Technical articles

MGT602
Theme-8
Business Idea and Business Plan

Business plan is considered as the backbone of an entrepreneurial venture. Business plan helps
entrepreneurs the most, to start a business. Irrelevant to a business success, it is obvious that every
entrepreneur has some kind of business plan whether formal or informal business plan. Although
a business plan does not guarantee the success of a business venture but it is good to have one.
Different attributes of a business plan provide exclusive support to help manage and sustain a
business unit. Therefore, it is critical to understand the basics of a business plan. For this one needs
to know that any business activity is based on an idea (a business idea/a thought to start a business).
A business idea is considered as a thought in someone’s mind. Moreover, it could be in the written
form, but still it is has no physical existence until it is transformed into a physical business activity.
A business plan is that tool which assists the connectivity between a business idea and a physical
business. Or a business plan is that ladder through which a business idea travels from space
(thoughts in mid) to the earth (physical presence of a business unit). Hence, it is clarified that a
business idea itself has no relevance to an entrepreneurial venture in the absence of a business
plan.

WHY BUSINESS PLAN IS PREPARED?

It is a dream for an entrepreneur to convert his/her dream (a business idea) into a practice. The
business plan is prepared to transform a business idea into a practical business. For example: your
business idea is to open an automobile workshop or to setup an advertising agency for digital
marketing services. In any of these cases you will definitely need a written business plan to convert
your thoughts into a physical business.

FOR WHOM BUSINESS PLAN IS PREPARED?

The essence of this question is to identify the potential users/beneficiaries of a business plan.
Broadly a business plan has two types of users: internal and external users.

Internal users are entrepreneurs themselves who get immediate guidelines to start a business
through a step by step approach. Potential employees are also the beneficiaries of a business plan
document i.e. skill full employees of a business setup can become the part of a newly hired team
by an entrepreneur (a new business being established on the basis of a business idea). In this case
the entrepreneur must have a business plan to attract, guide and retain the newly employed human
resources.

External users are customers who can pre order or initiate a transaction in advance with the
entrepreneur. Customers deem to analyze an entrepreneur’s plan to conduct a business, its inputs
and outputs in detail and then decide whether to collaborate with the startup or not. In the same
way, suppliers and investors identify the potential benefits of being the part of a business startup.

WHAT IS THE EXTENT OF A BUSINESS PLAN?

It is very important to know the depth of a business plan. The length and the depth of a business
plan depends upon the following factors.

1. The entrepreneur itself: Orientation of the entrepreneur decides the depth of a business
plan. An entrepreneur with a deep orientation to a business will enlist more attributes,
requirements and details of a business setting within the business plan document.
Ability/Education of an entrepreneur will also affect the length and details of a business
plan. A more educated entrepreneur will be able to know even minor details of a business
startup and hence such an input will deepen the content of a business plan. An
entrepreneur’s choice, preference and ability to understand the importance of a business
plan also affects its depth directly. It is quite possible that an entrepreneur may consider
the business plan a mere formality while the other one may take it very seriously.

2. The complexity of the business: The nature of a business decides the extent of a business
plan. The level of complexity is different for different businesses. The business plan
requirements for a cement factory would be different (much complex) from fast food
restaurant or a barber shop (less complex). It is critical to understand that, the more
complex a business is, lengthier its business plan will be. The complexity and depth of a
business plan will help to reduce business risk and avoid unwanted mistakes. Thus it is
recommended to write an in-depth business plan in case of a complex business. It is not a
healthy notion to avoid writing an in-depth business plan due to its complexity and robust
technical requirements.

3. The level of competition: The magnitude of competition will decide the details of a business
plan. The science of competition acts just like complexity factor. More competition will
require more information and knowledge based input to help devise a business plan.

4. The level of uncertainty: Being uncertain is a characteristic of a human’s life. Similarly it

applies to the business planning process. The increasing level of uncertainty demands an
increase in the rigor of a business plan.

5. Availability of time and monetary resources: It is the luxury of time and available resources
which decide the length of planning a business idea and writing it in the form of a business
plan document. Time, the length of the window opportunity and the financial resources
will guide you in deciding the ingredients of a business plan.

WHAT ARE THE FEATURES OF A BUSINESS PLAN?

 Comprehensiveness: A business plan must be comprehensive enough to cover all the aspects
of a new business startup. A comprehensive business plan must tell you about the entry,
survival, growth and exit of a business startup. In this context a business plan document must
answer the questions: How to start a business? How to run a business? How to close a business?
What is the plan B?

Communication: The foremost feature of a business plan is the quality of communication. A

business plan is that prime document which serves as an ambassador of your business idea to
all the stakeholders i.e. formal and informal investors. Therefore, a business plan must be taken
care with the basics of communication i.e. The message should be complete, coherent, correct,
concrete, concise, clear and courteous. The communication factor has so much impact on the
health of a message that it can blur the importance of a quality content if not communicated
properly.

Guidance: A business plan must be comprehensive enough and well communicated that it can
guide its internal and external users.

Formal planning process: A business plan must include the formal procedural steps in order
to make it comprehensive, duly communicated and a subtle source of guidance for its
stakeholders.

WHAT IS STRATEGIC ARRANGEMENT/CONTENTS OF A BUSINESS PLAN?

It is very necessary to understand the strategic arrangement, sequence and the content of a business
plan and its sequence. Usually a business plan has the following parts.
A. Title/cover page
Title page is usually prepared after the completion of a business plan document. Title page is not
just a formality rather it is a first impression of your business idea. A title page must have Name
of the business, Logo of the firm, Nature of the business (retail, manufacturing, services etc.), Legal
status (sole proprietor, partnership or corporate), Name of the key entrepreneurs, Investment
(finances), Statement of confidentiality (confidentiality of the document and its rightful
ownership), Email and Location address of the business (mobile number, office address, social
media ID etc.)

B. Table of contents
Table of contents is a gateway for the readers about the information inside a business plan. It guides
the reader about how to explore a business plan. The reader will lose interest in case any
misguidance found in the table of contents. Thus it is very crucial to align the inside content with
the table of contents.

C. Executive summary
The executive summary gives a summarized view of the whole business plan. Executive summary
is crucial in the sense that it can make or break the interest of the reader or the potential stakeholder
of your business plan. An executive summary of a business plan usually contains 2-3 pages and
have small paragraphs. It must be originally written (must not be a replica of any other document)
after the completion of whole business plan document and later it needs a careful review before
making it part of the business plan document.

D. Management plan
Management plan has the following particulars.
1. The introduction of the management team: name and address of the
proprietors/entrepreneurs, qualification of the entrepreneurs (degree, skills, diploma etc.),
experience of the entrepreneurs (internships, projects, volunteer work, formal business
experience) and current responsibilities (role played by each resource).
2. Hierarchy of the management team describes about the team structure and reporting
structure.
3. Total number of jobs: number of employees, the job description (job responsibilities and
roles) for each employee and skill requirements for each job.
4. Human resource Policy: Hiring process, training and development evaluation and reward
system are the part of human resource policy statement. An entrepreneur must adhere to
the government regulations for small businesses and minimum wage rates etc.

E. Total product and service plan

It is very useful to clarify and write the product or service being offered by the business startup at
this stage. It exclusively helps the reader to know that what a particular business will offer i.e.
manufacturing, distribution, trading, servicing, consultancy, sales or retail. It gives the reader a
detailed note about the product mix (a mineral water product will have its packaging and sizing
details) or a service mix (a college/education services will have details of its degree programs).

F. Operations and production plan

Usually a business plan’s scope is wide enough to cater the products and services both. A business
plan is equally valuable and indispensable for both manufacturing concerns and services
businesses. More often a business startup may offer a blend of both: services and products. A
services business has an operations plan only, whereas a manufacturing business has both: an
operation plan and a production plan. Operations and business plan is a very technical section of
the business plan because your investors, suppliers, contractors and potential stakeholders observe,
read and analyze the details of this technical information given in this section, precisely to check
the soundness of the business plan. Collectively, operations and production plan has the following
particulars.
1. Input/supply/purchase plan: It lists down the raw material requirements for the
manufacturing process. It includes the list of suppliers and also mentions the potential
 reasons to select those suppliers. Supply schedule and payment plan is also a part of this
section. Storage facility and transportation system information is also a part of it.
2. Production plan: It includes the detail about production plant (layout, covered area and
design etc.). It includes the description of tools, machinery, equipment, technology,
facilities (different types of technologies and variety in production options) and total
capacity (ability to produce certain number of unites in a day or in a month) of the
production unit.
3. Total quality management system: The description of quality management system is very
critical part of a business plan. It is very tactical to write the total quality management
system in detail. Usually an entrepreneur has not much understanding of these details so it
is advised to consult a professional quality manager in order to complete this section of a
business plan.
4. Outbound logistics plan: This section contains the detail about how the manufactured
goods will travel/reach to the market and become accessible to market players i.e.
wholesalers, distributers, retailers etc.

G. Financial plan
Formally, financial plan is the last section of a business plan document. The financial plan is
considered as the heart and soul of a business plan along with the marketing plan. A financial plan
must answer these three questions.
1. How much finance is required?
It is foremost important to exactly calculate, know and write the total amount of capital (financial
resources) required to start a business. This information is valuable to be made part of the title
page as well.
2. Where to get finance from?
Financial plan should also tell you the sources of finance. It mentions different avenues of financial
resources e.g. banks, microfinance institutions, NGOs or other informal sources e.g. personal
savings, borrowing from friends and family members.

3. Utilization and recording of financial results?

The details regarding the utilization of resources is very much necessary to mention here. This
section comprises details of how, when and for which function of a business, money is required.
This section is prerequisite with the information extracted from sales forecasting documents and
requirement sheets. Pro-forma financial statements (estimated statements) are prepared to depict
the projections of output of future business processes. Pro-forma income statement, balance sheet
and cash flow statement are prepared on monthly, quarterly, bi annually or annually basis.
 H. Appendix
An appendix or annexure is another important and informal part of a business plan document. It
includes supporting documents i.e. resumes/CVs of entrepreneurs, legal documents (registration,
agreements, contracts etc.), pictorial information (location map, animated visuals, cite graphics
etc.). You may also attach information about the advance order from the customers if any or any
other related information which you consider valuable to attract potential stakeholders of the
business plan.

Note: It is recommended to draw a raw business plan according to your dream business idea and
keep practicing alongside the learning about different sections of a business plan. Hopefully this
exercise will be helpful you to finalize your business plan.

Written by
Jawad Hassan