Business Planning Process

business planning process
business planning

Introduction/Definition of Concepts

A business is an activity or entity, normally engaged in the provision of products and or services, for commercial gain, extending to non-Commercial organizations that may or may not be profit oriented.  This is irrespective of the size and autonomy. With this definition, non-governmental organizations, private, public service sector like schools and hospitals are regarded as ‘businesses’. Meanwhile, a  plan  is  a  statement  of  calculated  intention  to  organize  effort  and  resource  to achieve  an  outcome.  This  may  or  may  not  be  in  written  form,  but  essentially comprising   explanations,   justifications   and   relevant   numerical   and   financial statistical data.

Business  can  be  classified  into  the  following  groups  but  not  limited  to:  a  small company; a large company; a corner shop; a local business; a regional business; a multi-million  naira  business,  multi-national  corporation;  a  charity  organization,  a Federal, State or Local Government Ministry, Agency or Department, an hospital, a joint-venture; a project within a business or department; a business unit, division, or department within another bigger organization or company, a profit centre or cost centre within an organization or venture,  an individual or joint ventures, etc

Business plan therefore could be referred to as the activities and aims of any entity, individual, group or organization with the purpose of converting efforts to results. It is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about  the  organization  or  team  attempting  to  reach  those  goals.

Business  plans  may  also  target  changes  in  perception  and  branding  by   the customer, client, taxpayer  or larger community. When the existing business is to assume a major change or when planning a new venture, a 3 to 5 year business plan  is  required,  since  investors  will  look  for  their  returns  within  that  time frame. Invariably, the business plan simply serves as the detailed map of the venture that will  guarantee  a  steady  start  up,  a  steady but  gradual  growth  and  vitality  of  the business.

The process of determining all the goals, strategies and projected actions that you intend  taking  to promote  and ensure  the  survival and progress of  your  business within  a  given  time  frame  is  referred  to  as  business  planning  process.  This characteristically has two key aspects, one focused on making profits and the other focused on dealing with risks that might negatively impact the business. Business plan serves as a blueprint to guide the organization’s policies and strategies which are  continually  modified  as  conditions  change  and  new  opportunities  or  threats appear.  If  this  is  prepared  for  external  audience  like  lenders  and  prospective investors;  it  has  to  include  details  of  the  past,  the  present,  and  a  forecasted performance of the business. Typically, this also contains pro-forma balance sheet, income   and cash flow statements to show how the required fund shall positively affect the financial position of the business.

Business Planning Process:

When writing a business plan from the scratch, from a template or from the guide of an experienced business plan consultant, there are five required steps to create a new business plan. It is a detailed process here referred to as business planning process. These steps are:

Research:  Business  planning  process  starts  with  a  detailed research  into  the industry,  its  customers,  competitors,  and  costs  of  the  business.  This  research comes  in  various  forms  like  information  from  articles,  collected  data  or  direct interviews with prospective clients, experienced consultants or entrepreneurs. The result of the research should be meticulously organized and properly documented with its source.

Strategize:  The second step is to strategize based on the information gathered from the research. A good major source of strategizing is to watch the current  practices in  that  business  environment  to  have  a  foundation  to  build  the necessary  competitive  distinctiveness.  One  needs  to  ponder  over  the  strategy meticulously  to  consider  the  appropriate  location,  startup  finances,  equipment, operations, marketing and legal formalities.

Calculate: From the decided strategy activities, comes the third step to calculate.  It  is  essential  to  calculate  and  have  a  rough  draft  of  the  financial implications  in  terms  of  the  expected  expenditure  and  revenues  to  ascertain  a possible  profitability  at  the  end  of  the  day. There is the need to bring up all assumptions for startup expenses up to maturity at calculations for running early operations. Most startup businesses pack up before gestation stage due to financial assumptions.

Draft: The fourth step of a business planning process is to begin to draft and flesh up the background work made in the decided strategy and the financial calculations for the actual business plan detailed content.  One may require the services of a business plan writer or consultant, if there is any challenge in respect of this.

Revisitation and Proof-reading to finalize: The fifth step is to revisit the entire business plan details and reconsider any ambiguity or inappropriate wordings and ideas featuring in the plan. There may be the need to give it further fresh looks after setting it aside for some time. Soliciting for the assistance of an experienced proof-reader  may  be  necessary  to  prevent  grammatical,  spelling  and  formatting errors to finalize the plan.

Typical Structure for a Business Plan for a Start Up Venture

business planning structure

From the foregoing, one will agree that business plans are decision-making tools.There is no fixed content for a business plan. Rather the content and format of thebusiness plan is determined by the goals and audience of that enterprise. Some entrepreneurs  simply  see  a  business  plan  representing  all  aspects  of  business planning process that include only the vision and strategy with sub-plans to cover marketing,  finance,  operations,  human  resources  as  well  as  a  legal  plan  when required. To some others, it has to be more detailed than that. It has to typically include  an  introduction/overview,  a  short  description  of  the  business  idea  and opportunity, what makes it different, who will be involved in the business, how you will provide your product or service, your marketing and sales strategy and financial situations and forecasts for the expected profitability. Consequently, it is essential to know that the structure of business plans varies. However, this discussion uses a typical structure for a business plan for a startup venture.

Executive Summary: 

This is the general overview of the entire business.  It is a  summary  of  the  business  idea,  the  mission  statement,  a  sketchy  report  of  where  your business  fits  in  the  market  place  and  why  it  will  succeed. Questions that have to be answered here include:

What is the business? A brief description of the business idea and why  it  should  be  a  success,  History  of  the  enterprise  and  its  ownership, Information about the entrepreneur’s qualifications, experience and financial status and location.

What is the market? A description of the product and what it does, an  explanation  of  ways  in  which  the  product  is  distinctive  and  unique, Analysis  of  the  competition,  How the  product  will  be  developed  and  what new  products  are  being  considered  as  replacements,  Intangible  assets  & protection (e.g. copyright, trade marks)

What is the potential for the business? Size and expected growth of the   market,   Analysis   of   market   by   segments,   Identification   of   target segments, Competitors – who they are, ownership, size, market share, likely response to the challenge, Customers (existing & potential) – who they are, how they buy, why they buy, Distribution channels

What are the forecast profit figures?  A statement of what the business should achieve over a given time target (three or five year period)

What are the Funding requirements?

What are the prospects for investors and lender?

Please note that all these need not be in detail as they are only the overview of the whole plan.

Business Description:

This is a detailed description of the business, with an in-depth explanation of the product or service being planned for the marketa nd its benefits to those who will buy or use it.

Business   Environment   Analysis:   This   should   explain   the   detailed strategy and tactics  to  be  employed  for  bringing the product  or service to  the market. Strategy is the broad approach to the achievement of objectives while tactics refer to the details of the strategy. This includes the business name, the image and how they will be protected.

•           Determines how to get to the market?

•           Summarizes how to fulfill the entrepreneur’s objectives.

•           The detail will be contained in programmes and budgets.

•           the pricing structure to be established.

•           the estimated sales projections.

Market Analysis:

This should thoroughly describe the customers, your competitors, the need for your product or service, and the health and vitality of the market place. This cannot be guess work. It must be based on a careful and reliable research. Other key questions it must answer are:

•           What is the size and growth rate of the market?

•           How is the market segmented?

•           What is special about the product or service?

•           What are the competitive advantages?

•           What is the marketing strategy?

Marketing Plan:

The marketing has to be  adequately  planned  for  and must include the:

•           Market research

•           Segmentation and targeting

•           Detailed outline of the product or service

•           Unique selling points

•           Chosen pricing strategy

•           Promotional plans

•           Distribution strategy

•           Customer service strategy

Operations Plan:

Operations plan include the production process which must be explicitly explained. The process of bringing your product or service to the market, office space, production schedules, inventories, suppliers, supplies, official licenses, and insurance, meeting and existing business regulations must all be thoroughly discussed. The following may also be included depending on the type of business.

•           Physical location

•           Facilities

•           Equipment

•           Scale & location of operations

•           Capacity – potential and effective

•           ICT strategy

•           Engineering and design support

•           Materials required

•           Inventory levels and stock control plans

•           Purchasing arrangements

•           Sources of supply of key resources

•           Quality control plans

•           Staffing requirements

Management   and   Organization:  

This   explains   the   organizational structure  of  the  enterprise  whether  it  will  be  sole  proprietorship,  partnership, Limited Liability Corporation, or other status and those to be involved. Other are

•           Details of senior management

•           Corporate governance

•           Staffing requirements

•           Key personnel

•           Recruitment and selection

•           Training

•           Rewards (financial & non-financial)

•           Labour relations

•           Employment and related costs

Financial  Plan: 

This  offers  the  idea  about  the  finances  to  be involved. The available amount, the required amount and how and where you will secure the difference. It should also be able to give the investment appraisal – payback and discounted  cash  flow as  well  as  break even  analysis.  Other expectations from the plan are:

•           Details of capital required and uses

•           The plan must include details of the external finance required. This will be

equal  to  the  finance  required,  less  the  finance  raised  internally  from

existing owners and from operations

•           The plan will outline how it is proposed to raise the finance

•           Sources of finance: Short, medium and long term; Debt v equity

•           Evaluation criteria for performance review

•           Ratio analysis: net profit margin, Gross profit margin, return on capital employed, liquidity and solvency analysis

Effective business planning has to begin with an honest and realistic appraisal of the

current position of the business.

Reasons for a Business Plan:

importance of a business plan

Planning about your business is a necessary process to undertake before, during and after start up. The business venture could be a fresh proposed start-up, a new one developing within an existing corporation, a new joint-venture, or any new organizational or business project for as long as it is purposely to convert action into results. As the backbone of any enterprise, it is very essential for an entrepreneur to ask him or herself why he needs a business plan. An axiom says if you fail to plan, then you have planned to fail. A business plan serves as:

Road  Map/Guide  For  The  Business:  It  is  not  everyone  that  starts  a business  with  a  plan  but  it  is  better  to  have  one  to  guide  one.  It guides the entrepreneur through the various phases of his business. Note that it is not a static document that you write once and put away. It should be simply taken as a guide or checklist of questions that constantly need to be attended to at every stage of gestation, growth, maturity and decline of the business.

Assurance of potentiality: The headings in a business plan will reassure all that the venture will work. The plan helps to clarify the entrepreneurs thinking and demonstrates his commitment to carry on as planned. It also identifies where he/she intends to get to and how to get there. This will also convince them that the tools, talent and team to make your plan work are already available.

Defines a Business: It helps to identify the business, its objectives/goals and programmes that must be achieved.

Serves as Résumé for the Business: This happens when there is the need for communications to attract more investments, loans and profit potentials of the business.

Regular Business Review and Course Corrections: The business planis your regular reference to ensure you stay focused on its objectives. It will need to be constantly reviewed as the business develops. It provides the chance to focus one’s mind on how one intends to run the business and to identify early on any areas or issues that might have been forgotten or neglected.

Review Current Progress Against The Initial Forecast: The progress of the business shall easily be feasible against the earlier forecasts. This makes any review or necessary adjustments to get it back on track possible. Having a clearly  presented  business  plan  document  will  also  make  it  easier  for  any specialist support needed.

Support For A Loan Application Or Raise Equity Funding: When ever a  business  is  seeking  fund  from  a  bankers,  venture  capitalist  or  investor,  a comprehensive business plan that is clear, focused, realistic and contains sound business reasoning shall be a necessary requirement to show that it is worthy of financial  support.  Banks are more favourably disposed to  applications  with  a business plan whenever it is approached for capital to expand.

Defines Agreements Between Partners: It helps to define agreements, shares,  etc  between  partners,  shareholders  and  other  stakeholders  in  the business.

Proper Allocation of Resources: It helps to allocate resources properly, handle   unforeseen   complications   and   thereby   assist   in   making   adequate business decisions.

Sets  a  Value  on  a  Business  For  Sale  or  Other  Legal  Purposes: Whenever the business is placed on sale, it helps to set a value for it. This is also required at most times for legal purposes.

CONTENT     CURRENT STATUS DEVELOPMENT PLAN

1.         Executive Summary

2.         Business Description              

3.         Business EnvironmentAnalysis                      

4.         Market Analysis

5.         Marketing Plan                       

6          Operations Plan                      

7.         Management &Organization              

8.         Financial Plan             

9.         Conclusion                 

WORKSHEET A:

Typical Structure for a Business Plan. Parents and some of the students are involved in one business venture or the other. These ventures need to be developed. Use the worksheet below, to provide information that could be in a business plan that will improve the business.

Name of the Business venture____________________________________________

Students Names:_______________________________________________________

Matriculation Number:___________________________________________________

Faculty/Department:____________________________________________________

Group work assignment, individual assignments/ test questions

1.) What is a business plan and why would an entrepreneur need a business plan?

2.) Itemize and discuss briefly the process of business planning.

3.) Can you recognize some business ventures being run within the University campus? List ten of them.