Department of Management

Entrepreneurship

CHAPTER 2: BUSINESS PLANNING

2.1 INTRODUCTION
In the previous chapter, we dealt with the nature of Entrepreneurship. This unit will help you to understand
the concept of opportunity identification and evaluation, business idea development and how to prepare a
business plan. 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. The various sections and sub-sections of this chapter will also summarize
opportunity identifying and evaluating processes, business idea development process, and the feasibility
study, importance and preparation of a business plan.
Learning Objectives
At the end of the chapter students (learners) will be able to
 Understand how to identify business idea;
 Distinguish how generate and screen business idea;
 Differentiate components of business plan;
 Understand how to develop business plan.
2.2 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. The opportunity identification and evaluation stage can be divided into five main steps namely;
getting the idea/scanning the environment, identifying the opportunity, developing the opportunity,
evaluating the opportunity and evaluating the team.
I. Scanning the Environment/ Getting the Idea
While scanning the environment it may be provide you with idea and business opportunities. Idea is a
thought or suggestion about a possible course of action. Synonymous with “idea” are the terms thought,
intention, scheme, suggestion, proposal, initiative, spur, impulse, brainwave, insight, concept and
connotation. A business idea is a result of a new combination of knowledge, skills, and technology that
creates value. Moreover, a business idea is the initial vision that guides an entrepreneur in solving a problem
or addressing a market gap. The idea must have commercial potential, whether it’s a product, service, or a
unique approach.

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To get business ideas from your environment, start by identifying problems within your community that you
can solve with a new product or service. Pay attention to trends and shifts in behavior, as these can indicate
emerging opportunities. Technology can also offer ways to simplify tasks or improve efficiency, so keep an
eye out for tech-driven opportunities. Analyzing your competitors can help you find gaps or areas where you
can offer something different. You can also draw inspiration from local culture and traditions to create a
business that resonates with people. By observing your surroundings, spotting trends, and finding ways to
address needs, you can come up with creative business ideas.
II. Opportunity Identification
Opportunity identification is ability to see, to discover and exploit opportunities that others miss. It is the
process of seeking out better ways of competing. It includes scanning the informational environment, being
able to capture, recognize and make effective use of abstract, implicit and changing information from the
changing external environments. Opportunity is a favorable time or set of circumstances for doing
something. Synonymous with opportunity are chance, opening and prospect. A business opportunity is a gap
left in a market by those who currently serve it, giving a chance to others to add unrealized value by
performing differently from and better than competitors in order to create new possibilities.
Business opportunities are distinguished from ideas; an idea is not synonymous with opportunity. The
difference between an idea and an opportunity is that an opportunity is the possibility of occupying the
market with a specific innovative product that will satisfy a real need and for which customers are willing to
pay but idea is all about opinion about anything we can have. Successful venturing may well rest upon the
ability of an individual to recognize or distinguish an opportunity from an idea.
It is important for the entrepreneur to understand the cause of the opportunity. Is it technological change,
market shift, government regulation, or competition? These factors and the resulting opportunity have a
different market size and time dimension. The market size and the length of the window of opportunity
form the primary basis for determining risks and rewards which serves for opportunity evaluation.
Opportunity identification is a very difficult task, as most opportunities do not just appear but rather result
from an entrepreneur’s alertness to possibilities. In developing countries, problems may be changed to
business opportunities.
III. Opportunity Development
Having recognized the opportunity, timely adaptation of that opportunity to suit actual market need is key to
new venture success. Opportunity development is the process of combining resources to pursue a market
opportunity identified. This involves systematic research to refine the idea to the most promising high
potential opportunity that can be transformed into marketable items.

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IV. Opportunity Evaluation
Opportunity screening and evaluation is a critical element of the entrepreneurial process. A professional
executed evaluation can tell whether the specific product or service has the returns needed to justify the
investment and the risk to be taken.
Opportunity screening and evaluation is perhaps the most critical element of the entrepreneurial process, as it
allows the entrepreneur to assess whether the specific product or service has the returns needed for
the resources required. This evaluation process involves looking at the creation and length of the
opportunity, its real and perceived value, its risks and returns, its fit with the personal skills and goals
of the entrepreneur, and its differential advantage in its competitive environment. According to experts,
evaluating the opportunity must answer the questions listed in table 2.1 below:
Table 2.1: Business factors and questions for opportunity evaluation
Business factor Questions for evaluation
Product or Description of the product or service, its differentiator, purpose and the need it fills
Service o What competitive advantage / benefits does the product have?
o What is the required customer care support for this product/service?
o Is the company able to produce product and supply required aftercare support?
Market o Where is the market demand? What is the target market?
Opportunity o Industry characteristics (growth rates, change, entry barriers).
o What market share can the product reasonably expect today? In 5 or 10 years?
o Timing and length of the window of opportunity?
o What competition exists in this market? Substitutes? How big is their turnover?
o How accessible are the desired distribution channels?
Costing and o How much will it cost to develop the product and commercialize it?
Pricing o Where will the funds come from?
o How do the pricing, costs and economies of scale compare with competitors?
o How easy is it to acquire equipment, skills and other inputs required?
Profitability o Where is the money to be made in this activity? What are the gross margins?
o Would the return on investment be acceptable? What is the payback period?
o What are the cash flow patterns and the source of working capital?
Capital o How much capital (people, operating expense and assets) is required to start?
Requirements o What are the long-term capital needs?
o How much of the required capital is secured and where will the rest come from?
o What securities are available to guarantee the required funds?
o Is there a list of potential funders? In case the funders withdraw their capital?

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Business factor Questions for evaluation
Issues and risks o What risks (real and perceived) are inherent with the product/service?
o Industry based risks e.g. is the market on a decline?
o Are there plans for surviving the death of the lead entrepreneur?
o Unreliable forecasts? Inadequate cash flow?
o Inability to grow with the demand or cope with shrinking sales?
o Supplier and value chain management?

V. Assessment of the Entrepreneurial Team

Regardless of how right the opportunity may seem to be, it will not make a successful business unless it is
developed by a team with strong skills. Gartner et al (1999) advices that once the opportunity has been
evaluated, the next step is to ask relevant questions about the people who would run the company.
Table 2.2: Team factors and questions for opportunity evaluation
Team factor Questions for evaluation
Focus: o Is the founder really an entrepreneur, bent on building a company?
o Does the entrepreneur (or his team) have some experience (work or industry)?
o Do they really like this product/sector? Do they really want this?
o Can the team create products to suit that market need?
o How stressful is the opportunity for the team?
Selling: o Does the team have the necessary selling and closing skills?
Management: o Who will work full time? Do your managers represent competitive advantage?
o Does the team have the necessary management and technical skills?
o If the required skills are not available, can they be acquired at competitive rates?
o How is their relationship with the entrepreneur, commitment and motivation?
Ownership: o Have the critical decisions about ownership and equity splits been resolved?
o Are the members committed to these?
o Does the owners have enough financial capital for required own contributions?

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2.3 Business Idea Development
All new ventures begin with an idea. A business idea is a concept which can be used for commercial
purposes. A business idea is a short and precise description of the basic operation of an intended business. A
business idea is the response of a person or an organization to solving an identified problem or to meeting
perceived needs in the local environment (markets, community, etc.). It is the foundation of a business and
represents the starting point from which an entrepreneur can build a company. There are three types of
business ideas. They are:
A. Old Idea: Here an individual copies an existing business idea from someone. This is when an
entrepreneur uses an existing business idea that has already been proven in the market.
B. Old Idea with Modification: the entrepreneur takes an existing business idea and makes
improvements or modifications to it, often to better suit local preferences or market gaps.
C. A New Idea: This one involves the invention of something new for the first time
Many entrepreneurs start with modifying old ideas or creating new iterations of existing concepts. That way,
they can take advantage of existing demand while adding their unique twist.

2.4 Business Idea Identification

Before you start a business, you need to have a clear idea of the sort of business you want to run. Identifying
a good idea is the first step in transforming the entrepreneur‘s desire and creativity into a business
opportunity. Your business idea will tell you:
 Which need will your business fulfill for the customers and what kind of customers will you attract?
 What good or service will your business sell?
 Who will your business sell to?
 How is your business going to sell its goods or services?
 How much will your business depend upon and impact the environment?
Every successful business idea starts with understanding a customer’s need. Your business should be built
around providing a solution to a problem or fulfilling a desire that people are willing to pay for. The better
you understand the need your business addresses, the more likely you are to create a product or service that
resonates with your target audience. Moreover, depending on your skills and the needs of the customers, you
should decide which good or service your business will sell. Also, keep in mind that they must be goods or
services that people are willing to pay for and at a price that will allow you to make a profit.
Any business cannot succeed without customers. Therefore, it is essential that you know who your customers
will be. Will you sell to a specific type of customer or to everyone in an area? There must be enough people
who are able and willing to pay for your goods and services or the business will not survive.

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A good business idea will be compatible with the sustainable use of natural resources and will respect the
social and natural environment on which it depends. All business ideas are not equally worth. Therefore, to
identify promising business idea among others, it is important to answer the above raised questions.
2.4.1 Methods for Generating Business Ideas
When generating business ideas, it is best to try to keep your mind open to everything. Your first goal is to
think of as many ideas as possible and make a list of all the possible business opportunities. With a list, you
will have more choices! You then can scan the list and nail down the idea(s) that sound most feasible to you
and that you think will be most profitable.
There are many ways to come up with business ideas, such as surveying local businesses or asking existing
business owners. The information gained from one approach may supplement another and help you to clearly
describe your business ideas. Below, we will examine a few different approaches to generating business
ideas.
A. Learn from successful business owners
You can learn a lot from people in your area who have already gone through the process of establishing a
business. You should try to get the following information from them:
 What kind of idea did these businesses start with?
 Where did the ideas come from?
 How did they develop their ideas into successful businesses?
 How does the business profit and fit into the local environment?
 Where did they get the money to start their business?
B. Draw From Experience
Look at the list of your interests, your experiences and your networks. Are there any possible business
ideas that you can derive from your own past experience? Think about each type of experience.
 Your own Experience: What has your experience been as a customer in the market place? Have you
ever searched all day for some items that you could not find in any store in your area? Think about
the goods and services you have wanted at different times and that you have had difficulty finding.
 Other People’s Experience: The people around you are potential customers. It is important to
understand their experience trying to find goods and services that are unavailable or not exactly what
they need. Listen carefully to what these people say about their shopping experience. Ask your family
and friends about the things they would like to find that are not locally available. Expand your social
knowledge by talking to people from different age groups, social classes, etc.
C. Survey Your Local Business Area

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Another way of discovering business ideas is to look around your local community. Find out what type of
businesses are already operating in your area and see if you can identify any gaps in the market. If you live in
a village or small town, you may be able to identify all the fields of business in the whole town. Otherwise,
you may need to focus on the preferred business fields and business types that you identified. This is an
activity that will be much easier to do with a business partner or friend. Visit the closest industrial area,
markets and shopping centers in your area.
D. Scanning Your Environment
You can use your creativity to find more business ideas in your area. Look at the list of existing local
businesses. If the list has included most of the local markets, you may be able to learn about the industries or
service providers on which the local economy relies. To generate business ideas, scan your local
environment by considering:
 Natural Resources: Identify local resources (soil, agriculture, minerals, water) that can be
sustainably used to create products, ensuring long-term availability without harming the environment.
 Local Community Skills and Characteristics: Evaluate if people in your area have unique skills, if
there are recent graduates looking for jobs, or if local infrastructure can support your business.
 Waste Products: Look for opportunities to repurpose waste materials into valuable, marketable
products, helping reduce environmental impact while meeting business needs.
 Import Substitution: Investigate if you can locally produce goods that are currently imported,
potentially reducing costs and import duties.
 Publications: Use resources like the internet, newspapers, and classified ads to discover business
ideas and trends, including franchise opportunities.
 Trade Fairs and Exhibitions: Attend trade fairs related to your area of interest to explore new
business ideas and network with industry professionals.
E. Brainstorming
Brainstorming means opening up your mind and thinking about many different ideas. You start with a word
or a topic and then write down everything that comes to mind relating to that subject. You continue writing
for as long as possible, putting down things that you think of, even if they seem irrelevant or odd. Good ideas
can come from concepts that initially seem strange. Brainstorming works best in a group. Get your family,
friends or classmate together and ask them to help by writing down ideas they have when they hear the word
or subject matter.
F. Structured Brainstorming

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Structured brainstorming is when you think of the different processes that are involved in the operation of a
particular business and the goods/services that can be offered with respect to those processes. This is
different from thinking about random items related to a particular business field and type.
Try to think of all the businesses that are related to different aspects of a product:
 Those involved in production,  Those indirectly related (spin-offs),
 Those involved in the selling process,  Those involved in servicing,
 Those involved in recycling or re-using
materials,
As far as all brainstorming exercises are concerned, it is essential to recall the basic rules of
brainstorming: no criticizing or censoring of ideas, wild and turbulent sessions allowing the
uninterrupted flow of ideas, no interruption once the basic idea of the exercise has been introduced,
no shyness and no limitations.
G. 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. The moderator focuses the discussion in either directive or non-directive manner. It
is useful for both getting new idea on existing product or screening idea/concepts.
H. 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.
I. Free Association
One of the simplest methods that entrepreneurs can use to generate new ideas is free association. This
technique is particularly helpful in developing an entirely new slant to a problem. First, a word or phrase
related to the problem is written down, then another and another, with each new word attempting to add
something new to the ongoing thought processes, thereby creating a chain of ideas ending with a new
product/service idea emerging.
J. Forced Relationships
The Forced Relationships method of business idea generation is a creative technique that encourages you to
combine two seemingly unrelated ideas, industries, or concepts to uncover new opportunities. By forcing a
connection between things that don’t typically go together, this method can spark fresh, innovative business
ideas that might not have been considered otherwise. It is a technique that asks questions about objects or
ideas in an effort to develop a new idea.
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K. Attribute Listing
The Attribute Listing method is a systematic technique used to generate business ideas by breaking down a
product, service, or concept into its individual attributes or features. By examining these components
separately and considering how they could be modified or enhanced, entrepreneurs can uncover new
opportunities or improve existing offerings. Attribute listing is an idea-finding technique that has the
entrepreneur list the attributes of an item or problem and then look at each from a variety of viewpoints.
Through this process, originally unrelated objects can be brought together to form a new combination and
possibly a new product/service that better satisfies a need.

2.5 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 as follow:
I. Macro screening: is aimed screening down ideas to 10. And the common criteria are:
 Are my own competencies 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)?
II. Micro Screening: is aimed screening down ideas into 3. The common criteria used for screening are:
 Demand  Availability of personal skills
 Availability of raw materials  Availability of financial resources
III. 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.
S. No Questions BI1 BI2 BI3
1. Are you familiar with the operations of this type of business?
2. Does the business meet your investment goals?
3. Does the business meet your income goals?
4. Does the business generate sufficient profits?
5. Do you feel comfortable with the business?
6. Does your family feel comfortable with the business?
7. Does the business satisfy your sense of status?
8. Is the business compatible with your people skills?
9. Is there good growth projected for the overall industry of the business?

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10. Is the risk factor acceptable?
11. Does the business require long hours?
12. Is the business location-sensitive?
13. Does the business fit your personal goals and objectives?
14. Does this business fit your professional skills?
Totals

Notes: while to answer the above listed questions it is important to conduct survey. Collecting
information on your business idea gives you an opportunity to promote your business idea and to present
yourself as a potential entrepreneur. While to answer the above questions, there are four important
groups that you should talk to:
 Potential customers: Their views are essential to your understanding of whether or not your
proposed product is important to them and if you need to modify your idea to meet their needs.
 Competitors, suppliers and entities with financial resources: Their views will reveal the
challenges of competition that you would face, as well as other issues related to your potential
business.
 Financial institutions: Find out the lending requirements to determine whether borrowing for a
new business is possible.
 Key informants and opinion leaders: These are people who would know a lot about the type and
field of business you want to go into and/or a lot about your potential customers. Their views
would give you a lot to think about and could also give you a better insight into the feasibility of
your business idea.
When you have completed the summary of your business idea, you can go on to the next step to start
your own business: Prepare a business plan for the proposed business.

2.6 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.
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

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investors, the employees. It provides information about the various functional requirements (marketing,
finance, operations and human resources) for running a business.
A business plan is the blueprint of the step-by-step procedure that would be followed to convert a
business idea into a successful business venture. A business plan first of all identifies an innovative idea,
researches the external environment to list the opportunities and threats, identifies internal strengths and
weakness, assesses the feasibility of the idea and then allocates resources (production/operation, finance,
human resources) in the best possible manner to make the plan successful.
The objectives of a business plan are to:
F Give directions to the vision formulated by entrepreneur.
F Objectively evaluate the prospects of business.
F Monitor the progress after implementing the plan.
F Persuade others to join the business.
F Seek loans from financial institutions.
F Visualize the concept in terms of market availability, organizational, operational and financial
feasibility.
F Guide the entrepreneur in the actual implementation of the plan.
F Identify the strengths and weakness of the plan.
F Identify challenges in terms of opportunities and threats
F Clarify ideas and identify gaps in management information about their business, competitors and
the market.
F Identify the resources that would be required to implement the plan.
F Document ownership arrangements, future prospects and projected growths of the business
venture.
2.7 Developing a Business Plan

2.7.1 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. As
discussed above, the successful entrepreneur lays down a step-by-step plan that she/he follows in
starting a new business. 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:
I. Preliminary Investigation

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Before preparing the plan entrepreneur should:
F Review available business plans (if any).
F Draw key business assumptions on which the plans will be based (e.g. inflation, exchange rates,
market growth, competitive pressures, etc.).
F Scan the external environment and internal environment to assess the strengths, weakness,
opportunities and threats.
F Seek professional advice from a friend/relative or a person who is already into similar business.
II. Opportunity Identification and Idea Generation
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.
III. Environmental Scanning
Once a promising idea emerges through idea generation phase the next step is environmental scanning,
which 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.
IV. Feasibility Analysis
Feasibility study is done to find whether the proposed project (considering the above environmental
scanning) would be feasible or not. It is an analysis and evaluation of a proposed project to determine if
it (1) is technically feasible,(2) is feasible within the estimated cost, and (3) will be profitable. It can also
be called feasibility analysis or cost benefit analysis. Feasibility study is carried out to assess the
feasibility of the project itself in a particular environment in greater detail.
Importance of feasibility study
 Explore the viability of alternative business concepts
 Assess the likelihood of transforming an idea into successful business venture
 Helps avoid unnecessary waste of resources.
 Avoid launching a business that is likely to fail
V. 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.

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2.7.2 Essential Components of Business Plan
I) Cover Sheet: The cover of the document is often the "First Impression" of a business for any
interested parties or investors. The purpose of a cover is to tell the reader what the document is
about. It mentions the name of the business, company logo (if any), founder’s name, address and
other contact information.
II) Executive Summary: An executive summary is one of the most important sections of a
business plan. It serves as the impression that potential investors, partners, or lenders will have of
your business, offering a concise overview of the entire plan. A well-crafted executive summary
outlines the key components of the business and gives readers a snapshot of what the company
does, its mission, and the opportunity it presents. 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.
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. It would also label the address of the proposed
headquarters.
The business description should include:
 An overview of the industry the business will be in.
 A description of the company.
 The company's positioning.
 Descriptions of the company's products or services.
 The company's pricing strategy.
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.

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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 is best to write product and service descriptions so
that general public can understand them. The entrepreneur should include a summary of any
patent, trademarks, or copyrights protecting the product or service from infringement by
competitors. Finally, the owners should honestly compare the company’s product or service with
those of competitors, citing specific advantages or improvements that make his goods or services
unique and indicating plans for creating the next generation of goods and services that will evolve
from the present product line.
VI) The Plan: Now the functional plans for marketing, finance, human resources and operations are
to be drawn.
A. Marketing Plan: Marketing plays a vital role in successful business ventures; hence it should
be the crucial concern of entrepreneurs. Every entrepreneur must, therefore, describe the
company’s target market and its characteristics. Marketing mix strategies are to be drawn,
based on the market research. The marketing plan comprises the following:
 Competition: An entrepreneur should discuss the new venture’s competition. Gathering
information on competitors’ market shares, products, and strategies is very important for
the success of a business. Trade associations, customers, industry journals, marketing
representatives, and sales literature are valuable sources of data. This section of the plan
should focus on demonstrating that entrepreneur’s business has an advantage over its
competitors.
 Pricing: your pricing strategy is another marketing technique you can use to improve
your overall competitiveness. What does the product or service cost to produce or
deliver? What is the company’s overall pricing strategy? What image is the company
trying to create in the market? Will the planned price support the company’s strategy and
desired image? Can it produce a profit? How does the planned price compare to those of
similar products or services? Are customers willing to pay it? What price tiers exist in the
market? How sensitive are customers to price changes? Will the business sell to
customers on credit?
 Promotion: Once an entrepreneur defines his company’s target market, he can design a
promotion and advertising campaign to reach those customers most effectively and

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efficient. Advertising and promotions, is the lifeline of a business and should be treated
as such.
B. 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.
C. 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.
D. Financial Plan: The business plan needs to provide as clear and precise a picture possible of
your company’s financial condition. 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 e) Projected Balance Sheet
b) Projected Income and Expenditure f) Projected Cash Flows
Statement g) Projected Funds Flow
c) Projected Break Even Point h) Projected Ratios
d) Projected Profit and Loss Statement
Here is some detail about the financial statements:
 Cash Flow Statement: A cash flow statement shows readers of the business plan how much money
will be needed, when it will be needed, and where the money will come from. In general terms, the
cash flow statement looks at cash and sources of revenue minus expenses and capital requirements to
derive a net cash flow figure. This is done with respect to a given time frame. Initial cash flow
statements should reflect the time frames of operation, whether weekly, monthly, or quarterly. The
time frame selected most often corresponds to a natural period of the businesses cycle.
 Balance Sheet: Unlike other financial statements a balance sheet is created only once a year to
calculate the net worth of a business. If your business plan is for a start-up business, you will need to
include a personal balance sheet summarizing your personal assets and liabilities. A new business
almost always requires the strength of personal financial commitments. Proving that the entrepreneur

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can keep commitments is important. If the business exists already, include several of the past years
balance sheets.
 Income Statement: The income statement is where a planner makes a case for the business potential
to generate cash. This document is where the writer records revenue, expenses, capital, and cost of
goods. The outcome of the combination of these elements demonstrates how much money a business
made or will make, or lost or will lose, during the year. An income statement and a cash flow
statement differ in that an income statement does not include details of when revenue was collected
or expenses paid.
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.
Knowing your risks helps one have ready-made solutions.
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.

2.7.3 Guidelines to remember

These guidelines are presented as tips for successful business plan development. Entrepreneurs need to
adhere to them in order to understand the importance of the various segments of a business plan they are
creating, which will be discussed in the next section.
Keep the plan respectably short: Readers of business plan are important people who refuse to waste time.
Therefore entrepreneurs should explain the venture not only carefully and clearly but also concisely.
Organize and package the plan appropriately: A table of contents, an executive summary, an appendix,
exhibits, graphs, proper grammar, a logical arrangement of segments, and overall neatness are elements
critical to the effective presentation of a business plan
Orient the plan toward the future: Entrepreneurship should attempt to create an air of excitement in the plan
by developing trends and forecasts that describe what the venture intends to do and what the opportunities
are for the use of the product or service.
Avoid exaggeration: Sales potential, revenue estimates, and the venture’s potential growth should not be
inflated. Many times a best-case, worst-case, and probable-case scenario should be developed for the plan.
Documentation and research are vital to the plan’s credibility.

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Highlight critical risks: The critical-risks segment of the business plan is important in that it demonstrates
the entrepreneur’s ability to analyze potential problems and develop alternative courses of action.
Do not over diversify: Focus the attention of the plan on one main opportunity for the venture. A new
business should not attempt to create multiple markets nor pursue multiple ventures until it has successfully
developed one main strength.
Keep the plan written in the third person: Rather than continually stating “I” “we,” or “us,” the entrepreneur
should phrase everything as “he,” “they,” or “them.” In other words, avoid personalizing the plan, and keep
the writing objective.
Capture the reader’s attention: Because of the numerous business plans submitted to investors and the small
percentage of business plans funded, entrepreneurs need to capture the reader’s interest right away by stating
the uniqueness of the venture. Use the title page and the executive summary as key tools for capturing the
reader’s attention and creating a desire to read more.

Business plan outline for Micro and Small Enterprises

Executive summary 2.11 Cost of Raw Materials

1. Brief Description of the Project 2.12 Raw Materials Availability
2. Brief Profile of the Entrepreneur 2.13 Labor
3. Project's Contributions to the Economy 2.14 Cost of Labor
1. Sales and Marketing 2.15 Labor Availability
1.1 Product description 2.16 Labor Productivity
1.2 Competitors' 2.17 Factory Overhead Expenses
1.3 Location 2.18 Production Cost
1.4 Market Area 3. Organization and Management
1.5 Main Customers 3.1 Form of Business
1.6 Total Demand 3.2 Organizational Structure
1.7 Market Share 3.3 Business Experience and Qualifications of the
1.8 Selling Price Entrepreneur
1.9 Sales Forecast 3.4 Pre-Operating Activities
1.10 Promotional Measures 3.5 Pre-Operating Expenses
1.11 Marketing Strategy 3.6 Office Equipment
1.12 Marketing Budget 3.7 Administrative Expenses
2. Production 4. Financial plan

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2.1 Production Process 4.1 Project Cost

2.2 Fixed Capital 4.2 Financing Plan and Loan Requirement
2.3 Life of Fixed Capital 4.3 Security for Loan
2.4 Maintenance and Repairs 4.4 Profit and Loss Statement
2.5 Sources of Equipment 4.5 Cash Flow Statement
2.6 Planned Capacity 4.6 Balance Sheet
2.7 Future Capacity 4.7 Loan Repayment Schedule
2.8 Terms and Conditions of Purchase of Equipment 4.8 Break-even Point (BEP)
2.9 Factory Location and Layout 4.9 Return on Investment (ROI)
2.10 Raw Materials Needed 4.10 Financial Analysis

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