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Advance Guide for Setting Up Your New Business Enterprise
An Advance Guide for Entrepreneurs for Setting Up a Better Business Enterprise!
1. Meaning & Introduction:
The entrepreneur is derived from a French word ‘entrepreneur’ which means to ‘undertake’ the risk of new business. (Venture). Entrepreneurial growth is being recognised as a key to economic development of a country.
Image Courtesy : agrifood.net/wp-content/uploads/DG-meeting.jpg
a. Entrepreneur – Person
b. Entrepreneurship – process
c. Enterprise – object
Basically an entrepreneur is one who initiates, set goals and work towards the attainment of those goals. An entrepreneur is a person responsible for setting up of a business unit. He is the one who has the initiative, skill and vision for high achievements.
He undertakes new projects that creates wealth, open up many employment opportunities and leads to the growth of other sectors. Entrepreneurship is the act of being an entrepreneur, which is a French word meaning “one who undertakes an endeavor”.
An entrepreneur is a person who has possession of a new enterprise, venture or idea, and assumes significant accountability for the inherent risks and the outcome. He is an ambitious leader who combines land, labour, and capital to often create and market new goods or services.
Entrepreneurs are considered as the backbone of nation’s progress. They organise different factors of production like land, labour and capital and provide goods and services to the society. Generally entrepreneurs are risk bearers. Entrepreneurship acts as a critical factor for accelerating economic development of a country.
i. Peter Drucker in his book “Innovative entrepreneurs” defines entrepreneurs as innovators. They always search for change, respond to it and exploit it as an opportunity”.
ii. According to Evans, “entrepreneurs are persons who, initiate, organise, manage and control the factors of production to supply goods and services whether business pertains to agriculture, industry, trade of profession”.
iii. According to B. C Tandon “Entrepreneurship means the function of creating something new, organising and coordinating and undertaking risk and handling economic uncertainty”.
iv. Entrepreneurship is a process or activity that leads an entrepreneur, look for an opportunity. If it is a process of creating something new and assuming the risks and rewards. It acts as a critical factor foe accelerating economic development of a nation.
Generally it is seen that the two terms ‘Entrepreneur & Promoter are used interchangeably, but on a careful analysis it is seen that there is a minute difference between the two terms.
A promoter is a person who does the necessary preliminary work to bring into existence an incorporated company. He is a person who conceives an idea of forming a company. Entrepreneurs are innovators, while promoters are developers. It is rightly said that all entrepreneurs are promoters and all promoters are entrepreneurs.
According to Encarta, a promoter is “somebody who secures capital for a financial or commercial undertaking such as a public company”.
3. Features or characteristics of entrepreneurship:
The following are the characteristics of an entrepreneurship:
Entrepreneurship is a process of creating something new i.e. new idea, new concepts, process etc. It is a function of organizing, coordinating and undertaking risk and handling economic uncertainty. Entrepreneurship is an exercise containing innovation and creativity.
It is concerned with conceiving an idea, identifying opportunities, planning, raising capital and taking calculative risk in the business. It is a process of being an entrepreneur.
It is the practice of starting a new venture or reviving an existing one. Entrepreneurial process includes exploring, identifying, planning, researching organizing, launching, and managing entrepreneurial challenges.
2. Purposeful activity:
Entrepreneurship is a purposeful activity. Entrepreneurship adds to national development and solve unemployment problem. It place emphasis on results and output.
The main objective of entrepreneurship is to maximize profit. Entrepreneurship is an engine for wealth creation and economic growth. Transforming ideas into opportunities is the role played by entrepreneurship.
Entrepreneurship is a dynamic activity which helps the entrepreneur to bring changes in the process of production, innovation, marketing, management etc.
3. Individual or group activity:
Entrepreneurship is a purposeful activity of an individual or group of associated individuals. Entrepreneurial activity depended upon the size of the project. In case of small project the activity is undertaken by an individual and in case of large project it is undertaken by a group.
Entrepreneurship is a process whereby an individual or group of individuals use organised efforts to pursue opportunities and grow by fulfilling wants and needs through innovation and uniqueness.
4. Innovation and creativity:
Innovation may be defined as exploiting new ideas leading to the creation of a new product, process or service. Innovation deals with coming up with creative idea and turning that idea in to process. Entrepreneurship is a source of innovation.
Entrepreneurship process involves innovation and creativity. Entrepreneurs are innovators. They constantly develop new ideas, concepts and process to survive in a competitive business world.
Entrepreneurship is an art of finding creative solutions to the problems. Innovation and creativity are essential for sustainable growth and economic development.
5. Future oriented:
Entrepreneurship is future oriented. They need to forecast the upcoming complexities in a business environment. To avoid this they have to undergo SWOT analysis to grab the opportunities and diffuse off threats.
Entrepreneurs start businesses, develop new procedures for the production and distribution of goods, act as middlemen between markets and are a source of information.
The entrepreneur is also characterised by an alertness for opportunities which have been ignored or unseen by others. These opportunities are almost always accompanied by some profit.
6. Risk bearing (Risk and Reward):
Entrepreneurship is often associated with uncertainty. Entrepreneurship is an activity that has a lot of risk. Business is a – risky venture. It cannot be avoided in business. Unless and until an entrepreneur takes risk, he cannot make profit.
An Entrepreneur- has to assume innumerable risk to achieve well defined objectives and rewards. An Entrepreneur has to be innovative and he should have good judgement to reduce the uncertainties in the business.
Some of the risks associated with business are employees going on strike, fluctuations in the market, changing economic policies etc.
7. Human relations:
Entrepreneurs have close involvement with people. He has to maintain good relations with his customers. He also needs to maintain good relations with his employees to motivate them and increase their efficiency.
So in order to maintain good human relations effective communication and interpersonal skills are required on the part of an Entrepreneur.
They find it important to maintain long term relationship with suppliers, clients, customers etc. An entrepreneur who maintains good human relations with the community is more likely to succeed in the business.
8. Long term planning:
Planning has always been one of the major functions of an organisation which leads to success. It is an intellectual process. An Entrepreneur has to be visionary. He should have far sight vision.
He has to be telescopic in conducting his business activities like taking risk, sensing opportunities, mobilising resources etc. to attain business goals.
9. Facilitates economic development:
Entrepreneurial development is the key to economic development. Entrepreneur deals with creating wealth through production of goods and services. This results into rise in per capita income of the country and helps in upgrading the standard of living of the population.
Entrepreneurship provides employment opportunities resulting into curbing unemployment situations. This positive trend facilitates economic development. Therefore Entrepreneurship makes an important contribution to economic growth
4. Steps in Setting up of a business unit:
The procedure in setting up of a business unit is a time consuming, complex and complicated activity. It involves various steps, procedures and formalities.
The following diagram explains the steps in setting up off a business unit in detail:
1. Discovery of an idea.
2. Determining the objectives.
3. Identifying opportunities.
4. Detailed investigation of an idea.
5. Undertaking various research.
6. Designing a business plan.
7. Resource rising.
8. Setting up the enterprise.
9. Managing the enterprise.
1. Idea generation:
This is the most important function of an entrepreneur. Idea is generated through vision. Idea generation is a critical skill in entrepreneurship. Insight, observation, experience, education, training etc. Idea can be generated through environmental scanning and market survey. An entrepreneur conceives an idea for the formation of a company.
An entrepreneur is not someone with clever ideas but someone who has the ability to turn that idea into a real business. An entrepreneur conceives the idea of launching the project and program the structure of business. Converting a business idea into a commercial venture is at the heart entrepreneurship
2. Determining the objectives:
The next step in setting up business venture is determining the objectives of the business. Objectives are the goals of a business venture. Objectives are the ends towards which activities of the organisation are directed. The entrepreneurs stress the need for high achievement. The objectives must be realistic in nature.
3. Identifying opportunity:
This is the first step in setting up of a business unit Entrepreneur is an opportunity seeker. As observed by Albert Einstein “In the middle of every difficulty lies opportunity”. He perceives an opportunity and strives to translate the opportunity into an idea.
Opportunities do not come suddenly. The entrepreneur must show alertness to grab opportunities when they come. The opportunities must be carefully scrutinized and evaluated.
The process of identifying opportunity involves identifying the needs and wants of the customers, scanning the environment, understanding the competitor’s policy etc.
4. Detailed investigation of an idea:
The entrepreneur than undergoes detailed investigation of an idea. He analyse the idea to find out the feasibility whether the project is profitable of not. An entrepreneur must show the initiative to develop the idea and implement it in practical sense.
5. Undertakes various researches:
After the selection of a worthy idea, an entrepreneur undertakes various researches relating to –
a. Market selection
d. Machinery and equipment’s
f. Customer preferences etc.
6. Designing a business plan:
At this step an entrepreneur prepares a good business plan, the designs and creates the organisational structure for implementation of his plan. This plan is further used to achieve the realistic goals.
7. Resource Rising:
The entrepreneur has to proceed further for raising the resources like men, money, machine, material to commence the venture. Huge capital is required to install the sophisticated machinery and employ skilled man power.
A critical step in the creation of a new venture is raising the capital. An entrepreneur has to take certain steps and follow specified procedures to obtain Institutional finance.
A number of financial agencies like Banks/SFCs provide loans with certain applicable terms and conditions.
8. Setting up the Enterprise:
At this step the entrepreneur fulfill some legal formalities. He hunts for suitable location, design the premises and install machinery. All the statutory formalities are to be met.
i. Acquiring license.
ii. Permission from local authorities.
iii. Approvals from banks and financial institution.
iv. Registration etc.
9. Managing a business enterprise:
Once the project is set up, the entrepreneur must try to achieve the target of a business plan. This involves setting up of an appropriate business process. Only proper management can ensure achievement of goals.
The entrepreneur must be capable of turning his ideas into reality. He should also have the foresight to anticipate changes to avail of opportunities and meeting threats likely to arise in the near future.
5. Qualities of a successful entrepreneur:
An entrepreneur has the qualities of many individuals in one. Entrepreneurship is a creative activity. It involves the process of seeking opportunities taking calculative risk and deriving benefits by setting a new venture.
To handle the Entrepreneurial activity in an effective way, entrepreneurs should have certain qualities. Thus a true entrepreneur has the ability to identify opportunities, provide the leadership to creatively innovate new solutions to serve those opportunities, organize, manage, and execute a plan to serve those opportunities, inspire and motivate stakeholders, investors, managers, and team members, lead the enterprise into the future, and pass the mantle of leadership to others when the organizational needs change. And finally, have the ability to replicate this process when the opportunity presents itself.
The following are the qualities of a successful Entrepreneur:
Entrepreneur need to be creative enough to make their business a success. Creativity means to come up with new ideas, concepts, process and products. He must have a high degree of creativity to strive in a competitive business world.
Entrepreneurs are business leaders. They are persons with vision. They have drive and talent and spot out the opportunities and promptly seize them for exploiting to economic gains.
2. Risk taker:
Entrepreneurs assume high degree of risk and uncertainties. They have to be innovative to adjust themselves to tackle the changing situations in the business. He should have the capability to take risk in the critical situation and learn quickly from the failure.
They do not take more risk, but they try to eliminate risk. They assume all possible risk of business such as changes in consumer preferences, technology up-gradation, new inventions etc.
Successful entrepreneurs are not people who never fail but have the capacity to bounce back after failure. They take their failures as part of their learning curve.
Entrepreneurs should possess the quality of leadership. Leadership is the act of stimulating other to attain the goals and objectives of the firm. An Entrepreneur should have leadership skill to direct and guide the subordinates to get the work done from them and achieve the organisational objectives.
An entrepreneur is a natural leader with the vision and the drive to do things right and take the company toward success with ease.
An Entrepreneur should have a certain minimum level of academic background. Education enlightens the person and helps them to face ups and downs of the business with ease.
He should acquire new techniques for handling the business through training. Excellent communication skills are critical in enabling to interact well with people of varying personalities.
To be successful in life one has to have confidence in himself. An entrepreneur should have enough confidence to inspire others and handle the situation in difficult times.
Right aptitude and self confidence helps entrepreneurs to succeed in the business efficiently and effectively. An entrepreneur has to be optimistic. He has to be confident even in negative business situations. As the entrepreneur assumes risk, he must have self-confidence.
6. Decision maker:
Decision making is the fundamental characteristics of an entrepreneur. It is an act of selecting the correct alternative from the several one. He has to take decisions regarding –
i. Setting of goals
ii. Formulating policies
iii. To motivate the employees etc.
Entrepreneurs must have the quality of decisiveness. The success of business depends upon the right decision. But the entrepreneur should avoid taking hasty decisions.
An entrepreneur should be good organiser. He should have adequate knowledge to organise and manage the resources viz. capital, human and natural resources. He has to plan, co-ordinate and control. Such organisational skills help the entrepreneur to build an enterprise, nurture it and make it grow.
An entrepreneur, to be successful should have good political, legal, technological knowledge. He should also have a good level of academic background. He should also be versed with financial and administrative matters and managerial knowledge like planning, organising, leading, decision making etc. He should also posse’s technical knowledge and other technical aspects of trade.
Entrepreneurs play a key role in any economy. They are the people who have the skills and initiative necessary to take good new ideas to market and make the right decisions to make the idea profitable. They take initiative of assuming risk and develop their idea into an enterprise.
An entrepreneur must have good physical, social and mental personality. He should be intelligent enough to take right decisions and right steps at the right time.
He must have social personality, as he interact and has to go along with the different sections of the society that includes customers, shareholders, employees, government, suppliers etc.
11. Communication skill:
An entrepreneur needs to be effective communicators. He has to get the things done from his employees at the right time. For that he needs to provide instructions and orders clearly.
He also has to keep a track with the customers to understand their preferences to produce quality produce as per the consumers demand.
6. Problems in setting up of a business:
The factors that affect the growth of business are explained in detail:
1. Lack of legal knowledge:
The entrepreneur should have adequate legal knowledge to handle legal affairs efficiently. Lack of legal knowledge on the part of entrepreneurs may affect smooth conduct of business. He should have knowledge regarding Factories Act, Wages & Salaries Act, and Workers Compensation Act etc.-
2. Lack of experience:
An entrepreneur should have enough experience to manage the business efficiently. Lack of adequate experience may create major problems and adversely affect the experience.
The major hurdles that the new entrepreneurs face are the availability of resources to carry out such a business. The most important is the allocation of funds that comes in the form of money to research and development.
3. Lack of finance:
Finance is the life blood of every business. To start up a new venture requires adequate capital. It is required to meet business expenses like purchase of raw material, payment of wages and salaries; payment of interest on loans etc. Lack of finance can create hurdles in setting up of a business unit.
4. Lack of technology:
Technology is never constant, it keeps on changing. Sophisticated technology helps in increasing the production capacity and quality of the products. Lack of suitable technology can hamper the reputation of the firm. Adoption of suitable technology can prove beneficial to the business success and vice versa.
5. Problem of human resource:
Organisation is made up of people and people make an organisation. A firm requires skilled, qualified and talented employees. Lack of competent staff is another major issue for a business unit.
6. Problem of data:
Entrepreneurship is based on research work. The Entrepreneur need to conduct a survey for gathering information regarding market condition, competition, technology, consumer etc. the data collected may not be accurate and precise. At times it is incorrect and outdated. This hampers the survival of a business.
7. Problem of marketing:
The Entrepreneur should have marketing knowledge. This helps to face cut-throat competition in all sectors. Lack of marketing efforts and knowledge with respect to product, pricing, distribution and promotion hampers the Entrepreneurial growth.
7. Types of Entrepreneur:
Entrepreneurs in modern day world found to be engaged in various types of activities. They are found to be among labourers, exporters, professionals and commercial activities.
The following are the different types of Entrepreneurs:
1. Business Entrepreneur:
Business Entrepreneurs are those who conceive an idea to start a business and turn their ideas into reality. They set up and promote business unit. They grab the market opportunities.
Business Entrepreneurs are not concerned with manufacturing activities and so in the recent years they are treated as trading Entrepreneurs.
2. Agricultural Entrepreneurs:
The Entrepreneurs who undertake agricultural activities like planting crops, cash crops, floriculture, animal husbandry, fertilizers and other inputs of agriculture are termed as agricultural Entrepreneurs.
The government motivates today’s Entrepreneurs to use sophisticated technology for more volume of production.
3. Technical Entrepreneur:
Technical entrepreneur demonstrates innovative capabilities in production of goods and services. They are technically educated and expertised . As they are technically trained, they focus more on production than marketing.
4. Induced Entrepreneurs:
Such Entrepreneurs are induced to take up Entrepreneurial task due to various policy measures, incentives, concessions and take benefits offered by the government to start a venture.
The government announces industrial policies in which subsidies and incentives in various forms are provided to the person interested to start a venture.
5. Women Entrepreneurs:
Women Entrepreneur is those women who generate a business idea, identify opportunities, mobilise resources and operate enterprise. In today’s world women Entrepreneurs contribute and plays a significant role in the economic development of a country.
6. Professional Entrepreneurs:
Those Entrepreneurs are interested in establishing new enterprise by selling out existing business. They are dynamic and flexible and keep on identifying innovative ideas to develop alternative projects.
7. Rural Entrepreneurs:
Entrepreneurs who select rural based industrial opportunity in either khadi or village industries are termed as rural Entrepreneurs. The rural Entrepreneurs are given ample scope to establish village industry for bringing regional balance. Rural Markets constitute an important segment of overall economy.
8. Entrepreneurs by inheritance:
Those are the Entrepreneurs who inherit the business of family through succession. In India there are large numbers of family owned business houses. Entrepreneurs like Tata’s, Birla’s, Ambani come under this category. Such type of business is passed from one generation to another.
8. Challenges before Indian entrepreneurs:
The youth of today are more entrepreneurial. Entrepreneurs are the backbone of any economy. They are technologically competent, passionate, independent and challenging. They believe in continuous improvement and revolutionary change.
The most important responsibility of an entrepreneur as an individual is the establishment of ethical climate for his venture. Globalization brought both challenges and opportunities for Indian entrepreneurs.
The following are the challenges before Indian entrepreneurs:
a. Lack of knowledge and information:
One of the most important inputs of an entrepreneur is “information”, without which it is difficult to take any decision. The entrepreneur has to gather information relating to market, consumer behaviour, and competitors, technical, financial and legal aspects. Collecting relevant information can prove a challenge to an entrepreneur.
In today’s dynamic world of global competition, an entrepreneur must continuously innovate new and innovative products to compete successfully. They generally face potential threats from larger corporation. An entrepreneur has to be innovative because the presence of innovation drives them towards profit.
c. Legal provisions:
An entrepreneur usually face possible risk associated with laws and regulation. There are many important legal issues in starting a new venture. The entrepreneur should be prepared for future legislations.
He must be well versed with legal and procedural formalities related to acquiring license, financial assistance etc. to succeed in the business.
d. Managing resources:
Management of resources is a major challenge before an entrepreneur. Management of human resource includes judgement, insight, creativity, vision and intelligence of individual members in an organisation. Managing human resource includes social skill on the part of an entrepreneur.
An entrepreneur should also have competency in managing financial resources. Financial represents money assets. They form a valuable resource without which no firm can get very far. It is the challenge before an entrepreneur to determine the sources of resources.
e. Business planning:
Planning is one of the major challenges faced by an entrepreneur. As planning precedes organizing, directing, motivation and controlling. Business plan should be properly planned and implemented. Effective decision depends upon proper planning.
Decision-making pervades all managerial functions. The effectiveness of management depends upon the quality of decision-making.
9. Entrepreneurial Development Programme:
1. Entrepreneurship acts as a critical factor for accelerating economic development of a country. The EDP covers the entire venture creation process, from idea generation to building a viable global business.
2. It helps in the creation of self-employment opportunities and reduction of unemployment. In recent years the government and private agencies have initiated strategies and programme for Entrepreneurial growth.
3. There are number of schemes which are offered by various government and semi government organisations to promote Entrepreneurship. The following are discussed in detail:
4. The credit of sowing the seeds for Entrepreneurial Development Programme in India can be given to Dr. D. C. Mclelland; a noted psychologist from Haward University in USA. This programme was conducted for energetic and potential Entrepreneurs.
5. Entrepreneurship is regarded as one of the important determinants of the industrial growth of the country. Various attempts have been made to promote and develop entrepreneurship by giving specific assistance to improve the competence of the entrepreneurs and his enterprise so as to make him and his entrepreneurial so that more people become entrepreneurs.
6. In order to meet the global demand and the new challenges thrown to the Indian industry and also to generate employment, entrepreneurship development has to be given a priority.
The entrepreneurs should possess required skills, ability to grasp opportunities which offer economic advantages, orientation towards applying knowledge to maximize gains, business skills, and leadership qualities and above all confidence that one can make things happen.
10. Objectives of EDP:
Entrepreneurial development programme act as a driving force for encouraging people to make their career in entrepreneurship. It was designed with the aim of encouraging self employment and creating wealth among educated unemployed youth.
This programme acts as a motivator and develops potential skills among people to undertake their own ventures.
1. Accelerating industrial development.
2. Developing Entrepreneurial qualities.
3. Motivating the prospective entrepreneurs to achieve the goals.
4. Enhancing the growth of small and medium scale enterprise.
5. They offer better potential for employment generation and wider dispersal of industrial ownership.
6. It has provided a new path and career choices to large number of people.
7. Aims at making optimum utilisation of resources.
8. Eradicate unemployment and poverty.
9. Balanced regional development and developing backward areas by encouraging rural entrepreneurs.
10. Improving standard of living.
Various Institutions conducting Entrepreneurship Development Programmes in India:
1. Entrepreneurship Development Institute of India (EDII):
The Entrepreneurship Development Institute of India (EDI) is an autonomous body, set up in 1983. It is sponsored by apex financial institutions, namely the IDBI Bank Ltd, IFCI Ltd. ICICI Ltd and State Bank of India (SBI).
This Institute is registered under the Societies Registration Act 1860 and the Public Trust Act 1950. EDI undertake research and training activities for encouraging new and emerging entrepreneurs.
2. Small Industry Development Bank of India (SIDBI):
This is a subsidiary if Industrial Development Bank Of India (IDBI).
SIDBI was established in April 1990 under an Act of Indian Parliament as the principal financial institution for:
3. Development of industry in the small scale sector.
4. Coordinating the functions of other institutions engaged in similar activities.
The Small Scale Industries (SSIs) sector is a vibrant and dynamic sector of the Indian economy.
3. National Institute for entrepreneurship and small business development (NIESBUD):
It was established in 1983 by the Ministry of Industry, Government of India. It aims at co-ordinating the activities of various institutions engaged in entrepreneurship development.
It provides training aid and helps to develop entrepreneurial culture in the society. It conducts national level and international level training programmes.
4. National Alliance of Young Entrepreneurs (NAYE):
NAYE was established in 1967, NAYE contributed in encouraging women entrepreneurs. It set up women’s wing in 1975. Federation of Indian Women Entrepreneurs (FIWE), .is a National-level organization which was founded in 1993, is one of India’s Premier Institution for Women thoroughly devoted towards Entrepreneurship Development.
The objective of this organization is to promote the Economic Empowerment of Women, particularly the SME segment, by helping them to become successful entrepreneurs and become a part of the mainstream industry.
a. Technology obsolescence
b. Managerial inadequacies
c. Delayed Payments
e. Incidence of Sickness
f. Lack of Appropriate Infrastructure
g. Lack of Marketing Network
Entrepreneurship plays an important role in the development of economy. Every developed nation have benefited from theirentrepreneurs in building the economy. Bill Gate in USA is one such entrepreneur, who steered the software industry to new heights through his Microsoft Company. In India, numerous successful entrepreneurs exist, who successively built empire of their corporate structure.
Dhirubhai Ambani grew to a phenomenal height through Reliance industries. Jamsheedjee Tata, in Steel Industry, Ratan Tata etc. is few other examples of successful entrepreneurs in recent times.
11. Project report:
Project report is the summary of the entire project. Project report contains details about the purpose, objectives, scope, sponsorship and other details of the proposed project. Project report is the report on entire plan and scheme of the proposed project.
Project reports must be clear, concise and complete and contain the right level of detail for target audience. A good plan of action is useless unless it is executed efficiently; the entrepreneur or promoter with the help of the expert prepares a project report.
It is prepared on the basis of project planning. Project report helps in availing financial aid from banks and financial institutions.
12. Feasibility Study:
A feasibility study is an evaluation of a proposed project. It is the study of the project to find out whether the project is profitable or not. In other words, feasibility study involves an examination of the operations.
Project has to be viable not only in technical terms but also in economic and commercial terms too. The objective of financial analysis is to ascertain whether the proposed project will be financially viable.
Feasibility study is a detailed investigation of the proposed project to determine whether the project is financially, economically and technically viable or not. Feasibility Study contains the comprehensive, detailed information about the business structure, availability of resources and whether the business will run efficiently or not.
Feasibility study is conducted in the following areas:
It involves study of market situation, current market, anticipated future market, competition, potential buyers, etc.
This study involves study of technological aspects related to the business, like location of the business, layout, infrastructure, transportation, resource availability etc.
Financial feasibility denotes the financial aspects of the business. This study helps to understand requirement of start-up capital, sources of capital, returns on investment, etc. It helps to assess the financial health of the business.
This study is important to determine the size and particulars of manpower, their job description, job titles and standards. Also, salary rates and allowance are noted in this type of standard.
13. Feasibility Report:
Feasibility report is the final conclusion drawn about the business after conducting the feasibility study. The feasibility report includes the confirmation of the proposed project. It gives the detail about technical, economic and financial, environmental, socio-cultural and operational aspects of the project.
It is a formal document prepared by the experts. It gives the information on the authenticity of the feasibility study. The feasibility report answer the question ‘ the plan must be implemented or not’.
The feasibility report contains information on:
a. It helps him to determine the viability of the venture.
b. It provides guidance to the entrepreneur in planning realistic goals.
c. It helps to identify possible roadblocks.
d. It is a pre-requisite to obtain finance.
How to Write a Business Plan [Updated for 2020]
By: Noah Parsons
This article is part of both our Business Startup Guide and our Business Planning Guide —curated lists of our articles that will get you up and running in no time!
If you’ve reviewed what a business plan is , and reasons why you need one to start and grow your company, then it’s time to actually dig into how to write a business plan.
In this step-by-step guide, I’ll take you through every stage of writing a business plan that will actually help you achieve your goals. If you’re just looking for a downloadable template to get you started , you can skip ahead and download it now . Or, if you just want to see what a completed business plan looks like, check out our library of over 500 free sample business plans .
3 rules for writing a business plan:
1. Keep it short
Business plans should be short and concise.
The reasoning for that is twofold:
- First, you want your business plan to be read (and no one is going to read a 100-page or even 40-page business plan).
- Second, your business plan should be a tool you use to run and grow your business, something you continue to use and refine over time. An excessively long business plan is a huge hassle to revise—you’re almost guaranteed that your plan will be relegated to a desk drawer, never to be seen again.
2. Know your audience
Write your plan using language that your audience will understand.
For example, if your company is developing a complex scientific process, but your prospective investors aren’t scientists, avoid jargon, or acronyms that won’t be familiar.
Instead of this:
“Our patent-pending technology is a one-connection add-on to existing bCPAP setups. When attached to a bCPAP setup, our product provides non-invasive dual pressure ventilation.”
“Our patent-pending product is a no power, easy-to-use device that replaces traditional ventilator machines used in hospitals at 1/100th the cost.”
Accommodate your investors, and keep explanations of your product simple and direct, using terms that everyone can understand. You can always use the appendix of your plan to provide the full specs if needed.
3. Don’t be intimidated
The vast majority of business owners and entrepreneurs aren’t business experts. Just like you, they’re learning as they go and don’t have degrees in business.
Writing a business plan may seem like a big hurdle, but it doesn’t have to be. You know your business—you’re the expert on it. For that reason alone, writing a business plan and then leveraging your plan for growth won’t be nearly as challenging as you think.
And you don’t have to start with the full, detailed business plan that I’m going to describe here. In fact, it can be much easier to start with a simple, one-page business plan —what we call a Lean Plan—and then come back and build a slightly longer, more detailed business plan later.
6 elements to include in a business plan
Now that we have the rules of writing a business plan out of the way, let’s dive into the elements that you’ll include in it.
The rest of this article will delve into the specifics of what you should include in your business plan, what you should skip, the critical financial projections, and links to additional resources that can help jump-start your plan.
Remember, your business plan is a tool to help you build a better business, not just a homework assignment. Here are the basic components of the business plan you’re going to write.
1. Executive summary
This is an overview of your business and your plans. It comes first in your plan and is ideally only one to two pages. Most people write it last, though.
This section answers these questions: What are you actually selling and how are you solving a problem (or “need”) for your market? Who is your target market and competition?
How are you going to take your opportunity and turn it into a business? This section will cover your marketing and sales plan, operations, and your milestones and metrics for success.
4. Company and management summary
Investors look for great teams in addition to great ideas. Use this chapter to describe your current team and who you need to hire. You will also provide a quick overview of your legal structure, location, and history if you’re already up and running.
5. Financial plan
Your business plan isn’t complete without a financial forecast. We’ll tell you what to include in your financial plan.
If you need more space for product images or additional information, use the appendix for those details.
Let’s dive into the details of each section of your business plan and focus on building one that your investors and lenders will want to read.
The executive summary of your business plan introduces your company, explains what you do, and lays out what you’re looking for from your readers. Structurally, it is the first chapter of your business plan. And while it’s the first thing that people will read, I generally advise that you write it last.
Why? Because once you know the details of your business inside and out, you will be better prepared to write your executive summary. After all, this section is a summary of everything else you’re going to write about.
Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. In fact, it’s very common for investors to ask for only the executive summary when they are evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , and more in-depth financials.
Because your executive summary is such a critical component of your business plan, you’ll want to make sure that it’s as clear and concise as possible. Cover the key highlights of your business, but don’t into too much detail. Ideally, your executive summary will be one to two pages at most, designed to be a quick read that sparks interest and makes your investors feel eager to hear more.
The critical components of a winning executive summary:
One sentence business overview
At the top of the page, right under your business name, include a one-sentence overview of your business that sums up the essence of what you are doing.
This can be a tagline, but is often more effective if the sentence describes what your company actually does. This is also known as your value proposition.
In one or two sentences, summarize the problem you are solving in the market. Every business is solving a problem for its customers and filling a need in the market.
This is your product or service. How are you addressing the problem you have identified in the market?
Who is your target market , or your ideal customer? How many of them are there? It’s important here to be specific.
If you’re a shoe company, you aren’t targeting “everyone” just because everyone has feet. You’re most likely targeting a specific market segment such as “style-conscious men” or “runners.” This will make it much easier for you to target your marketing and sales efforts and attract the kinds of customers that are most likely to buy from you.
How is your target market solving their problem today? Are there alternatives or substitutes in the market?
Every business has some form of competition and it’s critical to provide an overview in your executive summary.
Company overview and team
Provide a brief overview of your team and a short explanation of why you and your team are the right people to take your idea to market.
Investors put an enormous amount of weight on the team—even more than on the idea—because even a great idea needs great execution in order to become a reality.
Highlight the key aspects of your financial plan, ideally with a chart that shows your planned sales, expenses, and profitability.
If your business model (i.e., how you make money) needs additional explanation, this is where you would do it.
If you are writing a business plan to get a bank loan or because you’re asking angel investors or venture capitalists for funding, you must include the details of what you need in the executive summary.
Don’t bother to include terms of a potential investment, as that will always be negotiated later. Instead, just include a short statement indicating how much money you need to raise.
Milestones and traction
The last key element of an executive summary that investors will want to see is the progress that you’ve made so far and future milestones that you intend to hit. If you can show that your potential customers are already interested in—or perhaps already buying—your product or service, this is great to highlight.
You can skip the executive summary (or greatly reduce it in scope) if you are writing an internal business plan that’s purely a strategic guide for your company. In that case, you can dispense with details about the management team, funding requirements, and traction, and instead treat the executive summary as an overview of the strategic direction of the company, to ensure that all team members are on the same page.
There are four main chapters in a business plan—opportunity, execution, company overview, and financial plan. The opportunity chapter of your business plan is where the real meat of your plan lives—it includes information about the problem that you’re solving, your solution, who you plan to sell to, and how your product or service fits into the existing competitive landscape.
You’ll also use this section of your business plan to demonstrate what sets your solution apart from others, and how you plan to expand your offerings in the future.
People who read your business plan will already know a little bit about your business because they read your executive summary. But this chapter is still hugely important because it’s where you expand on your initial overview, providing more details and answering additional questions that you won’t cover in the executive summary.
The problem and solution
Start the opportunity chapter by describing the problem that you are solving for your customers. What is the primary pain point for them? How are they solving their problems today? Maybe the existing solutions to your customer’s problem are very expensive or cumbersome. For a business with a physical location, perhaps there aren’t any existing solutions within reasonable driving distance.
Defining the problem you are solving for your customers is far and away the most critical element of your business plan and crucial for your business success. If you can’t pinpoint a problem that your potential customers have, then you might not have a viable business concept.
To ensure that you are solving a real problem for your potential customers, a great step in the business planning process is to get away from your computer and actually go out and talk to potential customers. Validate that they have the problem you assume they have, and then take the next step and pitch your potential solution to their problem. Is it a good fit for them?
Once you have described your target market’s problem, the next section of your business plan should describe your solution. Your solution is the product or service that you plan on offering to your customers. What is it and how is it offered? How exactly does it solve the problem that your customers have?
For some products and services, you might want to describe use cases or tell a story about a real user who will benefit from (and be willing to pay for) your solution.
Now that you have detailed your problem and solution in your business plan, it’s time to turn your focus toward your target market : Who are you selling to?
Depending on the type of business you are starting and the type of plan you are writing, you may not need to go into too much detail here. No matter what, you need to know who your customer is and have a rough estimate of how many of them there are . If there aren’t enough customers for your product or service, that could be a warning sign.
Market analysis and market research
If you are going to do a market analysis , start with some research. First, identify your market segments and determine how big each segment is. A market segment is a group of people (or other businesses) that you could potentially sell to.
Don’t fall into the trap, though, of defining the market as “everyone.” The classic example is a shoe company. While it would be tempting for a shoe company to say that their target market is everyone who has feet, realistically they need to target a specific segment of the market in order to be successful. Perhaps they need to target athletes or business people who need formal shoes for work, or perhaps they are targeting children and their families. Learn more about target marketing in this article .
TAM, SAM, and SOM
A good business plan will identify the target market segments and then provide some data to indicate how fast each segment is growing. When identifying target markets, a classic method is to use the TAM, SAM, and SOM breakdown to look at market sizes from a top-down approach as well as a bottom-up approach.
Here are some quick definitions:
- TAM: Your Total Available or Addressable Market (everyone you wish to reach with your product)
- SAM: Your Segmented Addressable Market or Served Available Market (the portion of TAM you will target)
- SOM: Your Share Of the Market (the subset of your SAM that you will realistically reach—particularly in the first few years of your business)
Once you have identified your key market segments, you should discuss the trends for these markets. Are they growing or shrinking? Talk about the market’s evolving needs, tastes, or other upcoming changes to the market.
Your ideal customer
When you have your target market segments defined, it’s time to define your ideal customer for each segment.
One way to talk about your ideal customer in your plan is to use your “buyer persona” or “user persona.” A buyer persona is a fictitious representation of your market—they get a name, gender, income level, likes, dislikes, and so on.
While this may seem like additional work on top of the market segmentation that you have already done, having a solid buyer persona will be an extremely useful tool to help you identify the marketing and sales tactics you’ll need to use to attract these ideal customers.
The final section of your target market chapter should discuss key customers.
This section is really only required for enterprise (large) companies that have very few customers. Most small businesses and typical startups can skip this and move on.
But if you selling to other businesses (B2B), you may have a few key customers that are critical to the success of your business, or a handful of important customers that are trend leaders in your space. If so, use this final portion of your target market chapter to provide details about those customers and how they are important to your business’s success.
Immediately following your target market section, you should describe your competition. Who else is providing solutions to try and solve your customers’ pain points? What are your competitive advantages over the competition?
Most business plans use a “competitor matrix” to easily compare their features against their competition. The most important thing to illustrate in this section of your business plan is how your solution is different or better than other offerings that a potential customer might consider. Investors will want to know what advantages you have over the competition and how you plan on differentiating yourself.
One of the biggest mistakes entrepreneurs make in their business plans is stating that they don’t have any competition.
The simple fact is that all businesses have competition . Competitors may not always come in the form of “direct competition,” which is when you have a competitor offering a similar solution to your offering. Often times, you may be dealing with “indirect competition,” which is when consumers solve their problem with an entirely different kind of solution.
For example, when Henry Ford was first marketing his cars, there was very little direct competition from other car manufacturers—there weren’t any other cars. Instead, Ford was competing against other modes of transportation—horses, bikes, trains, and walking. On the surface, none of these things look like real direct competition, but they were how people were to solving their transportation problems at that time.
Future products and services
All entrepreneurs have a vision of where they want to take the business in the future if they are successful.
While it’s tempting to spend a lot of time exploring future opportunities for new products and services, you shouldn’t expand too much on these ideas in your business plan. It’s certainly useful to include a paragraph or two about potential future plans, to show investors where you are headed in the long term, but you don’t want your plan to be dominated by long-range plans that may or may not come to fruition. The focus should be on bringing your first products and services to market.
Now that you’ve completed the opportunity chapter, you’re going to move on to the execution chapter, which includes everything about how you’re actually going to make your business work. You’ll cover your marketing and sales plans, operations, how you’ll measure success, and the key milestones that you expect to achieve.
Marketing and sales plan
The marketing and sales plan section of your business plan details how you plan to reach your target market segments (also called target marketing ), how you plan on selling to those target markets, what your pricing plan is, and what types of activities and partnerships you need to make your business a success.
Before you even think about writing your marketing plan, you must have your target market well-defined and have your buyer persona(s) fleshed out. Without truly understanding who you are marketing to, a marketing plan will have little value.
Your positioning statement
The first part of your marketing and sales plan is your positioning statement. Positioning is how you will try and present your company to your customers. Are you the low-price solution, or are you the premium, luxury brand in your market? Do you offer something that your competitors don’t offer?
Before you start working on your positioning statement, you should take a little time to evaluate the current market and answer the following questions:
- What features or benefits do you offer that your competitors don’t?
- What are your customers’ primary needs and wants?
- How are your competitors positioning themselves?
- How do you plan on differentiating from the competition? In other words, why should a customer choose you instead of someone else?
- Where do you see your company in the landscape of other solutions?
Once you’ve answered these questions, you can then work on your positioning strategy and define it in your business plan.
Don’t worry about making your positioning statement very long or in-depth. You just need to explain where your company sits within the competitive landscape and what your core value proposition is that differentiates your company from the alternatives that a customer might consider.
You can use this simple formula to develop a positioning statement:
For [target market description] who [target market need], [this product] [how it meets the need]. Unlike [key competition], it [most important distinguishing feature].
For example, the positioning statement for LivePlan, our business planning product, is: “For the businessperson who is starting a new company, launching new products or seeking funding or partners, LivePlan is software that produces professional business plans quickly and easily. Unlike [name omitted], LivePlan creates a real business plan, with real insights—not just cookie-cutter, fill-in-the-blank templates.”
Once you know what your overall positioning strategy is, you can move on to pricing .
Your positioning strategy will often be a major driver of how you price your offerings. Price sends a very strong message to consumers and can be an important tool to communicate your positioning to consumers. If you are offering a premium product, a premium price will quickly communicate that message to consumers.
Deciding on your price can feel more like an art than a science, but there are some basic rules that you should follow:
- Covering your costs. There are certainly exceptions to this, but for the most part, you should be charging your customers more than it costs you to deliver your product or service.
- Primary and secondary profit center pricing. Your initial price may not be your primary profit center. For example, you may sell your product at, or even below, your cost, but require a much more profitable maintenance or support contract to go along with the purchase.
- Matching the market rate . Your prices need to match up with consumer demand and expectations. Price too high and you may have no customers. Price too low and people may undervalue your offering.
3 approaches to pricing strategy
- Cost-plus pricing . You can establish your pricing based on several factors. You can look at your costs and then mark up your offering from there. This is usually called “cost-plus pricing” and can be effective for manufacturers where covering initial costs is critical.
- Market-based pricing. Another method is to look at the current landscape of competitors and then price based on what the market is expecting. You could price at the high-end or low-end of the market to establish your positioning.
- Value pricing. Yet another method is to look at a “value pricing” model where you determine the price based on how much value you are providing to your customer. For example, if you are marketing lawn care to busy professionals, you may be saving your customers 1 hour/week. If that hour of their time is valued at $50/hour, your service could charge $30/hour.
With pricing and positioning taken care of, it’s time to look at your promotion strategy. A promotion plan details how you plan on communicating with your prospects and customers. Remember, it’s important that you’ll want to measure how much your promotions cost and how many sales they deliver. Promotional programs that aren’t profitable are hard to maintain in the long term.
Here are a few areas that you might consider as part of your promotional plan:
If you are selling a product, the packaging of that product is critical . If you have images of your packaging, including those in your business plan is always a good idea.
Be sure the packaging section of your plan answers the following questions:
- Does your packaging match your positioning strategy?
- How does your packaging communicate your key value proposition?
- How does your packaging compare to your competition?
Your business plan should include an overview of the kinds of advertising you plan to spend money on. Will you be advertising online? Or perhaps in traditional, offline media ? A key component to your advertising plan is your plan for measuring the success of your advertising.
Getting the media to cover you—PR —can be a great way to reach your customers. Getting a prominent review of your product or service can give you the exposure you need to grow your business. If public relations if part of your promotional strategy, detail your plans here.
A popular strategy for promotion is engaging in what is called content marketing.
Content marketing is what Bplans is all about. It’s when you publish useful information, tips, and advice—usually made available for free—so that your target market can get to know your company through the expertise that you deliver. Content marketing is about teaching and educating your prospects on topics that they are interested in, not just on the features and benefits that you offer.
These days, having a social media presence is essentially a requirement for the vast majority of businesses.
You don’t need to be on every social media channel , but you do need to be on the ones that your customers are on. More and more, prospects are using social media to learn about companies and to find out how responsive they are.
As part of your marketing plan, you may rely on working closely with another company in a form of partnership.
This partnership may help provide access to a target market segment for your company while allowing your partner to offer a new product or service to their customers.
If you have partnerships already established, it’s important to detail those partnerships in your business plan.
The operations section is how your business works. It’s the logistics, technology, and other nuts and bolts. Depending on the type of business you are starting, you may or may not need the following sections. Only include what you need and remove everything else.
Sourcing and fulfillment
If your company is buying the products it is selling from other vendors, it’s important to include details on where your products are coming from, how they get delivered to you, and ultimately how you deliver the products to the customer—that’s sourcing and fulfillment .
If you are sourcing products from manufacturers overseas, investors are going to want to know about your progress working with these suppliers. If your business is going to be delivering products to your customers, you should describe your plans for shipping your products.
If you are a technology company, it’s critical for your business plan to describe your technology and what your “secret sauce” is.
You don’t have to give away trade secrets in your business plan, but you do need to describe how your technology is different and better than other solutions out there. At a high level, you will want to describe how your technology works. You don’t need to go into excruciating detail here, though—if an investor is interested in more detail they will ask for it, and you can provide that information in your appendix.
Remember, your goal is to keep your business plan as short as possible, so too much detail here could easily make your plan much too long.
For product companies, a distribution plan is an important part of the complete business plan. For the most part, service companies can skip this piece and move on.
Distribution is how you will get your product into the hands of your customers. Every industry has different distribution channels and the best way to create your distribution plan is to interview others in your industry to figure out what their distribution model is.
Here are a few common distribution models that you may consider for your business:
Selling directly to consumers is by far the most simple and most profitable option.
You could consider passing the savings of selling directly on to your customers or you could simply increase your profit margins. You will still need to cover the logistics of how you will get your products to your customers from your warehouse, but a direct distribution model is usually fairly simple.
Most large retailers don’t like the hassle of dealing with thousands of individual suppliers.
Instead, they prefer to buy through large distribution companies that aggregate products from lots of suppliers and then make that inventory available to retailers to purchase. Of course, these distributors take a percentage of the sales that pass through their warehouses.
These are typically salespeople who work for a “repping” agency. They often have relationships with retailers and distributors and work to sell your products into the appropriate channel. They typically work on commission and it’s not uncommon for a rep to be necessary for getting a new company access to a distributor or retailer.
This stands for “original equipment manufacturer.” If your product is sold to another company that then incorporates your product into their finished product, then you are using an OEM channel.
A good example of this is car parts suppliers. While large auto manufacturers do build large components of their cars, they also purchase common parts from third-party vendors and incorporate those parts into the finished vehicle.
Most companies use a mixture of distribution channels as part of their plans, so don’t feel that you need to be limited to a single channel. For example, it is very common to both sell direct and via distributors—you can purchase an iPhone directly from Apple, or go into a Target store and get one there.
Milestones and metrics
A business plan is only a document on paper without a real path to get the work done, complete with a schedule, defined roles, and key responsibilities.
While the milestones and metrics section of your business plan may not be long, it’s critical that you take the time to look forward and schedule the next critical steps for your business. Investors will want to see that you understand what needs to happen to make your plans a reality and that you are working on a realistic schedule.
Start with a quick review of your milestones. Milestones are planned major goals. For example, if you are producing a medical device, you will have milestones associated with clinical testing and government approval processes. If you are producing a consumer product, you may have milestones associated with prototypes, finding manufacturers, and first-order receipt.
While milestones look forward, you will also want to take a look back at major accomplishments that you have already had. Investors like to call this “traction.” What this means is that your company has shown some evidence of early success.
Traction could be some initial sales, a successful pilot program, or a significant partnership. Sharing this proof that your company is more than just an idea—that it has actual evidence that it is going to be a success—can be critically important to landing the money you need to grow your business.
In addition to milestones and traction, your business plan should detail the key metrics that you will be watching as your business gets off the ground. Metrics are the numbers that you watch on a regular basis to judge the health of your business. They are the drivers of growth for your business model and your financial plan.
For example, a restaurant may pay special attention to the number of table turns they have on an average night and the ratio of drink sales to food sales. An online software company might look at churn rates (the percentage of customers that cancel) and new signups. Every business will have key metrics that it watches to monitor growth and spot trouble early, and your business plan should detail the key metrics that you will be tracking in your business.
Key assumptions and risks
Finally, your business plan should detail the key assumptions you have made that are important for your businesses success.
Another way to think about key assumptions is to think about risk. What risks are you taking with your business ? For example, if you don’t have a proven demand for a new product, you are making an assumption that people will want what you are building. If you are relying on online advertising as a major promotional channel, you are making assumptions about the costs of that advertising and the percentage of ad viewers that will actually make a purchase.
Knowing what your assumptions are as you start a business can make the difference between business success and business failure. When you recognize your assumptions, you can set out to prove that your assumptions are correct. The more that you can minimize your assumptions, the more likely it is that your business will succeed.
Company overview and team
In this chapter, you’ll review the structure of your company and who the key team members are. These details are especially important to investors as they’ll want to know who’s behind the company and if they can convert a good idea into a great business.
The old adage is that investors don’t invest in ideas, they invest in people. Some investors even go as far as to say that they would rather invest in a mediocre idea with a great team behind it than a blockbuster idea with a mediocre team.
What this really means is that running a successful business all comes down to getting the work down. Can you actually accomplish what you have planned? Do you have the right team in place to turn a good idea into a great business that will have customers banging down your doors?
The company overview and team chapter of your business plan is where you make your best case that you have the right team in place to execute on your idea. It should show that you have thought about the important roles and responsibilities your business needs in order to grow and be successful.
Include brief bios that highlight relevant experiences of each key team member. It’s important here to make the case for why the team is the right team to turn an idea into a reality. Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before?
A common mistake novice entrepreneurs make in describing the management team is giving everyone on the team a C-level title (CEO, CMO, COO, and so on). While this might be good for egos, it’s often not realistic. As a company grows, you may require different types of experience and knowledge. It’s often better to allow for future growth of titles rather than to start everyone at the top with no room for future growth or change.
Your management team doesn’t necessarily need to be complete in order to have a complete business plan. If you know that you have management team gaps, that’s O.K. In fact, investors see the fact that you know you are missing certain key people as a sign of maturity and knowledge about what your business needs to succeed. If you do have gaps in your team, simply identify them and indicate that you are looking for the right people to fill certain roles.
Finally, you may choose to include a proposed organizational chart in your business plan. This isn’t critical and can certainly live in your business plan’s appendix. At some point, as you explore funding options, you may be asked for an “org chart,” so it’s good to have one. Beyond raising money, an org chart is also a useful planning tool to help you think about your company and how it will grow over time. What key roles will you be looking to fill in the future and how will you structure your teams to get the most out of them? An org chart can help you think through these questions.
The company overview will most likely be the shortest section of your business plan. For a plan that you intend to just share internally with your business partners and team members, skip this section and move on.
For a plan that you will share with people outs >Mission statement
Don’t fall into the trap of spending a day or more on your mission statement . An hour or two should be plenty of time.
Avoid putting together a long, generic statement about how your company is serving its customers, employees, and so on. Your company mission should be short—one or two sentences at most—and it should encompass, at a very high level, what you are trying to do. Frankly, your mission statement and your overall value proposition might even be the same thing.
Here at Palo Alto Software (makers of Bplans), our mission statement is this: “We help people succeed in business.” It’s simple and encompasses everything we do from the types of products that we build to the kind of marketing that we do.
This mostly applies to technology and scientific ventures, so just skip this if you don’t need to discuss your patents and other intellectual property.
But, if you have intellectual property that is proprietary to your business and helps your business defend itself against competitors, you should detail that information here. If you have patents or are in the patent application process, this is the place to highlight those patents. Equally important to discuss is technology licensing—if you are licensing core technology from someone else, you need to disclose that in your business plan and be sure to include details of the financial relationship.
Business structure and ownership
Your company overview should also include a summary of your company’s current business structure . Are you an LLC ? A C-corp ? An S-corp ? A sole proprietor ? In a partnership ?
Be sure to define provide a review of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.
If you are writing a business plan for an existing company, it’s appropriate to include a brief history of the company and highlight major historical achievements. Again, keep this section short—no more than a few paragraphs at most.
This section is especially useful to give context to the rest of your plan, and can also be very useful for internal plans. The company history section can provide new employees with a background on the company so that they have a better context for the work that they are doing and where the company has come from over the years.
Finally, the company overview section of your business plan should describe your current location and any facilities that the company owns.
For businesses that serve consumers from a storefront, this information is critical. Also, for businesses that require large facilities for manufacturing, warehousing, and so on, this information is an important part of your plan.
Last, but certainly not least, is your financial plan chapter. This is often what entrepreneurs find most daunting, but it doesn’t have to be as intimidating as it seems. Business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast . That said, if you need additional help, there are plenty of tools and resources out there to help you build a solid financial plan.
A typical financial plan will have monthly sales and revenue projections for the first 12 months, and then annual projections for the remaining three to five years. Three-year projections are typically adequate, but some investors will request a five-year forecast.
Following are details of the financial statements that you should include in your business plan, and a brief overview of what should be in each section.
Your sales forecast is just that—your projections of how much you are going to sell over the next few years.
A sales forecast is typically broken down into several rows, with a row for each core product or service that you are offering. Don’t make the mistake of breaking down your sales forecast into excruciating detail. Just focus on the high-level at this point.
For example, if you are forecasting sales for a restaurant , you might break down your forecast into these groups: lunch, dinner, and drinks. If you are a product company, you could break down your forecast by target market segments or into major product categories.
Your sales forecast will also include a corresponding row for each sales row to cover Cost of Goods Sold , also known as COGS (also called direct costs). These rows show the expenses related to making your product or delivering your service. COGS should only include those costs directly related to making your products, not regular business expenses such as rent, insurance, salaries, etc. For restaurants, it would be the cost of ingredients. For a product company, it would the cost of raw materials. For a consulting business, it might be the cost of paper and other presentation materials.
Your personnel plan details how much you plan on paying your employees. For a small company, you might list every position on the personnel plan and how much will be paid each month for each position. For a larger company, the personnel plan is typically broken down into functional groups such as “marketing” and “sales.”
The personnel plan will also include what is typically called “employee burden,” which is the cost of an employee beyond salary. This includes payroll taxes, insurance, and other necessary costs that you will incur every month for having an employee on your payroll.
Profit and loss statement
Also known as the income statement , the profit and loss (or P&L) is where your numbers all come together and show if you’re making a profit or taking a loss. The P&L pulls data from your sales forecast and your personnel plan and also includes a list of all your other ongoing expenses associated with running your business.
The P&L also contains the all-important “bottom line” where your expenses are subtracted from your earnings to show if your business is making a profit each month or potentially incurring some losses while you grow.
A typical P&L will be a spreadsheet that includes the following:
- Sales (or income or revenue). This number will come from your sales forecast worksheet and includes all revenue generated by the business.
- Cost of goods sold (COGS). This number also comes from your sales forecast and is the total cost of selling your product. For service businesses, this can also be called cost of sales or direct costs.
- Gross margin . Subtract your COGS from your sales to get this number. Most profit and loss statements also show this number as a percentage of total sales (gross margin / sales = gross margin percent)
- Operating expenses . List all of your expenses associated with running your business, excluding the COGS that you already detailed. You should also exclude taxes, depreciation, and amortization. However, you do include salaries, research and development (R&D) expenses, marketing expenses, and other expenses here.
- Total operating expenses . This is the sum of your operating expenses.
- Operating income . This is also known as EBITDA, or earnings before interest, taxes, depreciation, and amortization. This is a simple calculation where you just subtract your total operating expenses and COGS from your sales.
- Interest, taxes, depreciation, and amortization. If you have any of these expense streams, you will list them below your operating income.
- Total expenses. Add your operating expenses to interest, taxes, depreciation, and amortization to get your total expenses.
- Net profit. This is the all-important bottom line that shows if you’ve made a profit, or taken a loss, during a given month or year.
Cash flow statement
The cash flow statement often gets confused with the profit and loss statement, but they are very different and serve very different purposes. While the P&L calculates your profits and losses, the cash flow statement keeps track of how much cash (money in the bank) that you have at any given point.
The key to understanding the difference between the two statements is understanding the difference between cash and profits. The simplest way to think about it is when you make a sale. If you need to send a bill to your customer and then your customer takes 30 or 60 days to pay the bill, you don’t have the cash from the sale right away. But, you will have booked the sale in your P&L and shown a profit from that sale the day you made the sale.
A typical cash flow statement starts with the amount of cash you have on hand, adds new cash received through cash sales and pa >
Your cash flow statement will show you when you might be low on cash, and when it might be the best time to buy new equipment. Above all, your cash flow statement will help you figure out how much money you might need to raise or borrow to grow your company. Since an operating business can’t run out of cash without having to close its doors, use your cash flow statement to figure out your low cash points and consider options to bring in additional cash.
The last financial statement that most businesses will need to create as part of their business plan is the balance sheet . The balance sheet provides an overview of the financial health of your business. It lists the assets in your company, the liabilities, and your (the owner’s) equity. If you subtract the company’s liabilities from assets, you can determine the net worth of the company.
Instead of providing additional detail on the balance sheet here, I’ll refer you to this article on building and reading balance sheets.
Use of funds
If you are raising money from investors, you should include a brief section of your business plan that details exactly how you plan on using your investors’ cash.
This section doesn’t need to go into excruciating detail about how every last dollar will be spent, but instead, show the major areas where the investors’ funds will be spent. These could include marketing, R&D, sales, or perhaps purchasing inventory.
The last thing that you might need to include in your financial plan chapter is a section on your exit strategy .
An exit strategy is your plan for eventually selling your business, either to another company or to the public in an IPO. If you have investors, they will want to know your thoughts on this. If you’re running a business that you plan to maintain ownership of indefinitely, and you’re not seeking angel investment or VC funding, you can skip the exit strategy section. After all, your investors will want to get a return on their investment, and the only way they will get this is if the company is sold to someone else.
Again, you don’t need to go into excruciating detail here, but you should identify some companies that might be interested in buying you if you are successful.
An appendix to your business plan isn’t a required chapter by any means, but it is a useful place to stick any charts, tables, definitions, legal notes, or other critical information that either felt too long or too out-of-place to include elsewhere in your business plan. If you have a patent or a patent pending, or illustrations of your product, this is where you’d want to include the details.
If you want even more details on creating your business plan, please take a look at these articles. They will guide you through the details of creating a winning plan that will impress your investors:
Business planning tools and downloads
It can be very helpful to view some completed business plans as you go through the planning process. I encourage you to take a look at our sample business plan library and download our free business plan template .
You might also want to check out our business plan template available through our software, LivePlan . You can also check out LivePlan’s business plan consulting , which will give you a professional business plan written by an MBA in five business days.
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Noah is currently the COO at Palo Alto Software, makers of Outpost and the online business plan app LivePlan, and content curator and creator of the Emergent Newsletter. You can follow Noah on Twitter.
Setting up a business, presenting a business plan, raising capital — Business English
Business English: Capstone Project
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The capstone project will give you opportunities to demonstrate your competence in the learning objectives for this Specialization. For the project, you’ll use formal, written methods and more casual visual and audio methods of communication to demonstrate your ability to use language appropriate for different business contexts. The goal of this course is to demonstrate competence in writing and presenting a plan using skills and language appropriate for business. Course Learning Objectives • Use appropriate vocabulary to write a mini business plan • Communicate a business plan orally in an organized and engaging presentation
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[MUSIC] Welcome back. In the previous week, you chose a product to a service and wrote a brief networking introduction. Your next milestone is to write an outline of a mini business plan and create a set of slides for your presentation. So first let’s talk a little about business plans. Start ups usually need money so that they can build their business. Sometimes the founders invest their own money to begin with. Another option is to ask a bank for a loan. Alternatively, a start up might ask companies or individuals to invest their own money. Companies that do this are called venture capital firms and individuals are sometimes called angel investors. Peach received funding from venture capital firms. For example, another option is to get funding by donations from a lot of people, usually on the internet. This is called crowdfunding. For example, Grayl raised money through the crowdfunding website Kickstarter to fund a new version of their water purifier. But before a venture capital firm or an investor decides to give money. They will want to know what they are investing in. Whether the startup knows what it’s going to do. And probably more importantly, whether the startup will be successful. To help an investor make these decisions, a startup will often create a business plan. A business plan answers these questions: what does the company want to do? How will the company do it? And will the company be successful?. So let’s look at some basic details of a business plan. First of all, a business plan is usually a written document. If you’re writing a plan to persuade investors, it will probably be a formal written document. We talked about proposals in our course on meetings. Well, a business plan is similar in style and vocabulary. It should be clear, easy to read and with more formal language. The business plan may have different purposes. For example, persuading another company to work with you on a joint venture or helping the company develop in a new direction. For this Capstone projects, your purpose will be to persuade someone to invest money in your company. Business plans can be very long and detailed but you’re going to write a mini business plan. This will be a basic plan and will support your presentation. By the way, if you are interested in finding out more about business plans, you can see the resource page on business plans. So, here is what you should include in your mini business plan for this project. First an introduction and your mission statement. The problem or need that your product or service addresses. A description of your product or service. Information about you and your company, a market analysis, a marketing plan, and finally, financial information. You’re going to answer a set of questions about each section so that you can create an outline for your mini business plan. We will look at sections 1 to 4 now and then the marketing and financial sections later. For the introduction and mission statement, answer these questions. What is your name? What is your company’s name? What do you do in the company? What are your company’s goals? What are your company’s values? You can use the information from your networking introduction that you wrote previously. For the problem or need section, answer these questions. What is the problem or need? Where is this problem or need? How will your product or service solve this problem or fill this need? For the product or service description, answer these questions. What is your product or service? Where are you in the development of the product or service? For example, have you already designed and manufactured the product? Have you already launched your app? Are you selling your service or product already? If not, when do you want to start selling? Next, how will you provide your service or how will you sell your product? For example, Peach asks people to sign up on their website or download their app. If you chose a product, you could also include information about how your product is made or what materials are used? For example the grail cup is made of high quality stainless steel. Stainless steel is imported from China. For the company overview, answer the following questions. When was your company started or founded? Where is your company located? Who is in your company? Do you have a partner? Are there other people involved? What are their positions? How many employees are there? And then about yourself, what is your background or experience? When you’re finished answering these questions, share some of your ideas in the discussion forum. [MUSIC]
Setting up a business, presenting a business plan, raising capital — Business English
Прочитайте текст и заполните пропуски A–F частями предложений, обозначенными цифрами 1–7. Одна из частей в списке 1–7 — лишняя. Занесите цифры, обозначающие соответствующие части предложений, в таблицу.
Starting your own business
What are the reasons for starting your own business? One of them is because you believe you are the best in that line or because you have a product or service that has never been offered to the market before. Another is that you are a person in a real hurry and cannot suffer the A___________ to reach your goals. Sometimes it is because you have an inheritance B_____________ soon after you set up a business or that there already is a cash purse with loose strings and you want to make the best of this bonanza.
If your reasons are any or all of the above, abandon the thought right now and save yourself the disillusionment C____________into the world of commerce.
Start your own business just for the sake of doing a trade, or for D___________. Do not burden yourself with lofty notions of superiority when compared to your peers. When setting out to start your own business, be emotional about it, but not impractical; don’t be led by your heart, but be dictated by your mind.
Having covered those parts that are not taught in a business school, let us look at E____________ your own business. You should start with a SWOT analysis – strengths, weaknesses, opportunities and threats – analyze these for yourself, for partners in your business, if any, and for the business itself.
If the result of the analysis is encouraging, then prepare a business plan. It is like a road map for actions in the near foreseeable future to achieve your business goals. Finally, execute the business plan with precision; tweak it as you go along, only so that it helps to meet the end goal of successfully F_____________ the business.
1. the essentials of starting
2. that awaits when you step
3. trials and tribulations of employment
4. establishing and conducting
5. preparing a business plan
6. waiting to be acquired
7. undertaking the commercial activity
A — 3. В другом случае, если вы человек в спешке и не можете вынести переживания и невзгоды рабочего процесса для достижения своих целей.
B — 6. Иногда это из-за того, что человек ожидает приобретения наследства вскоре после того, как вы создаете свой бизнес.
C — 2. Если одна из ваших причин описана выше, то забудьте об этом сейчас и разочарование ожидает вас при входе в мир коммерции.
D — 7. Начинайте свой бизнес только ради того, чтобы обмениваться товарами или для того, чтобы подвргнуть себя коммерческой активности.
E — 1. Изучив ту часть, которой вас не научат в бизнес-школе, перейдем к основам создания собственного бизнеса.
F — 4. Наконец, создайте точный бизнес-план; следуйте ему, так как он помогает достигнуть конечной цели, заключающейся в успешном создании и поддержании бизнеса.