Business Plan

UNIT 7 BUSINESS PLAN PREPARATION Preparation

Structure
7.0 Objectives
7.1 Introduction
7.2 What is a business plan?
7.3 Benefits of Writing A Business Plan
7.4 Requisites of Preparing a Business Plan
7.5 Writing the Business Plan- Elements of business plan
7.6 Detailed Project Report
7.7 Proforma of Detailed Project Report
7.8 Let Us Sum Up
7.9 Key Words
7.10 Answers to Check Your Progress
7.11 Terminal Questions

7.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the meaning and importance of business plan;
x describe elements of business plan;
x analyse the scope and value of the business plan to investors, lenders,
employees, suppliers, and customers;
x explain the meaning of detailed project report;
x describe the contents of detailed project report; and
x prepare a detailed project report.

7.1 INTRODUCTION
A business plan is also a road map that provides directions so a business for
future course of action and helps it avoid bumps in the road. The time you
spend making your business plan thorough and accurate, and keeping it up-
to-date, is an investment that pays big dividends (returns) in the long term.
For companies in private industry, the heart of the business plan is a business
model and business strategy which describes how and where the company do
expects to make and spend money. Founders and owners typically develop an
initial business plan before start-up. They build the plan anticipating the flow
and outflow of funds using it as a tool for supporting their requests for
investment capital or loans to start the business. Once the company is
operating, the business plan becomes a living document, which management
reviews and revises frequently i.e. quarterly , six monthly etc.. A good
business plan should incorporate strengths and weaknesses of the business
and should carefully analyse the opportunities and threats that can be
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 Business Idea converted into opportunities. Like any other project, business plan writing
Selection and
Feasibility needs careful planning and systematic execution. In this unit, you will learn
about the business plan, elements of business planned detailed project report.
You will also be acquainted with the format of detailed project report.

7.2 WHAT IS A BUSINESS PLAN?

A business plan is a guide—a roadmap that provides directions so a business
can plan its future and helps in the smooth functioning of the business. It is a
plan which outlines goals and details about how to achieve those goals. The
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. It is often an integration of functional plans such as marketing,
finance, manufacturing, and human resources. A description of all the facets
of the new venture is necessary to provide a clear picture of what a venture is
about, where is it projected to go and how can the entrepreneur plans to go
about it. A business plan should give as much details as possible but also
these should be in concise manner so that the reader reads it completely.
They are also a way for companies to keep themselves on track going
forward. It aims at addressing both short-term and long-term decision making
and strategies for the first three years of operation. Thus, the business plan is
sometimes referred to the game plan or road map. The plan answers the
questions like: Where am I now? Where am I going? and How will I get
there? Business plan is required and requested by various stakeholders
including investors, customers, suppliers and creditors etc.
Business plan is used by entrepreneur for various purposes. Business plans
are important to allow a company to lay out its goals and attract investment.
It can be used to get debt from banks, raise funds through securities and angel
investors or venture capitalists. It helps the entrepreneur to be prepared in
advance for the initial years of business as it provides blue prints of the
strategies prepared by the entrepreneur. It describes clearly the goals and
objectives of the firm and how can these be achieved. Entrepreneur can also
set performance benchmark to judge the effectiveness of business plan. It can
also be called as techno-economic feasibility study.

Key Features of Business Plan

There are few elements that should be included in a business plan to make it
more useful for entrepreneurs and other stakeholders. These elements are as
follow:
1) It should depict a clear description of product or services that your
business is going to offer to the target audience.

2) It should give proper focus on important players of the market such as
customers, suppliers, competitors etc.

3) It should give data regarding sales forecasting etc. which is very close to
be real.

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4) It should exhibit the distinctive features of the proposed market offerings Business Plan
Preparation
(USP of goods and services).
5) It should clearly state the required strategy to implement the plan.

6) It should include details of required technical know-how and your plan to
acquire it.

7) It should express the workability of profitability of the proposed

business.

7.3 BENEFITS OF WRITING A BUSINESS PLAN

The business plan is valuable to the entrepreneur, potential investors, or even
new personnel, who are trying to familiarize themselves with the venture, its
goals, and objectives. The business plan is important to these people because:

1. It helps the entrepreneur to avoid a project that may result in ultimate
failure through planning and research in advance. It is better and cheaper
not to start a bad-fated business than to learn through a failed experience.

2. It helps to determine the viability and potential of the venture in a

designated market where it a viable to start a business in that particular
market or not.

3. It provides guidance to the entrepreneur in organizing his or her planning

activities. It gives details about how to achieve the desired objectives and
goals of the firm. It also provides decision making and strategic
guidelines to the entrepreneur about the first few years of the venture.

4. It serves as an important tool in helping to obtain financing. Investors

need to know the parameters and the timings of the expected future
revenue streams, the main outlines of the business to evaluate the risk
and viability of the firm. Thus, with the help of business plan,
entrepreneur can attract investors and raise funds through banks, equity
market, angel investors or venture capitalists.

5. It also helps to find alliances if required to reach new markets, develop
new products, etc. Other firms may want to know about the viability of
the venture before entering into a long-term commitment. Business plan
can help attract these alliances.

6. It also helps in attracting and employing experienced top-level

employees and professionals.

7.4 REQUISITES OF PREPARING A BUSINESS

PLAN
It is important to first know the audience to whom the business plan should
be addressed as to for whom the business plan is written. The business plan
may be read by:
x employees,
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 Business Idea x investors,
Selection and
Feasibility x bankers,
x venture capitalists,
x suppliers,
x customers,
x advisors, and
x consultants.

The actual content and focus of the business plan depend upon who is
expected to read the business plan. Since each of these groups reads the plan
for different purposes, the entrepreneur must be prepared to address all their
issues and concerns. In some ways, the business plan must try to satisfy the
needs of everyone, whereas in the actual marketplace the entrepreneur’s
product will be trying to meet the needs of selected groups of customers .In
preparing the business plan, it is important for entrepreneurs to consider the
needs of external sources and not merely provide their own perspective.
While preparing business plan, the entrepreneur must carefully analyse the
three main view points:

1. First is the perspective of the entrepreneur himself as he is the one

developing the venture and clearly has the most in-depth knowledge of
the creativity and technology involved. The entrepreneur must be able to
clearly articulate what the venture is all about.
2. Second is the marketing perspective which requires critical emphasis
that an entrepreneur must incorporate while preparing business plan.
Many entrepreneurs tend to deemphasize the in-depth marketing
information in their business plan. Too often, an entrepreneur will
consider only the product or technology and not whethersomeone would
buy it. Entrepreneurs must try to view their business through the eyes of
their customers.
3. Third the entrepreneur should try to view his or her business through
the eyes of the investor. Sound financial projections are required for the
business plan. If the entrepreneur does not have the skills to prepare the
financial projections, he/she may get the assistance of outside experts.
The business plan is valuable to the entrepreneur, potential investors, or even
new personnel, who are trying to familiarize themselves with the venture, its
goals, and objectives.The process also provides a self-assessment by the
entrepreneur. Usually, he or she feels that the new venture is assured of
success. However, the planning process forces the entrepreneurto bring
objectivity to the idea and to reflect on such questions as: “Does the idea
make sense? Will it work? Who is my customer? Does it satisfy customer
needs? Whatkind of protection can I get against imitation by competitors?
Can I manage such a business? Whom will I compete with?” This self-
evaluation is similar to role playing, requiring the entrepreneur to think
through various scenarios and consider obstacles that might prevent the
venture from succeeding. The process allows the entrepreneur to plan ways to
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avoid such obstacles. It may even be possible that, after preparing the Business Plan
Preparation
business plan, the entrepreneur will realize that the obstacles cannot be
avoided or overcome. And hence, the business can be terminated while on
papers and no time and money goes wasted.

7.5 WRITING THE BUSINESS PLAN

Like every other project, business plan writing also requires some preparation
and should be carefully planned and systematically executed. A business plan
should be comprehensive enough to give any potential investor a complete
picture and understanding of the new venture, and it should help the
entrepreneur clarify his or her thinking about the business. This will improve
the quality of the final business plan and it will also keep the things moving
smoothly.

Key Elements of Business Plan

See Figure 7.1 to know all the elements of writing a business plan at a glance.
Following are the elements of business plan writing:

1) Introductory page: This is the title or cover page that provides a brief
summary of the business plan’s contents.The introductory page should
detail about the name and address of the company and the
entrepreneur(s), telephone number, e-mail address, and Web site address
if available. It should also describe the nature of the business in brief.
The amount of financing needed and a statement of the confidentiality of
the report should also be provided in this section. This is for security
purposes and is important for the entrepreneur. This title page reflects the
basic concept that the entrepreneur is attempting to develop. Investors
consider it important because they can determine the amount of
investmentneeded without having to read through the entire plan.
2) Executive Summary: The executive summary lays out all the vital
information about your business within a relatively short space;
typically, two-three pages or less. It is a high-level look at everything
and summarizes the other sections of your plan. It should stimulate the
interest of the potential investor and other stakeholders. It must be clear
concise and compelling so that people will read further. This is a very
important section of the business plan and should not be taken lightly by
the entrepreneur since the investor uses the summary to determine if the
entire business plan is worth reading. Thus, it should highlight in a
concise and convincing manner the key points in the business plan.

3) Industry Analysis: The entrepreneur should analyse the environmental

and industrial environment to be updated about the current status and
future trends and changes in the market at both domestic and
international level that may impact the working of the business. Any
climate change, current government policies, changes in policies,
economic trends to understand the purchasing power of target market,
cultural and technological changes etc. are analysed and their impact on
the products or services may be understood. Entrepreneur should also
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 Business Idea checck all the legal requirements and procedure in
n advance to open a new
Selection and
Feasibility ventture. Most entrepreneurs generally face poteential threats from larger
corpporations. The entrepreneur must be preparred for these threats and
shouuld be aware ofwho the competitors are and d what are their strengths
and weaknesses so that an effective marketing plan
p can be prepared and
impplemented. The entrepreneur can identify th he potential threats from
commpetitors through media, journals, social media and their websites.
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p like MSME
repoort, reports of various associations of industry like FICCI,
ASS SOCHAM and marketing research organisatiion like McKinsey, PWC
etc.,, and prepared detailed report pertaining to particular industry. The
entrrepreneur may consult these reports for understanding
u the recent
deveelopments in the industrial operations.

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Figure 7.1 Key Elements of Business Plan

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4) Business Description: In this section, the description of the venture is to Business Plan
Preparation
be detailed by the entrepreneur. It should begin with describing mission
and vision of the firm. It should give clear idea about the scope and size
of the firm to the investors. The new venture should be thoroughly
described, along with its proposed potential operations. Functional
specifications and descriptions should be provided. Drawings and
photographs may be included. The potential advantages of the new
venture possessing over the competitors should be discussed at length.
Patents, copyrights, and trademarks, as well as specialised technologies
should also be included in this section. If the product is very technical, it
will be important to make sure that its description is clear and easy to
understand. The location of business is very important for its success and
thus, it should also be included in this section.

5) Production Plan: A production plan is necessary for the manufacturing

business. Entrepreneur needs to describe the physical layout of his
production plant, the machinery and equipment needed to perform the
manufacturing operations; raw materials and suppliers’ names,
addresses, and terms; costs of manufacturing; and any future capital
equipment requirements. Discussions of these elements are necessary for
the investors in order to ascertain the financial needs of the firm. If some
or all manufacturing activities are to be sub-contracted then the name and
addresses of the sub-contractor(s), reason for selection and the costs,
terms of contract should be disclosed in this section.

6) Operations Plan: This section begins with describing what needs to be
done to get the business underway. Every type of business, whether
manufacturing- non manufacturing should include operations plan. It
describes the production of goods and services and the flow of goods and
services from producers to customers. It should explain the chronological
steps in completing a business transaction. In addition, this would be a
convenient place for the entrepreneur to discuss the role of technology in
the business transaction process. It must state the strategies to acquire
raw materials.
7) Marketing Plan: The general marketing activities and approach that the
company would follow should be outlined in this section. It describes
how the product(s) or service(s) will be distributed, priced, and
promoted. Marketing strategy which is developed by conducting market
research should be discussed here. Market defensive strategy should be
discussed here. Potential investors related to the marketing plan as
critical to the success of the new venture should be highlighted. Thus, the
entrepreneur should make every effort to prepare as comprehensive and
detailed plan so that investors can be clear as to what are the goals of the
venture and what are the strategies to be implemented for achievement of
the goals effectively.

8) Human Resource Plan: This part takes care of the human resource
requirement for the proposed business to be started. This covers both
human resource planning at the worker’s level as well as at the executive
level. The number of employees required to run the business is worked
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 Business Idea out. The detailed HR policy is prepared. What will be the compensation
Selection and
Feasibility that will be given to employees at different levels is also decided so that
the entrepreneur is clear about the HR outlay so that it can be made a part
of the business budget. Initially the human resources are kept at bare
minimum and as the business progresses more, human resources are
added in the team. What will be the job description and job specifications
for each position to be filled up is also worked out. The detailed process
of recruitment and selection is worked out. What will be the method of
performance appraisal, etc. are all worked out as part of human resource
plan.
9) Organizational Plan: It describes the form of ownership of the firm
whether it is proprietorship, partnership, or corporation. If the venture is
corporation it should give details about the shares of stock authorized
and share options, as well as the names, addresses, and resumes of the
directors and officers of the corporation. If it is a partnership firm, it
should describe the partnership deed and the terms of the partnership. It
is also helpful toprovide an organization chart indicating the line of
authority and the responsibilities of the members of the organization.
This information provides the potential investor with a clear
understanding of who controls the organization and how will other
members be interacting in the performance of the managerial functions.
10) Assessment of Risk: Every organization faces some risks and threats
and the investors may appreciate that entrepreneur have carefully
analyzed and disclosed possible risks and threats that the venture may
face. The investors may also find key strategies to overcome them. It is
important that the entrepreneur makes an assessment of risk.
Entrepreneur should explain the possible risks, the situation if those risks
becomes reality, and the strategy that will be employed to prevent,
minimize,or respond to the risks if they occur. Major risks can be from
competitors move, weaknesses in the marketing, production, or
management team and the technological changes. All these possible
risks, if any, should be discussed in details with the key strategies to
overcome them.

11) Financial Plan: It is the most looked up section of the business plan.
Most of the financial information and projected statements are disclosed
in this section. It determines the potential investment commitment
needed for the new venture and indicates whether the business plan is
economically feasible. The entrepreneur, in this section, should carefully
project the anticipated sales, possible expenses and the cash flow
projections of the first three years. It should carefully state the financing
needs of the venture for the first three years. The first year’s projection
should give details on monthly basis. The last financial item needed in
this section of the business plan is the projected balance sheet. This
shows the financial condition of the business at a specific time. It
summarizes the assets of a business, its liabilities, the investment of the
entrepreneurand any partners, and retained earnings.

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12) Appendix (contains backup material): The appendix of the business Business Plan
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plan generally contains any backup material that is not necessary in the
text of the document. Reference to any of the documents in the appendix
should be made in the plan itself.Letters from customers, distributors, or
subcontractors, copies of documents pertaining to incorporation, various
permits and grants, documents of IPRs, graphical layouts of production
process, etc. are the examples of information that should be included in
the appendix.

Format of a Business Plan

1) Business Name and Address
…………………………………………………………………………….
…………………………………………………………………………….

2) Proprietor’s Name and Address:

…………………………………………………………………………….
…………………………………………………………………………….

3) Business Form:

…………………………………………………………………………….
…………………………………………………………………………….

4) Business Activity:

…………………………………………………………………………….
…………………………………………………………………………….

5) Aims:
…………………………………………………………………………….
…………………………………………………………………………….

6) Objectives:
…………………………………………………………………………….
…………………………………………………………………………….

7) Market Size and Growth:

…………………………………………………………………………….
…………………………………………………………………………….

8) Competitors:
Name Strengths Weaknesses

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 Business Idea 9) Your Business
Selection and
Feasibility
Strengths Weaknesses

10) Competitive Advantage

…………………………………………………………………………….
…………………………………………………………………………….

11) Proposed Customers:

…………………………………………………………………………….
…………………………………………………………………………….

12) Advertising and Promotion Strategy:

…………………………………………………………………………….
…………………………………………………………………………….

13) Pricing Strategy:

…………………………………………………………………………….
…………………………………………………………………………….

14) Premises:
…………………………………………………………………………….
…………………………………………………………………………….

15) Equipment:
…………………………………………………………………………….
…………………………………………………………………………….

16) Key People and Job Functions

…………………………………………………………………………….
…………………………………………………………………………….

17) Background details of Key people

…………………………………………………………………………….
…………………………………………………………………………….

FINANCIAL HIGHLIGHTS (12 Months): As regards:

Turnover: ……………………………………………………………

Profit: …………………………………………………………………

Break Even: …………………………………………………………

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 Funding Requirement: ……………………………………………… Business Plan
Preparation
Sources of Funds: ……………………………………………………

Forecasted Profit and Loss Account:

Name of the Business: ……………………………………….

Period Ending: ……………………………………………….

Sales: I n Rs. (‘000)

Less:Direct (Variable) Cost

1) Raw materials
2) Direct wages
3) Overtime
4) Other
Total direct costs: ……………………………

Gross profit/ Contribution: ………………………………………..

Less: Fixed costs (Overheads):

1) Wages/ salaries (including taxes)
2) Rent
3) Heat and Power
4) Advertising
5) Insurance
6) Transport
7) Stationary
8) Repairs/ renewals
9) Depreciation
10) Local taxes
11) Other professional fees
12) Others

Total fixed cost …………………………………………….

Net Profit: ………………………………………………….

Less: Interest
Net profit after Interest ………………………………………

Less: tax

Profit Retained in the Business: ……………………………….

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 Business Idea Projected Balance Sheet:
Selection and
Feasibility
Business :……………………………………..

Period ending: ……………………………………..

Fixed Assets:
1) Car
2) Computer and other equipment
3) Machinery

Less: Depreciation ……………………………………..

Current Assets:
1) Debtors
2) Cash/ bank

Less: Current Liabilities

Net Current Assets: ……………………………………..

Total Assets: ……………………………………..A

Represented By:

Capital Introduced:
1) Promoters Equity
2) Loans/ secured/ unsecured
3) Other assets
4) Retained Profits

Net profit for the year

Less: drawings

Total capital: ……………………………………………………………..B

A and B must balance

Check Your Progress A

1) What do you mean by the business plan?

2) What is executive summary of business plan?

3) Distinguish between business plan and marketing plan.

4) State whether the following statements are True or False:

i) Potential investors regard the marketing plan as critical to the

success of the new venture.
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 ii) The executive summary lays out all the vital information about your Business Plan
Preparation
business within ten-twelve pages.
iii) The first perspective of writing business plan is for potential
investors view-point.
iv) A business plan should give as much details as possible but also
these should be in concise manner so that the reader reads it
completely.
v) Business plan can be used to get debt from banks, raise funds
through securities and angel investors or venture capitalists

5) Fill in the blanks:

i) ……………………. determines the potential investment

commitment needed for the new venture and indicates whether the
business plan is economically feasible.
ii) ………………………. describes the form of ownership of the firm.

iii) ……………………………… should begin with describing mission

and vision of the firm.
iv) ………………………………….. describes the production of goods
and services and the flow of goods and services from producers to
customers.
v) The business plan is valuable to the ……………………..
and………………………. .

7.6 DETAILED PROJECT REPORT

Business Plan that we have discussed so far, presents the techno-economic
feasibility of a proposed business idea. After the feasibility studies are carried
out, a detailed project report (DPR) is required to be drawn up based on the
data and results obtained from the studies. The preparation of the DPR is the
final and most important stage of pre-investment phase of project. A project
report is a detailed plan of action and particulars about the proposed project.

The company will submit the copies of the detailed project report to the
banks and financial institutions for their participation in the scheme of
finance and also for working capital requirements of the project. A project
report consists of analytical study of the proposed project and conclusion can
be drawn about its viability. The promoter’s capacity and competence will
also reflect in the project report.
The preparation of DPR is undertaken only after the investment decision is
made on the basis of the technical, economic, and financial feasibility studies,
so that the expensive efforts involved in the preparation of DPR are not
wasted. Process designs, layout drawings and construction data are absolutely
necessary for the preparation of DPR.

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 Business Idea The project report will be prepared for a plan of action to be undertaken
Selection and
Feasibility which covers various aspects which are as follows:
i) Technical,
ii) Financial,
iii) Marketing,
iv) Management and
v) Social.

The outline and the content of DPR is the same as the techno-economic
feasibility report. All the vital aspects of location and site costs,
process/technology, market demand, plant capacity, product revenue,
production costs, profitability, economic benefits, etc. must be covered in
much greater detail in the DPR. The basic difference between the feasibility
study report and DPR is the level of accuracy and degree of detail.

Contents in Detailed Project Report

A detailed project report, generally, contain the following information:

i) General information about the Entrepreneur(s):

Detailed project report begins with the introduction of the entrepreneurs. It
contains basic and general information regarding the name of the
entrepreneur, address of his residence, communication information, age etc.
When the entrepreneur approaches a bank or any other financial institution,
he is a stranger to those parties and thus, his complete details must be
required by those parties. It is obligatory for him/her to introduce
himself/herself to those authorities. The main components that come under
this section are:
1) Name and address of the entrepreneur
2) Contact information
3) Date of birth and age
4) Educational and professional qualifications
5) Special and vocational training
6) Qualities, skills, values, attitude and aptitude of the entrepreneur
7) Family background

ii) Introduction to Project and Industry:

This section gives the introduction of the project. The entrepreneur is
required to give details about the industry he/ she wishes to enter and also
analyse the competition available in the industry. The main elements under
this section are:
1) Industry position in the world scenario
2) Industry position in the country
3) Value addition by the industry
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 4) Profile of the industry in the country Business Plan
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5) Description of product selected

iii) Project Details:

By the time entrepreneur prepares detailed project report, the location of the
business must have been decided. This section gives description of the
promoters of the firm, reason for selecting a particular location. The major
components of this section are:
1) Promoters
2) Registered office
3) Location of the factory
4) Line of activity
5) Background of other directors
6) Scheme of project
7) Land and site development
8) Building and civil works
9) Plant and machinery
10) Contingencies to plant and machinery
11) Utilities
12) Miscellaneous fixed assets
13) Vehicles
14) Quality control and testing equipment
15) Erection and commissioning
16) Technical knowhow fee
17) Deposits
18) Preliminary and preoperative expenses
19) Working capital margin
20) Schedule of implementation
21) Management etc.

iv) Raw Materials Details:

Raw materials constitute major percentage of the production cost.

Information about the raw material is to be compiled as given in the proforma
below. The quantity and quality of raw material, its price, sources of raw
materials and the reason for selecting a particular supplier etc. needs to be
described in this section. The main components of this section are:
1) Requirement of raw materials
2) Situation of raw material availability indigenously
3) Feasibility of import of raw materials
4) Areas from which raw material can be procured
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 Business Idea 5) Suppliers of raw materials
Selection and
Feasibility 6) Annual requirement
7) Transportation of raw materials
8) Varieties and grades of raw material
9) Cost of raw materials and transportation cost to the factory
10) Linkages with suppliers of raw material.

v) Utilities Details:

Utilities do not form the part of the end product or service. The nature of the
product and production process determines the type of utilities. An
entrepreneur has to carefully analyse the requirements of utilities in advance.
Utilities facilitate the production process and are constituted mainly by items
like:
1) Power
2) Steam
3) Compressed air
4) Fuel
5) Water
6) Chilled water
7) Effluent and waste disposal etc.

vi) Manpower Details:

A large percentage of the project cost is constituted by the labour cost making
it necessary for the entrepreneur to estimate carefully the manpower
requirements and disclose the same in the detailed project report. It is
customary to classify labour into categories like: skilled, semi-skilled,
unskilled labour and administrative staff. The wages and competitive wage
rates should also be disclosed in this section. The major elements of this
section are:
1) Manpower requirement
2) Organization chart
3) Availability of manpower
4) Total cost of labour

vii) Technical Details:

This section begins with factual description of the production programme for
the given time period which is usually one year which may extend up to three
years. It gives details about the plant capacity and its utilization, a detailed
description of the product in terms of its size, weight, colour, taste, quality,
packaging, usage, etc. It also describes technical details regarding the
technology required and the expertise required for the same. The main
components of this section are:
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 1) Plant capacity Business Plan
Preparation
2) Capacity utilization
3) Manufacturing process with flow chart
4) Plant layout
5) Product description and properties
6) Packing and its cost
7) Technical know-how
8) Plant and machinery details
9) Plant and machinery suppliers

viii)Financial Details:
The cost on account of land and building, machinery and equipment, working
capital requirements, preliminary expenses etc. are to be estimated and
enclosed in this section. This section should also cover the estimated
financial position of the firm, its cash flows, projected sales and break-even
point. It is also required to determine the profitability of the firm in advance
in order to ascertain the return on investments to the investors so that they are
enticed to invest in project. This section is the most important section as it
provides financial and economic viability of the project and helps the investor
in taking the final decision. The main elements of this section are as under:
1) Cost of project, with details to individual cost items
2) Means of finance
3) Assumptions made in financial projections
4) Estimates of production and sales
5) Estimated cost of production and profitability
6) Estimated funds flow statement
7) Projected balance sheet
8) Statement of debt service coverage ratio
9) Statement of computation of working capital
10) Statement of break-even analysis
11) IRR calculations
12) Payback period calculations
13) Return on investment calculations
14) Debt-equity ratio calculations
15) Promoters’ contribution to Cost of project
16) Promoter’s contribution to Total equity
17) Workings for financial projections

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 Business Idea ix) Marketing Details:
Selection and
Feasibility
This section begins with the description of the target market, preferences of
the target customers, distribution channel etc. the major components under
this section are:
1) Present state of the industry
2) Consumer preferences
3) Market requirements
4) Market segments
5) Distribution channels
6) Market characteristics of the product
7) Export prospects and international market
8) Marketing and selling arrangements
x) Project Evaluation-Social Angle:

Finally, last section gives analysis of the project from social angle and its
implications to the society. This section is important as the entrepreneur
might get subsidies or tax advantages if they are providing any social benefit
to the society. This section includes:
1) Analysis of critical factors
2) Socio Economic benefit
3) Labour availability
4) Impact on ecology
5) Foreign exchange earnings
6) Value addition
7) Import substitution
8) Technology absorption etc.

7.9 PROFORMA OF PROJECT REPORT

1) The Enterprises and the Entrepreneurs

Project report for the manufacture of ………………………………

i) Name of the Item/ Items
…………………………………………………………………………

ii) Name of the units and address

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………

iii) Telephone No. Office………………….. ; Factory ………………..

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 iv) Name (s) and addresses of the promoters in block letters Business Plan
Preparation
…………………………………………………………………………
…………………………………………………………………………

v) Constitution of the Firm Proprietary/ Partnership/ Pvt. Ltd./ Coop.

Society
…………………………………………………………………………
…………………………………………………………………………

vi) Qualifications both Academic/ Professional of the Entrepreneur (s)

Name
…………………………………………………………………………

Qualification
…………………………………………………………………………

vii) Production / working experience of the Entrepreneur(s)

Name of the Organization

…………………………………………………………………………

Items manufactured
…………………………………………………………………………
…………………………………………………………………………

Period
…………………………………………………………………………

Family Background (please give details of close relations who are in

the industry/ business)

Name and Address of the Units and Items manufactured

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………

viii)Location/ Proposed locations

…………………………………………………………………………

ix) Name and address of the bank with which you want to deal with
…………………………………………………………………………

2) Economic Viability and Marketability

i) Introduction
…………………………………………………………………………
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 Business Idea ii) (Basis & Presumptions)
Selection and
Feasibility …………………………………………………………………………
…………………………………………………………………………
iii) Scope
…………………………………………………………………………
…………………………………………………………………………
iv) Marketability (please give proposed selling arrangements & list of
places where the products will be mainly sold & likely buyers, if
any)

3) Technical Feasibility
i) Manufacturing process (please give process flowchart).

ii) Please indicate the process which will get done from outside.
iii) Specifications (whether proposed to adopt ISI specifications or some
other)
iv) Components to be purchased from outside.

S NO. Name of the components No. Specifications

1. Installed Capacity Qty. Value
2. Proposed capacity to be Qty. Value
utilised
3. Motive power
Requirements (HP)
approx.
4) Financial Projections
A) Fixed Capital
i) a) Land, Area and Value
b) Building area, Value owned/ rented or leased
c) please mention if some arrangements have made in this respect.
(please append the proposed layout plan)
ii) Machinery & Equipment
S. Description Indigenous/ Qty. Price Sales Installations Total Name &
No. and Imported tax Address
Specifications of the
Suppliers

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iii) Testing equipment (with details as above) Business Plan
Preparation

S. Description Indigenous/ Qty. Price Sales Installations Total Name &

No. and Imported tax Address
Specifications of the
Suppliers

iv) Electrification and Installation Charges and Maximum 10% of cost of

machinery and equipment.

v) &RVWRIWRROV-LJV)L[WXUHVPRXOG:RUNLQJWDEOHVHWF

vi) Cost of Office Equipment’s

vii) Pre-operative expenses if any, (cost of project preparation, technical
know-how expense royalties etc.)

viii)Total non-recurring expenditure

(i+ii+iii+iv+v+vi+vii)

B) Working capital (per month)

i) Staff & Labour

Staff and Designation No. Salary Total

Labour
Technical
Office
Sales
Others
Salaries per
month
Perquisites (10
to 20% of
salaries)
Total Salary

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 Business Idea ii) Raw materials (per month on single shift basis including packing
Selection and
Feasibility materials)

Name with Indigenous/ Qty. Rate Total

specificati imported
ons

iii) Other overhead expenditure (per month basis on single shift basis)
a) Utilit
Power ……….. KWH unit @ ……… per unit cost Rs. …………….
Fuel (Steam/ Furnace oil etc.) tonnes @ Rs. ……………………..
Water ………………….. kilo litre ………… per Kl. ……………….
Total Cost of Utilities ………………………………………….
b) Advertisement and publicity
c) Transport
d) Commission to Distributors/ Agents
e) Consumable stores
f) Rent
g) Taxes (other than income taxes)
h) Insurance
i) Stationery
j) Postage and telephone etc.
k) Repair and maintenance
l) Sales expenses
m) Other miscellaneous (not given above)
Total overheads (a+b+c+d+e+f+g+h+i+j+k+l+m)
iv) Total recurring expenditure (per month) (i+ii+iii)

Working capital for two/ three months (depending upon need or worked
out on the bank system of assessment of working capital needs).
2/3 X expenditure

C) Total investments
i) Fixed capital ……………………………….
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 ii) working capital …………………………… Business Plan
Preparation
Total …………………………………………

D) Cost of production (per year)

i) Total expenditure recurring (per year)
ii) Depreciation on building @ 5%
iii) Depreciation on machinery and equipment’s @10 %
iv) 'HSUHFLDWLRQRQ-LJV)L[WXUHVPRXOGWRROV#
v) Depreciation on office equipment’s @ 20%
vi) Depreciation on total furnaces
vii) Interest on Total investment @ …………………
(Actual to be charged by Financial Institution or Banks)

E) Total Cost of Production ……………………………………….

F) Turnover per year

Sr No. Sales Qty Rate Total

G) Net profit per year (F-E)

(Before taxes)

H) Financial Assessments
i) Return on Sales = Profit (per year) x 100

Total Sales (p. a.)

ii) Rate of Return = Profit (per year) x 100

Total Investment

iii) Break Even Point (BEP)

Total Fixed Cost (FC) per year

a) Depreciation
b) Rent
c) Interest on total Investments
d) 40% of Salary & Wages
e) 40% of overheads (Excluding Rent and Insurance)
f) Insurance
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 Business Idea BEP: FCx 100
Selection and
Feasibility
FC+ Profit

iv) Name & addresses of the Suppliers (Raw Material’s & Machines)

The detailed project reports whose format is given above may vary from
financial institution to financial institution. However, the information asked
by the financial institution more or less remains the same. It is important for
the entrepreneur to first of all finalise the financial institution from where to
get the funding of the project and then ask them to supply the copy of DPR
format and use that format to supply the information to them which will be a
right step on the part of the entrepreneur. These project reports are subject to
appraisal by the financial institution and based on their appraisal report it is
decided by the banker/ financial institution to fund the proposal or not.

Check your progress B

1) What do you mean buy Detailed Project Report?

2) List out various technical details of DPR.

3) List out various financial details of DPR
4) State whether the following statements are True or False:

i) The preparation of the DPR is the final and most important stage of
pre-investment phase of project.

ii) A project report consists of analytical study of the proposed project

and conclusion can be drawn about its viability.
iii) A detailed project report can be prepared before conducting
feasibility study.
iv) Marketing plan can be skipped while preparing detailed project
report as it is not necessary for the investors to know.

v) Financial assessments should include break even analysis of the

company.

5) Fill in the Blanks:

i) The outline and the content of DPR is the same as the
………………………………………… .
ii) The basic difference between the ……………………… and DPR is
the level of accuracy and degree of detail.

iii) Socio Economic benefit is needed to be considered while evaluating

the project from ………………………………….. .

iv) …………………………. consists of Market segments and

Distribution channels required.

v) ……………………. point reflects the no profit and no loss situation

of the business.
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 Business Plan
7.8 LET US SUM UP Preparation

Founders and owners typically develop an initial business plan before start-
up. They build the plan anticipating using it as a tool for supporting their
requests for investment capital or loans to start the business. The 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. A
business plan should give as much details as possible but also these should be
in concise manner so that the reader reads it completely. It can be used to get
debt from banks, raise funds through securities and angel investors or venture
capitalists.

The business plan is valuable to the entrepreneur to avoid a project that may
result in ultimate failure through planning and research in advance.It helps to
determine the viability and potential of the venture, provides guidance to the
entrepreneur in organizing his or her planning activities. It is an important
tool in helping to obtain financing. It also helps to find alliances if required to
reach new markets, develop new products, etc. and attracting and employing
experienced top-level employees and professionals.

The business plan may be read by employees, investors, bankers, venture

capitalists, suppliers, customers, advisors, and consultants. The actual content
and focus of the business plan depend upon who is expected to read the
business plan. While preparing business plan, the entrepreneur must carefully
analyse the three main view points. First is the perspective of the
entrepreneur himself as he is the one who develops the venture and clearly
has the most in-depth knowledge of the creativity and technology involved.
Second is the marketing perspective which requires critical emphasis that an
entrepreneur must incorporate while preparing business plan. Third the
entrepreneur should try to view his or her business through the eyes of the
investor.
A business plan should be comprehensive enough to give any potential
investor a complete picture and understanding of the new venture. The
elements of business plan are: Introductory page, Executive Summary,
Industry Analysis, Business Description, Production Plan, Operations Plan,
Marketing Plan, Human Resource Plan, Organizational Plan, Assessment of
Risk, Financial Plan, and Appendix
The preparation of the DPR is the final and most important stage of pre-
investment phase of project. A project report is a detailed plan of action and
particulars about the proposed project. A project report consists of analytical
study of the proposed project and conclusion can be drawn about its viability.
The project report will be prepared for a plan of action to be undertaken
which covers various aspects which include: Technical, Financial, Marketing,
Management and Social. A detailed project report, generally, contain the
following information: Introduction to Project and Industry, Project Details,
Raw Materials Details, Utilities Details, Manpower Details, Technical
Details, Financial Details, Marketing Details, and Project Evaluation-Social
Angle.
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 Business Idea
Selection and 7.9 KEY WORDS
Feasibility
Business plan: The 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. It is often an integration of functional
plans such as marketing, finance, manufacturing, and human resources.

Detailed Project Report (DPR): It is a detailed plan of action and

particulars about the proposed project.

Executive Summary: It is a high-level look at everything and summarizes

the other sections of the plan in two-three pages.

Industry Analysis: Any climate change, current government policies,

changes in policies, economic trends that might impact the whole industry
entrepreneur wishes to enter

Potential Investors: Those parties that might be interested in giving finance

to the business.

7.10 ANSWERS TO CHECK YOUR PROGRESS

A) 4. (i) True, (ii) False, (iii) False, (iv) True, (v) True

5. (i) Financial Plan, (ii) Organisational Plan, (iii) Business Description,

(iv) Production Plan, (v) entrepreneur and potential investors
B) 4. (i) True, (ii) True, (iii) False, (iv) False, (v) True

5. (i) the techno-economic feasibility report, (ii) feasibility study report,

(iii) social angel, (iv) marketing details, (v) break-even

7.11 TERMINAL QUESTIONS

1) What do you mean by business plan?

2) Discuss various elements of business plan?

3) What is the importance of writing a business plan?

4) What do you mean by a detailed project report? When it should be

prepared and why?

5) What are the major areas covered by detailed project report?
6) Discuss various elements of financial projections required to be prepared
in financial plan.

7) Describe marketing plan in brief.

8) Write short notes on:
x Executive summary
x Industry analysis
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 x Production plan Business Plan
Preparation
x Readers of business plan

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A. 2016.
Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part three,
Chapter 7).

x .DSODQ - 0 DQG :DUUHQ $ &  3DWWHUQV RI (QWUHSUHQHXUVKLS
Management, Wiley; (Part one, Chapter 5).

x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 6)

x Kuratko, D. F. and Rao, T.V. 2016. Entrepreneurship, A South-Asian

Perspective, Cengage Learning; (Part three, Chapter 9).
x Roy R. 2009. Entrepreneurship, Oxford; (Section two, Chapter 9)
x Zimmerer T.W. & Scarborough N. M., 2013. Essentials of
Entrepreneurship and Small Business Management, PHI Leaning;
(Section II, chapter 3)

165