The main objective of business is to earn profit. If there
is planning in running business, success becomes easier and possibility of
failure reduces. Sometimes, many enthusiastic entrepreneurs
cannot become successful because of proper planning in regard of the business.
In this chapter, we shall discuss various aspects of business planning.
At the end of this chapter the students will be-
·
Explain the concept and importance of business
planning.
·
Explain the process of business planning.
·
Explain the concept of self-analysis.
·
Explain the concept of project planning and its
importance.
·
Describe the steps of project planning.
·
Analyze the profitability of project.
·
Able to select the right business in
entrepreneurship through project selection process.
·
Able to prepare the structure table for project
planning.
Concept of Business Plan
Business plan is the picture of the future activities of
business. It is written documents through which the objective of the business,
nature, management style, financing, present status and future development
process is depicted. A business planning helps the businessman to reach his
objective like radar helping an aero plane to reach its destination. Business
planning is necessary in both cases, starting a new business or expansion of
existing business. A business planning can be compared to the road map of a
tourist or blue print for a building constructor.
Importance of Business Plan
The importance of business plan is immense in starting the
business, maintain it properly and operate it to reach the objective. The main
importance of business plan is as follows:
·
Guide
line to operate the business: To achieve the objective of business what, when,
how and at what time a thing is to be done is properly mentioned in the plan.
As a result it works as a deed of guideline to the entrepreneur.
·
Capital
arrangement and Investment: When additional capital is necessary for a
business, it is not possible for the entrepreneur to arrange the additional
capital, then bank loan or from other sources capital is to be arranged. In
this case, the lender or the investor can take decision by analyzing the
business plan before extending the loan.
·
Proper
utilization of government facilities: Small and medium size enterprises
receives many facilities from the government. Business Plan helps to avail
those facilities.
·
Helps to
make decision: Business plan helps to take decision and give a concept
about the competitor, which way the business should be expanded in future,
which business is more profitable, what product is to be produced in future.
Beside above mentioned things, by reading the business plan
the stakeholders can gain a clear concept of the business by studying the
business plan.
Process of Business Plan
The success of business depends on right selection of the
project. A project is a planned and thoughtful work process to be completed
within a particular time and objective. It starts and ends at a specified time.
A project may be a new venture for investment or expansion of old business. The
first step of the business plan process is to identify the concepts and
evaluate them for selection.
1.
Identifying the Project Concept:
Selection of the project starts from the identifying of the
concept the project by the entrepreneur. He can assess the surrounding the
environment and get the idea for the demand of a product and services.
Selection of a project depends on this demand.
Normally, the demand of product and services give birth to the project idea.
During the selection of the project concept it is to be considered of the
product having entrepreneur’s hobby or interest, products having real demand,
prevailing disadvantages of the products, opportunity of using new technology.
The sources of new project concepts are own thinking, various government and non-government
publication, economic and industrial report and research report.
2.
Evaluation of the Concepts and Selection of the
Project:
An Entrepreneur shall make a list of the probable
projects after analyzing the information from various sources. A project shall
be selected from the list after analyzing it through various methods. A project
can be selected by two methods by analyzing the selected concepts. One is
Macro-screening and the other is Micro-screening.
A)
Macro-Screening:
Macro-screening is such a process which helps to
select a project by evaluating the influential elements of the business
concepts. All the businesses are influenced by some elements which are beyond
control of the entrepreneur. These elements are population, economy, politics,
society, cultural and legal environment.
·
Population: The
existence, progress and advancement of a business depend upon the
population of the locality where the business is located. The demand of the
product is influenced by the size of the market, population, and population
growth ratio.
·
Economic Environment: The
demand of the product is also influenced by the consumer’s income,
savings, expenditure pattern and standard of living. Decision should be taken
considering these elements while selecting a project.
·
Natural Environment: Natural
environment plays vital role in selecting a project. The raw materials
for the industry come from the natural environment. But, those businesses are
avoidable which destroys the environments.
·
Political Environment: Political
stability, ideology of the leading parties and attitude of the
politicians also influences the business activities.
·
Cultural Environment: Education
rate, expansion of technical education, social ethics and religious
values work as an important element for selection of the business project.
·
Legal environment: The
prevailing law of the state, industrial policy contributes a great to
the expansion of the business of a country.
Selection of project through Macro-screening is an initial
stage. To select the project finally and assess the appropriateness of the
project, detailed scrutiny is done with the help of Micro-screening.
B)
Micro-Screening:
Micro-screening is the detailed process of selecting a
project through analyzing the market demand, technical, commercial and
financial aspect and contribution to the economy, etc. The elements of
micro-screening are explained below:
·
Market Demand: Through market survey and
analysis of market demand, consumer’s point of view and interest, number
of competitors in the market and advantages and disadvantages of products are
properly justified.
·
Technical Aspect: Technical aspects of
projects are justified from the technological and mechanical point of
view. Production processes, technology specification, selection of machineries,
feasibility of implementation of the projects are included in these types of
jobs.
·
Commercial Aspect: Profitability or
commercial viability of a project is most important to select a project.
In this case, elements of production cost, sales price, estimated profit etc.
are to be considered very carefully.
·
Financial Aspect: In this case
considering the expenditure of the project, sources of financing, return
on investment etc. a project is selected.
·
Contribution to the National Economy: It
is also essential to evaluate how the project shall contribute to the
national economy. The yardstick to measure the economic contribution is
employment generation, tax payment to the national treasury etc.
From the discussed point of view, projects having realistic
and profitability attributes are selected for investment. It is mentionable
here that in case of small enterprises and retailing projects; contribution to
the national economy is not significant. But, in case of medium and large
business such as manufacturing or production oriented business macro and
micro-screening both are necessary.
3.
Submission of Business Project Report
The last stage of the business plan is to prepare an
excellent report. This report is prepared on the basis of justifiable
information of the probability of the selected project.
Guideline for Small Business Plan
It is necessary to be careful while preparing a business
plan. The entrepreneur can make the report by himself or with the help of any
other specialist. The following guidelines can be followed to prepare a proper
business plan:
·
Business plan should be precise and free from
excessive wordings.
·
The objective of the business to be focused
only one or two products and place for the product and market selection.
·
In the management process of the business
unknown person should not be included
·
Any product should not be described with words
only understood by the professionals; rather, it should be comprehensible by
all.
·
Sales volume should be projected on the basis
of realistic quantity of production capacity. Sales account should be
maintained very carefully.
·
Business plan should not be drafted on the
basis of vague information.
·
There should be a detailed discussion on the
present and probable problems of the business in the business plan.
·
It is necessary to involve all the members of
the management team and if necessary, advice from an expert may be sought for.
Contents of Small Business Plan
The subject matter of the business plan may vary on the basis of
the size of the business, variation in nature and types of the business. But,
the following things are common in a business plan:
1.
Name of the Business organization
2.
Address of the organization
3.
Name of the Entrepreneur(s)
4.
Brief of the entrepreneurs or directors
6.
Management style of the business (Single, partnership
or joint management)
7.
Amount of Capital
8.
Precise description of market survey (size of
the market, possibility of future progress, ways to penetrate the market,
pricing of the product.)
9.
Possibility of profit generation (Target
profit and guideline to achieve future target profit )
10.
Attachment of projected Financial Statement
a)
Total cost of the project
b)
Projected Income
c)
Projected expenditures
d)
Projected Income Statement
e)
Projected Balance sheet
f)
Projected Cash-flow statement
g)
Statement of Break Even Analysis
Estimated Cash Flow Analysis
It is necessary to estimate the cash flow to operate the business
smoothly. This statement can be preserved daily, weekly and monthly basis. In
this statement, how much Cash inflow is made and how much expenditures is to be
made in a particular period of time is estimated. Because of preparation of cash
flow statement, the entrepreneur can have a clear idea about the cash position
of the business.
Break Even Analysis
Break even indicates such a state of the business where the income
and expenditure of the business becomes equal. It is neither loss nor profit
scenario of the business. More precisely to state that when revenue from
quantity of goods sold becomes equal to the volume of expenditures is called
Break Even. The point at which the sales and expenditure becomes equal is
called Break Even Point. Correct pricing of the product, increase of the sales
volume, profit planning, increase of profit etc. are possible if the Break Even
Point is predefined.
Concept and Process of Self Analysis
It is necessary to justify the capability of the entrepreneur to
run the business before starting it. The main reason for this is because there
is possibility of success and risk of failure in the business. As a result, it
is wise to assess the capability before starting
the business. It is a complex procedure to assess the business capability.
If the following work chart is properly filled up by
an entrepreneur, he would be able to find out whether he has the quality of
becoming an entrepreneur:
1.
Can you draft a Business Plan?
2.
Can you take decision at any situation and
maintain your decision in adversity?
3.
Are you willing to take responsibility and
lead?
4.
Are they trust and honor you with whom you
stay?
5.
Are you physically fit?
6.
Can you work for long time?
7.
Do you feel free to mix and work with others?
8.
Can you communicate effectively with others
and influence them?
9.
Can others easily understand your thinking and
concept?
10.
Do you have in depth knowledge about the
business that you want to start?
11.
Do you have idea about the related factors of
the business such as tax, accounts etc.
12.
Do you have experience in marketing and
finance?
13.
Do you have sufficient supply of fund to start
the business?
14.
Do you have idea about the materials to start
the business?
15.
Do you want to start the business staying
above all?
After answering the above question you will give marks of 1
for positive answer and 0 for negative answers. Now, count your total achieved
number. If your number is:
12 or more then: Enough possibility of becoming entrepreneur.
7-11: Your possibility is not to the optimum level, but you
can be successful by
trying more.
Below 7 : You do not have sufficient
will power to be an entrepreneur.
In many cases, because of lack of competency, efficiency and
willingness a person cannot become an entrepreneur, but the scenario may
change. Then you can also be an entrepreneur.
End
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