2.

Developing a Business Plan

2.1 Business Planning Process
A plan, which looks very feasible at the first instance, might actually not be when the details are
drawn. Hence documenting the business plan is one of the early steps that an entrepreneur should
take. As discussed above, the successful entrepreneur lays down a systematic plan that she/he
follows in starting a new business. This business plan acts as a guiding tool to the entrepreneur
and is dynamic in nature – it needs continuous review and updating so that the plan remains viable
even in changing business situations. The various steps involved in business planning process are
discussed here below:

1) Preliminary Investigation
Before preparing the plan entrepreneur should:
Review available business plans (if any)
Draw key business assumptions on which the plans will be based (e.g. inflation, exchange rates,
market growth, competitive pressures, etc.).
Scan the external environment and internal environment to assess the strengths, weakness,
opportunities and threats.
Seek professional advice from a friend/relative or a person who is already into similar business
(if any).
2) Opportunity Identification and Idea Generation

Entrepreneurship is not just limited to innovation (generation of an entirely new concept, product
or service, but it also encompasses incremental value addition to the concept/product/ services
offered to the consumer, shareholder and employee). Opportunity identification and business idea
generation is the first stage of business planning process. It involves generation of new concepts,
ideas, products or services to satisfy demand.

3) Environmental Scanning

Once a promising idea emerges through idea generation phase the next step is environmental
scanning, which is carried out to analyze the prospective strengths, weakness, opportunities and
threats of the business enterprise. Hence before getting into the finer details of setting up business

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it is advisable to scan the environment both external and internal and collect the information about
the possible opportunities, threats from the external environment and strengths and weaknesses
from the internal environment (the detail has been addressed in chapter one).
4) Feasibility Analysis
Feasibility study is done to find whether the proposed project (considering the above
environmental scanning) would be feasible or not. It is important to demarcate environmental
scanning and feasibility study at this point. Environmental scanning is carried out to assess the
external and internal environment of the geographical area/areas where, entrepreneur intends to
set up his business enterprise, whereas feasibility study is carried out to assess the feasibility of
the project itself in a particular environment in greater detail.
5) Report Preparation

After environmental scanning and feasibility analysis, a business plan report is prepared. It is a
written document that describes step-by- step, the strategies involved in starting and running a
business.

2.2. 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.

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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.
1) Marketing Plan: Marketing mix strategies are to be drawn, based on the market research.
2) 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.
3) 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.
4) Financial Plan: The financial plan is usually drawn for two to five years for an existing company.
For a new organization the following projections are drawn:
a) Projected Sales
b) Projected Income and Expenditure Statement
c) Projected Break Even Point

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d) Projected Profit and Loss Statement
e) Projected Balance Sheet
f) Projected Cash Flows
g) Projected Funds Flow
h) Projected Ratios
VII) Critical Risks: The investors are interested in knowing the tentative risks to evaluate the
viability of the business and to measure the risks involved in the business. This can further give
confidence to the investors as they can calculate the risks involved in the business from their
perspectives as well.
VIII) Exit Strategy: The exit strategies would provide details about how the organization would
be dissolved, what would be the share of each stakeholder in case of winding-up of the
organization. It further helps in measuring the risks involved in investing.
IX) Appendix: The appendix can provide information about the Curriculum Vitae of the owners,
Ownership Agreement and the like.
Summary
Virtually to start any type of business or expand the existing 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. Opportunity identification and
evaluation are the initial stages of the entrepreneurial process and principal activities that take
place before a business is formed or structured.
The opportunity identification and evaluation process have five main steps namely, getting the
idea/scanning the environment, identifying the opportunity, developing the opportunity, evaluating
the opportunity and evaluating the team. After opportunity is recognized, you need to have a clear
idea of the sort of business you want to run.
Your business idea will address:
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?
And how is your business going to sell its goods or services?

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All business ideas are not equally worth. Therefore, to identify promising business idea among
others, it is important to answer the raised questions so that to proceed into the phase of preparing
plan on the selected business idea. Business plans help companies identify their goals and
objectives and provide them with tactics and strategies to reach those goals. It is not historical
document; rather, they embody a set of management decisions about necessary steps for the
business to reach its objectives and perform in accordance with its capabilities. Business plans
have several major uses. These include internal planning and forecasting, obtaining funding for
ongoing operations or expansion, planned divestiture and spinoffs, and restructuring or
reorganizing. While business plans have elements common to all uses, most business plans are
tailored according to their specific use and intended audience.
Business plan is an outline of a business giving details of the finance, assets, staff, products or
services and markets. It guides the entrepreneur, identifies possible problems and is also used in
funding applications. The business plan sets out how the owner of a business intends to realize
its objectives. Steps in a business plan include: Idea Generation, Environmental Scanning,
Feasibility Analysis, Functional Plan (Marketing plan, financial plan, organizational plan and
operational plan), Project Report Preparation, Evaluation, Control and Review.

Review Questions
1. List and discuss opportunity Identification steps.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
2. Discuss the business idea Identification processes.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
3. List at least three approaches of business idea generation and discuss them.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
4. Discuss steps involved in business planning process.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
5. Discuss the Components of Business Plan.

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…………………………………………………………………………………………………
……………………………………………

Sample Business plan Format

The business plan outlined below presents all necessary chapters in detail, including all
necessary explanations in the context of Ethiopia.

Business plan outline

for micro-enterprises - Ethiopian application

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 Business Plan
1. Full name of the business operator...................................
2. Address: Woreda.......................... Town...................
Kebele........................... House no..............
3. Type of the plan/work/business in which the operator is to be engaged.
........................................................................................
4. Year of the plan: From............................... to....................
5. Work premises at the disposal of the operator..................
..........................................................................................
..........................................................................................
Specify, if there is any problem:
..............................................................................................
6. Yearly sales plan:
Months during which sales are expected to be high
........................................................................................................................................................
........................................................................................................................................................
........................................................................................................................................................
1. Equipment currently owned by the operator:

Ser. no.
Product/service to
be sold, marketed /
year
Unit Qua. Unit price Total price Remark
Total sales

Type of Unit of Unit Total

Ser. no. Qua. Remark
equipment measure cost cost
Total cost of
equipment

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Equipment to be purchased by the operator
Type of Unit of Unit Total
Ser. no. Qua. Remark
equipment measure cost cost
Total cost of
equipment

Yearly raw material requirement:

Type of raw Unit Total
Ser. no. Unit Qua. Remark
material price price
Total yearly raw
material cost
Source of raw material..................................................................................................................
......................................................................................................................................................

Other yearly operating expenses (e.g. labor expense, sales expense, depreciation
expense, tax expense etc..)
Ser. no. Types of expense Amount of expense in Birr Remark
Total expense

Yearly production/service plan:

Types of production/service Unit Total
Ser. no. Unit Qua. Remark
to be produced or rendered cost cost
Total cost

Financial plan:
Capital requirements Equity Loan Total

Investment capital:

Machinery + equipment
Furniture + fixture
Business premises
Any other initial and significant outlay

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 Working capital:

short-term and recurrent expenditure

Total
· Salary/wage
· Raw material and/or supplies
· Rent
· Maintenance
· Business promotion
· Other cash outlay to meet
Yearly profit and loss plan
Profit + Loss Statement Format: Accounting
Business plan outline 2 for micro and small enterprises and start ups Business plan outline
For micro and small enterprises and start ups
Executive summary
1. Brief Description of the Project
2. Brief Profile of the Entrepreneur
3. Project's Contributions to the Economy
1. Sales and Marketing
1.1 Product description
1.2 Competitors'
1.3 Location
1.4 Market Area
1.5 Main Customers
1.6 Total Demand
1.7 Market Share
1.8 Selling Price
1.9 Sales Forecast
1.10 Promotional Measures
1.11 Marketing Strategy
1.12 Marketing Budget
2. Production
2.1 Production Process
2.2 Fixed Capital
2.3 Life of Fixed Capital
2.4 Maintenance and Repairs
2.5 Sources of Equipment
2.6 Planned Capacity
2.7 Future Capacity

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2.8 Terms and Conditions of Purchase of Equipment
2.9 Factory Location and Layout

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