TOPIC THREE: DEVELOPING A BUSINESS PLAN

William Amone
Lecturer, Gulu University
E-mail: [email protected]

Learning objectives: By the end of this topic, participants will be able to explain the value of
having a business plan, understand what a business plan is and how to develop a simple business
plan

3.1 DEFINING A BUSINESS PLAN

A business plan is a written summary of your proposed business. It includes information about
the plans, operations and financial details, its marked opportunities and strategies, as well as the
entrepreneur’s personal background.

A business plan is a document used to summarize an entrepreneur’s business aspirations, secure

legal authority and mobilize resources to launch the business. Just as you need a map to help you
find the route to an unknown destination, you need a plan to help you determine which direction
to go in order to get your business up and running. A business plan explains your overall strategy
and objectives in words and numbers.

Your first plan should estimate your goals, your expenses, and how much you plan to charge for
your services. It should also show how you plan to attract and keep customers. After you actually
begin your business, you will find that the plan needs to be reviewed on an on-going basis; a
business plan is a dynamic document. There are no guarantees that your business will succeed
but a well-written and well-researched business plan plays an important role in a business’s
success

3.2 WHY BUSINESS PLANNING IS NECESSARY

• Business plans show you the possibility of the business to make a profit in the future. It
shows what money to expect into and out of the business. For instance, if your costs are
expected to be high, there would be need to increase prices.
• A business plan will identify parts of the business that require improvement. In so doing, one
will be forced to think about every part of the business. One must therefore think carefully
about everything that affects the business in developing the plan.
• It makes it possible to access a bank loan because most banks are interested in knowing the
expected sales, costs and anticipated profits as well as cash flows before offering a loan.
• It forces you to think deeply and plan every detail properly before you start your business.
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• It helps you to determine the direction you want to move in.
• It serves as a map against which you can determine your process.
• It provides details of resources required and can be given to potential investors/financiers.
• It indicates chances for success and potential critical points.

3.3 CHECKLIST FOR A BUSINESS PLAN: THINK ABOUT THE FOLLOWING

ISSUES
• The product
 Why do customers buy the product/service?
 Are the product specifications clear and acceptable?
• The market
 Geographical description of the business location
 Is there local demand for the product and if not, how can it be created?
 Who are the big competitors, how can you counteract them and their influence?
 How many competitors does the business have? If they are many, your market share is
low, which means that aggressive promotion is necessary to ensure visibility.
 Does your product need publicity, if so, what expenses would that incur?
 What is the trend in the selling price? Is there any seasonality?  Technical factors
 Have you selected all the necessary equipment? What are your reasons for this selection?
 If you bought machinery, do you have a guarantee; is after sales service is included?
 Do you know where to source the equipment from? Who is the supplier?
 Do you have the necessary skills and if not, where can you get them?  Infrastructure
 Is the working/selling space adequate for your business operation to function?
 Are ownership/tenancy documents for the land/shop/workshop in order?
 If water is required for your business to operate, is it available close by?
 Do you have/need a supply of electricity?
 Is transport of raw materials or finished goods a critical factor and if so, how do you plan
to handle it while minimizing costs?
 If you need to register your business; what are the legal requirements?
• Financial analysis
 Have you done financial calculations for the required costs, resources, income etc?
 Have all the costs of production been included in your calculations?
 Does the business generate enough cash from the beginning so as to meet immediate
liabilities (e.g. rent, loan repayment)?
 Check your cash flow projections. Are they realistic?
 Check all estimates of capital required as well as running costs.

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3.4 MARKET ANALYSIS
Generally any context in which the sale and purchase of goods and services takes place forms a
market. Thus, a market is any place or convenient arrangements whereby buyers and sellers come
into close contact in order to sell/buy goods and services. It may be a physical location or a
virtual one over a network (for example, the internet).

In a market, prices are affected by the forces of demand (of products) and supply (by sellers).
 A product is anything that can be offered to a market for buying, use or consumption that
might satisfy a want or need, for example, eggs, coffee, and mangoes.
 A service is performed when one group offers something to another. A service is not
tangible and does not result in ownership of any kind. Examples include training services,
and public transport services.

3.4.1 Market research

Market research is conducted in order to collect information, which enables you to make the right
decision on the marketing of your product/service. The main focus within this activity is to find
out as much as possible about people’s buying habits and your competition. Market research thus
helps to assess the viability of a business.

It is a systematic, objective collection and analysis of data about a particular target market,
competition, and/or environment, often conducted as the first step in identifying the viability of
business ideas. It always incorporates some form of data collection, either secondary research
(often referred to as desk research) or primary research which is collected direct from a
respondent.

Note: It is necessary to define your potential market for the product/service you plan to offer. It
may be a village, parish, sub-county, district, region or nearby city.

3.4.2 How to do market research

(1) Talk to potential
customers Ask them, for
example:
 What products or services they want to buy?
 What do they currently buy?
 Where do they buy and why do they buy from there?
 When do they buy?
 How much do they buy and what price do they pay?
 Do they get any extras?

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 What do they think about your competitors? (2) Study your competitors’ businesses Find
out about:
 Their products or services, for example quality and design  The prices they charge.
 What exactly do they sell?
 How does their product differ from yours?
 Where do they get their inputs?
 Where do they sell?
 How do they promote their product/service?
 Do they have any special approaches to customer care?
 How can you compete?
Be very careful to carry out your research in a friendly, sensitive way; ask questions and also
observe – be aware: nobody likes more competition!
(3) Ask suppliers and business friends 
Which goods sell in their business?
 What they think about your business idea.
 What they think about your competitor’s product.
Activity 3.1: Market Survey
Instructions: Go out into town with your small group, and find a business that most closely
matches the “best business” that you identified in chapter 2. Find out if the owner/manager, or
an employee has some time to answer some questions for you. Try to gather as much information
as you can, based on the categories/potential questions below. If there is time within the two
hours that you are out in the field, do the same with a second business, so that you can compare
answers. Record what you find out in the middle column. The column on the right is for your
own comments, analysis, suggestions, reactions, etc. Remember to be respectful of the person’s
time – he/she has a business to run – and only take as much time as he/she wants to give. Also,
keep in mind that there are some questions that the person may not feel comfortable answering,
so be respectful of that as well.

Table 3.1: Checklist- Categories of information to be collected for market survey

Category/Questions you can asked Information gathered Further Questions/

during survey Comments

Who are customers

Working place & costing

Cost of owning or leasing premises

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 Availability, supply & cost of raw materials

Availability of staff

Cost of working tools & equipment

Competitors analysis

Advertising Methods

Tax issues and legislation

Challenges

3.5 FINANCIAL ANALYSIS

3.5.1 Budget
Every enterprise must have a budget. A budget is a calculated estimation of the value or price of
the project and is always composed of the expenses (the costs of the project), and the income (the
resources brought into the project to cover the expenses). Without a budget, it is impossible to
control the project, and it is impossible to know if it is feasible. If you do not know how much it
costs you will not know how much you need.

(a) Income: include all sources of funds necessary for the project (your organizations own
resources, participants’ contributions, grants, materials and services donated or loaned and
amount requested from backers).
 Estimate the rental cost of material loaned or donated by sponsors.
 The total amount requested must be made clear (and must not exceed the maximum usually
granted).
 Calculate total receipts. This figure must be higher than total expenditure (otherwise there
will be no profit).

(b) Expenditure
 List all expenses connected with the project.
 Estimate the cost of all outgoings (in the appropriate currency).
 Your estimate must be realistic (show how you arrived at the final sum).
 Expenditure must correspond to the anticipated program of activities
 Estimate the rental cost of any material loaned by the private sector and include it under
expenditure (and receipts).

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 Calculate your total expenditure.

Table 3.2: A simple format for a budget

Activity Amount (Currency)

Income (money in)

Total Income (money in)

Expenditure (money out

Total Expenses (money out)

Savings
= + Surplus/-Deficit (Money In - Money Out)

3.5.2 Resource mobilization

To mobilize resources effectively, consideration must be given to three elements, which together
are referred to as a resource mobilization framework. The three elements of the framework are:
(i) resources; (ii) resource mechanisms; and (iii) resource providers. If necessary, define each of
these three and clarify their meaning by providing some examples.
(i) Resources: money is one of the key resources that all projects need to be able to function
and carry out their work. However, there are other resources that are also vital for starting a
business: examples include skills training, staff, inputs (e.g. seeds, tools, land etc.).
(ii) Resource mechanisms: resource mobilization mechanisms are the ways that resources
can be mobilized from resource providers. Mechanisms are actual processes of requesting or
getting resources, e.g. writing proposals, holding fundraising events, selling services, selling
products, face-to-face meetings, etc. (ii) Resource providers: resource providers are the sources
of funds; they include banks, microfinance agencies, government agencies, and charitable
organizations.

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A new entrepreneur should scrutinize as many sources of funding as possible in order to secure
the best terms and conditions of repayment. The major resource sources include own savings,
gifts and offers, loans, credit and grants. The most important types of start-up funding are
owner’s equity, loans (personal or from a lending program) and grants.

Figure 3.1: Sources of funds (resources)

Gifts & offers from Loans from family , Credit from

family and friends friends , savings & credit suppliers
groups, b anks etc

Funds for your

Own resources from Grants ( public
business enterprise
savings or sale of assets o r private)

The above sources have both advantages and disadvantages as shown below

Table 3.1: advantages and disadvantages of resource sources

Advantages Disadvantages

 Own decision  Capacity of individuals limited

 Own planning & timing  Danger of relaxation in business
resources

 Full control & benefits management

Own

 No extra costs (interest)  No sharing of risks

 Self-reliance motivating

 Free  Not reliable

 No extra costs involved  Not timely
offers
Gifts,

 May be tied to other person’s agenda,

wishes

 Extra resources  Interest charges

 Enforces discipline  Not timely
 Induces external control  Tight repayment regime
Loans

 External control of one’s business

 Risk of loss of one’s other assets in case

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 of failure

 Sure way of obtaining supplies  High prices

No interest charges  Inferior supplies
Credit (esp.


supplier)
from

 Reduction in operating  Inflexibility in planning supplies

expenses  Dependency on supplier

 Free  Consider specific levels (local, regional,

 Higher amount national, international), sectors (e.g.
health, agriculture, politics) and target
groups (e.g. youth, orphans, women)
Gran or
private
public

Strict rules for application and

)


ts

accountability.
 High competition
(

(i) Owner’s Equity: this is private money one puts into the business. It is also called risk
capital because if the business fails, you lose this money. Investing your own money in a
business is risky; however it puts less pressure on the business rather than borrowing. Although
risky, investing your own capital shows that you have faith in your business idea. It encourages
others to invest with you. If you don’t have enough capital you may find a partner who is
interested in the same business idea. A partner may or may not be working in the business, but
can invest money in it. Ensure you have clearly-defined terms of partnership to avoid
unnecessary misunderstanding later.

(ii) Loans: A loan for start-up capital refers to borrowed money which you will pay back at a
later date with interest. The loan may be paid back full in one or several instalments, depending
on the agreement. A loan inherently puts significant pressure on the business due to the
requirements to pay it back. The more you borrow the more you pay in terms of interest and
instalments. You may borrow money to buy: Land and buildings; Equipment; and Working
capital.

Some of the requirements when applying for a loan:

 A business plan with a business idea that the lending institution believes in.
 A collateral: a security that the lending institution asks for the repayment of your loan. This
may be your business if you own one, your home, machinery and any other equipment.
 Being an account holder or member of a bank, credit institution or association and having
operated an account successfully for some time.
 A certain percentage (part) of the total loan as security in your account.
 Information on yourself/yourselves and your ability to repay the loan.

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 Having a minimum age (mostly 18 or above).
 Referees, guarantors (honest people with good reputation).

When is it useful to get a loan?

 When there is a justifiable financing gap in your business funding plans.
 When other options such as saving and group-financing are not possible.
 When there is the need to take up an urgent opportunity that could lead to quick profit.

Where can you borrow?

 Banks and financial institutions
 Societies and associations
 Friends, relatives, family members
 Suppliers
 Government
 Savings and Credit Cooperatives

Types of loans
 Group loans
 Loans with formal banking institutions (such as SACCOs)
 Individual loans
 Loans with informal savings groups and associations

Factors to consider before borrowing money

 Develop a solid business plan including total funding requirements and running costs for the
first few months.
 Develop a financing plan including identifying funding sources.
 Identify and approach financial institutions in your area.
 Obtain the terms and conditions for the loan to be availed.
 Compare them with those of other financial institutions around.
 Check your business plan to determine the implications of such a loan (monthly repayment
and interest rates will affect your income/profits); check if your business can cope with these
implications.
 Initiate further discussions with the financial institution or association.

(iii) Grants: a grant is an allowance that a government or organization gives to support small
business creations in the country. Government, non-governmental organizations sometimes give

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grants to potential entrepreneurs to support them in starting small businesses. Check information
on accessing funding through grants in Uganda.
3.6 REALISTIC PLANNING
Milestone-planning for the realization of your business has an essential influence on the
financing and risks associated with the business. Planning helps you to think your way through
all the aspects and to analyze the effects of individual steps in implementation.

Realistic planning is not simple, more so when founding a new business. In spite of this, attempts
to carefully sketch the individual steps are needed to implement a business plan. This enhances
credibility for you from your backers and business partners; and also enhances the chance of
success for your business.

The following are the four pertinent rules for realistic planning:
(i) Subdivide the tasks into packages: Since there is a great deal of detailed work to be
carried out when setting up a business, there is always the danger of losing sight of the big
picture. Thus you should always organise the individual activities in “packages.” The business
plan should, however, not contain more than ten such packages; you can specify them further at a
later date. A concrete objective should be set for each package.

(ii) Ask the experts: Make use of the expertise of specialists in order to underpin major steps
in planning. Marketing specialists, for example, could show you how long it will take to develop
and conduct a given campaign.

(iii) Set priorities: Every overall planning concept comprises a series of events and
assumptions that in some cases run in parallel and are linked with one another. Certain activities
can, if delayed, endanger the entire project; example an assembly line production may come to a
halt, if certain parts are lacking. Activities such as these are referred to as the “critical path.” You
should devote particular attention to them in your planning.

(iv) Reduce risks: Try to schedule activities that will reduce risks at the beginning of the
implementation. You may, for example, carry out a market survey immediately after market
entry. If you do not carry out such surveys or polls until a later point in time and find that there
are not enough customers for your product, all your previous work may have been in vain:

SECTIONS OF A BUSINESS PLAN

a) Cover page
b) Table of contents
c) Executive Summary

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 d) Statement of Purpose
e) Business Description
f) Organisation and Management
g) Production Plan/Operational
h) Risk Reduction
i) Financial Plan

MAJOR CONTENTS OF A BUSINESS PLAN

1. General • Name of business, business location and address
description of • Nature of business activity
business Type of business organization (partnership, cooperative, new, old,)
•
 Any further explanation summarizing why the business will be
successful
2. Personal • Name of business owner(s), or promoter(s)
background • Educational, professional background
 Relevant experience in business-related activities
3. Market plan  Business market area and targeted customers/clientele
 Why you will be able to compete with existing products/ services and how do
you compare competitors (price, quality, appearance, performance,)

 Past, current, future (projected) market demand for your product/service (if
possible in terms of volume/units per day/months)

 Suppliers and supply terms and conditions

 Unit pricing and list of all items/services being offered
 How you will be selling your produce (direct, dealers)
 Tip: Include the market research survey report as an annex
4. Business • Who will be the actors in this business
management • Specify their roles and the division of labour (if applicable) How the
plan business work will be organized (e.g. working shifts, working times,
•
working conditions)
5. Financial plan Investments required
• Fixed assets/starting equipment (e.g. land, tools, machinery)
• Preliminary expenses: (a) pre-operative expenses (e.g. legal fees, licensing fees,
bank charges); (b) Start-up expenses (e.g. water, electricity connection, arranging
premises, etc.)
• Working capital (raw materials, rent, water, transport, etc.)

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6. Sources of raising • Total requirements: (a) own contributions/investments; (b) gift from
funds family/friends; (c) loans, credits etc; (d) Total funds available
• Deficit/funding gap (Loan required)

7. Operating plan • Projected operating income statement: (a) Income from sales; (b) Less cost of
forecast production and overhead/fixed costs; (c) Net profit
• Break even analysis
• Cash flow projection
8. Major Give the assumptions you’ve made that underpin your plan e.g.
assumptions assumptions that particular resources will be available
9. Business profile Summary that shows all major aspects on one page

Activity 3.2: Developing a business plan

1. Cluster learners based on their groups or places they come from.
2. Using the business plan template, ask learners to develop business plans for their potential
businesses.
3. The learners make presentations and receive feedback from the plenary
4. Ask learners whether they can apply this information.

BUSINESS PLAN
TEMPLATE a) COVER
PAGE
(i) Business Name …………………………………………………………………………..
(ii) Business Address ………………………………………………………………………...
(iii) Organization presented to …………………………………………………..............
(iv) Date of presentation…………………………………………………………..............

b) TABLE OF CONTENT
Give numbers of various key sections of your business plan.

c) EXECUTIVE SUMMARY
Give brief overview of your business highlighting the key features.
What is the business about? Products/services on offer, market-main customers, human
resource.
The organisation’s structure, financial summary-projected income and assets among others.

d) STATEMENT OF PURPOSE

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 Outline the purpose of the business plan.

e) BUSINESS DESCRIPTION
(i) Business Location address.
(ii) Business ownership (nature of the business).
(iii) Products/Services offered.
(iv) Industry which the business will operate under.
(v) Justification of the business.
(vi) Short term and long term goals.
(vii) Entry and growth.

f) MARKETING PLAN
Highlight how you plan to market your products/service i.e. how do you intend to reach your
target?
(i) Outline the characteristics of the potential customers.
(ii) Competition: Who are the main competitors? What are their strengths? What are their
weaknesses? How do you intend to capitalise on their weaknesses?
(iii) Market share - expected total market share.
(iv) Pricing strategy; outline your pricing strategy.
(v) Advertising and promotion; outline your pricing and promotion strategy. Include
Initial plan; Long term strategy; Distribution strategy; Sales tactics.

g) ORGANISATION AND MANAGEMENT

(i) Organization structure (draw your organizational chart).
(ii) Management team: State the composition of your management team, its
qualification/post, duties and responsibilities.
- Other personnel (what other employees will you require?).
- Outline how you will recruit and train your staff.
(iii) Remuneration of staff: Highlight how you will recruit, train and develop your staff.
(iv) Remuneration/incentives: salaries/wages and fringe benefits. How will you
remunerate them?
(v) List the support services required
(vi) Licenses/permits: Specify the required licenses/permits. Who will provide the
licenses /permits and at what cost?

h) OPERATIONAL/PROCEDURAL PLAN

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Describe briefly how you will operate your business (i)
Production facilities and capacity utilization.
(ii) List the machines, equipment and tools required. Describe the cost, capacity and supplier
of the required machines and equipment.
(iii) Production strategy
- Outline the material requirements.
- What is the material cost?
- Outline the source.
(iv) Product design development
- Outline how you will design and develop your product.
- What will it cost to design and develop your products?
- Outline the estimated cost of product/service: Direct Material cost+ Direct labour cost +
Overheads (v) Relevant regulation
- List the patents and regulations needed
- What is the cost of obtaining the patent trademarks?
- List other legal rights will seek

i) RISK REDUCTION STRATEGIES

Outline how you will analyse and reduce business risks (future business risks).

j) FINANCIAL PLAN
Identify how you will obtain and use business finance i. Pre-
operational costs
• Outline your pre-operational cost
• What is our proposed capitalisation source?
- Own contribution (your capital)
- Funds from borrowed sources
- Total investments ii. Identify the working capital requirements
(i) Prepare your income statement
(ii) Prepare your balance sheet
(iii) Prepare your projected cash flow statement
(iv) Outline how you expect to finance your operations (v) Outline your initial capitalisation
for existing business (vi) What is your proposed capitalisation?
(vii) What is your break-even level?
(viii) How will you measure your profitability?

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