Entrepreneurial Planning (Revision Notes)

Date : 13.5.2020
Sub  : Entrepreneurship 
Day  : 3
Time : 10am -10:45am
Period : 4 
Class    : 12

Learning Outcome

• Students will be able to learn the chapter in a much easier way
• Revision of the chapter
• Condensed form of the chapter

A very good morning students 

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Sending you a question and answer format of chapter 2.

Please learn it well ,it will be very useful for the coming examination

What are the various elements of a business plan? 

A business plan usually consists of the following elements.

1.       A general introduction about the venture

2.      Planning related to the Business venture

3.      Planning related to the Organization

4.      Planning related to the Production

5.      Planning related to the operations

6.      Planning related to the human resources

7.      Planning related to the Marketing and promotional activities

8.     Planning related to the Financing

9.      Any other miscellaneous planning elements and appendix

In your opinion who should prepare the business plan?

Ideally the business owner/the entrepreneur should prepare the business plan. They can consult other experts during the course of preparation. However, they should take the sole responsibility of preparing the business plan themselves.

What are the various formats available to present an effective business plan?

The following are the various formats available for preparing an effective business plan.

1.       Elevator pitch: It is a precise summary of the business plan’s execution.

2.      Oral/In person presentation: The presentation containing the key elements of the business plan is presented to the potential investors.

3.      Written/Documented presentation: This is targeted for external customers.

4.      Operational plan: This is targeted for the internal management team. (not for external stakeholders)

How is shipping considered while preparing an operational plan? (Refer to the video of the question Which factors highly affect the operational plan 

Shipping represents a sequence of steps to accomplish a business transaction. When properly planned for, it helps in completing a business trasaction with optimum efficiency and least expenses.
Shipping primarly depends on the

a.      Nature of business

b.      Type of the product or service

c.       Whether the business is operating at a small scale or large scale

d.      Usage of technology

What is significance of proforma income statement? 

Proforma income statement is used to provide the summary of all the profits earned by a new enterprise, in the first year. It projects the profit computed by subtracting projected costs and expenses from the projected revenue.
Projected net profit = Projected Revenue – Projected cost.
While preparing the proforma income statement, the first thing to be computed is the ‘sales by month’. Any of the following available forecasting techniques are used for this purpose.

a.      Consumer opinion Surveys

b.      Expert opinions

c.       Financial data available from start-up ventures in the same industry or sector.

d.      Industry sales

e.      Marketing research.

f.        Our own experience or others’ experience.

While preparing the proforma income statement one need not be conservative for the sake of initial planning. However if the estimates are conservative and result in substantial profits, it adds credibility to the bright future prospects of the enterprise.

Give an analysis of the break even point.

Break even point occurs when the enterprise is earning an income equivalent to its expenses. In other-words, at break-even point represents a state of the business where in it is neither making profits nor incurring losses. Put it differently, the revenue and the cost are equal in magnitude.
Break-even point is critical to any business due to the following reasons.

1.       It gives an estimate of minimum number products to be produced or services to be delivered.

2.      Any deviation in the output will directly affect the profits.

3.      It is used to determine the selling price of a product or amount to be charged for a service.

4.      Helps in determining which options or processes or methodologies in the production results in a profit.

Break-even analysis is used in deciding how much sales volume helps the business to break-even. The volume of sales thus computed help the business to get an estimate of the number of sales to be made to meet the total of variable and fixed expenses.
You’ve already studied about break-even point in class xi. To refresh your memory refer back to the Business Finance and Arithmetic lesson

Give a brief of the “target market”.

Target market refers to the group of specific potential customers who are interested in availing the products or services provided by the enterprise. Deciding the “target market” is a very complex task. Deciding on the target market involves

1.       Deciding the basis on which the entrepreneurs or general market pursue through market research or analysis of the industry. The industry analysis or market research need to be performed by the entrepreneurs themself or by highly experienced professionals.

2.      Segmenting the market based on

a.      Consumer profile or characteristics. Examples are

        i.            Geographic such as city, state, country

     ii.            Demographic such as age, gender etc

   iii.            Psycho-graphic such as life style, personality, education etc

b.      Buying situations. Examples are

        i.            Buying conditions (time available etc)

     ii.            Desired features and specifications of a product

   iii.            Usability

3.      Choosing the segment that need to be targeted

4.      Prepare a marketing plan based on the product, sale price, promotion, delivery logistics etc.

What do you know about Elevator pitch?

Elevator pitch is shorter version of the executive summary of the business plan. When presented to someone it is usually seen that the elevator pitch finishes in around 3 minutes. It is used to give a quick introduction about the enterprise to the potential investors, partners and even customers. The primary motive of elevator pitch is usually to grab the attention of the audience and attract them towards the upcoming venture.

Give a brief about the production plan.

According to Alford and Beatty production planning is defined as
The technique of forecasting or picturing ahead, every step in a long series of separate operations,

·         each step to be taken

o    in the right place

o    of the right degree

o    and at the right time

·         and each operation to be done at maximum efficiency.

Production planning should give a clear picture of the following.

a.      Inventory

b.      Machinery, tools and equipment

c.       Manpower

d.      Manufacturing processes and techniques

e.      Production schedule and/or budget

f.        Plant layout

g.      Time, motion and word study

An enterprise which is not manufacturing any products can completely eliminate this from the business plan.

Which factors highly affect the operational plan? 

The following factors highly affect the operational plan.

a.      Nature of business

b.      Nature of product or service

c.       Whether the business is Small/Medium/Large scale

d.      Technology used.

What are the different sources of funds to finance an enterprise? 

There are typically two sources of funds available for an enterprise to finance its needs. They can be summarized into two types.

1.       Owners i.e. Owner’s funds

2.      Outsiders i.e. funds raised from the investors/financial institutions etc

An entrepreneur should not completely rely on on source of financing i.e. Along with their own funds they should invest the outsider funds so as to make up the complete capital. The ratio in which the owner funds and the outsider funds should be calculated so that

a.      the cost of capital and the financial risk is lowest

b.      Return on Investment (ROI) and the profits are highest

Which objectives does an operational plan deal with? 

The operational plan is prepared with due consideration to the following objectives.

a.      Planning for production well ahead of operations.

b.      Determine the exact route taken by each part or item in the assembly line.

c.       Come up with the timeline regarding the exact start date and ending date for each critical assignment or task.

d.      Controlling and ensuring that the goods are moving through the manufacturing cycle in systematic way. This will ensure that there is systematic approach followed right from the procuring of the materials to the distribution of the end product.

What does an organizational plan contain?

The organizational plan consists of the following details documented in high clarity. By reading the organizational plan the potential investors can get a clear picture of the associated rights or authorities or roles and responsibilities of each member in the organization.

a.      Authority and responsibilities of each member of the new enterprise.

b.      Bio-data i.e. name, role, contact details and resume of each of the member

c.       Conflict/dispute (in case any arise in future) resolution procedure

d.      Delegated rights to each of the members. Rights related voting, management controlling etc fall into this category.

e.      Each member’s roles and responsibilities.

f.        Form of payment to all the members

g.      Gross stake of each member in the enterprise.

h.     High level details of terms and conditions

When you are asked to prepare the income statement which forecasting techniques do you use to prepare the ‘Sales by Month’? 

We have the following most popular forecasting techniques at our disposal for forecasting the income while preparing the ‘Sales by Month’ as part of proforma income statement.

a.      Consumer opinion Surveys

b.      Expert opinions

c.       Financial data available from start-up ventures in the same industry or sector.

d.      Industry sales

e.      Marketing research.

f.        Our own experience or others’ experience.

What are all the various steps that should be considered while preparing the marketing plan. 

The following are the various steps that should be considered while preparing the marketing plan.

a.      Analysis of the business situation

b.      Broad identification the target market

c.       Conduct SWOT analysis

d.      Detailed goal establishment

e.      Enlist the marketing strategy

f.        Foolproof implementation and monitoring of the plan

Define operational plan. 

Operational plan can be defined as the planning and control of each and every operation in production, at every step of the manufacturing process to result in a coordinated and smooth completion of work within a factory. Operational plan ensures that the final product is as per the plan.

The operational plan is a blueprint devised much before the actual operations begin. Justify this statement. 

The operational plan is indeed a blueprint of the actual operation and is produced well before the actual operations begin. The following facts support this statement.

1.       The operational plan ensures that there is an organized process flow from the starting (where the raw material is procured) to the final stage(where the end product is produced)

2.      It helps in

·         continuous production

·         less work-in-progress (WIP)

·         less wastage

3.      It helps in the coordination of the following

·         Purchasing/Procuring

·         Engineering

·         Manufacturing/Production

·         Inventory management

·         Sales

4.      Supply chain or distribution of goods from the plant to the consumer

5.      Ensures efficient quality control

6.      Adopting the more efficient/latest and cost effective manufacturing methods and policies

What is an organizational plan?

The organizational plan is a part of the business plan that details the enterprise’s form of ownership. It provides detailed information about the who has what kind of authority in the enterprise and how each member of the enterprise deal with other while executing their managerial functions.

Into how many categories can you segregate the types of businesses? What are they? 

Businesses in general can be segregated into four basic categories. They are as follows.

1.       Manufacturing: Any business that produces a tangible product will fall into this category.

2.      Service: Any business that offers something that is intangible such as expertise (An accountant’s expertise) or time (a teachers time) or advice (a lawyer’s advise).

3.      Wholesale: Any business that purchases the products from the manufacturer in buld and then sells the product in small quantities to the retailers.

4.      Retail: Any business that sells a product directly to the end consumer whose need is satisfied by the product.

For an entrepreneur to start a business what type of business options are available. 

For an entrepreneur to start a business the following forms of business are available.

The following forms are business are available as a choice for a business man to start a new venture..

a.      Sole proprietorship: This form of business is owned, managed and controlled by a single person, responsible for procuring all the required funds. The business can not be transferred into others’ name. The owner is liable for all the losses and all the profits are enjoyed by the owner only. This kind of business is easier to start and shut down. It has very limited liability.

b.      Partnership: This form of business is owned, managed and controlled by two or more persons. These persons enter a mutual oral or on paper agreement to form the partnership and share the profits and losses together. This form of ownership has unlimited liability. Each partner enjoys implied authority. Each partner is liable for their and others’ actions. Partners can transfer their shares or sell them after getting a consent from other partners. Partners can discontinue the partnership by giving a notice. It continues as long as all the partners are willing to continue.

c.       Joint Hindu Family Business/firm (HUFs): Joint Hindu Family or Hindu Undivided Family Business is prevailing only in India. It is governed by Hindu law. This form of business is owned, managed and controlled by male members of a joint Hindu family.
HUFs have been defined under Hindu law as a family comprising male who have a common ancestor, including their wives and unmarried daughters.
This form of partnership is formed by the status or operation of Hindu law. Only members born in the family can become partners. Others can also become partners but only if they are adopted by someone in the family. Only the eldest male member has rights to manage or verify the accounts of the business. Liability is defined by the share a partner has in the business. However, the eldest member, also known as Karta, has unlimited liability. Any new born male can become the member. The business can be shut down only if all the members provide their consent.

d.      Cooperative: A cooperative form of business is formed by a society. Its primary object is mutual help. Profit is secondary objective.
Members can join or leave at their own will. The members select the management committee which will be responsible for managing the affairs of the business. The capital is procured from the members. Shares can not be transferred. This form of enterprise is limited by the Cooperative societies act and the State cooperative societies act. Profits are limited to 9% of the share. Excessive profits are shared among members depending on their contribution to the society.

e.      Joint Stock Company: For a private company minimum two persons are required and for a public company minimum seven persons are required. In addition to this, the company exists as an individual and has its own personality. Thus the company will have a common seal which is used as a signature of the company. The company neither has any liability nor it can have any shares. The company is managed by the directors. The actions of the company are governed by The Indian Companies Act, Memorandum of Association, Articles of Association. The company can be liquidated through legal proceedings.

While preparing a financial plan, which areas should be giving at-most consideration for it to be effective? 

While preparing the financial plan, the following areas should be dealt with at-most consideration as they form the key areas.The following are the areas which need to be given due consideration while preparing a financial plan. The more the emphasis is laid on these areas the more will be the effectiveness of the financial plan.

1.       All the areas which require financing

2.      Sources from where the investments or funds can be procured.

3.      A thorough assessment of the

a.      income

b.      expenses

c.       profits

d.      cash flow considerations

e.      inventory requirements

f.        loan and other investment options

4.      Timely procurement of funds.

What are the key components that should be part of the financial plan? 

The following are the key components that should be part of the financial plan.

a.      Break-even Analysis

b.      Proforma Balance sheet

c.       Proforma Cash flow

d.      Economic and social factors

e.      Proforma financing decisions

f.        Proforma income statements

g.      Proforma investment decisions

Define and describe the significance of the business plan. 

Business Plan: A business plan is formal document prepared by the entrepreneur consisting of all the extensive details of internal and external elements to be considered for starting a new business.
The business plan covers

a.      A list of business goals.

b.      All the factors that support the fact that these goals can be realized.

c.       Road-map or plan for accomplishing these goals

d.      The background information of the enterprise

e.      The team involved to realize these goals.

Thus a business plan is a detailed document consisting of all the tasks performed as part of the business. Along this information it also serves as

a.      A means to understand the viability and feasibility of the proposed business.

b.      Helps in planning for bottlenecks and implementation of the idea.

c.       Gives an idea about risks associated and the possibility of successful establishment of the business.

Significance of business plan: A business plan is significant to all the stakeholders who are interested to get an insight of the

a.      business/venture

b.      its goals

c.       and its objectives

The business plan is very handy to

a.      get a clear picture of the viability of the venture in a specific market sector.

b.      guide the entrepreneur to organize their activities like

i.            identification of the required resources

ii.            Procure the license, depending on the need

iii.            complete the legal formalities imposed by the government

c.       clarify the queries, issues or concerns of all the parties interested in the proposed venture.

d.      perform self-evaluation and self-assessment. This will enable the entrepreneur consider various alternate solutions to avoid/mitigate risk.

e.      identify the risk which can not be dealt with and drop off the plan. However this is very rare scenario.

f.        get an idea of the entrepreneur’s credit history covering their financial status and their personal equity investment. This is very helpful as the investors/lenders will emphasis on the four Cs of credit i.e.

·         Cash flow

·         Collateral

·         Character

·         Contribution of equity

Thus it helps in convincing the investors/lenders and procure the required funds.

Specify the various components of an operational plan.

The following are the various components of an operational plan.

1.       Routing: Routing deals with the work flow of a product or service from the stage the raw materials are procured to the stage the final product is produced/service is accomplished.

2.      Scheduling: Scheduling deals with the exact start and end time of each operation. Indirectly, scheduling is concerned with the duration required to complete each operation.

3.      Dispatching: Dispatching deals with the starting of the production exactly as per the plan. In scheduling the required

·         guidelines

·         information

·         instructions

·         and orders

are issued thus giving the desired shape to the production plan.

4.      Follow-up: Follow-up deals with the evaluation and appreciation of the work completed till now. It ensures that the errors or defects in the product or process are dispatched accordingly. Follow up is also known as expediting function. This component ensures that

a.      reviewing the current state with respect to

·         the materials

·         work-in-progress (WIP)

·         finished products

b.      Identify the steps to improve the performance of the poorly performing departments.

c.       suggesting alternate courses of action to overcome the obstacles in the production line.

5.      Inspection: Inspection deals with the established standards to ensures that these standards are maintained in the materials or product or performance. Inspection ensures that there are separate laboratories or processes established to ensure that the product or service is within the prescribed quality standards.

6.      Shipping: Shipping deals with the deliver of the finished product or service to the consumer.

What is a financial plan? at the financial plan definition part

Financial plan is a representation of critical financial data related to

a.      The total possible funding required to establish the new enterprise

b.      Feasibility of the enterprise to become economically successful.

What are the primary objectives of the financial plan? at the objectives of financial plan part

The objective of the financial plan is to ensures that all the interested stakeholders get a clear idea of

1.       Total funds required for smooth running of all the business operations without any impact. This includes the funds required for purchasing assets, day-to-day expenses etc.

2.      Sources such as Banks, financial institutions, angel investors, equity financiers, venture capitalists from where the funds can be procured.

3.      Disbursement of funds. Give details of how the funds are managed effectively so as to minimize the expenses and maximize the profits.

4.      Liquid cash available at disposal

5.      An estimate of the possible revenue generation at least after completing a year. This section is very important as it plays key role to make the investors confident about the entrepreneur and gives them an idea about the returns on their investments.

Thus it facilitates the timely gathering of the funds and there by becoming a key factor in the success of the enterpreneur and enterprise.
By reading the financial plan, the stakeholders can get detailed information regarding

1.       how all financial requirements are fulfilled

2.      how the enterprise can successfully generates good returns on all the investments made

3.      how the entrepreneur maintains liquidity to cover the debts

Thus with a well documented financial plan and executing it, the entrepreneur will be able to pu the critical resources i.e. materials, men, machines and methods to produce goods and services on time.

Explain what you understood by the term ‘manpower planning’?

Manpower planning refers to the process where in the entrepreneur plans the human resources in such a way that the enterprise has the human resources who

a.      possess the desired skill set

b.      available at the right time

c.       available at the right place to perform the assigned job

d.      they do the work most appropriate for what they are paid for.

Why is the manpower critical for every enterprise?

As quoted by Hicks and Gullet The people working in a firm make it what it is.
Thus the quantity and quality of the people working in an organization have a direct impact on the performance of the business and the productivity levels in the organization. For this reason, the manpower planning is critical for every business. Manpower planning ensures that the skilled human resources are recruited for the organization there by contributing to the success of the organization. In the long term it is essential that the organization has a work force who are loyal to the organization, efficient, are experts and dedicated.
Manpower planning thus helps the organization to choose

a.      Efficient employees: For running the day to day operations efficiently every business requires human resources.
This can be ensure by providing clear details about

1.       Which type of human resources are required to perform the job.

2.      As the roles of the human resources vary, it should be clearly specified about the position for which the human resources are recruited for i.e., Unskilled employees, skilled employees, technicians, engineers, managers, administrators etc.

3.      The type of business determines the type of human resources required.

b.      Number of human resources required: The entrepreneur should clearly specify the quantity of human resources required. The size of the human resources will have a direct impact on

1.       the amount of work done

2.      work done by an individual in a given period.

3.      Number of leaves allocated

4.      The rate at which the manpower leaves the organization and the rate at which the new workforce is recruited (this is called attrition).

5.      The current size of the organization.

6.      Future growth and diversification

c.       Manpower procurement: The manpower planning should include the details of rule and regulations, employment policies, strategies and method for recruiting. This can be done through

a.      Recruitment process

b.      Selection process

c.       Training the recruited or existing employees

Explain what you understood by the term ‘marketing plan’?

Marketing plan is that part of the business plan which focuses on the strategies to be followed by the entrepreneur to operate and complete the marketing.
It basically contains the details of the following.

1.       The current position in the market: In this part of the marketing plan the following details are provided.

i.            Brief history of the market place

ii.            The strengths and weaknesses of the business in the market.

iii.            Risks and opportunities

2.      Future direction: This section covers the goals and objectives of the enterprise to be achieved in the next 1 year.

3.      Plan to reach the goals: This section covers

i.            The strategies to be executed to reach the goals.

ii.            Time frame to achieve the goals

iii.            Delegation of the responsibilities to various personnel to take the ownership and monitor the progress.

Why is the marketing plan called as one of the the critical elements of the business plan? 

Marketing plan is called as one of the critical elements of the business plan because fo the following reasons.

1.       It helps in convincing the investors regarding how the entrepreneur is going to drive the business towards success.

2.      It analyses the current business situation.

3.      It helps in identifying the target market and prepare the strategies to reach the target market.

4.      Contains the details of the SWOT (Strengths – Weaknesses – Opportunities – Threats) analysis details.

5.      It emphasizes the entrepreneur to establish the goals to be achieved in the next one year.

6.      Defines the marketing strategies to achieve the established goals.

7.      It helps in identifying the qualified personnel to delegate the marketing goals who in turn can take the ownership and start monitoring the progress.