Chapter 2

Entrepreneurial
Planning
 Activities which human beings undertake are known as
Human Activities. They pursue different occupations to earn
a livelihood and to get some psychological satisfactions.
 Human activities can be classified into 2 categories:
Economic Activities and Non-economic Activities.
 Activities undertaken to earn monetary gains are called
economic i.e. activities primarily concerned with:
Production, Distribution and Consumption of goods and
services. Activities which are inspired mainly by economic
consideration can be classified in three broad categories:
1) Manufacturing
2) Service
3) Trading
 Activities done out of love, care, affection, self-satisfaction,
emotions, sympathy, patriotism etc. but not for money, are
known as non-economic.
Forms of Business Organization
From the point of view of ownership and
management, business enterprises may be broadly
classified under three categories.
 Private sector enterprises - The enterprises which
are owned, controlled, and managed by private
individuals, with the main objective of earning profit
comes under this category.
 Public sector enterprises - When business
enterprises are owned, controlled and operated by
public authorities, with welfare as primary and profit
as secondary goals, they are called as public sector
enterprises.
 Joint sector - Joint sector is a form of partnership
between the private sector and the government.
Forms of Private Sector
Enterprise
Sole Proprietorship
One of the oldest, simplest and most commonly used forms of business
organization which is owned financed, controlled and managed by only one
person is called as sole proprietorship.
Characteristics
1. Individual Ownership – owned by an individual
2. Individual management and control – Full control lies with the owner
3. Individual financing - All investment is made by the proprietor
4. No separate legal entity - the proprietor and proprietorship are one and the
same business and owner exists together
5. Unlimited liability - The proprietor is liable/responsible for all losses arising
from business.
6. Sole beneficiary - The sole proprietor alone is entitled to all the profits and
losses of business.
7. Easy formation and closure - Sole proprietorship is subjected to minimum
legal formalities and regulations both at the time of commencing and/or
closing.
8. Limited area of operation - This form of business generally has a limited area
of operation due to: limited finance availability & limited managerial abilities
Partnership
A partnership is an association of two or more persons to carry on, as co-owners, a business and to share
its profits and losses. Thus, two or more persons may form a partnership by making a written or oral
agreement to carry a business jointly and share its proceeds.
Characteristics
1. Formation – the partnership firm of business is governed by the Indian Partnership Act,1932. A
written document is prepared known as Partnership Deed.
2. Two or more persons - There must be at least 2 persons and maximum 50 persons to enter into
contract to form partnership.
3. Profit sharing - The objective of the business is to make profits and distribute the same amongst
partners.
4. Unlimited liability - the liability of the partners of a firm is unlimited. Their personal properties can
be disposed off to pay the debts of the firm if required.
5. Mutual Agency - The business of partnership can be carried on by all the partners or any one of them
acting for all. Thus, every partner is principal as well as agent of other partners and of the firm.
6. Utmost good faith - Every partner is supposed to act honestly and give proper accounts to other
partners. Thus, mutual faith and confidence in one another is the main strength of partnership.
7. Restriction on transfer of shares - No partner can sell or transfer his share to anybody else
without the consent of the other partners. By giving a notice for dissolution of the firm, a partner can
show intention to discontinue as partner.
8. Continuity - A partnership continues up to the time that all partners desire to continue it. Legally, a
firm dissolves on the retirement, death, bankruptcy lunacy, or disability of a partner if not otherwise
provided for in the partnership deed.
Joint Stock Company
A company means a voluntary association of a person formed for some common object with capital divisible
into units of equal value called 'shares' and with limited liability. Company is a creation of law that is the birth
of this artificial human being is by law and it can be put to death by law only.
Characteristics
1. Voluntary association - A single person cannot constitute a company. At least two persons, voluntarily,
must join hands to form a private company, while a minimum of seven persons are required for a public
company. Max members in Private is 200 and Public Company is unlimited.
2. Artificial person - A company is created by law. Though, it has no body and no conscience, it still exists as a
person, having a distinct personality of its own. Because like a human being it can buy, sell and own property,
sue others, be sued by others, its called as an artificial person.
3. Separate legal entity - A company has an independent status, different from its members. This implies that
a company cannot be held liable for the actions of its members and vice-versa. Company has a distinct entity
separate from its members.
4. Common seal - Being an artificial person, company cannot sign the documents. Hence, it uses a common
seal on which its name is engraved.
5. Limited liability - The liability of the shareholders of a company is normally limited to the amount of shares
held or guarantee given by them.
6. Transferability of shares – The shares are freely transferable. The private companies do impose some
restrictions on the transfer of shares.
7. Limited liability - The liability of the shareholders of a company is normally limited to the amount of shares
held or guarantee given by them.
8. Winding up - The mode of incorporation and termination (winding up) is both as per the Companies Act
only. It's born out of law and can be liquidated only by law.
 Private Vs Public Company
Private company
A private company:
 1) has a minimum of two and a maximum of 200 members excluding its past
and present employees.
 2) restricts the right of its members to transfer shares.
 3) prohibits an invitation to the public to subscribe for any shares or
debentures of the company, or accept any deposits from persons other than its
directors, members or relatives.
 4) has a minimum paid up capital of one lakh rupees (subject to change)
 5) uses the word 'Pvt. Ltd.' at the end of its name.
Public company
Under Section 3(i) (ii) of the Companies Act, a public company is a company which
is not a private company. By implication, a public company:
 1) has minimum seven people to commence with no upper limit to membership
 2) does not restrict any transfer of shares
 3) invites public to subscribe for its shares, debentures and public deposits.
 4) has a minimum paid up capital of five lakh rupees.
 5) uses the word 'Ltd.' at the end of its name.
 Why private company is more desirable?
A substantial number of entrepreneurs prefer to form a private company
because of the following important privileges:
➢ Only two members are required to form a private company.
➢ Only two directors are required to constitute the quorum to validate the
proceedings of the meetings.
➢ Such company can file a statement in lieu of prospectus with the Registrar of
Companies.
➢ It can commence its business immediately after incorporation.
➢ Holding of a statutory meeting or filing of a statutory report is required by a
private company.
➢ A non-member cannot inspect the copies of the profit and loss A/c filed with
the Registrar.
➢ Limit on payment of maximum managerial remuneration does not apply to a
private company.
➢ Restrictions on appointment and reappointment of managing director do not
apply.
➢ Maintaining of index of members is not required by a private company.
➢ Directors of the private company need not have qualification shares.
 BUSINESS PLAN
"WHAT TO DO? HOW TO DO? WHO IS TO DO?" IS BASIC TO ANY
ACTIVITY.

 The business plan is a comprehensively written down document

prepared by the entrepreneur describing formally all the relevant
external and internal elements involved in starting a new venture.

 A business plan gives adequate clarity to the entrepreneur, investor(s)

and the government of:
What an entrepreneur is doing
Why he/she is doing it
How he/she will do that

It's well said that "writing a good business plan can't guarantee success, but
it can go a long way toward reducing the odds of failure."
Formats of a business plan:
Elevator pitch: It is a three minute summary of the business plan's
executive summary. This is often used as a teaser to awaken the
interest of potential funders, customers, or strategic partners.

A pitch deck with oral narrative : A hopeful, entertaining slide show and
oral narrative that is meant to trigger discussion and interest potential
investors in reading the written presentation, i.e. the executive
summary and a few key graphs showing financial trends and key
decision making benchmark.

A written presentation for external stakeholders: A detailed, well

written, and pleasingly formatted plan targeted at external
stakeholders.

An internal operational plan: A detailed plan describing planning details

that are needed by management but may not be of interest to external
stakeholders.
Importance of the business plan
The business plan –
a) helps in determining the viability of the venture in a designated market
b) helps in satisfying the concerns, queries, and issues of each group of people
interested in the venture.
c) provides room for self-assessment and self-evaluation, requiring entrepreneur to
think through various scenarios and plan ways to avoid obstacles.
d) though not desirable, at times, business plan helps to realize the obstacles which
cannot be avoided or overcome, suggesting to terminate the venture while still on
paper without investing further time and money.
e) as the investors/lenders focus on the four Cs of credit : character, cash flow,
collateral and equity contribution, it is the business plan which reflects the
entrepreneur's credit history, the ability to meet debt and interest payments, and
the amount of personal equity invested thus serving as an important tool in funds
procurement.
f) helps in providing guidance to the entrepreneur in organizing his/her planning
activities as such:
i. identifying the resources required
ii. enabling obtaining of licenses if required etc.
iii. working out with legal requirements as desired by the government.
Components of Business Plan
Organisational
Plan

Human Operational
Resource Plan and Production
Plan

Marketing Financial
Plan Plan
 Organisational Plan
 Organisational plan is that part of the business plan that describes the
proposed venture's form of ownership.
 This plan gives complete idea about the set up of the organisation.
 It is important to be able to categorize the form of business first and
then to carefully choose a legal structure for it.
 Elements:
1. Forms of ownership – defines the choice of suitable form of business
operation
2. Identification of business associates – provides detailed information
about the partners/members
3. Administrative structure – different levels – top level, middle level and
lower level; organisational structure i.e. operational plan – divisional
structure and functional structure
4. Identification of management team – having information about the
management team; their vision and mission for organisation.
 Production Plan
 Production, the most important activity of an enterprise, because it is
here that transformation of raw material into finished product takes
place with the help of energy, capital, manpower and machinery.

 The objective of the production plan is to plan the work in a manner that
each step to be taken in the right place, right degree, right time and more
efficiently.

 A production plan helps to plan the work in such a manner that one
can clearly form an idea about:
a) Production schedule and/or budget
b) Machinery, equipment requirement
c) Manufacturing method and process involved
d) Plant layout
e) Time, motion and work study
f) Manpower requirement
g) Inventory requirement
Operational plan
 The operations plan is the soul of business plan.
 Where the production plan aims at "plan your work", there operations
plan ensures "work your plan". It is actually a blue print prepared right in
advance of actual operations.
Elements of operational plan:
 Routing - determining exact route or path a product/ service
transformed into finished product
 Scheduling - it’s the determination of the time that should be required
to perform each operation.
 Dispatching - The process of initiating production in accordance with
pre-conceived production plan is said to be dispatching.
 Follow-up - Follow-up or expediting function relates to evaluation and
appraisal of work performed.
 Inspection - Inspection is the art of comparing materials, product or
performance with established standards.
 Shipping - This section goes beyond the manufacturing process and
describes the flow of goods / services from production to the
consumers.
 Financial plan
 Financial plan helps to know whether business plan is
viable or not. It helps to know whether business will
attract investors or not. Timely availability of funds in
right volume is key to entrepreneurial success, the
entrepreneur should develop a sound financial plan
Components of financial plan
 Proforma investment decisions
 Proforma financing decisions
 Proforma income statements
 Proforma cash flow
 Proforma balance sheet
 Break-even analysis
 Economic and social variables
 Manpower planning
 Every organisation comes into existence when a
number of persons join hands. All these people work
to achieve the organizational goals set by the
entrepreneur. Human resource is of paramount
importance for the success of any organisation.
 Manpower planning thus helps to assess:
1) What kind of people are required?
- Skill, qualification, educational background, etc
2) How many people are required?
- Workload analysis, workforce analysis and comparison
3) How will they be selected?
- Recruitment, selection, training
 Marketing plan
The marketing plan represents a significant element in the business plan
for a new venture as it effectively establishes how the entrepreneur will
complete and operate in the market place by providing answers to
three basic questions:
Where have we been? Where do we want to go? How do we get
there?

 Steps in preparing the marketing plan

1) Business situation analysis
2) Identify the target market
3) Conduct SWOT analysis
4) Establish goals
5) Define marketing strategy –
The marketing strategy and action plan comprise of decisions
pertaining to the following 4 P’s: a) Product b) Price c) Promotion d)
Place
6) Implementation and monitoring of the plan