Business Plan

BUSINESS PLAN
PROJECT REPORT SIGNIFICANCE AND SCOPE Project report is called as pre-investment feasibility report

It provide the answer to the question

How the business will achieve the stated goals? When the business will would reach the optimal activity level generating financial surplus? Who, will buy, how much they will buy, and why would they buy?

SUMMARY OF THE BUSINESS PLAN

Summary Introduction About the Promoter About the Project About the location Land and building Plant and machinery Miscellaneous Assets Production Process Production Programme Raw Material Personnel Market Working Capital Requirement Requirement of Funds Cost of Production & profitability Cash Flow Statement Break-even Analysis Implementation Schedule

PRODUCT / SERVICE DESCRIPTION

CAPACITY
Specify the number of days your enterprise will work in a year Number of shifts, on average your enterprise will work everyday

Cont.
LOCATION CRITERIA AND CHECKLIST

Basic considerations
Location, population, climate, connection to cities, distance Physical Infrastructure Position Land, existence of organised industrial estate, water supply, street lighting, Commercial Infrastructure Position Telecommunication, postal, banking facility, transport operator facility

Cont.
Financial Incentives Position Subsidy, income tax, sales tax exemption, interest free loans Site-specific Considerations Proposed site is a part of an organised industrial estate, non-agricultural sectors

PLANT MACHINERY SPACE CONSIDERATIONS

It is necessary to identify the complete range of machines and equipments required to carry out manufacturing auxiliary operations and to specify the capacity and technical features of individual machines Machinery List Old Machinery Identification of Sources of Machinery Dies, Spares, and Extras Machinery Supplier Selection Space Consideration

Cont.
It is essential to visualise the built-up area separately for the following purposes Production, auxiliary Service, Administration, Godown, Miscellaneous non-functionary purpose, Tanks, wells, etc

TECHNICAL FEASIBILITY AND KNOW-HOW

SCOPE OF TECHNICAL ARRANGEMENTS Laying down the manufacturing process Working out the specifications of plant and machinery, identifying possible source of supply Preparing factory layout plan and assessing the built-up area requirement Selecting location site Estimating raw material and utility Coping with anti-pollution law

RAW MATERIALS

Identify along with specification the requirement of raw material Analyse the loss of raw material at each stage Identify the chemical and the storage facility Workout the bulk requirement of raw materials, chemicals and packaging materials Identify the purchase from whom the raw materials can be consumed

cont
Identify the raw materials that has to be imported Ascertain the price of various raw materials Search for possibility of purchasing the raw material in credit Calculate the supply time and store optimal quantity of raw materials Identify the price control and distribution control of raw materials Look out for loss of raw materials in transit or storages

WORKING CAPITAL COMPUTATION A CHECKLIST

The banks extends credit against the following components

Raw Materials Goods in Process Stores, Spares, Consumables, Packing Materials Finished Goods Stocks Services & its Components

Banks does not give credit against wage and salary utilities
In the tourism sector some businesses generate cash flow from the day one while others take a considerable time Inadequate estimates can lead to cash flow problem from day one and one must look at the time factor a positive cash flow

PROJECT COST COMPONENTS Various cost components of the projects are as follows Site Development

Building and Civil Works

Plant and Machinery

Other Fixed Assets

Technical Know- how fees Preliminary and Pre-operative expenses Working Capital Margin Contingency and Escalation

Contd.

COST OF PRODUCTION AND PROFITABILITY PROJECTION While estimating cost of production and profitability, assumptions are to be explicitly stated Preparing the cost of production and profitability statements must be done to suit the nature of the business CASH FLOW STATEMENT
Entrepreneurs must concentrate on cash inflow and cash outflow rather than profit Cash inflow indicates how much money is coming into business from where and when Cash outflow indicates how much money is going out of business to where and when

BREAK - EVEN ANALYSIS

To what extent a business can afford to curtail its activity level due to a variety of compulsions and yet manage to meet all its liabilities
FIXED COSTS Fixed Cost is the cost which do not vary with other factors in production level VARIABLE COSTS Variable Cost is variable with the level of production. Variable cost is directly related to the quantity of output CAPACITY UTILISATION INDICATOR At what percentage of installed capacity the venture must operate to reach the Break-Even Point level of Production FIXED COST BEP = -------------------------------------------- * 100 SALES REVENUE - VARIABLE COST

Contd.

SALES REVENUE INDICATOR Break-even Point in terms of sales Revenue could be calculated using the following two ways Contribution -----------------------------Sales

P/ V RATIO =

Break Even Sales Revenue

Fixed Cost = -------------------------P/V Ratio

IMPLEMENTATION SCHEDULE Implementation schedule is very essential

Steps must be decided before starting up of commercial production Appreciate the inter-dependence among these steps to avoid chain effect of delay in one step will hamper other steps Work out a calendar for bringing in your own funds for implementation

Cont.
POINTS TO BE KEPT IN MIND FOR FORMULATING IMPLEMENTATION SCHEDULE You will like to carry out tasks involving capital expenditure only after term-loan is sanctioned Some task are sequential, some are not sequential and can be carried out simultaneously Implementation progress is not entirely in your hands

COMMON ERRORS IN BUSINESS PLAN FORMULATION

The main errors in business plan formulation are Capacity Utilisation Estimates Capacity Computation Market Study Machinery Selection Technology-Oriented Products Project Pruning and Resource Staining Project Cost Location Selection Selling Price Cash flow in Initial Years