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MODULE 3

BUSINESS PLANNING

PROCESS

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MEANING OF BUSINESS PLAN/

PROJECT REPORT

BUSINESS PLAN is a written document

describing all relevant Internal and External

elements ( competition, Technology change,

consumer need etc) and strategies for starting

a new venture.

A project report or business plan is a written

statement of what an entrepreneur proposes

to take up.

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PROJECT REPORT

Project report serves like a kind of big road mapto reach the destination determined by theentrepreneur.

It is an operating document. It gives confidence to the entrepreneur/promoter

since it involves studying of various aspectsrelated to project implementation.

It helps in presenting the financial requirementsof a project in a systematic manner to financialinstitutions and banks.

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BUSINESS PLAN PROCESS

Business plan divides the process of project

development into eight distinct stages are:

1. General Information

2. Project Description

3. Market Potential

4. Capital costs and sources of finance

5. Assessment of working capital requirements

6. Other financial aspects

7. Economic and social variables

8. Project Implementation

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GENERAL INFORMATION

Bio data of promoter

Name, Address, Qualifications, Experience and other

Capabilities of entrepreneur

Industry profilePast performance, Present status, Growth, Problems

Ownership and organization structure

Registration certificate from the DIC (District Industry

Centre)

Product details

Product utility, Product range, Product design

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PROJECT DESCRIPTION Location of enterprise

Infrastructure Raw materials

Skilled labour

Utilities Power, fuel, water

Pollution control: Sewage Treatment Plant

Communication system: e.g.: Telephone

Transport facilities

Other common facilities

Production process Machinery and equipment

Capacity of the plant

Technology selected

Research and development

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MARKET POTENTIAL

Demand and supply position

Expected price

Marketing strategy After -sales service

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CAPITAL COSTS AND SOURCES OF

FINANCE An estimate of various components of capital

items such as

Land

Building

Plant And Machinery

Installation Costs

Preliminary Expenses

Margin for working capital Sources of finance

Financial Institutions

Banks

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ASSESSMENT OF WORKING CAPITAL

REQUIREMENTS

The requirement for working capital and its

sources of supply should be clearly mentioned

on the prescribed format . It will minimize the

objections from the bankers side.

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OTHER FINANCIAL ASPECTS

Prepare Profit And Loss(P&L) Account indicatingsales revenue, cost of production, allied cost andprofit.

A projected balance sheet and cash flow

statements should also be prepared to indicate thefinancial position and requirements at variousstages.

Calculate BEP to indicate at what percentage of

sales, the enterprise will break even. BEP=F/S-V*100 F= Fixed cost

S= Sales projected

V= Variable costs

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ECONOMIC AND SOCIAL VARIABLES

Socio-economic benefits to the society:

Employment generation

Import substitution

Exports

Local resource utilization

Development of area

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PROJECT IMPLEMENTATION

A time table for the project to ensure the

timely completion of all activities involved in

setting up an enterprise.

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ADVANTAGES OF BUSINESS PLANNING

Business planning Advantages:

Identifies needs and wants of consumers

Determines demand for product

Aids in design of products that fulfill consumers needs

Outlines measures for generating the cash for dailyoperation, to repay debts and to turn a profit

Identifies competitors and analyzes your product's orfirm's competitive advantage

Identifies new and/or potential customers

Allows for test to see if strategies are giving the desiredresults

It gives confidence to the entrepreneur/promoter sinceit involves studying of various aspects related toproject implementation

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MARKETING PLAN

Describes market conditions and strategy

related to how products and services will be

distributed, priced and promoted.

Definition:

Written statement of marketing objectives,strategies, and activities to be followed in

business plan.

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CHARACTERISTICS OF A MARKETING

PLAN It should provide a strategy for accomplishing the

company mission or goal.

It should be based on facts and valid assumptions.

It must provide for the use of existing resources.

An appropriate organization must be described toimplement the marketing plan.

It should provide for continuity so that each annualmarketing plan can build on it, successfully meeting long-term goals and objectives.

It should be simple and short. It should be flexible.

It should specify performance criteria that will bemonitored and controlled.

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MARKETING RESEARCH FOR THE NEW

VENTURE

Step one: Defining the Purpose or Objectives

Step two: Gathering Data From Secondary Sources

Step three: Gathering Information Form Primary

Sources

Step four: Analyzing and Interpreting The Results

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STEPS IN PREPARING THE MARKETING

PLAN Defining the Business Situation

Defining the Target Market/Opportunities andThreats

Considering Strengths And Weaknesses Establishing goals and objectives

Defining Marketing Strategy and Action Programs

1. Product or services

2. Pricing

3. Distribution

4. Promotion

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CONTD: STEPS IN PREPARING THE MARKETING PLAN

Budgeting the marketing strategy

Implementation of the marketing plan

Monitoring progress of marketing actions

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THE MARKETING SYSTEMEXTERNAL

ENVIRONMENT

Economy

Technology

Demand

Legal considerations

Raw materials

competition

INTERNAL

ENVIRONMENT

Financial resources

Suppliers

Goals and objectives

Management team

Entrepreneurs

Market

planning

decisions

Marketing

strategies

directed to

customers

Purchase

decisions of

customers

Feed back

Marketing mix decisions

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SAMPLE FLOWCHART OF A MARKETING PLANCritically examine present and prospective product/

market situation

Take into account company goals and restraints

Set marketing objectives that are specific and

measurable

Determine marketing strategies and prepare action

programs with assigned responsibilities and dates foraccomplishment

Reevaluate programs against objectives

Objectives attainable Objectives not attainable

Draft marketing plan, with steps to monitor progress of

programs

Match feasibility of programs against available resources

Feasibility Not feasible

Submit marketing plan for approval

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FAILURES OF MARKETING PLAN

Lack of a real plan

Lack of an adequate situational analysis

Unrealistic goals

Unanticipated competitive moves, product

deficiencies etc

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THE ORGANIZATIONAL PLAN

The organizational plan is the part of the

business plan that describes the

ventures form of ownership i.e:

proprietorship, partnership and

corporation.

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LEGAL FORMS OF BUSINESS

1. Proprietorship : Form of business with single

owner who has unlimited liability, controls all

decisions and receives all profits.

2. Partnership : two or more individuals having

unlimited liability who have pooled resources

to own a business.

3. Corporation: separate legal entity that is runby stockholders having limited liability.

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FACTORS INVOLVED IN

ORGANIZATIONAL PLAN

Ownership

Liability of owners

Costs of starting business

Continuity of business

Transferability of business

Capital requirements Management control

Distribution of profits and losses

Attractiveness for raising capital

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DESIGN OF THE ORGANIZATION

Organization structure

Planning, measurement and evaluation

schemes

Rewards

Selection criteria

Training

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BUILDING THE MANAGEMENT TEAM AND

A SUCCESSFUL ORGANIZATION CULTURE

Functions of team:

Execute the business plan

Identify fundamental changes in the business as

they occur

Make adjustments to the plan based on changes

in the environment and market that will maintain

profitability

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ORGANIZATION CULTURE

The Organization Culture will be a blend

of attitudes, behaviors, dress and

communication styles that makesdifferent from another.

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IMPORTANT ASPECT OF

ORGANIZATION CULTURE

The entrepreneus desired culture must matchthe business strategy outlined in the businessplan.

The leaders of the organization must lead andbe role models for their employees.

The entrepreneurs should be flexible enough

to try different things. It is necessary to spend extra time in the

hiring process

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THE ROLE OF A BOARD OF DIRECTORS

Reviewing operating and capital budgets. Developing longer- term strategic plans for

growth and expansion.

Supporting day-to-day activities.

Resolving conflicts among owners or

shareholders.

Ensuring the proper use of assets.

Developing a network of information sources

for the entrepreneurs.

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THE PRODUCTION PLAN/ OPERATIONS

PLAN The production plan is necessary for

manufacturing operations. This plan describes

the complete manufacturing process.

Production system: Is a system whose function

is to convert a set of inputs into a set of

desired outputs.

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THE PRODUCTION PLAN

The plan should includes:

Location

Plant layout

Reasons for selection Costs of manufacturing

Machinery and equipment

Raw materials

Suppliers name

Addresses

Future capital equipments needed

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A PRODUCTION SYSTEM

INPUTS

CONVERSION

PROCESS OUTPUTS

CONTROL

LAND

BUILDING

MACHINERY

LABOUR

CAPITAL

MANAGEMENTMARERIALS

GOODS

&SERVICES

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OBJECTIVES OF PRODUCTION

PLANNING

To deliver quality goods in required quantities tothe customer in the required delivery schedule.

To ensure optimum utilization of all resources.

To ensure production of quality resources. To coordinate between labor and machines and

various supporting departments.

To plan for plant capacities for future

requirements. To establish routes and schedules for work.

To contribute to the profit of the enterprise.

To ensure cost reduction and cost control.

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OPERATIONS PLAN

All businesses- manufacturing ornonmanufacturing should include an

operations plan as part of the business plan.

Manufacturing process: Describes the flow ofgoods and services from production to the

customer.

Non manufacturer: Retailer and service

provided

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EXAMPLE:

An internet retail sports clothing operation

would need to describe how and where the

products offered would be purchased, how

they would be stored, how the inventory

would be managed, how products would be

shipped and how a customer log on and

complete transaction.

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THE FINANCIAL PLAN

The financial plan is the projection of key

financial data that determine economic

feasibility and necessary financialinvestment commitment for the new

venture.

E.g.: sales budget, manufacturing budget

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Pro forma Income Statements

Pro forma income:

Net profit= Projected revenues Projected costs

and expenses

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Pro forma Cash Flow

Projected cash flow= Projected cashaccumulations Projected cash

disbursements

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Pro forma Balance Sheet

Summarizes the projected assets, liabilities

and net worth of the new venture.

Assets : the items that are owned or available

to be used in the venture operations.

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Break Even Analysis

Volume of sales where the venture neithermakes a profit nor incurs a loss.

TFC

BEP=SP-VC/unit(marginal contribution)

TFC= Total Fixed CostSP=Sales Projected

VC= Variable Cost

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Pro forma sources and applications of

funds

Summarizes the projected sources of

funds available to the venture and how

these funds will be distributed.