Chapter 10 - Business plan

Question 1

Prepping for a business plan

Answer 1

The business plan is a written document which spells out where the business is heading and explains in detail how it is going to get there.
The business plan helps the business owner or entrepreneur to focus activities in an organised manner to reach objectives. If you have a carefully thought-out
and documented business plan, you can constantly refer to it in response to the pressures of day-to-day life in business. If no plan exists, there is nothing to refer
to as a guideline while you are running your business.
Entrepreneurs need to understand that writing a business plan is not the final step in establishing a business. If the plan is not going to lead to action,
documenting it is a waste of time. In addition, planning is not a once-off process for entrepreneurs. It is not always possible to achieve all the objectives set out in a business plan. As a result, these objectives need to be refocused. A business plan should be continuously updated, considering all the changes which could
potentially affect a business

Question 2

Objectives of a business plan

Answer 2

There are three main purposes to developing a business plan, namely:
To obtain funding
To provide a purpose and goals for the business
To use it as a tool to reduce risks.

Question 3

Benefits of a business plan

Answer 3

Focus: There will be a co-ordinated effort towards clearly defined objectives.
Objectives: Everybody in the business will know where it is heading and what each person’s role is.
A tool to measure performance against: Everybody will know whether performance has been outstanding, satisfactory or unsatisfactory.
A marketing tool to obtain finance or sell the business: An outsider will find it easy to understand what the business is doing or hoping to achieve.
A systematic evaluation of chances of success: This measures the potential for success in the market.
A method to determine the risks: Once such risks facing the business are identified, they can also be minimised or addressed entirely.
Aroadmap: The purpose of such a roadmap is to direct the business.

Question 4

Types of business plans

Answer 4

An entrepreneur or business owner should consider what is needed in the business before choosing from a range of business plans. Different situations may
require different business plans. Business plans are not all the same because they are written for different purposes and different audiences. The situations that may require different business plans, as identified by Nieman & Nieuwenhuizen (2014), are discussed in the sections that follow.

Question 5

Planning a new business

Answer 5

This type of business plan is developed when an entrepreneur wants to start a new business and it is usually used to obtain funding for the new venture. The aim of this business plan is to guide the entrepreneur through the process of identifying the products and/or services he wants to develop, who will be his target market and all information with regards to the proposed business, including a detailed
financial plan.

Question 6

Transforming or extending an existing business

Answer 6

In this case, the business plan is developed when an owner wants to transform or expand his business for growth purposes. It should include the expansion costs
involved and how these costs will be financed.

Question 7

Creating a strategic document for an existing or new business

Answer 7

This business plan should serve as a road map to coordinate and lead the business towards clearly identified objectives. It should indicate how objectives will be achieved and how performance will be controlled.

Question 8

Obtaining a loan

Answer 8

The business plan that is designed to obtain a loan should ideally not differ greatly from a business plan that is used as a strategic document. For financial
institutions to consider the plan, the plan should indicate the proof of customer and product existence, as well as the bank policy appreciating risk and collateral

Question 9

Attracting shareholders or partners

Answer 9

In this case, the business plan concentrates on providing information on growth and profit potential and strategy on how to achieve profit and growth projections

Question 10

Selling the business

Answer 10

This type of business plan is designed to give prospective buyers the reasons for selling, and to provide information on the business position relative to
competition. It also indicates the municipal laws concerning the business, its credit rating and the customers’ opinion on the business.

Question 11

Providing direction for management and staff

Answer 11

A well-defined business plan can provide management and staff with direction and focus regarding the business objectives and its organisational structure.

Question 12

Preparing the business for a merger with another business

Answer 12

This type of business plan describes current operations and future plans of the business as well as its competitive advantage and growth. The business plan
should also include audited financial statements of past performance, a SWOT analysis, competitor analysis and future plans of the business.

Question 13

Preparing the business for take over

Answer 13

In this case, the business plan includes the reasons and impact of the takeover on profit, cash flow, market share and management. It should also include
opportunity costs of not taking over, how the takeover will comply with laws and regulations, and how it aligns with the vision and mission of the business.

Question 14

Positioning the business in the market

Answer 14

This type of business plan should indicate scientific market research to identify opportunities in the market, and it should give an analysis of profit and growth
potential in the market. It should also show reasons for selecting a specific positioning strategy.

Question 15

Elements of a standard business plan - cover page

Answer 15

The cover page should contain the following information about the business:
Full name, address, phone numbers, fax number, email and web site
Ownership status
Contact name and title
Date of the plan.

Question 16

Table of contents

Answer 16

The table of contents provides a sequential listing of the sections of the plan with page numbers. The table of contents allows the reader to spot-read the plan rather than reading it from front to back. It contains a list of main headings and detailed categories.

Question 17

Executive summary

Answer 17

The executive summary provides a clear and concise overall picture of the proposed plan. It presents the essential elements of the business plan in a
nutshell. The executive summary should explain the following:
What the business is about
The purpose of the loan request
The amount of the loan requested
How funds will be used
How the loan will be repaid
How much of the total required capital the owners are providing
What collateral can be offered to secure the loan.

Question 18

Company description

Answer 18

This section gives a brief description of the company. This details the type of business being proposed, its objectives, where it is located and whether it will
serve a local or international market. The entrepreneur should answer the following questions in writing this section:
When and where is the business to be started?
What is the history of the company?
What are the business’s objectives?
What is its primary product or service?
What customers will be served?
What is the business’s form of organisation?
What is the current and projected economic state of the industry?

Question 19

Product/Service plan

Answer 19

The product/service plan describes the products and/or services to be offered to customers. This is where you must explain how your products or services fill a gap in the market or how they are better, cheaper or faster than whatever else is available. Chapter 4: Sales and marketing provides in-depth coverage of this
section.

Question 20

Marketing plan

Answer 20

According to Longenecker, Petty, Palich & Hoy (2014),
the marketing plan describes how the business will reach and service its customers within a given
market. The marketing plan section should present the marketing strategy. This includes methods of identifying and attracting customers, pricing strategies, the selling approach, the type of sales force, distribution channels, the types of sales
promotions and advertising, and credit and pricing policies. Chapter 4: Sales and marketing discusses this topic in more details fully. The sections that follow now
focus on customers, industry and competition.

Question 21

Customers

Answer 21

Business owners should discuss their business’s products or services with their customers. Discussions should include topics such as quality, service, personal
contracts, political pressure and purchasing decisions around price.

Question 22

Industry

Answer 22

Business owners should know in detail the current total market share of their business’s products/services offered. Available market data can help to determine
the size of this market share holding.

Question 23

Competition

Answer 23

Business owners should provide a realistic assessment of the strengths and weaknesses of competitor products or services.

Question 24

Operations plan

Answer 24

The operations plan section of the business plan offers information on how a product or service will be produced or provided, including descriptions of the new business’s facilities, labour, raw materials and processing requirements. The business owner will explain how operations will create value for the customers. This part of the plan will vary depending on whether the business is a service or a
product business. If the business offers products, then the technical detail of the product is important. Chapter 6: Operations management provides in-depth
coverage of this section. The aspects discussed in the sections that follow are important

Question 25

OP: Capacity

Answer 25

Capacity is defined as how many products the business can produce.

Question 26

OP: Scheduling of production

Answer 26

This is the timing and steps required to bring the business up to maximum capacity. Graphs and charts can help to show interrelationships between events. Thus they can assist in determining the optimal scheduling.

Question 27

OP: Quality management

Answer 27

This is what the business will do to ensure quality and control of the inventory

Question 28

Management plan

Answer 28

The management plan section of the business plan describes: A business’s organisational structure A profile of the business’s management team including directors, consultants, advisers and other key professionals who will be involved in the business (Longenecker et al., 2014).

Question 29

Financial plan

Answer 29

The financial plan section of the business plan projects the business’s financial position. A business’s financial position can be determined using well substantiated methods that demonstrate how the figures have been determined. This part of the plan explains how to determine the finance required for the business, being the amount of money required to start the business, how the business is going to be financed once it is operating, and any additional funds required

Question 30

FP: Breakeven analysis

Answer 30

As referred to in Chapters 3 and 5, the breakeven point is where the income is equal to the total cost plus variable costs. The breakeven point is an important guideline for the prospective entrepreneur, as this is the minimum turnover necessary for covering all costs. For further information on breakeven analysis, read Chapters 3 and 5 of this book.

Question 31

Organisations

Answer 31

Two key organisations that can assist you with information and advice (Entrepreneur, 2011) are: Small Business Development Centres (SBDCs): SBDCs offer a wide variety of information and guidance to small businesses and their owners. If you need help with developing your business plan, SBDC counsellors can help with market research, cash flow projection and more. And, in most cases, the help is free. Service Corps of Retired Executives (SCORE): The Service Corps of Retired Executives, more commonly known as SCORE, is a non-profit group of mostly retired business people who voluntarily provide free counselling to small businesses. SCORE is a programme of the Small Business Administration (SBA). It started in 1964 and has helped millions of entrepreneurs.

Question 32

Business planning advisors

Answer 32

Entrepreneurs who lack experience and know-how in business planning can seek professional assistance in the form of business planning advisors. Business planning advisors may be accountants, marketing specialists, attorneys, incubator associations, small business development corporations or regional and local economic development offices. Organisations like the Small Business Administration (SBA) and the Service Corps of Retired Executives (SCORE) have helpful programmes and can introduce business owners to volunteer experts, such as business planning advisors. The Small Enterprise Development Agency (SEDA) and the Centre for Entrepreneurship Leadership at the University of South Africa are other sources of assistance. Business planning advisors often work as consultants. Most consultants are legitimate experts in specific or general business areas and can be hired to help with all or some of the sections in a business plan. However, the business community is divided around the use of consultants. Some believe in the value of hiring outside experts to bring new perspectives and broader knowledge to challenging tasks. Others feel consultants are overpaid and are often appointed to endorse plans already approved or to take the heat for unpopular but necessary decisions. When using a consultant, you as the entrepreneur must communicate clearly throughout the engagement. You must fully explain the nature of your business: your concept, strategy, financial needs, control of the business and future plans for the business. Keep referring back to these important aspects throughout the process to ensure the business plan resulting fits your exact business needs. On completion, your debrief of the consultant can uncover learnings not included in the plan.

Question 33

Business planning advisors continued

Answer 33

Get referrals: Ask colleagues, acquaintances or professionals such as bankers, accountants and lawyers for names of business plan consultants they recommend Look for a fit: Find a consultant who is an expert in yourtype of business. Check references: Obtain three references for clients that the consultant has worked with. Contact them to check their experience with the consultant. Get it in writing: Sign a legal contract with the consultant for services to be provided. The contract should detail the exact tasks required from the consultant, the consultant’s fee, the timing of fee payments and when these become due.