What is a Business Plan Business Plan is the Blueprint of the step bystep procedure Convert a business idea into a successfulbusiness venture It identifies an innovative idea, researches theexternal environment to list the opportunities &threats, identifies internal strengths & weakness assesses the feasibility of the idea & thenallocates resources in the best possible manner tomake the plan successful
Objectives of a business plan To give direction to the vision formulated by entrepreneur. To objectively evaluate the prospects of business. To monitor the progress after implementing the plan. To persuade others to join the business. To seek loans from financial institutions. To identifies the strengths & weakness of the plan & the challenges in terms ofopportunities & threats from the external markets. To identify the resources that would be required to implement the plan. The process of researching & writing the business plan helps to identify the gapsin the existing plan.For any business venture all the functional plans(marketing,operation/production, finance, human resources) have to be prepared.
Objectives of a business plan Preparing a business plan is non just a one time activity, but is an ongoingprocess.Keep improvising its business plan based on market dynamics & learningexperiences.Challenge in preparing a business plan for an entrepreneur is to communicatethe business idea clearly & precisely to the stakeholders.A business plan is a written document, which has to be presented to variousstakeholders to get their consent. The shareholders require it to ascertain the ownership patterns & futureprospects,The govt. need it to give various certifications like pollution controlThe financial institutions like venture capitalists need it to estimate theprospects & the risk involved in disbursing funds to the business venture.
PREPARING A BUSINESS PLANA plan, which looks very lucrative /feasible at the first instance, might actually notbeing when the details are drawn. Hence documenting the business plan is one ofthe early steps that an entrepreneur should take. The various steps involved inpreparing a business plan are-Preliminary Investigation - Before preparing the plan entrepreneur should-Review available business plans(if any).Draw key business assumptions on which the plans will be based (e.g. Inflation,exchange rates, market growth, competitive pressures, etc.)Scan the external environment & internal environment to assess the strengths,weakness, opportunities & threats.Seek professional advice from a friend/ relative or a person who is already intosimilar business(if any).Business Planning Process –A step by step plan that entrepreneur can follows in starting a new business.Business plan acts as a guiding tool to the entrepreneur & is dynamic in nature
PREPARING A BUSINESS PLANPRELIMINARY INVESTIGATION IDEA GENERATION ENVIRONMENTAL SCANNING FEASIBILITY ANALYSIS PROJECT REPORT PREPARATION EVALUATION, CONTROL & REVIEW
PREPARING A BUSINESS PLANBusiness Planning Process –It needs continuous review & updating so that the plan remains viableeven in changing business situations. Idea Generation- Entrepreneurship is not just limited toinnovation(generation of an entirely new concept, product or service, but italso encompasses incremental value addition to theconcept/product/services offered to the consumer, shareholder &employee). Idea generation is the first stage of business planning process.It involves generation of new concepts, ideas, products or services tosatisfy the existing demands, latent demands & future demands of themarket.The various sources of new ideas are-•Consumers/customers•Existing companies•Research & Development•Employee•Dealers, Retailers
PREPARING A BUSINESS PLAN Idea Generation –The various methods of generating new ideas –•Group discussion•Data collection through questionnaires/schedules etc. from consumers,existing companies, dealers, retailers•Brainstorming•Market research & invitation of ideas through internet, mails•Contest are being organized to identify business ideas like ‘businessbazigaar, on Star TV, which invites participation in the contest & rewardsthe best B plan.Screening of the new ideas should be done so that promising new ideasare identified & impractical ideas are eliminated.
PREPARING A BUSINESS PLAN Environmental Scanning –Once a promising idea emerges through, idea generation phase the nextstep is environment scanning –•Scanning of the environment both external & internal - & collect theinformation about the possible opportunities, threats from the externalenvironment & strength & weaknesses from the internal environment.•The different variables to be scanned are in terms of socio-cultural,economics, govt., technological, demographic changes taking place in theexternal environment & availability of raw material, machinery, finance,human resources etc. with the entrepreneur.•Sources for gathering the information are informal sources(family, friends,colleagues etc.) & formal sources(bankers, magazines, newspaper, govt.,departments, seminars, suppliers, dealers, competitors).•Maximize the information from as many sources as possible & thenanalyze them to understand whether the given information would besupportive to the business venture.
PREPARING A BUSINESS PLANExternal Environment•Socio-cultural appraisal -•The variables that are appraised are values, beliefs, norms, fashions &fads of a particular society.•Helps in understanding the level of rigidity/flexibility of a given societytowards a new product/service/concept. For e.g. the socio-cultural normsof U.S. & United Arab Emirates. Americans are experimenting &adventurous whereas Arabs are conservative.•Technological Appraisal –•For e.g., an entrepreneur has an idea of manufacturing tobacco-free herbalcigarettes which would not harm the health of smokers, technologicalappraisal can assess whether manufacturing of this kind of product ispossible or not.•Economic appraisal - It assesses the status of economy in a given societyin terms of inflation, per capita income & consumption pattern, balance ofpayments, consumer price index etc. Healthy economy offers greateropportunities for growth & development of the industry.
PREPARING A BUSINESS PLANExternal Environment•Demographic appraisal -•It includes variables like age profile, distribution, sex, education profile,income distribution etc. It can help in identifying the size of targetcustomers.•Governmental Appraisal –•It assesses the various legislations, policies, incentives, subsidies, grants,procedures, etc. formulated by govt. for a particular industry. For e.g. thegovt. intentions to allow only partial FDI in the retail segment. Because ofthis particular clause, multinational retail outlets like Wal-mart are not ableto enter the Indian market, though the market potential & financialfeasibility is in abundance.Internal Environment•Raw material –•Assess the availability of raw material now & in the near future. If theavailability of raw material is less now or would be less in future then the.
PREPARING A BUSINESS PLAN•Raw material -entrepreneur should give a serious thought to establishing a venture asthe entire system•Production/operation - Assesses the availability of various machineries,equipments, tools & techniques that would be required forproduction/operation.•Finance - Total requirement of finance in terms start up expenses, fixedexpenses & running expenses.•Market – assess the present, potential & latent demands of the market.•Human resource - Assess the kind of human resources required & itsdemand & supply in the market
PREPARING A BUSINESS PLANFeasibility Analysis - Feasibility study is done to find whether theproposed project would be feasible or not. Feasibility study is carried outto assess the feasibility of the project itself in a particular environment.The various variables/dimensions are-Market Analysis –•To estimate the demand of the product/services in future.•To estimate the market share of the proposed product/service in future.•A preliminary discussion with consumers, retailers, distributors,competitors, suppliers, etc. is carried out to understand the consumerpreferences, potential demands, strategy of competitors & practices ofdistributors, retailers etc.Technical/Operational Analysis -• What are the technological needs & other equipment does the proposedbusiness need?
PREPARING A BUSINESS PLANTechnical/Operational Analysis -•From where will this technology, equipment, raw material be obtained?•Technical Analysis collects data on the following parameters –Material availability, material requirement planning, plant location, plantcapacity, machinery & equipment, plant layout.Financial Feasibility – Following cost estimates have to be carried out.•Cost of land & building - depending on the requirement & the availabilityof funds the L&B can be hired, can be taken on lease or purchased•Cost of plant & machinery - includes estimates of cost of plant &machineries, their running & maintenance cost.•Preliminary cost estimation - cost required in conducting market survey,preparing feasibility report, expenses in registering, incorporatingmachine, establishment, raising capital from public & other miscellaneousexpenses.
PREPARING A BUSINESS PLAN•Provision for contingencies – cover certain unexpected expenses whichcan emerge due to change in the external environment, like increase inprice of raw material, or transport costs going up if the petrol prices arerevised.•Working capital estimates – for running the business are also made.•Cost of production – cost of raw material, labour, overhead expenses,utilities like power, water, fuel etc.•Sales & production estimates - based on the plant capacity theproduction & sales estimates are made, which help in estimatingprofitability.•Profitability projections – parameters are cost of production, salesexpenses, administrative expenses, expected salesSummation of all above gives gross profit.Based on the above information, the following projections are made-Break even point, cash flow statement, balance sheet statement
PREPARING A BUSINESS PLANDrawing functional plans – details of drawing functional plans whichwould plan the strategies for all the operational areas – marketing, finance,HR & productionMarketing plan -•The strategies are in terms of Marketing Mix(product, price, place,promotion)•The market feasibility study & marketing research, potential/presentdemand of customers is determined, which helps in understanding theprofile of customers.Production/operation plan - drawn for business enterprises in themanufacturing sector whereas operational plans are drawn for businessenterprises in the service sector.Strategies for the following parameters•Location & reasons for selecting the location.•Cost & availability of machinery, equipments, raw material.•List of suppliers & distributors.•Cost of manufacturing/running the operations.•Quality, capacity, inventory management.
PREPARING A BUSINESS PLANOrganizational Plan – Defines the type of ownership – it could be singleproprietary, partnership firm, private/public limited. Also proposes anorganizational structure & human resources management practices thatwould govern the successful running of the proposed business enterprise.Financial Plan – The financial requirements of the proposed businessenterprise.•Cost incurred in smooth running of all the financial plans(operation,marketing, human resources)•Projected cash flow, income statement, break even point, balance sheet.Project Report Preparation –•Now a project report is prepared. It is written document that describesstep by step the strategies involve in starting & running a business.•It helps to understand the opportunities, problems & weakness of thebusiness.•Monitor whether the business is growing as was projected in the businessplan or not.•It persuade investors & financial institution to fund the project.•Proper utilization of all the resources.
PREPARING A BUSINESS PLANEssentials of a project report –•Sequentially arranged•Exhaustive•Should not be very lengthy & subjective.•The projection should be appropriately be made from 2 to 10 years.•Justify the financial needs & financial projections.•Project report should be attractive to the financial agencies & investors.Preparing a project report –oCover sheet - It mention the name of the project, address of theheadquarter if any & the name & the address of the promoters.oTable of content - It guides the person reviewing the project report to thedesired section quickly. Divide the project report into sections & number orlabel the sections like 1,2,3 or I, II, III OR A,B,C 7 then divide the sectioninto sub sections like 1.1,1.2,1.3 or I-1,II-2,III-3.oExecutive summary – a careful presentation of information should bedone to attract the attention of the evaluators. It should be in brief yetincludes all the factual details about the project that can improve itsmarketability.oThe Business – Details about the business concept. Discuss objective ofthe business, a brief history about the past performance of the co., what
PREPARING A BUSINESS PLANoFunding Requirement - A well planned funding requirement should bedocumented for the investors & the financial institutions are the bodiesexamining the project report. Debt equity ratio should be prepared whichcan give an indication about how much finance would he company require& how it would like to fund the project.oThe product & services – features of the product, the product range thatwould provided to the customers, the advantages that the product holdover above the similar product, substitute products available in the market.Gives details about the patents, franchises, licensing agreement.oThe plan – Now the functional plans for marketing(marketing research,market demography), finance(projected cash flow, projected balancesheet), human resources & operation(plant location, plant layout) are to bedrawn.oCritical Risks – The investors are interested in knowing the tentative risksto evaluate the viability of the project & to measure the risk involved in thebusiness.oExit Strategy – provide details about hoe the org. would be dissolved,what would be the share of each stake holder in case of winding up of thorganization.oAppendix – provide information about CV of the owners, ownershipagreement, certificate from pollution board, article of association.
PREPARING A BUSINESS PLANFormat of a project report•Cover sheet(name of company, address, promoters)•Table of contents•Executive summary•The businessObjectives for setting up businessBrief history of past performanceForm of ownershipName, qualification of the ownersProposed/actual headquartersProposed/actual capital structure•The funding requirementsDebtEquity•The product/servicesDescription of product/serviceComparative analysis with similar product/substitute products.Patents, trademarks, copyrights, franchises, & licensing agreement
PREPARING A BUSINESS PLANFormat of a project report•The planoMarketing plan(market demography, like profile of customers & end users.Strength & weakness of competitors.SWOT analysis of the market.Marketing mix strategy(product, promotion, pricing & distribution)oOperational planPlant locationPlant layoutQuality control & inventory managementoOrganizational planOrganizational chartDetails about the board of directorsLegal aspects of labour
MARKETING PLAN & PRODUCTION PLAN•The planoFinancial planProjected profit & loss statementProjected balance sheetProjected cash flows•Critical risks•Exit strategy•AppendixCurriculum vitae of the ownerOwnership agreementCertificate from pollution boardArticle of Association
DRAWING FUCTIONALPLAN VISION MISSION OBJECTIVES STRATEGIC PLANMARKETING ORGANIZATIONAL OPERATIONAL FINANCIAL PLAN PLAN PLAN PLAN
MARKETING PLAN & PRODUCTION PLAN•Strategic plan provides direction to the rest of the functional plans.•It formulates the mission, vision & objective of the organization.•The short term & long term objectives that have evolved from the missionstatement, & the vision which provides direction for the company, thevision helps in formulating the mission which finally leads to laying downthe objectives.•Marketing plan should be frequently evaluated & changed to satisfy thechanging demands of the customers.For e.g. HLL on seeing the excessive competition in the fast movingconsumer durables came up with marketing strategies of ‘one productevery month’MARKET RESEARCH(MR)The success of any business venture lies in the existence of markets.Unless the entrepreneur identifies the existing needs or potential needs ofthe market he cannot translate these needs into product/services thatwould be acceptable by the market.
MARKETING PLAN & PRODUCTION PLANMARKET RESEARCH(MR)Today there is cut throat competition, globalization, changing preferencesof consumers, customer diversity, internationalization, a thorough marketresearch has become important to introduce any product/services in themarket.Market research is the process of collecting information on any factsrelevant to market. It is a systematic collection of information, it analysis &interpretation to strategize some relevant business decision like whetherone should enter new markets, what kind of discounts would be moreattractive to the customers etc.Information that can be collected through MRThe market research needs to assess the demands of the consumers. Abroad category of information that is desired by any org. through marketresearch includes –•The total size of the current market & potential market.•The growth rate of the market.•Consumer preferences & satisfaction•Consumer buying behaviour•Effectiveness of distribution network & promotional efforts.
MARKETING PLAN & PRODUCTION PLANSteps involve in conducting the market research are – Formulating objectives –•Research obj. should be defined clearly.•The objectives should be able to have linkage with existing problem orexplore opportunities available in the market.•Concise & provide a clear direction to the research.•The research has certain preconceived assumptions about the end resultof the research. Care should be taken that they do not create a halo aroundresearch. The best method to do this is to convert this assumption intohypotheses, which can be further put to test.Research design - Blue print of the entire market research.Exploratory research design – Exploratory research is a type of researchconducted for a problem that has not been clearly defined. It determine thebest research design, data collection method and selection of subjects. Aninterview survey among clerical staff in a particular office, department,company, group of companies, industry, region and so on, to find out whatmotivates them to increase their productivity (that is, to see if a researchproblem can be formulated).
MARKETING PLAN & PRODUCTION PLANDescriptive research design – Primary data collection, first hand info.About focus group – age, education, income. For e.g. study & analyze theconsumption pattern of the middle class in the metropolitan cities.A casual research – Casual Research explores the effect of one thing onanother and more specifically, the effect of one variable on another . Studythe cause & effect relationship between 2 or more variables. For example, ifa clothing company currently sells blue denim jeans, causal research canmeasure the impact of the company changing the product design to thecolor white.Data collection tabulation –•Data collection can be both primary data(observation, questionnaire,interview, essay writing, telephonic conversation & secondarydata(magazines, annual reports).•Method of data collection•Type of sampling techniques used like random & systematic sampling,multistage sampling, judgmental sampling, convenience sampling.Data analysisDocumentationDecision making
MARKETING PLAN & PRODUCTION PLANSEGMENTATION•Segmentation is the process of dividing the market/customers into similarcharacteristics or behaviour.•For e.g. the population of a city can be divided into toddlers, kids,teenagers, youth, middle age & old age. From these segments targets canbe chosen & then the product is so positioned that it appears attractive tothese targeted segments. E.g. if the product is an educational toy targetsegments would be toddlers & kids & their may be their parents.•Demographic Segmentation - when the target market is divided on thebasis of population. Segments areoAge (health drinks for growing children, diapers for infants & babies,fashion accessories for teenagers)oIncome (economy class for commoners whereas executive class orbusiness class for high income group, Big bazaar for middle class,branded product for high end group)oGender choices & preferences vary between males & females on productlike cosmetics, magazines & clothesoEducational classification – computer/laptops would be demanded bycomputer literates, CAD/CAM required by engineers.
MARKETING PLAN & PRODUCTION PLAN•Psychographic Segmentation - when the target market is divided on thebasis of lifestyle/personality of individual. Segments areolifestyle(interest, urgency, day to day activities, beliefs, opinions, attitude.For e.g. working women coming back after a hectic day, would like to dial &order services of dominos)oPersonality (five star is associated with ambition, Santro is associatedwith tall boy car)oGeography Segmentation - on the basis of geographical region. It can benorthern, southern, eastern, western, city, metro, urban rural.(for e.g.lifebuoy is more common in rural areas, whereas Dove & liquid soaps inurban areas.oBehavioral segmentation - on the basis of behaviour/attitude of consumer•Vary on occasion, usage rate, benefits, loyalty status, buyer readiness.For e.g. Teenagers & young college graduates would be more frequentgoers to discotheque
MARKETING PLAN & PRODUCTION PLANMarket Targeting - It is the process of evaluating various segments &identifying the number & type of segments that the business venture wouldtarget.Market Evaluation –•Assessment of the size of the each segment•Segment growth•Companies strength & weakness to suffice the needs of the segment•Potential opportunities & threats from the competitors, substitutes,buyers, suppliers, government.Target Market selection – This decide which segments it would target. Itwould depend on several factors like economies of scale, profitability,growth, size etc.Single segment concentration(Junior Horlicks is targeted only for kids),selective specialization(Archie’s targets youth, middle age, elderly people),product specialization(Computers can be sold to households, public sectorundertaking, hospitals, educational institutions), market specialization(Bigbazaar sells product ranging from vegetables, grocery furniture etc. to themiddle class).