APPRECIATION ON BUSINESS PLANNING

AGEC 04 Introduction to Enterprise and

Entrepreneurship
Main Strengths of Filipino People
1. Pakikipagkapwa Tao
2. Family Orientation
3. Joy and Humor
4. Flexibility, Adaptability and Creativity
5. Hardwork and Industry
6. Faith and Religiosity
7. Ability to Survive

Source: A Moral Recovery Program: Building A People

What is Entrepreneurship
Entrepreneurship is refers to the economic
activity of a person who starts, manages, and
assumes the risk of a business enterprise. The
person who undertakes entrepreneurial activities is
called an entrepreneur.
The entrepreneur identifies an economic
need, considers offering an business solution,
proceeds to assemble the resources required, and
assumed the risk of either succeeding or failing.
What is Entrepreneurship
The entrepreneur’s tasks consists of:
• Assembling the resources (land, labor, capital and
entrepreneurship) for the purpose of producing
goods and services.
• Deciding on the rate of output his venture must
produce.
• Bear the risk inherent to the venture
What is Entrepreneurship
Innovation defined as the introduction of a
new method, procedure, custom, device among
others.
Transition from a new venture to a long-term
enterprise consists of the:
• Pre-start stage. ( happens when the entrepreneur start to question the
feasibility of an idea, products, or services)
• The start-up stage. (formation of the business, generation of
necessary capital, purchases of facilities and equipment, testing the
market.)
• Early growth stage. (follow after establishing feasibility)
• Late growth stage. ( final stage before the new venture matures into a
stable enterprise.
 BUSINESS DEVELOPMENT CYCLE

GOAL •START
SUCCESS •STAY
•STEP-UP
VISION SMARTER
----- Enjoyable
Evaluation
Dream
Rewarding
Implementation
Fund •ROI or Losses
Sourcing
Business •Establishment
Plan and Operation
•Informal and
Project ID Formal Sources
Self- •Functional
Awareness Areas
•Needs
Analysis There is neither a straight
•Strengths line nor short cut to
•Weaknesses success!
Bringing into
existence an idea that
is new to you.
 INNOVATION
The practical
application of creative
ideas.
 GOODS OR SERVICES THAT CATER
TO HUMAN NEEDS AND WANTS
FOOD/DRINK SLEEP
• Restaurant • Mattress
• Fast Food Outlet • Aero Bed
• Catering • Pillow
• Karenderia • Bed Sheet
• ‘Tapsiturvy’ • Mosquito Net
• Fish Ball, Sago at • Aromatheraphy
Gulaman, Atbp.
SAFETY SOCIAL SELF-ESTEEM
• Anti Theft Devices • Bar & Pub • Facial, Skin Care
• Security Agency • ‘Patay-Sindi’ • Physical
• Pain Relievers • ‘Laugh-In’ Enhancement
• Herbal Medicines • Bowling Center • Hair Salon
• RTW • Kinder School • Cosmetics
• Hardware Stores • Modeling Agency
 Business Planning and
Management
What is a Business Plan?

Business plan is a clearly assessed and defined

statements of what an organization expects to accomplish
or economic goals.

The business plan is your framework, master plan and

roadmap to success for your business venture!
 SWOT Analysis Framework
POSITIVE FACTORS NEGATIVE FACTORS

At present

Strengths Weaknesses Can be

Can be controlled controlled by
by entrepreneur entrepreneur
INTERNAL INTERNAL
ENVIRONMENT ENVIRONMENT

Opportunities Threats EXTERNAL

EXTERNAL
ENVIRONMENT ENVIRONMENT
Beyond control Beyond control
of entrepreneur of entrepreneur

In future
POSITIVE FACTORS NEGATIVE FACTORS
Capitalize on you strengths Eliminate your weaknesses

Take advantage of opportunities

Avoid threats
 Person E Project
Creativity Exercise

Business Idea Generation

Macro
Resources
Skills Screening Micro
Values Strength/Weakness
Selection SWOT

Competent ( Match ) Viability Option

BUSINESS PLANNING
 WHY WE NEED TO PLAN
• TO COPE WITH THE RAPID TECHNOLOGICAL AND
SOCIAL CHANGE
• TO ADAPT TO CHANGING MARKET NEEDS
• FOR SURVIVAL OR CONTINUOUS PROFITABILITY
• TO INCREASE PROBABILITY OF ACHIEVING TARGETS

• TO MAXIMIZE USE OF RESOURCES

Why make a business plan?
- For income generating projects
Overall strategy in achieving income or profit
objectives
- As collateral for funds
Requirement of financial institutions
- Management guide
A roadmap for management in achieving identified
objectives
Guide questions for a Business Plan
Questions
Why – Business goals/Objectives?
What – Products or Services?
Where – Market segments to
penetrate? Product distribution
mode
How – Production process?
When – Production phases?
Marketing Phases?
Who – Skills & manpower?
Organizational structure?
Compensation?
Customer?
Examples
Generate Income
Chicken, Fish, Goats, Credit
Direct marketing, wholesaling,
retailing
Biological – 10%, Chemical – 25%,
mechanical – 40%
Set-up, normal capacity, expansion
Test marketing, niching, mass mktg
Technical, managerial
Line-staff, functional, mixed type
Basic pay, fringe benefits, incentives
Local consumers, students
 COMPONENTS OF A
BUSINESS PLAN

• SITUATIONAL ANALYSIS

• SETTING UP OF OBJECTIVES

• STRATEGIC PLANNING
 MARKETING
 PRODUCTION
 ORGANIZATION
 FINANCIAL
 SOCIO-ECONOMIC & ENVIRONMENT
 BASIC QUESTIONS FOR
PLANNING PROCESS

• WHERE ARE YOU NOW?

• WHERE DO YOU WANT TO GO?

• HOW DO YOU GET THERE?
• HOW DO YOU IMPLEMENT
THE PLAN?

• HOW DO YOU MANAGE OR

CONTROL THE PLAN?
 Marketing Plan
What is marketing?

Marketing is a profitable “exchange relationship” wherein

the goods and services that are provided to satisfy the
needs (or wants) of customers.
 MARKETING PLAN

• WHAT PRODUCT WILL I SELL?

• HOW MANY/MUCH DO I PLAN

TO SELL?

• HOW DO I PLAN TO
SELL?
• PRODUCT
• PRICE
• PROMOTION
• PLACE
 THE MARKETING MIX

TARGET
MARKET

PRODUCT PROMOTION

Quality, Features, PRICE PLACE Tri-media,

Benefits, Options, Sales Promo,
Brands, Packaging, Publicity
Service, Warranties List Price, Channels,
Discounts, Coverage,
Allowances, Locations,
Credit Terms Transport
 Employ Market Research

- Know your target market

- Know your competition

- Know your strengths and weaknesses

 TARGET MARKET
People
Need Analysis
(necessity, wants, desires)
Marketing Mix

4Ps 4C’s C’s Strategy

Product Commodities Consumer
(consumer’s req’ts) High Income
Middle Income
Low Income
Price Cut Price Competition
Penetration
Skimming Cut Price
Cost Plus
Promotion Coverage Creativity
Broadcast

Print
Personal
Place Convenience Comfort
Strategic Satisfaction
The Production Aspect
4 Ms of the production aspect

1. Men – The most important syllable in the work

management.
2. Machines or capital investment (Land, facilities,
equipment)
3. Methods – these are the how in the production
process. How are animals cared for?
4. Money – medium of exchange (budgetary
requirement)
 Name at least 10 very successful Entrepreneurs
that you know of.

 What are the qualities inherent in them that they

become so successful.
PRODUCTION PLAN
• WHAT PRODUCT WILL I MAKE?

• HOW MANY WILL I MAKE?

• HOW DO I MAKE THE

PRODUCT?

• WHERE WILL I MAKE THE

PRODUCT?
• WHAT DO I NEED TO MAKE
THE PRODUCT?
• HOW MUCH WILL IT COST
TO PRODUCE THE
PRODUCT?
Product Specifications (sample)

WANTS/NEEDS SPECIFICATIONS
Standard plate counts (SPC) of
bacteria should be less than
High Quality Goat Milk 10,000 per milliliter

Pre-incubation count (PIC) of

specific bacteria should be less
REFERENCES than 20,000

Direct microscopic somatic cell

Addeo, F., Mauriello, R. and Luccia, A. di, 1988. A gel
electrophoretic study of caprine casein. J. Dairy Res., 55: count (DMSCC) should be less
413 - 421. than 300,000
Direct microscopic count (DMC)
Ambrosoli, R., Stasio, L. di and Mazzocco, P., 1988. should be less than 30,000
Content of alpha-s-1-casein and coagulation properties in
goat milk. J. Dairy Sc. 71: 24 - 28. Temperature resistant bacteria
count (THC) should be less than
1,000
Process Selection and Description
Process Selection
- Manual
- Semi-Mechanized
- Fully Mechanized
- Automated

Process Description
- If possible, document the process using flow
charts.
ESTIMATES OF PRODUCTION COST
Elements of Cost:
Direct Materials xxx
Direct Labor xxx
Manufacturing Overhead
Indirect Materials xxx
Indirect Labor xxx
Repairs/Maintenancexxx
Depreciation xxx
Utilities xxx
Etc. xxx
TOTAL PRODUCTION COST xxx
IMPLICATION OF COST TO SELLING PRICE

PROFIT How much profit?

SP3
ADMINISTRATIVE COST

MARKETING COST
SP2 SP1 Manufacturing
Overhead
PRODUCTION
Direct Labor
COST
Direct Materials
 Waste
Can be found in all aspects of work
TRANS-
INPUT FORMATION OUTPUT
• Man
• Machine
• Method • Products
• Method
• Process • Services
• Materials
• Maintenance

• Waiting time
• Transport
• Process
• Over production
• Inventory
• Motion
• Defects
Organizational/Management
Aspect

The appropriate organizational

structure must be put in place to
implement the requirements of
the plan.
 YOUR
Scene 3
SUPPORTING
CAST

Who is going How do

to be in your you build
supporting them up?
cast?
Organizational/Management
Aspect
Components:

1. Organizational structure
2. Manpower skills and competencies
3. Salaries, remunerations, benefits
4. Timetable of activities
 ORGANIZATION PLAN
• HOW WILL I SET UP AND
ORGANIZE THE ENTERPRISE?

• WHO WILL DO?

• MARKETING
• PRODUCTION
• ADMINISTRATION
• FINANCE

• WHEN WILL I START

NORMAL COMMERCIAL
OPERATIONS?
 FINANCIAL ASPECT
The financial plan is the
quantification of the business
plan in terms of monetary
values. It also provides
information on the sources of
funds.
 Business Operating Cycle
Finished goods
are sold Credit sales
SALES

Cash
FINISHED Sales RECEIVABLES
GOODS

CASH
Raw materials
are purchased Collection of
and processed receivables
into finished
goods
 FINANCIAL PLAN
Critical issues to answer:
• HOW MUCH WILL I
INVEST IN THE
BUSINESS?
• HOW WILL I FINANCE
THE BUSINESS?
• HOW WILL THE
BUSINESS PERFORM
FINANCIALLY?
 FINANCIAL PLAN
Fixed Assets
TOTAL PROJECT COST Working Capital
Other Assets: Pre-Operating

SOURCES OF Equity
FINANCING Loan

SECURITY/COLLATERAL
Income Statement
FINANCIAL Cash Flow Statement
STATEMENTS Balance Sheet Statement

ANALYSIS OF Financial Ratios:

FINANCIAL •Profitability
STATEMENTS •Liquidity
 Income Statements
 Important for investors because it is the basic measuring
stick of profitability (low income means low dividends;
large profits means more dividends)

 Operating income measures the profitability of a project

based on the operations. In other words, it assesses
whether the project is profitable or not.
Basic Elements of Income Statements
A. Sales
B. Expenses:
Cost of operation (direct cost; raw materials,
labor, etc.,)
Overhead expenses (indirect costs;
depreciation, rentals, other utilities)
Administrative & selling expenses (business
permits, licenses, etc.,)
C. Net Income before interest expenses (A-B)
D. Net Income after interest expenses
Cost and Return Analysis

Analyze the quality or efficiency of operations

i.e. gross margin rations, return on operating expenses

Most investors will tend to prefer a more

efficient company
Elements of Cash Flow Statements
A. Cash Inflows (sources, receipts)
Loans, grants, sales, other cash receipts
B. Cash Outflows (uses, disbursements)
Capital outlays (purchase of equipment,
buildings and other fixed assets)
Operating capital net of depreciation (operating,
overhead and selling expenses)
Debt service (interest and loan amortization)
Other cash disbursement
C. Net cash flow (A-B)
D. Beginning cash balance
E. Ending cash balance (C+D)
FINANCIAL RATIO ANALYSIS
Implies interpreting
numerical values

Deals with relationships

between 2 numbers

Deals with monetary values

• Profitability Ratios
• Liquidity Ratios
• Leverage Ratios
• Turnover Ratios
Some measures of project worth
Payback period – how long it takes to recover initial
investment

Net Present Value – the expected future revenues of a

project throughout its duration are shown in terms of
present values using a discount factor (usually the
opportunity of capital or current the interest rate)
Some measures of project worth
Internal Rate of Return – measures the overall earning
capacity of the project usually expressed in percent

Benefit Cost Ratio – measures the returns on

investment over the duration of the project
What capabilities should entrepreneurs must
build on to ensure profitability and
sustainability?
• Cash Budgeting (Planning)
• Maintain positive cash flow (merchandize
inventory stocks)
• Keep records (financial statement, credit policy)
segregation of personal and business funds)
• Negotiate with suppliers (reduce costs)
• Get more customers (expand the market)
• Increase sales, reduce costs (profitability)
• Employ asset management and financial discipline
(business practice)
 FINANCIAL DISCIPLINE
EXPENSES – INCOME = DEBT (Credit Card Mentality)

INCOME – EXPENSES = 0 (Fiesta Mentality)

INCOME – SAVINGS = EXPENSES (Entrepreneurial Mentality)

Over the Years

Asset Accumulation

CAPITAL

1. M - agnanakaw
2. M - angungutang
3. M - angagantso
4. M - agnenegosyo (GI) PROFIT
 FINANCIAL DISCIPLINE
INCOME – SAVINGS = EXPENSES (Entrepreneurial Mentality)

To improve
Target quality of life?
EXPENSES
Not Yet
Resourcefulness
with Honesty PROFIT

Re-investment
Increase Sales 5x
Reduce Cost 5x FOUNDATION

Heroes of the Future

HELP OTHERS
 Environmental/Socio-Economic Aspect
A. Environmental Consideration
 Waste Management
 Pesticide Residues Control
 Use and Preservation of Natural Resources
B. Socio-Economics Consideration
 Estimated Employment Generation
 Infrastructure and Facility Improvement
 Estimated Increase in Land Use and Production Volume
 Estimated Increase in Income
 WISH TO ATTAIN ECONOMIC
DEVELOPMENT

START AND MANAGE YOUR

BUSINESS

PRACTICE ASSET MANAGEMENT

AND FINANCIAL DISCIPLINE
 The golden
opportunity you
are seeking is in
yourself. It is not
in your
environment; it is
not in luck or
chance, or the
help of others; it
is in yourself
alone…
Some Financial Diagnostics & Sources of Information

Diagnostics Formula Source of

Information
1. Profitability
a. GPM (%) (Gross sales-Cost of good sold/Gross sales IS
)x100
b. NPM (%) (NI b4 Interest & Tax/Gross sales)x100 IS
c. ROI (NI b4 Interest & Tax/Total investment)x100 IS & BS
d. ROE NI b4 tax/Total operating expenses IS
e. ATR Total sales/total assets IS & BS
Some Financial Diagnostics & Sources of Information

Diagnostics Formula Source of

Information
2. Liquidity
a. Current Ratio Current assets/current liabilities BS
b. Acid test or Current liabilities-Inventories/Current BS
quick ratio liabilities

3. Solvency
a. Debt to Asset Long term liabilities/Total assets BS
Ratio
Some Financial Diagnostics & Sources of Information

Diagnostics Formula Source of

Information
4. Stability
a. Equity to Owners equity/Total assets BS
Asset Ratio

b. ROI to capital ROI/interest rate on borrowed capital BS & IS

cost ratio