CHAPTER-4

BUSINESS PLAN
 *****WHAT IS A BUSINESS PLAN?
Meaning of BP
1. The business plan is a written expression of the entrepreneurial vision,
describing the strategy and operation of the proposed Venture.
2. It is a written document describing all relevant internal and external elements
and strategies for starting a new venture.
3. It is a document that describes in detail how a new business is going to achieve
its goals.
4. A business plan communicates the founder’s vision about the business and
gives a blueprint about the strategy, resources, and people required for a
Venture.
5. A business plan is any plan that works for a business to look ahead , allocate
resources, focus on key points, and prepare for problems and opportunities.
6. It is again a written plan from inception to execution, like production,
marketing, finance, and operational viewpoint.
Ultimately, a business plan (game plan or road map – answers all the questions-
where am I now, where am I going?, and how will I get there? The potential
investors, suppliers, and even the customers will request or require a business
plan.
 IMPORTANCE/BENEFITS OF A BUSINESS PLAN

A business plan can be used by an entrepreneur for variety of

objectives as follows:-
1. Equity funding (VC, BA, CVC)
2. Bank finance.
3. Alliances.
4. Recruitment.
5. Explanation of the business.
6. Miscellaneous uses like presenting the plan to family and
friends and seeking their support, etc.
 *****Nature of a Business Plan?
Planning is essential to the success of any undertaking.
Critical factors that must be addressed when planning
are:
• Realistic goals. These must be specific, measurable, and set within
time parameters.
• Commitment. The venture must be supported by all involved—
family, partners, employees, team members.
• Milestones. Sub goals must be set for continual and timely
evaluation of progress.
• Flexibility. Obstacles must be anticipated, and alternative
strategies must be formulated.
****Significance of a Business Plan?
“A business Plan is a PROCESS that provides Justification,
Evidence, and Reasons THAT ARE Clear, Verifiable, and
Convincing RESULTING IN A Blueprint, Feasibility study,
and Operating plan THAT increases the probability of
success of a Venture”.
 ******PREPARATION/DEVELOPING A BUSINESS PLAN
Q-What are the various steps in writing a business plan? or
Briefly outline a structure for a business plan?
Introduction:- Like any other project, developing a business plan
must be carefully structured and systematically executed.
1. Define the purpose.
2. Collect information.
3. Write down things.
4. Prepare a rough draft.
5. Do financial analysis.
6. Finalize the plan.
7. Get the plan reviewed.
8. Data collection.
(a) Company details:- Document relating to company, shareholding details,
permits and registration etc.
(b) Management: Organization chart, details of key employees, consultants &
legal advisors, compensation and other employees' agreements.
© Industry & Competitors:- Market statistics, market trends, competitor’s data,
customer surveys etc.
(d) Operations:- Product and services, contracts and purchase orders of raw
materials, competitive advantages, details of IPRs, regulatory approvals,
industry standards as per regulations, plant layout and operations plan,
R&D etc.
(E) Marketing and sales plan:- Marketing plan, advance orders, marketing
materials etc.
(f) Financial information: data on fixed and variable costs to be incurred,
financial forecast etc.
Explain the meaning, nature, critical factors and significance of
business plan?

© 2012 Cengage Learning. All rights reserved.

 GUIDELINES TO REMEMBER
• Keep the plan respectably short
• Organize and package the plan appropriately
• Orient the plan toward the future
• Avoid exaggeration
• Highlight critical risks
• Give evidence of an effective entrepreneurial team
• Do not over-diversify
• Identify the target market
• Keep the plan written in the third person
• Capture the reader’s interest

© 2012 Cengage Learning. All rights reserved.

 QUESTIONS TO BE ANSWERED
• Is your plan organized so key facts leap out at the reader?
• Is your product/service and business mission clear and simple?
• Are you focused on the right things?
• Who is your customer?
• Why will customers buy? How much better is your product/service?
• Do you have a competitive advantage?
• Do you have a favorable cost structure?
• Can the management team build a business?
• How much money do you need?
• How does your investor get a cash return?
 *************EXPLAIN VARIOUS COMPONENTS OF A BUSINESS PLAN?

• Section I: Executive Summary: The executive summary is

probably the most important section of business plan, as bankers and
VCs generally do not read through the entire Business Plan when
presented to them.
• Section II: Business Description
A. General description of business
B. Industry background
C. Goals and potential of the business and milestones (if any)
D. Uniqueness of product or service
• Section III: Marketing aspect of BP
(A) Research and analysis
1. Target market (customers) identified
2. Market size and trends
3. Competition
4. Estimated market share
 (B) Marketing plan
1.Market strategy—sales and distribution
2.Pricing policy
3.Advertising and promotions plans
• Section IV: Operational aspect of business plan
(A). Identify location
1.Advantages
2.Zoning
3.Taxes
(B) Proximity to suppliers
© Access to transportation
 Section V: Management aspect
A. Management team—key personnel
B. Legal structure—stock and employment agreements, and
ownership
C. Board of directors, advisors, and consultants
Section VI: HRM aspect of BP
1. Recruiting
2. Hiring
3. Training
4. Managing employees etc.
Section VII: Social aspect of BP:-
5. Psychographics (values, interests, desires, lifestyles, and goals)
6. Demographics, (age, gender, race, education level, and income level.)
7. Lifestyles,
8. Buying habits,
9. Population growth rates,
10.Family size/structure, health, education level etc.
Section VIII: Technical aspect of BP:-
1. The list of equipment's, structure, and materials that are essential.
2. The technical feasibility of the product.
3. The quantity to be provided and the specification of the product.
4. The physical plant layout and design required.
5. The method of acquiring materials etc.
Section IX: Financial forecast (financial aspect of BP)
1. Profit and loss
2. Cash flow
3. Break-even analysis
4. Cost controls
5. Budgeting plans
Section X: Risks& Contingencies
A.Potential problems
B.Obstacles and risks
C.Alternative courses of action
Section XI: Harvest Strategy
D.Transfer of asset
E. Continuity of business strategy
F. Identity of successor
Section XII: Milestone Schedule
G.Timing and objectives
H.Deadlines and milestones
I. Relationship of events
Section XIII: Appendix or Bibliography
 COMMON PITFALLS TO BE
AVOIDED IN BUSINESS PLAN
• Pitfall 1: No Realistic Goals
• Pitfall 2: Failure to Anticipate Roadblocks
• Pitfall 3: No Commitment or Dedication
• Pitfall 4: Lack of Demonstrated Experience (Business or
Technical)
• Pitfall 5: No Market Niche (Segment)
 ****WHAT ARE THE KEY DRIVERS OF BUSINESS PLAN?

A good and effective business plan possesses a clear vision and

purpose for the venture, as perceived by the entrepreneur.
To identify key value drivers for one’s own company, it is best to conduct a SWOT
analysis.
Favorable:- Strengths (S):- (It includes strong and loyal customer base,
low-cost production, Skilled manpower, Higher operational efficiency, capability to
compete internationally).
Opportunity (O):- (It includes an increase in international market opportunities
and acquisition opportunities).
Unfavorable:- Weakness (W):-(it includes no Global presence, Product needs
enhance, Low investment in R&D, Poor infrastructure, Inadequate systems and
procedures).
Threats (T):- (It includes Increase in Global competition, rising raw-material cost,
Fluctuation of currency, rise in Excise and other statutory duties etc.)
 Some other key Business Plan drivers are as
follows:-
1. Clear vision of the business Venture.
2. Satisfy real customer needs and serve real customers.
3. Differentiate from Competitors.
4. Resource focus, Organization and commitment to satisfy
customer needs.
Note:- An entrepreneur should identify business plan drivers to
focus their efforts by channelizing various resources to
achieve organizational goals. These drivers can make or
break a business.
 ******Why some business plans fail?
1.Unachievable Goals and Aspirations
Setting high goals and having the best of intentions of making a
business plan or a project work doesn’t always turn out well in the
real world. To have a business plan or a project succeed, it is
necessary to have achievable goals and aspirations that can be met,
ideally within the first year or first few months of operation. If one has
a lofty goal, it doesn’t mean he has to scrap his Plan – But he needs to
set attainable goals along the way and be realistic with the Planning.
2.Lack of Market Research
Market research is a vital part of starting a new business or project.
Before a business plan is drawn up or a project is begun, thorough
market research needs to take place and the results need to be
viewed realistically. If your niche is saturated, then you need to
produce a plan that will set your business or project apart and help it
succeed. Otherwise, your voice will simply be drowned out in the
crowd or never heard because there just isn’t a market for it.
3. Productivity and Motivation Issues
• Entrepreneurs are known for their ambition and their drive to succeed. It is
these two points that can turn someone without a cent to their name into a
multi-millionaire. But along the way determination to succeed, and the ability to
stay motivated even when the tide is turned against you, are vital to success in
the business world. This motivation needs to extend to employees of your
business or members of your team on a project. If they are not
productive and motivated, the best idea in the world will not succeed.
4.Improper Budgeting
• Lack of real-world budgeting is another important reason why business
plans fail and why projects fail. You won’t always be able to go to the bank for
another loan to get your business or project off the ground. Eventually, your
funding may dry up if you cannot get your idea going in the right direction.
Research needs to be conducted ahead of time on the approximate cost
of starting a business or a project and keeping it running through the
first year and through growing pains. Funding sources need to be found
ahead of time and eventualities need to be planned for before you get
in too deep.
• Q-What are the key drivers of a Business plan? List out those major reasons for
Business Plan failure?
 Class discussion
1. Given the difficulties in accurately predicting the future, is a
business plan useful? Provide three reasons for writing one and
three reasons for not preparing a plan. What is your conclusion?
And why?(Group 1,2&3)
2. Would an entrepreneur be better off spending more time selling his
or her product rather than investing so much in writing a business
plan?(Group 4&5)
3. If business plan is to be used to raise capital, then why would the
entrepreneur want to advertise the firm’s major risks by detailing
them in the business plan ?(Group 6,7&8)
4. What is the purpose of the business plan if the audience is (a) an
entrepreneur, (b) an investor © a key supplier? How might the plan
be adapted for these different audiences? Or do you believe that it
is better to simply have one business plan that serves all
audiences? (Group 9&10)