think the market needs some new design, more
varieties, better features, new product specifications?
7) What is their selling price of your product?
8) At what price do they buy it
9) What is the length of credit extended to them by their suppliers (one week, one month?), if any
10) Assuming your product is of a suitable quality and priced competitively, how much of your
product would they take as a sample order?

II. Retailers' Checklist

Retail shops are the last link between producers and consumers. Ultimately, they make the final sale to
the public. Their proximity to the buyers makes them valuable sources of information on what people
actually want and buy.

For example, if a person buys ink which turns out to be of poor quality, then the customer will complain
to the shop from where he made the purchase, rather than going to the factory. For this reason, retailers
are in a strategic position to identify gaps in the market, particularly between what his customers
demand and what his wholesalers can supply. Some creative retailers may be able to give you new
product ideas that could also be made in your factory.
The objectives of interviewing retailers are:
a) to cross-check data provided by wholesalers;
b) to learn about the needs, wants, taste, buying habits, etc., of the consumers;
c) to look for potential new products;
d) to learn how to position your product as against your competitors' products;
e) to learn how to market your product more effectively;
f) to help identify promotional measures that will be useful in selling the product (e.g., display
boards, giveaways, samples, etc.);
g) to help formulate the marketing strategy of the business.
Some questions which may be asked from the retailer
1) How much of the product does he sell in a year?
2) How many competitors does he have in his neighborhood?
3) Does he experience any seasonal fluctuation in sales?
4) From what wholesaler or manufacturer does he buy the product?
5) Is he given any credit by his suppliers?
6) If he is given credit for the product, for how long is the credit given?

This reading material is adopted from CEFE International-Manual for Trainers, 2018
7) Does he sell on wholesale anywhere, if so, where?
8) What is his purchase price for the product?
9) What is his selling price for the product?
10) Does he have any ideas whether his customers would like any changes or improvements
in the product?
11) Does he buy the product cash or on credit?
12) Does he sell on commission?

III. Customers' or Consumers' Checklist

Even if you have interviewed wholesalers and retailers, it is important to discuss market acceptance
with customers (who buy the product) and consumers (who use the product). Their feedback is very
useful, either to cross-check previously collected opinions or to stimulate new ideas that neither of the
other two groups of interviewees have touched on or captured.
In particular, if your product is a capital good (e.g., machinery), it is necessary to talk to consumers as
they normally purchase directly from the factory. Some questions which can be asked from customers
and consumers are:
1) Why did you buy this product?
2) When (What month) did you buy it?
3) How often do you buy this product?
4) Will you be needing more of this product in future? How many?
5) How much did you pay for it?
6) Are you satisfied with it?
7) Would you like to see any changes or improvements?
8) From where did you buy it (locality), from whom?
9) Why did you buy it from this particular supplier?

You must have a record of the profile of your interviewees (wholesalers, retailers, consumers)
such as age, occupation, income, buying habits, sex, consumption pattern, etc. as this
information will be helpful in analyzing and describing your market.

1.7 What share or percent of this market can be captured by the business
This is always a difficult question to answer precisely, since much depends on your ability as an
entrepreneur to sell your product, your network, the effectiveness of your marketing strategy and your
aggressiveness in pushing the product combined with business common sense. It also depends on the
extent and strength of competition. However, some guidelines can be given. If you have done your
market survey properly, you will know the following information about your competitors:
a) whether there are few or many competitors;
b) whether they are large or small in size;
c) whether their product features are similar or not similar to one another;
d) whether their product features are similar or not similar to yours.

The following decision guide may help in processing this information to make an estimate of your
market share.

This reading material is adopted from CEFE International-Manual for Trainers, 2018
Decision Guide

*It is assumed that your business will be in the "small" category when entering the market.
1.8 How much of the product will be sold?
Now that you have estimated the market share you can realistically capture, you make an estimate of
your targeted sales (sales forecast), that is, every month for the first year and yearly for the next five
years. The first annual sales forecast is generally a fraction of the estimated market share and could be
anywhere from 60 to 80% of the market share in the beginning. This is to give allowance for some
errors in estimating the market.
1.9 What is the selling price of the product?
There are three common ways of determining the selling price of your product. These are:
a) The "Cost-Plus Method"
This is done by adding a reasonable profit margin (say 20% to the final total product cost (i.e.,
marketing cost plus production cost plus administration cost, plus finance cost). The final
product cost per unit is determined by dividing the total product cost by the number of units
produced. To this figure you may add a profit margin
b) The "Comparative Method"
This method compares your product with others in the market and then, based on your product's
quality and other features, you may fix your price lower, higher or the same as your competitors'.
c) "What the Market Will Bear Method"
This method is based on supply and demand of the product. For instance, if there is a scarcity
of the product in the market (sellers' market), you can set your selling price high, hence your
profit margin could be higher. Similarly, if there is a surplus of the product in the market (buyers'
This reading material is adopted from CEFE International-Manual for Trainers, 2018
 market), you may be forced to lower your price, and consequently your profit margin. (Two
alternatives to avoid reducing profit margin are: (1) to reduce the product cost by identifying
which areas under marketing, production, administration and finance can be reduced), and (2)
to identify other market segments who can afford to buy at the original price).
In practice, all three methods should be used from time to time in any business, but in general and
especially when starting a business, it is safer to use the "Cost-Plus Method". It is also a good business
strategy to anticipate your competitors' reaction to your pricing strategy.
1.10 What promotional measures will be used to sell the product?
Promotion is one of the most neglected aspects of marketing a product. Promotion is necessary to entice
and convince buyers to purchase your product and not your competitors'. Promotion is generally divided
into advertising, sales promotion, publicity and personal selling. Some of these measures are:
- advertisements on radio, newspapers, magazines, trade journals or, if appropriate on television,
- volume discount (reduced prices when selling in bulk),
- handbills distribution,
- prompt, regular, courteous and efficient service to your clients,
- good merchandising ensuring proper display of your product on the shelves of your market
outlets,
- special credit facilities to regular customers,
- posters,
- billboards,
- signboards,
- free samples,
- free trial,
- press release,
- buy one - take one,
- raffles,
- coupons,
- sponsorship of local shows, festivals,
- participation in trade fairs and exhibits,
- personal selling.
One word of caution on promotional measures. These activities cost money to your business, so be sure
that for every promotional measure adopted, there is a foreseeable increase in sales. Without a
justifiable increase in sales, cost will escalate, hence increasing the unit cost of the product. Make sure
to include these costs in your marketing budget.
1.11 What marketing strategy is needed to ensure that sales forecasts are achieved?
Formulating a marketing strategy means proper planning, balancing and integration of the business's
product strategy, pricing strategy, distribution strategy and promotion strategy. In order to market
effectively, you must identify your market, know your product and study your competitors. You also
have to spend some amount for promotion, price your products correctly and distribute them to your
retailers and/or consumers effectively and efficiently. You should not assume that because your product
is good that customers will automatically buy your product
1.12 How much do you need to promote and distribute your product?
You must have a marketing budget that includes your marketing cost such as for promotion,
distribution, and salaries of your sales force, if any.

This reading material is adopted from CEFE International-Manual for Trainers, 2018
This reading material is adopted from CEFE International-Manual for Trainers, 2018