Q.2 Mr. Nandankumar wants to start a business of his own. He is seeking advice from a consultancy firm on how to go about it. If you were an employee of this consultancy firm, how would you guide him in preparing a business plan that would suit Nandankumar’s business? (10 marks)
Creating Nandakumar’s Business Plan
It is also important to establish a timeline for completing the plan. A business plan can be completed by one staff member working full time in as little as a week, although a thorough market analysis will add several days at least. A committee will probably need much more time. Combinations of staff, volunteers, consultants and a board committee may lengthen or shorten the process depending on skill level, available time, experience with planning and research, and the group’s facilitation needs. Now that you have decided who will put together your business plan and have set a timeline for its completion, you are ready to begin assembling the elements of the plan. Your business plan should contain the following sections:
• Executive summary
• Company and product description
• Market description
• Operations
• Management and ownership
• Financial information and timeline
• Risks and their mitigation
A solid business plan will clearly explain the business concept, describe the market for your product or service, attract investment, and establish operating goals and guidelines.
Executive Summary
In this section of your business plan, provide a description of your company, the industry you will be competing in, and the product or service you plan to offer.
Sell your concept! The executive summary may be the first and only section of your business plan that most of your audience will read. Tell the audience why the business is a great idea. Some readers will look at this section to determine whether or not they want to learn more about a business. Other readers will look to the executive summary as a sample of the quality and professionalism of the overall plan. The executive summary should be no more than one to three pages long and should answer the following questions:
• Who are you? (describe your organization)
• What are you planning? (describe the service or product)
• Why are you planning it? (discuss the demand and market for the service or product)
• How will you operate your business?
• When will you be in operation? (overview of timeline)
• What is your expected net profit? (discuss your projected sales and costs)
Although the executive summary is the first part of your business plan, you should write it after you have written the other sections of the plan in order to include the most important points of each section.
Company and Product Description
In describing your company be sure to include what type of business you are planning (homeownership development, wholesale, retail, manufacturing
or service) and the legal structure (corporation or partnership). You should discuss why you are creating this new venture, referencing the goals you set at the beginning of the business planning process. Also include a description of your non-profit organization, the role it has played in developing this new venture and the on-going role, if any, it will play in operations. Give the reader a brief overview of the industry, describing historic and current growth trends.
Whenever possible, provide documentation or references supporting your trend analysis such as articles from business-oriented newspapers and magazines, research journals or other publications. Include these references in the attachments of your business plan.
Product or Service
After describing your company and its industry context, describe the products or services you plan to provide. Focus on what distinguishes your product or service from the rest of the market. Discuss what will attract consumers to your product or service. Provide as much detail as necessary to inform the reader about the particular characteristics of your product that distinguish it from its competition – many nonprofits, for example, expect to produce higher-quality housing than otherwise exists in the area. Mention any distinctive elements in the manufacture of the product, such as being “hand-made by a particular people from a specific area.” If you are providing a service, explain the steps you will take to provide a service that is better than your competition.
Price
Provide a realistic estimate of the price for your product or service, and discuss the rationale behind that price. An unrealistic price estimate may undermine the credibility of your plan and raise concerns that your product or service may not be of sufficient quality or that you will not be able to maintain profitability in the long run. Describe where this price positions you in the marketplace: at the high end, low end or in the middle of the existing range of prices for a similar product or service.
In other sections of the plan you will discuss the target market for your product or service and also provide additional details on how the price of your product fits into the overall financial projections for the enterprise.
Place
Describe the location where you will produce or distribute your product or provide your service. Discuss the advantages of the location, such as its accessibility, surrounding amenities and other characteristics that may enhance your business.
Depending on your anticipated customer base, accessibility to your location via public transportation could affect the marketability of your product or service.
Customers
In this section of your business plan, you will describe the customer base or market for your product or service. In addition to providing a detailed description of your customer base, you will also need to describe your competition (other local developers or nearby businesses providing a similar service to your potential customer base).
Who will purchase your product or use your service? How large is your customer base? Define the characteristics of your target market in terms of its:
• Demographics – Measures of age, gender, race, religion and family size.
• Geography – Measures based on location.
• Socioeconomic Status – Measures based on individual or household annual income.
Provide statistical data to describe the size of your target market. Sources for this information may include recent data from the Bureau of Statistics, state or local census data, or information gathered by your organization, such as membership lists, neighborhood surveys and group or individual interviews. Be sure to list the sources for your data, as this will further validate your market assumptions. Include any relevant information regarding the growth potential for your target market if your business is expected to rely on growth. Cite any research forecasting population increases in your target market or other trends and factors that may increase the demand for your product or service.
Competition
Discuss how people identified in your target market currently meet their need for your product or service. What other businesses exist in your area that are similar to your proposed venture? For example, for a housing business, what are the local markets for purchase and rental? How much are people currently paying for similar products or services? Briefly describe what differentiates your proposed venture from these existing businesses and discuss why you are entering this market.
Sales Projections
Present an estimate of how many people you expect will purchase your product or service. Your estimate should be based on the size of your market, the characteristics of your customers and the share of the market you will gain over your competition. Project how many units you will sell at a specified price over several years. The initial year should be broken down in monthly or quarterly increments. Account for initial presentation and market penetration of your product and any seasonal variations in sales, if appropriate.
Market Description
In this section, you will describe how you plan to operate the business. You will present information on how you plan to create your product or provide your service, describe the staff required to operate and manage the business, discuss the equipment and materials necessary, and define the site or facility requirements, if any. A key component of the operation of your business will be your sales and marketing strategy, so you must describe how you will inform your target market about your product or service and how you will convince customers to purchase it.
Production Description
Describe the steps for creating your product, from the raw material or initial stage to the finished product, packaged and ready for distribution and sale. If you plan to provide a service, describe the process of service deliver (such as the initial interview, for instance, if you are offering consulting services), assessment, research and design, and final presentation. Provide a description of any sub-contractors or external services you plan to use in the production process. The reader of the plan may be unfamiliar with the industry, so avoid using industry jargon to describe the production process.
Staffing
Describe the staff required to operate your business: discuss how many people you will need; describe the tasks they will carry out; and the skills they will need. Prepare a chart outlining the salaries and benefits you will provide to your workforce. Provide information on how you will recruit staff and provide initial and ongoing training of employees.
Equipment and Materials
To manufacture your product or provide your service, what type of equipment will you need? Describe any machinery and vehicles necessary in the production, packaging and distribution of your product, including any office equipment such as computers, copiers, furniture, fixtures and telephone systems. Also discuss the types of materials you will use in the production process and describe the source and cost of those materials.
Facility
Describe the type of facility in which you will house your business. Indicate the amount of building space you will need for production and administration. Also discuss any building features required for the production process such as high ceilings, specialized ventilation and heating systems, sanitized laboratory space or vehicular accessibility. If you have already identified a location and a facility that meets your requirements, describe its features. Even if you are planning to provide a service instead of manufacturing a product, you need to demonstrate that you will have adequate space for administrative functions and other activities related to the service you plan to provide.
Market Description
Describe your strategy for locating your target market, informing or educating customers about your product or service and convincing them to purchase it. Provide details on the methods you will use to advertise your product, such as print media (advertisements in newspapers, magazines or trade journals), electronic media (television, radio and the Internet), direct mail, telemarketing, individual sales agents or representatives, or other approaches. Discuss the product’s or service’s features you plan to emphasize to gain the attention of your target market. Also detail how you will distribute and sell your product or service. Will you use sales agents or existing retail outlets, or directly distribute your product through a delivery service such as United Parcel Service, Federal Express or independent trucking company?
Operations
In this section of your business plan, describe the senior managers responsible for overseeing the start-up and operation of your business, their background and their responsibilities in the business. Be sure to highlight your management team’s experience in managing the production, marketing and administration of similar businesses or within the selected industry and attach the resumes of each member to the plan. Be sure to provide a complete job description of any vacancies in your management team. Describe the responsibilities, the skills, the background required and the steps you plan to take to fill that key position.
Ownership
What is its relationship to your existing organization? Who is on the board of directors / board of advisors of the new business and what are their backgrounds and areas of expertise? Potential investors or lenders will be interested in the ownership stake of the board of directors and also in what portion of the company’s equity is available. Success is often due to one’s contacts, so fully describe your business relationships with attorneys, accountants and advertising or public relations agencies, and any industry-specific services such as suppliers and distributors.
Management and Ownership
In this section you will describe the financial feasibility of your planned venture and provide several financial reports and statements to document why your business will be a viable enterprise and a sound investment. At a minimum, you should provide a brief descriptive narrative for each of the following financial statements and include a copy in the attachments to your plan:
• Start-up budget
• Cash flow projection
• Income statement
• Balance sheet
In preparing these statements, you may want to seek the advice of a certified public accountant (CPA).
Start-up Budget
Describe the initial expenses you will incur to get your business up and running. Some items you might include in your start-up budget research and product design and development expenses, legal incorporation and licensing expenses, facility purchase or rental, equipment and vehicle purchase or rental, and initial material or supply purchase. You can use Worksheet B as a sample format for preparing your start-up budget.
Cash Flow Projection
This statement presents a month-to-month schedule of the estimated cash inflows and outflows of your business for the first year. This schedule should indicate how much money your business will have or need and when you will need it. You should describe your sources of income and capital, detailing your projected sales revenue and indicating your own or investor equity contribution, lenders, investors and other sources of capital. Itemize your projected expenses, distinguishing between the cost of goods sold (materials, supplies, production labor), overhead expenses (rent, utilities, insurance, maintenance, interest, insurance, administrative costs and salaries, legal and accounting services, marketing, taxes, fees and other ongoing operating expenses) and capital expenditures (land and buildings, equipment, furniture, vehicles, and building repair or renovation expenses). In preparing this statement, account for a gradual increase in sales from initial product introduction and any expected seasonal fluctuations in revenue projections.
Income Statement
Prepare a multiyear (three- to five – year) statement of projected revenue, expenses, capital expenditures and cost of goods sold. If you make assumptions about the growth of your business, provide supporting documentation such as growth patterns of similar companies or studies that forecast an industry-wide growth rate. This statement should indicate to the reader the potential of your business to generate cash and its profitability over time. For an existing business, also submit an income statement for at least three prior consecutive years. Lenders may look at this statement to determine whether your business can support the additional debt you are requesting.
Balance Sheet
A start-up business probably will not have any assets or liabilities at the time you are drafting the business plan. Provide a copy of the balance sheet of the business’s sponsoring organization or individual. Describe in your narrative any assets that will be allocated to the start-up of the business.
Financial Information and Start up Timeline
Capital Requirements
Describe the amount and type of financing you are seeking for your business. Are you looking for debt from a lender or equity from an investor? Refer to your start up budget and cash flow statement presented earlier. Discuss how and when you will draw on these funds and how they will affect the bottom line. Also describe any commitments or investments that you may have already secured.
If you are seeking investors, such as venture capitalists, describe what they will receive in return for their capital. What is the repayment period and the expected return on investment? Also discuss the nature of their ownership share and how it may change with future investments. Equity investors are looking for rates of return higher than rates offered by banks or other business lenders. The level of risk in your business and industry will help to determine the actual market rate, as will the availability of equity dollars. Check with other businesses (although not direct competitors) to see what return on investment their investors demanded. Be prepared to negotiate. And make sure you research the investment market carefully; several socially minded investment pools exist and more are in development. or lenders, describe the type of financing you are seeking:
• Seed Capital – Short-term financing to cover start-up costs.
• Fixed Asset Financing – Longer-term financing for property, building improvements, equipment or vehicles. The asset being purchased is usually pledged as security for the loan.
• Working Capital – Short-term financing to cover operating expenses and to bridge gaps in cash flow.
Initial Start-up Timeline
Provide a timeline of tasks and events necessary to get your business operational. Be sure to describe the current stage you are in and what steps you have taken to date. Include deadlines for task completion. Set realistic deadlines according to your capacity to complete these tasks. The following is a list of some of the steps you may wish to include:
• Filing legal incorporation documents
• Identifying and securing suitable space
• Designing and developing the product
• Obtaining required licenses or permits
• Securing necessary financing
• Leasing or purchasing equipment
• Hiring key staff
• Hiring and training of production or support staff
• Purchasing materials and production supplies
• Beginning marketing activities
• Opening
Although it is impossible to know exactly what will go wrong in starting and running your business, thinking about different challenges will strengthen your plan. Potential problems could include:
• Insufficient public subsidy available to new home owners or residents
• The competition drops its prices
• Not enough customers
• Production costs exceed estimates
• Difficulty in finding qualified employees
• Environmental or governmental changes such as tax increases, additional regulations or population changes
For each potential problem, discuss its likelihood and describe possible solutions or actions you might undertake to mitigate the problem.
Risks and their Mitigation
Although it is impossible to know exactly what will go wrong in starting and running your business, thinking about different challenges will strengthen your plan.
After you have completed all of the elements of your business plan, you should focus its presentation. A well-organized plan will assist you in communicating the most important elements of your business plan to the reader, and a persuasive plan will help you to convince the reader to invest in your business.
Executive Summary
As mentioned earlier, this section should be written last. However, if you have already written the executive summary, review it to make sure it embodies the following characteristics. Because it is the first and possibly the only section of the plan that many readers may see, the executive summary should provide an overview of the plan and entice the reader to read the whole plan or to agree to meet with you. The executive summary should be no more than three pages and should briefly describe the most important elements of the plan. Review the Executive Summary section of this manual for more tips on this critical introduction to your business.