Unit -4
Meaning of business plan:
In simple words, business plan is a written statement of what an entrepreneur proposes to take up.
It is a kind of guide frost or course of action what the entrepreneur hopes to achieve in his business
and how is he going to achieve it. In other words, business plan serves like a kind of big road map
to reach the destination determined by the entrepreneur. Webster New 20th Century Dictionary
defines a project as a scheme, design, a proposal of something intended or devised. Let some
important definitions of business plan be presented.
Definition of business plan
Mar J. Dollinger has defined the business plan as “the formal written expression of the
entrepreneurial vision, describing the strategy and operations of the proposed venture.”
According to Jack M. Kaplan, “The term business plan means the development of a written
document that spells out like a roadmap where you are, where you want to be, and how you want
to get there.”
Thus, a business plan or project report can best be defined as a well evolved course of action
devised to achieve the specified objective, i.e. setting up a small business enterprise within a
specified period of time. So to say, business plan is initially an operating document.
Importance of business map:
1 Feasibility of the plan:
A business plan will in reality help one to understand whether pursuing the opportunity is worth
it or not without actually delving in it and ending up losing the two most essential resources of all,
that is, money and time.
2. Road map:
First and most important the business plan is like a road map. It describes the direction the
enterprise is going in, what its goals are, where it wants to be, and how it is going to get there. It
also enables an entrepreneur to know that he is proceeding in the right direction. Some hold the
view that without well spelled out goals and operational methods/tactics, most businesses flounder
on the rocks of hard times.
3. Business plan acts as a blueprint:
The business plan will provide a detailed outline of the business which will not only attract capital
and help people be on the same page but will also help equalize our emotions and prevent us from
making mistakes, which at the initial stages can be very harmful.
4. Helps identify potential weakness:
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As the head already suggests, despite preventing us from making fatal mistakes, business plans
can also locate inherent and unrealized loopholes. Further, through a business plan, one can also
receive potential opinions and feedbacks.
5. Raising capital:
Having a business plan will make it easier to raise funds as it will become very easy to
communicate with the investors. A business plan will give a detailed view of the business which,
as mentioned above, will not only be advantageous for the aspirer but also for the investors.
The preparation of business plan is beneficial for those small enterprises which apply for financial
assistance from the financial institutions and the commercial banks. It is on the basis of business
plan or project report that the financial institutions make appraisal if the enterprise requires
financial assistance or not.
6. Chances of Success:
By being able to evaluate factors such as the feasibility and the potential weaknesses, one can
avoid the pitfalls thereby making a progressive step towards success. A business plan increases
the chances of success considerably.
PREPARATION OF BUSINESS PLAN:
Steps in the business plan / outline of a business plan The
outline of a business plan is as follows:
I. Introductory page:
This is the title or cover page that provides a brief summary of the business plans contents. It
should contain the following:
1. Name and address of the company
2. Name of the entrepreneur, telephone no, fax, email address, website address
3. Paragraph describing the company and nature of business.
4. Amount of Finance required
5. A statement of the confidentiality of the report for security purposes.
II. Executive Summary:
The section of the plan is written after the total plan is prepared. The executive summary should
stimulate the interest of the potential investors. It would highlight in a concise and
convincing manner the key points in the business plan.
III. Environmental and industry analysis :
Environmental analysis is the assessment of external uncontrollable variables that may impact
the business plan. Examples of these factors are
i)Economy: Trends in GNP, Unemployment, disposable income and on ii)Culture:shifts
in the population by demographics, shifts in attitudes concern for environment trends in
Safety, health and Nutrition.
iii) Technology: Potential technology developments iv)
Legal Concerns:
Legal issues in starting the ventures, future legislation, deregulation of prices, restriction on
media advertising and safety regulations. Once an assessment of the environment is complete the
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entrepreneur should conduct an Industry analysis that will focus on specific industry trends and
competitive strategies. Some examples of these factors are.
i)Industry demand: whether market is growing or decline, the number of new competitors
and possible changes in consumer needs. ii)Competition: potential threats from the larger
corporations, their strengths and Weakness.
IV.Description of the Venture:
This provide complete overview of the products, services and operations of the new venture. This
statement describes the nature of the business and what entrepreneur hopes to accomplish with
that business.
V Production Plan:
This plan will describes the complete manufacture process, the sub contractors , including
location, reasons for selecting, costs and contracts that have been completed.
VI Marketing plan;
It describes the Market condition and the strategy related to how products and services will be
distributed, priced and promoted.
VII) Organisational Plan:
It describes the form of ownership and lines of authority of Members of a new venture.
VIII) Assessment of Risk:
This section will identify the potential hazards and alternative strategies to meet business plan
goals and objectives.
IX. Financial Plan:
This gives the projections of key financial data that determine economic feasibility and necessary
financial investment commitment.
X Appendix :
This section generally contains any backup material that is not necessary in the text of the
document.
Need or Importance for Business Plan
The importance of the business plan is as follows:
1. It helps to define the business plan.
2. It helps in establishing goals
3. It helps to manage risk and uncertainty
4. It ensures effective planning
5. It helps in developing organization structure
6. It helps in establish strategy
7. It helps in allocating resources
8. It helps in decision Making
9. To establish the right steps to starting a new business.
10. It helps in developing new business alliance.
11. It helps in developing new business alliance. 12. To determine the potential to make a
profit 13. It creates competitive advantage.
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OBJECTIVE OR IMPORTANCE OF BUSINESS PLAN
1. To give direction to the vision formulated by the entrepreneur
2. To objectively evaluate the prospectus of business
3. To monitor the progress after implementing business plan
4. To persuade others to join business
5. To seek loans from financial institutions
6. To visualize concept in terms of market availability, organizational, operational, and
financial feasibility
7. To guide entrepreneur in actual implementation of plan
8. To identify actual strength and weakness of plan
9. To identify challenges in terms of opportunities and threats from the external markets.
10.To clarify ideas and identify gaps in management information about their business,
competitors and market.
11.To identify the resources that would be required to implement the plan
12.To document ownership arrangements, future prospectus and projected growth of the
business venture.
Major components of a Business Plan:
1. Financial aspects
2. Marketing Aspects
3. HRM Aspects
4. Technical aspects
5. Social aspects
1. Financial Aspect:
A financial can be a Budget, a plan for spending and saving for future income. This plan allocates
future income to various types of various types of expenses. A financial plan is also called
as investment plan.
i)Cash Budget:
it is an estimate of cash receipts s from all sources and cash payments for all purposes and net cash
balances during the Budget period. It ensures that the business has adequate cash to meet
its requirements.
ii) Working capital:
Working capital refers to the cash a business requires for day to day operations, or more
specifically for specifically purchasing of Raw materials, paying rent, wages , transport
expenses, inventory maintenance .
iii) Income Statement:
the Performa of income statement or projected income statement is a projection of Income for a
period of time in future. The analyst may wish to evaluate each component of the cost of
goods sold. A detailed study analysis of purchases, production wages and overhead costs
is likely to produce the most accurate forecast.
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iv) Cash flow statement:
A statement of changes in the financial position of a firm on cash basis is called cash flow
statement. Such a statement enumerates net effects of the various business transactions on
cash. A cash flow statement summarizes the causes of changes in cash position of a
business enterprise between dates of two balance sheets.
v) Balance sheet:
Performa balance sheet is forecasting of flow of funds and according to this the estimation of every
item should be made and checked. The preparation of Performa balance sheet is made on
the basis of Performa income statement and supporting schedules and budgets.
Vi. Break even analysis:
Break Even Point(BEP) refers to the level of operation at which the project neither earns profits
nor incurs loss. Calculation of BEP for the given cost and price levels indicates the
minimum capacity utilization that the that the project should be aimed at in order to be in
a no profit , no loss situation.
VII. Equity and debt funds:
Equity financing is required to start up a Business
Part of debt fund is also taken as it helps purchase of machinery and other fixed assets, whereas
short term debt can be utilized for working capital purpose. Major source of financing will
be assistance from bank and other financial institutions.
2. Marketing Aspect:
All the efforts of the entrepreneur can go in vain if he does not have proper markets to sell his
goods or services. A well conceived idea, a strongly supported financial backup can
become a failure if the entrepreneurs does not have demand in the market so we shall focus
on the marketing aspects of business plan. 1. Target market , Market segmentation and
positioning
2. Marketing decisions
3. Product / service strategy
4. Pricing strategies 5. Promotion Strategies:
Advertising, Indoor or outdoor advertising
Personal selling, sales promotion
6. Distribution strategy – Channels of distribution
7. Sales forecast
8. Marketing Strategy
Human Resources Aspects:
1. Organization chart with the names and titles of the key executives
2. Brief details of these executives with their previous experience, Education and
qualification
3. Detailed resume of the each executives.
4. Contribution of the each individual to the company their duties and responsibilities.
5. Specify their initial salary , incentives fringe benefits and other benefits provided.
6. Attempt should be made to keep the initial salary low and to keep the deferred
compensation high.
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7. What key position remains unfilled?
8. Bring out the plans to retain and attract the efficient existing employees.
9. List of top level executives
10. Provide the names of the legal, accounting, banking and other important organizations
that will guide the organization.
11. If a firm service oriented firm it requires specific skills with required expertise to render
services to consumer.
12. If the firm is production unit it requires the people with technical as well as conceptual
capabilities. As the form has different departments categories of people like skilled,
unskilled, technical, managerial and professional personnel.
13. The Business plan should project on HRD and give details training and departmental
Programmes which will be deployed to enhance skills and capabilities of Employees.
14.The business plan should also furnish about the promotion, transfer, Performance
appraisal, the audit etc.
15. The Business plan should mention about the number of employees employed
presently and future expansion .
16. The details about the management practices, leadership styles, Management
development programmes, retrenchment policies ,rules ,organization culture should be
clearly depicted in business.
3. SOCIAL ASPECTS:
To maintain good reputation and long survival . The business should not only concentrate on profit
maximization but also should focus and share certain profit on general interest of the
society.
The various social responsibilities of an entrepreneur:
1. To produce quality goods or services
2. To provide true data
3. To maintain the safety of the product user.
4. To restrict adulteration of products.
5. Improved and safety packing and packaging should be provided.
6. Mention the steps to control pollution.
7. Optimum utilization of natural resources.
8. To give equal opportunity for women employees.
9. To provide safety and healthy work environment to the employees
10. TO provide educational facility
11. To provide proper insurance facility to employees
12. Firm’s involvement in donation, sponsorship of public health projects.
4. Technical Aspect of Business Plan:
The technical aspect of business plan is an important elemet and it is necessary whether it is a
manufacturing concern, retail or service industry.
The few important technical aspects are :
1. . Describe the technical feasibility of the project.
2.The business plan should specify the quantity to be provided. Specification of the project
etc.
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3. Describe the physical plant layout and design required and the method of acquiring the
raw materials
4. Measures should be adopted to dispose of waste, various methods of disposal of waste
5.Details of pollution control measures..
6.it should also choose an appropriate technology based on his affordability, ease,
suitability, maintainability and functionality.
7.Areas where the latest technologies are implemented like HR, Finance, Marketing,
Inventory management, Order tracking, production ,internal communication etc.
Following factors should be consider while choosing technology;
1. Functions
2. Ease of Use
3. Security
4. Flexibility
5. Maintainability
6.Financial consideration
Pitfalls of Business Planning
The pitfalls of Business planning are:
1. Incredible Financial projections
2. Lack of a viable opportunity
3. No clear route to Market
4. Overestimation of revenues
5. Lack of Good cash flow management
6. No clear objectives
7. No evidence of real demand/ Over estimation of demand
8. Business plan inconsistencies.
9. Playing down the competition
10. Rushing the Output
11. Capacity utilization
12. Over estimating of demand
13. Un realistic pricing strategies
14. Underestimation of project demand
15. Wrong selection of Location
16. Lack of Understanding of appropriate technology
17. Selecting appropriate machinery
