

Unit 3
Business
 Plan
To make that path as smooth as possible, The
businessman needs a BUSINESS PLAN
It is a blue print of a business
It is a statement of what an entrepreneur
hopes to achieve in his business and how he
is going to achieve it.
 Business Plan…….

Business plan is a written document prepared by the
entrepreneur that…..
 …..describes all the relevant internal & external elements
involved in starting a new venture,
 ….illustrates the business, its products/services,
 ….explains the leadership, staffing, financing, operations and
revenue models to be applied for success,
 ….identifies all stakeholders and their expected
contributions /returns.
It is often an integration of functional plans such as finance,
Marketing, Manufacturing and Human resources.
 
 Entrepreneurs prepare business plans as part of the start up
process
 Existing businesses often write business plans when changing
direction or strategy
 Most business plans cover the company’s first three to five
years.
 Business plan is recommended for all start-ups because it
serves as the business roadmap
 The entrepreneur may consult with many other sources in its
preparation, such as lawyers, accountants, marketing
consultants, and engineers.
 Importance of Business plan


-
• It helps owners of the firm to run their company with a more
consistent vision.
• It reminds an entrepreneur to engage in a rigorous, thoughtful and
useful process by warranting him to answer questions about his
venture –
Why is there a need for his Product/Service?
Who are the target customers?
How is his product/Service different from his competitors?
What is the competitive advantage that he enjoys?
How should the business be funded
and the like?
• It helps the owner determine, among other things:
• The amount of funding needed to start the business
-• The equipment or facilities needed for operation
• Optimum location
• Whether it needs employees and if so, what they will do
• Business plan is used for planning out specific
details about the business
• It defines what the business is or what it intends to
be overtime
• It provides for a better direction towards growth
and effective ways to adapt to changes.
• It conveys the organizational structure of business.
• It helps determine the viability of the venture in a
designated market and shows whether or not a
business has the potential to make a profit
• It can be designed as a sales tool
• It serves as an important tool to obtain financing.
 Objectives of a Business Plan
• To give the direction to vision of the entrepreneur
• To evaluate the future prospects of the business
• To monitor the progress after the implementation of the plan
• To seek loans from financial institutions
• To facilitate the decision making process
• To persuade others to join the business
• To identify the strengths and weaknesses present in the internal
environment
• To identify the opportunities and threats in the external environment
• To assess the feasibility of the business
 Business plan Preparation
(Certain guidelines in relation to preparing a business plan)


- Do understand that the planning process is critical to running a
successful business.
- Do utilize the business plan outline to determine what to include in
your plan
- Ensure the plan fits you
- Be clear in your objectives
- Do include market research
- Do include a financial plan and projections
- Do explain how the plan relates to the financial projections
- Explain both strengths and weaknesses of the business data
- Do revise and modify your plan as circumstance s change
Business plan Format

 Executive Summary (2 pages)
Summarises the most important aspects of the plan. 
• plan readers will read the executive summary and then decide whether to
proceed further or discard the plan.
• Key elements :
– Business concept: A description of the business, its products and the market it will
serve. Answers to what will be sold, to whom and how it has a competitive
advantage.
– Financial features: like sales, profits, cash flows and return on investment.
– Financial requirements: capital needed to start and expand the business, as well as
how the capital will be used.
– Current business position: Provide an overview of the company, its legal form of
operation, when it was formed, the principal owners and key personnel.
– Major achievements: Highlight any developments within the company that are
essential to its success. This includes things like patents, prototypes, locations,
contract that need to be in place and results from test marketing already
conducted.
 Description of the industry
• Explains
– whether the business is retail, wholesale, food service,
manufacturing or service-oriented?
– how big the industry is and why it has become so popular.
– trends currently influencing the growth of the industry.
– how much opportunity is there in the industry.
General Company Description (1 – 2 pages)

It includes:
• Name of the company, type of legal entity, ownership,
significant assets.
• Mission statement
• Company goals and objectives
• Company SWOT and core competencies
• The target market and how product will be distributed to the
market along with support systems like advertising,
promotions and customer service
• USPs of company and the product
• How the profit is earned
 The Opportunity, Industry & Market
Description (2 – 3 pages)
Done to define target market, establish market and to
position the products, establish pricing, distribution
and promotional strategies and to ascertain growth
potential.
a) The Opportunity
• Explains the gap that exists in the market
• What is the reason for this gap,
• How it was identified and how it can be filled.
• How gap filling helps make profit.
• b) The Industry :
• Forces affecting the industry are identified by discussing barriers to
entry, suppliers, customers, substitute products and competition
and changes affecting the industry.
c) The Market
• Present knowledge about market identified to operate in.
• What is the total size of the market?
• How fast is the market growing?
• What percentage share of the market that the company has
planned?
• What are the major trends in target market – trends in consumer
preferences, demographic shifts and product development?
 Strategy (1-2 pages)
• How the business will compete in the chosen markets.
• The specific attributes that are not there in competitor’s product
• Positioning /marketing strategy against the competitors strategy.
(Positioning strategy points out how customers and competitors would
perceive the products of the company. )

• The focus of the business: broad mass market or a specific niche?

• How the business will succeed in the market?
• What is unique about the business?
• How is the offering different from that of competitors?
• What is the value for the customers?
 Business Model Explanation (1 page)
• A business model is considered as
– the profit-making engine of the business,
– central to a business’s success
– a strong determining point of the future & success.
• Business model includes
– what the company offers in terms of products or services;
– what makes that offer unique;
– whom it is sold to;
– how the money is made.
• Business model also identifies the sources related to revenue
– The major costs involved
– The profitability of the business (revenue less costs)
– The investment required to get the business up and running (to get to scale)
– The critical success factors and assumptions for making the profit model work
 Team: Management & Organisation (2
pages)
Includes description of the people behind the business.
• A list the founders including their qualifications and experience
• A description of who will manage the business on a day-to-day basis.
• What experience do these individuals bring to the business?
• What special or distinctive competencies do they offer?
• An organisational chart showing the management hierarchy and
responsibility for key functions (including position descriptions for key
employees)
• This section will also explain the logistics, including the responsibilities of
each member of the management team, the tasks assigned to each
division of the company (if applicable), and the capital and expense
requirements for operating the business.
• Apart from the managers, this section also specifies what type of support
staff will be needed for the business to run efficiently.
 Marketing Plan (2 – 3 pages)
• The product (or service) and why it is valuable to customers
• The focused and detailed description of the target market
• The positioning of the product or service – how it should be perceived
by customers
• The pricing strategy with specific price points at which the product or
service will be sold
• The sales and distribution channels that will be used to get the product
or service to the customer
• The promotion strategy including public relations activities, specific
promotions, advertising and intended viral marketing activities,
including the advertising budget, creative messages for advertisements
and at least the first quarter’s media schedule
• Description of the packaging strategy and possibly even mockups of
labels, trademarks or service marks.
 Operational Plan (2 pages)
• Describes how the business functions on a continuing basis.
• Operational plan include a description of
– the operating cycle (what the compay has to do to deliver its
service or create and sell its product)
– where all the necessary skills and materials will be sourced
– What will be outsourced, what relationships are in place and how
those relationships will be managed
– The cash receipts and cash payment cycle of the business
– any potential benefits or pitfalls to the community such as new
job creation, economic growth and possible effects on the
environment from manufacturing
– and how they will be handled to conform with regulations.
 Financial Plan (3 – 5 pages)
• The financial plan is a reasonable estimate of company’s financial
future, that includes:
– Start-up expenses and capitalisation: a description and explanation of what
it will cost to launch the business and where to get this money from.
– 12-month profit and loss projection (month-by-month) and a three-year
profit and loss projection (quarter-by-quarter)
– A 12-month cash-flow projection and a three-year cash-flow projection
(quarter-by-quarter)
– A projected balance sheet at start-up and at the end of years one to three
– A break-even calculation
• The above details must be made very presentable as an astute
investor will look at the charts, table, formulae and spreadsheets in
the plan.
• The three most important financial statements to include in your
business are the income statement, cash flow statement and
balance sheet.
 Appendix
Includes additional documents that the reader of the business plan may want
to refer to, such as:
• Brochures and advertising materials
• Industry studies
• Blueprints and plans
• Maps and photos of location
• Magazine or other articles
• Detailed lists of equipment owned or to be purchased
• Copies of leases and contracts
• Letters of support from future customers
• Any other materials needed to support the assumptions in this plan
• Market research studies
• List of assets available as collateral for a loan
• Detailed financial calculations and projections.
Financial aspects of a business plan
• Financial institutions, investors and lenders will want to
know
• why an entrepreneur need their money,
• how he is going to use it, and
• how he plans to repay them.
• The financial section of a business plan provides this
information to prospective lenders.
Financial aspects of a business plan
• Plan of Finance
• Includes the financial aspects viz..,
– Sales forecast.
– Expenses budget.
– Cash flow statement.
– Income projections.
– Assets and liabilities.
– Breakeven analysis.
 income statement
• The financial document that is used to calculate
a business's revenue, costs, and expenses over
a specific period of time
• Also often called as profit and loss statement

Total Sales-Returns and Allowances

= Net Sales- Cost of Goods Sold
= Gross Profit-Expenses of Operating the Business
= Net Income from Operations-Income Taxes
= Net Profit
• Calculate estimated sales volume and verify it by
comparing it with projected industry figures for size of
business and location.
• Quality of market research and analysis ensures
perfect estimated sales volume
• Calculating Net Sales
–The total of all sales for any period of time is = gross sales.
–Net sales = gross sales minus all sales returns and allowances.
• Cost of Goods Sold
• The total amount spent to produce or to
purchase the goods that are sold is called the
cost of goods sold.
=Beginning Inventory+ Net Purchases- Ending Inventory
Determining Gross Profit (is the difference
between the net sales and the cost of goods sold.)
=Net Sales-Cost of Goods Sold

• For service businesses, gross profit is the same as net

sales.
Projecting Business Expense

–Operating expenses are the costs of operating the business, which

include both variable and fixed expenses.

–Variable expenses change from one month to the next.

 Example: advertising, office supplies, telephone, and utilities

–Fixed expenses are costs that remain the same for a period of time.
 Example: depreciation, insurance, rent, and office salaries
Calculating Payroll Expenses
• Estimate the number of employees needed, then
research typical salaries in the geographical
area of operation, and related taxes.
• A payroll journal summarizes each employee’s pay
period, hours worked, earnings, deductions, and net pay.
Calculating Total Expenses

–To calculate total expenses, add all the variable expenses

to the fixed expenses.
Total Expenses=Total Variable Expenses+Total Fixed Expenses
Net Income from Operations

Net income is the amount left after the total expenses are
subtracted from gross profit.
The formula for calculating net income from operations is:
Net Income from Operations =
Gross Profit on Sales-Total Expenses
Calculating Other Income

In the "Net Income From Operations" section of the income

statement, list money earned from sources other than
sales: ex:
 dividends on stocks or
 interest—money paid for the use of money borrowed
or invested
Calculating Other Expenses

The main "other expense" a new business

will be interest payments on money borrowed(Principal) to
start the business. Interest is calculated as a percentage of
the principal.
Net Profit of Loss Before Taxes

Net profit or net loss before taxes is calculated this way:

Net profit (or loss) before taxes = Net Income from
Operations + Other Income-Other Expenses
The Balance Sheet

A balance sheet is a summary of a business's assets, liabilities, and owner's

equity.
Assets are anything of monetary value that the firm owns. They are
classified as either current or fixed assets.
Current assets are expected to be converted into cash in the upcoming year.
Example: Cash in the bank, accounts receivable (money owed to you by your
customers), and inventory.
Fixed assets are used over a period of years to operate your business.
Example: Land, buildings, equipment, furniture, and fixtures.
Liabilities are amounts the business owes.
They are classified as current or long-term.
Current liabilities are the debts the business expects to pay off during the
upcoming business year.
Example: Accounts payable, notes payable, and employee salaries
Long-term liabilities are debts that are not due in the next 12 months.
Example: Mortgages and long-term loans.

Net worth is the difference between the assets of a business and its
liabilities:Assets - Liabilities = Net Worth
Cash Flow Statement
A cash flow statement is a monthly plan that shows when
it is anticipated cash coming into the business and when it
is expected to pay out cash. A cash flow statement helps to
see if businesses will have enough money when they need
to pay their bills.
Loans
The money businesses borrow to keep themselves going
through start-up and through slow sales months.
Marketing aspects of a business plan
 Target Customers
• This section describes the customers targeted, their
demographic profile (e.g., age, gender),
psychographic profile (e.g., their interests) and their
precise wants and needs as they relate to the
products and/or services offered.
 Unique Selling Proposition (USP)
• A strong unique selling proposition (USP) is of critical
importance for a company as it distinguishes it from its
competitors. (It’s a hallmark for a company)
• For example, FedEx’s USP of “When it absolutely,
positively has to be there overnight” is well-known and
resonates strongly with customers who desire reliability
and quick delivery.
• The new USP line of Fedex, "The World on Time," which
is far less powerful because it doesn't contain a USP.
• Sales includes all ways of reaching target customers.
• In this section various means of selling such as:
– The Internet
– Catalogs
– Retail outlets
– Trade shows
– E-mail marketing
– Search engine marketing (SEM)
• Are explained.
• This section also includes charts or graphs to represent
potential sales growth patterns.
 Pricing & Positioning Strategy
• Both pricing and positioning strategies must be
aligned.
• For example, if an entrepreneur wants his company
to be positioned (known) as the premier brand in
the industry, having too low a price might not help
his plan.
• Hence in this section, explain in detail the
positioning one desires and how pricing will
support it.
• Pricing has to be Carefully determined so that it is in
line with the market a business is trying to reach.
• Factors influencing the pricing strategies:
– Costs of purchasing or manufacturing goods
– Time involved in performing a service and/or making a sale
– Economic factors and market conditions
– Location
– Competition
– Consumer needs
– Availability of a product
 Distribution Plan
• Distribution plan details how customers will buy the
product.
– Will customers purchase directly from a brick and mortar
shop or on the website?
– Will they buy from distributors or other retailers?
– Telephone orders are a possibility?
 Company Offers
• Company offers help secure more new customers and
drive former customers back to company.
• Offers may include free trials, money-back
guarantees, packages (e.g., combining different
products and/or services) and discount offers.
• Though company offers are not a MUST, but using
them will generally cause customer base to grow
more rapidly.
 Marketing Materials
• Marketing materials are the collateral being used to
promote the products/services to current and
prospective customers.
• They include your website, print brochures, business
cards, catalogs and so on.
 Promotions Strategy
• The promotions section is one of the most important
sections of your marketing plan and details how you
will reach new customers.
• There are numerous promotional tactics, such as
television ads, trade show marketing, press releases,
online advertising, and event marketing.
• In this section of your marketing plan, consider each
of these alternatives and decide which ones will most
effectively allow you to reach your target customers.
• Additionally, what type of promotional campaign will
the company use?
– Product giveaways or demonstrations
– Contests
– Trade shows
– Special events
– Point of purchase displays
– Coupons and discounts
– Sponsoring local activities
– Viral marketing
 Online Marketing Strategy
• Most of the customers go online to find and/or review new products
and/or services to purchase.
• Hence, having the right online marketing strategy can help secure new
customers and gain competitive advantage.
• The four key components of online marketing strategy are as follows:
– Keyword Strategy: identify what keywords would optimize the company
website.
– Search Engine Optimization Strategy: document updates made in the website
so that it shows up more prominently in the search results.
– Paid Online Advertising Strategy: Explain the online advertising programs
company adapts to reach target customers.
– Social Media Strategy: document how the company will use social media
websites to attract customers.
• The methods(media) used to reach target audience.
– Print media
– Television
– Radio
– The Internet
– Direct mail
 Conversion Strategy
• Conversion strategies refer to the techniques employed to
turn prospective customers into paying customers.
• For example,
– improving your sales scripts (description, capabilities, and the price
of the product or service, and it acts as the sales agent's reference
when engaging a customer) can boost conversions.
– Likewise increasing the social proof (e.g., showing testimonials of
past clients who were satisfied with company products/services)
will always boost conversions and sales.
• In this section of business plan, explain which conversion-
boosting strategies the company will use.
 Joint Ventures & Partnerships
• Joint ventures and partnerships with other organizations, help
reach new customers or better monetize existing customers.
• For example, for a company selling guitar strings, it could be
quite lucrative to partner with a guitar manufacturer who had
a list of thousands of customers to whom it sold guitars (and
who probably need replacement strings in the future).
• Many of the companies who sell same products and/or
services could be good partners.
• A mention about such companies in this section of business
plan would add a great value.
 Referral Strategy
• A strong customer referral program could
revolutionize a company’s success.
• For example, if every one of a company’s customers
referred one new customer, the company’s customer
base would constantly grow.
 Retention Strategy
• Many organizations spend too much time and energy
trying to secure new customers versus investing in
getting existing customers to buy more often.
• By using retention strategies such as a monthly
newsletter or customer loyalty program, companies
can increase revenues and profits by getting
customers to purchase more frequently over time.
 Financial Projections
• The expected promotional expenses and expected
results in terms of new customers, sales and profits.
• The expected expenses on retention strategy and
expected results from retention strategy.
• And so on.
Common pitfalls in preparation of
Business Plan
 Poorly written plan
• When financiers see a business plan with spelling,
punctuation and grammar errors, they immediately
wonder what else is wrong with the business.
• But since there's no shortage of people looking for
capital, they don't wonder for long--they just move
on to the next plan.
 Sloppy presentation of plan
• Nothing irritates investors more than inconsistent
margins, missing page numbers, charts without labels
or with incorrect units, tables without headings,
technical terminology without definitions or a missing
table of contents.
 Incomplete plan
• Plan must cover customers, products and services,
operations, marketing and sales, a management
team, competitors, should include a discussion of the
industry, particularly industry trends(such as if the
market is growing or shrinking) ,financial projections--
monthly cash flow and income statements, as well as
annual balance sheets--going out at least three years.
 Vague plan
• If an entrepreneur is trying to keep the information
vague as his business involves highly confidential
material, processes or technologies, then he should
show the investors an executive summary first (which
should never contain any proprietary information).
• If investors are interested in learning more about the
business, then, have them sign a non-compete and
non-disclosure agreement before showing them the
entire plan. 
 Too detailed plan
• Do not write too much technical details.
• Use appendix for details.
• This way, anyone reading the plan can get the
amount of detail he or she wants.
Unfounded or unrealistic assumptions made
in the plan.
• For all assumptions provide some sort of
rationalization.
• Market size, acceptable pricing, customer purchasing
behavior, time to commercialization--these all involve
assumptions.
 Inadequate research in the plan
• Many a times an entrepreneur do not complete the
survey determining….
……….Customer purchasing habits, motivations and
fears; competitor positioning, size and market share;
and overall market trends……

……and forgets that these have to be presented in terms

of numbers, charts and statistics to back up any
assumptions or projections made
 Claiming “NO COMPETITION”
• Every successful business has competitors, both
direct and indirect.
• Entrepreneurs should plan for stiff competition from
the beginning.
• If there are no direct competitors today, they will
appear once business is successful.
 Diluted priorities
• A priority list with only three to four items is practical
to have.
• A priority list with 20 items is certainly not a good
strategy, and in-effective.
• The more items on the list, the less the importance of
each.
 Idea inflation
• Don’t overestimate the importance of the idea. 
• A new idea is harder to execute than an existing one.
• Hence ideas should be as realistic as possible.
• Hiding Weaknesses
• Not Knowing Distribution Channels