Business plan

A business plan must provide answers to following questions:

What you intend to do/how you intend to do it/ when you intend to do it?

How much do you want to borrow? When you will be able to repay the loan? Will you be able to pay the interest? Could your business survive a setback in its

plans? What security is available for lending? Will you be able to sell your product? Is the business proposal commercially viable? Will the business be profitable? Can the business cope with the effects of

inflation?

BUSINESS PLAN

Summery of the Project/ Project at a Glance

(The purpose of the business, legal form of the organization, the location, resource requirements, volume of business, a brief note on market, customers and about the promoter(s) and, financial highlights)

WHAT DOES A BUSINESS PLAN INCLUDE?

General Information

(About the business and promoter's qualification, training and experience relevant to the project, form of business entity, location, management plan, etc.)

Cont…

Market Potential and Plan

(A note on marketing strategy, potential customers, competition, market size and future prospects, pricing, advertising & promotion, etc.)

WHAT DOES A BUSINESS PLAN INCLUDE? … Contd.

Details of the Proposed Project

(Requirement of fixed capital and working capital, the cost of project and means of finance)

Cont…

Manufacturing Process

(Step-by-step description of the manufacturing process, plant capacity, expansion plans and quality control procedures etc.)

Production Programme/ Sales Revenue

(Plant capacity, capacity utilization, quantity produced/sold, and sales realisation)


Cost of Manufacturing

(Cost of raw materials, utilities, manpower, repairs and maintenance, selling and distribution expenses, administrative expenses, interest on loans availed, depreciation and any other expenses)

Cont…

Profitability Projections

(Sales, cost of manufacturing, tax liabilities, repayments, retained profit/loss, break even point, Debt Service Coverage Ratio (DSCR), Internal Rate of Return (IRR)


Project Implementation & Other Information

(Project implementation Schedule, Security offered, other details if any.)

I. LAND AND SITE DEVELOPMENT

COST OF LAND LAND RELATED LEGAL CHARGES LEVELLING AND FILLING COSTS APPROACH/INTERNAL ROAD COSTS FENCING/COMPOUND WALL COSTS COST OF GATES

PROJECT COST: AN ESTIMATE OF FUNDING REQUIREMENTS

(PROJECT COST COMPONENTS)

Cont…

II. BUILDING AND CIVIL WORKS FACTORY BUILDING OFFICE GODOWN, ETC. WELL, TANK, SILOS, GARAGE AT PROJECT SITE SEWER AND DRAINAGE ARCHITECT FEE

PROJECT COST COMPONENTS ….Contd

Cont…

III. PLANT AND MACHINERY PRICE OF MACHINERY EXCISE-TAX, FRIEGT, PACKAGING, TRANSIST INSURANCE, OCTROI, ETC. STORES AND SPARES BOUGHT ALONG WITH THE MACHINERY FOUNDATION AND INSTALLATION COST

IV. OTHER FIXED ASSETS FURNITURE OFFICE EQUIPMENTS MISCE. TOOLS & EQUIPMENTS VEHICLES EQUIPMENTS, CABLING FOR POWER DISTRIBUTION EQUIPMENT AND PIPING FOR WATER SUPPLY LABORATORY EQUIPMENTS WORKSHOP EQUIPMENTS FIREFIGHTING EQUIPMENTS EFFLUENT COLLECTION, TREATMENT AND DISPOSAL ARRANGEMENTS BOILER DIESEL GEN. SET OTHER ASSETS


Cont…

V. TECHNICAL KNOWHOW

LEGAL CHARGES FEASIBILITY REPORT CAPITAL RAISING SALARY AND ADMINISTRATIVE COST DURING IMPLEMENTATION PERIOD RENTS, TAXES, ETC. DURING IMPLEMENTATION PERIOD TARVEL COST DURING IMPLEMENTATION PERIOD INTEREST DURING IMPLEMENTATION PERIOD MORTGAGE EXPENSES IN RESPECT OF LOANS TRAIL PRODUCTION


Cont…

VI. PRELIMINARY AND PRI-OPERATIVE EXPENSES

VII. WORKING CAPITAL MARGIN

BIS, POLLUTION BOARD & EXPLOSIVE LICENCE, ETC. STATUTORY DEPOSITS PROCESSING FEES OF MFIs


VIII. CONTINGENCY & ESCALATION (@ 10% OF I - IV)

IMPLEMENTATION SCHEDULE: AN ILLUSTRATION (Months)

TASK 1 2 3 4 5 6 7 8 9 10

Study of business plan

√

Subm. Of term loan application

√

Term loan sanction

√

Arranging land √

√

√

Civil works √

√ √ √ √

Arranging utilities

√

√

Placing order for machinery

√

Installation of machinery

√

√

Recruitment of manpower

√

√

Trial run √

Commercial production

√

PROJECT APPRAISAL

IT IS AN ASSESSMENT OF A PROJECT IN TERMS OF ITS VIABILITY AND FEASIBILITY. IT IS AN ANALYSIS OF COST AND BENEFIT OF A PROJECT OVER THE PROJECT LIFE.

1. ECONOMIC APPRAISAL

2. FINANCIAL APPRAISAL

3. TECHNICAL APPRAISAL

4. MARKET APPRAISAL

5. MANAGERIAL APPRAISAL

6. ENVIRONMENTAL APPRAISAL

PROJECT APPRAISAL

ECONOMIC APPRAISAL

i. PAYBACK PERIOD

ii. AVERAGE RATE OF RETURN ON INVESTMENT

iii. NET PRESENT VALUE

iv. INTERNAL RATE OF RETURN

v. BENEFIT-COST RATIO

vi. LEVEL OF CAPACITY UTILISATION OR BREAKEVEN

ANALYSIS

PROJECT APPRAISAL

FINANCIAL APPRAISAL

i. REQUIRED FINANCIAL RESOURCES

a. FIXED ASSETSb. CURRENT ASSETSc. NECESSARY WORKING CAPITAL

ii. AVAILABILITY OF FINANCIAL RESOURCES

a. REQUIRED BORROWINGb. POTENTIAL SOURCES OF FUNDSc. COST OF BORROWINGd. REPAYMENT CONDITIONSe. OPERATION COST ANALYSISf. FIXED COSTSg. VARIABLE COSTSh. PROJECT CASH FLOWi. PROJECT PROFITABILITY

PROJECT APPRAISAL

TECHNICAL APPRAISAL

i. CRUCIAL TECHNICAL SPECIFICATIONS

a. DESIGNb. DURABILITYc. RELIABILITYd. PRODUCT SAFETYe. STANDARDIZATION

ii. ENGINEERING REQUIREMENTS a. MACHINESb. TOOLSc. TECHNOLOGYd. WORK FLOW

Cont…

PROJECT APPRAISAL

TECHNICAL APPRAISAL …Contd.

iii. PRODUCT DEVELOPMENT

a. BLUEPRINTSb. MODELSc. PROTOTYPES

iv. PLANT LOCATION a. LAND AND SITE AVAILABILITYb. PROXIMITY TO MARKETc. PROXIMITY TO SOURCE OF RAW MATERIALd. AVAILABILITY OF SUPPORT SERVICESe. SCOPE FOR EXPANSIONf. GOVERNMENT RESTRICTIONS/INCENTIVESg. INFRASTRUCTUREh. ACCESSIBILITYi. AVAILABILITY OF WORKFORCE

PROJECT APPRAISAL

MARKET APPRAISAL

i. MARKET POTENTIAL

ii. UNDERSTANDING OF CUSTOMERS

iii. DIFFERENTIATION

iv. MARKET SEGMENTATION

v. POTENTIAL DEMAND

vi. DEMAND-SUPPLY GAP

vii. MARKET TEST REPORT

viii.SALES PRICE PROJECTIONS

ix. PROPOSED CHANNELS OF DISTRIBUTION

x. PRODUCT PROMOTION STRATEGY

xi. PRODUCT LIFECYCLE ANALYSIS

xii. COMPETITION AND COMPETITOR’S ANALYSIS

PROJECT APPRAISAL

MANAGERIAL APPRAISAL

i. PERSONAL BACKGROUND OF THE PROMOTERS

ii. THEIR EXPERIENCE, SKILL AND KNOWLEDGE BASE

iii. FINANCIAL LEVERAGE WITH THEM

iv. CREDITWORTHINESS OF THE PROMOTERS

v. ORGANISATIONAL SETUP AND RESPONSIBILITIES AT

VARIOUS LEVELS

vi. AVAILABILITY OF MANAGERIAL RESOURCES

ENVIRONMENTAL APPRAISAL

i. ENVIRONMENTAL RISK

ii. POLLUTION CONTROL PLAN

iii. COMPLIANCE WITH GOVERNMENT REGULATIONS

MAJOR FINANCIAL RATIOS USED IN PROJECT APPRAISAL

1. DEBT- EQUITY RATIO (1:3)

= TOTAL DEBTS / [OWNER’S CAPITAL +

SUBSIDY]*100

= TOTAL DEBTS/EQUITY + RESERVES (IN THE CASE OF

A LTD. CO.) 2. CURRENT RATIO (2 BUT NOT > 1.33)

= CURRENT ASSETS / CURRENT LIABILITIES

3. DEBT SERVICE COVERAGE RATIO (2 OR MORE BUT NOT

> 1.5)

= [NET PROFIT AFTER TAX + DEPRECIATION +

INTEREST ON TERM BORROWINGS] / ANNUAL

REPAYMENT + INTEREST ON BORROWINGS] Cont…

MAJOR FINANCIAL RATIOS USED IN PROJECT APPRAISAL …Contd

4. RETURNS ON INVESTMENT (HIGHER THAN THE

HIGHEST RATE OF INTEREST)

= NET PROFIT BEFORE INTEREST AND TAX /

INVESTMENT 5. RETURN ON EQUITY (HIGHER THAN THE OTHER

INVESTMENTS)

= NET PROFIT AFTER TAX / OWNER’S CAPITAL

6. NET PROFITABILITY RATIO ( > OR = TO INDUSTRY

AVERAGE)

= NET PROFIT / SALES*100 7. OPERATING RATIO

= COST OF GOODS SOLD + OPERATING EXPENSES / NET

SALES * 100

MISTAKES ENTREPRENEURS COMMIT WHILE LAUNCHING OF

A VENTURE

I. LACK OF A THOROUGH STUDY OF MARKET POTENTIAL FOR PRODUCT AND VENTURE UNIQUENESS

II. LACK OF ALL ROUND MANAGERIAL ABILITY AND OBJECTIVE EVALUATION OF BUSINESS

CONTD…

III. WASTEFUL AND INAPPROPRIATE INVESTMENTS

IV. CAPACITY UTILISATION ESTIMATES: GROSSLY UNREALISTIC

V. INADEQUATE UNDERSTANDING OF TECHNICAL REQUIREMENTS

VI. INAPPROPRIATE MARKETING/ DISTRIBUTION STRATEGY, OVER- RELIANCE ON ONE CUSTOMER, LOW SALES AND WRONG PROMOTIONAL STRATEGY

VII. INADEQUATE ARRANGEMENTS FOR KEEPING ACCOUNTS

CONTD…

VIII. WRONG ESTIMATION OF CAPITAL REQUIRED LEADING TO OVER OR UNDERCAPITALISATION

IX. CASH FLOW PROBLEMS AND INADEQUATE WORKING CAPITAL

X. NEPOTISM IN RECRUITMENT AND INCOMPETENT ADVISORS AND POOR HRD AND IRs

XI. INAPPROPRIATE PRICING STRUCTURE

XII. IGNORANCE OF LEGAL ISSUES AND TAXATION

XIII. SELECTING A WRONG LOCATION

1.0 GENERAL

Name of the Firm: ____________________________________Project:_______________________________________Location:______________________________________ Type of Organisation: Proprietary/Partnership/Pvt. Ltd.

Address: ___________________________________________

Name of the Chief Promoter(s): ______________________________________

BACKGROUND OF THE CHIEF PROMOTERS

BUSINESS PLAN FORMAT

Cont…

2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing 2.1 LAND AND BUILDING


Cont…

2.2 MACHINERIES/EQUIPMENTS

Sr. No

Description

Nos. Required

Rate (Rs.)

Total Value (Rs.)

Total:

Sr.No.

Particular Area Required

Total Value Remarks

1.2.

LandBuilding

Total:

2.0 DETAILS OF THE PROPOSED PROJECT: Mfg./Servicing

2.3 MISC. FIXED ASSETS


Cont…

2.4 PRELIMINARY AND PRE-OPERATIVE EXPENSES

Sr. No

Particulars Nos. Required

Rate (Rs.)

Total Value (Rs.)

Total:

Sr. No

Particulars Amount (Rs.) Remarks

1. 2.3.

Interest during implementationEstablishment ExpensesStart-Up Expenses

Misc. Expenses Total


2.5 WORKING CAPITAL


Cont…

Sr. No.

Item Dura-tion

Total Value (Rs)

IYear IIYear IIIYear

1.2.3.4.5.

Raw-Material StockSemi-finished Goods StockFinished Goods StockSales on CreditProduction Expenses

Total


2.6 TOTAL COST OF THE PROJECT


Cont…

Sr. No

Particulars

Total Value (Rs.)

1. 2. 3.4.

Fixed Capital(Total of item No.2.1, 2.2,2.3)Working capital margin(Total of item No. 2.5)Preliminary & Pre-operative Expenses(Total of item No. 2.4)Cost escalation & Contingencies

Total


2.7 MEANS OF FINANCE


Cont…

Sr. No Particulars Amount (Rs.) Remarks

1.2.3.4.

Own InvestmentTerm LoanWorking Capital LoanAny Other Source

Total:

3.0 MARKET POTENTIAL

3.1 Present Demand and Supply of the Product3.2 Competition3.3 Target Clients/selected Market Area3.4 Marketing Strategy (USP)


Cont…

4.0 MANUFACTURING PROCESS

4.1 Technical Know-how Availability 4.2 Step-by-Step Description of the Manufacturing Process from Raw Material to Finished Goods [Attach Process Flow Chart]

5.0 PRODUCTION SCHEDULE

5.1 No. of Working Days Per Annum -5.2 No. of Working Shifts (8hrs) per Day -5.3 Installed Capacity (annual) -5.4 Utilized Capacity (%): -

I - Year -II - Year -III - Year -


Cont…

Sr. No

Items(s) Quantity Produced Per Year

Capacity Utilisation

(%)

5.0 PRODUCTION SCHEDULE …Contd

5.5 SALES REVENUE


Cont…

Year Items(s) Quantity Sold/Year

Rate per Unit (Rs)

Sales Realisatio

n (Rs)

Total:

5.6 RAW MATERIAL (ANNUAL REQUIREMENT)

Sr. No

Items(s) Quantity

Rate (Rs)

Total Value(Rs)

Total :


5.7 UTILITIES


Cont…

5.8 REPAIRS AND MAINTENANCE

Sr. No

Particulars Annual Expenditure(Rs

)

Remarks

1.2.3.4.

Power/ElectricityWaterCoal/Oil/SteamAny other item Total

Sr. No

Particulars Amount(Rs)


5.8 MAN POWER (Salaries/Wages)


Cont…

Sr. No

Particulars No. Wages/Salaries per Month

(Rs.)

Annual Expenses

(Rs)

1.2.3.4.5.

SkilledSemi SkilledUnskilledOffice StaffAny Other Total


5.9 SELLING AND DISTRIBUTION EXPENSES


Cont…

Sr. No

Particulars Amount(Rs) Remarks

1.2.3.4.5.

Publicity ExpensesTravellingFreightCommissionMisc.Total

5.10 ADMINISTRATIVE EXPENSES

Sr. No

Particulars Amount(Rs) Remarks

1.2.3.4.

Stationery & PrintingPost/Telephone/TelegramsEntertainment ExpensesMisc.Total


5.11 INTEREST


5.12 DEPRECIATION

Year

Outstanding Loan Amount

(Rs)

Interest (Rs)

Installment (Rs)

Balance(Rs)

Sr. No.

Type of Asset

Cost of Asset

Expected Life Depreciation

6.0 PROFITABILITY PROJECTIONS


Sr.No.

Particulars Amount (Rs.)

1-Year

2-Year

3-Year

4-Year

5-Year

A. B.

i)ii)iii)iv)v)vi)vii)viii)ix)x)xi)

C.D.E.F.G.

Sale Realisation Cost of Manufacturing/ Servicing Raw MaterialsUtilitiesSalaries/WagesRepairs & maintenanceSelling & Distribution ExpensesAdministrative ExpensesInterestRentDepreciationMisc. Expenses Total

Gross Profit/Loss (A-B)Income-taxNet Profit/LossRepaymentRetained Surplus

DEPRECIATION RATES

Assets WDV SL Rates Rates

1. Buildings which are not for 10% 2.3%Residential purposes

2. Plant & Machinery (Other than 33.33% 8.33%

Under item 3 & 4) 3. Aero planes, vehicles used for 50% 19%

Hire-business, moulds andEquipments for air/waterPollution control and solid waste control


DEPRECIATION RATES …Contd


Assets WDV SL Rates Rates

4. Wooden parts in artificial silk 100% 100%Manufacturing machinery, Cinematograph films, bulbsOf studio lights, energy savingDevices (specialized boilers &Furnaces), instrumentation & Monitoring energy flows, wasteHeat recovery equipments, co-Generation systems, electricalEquipments, burners, flour mills,Gas cylinders, glass melting furnaces,Rolling-mill rolls, wooden match Frames, mineral oil production & Generation equipment, mine & quarry equipments, salt work, renewed energydevices.

5. Furniture and fittings used 10% 2.3%

SUPPLEMENTARY INFORMATION


1. The plot size is (40X20) 800 sq. meters 2. Commercial banks provide loans up to a limit of 70% in the

case of raw materials, stores, consumables and packaging materials.

3. All the income-expenditure and related statements are to be worked out for 8 years.TAX COMPUTATION: SALIENT POINTS:

1. You can carry forward losses to the next year for offsetting them against profits in the following year.

2. There are tax incentives for setting up a new enterprise in backward areas. There are two major deductions allowed:

i. Under Section 80 HHA of IT Act: 20% remission for all new enterprises set up in central government recognized industrially backward districts.

ii. Under Section 80 I: 20% remission for all new enterprises for a period of 10 years. For example, if PBT is RS. 100/-, an amount of Rs. 20/- will be tax deductible and the taxable profit will be only Rs. 80/-.

COMMON ERRORS IN BUSINESS PLAN FORMULATION

a. Capacity Utilisation Estimates: Grossly Unrealistic

b. Capacity Computation: A Miscalculation

c. Market Survey: A Neglected Task

d. Machinery Selection: Serious Error

e. Technology-Oriented Products: A Shaky Arrangement

f. Project-Pruning and Resource-Straining: Exceeding the

Safe Limits

g. Accommodating in SSI Limits

h. Project Cost: An Under Estimation

i. Selecting the Location: Dangerous Temptations

j. Selling Price: Unfounded Optimism

k. Cash Flow in Initial Years: A Poor Detail

Business plan

Documents

project project

cost of project

project profitability

project appraisalit

cost of borrowing

business plana business

project site sewer

project cash flow