Module 2: Business Planning Process

Module-2: Business planning process:

Meaning of business plan, business plan process, advantages of business plan,
marketing plan, production/operational plan, organisational plan, financial
plan, final report with feasibility, preparing a model project report for starting
a new venture.

Module – 2
Business Planning Process

Meaning of 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.

A business plan is the blue print of step by step procedure that would be followed to
convert a business idea into a successful business venture. A business plan is a written document
that describes in detail how a business, usually a new one, is going to achieve its goals. A business
plan lays out a written plan from a marketing, financial and operational viewpoint. Sometimes, a
business plan is prepared for an established business that is moving in a new direction.

Objectives of Business Plan

 To give directions to the vision formulated by entrepreneur
 To objectively evaluate the prospects of business
 To monitor the progress after the implementation of the plan
 To assist seek financial assistance from financial institutions
 To identify the strengths & weakness of the plan
 To visualize the concept of the terms of market availability, organizational, operational and
financial feasibility
 To guide an entrepreneur in actual implementation of the plan
 To list identified opportunities & threats from the market for timely action
 To identify the resources required for the plan

Business Plan Process

A Plan, which looks very lucrative/feasible at the first instance, might actually not be with the
details that are drawn. Hence, documenting the business plan is one of the early steps that an
entrepreneur should do.
A successful entrepreneur lays down a step-by step plan that he/she follows in starting a new
business. This business plan acts as guiding tool to the entrepreneur and is dynamic in nature-it

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needs continuous review and updating so that the plan remains viable even in changing business
situation. The various steps involve in business planning process are:

Preliminary investigation

Idea generation

Environmental scanning
Feasibility Analysis

Project Report Preparation

Evaluation, control and review

1.Preliminary Investigation-Before preparing the plan entrepreneur should-

 Review available business plan(if any)
 Draw key business assumption on which the plans will be based (eg-inflation,
exchange rates, market growth, competitive pressures etc)
 Scan the external environment and internal environment to assess the strength,
weakness, opportunities and threats etc.
 Seek professional advice from a friend/relative or a person who is already into similar
business (if any)

2. Idea generation- entrepreneurship is not just limited to innovation

(generation of an entirely new concept, product or service, but it also encompasses an
incremental value addition to the concept/product/services offered to the customer,
shareholder and employees.)hence value addition is the key work that an entrepreneur
needs to keep in mind while generating new ideas even at the inspection stage. idea
generation is the first stage of business planning process. this step differentiates
between an entrepreneur and a business man.
The various sources of new ideas are:
 Consumers/customers
 Existing companies

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 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 etc from consumers, existing companies,
dealers, retailers
 Invitation of ideas through advertisements, mail, the internet.
 Value addition to the current product/services.
 Market research
 Commercializing inventions
These days, even contests are being organized to identify business ideas like
“business bazar” on star TV, which invites participation in the contest and rewards the
best business plan. screening of new ideas should be done so that promising new ideas
are identified and impractical ideas are eliminated.

3.Environmental scanning-once a promising idea emerges through idea generation phase

the next step is environmental scanning, which is carried out to analyse the prospecting
strengths, weakness ,opportunities and threats of the business enterprise. hence before getting
into the finer details of setting up business. Its is advisable to san the environment –both
external and internal and collect the information about the possible opportunities, threat from
the external environment and strength and weakness from the internal environment.

 External environment:
Socio-cultural appraisal: it assess the social and cultural norms of society in a given period
of time .the variables that are appraised are values, beliefs ,norms fashions, and fads of a
particular society.it can help understanding rigidity/flexibility of a given society and united
Arab emirates.
Americans are experimenting and adventurous whereas Arabs consecrating.if entrepreneur
wishes to introduce an innovating product like bungee jumping, its acceptability would be
more in America than in the UAE.

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Technological appraisal: it assess various technological knowhow available to convert the

ideas into product.it can also be assess the various technologies expected in near future and
their receptiveness by the industry. For example: an entrepreneur has an idea of
manufacturing tobacco-free herbal cigarettes which would not harm the health of smokers,
technological appraisal can assess whether manufacturing of this kind of product is possible
or not.

Economic appraisal: it assess the status of economy in a given society in terms of inflation,
per capita income and consumption pattern, balance of payments, consumer price index etc.
A healthy economy offers greater opportunities for growth and development of the industry
and therefore provides greater confidence to the entrepreneur about the success of his
business venture.
Demographic appraisal: it assess the overall population pattern of a given geographical
region.it includes variables like age profile, distribution, sex, education profile, income
distribution etc.it can help in identifying the size of target customers.
Government appraisal: it assess the various legislations, policies ,I incentives, subsidies,
grants ,procedures etc. formulated by government for a particular industry. the size the
government norms of the industry, the easier it is for the entrepreneur to establish and run the
business.
 Internal environment:
Raw materials: it assesses the availability of raw material now and in the near future. If the
availability of raw material is less now or could be less in future tehn the entrepreneur should
give a serious thought to establishing a venture as he entire system can come to a standstill
due to shortage of raw material.
Production/operation: it assess the availability of various machineries, equipment’s, tools
and techniques that would be required for production/operation.
Finance: it assesses the total requirements of finance in terms of start –up expenses, fixed
expenses and running expenses .it also indicates the sources of finance that can be
approached for funding.
Market: it assesses the present, potential ,and latent demands of the market.
Human resource: it assesses the kind of human resource required and its demand and supply
in the market. This helps in estimating the cost and level of competition in hiring and
retaining the human resource.

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4. Feasibility analysis: Feasibility study is done to find whether the proposed project would
be feasible or not.t sis important to demarcate environment appraisal and feasibility study at
this point.Environmental appraisal is carried out to assess the external and internal
environment of the geographical area/area where, entrepreneur intends to set up his business
enterprise. whereas feasibility study is carried out to assess the feasibility of the project itself
in a particular environment in greater detail .hence, though feasibility study would be
dependent on environmental appraisal yet it is far more descriptive. the various
variables/dimensions are:
a)Market analysis: market analysis is conducted for the following reasons.
To estimate the demand of the proposed products/service in future.
To estimate the market share of the proposed product/service in future.
b) Technical/operational analysis: is done to assess the operational ability of the proposed
business enterprise. the cost and availability of technology may be of critical importance to
the feasibility of a project or it any not be an issue at all.
Technical /operational analysis collects data from the following parameters.
 Material availability
 Material requirements planning
 Plant location
 Machinery and equipment
 Plant layout

c)financial feasibility:once the analysis of marketing and operations has been done
successfully, a final feasibility is done to assess financial issues of the proposed business
venture. Following cost estimates have to be carried out:
a.)cost of land building: depending on the requirement and the availability of funds the land
and building can be hired,can be taken on lease or purchased.
b.)cost of plant and machinery: it includes estimate of cost of plant and machineries heir
running and maintenance cost.
c.)Preliminary cost estimation is made to assess how much cost would be required in
conditioning market survey, preparing feasibility report, expenses in raising capital from
public and other miscellaneous expenses.
d.)Working capital estimates for running the business are also made.

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e.)Sales and production estimates: based on the plant capacity the production and sales
estimates are made. Which help in estimating profitability.
Based on the above information, the following projection aremade:
1. Break-even point
2. cash flow statement
3. balance sheet statement
4. multiyear projections

Advantages of Business Planning:

 You'll stay on strategy. It's hard to stick to strategy through the daily routine and
interruptions. Use a business plan to summarize the main points of your strategy and as a
reminder of what it both includes and rules out

 Business objectives will be clear. Use your plan to define and manage specific measurable
objectives like web visitors, sales, margins or new product launches. Define success in
objective terms.

 Your educated guesses will be better. Use your plan to refine your educated guesses about
things like potential market, sales, costs of sales, sales drivers, lead processing and business
processes.

 Priorities will make more sense. Aside from the strategy, there are also priorities for other
factors of your business like growth, management and financial health. Use your plan to set
a foundation for these, then to revise as the business evolves.

 You'll understand interdependencies. Use a plan to keep track of what needs to happen and in
what order. For example, if you have to time a product release to match a testing schedule
or marketing to match a release, your business plan can be invaluable in keeping you
organized and on track.

 Milestones will keep you on track. Use a business plan to keep track of dates and deadlines in
one place. This is valuable even for the one-person business and vital for teams.
 You'll be better at delegating. The business plan is an ideal place to clarify who is responsible
for what. Every important task should have one person in charge. Your plan keeps track.

 Managing team members and tracking results will be easy. So many people acknowledge the
need for regular team member reviews and just as many admit they hate the reviews. The
plan is a great format for getting things in writing and following up on the difference
between expectations and results with course corrections.

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 You can better plan and manage cash flow. No business can afford to mismanage cash. And
simple profits are rarely the same as cash. A cash flow plan is a great way to tie together
educated guesses on sales, costs, expenses, assets you need to buy and debts you have to
pay

 Course corrections will keep your business from flopping. Having a business plan gives you a
way to be proactive -- not reactive -- about business. Don't wait for things to happen. Plan
them. Follow up by tracking the results and making course corrections. It's a myth that a
business plan is supposed to predict the future. Instead, it sets expectations and establishes
assumptions so you can manage the future with course corrections.

Drawing functional palns:

1.)Marketing Plan - Marketing plan acts like a road map for all the decisions made during the
short term time period. In this step details like how the products and services should be
distributed, priced and promoted should be explained clearly. Findings of the marketing
research and product forecasts should act like a base for all the marketing plan decisions. The
entrepreneur should precisely forecast the demand for products and services which will help to
arrive at the expected profits for the firm.
2.)Operational Plan - This step gives the complete details of the sequence of steps followed in
the organization starting from getting the raw materials to the delivery of the finished goods.
Explaining about the various intermediate steps is essential like inventory management, order
management, shipping of the finished goods, customer support etc. Technology plays a key role
in the present day business. It is required to emphasize on the technology adopted and its
importance in the operational plan of the business.
Firms who are opting for manufacturing can easily explain about the different steps followed
and essential parameters which will be maintained. But the firms who are giving the service
like education institutes, saloons, hotels, banks, hospitals, entertainment etc it is difficult to
clearly explain in the step by step sequence. Hence the quality of service delivery will be
measured through the time taken to given the service, number of customer complaints, efforts
to address the grievance of the customers etc should be well designed in case of the service
firms.
3.)Production Plan - If the firm is starting a new manufacturing process then it is essential to
describe the complete manufacturing process. Also details of manufacturing the complete
demand or any intention to subcontract the process should be explained. Again entrepreneur

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should explain the choice of location and its advantages for carrying out the manufacturing.
Sourcing of raw materials, suppliers’ credibility and details should also be furnished. Cost of
manufacturing should be calculated with great care considering all the details. Estimate should
be provided about the requirement of future capital equipments.
4.) Organisational Plan - In this step detailed explanation about organizational chart, forms of
ownership and controlling mechanism of the firm should be explained. There are various forms
of ownership like proprietorship, partnership, Pvt Ltd Company, Public company etc. If the
firm is established through the mode of partnership then its terms and conditions, agreements
etc should be explained. Or if the firm is a public corporation then total shares, investors’
details, dividend policy should be explained. Finally, different controlling mechanisms of the
firm should be explained so that it becomes easy to understand the employees reporting
mechanism, approval process, decision making etc..
5.) Financial Plan - Like all the other plans Financial Plan also plays a major role in the
business plan by giving the clear explanation on the projection of revenues, costs and profits.
First of all it is important to assess the financial feasibility of the business. Minimum three
years of forecasted sales and expenses should be provided. In the first year it is essential to
prepare the monthly forecasted sales and expenses. In this step, entrepreneur should explain
about forecasted sales, cost of goods sold and general and administrative expenses. Net Profit
after taxes should also be estimated. Finally in the financial plan three years cash flow
statement, balance sheet should be prepared. Sometimes sales will be irregular and payments
from the customers will also be on a future date basis. Hence arrangement for getting the short
term funds should be finalized. Balance sheet should project the total assets and liabilities of the
firm
6.) Project report preparation: After environmental scanning and feasibility analysis, a
project report is prepared .it is written document that describes step by step ,the strategies
involved in starting and running a business.
7.)Evaluation, control and review: stated earlier, it is imperative to continuously review and
evaluate the business constantly, this is because the competition in today’s globalizing world is
intense and technological changes are taking place at much faster rates, in this dynamic and
changing market. To cope with the rising competition, Hindustan liver Ltd.Had come up with a
new strategy new product every month.

Essentials/requisites of the project report:

 The project report must be sequentially arranged.
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 The project report must be exhaustive(covering all details about the proposed project)
 The project report should not be very lengthy and subjective.
 The project report should be logically and objectively explain the projections.
 The project report should be professionally made to demonstrate that the promoters process
entrepreneurial acumen and sound experience.
 The project report should justify market prospects and demands.
 The project report should justify the financial needs and financial projections.
 The project report must be attractive to the financial agencies and investors.
 The project report should also have a high aesthetic value
Format of project report:
a.)Cover sheet
b.)Table of contents
c.)Executive summary
d.)The business
 Objectives for setting up business
 Brief history of past performance
 Form of ownership
 Name, qualification of the owners
 Proposed or actual headquarters
 Proposed. Or actual capital structure.
e.)The funding requirements
 Debt
 Equity
f)the product/service
 Description of product /service
 Comparative analysis with similar products
 Patents, copyrights, franchises, licensing agreement
g)the plan
1.) Marketing plan
 Strength and weakness of competitors
 SWOT analysis
 Marketing mix

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2.) Operation plan

 Plant location
 Plant labour
 Material requirement
 Inventory management
3.) Organisational plan
 Organisational chart
 Details and board of directors
 Manpower planning
 Legal aspect of labour
4.) Financial plan
 Projected sales
 Projected breakeven point
 Projected profit loss statement
 Projected fund flow
 Projected ratios
 Projected cash flows
5.) Critical risks
6.) Exit strategy
7.) Appendix
 Curriculum vitae of owners
 Ownership agreement
 Certificate from pollution board
 Memorandum of understanding
 Articles of association
 Other documents that help in marketing the project viability.

For example, improving your sales scripts can boost conversions. Likewise increasing your social
proof (e.g., showing testimonials of past clients who were satisfied with your company) will nearly
always boost conversions and sales.

Too many organizations spend too much time and energy trying to secure new customers versus
investing in getting existing customers to buy more often.

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By using retention strategies such as a monthly newsletter or customer loyalty program, you can
increase revenues and profits by getting customers to purchase from you more frequently over time

Production / Operation Plan

Operations are concerned with how you buy, build and prepare your product or service for sale.
That covers a lot of ground, including sourcing raw materials, hiring labor, acquiring facilities and
equipment, and shipping the finished goods. And it’s different depending on whether you’re a
manufacturer, a retailer or a service firm.

The basic rule for your operations section is to cover just the major areas—labor, materials,
facilities, equipment and processes—and provide the major details—things that are critical to
operations or that give you competitive advantage.

Retail and service firms have different operations requirements from manufacturers. Companies
that maintain or repair things, sell consulting or provide health care or other services generally have
higher labor content and lower investments in plants and equipment. For service and retail firms,
people are the main engines of production. The cost of providing a service is largely driven by the
cost of the labor it entails. A service-firm plan, then, has to devote considerable attention to
staffing.

The lead actor in manufacturing is the process of production, and the better your production
process, the better a manufacturer you'll be. Business plan readers look for strong systems in place
to make sure that
personnel and materials are appropriately abundant. Manufacturing a product naturally requires
equipment. Naturally, investors are very interested in your plans for purchasing equipment. Many
plans devote a separate section to describing the ovens, drill presses, forklifts, printing presses and
other equipment they’ll require. This part of your plan doesn’t have to be long, but it does have to
be complete. Make a list of every sizable piece of equipment you anticipate needing. Include a
description of its features, its functions, and, of course, its cost.

These aren’t the only operations concerns of manufacturers. You should also consider your need to
acquire or protect such valuable operations assets as proprietary processes and patented
technologies. For many businesses, intellectual property is more valuable than their sizable
accumulations of plants and equipment.

Organisational Plan
The organization plan summarizes the information about your business organizational structure,
participating business members’ duties and expertise, as well as their education or qualifications. It
should describe the location of your organization, describe the area in which it works. Explain
about the present professional experience and achievements of people who are to manage the
project. Present the employment plan for the next few years.

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It is important to define the positions in the company, which job is responsible for what, and to
whom everyone will report. Overtime, the structure may grow and change and you can certainly
keep a mechanism to adopt the changes.

One way to explain your organizational structure in the business plan is graphically. A simple
diagram or flow chart can easily demonstrate levels of management and the positions within them,
clearly illustrating who reports to whom, and how different divisions of the company relate to each
other.

Financial Plan
It's at the end of your business plan, but the financial plan section is the section that determines
whether or not your business idea is viable, and is a key component in determining whether or not
your plan is going to be able to attract any investment in your business idea. Basically, the
financial plan section consists of three financial statements, the income statement, the cash flow
projection and the balance sheet and a brief explanation/analysis of these three statements.

Think of your business expenses as broken into two categories; your start-up expenses and your
operating expenses. All the costs of getting your business up and running go into the start-up
expenses category. These expenses may include:
Business registration fees
Business licensing and permits
Starting inventory
Rent deposits
Down payments on property
Down payments on equipment
Utility set up fees
This is just a sampling of start up expenses; your own list will probably expand as soon as you start
writing them down.

Operating Expenses
Are the costs of keeping your business running? Think of these as the things you're going to have to
pay each month.

Your list of operating expenses may include:

 Salaries (yours and staff salaries)
 Rent or mortgage payments
 Telecommunications
 Utilities
 Raw materials
 Storage
 Distribution
 Promotion
 Loan payments

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 Office
 Supplies
 Maintenance

Once again, this is just a partial list to get you going. Once you have your operating expenses list
complete, the total will show you what it will cost you to keep your business running each month.
It is essential to include some financial statements for your business plan together

Final Project Report with Feasibility Study

Conducting a feasibility study is one of the key activities within the project initiation phase. It aims
to analyse and justify the project in terms of technical feasibility, business viability and cost-
effectiveness. The study serves as a way to prove the project’s reasonability and justify the need for
launch.

Once the study is done, a feasibility study report (FSR) should be developed to summarize the
activity and state if the particular project is realistic and practical. A well‐
written feasibility study report gives solution for Project analysis, Risk mitigation, Staff Training.

Assignment Questions:

Prepare a sample model project report for starting up new Venture (Hotel / Education / Hospital)

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