Main Aspects of Creating a Business Plan - Coursework Example

BUSINESS PLAN Introduction A business plan is a summary of how a business or entrepreneur intends to organize an entrepreneurial endeavor and implement activities necessary and sufficient for the venture to succeed. It is a written explanation of the company’s business model for the venture in question. Business plans are also developed for ventures in both business and government. It is used informally for management and planning and also used to convince outsiders such as banks or venture capitalists to invest money into a venture. It can be divided into three separate types The Miniplan Working plan & Presentation plan. A mini plan the executive summary, may consist of 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan, balance sheet etc. It’s a good way to test the interest of potential partner or minor investor. The working plan is a tool to be used to operate the business. It may be long detail but short on presentation. A presentation plan differs from that more attention is paid to attractive formatting formal language and conciseness. It is suitable to show to bankers, investors outside the company. Index -EXECUTIVE SUMMARY – Introduction -MARKETING ANALYSIS AND PLAN -COMPETITIVE STRATEGIES -FINANCIAL PLANS AND ANALYSIS:- 1. Break Even Analysis. 2. Profit and Loss. 3. Cash Flow. THE EXECUTIVE SUMMARY- Introduction We proposed to plan a business based on kitchenware items dealing with import and distribution but not for retailing and it excludes electricals.Cleaner, sophisticated and an enjoyable kitchen ware would make cooking a convenient experience. Large facilities for manufacturing and storage enable to produce a wide range of kitchen accessories.Varieties are brought in different designs, shapes and sizes. The strength of these products depends on value-added high quality kitchen accessories. The overall tariff rate is relatively low; it imposes high tariffs on certain products. Target Marketing of Kitchen ware Accessories. It is the market segment to which a particular product is marketed. There are mainly three steps to targeting: - Market Segmentation, Target Choice, Product Positioning. According to the United Kingdom’s Department of Commerce the entire trade is goes on developing nowadays. In setting a foundation on which a suitable market strategy for kitchen ware accessories have to face lot of competition. In order to compete with their own competitor’s adequate market segmentation is essential. It is important that the industry is geographically located with most of the client working on a local basis. Strategy and implementation summary of marketing says that image is the key factor for employees, because their work is more desirable and less price sensitive. Market strategy is important to develop an attractive image towards the business. It can be done through various initial or start up costs like:- 1) Advertising: - It is a paid form of services that are exclusively payable while incurring certain benefits. Advertising expenses are miscellaneous expenditure , the benefit of which will incur only on in future, but in the Balance Sheet this amount should be the expenditure to the extend not written off. 2) Premises and Equipment: - For the installation of an organization, it is essential to obtain an appropriate premises and sufficient equipments for carrying out the works. Location and premises plays an important role for the development and success of an enterprise. 3) Information Technology Facilities: - Today. The modern era of the world is highly focusing on science and technology. IT field is developing in a highly progressive manner and various changes will occur as per minute basis. Due to the technological development, at present the paper works goes on declining. IT plays an important role while analyzing a business plan. All the aforesaid expenditure is playing a vital role for the development of an enterprise. Some of them are initial or start up costs but some other expenditure is recurring in nature. Even though the enterprise is functioning well, its goal attainment is mainly focusing on its sales revenue or its total outlay. Nature of demand and volume of sales which mixed with revenue plays a crucial role for the entrepreneurial success. Demand and sales are inter related, because whenever the demand increases correspondingly the sales also increases. But the price and demand plays an opponent role, which is price increases the demand decreases and Vis versa. Sources of Finance Finance is the life blood of the business. It is adequate requirement for the proper running and functioning of the business. The proposal is to plan a business, which fundamentally requires sufficifinance. There are various sources of finance are available. They are internal and external sources. Financial needs of a business are of three categories:- Long term financial needs – It is required for a prriod o5-10 years and it is required to finance permanent / hard core working capital. Medium term financial needs requires for a period exceeding one year but not exceeding for a period of five years. It is using for extensive publicity and advertisement campaign which are written off in future. Short term financial needs are required for a period not exceeding more than one accounting period, say one year end it is mainly used for meeting the working capital requirements. Long term sources of finance are:- 1) Share capital 2) Preference shares. 3) Debentures 4) Venture capital funding Medium term sources of finance are:- 1) Public deposits 2) Commercial Banks. 3) State Financial Corporation (SFC ) Short term sources of finance are:- 1) Trade Credit. 2) Various short term provisions. Long term finance mainly focusing for a long run of business. Owner’s or equity capital which is a permanent source of finance, new issue will increases company’s flexibility. Where as in the case of preference shares, there is no risk factor and no dilution of managerial control. But in the case of retained earnings the accumulation of profits and ploughing them back to the business. Industrial finance are provided by various Institutes like UTI, IDBI etc…. “The Venture capital financing refers to financing of new high risky venture promoted by qualified entrepreneurs who lack experience and funds to give shape to their ideas. “ (Financial Management. 2004, p.239). Some common methods of venture capital scheme are:- 1) Equity Financing. 2) Conditional Loan. 3) Income note. 4) Participating Debentures. For the proposal of a business plan, adequate funds are required which are being provided by banks in the form of loan, overdraft, cash credit etc.. .The other sources of financing are – Seed capital assistance, internal cash accruals , unsecured loans, deferred payment guarantee, capital incentives etc.. Cost Classification “The Institute of Management Accountants, USA defines Cost as measurement in monitory terms of the amount of resources used for some purpose.” (A. Vinod. p. 40). Costs are classified according to – 1) Function- i.e. Production cost, administrative cost, selling cost, distribution cost and financing cost, 2) Variability/ Behavior: - i.e. Fixed cost, Variable cost and semi variable cost. Fixed costs are those costs which do not changes the level of activity, it remain constant. Variable costa is those costs which changes according to the volume of production. The variable cost per unit remains fixed but fixed cost per unit may vary. Semi variable costs are those costs which partly fixed and partly variable. It can also be called as semi fixed or mixed costs. 3) Identifiably/ Traceability: - Direct cost, indirect cost. 4) In association with Product/ Period: Product costs and Period costs. 5) Managerial Decision: - i.e. Sunk cost, opportunity cost, differential costs. Cost of Sales means, the total amount of expenditure incurred for a product. It is the exact amount of cost structure before adding a certain percentage of profit towards a product. “Overheads are indirect charges. These are the aggregate of indirect material cost, indirect labour costs and indirect expenses.” (A. Vinod. p. 47). Overhead expenses are Factory Overheads, Office / Administrative Overheads, Selling Overheads, Distribution overheads etc.. Marginal Costing: “The Accounting system in which variable costs are charged to cost units and the fixed cost of the period are written off in full against the aggregate contribution. Its special value is in decision making.” (A. Vinod. p.381). Opportunity Costs:-It is the value of a benefit sacrificed in favored of an alternative course of action. It is usually not recorded in the books of accounts and mainly using for decision making purpose. Break-Even Analysis :- It is mainly focused on finding of Break Even Point (BEP) in which the total Sales Revenue is equal to total Cost. Usually there is equilibrium or balancing point, whenever the attainment of BEP takes place. Average per unit revenue and variable costs are weighted average based on sales oir cost of each category of products. Budgeted Profit And Loss Account:- By taking an analysis view of the proposed business plan, we can summarise the Budgeted Profit and Loss Account as follows:- Budgeted Profit and Loss Account For the First Year Ended….. DEBIT CREDIT To Raw materials consumed 30,000. 00 By Sales 55,000.00 Work in progress 8,000.00 Indirectincome15,000.00 Indirect Expenditure 15,000.00 Operating Expenses 7,500.00 Profit for the Year 9,500.00 Total 70,000.00 70,000.00 By analyzing this it is evident that from the first year itself we will be able to attain a profit of Rs: 9,500.00 /- So, the plan to start a business “Kitchen ware accessories “is having a good financial feasibility and viability. Cash Budget “Cash Budget as a analytical tool, helps the Finance Manager in determining the short term cash need of the firm and in planning its short term financing requirements”. (Financial Management. p.130). Cash budget ensures the sufficient cash requirements, it also ascertain about expected shortage of cash etc. Mainly there are three ways of preparing a cash budget. They are- Receipts and Payments method, Adjusted Profit and Loss method, Balance Sheet methods. Following structure indicates CASH BUDGET of the proposed business plan. CASH BUDGET (For 6months From APRIL to SEPTEMBER of proposed business) Receipts Apr May Jun July Aug Sep Opening Balance 8000 30,500 47,500 97,500 142,000 162,000 Cash sales 130,000 100,000 100,000 150,000 100,000 100,000 Receipts from debtors !20,000 130,000 75,000 75000 50,000 60,000 Total 258,000 260500 222,500 322500 292,000 322,000 Payment Creditors 180,000 190000 100,000 150000 85,000 100,000 Wages 27,500 22000 25,000 30500 45,000 50,0000 Total 207500 212000 125,000 180,500 130,000 150,000 Closing Balance 30500 47500 97,500 142,000 162,000 172,000 CONCLUSION From this proposed business plan it is evaluated that the kitchen ware is accessories are widely used products and it has to face lot of competition. While setting a business plan, it is necessary to analyses feasibility analysis, and project evaluation techniques, which are efficiently included in this proposed plan. Works Cited Financial Management. Sources of Finance, ICAI, 2004. p.239. Vinod, A. Management Accounting. Revised Edition 2003. p. 40. Vinod, A. Management Accounting. p.47. Vinod, A. Management Accounting. Marginal Costing and Break- Even Analysis. p.381. Financial Management. ICAI, 2004, Tools of Financial Analysis and Planning, p.130. Read More