Monday 2 May 2022

Business idea, drawing up a business plan


Business idea

The decision to start a business or continue it on the basis of a new business idea implies the need to answer five main and interrelated questions:

1. What exactly to produce (what service to provide)?

2. For whom to produce, that is, who should be considered as consumers?

3. How to produce, on the basis of what technologies?

4. How much to produce, so that it is bought?

5. At what price to sell?

The question of what to produce directly relates to the generation of an entrepreneurial idea.

The answer to the question about the target group of consumers is very important initially, since many other questions are most closely related to its characteristics or features. Much is determined by what consumers' preferences are regarding, for example, quality, packaging, consumption methods, awareness, availability of substitute goods, the ability to pay for a purchase, etc.

One can imagine that the selected technologies and production volumes largely depend on what the consumers of this product represent.

Just as consumers influence the size of the selling price, so technologies and production volumes form the level of costs of the enterprise. In turn, prices and costs determine the profitability of the business, its ability to survive and develop.

Generating an entrepreneurial idea

An entrepreneurial idea can arise both spontaneously and as a result of purposeful analysis. The fact of the spontaneous birth of an idea is a kind of "insight" when an idea of the possible nature of the business appears in an entrepreneur without visible logical grounds. This often hides observations, life and professional experience, etc. Insight is not often found and therefore seems insufficiently productive, although it surprises with the boldness and novelty of ideas.

Other situations of generating an entrepreneurial idea are market pressure and leaps in technology development.

Market pressure means a situation of unsatisfied demand for a certain product or service. In any case, the entrepreneur must present the reasons for this. Attractive for future business is the demand, stable in the rather distant foreseeable future.

The worst option seems to be seasonal demand or demand caused by a temporary change in consumer preferences. The latter options suggest the need to provide in the business plan for possible fluctuations or reductions in sales volumes.

Leaps in the development of technology are a source of formation of entrepreneurial ideas, when, as a result of technological progress, scientific and technical solutions appear that can form the basis of new products or production processes.

Speaking about the formation of an entrepreneurial idea, one should not discount the simple desire of an entrepreneur to start a business or develop an existing one. In addition to the above, the content of the process of forming an idea can be an imitation or repetition of someone else's experience. An example of such a "repetition" is the acquisition of a franchise (franchising) or, in fact, the right to use an already developed technology, a trademark, a circle of suppliers, etc.

An entrepreneurial idea may consist in the desire to occupy a certain free niche of the market for a particular product.

Basic requirements for the business idea

Whatever circumstances have an impact on the actual conduct of business, it is always based on the idea of business. There are some requirements for the formulation of the idea:

1. The business idea should be focused on a specific group of consumers. This allows you to take into account the needs of the market and take a strong position on it.

2. It should focus on satisfying the most constant need possible or provide for the possibility of further business development in the direction of improving the product, producing a new, territorial expansion of business, including the interests of new groups of entrepreneurs in the orbit, etc.

3. A product (or service) that is supposed to be produced, as the core of an entrepreneurial idea, should "close" a certain unoccupied niche of the market. Otherwise, from the moment of the beginning of the functioning of the enterprise, there will be a need to counteract competitors. This will divert additional resources, reducing the efficiency of activities.

4. The idea must be implemented technically, which means not only access to the markets of raw materials, materials, components. It is also important to provide production with the necessary equipment and to create conditions that meet production standards. Of particular importance is the qualification of personnel, managerial and technological culture.

Meeting these requirements will allow you to deliberately avoid significant mistakes and create the basis for a long and successful entrepreneurial activity.

Business plan

In order to understand why a business plan is needed and in what order it is drawn up, you should determine the very concept of this commercial definition.

A business plan is a step-by-step instruction for opening a new commercial project with a description and enumeration of the methods and means used in the process of achieving the intended goal.

With its help, the entrepreneur is able to identify all the possibilities of risks, as well as ways to reduce them and reduce the impact on business development.

Thanks to the preparation of a business plan, the entrepreneur can predict the total amount of capital investment and the required amount of start-up capital before the start of the project. In addition, with the help of a well-written business plan, the chances of additional financing of the project at the expense of third-party investors increase.

 The need for a business plan arises when solving such urgent problems as:

- opening a new business, determining the profile of the future company and the main directions of its commercial activities;

- re-profiling of an existing company, selection of new types, directions and methods of commercial operations;

- development of promising projects;

- preparation of applications of existing and newly created firms for loans;

- substantiation of proposals for privatization of state-owned enterprises;

- preparation of prospectuses of securities (shares and bonds) of privatized and private firms;

- entering the foreign market and attracting foreign investment.

Drawing up a business plan

Competent design

Of great importance should be devoted to the design of the business plan, as this plays an important role in the decision of investors to finance the project. Registration of a business plan implies:

  • cover on corporate paper, containing the logo of the company;
  • design in a folder on a spring and with a transparent cover;
  • end-to-end page numbering throughout the document.
  • the sheets of the business plan are printed only on one side;
  • Using Only Times New Roman and Arial fonts, size 12-14, for text.
  • highlight headings and subheadings;
  • registration of the title page indicating the main details of the organization - name, legal address, telephone numbers, e-mail box, contact person.
  • the next page after the cover page should be the contents of the business plan with the page number on which each title of the document begins. 

There is no specific template according to which the content of any business plan is drawn up due to the diversity of types of commercial activities and the specifics of each specific type. However, there are also common for all types of management points of content of the business plan, which must be consecrated. These include:

 1. Brief description of the project

 In this paragraph, in a concise and concise, however, in the most interesting form for the investor, the project for opening a specific type of business is described, the goals and objectives of the project are highlighted, production volumes and turnover are predicted, the projected main economic indicators are given:

  • sales volume;
  • profitability of the project;
  • the amount of net profit;
  • the amount of capital investments;
  • payback period and so on.

As a rule, a brief description is made after writing the entire business plan and making the appropriate calculations, in order to cover all the key points of the project as accurately as possible and present them in a favorable light for investors. Since all experienced investors first of all read a brief description of the project.


2. Market research

As part of the description of this item, it is necessary to disclose the situation developing in the selected market segment, as well as to characterize the main opportunities and prospects for the development of this project. First of all, such a characteristic of market conditions is given for the acquaintance of the investor with them, since it is not at all necessary that this investor is knowledgeable in the conditions of a specifically selected market segment.

In addition, a detailed description of the target audience of the opening business should be given. It should be segmented according to certain characteristics:

  • geographical location;
  • demographic data;
  • type of consumer behavior;
  • the type of user behavior
  • income level and so on.

Also in this section should be predicted possible changes in the market situation, as well as identify trends and factors that can affect the successful course of commercial activities.

 3. Characteristics of goods or services

This section gives a detailed description of the products or services produced, describes the advantages of use. If there are patents for any products or services, then this fact must be indicated.

 4. Ways to promote business

This item of the business plan deals with pricing issues, it describes the ways to promote the project in the market segment, outlines the ways of selling products and indicates marketing moves to promote services on the market.

 5. Description of the production process

This paragraph of the business plan provides a detailed description of the premises for the placement of the business, the equipment used and the need to involve resources and working capital in the production process. A description of the production technology, as well as the scheme of its implementation, should also be given.

A calendar plan for opening and starting a business is drawn up before it reaches the payback of the invested funds.


6. Structure of the enterprise. Management. Personnel

This paragraph indicates the organizational and legal form of the organization, describes the distribution of responsibilities between the services within the enterprise and the directions of their interaction. For greater clarity of the description, schemes can be used.

As part of the description of the second subparagraph, the characteristics of the head of the opening business, his duties, functions, as well as a brief biography and work experience are given.

The third subparagraph defines the staff, the duties of each member of the team, the professional requirements for him, the level of wages of all personnel is appointed.

 7. Risk assessment and ways to reduce them

In this paragraph of the business plan, you should list all the risks that are likely to arise in the process of conducting commercial activities, as well as identify ways to reduce or prevent them.

If risk insurance is planned, the sum insured and the types of risks to which it will apply must be indicated.

 8. Forecasting of financial flows of the project

This item of the business plan involves the preparation of predicted financial statements of the opening enterprise, including:

  • balance;
  • profit and loss statement;
  • cash flow statement;
  • achieving the break-even point and payback of the project in terms of time;
  • the size of investment investments;
  • calculations of profit and profitability of the project.


9. Applications

This item includes all additional materials used in the process of drawing up and calculating the business plan. Such materials may be:

  • schemas;
  • graphs;
  • photographs;
  • copies of contracts and agreements;
  • clippings from information sources;
  • biographies
  • reports and so on. 

The purpose of a business plan is to solve at least four fundamental tasks:

- determine the prospects for the development of the future market for products and services;

- assess the costs that will be necessary for the manufacture of products and the provision of services, as well as for their marketing; compare the costs of provisioning and income from the implementation, thereby determining the potential profitability of the business project;

- identify project risks and propose measures to minimize them;

- define criteria and indicators that characterize the success of the project. 

The purpose of the business plan can be to determine the strategic and tactical directions and guidelines of a small enterprise in the economic space or to attract potential investors and partners to participate in projects, i.e. the plan can be developed for use inside and outside the company.

Using the plan outside the company:

- obtaining a bank loan;

- receiving investments;

- creation of strategic alliances;

- obtaining a large contract;

- obtaining advice from consultants, lawyers, representatives of state bodies or non-governmental organizations.

Using the plan within the company:

- creation of a business;

- development of an existing business (expansion of existing directions or creation of a new direction; use of a business plan as a tool for analysis and management).

After completing the work on the plan, it is necessary to look at it critically (whether the main provisions are clear, whether it is real), simulate possible changes in the business (assess the best and worst scenarios for the development of the situation), create a contingency plan, form an action plan (distribute responsibilities, clarify dates).

No comments:

Post a Comment