Unformatted text preview: BUSINESS PLANNING
PROCESS UNIT-4 Prasad Venkatesh
Alliance School of Business
Bangalore VENKATESH PRASAD TOPICS TO BE COVERED
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
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
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
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.
VENKATESH PRASAD OBJECTIVES OF BUSINESS
PLAN To give directions to the vision
formulated by entrepreneur.
To objectively evaluate the prospects of
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
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
VENKATESH PRASAD Advantages of Business
It helps an entrepreneur judge the viability
and profitability of a given enterprise
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
It generates knowledge base for the
VENKATESH PRASAD Advantages of Business
It educates the entrepreneur
regarding the degree of risk
It provides guidance to the
entrepreneur in organizing his or
her planning activities.
VENKATESH PRASAD Business Plan Process
Project Report Preparation
Evaluation, Control & Review
VENKATESH PRASAD Preliminary Investigation
Before preparing the plan entrepreneur
– – – 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
The various sources of new ideas are:
Research and Development
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
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
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
– 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…
collects data on the following
– Material availability
Material Requirements planning
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
Cost of production
Expected sales. Summation of all above gives gross profit.
Based on the above information, the following
projections are made:
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
This is the most frequent mistake many
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
VENKATESH PRASAD Unrealistic projection
The second most common mistake an
entrepreneur makes is adding unrealistic and
Financial projections are one of the most
important sections in business plan that
must be relevant and realistic.
Give enough time in projecting financials.
VENKATESH PRASAD COMPETITION
Every business whether big or small, has
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
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
Include everything from company overview to
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
• Physical layout.
• Cost and availability of machinery,
equipments, raw material.
• List of suppliers and if possible,
• Cost of manufacturing/running the
• Quality Management.
• Production scheduling, capacity
management and inventory
• 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
• 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
VENKATESH PRASAD Essentials of a Project
The project report should be sequentially arranged.
It should be exhaustive (covering all the details about the
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
It should justify the financial needs and financial projections.
The project report should also justify market prospects and
It should be attractive to the financial agencies and
It should also have a high aesthetic value.
Projected funds Flow.
VENKATESH PRASAD Format of a Project Report –
– Cover sheet (Name of company, address,
Table of Contents
Executive summary (2-3 pages)
Objective for setting up business
Brief history of past performance (if any)
Form of ownership
Name, qualification of the owners.
Proposed/actual capital structure The funding Requirements
Equity VENKATESH PRASAD Contd…
– Description of product /service.
Comparative analysis with similar
– Parents, trademarks, copyrights, franchises,
and licensing agreements. The Plan – Marketing plan • Market demography, like profiles of customers and
• 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…
– Plant location
Quality Control Organizational Plan
– Organizational chart
Details about the Board of Directors
Legal Aspects of Labour VENKATESH PRASAD Contd…
Financial plan for Two-five years.
– For existing companies, a summary of previous
– 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…
– Curriculum Vitae of the owners
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 ...
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