Learning Outcome- 6 Developing a Business Plan

Information sheet – 1 Identify Business Planning Process

6.1.1 Definition of Business Plan

Business plan is a written document prepared by the entrepreneur that describes all the relevant
external and internal elements involved in starting a new venture. Business plan is a road map
for reaching a set goal in business and for success.

Business plan is a comprehensive set of guidelines for a new venture. It is often an integration of
functional plans such as marketing, finance, manufacturing and human resources. The business
plan should be prepared by the entrepreneur however he or she may consult with many other
professional in its preparation. Lawyers, Accountants, Marketing Consultants and Engineers are
useful in the preparation of the plan.

Business plan is a written document that sets out the basic idea underlying a business and related
start-up considerations. Business plan presents a proposal for launching an entirely new business.
More commonly, perhaps, it may present a plan for a major expansion of a firm that has already
started operation. For example, an entrepreneur may open a small local business and see the
possibility of opening additional branches or extending its success in other ways.

The Importance and Purpose of Business Plan

A business plan is the cornerstone of starting a business as well as a significant tool for
monitoring the progress and growth of your company.

For the entrepreneur starting a new venture, a business plan has four basic objectives:
 It identifies the nature and the context of the business opportunity-why does such an
opportunity exist?
 It presents the approach the entrepreneur plans to take to exploit the opportunity
 It identifies the factors that will most likely determine the success of the venture
  It serves as a tool to raise financial capital

Ten key reasons below are why you should need business plan:
1. To attract investors
2. To see if your business ideas will work
3. To outline each area of the business
4. To setup milestones
5. To learn about the market
6. To secure additional funding or loans
7. To demonstrate your financial needs
8. To attract top-level people
9. To monitor your business
10. To device convergence plans

Business Planning is the process of setting objectives and devising actions to achieve those
objectives. Business planning as a process involves the following five steps:
1) Gathering the necessary Data
 Designing all the questions that might be asked relating to the business,

 Determining what information needs to be gathered to answer all the questions, and

 Obtaining all the necessary data/information.

2) Outlining the Plan
 It should be organized in clearly defined sections covering the different aspects.

 Putting together an outline forces executives to come to some early decisions about
what will be where in the business plan.

 Outlining also requires the executives to understand the necessary level of detail that
should be included in the plan.
3) Determining the kind of Plan
 There are no fixed rules to determine how long and how detailed should a business
plan be.
  Business plan’s length will depend to a great extent on what you want it to
accomplish and how sophisticated and complex your enterprise’s operations will be.
Broadly, there are three kinds of business plans kinds of business plans: Summary
Plan, full business plan and operational business plan.
4) Designating Responsibilities
Business plans can be prepared in the following approaches:

 A work plan detailing assignments and due dates should be prepared (a common
approach is for the head of each management area — such as marketing and sales)

 Chief executive to write a full draft of the plan and then distribute it to top
management for input and revisions.
5) Monitoring the Process
 Systematic monitoring of the implementation of plan is a very important factor for the
success of a business.

 Action plans, monitoring systems and constant feedback should be integrated.

 Participation of team members can have a profound effect

 If key assumptions change, the plan must be adjusted, mid-term corrections are
recommended.

Identify and Implement Essential Components of

Information sheet - 2
Business Plan

6.2.1 Essential Components of Business plan

The business plan should be comprehensive enough to give any potential investors a complete
picture and understanding of the new picture and it should help the entrepreneur clarify his or her
thinking about the business. There is no hard and fast rule regarding the components of business
plan and most of the time the following are recommended to be included while preparing
business plan:

1. Cover page
 2. Executive summary
3. Name of business and contact details
4. Business description
5. Product or service plan
6. The market plan
7. Manufacturing or operations plan
8. Leadership / entrepreneurial team plan
9. Financial and documentation plan
1. The cover page
This is the title or cover page that provides the brief summary of the business plan’s
contents. It should contain the following:
• The name and address of the company
• The name of the entrepreneur(s), telephone number, fax number, e-mail address and
web site address if available can serve as the title page of your plan. It consists the
following
 Month and year your plan was prepared (important)
 Copy number of the plan
 Copy right of the business
 A paragraph describing the company and the nature of the business
 A statement of the confidentiality of the report, this is for security purpose and is
important for the entrepreneur
2. Executive summary
The executive summary section is a snapshot of the highlights of your business plan and is
usually the last thing you write. For a standard business plan, the executive summary generally
includes the following information:
1. Purpose of the plan
2. Market opportunity
3. Management team
4. Track record, if any
5. Financial projections
6. Funding requirements
As well as summarizing your plan, you should keep in mind that the executive summary must
grab the attention of the reader. In many cases, this is the section that is read first and if you fail
to excite them about your proposals, then they will be unlikely to read any further. In that sense
the executive summary is your chance to ‘sell’ as well as ‘tell’

Generally the executive summary should address a number of issues or questions that any one
picking up the written plan for the first time would want to know. For example:
• What is the business concept or model?
• How is this business concept or model unique?
• Who are the individuals starting this business?
• How will they make money and how much?
3. Name of business and contact details
The information required here is relatively straightforward and would include items such as:
 Business name
 Legal form of ownership
 Business address
 Telephone
 Business website
 Main contact name (Promoter)
 Main contact telephone and email address

4. Business Description
Here you should try to briefly address the following questions:
 What type of business are you proposing? What is the business concept?
 What business/sector will you be operating in?
 Broadly, what will your offering entail?
 What are your general aims and goals for the business?
 Where is it located? What facilities/amenities will it include?
 Who will the customers be?
 Who will your competitors be?

The key objective here is to provide an overview to the reader as to what your business will
involve, why it is necessary, who will use it and who you will compete against. A business idea
doesn’t have to be totally new to appeal to an investor or lender, but it does have to meet a
defined need or gap in the market and that is what you are trying to highlight here.
5. Product or service
Features of your products and services
 What products and/or services will you offer?
 Here you should seek to describe the range of products and services you will offer
in the business.
Uniqueness of your products and services
 What is special or unique about your offering? Even if you are entering a crowded
field (or perhaps more importantly if you are) you need to show how your products
and services will be different and better than what is already available. What factors
will give you competitive advantages or disadvantages over others?
 Here you should also explain how you will promote and sell the uniqueness of your
products and/or services in your sales and marketing messages.
Benefits of your products and services
 What are the most important benefits of your offering? What will your offering do
for the customer? What will they gain from using your products and/or services?
 In essence the reader should have a clear picture of what your business is offering
and why it is special or unique.
6. The Market Plan
Marketing is of course a vital activity for any business so you need to be very clear as to what
your plans in this area are going to be. In particular, you need to define clearly what your
overall marketing strategy will entail. To guide you’re thinking in this section, and although not
wholly applicable to new businesses, there are four general marketing strategies that can be
considered.

Main Marketing Activities

In this section, you should provide details on the main marketing activities you have planned
and describe how those activities will generate sales for the business. Your marketing activities
might include things like various promotions, direct selling/ attendance at trade shows,
advertising and special offers etc. It is important to demonstrate that there is a clear logic and
rationale to the various activities planned and that they are not simply selected at random.

 Market Research
Here you need to summarize what marketing research you have conducted which has helped you
to identify target markets, define your strategy, prepare you marketing plans and decide on the
most effective marketing activities. For an outsider to your business, this will be important to
give them confidence that there is a sound basis for your marketing proposals

The objective of market research and analysis is to establish that a market exists for the proposed
venture. The most difficult and important part of the plan that entrepreneurs must provide a
credible summary are: potential customers, competitors, assumption about pricing and Promotion
and distribution.
 Potential customers- identifying descriptive and behavioral segments of the customers
Descriptive refers to demographic and geographic segmentation and profile of customers.
Demographic profile of customers include age, sex, income, education, religion etc,

Behavioral –psychographic (lifestyle, personal image) benefit segmentation (expected benefit)

and usage rate (heavy users and brand loyalty). It also considers buying habits and relevant
information for new venture must be collected.
Evaluate market: future markets and funds or changes window of business opportunity, niche
position information is collected. Market niche is a carefully defined segment of a broader
market. It defines the positioning of a product or service to create a distinct marketing focus.
 Competitors: Here existing competitors with similar products or services, future
competitors and ease of entry, and Industry structure are to be analyzed.
 Pricing system- describing the pricing system is essential for developing a customer
profile. High price for luxuries goods, discount for frequent sell, credit policies, etc
 Methods of distribution- is a manner in which a product or service will be brought to
the market. The choice of distribution system defines the market niche, influences prices,
and delineates promotional activities. A creative method of distribution gives a business
and its distinctive competency.
 Pricing Strategy
Pricing is one of the most important decisions you will take in business life - get it wrong and
you will likely find yourself in serious financial trouble at some point.
This is a very detailed area and more information can be found in the Understanding Costs and
Profit guide and the Dealing with Pricing Challenges guide. In this part of the business plan, you
should address the following questions:
 What will your pricing strategy be? How important is price as a competitive factor for
your business? It is important to remember that, even in tough operating times, customers
may not care as much about price as you might think – it’s often value they are focused
upon, not solely price.
 Does your pricing strategy fit with what was revealed in your competitive analysis?
Compare your prices with those of the competition. Are they higher, lower, the same?
Why? For most small businesses, having the lowest price is not necessarily a good policy
as it can deny you the required profit margin and create the wrong image for your
business.
 What will be your customer service and credit policies?

Briefly, there are a number of approaches that you can adopt when setting prices:

Mark-Up Pricing
Mark-up pricing is used frequently, particularly in the pricing of food and beverage menus, and
is normally based on:
 The mark-up you must add to the cost of your products and services to achieve the
desired profit.
 The mark-up used by your competitors.
The mark up, which is usually expressed as a percentage, is added to the cost of the product to
achieve the selling price.

Value Based Pricing

Value based pricing focuses on the price that customers are willing to pay. The perceived value
of a product or a service to a customer may be driven by:
 Convenience - your accessibility to the market, or in certain cases, your opening hours.
Brand or image – if your product is perceived to have a premium image or brand,
customers will pay more for it.
  Supply and demand – if demand for your products and services is high, then you may be
in a position to increase your prices.
 Distribution Strategy
In this section, you should clearly answer some key questions:
 What is the main distribution channels associated with your offering?
 How will you use those channels to sell your offering to Irish and overseas customers?

Detailed information on distribution channels in tourism is provided in the How to Create a

Marketing Plan online guide, but briefly the channels can be:
 Direct Consumer
 Via Travel Agent and/or Tour Operator

Direct to Consumer
 Simplest form of distribution, no intermediary between you and your customers.
 The internet has facilitated the direct provision of information to customers and enhanced
direct purchase options for them.

Via Travel Agents and/or Tour Operators

 You use intermediaries to distribute your offering including travel agents and tour
operators.
 Travel agents and tour operators can now operate on- and offline while online travel
agents (OTAs) represent the fastest growing distribution channel in tourism.
Whilst a significant proportion of your customers will find you by themselves, (either online or
through your other marketing and promotional channels), it’s important to know about the
different distribution channels and how they are likely to impact both on your product and your
costs

 Promotion
In this section you should address the following questions:
 What image do you want to project for your offering? How do you want customers to
view you? Premium, niche or mass-market offering?
  How will you get the word out to your targeted customers? What are your plans for
advertising? What media will be used, why, and how often? Why this mix and not
some other?
 What are your online and social media plans?
 Will you use methods other than paid advertising, such as trade shows, word of
mouth (how will you stimulate it?), network of friends or professionals?
 What plans do you have for other promotional supports? This includes things like
logo design, cards and letterhead, brochures, signage, etc.
 What will your promotional budget be? At start-up phase? On an on-going basis? Is
this sufficient to achieve your marketing and business goals?

7. Manufacturing or Operations Plan

All business manufacturing or non-manufacturing should include an operations plan as part of
the business plan. This section goes beyond the manufacturing process (when the new venture
involves manufacturing) and describes the flow of goods and services from production to the
customers. It might include inventory or storage of manufactured products, shipping, inventory
control procedures, and customers support service. A non-manufacturer such as a retailer or
service provider would also need this section in the business plan in order to explain the
chronological steps in completing a business transaction. It is important for ventures that
manufacture, design, or sell products as well as for service firms that require capital equipment.

The elements of manufacturing or operation plan are:

 Facilities: purchase or lease, renovation, equipment and technology parking and
transport, legal and zoning issues
 Inventory: opening inventory purchasing system, subcontracting, inventory management
supplies and support
 Human resource: operating personnel skill requirements, supervision services and
support unusual requirement
 Operations: research and development, manufacturing process, service structure, quality
control safety, and maintenance.
  Legal and insurance issues: legal protection such as copyright, patent right and trade
mark; Insurance is also necessary to manage uncertainty of losses or
disasters .Entrepreneurs will need business liability insurance.

8. Leadership / Entrepreneurial team plan

Investors put greater emphasis on the entrepreneurial team than on the business concept. So,
entrepreneurs must take care to profile the entrepreneurial team honestly and effectively. They
should emphasize team member’s strength past success and positive characteristics and
avoid/reduce weaknesses. Each person’s role in the new ventures should be described briefly:
Who does what; Personal data like age, address, salaries to be paid etc, for cost calculation
should be discussed in detail.

You should also include details here on the HR policies and procedures you intend to apply for
areas such as recruitment, training and development, leadership and so on. Don’t be put off by
the thoughts of providing this information because even if there are very few people involved in
your business, you still want to explain your overall philosophy for bringing the best out of those
people and that’s what the staffing plan does

9. Financial information and documentation plan

Like the marketing, production, and organizational plan the financial plan is an important part of
the business plan. It determines the potential investment commitment needed for the new venture
and indicates whether the business plan is economically feasible or not.
NOTE: In addition to the above common components business plan could also incorporate the
following:
. Critical Risks: The investors are interested in knowing the tentative risks to evaluate the
viability of the business and to measure the risks involved in the business. This can further give
confidence to the investors as they can calculate the risks involved in the business from their
perspectives as well.
. Exit Strategy: The exit strategies would provide details about how the organization would be
dissolved, what would be the share of each stakeholder in case of winding-up of the organization.
It further helps in measuring the risks involved in investing.
. Appendix: The appendix can provide information about the Curriculum Vitae of the owners,
Ownership Agreement and the like.