Preparing The Business Plan Long Answer Type Questions

Question 1.
State the various steps of Business plan, Discuss. OR Give the outline of a business plan.
Answer:
The outline for a business plan is as follows:
I. Introductory Page:
This is the title or cover page that provides a brief summary of the business plans contents. It should contain the following:

  • Name and address of the company
  • Name of the entrepreneur, telephone number, fax number, e-mail address, website address (if any)
  • Paragraph describing the company and nature of business.
  • Amount of finance required
  • A statement of the confidentiality of the report for security purposes.

II. Executive Summary:
This section of the plan is written after the total plan is prepared. The executive summary should stimulate the interest of the potential investor. It would highlight in a concise and convincing manner the key points in the business plan.

III. Environmental and Industry Analysis:
Environmental analysis is the assessment of external uncontrollable variables that may impact the business plan. Examples of these factors are:

  • Economy: Trends in GNP, unemployment, disposable income and so on.
  • Culture : Shifts in the population by demographics, shifts in attitudes, concern for environment trends in safety, health and nutrition.
  • Technology: Potential technological developments.
  • Legal concerns: Legal issues in starting the ventures, future legislation, deregulation of prices, restrictions on media advertising and safety regulations.

Once an assessment of the environment is complete, the entrepreneur should conduct an industry analysis that will focus on specific industry trends and competitive strategies. Some examples of these factors are:

  • Industry Demand: Whether market is growing or declining, the number of new competitors and possible changes in consumer needs.
  • Competition: Potential threats from larger corporations, their strengths and weaknesses.

IV. Description of the Venture: This provides complete overview of products, services, and operations of the new venture. This statement describes the nature of the business and what the entrepreneur hopes to accomplish with that business.

V. Production plan: This plan will describe the complete manufacturing process, the subcontractors ( if any), including location, reasons for selection, costs and any contracts that have been completed.

VI. Marketing Plan: It describes the market conditions and the strategy related to how products and services will be distributed, priced and promoted.

VII. Organisational Plan: It describes the form of ownership and lines of authority and responsibility of members of the new venture.

VIII. Assessment of Risk: This section will identify the potential hazards and alternative strategies to meet business plan goals and objectives.

IX. Financial Plan: This gives the projections of key financial data that determine economic feasibility and necessary financial investment commitment.

X. Appendix: This section generally contains any backup material that is not necessary in the text of the document.

Question 2.
Explain typical business plan format.
Answer:
There is no standard outline for all business plans. It depends on the aim of the entrepreneur, the target audience, the intended industry and so on.
A general format of a business plan in given below:
(i) The Executive Summary: The Executive summary is the starting point of the business plan. It gives a brief arid quick information of who you are and what the business is all about.

(ii) Description of the business: Name of business, its location, its goals, and the strategies adopted.

(iii) Product/service: Describe the nature of product/service offered, the target market being served, and the customer demand situation.

(iv) Management: Form and type of organisation and its culture.

(v) Financial requirements: Purpose of financing and financial history of the business.

(vi) Organisation description: Responsibility and authority, organisation chart describing the level and status of each executive, legal structure.

(vii) Industry: Industry size, market share analysis, principal markets, factors affecting industry, customer tastes and preferences, nature of competition, competitor’s strengths and weaknesses.

(viii) Marketing strategy: Pricing policy, promotion policy, field support, technology adopted, intellectual property.

(ix) Production/Operations Plan: Physical facilities, key suppliers, labour/ employee situation, manufacturing processes.

(x) Ownership: Names, addresses of owners

(xi) Key Personnel; Duties, responsibilities, job descriptions.

(xii) Accounting Records: Accounting methods, record keeping systems.

(xiii) Financial Information: Balance sheet, income statement, cashflow, projections, sources and uses of funds.

(xiv) Appendices: Catalogs, Sales Brochures, Public relations material, customer lists, transacting banks, terms of loan, market research data, reference letters etc.

Question 3.
What are the pitfalls of business planning? Explain how the pitfalls are avoided in business planning.
Answer:
The pitfalls of business planning are:

  • Incredible financial projections.
  • Lack of a viable opportunity.
  • No clear route to market.
  • Overestimation of revenues.
  • Lack of good cash flow management.
  • No clear objective.
  • No evidence of real demand.
  • Business plan inconsistencies.
  • Playing down the competition.
  • Rushing the output.

The pitfalls are avoided in business planning by the following ways.

  • Using business systems to define and control workflow.
  • Effective organization structure.
  • Break down tasks into a step-by-step process with checkpoints to ensure quality.
  • Understand payment terms.
  • Cover legal bases.
  • Define banking boundaries.
  • Identify the target markets.
  • Proper estimation of revenue.
  • Proper cash flow management.
  • Understand the competition.

Question 4.
Discuss the various steps involved before commencing a business.
Answer:
The various steps involved before starting a business includes the following:
Step 1 – Write a Business Plan: Write a business plan whether it is a need to secure a business loan or not. A well-prepared plan revisited often – will help to steer business all along its growth curve. Break it down into mini-plans such as for marketing, one for pricing, one for operations, and so on.

Step 2 – Get Help and Training: Starting a business can be a lonely endeavor, but there are lots of resources that may come handy and that can help advice you as you get started.

Step 3 – Choose Your Business Location: Where to locate business may be the single most important decision to make. Many factors come into play such as proximity to suppliers, the competition, transportation access, demographics, and zoning regulations.

Step 4 – Understand the Financing Options: Choose to bootstrap, fall back on savings, or even keep a full-time job until your business is profitable, explain the options data collected and streamlined.

Step 5 – Decide on a Business Structure: Going it alone or forming a partnership? Thinking of incorporating? What about an LLC? How you structure business can reduce the personal liability for business losses and debts. Some choices can give you tax benefits.

Step 6 – Register Business Name (“Doing Business As”): Registering a “Doing Business As” name or “trade name” is only needed if naming business as something other than personal name, the names of your partners, or the officially registered name of your LLC or corporation.

Step 7 – Get a Tax ID: Not every business needs a tax ID from the IRS also known as an “Employer Identification Number” or EIN, but if possessing employees, run a business partnership, a corporation or meet certain IRS criteria, it is a must to obtain an EIN from the IRS. There is a need to start paying estimated taxes to the IRS.

Step 8 – Register with Tax Authorities: Employment taxes, sales taxes, and state income taxes are handled at the state-level. Possessing a good knowledge to take decisions with the advice of good practising consultants matter a lot. Hence registering with tax authorities is beneficial.

Step 9 – Apply for Permits and Licenses: All businesses, even home-based businesses, need a license or permit to operate.

Step 10 – Hiring Employees: As the proposed plan is now gained momentum, hiring employees according to the business plan and requirement of role and responsibility to be fulfilled matters.

Question 5.
Explain the major aspects of business plan.