A Good Business Plan

A Good Business Plan

Contents

1 a. Definition of a business plan. 1

1 b. Functions of a business plan. 1

1 c. The essential tests of a good business plan. 2

1 d. Components of the business plan. 2

An entrepreneur’s “best three friends.”. 3

2 a. The income statement. 3

2 b. Cash-flow statement. 4

2 c. The balance sheet. 5

Ethics in corporate environment. 5

3 a. Deterioration of corporate ethics. 5

3 b. Causes of deterioration of corporate ethics. 6

3 c. How deterioration of ethics can be changed. 7

1. Business Plan

1 a. Definition of a business plan

A business plan can be defined as a summary of the major considerations of a start-up business venture. The major considerations in a business plan include the entrepreneur’s proposed business idea, details about operations and finance, about the available market opportunities, the strategies to be employed in exploiting these markets, and the required managerial skills and abilities. A business plan can also be regarded as an insurance against potential dangers of starting up a business that is will fail. It is also ensures that an on-going business is secure from mismanagement.

1 b. Functions of a business plan

A business plan can broadly be described as having three important functions. The first function is to guide the company in the way it is to be run and the course it is expected to take in future. This function is achieved by coming up with a strategy and following it to the letter from inception of the plan. The second function of the business plan is to attract investors and lenders. A well written business plan with clearly indicated details on every necessary aspect of the business can be used to seek for the required capital from lenders and investors. Thirdly a business plan serves the function of signifying that the entrepreneur is fully conversant with the requirements of the business and everything needed to make it a successful venture.

1 c. The essential tests of a good business plan

For a business plan to be considered as workable and bound to create a successful business, it must be taken through three tests. The first is referred to as the reality test which seeks to prove two things. It must prove that there actually exists a market for the products and services provided by the company. Another aspect of the reality test is that the entrepreneur should prove that he or she can implement the plan using the cost estimates provided in the plan.

The second test is called the competitive test. It evaluates how the company is positioned in relation to its customers as well as how the entrepreneur can make the company more competitive against the existing completion. The third test a business plan has to undergo is the value test in which the entrepreneur seeks to prove that the company will offer its investors a good rate of return for their investment. All the three tests are important to the entrepreneur because they measure how different aspects of the business can be implemented practically and how attractive the business is to investors and lenders.

1 d. Components of the business plan

In order to come up with a business plan that is practical and able to attract investors and lender, the entrepreneur has to clearly address each of the components the plan. The first and most important part is the executive summary. The entrepreneur should realize that the executive summary determine whether the investors will develop an interest in the business or will be put off by the idea. It has to provoke an interest in investing in the idea being proposed. Basically the executive summary describes the objectives, mission, and key areas or considerations that will ensure the business succeeds. Another important component is the company summary that describes where the company will be located and the kind of facilities required. This area has to be well addressed as it gives the picture of how the business will look like and how it can be potentially successful. For example location of the business will determine how conveniently placed the venture will be in relation to its potential clients. The other important components of the plan will include the company ownership, the products and services and other revenue streams, the strategic analysis summary which will include a SWOT analysis, market segmentation strategies, competition and purchasing patterns, and hoe the business will be implemented and managed. Investors will also be keen on the financial plan of the company whereby the initial funding and break even analysis will be considered. Summaries on the expected profit or loss statements, cash flow, and the projected balance sheet will have to be provided in the plan in clear and concise financial statements.

An entrepreneur’s “best three friends.”

The balance sheet, income statements, and cash flow have been described as an entrepreneur’s best friends because they can never be isolated from any business that is aimed for success. Every entrepreneur must always have a keen eye on the charts, tables, and spreadsheets that are the backbone of financial statements in order to stay focused on the pulse of the business. These three aspects are the main determinants of how the business is doing and what its odds are for its survival. It is therefore important to keep abreast with these three tools.

2 a. The income statement

The income statement is a report that describes the cash generating ability of the business. It is important to an entrepreneur as it acts as score card on which he or she determines when the sales are made and when expenses have been incurred. An income statement uses information from other financial models like “revenue, expenses, capital, and cost of goods” (Helfert, 2001, p.42). A good entrepreneur combines these various elements of the income statement to tell how the company performed during the year by finding the difference between the cost of goods and expenses from the revenue generated by the company to get the net results in the form of profit or loss. A good entrepreneur knows that it is important to generate income every month in the first year and after every three months (quarterly) in the second year. When the business has been in operation for three years, income statements can be generated annually. The major financial projections in the income statement an entrepreneur works with include “income, cost of goods, gross profit margin, operating expenses, total expenses, net profit, depreciation, net profit before interest, interest, net interest before taxes, taxes, and profit after taxes�.............