Business Plan

Business Plan-What

 It is a written document describing all

relevant internal and external elements and
strategies for starting a new venture
Business Plan-Who should write?

 Entrepreneur in consultation with

professionals such as Management
Consultants, Lawyers, accountants,
marketing consultants, engineers etc.
Business Plan-Who reads it?

 Employees, investors, bankers, venture

capitalists, suppliers, customers, advisors and
consultants.
 Thus, all their issues and concerns must be
addressed in the business plan prepared by
the entrepreneur.
Business Plan-Why Important to
stakeholders?

 It helps determine the viability of the venture

in a designated market
 It provides guidance to the entrepreneur in
organising his or her planning activities
 It serves as an important tool in helping to
obtain financing.
Writing a Business Plan

 Time consuming and cumbersome exercise

 Comprehensive enough to give any potential
investor a complete picture and understanding of
the new venture and will help the entrepreneur
clarify his or her thinking about the business.
 Entrepreneurs incorrectly estimate the length of
the time that an effective plan will take to
prepare but some times the time taken is much
more than expected or anticpated.
Outline
1. Introductory Page
2. Executive summary
3. Industry analysis
4. Description of the venture
5. Production plan
6. Operational plan
7. Marketing plan
8. Organisational plan
9. Assessment of risk
10. Financial plan
11. Annexure
1.Introductory page

 Name & addresses of business

 Name(s), addresses and contact details of
principal(s)
 Nature of business
2. Executive summary

 Summary of the complete business plan-so

prepared after the total plan is written.
 It is about 2-3 pages in length
 Crucial, as banks and other financial
institutions will go through this the most and
thus it should stimulate their interest
Executive summary

 It would highlight in a concise and convincing

points in the business plan.
 It should address a number of issues or questions
that anyone picking up the written plan for the
first time would want to know such as the
following:
 What is the business concept or the model?
 How is this business concept or model unique?
 Who are the individuals starting this business?
 How will they make money and how much?
Executive summary

 In case the new venture has a strong growth

plan and in 5 years expects to be positioned
for an initial public offering (IPO) then the
executive summary should also include an
exit strategy and in the absence of any should
avoid discussion on the exit strategy
completely.
3. Environmental and Industry analysis

Environmental analysis
 Assessment of external uncontrollable
variables that may impact the business plan.
 It is important to conduct this process to
identify trends and changes occurring on a
National and International level that may
impact the new venture.
Environmental and Industry analysis

 Examples of these environmental factors are:

 Economy: the entrepreneur should consider
trends in the GDP, GNP, unemployment by
geographic area, disposable income etc.
 Culture: an evaluation of cultural changes may
consider shifts in the trends followed by the
people/consumers thus having an impact on the
Business Plan.
Environmental and Industry analysis

 Technology: advances in technology are difficult

to predict. However, the same have to be
predicted within the possibilities by the
entrepreneur. Thus certain short term marketing
decisions along with certain contingency plans
given new technologic developments have to be
included in the business plan.
Environmental and Industry analysis

 Legal concerns: entrepreneur must be prepared for

any future legislation that may affect the product or
service, channel of distribution, price, or promotion
strategy. The deregulation of prices in some sectors,
restrictions on media advertising, safety regulations
affecting the product or packaging are certain legal
restrictions that can affect any marketing program.
Environmental and Industry analysis

 All the above external factors are generally

uncontrollable, but as indicated an awareness
and assessment of these factors using some
of the sources identified can provide strong
support for the opportunity and can be
invaluable in developing the appropriate
marketing strategy
Environmental and Industry analysis

 Industry analysis
 Reviews industry trends and competitive
strategies
Environmental and Industry analysis

 Examples of these factors are:

 Industry demand: data from reliable published
sources. Knowledge such as whether the market is
growing or declining, the number of new
competitors, and possible changes in consumer
needs are all important issues in trying to
ascertain the potential business that might be
achieved by the new venture. Some additional
marketing research may be required to be
conducted by the entrepreneur.
Environmental and Industry analysis

 Competition: entrepreneur must be aware of

competition in terms of their SWOT so that an
effective marketing plan can be implemented.
Most competitors can be easily identified from
experience, trade journal articles, advertisements,
websites or even yellow pages or just dial.
Environmental and Industry analysis

 The last part of this section should focus on

the specific market, which would include such
information as who the customer is and what
the business environment is like in the
specific market and geographic area where
the venture will compete.
Critical issues for environmental and
industry analysis
 What are the major economic, technological,
legal and political trends on a national and an
international level?
 What are the total industry sales over the
past five years?
 What is anticipated growth in this industry?
 How many new firms have entered this
industry in the past three years?
Critical issues for environmental and
industry analysis
 What new products have been recently
introduced in this industry?
 Who are the nearest competitors?
 How will your business operation be better
than this?
 Are the sales of each of your major
competitors growing, declining, or steady?
 What are the strengths and weaknesses of
each of your competitors?
Critical issues for environmental and
industry analysis

 What trends are occurring in your specific

market area?
 What is the profile of your customers?
 How does your customer profile differ from
that of your competition?
Environmental and Industry analysis

 Future outlook and trends

 Analysis of competitors
 Market segmentation
 Industry and market forecasts
4. Description of the venture

 Provides complete overview of product(s),

services, and operations of new venture.
Description of the venture

 It enables the investor to ascertain the size

and scope of the business.
 It should begin with the mission statement or
company mission of the new venture.
 Describes the nature of the business and
what the entrepreneur hopes to accomplish
with that business.
Description of the venture

 After the mission statement a number of

important factors that provide a clear
description and understanding of the
business venture must be discussed.
 Key elements are the product(s) or service(s),
the location and size of the business, the
personnel and office equipment that will be
needed, the background of the entrepreneur,
and the history of the venture.
Describing the venture

 What is the mission of the new venture?

 What are your reasons for going into business?
 Why will you be successful in this venture?
 What development work has been completed
to date?
 What are your product(s) and or service(s)?
 Describe the product(s) and/or service(s),
including patent, copyright, or trademark
status.
Describing the venture

 Where will the business be located?

 Is your building new? Old? In need of
renovations? (If renovation is needed, state
costs.)
 Is the building leased or owned? (state the
terms)
 Why is this building and location right for
your business?
Describing the venture

 What office equipment will be needed?

 Will the equipment be purchased or leased?
 What experience do you have and/or will you
need to successfully implement the business
plan?
Description of the venture

 Product(s)
 Service(s)
 Size of business
 Office equipment and personnel
 Background of entrepreneurs
5. Production Plan

 Details of how products will be manufactured

 In case the new venture is a manufacturing
operation then a production plan is
necessary.
 This plan should describe the complete
manufacturing process.
 In case some or all of the manufacturing
process is to be subcontracted then the plan
should describe the subcontractors.
Production Plan

 In case the manufacturing has to be carried

out in whole or in part by the entrepreneur,
he or she will need to describe the physical
plant layout, the machinery and the
equipment needed to perform the
manufacturing operations, raw material
suppliers’ names, addresses, and terms, costs
of manufacturing and any future capital
equipment needs.
Production Plan

Some of the key questions in this section of

the business plan include:
 Will you be responsible for all or part of the
manufacturing operation?
 If some manufacturing operation is
subcontracted, who will be the
subcontractors (Give names and addresses)
 Why were these subcontractors selected?
Production Plan

 What are the costs of the subcontracted

manufacturing? (include copies of any written
contracts)
 What will the layout of the production
process? (Illustrate steps if possible)
 What equipment will be needed immediately
for manufacturing?
 What raw materials will be needed for
manufacturing?
Production Plan

 Who are the suppliers of new materials and

what are the appropriate costs?
 What are the costs of manufacturing the
product?
 What are the future capital equipment needs
of the venture?
Production Plan

If a Retail Operation or Service

 From whom will merchandise be purchased?
 How will the inventory control system operate?
 What are the storage needs of the venture and
how will they be promoted?
 How will the goods flow to the customer?
 Chronologically, what are the steps involved in a
business transaction?
 What are the technology utilisation requirements
to service customers effectively?
Production Plan

 Manufacturing process
 About location of the factory
 Machinery and equipment
 Names of suppliers of raw materials
6. Operational Plan

 All businesses-manufacturing or
nonmanufacturing should include an
operations plan as a part of the business plan.
 This section goes beyond the manufacturing
process (when the new venture involves
manufacturing) and describes the flow of
goods and services from production to the
customer.
Operational Plan

 It might include inventory or storage of

manufactured products, shipping, inventory
control procedures, and customer support
services.
 A non manufacturer such as a retailer or
service provider would also need this section
in the business plan in order to explain the
chronological steps in completing a business
transaction.
Operational Plan

 E.g.: an internet retail sports clothing

operation would need to describe how and
where the products offered would be
purchased, how they would be stored, how
the inventory would be managed, how
products would be shipped and importantly
how a customer would log on and complete a
transaction.
Operational Plan

 This would also be a convenient section for

the entrepreneur to discuss the role of
technology in the business transaction
process.
Operational Plan

 Description of company’s operation

 Flow of orders for goods and /or services
 Technology utilisation
7. Marketing Plan

 It describes market conditions and strategy

related to how products and services will be
distributed, priced and promoted.
Marketing Plan

 Marketing Research evidence to support any of

the critical marketing decision strategies as well
as for forecasting sales should be described in this
section.
 The entrepreneur will be required to take every
effort to prepare as comprehensive and as
detailed a plan as possible so that investors can
be clear as to what the goals of the venture are
and what strategies are to be implemented to
effectively achieve the goals.
Marketing Plan

 Annual marketing planning will be a

requirement (with careful monitoring on a
weekly or monthly basis) for the
entrepreneur and should be regarded as the
road map for short-term decision making.
Marketing Plan

 Product
 Pricing
 Distribution
 Promotion
8. Organisational Plan

 It describes form of ownership and lines of

authority and responsibility of members of
the new venture.
 It is a part of the business plan that describes
the venture’s form of ownership i.e.
Proprietorship, partnership, or corporation.
 If the venture is a partnership, the terms of
the partnership should be included.
Organisational Plan

 If the venture is a corporation, it is important

to detail shares of stock authorised, share
options, as well as names, addresses, and
resumes of the directors and officers of the
corporation.
 It is also helpful in preparing an organisation
chart indicating the line of authority and the
responsibilities of the members of the
organisation.
Organisational Plan

Some of the key questions the entrepreneur

needs to answer in preparing this section are:
 What is the form of ownership of the
business?
 If a partnership, who are the partners and
what are the terms of agreement?
 If incorporated, who are the principal
shareholders and how much stock do they
own?
Organisational Plan

 How many share of voting or nonvoting stock

have been issued and what type?
 Who are the members of the board of
directors? (Give names, addresses and
resumes)
 Who has check signing authority or control?
 Who are the members of the management
team and what are their backgrounds?
Organisational Plan

 What are the roles of and responsibilities of

each member of the management team?
 What are the salaries, bonuses, or other
forms of payment for each member of the
management team?
Organisational Plan
 Form of ownership
 Identification of partners or principal
shareholders
 Authority of principals
 Management-team background
 Roles and responsibilities of members of
organisation
9. Assessment of risk

 Identifies potential hazards and alternative

strategies to meet business plan goals and
objectives.
Assessment of risk

 Every new venture will be faced with some

potential hazards, given the particular industry
and competitive environment.
 Thus, it is important that an entrepreneur makes
an assessment of risk in the following manner.
 Firstly, the entrepreneur should indicate the
potential risks to the new venture.
 Next, identify what would happen if these risks
become reality.
Assessment of risk
 Finally, the entrepreneur should discuss the strategy
that will be employed to either prevent, minimise, or
respond to the risks in case they occur.
 Major risks for an enterprise could result from a
competitor’s reaction; weaknesses in the marketing,
production or management team; and new advances in
technology that might render the new product
obsolete.
 Even if these factors present no risks to the new
venture, the business plan should discuss why that is
the case.
9. Assessment of risk

 Evaluate weaknesses of business

 New technologies
 Contingency plans
10. Financial Plan
 It has projections of key financial data that determine
economic feasibility and necessary financial investment
commitment.
 The entrepreneur should summarise the forecasted sales and
the appropriate expenses for at least the first three years,
with the first year’s projections provided monthly.
 The form for displaying this information includes the
forecasted sales, cost of goods sold, and the general and
administrative expenses.
 The next major area of financial information needed is cash
flow figures for three years, with the first year’s projections
provided monthly.
Financial Plan
 As bills have to be paid at different times of the year, is
important to determine the demands on cash on a monthly
basis, especially in the first year. The sales may be irregular
and the receipts from the customers may also be spread
out, thus necessitating the borrowing of short-term loans in
order to meet fixed expenses such as salaries and utilities.
 A time to time monitoring of the financial statements helps
in checking the liquidity status in the organisation.
 Any assumption considered for the balance sheet or any
other item in the financial plan should be listed for the
benefit of the potential investor.
10. Financial Plan

 Trading, Profit & Loss a/c

 Balance Sheet
 Break even analysis
 Working capital
 Cost sheet
11. Annexures

 The appendix of the business plan generally

contains any backup material that is not
necessary in the text of the document.
 Reference to any of the documents should be
made in the business plan itself.
 E.g.: Letters from customers, distributors, or
subcontractors.
 Any other information such as secondary data or
primary research data used to support plan
decisions.
11. Annexures

 Documents or details vouching for any of the

facts mentioned in the business plan
Why some business plans fail?

 Goals set by the entrepreneur are unreasonable

 Goals are not measurable
 The entrepreneur has not made a total
commitment to the business
 The entrepreneur does not have any experience in
the said business
 The entrepreneur has no sense of potential
threats or weaknesses to the business.
 No customer need was established for the
proposed product or service.