Entrepreneurship and Business Plan Development
What the examiner expects
Entrepreneurship is the pursuit of opportunity beyond resources currently controlled. Learn the traits and skills of entrepreneurs, the difference between an idea and a viable opportunity, and the steps from opportunity recognition to feasibility study and business plan. Know the parts of a plan: executive summary, business description, market analysis, marketing plan, operations plan, management team, financial plan and risk assessment. Understand sources of finance, fixed and working capital, break-even analysis, cash flow forecasting and legal forms. Examiners also test SWOT analysis and the difference between a business plan and a feasibility study.
Traps
- A feasibility study tests whether an idea can work; a business plan explains how it will be executed and funded.
- The executive summary is written last but placed first.
- Sales forecasts that ignore capacity, competition or seasonality destroy credibility.
- Profit is not cash; a profitable firm can fail through poor cash flow.
- Fixed costs do not vary with output in the short run; variable costs do.
Worked example
Fixed costs are 60,000, selling price 25 and variable cost 15 per unit. Contribution is 10, so break-even = 60,000 ÷ 10 = 6,000 units. At expected sales of 8,000 units, margin of safety is 2,000 units, or 25 percent of expected sales. If fixed costs rise to 70,000, break-even becomes 7,000 units and the safety margin halves.
Rule of thumb
Test an opportunity against four filters: is there a real customer pain, can we reach the customer, can we deliver profitably, and can we defend against competitors? If one answer is no, revise before writing the plan.