The Importance of a Well-Designed Business Plan - Coursework Example

Entrepreneurship and Venture Creation and Business Plan By Table of Contents Table of Contents 2 Introduction 3 Background information 3 Description of Product 4 Market Description 4 Market Strategies 4 Target Market 5 Operation and Structure 5 Manufacturing Plans 6 Financial Projections 7 Assumptions 7 Income Statement 8 Cash Flow Statements 9 Break-even analysis 11 Contingency plans 11 Conclusion 12 References 13 Introduction A well prepared business plan is essential to every business. It is what sells the business to the outsiders and to the entrepreneurs themselves. It highlights all the steps a business intends to follow to achieve the objectives that have been set. The importance of a well-designed business plan is: It helps the entrepreneurs understand their businesses better. A well designed business plan helps the entrepreneurs formulate good business policies and strategies as well as see clearly the business challenges they had not thought of earlier making them become well prepared psychologically to deal with them (SMITH, SMITH & BLISS, 2011). Most financial institutions require the entrepreneurs to come up with a business plan before they can consider them for financing. It’s used as a tool for management by the entrepreneurs. The entrepreneurs check on it from time to time to see whether the business is in line with the plan they thought of earlier. Highlights the risks involved in the business such as financial and control risks. The entrepreneurs should highlight the measures they have in place to manage the predicted risks. It’s used as a referencing tool. It tells the entrepreneurs when their trend of operation seems to deviate from the lay out plan (KAPLAN, 2009). Background information After many years of market research, Mango Fruit Jam Company executives have discovered a business opportunity in processing mangoes to produce jam. Description of Product The fruit jam is made of highly processed mango juice that has been centrifuged to produce the finest quality of mango juice. The canned jam has an expected shelf life of 9 months at the recommended storage conditions. Market Description The company has identified the demand of a higher quality jam in the market with a higher shelf life. The product will also have a positive change in taste and preference of the people on jams in the market. Market Strategies The company will undertake various product promotion methods. This will help it venture into the market successfully. The company has laid the market strategies as follows. Advertising and promotion through social media has been chosen to be the main promotion method to attract customers of all ages. Road shows. Using billboards. Selling at cheaper prices, price offers and other incentives to increase sales. This will help to favourably compete with the competitors as a higher number of people will be reached. The major consumers will be pastries, hotels and households. The firm will be in a better position even to compete as it will sell at lower prices due to the large economies of scale. Substitute goods (other jams) are usually sold at high prices due to the monopolistic nature of the market. The company will sell its jam at a favourable price of 15$ per a 250g can. The Company aims at starting in the national market with target group being people of all ages. The mango Fruitjam will not use excessive additives so as to maintain the natural quality and uphold the company’s philosophy which is quality product at a fair price. The company will distribute its products through retail channels to ensure that all potential customers are reached. It will also have depots after some months of production to facilitate distribution. The strengths, weaknesses, opportunities, and threats (SWOT) of this company are; Strengths: Unique product, quality and health emphasis on the product. Weaknesses: The firm is new in the market and faces competition from the monopoly firms in the market and competition from the imported jams. Opportunities: The firm is producing a quality jam which is the consumer expectation thus the product has a ready market. Threats: The changing climatic conditions are unpredictable, which in turn affects the mangoes in the farm. Also diseases attacking the fruits in the farm would lower the output of the company. Target Market From the prospect of our product, all age groups in every region will be a target audience for our mango Fruitjam. However, the primary target audience will be people aged between 25 and 50 years. These are the professional individuals as well as parents. They main reason to target this group is because they are becoming more concern with health matters and of late noted to prefer organic juices. It is the same audience that prefers nutrition to taste and much more care about price and quality of a product. The secondary target audience will be individual aged between 14 years and 25 years. This is because their preference is no cool drinks and the product in fashion. They will be our secondary audience because they drink for style purpose and still go for cheap drinks owing to their low earnings. Operation and Structure The company we require a few manual and expert workers who will be hired through interviews and experience qualifications. The company requires manual labourers to work in the warehouses in moving the mango to the crushers and also in loading and offloading the trucks. The company will also require a database manager to keep a record of the staff and the company operations. This will also include the farmer records entailing the amount of mangoes delivered. Three qualified and experienced truck drivers a will be required to transport the mangoes from the farms. The company will use various selling tactics like: provision of warranties and guarantees on the fruit jam bought, offering discounts to large scale consumers and retailers and after sale services like transporting the purchaser to the consumers who buy in bulk (SHIMASAKI, 2014). The company also intends to carry out community support services as a way of establishing strong bonds between it and the community. It has decided to start with three strategies: Initiating environmental conservation programs like, Setting aside a day to educate the society on the importance of forest conservation. Providing 52% employment opportunities to people from the community. Providing internships to students from the analytical chemistry and food science departments. Offering sponsorships to those best performers in the departments of sciences like food science in the universities and colleges. Also sponsoring students in the lower academic levels around the community. Manufacturing Plans The mangoes will be passed through a pulping machine to remove the peels and squeezed off the juice. The resulting juice will then be heated in small batches to prevent the browning effect. Highly refined sugar will be added, making sure that a clear juice is formed. To make sure that the sugar levels are controlled to the required amounts the strength of the sugar syrup will be calculated % sugar = (weight sugar x 100) / (weight of sugar +weight of water). Commercial pectin (diluted to 5 SAG) will be used since the fruits are already mature and the pectin level has reduced. When undergoing this process, the human contact with the product will be regulated so as to make sure that quality control and assurance is observed which an objective of the firm is. Simple machines to check the pH level (3.0) and the acid level will be fixed so that a strong gel is formed. The packing cans will be obtained from a recycling firm at fair prices. Preservatives will not be required as all conditions have been met and no stored will be used. Financial Projections Assumptions It is expected that the business will exhibit a continuous improvement yearly from 2016.profitability will be used in measuring performance. Sales for 2rd year will show a 10% increase after which the business is expected to record a 20% increase in sales. Most the recurrent expenses are expected to show a 5% increase yearly. This will exclude income tax as it is calculated as a percentage of all income from operation. It is also expected that actual performance of the business may be below and above the stated projections. As per the accounting Equation states, it’s a requirement that all assets equal total of capital and liabilities. This is evident in the projections. In beginning the business, the customer invested $ 26,360. This is the existing asset hence reducing the equation to Assets = Owners Equity. As 2016 ended, the assets had raised to $47,439. This matched the liabilities and owner’s equity. This increase was as a result of retained earnings from undistributed profits. This relationship holds throughout the 5 years of our projections. The following is data obtained from simulation of the company’s performance for the next five years. Income Statement For the year ended [Dec 31, 2016 to Dec 31, 2021] `   2016 2017 2018 2019 2020 2021 Gross sales 50,000 55,000 66,000 79,200 95,040 114,048 (Less sales returns and allowances) -   - - - - Net Sales 50,000 55,000 66,000 79,200 95,040 114,048 Cost of Sales             Consultancy costs 6,500 6,825 7,166 7,525 7,901 8,296 Gross Profit (Loss) 43,500 48,175 58,834 71,675 87,139 105,752 [42] Expenses             Advertising 2,400 2,520 2,646 2,778 2,917 3,063 Office supplies 250 263 276 289 304 319 Rent 4,500 4,725 4,961 5,209 5,470 5,743 Salaries and wages - - 1,189 1,300 2500 2625 Transport 260 273 287 301 316 332 Utilities 1,400 1,470 1,544 1,621 1,702 1,787 Total Operating Expenses 8,810 9,251 10,902 11,499 13,209 13,869 Operating Income (Loss) 34,690 38,925 47,932 60,177 73,931 91,883 Non-operating revenues, expenses, gains, losses - - - - - - (Less interest expense) - - - - - - Income Before Taxes 34,690 38,925 47,932 60,177 73,931 91,883 (Less income tax expense) 7,899 (10,120) (12,462) (15,646) (19,222) (23,890) Income From Continuing Operations 26,791 28,804 35,469 44,531 54,709 67,994 {42} [42] [42] [42] [42] [42] Cumulative effect of accounting changes - - - - - - Net Income 26,791 28,804 35,469 44,531 54,709 67,994 Cash Flow Statements For the Years Ending 2016 2017 2018 2019 2020 2021 Cash at Beginning of Year 17,620 15,120 19,870 32,820 61,110 102,308               47,500 54,750 62,950 78,290 91,198 112,188   47,500 54,750 62,950 78,290 91,198 112,188   - - - - - -               Dividends (50,000) (50,000) (50,000) (50,000) (50,000) (50,000)   (50,000) (50,000) (50,000) (50,000) (50,000) (50,000)  Net Increase in cash (2,500) 4,750 12,950 28,290 41,198 62,188 Cash at End of Year 15,120 19,870 32,820 61,110 102,308 164,496 Balance Sheet For the year ended [Dec 31, 2016 to Dec 31, 2021]   2016 2017 2018 2019 2020 2021               Cash 15,120 19,870 32,820 61,110 102,308 164,496 Accounts receivable 2,500 2,750 3,300 3,960 4,752 5,702 Total current assets 17,620 22,620 36,120 65,070 107,060 170,198               Total fixed assets - - - - - -               Total Other Assets - - - - - -   17,620 22,620 36,120 65,070 107,060 170,198                             Total current liabilities -                         Long-term debt 23,209 49,405 77,435 111,855 149,136 194,280 Deferred income tax Total long-term liabilities 23,209 49,405                       Owners investment 17,620 17,620 17,620 17,620 17,620 17,620 Retained earnings (23,209) (44,405) (58,935) (64,405) (59,696) (41,702) Total owners equity (5,589) (26,785) (41,315) (46,785) (42,076) (24,082)   17,620 22,620 36,120 65,070 107,060 170,198 Break-even analysis This establishes a relationship between operation costs and revenues. It’s an indicator of the level at which costs and revenue are at equilibrium. This implies that for Mango Fruitjam has set higher prices are higher than the variable price per unit. In this case each product sold makes a contribution towards covering fixed costs. Where the company has a total expense of 250,000 dollar per year it has to make sure at least 10,000 units being sold at $2.5 to break-even. In case it is not possible to break even the company needs to review some operations and strategies like: increasing the selling price per unit, reducing variable costs, reducing the fixed costs like by renegotiating for the warehouse rent price. This will help the minimum number of canned mango jam that must be exceeded to make profit. Through the formula Break even in sales= (total fixed costs)/ (unit contribution margin/unit sale price). The Pay-back period This is the period required for recovering the initial investment outlay through the accumulated net cash flows earned by the project. In accordance to calculated estimations on the project cash flow it’s estimated that the initial capital will be recovered within the second year provided the market follows the simulated market and also the economic status. Contingency plans This involves the strategies that are set up to deal with unexpected situations that are unfavorable to the business or in the cases where the business vital objectives are not realized within the stipulated time. Mango Fruitjam company has set an objective to accept deviation of 14% on sales return and earnings from investments however a return of less than 86% will require the company to implement the following strategies: In case of a crisis that leads to mass destruction of the main offices of the firm. The firm will need to relocate the offices to the nearest branch site and restore the backed up data. This will ensure business activities run smoothly despite the obstructions. Where Mango Fruitjam is unable to settle a huge debt from a creditor .The company will open a fixed deposit account where it will deposit$ 25,000 to settle the bad debts in the unfavorable financial years or when inflation strikes the economy. Where the demand will exceed the expected simulated demand. The firm will add its two spare canning machines to hike the production speed and hence the amount produced so as to create production consumption ratio. Where some areas sales go below 30% of the expected. The company will use advertising and also contact with the market expertise in the area to get the best methods to reach the market so as to compete favourably with the other competitors in the area. The company will also use salesmen where commission will be given to the amount of jam sold. Conclusion The company needs to do the following to implement the above issues: The entrepreneurs should be having enough capital to expand their business. There is need for the entrepreneurs to be themselves, that is, not to forge others. The entrepreneurs should work with others to learn on the new entrepreneurial ways of production. There is need for the entrepreneurs to be creative so as to innovate new business ideas. References BARON, R. A., & SHANE, S. A. (2008). Entrepreneurship: a process perspective. Mason (OH), Thomson/South-Western BRIDGE, S., & HEGARTY, C. (2013). Beyond the business plan: 10 principles for new venture explorers. http://www.palgraveconnect.com/doifinder/10.1057/9781137332875 BRUSH, C. G. (2010). The life cycle of new ventures emergence, newness and growth. Cheltenham, Edward Elgar. http://public.eblib.com/choice/publicfullrecord.aspx?p=599689. KAPLAN, J. M. (2009). Patterns of entrepreneurship. Hoboken, N.J., Wiley. LONGENECKER, J. G. (2012). Small business management: launching and growing entrepreneurial ventures. Mason, OH, South-Western Cengage Learning MULLINS, J. W., & KOMISAR, R. (2009). Getting to plan B: breaking through to a better business model. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=67493 RAICHAUDHURI, A. (2011). Managing new ventures: concepts and cases in entrepreneurship SAHAY, A. (2008). Entrepreneurship and new venture creation. New Delhi, Excel books. SAHLMAN, W. A. (2008). How to write a great business plan. Boston, Mass, Harvard Business School Press. SAHLMAN, W. A. (2008). How to write a great business plan. Boston, Mass, Harvard Business School Press. SHIMASAKI, C. D. (2014). Biotechnology entrepreneurship: starting, managing, and leading biotech companies. http://lib.myilibrary.com?id=589159. SMITH, J. K., SMITH, R. L., & BLISS, R. T. (2011). Entrepreneurial finance: strategy, valuation, and deal structure. Stanford, Calif, Stanford Economics and Finance. STOKES, D., & WILSON, N. (2010). Small business management and entrepreneurship. Andover, Cengage Learning. Read More