Chapter 4

Writing a Business Plan

 Concept of Business Plan
• A business plan is a roadmap of the proposed new venture of the
entrepreneur. It is a written document that details the proposed
venture.
• It is a written narrative, typically 25 to 35 pages long, that
describes what a new business plans to accomplish.
• It is a written statement regarding what the entrepreneur is going
to do. It is a document describing a venture’s opportunity, its
product or service, strategy, team, required resources and potential
financial returns. It develops the new venture for investment.
• Acc to David H Holt ‘A business plan is a comprehensive set of
guidelines for a new venture.’
• For new ventures, the business plan is a dual-purpose
document used both inside and outside the firm. It
can be used by managers and executives for internal
planning, and it can be used as the basis for getting
loan from banks & other lenders. It can be used to
persuade investors that the venture is a good
investment.
• Thus a business plan is the vision of entrepreneur in
writing and acts as a guideline for creating a
successful venture. It is read by employees, investors,
banker, suppliers, customers and consultants. It is a
brief summary of expectations, objectives and
essential activities.
 Reasons for writing a Business Plan
1. Internal Reason
A business plan helps the founders to systematically think
through every aspect of their new venture and develop a concrete
blueprint (any detailed plan, literal or figurative) to follow. It
provides a guideline for managers for operation of the venture
and it helps employees to understand what is expected from
them.
2. External Reason
The second reason to write a business plan is to create a selling
document for a company. It provides a mechanism for a young
company to present itself to potential investors, suppliers,
business partners, key job candidates, and others.
 `

3. Specific Reasons
a. To map the future
A business plan helps the entrepreneurs to manage the
business more effectively. He can understand the business
better and also chart specific courses of action essential to
improve the business. It details future scenarios of the venture
and set goals along with the resources to achieve these goals.
b. To support growth and secure funding
Most venture seek external funding for establishment &
growth of the venture. A business plan helps the potential
investors to understand the future of the venture, make the
investors feel confident, and persuade them to make funding
decision. Thus it helps to support growth and secure funding.
c. To develop and communicate a course of action
A business plan helps to assess future opportunities and commit to
a particular course of action. A business plan focuses on goals,
and develops and communicates the course of actions to achieve
those goals. It helps the management to focus in key activities &
monitor progress
d. To help manage cash flow
Management of cash flow is very important to all ventures,
otherwise ventures become insolvent. A well structured business
plan helps to manage the cash inflows and outflows, and secure
funding requirements in advance, specifically when cash outflow
exceeds inflows.
e. To support strategic exit
The owner of the venture, at some point, will decide to exit from
the venture. The business plan directs the present day decisions
considering the likely exit strategy in advance. It helps the
entrepreneurs to liquidate the investment and cashing out when
they want.
 Guidelines for Writing a Business Plan
• It is important to be sensitive to the structure, content & style of
a business plan before sending it to an investor or to anyone else.
• Following guideline help to develop an effective business plan
1.Making the Commitment
One must make sure that he will go into the business. The desire
to become an entrepreneur dwarfs the desire to work for
somebody else.
2. Analyzing Oneself
Analyze your strengths and weakness, specifically your business
experience, business education and desire. Strengths offer true
opportunities and weaknesses determines what should not be
done.
3. Structure of Business Plan
• A business plan should follow a conventional structure to
make the best impression.
• Some entrepreneurs demonstrate creativity but it is usually a
mistake to move away from the conventional structure of
business plan.
• Mostly investors a busy people and they want a plan where
they can easily find critical information.
4. Content of the Business Plan
• The business plan should give clear and concise information
on all important aspects of the proposed new venture.
• It must be long enough to provide sufficient information but
short enough to maintain readers interest.
• After completion of business plan it should be reviewed for
spelling, grammar and make sure no critical information is
missed out. The contents of a complete business plan are:
a) Developing a Production Plan
Production plan is essential only to entrepreneurs who intend to
manufacture products. This plan covers the following
- The volume of production per year
- The sales forecast
- Layout plans for the production process
- Determine the type and size of equipment.
- Layout plans to control waste.
- Product quality and inventory, etc..
b) Developing a Marketing Plan
The entrepreneur should develop a productive and creative
marketing plan. The marketing plans should cover aspects like
marketing channels, price, advertising, personal selling, sales
promotion, etc..
c) Developing a legal plan
The entrepreneur must decide whether to conduct a sole trading or
partnership or a joint stock company. It should also able to spot
opportunity permitted by law, they need expert legal help.
d) Developing an accounting plan
Entrepreneurs must maintain a record keeping system before the
venture starts. The system should be simple.
e) Developing an insurance plan
Business venture involves risks. Thus entrepreneurs need to
develop insurance plan in order to minimize risk & enhance the
chances of survival of the venture.
f) Developing a computer plan
The entrepreneur should evaluate and recommend a possible
computer system, describing its benefits and need for information
to the venture.
g. Developing personnel plan
Personnel/employees are the most valuable assets of an enterprise.
The entrepreneur has to make decision regarding the
- qualification, talents and experience, & number of the required
employees.
- services and facilities to be provided to them.
- policies and practices of recruitment, performance evaluation,
remuneration & promotion.
- provision of rewards and motivation, etc..
h) Developing a financial plan
The entrepreneur should develop a financial plan and estimate the
financial needs and its sources. He should estimate the amount of
equity capital and debt capital. A financial plan comprises
following four items:
i) a profit graph (break-even chart) ii) balance sheet
iii) a cash budget iv) an income statement
5. Style or Format of the Business Plan
The appearance of the business plan must be carefully thought out.
The plan must be bounded in a placed spiral binder and must look
professional. While writing a business plan, avoid getting carried
away with the design elements. Three types of business plans are as
follows:
a) Summary Plan
A summary business plan is of 10 to 15 pages and works best for new
ventures in the early stages of development to see if investors are
interested in their venture.
b) Full Business Plan
A full business plan is of 25 to 30 pages and works best for new
ventures who are at the point where they need funding or financing.
c) Operational Business Plan
It is of 40 to 100 pages and is meant primarily for internal audience. It
works best as a tool for creating a blueprint for operation of the new
venture and provides guidelines to operational managers.
6. Recognizing the Element of the Plan May Change
• It is important to recognize that the plan will usually
change as it is being written and the business evolves.
• New insights invariably (always) emerge when
entrepreneur/s immerse themselves in writing the plan
and start getting feedback from others.
• This process continues throughout the life of a
company and the entrepreneurs need to remain alert
and open to new insights and ideas.
Section/Contents of the Business Plan
The cover page of business plan should include the
company’s name, address, phone number, date, contact
information, company’s website address, the company’s
Facebook page and Twitter name, etc..
• A complete business plan has following sections
i. Executive Summary ii. Industry Analysis
iii. Company Description iv. Market Analysis
v. The Economic of the Business
vi. Marketing Plan
vii. Product Design and Development Plan
viii. Operations Plan ix. Management Team
x. Overall Schedule xi. Financial Projections
 i. Executive Summary
• The executive summary is a short overview of the entire
business plan.
• It provides a busy reader with everything that needs to be
known about the new venture’s distinctive nature.
• In most cases investors ask for a copy of the executive
summary and will ask for the copy of the entire business
plan only if they are convinced with the executive
summary.
• It is the most important section of the business plan and
should not be more that 3 pages. This part is usually
completed after completing the business plan.
 ii. Industry Analysis
• This section begins by describing the industry the business
venture will enter in terms of its size, growth rate, and sales
projection.
• Items like industry structure, nature of participants, industry
trends (profit are increasing or falling, costs are going up or
down), key success factors, long-term prospects, etc. should be
included in this section.
• The entrepreneur should have a proper understanding of the
promising areas and the points of vulnerability (likely to be
harmed).
• It should conclude with a brief statement of your belief regarding
long-term prospects for the industry.
 iii. Company Description
• This section begins with a general description of the company.
It should include the history of the company in brief and the
driving force behind the inception of the venture.
• It should also include
– The name of the business
– Background of your venture
– The potential of the new venture
– Products and services
– Any unique or distinctive features of the venture
– Legal status and ownership, etc..
• This section demonstrates to your reader that you know how
to translate an idea into a business.
 iv. Market Analysis
• Market analysis breaks the industry into segments & zeroes in
(give all your attention) on the specific segment (or target
market) to which the firm will try to appeal. This is done
through market segmentation.
• Most start-ups focus on servicing a specific (target) market
instead of the entire industry.
• Following points are to be considered while developing a
market plan:
– Market segmentation and target market selection.
– Identify target market, market position & market share.
– Competitor analysis.
– Buyer behavior.
– Convince customers that sales projection & competition can be met.
– Pricing strategies.
– Identify advertising plan with cost estimates, etc.
 v. The Economics of the Business
• This section addresses the basic logic of how profits are
earned in the business and how many units of a business’s
product & services must be sold for the business to ‘break
even’ and then start earning profit.
• Computing a break-even analysis is an extremely useful
exercise for any proposed business or existing business.
• This section should include following items:
– Revenue drivers and profit margins
– Fixed and variable costs
– Operating leverage (the ability to earn high returns when
operating at high capacity) and its implications
– Start-up costs
– Break-even chart and calculation.
 vi. Marketing Plan
• The marketing plan focuses on how the business will market and
sell its product or service. It describes how the entrepreneur plans
to use various marketing tools, such as marketing channels, price,
advertising, personal selling and sales promotion.
• Properly combined & coordinated marketing tools help to
generate sales.
• The best way to describe a company’s marketing plan is to start by
articulating (express in separate items) its marketing strategy,
positioning & points of differentiation, & then talk about how
these overall aspects of the plan will be supported by price,
promotional mix and sales process, & distribution strategy.
• This section should include the following:
– Overall pricing strategy
– Product, price, place and promotion
– Sales promotion and sales tactics
– Sales promotion
 vii. Product/Service Design & Development
Plan
• The entrepreneur should choose the product or service that
best fits his strengths and desires.
• This section should include following items:
– Status of your development efforts for completely new product
or service.
– Challenges and risks.
– Projected development costs.
– Proprietary issues (brand names, patents, licenses, copyrights,
trademarks).
– Product uniqueness.
– What the product/service will or won’t do for customers.
– The needs the product/service will fulfill.
 viii. Operations Plan
• Operation plan is essential only to entrepreneurs who intend
to manufacture product. It outlines how the venture will be
operated & how product & services will be produced.
• The entrepreneur should determine type & size of plant &
equipment, volume of production per year, plans to control
waste, product quality, inventory, business location, etc..
• Following points must be considered while developing
operation plan:
– Entrepreneurs should design the product as per need of people.
– Planning about packaging, brand name, etc..
– Working on techniques of improvement of the product.
– Preparing time frame for each & every items of production.
– Develop mechanism for follow-up and control. etc..
 ix. Management Team
• The management team of the new venture consists of the
founder/s and a handful of key management personnel. A
brief profile of each member should be provided.
• While going through the business plan most investors look on
the management team to assess the strength of the people
starting the venture.
• This section should include following items:
– Founder members & key management personnel.
– Board of directors.
– Board of advisors.
– Legal structure of venture.
– Duties and responsibilities of each positions.
– Their related experience, education and resumes.
 x. Overall Schedule
• A schedule should be prepared that shows the major events
required to launch the business. The schedule should be in
the format of milestones critical to the success of the
venture.
• Examples of milestones:
– Incorporation of the venture
– Completion of prototypes
– Rental of facilities
– Obtaining critical financing
– Starting production
– Obtaining the first sale, etc..
 ix. Financial Projection
• The final section of a business plan presents a firm’s pro
forma (or projected) financial projections.
• The entrepreneur/s must determine the amount of investment
from own sources and from outside sources. Entrepreneurs
need to have scientific approach for planning the funds.
• It should include items like
– Fund requirement for the venture
– Sources & uses of funds
– Types of assets and investment limit in these assets
– Pro forma income statement, balance sheet & cash flows, ratio
analysis, etc..
– Budget
– Stages of financing, etc..
 Presentation of Business Plan
• If the business plan successfully elicits (to generate) the interest of a
potential investor the next step is to meet with the investor and
present the plan in person.
• If it is an oral presentation, then do not talk for more than the allotted
time.
• The first meeting is usually very short, about one hour. The investor
will typically ask the firm to make a 15 to 20 minute presentation
using PowerPoint slides and use the rest of the time to ask questions.
• Smart entrepreneur has a good idea of the questions that may be
asked, and is prepared to answer those question.
• If the investors are impressed and wants to learn more about the
venture the presenters will be asked for a second meeting to meet
with the investors and his/her partners.
• The meeting will last longer and will require a
more thorough presentation.
• The presentation should be smooth and well-
rehearsed.
• The entrepreneur should arrive at the
appointment on time and be well prepared.
• The presentation should consists of planned
talks and should avoid technical jargon
(technical terms/language that is
incomprehensible).
 Twelve PowerPoint slides to include in an investor presentation are:
1. Title Slide: Introduce the presentation with your company’s name,
the names of the founders, and the company logo if available.
2. Problem: Briefly state the problem to be solved or the need to be
filled.
3. Solution: Explain how your firm will solve the problem or how it
will satisfy the need to be filled.
4. Opportunity and Target Market: Articulate (clear/effective)
your specific target market.
5. Technology: This slide is optional but is normally included. Talk
about your technology or any unusual aspect of your
product/service.
6. Competition: Explain specifically the firm’s competitive
advantage in the marketplace and how it will compete against
more established competitors.
7. Marketing and sales: Describe your marketing strategy. Talk
about your sales process.
8. Management team: Describe your management team. Explain
how their background and expertise are keys to the success of your
firm. Briefly explain the board of advisors and board of directors.
9. Financial projections: Briefly discuss the financials. Stress when
the firm will achieve profitability, and how much capital it will
take to get there.
10. Current status: Describe the current status of your firm in the
context of the milestone you have achieved.
11. Financing sought: Lay out specifically how much financing
you’re seeking and how you’ll use the money.
12. Summary: Bring the presentation to a close. Summarize your
strongest points of your venture and your team. Solicit feedback
from your audience.