Chapter: 7

Business plan preparation

❖ Concept, needs and how to prepare a business plan

The business plan should be prepared by the entrepreneur or entrepreneurial team; however, he or
she may consult with many other sources in its preparation. Lawyer, accountants, marketing
consultants and engineer are useful in the preparation of the plan. If the and entrepreneurs do not
have sufficient skill to prepare a business plan, they can take help from consultant to prepare the
plan. but never hire someone in any circumstances to write the plan for you. The reason should be
obvious it is difficult to defend someone else’s work. If you put it together, then you have a better
understanding and feel for it.

❖ How to Write a Business Plan

Business plan should be comprehensive enough to give any potential investor a complete picture
and understanding of the new venture and will help the entrepreneur clarify his or her thinking
about the business.
A business plan generally contains the following aspects:
1. Letter of Transmittal or Cover letter

The letter of transmittal or cover letter officially presents the business plan to the reader. A Cover
letter contains the abstract of the business plan with special attention to its purpose and promise.
It is a selling tool addressed mostly to investors and creditors. The letter is bound with the business
plan. It contains the occasion for the business plan; it refers to the title; it explains the major
features that may be of special interest to the reader. Close the letter by stating your willingness to
provide additional information if the reader desires it.

2. Introductory/ Title Page

This title or cover page that provides a brief summary of the business plan's contents. The
introductory page should contain the following:
a) The name and address of the company/organization.
b) The name of the entrepreneur(s) and telephone number (s).
c) A paragraph describing the company and the nature of the business.
d) The amount of financing needed. The entrepreneur may offer a package that includes owner
equity and debt.
e) A statement of the confidentiality of the report. This is for security purposes and is important
for the entrepreneur.

3. Executive Summary
This section of the business plan is prepared after the total plan is written. It is generally about
three to four pages in length. It should be Such that could stimulate the interest o the potential
investor. The investor uses the summary to determine if the business plan is worth reading in total.
Thus, it would highlight n a concise and convincing manner the key points in the business plan,
that is, the nature of the venture, financing needed, market potential, and support as to why it will
succeed.

4. Table of Contents
It will be prepared after the completion of the plan. It contains the section titles and the page
numbers for easy reference.

5. Business Concept/ Industry Analysis

It is important to put the new venture in a proper context. It gives a elaborate description of the
industry and market situation in which the enterprise will operate in future. It contains:
a) Industry outlook and growth potential including industry trends and historical achievement. It
also provides an insight on new product developments in the industry. A
b) Competitive analysis - marker share, strengths and weaknesses, profitability of the competitors
in the industry.
c) Market and customers- the size of the tooi market, new requirements and market trends, target
market segment(s).
d) National and economic trends- population shifts, consumer trends, relevant economic
indicators, industry forecast with minimum 5 years sales forecast.
6. Description of Venture

This section will enable the investor to ascertain the size and scope of the business. Key elements
are:
a. Product(s) or service(s) -pictures, drawings, characteristics and quality of the proposed
product(s) or service(s) of the venture.
b. Production or the exclusive rights of the venture- trademarks, franchise rights. patents,
c. Business location and size- locational premise, advantages, size of the premise, building or
space, accessibility through road, railway etc parking, access to customers, suppliers,
distributors, delivery rates and town regulation or zoning law.
Locational checklist

• How much space is needed?

• Should I buy or lease the
• What building? is the cost per square foot?
• Is the site zoned for What commercial use?
• What town restrictions exist for signs, parking and so forth?
• Is renovation of the building necessary?
• Is the facility accessible to traffic?
• Is there adequate peaking?
• Will the existing facility have room for expansion?
• What is the economic, demographic profile of the area?
• Is there an adequate labor pool available?
• Are sewage, electricity and plumbing adequate

d. Competitive advantages of the business concepts uniqueness, estimated market share in

comparison to 1hat or competitors market niche
e. Staff and equipment needed overall requirements of staff of various categories including
immediate and future needs, labor market conditions, capacity of the firm, required types
reequipments and accessories and their conditions of availability-purchase or lease. Brief
history entrepreneur(s) and their personal backgrounds, experiences, developmental work so
far done, reasons for going into business, individual success criteria.

7. Business Goals

• One-year specific goals such a gross sale, profit margins, share of market, opening of new
store, plant or office, introducing new products etc.
• Long term goals such as return on investment, business net worth sale of business.
8. Marketing Plan
The marketing plan is an important part of the business plan since it describes how the product (s)
or service(s) will be distributed, priced and promoted. Specific forecasts for product(s) or
service(s) are indicated in order to project profitability of the venture. It deals with 4Ps- Product,
Price, Place and Promotion.
The elements are:
a. Sales strategy- sales objectives, sales staff and agents, target customers, sales tools, sales
support.
b. Distribution -wholesale, retail, multiple outlets, direct marketing.
c. Pricing -costing, mark ups, margins and break-even price.
d. Promotion- media advertising, promotions, publicity appropriate to reach target market etc
e. Guarantees- product guarantees, service warranties.
f. Tracking method -method lor confirming who your customers are and how they heard about
you.

9. Sales Forecast
Sales forecast is the basic for production and all other operational plans. which are known as This
forecast is based upon certain assumptions such assumptions monthly forecast and at least 3 to 5
years annual 1orecastin taka and in the units.

10. Production Plan

This plan should describe the complete manufacturing process. I| some or all of the manufacturing
process is to be subcontracted, the plan Should describe the subcontractor(s), including locations,
reasons for Selection, costs, and any contracts that have been completed. The plan contains the
following:
a. A brief description of production process. It should not be too technical.
b. A description of physical plant requirements such as building requirement, utility
requirement, expansion capability, layout.
c. Machinery and equipment requirement description including new or used, lease or purchase
along with the capacity of the machinery.
d. A description of materials and their nature such as quality, sources, and conditions of
availability.
e. A description of suppliers including the volume of discounts and types of sources
f. A description of human resources requirements on the criteria of full time, part-time, skill
level, availability, training requirements.
g. A description of cost of facilities, equipment and materials-estimates and quotations.
h. An estimate of capital investment including one time start up or expansion capital
requirements.

11. Production Plan for Retail or Service

Service organizations need a special kind of service rendering plan. It engages in buying and
selling activities. So, the plan includes the following:
a. A description of purchasing plans showing volume discounts, multiple sources, quality and
price of things to be purchased.
b. A description of inventory system showing seasonal variation, turnover rates, methods of
control on inventory.
c. A description of space requirements showing floor and office space, improvements required
expansion capability.
d. A description of staff' and equipment requirements personnel by skill showing level, fixtures,
office

12.Organizational Plan
The organizational plan is the part of the business plan that describes the venture's form of
ownership. It also organization and how other describes who controls the members will interact in
management functions. The performing their primary elements are:
a. A description of legal form of business that is partnership, proprietors’ company or cooperative
type of organizing
b. A list of principal shareholders A list of contracts and agreements in force such as Contracts,
managed shareholder or partnership agreements, franchiser service agreement, service contact.
c. The name and addresses of key persons and their role in busy specifying who will sign the
cacique.
d. A description of duties and responsibilities of key personnel
e. An organizational chart. A description of decision-making system and leadership style

13. Financial Plan

Financial plan is a statement of potential investment commitment needed for the new venture and
indicates whether the business plan 15 economically feasible. It includes a pro-forma income
statement, cash flow projection, opening balance sheet, break even analysis, ratio analysis, and the
sources and application of fund for a period of 3-5 years. It also states the financing and
capitalization plan showing term loans applied for with amount, terms and capitalization
requirements, owner's equity, working capital requirements and its sources.
14. Accounting plan
Accounting plan is the most neglected area in entrepreneurial venture. People do not consider it as
an important issue, but for high degree of accuracy, cost control, minimize theft and fraud and
quick reporting, an effective accounting system has to design and install in the venture. It will state
the business transaction system, statements and accounts to be prepared, reporting system, internal
check system, auditing system etc which will make the accounting information system a full-proof
system for preventing frauds, mistakes and for fulfilling legal obligations.

15. Insurance plan

This plan will exhibit the courses designed to cover the unanticipated loss due to fire, theft or other
hazards. To provide for protection, entrepreneurs should develop a program of risk management
before the venture is launched. The entrepreneur must protect themselves and their ventures from
any unforeseen events that may threaten them. This program should specify: Where taka losses
may occur, how severe the losses might be and how to treat these risks. The insurance plan should
1it with the requirements of the venture.

16. Computer plan

Computer is a time saving multipurpose system. Therefore, venture would develop a computer
plan to extract its benefits for the firm. Because the entrepreneurs may not have knowledge of
computers, they should seek expert advice, preferably from a consultant who focusses on
entrepreneurial demands.

17. Total Quality Management Plan (TQM)

Under the context of free economy, competition from abroad is obvious besides native one.
Therefore, a TQM program has to be designed sustain in the market. It involves a pursuit for total
customer satisfaction constant improvement of product and services and all out involvement of the
employees in the venture activities. A well thought out plan is to he made in this step.

18. Appendix
The appendix of the business plan generally contains any backup material that is not necessary in
the text of the document. It includes the following backup
a. Letters from customers, distributors, or subcontractors are example of information that should
be included in the appendix.
b. Any documentation of information, that is, secondary data or primary research data used to
support plan decisions, should also be included.
c. Leases, contracts, or any other types of agreements that have been initiated may also be
included in the appendix. d) Price lists form suppliers and competitors.
d. Charts. tables, photographs and computer graphics.

19. Bibliography

In writing the business plan, you may use information already made available by others in
published or unpublished sources. When you refer to others work document the source you are
quoting or paraphrasing by citing the source and by listing the source in the bibliography.