Challenges in developing Business Plan for micro Enterprises (BP4ME)

Even if issue of illiteracy, book keeping, business information and availability of BDS is
taken care of, it has also not ...
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Challanges in developing Business Plan for micro Enterprises 271009


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Challanges in developing Business Plan for micro Enterprises 271009

  1. 1. Challenges in developing Business Plan for micro Enterprises (BP4ME) Jitesh Panda* Business Plan supports in starting and strengthening of an Enterprise. Like any other size of Enterprises, micro Enterprises also require Business Plan. Business Plan is critical in accessing Business Development Services (BDS) and loan from formal financial institutions. In context of promotion of micro Enterprises, the need for developing tool and methodology relating to Business Plan has always been felt. However, it has always been difficult to develop business plan for micro Enterprises. The following details some of the challenges (written sequentially) in developing simple business plan for micro Enterprises. High level of Illiteracy amongst micro Entrepreneurs: Most of micro Enterprises are owned and managed by poor people, who are illiterate. They are generally not aware of the need and importance of business plan. Absence of simplified Accounting System: Those micro Entrepreneurs (including persons supporting them) who are aware and keen on maintaining written accounts, do not have access to simplified accounting system. It is difficult for a micro Enterprise to maintain financial system as maintained by larger enterprises. This include recording all the transactions, maintaining double entry system and keeping supporting records like Stock Register and Bank Register. Lack of access to past Business Performance Data: Access to past business performance in financial terms, is critical for developing the future business plan. In absence of formal records, it is difficult to generate profit and loss account, balance sheet and cash flow, which are key inputs to develop future business plan. Inadequate idea on potential for growth: In some cases, it may be possible to generate some data/information on past performance of the micro Enterprise. However, it is observed that most micro Entrepreneurs do not look beyond their Enterprise like exploring new market, selling new products and services and even accessing new technology and skills. In absence adequate idea at Entrepreneur level, often Business Plan becomes supply driven. This further leads to failure in execution of business plan. Absence of Business Development Services: In some cases, based on his/her experience, the Entrepreneur may be having an idea. However, he/she may not be sure of the idea and on how to transform the idea into a proper plan. There is need for pro active Business Development Services for micro Enterprises. However, BDS for micro Enterprises is generally not available. Some of the micro enterprises have access BDS from informal sources like friends and relatives.
  2. 2. Even if issue of illiteracy, book keeping, business information and availability of BDS is taken care of, it has also not been so easy to develop a business plan for micro Enterprise. This is mainly because of unique features of the micro Enterprises and the overall context in which they exist. Initially, most micro Enterprises start with own investment of the Entrepreneur. In case of traditional family based enterprises, it is difficult to calculate own investment. Most Entrepreneurs find the difficult to recall the amount of money invested by them in the enterprise. Some of them may be able to recall the initial investment, but not the small investments made, after the enterprise became functional Many a times, loan taken from formal source get spent in urgent requirements at household level. This happens because of incidence of poverty at household level. Family is constantly in need of money to meet different requirements including expenses on health, education and social functions. From business plan point of view, it is difficult to attribute the contribution of loan to growth of micro Enterprise. It becomes irrelevant to incorporate loan transactions and interest expenses in developing business plan. The cash/cash flow at micro Enterprise level get mixed up with cash/cash flow at household level, which also makes it difficult to develop business plan. While developing the current Balance Sheet, it is quite difficult to calculate the owner’s own equity and the cumulative surplus/deficit. Most of the micro Enterprises is more like self employment opportunity for the Entrepreneur. In an enterprise, different family members may be involved for different duration of time. It is extremely difficult to calculate the cost associated with managing or working in a micro Enterprise. At times, the calculation of such cost gives a skewed picture on the financial performance of the micro Enterprise. Most of the challenges associated with developing Business Plan for micro Enterprises relate to inability or difficulty in distinguishing the micro Enterprise as a separate entity – independent of the Entrepreneur and his/her family. Nevertheless, despite these challenges, there is need to develop Business Plan for micro Enterprises. This requires both developing simplified tool and methodology for developing Business Plan, and also making Business Plan as an integral part of micro Enterprise Development programs. *Senior Consultant, Vrutti Livelihoods Resource Centre 19, 1st Main, 1st Cross, Ashwath Nagar, RMV 2nd Stage, Bangalore 560 094, India Email: