AgBus414 Chapter5

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CHAPTER/MODULE 5

THE BUSINESS PLAN


Intended Learning Outcomes

By the end of this topic/chapter, you must be able to:


1. Identify the importance of business planning and its advantages, as well as
the step by step in preparing a business plan.
2. Enumerate the factors and other necessities on how to manage and start a
business successfully.

Starting a business requires a lot of work, time and money. A business, either
new or an expansion, must undertake careful planning of the project which will serve
as guide in the implementation.

Business Plan, definitions


A business plan is an entrepreneur’s blueprint for success. This document
details what the plan to do with the venture, and how exactly you want to achieve
them. It also details the most important questions you should ask yourself before,
during, and after your business has been taken off; Where do I get my resources?
What are the problems I might encounter? What are the possibilities for expansion?
Is there a demand in the market for my product or service?

The business plan, also called a venture plan, is a step-by-step guide that will
assist you in realizing your business.

Purposes of a Business Plan


A business plan is written for two main purposes. They are the following:
1. to serve a management’s guide during the lifetime of the business; and
2. to fulfill the requirement for securing lenders and investors.

The Plan as a Guide

In the course of writing the business plan, the small business operator (SBO)
is afforded sufficient time to consider all factors relevant to operating the business.
Through analysis of the environment and derivation of what can be expected to
happen, decisions about various aspects of business operations can be considered
in advance.

As periodic objectives are accomplished one at a time, the business plan


serves as a useful tool for comparing what was planned and what was achieved.
Discrepancies will provide bases for implementing changes or making adjustments in

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the business plan. The timetable indicated in performing the various aspects of
operations is also a very useful guide for the management of the firm.

A Tool for Securing Funds

When the SBO needs initial or additional funding for his business venture, the
business plan is a handy means for convincing lenders and investors. In many
cases, the business plan indicates that the proponent SBO is fully aware of what he
is getting into. 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 are usually included in the business plan.

The Business Planning


Business planning is a critical activity that has to be undertaken by the
entrepreneur who wanted to succeed in his business endeavor. In general, Business
Planning is very significant because it:

1. Encourages systematic forecasting of the business activities ahead;


2. Enhances better coordination in the implementation of the business
3. Provides for the necessary business measures as standards;
4. Sets up the necessary business goals and objectives; and
5. Defines necessary alternatives for future developments.

A Good Business Plan


● Ensures that all relevant questions are answered
● Organizes the business operations orderly and systematically
● Provides the general direction for the business venture
● Defines the target market and the necessary work volume required
● Reduces the risk of failures caused by financial aspects of the business
● Sets the specific objectives of the business organization
● Defines the financial requirements, its estimated income, cash flow and
balance.

Defining the Business Summary


Definition of the general description of the business venture being planned

Definition of the Business

1. Business Title- chose of the business name and brief explanation of reason

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2. Business Type- definition of the classification
3. Business Location- definition of the business address
4. Business Status- defining the nature of business plan
5. Business Description- brief description of the mode of operation of the
business
6. Type of Ownership- defining business by legal entity
7. Business Owner’s Profile- personal information of the investors
8. Business Objectives- definition of the organization’s goals
9. Financial Scheme- defining amount and sources of required capital
10. Summary of Business Feasibility:
a. Marketing Aspect
b. Production Aspect
c. Management Aspect
d. Financial Aspect

Marketing Aspect of the Business Plan


Studying the Market Aspects of the Business
1. PRODUCT DESCRIPTION- definition of the descriptive name of the product
or service, its uses and classification
2. DEMAND ANALYSIS- definition of the target customers, their general
classification and projected volume of sales
3. SUPPLY ANALYSIS- definition of the existing competition, the gap between
demand and supply and the factors that affect the supply
4. TERMS OF SALES- definition of selling terms by the competition and terms to
be adopted in the business
5. MARKET SHARE- definition of the projected share in market for the initial
period and the succeeding periods
6. SELLING PRICE- definition of the projected selling price of the product
7. VOLUME OF SALES- definition of the projecte volume of sales and
equivalent amount per period

Production/ Technical Aspect of the Business Plan


The technical study of the production process and requirements considering
supplies and materials, production specifications, utilities, organization and providing
estimates of production costs.

1. SOURCES AND COSTS OF RAW MATERIALS- definition of sources of raw


materials, terms of payments and costs
2. LABOR- definition of required skills, number required, availability and pay
scheme
3. OVERHEAD EXPENSES- definition of various indirect expenses and
administrative costs
4. FIXED ASSETS- definition of facilities, plant, and machinery. It also includes
plant layout and process

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5. LOCATION- definition of business location, plat site and other factors
affecting sales, procurement and delivery of materials and products
6. WASTE DISPOSAL- definition of quantity, manner of waste disposal and
costs
7. PRODUCTION COSTING- determining the required cost to produce one unit
of output considering all production costs

Organization and Management Aspect of the Business


Plan
The structuring of the business organization and its management functions to
delineate authority and responsibility. The basic structure of an enterprise includes
the administration, production, marketing and maintenance.

Purpose of Organization
1. Avoids misunderstandings as who makes decisions and who do certain tasks
2. Defines clear accountability for certain decisions and works performed
3. Minimize overlapping of functions
4. Enhances communication and coordination

Common Elements of the Business Enterprise


1. Management - Administration, Finance and Accounting
2. Production- Product Research and Development, Operations, Plant
Maintenance
3. Marketing- Market Research, Advertising and Sales Promotion, Shipping

Parts of the Organization and Management Aspect


1. DESCRIPTION OF THE BUSINESS- brief description of the nature of
business
2. CORPORATE PROFILE- description of the type of ownership, legal
personality and capitalization
3. OFFICERS AND KEY PERSONNEL- structuring of the organization and
functions
4. PRE-OPERATING ACTIVITIES- a presentation of activities in Gantt chart
5. PRE-OPERATING COSTS- determining the various pre-operating expense

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Typical Organizational Chart

Financial Aspect of the Business Plan


The formulation of financial projections, assumptions for estimating the future
expenditures must be done as accurately as possible.

Characteristics of Financial Feasibility


1. FACTUAL- based on prevailing prices
2. JUSTIFIABLE- based on accepted accounting practices
3. REALISTIC- based on factual figures
4. WORKABLE- attainable

Parts of the Financial Aspect


A. BUDGET
1. Working Capital
a. Materials Costs
b. Labor Costs
c. Overhead Costs
d. Administrative Costs
2. Fixed Investments
a. Land
b. Building

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c. Machinery
d. Office Equipment
3. Pre-operating Expenses

B. TOTAL PROJECT COST

1. Total Project Cost


2. Loans
3. Collaterals

C. SCHEDULE OF LOAN REPAYMENT

D. PROJECTED INCOME STATEMENT

E. PROJECTED CASH FLOW

F. PROJECTED BALANCE SHEET

Projected Financial Statements


Projected Income Statement- Statement of projected sales, production costs, costs
of sales, administrative costs and other non-projected costs in certain period

In operating a business, the entrepreneur shall incur expenses at various


points of the business operations- in production, marketing, administration,
management and finance. The entrepreneur would want to know how much he/ she
has earned or lost from the investments made in the business. The Income
Statement figures out how much one has earned or lost. It is also known as a Profit
or Loss Statement.

Preparing the Income Statement involves nothing more than subtracting from
the gross revenues all the expenses incurred during the period. The difference
between the total revenues and total expense figures will give the net income.

Projected Cash Flow- The systematic presentation of cash receipts and


disbursements for a given operating period or fiscal year taking for granted the
“accrued concepts” in accounting.

The Cash Flow Statement is the significant planning tool in projecting the
business cash requirements and cash shortages. It is determining in advance how
much cash is needed to start and run the business until that point when cash
receipts from sales and other income starts coming in, when it will be needed.

The Cash Flow Statement can be used for monitoring and evaluating the
actual inflow of cash ( from sales and other income) and the outflow of cash ( as
cash paid for various expenses) in the business.

Projected Balance Sheet- The presentation of the assets derived from the project
from corresponding liabilities and equities (net worth). It is the overall picture of an
enterprise’s financial condition over a certain period.

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The ASSETS of the company are the cash, properties and resources owned
by the enterprise. They are all the items of value such as cash, land, building,
machinery, and receivables/ sales on account.

The LIABILITIES of the enterprise refer to all the rights, interests and claims
of outside creditors. It includes accounts payable, loans, taxes due, equity or capital
which are claims of the owners.

The BALANCE SHEET is aptly termed because

ASSETS= LIABILITIES + EQUITY

This accounting equation explicitly suggests that any form of asset is funded in fused
by the owner. Both sides should always be equal.

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BUSINESS PLAN

I. BACKGROUND INFORMATION

1. Business Title : ____________________________________


2. Business Type : _____ Retailing _____ Agro-industry
_____ Wholesaling _____ Agro-forestry
_____Services _____ Others(specify)
3. Business Location : ____________________________________
4. Business Status : ______ New Business______ Diversion
______ Expansion ______New Product
5. Description of Business Operandi:
________________________________________________________
________________________________________________________
________________________________________________________
____________________________________________

6. Type of Business Entity: _____ Single Proprietorship


_____ Partnership
_____ Corporation
_____ Cooperative
_____ Others (specify)
7. Entrepreneur’s Profile:
Name : ____________________________________
Address : ____________________________________
Tel Nos. : ____________________________________
Spouse : ____________________________________
Children : ____________________________________
SSS No. : _____________ TIN : __________________
8. Business Objectives:
________________________________________________________
________________________________________________________
_______________________________________________
9. Capital Requirements:
Total Amount: _____________________________________
10. Sources of Capital:
Equity : ____________________________________
Loans : ____________________________________

II. MARKETING ASPECT

A. Product Description:
1. Product Description : ____________________________________

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2. What are its uses : ____________________________________
3. What are its possible substitutes : _________________________
4. What are it advantages compared to competition, in terms of:
a. Quality: _________________________________________
b. Price : __________________________________________

B. Target Customers:
1. Who are the main customers? ______________________________
2. Why are they chosen? ____________________________________
3. What are the Customer Classification and profitable percentage sale for
each?
( ) A1, Ultra Rich = ___% ( ) B2, Lower Middle Class = ___%
( ) A2, Rich = ___% ( ) C1, Poor = ___%
( ) B1, Higher Middle Class = ___% ( ) C2, Very Poor = ___%
4. Frequency of Buying:
( ) Daily ( ) Six Months Average
( ) Weekly ( ) Every Cycle
( ) Monthly ( ) Seasonal/ Occasional

C. Competition
1. Who are your competitors?
______________________________________________________
2. What are your advantages against your competitors?
______________________________________________________

D. Terms of Sales
1. Sales terms used by competitors: ( ) Cash
( ) Credit with PDC
( ) Credit with ___ % DP
( ) Installments
( ) Others (specify)
2. What term would you adopt? _______________________________

E. Market Share:
1. Projected Market Share: Percentage Volume Amount
At the start ____% ____% ____%
In the 1st Year ____% ____% ____%
In the 3rd Year ____% ____% ____%
In the 5th Year ____% ____% ____%

III. PROJECTED SALES Schedule 1

Customer Item Quantity Unit Price Amount


_______________ ___________ ___________ __________ __________
_______________ ___________ ___________ __________ __________
_______________ ___________ ___________ __________ __________
_______________ ___________ ___________ __________ __________
_______________ ___________ ___________ __________ __________

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_______________ ___________ ___________ __________ __________

Total Projected Sales:


Daily - PhP_____
Weekly - PhP_____
Monthly - PhP_____
Per Cycle - PhP_____
Yearly - PhP_____
IV. SOURCES OF MATERIALS

1. Sources of Materials you intend to sell :___________________________


2. Who are the suppliers of your materials: ___________________________
3. What are the terms of your payments : ____________________________
4. Are the materials always available : ______________________________
5. Alternative suppliers : _________________________________________

V. COST OF DIRECT MATERIALS Schedule 2

Suppliers Materials Quantity Unit Price Amount


___________ ________________ _________ ___________ _________
___________ ________________ _________ ___________ _________
___________ ________________ _________ ___________ _________
___________ ________________ _________ ___________ _________
___________ ________________ _________ ___________ _________
___________ ________________ _________ ___________ _________
___________ ________________ _________ ___________ _________
Total Cost of Materials:
Daily - PhP_____
Weekly - PhP_____
Monthly - PhP_____
Per Cycle - PhP_____
Yearly - PhP_____

VI. LABOR
1. Skills and qualifications required by the business:
______________________________________________________________
______________________________________________________________
_____________________________________________________
2. Availability of required skills/ qualifications in the area:
___________________________________________________________
3. Alternative sources of skills/qualifications
___________________________________________________________
4. How much will be paid for such skills/ qualifications:
___________________________________________________________

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VII. LABOR COST Schedule 3

Job Title Department Number Salary/ Wages Amount


______________ ____________ ______ ________________ ___________
______________ ____________ ______ ________________ ___________
______________ ____________ ______ ________________ ___________
______________ ____________ ______ ________________ ___________
______________ ____________ ______ ________________ ___________
Total Labor Cost:
Daily - PhP_____
Weekly - PhP_____
Monthly - PhP_____
Per Cycle - PhP_____
Yearly - PhP_____

VIII. OVERHEAD EXPENSES Schedule 4

Production- related Expenses Amount


Rentals- PhP ________
Transportation- PhP ________
Repair and Maintenance- PhP ________
Fuel, Oils and Lubes- PhP ________
Light and Water- PhP ________
Telephone- PhP ________
Insurance- PhP ________
______________ PhP ________

Total Overhead Expenses:


Monthly- PhP ________
Yearly- PhP ________

IX. FIXED ASSETS Schedule 5

1. Properties, Plant and Equipment

Fixed Assets Acquisition Cost Useful Life Yearly Depreciation


______________ _______________ __________ ___________________
______________ _______________ __________ ___________________
______________ _______________ __________ ___________________
______________ _______________ __________ ___________________
______________ _______________ __________ ___________________
______________ _______________ __________ ___________________
Total: _________________

2. Plant Layout and Production Process Flow:

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X. PRE-OPERATING EXPENSES Schedule 6

1. Pre-operating Requirements

Expenses: Amount

Business Plan Preparation PhP _____________


Licenses and Registration PhP _____________
Skills and Management Training PhP _____________
Transport Costs PhP _____________
Trial Production Costs PhP _____________
Meals and Entertainment PhP _____________
Other expenses before operation PhP _____________

Total Pre-operating Expenses PhP _____________

XI. ADMINISTRATIVE EXPENSES Schedule 7

Expenses: Amount

Salaries and Wages PhP _____________


Telephone PhP _____________
Office Supplies PhP _____________
Rentals PhP _____________
Electricity and Water PhP _____________
Representation and Entertainment PhP _____________
Transportation PhP _____________
Others: ___________ PhP _____________

Total Administrative Cost: Monthly PhP _____________


Yearly PhP _____________
XII. BUDGET

Budget Items Loan Equity Total

1. Working Capital: PhP ______ PhP ______ PhP ______


Materials Cost PhP ______ PhP ______ PhP ______
Labor Cost PhP ______ PhP ______ PhP ______
Overhead Cost PhP ______ PhP ______ PhP ______
Administrative Cost PhP ______ PhP ______ PhP ______
Total Cost - _________

2. Fixed Investment:
Land PhP ______ PhP ______ PhP ______
Building PhP ______ PhP ______ PhP ______
Machinery PhP ______ PhP ______ PhP ______
Equipment PhP ______ PhP ______ PhP ______
Office Equipment PhP ______ PhP ______ PhP ______
Total Cost - _________
3. Pre-Operating Cost PhP ______ PhP ______ PhP ______

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TOTAL PhP ______ PhP ______ PhP ______

XIII. TOTAL PROJECT COST

1. Amount to be loaned PhP _____________


2. Amount of equity PhP _____________
3. Total Project Cost PhP _____________
4. Market Value of Collateral PhP _____________
Collateral Appraised Value Loanable Amount
____________ ______________ _________________
____________ ______________ _________________
____________ ______________ _________________
____________ ______________ _________________

XIV. SCHEDULE OF LOAN PAYMENT

LOAN REPAYMENT SCHEDULE


________________________________________________________________
Year Loan Principal Interest Annual Ending
Principal Installment Payment Payment Principal
Beginning Payment ____% Balance
________________________________________________________________

1 PhP ________ PhP ________ PhP _______ PhP ______ PhP _____
2 ________ ________ ________ ________ ______
3 ________ ________ ________ ________ ______
4 ________ ________ ________ ________ ______
5 ________ ________ ________ ________ ______

XV. PROJECTED INCOME STATEMENT

Projected Income Statement


Year 1 Year 2 Year 3 Year 4 Year 5
Sales (Schedule 1) PhP ______ PhP ______ PhP ______ PhP ______ PhP ______

Less: Cost of Sales

Direct Materials
(Schedule 2) _______ _______ _______ _______ _______
Direct Labor
(Schedule 3) _______ _______ _______ _______ ______
Overhead Cost
(Schedule 4) _______ _______ _______ _______ _______

Gross Profit PhP ______ PhP ______ PhP ______ PhP ______ PhP ______

Less: Pre-operating
(Schedule 6) _______ _______ _______ _______ _______
Admin Cost
(Schedule 7) _______ _______ _______ _______ _______
Interest on Loan _______ _______ _______ _______ _______

Net Profit before Tax PhP ______ PhP ______ PhP ______ PhP ______ PhP ______

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Less: Income Tax _______ _______ _______ _______ _______

Net Profit after Tax PhP ______ PhP ______ PhP ______ PhP ______ PhP ______

XVI. PROJECTED CASH FLOW STATEMENT

Projected Cash Flow Statement


Pre-operating Year 1 Year 2 Year 3 Year 4 Year 5

CASH FLOW

Capital/ Equity PhP _____ _____ _____ _____ _____ _____


Loans _____ _____ _____ _____ _____ _____
Cash Sales _____ _____ _____ _____ _____ _____
Collections of Acc. Rec. _____ _____ _____ _____ _____ _____
Other Income _____ _____ _____ _____ _____ _____
Re-flows _____ _____ _____ _____ _____ _____
Interest Earning _____ _____ _____ _____ _____ _____

Total Cash In-flow PhP _____ _____ _____ _____ _____ _____

CASH OUTFLOW

Tax Payments PhP _____ _____ _____ _____ _____ _____


Pre-operating Expense _____ _____ _____ _____ _____ _____
Purchase of Fixed Assets _____ _____ _____ _____ _____ _____
Direct Materials _____ _____ _____ _____ _____ _____
Direct Labor _____ _____ _____ _____ _____ _____
Overhead Expense _____ _____ _____ _____ _____ _____
Interest on Loans _____ _____ _____ _____ _____ _____
Loan Amortization _____ _____ _____ _____ _____ _____

Total Cash Out-flow PhP _____ _____ _____ _____ _____ _____

Net Cash In-Flow/ Out-Flow _____ _____ _____ _____ _____ _____

Cash Balance Beginning _____ _____ _____ _____ _____ _____

XVII. PROJECTED BALANCE SHEET

Projected Balance Sheet


Pre-operating Year 1 Year 2 Year 3 Year 4 Year 5

ASSET

Capital PhP _____ _____ _____ _____ _____ _____


Markeable Securities _____ _____ _____ _____ _____ _____
Accounts Receivable _____ _____ _____ _____ _____ _____
Inventory _____ _____ _____ _____ _____ _____
Total Current Assets _____ _____ _____ _____ _____ _____

Property, Plant, Eqpt


Land _____ _____ _____ _____ _____ _____
Building _____ _____ _____ _____ _____ _____
Less: Depreciation _____ _____ _____ _____ _____ _____
Net Fixed Assets _____ _____ _____ _____ _____ _____

Other Assets
Pre-operating _____ _____ _____ _____ _____ _____
Investments _____ _____ _____ _____ _____ _____

Total Assets PhP _____ _____ _____ _____ _____ _____

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LIABILITIES

Accounts Payable PhP _____ _____ _____ _____ _____ _____


Tax Payable _____ _____ _____ _____ _____ _____
Loans Payable _____ _____ _____ _____ _____ _____
Current Liabilities _____ _____ _____ _____ _____ _____

Total Liabilities PhP _____ _____ _____ _____ _____ _____

OWNERS’ CAPITAL/ EQUITY

Owner’s Capital/ Equity PhP _____ _____ _____ _____ _____ _____
Retained Earnings
Less: Dividend _____ _____ _____ _____ _____ _____
Net Equity _____ _____ _____ _____ _____ _____

TOTAL LIABILITIES AND


OWNERS EQUITY PhP _____ _____ _____ _____ _____ _____

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Reference

Agustin-Acierto, M., Baltazar, W.B., Rojas-Maneclang, H., Mercado, J. & Umaclap,


B.E. (2017). In Depth: A Guide to Successful Business Planning. Unlimited Books
Library Services & Publishing Inc. p.p 1-7

Agustin-Acierto, M. (2019). Entrepreneurship Principles and Practices. . Unlimited


Books Library Services & Publishing Inc. p.p 111-192

Asor, W. T. (2009). Entrepreneurship in the Philippine Setting. Rex Printing


Company, Incorporated. p.p. 41-74

Flores, M.F. (2017). Business Plan. Unlimited Books Library Services & Publishing
Inc. p.p. 1-13

Kuratko, D. (2012). Entrepreneurship: An Introduction. Cengage Learning Asia Pte


Ltd. p.p. 322-346

Medina, R. (2014). Entrepreneurship and Small Business Management. Rex Printing


Company, Incorporated. pp. 1-8.

Pineda, A. (2019). Entrepreneurship Fundamentals. Mindshapers Co., Inc. p.p. 87-


102

Trainor’s Training on Entrepreneurship Development. (2000). Industrial Technology


Foundation Inc. p.p. 4.2-4.33

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