Business Plan Preparation

Course :Commerce
Paper :Entrepreneurship
Lesson :Business Plan Preparation
Lesson Developer :Dr. Minakshi Paliwal
Department/College:Department of Commerce,
Daulat Ram College,
University of Delhi
Reviewer’s Name :Dr. Gurmeet Kaur
Fellow in Commerce, ILLL
Associate Professor,
Daulat Ram College,
University of Delhi

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Lesson: Business Plan Preparation

Table of Contents:
1. Learning Objectives
2. Introduction
3. Sources of Business Ideas
4. Testing the Feasibility of Business Ideas
5. Business Plan/Project Proposals
5.1 Significance of Writing the Business Plan/Project Proposals
5.2 Contents of a Business Plan
6. Defining Business Processes
6.1 Location
6.2 Layout
6.3 Operation
6.4 Planning and Control
7. Preparation of Project Report
8. Project Finalisation
8.1 Submission
8.2 Presentation of Report
8.3 Project Appraisal
Summary
Exercises
Glossary
References

1. Learning Objectives:
This chapter will help the students to develop a good sense of business plan preparation
and report/project writing. Broadly, the chapter will give students an understanding of:
 How to develop a business ideas and how to test its feasibility?
 How to write a business plan/project plan and what is its importance?
 How to design various business processes?
 How to write, submit and present a final project report and
 How to develop a new product and test it marketability?

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2. Introduction:
Most of the successful businesses in the world are started with an idea that is restlessly
promoted by a dogged entrepreneur. Thus, idea generation is an indispensable ability
that every entrepreneur must possess as success or failure of any new business hinges
on the worth of ideas. Despite the fact that idea generation is decisive, many aspiring
entrepreneurs consider this as a big problem. In many entrepreneurship
forum/meeting/discussion, aspiring entrepreneurs hopefully asks a common question:
how did everybody else get inspiration to strike-and how can we work the same magic?
Indeed, absence of compelling ideas can frustrate and discourage aspiring entrepreneur
to opt entrepreneurship as a career or may compel to start a usual or ordinary business,
yet another food court/restaurant or retail store that faces tough competition, often
leading to a quick failure. In this way aspiring entrepreneur loses its interest, motivation
as well as money. Thus, the real issue faced by many aspiring entrepreneurs is how to
generate business ideas. To help with this issue, we have put together some good
sources, out of which an entrepreneur can seize ideas for initiating new business
enterprises.

3. Sources of Business Ideas:

Business ideas could instigate from various sources or due to various reasons like
success stories of successful or flourishing businesses, market opportunities (e.g.
demand for certain products, chance of product substitution etc.) extent of motivation,
educational and intellectual skills of an entrepreneur. Some of the most accepted and
useful sources/ways/techniques to generate business ideas are outlined below:
1. Market Research:
Market research is a popular and reliable method/technique of generating ideas for
starting a new business. Market research can give a picture of demand-supply position of
prospective product, degree of competition in the market, nature and trends of demand
etc. On the basis of market research, entrepreneur can identify the gaps do exist in the
market regarding demand and supply and plan to fill up through his/her efforts. In short,
market research gives an aspiring entrepreneur an idea about what kind of
product/services or process/activities may bring profits. However, research done poorly
can push business in wrong direction. Market research can be conducted in two forms:
primary research and secondary research.
 Primary research is basically based on primary data/information aims to analyse
customers perceptions, current sales and practices.
 Secondary research is based on secondary data and information aims to identify
competitions, identify target markets and establish benchmarks.
2. Contact with prospective customers:
This process is basically a part of market research. This process helps the entrepreneur
to understand customers’ taste, habits, preferences, likes, dislikes, paying capacity,
income etc. Thus, contact with prospective customers can give aspiring entrepreneur an
idea about the features or attributes that should be fabricated into a product/service.
This method is also helpful in identifying common weakness in existing products, and
look for areas where improvement can be made in a new product. These days, market
test of prototype product before introducing it into the market is very popular.
3. Contract with suppliers and other business partners:
Supplier, retailers, marketing executives, sales representatives etc. have good
understanding about the market and market conditions as they operate in the market
and have direct or indirect interaction with customers. So, having contact with them can
help entrepreneur in generating a new business idea or improving/modifying the existing
ones in the light of prevalent market conditions. This is how they are very helpful in

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generating a viable idea.

4. Observing Trends:
Observing trends closely can also help the entrepreneur to develop the ability to
understand or recognise the market opportunities. Apart from market trends i.e. change
in demand, change in customers’ perception, income, level of competition etc.
understanding of societal trends, economic trends, government trends and technological
trends are equally important. Following are some example of such trends which needs to
be considered in the process of idea generation.
 Societal Trends: Demographic profile, health, education, living standard etc.
 Economic Trends: Income, savings, employment, interest rate, exchange rate,
financial conditions etc.
 Government Trends: Law and regulation, government stability, government
initiatives, governance structure etc.
 Technological Trends: Life span of new technology cost of technology, e-
commerce, Internet and its enabled technologies.
5. Project report and publication:
This source of idea generation is basically a part of secondary market research in which
project reports of researchers vis-a-vis industries may provide important idea to aspiring
entrepreneur to work out on which industry he/she should enter. Similarly, government
and non-governmental reports/publications on trade and industry can provide useful
information to the entrepreneur which can be used in the process idea generation.
Generally, after developing idea with the help of report or publication, smart
entrepreneurs take the help of market experts or consultant to validate or refine the
idea.
6. Entrepreneur’s own efforts:
Entrepreneur’s own efforts are certainly required in developing new business idea and in
this process entrepreneur should use his/her creativity and innovation. Even after taking
the help from other idea generation sources, ultimately entrepreneur has to make final
choice and responsible for the generated ideas-success and failure is also attributed to
him/her. Therefore, entrepreneur should use his/her creativity and innovation at the
fullest in the idea generation process. In this process, an entrepreneur must consider the
following:
 Ideas must match with entrepreneur’s own skills, knowledge, managerial capability,
experience and resources.
 Ideas must not be contradictory to government rule/regulation and business policies.
7. Add value to an existing product:
Comprehensive information and understanding of existing products can also provide a
good idea to an entrepreneur. In this process, entrepreneur needs to identify the gaps or
problems with existing product. If the existing product does not meet the need of
customers, create a better one. The entrepreneur may also add additional services,
combine the product with other products or even suggest multiple use of a product
through value addition process.
8. Tap interest/hobbies:
Hobbies such as photography, designing, painting, reading/writing, shopping etc. may
also generate a profitable business idea. Thousands of witty people around the world
have taken up their interest or hobbies into a successful business venture.

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9. Brainstorming:
Brainstorming is idea generation techniques (developed by Alex Osborn) in which
individual or group efforts are made to find the solution of a particular problem by gather
multiple solutions contributed by its member. Every strange, bizarre and farfetched idea
is considered in this technique.
To make these ideas more practical or workable, these are slightly modified by group
members. In this process, it is important for the facilitators to manage the process,
people involvement and then to manage the follow up action. A typical brainstorming
group consists of 6 to 10 members.
10. Idea screening:
Idea screening is a method of generating idea in which possible ideas are evaluated/
tested against a set of criteria or on the basis of various parameters. To develop the
parameters, entrepreneur must have good knowledge about the market conditions,
degree of competition, knowledge of competitor’s product, their strength, their
shortcomings, usage of technology, need of market etc. criteria might include the
following:
 Product improvement most needed
 Technical feasibility of idea
 The marketability of idea
 The requirement of resources in implementation of idea
 The profitability of idea
 Where product fits in the market. Is there any gap? How it is similar differ to
competitors’ product
 The idea suits to business profile and objectives
Added to these, some other sources/methods/techniques can be used for the purpose of
idea generation. Some of these are:
 SWOT (Strength, Weakness, Opportunities and Threats) Analysis,
 Research and Development (R&D) process
 Quality Assurance Processes
 Survey of International Markets
 Institutions (e.g. EDI; FICCI, Ph.D. Chamber, Assocham, FISME etc)
 Fairs and Exhibitions

4. Testing the Feasibility of Business Ideas:

Good entrepreneurial business ideas should be market driven (fulfilling the market need,
customer focused not product driven and target and identified, sizable market segment),
unique (differentiated, faster, better and cheaper), innovative and fundable (revenue
stream, growth potential, manageable risks, exit option, product in pipeline and
sustainability). Most importantly it should be feasible enough to implement.
It simply means that idea should be attractive, achievable, value creating, durable, safe
and according to the target market. To evade nuisance and economic tension, it is
critical to test the feasibility of idea before working on it. The purpose of feasibility test
or study is to determine whether the business idea is worth pursuing.

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Figure 1: Testing the feasibility of business idea

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Spending the
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Proposed
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Business Financial Aspect
necessary to No in Reject or
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move forward one rethink
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A feasibility test of business idea or project is also needed to get the sanction for the
project from concern authorities including government and financial institutions.
Entrepreneur.com‟s Jane Porter suggested some of the techniques and questions to test
the viability of business ideas. These are: product service evaluation; Who is your
customer base? What resources do you need? What do you need on your team? How
much growth potential will the business have? Broadly, a feasibility test of business idea
should include an assessment/analysis of the following aspect:
1. Entrepreneurial Aspect:
The success or failure of any business idea/project is largely depending on the various
capabilities and skills of entrepreneur. In fact, it is indispensable to posses certain skills
and personality traits by entrepreneur and management team to convert idea into
business value. Therefore, any business idea should be evaluated or tested first in the
light of following entrepreneurial capabilities/skills.
 Willpower and Self confidence
 Determined and persistent
 Energy to work 12-16 hours a day
 Capability to take risks
 Can take criticism and rejection
 Capability to acclimatize changing conditions
 Ability to work under stressful conditions
 Potential to take quick and rational decision
 Qualified enough to comprehend national and international business forces

2. Market Aspect:
Assessing the market potential or size for new business is quite complicated but decisive
aspect of feasibility analysis. To test market feasibility, there are ten important
aspects/issues that an aspiring entrepreneur should consider:
 Potential number of customers and their location

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 Strength of product/service (does it serve an unserved need of customers?)

 Probable demand of products or services
 Unique selling proposition
 Barriers to entering in the market
 Price, quality and quantity compared to competitors
 Competitive advantage
 Technological changes
 Changing nature of competition
 Industrial trend
3. Financial Aspect:
After determining that there is a market for product, the entrepreneur needs to consider
financial requirement to make it viable. Financial feasibility test should consider the
following:
 The estimated cost of project
 Estimation of fixed and variable cost
 Sources of Finance/Capital structure
 Money required for start-up
 Sales forecast
 Break-even point
 Projection of future profitability
 Cash flow analysis
4. Operational Aspect:
Operation feasibility of a project is important to test to ensure smooth operation of
business activities. Operation feasibility test generally consider the following aspects:
 Plant capacity and size
 Equipments
 Infrastructure
 Various business processes
 Implementation and evaluation of business processes
 Resistance management
 In-house strategies
 Knowledge of quality, quantity, technical specifications, and price range of products
 Supply Chain Management (SCM) system
 Keeping pace with changing technology
5. Other Aspects:
Added to above mentioned considerations, there are number of other aspects which
should be considered in feasibility test of business idea/project. Following factors should
also be considered as a part idea feasibility test:
 Regulatory requirements
 Protection of intellectual property (IP) assets
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 Skills requirements
 The state of technology
 Social, economic and political conditions
After the feasibility test, a systematic and comprehensive review of above mentioned
and other such aspects is carried out to decide whether the new business idea/project is
selected or rejected or to make sure that the idea will deliver desired results. This
process is generally known as project appraisal. Project appraisal is basic requirement
before resources are committed and funding of programme is done. In the end, a report
is prepared which is generally called feasibility report.

5. Business Plan/Project Proposal:

After the feasibility report is approved and accepted by government and especially by
financial stakeholders like banks or other financial institutions or lenders, the next step
for the entrepreneur would be to prepare a business plan. Business plan is an important
and formal/written document prepared by the entrepreneur that outlines business
opportunities and goals (what you want to achieve?) and details plans/strategies to
achieve these goals, and also highlight actions and resources necessary to exploit
market/business opportunities (how you will do that?). Thus, it combines long term,
short term as well as medium term plans in various functional areas like production,
marketing, finance and human resources. A business plan should be prepared by the
entrepreneur in consultation with business consultant, financial expert, marketing
expert, technology expert, architecture etc. Poor business plan can lead to make poor
business decision.
5.1 Significance of Writing the Business Plan/Project Proposals
Business planning is one of the most critical parts of running a business enterprise, no
matter whether the business is large or small, public or private, operating at domestic or
international level. It is simple to start a business project, but without proper planning it
is tantamount to wastage of time, energy, and resources. It is a blueprint for directing
the business in a particular direction. Without proper business planning, a business is
like a train, having no engine to pull it in any direction. Added to this, a written business
plan is important due to the following reasons:
1. It determines and substantiates the feasibility of the business idea.
2. It provides a statement of business vision and mission.
3. It also provides roadmap and timetable for attaining business objectives and goals.
4. With a sound business planning entrepreneur can convince a bank or financial
institutions and other investors to invest in the business.
5. It also sets value that can guide business in the times of trouble or crisis.
6. It helps the entrepreneur to introduce business to suppliers, investors, vendors and,
others.
7. It provides a roadmap of actions to be taken in the future.
8. The planning process allows the entrepreneur to determine what might or might not
work.
9. A written business plan is required to design a rational business model or plan how
business can make money or generate revenue.
10. It helps the entrepreneur to identify future opportunities and potential risks.
11. It facilitates a system that enables owners, managers and workers to work effectively
and efficiently.
12. Business plan acts as a control instrument. As in the planning process benchmarks or
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standards of various functional areas are established which later compared with the
actual business performance. If there are deviations, corrective actions are taken.
13. It also assists the entrepreneur to formulate exit strategy.
Thus, a business plan not only symbolizes proposed business models, but also a
mechanism to develop trust among various stakeholders i.e. customers, investors,
suppliers, workers etc. therefore must consider their expectations.

Value Addition 1: Further Understanding

Common Business Planning Mistakes

 Entrepreneurs are unable to clearly articulate their vision in the plan

 The plan based on unrealistic assumptions
 Plan based on unrealistic financial projections
 The plan based on inadequate market research/survey/study
 Overestimate the importance of business idea
 Underestimate the potential risk factors
 Hiding weakness
 Plan assume, or claim that there are no competitors
 Too long or short, technical and vague
 Entrepreneurs do not convincingly present the basis for their strategy

5.2 Contents of a Business Plan

For many entrepreneurs, the business plan is just a formal external document designed
with a specific objective in mind-to attract the investors/lenders. But, as mentioned
above it severs various purposes and can be used as a very useful internal tool. Thus, a
business plan is not only about the entrepreneur and investors, it plainly sets out all the
important facts about the business, its history, the current situation, the objectives,
business models and the business activities to be undertaken. So it is imperative to
create a lucid business plan for the idea that entrepreneur has. Though every business
plan is different, depending on the nature and conditions of business and most
importantly who prepared it? But every plan generally contains certain elements or
sections common to all businesses. These are described below:
1. Title Page:
The purpose of title page is to provide most basic information about the business to the
prospective lenders, investors, suppliers and others who plan to seek to contact the
owner. The title page should include the following:
 Name of Business
 Address
 Phone Number
 Twitter/Facebook/E-mail address/website (if any)
 Name of Owner

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2. Executive Summary:
Executive summary provides first opportunities to the entrepreneur to grab the interest
of investors and other parties. It is an abstract of business plan. As it covers all of the
key aspects of a business plan and also highlights the strength of overall business plan it
should be prepared in the last. It should be short, sharp, to the point and attractive
enough to grab readers’ attention. It should not be more than 1 or 2 pages. Executive
summary should provide a brief outlines of organisation’s objectives, goals, current
position, key strengths, market opportunities, financial projection and a summary of
skills of management team.
3. Table of Contents:
It provides an outline of what business plan includes. Table of contents cannot be
prepared until business plan is complete. Table of contents should refer the reader to the
sections and subsections of business plan. Table of contents should have proper page
number for all sections and subsections to help the reader to access necessary
information without the need to go through the entire business plan.
4. Business Description:
It is an essential part of business plan. It should include all the key points about the
business. Generally, it should include the following information about the company:
 Business goals, objectives, mission and vision
 Business history (if applicable)
 Products and services offered by the business
 Nature of business
 Type of ownership
 Present position/status of business
 Market potential
 Business model
 Competitive advantage
 Differentiate your business from others
 Projection of sales and profits
5. Market Analysis:
This section of business plan highlights the information about the market in which
business operates to attract investors/lenders, suppliers, dealers and distributors etc.
The following details should be covered in this section:
 A brief overview of overall industry/market
 Market size and segmentation
 Target market
 Customers behaviours and preferences
 Sales forecasts
 Market risk caused by legislation, change in technology or any threat to
the industry as a whole
 Competition
6. Marketing Plan:
Marketing is a broader concept. In fact, it is all about your business strategy. It starts

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with identifying the needs and wants of customers and ends with their satisfaction.
Therefore, marketing plan should be written in a broader perspective. A typical
marketing plan should include the following:
 Marketing objectives
 Research and Development (R&D)
 Production requirements and process
 Products and services offered
 Important information about product like colour, design, features, size,
how easy it can be copied by competitors, packaging etc.
 Intellectual property rights (IPRs)
 Details of various services i.e. after sale, delivery, availability, advice,
guarantee/warrantee, finance provided etc.
 Quality assurance measures
 Marketing strategies i.e. product, price, promotion and place strategies
 Marketing mix strategy
 Profile of key competitors i.e. their strength/weakness, turnover, market
share, employees, pricing etc.
 Marketing budget
7. Financial Plan:
It consists of relevant financial data and information of a business. Financial planning is
very important not only for the investors/lenders but also for the business as it helps to
understand the current as well as future position of company’s finance. In short, it
presents financial picture of business and shows expected revenue, expenses, assets and
liabilities. Following points should be included in a good financial plan:
 Capital requirement
 Key ratios
 Expected gross and operating margin
 Profit potential
 Financial projection
 Assumptions used in financial projection
 Cost control measures
 Accounts payable
 Accounts receivable
 Fixed, variable and semi-variable costs
 Schedule for procurement of capital
 Schedule for procurement of assets
 Break even volume
 Balance sheet highlights
 Cash flow highlights
 Profit and Loss (P&L) Account highlights

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8. Operation Plan:
Generally, operation plan is designed for internal use. It guides how a business is going
to make a product, store it and then ship it out to the customers. It deals with
organisational structure, manpower, equipments, machinery, technology and operation.
Some of the information that operation plan should contain are:
 Details of manufacturing process
 Required infrastructure
 Plan and machinery
 Technology requirements
 Manpower requirements
 Labour skills and training
 Quality assurance
 Operating cycle and layout
 Raw material to be used
 Power requirements
 R&D
 Material handling
 Stock management and control
9. Management Plan:
The quality of management is often considered as important factor in obtaining finance.
Added to this, sustainability, growth and development of any business also depends on
the qualification, experience, skills and training of a management team. Therefore, a
management plan section is regarded as very important part of business plan. It should
include the following:
 Provide details of organisational structure
 Key personnel
 Key future personnel
 Role and responsibilities
 Number of staff required
 Forecasted labour force
 Need of skills development
 Need of training
 Strength and weakness of management team
10. Risks factors:
Actual and potential risks factors should be presented in the business plan to make it
more real, transparent and reliable. They are a standard part of systematic business
plan, whether the plan is designed for internal use or will be presented to the outside
investors. Analysis of risk factors also ensure that entrepreneur have considered all the
risks and plan how to manage or reduce the risks and most importantly the business can
survive when the things go wrong. Following risks factors should be analysed and
presented in this section.
 Failures to meet production deadlines

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 Business cycle
 Industry trends
 Change in technology
 Change in demand
 Problems with labour, suppliers or distributors
 Competition
 Inadequate capital
 Government regulations
 Other factors
11. Exit Strategy:
Final part of the business plan outlines exit strategy of business. Mention of this
strategy in business plan is very important as rational investors are always interested to
know how they will collect their money if business fails. The most common exit
strategies and considerations these days for planning purposes are:
 Sell it
 Friendly buy out
 Initial Public Offerings (IPOs)
 Merger and acquisitions
 Liquidation
Added to these, in exit strategy it is important to mention who are potential buyers of
business, why they are interested and how you will get to them.
12. Conclusion:
It should provide generalisation of business plan so that the people who seeks to
establish contact with the business may easily understand the business plan. SWOT
analysis of business should be presented in the conclusion.
13. Appendices:
Any additional detailed or information that could be useful to the readers of the business
plan, but not appropriate for distribution to everyone, should be presented in
appendices. Generally, following information is presented in appendices:
 Market research report
 Contract with vendors
 Contact with investors/lenders and financial institutions
 Types of business risks
 Photographs
 Production flow chart
 Press release
 Contingency plans

6. Defining Business Processes:

Nowadays business processes have become an essential element in any organisational
structure of business enterprises. Business process is a set of activities necessary to
carry out to achieve organisational objectives. Generally, these processes start with

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procurement of input and end with those services provided after the sale of goods and
services. Business processes assists business in several ways. Processes make a
business competitive, enable growth and drive profitability. A business with well defined
processes can find opportunity to improve efficiency without sacrificing quality and
consistency. Business processes are also important as these processes are required to
understand, manage and coordinate various activities as well as issues concerning the
generating business value. Depending on the organisation, nature of work and industry,
business processes are often broken up into different categories. These processes are
divided into core business processes, support business processes and management
processes.
1. Operational/Core business Processes:
Core business processes are basically processes which are necessary for the operation of
the business. Such processes are also known as operational processes. Following are the
10 core business processes/activities characterising any business.
 Procurement, logistics and distribution
 Product or service development
 Customer strategies and relationship
 Quality, process improvement and change management
 Financial analysis, reporting and capital management
 Technology management
 Operation
 After sales services
 Marketing strategies
 Resource utilisation
2. Support business processes:
Support processes facilitate core processes. Support processes do not provide value to
customers directly. Three support processes characterised a firm.
1) Location decision process:
In location decision process a firm need to give due consideration following range of pull
and push factors
 Closeness to market
 Closeness to raw material
 Availability of medium of communication
 Availability of skilled manpower
 Power supplies
 Waste disposal
 Availability of land
2) Layout process:
Basically, it is a process of designing a floor layout of a plant which aims to improve
efficiency by arranging equipments according to functions. Following should be
considered in the process of designing a layout of a plant.
 Availability of space
 Plant location

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 Nature of manufacturing process

 Volume of production
 Repairs and maintenance of equipments and machinery
3) Human resources management process:
Human resource management process includes the following:
 Recruiting
 Hiring
 Training
 Skill up-gradation
 Compensation
3. Management processes:
Management processes measures, monitor and control activities related to business
procedure and system. It includes the following:
1) Corporate governance
2) Administrative support
3) Planning process: Planning process has following elements:
 Aims
 Objectives
 Mission
 Rules
 Policies
 Procedures
 Methods
 Programmes
 Strategies
4) Organising process: Generally, it includes the following:
 Job designing
 Departmentalisation
 Coordinating activities
 Specialisation
 Distribution of work
 Authority and responsibilities
5) Controlling process: Basically this process deals with identifying the variances so
that corrective action may be taken. A typical controlling process includes:
 Performance standards or control points
 Measurement with actual performance
 Comparing actual performance with standard performance
 Analysis deviation
 Corrective measures
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7. Preparation of Project Report:

A business seeking financial assistance from investors or lenders for execution of its
business ideas is required to prepare a report covering important and strategic aspects
of the project. Such report is called „project report‟. This report is also used to guide both
project execution and project control. It also highlights the direction in which a business
should go and propose how to exploit available resources to achieve business goals. In
short, it is a comprehensive formal document wherein all details obtained from technical
analysis, financial analysis, profitability analysis, economic analysis etc. are put together.

Value Addition 2: Did you know?

To improve readability of a business report, following points

should be considered:

 Use headings and subheadings

 Well structured paragraph
 Clear sentence with plain language
 Professional writing
 Keep the report respectably short
 Avoid exaggeration
 Highlight critical risks
 Give evidence of effective management team/staff
 Avoid personalisation
 Use appendix or annexure (only if needed)

A detailed project report usually includes seven to eight sections (depending on the
industry and idea). The ideal length of plan is 20 pages, although-depending on the need
for detail. Standard format of a new business project report is given below:
1. Business description:
This is generally presented at first section of a project report in which basic particulars of
business is provided. Typically, this section should include the following:
 The name of business
 Promoters background and experience
 A background of the industry with history (if any)
 Business objectives
 Potential of new venture
 Products/services offered by business
 Uniqueness of product or service
2. Project description:
A brief particular of the project (operational aspect) is presented in this section.
Generally, the particulars include the following:

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 Proposed location with complete address

 Details of total area
 Whether approved industrial area or not
 Strategic importance of location (if any)
 Proximity to supplies
 Available infrastructure
 Availability of raw material
 Sources of raw material
 Total requirement of raw material in a year
 Skilled labour and personnel requirements
 Consumables utilities
 The cost of these utilities
 Alternate arrangements to be made in case of inadequate supply of power.
Fuel, water etc.
 Disposable of waste
 Available as well as potential means of transportation and communication
 Machinery, equipments and common facilities
 Possibility to work on shift basis
 Manufacturing process and technology
 The arrangement to acquire know-how or technology
 Capacity of plants
 Probability of obtaining quality marks like ‘ISO’, ISI, ‘Q’ or ‘AGMARK’
 In-house R&D
3. Cost and Investment Description:
In this section, comprehensive details of start up costs of project should be presented to
justify the quantum/size of investment required to finance the project. Further, probable
sources of finance/investment opportunities should be presented in this section.
A typical cost and investment section should include the following points:
a) Estimated costs of project
Current Asset
 Starting cash (after purchasing assets).
 Starting Inventory
 Pre-paid insurance
 Other pre-paid expenses
Capital Assets Budget
 Machinery and Equipments
 Office Furnishing, Fixtures and others
 Automobiles
 Computer and data processing equipments….Rs.

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 Software
 Tools and other assets
Start-up Expenses
 Office supplies (Stationary)
 Advertising
 Fees and Licensing
 Miscellaneous Star-up Expenses
b) Sources of Finance/Investment opportunities to finance the project
 Owner’s contribution towards the proposed venture
 Current financial result/forecast
 Funding to date
 Current investors (if any)
 Financial/profitability projections
4. Product/service description:
In this section of report, details of product/service offered by the business should be
provided. Added to this, it is also important to mention how it will work? How it will be
beneficial for customer and most importantly how will business get it made? Following
details should be provided in this section:
 Nature of product/service
 Present stage of product (idea or prototype)
 Uniqueness of product/service
 Reasons for buying your product
 Product is test or certified
 Approved or not
 IP used in product development
 Pricing strategies
 Selling strategies
 Contact with vendors
 Outsourcing requirements
 Technology used
 Visual presentation of product (if possible)
5. Market description:
It is very important for an entrepreneur to describe market potential of proposed
product. Essentially, market potential is a measure to determine whether new product
will appeal to the customers and how it will generate profits. A project is considered as
commercially viable if it is able to market its products competitively in the domestic or
international market at a reasonable margin or profits. Thus, this section of report is
helpful for the investors to determine the profitability or capacity of revenue generation.
Following aspects relating to market potential should be given in the report:
 Disclose market studies/research/survey reports
 Product description (should not be technical and highly detailed)

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 Uniqueness of product
 Convince investors that sales projection and competition can be met
 Describe target market, market position and market share
 Demand projection
 The estimated gap between demand and supply
 Demonstrate pricing strategy
 The strategy to be allotted for selling the product
 The arrangement to be made for providing after-sale service
 Promotional plan with cost estimation
 The arrangement to be made for transportation
6. Management description:
This section highlights management team, staff and ownership structure of organisation.
Stakeholders are also interested in skills possessed by management team and staff.
Thus, a management section of project report should include the following information:
 Management team-key personnel
 Skill possessed by management team/staff
 The internal management team
 The external management resources
 Legal advisor
 Business advisor/consultants
 Complementation
7. Description of critical risk factors:
All the potential risks factors (both internal and external) that could affect business or its
performance should be addressed in this section. It is always important to know the
things that could go wrong with business and develop a strategy to manage in the
advance. Following details should be given in this section:
 Price cutting by competitors
 Sales projection not achieved
 Costs exceeding estimates
 Any potentially unfavourable industry-wide trend
 Greater than expected innovative and development cost to stay competitive
 Difficulties encountered in procurement of parts or raw materials
 Provide some alternative course of action
 Mention the preparation (i.e. insurance, trust etc.) needed for continuity of
business
 Outline a plan for liquidity event-IPO or sale
8. References:
Whenever information is used or accessed from other sources, references must be
provided in the text as well as in a list of references.

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9. Appendices:
Supplementary materials to the project report can be presented here. This section of
project report typically includes the following material:
 Break-even assessment
 Profit-loss synopsis
 Fund flow summary
 Resume of management team

8. Project Finalisation
8.1 Submission:
Once the report is prepared, the next step is submission of project report to the
interested parties i.e. investors, lenders, suppliers, financial institutions, government etc.
But, before final submission of report, it is necessary to ensure that report must- fulfil its
purpose, oriented to the intended readers and contains all necessary
information/descriptions/elements.
8.2 Presentation of Report:
After submission of report, the next major challenge is presenting the report to the
interested persons/organisation or stakeholders. Generally, report is presented in oral
form in which a presenter has 5 to 10 minutes time to explain complete business
model/plan/idea to the investors or other stakeholders. Therefore, the presentation
should be focused, organised, interesting, flexible and content rich. Following steps
should be used to prepare oral presentation:
 Know the outline thoroughly
 Starts with goals and objectives
 Demonstrate your idea/product impressively
 Explain the business model
 Use supporting materially liberally
 Flaunt the management team/staff
 Explain you metrics
 Ask though provoking questions
 Be prepared for difficult questions
 Motivate the audience (use slogan, images etc)
 Why you (investors) and why now (market opportunities)
8.3 Appraisal of Project Report:
Project appraisal is a systematic process of establishing a project’s viability or feasibility.
The main objective of project appraisal is to assess, in advance, whether a project is
worthwhile to continue or not. Project appraisal is required before resources are
committed and funding of programme is done. Thus, it is not only an important tool of
decision making but also justifies spending money on the project. Appraisal helps ensure
that projects will be properly managed, by ensuring appropriate financial and monitoring
systems are in place, that there are contingency plans to deal with risks and setting
milestones against which progress can be judged. Appraisal generally covers four major
aspects of the project:
1. Technical
2. Institutional
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3. Financial and
4. Marketability
1. Technical Aspects:
The appraisal of a new business project should start with identifying the technical
feasibility-for producing a product or service that will satisfy the expectations of potential
customers. This aspect not only requires a careful examination of various inputs like
land, labour, machinery, fuel, power, etc. but also requires the analysis of know-how and
technology necessary to run the project. On the whole, technical analysis should
consider the following aspects:
 Availability of land and site
 Location of project
 Functional design of product and attractiveness in appearance
 Ease of processing or manufacturing
 Procurement arrangements
 Technical adequacy
 Procedure for obtaining engineering, technology, architecture etc.
 Acceptable rate obsolesce
 Durability of material used in product
 Ease and low cost of maintenance
 Product safety
 Availability of inputs i.e. machinery, labour, fuel, power, water, transport,
communication etc.
The result of this examination provides a basis for deciding whether a new project is
feasible from a technical point of view.
2. Institutional (Non-Financial) Aspect:
Generally, appraisal is done in the light of financial, commercial and technical
perspective of project. However it is desirable to judge the business project, from the
institutional perspective. Institutional appraisal is concerned with a large number of
questions which deals with the adequacy or otherwise of such human capability and the
institutional framework i.e. social, legal, political, economic, environmental etc in which
project are implemented. To appraise the project in institutional perspective; the
following considerations must be kept in view:
 Generation of employment opportunities
 Improvement in the quality of life, as a result of product/service, produced by the
business project
 Compliance with legal requirements
 Environmental impact assessment
 CSR practice to be used
 Balance between stakeholders and shareholders’ interest
 Transparency in business practices
 Corporate governance practices in business
 Business ethics to be followed in project implementation
 Social responsibility and obligations
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3. Financial (Financial Institutional) Aspect:

As availability of finance is most important perquisite to implement a project, so the
appraisal of financial viability of project assumes much importance in project appraisal.
Financial appraisal takes a hard look at the funding sources for the project both in terms
of completing the project and for its sustained operation. Financial appraisal of a project
should be conducted in the light of following aspects:
 Required financial resources
 Available financial resources
 Required borrowings
 Sources of required borrowings
 Necessary working capital
 Repayment conditions
 Cost of project
 Cash flow estimates
 Projected balance sheet
4. Marketability Aspect:
It is important to appraise the marketability aspect of new venture for judging its
potential success. Since the success of any business depends upon its ability to market
its products/services, the lenders/investors should pay grave attention to this aspect.
Following aspects should be considered in the process of appraising marketability aspect
of a project:
 Identification of potential market and customers
 Potential sales volume
 Sales price projection
 The probable market share of product
 The multiple use of product
 Results of market test
 Marketing planning and issues
A project that is considered to be worthwhile at the appraisal stage qualifies for
implementation. In practice, implementation tends to be complicated by many
unforeseen problems i.e. change in technology, competition forces, rapid product
obsolesce, poor timing etc. Therefore, flexibility is required at this stage to enable the
successful execution of project.

Summary:
The first step for any entrepreneur is the identification of a “good business idea”. Good
entrepreneurial business idea means it should be market driven, unique, innovative and
fundable. In short, idea should be feasible enough to implement. Feasibility of idea is
tested through the feasibility study/test which is generally based on various
consideration i.e. market, financial, operational, entrepreneurial and others.
After the feasibility report is approved and accepted by government and especially by
financial stakeholders i.e. banks, financial institutions, lenders etc., the next step for the
entrepreneur would be to prepare a business plan. A business plan is required not only
to secure funding but also to direct the business. It plainly sets out all the important
facts about the business, its history, the current situation, the objectives, business
models and the business activities to be undertaken. So it is imperative to create a lucid
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business plan for the idea that entrepreneur has. Besides, business processes are also
important to delineate as these processes are required to understand, manage and
coordinate various activities as well as issues concerning the generating business value.
These processes are divided into core business processes, support business processes
and management processes.
A business seeking financial assistance from investors or lenders for execution of its
business ideas is required to prepare a report covering important and strategic aspects
of the project. Such report is called „project report‟. This report is also used to guide both
project execution and project control. It also highlights the direction in which a business
should go and propose how to exploit available resources to achieve business goals.
Once the report is prepared, the next step is submission and presentation of project
report to the interested parties i.e. investors, lenders, suppliers, financial institutions,
government etc. At the end, the project is appraised to investigate the
practicability/feasibility of project. Project appraisal is a systematic process of
establishing a project’s viability or feasibility. The main objective of project appraisal is
to assess, in advance, whether a project is worthwhile to continue or not. Project
appraisal is required before resources are committed and funding of programme is done.
Appraisal process of a project generally covers four major aspects of the project:
technical; institutional (non-financial); financial and marketability.

Exercises:
Multiple Choice Questions
Q1: Quality ideas are a function of:
a. business entity and corporate funding
b. greed and selfishness
c. creativity and thoughtfulness
d. answer and anxiety
Q 2: The generation of business ideas is described as:
a. a process
b. idea identification
c. matching finances
d. all of the above
Q 3: First step in the process of developing a new product must be:
a) idea screening
b) idea generation
c) concept development and testing
d) Business analysis
Q 4: Why does an entrepreneur do a feasibility study for starting a new business?
a) To explore potential customers
b) To identify possible sources of finance
c) To see if there are possible barriers to success
d) To estimate the expected sales
Q 5: The main objective of preparing a project report is:
a) To appraise a project

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b) To anticipate the future problems and solve them

c) To assess the cost and sources of finance
d) All of the above
Q 6: The project appraisal is generally done by:
a) Financial institutions
b) Concerned State government
c) Prospective entrepreneurs
d) All of the above
Q 7: Which one of the following is generally not considered as a key element of a new
business plan?
a) Market analysis
b) Financial analysis
c) Product analysis
d) Expansion analysis
Q 8: Which of the following is a purpose of a business plan?
a) To attract financing.
b) To inform competitors of plans.
c) To discipline the entrepreneur to think of all aspects of the proposed
venture.
d) a & c
{Answers: 1 (c); 2 (b); 3 (b); 4 (c); 5 (d); 6(a); 7 (d); 8 (D)}
Long Answer Questions:
Q. 1: “The first step in starting a business enterprise is the generation of an idea that is
unique and appears to be worthwhile for implementation”. Elaborate this statement.
Q.2: Discuss the significance of idea generation for an entrepreneur. What sources can
be utilised by an entrepreneur in this regard?
Q.3: What is the purpose of feasibility test of a business idea? Discuss the various
aspects which should be considered in such study.
Q.4: What do you mean by a business plan? Explain it’s important and state the outline
of a business plan.
Q 5: What is a business plan? How is it prepared?
Q 6: Give a model project report for any business which you propose to launch shortly.
Q 7: What is project report? Describe in details its contents.
Q 8: Critically examine the various analysis used to appraise a project.
Q 9: Distinguish between technical feasibility and financial feasibility analysis and bring
out their importance.
Q 10: How will you ascertain the market feasibility of a project?

Short Answer Questions:

Write short notes on the following:
1. Generation of Business Ideas

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2. Feasibility test
3. Importance of feasibility text
4. Business plan
5. Significance of business plan
6. Project report
7. Project Appraisal
8. Technical appraisal of a project

Glossary:
Acquisition: It is taking the ownership of another business as in mergers and
acquisitions.
Advertising: The activity of attracting public attention to a product or business, as by
paid announcements in the print, broadcast, or electronic media is known as advertising.
Appraisal: It is a formal estimate of the value of something on the open market or how
the estimation and conclusion of value was made.
Business plan: A written document detailing a proposed venture, covering current
status, expected needs, and projected results for the enterprise. It contains a thorough
analysis of the product or service being offered, the market and competition, the
marketing strategy, the operating plan, and the management as well as profit, balance
sheet, and cash flow projections.
Entrepreneur: A person who organizes, operates, and assumes the risk for a business
venture.
Marketing: It is the process of researching, promoting, selling and distributing a
product or service. Marketing covers a broad range of practices, including advertising,
publicity, promotion, pricing, and overall packaging of the goods or services.
Merger: It is the joining together of two previously separate corporations. A true
merger in the legal sense occurs when both businesses dissolve and move their assets
and liabilities into a newly created entity.
Venture Capital: A form of financing for a company in which the business gives up
partial ownership and control of the business in exchange for capital over a limited time
frame, usually 3-5 years.

References:
Ardichvili, A., Cardozo, R. and S. Ray (2003). “A Theory of Entrepreneurial Opportunity
Identification and Development” Journal of Business Venturing. 18 (1):105-123
Bhide, V. Amar (2000). The Origin and Evolution of New Business. Oxford University
Press: New York.
Chhabra, T. N. (2010). Business, Organisation and Management. Sun India Ltd.: New
Delhi.
Desai, Vasant (2010). Entrepreneurship Development. Himalaya Publishing House: New
Delhi.
Gordon, E. And Natarajan, K. (2012). Entrepreneurship Development. Himalaya
Publishing House: New Delhi.
Joseph R. Mancuso (2985). How to Write a Winning Business Plan. Prentice Hall:
Englewood Cliff, NJ.
Kuratko, D. F. and Rao, T. V. (2012). Entrepreneurship: A South Asian Perspective.
Cengage Learning: New Delhi.
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Potts D (2002) Project Planning and Analysis for Development. Lynne Rienner
Publishers: London.
Sue, Birley and Paul, Westhead (1994). “A Taxonomy of Business Start-up: Reasons
and their Impact on Firms Growth and Size” Journal of Business Venturing. 9 (1): 7-32.
University of London (2014). Project Appraisal and Impact Analysis. Centre for Financial
and Management Studues, SOAS, University of London.

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