Chapter 01
Business Plan
This chapter discusses the followings.
1.1 Introduction to a business plan
1.2 Composition of a business plan
1.3 Need for a business plan
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1.1 Introduction to a business plan
Failing to plan means the same as planning to fail"
"
The above statement shows the importance of planning with regard to success
in the field of management. A plan is essential for success in anything. In Grade
10, you studied how to select a business opportunity through various methods of
assessment. Now you should prepare to start up and implement your business.
In fact, drawing up a plan to transform a business idea into a real business, and
implementing it, is a main function of an entrepreneur. This chapter will give you a
basic understanding of what business plans are.
The following activity will help you check your understanding of business plans.
Activity 01
Read the given statements and indicate whether they are true (a) or false (r).
No. Statement a/ r
01 Every person and organization has certain targets to accomplish.
02 Every business that is started will be successful.
03 The only way to be successful in a business is to put in a lot of
money.
04 Business plans should be modified according to the changes in
the environment.
05 If you want to assess how a business is performing, you need a
plan.
06 In business planning, you cannot be sure of the predictions
regarding the external environment.
07 As the factors of the environment keep on changing, preparing
business plans is not necessary.
08 A plan is necessary to succeed in any goal.
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Before making a business plan, you should study
the business environment well. If you prepare
your business plan that way, it would guide you
to succeed in your business through using limited
resources and suitable strategies. If not, you may
not achieve your goals and the resources could
be wasted as well. Figure 1.1
Your school is an educational institution where various plans are being implemented.
You would have seen the Year Planner in the main office of your school. It is a plan
that includes the activities scheduled by your school for the relevant year. Your
class time table is another example for a plan.
A business plan is a formal document that presents, in a structured
and well-organized manner, the targets you expect to reach and the
various activities that you will carry out at the start-up of a business
and while running the business.
Based on this description, you can verify your answers for the Activity 01.
1.2 Composition of a business plan
There are several elements of a business plan. Out of them, let us focus on the
following elements.
Parts of a business plan
Executive Marketing Production Administrative
Financial plan
summary plan plan plan
Figure 1.2 - Composition of a Business Plan
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Let us take a brief look at each of them.
01. Executive summary
The executive summary is a summary of the entire business plan. It summarizes
the most important information regarding the business for the benefit of the reader.
When a person reads the executive
summary, he/she should be able
to create a mental picture of the
business based on the information
presented there. The executive
summary is usually about one
page in length.
Figure 1.3
The following information is summarized in an executive summary:
P The name of the business, the industry that it belongs to, etc. (described very briefly)
The name of the business that the entrepreneur wishes to start, and information
regarding the nature of the business.
P A summary of the Marketing plan, highlighting its most important points
Target customers, expected demand and supply, price of the product, unique
features in distribution and promotion, strategies for gaining competitive
advantage, etc.
P A summary of the Production plan, highlighting its most important points
Production process, production cost, unique features of the production
process, etc.
P A summary of the Administrative plan, highlighting its most important points
Administrative structure, administrative processes, etc.
P A summary of the Financial plan, highlighting its most important points
Funds needed by the business, how the funds will be acquired, expected
profitability of the business, etc.
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P Uniqueness of the business (described very briefly)
How the business organization is different from its competitors in terms of
the uniqueness of the product, uniqueness of distribution, etc.
P Goals and objectives of presenting the business plan (in brief)
Whether the entrepreneur wants to start a new business venture, to get a
bank loan to expand an existing business, or to manage the future activities
in a methodical way through a self-investment should be included.
After the executive summary, the very next page should have a detailed description
giving general information regarding the business. It will give information about
the business and its owner or owners.
02. Marketing plan
This section details how the sales targets will be achieved. The following forecasted
information has to be included here: the goods or service expected to be sold, the
demand for the goods or service, marketing strategies, sales expenditure and sales
income.
03. Production plan
Marketing plan mentions the quantity of goods or service that will be offered to the
market. Production plan estimates the cost needs to be incurred when producing
that quantity of goods or service.
04. Administrative plan
This section includes information on the human
resources required for the business and the related
costs.
05. Financial plan
Financial plan gives details regarding the sourcing of
funds. It also includes estimates of income, expenses
and profit. Figure 1.4
By now, you would have gained a basic understanding about what a business plan
is. Next, let us examine why an entrepreneur needs a business plan.
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1.3 Need for a business plan
01. To make the business idea clear
A business plan gives details about the proposed goods or service to be
offered and its uniqueness, to the persons who are interested of the business.
02. To understand the business environment
Business environment keeps on changing all
the time. Changes occur in the internal
environment of a business, as well as in the
economic, social, political and technological
conditions and the natural environment. All
of these changes can be identified early through
business planning.
Figure 1.5
03. To guide the business
It indicates what activities should be done by each party involved in the
business.
04. To indicate the future direction of the business
The business plan clarifies what status the business should achieve in future.
05. To raise the necessary funds
Investors prefer to put their money into profitable ventures. A business plan
displays the proposed activities and expected benefits of the business. A
business plan is essential for organizations such as banks when making
investment-related decisions.
06. To make a good estimate of the demand
The market demand is a main factor determining the success or failure of a
business. It is necessary to be well aware of the competitors and substitutes, as
well as their market share and strategies; and to form suitable strategies to
face them. All of these require planning.
07. To identify the resources required for the business
A business plan identifies the physical and human resources necessary for
business activities.
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08. To find out the success of the business
If you forecast your business activities before starting up the business, you
can see what outcome you will be getting by the end of a given period of time.
If you have successfully forecasted your business plan, you can understand
today whether your business will be a success or a failure in future. This will
help you to face future uncertainties successfully.
09. To get an overall image of the business
A business plan gives details about the various activities of the business for
a given period of time in future. So it provides a clear view of how the business
will be in future.
Activity 02
Given below are some details that should be in a business plan. Against each of
them, indicate the section of the business plan where it should be included.
Index
Description Section
No.
01 Marketing strategies of the competitors
02 Types of employees needed for the business
03 Summary of the entire business plan
04 Financial needs
05 Estimated salary for office employees
06 Estimated promotional expenditure
07 Minimum qualifications for each type of employee
08 Forecasted electricity charges for the factory
09 Nature of the business
10 Inward and outward financial flow of the business
11 Cost of a unit of production
12 Location of the business
13 Sales forecast
14 Targeted sales area
15 Annual requirement of raw materials
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Let’s Answer
01. What do you understand by a “business plan”?
02. Name the elements of a business plan.
03. Indicate the parties that would benefit from a business plan.
04. What are the difficulties that a business may face when there is no business
plan?
05. Explain the importance of the executive summary of a business plan.
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