BUSINESS PLAN

A business plan must provide answers to following questions:

 What you intend to do/how you intend to do it/ when you intend to do it?  How much do you want to borrow?  When you will be able to repay the loan?  Will you be able to pay the interest?  Could your business survive a setback in its plans?  What security is available for lending?  Will you be able to sell your product?  Is the business proposal commercially viable?  Will the business be profitable?  Can the business cope with the effects of inflation?

WHAT DOES A BUSINESS PLAN INCLUDE?

 Summery of the Project/ Project at a Glance
(The purpose of the business, legal form of the organization, the location, resource requirements, volume of business, a brief note on market, customers and about the promoter(s) and, financial highlights)

 General Information
(About the business and promoter's qualification, training and experience relevant to the project, form of business entity, location, management plan, etc.)

Cont

WHAT DOES A BUSINESS PLAN INCLUDE?

Contd.

 Market Potential and Plan

(A note on marketing strategy, potential customers, competition, market size and future prospects, pricing, advertising & promotion, etc.)

 Details of the Proposed Project

(Requirement of fixed capital and working capital, the cost of project and means of finance)

 Manufacturing Process
(Step-by-step description of the manufacturing process, plant capacity, expansion plans and quality control procedures etc.) Cont

WHAT DOES A BUSINESS PLAN INCLUDE?

Contd.

 Production Programme/ Sales Revenue

(Plant capacity, capacity utilization, produced/sold, and sales realisation) quantity

 Cost of Manufacturing
(Cost of raw materials, utilities, manpower, repairs and maintenance, selling and distribution expenses, administrative expenses, interest on loans availed, depreciation and any other expenses)

Cont

WHAT DOES A BUSINESS PLAN INCLUDE?

Contd.

 Profitability Projections
(Sales, cost of manufacturing, tax liabilities, repayments, retained profit/loss, break even point, Debt Service Coverage Ratio (DSCR), Internal Rate of Return (IRR)

 Project Implementation & Other Information

(Project implementation Schedule, Security offered, other details if any.)

PROJECT COST: AN ESTIMATE OF FUNDING REQUIREMENTS

(PROJECT COST COMPONENTS)

I. LAND AND SITE DEVELOPMENT

 COST OF LAND  LAND RELATED LEGAL CHARGES  LEVELLING AND FILLING COSTS  APPROACH/INTERNAL ROAD COSTS  FENCING/COMPOUND WALL COSTS  COST OF GATES

Cont

PROJECT COST COMPONENTS

.Contd

II. BUILDING AND CIVIL WORKS

     FACTORY BUILDING OFFICE GODOWN, ETC. WELL, TANK, SILOS, GARAGE AT PROJECT SITE SEWER AND DRAINAGE ARCHITECT FEE

III. PLANT AND MACHINERY

 PRICE OF MACHINERY  EXCISE-TAX, FRIEGT, PACKAGING, INSURANCE, OCTROI, ETC. TRANSIST

 STORES AND SPARES BOUGHT ALONG WITH THE MACHINERY  FOUNDATION AND INSTALLATION COST Cont

PROJECT COST COMPONENTS

.Contd

IV. OTHER FIXED ASSETS

FURNITURE OFFICE EQUIPMENTS MISCE. TOOLS & EQUIPMENTS VEHICLES EQUIPMENTS, CABLING FOR POWER DISTRIBUTION EQUIPMENT AND PIPING FOR WATER SUPPLY LABORATORY EQUIPMENTS WORKSHOP EQUIPMENTS FIREFIGHTING EQUIPMENTS EFFLUENT COLLECTION, TREATMENT AND DISPOSAL ARRANGEMENTS  BOILER  DIESEL GEN. SET  OTHER ASSETS Cont          

PROJECT COST COMPONENTS

.Contd

V. TECHNICAL KNOWHOW VI. PRELIMINARY AND PRI-OPERATIVE EXPENSES

         LEGAL CHARGES FEASIBILITY REPORT CAPITAL RAISING SALARY AND ADMINISTRATIVE COST DURING IMPLEMENTATION PERIOD RENTS, TAXES, ETC. DURING IMPLEMENTATION PERIOD TARVEL COST DURING IMPLEMENTATION PERIOD INTEREST DURING IMPLEMENTATION PERIOD MORTGAGE EXPENSES IN RESPECT OF LOANS TRAIL PRODUCTION Cont

PROJECT COST COMPONENTS

.Contd

VII. WORKING CAPITAL MARGIN VIII. CONTINGENCY & ESCALATION (@ 10% OF I - IV)
 BIS, POLLUTION BOARD & EXPLOSIVE LICENCE, ETC.  STATUTORY DEPOSITS  PROCESSING FEES OF MFIs

IMPLEMENTATION SCHEDULE: AN ILLUSTRATION

(Months)
TASK Study of business plan Subm. Of term loan application Term loan sanction Arranging land Civil works Arranging utilities Placing order for machinery Installation of machinery Recruitment of manpower Trial run Commercial production 1 2 3 4 5 6 7 8 9 10

PROJECT APPRAISAL
IT IS AN ASSESSMENT OF A PROJECT IN TERMS OF ITS VIABILITY AND FEASIBILITY. IT IS AN ANALYSIS OF COST AND BENEFIT OF A PROJECT OVER THE PROJECT LIFE.
1. ECONOMIC APPRAISAL 2. FINANCIAL APPRAISAL 3. TECHNICAL APPRAISAL 4. MARKET APPRAISAL 5. MANAGERIAL APPRAISAL 6. ENVIRONMENTAL APPRAISAL

PROJECT APPRAISAL
ECONOMIC APPRAISAL
i. ii. PAYBACK PERIOD AVERAGE RATE OF RETURN ON INVESTMENT

iii. NET PRESENT VALUE iv. INTERNAL RATE OF RETURN v. BENEFIT-COST RATIO vi. LEVEL OF CAPACITY UTILISATION OR BREAKEVEN ANALYSIS

PROJECT APPRAISAL
FINANCIAL APPRAISAL i. REQUIRED FINANCIAL RESOURCES
a. FIXED ASSETS b. CURRENT ASSETS c. NECESSARY WORKING CAPITAL

ii. AVAILABILITY OF FINANCIAL RESOURCES

a. b. c. d. e. f. g. h. i. REQUIRED BORROWING POTENTIAL SOURCES OF FUNDS COST OF BORROWING REPAYMENT CONDITIONS OPERATION COST ANALYSIS FIXED COSTS VARIABLE COSTS PROJECT CASH FLOW PROJECT PROFITABILITY

PROJECT APPRAISAL
TECHNICAL APPRAISAL i. CRUCIAL TECHNICAL SPECIFICATIONS
a. b. c. d. e. DESIGN DURABILITY RELIABILITY PRODUCT SAFETY STANDARDIZATION

ii. ENGINEERING REQUIREMENTS

a. b. c. d. MACHINES TOOLS TECHNOLOGY WORK FLOW

Cont

PROJECT APPRAISAL
TECHNICAL APPRAISAL
Contd.

iii. PRODUCT DEVELOPMENT

a. BLUEPRINTS b. MODELS c. PROTOTYPES

iv. PLANT LOCATION

a. b. c. d. e. f. g. h. i. LAND AND SITE AVAILABILITY PROXIMITY TO MARKET PROXIMITY TO SOURCE OF RAW MATERIAL AVAILABILITY OF SUPPORT SERVICES SCOPE FOR EXPANSION GOVERNMENT RESTRICTIONS/INCENTIVES INFRASTRUCTURE ACCESSIBILITY AVAILABILITY OF WORKFORCE

PROJECT APPRAISAL
MARKET APPRAISAL
i. ii. MARKET POTENTIAL UNDERSTANDING OF CUSTOMERS

iii. DIFFERENTIATION iv. MARKET SEGMENTATION v. POTENTIAL DEMAND vi. DEMAND-SUPPLY GAP vii. MARKET TEST REPORT viii. SALES PRICE PROJECTIONS ix. PROPOSED CHANNELS OF DISTRIBUTION x. PRODUCT PROMOTION STRATEGY xi. PRODUCT LIFECYCLE ANALYSIS xii. COMPETITION AND COMPETITOR S ANALYSIS

PROJECT APPRAISAL
MANAGERIAL APPRAISAL
i. ii. PERSONAL BACKGROUND OF THE PROMOTERS THEIR EXPERIENCE, SKILL AND KNOWLEDGE BASE

iii. FINANCIAL LEVERAGE WITH THEM iv. CREDITWORTHINESS OF THE PROMOTERS v. ORGANISATIONAL SETUP AND RESPONSIBILITIES AT VARIOUS LEVELS vi. AVAILABILITY OF MANAGERIAL RESOURCES

ENVIRONMENTAL APPRAISAL
i. ii. ENVIRONMENTAL RISK POLLUTION CONTROL PLAN

iii. COMPLIANCE WITH GOVERNMENT REGULATIONS

MAJOR FINANCIAL RATIOS USED IN PROJECT APPRAISAL

1. DEBT- EQUITY RATIO (1:3) = TOTAL DEBTS / [OWNER S CAPITAL + SUBSIDY]*100 = TOTAL DEBTS/EQUITY + RESERVES (IN THE CASE OF A

LTD. CO.) 2. CURRENT RATIO (2 BUT NOT > 1.33) = CURRENT ASSETS / CURRENT LIABILITIES 3. DEBT SERVICE COVERAGE RATIO (2 OR MORE BUT NOT > 1.5) = [NET PROFIT AFTER TAX + DEPRECIATION + INTEREST ON TERM BORROWINGS] / ANNUAL REPAYMENT + INTEREST ON BORROWINGS]

Cont

MAJOR FINANCIAL RATIOS USED IN PROJECT APPRAISAL RATE OF INTEREST)

Contd

4. RETURNS ON INVESTMENT (HIGHER THAN THE HIGHEST

= NET PROFIT BEFORE INTEREST AND TAX INVESTMENT 5. RETURN ON EQUITY INVESTMENTS) = NET PROFIT AFTER TAX / OWNER S CAPITAL (HIGHER THAN THE

OTHER

6. NET PROFITABILITY RATIO ( > OR = TO INDUSTRY AVERAGE) = NET PROFIT / SALES*100 7. OPERATING RATIO = COST OF GOODS SOLD + OPERATING EXPENSES / NET SALES * 100

MISTAKES ENTREPRENEURS COMMIT WHILE LAUNCHING OF A VENTURE

I.

LACK OF A THOROUGH STUDY OF MARKET POTENTIAL FOR PRODUCT AND VENTURE UNIQUENESS

II. LACK OF ALL ROUND MANAGERIAL ABILITY AND OBJECTIVE EVALUATION OF BUSINESS
III. WASTEFUL AND INAPPROPRIATE INVESTMENTS CONTD

IV. V. VI.

CAPACITY UTILISATION ESTIMATES: GROSSLY UNREALISTIC INADEQUATE UNDERSTANDING OF TECHNICAL REQUIREMENTS INAPPROPRIATE MARKETING/ DISTRIBUTION STRATEGY, OVERRELIANCE ON ONE CUSTOMER, LOW SALES AND WRONG PROMOTIONAL STRATEGY

VII. INADEQUATE ARRANGEMENTS FOR KEEPING ACCOUNTS

CONTD

VIII. WRONG ESTIMATION OF CAPITAL REQUIRED LEADING TO OVER OR UNDERCAPITALISATION IX. X. CASH FLOW PROBLEMS AND INADEQUATE WORKING CAPITAL NEPOTISM IN RECRUITMENT AND INCOMPETENT ADVISORS AND POOR HRD AND IRs

XI. INAPPROPRIATE PRICING STRUCTURE XII. IGNORANCE OF LEGAL ISSUES AND TAXATION XIII. SELECTING A WRONG LOCATION

BUSINESS PLAN FORMAT

1.0 GENERAL
Name of the Firm: ____________________________________ Project:_______________________________________ Location:______________________________________ Type of Organisation: Proprietary/Partnership/Pvt. Ltd. Address: ___________________________________________ Name of the Chief Promoter(s): ______________________________________ BACKGROUND OF THE CHIEF PROMOTERS

Cont

BUSINESS PLAN FORMAT 2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing

2.1 LAND AND BUILDING
Sr.No. 1. 2. Particular Land Building Total: Area Required Total Value Remarks

2.2 MACHINERIES/EQUIPMENTS
Sr. No Description Nos. Required Rate (Rs.) Total Value (Rs.)

Total:

Cont

BUSINESS PLAN FORMAT

2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing 2.3 MISC. FIXED ASSETS
Sr. No Particulars Nos. Required Rate (Rs.) Total Value (Rs.)

Total:

2.4 PRELIMINARY AND PRE-OPERATIVE EXPENSES

Sr. No 1. 2. 3. Particulars Interest during implementation Establishment Expenses Start-Up Expenses Misc. Expenses Total Amount (Rs.) Remarks

Cont

BUSINESS PLAN FORMAT

2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing 2.5 WORKING CAPITAL
Sr. No. Item Duration IYear 1. 2. 3. 4. 5. Raw-Material Stock Semi-finished Goods Stock Finished Goods Stock Sales on Credit Production Expenses Total Total Value (Rs) IIYear IIIYear

Cont

BUSINESS PLAN FORMAT

2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing 2.6 TOTAL COST OF THE PROJECT
Sr. No 1. 2. 3. 4. Particulars Total Value (Rs.)

Fixed Capital (Total of item No.2.1, 2.2,2.3) Working capital margin (Total of item No. 2.5) Preliminary & Pre-operative Expenses (Total of item No. 2.4) Cost escalation & Contingencies Total

Cont

BUSINESS PLAN FORMAT

2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing 2.7 MEANS OF FINANCE
Sr. No 1. 2. 3. 4. Particulars Own Investment Term Loan Working Capital Loan Any Other Source Total: Amount (Rs.) Remarks

Cont

BUSINESS PLAN FORMAT 3.0 MARKET POTENTIAL

3.1 3.2 3.3 3.4 Present Demand and Supply of the Product Competition Target Clients/selected Market Area Marketing Strategy (USP)

4.0 MANUFACTURING PROCESS

4.1 Technical Know-how Availability 4.2 Step-by-Step Description of the Manufacturing Process from Raw Material to Finished Goods [Attach Process Flow Chart]

Cont

BUSINESS PLAN FORMAT 5.0 PRODUCTION SCHEDULE

5.1 5.2 5.3 5.4 No. of Working Days Per Annum No. of Working Shifts (8hrs) per Day Installed Capacity (annual) Utilized Capacity (%): I Year II Year III Year Sr. No Items(s) Quantity Produced Per Year

Capacity Utilisation (%)

Cont

BUSINESS PLAN FORMAT

5.0 PRODUCTION SCHEDULE
5.5 SALES REVENUE
Year Items(s) Quantity Sold/Year Rate per Unit (Rs) Sales Realisation (Rs) Total:

Contd

5.6 RAW MATERIAL (ANNUAL REQUIREMENT)

Sr. No Items(s) Quantity Rate (Rs) Total Value(Rs) Total :

Cont

BUSINESS PLAN FORMAT

5.0 PRODUCTION SCHEDULE
5.7 UTILITIES
Sr. No 1. 2. 3. 4. Particulars Annual Expenditure(Rs) Remarks

Contd

Power/Electricity Water Coal/Oil/Steam Any other item Total

5.8 REPAIRS AND MAINTENANCE

Sr. No Particulars Amount(Rs)

Cont

BUSINESS PLAN FORMAT

5.0 PRODUCTION SCHEDULE
Contd

5.8 MAN POWER (Salaries/Wages)

Sr. No Particulars No. Wages/Salaries per Month (Rs.) Annual Expenses (Rs)

1. 2. 3. 4. 5.

Skilled Semi Skilled Unskilled Office Staff Any Other Total

Cont

BUSINESS PLAN FORMAT

5.0 PRODUCTION SCHEDULE
Sr. No 1. 2. 3. 4. 5. Particulars

Contd
Amount(Rs) Remarks

5.9 SELLING AND DISTRIBUTION EXPENSES

Publicity Expenses Travelling Freight Commission Misc. Total

5.10 ADMINISTRATIVE EXPENSES

Sr. No 1. 2. 3. 4. Particulars Stationery & Printing Post/Telephone/Telegrams Entertainment Expenses Misc. Total Amount(Rs) Remarks

Cont

BUSINESS PLAN FORMAT

5.0 PRODUCTION SCHEDULE
5.11 INTEREST
Year Outstanding Loan Amount (Rs) Interest (Rs) Installment (Rs) Balance (Rs)

Contd

5.12
Sr. No.

DEPRECIATION
Type of Asset Cost of Asset Expected Life Depreciation

BUSINESS PLAN FORMAT

6.0 PROFITABILITY PROJECTIONS
Sr. No. Particulars Amount (Rs.) 1-Year 2-Year 3-Year 4-Year 5-Year

A. B. i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) C. D. E. F. G.

Sale Realisation Cost of Servicing Manufacturing/

Raw Materials Utilities Salaries/Wages Repairs & maintenance Selling & Distribution Expenses Administrative Expenses Interest Rent Depreciation Misc. Expenses Total Gross Profit/Loss (A-B) Income-tax Net Profit/Loss Repayment Retained Surplus

BUSINESS PLAN FORMAT DEPRECIATION RATES Assets WDV Rates 10% SL Rates 2.3%

1. Buildings which are not for Residential purposes 2. Plant & Machinery (Other than Under item 3 & 4) 3. Aero planes, vehicles used for Hire-business, moulds and Equipments for air/water Pollution control and solid waste control

33.33%

8.33%

50%

19%

BUSINESS PLAN FORMAT DEPRECIATION RATES Assets

4. Wooden parts in artificial silk Manufacturing machinery, Cinematograph films, bulbs Of studio lights, energy saving Devices (specialized boilers & Furnaces), instrumentation & Monitoring energy flows, waste Heat recovery equipments, coGeneration systems, electrical Equipments, burners, flour mills, Gas cylinders, glass melting furnaces, Rolling-mill rolls, wooden match Frames, mineral oil production & Generation equipment, mine & quarry equipments, salt work, renewed energy devices. Furniture and fittings used

Contd

WDV Rates
100%

SL Rates
100%

5.

10%

2.3%

BUSINESS PLAN FORMAT SUPPLEMENTARY INFORMATION

1. 2. 3. The plot size is (40X20) 800 sq. meters Commercial banks provide loans up to a limit of 70% in the case of raw materials, stores, consumables and packaging materials. All the income-expenditure and related statements are to be worked out for 8 years.

TAX COMPUTATION: SALIENT POINTS:

1. 2. You can carry forward losses to the next year for offsetting them against profits in the following year. There are tax incentives for setting up a new enterprise in backward areas. There are two major deductions allowed: i. Under Section 80 HHA of IT Act: 20% remission for all new enterprises set up in central government recognized industrially backward districts.

ii. Under Section 80 I: 20% remission for all new enterprises for a period of 10 years. For example, if PBT is RS. 100/-, an amount of Rs. 20/- will be tax deductible and the taxable profit will be only Rs. 80/-.

COMMON ERRORS IN BUSINESS PLAN FORMULATION

a. Capacity Utilisation Estimates: Grossly Unrealistic b. Capacity Computation: A Miscalculation c. Market Survey: A Neglected Task d. Machinery Selection: Serious Error e. Technology-Oriented Products: A Shaky Arrangement f. Project-Pruning and Resource-Straining: Exceeding the Safe Limits g. Accommodating in SSI Limits h. Project Cost: An Under Estimation i. j. Selecting the Location: Dangerous Temptations Selling Price: Unfounded Optimism

k. Cash Flow in Initial Years: A Poor Detail