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Entrepreneurial Management (EM 05) Business Plan

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This is part of a course on Entrepreneurial Management that I taught at the Bangalore University last spring. This deck is on creating a business plan

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Entrepreneurial Management (EM 05) Business Plan

  1. 1. Management 05 – Business Plan Suhas Dutta
  2. 2. Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.2 Sir Richard Branson on Entrepreneurship, and Business Plans
  3. 3. Syllabus coverage • What is a BP?Why is it important? Who prepares it? • Typical BP format oFinancial aspects of the BP oMarketing aspects of the BP oHuman Resource aspects of the BP oTechnical aspects of the BP oSocial aspects of the BP • Preparation of BP - Common pitfalls to be avoided in preparation of a BP Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.3
  4. 4. Learning objectives • The importance of writing a business plan • The elements of a business plan • Writing a business plan • Questions around a business plan Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.4
  5. 5. Business plan • A formal written expression of the entrepreneurial vision, describing the strategy and operations of the proposed venture. • Could take the shape of a /an o Loan proposal o Investment prospectus o Venture plan • A Business plan is a: o Written document describing all relevant elements involved in starting a new venture. It is an integration of various other plans (e.g.. Marketing, finance, technology, HR etc) o Road map for accomplishing the entrepreneurial pursuits. Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.5
  6. 6. Purpose & importance of a BP • The important purposes are to explain and describe the: oIdea behind the business oProduct and services of the business oBackground (s) and experience (s) of the entrepreneur (s) who are starting the business • Importance of a BP oProvides guidance for entrepreneurs in planning oHelps to secure finance oHelps to communicate ideas to bankers,VCs, angels, consultants, potential team members etc oTool to manage the business Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.6
  7. 7. Elements of a BP • History and background • Goals and objectives • Products / Services oCompetition oGrowth potential oEconomic / technology trends • Form of ownership • Staff and management • Marketing • Financial statements (current / projected) Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.7
  8. 8. Preparing a BP – Introductory elements • Cover letter • Cover sheet • Executive summary • Main body • Appendix Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.8 Who prepares a BP? •Expected to be the entrepreneur. •Consultation may be provided by lawyers, accountants, consultants, etc
  9. 9. Preparing a BP – A typical BP format Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.9 What? Product Need Where? Location Who? Ownership How much? Cost Funding Pattern Assistance Summary • Current domestic and international industrial scenario • Rationale for project selection Project Introduction Promoter(s) • Educational qualifications,Work experience, domain experience • (If state is one of the promoters) Experience state has in projects of this type • Description of the project • Installed, and operating capacity • Unique proposition, and positioning • Legal requirements / stipulation • Required clearances Plant & Machinery Location Land & Building • Location • Criteria for selection • Alternatives examined • Locational advantages • Area • Constructed area • Type of construction • Cost • Capacity • Equipment balancing • Suppliers • Cost • Alternatives available • Criteria for choosing
  10. 10. Preparing a BP – A typical BP format Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.10 Project Introduction Promoter(s) Plant & Machinery Land & BuildingSummary Location Production Process Assets Production Programme • Nature of assets • Itemised description along with source and cost of procurement • Description of production process • Process flow chart • Details of technology • Indigenous technology, bought or imported • Technical know-how • Evaluation of alternatives • Potential technological disruption • Various process parameters • Time required to produce one unit • Production schedule for foreseeable time • Input output ratio • Quality standards / benchmarks to be followed
  11. 11. Preparing a BP – A typical BP format Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.11 Summary • List of raw materials needed • Per unit, quantity required • Requirement schedule per output • Quantity specs • Source of procurement • Cost of raw materials per schedule • Available supply • Required tie ups • Alternate sources • Any evaluation done Plant & Machinery Land & Building Location Production Process Assets Production ProgrammeProject Introduction Promoter(s) Manpower Utilities • Requirements of power, water etc • Quality, value per schedule • Source of utilities • Specific arrangements for alternate power • Schedule of requirements, cost & type of manpower for next 10 years • Requirement of administrative, managerial staff • Assumed availability • Training scheme for non-available Raw Materials
  12. 12. Preparing a BP – A typical BP format Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.12 Plant & Machinery Land & Building Location Production Process Assets Production Programme Project Introduction Promoter(s) Manpower Utilities Raw Materials Funds Req- ments Working Capital Req- ments Cash Flow Statements Cost of Production. Profitability • What stock level of raw materials? • Stock level of work in progress, and finished goods • Inventory maintenance cost • Credit line extended to customers • Calculation of working capital and source of the same • Details, in case forex is required • Credit line extended by suppliers • Cost of the projects including cost of land, building, machineries, other assets, technical know-how fees, pre- operative expenses, contingencies and margin money • Funding pattern for cost of setting up from different financial institutions to cover CAPEX • Contribution from promoters • Other sources of funds
  13. 13. Preparing a BP – A typical BP format Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.13 Plant & Machinery Land & Building Location Production Process Assets Production Programme Project Introduction Promoter(s) Manpower Utilities Raw Materials Funds Req- ments Working Capital Req- ments Cash Flow Statements Cost of Production. Profitability Marketing: Prospective Marketing: Current Implem- entation Schedule Break Even Analyses • Major uses of product • Any substitute product available • Similar products available • Product differentiation & strengths • Major buyers • Purchase influencers • Major purchasing factors • Competitor strengths / weaknesses • Competitor trade practices, trade channels • Geo-spread of market • Distribution channels • Trade practices • Market entry strategy, promotions
  14. 14. Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.14 Calculating Break Even Point
  15. 15. Preparing a BP – Financial plan • The financial plan comprises of: oQuantum of fund inflow oSchedule of inflow oUsage of funds oCash availability oProjected financial position Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.15 STARTUP COSTS CASHFLOW STATEMENT INCOME STATEMENT BALANCE SHEET One time expenses – preliminary assets, building, computers, vehicles etc.Describes inflow and outflow of cash proforma Essentially, the profit & loss statement Assets = Liabilities + owners equity More assets => +ve net worth
  16. 16. Preparing a BP – Marketing plan Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.16 CUSTOMER PROFILE MARKET SEGMENTS KNOW YOUR COMPETITION IDENTIFY YOUR TARGET MARKET UNDERSTANDYOUR CUSTOMER 4 3 5 2 1 MARKET RESEARCH DEFINE PURPOSE SELECT METHOD COLLECT DATA ANALYZE DATA CONCLUDE
  17. 17. Preparing a BP – HR plan Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.17 NEED Summary RECRUIT & HIRE PAY & MANAGE MOTIVATE TRAIN EVALUATE
  18. 18. Preparing a BP –Technology plan • Need for a tech plan • Steps for technology Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.18 ASSESS BUSINESS NEED WRITETHE PLAN PROCUREMENT SOURCE TECH CONSIDERATIO- NS PROCURE
  19. 19. Preparing a BP – Social plan Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.19 SOCIAL RESPONSIBILITY CUSTOMERS SUPPLIERS CREDITORS / INVESTORSCOMMUNITY ENVIRONMENT BUSINESS ETHICS
  20. 20. Preparing a BP – Common pitfalls • Capacity – utilization estimates – unrealism • Capacity computation – miscalculation • Market study – neglected task • Machinery selection – serious errors • Technology oriented products – a shaky arrangement • Project running & resource straining – safe limits exceeded • Project cost – an underestimate • Location selection – some temptations • Selling price – unfounded optimism • Cashflow in initial years – poor detail Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.20
  21. 21. Further readings / viewings • Kiki’s delivery service – Japanese animated fantasy feature film. Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.21

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