ENTREPRENEURSHIP & START- UPS

UNIT 2- BUSINESS PLAN (BP)

Meaning of 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,
manufacturing and human resources.

Need/ Objective of business plan

1. To give direction to the vision formulated by the entrepreneur
2. To objectively evaluate the prospectus of business
3. To monitor the progress after implementing business plan
4. To persuade others to join business
5. To seek loans from financial institutions
6. To visualize concept in terms of market availability, organizational, operational, and financial feasibility
7. To guide entrepreneur in actual implementation of plan
8. To identify actual strength and weakness of plan
9. To identify challenges in terms of opportunities and threats from the external markets.
10.To clarify ideas and identify gaps in management information about their business, competitors and market.
11.To identify the resources that would be required to implement the plan
12.To document ownership arrangements, future prospectus and projected growth of the business venture.
13. It attracts and gives a promising image to lenders and investors.
14. It gives clear cut picture about the future of the enterprise and provides time to time instruction to the
entrepreneurs.

Scope of business plan

The scope of business plan is different for different users.

1. Employees: Business plan is important for employees. It includes vision and mission statements of the firm. It
guides the employees to move ahead in a consistent and purposeful manner.
2. Investors and stakeholders: Business plan should give the financial projections. Financial projections should
ensure a high return to the investors with minimum risk.
3. It outlines the time and cost of a business project.
4. It serves as an important tool in helping to obtain finance.
5. It provides guidelines to the entrepreneur in organising his/her activities.
6. It helps to determine the viability of the enterprise in a designated market.
7. Business plan must consider the perspective of:
 Entrepreneurs perspective
 Marketing perspective
 Investors perspective

Importance of business plan

1. Road Map- Finance is the lifeblood of any business. Every business needs both owned fund and borrowed
funds. So, for the borrowed funds which is to be taken from any of the financial institutions or banks or
venture capitalist business plan is utmost required document.
2. Confidence in Management-The small business launchers want to crystallise and focus their ideas to achieve
a particular target. It will give confidence to the management to go ahead with their pre-planned ideas.

3. Helps in proper planning- The presentation of a business plan is the result of proper planning. A proper
planning helps to overcome uncertainties. The business plan acts as a guideline for successful planning

4. Action plan- The entrepreneur may find it difficult to put the plan into action. So, writing a business plan can
help in solving problems and make the business successful.
 5. Helps in establishing realistic goals- A business plan is required not only for a new venture but also for those
which are growing. A properly analysed and prepared business plan will help an entrepreneur to set only
achievable and realistic goals.

6. Business plan acts as a blue print- Business plan acts as a blueprint for the progress of the project. Through
the blueprint the entrepreneur can foresee the future and help in achieving the goals of the organisation.

7. Anticipates and predicts challenges- It helps to predict and anticipate that changes that take place in different
macro environment components to certain extent, thereby helping an entrepreneur to be on a safer side by
bringing changes in his organisation.

8. Enables determination of feasibility- Before practically implementing the planned ideas into action, business
plan help an entrepreneur to check the worth of idea conceived by him. If the ideas chosen by him is not
fetching good result, he can drop the idea and pick other alternate idea which gives fruitful results to the
enterprise.

9. Helps to analyse alternatives- Every decision of a business has various alternatives. A good business plan
helps to analyse various alternatives and choose the best among the available options.

10. Overcoming the conflicts- In the initial stage of establishment of enterprise and entrepreneur encounters
number of issues to be addressed and finds difficulties in balancing his family and official matters. The
business plan gives him guideline and emphasizes the important matters to be handled.

Features of Good Business Plan

1. It should be an honest plan with well supported information.

2. A well-written plan should clearly identifying product, services, market and the founders.
3. It should be prepared in a quality manner
4. It should be easy to read
5. There should be no spelling and grammar mistakes. Language used should be clear, and brief.
6. Words like “I think”, “I believe” etc to be avoided.
7. It should make Clear and realistic financial projections
8. It should be prepared after detailed market research and detailed competitor’s research.
9. It should describe key decision makers.
10. It should end up with thorough summary.

Who should prepare a Business Plan

a) If a business plan is prepared by the entrepreneur himself, then pros and cons are.
PROS CONS
Entrepreneur can have a better sight of the business as it is He may not have technical knowledge as to how to
his own. prepare a business plan

He c He can generate true figures H He may act over optimistic about his own business
H He can make changes as and when required He He may fail to produce a complete data as required

b) If a business plan is prepared by a consultant, then pros and cons are.

PROS CONS
The The consultant will have a expertise knowledge asHe to He may not be able to extract required data
hhhh how to prepare a business plan
He He may be able to forsee the future of the business It It may turn out to be very expensive and small
bett better entre entrepreneurs may find it difficult to afford it.
H He may be able to strike a balance and analyze both Busi Business secrecy cannot be maintained as all the
posit positive and negative aspects of the business requi the required information has to be revealed to the
c consultant while preparing the business plan

Do’s of a Business Plan

1. Preparing a complete business plan is necessary.
2. A complete research is important while preparing a business plan
3. Make it as attractive as possible so as to convince the external member like investors, financial institutions and
banker.
 4. Identify the advantages and loopholes of the management.
5. Project the financial data either monthly or quarterly.
6. Consult auditor to have an expert advice.
7. Make the business plan as flexible as possible to make further changes.
8. Organise the business plan into sections so that its easy to refer to the information.
9. Try to produce solid facts and figures.
10. Be conscious in disclosing the facts relating to the business.
11. Consider the competitors strength and weakness.

Dont’s of a Business Plan

1. Goals of the business should not be based on assumptions.
2. The entrepreneur should not ignore the weakness of the business.
3. The entrepreneur should not proceed without complete information and know how.
4. The business plan should not project long term plan but also short term plan.
5. The entrepreneur should not ignore the possible threats to the business.
6. Goals set by the entrepreneur should not be unrealistic.

Steps/ Format of Business Plan

1. Executive summary
2. General company description
3. Product and service description
4. Management and organisation
5. Marketing plan
6. Financial plan
7. Industry analysis
8. Competitive analysis
I. Financial aspect of business plan/ Financial Plan
A financial plan is a comprehensive picture of current finances, financial goals and any strategies set to achieve
those goals.
Good financial planning should include details about your cash flow, savings, debt, investments, insurance and any
other elements of finance.
It includes:
a. Aim of finance: Entrepreneur needs to clearly specify the type of funds required, the purpose and the mode
of repayment of borrowed funds.
 b. Sources of finance: It can include Equity funds, Debt funds, borrowings from banks and other financial
institutions.
c. Allocation of funds: Description of allocating funds for different requirements like production, marketing,
research and development should be specified.
d. Financial Statement: Financial statement is an important tool that helps the entrepreneur to mange his
business more effectively.
 Projected Income statement: An income statement shows a company’s profit or loss during a
specific period. In the first year the entrepreneur should present monthly projected income statement
and quarterly going further.
 Projected Balance sheet: A balance sheet reflects the assets, liabilities and capital as on certain date.
The Entrepreneur should prepare the projected balance sheet of 3 to 5 years.
 Projected Cash flow statement: A cash flow statement is a statement of changes in cash position at
the beginning and end of the period. Entrepreneur has to prepare a monthly cash flow statement for
the first year and quarterly and half yearly thereafter.
 Break Even Analysis: It is an analysis to determine the point at which revenue received is equal to
cost incurred by the company. It is a point where there is no profit and no loss. It helps the
entrepreneur to know the earning capacity of the new venture.
 Ratio Analysis: Ratio analysis analyses the financial statements. It helps the entrepreneur to foresee
the future problems and take corrective measures.

II Marketing aspect of Business Plan/ Marketing Plan

Marketing plan explains the details of the strategy that a company will use to market its products to customers.
Entrepreneurs need to have proper market to sell his goods or services.
a. Target market: The entrepreneur should identify the target customer and describe their characteristics and
needs. He should also decide on what basis the segmentation takes place i.e Geographic, Demographic etc.

b. Distribution strategy: There are many channels of distribution out pf which the entrepreneur should select the
suitable channel for his product or service.
For eg: Manufacturer to customer, manufacturer- retailer- customer, manufacturer- wholesaler- retailer-
customer.
c. Introducing the product: The entrepreneur should plan to introduce the product in right manner to obtain
productive results in the form of positive image building. He should highlight the unique characteristics of the
product.
d. Pricing: An entrepreneur should specify on what basis the price will be decided about the product. He should
various factors which will be considered for pricing. For eg: demand and supply, cost plus margin, competitors
price.

e. Promotional strategy: He should give details of various promotional mix which will be adopted. Promotion
plays very important role to inform, promote, motivate and change the attitude of the consumers.
Eg: Advertisement
Personal selling- using salespersons,
Sales promotions like gifts, coupons, discounts
Public relation- by updating the happening of the organization to the public.

III Human Resource aspect of Business Plan/ HR plan

HR plan is a process that identifies current and future human resources needs for an organization to achieve its
goals.
 Key Personnel resources
- Organisation chart with names and titles
- Details of executives with their education and experience
- Contribution of each individuals to the company, their duties and responsibilities
- Initial salary, incentives
- What if key positions remains unfilled?
- Plans to retain and attract existing employees
- List of top level executives
- Names of the legal, accounting, banking and important organisations that will guide the organisation.

 Human resources management strategy

-If its service oriented- required specific skills
-If its production oriented- technical and conceptual skills
-Employee’s profit sharing if any
-Training and departmental programs to be arranged to enhance skills
-Plans about the promotions, transfer, performance appraisal
-Number of employees employed currently
-Future requirements in case of expansion
-Details about management practices, leadership styles, management development programs, rules, organisational
culture
-Measures taken to boost the morale, commitment, loyalty, dedications, participation of employees

- Conservation of energy in production and marketing operations

- Fixation of reasonable and fair price for products
- Anticipate in advance needs of the society and devise programmes to fulfil those needs.
Product or service plan
Product or service plan identifyies and articulates market requirements that define a product's feature set. It serves
as the basis for decision-making about price, distribution and promotion.
 A description of the products or services you are offering or plan to offer
 How your products and services will be priced
 A comparison of the products or services your competitors offer in relation to yours
 Availability of funds that’s required for developing and selling the product /service
 Availability of raw materials in required quality and quantity
 What are the features/functions of the product/service?
 Who are the target customers?
  A paragraph or so on how orders from your customers will be processed or fulfilled
 What value proposition does the product/service provide to the customer? (eg. How does your product
/service fulfil the needs of the customer)
 What is the revenue model? (eg, transaction revenue, fees, subscription revenue, percentage of profits)
 What is the development status of the product/service? What remains to be done to convert the
product/service into competing?
 What is the plan to maintain the loyalty of the customer?
 How is the quality of product/service maintained?
What is the timeline for bringing new products and services to market?

Common Pitfalls in the Preparation of the Business Plan/ Why does some business plan fail?
While there is no specific format that every business plan has to compulsorily follow, there are definitely some
common pitfalls that have to be avoided by first time entrepreneurs.

Some of the common pitfalls / errors observed while preparing business plans are:
1. Capacity utilization:
Generally entrepreneurs assume wrong capacity utilization figures. This assumption is based on complete discount
of current market conditions, availability of raw materials, competition, etc.

2. Understanding of the market:

Many entrepreneurs fail to assess market potential objectively. They gather population, age, income and other such
figures in a general manner and conclude that the market is waiting to be tapped. This can lead to disappointment
later when he actually enters the market.

3. Over estimation/ Underestimation of demand:

The entrepreneurs sometimes get carried away by their passion and overestimate the demand or are too cautious
and so underestimate the demand for their products / services.

4. Selection of appropriate machineries:

This is an area where faulty decisions are common. Many entrepreneurs get carried away by words of vendors of
the technology/machineries. These vendors may not have clear idea about your business, product and finance but
still influence the decision to buy them.

5. Project planning and implementation strategies:

Many entrepreneurs do not pay attention to project planning and its implementation strategies. They do not know
how to plan and what are the scientific tools used for project planning. This may lead to the cost of the project to
shoot up and make the project non feasible.
6. Under estimation of project cost:
Entrepreneurs sometimes do not take a comprehensive view of the project costs. There are many hidden costs and
many inflationary aspects to be considered.

7. Wrongful selection of business location:

Entrepreneurs normally don‟t take a comprehensive view when they select their business location. Some
temptations cannot be avoided like choosing their ancestral property or hometown without paying attention to other
business factors.

8. Unrealistic pricing strategies:

Many entrepreneurs tend to fix the price of the product/service higher than the market price citing superior quality.
Although it may be comfortable to make such assumption, it can be short lived.

9. Lack of understanding of trading channels: If the entrepreneur does not have knowledge of the market
conditions he or she may not be able to choose the right trading channel.

10. The plan is incomplete and not well written

Any business plan has to provide the relevant details with regards to all those aspects that are applicable to it.
Marketing and sales, finance and operations, production and quality, human resource aspects are all applicable to
almost all businesses.

11. The plan is too vague

A business plan is not an encrypted piece of information or a poem. It has to be specific and should provide specific
details of all the elements included.
12. The plan is too detailed.
Micro detailing of technical aspects and other elements will lead to the readers getting bored and losing interest in
reading further. The technical details and the jargon are to be kept to the minimum required extent.

13. The plan makes unfounded or unrealistic assumptions

Business plans, by their very nature are founded on assumptions. However, these assumptions need to be justifiably
true and relevant for the plan to be accepted. Unrealistic and unfounded assumptions can derail the business plan.

14. Inadequacy of research

If the research done prior to the writing of the business plan is inadequate, it is made visible to the readers in the
plan itself.
15. The lack of risk identification and measures to manage it / Underestimating the risks involved
There is no business that can claim to be completely risk free. However, lack of risk identification and measures to
manage it or underestimating the risks involved can derail the business plan completely.

PROJECT REPORT

Meaning
Project: According to Gillinger- “A project is a whole complex of activities involved in using resources to gain
benefits”.
Project Report: A report which provides all necessary information of the unit proposed to be set up for the
manufacture of a product or rendering a service. In other words project report is a written statement of what an
entrepreneur proposes to take up.

Importance/Objective/Need of project report

1. To plan in advance the fulfillment of expected performance.
2. To evaluate the organizational objectives to what extent they are achievable.
3. To assess the difficulties in procuring the resources.

4. To avail financial support from the financial institutions.

5. It acts as road map of the project
6. To ensures the practicability of the project in terms of different factors like economy, finNce, technology
and social.
7. It helps in determining the profitability of the project and minimizing risks.
8. It helps in attracting lenders and investors.

Project report format (Preparation and Presentation)

1. Executive summary- Introduction, Financial performance, SWOT analysis, Project profitability

analysis
2. Company details- Company history, Manufacturing facilities, Promoters, Shareholding patterns,
Board of Directors, Key executives, Major products, Major customers etc
3. Operational details- capacity and utilization, profit and loss account, balance sheet, working capital
loans, marketing and distribution network, export sales.
4. Project details- orders and enquires, location, manufacturing process, technical know-how,
manpower, power, water etc
5. Means of finance- equity share capital, retained earnings, deposits, debts and other sources
6. Project status- implementation schedule, current status, government approvals
7. Profitability and risk analysis- financials of the project, major risk factors, analysis of break-even
point, internal rate of return, payback period, sensitivity analysis
8. Company vs. related industry- general analysis, competing industries, advantages of the company
9. Employment generation- both direct and indirect employment facility that is generated by the
business.
10. Conclusion- briefly highlight the companies working information
11. Annexure- organisation charts, approvals, process charts, financial reports, agreements, statements of
cost etc
 BUSINESS MODEL

Meaning
The term business model refers to a company's plan for making a profit. It identifies the products or services the
business is planning to sell, it identifies target market, and any anticipated expenses.
Business models are important for both new and established businesses.

Definition
“A business model describes the value an organization offers its customers and illustrates the capabilities and
resources required to create, market and deliver this value and to generate profitable, sustainable revenue streams.”

Importance of business model

 The business model is the key factor that leads to success in start-ups.
 It provides the starting point that allows a company to maximize its profits—the sooner the business model
is in place, the better.
 A viable business model is a key determinant (along with product development) in obtaining funding.

Designing and analyzing the business model/ Business model canvas

1.Customer segments
Targeting a wide audience won’t allow your business you be successful, instead when creating your business model,
narrow your audience down to two or three detailed buyer personas. Eg: based on age groups, social status,
background etc

2. Value propositions
How will your company stand out among the competition? Do you provide an innovative service, revolutionary
product or a new twist on an old favorite? Establishing exactly what your business offers and why it’s better than
competitors is the beginning of a strong value proposition.
3. Channels
It determines how to connect the value proposition with the target customer. The term “channels” refers to three
different facets of making connections—communication, sales and logistics.
Communication refers to the channels you use to communicate with your potential customers. Eg: direct personal
contact, media.
The sales channels include agent, wholesaler or distributor, retailors.
Logistics refers to the channels you use to physically deliver your product solution to the customer.

4. Customer relationships
What type of customer relationship do your customers expect to have with you? For example, suppose that you
develop a new security software program. Once a customer buys your software, they would expect you to “be
around”—to provide updates and support if required.

5. Revenue streams
For what value are our customers really willing to pay?
How would they prefer to pay?
Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market
dependent, volume dependent. A business model can involve transactional revenues resulting from one-time
customer payments (e.g. a sales), or recurring revenues (e.g. a subscription).

6. Key Resources
In this context, resources mean any relevant intellectual property (IP), technical expertise, human resources,
financial and physical assets, key contracts and relationships.

7. Key business partners.

No business can function properly (let alone reach established goals) without key partners that contribute to the
business’s ability to serve customers. Select key partners, like suppliers, strategic alliances or advertising partners.

8. Key activities
It describes the key processes that are required to weave together your resources with those offered by your
partners to deliver the value proposition, manage channels, and relationships, and generate revenue. Examples of
key activities include R&D, production, marketing, sales and customer service.

9. Cost structure
The key characteristics of the cost structure, such as fixed versus variable costs and economies of scale versus
economies of scope. Typical fixed costs include rent, salaries and utilities;
Variable costs include contractors’ fees, sales commissions, production costs and logistic costs.

IMPROVISING THE BUSINESS MODEL- TIPS

1. Understand the process of designing a business model.- step by step format to be understood which include
various segments to be considered before designing.
2. Complete a Business Model Canvas.- prepare a detailed business model canvas inclusive of all the information.
3. Clarify and test your business model assumptions.- test the business model assumptions that are developed by
you and get in depth clarification.
4. Evaluate and update your business model documentation.- business model needs to be a updated one as per the
trends hence consider evaluating and updating your business model.
5. Develop a comprehensive business model.- consider developing a detailed business model.