RECAP

BUSINESS PLANNING
 Planning as Part of The Business
Operation

⚫ Planning is a process that never ends for

a business.

⚫ As the venture grow up to mature

business, planning will continue …

⚫ Rationale for planning?

 What is a Business Plan?
⚫ A business plan is a written document that
outlines the goals of a business, the strategy for
achieving those goals, and the roadmap for
growth and success.

⚫ It is an integration of functional plans such as

marketing, finance, production, sales and human
resources.
What is a Business Plan?
⚫ For a startup, a business plan is a strategic
document that provides a detailed blueprint
for launching and scaling the business.

⚫ It is a critical tool for setting direction,

reducing uncertainties, and communicating
vision and strategy to investors, partners,
and team members
Who should write the plan?

⚫ The business plan should be prepared

by the entrepreneur.

⚫ The entrepreneur may consult with many

other sources in its preparation, such as
lawyers, accountants, marketing
consultants, engineers, business
mentors, or business plan development
experts.
Who Reads The Plans?
⚫ The business plan may be read by
employees, investors, bankers, venture
capitalists, suppliers, customers, advisors,
and consultants.

⚫ It is a dual purpose document

• Inside a firm - a plan or roadmap to follow
in executing its strategies and plans
• Outside the firm - it introduces potential
investors and other stakeholders to the
firm
Why Have a Business Plan?

⚫ The business plan is valuable to the entrepreneur,

potential investors, or even new personnel, who are
trying to familiarize themselves with the venture:

• Clarifies the Business Vision and Strategy

• Facilitates Funding and Investment
• Identifies Potential Risks and Challenges
• It provides guidance to the entrepreneur in organizing his or
her planning activities
• Supports Decision-Making and Goal Setting
• Serves as a Communication Tool
• Aids in Attracting Talent and Building Partnerships
Information Needs
⚫ Before committing time and energy to
preparing a business plan, the
entrepreneur should do a quick feasibility
study of the business concept to see
whether there a any possible barriers to
success.

⚫ Internet can be a valuable resource.

Writing a business Plan
⚫ It is a written narrative, typically 25 to 35
pages long - that describes what a
business intends to accomplish and how
it's intends to accomplish it

⚫ It is a dual purpose document

Inside a firm - a plan or roadmap to follow in
executing its strategies and plans
Outside the firm - it introduces potential
investors and other stakeholders to the firm
Timing of Writing a Business Plan
⚫ When to write a business plan?

Not too early in the conception of the

business idea

Not too late when you have gone too far

without the roadmap

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Presenting The Plan
⚫ It is often necessary for an entrepreneur to
orally present the business plan before an
audience of potential investors.

⚫ In this typical forum the entrepreneur would

be expected to provide a short (perhaps 20-
minutes or half-hour) presentation of the
business plan.
10 Must Answer Questions
⚫ What is your current situation?
⚫ What is your goal?
⚫ How will you reach the goal?
⚫ What will you offer?
⚫ How big is the business you are entering?
⚫ How is your management team?
⚫ Who are the key players?
⚫ How will you differentiate yourself?
⚫ What are your marketing plans?
⚫ What are the economics of your business?
⚫ What is the capital requirement to get your business started of
growing the business?
Outline of a business plan
⚫ Specific plans vary - depending on the nature of the
business, experience and personalities of the founders.
⚫ Suggested outline
1. Cover page and table 8. Organizational and
contents Management plan
2. Executive summary 9. Marketing plan

3. Business description 10. Operational Plan

5. Industry analysis 11. Financial Plan

6. Market analysis
7. Products and Services 12. Appendices

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 1. Cover page and the table of contents

• Company name and

logo
• Location address
• Contact details
• Date
• Name of founders if
applicable

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2. Executive Summary
⚫ The most important section of the plan, often the only read
section!

⚫ Compact version of the big plan

⚫ Stick to hard facts; no room for exaggerated optimism

⚫ Limit to a concise summary; no more than a couple of pages

⚫ Summary is the prelude to further meetings

 2. Executive Summary |Must
answer
⚫ What is the business idea?
• Why is this a viable and exciting opportunity?
• What product/service is offered, and what problem does it solve?
⚫ Who is the target market?
⚫ What is the unique value proposition (UVP)?
⚫ How does the business generate revenue?
⚫ What is the size and growth opportunity in the target market?
⚫ What sets the business apart from competitors?
⚫ What funding is needed, and what are the revenue projections?
⚫ Who are the key team members and their expertise?
⚫ What are the business goals and milestones?
3. Business description
• Brief history of your business- origin of the idea
and owners
• Mission and vision
• Products and services- uniqueness, how they can
be positioned in the marketplace
• Important milestones - registered your company,
completed feasibility analysis, established a legal
entity, legal status.
• Internal analysis - strength and weaknesses

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4. Industry analysis

• Separate industry from target market; industry

size, growth rate, stage in life cycle, sales
projections.
• Industry structure - how concentrated or
fragmented
• Nature of participants
• Industry trends
• Environmental trends - PESTEL

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5. Market analysis
• Industry - whole industry, vs target market - specific
target segment/s within an industry
• Target market selection
• Market segmentation - geographical, demographic
variables etc.
• Consumer behaviour - buying decisions
• Competitor analysis - who are your competitors
and how you plan to compete
• Your estimated sales and market share

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6. Product/Services
• Describe your UVP
• Provide a brief description of your product-
characteristics
• How are you going to solve their problem better
than your competitor?
• Any patent protection possible?
• Technology details: defensible? Unique?
Sustainable competitiveness?
• Time to market? Ability to execute?
• What prevents someone else from doing it more
cheaply?

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 7. Management team and
company structure
• A particularly important section
• The brief profile of each member of the management
team - title of the position, duties and responsibilities,
previous industry related experience, previous
success, educational background.
• Brief but illustrative of why each individual is
important and unique
• How your company will be structured -Organizational
chart (Organogram)
• HR - how many employees, phases

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 7. Management team and
company structure
⚫ Sample Profile
1. John Doe - CEO
• Position: Chief Executive Officer (CEO)
• Duties and Responsibilities: Oversees all operations of the
company, responsible for setting the strategic vision, managing the
leadership team, and establishing investor relations.
• Previous Industry-Related Experience: Over 15 years in the
agribusiness industry, with leadership positions in value chain
development and product innovation at XYZ Agribusiness Company.
• Previous Success: Successfully led the launch of a flagship product
that generated $10M in revenue within the first year of launch.
• Educational Background: MBA from Stanford University, Bachelor’s
in Computer Science.
• Why Important: John’s experience in both agribusiness management
and strategic leadership positions him to drive the company’s growth
and expansion in a competitive market.

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8. Marketing plan

• How a business will market its products

and services
• Overall marketing strategy - Product, price,
promotions and distribution
• Articulate your marketing strategy,
positioning, points of differentiation

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 9. Operational plan
⚫ Outline of how your business will run and how your
products and services will be produced e.g.
• Staff selection
• Operations manuals
• Employee orientation and training
• Relationships with suppliers, government
• Outsourcing arrangements
• Business location in terms of flow of the operations
• Firm’s facilities and equipment - how are these going
to be acquired.
• Not too much details; short and crisp

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10. Financial projections
• Take the plans you have developed and express
them in financial terms
• Sources and uses of funds (important assumptions)
• Projected financial statements - pro forma income
statement, pro forma balance sheet, pro forma cash
flow statement.
• Interpretation of these pro-forma statements is done
using ratios such as return on investment, return on
assets and sales.

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10. Financial projections
⚫ Sample Pro Forma Income Statement
• Revenue (Sales)
• Cost of Goods Sold (COGS)
• Gross Profit
• Operating Expenses (Salaries, Marketing, Rent)
• EBITDA (Earnings Before Interest, Taxes, Depreciation,
and Amortization)
• Net Income (After Taxes)

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10. Financial projections
⚫ Sample Structure of a Pro Forma Balance Sheet
• Assets
• Current Assets (Cash, Accounts Receivable, Inventory)
• Fixed Assets (Equipment, Property)
• Liabilities
• Current Liabilities (Accounts Payable, Short-term Loans)
• Long-term Liabilities (Long-term Loans, Mortgages)
• Equity
• Owner’s Equity (Initial investment, retained earnings)

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10. Financial projections
⚫ Sample Structure of a Pro Forma Cash Flow
Statement
• Cash Inflows (Revenue from Sales, Loans,
Investment)
• Cash Outflows (Operating Expenses, Capital
Expenditures)
• Net Cash Flow (Cash Inflows minus Cash
Outflows)
• Ending Cash Balance

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Financial Ratios
⚫ Financial ratios are metrics used to assess the financial
performance and health of a business.

⚫ They provide insights into various aspects of the

business, such as profitability, liquidity, efficiency, and
solvency.

⚫ They offer entrepreneurs a way to evaluate their

business' performance and compare it other similar
businesses in the industry.

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Financial Ratios
⚫ In a business plan, financial ratios offer potential
investors, lenders, and stakeholders an easy way to
evaluate the financial viability and stability of a business.

⚫ Determining individual financial ratios per period and

tracking the change in their values over time can be done
to spot trends that may be developing in a company.

⚫ They help in forecasting future performance, assessing

risks, and making informed decisions.

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 Financial Ratios
⚫ Categories of Financial Ratios
⚫ Financial ratios can be grouped into four primary
categories based on what they measure
• Profitability Ratios-Measure the business’ ability to
generate profit relative to sales, assets, or equity.
• Liquidity Ratios-Assess the business’ ability to meet short-term
financial obligations.
• Efficiency Ratios-Measure how effectively a business uses its
resources, such as inventory and assets.
• Leverage (Solvency) Ratios- Assess the business’ ability to
meet long-term obligations and its reliance on debt.

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 Key Financial Ratios
⚫ Profitability Ratios
• Gross Profit Margin (GPM): This ratio measures how much of
every dollar of sales is retained as gross profit after covering the
cost of goods sold (COGS).
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
⚫ It’s computed as :𝐺𝑃𝑀 = × 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

⚫ A GPM indicates that the company is efficiently producing its

goods or services with a low cost of production.
⚫ A low GPM could signal rising production costs or
inefficiencies in the production process, which may require
attention.

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 Key Financial Ratios
⚫ Profitability Ratios
• Net Profit Margin (NPM): It shows the percentage of revenue
that remains as profit after all expenses, including operating
costs, interest, and taxes, have been deducted.
• Computed as: 𝑁𝑃𝑀 =
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
× 100
• High net profit margin signals strong control over costs and
the ability to turn revenue into profit.
• On the other hand, low NPM may suggest inefficiencies in
managing expenses or declining sales.
• This warrants a deeper look into operating costs and pricing
strategies.

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 Key Financial Ratios
⚫ Profitability Ratios
• Return on Assets (ROA): ROA measures how efficiently a
company uses its assets to generate profit.

• 𝑅𝑂𝐴 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
× 100

• Implications
• Higher ROA implies that the business is efficiently using its
assets to produce profit.

• A lower ROA could indicate underutilization of assets or

excessive investment in assets without generating sufficient
returns.

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 Key Financial Ratios
⚫ Profitability Ratios
• Return on Equity (ROE): ROE measures how effectively a
business generates profit from its shareholders' equity. It reflects
the return on investments made by the owners or shareholders.

• 𝑅𝑂𝐸 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

𝐸𝑞𝑢𝑖𝑡𝑦
× 100

• High ROE shows that the business is effectively using

shareholder capital to generate profits.
• A low ROE could indicate that the business is not
generating sufficient profits relative to the equity invested
by shareholders, signaling potential issues with profitability
or capital efficiency.
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 Key Financial Ratios
⚫ Liquidity Ratios
• Current Ratio: Measures a business’ ability to pay off its short-
term liabilities with its short-term assets (assets that are expected
to be converted into cash within one year).
• Formula: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

• A current ratio above 1 shows the business can cover its

short-term liabilities.
• A current ratio below 1 may indicate liquidity problems.
• Very high ratios (e.g. 3 or more) suggest inefficiency in using
current assets.

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 Key Financial Ratios
⚫ Liquidity Ratios
• Quick Ratio (Acid-Test Ratio): It assesses the ability to cover
short-term liabilities without relying on the sale of inventory.
• It excludes inventory from current assets, providing a more
conservative measure of a business’ liquidity

• Formula: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

• A quick ratio above 1 means the business has enough liquid

assets to cover short-term obligations.

• A quick ratio below 1 suggests potential liquidity issues,

requiring inventory sales or additional funding.

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 Key Financial Ratios
⚫ Efficiency Ratios
• Inventory Turnover Ratio: This ratio measures how often a
business sells and replaces its inventory over a given period,
indicating inventory management efficiency.

• 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑂𝐺𝑆

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

• A high inventory turnover suggests that the business is selling

goods quickly and efficiently managing its stock.

• A low inventory turnover might indicate overstocking or

sluggish sales, potentially tying up capital in unsold goods.

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 Key Financial Ratios
⚫ Leverage (Solvency) Ratios
• Debt-to-Equity Ratio (D/E): This ratio compares a business’
total liabilities to its shareholders' equity, indicating the proportion
of debt used to finance the company’s assets.

• 𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟’𝑠 𝐸𝑞𝑢𝑖𝑡𝑦​

• High D/E ratio suggests that the business relies more on debt
than equity to finance its operations, increasing financial risk.

• A low D/E ratio indicates a more conservative approach with

less debt, which can be seen as less risky but may limit
growth opportunities.

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Key Financial Ratios

Working Example

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10. Financial projections
⚫ Important tips
• Detailed numbers not the key
• Assumptions very critical
• Key drivers of revenue
• Realistic projections
• Exercise prudence
• Benchmark your model
• Revenue estimate: bottoms-up
• Expenses – past and/or industry average

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 10. Appendices
⚫ The Appendices section includes supplementary materials that
support the main content of the business plan but are too
detailed or extensive to include in the main sections.
⚫ It may include:
• Detailed financial projections
• Resumes of key team members
• Product images or prototypes
• Market research data
• Legal documents (contracts, patents, licenses)
• Any other relevant documents or charts
⚫ Provides additional credibility to the plan
⚫ Offers clarification and proof of business assumptions
⚫ Helps potential investors or partners get a deeper understanding of the
business operations
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Thank you for your
attention