Introduction

In the previous unit, we dealt with the concept of grassroots entrepreneurs. This unit will help

you to understand the concept of business plan and how to prepare a business plan. The various

sections and sub-sections of this unit will also summarize the feasibility study and importance

of a business plan. A company’s business plan is one of its most important documents. It can be

used by managers and executives for internal planning. It can be used as the basis for loan

applications from banks and other lenders. It can be used to persuade investors that a company

is a good investment. For start-up ventures, the process of preparing a business plan serves as a

road map to the future by making entrepreneurs and business owners think through their

strategies, evaluate their basic business concepts, recognize their business’s limitations, and

avoid a variety of mistakes.

Virtually every business needs a business plan. Lack of proper planning is one of the most often

cited reasons for business failures. Business plans help companies identify their goals and

objectives and provide them with tactics and strategies to reach those goals. They are not historical
documents; rather, they embody a set of management decisions about necessary steps for the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.

“By its very definition, a business plan is a plan for the business, clarifying why it exists, who it

exists for, what products and services it provides these client groups, how it intends to develop

and deliver these products and services, and where it is headed,” Rebecca Jones wrote in

Information Outlook. “A business plan is a roadmap for the organization, showing the destination

it seeks, the path it will follow to get there, and the supplies and wherewithal required to

complete the journey.”

7.1 Concept and Scope 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 of all 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:

1. Give directions to the vision formulated by entrepreneur.

2. Objectively evaluate the prospects of business.

3. Monitor the progress after implementing the plan.

4. Persuade others to join the business.

5. Seek loans from financial institutions.

6. Visualize the concept in terms of market availability, organizational, operational and

financial feasibility.

7. Guide the entrepreneur in the actual implementation of the plan.

8. Identify the strengths and weakness of the plan.

9. Identify challenges in terms of opportunities and threats from the external markets.
10. Clarify ideas and identify gaps in management information about their business,

competitors and the market.

11. Identify the resources that would be required to implement the plan.

12. Document ownership arrangements, future prospects and projected growths of the business

venture.

Preparing a business plan is not an easy task. A business plan makes the entrepreneur forcibly

plan all the critical dimensions of business and it also ensures that entrepreneur does a thorough

research about the planned business venture. The process of researching and writing the business

plan helps to identify the gaps in the existing plan. For any business venture all the functional

plans (marketing, operations/production, finance, human resources) have to be prepared.

The functional plans reveal the resources required, strategies planned and the

budgeted expenditure of each functional area and also determine when the company

would break-even and when it would begin registering profits.

Here we would like to state that preparing a business plan is not just a one-time activity, but is

an ongoing process. A successful business enterprise constantly keeps improvising its business

plan based on market dynamics and learning experiences.

Caution The challenge in preparing a business plan for an entrepreneur is to communicate

the business idea clearly and precisely to the stakeholders.

A business plan is a written document, which has to be presented to various stakeholders to get

their consent. The shareholders require it to ascertain the ownership patterns and future prospects,

the government needs it to give various certifications like pollution control, the financial

institutions like venture capitalists need it to estimate the prospects and the risks involved in

disbursing funds to the business venture.

Self Assessment

Fill in the blanks:

1. A business plan is a ……………. for starting and running a business.

2. A business plan first of all identifies an ………………….. idea.

3. The objective of a business plan is to give directions to the …………… formulated by

entrepreneur.

4. The process of researching and writing the business plan helps to identify the gaps in the

………………. plan.

5. A business plan is the ……………… of the step-by-step procedure that would be followed

to convert a business idea into a successful business venture.

7.2 Value and Importance of a Business Plan

Business plans have several major uses. These include internal planning and forecasting, obtaining

funding for ongoing operations or expansion, planned divestiture and spin-offs, 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.

When used for internal planning, business plans can provide a blueprint for the operation of an

entire company. A company’s performance and progress can be measured against planned goals

involving sales, expenditures, time frame, and strategic direction. Business plans also help an

entrepreneur or business manager identify and focus on potential problem areas, both inside

Unit 7: Building the Business Plan

and outside the company. Once potentially troublesome areas have been identified, proposed

solutions and contingency plans can be incorporated into the business plan.

Business plans also cover such areas as marketing opportunities and future financing requirements

that require management attention. In some instances – such as scenarios in which an entrepreneur

decides to turn a favorite hobby into a home-based business enterprise – the business plan can

be a simple document of one or two pages. A business proposal of significant complexity and

financial importance, however, should include a far more comprehensive plan.

Example: A tool and die manufacturer looking for investors to expand production

capacity will in all likelihood need to compose a business plan of greater depth and detail than

will a computer enthusiast who decides to launch a desktop publishing business out of his/her

home.

Ideally, everyone in the company will use the information contained in the company’s business

plan, whether to set performance targets, guide decision-making with regard to ongoing

operations, or assess personnel performance in terms of the their ability to meet objectives set

forth in the business plan. In addition, workers who are informed about the business plan can

evaluate and adjust their own performance in terms of company objectives and expectations.

Business plans can also be used in the restructuring or reorganization of a business. In such cases,

business plans describe actions that need to be taken in order to restore profitability or reach

other goals. Necessary operational changes are identified in the plan, along with corresponding

reductions in expenses. Desired performance and operational objectives are delineated, often

with corresponding changes in production equipment, work force, and certain products and/or

services.

Caselet Dhirubhai Ambani

The founder of the great Reliance Empire. He was not born with a silver spoon. His

father was a school teacher in the small village of Chorwad in the western state of

Gujarat. At the tender age of 17 he went to Aden and started working as an attendant

in a petrol pump. No one knew at that time that this teenager boy would over a period of

time, grow an empire which would turn out to be the first Indian company to be listed in

the fortune 500 companies of the world. But Dhirajlal Hirachand Ambani – known as

Dhirubhai had dreams and a vision even then. It was for these dreams that he was able to

spot that there existed a discrepancy between the rial-sterling exchange rate and the intrinsic
value of the silver content in Aden’s coinage, which was an excellent opportunity to make

money.

Using this opportunity, he made money, returned to India and established a trading house

called Reliance Commercial Corporation in Bombay in 1958. He started his business with

a mere ` 15, 000/- as capital. The first business was importing polyester yarn and exporting

spices. Then he began manufacturing cloth from polyester fibre. From the textile industry

he gradually diversified into chemicals, gas, petrochemicals, plastics, power and telecom

services. It was he who introduced the equity culture in India by establishing trust amongst

his shareholders. Dhirubhai Ambani always had big vision and worked hard to achieve

that vision. He believed in the philosophy of Think Big, Think Fast and Think Ahead. He

is being regarded as an icon of enterprise in India. Salute to Dhirubhai.

Banks and other lenders use business plans to evaluate a company’s ability to handle more debt

and, in some cases, equity financing. The business plan documents the company’s cash flow

requirements and provides a detailed description of its assets, capitalization, and projected

financial performance. It provides potential lenders and investors with verifiable facts about a

company’s performance so that risks can be accurately identified and evaluated.

Finally, the business plan is the primary source of information for potential purchasers of a

company or one of its divisions or product lines. As with outside lenders and investors, business

plans prepared for potential buyers provide them with verifiable facts and projections about the

company’s performance. The business plan must communicate the basic business premise or

concept of the company, present its strengths as well as weaknesses, and provide indications of

the company’s long-term viability. When a company is attempting to sell off a division or

product line, the business plan defines the new business entity.

Self Assessment

State whether the following statements are true or false:

6. A company’s performance and progress cannot be measured against planned goals

involving sales, expenditures, time frame, and strategic direction.

7. Business plans also cover such areas as marketing opportunities and future financing

requirements that require management attention.

8. The business plan is the secondary source of information for potential purchasers of a

company or one of its divisions or product lines.

9. The business plan must communicate the basic business premise or concept of the company.

10. Business plans can also be used in the restructuring or reorganization of a business.

7.3 Preparation and Evaluation of Business Plan

A plan, which looks very lucrative/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:

7.3.1 Preliminary Investigation

Before preparing the plan entrepreneur should:

1. Review available business plans (if any).

2. Draw key business assumptions on which the plans will be based (e.g. inflation, exchange

rates, market growth, competitive pressures, etc.).

3. Scan the external environment and internal environment to assess the strengths, weakness,

opportunities and threats.

4. Seek professional advice from a friend/relative or a person who is already into similar

business (if any).

Figure 7.1: Business Planning Process Notes

Preliminary Investigation

Idea Generation

Environmental Scanning

Feasibility Analysis

Project Report Preparation

Evaluation Control and Review

Source: Lall Madhurima (2009), Entrepreneurship and Business Plan, Excel Books Pvt. Ltd.

7.3.2 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).

Caution Value addition is the key word that an entrepreneur needs to keep in mind while

generating new ideas even at the inception stage.

Idea generation is the first stage of business planning process. This step differentiates between

an entrepreneur and a businessman. An entrepreneur is a highly creative person who gets an

innovative idea about a product or service that could be brought into the market. Let us make it

very clear again at this stage, that it is not necessary to have an idea which is entirely new; even

value added to the new products in the market is included in the innovative products/services.

Idea generation is the first stage of business planning process. It involves generation of new

concepts, ideas, products or services to satisfy the existing demands, latent demands and future

demands of the market. The various sources of new ideas are:

1. Consumers/Customers

2. Existing Companies
3. Research and Development

4. Employees

5. Dealers, retailers

The various methods of generating new ideas are:

1. Brainstorming, Reverse Brainstorming and Brain Writing

2. Group discussion

3. Data collection through questionnaires/schedules etc. from consumers, existing companies,

dealers, retailers

4. Invitation of ideas through advertisements, mails and the Internet

5. Value addition to the current products/services

6. Market research

7. Commercializing inventions

8. These days, even contests are being organized to identify business ideas like ‘business

bazigaar’ on Star TV, which invites participation in the contest and rewards the best

business plan.

Screening of the new ideas should be done so that promising new ideas are identified and

impractical ideas are eliminated.

7.3.3 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 strength

and weaknesses from the internal environment. The different variables to be scanned are in

terms of socio-cultural, economic, governmental, technological, demographic changes taking

place in the external environment and availability of raw material, machinery, finance, human

resource etc. with the entrepreneur. The various sources for gathering the information are

informal sources (family, friends, colleagues etc.) and formal sources (bankers, magazines,

newspaper, government departments, seminars, suppliers, dealers, competitors). The objective

of a successful environmental scanning should be to maximize the information and hence the

entrepreneur should collect information from as many sources as possible and then analyze

them to understand whether the given information would be supportive/obstructive to the

business venture. The more supportive the information, the greater is the confidence regarding

the success of the business.

However, few errors can also occur while carrying out this process like mechanical errors

(wrong interpretation of facts, misrepresentation of facts), inability to record fast changing

variables like technology, lack of farsightedness, etc. Also culture is varied so deep understanding

is required.

External Environment

Following are the components of external environment:

Socio-cultural Appraisal: It assesses the social and cultural norms of a society in a given period

of time. The variables that are appraised are values, beliefs, norms, fashions and fads of a

particular society. It can help in understanding the level of rigidity/flexibility of a given society

towards a new product/service/concept.

Example: The socio-cultural norms of United States and United Arab Emirates. Americans

are experimenting and adventurous whereas Arabs are conservative. If an entrepreneur wishes

to introduce an innovative product like bungee jumping, its acceptability would be more in

America than in the UAE.

Technological Appraisal: It assesses the various technological know-how available to convert

Notes
the idea into a product. It can also be done to assess the various modern technologies expected

in the near future and their receptiveness by the industry.

Example: An entrepreneur has an idea of manufacturing tobacco-free herbal cigarettes

which would not harm the health of smokers; technological appraisal can assess whether

manufacturing of this kind of product is possible or not.

Economic Appraisal: It assesses the status of economy in a given society in terms of inflation,

per capita income and consumption pattern, balance of payments, consumer price index etc. A

healthy economy offers greater opportunities for growth and development of the industry and

therefore provides greater confidence to the entrepreneur about the success of his business

venture.

Demographic Appraisal: It assesses the overall population pattern of a given geographical

region. It includes variables like age profile, distribution, sex, education profile, income

distribution etc. The demographic appraisal can help in identifying the size of target customers.

Governmental Appraisal: It assesses the various legislations, policies, incentives, subsidies,

grants, procedures etc. formulated by government for a particular industry. The softer the

government norms for the industry, the easier it is for the entrepreneur to establish and run the

business. Take for example, the government policies of subsidized electricity in Uttaranchal. A

manufacturing unit highly dependent on power has an added advantage for setting up industry

there. On the other hand, take Uttar Pradesh. Here, the electricity is not just expensive, but there

is acute shortage of it as well and entrepreneurs in UP are dependent on personal generators for

electric supply, which automatically increases the cost of product. Hence it would be a wise

decision on the part of an entrepreneur to set up/shift his manufacturing unit to Uttaranchal.

The outcome of government policies in other sectors too should be taken into reckoning while

conducting an appraisal of its policies. One such example is the government’s intentions to

allow only partial FDI in the retail segment. Because of this particular clause, multinational
retail outlets like Wal-Mart are not able to enter the Indian market, though the market potential

and financial feasibility is in abundance.

Internal Environment

Following are the components of internal environment of a business:

Raw Material: It assesses the availability of raw material now and in the near future. If the

availability of raw material is less now or would be less in future then the entrepreneur should

give a serious thought to establishing a venture as the entire system can come to a standstill due

to shortage of raw material.

Production/Operation: It assesses the availability of various machineries, equipments, tools

and techniques that would be required for production/operation.

Finance: It assesses the total requirements of finance in terms start-up expenses, fixed expenses

and running expenses. It also indicates the sources of finance that can be approached for funding.

Human Resource: It assesses the kind of human resources required and its demand and supply in

the market. This further helps in estimating the cost and level of competition in hiring and

retaining the human resources.

As stated above, the objective of environmental scanning should be to gather information from

as many sources as possible and to maximize this information for enhanced probability of

success in the business.

7.3.4 Feasibility Analysis

Feasibility study is done to find whether the proposed project (considering the above

environmental appraisal) would be feasible or not. It is important to demarcate environmental

appraisal and feasibility study at this point. Environmental appraisal 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. Hence, though feasibility study
would be dependent on environmental appraisal yet it is far more descriptive. The various

variables/dimensions are:

Market Analysis

Market analysis is to be conducted for the following reasons:

1. To estimate the demand of the proposed product/service in future.

2. To estimate the market share of the proposed product/service in future.

The demand analysis and market share is based on a number of factors like consumption pattern,

availability of substitute goods/services, type of competition etc. A wide variety of information

has to be collected to make these estimations.

A preliminary discussion with consumers, retailers, distributors, competitors, suppliers etc. is

carried out to understand the consumer preferences, existing, latent and potential demands,

strategy of competitors and practices of distributors, retailers etc. The objective of a formal

study needs to be comprehensive enough that they are able to generate the desired answers to

the following questions:

1. Who are the consumers (customers), both present and prospective?

2. What is the present and future demand?

3. How is the demand distributed seasonally (for example, air-conditioners are required

from May to September in most part of our country)?

4. How is demand distributed geographically?

5. How much price is the consumer willing to pay?

6. What is the marketing mix of competitors?

7. What marketing mix would the consumers accept?

In nearly all cases research is required to obtain enough information to answer the above

questions and to identify whether a project is feasible or not. This is done through a market

research.
Technical/Operational Analysis

Technical/Operational Analysis is done to assess the operational ability of the proposed business

enterprise. The cost and availability of technology may be of critical importance to the feasibility

of a project or it may not be an issue at all. Key questions to be answered are:

1. What are the technological needs of the proposed business?

2. What other equipment does the proposed business need?

3. From where will this technology and equipment be obtained?

LOVELY PROFESSIONAL UNIVERSITY 95

Unit 7: Building the Business Plan

4. From where can the raw material be obtained? Notes

5. What would be the equipment and technology?

Technical/Operational Analysis collects data on the following parameters:

1. Material Availability: It is imperative to assess the availability of the raw material required

for production of goods/services. The feasibility study of material should make an account

of following variables:

(a) The availability of quality and quantity of raw material

(b) The factors on which the availability of raw material is dependent

(c) Price sensitivity (elasticity) of raw material

(d) Perishable time of raw material

2. Material Requirement Planning: It is undertaken to analyze the quantity of material that

would be required to let the production run smoothly; it would be dependent on material

availability variable mentioned above.

3. Analysis of Choice of Technology: It is done to identify whether the product developed at

the idea generation stage is technologically feasible or not i.e. it answers questions like:

(a) Whether a technology for the product exists or not?

(b) If technology exists in more than one form, which technology would be more

profitable to the company?

(c) The choice of the technology would be affected by:

(i) Capacity of the plant

(ii) Amount of investment

(iii) Availability of technology

(iv) Production cost

(v) Latest developments

(vi) Quantity of planned production

(vii) Impact of environment.

4. Plant Location: Plant location refers to a fairly broad area where the enterprise is to be

established, like city, industrial zone or costal area. Plant location is the physical layout of

the business and is affected by process of production, safety of personnel, minimum

production cost, scope of expansion, proper space utilization etc.

The choice of the location is influenced by the following factors:

(a) Proximity to raw material and market

(b) Availability of infrastructure like power, transportation, water, means of

communication

(c) Favorable government policies

(d) Other factors like climatic conditions, availability of manpower etc. can affect the

decision of plant location.

5. Machinery and Equipment: Machinery and equipment is dependent on production

technology, plant capacity, investment cost of buying, maintenance and running cost.

Financial Feasibility

Once the analysis of marketing and operations has been done successfully, a final financial
feasibility is done to assess financial issues of the proposed business venture. Following cost

estimates have to be carried out.

1. Cost of land and building: Depending on the requirement and the availability of funds the

land and building can be hired, can be taken on lease or purchased.

2. Cost of plant and machinery: It includes estimates of cost of plant and machineries, their

running and maintenance cost.

3. Preliminary cost estimation is made to assess how much cost would be required in

conducting market survey, preparing feasibility report, expenses in registering and

incorporating machine, establishment expenses, expenses in raising capital from public

and other miscellaneous expenses.

4. Provision for contingencies needs to be made to cover certain unexpected expenses which

can emerge due to change in the external environment, like increase in price of raw

material, or transport costs going up if the petrol prices are revised.

5. Working capital estimates for running the business are also made.

6. Cost of production, which would include raw material cost, labour cost, overhead expenses,

utilities like power, water, fuel etc.

7. Sales and production estimates: Based on the plant capacity the production and sales

estimates are made, which help in estimating profitability.

8. Profitability projections are made on the following parameters:

(a) Cost of production

(b) Sales expenses

(c) Administrative expenses

(d) Expected sales

Summation of all above gives gross profit.

Based on the above information, the following projections are made:

(a) Break-even point

(b) Cash flow statement

(c) Balance sheet statement

(d) Multi-year projections

Drawing Functional Plans: After positive results from the feasibility study, functional plans are

drawn. Some scholars and writers prefer to include feasibility study with the functional plans

but they have been taken separately in this book, as feasibility study is a precursor to the plan

and is done to check the viability of the project from various dimensions. Whereas, after the

feasibility study gives positive indication about the viability of the proposed project, one can go

into the details of drawing functional plans which would plan the strategies for all the operational

areas: marketing, finance, HR and production.

Marketing plan: Marketing plan lays down the strategies of marketing which can lead to success

of business. These strategies are in terms of Marketing Mix (product, price, place and promotion).

From the market feasibility study and marketing research, potential/present demand of customers

is determined, which helps in understanding the profile of customers and hence helps in laying

down the strategies for segmentation of the market, identification of the target market and

laying down strategies for target market.

Task Prepare a Business plan and forward the Business plans to any financial

institution and see the viability of the plan.

Production/Operation Plan: Production plan is drawn for business enterprises in the

manufacturing sector whereas operational plans are drawn for business enterprises in the service

sector. The production/operation plan should include strategies for the following parameters:

1. Location and reasons for selecting the location

2. Physical layout

3. Cost and availability of machinery, equipments, raw material

4. List of suppliers and if possible, distributors

5. Cost of manufacturing/running the operations

6. Quality Management

7. Production scheduling, capacity management and inventory management

8. Changes in above in case of expansions of business.

Organizational Plan: Organizational plan defines the type of ownership: it could be single

proprietary, partnership firm, company, private limited or public limited. It also proposes an

organizational structure and proposes human resource management practices that would govern

the successful running of the proposed business enterprise.

Financial Plan: Financial plan indicates the financial requirements of the proposed business

enterprise.

1. Cost incurred in smooth running of all the financial plans (marketing, operation and

human resources).

Did u know? Cost incurred in the marketing plan would include forecasting sales, for

production plan it includes cost of goods, for organizational plan it includes cost of

compensation to employees.

2. Projected cash flows

3. Projected income statement

4. Projected break-even point

5. Projected ratios

6. Projected balance sheet.

To cope with the rising competition, Hindustan Liver Limited (HLL) had come up with a new

strategy: New Product Every Month!

7.3.5 Project Report Preparation

After environmental scanning and feasibility analysis, a project report is prepared. It is a written
document that describes step-by step, the strategies involved in starting and running a business.

A project report helps to understand the opportunities, problems and weakness of the business.

It guides the entrepreneur in actually starting up and running the business venture. It helps him

to monitor whether the business is growing as was projected in the business plan or not. It helps

in documenting the cost estimates of the business. It can be used as a handy tool to persuade

investors and financial institution to fund the project. It can help in proper utilization of all the

resources. It can keep the morale of employees, owners and investors up. It can finally lead to a

sustainable development of the organization.

Essentials of a Project Report

Following are the essentials of a project report:

1. The project report should be sequentially arranged.

2. The project report should be exhaustive (covering all the details about the proposed

project).

3. The project report should not be very lengthy and subjective.

4. The project report should logically and objectively explain the projections.

5. The projections should be appropriately be made from two to ten years.

6. The project report should be professionally made to demonstrate that the Promoters

possess entrepreneurial acumen and sound experience.

7. The project report should justify the financial needs and financial projections.

8. The project report should also justify market prospects and demands.

9. The project report should be attractive to the financial agencies and investors.

10. The project report should also have a high aesthetic value.

Steps in Preparing a Project Report

Steps involved in preparing a project report are given below:

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 Table of Contents: Again, the table of contents is like the table of contents of a book; it

guides the person reviewing the project report to the desired section quickly. A good

methodology would be to divide the project report into sections and number or label the

sections like 1, 2, 3 or I, II, III or A, B, C and then divide each section into subsections by

using numerals after the decimal like 1.1, 1.2, 1.3 or I-1, II-2, III-3 or A-a, B-b, C-c. No matter

which method is used for classification, once a method is picked up the entire report

should uniformly adopt the same procedure.

III 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.

IV 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.

V Funding Requirement: Since the investors and financial institutions are one of the key

bodies examining the project report and it is one of the primary objectives of preparing

the project 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.

VI 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.

VII 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. The market research will provide information about the following

parameters: (i) Market demography like profiles of customers and end-users;

preferences and needs of the customers (ii) Strengths and weaknesses of competitors

(iii) SWOT analysis of the market.

A thorough market research is the backbone of success and failure of any product in

the market. Based on the information collected through market research, marketing

mix strategies for product/services, price, promotion and distribution are presented

meticulously and reasons are displayed in relation to why the targeted market is so

attractive. How can the market provide gains to the organization? What marketing

strategies would ultimately lead to the success of the organization? The budgets for

the marketing plan are drawn at the end.

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,

labour or does it have an advantage of government subsidies for that particular

location or are there any other specific reasons for choosing the particular location?,

(ii) Plant layout is also at times mentioned in the project report to provide a pattern
of arrangement of the organization and would indicate the exhaustive planning for

the business, (iii) 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 board of directors, it can also enlist the manpower plan that would be

required to put life into the company 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. A summary of previous financial data is given, whereas 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

VIII Critical Risks: The investors are interested in knowing the tentative risks to evaluate the

viability of the project 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.

IX 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.

X Appendix: The appendix can provide information about the Curriculum Vitae of the owners,

Ownership Agreement, Certificate from Pollution Board, Memorandum of Understanding,

Articles of Association and all the supporting agreements/documents that can help in

marketing the project viability at large.

Task Do a research for collection of data for both environmental study and

feasibility analysis and develop a project report.

Self Assessment

Fill in the blanks:

11. The ……………………… acts as a guiding tool to the entrepreneur and is dynamic in

nature.

12. …………… addition is the key word that an entrepreneur needs to keep in mind while

generating new ideas even at the inception stage.

13. An entrepreneur is a highly …………… person who gets an innovative idea about a

product or service that could be brought into the market.

14. The sources for gathering the information can be both ………………. sources and

…………… sources.

15. A healthy economy offers greater opportunities for growth and development of the

………………