Calapan City, Inc. St. Anthony College: Module For Entrepreneurial Mind
Calapan City, Inc. St. Anthony College: Module For Entrepreneurial Mind
Calapan City, Inc. St. Anthony College: Module For Entrepreneurial Mind
ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind
MODULE DESCRIPTOR
This unit explains the Business Plan. It includes Purposes of a Business Plan,
Parts of the Business Plan, Analysis of the Competition, Operations and Management
and Supporting Document.
NOMINAL DURATION
October 11-12 (3 hours)
LEARNING OUTCOMES
At the end of this module, you MUST be able to:
1. explain the importance of making the business plan;
2. identify the parts of Business plan; and
3. describe the different parts of Business Plan.
LEARNING EXPERIENCES
The number of problems that may be felt when the small business is already in operation
may just overwhelm the entrepreneur. If he is good enough, he will be able to handle
them successfully if they happen one at a time. However, it will be difficult for him if
problems occur simultaneously. The benefits afforded by business planning may help
achieve his objectives. When problems occur some of them require immediate solution,
leaving no sufficient time for the entrepreneur to think clearly. Effective business planning
is used to eliminate this difficulty. Planning may be viewed as a systematic approach to
achieve certain objectives. It is an attempt to eliminate mistakes inherent to on the spot
decisions. Planning provides the decision maker with ample time to consider relevant
variables before a decision is reached. Planning is useful not only to big business. Small
business may also reap the benefits of planning if it is undertaken even on a small-scale
basis.
Lenders will be more comfortable to see various documents that indicate the borrower
can repay the loan. Such documentation takes the form of financial projections which re
usually included in the business plan. The business plan will serve as a means of
providing some assurance that the investor will place his funds in a worthwhile
investment.
Executive Summary
ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind
The executive Summary is a portion of the business plan that summarizes the plan
and states the objectives of the business. If the SBO is intending to borrow money or is
seeking capital from investors, the following must be indicated:
1. the capital needs of the business;
2. how the money will be used;
3. what benefits will be derived by the business from the loan or investment; and
4. in case of loan, how it will be repaid with interest, and in the case of outside investment,
how profits will be generated
The executive summary is prepared after the business plan is written.
will be profitable. Factors that will make the business successful must be described. Some
of these positive factors that are worth describing are:
1. superior organization of the business;
2. latest equipment that are currently used by the company;
3. superior location of the company;
4. fair price of the product or service;
5. superior customer service offered by the company.
Market Strategies
Market Strategies refer to what the SBO plans to do to achieve the market objective
of the firm. These strategies are formulated after undertaking market research.
Market Strategies consist of the following:
1. definition of the market;
2. determination of the market share;
3. positioning strategy;
4. pricing strategy;
5. distribution strategy;
6. reader, specially lenders and investors, if the projected market share of the firm
is promotion strategy;
Definition of the Market. The object of the market definition is to determine which part
of the total potential market will be served by the firm. Hence, the market must be defined
in terms of size, demographics, structure, growth prospects, trends, and sale potential.
To determine the total potential market, the total aggregate sales of the competitor must
be presented.
Determination of the Market Share. The business man will be more useful to the
presented.
To determine the firm’s market share, the following steps may be used:
1. determine the number of prospects in the target market;
2. determine the number of times the product or service is purchased by the target market;
3. figure out the potential annual purchase; and
4. determine the percentage of the potential annual purchase that the firm can attain.
2. How is the product or service different from the competitors? A product or a service
may different from the competition in terms of quality, maintenance requirements, number
of user, ease of operation, among others.
3. What make the product or service unique? The firm’s product or service may be unique
in many ways. It may only be the one that is delivered free to the costumer’s house, or it
may be the only product that provides a trade-in-option to the costumers.
Pricing Strategy. How the firm prices its product or service is a very important component
of the business plan. It the firm was to achieves its objectives, the right price of its product
or service must be maintained. In determining the right price, the following factors must
be considered;
1. costumer’s perception of value in the firm’s kind of business;
2. costs involved such us, overhead, storage, financing, production, and distribution; and
3. profit objects of the firm.
The firm’s price may be established through any of the following method:
1. Cost plus pricing- covers all costs, variable and fixed, plus an extra increment
to deliver profits.
2. demand plus pricing- is a method of pricing where the firm set prices based on buyer
desires. The range acceptable to the target market is determined.
3. competitive pricing- call for price- setting on the basis of prices charged by competitors.
4. Mark- up pricing- is a form of cost oriented pricing in which the firm sets prices by
adding per unit merchandize costs, operating expenses and desired profits.
Each of the various methods of pricing has corresponding strength and
weaknesses. In a given situation, one pricing method could be the most effective.
Distribution Strategy. Distribution refers to the process of moving goods and services
from the firm to the buyers. The distribution channel that will be adapted must provide a
strategic advantage of the firm.
Common distribution channels are the following:
1. Direct Sales- is the most effective channel if the plant is to move goods directly
to the ultimate users.
2. Original equipment manufacturer sales- involve selling a manufactured product
to another manufacturer who, in turn, incorporates the same to his product and which is
later sold as a finished product to the end user. An example is the sound system
incorporated to cars.
3. Manufacturer’s representatives- are wholesalers employed by one or several
producers and paid on commission during to quantity sold.
4. Wholesalers- are channel members that sell to retailers or other agents for
further distribution through the channel until they reach the final users.
5. Brokers- are distributors who buy directly from distributors or wholesalers and
sell to retailers and end users.
6. Retailers- sell directly to the consumers.
ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind
Organizational Structure
A well- defined and realistic organizational structure is an important element of the
business plan. Investors and lending institution will be interested to look at this particular
aspect. Generally, they will be concerned how the firm is organized along the following
concerns:
1. marketing (including sales, customer relations and services);
2. production (including quality assurance)
3. research and development;
4. management; and
5. human resources.
Operating Expenses
Projections of operating expenses are important aspects in the preparation of a
business plan. This is prerequisites in projecting financial statements. Lenders and
investors are especially interested in scrutinizing such statements.
In determining operating expenses, labor and overhead must be considered. The
organizational structure is useful in providing information in the determination of labor
expenses. Overhead, which may be fixed or variable, includes the following:
1. rent;
2. advertising and sales promotion;
3. supplies;
4. utilities
5. packaging and shipping
6. maintenance and repair;
7. equipment leases;
8. payroll;
9. payroll taxes and benefits;
10. bad debts;
11. professional services;
12. insurance;
13. loan payments;
14. depreciation;
15. travel.
Capital Requirements
ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind
Financial Data
Financiers are most interested in the financial aspects of the business plan. To
satisfy this requirement, the following statements must be presented in the business plan:
1. income statement;
2. balance sheet; and
3. cash flow statement.
Income Statement
The income statement shows the income, expenses and profits of a firm over a
period of time. It is also alternatively called “statements of earnings”. It may cover a certain
year, quarter, or a month. It provides basic data to help the prospective financier analyze
the reasons for the projected profits.
Balance Sheet
The balance sheet is a type of financial statement that shows the financial
condition of the business as of a given date. The information provided by the statement
is useful not only to entrepreneur but also to prospective creditors. A scrutiny of the
balance sheet will give the owner some clues if modifications are needed in some of the
items listed.
A summary of financial information about the business is contained in the balance
sheet and are broken down into three areas, namely:
1. assets;
2. liabilities; and
3. owner’s equity.
ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind
The assets
The assets portion of the balance sheet lists the assets of the firm in order of
liquidity, i.e., from the most liquid. As such this portion is subdivided into the following:
1. Current assets
a. cash- which includes cash in checking, and short- term investment accounts;
b. Accounts receivable- refer to income derived from credit accounts; and
c. Inventory- refers to the inventory of materials used to manufacture a product not yet
sold.
2. Fixed assets- these are durable assets and will last more than one year. These consist
of the following:
a. Capital and plant- refers to the book value of all capital requirement and others such
as land and building; if owned by the firm, less depreciation; and
b. Investments- are investment accounts owned by the company that cannot be converted
to cash in less than a year.
The Liabilities
The liabilities portion of the balance sheet is classified as current or long-term.
Current liabilities are due in one year or less and they include the following:
1. Accounts payable- refer to all the expenses incurred by the business that are
purchased on an open account from suppliers and are due for payment.
2. Accrued liabilities- refer to operational expenses that are not yet paid. Examples
are overhead and salaries.
3. Taxes that are due and payable.
The long term liabilities are due in more than one year. They include the following:
1. Bonds payable- are bonds due and payable over one year;
2. Mortgage payable- refers to loans used for the purchase of real estate and is
repaid for a period of over one year; and
3. Notes payable- are loans represented by a written document in which is payable
for a period of over one year.
5. Total income- is the sum of each cash sales, receivable, and other income.
6. Material or Merchandise- refers to:
a. raw material used in the manufacture of the product; or
b. the cash outlay for merchandise inventory of trading firms; or
c. the supplies used in the performance of service.
7. Direct labor- refers to labor required to manufacture a product or perform a
service.
8. Overhead- refers to all fixed and variable expenses required in the day to day
operations of the business.
9. Marketing expenses- refer to all salaries, commissions, and other direct costs
associated with the marketing and sales departments.
10. R and D expenses are labor expenses required to support the research and
development efforts of the firm.
11. G and A expenses- refer to those required to support the general and
administrative functions of the firm.
12. Taxes- refers to all taxes, except payroll withholding taxes, paid to the
government, national and local.
13. Capital- represents the fund requirements to obtain any equipment needed to
generate income.
14. Loan payments- refer to total payment made to reduce or eliminate any long
term debts.
15. Total expenses- refer to the sum of materials, direct labor, overhead, marketing
expenses, R and D, G and A, taxes, capital, and loan payments.
16. Cash flow- refers to the difference between total income and total expenses.
17. Cumulative cash flow- refers to the difference between current cash flow and
the cash flow from the previous period.
The cash flow must be carefully analyzed and a short summary must be
presented in the business plan.
Supporting Documents
The business plan would be more meaningful if supporting documents are
included. The documents usually consist of the following:
1. the owner’s resume;
2. contracts with suppliers;
3. contracts with customers or clients;
4. letters of reference;
5. letters of intent
6. a copy of the firm’s lease;
7. a copy of copyright or patent acquired, if applicable; and
8. tax returns for the past three years.