CHAPTER 3 BUSINESS PLAN

Objectives The objectives of this chapter are to: provide and understanding of preparing a systematic, effective and viable business plan provide a better understanding of the difficulties and challenges of preparing a good business plan

Learning Outcomes At the end of this chapter, students should be able to: apply a systematic business planning methodology which can be applied to many other tasks or undertakings learn the various scopes and disciplines of business planning such as marketing operation, finance, organization and human resources  management, many of which involve generic planning skills that can be applied in their working careers and their life.

Learning Outcomes (cont.) use and enhance their communication skills through business plan presentation develop their creativity, innovativeness and critical thinking skills when they work out their business plan. improve their social skills by working in teams effectively and harmoniously on the business planning project. prepare a good business plan that is effective, practical and viable.

Business Plan A business plan is a written document that outlines the detailed execution plan of the business. It will include details of the: organization, administration and human resource plan marketing plan production plan financial plan The business plan should enable an entrepreneur to determine whether the project is viable, needs to be modified or whether the project is not feasible and should be abandoned altogether.

Key Planning Elements

Purposes of Preparing a Business Plan The business plan is normally written for the following purposes: it is used as a feasibility study to ascertain the viability of the project it is a guide for project implementation it is used as a document to justify and support loan application or to entice and convince a partner or investor to invest in the business

Project Preliminary Screening Before you prepare the business plan of the project, an entrepreneur should do a preliminary screening on the suitability of the project. At least he should have a general idea that the proposed business is fairly satisfactory on the following issues. The viability, sustainability and growth potential of the business concept, model and strategy Overcoming initial start up hurdle or chasm: The provision of adequate capital, skill manpower and the ability to achieve early break even sale volume

Business Plan Format A basic business plan should include: executive summary table of content introduction company background owner/partner background location organization, administration and human resource plan marketing plan operation plan financial plan conclusion appendices

Example of a Simple Business Plan Introduction The following is an example on how to prepare a simple business plan for a burger kiosk. It shows important planning elements that must be worked out, i.e. organization, administration and human resources market planning operation planning financial planning

Organization, Administration and Human Resources Plan for Burger Kiosk Basic issues that need to be resolved for man power planning are: Manpower requirement and the organization structure for the company. Manpower planning also includes planning for their job qualifications, job specification, recruitment and their remunerations budget.

Organization Chart

Employee’s Salary, EPF and SOCSO contribution

Administrative Budget

Marketing Plan for Burger Kiosk Basic marketing issues that need to be resolved are: What is your product and its special attraction or quality? Who is your target market? What is the market size? Who are your competitors and what are their competitive strengths? What is your market share and your sale forecast? What are your marketing strategies? What is your marketing budget and plan?

Marketing Strategies

Target Market Profile

Target Market Profile (cont.) Based on the issues as outlined in the above table, the following are issues for the burger kiosk. What is your product range? burgers, hot dog, kebab, etc. Where are you going to do your business? It should be at strategic location where there is sizable market or traffic and accessible. The market growth potential is good.

Target Market Profile (cont.) Who is your target market? Let’s say the purchases expected from the main group of customers in the area of operation are as follows: College students Factory workers Local residents Tourist and others

Target Market Profile (cont.) What is the total market size? The estimation of the total purchase of similar products in the locality including those purchased from your competitors. Let’s say daily market size is as follows: College students 100@RM3.00 RM300.00 Local residents 50@RM3.00 RM150.00 Factory workers 30@RM3.00 RM 90.00 Tourist and others 20@RM3.00 RM 60.00 Total daily market size RM600.00

Target Market Profile (cont.) Who are your competitors? Let’s say you only have one competitor in the area. What is your market share and your daily sale forecast? Let’s say, your market share is 50 per cent, thus sale forecast is RM300.00 per day What is your promotion strategy? Roadside banners and signboard only. What is you selling price? RM3.00 per burger

Target Market Profile (cont.) What is your marketing Budget Let’s say, you are going to promote your burger through pamphlet and roadside banner: Pamphlet—Printing and distribution RM200.00 Banner—Printing and permit RM200.00

Operation Plan for Burger Kiosk Basic production plan issues that need to be resolved are: What products do you want to produce and what are its quality specifications and characteristics? Does this quality meet the target customers’ needs and wants? What is the cost of production per unit and what is the possible selling price the market can absorb?

Operation Plan for Burger Kiosk (cont.) How many do you need to produce per day/week / month so that you can cater for your sale forecast? Based on quality and quantity required, what is the best production plan for the job; you will have to decide whether it is going to be fully mechanized, semi-mechanized or totally manual? You will have to outline your material, machines, tools, space and lay out needs based on the production process flow chart.

Operation Plan for Burger Kiosk (cont.)

Operation Plan for Burger Kiosk (cont.) Based on your production schedule, you will have to plan and calculate the following items: Product: chicken and beef burgers Let’s say your operation is quite simple. Your material input cost per burger is only RM1.00 and your selling price per burger is RM3.00. Estimated sale per day RM300.00 Cost of raw material for one day RM140, therefore for 5 days (one week) RM700/week Sale for five days/week RM300 ×5 days = RM1,500/week Salary: RM20.00 /person for 2 persons 5 working days/ week, RM20 × 2 persons × 5 days = RM200/week Let’s say your asset equipment cost is only RM1,500.00

Process Flow Chart

Process Flow Chart (cont.)

Financial Plan for Burger Kiosk Basic financial plan includes the following: project implementation cost sources of fund for the project financial schedule for asset depreciation and loan amortization cash flow projection income statement projection (profit and loss) balance sheet projection

Project Implementation Cost Example of project implementation cost of burger kiosk: Project implementation cost is as follows: Assets (equipment) RM1,500 Working capital for one week i.e. salary and raw material: RM100@5 days + RM40@5days= RM 700 Registration cost RM 100 Banner and pamphlet (one time) RM 400 Total project implementation cost RM2,700

Sources of Funds

Project Implementation Cost Table

Depreciation Table

Loan Amortization Table Example of loan amortization table for the proposed burger kiosk project: Let’s say, the loan amount is RM1,000, duration 4 weeks, interest at RM10.00 per week. Period Principal Interest Loan balance 1st week 250 10 750 2nd week 500 3rd week 4th week

Social Entrepreneurship Project As an alternative, students can also do a social entrepreneurship project for their practicum. Students can look into the internet to gain some ideas on the types or themes of the social entrepreneurship project that can be undertaken. For instance, some non-governmental organizations (NGOs) organize efforts to help the urban or rural poor, orphans, single mums, ex-drug addicts, HIV or cancer patients, etc. There are NGOs that work on environmental causes, animal protection or organize to fight child labour, pollution, etc.