School of Mechanical And

Industrial Engineering

Entrepreneurship for engineers

(IEng5242)

Lecture 2
:Creation of new venture

Prepared by: Fekadu B.

February: 2023
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 Lecture Contents
 What is small business

 What is business idea

 The differences among creativity, innovation, and

entrepreneurship

 Technology transfer for business development

 Steps in business setting

 Conducting Feasibility study

 Developing a business plan

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 What is small business?
 There are two approaches to define small Business.
 They are:
1. By some measure of size
2. using an economic /control definitions criteria

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 Measure of Size Criteria
Size standards vary by industry and are generally based on the
number of employees or the amount of annual receipts the
business has.
Examples of criteria used to measure size are:
1. Number of employees
2. Sales volume
3. Asset size
4. Insurance enforce
5.Volume of deposits
 Most of the time a small business is also a privately owned
and operated business
A small business typically has a small number of employees.
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 Measure of Size Criteria
 To provide a clear image of the small firms, the following
general criteria for defining a small business are suggested:
 Financing of the business is supplied by one individual or a
small group.
 Except for its marketing function, the firm’s operations are
geographically localized.
 Compared to the biggest firms small industry is so small
 The number of employees in the business is usually fewer than
100.
Small businesses are exempt/free/ from most workplace
regulations.
 Income for the year totaling small at the end of the fiscal year.
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 Economic /Control Criteria
 The economic /control definition covers:
a) Market share:- The characteristics of a small firm‟s share of the
market is that it is not large enough to enable it to influence the
prices of national quantities of goods sold to any significant extent.
b) Independence:- Means that the owner has control of the
business himself.
c) Personalized management:- It implies that the owner
actively participates in all aspects of the managements of the
business, and in all major decisions-making processes.
 All three of these characteristics must be satisfied if the
business is to rank as a small business.

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 Types of small business
1. Family Enterprises
Those are family owned business and varies widely.
Examples: retail stores, contracting businesses, small
manufacturing firms, restaurants and others.
In the absence of a successor, the life of a venture is limited to the
working life of its founder.
In here Succession is a serious problem.
2. Personal service Firms (PSF)
3. Franchise:
The franchisee may receiver of Franchise and used to
help, training, a protected market, and technical assistance
with matters such as site selections, purchasing, accounting,
and operations management.
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 Why are small business important to economy?
 They make exceptional contributions as they provide:
New jobs as populations and economy grow, small business provide
new job opportunity.
Introducing innovations-many scientific breakthrough originated
with small organization. Photocopies, etc
 Stimulating Economic competitions.
Reasons for the more rapid growth of small firms in
most developed countries.
1. New technologies, such as numerically controlled machine tools,
may permit efficient production on a smaller scale
2. Greater flexibility is required as a result of increased global
competitions
3. Consumers may be coming to prefer personalized products over mass
8 produced goods.
 Causes for small business failure
 Incompetence- The owners simply do not know how to run the
enterprise.
 Unbalanced experience- do not have rounded experience in
the major activities of business production.
 Lack of managerial experience; Do not know how to manage
production.
 Lack of experience in the line- The owner has entered a
business field in which he or she has very little knowledge.
 Neglect- the owner does not pay sufficient attention to the
enterprise.
 Fraud- involves intentional misrepresentations or deception.
 E.g. purchasing materials or goods for him/her self with the company‟s money
 Disaster- refers to some unforeseen happening or „Act of God‟
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 e.g. Robberies and extended strikes.
 Cont…
 In general the following are specific managerial causes of
small business failure;
Expansion beyond resources
Lack of information about customer
Failure to diversify market
Lack of marketing research.
Legal problems
Nepotism- favoritism toward family members
One person management
Inadequate records- unable to establish an adequate record keeping
system.
Lack of technical competence
Absentee management the owner stayed away for long period
 Strength and weakness of small business
Strength
1. Independence
 Most small business owners enjoy being their own boss, they
like the freedom to do things than way.
2. Financial opportunities
 Many small business owners make more money running their
own company than they would be working for someone else.
3. Community services
 if the person has reason to believe the public will pay for such
output, he/she will start a company to provide it.

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 Strength and weakness of small business
4. Job security
 when one owns a business, job security is ensured.
5. Family employment (benefits)
 create the employment in the family
 higher moral and trust occur in family-run business
6. Challenge.
 They want to win or lose on their own abilities the challenge
gives them psychological satisfaction

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 Strength and weakness of small business
Weaknesses
1. Sales fluctuations: In some months sales are very high, while
in others they drop off dramatically.
 The individual must balance cash inflows with cash outflows.
2. Competition: Owning a business is the risk of competition
(e.g.. Restaurants)
3. Increased responsibilities- owner is often a bookkeeper,
accountant, sales person, personnel manager.
4. Financial loses- when the owner makes all major decisions by
himself only financial loses increase.
6. Risk of failure- the ultimate risk the small business owner
manger faces is failure.
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 What is Business Idea?
 A business idea: is a concept that can be used for financial
gain and centered on a product or services.
A business idea is an idea that is the first milestone in the
process of building a successful business.
Business idea: is logical to think of a goal for the unit in long
run rather than to look for the immediate tomorrow.
This long-term thinking is called business idea
 The characteristics of a promising business idea are:
 Innovative
 Unique
 Problem solving
 Profitable
 Understandable
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 What is basic business idea?
The basic business idea, which is at the top of the hierarchy,
is to meet the broadest needs of the customers, and has the long
life perhaps from 5-50 years.
 The basic business idea facilitates choice of product under
an overall plan.
 Thus, entrepreneur may think of being in the entertainment
film, in automobiles, in medicines, in services, in industries,
etc.
Finding a good idea is the first step in transforming the
entrepreneur‟s desire and creativity into a business opportunity.
Business men/business women should think of long-term goal
and the profit when they start a business.
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 Cont…

 A product line is a group of related products all marketed

under a single brand name that is sold by the same company.
 The product line is relatively narrow and has a shorter life
than basic business idea.
 The product line consists of different families of products.
 Cont…
 The container or wrapper or covering for different
families of product is called the package
E.g. Packaging can manufacture any of the following groups of
the products:
 Plastic packages,
 Metal packages,
 Aluminum packages,
 Paper or wood packages.
 The product range includes different size of the product with in
the product line.
 Examples: Different size of glass bottles can be manufactured for
varied applications.
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 Cont…
 The product is one item of the product range having different
specifications like
 size,
material used, and
weight, etc.
 In a dynamic business scheme, one has to carefully watch is
one of the basic idea degenerating as regards.
Its ability to generate quick returns.
Its ability to permit quick changes in the products.

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 Cont…
 To be a successful entrepreneur, one major determinant
factor is the choice of a good business idea.
 To select the good business idea, the following steps needs
to be pursued.
a. Identify your problem
b. Define your objectives
c. Identify, develop and analyze the possible alternative
d. Select the best alternative in light of the specific criteria
set to the better fulfillment of the objective.

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 Why Generate Business Ideas?
You need an idea to start a new business
Business ideas need to respond to market needs
Business ideas need to respond to changing consumer wants and needs
Business ideas help entrepreneurs to stay ahead of the competition
Business ideas use technology to do things better
Business ideas are needed because the life cycles of products are limited
Business ideas help to ensure that businesses operate effectively and
efficiently
Business ideas can help specific groups of people (elderly, disadvantaged,
those with disabilities)
Business ideas help to solve natural resource scarcity, pollution and
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depletion/reduction
 Sources of Business Ideas
Good business ideas are a prerequisite for initiating a new
business venture, however, good business ideas do not usually just
occur to an entrepreneur.
 The most sources of business ideas are:
 Hobbies/Personal Interests
 Personal Skills and Experience
 Media (newspapers, magazines,TV, Internet)
 Business Exhibitions
 Surveys
 Customer Complaints
 Natural scarcities and pollution
 Changes in Society
 Brainstorming
 Being Creative
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 Ideas from overseas (Global) Potential Imports
 Evaluating a Business Idea
Each business idea should be evaluated in terms of:
 Present market: the size of the presently available market must
provide prospects of immediate sales volume to support operations
 Market growth: There should be prospects for rapid growth and
high return on invested capital
 Costs: Some of the costs of production will include:
a) start up costs,
b) costs of raw material inputs,
c) labor costs,
d) selling costs,
e) efficiency of production processes,
f) service, warranty, customer complaints and
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g) patents and licenses.
 Evaluating a Business Idea
Business risks: In assessing business risk consider the
following factors:
Market stability in economic cycles,
Technological risks,
Import competition Size and power of competitors,
Legislation and controls,
 Time required to generate profit

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 What project an entrepreneur should have?
 A project: is a complex of economic activities; and can be
defined as a sequence of tasks that must be completed to
attain a certain outcome.
 A Project, broadly defined, in a way of using resources.
A decision between undertaking and not undertaking a project
is a choice between attentive ways of using resources.
 The project should have to consider the SWOT and should be
designed accordingly.
 The SWOT approach compels individuals to think or reason
out systematically and analytically the important factors
strengths, weakness, opportunities, and threats.

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 SWOT
 Strength: is an inherent capacity, which an organization can use
to gain strategic advantage over its competitors.
 Weakness: is an inherent limitation or constraint, which creates
a strategic disadvantage
 Opportunity: refers to any factor that offer promise or
potential for moving closer or more quickly towards the firms
goal
 Threat: is any factor that may limit of the business in the pursuit
of its goals.
 Threats can result from:
Inability to get access to new technology
 Industry entry or exit barriers
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Legislation
26
 Differences among creativity, innovation,
and entrepreneurship ?
The entrepreneur‟s “secret” for creating value in the market-place
is applying creativity and innovation to solve problems and
exploit opportunities that people face every day.
Creativity is the ability to develop new ideas and to
discover new ways of looking at problems and opportunities.
Innovation is the ability to apply creative solutions to those
problems and opportunities to enhance or to enrich people‟s
lives.
Entrepreneurship is the result of a disciplined, systematic
process of applying creativity and innovation to needs and
opportunities in the marketplace.
Entrepreneurship = creativity + innovation
 Cont…

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 What does we take to be creative ?
 Initial Idea
 Customers who are willing to buy your idea
A Willingness to engage in difficult work

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 The creative process

 Idea Germination:
 This is the seeding stage of a new idea.
 It is the stage where the entrepreneur recognizes that an
opportunity exists.
 The idea germination takes place according to interest
and curiosity of the entrepreneur

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 The creative process
 Preparation:
On the basis of the idea, interest and curiosity need is judged
by the entrepreneur and he starts looking for the answer to
implement the idea.
If the idea is to launch a new product or service then market
research is conducted.
That happens because the seed of curiosity has taken form of
an idea, the entrepreneurs for see the future of the product

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 The creative process
 Incubation Process:
 Give the subconscious time to reflect on the information
(daydream, relax, etc.)
 The entrepreneur starts thinking about the idea and
implementation in his sub-conscious mind
Study the problem/opportunity in a wholly different
environment
 E.g. studying the pros and cons of manufacturing the
product before he had launched it.

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 The creative process
 Illumination
In this period of illumination the idea re-surfaces in realistic way.
The entrepreneur comes out with viable plan to give practical
shape by collecting raw-material, arranging funds, policy-making
for the implementation of idea.
 Verification
Also called the validation or testing stage.
Validate the idea is accurate and useful (conduct experiments,
prototypes, etc.)
This is the most difficult phase of creativity as obstacles begin to
appear.
This is the developing stage in which knowledge is developed into
application
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 Managing for Creativity
 Barriers to Creativity  Enhance Ceativity
 Searching for the one “right”  Expecting creativity
answer  Expecting and tolerating failure
 Fearing looking foolish  Encouraging curiosity
 Fearing mistakes and failure  Problems=opportunities
 Believing that “I’m not creative”  Trainings to tap one’s creative
 Focusing on “being logical” capacity
 Blindly following the rules  Capture ideas and harness them
 Constantly being practical  Providing support
 Viewing play as pointless  Rewarding creativity
 Becoming overly specialized  Invite lateral thinking
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 Innovation

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 Relation between the factors
Quality

Cost Time

 Innovation happens when one is improved without negatively

affecting the other two.
 Sometimes maintain the same quality reducing either costs or
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time/both of them.
 Innovation in Technology based Business
 Innovation: is the practical implementation of ideas that
result in the introduction of new goods or services or
improvement in offering goods or services.
 Innovation: refers both output and process arriving at a
technically feasible solution to a problem triggered by a
technological opportunity or customer need.
 Product innovation: results in new or improved products.
 Process innovation: occurs when the manufacturing
processes are improved to make the production of existing
products; cheaper, new or improved way.
 The process of innovations can also be classified as
37 Market-pull and Technology-push innovation:
 Innovation in Technology based Business
 A. Market-pull innovations: advancement of technology
oriented primarily toward a specific market need.
Occur when customers are technologically sophisticated
Occur more frequently with older technologies
Tend to be incremental innovations
 Technology-push innovations: advancement of technology
oriented primarily toward increased technical performance.
Require that the firm‘s scientists, engineers, and
inventors have direct experience with users
Occur more frequently with new and emerging
technologies
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Tend to be the major source of break through innovations.
 Service innovation: occurs when new ways of
delivering services are developed
 e.g. the use of Automatic Telling Machines (ATMs) in
banks to replace human tellers, drive through take-out
lines.

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How to form and develop technology based
ventures?
 Advances in technology are the only source of permanent
increases in productivity.
 Technological changes are basically the results of
innovations which in turn are the outputs of innovative
Entrepreneurs.
Firms become innovative when they successfully incorporate
a technological change new to enterprise as well as to the
economy, and a change has diffused into the economy in addition
to being adopted by the firm.
 How to form and develop technology based
ventures?
 Entrepreneurship studies have identified three critical
factors linked to successful creation of technology based
ventures:
Technology,
 Talent and
Capital
 The strategic focus of new ventures: is used to facilitate;
The effective fusion of innovative technology
Strong and scientific development
Entrepreneurial and management talent, and
41 Investment capital to create a successful venture.
Other support activities: for enterprises with both public and
private sector involvement, include:
Business consulting services: Assistance with
business development,
developing business plans, tax advice etc.
Technical consulting services: More specialized services
such as:
 Networking assistance between enterprises and science and
technology organizations,
 Technology transfer,
 The exchange of similar experiences and
 Identification of potential for cooperation.
Financing support activities: Offer assistance with
accessing and using financial sources such as corporate
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financing, business angels, venture capital, and so forth;
Intellectual property assistance: Assistance with
developing and patenting new and improved technology,
including bringing it to the market for profit;
Patents
Copyrights
Trademark
Industrial design rights and
 Trade secrets.
International assistance: Assistance with the global
networking of incubation and innovation centers for information
exchange and technology transfer
NB: The focus in all the assistance is to increase the self-
reliance of the enterprises so that they can survive sustainably.
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 Factors contributing to the success of high
technology based enterprises:
 The main catalytic factors for the success of high
technology-based enterprises are:
National policies,
Research and development institutions,
Technological entrepreneur development,
Innovative finance support systems, protecting intellectual
property,
Science and technology parks,
Promoting and developing strategic business alliances and
networking,
44 Standardization, quality control and marketing.
 Development process of a new technology
based firms (NTBF)
 There are four fundamental growth stages that most
entrepreneurs should focus on:
Stage 1: Conception and development
The primary focus of the entrepreneur is on the product
development, the securing of adequate financial backing
and the identification of market opportunities.
Dominant problems of NTBF at this point include
construction of a product prototype and selling of the
business idea to investors.

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  In this stage, there are many problems or barriers related
to conception that reduce the chance for new ventures.
Barriers related to:
1. Lack of opportunities
2. Lack of well qualified entrepreneurs
3. Lack of entrepreneurial culture
 Developing the new idea includes:
writing a business plan: evaluates all aspects of the
economic viability of the business venture including a
description and analysis of the business prospects.

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 Stage 2: Commercialization
 In this stage, the major focus of new ventures is on
commercializing the product itself.
 The dominant problems at this point include acquiring
 Adequate facilities,
 Establishing a vendor network and
 Developing product support capability
 The government bodies play big role here;
for example, preparation of trade fairs, training, etc.

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Stage 3: Growth
 This stage is characterized by high growth in both sales and
employees.
 The major problems of the firm at this stage are to produce,
sell and distribute the product in volume while attaining
profitability.
 Important barriers are:
lack of financial resources to maintain the rapid growth of
the enterprises and
difficulties in managing internally the effect of the growth.
 Programs to overcome above-mentioned problems
have to do with:
 Training entrepreneurs in new managing techniques;
special attention to internationalization.
 Process of clustering companies of the same industry
in order to facilitate the interchange of experiences and
best practices.
 Access to financial resources.
Stage 4: stability
 The growth rate of the firm shows to a level consistent with
market growth.
 The major problems of the firm at this point are to maintain
growth momentum and market position.
 Therefore, the entrepreneur should focus on the
introduction of second-generation product for acquiring
new opportunities and the expansion of the business into
new geographic territories and markets.
 Therefore, the programs that can be carried out have to do
with:
 Enhancing the innovation capacity of firms.
 Facilitating the internationalization.
 Technology transfer for business
development
 Technology transfer is the process by which existing
 knowledge,
 facilities and
 capabilities are utilized and marketed to fulfill public and
private needs.
 Technology transfer is the process by which
 basic science research and
fundamental discoveries
are developed into practical and commercially relevant
applications and products.
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 Cont…
 Technology transfer processes;
Technology transfer,
Technology promotion,
Technology deployment,
Technology innovation,
Technology development,
Technology research,
Technology assessment,
Technology information and communication,
Technology investment,
Technology collaboration and
Technology commercialization
 Technology transfer for business
development
 The driving factors to acquire new technology:
Cost: technology can cut costs in many ways: reducing
materials, labor or distribution costs.
 Example: material costs can be reduced by replacing lower cost
material or by reducing the material required to make a product.
Speed of delivery: the key competitive priority may be the
speed of delivery, as measured by lead time required to deliver
a product.
 Example, automated Guidance Vehicle (AGV), Electronic Data
Interchange (EDI).
Quality: technology help to improve the quality and reduce
the production costs.
 Technology transfer for business
development
 Flexibility and Customization: The global market is
characterized by short product lifecycles, increased product
variety, and extensive customization.
 To retain and increase market share in such competitive
environment, firms have to be more flexible in their
operations.
 Increased production volume
 Higher living standards
 Examples:
Technology in Manufacturing  Technology in service
 Numerical controlled (NC)  Office automation
machines  Image processing system
 Industrial robots  Electronic data interchange
 Computerized Aided Design  Decision support system
(CAD) and expert system
 Computer Integrated Mfg.  Networked computer
(CIM) system and expert system
 Automated Material handling
(AMH)
 Flexible manufacturing system
(FMS)
 Steps in Technology Transfer
 It is clear that any technology transfer process has three parallel
components that needs to be taken into consideration.
 Science and Technology: which is responsible for ensuring
that a particular idea or invention is assessed for its
technological feasibility and translated into a marketable
product for commercialization.
 Marketing: the marketing component covers the business
angle, assessing the market conditions and developing a
business plan.
 It is also concerned with the business planning in terms of
developing a comprehensive marketing strategy- to ensure
a clear market capture for the new product.
 Financing: this is the third component that identifies
and procures funds for seed capital, expansion, market
penetration etc., in order to make sure that the return-
on-investments is good.
Each of the above components requires the inputs of
different organization in a market, bringing to the
process different resources and skills that will eventually
lead to the success of the technology and product being
developed.
 Steps in business setting
1. The first key to success in any manufacturing activity is to select
the right product.
These must be examined with a view to assess:
A. The marketing aspects
B. Technical aspects
C. Financial aspects
2. Having selected a product, a detailed project report to be
prepared. This will cover the following aspects.
A. A detailed estimate of demand is to be made.
B. Technical specifications of the process should be carefully studied.
C. The equipment required and their sources are to be specified
D. Requirement of space.
58
 Steps in business setting
3. Implementation of the detailed project report. Includes:
a. Deciding on form of ownership and registration
b. Obtaining finance ,Obtaining license
c. Establishing necessary infrastructures
4. Once all the required authorizations and sanctions have been
obtained, simultaneous action is to be taken for the following.
Pre-commissioning requirement
a. Ordering machinery from suppliers
b. Obtaining utilities like power and water connections after
constructions of shed, if necessary.
c. Recruitment of staff,
d. Arranging supplies of materials
59 e. Arranging for distribution of the products
 Steps in business setting
5. Once these are completed, the plant is ready for
commissioning trial run may be made.
Commissioning of plant, Includes:
a.Trial run of machineries
b.Promotional activity for the product
c.Introduce the product to the market and obtain feedback
6. The unit is then ready for commercial production.
a. Commercial production

This is all about the feasibility study pre & after implementation

60
 Conducting Feasibility study
 Assessing the feasibility of a new venture:
A Feasibility Study: is an analysis of the viability of an
idea.
All activities of the study used to answer the essential
question of “should we proceed with the proposed project
idea?”
Entrepreneurs with a business idea should conduct a
feasibility study to determine the viability of their idea
before proceeding with the development of the business.
Determining it early; Saves
 Time,
 Money and
61 Heartache Later.
 Conducting Feasibility study
A feasible business venture: is one where the
business will:
 Generate adequate cash-inflow and profits,
 Withstand the risks it will encounter,
 Remain viable in the long-term and meet the goals of the founders.
 The feasible business venture can be:
A new start-up business,
The purchase of an existing business,
Franchise,
An expansion of current business operations or
A new enterprise for an existing business.
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 Guidelines of business feasibility study
1. Description of the Business:
 Outline the general business model (i.e. how the business will
make money).
 List the type and quality of product(s) or service(s) to be
marketed Include the technical processes, size, location, kind
of inputs
 Specify the time horizon from the time the project is initiated
until it is up and running at capacity.
 Identify economic and social impact on local communities.
 Identify environmental impact on the surrounding area
2. Market Feasibility: enterprise description, enterprise
competitiveness, market potential, sales projection, access to
market outlets, etc.
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 Guidelines of business feasibility study
3. Technical Feasibility: determine facility needs, suitability of
production technology, availability and suitability of site, raw
materials, HR , etc.
4.Financial Feasibility: Estimate the total capital
requirements, Estimate equity and credit needs and
determine sources, Budget expected costs and returns of
various alternatives…
5. Organizational/Managerial Feasibility: legal structure
of the business, Business founders,
6. Study Conclusions: it contain the information you will use
for deciding whether to proceed or not with creating the
business.
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 Developing A Business Plan
WHAT IS A BUSINESS PLAN?
A business plan is a comprehensive set of guidelines for a
new venture.
A business plan is also called a feasibility plan that
encompasses the full range of business planning activities.
A business plan would present your basic business idea and all
related operating, marketing, financial and managerial
considerations.
 A business plan should lay out your idea, to describe;
where you are now,
point out where you want to go, and
how you propose to go there.
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66
 The Purpose of Business Plan
1. It can help the owner/manager crystallize and focus his/her
idea.
2. It can help the owner/manager set objectives and give him a
yardstick against which to monitor performance.
3. It can also use as a vehicle to attract any external finance
needed by the business.
E.g. To get fund…
5) It can convince investors that the owner/manager has
identified high growth opportunities.
6) It emphasizes the strengths and recognizes the weaknesses of
the proposed venture.
7) The plan can uncover weakness or alert the entrepreneur to
67 sources of possible danger
 Some of the purpose of business plan
 The business plan is valuable to the:
 Entrepreneur
 Potential Investors
Venture Capitalists
 Banks
 Financial Institutions
 New Personnel's Suppliers
 Customers
 Advisors and others who are trying to familiarize themselves with
the venture, its goals, and objectives.

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 The Purpose of Business Plan
Some common business plan mistakes
1. The plan is poorly written
2. The plan presentation is sloppy.
3. The plan is incomplete.
4. The plan is too vague
5. The plan makes unfounded or unrealistic assumptions.
6. The plan includes inadequate research
7. You claim there's no risk involved in your new venture.
8. You claim you have no competition.

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 When the business plans are produced?
Business plans are produced; in either of the
following cases:
 At the start up of a new business:
 A New business start up may go through a more detailed
planning stage of which the main output is the business plan.
 Purchase existing business:
Buying an existing business does not neglect the need for an
initial business plan.
A detailed plan, which tests the sensitivity of changes to key
business variables, greatly increases the prospective purchasers
understanding of the level of risk they will be accepting, and
likelihood of rewards being available.

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 When the business plans are produced?
Ongoing business:
Ongoing review of progress, against the objectives of either a
startup or small business purchase, is important in a dynamic
environment.
 Major decisions: at a time of major change,
 For example, the need for major new investment in equipment or
funds to open a new outlet.
It may be linked to failure, such as a recovery plan for an
ailing (or in bad condition) business.
 Who produced the business plan?
Managers,
Owners,
Lenders, etc.
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 Why the business plans are produced?
Assessing the feasibility and viability of the
business/project: it is in every ones interests to make mistakes
on paper, hypothetically testing for feasibility, before trying the
real thing.
 Setting objectives and budgets: having a clear financial vision
with believable budgets is a basic requirement of everyone
involved in a plan.
 Calculating how much money is needed: a detailed cash flow
with assumptions is vital ingredient to precisely quantify earlier
the likely funds required.
 facilitates in assessing and making provisions: for the
bottlenecks in the progress and implementation of the idea,
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 The Format of A Business Plan
1. Where are we now?
Analysis of the current situations: of the market place, the
competitions, the business concept and the people involved.
It will include any historical background relevant to the
positions to date.
2. Where do we intend going?
Qualitative expression of the objectives, quantifiable targets
will clarify and measure progress towards the intended goals.
3. How do we get there?
Implementing of accepted aims is what all the parties to a
plan are interested in as a final result.

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 Components of Business Plan
I. Analysis of the current situation (where are we now?)
1. Identification of the business
a. Introduction
- Relevant history and background
- Proposed date for commencement of trading /beginning of a
plan
b. Names
- Name of the business and trading name
- Name of the managers/owners
c. Legal identity
- Company/partnership/sole-trade/cooperative
74 - Details of share or capital structure
 Cont…
d. Location
-Address-registered and operational
-Brief details of premises.
e. Professional advisers
-Accountants, solicitors, bank
2. The key people
a. Existing management
-Outline of background experience, skills and knowledge.
-Names of the management team
b. Future requirement
-Gaps in skills and experience and how they will be filled
75 -Future recruitment intentions
 Cont…
3. The nature of the business
a. Product(s)or service(s)
 Description and applications of
-Key suppliers
-Planned developments of product or service
b. Market and customers
- Definition of target market, classification of customers
- Trend in market place
c. Competition
-Description of competitors; strength and weakness of the major
competitors.
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 Cont…
II. Future Direction (where do we intend going?)
i. Strategic Influence -SWOT Analysis
1. Opportunities and threats in the business environment
Socio-economic and Technological trends
Legislation, politics and Competition
2. Strengths and weaknesses
In its industry,
In the general environment:
ii. Strategic direction:
1. Objectives- general and specific
2. Policies- guidelines and rules
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3.Activities- action plans and timetable of key activities
 Cont…
III. Implementation of Aim (how do we get there?)
1. Management of resources
a) Operation:- premises, materials, equipment, insurance, management
information system.
b) People/Human resource/- employment practices, recruitment,
team management, training etc..
2. Marketing plan
a) Competitive edge- unique selling point of business (Critical
products or service characteristics or uniqueness in relation to
competitors)
b) Marketing objectives - specific aims for product or service in the
market place
c) Marketing methods- product, pricing, promotion,
distributions=4ps
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 Cont…
3. Money: financial analysis;
a. Funding requirement- start up capital, working
capital, asset capital, timing of funds required, security
offered.
b. Profit and loss:- -3 years forecast, sales variable costs,
profit, overheads, net profit
c. Cash flow:-- 3 years forecast, receipts, payments,
monthly and cumulative cash flow
d. Balance sheet - use of funds, source funds

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 Outline of a Business plan
1. Introductory Page
a) Name and address of business
b) Name(s) and address (es) of principals
c) Nature of business
d) Statement of financing needed
e) Statement of confidentiality of report
2. Executive Summary – One to two pages summarizing
the complete business plan.
Clearly identified concept and purpose, concise and
comprehensive answers to basic questions like who, what,
when, where, and how questions compiled to generate
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passion on the overall plan.
 Outline of a Business plan
3. Industry Analysis
(a) Future outlook and trends
(b) Analysis of competitors
(c) Market segmentation
(d) Industry forecasts
4. Description of Venture
(a) Product (s)
(b) Services (s)
(c) Size of business
(d) Office equipment and personnel
81 (e) Background of entrepreneurs
 Outline of a Business plan
5. Production Plan
a) Manufacturing process (amount subcontracted)
b) Physical plant
c) Machinery and equipment
d) Names of suppliers of raw materials
6. Marketing Plan
a) Pricing
b) Distribution
c) Production
d) Product forecasts
82 e) Controls
 Outline of a Business plan
7. Organizational Plan
a) Form of ownership
b) Identification of partners or principal shareholders
c) Authority of principals
d) Management-team background
e) Roles and responsibilities of members of organization
8. Assessment of Risk
(a) Evaluate weakness of business
(b) New technologies
(c) Contingency plans
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 Outline of a Business plan
9 Financial Plan
a) Pro forma income statement
b) Cash flow projection
c) Pro forma balance sheet
d) Break-even analysis
e) Sources and application of funds
10 Appendix (contains backup material)
a) Letters
b) Market research data
c) Leases or contracts
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d) Price lists from suppliers
85