CHAPTER THREE

BUSINESS PLAN PREPARATION

 WHAT IS A BUSINESS PLAN?

A Business Plan is a comprehensive, written description of the business of an

enterprise.
 It is a detailed report on a company's products or services, markets and
Customers, human resources, financing requirements, etc.
Business Plan describes the past and present status of a business, but its main
purpose is to present the future of an enterprise, prepared usually for up to five
years with annual updates.
Critical element in application for funding, Investment, Bank loans, etc.
 WHY A BUSINESS PLAN?

There are many important reasons for drawing up a business plan. Some of the most
significant are the following:
 It helps businesses to identify target customers, outline market segment, shape pricing
strategy and define the competitive conditions
Shared understanding within the team of the company.
Determining financial needs and application for funding.
Deriving Measures & Objectives for employees’ Performance.
Communicate employees, lenders, partners about the business.
 WHO WILL USE THE PLAN / READERS

External Partners
 customers
Suppliers
Investors/ lenders
Internal Partner
Firm’s mgt
Employees
Questions to answer before BP preparation

1. What service or product does your business provide and what needs does it fill?
2. Who are the potential customers for your product or service and why will they purchase it from you?
3. How will you reach your potential customers?
4. What is the human resource needed and who will do what?
5. Where will you get the financial resources to start/expand your business?
6. What are your operating costs?
7. How much money will your business earn each month by selling your product or service?
8. What is your potential profit per year Year I, Year II, and Year III?
FORMAT AND ORGANIZATION OF A Business plan
1. Cover Page
2. Executive Summary
3. Description of the Business
4. Products and Services
5. Marketing Plan
6. Business Operations and Organization
7. Human Resources
8. Financial Plan
9. Risk and Sensitivity Analysis
10. Appendices
 1. COVER PAGE
The purpose of a Cover page is to tell readers what they are about to read and how to
reach the author.
The cover of the document is often the first impression of a business that any interested
parties or investors get.
Exercise Includes the following information in the cover page:
 The legal name of the business
 The entity's logo (if any)
 Month and year in which the plan is prepared or revised
 Name of the Author
 The address (the telephone number, fax number, e-mail address, website, and place)
EXERCISE; Prepare a cover page for your
business plan

_______________________Business Plan

For year from ________ to _______

Prepared by:___________________________

Address______________________________
Date_________________________________
2. EXCUTIVE SUMMARY
It provides a high-level overview on the purpose of the Business Plan, the
main highlights and the financial resources required.
It should be no more than two pages long, and should take only a few
minutes to read.
In drafting the executive summary, you may include a few sentences from
other important sections.
The statements in the summary should be consistent with the information
in other parts of the business plan.
Write it last.
EXERCISE : Executive Summary
 My business is location in
___________________________________________________________________________.

 The Main products of the company

include__________________________________________________________, the main market of the
business________________________________________________________________________________ and
the company’s Customers are
____________________________________________________________________________.
 The total sales of the company is expected to be
___________________________________________________________per month/Year.
 The companies main products/Services
is/are_________________________________________________________________.
 The Products/services standout from other products by
___________________________________________________________________________________________
______________________________________________ features. It gives customers unique opportunity to
___________________________________________________________________________________________
___________________________________________________________________________________________
________________________.
 3. DESCRIPTION OF THE BUSINESS

Itgives the reader an initial overview of the business before specific details
are provided later on. Including on:
 Location and premises of the business
 Main products, market and Customers
 Key data (personnel, total production, revenues)
 Legal form, ownership and management
 Historical development and track record of the business
 Business strategy and mission
 General organization/operating units
 EXERCISE : DESCRIPTION OF THE
BUSINESS
 The business (Name) is location in __________________________________________________________________________(Physical
Address).

 The Main products (or Services) of the company is/are (highlight)_________________________________________________________. The
main market of the business (describe the
market)________________________________________________________________________________ and the company’s Customers are
(customers or group of buyers described) ____________________________________________________________________________.

 The Company has _____________________________________personnel. Our total production is

______________________________________ per Year. The annual revenues of the company___________________________________.

 Legal form of the business is __________________________________________, ownership and management structure

___________________________________________________________________________________________________.
 The mission of the company is to _______________________________________________________________________________.
 General organization/operating units (if
any)_____________________________________________________________________________________________________________.
 4. PRODUCTS AND SERVICES
Provide a description of your products and Services in detail:
 Explain how it looks,
 What it does,
 How it works,
 How long it lasts,
 What variations and options are available, etc.
Concentrate on the features that make your product or service unique and
preferable for customers.
Explain about the quality assurance and control.
EXERCISE : PRODUCTS AND SERVICES Description
 The company's main products/Services is/are (describe about the company's products and services in
detail)____________________________________________________________________________.

 The Products/services standout from other products by (how your products are uniquely identified in the
crowd)___________________________________________________________________________________
______________________________________________________ features. It gives customers unique
opportunity to
_________________________________________________________________________________________
_________________________________________________________________________________________
_______________________________________________.
 The factors that provide the company competitive advantages over other competitors include
_________________________________________________________________________________________
_________________________________.
 The Pricing, fee, or leasing structure of the products/service
________________________________________________________________________________________
_________________________________________________________________________________________
____________________________________________________.
 5. MARKETING PLAN
The aim of this section is to communicate that:
 You have a thorough understanding of the market.
 There is a demand for your product or service.
 Your company is sufficiently competitive to get a good share of the market.
In this section, explain the following important points:
 Market Characteristics
 Customers
 Competition
 Comparative advantages of the company
 Marketing strategy
 Projected sales
 EXERCISE : MARKETING PLAN
 The total market size for the industry is ( for the business you are
in)____________________________________________________________________
 I expect to sell my products and services to (the
customers)_______________________________________________________________________________________________________.
 The total sales of the company is expected to be ___________________________________________________________per month/Year.
(tabulate : Products/Services, Quantity, Unit Price, Total Income in Birr).
 My Major competitors are
 Competitor 1.____________________. Competitors strength_____________________________________________________Cpmpetitros
weakness______________________________________________________________. How my company will out compete
them________________________________.
 Competitor 2.____________________. Competitors strength_____________________________________________________Cpmpetitros
weakness_____________________________________________________________. How my company will out compete
them________________________________.
 We advertise and market the products/services through (the
channels)______________________________________________________________________________________
6. BUSINESS OPERATIONS AND ORG.

In this section, discuss some of the most important operational and
organizational issues that need to be covered in a business plan.
 Location and premises
 Product and Service design
 Manufacturing and distribution
 Order processing, inventory and quality control
 EXERCISE : BUSINESS OPERATIONS AND
ORG.
 the business location in (describe the business environment from location
perspective)________________________________________________which is suitable for it has easy access to
____________________________________________________________________________________________________
_____________________________________.
 The products will be distributed through
(channels/means)______________________________________________________________________________________
___________.
 Order processing and inventory control will be
done____________________________________________________________________________________________.
 The company will implement (mechanisms to ensure operational efficiency)
_______________________________________________________________system to ensure effective and efficient
operations and stay competitive in the market.

 The equipment, tools and other fixed assets used to operate the business are (list and
describe)_____________________________________________________________________________________________
____________.
7. HUMAN RESOURCES
In this section, discuss some of the most important Human resources issues.
Management Team
 What is the management experience of the management team?
 Demonstrate that they have the required talents, skills and experience to achieve the
objectives and goals.
Company Structure
Key Personnel
 What are the personnel needs now? In the future?
 What skills must they have? What training you provide?
 EXERCISE : HUMAN RESOURCES
 The company is run by (Name of the person heading the responsibility of the
company)___________________________________________________________________________________________________________
_____. She/he is experience in__________________________________________________________________________. And advance the
interest of the company by (relevant skills)_____________________________________________________________________________.
 The management of the business consists of (group of people in the management team
)__________________________________________________________________________________________________________________
_________________.
 The management team has experience
in_________________________________________________________________________________________________________________.
 The company structure
___________________________________________________________________________________________________________________
____________________________________.
 Other key personnel
include_____________________________________________________________________________________________________________
______________________________________________________________________________________________. They have skills and
expertise in__________________________________________ that the help the company achieve its operational and financial
goals._______________________________________________________.
8. FINANCIAL PLANNING
Financial planning is a key element of your business plan
It indicates how profitable your business is expected to be in the future, and
possible financial risks involved
It also indicates additional funds required for developing your business, i.e. how
much money you need, when you will need it and when you will pay it back.
Major sections of Financial Planning/Projections
 Income statement projection
 Balance sheet projection
 Cash Flow Projection
 EXERCISE : FINANCIAL PLANNING
Income Statement Year 1 Year 2 Year 3 Year 4 Year 5

Re ve nue
Cost of sal e s
Gross margin
Re se arch and de ve l opme nt
Sal e s and marke ti ng
Ge ne ral and admi ni strati ve
Operating expenses
De pre ci ati on
Operating income
Fi nance costs
Income before tax
Income tax e xpe nse
Net income

Balance sheet Opening Year 1 Year 2 Year 3 Year 4 Year 5

Assets
Cash
Accounts re ce i vabl e
Inve ntory
Current assets
Long-term asse ts
Total assets

Liabilities
Accounts payabl e
Othe r l i abi l i ti e s
Current liabilities
Long-term de bt
Total liabilities

Equity
Capi tal
Re tai ne d e arni ngs
Total equity
Total liabilities and equity

Cash Flow Statement Year 1 Year 2 Year 3 Year 4 Year 5

Ne t i ncome
Add back de pre ci ati on
Changes in working capital
Accounts re ce i vabl e
Inve ntory
Accounts payabl e
Othe r l i abi l i ti e s
Cash flows from operating activities

Amount pai d for l ong-term asse ts

Cash flows from investing activities

Proce e ds from l ong-term de bt

Proce e ds from i ssue of share capi tal
Re payme nt of l ong-term de bt
Cash flow from financing activities
 9. RISKS AND SENSITIVITY ANALYSIS
A business plan is based on a number of assumptions like interest rates, tax rates, market growth, your
market share, behavior of competitors, etc.
The probability of everything going exactly according to plan has problems.
Common risks? include General economic environment, regulatory context, change in public opinion,
technological change, staff turnover, law suit, etc.
Managing opportunities - how you would deal with the challenge if the business developed much better
than you assumed?
Use SWOT Analysis in structuring your thoughts, analyzing your risks and setting up your strategy
 EXERCISE : RISKS AND SENSITIVITY
ANALYSIS
Common risks anticipated include:
 Risk 1______________________________________________________________________________________________________.
Alternative strategy__________________________________________________________________________________________.
 Risk 2______________________________________________________________________________________________________.
Alternative strategy__________________________________________________________________________________________.
 Risk 3______________________________________________________________________________________________________.
Alternative strategy__________________________________________________________________________________________.
10. APPENDICES

Include details and studied used in your business plan preparation:

 Brochures and ad materials
 Licenses
 List of assets available as collateral for a loan
 Financial disclosures
 Blue prints and plans
 Maps and photos of locations
 Copies and leases and contractors
 Letters of support from future customers, etc.
THANK YOU!