Description
the essentials of business plan, various components of business plan, how to prepare feasibility study report, business plan sequencing, business plan table of contents
The Business Plan
Starting Your Own Business:
Chemistry of Entrepreneurship:
Elements of Venture Creation:
Outcome Quality Profitable Opportunity Technical Capability Entrepreneur or Team
positive
Excellent Moderate Transient
Pushes
Pulls Initiative •
Marginal
Living Dead Failure VENTURE
Helps
Business Capability
Resources
How the Entrepreneur Operates
Potential Entrepreneur
Probable Opportunity
Bonding the entrepreneur with the opportunity and evaluating as necessary
Preparing a detailed business plan
Finding resources including finance and completing formalities
New Enterprise
Enterprise start-up activities
Feasibility Study: A Schematic Diagram
P r e l i m i n a r y w o r k A n a l y s i s
Generation of ideas Initial Screening
Is the Idea Prima Facie Promising?
Yes Plan Feasibility Analysis No Terminate
Conduct Market Analysis
E v a l u a t i o n
Conduct Technical Analysis
Conduct Financial Analysis Conduct Economic and Ecological Analysis Is the Project Worthwhile? No Yes
Prepare Funding Proposal
Terminate
Project Formulation
?
1.
Main Ingredients
Entrepreneur – Background – Experience Product Market Infrastructure Raw materials Plant & machinery Technology Workers, skills Finance
2. 3.
4.
5. 6. 7. 8. 9.
?
Other Factors
? ?
Government Regulations, Policies, Incentives Environmental considerations PLANNING
Analysis Communication (gain support)
(collect & process info.) Action
(Projects, obj.)
Success
Synthesis
(create strategy)
Business Plan Preparation
?
Business Plan - A Detailed Project Report - Feasibility Report - Plan of Action
? ? ?
Why write a Business Plan? What is Project Profile / Pre-feasibility Report? Who would prepare the Business Plan?
Business Planning Sequence
Business Plan Reveals the Ability to:
?
?
?
?
Create or add significant value to a customer Solve significant problem or meet a significant want or need To have robust market, margin, profitability, strong cash flow, ROI and high growth Fit well with promoters / founders and the management team.
Essentials of Business Plan
? ? ? ? ?
? ?
Project concept, project at a glance Management team Market feasibility Technical feasibility Financial viability – COP, MOF, CoP, Profitability, Cash flow, Break even, DSCR, ROI, Pay back period, IRR / NPV Economic and ecological analysis Summary & conclusions
Key Questions
?
?
?
?
?
What is the basic idea for the new product or service? Why is this new product useful or appealing – and to whom? How will the idea for the new venture be realised – producing the product, marketing, competition? Who are the entrepreneurs – knowledge, experience? If the plan is designed to raise money, how much, what type of financing, how will it be used?
?
The plan is an orderly, succinct, and persuasive document Please note that
? ?
?
The plan may become obsolete at the printer
The plan is not the business
Seven Sins for New Venture Business Plans
1. The plan is poorly prepared and has an unprofessional look. 2. The plan is far too slick. 3. The executive summary is too long and rambling – it doesn’t get right to the point. 4. It’s not clear where the product is in terms of development – does it exist or not? Can it be readily manufactured?
5. No clear answer is provided to the question: “why would anyone ever want to buy one?” 6. There is no clear statement of the qualifications of the management team. 7. Financial projections are largely an exercise in wishful thinking.
Four Dynamic Components of Venture Creation Process:
• the PEOPLE provide resources & perform • the OPPORTUNITY requires investments; gives future returns • the EXTERNAL CONTEXT, factors effecting opportunity: interest rate, regulation, economic changes, competition • the DEAL contractual relation between entity and resource providers
Degree of fit between
1 & 2, 3, 4 2 & 1, 3, 4 3 & 1, 2, 4 4 & 1, 2, 3
Degree of fit is the answers to questions:
1.
To what degree do the people have the right experience, skills and attitudes, given the nature of the opportunity, the context and the deal? To what degree the opportunity make sense, given the people involved, the context, and the deal?
2.
3.
To what degree the context favourable for the venture, given the people, opportunity and the deal?
To what degree the deal involved make sense, given the people, opportunity and the context? Excellence in any single dimension is not sufficient.
4.
?
?
What can go wrong?
What can go right? What decisions can management make today and in future to ensure that:
? ?
“What can go right” “What can go wrong” prevented
does go right avoided,
• Risk – reward ratio favourable
“Buy low, sell high,
Collect early, pay late” “From whom you raise capital is often more important than the terms” “Business plans are neither necessary nor sufficient”
- Who are the people?: team - What is the nature of opportunity? - What contextual factors will affect the venture?
- What deals are to be stuck, inside / outside the venture?
- What are the decisions to increase reward to risk ratio?
Preparing a Business Plan
?
Business plan Table of Contents
?
?
Executive summary
The industry and the company and its product(s) or service(s) Market research and analysis The economics of the business
? ? ? ?
Marketing plan
Design and development plans
? ?
Manufacturing and operations plan Management team
?
? ? ? ?
Overall schedule
Critical risks, problems, and assumptions The financial plan Proposed company offering Appendices
Alternatively:
PROJECT PROFILE / D.P.R.
CONTENTS:
? ?
? ? ? ?
Introduction Promoters Background; Constitution of Organisation Market Potential Product / service range & specification; Cap. Process Of Manufacture. Plant & Machinery – Sources, Specification, prices
?
? ? ? ? ? ? ?
?
?
Land, building & civil works; Water, power Location and Other Infrastructure Raw Materials Technical Know-how Plant Layout Manpower Production Programme Implementation Schedule Cost of Project: (Explanatory Notes) Means of Finance (Explanatory Notes)
? ? ? ?
Cost of Production & Profitability Financial Indicators Summary & Conclusions Annexure
Market analysis
?
What would be the aggregate demand of the proposed product / service in future? What would be the market share of the project under appraisal?
?
?
Consumption trends in the past and the present consumption level
?
?
Past and present supply position
Production possibilities and constraints
? ? ? ?
Imports & exports Structure of competition Cost structure Elasticity of demand
?
? ?
Consumer behaviour, intensions, motivations, etc.
Distribution channel & marketing policies
Administrative, technical and legal constraints
Technical Analysis
?
Analysis of technical and engineering aspects is done continually when a project is being examined and formulated.
?
Manufacturing process / technology
?
? ? ?
Technical arrangements
Materials and inputs Product mix Plant capacity
?
? ?
Land, building & civil works; Water, power Location and Other Infrastructure Raw Materials Machineries and equipments
Plant Layout Structures and civil works Manpower Implementation Schedule
?
? ? ? ?
? ?
Environmental aspects Project charts and layouts
?
?
Project implementation schedule
Need for considering alternatives
Technical analysis – Important questions:
? ?
?
?
?
Whether the preliminary tests and studies have been done or provided for? Whether the availability of raw materials, power, and other inputs has been established? Whether the selected scale of operation is optimal? Whether the production process chosen is suitable? Production Programme – phase wise
Financial analysis
? ? ? ? ?
Investment outlay and cost of project
Means of financing
Projected profitability Cash flows of the project Investment worth whileness judged in terms of various criteria of merit.
? ?
Projected financial position
Level of risk
COST OF PROJECT
? ?
?
? ? ? ? ? ? ?
Land & Land Development ----Building ----Plant & Machinery ----Miscellaneous Fixed Assets ----Deposits ----Technical Know-how Fees ----Preliminary & Pre-operative expenses ----Interest during Implementation ----Contingencies ----Working Capital Margin ----Total: -----
MEANS OF FINANCE
? ? ? ? ?
?
?
Term Loans Subsidy / Soft loan Promoter's Contribution / Equity Venture Capital Unsecured Loan Debentures Deferred Credit
-------------------------------------------
Total -------
Financial Estimates and Projections
? ? ? ? ?
? ? ?
Cost of project Means of financing Estimates of sales and production Cost of production Working capital requirement and its financing Profitability projections Projected cash flow statements Projected balance sheets
Cost of Production
?
Material cost
?
? ?
Utilities cost
Labour cost
Factory overhead cost
Profitability Projections
A. B. C. D. E. F. G. H. I.
Cost of production Total administrative expenses Total sales expenses Royalty and know-how payable Total cost of production (A+B+C+D) Expected Sales Gross profit before interest Total financial expenses Depreciation
J. K. L.
Operating Profit (G – H – I)
Other income Preliminary expenses written off
M.
N. O.
Profit / loss before taxation (J + K – L)
Provision for taxation
Profit after tax (M – N)
? ?
Preference capital Equity capital
P. Q.
Retained profit
Net cash accrual (P + I + L)
Origin of cost items for profitability calculation (return on equity)
Direct material Raw material Auxiliary material Utilities Factory supplies Spares, tools etc. Direct manpower Salaries & wages Benefits and Social Security contributions Overhead manpower Management Functional staff Factory supervision Indirect labour Factory & Administrative Overhead Auxiliary material & supplies Utilities Communication Repair & maintenance Rents Insurances & taxes Depreciation Buildings Machinery Tools Office equipment Vehicles Working Capital Current assets minus Current liabilities Or Permanent capital Minus Fixed capital
Operating costs + + Sales and distribution costs Sales forecasting =
a Calculate
Working capital + + Fixed investment Pre-production capital Rents expenditures
Depreciation Financial costs Total production costs Sales revenue ¯ Net earnings (-)a Return on equity = Success or failure
=
=
¯ =
Total investment costs
Borrowings Equity capital
bFixed
corporate income tax if applicable investments: Chapter X based on chapters V, VI
Business Plan Presentation
? ?
?
?
?
? ?
?
Is very Important Prepare well Choose the content carefully Remember, you are trying to persuade not overwhelm Show enthusiasm – but temper with reality Rehearse Don’t overlook basics Adopt a co-operative, helpful approach to questions
doc_459213483.ppt
the essentials of business plan, various components of business plan, how to prepare feasibility study report, business plan sequencing, business plan table of contents
The Business Plan
Starting Your Own Business:
Chemistry of Entrepreneurship:
Elements of Venture Creation:
Outcome Quality Profitable Opportunity Technical Capability Entrepreneur or Team
positive
Excellent Moderate Transient
Pushes
Pulls Initiative •
Marginal
Living Dead Failure VENTURE
Helps
Business Capability
Resources
How the Entrepreneur Operates
Potential Entrepreneur
Probable Opportunity
Bonding the entrepreneur with the opportunity and evaluating as necessary
Preparing a detailed business plan
Finding resources including finance and completing formalities
New Enterprise
Enterprise start-up activities
Feasibility Study: A Schematic Diagram
P r e l i m i n a r y w o r k A n a l y s i s
Generation of ideas Initial Screening
Is the Idea Prima Facie Promising?
Yes Plan Feasibility Analysis No Terminate
Conduct Market Analysis
E v a l u a t i o n
Conduct Technical Analysis
Conduct Financial Analysis Conduct Economic and Ecological Analysis Is the Project Worthwhile? No Yes
Prepare Funding Proposal
Terminate
Project Formulation
?
1.
Main Ingredients
Entrepreneur – Background – Experience Product Market Infrastructure Raw materials Plant & machinery Technology Workers, skills Finance
2. 3.
4.
5. 6. 7. 8. 9.
?
Other Factors
? ?
Government Regulations, Policies, Incentives Environmental considerations PLANNING
Analysis Communication (gain support)
(collect & process info.) Action
(Projects, obj.)
Success
Synthesis
(create strategy)
Business Plan Preparation
?
Business Plan - A Detailed Project Report - Feasibility Report - Plan of Action
? ? ?
Why write a Business Plan? What is Project Profile / Pre-feasibility Report? Who would prepare the Business Plan?
Business Planning Sequence
Business Plan Reveals the Ability to:
?
?
?
?
Create or add significant value to a customer Solve significant problem or meet a significant want or need To have robust market, margin, profitability, strong cash flow, ROI and high growth Fit well with promoters / founders and the management team.
Essentials of Business Plan
? ? ? ? ?
? ?
Project concept, project at a glance Management team Market feasibility Technical feasibility Financial viability – COP, MOF, CoP, Profitability, Cash flow, Break even, DSCR, ROI, Pay back period, IRR / NPV Economic and ecological analysis Summary & conclusions
Key Questions
?
?
?
?
?
What is the basic idea for the new product or service? Why is this new product useful or appealing – and to whom? How will the idea for the new venture be realised – producing the product, marketing, competition? Who are the entrepreneurs – knowledge, experience? If the plan is designed to raise money, how much, what type of financing, how will it be used?
?
The plan is an orderly, succinct, and persuasive document Please note that
? ?
?
The plan may become obsolete at the printer
The plan is not the business
Seven Sins for New Venture Business Plans
1. The plan is poorly prepared and has an unprofessional look. 2. The plan is far too slick. 3. The executive summary is too long and rambling – it doesn’t get right to the point. 4. It’s not clear where the product is in terms of development – does it exist or not? Can it be readily manufactured?
5. No clear answer is provided to the question: “why would anyone ever want to buy one?” 6. There is no clear statement of the qualifications of the management team. 7. Financial projections are largely an exercise in wishful thinking.
Four Dynamic Components of Venture Creation Process:
• the PEOPLE provide resources & perform • the OPPORTUNITY requires investments; gives future returns • the EXTERNAL CONTEXT, factors effecting opportunity: interest rate, regulation, economic changes, competition • the DEAL contractual relation between entity and resource providers
Degree of fit between
1 & 2, 3, 4 2 & 1, 3, 4 3 & 1, 2, 4 4 & 1, 2, 3
Degree of fit is the answers to questions:
1.
To what degree do the people have the right experience, skills and attitudes, given the nature of the opportunity, the context and the deal? To what degree the opportunity make sense, given the people involved, the context, and the deal?
2.
3.
To what degree the context favourable for the venture, given the people, opportunity and the deal?
To what degree the deal involved make sense, given the people, opportunity and the context? Excellence in any single dimension is not sufficient.
4.
?
?
What can go wrong?
What can go right? What decisions can management make today and in future to ensure that:
? ?
“What can go right” “What can go wrong” prevented
does go right avoided,
• Risk – reward ratio favourable
“Buy low, sell high,
Collect early, pay late” “From whom you raise capital is often more important than the terms” “Business plans are neither necessary nor sufficient”
- Who are the people?: team - What is the nature of opportunity? - What contextual factors will affect the venture?
- What deals are to be stuck, inside / outside the venture?
- What are the decisions to increase reward to risk ratio?
Preparing a Business Plan
?
Business plan Table of Contents
?
?
Executive summary
The industry and the company and its product(s) or service(s) Market research and analysis The economics of the business
? ? ? ?
Marketing plan
Design and development plans
? ?
Manufacturing and operations plan Management team
?
? ? ? ?
Overall schedule
Critical risks, problems, and assumptions The financial plan Proposed company offering Appendices
Alternatively:
PROJECT PROFILE / D.P.R.
CONTENTS:
? ?
? ? ? ?
Introduction Promoters Background; Constitution of Organisation Market Potential Product / service range & specification; Cap. Process Of Manufacture. Plant & Machinery – Sources, Specification, prices
?
? ? ? ? ? ? ?
?
?
Land, building & civil works; Water, power Location and Other Infrastructure Raw Materials Technical Know-how Plant Layout Manpower Production Programme Implementation Schedule Cost of Project: (Explanatory Notes) Means of Finance (Explanatory Notes)
? ? ? ?
Cost of Production & Profitability Financial Indicators Summary & Conclusions Annexure
Market analysis
?
What would be the aggregate demand of the proposed product / service in future? What would be the market share of the project under appraisal?
?
?
Consumption trends in the past and the present consumption level
?
?
Past and present supply position
Production possibilities and constraints
? ? ? ?
Imports & exports Structure of competition Cost structure Elasticity of demand
?
? ?
Consumer behaviour, intensions, motivations, etc.
Distribution channel & marketing policies
Administrative, technical and legal constraints
Technical Analysis
?
Analysis of technical and engineering aspects is done continually when a project is being examined and formulated.
?
Manufacturing process / technology
?
? ? ?
Technical arrangements
Materials and inputs Product mix Plant capacity
?
? ?
Land, building & civil works; Water, power Location and Other Infrastructure Raw Materials Machineries and equipments
Plant Layout Structures and civil works Manpower Implementation Schedule
?
? ? ? ?
? ?
Environmental aspects Project charts and layouts
?
?
Project implementation schedule
Need for considering alternatives
Technical analysis – Important questions:
? ?
?
?
?
Whether the preliminary tests and studies have been done or provided for? Whether the availability of raw materials, power, and other inputs has been established? Whether the selected scale of operation is optimal? Whether the production process chosen is suitable? Production Programme – phase wise
Financial analysis
? ? ? ? ?
Investment outlay and cost of project
Means of financing
Projected profitability Cash flows of the project Investment worth whileness judged in terms of various criteria of merit.
? ?
Projected financial position
Level of risk
COST OF PROJECT
? ?
?
? ? ? ? ? ? ?
Land & Land Development ----Building ----Plant & Machinery ----Miscellaneous Fixed Assets ----Deposits ----Technical Know-how Fees ----Preliminary & Pre-operative expenses ----Interest during Implementation ----Contingencies ----Working Capital Margin ----Total: -----
MEANS OF FINANCE
? ? ? ? ?
?
?
Term Loans Subsidy / Soft loan Promoter's Contribution / Equity Venture Capital Unsecured Loan Debentures Deferred Credit
-------------------------------------------
Total -------
Financial Estimates and Projections
? ? ? ? ?
? ? ?
Cost of project Means of financing Estimates of sales and production Cost of production Working capital requirement and its financing Profitability projections Projected cash flow statements Projected balance sheets
Cost of Production
?
Material cost
?
? ?
Utilities cost
Labour cost
Factory overhead cost
Profitability Projections
A. B. C. D. E. F. G. H. I.
Cost of production Total administrative expenses Total sales expenses Royalty and know-how payable Total cost of production (A+B+C+D) Expected Sales Gross profit before interest Total financial expenses Depreciation
J. K. L.
Operating Profit (G – H – I)
Other income Preliminary expenses written off
M.
N. O.
Profit / loss before taxation (J + K – L)
Provision for taxation
Profit after tax (M – N)
? ?
Preference capital Equity capital
P. Q.
Retained profit
Net cash accrual (P + I + L)
Origin of cost items for profitability calculation (return on equity)
Direct material Raw material Auxiliary material Utilities Factory supplies Spares, tools etc. Direct manpower Salaries & wages Benefits and Social Security contributions Overhead manpower Management Functional staff Factory supervision Indirect labour Factory & Administrative Overhead Auxiliary material & supplies Utilities Communication Repair & maintenance Rents Insurances & taxes Depreciation Buildings Machinery Tools Office equipment Vehicles Working Capital Current assets minus Current liabilities Or Permanent capital Minus Fixed capital
Operating costs + + Sales and distribution costs Sales forecasting =
a Calculate
Working capital + + Fixed investment Pre-production capital Rents expenditures
Depreciation Financial costs Total production costs Sales revenue ¯ Net earnings (-)a Return on equity = Success or failure
=
=
¯ =
Total investment costs
Borrowings Equity capital
bFixed
corporate income tax if applicable investments: Chapter X based on chapters V, VI
Business Plan Presentation
? ?
?
?
?
? ?
?
Is very Important Prepare well Choose the content carefully Remember, you are trying to persuade not overwhelm Show enthusiasm – but temper with reality Rehearse Don’t overlook basics Adopt a co-operative, helpful approach to questions
doc_459213483.ppt