What Is a Business Plan?
• A business plan is a document that details a
company's goals and how it intends to achieve them.
• Business plans can be of benefit to both startups and
well-established companies. For startups, a business
plan can be essential for winning over potential
lenders and investors. Established businesses can find
one useful for staying on track and not losing sight of
their goals.
Understanding Business Plans
• Any new business should have a business plan in place prior to beginning
operations. In fact, banks and venture capital firms often want to see a
business plan before they'll consider making a loan or providing capital to
new businesses.
• Even if a business isn't looking to raise additional money, a business plan
can help it focus on its goals. A 2017 Harvard Business Review article
reported that, "Entrepreneurs who write formal plans are 16% more likely
to achieve viability than the otherwise identical non planning
entrepreneurs.“
• Ideally, a business plan should be reviewed and updated periodically to
reflect any goals that have been achieved or that may have changed. An
established business that has decided to move in a new direction might
create an entirely new business plan for itself.
• There are numerous benefits to creating a well-conceived business
plan. These include being able to think through ideas before investing
too much money in them and highlighting any potential obstacles to
success.
• A company might also share its business plan with trusted outsiders
to get their objective feedback. In addition, a business plan can help
keep a company's executive team on the same page about strategic
action items and priorities.
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.
4)It should exhibit the distinctive features of the proposed market
offerings (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.
BENEFITS OF WRITING A BUSINESS
PLAN
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.
• It also helps in attracting and employing experienced top-level
employees and professionals.
How to Write a Business Plan
• While there are any number of templates that you can
use to write a business plan, it's best to try to avoid
producing a generic-looking one. Let your plan reflect
the unique personality of your business.
• Many business plans use some combination of the
sections below, with varying levels of detail,
depending on the company.
Common Elements of a Business Plan
The length of a business plan can vary greatly from business to business.
Regardless, it's best to fit the basic information into a 15- to 25-page
document. These are some of the most common elements in many business
plans:
• Executive summary: This section introduces the company and includes its
mission statement along with relevant information about the company's
leadership, employees, operations, and locations.
• Products and services: Here, the company should describe the products
and services it offers or plans to introduce. That might include details on
pricing, product lifespan, and unique benefits to the consumer. Other
factors that could go into this section include production and
manufacturing processes, any relevant patents the company may have, as
well as proprietary technology. Information about research and
development (R&D) can also be included here.
• Market analysis: A company needs to have a good handle on the current
state of its industry and the existing competition. This section should
explain where the company fits in, what types of customers it plans to
target, and how easy or difficult it may be to take market share from
incumbents.
• Marketing strategy: This section can describe how the company plans to
attract and keep customers, including any anticipated advertising and
marketing campaigns. It should also describe the distribution channel or
channels it will use to get its products or services to consumers.
• Financial plans and projections: Established businesses can include
financial statements, balance sheets, and other relevant financial
information. New businesses can provide financial targets and estimates
for the first few years. Your plan might also include any funding requests
you're making.
2 Types of Business Plans
Business plans can take many forms, but they are sometimes divided
into two basic categories: traditional and lean startup.
• Traditional business plans: These plans tend to be much longer than
lean startup plans and contain considerably more detail. As a result
they require more work on the part of the business, but they can also
be more persuasive to potential investors.
• Lean startup business plans: These use an abbreviated structure that
highlights key elements. These business plans are short—as short as
one page—and provide only the most basic detail. If a company wants
to use this kind of plan, it should be prepared to provide more detail
if an investor or a lender requests it.
Detailed Project Report
• 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,
Contents in Detailed Project Report
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
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
4) Profile of the industry in the country
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
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.
vii) TechnicalDetails:
• 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:
1)Plant capacity
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
ix) Marketing Details:
• 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
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.
