UNIT 4

BUSINESS PLAN

What Is a Business Plan?

A business plan is a document that defines in detail a company’s objectives and how it plans to
achieve its goals.

A business plan is a written document which an entrepreneur intends to take up, identifies business
goals and services as the resume of the business.

Definition
Business planning is the process whereby a company makes the following decisions:

➢ What products or services it will deliver?

➢ Where it will complete?
➢ Why the customer should do the business with the company?
➢ How it will organize and re-engineer itself accomplish its goals?

Definition: BUSINESS PLAN

Business plan is a written document prepared by entrepreneur that describes all the
relevant external and internal elements involved in starting new venture. It is an integration of
functional plans such as marketing, finance, manufacturing and human resource plan.

A business plan is a blue print of step by step process that would be followed to convert
business idea into successful business venture.

OBJECTIVES OR IMPORTANCE OF BUSINESS PLAN

❖ To give direction to the vision formulated by the entrepreneur

❖ To objectively evaluate the prospectus of business
❖ To monitor the progress after implementing business plan
❖ To persuade others to join business
❖ To seek loans from financial institutions
❖ To visualize concept in terms of market availability, organizational, operational, and financial
feasibility
❖ To guide entrepreneur in actual implementation of plan
❖ To identify actual strength and weakness of plan
❖ To identify challenges in terms of opportunities and threats from the external market
❖ To clarify ideas and identify gaps in management information about their business,
competitors and market.
❖ To identify the resources that would be required to implement the plan
❖ To document ownership arrangements, future prospectus and projected growth of the
business venture.
Business planning Process:

BUSINESS PLANNING PROCESS

❖ Idea generation is the first step in the business planning process. This step differentiates
entrepreneur from usual business. An entrepreneur may come up with new business idea or
may bring in value addition to existing product in the market. Sources of new idea for
entrepreneurs are:
• Consumers/ customers
• Existing companies
• Research and development
• Employees
• Dealers, retailers
❖ Environmental scanning
Once the entrepreneur is through the idea generation stage, next entrepreneur is
required to conduct environmental scanning, which includes analyzing external and internal
environment that affects business idea.

i. External environment comprises of:

▪ Socio cultural appraisal: it gives brief overview about the culture and tradition
existing in society. It is comprised of values and beliefs of people which determines
the acceptance of product by customer in the market.
▪ Technological appraisal: it assess various technological options available to convert
an idea to product. It also provides an brief overview about technological updation.
 ▪ Economic appraisal: it assess the status of the society in terms of economic
development, per capita income, national income, consumption pattern in the
business.
▪ Demographic appraisal: it assess the population pattern of given geographic area.
Which includes sex, age profile, distribution etc.
▪ Economic appraisal: it assess the status of the society in terms of economic
development, per capita income, national income, consumption pattern in the
business.
▪ Demographic appraisal: it assess the population pattern of given geographic area.
Which includes sex, age profile, distribution etc.
▪ Government appraisal it assess the various legislation, policies, incentives
formulated for particular industry. Flexibility of these rues determine ease for
entrepreneur in terms of opening venture in particular area.

ii. Internal environment:

Raw material: it refers to in terms of availability of raw material required for the
process of production. If the material availability is at distance place and is very expensive
then entrepreneur should give second thought to the same

Production/ operation It assess the availability of various machineries, equipments,

tools and techniques that would be required for production.

Finance: it studies total requirement of finance in terms of start up expenses, fixed

expenses, running expenses etc.

Market: refers to study on potential customer and target customers in market.

Human resource: refers to demand and supply of required human resource in

market and estimation of expenses to be incurred on human resource.

❖ Feasibility analysis refers to conducting detailed analysis in relation to every aspect

relevant to business and determining credibility of business.
• Market analysis is conducted to estimate the demand and market share for
proposed product and service in future. Demand and market analysis is based on
factors like consumption pattern, availability of substitute goods and services etc.
• Technical and operational analysis is to assess operational ability of proposed
business enterprise. Technical or operational analysis collects data on following
parameters:

1. Material availability
2. Material requirement planning
3. Plant location
4. Plant capacity
5. Machinery and equipment.

Marketing plan: lays down the strategies of marketing which can lead to success of business
plan. Strategies are in terms of marketing mix which includes (product, price, place, promotion)
which determines the potential demand of customers for product in the market.
 Production plan / operational plan: production plan is drafted for manufacturing sector
where as operation plan is designed for business into service sector. It comprises of strategies on
parameters such as location layout, cost, availability of material, human resource etc.

Organizational plan: defines type of ownership pattern in company, sole trading concern,
family business, private or public limited company etc.

Financial plan: financial plan indicates the requirement of proposed business enterprise. Which
includes fund flow, cash flow statement, break even point, projected ratio, projected balance sheet.

❖ Project report preparation project report is a written document that describes step
by step strategies involved in starting and running business.

❖ Evaluation, control and review: as company operates in dynamic environment

company has to monitor and review strategies and policies to stay in line with competition
existing in market.

Advantages of Business Planning:

1. Business Planning helps the Company to formulate objectives and goals clearly. The
company formulates objectives after discussing thoroughly with superiors, colleagues and
sub-ordinates. These objectives help the company to achieve stability of business and
maximize profits.

2. Business planning helps to avoid piece-meal approach and to have integrative approach.

3. Business planning helps to view the organization in total rather than department-wise.

4. Business plan aims at the long-range plan rather than short-range plan.

5. Business plan integrates the company plan with the national plans and priorities.

6. Business plan takes into consideration the environmental factors. Technological factors
influence the business plan significantly. Technology has been upgraded continuously. The
changes in technology are pivotal, resulting in high technology.

Announcement of economic liberalizations, globalization and privatization policies by the

Government of India, in 1991, changed the economic scenario of the country. The changing
scenario influences the economic environment. Added to this, significant changes have taken
place in social and political environment.

7. Liberalization, Privatization and Globalization not only brought significant changes in the
economy, but they have intensified the competition. Globalization allowed many MNC’s to
enter and operate in India. This resulted in tough competition between domestic and foreign
companies.

The liberalizations policy of the Government allowed for the establishment of a

number of companies. It resulted in severe competition even within the domestic companies.
Business plan should take into consideration, the competition levels among the companies.
8. A good business plan helps an organization to be aware of the changes in political
trends and their impact in business at national and international levels.

9. Effective business plan helps the company to achieve its objectives and goals.

10. Effective business plan certainly contributes for the achievement of high rate of
profits and increases in earning per share.

11. Business plan helps to determine potential growth and profit.

Project report for New Business – Format

Below is the sequence of standard format which should be followed while preparing new
business project report:

➢ Background of the business

➢ Customer’s profile
➢ Long and short term Corporate Objectives

• To perform a viability assessment of the proposed new business ideas in terms

of marketability, technical feasibility, financing and authorities
• To be able to prepare a relevant business plan
• To recognize fundamental startup issues

➢ Market Analysis

• Brief discussion on the type of market, chief influencers, players, etc

• Market description
• Reasons for starting business in a particular market
• Target clients
• Advantages of the services offered by the new business
• Market consumption patterns
• Past and existing supply location
• Production prospects and limitations
• Exports and Imports
• Price structure
• Flexibility of demand
• Client behavior, purposes, intentions, impetus, approaches, inclinations and
needs
• Supply network and marketing rules formulated by the government
• Government and technical limitations imposed on the promotion of the
product

➢ Financial Assessment

• Investment expenditure and value of the entire project

• Methods of investment
• Anticipated productivity
• Money flows of the project report
• Investment value evaluated in context of different points of merit
• Estimated financial ranking
➢ Marketing Assessment

• Product
• Price
• Place
• Promotion

➢ Operational Plan

• Business models
• Production of goods and services

➢ Financial Plan

➢ Management Structure

➢ Business structure (Ownership, staff, etc)

➢ SWOT Analysis
• Significant Success aspects depending on Strengths, Weaknesses,
Opportunities and Threats to be faced by the firm in future

➢ Appendices

• Break-Even Assessment
• Profit and Loss Synopsis
• Fund Flow Summary