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  1. 1. UNIT- II Business Plan
  2. 2. What you will know : <ul><li>Business Plan – An outline </li></ul><ul><ul><li>Marketing </li></ul></ul><ul><ul><li>Financial management </li></ul></ul><ul><ul><li>Operational management </li></ul></ul><ul><li>Leasing techno parks </li></ul><ul><li>Own premises/ rental offices </li></ul><ul><li>Franchise operation </li></ul><ul><li>Own employees/ contract labour </li></ul><ul><li>Method of management of above. </li></ul>
  3. 6. Financial statements <ul><li>What is the need? </li></ul><ul><li>Financial data is the back bone of a business plan </li></ul><ul><li>Its like pulse, respiration rate and blood pressure for a human because it tells if the business is alive or dead and the odds for continued survival </li></ul><ul><li>It provides an accurate picture of a company’s current value, its ability to pay its bills and earn a profit going forward </li></ul>
  4. 7. Contd… <ul><li>There are three common financial statements </li></ul><ul><li>Income statement </li></ul><ul><li>Cash flow statement </li></ul><ul><li>Balance sheet </li></ul><ul><li>These give the actual picture of the financial health of the company and they are interlinked. </li></ul>
  5. 8. Income statement <ul><li>It’s a report on the company’s cash generating ability </li></ul><ul><li>It’s a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred </li></ul><ul><li>In short it is a statement that tells how much your company makes or loses during the year- It’s the “profit – loss” statement </li></ul>
  6. 9. Contd… <ul><li>The income statement should be generated as follows in a business plan </li></ul><ul><li>First year – Monthly basis </li></ul><ul><li>Second year – Quarterly basis </li></ul><ul><li>Third year onwards – Annual basis </li></ul>
  7. 10. Contd… <ul><li>Composition </li></ul><ul><li>Income </li></ul><ul><li>Cost of goods ( sale of goods in inventory ) </li></ul><ul><li>Gross profit margin (Revenue – Cost of goods) </li></ul><ul><li>Operating expenses (Over head and labour) </li></ul><ul><li>Total expense </li></ul><ul><li>Net profit </li></ul><ul><li>Depreciation </li></ul><ul><li>Net profit before interest ( Net profit- Depreciation) </li></ul><ul><li>Interest </li></ul><ul><li>Net profit before tax </li></ul><ul><li>Tax ( land tax, building tax, corporation tax, sale tax etc) </li></ul><ul><li>Profit after tax </li></ul>
  8. 11. Cash flow statement <ul><li>Critical information tool- shows how much cash will be needed to meet obligations, when its required and from where it will come. </li></ul><ul><li>It shows the schedule of the money coming into the business and the expenses that need to be paid </li></ul><ul><li>The result is the profit or loss at the end of the month or the year </li></ul>
  9. 12. Contd… <ul><ul><ul><ul><ul><li>composition </li></ul></ul></ul></ul></ul><ul><li>Cash sales </li></ul><ul><li>Receivables </li></ul><ul><li>Other income (Investments, Interests, Liquidation of assets etc) </li></ul><ul><li>Total income (Total cash + cash sales+ receivables+ other income) </li></ul><ul><li>Material ( raw material, cash outlay for inventory) </li></ul><ul><li>Production labour </li></ul><ul><li>Overhead </li></ul><ul><li>Marketing/ sales ( salary, commission, direct costs for sales/ mktg.) </li></ul>
  10. 13. Contd… <ul><li>Research and development </li></ul><ul><li>General and administrative expenses </li></ul><ul><li>Taxes </li></ul><ul><li>Capital ( equipment cost for income generation) </li></ul><ul><li>Loan payment </li></ul><ul><li>Total expenses ( material + direct labour + overhead + mktg + sales + G&A + taxes + capital + loan payments) </li></ul><ul><li>Cash flow ( Total income – Total expenses) </li></ul><ul><li>Cumulative cash flow ( Current - previous yr. cash flow) </li></ul>
  11. 14. Balance sheet <ul><li>Its generated annually and is a summary of the following; </li></ul><ul><li>1.Assets, 2. liabilities, 3. Equity </li></ul><ul><li>To obtain financing we need to provide a projection of the balance sheet over a period of time the business plan covers. </li></ul>
  12. 15. ASSETS <ul><li>The assets are of 2 types- Current assets & </li></ul><ul><li>Long term / fixed </li></ul><ul><li>Current Assets </li></ul><ul><li>Cash </li></ul><ul><li>Accounts receivable ( Income derived from Credit) </li></ul><ul><li>Inventory (inventory used to mfr. a product not yet sold) </li></ul><ul><li>Total current assets ( Cash + Acc. Receivables + Inventory + supplies) </li></ul>
  13. 16. Long term/ Fixed assets <ul><li>Capital and plant ( [ Capital equipment cost + Property cost] – depreciation) </li></ul><ul><li>Investments ( Investments that cannot be converted to cash in less than one year) </li></ul><ul><li>Misc. Assets { All assets – (Capital & plant + Investments)} </li></ul><ul><li>Total long term assets ( Capital +Investment + Misc. assets) </li></ul><ul><li>Total assets ( Total current + Total long term) </li></ul>
  14. 17. LIABILITIES <ul><li>Classified into current & long term liabilities </li></ul><ul><li>Current liabilities: </li></ul><ul><li>Accounts payable ( Credits & Dues) </li></ul><ul><li>Accrued liabilities ( expenses incurred for operation but </li></ul><ul><li>not paid while closing books- usually overheads and salaries) </li></ul><ul><li>Taxes </li></ul><ul><li>Total Current liabilities (Accounts payable + Accrued liabilities + taxes) </li></ul>
  15. 18. Contd… <ul><li>Long term liabilities </li></ul><ul><li>Bonds Payable </li></ul><ul><li>Mortgage payable </li></ul><ul><li>Notes payable ( payments to receive but not during the current year) </li></ul><ul><li>Total long term liabilities (Bonds Payable + </li></ul><ul><li> Mortgage payable +Notes payable) </li></ul><ul><li>Total liabilities (Total current + long term liabilities) </li></ul>
  16. 19. Equity <ul><li>Owners equity = Total assets – total liabilities </li></ul><ul><li>It’s the capital invested by the owner </li></ul><ul><li>It’s the yardstick used by investors when evaluating the company </li></ul>
  17. 20. Leasing Techno parks <ul><li>A techno park is basically a business incubator. </li></ul><ul><li>An incubator incubates a start up and helps it with the entrepreneurial process and help ensure its survival </li></ul><ul><li>Techno parks are incubators geared towards helping a technology based business. </li></ul>
  18. 21. Contd… <ul><li>New economic environment required redirection of our activities to market oriented model in order to: </li></ul><ul><ul><ul><li>Seek new markets; </li></ul></ul></ul><ul><ul><ul><li>Adjust R&D and products to fit the new market requirements better; </li></ul></ul></ul><ul><ul><ul><li>Commercialize production; </li></ul></ul></ul><ul><ul><ul><li>Develop fundraising sources and opportunities. </li></ul></ul></ul>
  19. 22. Contd… <ul><li>Techno parks basic characteristic is its proximity to academic institutions. </li></ul><ul><li>This is logical since technology is knowledge driven, and hence it must be located where knowledge is nurtured. </li></ul>
  20. 23. Pros of techno parks <ul><li>Provide additional funding for R&D and innovations under circumstances, when there is insufficient funding from the State budget and unfavorable conditions for external sourcing ; </li></ul><ul><li>Improve efficiency of manufacturing processes; </li></ul><ul><li>Enhance products to make them appealing to the consumer; </li></ul><ul><li>Enhance product competitiveness in domestic & world markets. </li></ul>
  21. 24. Contd… <ul><li>Designed to international standards, built-up space is readily available in standard design modules </li></ul><ul><li>A dedicated satellite earth station is available to assure high-speed world-wide data and voice communication. </li></ul><ul><li>Techno park provides amenities like an international convention centre, library and information bureau, post office, shopping mall, restaurant. Other amenities like health club and swimming pool complement the park's business facilities. </li></ul><ul><li>There are free zones in Techno parks </li></ul>
  22. 25. Contd… <ul><li>The advantages offered are duty-free imports, 100% ownership and corporate income-tax holiday for a block of 10 years. </li></ul>
  23. 26. Own premises/ Rental offices <ul><li>Of all the decisions you'll have to make as a business owner, there are few that will affect your business quite as deeply as the decision of whether to rent your business premises or buy them outright. </li></ul><ul><li>Your business premises , the location where you do business, is integral to the success of your company. </li></ul>
  24. 27. Contd… <ul><li>The rental or mortgage payment is likely to be one of your most significant expenses - right at the top of the list with staff wages and materials. </li></ul><ul><li>Your business premises is very likely to become your largest fixed asset if you choose to buy your property outright. </li></ul><ul><li>On the other hand, if you don't own your property, you may be able to offset the lower assets with lower expenses for building and structures cover and repair expenses. </li></ul>
  25. 28. Renting <ul><li>The biggest advantage to renting the premises for your business is flexibility. When you rent, it will be far easier to move premises at will. </li></ul><ul><li>In addition, depending on your lease, you may be paying less in insurance costs, since you only need to insure your own property, and not the building as well. </li></ul><ul><li>Finally, the owner of the building will be responsible for maintenance and upkeep costs. </li></ul><ul><li>Those savings, though, will be offset by the fact that your business doesn't benefit from any increase in value of the property. </li></ul>
  26. 29. Contd… <ul><li>This could be even more important if your business invests in improvements to the property in order to further your own business interests. </li></ul><ul><li>Startup companies can most benefit from renting their premises rather than buying them. </li></ul><ul><li>Raising capital is difficult enough without having to raise capital for purchase of business premises. Renting properties gives a new business owner the advantages of lower expenses, more flexibility and less responsibility for upkeep of the premises themselves. </li></ul><ul><li>On the other side, you could find yourself subject to unexpected rent rises, particularly if expenses rise for the building owner. </li></ul>
  27. 30. Buying <ul><li>The advantages of buying your own premises are many. </li></ul><ul><li>For starters, mortgage repayments on a commercial mortgage are likely to be close to, if not actually less than, your current rental payments. </li></ul><ul><li>A purchased property offers the opportunity to bring in extra income in the form of sublets to other tenants, an option not available to renters. Subletting allows you to finance your mortgage by renting to others. </li></ul><ul><li>You'll also see savings in taxes, since interest payments on your commercial mortgage are tax deductible, while rental payments are simply another business expense. </li></ul>
  28. 31. Buying business premises <ul><li>Buying your own premises: advantages and disadvantages </li></ul><ul><li>Most small and new businesses will not have the capital to buy premises and renting may be a more viable option. However, if you do have the capital, buying your own premises can offer a number of advantages. </li></ul><ul><li>Buying a property gives you the freedom to use it as you wish - subject to planning regulations or any conditions imposed by the bank. There are many advantages to buying a property. As you are in control, you can: </li></ul><ul><li>have more flexibility over the management or repair of the building </li></ul>
  29. 32. Contd… <ul><li>profit from the building when you sell it, if it gains in value </li></ul><ul><li>let the property in the future and receive another income stream </li></ul><ul><li>move when you wish - you won't be tied to a fixed-term contract </li></ul>
  30. 33. Contd… <ul><li>However, there can also be disadvantages. </li></ul><ul><li>Buying a property could: </li></ul><ul><li>Tie up a lot of your capital, which could be used to set up and invest in your business. </li></ul><ul><li>It may be difficult to recoup the capital quickly, or at all, if you decide to give up the business when there is a downturn in the property market. </li></ul><ul><li>Leave you with negative equity or the threat of repossession if you cannot keep up with mortgage repayments. </li></ul>
  31. 34. Contd… <ul><li>Cost you a lot of time if you need to make alterations or do some building work. </li></ul><ul><li>Make you responsible for the safety of the building - for example, you need to keep up to date with and implement regulations for fire precautions and health and safety, though bear in mind that some leases also require this. </li></ul>
  32. 35. Franchise operation <ul><li>Franchising: </li></ul><ul><li>“An arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures” </li></ul>
  33. 36. Contd… <ul><li> What you may buy in a franchise </li></ul><ul><li>Product or service with established market and favourable image </li></ul><ul><li>A patented formula or design </li></ul><ul><li>Trademarks or trade names </li></ul><ul><li>A financial management system for controlling the financial revenues </li></ul><ul><li>Managerial advice from experts in the field </li></ul><ul><li>Economies of scale for advertising and purchasing </li></ul><ul><li>Head office service </li></ul><ul><li>A tested business concept </li></ul>
  34. 37. Contd… <ul><li>Advantages of franchising – to the Franchisee </li></ul><ul><li>No risk associated with creating a new business </li></ul><ul><li>Minimal problems experienced in </li></ul><ul><ul><li>Product acceptance ( Mc Donald's, Subway, Subhiksha etc.) </li></ul></ul><ul><ul><li>Management expertise ( Accounting, Personnel Management, Marketing , Production, etc.) </li></ul></ul><ul><ul><li>Meeting capital requirements ( Location analysis, market research, Demographics, Business conditions, Competition) </li></ul></ul><ul><ul><li>Market knowledge </li></ul></ul><ul><ul><li>Operating and structural controls. </li></ul></ul>
  35. 38. Own employees <ul><li>A fixed term appointment is done by the company as there own employee. </li></ul><ul><li>For own employee organization is the immediate employer </li></ul><ul><li>Becoming an employer having own employees may double the amount of paperwork </li></ul><ul><li>Maintenance of payroll records, </li></ul><ul><li>Withholding income, </li></ul><ul><li>Provision of social security, </li></ul><ul><li>Medicare to workers, </li></ul><ul><li>State taxes to workers, </li></ul><ul><li>Compensation insurance, </li></ul><ul><li>Year end earnings statements. </li></ul>
  36. 39. Contract labour <ul><li>Contract labour is the labour which is hired through some third person who is called contractor </li></ul><ul><li>For contract worker the organization is the principal employer </li></ul><ul><li>There are many advantages to hiring an independent contractor; </li></ul><ul><ul><li>smaller administrative workload </li></ul></ul><ul><ul><li>easier financial arrangement </li></ul></ul><ul><ul><li>contractor has to maintain registers, records and should be responsible for meeting all statutory obligations. </li></ul></ul>
  37. 40. Contd… <ul><li>Saves our time having to go through the normal hiring process. </li></ul><ul><li>If we are not satisfied with an employee, We can ask the Contractor to send out someone else. </li></ul><ul><li>ease with which payroll is handled </li></ul><ul><li>the contract Labour are able to do a better job in terms of supervision since they have a fear of loss of job as compared to regular workers. </li></ul><ul><li>principal employer has no liability towards the contract labours </li></ul><ul><li>No trade unions </li></ul>
  38. 41. End of unit II <ul><li>THE END OF UNIT- II </li></ul>