5

Preparing the Business Plan

Contents
Meaning of Business Plan
Importance of Business Plan
Who should Prepare the Business Plan
Preparation of a Business Plan
Financial Aspects of a Business Plan
Marketing Aspects of a Business Plan
Human Resources Aspects of a Business Plan
Technical Aspects of a Business Plan
Social Aspects of a Business Plan
Pitfalls to be Avoided in Preparation of a Business Plan
Review Questions

INTRODUCTION
For many prospective entrepreneurs, developing and writing
business plan is
a
discouraging and frightening task. However, a good business plan is essential. The most
important step in launching any new venture or expanding an existing one is the construction
of a business plan. It pulls together all the elements of the
entrepreneur's vision into a single
document. The business plan requires careful
planning and creative thinking and a good
business plan serves many functions. A
large business always begins with strategic planning
1m general and business
planning in particular whereas small business founders don't subject
their business idea to a
potential review and ignore to construct a business plan.
However, the
ability to recognise the need for a business is now widely regarded as a sign of business
maturity and the likelihood of survival.

MEANING OF BUSINESS PLAN

mply, a Business Ptán is a comprehensive set of guidelines for a new venture. "It you
don't AOW Where you
to know
aregoing, any road will take you there. As an entrepreneur, you want
wnere are you going, which road will you choose. The process of developing and
d Dusiness plan will help you identify and classify many of the issues that need to be
addressed as an entre
repreneurial venture is organised, launched and managed. Thus, Business
 SS PLAN PREPARIN
death hazard for an
entrepre his 5.3
entrepreneurial vision, vision
describing the life
and
mall plans. family, his friends, than
the a
Loan Proposal'
'"Loan
strategy e s s

dangerous
t h a n

mission
in a sma

snrehensive, thoughtful business plan cann't be

flying that
of

presented
called

expression be
v enn
s ture capitalist The importance
for venture
also ve

5.2 to aa
lt m a y
rhen presented
presented
outside funding
ng, credit from overemphasized.
Business pla bank/financial institutions
written

it;
n g e s on
venture.

on
proce

is away f finances, promotion and marketing

formal when

the
planning

betw.
Much h i n g e s
o ffina
promotin

and othet
is Plan'"
of busines
proposed

tas with
the
he
Plan

o p e r a t i o n
ofthe
s

loan
or
"Venture

begins
with

s e r v e s
15 a bricument
as a
bridge
docuna
The

that
present and the management

"The
bue
ness planis a necessity. If a ness and achievement of
peraon who wants to start
plans
summarizes. unpliers, objectives,

to
b a n k e r
for

Every
b u s i n e s s

which
p l a n n i n g

is a
written

be seized: a oals
and
put
a sssiness plan together, he or she IS in trouble,"
in plan
identi
cann't

critical importance
the critica
of a business says chairman of a
and
f i n a n c i n g .
future b u s i n e s s

into
the a how
the ness Despite
plan, many entrepreneurs
to
look
other
words,
defines
the
following

nuled
Bank.
it c o m e s
to preparing. written document. They that their market
drag
Isiness plan to be usetful or that just don'targue
In and i n c l u d e s

m.
have enough time. place
long-term theitf e e t whe
future.
opportunity plan and
fast 10
b u s i n e s s
short-term

b u s i n e s s

Precisely,
a
both
on
offer. changes

won't begin
too
construction without a blueprint, eager business owners But just
construct
enterprise, services

ler without a business plan. shouldn't

forthe
exploited.
or Let us also read the
Goals
products
for
them.
a s a bu
following:
ofthe ac
achieve goals in t certain key targets
r u s h i n t o n e w

employed to
anticipated

description will ensure

are met because the plan is made
() a
market
o p p o r t u n i t i e s

and
and
means
m e a n s
to be
A good plan secure funds from a bank at the outset but it sets
(ii)
the resources not mere the course of a
explanation
of to
fu.
o v e r its
life span.
(iv)
an
o fl i k e l y c o m p e t i t i o n . as a
blue print like any business
ontinuous and regular business planning cycle because that keeps your
serves

plan destination.
continuous

Adopt a
business
her
his o r
Gi) n-to-date. This would ensure regular business planning meetings which
wel-constructed

reaching
Thus, a user'schances of Plan
plan up-to-date.

from the business.

the Business
improves
A Good involve key people
Features Of
map.

investors
and lende
well. Many a times, he Gi) Reviewal of business plan takes stock of where the business currently is and where
for ations as a tool to attract investors to go. This will help achieve the objectives set by the
written
entrepreneur want
is does the
presentat
plan
tool for the
over-optimistic
business
A with as a management
constructs
a plan have
ave little value
litt owner.
such plans
loans but business plan can also sign post where and why the business is
entrepreneur

b u s i n e s s plan
are
easy A well-drafted
and to
secure

Some of the
of features
information. a good Giv)
and astray. It is better to assess progress every three or six months
entrepreneur.
with well-supported going wrong
plan has been made and followed.
t should be anhonest identifying clearly
products, Servio
rvices, which is possible if plan
should be succint, shows direction and commitment to employees, customers
and
well-written plan (v) The plan also
i) A founders.
markets and the suppliers.
of business in business plan keep the entrepreneur focussed,
manner.
in a quality
(ii) It should
be prepared (vi) Defining the purpose
customers.
be
(6iv) It should easy
to read. inspires employees and attracts
forces the process preparing the plan to look
) It should be complete
and accurate.
Grammar should be (vi) The process of a business plan together
mistakes in the data. at the business in an objective and critical manner.
(vi) There should be spelling mistakes orno
not abstract. chances for
used should be clear, brief, concise
and
(Vim) It helps to focus ideas and serves as a feasibility study of business
correct. Language De
facts should
avoided. Instead, success and growth.
I believe' should be
(vi) The words like 'I think or
tool to define possibilities.
used to support the assertion. () The finished report serves as an operational
for success.
(vii) It should make clear and realistic financial projections. etilor's
t helps manage the business and prepare look at
research and detailed comp business. By taking an objective and
(3) It should be prepared after detailed market is a
Strong communication tool for the areas of weakness
entrepreneur can identify
research. DUsiness and business plan, the
(x) It should describe key decision makers. strength.
A through business plan will have the information to serve as a financial prop
ki) It should endup with a thorough summary. and should be accepted by most leaders. business. The
business plan.
THE IMPORTANCE OF A BUSINESS PLANresearchedfigh sii) A business for the proposed
plan acts as resume
banker or investor,
the business plan
try 0 like your card While speaking to the
An experienced pilot doesn't fly a risky mission without a detailea, Wo.experience, will annou
calling Card. s.
plan. Yet people everyday, with minimal announce/outline who you are and what your proposal
nagement
venture1s
or not business
operate businesses without active business plans. "Taking a flyer" on a busine»
 PREPARING THE BUSINE
SINESS PLAN
PREPARI

The Business
Competition 5.5
of the busineseo
5.4 uses it. Most
he first 5-6
entrepreneur
To enhance suco. Management Team
The business plan is
useful if
to lack
of planning.
business firom use plan
Use p
a downward Capital Requirements
6-6
Failure is often
attributed
plan
can prevent a
6-1
twO years.
comprehensive,
well
constructed
business
Financial Projections 1-1
The Market
spiral. THE
BUSINESS PLAN 8-9
WHO
SHOULD
PREPARE
tter if
doesn't matter if you are
Vos
"8 E x e c u t i v eSSummary
ummary 9-10
plan. It
business plan toofseek
The
the financial
should write the
business,resources or to evaluate future growth, define
that knows
define a the ssing the
missioSion, T h ee x e c u t i v e
summary is the
is th most important part of the busine
owner

is the one thati « the plan that every reader business

business -the
entrepreneur fistsection oft
Many read
ha"any
Thev have too readers of the plan because it is the
provide guidance
for running your
ctor', don Thus,if business plan,
many plans to read
and too especially
s u m m a n . .

about the business.

hired the a
assist the
be hired to assist onvincing, the little time to
chartered Account) can entrepreneur n all.
cad them primary functio of executive reader goes on to
(e.g.a entrepreneur must do. summary the
capture the investor'next
consultants
is to
business,majotheritykeyof s plan. Since
However, but in reality a
a business plan, the longer tha two
the process of formulating financial data, the purpose
of his should be
no
pages. The shorter the attention, the
work. Only he can come up with
few 1tems. He may still cho0se
ummary
are as
follows. better. Other sections
of the
why the plan shouldnsulr tant,
styles to mention a Summary
employees, and management to do most of the work, so
)Mission. ODur ny's mission is to
but realise that he or
she will still need be (describe your ultimate goal, or
insert mission
tackled by the owner himself? statement)

PREPARATION OF A
BUSINESS PLAN (The
(i) Company. (The company) was founded in
an effective business plan
can be lengthy-often 10-15. does, manufacture baby products, stationery, Il parts,(date) and describe
provider of
what your business
A thorough. omplete and
efforts to
it takes time and prepare a business plan h
pages
it is 10 words
eare enough to describe tne Tirm Dusiness or sector. Becausemedical services). About
are enough
or even longer. Although invest in certain industries, it is better to be clear particular investors will
important to make it. Every entrepreneur may has his own ideas about a business plan but not up front and save time for
following major areas: Rusiness. We make
everyone.
however, every business plan should include h
(describe production or services that you make or
acerintion about businesS should be a thumb nail provide). This
1. Title Page sketch of your business's history
hackground. It should be brief and emphasize positive. or
TITLE PAGE

COMPANY NAME (With logo) Our company is a (seed, start up or

growth stage of business). In most recent (period), our
MONTH, 2006 company achieved sales of (x), and showed (profit, or loss, break-even). With the
contemplated herein, our company expected to achieve (x) in sales,(x) in profits. Morefinancing
details
may be given as to how sales and profits will increase with the fresh
cOLOURED PICTURE
that the figures are exactly the same as those in the main
financing. Make sure
OF THE PRODUCT body.
iv) Competition. Mention the competition to illustrate the niche that your fim occupies.
NAME OF THE KEY MAN IN for example, we
FINANCING
compete directly with (name the competitor) or we have no direct
competition but there are alternatives to our (product or service) in the market. Our (product
ADDRESS Service) is unique because of (x) and/or we have a competitive advantage because of our
CITY, STATE Ed to market,
PHONE
established brand name, low cost producer status). The deseription should
E- MAIL
OCCupy less than 150 words.
COMPANY HOME PAGE URL
Mlanagement Team. Although who you are matters most, you dont have to proVide
much o
2. Table Of Contents h nthe management description. It can be like this-Our team has the following
Cerie
embe nieve our plan. Number of (x) men and (x) women who have combined
Contents
Page No. ) otner
Executive Summary -3
diseinlin years in marketing, (y) years in product development and (y) years in
Details of Executive
Mission
Summary 3-3 (vi)
apital Requirements. need to raise. We seek
34 R.)of additional (equit Briefly state how much money you
The Company u n y , debt or enable to (describe
other financing) which will us why you
4-4
 PREPARING THE oREPARING
THE BUSINESS PLAN
5.6 NESS PLAN company (seed,
opportunity is
exciting). We can provide andand exit for
ev: o f the
start-up,
national order etc.) expansion) and
need the funds and why
the
etc.) his (loan, The
stage

aokeded first ice. and

stage of
by (IPO, sale of company product

business
investment) within (x) years
Financial projections
should follow the sat
) Product or
Explain how your (developed firs
atch format as the
(vii) Financial Projections. usually sufficient. AlI the figures must matokormat a. needs addressed byproduct
ce
What b u r n i n g mark
are works or
Three years are with the your how the
financial history.
sales projections are madeit
should be like- main
theproduct ?
product ? What valueservice is used
body of the plan. If your Features of the Pre ct. do you add
This year Nextyear Year two
(i) Unique
This is to
Last year something u n i q u e ,
oroprietary or protected about yourcrucial paragraph. The
a

Sales : esearch and Development. Write product or service. investors must see
Gross Profit:
dii)
esearch andRese"lopment of your name of
product. What is theperson or
the

Pre-tax profits le, one of the major objectives of R& D main contractor who is
main heading
market (1.e. the naure of your product). How m de superior benefits could objective of R
be to & D ? For-
(viii) The Market. Define your and how much it is expected to pra has it
roblems or prov
Out R & D
to
customers.
You could
develop products
that solve-
compared to the previous year ations wni
din yielded previously, also list
year? the next year. The amountamount of money spent in the products or
grown as
does your product reach them
customers? Where are they and how R& D, plan
Who are your
lca be mentioned
It may also that the R &D may
be
given in rupees or past year in
Details Of Executive Summary revenu

yield iS mostly based on inputspercentage

of
the c u s t o m e r s .
taken from
1. Mission e.New and Follow-on
nding to these needs, Proauets. AS
requirements of per the
product or service withmarket needs and
is to become [describe your ultimate goall . you
) Mission Statement. Our goal may
ing line of products or services. Tollow
respond a new
include mission statement, how do you intend to carry a reputation in the market. he may extensions
how can It yOu are
going to add new
you achieve that requirements to accomplish that mission.
reputation, duction date for these products whicn may correspond wth a
product, give your target
trade fair or exhibition etc.
an major industry event e.g. a
2. The Company
It includes the date when the company was founded description of busines (vProduction. Enumerate and explain capital equipment, material and labour
reauirements. Are the above items readily available
? Do you have
(manufacturer, distributor), legal form of business (Partnership, Joint stock company, Sole multiple supply sources?
List inventory requirements, quality and technical specifications, hazardous
trader), principal offices, area of office space, area of factory [(x)], square feet of office space materials.
(vi) Uniqueness. List the reasons of uniqueness
and (x) square feet of factory). It may also include current capacity, [(x)units per month]. If of your product. This uniqueness (patent,
you exceed (x) units per month, you will need additional space. We expect this facility to be speed to market, brand name) gives you an advantage in the market place, if yes, how ?
adequate for company's needs for (two years, a year) after funding. 4. Competition

) Application of Laws and Regulations. If your company operates in toxic wastes You should tell about the key competitors in regard to
product, price, location,
production causing pollution, necessary licenses promotion, management and financial position. Do not give false or incomplete information
explosives, or permits must have ben
here as it indicates
obtained. dishonesty and negligence to investors, bankers etc. Don't delude yourself
0r your investors about your competition. It is better to mention any of the following
(ii) Strategic Alliances. The leverage from relationships can be appealing to investos situations if applicable :
Explain how you work with others to
improve your performance.
Explain if you have developed important and profitable strategic alliance witn We have direct competition, but there
the market or
no are alternatives to our product orservice in
established business.
We compete
Explain if you have 5. Management Team
directly with (name competitor x, y and 2)
developedmarketing agreement with another markeTleades
any icas
which will enable you to sell
your product.
Section describes the firm's people-the entrepreneurs and top managementteam
Explain if you have entered into joint venture with another company vho l have adas the firm's technical, reputational and human resources. The investor, bankerorthe
already undertaken research in promoting that product. You to pay It could be presented
may have agrc ultimale
royalty of (R x) to this development partner for their role in this products ale like this. o be assured that the people are of highest quality.
success.
Olficers and Key Age
3. The Business Employees
(A) Managing Director
Write your company's name, nature of business and describe your
or services
B) Board of
producis o Directors
 5.8 PREPARING THE BUSINEs PREPARING

THE
BUSINESS PLAN
THE

PLAN
(C) Executives of Sales (vi) Past performa
mance may be
be co
(D) Executives of Finance that highlight compared with current
tability,
(E) Executives of R & D
(F) Executives of Marketing
with the average for your liquidity,
industry leverage
that you performance by
and 5.9
Ifthe firm is a new
venture, you must have activity.
collected calculating
present the followin fromCompare ratios
The details of well-known sharehoiders of the company alongwith
nd loss trade data.these ratios
a
Profit and
owing:
() Projected
professionals like Chartered Accountant, lawyer and otlher consultants may m or
Similarly. assistance and support of the business and industry experts and bankers when.
accounts for 5
monthly for the first years. It is
next 2 years and annually year two, recommended
in decision making and policy making may also be given. help thereafter. or
then that
The initial salaries, incentives, bonuses, pensions and
benefits of top
fringe Dean
Projected cash flow statements and financial
quarterly thereafter
also be given. Also describe your plans to continue to attract, develop. and le may the firm has
and until analysis for
positive cash flow,should
year
retain the annually thereafter. be
made
key personnel. firm's
6. Capital Requirements Projected balance sheets
for the ends of
quarterly for themonthly for the
next 2 first
Gi)
the first 3 to years and
State what your capital requirements are. State your preferences for sources (iv) Projected bbreak even analysis for the 5 yea
years.
capital. Do you seek additional funds for growth in the form of equity or debt finan ew af the business. If it is a
service must be sold.
What combination is appropriate and what debt/equity ratio and many units f the It it is a service business
is the firm targeting ? You may give the breakdown as follows
degree of financial
lever product must be sold to product business, show how
rage break even points. break even. indicate how
You may
Purchase of equipment Keep in mind that prepare a table of
projections don't stand on
Market new product
Fund working capital
prepared the umbers-andhow sober their own. The
vnect to tie in discussions you were when you did rationale of how
you made them-is you
You may also provide exit for this loan or investment within (x) years ACeptance and competitive pressures to tie into about market size, time important to
by sale of these numbers. to
market, market
company, or
public offering or merger etc. Def+ne how much time you will 8. The Market
back to loan or
provide a return to the investors ? How the repayment will be require to Dav This is the most crucial
and what strategy accomplished but
convince worst-prepared
will be
used to achieve that exit ? ana vsis section should section of most
the business plans. The
7. Financial Projections
Competitive environment in detail. Thereader or investor that the entrepreneur market
The entrepreneur has to make different kinds of forecasts in market for the product or purpose of this section is to
service is substantial and
understands the
his business
plan. demonstrate that the
achieve a defendable
competitive position. Some of thegrowing, and (ii) the entrepreneur(i) can
example: For
) Sales forecasts should be made in
terms of units of () Market Definition. recommendations for the market are
delivered as well as in products or number of services the market located Identify in general what markets are
and what is its
rupees. If a new product is to be introduced then
sales will increase with the how much investors prefer industries scope (local, regional, national you competing in. Where is
introduction of the new line or with the or
international) ? Potential
(i) How much cost of improved line. they should be given in the potential for large sales volumes and high growth rates, so
goods sold will picture. For example, we
materials will be more efficient or the decrease as the market purchases of raw lhe (define niche) of the (define (expect to compete, are competing)
new
equipment produces more units at lower orretail) last (period available) industry). This market was in

according to (site resource). approximately x) at (wholesale

cost?
(ii) Will Gross profit remain static or
likely to increase or decrease ? Market research (cite source) suggests this
market will
(iv) Will selling expenses and
administration
hi time. e expect the niche in which
this we
(grow/shrink) to R x) by the year
compete (to grow, shrink, remain stagnant) during
forecast that selling and expenses increase or
administrative expenses will increase indecrease
? It
may While
rupees but may decrease as a absolute terms
market of
your 1ng
percentage because while expenses are these details
sales wil! also be increas you may also explain the
growing faster. The names of the items whose sales will product or the areas major forces
of greatest growth within the industry. likely
aftect the
to
most
signif+cantly may also be erease
incie i) Market Seg
mentioned. about the
(V)What will be the
effect of increased expenditure on R & D ? For gment. Narrate the focus to the specific target market or segment. Write
which example, &D uyers Customers you are
was a high percentage
previously, will get reduced as percentage
a
ov
yo cu institutions) ? Wholikely
identified your to reach
are your five(retailers, manufacturers,
largest buyers catalogue
? You may have
ustomers who can be
explained in the business plan like this.
 BUSINESS PLAN
PREPARING THE BUSINESS PLAN
p a E P A R I N GTHA

5.10
use (altor..
isrmore impo ortant than the
customer for
our product
is a person
who currently
to buy our
may
product
Tnative produo
becansese f (its value
S e c o n d

b
purpose

e n e f t
of the entrepreneur so tha first one.
Financial 5.11
A typical
document. It is a derstand how heaspect or financial
motivated the

for (what purpose).

They are
mer
from (customer responses, trade
fairs inpurue, g
for
at ongoing, living
or service) this
ing, he is prepared to refer guide to run his projects his forecast
s
know This
usefulness). We value, superior
its quality, its our products as (good
performanc to the business. business will
enquiries and
feel our
customers perceive
has the following
weaknesses (higher nrir
than other
n e e d s

FINANCIAL PROJECTIONS
documents. As and when he
product,
however,
working to position our
great taste). Our
brands, weak brand
identity in the
market etc.) We
are
product as nancialprojectio include the following:
this vulnerability.
in order to reduce can write
about your marketing plan a.

Cash flow statement

In this section, you mode to achieve thate
how you a)
(6) Assumption sheet
(ii) Marketing. segment of
the market and
segment For
a particular advertisement etc. You n
expect to penetrate
retailing, internet, inancial statements
could be through
(e) P r o j e c t e d

example, the mode capture. d) Ratio analysis

share your plan to
the percentage of least philosophy 2 HHow
or poliey or at
What is your pricing strategy
on cost, market price, gross profit.
would STATEMENT
(iv) Pricing.
Will the pricing be based CASH FLOW
(A)
you arrive pricing? to pay that price for the product 2
at
cash flow
or perceived
value ? Are the
customers willing
In a new busi statement may be the most
Which
channels would you use for vourn.
distribution the amount and and timing of expected cash intloWs andimportant document because it
(v)Distribution Channels. door to door be constructed outflows. The section of the
and why ? For example-Wholesaler,
retailers, factory outlets, part of business plan
should

he
A start-up unit carefully.
will not have
etc. financial statements, therefore, starts by a cash flow projecting historical
promotion of the product statement broken
addition to the distribution
channels, advertisement and promotion strategies are also onths. The entrepreneur has to be realistic while compiling the cash flow down into
In
properly designed and executed compaion an ntance, he may be able to collect 807% ot his debtors in the stipulated time projections
needed. Although cons1dered a cost a
naY 100% expenses. He has to chooSe a realistic ratio. Some business planning while hehe hahas
advertising and promotion strategy and flt so
investment. You may develop a comprehensive hese formulas built into help him make these projections. Cash flow
television, radio etc. Ihe wording of your promotion
them through national magazines,
press, statement is based
n sales forecasts, balance sheets and other assumptions.
compaign could be like this.
Trade Fairs (List trade fairs). We Ifthe entrepreneur has an existing business, then he can base his
(Your company name) participates in the following projections of cash flow
which allows us to display our existing products and satement on historical financial documents, such as profit and loss account and balance
have a regular (20 foot display booth dhets of previous years to base these forecasts on.
introduce new ones).
BUSINESS PLAN (8) ASSUMPTION SHEET
FINANCIAL ASPECTS OF THE
The financial aspect of the business plan is of the most essential components of the
one Assumption sheet is an explanation of most critical items that entrepreneur's financial
need it for winning investors or obtaining a bank loan. The Silenents are based on. Assumptions can be based on () general information (i) specific
plan. The entrepreneur will
over

information contained in this financial aspect will help in steering the business Momation. General information means that no specific source is cited to substantiate those
include the financial Sumptions. For instance, if the sales forecast is based on the assumption that the economy
Financial aspect is not the same as accounting. This aspect does
such as profit and loss accounis, Il grow fast when the new government is formed after general elections, that's an
projections which are also included in financial accounting,
balance sheet and cash flow statements, but accounting looks back in time and take an g asumption driving his sales projections. In such a case, you cannot eite any
to0uy e and thus, it is
historical view. Business planning or forecasting is a forward-looking view, starting upto the reader to agree or disagree.
and going forward into the future. It is not tax reporting, it is an elaborate educated guess. Sp sumptions, on the other hand, are based on very specific information and
forecast of a beverage
ndten assumption should be cited. For instance, if sales
PURPOSE OF FINANCIAL ASPECT 12 percent per year for the foreseeable future,
en this utogrow at a rate of 10 to
belief or
The purpose of financial aspect of a business plan is two-fold forecast
should cite the sources of information. s be incorrect.
The entrepreneur will need it while seeking investment from investors, ventu
ture capitalists
Many because several of their key assumptions prove
to

sines lail

or even his family members.

They are going to see the figures that speak that y which
PROJECTED FINANCIAL STATEMENTS
will grow-and-quickly-and there is an exit strategy for them on the horizon, au wellto
plan.
he Progajected
k financial statemer of a business
as
financial section
they can make profit. Any banker or lender will also ask to see these membe the heart of the
make sure that you can repay their loan. financial tatements Tepresent the finale of the entire plan.
are
 BUSINESS
PLAN
aUSINESs PLAN
THE
P R E P A R I N GTHA
THE
PREPARING eARING

and
Distribution Plan
to the historical
5.13
ratherstatcments
Sales
Similar
5.12
statements
are
look forware A an
i) Promotion.
and Prom

tracking
Advertising

projected
financial
except
that they
A fim's
would normally
prepare, the following: the iw)
cstablished
fim
financial
statements
include

PRODUCT
AND/OR
SERVICES
Profomma
or projected n
uniqueness of product. or service. It
past. Projected income statement
focuses on
art
T h i sp a r
will from using the covers the
Projected balance sheet
How
the customer product or service? following points
features of product or service?
statement
cash flow statements for a
forma state What are the
Projected
recommend
three to five
years

be
of pro
considered for an existino busin business
Mos benef of using the
produ or
clearing product willservice?
Most expets should are

financial
statements

financial
statements through
thr ratio analys What
For instance, a « Benefits can be
and three years intangible.
plan experts
interpret the projected
customer may also benefit by benefit t tangible or
business
PROJECTED INCOME STATEMENT
house,
us,
rgeted customer will mostenjoying better CUstomer with a cleaner
health.
resuis based on profit a
benefits whic
appreciate in the Emphasise those
statement
illustrates the projected operating
section is essential to thic
this loss. What
duct
sets your product or service different from your marketing plan.
The income
The sales forecast,
which was developed
in markefing

cost must be budgeted

based on - document. want your custom customers to receive about your competitors? The message you
product
level of the or
service is the
marketing plan. Thus,
production
marketing aspect should
Once the sales forecast is in place,
the projected earnings.
The materials, labour, overheads
ads (fixed and
distribution
to targeted customers. communicate this central heart of
activity needed to support
considered in addition
to indirect expenses such as message
variable)must be
and general expenses.
discounts,
administrative )PRICING STRATEGY
advertising.
PROJECTED BALANCE SHEET Thepricing strategy involves the following aspects
Proforma means projected, as opposed to actual. Ihe pro forma balance sheets ojects will you priCe your
Determine how product or service. The price
of time. Profor
the venture will be at a particular point forma reasonable' or penetrate the must be
what the financial condition of market, maintain the market
at the start-up, semi annually Tor the first years. The balanee position, and product
balance sheet should be prepared profits.
the projected level of operations and shows how
sheet details the assets required to support
loans etc.) Investors will want to look at The pricing strategy must take customer's willingness to pay into account.
these assets are to be financed (equity, debentures,
the projected balance sheets to determine, if debt equity ratios, working capital, inventon Pricing policy should be compared with the policies of
major competitors.
turmover ratios etc, and so on are within the acceptable limits required to justify the future
The gross profit margin (sales-cost
of goods sold) should be discussed
and enough
financings projected by the venture. margin should be kept
for other expenses such as distribution
expenses, financial
BREAK EVEN ANALYSIS expenses, administrative expenses etc. in addition to profit margin.
The final document that should be included in the financial aspect of business plan is the (IT) SELLING AND DISTRIBUTION PLAN
break-even chart. It shows the level of sales (and production) needed to cover all costs. This
includes costs that vary with the production level (eg. manufacturing cost, labour, sales, Selling and distribution plan will include the following:
materials)and that don't change with production (rent, interest charges, executive
costs Howthe product is going to get to the customer? Is it through web site, or mailor
salaries) salesrepresentative or through retail outlets?
What are the costs associated with
MARKETING ASPECTS OF THE BUSINESS PLAN distribution?
What are the
Marketing aspects of the business plan explain how the entrepreneur is going to get delivery terms?
customers buy his Howlong will it take to get the product or service to the consumer?
product and/or services. This part of the plan is often one of the in
difficult to It
prepare. is also one of the most critical because ons OW Will
the products be
of the
almost all subsequent see packaged for shipping and display?
plan depend on the sales estimates
developed here. Marketing aspects of the
plan consist of the following points: Dusi due to mum inventory levels be maintained to ensure that there is no loss of sales
) Product and/or services.
problems such as late shipments and back orders?
What system
will be used for
i) Pricing strategy
Vhat will be
processing oraers
method of payment?
 ESs PLAn PREPARI

iS too small to
ta
have
5.14
will be
offered? No
husiness
ts. If you have marketing plan. After
a

customers, you need to al,

business is too 5.15
What credit
terms ustomers no
? nd/or servic
vices.
will be
offered
people, their. prodicts communicate
of sales
expectations, thei with them small for
warranties
What includes types l to
sales strategy.
It
etc. N ob u s i n siness is
to0 small
have a
marketing about your
Outline your
incentives to be given ers o rc l i e n t s . f you have plan. After all,
customers, you need
programs,
customers no

communicatebusiness
training to
PROMOTION
PLAN d u c t sa n d / o r
services. is too
ADVERTISNG
AND
proposition i.e. what sets what oroducn with them small for
(TV) sets about your
This part should highlight
the unique selling your
product
uct o HUMAN RESOURCE ASPECTS OF
service apart from
all the rest.
and media
that will be most ive :in
effective This
is a
of
critical section a
business plan. The BUSINESS PLAN
human resóurces
Decide about the
advertisement
determine annual advertising
budget. reaching the ofa firm
consist of the
f o l l o w i n g :

market. It will help The Management Team

target
of budget will you
invest in each of the following:
What percentage The Board of Directors
Internet
,The
Board of Advisors
Television The Employees
Radio ent Team consists of
The Managen
founder or
Newspapers ement personnel.
A brief profile of each member offounders and a handful of
ander/s. Each profile should the management team shouldkeybe
m a n a g e m e

Magazines with the

Telephone directories edstarting include the
.Title of the position.
following :

Bill boards . Duties and responsibilities of the position.

Bench/bus/subway adds . Previous industry and the related experience.
Direct Mail
retailers and other businesses ? Previous successes.
.Cooperative advertising with wholesales,
Include not only the cost of advertising but much business the advertising will brinein.in .Educationalbackground.
promotion activities and include these in advertising and Certain important attributes about the profile should be
Decide on the sales and highlighted as investors might be
such interested to know about work experience or previous successes. A resume of each
promotion plan as:
member
can also be added in appendix.
Offering free samples
Coupons If the start-up has a Board of Directors,
Point of purchase displays apenal of individuals elected by a company's shareholders to oversee the
Product demonstrations. management of the firm-- their qualifications and role should also be explained and
Decide about the marketing materials. The most common marketing material is the included as part of your management team.
business card, but brouchers, pamphlets and service sheets are also common.
The Board of Advisors is a panel of experts asked the firm's personnel to provide
Another avenue of promotion is publicity. How you plan to generate publicity like counsel and advice on an ongoing basis. Unlike board of directors, a board of advisors
Product launches p0ssess no legal responsibility for the firm and gives non-binding advice.
Special events including community involvement. The board of advisors give your management plan credibility and an additional pool of

Writing articles expertise. The board of advisors can be in two forms

If your business has or will have website, describe how your website fits into
a you Professional services section includes all those external professional advisors tnat ne
advertising and promotion plan. business
the usiness will use such as accountants, bankers, lawyers, IT consultants,
Tradeshows can be incredibly effective promotion and sales promotion. Choose management team that can be
utants etc. who support outside your internal
trade show carefully and the right one.
invaluable in making management decisions.
Competitive analysis should be made.
 AE BUSINEse
PREPARING TRE BUSINESS PLAN PREPARING

5.16 which can assist the Ifyou section

are
developing
completely new product or
Cocuses
focuses on
also provide
experise
ln other words, this ofdi
director a
that
of
on the status
include in service, 5.17
Board of
Advisors can
more
eflectively.
business
modrd
plan
seemingly promising start-ups never get
get off
off theyour development your business
the
business
hoW to
run your more profitably stall or actual
in managing
think tank
to
advise as to
and
development efforts
fficult team expected. development of
efforts.
of ttheground because their Many
management

well who have

genuine interest rest in seeing be.
orediffi
product or service turnsproducduct
People in Advisory
Board should
be those
and expertise to provide good
dvice. Retir Logical
path of product development is out to

and have the

entrepreneurs
v e n d o r s can be good o ductConception Prototyping-> Initial Production
>
business do well
and/or
successful experiences - Full
where your product is
and also rovide a Production
or need and what
Cxecutives. managers.
will your
business
vill
udi

cost it the stage

employecs
your bus usiness plan. Some you timeline that
P r o v i d e

how many
Decide as to the people reading of
could be of
most to
the
r e m a i n i n gs t e p s .

describes the
This
information
as follows
of a product, a prototype can be
considerations
about employees are
requirement will be met?
w lo early
of the
stages
new
product. developed. Prototype is the first
business's human
resources
you have depiction physical
freelancers? Do you
Do need
you nee. Prototype
.How

employees
your
or operate with
contract
workers or
full-time or
part time workers.
description of specific s t i . Virtual
including a
Outline your staffing requirements labour court can be calo that
be less
Physical
people working
for you ought
Thus,
to have.
you fra
may
virtual prototype mayi expensive than physical prototype in some of
example, if it
takes one emp'oyee to serve 150 customers, and
10 employees.
forecast 1500
ual prototype 360 degrees.
virtual
is amputer-generated 3D image of
a compu an idea which can
the cases. A
be viewed from
business will need rotated
all
customers every year, your jides and
and total cost of salary
salary each employee
will receive
for A section labeled Challenges and Risks" should be
included and disclose
Determine
insurance (if mand major
employees. Add to
this the cost of workers compensation,
such as medical or dental plane
ated design and developme challenges and risks involved in any bringing your
employee benefits, to service to market.
and the cost of any other
or
new product
cost.
calculate the total labour Ewnlain any patents, trademarks, copyrights or trade secrets that
you have secured.
Describe the recruitment plan training plan. Will the staff be recruited locallv.or
and Take a legal advice regarding intellectual property rights to avoid problems at a later
not? Will you be conducting recruitment visiting the universities or B. Schools oranv stage.
other mode?
SOCIAL ASPECTS OF A BUSINESS PLAN
TECHNICAL ASPECTS OF A BUSINESS PLANN
A society means group of persons or a body of human beings living as members of a
how business will be run and the product
The technical aspect of business plan outlines onmunity. Social aspects of business plan should include the entrepreneur's plan to
or service will be produced.
The business planner has to strike a careful balance adequately discharge his social responsibility keeping
in mind the welfare of employees, customers,
this and providing too much detail. The readers of the plan will want an
describing topic employment opportunities, transparency, ethics etc.
will not be looking for
overall sense of how the business will be run, but they generally
detailed explanations. As a result, it is best to keep this section short and crisp. Social aspects of a business plan should contain following considerations
customers, the
1. Employees are ambassadors. To succeed with empowered
Following point can be covered up in this section: must his employees to solve customer problems.
entrepreneur empower
Articulate or explain your general approach to operations in terms of what is most as the quality of
2. Trust and transparency are as important to corporate reputation
important and so on.
products and services.
business. in value.
Second, this section should describe the geographic location of your understand what customers truly
10 stand outmarket, companies must
in a
some instances, location is an extremely important issue while in other cases it is no
the traditional silos and unite resources to
he only way to do that is to break
down
For instance, for restaurants and retail businesses, the specific location within a m
focus directly on customers needs.
or shopping center, or a certain side of a busy street, may make a dramatic differenec. deliver
social,
long-term value
in financial,
This aspect should also describe the firm's facilities and equipment. List out yo Drepreneur's commitment to
environmental and ethical terms.
most important facilities and equipment and how they will be or have been acqu (natural or man made) ua
. of resources
repreneur should make optimal
cing a use
ie. purchased, leased or acquired through some other means. If you are
pr products, offer services and employ people.
product and will contract or outsource your production.
 AN
5.18 commit his
contribution to
to following:
the foll.
and
acknowledge
must
Entrepreneur
6. Customers

Owners
Media
Government

Social aspect
of
plan to include
business
Employees
Neighbours/
local community
Partners
Associations

BUSINESS PLAN ODR

DONOT'S OF A
TEN
BE AVOIDED)
(PITFALLS TO
side) in estimating future sales.
(on the high
1. Don't be optimistic future sales.
(on the low side) in estimating
2. Don't be 'optimistic' weaknesses in your
business plan. Spell them out. aus

or discount
3. Don't disregard
Better to focus on projections for your firet
.
4. Don't stress long term projections. year
of your business or the success af. of an
5. Don't entirely on the uniqueness
depend
invention.
s o m e o n e you are not.
Be brutally realistic.
6. Don't project yourself as
focused specialists usually do best.
7. Don't be everything to everybody. Highly
financial and accounting know-how.
8. Don't proceed without adequate
wonderful concept. Test it first.
9. Don't base your business plan on a
a business plan before starting.
10. Never, Never, never skip the step of preparing
DO'S OF A BUSINESS PLAN
1. Prepare a complete business plan for any business you are considering.
2. Use the business plan templates furnished in each session.
3. Complete sections of business plan as you proceed through the course.

4. Research to find business plans of other entrepreneurs.

5. Package your business plan in an attractive kit as a selling tool.
intendeu
6. Submit your business plan to experts like Chartered Accountant in your
business for their advice.
7. Spell out your strategies on how you intend to handle adversities.
8. Spell out the strengths and weaknesses of your management team.
9. Include a monthly one-year cash flow projection.
10. Freely and frequently modify your business plans to account for an

conditions.

REVIEW QUESTIONS
SHORT-ANSWER QUESTIONs
1. Define business plan.
2. what are features of a business plan ?