Definition of Business Plan The business plan is written document prepared by

entrepreneur that describes all the relevant external and internal element involved in starting a new venture.

It is an integration of functional plan such as marketing, finance, manufacturing and human resources.

Business plan coordinates business objectives and strategies. It also addresses short term and long term decision making for first three years of operation.

Sometimes, business plan is referred as game plan or road map which answers the questions, where am I now? Where I am going? How will I get there?

Business plan must describe current status, expected need and projected results of new business.

Definition of Business Plan… It describes the future direction of business. It provides road map of the business / project. It explores the Opportunity / Threat (OT) and dig out

the Strength / Weaknesses (SW). The entrepreneurs develop business plan getting

necessary assistance from a team of experts. It is a convincing documents to investors, lenders,

governments, venture capitalist, shareholders and stakeholders.

The three ingredients that are needed to start business are market, money and motivation. A business plan must clearly describe these in addition to other relevant factors.

Pitfalls to avoid in planning The business plan helps entrepreneurs to avoid

common pitfalls (as below).

No realistic goal

Failure to anticipate roadblocks

No commitment or dedication

Lack of demonstrated experience (business or technical)

No market niche (segment)

Business Plan An entrepreneur should prepare a strategic business plan. Vision, mission & objectives are components of strategic plan. SWOT analysis / internal & external environment is assessed. Entrepreneur should have definite ideas on following issues.

The potential sales Customer base Profit potential Financing Accounting methods Merchandising plan Location Hiring and promotion policies Control over expenses Inventory and quality Customer relations.

Need of Information to prepare Business Plan

Before committing time & energy to preparing business plan, the entrepreneur should do a quick feasibility study of the business concept to see if there are any possible barriers to success.

Before beginning the feasibility study, entrepreneur should clearly define goal & objectives of the venture.

The information, obtained from different sources, should focus on marketing, production & finance. Market information: defining buyers (man/ women), income

level, education Production /operation: Location, raw materials, overhead

(utilities, supplies, tools), labor skills, equipment, space etc. Finance: Expected sales & expenses, cash-flow, Balance

Sheet.

Benefits of Business Plan Entrepreneurs put together the time, efforts, research and

discipline to view the venture critically and objectively. The competitive, economic, marketing and financial analysis

are helpful to success the goal. Entrepreneurs can formulate strategies on the basis of

business plan. Business plan provides indicators to compare with actual result. Business plan provides detail of market potentials. It illustrates venture's ability to provide return on equity Business plan gives idea for securing the result. It provides guidance for assessing managerial ability. It provides necessary information for decision making process.

Scope & value of business plan The need of business plan can be compared as road map

during the travel. It is the commitment of an entrepreneur to implement the plan. Three important element (market, money & motivation) of

starting business successfully are presented in the plan. The entrepreneurs plan as they will continue business for long

time. It avoids potential threats & business failure. Business plan make projections of operational, marketing and

financial aspects of proposed business. Business plan does not necessarily guarantee success of a

new business. However, it supports for successful start-up of new business.

The scope / value and need of business plan can be explained for perspective of entrepreneur, marketing and investor.

Scope & value of business plan… Perspectives of the entrepreneur

Business plan is basis of operation / fund raising It provides future direction for new venture Makes aware with potential problems & enables to face the risk It defines goal / targets for business operation and control It is basis of communicating the missions of business to the employee.

Marketing Perspectives Investors and lenders get ideas of business and its products /market. Business plan helps to establish relationship with commercial banks. Assessment tool for investment /financing decisions.

Investors Perspective Investors look for things that could go wrong where as entrepreneur

assumes that all things will go right. Investors look for maximizing potential return & minimizing risk Investors are attracted with customers acceptance of product /service Investors /lenders are not attracted with unrealistic growth projection.

Structure & Components of Business Plan Introductory page (Cover page) Executive summary Environmental analysis General Business Description Product and service plan Management plan Legal plan Operating / production plan Marketing plan Assessment of risk Financial plan Appendix

Outlines of Business Plan Cover page and Introductory page

Name and address of business Name (s) and address of promoters Nature of business Statement of financial need Statement of confidentiality of report

Executive summary Three or four pages summarizing the business plan

Environment and Industry Analysis Future outlook and trend Analysis of competitors Market segmentation Industry and market forecast

Outlines of Business Plan… Description of venture

Products Services Size of business Office equipments and personnel Backgrounds of entrepreneurs

Production plan Manufacturing process (amount sub-contracted) Physical plant Machinery and equipments Name of raw material suppliers•Operational Plan• Description of company’s operation• Flow of orders for goods & / or services• Technology utilization

Outlines of Business Plan… Marketing plan

Pricing Distribution Product forecasts Promotion Control

Organizational plan /legal plan Form of ownership Identification of partners / principal shareholders Authority of principals Management team background Role and responsibilities of members of organization

Outlines of Business Plan… Assessment of risk

Evaluation of weaknesses of business New technologies Contingencies plan( plan for what to do if a particular event happen or

does not happen) Financial plan

Cash flow projections Break even analysis Sources and application of fund

Appendix (Contains back-up materials) Letters Market research data Leases or contracts Price list from suppliers

Questions scanning the environment What are the economic, socio-cultural, technological,

political and legal trend in national & global market? What are industry sales over past 3 to 5 years? What is the expected growth of industry? Who are closest competitors? How will this business operation be better than

existing ones? What are strength and weaknesses of competitors? What is the profile of customers? What are the trend occurring in specific market area of

this business?

General business description questions Is this startup, buyout or expansion? What is the mission of the business? What are the objectives of business? When and were will (was) this business started? What is the basic nature and activity of business? What customers are served? Is the business manufacturing, retailing, service or other type? What is the current or projected state of this business? Will the business be corporation, partnership or sole

proprietorship? What changes are made in ownership /structure? What achievement have been made so far? What is the distinctive competence of business?

Product /service plan questions What product or service is being offered? What does the product look like? What are its special advantages? What additional products or services are intended in future? What risks are associated with change in fashion or style? What liabilities may be involved? How has the product has been tested or evaluated? How does the product or service compare with those of the

competitors? What makes the product superior to those of competitors? What legal protection applies (patent right, copy right or trade

marks)? What government regulations have been complied with and

what remains to be complied with?

Marketing plan questions What is the target market? What is the size of target market? What market segments exist? What is the profile of target customers? How will be the customers benefit by using the product

or service? What share of the market does the business expect to

cover? What are the market trend and market potential? What are the reactions of the prospective customers?

Management plan questions Who are the members of management team? What are the education, skills & experience of each? What other active investors or directors are involved and what

are their qualification? What vacant position exist & what are the plans to fill them? What consultants will be used & what are their qualifications? What is the compensation package for each key person? How will the employee be selected and rewarded? What style of management will be used? How will creativity be encouraged? How will new employee be trained? Who will be responsible for job descriptions and employee

evaluation? What time frame has set to achieve the objective of business?

Operating plan questions How will the product produced or service created? What production will be achieved by sub-contracting? What production /operating facilities will be used? What is the capacity of the facilities? What material or components are critical to production? What method and types of production will be used? What are the source of supplies? What production control procedures will be used? How will inventory be controlled? What are the merits and demerits of location? What production /operating advantages exist? What are the labor requirement? What are major production cost?

Financial plan questions What assumptions are used for financial projections? What revenue level is projected by months /years? What expenses are projected by months/ years? What profits are projected by months /years? What cash flow is projected by months / years? When will the business break-even? What financial resources are required now? What additional funds will be required? How will these fund be used? How much invested by the owners & what extent is loaned? What other potentials sources will be explored?

Legal plan questions Will the business function as a sole proprietorship,

partnership or corporation? What are the legal liability implications of the firm of

organization chosen? In case of corporation, where is the charter

(agreement)? What was the date of incorporation or registration? Which legal firm will represent the business? What legal issues are potentially significant? What license or permit will be required? What insurance will be taken (business & employee)?

Measuring plan progress During the introductory phase, entrepreneurs should ensure

that the goal and objectives of organization will be achieved through implementation of business plan.

Generally the business plan projections will be made on a 12 months schedule. Entrepreneurs can not wait 12 months to see if the plan has been successfully achieved.

In practice, the entrepreneur checks profit and loss statement, cash flow projections, information about inventory, production, quality, sales, collection of account receivables and disbursement for pervious month on a frequent basis.

The important information and feed back are helpful to minimize the deviation of objectives.

Measuring plan progress To measure plan progress, There are some control

elements:

Inventory control

Production control

Quality control

Sales control

Disbursement control

1. Inventory Control: By controlling inventory- firm can ensure maximum

service to the customer. Faster the gets back it’s investment in raw-materials &

finished goods. The faster that capital can be reinvested to meet

additional customer needs.

2. Production Control: Compare the cost figure estimated in business plan with

day to day operation cost. This will help to control machine time, workers hours,

process time, delay time and downtime cost.

3. Quality Control: Depend on the type of production system. Is designed to make sure that the product perform

satisfactorily.

4. Sales Control: Information on unit Rupees( in amount) Specific product sold Meeting of delivery date Credit term, and Effective collection system for account receivables should

be set up to avoid aging of accounts and bad debts.

5. Disbursement: The venture should also control the amount of money

paid out. All bills should be received to determine how much is

being disbursed and for what purpose.

Updating a plan The business plan should serve as a tool for start-up

and execution of a new venture. The business plan serves as a tool for continue growth

& profitability even after its establishment. The following are important reasons to update the

business plan. Financial changes Additional financing Change in the market (competition & consumers need) Launch of a new product or service New management team (own strategy for business growth) Reflect the new reality

Generally, poorly prepared business plan can be blamed for failure of business on the basis of one or more factors as below: Goals set by entrepreneur are unrealistic Goals are not measurable The entrepreneur has not made a total commitment to the

business or to the family The entrepreneur has no experience in the planned business The entrepreneur has no sense of potential threats or

weaknesses to the business No customer need was established for the proposed product

or service.

Reasons for the failure of some businesses

1. Management mistakes

2. Lack of experience

3. Poor financial control

4. Weak marketing efforts

5. Failure to develop a strategic plan

6. Uncontrolled growth

7. Poor location

8. Improper inventory control

9. Incorrect pricing

Cause of business failure

The Seven Business Crisis Starting crisis: To overcome it, choose realistic plan of

business in which you are familiar. Cash crisis: For steering it, know relationship between profit

and cash, consult good accountant /financial experts. Delegation crisis: To avoid it, seek second person to

supplement you and pay high salary with status & authority. Leadership crisis: To overcome it, participate in training, act

like leader not manager, develop team of executives. Financial crisis: To manage it, consult experts for best sources

of fund and do not afraid to go to public. Prosperity crisis: To take advantage of prosperity, always

keep your eyes and ears open, remain firmly aggressive and remember success today is no guarantee of tomorrow.

Management succession crisis: To plan it, groom a management successor, develop club of like minded businessman and brief your family about assets & liabilities.

Suggested Questions

I. What do you mean by Business plan? Explain its contents.

II. Highlight the benefits of business plan.

III. Describe the need and importance of business plan to internal management, investors and outsiders.

IV. Describe the control elements for measuring plan progress.

V. Explain the need to update the business plan.

VI. What are the reasons of failure of some business? Give the suggestion to minimize the failure of business.

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