Unit-3 Business Plan Preparation:

Sources of Product for business

Product sourcing is the process of finding products that you can sell through your business. The
source of products may be either domestic or international.

It is important for you to ensure that your business is up and running before you begin to source
for products. Otherwise, you will be stuck with products that you cannot sell. Some of the things
that you should do beforehand include:

· Registering your business company

· Getting all your business documentation in order

· Determining your niche business and market, etc.

1. Market characteristics-
Unfulfilled demand a product will open the door for new product. Supply and demand of
various products and demand for new products should also be analyzed.
2. Import and exports
The Government of India is encouraging exports and various EXIM policy
encourage entrepreneur to think about the new option.
3. Emerging new technology and scientific know how –
Commercial exploitation of indigenous or imported technologies and know – how is
another source of project idea.
4. Social and economic trends –
Social and economic status of people is always dynamic in nature and offer
wide opportunities. An entrepreneur should observe such changes. For example there
is now shift towards readymade garments; possessing consumer durables, western
outfit, priority and preferences for cosmetics, etc.
5. Product profile-
An analytical study of the end products and by products can throw light on new project
idea. For example by product of sugar industry gave rise to one more large scale
industry called paper industry.
6. Changes in consumption pattern –
Changes in consumption pattern of the people in the home country and a foreign
country also requires the entrepreneur’s attention.
7. Revival of sick units-
A sick unit gives investment opportunities in the hands of dynamic entrepreneur. He
can revitalize and turn a sick unit into a profitable one.
 8. Trade fairs and trade journals-
Magazines, journals, industries or trade fairs offer wide scope for
business opportunities.

Prefeasibility study

Pre-feasibility study is a preliminary study undertaken to determine, analyze, and select the best
business scenarios. In this study, we assume we have more than one business scenarios, then we
want to know which one is the best, both technically and financially. In pre-feasibility
we select the best idea among several ideas. It will be hard and takes time if we explore each
scenario deeply. Therefore, shortcut method deem acceptable in this early stage and can be used
to determine minor components of investment and production cost.

Feasibility study steps

1. Preliminary analysis
Just as the feasibility study determines whether a proposed project is worth the effort, the
preliminary analysis determines whether the feasibility study itself is justified. The fact is
that conducting a feasibility study is an intensive, time-consuming process, and the
preliminary analysis will look to uncover any roadblocks that would render the feasibility
study useless.

2. Defining the scope

Before you can determine the potential impact of a project, you have to get clear on
the project’s scope. This includes defining the project’s goals, tasks, phases, costs,
deliverables, and deadlines. The project scope also identifies internal stakeholders as well
as external clients and customers.

3. Market research
Is there a demand for this particular venture in the market it seeks to serve? This is critical
information to know before committing to a project, and it’s precisely what market
research seeks to answer. Market research also gives insight into the current competitive
landscape and helps identify factors like geographic influence on the market, the market’s
overall value, and demographics.

4. Financial assessment
Naturally, the feasibility study will break down and analyze the financial costs and risks
involved with the project. Costs may include human resources, equipment, material,
 software, hardware, facilities, and third-party services. Additionally, the financial
assessment will look at the potential impact that project failure will have on the bottom
line.

5. Roadblocks and alternative solutions

What are the potential problems and circumstances that could lead to project delays or
even failure? What are some alternative solutions that would circumvent those problems?
Most feasibility studies will include an assessment of these factors, too.

6. Reassessment
At this step, you should seek a reassessment of the entire feasibility study from top to
bottom by a fellow PM, a manager, or someone else in your organization. Having a fresh
set of eyes on the study will help ensure you don’t miss any key elements or miscalculate
potential project impacts.

7. Go or no-go decision
When it’s all said and done, the feasibility study comes down to one decision: Is the
project approved to move forward or not?
Criteria for selection of Product:

Product Selection

Product is anything that is offered for sale into the marketplace. This makes product an important
constituent of marketing and an important consideration in managerial decision-making.

Before launching the product, entrepreneur use to consider different criteria like technological
requirement, needed financial resources, an approximate idea about the product's demand, etc.
However, in this age, the selection of a product has become a very complex task as the market
conditions have become very complicated. Nowadays, when an entrepreneur wants to select a
product, he needs to consider complex parameters like satisfaction level of the customers,
attitudes of the customers, competitors' strengths, support of the dealers, existing infrastructural
facilities, prevalent macro conditions of the economy, etc.
1) Technical Know-how:
Technical know-how is an important guiding factor for an entrepreneur while selecting a
product. An entrepreneur can easily decide what product should be manufactured if he belongs to
the product-related field. Similarly, knowledge in manufacturing or marketing field enables the
entrepreneur in selection of an appropriate product.

2) Availability of Market:
The availability of a large market for a particular product also helps in its selection. If the
demand for a product is huge, then the market risk of launching it becomes less. Thus, it is very
essential that the entrepreneur have a good knowledge about the product's market in terms of
how and where the product can be sold.

3) Financial Strength :
Relative financial of the entrepreneur also serves as guiding force in selection of a product.
Manufacturing a product generally requires heavy investment in research and development,
capacity creation, plant and machinery, etc., which is generally beyond the expenditure capacity
of a small-sized firm. Thus, it is advisable for an entrepreneur to analyse its financial strength
prior to product selection.

4) Competitive Rivalry:
The returns from a product are greatly influenced by the degree of competition prevailing in the
market. Factors like market dominance by the competitors, availability of substitutes, any barrier
to entry, etc., play significant role in determining the viability of the product.
5) Product Category:
In many cases, certain products fall in the priority sector category while some others may be
reserved for small scale. sectors. The level and extent of competition for these product categories
among small sectors is lesser than that seen in other sectors of the economy. There are also
certain products which the Government has earmarked as exclusively to be purchased from the
small scale sector. In the case of such products, the entrepreneur will definitely give a greater
importance to a product which falls in this category.

6) Consistency in Demand:
When there are not many fluctuations in the demand of a product then the market for such
products can be considered to be stable. Seasonal products are contrary in the sense that their
demand fluctuates a lot. The seasonality of a product also plays a large part in its selection or
non-selection as this is directly linked to the stability in the demand for the same. The
entrepreneur should definitely prefer a product which has a consistent and stable demand.

7) Restriction on Imports :
The foreign trade policy of the government may restrict the import of some products. In such
cases, those products. gain attraction from general public and consequently an entrepreneur
should prefer those products that are part of such restricted category.

8) Availability of Raw Materials :

Availability of raw material is a very important factor for selecting a particular product. An
entrepreneur should ensure that supplies required for smooth conduct of business operations are
mostly available in desired quantity around the year. Moreover, the source of procurement of raw
material is also important. Where supplies are to be procured from external sources, the
entrepreneur will have to maintain a sufficient quantity of inventory compared to local sources.

9) Government Incentives and Subsidies :

Government often provide a number of subsidies and incentives for the promotion of certain
businesses. These incentives and subsidies are generally in the form of tax holidays, exemptions
from customs, concessions, etc. An entrepreneur must consider the availability of such
governmental schemes as they greatly support an entrepreneur in setting up a new business.

10) Ancillary Products :

When the product is in the nature of an ancillary product (a product required for manufacturing
another product), then its increases the attraction for the entrepreneur. This is because the
product will have a ready market in the parent industry. For example, an ancillary unit of
Maruti.
11) Location of Business :
Business location is also important for selecting a particular product as certain products are
earmarked for production in special zones like free trade zones, export promotion zones, etc.
Government also provides incentives and tax breaks for such products. Moreover, the location of
big consumer markets near the production centers also increases the attractiveness of certain
products. Such products will also be selected by the entrepreneur because of the locational
advantage.

12) Licensing System :

There are overtime changes in the governmental licensing policies. For some products, it is
mandatory for the entrepreneur to have the required license issued by the concerned authority.
Under particular conditions, capital addition is also monitored. Moreover, the process of
obtaining license is burdensome for certain products. Thus, products which require a lot of
licensing approvals will not be very attractive to entrepreneurs.

13) Government Policy:

The selection of product also has to be done keeping in mind the government policies and their
likely impact. The entrepreneur should choose a product which falls in a sector with
favorable Governmental policies. For example, products which are not socially beneficial like
tobacco and alcohol do not receive government support.

Precautions Regarding Product Selection

The production process should not be very long or time-taking.

2) The employed production process should be smooth and straightforward.

3) There should be adequate and consistent demand for the selected product.

4) The product industry must have potentials for growth and development.

5) The product should be accepted by consumers and a healthy competition should exist for
the same.

Ownership:

Sole Proprietorship
Sole proprietorship is the default structure of a business that hasn’t filed any paperwork to
create a legal entity. It is the simplest form of business ownership, and the structure of choice
for four out of five small business owners with no employees.
 Advantages of a sole proprietorship
Sole proprietorship is a simple ownership type with several advantages, including the
following:
• Simplicity: In most cases, sole proprietors operating under their own names can simply get
to work without filing paperwork with the state. Sole proprietorships may be exempt from
certain licensing and registration requirements such as obtaining a business license to sell
online. This makes sole proprietorship the simplest and least expensive among the different
types of business ownership.
• Control over the business: A sole proprietorship is owned by a single person. There’s no
need to get consensus before making decisions about the business: It’s all yours.
• Pass-through taxation: Profits from a sole proprietorship pass through to the owner’s
personal income, simplifying taxes significantly. As a pass-through entity, a sole
proprietorship qualifies for the 20% qualified business income (QBI) deduction established
under the 2017 Tax Cuts and Jobs Act. Tax software can help you ensure that you’re getting
all of the tax credits and deductions your business qualifies for.
Disadvantages of a sole proprietorship
Sole proprietorships do have their disadvantages compared to other types of ownership.
• Legal liability: A sole proprietorship passes more than income through to its owner. Legally,
the two are inseparable. That means any lawsuits or other claims against the business are
launched personally against the owner. As a sole proprietor, you’re putting your personal
assets on the line every day that you operate your business.
• Financial risk: In addition to legal risks, sole proprietors take on all financial risk of the
business personally. Your home, bank accounts, cars, and other assets can be seized to
satisfy claims by creditors if your business hits a rough patch financially.
• Access to funding: Because of their informal structures, sole proprietorships generally have
a harder time accessing loans and investment capital than other business ownership types.
This can make it difficult to provide competitive benefits such as small business health
insurance.
2. Partnerships
Partnerships, often called general partnerships, are businesses with more than one owner. If
you team up on a business venture without forming a legal business entity through the state,
your business is a partnership by default.
While they don’t require formation paperwork, there may be limitations on naming a
partnership in your state, which may necessitate filing a “doing business as” (DBA) name.
Partnerships are usually founded on formal partnership agreements outlining the ownership
share, rights, and obligations of each partner.
Partnerships are a popular type of company ownership for professional firms.
Advantages of a partnership
Partnerships provide some notable advantages, including:
• Simplicity: Partnership is a relatively simple structure since it doesn’t require formation
paperwork. Depending on the number of partners and the terms of your agreement, they can
also be relatively simple to run.
• Pass-through taxation: Partnerships are pass-through entities, with income passing through
to partners proportionally based on share of ownership. If your partnership is split evenly
down the middle, for example, 50% of the business’s profits would pass through to each
partner’s personal income. Partnerships qualify for the 20% QBI deduction.
• Control over the business: Partnerships allow their owners to participate in the business
directly and allocate profits and control according to their own wishes. New partners can be
brought in relatively easily.
Disadvantages of a partnership
Following are some drawbacks of partnerships:
• Legal liability: Like sole proprietorships, partnerships open the partners up to legal liability
for the firm’s operations. Liability insurance can address these risks, but insurance has limits.
• Financial risk: Partners also take on financial liability for the business, putting their
personal assets at risk in case of financial hardship or bankruptcy.

Limited Liability Company

A Limited Liability Company (LLC) is a mix between partnerships and corporations.
Like Corporations, owners are not personally liable for debts or obligations created by the
company. Like partnerships, the profits and losses pass through to the owner’s taxes, so there is
no double taxation.
While this may seem like the best of both worlds, keep in mind this type of business has various
regulations and requirements in each state. Some states impose special franchise taxes, while
others may only allow LLCs under certain conditions.
Limited Liability Company pros and cons
This business entity offers some of the benefits of a corporation while avoiding some drawbacks.
• Limited liability protection for the owners
• Flexible management structure
• Pass-through taxation
On the other hand, some disadvantages of a Limited Liability Company are
• More expensive to set up than a sole proprietorship or partnership
• It May be subject to more stringent regulations than a sole proprietorship or partnership
• Limited life span (the LLC dissolves when one of the owners dies or leaves the business)

Corporations:
A corporation, sometimes called a C corporation, is a business that is legally separate from
its owners.
The most significant difference between a corporation and a sole proprietorship is that the
owners are not personally liable for the debts or obligations of the corporation. Corporations are
also taxed separately from their owners, often twice (once on profits and again when
shareholders receive dividends).
The owners being separate makes this company much longer-lasting because if the owner leaves
the company (or becomes ill or deceased), the company can carry on, unlike the previous types
of business ownership.
Corporation pros and cons
There are many pros to incorporating your business, including
• Limited liability protection for shareholders
• Easier access to capital
• Increased credibility with customers and suppliers
 However, this business entity has also some disadvantages to consider, including
• More expensive and time-consuming to set up and maintain
• Double taxation of profits (corporate tax followed by dividend tax)
• Increased government regulation and scrutiny

S Corporations
S Corporations are a particular type of corporation created to avoid the double taxation
that corporations face explained above.
These operate like C Corporations, except that profits and losses can be passed directly to the
owner’s personal income taxes, so the owners do not have to pay taxes on gains and dividends.
S Corporations have stricter regulations that you must meet to create one, including stipulations
such as having no more than 100 shareholders or forbidding anyone but a U.S. citizen from being
a shareholder.
S Corporation pros and cons:
There are several key advantages of S Corporations that business owners should be aware of
• S Corporations offer greater flexibility when distributing profits and losses among
shareholders. This can be a significant advantage for businesses with multiple shareholders.
• This business structure is not subject to corporate income tax. This can result in significant tax
savings for the business.
• An S Corporation offers shareholders limited liability protection. This means that
shareholders are not personally liable for the debts and liabilities of the corporation, so the
personal assets are protected.
Feasibility Report Preparation and Evaluative Criteria

1. General Information

The feasibility report should include an analysis of the industry to which the project belongs. It
should deal with the past performance of the industry. The description of the type of industry
should also be given (i.e) the priority of the industry, increase in production, role of the public
sector, allocation of investment funds, choice of technique etc. This should contain information
about the enterprise submitting the feasibility report.

2. Preliminary Analysis of Alternatives

This should contain present data on the gap between demand and supply for the outputs
Which are to be produced, date on the capacity that would be available from projects that are in
production or under implementation at the time the report is prepared.
All opinions are technically feasible should be considered at this preliminary stage. An account
of the foreign exchange requirement should be taken. The profitability of di erent opinions
should also be looked into an account of the foreign exchange requirement should be taken.
3. Project Description
The feasibility report should provide a brief description of the technology chosen for the
project. Information relevant for determining the optimality of the location chosen should also be
included.
To assist on the assessment of the environmental e ects of the project very feasibility report must
present the information on specificpoint (i.e) population, water, land air, e ects raising out of the
project pollution, other environmental disruption etc.

4. Marketing Plan
It should contain the following items/ data on the marketing plan. Demand and prospective supply
in each of the area to be served.
The method and the data used for making estimates of domestic supply and selection of the market
area should be presented.
Estimates of the degree of price sensitivity should be presented. It should contain an analysis of
past trends in prices.

5. Capital Requirement and Cost

The estimates should be reasonably complete and properly estimated information on all items of
costs should be carefully collected and presented.

6. Operating Requirements and Cost

Operating cost are essentially those cost which are included after the commencement of
commercial production.
Information about all items of operating cost should be collected. Operating cost relate to
Cost of raw materials and intermediaries, fuels, utilities, labour, repair and maintenance, selling
and other expenses.

7. Financial Analysis
The purpose of this analysis is to present measures to assess the nancial viability of the project. A
performance balance sheet for the project data should be presented.
Depreciation should be allowed on the basis specifiedby the Bureau of public enterprises. Foreign
exchange requirements should be cleared by the department of economic a airs.
 The feasibility report should take into account income tax rebates for priority industries, incentives
for backward areas, accelerated depreciation etc.
The sensitivity analysis should also be presented. The report must analyse the sensitivity of the
rate on the level and pattern of product prise.

8. Economic Analysis
Social profitability analysis need some adjustments in the data relating to the cost and
return to the enterprises. One important type of adjustment involves a correction in input and cost
to react the true value of foreign exchange, labour and capital.
The enterprise should try to access the impact of its operation on foreign trade. Indirect cost and
benefits should be included. If they cannot be quantified they should be analyzed.

Capital

anything that confers value or benefit to its owners, such as a factory and its machinery,
intellectual property like patents, or the financial assets of a business or an individual.

A company can use this capital to invest in their business, increasing future growth and
development. Common uses of capital in businesses include labour costs and the expansion of
buildings. Investing in these areas can result in increased returns for the business.

Sources of capital include:

• Financial assets that can be liquidated like cash, cash equivalents, and marketable securities.
• Tangible assets such as the machines and facilities used to make a product.
• Human capital; i.e. the people that work to produce goods and services.
• Brand capital; i.e. the perceived value of a brand recognition.

Types of capital

Working capital
1. Working capital—the difference between a company’s assets and liabilities—measures a
company’s ability to produce cash to pay for its short term financial obligations, also known as
liquidity.
Working capital = Current assets – Current liabilities
Positive working capital means the value of a company’s current assets is more than its current
liabilities Negative working capital, on the other hand, means that current liabilities outweigh
current assets. For the company, this could lead to financial issues with creditors, growth, or
production.
 2. Debt capital:
Debt capital is acquired by borrowing from financial institutions, banks, friends and family,
credit cards, federal loan programs, and venture capital, or by issuing bonds. Just like an
individual needs established credit history to borrow, so do businesses.
Debt capital has to be paid off on a regular basis (with interest) but unlike an individual’s debt, it
is seen as more of an essential part of building a business instead of a financial burden.

3. Equity capital
Equity capital is any capital raised through selling shares with a key difference being whether
those shares are sold privately or publicly:
• Private: Shares of stock in a company within a private group of investors.
• Public: Shares of stock in a company that are listed on the stock exchange (think: IPO).
The money an investor pays for shares of stock in a company becomes equity capital for the
business.

4. Trading capital
Trading capital applies exclusively to the financial industry where brokerage companies need
enough capital to support their investment strategies. Trading capital supports the many daily
trades that brokerage companies need to make to generate a profit and the large-scale trades
made by the biggest brokerage firms. Sometimes it is granted to individual traders and
sometimes to the firm as a whole.

Budgeting project profile preparation:

A project budget is the estimated cost of completing a project. It’s an overall view of what
will need to be invested monetarily to complete every phase of a project. However, it’s not
a one-and-done deal. The project budget will evolve as project requirements change. The
project budget also keeps stakeholders informed of what’s needed and when.

Here are some cost categories typically assessed when creating a project budget:

• Labor costs. This includes the hourly and project-based pay for any workers who
are part of the project team.

• Material costs. If the project requires manufacturing items or creating physical

deliverables, you’ll need to add the costs of all associated materials. Even projects
consisting primarily of knowledge work can incur material costs associated with
needed software or IT infrastructure.

• Overhead. This category refers primarily to indirect costs such as those related to
running the company and those that might apply across multiple projects. This can
include things like office space, cloud services, and electricity.
 • Professional services. Any work outsourced to other professionals such as legal
filings or cybersecurity reviews fall under this category.

• Contingency reserves. When creating your project budget, you will first determine
a baseline for the total cost. However, initial budget estimates almost n ever match
final expenditures. Often there are costs that could not have been anticipated ahead
of time. You can budget for the unexpected by allocating funds in a contingency
reserve for the project.

steps to create an accurate project budget:

Creating a project budget should be done with the greatest possible accuracy. Accuracy is
important because the project budget isn’t self-containing. It affects other parts of the
project, such as the project schedule. If the project budget is inaccurate, then your team
might not be able to complete deliverables on time. An accurate project budget also
accounts for expected and unexpected costs, preventing cost overruns.

The following steps serve as a guideline and are applicable to most project budgeting
scenarios.

1. Review cost data from past projects

One of the best places to begin when creating a project budget is to look over previous
projects and historical data. Try to identify similar projects or projects that contain similar
tasks.

Look at what the initial budget estimates were for those projects and the final project
expenditures. Actual final cost data from similar projects is extremely valuable because it
will include expenses that weren’t foreseen. Insights obtained from this data will allow you
to make better budget estimates on all similar future projects. Keep this data handy as you
move through the next steps of budget creation.

If you don’t have access to historical data, or this particular project doesn’t have any similar
predecessors, you may be left starting from scratch. Be sure to keep detailed records of your
calculations and include notes about actual final costs so the project can serve as a reference
for future endeavors once it is complete.

2. Break your project down into smaller increments

By breaking down your project into its component parts, you can better identify the costs
associated with each. Creating a WBS is one approach but there are many others, as well.
Many project managers find that good project management software can help with this
process.
Suppose, for example, the project in question involves the development of a new software
application. In breaking this project down, you’ll need to identify which team members will
be needed, what tools and technology must be provisioned in the development process,
whether any training is required, whether you will need to consult experts or make use of
managed cloud services, what the testing and deployment processes entail, and so on.

For each project increment you identify, make note of work hours required, cost constraints,
task dependencies, and any other relevant details. If applicable, make note of historical data
for similar increments from other projects, as well.

3. Estimate costs associated with each milestone

After breaking down your project into increments and compiling notes about what is
required for each, it’s time to begin estimating costs for every project milestone.

Start by identifying the major project milestones and then aligning each project incr ement
with the milestone it supports. Use historical data to generate cost estimates if you have it.
If you don’t have any historical data, consult project stakeholders or knowledgeable team
members for help determining pricing.

When possible, estimate project costs for both the best and worst case scenarios so you have
a range of values to work with. You may record the average estimate for each milestone, but
knowing the range of possible costs will help you set a contingency budget later on.

4. Estimate overall costs for the project

When breaking a project up into component parts and estimating the cost of each, you may
be overlooking costs associated with the project as a whole. This might include things like
overhead, hiring costs, and so on. Consult with project team members and make an effort to
identify all other project-based expenses and attempt to pin down accurate estimates of
each.

You may find it helpful to use a budget template during this process. Such templates can
easily be found online or may be included in your project management software of choice.

5. Combine your component estimates into a budget total

Once you’ve done the heavy lifting of dissecting your project into its component parts,
estimating the cost of each piece, collating these estimates by milestone, and assessing
whether there are any additional project-wide expenses, you can compile all of your
numbers into a total budget estimate.
Compare your estimate to past projects of similar size and scope. If there are major
discrepancies in your estimate and the final cost of similar past projects, take some time to
try to reconcile the differences.

Because every project is different, how confident you feel about the accuracy of your
estimate may vary. It’s worth making notes about possible sources of error, including
whether you feel certain values might be under or over-estimated and by approximately how
much. This will keep you prepared for budget changes as the project progresses and ensure
that you run a successful project.

6. Leave room for contingencies and unseen risks

Errors in your initial budget estimate can be accounted for by including room for
contingencies and unanticipated expenses. Use your notes about your budget calculations to
inform how much additional funding you should set aside for this project in order to be
relatively confident you will have everything you need.