ELEMENTS/COMPONENTS OF A BUSINESS PLAN

 In the business plan preparation, the entrepreneur is expected to have broken down all the contents of the plan under the following sub headings;

1. General description of the business.

2. Statement of mission, goals and objectives.

3. The Marketing plan

4. The Production plan

5. The Financial plan

6. The Organisational plan (Administrative/Management plan)

7. The Action plan

General description of the business

This involves giving summarized information about the business. Therefore general description of the business involves establishing the name, address and location of the business, the type of business being planned, the needs of the market it seeks to fulfill, a summary of how the intended business will be different from other businesses (uniqueness) as well as making an analysis of the strengths, weaknesses, opportunities and threats (SWOT) that the business is likely to face.

Statement of mission, goals and objectives

These are brief statements indicating why the business is in operation, its long term and short term targets.

(i) Mission statement.

This is a brief statement that indicates the purpose of the business. It is the very reason why an organization exists. It is the unique aim of the organization that distinguishes from others providing an overview of the firm’s operation with respect to its products/services. For instance, ‘To provide quality dairy products while ensuring that our customers are satisfied, our employees are in conducive working environment and that our shareholders are expecting good returns from their investment.

(ii) goals

A goal is something (target) that one intends to achieve in a given period of time (long-term) using a given amount of resources. They are based on the mission statement, for instance, from the above mission statement, the goals can be “To provide high quality products to our customers.

(iii) Objectives

These are specific targets to be achieved in a specific period. They are short-term targets that an entrepreneur sets to achieve established goals. For instance, ‘To increase productivity by 100% in one year’, ‘To increase sales by 10% in 8 months’

‘To develop and maintain labor productivity’.

N.B:

Goals and objectives must be SMART, i.e

S – Specific

M – Measurable

A – Achievable

R – Realistic

T – Time bound

- Specific means the objectives must be clear to guide the manager’s action, for instance ‘To increase sales by 20%’ is a clearer objective than

‘To increase sales by a reasonable percentage’.

- Measurable means that one must be able to measure and compare performance with the set standards. For instance, ‘To increase sales by 20%, there is a way of measuring it. However, there is no way one can measure an objective of increasing sales by a reasonable percentage.

- Achievable means that they are within one’s capabilities. For instance, increasing sales by 10% must be something one has ever achieved or based on the effectiveness and efficiency of the firm’s marketing strategies.

- Reliable means the objectives should not be wild or unachievable.

- Time bound means there must be a time lag/period within which objectives are to be achieved.

Marketing plan

A marketing plan is an analysis of the possible position and opportunities of a business being planned in the present market situation. It is an analysis of the marketing objectives, strategies and activities to be followed so as to have improved marketing of the proposed product in order to fight competition.

FACTORS CONSIDERED WHEN PREPARING A MARKETING PLAN

1. Target market

Here the entrepreneur to establish who his/her customers are, where they are located, their needs, their buying patterns, i.e how often they buy goods and services of the entrepreneur.

2. Nature of the product or service to be offered

The entrepreneur has to describe his/her products or services and its value to the customers, establish how the products are packed and the features which make his/her products different from those of competitors.

3. Position of competitors

The entrepreneur is required to know the position of firms dealing in similar products like his/hers. This is possible through conducting market research to find out their weaknesses and strengths (SWOT analysis)

4. Pricing strategies and policies

Under this aspect, the entrepreneur determines the prices at which he/she is to offer his/her products or services while putting into consideration the current market prices of substitute products.

5. Sales targets (expected sales volume)

The entrepreneur has to establish his/her projected sales per given period of time, for instance, per week, month, e.t.c

6. Distribution strategy

This involves selection of distribution channels for goods and services. The entrepreneur should select a number of distribution channels out of which he/she can select the ones he feels are better in respect of reaching many customers and

are cost effective.

7. Sales promotion and advertising strategy

This takes the form of analyzing the various ways through which the entrepreneur will communicate and influence the customers, i.e the various methods of advertising and promotion of products while considering their cost.

8. Terms and conditions for selling

Here the entrepreneur is required to establish the terms of selling he/she is going to adopt. For instance, selling on credit, cash basis or instalment selling.

9. Projected marketing expenses

The entrepreneur is required to establish the expenses he/she is likely to incur in marketing his products or services. For instance, advertising and sales promotion expenses, commission paid to sales representatives, e.t.c. Production plan

A production plan is an analysis of the projected needs for producing (manufacturing) the proposed products or services. It involves how the entrepreneur is going to carry on production of the proposed good or service.

FACTORS CONSIDERED WHEN PREPARING A PRODUCTION PLAN

1. Business site and location

Under this aspect, the entrepreneur established where to locate his/her business

as well as the cost of land (site) and its size, cost of putting up business buildings.

2. Production/manufacturing process, flow of work and lay out.

The entrepreneur is expected to show the flow of work, how the machines will be

laid down and how they will be used.

3. Plant capacities required

This involves establishing the abilities of production machines in relation to market

demand both in the short and long run to meet the demands of the market.

4. Quantities to be produced or services to be provided.

Quantities to be produced are determined by the market share, i.e number of

customers for the business.

5. Production standards and quality objectives to be met during production.

6. Machinery and equipment to be used in production.

The entrepreneur has to establish the type of machinery and equipment he/she

will use while considering various factors like cost and technical specifications,

their production capacities, the source and terms and conditions for payment of

machinery and equipment, e.t.c.

7. Raw materials to be used.

The entrepreneur establishes the type of raw materials he/she will use to make his/her products. He/she should consider various factors like cost of raw materials, their quality, terms and conditions of payment, e.t.c.

8. Labour requirements

It requires the entrepreneur to establish the type and number of workers he/she will use in production, their skills, cost of hiring them and other incentives the workers will be entitled to, such as lunch, transport, medical care, e.t.c. Ways of ensuring safety of workers during production are also established.

9. Packaging

The entrepreneur establishes how the products will be packed, where he/she will buy the packaging materials, their cost, how much will be required per production cycle, how they will be stored.

10. Utilities that will be needed by the business.

These include water, power, telephone, e.t.c. the entrepreneur established whether water and power will be required. In case water is required, he/she has to establish whether it is safe for the intended purpose and in case power is required, the power consumption per production cycle has to be established. In case a generator will be used the fuel consumption has to be established.

11. Means of transporting raw materials and finished products.

This aspect requires the entrepreneur to establish how raw materials will be moved to production centres and how finished products will be delivered to the target market.

The entrepreneur establishes whether the business will require delivery vans, their cost and fuel consumption.

12. Inventory control plans for stock, work in progress and finished products. The entrepreneur establishes the tools he/she will use, for instance, re-order level, lead time, e.t.c.

13. Disposal of the waste products.

The entrepreneur has to establish the amount of waste he/she has, how waste products will be disposed off and at what cost, whether the wastes can be converted into other products, i.e they can be recycled.

14. Production control requirements

Production control refers to the activities undertaken to ensure that the product is produced in the shortest time possible and at the right time using the best and cheapest method but of the correct quality.

15. Research and development plans about developments in production and new methods of production.

16. Steps of monitoring changes in technology that can affect the production process.

Financial plan

A financial plan is an analysis of the financial requirements of the proposed business. It involves estimating the business operations in monetary terms. It indicates projections of the trading, profit and loss account, balance sheet and the cash flow statement. It covers the following areas;

1. Total cost required to set up and operate the proposed business.

2. How the proposed business will be financed, i.e the different resources of funds, for instance, own funds, loans, trade credit facilities, grants, gifts and offers friends and family, sale of personal property.

3. How the money will be used or spent on different needs of the business, i.e fixed and working capital requirements as well as the overhead costs.

4. Profitability of the proposed project in terms of returns on investment. This can be determined using trading, profit and loss account.

The financial plan therefore focuses on the total capital requirements of the business. Business requires different forms of capital, i.e fixed and working capital.

(i) Fixed capital

This refers to the money held up in permanent assets of a business. It consists of property held permanently for continuous use in the production process. For instance, land, buildings, machinery, furniture, e.t.c

(ii) Working capital (direct costs)

It refers to amount of money used to meet the daily operating needs of the business. For instance buying stock (supplies), raw materials, fuel/transport, direct labour costs, stationery, spare parts, cash for uncertainties, e.t.c.

(iii) Overheads.

These are costs that cannot easily be traced to a particular product, i.e they do not directly affect the cost of producing a particular product.

Unlike direct costs/working capital, overheads do not vary with the level of output, i.e they keep being incurred regardless of the level of output. They include;

- Indirect expenses like rent, insurance, telephone, operating license, e.t.c.

- Selling and distribution overheads. These are indirect expenses incurred during the selling and distribution of goods and services, for instance, advertising, sales promotion, delivery expenses, wages to salesmen, insurance for delivery vans, free gifts and samples given to potential buyers, e.t.c.

- Administrative overheads. These are indirect costs incurred by the business during the formulation of organization policies, direct control, management and supervision of its affairs, for instance, general expenses, postage and stationery, telephone expenses, heating and lighting, administrative salaries and allowances, printing, depreciation of office equipment, e.t.c.

Organizational plan

This is an analysis of the frame work around which people, machinery/equipment and other physical parts of the plan (business plan) are put together to have a moving/successful organization.

It covers the following aspects;

(a)The framework/structure aroung which people, machines are put together to have a moving enterprise (organization structure). This looks at the reporting relationships, tasks and responsibilities of the workers.

(b)Recruitment, selection and induction training. This looks at the number of workers to be employed, their qualifications, experience, skills and age.

(c) Rewards to employees, i.e salaries, wages and other fringe benefits to be given to staff, for instance, medical, transport, lunch and housing allowances, e.t.c.

(d)Performance, monitoring and evaluation i.e performance appraisal.