A Guide on Starting MSME in India - Part IV

Preparing a business plan

A business plan is the formal written term of the entrepreneurial vision, describing the strategy and operations of the proposed venture. The purpose of the plan is to enable the top executives of the firm to think about their business in a comprehensive way, to communicate their objectives to individuals who may have a stake in the firm's future, to have a basis for making decisions, and to facilitate the planning process.

A detailed project report is an operating document. It consists of general information, preliminary analysis of alternatives, project description, marketing plan, capital requirements and costs, operating costs and requirement, financial and economic analysis and other aspects pertaining to the project. But for securing initial sanctions, permits, licenses and financial assistance, securing land and building, etc a project profile is sufficient. A project profile is a brief format of the project report.

A Business Plan/Project Report submitted should include the following information:

1. Description of the project.

2. Promoters, Management and Technical Assistance:

• Detailed Biodata of promoters including financial information.
• Proposed management arrangements.
• Description of technical arrangements (management, production, marketing, finance etc.).

3. Market and sales:

• Basic market orientation: local, national, regional, or export.
• Projected production volumes, unit prices, sales objectives, and market share of proposed venture.
• Potential users of products and distribution channels to be used. Present sources of supply for products.
• Future competition and possibility that market may be satisfied by substitute products.
• Tariff protection or import restrictions affecting products.
• Critical factors that determine market potential.

4. Technical feasibility, manpower, raw material resources, and environment:

• Brief description of manufacturing process.
• Comments on special technical complexities and need for know-how and special skills.
• Possible suppliers of equipment.
• Availability of manpower and of infrastructure facilities (transport and communications, power, water, etc.).
• Breakdown of projected operating costs by major categories of expenditures.
• Source, cost, and quality of raw material supply and relations with support industries.
• Import restrictions on required raw materials.
• Proposed plant location in relation to suppliers, markets, infrastructure and manpower.
• Proposed plant size in comparison with other known plants.
• Potential environmental issues and how these issues are addressed.

5. Investment requirements, project financing, and returns:

• Estimate of total project cost, broken down into land, construction of buildings and civil works, plant and machinery, miscellaneous fixed assets, preliminary and preoperative expenses and working capital.
• Proposed financial structure of venture, indicating expected sources and terms of equity and debt financing.
• Type of financing (loan, equity, quasi-equity, a combination of financial products, etc.) and amount.
• Projected financial statement, information on profitability, and return on investment.
• Critical factors determining profitability.

6. Government support and regulations:

• Project in context of government economic development and investment program.
• Specific government incentives and support available to project.
• Expected contribution of project to economic development.
• Outline of government regulations on exchange controls and conditions of capital entry and repatriation.

7. Timetable envisaged for project preparation and completion.

Project Proforma

Every Business Plan should have a cover page, which includes:

The Company's name, address, telephone, fax, e-mail, website address, if any. The simpler the access to the entrepreneur's contact details, the more likely the contact will take place.

The name and designation of the contact person - who should be one of the top executives of the enterprise and one who is familiar with and was part of the team that formulated the business plan and will be able to answer any queries relating to the business plan.

Names of organizations from where funding is being sought.

The Company's logo - every company being established should have a logo in place, which could be an image, design or picture representing the company's ideology pictographically.

Table of Contents

Once the cover page has been made, a formal table of contents must be written for easy navigation to the rest of the plan, by numbering each section.

Executive Summary

The executive summary is the most important part of a business plan, especially to the investors. Most investors do not go beyond the executive summary, as they have too many plans to read. So make sure that your executive summary is able of conveying clearly and succinctly exactly what you want your investors to read.

The summary should include:

Kind of Business - a brief description of the industry your firm is focusing on.

Profile of the company's management - listing the names of top executives and their qualifications and industry experience.

Financial requirements - briefly state how much finance is required. Also make sure you indicate the degree of flexibility you are willing to show in case the investor suggests any changes in your plan. This will allow the investor to consider your plan with few changes rather than rejecting your plan outright due to rigidity on your part

Budget allocations - the financial section of the business plan should be able to explain how you will be using the finance.

Development and Production

Detail the stages of development and production of your product/service, spelling out how time and money will be allocated at each stage.

Resource Requirement

Analyse the type of resources required at each stage of production such as financial, human, physical, technological, etc.

Quality - Discuss the quality control measures to be put into place by your firm to ensure the quality of the product/service.

Marketing - Once again underscore the market potential for your product by describing your product's exclusivity; describe how it will exploit your competitor’s weaknesses.

Identify the target market which should be substantiated by a thorough market research.

Once the target market has been identified, focus on the communication strategy including advertising, branding, packaging etc. Like always list the costs involved for each segment of marketing.

Sales Forecast - Sales forecast is primarily dependent on three factors - size of the market, fraction of the market you will be able to capture as a result of your marketing strategy and the pricing strategy.

Financial Plans - A new venture must show projected profit and loss statements and cash flow statements.

Human Resources - Make an organisation chart with details of key executives and profiles of individuals likely to be hired.

Form of Business - Describe the legal form of your business - whether it is a sole proprietorship or a partnership, public limited co. etc.

Critical Risks - As a legal and moral obligation, the entrepreneur must in the business plan envision risks the investor would be undertaking in case he makes a choice to invest in your business. This will protect you from civil and criminal liability.

Conclusion - Briefly once again point out the highlights and key features of your business plan. Also mention the time schedules against each stage of your venture. Along with your business plan make sure to support your document with flow charts, photographs, market surveys, sample brochures, advertisements, tax returns, resumes of board members, letters of recommendations etc. All this should form a part of appendixes.

Summary

The essential elements of the plan are generally recognized. The preliminary sections set the stage for the reader. Make the first impression professional, concise, and informative because the reader may spend only a few minutes reviewing each plan.

Entrepreneurs should undertake the task of preparing the business plan personally. Although outsiders like consultants, accountants, lawyers could be approached for their advice and expertise, entrepreneur should be responsible for the writing.