Topic 17: Understanding business plans and
implications
New words:
Business plan: a document setting out a business’s future objectives and
strategies for achieving them.
Executive summary: a short document or section of a document
produced for business purposes that is, summarises the entire business
plan.
Financial analysis: refers to the assessment of the viability and the
profitability of the business.
Environmental factors: refers to external influences on the business
that it has limited no control over.
Marketing mix: A set of actions that the business uses to promote its
brand.
Price: the amount of money required as payment for goods.
Product: an object that is manufactured for sale.
Promotion: a method used to advertise the product.
Place: a location of the business.
People: refers to employees as well as the target market.
Physical environment: is the environment around the business.
Process: the system used to deliver the product or service.
Competition: It is a rivalry between two/more businesses selling the
same goods or service.
Marketing plan: A strategy of how the business is going to sell its
products/service to customers.
Market research: the action of gathering information about consumers’
needs and preferences.
The importance of a business plan
• It improves processes and practices of the business operations.
• It evaluates the success of the business.
• It is essential when applying for financial assistance from investors or lenders.
• It gives direction once the business is operating.
• A business plan helps entrepreneurs to set goals and objectives
The meaning of the PESTLE analysis
Challenges of the macro environment using PESTLE analysis
• Entrepreneurs should look at the factors that could have a negative impact on
their businesses.
• Businesses do not have control over the elements/features of the macro
environment.
• Businesses can use a PESTLE analysis to scan the external macro environment.
• A PESTLE analysis enables a business to identify challenges that are posed by
these external factors.
The components of a business plan
• cover page
• contents page/index
• executive summary
• description of the business/overview
• SWOT analysis
• legal requirements of business
• marketing plan
• operational plan
• financial plan
• management plan
• competitor analysis.
Cover page
• the name of the business
• contact details of the owner(s)
• the address of the business
• the logo of the business
• a copyright disclaimer to protect the contents of the plan.
Contents page/index
• This page gives a title and page number of each subsection of the plan.
• It allows the reader to find information in the document.
Executive summary
• The executive summary is a detailed summary of the entire business plan.
• It is written after the business plan has been completed but appears at the
beginning of the business plan.
• It provides users with a brief overview before reading the details of the
business plan.
Purpose of the executive summary
• The executive summary gives a reader an overview of the entire document.
• Most lenders and investors read it first before they read the entire business
plan.
• It gives readers an idea of what is contained in the business plan.
• The following aspects that must be included in the executive summary:
– the form of business enterprise
– the main business activity
– information about the owner of the businesses
– how capital will be obtained.
Description of the business/Overview
• It is usually a short description of the product/service that the business will
offer.
• It also describes the long-term objectives/mission/vision of the business.
• It indicates whether the business is a sole trader, partnership.
• It also includes the legal requirements of the business.
Legal requirements
• The legal requirements provide information that the business needs to comply
with before it can start operating.
SWOT analysis
• A SWOT analysis is a strategic plan used to help an organisation identify major
strengths and weaknesses of the business.
• It also makes the business aware of opportunities and threats in its external
environment.
• A SWOT analysis is an indication that research was conducted to support the
establishment of a business.
Marketing plan
• The marketing plan is the most important component of the business plan.
• It gives details of the 7Ps of marketing.
• This plan also describes the target market, customers, and competition.
Operational plan
• This plan includes where the business will be located and includes a description
of a product, how and where it will be manufactured.
• It also provides details of the equipment and suppliers.
Financial plan
• The financial plan explains the entrepreneur’s financial details, gives an
indication of how much capital he/she will need, and how this capital will be
raised.
• It also contains projected statements of profit, loss, and cash flow.
Management plan
• The management plan considers the short- and long-term business strategies.
• It outlines who will be in charge of running the business as well as the skills of
the entrepreneur and others in the business.
• It also discusses the hierarchy (organogram) and roles of the employees.
Competitor analysis
• The competitors analysis provides a description of competitors in the market
and their products.
• It also provides the details of competitors’ marketing strategies and its effect
on the proposed business
Defining the vision/mission statements/goals and objectives
The vision statement
• The vision statement describes how the business will achieve its purpose.
• It is the long-term goal of how entrepreneurs see their business in the future,
and how they want to grow.
• It addresses profit, growth, purpose, and stability.
The mission statement
• The mission statement describes the purpose of the business and explains why
the business exists.
• It addresses how entrepreneurs hope to achieve their vision.
• It focuses on business operations, and it is specific and measurable.
• The short-term objectives are specific steppingstones to reach short-term goals
to achieve long-term goals.
Goals and objectives
• The long-term objectives are formulated to provide direction for the company
to achieve the vision.
• They are also specific and measurable – just like the mission statement.
The relationship between the structure of the business and forms of
ownership
• The business structure should have a description of the following aspects:
– how many people the business intends to employ
– management and staff, for example, their qualifications, experience, job
description, and remuneration
– administration and record-keeping
– staff policies regarding working hours, fringe benefits, overtime, sick leave, and
medical aid.
• The structure of the business should include the type of ownership such as sole
trader/partnership/close corporation/private company/public company.
• The form of ownership will determine the following:
– the reason for the form of ownership
– legal requirements of the business
– products and services offered
– the size of the business
– the number of owners required
– how much control the owners want
– legal protection.
Different types of legal requirements of a business
• A business needs to be registered before it can obtain fi nance or start doing
transactions.
• A business needs to comply with the following types of legal requirements:
– trading licenses and permits to operate legally
– taxation regulations
– international trading/exporting and importing requirements/exchange rates
– registration
– registration fees
– the Basic Conditions of Employment Act (BCEA) (No. 75 of 1997)
– the Labour Relations Act (LRA) (No. 66 of 1995)
– the National Credit Act (NCA) (No. 34 of 2005)
– the Environmental Conservation Act (No. 73 of 1989)
– patents and copyrights.
The meaning of the marketing plan
A marketing plan is an operational document than outlines an advertising
strategy to generate leads and research the target market.
It is a description of the market analysis, which includes the target market, and
an analysis of the target market, customers and competitors.
It explains the marketing mix and provides the marketing strategy of the
business.
It also guides businesses on how to advertise the products/services of the
business.
Importance of market research
• A marketing plan helps businesses to promote products and services.
• It is a process to understand more about what the business’s customers’ need.
• The target market refers to the people who are likely to buy the product or
service offered by the business.
• The business must conduct market research to know about the following
factors
of the target market: age group, gender, personality, income, and education.
• The results of the market research are important – they indicate the target
market and their interest in goods and services.
The meaning of the marketing mix with specific reference to the 7Ps
Product/Service
• It is a description of the product, appearance, and usage that is available to
customers.
• It can be a picture, drawing, or photograph of what the product looks like.
• The manufacturing process is used to make the product
Price
• The price of a product refers to the amount of money that must be paid by the
consumer to obtain the product.
• The proposed business must include its pricing policy in its business plan.
• The pricing policy describes how the price is used to attract customers.
• The price needs to cover all costs and must appeal to the target market.
Place/Distribution
• This refers to the location where goods and services will be sold/the place
where consumers can access the goods or services.
• The business can sell the product directly to customers itself or can market the
product through other businesses.
• Businesses may use the following channels of distribution:
– direct selling: manufacturer sell directly to consumers.
– door to door: selling businesses employ salespeople to sell door to door and
they carry stock with them.
– mail order: large businesses print catalogues that can be used by consumers to
order the products they need. Small businesses advertise in the local paper
inviting consumers to buy directly from the business.
– telephonic sales: the business employs people who phone members of the
public to try and persuade them to buy their goods.
– Internet/on-line shopping: businesses use systems on the internet to allow
customers to order their shopping online and have it delivered to their door.
Promotion
• A promotion should communicate the benefits of the product to customers.
• It refers to how the business is going to make its target market aware of its
product or service
• The proposed business must include details about its promotion policy.
• The promotion policy must describe how sales of products will be promoted.
• It outlines the following methods of advertisements:
– advertising through the radio, magazines, press, television, and so on.
– special offers
– trial products such as free sample for testing
– free gifts
– direct mailing
– online marketing
– social media
– public relations
– brand awareness.
People
• This refers to employees, management, directors, and shareholders./All people
involved in selling the products.
• The business plan must include detailed information of people that will be
involved in the proposed business.
• They can offer the business their knowledge, skills, and attitudes
Process
• Refers to processes that are designed and implemented to ensure a pleasant
shopping experience.
• Describes how the marketing and sales processes are carried out.
• The process of giving service and the behavior of those delivering the service
are important for customer approval of staff, and to keep customers happy.
Physical environment
• Refers to the environment where goods and services are sold/service rendered.
• It includes the appearance of the building and the uniforms of employees.
• The physical environment must be appropriate and make the customer feel
comfortable.
Strategies to overcome competition in the market
• sell quality products and services
• offer after-sales services
• charge reasonable prices
• conduct intensive marketing campaigns
• make use of creative advertising slogans
• make unique products
• provide attractive product displays
Financial planning