Business Plan Preparation

BUSINESS PLAN PREPARATION

1 Sources of Product for Business

2 Pre-feasibility Studies

3 Criteria for Selection Process

4 Ownership Structure

5 Capital

6 Budgeting Project Profile Preparation

7 Matching Entrepreneur with the Project

8 Feasibility Report Preparation and Evaluative Criteria

1 Sources of Product for Business

As much as your plan represents your dream and is very important to you, it may not be as high on the agendas of the people who read it. When you sit down to write your plan, think of who will be reading it and put yourself into their shoes as much as possible. In most cases, the people who will read your plan are going to be potential investors, bankers, and/or potential partners. Your readers have likely seen dozens, and perhaps even hundreds, of plans. These people do not often have a great deal of time, so prepare your plan accordingly.

In general you should:

Write the plan yourself. Get help if you need it, but do not let your accountant, bookkeeper, or other professional write your plan for you. You may let them help you with the financial plan, for example, but you need to know your plan inside and out-and the best way to ensure that is to write it yourself.

Back up every claim you make with supporting evidence. Include surveys and detailed market research as an addendum or appendix to your plan.

Write clearly and to the point, keeping your prose to a minimum.

Avoid hyperbole: don't overstate your case. Similarly, avoid unnecessary adjectives such as "fantastic," "amazing," "astounding," "irresistible," and so on. Let the reader form his or her own opinion.

Ensure that your writing is error-free and edited for proper form and syntax.

Choose a simple, common font such as Times New Roman, and stick with it throughout the document.

Use professionally produced drawings, photographs, and graphs. Unless you are a professional, your own attempts at art will look amateurish. The same is true for videos, if you're using them, or a computer-based demo.

Bind the pages simply. Cerlox or its equivalent is likely sufficient.

Make sure you include your contact information right on the cover. This is one of the most common mistakes entrepreneurs make.

Section of the plan

The first two sections should appear at the beginning of your plan. It is not as critical that the others follow in the order given, but this sequence will likely work well.

Executive Summary

This is by far the most important part of your plan. It should be no more than two pages in length, or less. State the idea, the opportunity, how much money you need, where you hope to get it, how it will be spent, and how you will pay it back. Readers who are interested may then go on to read the rest of your plan. Be warned, if your executive summary is more than three pages long, it will likely not be read.

Your Planned Venture

Describe your idea as clearly as possible, with diagrams, photographs or any other medium necessary to communicate it to the reader. Back up the idea with a description of the target market, tell why the opportunity exists, and why your idea will capture that market.

Market Research

Explain how you determined the product or service was appropriate to the market. Include explanations of the "four P's" (price, product, promotion, placement).

Background and History

Tell who you are, what experience and skills you bring to this venture, and whether or not you've run your own businesses in the past. Describe and explain their successes or failures. Include your own, short, biography here.

Management Team

Provide the names, and short bios, of the people you will use to fill the key positions in the business.

Start-up Plan

Tell when and where you plan to start the business and why you chose this time frame and location.

Operational Plan

Describe, in detail, how your business will operate. Include diagrams of production or service areas if appropriate.

Marketing Plan

Describe, in detail, how you will attract customers or clients and how you will deliver your product or service to them.

Financial Plan

Provide a detailed financial plan, including a cash-flow projection, that accounts for the money you will need (borrow) and the repayment plan and return on investment to investors.

Appendix

Include your own and your team's detailed biographies here as well as additional market research and any other information that is too detailed to be included in the body of the plan.

Most entrepreneurs have to come up with their own start-up money – either from their own savings or from relatives who know and trust them. But there are other sources of capital out there that you might tap into.

Nothing is easy or straightforward about raising start-up capital for your venture. Here are some typical potential sources of start-up money.

2 Pre-feasibility Studies

Pre-feasibility studies are well researched yet generic due diligence reports that facilitate potential entrepreneurs in project identification for investment

The main objective of the pre-feasibility studies prepared by SMEDA is to provide information about investment opportunities to the small & medium enterprises (SME‟s). A typical pre-feasibility study provides:

1.     Comprehensive information for investment opportunity in a business.

2.     Specific information regarding different business areas like, marketing, technical, industrial information etc. for the existing entrepreneurs to improve their exiting setup.

3.     Project investment information and financial projections to support viability of the business.

Project:

It is defined as a typically has a distinct mission that it is designed to achieve and a clear termination point, the achievement of the mission.

Idea Generation

Project selection process starts with the generation of a product idea. The project ideas can be discovered from various internal and external sources. They may be

1.     Knowledge of potential customer needs

2.     Watching emerging trends in demand for certain products

3.     Scope for producing substitute product

4.     Going through certain professional magazines catering to specific interest like electronics, computers etc.,

5.     Success stories of known entrepreneurs or friends or relatives.

6.     A new product introduced by the competitor.

3 Criteria for Selection Process

It starts from where project identification ends. After having some project ideas, these are analysed in the light of existing economic conditions, the government policy and so on. A tool generally used for this purpose is, what is called the managerial jargon, SWOT analysis. On the basis of this analysis, the most suitable idea is finally selected to convert it into an enterprise.

SWOT Analysis

Introduction

It has always been important for a business to know and understand how it fits in and interacts with the surrounding environment on both an internal (office/factory/shop environment) and external view (how your business operates with the outside world).

Researching your environment will benefit you and/or your management team by putting you in a position to develop a strategy for both the long and short term.

Analyzing the Business

The most influential way of doing this is to perform a SWOT analysis of the company. It is a common phrase used to abbreviate Strengths, Weaknesses, Opportunities and Threats.

Each term is a heading for a separate analysis of the business but they can be related as seen below:

Strengths provide an insight to your business opportunities & weaknesses in your business can cause immediate threats

A guideline of how to carry out the analysis is explained in the next section, but it is important to know that the SWOT analysis is only based upon information that is known by the assessors (you), and is seen as perhaps the more basic approach of analyzing a business‟ position: but SWOT is still a powerful tool when looking for immediate benefits.

Performing SWOT

Recognizing the Strengths and Weaknesses before tackling the Opportunities and Threats is the best way to approach the analysis: the more Strengths and Opportunities the better they can both be seen as the bigger influences for the success of your company. You need to be aware that the most important rule is not to leave anything out no matter how small the issue may be.

There is no fixed way of doing a SWOT analysis, but it should be done in a way that you feel most comfortable with, and more importantly that you understand it. The objective is to be in a position where you can determine a strategy for the future to improve your company‟s overall performance (or maintain it if you are happy with your final analysis).

Strengths

The Strengths can be considered as anything that is favourable towards the business for example:

1.     Currently in a good financial position (few debts, etc)

2.     Skilled workforce (little training required)

3.     Company name recognized on a National/Regional/Local level

4.     Latest machinery installed

5.     Own premises (no additional costs for renting)

6.     Excellent transport links (ease of access to/from the Company)

7.     Little/non-threatening competition

Weaknesses

Recognizing the Weaknesses will require you being honest and realistic. Don‟t leave anything out as this is an important part as to realize what needs to be done to minimize this list in the future. Here are a few examples:

1.     Currently in a poor financial position (large debts, etc)

2.     Un-Skilled workforce (training required)

3.     Company name not recognized on a National/Regional/Local level

4.     Machinery not up to date (Inefficient)

5.     Rented premises (Adding to costs)

6.     Poor location for business needs (Lack of transport links etc)

7.     Stock problems (currently holding too much/too little)

8.     Too much waste

Opportunities

Keeping in mind what you have listed as your Company Strengths, SWOT Analysis can now influence the Opportunities for the business. These can be seen as targets to achieve and exploit in the future for example:

1.     Good financial position creating a good reputation for future bank loans and borrowings

2.     Skilled workforce means that they can be moved and trained into other areas of the business

3.     Competitor going bankrupt (Takeover opportunity?)

4.     Broadband technology has been installed in the area (useful for Internet users)

5.     Increased spending power in the Local/National economy

6.     Moving a product into a new market sector

Threats

The final part of the analysis will also be seen as the most feared- the Threats. It has to be done and therefore taking into account what you have listed as your weaknesses, the threats will now all seem too clear. Examples

1.     Large and increasing competition

2.     Rising cost of Wages (Basic wage, etc)

3.     Possible relocation costs due to poor location currently held

4.     Local authority refusing plans for future building expansion

5.     Increasing interest rates (increases borrowing repayments, etc)

6.     End of season approaching (if you depend on hot weather, etc)

7.     Existing product becoming unfashionable or unpopular

Using the Analysis

Once the SWOT analysis is complete, it will then be time to put it all together and look closely to form a strategy. This will involve how you can exploit the Opportunities and how to eliminate or deal with the Threats. This may well depend on your company‟s original objectives and goals but the whole process will certainly give an overall look at the current position of your business.

You might argue that you can make a list in your head about the areas that make up your analysis and that no benefit can be derived from a SWOT exercise. Try a quick list with the four areas and identify where one area impacts on another. If you find one instance that is a current issue, you would then have cause to complete the full analysis.

Summary

As previously stated, SWOT analysis is used primarily to evaluate the current position of your business to determine a Management strategy for the future. It should also help you to look at how you may do this by looking closely at your Weaknesses and Threats that you have identified. Great care needs to be taken when planning a strategy not to disturb the balance of your Strengths as you could find that your Strengths suddenly become a Weakness if you don‟t use them.

The way that SWOT has been introduced to you is the simplest way that it can be found. It can be used further to analyze your business (depending on its size) on a Local, National and Global level. This is done by splitting up the Strengths, Weaknesses, Opportunities and Threats of your business into the appropriate category (e.g. High Unemployment in the area- Local Threat because of less spending).

It cannot be stressed enough that the analysis is carried out fairly and thoroughly. This will then put you in a position to forecast and prepare for the future accurately to give realistic objectives and tasks.

Project Appraisal

It means the assessment of a project. Project appraisal is made both proposed and executed projects.

Methods of Project Appraisal

1.     Economic Analysis. ( requirement of raw material, level of capacity, utilization, anticipated sales, anticipated expenses and the probable profits)

2.     Financial Analysis. (working capital, fixed capital, fixed asset and current asset)

3.     Market Analysis.

i)       Opinion Polling Method

a)     Complete Enumeration Survey

b)    Sample Survey

c)     Sales Experience Method

d)    Vicarious Method

ii)  Life Cycle Segmentation Analysis

a)     Introduction

b)    Growth

c)     Maturity

d)    Saturation

e)     Decline

4.     Technical Feasibility

i)       Availability of land and site

ii)    Availability of other inputs like water, power, communication facility.

iii)  Copying-with anti-pollution law

5.     Managerial Competence

4 Ownership Structure

Proprietorship

Partnership firm

Company

Co-operative society

Selection of an appropriate form of ownership structure

Nature of business- if business require pooling of capital and skill are generally run as partnership

Areas of operation- local operation require proprietorship. National and international businesses require company ownership structure.

Degree of control – direct control over business operation is required suitable ownership may be proprietorship.

Capital requirement- if capital requirement is more so it is better to choose partnership firm.

Duration of business – if business have a definite period of time it suitable for proprietorship or partnership.

Government regulation- if the owner not like much more government involvement so he can choose partnership or proprietorship.

5 Capital

Entrepreneurship capital is defined as "a region's endowment with factors conducive to the creation of new businesses" and it exerts a positive impact on the region's economic output. The production function model is developed to test this positive impact and the model is estimated for various regions in Germany. Data were acquired from a startup panel developed by the Centre for European Economic Research in Mannheim, Germany, and is based on data provided biannually from the largest German credit rating agency, Creditreform.

Evidence suggests that various measures of entrepreneurship capital contribute to output. Regions with a higher level of entrepreneurship capital show higher levels of output and productivity, while those lacking entrepreneurship capital have a tendency to generate lower levels of output and productivity. The impact of entrepreneurship capital is stronger than that of knowledge capital.Evidence indicates that entrepreneurial capital plays a very important role in the production function model presented.

6 Budgeting Project Profile Preparation

Here are seven tips and practices for creating a budget that supports your project:

1. The hardest project budget you‟ll ever write is the first one. After that, you have both a model for budgeting similar projects, and the experience for writing detailed budgets going forward. For your first budget, get help from an experienced team member or mentor. If you‟re a collaborative group, get input from everyone‟s work estimates. The point is, you don‟t have to do this alone.

2. Learn from other projects. Find a past project that was similar in type or scope to the current one, and use it a model. Some teams turn to their project management tool to mine data and information on how much time and money went into certain projectsand identify where resources were added or subtracted.

3.  Know your core costs. Start by entering coststhe absolute must-haves to get the project up and running. They include team members, equipment, software, travel, etc. Next, compare those core costs to the total budget. If your costs fit under the total cost figure, you fit under the cap. If not, you need to have that first conversation with your boss or stakeholders about how to scale the project to be completed within the budgetor about expanding the budget.

4.  Prepare to change budget estimates. Most initial estimates are just that estimates. With the common occurrences of scope creep, unexpected surprises and the nature of doing business, at some point in the project the budget can easily change. This fact just underscores the need to manage the project budget continually. Vigilant project manager compares actuals-to-date against the initial budget and then against anticipated costs toward completion at regular intervals. And then it‟s time to tweak the work plan to bring expenses in line with the total budget.

4. Monitor resources. You want your team members working on the right tasks to their full potential. Salaries are a big component of the budget, so review resource usage weekly to make sure that everyone is working the highest priorities and putting the proper amount of hours per week into their tasks.  A  project  management  tool  with  strong resource  leveling features  can  help  manage  this.

6.  Be transparent. Keep your team informed of the evolving budget forecast. Communicate what‟s expected of them to stay within budget. People might start watching how they designate hours and other costs to your project. And they‟ll understand any requests to change directions if they come up.

7.  Manage scope. Scope creep busts budgets. To avoid unplanned work that leads to cost overruns, create change orders for work that goes beyond initial project requirements, with accurate projections of additional cost. Seek additional funding for the project to cover change orders.

7 Matching Entrepreneur with the Project

Steps for 'Starting up a Business'

Introduction

An entrepreneur possessing the keen attitude for setting up a small scale unit and firmulate a business plan and take a number of steps to give shape to his business today idea. He is to prepare project report and obtain various approvals and sanctions. The various steps to be taken by entrepreneurs to start a small business unit.

Step 1 : Selection of the Product

An entrepreneur may select a product according to his own capacity and motivation. As an innovative entrepreneur he may design a new product or like an imitative one he may copy an established existing product in tefirms of additional uses, comfort or saving in cost.

The economic viability of product should cover the following demand aspects,

·        Volume of existing demand in the domestic market

·        Volume of aggregate existing demand

·        Volume of potential demand

·        The degree of import substitution

·        Degree of substitution of an existing product

·        The volume of demand by big unit for ancillary product

The information can be obtained from various technical publication, state development agencies etc.

Step 2 : Selection of firm of ownership

The most commonly chosen firms of ownership for SSI are

·        Sole proprietorship

·        Family ownership

·        Partnership

·        Private limited company

The first two firms are mostly preferred for having unified control over the unit. The next two firms highly facilitate the pooling of nancial resources, managerial and technical skills and business experience.

However to an appropriate extent especially where the family ties and resources are strong, partnerships are in no way distinguishable from family concern.

Step 3 : Selection of Site

An entrepreneur has ve options for the selection of site,

1. From state development corporation like SIDCO, SIPCOT, MMDA, TNHB

2. From the industrial estate constructed by the state industrial development agency (SIDA)

3. Choose from plot/sheds developed by private developers

4. Buy private land and develop the same for industrial use

5. The last option is to select a site/shed available in free trade zone

While selecting, following factors to be considered,

·        Situated in one's native place

·        Site which enjoys all the incentives provided by the Government

·        The place near the market

·        The site which o ers a suitable labour supply and raw material

·        The site with modern infrastructural facilities

Step 4 : Designing Capital Structures

The initial capital of a new venture comes from the following sources,

·        Own capital

·        Long tem loan

·        Tefirm loan from banks and nancial institutions

In recent years, the institutional landing has increased rapidly, but it has not yet become the dominant source of funds for small industry. Bank play an important role in providing working capital nance.

However, an analysis of capital structure of small scale units reveals that the support from the nancial institution is not adequate and that they should gear up their administrative machinery and produce better performance in order to ful ll the objectives and targets adequately.

Step 5 : Acquisitions of Manufacturing know-how?

Many institution like government research laboratories, research and development divisions of industries and also individual consultants provide the manufacturing know - how. In the case of ancillary units, it is provided by the main unit itself, both domestic as well as foreign.

Sometimes, it is provided by the plant and machinery suppliers, both domestic as well as foreign. The scale of operation is linked closely with technology, nancial and market demand

Step 6 : Preparation of Project Report

It is necessary to prepare a project report according to the firmat of the loan application of the concerned team building institution. An entrepreneur may get these reports done by a consultant or technical consultancy organization.

The project report being compiled by the entrepreneur should accomplish the purpose of providing a 'Bird's eye view' of the entire spectrum of activity.

The project report may contain the following feasibility

·        Technical feasibility

·        Economic viability

·        Financial implication

·        Managerial competency

8 Feasibility Report Preparation and Evaluative Criteria

1. General Information

The feasibility report should include an analysis of the industry to which the project belongs. It should deal with the past performance of the industry. The description of the type of industry should also be given (i.e) the priority of the industry, increase in production, role of the public sector, allocation of investment funds, choice of technique etc. This should contain information about the enterprise submitting the feasibility report.

2. Preliminary Analysis of Alternatives

This should contain present data on the gap between demand and supply for the outputs

which are to be produced, date on the capacity that would be available from projects that are in production or under implementation at the time the report is prepared.

All opinions are technically feasible should be considered at this preliminary stage. An account of the foreign exchange requirement should be taken. The profitability of di erent opinions should also be looked into an account of the foreign exchange requirement should be taken.

3. Project Description

The feasibility report should provide a brief description of the technology chosen for the project. Information relevant for determining the optimality of the location chosen should also be included.

To assist on the assessment of the environmental e ects of the project very feasibility report must present the information on specificpoint (i.e) population, water, land air, e ects raising out of the project pollution, other environmental disruption etc.

Report should contain a list of important items of capital equipment and also the list of the operational requirements of the plant, requirement of water, power, personnel, organizational structure envisaged, transport cost and factors a ecting it.

4. Marketing Plan

It should contain the following items/ data on the marketing plan. Demand and prospective supply in each of the area to be served.

The method and the data used for making estimates of domestic supply and selection of the market area should be presented.

Estimates of the degree of price sensitivity should be presented. It should contain an analysis of past trends in prices.

5. Capital Requirement and Cost

The estimates should be reasonably complete and properly estimated information on all items of costs should be carefully collected and presented.

6. Operating Requirements and Cost

Operating cost are essentially those cost which are included after the commencement of commercial production.

Information about all items of operating cost should be collected. Operating cost relate to

cost of raw materials and intermediaries, fuels, utilities, labour, repair and maintenance, selling and other expenses.

7. Financial Analysis

The purpose of this analysis is to present measures to assess the nancial viability of the project. A performance balance sheet for the project data should be presented.

Depreciation should be allowed on the basis specifiedby the Bureau of public enterprises. Foreign exchange requirements should be cleared by the department of economic a airs.

The feasibility report should take into account income tax rebates for priority industries, incentives for backward areas, accelerated depreciation etc.

The sensitivity analysis should also be presented. The report must analyse the sensitivity of the rate on the level and pattern of product prise.

8. Economic Analysis

Social profitability analysis need some adjustments in the data relating to the cost and return to the enterprises. One important type of adjustment involves a correction in input and cost to react the true value of foreign exchange, labour and capital.

The enterprise should try to access the impact of its operation on foreign trade. Indirect cost and benefits should be included. If they cannot be quantified they should be analyzed.