Entrepreneurship

TOPIC AREA: BUSINESS GROWTH AND ETHICS

SUB-TOPIC AREA: BUSINESS GROWTH

Key unit competence:

To be able to develop a business plan for a project.

Knowledge to be acquired

Meaning of a plan, a business and a business plan.

 How a business plan assists business growth.

 The importance of a business plan.

 Users of a business plan

. Elements of a business plan.

Application to daily life

Analyse the need for a business plan.

 Prepare a marketing plan.

 Prepare organisational and management plans.

 Prepare a startup plan.

 Prepare business operations and cost plans.

Introductory Activity

1 “Not planning is planning to fail”, while “a ship without a compass has no direction”.Before going for a journey, you need to plan for the journey.

(a) Mention some of the things you will include in your journey plan.

(b) Why is it important to plan for the journey in advance?

2 Before investing money, an entrepreneur has to define what the business is or what it intends to be over time. Clarifying the purpose and direction of your business allows you to understand what needs to be done for forward movement.

By putting statistics, facts, figures and detailed plans in writing, a new business has a better chance of attracting investors to provide the capital needed for getting started, attract partners, secure supplier accounts and attract executive level employees into the new venture, and regularly to ensure the business is on course with meeting goals, sales targets or operational milestones. In this unit, you look at how a business plan assists business growth and be able to write your own business plan.

(a) How do you relate planing for a journey to planning for a business? Why is it important?

(b) What would you include in your business plan

7.1: Meaning of a Plan, a Business and a Business Plan

ACTIVITY 7.1

1. Imagine your 5.3 results are out and you performed very well being the best in your school. Your parents tell you they will support you to celebrate the success. Write down all the activities you will do for you to have a successful party.

2. Imagine you want to start a small business in your community after school. List what you will do for you to start and operate your business successfully.

3. From the two paragraphs above: how do we call the process involved in writing or listing down the activities for a successful party or business?

4. What do you think is:

(a) a plan?

(b) planning?

(c) a business plan?

(d) business planning

As illustrated in activity 7.1, for one to perform a task well there is need to plan.

A plan is an idea of how an activity or project should be carried out. A plan describes the objectives, goals and procedure of carrying out the activity or project. For a plan to be understood and followed easily in carrying out the activity, it should be made in writing.

A plan can therefore be defined as a written document describing the objectives, aims and procedure of carrying out an activity or project.

A business is any activity carried out with the intention of making an economic gain or profit. A business involves the supply of goods or services to others for a profit. Thus, some businesses offer goods while others offer services for a profit.

A business plan can be described as an idea of how a business will be carried out. In most cases, this idea is described in detail in form of a written document.

A business plan can also be described as a written document describing in details the objectives, goals and procedures of implementing or carrying out a business.

A business plan is designed to guide the implementation of a business.

A Business plan helps you to:

• decide if you should start your business or not,
• organise your ideas so that you will start and run your business in the best way,
• present your business idea to a lending institution such as a bank to get a business loan.

• A good business plan attracts investors and funders into your business as investors always want to know what the business is, how it will operate and how the money will be used.

• Bankers want assurance of orderly repayment of loans and the business plan will show how you will raise revenue and pay back borrowed money.

• By preparing a business plan and outlining each aspect of the business, you can determine if your idea is actually viable. This helps you avoid spending and investing in a venture that has not been well thought through.

•  A business plan provides an overview of all aspects of the business. You will be able to explain the key questions of who, what, where, when, and why of the business operations, costs, and projected profitability.

• A business plan helps the entrepreneur to set up milestones and targets and also to evaluate the performance of the business.

• Researching, analysing and writing about the market not only provides you with an overview for the business plan, but gives you greater insight into the overall market.

• A business plan helps an entrepreneur to secure additional funding or loans through demonstrating past successes and illustrating the company’s growth plan.

• Preparing a business plan will force the entrepreneur to analyse more critically his/her financial position, prospects and determine what resources are needed for the business.

• A good business plan will help the entrepreneur attract partners and high calibre employees to the business because it clearly indicates the future of the business.

• It helps the entrepreneur to devise contingency plans, that is, it helps the entrepreneur to see how and where to make changes if,and when necessary.

• A business plan guides the entrepreneur to plan for the business by providing a timetable of activities to be done by the business which helps an entrepreneur to mobilise and coordinate resources.

• It defines the goals and objectives of the business which helps the entrepreneur to constantly monitor the progress of the business by comparing what is being done with objectives laid down.

• The business plan helps an entrepreneur to identify the sources of funding for the business.

• A business plan encourages the entrepreneur to focus on planned activities and avoids focusing on unplanned activities and expenditures.

• It helps the entrepreneur to plan for future expansion of the business.

• It lays down the marketing strategies that are very crucial in promoting sales.

• It sets production targets which help the entrepreneur to know the specific resources necessary to achieve the set targets.

• A well made business plan helps the entrepreneur to get financiers and investors to finance and buy shares respectively.

• It helps the entrepreneur to decide whether or not to continue with the business identified.

• A good business plan can be used by the entrepreneur as a strategy for motivating employees.

• A business plan forms a basis for sound decision making by the entrepreneur.

• It helps financiers to decide whether or not to extend credit or a loan to the business.

• A business plan will help investors decide whether to invest in the business or not.

• Usually the financial institutions are also interested in the business, for example, they want to know if the business will generate sufficient cash with which it can repay the loan.

• A business plan helps employees to know their expected performance targets and the resources they will have in order to meet the set targets.

• It provides employees with information about where the business is going and their role in it.

• It also shows them the future of the business and therefore their prospects for continued employment.

• A business plan helps employees to know the vision and mission and know where the business is headed to. This gives them focus and guidance.

• A business plan determines the tasks and responsibilities of each of the workers and this leads to reduced work related conflicts.

• It helps the government to assess the viability of a business to determine specific incentives like subsidies, tax exemptions and credit guarantees that the government may offer.

• It helps the government to plan for infrastructure and other services that it may want to set up.

• It may guide the government in guaranteeing loans from international organisations like International Monetary Fund (IMF) and World Bank required by the entrepreneur.

            

• Strengths of the business (advantages your business has over other businesses).
• Weaknesses of the business (limitations of your business in relation to its competitors).
• Opportunities of the business (benefits to the business outside its operations)
• Threats to the business (negatives to the business outside its operations).

• To increase patients turn up by 40% annually for the next 5 years.
• To maximise profits by 15% annually for the next 5 years.

• Location of the business. Show the intended physical location of the proposed business premises, and reasons to justify the desired location for your business. Do not forget to show a brief status of the cost whether rented, leased or own premises and the costs associated with it.
• Quality control. Describe how quality will be controlled to avoid defects and poor quality products released on the market.
• Brief explanation of the production process and plant layout.
• Equipment and machinery to be used in the business: You should show the type, nature and capacity of equipment and machinery required. Do not forget to indicate the possible sources of these equipment and their cost.
• Production planning. Describe the stages of production from start to finished product.
• The production staff:Describe the kind of staff required in the production process, the skills they should posses, their availability and how much they should be paid.
• The required raw materials and their sources.

• Production utilities required. Describe the utilities the business will require such as electricity, water, telephone and so on. Show their suppliers and costs.
• Required inputs and raw materials. You should show the raw materials your business needs, their sources, amount required, re-order level, costs and how they will be transported to the business premises.
• Quality management. Explain how quality management will be ensured in the production process. Will you employ quality controllers? Will the production process go through quality certification by international certification organisations?
• Packaging. Describe how the products will be packaged, the required technology to package and so on.
• Technical skills required to produce and manage the equipment. Is there need to hire experts to run the equipment? Do you need to train your staff to be able to use the equipment properly? What costs are involved in retraining workers?
• Training needs and costs: Indicate if you will need to train the workers and the costs involved.
• Labour and safety requirements and how they will be implemented at the production premises.
• Backup plan. Do you have technical backup for your machinery in case of breakdown during the peak production process?
• Expected output. Depending on the machinery and equipment, what is the expected output per period of time? Will this output fully make use of the machinery or the machines will operate at less than full capacity? If the business will be producing different kinds of products, indicate what quantity of each product will be produced.

• Business idea: Businesses in any economic sector are based on an idea. For example, identify needs, who are the customers, type of products or services to satisfy the needs, how to reach the customers and so on).
• Marketing objective: The marketing section should dearly indicate the objectives to be achieved. For example, to achieve a specified market share within the first year.
• Market research: Starting from your business idea you must now learn more about your customers and competitors through market research. From experience and from developing your business idea you know quite a lot about your market. But the more you know the better it is so you probably need to find out more from other sources.

• Marketing plan product: Detailed description of the product or product range or service.

• Marketing plan price

 

Marketing plan placeƒ

• Location of the business.ƒ
• Description of the planned location for the business.ƒ
• Reason for choosing this location.ƒ
• Reaching the customers by selling toű

1. Individual
2. Retailers
3. Wholesalers
4. Othersƒ

• Reason for choosing this way of distribution.
• Marketing Plan Promotionƒ

1. Start-up promotion.ƒ
2. Description of the planned actions to inform customers about the opening of the new business (e.g. printed information,brochures, posters, newspaper articles, radio advertisements, opening ceremony and so on.ƒ
3. Also, make inquiries about the costs for the different types of promotion.

• Business trends and opportunities in the industry that the entrepreneur is planning to make use of.
• Current market size and expected growth of the market for the products.#Current market prices for the product and similar products.
• Competitors and their current market share.
• Expected market share. This can grow with time.
• Target market and market segments
• .Number of people to be hired for marketing, how they will be hired and motivated.
• Distribution channels that will be used. Describe the methods that will be used to make sales and distribute the product or service. Will the company use its own sales force, independent sales representatives, or distributors? Discuss the margins to be given to retailers, wholesalers, and salesmen.
• How the product will be advertised and promoted. The methods of promotion to be used. The schedule and cost for advertising and promotion should be presented.
• Pricing strategies to be used. How the price will be determined. The price must be right to penetrate the market, maintain a market position, and produce profits. Discuss prices to be charged for your product or service, and compare your pricing policy with that of your major competitors and explain why the price is set at that level.
• Marketing budget. An outline of the major marketing activities and their cost can also be placed here. Each marketing activity is budgeted for and a general total obtained.
• Expected sales quantity and expected growth of sales during the year. You can use a graph to show these expected trends.
• Market share of your competitors. Use SWOT analysis to know your strengths, weaknesses, opportunities and threats.

6. Organisation Plan

ACTIVITY 7.7

Prepare an organisation plan for the business you have chose from activity 7.5.

The organisation plan shows how the business will be organised.

An organisational plan contains the following:

• State the legal structure of the business. Whether it will be managed as a partnership or limited liability company.
• State the size and composition of a Board of Directors. Identify the proposed board members and include a short statement about each member’s background. This should show how relevant they are to the business.
• The people in the organisation. Present the key management roles in the business and the individuals who will fill each position. State the current or past jobs that the key personnel of the business have worked in before.
• Describe the exact duties and responsibilities of every manager. For each individual, include a brief statement of career highlights that focuses on his or her ability to perform the assigned role.
• Explain how the business will be managed. Use an organisation chart to explain the organisation structure.
• Which people will supervise or manage other people?

• Tasks and responsibilities of each worker.

• Skills and experience required of each worker.

• Staff costs (salary and any other cost attached to each employee).

 

• Motivation of workers. State the salary that is to be paid to each employee.
• Management budget. Include an outline of the management budget. This should show category of employees, number,salary or wage per employee per month and the yearly estimate. This depends on the nature of the business because different businesses have different categories of employees.
• If there are external consultants,advisors and helpers, they should be indicated and their payments explained.
• Organisational business premises. The way the business premises will be organised. How offices and work stations will be arranged.

7. Financial Plan

The financial plan is one of the most important sections of a business plan. It shows if the business will make profit, how much profit it will make and when it will make it Most users of a business plan are interested in knowing that.The financial plan shows the revenues and expenditures of the business.The financial plan section of the business plan covers all financial necessities and projections of the business. It shows what the business expects to spend (expenditures/ payments) and what it expects to earn (incomes/revenues).

The financial plan should contain the following:

a. Start up budget: Start up capital is the amount of money you need to start your business. You need money for equipment, materials, rent, wages, salaries and so on.

Possible sources of funding include: own savings, partners, family, friends, money lenders, credit co-operatives, government schemes and bank loans.

Information about funding sources

Loan 1

• Name and address of creditor or credit institution.
• Credit agreement.%under discussion % finalised %money available on (date)

Loan 2

• Name and address of creditor or credit institution.
• Credit agreement.% under discussion % finalised % money available on (date)

b. Business operation and costs: To be able to set your prices and make financial plans, you need to calculate the costs of your products or services.

c. Monthly sales plan: You should know the monthly sales of all products, product range or services.

d. Monthly operational cost plan: Planning is based on the monthly sale plan.

e. Cash Flow Statement

The cash flow statement shows how finances come in and out of the business. Using the cash statement, you can project and foresee shortages in time and find solutions so that your business does not get a cash crisis.Under cash flows, we have the cash revenues (incomes/cash in) and cash payments (expenditures/cash out). These are further explained below:

• Cash revenues:This is a list all of the expected cash in (incomes) for each month in your financial year. Revenues differ from business to business. Take a case of a hospital, revenues may include: treatment of dental payments, children, maternity, surgeries, optical, outpatient departments and so on.

• Cash payments: This is a list of cash out (expenditures) for each month in a financial year. This includes all expenditures the business may encounter such as rent, electricity bills, salaries and wages, professional services and advertising.

For you to get the total cash flows, you get the total cash in (revenue/incomes) and subtract total cash out (payments/expenditures). The balance is your total cash flows.If your total payments are higher than total incomes in other-wards you get a negative number after reconciliation, it means that you don’t have enough cash flow to run the business in that particular month. In other words, your working capital is not adequate. You are receiving less money than you need for your operations. You need more start up capital.

Look at the cash flows of ABC general hospital.

8. Action Plan

ACTIVITY 7.8

Prepare an action plan for the business you have chosen from activity 7.5.

An action plan shows all the activities to be undertaken, the time each activity will take to be completed, the materials and labour force needed to complete the activity.You should carefully lay out your action plan. Maintain the sequence of steps and actions to be undertaken so as to achieve business goals.

When you prepare an action plan, it helps in the following ways:

• An action plan helps you to organise your thoughts and to structure them in a logical and effective manner.
• It also avoids doing things twice and makes the best use of your time.
• An action plan helps you to control and monitor your progress at any point.
• You can know whether you are on track or deviating from your original plan.
• It guides you in fulfilling the plans and in the end achieve results.
• You can use the action plan as a timetable that is followed to implement plans.
• It helps co-ordinate resources of the business so that the right resources are available and used for the right activity at the right time.
• By using an action plan, you can identify road blocks in advance and take appropriate steps to overcome them.
• With an action plan, you can easily locate sources of information and resources needed for the business.
• You can use an action plan to track progress of your planned activities.

When implementing a business plan, you undertake different activities each taking a defined time. For you to properly control and monitor the sequence of all these activities, you need to use a Gantt chart.

A Gantt chart shows all planned activities and their expected time span. For example, a new publishing firm to be set up:

1. Activity A, buying of premises and equipment done from January to June.

2. Activity B advertising and recruitment of staff taking place from June to August.

3. Activity C development of reading materials taking place from September to November.

4. Activity D printing of reading materials taking place from October to December.

5. Activity E distribution of reading materials to different schools, taking place from December to February of 2018.

On the Gantt chart, activities should be presented in a logical order, that is, the first activity presented first. For example, buying of premises, should come first before advertising and recruitment of employees because the time for buying of premises is before that of recruitment.

Activities that use the same resources or done by the same people should not be planned to be done at the same time. For example, if a business uses designers to develop reading materials and at the same time printing, then printing should not be planned to occur at the same time with development of reading materials because they both require designers. Some activities can be carried out at the same time. This is possible if the activities do not need the same resources or are not supervised by the same man power.

Unit Summary

• Plan: this is a written document describing the objectives,aims and procedures of carrying out an activity or project.
• Business: this is any activity carried out with the intention of making an economic gain or profit.
• Business plan: this is a written document describing in details the objectives, goals and procedures of implementing or carrying out a business.
• A Business plan helps you to:

–decide if you should start your business or not.

–organise your ideas so that you will start and run your business in the best way.

–present your business idea to a lending institution such as a bank to get a loan for your business.

• Purpose of a business plan

–A good business plan is important to attract investors and funders into your business.

–Bankers want assurance of orderly repayment of loans and the business plan will show how you will raise revenue and pay back borrowed money.

–A business plan helps you avoid spending and investing in a venture that has not been well thought of.

–A business plan helps explain the key questions of who,what,where,when, and why of the business operations,costs, and projected profitability.

–A business plan helps the entrepreneur to set up milestones and targets and also to evaluate the performance of the business.

–Researching,analysing and writing about the market not only provides you with an overview for the business plan,but gives you greater insight into the overall market.

–A business plan can help an entrepreneur to secure additional funding or loans thorough demonstrating your past successes and illustrating the company’s growth plan.

–Preparing a business plan will force the entrepreneur to analyse more critically his/her financial position and prospects and determine what resources are needed for the business.

–A good business plan will help the entrepreneur attract partners and high calibre employees to the business because it clearly indicates the future of the business.

–It helps the entrepreneur to devise contingency plans,that is, it helps the entrepreneur to see how and where to make changes if,and when necessary.

• The Executive summary: this is a brief outline of the company’s purpose and goals.
• A start-up plan is basically the list of everything that must happen to get the business up and running from the initial idea to scouting locations to securing vendors to getting licenses to stocking the shelves to opening the doors to marketing and advertising to managing growth and so on.
• The marketing plan: this elaborates how you are going to market your products or services.
• Market research: Starting from your business idea you must now learn more about your customers and competitors through market research.
• Start-up capital is the amount of money you need to start your business.
• An action plan is like an agenda, where you write down what you plan to do by when and how.

Unit 7 Assessment

Analyse the case study of Busonga Paper Tech which developed a business idea in waste paper recycling and processing of stationery.

BUSONGA PAPER TECH- Adapted by Royal Business Consult Trust, Harare Zimbabwe; International Labour Organization

Brief Background

Waste management in the city of Monasa had deteriorated in 2004. The local authorities were running out of space and resources to manage waste. In some parts of the city waste was remaining uncollected for many months. This was creating a health hazard for the local community who themselves were not sure of how to dispose off waste or recycle it.

In realisation of the plight in the city of Monasa, a local environmental organisation called Health Care started training the local households on the management of waste including some of the ways to reuse waste material that is recyclable. Busonga village community decided to register a Trust called Busonga Environment Trust.

The Trust was encouraging the community to be part of the clean-up including planting trees around to rehabilitate the surroundings. However, after encouraging the community to clean up and collect litter; there was a problem of how to dispose off the litter.

This motivated a group of six men and women to form a Community Based Enterprise to recycle waste. Considering the different types of recyclable waste that was available in the local households and the local industrial site,which included: paper,plastic,bone and cloth,the group chose to focus on paper.

Help Busonga Environment develop a business plan by:

1. Preparing a brief description of the waste being recycled.

2. Preparing a marketing plan.

3. Designing the legal form of business.

4. Identifying and assigning tasks.

5. Preparing a costing plan for the products and services.

6. Calculating the required start-up capital.

7. Preparing a financial plan.

8. Preparing the action plan