Chapter Three

Business Planning

What is Business Plan?

A business plan is a roadmap for starting and running a business. A well-crafted business plan
identifies opportunities, scans the external and internal environment to assess the feasibility of
business and allocates resources in the best possible way, which finally leads to the success of the
plan. A business plan is a written proposal addressed to potential lenders or investors. Typically, it
describes a new business and tells why it is deserving of financial support.
Doing a business plan involves a great deal of research. Because there is so much information to be
drawn from so many different sources, you can easily feel overwhelmed.
The objectives of Business plan
 To give directions to the vision formulated by the entrepreneurs
 To objectively evaluate the prospects of business
 To monitor the progress after implementing the plan
 To persuade others to join the business
 To seek loans from financial institutions

Who prepares the Business Plans?

Three types of people are interested in a business plan:
A. The managers who run the business on a day to day basis.
B. The owners or prospective equity investors.
C. The lenders, who are advancing loans for the enterprise.

 Setting Objectives
The objectives should be;
 Specific
 Measurable, tangible and verifiable
 Realistic and attainable
 Consistent with resources available or anticipated
 Consistent with organizational plans, policies or procedures

Preparing a business Plan

The various steps involved in preparing the business plan are:
I. Preliminary Investigation: Before preparing the plan entrepreneur should:
 Review available business plan (if any)
 Draw key business assumptions on which the plans will be based ( e.g. inflation,
exchange rate, market growth, competitive pressure, etc)

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  Scan the external and internal environment to assess the strengths, weakness,
opportunities and threats
 Seek professional advices from friends/relatives or a person who is already into similar
business (if any)

II. Business Planning Process: The business plan acts as a guiding tool to the entrepreneur and is
dynamic in nature-it needs continuous review and updating so that the plan remain viable even in
changing business situation.
A. Idea Generation: Idea generation is the first stage of business planning process. It involves
generation of new concepts, ideas, products or services to satisfy the existing demands, latent
demands and future demands of the market. The various sources of the new ideas are:
Consumers/customers, Existing companies, research, employees, dealers and retailers.
B. Environmental Scanning: Once a promising idea emerges, the next step is environmental
scanning, which is carried out to analyze the prospective strength, weakness, opportunities and threats
of the business enterprise. The different variable to be scanned in terms of socio-cultural, economic,
governmental, technological, demographic changes taking place in the external environment and
availability of raw materials, machinery, finance, human resource etc. with the entrepreneur.

External Environment:
Socio-Cultural Appraisal: It assesses the social and cultural norms of a society in a given period of
time. The variables are: Values, beliefs, norms, fashions and fads of a particular society.
Technological Appraisal:-It assesses various technological know how available to convert the idea
into a product.
Economical Appraisal: The status of the economy in a given society in terms of inflation, per capital
income and consumption pattern, balance of payment etc.
Demographic Appraisal: it refers the overall population pattern of a given geographical region. It
includes variables like: Age profile, distribution, sex, education profile, income distribution etc. It
helps in identifying the size of the target customer.
Governmental Appraisal: it assesses the various legislation, policies, incentives, subsides, grants,
procedures etc formulated by government for a particular industry. The softer the government norms
for the industry, the easier it is for the entrepreneur to establish and run the business.

Internal Environment
Raw Materials: The availability of raw materials now and near in the future.
Production/operation: the availability of machineries, equipments, tools and techniques that would be
required for production/operation.
Finance: total requirement of finance in terms of start-up expenses, fixes expenses and running
expenses. It also indicates the sources of finance that can be approached for funding.
Human Resources: Kind of human resources required and its demand and supply in the market. This
further helps in estimating the cost and level of competition in hiring and retaining the human
resources.
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III. Feasibility Analysis: feasibility analysis is done to find whether the proposed project would be
feasible or not. The various variables or dimensions are:
A. Market Analysis: The market analysis is an important first step in determining if you have a
viable business idea, and how best to proceed. The market analysis will explore the practical aspects of
producing your product or service:
 What raw materials or resources would be needed?
 Where and how would you obtain them? At what cost?
 Will you need special equipment or manpower to produce this product, or special training or
credentials to provide this service?
 Who and how many others are doing something similar to what you’re planning?

B. Technical feasibility study

• The technical analysis is used to establish whether or not a project is technically feasible and
provide tentative alternatives to achieve the project's objectives.
The technical feasibility analysis should consider various aspects and alternatives of a project as
follows:
• Preliminary research and testing;
• Selection of the production process;
• Specification of operating and assembly equipment
• Location, buildings and site layout;

C. Operational Analysis: This is done to evaluate the operational ability of the proposed business
enterprise. Key questions to be answered are:
 What equipment does the proposed business need?
 From where to be obtained?
Technical/operational analysis collects data on the following parameters
 Material Availability: the availability of raw material required for production. The availability of
quality and quantity material, the factors on which the availability of raw material is dependent,
price sensitivity of raw material and perish ability of raw material.
Plant location: While choosing the business location, the following elements should be taken into
consideration:
I. Vicinity to raw material: the closer the plant to the place where raw material is the better it is. It
helps in reducing the transportation cost and in case of perishable goods it also helps in reaching its
destination with safe time.
II. Availability of power: constant availability of power is power must for the success of any business
enterprise.
III. Availability of labor: the availability of skilled human resources
IV. Proximity to the market: proximity to the market enables the business to be in closer contact to
the needs of the business market.

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D. Financial Feasibility
I. Cost of land and building: the requirement and the availability of funds that land and building can
be taken on lease or purchased
II. Cost of plant and machinery: includes estimates of cost of plant and machineries, their running
and maintenance cost.
III. Preliminary cost estimation: is made to assess how much cost would be required in conducting
market survey, preparing feasibility report, expenses in registering and incorporating machine,
establishment costs and etc.

Components of a Business Plan

Most business plans include eight common elements that are contained in the feasibility model
summarized below.
I. Cove Sheet(Name of the company, address, promoters)
II. Table of content
1. Executive summary: 5. Market plan:
2. Business concept: 6. Manufacturing or Operations:
3. Product or service: 7. Entrepreneurial team:
4. Market research and analysis: 8. Financial documentation:

1. Executive summary
 It is the opening section.
It addresses;
 Venture defined: Describe the purpose and nature of the business.
 Product or service: Describe the product or service to be sold
 Market characteristics: Describe market size and location, and customers
 Entrepreneurial team: Describe the founders, key people and their roles.
 Financial summary: Describe estimates of revenue and expenses, founder’s equity, debt and
capital needed

2. Business description
The same points covered in the executive summary are covered here, but they are covered in far
greater detail. An important area to address is the nature of market demand. The entrepreneur also
needs to explain the nature of the business by clearly defining how the firm will operate and what the
founders intend to accomplish.

3. Products or Services
This part provides an accurate description of a product or service. Essential information required to
describe a product includes

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  Distinctive characteristics of the  Proprietary protection (patents,
product itself, trademarks, or copyrights),
 How it works (or is used),  Potential competing (substitute)
 Raw materials , products.
 Methods of manufacturing,
4. Market Research and Analysis

Identify potential Analyze

Evaluate markets
customers competitors

Demographic profile Window of Existing competitors

of customers opportunity with similar products

Characteristics of
Future markets and Future competitors
customers, age, sex,
trends or changes and ease of entry
income etc.

Buying habits and

Niche position
relevant information Industry structure
information
for new venture

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 6. Manufacturing or operations plan
Human
Facilities Operations Inventory
resources
Purchase
equipment and Research and Opening Operating
technology development inventory personnel
Packing and Manufacturing Inventory Skill requirement
transport process management Supervision
Legal issues Service structure Supplies and
Quality control support
Safety
maintenance

7. Leadership- the entrepreneurial team

The entrepreneurial team details the key job positions and titles, both present and future,
responsibilities, skills and qualifications, as well as the reporting structure. Any personnel already on
board, particularly those with industry experience or specialized training should be included. The total
number of employees, training and development plan, salaries and benefits are important information.

 Each person’s role in the new venture should be described briefly, including board members or
investors who may not be involved directly in operations yet be able to influence decisions.
 These individuals must be identified, and their skills and talents must be adequately described.
 The executive summary emphasizes strengths of team members and their qualifications.

8. Financial plan
Financial statements for
 Revenue and expenses
 Cash flow
 Asset, liability and capital
 Projected profit and loss statement
 Projected balance sheet
 Projected cash flow

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