Business Planning & Start up

Outcomes
• Explain barriers to starting a new business
• Explain barriers to growing an early stage or small business
• Explain the importance of a business plan
• Identify ways for raising finance for start ups or for expansion
• Discuss expectations of lenders and Investors
• Discuss the generic business plan format
 Introduction
• Entrepreneurship is closely associated with new venture
creation
• And the definition of entrepreneurship as the
“identification, evaluation and exploitation of an
opportunity”, in it self places focus on the activities
carried out in the formation of a business in its early
stages
• Hence this topic will explore the business planning
process which is essential in new venture creation, as
well as the barriers that may hinder creation and
growth of new venture.
Factors that may influence or hinder growth
an Enterprise
1. The Entrepreneur
• The characteristics of the entrepreneur are widely accepted as a vital
ingredient that influences growth of a business. Research indicates that
the particular characteristics of an entrepreneur that are associated with
growth of an enterprise include;
1. Motivation- The reason behind starting the business venture? Is it pull
(opportunity) driven or Push(necessity) driven. The later has higher
chance of growth and success
2. Previous management experience- prior experience of managing people
and processes is valuable in maintaining growth
3. Demographics of the entrepreneur- age & knowledge play a huge role
in growth. With age comes issues of energy and drive, while education
comes with exposure and knowledge. And both have an influence on
growth
4. Number of entrepreneurs involved- enterprises founded by a group of
entrepreneurs are more likely to grow than one man bands. This is due
 Factors that Influence Growth of an
Enterprise…(cont)
2. Types of Management Strategy
• The management decisions and actions taken by the entrepreneur once trading has
begun significantly influence growth.
• The strategies and decisions include;
1. Market position- The adoption of clearly defined niches and market segments is a
key ingredient for growth
2. Introduction of new products- Companies that anticipate high growth do not
depend on rely on narrow product/ service range. It is therefore important to
engage in continuous innovation in the form of introduction of new products/
services
3.Sharing of equity- the willingness to include others in the ownership of the business
attracts resources that aid growth including additional finance, innovation through
partenerships and retention of the management team with share options
4. Devolution of decision making to non owning managers- The assignment of
responsibilities within the organization to managers who are not owners of the
business also has an impact on the growth of the business
 Factors that Influence Growth of an
Enterprise…(cont)
3. The Business Environment
• This refers to the key factors outside the internal environment of
the business which have a direct impact on its performance
1. Economic health: if the economy is doing well and people have
money then businesses are likely to thrive and vice versa
2. Competitive forces: The competitive environment of the
industry determines the growth of the company. If there is
predatory competition, then businesses may not thrive
3. Market sector or industry: The phase at which the industry is
currently at, will determine the performance of the business
 Factors that Influence Growth of an
Enterprise…(cont)
4. Type of Enterprise
• The characteristics of an enterprise also have an influence on its
growth prospects.
• Characteristics include;
1. Legal form- limited companies seem to grow more than sole traders
and partnerships. This is because in Limited companies there are
more shareholders, the limited companies are deemed to be more
credible hence attract customers and resources needed for growth.
2. Firm age- younger firms tend to grow faster than older firms,
although that partly reflects the need for young firms to achieve a
critical mass to survive in the market place
3. Firm size- the very small firms find it hard to grow, partly because
they have resource constraints and lack of competitiveness
 Business Planning
• Whether you are setting up a micro enterprise with virtually
no start up capital, or a multi million dollar venture, it is
important to organize your thoughts as regards the business.
And this organization of thoughts is done through a business
plan.
• A business plan can be defined as a document that
thoroughly explains a business idea and how it will be carried
out.
• It outlines factors such as; the nature of the business, the
costs involved in setting up and running the business, how
these costs will be financed and an estimate of the expected
earnings.
 Importance of a business plan
1. To raise money for the business- Potential
investors or lenders want a written business
plan before they give you money. A mere
description of your business concept is not
enough. Instead, ensure you have a thorough
business and financial plan that demonstrates
the likelihood of success and how much you
will need for your business to be successful in
the long term.
 Importance of a business plan…(cont)
2. It ensures sound decision making- As an entrepreneur,
having a business plan helps you define and focus on your
business ideas and strategies. You not only concentrate on
financial matters but also on management issues, human
resource planning, technology, and creating value for your
customer.
3. It helps in identification of potential weaknesses in the
business idea - Having a business plan helps you identify
potential pitfalls in your idea. You can also share the plan
with others who can give you their opinions and advice.
Identify experts and professionals who are in a position to
give you invaluable advice and share your plan with them.
 Importance of a business plan…(cont)
4. Communication with other stakeholders- In addition to
sourcing money from various lenders, a business plan can also
be used to communicate the business idea with other
stakeholders who have a role in implementation of the
business idea, such as; suppliers etc
5. It can also be used as an operational tool; a business plan is a
vital tool for guiding internal operations of the enterprise. It
has been proved that the probability of business success
increases when business owners follow through their business
plans
6. The business plan is also used as a means of measuring
business progress and achievements
 How Often Should the Business Plan be
Updated?
• Business plans are normally reviewed and updated
annually. And these updates usually involve analysis of
the entire business plan in order to assess how efficient
it has been
• Business plans are also reviewed when there are major
changes within the company as well as in the market.
For example the take over of new management, new
players in the market who pose a threat
• Business plans can also be reviewed monthly in order to
assess the actual performance against the plan.
 Generic Business Plan Format
1. Executive Summary
The executive summary is a snap shot of the entire business.
It answers the what, who, when, why and how questions of
the business.
What will the business do? Who will manage the business?
When will the proposed plan be implemented? How will the
business succeed?
In a nutshell, it summarizes the problem you are solving for
customers, the solution you are offering, the target market,
the team that’s building the business, and financial forecast
highlights.
 Generic Business Plan Format…(cont)
2. Mission, Vision & Culture
• Each business or company has a unique mission, vision
and culture
• The mission is communicated through a mission
statement. A mission statement, is a concise
communication of what the business is trying to do, and
how it intends to do it (strategy).
• This communication is intended for customers, so that
they fully understand the business, as well as
stakeholders who will be instrumental in bringing the
business idea to life such as employees.
 Generic Business Plan Format…(cont)
Mission, Vision & Culture…(cont)
• The vision is a broader picture of what the owners
of the business want it to become in future. It is
built on the core values and belief system of the
organization, and it is usually shorter but loftier
than the mission
• The culture of the organization is usually built by
the leadership of the company. And this is done by
making beliefs, values, and behavioral norms
explicit and intentional.
 Generic Business Plan Format…(cont)

3. Company Description
• This section usually provides background
information of the company’s founding, its legal
form (sole proprietorship, corporation, LLC,
Partnership) and the progress made thus far.
• If the company is already established, in form
of a franchise or a reincarnation of an existing
business, there may be need to share the
history of the business
 Generic Business Plan Format…(cont)

4. Opportunity analysis and research

• This section provides credible data and
information which demonstrates the market
viability of the proposed business on paper.
• The opportunity analysis includes the following;
1. Industry analysis: This deals with factors such
as industry definition, industry size & growth,
product & industry life cycle, and any current or
anticipated legal & regulatory concerns.
 Generic Business Plan Format…(cont)

Opportunity analysis and research…(cont)

2. Environmental analysis: This analyses how the
activities of the community, region, nation, and
the world have an impact on your business. And
this can be either negative or positive impacts
3. Competitive analysis: This involves an analysis
of the strengths and weaknesses of other
players in the market who may be direct or in
direct competitors of the business.
 Generic Business Plan Format…(cont)

5. Resources Required
• This basically highlights the resources that will
be required in order to start running the
business
• It could be the financial resources, plant &
machinery, human resources etc
• Emphasis is also placed on where the resources
will be obtained and how they will be obtained
 Generic Business Plan Format…(cont)

6. Finance
• The finance section of the business plan shows
the financial viability of the business venture.
• Lenders are usually interested in this section of
the business plan, and it is therefore very
important to make sure that the figures make
sense
• It is important not to exaggerate the numbers,
but to keep them as realistic as possible
 Generic Business Plan Format…(cont)
• The finance section of the business plan is made up
of the following sections;
1. Sources & uses of capital: This section is the numeric
representation of the start up costs, plus a verbal
description of capital requirements.
It states where you expect to obtain your financial
support and how the funds will be used
It is important to have an elaborate and incremental
break down of the costs, because lenders usually
follow this in disbursement of funds
 Generic Business Plan Format…(cont)
2. Cash flow projections
• The cash flow projections usually shows cash receipts
less cash disbursements over a period of time.
• Cash flow projections are important because they bring
to light financial potentials as well as the financial risks
• It should also be noted that one should not get alarmed
over negative cash flows at the beginning of the
business because it is expected that receipts are usually
less and expenditures more when starting off in
business
 Generic Business Plan Format…(cont)
3. Balance sheet projections
• The balance sheet projections show the business assets(what you own),
liabilities( what you owe), and net worth or owners equity.
• These statements provide insights into your financing strategy and overall
business health
4. Income statements
• An income statement summarizes income and expense activity over a
specified period, such as a month, quarter or year, and shows the net profit
and net loss
• Usually start ups suffer losses for several months or even a few years
depending on the type of business
• However it is important that the losses posted should be in line with the
expected industry norms, and there must be cash available to cover for
these losses
 Generic Business Plan Format…(cont)
7. Marketing
• The marketing strategy/plan is a description of how you will reach your
customers and anticipated sales volumes.
• It usually involves analysis of the product/service, pricing, promotion and
place- also referred to as the marketing mix
• Some of the aspects considered include:
1. What need is the product or service going to meet? And what makes it
unique from existing products/services
2. Is the pricing of the product/ service in line with the market segment?
Because customers can only buy when the price is right
3. What advertising, promotional and publicity methods will be used in
order to attract the attention of the customers
4. Where will the products or services be sold or distributed? And is the
location ideal for the customers that are being targeted.
 Generic Business Plan Format…(cont)

8. Implementation & Monitoring

• This details the activities that will be carried
out in order to achieve the goals and
objectives of the business
• In addition to stating the activities, it also
states the time lines, the responsible
individuals that will be responsible for
implementation, as well as the resources that
may be required
 Generic Business Plan Format…(cont)

9. Summary/Appendices
• This is the place to add management resumes,
sample promotional material, and illustrations
and diagrams of products and packaging
 What Lenders Look for in a Business Plan

• The Lenders are usually interested in specific

sections of the business plan when assesing the
viability of the business
1. History of the business: Where did your business
start and how has it grown? If it is an existing
business be sure to mention the challenges
overcome, and well as the milestones achieved
as this will demonstrate the businesses ability to
adjust in changing market conditions
What Lenders Look for in a Business Plan…
(cont)
2. How revenues are generated: Lenders want to get
their money back, so they are especially interested
in knowing how the money for the loan repayment is
made. Explain who your customers are, how product
or service is delivered and how money is collected
3. Management: Lenders want to know who is at the
helm of the business and what relevant skills and
knowledge and experience do they bring to the
table. This will prove to them whether or not they
are able to lead and grow the business
 What Lenders Look for in a Business Plan…
(cont)
4. Market: Lenders want to know the viability and sustainability
of the market. And they also want to know the competitors
in the market
5. Historic Financial: The historical financials covering revenue,
assets, liabilities and repayment of other loans shows the
financial health of the company. This is a crucial part because
poor financial health can lessen the chances of getting a loan
6. Projections: Lenders also want to know what figures the
business is expecting to attain going forward
7. Collateral: What assets does the company and is available to
secure the laon
 Sources of Financing/Capital
1. Personal Investment: This refers to personal contribution towards a
business, whether through savings or collateral
2. Love money: This is money loaned by a spouse or relation or a friend
3. Grants and subsidies: these are basically government aids to up and
coming businesses that have potential
4. Crowd funding- This is a form of fundraising where business asks the
public for a contribution usually in exchange for equity in the business
5. Business Angels: These are usually wealthy individuals who invest in
businesses owned by others. In addition to the financial investment
they also contribute their experience and network contacts
6. Venture Capitalists: These are financial firms which finance
enterprises through equity investment. They usually focus on
technology driven businesses with high growth potential