Module – 5

Business Planning
Module-5: Business planning
 Components of business plan, sales plan, people plan and
financial plan
 Preparing a business plan
 Financial planning:
 Types of costs
 COGS ( Cost of Goods Sold)
 Break even
 Preparing the financial plan using financial template & learning
to interpret it
 Components of a business plan
A business plan typically consists of the following components:
1. Executive Summary:- Brief overview of the
business Mission statement
Products/services
Goals and objectives
2. Company Description:- Business structure (sole proprietorship, partnership,
corporation) Ownership and management team
Location and facilities
History and milestones
3. Market Analysis:- Industry overview
Target market and customer
segments Market size and growth
potential Competitive analysis
Market trends and outlook
4. Products or Services:- Description of products or services offered
Features and benefits
Life cycle stage (development, introduction, growth, maturity)
Intellectual property and proprietary assets
5. Marketing and Sales Strategy:- Marketing mix (4 Ps: product, price,
promotion, place)
Sales channels and processes
Revenue projections and pricing strategy
Sales and marketing team.
6. Operations Plan:- Production process and
capacity Supply chain and logistics
Inventory management and control
Facilities and equipment
7. Management and Organization:- Organizational structure & personnel plan
Key team members and their roles
Human resources plan and staffing needs
Management systems and processes
8. Financial Plan:- Financial statements (income statement, balance sheet,
CFS) Revenue projections and growth rate
Break-even analysis and cash flow projections
Funding requirements and potential sources
9. Funding Request:- Amount of funding required
Use of funds (e.g., capital expenditures, working capital)
Repayment plan and exit strategy

10. Appendices:- Supporting documents (resumes, references, licenses)-

Additional information (market research, technical data)
Note: The components may vary depending on the specific needs and goals of the business.
Components of sales plan
A sales plan in a business plan typically includes the following
components:
1. Sales Objectives: Specific, measurable, achievable, relevant, and
time- bound (SMART) goals for sales revenue, volume, or market
share.
2. Target Market: Identification of the ideal customer segments,
including demographics, needs, and pain points.
3. Unique Selling Proposition (USP): Clearly defined benefits and value
proposition that differentiate your product or service from
competitors.
4. Sales Strategy: Outline of the sales approach, including channels
(direct, indirect, online, offline), tactics (cold calling, networking,
content marketing), and sales processes.
5. Sales Channels: Description of the sales channels to be used, such as:
• Direct sales force
• Distributors or wholesalers
• Online sales platforms
• Retail partnerships
6. Sales Team: Overview of the sales team structure, including: -
• Sales manager and team leads -
• Sales representatives and their roles -
• Sales support staff (e.g., customer service, sales engineers)
7. Sales Forecast: Detailed sales projections, including: -
• Revenue forecasts by product or service
• Sales volume projections
• Market share projections
8. Pricing Strategy: Explanation of the pricing approach, including:
• Pricing tiers or structures
• Discounts and promotions
• Price elasticity analysis
9. Sales Performance Metrics: Definition of key performance
indicators (KPIs) to measure sales success, such as:
• Sales revenue growth
• Conversion rates
• Sales cycle length
• Customer acquisition costs
10. Sales Enablement: Description of the tools, training, and
resources provided to support the sales team, including:
• Sales training programs
• Sales automation tools
• Marketing collateral and support
Components of people plan
A People Plan in a business plan typically includes the following
components:
1. Organizational Structure: A clear outline of the company's
hierarchy, roles, and responsibilities.
2. Management Team: Profiles of key team members, including:
• Background and experience -
• Skills and expertise
• Roles and responsibilities
3. Staffing Plan: A detailed plan for hiring and developing
employees, including:
• Job descriptions and requirements
• Recruitment strategies
• Training and development programs
4. Human Resources Policies: Outline of HR policies and
procedures, including:
• Employee handbook
• Benefits and compensation
• Performance management and evaluation
• Conflict resolution and disciplinary actions
5. Talent Management: Strategies for attracting, retaining,
and developing top talent, including:
• Succession planning
• Leadership development programs
• Employee engagement and retention initiatives
6. Diversity, Equity, and Inclusion (DEI) Plan: A plan to foster a
diverse, equitable, and inclusive work environment, including:
• Diversity and inclusion initiatives
• Unconscious bias training
• Equal employment opportunity policies
7. Employee Development and Training: A plan for ongoing
employee development and training, including:
• Training programs and workshops
• Mentorship and coaching
• Cross-functional training and development
8. Performance Management: A system for evaluating and
improving employee performance, including:
• Performance metrics and goals
• Regular feedback and coaching
• Performance improvement plans
9. Employee Engagement and Culture: Strategies for building a positive
and productive company culture, including:
• Employee recognition and rewards
• Team-building initiatives
• Company-wide events and activities
10. Contingency Planning: A plan for addressing unexpected
changes or challenges, including: -
• Succession planning for key roles
• Emergency response plans
• Business continuity planning

By including these components, a People Plan helps ensure that a

company has the right talent, structure, and culture in place to
achieve its goals.
Components of financial plan
A Financial Plan in a business plan typically includes the following components:
1. Financial Statements:
• Income Statement (Revenue and Expenses)
• Balance Sheet (Assets, Liabilities, and Equity)
• Cash Flow Statement (Operating, Investing, and Financing activities)
2. Revenue Projections:
• Sales forecast
• Revenue growth rate
• Pricing strategy
3. Expense Budget:
• Fixed and variable expenses
• Operating expenses
• Capital expenditures
4. Break-Even Analysis:
• Calculation of break-even point
• Sensitivity analysis
5. Cash Flow Projections:
• Monthly or quarterly cash flow projections
• Cash flow management strategies
6. Funding Requirements:
• Amount of funding needed
• Use of funds (e.g., capital expenditures, working capital)
• Potential funding sources (e.g., loans, investors)
7. Return on Investment (ROI) Analysis:
• Calculation of ROI
• Payback period analysis
8. Financial Ratios and Metrics: Key performance indicators
(KPIs) such as:
• Gross margin ratio
• Operating profit margin
• Return on equity (ROE)
• Debt-to-equity ratio
9. Risk Management:
• Identification of financial risks
• Strategies for mitigating risks (e.g., insurance, hedging)
10. Exit Strategy:
• Plan for exiting the business (e.g., sale, merger, IPO)
• Timeline and financial goals for exit
 Preparing a business plan
• Business Plan: A business plan is a written document that outlines an
entrepreneur's business goals, objectives, and strategies for achieving success.
It serves as a roadmap for the company, providing a comprehensive overview
of the business.

Need for a Business plan:

• A business plan is essential to both new entrepreneurs and existing
entrepreneurs wishing to expand or diversify, for several reasons:
• 1. Clarifies Business Ideas: Helps entrepreneurs develop and refine their
business concept.
• 2. Sets Goals and Objectives: Establishes clear targets and benchmarks for
success.
• 3. Conducts Market Research: Identifies target audiences, market trends, and
competitors.
• 4. Secures Funding: Attracts investors, loans, and grants by presenting
a solid business case.
• 5. Guides Decision-Making: Provides a roadmap for strategic decisions
and prioritization.
• 6. Measures Progress: Tracks performance against projections and
adjusts strategies accordingly.
• 7. Enhances Credibility: Demonstrates professionalism and commitment
to stakeholders.
• 8. Identifies Risks and Opportunities: Anticipates challenges
and capitalizes on growth prospects.
• 9. Facilitates Communication: Ensures all team members and
stakeholders are aligned with the business vision.
• 10. Adapts to Change: Serves as a dynamic document, adjusting to
market shifts and business evolution.
A well-crafted business plan helps entrepreneurs and small business owners
navigate the complexities of launching and growing a successful venture.
How to prepare a business plan ?
• 1. Define your business: Describe your company,
products/services, mission, vision, and values.
• 2. Conduct market research: Analyze your industry, target
audience, competitors, and market trends.
• 3. Set business goals and objectives: Outline specific,
measurable, achievable, relevant, and time-bound (SMART) goals.
• 4. Develop a marketing and sales strategy: Describe how you'll
reach and engage with your target audience.
• 5. Create a product or service offering: Outline
your products/services, pricing, and life cycle.
• 6. Outline operational and management structure: Describe
your company's organizational structure, key roles, and
responsibilities.
• 7. Prepare financial projections: Include income statements,
balance sheets, cash flow statements, and break-even analysis.
• 8. Identify funding requirements: Determine how much funding
you need and potential sources.
• 9. Develop an implementation plan: Outline key
milestones, timelines, and responsible personnel.
• 10. Review and revise: Regularly review and update your
business plan to reflect changes and progress.
Components of a business plan
A business plan typically consists of the following components:
• 1. Executive Summary (1-2 pages)- Brief overview of the business,
including mission statement, products/services, target market, and
goals.
• 2. Company Description
• Business history,
• Structure, and ownership
• Products/services offered
• Mission, vision, and values
• 3. Market Analysis
• Industry overview and trends
• Target market description and segmentation
• Competitor analysis
• Market size, growth potential, and share
• 4. Products or Services
• Description of products/services offered
• Life cycle, pricing, and revenue stream-
• Research and development plans
• 5. Marketing and Sales Strategy
• Branding and positioning
• Marketing channels and tactics
• Sales strategy and processes
• Customer service and support
• 6. Operations Plan
• Business location and facilities
• Management and organizational structure
• Key roles and responsibilities-
• Supply chain and logistics
• 7. Management and Organization
• Key team members and their roles
• Human resources plan
• Leadership and governance
• 8. Financial Plan
• Income statement, balance sheet, and cash flow statement
• Break-even analysis and funding requirements
• Financial projections (3-5 years)
• 9. Funding Request (if applicable)
• Amount of funding required-
• Use of funds
• Repayment plan
• 10. Appendices- Supporting documents, such as: - Resumes of key team
members - Market research and studies - Product/service descriptions -
Legal documents (e.g., contracts, licenses)
 Financial planning:
Financial planning is the process of creating a comprehensive and
tailored plan to manage one's finances, achieve financial goals, and
secure long-term financial well-being.

It involves assessing financial situations, identifying goals, and

developing strategies to allocate resources effectively.

Through financial planning, individuals and businesses can make

informed decisions about investments, savings, taxation, and
retirement to ensure a stable financial future.
Cost refers to the expenses incurred by a business to produce and sell its
products or services, as well as to operate and manage the organization.
Types of costs
1. Fixed Costs: Expenses that remain the same even if the
business produces more or less, such as:
• Rent
• Salaries
• Insurance
• Depreciation

2. Variable Costs: Expenses that vary directly with the level

of production or sales, such as:
• Raw materials
• Labor (wages)
• Marketing expenses
• Utilities (e.g., electricity, water)
3. Semi-Variable Costs: Expenses that have both fixed & variable
components, such as:
• Utilities (e.g., phone, internet)
• Transportation costs
• Maintenance costs (AMC)
4. Direct Costs: Expenses directly related to producing a product or
service, such as:
• Labor
• Materials
• Overhead
5. Indirect Costs: Expenses not directly related to producing a product
or service, such as:
• Salaries
• Rent
• Marketing expenses
6. Opportunity Costs: Potential benefits that are forgone by
choosing one option over another, such as:
• Investing in one project instead of another
• Choosing one marketing strategy over another
7. Sunk Costs: Expenses that have already been incurred and cannot
be changed, such as:
• Past investments
• Expenses related to a failed project
8. Incremental Costs: Additional expenses incurred when
increasing production or sales, such as:
• Overtime labor costs
• Increased marketing expenses
9. Marginal Costs: The cost of producing one additional unit of a
product or service, such as: -
• Labor cost per unit -
• Material cost per unit
10. Average Costs: Total costs divided by the number of units
produced, such as:
• Average labor cost per unit
• Average material cost per unit
• Average electricity cost per unit

Understanding these cost types helps businesses make informed decisions

about pricing, budgeting, and resource allocation.
• COGS ( Cost of Goods Sold)
• The direct costs associated with producing and selling a
company's products or services is called cost of Goods sold.
• It includes costs such as:
• Materials and labor directly used in production
• Overhead costs directly related to production
• Packaging and shipping costs

• Excludes indirect costs such as:

• Salaries and benefits for non-production staff
• Marketing and advertising expenses
• Rent and utilities for non-production facilities
Components of COGS:
• 1. Direct Materials:
• Cost of raw materials and components used in production
• 2. Direct Labor:
• Cost of labor directly involved in production
• 3. Overhead: - Indirect costs associated with production, such as
• Factory rent and utilities
• Depreciation of production equipment
• Quality control and inspection costs
• 4. Packaging and Shipping:
• Costs associated with preparing and transporting products to customers
• COGS calculation:
• 1. Determine the total cost of direct materials used in production
• 2. Add the total cost of direct labor used in production
• 3. Add the total overhead costs associated with production
• 4. Add the total packaging and shipping costs
• 5. Total COGS = Direct Materials + Direct Labor + Overhead + Packaging
and Shipping

Example:-
• Direct Materials: Rs.100,000
• Direct Labor: Rs.150,000
• Overhead: Rs.50,000
• Packaging and Shipping: Rs.20,000
• Total COGS: Rs. 100,000 + Rs. 150,000 + Rs. 50,000 + Rs. 20,000 = Rs.320,000
• Importance of COGS:
• Helps determine gross profit and gross margin
• Affects pricing decisions and revenue projections
• Impacts inventory management and control
• Influences production efficiency and cost reduction initiatives
 Break even
• The Break-Even Point (BEP) is the point at which a business's total
revenue equals its total fixed and variable costs, resulting in neither profit
nor loss.
• It's a crucial concept in business planning, as it helps entrepreneurs
and managers understand when their business will become profitable.
• Break-Even Point Formula: BEP = Fixed Costs / (Selling Price - Variable
Costs) Where:-
Fixed Costs: Expenses that remain the same even if the business produces more
or less (e.g., rent, salaries)
Selling Price: The price at which the business sells its products or services-
Variable Costs: Expenses that vary directly with the level of production or sales
(e.g., raw materials, labor)
• Example:-
• Fixed Costs: Rs.10,000 (Rent, Salary, tax, insurance, depreciation etc)
• Selling Price: Rs.20
• Variable Costs: Rs.15 (Raw Material, Labour, electricity,
utilities, marketing, packing, shipping, delivery charges etc)

• BEP = FC/(SP-VC)
= Rs.10,000 / (Rs.20 – Rs.15) = 1,000 units

• This means the business needs to sell 1,000 units to break even.
Break-Even Analysis:
• Helps determine the minimum sales required to cover costs
• Identifies the point at which the business becomes profitable
• Enables businesses to set realistic sales targets- Facilitates
pricing decisions- Supports cost reduction and efficiency
initiatives
• Remember, the Break-Even Point is a dynamic concept, as costs
and prices can fluctuate.
• Regularly reviewing and updating BEP calculations ensures
businesses stay on track and make informed decisions.
Benefits of a Breakeven Analysis
• A breakeven analysis can help with many things, including:
• Finding Missing Expenses: A break-even analysis can help uncover
expenses that you otherwise might not have seen coming. Your
financial commitments will be determined at the end of a breakeven
analysis, so there won’t be any surprises down the line.
• Limiting Decisions Based on Emotions: Making business decisions based
on emotions is rarely a good idea, but it can be hard to avoid. A break-
even analysis leaves you with hard facts, which is a better viewpoint from
which to make business decisions.
• Setting Goals: You will know exactly what kind of goals need to be met to
make a profit after a breakeven analysis. This helps you set goals and
work toward them.
• Securing Funding: Often, you will need to use a break-even analysis
to secure funding and show investors the plan for your business.
• Pricing Appropriately. A break-even analysis will show you how to
properly price your products from a business standpoint.
Limitations of Breakeven Point
• One major downside is its reliance on the assumption that costs can be
neatly divided into fixed and variable categories. In reality, some costs
may not fit cleanly into these categories. For example, semi-variable
costs, which have both fixed and variable components, can complicate
the accuracy of the breakeven calculation which then changes the
breakeven point in units.
• Another limitation is that the breakeven point assumes that sales prices,
variable costs per unit, and total fixed costs remain constant, which is
often not the case. The price of goods sold at fluctuates, and the cost of
raw materials may hardly stay stable. In addition, changes to the relevant
range may change, meaning fixed costs can even change. This makes it
almost impossible to always have a most up-to-date, accurate
breakeven point.
• Finally, the breakeven analysis often ignores qualitative factors such as
market competition, customer satisfaction, and product quality. While
the breakeven point focuses on financial metrics, successful business
decisions also require a holistic view that looks outside the number..
 Preparing the financial plan using financial
template & learning to interpret it
• Financial planning is a crucial process for any business to achieve its
goals, ensuring long-term sustainability and profitability. It involves
a comprehensive understanding of your business's financial
situation, setting objectives, and developing a strategy to reach
them.

• Objectives:
• Achieve business growth and expansion
• Increase profitability and revenue
• Improve cash flow and liquidity
• Enhance financial stability and security
• Optimize resource allocation
• Key Benefits:
1. Clarifies financial goals and objectives

2. Identifies funding requirements and sources

3. Develops budgeting and forecasting

4. Manages financial risks and uncertainties

5. Enhances financial decision-making

6. Improves financial performance and profitability

7. Supports strategic planning and business development

• Financial Planning Process:
1. Define financial goals and objectives

2. Conduct financial analysis and assessment

3. Develop financial projections (income, balance sheet, cash flow)

4. Identify funding requirements and sources

5. Create a budget and forecasting system

6. Monitor and review financial performance

• Sample financial planning
1. Define financial goals and objectives
Financial Goals:
1. Increase revenue by 15% annually.
2. Achieve net profit margin of 20%.
3. Maintain debt-to-equity ratio below 1:1.
4. Improve return on investment (ROI) to 25%.
5. Enhance cash flow to support business growth.
Financial Objectives:
1. Reduce operating expenses by 10% within 6 months.
2. Increase asset utilization by 15% within 12 months.
3. Improve accounts receivable turnover to 30 days.
4. Maintain cash reserve of 3-6 months' operating expenses.
5. Achieve financial sustainability and stability.
• 2. Conduct financial analysis and assessment
• Gather Financial Data- From historical statements, current
statements, market research and trends etc.
• Analyze Financial Statements: Such as CFS, Income statement and
Balance sheet

CFS • Operating cash flow • Asset

• Investing cash flow Balance • Liability
sheet • Equity
• Financing cash flow
• Cash and liquidity

• Revenue growth/decline
Income • Cost of goods sold (COGS)
statement • Gross profit margin
• Operating expenses
• Net income
3. Develop financial projections
a. Income statement b. Balance sheet
• Revenue: Rs.250,000 • Assets –Cash: Rs.50,000
• COGS: Rs.150,000 • Accounts Receivable: Rs.25,000
• Gross Profit Rs.100,000 • Inventory : Rs.75,000
• Operating Expenses Rs.75,000 • Total Assets: Rs.150,000
• Net Income Rs.25,000 • Liabilities
• Tax Expense: Rs.5,000 • Accounts Payable Rs. 40000
• Net Income After Tax: Rs.20,000 • Long-term Debt : Rs.60,000
• Total Liabilities :Rs. 100,000
• Equity
c. Cash flow statement • Common Stock: Rs.100,000
• Operating Activities: • Retained Earnings : Rs.10,000
• Net Income Rs.25,000
• Depreciation : Rs.5,000 • Financing Activities
• Changes in Working Capital:Rs.10,000 • Issuance of Debt:Rs.20,000
• Total Operating Activities Rs.40,000 • Total Financing Activities : Rs.20,000
• Investing Activities • Beginning Cash Balance:Rs.30,000
• Purchase of Equipment:Rs.20,000 • Ending Cash Balance :Rs.50,000
4. Identify funding requirements and sources
Funding Requirements:
Identifying funding requirements for a business involves several steps:
Step 1: Determine Business Needs
1. Develop a business plan
2. Outline financial goals and objectives
3. Identify funding purposes (e.g., startup, expansion, working capital)
Step 2: Calculate Funding Requirements
1. Estimate startup costs (e.g., equipment, rent, inventory)
2. Determine ongoing expenses (e.g., salaries, marketing, utilities)
3. Calculate revenue projections and growth rate4. Assess cash flow requirements
• Step 3:Assess Funding Options
• 1. Equity funding (e.g., investors, venture capital)
• 2. Debt funding (e.g., loans, credit lines)
• 3. Alternative funding (e.g., crowdfunding, grants)4.
Government funding programs

• Step 4: Evaluate Funding Costs

• 1. Interest rates and fees
• 2. Equity dilution
• 3. Repayment terms
• 4. Collateral requirements
Funding source: (Internal and External)
Source

Internal Sources:
• Personal savings and investments Internal External
• Loans from PF, LIC etc.
• Loan from friends and relatives
• Mortgage of assets like land, building, shares , bonds, debentures etc.
• Profits earned or transferred from existing business or investment or trade.
External Sources: • Private lending Institutions:
• Financial Institutions: Eg: Magnum finance
EG: IDFC, IDB I, SIDBI,TIIC • Venture Capitalists:
• Banks- Commercial & Cooperative Banks Canbank VC
• Angel Investors
• Commercial  Private, Nationalized,
Foreign, Regional Rural • Crowd Funding
• Private Lenders
• Cooperative  Urban and state
• Business Incubators
cooperative
• Land Development bank • Educational institutions
• NABARD Nat. Bank for Agri & Rural Dev • Debentures and Bonds
• Equity funding
5. Create a budget and forecasting system
Budgeting Steps:
1. Identify financial goals and objectives.
2. Gather historical financial data.
3. Estimate revenue and expenses.
4. Categorize expenses (fixed, variable, semi-variable).
5. Assign budget amounts.
6. Monitor and adjust.
Forecasting Steps:
1. Analyze historical trends.
2. Identify key drivers (seasonality, market trends).
3. Choose forecasting method (qualitative, quantitative).
4. Develop forecast models (e.g., regression, exponential smoothing).
5. Refine forecasts with actual data.
• 6. Monitor and review financial performance
• Key Steps:
• 1. Track financial metrics (e.g., revenue, expenses, cash flow).
• 2. Analyze variances (actual vs. budget/forecast).
• 3. Identify areas for improvement.
• 4. Adjust strategies and plans.
• 5. Report to stakeholders.

• Financial Metrics to Monitor:

• 1. Revenue growth.
• 2. Gross margin.
• 3. Operating expenses.
• 4. Net income.
• 5. Cash flow.
• 6. Return on Investment (ROI).
• 7. Debt-to-equity ratio.