Chapter 2: Business Planning

 In this chapter, students will be able to:

• Identify opportunity in the environment
• Evaluate the opportunities in the environment
• Generate business idea
• Explain the concept of business planning
• Identify components of business plan
• Develop business plan
 2.1. Opportunity Identification and Evaluation
• First opportunity mean a situation or condition favourable
for attainment of a goal. Or
• opportunity is a good position, chance, or prospect, as for
advancement or success
N.B. A business opportunity is a gap left in a market by those who
currently serve it, giving a chance to others to add unrealized value.
 Opportunity recognition corresponds to the principal
activities that take place before a business is formed or
structured.
The opportunity identification and evaluation stage can be divided into five
main steps

2. 1.1. Scanning the Environment/ Getting the Idea

• Scanning the Environment is collects
information regarding its environment and
analyses it to forecast the impact of changes in the
environment.

• scanning the environment it may be provide you

with idea and business opportunities. Idea is a
thought or suggestion about a possible course of
action.
 2.1.2 Opportunity Identification
• Opportunity identification is ability to see, to discover
and exploit opportunities that others miss.

• It is the process of seeking out better ways of

computing.

• Based on information scanning the environment, being

able to capture, recognize and make effective use of
abstract, implicit and changing information from the
changing external environments.

• It is important for the entrepreneur to understand the

cause of the opportunity
 2.1.3. Opportunity Development
 Opportunity development is the process of
combining resources to pursue a market
opportunity identified.

 This involves systematic research to refine the idea

to the most promising high potential opportunity
that can be transformed into marketable items.
 2.1.4. Opportunity Evaluation
• Opportunity screening and evaluation allows the
entrepreneur to assess whether the specific product or
service has the returns needed for the resources
required.

• This evaluation process involves looking at the creation and

length of the opportunity, its real and perceived value,
its risks and returns, its fit with the personal skills and
goals of the entrepreneur, and its differential advantage in
its competitive environment.
 2.1.5. Assessment of the Entrepreneurial Team
 Ask pertinent questions about the people who would run
the company like:-
• Does the entrepreneur (or his team) have some experience
• Do they really like this product/sector? Do they really
want this?
• How stressful is the opportunity for the team?
• Does the team have the necessary selling and closing
skills?
• Does the team have the necessary management and
technical skills?
• If the required skills are not available, can they be
acquired at competitive rates?
• Have the critical decisions about ownership and equity
splits been resolved?
• Are the members committed to ownership?
 2.2. Business Idea Development
• A business idea is a short and precise description of
the basic operation of an intended business.
• There are three types of business ideas. They are:
1. Old Idea – Here an individual copies an existing
business idea from someone.
2. Old Idea with Modification – In this case the
person accepts an old idea from someone and then
modifies it in some way to fit a potential customer’s
demand.
3. A New Idea – This one involves the invention of
something new for the first time
 2.3. Business Idea Identification
 Before you start a business, you need to have a clear idea of the sort of
business you want to run. Your business idea will tell you:

2.3.1 Which need will your business fulfill for the customers (Simply
identify who is our customer)
2.3.2. What good or service will your business sell? (What types of product
wants to offer for the market)
2.3.3. Who will your business sell to?
2.3.4. How is your business going to sell its goods or services?
[Link] much will your business depend upon and impact the
environment?

N.B. A good business idea will be compatible with the sustainable use of
natural resources and will respect the social and natural environment on
which it depends.

 Therefore, to identify promising business idea among others, it is

important to answer the above raised questions
 2.4 Methods for Generating Business Ideas
 Approaches to generating business ideas:
2.4.1. Learn from successful business owners
 You can learn a lot from people in your area who have
already gone through the process of establishing a
business.
• What kind of idea did these businesses start with?
• Where did the ideas come from?
• How did they develop their ideas into successful
businesses?
• How does the business profit and fit into the local
environment?
• Where did they get the money to start their business?
 2.4.2. Draw From Experience
[Link]. Your own Experience
 First look your list of your interests, your own
experiences and your own networks.

 Are there any possible business ideas that you can

derive from your own past experience.

 What has your experience been as a customer in

the market place?
 Have you ever searched all day for some items
that you could not find in any store in your area?
 Think about the goods and services you have
wanted at different times and that you have had
difficulty finding.
[Link].Other People’s Experience.
Those are may be:-
• potential customers
• Ask your family and friends
• talking to people from different age
groups
• social classes
• community groups
• Colleges
 Cont’
[Link]. Survey Your Local Business Area
 Make them in the following ways:-
• look around your local community.
• Find out what type of businesses are already
operating in your area.
• See if you can identify any gaps in the market.
[Link]. Scanning Your Environment
• Look the list of existing local businesses. If the list
has included most of the local markets, you may be
able to understand about the industries or service
providers on which the local economy depends.
 Cont’
 It may be useful to think about business ideas by
considering all the resources and institutions in your
area:-
• Natural resources: available resource in your area
without harming the environment.
• Characteristics and skills of people in the local
community: available labor force whether skilled or
non skilled
• Import substitution: check is their any imported good
to substitute the existed product
• Waste products: possible use of waste materials for
the production of other useful and marketable items.
• Publications: from the internet and other printed
material or from social medias
• Trade fairs and exhibitions
 [Link]. Brainstorming
 Brainstorming means: opening up your mind and
thinking about many different ideas then write
down everything that comes to mind relating to that
subject
• You continue writing for as long as possible,
putting down things that you think of, even if they
seem irrelevant or odd. Good ideas can come from
concepts that initially seem strange.
 [Link]. Structured Brainstorming
 Structured Brainstorming: is when you think of
the different processes that are involved in the
operation of a particular business and the
goods/services that can be offered with respect to
those processes.
• Try to think of all the businesses that are related
to different aspects of a product. About:-
– production
– selling process
– recycling or re-using materials
– Those indirectly related (spin-offs)
– servicing
 [Link]. Focus Group Discussion

 This method is made whether open or in depth

discussion with group of individuals who are
directly related with the product

[Link]. Problem Inventory Analysis

 This method of obtaining New Idea by focusing
on problems and it’s solutions by means of
consumers are provided with a list of problems in
general product category.
 [Link]. Free Association
 Free association is the simplest methods that
entrepreneurs can use to generate new ideas.

 This method is perform a list of word or phrase

related to the problem is written down, then with
each new word attempting to add something new to
the ongoing thought processes, thereby creating a
chain of ideas ending with a new product/service
idea emerging.
 [Link]. Forced Relationships

 This technique is that asks questions about objects

or ideas in an effort to develop a new idea.

[Link]. Attribute Listing

 This idea-finding technique carry out that the

entrepreneur list the feature of an item or problem
and then look at each from different perspective.
 2.5. Business Idea Screening
 It’s the process to spot good ideas and eliminate unsound concept.
 There are three approaches helps to screen the business idea
generated:-
1. Macro screening: is aimed screening down ideas to 10. And the
common criteria are:
• Are my own competencies (see strength indicators) sufficient?
• Can I finance it to a large extent with my own equity?
• Will people buy my product/service (i.e. is it needed and can
people afford it)?
2. Micro Screening: is aimed screening down ideas into 3. The
common criteria for this:
• Solvent demand (demand that will be satisfied)
• Availability of raw materials
• Availability of personal skills
• Availability of financial resources
 Cont’
3. Scoring the Suitability of Business Idea
 When there are more than one possible business ideas and
one needs to decide which one to follow, we use score like
:-
No. Questions BI1. BI2. BI3.

1. Are you familiar with the operations of this type of

business?
2. Does the business meet your investment goals?

3. Does the business meet your income goals?

4. Does the business generate sufficient profits?

5. Do you feel comfortable with the business?

6. Does your family feel comfortable with the business?

7. Does the business satisfy your sense of status?

 Cont’
 Notes: while to answer the above listed questions it is
important to conduct survey.
 While to answer the above questions, there are four
important groups that you should talk to:
1. Potential customers
2. Competitors, suppliers and entities with financial
resources
3. Financial institutions
4. Key informants and opinion leaders

N.B. After your business idea is decide, you can go on to

start your own business, there fore business plan
development is important.
 2.6. Concept of Business Plan
 Planning is the first and the most crucial step for starting a business.
 Business plan is a written document that setting out of basic business
idea.

 The objectives of a business plan are to:

• Give directions to the vision formulated by entrepreneur.
• Objectively evaluate the prospects of business.
• Monitor the progress after implementing the plan.
• Persuade others to join the business.
• Seek loans from financial institutions.
• Visualize the concept in terms of market availability, organizational,
operational and financial feasibility.
• Guide the entrepreneur in the actual implementation of the plan.
• Identify the strengths and weakness of the plan.
• Identify challenges in terms of opportunities and threats
• Clarify ideas and identify gaps in management information about their
business, competitors and the market.
• Identify the resources that would be required to implement the plan.
• Document ownership arrangements, future prospects and projected
 2.7. Essential Components of Business Plan
1. Cover Sheet: It mentions:-
• Name and address of the business
• Name and address of the owner of the business
• Confidential report
2. Executive Summary
• This part is prepare after the whole part is written
down.
• It should be placed next to cover page
• About three to four pages in length
• The executive summary should stimulate the interest of
the potential investor.
• The nature of the venture, financing needed, market
potential, and support as to why it will succeed.
 Cont’
3. The Business:- This will give details about the
business concept.
• The objective of the business
• brief history about the past performance of the
company (if it is an old company)
• form of ownership
• The address of the business.
4. Funding Requirement:- a careful, well-planned
funding requirement should be documented.
• It is also necessary to project how these
requirements would be fulfilled.
• Debt equity ratio should be prepared
 Cont’
6. The Product or Services: is require brief
description of product/services. It includes:-
• The key features of the product
• The product range that would be provided to the
customers
• The advantages or value of the product holds
over and above the similar products/ substitute
products available in the market.
• It also gives details about the patents, trademarks,
copyrights, franchises, and licensing agreements.
 Cont’
7. The Plan: Now the functional plans for marketing,
finance, human resources and operations are to be drawn.
A. Marketing Plan: Marketing mix strategies are to be
drawn, based on the market research.
B. Operational Plan: The operational plan would give
information about
i. Plant location: why was a particular location chosen? Is
it in the vicinity of the market, suppliers, labor or does
it have an advantage of government subsidies for that
particular location or are there any other specific
reasons for choosing the particular location?
ii. Plan for material requirements, inventory management
and quality control are also drawn for identifying
further costs and details of the business. Finally, the
budget for operational plan is also drawn.
 Cont’
C. Organizational Plan: It indicate:-
• The responsibilities and duties amongst member of the organization
• Details about the manpower requirements
• About the laws that would be governed in managing the employees of the
organization.
 In the end the organizational plan is also budgeted.
D. Financial Plan: The financial plan is usually drawn for two to five years
for an existing company.
 For a new organization the following projections are drawn:
• Projected Sales
• Projected Income and Expenditure Statement
• Projected Break Even Point
• Projected Profit and Loss Statement
• Projected Balance Sheet
• Projected Cash Flows
• Projected Funds Flow
• Projected Ratios
 Cont’
E. Critical Risks: Every new venture will be faced with
some potential hazards, given the particular industry and
competitive environment.

• Major risks for a new venture could result from a

competitor’s reaction; weaknesses in the marketing or
production, and new advances in technology that might
render the new product obsolete. Even if these factors
present no risks to the new venture, the business plan
should discuss why that is the case.
 Cont’
F. Exit Strategy: It would provide details about:-

• how the organization would be dissolved

• About share of each stakeholder in case of winding-

up of the organization.

• Measuring the risks involved in investing.

 Cont’
G. Appendix: It provide information about:-

• the Curriculum Vitae of the owners

• Ownership Agreement and the like.
• Letter from customers, distributors, or
subcontractors.
• Any documentation of information, that is,
secondary data or primary research data.
THANKYOU