Preparation of Business Plan/ Project Report

1
Preparation of Business Plan/
Project Report

BUSINESS PLAN
Session 4
E.D.P.

The Business Plan: Creating & Starting the Venture

LEARNING OBJECTIVES
1. To define what the business plan is, who
prepares it, who reads it, and how it is evaluated
2. To understand the scope and value of the
business plan to investors, lenders, employees,
suppliers and customers
3. To identify information needs and sources for
each critical section of the business plan.

LEARNING OBJECTIVES
4. To enhance awareness of the ability of the
Internet as an information resources and
marketing tool
5. Step by step explanation of the business plan
6. To present helpful question for the entrepreneur
at each stage of the planning process
7. To understand how to monitor the business plan

ROAD MAP
1. Planning as part of business operation
2. What is the business plan?
3. Who should write the plan?
4. Scope and value of the business plan – who reads
the plan?
5. How do potential lenders and investors evaluate
the plan?

ROAD MAP
6. Presenting the plan
7. Information needs
8. Using the internet as a resource tool
9. Writing the business plan
10. Using and implementing the business plan
11. Why some business plans fail?

Planning as part of business operation
Extremely important in the early stage of new
venture
Planning continues even when start-ups evolve to
mature business
Short-term goals/long term goals

Planning as part of business operation
Types of plans
Financial plan, marketing plan, H.R. plans,
production plans, etc.
Long term/short term
Strategic/operational
Common purpose of any PLAN  provide
guidance & structure to management

What is the business plan?
 Written doc
 Describes all external/internal elements
involved in start-ups
 Integration of marketing / finance / H.R./
Production plans
 Addresses long term/short term decision
making

What is the business plan?
 Address the integration and coordination of
effective business objectives and strategies
 Roadmap or gameplan
•Where am in now?
•Where am I going?
•How will I get there?
E.g. Kathmandu trip (controllable factors/
uncontrollable factors)

Who should write the plan?
YOU……..who else!
In consultation with lawyers, accountants,
marketing consultants, engineers, etc.
Internet (information, sample templates, outlines
for business planning)
Sources  free, chargeable, partnerships

Who should write the plan?
Q. Which source/resource/consultant to use?
A. First assess your own skills

Skill Assessment
Fulfil your weak areas by relevant partnerships or
recruitments
SKILLS EXCELLENT GOOD FAIR POOR
ACCOUNTING
PLANNING
FORECASTING
MARKETING RESEARCH
SALES
PEOPLE MANAGEMENT
PRODUCT DESIGN
LEGAL ISSUES
ORGANISING

Scope and value of the business plan –
Who reads the plan?
Employees, bankers, investors, venture capitalists,
suppliers, customers, advisors, consultants
Each group will read B.P. for a different purpose
B.P. should address all issues & concerns

3 Main Perspectives of B.P.
1. Entrepreneur’s perspective  knows best the
creativity & technology involved in a new
venture
2. Marketing perspective  view the business
through the eyes of the customer
3. Investor’s perspective sound financial
projections are required

Depth & detail in B.P. depends on size and scope
of business
E.g. apparel retail store vs. mobile recharge center
**B.P. is valuable to new personnel who has just
joined the firm

Information based on assumption should also be
included
Thinking process forces Entrepreneur …..
to assess issues like cash flow, etc.
to bring objectivity to the B.P.

a. Does the idea make sense?
b. Will it work?
c. Who is my customer?
d. Does it satisfy customer needs?
e. What’s the PLAN B against
COPYCATS?
f. Can I manage such a business?
g. Who will I compete with?
•Plan ways to avoid
obstacles.
•If obstacles can’t
be avoided……
•TERMINATE THE
B.P.

How do potential lenders & investors evaluate the
plan?
B.P. should reflect strength of management/
personnel, product/service & available resources
Investors pay attention to the entrepreneur’s
experience and their projection of the market place
Suppliers evaluate (components, etc.)
Customers evaluate (high tech. equipments, etc.)

plan?
Suppliers of capital (lenders or investors) 
interested in your ability to payback (debt +
interest) within a stipulated period
BANK  facts with objective analysis of
opportunity & risks in the new venture

plan?
Typically, lenders focus on 4 C’s of credit
1. Character (Entrepreneur’s credit history)
2. Cash flow (ability to meet debt & interest
payment)
3. Collateral (tangible assets secured for loan)
4. Equity contribution

plan?
Investors (venture capitalists)  expected to
cash out within 5-7 years
a. Place more emphasis on entrepreneur’s
character
b. Play important role in actual management of
business
c. Demand high rate of returns

PRESENTING THE PLAN
20-30 minute presentation
‘sell’ your business concept
MIT forum
‘ELEVATOR PLAN’

PRESENTING THE PLAN
Prepare what to say in a short span of time
a. Why this is a good opportunity
b. How the opportunity will convert into reality?
c. Sales & profits
d. Conclude with the possible risks and the back-
up plan

INFORMATION NEEDS
1. Market information
2. Operation information
3. Financial information

INFORMATION NEEDS
Market potential for product/service
Define the market (men/women, low/high
income, rural/urban)
Well defined TG helps to project market size and
subsequent market goals

INFORMATION NEEDS
For strong marketing plan with reasonable &
measurable market goals & objectives, the
entrepreneur has to gather information on
industry & market
How to begin?

An upside-Down
Pyramid approach
to Gathering
Market Information
Market positioning
Market objectives

INFORMATION NEEDS
What are the sources of data?
Analysis of the local competitive environment of
Patna. (observation, yellow pages, etc.)
SWOT of each local competitor (M.R./ competitor
– websites, ads, menu/local published article)

INFORMATION NEEDS
Location
Manufacturing operations ( m/c, ops, in-
house/outsource?)
Raw materials (items, supplier details, costs, etc.)
Equipment (m/c, cost, buy-lease?)

INFORMATION NEEDS
Labour skills (skill needed, labour qty./skill, pay
rate, labour availability)
Space ( sq. ft. area, owned-leased?)
Overhead (tools, supplies, utilities, salaries, etc.)

INFORMATION NEEDS
Budget  include all expenditure (1 year)
 include all revenue sources (sales,
external available funds, etc.)
Capital expenditure, direct operating expenses,
etc.

INFORMATION NEEDS
identify benchmarks in the industry
establish reasonable assumptions of cost
for the new venture
To prepare budget

INFORMATION NEEDS
Source for costs
fabric/accessories/packing material
rent/ad rates
Machines
labour/staff
utilities/insurance

Using the Internet as a Resource Tool
Industry analysis/competitor analysis/
measurement of market potential, etc.
Planning/decision making
Opportunities for online marketing strategy
Access to competitor’s website/their strategy
Gather info about market, competition, customers
Distribute, advertise, sell
Newsgroup

Writing the B.P.
1. Introductory page
a. Name and address of business
b. Name(s) and address(es) of principal(s)
c. Nature of business
d. Statement of financing needed
e. Statement of confidentiality of report
2. Executive summary – 3-4 pages summarising the complete
business plan

Writing the B.P.
3. Industry analysis
a. Future outlook and trends
b. Analysis of competitors
c. Market segmentation
d. Industry and market forecasts
4. Description of venture
a. Product(s)
b. Service(s)
c. Size of business
d. Office equipment and personnel
e. Background of entrepreneur

Writing the B.P.
5. Production plan
a. Manufacturing process (amount subcontracted)
b. Physical plant
c. Machinery and equipment
d. Names of suppliers of raw materials
6. Operational plan
a. Description of company’s operation
b. Flow of orders for goods and/or services
c. Technology utilisation

7. Marketing plan
a. Pricing
b. Distribution
c. Promotion
d. Product forecasts
e. Controls
8. Organisational plan
a. Form of ownership
b. Identification of partners or principal shareholders
c. Authority of principals
d. Management-team background
e. Roles and responsibilities of members of organisation
Writing the B.P.

9. Assessment of risk
a. Evaluate weakness of business
b. New technologies
c. Contingency plans
10. Financial plan
a. Pro forma income statement
b. Cash flow projections
c. Pro forma balance sheet
d. Break-even analysis
e. Sources and applications of funds
Writing the B.P.

11. Appendix (contains backup material)
a. Letters
b. Market research data
c. Leases or contracts
d. Price lists from suppliers
Writing the B.P.

1. INTRODUCTORY PAGE
Company/promoter details
Company description/nature of business
Amount of finance needed, may also mention the
offer (stock, debt, etc.)
Statement of confidentiality of the report
“TITLE PAGE sets out the basic concept of the
venture”

2. Executive Summary
it is prepared after the total plan is written
2-3 pages in length
Should stimulate interest of potential investors
Investors read summary to determine if the
entire B.P. is worth reading
Should be concise + convincing + motivating

Executive summary should address most of the
basic questions/issues
What is the business concept/issue?
What’s the USP?
Who is(are) the Entrepreneur(s)? (previous
performance history)
How will they make money & how much?

If venture has strong growth it should include
EXIT STRATEGY
Supporting evidence, data points from M.R.,
P.O./contracts
Executive summary is similar to “opening
statement by a lawyer” or an “introductory
statement by a salesperson”

3. Environmental & Industry Analysis
Environmental analysis
identify relevant trends and changes on local/
national/international level
1. Economy – GNP, unemployment, disposable
income, etc.
2. Culture – shifts in attitudes, changing values

3. Technology
gauge the potential technological
developments (resources employed by major
firms)
make careful short-term marketing decisions
BUT …….. be prepared with PLAN B

4. Legal concerns
Be prepared for any future legislation that may
affect the marketing mix.
E.g. deregulation of prices, restriction on
advertising, safety regulations

Industry analysis
*After environmental analysis we focus on specific
industry trends
1. Industry demand
Demand data  often available from published
sources
Market is growing OR declining, no. of new
competitors, changes in consumer need/preference
M.R.  gauge demand for Entrepreneur’s product

Industry analysis
2. Competition
Who are the competitors?
Normally…..large corporations – biggest threat
What are their strengths & weaknesses?
Competitors can be identified from experience,
trade journal articles, advertisements, websites,
yellow pages

Finally, focus on specific market, say Patna
Q1. Who is the customer?
Q2. What is the business environment like in specific
markets/areas?

1. What are the major economic, technological, legal,
and political trends on a national and I’nal level?
2. What are total industry sales over the past 5
years?
3. What is the anticipated growth in this industry?
4. How many new firms have entered this industry in
the past 3 years?
3. Environmental & Industry Analysis – Q’s

5. What new products have been recently
introduced in this industry?
6. Who are the nearest competitors?
7. How will your business operation be better than
theirs?
8. Are the sales of each of your major competitors
growing, declining, or steady?

9. What are the strengths and weaknesses of each
of your competitors?
10.What trends are occurring in your specific market
area?
11.What is the profile of your customers?
12.How does your customer profile differ from that
of your competitor?

4. Description of Venture
This section should begin with mission statement/
company mission
This statement basically describes the nature of
business and what the firm hopes to achieve with
this business
It guides the firm in long-term decision making
Describe the product/service, location & size of
business, history of venture

1. What is the mission of the new venture?
2. What are your reasons for going into business?
3. Why will you be successful in this venture?
4. What development work has been completed to
date?
5. What are your product(s) and/or service(s)?
6. Describe the product(s) and/or service(s),
including patent, copyright, or trademark status.
4. Description of Venture – Q’s

7. Where will the business be located?
8. Is your building new? Old? In need of
renovation? (if renovation is needed, state costs)
9. Is the building leased or owned? (State the
terms)
10. Why is the building and location right for your
business?

11. What office equipment will be needed?
12. Will equipment be purchased or leased?
13. What experience do you have and/or will you
need to successfully implement the business
plan?

Location
vital in case of retail
E.g. area, space, parking, accessibility from road,
access to customer, suppliers, distributors, delivery
rates, town regulations, zoning laws
E.g. Doughnut shop

Evaluation of Location
1. How much space is needed?
2. Buy Vs. Lease
3. Cost/sq.ft.
4. Is the site zoned for commercial use? Local
taxes?
5. What town restrictions exist for signs, parking,
etc.? billboards@Delhi

Evaluation of Location
6. Is renovation required?
7. Does the site have room for
expansion?
6. What is the economic/
demographic profile of the area?
6. Adequate labour pool?
7. Sewage, electricity, plumbing
If site decision involves legal issues, hire a lawyer?

Production plan
Describe the manufacturing process
In case of subcontracted processes, include sub-
contractor details + reasons for selection of sub-
contractor, details of completed contracts
Describe the physical plant layout
m/c + equipment

Production plan
details of raw materials + supplier details +
payment terms
costs of manufacturing
any future capital equipment needs
*if manufacturing is not involved, REMOVE this
section

Production plan
1. Will you be responsible for all or part of the
manufacturing operation?
2. If some manufacturing is subcontracted, who will be
the subcontractors? (Give names, addresses)
3. Why were these subcontractors selected?
4. What are the costs of subcontracted manufacturing?
(include copies of written contracts)

Production plan
5. What will be the layout of the production
process? (Illustrates steps if possible)
6. What equipment will be needed immediately for
manufacturing?
7. What raw materials will be needed immediately
for manufacturing?
8. Who are the suppliers of new materials and what
are the appropriate costs?

Production plan
9. What are the costs of manufacturing the
product?
10.What are the future capital equipment needs of
the venture?
In case of retail operation or service:
1. From whom will merchandise be purchased?
2. How will the inventory control system operate?

Production plan
If a retail operation or service:
3. What are the storage needs of the venture and
how will the venture be promoted?
4. How will the goods flow to the customer?
5. Chronologically, what are the steps involved in a
business transaction?
6. What are the technology utilisation requirements
to service customers effectively?

Operations plan
Describe the flow of goods from production to the
customer
May include inventory/storage, shipping, CSD
*Explain the chronological steps in completing a
business transaction
E.g. internet retail sports clothing operation
Discuss the role of technology in business
transaction process

Operations plan
IN CASE OF SERVICES: the focus of operations plan
is the Process of delivering QUALITY service.
(reliability, responsiveness, assurance)

Marketing plan
Describe how products will be distributed, priced
& promoted.
THOSE data facts should be described based on
which critical marketing decision strategy has been
formulated
Specific forecasts should be indicated to project
profitability of the venture

Marketing plan
It should be clear to investor as to what are the
goals and what strategies will be implemented to
achieve the goals
Marketing planning is an annual requirement
which is monitored weekly/monthly
It acts as road map for short-term decision making

Organisation plan
Describes the venture’s form of ownership
Proprietorship, partnership, corporation
If partnership  terms of partnership should be
included
Corporation  shares of stock authorised, share
options, resumes of all directors
Organisation chart (authority/responsibility)

Organisation plan – Q’s
1. What is the form of ownership of the firm?
2. If a partnership, who are the partners and what
are the terms of agreement?
3. If incorporated, who are the principal
shareholders and how much stock do they own?
4. How many shares of voting or non-voting stock
have been issued and what type?

5. Who are the members of the boards of
directors? (give names, addresses, and resumes)
6. Who has the cheque-signing authority or control?
7. Who are the members of the management team
and what are their backgrounds?
8. What are the roles and responsibilities of each
member of the management team?

9. What are the salaries, bonuses, or other forms of
payment for each member of the management
team?

Assessment of risk
Indicate the potential risks
What if risks become reality?
Describe the strategy that’ll be employed to
prevent, minimise or respond to the risks

Assessment of risk
*Risks generally result from
i. competitor’s reaction
ii. gaps in marketing plan,
iii. flawed production/ management team,
iv. new technology rendering new products
obsolete

Financial plan
It determines the potential investment
commitment needed
Indicates whether the B.P. is economically feasible
3 financial areas are discussed in this section
1. Forecasted sales & approximate expenses
2. Cash flow
3. Projected balance sheet

Financial plan
1. Forecasted sales & approximate expenses
Summarise it for at least 3 years with first year’s
projection provided monthly
Includes forecasted sales, cost of goods sold,
general and administrative expenses
Estimate income tax, determine net profit after
tax

Financial plan
2. Cash flow
Cash flow figures - First 3 years with first year’s
projection provided monthly
short term borrowing to meet fixed expenses
*Sales may be irregular, receipts from customer,
bills have to be paid at different times of the year

Financial plan
3.Projected balance sheet
Shows financial condition at a specific time
It’s a summary of assets/liabilities of a business +
investment of Entrepreneur/ partners + retained
earnings(losses)
*Any assumptions considered for the balance sheet
should be mentioned for the benefit of potential
investors

Appendix
Contains back-up materials
Letters from customers, distributors, sub-
contractors
Relevant secondary + primary data
Lease, contracts, agreements
Price list of suppliers as well as those of
competitors

External resources/sources
Sources of information which support an
Entrepreneur in planning the new venture
Small Business Administration
Department of Commerce
Government information centers
Bureau of Census
State and Municipal governments
Banks

External resources/sources
Sources of information which support an
Entrepreneur in planning the new venture
Chambers of commerce
Trade associations
Trade journals
Libraries
Universities and community colleges

Measuring plan progress
B.P. projections are made on 12-month schedule
Entrepreneur can’t wait for 12 months to gauge P&L
Entrepreneur should determine when and how
often to monitor GOAL vs. Actual (1st or last day of
each month)

Check P&L statement, cash flow projections,
information on inventory, production, quality, sales,
collection of a/c receivables, disbursements for
previous month
Feedback should be simple, timely
Should be provided to key members for CAP

Some of the control elements are :
i. Inventory control – high/low
ii. Production control – cost of production
iii. Quality control
iv. Sales control – collection system
v. Disbursement – how much is being disbursed
and for what purpose

Updating the Plan
Changes in economy, customer preference,
technology, competition, ± key employees
necessitate change in B.P. (revisions are a MUST)
Maintain relevant reasonable targets & goals, keep
the venture on course

Why some business plans fail?
Unreasonable goals
Immeasurable goals
Entrepreneur has not made total commitment to
the business/family
Entrepreneur has no experience in the new
venture

Why some business plans fail?
Entrepreneur has no sense of potential threats/
weaknesses to the business
No customer need was established for the
proposed product/service

Preparation of Business Plan/ Project Report

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