CHAPTER 2: BUSINESS PLANNING

In the previous chapter, we dealt with the concept of Entrepreneurship.

This unit will help you to understand the concept of opportunity
identification and evaluation, business idea development and how to
prepare a business plan. Virtually to start any type of business or expand
the existing business, one needs to work on opportunity identification and
evaluation, business idea development and then prepare business plan.
Lack of proper opportunity identification and evaluation, idea
development process and business planning are the most often cited
reasons for business failure. The various sections and sub-sections of this
chapter will also summarize opportunity identifying and evaluating
processes, business idea development process, and the feasibility study,
importance and preparation of a business plan.

Objectives
After completing this chapter, students will be able to:
 Identify opportunity in the environment,
 Evaluate the opportunities in the environment,
 Generate business idea,
 Explain the concept of business planning,
 Identify components of business plan,
 Develop business plan,

1.1 Opportunity Identification and Evaluation

Most authors agree that the initial stage in the entrepreneurial process is
the identification and refinement of a viable economic opportunity that
exists in the market. Without the recognition of an opportunity the
entrepreneurial process is likely to result in failure.
Opportunity recognition corresponds to the principal activities that take
place before a business is formed or structured. The opportunity
identification and evaluation stage can be divided into five main steps
namely; getting the idea/scanning the environment, identifying the
opportunity, developing the opportunity, evaluating the opportunity.
1) Scanning the Environment/ Getting the Idea
While scanning the environment it may be provide you with idea and
business opportunities. Idea is a thought or suggestion about a possible
course of action. Synonymous with “idea” are the terms thought,
intention, scheme, suggestion, proposal, initiative, spur, impulse,
brainwave, insight, concept and connotation. Whereas, opportunity is a
favorable time or set of circumstances for doing something. Synonymous
with opportunity are chance, opening and prospect. A business
opportunity is a gap left in a market by those who currently serve it,
giving a chance to others to add unrealized value by performing
differently from and better than competitors in order to create new
possibilities.
Business opportunities are distinguished from ideas; an idea is not
synonymous with opportunity. The difference between an idea and an
opportunity is that an opportunity is the possibility of occupying the
market with a specific innovative product that will satisfy a real need and
for which customers are willing to pay but idea is all about opinion about
anything we can have. Successful venturing may well rest upon the ability
of an individual to recognize or distinguish an opportunity from an idea.
2) Opportunity Identification
Opportunity identification is ability to see, to discover and exploit
opportunities that others miss. It is the process of seeking out better ways
of competing. It includes scanning the informational environment, being
able to capture, recognize and make effective use of abstract, implicit and
changing information from the changing external environments.
It is important for the entrepreneur to understand the cause of the
opportunity. Is it technological change, market shift, government
regulation, or competition? These factors and the resulting opportunity
have a different market size and time dimension. The market size and
the length of the window of opportunity form the primary basis for
determining risks and rewards which serves for opportunity evaluation.
Opportunity identification is a very difficult task, as most opportunities do
not just appear but rather result from an entrepreneur’s alertness to
possibilities. In developing countries, problems may be changed to
business opportunities.
3) Opportunity Development
Having recognized the opportunity, timely adaptation of that opportunity
to suit actual market need is key to new venture success. Opportunity
development is the process of combining
resources to pursue a market opportunity identified. This involves
systematic research to refine the idea to the most promising high potential
opportunity that can be transformed into marketable items.
4) Opportunity Evaluation
Opportunity screening and evaluation is a critical element of the
entrepreneurial process. A professional executed evaluation can tell
whether the specific product or service has the returns needed to justify
the investment and the risk to be taken.
Opportunity screening and evaluation is perhaps the most critical element
of the entrepreneurial process, as it allows the entrepreneur to assess
whether the specific product or service has the returns needed for
the resources required. This evaluation process involves looking at the
creation and length of the opportunity, its real and perceived value, its
risks and returns, its fit with the personal skills and goals of the
entrepreneur, and its differential advantage in its competitive environment.

A business idea is a short and precise description of the basic operation

of an intended business. There are three types of business ideas. They are:
1. Old Idea – Here an individual copies an existing business idea from
someone.
2. Old Idea with Modification – In this case the person accepts an
old idea from someone and then modifies it in some way to fit a
potential customer’s demand.
3. A New Idea – This one involves the invention of something new for the
first time

1.2 Business Idea Identification

Before you start a business, you need to have a clear idea of the sort of
business you want to run. Your business idea will tell you:
 Which need will your business fulfill for the customers and what
kind of customers will you attract?
 What good or service will your business sell?
 Who will your business sell to?
 How is your business going to sell its goods or services?
 How much will your business depend upon and impact the
environment? A good business idea will be compatible with the
sustainable use of natural resources and will respect the social and
natural environment on which it depends.
All business ideas are not equally worth. Therefore, to identify promising
business idea among others, it is important to answer the above raised
 questions. Let we see the explanation for the questions raised above.
The Need of Your Business Fulfill for the Customers?
Your business idea should always have customers and their needs in mind.
It might be a good idea to start a day care center in the commercial area as
many other parents may have the same need.
It might be a good idea to start a waste collection and recycling service in
this area. Not only would the owner of this restaurant need the service, but
many other residents in the area might need it as well.

Identifies Potential Customer

Any business cannot succeed without customers. Therefore, it is essential that you know who
your customers will be. Will you sell to a specific type of customer or to everyone in an area?
There must be enough people who are able and willing to pay for your goods and services or the
business will not survive.
Every business idea should be based on knowledge of the market and its
needs. The market refers to people who might want to buy a good or service; i.e.
the customers. The market differs from place to place, depending on who lives in
the area, how they live and for what goods or services they spend their money for.
When you understand the market in your area, you might recognize many
business ideas that you may have previously ignored.
When generating business ideas, it is best to try to keep your mind open to
everything. Your first goal is to think of as many ideas as possible and make a list
of all the possible business opportunities. With a list, you will have more choices!
You then can scan the list and nail down the idea(s) that sound most feasible to
you and that you think will be most profitable.
There are many ways to come up with business ideas, such as surveying local
businesses or asking existing business owners. The information gained from one
approach may supplement another and help you to clearly describe your business
ideas. Below, we will examine a few different approaches to generating business
ideas.
1. Learn from successful business owners
You can learn a lot from people in your area who have already gone
through the process of establishing a business. You should try to get the
following information from them:
 What kind of idea did these businesses start with?
 Where did the ideas come from?
 How did they develop their ideas into successful businesses?
 How does the business profit and fit into the local environment?
  Where did they get the money to start their business?
When to meet successful business owners, use the Business Ideas Analysis
Form shown below, to write down their answers to the above listed
questions.
BUSINESS IDEAS ANALYSIS FORM
Name of business:
Goods or services to be sold:
Main customers:
When and why did the owner decide to start this business?

Why did the owner think it was a good idea to start that kind of business?

How did the

owner learn what his potential customers wanted?

What
strengths or assets did the owner use to start this business? (E.g., previous experience,
training, family background, contacts, hobbies)

What problems
did the owner face in setting up the business?

Has the business good or service changed over time?

What is the impact of the business on the natural environment and the
community? Notes:

Draw From Experience

1 Your own Experience
Look at the list of your interests, your experiences and your networks. Are
there any possible business ideas that you can derive from your own past
experience? Think about each type of experience.
Start with yourself. What has your experience been as a customer in the
market place? Have you ever searched all day for some items that you
could not find in any store in your area? Think
about the goods and services you have wanted at different times and that
you have had difficulty finding.
2 Other People’s Experience
The people around you are potential customers. It is important to
understand their experience trying to find goods and services that are
unavailable or not exactly what they need. Listen carefully to what these
people say about their shopping experience.
Ask your family and friends about the things they would like to find that
are not locally available. Expand your social knowledge by talking to
people from different age groups, social classes, etc. You can also visit
community groups, colleges, etc. for a greater understanding of the
market.
Here are some examples of comments that would help with your search for a
business idea:

3 Survey Your Local Business Area

Another way of discovering business ideas is to look around your local
community. Find out what type of businesses are already operating in your
area and see if you can identify any gaps in the market.
If you live in a village or small town, you may be able to identify all the
fields of business in the whole town. Otherwise, you may need to focus on
the preferred business fields and business types that you identified. This is
an activity that will be much easier to do with a business partner or friend.
Visit the closest industrial area, markets and shopping centers in your area.
4 Scanning Your Environment
You can use your creativity to find more business ideas in your area. Look
at the list of existing local businesses. If the list has included most of the
local markets, you may be able to learn about the industries or service
providers on which the local economy relies.
It may be useful to think about business ideas by considering all the
resources and institutions in your area. For example think about:
 Natural resources,
  Characteristics and skills of people in the local community,
 Import substitution,
 Waste products,
 Publications,
 Trade fairs and exhibitions ,

a. Natural Resources
Think of what is abundantly available in your area that could be made into
useful products without harming the environment. Natural resources
include materials from soil, agriculture, forest, mineral, water, etc.
Perhaps there is good clay soil in the area that can be used for making
bricks. It may be used for other business ventures such as making plates,
cups or tiles.

Think about a way to use this resource that would enable you to continue
working with it for many years. In other words, make sure that your
business idea will not exhaust the natural resource that would be the
foundation of your business.

b. Characteristics and Skills of People in the Local Community

Consider whether the people in your area have some special

characteristics or skills that could be useful for a business:
o Are there people in your community who are good artisans,
tailors or carpenters or who have specific skills creating
 items unique to your area?
o Are there recent graduates looking for jobs who you could employ?
o Are there caregivers, nurses or people who could offer
services to children, the elderly or the sick?
o Is your community digitally connected?
o Is the infrastructure in your community well developed?

c. Waste Products
Business opportunities can also be generated by using materials that have
been previously used by both homeowners and businesses. Think about
the possible use of waste materials for the production of other useful and
marketable items. Recyclable waste products can be identified by
analyzing certain items to see how they are discarded. Man-made waste
has a detrimental effect on the environment. In most cases, companies are
keen to work with entrepreneurs who can turn their waste products into
valuable and marketable items.
Usually there is something that can be reused in things that we throw
away. Recycling may be done with waste products that come from
agricultural processing, household garbage, used machinery and
appliances or industrial waste. People throw away food that could be used
to make compost or animal feed. They also throw away paper, glass and
aluminum that can be recycled. Think of things that can be made from
what others thought was garbage.
Many industries dispose of useful materials. A clothing company might
throw out small pieces of cloth that could be used to make something else.
Plastics factories usually have materials left over that might be useful for
insulation, stuffing for pillows or a new kind of fuel.

Is there a possibility that you could recycle something that is found in

abundance in your neighborhood? Is there a way of using resources more
efficiently? May be you could offer a service to help individuals or
institutions dispose of their waste in a way that is environmentally-
friendly or maybe you can make something new out of the waste.
5 Brainstorming
Brainstorming means opening up your mind and thinking about many
different ideas. You start with a word or a topic and then write down
everything that comes to mind relating to that subject. You continue
writing for as long as possible, putting down things that you think of, even
if they seem irrelevant or odd. Good ideas can come from concepts that
initially seem strange.
Brainstorming works best in a group. Get your family, friends or
classmate together and ask them to help by writing down ideas they have
when they hear the word or subject matter.
6 Structured Brainstorming
Structured brainstorming is when you think of the different processes that
are involved in the operation of a particular business and the
goods/services that can be offered with respect to those processes. This is
different from thinking about random items related to a particular business
field and type

The objectives of a business plan are to:

 Give directions to the vision formulated by entrepreneur.
 Objectively evaluate the prospects of business.
 Monitor the progress after implementing the plan.
 Persuade others to join the business.
 Seek loans from financial institutions.
 Visualize the concept in terms of market availability,
organizational, operational and financial feasibility.
 Guide the entrepreneur in the actual implementation of the plan.
 Identify the strengths and weakness of the plan.
 Identify challenges in terms of opportunities and threats
 Clarify ideas and identify gaps in management information
about their business, competitors and the market.
 Identify the resources that would be required to implement the plan.
 Document ownership arrangements, future prospects and
 projected growths of the business venture.
1.2.1 Essential Components of Business Plan

I) Cover Sheet: Cover sheet is like the cover page of the book. It
mentions the name of the project, address of the headquarters (if
any) and name and address of the promoters.
II)Executive Summary: Executive summary is the first impression
about the business proposal. As the saying goes, the first impression
is the last impression. A careful presentation of information should
be done to attract the attention of the evaluators. It should be in
brief (not more than two or three pages) yet it should have all the
factual details about the project that can improve its marketability. It
should briefly describe the company; mention some financial
figures and some salient features of the project. Generating interest
in the minds of the readers is the prime motive of the executive
summary.
III) The Business: This will give details about the business concept.
It will discuss the objective of the business, a brief history about
the past performance of the company (if it is an old company),
what would be the form of ownership (whether it would be a single
proprietor, partnership, cooperative society or a company under
company law). It would also label the address of the proposed
headquarters.
IV)Funding Requirement: Since the investors and financial
institutions are one of the key bodies examining the business plan
report and it is one of the primary objectives of preparing the
business plan report, a careful, well-planned funding requirement
should be documented. It is also necessary to project how these
requirements would be fulfilled. Debt equity ratio should be
prepared, which can give an indication about how much finance
would the company require and how it would like to fund the
project.
V)The Product or Services: A brief description of product/services is
given in this subsection. It includes the key features of the product,
the product range that would be provided to the customers and the
advantages that the product holds over and above the similar
products/ substitute products available in the market. It also gives
details about the patents, trademarks, copyrights, franchises, and
licensing agreements.
VI)The Plan: Now the functional plans for marketing, finance, human
 resources and operations are to be drawn.
VII Marketing Plan: Marketing mix strategies are to be drawn, based
on the market research.
VIII Operational Plan: The operational plan would give information
about (i) Plant location: why was a particular location chosen? Is it in the vicinity
of the market, suppliers, labor or does it have an advantage of government
subsidies for that particular location or are there any other specific reasons for
choosing the particular location?, (ii) Plan for material requirements, inventory
management and quality control are also drawn for identifying further costs and
intricacies of the business. Finally, the budget for operational plan is also
drawn.
1) Organizational Plan: The organizational plan indicates the pattern
of flow of responsibilities and duties amongst people in the
organization, it provides details about the manpower plan that
would be required to put life into the business and it would also
enlist the details about the laws that would be governed in
managing the employees of the organization. In the end the
organizational plan is also budgeted.