Business plan

Dr Neelam Khanna
Assistant Professor
MMIM, MULLANA
Concept Business plan
Business plan is a road map for starting and running a
business. A well-crafted business plan identifies an
opportunities, scans external and internal environment to
assess feasibility of business and arranges resources in the
best possible way which finally leads to the success of the
plan. It provides information to all concerned people like the
venture capitalist and other financial institutions, the
investors, the employees. It provides information about the
various functional requirements (Marketing, Finance,
Operations & Human Resource) for running a business
Concept
What is a Business Plan?
Business plan is the blue print of the step-by-step procedure
that would be followed to convert a business idea into a
successful business venture. A business plan first of all
identifies an innovative idea, researches the external
environment to list the opportunities and threats, identifies
internal strengths and weakness, assesses feasibility of idea
and then arranges resources (production/ operation, finance,
human resources) in the best possible manner to make the plan
successful.
Objectives of business plan:

To give directions to the vision formulated by entrepreneur.

To objectively evaluate the prospects of business
To monitor the progress after implementing the plan.
To motivate others to join the business.
To seek loans from financial institution
To visualize the concept in terms of market availability,
organizational, operational and financial feasibility.
To guide the entrepreneur in actual implementation of the plan.
To identify strengths and weakness of the plan.
To identify challenges in terms of opportunities and threats from
the external markets
Objectives of business plan
To clarify ideas and identify gaps in management information
about their business, competitors and the market.
To identify the resources that would be required to implement
the plan.
To document ownership arrangements, future prospects and
projected growths of the business venture.
Business Planning Process
Preliminary Investigation
Preparing a Business Plan
Preparing a Business Plan is not an easy task. A plan, which looks very
lucrative/ feasible at the first instance, might actually not be when details
are drawn. Hence documenting the business plan is the first step that an
entrepreneur should take. The various steps involved in preparing a
business plan are:
I 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 and internal environment to assess the
strengths, weakness, opportunities and threats.
Seek professional advice from a friend/ relative or a person who is
already into similar business. (If any)
1. Idea Generation
Idea generation is the first stage of business planning process. This step differentiates
between an entrepreneur and businessman distinctly. An entrepreneur is highly creative
person who gets an innovative idea about a product or service that could be brought into
the market. Idea generation is the first stage of business planning process. It involves
generation of new concept, ides, products or services to satisfy the existing demands,
latent demands & future demands of the market. The various sources of new ideas are.
 Consumer/ Customers
 Existing Companies
 Research & Development
 Employees
 Dealers, retailers
 The various methods of generating new ideas are:
 Brainstorming
 Group discussion
 Data collection through questionnaires/ schedules etc from consumers, existing
companies, dealers, retailers
 Invitation of ideas through advertisements, mails, internet
 Value addition to the current products / services
 Market research
2. Environmental Scanning
Idea generation phase the next step is environmental scanning which is
carried out to analyze the prospective strengths, weakness, opportunities &
threats of the business enterprise. Hence before getting into the finer details
of setting up business it is advisable to scan the environment – both external
& internal and collect the information about the possible opportunities,
threats from the external environment and strength & weaknesses from the
internal environment. The various variables to be scanned are in terms of
Socio-cultural, economic, governmental, technological, demographic changes
taking place in the external environment and availability of raw material,
machinery, finance, human resource etc with the entrepreneur. The various
sources for gathering the information are Informal Sources (Family, friends,
colleagues etc.) and formal sources (bankers, magazines, newspaper,
government departments, seminars, suppliers, dealers, competitors)..
External Environment
Socio-cultural Appraisal
It assesses the social and cultural norms of a society in a given period
of time. The variables that are appraised are values, beliefs, norms,
fashions and fads of a particular society. It can help in understanding
the level of rigidity/ flexibility of a given society towards a new
product/ service/ concept.
Technological Appraisal
It assess the various technological know-how available to convert the
idea into a product, it can also be done to assess the various modern
technologies expected in the near future & their receptiveness by the
industry. For Example an entrepreneur has an idea of manufacturing
tobacco free herbal cigarettes which would not harm the health of
the smokers, the technological appraisal can assess whether
manufacturing of this kind of product is possible or not.
Economic Appraisal
It assess the status of economy in a given society in terms of
inflation, per capita income & consumption pattern, balance of
payment, Consumer price index etc. The healthy economy offers
greater opportunities for growth & development of the industry.
Demographic Appraisal
It assesses the overall population pattern of a given geographical
region. It includes variables like age profile, distribution, sex,
education profiles, income distribution etc. The demographic
appraisal can help in identifying the size of target customers.
Governmental Appraisal
It assesses the various legislations, policies, incentives,
subsidies, 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. Take for example the government policies of
subsidized electricity in Uttranchal.
Internal Environment
 Raw Material
It assesses the availability of raw material now and in near future. If the availability of raw
material is less now or would be less in future then entrepreneur should give a serious
thought for establishing a venture as the entire system can come to a standstill for the
availability of raw material.
 Production/ Operation
It assesses the availability of various machineries, equipments, tools & techniques that
would be required for production/ operation.
 Finance
It assesses the total requirements of finance in terms start-up expenses, fixed expenses and
running expenses. It also indicates the sources of finance that can be approached for funding
 Market
It assesses the present, potential and latent demands of the market.
 Human Resource
It assesses the kind of human resource required and its demand and supply in market. This
further helps in estimating the cost and level of competition in hiring & retaining the human
resource
3. Feasibility study is done to find whether the proposed project (considering the
above environmental appraisal) would be feasible or not. It is important to
demarcate environmental appraisal & feasibility study at this point.
 Market Analysis Market analysis is to be conducted for the following
reasons
 To estimate the demand of the proposed product / service in future
 To estimate the market share of the proposed product/ service in future.

 Technical/ Operational Analysis

Technical/ Operational Analysis is done to assess the operational ability of

the proposed business enterprise. Technical/ Operational Analysis collects
data on the following parameters:
 Material availability
 Material Requirement planning
 Plant location
 Plant capacity
 Machinery & equipment
 Plant layout
 Financial Feasibility
Once the analysis of marketing, Operation & organization has been done successfully, finally
financial feasibility is done to assess financial issues of the proposed business venture.
 Cost of Land & building: depending on the requirement & the availability of funds the
land & building can be hired, can be taken on lease or purchased.
 Cost of Plant & Machinery: It includes estimates of cost of plant & machineries, their
running & maintenance cost
 Preliminary cost estimation is made to assess how much cost would be required in
conducting market survey, preparing feasibility report, expenses in registering &
incorporating machine, establishment expenses, expenses in raising capital from public &
other miscellaneous expenses
 Provision for contingencies needs to be done to cover certain unexpected expenses which
can emerge due to change in the external environment like increase in price of raw
material like transport cost goes up if the petrol prices are revised.
 Working capital estimates for running the business are also made
4. Drawing Functional Plans: After positive results from the
feasibility study functional plans are drawn. feasibility study with
the functional plans but they have been taken separately in this
book as feasibility study is precursor to plan & is done to check
viability of the projected from various dimensions, whereas after the
feasibility study gives positive indication about the viability of the
proposed projected one can go into the details of drawing functional
plans which would plan the strategies for all the operational areas :
marketing, finance, HR & production.
a) Marketing plan: Marketing plan lays down the strategies of
marketing which cant lead to success of business. These
strategies are in terms of Marketing Mix (Product, Price, Place &
promotion).
b) Production/ Operation Plan : Production plan is drawn for
business enterprise in manufacturing sector whereas operational
plans are drawn for business enterprise in service sector.
a) Organizational Plan : Organizational plan defines the type
of ownership. it could be single proprietary, partnership,
company, private limited or public limited. It also proposes
an organizational structure & proposes the Human resource
management practices that would govern the successful
running of the proposed business enterprise.
b) Financial Plan : Financial plan indicates the financial
requirements of the proposed business enterprise
Cost incurred in smooth running of all the financial plans( Marketing,
Operation & human resource).
Projected cash flows
Projected Income statement
Projected Break even point
Project ratios
Projected balance sheet
5. Project Report Preparation
After environmental scanning and feasibility analysis, project
report is being prepared. The business plan is a written
document that describes step-by step strategies involved in
starting and running a business.
6. Evaluations, Control & Review
As stated earlier it is imperative to continuously review and
evaluate the business constantly. This is because the
competition in today’s globalized world is high and the
technological changes are taking place at much faster rates. In
this dynamic business environment it is important to evaluate,
control and review the business periodically and introduce
changes to keep up with the market share.
Identification & Evaluation of Business Opportunity
1. Identification of Business Opportunity
Business opportunities refer to situations where entrepreneurs
can introduce new products or services that meet a market need
or demand. Identifying a business opportunity involves analyzing
various factors that can contribute to success in the marketplace.
 Steps to Identify Business Opportunity:
 Market Research:
 Analyze current market trends, customer preferences, and emerging sectors.
 Use tools like surveys, focus groups, and competitive analysis.
 Identify Market Gaps:
 Look for unmet needs or areas where existing solutions are insufficient or non-existent.
 Explore niche markets that larger companies might overlook.
 Technological Innovations:
 Consider how emerging technologies can create new business models, like artificial
intelligence, green energy, or automation.
 Trends and Consumer Behavior:
 Study changes in consumer behavior (e.g., shift to online shopping, increasing health-
consciousness, etc.).
 Identify industries that are experiencing rapid growth or disruption.
Types of Business Opportunities:

Product Innovation: Developing a new product or

improving an existing one.
Market Penetration: Entering a new market or
geographical area.
Cost Reduction: Offering the same product or service at a
lower price by optimizing cost.
Franchise/License: Expanding a business model via
franchising or licensing.
Partnerships and Alliances: Collaborating with other
businesses for mutual benefits.
2. Evaluation of Business Opportunity
Once a business opportunity is identified, it must be
evaluated to assess whether it is feasible and profitable. This
evaluation ensures the opportunity aligns with the
entrepreneur's resources, capabilities, and goals.
 Factors for Evaluating Business Opportunity:
 Market Size and Potential:
 Is the target market large enough to support the business?
 Are there growth prospects in the future?
 Competitive Landscape:
 Who are the main competitors?
 What are their strengths and weaknesses?
 What differentiates your product or service?
 Profitability:
 Can the business generate sufficient profits?
 What is the expected return on investment (ROI)?
 Customer Needs:
 Does the business solve a significant problem or fulfill a clear need?
 Are customers willing to pay for the solution?
 Resource Availability:
 Does the business require specific skills, capital, or technology?
 Are these resources available or can they be acquired?
 Legal and Regulatory Factors:
 Are there any legal, regulatory, or licensing hurdles to starting the business?
 Does the business comply with environmental, health, and safety regulations?
3. Risk Involved in Business Opportunities
Every business opportunity involves some degree of risk.
Understanding and managing these risks is crucial for
entrepreneurial success.
Types of Risks in Business:
 Market Risk:
 The risk that market demand might be lower than expected, or the product might not sell well.
 Factors: Changing consumer preferences, economic downturns, or competition.
 Financial Risk:
 The risk of inadequate funding or cash flow problems.
 Factors: High startup costs, interest rate fluctuations, or poor financial planning.
 Operational Risk:
 The risk of operational inefficiency or failure to meet customer expectations.
 Factors: Poor supply chain management, inadequate staffing, or production issues.
 Technological Risk:
 The risk of technology becoming obsolete or encountering technical problems.
 Factors: Rapid tech advancements or reliance on a single technology platform.
 Legal and Regulatory Risk:
 The risk that legal or regulatory changes will impact the business.
 Factors: Tax law changes, labor regulations, or intellectual property issues.
 Reputational Risk:
 The risk that the brand’s reputation could be damaged by poor quality, customer service, or negative publicity.
 Strategic Risk:
 The risk associated with a poor business strategy, like targeting the wrong market or not adapting to changing
trends.
Risk Management Techniques:
Risk Avoidance: Altering business plans to avoid certain
risks.
Risk Reduction: Taking actions to reduce the likelihood of
risk, such as diversifying products or suppliers.
Risk Transfer: Passing on some of the risks (e.g., through
insurance or outsourcing).
Risk Retention: Accepting the risk and preparing for its
potential impact (e.g., setting aside a contingency fund).