MODULE-2 BUSINESS PLANNING PROCESS

BUSINESS PLAN?
 A business plan is a written document prepared by the entrepreneur
that describes all the relevant external and internal elements involved
in starting a new venture.

 Business plan is a written document prepared by the entrepreneur

that describes all the relevant external and internal elements involved
in starting a new venture.

 Business plan is an integration of functional plans such as marketing

, finance, manufacturing and human resource.

 It’s a document that convincingly demonstrates that your business can

sell enough of its product or service to make a satisfactory profit and be
attractive to potential backers.

 It is the game plan or road map- answers the questions, where am I

now? Where am I going? How will I get there?
MEANING OF BUSINESS PLAN
 A business plan is the blueprint of the step-by-step
procedure that would be followed to convert a business
idea into a successful business venture. A business
plan first of all identifies an innovative idea, researches
the external environment to list the opportunities and
threats, identifies internal strengths and weakness,
assesses the feasibility of the idea and then allocates
resources (production/operation, finance, human
resources) in the best possible manner to make the
plan successful.
The objectives of a business plan are/ (Need and
importance of business plan)

 To give directions 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 visualize the concept in terms of marker

availability, organizational, operational and financial
feasibility.
 To guide the entrepreneur in the actual
implements of the plan.
 To identify the strengths and weakness of the
plan.
 To identify challenges in terms of opportunities
and threats from the external markets.
 To clarify ideas and identify gaps in management
information about their business, competitors and
the market.
 To identify the resources that would be required to
implement the plan.
 To document ownership arrangements, future
prospects and projected growths of the business
venture.
BUSINESS PLAN PROCESS
1. Idea Generation:
 . Idea generation is the first stage of business planning process. This step
differentiates between an entrepreneur and a businessman.
 The various sources of new ideas are:
 Consumers/Customers
 Existing Companies
 Research and Development
 Employees
 Dealers, retailers

The Various methods of generating new ideas are:

 Brainstorming, Reverse Brainstorming, Brain Writing

 Group discussion
 Data Collection through questionnaires/schedules etc. from consumers,
existing companies, dealers, retailers
 Invitation of ideas through advertisements, mails, the Internet
 Value addiction to the current products/services
 Market research
 Commercializing inventions
2 Environmental scanning:

It is carried out to analyze the prospecting strengths, weakness,

opportunities and threats of the business enterprise. threats from the external
environment and strength and weaknesses from the internal environment
 External Environment
 Socio-Cultural Appraisal
 Technological Appraisal
 Economic appraisal
 Demographic Appraisal
 Governmental appraisal
 Internal Environment
o Raw Material
o Production/Operation
o Finance
o Human resource
o Market
3 Feasibility analysis:
refers to conducting detailed analysis in relation to every aspect relevant
to business and determine credibility of business.
Feasibility study is done to find whether the proposed project
(considering the above environmental appraisal) would be feasible or not.
feasibility study is carried out to asses the feasibility of the project itself in a
particular environment in greater detail.

The various variables/dimensions are:

 Market Analysis (demand and market share of product or service)

 Technical/Operational Analysis (plant location, material availability ,plant

capacity ,machinery and equipment)
 Financial Feasibility (cash flow ,fund flow statement, BEP )

 Organizational Plan: ( type of ownership (sole trading concern, family

business, private or public Limited company)
 Market plan : (marketing mix)

 Production/operation:( factors of location)

4 project report :
A project report helps to understand the opportunities, problems and
weakness of the business. It guides the entrepreneur in actually starting up
and running the business venture. It helps him to monitor whether the
business is growing as was projected in the business plan or not. It helps in
documenting; the cost estimates of the business. It can be used as a handy
tool to persuade investors and financial institution, to fund the project.

Essentials of Project Report

 1 .The project report should be sequentially arranged.

 2. The project report should be exhaustive

 The project report should not be very lengthy and subjective.

 The project report should logically and objectively explain the projections.

 The projections should be appropriately be made from two to ten years

5 Evaluation control & review:
as company operates in dynamic environment
company has to monitor and review strategies and
polices to stay in line with competition existing in
market.
It is important to be sensitive to changes in
the company , industry & market. entrepreneur
should determine the changes /revisions needed.
 ADVANTAGES OF BUSINESS PLANNING
 Aids in Obtaining Funding
 Helps Get Advice
 Identifies Problems
 Provides Exit Strategy
 Minimizes Legal Problems
 Business Planning helps the company to formulate objectives and
goals clearly. These objectives help the company to achieve
stability of business and maximize profits.
 Business planning helps to view the organization in total rather
than department wise.
 Business plan aims at the long range plan rather than short-range
plan.
 Business plan integrates the company plan with the national plans
and priorities
A written business plan:
 forces you to think realistically, objectively and
unemotionally about your business
 leads to questioning of past and future
assumptions
 makes it easier to communicate planning objectives
and strategies to bankers, partners, employees,
financial backers and so on
 helps to ensure that all aspects of the plan are
clear and integrated
 serves as a reference point when determining the
effects of alternative courses of action on business
operations
 allows you to identify any areas where you may
need external assistance
 allows you to plan the growth of your business and
associated capital requirements.
 MARKETING PLAN

Describes market conditions & strategy related to

how products & services will be distributed priced &
promoted.

 Marketing plan is the written statements of marketing

objectives, strategies, and activities, to be followed in
business plan.

 It is the written document that describes your advertising

and marketing efforts for the coming year; it includes a
statement of the marketing situation, a discussion of
target markets and company positioning and a description
of the marketing mix you intend to use to reach your
marketing goals.
CHARACTERISTICS OF MARKETING PLAN
 Should provide a strategy for accomplishing the
company mission & goal
 Should be based on facts & valid assumptions
 It must provide the use of existing resources,
allocation of equipment,financial and human
resources.
 It should be simple & short
 An appropriate organization must be described to
implement the marketing plan.
 It should provide continuity, so each marketing
plan can be built on it successfully to meet long
term goals and objectives.
 Success of the plan may depend on its
flexibiliuty,changes.
Marketing aspects of business:

1.Well defined market

2.Channel strategy
3.Positioning statement
4.Pricing strategy
5.Communication strategy
6.Sales strategy.
 STEPS IN PREPARING MARKETING PLAN
1.Defining the business situation (Describes
the past & present business achievements of
new venture .)

2.Defining the target market /opportunities &

threats
Specific group of potential customers
towards which venture aims its marketing plan.
 Market segmentation

 Considering strength & weakness

3.Establishing goals & objectives.
Entrepreneur must establish realistic &
specific goals & objectives.
Statements of level of performance desired by the
new venture .
Where do we want to go ?

4.Defining marketing strategy & action programs .

Specific activities outlined to meet the
ventures business plan goals & objectives
How do we get there
Some possible decision should be made for each
variable like :
Product or service,pricing,distribution,promotion.
5.Budgeting the marketing strategy.
The cost involved in implementation of these
decisions should be done .

6.Implementation of market plan.

The marketing plan is meant to be a commitment by
the entrepreneur to a specific strategy.

7.Monitoring progress of marketing actions.

It involves tracking the specific results of the
marketing effort .
OPERATIONS PLANNING

Production plan is drawn for business enterprises in

the manufacturing sector whereas operational plans are
drawn for business enterprises in the service sector.

production/ operation plan should include strategies for the

following parameters:
 Location and reasons for selecting the location.
 Physical layout.
 Cost and availability of machinery, equipments, raw
material.
 List of suppliers and if possible, distribution.
 Cost of manufacturing/running the operations.
 Quality Management.
 Production scheduling, capacity management and inventory
management.
 Changes in above in case of expansions of business.
CHARACTERISTICS OF BUSINESS PLAN

 The Operations Plan describes the production management

system.

 It describes what you produce and how you produce it.

 This section should be one of the easier sections for a

producer to develop.

 But planning is easy, implementation is the hard part

 Operations/production management is one of the most

important aspects of running a farm business.

 Production level or yield is the single most important factor

determining the cost of production.
 There is rarely one area where significant cost reductions can be
attained.

 The key to more profitable businesses is managing many costs

two to five percent more efficiently than their competitors.

 In the operations section of a business plan, the business

manager needs to adequately communicate that the business has
a sound production management strategy.

 The operations plan should document the critical operational

functions that are critical for success.

 The operations section should also help the business manager

think through and identify production functions that can be
improved.
 Tocommunicate the Operations plan, this
section should discuss:
 The products produced
 The production system
 Quantity produced
 Production schedule
 Resources available and needed
 Permits and regulations
 Risk management plan
 Environmental issues
 Quality control systems
CONTINUED…
 The production plan may also address how the
business will:
 Produce value-added products
 Specialize on a product or a few products
 Diversify the product line
 Transition to a new or niche products
 THE ORGANIZATIONAL PLAN

 Organization plan is the process of identify

Organization’s immediate and long term
objectives and formulating and monitoring
specific strategies to achieve them. it also entails
staffing and resource allocation, and is one of the
most important responsibilities of a management
team.
 Organizational plan defines the type of ownership: it
could be single proprietary, partnership firm,
company, and private limited or public limited. It
also proposed an organizational structure and
proposed human resource management practices;
that would govern the successful running of the
proposed business enterprise.
Organizational aspects of a business:

1. DEVELOPING THE MANAGEMENT TEAM

2. LEGAL FORMS OF BUSINESS
 Costs of Starting a Business
 Continuity of Business
 Transferability of Interest
 Capital Requirements
 Management Control
 Distribution of Profits and Losses
 Attractiveness for Raising Capital
3 TAX ATTRIBUTES OF FORMS OF BUSINESS
 DEVELOPING
1.)THE MANAGEMENT TEAM

 Potential investors are interested in the management

team and its ability and commitment to the new
venture.
 Investors usually demand that the management team
not operate the business part-time while employed full
time elsewhere.
 The entrepreneur should consider the role of the board
of directors and/or a board of advisors in supporting the
management of the new venture.
 2. LEGAL FORMS OF BUSINESS
 There are three basic legal forms and one new form
of businesses.
 The three basic forms are:

 Proprietorship.
 In the proprietorship, the owner has full
responsibility for operations
 Partnership.

 In a partnership, there may be owners

with general or with limited ownership
 Corporation

 In the corporation, ownership is reflected

by ownership of shares of stock.
 LEGAL FORMS OF BUSINESS….

Liability of Owners
 The proprietor and general partners are liable for all aspects of the
business.

 Since the corporation is a legal entity that is taxable and absorbs

liability, the owners are liable only for the amount of their
investment.

 To satisfy any outstanding debts of the business, creditors may seize

personal assets of the owners in proprietorships or regular
partnerships.

 In a limited partnership, the limited partners are liable only for their
capital contributions.
COSTS OF STARTING A BUSINESS

 The more complex the organization, the more expensive it is

to start.

 The least expensive is the proprietorship, where the only

costs may be for filing for a business name.

 In a partnership a partnership agreement is needed, in

addition this requires legal advice and should explicitly
convey all parties' responsibilities, rights and duties.

 A limited partnership may be more complex to form because

it must comply strictly with statutory requirements.

 The corporation can be created the owners are required to

register the name and articles of incorporation and meet
state statutory requirements.
CONTINUITY OF BUSINESS

 In a sole proprietorship, the death of the owner results in the

termination of the business.

 In a limited partnership, the death of a limited partner has

no effect on the existence of the partnership.

 A limited partner may be replaced, depending on the partnership

agreement.

 If a general partner in a limited partnership dies or withdraws,

the limited partnership is terminated unless the partnership
agreement specifies otherwise.

 In a partnership, the death or withdrawal of one of the

partners results in termination of the partnership, but this
can be overcome by the partnership agreement
 TRANSFERABILITY OF INTEREST
 In a proprietorship, the entrepreneur has the right
to sell any assets.

 In the limited partnership, the limited partners can

sell their interests at any time without consent of
the general partners.

 A general partner cannot sell any interest unless

specified in the partnership agreement.

 In a corporation shareholders may transfer their

shares at any time.
 CAPITAL REQUIREMENTS
 The need for capital during the early months can become one
of the most critical factors in keeping a new venture alive.

 For a proprietorship, any new capital can only come from

loans or by additional personal contributions.

 Often an entrepreneur will take a second mortgage as a source

of capital.

 Any borrowing from an outside investor may require giving up

some equity.

 Failure to make payments can result in foreclosure and

liquidation of the business.
MANAGEMENT CONTROL

 The entrepreneur will want to retain as much control as

possible over the business.

 In the proprietorship, the entrepreneur has the most

control and flexibility in making business decisions.

 In a partnership the majority usually rules unless the

partnership agreement states otherwise.

 In a limited partnership the limited partners have no

control over business decision.

 Stockholders can indirectly affect the operation by

electing someone to the board of directors.
DISTRIBUTION OF PROFITS AND LOSSES

 Proprietors receive all profits from the business.

 In the partnership, the distribution of profits and

losses depends on the partnership agreement.

 Corporations distribute profits through dividends to

stockholders
ATTRACTIVENESS FOR RAISING CAPITAL

 Inboth the proprietorship and partnership,

the ability to raise capital depends on the
success of the business and personal
capability of the entrepreneur.

 Because of its limitations on personal

liability, the corporation is the most
attractive form for raising capital
 FINANCIAL PLAN

 Financial plan determines the potential investment commitment

needed for the new venture whether the business plan is
economically feasible.

 Cost incurred in smooth running of the entire financial plan

(marketing, operation and human resources).

 Financial Plan discuss on 3 sections

 Entrepreneur should summarize the forecasted sales appropriate
expenses for at least the first 3 years. It includes forecasted sales,
cost of goods sold, and general and administrative expenses.
 Financial information is cash flow figures for 3 years.
 It also projects balance sheet. This shows financial condition of the
business at a specific times
Indicates The Financial Requirements Of The Proposed
Business Enterprise

Projected cash flow:

Projected cash available calculated from projected cash accumulation
minus cash disbursements .

 Projected balance sheet:

Summarizes the projected assets, liabilities & net worth of new
venture .

 Projected Break even analysis :

Volume of sales where the venture neither makes a profit nor incur a
loss

 Projected sources & application of funds :

Summarizes all the projected sources of funds available to the venture
and how these funds will be disbursed.
FINANCIAL ASPECTS OF A BUSINESS

1.Expected sales and expense figures for at least the first

three years:
determination of the expected sales and expense figures
for each of first twelve months and each subsequent
year is based on the market information.

2.Cash flow figures the first three years:

estimation of cash flow consider the ability of the new
venture to meet expenses at the designated time of the
year .

3.Current balance sheet figures and proforma balance

sheets for the first three years.
 PROJECT FEASIBILITY REPORT

Definition
A project report helps to understand the
opportunities, problems and weakness of the business

 Written document pertaining to any investment.

 Enables entrepreneurs to know the inputs required.
 Serves as a road map to reach the destination determined by the
entrepreneurs.
 It gives the brief description of the project and some background
information.
 project Feasibility study report :
an analysis and evaluation of a proposed project
to determine if it
(1) is technically feasible,

(2) is feasible within the estimated cost, and

(3) will be profitable.

(4)Feasibility studies are almost always conducted

where large sums are at stake. Also called feasibility
analysis.
It describes and supports the most feasible
solution applicable to the project.
IMPORTANCE OF FEASIBILITY REPORT/REASONS
FOR CONDUCTING FEASIBILITY STUDY
 Determines the potential of the market.

 Insight into whether the product is required in the

market or not .

 Formulating price strategies.

 Study will help you to determine the amount of capital

required to start the business. helps in estimation of
budget plan, working capital, cash flow projections.

 List in detail all the things you need to make the idea
work
 Identify logistical and other problems and
solutions

 Develop marketing strategies to convince a

donor, bank or investor that your idea is worth
considering as an investment.

 Helps to analysis cost benefits approach.

 STEPS TO WRITING A FEASIBILITY STUDY
REPORTING
Step 1 : write project Description (collect background
information to write description)

Step 2: describe possible solution ( perform an alternatives

analysis and make a description of possible solutions for your
project)

Step 3: Evaluation Criteria (investigate the solution and put

them against a set of evaluation criteria)

Step4 : propose the most feasible solution: (determine the most

economically reasonable and technically feasible solution)

Step5: write conclusion: writing conclusion by summarizing the

projects aim and starting the most feasible solution.
PREPARING A MODEL PROJECT REPORT
FOR STARTING A NEW VENTURE

 Project Report is a written document prepared by the

entrepreneur that describes all the relevant internal and
external elements involved in starting a new venture.

 It is an integration of all functional plans like marketing,

finance, manufacturing and human resources, which are
required for the successful implementation of the project.

 A project report for new business conducts a profound road

map for effectual business venture. it discusses whether the
business requires finances or not, the challenging risks,
several problems enroute etc .hence it becomes vital for every
new business to prepare a project report, to acquaint them on
forewarning issues.
 IMPORTANCE/ NEED FOR PROJECT
REPORT

 It act like a reference guide

 It is a basis for obtaining loans

 The government sanction license or certificate of

registration
 It is like a controlling device

 It supplies information

 It is used as a basis by promoter to take investment

decisions
 It enables to evaluate the soundness of the project

 It gives the general idea of resource requirement

and means of procuring them.
OBJECTIVES OF PROJECT REPORT

 Facilitates business planning and planning the

future course of action
 Enables an entrepreneur to compare different
investment proposals and sealect the most
suitable project
 Provides SWOT analysis involved in project

 Report enables the entrepreneur to ensure that

he is proceeding in the right direction
 Facilitates project appraisal

 Helps the financial institution to make appraisal

as regards financial, economic and technical
feasibility
Project report for New Business – Format

1. Background of the business :

2. Customer's profile :

3. Long and short term Corporate Objectives :

 To perform a viability assessment of the proposed new

business ideas in terms of marketability, technical
feasibility, financing and authorities
 To be able to prepare a relevant business plan

 To recognize fundamental startup issues

4 Market Analysis :

 Market description
 Reasons for starting business in a particular market
 Target clients
 Advantages of the services offered by the new business
 Market consumption patterns
 Past and existing supply location
 Production prospects and limitations
 Exports and Imports
 Price structure
 Flexibility of demand
 Client behavior, purposes, intentions, impetus, approaches,
inclinations and needs
 Supply network and marketing rules formulated by the
government
 Government and technical limitations imposed on the promotion
of the product
 Brief discussion on the type of market, chief influencers, players,
etc
5 Financial Assessment :

•Investment expenditure and value of the entire project

•Methods of investment
•Anticipated productivity
•Money flows of the project report
•Investment value evaluated in context of different points of merit
•Estimated financial ranking

6 Marketing Assessment :

•Product
•Price
•Place
•Promotion

7 Operational Plan :
 Business models
 Production of goods and services
8 Financial Plan :

9 Management Structure :

10 Business structure (Ownership, staff, etc):

11 SWOT Analysis:
Significant Success aspects depending on Strengths,
Weaknesses, Opportunities and Threats to be faced by the
firm in future

12 Appendices
 Break-Even Assessment

 Profit and Loss Synopsis

 Fund Flow Summary

Thank you