Class Activity

i. Define Business Plan.

ii. What are the Components of a Business Plan?
iii. Explain the Importance of a Business Plan.
iv. Why do you think Entrepreneurs need a Business Plan?

2.7 Concept of Business Plan

Planning is the first and the most crucial step for starting a business. A carefully charted and
meticulously designed business plan can convert a simple idea/innovation into a successful
business venture.
A business plan is a road map for starting and running a business. A well-crafted business plan
identifies opportunities, scans the external and internal environment to assess the feasibility of
business and allocates resources in the best possible way, which finally leads to the success of
the plan. It provides information to all concerned people like the venture capitalist and other
financial institutions, the investors, the employees. It provides information about the various
functional requirements (marketing, finance, operations, and human resources) for running a
business.
A business plan is the blueprint of the step-by-step procedure that would be followed to convert a
business idea into a successful business venture. A business plan first identifies an innovative
idea, researches the external environment to list the opportunities and threats, identifies internal
strengths and weakness, assesses the feasibility of the idea, and then allocates resources
(production/operation, finance, human resources) in the best possible manner to make.
the plan successful:
The objectives of a business plan are to:
i. Give directions to the vision formulated by entrepreneur.
ii. Objectively evaluate the prospects of business.
iii. Monitor the progress after implementing the plan.
iv. Persuade others to join the business.
v. Seek loans from financial institutions.
vi. Visualize the concept in terms of market availability, organizational, operational, and
financial feasibility.
vii. Guide the entrepreneur in the actual implementation of the plan.
viii. Identify the strengths and weakness of the plan.
ix. Identify challenges in terms of opportunities and threats.
x. Clarify ideas and identify gaps in management information about their business,
competitors, and the market.
xi. Identify the resources that would be required to implement the plan.
xii. Document ownership arrangements, prospects, and projected growths of the business
venture.
2.8 Developing a Business Plan
2.8.1 Business Planning Process

A plan, which looks very feasible at the first instance, might actually not be when the details are
drawn. Hence documenting the business plan is one of the early steps that an entrepreneur should
take. As discussed above, the successful entrepreneur lays down a step-by-step plan that she/he
follows in starting a new business. This business plan acts as a guiding tool to the entrepreneur
and is dynamic in nature – it needs continuous review and updating so that the plan remains
viable even in changing business situations. The various steps involved in business planning
process are discussed here below:
1) Preliminary Investigation
Before preparing the plan, entrepreneur should:
i. Review available business plans (if any).
ii. Draw key business assumptions on which the plans will be based (e.g., inflation,
exchange rates, market growth, competitive pressures, etc.).
iii. Scan the external environment and internal environment to assess the strengths,
weakness, opportunities, and threats.
iv. Seek professional advice from a friend/relative or a person who is already into similar
business (if any).
2) Opportunity Identification and Idea Generation
Entrepreneurship is not just limited to innovation (generation of an entirely new concept, product
or service, but it also encompasses incremental value addition to the concept/product/ services
offered to the consumer, shareholder and employee). Opportunity identification and business
idea generation is the first stage of business planning process. It involves generation of new
concepts, ideas, products or services to satisfy demand.
3) Environmental Scanning
Once a promising idea emerges through idea generation phase the next step is environmental
scanning, which is carried out to analyze the prospective strengths, weakness, opportunities and
threats of the business enterprise. Hence before getting into the finer details of setting up
business it is advisable to scan the environment both external and internal and collect the
information about the possible opportunities, threats from the external environment and strengths
and weaknesses from the internal environment (the detail has been addressed in chapter one).
4) Feasibility Analysis
Feasibility study is done to find whether the proposed project (considering the above
environmental scanning) would be feasible or not. It is important to demarcate environmental
scanning and feasibility study at this point. Environmental scanning is carried out to assess the
external and internal environment of the geographical area/areas where, entrepreneur intends to
set up his business enterprise, whereas feasibility study is carried out to assess the feasibility of
the project itself in a particular environment in greater detail.
5) Report Preparation
After environmental scanning and feasibility analysis, a business plan report is prepared. It is a
written document that describes step-by- step, the strategies involved in starting and running a
business.

2.8.2 Essential Components of Business Plan

I) Cover Sheet: Cover sheet is like the cover page of the book. It mentions the name of the
project, address of the headquarters (if any) and name and address of the promoters.
II) Executive Summary: Executive summary is the first impression about the business proposal.
As the saying goes, the first impression is the last impression. A careful presentation of
information should be done to attract the attention of the evaluators. It should be in brief (not
more than two or three pages) yet it should have all the factual details about the project that can
improve its marketability. It should briefly describe the company; mention some financial figures
and some salient features of the project. Generating interest in the minds of the readers is the
prime motive of the executive summary.
III) The Business: This will give details about the business concept. It will discuss the objective
of the business, a brief history about the past performance of the company (if it is an old
company), what would be the form of ownership (whether it would be a single proprietor,
partnership, cooperative society or a company under company law). It would also label the
address of the proposed headquarters.
IV) Funding Requirement: Since the investors and financial institutions are one of the key
bodies examining the business plan report and it is one of the primary objectives of preparing the
business plan report, a careful, well-planned funding requirement should be documented. It is
also necessary to project how these requirements would be fulfilled. Debt equity ratio should be
prepared, which can give an indication about how much finance would the company require and
how it would like to fund the project.
V)The Product or Services: A brief description of product/services is given in this subsection.
It includes the key features of the product, the product range that would be provided to the
customers and the advantages that the product holds over and above the similar products/
substitute products available in the market. It also gives details about the patents, trademarks,
copyrights, franchises, and licensing agreements.
VI)The Plan: Now the functional plans for marketing, finance, human resources and operations
are to be drawn.
1) Marketing Plan: Marketing mix strategies are to be drawn, based on the market
research.

2) Operational Plan: The operational plan would give information about (i) Plant location: why
was a particular location chosen? Is it in the vicinity of the market, suppliers, labor or does it
have an advantage of government subsidies for that location or are there any other specific
reasons for choosing the particular location? (ii) Plan for material requirements, inventory
management and quality control are also drawn for identifying further costs and intricacies of the
business. Finally, the budget for operational plan is also drawn.
3) Organizational Plan: The organizational plan indicates the pattern of flow of responsibilities
and duties amongst people in the organization, it provides details about the manpower plan that
would be required to put life into the business and it would also enlist the details about the laws
that would be governed in managing the employees of the organization. In the end the
organizational plan is also budgeted.
4) Financial Plan: The financial plan is usually drawn for two to five years for an existing
company. For a new organization the following projections are drawn:
a) Projected Sales
b) Projected Income and Expenditure Statement
c) Projected Break Even Point
d) Projected Profit and Loss Statement
e) Projected Balance Sheet
f) Projected Cash Flows
g) Projected Funds Flow
h) Projected Ratios
VII) Critical Risks: The investors are interested in knowing the tentative risks to evaluate the
viability of the business and to measure the risks involved in the business. This can further give
confidence to the investors as they can calculate the risks involved in the business from their
perspectives as well.
VIII) Exit Strategy: The exit strategies would provide details about how the organization would
be dissolved, what would be the share of each stakeholder in case of winding-up of the
organization. It further helps in measuring the risks involved in investing.
IX) Appendix: The appendix can provide information about the Curriculum Vitae of the owners,
Ownership Agreement, and the like.

2.10 Summary
Virtually to start any type of business or expand the existing one needs to work on opportunity
identification and evaluation, business idea development and then prepare business plan. Lack of
proper opportunity identification and evaluation, idea development process and business
planning are the most often cited reasons for business failure.
Opportunity identification and evaluation are the initial stages of the entrepreneurial process and
principal activities that take place before a business is formed or structured. The opportunity
identification and evaluation process have five main steps namely, getting the idea/scanning the
environment, identifying the opportunity, developing the opportunity, evaluating the opportunity,
and evaluating the team.
After opportunity is recognized, you need to have a clear idea of the sort of business you want to
run. Your business idea will address: Which need will your business fulfill for the customers and
what kind of customers will you attract? What good or service will your business sell? Who will
your business sell to? And how is your business going to sell its goods or services? All business
ideas are not equally worth. Therefore, to identify promising business idea among others, it is
important to answer the raised questions so that to proceed into the phase of preparing plan on
the selected business idea.
Business plans help companies identify their goals and objectives and provide them with tactics
and strategies to reach those goals. It is not historical document; rather, they embody a set of
management decisions about necessary steps for the business to reach its objectives and perform
in accordance with its capabilities. Business plans have several major uses. These include
internal planning and forecasting, obtaining funding for ongoing operations or expansion,
planned divestiture and spinoffs, and restructuring or reorganizing. While business plans have
elements common to all uses, most business plans are tailored according to their specific use and
intended audience.
Business plan is an outline of a business giving details of the finance, assets, staff, products or
services and markets. It guides the entrepreneur, identifies possible problems and is also used in
funding applications. The business plan sets out how the owner of a business intends to realize
its objectives. Steps in a business plan include Idea Generation, Environmental Scanning,
Feasibility Analysis, Functional Plan (Marketing plan, financial plan, organizational plan, and
operational plan), Project Report Preparation, Evaluation, Control and Review.