MODULE-3

BUSINESS PLANNING PROCESS

Advantages of business planning:

 Seeking to develop a broader and deeper view of their market opportunities, today and
tomorrow
 Being more innovative in strategy and structure than their competitors, more
collaborative with partners and more questioning of themselves and their potential
 Taking a much more holistic and long-term approach to their people and
communicating more frequently and transparently to both their internal and external
stakeholders
 Broadening their understanding of risk in their market and from their actions, and
tightening their execution and key support processes to mitigate that risk
 Pursuing and attaining greater speed in making and executing decisions to take
advantage of their changing market

Business Advantages

 identifies needs and wants of consumers

 determines demand for product
 aids in design of products that fulfill consumers needs
 outlines measures for generating the cash for daily operation, to repay debts and to
turn a profit
 identifies competitors and analyzes your product's or firm's competitive advantage
 identifies new product areas
 identifies new and/or potential customers

allows for test to see if strategies are giving the desired results.

MARKETING PLAN:

Meaning:

A marketing plan is a written document that details the necessary actions to achieve
one or more marketing objectives. It can be for a product or service, a brand, or a product
line. Marketing plans cover between one and five years. A marketing plan may be part of an
overall business plan. Solid marketing strategy is the foundation of a well-written marketing
plan. While a marketing plan contains a list of actions, a marketing plan without a sound
strategic foundation is of little use.
Contents of the marketing plan:

A marketing plan for a small business typically includes Small Business Administration
Description of competitors, including the level of demand for the product or service and the
strengths and weaknesses of competitors

 Description of the product or service, including special features

 Marketing budget, including the advertising and promotional plan.

 Description of the business location, including advantages and disadvantages for

marketing.

 Pricing strategy.

 Market Segmentation.

The main contents of a marketing plan are:

 Executive Summary

 Situational Analysis

 Opportunities / Issue Analysis - SWOT Analysis

 Objectives

 Strategy

 Action Program (the operational marketing plan itself for the period under review)

 Financial Forecast

 Controls

Use of marketing plans:

A formal, written marketing plan is essential; in that it provides an unambiguous reference

point for activities throughout the planning period. However, perhaps the most important
benefit of these plans is the planning process itself. This typically offers a unique opportunity,
a forum, for information-rich and productively focused discussions between the various
managers involved. The plan, together with the associated discussions, then provides an
agreed context for their subsequent management activities, even for those not described in the
plan itself.

Features of marketing plan:

 Clear - They should be an unambiguous statement of 'exactly' what is to be done.

 Quantified - The predicted outcome of each activity should be, as far as possible,
quantified, so that its performance can be monitored.
  Focused - The temptation to proliferate activities beyond the numbers which can be
realistically controlled should be avoided. The 80:20 Rule applies in this context too.

 Realistic - They should be achievable.

 Agreed - Those who are to implement them should be committed to them, and agree
that they are achievable. The resulting plans should become a working document
which will guide the campaigns taking place throughout the organization over the
period of the plan. If the marketing plan is to work, every exception to it (throughout
the year) must be questioned; and the lessons learned, to be incorporated in the next
year's planning.

PRODUCTION PLAN/OPERATION PLAN:

If the new venture is a manufacturing operation, a production plan is necessary. This

plan should describe the complete manufacturing process. If some are all of the
manufacturing process is to be subcontracted, the plan should describe the subcontractor,
including location, reasons for selection, costs, and any contracts that have been completed. If
the manufacturing is to be carried out in whole or in part by the entrepreneur; he or she will
need to describe the physical plant layout; the machinery and equipment needed to perform
the manufacturing operations; raw materials and suppliers’ names, addresses, and terms;
costs of manufacturing; and any future capital equipment needs. In a manufacture operation,
the discussion of these items will be important to any potential investor in assessing financial
needs.

ORGANIZATIONAL PLAN:

An Organizational Plan is basically a “to do” list for an organization. It lists out the plan
of work, programs, and organizational growth over a period of time - six months, a year or
five. The tasks involved, who is responsible for them, and when they’ll be done.

 Set priorities for work

 Make sure tasks get done on time

 Focus on one thing at a time

 Share work among staff, board members & volunteers

 Make goals clear to investors

 Get a handle on big projects by breaking them down

 See the big picture of what organization is doing

The organizational plan for the entrepreneur requires some major decisions that could affect
long – term effectiveness and profitability. Decisions are needed on hiring procedures,
training, supervising, compensation, evaluation of performance and so on. An Organizational
Plan Helps To:
Developing the management team

It is important to begin the new venture with a strong management team that is committed to
the goals of the new venture .The management team must be able to work together effectively
toward these ends. Management’s ability and commitment to the new venture are significant
to investors. Investors will usually demand that the management team not attempt to operate
the business as part time venture. It is expected to operate for full time and at a modest salary.
Drawing out large salaries for the management team is unacceptable to an Entrepreneur and
considered to be a lack of psychological commitment to the business.

Legal form of Business

One of the most important decisions the entrepreneur must make in the business plan is the
legal form of business. Basic legal forms are Proprietorship form of business with single
owner; unlimited liability; control over all decisions; receives all profits Partnership form of
business with 2 or more individual with unlimited liability, pooling resources to own a
business. Corporation form of business with separate legal entity, run by stockholders
having limited liability & regulated by statute

Factors of the three forms of Business Formation

Ownership

In the proprietorship, the owner is the individual who starts the business. He or she has full
responsibility for the operations. In a partnership, there may be some general partnership
owners and some limited partnership owners. In the corporation, ownership is reflected by
ownership of shares of stock Other than the S corporation, where the maximum number of
shareholders is 70, there is no limit as to the number of shareholders who may own stock.

Liability

It is one of the most critical reasons for establishing a corporation rather than any other form
of business. The proprietor rather than any form of business. The proprietor and general
partners are liable for all aspects of the business. Since the corporation is a legal entity, which
is taxable and absorbs liability, the owners are liable only for the amount of their investment.
In case of proprietorship or regular partnership, no distinction is made between business
entity and owner (s).Then to satisfy any outstanding debts of the business, creditors may seize
any assets the owners have outside the business or share the amount equally, regardless of
their capital contributions. In limited partnership, the limited partners are liable only for the
amount of their capital contribution.

Costs of starting a business

The more complex the organization, the more expensive it is to start. The least expensive is
the proprietorship, where the only costs incurred may be filing for business or trade name. In
a partnership, in addition to filing a trade name, a partnership agreement is needed. This
agreement requires legal advice and should explicitly convey all the responsibilities, rights
and duties of the parties involved. Limited partnership requires more comprehensive
agreement strictly with statutory requirements, hence cost is higher. The corporation can be
created only by statute. The owners required to 1) register the name and articles of
incorporation 2)Meet the state of statutory requirements .It also incurs filing fees, taxes, and
fees for doing business each state.

Continuity of business

One of the main concerns of anew venture is what happens if one of the entrepreneur(s) dies
or withdraws from the business. Continuity differs significantly for each of the forms of
business. In case of sole proprietorship, owner’s death dissolves the business. So there is no
time limit on how long they may exist. In partnership varies in depending on whether it is a
limited or a general partnership and on the partnership. In general partnership death or
withdrawal of one partner terminates partnership unless partnership agreement stipulates
otherwise agreement i.e., any member of the deceased‘s family can continue or other partners
buy out the deceased partner’s share at a predetermined price based on some appraised value.
In limited partnership death or withdrawal of one partner has no effect on continuity. Limited
partners can withdraw capital six months after notice is provided .In Corporation has the
continuity of all the forms of business. Death or withdrawal of owner(s) will not affect legal
existence of business

Transferability of Interest

There can be mixed feelings as to whether the transfer of interest in a business is desirable. In
some cases the entrepreneur may prefer to evaluate and assess any new owners before giving
them a share of the business. On the other hand, it is also desirable to be able to sell one’s
interest whenever one wishes. In the sole proprietorship, the entrepreneurship has the
complete freedom to sell or transfer any assets of business. In limited partnership, the limited
partner can sell interest without consent of general partners. They have more flexibility. In
general partnership, General Partner can transfer his/her interest only with consent of all other
general partners. The corporation has the most freedom in terms of selling one’s interest in
the business. Shareholders may transfer their shares at any time without consent from the
other shareholders. The disadvantage of the right is that it can affect the ownership control of
a corporation i.e., voting power.

Capital Requirements

The need for capital during the early months of the new venture can become one of the most
critical factors in keeping a new venture alive. The opportunities and ability of the new
venture to raise capital to raise capital will vary, depending on the form of business. For a
proprietorship, any new capital can come through loans or additional personal contributions
by the entrepreneur. In the partnership, Loans or new contributions by partners require a
change in partnership agreement. In the corporation, new capital can be raised in number of
ways. The alternatives are greater than compared to others. New Capital is raised through sale
of stock or bonds or by borrowing in name of Corp.

Management of control

In any new venture, the entrepreneur(s) will want to retain as much control as possible over
the business. Each of the forms of business offers different opportunities and threats as to
control and responsibility for making business decisions. In the proprietorship, the
entrepreneur has the most control and flexibility in making business decision. The partnership
can present problems over control of business decisions if the partnership agreement is not
concise regarding this issue. Usually, the majority rules unless the partnership agreement
states otherwise. It is most important that the partners are friendly toward one another and
that dedicate or sensitive decision areas of the business are spelled out in the partnership
agreement. In limited partnership, only the general partners control the business. In a
Corporation majority stockholder(s) have most control from legal point of view. Day-to-day
control in hands of management who may or may not be major stockholders. However
Control over long term decisions requires a vote of the major stock holders.

Distribution of profits and losses

In proprietorship, proprietor responsible and receives all profits and losses. In partnership, the
distribution of profits and losses depends on partnership agreement and investment by
partners. In case of corporation, shareholders can share in profits by receipt of dividends

Attractive-ness for raising capital

In case of proprietorshipTax andAttributes

partnership firms, raising
of various capitalofdepends
Legal forms on capability of
Business.
partners and success of business depends on capability of proprietor and success of
business .The Corporation is the most attractive form of raising capital. Shares, stocks, bonds
Attributes
are Proprietorship
opportunities for raising capital. Partnership Corporation
Usually a calendar year usually calendar year but Any year can be used at
Taxable Year other day may be used beginning. Any changes in
incorporation
All income appears on Partnership agreement No income is allocated to
owner’s return may have special stockholders
allocation of income.
Distribution Partners pay tax on their
of profits pro rata shares income on
to owners individual return even if
income not immediately
distributed
Organization Not amortizable Amortizable over 60 Amortizable over 60
costs months months
$100 dividend exclusion Dividend exclusion of 80% of more of dividend
Dividends for single return and $200 partnership passes to received may be deducted
received on joint return partner (after 12/31/86)
Taxed at individual level Capital gain to partner Taxed at corporation
Capital gains will be taxed as a capital level. After July 1, 1987
gain to the partner the maximum rate will be
34%.
Carried forward Capital losses can be used Carry back three years and
indefinitely to offset other income. carry over five years as
Capital losses Carried forward shore, term capital loss
indefinitely offsetting only capital
gains
 Initial Commencement of Contribution of property Acquisition of stock for
organization business results in no to a partnership not taxed cash entails no immediate
additional tax for taxes. Transfer if stock
individuals value greater than
contributed property

Amount of risk may be Partnership investment No losses allowed except

Limitations deducted except for real plus share of resources on sale of stock or
on losses estate activities liability if any. At risk liquidation of corporation
deductible by rules may apply except for
owners real estate partnership
Itemized deduction for Cost of partner’s benefit is Cost of employee
medical expense in excess not deductible to business shareholder coverage
Medical of adjusted gross income as an expense. Possible deductible as business
Benefits on individual’s return. No deduction at partner level expense if designed for
deduction for insurance benefits of employee
premium
Limitation and restrictions Same as for corporations Limitations on benefits on
basically same as regular benefits from defined
Retirement corporation plans-lesser of $ 90,000 or
benefits 100% of corporation.
Limitation on contribution
to defined contribution
plans-lesser of $ 30,000 or
25% of compensation
( 15% of aggregate for
profit-sharing plans)

S CORPORATION
The S corporation combines the tax advantages of the partnership and the corporation .It is
designed so that venture income is declared as personal income on a pro rata basis by the
shareholders. In fact, the shareholders benefit from all the income the deductions of the business.
Advantages
 Capital gains or losses from the corporation are treated as personal income or losses by
the shareholders on a prorate basis.So, the corporation is not taxed.
 Shareholders retain limited liability protection of C corporation.
 S corporation is not subject to a minimum tax, as in the C corporation
Disadvantages
 The S corporation may not deduct most fringe benefits for shareholders
 The S corporation is permitted only for one stock.

THE LIMITED LIABILITY COMPANY

Limited Liability Company is a special type of partnership where liability is limited and continuity
options are more flexible. In Case of LLC, the group of people is called as members. No shares of
stock are issued, and each member owns an interest in the business as designated by the articles of
association. Members may transfer their interest only with the unanimious written consent of the
remaining members. The Internal Revenue Service now treats LLCs as partnerships for tax
purposes.
DESIGNING THE ORGANISATION

The design of the initial organization is simple. The organization design helps to identify the major
activities required to operate it effectively. The following five areas are grouped:
 Organization Structure
Defines members jobs and the relationships is depicted in organizational chart.
 Planning, Measurement and Evaluation Schemes
The entrepreneur must spell out how these goals are achieved, how they will be measured
and how they will be evaluated.
 Rewards
Like promotions, bonuses, praise and so on. The entrepreneur should be responsible
 Selection Criteria
Entrepreneur should determine a set of guidelines for selecting individuals.
 Training
It must be specified. It can be formal education or learning skills.

BUILDING THE SUCCESSFUL ORGANISATION

Once legal form of organization is determined, the entrepreneur will need to prepare a job
description and job analysis for building a successful organizational The job analysis will be
serving as a guide in determining hiring procedures, training, performance appraisal, compensation
program, and job description and specification.
Job description specifies the details of the work that is to be performed and any special
conditions or skill involved in performing the job. Job description should contain a job summary,
skills or experience required, a summary of the responsibilities and duties the authority of the
individual and standards of performance.
Job specification outlines the skills and abilities needed to perform the job including prior
experience. Outlining the job specification for a trained employee is easier than for the untrained
people who will be trained on the job. So the entrepreneur should focus on specific qualities that
will be required, such as personality, physical traits, interest, or sensory skill.

ROLE OF A BOARD OF DIRECTORS

 Reviewing operating and capital budgets

 Developing long-term strategic plans for growth and expansion

 Supporting day to day activities

 Resolving conflicts among owners or shareholders

 Ensuring the proper use of assets or

 Developing a network of information sources for the entrepreneurs

BOARD OF ADVISORS
 Loosely tied to the organizations
 Serve the venture in an advisory capacity
 Has no legal status

 Meet less frequently; depending on the important venture decision

 Useful in a family business

FINANCIAL PLAN:

Financial Plan is that part of business plan determines the potential investment commitment
needed for the new venture and indicates whether the business plan is economically feasible.
Bankers and potential investors evaluate financial plan to see whether enough profits will be
generated to make the venture an attractive investment.

Financial Statements

Financial Statements are summary past and current performance data according to logical
and consistent accounting procedure. Its purpose is to convey an understanding of some
financial aspects of a business firm.
It highlights profitability, leverage and liquidity .Financial statements give information
which is used by a variety of users, especially shareholders and creditors (present and
potential) and employers.
If a firm is a new venture, must present the following:

Income Statement

The income statement is a simple and straightforward report on the proposed business's cash-
generating ability. It compares the financial performance of business, when sales are made
and when expenses are incurred. It draws information from the various financial models
developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of
goods. By combining these elements, the income statement illustrates just how much a
company makes or loses during the year by subtracting cost of goods and expenses from
revenue to arrive at a net result--which is either a profit or a loss.

For a business plan, the income statement should be generated on a monthly basis during the
first year, quarterly for the second, and annually for each year thereafter. It's formed by
listing financial projections in the following manner:

1. Income. Includes all the income generated by the business and its sources.
 2. Cost of goods. Includes all the costs related to the sale of products in inventory.
3. Gross profit margin. The difference between revenue and cost of goods. Gross profit
margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP
margin is always stated as a percentage of revenue.
4. Operating expenses. Includes all overhead and labor expenses associated with the
operations of the business.
5. Total expenses. The sum of all overhead and labor expenses required to operate the
business.
6. Net profit. The difference between gross profit margin and total expenses, the net
income depicts the business's debt and capital capabilities.
7. Depreciation. Reflects the decrease in value of capital assets used to generate income.
Also used as the basis for a tax deduction and an indicator of the flow of money into
new capital.
8. Net profit before interest. The difference between net profit and depreciation.
9. Interest. Includes all interest derived from debts, both short-term and long-term.
Interest is determined by the amount of investment within the company.
10. Net profit before taxes. The difference between net profit before interest and interest.
11. Taxes. Includes all taxes on the business.
12. Profit after taxes. The difference between net profit before taxes and the taxes
accrued. Profit after taxes is the bottom line for any company.

Following the income statement is a short note analyzing the statement. The analysis
statement should be very short, emphasizing key points within the income statement.

Cash Flow Statement

The cash-flow statement is one of the most critical information tools for business, showing
how much cash will be needed to meet obligations, when it is going to be required, and from
where it will come. It shows a schedule of the money coming into the business and expenses
that need to be paid. The result is the profit or loss at the end of the month or year. In a cash-
flow statement, both profits and losses are carried over to the next column to show the
cumulative amount. It is noted that if business run a loss on cash-flow statement, it is a strong
indicator that additional cash is required in order to meet expenses in business.

Like the income statement, the cash-flow statement takes advantage of previous financial
tables developed during the course of the business plan. The cash-flow statement begins with
cash on hand and the revenue sources. The next item it lists is expenses, including those
accumulated during the manufacture of a product. The capital requirements are then logged
as a negative after expenses. The cash-flow statement ends with the net cash flow.
The cash-flow statement should be prepared on a monthly basis during the first year, on a
quarterly basis during the second year, and on an annual basis thereafter. Items that need to
be included in the cash-flow statement and the order in which they should appear are as
follows:

1. Cash sales. Income derived from sales paid for by cash.

2. Receivables. Income derived from the collection of receivables.
3. Other income. Income derived from investments, interest on loans that have been
extended, and the liquidation of any assets.
4. Total income. The sum of total cash, cash sales, receivables, and other income.
5. Material/merchandise. The raw material used in the manufacture of a product (for
manufacturing operations only), the cash outlay for merchandise inventory (for
merchandisers such as wholesalers and retailers), or the supplies used in the
performance of a service.
6. Production labor. The labor required to manufacture a product (for manufacturing
operations only) or to perform a service.
7. Overhead. All fixed and variable expenses required for the production of the product
and the operations of the business.
8. Marketing/sales. All salaries, commissions, and other direct costs associated with the
marketing and sales departments.
9. R&D. All the labor expenses required to support the research and development
operations of the business.
10. G&A. All the labor expenses required to support the administrative functions of the
business.
11. Taxes. All taxes, except payroll, paid to the appropriate government institutions.
12. Capital. The capital required to obtain any equipment elements that are needed for the
generation of income.
13. Loan payment. The total of all payments made to reduce any long-term debts.
14. Total expenses. The sum of material, direct labor, overhead expenses, marketing,
sales, G&A, taxes, capital and loan payments.
15. Cash flow. The difference between total income and total expenses. This amount is
carried over to the next period as beginning cash.
16. Cumulative cash flow. The difference between current cash flow and cash flow from
the previous period.

As with the income statement, it is a need to analyze the cash-flow statement in a short
summary in the business plan. Once again, the analysis statement doesn't have to be long and
should cover only key points derived from the cash-flow statement.

The Balance Sheet

The last financial statement to be developed is the balance sheet. Like the income and cash-
flow statements, the balance sheet uses information from all of the financial models
developed in earlier sections of the business plan; however, unlike the previous statements,
the balance sheet is generated solely on an annual basis for the business plan and is, more or
less, a summary of all the preceding financial information broken down into three areas:

1. Assets
2. Liabilities
3. Equity

To obtain financing for a new business, an entrepreneur may need to provide a projection of
the balance sheet over the period of time the business plan covers. More importantly, it is a
need to include a personal financial statement or balance sheet instead of one that describes
the business. A personal balance sheet is generated in the same manner as one for a business.

As mentioned, the balance sheet is divided into three sections.

The top portion of the balance sheet lists are assets.

Assets are classified as current assets and long-term or fixed assets. Current assets are assets
that will be converted to cash or will be used by the business in a year or less.

Current assets include:

 Cash. The cash on hand at the time books are closed at the end of the fiscal year.
 Accounts receivable. The income derived from credit accounts. For the balance sheet,
it's the total amount of income to be received that is logged into the books at the close
of the fiscal year.
 Inventory. This is derived from the cost of goods table. It's the inventory of material
used to manufacture a product not yet sold.
 Total current assets. The sum of cash, accounts receivable, inventory, and supplies.

Long-term or fixed assets.

 Capital and plant. The book value of all capital equipment and property (if firm own
the land and building), less depreciation.
 Investment. All investments by the company that cannot be converted to cash in less
than one year. For the most part, companies just starting out have not accumulated
long-term investments.
 Miscellaneous assets. All other long-term assets that are not "capital and plant" or
"investments."
 Total long-term assets. The sum of capital and plant, investments, and miscellaneous
assets.
 Total assets. The sum of total current assets and total long-term assets.

After the assets are listed, account for the liabilities follows:
Current liabilities are as follows:

 Accounts payable. All expenses derived from purchasing items from regular creditors
on an open account, which are due and payable.
 Accrued liabilities. All expenses incurred by the business which are required for
operation but have not been paid at the time the books are closed. These expenses are
usually the company's overhead and salaries.
 Taxes. These are taxes that are still due and payable at the time the books are closed.
 Total current liabilities. The sum of accounts payable, accrued liabilities, and taxes.

Long-term liabilities include:

 Bonds payable. The total of all bonds at the end of the year that is due and payable
over a period exceeding one year.
 Mortgage payable. Loans taken out for the purchase of real property that are repaid
over a long-term period. The mortgage payable is that amount still due at the close of
books for the year.
 Notes payable. The amount still owed on any long-term debts that will not be repaid
during the current fiscal year.
 Total long-term liabilities. The sum of bonds payable, mortgage payable, and notes
payable.
 Total liabilities. The sum of total current and long-term liabilities.

Once the liabilities have been listed, the final portion of the balance sheet-owner's equity-
needs to be calculated. The amount attributed to owner's equity is the difference between
total assets and total liabilities. The amount of equity the owner has in the business is an
important yardstick used by investors when evaluating the company. Many times it
determines the amount of capital they feel they can safely invest in the business.

BREAK EVEN ANALYSIS

Many entrepreneurs make the mistake of bringing a product or service to the market without
fully understanding the total costs involved and the prices they can charge. As a result, they
discover they can't sell enough of the product or service to make a profit.One of the most
important tools that can be used to make better business decisions is the break-even analysis;
it enables to determine with great accuracy whether a idea is a profitable one or not. A break-
even analysis is a simple way to determine how much of the product must be sold to generate
a specific level of profitability. Keep the following in mind:

 Each business has certain fixed costs that must be paid every month, whether or not
any sales take place.
 Each product or service has variable costs that are incurred when the product is
produced and sold.
 There are semi-variable costs that go up or down depending on the level of business
activity.
After all costs attributable to bringing that product to market are deducted, each product or
service yields a certain amount of profit. This profit contribution can then be divided into the
"fixed costs" to determine how many units must be sold to break even.

Here's a simple example of the break-even model:

The total costs of operating the business each month are $10,000. Each product the company
produces can be sold for $1,000. Each product costs an average of $800 per unit to produce,
sell and deliver. The profit contribution per unit is therefore $200 each. The amount $200 is
divided into $10,000 to determine the break-even point. Next, $10,000 divided by $200
equals 50 units. The company must therefore sell 50 units per month to break even, or
approximately two units per business day. Only after the company has sold 50 units in one
month does it begin to earn a profit of $200 per unit.

FINAL PROJECT REPORT WITH FEASIBILITY STUDY:

PROJECT REPORT
A project report incorporating relevant data in respect of a project serves as a guide to
management and records merit and demerits in allocating resources to production of specific
goods or services. A project report is prepared for analyzing the extent of opportunities in the
contemplated project.
A project report is prepared by an expert after detailed study & analysis of the
various aspect of the project. It gives a complete analysis of the inputs and outputs of the
project. It enables the entrepreneur to understand, at the initial stage, whether the project is
sound on technical, commercial, financial and economic parameters.

PARTIES INTERESTED IN PROJECT REPORT

Financial institutions & commercial bankers are the interested parties in the project report
which is prepared for direct submission to financial corporations, banks for getting loans.

PROJECT REPORT INCLUDES INFORMATION ON FOLLOWING ASPECTS

ECONOMIC ASPECTS: The project report should be able to present economic justification
for investment. It should present analysis of the market for the product to be manufactured.

TECHNICAL ASPECTS: The appropriate report should give details about the technology
needed, equipments and machinery required and the sources of availability.

FINANCIAL ASPECTS: The report should indicate the total investment required including
sources of finance and the entrepreneur’s contribution.

PRODUCTION ASPECTS: It should contain a description of the product selected for

manufacture and the reasons for such selection.

MANAGERIAL ASPECTS: The report should contain qualifications and experience of the
persons to be put on the management of the job.

IMPORTANCE OF A PROJECT REPORT

Project report is of a great importance it highlights the practicability of a project in terms of
different factors like economy, finance, technology and social desirability. It is need by the
entrepreneur for carrying out expansion or starting a new production line. An important
aspect of report lies in determining the profitability of the project and minimizing risks in the
execution of the project.

FEASIBILITY REPORT

A feasibility report or a project report of a new enterprise or of an a expansion provides, in

general, primary economic information, financial data and technical details which serve a
finite number of discrete economic process or cost structures of the industry concerned.
The feasibility report should contain the following details:
1. Promoters of the project.
2. Products of the project.
3. The level of output.
4. The raw material used and sources of supply.
5. The technical production method selected & the location of the plant.
6. The total cost of the project.
7. The proposed method of financing and legal structure of the future enterprise.
8. The unit cost of the manufacture compared to those at FOB or CIF prices.
9. The size of the market.
10. The effects of the project on the economy, public finances and the labour market.
11. Initial costs and costs of conversion.
12. Investment cost.
13. Operation cost.
14. General information.

CONTENTS OF A PROJECT REPORT

 Objective and scope of the report.

 Product characteristics.
 Market position and trends.
 Requirement of raw materials.( prices, sources & properties of RM)
 Manufacturing details. (Selection of process, production schedule & production
technique.)
 Plant and machinery ( equipment & machinery, instruments)
 Land and building( requirement of land area, building, construction schedule)
 Financial implications ( fixed and working capital investment)
 Marketing channels ( trading practices and marketing strategy)
 Personnel ( requirements of staff, labour& expenses on wage payments)

PREPARING A MODEL PROJECT REPORT FOR STARTING A NEW

VENTURE

I. Particulars of the Enterprise

i) Name of the Product(s) ___________Product Code______________________
ii) Name of the Unit and Address ____________________________________
______________________________________________________________
iii) Telephone No. (if any), Office__________________ Factory______________
iv) Name(s) and addresses of the
Promoters in Block Letters _________________________________________
v) Constitution of the Firm Proprietary/Partnership
Pvt. Ltd. Coop. Society____________________________________________
vi) Qualification both Academic/Professional of the Entrepreneur(s)
Name __________________________________________________________
Qualification ____________________________________________________
vii) Production/Working experience of the Entrepreneur(s)
Name of the Organization _________________________________________
Items Manufactured ______________________________________________
Period _________________________________________________________
viii) Family background (Please give details of close relations who are in
Industry/Business).
Name & Address of the units & Items
manufactured ___________________________________________________
ix) Location/Proposed locations _______________________________________
x) Name & Address of the bank with
which you want to deal with _______________________________________

II. Economic Viability & Marketability

i) Introduction
(Basic & Presumptions)
ii) Scope ____________________
iii) Marketability (Please give proposed selling arrangements & list of places
where the products will be mainly sold & likely buyers).

III. Technical Feasibility

i) Manufacturing process (Please give process flow chart).
ii) Please indicate the process which will get done from outside.
iii) Specifications (whether proposed to adopt ISI specifications or some other).
iv) Components to be purchased from outside.
Name of the Components No. Specifications

v) Installed Capacity Qty Value

vi) Proposed capacity to be utilized Qty Value
vii) Motive power requirements (HP)

IV. Financial Projections

A. Fixed Capital
(i) a. Land, Area and Value
b. Building area, value owned/rented or leased
c. Please mention if some arrangements have been made in this respect.
(Please append the proposed layout plan)
(ii) Machinery & Equipment
 S. Description Indigenous/ Qty Price Sale Int. Total Name &
No. & Imported Tax address
Specification of the
Suppliers

1 2 3 4 5 6 7 8 9

(iii) Testing equipment (with details as above)

(iv) Electrification & Installation Charges and Maximum 10% of cost of machinery
& Equipment.
(v) Cost of Tools/Jigs./Fixtures/Mould/Working tables etc.
(vi) Cost of Office Equipments.
(vii) Pre-operative expenses if any (cost of project preparation, technical know-how
expense, royalties etc.)
(viii) Total non-recurring expenditure

B. Working Capital (per month)

i)
Staff & Labour Designation No. Salary Total

Technical
Office
Sales
Others
Salaries per month
Perquisites (10 to 20% of
Salaries)
Total Salary

ii) Raw materials (per month on single shift basis including packaging materials).

Name with Indigenous/ Qty. Rate Total

Specifications imported
iii) Other items of expenditure
(per month on single shift basis)
a) Utility
Power _________ KWH unit@________ per unit cost Rs._________ Fuel
(steam/furnace oil ________________________________ tones @Rs.____________
Per to water _______________________ kilolitres _______________________ per
Kl.____________________________________________________
Total Cost of Utilities______________________________________
b) Advertisement & Publicity
c) Transport
d) Commission to Distributors/agents
e) Consumable stores
f) Rent (if any where cost of land building is not given)
g) Taxes (other than Income tax)
h) Insurance
i) Stationery
j) Postage & Telephone etc.
k) Repair & Maintenance
l) Sales Expenses
m) Other miscellaneous (not give above
iv) Total recurring expenditure (per month) (i+ii+iii)
Working capital for two/three months (depending upon need or worked out on the
bank system of assessment of working capital needs)
2/3 x (expenditure)
B. Total Investments
I) Fixed Capital
II) Working Capital
Total _________________
______________________

C. Cost of Production (per Year)

i) Total recurring expenditure (per year)

ii) Depreciation on building @5%
iii) Depreciation on machinery & equipments @10%
iv) Depreciation on fixtures/Jigs./Tools/Moulds @25%
v) Depreciation on office equipments @20%
vi) Depreciation on furnaces @25%
vii) Interest on total investment @__________________
(Actual to be charged by Financial Institutions or Banks)

D. Total Cost of Production

E. Turnover per Year

Sales Qty Rate Total

F. Net Profit Per Year

(before Taxes)

G. Financial Assessments
(i)Net profit Ratio: Profit (Per Year) x 100
Sales (Per Year)
(ii) Rate of Return
(iii) Break Even Point (BEP)
Total Fixed Cost (FC) Per Year
(a) Depreciation
(b) Rent
(c) Interest on total Investment
(d) 40% of Salary & wages
(e) 40% of overheads
(f) Insurance
V. Name & Addresses of Suppliers