Business

and
Entrepreneurship

Class XII

Department of Curriculum and Professional Development

Royal Government of Bhutan
Thimphu
Published by:
Department of Curriculum and Professional Development (DCPD)
Ministry of Education
Thimphu
BHUTAN

Telephone: +975-2-332885/322880
Toll free: 1850
Website: www.education.gov.bt

Provisional Edition 2021

Copyright © 2022 DCPD, MoE, Thimphu.

All rights reserved. No part of this book may be reproduced in any form without the
permission from Ministry of Education, Thimphu.

Reprint 2022
 Acknowledgement
The Ministry of Education would like to thank all specialists, professionals, lecturers and
teachers from different agencies, colleges and schools for their valuable contributions
towards the development of this book.
Advisors:
1. inga Dakpa, Director General, REC, Paro
K
2. Wangpo Tenzin, Dean, Curriculum Specialist, REC, Paro
3. Dr. Sonam Choiden (Subject Committee Chair), President, GCBS, Gedu.
4. Kinley Namgyal, Unit Head, TVET and Commercial Division, REC

Research and Writing:

1. Tenzin Rabgay (Lead Author), Lecturer, Gedu College of Business Studies, Gedu
2. Kinley Yangdon, Lecturer, Gedu College of Business Studies, Gedu
3. Tashi Zangpo, Curriculum Developer, Royal Education Council, Paro
4. Gangaram Bhattarai, Lecturer, College of Language and Cultural Studies, Taktse

Review and Refinement:
1. Tenzin Rabgay, Lecturer, Gedu College of Business Studies, Gedu
2. Nima Wangchuk, Lecturer, Gedu College of Business Studies, Gedu
3. Dechen Wangdi, Lecturer, Gedu College of Business Studies, Gedu
4. Tashi Zangpo, Curriculum Developer, Royal Education Council, Paro
5. Ram Bdr Gurung, Dy. Chief Programme Officer, MoLHR
6. Jigme Thinley, Programme Officer, MoLHR
7. Gangaram Bhattarai, Lecturer, College of Language and Cultural Studies, Taktse
8. Yoenten Phuntsho, Teacher, Yangchenphug HSS, Thimphu
9. Sonam Tashi, Teacher, Phuntsholing HSS, Phuntsholing
10. Sonam Rindup, Teacher, Chukha HSS, Chukha
11. Choki, Teacher, Rangjung HSS, Trashigang
12. Tenzin Choden, Teacher, Lhuntse HSS, Lhuntse

Copy Editor:
Tshering Lhamo, Lecturer, GCBS, Gedu

Language Editing:
Gangaram Bhattarai, Lecturer, College of Language and Cultural Studies, Taktse
Nima Wangchuk, Lecturer, Gedu College of Business Studies, Gedu

Layout and Illustration

Surjay Lepcha, ReEdIT Consultancy
 Foreword
Entrepreneurship is a process of generating new business ideas, gathering
economic resources and establishing business ventures. A person who carries
out such activities and willing to bear risks and enjoy profit as a reward is known
as an entrepreneur. Entrepreneurs play a critical role in the economic development
of a country. They mobilise resources from the entrepreneurial ecosystem and
add value to create new goods and services required in the society, generate
employment opportunities and become revenue contributors to the government
in the form of taxes besides other contributions.

Entrepreneurship education has become one of the indispensable learning areas in

any education system. It enhances entrepreneurial competencies such as creativity,
innovation, calculated risk-taking and problem-solving skills which in turn, help
in generating business ideas, establishing and managing businesses to address
socio-economic challenges. Entrepreneurship education has become crucial for
Bhutan owing to the emerging issues such as youth unemployment, trade deficit
and soaring national debt. Further, Bhutan is exposed to the global market where
ethical issues such as product adulteration, exorbitant prices, integrity and trust,
customer rights, breach of moral and ethical duty prevail, posing grave concerns in
a small society. Therefore, it is important to make learners aware of such emerging
issues and prepare them to overcome or address it through the entrepreneurship
education.

The new business and entrepreneurship curriculum developed by Department

of Curriculum and Professional Development (DCPD) intends to enable learners
to develop foundational knowledge and competencies in generating and pitching
business ideas, developing business proposals, and mobilising finance to pursue
entrepreneurship as a career. The curriculum will also provide a solid foundation
for higher studies in entrepreneurship and business management. To that extent,
the curriculum has incorporated up-to-date contents and pedagogy which are
relevant to the current business world, and particularly applicable to the Bhutanese
business ecosystem. Further, the new textbook is rooted in Bhutanese values and
development paradigm of Gross National Happiness to ensure that the learners
are well-grounded on national goals and aspirations.
It is my sincere belief, therefore, that learners will reap immense benefits by
acquiring knowledge, skills, competencies and values in launching entrepreneurial
ventures. This would ensure gainful employment after their schooling and
contribute in addressing the unemployment and related issues in the country.
I am also optimistic that the new curriculum will help our learners to fulfill
His Majesty’s vision of nurturing SMART (Sincere, Mindful, Astute, Resilient,
and Timeless) citizens and help them to become nationally rooted and globally
competent.

Tashi Delek!

Kinga Dakpa
Director General
 Contents

Acknowledgment III
Foreword IV
Chapter 1- Innovation and Entrepreneurship 1
Chapter 2- Business Opportunity Identification and Selection 17
Chapter 3- Development of Business Model 37
Chapter 4- Introduction to Business Plan 53
Chapter 5- Market Analysis and Marketing Plan 63
Chapter 6- Operations Plan 81
Chapter 7- Organisational and Management Plan 95
Chapter 8- Financial Plan 103
Chapter 9- Business Plan Pitching 123
Annexure: 135
i. Reshaping Singapore Using Design Thinking 136
ii. Depreciation Schedule 139
iii. Assessment 141
iv. Sample Estimation and Projection 155
Bibliography 170
 Chapter 1
Innovation and
Entrepreneurship

Learning Objectives

 Discuss the concepts of imagination, creativity, innovation and

entrepreneurship

 Explain the interrelationship amongst imagination, creativity,

innovation and entrepreneurship

 Use contemporary methods of creative problem solving

 2 Chapter 1

1.1 Concepts of Imagination, Creativity, Innovation and Entrepreneurship

Imagination refers to envisioning new ideas, images or concepts that were not
perceived or explored before. Creativity refers to the ability to develop new ideas or
discover new ways of looking at problems and opportunities. It is the actual usage
of imagination to address or solve various challenges such as social, economic,
environmental and technological.

Innovation is the action or process of innovating. It is the process of making changes

in something already established by introducing new methods, ideas or products.
In other words, innovation is the application of creativity to generate new solutions
to problems and create opportunities for enhancing lives and enriching the society.
According to Keeley et al., (2013), innovation is the creation of a viable new offering.
This implies the innovator must have a deep understanding of customer needs. The
innovation must also have the ability to create value for which customers are willing
to pay and generate revenue for the business.

According to Venkataraman and Shane (2000) “Entrepreneurship is defined as an

activity that involves the discovery, evaluation and exploitation of opportunities to
introduce new goods and services, ways of organizing, markets, processes and raw
materials through organizing efforts that previously had not existed.”

Timmons (1999) defines entrepreneurship as “a way of thinking, reasoning, and

acting that is opportunity obsessed, holistic in approach, and leadership balanced
for the purpose of value creation and capture.”

A more elaborative definition of entrepreneurship was given by Kuratko and Rao

(2012) who defined entrepreneurship as “a dynamic process of vision, change and
creation. It requires an application of energy and passion towards creation and
implementation of new ideas and creative solutions. The process of innovation and
new venture creation accomplished through four major dimensions: Individual,
organizational, environmental and process aided by collaborative networks in
government, education and institutions.”

In general entrepreneurship is the application of innovation, scaling unique ideas for

creating a new enterprise with a willingness to bear any of the associated risk so as
to make profit and generate social benefits.

The relationship amongst imagination, creativity, innovation and entrepreneurship

is as illustrated in Figure 1.1.
 Innovation and Entrepreneurship 3

Imagination Creativity Entrepreneurship

Innovation
(Envisioning things (Applying imagination (Applying innovation,
(Applying creativity scaling unique ideas
that do not exist ) to address problems) to generate unique and inspiring others'
solutions) imagination)

Figure 1.1: Relationship amongst imagination, creativity, innovation & entrepreneurship

Entrepreneurship is said to be the function of imagination, creativity and innovation
– successful entrepreneurs always capitalise on their ability to discover new ideas
and implement what they have discovered.

Tina Seelig, a Professor at Stanford University, refers to the relationship amongst

imagination, creativity, innovation and entrepreneurship as the ‘Invention Cycle’.

ist
I ON 't ex
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A GI t do
IM ha w
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INVENTION
EN ply deas

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Figure 1.2: Invention Cycle

 4 Chapter 1

According to Seelig (2017), the invention cycle starts with imagination and leads to
entrepreneurship through creativity and innovation in a cyclic form. Each stage of
the invention cycle is briefly discussed as follows:

1.1.1 Imagination

Imagination is envisioning things that do not exist. It is the ability to conceive ideas
in one’s mind. It is mostly influenced by real and fictional experiences a person has
been through. For example, a person could imagine manufacturing a solar powered
car owing to the problems or experiences associated with current automotive systems.
Engagement and envisioning are essential components and skills used in imagination
stage of the invention cycle. In order to come up with good results of imagination,
one must get actively immersed in the object, phenomenon or the situation. Having
immersed actively and made observations of the problems and opportunities, it is
time for envisioning on how to address these problems and seize the opportunities.

Learning Activity 1.1

This activity aims to engage learners into the practice of imagination.

Instructions:

a. Silently observe a place or an object in your school or home or anywhere

for 30 minutes.
b. Make as many observations as possible and consider how these observations
impact you and your environment.
c. Contemplate on the opportunities of improving what you have observed.
Also, envision improvements you would like to make.
Task: Share your reflection with the class.

1.1.2 Creativity

The application of imagination is referred to as creativity. For example, after

imagining to build a solar car, the design, functionalities and features of the car
must be experimented and well developed. Getting these things done in a unique
way can be termed as creativity.
 Innovation and Entrepreneurship 5
One of the essential components of creativity is to have the motivation to make
improvements and changes in the environment. Another essential component is
experimentation. For example, understanding what motivates an individual to build
a solar car and trying to build it through experiments are important parts of creativity.

Learning Activity 1.2

This activity will facilitate learners to engage in creativity exercise.

Instructions: Engage yourself into motivation and experimentation exercises.

Task: Complete the following tasks and share your reflection to the class.

a. Based on the opportunities you have identified in the Learning Activity 1.1,
note down what motivates you to pursue the opportunities.
b. Conduct an experiment of what you have envisioned to improve in the
Learning Activity 1.1.

1.1.3 Innovation

The application of creativity to generate unique solutions to the problems is termed

as innovation.

This stage of invention cycle requires focus and reframing of brain. Focus is also called
as mindfulness – focus of mind on the problems, opportunities and environment.
Reframing the brain refers to retraining the brain by questioning assumptions, seeing
challenges as opportunities and being able to shift one’s perspective. This helps in
unlocking innovative ideas that are new to the world. For example, after having a
defined motivation to build a solar car and experiments being conducted, it is then
essential to focus on developing the car. While developing, it is paramount to think
outside-the-box in terms of its features and performance.
 6 Chapter 1

Learning Activity 1.3

This activity intends to help learners enhance mindfulness and flexibility.

Instructions: Complete the given tasks.

Task: Complete the given tasks.

a. Choose a quiet place and focus on a task you wish to accomplish. See
how long you can focus on the task. Try to eliminate distractions if
any and attempt to enhance your mindfulness.
b. Use your non-dominant hand to either eat, write, brush your teeth, etc.,
and reflect how flexible you are. Repeat the exercise till you attain the
desired level of flexibility.

1.1.4 Entrepreneurship

The word entrepreneur is derived from French word ‘entreprendre’ which means
to ‘undertake’. Entrepreneur is the person who undertakes a business venture.
Entrepreneurship is defined as application of innovation to bring ideas to fruition.
At this stage of the invention cycle, Seelig (2017), states that one must be persistent
to bring ideas to life. The goals must be set and one must focus on the task for
extended period of time and push through obstacles along the way. All of these
require persistence. Successful and impactful entrepreneurial ventures are grounded
on the concerted efforts put in by the partners and stakeholders. Therefore, another
important component of this stage of the invention cycle is inspiration. Inspiration
relates to the ability of the entrepreneur to inspire and bring on board family, friends,
investors, suppliers, employees, customers, etc.

Learning Activity 1.4

This activity aims to expose learners to the concept of entrepreneurship, traits of

successful entrepreneurs, and the charms and challenges of being an entrepreneur.

Instructions: Read the story ‘YiGa Chocolates’ and compete the tasks.
 Innovation and Entrepreneurship 7

YiGa Chocolates
Kinley Pelden is the founder and Chief Executive Officer of Yiga Chocolates, a
firm which manufactures artisanal premium chocolates using unique Bhutanese
flavours such as chillies, quinoa, ginger, gooseberries and mountain blueberries.
Yiga chocolates are not just infused with naturally grown Bhutanese superfoods
but also uses a handcrafted process, design and packaging. Yiga carries forth
the spirit of health and happiness. The
product was launched in the market in
August 2018 and retailed, as of March
2021, in five Dzongkhags through 13
shops including BHR Café and Bhutan
Essence at the departure lounge at Paro
International Airport. The chocolates
have also been promoted at international
festivals in various countries such as
Japan, South Korea, Germany, US,
Singapore, India and Australia besides
the in-country promotions by family and friends.
It all started with a 6-minute cake recipe that Kinley Pelden designed as a need
for healthy snack for her little girls then in 2014. The recipe is so easy that her
11-year-old daughter then took to it. From the basic recipe, she started making
many variations for the family and friends, who were happy to eat anything sweet
and moreish. In her wave of culinary curiosity, she asked her mother how to make
chocolate. They concocted a gooey mix of cocoa powder, milk and sugar. Not
satisfied, they googled and learnt how to mould compound chocolate together.
While the children moved on dabbling into other interests, Kinley’s interest in
chocolate making grew and Yiga chocolate came into existence.
Sensing opportunity in chocolate
business, she shared the idea and
encouraged many to give chocolate
business a shot. Finding no Bhutanese
chocolate in the market even by 2017, she
test-drove the idea at Loden Foundation.
Loden went on to support with collateral
and interest free loan, mentors and
network – all conditions necessary for a
 8 Chapter 1

new startup. Under the comprehensive entrepreneurship ecosystem provided, she

was able to fine tune the brand and clearly The importance of small steps
define the market segment.
Some friends asked if she regretted not
starting the business earlier in her life.
“There is no regret and it was just timing
and conditions coming together over time.
It is the sense of gratitude and diligence
that worked. I realised that one need
not be in hurry to find the niche. If we
give our best in the present moment and
responsibility at hand, that will somehow
build us and our course of life. Little did I
know then that, in holding my children’s
hands to explore their interest and passion,
it would set me on this delightful journey,”
said Kinley.
Alongside the chocolate startup, Kinley
provides mentoring to entrepreneurs in agriculture and product development
ventures by listening and sharing information and network necessary for launching
and scaling up their startups. Kinley reflects that one thing led to another in a
beautiful way throughout her entrepreneurial journey, thus far. She believes that
entrepreneurship is not necessarily being in business. One can be enterprising in
any role we are in or at any task at hand. It is the unique quest for effectiveness and
efficiency in getting things done.
Being mindful and observant even with everyday mundane tasks are what she
believes to have helped in ideation of her business. She shares that one must be
aware of personal interests, strengths and weaknesses, and then what opportunities
and threats lie in the business environment. For Kinley, every day is a new day
with new challenges and new solutions for pursuing personal and professional
growth.
Being mindful of who and what influences your decisions; knowing the fine line
between tragedy of commons and wisdom of the crowd when it comes to choices
and decisions; being humble to be able to learn and grow in life; and starting small
and dreaming big are some of her urges for the young aspiring entrepreneurs.
 Innovation and Entrepreneurship 9

Task: Complete the given tasks.

a. Present your views on who is an entrepreneur.
b. Discuss essential traits of a successful entrepreneur.
c. Describe the charms and challenges of being an entrepreneur.
d. Explore the differences between a businessman and an entrepreneur.

1.2 Contemporary Entrepreneurial Methods

There are many methods the entrepreneurs adopt to start, build and sustain their
enterprises. Some of the popular entrepreneurial methods include design thinking,
lean startup and effectuation. Each of these methods are briefly discussed as follows:

1.2.1 Design Thinking

Design thinking is a method used widely in problem solving. Developed by Brown

(2008), design thinking is a methodology that uses designer’s sensibility to match
customer needs and the value that a business can offer. It is also described as a human
centric approach to problem solving.

Conduct a point Build a

of view that is representation
based on user of one or more
Empathise needs & insights
Ideate of your ideas to Test
show others

Learn about the Brainstorm Return to your

audience for and come up original user group
whom you are with creative
Prototype and testing your
designing Define solutions ideas for feedback

Figure 1.3:
Design thinking methodology
 10 Chapter 1

The stages of design thinking methodology are:

a. Empathy

The design thinking process starts with empathy. The design thinker or the
entrepreneur learns about the target group for whom the product or service is
being designed. Since design thinking is a human centric approach, empathy is
the centerpiece because problems that entrepreneurs are trying to address are of
other people, generally the customers and rarely their own. In empathy stage, it is
important to observe, engage, watch and listen to the target group. These will enable
the entrepreneurs to understand the needs of the target group.

Problem definition

Having empathised, the next stage is to define an actionable and meaningful problem
statement. The problems faced by the target group must be properly defined so that
actual problems are identified. A problem statement is a point of view that will guide
the problem-solving process. Using data and information from empathy stage is
essential to define the problem correctly.

b. Ideation

After the problem definition stage, ideation begins. Ideation is the process of generating
and choosing creative ideas which addresses the defined problem. Brainstorming,
brainwriting and SCAMPER method are some of the techniques used for ideation.
These techniques are further discussed in Chapter 2.

c. Prototype

It is essential to have a product or service that would address the problems of the
target group. Developing a product or service with primary functionalities and
basic features is called prototyping. Prototype is a representation of ideas shown to
others towards reaching a possible solution. It is a Minimum Viable Product (MVP
– smallest form of product with just the basic functionalities) that would address the
key problems. Low-fidelity prototyping and storyboard are a few commonly used
prototyping techniques.

Low-fidelity prototyping is creating a sketch or drawing as the draft version of the

final product that you want to design based on the idea that you have chosen before
one starts to invest time and resources to create the product.
 Innovation and Entrepreneurship 11

Storyboard is a series of images that presents the key elements of your design
chronologically so that the main idea can be conveyed like a story through the
snapshots.

d. Test

Following the prototype development, testing of the prototype is necessary. It is an

opportunity to learn whether the solution developed for the target group addresses
their problems or not. Prototype is used for gathering feedback from early adopters.
The feedback is further used for reconfirming and iterating empathy, problem
definition, ideation and prototype development.

Although design thinking has been depicted as a linear process in the Figure 1.3, it is
important to note that it can take a non-linear and iterative process – design thinking
team may choose to move from one stage to another in any direction based on the
need and circumstances. Today, design thinking is widely used for addressing not
just business and economic problems but also social issues. Refer Annexure 1 for
understanding how Singapore is using design thinking.

Learning Activity 1.5

This activity aims to facilitate leaners to get a hands-on experience of applying design
thinking methodology.

Instructions: Choose an activity or area of work from your school or home. It can
be the service of your school canteen, mess, hostel, stationery store or any other and
complete the following tasks.

Task:
a. Observe how services are provided currently.
b. Identify the pain points of the service recipients.
c. Define their problem.
d. Ideate how the problems faced by the service recipients could be addressed.
e. Develop a prototype of the service you would like to enhance in order to
enhance the experience of the service recipients.
f. Test the service prototype by incorporating it in actual operation of the
 12 Chapter 1

chosen service area.

g. Incorporate the feedback of the service recipients and make necessary iterations
in the service delivery.
h. Maintain a proper journal for each stage of design thinking exercise and present
a matchbook collection.

1.2.2 Lean Startup

A startup or an existing firm is susceptible to the risk of spending huge amount of

money and time in building a product or service which may ultimately be of little
or no use or value to the customers. Lean Startup methodology helps in reducing
such risks. Lean Startup is an entrepreneurial method for launching a new product
or service by a startup or an existing firm with lesser investment both in terms of
money and time. It is a process that turns ideas into commercial ventures using rapid
experimentation through customer feedback and iterations in the product or service
to improve product development.

Lean startup is founded on following principles:

(( Entrepreneurs are everywhere – anyone who works on a product or service
development under the condition of extreme uncertainty is an entrepreneur.
This means entrepreneurs are everywhere and lean startup methodology can
work in organisation of any size and nature.
(( Entrepreneurship is management – a startup is an institution not just a
product. Therefore, it requires a new management geared towards working in
the context of extreme uncertainty.
(( Validated learning – startups exist not only to make products, earn money
and serve customers but also to learn how to make grow a sustainable business.
The learnings can be validated scientifically through frequent experiments.
(( uild-Measure-Learn – the primary activity of a startup is to turn ideas into
B
products or services, measure how customers respond, and then learn whether
to pivot (change) or persevere (continue).
(( I nnovation accounting – there is a need for new accounting approach designed
for improving entrepreneurial outcomes and hold innovators accountable. This
requires clarity on the metrics or conditions of measuring startup progress,
setting up milestones and prioritising activities.
Figure 1.4 Depicts how lean startup methodology works.
 Innovation and Entrepreneurship 13

Build Faster
• Turning ideas into products.
• Building an MVP
• Continuous integration

BUILD
Idea Product

Learn Faster LEARN MEASURE Measure Faster

• Customer development • Actionable metrics
• Pivot or Persevere based on • Taking the products to
learning early adopters
• Gathering feedback
Data

Figure 1.4 Lean startup methodology

According to Ries (2011), every entrepreneur begins with some untested hypotheses.
They succeed by building an MVP, testing it with early adopters, measuring the
success using metrics, learning through feedback and making necessary iterations
to the MVP based on the learning.

The first phase of the Lean Startup methodology is to turn the ideas into an MVP. Then,
the MVP is taken to the early adopters who would buy it. In this stage, measuring the
progress of the product is essential. It is important to have actionable metrics in place.
For example, actionable metrics for a startup developing a mobile application could be
number of downloads, number of active users, retention rate, churn rate, net promoter
score, etc. The data gathered through the metrics and feedback received from the early
adopters help in learning faster. Learning faster enables to decide whether to pivot
or persevere with the project. Customer development, which involves understanding
the customers’ needs and problems, is the key focus of learning. Further, what has
been learned must be continuously integrated into the product.

Unlike traditional approaches of building a product which may lead to wastage of

resources and time in building a product and getting it delivered to the customers, lean
startup methodology helps in building, measuring and learning faster. This enables
the entrepreneur to succeed faster and persevere with the project or fail faster and
pivot to another project without wasting much resources.
 14 Chapter 1

1.2.3 Effectuation

Effectuation is another entrepreneurial method used for starting entrepreneurial

ventures. The term was coined by Dr. Saras Sarasvathy. It refers to a logic of thinking
that uniquely serves entrepreneurs in starting businesses by first taking an inward look
which involves taking an inventory of the resources that an entrepreneur has at his or
his disposal and then setting a business goal. This then facilitates the entrepreneur
to interact with stakeholders to garner commitment for co-creating the venture.
Managerial thinking is usually guided by predetermined goals and managers gather
resources and support to attain these goals. Unlike managerial thinking, effectual
thinking starts with determining means or resources available to an entrepreneur.
Based on the available resources, entrepreneur determines the goals to be achieved.
It provides a way to control future that is inherently unpredictable. Effectuation helps
in advancing ideas towards sellable products and services with proven customers.

The effectual logic is grounded on following principles:

(( Bird-in-hand – it fundamentally refers to starting a business with the means

(resources) one has at his or her disposal. The means are determined by who the
entrepreneur is, what the entrepreneur knows and whom the entrepreneur knows.
(( ffordable loss – it relates to limiting the risk by understanding what the
A
entrepreneur could afford to lose while conducting business. The loss could
be related to business aspects such as finance, reputation and network.
(( emonade – entrepreneurs make lemonade out of lemon which means they
L
transform problems into opportunities.
(( atchwork quilt – entrepreneurs seek commitments from stakeholders in order
P
to co-create the enterprise and new markets.
(( ilot-in-the-plane – it is a belief that the future is created and not predicted.
P
Entrepreneurs focus on the activities within their control and understand the
desired outcomes.
 Innovation and Entrepreneurship 15

New means
NEW add to the
AFFORDABLE LOSS MEANS resources

New
commitments
help crystallize
MEANS GOALS INTERACTIONS COMMITMENTS the goals
NEW
GOALS

LEVERAGE
SURPRISE NEW
Surprises add PRODUCTS,
to means and MARKETS, AND FIRMS
change goals

Figure 1.5: Effectual cycle

The entrepreneur begins with the stock of means at his or her disposal. Based on the
available means, the goals are set. The entrepreneur also ensures that the set goals
are within the affordable loss. Then, the entrepreneur engages in interaction with
stakeholders to garner commitments. The commitment from stakeholders helps in
pooling new means and add to the overall resources available to the business. The
stakeholders commit their resources with certain goals in mind. Therefore, necessary
adjustments to refine the overall goals of the business must be made. The entrepreneur
then co-creates the new venture in collaboration with the committed stakeholders.
This is how the cycle continues through transformation of surprises and challenges
into opportunities. Thus, the effectual cycle helps in creating new products, new
market and new ventures.
16 Chapter 1

Chapter Review Questions

1. Discuss the relationship amongst imagination, creativity, innovation and

entrepreneurship.

2. Explain invention cycle in your own words.

3. Discuss the application of design thinking for generating innovation.

4. Explore the uses of design thinking in addressing the grassroots problems

in Bhutan.

5. Evaluate the significance of lean startup methodology in the context of

entrepreneurship.

6. Assess the uses of effectual cycle in entrepreneurship.

 Chapter 2
Business Opportunity
Identification and
Selection

Learning Objectives

 Discuss the meaning of business idea and opportunity

 Explain business opportunity identification process

 Generate business ideas using various methods of idea generation

 Undertake business idea screening and selection

 Explain the need for intellectual property system

 18 Chapter 2
2.1 Meaning of Business Idea and Business Opportunity

Business idea and business opportunity are two terms which are often used
interchangeably but they are actually different. Business idea refers to a business
concept that can address an issue which may result in profit and other benefits if
it is converted to a tangible product or service. It can stimulate to lead to business
opportunity. Business opportunity, on the other hand, can be an idea or a situation
which has the potential to be converted into a viable business with commercial value.
This implies a business opportunity has to lead to generation of profit.

Good business ideas form the basis for potential business opportunities but not
every idea translates into viable business opportunity. A person may have many
business ideas but the commercial value and benefits of all the ideas cannot be
guaranteed. Therefore, there is a need for a proper and rigorous process of business
idea generation, screening and selecting the right business opportunity and finally
taking action on that opportunity through execution.

2.2 Business Opportunity Identification Process

Business opportunity identification process typically consists of three broad stages

namely idea generation, screening and selection. The aims and methods used in
different stages are presented in the Figure 2.1.
Stages & Aim Methods Used

Trend Analysis, Focus

Idea Generation Group, Brainstorming,
(Generate as many Brainwriting, Problem
ideas as possible) Inventory Analysis,
SCAMPER Technique, etc.
Idea Screening PESTLE Analysis, SWOT
(Filtering and choosing Analysis, CEFE’s Criterion
promising ideas for further Analysis, The Idea Evaluation
selection) Matrix by BCITSA, etc.

Idea Selection Market, Technical,

Organisational
(Select the most viable idea)
and Financial
Feasibilities.
Figure 2.1: Business idea generation, screening and selection
 Business Opportunity Identification and Selection 19

2.2.1 Business idea generation

It refers to the generation of abstract ideas which may or may not have market and
economic potentials. The abstract ideas can be generated using several methods.
Some of the popular business idea generation methods are:

a. Trend Analysis

This involves generation of ideas by checking the trends in the past so as to be able to
generate potential business ideas. The global megatrends are increasingly becoming
a reality. While there are harmful effects of these megatrends, entrepreneurs can see
it as an opportunity for realising their entrepreneurial dreams as they contribute to
address the issues. Notable global megatrends are:

(( Shift in Global Economic Power – this shift from west to east (from USA
to China & India) is evident of how businesses today should be readjusting
their focus.
(( limate Change & Resource Scarcity – crop failure, widespread flooding,
C
destroyed habitats and energy shortages are some of the noted effects.
(( emographic and Social Change – in general, it is predicted that the world’s
D
population would have increased by 1 billion in 2030, and by 2050, over one
third of world’s total population would be above 60 years of age. Further the
demographic changes are aggravated by declining birth rate in some of the
countries. Consequently, notable issues such as labour shortage, increased
demand for healthcare and educational services and changing consumer
demands are bound to happen.
(( Technological Breakthrough – as machines are predicted to learn faster than
humans, more occupations and services are expected to be automated.
(( apid Urbanisation – it is predicted that over two third of world’s population
R
will live in urban areas by 2050.
Having been exposed to the global megatrends, it is important to contemplate and
act on generating business ideas that can address the problems likely to be caused
by the megatrends.

In addition to the global megatrends, other trends in the market or economy often are
great sources of business ideas which have the potential to be converted into business
opportunities, especially when the entrepreneur is able to identify impactful market
 20 Chapter 2

trends which last for considerable period of time. Some of the common trends in
which entrepreneurs have spotted their business opportunities are:

(( reen Trend – a trend wherein consumers are very conscious about the
G
environmental impact and willing to pay premium price for green products
thereby making them conscious of their spending habit. Green construction
products, eco-friendly printing, products manufactured using waste, etc., are
some common examples.
(( lean Energy Trend – entrepreneurs around the world have capitalised on
C
clean energy from solar, wind, hydro and geothermal sources to make their
business value proposition unique.
(( Organic Trend – as people continue to become increasingly health conscious,
the organic trend, especially in the food sector continues to gain an important
place in their lives.
(( Social Trend – social network platforms such as Facebook, YouTube, Telegram,
MySpace, LinkedIn, WhatsApp and WeChat have transformed how people
communicate and network across the world.
(( Health Trend – as the aging population continues to increase in many countries,
health care products and services are seen as opportunities for entrepreneurs.
b. Focus Group

In focus group discussion, group of individuals led by a moderator engages in an

open and in-depth discussion by way of providing information in a structured way.
Focus group discussions are used as a means to generate business ideas.

c. Brainstorming

It is a group method for obtaining new ideas and solutions through spontaneous
discussion and ideation. It is important to make sure that no criticisms are made,
freewheeling is encouraged, preference is given to the quantity of ideas over quality
and compliments must be encouraged in a brainstorming exercise.

d. Reverse Brainstorming

It is similar to brainstorming but criticisms are allowed in reverse brainstorming.

This method is based on finding faults or drawbacks in the proposed ideas. As this
 Business Opportunity Identification and Selection 21

method focuses on finding the negative aspects of the ideas or products, utmost care
must be given to maintain the group’s morale. After the negative aspects are fully
noted, it is followed by discussion on how the problems could be addressed. As this
method focuses on finding the negative aspects of the ideas or products, an utmost
care must be given to maintain the group’s morale. After the negative aspects are
fully noted, it is followed by discussion on how the problems could be addressed.

e. Brainwriting

Brainwriting is popularly referred as written brainstorming. Each member in the

group is given a card or form where they write the ideas and circulate to other
members for writing their ideas.

f. Problem Inventory Analysis

It is similar to focus group discussion for generating new ideas. The customers are
provided with a list (inventory) of problems in a general product category. They are
then asked to identify and discuss about the problems they have in the given product
category. The key element, in this technique, becomes the list of problems based on
which ideas are invited from the customers to improvise or create a new product.
Thus, a proper compilation and analysis of the listed problems are often helpful in
developing new products or improving the existing ones.

g. SCAMPER Technique

SCAMPER is an acronym for Substitute, Combine, Adapt, Modify or Magnify,

Purpose or Put to another use, Eliminate or Minimise and Rearrange or Reverse. It is
a team brainstorming technique used to generate ideas to develop or improve products
or services. A product or service is chosen and the discussion revolves around:

(( Substitute: What can be replaced or substituted? For example, components,

materials, people or a step in a service.
(( Combine: What can be combined? For example, components, devices, steps
in service, etc.
(( Adapt: What can be added? For example, adding new elements or functions.
(( Modify or Magnify or Maximise or Minimise: What can be modified? For
example, change the size, shape, colour or other attributes of the product or
service.
 22 Chapter 2

(( Put to other use (Purpose): Can the product be put to a different use or use it
in another industry? For example, PET bottle used for storing water, worn out
tyres used as flower pots, etc.
(( Eliminate: What can be removed for simplification? For example, self-
serve kiosk in place of food being served by waiters, elimination of keypad
from mobile phone, doing away of clutch by introducing auto gear system in
automobile, etc.
(( Reverse or Reengineer or Rearrange: Can the production process be reversed?
What can be swapped or flipped? For example, autocratic decision-making
being democratised, manual steering to power steering, etc.
In addition to the aforementioned methods, the leaners may also explore other business
idea generation methods such as checklist, free association, forced relationships,
collective notebook, attribute listing, big-dream approach, parameter analysis, Delphi
technique, scenario analysis, cost-effect analysis and morphological analysis.

Learning Activity 2.1

This activity aims to help learners to generate business ideas using the business
idea generation method(s) discussed earlier.

Instruction: In group recapitulate the business idea generation methods

discussed in the class and complete the given task.

Note: Formation of group is very important as learners are suggested to

continue to work in the same group until the completion of business plan.

Task:
Using the business idea generation methods, list as many business ideas
as possible and make a presentation to the class.

2.2.2 Business idea screening

It is not possible and recommendable to implement all the business ideas generated
through Learning Activity 2.1. Pursuing all the ideas generated may require
distribution of efforts and resources which will result in inefficiency, ineffectiveness
and failure, especially when skills and resources are scarce. Therefore, impractical
 Business Opportunity Identification and Selection 23

ideas must be eliminated and promising ideas must be chosen for further pursual.
Some of the commonly used methods for screening the business ideas PESTLE
Analysis are:

a. PESTLE Analysis

PESTLE analysis describes a framework for assessing macro-environmental factors

that influence an organisation. It is an acronym for Political, Economic, Social,
Technological, Legal and Environmental factors that influence an organisation from
the perspective of external business environment. An analysis of PESTLE factors is
necessary for making a strategic decision and screening business ideas. Ascertaining
the favourability of the PESTLE factors is important for pursuing the business ideas.
Each of the factors is briefly described here:

SOCIO
DEMOGRAPHIC TECHNOLOGICAL

ECONOMIC ENVIRONMENTAL

THE
ORGANISATION
POLITICAL LEGAL

PESTLE

Figure 2.2: PESTLE analysis

i. Political factors

The political factors include any changes in government, policies and regulations
and stability of the political environment that influence the business operations and
determine success or failure of the business to a large extent.
 24 Chapter 2

ii. Economic factors

Since the businesses sell its products and services to the customers, it is important to
consider the purchasing power of the target market as it will determine the demand
for the products and the services. For this, understanding the level of disposable
income, unemployment rate, inflation rate, tax rates, etc., are important.

iii. Social factors

The factors that relate to customer taste and preferences, lifestyles, buying patterns,
cultural values, societal norms and, religious beliefs, etc., that affect customers’ taste
and preferences, lifestyles and buying patterns must be properly studied.

iv. Technological factors

The innovation and technological dynamics impact operations of businesses.

Therefore, the favourability of the technological environment such as the availability
of technology to be used in the business, its future usability, compatibility with new
development, cost of switching, etc., must be studied before investing in any business.

v. Legal factors

Operation of business in accordance with the legal framework is basic requirement

for a business to stay afloat. Businesses must be familiar with the provisions of
different laws of the state such as Labour and Employment Act, Consumer Protection
Act, Environmental Act and Companies Act and ensure compliance to avoid any
unwanted legal consequences.

vi. Environmental factors

It is also known as the ecological factors. It relates to the relationship of the business
with factors in the natural environmental. Importance must be placed on how the
practices such as use of raw materials, technology and energy sources impact the
environment. Other environmental concerns such as water, noise, air and soil
pollutions that the business might cause must be taken care of. On the other hand,
the impact of natural disasters such floods or earthquakes or any changes in the
natural environment on business operations must also be accounted for.

Above all, at the business idea stage, it is essential that the PESTLE analysis is conducted
to see how each of the factors is favourable for pursuing a specific idea. If the factors are
found to be unfavourable, pursing the business idea will lead to negative consequences.
 Business Opportunity Identification and Selection 25

b. SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Analysis of

SWOT helps to understand the business’s strengths and weaknesses which could be
used to the seize opportunities and counteract threats.

i. Strengths

Strengths are within the control of the entrepreneur and they occur at present moment.
Strengths must be capitalised and harnessed to render the weaknesses insignificant.
Some examples of strengths could be having managerial experience, good network and
relationship with banker, family support for pursuing the business idea, accessibility
to market, having technical knowledge and expertise, availability of land, adequate
knowledge about the product or service and good reputation of the entrepreneur.

ii. Weaknesses

Like strengths, weaknesses are also within the control of the entrepreneur. They also
occur at present moment. Weaknesses are usually linked with what the entrepreneur
or business lacks – absence of favourable conditions and resources and other internal
weak points of the business. Weaknesses must be eliminated as far as possible. Lack
of business experience, poor knowledge about the product or service, bad history
of personal finance and financial knowledge, inability to conduct market research,
shortage of capital and poor network and relationship with stakeholders are some
examples of weaknesses.

iii. Opportunities

Opportunities are favourable factors in the external environment. The entrepreneur

must take advantage of opportunities as it makes the business idea potentially viable.
However, opportunities are mostly beyond the control of the entrepreneur. They are
different from strengths. While strengths are positive internal factors of the business,
opportunities are positive conditions in the external business environment. Few and
instable competitors, growing demand for the products and services, availability of
cheaper raw materials, availability of skilled workforce and supportive government
policies are some of the examples of opportunities.

iv. Threats

Threats are unfavourable factors in the external environment. Like opportunities,

these are normally beyond the control of the entrepreneur. If threats are not
 26 Chapter 2

counteracted properly, they will affect the business adversely. Although both threats
and weaknesses have negative impact on the business, threats differ from weaknesses
as it is beyond the control of the entrepreneur. A proper analysis of threats must result
in effective ways of hedging and counterbalancing actions for reducing the negative
impacts. Some of the examples of threats are rising interest rates, poor infrastructural
facilities, economic instability, political unrest, unfavourable exchange rates, rising
material costs, rising labour costs and ease of entrance for competitors.

Generally, for the purpose of screening business ideas, the ideas with maximum
strengths and opportunities, and minimum weaknesses and threats must be chosen
for further pursual.

c. Criterion Analysis

As every idea is not relevant and doable, criterion analysis uses certain criteria against
which each of the ideas are evaluated and promising ones are chosen. Although
criteria or evaluation matrix can be developed on case-by-case basis, following are
two examples of criterion analysis which can be used for evaluating the goodness
of an idea.

i. The Idea Evaluation Matrix by BCITSA

The Idea Evaluation Matrix by British Colombia Institute of Technology Student

Association (BCITSA) is a screening process, a filter and a qualitative decision-
making tool used to evaluate and prioritise business ideas. This tool is used to
identify potential ideas from a massive list of ideas. The matrix evaluates the ideas
by assessing whether the ideas are different or better; capable of delivering value;
doable or practical and weighs its cost and benefit. However, other criteria can be
added to customise the matrix for making it suitable for one’s need.

Table 2.1: Idea Evaluation Matrix by BCITSA

BCITSA Idea Evaluation Matrix
Scoring CRITERIA
1=Low
Different or Delivers Doable or Cost / TOTAL
2=Moderate Other?
Better Value Practical Benefit SCORE
IDEAS

3=High
 Business Opportunity Identification and Selection 27

High priority criteria are briefly explained here:

(( Different or Better: The idea must be innovative (improvement over existing)

or inventive (something new) and be different from what already exists. It must
have an added value over and above what the target market is currently using
to solve the problems they are experiencing.
(( Delivers Value or Solves a Problem: The idea must address a specific problem
that is faced by the customers. It must deliver value for which the customers are
ready to pay. Attention must be paid to needs versus wants of the customers –
if your idea is what they need, they will not mind paying for it, however, if it
is what your customers want then the willingness to pay for it will be weaker.
(( Doable or Practical: The idea may be remarkable but if it is beyond the
capability of current technologies or is on the bleeding edge of technology
development, it will be difficult to develop the product and convince the target
market. Most ideas require proven technologies. Thus, this criterion is about
the feasibility of implementing the idea.
(( Cost or Benefit: The essence of the idea is to provide value to customers for
solving their problems. A higher score must be assigned to those ideas with
more benefits than the cost of delivering the value.
Once the criteria are confirmed, the ideas can be listed in the first column of the
matrix. Then, each idea must be assessed against the pre-determined criteria. The
scoring can be done by assigning 1 for indicating a low score, 2 for a moderate and 3
for a high score. The ideas with the higher total score can then be chosen for further
pursual. (Source: Adapted from BCITSA Entrepreneurial Services)

ii. CEFE’s Criterion Analysis

Another popular template for criterion analysis is the one developed by Competency-
based Economies through Formation of Enterprise (CEFE).

The business ideas are listed on the left-hand side of the given template. These ideas
are then evaluated based on some predetermined criteria. For every criterion, an
appropriate rating from 1 to 5 is assigned. Weight must be assigned based on the
importance of each criterion for every idea. Total weighted scores are then calculated
for every idea and typically, the ideas with the highest weighted scores are chosen for
further selection. The Critical Success Factors which do not form a part of evaluation
criteria are also noted so that due attention is paid for these factors as well.
 28 Chapter 2
Table 2.2: CEFE’s Criterion Analysis
Critical
Criterion A Criterion B Criterion C Criterion D Criterion E Total
Business Success
Weighted
Ideas Factor
R W WS R W WS R W WS R W WS R W WS Score
(CSF)
1
2
3
4
5
6

Legend Rating Criterion

R - Rating 5 - Excellent A - Market availability
W - Weight 4 - Very satisfactory B - Raw material availability
WS - Weighted score 3 - Satisfactory C - Technology availability
2 - Fair D - Skills availability
1 - Poor E - Ease of implementation.

Notes:

1. Total of the weights of the criteria used in rating one project must equal 100% or 1.
2. It is advised to assign weight for the criteria considering the level of importance
(criticality) of the criteria to pursue the idea. This can be done using a forced
ranking system to compute the weights.
3. Weights are computed as follows:
Market Raw Material Technological Skills Ease of
Total
Availability Availability Availability Availability Implementation
Force Rank 1 2 3 4 5
Force Rank
5 4 3 2 1 15
Points
Weight (W) 0.33 0.27 0.20 0.13 0.07 1
Rating (R) 5 4 3 2 1
Weighted
1.67 1.07 0.60 0.27 0.07 3.67
Score (WS)
 Business Opportunity Identification and Selection 29

• Force rank must be assigned based on criticality of the criteria for pursuing the
business idea.

• Based on the assigned force ranks, the criteria with force rank 1 must be given
highest force rank point (5). Rest of the criteria should receive force rank points
accordingly.

• Next, weights for each criterion must be calculated. Divide force rank points of
each criterion by the total force rank points to compute weights.

4. The criteria must also be rated based on the current situation of the criteria on
a scale of 1 to 5 (1 means poor..., and 5 means excellent).
5. Then, weighted score (WS) must be computed by multiplying the rating (R) by
corresponding weights (W) of each criterion.
6. The possible highest total weighted score is 5. The ideas with the higher total
weighted score must be chosen for further selection. Due attention must be paid
to the critical success factors, if any, for each idea. CEFE's criterion analysis is
based on a ranking scale of 1 to 5 and weights for 5 criteria. Although the criteria
may be customised, not every criterion deemed to be essential for evaluating
each idea can be accommodated. Therefore, if such factors are there, they must
be noted in the critical success factor column.
(Source: Adapted from CEFE course pack)

Learning Activity 2.2

This activity intends to help learners to conduct screening of business ideas using
the business idea screening method(s) discussed earlier.

Instruction: In the group already formed, study the business idea screening
methods and complete the given tasks.

Task:
a. Using appropriate business idea screening methods discussed in
the class, conduct screening of business ideas from the list of ideas
generated in Learning Activity 2.1.
b. Share the results with the class and explain how the screening of ideas
was done.
 30 Chapter 2

2.2.3 Business idea selection

Having generated and screened the business ideas, now it is time for selecting the
most feasible idea.

The PESTLE analysis conducted earlier has looked into the suitability of macro-
economic factors for pursuing the ideas. Likewise, SWOT analysis checked on the
strengths, weaknesses, opportunities and threats surrounding the ideas. Further,
criterion analysis helped in the screening ideas. Now, it is time to pay additional
attention to select the right idea. This can be done through four broad feasibility
studies namely market, technical, organisational and financial feasibility studies.
The detailed feasibility studies will be conducted when the entire business plan is
prepared in the subsequent units. At this stage, putting the ideas through a qualitative
feasibility checklist in four broad areas is sufficient.

a. Market feasibility checklist

This checklist helps in understanding whether there is a need for the proposed business
idea in the market, intensity of competition that is likely to be faced, adequacy of
revenue, preparedness with marketing strategies and extent of marketing expenses
and noncurrent assets required for marketing purposes. The entrepreneur can use
the following checklist:

Table 2.3: Market feasibility checklist

SL No. Key Checklist YES NO
1 There is need for the proposed product or service.
2 There are no or lesser similar products or service offered presently.
3 There is a considerable surplus gap of demand over supply of the product or service.
4 There are proper marketing strategies developed for addressing the gap.
5 There is adequate resource provision for marketing expenses and noncurrent assets.
6 The marketing staff is available.
7 There are growth and expansion possibilities if the idea is pursued.

b. Technical feasibility checklist

It is important to know the ability of the business to produce or offer what it intends to
offer. This requires to check the availability of resources, technology, technical know-
how, operational logistics, etc. Following checklist may be useful in getting this done:
 Business Opportunity Identification and Selection 31
Table 2.4: Technical feasibility checklist
SL No. Key Checklist YES NO
1 There is a proper plan for production facility.
2 The production process and methods are well researched and prepared.
3 The raw materials are available as required.
4 There are financial arrangements made for the acquisition of equipment and incurring
operational expenses.
5 The technical and operational staff is available.

c. Organisational feasibility checklist

Organisational feasibility requires checking on the nature, form and name of the
business,; credentials of the proponents,; organisational structure,; human resource
requirements,; administrative overheads and capital expenditure required for
administrative purposes. These can be confirmed using the following checklist:

Table 2.5: Organisational feasibility checklist

SL No. Key Checklist YES NO
1 The form of the business and business name are decided.
2 The capability profile of the proponents is prepared.
3 Organisational structure and segregation of duties of the staff is ready.
4 Recruitment and selection of the staff is planned.
5 The financial arrangement for meeting cost of administrative staff, administrative
overheads, and noncurrent assets for administrative use is arranged.

d. Financial feasibility checklist

In addition to the earlier feasibility checklists, understanding the preparedness of the

business from the financial perspective is also important. Following may be looked
at as a part of financial feasibility checklist:

Table 2.6: Financial feasibility checklist

SL No. Key Checklist YES NO
1 The total project cost of implementing the idea is determined.
2 The financing plan is prepared.
3 Security for debt is being arranged.
4 Preparation of projected financial statements are planned.
5 Key financial analysis such as breakeven analysis, payback period determination,
estimation of profit margin, and calculation of internal rate of return are done.
 32 Chapter 2

The feasibility checklist exercise will enable the entrepreneur to know about the
preparedness of the entrepreneur in pursuing the business ideas. In addition to the
insights drawn from the business idea screening exercise 2.2, the feasibility checklist
will help in selecting the right business idea.

Learning Activity 2.3
The
Thisfeasibility checklist
activity aims to helpexercise
learnerswill enable selection
to conduct the entrepreneur to know
of business aboutthe
ideas using the
preparedness of the entrepreneur
business idea feasibility checklists.in pursuing the business ideas. In addition to the
insights drawn from the business idea screening exercise 2.2, the feasibility checklist
willInstruction:
help in selecting
In thethe right business
existing group, use idea.
the business idea feasibility checklists
and complete the given tasks.

Task:
a. From the list of business ideas screened, use the marketing, technical,
organisational and financial feasibility checklists to select the best idea.
b. Present the results and explain how the best idea was selected.

2.3 Intellectual Property

Intellectual Property (IP) is an intangible property resulting from creativity and

innovation. Some of the common intellectual properties include copyrights,
trademarks, patents and industrial designs.

According to the World Intellectual Property Organization (WIPO), Intellectual

Property (IP) refers to creations of the mind, such as inventions; literary and artistic
works; designs; and symbols, names and images used in commerce. WIPO is the
global forum for intellectual property services, policies, information and cooperation.

Once the entrepreneurs come up with innovative business ideas, concepts, innovations,
or inventions that has enormous market potential, protecting these from unauthorised
use by any others becomes a major concern. Protection of IP under law enables the
owner (entrepreneur) to earn recognition or financial benefit from the invention or
creation, thereby fostering an environment in which creativity and innovation can
flourish. Moreover, development of the knowledge economy, the globalisation of
markets as well as the increasing complexity of products and services has increased
the importance of Intellectual Property Rights (IPRs). IPRs refer to a broad range
 Business Opportunity Identification and Selection 33

of legal rights conferred by laws of the IP to the owner of the IP.

In Bhutan, the Department of Intellectual Property, Ministry of Economic Affairs is

responsible for implementing the policies and laws concerning IP. The Copyright Act
of the Kingdom of Bhutan, 2001 and The Industrial Property Act of the Kingdom
of Bhutan, 2001 are the laws governing IP in Bhutan. In addition, the National
Intellectual Property Policy 2018 aims at developing an IP system consistent with
best international practices that encourage creativity, innovation and inventiveness
and provide protection through appropriate legislations.

2.3.1 Types of Intellectual Property

IP consists mainly of two branches:

a. Copyright
b. Industrial Property

a. Copyright

According to WIPO, Copyright relates to literary and artistic creations such as

books, music, paintings and sculptures and films and technology-based works (such
as computer programs and electronic databases).

Copyright protects two types of rights – economic rights and moral rights. Economic
rights allow right owners to derive financial rewards from the use of their works by
others. Moral rights allow authors and creators to take certain actions to preserve
and protect their link with their works. The author or creator may be the owner of the
economic rights or those rights may be transferred to one or more copyright owners.
In general, the economic and moral rights shall remain protected through the entire
life of the author(s) and for fifty years after the death of the author(s).

b. Industrial Property

Industrial property is one of the two categories of Intellectual Property. It includes

patents, industrial designs, trademarks or service marks and geographical indications.

i. Patents

According to The Industrial Property Act of the Kingdom of Bhutan, 2001, a patent
refers to the title granted to protect an invention. Invention refers to an idea of an
inventor which permits in practice the solution to a specific problem in the field of
 34 Chapter 2

technology. An invention may be related to either a product or a process.

Patents are the most widespread means of protecting technical inventions. The patent
system is designed to contribute to the promotion of innovation and the transfer and
dissemination of technology to the mutual advantage of inventors, users of inventions
and the general public. The owner of a patent has the right to prevent anyone else from
commercially exploiting the invention for a limited period, generally 20 years. Once
the patent expires, the protection ends and the invention enters the public domain.

ii. Utility Model

Utility model is also a type of industrial property, which is similar to patents but sought
for technically less complex inventions or for commercially short-lived inventions. It
is not popular in many countries and it is granted usually for incremental innovations
upon something, which has already been invented. The duration of protection of
utility model under law ranges from 7 to 10 years.

One easy example to relate with will be the case of marker pen and its cover. Marker
pen is an invention but the ink dries up when kept open. Thus, people have come
up with the cover and lid to prevent the drying. So, in this case cover and the lid is
the utility model which has increased the value of the marker pen which has already
been invented.

iii. Industrial Designs

It refers to the ornamental or aesthetic aspects of an article including composition of

lines or colours or any three-dimensional form that gives a special appearance to the
product or handicraft. It applies to wide range of industrial products and handicrafts.
The design must have aesthetic appeal. Moreover, it must be something that can be
reproduced by industrial means for mass production; this is the essential purpose
of the design and the reason why the design is called ‘industrial’. From a legal
perspective, an industrial design refers to the right granted to protect the original,
ornamental and nonfunctional features of a product resulting from design activity.

In Bhutan, the validity of an industrial design shall be for a period of five years from
the date of filing the application for registration. The registration may be renewed for
two consecutive terms of five years each through a payment of the prescribed fee.

iv. Trademark
 Business Opportunity Identification and Selection 35

A trademark is a sign, or a combination of signs that differentiates the goods or

services of one company from another. The signs may be in the form of words, letters,
numerals, pictures, shapes and colours or any combination thereof. Trademarks are
commonly used on goods as well as for marketing purposes through advertisements,
packages, newspapers, etc. Trademarks are usually renewable indefinitely upon
paying renewal fees.

In addition to trademarks, there are other marks such as Collective Marks, Trade
Name and Service Mark which distinguishes a company and its products from that
of others.

Collective mark refers to any visible sign designated as such in the application
for registration and capable of distinguishing the origin or any other common
characteristic, including the quality of goods or services of different enterprises which
use the sign under the control of the registered owner of the collective mark. It is a
trademark that belongs to an association or organization, such as an association of
accountants, engineers and entrepreneurs, whose members use it for the purpose of
differentiating their products and services from that of the non-members with regard
to the level of quality and standards set for the association.

Trade name refers to the name or designation of an enterprise that it is commonly

known as. It is more like a name that is used by enterprises in doing their business
which could be different from their registered name. The name ‘Tashi Cell’ is a
trade name by which people refer to Tashi Infocomm Limited (registered name)
and the company also uses it for advertising and doing business. Thus, a trade name
is DBA name (Doing Business As name). A trademark which is used specifically
in association with services is called service mark. It is used by businesses in the
service industry.

v. Geographical Indication

It is a sign used on goods that have a specific geographical origin and possess qualities
or a reputation due to that place of origin. Geographical indication is commonly used
for agricultural products, culture and tradition-oriented products, etc. Assam Tea and
Darjeeling Tea are examples of geographical indication.
 36 Chapter 2

Learning Activity 2.4

This activity aims to facilitate learners’ understanding of legal provisions pertaining

to the intellectual property regulations in Bhutan.

Instruction: In groups, refer the latest Acts governing the intellectual property
and IP reports of Bhutan to complete the given tasks. These documents can
be accessed from:
https://www.moea.gov.bt/?page_ id=941 and https://www.moea.gov.
bt/?page_id=943

Task:
a. Read the Acts governing intellectual property and reports pertaining to
it thoroughly and select one intellectual property or report discussed.
Different groups may select different provisions of intellectual property.
b. Prepare and deliver a presentation on the different provisions pertaining
to the chosen intellectual property.

Chapter Review Questions

1. Compare and contrast the concept of business idea and opportunity.

2. Explain business opportunity identification process.

3. Mr. Dorji aspires to do some business but has no business idea. Advise him
how to generate business ideas using business idea generation methods.
Further, suggest him suitable techniques for screening ideas generated
earlier.

4. B
ased on your suggestion to Dorji in question 3, advise him to conduct
feasibility studies in choosing the most promising business idea.

5. Discuss different types of intellectual properties by citing an example each.

6. Explain the protection of ideas using intellectual property system.

 Chapter 3
Development of
Business Model

Learning Objectives

 Describe the components of Business Model Canvas

 Develop Business Model Canvas for the selected idea

 Conduct an assessment of the business model

 Deliberate on embedding sustainability in business model

 38 Chapter 3

3.1 Business Model Canvas

The introduction to Business Model Canvas (BMC) was already covered in chapter 3
of the Business and Entrepreneurship textbook of Class XI. Nevertheless, this chapter
will begin with a brief description of BMC to reiterate and make the concepts clear.

Business model describes the rationale of how an organisation creates, delivers and
captures value. In simple terms, it refers to how a business plans to make money.
This requires entrepreneur to clearly identify the customer segment(s) that he or
she wishes to serve; plan the value propositions intended to be offered; plan the
channels through which information and the products are to be delivered; strategise
how customer relationships will be developed and nurtured; explore and identify the
revenue streams for the business; identify and plan arrangement of key resources;
recognise the key activities the business must undertake; strategise how to develop
key partnerships; and estimate the cost and cost structure for the business. These
9 interrelated components constitute the building blocks of BMC. Each of these
components is briefly discussed below:

3.1.1 Customer Segment

The customer segment building block defines the group of individuals or organisations
that the business aims to reach and serve. They represent the group for whom the
business is creating value. Customers make up the heart of any business model and
without them no company can operate. Businesses typically group their customers
into segments based on their common needs, behaviors or other attributes to serve
them better. Mass market, niche market, segmented market and diversified market
are few examples of customer segments.

3.1.2 Value Proposition

Value proposition describes the bundle of products and services that create value
for the specific customer segment. The value proposition should describe how the
product solves customer problems, benefits the customers can expect and why
customers should buy from one business over its competitors. Unique and superior
value proposition distinguishes and gives a competitive edge to the business over its
competitors. The price, turnaround time, product volume, etc., could be examples
of quantitative value whereas the newness, performance, convenience, brand,
customisation, design of the product and customer experience could be considered
as qualitative value.
 Development of Business Model 39

3.1.3 Channel

The channel describes how a company communicates with and deliver its value
proposition to its customer segment. It is important to understand which pathway
(or channel) is best for the business to reach its customers. A company can choose
to reach its consumers either through its own network (Business-to-Consumers
(B2C)) or Partner channel (Business-to-Business (B2B)) or through a mix of both.
In a broader sense, a channel not only includes the mode of transportation but also
medium such as websites, social media and other promotional mix through which
the business communicates with its customers. While deciding upon the channel, the
entrepreneur must pay due consideration to all the phases a customer goes through
while purchasing and consuming the product or service – awareness creation,
evaluation of the value proposition, the actual purchase of the product, delivery of
the product and availing after sales services.

3.1.4 Customer Relationships

Customer Relationships building block describes the nature of relationship a business

establishes with each of its customer segments. It helps in customer acquisition and
retention to boost sales. Customer relationship could be improved through personal
assistance, automated services, self-service and co-creation to deliver unique user
experience.

3.1.5 Revenue Streams

Revenue streams building block represents the cash that a business generates from
each customer segment. If customers are considered as the heart of the business
model, revenue streams are its arteries. There are several ways a business can generate
revenue. Some of the ways through which revenue streams can be generated are
sale of assets, usage fee, subscription fee, renting, leasing, licensing, brokerage and
advertising fees.

3.1.6 Key Resources

Key resources building block describes the most important resources needed by an
organisation to make its business model work. Key resources can be intellectual,
financial, physical or human. Every model requires key resources and it is through
key resources that businesses generate value propositions, offer value propositions
to its customer segments, maintain relation with its customers and generate revenue.
 40 Chapter 3

3.1.7 Key Activities

This building block describes the business activities without which the business
cannot operate. Every business model requires key activities and they vary depending
on the business model. Like key resources, they are essential to create and offer a
value proposition, reach markets, maintain customer relationships and earn revenues.

3.1.8 Key Partnerships

Key partnerships building block refers to the network a business builds with the
stakeholders such as suppliers, distributors and other partners which make the
business model work. These partnerships enable the business to mobilise resources,
reduce risks and uncertainties to succeed. Different types of essential partnerships
are strategic alliances between non-competitors; competition – strategic partnerships
between competitors; joint ventures to develop new businesses; and buyer-supplier
relationships to ensure reliable supplies.

3.1.9 Cost Structure

Cost structure refers to the cost incurred in implementing the business model. This
component of BMC is important in understanding the cost impact and deciding
whether to proceed with the business or change some components in the BMC as
desired. Generally, businesses may be categorised into cost-driven and value-driven
businesses. The cost driven businesses will always attempt to minimise cost whereas
the value driven businesses will focus less on cost and focus more on enhancing the
value of the products and services for the customers.
 Development of Business Model 41

3.2 Development of Business Model Canvas

Business Model Canvas is a basis for writing a business plan. Therefore, it is advisable
for an entrepreneur to sketch the BMC prior to preparing a full-fledged business
plan. Figure 3.1 represents a template which can be adapted for the purpose of
developing a BMC.

KEY KEY VALUE CUSTOMER CUSTOMER

PARTNERS ACTIVITIES PROPOSITIONS RELATIONSHIPS SEGMENTS

Describe how you

Describe your plan to establish and
key activities manage relationships
List your key here. Describe with your customers
partners here. your value here. Describe your
proposition target customer
KEY here. segment here
RESOURCES CHANNELS

Describe your plan to:

List the key • acquire customers
resources you • deliver value
have at your proposition
disposal. • communicate with
your customers

COST STRUCTURE REVENUE STREAMS

Describe your cost structure here. Describe your revenue streams here.

Figure 3.1: Template for Business Model Canvas

 42 Chapter 3

Learning Activity 3.1

This activity aims to enable learners to develop their own Business Model Canvas.

Instruction: Refer the business idea your group has selected towards the end
of chapter 2 and complete the given tasks.

Task:
Develop a Business Model Canvas for the selected idea and present it to
the class.

3.3 Assessment of Business Model

The assessment of business model is an essential exercise to test the overall relevance
and appropriateness of the model. A popular method used to conduct the assessment
of business model is to put the business model through a SWOT analysis. SWOT
stands for strengths, weaknesses, opportunities and threats. SWOT analysis provides
these four perspectives from which a business model can be assessed. Figure 3.2
represents the SWOT matrix.

STRENGTHS WEAKNESSES
INTERNAL

OPPORTUNITIES THREATS
EXTERNAL

HELPFUL HARMFUL

Figure 3.2: SWOT Matrix

 Development of Business Model 43

Strengths and weaknesses are internal to the business while opportunities and threats
relate to the external environment of the business. Strengths and opportunities are
factors which are helpful for the business while weaknesses and threats are factors
which affect the business negatively. Using SWOT analysis for assessing business
model enables the entrepreneur to understand the strengths and weaknesses the
business model possesses; identify the opportunities the business model has and
recognise the threats associated with the business model. The analysis of business
model requires close examination of each of the 9 building blocks of the Business
Model Canvas. A brief description of assessing business model using SWOT is
given below:

3.3.1 Assessment of Strengths

While assessing strengths, it is important to pay attention to all the 9 building blocks.
The entrepreneur must clearly understand the strengths of the business model and
further enhance it to take advantage of the opportunities. Some of the probable
strengths related to customer segments could be well segmented customer base;
high attraction and retention rate and low churn rate. Similarly, value proposition
aligned with customer needs; satisfied customers with the value proposition and
uniqueness and inimitability of value proposition could be strengths related to value
proposition. Efficient and effective channels; high economies of scope of the channel
and wider and well-integrated channels could be some channel-related strengths.
Some of the strengths related to customer relationships could be strong customer
relationships; proper fit between relationship and customer segment; strong brand
image and binding customers through high switching cost. Some strengths associated
with revenue streams could be high margins; stable, and sustainable and diversified
revenue streams. Availability of required resources; inimitability of the resources
and their combination, and efficient inventory management may be some of the
strengths pertaining to key resources. Likewise, efficient and inimitable processes
may be some strengths related to key activities. Strong relationships with partners,
and having committed and reliable key partners could be primary strengths related
to key partnerships block. The strengths associated with cost structure could be
low-cost impact, predictable costs; cost-efficient operations and economies of scale..

3.3.2 Assessment of Weaknesses

Like strengths, it is important to understand the weaknesses of the business model.

The entrepreneur must always attempt to convert the weaknesses into strengths or at
least hold it constant so that it does not disrupt the business functioning. Some of the
weaknesses related to the 9 building blocks could be unsegmented customer base; low
 44 Chapter 3

customer acquisition and retention rate; high churn rate; misaligned value proposition
and customer needs; inefficient channels; poorly integrated channels; weak customer
relationships; weak brand image; low switching cost for customers; poor margins;
unpredictable revenue; single revenue stream; high revenue collection cost; easily
replicable key resources; unpredictable resources requirement; easily imitable key
activities; poor working relationships with partners; high and unpredictable costs;
cost-inefficient operations and lack of economies of scale.

3.3.3 Assessment of Opportunities

The assessment of business model from the perspective of the opportunities associated
with the business model is also essential to enable the entrepreneur to capitalise on
the opportunities and enhance the prospects for the business. Some of the notable
examples of opportunities pertaining to the building blocks of the business model
could be possibilities of serving new customer segments; growing market prospects;
possibilities of serving the existing segments better; possibilities of enhancing
the value proposition; potentials of satisfying new customer needs; prospects of
improving the channels; prospects of enhancing customer relationships through ways
such as automation and personalisation; potentials for enhancing revenue streams and
customers’ willingness to pay better prices; improving efficiency and effectiveness
of key activities; possibilities of resource optimisation; capitalising on intellectual
properties; exploring outsourcing opportunities; enhancing relationships with key
partners and prospects of reducing or sharing costs.

3.3.4 Assessment of Threats

Threats are external factors which could affect the success, competitive position and
overall sustainability of the business. Proper assessment of threats is indispensable for
mitigating the threats and ensuring proper risk management. Some of the examples
of threats associated with 9 building blocks of the business model could be market
segments nearing saturation; intense competition in the market segments; availability
of wide range of substitutes for the value proposition the firm is offering; better
pricing strategies of the competitors; risk of channels becoming irrelevant; danger
of deteriorating customer relationships; firm’s margins being threatened by the
competitors; too much dependence on one revenue stream; possibility of disruption
in the supply of key resources; deteriorating quality of key resources; possibility of
key activities being disrupted; danger of losing partners; too much dependence on
certain partners; costs becoming highly unpredictable and issues with rising cost.

The entrepreneurs must assess the relevance and viability of the business model
 Development of Business Model 45

regularly – both before and after the commencement of the business.

Learning Activity 3.2

This activity will facilitate learners to conduct SWOT analysis of their

business model.

Instruction: Based on the SWOT matrix and analysis described above, use
the table below to complete the given task.

9 Building Blocks Strengths Weaknesses Opportunities Threats

Customer Segment
Value Proposition
Channel
Customer Relationships
Revenue Streams
Key Resources
Key Activities
Key Partnerships
Cost Structure

Task:
Conduct a SWOT analysis of your business model and present it to the
class. You may also need to revise your business model based on the
SWOT analysis results.

3.4 Sustainability of Business Model

Sustainable business model can be defined as a business model that creates, delivers
and captures value for all its stakeholders without depleting the natural, economic
and social capital it relies on.

Conceiving business ideas and establishing businesses are very important. Building a
sustainable business is even more important. There are several methods and standards
used for assessment and certification of the sustainability of a business, not just
from the financial or economic perspective but also from the environmental and
social perspectives. While most of these tools and standards are used for already
established businesses, it may be thoughtful and important to consider sustainability
 46 Chapter 3

of the business before the business is even being established. Therefore, assessment
of the sustainability of the business model is deemed important.

Startups could explore using following approaches for assessing the long-term
sustainability of their businesses:

3.4.1 Triple Bottom Line

Conventionally, businesses were mostly driven by profit motive. However, businesses

today have given strenuous focus on sustainability beyond profitability. Social and
environmental aspects of sustainability have now become more important especially
with growing level of knowledge and awareness amongst the general populace on
social and environmental issues. Triple bottom line theory expands the conventional
accounting framework to incorporate social and environmental impacts of businesses.
The triple bottom line is often referred as 3Ps of sustainability – People, Planet
and Profit.

PEOPLE
Corporate Social
Responsibility
PROFIT
Sustaninable
TRIPLE
Business
BOTTOM
Earnings
LINE

PLANET
Environmental
Protection

Figure 3.3:Triple bottom line

 Development of Business Model 47

The long-term success and sustainability of the business is not just determined by how
much profit the business earns, it is equally determined by how the business fulfills
its social and environmental responsibilities. Therefore, it is essential for startups
to understand the importance of triple bottom line and decide on incorporating 3Ps
into their business model.

Learning Activity 3.3

This learning activity aims to facilitate learners to integrate Triple Bottom Line
into their proposed businesses.

Instruction: Read the article in the box 3.1 on Manufacturing of Egg Tray
under the initiative of YDF and complete the task.

Task: Deliberate on integration of Triple Bottom Line into your proposed

businesses and present the results to the class.

Box 3.1: An Application of Triple Bottom Line at Waste Paper Recycling Unit:
Manufacturing Egg Trays – an Initiative of YDF

The Waste Paper Recycling Unit (WPRU) is an innovative, green and social enterprise
dedicated to manufacturing pulp egg trays with a certain percentage of profits going to youth
development projects in Bhutan.
 48 Chapter 3

With the vision to preserve Bhutan’s natural environment, the enterprise recycles wastepaper
into pulp egg trays to meet the demands of local poultry farms. On the social front, it offers
employment opportunities to the youth and generates fund for youth development projects
in Bhutan.
Bhutan Youth Development Fund (YDF) launched this green enterprise in 2015 with an
establishment funding from the UNDP’s Small Grant Program (SGP) and Goodwill Foundation
USA on an industrial estate area leased by the Ministry of Economic Affairs at Bjemina, Thimphu.

In the last six years, the enterprise has recycled over 270 metric tonnes of wastepaper and
manufactured more than 4 million egg trays (valued at Nu. 13.2 million) for poultry farmers in
Bhutan. As a social enterprise guided by the principles of the triple bottom-line –– people, planet,
and prosperity, it is adding social and environmental good to the goal of turning a profit by:

People (social) employing young and early school-leavers, and in particular, those youth who
are recovering from substance abuse addiction as production associates. Through our local
distributor, Karma Groups, pulp egg trays go to poultry farms at a competitive price.

Planet (environment) collecting and recycling wastepaper into pulp egg trays, through conscious,
sustainable ways leaving behind a minimum ecological footprint. According to a UNDP
environment expert, the annual environmental value of the enterprise is 142 tonnes of GHG
emission (Green House Gas) avoided and sink protected, 985 trees saved and 2027 litres of
water saved due to recycling of waste papers.

Prosperity/Profit (economy) boosting local economy by substituting import of egg trays;

and generating surplus to be self-sustaining and supporting the organisation’s overall youth
development efforts like educational scholarship, rehabilitation of drug addicts etc..

Like any entrepreneurial venture, and as the country’s first egg tray manufacturer, the social
enterprise has had challenging times. Drying of egg trays has always been challenging since
the enterprise follow natural drying process, and for the fact that egg trays have high moisture
content. Generating huge surplus is also difficult because pulp egg tray is a low economic value
product and the enterprise is a not-for-profit venture –– the dual economic and social foci of social
enterprises. The ability to scale-up the venture becomes challenging in many ways.
 Development of Business Model 49

Today, the enterprise produces on average 15,000 egg trays per week from waste papers
received free from various government and corporate offices; and bought from Greenerway,
schools, and private garbage vendors in Thimphu, which would roughly be 1250 kgs (average)
of wastepaper. At the speed of over 50 metric tonnes of wastepaper recycled, in the next ten
years, the enterprise will be saving 9850 trees as well as 1419.49 tonnes of GHG emission
avoided and sink protected.

Wastes in Bhutan will continue to grow with growing population and consumption pattern. So is
the growth of poultry farming due to dedicated support from the Government. The future of the
green economy is hopefully promising as YDF ventures into another egg tray project aimed at
achieving the goal of saving 10,000 trees and 1,500 tonnes of GHG emission in the next
five years.

Around the world, social enterprises are fast emerging as an entity of the alternative economy.
When the traditional economic systems of a country or market-based solutions fall short to
ensure well-being in the society, social enterprises can spearhead disrupting models to solve
growing social problems. Bhutan’s Gross National Happiness development framework and
carbon-negative status quo is a fertile ground for such kind of business models to test and
grow. To have an enabling business ecosystem, Bhutan can still emulate countries with proper
support mechanisms and structured policies for social enterprises.

3.4.2 Gross National Happiness (GNH) Certification

Gross National Happiness is a holistic development paradigm propounded by

His Majesty Jigme Singye Wangchuck, the Fourth King of Bhutan in the early
1970s. GNH today is vastly implemented in Bhutan as a holistic and sustainable
development approach and has also inspired many countries around the world.
Despite its conceptual popularity, the integration of GNH into the business world
has remained minimal. Owing to the fact that businesses operate on a conventional
profit maximisation principle and with the motive of embedding GNH into business,
a team of researchers from the Centre for Bhutan Studies & GNH has developed
GNH assessment tool for businesses. The indicators of the assessment tool are based
on the 9 domains of GNH – Psychological Wellbeing; Health; Time Use; Education;
Community Vitality; Cultural Diversity and Resilience; Good Governance; Ecological
Diversity and Resilience; and Living Standards.
 50 Chapter 3

The GNH Certification is beyond the scope of a startup firm at its inception stage but
more applicable to fully functional and established business organisations. However,
it may be wise for startups to assess their business models using the 9 domains of
GNH. This will help them understand the likeliness of the businesses’ sustainability
in the long run. Assessing against following nine domains could help in pondering
on the business model’s sustainability from GNH perspective:

Following 9 questions could help in pondering on the business model sustainability

from GNH perspective:

Lead to
psychological
wellbeing of Enhance
stakeholders health and
Promote safety of
ecological the workers
diversity and
resilience Facilitate
effecient and
Effective use
of time

Promote How
community
vitality
Business
Model Meet
educational
and training
needs of the
Promote workers
cultural
diversity and
resilience Promote
Promote the living
good standards of
governance the workers

Figure 3.4: Business model and domains of GNH

 Development of Business Model 51

Chapter Review Questions

1. In groups, discuss and evaluate the need for a suitable business model.

2. Review the need for assessment of business model.

3. A
s modern businesses increasingly focus on profit motive, discuss the need
for a sustainable business model.

4. E
xplore the ways through which values and principles of GNH can be
embedded into the business models.

5. H
ow can sustainability of a business be ensured through the infusion of
GNH principles into the business?
52 Chapter 3
 Chapter 4
Introduction to
Business Plan

Learning Objectives

 Describe business plan

 Discuss the importance and users of business plan

 Discuss the components of business plan

 54 Chapter 4

4.1 Meaning, Importance and Users of Business Plan

A business plan is a written document and strategic tool that describes the details
of the proposed business. It must include four essential components namely the
marketing, operational, organisational and financial plan of the proposed business.
The business plan is the entrepreneur’s roadmap for establishing the business. It is
also used for ensuring achievement of the vision, mission and objectives set for the
venture.

Depending on the use and purpose of the business plan, it is also called by different
names – venture plan, loan proposal, investment prospectus or detailed project report.
The business plan should be prepared by the entrepreneur. However, the entrepreneur
may choose to consult and seek support from other professionals and sources such as
business and entrepreneurship experts, consultants, lawyers, accountants, financial
experts, marketing consultants and engineers to develop the business plan, if
assistance is required.

It is important for the entrepreneur to have a properly researched and well written
business plan. Some of the reasons for the importance of business plan are described
as follows:

(( Prove the commitment of the entrepreneur – business partners or stakeholders

such as investors, employees and suppliers refer to business plan to ascertain
if the entrepreneur is well informed, organised and committed to start the
proposed business.
(( Establishment of business milestones – the entrepreneur must document
the vision, mission and objectives of the business in the business plan from
which specific milestones can be derived. This also helps the entrepreneurs or
businesses to have a sense of direction, purpose and strategy for attaining the
milestones of the business.
(( Understanding the market competition – writing a business plan requires
the entrepreneur to undertake a market survey. That information provides an
insight into the existing and possible competition in the market. This helps
the entrepreneur to position the business well and strategise on ways to gain
competitive advantage.
(( Understanding the customers – a market analysis or an in-depth market research
must be conducted for writing a business plan. This helps in gaining insights
 Introduction to Business Plan 55

about what are the customer needs and how they would like to be served.
(( Knowing the feasibility of the business – a thorough study of the market
prospects of the business along with technical, organisational and financial
feasibilities of the business must be conducted in order to write a vibrant
business plan. Undertaking these studies will enable the entrepreneur and
business partners to ascertain the feasibility of establishing the proposed
business.
(( Documenting the business model – drafting the business model, which is
constituted by the nine building blocks, has become a prerequisite for preparing
any business plan. Further, the business plan elaborates the ways through which
the business will create, deliver and capture value. This helps the business to
have a properly documented business model.
(( Determining the financial needs – the preparation of business plan requires
estimating cost and determining financial needs for the proposed business. This
will enable the entrepreneur to know how much capital is to be raised and also
decide how to raise the required capital.
(( Attracting lenders and investors – a formal business plan is the basis on which
entrepreneurs submit funding proposals to the investors. The investors and
banks generally look at market prospects of the business and attractiveness
of its financial projections. These can be ascertained from the business plan.
(( Attracting business partners and employees – establishment and operation of
business requires the support and commitment of the business partners and
employees. They use the business plan to understand the risks and prospects
of joining that business. Thus, it serves as the basis for making decisions to
confirm or not to confirm their support and commitment to the entrepreneur.
(( Completing registration and legal formalities – every business needs to get
itself registered with the state to begin its operations for which a formal business
plan is necessary to complete the legal and regulatory formalities. Therefore,
having a well written business plan helps in meeting such purposes.
The business plan is used by different business stakeholders for different purposes.
Figure 4.1 depicts the main users and their reasons for using the business plan:
 56 Chapter 4

a. Entrepreneurs - The entrepreneurs themselves are the foremost user of the

business plan they prepare. They use it for the purpose of pitching their ideas to
seek support from other stakeholders. The entrepreneurs also use the business plan
as a roadmap that guides their actions and activities in the process of establishing
and operating the business.

INSIDERS OUTSIDERS

Potential Customers Lenders

Entrepreneurs and
Management Team

Suppliers Investors

Employees
Family and Private Venture
friends Investors Capitalist

Figure 4.1 Business Plan users

 Introduction to Business Plan 57

b. Investors - the investors such as angel investors, venture capitalists and private
equity firms primarily use business plan for gauging the risk associated with
investing in the business and assessing the growth prospects of the business. This
assessment becomes the basis for their investment decision.

c. Bankers - banks use business plan to assess the debt servicing capacity of the
business. Basically, bankers examine this through the projected financial statements
of the proposed business. They make the decision to extend loan services to the
businesses as per the credit worthiness as ascertained from the projected financial
statements.

d. Potential partners - if the entrepreneur considers to take a business partner

onboard, the potential partner will have to be provided with the business plan which
clearly states the ownership structure and the roles of the partner. In addition,
the potential partner can also assess the market, operational, organisational and
financial prospects of the business by using the business plan.

e. Managers and employees - the managers and employees of the business use
business plan as a reference point for reminding them of the vision, mission and
objectives of the business. They also use it to implement strategies, plans and
activities of the business. It further facilitates them to make necessary adjustments
as per the changes in the business environment.

f. Suppliers - the suppliers are mostly interested in the capacity of the business to
pay their bills on time and also their potential to place more orders. Therefore,
suppliers use business plan for understanding the cash flow status, operating results
and growth prospects of the business.

g. Customers - usually all customers do not read the business plan. However, for
those customers who are looking for long term relationship with the business, it
may be used for gaining better insights about the business.

h. Advisors and consultants - the business advisors and consultants use business
plan to gain better understanding of the business and accordingly provide their
expert opinions and advises to the business.
 58 Chapter 4

4.2 Components of Business Plan

The business plan comprises of several components which are described ideally in
a document ranging from 25 to 35 pages. Following is a typical template used for
writing a business plan:

Table 4.1: Components of Business Plan

Section Content
1. Title Page
2. Confidentiality Statement
3. Table of Contents
4. Executive Summary
5. Business Profile
6. Business Model Canvas
7. Market Analysis and Marketing Plan
8. Operations Plan
9. Management Plan
10. Financial Plan
11. Assessment of Risks
12. Appendices
Each of the components of a business plan is discussed below:

i. Title page

A business plan must have a title page or cover page with the name of the business
and proponents.

ii. Confidentiality statement

It is a statement stating that the informaiton provided in the business plan is

confidential and the user agrees not to personally use or disclose any part of the
business plan without a written consent from the rightful owner.

iii. Table of contents

The table of contents must clearly state the various sections of the business plan with
corresponding page numbers.
 Introduction to Business Plan 59

iv. Executive summary

Executive summary is an overview of the business plan which enables the readers to
gain insights of the entire plan. Therefore, the executive summary must be written
only after completing the entire plan and the important parts of the plan is condensed
into a maximum of two pages. Furthermore, the users of the business plan may not
have the time and be interested in reading the entire business plan unless the executive
summary ignites interest to read the plan. Therefore, it must be written well and
precisely, else the business plan may be deemed ineligible for funding or support.
Generally, executive summary include the following information, in a summarised
version:

üü Brief backgrond, vision and mission of the proposed business.

üü The problem it intends to address and its market opportunities.
üü Brief insights of market research and marketing strategies.
üü Snapshot of the technical or operations plan.
üü Brief notes on the management and organisational plan.
üü A brief outline of the financial needs and projections.
v. Business profile

The business profile or description is an overview of the proposed business. Name,

logo and address; form and nature of the proposed business; name, address and
capability profile of the proponents (entrepreneurs); and vision and mission of the
proposed business are some of the information which are included under business
profile.

vi. Business model canvas

Although the conventional business plans do not include business model canvas into
the plan, the contemporary business proposals inculde a copy of the business model
canvas. This helps the users to comprehend the buisness at a glance.

vii. Market analysis and marketing plan

This component of the business plan attempts to convince the investors and other
stakeholders that there is market for the products and services of the proposed
business. It also shows that the projected sales can be achieved and the proposed
 60 Chapter 4

business has potential to grow and a competitive advantage.

Generally, market analysis helps to understand the gap between existing supply and
demand which is essential for ascertaining projected sales. Marketing plan comprise
of the details about target market segment that the business intends to serve; the
products and/or services to be sold or provided; marketing strategies to promote the
products and services. It basically needs to be focused on how to attract and retain
customers .

viii. Operations plan

Operations or technical plan pertains to transformation of raw materials into

finished goods or the process of rendering services. It comprises of the location and
description of the production facility; methods and processes involved in production
of the products or rendering of services; production or operations schedule; fixed
investment requirements for operation purposes; sources and terms of procuring the
non-current assests required for operations; estimation of plant capacity and capacity
utilisation; estimation of raw material requirements and costs; estimation of labour
requirements and costs; estimation of operation overhead costs; and computing total
and unit cost of production.

ix. Management plan

Management plan pertains to the identification of the administrative and management

personnel required for the business; segregation of their position and roles;
determination of professional experiences required for the positions and roles; and
estimation of investment and expenses required for management and adminstrative
purposes. These can be done through development of organisational structure;
description of key positions and responsibilities; recruitment and selection plans;
training of staff; estimation of cost of personnel for adminstration; projection of the
non-current assets required for administrative purposes; provisioning for maintenance
and repairing of assets; drawing the office layout; estimating the pre-operating
expenses; and estimating the management and administrative expenses.

x. Financial plan

The financial section of the business plan must reveal the financial viability of
the proposed business. It includes estimation of total project cost; development of
financing plan; identification of security for loan; development of loan repayment plan
and interest calculation; preparation of projected financial statements; and conducting
 Introduction to Business Plan 61

important fiancial analysis such as break-even analysis, payback period, net present
value and return on investment.

xi. Assessment of risks

Risk is inevitable in business. The entrepreneur must make an assessment of risks the
business is likely to face. This section should clearly list the likely risks confronting
the proposed business, the risk management strategies and alternative course of
actions intended to be employed in the event of facing risks.

xii. Appendices

The supporting documents such as resume of the proponents, market research reports,
price list from the suppliers, contracts signed with business partners and stakeholder,
and clearances and certificates may be included under appendices.

The details and the templates for preparing marketing plan, operations plan,
management plan and financial plan are discussed in the subsequent chapters.

Chapter Review Questions

1. Describe the meaning and the importance of business plan in your

own words.

2. When you develop a business plan, who would be your likely audience
and why?

3. Develop a suitable template for business plan.

62 Chapter 4
 Chapter 5
Market Analysis and
Marketing Plan

Learning Objectives

 Explain the meaning of market analysis and marketing plan

 Conduct industry analysis
 Identify target market segment
 Analyse demand, supply and conduct gap analysis
 Perform competitor analysis
 Forecast revenue
 Determine marketing mix
 Develop marketing strategies
 Determine non-current assets required for marketing purpose
 Estimate marketing expenses
 64 Chapter 5

5.1 Meaning of Market Analysis and Marketing Plan

Market analysis refers to the process of analysing a particular industry or a market

to gain certain information or insights about the attractiveness of the industry, needs
of the market segment, demand-supply gap and competitors. Basically, these insights
are gathered to assess market potential for the products and services of the proposed
business. Based on these insights, the sales projection is done and marketing plan is
prepared to achieve the projected sales.

Marketing plan is a strategic roadmap consisting of strategies to market the products

and services of the business for realising the projected sales. In addition, the marketing
plan also includes essential activities such as budgeting resources, estimation of
marketing expenses and determination of non-current assets required for marketing
purposes.

5.2 Industry Analysis

A market analysis is intended to study the attractiveness and the dynamics of a

particular market within an industry. Industry analysis becomes essential to
understand the attractiveness of the market that an entrepreneur is planning to serve.
It is a tool that helps a business to understand its relative position to other businesses
that produce similar products or services. The environment and changing dynamics of
the industry can have huge impact on the business. Therefore, analysing the industry
prior to preparation of marketing plan is necessary.

A popular tool used for conducting industry analysis is Porter’s Five Forces (PFF)
propounded by Michael Porter in 1979. The model identifies and analyses the five forces
of competition that shapes an industry and helps to identify the industry’s strengths
and weaknesses. It helps to measure the intensity of competition, attractiveness and
profitability of an industry. The potential sources of pressures, according to Porter,
within an industry are categorised into five forces as depicted in Figure 5.1.
 Market Analysis and Marketing Plan 65

Low/ High?

Threat of substitutes
Bargaining Power of Suppliers

Bargaining Power of Buyers

Competitive Rivalry
Low/ High? Low/ High?

Threat of New Entrants

Low/ High?

Figure 5.1: Porter's Five Forces framework

The five forces are competitive rivalry amongst the competitors in the market; threat
of new entrants; threat of substitutes; bargaining power of buyers and the bargaining
power of suppliers.

The first step in using this technique is to decide the industry in which the business
will operate. This decision is extremely important as the results of the analysis vary
based on the type of industry. Once the industry is decided upon, the five forces
are closely studied to identify possible pressures the business may encounter. Brief
description of each of the five forces are as follows:

a. Competitive rivalry - it relates to an examination of other businesses operating

in the same industry to understand the level of competition that exists and their
abilities to undercut a company. It is important to know where the proposed
business would stand. If the competitive rivalry is very high, the proposed business
 66 Chapter 5

will not have an upper hand. Hence, the industry is considered not attractive.

b. Threat of new entrants - this relates to ease of a new entrant or company entering
the industry. Because each new entrant will increase the level of competition of
the firms in that industry and can weaken their position. If there are high barriers
to entry, the threat of new entrants will be low and vice versa. High threat of new
entrants due to ease of entry will make the industry unattractive.

c. Threat of substitutes - availability of substitutes for what a business intends

to produce and sell have the potential to threaten the survival of the business.
Therefore, a business that intends to enter the industry in which there are no close
substitutes will have more chances for survival and growth and will also have more
power in the market. However, if there are numerous substitutes for the products
and services of the proposed business, the industry is said to be unattractive.

d. Bargaining power of buyers - this considers the power relationship between

the buyers and the business in terms of bargaining or the buyers’ ability to lower
the prices. This will be influenced by factors such as the number of customers,
significance of the customers and ease of finding new customers. If there are
lesser number of buyers who are significant and difficult to replace, the buyers
will have higher bargaining power than the business. This limits the attractiveness
of an industry.

e. Bargaining power of suppliers - like the customers, the suppliers can also have
power to push up the costs of the inputs. Their bargaining power will also depend
on the number of suppliers, uniqueness of the inputs and the cost of switching
to another supplier. Factors such as fewer suppliers, unique supplies and costlier
alternatives will give the supplier higher bargaining power. An industry is deemed
to be attractive if the suppliers have relatively lower bargaining power than the
business.

The level of attractiveness of the industry for the proposed business can be tabulated
using Table 5.1.
 Market Analysis and Marketing Plan 67

Table 5.1: Porter's Five Forces Scoring Sheet

Scale of Scale of
Threats (ST) Weighted Score
Five Forces Importance (I)
(I x ST)
(1 to 5) * (1 to 5) **
Competitive Rivalry
Threat of New Entrants
Threat of Substitutes
Bargaining Power of Buyers
Bargaining Power of Suppliers
Total Attractiveness Score***
*1= Not Important to 5 = Very Important
**1=Low, 3=Moderate, 5=High
*** 5=Very Attractive to 125=Very Unattractive

Conducting PFF analysis helps the entrepreneur to understand the attractiveness of

the industry and also strategise on implementing the business plan and activities.

In order to connect the learners well with the process, it is important to be reminded
of the outcomes of the Learning Activities 2.1, 2.2 and 2.3 of chapter 2. These
learning activities facilitated generation of business ideas, screening of the ideas and
ultimately selecting a feasible idea for further planning and preparation of business
model and business plan. Now it is time for the learners to carry forward the idea
selected through the Learning Activity 2.3 and conduct analysis of the industry in
which the idea falls.

Learning Activity 5.1

This learning activity aims to facilitate learners to conduct industry analysis

using PFF analysis.

Instructions: Refer the outcome of Learning Activity 2.3 from chapter 2 and
complete the given task.

Task: Conduct PFF analysis of the industry in which your business idea falls.
Figure 5.1 and Table 5.1 should be used for this exercise.
 68 Chapter 5

5.3 Target Market Segment

Target market refers to the customer group to whom the business is planning to sell
its products and services. This is also the group of customers towards which the
marketing efforts and campaigns are targeted. The market segmentation may be done
based on several factors such as

• geographical location – country, region, district and city, etc.

• demographic factors – age, sex, income, education, etc.

• psychographic factors – lifestyle, personality, social class, interest, etc.

• behavioral factors – purchase occasion, benefit sought, user status, usage rate,
loyalties status, etc.

It is important for the business to clearly define its target market segment. If the
market segment is properly identified, the marketing efforts and resources will not
be wasted. It is essential to understand the needs and key characteristics of the target
market segment. Table 5.2 can be used for identifying the target market segment.

Table 5.2: Target Market Segment

Segment Name Characteristics of the Segment Reason for choosing the segment

Learning Activity 5.2

This learning activity facilitates learners to identify the target market segment
they wish to serve.

Instructions: Use Table 5.2 and complete the given task.

Task: Identify your target market segment as per the requirement stated in
Table 5.2.
 Market Analysis and Marketing Plan 69

5.4 Demand-Supply Gap Analysis

Once the target market segment is chosen, it is necessary to determine the demand for
the products and services the business would offer. In order to ascertain this, demand
analysis must be conducted. Demand analysis can be conducted using Table 5.3.

Table 5.3: Demand Analysis

Number of Usage rate Total Quantity demanded

Target Mar- Name of the
Potential Volume Value (Nu.) Volume Value (Nu.)
ket Segment Product
Buyers

Total

Notes:

i. Usage rate

• Volume – This refers to the quantity purchased for consumption during a particular
period by a single customer. The period could be a day, month or year. Use any
period consistently. For example, if the calculation is done on monthly basis, use
this basis consistently throughout the preparation of business plan.

• Value – This refers to the amount spent for purchasing the particular product or
complimentary product during a particular period by a single customer. The
period could be a day, month or year. Consistency of the chosen period must be
maintained.

ii. Quantity demanded

This refers to the total figure, which is derived by multiplying usage rate volume and
potential number of buyers in the target market segment. Similarly, the value can be
computed by multiplying usage rate value by the potential number of buyers in the
target market segment.

Therefore,
 70 Chapter 5

Quantity
Usage Rate Number of potential buyers in the
Demanded = (Volume) X target market segment
(Volume)

Quantity
Usage Rate Number of potential buyers in the
Demanded = (Value) X target market segment
(Value)

Assumptions: Any assumption made for demand analysis should be supported by

relevant data and such assumption must be noted.

Having known the potential demand for the products and services intended to be
offered by the proposed business, it is important to know the existing supply. This
is ascertained through supply analysis. In order to understand the extent of current
supply, it is necessary to take note of the existing competitors, their products and
services and the volume and value of their supply in a day or month or a year. The
existing supply can be tabulated as depicted in Table 5.4.

Table 5.4: Supply Analysis

Target Market Name of Compet- Total Supply

Name of Product
Segment itor Volume Value (Nu.)

Total

Assumptions: Any assumption made for supply analysis should be supported by

relevant data and such assumption must be noted.

Once demand and supply analysis are completed, the gap between them must be
ascertained. This is done through gap analysis. A surplus of demand over supply
indicates market potential for the proposed business. The gap analysis can be tabulated
as presented in Table 5.5.
 Market Analysis and Marketing Plan 71

Table 5.5: Gap Analysis

Name of the Total Demand (A) Total Supply (B) Gap (A-B)
Product Volume Value (Nu.) Volume Value (Nu.) Volume Value (Nu.)

Notes:

• Total Demand (A) – this figure refers to the total quantity demanded (volume and
value) ascertained using demand analysis Table 5.3.

• Total Supply (B) – this figure refers to the total quantity supplied and the value
of the supply estimated using Table 5.4.

• Demand-Supply Gap (A - B) – this is calculated by subtracting total supply from

total demand.

Assumptions: Any assumption made for gap analysis should be supported by relevant
data and such assumption must be noted.

Learning Activity 5.3

This learning activity intends to facilitate learners to conduct gap analysis of the
demand and supply of the products or services they intend to offer.

Instructions: Refer Tables 5.3, 5.4 and 5.5, and complete the given tasks.

Task: Conduct demand analysis, supply analysis and gap analysis of the
product or service your group intends to offer.

5.5 Competitor analysis

The entrepreneur must also conduct analysis of the primary competitors. Knowing
the competitors and their strategies is essential for developing one’s own marketing
strategies. The competitor analysis must focus on the marketing mix – 4Ps or 7Ps
depending on whether the business sells products or offer services. In doing so, the
 72 Chapter 5

entrepreneur must pay attention to the following questions:

i. Product strategy

What special features do the competitors’ products and services have to make them
sellable? For this analysis, the entrepreneur can focus on quality, branding, packaging,
customer service, etc.

ii. Distribution (place) strategy

How do the competitors reach their products and services to the customers? What
are the channels used in delivering their products and processes involved in offering
their services?

iii. Promotion strategy

How do the competitors communicate about their products and services to the
customers? Do they use advertising, personal selling, sales promotion, direct
marketing or publicity?

iv. Pricing strategy

What pricing strategies do the competitors adopt to set price for their products? Is it
demand-oriented, cost-oriented or competitor-oriented?

v. People strategy

How do the competitors attract, train and retain the right people (employees) to deliver
superior service to the customers?

vi. Process strategy

What structures, processes, policies and systems makes the competitors’ functioning
efficient and effective?

vii. Physical evidence strategy

What makes the competitors’ physical evidence unique and better?

Some of the prominent sources of information about the competitors are websites,
catalogues, promotions and interviews with distributors and customers. This can
 Market Analysis and Marketing Plan 73

further be substantiated by in-depth marketing research. The competitor analysis

can be summarised using Table 5.6.

Table 5.6: Competitor Analysis

Strategies Competitor A Competitor B Competitor C Competitor D

Product strategy
Distribution (place) strategy
Promotion strategy
Pricing strategy
People strategy
Process strategy
Physical evidence strategy

Learning Activity 5.4

This activity aims to support learners to perform competitor analysis.

Instructions: Complete the given task after reading section 5.5 of this chapter
and studying Table 5.6.

Task: Conduct competitor analysis to identify the strengths and weaknesses

of the competitors’ strategies. Present the results of competitor analysis to the
class.

5.6 Forecasting of Revenue

Revenue refers to the gross inflow of economic benefits (cash, receivables, other
assets) arising from the daily operations of the business (sale of goods and services).
It is also broadly termed as sales.

The usage of the term sales is more suitable here as it is important to project the
potential revenue which could be earned through the sale of products and services
to the target market segment. This projection must be done meticulously as the rest
of the projections for the business plan will be based on the projected sales.
 74 Chapter 5

The entrepreneur must anticipate sales for at least three years. Some investors and
bankers even require entrepreneur to make the projections for five to ten years.
The sales projection is based on the result of the gap analysis as there is no point in
manufacturing and attempting to sell a product or service which has no demand.
Remember that it may not be possible for the business to fill in the entire gap if the
gap is huge. Therefore, projected sales will mostly be a fraction of total gap. Table
5.7 can be used for forecasting the sales.

Table 5.7: Sales Projection

Sales
Products and Year 1 Year 2 Year 3
Services Total Unit Total Total Unit Total Total Unit Total
Quantity Price Value Quantity Price Value Quantity Price Value

Total Sales
Value

Assumptions:

Assumptions must be made in estimating the sales. It is important to make realistic

or data-based assumptions. The entrepreneur can think of factors such as the nature
of product and service, losses which may be incurred during storage, sales and
marketing expenses while making assumptions. Some of the common assumptions
made in sales forecasting are the percentage by which sales would fluctuate from
year to year, fluctuations in selling price, dynamics of the target market, etc.

Once the sales forecasting is done, the market analysis is complete. It is now time
for the entrepreneur to prepare marketing plan. The subsequent sections deal with
preparation of marketing plan.

Learning Activity 5.5

This activity aims to facilitate learners to project sales for their proposed business.

Instructions: Make use of the knowledge gained on forecasting of sales and

complete the given task.

Task: Conduct projection of sales for your proposed business.

 Market Analysis and Marketing Plan 75

5.7 Determining Marketing Mix

Determination of marketing mix of the business is indispensable to achieve the

marketing objectives of the business. Generally, marketing mix includes the 4 Ps in
case of a manufacturing firm and 7 Ps in case of a service-oriented business. The 7
Ps are briefly explained below:

• Product – the product variety, quality, design, features, brand name, packaging,
size, services, warranties, etc., must be decided.

• Price – the decision pertaining to the price of the product or service, discounts,
allowances, payment period, credit terms, etc., must be taken.

• Promotion – the promotion mix (sales promotion, advertising, public relations,

direct marketing, personal selling) the business intends to use.

• Place – how the business intends to distribute or deliver its products and services
to the customers must be decided. This includes the channels, coverage, location,
inventory and transportation arrangement.

• People – the number, knowledge, skills, attitude and competencies of the people
who are required for the delivery of services must be decided. This includes
not just the employees who directly interact and render services but also the
distributors of the business.

• Process – the service delivery takes place through a process. The process
involved in delivery of service must be able to give the customers a superior
user experience. This may be achieved by having standard operating procedures
and implementing it consistently.

• Physical evidence – it includes the environment or place where the service is

offered. The website of the business, its logo and brochures, ambience of sales
or service delivery points, dress code of the employees rendering service, etc.,
creates distinctive experience for the customers.

5.8 Developing Marketing Strategies

After identifying the marketing mix, marketing strategies of the business must be
developed. A prerequisite for formulating marketing strategies is to have specific and
realistic marketing goals and objectives established because the marketing strategies
 76 Chapter 5

are the plans of how to achieve the marketing goals and objectives. The marketing
goals and objectives must specify what the business intends to achieve in terms of
customers’ awareness level, sales, market share, etc. Marketing strategies are the
ways the business positions its marketing mix and marketing efforts to meet the
marketing goals and objectives.

The subsequent subsections related to product, price, promotion, place, people,

physical evidence and process are useful for developing marketing strategies.

i. Product or service strategy

The product is more than its physical components which are obviously visible to all. It
includes packaging, price, brand name, warranty, service, delivery time, features, etc.
It is important to consider the special features that the products will have in order to
make them sellable. In order to develop product or service strategy, the entrepreneur
may focus on quality, branding, packaging, customer service, features, etc.

ii. Pricing strategy

Prior to making decision on the price of the product, it is important to take into
consideration the factors such as the cost of the product, margin for the entrepreneur
and the intensity of the competition. Based on these considerations, the price of the
products and services must be determined.

Pricing strategy the business plans to adopt in pricing must be stated. Mention
whether the pricing is based on demand, cost or competition.

iii. Promotion strategy

This relates to how businesses plan to get itself or its products and services known
to the customers. It is important for the business to inform and educate potential
customers about the products and services it intends to offer. This can be done
through the development of appropriate promotion mix. Promotional mix consists
of advertisement, sales promotion, direct marketing and personal selling. The
promotional mix the business intends to adopt must be stated under this subsection.

iv. Place strategy

It is related to the strategies for making the products and services available through
various distribution channels. The channels such as the business’s own outlets,
 Market Analysis and Marketing Plan 77

wholesalers, agents, retailers and online platforms which the business intends to
adopt must be stated while formulating the place strategy.

v. People strategy

This relates to the strategy of the business in making choice of the customer-facing
employees and distributors. The nature, attitude and professionalism of the sales
representatives matter in delivering better user experience. The recruitment, selection,
deployment and training strategies for ensuring right customer-facing employees and
distributors must be stated here.

vi. Process strategy

This pertains to the process, mechanism and the flow of activities that take place
when the customers and the business interacts. The business processes for making
customers’ interaction with the business more satisfying and delivering better
customer experience must be mentioned here.

vii. Physical evidence

It is evident that customer satisfaction and experience not only depend on the aspects
of the products and services but also on the physical environment through which
they are delivered. The features such as creation of unique customer touch points,
superior brand and conducive environment are important.

Learning Activity 5.6

This activity aims to facilitate learners develop marketing strategies for their
proposed business.

Instructions: Recollect the lesson on the marketing mix and marketing

strategies to complete the given task.

Task: Develop marketing strategies for your proposed business.

5.9 Determining Noncurrent Assets Required for Marketing Purpose

Noncurrent assets refer to the long-term assets of the business. The value of such
assets will not be realised within one accounting year but may be spread over a number
of years. Land, building, plant and equipment (Property, Plant and Equipment), and
 78 Chapter 5

intangible assets such as patents, goodwill and industrial design are some of the
examples of noncurrent assets.
To carry out the marketing activities, business requires noncurrent assets and such
requirements must be determined. Table 5.8 illustrates the estimation of noncurrent
assets required.

Table 5.8: Determination of Noncurrent Assets for Marketing

Estimated Yearly De-
Description Purchase
Specifica- Life (B) OR preciation
SL No. of Noncur- Quantity Price (Nu)
tion Deprecia- (A÷B) OR
rent Assets (A)
tion Rate (C) (A×C)
1
2
3
4
Total

Assumptions:

Assumptions may have to be made for determining the noncurrent assets, their prices
and estimated life span of the assets or depreciation rate. These assumptions must be
made based on facts, relevant data, and applicable rules and accounting standards.
The assumptions must be clearly stated so that the users or readers of the plan can
easily comprehend the estimation.

5.10 Estimating marketing expenses

Marketing activities incur certain expenses. Some of the examples of such expenses
are salaries and allowances to be paid the marketing personnel, commission to sales
agents, fees to the advertising agents, maintenance of noncurrent assets used for
marketing purposes, cost of fueling, communication expenses, depreciation of
noncurrent assets used for marketing purpose, etc. Such expenses must be clearly
projected for a minimum period of three years. Table 5.9 provides a template for
making projection of marketing expenses.
 Market Analysis and Marketing Plan 79

Table 5.9: Estimation of Marketing Expenses

SL No Expenses Year 1 Year 2 Year 3

1 Salary for marketing personnel
2 Allowance for marketing personnel
3 Commission to sales agents
4 Maintenance of assets
5 Depreciation
6 Fuel
Total Marketing Expenses

Assumptions:

Assumptions may have to be made for estimating the salaries, allowances and other
marketing expenses. These assumptions must be based on facts, relevant data and
applicable rules and laws, and must be clearly stated so that the users or readers of
the plan can easily comprehend the estimation.

Learning Activity 5.7

This activity aims to facilitate learners to estimate the requirement of noncurrent

assets for marketing use and marketing expenses.

Instructions: Recollect the lessons on the determination of noncurrent assets

requirement and estimation of marketing expenses to complete the given tasks.

Task: Estimate the noncurrent assets and marketing expenses required for your
proposed business using Tables 5.8 and 5.9. Clearly mention the assumptions
made.
 80 Chapter 5

Learning Activity 5.8

This activity will facilitate learners to consolidate the outcome of the activities
completed earlier in this chapter and compile them into a market analysis and
marketing plan.

Instructions: Revisit the Learning Activities 5.1 to 5.7 and complete the
given tasks.

Task: Compile the outcomes of the Learning Activities 5.1 to 5.7 into a market
analysis and marketing plan.

Chapter Review Questions

1. Explain market analysis and marketing plan.

2. Ms. Dema wants to start a restaurant in your locality. Suggest her how to
conduct industry analysis.

3. C
omputation of demand-supply gap is essential to identify the market
potential. Discuss how gap analysis is conducted and present it in the form
of a graph using the data gathered for your proposed business.

4. E
xplain competitor analysis and discuss how a business can use it as a basis
for developing its marketing strategies.

5. I n the context of question 2, what are your suggestions to help Ms. Dema
in making a revenue forecast for her business?

6. D
iscuss the types of noncurrent assets and state its significance in conducting
marketing activities.

7. Explain marketing expenses with suitable examples.

 Chapter 6
Operations Plan

Learning Objectives

 Explain the meaning of operations plan

 Identify and describe the location of the operations facility
 Exhibit the process and depict the method of operations
 Prepare operations schedule and estimate the quantities
 Identify noncurrent assets required for operational purpose
 Identify the sources and terms of procuring noncurrent assets
 Estimate the plant capacity and capacity utilisation plan
 Estimate the direct material, direct labour and direct expenses
 Estimate the overhead costs of operation
 Calculate the total and unit factory costs
 82 Chapter 6
6.1 Meaning of operations plan

Operations in the context of business refers to transformation of resources into

products or rendering of services. The operations plan is also called as technical
plan or production plan or manufacturing plan. Operations plan comprises of:

(( describing the location of the operations or production facility;

(( illustrating the operations process or method;
(( defining operations quantities and schedule;
(( estimating the noncurrent asset required for operations;
(( identifying sources and defining terms of procuring the noncurrent assets;
(( e stimating plant capacity and capacity utilisation in case of manufacturing
business;
(( estimating the raw material requirement, its sources, cost and availability;
(( e stimating the operations overhead costs, and computing total and unit
operations or production costs.
In case of a business manufacturing a physical product, the manufacturing process
transforms materials into goods that have tangible form. The transformation process
may lead to changes in one or other dimensions such as physical properties, shape,
size, surface finish, joining parts and materials. If the operations process does not
lead to changes in such dimensions, then the process is related to a service. Figure
6.1 distinguishes a manufacturing process from a service process.

Manufacturing Process Service Process

• Physical & durable output • Intangible & perishable output

• Output can be inventoried • Output cannot be inventoried
• Low customer contact • High customer contact
• Long response time • Short response time
• Capital intensive • Labour intensive
• Quality can be easily measured • Quality cannot be easily measured

Figure 6.1: Continuum of characteristics of manufacturing and service processes

 Operations Plan 83

Whether an entrepreneur plans to embark business in manufacturing or service

industry, operations plan must be prepared like any other component of the business
plan. Subsequent sections provide guidance on preparation of operations plan.

6.2 Location of the operations facility

It is important to choose and describe where the operations facility is to be located.

The business makes substantial investment of time and resources to set up its
operations facilities. This makes it difficult and costly for the business to change
its operations facility from the place where it has been initially located. Choosing a
wrong location can impact the business negatively and can be disastrous. Therefore,
careful attention must be paid in selecting the operations facility. Some of the factors
which must be considered while making the choice of the location of the operations
facility are proximity to market; proximity to suppliers; availability of skilled labour;
access to logistics and other amenities; relevant environmental regulations; fiscal
and financial incentives offered by government; and potential for future expansion.

It is important for the business to describe where the production facility will be
located and also state the significance of choosing the location. Basically, the merits
provided by the location must be clearly stated.

For service-related businesses, the description of the location or touch points through
which the service is rendered must be described. For enhancing the visual aspect of
the description, the map of the location with clear indication of access to necessary
amenities must be drawn.

6.3 Process and Method of Operations

In addition to the location of the operations facility, the actual method and processes
involved in operations play a major role in making it efficient. The business can
choose to follow a suitable operations process from various approaches such as job,
batch, flow and lean methods.

Job method is adopted for manufacturing a peculiar, special or non-standardised

product as per the orders received from the customers. The modality under this
method is ensuring customisation of products as per the specification or requirement
of each customer. As each product is non-standardised, varying in size and nature, it
requires separate job for each production. The machines and equipment are adjusted
in such a manner so as to suit the requirements of a specific job.
 84 Chapter 6
Batch production refers to the production of goods where the demand or estimated
demand from the customer is known. It relates to repetitive production where identical
products are produced. It produces similar items in groups (batch), stage by stage and
the batch of products go through each stage of production process together before
moving to the next stage. A good example of batch production is that of bakeries.
This method is similar to job method except for the variation in the quantity of goods
produced.

Flow or mass method of production involves a continuous production of

standardised or same products in large quantities. In this method, production takes
place continuously in expectation of a future demand. Standardised products are
produced by using standardised materials and equipment. An uninterrupted flow of
production takes place by arranging the machines in a proper sequence, making it
suitable for mass production. The manufacturing process is segregated into separate
operations where the product passes through a series of operations.

Lean method is a strategy which focuses on reducing wastage from operations

process and improving the productivity of the business to create values for customers.
Regardless of the method of operations chosen, it is important for the entrepreneur
and business to incorporate lean manufacturing practices to its operations process.
Today, lean approach is widely used not only in operations but also in other facets
of the business.

Under the process and method of operations section of the business plan, the process
and method of producing products or rendering service must be stated.

In addition, the steps involved in the operations process must be outlined in right
sequence with a sketch or diagram for the purpose of clarity. For service-oriented
business, the customer touch points such as steps or the process through which
customers avail the services must be highlighted.

6.4 Operations Schedule and Quantities

The operations scheduling refers to setting the timing as well as use of resources for
production or rendering of services. It can relate to usage of equipment and facilities
and scheduling of human activities. Operations quantities pertain to the estimated
production quantity projected for a certain number of years. The projected sales must
be used as the basis to determine production quantities and schedule.

The aim of the operations schedule is to balance customer needs with the available
resources besides operating in a cost-effective way. If the operations schedule and
 Operations Plan 85
quantities are not accurate and feasible, the business will face problems pertaining
to the production and delivery of the products to the customers. This will further
have implication on customer relationship and sales of the business.

In case of a service business, operations quantities mean projection of number of

service units which must be rendered to the customer in order to meet the projected
sales. Service units may be in terms of number of clients to be served, number of
hours of work, etc. The template given in Table 6.1 can be used to guide the estimation
of required production volume.

Table 6.1: Estimation of required production volume

Production Volume Year 1 Year 2 Year 3

Production volume required to cover projected sales
Production volume required to cover the inventory level
Total Production

Assumptions:

The assumptions made while estimating the production volume must be stated here.
The assumptions may be related to number of units required to be produced for
meeting the projected sales, level of safety inventory or buffer stock, lead time in
operating cycle, etc.

6.5 Noncurrent Assets Required for Operations Purpose

Noncurrent assets are required for transforming the raw materials into products. It
is necessary for the entrepreneur to determine the requirement of noncurrent assets,
their cost and other details in the operations plan. Table 6.2 illustrates how the
noncurrent assets requirement can be determined.

Table 6.2: Determination of noncurrent assets required for operations

Description Purchase Estimated Life (B) Yearly
Sl.
of Noncurrent Quantity Specification Price OR Depreciation Depreciation
No.
Assets (Nu) (A) Rate (C) (A÷B) OR (A×C)
1
2
3
Total
 86 Chapter 6

Assumptions:
Assumptions may have to be made for determining the requirement of noncurrent
assets, their prices, estimated life of the assets, depreciation rate, etc. These
assumptions must be made based on facts, relevant data, applicable rules and
accounting standards. The assumptions must be clearly stated so that the users of
the plan can easily understand the estimation.

6.5.1 Sources and terms of procuring noncurrent assets

The source from where the business arranges the required noncurrent assets such as
Property, Plant and Equipment (PPE) and the terms of procurement must be specified
clearly. Considerations must also be made whether the machinery and equipment are
available from local dealers, distributors and fabricators or needs to be imported.

State the sources and terms of procuring noncurrent assets as depicted in Table 6.3.

Table 6.3: Sources and terms of procuring noncurrent assets for operations

Sl. No. Noncurrent Assets Sources Terms of Acquisition

Assumptions: If there is any assumption to be made, it must be stated clearly.

6.6 Estimating Plant Capacity and Capacity Utilisation

Manufacturing businesses require plant and machineries for operations. The

production capacity of such plant and machineries must be ascertained. The production
volume projected in the Table 6.1 is recommended to be used as a reference point
to determine the capacity of the proposed plant. Considerations pertaining to future
expansion may also be explored while determining the plant capacity. In case of a
service-oriented business, the plant capacity and capacity utilisation are irrelevant.
Table 6.4 is recommended to be used for estimating plant capacity and capacity
utilisation.
 Operations Plan 87

Table 6.4: Estimation of plant capacity and capacity utilisation

Year Production Volume Capacity Utilisation (%)

1
2
3

Assumption: Any assumption pertaining to plant capacity estimation and capacity

utilisation must be stated to enable the reader to understand the estimations.

6.7 Direct Material, Direct Labour and Direct Expenses

The business needs raw materials, direct labour and incur direct expenses for getting
the raw materials transformed into finished goods. Following subsections describe
these costs:

6.7.1 Direct material requirements, its sources, cost and availability

The business needs raw materials, direct labour and incur direct expenses for getting
the raw materials transformed into finished goods. Following subsections describe
these costs:

6.7.1 Direct material requirements, its sources, cost and availability

The raw materials required for manufacturing the products must be stated under
this heading. It is also important to clearly state from where the raw materials will
be sourced. Further, the cost of raw materials and its availability must be explored
and described.

a. Direct material requirements

Direct materials are those materials which can be directly identified and allocated
to cost unit conveniently. It refers to the raw materials required for manufacturing
the products. For example, steel used while manufacturing a car and plank used
in making furniture are considered as direct material. It is important to identify
the requirement of such materials for the business in order to ensure its operations.
Material requirement must be estimated based on the anticipated sales volume or
estimated production volume with an allowance for finished goods and materials
inventories. However, for service-oriented businesses such estimations will be
 88 Chapter 6

irrelevant. Material requirement estimations can be made as shown in Table 6.5.

Table 6.5: Estimation of direct materials requirement

Materials to cover
Materials to cover Total materials
finished goods Materials inventory
sales volume requirement
Year inventory (safety stock)
Amount Amount Amount
Quantity Quantity Amount (Nu.) Quantity Quantity
(Nu.) (Nu.) (Nu.)
1
2
3

b. Annual cost of direct materials

Calculating annual cost of direct materials helps in providing a clear picture of the
cost of materials used. Table 6.6 depicts estimation of annual material cost.

Table 6.6: Estimation of annual material cost

Particulars Year 1 Year 2 Year 3

Purchases
Add: Opening Inventory
Total cost of materials available
Less: Closing Inventory
Cost of materials used

c. Sources and availability of direct materials

The sources from where the business intends to get the materials and the strategies
for ensuring continued supply of materials must be stated here.

6.7.2 Direct labour requirement, cost and availability

The business requires direct labour who are directly engaged in the production
process – altering the composition or condition of raw materials into products. For
example, a carpenter engaged in manufacturing furniture and a mason involved in
constructing road can be considered as direct labour. It is important for the business
to estimate the requirement of direct labour, its cost and availability. In case of a
 Operations Plan 89

service-oriented business, the human resources who render the service directly can
be considered as direct labour. For example, the trainer who conducts training, and
the chef and waiter who works in a restaurant can be considered as direct labour.

d. Direct labour requirement

State the direct labour requirement for the business. For every job, the qualification,
experience, skills and competencies required must be assessed well. Decision about
the remuneration package must also be made. The template given in Table 6.7 can
be used for assessing the direct labour requirement.

Table 6.7: Direct labour requirements

Number of Qualifications/ Monthly salary/

Job title Yearly labour cost
workers Experience Benefits

Total

Assumptions: State any assumption related to direct labour requirement and their
benefits

e. Yearly direct labour cost

Yearly cost of direct labour is computed and tabulated as given in Table 6.8.
The assumptions pertaining to yearly changes in the number of labour and their
remuneration must also be stated.

Table 6.8: Yearly cost of direct labour

Year Total direct labour cost per year

1
2
3

Assumptions: The assumptions pertaining to yearly changes in the number of labour

and their remuneration must also be stated.
 90 Chapter 6

f. Availability of direct labour

The availability of direct labour must be ascertained. It is important to ensure whether

the labour requirements can be met from the locality or needs to be imported. It is
also essential to mention the strategies for ensuring supply of skilled labour for the
business.

6.7.3 Direct expenses

The business requires direct expenses to be incurred for the purpose of transforming
direct materials into finished goods. Such expenses are incurred for reasons such as
hiring of equipment for a particular job, cost of special layout, design or drawings,
and fees paid to architects of a building. In other words, direct expense includes any
expenditure other than direct material and direct labour engaged in the production
process in a manufacturing concern.

It is also important for the business to project the amount of direct expenses likely
to incur. Table 6.9 is recommended to be used for tabulating yearly direct expenses.

Table 6.9: Yearly direct expenses

Direct Expenses Year 1 Year 2 Year 3

Total

Assumptions: State any assumption related to direct expenses.

6.8 Estimating Overhead Costs of Operations

In addition to the direct materials, direct labour and direct expenses, the business
incurs overhead expenses during the operations. This is also referred as factory
overheads and it includes indirect material, indirect labour and indirect expenses.
The sum of these three categories of indirect expenses forms the total operations
overhead costs. Each category of operations overhead cost is discussed below.

a. Indirect material

These are the materials such as lubricants, spare parts and other consumable stores
used in manufacturing of goods which cannot be directly identified with the product.
 Operations Plan 91

The indirect material requirements and their costs must be identified. Table 6.10 can
be used for projecting the indirect material requirements and costs.

Table 6.10: Indirect material cost

Particulars Year 1 Year 2 Year 3

Lubricants
Fuel
Cleaning materials
Spare parts
Welfare costs (tea)
Health and safety products
Medical supplies
Total cost of indirect materials

Assumptions: If there are assumptions made, these must also be stated clearly.

b. Indirect labour

Indirect labour refers to the workers who are not directly engaged in the operations
but indirectly supports the operation process. The plant manager, security personnel,
mechanics in the factory, etc., are examples of indirect labour. The requirement of
indirect labour and their cost must be clearly stated. This is done using the template
given below.

Table 6.11: Indirect labour requirement and cost

Number of Monthly
Job title Year 1 Year 2 Year 3
personnel salary/Benefits
Plant Manager
Mechanic/Maintenance
personnel
Watchman
General helpers
Total Cost of indirect labour

Assumptions: The assumptions related to indirect labour cost estimation must be

clearly mentioned.
 92 Chapter 6

c. Indirect expenses

Indirect expenses are those expenses which are not covered under indirect material
and indirect labour costs. The cost of insurance, electricity, depreciation, taxes,
duties, etc., are some of the examples of indirect expenses. The Table 6.12 is used
for estimating indirect expenses in operations.

Table 6.12: Indirect expenses

Particulars Year 1 Year 2 Year 3

Electricity
Insurance
………………..
Total indirect cost before depreciation
Depreciation
Total indirect cost after depreciation

Assumptions: The assumptions made in estimating the indirect expenses must be

stated clearly.

d. Total operations overhead cost

The total of all indirect materials, labour and expenses in operations constitute the
total operations overhead cost. It is also called factory overhead cost. These must be
compiled as given in Table 6.13.

Table 6.13: Total operations overhead cost

Particulars Year 1 Year 2 Year 3

Indirect material
Indirect labour
Indirect expenses
Total factory overhead costs

6.9 Total Factory Cost and Unit Factory Cost

Compilation of the various costs estimated earlier in this chapter determines the
total factory cost. The total of direct material, direct labour and direct expenses
determines the prime cost. The total factory cost is ascertained by adding factory
 Operations Plan 93

or operations overhead to the prime cost. The factory cost is also known as works
cost. When the total factory cost is divided by total production volume, it results in
unit factory cost. Template given in Table 6.14 is to be used for computing the total
and unit factory costs.

Table 6.14: Total factory cost and unit factory cost

Total
Direct Direct Direct Total factory Unit factory cost (Total
factory
Year materials labour expenses overhead factory cost/ Total
cost
cost (A) cost (B) (C) costs (D) production volume)
(A+B+C+D)
1
2
3

Note:
The computation of unit cost of sales is important to make pricing decision of the
business. To compute the total cost of sales, the total administrative overheads to
be ascertained in chapter 7 and the total marketing expenses computed in chapter
5 must be added to the total factory cost ascertained in Table 6.14. The total cost of
sales must be then divided by the total projected production of respective years to
find out the unit cost of sales.
Learning Activity 6.1
This activity aims to help learners to prepare operations plan based on the
lessons learnt in this chapter.

Instructions: Recollect the lessons from this chapter and complete the given tasks.

Task: Prepare operations plan for the business. The operations plan must have
the following components:
• location of the operations facility
• process and method of operations
• operations schedule and quantities
• noncurrent assets required for operations purpose
• sources and terms of procuring noncurrent assets
• plant capacity and capacity utilisation
94 Chapter 6

• direct material, direct labour and direct expenses

• overhead costs of operations
• total factory cost and unit factory cost

Chapter Review Questions

1. Describe operations plan in your own words.

2. L
ist down the similarities and differences between service operations and
manufacturing operations.

3. D
iscuss the importance of choosing an appropriate location for operational
facilities.

4. Describe various methods used in business operations.

5. Why is operations schedule important?

6. List down the noncurrent assets required for operations purpose if you are
to start a bakery business.

7. Differentiate direct operating cost from indirect operating cost with relevant
examples.

8. Explain operating expenses with appropriate examples.

 Chapter 7
Organisational and
Management Plan

Learning Objectives

 Explain the meaning of organisational and management plan

 Decide the legal form of proposed business
 Decide business name and design business logo
 Write and exhibit the capability of the proponents
 Frame the organisational structure
 Describe the key positions and their roles
 Plan for recruitment and selection of staff
 Determine the cost of administrative personnel
 Identify the noncurrent assets requirement for administration
 Provide provisions for maintenance of noncurrent assets
 Design office layout
 Provide provision for pre-operating activities and expenses
 Estimate the organisation and management overhead costs
 96 Chapter 7

7.1 Meaning of organisational and management plan

Organisational and management plan is one of the components of the business plan.
It is a plan that describes the legal form of the business; depicts the organisational
structure; explains the credentials of the managerial team and board of directors (if
applicable); describes the key positions and roles; estimates the noncurrent assets
requirement for office and administrative purposes; and states the estimation of the
organisational and management expenses.

The following sections describes the important components of organisational and

management plan.

7.2 Legal Form of Proposed Business

There are different forms of businesses such as sole proprietorship, partnership and
companies. The entrepreneur may choose an appropriate form of business and the
reasons for choosing the proposed form must be clearly described.

7.3 Business Name and Design Business Logo

The organisational plan should state the name of the business. In addition to the
business name, a copy of the logo designed for the business must be depicted with
its symbolic meaning, if any. The name and the logo of the business should not be a
replication of the existing businesses. The legal requirements of naming a business
and the provisions of intellectual property laws must be adhered.

7.4 Capability of the Proponents

The profile of proponents that includes educational and professional credentials along
with their skills and experiences must be clearly described.

7.5 Organisational Structure

The organisational structure of the proposed business must be drawn portraying

clear segregation of roles and position, and well-defined lines of reporting and
communication. It is also called organisational hierarchy or organogram. There
are different organisational structures such as line, line and functional, line and
 Organisational and Management Plan 97

staff, divisional, project, matrix, hybrid, and informal structures. In this section, the
organisational structure chosen for the proposed business must be drawn and a brief
rationale behind the chosen structure may be provided.

7.6 Key Positions and the Roles

The organisational structure drawn in section 7.5 identifies key positions involved
in the conduct of the business. The roles and responsibilities of each of the positions
must be clearly articulated here.

7.7 Recruitment, Selection and Training of Staff

The key positions described above must be manned by employees who shoulders
the responsibility and performs the duty. The proposed business must formulate the
strategies of recruitment, selection and training the employees. It basically pertains
to how the business will attract, select, train and develop its employees.

a. Recruitment strategy

Recruitment refers to generating a pool of job applicants who are interested and
willing to work for the organisation. Some of the popular recruitment sources
are internal transfer and promotion; press advertisement; educational institution;
executive search and placement agency; employment exchange; labour contractor;
employee recommendation; and unsolicited applicant. The strategies for attracting
potential employees must be stated here.

b. Selection strategy

Once a pool of potential applicants is generated, the procedure for selection of the
right candidate begins. The kind of selection methods and criteria depends on the
position types and human resource requirements in terms of quality. The general tools
used in selection are preliminary interview, application blank, medical examination,
reference check, selection test, employment interview and final approval. The general
methods to be used for selection must be expressed here.

c. Training strategy

Once the employees are selected, the new employees need orientation and training
programme so as to be able to carry out their duties effectively and efficiently. The
 98 Chapter 7
strategies of orienting and training the new employees must be articulated here.
Additionally, strategies of developing the employees further with the intention to
improve their effectiveness may also merit to be mentioned in this section.

7.8 Cost of Administrative Personnel

The details of the personnel involved in administration and their remuneration, which
forms the cost of administrative personnel must be stated here. Table 7.1 can be used
for projecting the cost of administrative personnel.

Table 7.1: Cost of administrative personnel

Administrative Salary and Salary and Salary and Salary and

Personnel Benefits (Monthly) Benefits (Year 1) Benefits (Year 2) Benefits (Year 3)

Total

Assumptions: Assumptions taken into consideration while deciding the number and
employment terms must be stated.

7.9 Noncurrent Assets Requirement for Administration

The business requires noncurrent assets such as vehicles, computers, printers and
furniture for office and administrative uses. The noncurrent assets which are meant
for office and administrative uses must be stated along with their description,
specification, estimated price, estimated life and depreciation rate. Table 7.2 presents
a template that can be used for estimating the aforementioned details pertaining to
noncurrent assets required for office and administrative purposes.

Table 7.2: Noncurrent assets requirement for office and administration

Estimated Yearly
Description Purchase
Sl. Life (B) OR Depreciation
of Noncurrent Specification Quantity Price (Nu)
No. Depreciation (A÷B) OR
Assets (A)
Rate (C) (A×C)
1
2
3
Total
 Organisational and Management Plan 99
Assumptions:

Assumptions may be required for determining the noncurrent asset requirements,

their prices, estimated life, etc. These assumptions must be made based on facts,
relevant data and applicable rules and accounting standards. They must be clearly
stated so that the users of the plan can easily comprehend the estimation.

7.10 Maintenance of Noncurrent Assets

The maintenance and repair plan for the noncurrent assets must be described in this
subsection.

7.11 Office Layout

Office layout refers to the manner in which the office equipment and furniture are
arranged for providing adequate space for performing regular office activities. The
planned layout of the office must be drawn and presented here.

7.12 Pre-operating Activities and Expenses

Pre-operating or preliminary expenses refer to the expenses incurred before the

commencement of the business. The proponents of the business may spend certain
amount of money for activities such as conducting feasibility studies, development
of designs, preparation of business plan, business registration, processing of loan,
signing agreements with suppliers, consulting legal experts, recruitment and training,
and trial production. All such expenses incurred prior to commencement of the
business must be clearly recorded and presented. If the amount of pre-operating
expenses is not significant, it may be expensed in the first year as per the accounting
standards. However, if the amount is significant, the same may be capitalised and
amortised over a certain number of years, usually three years as per income tax rules.

Identify all the activities which must be carried out before the commencement of the
business and reflect the expenses as shown in Table 7.3.
 100 Chapter 7

Table 7.3: Estimation of pre-operating expenses

Pre-operating Activities Expenses (Nu.)

Business plan preparation
Business registration
Loan application and approval
Contracting with suppliers of material
Trial production
Recruitment and training of personnel
Obtaining samples
Any other activities
TOTAL

7.13 Organisation and Management Overhead Costs

It describes the expense items and the amount incurred in relation to office and
administration functions. The business must undertake activities pertaining to
organisation and management of the business and will incur expenses related to
such activities. Some examples of such expenses are salaries and allowances paid to
administrative personnel; procurement of stationery; payment of telephone charges,
electricity bills, license renewal fees; training of employees; purchase of newspapers;
repair and maintenance; depreciation of noncurrent assets used for administrative
purposes; and pre-operating expenses. Such expenses must be clearly projected and
presented for a period of three years as given in Table 7.4.

Table 7.4: Estimation of organisation and management overhead costs

Sl. No. Items Year 1 Year 2 Year 3

1 Salaries
2 Stationery and other office supplies
3 Telephone
4 Electricity and water
5 Renewal of permits and licenses
6 Staff training and development
7 Newspapers/Magazines
8 Fuel
 Organisational and Management Plan 101

9 Repairs and maintenance

10 Donations
11 Miscellaneous
Total organisation and management expenses before depreciation
and pre-operating expenses
12 Depreciation
13 Pre-operating expenses
Total organisation and management expenses

Assumptions:

Assumptions made for estimating the salaries, allowances and other expenses must
be based on facts, relevant data and applicable rules and laws. These must be clearly
stated so that the users of the plan can easily comprehend the estimation.

Learning Activity 7.1

This activity intends to facilitate learners to prepare organisation and

management plan for their proposed business.

Instructions: Recall the lessons on organisation and management plan, and

complete the given task.

Task: Prepare a suitable organisation and management plan for your proposed
business. The plan must consist of the following components:
• Legal form of the proposed business
• Business name and logo
• Capability profile of the proponents
• Organisational structure
• Key positions and their roles
• Recruitment, selection and training strategies
• Cost of administrative personnel
• Noncurrent asset requirement for administrative purposes
• Maintenance of noncurrent assets for administrative purposes
• Office layout
• Pre-operating activities and expenses
• Organisation and management overhead costs
102 Chapter 7

Chapter Review Questions

1. Explain organisation and management plan in your own words.

2. Describe the components of organisation and management plan.

3. Mr. Tobgay is planning to start a transportation business. Recommend him

strategies for recruiting, selecting and training of employees.

4. In the context of question 3, list down the requirement of noncurrent assets.

5. Explain pre-operating expenses and its treatment in accounting.

6. Discuss organisation and management overheads with suitable examples.

 Chapter 8
Financial Plan

Learning Objectives

 Explain the meaning of financial plan

 Prepare projected cost sheet
 Determine total project cost
 Prepare financing plan
 Decide and provide provision for security of loan
 Conduct loan amortisation and prepare loan repayment schedule
 Prepare projected financial statements
 Conduct economic and key financial analysis
 104 Chapter 8

8.1 Meaning of Financial Plan

Financial plan is an important component of the business plan. It relates to:

I. the estimation of fund required to conduct the proposed business;
II. determining the sources of finance;
III. arrangement of loan and security for loan;
IV. amortisation of loan and preparation of loan repayment schedule;
V. preparing projected financial statements; and

VI. conducting key financial analysis.

The potential investors and money lenders demand a realistic financial plan before
investing their money into the proposed business. A properly developed financial
plan also helps the entrepreneur manage the business effectively.

8.2 Projected Cost Sheet

Projected cost sheet refers to a projected statement that presents the estimated costs
likely to be incurred in the operation of the proposed business. It is used to determine
the cost of a product, services and cost per unit. The direct material, direct labour and
direct expenses calculated in Chapter 6 are added to ascertain the prime cost. Factory
overheads or operations overhead computed in the same chapter is added to the
prime cost for ascertaining factory or works cost. Adding office and administrative
overhead to the works cost will result in the cost of production. Further, adding selling
and distribution overheads or marketing expenses to the cost of production leads to
the cost of sales. When cost of sales is deducted from projected sales, it results in
projected profit or loss.
 Financial Plan 105

A pro forma of the projected cost sheet is given below:

Year 1 Year 2 Year 3

Particulars Total Total Cost Total Cost
Cost Per
Cost Cost Per Unit Cost Per Unit
Unit (Nu.)
(Nu.) (Nu.) (Nu.) (Nu.) (Nu.)
Direct Materials xxx xxx xxx xxx xxx xxx
Direct Labour xxx xxx xxx xxx xxx xxx
Direct (or chargeable) Expenses xxx xxx xxx xxx xxx xxx
Prime Cost XXXX XXXX XXXX XXXX XXXX XXXX
xxx xxx xxx xxx xxx xxx
Factory Overheads xxx xxx xxx xxx xxx xxx
Factory Cost/ Work Cost XXXX XXXX XXXX XXXX XXXX XXXX
Office and Administrative xxx xxx xxx xxx xxx xxx
overheads
Cost of Production XXXX XXXX XXXX XXXX XXXX XXXX
Selling and Distribution xxx xxx xxx xxx xxx xxx
overheads
Total Cost or Cost of XXXX XXXX XXXX XXXX XXXX XXXX
Sales
xxx xxx xxx xxx xxx xxx
Profit or Loss xxx xxx xxx xxx xxx xxx
Sales XXXX XXXX XXXX XXXX XXXX XXXX

Once the cost of sales and the total units of production are determined, a cost per
unit can be calculated by dividing the total cost or cost of sales by the total units of
items produced.

8.3 Project Costing

It is essential for the business proponent or the entrepreneur to ascertain the fund
needed for establishing and implementing the business. The total project cost
comprises of the capital expenditure, pre-operating expenses and the working capital
needed. Therefore, the total project cost can be ascertained using the formula given
below.

Total Project Cost = Capital Expenditure + Pre-operating Expenses + Working Capital

 106 Chapter 8

a. Capital expenditure

Capital expenditure refers to the amount of money needed in acquiring and

maintaining non-current assets such as property, plant and equipment; and intangible
assets which are used for the production of goods or providing of services. The capital
expenditure includes the purchase price and all direct costs which are incurred for
acquisition of an item of property, plant and equipment. The proprietor may also
need to include any post acquisition costs as capital expenditure if it is expected
that such cost would increase the life span of the asset or enhance its productivity.
Otherwise, a normal maintenance of the asset to keep the asset in running condition
is not a capital expenditure.

Note: All the estimations for non-current assets for marketing, operations and
administration done in the previous chapters are added for ascertaining the total
capital expenditure.

b. Pre-operating expenses

Pre-operating expenses refer to the amount of money spent by the business before
its commencement. Some common examples of pre-operating expenses are amount
spent on feasibility study, business plan development, business registration, legal
consultation and training of employees.

Note: Refer Chapter 7 (Section 7.12) for estimation of pre-operating expenses.

c. Working capital

Working capital refers to the amount of money required for daily operation of the
business. It covers both direct and indirect operating costs involved in the conduct
of business. Therefore, working capital comprises of prime cost (sum of direct
material cost, direct labour cost, and direct expenses); operations expenses; office
and administrative expenses; and marketing expenses.

Note: The following estimates calculated in previous chapters are required to be

added to ascertain the working capital requirements:

☸☸ the total of direct material costs computed in Chapter 6

☸☸ the total of direct labour costs computed in Chapter 6
☸☸ the total of direct expenses computed in Chapter 6
☸☸ the total operations overhead costs computed in Chapter 6
 Financial Plan 107

☸☸ the total marketing expenses computed in Chapter 5

☸☸ the total organisation and management expenses computed in Chapter 7
Thus, the total of capital expenditures, pre-operating expenses and working capital
requirements determines the total fund required to establish and implement the
proposed business.

A template of project costing is presented below:

Template for Project Costing

A Capital Expenditure Amount
Land xxx
Building xxx
Machinery & equipment xxx
Transport & other equipment xxx
Furniture xxx
Others xxx
Total Fixed Investment (A) XXX
B Pre-operating Expenses
Business registration xxx
Cost of training xxx
Others xxx
Total Pre-operating Expenses (B) XXX
Total Investment (A+B)
C Working Capital
Direct Operating Cost:
Direct material cost xxx
Direct labour cost xxx
Direct expenses xxx
Factory overheads (excluding depreciation) xxx
Indirect Operating Cost:
Marketing expenses (excluding depreciation) xxx
Organisation & management expenses (excluding depreciation) xxx
Debtors (Credit sales) xxx
Less: Cash sales (xxx)
Working Capital Required (C) XXX
Total Project Cost = Total Investment + C XXXX
 108 Chapter 8

8.4 Financing plan

Once the total project cost is determined, the next component of financial plan
pertains to arrangement of fund. There are several options such as own investment;
funds from friends and family; loans from banks and other financial institutions; and
investment from angel investors, private equity firms, and venture capital firms. The
finance mobilised from these sources are broadly categorised into debt and equity.
The sources and the proportion of fund must be stated as presented in Table 8.1.

Table 8.1:Financing plan

Sl. No. Type of Finance Proportion (%)

1 Debt
2 Equity

8.5 Security for Loan

When the entrepreneur plans to avail loan from banks and other financial institutions,
the lenders usually require the entrepreneur or the business to keep certain assets
as the collateral for the loan. The assets planned to be kept as collateral for availing
loan must be stated in this section.

8.6 Loan Amortisation and Loan Repayment Schedule

Loan amortisation refers to paying back the loan to the lender usually in equated
monthly instalments. The equated monthly instalment consists of certain amount as
principal and a portion as interest. Present loan information using Table 8.2.

Table 8.2: Loan information

Name of the Financial Institution

Amount of Loan (Nu)
Interest Rate (%)
Loan Term (Number of years)
Grace Period
Repayment Method

The name of the financial institution from where the loan is planned to be availed
 Financial Plan 109

and the loan amount must be stated. Interest rate is the rate of interest charged by
the lender on the loan. Loan term refers to the number of years within which the
loan must be repaid along with the interest. When the entrepreneur avails a loan for
establishment of a business, the entrepreneur is required to start repayment of loan
only upon the commencement of the business. This period agreed between the lender
and the borrower is called grace period. Repayment method refers to the terms of
loan repayment such as monthly, quarterly, bi-annually and annually.

Based on the loan information recorded in Table 8.2, loan repayment schedule is
prepared. Table 8.3 is recommended for preparing loan repayment schedule.

Table 8.3: Loan amortisation schedule

Beginning Annual inter- Annual principal Total Annual Ending bal-

Year
balance (A) est amount (B) amount (C) payment (B+C) ance (A – C)
1
2
3
Total

8.7 Projection of Financial Statements

Financial projection is a vital component of the financial plan as well as the overall
business plan. It is considered as the backbone of the business plan. Although financial
projection is considered to be the most difficult part of the business plan, it is not as
difficult as it is perceived. Once the entrepreneur completes writing other sections of
the business plan such as marketing, operations and organisational plans, prerequisites
for preparing financial plan is ready. It is a matter of organising and quantifying the
information given in the aforementioned sections of the business plan. The quantified
information is thereafter presented through projected financial statements.

Projected financial statements comprise of the projected statement of comprehensive

income, projected statement of financial position and the projected statement of cash
flow. The projected statement of cash flow helps in estimating series of inflow and
out flow of cash and cash equivalents of the business. The projected statement of
comprehensive income estimates the future operating results of the business. The
projected statement of financial position estimates the future financial position of the
business. Information on projection of financial statements of the proposed business
is presented in the following subsections
 110 Chapter 8

a. Projection of statement of comprehensive income

The projected statement of comprehensive income refers to the financial statement

that projects the operating results (profit or loss) of the proposed business. It compares
the expenses against the revenue over a certain period of time to show the net profit
or loss the business would earn or incur respectively.

In order to prepare the projected statement of comprehensive income, the assumptions

and estimations done through the chapters on marketing, operations and organisational
plans are necessary. In addition to the estimations and assumptions, provisions related
to taxation, employment, and other rules and laws must be meticulously considered
while preparing the projected financial statements. The following is the pro forma
of projected statement of comprehensive income.

Particulars Year 1 Year 2 Year 3

A. Sales XXXX XXXX XXXX
Less: Taxes on sales (xx) (xx) (xx)
Refunds (xx) (xx) (xx)
Discounts (xx) (xx) (xx)
B. Net Sales XXXX XXXX XXXX
Less: Direct Operating Cost
Direct materials costs (xxx) (xxx) (xxx)
Direct labour costs (xxx) (xxx) (xxx)
Direct expenses (xxx) (xxx) (xxx)
C. GROSS PROFIT XXX XXX XXX
Less: Indirect Operating Cost
Factory overheads (excluding depreciation) (xxx) (xxx) (xxx)
Marketing expenses (excluding depreciation) (xxx) (xxx) (xxx)
Organisation & management expenses (excluding depreciation) (xxx) (xxx) (xxx)
D. PROFIT BEFORE DEPRECIATION AND XXX XXX XXX
PRE-OPERATING EXPENSES
Depreciation (xxx) (xxx) (xxx)
Pre-operating expenses (xxx)
E. OPERATING PROFIT XXX XXX XXX
Less: Interest payment (xxx) (xxx) (xxx)
F. NET PROFIT BEFORE TAX XXX XXX XXX
Less: Tax payment (xxx) (xxx) (xxx)
G. NET PROFIT AFTER TAX XXX XXX XXX
 Financial Plan 111

Notes:

☸☸ Sales figures can be referred from the yearly sales projected in Chapter 5,
section 5.6, Table 5.7.
☸☸ axes on sales refer to the tax imposed on sale of the goods and services. The
T
sales tax is paid to the government and therefore must be deducted from the
sales amount. The rate of taxes must be made consistent to the rates imposed
by the relevant government agencies.
☸☸ Refunds and discounts may be assumed as a percentage of sales.
☸☸ he yearly direct material, direct labour and direct expenses are estimated
T
using the directions provided in Chapter 6, section 6.7.
☸☸ he factory or operations overheads are as calculated using the template
T
provided in Chapter 6, Table 6.13. Since depreciation is separately expensed,
it must be excluded from the factory overheads.
☸☸ arketing expenses are as computed using the template given in Chapter 5,
M
section 5.10. As depreciation is separately expensed, depreciation must be
excluded from marketing overheads.
☸☸ rganisation and management expenses must be as calculated using the
O
lesson given in Chapter 7, section 7.13. As depreciation is separately expensed,
depreciation must be excluded from administrative overheads.
☸☸ epreciation here refers to the yearly depreciation of the noncurrent assets
D
used for marketing, operations and administrative purposes as calculated using
the template in the Tables 5.6, 6.2, and 7.2 of this book.
☸☸ re-operating expenses are as determined using the template given in Chapter 7,
P
section 7.12 (Table 7.3) of this book. Depending on the amount of pre-operating
expenses, it may be expensed in the first year.
☸☸ I nterest refers to the interest on loan the business has planned to avail.
The amount of interest payment is as per the calculation done using loan
amortisation schedule presented in Table 8.3.
☸☸ he tax payment must be in line with provisions of the Revised Income Tax
T
Act of the Kingdom of Bhutan 2001, and Rules on Income Tax Act of the
Kingdom of Bhutan 2001 and amendments thereafter.
 112 Chapter 8

b. Projection of statement of financial position

Following is a template of preparing the projected statement of financial position:

ITEMS Year 1 Year 2 Year 3

1. ASSETS
CURRENT ASSETS:
Cash xxx xxx xxx
Receivables xxx xxx xxx
Inventories xxx xxx xxx
Total Current Assets (A) xxx xxx xxx
NONCURRENT ASSETS:
Land xxx xxx xxx
Building xxx xxx xxx
Machinery & Equipment xxx xxx xxx
Office Equipment xxx xxx xxx
Transport Equipment xxx xxx xxx
Others xxx xxx xxx
Total Noncurrent Assets xxx xxx xxx
Less: Accumulated Depreciation xx xxx xxx
Book Value of Noncurrent Assets (B) xxx xxx xxx
TOTAL ASSETS (A+B) XXXX XXXX XXXX
2. LIABILITIES
CURRENT LIABILITIES:
Accounts Payable xxx xxx xxx
Working Capital Loan xxx xxx xxx
Total Current Liabilities (D) xxx xxx xxx
NONCURRENT LIABILITIES:
Fixed Investment Loan xxx xxx xxx
Retirement benefit obligations xxx xxx xxx
Total Noncurrent Liabilities (E) xxx xxx xxx
3. EQUITY
Owner's Equity xxx xxx xxx
Retained Earnings xxx xxx xxx
Current Profit xxx xxx xxx
Total Equity (F) xxx xxx xxx
TOTAL LIABILITIES & EQUITY (D+E+F) XXXX XXXX XXXX
 Financial Plan 113
Projection of the statement of financial position is vital for understanding the future
financial position of the business. The projected statement of financial position shows
the position of the assets of the business and the claims the creditors and business
owners have against those assets. Therefore, this statement is prepared based on the
fundamental accounting equation:

Assets = Liabilities + Owner’s Equity

This statement has two sides – asset side and liability side. An increase or decrease
on one side of the statement leads to an increase or decrease on the other side. Hence,
this statement is also called as balance sheet.

Projection of the financial position of the business requires projection of assets,

liabilities and equity positions. The presentation of projected statement of financial
position helps the business present a view on the financial position of the business
to the investors and lenders financing the business.

Notes:

☸☸ I t is important to note that the projected statement of financial position does

not cover a period of time but it represents the financial position of the business
at a given point in time.
☸☸ ash refers to the net cash flow that can be ascertained while preparing the
C
Statement of Cash Flows.
☸☸ ccounts receivable refers to the amount of money the business is yet to receive
A
from the debtors. It may be assumed as a percentage of sales.
☸☸ I nventories refer to the stock of raw materials, work in progress and finished
goods. Remember that service businesses will not have inventory value.
☸☸ he noncurrent assets must be the total of noncurrent assets estimated for
T
marketing, operations and administrative purpose. Accumulated depreciation
must be deducted from the value of noncurrent assets.
☸☸ ccounts payable refers to the amount of money the business owes to the
A
creditors. Usually, for the purpose of projection, accounts payable is also
assumed as a percentage of sales.
☸☸ orking capital loan refers to the amount of loan the business has availed for
W
daily operational purposes. For projection purpose, refer the project costing
done and the amount of working capital requirement estimated earlier in this
chapter under Section 8.3. It is important to decide what proportion of the
 114 Chapter 8

working capital requirement will be financed through loan. Only the loan
portion will be reflected in this part of the statement of financial position.
☸☸ oncurrent liabilities are long term liabilities. Loan taken for procurement of
N
noncurrent assets, and retirement benefits obligation are few examples. Similar
to working capital loan, the fixed investment loan can be ascertained from the
decision of what amount of total project cost will be financed through long
term loan.
☸☸ wners’ equity refers to the shareholders’ money which the business has to
O
pay upon liquidation. Retained earnings refer to the whole or the portion of
the net profit of the business retained for future use. It forms a part of owners’
equity and the business owes it to the owners.
c. Projection of statement of cash flows

The projected statement of cash flows is prepared based on the amount of cash
expected to be received and anticipated to be paid by the proposed business. The cash
received by the business is called cash inflow and the cash business pays out is called
cash outflow. The receipts and payments of cash by the proposed business is usually
the result of three broad categories of activities comprising of operating, investing
and financing. Consequently, cash flow statement is usually categorised and prepared
based on the cash inflows and the outflows related to these three categories. However,
as startups will have limited items of cash inflow and outflow, the cash flow statement
may be customised and prepared without strict aforementioned categorisation. In
other words, the preparation of cash book with cash receipts and cash payments will
result in net cash inflow or outflow which can be used as the basis for preparation of
statement of financial position.

Proper projection of cash flow for the proposed business helps in proper management
of cash when the business actually commences. Projected statement of cash flows
has enormous benefits such as predicting cash shortages and surpluses; comparing
business expenses and income; strategising cash management; and providing debt
servicing assurance to the lenders.

Following are the basic steps involved in projecting the cash flows:
• Finding the beginning cash balance
• Estimating cash inflow
• Estimating cash outflow
• Deducting the total cash outflow from the total cash inflow
• Adding net cash flow to the opening cash balance
 Financial Plan 115
Given below is a pro forma of projected cash book:

Particulars Year 1 Year 2 Year 3

A. BEGINNING CASH BALANCE - xxxx xxxx
CASH RECEIPTS:
Cash sales xxx xxx xxx
Equity contribution xxx xxx xxx
CapEx loan xxx xxx xxx
Interest received xxx xxx xxx
Working capital loan xxx xxx xxx
B. Total Cash Receipts xxxx xxxx xxxx
CASH PAYMENTS:
Capital expenditure (xxx) (xxx) (xxx)
Direct operating costs (xxx) (xxx) (xxx)
Indirect operating costs (xxx) (xxx) (xxx)
Interest paid (xxx) (xxx) (xxx)
Repayment of loan (xxx) (xxx) (xxx)
Tax (xxx) (xxx) (xxx)
C. Total Cash Payments (xxxx) (xxxx) (xxxx)
D. NET CASH (B-C) xxx xxx xxx
ENDING CASH BALANCE (A+D) xx xx xx

Notes:

In order to prepare the projected statement of cash flows for the proposed business, the
assumptions and estimations done in the previous chapters are essential. Assuming
that the accrued income is received and accrued expenses are paid in cash within a
year, the following items assumed and calculated earlier in this chapter and previous
chapters will come under cash inflow for the purpose of preparing yearly statement
of cash flows:
• Sales
• Loan received
• Equity contribution
Likewise, the following items will come under cash out flow:
• Capital expenditure • Indirect operating expenses
• Marketing expenses • Organisation and management expenses
• Direct operating expenses • Tax payment
 116 Chapter 8

Following is a template of projected statement of cash flows with clear segregation

of operating, investing and financing activities:

Particulars Year 1 Year 2 Year 3

I. Cash Flows from Operating Activities
Profit Before Tax XXXX XXXX XXXX
Add: Non-operating and Non-cash Expenses
Pre-operating Expenses XXX XXX XXX
Depreciation XXX XXX XXX
Interest Expenses XXX XXX XXX
Less: Non-operating and Non-cash Income
Gain on Revaluation of Investments (XXX) (XXX) (XXX)
Interest Income (XXX) (XXX) (XXX)
Gain on Disposal of Fixed Deposit (XXX) (XXX) (XXX)
Operating Profit Before Working Capital Changes XXXX XXXX XXXX
Add: Increase in Current Liabilities and
Decrease in Current Assets XXX XXX XXX
Less: Decrease in Current Liabilities and
Increase in Current Assets (XXX) (XXX) (XXX)
Cash Generated from Operations
Less: Dividend Paid (XXX) (XXX) (XXX)
Income Tax Paid (XXX) (XXX) (XXX)
Net Cash from Operating Activities (A) XXXXX XXXXX XXXXX
II. Cash Flows from Investing Activities
Capital Expenditure (XXX) (XXX) (XXX)
Purchase of Investments (XXX) (XXX) (XXX)
Dividend Received XXX XXX XXX
Interest Received XXX XXX XXX
Proceeds from Disposal of Noncurrent Assets XXX XXX XXX
Proceeds from Disposal of Investments XXX XXX XXX
Net Cash Flow from Investing Activities (B) XXXXX XXXXX XXXXX
III. Cash Flows from Financing Activities
Owner’s Equity Contribution XXXX XXXX XXXX
Bank Loan Received XXXX XXXX XXXX
Repayment of Bank Loan (XXX) (XXX) (XXX)
Interest Paid (XXX) (XXX) (XXX)
Net Cash Flow from Financing Activities (C) XXXXX XXXXX XXXXX
Net Increase in Cash & Cash Equivalents (A+B+C) XXXXXX XXXXXX XXXXXX
Beginning Cash & Cash Equivalents (D) XXXX XXXX XXXX
Ending Cash & Cash Equivalents (A+B+C) + D XXXXX XXXXX XXXXX
 Financial Plan 117

It is also important to make an assumption related to the proportion of expenses and

income to be incurred and received respectively in cash for the purpose of preparing
projected statement of cash flows.

A detailed preparation of statement of cash flows with clear segregation of items

related to operating, investing and financing activities must be done to ascertain the
category of activities in which the business is either using or generating cash.

Learning Activity 8.1

This activity aims to facilitate learners to prepare financial plan for their proposed
business.

Instructions: Recall the lessons from this chapter and complete the given task.

Task: Prepare a suitable financial plan for the proposed business. The following
components must be included in the financial plan:
• Projected cost sheet
• Total project cost
• Financing plan
• Security for loan
• Loan amortisation and loan repayment schedule
• Projected financial statements

8.8 Break Even Analysis

Break-even analysis refers to determining a point in which the total cost and the
total revenue are equal. It is a point at which the business recovers its project cost
through the revenue generated. Calculation of the Break Even Point (BEP) helps the
business in ascertaining the year in which production volume or sales recovers the
total project cost.

Revenue in excess of break-even point results in profit while revenue falling below
break-even point results in loss. BEP is calculated using the given formula:
Fixed Costs
BEP = Contribution Margin

Where, Contribution Margin = Sales – Variable Costs

 118 Chapter 8

Notes:

☸☸ he fixed costs refer to those costs which do not change with the change in
T
production volume. The total fixed cost is ascertained from the statement of
comprehensive income by adding the components of the fixed cost.
☸☸ ariable costs refer to those costs which change with the change in level of
V
production volume. The total variable cost is ascertained from the statement
of comprehensive income by adding the components of the variable cost. The
unit variable cost is calculated by dividing the total variable cost by total units
produced.
☸☸ ales refer to the total sales or unit selling price as determined in the previous
S
chapters.
☸☸ or multiple products, the weighted average contribution margins must be
F
calculated and the break-even point in units can be determined by dividing
the total fixed costs by the weighted average contribution margin per unit.

Learning Activity 8.2

This activity aims to help learners compute the BEP for their proposed business.

Instructions: Complete the given task by recalling the lessons on break-even

analysis.

Task: Calculate the BEP in terms of revenue and unit sales for the proposed
business.

8.9 Financial Analysis

The financial statements projected earlier is used for gaining insights about the
business through analysis of these statements. Some of the important analysis consists
of computing ratios and conducting analysis which are discussed below:

a. Payback Period

Payback Period (PBP) is a capital budgeting technique (method) used to estimate

the amount of time taken by an investment to reach its break-even point. It gives
a quick judgement of how fast a business recovers its initial investment. Shorter
payback periods are desired over longer periods. Similar to the break-even analysis,
 Financial Plan 119

PBP can indicate the duration of an investment to break-even. Mathematically,

the payback period is calculated by dividing initial investment (cost of investment)
by the cash flow per period, assuming that the business generate equal cash flow
every year.
Cost of Investment
PBP = Cash flow
However, if the cash flow is per annum is uneven, the PBP is calculated using the
given formula:
Balance to be recovered
PBP = Completed number of years + Cash flow of that year

b. Net Present Value

Net Present Value (NPV) is the value of all future cash flows over the entire life of
an investment discounted to the present value. It is one of the popular methods with
which entrepreneurs and investors make investment decisions. The projects with
positive NPV are preferred over those with negative NPV.
n
c
NPV = / (1 + r) n - C o
i=1

where C= cash flow, r = discount rate, n = year of cash flow

CO = initial investment

c. Return on Investment

Return on Investment (ROI) is a method of calculating the profitability of the business.

It determines how much money can be made on the investment as a percentage of
the cost of investment. The projects with higher ROI is considered favourable. It
is calculated by subtracting the cost from the total income and dividing it by the
total cost:
Revenue - Cost
ROI = Cost
d. Net Profit Margin

Profit margin is considered as a commonly accepted measure of profitability. The

relationship of profit to sales indicate the entrepreneur’s ability to operate the business
with success not only to recover all costs from the revenues but also to earn reasonable
amount of profit. It essentially expresses the ‘cost-price’ effectiveness of the business
 120 Chapter 8

operation. The ratio is also called percentage return on sales, margin on sales or net
profit percentage. It is calculated using the following formula:

Revenue - Cost
Net Profit Margin = Sales

Learning Activity 8.3

This activity aims to facilitate learners conduct some of the important financial
analysis of their projected financial statements and consolidate these with the
components of financial plan prepared earlier in this chapter.

Instructions: Perform the given tasks with the help of lessons learnt on financial
analysis and the projected financial statements.

Task:

a. Calculate payback period, net present value, return on investment and

net profit margin.
b. Consolidate the components of the financial plan prepared earlier in
this chapter. The consolidated financial plan must have the following
components:
• Projected cost sheet
• Total project cost
• Financing plan
• Security for loan
• Loan amortisation and loan repayment schedule
• Projected financial statements
• Break-even analysis
• Payback period
• Net present value
• Return on investment
• Net profit margin
 Financial Plan 121

Chapter Review Questions

1. Why is financial plan important while preparing a business plan?

2. Discuss the need of preparing a projected cost sheet.

3. Explain the process of computing the total project cost.

4. Why is it important to have a financing plan?

5. Explain the reasons for conducting loan amortisation.

6. M
r. Gangkar is planning to do a business but he is not convinced about the
need for projecting the financial statements. Convince him on the purpose
and importance of projecting financial statements.

7. E
xplicate the reasons for conducting break-even analysis; calculating
payback period; ascertaining net present value; and computing return on
investment and profit margin ratio.
122 Chapter 8
 Chapter 9
Business Plan Pitching

Learning Objectives

 Explain the concept of business plan pitching

 Craft the business plan pitch deck
 Pitch the business plan
 Be aware about the support system for business launch
 124 Chapter 9

9.1 Concept of the Business Plan Pitching

Development of a comprehensive business plan is important and the ability of the

entrepreneur to pitch the business plan is even more important as it impacts the ability
to garner support for the proposed business. Pitching the business plan refers to
presentation of the business plan to the potential business partners such as investors,
lenders, employees and major customers to garner support from them. For example,
the entrepreneur uses business plan pitch to prove how the business can deliver value
to the customers and returns to the investors. Pitching is also done at the idea level.

The pitch is similar to the presentation of the basic components of the Business
Model Canvas discussed in the Chapter 3. It comprises of customer segments, value
propositions, channels, customer relationships, revenue streams, key resources, key
activities, key partnerships and cost structures. However, the pitch may be customised
depending on the stakeholder to whom the pitching is done.

While pitching the business plan, the business model comprising of the aforementioned
components should be precisely presented. The pitch is also called ‘elevator pitch’
because the entrepreneur should effectively deliver the pitch in the length of time it
takes to ride up few storeys of a building in an elevator with the potential investor.
Usually, the duration of elevator pitch is 60 seconds. However, depending on the
pitching platforms and their norms, the duration of pitching may vary. The detailed
business plan is not presented during the pitch as the goal is to convince the potential
investor by sharing a snapshot of the plan. This is also to encourage the potential
investor to meet again for further deliberation of the plan and finalise the investment
decision.

9.2 Crafting the Business Pitch

The business plan pitch that the entrepreneur presents to the prospective investors
and business partners must be engaging, informative and compelling. There are
several formats or pitch decks available for an entrepreneur to use for pitching. Guy
Kawasaki’s 10 slides pitch deck is one of popular formats. As the name suggests it
uses only TEN PowerPoint slides to pitch the business plan and is discussed below
to give an idea of what should be presented while pitching a business plan:

9.2.1 Title slide

In this slide, the name of the business; names of the proponents or entrepreneurs;
 Business Plan Pitching 125

and the address and the contact details of the proponents or the entrepreneurs must
be provided. All the details in the title slide must be up to date as these are the lines
of communication to be established with the audience of the pitch.

e
1. TITLE
Provide company name, your name and title, address, email,
and cell number

e
e

9.2.2 Problem or opportunity

This slide should contain information with regard to the problem that the proposed
business intends to address or the opportunity it plans to capitalise. It is important
to state the problem or opportunity as clear and precise as possible and relatable to
the audience. The audience should be able to empathise and believe that the problem
is real.
e

2. PROBLEM OR OPPORTUNITY
Describe the pain that you're alleviating or the pleasure you're
providing

e
e
 126 Chapter 9

9.2.3 Value Proposition

The value proposition that the proposed business plans to offer must be well articulated
in this slide. It is important to describe the value proposition in a single phrase or
a sentence. This slide should fascinate the audience to let them know more and
everything else the pitch has to present.

e
e

3. VALUE PROPOSITION
Explain the value of the pain you alleviate or the value of the
pleasure you provide

e
e

9.2.4 Underlying magic

The technology behind the proposed product and the demonstration of the prototype
is done here. Basically, it is about presenting the unique features and functionalities
of the product.

e
e

4. UNDERLYING MAGIC
Describe the technology, secret sauce, or magic behind your
product. The less text and the more diagrams, schematics, and
flowcharts the better. If you have a prototype or demo, this is the
time to transition to it. As Gien Shires of Google said, "If a picture
is worth 1000 words, a protype is worth 10,000 slides." e
e
 Business Plan Pitching 127

9.2.5 Business model

The logic behind how the proposed business is going to make money is presented in
this section. Present the streams from which the business is going to generate revenue
and the margin that it expects to earn.

e
5. BUSINESS MODEL
Explain who has your money temporarily in his pocket and how
you're going to get it into yours.

e
e

9.2.6 Go-to-market plan

In this slide, the entrepreneur demonstrates that he understands the market well and
has a clear marketing plan. The channels for marketing and delivery of the products
and services must be presented here. It adds to the merit of the business to present
about its validated market.

e
e

6. GO-TO-MARKET PLAN
Explain how you are going to reach your customer without
breaking the bank.

e
e
 128 Chapter 9

9.2.7 Competitive analysis

Information gathered through the competitive analysis must be used here to give an
indication that the business clearly understands the competition it faces. Audience
may not be interested in listening to how bad the competitors are but they will
be interested in learning about how better and unique the proposed business is as
compared to the competitors or existing businesses. Therefore, the competitive
advantages the proposed business has over its competitors are articulated in this slide.

e
7. COMPETITIVE ANALYSIS
Provide a complete view of the competitive landscape. Too much
is better than too little.

e
e

9.2.8 Management team

The credentials of the management team of the proposed business are presented
here including their strengths and relevant experiences. Consider that investors and
business partners invest their money and render supports not only based on the
attractiveness of the business but also on the potential of the team to make the
business succeed. If the team has certain drawbacks, the strategies to overcome the
weak links must be clearly presented.

e
e

8. MANAGEMENT TEAM
Describe the key players of your management team, board of
directors, and board of advisors, as well as your major investors.
It's okay if you have less than a perfect team. If your team was
perfect, you wouldn't need to be pitching. e
e
 Business Plan Pitching 129

9.2.9 Financial projections and key metrics

The key insights from the projected financial statements are presented here along
with the metrics which are to be used for measuring the success of the business. The
amount of money required for the business is also mentioned in this slide. Consider
that the investors are well versed in financial matters, therefore, being realistic with
the figures and projections is important.

e
9. FINANCIAL PROJECTIONS AND KEY
METRICS

Provide a three-year forecast containing not only dollars but also

key metrics, such as numbers of customers ad conversion rate.
Do a bottom-up forecast, not top-down.
e
e

9.2.10 Current status, accomplishment to date, timeline and use of funds

The current status of the proposed business; the momentum and traction of the
products and services of the business; timeline of the business growth in future;
fund that the business needs; and the intended use of the funds must be presented
in this slide.

e
e

10. CURRENT STATUS, ACCOMPLISHMENT

TO DATE, TIMELINE AND USE OF FUNDS

Explain the current status of your product, what the near future
looks like, and how you'll use the money you're trying to raise.
e
e
 130 Chapter 9

Guy Kawasaki suggests a 10/20/30 rule for pitching. This means the followings:

☸☸ a pitch should consist of 10 slides

☸☸ the presentation should last no more than 20 minutes
☸☸ the font size should be no smaller than 30 points

Learning Activity 9.1

This activity aims to facilitate learners to prepare a pitch deck for their proposed
business.

Instructions: Recall the lesson on Guy Kawasaki’s 10 slides pitch deck and
complete the given task.

Task: Prepare a pitch deck for your proposed business.

9.3 Business Plan Pitching

Pitching the business plan in an effective manner is of paramount importance.

Following are some of the common tips for delivering an effective pitch:

(( evelop the pitch deck well – the pitch deck must consist of the essential areas
D
discussed under Section 9.2.
(( egin the pitch with a compelling story – the story must be related to the
B
problem intended to be solved by the business. This helps in engaging the
audience and gaining their support.
(( now your target market well – the target market must be well studied so that
K
the entrepreneur is clear about who the customers are, what their needs are and
how they would like to be served. This enables the entrepreneur in convincing
the potential investors or partners.
(( ighlight about the Unique Selling Proposition (USP) of the product – share
H
the USP of the product or service that is offered by the business. If tests have
been conducted, the results of the tests must be shared.
 Business Plan Pitching 131

(( now your revenue model – the ways through which the business is going to
K
make money must be clear to the entrepreneur and it must be presented to the
audience in a clear and concise manner, especially to the investors.
(( raction and milestones – the entrepreneur must be prepared to present the
T
traction and growth milestones of the business. Traction may be in the form
of number of customers, sales, total hiring, contracts entered into with the
business partners, etc. These basically show to the potential investors that the
proposed business has the potential to succeed.
(( now your competition – be clear on who are the competitors of the business.
K
Highlight the competitive advantage the business has over its competitors. Use
the information from the competitive analysis here.
(( Strategise marketing and sales – how the business intends to conduct its
marketing and sales activities must be presented clearly. The market analysis
information serves as a good input for this.
(( now the team well – the knowledge, skills and competencies of the team that
K
leads the business is very important. Investors invest first in the team and then
in the idea or the business they intend to build.
(( e realistic with figures – the financial projection must be done for a minimum
B
period of three years. The figures mentioned in the financial projection must
be realistic.
(( e clear on the funding needs – the amount of fund needed for the business
B
and its purposes must be clearly articulated.
(( efine the exit strategy – in case of a huge investment, investors will be
D
interested to know the exit strategy the business has planned. Exit strategy is the
strategy of how the investors will liquidate or leave the current investment upon
achievement of the objectives of the business. Going for initial public offering,
selling the business and strategic alliance are some of the exit strategies.
(( ehearse the pitch – the preparation of the pitch deck is one aspect of effective
R
pitching. Another important aspect is practicing what one has prepared. What
is mentioned in the PowerPoint slides or the pitch deck is just a reference point.
The entrepreneur must be thorough with the entire pitch and the business.
 132 Chapter 9

Learning Activity 9.2

This activity aims to facilitate learners to pitch their business plans.

Instructions: Revisit the pitch deck section, prepare a pitch deck and complete
the given tasks. The school management and the teacher may arrange juries
for the pitch and even invite potential investors.

Task: Prepare, rehearse and pitch the business plan to the juries and investors.

9.4 Business Incubation

Once the business plan pitching is done, the entrepreneur may choose to get enrolled
for incubation programme. The business incubation refers to the process of rendering
support services and resources to the business incubatees for helping them establish
and launch their businesses. The resources and support services may include working
space, administrative services, coaching, mentoring, training, technical advice, access
to equipment, fund raising support, networking opportunities, support for licensing
and getting clearances. The support and services are rendered through business
incubation centre and the services may be categorised as follows:

☸☸ Work space supports – aspiring entrepreneurs may require a physical space

with basic infrastructural facilities. Generally, the incubation centres provide
facilities such as furniture, internet, hall, labs and library.
☸☸ Administrative supports – the incubation centres provide administrative support
services for enabling the incubatees to get licenses and clearances from the
government agencies and regulatory authorities. In addition, administrative
services such as printing, photocopying and communication may also be
provided.
☸☸ Business advice services – business advice services such as coaching,
mentoring, counseling and training in the areas related to the business being
incubated are rendered.
 Business Plan Pitching 133

☸☸ Technical services – the incubation centres also provide technical advices on

product design, production method, procurement of equipment, etc.
☸☸ Fund raising supports – supports related to raising funds from various financing
sources are rendered.
☸☸ Networking supports – businesses need network and relationship with various
stakeholders. Incubation centres also help in bringing the key stakeholders
together to build mutually fulfilling networks.
☸☸ Marketing supports – access to market is essential for every business. Incubation
centres render support for establishing market linkages.
Some of the business incubation centres in Bhutan are Bhutan Innovation and
Technology Centre at Thimphu TechPark Limited and Startup Center at the
Department of Cottage and Small Industries. In addition, incubation centres are
being established in colleges and technical training institutes by the government.
134 Chapter 9

Chapter Review Questions

1. Explain the concept of business plan pitching.

2. Describe the concept of elevator pitch.

3. Discuss Guy Kawasaki’s 10/20/30 rule of presentation.

4. I magine that you are a member on the board of juries for evaluating business
plan pitches, and you are required to develop a template for pitch deck for
the aspiring entrepreneurs to use. Develop an appropriate pitch deck.

5. D
iscuss the primary support services rendered by business incubation
centres. Do you think it is sufficient? What other services, do you think,
would be required to support the start-ups?
Annexure
 136 Annexure I

Annexure I

How is Singapore reshaping using situations arise at court, the authorities

Design Thinking? decided to rebuild the layout of the court,
making it more child-friendly.
Lateeka Sabharwal, Nov 23, 2020
With the help of a Design Thinking
Singapore is one of the rare countries approach, they created counselling
in the world that leads by example. and mediation rooms, where in-house
From the lack of natural resources to specialists were made available for
ever-changing market economy, the consultations with the public. Whenever
island nation has gone through many possible, there will also be an out-of-
challenges. Despite this, Singapore court settlement. Moreover, judges will
has written its own playbook in almost redirect people to use these services, and
every aspect of governance and kept if amicable solutions can be reached,
on seeking a sustainable future for there will not be a need to undergo court
Singaporeans. This time, they have made hearings. To make it less stressful for
changes in their hospitals and schools by children (as they are asked to come to
embedding a Design Thinking approach court in some divorce cases), a colourful
as it saves lives, cuts costs, and boosts play corner with beautiful murals and
social welfare. Let us have a look on a small library, was made that gave the
how Design Thinking was used by the court an upbeat vibe.
Singapore government to reshape the
city experience and improve the lives of Hospitals
citizens.
Not only legal courts, but hospitals and
Legal System clinics in Singapore are also using Design
Thinking tools to make the life of their
When conjuring up an image of Design patients easier, ranging from simple chair
Thinking, the first thought that comes to designs to the planning of an entire ward.
the mind is Humans. Design Thinking Khoo Teck Puat Hospital simplified
helps organizations focus on the people service delivery for the senior citizens by
for whom they are creating the product, placing all the geriatric-related specialist
which not only leads to exceptional care on the fourth floor. Due to this, they
business but also phenomenal products, do not have to go to different floors for
services, and internal processes. The appointments with multiple doctors.
government of Singapore used a similar
approach to give Family Justice Courts Clinics also have a come up with an
a face-lift. Considering how stressful Island Design concept, wherein a
 Design Thinking 137

workstation for both doctors and nurses Classrooms/School

will be placed in the centre of the clinic.
With this approach, they got: Many schools in Singapore are hosting
workshops to nurture Design Thinking
1) Extra free space that made the in kids and encourage creative solutions
movement of patients a lot easier. to global problems. It is also one of the
2) Allowed nurses to attend to patients broad directives in the Design 2025
without obstructions. Masterplan, which was released last year.
Some hospitals have even installed new They follow three steps:
chair designs, easing the access for the • Address issues with empathy
physically handicapped. They came up • Create and consider various
with sprung-up flip chairs—somewhere options
like what is seen in stadiums—that
allows one to sit next to the patient while • Pick a solution and execute it
waiting in the queue. Before this, the
attendant used to park the wheelchair at ‘Thinkroom’, As Many Minds and
the allocated slot and sit separately. This Happiness Makers, have designed
change had a real impact and cut patient workshops for children which introduce
waiting time by 40%, just by rearranging them to techniques such as self-directed
the structure of services. The hospital inquiry and brainstorming in a team.
also came up with the idea of making
The National Design Centre, the
electronic queue and appointment
headquarters of Design Singapore
systems to improve service efficiency
Council, has hosted many programs
and even re-organized the location of
for children, including a Junior Maker
the consulting room, which made the
Programme, during which children
communication between departments a
engage in activities such as leather-
lot easier.
crafting and making a Lightsaber, among
Housing others.

Due to its Human-centric nature, Zoo

Singapore has implemented Design
Since its formation (1971), Wildlife
Thinking in the housing scheme to
Reserves Singapore (responsible for
promote racial integration. They came
operating four award-winning parks:
up with the policy of reserving a set
Singapore Zoo, Night Safari, River
percentage of homes to individuals from
Safari and Jurong Bird Park) is one of
each race, which will in turn prevent
the primary sources of entertainment
social enclaves from forming based
for the citizens of Singapore. With the
on race.
help of Design Thinking, they came up
 138 Annexure II

with two new major projects: Rainforest but in the zoo.

KidzWorld and My Animal Buddy. They
nurtured around 20 Design Thinking Apart from the Government, even the
(DT) internal champions and trained private firms in Singapore are using
30-40 senior management and key Design Thinking to work on their business
personnel in Design Thinking. Creation strategies and grow their organizations
of Rainforest KidzWorld, an outdoor play by leaps and bounds. With this, I hope
zone concept for the Singapore Zoo was that you understand how Design thinking
also a part of the approach. However, methodologies play a vital role in helping
the start high remains the concept of My the government deliver valuable services.
Animal Buddy, an initiative wherein your
animal friend does not live in your house,
 Depreciation Schedule 139
Annexure II
Depreciation Schedule as per the Rules on the Income Tax Act of the Kingdom
of Bhutan 2001
Block Sl. No. Asset Type Maximum Rates
I INFRASTRUCTURAL FACILITIES
1 Building – Permanent – All types
2 Bridges – Permanent
3 Compound Walls and Fencing 3%
4 Roads – Permanent
5 Tube Wells and Deep Wells and Water Pipe Lines
1 Semi-Permanent 20%
2 Temporary 50-100%
II ELECTRICITY GENERATION AND TRANSMISSION
1 Devices for controlling transmission loss
2 Generator (Hydro)
3 Power House Equipment
4 Poles and Pillars 5%
5 Substation Equipment
6 Transmission Lines – HT & LT
7 Underground Cables
III EQUIPMENT
1 Audio/Visual Equipment
2 Computer/Data Processing System
3 Deep Freezers / Refrigerators (Hotels & General Use)
4 Fire Fighting Equipment/System
5 Lightning Arresters
6 Laboratory Equipment
7 LPG Cylinders 15%
8 Office Equipment – all types
9 Photographic/Reprographic Equipment
10 Pollution Control Equipment
11 Telephone including PABX system
12 Tools and Implements
13 Trekking Equipment
14 Vaccum Cleaner
15 Water Cooler and Water Purifier
15%
16 Weighing Machines
17 Washing Machines
140 Annexure III

IV FURNITURE, FIXTURES AND UTENSILS

1 Ceramic and Glass Utensils
2 Carpets of all types
3 Curtains & Heavy Drapes
4 Domestic Electrical Appliances and Fixtures 15%
5 Furniture of all Kinds
6 Mattresses, Pillows and Blankets
7 Silver, Steel and Metallic Crockeries
V PLANT & MACHINERY (including spare parts and accessories)
1 Boilers
2 Cinema Projectors and Screen
3 Cranes, Chain and Pulley
4 Deep Freezers / Refrigerators (Industrial Purposes)
5 Earth Moving Machinery including Bulldozers
6 Scrapers, Excavators, Wheel Loaders, etc.
7 Fork Lifts
8 Industrial Gas Cylinders
15%
9 Lifts
10 Mining Equipment and Machineries
11 Petrol Pump Installation and Tanks
12 Printing Machineries
13 Rope Way Installation
14 Road Rollers
15 Railing & Locomotives’ Storage Tanks
16 Wood Cutting / Processing Machines
VI VEHICLES, VESSELS AND AIRCRAFTS
1 Aircraft including Helicopter
2 Buses & Vans
3 Cycles & Rickshaws 15%
4 Light Motor Vehicles including two or three Wheelers
5 Trucks & Trailers
6 Vessels – Ships, Boats, Rafts, etc.
SMALL ASSETS costing up to Nu.25,000 in total per tax payer per
VII Write off
income year
 Assessment 141
Annexure III
ASSESSMENT

National School Curriculum (NSC) is grounded on the principle of competency-based

education which empowers learners with intellectual, social, emotional, behavioral
competencies and transversal skills for holistic development as nationally rooted and
globally competent individuals. It is an attempt to transform the teaching of “what”
to learning of “how”. Further, with technology becoming increasingly indispensable
in education which allows learners to get knowledge easily from digital platforms
and use it in teaching-learning processes, there is a need to embrace such practice
and prepare our learners for the world of work.

Assessment is an integral part of the teaching-learning process especially to guide and

help learners in achieving required skills and competency in the subject. To achieve
the objectives of NSC to deliver competency-based education, the assessment plays
a critical role to ensure that such competencies in the form of knowledge, skills, and
values are acquired by the learners.

a. Business Plan Assessment Tool

The assessment tool must be used for the assessment of business plan project
completed by the learners in class XII.

A Complete Evaluation Tool by Donald F. Kuratko and Robert C. McDonald (2007).

This tool is used for self-assessment of the business for its improvement.

The Components

The components of the business plan considered here for assessment are:

☸☸ executive summary
☸☸ business profile
☸☸ business model canvas
☸☸ market analysis
☸☸ marketing plan
☸☸ operations plan
☸☸ management plan
 142 Annexure III

☸☸ financial plan
☸☸ assessment of risks
☸☸ appendices
Assessment scale

Following is the 5-Point Likert scale that can be used for assessing each component
of the business plan.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

Directions: Use the above scale to assess each of the components of the business
plan. A description of each component in ideal form is presented along
with the rating scale.

1. Executive Summary

Executive summary enables the reader to gain insights of the entire business plan. It
should be precise and clear. It creates interest in the reader to read further through
the entire plan. Following components of the executive summary must be considered
for assessment:

(( Brief backgrond, vision and mission of the proposed business

(( The problem it intends to address and its market opportunities
(( Brief insights of market research and marketing strategies
(( Snapshot of the technical or operations plan
(( Brief note on the management and organisational plan
(( The financial needs and projections including the highlights of the key financial
analysis
 Assessment 143

Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

2. Business Profile

The business profile or description is an overview of the proposed business. The

following components of the business profile must be considered for assessment:

(( Name, logo and address of the proposed business

(( Form and nature of the proposed business
(( Name, address and capability profile of the proponents (entrepreneurs)
(( Vision and mission of the proposed business.
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately
 144 Annexure III

3. Business Model Canvas

The 9 builiding blocks of business model canvas must be considered for assessment:

(( Customer segments
(( Value proposition
(( Channels
(( Customer relationships
(( Revenue streams
(( Key partnerships
(( Key resources
(( Key activities
(( Cost structure
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

4. Market Analysis

The following components of the market analysis must be considered for assessment:

(( Industry analysis
(( Target market segment
(( Demand-supply gap analysis
 Assessment 145

(( Competitor analysis
(( Revenue or sales forecast
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

5. Marketing Plan

The following components of the marketing plan must be considered for assessment:

(( Marketing mix
(( Marketing strategies
(( Noncurrent assets requirement
(( Marketing expenses
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately
 146 Annexure III

6. Operations Plan

The following components of the operations plan must be considered for assessment:

(( The location of the operations facility

(( Process and methods of operation
(( Production quantities and schedule
(( Noncurrent asset requirements
(( Plant capacity and capacity utilisation
(( Direct operating costs
(( Operations overheads
(( Total and unit factory costs
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

7. Management Plan

The following components of the management plan must be considered for assessment:

(( Legal form of business

(( Organisational structure
(( Human resource requirements
(( Cost of administrative personnel
 Assessment 147

(( Noncurrent asset requirements

(( Office layout
(( Pre-operating expenses
(( Administrative overheads
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

8. Financial Plan

The following components of the financial plan must be considered for assessment:

(( Projected cost sheet

(( Total project cost
(( Financing plan
(( Security for loan
(( Loan amortisation and schedule
(( Projection of financial statements
(( Breakeven analysis and other key financial analysis
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
 148 Annexure III

Most of the components are thoroughly captured but the plan

4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

9. Risk Assessment

The following components of the risk assessment must be considered for assessment:

(( Risk identification
(( Risk evaluation
(( Risk response strategies
Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

10. Appendices

The business plan may have the following components:

(( Market analysis report

(( Feasibility study report
(( Resumes of the proponents
(( Copies of the license
(( Agreements and deeds signed with key stakeholders
 Assessment 149

(( Clearances and certificates

Note: The learners at this stage will not have all the documents which are supposed
to be appended. Therefore, only the relevant appendices may be considered
for evaluation.

Rate this component by circling the appropriate point.

Scale Performance Category Description

All the components are thoroughly captured and complete in all
5 Outstanding
respects
Most of the components are thoroughly captured but the plan
4 Very Good
could be improved
3 Good Some components are thoroughly captured but others are missing
2 Fair Only a few components are captured with minimal detail
1 Poor No component is captured adequately

Once the rating of the components is done, the aggregate score can be computed
using the following table.

Points Scored
Components
5 4 3 2 1
Executive Summary
Business Profile
Business Model Canvas
Market Analysis
Marketing Plan
Operations Plan
Management Plan
Financial Plan
Risk Assessment
Appendices
Total Points Scored

Note: Transfer the points scored in each of the components of business plan to the
above table for computing the aggregate score.
 150 Annexure III

Interpretation of the aggregate scores:

☸☸ 40 – 50 points: Exceeding
☸☸ 30 – 39 points: Meeting
☸☸ 20 – 29 points: Approaching
☸☸ Below 20 points: Beginning
Competency Level Interpretation
Exceeding The learner demonstrates competencies beyond expectations and targets
Meeting The learner demonstrates competencies that meeting the expected competencies
Approaching The learner demonstrates competencies that are towards the expected
competencies
Beginning The learner demonstrates competencies that are below expectations

b. Assessment techniques, tools and weightings:

Sl.No Assessment Techniques Tools Weighting Remarks

Term I
1 Class Activities Q & A, Checklist, Rubrics 2.5 20
2 Homework Checklist & Rubrics 2.5
3 Assignment or project work Rubrics 10
4 Test Paper pencil test 5
5 Terminal Exam Paper pencil test 30 30
Term II
1 Class Activities Q & A, Checklist, Rubrics 2.5 20
2 Homework Checklist & Rubrics 2.5
3 Assignment or project work Rubrics 10
4 Test Paper pencil test 5
5 Terminal Exam Paper pencil test 30 30
Total Marks 100

Note: The CA for class XII must be carried out based on the learning activities given
under various lessons in the textbook. The assessment must be carried out
based on the following traits.

i) Class activity includes Q & A, participation in the activities, personal

disposition, volunteerism, etc.
 Assessment 151

ii) Homework includes extended class activities, short assignments, etc. which
are assigned to practice classroom knowledge.
iii) The test includes class tests, chapter-end tests and unit-end tests, etc.
iv) Project work includes activities, assignments, solving case studies, small-
scale research, etc. that engage learners in the application or enhancing
the content knowledge and skills related to the subject.
c. Sample Assessment Rubrics

The following are the sample rubrics developed to guide teachers and learners in
carrying out the activities and assessment. The teachers can customise based on the
need and suitability of given tasks.

i. Rubrics for assessing assignment and homework

Criteria 4 3 2 1
Completion All the assigned Most of the Some or part Major part of
tasks are assigned tasks are of the tasks are the tasks are
completed completed incomplete incomplete
Timeliness Submitted on the Submitted one day Submitted two Submitted three
due date late days late days late and
beyond
Accuracy All of the answers Most of the Some of the Few answers are
are correct answers are answers are correct and require
correct correct to redo the task
Neatness All the answers Most of the Answers are Answers are
are presented in answers are not presented in presented
orderly manners presented in orderly and lack haphazardly and
and neatly orderly and neatly neatness no neatness at all

ii. Rubrics for assessing classwork

Grade Descriptors
A Demonstrated clear understanding of all the concepts studied and 100% of the work is complete
and are correct.
B Most of the concepts are understood clearly and 90% - 80% of the work is completed and is
correct.
 152 Annexure III

C Some concepts are not understood properly and 80% - 70% of the works are completed and
some are not correct.
D Most of the answers are incorrect and only 70% to 60% of the works are only completed.
Redo Concepts are not understood properly and less than 50% of the works are only completed.
Required to redo the task.

iii. Rubrics for assessing case studies

Standards Outstanding (4) Very good (3) Good (2) Satisfactory (1)
Identification Identifies and Identifies and Identifies and Identifies and
of the issues/ understands all of the understands most understands some understands a few
problems main issues in the of the main issues of the issues in the of the issues in the
case study. in the case study case study. case study.
Analysis of the Insightful and Analysis of all the Analysis of two or Imperfect and
issues thorough analysis of issues without three issues. incomplete
all the issues. thoughtful analysis. analysis of the
issues.
Comments Well-documented, Appropriate Artificial and Little or no action
on effective reasoned, and with few thought inappropriate suggested and
solutions/ appropriate comments out comments solutions to most inappropriate
strategies (The on solutions, or about solutions, of the issues in the solutions to all of
solution may proposals for or proposals for case study. the issues in the
be in the case solutions, to all issues solutions, to some case study.
already or in the case study. issues in the case
proposed by you) study.
Research / Excellent research Good research into Limited research Incomplete
Reference into issues and clearly issues with some and few research and links
documented reasons clearly documented documented links to any readings.
or arguments. links to material to readings.
read.

iv. Rubrics for assessing project work

Criteria 4 3 2 1 Total
Content Content is new, Content is not Content is not Content is
relevant. new but relevant. new and not so not new and
relevant. relevant.
 Assessment 153

Presentation Excellent Only one area Only two aspects Three or more
and format presentation. The of format is not of the format are aspect of
correct format is correct. The not correct. The the format is
followed and the report has a few report has some incorrect. The
report is free of errors. errors report has many
errors errors.
Finding Finding is Finding is Finding is not Finding is not
supported by the supported by the supported by supported by
facts and figures. facts and figures. enough facts and facts and figures.
The explanation Insufficient figures.
is made on each explanation on
fact and figure. each fact and
figure.
Research The research is The research is The research is Research not
done on the topic done on the topic done and a few done and ideas
and all ideas and most ideas ideas are clear are not clear and
are clear and are clear and and explained. not explained.
explained. explained.
Reference Five or more Three or four One or two No references.
references are references are references are
cited. cited. cited.

d. Question Pattern:

Both classes XI and XII are required to follow the same question pattern as given
in the following table. The written examination must be conducted out of 100 and
converted to 60. The same pattern will be used for the BCSEA board examinations.

SECTION A COMPULSORY QUESTIONS MARKS

Question 1
a) Multiple Choice Questions (MCQ)
b) Filling the blanks
c) Matching the pair 50
d) Writing True or False
e) Short Response Questions (SRQ)
Total 50
 154 Annexure IV

SECTION B Extended Response Questions (ERQ) MARKS

QUESTION 2
QUESTION 3
QUESTION 4
TO ATTEMPT ANY 5 QUESTIONS (5 X 10 = 50)
QUESTION 5
QUESTION 6
QUESTION 7
Total 50
Section A + Section B 100 marks will be converted to 60%
External Assessment 60%
Internal Assessment 40%
Total (External + Internal Assessment) 100%
 Sample Estimation and Projection: Entrepreneurship Training Service 155
Annexure IV
Sample Estimation and Projection: Entrepreneurship Training Service

1. Market Analysis

Target Market Segment

Segment Name Characteristics Reasons for Choosing the Segment
Potential Unemployed people with no There are many unemployed people who
Entrepreneurs entrepreneurship training aspire to be entrepreneurs but they lack
but interested to pursue entrepreneurship training. There is no training
entrepreneurship institute specialised in entrepreneurship training
Demand Analysis
Number of Usage Rate Quantity Demanded
Target Market Name of the
Potential
Segment Service Volume Value (Nu) Volume Value (Nu)
Trainees
Potential Basic 16660 1 20000 16660 333200000
Entrepreneurs Entrepreneurship
Training

Note: All unemployed people as per LFSR 2020 assumed as potential trainees and
average training cost per participant by MOLHR is Nu. 20000

Supply Analysis
Name of the Supply
Target Market Name of the
current service
Segment service Volume (Yearly) Value (Nu)
provider
Potential The training Basic 500 10000000
Entrepreneurs presently is Entrepreneurship
conducted by Training
MOLHR

Note: On an average MOLHR trains about 500 participants on basic entrepreneurship

course. (Source: MOLHR)

Gap Analysis
Total Potential Demand
Name of the service Total Supply (B) Gap (A-B)
(A)
Basic Entrepreneurship Training 333200000 10000000 323200000
 156 Annexure IV

2. Revenue Projection

Revenue Projection for 3 years

Name of the Projected Revenue
Market Gap
Service Year 1 Year 2 Year 3
Basic
Entrepreneurship 323,200,000 32,320,000 33,936,000 35,632,800
Training

Note: 10% of the gap has been targeted as first year revenue and thereafter 5%
growth is assumed.

3. Noncurrent Asset Requirement for Marketing

Estimated Noncurrent Assets for Marketing

Estimated
Purchase Yearly
Description Life (Years) or
Sl No Quantity Specification Price Depreciation
of the Asset Depreciation
(Nu) (A/B)
Rate (%)
1 Office Table 1 BBPL Art No. 110, 8539 15% 1281
Manager's Table,
Dimension: 1600 x
800 x 750 mm
2 Chair 3 Cushion attatched 10800 15% 1620
chair without arm rest
3 Laptop 1 Dell inspiron 15 5000, 55000 15% 8250
8 GB RAM, 1TB HDD,
Intel i5, 8th Gen,
Windows 10
4 Printer 1 HP LaserJet M1005 19999 15% 3000
Multifunction
Total 94338 14151

Notes:

i) The price of the items is estimated based on quotation submitted for a

public institution in 2021.
ii) Depreciation rates are as per Depreciation schedule of the Rules on Income
Act of Kingdom of Bhutan 2001.
 Sample Estimation and Projection: Entrepreneurship Training Service 157

4. Estimation of Human Resource Requirement and their pay and benefits

Estimation of Remuneration to the staff

Contract Allowance
Number of persons
Human Resource

Communication

Remuneration

Remuneration
Requirement

House Rent
Allowance
Basic Pay
Purpose

Monthly
Sl

Yearly
Travel
No

Marketing Marketing
1 1 20645 4129 6194 10500 1000 42467.5 509610
officer (P5)
Master Trainer Operations
2 2 44120 8824 13236 10500 1000 77680 1864320
(EX3)
3 Trainer (P2) Operations 2 32300 6460 9690 10500 1000 59950 1438800
Asst. Trainer Operations
4 2 20645 4129 6194 10500 1000 42467.5 1019220
(P5)
5 Manager (P5) Administration 1 20645 4129 6194 4500 1000 36467.5 437610
Office Administration
6 1 13575 2715 4073 4500 1000 25862.5 310350
Assistant (S5)
Care Taker Administration
7 cum Cleaner 1 10550 2110 3165 0 300 16125 193500
(O4)

Note: Revised pay and allowance for public servants 2019 was used as the basis of
estimating the pay and allowance.

5. Estimated Marketing Expenses

Estimated Marketing Expenses

Sl No Expenses Year 1 Year 2 Year 3
1 Pay and benefits for marketing officer 509610 519802 530198
2 Stationery and promotional cost 323200 339360 356328
3 Depreciation 14151 14151 14151
Total Yearly Marketing Expenses 846961 873313 900677
3 Year Total 2620951

Note: The stationery and promotional costs assumed as 1% of sales. 2% annual

increase in pay and benefits assumed.
 158 Annexure IV

6. Operations Schedule

Estimated number of participants to be trained

Operations Volume Year 1 Year 2 Year 3
Projected Sales 32320000 33936000 35632800
Number of participants to be trained 1616 1697 1782

Note: The number of participants to be trained is calculated based on projected sales

and the training cost estimated by MOLHR.

7. Estimated Noncurrent Asset Requirement for Operations

Estimated Noncurrent Assets Requirement for Operations

Estimated
Description Life Yearly
Sl Purchase
of the Quantity Specification (Year) OR Depreciation
No Price
Asset Depreciation (%)
Rate
1 Executive 2 Rubber wood executive 73360 15% 11004
table set table
2 Office table 4 BBPL Art No. 110, 34156 15% 5123
Manager's Table,
Dimension: 1600 x 800 x
750 mm
3 Low back 2 Rajkamal/equivalent 10400 15% 1560
revolving
chair
4 Chair 10 Cushion attached chair 36000 15% 5400
without arm rest
5 Printer 1 HP LaserJet M1005 19999 15% 3000
Multifunction
6 Training 8 Training furniture set for 239992 15% 35999
furniture set 40-seater hall (5 chairs
and 1 round table per set)
 Sample Estimation and Projection: Entrepreneurship Training Service 159

7 Projector 2 LCD Eb-575wi EB 675WI 265422 15% 39813

Projector
Projection Technology:
3LCD Technology
3,200 Lumen- 1,800
Lumen (economy) in
accordance with IDMS15.4
Zoom: Digital, Factor: 1 -
1.35Throw Ratio Range:
0.28 - 0.37:1
Contrast Ratio: 16,000:1
8 Laptop 6 Dell Inspiron 15 5000, 8 330000 15% 49500
GB RAM, 1TB HDD, Intel
i5, 8th Gen, Windows 10
Total 1009329 151399

Note: The price of the items is estimated based on quotation submitted for a public
institution in 2021.Depreciation rates are as per Depreciation schedule of the
Rules on Income Act of Kingdom of Bhutan 2001.

8. Sources and Terms of Acquisition of Noncurrent Assets

Source and terms of acquisition of Noncurrent Assets

Sl No Assets Source Terms of Acquisition
1 All assets such as laptop, printer, table and Quoted supply Cash Payment
chair

9. Estimated Direct Labour Cost

Estimation of Direct Labour Cost

Number of Qualification and Monthly
Job Title
workers Experience Remuneration
Master Trainer 2 MBA Entrepreneurship 155360
and 10 years of training
experience
 160 Annexure IV

Trainer 2 MBA Entrepreneurship and 3 119900

years of training experience
Asst. Trainer 2 BBA Entrepreneurship 84935
Total Monthly Labour Cost 360195
Total Yearly Labour Cost 4322340

10. Estimated Direct Expenses

Estimated Direct Expenses

Sl No Direct Expenses Year 1 Year 2 Year 3
1 Training Kit 404000 424200 445410
2 Training Material 1212000 1272600 1336230
Total 1616000 1696800 1781640
Notes:
i) A total of 1616, 1697 and 1782 participants will be trained in year 1, 2
and 3 respectively.
ii) Training kit would cost Nu. 250 per participant and training materials cost
per participant is estimated to be Nu. 750
11. Estimated Total Operations Cost and Unit Operations Cost

Estimated Total and Unit Operations Cost

Total
Direct Operations Unit Operations
Year Direct Labour Operations
Expenses Overheads Cost
Cost
1 4322340 1616000 151399 6089739 3768
2 4408787 1696800 151399 6256986 3688
3 4496963 1781640 151399 6430002 3609
Total 13228089 5094440 454198 18776727

Notes:
i) 2% annual increase in pay and benefits (direct labour) assumed.
ii) Unit Operations Cost = Total Operations Cost / Total Number of Participants
 Sample Estimation and Projection: Entrepreneurship Training Service 161

12. Estimated Cost of Administrative Personnel

Estimated Cost of Administrative Personnel

Yearly Yearly Yearly
Monthly
Administrative Personnel Remuneration Remuneration Remuneration
Remuneration
(Year 1) (Year 2) (Year 3)
Manager 36468 36468 37197 37941
Office Assistant 25863 25863 26380 26907
Caretaker cum Cleaner 16125 16125 16448 16776
Total Cost of Administrative Personnel 78455 80024 81625

Note: 2% annual increase in pay and benefits assumed.

13. Estimated Noncurrent Asset Requirement for Office and Administration

Estimated Noncurrent Assets Requirement for Office and Administration

Estimated
Life Yearly
Sl Description Purchase
Quantity Specification (Year) OR Depreciation
No of the Asset Price
Depreciation (%)
Rate
1 Office table 2 BBPL Art No. 110, 17078 15% 2562
Manager's Table,
Dimension: 1600 x 800
x 750 mm
2 Chair 6 Cushion attached chair 21600 15% 3240
without arm rest
3 Printer 1 HP LaserJet M1005 19999 15% 3000
Multifunction
4 Laptop 2 Dell Inspiron 15 5000, 110000 15% 16500
8 GB RAM, 1TB HDD,
Intel i5, 8th Gen,
Windows 10
Total 168677 25302

Note: The price of the items is estimated based on quotation submitted for a public
institution in 2021.Depreciation rates are as per Depreciation schedule of the
Rules on Income Act of Kingdom of Bhutan 2001.
 162 Annexure IV

14. Estimated Pre-Operating Activities and Expenses

Estimation of Pre-operating Expenses

Sl No Activity Cost
1 Feasibility study and preparation of business proposal 60000
2 Business Registration Fee 5000
3 Recruitment of staff 20000
4 Promotion of the training programme 50000
5 Training curriculum and content development 300000
Total Pre-operating Expenses 435000

Note: Registration fee is based on Regulations for Registration of Training providers

2014, MOLHR.

15. Estimated Organisation and Management Expenses

Estimated Organisation and Management Expenses

Sl No Expenses Year 1 Year 2 Year 3
1 Remuneration to administrative staff 747960 762919 778178
2 Rent for training space and office 1800000 1800000 1836000
3 Utility bill 100000 100000 100000
4 Depreciation 25302 25302 25302
5 Pre-operating expenses 435000 0 0
6 Miscellaneous 50000 50000 50000
Total Organisation and Management Expenses 3158262 2738221 2789479
3 Year Total 8685961
Notes:
i) The stationery and promotional costs assumed as 1% of sales. 2% annual
increase in pay and benefits assumed. Rent is assumed to be 150000 per
month and increase by 2% every 2 years.
ii) The training space and office comprises of 40-seater training hall and
office space.
iii) Utility and miscellaneous expenses assumed in lumpsum.
 Sample Estimation and Projection: Entrepreneurship Training Service 163

16. Estimated Cost Sheet

Estimated Cost Sheet

Year 1 Cost Year 2 Cost Year 3 Cost
Particulars
Total Unit Total Unit Total Unit
Direct Material 0 0 0 0 0 0
Direct Labour 4322340 4408787 4496963
Direct Expenses 1616000 1696800 1781640
Prime Cost 5938340 3675 6105587 3598 6278603 3524
Add:
Factory overhead/Operations 151399 151399 151399
Works Cost 6089739 3768 6256986 3688 6430002 3609
Add:
Office & Administrative Overhead 3158262 2738221 2789479
Cost of Service 9248001 5723 8995207 5301 9219481 5175
Add:
Marketing Overhead 846961 873313 900677
Cost of Sales/Revenue 10094962 6247 9868520 5816 10120158 5680
Profit 22225038 13753 24067480 14184 25512642 14320
Sales/Revenue 32320000 20000 33936000 20000 35632800 20000

17. Estimated Project Cost

Estimated Total Project Cost

Project Cost Components Amount
Capital Expenditure 1272344
Pre-operating Expenses 435000
Working Capital:
Direct Labour cost 4322340
Direct Expenses 1616000
Marketing Overhead 832810
Organisation and Management Overhead 3132960
Total Project Cost 11611454
 164 Annexure IV

18. Proposed Financing Plan

Proposed Financing Plan

Type of Finance Amount
Sl No Proportion
Total Project Cost 11611454
1 Debt 1272344 11%
2 Equity 10339110 89%

Note: The capital expenditure will be funded through BOBL service loan.

19. Loan Information

Loan Information
Name of the Bank Bank of Bhutan Limited
Loan Amount 1272344
Interest Rate 8.72%
Loan Term (Years) 15
Grace Period
Repayment Method Monthly

Note: The details given above are as per BOBL service loan terms.

20. Loan Amortisation Summary for 3 Years

Loan Amortisation Summary for 3 Years

Annual Annual Ending Balance (Beginning
Beginning Total Annual
Year Interest Principal Balance - Annual Principal
Balance EMI (A+B)
Amount (A) Amount (B) Amount)
1 1,272,344 109,254 43,073 152,327 1,229,271
2 1,229,271 105,344 46,983 152,327 1,182,289
3 1,182,289 101,080 51,247 152,327 1,131,042

21. Projected Statement of Comprehensive Income

Projected Statement of Comprehensive Income

Particulars Year 1 Year 2 Year 3
Revenue 32320000 33936000 35632800
Net Revenue 32320000 33936000 35632800
 Sample Estimation and Projection: Entrepreneurship Training Service 165

Less: Direct Operating Cost

Direct Labour 4322340 4408787 4496963
Direct Expenses 1616000 1696800 1781640
Gross Profit 26381660 27830413 29354197
Less: Indirect Operating Cost
Marketing Expenses 832810 873313 900677
Organisation & Management Expenses 3132960 2738221 2789479
Operating Profit 22415890 24218880 25664041
Depreciation 190852 190852 190852
Pre-operating Expenses 435000 0 0
Net Profit Before Interest & Tax 21790038 24028028 25473190
Less: Interest 109,254 105,344 101,080
Net Profit Before Tax 21680784 23922684 25372110
Less: Tax (30% BIT) 6504235 7176805 7611633
Net Profit After Tax 15176549 16745879 17760477

Note: 30% BIT as per the Rules on Income Tax Act of Kingdom of Bhutan 2001.

22. Projected statement of Financial Position

Projected Statement of Financial Position

Items End of Year 1 End of Year 2 End of Year 3
CURRENT ASSETS:
Cash 25,663,438 42,553,186 60,453,267
Total Current Assets 25,663,438 42,553,186 60,453,267

NONCURRENT ASSETS:
Furniture 451,925 451,925 451,925
Office Equipment 820,419 820,419 820,419
Total Noncurrent Assets 1,272,344 1,272,344 1,272,344
Less: Accumulated Depreciation 190,852 381,703 572,555
Book Value of Noncurrent Assets 1,081,492 890,641 699,789

TOTAL ASSETS 26,744,930 43,443,827 61,153,057

LIABILITIES
 166 Annexure IV

CURRENT LIABILITIES: - - -

Total Current Liabilities - - -

NONCURRENT LIABILITIES:
Fixed investment loan 1,229,271 1,182,289 1,131,042
Total Noncurrent Liabilities 1,229,271 1,182,289 1,131,042

EQUITY:
Owner's Equity 10,339,110 10,339,110 10,339,110

Retained Earnings 15,176,549 31,922,428 49,682,905

Total Equity 25,515,659 42,261,538 60,022,015
TOTAL LIABILITIES & EQUITY 26,744,930 43,443,827 61,153,057

23. Projected Cash Book

Projected Cash Book

Particulars Year 1 Year 2 Year 3
Beginning cash balance - 25,663,438 42,553,186
RECEIPTS:
Sales/Revenue 32,320,000 33,936,000 35,632,800
Equity contribution 10,339,110 - -
Fixed investment loan 1,272,344 - -
TOTAL RECEIPTS 43,931,454 59,599,438 78,185,986

PAYMENTS:
Pre-Operating Expenses 435,000 - -
Capital Expenditure 1,272,344 - -
Direct operating cost 5,938,340 6,105,587 6,278,603
Indirect operating cost 3,965,770 3,611,534 3,690,156
Interest on loan 109,254 105,344 101,080
Loan principal repayment 43,073 46,983 51,247
Tax (BIT) 6,504,235 7,176,805 7,611,633
TOTAL PAYMENTS 18,268,016 17,046,252 17,732,718

ENDING CASH BALANCE 25,663,438 42,553,186 60,453,267

 Sample Estimation and Projection: Entrepreneurship Training Service 167

24. Projected Statement of Cash Flows

Projected Statement of Cashflows

Particulars Year 1 Year 2 Year 3
I. CASH FLOW FROM OPERATING
ACTIVITIES
Profit Before Tax 21,680,784 23,920,684 25,372,110
Add: Non Operating and Non Cash Expenses
Depreciation 190,852 190,852 190,852
Pre-Operating Expenses 435,000 - -
Interest Expenses 109,254 105,344 101,080
22,415,890 24,218,880 25,664,041
Less: Non Operating and Non Cash Income - - -
Operating Profit Before Working 22,415,890 24,218,880 25,664,041
Capital Changes
Add:Increase in Current Liabilities & Decrease in - -
Current Assets
22,415,890 24,218,880 25,664,041
Less:Decrease in Current Liabilities & Increase in - - -
Current Assets
Cash Generated From Operations 22,415,890 24,218,880 25,664,041
Less: Income Tax Paid 6,504,235 7,176,805 7,611,633
Net Cash Flow From Operating 15,911,655 17,042,074 18,052,408
Activities (A)
II. CASH FLOW FROM INVESTING
ACTIVITIES
Purchase of Furniture (451,925) - -
Purchase of Office Equipment (820,419) - -
Sale of Furniture - - -
Sale of Office Equipment - - -
Pre-operating Expenses Paid (435,000) - -
Net Cash Used in Investing Activities (1,707,344) - -
(B)

III. CASH FLOW FROM FINANCING

ACTIVITIES
 168 Annexure IV

Owner's Equity Contribution 10,339,110 - -

Raising of Loan 1,272,344
Interest Paid (109,254) (105,344) (101,080)
Repayment of Loan (43,073) (46,983) (51,247)
Net Cash Flow From Financing Activities (C) 11,459,127 (152,327) (152,327)

IV. NET INCREASE IN CASH & CASH 25,663,438 16,889,748 17,900,082

EQUIVALENTS (A+B+C)
V. BEGINNING CASH & CASH - 25,663,438 42,553,186
EQUIVALENTS
VI. ENDING CASH & CASH EQUIVALENTS
(IV + V) 25,663,438 42,553,186 60,453,267

25. Breakeven Analysis

Breakeven Analysis for 3 Years

Items Year 1 Year 2 Year 3
Fixed Costs:
Office and Administrative Overhead 3158262 2738221 2789479
Marketing Overhead 846961 873313 900677
Total Fixed Cost 4005222 3611534 3690156
Variable Costs:
Direct Labour 4322340 4408787 4496963
Direct Expenses 1616000 1696800 1781640
Total Variable Cost 5938340 6105587 6278603
Sales 32,320,000 33,936,000 35,632,800
Contribution (Sales - Variable Cost) 26381660 27830413 29354197
PV Ratio (Contribution / Sales) 81.6% 82.0% 82.4%
Breakeven Point (Revenue) 4906772 4403851 4479448
Projected Number of Participants 1616 1697 1782
Variable Cost Per Unit 3675 3598 3524
Per Unit Sales 20000 20000 20000
Breakeven Point (Unit) 245 220 224
 Sample Estimation and Projection: Entrepreneurship Training Service 169

26. Pay Back Period

Pay Back Period in case of Uneven Cash Inflow = Completed Years + (Balance to be recovered /
Cashflow of that period)
Total Initial Investment 11,611,454
Year 1 Cash Inflow 25,815,688
Year 2 Cash Inflow 16,737,498
Year 3 Cash Inflow 17,900,082
Pay Back happens Within 1 Year (5 Months 13 Days)

27. Net Present Value

Net Present Value Calculation

Year Cash Flows Discount Factor @ 8.72% Discounted Cash Flows
0 11611454
1 25,815,688 0.9198 23,745,114
2 16737498 0.8460 14160274
3 17900082 0.7782 13929216
Total Present Value of the Future Cash Inflows 51834604
Net Present Value 40223150

28. Return on Investment

ROI = (Revenue-Cost)/Cost
Estimated Return on Investment for 3 Years
Items Year 1 Year 2 Year 3
Revenue 32,320,000 33,936,000 35,632,800
Cost 11611454 11611454 11611454
Return on Investment 178% 192% 207%

29. Net Profit Margin

Net Profit Margin = Revenue - Cost / Sales
Projected Net Profit Margin for 3 Years
Items Year 1 Year 2 Year 3
Revenue 32,320,000 33,936,000 35,632,800
Cost 11611454 11611454 11611454
Net Profit Margin 64% 66% 67%
 170 Bibliography

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