CHAPTER 2: BUSINESS PLANNING

2.1 Opportunity Identification and Evaluation

• Most authors agree that the initial stage in the entrepreneurial

process is the identification and refinement of a viable economic
opportunity that exists in the market. Opportunity recognition
corresponds to the principal activities that take place before a
business is formed or structured. The opportunity identification and
evaluation stage can be divided into five main steps namely; getting
the idea/scanning the environment, identifying the opportunity,
developing the opportunity, evaluating the opportunity and
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2.3 Business Idea Development

A business idea is a short and precise description of the basic operation

of an planned business. There are three types of business ideas. They are:

1. Old Idea – Here an individual copies an existing business idea from

someone.

2. Old Idea with Modification – In this case the person accepts an old

idea from someone and then modifies it in some way to fit a potential

customer’s demand.

3. A New Idea – This one involves the invention of something new for

the first time

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2.4 Business Idea Identification

• Before you start a business, you need to have a clear idea of the kind of

business you want to run.

 All business ideas are not equally worth. Therefore, to identify promising

business idea among others, it is important to answer the following raised

questions.
• What good or service will your business sell?

• Who will your business sell to?

• How is your business going to sell its goods or services? A good business
idea will be compatible with the sustainable use of natural resources and
will respect the social and natural environment on which it depends.
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2.5 Methods for Generating Business Ideas

• Every business idea should be based on knowledge of the market

and its needs. The market refers to people who might want to buy a
good or service; i.e. the customers. The market differs from place to
place, depending on who lives in the area, how they live and for
what goods or services they spend their money. When you
understand the market in your area, you might recognize many
business ideas that you may have previously ignored.

• There are many ways to come up with business ideas, such as

surveying local businesses or asking existing business owners.
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• The information gained from one approach may supplement another
and help you to clearly describe your business ideas. Below, we will
examine a few different approaches to generating business ideas.
1. Learn from successful business owners

2. Draw From Experience

A. Your own Experience

B. Other People’s Experience

3. Survey Your Local Business Area

Find out what type of businesses are already operating in your area and
see if you can identify any gaps in the market.
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2.6 Business Idea Screening

• Idea screening is the process to spot good ideas and eliminate poor

one.

2.7 Concept of Business Plan

• Planning is the first and the most crucial step for starting a business.

• A business plan is a road map for starting and running a business.

• A business plan is the blueprint of the step-by-step procedure that

would be followed to convert a business idea into a successful

business venture.
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 The objectives of a business plan are to:

• Give directions to the vision formulated by entrepreneur.

• Objectively evaluate the prospects of business.
• Monitor the progress after implementing the plan.
• Identify the strengths and weakness of the plan.

• Clarify ideas and identify gaps in management information about

their business, competitors and the market.

• Identify the resources that would be required to implement the plan.

• Document ownership arrangements, future prospects and projected

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2.8 Developing a Business Plan

2.8.1 Business Planning Process

This business plan acts as a guiding tool to the entrepreneur and is

dynamic in nature – it needs continuous review and updating so

that the plan remains viable even in changing business situations.

The various steps involved in business planning process are:

1) Preliminary Investigation

Before preparing the plan entrepreneur should:

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• Review available business plans (if any).

• Draw key business assumptions on which the plans will be based

(e.g. inflation, exchange rates, market growth, competitive pressures,

etc.).

• Seek professional advice from a friend/relative or a person who is

already into similar business (if any).

2) Opportunity Identification and Idea Generation

Actually opportunity identification and business idea generation is the

first stage of business planning process. It involves generation of new

concepts, ideas, products or services to satisfy demand.

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3) Environmental Scanning

• Once a promising idea emerges through idea generation phase the

next step is environmental scanning, which is carried out to analyze

the prospective strengths, weakness, opportunities and threats of the

business enterprise.

4) Feasibility Analysis

• Feasibility study is done to find whether the proposed project

(considering the above environmental scanning) would be feasible or
not. It is important to demarcate environmental scanning and
feasibility study at this point.
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5) Report Preparation

After environmental scanning and feasibility analysis, a business plan

report is prepared. It is a written document that describes step-by- step, the
strategies involved in starting and running a business.

2.8.2 Essential Components of Business Plan

I) Cover Sheet: Cover sheet is like the cover page of the book. It mentions
the name of the project, address of the headquarters (if any) and name and
address of the promoters.

II) Executive Summary: Executive summary is the first impression about

the business proposal. As the saying goes, the first impression is the last
impression.
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• A careful presentation of information should be done to attract the

attention of the evaluators. It should be in brief (not more than two

or three pages) yet it should have all the factual details about the

project that can improve its marketability. It should briefly describe

the company; mention some financial figures and some relevant

features of the project. Generating interest in the minds of the

readers is the prime motive of the executive summary.

III) The Business: This will give details about the business concept. It

will discuss the objective of the business, a brief history about the past

performance of the company (if it is an old company),

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what would be the form of ownership (whether it would be a single

proprietor, partnership, cooperative society or a company under company

law). It would also label the address of the proposed headquarters.

IV) Funding Requirement: Since the investors and financial institutions

are one of the key bodies examining the business plan report and it is one

of the primary objectives of preparing the business plan report, a careful,

well-planned funding requirement should be documented. It is also

necessary to project how these requirements would be fulfilled. Debt

equity ratio should be prepared, which can give an indication about how

much finance
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would the company require and how it would like to fund the project.

V) The Product or Services: A brief description of product/services is

given in this subsection. It includes the key features of the product, the

product range that would be provided to the customers and the

advantages that the product holds over and above the similar products/

substitute products available in the market. It also gives details about

the patents, trademarks, copyrights, franchises, and licensing

agreements.

VI) The Plan: Now the functional plans for marketing, finance, human
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1) Marketing Plan: Marketing mix strategies are to be drawn, based
on the market research.

2) Operational Plan: The operational plan would give information

about (i) Plant location: why was a particular location chosen? Is it
in the locality of the market, suppliers, labor or does it have an
advantage of government subsidies for that particular location or are
there any other specific reasons for choosing the particular
location?, (ii) Plan for material requirements, inventory management
and quality control are also drawn for identifying further costs.
Finally, the budget for operational plan is also drawn.
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3) Organizational Plan: The organizational plan indicates the pattern of

flow of responsibilities and duties amongst people in the organization,
it provides details about the manpower plan that would be required to
put life into the business and it would also enlist the details about the
laws that would be governed in managing the employees of the
organization.

4) Financial Plan: The financial plan is usually drawn for two to five
years for an existing company. For a new organization the following
projections are drawn:
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a) Projected Sales

b) Projected Income and Expenditure Statement

c) Projected Break Even Point

d) Projected Profit and Loss Statement

e) Projected Balance Sheet

f) Projected Cash Flows

g) Projected Funds Flow

h) Projected Ratios
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VII) Critical Risks: The investors are interested in knowing the tentative
risks to evaluate the feasibility of the business and to measure the risks
involved in the business. This can further give confidence to the investors
as they can calculate the risks involved in the business from their
perspectives as well.

VIII) Exit Strategy: The exit strategies would provide details about how the
organization would be dissolved, what would be the share of each
stakeholder in case of winding-up of the organization. It further helps in
measuring the risks involved in investing.

IX) Appendix: The appendix can provide information about the Curriculum
Vitae of the owners, Ownership Agreement and the like.
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