CONTENT 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Production Plan 3.2 Marketing Plan 3.3 Venture Plan
3.4 Risk Mitigating Plan 3.5 Financial Plan 4.0 Conclusion 5.0 Summary
6.0 Tutor Marked Assignment 7.0 References and Further Reading
1.0 INTRDUCTION
Some business ventures are specifically established for the purpose of manufacturing products. Therefore, for such an establishment it becomes very imperative for the entrepreneur to draw up a production management plan. The rationale for such a plan is for the entrepreneur to the fore the manufacturing process, method of production, location and pecuniary implications of the plan.
The discussion in this study unit is centered on production ant strategies for mitigating possible risks inherent in the operations.
2.0 OBJECTIVES
At the end of this study unit you should be able to:
Discuss the production plan
Explain the marketing plan
Discuss the venture plan
Identify and explain strategies for mitigating risk
Discuss the financial plan 3.0 MAIN CONTENT 3.1 PRODUCTION PLAN
A production plan is necessary in the event that the new venture is a manufacturing operation. This plan should describe the complete manufacturing process. If some or all of the manufacturing process is to be subcontracted, the plan should describe the location, reasons for selection, costs, subcontractor(s), and any contracts that have been completed.
If the manufacturing is to be carried out in whole or in part by the entrepreneur, he or she will need to describe:
the physical plant layout;
the machinery and equipment needed to perform the manufacturing operations;
raw materials and suppliers’ names, addresses, and terms;
costs of manufacturing; and
any future capital equipment needs.
In a manufacturing operation, the discussion of these items will be important to any potential investor in assessing financial needs.
In the event that the venture is not a manufacturing operation but a retail store, this section would be used to describe the merchandizing plan, the purchasing of merchandize, and inventory control system, as well as the storage needs.
The preparation of the production plan involves providing answers for the following questions:
1. Will you be responsible for all or part of the manufacturing operation?
2. If some manufacturing is subcontracted, who will be the subcontractor(s)?
3. Why were these subcontractors selected?
4. What are the costs of the subcontracted manufacturing?
5. What will be layout of the production process?
6. What equipment will be needed immediately for manufacturing?
7. What raw materials will be needed for manufacturing?
8. Who are the suppliers of new materials and appropriate costs?
9. What are the costs of manufacturing the product?
10. What are the future capital equipment needs of the ventures?
If the venture is a retail operation in service delivery, the following questions are very relevant:
1. From whom will merchandize be purchased?
2. How will the inventory control system operate?
3. What are storage needs of the venture and how will they be promoted?
Self Assessment Exercise 1:
What are the relevant areas of manufacturing that are to be included in the production plan?
3.2 MARKETING PLAN
The marketing plan is an important part of the business plan since it describes how the product or service will be distributed, priced, and promoted. Specific forecasts for product or service are included in order to project profitability of the venture.
Potential investors regard the marketing plan as critical to the success of the new venture. Thus, the entrepreneur should make every effort to prepare as comprehensive and detailed a plan as possible so that investors can be clear as to what the goals of the venture are and what strategies are to be implemented to effectively achieve these goals.
Marketing planning will be an annual requirement but subject to careful monitoring and changes made on a weekly or monthly basis for the entrepreneur.
The plan should be regarded as the thoroughfare chart for short-term decision making.
3.3 VENTURE PLAN
The venture plan is the part of the business plan that describes the venture’s form of ownership – that is, proprietorship, partnership, or a corporation. If the venture
is a partnership, the terms of the partnership should be included.
If the venture is a corporation, it is important to detail the shares of stock authorized, share options, names, and addresses and resumes of the directors and officers of the corporation.
It is also helpful to provide an organization chart indicating the line of authority and the responsibilities of the members of the organization.
The description of the venture plan involves providing answers to the following pertinent questions:
1. What is the form of ownership of the organization?
2. If a partnership, who are the partners and what are the terms of agreement?
3. If incorporated, who are the principal shareholders and how much stock do they own?
4. What type and how many shares of voting or nonvoting stock have been issued?
5. Who are members of the board of directors? (Given names, addresses, and resumes)
6. Who is each member of the management team and what is her or his background?
7. What are the roles and responsibilities of each member of the management team?
8. What are the salaries, bonuses or other forms of payment for each member of the management team?
Self Assessment Exercise 2:
What are the relevant considerations in description of the venture plan?
3.4 RISK MITIGATING PLAN
It is necessary for the various types of risk that can plague the business need to be analyzed and the plans for mitigating them clearly spelt out in the business plan.
The assessment of potential risks inherent in the venture involves identifying the potential hazards and by implication, the entrepreneur should identify the alternative strategies for dealing with such risks.
In essence, an assessment of risk prepares the entrepreneur for mapping out effective strategies to deal with them. Major risks for a new venture could result from a competitor’s reaction; weaknesses in the marketing, product, or
management team; and new advances in technology that might render the new product obsolete. Even if these factors present no risks to the new venture, the business plan should discuss why that is the case.
Furthermore, it is also useful for the entrepreneur to provide alternative strategies should any of the above risk factors occur. These contingency plans and strategies illustrate to the potential investor that the entrepreneur is sensitive to important risks and is prepared should any occur.
3.5 FINANCIAL PLAN
The financial plan like the marketing, production, and organization plans is an important part of the business plan. Financial plan in terms of financial projections of key financial data helps determine economic feasibility and necessary financial investment commitment in the business venture.
It is also to determine the potential investment commitment needed for the new venture and indicates whether the business plan is economically feasible.
Generally, three financial areas are discussed in this section of the business plan.
The first area is for the entrepreneur to summarize the forecasted sales and the appropriate expenses for at least the first three years, with the first year’s projections provided monthly. It includes the forecasted sales, cost of goods sold, and the general and administrative expenses. Net profit after taxes can then be projected by estimating incomes taxes.
The second major area of financial information needed is cash flow figures for three years, with the first year’s projections provided monthly. Since bills have to be paid at different times of the year, it is important to determine the demands on cash on a monthly basis, especially in the first year. Remember that sales may be irregular, and receipts from customers may also be spread out, thus necessitating the borrowing of short-term capital to meet fixed expenses such as salaries and utilities.
The last financial item needed in this section of the business plan is the projected balance sheet. This shows the financial condition of the business at a specific time.
It summarizes the assets of a business, its liabilities (what is owed), the investment of the entrepreneur and any partners, and retained earnings (or cumulative losses).
Any assumptions considered for the balance sheet or any other item in the financial plan should be listed for the benefit of the potential investor.
Self Assessment Exercise 3:
What are the major financial areas to be considered in financial plan?
4.0 CONCLUSION
A new business venture can be specifically established for manufacturing of products. As you have understood in the foregoing analysis, for such an establishment it becomes very imperative for the entrepreneur to draw up a production management plan besides the plans for marketing, finance, risk management, and the description of the venture itself.
5.0 SUMMARY
In this study unit, we have discussed the following topics as they relate to management and production plan of a new venture.