Understanding Business Plans: Content and Purpose

It is a necessity for a business venture to come up with a well-established business plan. This document highlights goals, a range of operations to be undertaken, and the operational strategies to employ in the execution of the functions (Abdullah 2020). Additionally, the plan enables aspiring entrepreneurs to maneuver various stages of business development. Such a document includes the following key components:

Executive Summary: This includes a comprehensive overview of the business history, ranging from its founders, mission, vision, and goals. It also captures the opportunity that the venture to be conceived identified and the competitive edge that the firm will capitalize on (Abdullah 2020).

Business Description: This section of the plan tables the range of the products or services the business will offer to the market, the specific business concept, and the desired target market (Saripah et al. 2022). It also spells out the demographic structure of the target market and the general analysis extending to the overall industry of operation and the external market analysis.

Market Analysis: This component captures the customer needs and preferences analysis, which is the spotted opportunity. This enables the business to meet customer expectations on the product features and the services (Saripah et al. 2022). Industry analysis is also discussed in this section, including trends, the industry’s competitiveness, and the expected market share percentage. Further, potential risks and challenges are evaluated to help mitigate them by taking reverse measures.

Organization and Management: the business hierarchy of the Management is discussed, showing the key personnel with their duties, responsibilities, qualifications, and experience. It also indicates the organizational structure change expected from the business growth into the future.

Products or Services: Details about the business products and services to be offered to the targeted market are discussed in depth. All the distinguishing features and the uniqueness of the product or services are given weight in this section (Saripah et al., 2022). The selling price of the product and the services charge are indicated, which is computed based on the expected costs and the returns.

Marketing and Sales Strategy: This section details strategies for identifying new markets, promotions, and marketing and sales tactics. Additionally, sales and revenue projections are critical; thus, their computation through the sales forecasts is executed in this section.

Funding Analysis and Projections. This section details different sources of capital available to fund the initial investment. It also involves financial statement projections such as income statements, balance sheets, cash flows, computations of the ratio, and the break-even analysis. This section details the rationale of the company’s financial viability in taking up the venture.

Funding request and Exit strategy: Specifications of the required funds for the initial investments with a precise evaluation and a concise analysis of how such funds would be used are captured. It also details the business exit approach in case the founders consent to terminate the business existence.

Appendix: this plan section contains relevant Supporting documents, such as resumes, market research data, sale forecasts, and financial projections. It may also have the products and services illustrated in diagrams.

Drafting Information for Inclusion in the Business Plan

The business plan to be structured by Arya and Rana should consider and capture the investment funding needs with a clear breakdown of the funds used and the evaluation of the available sources of funds. The investment evaluation needs include the following:

• Three Months’ Rent: £3,000
• Three Months’ Salaries: £19,106
• First-Year Marketing Budget: £5,000
• Rental Deposit: £2,000
• Working Capital: £45,000
• Machinery & Equipment (proper for five years): £25,000

Evaluation of Three Sources of Finance:

Friends and Family Investment: Arya and Rana should consider obtaining funds from Family and close friends. This type of fund involves grants, donations, or open loans.

Advantages:

This type of funding involves negotiations on the payment terms and the amount lent to them. Such makes the terms more favorable to them. Additionally, if the funds are given as grants or donations, the business owners partake in it as great support since they are not expected to pay off (Nguyen and Canh 2021).

 Disadvantages:

If the venture doesn’t survive unforeseen economic challenges, the personal relationships with the donors or the lenders will be ruined. This is because the business will be put under short-term strain when paying off the amount given out (Nguyen and Canh 2021). This type of funding is limited to small amounts that may need to be increased to cover the required investments.

Bank Loan: This financing sourcing involves obtaining loans from lenders such as banks and financial institutions.

Advantages:

Bank loans usually involve large amounts of money sufficient to cover the initial investment needs of the Arya and Rand venture. Bank loans are advantageous since the lender extends professional advice on using the borrowed amount (Ryzhikova 2019). This can help Arya and Rana better comprehend how to manage the borrowed amount without squandering.

Disadvantages:

Obtaining bank loans may be limited to only those with tangible collateral to cover the requested amount. This could be a limitation to Arya and Rana based on the physical assets they might be owning. Ultimately, bank loans attract interest charges on the principal, which makes the cost of obtaining the loans too high (Ryzhikova 2019). This could be a challenge for new businesses that need more ability to pay off the charges imposed on the principal.

Bank overdraft: The business to be incorporated under Arya and Rana may consider facilitating the initial investment needs by overdrawing the bank account. This may be extended to the suppliers by negotiating favorable payment terms (Qadir 2020).

Advantages:

Better payment terms attained after supplier negations enable the business to manage the working capital needs and do not put a strain on immediate payments.

Disadvantages:

Customers’ need for immediate payments makes businesses seek alternatives by engaging suppliers. This may, in turn, cause the company to have short-term liquidity problems (Qadir 2020).

Recommendation:

Obtaining a bank loan for Arya and Rana to finance the deficit of the total investments requirements of £99,106 and their saving contribution of £35,000 is required. Funds from Family and friends are considerable; however, they are insufficient to cover the gap; thus, bank loans can be the most reliable source to consider.

Optimal Financing Strategy:

• Use savings contribution (£35,000) for initial expenses.
• Seek Family and friends’ funding to finance a percentage of the investment.
• Negotiate for better terms and apply for a bank loan to close the deficit gap.

Rationale:

• Utilizing this financing strategy increases the funding mix, reduces personal financial risk, and ensures that the ownership is not diluted.

Ultimately, having a well-established business plan when starting a business is critical for sourcing funds. A strategic approach to the challenge of the shortfall in the investment amount should be applied. Arya and Rana should consider a mixture of personal savings, seeking support from close friends and Family, and applying for a bank loan that can substantially finance their venture in the fashion business.

Price determining approaches

Arya and Rana, correctly pricing your fashion bags is critical to business success. There are several ways to get the right price. In cost-plus pricing, prices are determined by adding a markup to the production price to recover all costs. Competitive pricing means matching competitors ‘prices in putting your product on the market. Value-based pricing corresponds with customers ‘estimated value. Given your bag’s unique appeal to expats with employment problems, value-based pricing may work. Under their cost structure and market positioning, £ 120 per bag isn’t too steep. But check competitors ‘prices and customer opinions to ensure you have the correct perceived value for money in retail land. Locating this equilibrium between cost coverage and the target market will enhance your long-term profitability and competitiveness. To achieve this, regularly re-evaluate prices in line with market changes and customer feedback.

Income Statement Forecast

Assumptions made: The Company is subject to the payment of corporate tax charged at 20%. This assumption is incorporated in the calculation of the income statement forecast.

Payback period

This technique gives the period when business investments can recover the whole investment amount (Fetner and Miller 2021).

Assumptions: the above payback period is calculated on the assumption that the sales made for the first three consecutive years sales remain the same and the total three yearly expenses stay the same.

References

Abdullah R (2020) ‘Importance and contents of business plan: A case-based approach,’ Jurnal Manajemen Indonesia, 20(2): pp.164-176.

Fetner H and Miller SA (2021) ‘Environmental payback periods of reusable alternatives to single-use plastic kitchenware products,’ The International Journal of Life Cycle Assessment, 26: pp.1521-1537.

Nguyen B and Canh NP (2021) ‘Formal and informal financing decisions of small businesses,’ Small Business Economics, 57: pp.1545-1567.

Qadir R (2020) ‘Small Businesses in Developing Markets Funding Options & Reasons,.’

Ryzhikova N (2019) ‘Sources of Funding and Lending to Innovative Development in Ukraine. Economic and Social-Focused Issues of Modern World: p.93.

Saripah I Lestari RD Putra A and Mutamam MHA (2022) ‘Mentoring Model of Business Plan Competition Program in Improving Social Entrepreneuship,’ Journal of Nonformal Education, 8(1): pp.106-112.Top of Form