ENTREPRENEURSHIP IN TSS

MODULE CODE: CCMBP402 DEVELOP A BUSINESS PLAN

Module Type: Complementary Competent Module

ALL TRADE

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Elements of competency
Performance criteria
1. ANALYZE A BUSINESS PLAN
1.1. Business plan concepts are correctly defined in line with existing Literature
1.2. Elements of a business plan are properly described referring to their description
1.3. Business plan template is properly illustrated referring to its components
2. WRITE A BUSINESS PLAN
2.1. Business plan introductory part is properly designed with reference to its elements.
2.2. Business production plan is properly designed in line with results from business environment
analysis
2.3. Marketing plan is clearly designed in line with market feasibility study and business product
2.4. Business staffing requirement plan is accurately developed in line with business activities 2.5.
Business financial plan is properly designed in line with business needs
3. ESTABLISH BUSINESS CONTINGENCY PLAN
3.1. Business contingency plan concepts are clearly explained in accordance with related literature
3.2. Risks are clearly identified in accordance with business environment
3.3. Risks associated to the business are accurately assessed in line with the business plan
developed
3.4. Contingency plan is adequately developed in accordance with assessed risks
4. PRESENT A BUSINESS PLAN
4.1. Business plan presentation is accurately prepared in accordance with types, purposes of
business plan
4.2. Different ways to present the business plan are clearly explained referring to parties and
procedures involved in business plan presentation
4.3. Business plan is appropriately presented in accordance with techniques used in business plan
presentation
LEARNING OUTCOMES
At the end of the module, the learner will be able to:
1. Identify elements of business plan
2. Write a business plan
3. Establish strategies to monitor, Evaluate and update the business plan and contingency plan
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4. Present a business plan
LEARNING OUTCOME 1: IDENTIFY ELEMENTS OF BUSINESS PLAN
Definition of the business plan concepts
A Business plan: A business plan is defined as a written document describing in details the
objectives, goals and procedures of implementing or carrying out a business. It is designed to guide
the implementation of a business.
Difference between business plan and project plan:
Business is a larger concept in comparison to a Project. A project is a work undertaken under a
business organization ranging from manufacturing, trading or service industry of various goods or
services. Business is an activity of conducting all such commercial transactions which covers such
various projects which generate revenue and maximizes profits.
A business plan outline how a business is organized, sales and marketing strategies, business
goals and a host of other details about a BUSINESS. While A project plan is a document that
outlines a specific project, what must be accomplished in the project, resources needed, dates and
timelines and goals, etc.

Project planning is a discipline addressing how to complete a project in a certain timeframe,

usually with defined stages and designated resources. One view of project planning divides the
activity into these steps:

 setting measurable objectives

 identifying deliverables

 scheduling

 planning tasks

Project Planning enables project managers to turn an intangible idea into reality. Key purposes of
planning include the following:

 facilitate communication and provide a central source of information for project personnel;

 help the project sponsor and other key stakeholders know what is required;

 identify who will perform certain tasks, and when and how those tasks will happen;

 facilitate project management and control as the project progresses;

 enable effective monitoring and control of a project;

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 Manage project risk; and generate feedback useful for the next project planning phase.

Importance of the business plan

The business plan has many importance.The following are some importance of business plan:

To Attract Investors.Whether you want to shop your business to venture capitalists, or attract
angel investors, you need to have a solid business plan.

To Test the Feasibility of Your Business Idea. Writing a business plan is the best way to test
whether or not an idea for starting a business is feasible, other than going out and doing it without
having a plan.

To Give Your New Business the Best Possible Chance of Success. Writing a business plan will
ensure that you pay attention to both the broad operational and financial objectives of your new
business and the details, such as budgeting and market planning.

To Secure Funding, such as Bank Loans. Having a business plan gives you a much better chance
of getting the money you need to keep operating or to expand. You’re going to need both operating
and start-up capital to start a new business and you have no hope of getting any money from
established financial institutions such as banks without a well-developed business plan.

A good business plan will help the entrepreneur attract partners and high quality employees
to the business because it clearly indicates the future of the business.

Provides room to understand risks involved

THE NEEDS OF THE BUSINESS PLAN

A business plan is needed to be used by many users depending on the type of the user each user
need different information. Information in business plan used both internal and external of the
business.

a. Internal use/Inside the firm, it helps the company develop a “road map” to follow
in executing its strategies and plans. Internal users of business plan include:
Business owners(entrepreneurs), Managers, and employees
b. External use/Outside the firm, it introduces potential investors and other
stakeholders to the business opportunity the firm is pursuing and how it intends to

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 pursue it. External users of business plan include: Government agents, Financial
institutions, Investors,etc.

Description of the elements of a business plan

Title/cover Page

 Logo of the business

 Name of the business
 Business owner
 Location of the business

The cover of the business plan is often the first impression of a business for interested parties or
investors. The purpose of a cover is to tell the reader what document is about. Your cover should
say the words business plan and should include:

 Business name
 Business logo
 Product mark
 Address including: Location, telephone, fax, email and company website, etc
 Name of person who developed the business plan
 In which day, month and year plan is issued

Executive Summary/ (summary of a business plan)

 Description of the business

 History of the business
 Structure of the business
 Type of the business
 Mission and vision, goals and objectives
 Business competitive advantage
 Needs of the market the business intends to satisfy
 SWOT analysis of the business
 Type of business to be done
 the industry/market of the business
 the uniqueness of the products/services and what proprietary rights of the business
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  the current stage of development for the venture
 the legal form of the organization and why
 the key management personnel and what skills do they have that will help the business
 Projection of sales
 the break-even
 Who is requesting the funds
 For what purpose are the funds being requested
 the expected benefits of this investment to your company
 funds repayment
 collateral to be used to secure a loan
 the business financial milestones

The purpose of executive summary is to summarize the key points of a business plan for its readers,
saving them time and preparing them for the upcoming content. It gives an overview or summary
of all the other sections or key elements of the business plan.

It includes the following information: the name and location of the business

Production plan

Production plan is the guideline to create and monitor output of a product and how that output
affects other parts of a business plan such as marketing, sales and logistics.A production plan is
used to maximize the efficiency of company resources and to establish benchmarks for future
projects.

The production plan describes how production will be carried out in the business, the goods or
services that will be produced in the business. In your production plan, you should show the
following:

 Premises and plant location

 Equipment and machinery required
 Production process planning
 Raw materials
 Competing technologies
 Manufacturing and operations

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  Quality control and ongoing service:

Quality refers to the ability of a product or service to satisfy the needs of customer.

Quality control (QC) is a procedure or set of procedures intended to ensure that a manufactured
product or performed service follows to a defined set of quality criteria or meets the requirements
of the client or customer. At this point of planning as an entrepreneur you have to show:

Plan to avoid defects or imperfections of products

Monitoring or inspection that you intend to build into the production process

Strategies will you use to satisfy the customer changing preferences

The following methods can be used to control quality in the production process:

Selection of better raw materials.

Provision of a good storage for both raw materials and finished products.

Using production machines or equipment for reducing human errors.

Using skilled staff in production process.

Carrying out market research to know what consumers want.

Regular supervision of production process.

Employ quality controllers

 Labor requirements: Labors are the persons who work for the business in return for a
wage or salary. They may be skilled, semi-skilled and unskilled.
 Utilities and office consumables : The utilities or business support services are goods and
services which are needed to support the production process and operational business
Consumables needed in the production: Here an entrepreneur has to describe the utilities
and Consumables needed in the production such as electricity, water, telephone, transport,
communication, insurance, security, etc. Show their suppliers and costs.
 Packaging equipment required:

Packaging refers to the process of wrapping, crafting, filling or compressing of products to protect
them from spoilage, breakage, leakage, pilferage and contamination in the process of transit,
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storage and use. Packaging makes products easy to handle and also attractive to customers.The
entrepreneur should ensure that it easy to use, open, be of practical use and have instructions that
can easily be followed and understood. In this stage an entrepreneur shows the following:

Types of materials that you will use to package your product

When you are looking to package a product

You need to decide which type of material you will package your products in. This will depend on
the type of your products and how you want your product to be packaged. Types of packaging
materials include:

 Paperboard boxes
 Corrugated boxes
 Plastic boxes
 Rigid boxes
 Chipboard packaging
 Poly bags
 Foil sealed bags
 Suppliers

Marketing plan

 Market research (Customer description): Before you can begin marketing your product
or service, you have to know the type of customers you are trying to attract to your business.
 Market analysis

In writing up your market analysis, you will get to demonstrate the knowledge you have gained
about the industry, the target market you are planning to sell to, your competition, and how you
plan to make yourself stand out. Outline your target market by listing characteristics such as:

*Geographical location of the customers

List characteristics of your customers’ locations such as their country, state, county and zip code.
You can also identify consumers based on the characteristics of the area they live in, such as its
climate, the population density and whether it is urban, suburban or rural.

*The size of the different market segments?

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A market segment is a group of people who share one or more common characteristics, lumped
together for marketing purposes. Each market segment is unique, and marketers use various criteria
to create a target market for their product or service.

Market segmentation can help you to target just the people most likely to become satisfied
customers of your company or enthusiastic consumers of your content.

Types of Market Segmentation:

1. Demographic Segmentation

Demographic segmentation refers to splitting up audiences based on observable, people-based

differences. These qualities include things like age, sex, marital status, family size, occupation,
education level, income, race, nationality and religion.

2. Behavioral Segmentation

You can also segment your market based on consumers’ behaviors, especially regarding your
product. Dividing your audience based on behaviors they display allows you to create messaging
that caters to those behaviors. Many of the actions you might look at relate to how someone
interacts with your product, website, app or brand.

3. Geographic Segmentation

Geographic segmentation, splitting up your market based on their location. A customer’s location
can help you better understand their needs and enable you to send out location-specific ads.

There are several kinds of geographic segmentation. The most basic is identifying users based on
their locations such as their country, state, county and zip code. You can also identify consumers
based on the characteristics of the area they live in, such as its climate, the population density and
whether it’s urban, suburban or rural.

4. Psychographic Segmentation

Psychographic segmentation is similar to demographic segmentation, but it deals with

characteristics that are mental and emotional. These attributes may not be as easy to observe as
demographics, but they can give you valuable insight into your audience’s motives, preferences

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and needs. Understanding these aspects of your audience can help you to create content that
appeals to them more effectively. Some examples of psychographic characteristics include
personality traits, interests, beliefs, values, attitudes and lifestyles.That information can help you
pinpoint the most effective media to use when you are marketing to your target clients

 Competition analysis: Regardless of the size of the business, you likely have competitors
who offer products and services that are similar to what your business provides. There is a
need for every entrepreneur to identify who their competitor is, by name, listing the types
of products and services they offer, the types of customers they target and take note of the
tactics they use to attract and retain customers. This information will help him/her to
develop his/her own marketing strategies and tactics.

The SWOT of your competitors

SWOT Analysis of the business means:

STRENGTHS OF THE BUSINESS: are things within the business that give it advantage over
other businesses such as product quality; convenient and good location;qualified personnel,
good customer service, sufficient working capital, robust and adequate production capacity,
modern technology, skilled motivated staff, etc.

WEAKNESSES OF THE BUSINESS: are things within the business that limit its capacity and
competitiveness such as poor product quality, poor product image, insufficient working
capital, inadequate production capacity, having outdated technology, having unskilled staff,
small distribution network, etc.

OPPORTUNITIES OF THE BUSINESS: are things outside of the business that are likely to
benefit the business such as high population growth rate, international and national events,
invention of new technology, new favorable government policies, favorable changes in
consumer tastes and preferences, possibility of securing a big order, reduction in poverty levels,
etc.

THREATS TO THE BUSINESS: are things outside the business that are likely to negatively
affect the business such as entry of new competitors, political instability, world insecurity or
terrorism, increased taxation, unfavourable government policy, changing customer tastes
and preferences, etc.
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It is better to use their weakness to compete them; sometimes there are weaknesses in your
competitors that you can use to your benefit. Set strategy to address the threats

 Description of target market: The group of customers that made you to start your
business. A target market refers to a group of customers to whom a company wants to sell
its products and services, and to whom it directs its marketing efforts. Consumers who
make up a target market share similar characteristics including geography, buying power,
demographics, and incomes.
 Defining marketing objectives

Marketing objectives are goals set by a business when promoting its products or services to
potential consumers that should be achieved within a given time frame. The marketing section
should clearly indicate the objectives to be achieved. Some objectives a business predict to achieve
include:

 Market share: the percent of total sales in an industry generated by a particular company.
Increase Sales and/or Revenue: If you are selling products or services, you may want to
focus on selling more of those offerings. This is one of the marketing objectives that will
increase revenue and the amount of money coming into your business.
 Increase brand awareness: Brand awareness is the way in which consumers recognize
and remember your business. The greater the brand awareness you have, the more
audiences will be familiar with your logo, messaging, and products.
 Increase Profit: This marketing objective is different from increasing sales and revenue,
because you may increase your profit through means other than selling more. This
objective may include cutting expenses and overhead, selling more items that have higher
margins, or other changes that increase profit (which may not necessarily increase
revenue).
 Target New Customers: You may choose this goal if you already have a loyal client base
but would like to expand out and reach new audiences, customers, and clients.
 Retain Existing Customers: Rather than focus on new customer acquisition, you may
want to focus on keeping the existing customers you already have.
 Promote New Products or Services

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  If your upcoming plans include launching new offerings, your marketing objectives should
include promoting those new products and services.

NB: It is important to always ensure that your objectives are SMART. SMART stand for:
Specific, Measurable, Achievable, Realistic, Time-bound (in time)

 Market intermediaries : Marketing intermediaries, or distribution intermediaries,

are companies, organisations or individuals that assist manufacturers with operations to
distribute products to consumers. These firms typically specialise in one aspect of a
business's operations, such as logistics, marketing or product management.
 5ps of marketing mix: a combination of factors that can be controlled by a company to
influence consumers to purchase its products. Which are the following :
 Product
 Price
 Promotion
 Place
 People
 Developing market strategies: Marketing strategy is the comprehensive plan formulated
particularly for achieving the marketing objectives of the organization. In this part of
business plan, you can show:

Who will be the partners of your business?

How will you manage your customers?

How will you increase market share? Some types of MARKETING STRATEGY are the
following:

Niche Marketing: This marketing strategy targets a defined demographic, psychographic

and geographic market segment to become the market leader or specialist in a particular
product.
Social Media Marketing; With the increase in the use of social media, it is rapidly used
by the business organization to communicate with a large number of audience and convert
them into buyers.

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 Cross Promotion Marketing: Under cross-promotion marketing, one brand partners with
one or more non-competitive brand to target similar customers for entirely different
products. It is a strategy which is cost-efficient and extends the target market.
Trade Show Marketing: The trade show marketing strategy brings all the people dealing
in a particular industry under a single roof. It is one of the popular strategy opted by the
small organization to acquire bulk orders and meet new customers, vendors, partners, etc.
for the growth of the business.
Freebie Marketing:This marketing strategy psychologically influences the buyers by
giving out a low-value product as a gift with a high-value product. Getting something
additional or complementary enhances the satisfaction level of the customers.
 Ongoing market evaluation: Techniques used after the marketing plan period to analyze
success in achieving individual marketing objectives and to more broadly assess the entire
organization’s marketing efforts.In this part of planning, as an entrepreneur you show the
plan for:

What methods will you use to track customer satisfaction?

What methods will you use to track the effectiveness of your marketing activities?

What communication will you use to get feedback from customers?

 Elaborating marketing budget: What will be the cost of marketing activities? Marketing
budget gives a clear overview of all the costs associated with carrying out your marketing
activities, including advertising, online content, branding, public relations, staffing costs
and more. It can help you to avoid unanticipated costs and reducing the possibility of
overspending

Business staff plan

 Job analysis is a systematic exploration, study and recording the responsibilities, duties,
skills, accountabilities, work environment and ability requirements of a specific job

What are the business activities? When conducting job analysis, begin by understanding the
business activities and the requirements of the job need to be filled. What kind of personality,
experience and education are needed? To determine these attributes, sit down and do a job analysis
covering the following areas:
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 The individual tasks involved
The methods for completing each task
The purpose and responsibilities of the job
The relationship of the job to other jobs
Qualifications needed for the job
 Job description: What are the performance requirements to a specific task?Job description
is a document which states an overview of the duties, responsibilities and functions of a
specific job in an organization. While planning your business, writing a job description for
every position that you are planning is one of the most important steps that you should not
skip.

Benefits of a Job Description in a Business Plan

It helps you attract the right employees

It gives a detailed description of an employee’s job or position
It serves as a basis for outlining performance expectations, career advancement, job
training, and job evaluation
It provides a reference point for compensation decisions as well as unfair hiring practices.

A job description typically includes the following:

Job title
Job objective or overall purpose statement
Brief of the general nature and level of the job
Detailed description of the wide scope of the position
List of duties or tasks to be performed that are critical to success
Key functional and relational responsibilities (listed in order of significance)
Description of the relationships and roles within the company, including the supervisory
roles, subordinating roles, and other working relationships
Job requirements, standards, and specifications
Job location where the work will be performed
Equipment available to be used for the job
Salary range
 Job specifications:

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  Organizational structure: The organization plan shows how the business will be
organized. It shows the hierarchy of the staff?

An organizational plan contains the following:

State the legal structure of the business.

State the size and composition of a Board of Directors. Identify the proposed board
members and include a short statement about each member’s background. This should
show how relevant they are to the business.
The people in the organization. Present the key management roles in the business and the
individuals who will fill each position. State the current or past jobs that the key personnel
of the business have worked in before.
Describe the exact duties and responsibilities of every manager. For each individual,
include a brief statement of career highlights that focuses on his or her ability to perform
the assigned role. Explain how the business will be managed. Use an organization chart to
explain the organization structure.
Which people will supervise or manage other people?
Tasks and responsibilities of each worker.
Skills and experience required of each worker.
Staff costs: salary and any other cost attached to each employee.

Financial plan

 Estimating total cost (start-up costs, operating costs, administrative costs)

 Source of funds
 Projected cash flow Statement for the first three years.
 Projected Income: profit & loss statement for the first three years
 Projected balance sheet for the first three years.
 Calculation payback period
 Projected sales plan
 Loan payment plan

A financial plan is a document that describes your current financial status, your financial goals
and when you want to achieve them, and strategies to meet those goals. It shows if the business
will make profit,
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How much profit it will make and when it will make it. Most users of a business plan are interested
in knowing that. The financial plan shows the revenues and expenditures of the business. It should
contain the following:

A. Total cost

Total cost=variable costs+ fixed costs

 Start-up requirements plan

Before starting new business, you have to prepare start-up budget, which shows the expected
sources of money and how the money will be spent

A start-up budget is an itemized list of income and expenses for a new business, which often
covers the period up to commencing operations and perhaps a small amount of time after
operations have commenced. It shows:

Cost items (What are the cost items your business will need in its first year of implementation.

There is certain amount of money is needed during the start - up process of a business for payments
before the business begins, to earn its own income. This money is called start-up capital or start-
up costs. It has two types:

I. Investment capital or pre-operation payment: This means money that a person starting
a business will have to pay before his business starts operating. it is spent on buying land,
constructing a workshop, building a house for business, legal fees, water and electricity
connection, licenses fees and insurance fees, etc.
II. Working capital or initial operation payment: These are payments that take place when
the business starts to operate to cover immediate expenses until revenues from sales flow
back into the business.
B. Source of funds: what are the source of fund: Possible sources of funding include:
a) Own savings
b) Partners
c) Family contributions
d) Friends
e) Moneylenders
f) Credit cooperatives
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 g) Government schemes and bank loans.
C. Projected cash flow statement

Cash flow statement shows how finances (money) come in and out of the business. Using the cash
flow statement, you can project and foresee shortages in time and find solutions so that your
business does not get a cash crisis.

Under cash flows, we have the cash revenues (incomes/cash in) and cash payments
(expenditures/cash out). These are further explained below -Cash revenues: This is a list all of
the expected cash in (incomes) for each month in your financial year. For you to get the total cash
flows, you get the total cash in (revenue/incomes) and subtract total cash out
(payments/expenditures). The balance is your total cash flows. If your total payments are higher
than total incomes in other-wards you get a negative number after reconciliation, it means that you
do not have enough cash flow to run the business in that particular month.

Projected cash flow statement or Financial forecasts assist you to meet your business goals. They
are a future prediction of your business finances. Although predicting the future of your business
finances is not easy, especially if you’re starting a business, forecasting and making adjustments
frequently will enable you to become more accurate.

Cash XYZ LTD flow statement for two years

Details Year 1 Year 2

Cash inflows

Bal b/f 50,000,000 129,266,500

Bank loan 70,000,000 -

Income from 327,600,000 327,600,000

sales
Total cash inflows 447,600,000 456,866,500

Cash out flows

Interest on loan 11,200,000 8,960,000

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 Loan payment 14,000,000 14,000,000

Fixed costs 36,832,400 36,782,400

Variable costs 256,301,100 257,607,900

Total cash 318,333,500 317,350,300

outflows
Net cash position 129,266,500 139,516,200
If the cash flow plan shows that the business is likely to run out of cash during any of the
subsequent months, the entrepreneur can try taking the following measures:

Increasing cash inflow through:

• Increasing sales

• Giving less customer credit

• Using a bank overdraft

• Selling an investment item

• Asking a friend or family for money

Decreasing cash outflow through:

• Reducing operational costs

• Identifying a cheaper supplier

• Negotiating supplier credit

• Negotiating an extension of the loan period

D. Projected Income statement: Profit & Loss statement for the first three years

How your business will vary in term of income for 3 years

Trading, profit and loss statement/Income statement is a financial statement or report showing
the profit or loss for a business during a certain period, as well as the incomes and expenses that
resulted into this overall profit and loss.The amount of the profit or loss is computed based on the
formula: Revenue – Expenses = Profit/Loss.
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There are five specific steps to calculating the trading, profit and loss statements:

a) Sales or revenue: Including sales for cash and credit

b) Cost of goods sold: This is the price paid by the business for merchandise sold; it can be
computed by adding the value of the goods purchased during the period to the initial stock,
and then subtracting the value of the stock on hand at the end of the period.
c) Gross profit: Calculated by subtracting the cost of goods sold from sales.
d) Expenses: This includes labor costs and other costs of operating the business.
e) Net profit: Amount remaining when the expenses are deducted from the gross profit.

An example of an income statement

YOLAMU MULAKI
Trading and Profit and Loss account for the year ending 31 December 2004
Income Rw Rwf
Sales 789,300

Sales returns 15,300

Net income from sales 774,000

Less: Cost of sales
Openning Stock
54,000
Add: Purchases 351,900

carriage inwards 6,750

412,650

Purchase returns 14,400

Cost of Goods Available

for Sales
398,250
Less: Closing stock 102,150

Cost of goods sold 296,100

Gross Profit 477,900
Add: Other incomes

Discount received 15,750

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 Total income 493,650
Less: Operating
expenses Carriage
out
7,875
Discount allowed 12,600

Rent and rates 36,000

Wages and salaries
162,000

Printing and Stationery 33,300

Telephone and telegraph 5,625

Electricity 6,525

Water 1,575

Bank Charges 540

Insurance 16,200

Motor Expenses 25,200

General office expenses 19,350

Total Expenses 326,790

Net Profit 166,860

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Note: Net purchases = Purchases – Return outwards
Goods available for sale = Opening stock + Carriage + Net purchases
Cost of sales = Goods available for sale – Closing stock.
Gross profit = Net sales – Cost of sales.

E. Projected balance sheet for the first three years

*What will be the financial position of your business in the first three years
A balance sheet is a financial statement or report which indicates what you own and what you
owe on any given day in the life of a business.

The purpose of preparing the balance sheet includes the following:

To ascertain the nature and value of assets of a business
To ascertain the nature and amount of liabilities of a business
To find out the financial solvency of the business or enterprise. An enterprise is considered solvent
if its assets exceed the liabilities.
The balance sheet has two parties: the assets and liabilities.
a. ASSETS: They are resources or properties owned or possessed by a business that aid in
the generation of income or facilitate business operations. Assets are categorized according to their
nature into two major types:

•Current assets: These are assets that used in the period not later than one year. They include cash
at hand, cash at bank, debtors (what people owe you) and inventory or stock, etc.

•Fixed assets: These are possessions or properties that can be used or benefit the business for the
period beyond one year many and are not meant for sale. They include land, buildings, machinery
and equipment, motor vehicles, furniture, etc.

b. LIABILITIES: These are debts or amounts of money owed by the business to the
outsiders or simply the claims on the business by outsiders. They are financial obligations of the
business enterprise that must be repaid.They are what a company owes. Liabilities are classified
into two types:

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 i Current or short-term liabilities: These are liabilities payable with a short time, usually
one financial year or accounting period. Examples, trade creditors, bank overdrafts,
outstanding expenses, one-year short-term bank loans, VAT, etc.
ii Long-term liabilities: These are debts or financial obligations that are payable over a long
period of time, usually after one year. Examples include long-term bank loans, bonds,
debentures, mortgages, etc.

Owner’s equity is how much money company owners have invested in the business.

An example of a balance sheet

Assets liabilities

Fixed assets Capital

Land Long-term liabilities
Motor vehicle Bank loans
Equipment Current liabilities
Office furniture Trade creditors Accruals
Total fixed assets Total liabilities
Current assets
Stock
Debtors
Cash
Bank
Total current assets

Total assets Total liabilities and owner’s equity

E. Liquidity ratio

What is the business ability to pay its short-term obligations? These measure the ability of the
enterprise to meet its short term maturing obligations. Therefore, they assess the level of current
assets and current liabilities. These ratios include the following:

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CURRENT RATION= CURRENT ASSETS/ CURRENT LIABILITY

A high ratio means debtors, stock and cash are high. This shows an inefficient firm since funds is
not used. A low figure means the business is not able to pay the current liabilities and vice-versa.

F. Acid Test ratio

ACID TEST RATIO= CURRENT ASSETS - STOCK/ CURRENT LIABILITY

The interpretation is similar to current ratio although here the assets that are hard to realize are
removed, while calculating the acid test ratio inventories are excluded, Usually the ratio should be
around 1:1. This ratio is also known as the quick ratio.

G. Cash ratio

CASH RATIO= CASH + CASH EQUIVALENT/ CURRENT LIABILITY

It indicates the cash available to pay the liabilities. It is more refined since it assumes that debtors
may not pay their accounts on time and stock will take time to convert into cash.

H. Debt Equity ratio

This is the ratio of total debt to the total equity of the business. It measures the extent to which the
borrowed funds are covered by the business owners’ funds.

DEBT EQUITY RATIO= (Total liability/Toatal Equity) X 100

This ratio compares the amount invested by owners to that invested by other lenders. The higher
the ratio, the higher the financial risk and vice versa.

I. Return on investment ratio

Return on Investment (ROI) is a performance measure, used to evaluate the efficiency of an

investment or compare the efficiency of a number of different investments.

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment.
The result is expressed as a percentage or a ratio.

For example, suppose Izere invested 100,000Frw in Popcorn in 2014 and sold his shares for a total
of 120,000Frw one year later. To calculate his return on his investment, he would divide his profits
(120,000Frw – 100,000Frw = 20,000Frw) by the investment cost (100,000Frw),

ROI =20,000Frw /100,000Frw= 0.02 or 20%.

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ROI can help to answer questions like:

What is profitability percentages on business performance?

How efficiently the company will use their total assets base to generate sales

J. Breakeven point

*At which point your business, product will become financially viable?
Break-Even Point (BEP) is that point of sales volume at which total revenue is equal to total costs.
It is a no profit, OR no-loss point.

K. Payback period

*At which period the business will cover cash invested on its asset?
Payback period is the time in which the initial cash outflow of an investment is expected to be
recovered from the cash inflows generated by the investment. Payback period refers to the period
of time required to recoup the funds used in an investment, or to reach the break-even point. For
example, a 100,000Frw investment made at the start of year 1 which returned 50,000Frw at the
end of year 1 and year 2 respectively would have a two-year payback period.

The formula to calculate payback period of a project depends on whether the cash flow per period
from the project is even or uneven. In case they are even, the formula to calculate payback period
is:

Payback Period = Initial Investment ÷ Cash Inflow per Period

When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period
and then use the following formula for payback period:

Payback period= A+ (B / C)

In the above formula,

•A is the last period with a negative cumulative cash flow;
•B is the absolute value of cumulative cash flow at the end of the period A;
•C is the total cash flow during the period after A
Rule: Accept the project only if it’s payback period is less than the target payback period.

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Examples:

Example 1: Even Cash Flows

The enterprise C is planning to undertake a project requiring initial investment of 105,000,000Frw.

The project is expected to generate 25,000,000Frw per year for 7 years. Calculate the payback
period of the project.

Solution

Payback Period = Initial Investment ÷ Annual Cash Flow = 105,000,000Frw ÷ 25,000,000Frw =

4.2 years
Example 2: Uneven Cash Flows

Enterprise C is planning to undertake another project requiring initial investment of

50,000,000Frw and is expected to generate 10,000,000 in 1 st; 13,000,000Frw in 2nd,
16,000,000Frw in 3rd, 19,000,000Frw in 4th and 22,000,000Frw in 5th. Calculate the payback value
of the project.
(Cash flows in millions) Cumulative Cash Flow

Year Cash Flow

0 (50) (50)

1 10 (40)

2 13 (27)

3(A) 16 (11) B

4 19 (C) 8

5 22 30

Payback Period= 3 + ( |-11M| ÷ 19M)

= 3 + (11M ÷ 19M)

≈ 3 + 0.58≈ 3.58 years

. Projected sales plan

You should know the monthly sales of all products, product range or services. Estimating the sales
your business will generate over the forecast period can be difficult. If you are starting a new
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business, you can base your estimates on market research and industry benchmarks. For an
established business, take into account previous sales data over the same time period. You will
also need to consider the current market and other economic conditions.

• Loan payment plan

Loan payment plan is a plan for paying any outstanding debts. This is an agreement between a
creditor and debtor that allows the debtor to pay off a debt with more manageable payment plan.
Within a payment plan, the borrower agrees to pay back a certain amount of money each period
(often each month) to repay the debt.

Implementation plan

 Meaning of implementation plan

An implementation plan is a written document that outlines a team's steps to accomplish a goal or
project. Having such a document enables team members and key stakeholders to understand all
aspects of a project before executing it.

 Elements of implementation plan:

Often overlooked are the five key components necessary to support implementation:

People
Resources
Structure
Systems
Culture.

All components must be in place in order to move from creating the plan to activating the plan.

 Appendices (supporting documents): An appendix contains supplementary material that

is not an essential part of the text itself but which may be helpful in providing a more
comprehensive understanding of the research problem or it is information that is too
cumbersome to be included in the body of the paper.

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Description of business plan template

Title/cover Page
Executive Summary
Description of the business
Production plan
Marketing plan
Business staff plan
Financial plan

BUSINESS PLAN TEMPLATE REFERRING TO ITS COMPONENTS

A business plan is a comprehensive document that outlines your business idea, goals, strategies,
financial projections, and more. While the specific format of a business plan can vary depending
on your industry and audience, here is a general template to get you started:

Title Page

 Business Name
 Business Logo (if applicable)
 Your Name
 Contact Information
 Date

Table of Contents

List of sections with page numbers for easy navigation.

Executive Summary

 A concise overview of your business.

 Include your mission statement, business concept, and key highlights.
 Summarize the main points from each section of the plan.

Business Description

 Business Name and Legal Structure (e.g., LLC, Corporation)

 Business Concept and Objectives

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  Mission Statement
 Vision Statement
 History (if applicable)
 Ownership and Management Team

Market Analysis

 Industry Overview
 Target Market and Customer Segments
 Market Trends and Growth Potential
 Competitive Analysis
 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)

Products or Services

 Description of Products or Services Offered

 Unique Selling Proposition (USP)
 Pricing Strategy
 Product/Service Development and Lifecycle

Marketing and Sales Strategy

 Marketing Plan
 Advertising and Promotion
 Online Presence (Website, Social Media)
 Sales Channels (Retail, E-commerce, etc.)
 Sales Strategy
 Sales Team
 Sales Forecast
 Distribution Strategy

Operations and Management

 Location and Facilities (if applicable)

 Manufacturing or Production Process (if applicable)
 Suppliers and Partnerships
 Team Structure and Roles
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  Human Resources Plan
 Legal and Regulatory Considerations

Financial Projections

 Start-up Costs
 Sales Forecast
 Expense Forecast
 Cash Flow Statement
 Break-even Analysis
 Profit and Loss Statement (Income Statement)
 Balance Sheet
 Financial Ratios and Key Metrics

Funding Request (if needed)

 Specify the amount of funding required

 How the funds will be used
 Repayment Plan (if applicable)

Appendices

 Additional supporting documents (e.g., resumes of key team members, market research
data, legal agreements, etc.)

References

List of sources and references cited in the plan.

Remember to tailor your business plan to your specific business idea and audience. A well-written
and comprehensive business plan can be a valuable tool for securing funding, attracting partners
or investors, and guiding the growth of your business.

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LEARNING OUTCOME 2: WRITE A BUSINESS PLAN IN LINE WITH THE
IDENTIFIED ELEMENTS

A. Design of business plan introductory part

The business plan introduction contains a general overview of the business plan, including a brief
company description, goals and objectives and the purpose of starting the company. Additionally,
business plans usually answer the following questions: What does the business do? Why start this
business now?

Remember that the introductory section of your business plan should be engaging and concise. It
should give the reader a clear understanding of your business and make them eager to read the rest
of the plan in detail. It is often the first impression potential investors or partners will have of your
business, so make it count.

Here's a step-by-step guide on how to design the introductory section of your business plan:

Cover Page

Start with a professional-looking cover page that includes your company name, logo, contact
information, and the date of the business plan.

Table of Contents

Include a table of contents to make it easy for readers to navigate through your business plan.

Executive Summary

The executive summary is the most critical part of your introductory section. It should be a concise
(typically 1-2 pages) and compelling summary of your entire business plan.

Include key highlights of your business, such as your business concept, mission statement, goals,
and a snapshot of your financial projections.Highlight what makes your business unique and why
it's a viable opportunity.

Business Description

Provide a brief overview of your business, including its name, location, legal structure, and a brief
history (if applicable).Explain your business concept and what problem or need it addresses in the
market. Mention your mission and vision statements.
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Market Analysis

Briefly introduce the market you plan to enter.

Mention the size, growth potential, and trends in the industry.

Highlight key target customer demographics and their needs.

Competitive Analysis

Introduce your key competitors and their strengths and weaknesses.

Explain how your business will differentiate itself in the market.

Products or Services:

Provide an overview of your products or services.

Their unique features and benefits.

Mention any intellectual property or proprietary technology if relevant.

Business Goals and Objectives

Outline your short-term and long-term business goals.

Make them specific, measurable, achievable, relevant, and time-bound (SMART).

Team Overview

Introduce the key members of your management team.

Highlight their relevant skills, experience, and qualifications.

Briefly mention any advisors or mentors.

Financial Highlights

Provide a snapshot of your financial status, including current funding, sales figures (if applicable),
and financial milestones achieved.

Funding Requirements

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If you are seeking funding, briefly explain how much capital you need and how you intend to use
it.

Mention any existing investments or commitments.

Appendices (Optional)

If you have any supporting documents, such as resumes, market research data, or product images,
you can include them in the appendices.

B. Design of business production plan

A business production plan, often referred to as an operations plan, outlines the processes and
strategies your company will use to produce goods or deliver services efficiently. Here is how to
design an effective business production plan:

Introduction

Start with a brief introduction that explains the purpose of the production plan and its relationship
to your overall business strategy.

Production Process

Describe your production process in detail. Explain how your products or services are created or
delivered

 Include information on equipment, technology, and facilities needed for production.

 Highlight any unique or innovative aspects of your production process that give you a
competitive advantage.

Production Capacity

 Specify your production capacity, i.e., how much you can produce within a given
timeframe (e.g., daily, monthly, annually).
 Outline any plans for increasing production capacity as your business grows.

Inventory Management

• Explain how you will manage inventory, including ordering, storage, and tracking.
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 • Describe your approach to managing raw materials and finished goods.

Quality Control

 Detail your quality control procedures to ensure that products or services meet established
standards.
 Mention any certifications or quality assurance processes your business follows.

Suppliers and Partnerships

 Identify your suppliers and describe your relationships with them.

 Explain how you manage supplier relationships, including agreements, contracts, and
contingency plans.

Cost Analysis

 Provide a breakdown of production costs, including materials, labor, overhead, and any
other relevant expenses.
 Discuss cost-saving measures and strategies for cost control.

Production Schedule

 Create a production schedule that outlines production timelines, milestones, and key
deadlines.
 Show how your production schedule aligns with market demand and sales forecasts.

Workforce Planning

 Outline your staffing requirements, including the number and types of employees needed
for production.
 Explain your hiring and training processes.
 Discuss strategies for maintaining a skilled and motivated workforce.

Health and Safety

 Detail your health and safety protocols to ensure a safe working environment.
 Explain how you address potential risks and emergencies.

Environmental Sustainability

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  If applicable, discuss your commitment to environmental sustainability in production
processes.
 Highlight any eco-friendly practices or technologies you employ.

Contingency Plans

Describe your contingency plans for handling unexpected disruptions, such as supply chain
interruptions, equipment failures, or natural disasters.

Performance Metrics

 Identify key performance indicators (KPIs) that you will use to measure the success and
efficiency of your production operations.
 Discuss how you will track and analyze these metrics to make data-driven improvements.

Legal and Regulatory Compliance

 Highlight your adherence to relevant laws, regulations, and industry standards in your
production processes.
 Mention any permits or licenses required for your operations.

Conclusion

Summarize the key points of your production plan and emphasize your commitment to delivering
high-quality products or services efficiently and cost-effectively.Remember to tailor your
production plan to your specific industry and business needs. It should be a dynamic document
that you revisit and update regularly to adapt to changing market conditions and business growth.

C. Design of marketing plan

A marketing plan is a strategic document that outlines your company's marketing goals, strategies,
and tactics to promote your products or services effectively. Here's a structured approach to design
a comprehensive marketing plan:

1. Market Analysis

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  Describe your business, industry, and market. Include information about your target
audience, market trends, and competitive landscape.
 Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to assess your
company's internal and external factors.
2. Marketing Objectives
 Clearly define your marketing objectives. Make them specific, measurable, achievable,
relevant, and time-bound (SMART).
 Include both short-term and long-term objectives that align with your business goals.
3. Target Audience and Buyer Personas
 Provide detailed profiles of your target audience, including demographics, psychographics,
and behavior.
 Create buyer personas to humanize your ideal customers and tailor your marketing efforts
to their needs and preferences.
4. Competitive Analysis
 Analyze your competitors, including their strengths, weaknesses, strategies, and market
positioning.
 Identify opportunities to differentiate your brand and offerings.
5. Unique Selling Proposition (USP)
 Define your unique selling proposition, highlighting what sets your products or services
apart from competitors.
6. Marketing Strategies
 Outline your overarching marketing strategies, such as brand development, content
marketing, social media, email marketing, etc.
 Explain how each strategy will help you achieve your objectives.
7. Marketing Tactics
 Break down each marketing strategy into specific tactics. For example, if your strategy is
content marketing, tactics may include blogging, videos, or infographics.
 Specify the channels, platforms, and tools you will use for each tactic.
8. Budget Allocation:**
 Allocate a budget for each marketing tactic, detailing how much you plan to spend and the
expected ROI.
 Include both fixed and variable costs.
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 9. Marketing Calendar
 Create a marketing calendar outlining the timing and scheduling of your marketing
activities, campaigns, and promotions.
D. Development of business staffing requirement plan

Developing a business staffing requirement plan is a critical aspect of human resource management
that ensures an organization has the right people with the right skills in the right positions at the
right time to achieve its strategic objectives. Here's a step-by-step guide to help you create a
comprehensive staffing requirement plan:

Analyze Current Workforce

Evaluate your current workforce. Identify strengths, weaknesses, and any gaps in skills or staffing
levels. This analysis may involve:

 Reviewing job descriptions and roles.

 Assessing employee performance.
 Analyzing turnover rates.
 Identifying skill shortages.

Forecast Future Needs

 Predict the staffing needs of your organization based on the growth and goals outlined in
your business plan.
 Consider external factors like industry trends, market conditions, and regulatory changes
that may impact staffing requirements.

Job Analysis

Conduct a thorough job analysis for each role in your organization. Document the responsibilities,
required skills, qualifications, and performance expectations for each position.

Skill Gap Analysis

Identify skills and competencies required for each position. Compare these requirements to the
skills currently available in your workforce. This will help you identify gaps that need to be filled.

Recruitment Strategy

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Develop a recruitment strategy that outlines how you'll attract and hire the right talent. This may
involve:

 Job postings on various platforms.

 Employee referrals.
 Recruitment agencies.
 Campus recruiting.
 Social media recruitment.

Training and Development

Plan for training and development programs to bridge skill gaps within your current workforce.
Also, consider how you will onboard and train new hires effectively.

Succession Planning

Identify potential successors for key roles within your organization to ensure continuity in
leadership and critical positions.

Budget Allocation

Determine the budget required for staffing, including recruitment costs, salaries, benefits, training,
and other related expenses.

Hiring Process

Define a structured hiring process, including interview procedures, assessment tests, and reference
checks. Ensure that your process is legal and compliant with labor laws.

Diversity and Inclusion

Incorporate diversity and inclusion goals in your staffing plan to create a more diverse and
equitable workforce.

Legal Compliance

Ensure your staffing plan adheres to all relevant labor laws, regulations, and industry standards.

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Remember that effective staffing is an ongoing process that requires continuous evaluation and
adjustment to meet the changing needs of your business. A well-executed staffing requirement
plan can contribute significantly to your company's success and competitiveness.

E. Design of business financial plan

Creating a comprehensive business financial plan is essential for the success and sustainability of
any business. It helps you set financial goals, allocate resources effectively, and make informed
decisions about your company's future.Here's a step-by-step guide to designing a business financial
plan:

Executive Summary

Start with an executive summary that provides an overview of your business, its mission, and a
brief description of your financial goals and strategies.

Sales and Marketing Strategy

Outline your sales and marketing plans, including pricing strategy, sales channels, and customer
acquisition strategies. This section should also include sales forecasts.

Operational Plan

Describe your business operations, including location, facilities, equipment, and the production
process. Discuss any key suppliers or partnerships.

Management Team

Introduce your management team and their qualifications. Highlight any relevant experience and
roles within the company.

Financial Projections

This is the heart of your financial plan. It should include the following components:

Income Statement (Profit and Loss Statement)

Project your revenues, cost of goods sold, and operating expenses. Calculate your projected net
income.

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Cash Flow Statement

Create a cash flow projection that shows the flow of cash in and out of your business. Include
details about when you expect to receive payments and when you need to make payments.

Balance Sheet

Present a projected balance sheet that includes assets, liabilities, and equity. This gives a snapshot
of your company's financial health at a specific point in time.

Break-Even Analysis

Calculate your break-even point, which is the level of sales at which your business covers all its
costs. This helps you understand when you'll start making a profit.

Financial Assumptions

Clearly state the assumptions you've made in your financial projections, such as growth rates,
pricing, and cost estimates.

Funding Requirements

If you need external funding, specify how much you need and how you plan to use it. Discuss your
financing options, whether it's through equity investment, loans, or other sources.

Remember that a business financial plan is a dynamic document. It should serve as a roadmap for
your business and help you make informed financial decisions as your business grows and evolves.

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LEARNING OUTCOME 3: ESTABLISH BUSINESS CONTINGENCY PLAN

3.1 Explanation of business contingency plan concepts

3.1.1 Definition of business contingency plan:

A contingency plan is a proactive strategy that an organization or individual puts in place to prepare
for and respond to unexpected events or emergencies. These plans are designed to minimize
potential damage and disruption and ensure that essential functions can continue even in adverse
circumstances. Contingency planning is an essential part of risk management and business
continuity. Here are the key elements of a typical contingency plan

3.1.2.Purpose of contingency plan

A contingency plan serves several important purposes in various contexts, such as business,
disaster management, and project management. The main purposes of a contingency plan are as
follows:

Risk Mitigation: Contingency plans are designed to identify and address potential risks and
uncertainties that could disrupt operations or objectives. By having a plan in place, organizations
can reduce the negative impact of unexpected events.
Business Continuity: In the business world, contingency plans ensure that a company can
continue its essential functions and operations even in the face of disruptions, such as natural
disasters, cyberattacks, or economic crises. This helps maintain customer trust, revenue streams,
and employee morale.
Resource Allocation: Contingency plans outline the allocation of resources, including personnel,
equipment, and finances, during a crisis or emergency. This ensures that resources are used
efficiently and effectively to respond to and recover from adverse events.
Communication: Contingency plans include communication strategies that outline how
information will be disseminated to internal and external stakeholders during an emergency.
Effective communication is crucial for coordinating response efforts and managing public
relations.
Risk Assessment: Developing a contingency plan often involves a comprehensive risk assessment
process. This allows organizations to identify vulnerabilities, assess the likelihood and potential
impact of various risks, and prioritize mitigation strategies accordingly.
Compliance and Regulation: In certain industries, regulatory bodies require organizations to
have contingency plans in place to ensure compliance with safety, security, and disaster recovery
standards. Failure to comply with these regulations can result in legal and financial consequences.
Confidence Building: Having a well-thought-out contingency plan can boost confidence among
employees, customers, investors, and other stakeholders. Knowing that an organization is prepared
for emergencies can instill trust and loyalty.
Response Coordination: Contingency plans establish clear roles, responsibilities, and protocols
for responding to emergencies. This helps prevent confusion and chaos during a crisis and ensures
that response efforts are coordinated effectively.
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Learning and Improvement: After an emergency or crisis has been managed using a contingency
plan, organizations can conduct post-incident evaluations to learn from the experience. This
information can be used to refine and improve the contingency plan for future readiness.
Peace of Mind: For individuals and families, having a personal contingency plan for emergencies
like natural disasters or health crises provides peace of mind. Knowing what to do in advance can
reduce anxiety and improve personal safety.

In summary, contingency plans are proactive strategies that help organizations and individuals
prepare for and respond to unexpected events. They are essential tools for risk management,
business continuity, and maintaining stability in the face of uncertainty.

3.1.3 Importance of contingency plan

Planning is important for every aspect of life. It is crucial for a business because it can be great for
preventing risks. In simple words, contingency plans are backup plans that businesses activate only
when a disaster or unforeseen situation disrupts the operations of the company or put its employees
at risk.

The following are some importance of contingency plan:

Contingency plans increase flexibility

 Contingency plans reduce panic and promotes action

 Contingency plans help in minimizing losses
 Contingency plans help for a quicker reaction
 Contingency plans help for eliminating last minute comprehension
 Contingency plans increase insurance and credit credibility
 Contingency plans keep your business running
 Contingency plans improve your organization’s reputation
 Reduction of the risk of uncertainty
 Future is unpredictable. ...
 Continuity of Work.
 Increase of credit availability.
 Prevention of Panic

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3.2 Identification of business risks

3.2.1 Meaning of business risk:

Business risk refers to the potential for losses, disruptions, or adverse outcomes that a company
may face in its operations and decision-making processes. It encompasses a wide range of
uncertainties and factors that can impact a business's ability to achieve its objectives and generate
profits. Business risk can arise from various sources, including internal factors, external factors,
and strategic decisions.

Business risk is the exposure a company or organization has to factor(s) that will lower its profits
or lead it to fail. Anything that threatens a company's ability to achieve its financial goals is
considered a business risk

3.2.2. TYPES OF BUSINESS RISK

Financial Risk:

This type of risk relates to the company's financial stability and includes factors like debt levels,
liquidity, and market volatility. Financial risk can manifest as the inability to meet debt obligations,
loss of investment capital, or declining profitability.

Operational Risk

Operational risk arises from internal processes, systems, and human error. It encompasses the risk
of supply chain disruptions, equipment failures, production issues, and errors in management or
employee decisions.

Market Risk

Market risk results from external factors such as changes in economic conditions, consumer
preferences, competitive forces, and market trends. Businesses are exposed to market risk when
demand for their products or services fluctuates or when pricing and competitive pressures impact
profitability.

Regulatory and Compliance Risk

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Regulatory risk arises from changes in laws and regulations that can affect a company's
operations, compliance requirements, and potential legal liabilities. Failing to adhere to relevant
regulations can lead to fines, legal actions, or reputational damage.

Strategic Risk

Strategic risk involves decisions related to a company's long-term goals, business model, and
competitive positioning. Poor strategic decisions, market shifts, or unexpected events can expose
a business to strategic risk, leading to reduced market share or profitability.

Reputational Risk

Reputational risk pertains to damage to a company's brand and reputation. Negative publicity,
scandals, or unethical behavior can erode customer trust and lead to loss of business.

Cybersecurity Risk

With increasing reliance on digital technologies, businesses face the risk of cyberattacks and data
breaches. These incidents can result in financial losses, damage to reputation, and legal
consequences.

Environmental and Social Risk

Environmental and social factors, including sustainability concerns and corporate responsibility,
can impact a company's reputation and ability to operate in certain markets.

Natural Disaster and Geopolitical Risk

Businesses may face disruptions and financial losses due to natural disasters (e.g., hurricanes,
earthquakes) or geopolitical events (e.g., trade disputes, political instability) that affect their supply
chains or operations.

Pandemic Risk

Events like pandemics, as exemplified by COVID-19, can significantly disrupt business

operations, supply chains, and demand patterns, Assessing and managing these various types of
business risk is crucial for companies to make informed decisions, allocate resources effectively,
and implement strategies that mitigate potential negative outcomes. Risk management involves

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identifying, evaluating, and implementing strategies to mitigate or minimize these risks while also
considering the potential for risk-taking to drive innovation and growth.

3.2.3 Estimation of risks (Quantitative Qualitative)

Risk estimation tools (Risk impact chart, Probability chart)

Risk estimation tools are essential for assessing and managing risks in various domains, including
project management, finance, and decision-making processes. Two commonly used tools for risk
estimation are:

Risk Impact Chart

The Probability Chart.
A. Risk Impact Chart (also known as Risk Matrix)

Purpose:

The Risk Impact Chart helps assess the potential consequences or impacts of identified risks. It
combines the likelihood (probability) of an event occurring with its potential impact to provide a
visual representation of the overall risk level.

Components

 Likelihood/Probability Axis

This axis typically ranges from low to high or uses a numerical scale to represent the probability
of a risk event occurring. It can be expressed as percentages, fractions, or qualitative terms like
"low," "medium," or "high."

 Impact Axis

This axis represents the potential consequences or impact of a risk event. It can be categorized into
various levels, such as negligible, minor, moderate, major, or catastrophic.

How to Use

 Risks are plotted on the chart according to their assessed probability and impact levels.
 Risks in the high-probability and high-impact quadrant are considered top priority and
require immediate attention and mitigation.
 Risks in other quadrants are managed according to their relative positions on the chart.
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 B. Probability Chart (also known as Probability Distribution)

Purpose

The Probability Chart is used to visualize the probability distribution of outcomes or events. It is
particularly useful in scenarios where there is uncertainty about the likelihood of different
outcomes.

Components

X-Axis

Represents the possible outcomes or events, typically on a numerical scale.

Y-Axis

Represents the probability or likelihood of each outcome occurring.

How to Use

 The chart is populated with data that describes the likelihood of each possible outcome.
 It can take various forms, including histograms, bar charts, or probability density functions.
 By examining the chart, decision-makers can gain insights into the range of potential
outcomes and their associated probabilities.

These two tools are often used in conjunction with each other and with other risk management
techniques. The Risk Impact Chart helps prioritize risks based on their potential consequences,
while the Probability Chart provides a deeper understanding of the likelihood of different
outcomes, which is critical for making informed decisions and developing risk mitigation
strategies. Additionally, they can be integrated into a broader risk management framework that
includes risk assessment, risk response planning, and ongoing monitoring and control of risks.

3.2.3 Assessment of business risks associated to the business

Meaning of risk assessment

Risk assessment is a systematic process of evaluating and analyzing potential risks or uncertainties
that could affect an organization, project, activity, or individual. It involves identifying, assessing,
and prioritizing these risks to make informed decisions about how to mitigate or manage them
effectively
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Risk assessment is widely used in various fields, including business, finance, healthcare, project
management, and environmental planning, among others. It helps individuals and organizations
proactively address potential challenges and uncertainties, reduce vulnerabilities, and improve
their ability to achieve their goals while managing risk effectively.

Tools of risks assessment

A. SWOT Analysis

SWOT analysis is a strategic planning tool used by individuals, organizations, and businesses to
assess their current position and plan for the future. The acronym "SWOT" stands for Strengths,
Weaknesses, Opportunities, and Threats.

1. STRENGTHS

Strengths are internal attributes and characteristics that give an individual, organization, or
business an advantage over others.

These are things that are done well or resources that can be leveraged. Identifying strengths helps
an entity understand what it excels at and what it can build upon. Examples of strengths might
include a strong brand reputation, skilled workforce, proprietary technology, or efficient processes.

2. WEAKNESSES

Weaknesses are internal factors that hinder(make it difficult for) an individual, organization, or
business from performing at its best. Recognizing weaknesses is essential for addressing areas that
need improvement. Common weaknesses might include outdated technology, lack of key skills,
poor financial management, or inefficient processes.

3. OPPORTUNITIES

Opportunities are external factors and situations that can be leveraged to the advantage of an
individual, organization, or business. These are external trends or developments that can be
capitalized on. Identifying opportunities helps an entity stay proactive and forward-thinking.
Opportunities can include emerging markets, changing consumer preferences, technological
advancements, or gaps in the competition.

4. THREATS

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Threats are external factors that can potentially harm an individual, organization, or business.
These are external challenges or risks that need to be monitored and managed. Recognizing
threats allows an entity to prepare for potential obstacles and mitigate risks. Threats may include
economic downturns, intense competition, regulatory changes, natural disasters, or
cybersecurity threats.

B. PESTEL analysis

A PESTEL analysis is a framework used by businesses and organizations to assess and analyze
the external macro-environmental factors that can affect their operations and decision-making.
PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal
factors. By examining these factors, organizations can gain a better understanding of the
opportunities and threats in their external environment. Here's a brief overview of each component
of PESTEL analysis:

 Political Factors:

These factors refer to the influence of government and political institutions on businesses and
industries. They can include government stability, policies, regulations, taxation, trade tariffs,
and political stability. Understanding political factors helps businesses anticipate potential
changes in regulations and government actions.

 Economic Factors:

Economic factors relate to the state of the economy and its impact on business operations. Key
elements include economic growth, inflation rates, exchange rates, interest rates, and
unemployment rates. Economic factors can affect consumer spending, demand for products and
services, and overall business profitability.

 Social Factors:

Social factors encompass the societal and cultural influences that affect businesses. These factors
include demographic trends, consumer attitudes and behaviors, lifestyle changes, cultural
norms, and social values. Understanding social factors helps companies adapt their products and
marketing strategies to changing consumer preferences.

 Technological Factors:

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Technological factors involve advancements in technology and their impact on industries. This
includes innovation, research and development, automation, and the rate of technological
change. Staying aware of technological trends is essential for companies to remain competitive
and efficient.

 Environmental Factors:

Environmental factors pertain to the impact of environmental issues and sustainability concerns
on business operations. These can include climate change, environmental regulations, resource
scarcity, and the growing demand for sustainable practices. Organizations need to consider their
environmental footprint and how it aligns with societal expectations

 Legal Factors:

Legal factors refer to the laws and regulations that affect businesses. These can include labor
laws, consumer protection laws, industry-specific regulations, intellectual property laws, and
health and safety regulations. Companies must ensure they comply with all relevant legal
requirements to avoid legal issues and penalties.

PESTEL analysis is a valuable tool for strategic planning and risk assessment. It helps
organizations identify potential opportunities and threats in their external environment, allowing
them to make informed decisions and develop strategies that align with the prevailing macro-
environmental conditions.

C. Risk matrix

A risk matrix, also known as a risk assessment matrix or risk heat map, is a visual tool used to
assess and prioritize risks based on their likelihood and impact. It is commonly used in risk
management to help organizations make informed decisions about how to allocate resources and
prioritize actions to mitigate or respond to risks.

A risk matrix is a valuable tool for communication and decision-making because it allows
stakeholders to quickly grasp the relative importance of different risks and prioritize their efforts
accordingly. However, it's essential to note that the effectiveness of a risk matrix depends on the
accuracy of the assessments made regarding likelihood and impact, and it should be used in
conjunction with a broader risk management framework to ensure comprehensive risk
management.
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 D. Decision tree

A decision tree is a graphical representation and a popular machine learning algorithm used for
both classification and regression tasks. It is a supervised learning technique that can be used for
predictive modeling and data analysis. The decision tree algorithm works by recursively
partitioning a dataset into subsets based on the values of input features, ultimately leading to a
tree-like structure where each internal node represents a decision based on a feature, and each leaf
node represents the outcome or prediction.

Here are some key components and concepts associated with decision trees:

Root Node

The top node of the tree, representing the initial decision or feature to split the data on. It contains
the entire dataset.

Internal Nodes

Nodes in the tree that represent decisions based on a feature's value. Internal nodes split the data
into subsets based on these decisions.

Branches

The edges that connect nodes in the tree, indicating the possible outcomes or paths based on the
feature's value.

Leaf Nodes

The terminal nodes of the tree that do not split further. They represent the final predicted outcome
or class.

Splitting Criteria

The criteria used to decide how to split the data at each internal node. Common criteria include
Gini impurity for classification tasks and mean squared error for regression tasks.

Pruning

The process of reducing the size of a decision tree to prevent overfitting by removing branches
that provide little predictive power.

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Decision Rules

The rules derived from the tree structure that allow you to make predictions or decisions based on
new, unseen data.

Decision trees are easy to interpret and visualize, making them a valuable tool for understanding
the relationship between input features and the target variable in a dataset. However, they can be
prone to overfitting if not properly pruned or if the tree becomes too deep and complex. Various
algorithms, such as CART (Classification and Regression Trees) and ID3 (Iterative Dichotomiser
3), are used to build decision trees. Additionally, ensemble methods like Random Forests and
Gradient Boosting are often employed to improve predictive accuracy and reduce overfitting when
using decision trees in practice.

E. Failure modes and effect analysis (FMEA)

Failure Modes and Effects Analysis (FMEA) is a structured and systematic approach used in
various industries, including manufacturing, engineering, healthcare, and aviation, to identify and
prioritize potential failure modes of a system, process, product, or service, and their associated
effects. The primary goal of FMEA is to proactively identify and mitigate risks to improve the
reliability, safety, and quality of the system or process.

FMEA involves the following key steps:

Scope Definition

Define the scope of the analysis, including the boundaries of the system or process being evaluated.

Assemble a Cross-Functional Team

Bring together a team of experts from various disciplines, such as engineering, operations, quality
assurance, and maintenance, to ensure a comprehensive assessment.

Identify Failure Modes

List all possible failure modes that could occur within the system or process. A failure mode is a
specific way in which a component or process can fail.

Determine Effects

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For each identified failure mode, assess the potential consequences or effects on the system,
process, or end-users. This may include safety risks, quality issues, reliability concerns, and
financial impacts.

Assign Severity Ratings

Assign a severity rating to each failure mode's potential effects. The severity rating typically
follows a scale (e.g., 1 to 10), where higher values indicate more severe consequences.

Identify Causes

Determine the root causes or mechanisms that could lead to each failure mode. Understanding the
causes is essential for developing effective mitigation strategies.

Assign Occurrence Ratings

Assess the likelihood or probability of each failure mode occurring. This rating often uses a scale
(e.g., 1 to 10), where higher values indicate a higher likelihood of occurrence.

Assign Detection Ratings

Evaluate the ability of the current system or process to detect each failure mode before it reaches
the end-user. This rating assesses the effectiveness of existing controls and detection mechanisms.

Calculate Risk Priority Numbers (RPN)

Calculate the RPN for each failure mode by multiplying the severity, occurrence, and detection
ratings (RPN = Severity × Occurrence × Detection). This numerical value helps prioritize which
failure modes to address first.

Prioritize Actions

Prioritize the identified failure modes based on their RPN values. High RPN values indicate higher
priority for mitigation efforts.

Develop Action Plans:

Create action plans to mitigate or reduce the risk associated with the high-priority failure modes.
These plans may include design changes, process improvements, enhanced testing, or other
corrective actions.

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Implement and Monitor

Execute the action plans, track their progress, and monitor the effectiveness of the implemented
changes. Continuously review and update the FMEA as new information becomes available.

FMEA is a dynamic process that should be revisited periodically to account for changes in the
system, process, or external factors. It is a valuable tool for risk management, quality improvement,
and enhancing the reliability and safety of products and processes.

F. Bowtie model

The Bowtie Model is a risk assessment and management tool used primarily in the fields of safety
and risk analysis, especially in industries where there are high risks and potential catastrophic
events. It is a visual representation that helps organizations understand and manage complex risks
associated with various processes, systems, or activities.

The Bowtie Model gets its name from its visual representation, which looks like a bowtie, with
the central knot representing the hazard or undesired event, the left side representing the causes or
threats that can lead to the hazard, and the right side representing the consequences or outcomes
that can result from the hazard.

Here's a breakdown of the components of the Bowtie Model:

Hazard (Central Knot)

This is the undesired event or situation that is the focus of the analysis. It represents the primary
risk or danger that needs to be managed.

Threats (Left Side)

On the left side of the bowtie, you identify the potential threats or causes that could lead to the
hazard. These are events, conditions, or actions that can trigger the undesired event.

Consequences (Right Side)

On the right side of the bowtie, you list the potential consequences or outcomes that can result
from the hazard. These consequences can be categorized into primary, secondary, and tertiary
effects, depending on their relationship to the hazard.

Controls (Barriers)
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In the space between the threats and consequences, you identify controls or barriers. These are
preventive or mitigative measures put in place to reduce the likelihood of a threat leading to the
hazard and to minimize the severity of the consequences if the hazard occurs.

Escalation Factors (Top of the Bowtie)

Above the bowtie, you can identify escalation factors or influencing elements that can affect the
likelihood or severity of the hazard. These can include organizational factors, external factors, or
conditions that can impact the overall risk.

The Bowtie Model allows organizations to visualize and assess risk scenarios
comprehensively. It helps in:

Identifying potential hazards and their causes.

Evaluating the effectiveness of existing controls and barriers.
Identifying gaps in risk management.
Prioritizing risk mitigation efforts.
Communicating complex risk scenarios to stakeholders.

By using the Bowtie Model, organizations can develop and refine their risk management
strategies, ensuring that they have appropriate measures in place to prevent, mitigate, or respond
to critical incidents and minimize their impact. It is often used in industries such as aviation,
healthcare, oil and gas, chemical manufacturing, and others where safety and risk management are
paramount.

3.2.4 Development of contingency plan

Steps of contingency planning

Make list of risks

Employable Skills for Sustainable Job Creation
WEIGH risks based on severity and likelihood
Identify important risks
Create contingency plan for the biggest risk
Get approval for your contingency plan
Distribute contingency plan
Monitor contingency plan
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 Create new contingency plan if necessary

LEARNING OUTCOME 4: PRESENT A BUSINESS PLAN

4.1 Purpose of business plan presentation

Financing support:

Having a business plan gives you a much better chance of getting the money you need to keep
operating or to expand. You’re going to need both operating and start-up capital to start a new
business and you have no hope of getting any money from established financial institutions such
as banks without a well-developed business plan. One of the first things private investors, banks
or other lenders look for before investing in your business is a well-researched business plan.
Investors want to know how you operate your business, what your revenue and expense projections
are and, most importantly, how they will receive a return on their investment.

Strategic orientation:

Attracting investor:

One of the first things private investors, banks or other lenders look for before investing in your
business is a well-researched business plan. Investors want to know how you operate your
business, what your revenue and expense projections are and, most importantly, how they will
receive a return on their investment.

Communication: The primary purpose of a business plan presentation is to effectively

communicate your business concept, vision, and strategy to potential investors, partners, lenders,
or other stakeholders. It allows you to present your ideas in a clear, concise, and compelling
manner

Marketing and Promotion: In some cases, a business plan presentation may be used as a
marketing tool to attract customers, clients, or partners. It can showcase your business's unique
value proposition and competitive advantage

Resource Allocation: A well-structured business plan presentation helps in resource allocation.

It allows you to identify the financial and operational resources required to execute your business
plan effectively.
4.2 Types of business plan presentation preparation
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 i. Content preparation :
ii. Material preparation
iii. Psychological preparation
OTHERS
Here are several types of business plan presentations and how to prepare for each:
1. Investor Pitch Presentation:
Audience: Venture capitalists, angel investors, or potential equity investors.
Purpose:To secure funding for your startup or growth initiative.
Preparation: Focus on demonstrating the market opportunity, your team's qualifications, and the
potential return on investment. Highlight your unique value proposition and the scalability of your
business.
2. Lender or Bank Presentation
Audience: Bank loan officers or lenders.
Purpose: To secure a business loan or credit line.
Preparation: Emphasize your business's financial stability, cash flow projections, and your ability
to repay the loan. Include details about collateral if required.
3. Internal Team Meeting Presentation
Audience: Your company's management team, employees, or department heads.
Purpose: To align your team with the company's goals and strategies.
Preparation: Focus on the strategic direction of the company, operational plans, and how each
team's efforts contribute to achieving overall objectives. Emphasize roles and responsibilities.

4. Strategic Partnership Presentation

Audience:business partners or collaborators.
Purpose:To explore mutually beneficial partnerships or collaborations.
Preparation:Highlight how the partnership can create value for both parties, including shared
goals and benefits. Be prepared to discuss the terms and conditions of the partnership.
5. Customer or Client Presentation
Audience: Potential customers or clients.
Purpose: To showcase your products or services and persuade them to buy.

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Preparation: Focus on the benefits of your products or services, how they solve the customer's
problems or fulfill their needs, and why your offerings are superior to competitors.
6. Board of Directors Presentation
Audience: Members of the board of directors.
Purpose: To provide updates on company performance, strategic initiatives, and seek approval for
key decisions.
Preparation:Include financial reports, key performance indicators (KPIs), strategic goals, and any
major decisions or recommendations that require board approval.
7. Nonprofit or Social Enterprise Presentation:
Audience: Donors, philanthropic organizations, or grant committees.
Purpose:To secure funding or support for your nonprofit or social enterprise.
Preparation: Emphasize the social impact of your organization, your mission, and how donations
or grants will be used to make a difference.
In all types of business plan presentations, it's crucial to be concise, clear, and engaging. Use
visuals, such as charts and graphs, to support your points, and practice your presentation to ensure
a smooth delivery. Additionally, be prepared for questions and have supporting documents ready
for reference, such as financial statements, market research data, and business plans.
4.3. Steps involved in preparation of business plan presentation
Analyse your audience
Select topics
Define the objective of the presentation of business plan.
Prepare the body of the business plan to be presented and anticipate the questions from
audience
Prepare the suggestions and conclusion.
Deliver the presentation of business plan
4.4 Explanation of different ways to present the business plan
4.4.1 Parties to present the business plan:
Shareholders
Stakeholders
4.4.2 Procedures involved in business plan presentation
 Connect with your audience
 Paint a picture in your audience’ minds
 Put credibly content
 Use statistics and data

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4.4.3 Presentation of business plan
Techniques to present your business plan

 Only write key points

 Don’t read them
 speak about them
 Use visualization, pictures, symbols, colors, tables
 Be short, concise,
 Come to the point, not more than 10 min.
 React positive to questions
 Use body language, voice, appearance
 Try to convince
 Integrate comments, suggestions and remarks in the business plan
 Plan to maintain and enforce relationship with stakeholders (audience) for further
 Collaboration

References:

1. Omagor, P. a. (2010). Entrepreneurship education for advanced level students.

2. Ssempijja, M. (2011). Entrepreneurship education for advanced level and business

institutions, third edition. Uganda: Kyambogo University.

3. SANGSTER, F. W. (2005). Bussiness accounting, tenth edition. UK: Pearson Education Limited.

4. Read more: http://www.businessdictionary.com/definition/breakeven-point.html

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