Chapter Two

Business Planning
2.1 Introduction
In the previous chapter, we dealt with the concept of Entrepreneurship. This unit will help you to
understand the concept of opportunity identification and evaluation, business idea development
and how to prepare a business plan. 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.
Chapter Objectives
After completing this chapter, students will be able to:
 Identify opportunity in the environment,

 Evaluate the opportunities in the environment,

 Generate business idea,

 Explain the concept of business planning,

 Identify components of business plan,

 Develop business plan,

2.2 Opportunity Identification and Evaluation

Most authors agree that the initial stage in the entrepreneurial process is the identification and
refinement of a viable economic opportunity that exists in the market. Without the recognition of
an opportunity the entrepreneurial process is likely to result in failure.
Opportunity recognition corresponds to the principal activities that take place before a business
is formed or structured. The opportunity identification and evaluation stage can be divided into
five main steps namely; getting the idea/scanning the environment, identifying the opportunity,
developing the opportunity, evaluating the opportunity and evaluating the team.

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1) Scanning the Environment/ Getting the Idea
While scanning the environment it may be provide you with idea and business opportunities.
Idea is a thought or suggestion about a possible course of action. Synonymous with “idea” are
the terms thought, intention, scheme, suggestion, proposal, initiative, spur, impulse, brainwave,
insight, concept and connotation. Whereas, opportunity is a favorable time or set of
circumstances for doing something. Synonymous with opportunity are chance, opening and
prospect. A business opportunity is a gap left in a market by those who currently serve it, giving
a chance to others to add unrealized value by performing differently from and better than
competitors in order to create new possibilities.
2) Opportunity Identification
Opportunity identification is ability to see, to discover and exploit opportunities that others miss.
It is the process of seeking out better ways of competing. It includes scanning the informational
environment, being able to capture, recognize and make effective use of abstract, implicit and
changing information from the changing external environments.
Opportunity identification is a very difficult task, as most opportunities do not just appear but
rather result from an entrepreneur’s alertness to possibilities. In developing countries, problems
may be changed to business opportunities.
3) Opportunity Development
Having recognized the opportunity, timely adaptation of that opportunity to suit actual market
need is key to new venture success. Opportunity development is the process of combining
resources to pursue a market opportunity identified. This involves systematic research to refine
the idea to the most promising high potential opportunity that can be transformed into marketable
items.
4) Opportunity Evaluation
Opportunity screening and evaluation is a critical element of the entrepreneurial process. A
professional executed evaluation can tell whether the specific product or service has the returns
needed to justify the investment and the risk to be taken.
Opportunity screening and evaluation is perhaps the most critical element of the entrepreneurial
process, as it allows the entrepreneur to assess whether the specific product or service has
the returns needed for the resources required.

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This evaluation process involves looking at the creation and length of the opportunity, its real
and perceived value, its risks and returns, its fit with the personal skills and goals of the
entrepreneur, and its differential advantage in its competitive environment. According to
experts, evaluating the opportunity must answer the questions listed in table 2.1 below:
Table 2.1: Business factors and questions for opportunity evaluation
Business factor Questions for evaluation

Product or Description of the product or service, its differentiator, purpose and the need
it fills
Service
o What competitive advantage / benefits does the product have?

o What is the required customer care support for this product/service?

o Is the company able to produce product and supply required aftercare

support?

Market o Where is the market demand? What is the target market? Is it generic or
a niche?
Opportunity
o Industry characteristics (growth rates, change, entry barriers).

o What market share can the product reasonably expect today? In 2, 5 or

10 years?

o Timing and length of the window of opportunity?

o What competition exists in this market? Substitutes? How big is their

turnover?

o How accessible are the desired distribution channels?

Costing and o How much will it cost to develop the product and commercialize it?

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Business factor Questions for evaluation

Pricing o Where will the funds come from?

o How do the pricing, costs and economies of scale compare with

competitors?

o How easy is it to acquire equipment, skills and other inputs required?

Profitability o Where is the money to be made in this activity? What are the gross
margins?

o Would the return on investment be acceptable? What is the payback

period?

o What are the cash flow patterns and the source of working capital?

Capital o How much capital (people, operating expense and assets) is required to
start?
Requirements
o What are the long-term capital needs?

o How much of the required capital is secured and where will the rest
come from?

o What securities are available to guarantee the required funds?

o Is there a list of potential funders? In case the funders withdraw their

capital?

Issues and risks o What risks (real and perceived) are inherent with the product/service?

o Industry based risks e.g. is the market on a decline?

o Are there plans for surviving the death of the lead entrepreneur?

o Unreliable forecasts? Inadequate cash flow?

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 Business factor Questions for evaluation

o Inability to grow with the demand or cope with shrinking sales?

o Supplier and value chain management?

5) Assessment of the Entrepreneurial Team

Regardless of how right the opportunity may seem to be, it will not make a successful business
unless it is developed by a team with strong skills. Gartner et al (1999:230) advices that once the
opportunity has been evaluated, the next step is to ask pertinent questions about the people who
would run the company. Such questions are illustrated in table 2.2:

Table 2.2: Team factors and questions for opportunity evaluation

Team factor Questions for evaluation

Focus: o Is the founder really an entrepreneur, bent on building a company?

o Does the entrepreneur (or his team) have some experience (work or
industry)?

o Do they really like this product/sector? Do they really want this?

o Can the team create products to suit that market need?

o How stressful is the opportunity for the team?

Selling: o Does the team have the necessary selling and closing skills?

Management: o Who will work full time? Do your managers represent competitive
advantage?

o Does the team have the necessary management and technical skills?

o If the required skills are not available, can they be acquired at

competitive rates?

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 Team factor Questions for evaluation

o How is their relationship with the entrepreneur, commitment and

motivation?

Ownership: o Have the critical decisions about ownership and equity splits been
resolved?

o Are the members committed to these?

o Does the owners have enough financial capital for required own
contributions?

2.3 Business Idea Development

Brainstorming Cases on business Idea and Business Idea Identification is given as follow:

Case 1: Janet’s Experience

Janet has a small farm and her husband works in a nearby mine, but even though both of them
have jobs, they do not earn enough money to pay for their children’s education. Janet decides to
try and start her own business by rearing chickens to sell. She knows how to do it and her uncle
gives her a loan of $400 to start the business. However, before she buys the chicks, someone tells
her that there is a huge demand for sunflower oil because of its lack of availability in the market.
Traders are knocking on the doors of local farmers asking them to produce it. Thinking she can
earn a lot more money from pressing sunflower seeds for oil, Janet changes her business idea and
starts an oil pressing venture.

Janet has never grown a large quantity of sunflowers. She spends all the money from the loan to
buy seeds, fertilizer and the oil pressing equipment. Since she uses most of the family farmland
to grow sunflowers, there is less land to grow maize and vegetables for the family to eat. The
chemicals from the fertilizer begin to make her children sick. She now has to buy more food for
the family. It takes a lot of time and effort to process the oil, so, Janet has to employ someone to
help her. A lot of other farmers have started growing sunflower seeds too. Therefore, by the time
her oil is ready to sell, the market is already saturated with the good and Janet cannot find a
buyer. To reduce her losses, Janet has to sell the oil at a very low price to a local shop. As a
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 result, Janet makes very little money and she is not able to pay back the loan.

Reflection question: What is wrong with Janet’s business idea? Why?

A business idea is a short and precise description of the basic operation of an intended business.
There are three types of business ideas. They are:
1. Old Idea – Here an individual copies an existing business idea from someone.

2. Old Idea with Modification – In this case the person accepts an old idea from someone
and then modifies it in some way to fit a potential customer’s demand.

3. A New Idea – This one involves the invention of something new for the first time
2.4 Business Idea Identification
Before you start a business, you need to have a clear idea of the sort of business you want to run.
Your business idea will tell you:

F Which need will your business fulfill for the customers and what kind of customers will
you attract?

F What good or service will your business sell?

F Who will your business sell to?

F How is your business going to sell its goods or services?

F How much will your business depend upon and impact the environment? A good
business idea will be compatible with the sustainable use of natural resources and will
respect the social and natural environment on which it depends.

All business ideas are not equally worth. Therefore, to identify promising business idea among
others, it is important to answer the above raised questions. Let we see the explanation for the
questions raised above.
2.4.1 The Need will Your Business Fulfill for the Customers
Your business idea should always have customers and their needs in mind.

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It might be a good idea to start a day care center in the commercial area as many other parents
may have the same need.

2.4.2 Good or Service will your Business Sell

Depending on your skills and the needs of the customers, you should decide which good or
service your business will sell. Also, keep in mind that they must be goods or services that
people are willing to pay for and at a price that will allow you to make a profit.

A good is an item that people pay for and use. It may be something you make yourself or it may
be something you buy to resell. Tools, baked goods, clothes and retail items are all products. A
service is something you do for people that they then pay you for.

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For example, delivering goods, banking, babysitting, repairing items, collecting recyclable waste
from apartment buildings, operating tours, etc. are all services.
2.4.3 Identifies Potential Customer
Any business cannot succeed without customers. Therefore, it is essential that you know who
your customers will be. Will you sell to a specific type of customer or to everyone in an area?
There must be enough people who are able and willing to pay for your goods and services or the
business will not survive.

Refer to the Cases of Janet and Lily Narrated in this Chapter:

Janet had no idea who the end customers of Lily knew that her customers will be teenage
her sunflower oil might be. She just focused on girls in her area. She researched the market by
producing the oil and thought that the shops observing the clothes shops and the target
will buy it from her. Therefore, she did not customers to make sure that there was a real
know how big the need was for her good. She need that she could fulfill. She also knew that
also did not know if there were any there was no competitor currently filling that
competitors who were going to fulfill the same need.
needs of the customers.

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2.4.5 Relation between Business and Environment
Your business can only be sustainable in the long run if it works in harmony with the social and
natural environment. How much does your business depend on the environment? Does it rely on
the weather, soil or other natural resources? Does it need any specific type of labor from the local
community? Does it need the local community to support it? What should you do to make sure
that your business nurtures the natural environment and helps the local community? Will your
business nurture the natural environment or will it have a detrimental impact? How would you
minimize or reverse any negative effect that your business might have? This is discussed in
detail in Chapter one of this module.

2.5 Methods for Generating Business Ideas

Brainstorming Cases on business idea generation is given as follow:
Case 3: Hamisi Experience

Hamisi worked for a gas stove importer for five years before he decided to open his own
business. His aunt owns a successful hardware supply and rental shop, so she offered to be his
financial partner and provide funds for his start-up. She does not want to be involved in the
operation, but only to share the profit, while letting Hamisi run the business himself. Hamisi
starts thinking about possible business ideas.

He enjoys making sesame bags and wall hangings, which many of his friends admire. Therefore,
at first he thinks about making and selling them to tourists as souvenirs. However, after talking to
a number of local shopkeepers, he learns that there are too few tourists in his area for such a
business to be profitable.

Hamisi thinks about opening a gas stove shop, as he knows how to source imported gas stoves
and he is familiar with the functions and quality of each brand. He does some market research
and learns that there are quite a few gas stove shops in his area and their sales are low. They are
offering various discount and promotional schemes, but none of their promotions have increased
sales significantly. He decides that he better not enter such a tough market.

While still thinking about a business idea, Hamisi helps his aunt move to a new house. Although
it is easy to find a van to rent, no one offers moving services, such as packaging, loading and
unloading. Hamisi has to ask some of his friends to help him package and carry his aunt’s

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 furniture and belongings.

They spend a whole weekend looking for packaging and then disassembling the big items,
wrapping and packing them, loading them in the van, unloading them at the new house and then
unpacking and reassembling them. Hamisi wonders why there is not a moving company in the
area. Realizing that this might be a business idea, Hamisi does some research on that field of
business and then describes his business idea as follows :

My business idea: Home/ office packaging and moving service

• Which need will my business fulfill? Everyone I talk to agree that moving from house to
house, or office to office is very difficult and time-consuming. There is no company in the area
that provides packaging and moving services. Therefore, if I provide these needed services, my
business will have a steady demand.

• What good/service will I provide? I intend to offer complete packaging and moving services
for homes and offices. Although I have no experience running this type of business, I have some
experience handling, storing and transporting goods. I learned these things while working with
the gas stove importing company. I can ask my brother who is very good at process management
to plan the operation. In addition, I can use a reliable transportation provider who often works for
my aunt’s shop.

• To whom will I sell? I intend to start by offering my services to all my relatives, friends,
friends of friends and my aunt’s customer base. I will then expand my business and advertise
around the whole town.

• How will I sell my service? I can sell my service directly to the customers. Initially, I will
introduce the service to all of my friends, relatives and my aunt’s customer base. After I have
done some moving for family and friends, I will expand my market and hang posters around
areas where there are a lot of shops, offices, apartments and houses for rent.

• How much will my business depend upon and impact the environment?

My business will reuse the cartons and packaging several times so as to prevent waste.

Instruction: Read the Hamisi’s Experience for the students.

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 Reflection question: What did Hamisi do to find his business idea?

Hamisi does not just focus on one idea:

 He looks around to find different business ideas that may be suitable to his areas of
interest and will benefit from his knowledge and his working experience.

 He describes each of the different ideas clearly.

 While researching the different ideas, he found that some would not work because there
is not sufficient need, there are not enough customers or the competition is fierce.

 While describing the idea, he also identified resources that he could leverage, such as his
friend’s knowledge, his aunt’s customer base or a reliable transportation provider that he
knows.
The information gained from one approach may supplement another and help you to clearly
describe your business ideas. Below, we will examine a few different approaches to generating
business ideas.
1. Learn from successful business owners
You can learn a lot from people in your area who have already gone through the process of
establishing a business. You should try to get the following information from them:
 What kind of idea did these businesses start with?

 Where did the ideas come from?

 How did they develop their ideas into successful businesses?

 How does the business profit and fit into the local environment?

 Where did they get the money to start their business?

BUSINESS IDEAS ANALYSIS FORM

Name of business: _____________________________________________________________

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 Goods or services to be sold: ____________________________________________________
Main customers: ______________________________________________________________
When and why did the owner decide to start this business?
______________________________________________________________________________
______________________________________________________________________________
Why did the owner think it was a good idea to start that kind of business?
______________________________________________________________________________
______________________________________________________________________________
How did the owner learn what his potential customers wanted?
______________________________________________________________________________
______________________________________________________________________________
What strengths or assets did the owner use to start this business? (E.g., previous experience,
training, family background, contacts, hobbies)
______________________________________________________________________________
______________________________________________________________________________
What problems did the owner face in setting up the business?
______________________________________________________________________________
_____________________________________________________________________________

Has the business good or service changed over time?

______________________________________________________________________________
______________________________________________________________________________

What is the impact of the business on the natural environment and the community?
______________________________________________________________________________
______________________________________________________________________________
Notes:
______________________________________________________________________________
______________________________________________________________________________

2. Draw From Experience

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2.1 Your own Experience
Look at the list of your interests, your experiences and your networks. Are there any possible
business ideas that you can derive from your own past experience? Think about each type of
experience.

Start with yourself. What has your experience been as a customer in the market place? Have you
ever searched all day for some items that you could not find in any store in your area? Think
about the goods and services you have wanted at different times and that you have had difficulty
finding.
2.2 Other People’s Experience
The people around you are potential customers. It is important to understand their experience
trying to find goods and services that are unavailable or not exactly what they need. Listen
carefully to what these people say about their shopping experience.

Ask your family and friends about the things they would like to find that are not locally
available. Expand your social knowledge by talking to people from different age groups, social
classes, etc. You can also visit community groups, colleges, etc. for a greater understanding of
the market.
Here are some examples of comments that would help with your search for a business idea:
F “I cannot find a lunch box that keeps the food warm.”

F “The choice of cooking pots in the shops is very limited.”

F “There is no reliable way of sending gift packages to my friends and relatives living in
the villages.”

F “There is not enough entertainment in this town and the weekends are so boring.”

F “I really need to buy some marketing textbooks, but there are no good bookstores in this
town.”

F “There is so much garbage on the streets. Somebody should do something about it.”

3. Survey Your Local Business Area

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Another way of discovering business ideas is to look around your local community. Find out
what type of businesses are already operating in your area and see if you can identify any gaps in
the market.

If you live in a village or small town, you may be able to identify all the fields of business in the
whole town. Otherwise, you may need to focus on the preferred business fields and business
types that you identified. This is an activity that will be much easier to do with a business partner
or friend. Visit the closest industrial area, markets and shopping centers in your area.

4. Scanning Your Environment

You can use your creativity to find more business ideas in your area. Look at the list of existing
local businesses. If the list has included most of the local markets, you may be able to learn about
the industries or service providers on which the local economy relies.

It may be useful to think about business ideas by considering all the resources and institutions in
your area. For example think about:

F Natural resources,

F Characteristics and skills of people in the local community,

F Import substitution,

F Waste products,

F Publications,

F Trade fairs and exhibitions ,

4.1 Natural Resources

Think of what is abundantly available in your area that could be made into useful products
without harming the environment. Natural resources include materials from soil, agriculture,
forest, mineral, water, etc.

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Think about a way to use this resource that would enable you to continue working with it for
many years. In other words, make sure that your business idea will not exhaust the natural
resource that would be the foundation of your business.
4.2 Characteristics and Skills of People in the Local Community
Consider whether the people in your area have some special characteristics or skills that could be
useful for a business:

o Are there people in your community who are good artisans, tailors or carpenters or who
have specific skills creating items unique to your area?

o Are there recent graduates looking for jobs who you could employ?

o Are there caregivers, nurses or people who could offer services to children, the elderly or
the sick?

o Is your community digitally connected?

o Is the infrastructure in your community well developed?

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5. Brainstorming
Brainstorming means opening up your mind and thinking about many different ideas. You start
with a word or a topic and then write down everything that comes to mind relating to that
subject. You continue writing for as long as possible, putting down things that you think of, even
if they seem irrelevant or odd. Good ideas can come from concepts that initially seem strange.

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Brainstorming works best in a group. Get your family, friends or classmate together and ask
them to help by writing down ideas they have when they hear the word or subject matter.

6. Structured Brainstorming
Structured brainstorming is when you think of the different processes that are involved in the
operation of a particular business and the goods/services that can be offered with respect to those
processes. This is different from thinking about random items related to a particular business
field and type.
Try to think of all the businesses that are related to different aspects of a product:

 Those involved in production,

 Those involved in the selling process,

 Those involved in recycling or re-using materials,

 Those indirectly related (spin-offs),

 Those involved in servicing,

For example, you can think of different processes within each line. You continue until you have
run out of ideas. Again, whatever comes to mind should be written down. Decide later if it is
worthwhile or correct. Let’s take the example of cotton T-shirts:

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As far as all brainstorming exercises are concerned, it is essential to recall the basic rules of
brainstorming: no criticizing or censoring of ideas, wild and turbulent sessions allowing
the uninterrupted flow of ideas, no interruption once the basic idea of the exercise has
been introduced, no shyness and no limitations.
7. Focus Group
Focus group is a group of individuals providing information on a structured format which is led
by moderators. It is characterized by an open and in depth discussion: rather than simply asking
questions to solicit student response. The moderator focuses the discussion in either Directive or
non-directive manner. It is useful for both getting new idea on existing product or screening
idea/concepts.
8. Problem Inventory Analysis
It is similar to focus group to generate new product ideas. The difference is rather than
generating new idea themselves, consumers are provided with a list of problems in general
product category. It is a method of obtaining “New Idea” and solutions by focusing on problems.

..

2.7 Concept of Business Plan

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A business plan is a road map for starting and running a business. A well-crafted business plan
identifies opportunities, scans the external and internal environment to assess the feasibility of
business and allocates resources in the best possible way, which finally leads to the success of
the plan. It provides information to all concerned people like the venture capitalist and other
financial institutions, the investors, the employees. It provides information about the various
functional requirements (marketing, finance, operations and human resources) for running a
business.

A business plan is the blueprint of the step-by-step procedure that would be followed to convert a
business idea into a successful business venture. A business plan first of all identifies an
innovative idea, researches the external environment to list the opportunities and threats,
identifies internal strengths and weakness, assesses the feasibility of the idea and then allocates
resources (production/operation, finance, human resources ) in the best possible manner to make
the plan successful:.
The objectives of a business plan are to:
F Give directions to the vision formulated by entrepreneur.

F Objectively evaluate the prospects of business.

F Monitor the progress after implementing the plan.

F Persuade others to join the business.

F Seek loans from financial institutions.

F Visualize the concept in terms of market availability, organizational, operational and

financial feasibility.

F Guide the entrepreneur in the actual implementation of the plan.

F Identify the strengths and weakness of the plan.

F Identify challenges in terms of opportunities and threats

F Clarify ideas and identify gaps in management information about their business,
competitors and the market.

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 F Identify the resources that would be required to implement the plan.

F Document ownership arrangements, future prospects and projected growths of the

business venture.

2.8 Developing a Business Plan

2.8.1 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 step-by-step 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:

F Review available business plans (if any).

F Draw key business assumptions on which the plans will be based (e.g. inflation, exchange
rates, market growth, competitive pressures, etc.).

F Scan the external environment and internal environment to assess the strengths,
weakness, opportunities and threats.

F 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

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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 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.
2.8.2 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

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 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.
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.

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 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

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.
2.9 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:

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

Total sales
Months during which sales are expected to be high
........................................................................................................................................................ .........................
..................................................................................................................................................................................
.....................................................................................................
7. Equipment currently owned by the operator:
Unit Total
Ser. no. Type of equipment Unit of measure Qua. Remark
cost cost

Total cost of equipment

8. Equipment to be purchased by the operator

Ser. no. Type of equipment Unit of measure Qua. Unit Total Remark

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 cost cost

Total cost of equipment

9. Yearly raw material requirement:
Total
Ser. no. Type of raw material Unit Unit price Remark
Qua. price

Total yearly raw material

cost

Source of raw material..................................................................................................................

......................................................................................................................................................
10. 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

11. Yearly production/service plan:

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

Total cost

12. Financial plan:

Capital requirements Equity Loan Total
Investment capital:

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· Machinery + equipment
· Furniture + fixture
· Business premises
· Any other initial and significant outlay
Working capital:
· Salary/wage
· Raw material and/or supplies
· Rent
· Maintenance
· Business promotion
· Other cash outlay to meet
short-term and recurrent expenditure
Total
13. 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

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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

2.10 Raw Materials Needed

2.11 Cost of Raw Materials

2.12 Raw Materials Availability

2.13 Labor

2.14 Cost of Labor

2.15 Labor Availability

2.16 Labor Productivity

2.17 Factory Overhead Expenses

2.18 Production Cost

3. Organization and Management

3.1 Form of Business

3.2 Organizational Structure

3.3 Business Experience and Qualifications of the Entrepreneur

3.4 Pre-Operating Activities

3.5 Pre-Operating Expenses

3.6 Office Equipment

3.7 Administrative Expenses

4. Financial plan

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4.1 Project Cost

4.2 Financing Plan and Loan Requirement

4.3 Security for Loan

4.4 Profit and Loss Statement

4.5 Cash Flow Statement

4.6 Balance Sheet

4.7 Loan Repayment Schedule

4.8 Break-even Point (BEP)

4.9 Return on Investment (ROI)

4.10 Financial Analysis

2.10 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? All business
ideas are not equally worth. Therefore, to identify promising business idea among others, it is

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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.
2.11 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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………………………………………………………………………………………………………
……………………………………………………………………………………………

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