Session7

NEW ENTERPRISE AND
INNOVATION MANAGEMENT

NE & IM - Dhaval Motwani, MEFGI
SESSION 7:
BUSINESS PLAN: CONCEPT,
METHODS, ANALYSIS AND
INTERPRETATION

Prepared by: Dhaval Motwani

BUSINESS PLAN: INTRODUCTION
 A written document describing all relevant internal
and external elements and strategies for starting a
new venture

 Integration of various functional plans like marketing
plan, financial plan, manufacturing plan and human
resources plan
 Addresses both short term and long term decision
making for the venture.
 Integrates and co ordinates business objectives and
strategies when venture contains a variety of
products and services.
 Important to potential investors and even customers
 Helps to keep in mind external factors like new
regulations, competition, social changes, new
technology, changes in customer needs etc.

WHO WRITES A PLAN?
 Entrepreneur himself
 Lawyers, accountants, marketing consultants,

engineers help in writing a plan with their inputs
 Internet also helps provide good inputs

 Also inputs from partners whose core competence
are in a specific area, ie. Those competencies that
an entrepreneur doesn’t possess

SCOPE AND VALUE OF BUSINESS
PLAN
 Who reads...?
 Employees, investors, bankers, venture capitalists,
suppliers, customers, advisors and consultants

 All the issues and concerns must be addressed as all
the above groups will read it from different
perspectives
 Three perspectives to be considered while preparing
the plan
 Entrepreneurs perspective: who understands the creativity
and technology involved in the new venture
 Clear articulation about what the venture is all about

 Marketing perspective: the viewpoint of the customer to be kept in
mind
 Investors perspective: the viewpoint of the investor to be kept in the

mind
 Sound financial projections required, assistance from external sources

to be taken if the requisite skills missing
 Size and scope of the plan depends on the nature of business and product.
Eg: new e-commerce venture will require a different focus than for a

retail video shop
 Size of market, competition and potential growth also affect the scope
 A business plan
 Determines the viability of venture in a designated market

 Provides guidance to the entrepreneur in organizing his/her planning

activities
 Serves as an important tool in helping obtaining finance

 Potential investors look at a business plan with great interest and detail
 It also forces an entrepreneur to assess things like cash flow, cash
requirements and makes him think about the future
 Also a self assessment for the entrepreneur and makes him/her think
about the various scenarios and obstacles that might prevent the venture
from being a success

EVALUATION OF THE PLAN BY THE LENDERS
AND INVESTORS
 The plan needs to focus on all the target groups and purposes of use
 Suppliers look at the plan before committing to supply materials on
consignment
 Customers review the plan before buying a product that may require
significant long term commitment like high-technology telecommunications

system.
 Attention on the entrepreneur’s experience and projection of the market
place
 Lenders are interested in the ability of the new venture to pay back debt
including interest within a stipulated time period
 Banks want objectives analysis of the business opportunity and potential
risks

EVALUATION OF THE PLAN BY THE
LENDERS AND INVESTORS
 The 4 Cs that lenders look at
 Character: entrepreneur’s credit history
 Cash flow: the ability of the entrepreneur to meet the debt and

interest payments
 Collateral: tangible assets being secured for the loan
 Contribution of Equity: amount of personal equity that
entrepreneur has invested
 Investors emphasize on the entrepreneur’s character and spend much
time in conducting background checks.
 Investors play an important part in the management of the business
so want to make sure that the entrepreneur is compliant and willing
to accept the involvement, high rate of interest

PRESENTING THE PLAN
 Oral presentation of the plan before an audience of
potential investors is important.
 Entrepreneurs are expected to “sell” the business

plan, invite queries and solve them so as to invite
investments
 In specific forums, the entrepreneurs can present the
plan in front of more than one investors who can
request negotiations and can lead to final investment
 Likely that venture capitalists or angel group would
ask the entrepreneur to present to their partners
before the final investment
 Typically the focus is on
 Why is this a good opportunity
 An overview of the marketing program which addresses
how the opportunity will be converted into reality
 Results of this efforts in terms of sales and profits

INFORMATION NEEDS
 A proper feasibility study of the business concept
required

 Helps to identify possible barriers to success

 Information about various facets like marketing,
finance, production and operations
 Clearly defined goals and objectives would prove
a good guide
 Also provide a good framework for the business
plan, marketing plan and financial plan

UPSIDE-DOWN PYRAMID APPROACH TO
GATHERING MARKET INFORMATION
General environment and demographic trends

National industry trends

Local environmental and

demographic trends

Local industry
trends

Local competition : strengths & weaknesses

Market positioning

Market objectives

GATHERING INFORMATION
 One of the most important information is about
the market potential for the product or service
 Well defined market makes it easier to project

the market size and set goals for the venture.
 Information required on industry and
environment
 The best way is to visualise the process as an
inverted pyramid
 Start with a broad based data and information and
work down until a positioning strategy is developed
 Setting of quantifiable goals and objectives
 All this information can be used in the industry
analysis and marketing planning sections

OPERATIONAL INFORMATION NEEDS
 Entrepreneur can need information on the following as far
as operational needs are concerned
 Location: company’s location and accessibility to
customers, suppliers, distributors
 Manufacturing operations: basic machine and assembly

and the subcontractors etc
 Raw materials: raw materials required and suppliers
name address and costs
 Equipment: basic equipment and its cost (purchase cost
or lease cost)
 Labour skills: the unique skills needed, personnel, pay
rate and where and how these skills will be obtained
 Space: space needed and cost (owned or leased)
 Overhead: each support item like tools, supplies, utilities
and salaries

FINANCIAL INFORMATION NEEDS
 Before preparing a financial plan, the entrepreneur needs to
prepare a budget listing all possible expenditures and all revenue
sources
 The budget includes capital expenditures, direct operating
expenses and cash expenditures for non expense items

 Entrepreneur needs to identify the benchmarks in the industry
that can be used in preparing the final pro forma statements in the
financial plan
 Such benchmarks help in establishing reasonable assumptions
regarding expenditures based on industry history and trends
 Expenditures like rent, utilities, insurance, personnel costs etc
need to be ascertained
 Data for financial information can be found from sources like
Financial Studies of the Small Business, Annual Statement
Studies, various trade associations and trade magazines.
 Pro forma statements need to be prepared as per the investors
requirements (monthly in the first year, then quarterly or annually
for the next two years)

INTERNET AS A RESOURCE TOOL
 A very important and cost effective tool
 Search engine and source of information on

almost everything like industry analysis,
competitor analysis, market potential
 Competitors websites help gain knowledge about
their strategy
 Also helps to distribute, advertise and sell
company products and services

WRITING THE BUSINESS PLAN
 Very important phase
 Time consuming

 Depends on the experience and knowledge of the
entrepreneur and the purpose it intends to serve

 Introductory page
 Titlepage which provides a brief summary of the business
plans contents
 Should contain the following
 Name and address of the company

 Name of the entrepreneur(s), telephone number, fax number, email

address and website
 Paragraph about the company and nature of business

 Amount of financing needed

 Statement of confidentiality of the report

 Executive summary
 Written after the total plan is written
 Stimulates the interest of the potential investor
 2-3 pages in length
 Investors use this to determine if the entire business plan is
worth reading

 Should highlight in a concise and convincing manner the key
points in the plan
 Issues answered by an executive summary
 What is the business concept or model?

 How is this business concept or model unique?

 Who are the individuals starting this business?

 How will they make money and how much?

 Should highlight the key factors and provide a strong motivation
to the person holding the plan to read it
 Eg: if one of the entrepreneurs has been successful in other start-
ups, this persons introduction and background needs to be
emphasized on.

 Environmental and Industry analysis
Assessment of externally uncontrollable
variables that may impact the business plan
 Economy: trends in GNP, unemployment by
geographic area, disposable income, stage of

economic development
 Culture: cultural variables, changes or shifts in

cultural trends etc
 Technology: prevalent standards in technology

aspect, potential developments, resources
committed by major industries or government etc
 Legal concerns: legal issues, future legislations,

deregulation of prices, restrictions on media
advertising etc

 Reviews industry trends and competitive strategies
 Industry demand: helps ascertain whether market is
growing or declining, number of competitors, possible
changes in consumer needs
 Competition: awareness about the competitors, their
strengths and weaknesses,


Description of venture
 Provides complete overview of products, services, and operations
of new venture
 Begins with mission statement or company mission of new
venture

 Next comes a number of important factors that provide a clear
description and understanding of the business venture
 Key elements to be described are the product/service, location and
size of the business, personnel, office equipment, background of
the entrepreneurs, history of the venture etc.
 Proper description of the location of the office building, space it
will occupy, parking, access from roadways to facility, access to
customers, suppliers, distributors, delivery rates and town
regulations, etc
 Issues regarding legalities of the space, whether owned or rented
or leased

 Production plan
 Should describe the complete manufacturing process
 If some part or full process is subcontracted then details
like the name and address of the subcontractor, location,
reasons for his selection, costs, contracts etc need to be
described

 In case of self manufacturing, a plant layout, machinery,
equipment, raw material, suppliers of raw materials, their
names, addresses, terms, costs, contracts, etc need to be
described.

 Operations plan
 Description of flow of goods/services from production to
customer
 Might include inventory or storage of manufactured
products, shipping details, inventory and control
procedures, customer support services

 Retail service providers need this section in business pan to
explain the chronological steps in completing a business
transaction
 Helps to highlight the help of technology in the overall
process

 Marketing plan
 Describes market conditions and strategy related to how
products and services will be distributed, priced and
promoted
 Any market research evidence to support any critical
marketing decision strategy to be described

 Specific forecasts for products/services included here to
project profitability of the venture
 Also includes budget and appropriate control steps
 Potential investors generally look to this section as critical
to success
 A road map for short term decision making

 Organizational plan
 Describes form of ownership and lines of authority and
responsibility of members of new venture
 Forms of ownership
 Proprietorship
 Partnership

 Corporation

 For partnership, details and terms of partnership need to
be described
 For corporation, the details of stocks, share options, name
and addresses and resumes of directors and officers of the
corporation, organizational chart indicating the line of
authority and responsibilities of the members of the
organization, etc need to be described
 Provides the investor with a clear idea about who will
control and how will the interaction between different
members be

 Assessment of risk
 Identifies potential hazards and alternative strategies to
meet business plan goals and objectives
 First the entrepreneur should indicate the potential risk to
the new venture

 Next he should discuss what might happen if these risks
become a reality
 Finally the strategy to either prevent, minimize or respond
to the risks should be discussed
 All potential major risks and minor risks to be described

 Financial plan
 Describes projections of key financial data that determine
economic feasibility and necessary financial investment
commitment
 Summary of forecasted sales and approximate expenses for

the first three years with first years projections monthly
 Cash flow figures
 Projected balance sheet

 Appendix
 Any backup material that is not necessary in the text of the
document
 Letters from customers, distributors, subcontractors to be
included here

 Leases, contract or any other types of agreements that have
been initiated to be included
 Price lists from suppliers, competitors etc

USING AND IMPLEMENTING THE
BUSINESS PLAN
 Designed to guide the entrepreneur through its
first year of operations

 Implementation should contain control points to
ascertain progress and initiate contingency plans
if necessary
 Important that the business plan does not end up
in a drawer somewhere but actually implemented
 Proper planning ensures proper implementation

 Effective implementation can occur by developing
schedules to measure progress and to institute
contingency plans

MEASURING PLAN PROGRESS
 Points or time intervals should be fixed at the introductory
phases as to when to carry out the check on the schedules
 A frequent check on profit and loss statement, cash flow
projections, information on inventory, production, quality,
sales, collection of accounts receivable etc

 Inventory control: helps in maximising service to the
customer. Better inventory control helps in better rotation
of money
 Production control: helps match cost figures with day-to-
day operations costs. Also helps to control machine time,
worker hours, process time, delay time and downtime costs
 Quality control: helps to make sure that the product
performs satisfactorily
 Sales control: gives information on units, price of sales,
meeting of delivery dates, credit terms etc. Also helps to
control bad debts

UPDATING THE PLAN
 Plans can become out-of-date due to changes in
technology, government regulations, competitors,
changing customer preferences, key employees,

etc.
 Being sensitive to changes in the company,
industry, and market help the entrepreneur to
decide what revisions are required.

WHY SOME BUSINESS PLANS
FAIL???
 Unreasonable goals
 Non measurable goals

 Lack of total commitment to the business

 Lack of experience in planned business

 No sense of potential threats and weaknesses

 Non establishment of customer needs for
proposed product/service

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