CHAPTER 3

BUSINESS PLANNING

By:
Habib S.(MBA in International Business)
 Introduction
 Virtually to start any type of business or
expand the existing one needs to work on
opportunity identification and evaluation,
business idea development and then prepare
business plan.
 Lack of proper opportunity identification and
evaluation, idea development process and
business planning are the most often cited
reasons for business failure.
 Opportunity Identification and
Evaluation
 Most authors agree that the initial stage in the
entrepreneurial process is the identification and
refinement of a viable economic opportunity that
exists in the market.
 Without the recognition of an opportunity the
entrepreneurial process is likely to result in failure.
 Opportunity recognition corresponds to the
principal activities that take place before a
business is formed or structured.
opportunity identification stages
1) Scanning the Environment/ Getting the Idea
2) Opportunity Identification
3) Opportunity Development-is the process of
combining resources to pursue a market
opportunity identified.
4) Opportunity Evaluation
 Business Idea Development
 A business idea is a short and precise description of
the basic operation of an intended business. There
are three types of business ideas. They are:
 Old Idea – Here an individual copies an existing
business idea from someone.
 Old Idea with Modification – In this case the person
accepts an old idea from someone and then modifies
it in some way to fit a potential customer’s demand.
 A New Idea – This one involves the invention of
something new for the first time
 Business Idea Identification
All business ideas are not equally worth, So it
needs clear identification of the firms.
Methods for Generating Business Ideas

1. Learn from successful business owners

2. Draw From Experience-your experience/other
peoples
3. Survey Your Local Business Area
4. Scanning Your Environment
Methods for Generating Business Ideas,,,

 It may be useful to think about business ideas by

considering all the resources and institutions in your
area. For example think about:
• Natural resources,
• Characteristics and skills of people in the local
community,
• Import substitution,
• Waste products,
• Publications,
• Trade fairs and exhibitions
Methods for Generating Business Ideas,,,

5. Brainstorming
7. Focus Group-Focus group is a group of
individuals providing information on a
structured format which is led by moderators. It
is characterized by an open and in depth
discussion: rather than simply asking questions
to solicit student response.
Methods for Generating Business Ideas,,,

8. Problem Inventory Analysis

It is similar to focus group to generate new
product ideas. The difference is rather than
generating new idea themselves, consumers are
provided with a list of problems in general
product category. It is a method of obtaining
“New Idea” and solutions by focusing on
problems.
 Business Idea Screening
• Idea screening is the process to spot good
ideas and eliminate poor one.
 To screen the business idea generated, three
approaches are discussed
• Macro screening: is aimed screening down
ideas to 10. And the common criteria are:
– Are my own competencies (see strength detector)
sufficient?
– Can I finance it to a large extent with my own
equity?
– Will people buy my product/service (i.e. is it
needed and can people afford it)?
 Three Approaches…
• Micro Screening: is aimed screening down
ideas into 3.
• The common criteria used for screening are:
– Solvent demand
– Availability of raw materials
– Availability of personal skills
– Availability of financial resources
 Three Approaches…
• Scoring the Suitability of Business Idea:
• This approach is most appropriate when deciding on
starting a business.
• When there are more than one possible business
ideas and one needs to decide which one to follow,
we use score business ideas (e.g., BI1, BI2, BI3) by
assigning a rating from 1 to 3 for each question, with
3 being the strongest.
• After we score the ideas we sum the total and
select the idea with the highest score.
 Concept of Business Plan
• Planning is the first and the most crucial step
for starting a business.
• A carefully charted and meticulously designed
business plan can convert a simple
idea/innovation into a successful business
venture.
 Concept…
• A business plan is a road map for starting and
running a business.
• A well-crafted business plan identifies
opportunities, scans the external and internal
environment to assess the feasibility of business
and allocates resources in the best possible way,
which finally leads to the success of the plan.
• It provides information to all concerned people
like the venture capitalist and other financial
institutions, the investors, the employees.
 Concept…
It provides information about the various
functional requirements (marketing, finance,
operations and human resources) for running a
business.
The objectives of a business plan are to:
Give directions to the vision formulated by
entrepreneur.
Objectively evaluate the prospects of business.
Monitor the progress after implementing the plan.
Persuade others to join the business.
Seek loans from financial institutions.
Visualize the concept in terms of market
availability, organizational, operational and
financial feasibility.
 Objectives…
Guide the entrepreneur in the actual
implementation of the plan.
Identify the strengths and weakness of the plan.
Identify challenges in terms of opportunities
and threats
Clarify ideas and identify gaps in management
information about their business, competitors
and the market.
 Objectives…
Identify the resources that would be required
to implement the plan.
Document ownership arrangements, future
prospects and projected growths of the
business venture.
 Developing a Business Plan
Business Planning Process

A plan, which looks very feasible at the first

instance, might actually not be when the
details are drawn.
Hence documenting the business plan is one of
the early steps that an entrepreneur should
take.
A successful entrepreneur lays down a step-
by-step plan that she/he follows in starting a
new business.
 Process…
• This business plan acts as a guiding tool to the
entrepreneur and is dynamic in nature – it
needs continuous review and updating so
that the plan remains viable even in
changing business situations.
• The various steps involved in business
planning process are discussed here below:
 planning process steps
1) Preliminary Investigation
Before preparing the plan entrepreneur should:
 Review available business plans (if any).
 Draw key business assumptions on which the plans
will be based (e.g. inflation, exchange rates, market
growth, competitive pressures, etc.).
 Scan the external environment and internal
environment to assess the strengths, weakness,
opportunities and threats.
 Seek professional advice from a friend/relative or a
person who is already into similar business (if any).
 Process…
2) Opportunity Identification and Idea
Generation
Entrepreneurship is not just limited to innovation
(generation of an entirely new concept, product
or service, but it also encompasses incremental
value addition to the concept/product/ services
offered to the consumer, shareholder and
employee).
 Process…
• Opportunity identification and business
idea generation is the first stage of business
planning process.
• It involves generation of new concepts, ideas,
products or services to satisfy demand.
 Process…
3) Environmental Scanning
is carried out to analyze the prospective strengths,
weakness, opportunities and threats of the business
enterprise.
Hence before getting into the finer details of setting up
business it is advisable to scan the environment both
external and internal and collect the information about
the possible opportunities, threats from the external
environment and strengths and weaknesses from the
internal environment
 Process…
4) Feasibility Analysis
Feasibility study is done to find whether the
proposed project (considering the above
environmental scanning) would be feasible or
not.
It is important to demarcate environmental
scanning and feasibility study at this point.
 Process…
• Environmental scanning is carried out to
assess the external and internal environment of
the geographical area/areas where,
entrepreneur intends to set up his business
enterprise, whereas feasibility study is carried
out to assess the feasibility of the project itself
in a particular environment in greater detail.
 Process…
5) Report Preparation
After environmental scanning and feasibility
analysis, a business plan report is prepared. It
is a written document that describes step-by-
step, the strategies involved in starting and
running a business.
Essential Components of Business Plan

I) Cover Sheet: Cover sheet is like the cover

page of the book.
It mentions the name of the project, address of
the headquarters (if any) and name and address
of the promoters.
 Components…
II) Executive Summary
A careful presentation of information should be done to
attract the attention of the evaluators. It should be in
brief (not more than two or three pages) yet it should
have all the factual details about the project that can
improve its marketability. It should briefly describe the
company; mention some financial figures and some
salient features of the project.
Generating interest in the minds of the readers is the
prime motive of the executive summary.
 Components…
III) The Business:
This will give details about the business concept. It
will discuss the objective of the business, a brief
history about the past performance of the company
(if it is an old company), what would be the form
of ownership (whether it would be a single
proprietor, partnership, cooperative society or a
company under company law). It would also label
the address of the proposed headquarters.
 Components…
IV) Funding Requirement: Since the investors and
financial institutions are one of the key bodies
examining the business plan report and it is one of the
primary objectives of preparing the business plan
report, a careful, well-planned funding requirement
should be documented. It is also necessary to project
how these requirements would be fulfilled.
Debt equity ratio should be prepared, which can give an
indication about how much finance would the company
require and how it would like to fund the project
 Components…
V) The Product or Services: A brief description
of product/services is given in this subsection. It
includes the key features of the product, the
product range that would be provided to the
customers and the advantages that the product
holds over and above the similar products/
substitute products available in the market. It
also gives details about the patents, trademarks,
copyrights, franchises, and licensing agreements.
 Components…
VI) The Plan: Now the functional plans for
marketing, finance, human resources and
operations are to be drawn.
1) Marketing Plan: Marketing mix strategies
are to be drawn, based on the market research.
 Product
 Price
 Promotion
 Distribution
 The plan…
2) Operational Plan: The operational plan would give
information about
(i) Plant location: why was a particular location
chosen? Is it in the vicinity of the market, suppliers, labor
or does it have an advantage of government subsidies for
that particular location or are there any other specific
reasons for choosing the particular location?
(ii) Plan for material requirements, inventory
management and quality control are also drawn for
identifying further costs and intricacies of the business.
Finally, the budget for operational plan is also drawn.
 The Plan…
3) Organizational Plan: The organizational
plan indicates the pattern of flow of responsibilities
and duties amongst people in the organization, it
provides details about the manpower plan that
would be required to put life into the business and it
would also enlist the details about the laws that
would be governed in managing the employees
of the organization.
In the end the organizational plan is also budgeted.
 The Plan…
• 4) Financial Plan: The financial plan is usually drawn for
two to five years for an existing company. For a new
organization the following projections are drawn:
• a) Projected Sales
• b) Projected Income and Expenditure Statement
• c) Projected Break Even Point
• d) Projected Profit and Loss Statement
• e) Projected Balance Sheet
• f) Projected Cash Flows
• g) Projected Funds Flow
• h) Projected Ratios
 The Plan…
• VII) Critical Risks: The investors are
interested in knowing the tentative risks to
evaluate the viability of the business and to
measure the risks involved in the business.
This can further give confidence to the
investors as they can calculate the risks
involved in the business from their
perspectives as well.
 The Plan…
• VIII)Exit Strategy: The exit strategies would
provide details about how the organization would
be dissolved, what would be the share of each
stakeholder in case of winding-up of the
organization. It further helps in measuring the
risks involved in investing.
• IX) Appendix: The appendix can provide
information about the Curriculum Vitae of the
owners, Ownership Agreement and the like.
 !!!!
You
ank
Th