CHAPTER 3

DEVELOPING A BUSINESS
PLAN

PRESENTED BY: GROUP 2

LEARNING OUTCOMES:

1. Discuss the factors that should be

studied before venturing a new
business;
2. Explain the importance of
environmental scanning;
3. Explain the importance of selecting
the proper business location;
4. Discuss the important role of SWOT
analysis before starting the business;
5. Discuss the importance of a business
plan before business formation;
6. Give the different phases of a
business plan; and
Before venturing into the field of business, the new entrepreneur should look
into the following factors:

1. Know your product or service.

First, one must believe on the product or service that one will offer to the
customer. If it is a new idea or concept, then one must be able to convince that
have a unique product that would satisfy customers' needs and wants.
2. Analyze the market potentials.
The customer base will determine the success of one business venture. The
wider the market potential, the more chances of growth and success. The
entrepreneur must know his needs and wants and figure out how to satisfy these
needs.
3. Determine the marketing strategy.
A unique product or service needs effective distribution strategy to get customer
into the basket of demand potential. Continuous supply determines product
growth. Customers must have access to the product when they need it.
4. Know the competitors.
In launching a product with existing competitors, one must know their strengths
and weaknesses. Develop new product and marketing strategy and turn their
weaknesses as new opportunity for the product. Continuous innovation and
research would mean better quality products or service.
5. Do not set on your laurels.
The landscape of business is continuously changing. Your initial success in
your business activities needs more proactive analysis for expansion and
growth and overcome possible competitions. Develop advertising and
promotion strategy to penetrate the wider market.

ENVIRONMENTAL SCANNING

The environment of business is vast with opportunities and the entrepreneur

must have a greater look into this potential as well as the conditions
prevailing in the community. The entrepreneur's ultimate objective in diving
into the business world is to make profit. Investment in money and effort
should generate financial gain for the entrepreneur. To generate income for
his product or service he must be able to deliver customer satisfaction
The following factors are contributory to the development of customer
satisfaction:

1.Business Location for Small Entrepreneurs

A retail outlet would need a site that is convenient to prospective
customers in terms of parking space or availability of transportation.
In choosing the location, the following factors must be looked into by the
entrepreneur:

a. Rent and Space- the cost of rent is a regular monthly expense and it
must be sustained with the possible income that will be generated. It is the
operating cost that will be added to the price of the product or service. The
price input must be competitive enough with those in the same location.
b. Terms of Lease Agreement - The term of lease must be studied
carefully as some owners of space might take advantage of lessee. The
owners increase the rent of the space when the business condition becomes
favourable and then take over the business.
c. Type of Goods or Merchandise - A convenient store is located where
there are pedestrians passing by. They need quick and easy access to the
store and would not spend a lot of time to purchase their goods.
d. Income Level of Prospective Customer - The type of pedestrians and
the income level of customer must be taken in to account. A good barber
shop or a beauty salon with facilities of air conditioning units and other
amenities need to be located in the community with higher income bracket.
e.Prospective Sales Volume - High density sales volume need to be located
in shopping areas where customers converse to buy essential goods. Lower
sales volume could be located in the community or secondary areas like
subdivisions or the BARANGAY.
f. Municipal or City Ordinances including taxes and fees - The location
must not violate city or municipal ordinances and the taxes and fees must be
reasonable for the owners of business. Excessive taxation will not encourage
the growth of business in the area.
g. Location of the Areas - The area must be free from floods and other
calamities that will endanger the business. It must be free from fire hazards
or other environmental factors that will disturb the operation of the business.

2. Location for Small Industrial Plant or Manufacturing Facilities

Environmental factors in locating a manufacturing plant or industrial

facilities need to be studied carefully as plant location is a great factor in the
investment of funds and its profitability in the long run. The industrial facility
must be suitable to the kind of operation.
a. Land Area-The contour of the land, its size, and shape must be suitable
to the plant site. It must be free from floods or other environmental
hazards that will disturb operation. The assessed value of the property
must be reasonable as expenses to start-up of operation requires a lot of
money. b. Facilities for Expansion -The land area must have ample space
for plant expansion and provisions for parking facilities for customers and
employees. Anticipation of growth and expansion in plant facilities should
be considered as additional site in the future may create a problem.
c. Power and Utilities- Availability of power supply and the cost of
electricity involve in the operation are great factors in the production of
goods. Continuous power supply is needed to keep the plant in operation
for its target production.
d. Building and Other Utilities -The building must be within the
restrictions code of the municipality or city. The utilities like canteens and
other employees' facilities must be put in place in compliance with the
labor code.
e. Plant Site Accessibility - The plant site must be accessible to public or
service transport for its employees and valued customers. It must be near
highways or expressways to provide ease in travel time and reduce cost in
the transport of raw materials and finish product.
STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS
(SWOT)
SWOT ANALYSIS is an entrepreneurial tool in determining the
profitability of the business operation. Opportunities carries with it some
risk involved and this should be looked into carefully. The strengths and
weaknesses are internal factors to the entrepreneur while the opportunities
and threats are external factors.

The product must be evaluated along the following areas:

1.Product strength in the market must have the following:
a.Available Technology in Product Processing-Technology is an
important component in producing the product as the economies of scale
determines the price index. The more products are produced, the lower the
price it can be offered to the market..
b. The Source of Raw Materials must be Abundant and at Lower
Price-The constant supply of raw materials is an important factor in the
production of the product. Cheap raw materials that are processed into
good products would be able to penetrate the market as its price could be
competitive.
c. Skilled Workers must be Available-Technology must have the
component of skilled workers that shall operate the machineries and other
equipment. They may need training in machine operation as quality products
also come from skilled workers.
d. Capital Investment in Machinery and Operating Expenditures-
Astarting venture may have little investment in terms of machinery and
equipment but starting with small capital should generate profitable
operation. As the enterprise expand its market base investment in operating
capital should expand to meet the growing demand of the customer.
e. Expertise and Technical Skills of the Management Team - A good
product is the making of well-conceive idea of the management team.
Improvements in product quality is a continuing process and it must be the
management objective to get customers patronage. Customers seek better
products and the taste for quality changes over time.

2. Characteristics of Weak Products and Weak Management

a. Poor Quality and High Price - The entrepreneur should not launch a poor product
in the market as it will surely fail to advance in the sales and profit. It is not wise to
invest in the production of poor products.
b. Product Design and Appeal-Product design should appeal to
customers demand. Poor design of the product is the making of people
with no technical expertise in handling the customer wants in terms of
features.
c. Production Cost-Production cost is the price determinant.
Entrepreneurs cannot make maximum profitability on products whose
production cost cannot survive market competition.
d. Supply and Demand -Intermittent supply to the market will make
customers shift to other products. The supply chain management must be
put in place to make the products available to valued customers.
e. Weak Product Management - Weak management is created when
people at the top of the organization fail to sustain a vigorous effort for
expansion and growth when management sets on his initial laurels and
ventured on vices and other extra activities that will lose his total
investment.

3. Sustainable Product Opportunities in the Market:

a. Product Demand - Product demand is the greatest opportunity of an
entrepreneur. Demand is the essence of profit and this must be sustained
by the entrepreneur before wide competition appeared in the market
place.
b. Presence of Poor Quality in the Market - The presence of poor quality
product in the market place is an opportunity for the entrepreneur. The
alternative is on the side of the entrepreneur to supply the market with quality
product and sustain patronage.
c. Government Policies and Support - The government support to local
entrepreneur is an opportunity for greater expansion. The government should
support the local entrepreneur in terms of taxes and government incentives.
d. Liberal Credit Terms and Interest Rates - Liberal credit terms by banks
and other government institutions will generate expansion for the local
entrepreneurs. Banks and financing institutions serve as conduit of business in
their expansion program.

4. Treats to Product Profitability and Market Expansion:

a.Entrance of Competition- The entrance of many competitors in the market

place will definitely give problem to entrepreneurs. Competition will reduce
profitability as the price has to be competitive with those in the market place.
b.The supply of raw materials will be limited as other competitors will be
getting the same suppliers. As demand for raw materials become competitive
in prices, production inputs go higher and this will affect product pricing.
Increased production cost means changes in product price.
c. The Emergence of Leftwing Labour Unions - Many companies close
shops with the advent of labour unions with leftist philosophy as they
want more wages and benefits that the company could not give.
Company strikes and lockouts are deterrent to the expansion and
company's growth.
d. The Presence of Double Taxation - The government already imposed
a lot of taxes to the entrepreneur. Honest businessmen could not profit in
their operations as there are lots of taxes that the government would like
to collect. e. Peace and Order in the Area of Business Operation -
Peace and order are components of business growth. Criminality and
killings would drive away investors. Killing competitors by those riding
in tandem syndrome scares people to go into business.

The Entrepreneur should look deeper into the following areas:

1. The Management Team

Management must be able to set the direction of the enterprise with a

clear MISSION and VISION as the guiding tool for its plans and
programs. Plans and programs are tentative activities that will make a
definite step towards the accomplishments of target objectives.
2. The Production Process

Product specifications must be maintained according to product standards that

are acceptable to customers. Product quality is now the name of the game in
business. Customers are now aware of product quality and they must be able
to get their money's worth. The physical properties must be attractive and
mechanical or electronic component must appeal to customers demand.

3. The Marketing Program

The marketing program needs demand analysis for the last 5 years as to the
major users of the product. A new product would need customer view point
before it is launched into the market. Product samples may be necessary at
the initial stage so that customers' tastes and preferences could be
considered before mass production.

ENTREPRENEURIAL MANAGEMENT
The growth in market demand needs channels of distribution. The channels
of distribution should be measured in terms of the capability of the
distributors to handle the product. It must reach the consumer at the time
they need it and the price that is affordable to them.
4. The Financial Management
Venturing into a business needs financial resources. Money is needed to finance
the activities of business. Whatever capital is available determines the kind of
business operation.

THE IDENTIFICATION OF BUSINESS OPPORTUNITY

The entrepreneur's desire to establish his business is a visible idea yet it must
come into a test whether it is a viable business option. It needs a careful analysis
of opportunity evaluation. The entrepreneur who fails to evaluate his noble idea
because of his eagerness to plunge into the business world often discovers later
that he has more problems to solve and at times abandons the idea after
spending his time and money.

The following steps will help the prospective entrepreneur evaluate the idea
before going into business:
1. The Starting Point of Conceiving the Idea of the Type of Business
Conceiving a new product is a process of innovation and when this come into a
reality, the product must be different from an existing product. New product
needs customer evaluation and this process needs exposure to the target market
as to its economic value.
2. The Technical Feasibility and Time Frame
An idea is not only concentrated on one entrepreneur. The entrepreneur
might have conceived an idea that is also in the mind of other person. The
case of cellular phone is a concrete example. Many companies tried the
venture but the leader in the industry is still NOKIA. Others begin to
follow and strong competition emerged in the process but the leading
brand has taken off the ground before others followed tailing behind.
TIPS IN CHOOSING THE BUSINESS NAME
1. Easy to recall or remember - The business name must be
understandable so it is easily stored in the memory.
2. Pleasant meaning creates pleasant feelings - It produces positive or
favorable feeling upon saying or mentioning to the public.
3. Easy to pronounce - The business name must be cited as freely as it
can be.
4. Easy to spell- The business name must be simple. Words that are used
in
everyday communication will be an advantage.
5. Related to the product- The business name must describe the product.
It represents the features of the product.
ORGANIZING THE BUSINESS ENTERPRISE

The prospective entrepreneurs before going into the intricate field of the
business world should first go into deep analysis of their personal and social
attitudes. It is not enough that you have the capital and resources to go into
business as it involves not only material assets but personal values and
characteristics.

THE EVENT FORMATION PROCESS FOR ENTREPRENEURS

The analysis of the following steps will benefit the entrepreneur before going
into the field of business:
1. The Change in Life Path
The entrepreneur must conceive the idea that going into business would
mean a great change in his lifestyle and working hours. He must be able to
take responsibility and lead others.
2. The Desirability of the Business Concept
The desirability of the business concept is usually born by the experience of
the entrepreneur from his previous employment or exposure. The take-off the
business comes from the idea generated for the prospected income.
3. The Feasibility of Implementation
The business project must be feasible whether it is an entirely new venture or an
expansion. It must be able to produce or sell products or services for an attractive
rate of return of investments to the entrepreneur.
4. Forming the Business Enterprise
The business form has to be studied according to the availability of capital
investment that will go into the operation of the enterprise. The entrepreneur
should also look into his personal capability of running the business either alone or
with a partner.
5. Stability of Business Income and Profit
Profit and Business Income are two important factors that encourage an
entrepreneur to make the stability of the business become possible. An aggressive
entrepreneur would like to expand his business operation to generate more profit

BUSINESS PLAN
An entrepreneur must see for himself the kind of management control and how the
business will be able to generate his projected profitable investment. He sees the
wide open market of opportunities and the possible problems before he plunges
into the intricate operation of the enterprise.
In creating or searching to business opportunities, one must consider the following
factors:
BASIC PHASES OF BUSINESS PLAN

1. Management Structure and Component

It is designing the form of ownership of the business which at the outset is
known to the investors. It shall also define the organizational structure of the
organization and the operational system that must be put in place. It shall define
the duties and responsibilities of the people in the organizational structure.
2. Marketing and Distribution System
The Marketing and Distribution Study shall deal with product demand analysis.
It should show the competitive product advantage over existing product or
service and designing the marketing program of the enterprise.
3. Production and Technology
Production and Technology Studies refer to the need in making the product or
service. This refers to the machineries, plant location, and that will be used in
productionother technical aspect in the making of the product. It shall describe
the physical layout of the building and the equipment .
4. Financial Management
The Financial Management aspect refers to the capital investment and sources of
funding the operation of the business. It shall show financial projections over a
period of one year and five years program and shall determine the rate of return
on investments.
GENERAL FORMAT OF A COMPREHENSIVE BUSINESS PLAN

I. INTRODUCTION
The introduction contains the rationale and the background of the study undertaken. It should include the importance
of the project and the proponents background and their desire to establish the business.
II. PROJECT SUMMARY
A. Name of the Firm
B. Business Location
C. Brief Description of the Business
1. Brief history or how the business was organized.
2. Highlights of the findings in every phase of the business study.
III. MANAGEMENT AND PERSONNEL COMPONENTS
IV. MARKETING STUDIES
A. Market Profile- This refers to the market segmentation for the distribution of the product or service. The study
must cover the possible users of the product and how to reach the particular market segments.
B. Demand Analysis
1. Projected consumption in the first year of operation, then Five years and Ten years operation.
2. Major segment users of the product and their location.
C. Supply Analysis
1. Source of Product Supply.
a. Foreign Suppliers
b. Local Suppliers
2. Factor Analysis of the Past and Future Supply Chain.
D. Competitive Analysis
1. Selling Price-This refers to the selling price of the product.
2. Competitions- It refers to the competing product in the markets as to its quality and market acceptability.
3. Distribution and Cost of Transportation -It refers to the transfer of movements of products from the producer
to the ultimate user. The usage of different vehicles and ways to transport the product should be easily defined.
4. Channel of Product Distributions - A mean of reaching the target market or it is the method or strategy to
penetrate a particular market segments.
5. General Competitive Practice-It is the analysis of how competitors distribute the product to existing end users.
E. Program Analysis of Marketing Strategies
1. Geographic Segmentation Strategy-This refers to the place of target market and the approaches to
penetrate the market niche.
2. Psychographic Strategy - The educational background and the lifestyle of target market.
3. Demographic Segmentation Strategy - It means the target market as sex, age, income and the other
personal factors of the target market.
4. Pricing Strategy - This has something to do with the price index of any pricing strategy that will attract
customers.
5. Channel of Distribution The choices could be retailers, wholesalers, dealership, franchise, or direct
marketing.
6. Promotion and Advertising - Media network, personal selling, billboard, or any media penetration
strategy.\
V. PRODUCTION
A. Product Specification It tells about the product or service that the entrepreneur will offer to its target
market. It is an elaborate presentation of the properties of the products and the benefits related therein. It is the
service that will be offered to the target consumer.
B. Production Process-It is the detailed layout of the production process as the products goes into the
production line indicating the flow process, materials and equipment to be used and normal time table that the
product will be finished.
C. Plant Rated Capacity - This refers to the volume of production per shift per day or a monthly basis
considering target market consumption. It must also make projections for five years forecast and the technical
factors involved.
D. Machinery and Equipment - It involves the kind of machine to be used, its sources, spare parts, working
guarantees, rated capacity per day, and the cost estimates involved in its purchase.
E. Plant Location - A drawing or plant location and the vicinity map as to its accessibility to supply or raw
materials, and the transport of finished product to the market. It must show advantages and other plus factors
for employees and other services.
F. Building and Facilities - It must describe the type of building that will be constructed or sketch of the
building plan, electrical plants, drainage, and other utilities. It must contain the cost estimates involved and the
total floor plan.
G. Raw Materials - It deals with the raw material requirements and its specification, its source, cost and terms
of payment, availability and the of other possible long term supply. It must also show alternative suppliers
sources.
H. Power Supply and Utilities - Utilities refer to the supply of electricity, water, and its availability in the processing
of the product. It also has to do with environmental disposal of waste and compliance with government requirements.
Drainage system has to comply with sanitary requirements imposed by municipal and national laws.
Production Cost - This refers to the direct labor and administrative cost in the processing the products. Unit cost
must be computed as basis for pricing and marketing strategies.

VI. FINANCIAL STUDIES

A. For New Business Venture
1. Total Project Cost - This has to do with the entrepreneur fixed cost and the working capital in the operation of the
business.
2. Capital Investments Required.
3. Pre-operating cash flow and its relation to time table-financial projections for the first year of operation, for the five
year operation in projected
balance sheets and income statements.
4. Supporting Schedules in the Financial Statements and Income.
a. Collection Period for Projected Sales or Revenue
b. Inventory Levels
c. Payments for Purchases and Expenses
d. Production Costing, Administrative Expense and Cost of Sales and other Projected Financial Expenses
5. Projected Financial Estimates showing return on investments, return on equity, break-even analysis, price
analysis.
B. For Existing Project
1. Audited Financial Statement - last 3 years
a. Balance Sheet
b. Income Statement
c. Cash Flow
3. Tax Assessment, Liabilities, and other Payables.
4. Financial Trends and Ratio Analysis.
5. Financial Cost for Administrative expenses, Production and Selling Expense.
6. Financial Projection for the Next Five Years.
7. Financial Analysis for Return of Investment, Return of Equity, Break even Analysis, Production Volume and Price
Analysis.
MICRO BUSINESS PLAN
viability or feasibility of the study. Business plan is the ticket to success. It is also a blueprint to success and document
details what you plan to do with your venture, and how exactly you want to achieve them. It is your road map to your
business, according to Elizabeth Manuel, Chief of the Trade Business Management Division of the government run
Philippine Trade Training Center. (p. 18 Entrepreneur book: Ultimate Guide to Starting Your Own Business 2011 copyright)
A. Executive Summary
Synopsis of your business plan so ideally, this part should be written last in order to include all the necessary information
and target points of the document. You must possess the ability to pred predict the financial path of your venture in
correlation to the present economy. If your external analysis tells you what you can and cannot do, your internal analysis
tells you what you are able or not able to do.
B. Marketing Plan
Push or pull, you must be able to tell how fast or slow your product will move in the market, whether it would
make use of a push or pull strategy or both. The push strategy tells how I will move my products to the
marketplace, while the pull strategy tells how I will make customers ask for my product. The pull strategy
promises, the push strategy outlines what makes the business stay.
C. Operations Plan
Ernesto Pineda, director of the UP, Institute of Small Scale Industries, defines the operations plan as the
company's expected sales for the coming year and the costs of running the business in general. It keeps track
of the business performance for its conception down to its purchase. Determining the number of people to hire
to keep your perspective business running smoothly is also a must. Managing your inventory and computing
the production costs are crucial at this point so you can project possible profits.
D. Financial Plan
According to Dr. Ferreria, "Your financial plan must show how much money is needed to generate sales; how
much is going to be spent on a particular item; and how much will be borrowed and paid." The income
statement describes your company's ability to generate cash by computing for sales and expenses.
THANK YOU FOR
LISTENING!

GROUP MEMBERS:

Nornisa G. Casanova
Julie Fe R. Del Rosario
Fhen Grace De Guzman
Ginalyn Cantomayor