BUSINESS PLAN

TOT TRAINING

Shire- Endasilassie
Getachew.H
JUNE, 2018
INTRODUCTION

What is a business plan?

 Is a complete written document of the business
 It is a detailed report on a company's products or services,
production techniques, markets and clients etc.
 Describes the past and present status of a business
 its main purpose is to present the future of an enterprise
 It is normally updated annually and looks ahead for a period
of three to five years,
Why a business plan?

Important reasons for drawing up a business plan

• Set objectives and guidelines on paper
• Compare your actual results with your anticipated results
• Identify problems quickly before they become unmanageable
• Keep on track [whether your business is profitable or not ]
• Develop production ,administrative and marketing plan
• Create budgets & forecast to show financial out comes
• Determine the amount and type of financing needed.
• Forecast profitability and return from investment
• Forecast cash flows
• Show liquidity and ability to repay debts
Who reads the business plan?

Among the readers of your business plan will most probably

be key
Employees
The board of directors
 Shareholders,
Selected business partners,
Current or Potential lenders
Investor
How to prepare a business plan?

1. Who prepares a business plan?

The answer to the question about who prepare a business plan
depends on
2. Type of business
3. Structure and size of the entity
In a small company-the business plan prepared by the
managers and owners themselves.
In larger organizations-Chief Executive Officer, marketing
and sales manager, development and production managers
financial manager,
 important questions you should be asking yourself While you planned
the business:
• What exactly is the purpose of my business?
• How good is my concept?
• Will I be able to market my products?
• What are my personal and business goals?
• Do I have the necessary skills and abilities to run the business?
• What are my approximate cash needs? Do I have the resources? If not,
where could the funds come from?
• Am I willing to take time to plan for my success?
What are the steps in the planning process?

“where are we
1. Assessing the situation
now?”

2. Developing a mission formulate a clear

mission statement
you need to start the
3. Getting ready actual work of preparing
the business plan
future development of
4. Setting goals
the business
synthesizing and
5. Working out the business
harmonizing all
plan
activities
6. Setting employee setting Role of the
objectives employees in the
business
Action plans, monitoring
7. Monitoring the process systems and constant
feedback
Different types of business plans

The structure, content and depth of a business plans depends

on
• The main objective of the business plan

 The stage of the business (start-up or existing company )

• Type of business [Sole proprietorship, partnership

cooperative, cooperation etc.

• Financing situation

• Size of the company etc.

 Content and structure of a business plan

The business plan should contain five types of information:

1. Mission and objectives your business want to achieve

2. Targeted markets and the products/services you will provide and the
position of your competitors

3. Qualitative and quantitative results you expect to achieve

4.The human and financial resources, infrastructure, equipment you need in

order achieve your goal

5.Technical, organizational and administrative processes you will apply

Structure of a business plan -8 chapters
1. Executive summary
Important points regarding your executive summary are :
• It should be between 1-3 pages long & take a few minutes to read
• Even though your executive summary is the first part of your plan,
write it last
• you should include information and wording in other parts of the
business plan
• The words should be chosen carefully and should be hard, all-inclusive
and interesting to read
• Refine your executive summary
 Have several people read it - both those who know and who do not
 Ask people for their opinion and suggestions
Executive summary….
The contents of the executive summary can be divided into
three parts
1. Purpose of the business plan

2. Highlights

3. Financial requirements
Executive summary….
1. Purpose of the business plan
 To ensure the viability of the business you are planning
o To start or expand or simply continue the same way

• To raise new capital from outside investors or lenders

 To establish the basis for developing a detailed plan of

activities
Executive summary….
2.Highlights
The main questions to be discussed briefly in the executive summary in
order to give the reader a quick highlights
 Type of business
o What is your company's type of business? (Production? Services?
Trade? What sector?)
o What are its product lines and services? What are they used for?
o Where is it located?
o What are the main facilities? (Production ,Storage, Transportation
offices ]
o How many employees does it have?
o What is its mission and what are the overall business objectives?
Business structure
o Is it a business start-up or expansion?
o When was it formed?
o Who established it and how?
o What is the legal form of the business? (Sole proprietorship?
Partnership? Corporation? Cooperative ?)
o Who are the key persons in the business today?
o What is the share distribution?
Markets and clients
o What is your primary market? (Local? Regional? Export?)
o What is the size of the market and its growth potential?
o What is your market share? How will it develop?
o Who are your most important customers?
o Who are your main competitors?
 Financial requirements
o What is the total amount of funds you require?
o In which currencies? (Local? Foreign? Both?)
o For which purpose? (Working capital? Purchase of new machinery?
Development of new products?
o When do you need the funds? (The first part, the second part, etc.?)
o Are you seeking shareholders' funds? Loans? Or a combination of
both?
o Are your forecasts based on positive, truthful or negative assumptions?
o What type of borrowing do you require?
o What guarantees or collateral are you able to provide?
2. Background
The business background covers:
A. Main products, markets and clients
describe:
• What are most important products or services
• What they look like and how are they used
• Their distinguishing features or characteristics
• The existing and targeted markets (local, regional, national
• The size of the target markets and their growth potential
• Your present and future market share
• What your customers looks like?
• The main strengths and weaknesses compared with your competitors.
2. Background…
B. Key data (personnel, total production, revenues)
Key data are useful for quickly grasping the size of the business.
Typical data are:
• Number of personnel
• Total production (in numbers of products, tons etc.)
• Annual revenues and profits
• Number of clients (per category)
• Number of partners (domestic, foreign);
• Number of countries to which you are exporting [if there is ..]
Background…
C. Legal form, ownership and management
 Is the business a partnership or a limited company?
 What are the reasons for the form of constitution?
• Are shares traded on the stock exchange? If yes, where?
• Who are the shareholders and who holds the majority/control of the
company?
• Who are the key managers?
 What is their background and what strengths do they bring to the
business (experience, expertise, special abilities, etc.)?
 Do the management and other employees hold shares? If so, what is
their participation?
Background…
D. Historical development and track record of the
business
• Who started the business and when?
• How did the business idea start?
• Where was the first address, and where were subsequent ones?
• What were the original products? How did these develop into the
products of today?
• What was the growth rate in the light of key data (number of
personnel, production capacities, sales/revenues, etc
• Are there any particular achievements?
Background…
E. Business strategy and mission
strategy
o is a long term plan of action designed to achieve a particular goal or set
of goals or objectives
vision
o Dream or a picture to be achieved ultimately
o Describes something possible, not necessarily predictable
o Provides direction and focus
o Pulls people, who hold it, towards it
mission
o Statement of business
o States the business reason for the organization's existence. Does not
state an outcome
o Contains no time limit or measurement
3. PRODUCTS AND SERVICES
A. Product description and history
• Provide a description of your product in detail who are not experts in
the field.
• Explain how it looks, what it does, how it works, how long it lasts,
what variations and options are available, etc
Important questions to deal with Product description and history
are:
o When did the first products enter the market?
o What were the initial difficulties encountered with the product?
o What are the features of the new product compared with old designs?
Con…
B. Product attributes
 concentrate on the features that make your product or service unique
and preferable for customers
 is show a features/benefits analysis.

A feature is a specific product component or characteristic

A benefit is the advantage a customer or user will derive from
the product or service

E.g. travelling to Addis Ababa by plane

Feature Benefits
Con…
C. Research and development
 R&D are required before you launch your product

 Describe the current stage of your product or service development

 Give a clear indication of the effort/cost involved and the time

required
for completion

Describe the plans for future development of the product

 Any plans for development of new or related products in the light of

changing market needs
Con…
D. Product life cycle
o Each product has a life cycle.
1st phase - development.
During this phase
 develop a concept
 design the product and the process for producing it,
 build and test the sample,
 set up the manufacturing line, etc.
2nd phase of selling the product
3rd phase -maturity,
4th phase decline [old-fashioned]
Con…
E. Costing and pricing
1. Costing
The cost of your business is composed of four basic components
2. Cost of product development
o include the costs of any fundamental research,
o product development and design work
o costs of producing and testing a prototype
2. Cost of goods
o include costs for materials
o labor and overheads related

Cost of goods= Total cost

unit of product
Con..
3. Operating expenses
o Expenses include marketing, sales and overheads
o Overheads include fixed administrative expenses variable expenses,
[such as travel expenses, equipment leases, supply of electricity and
office material supplies]

Operating cost = Add up all the expenses incurred in running your

business

4. Depreciation and interest on capital

o includes the depreciation of the equipment and
infrastructure
o interest expense for any loans needed
 4. MARKETS, CLIENTS AND COMPETITORS
The aim of this section is to convince investors and lenders that:
• Understanding of the market in-depth
• identify demand for your product or service
• is your company is sufficiently competitive
The main issues that you need to cover in this section of your business
plan are:
• Market characteristics
• Clients
• Competition
• Positioning
• Market strategy
• Projected sales
Con…
1. Market characteristics
Market characteristics
o description of your target market using
 Life style, sex, age, occupation,
 geography, company size etc
o describe the consumers or company clients likely to buy your product
or service
Market size
Factors to be considered while you analyzing market share are:
 industry trends, new technological developments
 socio-economic trends, government policy
 population shifts and changing customer needs etc.
Do not overstate either the size of the market or the potential share you
expect to get credibility of the entire business plan will be in
question
Con…
C. Clients
Particular issues to be covered are:
• Who they are?
• Where are they located?
• Why do they buy?
• When and under what circumstances do they buy?
• What types of concerns do they have?
• What are their expectations concerning price, quality
 Are they primarily cost- or quality-sensitive?
Con…
D. Competition
• Indicates where your products/ services fit in the
competitive environment
• Shows your business are prepared to cope with some of the
challenges to your success
Important points to be considered in the competioion :
o Description of competitors
o Relative strengths and weaknesses
o Those whom you do not consider to be competitors
Con…
E. Positioning /place
If you position yourself carefully, you will successfully differentiate
yourself from most of the competition
Considered these points in mind while you prepare business plan:
• Do you want to be seen as a supplier of highest-quality products?

• Provider of excellent service to clients buying your products?

• Discount supplier of (low-cost) mass products ?

• Quick and flexible provider of services?

• Trustworthy provider of consistently reliable services?

Con…
F. Projected sales
The estimated sales should be based on your assessment on
o the advantages of your product or service

o the size of your market

o the share you expect to get

Be realistic about your projections in order to maintain your credibility

 5. BUSINESS OPERATIONS AND ORGANIZATION
the most important operational and organizational issues that need to be
covered in a business plan
1. Location
 Local market
o Is there a market for your products or services in the region?
o have you chosen your location suitable place in which to produce?
 Availability of workers
o Can you find in the area skilled managers, specialists or workers?
o Are there any plans for human resources?
o Do you see any critical limitations in ?
 Living conditions
o Are suitable infrastructure available?
Con…
 Material supply
o Are raw materials, components, spare parts available?
 Utilities
o Are the necessary utilities available at your location? (Electricity
supply, gas supply, water ,telephone line
 Transportation
o How easily can your location be reached?
o What means of transportation are available? (Road, rail, ship,
o Is the cost in transportation of raw material and finished products
reasonable?
 Competition
o Are there any present or foreseeable competing businesses?
o What could be the impact of their presence?
Con …
 Image
o Is your location compatible with the image of your business?
o Do clients visit your premises
 Economic growth
o Is the area showing high economic growth?
 Local authorities
o Do the local authorities support the development of business in the
area?
o Do they provide any special incentives?
 Site accessibility
o Can the site be accessed easily by employees and clients?
o Is the transport of materials and goods practical?
Con…
2. Marketing
Marketing consists four major elements
1. Market study
o Study the market environment and future trends products
o Identify the geographical markets and types of clients to be targeted
2. Product development
o Develop the products demanded by the market
o May be product- finishing, presentation/packaging, price
3. Selling and distribution concept
o Select channels for selling and distributing
4. Product promotion
o inform the target clients about your products or services and
o the benefits they can derive from them
Con…
3.Company structure
An organizational chart useful in:
 Providing evidence to the lender or investor that you have seriously
considered the future of your business
 Confirming that you have identified the people required for operating
the business
 Making clear to everybody in or outside the company who is
responsible for what
6. HUMAN RESOURCES
A. Management
 Most lenders or investors base their investment decisions mainly on
the strength of the company's management
qualifications of the management

Depending on the structure and type of business, management functions

provided :
o Shareholders

o Board of directors
o Executive management
Chief Executive Officer-CEO; Chief Financial Officer-CFO
o External support services
Consultants, lawyers, accountants or public relations
Con…
B. Labor
o Are there sufficient local workers available? If not, from where and
how will you recruit them?
o Are the workers trained? If not, how will you train them?
o What are your plans for ongoing training?
o What are the labor costs[ current and future]?
o Which benefits, incentive do you predict for motivating people to
work for you?
7. LEGAL FRAMEWORK, AND ENVIRONMENTAL AND SOCIAL
FACTORS
A. Approvals and licensing requirements
• Construction permits
• Environment-related permits
• Health- and sanitary-related approvals
• Work permits for foreign employees
• Foreign currency exchange permissions
• international procurement permissions
• Import of machinery and equipment
• Import of raw materials and components
• Land and water use rights
Con…
B. Social compliance issues
 Age related
 Involuntary labor
 Working hours
 Compensation
 Insurance and pension
 Discrimination
 Health and safety
Con…
C. Development and social benefits
Important points to be considered in this section are:
 Creation of new jobs
 Transfer of technical and management know-how, training and skill
 Value added to local natural resources and products;
 Local procurement and subcontracting
 Infrastructure/services established by your firm which can be shared
by the community
 Development of products that have a positive impact on the
environment
8. FINANCIAL PLANNING
Two most important features of financial planning are:
1. An indication of how profitable your business to be in the future
2. A definition of additional funds required for developing your
business
 How much money you need?
 when you will need it and?
 when you will pay it back?
While developing your financial plan, you must consider:
 Adequate standby reserves- have adequate fund
Timing of cash movements--The timing of revenues and expenses
Contingency plan for unexpected costs
Con…
Basis for start-up businesses
o preparing your financial plan depends on whether your business is an established enterprise
or is just starting
Standardization and regulation of financial statements
major elements to be included in the financial part of your business plan:

• Financial history/or start-up information;

• Income statement projections/budget;

• Balance sheet projections;

• Cash flow projections;

• Important financial ratios;

• Request of funds and other supporting information.

Con…

Major elements of financial planning

 Financial history/or start-up information
o Results of past and ongoing operations will support the credibility of
your business plan
o If you are preparing a business plan for an existing business, you
should include the financial information for the last two to three years
 Income statement projections/budget
o Is called profit and loss statement
o It shows your revenues from sales, expenses and net profit (or loss)
Con…
Table . Income statement

Item Year 1 Year 2 Year 3 Year 3

A. Total revenue
B. Cost of goods
C. Gross profit [A-B]
E. Depreciation

F. Interest

G. Tax

H. Net profit [C-

D+F+G]
Con…
 Cash flow projections
1. What is cash flow?
o shows a company’s in-and-out flow of cash and how cash is generated
to cover outgoing payments
o Two basic elements of cash flow are
1. Cash inflows - are the movement of money into your business
o Cash from direct sales (sales against cash)
o Collection from accounts receivable
o Interest earned from bank deposits
o Earnings from new loans
o Capital increases in cash (new money put into the business by
shareholders)
o Dividends received
Con…
2. Cash outflows- are the movement of money out of your business
o Payments for raw material procurement
o Payments for procurement of finished/semi-finished products
o Payments for buying machinery and equipment
o Personnel salaries
o Management bonus
o Commissions to agents
o Cash dividends to shareholders in the business
o Advertising and promotion expenses
o Professional fees (legal, audit, training and consulting)
o Licenses, registrations and certifications
Con…
How to prepare a cash flow projection
Steps in preparing your cash flow projections

Step1. Forecasting cash revenues

Step 2. Projecting cash disbursements

Step 3. Reconciliation of cash revenues

and cash disbursements
Con…
 Balance sheet projections
The balance sheet of a company limited by share capital consists of the
following categories of items:
 Assets
• Long-term assets (called also fixed assets)
• Current assets
 Liabilities
• Long-term liabilities
• Current liabilities
 Shareholders' equity
• Share capital
• Reserves [allocated to risk inherent ]
• Retained earnings
Profits accumulated after dividends and reserves deducted
Con…
 Request for funds and other supporting information
In your fund request the following elements important
• Minimum or maximum amount of financial involvement
• How new capital and future investors' funds
• Payback period and return on investment
• Arguments to prove the soundness of the investment
• Collateral being offered if any
• Information on current investors
• Access to additional funding sources (for further expansion)
• Tax advantages/benefits for investors
• Exit plan/strategy.
SWOT analysis

SWOT analysis
o Build on your strengths
o Your weaknesses
o Exploit opportunities;
o Develop strategies to deal with threats

 Strengths and weaknesses are internal factors over which you have
some influence
 Opportunities and threats are external issues that you cannot control.
Con…

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