UNIT-4-ED-BBA IV -AU.ppt - BUSINESS PLANNING PROCESS UNIT-4...

This preview shows page 1 out of 42 pages.

Unformatted text preview: BUSINESS PLANNING PROCESS UNIT-4 Prasad Venkatesh Associate Professor Alliance School of Business Alliance University Bangalore VENKATESH PRASAD TOPICS TO BE COVERED Business Plan-Meaning and objectives and advantages of BP, Business Plan Process - Common pitfalls to be avoided in preparation of a BP Typical BP format – Facets of a Business PlanFinancial Marketing - Human Resources Technical and Social: Project Report Preparation VENKATESH PRASAD Meaning of Business Plan The business plan is a written document prepared by the entrepreneur that describes all the relevant external & internal elements involved in starting a new firm. It is often an integration of all functional plans such as marketing, finance, manufacturing and human resources. VENKATESH PRASAD BUSINESS PLAN A written document that outlines the future activity for an existing or proposed business venture. Is the formal written expression of the entrepreneurial vision, describing the strategy and operations of the proposed venture. A business plan is a document that brings together the key elements of a business that include details about the products and services, the cost, sales and expected profits. Blue Print VENKATESH PRASAD OBJECTIVES OF BUSINESS PLAN To give directions to the vision formulated by entrepreneur. To objectively evaluate the prospects of business. To monitor the progress after implementing the plan. To persuade others to join the business. To seek loans from financial institutions. To visualize the concept in terms of marker availability, organizational, operational and financial feasibility. To guide the entrepreneur in the actual implements of the plan. VENKATESH PRASAD Contd… To identify the strengths and weakness of the plan. To identify challenges in terms of opportunities and threats from the external markets. To clarify ideas and identify gaps in management information about their business, competitors and the market. To identify the resources that would be required to implement the plan. To document ownership arrangements, future prospects and projected growths of the business venture. VENKATESH PRASAD Advantages of Business Plan It helps an entrepreneur judge the viability and profitability of a given enterprise proposal. It is the basis on which bank sanctions long term financial assistance. It aids the process of firming up technical arrangement Choosing location, selecting P&M, Determining Manpower & other parameters. It generates knowledge base for the entrepreneur. VENKATESH PRASAD Advantages of Business Plan It educates the entrepreneur regarding the degree of risk underlying the enterprise proposal It provides guidance to the entrepreneur in organizing his or her planning activities. VENKATESH PRASAD Business Plan Process Preliminary Investigation Idea Generation Environmental Scan Feasibility Analysis Project Report Preparation Evaluation, Control & Review VENKATESH PRASAD Preliminary Investigation Before preparing the plan entrepreneur should: – – – – Review available business plans (if any) Draw key business assumptions on which the plants will be based (e.g. inflation, exchange rates, market growth, competitive pressures etc) Scan the external environment and internal environment to assess the strengths, weakness, opportunities and threats. Seek professional advice from a friend/ relative or a person who is already into similar business (if any) VENKATESH PRASAD Contd… Idea Generation:- Entrepreneurship is not just limited to innovation (generation of an entirely new concept, product or service, but it also encompasses in incremental value addition to the concept/product/services offered to the consumer, shareholder and employee). Hence value addition is the key work that an entrepreneur needs to keep in mind while generating new ideas even at the inception stage. The various sources of new ideas are: – – – – – Consumers/Customers Existing Companies Research and Development Employees Dealers, retailers VENKATESH PRASAD Environmental Scanning Before getting into the finer details of setting up business it is advisable to scan the environment – both external and internal-and collect the information about the possible opportunities, threats from the external environment and strength and weaknesses from the internal environment. VENKATESH PRASAD External Factors Socio-Cultural Appraisal: It assesses the social and cultural norms of a society in a given period of time. The variables that are appraised are values, beliefs, norms, fashions and fads of a particular society. It can help understanding rigidity/flexibility of a given society towards a new product/service/concept. Take for example the socio-cultural norms of United States and United and United Arab Emirates. Americans are experimenting and adventurous whereas Arabs are consecrating. If an entrepreneur wishes to introduce an innovating product like bungee jumping, its acceptability would be more in America than in the UAE. Technological Appraisal: It assesses the various technological know-how available to convert the idea into a product. It can also be done to assess the various modern technologies expected in the near future and their receptiveness by the industry. For example, an entrepreneur has an idea of manufacturing tobaccofree herbal cigarettes which would not harm the health of smokers; technological appraisal can assess whether manufacturing of this kind of product is possible or not. VENKATESH PRASAD Contd… Economic Appraisal: It assesses the status of economy in a given society in terms of inflation, per capita income and consumption pattern, balance of payments, consumer price index etc. A healthy economy offers greater opportunities for growth and development of the industry and therefore provides greater confidence to the entrepreneur about the success of his business venture. Demographic Appraisal: It assesses the overall population pattern of a given geographical region. It includes variables like age profile, distribution, sex, education profile, income distribution etc. The demographic appraisal can help in identifying the size of target customers. Governmental Appraisal: It assesses the various legislations, policies, incentives, subsidies, grants, procedures etc. formulated by government for a particular industry. The softer the government norms for the industry, the easier it is for the entrepreneur to establish and run the business. VENKATESH PRASAD Internal Factors Raw Material: It assesses the availability of raw material now and in the near future. If the availability of raw material is less now or would be less in future then the entrepreneur should give a serious thought to establishing a venture as the entire system can come to a standstill due to shortage of raw material. Production/Operation: it assesses the availability of various machineries, equipments, tools and techniques that would be required for production/operation. Finance: It assesses the total requirements of finance in terms start-up expenses, fixed expenses and running expenses. It also indicates the sources of finance that can be approached for funding. VENKATESH PRASAD Contd… Market: It assesses the present, potential and latent demands of the market. Human Resource: It assesses the kind of human resources required and its demand and supply in the market. This further helps in estimating the cost and level of competition in hiring and retaining the human resources. VENKATESH PRASAD Feasibility Analysis Feasibility study is done to find whether the proposed project (considering the above environmental appraisal) would be feasible or not. It is important to demarcate environmental appraisal and feasibility study at this point. Environmental appraisal is carried out to asses the external and internal environment of the geographical area/area where, entrepreneur intends to set up his business enterprise, whereas feasibility study is carried out to asses the feasibility of the project itself in a particular environment in greater detail. Hence, though feasibility study would be dependent on environmental appraisal yet it is far more descriptive. VENKATESH PRASAD Contd… Market Analysis: Market analysis is to be conducted for the following reasons. – To estimate the demand of the proposed product/service in future. – To estimate the market share of the proposed product/service in future. Technical/Operational Analysis: Technical/Operational Analysis is done to asses the operational ability of the proposed business enterprise. The cost and availability of technology may be of critical importance to the feasibility of a project or it may not be an issue at all. Key questions to be answered are: – – – – – What are the technological needs of the proposed business? What other equipment does the proposed business need? From where will this technology and equipment be obtained? From where can the raw material be obtained? What would be the equipment and technology? VENKATESH PRASAD Contd… Technical/Operational Analysis collects data on the following parameters: – – – – – – Material availability Material Requirements planning Plant location Plant capacity Machinery and equipment Plant layout. VENKATESH PRASAD Contd… Financial Feasibility: Once the analysis of marketing and operations has been done successfully, a final financial feasibility is done to asses’ financial issues of the proposed business venture. Following cost estimates have to be carried out. – Cost of land and building: depending on the requirement and the availability of funds the land and building can be hired, can be taken on lease or purchased. – Cost of plant and machinery: It includes estimates of cost of plant and machineries, their running and maintenance cost. – Preliminary accost estimation is made to asses how much cost would be required in conducting market survey, preparing feasibility report, expenses in registering and incorporating machine, establishment expenses, expenses in raising capital from public and other miscellaneous expenses. – Provision for contingencies needs to be made to convert certain unexpected expenses which can emerge due to change in the external environment, like increase in price of raw material, or transport costs going up if the petrol prices are revised. – Working capital estimates for running the business are also made. VENKATESH PRASAD Contd… – – – – – – – – Cost of production, which would include raw material cost, labor cost, overhead expenses, utilities like power, water, fuel etc. Sales and production estimates: Based on the plant capacity the production and sales estimates are made, which help in estimating profitability. Profitability projections are made on the following parameters: Cost of production Sales expenses Administrative expenses Expected sales. Summation of all above gives gross profit. Based on the above information, the following projections are made: Break-even point Cash flow statement. Balance sheet statement. Multiyear projections (see financial plans for details) VENKATESH PRASAD Format of Business Plan TITLE PAGE Name of the business Owner /Owners Contact Details (Addresses, Phone & email etc) EXECUTIVE SUMARY Business ideas & Goals : Over view of business Marketing : Products & services being sold? Operations : Business Location & staff Finances : Breakeven period, finance required. VENKATESH PRASAD Format of Business Plan BACKGROUND Mission Statement Company history ( existing business) Business Goals (Short term/Long term) MARKETING Market Research Market Analysis (Industry / Seasonality /Competitors /SWOT ) Marketing Plan (Target market/ distribution channel /pricing) Evaluation of Marketing VENKATESH PRASAD OPERATIONS & PRODUCTION Legal & Licensing requirements Management details Organization structure & staffing Insurance & Security needs FINANCIAL PROJECTIONS Income & Expenses Financial forecasts IMPLEMENTATION TIME TABLE Time needed to set up & run the business VENKATESH PRASAD BUSINESS PLAN MISTAKES VENKATESH PRASAD NOT CLEAR IN EXPLAINING THE OPPORTUNITY This is the most frequent mistake many entrepreneurs make. If you don’t present your opportunity in a clear manner, it will not attract the investor to proceed to the next stage, giving the loan. Make sure to define your business objective in a clear and simple manner in order to attract investors. VENKATESH PRASAD Unrealistic projection The second most common mistake an entrepreneur makes is adding unrealistic and irrelevant projections. Financial projections are one of the most important sections in business plan that must be relevant and realistic. Give enough time in projecting financials. Don’t overestimate! VENKATESH PRASAD COMPETITION Every business whether big or small, has competitors. It is essential to describe briefly about your competitors in a business plan. Many entrepreneurs make a big mistake by thinking that they don’t have competitors. VENKATESH PRASAD Mistakes and errors It is necessary to proofread business plan after completing it successfully. Proofreading will help you get rid of all the errors and mistakes you made while writing business plan. Include each and every thing you think an investor wants to see in your business plan otherwise they will not take your business plan seriously and your plan will get covered with dust. Include everything from company overview to financials. VENKATESH PRASAD Drawing Functional Plan Marketing plan: – Marketing plans lays down the strategies of marketing which can lead to success of business. These strategies are in terms of Marketing Mix (product, price, place and promotion) From the market feasibility study and marketing research, potential/present demand of customers is determined, which helps in understanding the profile of customers and hence helps in laying down the strategies for segmentation of the market, identification of the target market and laying down strategies for target market. VENKATESH PRASAD Production/Operation plan: – Production plan is drawn for business enterprises in the manufacturing sector whereas operational plans are drawn for business enterprises in the service sector. The production/ operation plan should include strategies for the following parameters: • Location and reasons for selecting the location. • Physical layout. • Cost and availability of machinery, equipments, raw material. • List of suppliers and if possible, distribution. • Cost of manufacturing/running the operations. • Quality Management. • Production scheduling, capacity management and inventory management. • Changes in above in case of expansions of business. VENKATESH PRASAD Organizational Plan: – Organizational plan defines the type of ownership: it could be single proprietary, partnership firm, company, and private limited or public limited. It also proposed an organizational structure and proposed human resource management practices; that would govern the successful running of the proposed business enterprise. Financial Plan: – Financial plan indicates the financial requirements of the proposed business enterprise • Cost incurred in smooth running of the entire financial plan (marketing, operation and human resources). • For example, cost incurred in the marketing plan would include forecasting sales, for production plan it includes cost of goods, for organizational plan it includes cost of compensation to employees. • Projected cash flows. • Projected income statement. • Projected break-even point • Projected ratios. • Projected balance sheet. VENKATESH PRASAD Contd … Project Report Preparation A project report helps to understand the opportunities, problems and weakness of the business. It guides the entrepreneur in actually starting up and running the business venture. It helps him to monitor whether the business is growing as was projected in the business plan or not. It helps in documenting; the cost estimates of the business. It can be used as a handy tool to persuade investors and financial institution, to fund the project. It can help in proper utilization of all the resources. It can keep the morale of employees, owners and investors up. It can finally lead to a sustainable development of the organization. VENKATESH PRASAD Essentials of a Project Report The project report should be sequentially arranged. It should be exhaustive (covering all the details about the proposed Project) It should not be very lengthy and subjective. It should logically and objectively explain the projections. The projections should be appropriately be made from two to ten years. It should be professionally made to demonstrate that the promoters possess entrepreneurial acumen and sound experience. It should justify the financial needs and financial projections. The project report should also justify market prospects and demands. It should be attractive to the financial agencies and investors. It should also have a high aesthetic value. Projected funds Flow. Projected Ratios. VENKATESH PRASAD Format of a Project Report – – – – – – – – Cover sheet (Name of company, address, Promoters) Table of Contents Executive summary (2-3 pages) The business Objective for setting up business Brief history of past performance (if any) Form of ownership Name, qualification of the owners. Proposed/actual headquarters Proposed/actual capital structure The funding Requirements Debt Equity VENKATESH PRASAD Contd… The Product/Service – – Description of product /service. Comparative analysis with similar products/substitute products. – Parents, trademarks, copyrights, franchises, and licensing agreements. The Plan – Marketing plan • Market demography, like profiles of customers and end-users; preferences and needs. • Strengths and weaknesses of competitors. • SWOT analysis of the market. • Marketing Mix strategy. – – – – Product Mix strategy Promotion Mix strategy Price Mix strategy Distribution Mix strategy. VENKATESH PRASAD Contd… Operational plan – – – – – Plant location Plant Labour Material Requirement Inventory Management Quality Control Organizational Plan – – – – Organizational chart Details about the Board of Directors Manpower Planning Legal Aspects of Labour VENKATESH PRASAD Contd… Financial plan for Two-five years. – For existing companies, a summary of previous financial data – Projected sales – Projected Income & Expenditure statement – Projected Break Even point – Projected profit Loss statement. – Projected Balance sheet – Projected cash flows. – Projected Funds flow – Projected Ratios VENKATESH PRASAD – – Critical Risk Contd… The investors are interested in knowing the tentative risks to evaluate the viability of the project and to measure the risks involved in the business. This can further give confidence to the investors as they can calculate the risks involved in the business. In turn gives confidence to the investors as they can calculate the risks involved in the business from their perspectives as well. Exit Strategy The exit strategies would provide details about how the organization would be dissolved, what would be the share of each stakeholder in case of winding-up of the organization. It further helps in measuring the risks involved in investing. VENKATESH PRASAD Contd… Appendix – – – – – – Curriculum Vitae of the owners Ownership Agreement Certificate from pollution board. Memorandum of Understanding Articles of Association Any other documents that help in marketing the project viability. VENKATESH PRASAD THANK YOU VENKATESH PRASAD ...
View Full Document

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture