(A) ESTIMATION OF CAPITAL REQUIREMENTS: Before approaching the capital market to collect finance, it is essential to determine or estimate the

capital requirements of the company. This problem arises either at the time of promotion of a company or at the time of launching an expansion programme. It is an attempt towards proper capitalization which is necessary for the smooth running of the business. If company is over-capitalized or under-capitalized, it will be harmful to the business and businessmen both. While determining the total capital requirements of a company, the following points should be considered well :I. Cost of Fixed Assets: Fixed assets like building, plant and machinery, furniture etc. form a major proportion of total capital requirements, mainly in capital incisive industries. These assets are permanent assets. II. Cost of Current Assets: Current assets include stock in trade, debtors and bills receivable, cash and bank balance etc. Sufficient amount of current assets is required for the smooth functioning of the business. III. Promotional Expenses: Promotional expenses are incurred in formation and incorporation of a company. These expenses include expenses on preliminary investigations, legal and technical advice, drafting and printing of several documents and statements like Memorandum and Articles of Association, etc., registration fee, office expenses, remuneration paid to promoters etc. Promotional expenses are not fixed and therefore, are not easy to be estimated. IV. Cost of Financing: Cost of financing include expenses on the procurement of capital font the ma nut/pub lie. These expenses include expenses of drafting and printing of prospectus and application forms, expenses on adverting, underwriting commission, brokerage and other expenses on the marketing securities. V. Cost of Intangible Assets: A new company sometimes has to acquire goodwill patent rights from an existing company. These expenses should also be taken into account while estimating the capital requirement of a new company. VI. Cost of Developing Business: Often a large company takes some time before it starts generating profits. The operating losses likely to be incurred in the initial stage of its operation or before it reaches break-even point (no profit no loss line) are the cost of developing the business. A good financial plan should also include this cost also in estimating the capital requirement of a new company. (B) FIXED CAPITAL AND ITS DETERMINANTS: Fixed capital is that portion of the capital which is represented by the fixed assets such as building, plant and machinery, furniture etc. These assets are used in the business for meeting the permanent needs of the company. These assets are not for sale and are meant again and again for generating revenue. These assets are not convertible into cash within

a year. Fixed assets are also known as 'block capital' because it is blocked up in fixed assets for a fairly long time. DETERMINANTS OF FIXED CAPITAL: The amount of fixed capital required in a business concern can be determined on the basis of the following considerations I. Nature of Business: An industrial or a public utility concern require a large amount of fixed capital as compared to a trading concern. II. Type of Manufacturing Process: Processing (analytical and synthetically) industries require a larger/amount of fixed capital than assembly and service industries. If an industry is highly mechanized, its investment in fixed capital is higher as compared to industries having less degree of mechanization. III. Scale of Operation: A large scale manufacturing unit requires a larger amount of fixed capital than an industrial unit carrying on its operation on small scale. For instance, a large steel plant like Tata Iron and Steel Company, requires huge investment in fixed assets in comparison with a mini steel plant. IV. Mode of Acquiring Fixed Assets: Mode of acquiring a fixed assets determines the need of fixed capital. A firm may acquire asset on cash down basis (outright purchase for cash) or on hire purchase or installment basis. In former case, the amount of investment in fixed assets will be very high. In the latter case, the need will be very low as the asset can be acquired under this mode only at the time of making initial down payment. Acquiring land and building and other assets or on lease on hire (instead of outright purchase) and the other facility of sub-contracting work to outside firm tend to reduce the fixed capital requirements. V. Technique of Production: The technique of production also affects the total requirements of fixed capital. If a manufacturing concern using capital intensive technique requires larger amount of fixed capital than the concern of the same size using labour intensive technique. Thus, shifts technology lead to changes in the amount of fixed capital.

Subjects covered in this guide

Introduction The audience for your business plan What a business plan should include The executive summary Your business, its products and services Your markets and competitors Marketing and sales

Your team's skills Your operations Financial forecasts Presenting your business plan Using the business plan template Here's how having an up-to-date business plan helped my business

How to write a business plan

Thinking about starting a business? Great. Have you got a Plan? That's Plan with a capital "P" for Business Plan. If you haven't written your plan yet, your business is still in the fantasy stages. That isn't harsh; it's how it is in the real world. A company's business plan is what lenders such as banks and the U.S. Small Business Administration use in deciding to lend you money. It's the main company document that your employees -- and you -- use to gauge your company's success and to make decisions about what you should do first, second, or not at all. If you're starting a home-based business on a shoestring, some of these suggestions probably aren't necessary, but you still should create a plan that outlines your goals, expected costs, marketing plan and exit strategy. A business plan is your road map for how you expect to succeed and how you'll measure success. Here is a quick nine-step guide to what you will need in your company's business plan: 1. An executive summary outlining goals and objectives. The executive summary introduces your business strategy and probably is the most important section for lending institutions. If you can't persuade a loan officer in the first two or three pages that you've got a viable business proposal, you're going to leave empty-handed. This summary is also important as a communication tool for employees and potential customers who need to understand -- and get behind -- your ideas.

2. A brief account of how the company began. Clearly explain the origins behind the company's creation and how you or your business associate came up with the idea to start your business. 3. Your company's goals. Explain in a few paragraphs your short- and long-term goals for the company. How fast do you think it will grow? Who will be your primary customers? 4. Biographies of the management team. The management section should include the names and backgrounds of lead members of the management team and their respective responsibilities. 5. The service or product you plan to offer. A key aspect of this section will be a discussion of how your product or service differs from everything else on the market. 6. The market potential for your service or product. Remember that you've got to convince lenders, employees and others that the market you're after is relatively large and growing. You'll need to do some research for this section. If it's a locally based business, you need to assess the demand for your offering within an xx-mile radius, based on what you determine is a reasonable distance from your business. If it's a Web-based business or a business that relies on both the Internet and local traffic for revenues, you'll need to evaluate demand on a local and/or a national basis. A research report from sites such as Forrester Research can cost hundreds to thousands of dollars. But you may be able to get some basic information simply by using the Web and its many search engines and directories. 7. A marketing strategy. How do you plan to tell the world you're open for business? Will you rely exclusively on word of mouth (not a good plan unless you've already got a reputation)? Will you advertise in print, television or on the Web (or all three)? Will you use online services to get your company listed on search engines and advertised on other Web sites? You'll also need to include how much you plan to spend on marketing. 8. A three- to five-year financial projection. All good business plans include a section that lays out the benchmarks you'll use in deciding to call it quits. The strategy could be based on a dollar figure, revenue growth, the market's reception to your idea, or a consensus among top officers. 9. An exit strategy. Some people may disagree with me here. But no speaker wants to be chatting to a crowd that's busy reading a summation of her remarks. Unless it is imperative that people follow a handout while you're presenting, wait until you're done to distribute them.