Writing a Business Plan

Financing Hospitality Firms

Chapter Five
 Concept of Business Plan
• A business plan is a written document that describes in detail how a business—usually
a startup—defines its objectives and how it is to go about achieving its goals. A
business plan lays out a written roadmap for the firm from marketing, financial, and
operational standpoints.
• The business plan is a document describing what a business does, who the key players
are in the company, the market it serves and the financial model that leads to profits.
At its core, it is a roadmap about how the business will do what says it will do.
• Although the business plan serves as the roadmap and foundation, business planning
doesn't stop when the business plan is finished. It is a fluid document that needs to be
adjusted for changes in key management, marketing, industry trends and demographic
information.
• A Business Plan is a document in which a business opportunity, or a business
already under way, is identified, described and analyzed, examining its technical,
economic and financial feasibility. The Plan develops all of the procedures and
strategies necessary in order to convert the business opportunity into an actual
business project.
• The business plan looks forward in time, projecting future financial performance and
financial position.

• https://
www.business-case-analysis.com/business-plan.html#business-plan-purposes-uses
 Reasons for Making Business Plan
• Projects the Financial Future
• Identifies and Measures Risks
• Describes the Business Model
• Identifies Key Information
• Prioritize Business Objectives
• Source for Financing
• Communicate Information
• Attract Investors
 Importance of Business Plan
• Business plans assist managers/entrepreneurs to plan the direction of the business,
compare performance with the plan, and take corrective action.
• Preparing a business plan helps managers to understand the business and the planning
process.
• Preparing a business plan allows you to think about the mission and key objectives of
the business, and the actions needed to achieve the objectives.
• Identify the information needed to understand the customers and competition.
• Develop a competitive business strategy for the business.
• Plan all the activities needed to make the strategy work.
• Forecast the results of the plan to overcome difficulties.
• Keep track of the business and take corrective action where needed.
 Guidelines for writing a Business Plan
• Specify objectives
• Fulfill structure
• Forms of business
• Realistic
• Target readers
• Define responsibility
• Assumption of resources
• Identify target market
• Assumption of competition
• Identify risk
Sections/Components of Business Plan Writing
 Section of Business Plan,
• Step 1 Executive summary
• What sector are you in?
• What products/services do you provide?
• Who is your target audience?
• What does the future of your industry look like?
• How is your company scalable?
• Step 2 Mission statement (About Company)
• Your mission statement should include your goal and the objectives that will lead you toward it;
your industry, how you see it evolving in the short and long term, and who your customers are.
• Your mission statement also says who you are, and talks about the strengths of you and your team.
This is where you, in part (and in brief), sell the features and benefits of your company.
• Step 3 Products and/or services
• How much does it cost to produce? Versus How much will you sell each piece for?
• Is there packaging?
• How will the client purchase the product?
• What makes your business different?
• What distinguishes it from competitors?
• Step 4 Marketing plan: Now that you’ve proven what you want to do and how you
will make it happen, next you will need to detail how you’re going to spread the
word
• You need to analyze Your customers, Market size and trend, Distribution channel, Your
advertisement, Your sales strategy,
• These analysis will support entrepreneurs/ business to make decision for developing new
marketing strategies.
• Step 5 Competition Analysis:
• If your want to operate in open market system or in competitive market, knowing your competitors is
must.
• This include observing the current situation of your competitors as well as their future plans.
• This includes the accessing strength and weakness of competitors, knowing their marketing plan,
sales strategy, pricing plan, market shares. More information you collect you will better understand
the competitors
• Step 6 Operational and Management Plan:
• Location/Logistics of your business, Transportation (if you’re selling a product)
• Legal — Do you need a permit? License? Do you need to join a union or other professional
organization?
• Inventory — if you’re selling a product, where will you need to store it?
• Providers/Suppliers/Freelancers — Detailed contact info/pricing for anyone you’re outsourcing to.
• Management structure, BoD, Advisors, Division of work, delegation of authority and responsibilities
• Step 7 Financial Planning:
• The fiscal piece of your business plan puzzle is the piece investors and loan managers are going
to spend the most time looking at. Without proper capitalization and financial planning, even the
most excellent business idea that fulfills an urgent need is at high risk for failing.
• Start up cost, sources of fund, projected cash flow analysis, profit & loss projection, breakeven
analysis, project balance sheet are required.
• Step 8 Summary:
• This is concluding part of the business plan where key aspects of the plan is highlighted.
• Brief analysis of involves about the product/services, financial requirements, target market,
customer analysis, competitors analysis …
• Its also point out the business scope and risk associated with the business
 Financial Characteristics of Entrepreneurial Business
• Financial management could be the deciding point that could enhance business or
create disaster. How the entrepreneurs manage the finance will decide fate of the
business?
• The organization should look after both the revenue and expenses of the business and
manage its funds accordingly. The finance also denotes the investment and
expenditure of the organization.
• The finance of the business could be long term, medium term and short term.
Business should make the wise use of these different types of financing.
• Similarly characteristics of finance could be divided by the nature of ownership and
on the basis of sources of generation.
• For example the nature of financial ownership could be owned by the organization or
borrowed and sources of finance could be internal or external source.
• Each type of financing have their own characteristics along with pros and cons.
• Entrepreneur should analyze which source of financing to use so that business will
have smooth operation and growth.
• For example
• Long term Financing: Equity Shares/ Debentures
• Medium term financing: Bank loans/ Lease
• Short term financing: Debtors/ creditors/ Working capital
• Internal source: Retaining earning/ Equity shares
• External source: Sales of assets
• Owned source: Convertible debentures/ Retained earnings
• Borrowed source: Debentures/ Bank loans
 Presentation of Business Plan
• The presentation of a business plan can differ depending on who you are presenting to.
Here are some things to keep in mind when tailoring your presentation to your
audience.
• Investors: Investors are looking for businesses with a strong team, a clear plan for
growth, and a realistic valuation. When presenting to investors, be sure to highlight
your team's experience and expertise, your company's competitive advantage, and your
financial projections.
• Partners: Partners are looking for businesses that can help them grow their own
businesses. When presenting to partners, be sure to highlight your company's strengths
and how you can help them achieve their goals.
• Here are some tips on how to create a successful business plan presentation:
• Start with a strong introduction. Your introduction should grab the audience's attention and
give them a clear understanding of what your business is and what you do.
• Highlight your key points. When you're presenting your business plan, it's important to
highlight the key points that you want your audience to remember. This could include your
mission statement, your target market, your competitive advantage, or your financial
projections.
• Use visuals to support your points. Visuals can be a great way to engage your audience and
help them understand your business plan. Consider using charts, graphs, or images to illustrate
your key points.
• Be concise and to the point. Your business plan presentation should be concise and to the
point. No one wants to sit through a long, drawn-out presentation. Get to the point quickly and
clearly.
• Practice your presentation. The more you practice, the more confident you'll be when you're
in front of your audience. Practice your presentation in front of a mirror or a friend to get
feedback.
Financial Characteristics of Hospitality Entrepreneurial
• Hospitality businesses have a number of financial characteristics that are unique to the industry.
• Multiple revenue streams: Hospitality businesses generate revenue through a variety of
channels, such as room bookings, food and beverage sales, event hosting, and ancillary
services. Having multiple revenue streams can help to diversify the business and reduce its
reliance on any one source of income.
• Seasonality and cyclicality: The hospitality industry is often seasonal, with peak periods during
holidays, vacations, or special events. Fluctuations in demand can lead to cyclicality, with busy
and slow periods throughout the year. Hospitality businesses need to be prepared for these
fluctuations and develop strategies to manage cash flow during slow periods and optimize
revenue during peak periods.
• Operating costs: Has both fixed and variable costs. Fixed costs include rent, utilities, and
insurance, while variable costs include labor, food and beverage expenses, and marketing.
Labor costs are a significant portion of the expenses for hospitality businesses, as a substantial
workforce is required to deliver quality service.
• Pricing and profitability: Pricing in the hospitality industry is often dynamic and influenced by
factors such as seasonality, demand, competition, and perceived value. Profit margins can vary
significantly depending on the type of business and its positioning in the market. Achieving a
balance between competitive pricing and maintaining profitability is crucial for long-term
success.
• Capital investment: Hospitality businesses typically require significant upfront capital
investments for property development, renovations, equipment, and infrastructure. Securing
funding from investors or financial institutions is common in this industry, given the high initial
costs. Capital expenditures for ongoing maintenance, upgrades, and guest experience
enhancements are also necessary to remain competitive.
• Risk management: Hospitality businesses face specific risks, such as fluctuating demand,
changing consumer preferences, regulatory compliance, and reputation management. Adequate
risk management practices, including insurance coverage, contingency planning, and regular
assessments, are essential to mitigate potential financial setbacks.
 Sources of start-up Funding
• Crowdfunding
• Angel Investors & Venture Capital
• Bank Loan
• Family and Friends
• Incubators and accelerators
• Govt Grants/Programs
• Bootstrapping: Personal credit cards, Home equity loans, Working from home, Personal
savings
• IPO
• https://blog.salesflare.com/startup-funding-sources
 Financial Management in Hospitality Entrepreneur
Businesses.
• The nature of entrepreneurial enterprises in the hospitality, tourism and leisure
sectors is that they are close to the customer and subject to all the operational and
financial volatility which that implies.
• Financial problems and issues do not end with business start-up, it is simply the end
of the beginning.
• At the time of initiation of the business, there is the danger of under-capitalization.
Inadequate estimation of initial capital and operating costs and revenue streams mean
that there are cash flow problems right from the beginning.
• Some new businesses generate cash from day one, but others, which would develop
to a successful level of trade, are not given the opportunity to prosper since
inadequate provision for working capital has been made during the build-up period.
• The small entrepreneurial business will experience the full impact of changes in the
macro- and microenvironment. Such changes can cause wide fluctuations in levels of
operation and subsequent cash flow.
• Given this level of volatility, it is absolutely vital to have sound financial systems
which will adequately control the business and enable difficulties to be anticipated and
responded to early.
• Specification of the financial systems, knowledge of service providers for such
activities as wages calculation, and frequent review meetings at which progress is
assessed and the future is planned.
• Different stages of business will need different financial management which will
ensure smooth operation of the organization. For example, early stage of organization
could have different financial management practice as compare to that organization
who is growing rapidely.
 Some References

• https://articles.bplans.com/a-standard-business-plan-outline/
• https://
www.inc.com/jeff-haden/how-to-write-perfect-business-plan-a-comprehen
sive-guide.html