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BUSINESS PLAN

Definition
Business Plan is defined as a written
summary of an entrepreneurs
proposed venture consisting of its
operational and financial details, its
marketing opportunities and strategy
and its skills and abilities.

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The Purpose of a
Business Plan
To prepare a road map for building a successful business.
2. Helps to know the direction the company is taking.
3. It is a written proof that the entrepreneur has performed
the necessary research.
4. It serves as an insurance against launching a business
destined to fail.
5. It is written expression of a entrepreneurial vision.
6. Serves s a communication to the top management team.
1.

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Basic parameters of a
Business Plan
I.
1.
2.
3.
4.
5.

Factors for successful business:


Market scope of the product.
Scope of customers.
Competitors.
Promotional strategy.
Economic feasibility
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Basic Parameters for a


business plan
6. Workmanship.
7. Managerial control.
8. Future prospects.
9. Short term future planning.
10. Need for revision/modification/innovation
11. Financial help needed.
12 Nature of the business.
13. Market potential.

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Basic Parameters of a
Business Plan
II. Timing of the decisions undertaken:
1. Securing the business loan.
2. Developing locations.
3. Get business running.
4. Is success tied to a major business trend,
if so the time frame.

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Processes required to accomplish timely


completion of a business plan

1.
2.
3.
4.
5.
6.

Activity identification
Activity sequencing.
Activity resource estimating.
Activity duration estimation.
Schedule development.
Schedule control.
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Basic Parameters of a
Business Plan
III. Is the business seasonal in nature. When should
the production/service have its peak season.
IV. How soon should the product/service be made
available to stay ahead of competition
V. When to start making profit to meet the profit
projection.
VI. NPV calculation PV=FV/(1+r)n
where FV=future value, n=no. of periods in the
future that the cash flow is paid, r=approp. Int.
rate

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CAPITAL MANAGEMENT
An outline of the companys financial statements. Lenders
and investors have to use this for evaluation.
Running business owner should get the statement audited
and submit for the past three years.
New business
- Monthly projected financial statements
for the operations. Should reflect the future
uncertainty conditions. Fudging the figures should be
avoided as the investors can compare with industry
standards and find out the
unrealistic forecasts.

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What Lenders & Investors


wish to know
1.
2.
3.
4.
5.
6.
7.

Forecasts for sales.


Accounts payable
Inventory.
Operating expenses.
Accounts receivable.
Collections.
Taxes.

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CAPITAL MANAGEMENT
Sources of funds:

Internal sources:
Owners own capital or loans generated
from directors/partners/personal loans
taken by the entrepreneur on his
personal assets like PF, LIC, Building.
Scope for raising finance from internal
sources is highly limited.

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CAPITAL MANAGEMENT
Sources of finance:
II. External sources:
1. Term loans from financial institutions.
2. Hire purchase or leasing options.
3. Credit facilities.
4. Overdraft facilities.
5. Borrowing from banks.
6. Loans from moneylenders.
7. subsidies from the government.

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CAPITAL MANAGEMNT
Term loans as a source of finance:
These loans are taken for adefinite
period and are classified as
(a) long term loans (b) short term loans.

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CAPITAL MANAGEMENT
Sources of Long Term Loans:
Shares, Debentures, financial institutions,
commercial banks, public deposits, profit
retention.
Sources of short term loans:
Commercial banks, public deposits, trade credit,
discounting of bills, bank overdraft, advances
from customers, factoring.

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CAPITAL STRUCTURE
Capital Structure is the composition
of funds from Internal and external
sources. It is also defined as the
ratio between debt and equity
capital.

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CAPITAL STRUCTURE
Factors influencing capital structure:
1. Nature of the business.
2. Size of the business.
3. Trading on equity (borrowing funds to increase

capital investment with a hope that the business will be able to


make returns in excess of the interest charges)

4. Cash inflow and outflow.


5. Purpose of financing.
6. Future growth planning.

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FINANCIAL CONTROL
1. Knowledge of Financial reports:
An entrepreneur should know how to
read his financial reports even if he
is not preparing one. Understanding
the companys numbers should give a
realistic judgment of the business.

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FINANCIAL CONTROL
2. Read the financial statement
regularly, Sales and sales receipts
should be tracked on a daily/weekly
basis.
3. Set policies and stick to them:
Inadequate billing and collection
procedures will ruin the business.

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FINANCIAL CONTROL
4. Prefer the cash basis of accounting rather
than the accrual basis.
Cash basis (if order is executed in december
and money is recd in Feb10, income is
entered only in feb10)
Accrual basis ( if billed in Dec09 it is
entered as income in Dec09 itself)

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FINANCIAL CONTROL
5. Prepare the three most important
financial forms for a business;
a) Income Statement
b) Cash Flow Projection.
c) Balance sheet.

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FINANCIAL CONTROL
JAN

FEB

MAR

Gross sales
Less: Commn.
Less: returns
Net Sales
Cost of goods
sold
Gross Profit
Less: Salaries,
Rent,
Maintenance
Net Income

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