Module 5: Entrepreneurial training

Lesson Title

Writing a business plan

 

Introduction

The business plan is a document that summarizes the organizational, productive, technological, market, and economic-financial modalities through which an entrepreneurial idea can be transformed, over a period, in an entrepreneurial project. It is therefore a document that describes the business idea, allows it to be evaluated and represents the most effective way to present the initiative to interested parties such as external lenders, financing partner, customers and the general market.

 

Lesson time foreseen

1 hour and 30 minutes for reading the document
2 hours and 30 minutes to exercise the practice

 

Lesson Content

There are several reasons why a business plan should be worked out:
• It helps you to clearly define what type of activity you are starting up and lets you consider each aspect of it.
• It raises all the questions that need to be answered to increase the chances of success of the initiative.
• Check the actual feasibility of the project.
• It pushes to analyse the competitive environment.
• It defines the financial requirements.
• Represents a compass for asset management. It allows evaluating whether and when to introduce variations and changes in the course of the activity than originally foreseen.
• It is a vital source of information (as well as a good business card) for potential investors.
 
There are no typical schemes or general rules for drafting the Business Plan, as, as mentioned above, it responds to different purposes and can be addressed to various users.

So the content of a business plan generally differs depending on the project, i.e. what and how you want to produce, where and to whom to sell your products, the entrepreneur's goals. While there are no precise rules, it is advisable, however, to keep in mind some suggestions.

First of all, the document should be complete and sufficiently analytic, providing at the same time the choice for a rapid and easy readability.
In addition, it is important that your writing takes place taking into account the recipient to whom it is directed.
Finally, it is advisable to articulate the plan according to a structure that allows a modular reading.
 
The main sections of a business plan, for a proper writing, are:
1. A brief description of the project
2. Reference market
3. Product / Service
4. Marketing choices and marketing strategy
5. Production structure
6. Organization
7. Investment plan and economic and financial forecasts
8. Attachments (provide all of the most important detail data, which were briefly summarized in the different chapters in order to make the business plan easier to read).
 
1) SYNTHETIC DESCRIPTION OF THE PROJECT

It has the objective of clearly present the initiative that you are going to undertake, illustrating its innovative content and strengths and weaknesses, presenting promoters, chosen business form and location.
The following is a format that briefly sums up the information that needs to be provided at this stage in order to facilitate the correct definition of the business idea:
- SYNTHETIC DESCRIPTION OF THE IDEA (in terms of product / market / technology / opportunities, etc.)
- INDICATION OF THE "STRONG IDEAS" THAT ARE BEHIND THE ENTREPRENEURIAL IDEA
- DESCRIPTION OF THE "MOTIVATION" WHICH ENCOURAGE THE BUSINESS STARTING
- PRESENTATION OF THE ENTREPRENEURIAL STRUCTURE
 
It is important to represent the entrepreneur or the entrepreneurial team in a clear way, specifying what is the sector's specific knowledge, strategic motivations, and highlighting the attitudes and abilities that each participant has in a strategic role.
This is the self-assessment phase of entrepreneurial and managerial skills that each participant has. In the event of weaknesses in the composition of the social structure, these should be highlighted and at the same time indicated the necessary solutions.
In case of company initiative, describe the characteristics (typology, administration, balance sheet).

Remember: The success of an entrepreneurial initiative depends not only on the validity of the idea but also on the potentialities of the people involved in the initiative
 
 
A. LOCATION
Indicate the location of the business and the reasons that led it to the choice.
 
Entries Description
Address:  
Surface of the property:                                                    
Cost:  
Area Notes (pedestrian island, availability of parking, nearby shops, etc.)  
Any facilitations  
Other  

 

2) REFERENCE MARKET


To conduct a conscious market analysis, you will need to start from a general macro-environment analysis where the enterprise will operate in order to identify the threats and opportunities that emerge. Subsequently, it will be necessary to analyze in more detail the reference market and the competitive forces that operate in it in order to make the right strategic decisions.


A) MACRO-ENVIRONMENTAL ANALYSIS
This type of analysis is necessary because the definition of the strategy, and subsequently the operational plans, must take into account the threats to be avoided and the opportunities to seize that come from the environment. A threat is an unfavourable, more or less predictable, but unmanageable event that may in some way compromise the success of the initiative. An opportunity is, on the contrary, a favourable, unmanageable event that can in some way positively influence the success of the initiative. In order to identify the reference market, you will need to focus on the specific slice of the market that directly affects the proposed business.


Questions to ask:
• What are the companies in the industry, who are they competing and what product / service types?
• What are the external influences that impact the industry?
• What is the current regulation in the industry?
• What are the constraints and opportunities at regional, national and international level?
• Who are the suppliers? and how many are they?
• What could be any alternative vendors?
• How many and what are the types of customers
• What is the level of existing technology?
• Is technology an important competitive advantage for the products / services offered in the industry?
• Is technology availability a barrier to entry?

B) QUESTION
In order to properly describe how many customers are and what they want to address, an objective market analysis needs to be conducted to help them know the useful information, both qualitative and quantitative.
The questionnaire survey will ultimately aim to quantify the target audience.
Questions to ask:
• Who buys products / services? What utility / value does they attribute to them?
• How many customers are customers?
• Why do they buy?
• On what occasions and / or periods?
• How much do they buy?
• Where do they buy?
• Does the sector are expanding, stagnating or declining?

C) OFFER
It is very likely that when a business initiative is initiated, there are already other companies offering the same product / service (direct competitors) or targeting a particular customer segment by offering a good alternative to satisfying the same need ( indirect competitors).
It will therefore be necessary to analyze the structure of the offer and to understand the logic that regulates the functioning of the market.
To this end, it is appropriate to collect quantitative and qualitative information about individual competitors. It will therefore be necessary to outline a competitor profile, to understand competition strategies and to group companies that adopt similar strategies.


Questions to ask:
• Who sells in the industry?
• When does it sell (peak / seasonal existence)?
• Which and how many potential competitors are there?
• Which sectors outside the industry can influence competitive intensity?
• What are the options for changing the product / service to meet customer needs?


After the information gathering phase of the competition, the analysis should aim to:
1) understand the competition strategies (in terms of product, price, distribution and communication);
2) group companies that adopt similar strategies.
It will thus be possible to build a map of strategic groupings that describes the competitive positioning of competing companies on the market.
The set of information required by industry analysis is available through specific market research.

 

3) PRODUCT/SERVICE


The section provides a detailed description of the products / services that are intended to be offered on the market with regard to their:
• technical features;
• characteristics of uniqueness and attractiveness for the potential customer;
Especially in the case of the realization of physical goods, it is important to focus the product's positioning on its life cycle: introduction, growth, maturity, decline.
The description of the product / service is the result of a process of analyzing the characteristics of the market in which you intend to enter. It is possible that the technical or physical characteristics of the product / service should be changed or modified because the market analysis has highlighted needs to be met that require a product or service in part or totally different from the one initially conceived.


4) COMMERCIAL CHOICES/MARKETING STRATEGY


Each business plan must contain a detailed description of how the company intends to achieve its strategic positioning objectives.
The tool through which positioning strategy can be implemented is represented by the marketing policies adopted and the resources used to realize them.
For this purpose, this section presents the results of the collection of information and analyzes carried out in Section 2 (Reference Market) with the aim of defining a homogeneous and consistent system of choices and actions that the entrepreneur intends to undertake to reach the their own market penetration goals. This set is what is defined as marketing mix and concerns:
- product
- price
- distribution
- communication
- service


The product is defined as the set of material elements (intrinsic quality, technological content, range), intangible (brand, design, reliability, warranty) and services (pre- and post-sales assistance, collateral services) that the company offers its own clients. The success of an enterprise depends on the ability of its products to continue to meet a need or needs specific to the target market in order to ensure the more profitable use of resources.
Determining product policies means setting goals in terms of: sales volumes, market share, profitability.


Price is the monetary expression of the "value" of a good or service. For the buyer, the "value" is determined by the set of benefits expected from the use of a good or service deriving from the probable functional or even symbolic embodiments incorporated therein and which, translated in monetary terms, constitute the limit beyond which does not appear to be convenient.
Price policy is one of the most effective, but also one of the most complex marketing tools.


Price decisions should take into account the objectives of:
• Profit
• Competition
• Market share
• Promotion


The distribution system ensures market coverage and consumer access to the product, so the relevance of this aspect is vital. A distribution channel consists of a set of intermediaries who carry out a number of functions to transfer the product from the producer to the consumer. Brokers perform the following functions: contacting potential customers, product promotion, sales negotiation, physical distribution.


Determining distribution policy involves:
• Description of the channels used and the functions performed by each intermediary
• Fixing targets for each distribution channel


Communication relates to activities aimed at stimulating product demand. Such activities are advertising, sales promotion, and public relations.


Defining communication policy means choosing from:
• Public to reach
• Define the objectives (let the product know, encourage potential buyers to ask for information, persuade customers to buy)
• Defining the contents of the communication
• Choice of channels to be used (sponsorships, flyers, prints, TVs, affiliations, social ..)
• Budget spending


A proper policy of service, where by service we mean all the addictive strategies that can somehow increase the level of satisfaction of the needs of the customers served, can be considered one of the elements on which to play the success of an initiative.


The interventions concern both final consumers and the distribution channels used.

 

5) PRODUCTION STRUCTURE


The purpose of this section is to present the production structure necessary for the production of the product or the delivery of the service to be launched, or to describe how that good / service is purchased or produced.
The elements to be considered are:
• Production characteristics (supply, production / transformation of goods or service delivery, storage, sales, assistance)
• Equipment and facilities needed (technology: predefined objectives, expected quality, innovation, management and maintenance costs, obsolescence and durability, management issues)
• Workforce (needs, professional profiles, organization chart, costs, organizational model)
• Suppliers (Location, Buying Mode, Vendor Importance, ..)
• Raw material requirements (sales targets, seasonal sales, desired stock levels)
• Quality check

 

6) ORGANIZATION


The goal of this phase is the schematic of the corporate organization in which the functions in which business activity is divided, hierarchical levels, relationships of dependence and linkage between them, and the division and distribution of tasks between those who work on different tasks.


Organizational choices must take into account the following elements:
• Identifying corporate functions and defining responsibilities
• Organigram formulation
• Identify the professional profiles needed to cover each position
• Human resources policies (recruitment methods, remuneration policies, training).


At this stage, it is necessary to describe how the production activity is to be organized. It is desirable to describe the structure you want to give to the enterprise by using an organizational chart in order to give greater clarity to the document and avoid duplication of roles in the structure.

 

7) PLAN OF INVESTMENTS AND ECONOMIC-FINANCIAL FORECASTS


The section constitutes the quantitative arrival point of all the strategic and operational hypotheses formulated in the previous sections.
Through the economic and financial analysis it is possible to demonstrate the economic and financial feasibility of the initiative in coherence with strategic and operational choices, and in particular it is able to:
• Realize an investment plan
• Quantify the amount of financial resources needed to initiate the initiative
• Assess the viability of the project
• Verify the company's financial sustainability

The essential documents for the elaboration of the section are:
• Three Year Revenue Estimates: The preparation of this document allows the qualitative and quantitative detection of the income generated by the new initiative as a difference between the revenues realized and the costs incurred during a period (exercise).
• Three-Year Plan for Cash Flows: This document indicates the company's actual revenue and outputs, providing information on the liquidity that the asset itself can generate. Determining a surplus or cash surplus is by comparing the value of the company's total business needs with the value of the hedge it intends to use to meet it. Hence, the surplus / deficit is determined as the difference between the reported financial requirements and the hedge forecast.
From the point of view of self-assessment of the business planning phase, it should be emphasized that the preparation of the foregoing documents as described above should not be considered a mere formality, but an opportunity to verify that the decisions made during the design phase have been achieved equilibrium financial "acceptable".

 

CONCLUDING REQUESTS
It is important to avoid making the following mistakes when drafting a business plan:
1. Fall in love with your own idea against any objective evidence.
2. Think that business planning is not functional in the case of small or small business activities.
3. Stop facing the first inevitable difficulties.
4. Feel that the formulation of the business plan is a pure formal obligation, or a waste of time.
5. Feel that you already have all the knowledge, information, and data you need to draft your project.
6. Want to collect as accurate information as possible without making reasonable limits.
7. Delegate to others the total or partial formulation of the document.
8. In the preparation of the business plan, give too much importance to the accounting and financial analysis.
9. Want to build a business plan with the sole aim of obtaining subsidies or credits.

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