Be an Enterpreneur

PRESENTED BY APURVA JAIN

Module 2BUSINESS PLAN

What is a Business Plan

Business Plan is the Blueprint of the step by step procedure

Convert a business idea into a successful business venture

It identifies an innovative idea, researches the external environment to list the opportunities & threats, identifies internal strengths & weakness

assesses the feasibility of the idea & then allocates resources in the best possible manner to make the plan successful

Objectives of a business plan To give direction to the vision formulated by entrepreneur.

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.

To identifies the strengths & weakness of the plan & the challenges in terms of opportunities & threats from the external markets.

To identify the resources that would be required to implement the plan.

The process of researching & writing the business plan helps to identify the gaps in the existing plan.

For any business venture all the functional plans(marketing, operation/production, finance, human resources) have to be prepared.

Objectives of a business plan Preparing a business plan is non just a one time activity, but is an ongoing process.

Keep improvising its business plan based on market dynamics & learning experiences.

Challenge in preparing a business plan for an entrepreneur is to communicate the business idea clearly & precisely to the stakeholders.

A business plan is a written document, which has to be presented to various stakeholders to get their consent. The shareholders require it to ascertain the ownership patterns & future prospects,The govt. need it to give various certifications like pollution controlThe financial institutions like venture capitalists need it to estimate the prospects & the risk involved in disbursing funds to the business venture.

PREPARING A BUSINESS PLAN A plan, which looks very lucrative /feasible at the first instance, might actually not being when the details are drawn. Hence documenting the business plan is one of the early steps that an entrepreneur should take. The various steps involved in preparing a business plan are-

Preliminary Investigation - Before preparing the plan entrepreneur should-

Review available business plans(if any).Draw key business assumptions on which the plans will be based (e.g. Inflation, exchange rates, market growth, competitive pressures, etc.)Scan the external environment & internal environment to assess the strengths, weakness, opportunities & threats.Seek professional advice from a friend/ relative or a person who is already into similar business(if any).

Business Planning Process –

A step by step plan that entrepreneur can follows in starting a new business.Business plan acts as a guiding tool to the entrepreneur & is dynamic in nature

PREPARING A BUSINESS PLAN

PRELIMINARY INVESTIGATION

FEASIBILITY ANALYSIS

ENVIRONMENTAL SCANNING

IDEA GENERATION

PROJECT REPORT PREPARATION

EVALUATION, CONTROL & REVIEW


Business Planning Process –

It needs continuous review & updating so that the plan remains viable even in changing business situations.

Idea Generation- Entrepreneurship is not just limited to innovation(generation of an entirely new concept, product or service, but it also encompasses incremental value addition to the concept/product/services offered to the consumer, shareholder & employee). 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 & future demands of the market.

The various sources of new ideas are-

•Consumers/customers•Existing companies •Research & Development•Employee•Dealers, Retailers


Idea Generation –

The various methods of generating new ideas –•Group discussion•Data collection through questionnaires/schedules etc. from consumers, existing companies, dealers, retailers•Brainstorming•Market research & invitation of ideas through internet, mails•Contest are being organized to identify business ideas like ‘business bazigaar, on Star TV, which invites participation in the contest & rewards the best B plan.

Screening of the new ideas should be done so that promising new ideas are identified & impractical ideas are eliminated.


Environmental Scanning –

Once a promising idea emerges through, idea generation phase the next step is environment scanning –

•Scanning of the environment both external & internal - & collect the information about the possible opportunities, threats from the external environment & strength & weaknesses from the internal environment.

•The different variables to be scanned are in terms of socio-cultural, economics, govt., technological, demographic changes taking place in the external environment & availability of raw material, machinery, finance, human resources etc. with the entrepreneur.

•Sources for gathering the information are informal sources(family, friends, colleagues etc.) & formal sources(bankers, magazines, newspaper, govt., departments, seminars, suppliers, dealers, competitors).

•Maximize the information from as many sources as possible & then analyze them to understand whether the given information would be supportive to the business venture.


External Environment

•Socio-cultural appraisal - •The variables that are appraised are values, beliefs, norms, fashions & fads of a particular society. •Helps in understanding the level of rigidity/flexibility of a given society towards a new product/service/concept. For e.g. the socio-cultural norms of U.S. & United Arab Emirates. Americans are experimenting & adventurous whereas Arabs are conservative.

•Technological Appraisal – •For e.g., 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 assesses the status of economy in a given society in terms of inflation, per capita income & consumption pattern, balance of payments, consumer price index etc. Healthy economy offers greater opportunities for growth & development of the industry.


External Environment

•Demographic appraisal - •It includes variables like age profile, distribution, sex, education profile, income distribution etc. It can help in identifying the size of target customers.

•Governmental Appraisal – •It assesses the various legislations, policies, incentives, subsidies, grants, procedures, etc. formulated by govt. for a particular industry. For e.g. the govt. intentions to allow only partial FDI in the retail segment. Because of this particular clause, multinational retail outlets like Wal-mart are not able to enter the Indian market, though the market potential & financial feasibility is in abundance.

Internal Environment

•Raw material – •Assess the availability of raw material now & in the near future. If the availability of raw material is less now or would be less in future then the.


•Raw material -entrepreneur should give a serious thought to establishing a venture as the entire system

•Production/operation - Assesses the availability of various machineries, equipments, tools & techniques that would be required for production/operation.

•Finance - Total requirement of finance in terms start up expenses, fixed expenses & running expenses.

•Market – assess the present, potential & latent demands of the market.

•Human resource - Assess the kind of human resources required & its demand & supply in the market


Feasibility Analysis - Feasibility study is done to find whether the proposed project would be feasible or not. Feasibility study is carried out to assess the feasibility of the project itself in a particular environment. The various variables/dimensions are-

Market Analysis – •To estimate the demand of the product/services in future.

•To estimate the market share of the proposed product/service in future.

•A preliminary discussion with consumers, retailers, distributors, competitors, suppliers, etc. is carried out to understand the consumer preferences, potential demands, strategy of competitors & practices of distributors, retailers etc.

Technical/Operational Analysis - • What are the technological needs & other equipment does the proposed business need?


Technical/Operational Analysis - •From where will this technology, equipment, raw material be obtained?

•Technical Analysis collects data on the following parameters – Material availability, material requirement planning, plant location, plant capacity, machinery & equipment, plant layout.

Financial Feasibility – Following cost estimates have to be carried out.•Cost of land & building - depending on the requirement & the availability of funds the L&B can be hired, can be taken on lease or purchased

•Cost of plant & machinery - includes estimates of cost of plant & machineries, their running & maintenance cost.

•Preliminary cost estimation - cost required in conducting market survey, preparing feasibility report, expenses in registering, incorporating machine, establishment, raising capital from public & other miscellaneous expenses.

PREPARING A BUSINESS PLAN •Provision for contingencies – cover certain unexpected expenses which can emerge due to change in the external environment, like increase in price of raw material, or transport costs going up if the petrol prices are revised.

•Working capital estimates – for running the business are also made.

•Cost of production – cost of raw material, labour, overhead expenses, utilities like power, water, fuel etc.

•Sales & production estimates - based on the plant capacity the production & sales estimates are made, which help in estimating profitability.

•Profitability projections – parameters are cost of production, sales expenses, administrative expenses, expected salesSummation of all above gives gross profit.Based on the above information, the following projections are made-Break even point, cash flow statement, balance sheet statement


Drawing functional plans – details of drawing functional plans which would plan the strategies for all the operational areas – marketing, finance, HR & production

Marketing plan - •The strategies are in terms of Marketing Mix(product, price, place, promotion)•The market feasibility study & marketing research, potential/present demand of customers is determined, which helps in understanding the profile of customers.

Production/operation plan - drawn for business enterprises in the manufacturing sector whereas operational plans are drawn for business enterprises in the service sector.Strategies for the following parameters•Location & reasons for selecting the location.•Cost & availability of machinery, equipments, raw material.•List of suppliers & distributors.•Cost of manufacturing/running the operations.•Quality, capacity, inventory management.


Organizational Plan – Defines the type of ownership – it could be single proprietary, partnership firm, private/public limited. Also proposes an organizational structure & human resources management practices that would govern the successful running of the proposed business enterprise.

Financial Plan – The financial requirements of the proposed business enterprise. •Cost incurred in smooth running of all the financial plans(operation, marketing, human resources)•Projected cash flow, income statement, break even point, balance sheet.

Project Report Preparation – •Now a project report is prepared. It is written document that describes step by step the strategies involve in starting & running a business. •It helps to understand the opportunities, problems & weakness of the business.•Monitor whether the business is growing as was projected in the business plan or not.•It persuade investors & financial institution to fund the project.•Proper utilization of all the resources.


Essentials of a project report – •Sequentially arranged•Exhaustive•Should not be very lengthy & subjective.•The projection should be appropriately be made from 2 to 10 years.•Justify the financial needs & financial projections.•Project report should be attractive to the financial agencies & investors.

Preparing a project report – oCover sheet - It mention the name of the project, address of the headquarter if any & the name & the address of the promoters.oTable of content - It guides the person reviewing the project report to the desired section quickly. Divide the project report into sections & number or label the sections like 1,2,3 or I, II, III OR A,B,C 7 then divide the section into sub sections like 1.1,1.2,1.3 or I-1,II-2,III-3.oExecutive summary – a careful presentation of information should be done to attract the attention of the evaluators. It should be in brief yet includes all the factual details about the project that can improve its marketability.oThe Business – Details about the business concept. Discuss objective of the business, a brief history about the past performance of the co., what would be the form of ownership(single proprietor, partnership etc.)

PREPARING A BUSINESS PLAN oFunding Requirement - A well planned funding requirement should be documented for the investors & the financial institutions are the bodies examining the project report. Debt equity ratio should be prepared which can give an indication about how much finance would he company require & how it would like to fund the project.oThe product & services – features of the product, the product range that would provided to the customers, the advantages that the product hold over above the similar product, substitute products available in the market. Gives details about the patents, franchises, licensing agreement. oThe plan – Now the functional plans for marketing(marketing research, market demography), finance(projected cash flow, projected balance sheet), human resources & operation(plant location, plant layout) are to be drawn.oCritical Risks – The investors are interested in knowing the tentative risks to evaluate the viability of the project & to measure the risk involved in the business.oExit Strategy – provide details about hoe the org. would be dissolved, what would be the share of each stake holder in case of winding up of th organization.oAppendix – provide information about CV of the owners, ownership agreement, certificate from pollution board, article of association.


Format of a project report

•Cover sheet(name of company, address, promoters)•Table of contents•Executive summary•The businessObjectives for setting up businessBrief history of past performanceForm of ownershipName, qualification of the ownersProposed/actual headquartersProposed/actual capital structure•The funding requirementsDebt Equity•The product/servicesDescription of product/serviceComparative analysis with similar product/substitute products.Patents, trademarks, copyrights, franchises, & licensing agreement

PREPARING A BUSINESS PLAN Format of a project report

•The planoMarketing plan(market demography, like profile of customers & end users.Strength & weakness of competitors.SWOT analysis of the market.Marketing mix strategy(product, promotion, pricing & distribution)

oOperational planPlant locationPlant layoutQuality control & inventory management

oOrganizational planOrganizational chartDetails about the board of directorsLegal aspects of labour

MARKETING PLAN & PRODUCTION PLAN

•The planoFinancial planProjected profit & loss statementProjected balance sheet Projected cash flows

•Critical risks

•Exit strategy

•AppendixCurriculum vitae of the ownerOwnership agreementCertificate from pollution boardArticle of Association

2.2 MARKETING PLAN & PRODUCTION PLAN

DRAWING FUCTIONALPLAN

VISION

MISSION

OBJECTIVES

MARKETING PLAN

ORGANIZATIONAL PLAN

OPERATIONAL

PLAN

STRATEGIC PLAN

FINANCIAL PLAN


•Strategic plan provides direction to the rest of the functional plans.

•It formulates the mission, vision & objective of the organization.

•The short term & long term objectives that have evolved from the mission statement, & the vision which provides direction for the company, the vision helps in formulating the mission which finally leads to laying down the objectives.

•Marketing plan should be frequently evaluated & changed to satisfy the changing demands of the customers.For e.g. HLL on seeing the excessive competition in the fast moving consumer durables came up with marketing strategies of ‘one product every month’

MARKET RESEARCH(MR)The success of any business venture lies in the existence of markets. Unless the entrepreneur identifies the existing needs or potential needs of the market he cannot translate these needs into product/services that would be acceptable by the market.


MARKET RESEARCH(MR)Today there is cut throat competition, globalization, changing preferences of consumers, customer diversity, internationalization, a thorough market research has become important to introduce any product/services in the market.

Market research is the process of collecting information on any facts relevant to market. It is a systematic collection of information, it analysis & interpretation to strategize some relevant business decision like whether one should enter new markets, what kind of discounts would be more attractive to the customers etc.

Information that can be collected through MRThe market research needs to assess the demands of the consumers. A broad category of information that is desired by any org. through market research includes – •The total size of the current market & potential market.•The growth rate of the market.•Consumer preferences & satisfaction•Consumer buying behaviour•Effectiveness of distribution network & promotional efforts.


Steps involve in conducting the market research are –

Formulating objectives – •Research obj. should be defined clearly. •The objectives should be able to have linkage with existing problem or explore opportunities available in the market.•Concise & provide a clear direction to the research.•The research has certain preconceived assumptions about the end result of the research. Care should be taken that they do not create a halo around research. The best method to do this is to convert this assumption into hypotheses, which can be further put to test.

Research design - Blue print of the entire market research.

Exploratory research design – Exploratory research is a type of research conducted for a problem that has not been clearly defined. It determine the best research design, data collection method and selection of subjects. An interview survey among clerical staff in a particular office, department, company, group of companies, industry, region and so on, to find out what motivates them to increase their productivity (that is, to see if a research problem can be formulated).


Descriptive research design – Primary data collection, first hand info. About focus group – age, education, income. For e.g. study & analyze the consumption pattern of the middle class in the metropolitan cities.

A casual research – Casual Research explores the effect of one thing on another and more specifically, the effect of one variable on another . Study the cause & effect relationship between 2 or more variables. For example, if a clothing company currently sells blue denim jeans, causal research can measure the impact of the company changing the product design to the color white.

Data collection tabulation – •Data collection can be both primary data(observation, questionnaire, interview, essay writing, telephonic conversation & secondary data(magazines, annual reports).•Method of data collection•Type of sampling techniques used like random & systematic sampling, multistage sampling, judgmental sampling, convenience sampling.

Data analysisDocumentationDecision making


SEGMENTATION•Segmentation is the process of dividing the market/customers into similar characteristics or behaviour. •For e.g. the population of a city can be divided into toddlers, kids, teenagers, youth, middle age & old age. From these segments targets can be chosen & then the product is so positioned that it appears attractive to these targeted segments. E.g. if the product is an educational toy target segments would be toddlers & kids & their may be their parents.

•Demographic Segmentation - when the target market is divided on the basis of population. Segments are oAge (health drinks for growing children, diapers for infants & babies, fashion accessories for teenagers) oIncome (economy class for commoners whereas executive class or business class for high income group, Big bazaar for middle class, branded product for high end group) oGender choices & preferences vary between males & females on product like cosmetics, magazines & clothesoEducational classification – computer/laptops would be demanded by computer literates, CAD/CAM required by engineers.


•Psychographic Segmentation - when the target market is divided on the basis of lifestyle/personality of individual. Segments are olifestyle(interest, urgency, day to day activities, beliefs, opinions, attitude. For e.g. working women coming back after a hectic day, would like to dial & order services of dominos) oPersonality (five star is associated with ambition, Santro is associated with tall boy car)

oGeography Segmentation - on the basis of geographical region. It can be northern, southern, eastern, western, city, metro, urban rural.(for e.g. lifebuoy is more common in rural areas, whereas Dove & liquid soaps in urban areas.

oBehavioral segmentation - on the basis of behaviour/attitude of consumer •Vary on occasion, usage rate, benefits, loyalty status, buyer readiness.For e.g. Teenagers & young college graduates would be more frequent goers to discotheque


Market Targeting - It is the process of evaluating various segments & identifying the number & type of segments that the business venture would target.Market Evaluation –•Assessment of the size of the each segment •Segment growth •Companies strength & weakness to suffice the needs of the segment•Potential opportunities & threats from the competitors, substitutes, buyers, suppliers, government.

Target Market selection – This decide which segments it would target. It would depend on several factors like economies of scale, profitability, growth, size etc.Single segment concentration(Junior Horlicks is targeted only for kids), selective specialization(Archie’s targets youth, middle age, elderly people), product specialization(Computers can be sold to households, public sector undertaking, hospitals, educational institutions), market specialization(Big bazaar sells product ranging from vegetables, grocery furniture etc. to the middle class).

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