Business Plan Formulation CBMED4T04

Syllabus topics (RTMNU)

• Business Plan: meaning, concept, features of business plan
• Purpose
• Elements of a Business Plan
• Prerequisites of business plan
• Business Plan Management Process
• Business Plan life cycle
• Market Research and Industry Analysis: Primary and Secondary Market Research
• Market Trends and Customer Demographics
• Target Market Segments
• Types of business plan: Startup Business Plan, Strategic Business Plan, Operational Business Plan, Internal Business Plan, Feasibility Business Plan, Growth Business Plan etc.
• Procedure of writing business plan: Concept, essentials, procedures & Importance
• Business Plan Management Information System: Concept, Purpose, Meaning, Scope, Components, Benefits

Business Plan: Meaning, Concept and Features

Definition: A business plan is a written document that explains what a business will do, how it will do it, how much money it needs and how it will earn profit over the next few years.

Concept: It is like a "road map" of the business. It turns an idea into clear goals, actions, budgets and time limits. Banks, investors and the entrepreneur himself use it.

Features:

1. Written and formal document.
2. Future oriented – usually covers 3–5 years.
3. Goal based – states clear and measurable objectives.
4. Comprehensive – covers marketing, production, people and finance.
5. Realistic – based on facts and market research.
6. Flexible – can be changed when conditions change.
7. Simple and clear – easy for a banker or investor to read.

Purpose and Elements of a Business Plan

Purpose: to test whether the idea is workable; to raise loans and investment; to guide day-to-day decisions; to set targets and measure performance; to reduce risk; to attract partners and key staff.

Elements:

1. Executive summary – short overview of the whole plan.
2. Company description – name, form of ownership, location, vision, mission.
3. Products/services – features and benefits.
4. Market and industry analysis.
5. Marketing and sales plan – 4Ps.
6. Operations plan – location, machinery, raw materials, process.
7. Management and organisation – team, roles.
8. Financial plan – project cost, means of finance, sales and profit projections, break-even point.
9. Risk analysis and appendix (documents, licences, quotations).

Prerequisites, Management Process and Life Cycle

Prerequisites (things needed before writing): a clear business idea; market research data; knowledge of costs and prices; information on laws and licences; a capable team; realistic assumptions; and time for careful planning.

Business Plan Management Process:

1. Planning – set objectives and collect information.
2. Preparing – write each section and the financial projections.
3. Reviewing – check with experts, mentors or a CA.
4. Implementing – put the plan into action.
5. Monitoring and controlling – compare actual results with the plan.
6. Updating – revise the plan regularly.

Business Plan Life Cycle: the plan changes with the stages of the business – Seed/Start-up stage (start-up plan to raise funds), Growth stage (growth plan for expansion), Maturity stage (strategic and operational plans for efficiency) and Decline or renewal stage (turnaround, diversification or exit plan).

Market Research and Industry Analysis

Market trends: the direction in which the market is moving – e.g. growth of online shopping, demand for healthy food, use of UPI. A plan must show the product fits the trend.

Customer demographics: statistical features of buyers – age, gender, income, education, occupation, family size, location.

Target market segments: the market is divided into groups (geographic, demographic, psychographic, behavioural) and the firm chooses one or more groups it can serve best. Example: a coaching start-up targeting B.Com students of Nagpur.

Industry analysis studies size, growth, competitors and entry barriers; Porter's Five Forces (rivalry, new entrants, substitutes, buyer power, supplier power) is a common tool.

Types of Business Plan

• Startup business plan – for a new business; explains idea, market and funds needed.
• Strategic business plan – long-term (3–5 years) direction, vision and major goals.
• Operational business plan – short-term (usually one year) daily activities, targets and responsibilities.
• Internal business plan – for managers and staff only, e.g. a plan for a new department.
• Feasibility business plan – tests whether the idea is practical and profitable before investing.
• Growth (expansion) business plan – for a new product, new branch or new market.
• Others: one-page (lean) plan, acquisition plan, turnaround plan.

Procedure of Writing Business Plan

Concept: writing a business plan is a step-by-step process of putting the business idea and its numbers on paper in a standard order.

Essentials of a good plan: clear, brief, realistic figures, honest about risks, well organised, supported by data.

Procedure:

1. Define the business idea and objectives.
2. Do market research and industry analysis.
3. Plan marketing, operations and the team.
4. Estimate project cost, sources of finance and profit projections.
5. Identify risks and their solutions.
6. Write the executive summary last.
7. Review, edit and present.

Importance: helps get loans (banks ask for a project report), attracts investors, avoids mistakes, sets targets and builds confidence.

Business Plan Management Information System (MIS)

Meaning and concept: A Management Information System is an organised system of people, computers and procedures that collects, stores and processes data and gives useful reports to managers. In business planning, MIS supplies the data needed to make the plan and to check its progress.

Purpose: timely and accurate information for planning, decision making and control.

Scope: covers sales, production, inventory, finance, HR and customer information.

Components: hardware, software (e.g. Tally, ERP), data/database, procedures, and people (users and operators).

Benefits: quick decisions; better control by comparing actual with plan; less paperwork; early warning of problems; better coordination between departments.

Likely exam questions

1. (Long, 8/16 marks) Define business plan. Explain its features and elements.
2. (Long, 8/16 marks) Explain the various types of business plans. Describe the procedure of writing a business plan.
3. (Short, 4 marks) Distinguish between primary and secondary market research.
4. (Short, 4 marks) Write a short note on the business plan life cycle.
5. (Short, 4 marks) State the components and benefits of a Management Information System.

Syllabus topics (RTMNU)

• Feasibility of Business plan: Technical Feasibility
• Marketing Feasibility
• Cost feasibility
• Financial Planning: estimation of Costs and Funds
• Sources of finance
• Precautions while raising funds
• Demand Analysis: understanding market dynamics
• Demand forecasting methods
• Price elasticity analysis
• Cost structure evaluation
• Break-even analysis
• Market segmentation
• Cost Analysis: social cost-benefit analysis
• Setting up deadlines
• Calculation of shadow price and social discount rate

Feasibility of Business Plan

Feasibility study means checking whether the business idea is practical and profitable before money is invested.

• Technical feasibility: Can the product be made? Check availability of technology, machinery, raw materials, power, water, skilled labour, suitable location and plant capacity.
• Marketing feasibility: Will people buy it? Check demand, customers, competition, price customers will pay, distribution channels and expected market share.
• Cost feasibility: Can it earn profit? Estimate project cost, operating cost, selling price, profit, break-even point and payback period.

Financial Planning

Meaning: Financial planning means estimating how much money the business needs, from where it will come and how it will be used.

Estimation of costs and funds:

• Fixed capital – land, building, machinery, furniture, pre-operative expenses (registration, trial run).
• Working capital – raw material stock, wages, rent, credit to customers, cash for daily expenses.
• Add a contingency margin (around 5–10%) for price rises.

Sources of finance: owner's capital; loans from friends and relatives; bank term loans and cash credit; government schemes (MUDRA, Stand-Up India, PMEGP); angel investors and venture capital; crowdfunding; trade credit from suppliers; lease or hire purchase of machines.

Precautions while raising funds: borrow only what is needed; match long-term needs with long-term funds; compare interest rates and hidden charges; keep debt within repayment capacity; avoid giving away too much ownership to investors; read loan terms and collateral conditions carefully; keep documents ready.

Demand Analysis

Understanding market dynamics: demand changes with price, income, tastes, population, prices of substitutes, season and government policy. A plan must explain these forces.

Demand forecasting methods:

• Survey methods – buyers' intention survey, opinion of sales staff, expert opinion (Delphi method).
• Statistical methods – trend projection, moving averages, regression (linking demand with price or income).
• Test marketing – selling in a small area first.

Price elasticity analysis: Price elasticity of demand (Ed) shows how much quantity demanded changes when price changes.

Illustration 1: A firm reduces the price of its product from ₹20 to ₹18. Sales rise from 1,000 to 1,200 units. Find Ed.

Since demand is elastic, a price cut increases total revenue.

Cost structure evaluation: dividing costs into fixed costs (rent, salaries, depreciation – do not change with output) and variable costs (raw material, direct wages, power – change with output) to find cost per unit and profit at different output levels.

Break-even analysis: Break-even point (BEP) is the level of sales at which total revenue = total cost, so there is no profit and no loss.

Illustration 2: Fixed cost ₹3,00,000; selling price ₹50 per unit; variable cost ₹30 per unit; expected sales 25,000 units. Find BEP, sales for a profit of ₹1,00,000 and margin of safety.

Market segmentation: dividing the market into groups of buyers with similar needs (geographic, demographic, psychographic, behavioural) so that demand can be estimated and served separately for each group.

Cost Analysis

Social cost-benefit analysis (SCBA): judges a project from the point of view of the whole society, not just the owner. It counts social benefits (jobs, income in backward areas, foreign exchange saved) and social costs (pollution, use of scarce resources, displacement of people). Used for public and large projects; known methods are the UNIDO approach and the Little–Mirrlees (OECD) approach.

Setting up deadlines: each activity of the project (land purchase, construction, machine installation, trial run, launch) is given a start and finish date. Deadlines control cost overrun, help in fund planning and are tracked with Gantt charts or network methods (CPM/PERT).

Shadow price: the true economic value (opportunity cost) of a resource to society when its market price is distorted by taxes, subsidies, controls or unemployment. Example: the market wage is ₹400 per day, but if the worker was unemployed, society loses little output by employing him, so the shadow wage may be taken as, say, ₹250. Foreign exchange is often given a shadow price higher than the official rate when it is scarce.

Social discount rate (SDR): the rate used to convert future social benefits and costs into present value. It shows how society values the future compared with today. Present value factor = 1 ÷ (1 + r)^t.

Illustration 3: A project costs ₹10,00,000 now and gives net social benefits of ₹4,50,000 a year for 3 years. SDR = 10%.

Social NPV is positive, so the project is desirable for society.

Likely exam questions

1. (Long, 8/16 marks) What is feasibility of a business plan? Explain technical, marketing and cost feasibility.
2. (Long, 8/16 marks) Fixed cost of a unit is ₹2,40,000, selling price is ₹40 per unit and variable cost is ₹24 per unit. Find the contribution per unit, P/V ratio, break-even point in units and in rupees, and the sales needed to earn a profit of ₹80,000.
3. (Short, 4 marks) State the precautions to be taken while raising funds.
4. (Short, 4 marks) What is social cost-benefit analysis?
5. (Short, 4 marks) Explain shadow price and social discount rate.

Syllabus topics (RTMNU)

• Risk: Types of risk
• Identification of risk in business plan
• Analysis and reduction of risk
• Strategies for handling the risk
• Project performance: meaning
• Evaluation of project performance
• Criteria for judging the performance of the project
• Project audit
• Measurement of project performance: CPM
• Earned Value Management
• Return on Investment
• Strategies for enhancing project performance: Strategic Project Planning
• Leadership and Team Management
• Technological Tools for Enhancing Project Performance

Risk: Meaning and Types of Risk

Risk is the chance that actual results will be different from planned results, causing loss or failure. Every business plan carries risk because it is based on future estimates.

• Market risk – demand falls, new competitor, change in customer taste.
• Financial risk – shortage of funds, rise in interest rates, bad debts.
• Technical / operational risk – machine breakdown, wrong technology, poor quality.
• Human resource risk – strikes, key staff leaving, lack of skilled workers.
• Legal and political risk – change in taxes, laws or government policy, licence problems.
• Natural risk – flood, fire, drought, pandemic.
• Time risk – delay in completion causes cost overrun.

Identification, Analysis and Reduction of Risk

Identification of risk in a business plan: study each assumption of the plan (sales, prices, costs, time) and ask "what can go wrong?". Tools: checklists, brainstorming, SWOT analysis, past experience of similar projects, expert opinion.

Analysis of risk:

• Probability and impact matrix – each risk is rated high/medium/low on chance and effect.
• Sensitivity analysis – checking how profit changes if one factor (say price) changes by 10%.
• Scenario analysis – best case, normal case and worst case results.
• Break-even and margin of safety – a higher margin of safety means lower risk.

Reduction of risk: proper market research, start small (pilot), diversify products and customers, keep cash reserves, take insurance, sign proper contracts, use tested technology, train staff.

Strategies for Handling the Risk

Project Performance: Meaning and Evaluation

Meaning: Project performance means how well a project achieves its goals of time, cost, quality and expected benefits.

Evaluation of project performance: comparing actual progress with the plan at regular intervals, finding the reasons for gaps and taking corrective action. It is done during the project (monitoring) and after completion (post-evaluation).

Criteria for judging the performance of the project:

1. Time – completed on schedule?
2. Cost – completed within budget?
3. Quality / scope – does the output meet the specifications?
4. Financial return – profit, ROI, payback as expected?
5. Customer and stakeholder satisfaction.
6. Social and environmental impact – jobs created, safety, pollution.

Project audit: an independent and systematic examination of a project to check whether it is being done as planned, money is used properly and rules are followed. Types: in-progress audit (during the project) and post-project audit (after completion). Steps: plan the audit, collect records, compare actual vs plan, find deviations and causes, prepare the audit report, recommend improvements. It gives lessons for future projects.

Measurement of Project Performance: CPM

Critical Path Method (CPM) is a network technique that finds the longest chain of dependent activities. This chain is the critical path; it gives the minimum project duration. Activities on it have zero slack (float) – any delay in them delays the whole project.

Illustration 1: A project has these activities: A (4 days); B (5 days, after A); C (3 days, after A); D (6 days, after B); E (2 days, after C); F (3 days, after D and E).

Project duration = 18 days. Activities C and E have a float of 18 − 12 = 6 days (C can start any time between day 4 and day 10).

Earned Value Management and Return on Investment

Earned Value Management (EVM) measures cost and schedule performance together using three values:

• PV (Planned Value) – budgeted cost of work planned till date.
• EV (Earned Value) – budgeted cost of work actually done = % complete × total budget (BAC).
• AC (Actual Cost) – money actually spent till date.

Illustration 2: Total budget (BAC) ₹10,00,000. By today 50% of work was planned, but only 40% is done, and ₹4,50,000 has been spent.

Return on Investment (ROI) = Net profit ÷ Investment × 100. Example: a project costing ₹10,00,000 earns a net profit of ₹1,50,000 a year → ROI = 15%. Higher ROI means better performance; it is compared with the cost of capital or bank interest rate.

Strategies for Enhancing Project Performance

Strategic project planning: clear objectives and scope, realistic time and cost estimates, work breakdown structure (dividing work into small tasks), proper resource planning, risk plan, and linking the project with long-term business goals.

Leadership and team management: a capable project manager, right people in the right roles, clear responsibility, regular meetings, open communication, motivation and rewards, quick conflict resolution.

Technological tools for enhancing project performance: project management software (MS Project, Jira, Trello), Gantt charts, CPM/PERT software, cloud file sharing and video meetings, dashboards showing real-time progress, ERP and accounting software (Tally), mobile apps for site reporting.

Likely exam questions

1. (Long, 8/16 marks) What is risk? Explain the types of risk in a business plan and the strategies for handling them.
2. (Long, 8/16 marks) Explain the measurement of project performance through CPM, Earned Value Management and Return on Investment.
3. (Short, 4 marks) State the criteria for judging the performance of a project.
4. (Short, 4 marks) What is a project audit?
5. (Short, 4 marks) Write a note on technological tools for enhancing project performance.

Syllabus topics (RTMNU)

• Government support: meaning, types, need for government support
• Schemes for business: Pradhan Mantri Mudra Yojana (PMMY)
• A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship (ASPIRE)
• Atal Innovation Mission (AIM)
• Micro Units Development and Refinance Agency (MUDRA)
• Bank Procedure to grant assistance from these agencies
• Finance support: Credit Guarantee Scheme for Startups (CGSS)
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
• Pradhan Mantri MUDRA Yojana
• Stand-Up India Scheme
• Procedure to get financial assistance from these sources
• Training programs: Pradhan Mantri Kaushal Vikas Yojana
• Atal innovation mission
• Support to training and employment program for woman (STEP)
• Various online platforms for training

Government Support: Meaning, Types and Need

Meaning: Government support means the help given by Central and State governments and their agencies to start, run and grow businesses – through finance, subsidies, training, infrastructure and simple rules.

Types of government support:

• Financial – cheap loans, credit guarantees, capital subsidy, interest subsidy (e.g. MUDRA, CGTMSE, PMEGP).
• Fiscal – tax holidays and concessions (e.g. for recognised start-ups).
• Infrastructure – industrial estates, MIDC plots, incubators, power and water.
• Technical and training – skill programmes, EDPs, technology centres, mentoring.
• Marketing – government purchase preference for MSEs, GeM portal, trade fairs, export help.
• Procedural – single-window clearance, Udyam registration, self-certification.

Need: new entrepreneurs lack capital and collateral; banks see small units as risky; to create jobs and self-employment; to develop backward regions; to encourage women, SC/ST and first-generation entrepreneurs; to promote innovation and exports; to reduce migration to cities.

Schemes for Business: PMMY and MUDRA

Pradhan Mantri MUDRA Yojana (PMMY) was launched on 8 April 2015 to give collateral-free loans to non-corporate, non-farm micro and small income-generating enterprises (manufacturing, trading, services and activities allied to agriculture).

Micro Units Development and Refinance Agency (MUDRA) Ltd. was set up in 2015 as a subsidiary of SIDBI. It does not lend directly to entrepreneurs; it refinances banks, NBFCs and micro-finance institutions that give PMMY loans. It also offers the MUDRA Card (a RuPay debit card for working capital) and supports financial literacy.

ASPIRE and Atal Innovation Mission (AIM)

ASPIRE – A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship was launched in 2015 by the Ministry of MSME. Aims: create jobs in rural and agro-based industry, promote innovation and start-ups in the agro sector. It sets up Livelihood Business Incubators (LBIs) that train rural youth in skills and Technology Business Incubators (TBIs) that help innovators turn ideas into businesses, and supported a fund of funds through SIDBI.

Atal Innovation Mission (AIM) was set up in 2016 under NITI Aayog to build a culture of innovation and entrepreneurship. Main parts: Atal Tinkering Labs in schools (for children to experiment with technology), Atal Incubation Centres (support start-ups with space, mentoring and funding links), Atal Community Innovation Centres and innovation challenges.

Bank Procedure to Grant Assistance from these Agencies

1. Prepare a project report – business plan with project cost, means of finance and profit estimates.
2. Apply at a bank branch, NBFC or MFI, or online (Udyamimitra / JanSamarth portal for MUDRA-type loans).
3. Submit documents – identity and address proof (Aadhaar, PAN), photographs, proof of business address, Udyam registration, quotations for machines, caste or category certificate if any, bank statements.
4. Appraisal by the bank – checks feasibility, repayment capacity, credit history (CIBIL) and the applicant's experience.
5. Sanction – sanction letter with amount, interest, margin and repayment schedule.
6. Documentation – loan agreement, hypothecation of assets bought; guarantee cover (CGTMSE) where applicable.
7. Disbursement – usually directly to the supplier or in stages; then monitoring and repayment in EMIs.

Finance Support: CGSS, CGTMSE and Stand-Up India

Credit Guarantee Scheme for Startups (CGSS): notified in 2022 by the Government of India (DPIIT) and run through the National Credit Guarantee Trustee Company (NCGTC). It gives a guarantee to banks and other lenders on loans to DPIIT-recognised start-ups, up to ₹10 crore per borrower, so that start-ups get loans without heavy collateral.

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): set up in 2000 by the Government of India and SIDBI. When a bank gives a collateral-free loan to a micro or small enterprise, CGTMSE guarantees a large part of it (the bank pays a small guarantee fee). If the borrower fails, the trust pays the bank its share. The loan ceiling has been raised over the years (₹5 crore from April 2023) – check the latest limit.

Pradhan Mantri MUDRA Yojana: (see above) collateral-free loans up to ₹20 lakh through banks, NBFCs and MFIs.

Stand-Up India Scheme (5 April 2016): bank loans from ₹10 lakh to ₹1 crore to at least one SC/ST borrower and at least one woman borrower per bank branch for setting up a greenfield (new) enterprise in manufacturing, services, trading or agri-allied activities. Composite loan (term loan + working capital), repayable within 7 years with a moratorium of up to 18 months; the borrower brings at least 10% of project cost; covered by credit guarantee. Applications through the Stand-Up Mitra portal or bank branch.

Procedure to get financial assistance from these sources: check eligibility → register on the portal (Udyam / Stand-Up Mitra / JanSamarth) or visit the bank → submit project report and KYC documents → bank appraises and sanctions → guarantee cover is obtained by the bank from CGTMSE/NCGTC → loan disbursed → repay on time to remain eligible for higher loans.

Training Programs

• Pradhan Mantri Kaushal Vikas Yojana (PMKVY): launched in 2015 under the Ministry of Skill Development and Entrepreneurship and implemented through the National Skill Development Corporation (NSDC). Gives free, short-term, industry-relevant skill training with certification, and Recognition of Prior Learning (RPL) for people who already have skills; helps youth get jobs or start self-employment.
• Atal Innovation Mission: trains students and innovators through tinkering labs, incubation centres and mentor networks (Mentors of Change).
• STEP – Support to Training and Employment Programme for Women: a scheme of the Ministry of Women and Child Development (started 1986-87) for women aged 16 years and above. Gives skills in areas such as agriculture, handlooms, tailoring, food processing, computer and IT services, so that women can get jobs or become self-employed.
• Various online platforms for training: SWAYAM (free government online courses), Skill India Digital Hub, NPTEL, Startup India Learning Programme, MSME ministry's e-learning and EDP courses, NIESBUD and EDI Ahmedabad online programmes.

Likely exam questions

1. (Long, 8/16 marks) Explain the meaning, types and need of government support for business. Describe the Pradhan Mantri MUDRA Yojana.
2. (Long, 8/16 marks) Explain the bank procedure to grant financial assistance under government schemes. Write notes on CGTMSE and the Stand-Up India Scheme.
3. (Short, 4 marks) Write a short note on ASPIRE.
4. (Short, 4 marks) What is the Credit Guarantee Scheme for Startups (CGSS)?
5. (Short, 4 marks) Explain the STEP programme for women.