Writing a Business Plan

Godwin Machingambi
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LEARNING OBJECTIVES

After studying this chapter you should be ready to:

1. Explain the purpose of a business plan.

2. Describe who reads a business plan and what they are looking for.

3. Discuss the guidelines to follow to write an effective business plan.

4. Identify and describe a suggested outline of a business plan.

5. Explain how to effectively present a business plan to potential investors.

Definition
• A business plan is a written narrative that describes what a new
business intends to accomplish and how it intends to accomplish it.
• For most new ventures, the business plan is a dual-purpose document
that is used both inside and outside the firm.
• Inside the firm, the plan helps the company develop a “road map” to
follow to execute its strategies and plans.
• Outside the firm, it introduces potential investors and other
stakeholders to the business opportunity the firm is pursuing and how
it plans to pursue it.
PURPOSE OF WRITING A BUSINESS PLAN

Internal Reason External Reason

Forces the founding team

Communicates the
to systematically
merits of a new venture
think through every
to outsiders, such as
aspect of its
investors and bankers
new venture
 Internal Reason
• writing a business plan forces a firm’s founders to intently study every
aspect of their business, a process that’s hard to replicate in any other
way.
• articulates a firm’s vision and future
• identify a business’ target market, hiring schedule, the type of people they want
to employ, start-up expenses, location….
External Reason
• The second reason to write a business plan is to create a selling
document for a company.
• It provides a mechanism for a young company to present itself to
potential investors, suppliers, business partners, key job candidates,
and others.
• Having a business plan also gives an investor something to which she
or he can react. Very few, if any, investors will free up time to “listen”
to your idea for a new business, at least initially.
Who Reads the Business Plan—and What Are They Looking
For?
There are two primary audiences for a firm’s business plan. Let’s look at each of
them.

A Firm’s Employees
• A clearly written business plan also helps a firm’s rank-and-file employees
operate in sync and move forward in a consistent and purposeful manner.
• The existence of a business plan is particularly useful for the functional
department heads of a young firm.
• For example, imagine that you are the newly hired vice president for
management information systems for a rapidly growing start-up.
• The availability of a formal business plan that talks about all aspects of the
business and the business’s strategies and goals can help you make sure that
what you are doing is consistent with firm’s overall direction.
Investors and Other External Stakeholders
• External stakeholders who are being recruited to join a firm, such as
investors, potential business partners, and key employees, are the
second audience for a business plan.
• To appeal to this group, the business plan must be realistic and not
reflective of overconfidence on the firm’s part.
• A firm must validate the feasibility of its business idea and have a
good understanding of its competitive environment prior to
presenting its business plan to others.
• Sophisticated investors, potential business partners, and key recruits
will base their assessment of a proposed firm’s future prospects on
facts, not guesswork or platitudes
• the plan must clearly demonstrate that the business idea is viable and offers
potential investors financial returns greater than lower-risk investment
alternatives.
• The same is true for potential business partners, customers, and key recruits.
Guidelines for Writing a Business Plan
• It is important to remember that a firm’s business plan is typically the
first aspect of a proposed venture that an investor will see.
• If the plan is incomplete or looks sloppy, it is easy for an investor to
infer that the venture itself is incomplete and sloppy.
• It is important to be sensitive to the structure, content, and style of a
business plan before sending it to an investor or anyone else who
may be involved with the new firm.
Structure of the Business Plan
 Outline of the Business Plan
Cover Page and Table of Contents
• The cover page should include the company’s name, address, and
phone number; the date; the contact information for the lead
entrepreneur; and the company’s website address if it has one.
• The company’s Facebook page and Twitter and Instagram names can
also be included.
• The contact information should include an e-mail address, a
smartphone number, and a landline number if you have one.
Executive Summary
• The executive summary is a short overview of the entire business
plan; it provides a busy reader with everything she needs to know
about the new venture’s distinctive nature.
• In many instances an investor will first ask for a copy of a firm’s
PowerPoint deck or executive summary and will request a copy of the
full business plan only if the PowerPoint deck or executive summary
is sufficiently convincing.
• certainly when requested, the executive summary arguably becomes
the most important section of the business plan.
• The most critical point to remember when writing an executive
summary is that it is not an introduction or preface to the business
plan; instead, it is meant to be a summary of the plan itself.
 Industry Analysis
• The main body of the business plan begins by describing the industry
in which the firm intends to compete.
• This description should include data and information about various
characteristics of the industry, such as its size, growth rate, and sales
projections.
• It is important to focus strictly on the business’s industry and not its
industry and target market simultaneously.
• Before a business selects a target market, it should have a good grasp
of its industry—including where its industry’s promising areas are and
its points of vulnerability.
Industry Analysis
• nature of the participants in your industry.
• key success factors in an industry
• Industry trends(PESTLE)
• Business trends(whether profit margins in the industry are increasing or
declining and whether input costs are going up or down)
The industry analysis should conclude with a brief statement of your beliefs
regarding the long-term prospects for the industry
 Company Description
• This section begins with a general description of the company.
• explain the origin of the idea for the company and the driving force
behind its inception
• A mission statement defines why a company exists and what it
aspires to become.
• a mission statement should define the path a company takes, act as
its financial and moral compass, and serve as an anchor around which
decisions are made.
• Some businesses also include a tagline in their business plan. A
tagline is a phrase that a business plans to use to reinforce its
position in the marketplace.
• The products and services section should include an explanation of your
product or service.
• Include a description of how your product or service is unique and how you
plan to position it in the marketplace.
Market Analysis
• The market analysis is distinctly different from the industry analysis.
• Whereas the industry analysis focuses on the industry in which a firm intends
to compete (e.g., toy industry, fitness center industry, men’s clothing industry),
the market analysis breaks the industry into segments and zeroes in on the
specific segment (or target market) to which the firm will try to appeal.
• The first task that is generally tackled in a market analysis is to segment the
industry the business will be entering and then identify the specific target
market on which it will focus.
• It’s important to include a section in the market analysis that deals directly with
the behavior of the consumers in a firm’s target market.
• The more a start-up knows about the consumers in its target market, the more
it can gear products or services to accommodate their needs.
• A competitor analysis, which is a detailed analysis of a firm’s competitors,
should be included.
• The final section of the market analysis estimates a firm’s annual sales and
market share.
• There are four basic ways for a new firm to estimate its initial sales.

Task
Identify and explain four ways that can be used by the firm to estimate initial
sales.
The Economics of the Business
Marketing Plan
• The marketing plan focuses on how the business will market
and sell its product or service.
• It deals with the nuts and bolts of marketing in terms of price,
promotion, distribution, and sales.
• The best way to describe a company’s marketing plan is to start by
articulating its marketing strategy, positioning, and points of
differentiation, and then talk about how these overall aspects of the
plan will be supported by price, promotional mix and sales process,
and distribution strategy.