We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved.

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4 4 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Objectives After finishing this course, you will be able to:  name key considerations when writing a business plan.  apply a simple process to write a business plan effectively.  coordinate the various company’s departments and resources in the process of writing the business plan.  present a business plan document.

5 5 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Content  Session 1: Overview of a business plan  Session 2: Analyzing market and making the marketing plan  Session 3: Making the operation plan  Session 4: Making the financial plan  Session 5: Writing the business plan

7 7 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 1 – Objectives & content Objectives:  Define what a business plan is  Distinguish different types of business plan  List content of a business plan  Name steps in business planning process Content:  What is a business plan?  Types of business plan  Content of a business plan  Process to develop a business plan

8 8 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. What is a business plan? ‘A business plan is simply a written representation of where a company is going, how it will get there, and what it will look like once it arrives.’ Ernst and Young (1993), The Business Plan Guide

9 9 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Types of business plan  Periodical business plan –Annual plan  Non-periodical business plan –Plan for start-up business –Plan for new investment

10 10 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Business plan’s content Description Analysis Estimation- evaluation Company description Description of Products/Service Market and business environment description Market analysis and marketing plan Operation plan Sum of resources needs Project expenses and financial results Risk analysis Objectives and business strategy

12 12 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Business planning process Market size forecastCustomers analysisCompetition analysis Identifying competitive devices Setting business objectives Marketing plan making Financial plan making Writing business plan Operational and Production plan making

13 13 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. How will the planning process be studied? Market size forecastCustomer analysisCompetition analysis Identifying competitive devices Setting business objectives Marketing plan Financial plan Writing business plan Operation plan

15 15 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 2 - Objectives After having completed this module, you will be able to:  recognize factors to take into consideration when analyzing the market;  identify strategic decisions when defining a competitive approach, setting up business objectives and outlining a marketing plan.

16 16 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 2 - Content Forecast the market sizeAnalyse the customer Analyse the competition Identify competitive approach Set business objectives Outline the marketing plan

17 17 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Identifying market size Forecast the market sizeAnalyse the customer Analyse the competition Identify competitive approach Set business objectives Outline the marketing plan

18 18 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Forecasting market size  What’s the size of the target market?  What’s the size of the total market?

19 19 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example Market size of educational equipments in pre-schools (2008-2011) (Thousand Naira )200820092010 2011 (Estimated) Wood987,0381,075,8801,197,4821,322,516 Other materials546,000595,140644,332703,014 Total1,533,0381,671,0201,841,8142,025,556

20 20 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Estimating market growth Based on:  Growth in the past  Influences of environmental factors EconomyTechnology LawSubstitute products

21 21 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example (million LE)200220032004 ( estimate ) By wood10.2%11.30%10.44% By other materials8.96%8.27%9.11% All9.76%10.22%9.98% Historical growth of pre-school educational equipment market

22 22 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example  Growth of national economy.  Governmental investments in pre-school education innovation.  More and more investments in pre-school education from private sector.  Wooden products are preferred thanks to their safety. Influences on the pre-school educational equipment market

23 23 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example Pre-school educational equipment market forecast 20122013201420152016 Thousand Naira1,454,7781,600,2481,728,2721,866,5402,015,858 Market Growth10% 8%

24 24 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Customer analysis Forecast the market sizeAnalyse the customer Analyse the competition Identify competitive approach Set business objectives Outline the marketing plan

25 25 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Customers characteristics  Who are the customers?  What are their characteristics?  What are their behaviours when buying, using the products and after buying the products?  How do they approach information?

26 26 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example: Customers of ballpoint pen Two types of customers:  Buying ballpoint pen for regular use: students, office staffs. They are interested in the quality of the ink and the ball point. They buy them regularly in stationery shops. They usually read Punch newspaper.  Buying ballpoint pen as luxury items: businessmen, managers. They are interested in model and brand. They buy them in shops specialized in ballpoint pens. They usually read the Business Day newspaper.

27 27 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Competition analysis Forecast the market sizeAnalyse the customer Analyse the competition Identify competitive approach Set business objectives Outline the marketing plan

28 28 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Analyse competition  Who are our competitors?  What is the interrelation between us and our competitors in the following. –Marketing –Production –Human resource –Finance

29 29 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Analyse competition Weakness or strength is justified by:  whether the customers need what we consider crucial (value to the customers);  whether we are stronger than the competitors on the aspect that we are considering (comparative analysis).

30 30 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Competitive approach Forecast the market sizeAnalyse the Customer Analyse competition Identify competitive approach Set business objectives Outline the marketing plan

31 31 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Competitive approach  The most stable product quality  The best service  The highest value (compare with the money paid)  The safest  The quickest  The most advanced technology  The most convenient  The best design  Impressive image

32 32 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example Competitive approach of the Fine Write ballpoint pen company  Offer diversified products.  Build the company’s image: Fine Write developed its corporate image as a companion of students and office workers on their way to advancing their career.

33 33 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Business objectives Forecast the market sizeAnalyse the customer Analyse competition Identify competitive approach Set business objectives Outline the marketing plan

35 35 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Identify target sales' volume Target sales' volume = target market share x target market size (estimate)

36 36 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Attention in setting target sales' volume The target market share is subjective and does not have a general formula, therefore, it’s necessary to: –consider the results of all analysis; –get the agreement and commitment of the Board of management.

37 37 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Other approaches to project sales  Review the sales of each product (or of distribution channel, or region).  Observe practices of similar companies.  Establish targets on previous orders of customers.

38 38 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Creating a marketing plan Forecast the market sizeAnalyse the customer Analyse competition Identify competitive approach Set business objectives Outline the marketing plan

39 39 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Marketing plan  Include the marketing activities to be implemented to achieve the business objectives.

40 40 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Marketing activities  How will be the product?  How will the be price set?  How will be the distribution?  How will be the communication?

41 41 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Product and distribution  Consumer goods products…wide distribution network.  Specific products…exclusive distribution.  Home appliances products…selective distribution network.

42 42 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Products and price New products. It’s not easy to define the value of the product. Price elasticity is low. Price elasticity is high. Mass production will reduce the price dramatically. Easy to produce, easy to copycat. Easily be accepted. Skimming strategy Penetration strategy

43 43 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Product and communication  Tangible product Communication focused on the products  Intangible product Communication focused on the company  Distinctive product Communication focused on the rational side  Simple product Communication focused on emotional side

44 44 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example: Marketing plan for Fine Write Products : Increase from 16 to 25 types of products. Created product with violet ink (before only blue and black ink). There are two or three new products launched every year. Distribution: Widely distributed in stationary shops, bookstores, supermarkets, schools. Retail sales shops increased 1% per year. Communication: Using image of intelligent Nigerian in high technology. Step up advertisement and PR according to sales' volume increasing. Price: Applying average price compared to competitors.

45 45 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Risk analysis and contingency plan  What events could possibly occur?  What is the possibility?  How the contingency plan should be?

46 46 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Example RiskPossibilityContingency plan Competitor reduce the price. MediumPush up advertising activities. Customers are not interested in the products. HighConduct market research to find out reasons and identify solutions. Risk analysis and contingency plan for Fine Write

47 47 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Evaluating criteria of a marketing plan  Consistency and co-ordination to build competitive approaches.  Suitability between customers’ characteristics and competitive situation.  Possibility to achieve sales' volume.

48 48 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Estimated cost Include: -Ads -Promotion -Selling and distribution -R& D Also: -Contingency plan -Other

50 50 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 3 – Objectives After completing this module, you will be able to:  explain the role of the production & operation plan in a business plan;  describe contents of a production & operation plan;  describe the process of preparing a production & operation plan;  explain bases for decision making in planning for production.

51 51 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 3 – Content  Roles of operation and production plan in the business plan.  Components of operation and production plan.  Process of operation and production plan making.

52 52 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. The importance of a production plan A production and operation plan helps to do the following. –Examine feasibility of marketing plan. –Propose production alternatives. –Provide inputs for making financial plan.

53 53 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Contents of a production plan  Description of product and proposed production volume.  Description of production procedures.  Plans for equipment and machinery.  Plans for raw materials and other resources.  Estimation of operation costs (cost of investment and cost of production).  Operating competitive advantages.

54 54 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Product structure Production quantity Current production capability Production procedures Competitive advantages Cost of investmentCost of production Plans for equipment and machine Plans for raw materials and other resources Production planning process

55 55 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Determine production quantity Production quantity depends on: –Revenue proposed in marketing plan –Stock-holding policy Production quantity = Revenue + Desired stock level

56 56 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Determine a production procedure Typical decisions to be made when deciding on a production procedure: –Which process plan to be used? –Produce in-house or have subcontractors produced complete product or some components?

57 57 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Determine a production procedure Basis for decision making for competitive advantages. –State-of-the-art technology –Cost of production –Quality –Know-how

58 58 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Machinery and equipment Typical decisions:  Buy new equipment or use existing ones?  Which equipment? With what capacity?  What is area, location, and layout of factory?

59 59 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Machinery and equipment Basis for decision making:  Capacity requirements plan.  Current capacity.  Production procedures and process plan.

60 60 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Raw materials and other resources Typical decisions to be made  What should be the quality of the raw materials needed?  Who will be suppliers?  What should be level of stock?  How many workers are needed? What are the skills and qualification requirements?

61 61 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Raw materials and other resources Basis for decision making  Competitive advantages on product quality, production cost, technology.  Time of delivery, terms of payment.  Cost of stock, characteristics of material, costs of purchasing.  Production procedures and process plan.

62 62 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Determine costs of investment Total cost of investment includes the following:  Land and infrastructure  Building and plant  Machinery, equipment  Working capital

63 63 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Estimation of costs of production Structure of production costs  Variable costs –Materials costs –Direct labor costs –Other production costs  Fixed costs –General production costs –Indirect labor costs –Depreciation costs

64 64 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Important note When writing a production plan in a business plan, writers need to pay attention to the following issues. –Be clear about the target readers of the business plan and their motivation. –Information in a production plan should be convincing but should not provide information on corporate secrets.

66 66 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 4 – Objectives After having completed this module, you will be able to: ▪explain the role of the financial department in business planning; ▪describe contents of a financial plan; ▪describe the steps of the financial projection process; ▪explain the financial factors which need to be considered before making any investment decision.

67 67 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 4 – Content  Roles of financial projection  Content of financial plan  Process of preparing a financial plan

68 68 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Roles of a financial plan  Demonstrate the financial viability of a business or a new investment.  Determine the long-term cashflow projection of a business or a new investment.  Provide a basis for evaluating and controlling the implementation.

69 69 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Content of a financial plan  Summary of historical financials  Summary of forecasted financials –Funds required and their uses. –Key assumptions of financial projections. –Forecasted financial data: profitability and solvency. –Sensitivity analysis, scenario analysis.  Appendices: detailed calculations

70 70 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Process of developing a financial plan Why a financial projection is a cycle? 1 2 3 Financing sources Investment cost Cost of sales & expenses Sales revenue Results of financial projection  Investment: Yes or No?  Profitability and solvency

71 71 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Process of developing a financial plan Key assumptions:  Cost structure.  Selling and general administration expenses.  Credit conditions and terms.  Components of working capital.

73 73 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Financing Structure Financing sources Percentage of each source Basis for consideration  Uses of capital  Cost of capital: interest rate, dividend  Pay back period

74 74 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Investment decision SHOULD invest SHOULD NOT invest SIZE of Investment PHASES of investment BASIS FOR MAKING DECISION Profitability: NPV, IRR, net margin Solvency: cashflow projection, debt coverage ratio Sensitivity to changes of the market

75 75 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. PROBLEMS  Not enough cash for operations.  Unable to pay interest and principal in the first years of investment.  Inappropriate capital structure. OPERATION Change inventory policy. Push cash sales in first years via changing credit terms. Adjust marketing strategy. Case study – Fun & Learn Company CAUSES  Low sales in the first years of investment.  High investment cost.  Weak internal resources (owner’s equity only approximately 35% of investment costs). INVESTMENT Reduce or phase out investment. Financial leasing. Change less modern machine. FINANCE Borrow more for working capital. Increase owner’s equity. Call new equity. SOLUTIONS

76 76 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Improve financial projections Two types of solutions to improve feasibility of the project: 1.Solutions come from INTERNAL RESOURCES. 2.Solutions come from MARKET CONDITIONS.  Should consider solutions from internal resources first. Example: Adjust investment scope, change inventory size.  Solutions from the market can provide information to make an optimistic financial forecast, but they are not easy to implement. Example: Increase sales volume or reduce cost of sales.  Should not play with numbers.  If after adjustment, the forecasted results are still bad, do not invest.

77 77 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Summary Business planning is a cycle Is marketing plan in line with the business objectives? Has the financial department reviewed the production costs and marketing expenses? Does the production department have sufficient resources to produce and achieve target sales?

79 79 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Session 5 – Objectives & Content Objectives  List key factors that need to be considered when writing a business plan  Describe steps to write a business plan Content  Considerations in business plan writing  Steps in business plan writing

80 80 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Considerations when writing a business plan Company’s situation Objectives of BP writing Starting business Expanding investment Raising capital, applying for license Reader: outsider 13 Management Reader: insider 24 WHO TO WRITE FOR? AND WHAT TO WRITE?

81 81 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Type 1: Starting business and raising capital  Who to write for: –Bank –Potential investors  What to write: –Highlight feasibility of a new venture. –Total additional capital needs for every stage of the venture. –Investment return. Considerations when writing a business plan WHO TO WRITE FOR? AND WHAT TO WRITE?

82 82 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Type 2: Starting business and management  Who to write for: –Founders  What to write: –Objectives, business strategy and tactics. –Detail technology and production process description. –Necessary resources and timeline. –Sensibility analysis, scenario analysis and risk evaluation. Considerations when writing a business plan WHO TO WRITE FOR? AND WHAT TO WRITE?

83 83 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Type 3: Expand investment and raise capital  Who to write for: –Banks –Shareholders –Potential investors  What to write: –The feasibility of the new venture. –Total additional capital requirements for every stage of the venture. –Risk analysis, risk prevention solutions. Considerations when writing a business plan WHO TO WRITE FOR? AND WHAT TO WRITE?

84 84 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Type 4: Expand investment and management  Who to write: – Board of management – Managers  What to write: – Very detailed technology, selective production process, and marketing strategy. – Brief introduction of the company, the owners, and the Board of management. Considerations when writing a business plan WHO TO WRITE FOR? AND WHAT TO WRITE?

85 85 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Suggested outline 1.Overview 2.Introduction of the company, the owner and the Board of Management 3.Products/ services description 4.Market analysis 5.Marketing plan 6.Financial plan 7.Appendix Considerations when writing a business plan

87 87 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. In-house  Advantages -Internal knowledge of the initiative. -Flexible with time. -Ease of collecting information collection  Disadvantages -Lack professional business plan knowledge. -Lack of experience in writing business plans. -Subjectivity. In-house or hiring consultants? Hiring consultants  Advantages -Professionalism -Objectivity -Effective  Disadvantages -Expensive -Time costly -Low guarantee of results.

88 88 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Important notes on writing style  Clearly identifying readers.  Writing what comes easily first then what is more difficult.  Having a clear flow of ideas.  Being logical and objective.  Using simple language and style of presentation.

89 89 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Summary of business plan writing ‘No one plans to fail. They fail because of having no plan.’ Bernard Petter (1999), Business Plans for Small Business

90 90 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. References 1.Petter, Bernard (P.L.1999). Understanding human communication. 2 nd edition. Croydon, Vic., Australia: Eastern House. 2.Siegel, Eric S. & Ford, Brian R. & Bornstein, Jay M. (P. L. 1993). The Ernst & Young Business Plan Guide. 2 nd edition. USA: John Wiley & Sons, Inc. 3.Many authors (2002) Business Plans. Ho Chi Minh City, Vietnam: HCMC National University. 4.Senter, Howard (2006). Making a Financial Case. Oxford, England: Butterworth-Heinemann. Adapted under licence by IFC Business Edge™.

91 91 We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved. Contact details IFC SME Management Solutions 1 st Floor Maersk House, Plot 121 Louis Solomon Close, Off Ahmadu Bello Way, Victoria Island, Lagos, Nigeria. www.ifc.org www.businessedge-africa.com Tel: +234 1 2799 400 Fax: +234 1 2793618-19 

We Complete Your Success Copyright © IFC on behalf of Business Edge™ 2008. All rights reserved.

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