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Unit 4: Business Plan Formulation

Concept of Business Plan:

A business plan is a written document that describes in detail how a business—usually a startup—defines its objectives and
how it is to go about achieving its goals. A business plan lays out a written roadmap for the firm from marketing, financial, and
operational standpoints.

Business plans are important documents used for the external audience as well as the internal audience of the company. For
instance, a business plan is used to attract investment before a company has established a proven track record or to secure
lending. They are also a good way for companies' executive teams to be on the same page about strategic action items and to
keep themselves on target towards the set goals.

Although they're especially useful for new businesses, every company should have a business plan. Ideally, the plan is reviewed
and updated periodically to see if goals have been met or have changed and evolved. Sometimes, a new business plan is
created for an established business that has decided to move in a new direction.

KEY TAKEAWAYS

 A business plan is a written document describing a company's core business activities, objectives, and how it plans to
achieve its goals.
 Startup companies use business plans to get off the ground and attract outside investors.
 Businesses may come up with a lengthier traditional business plan or a shorter lean startup business plan.
 Good business plans should include an executive summary, products and services, marketing strategy and analysis,
financial planning, and a budget.

4.1 Need and Importance of Business Plan:

1. To prove that you’re serious about your business: A formal business plan is necessary to show all interested parties —
employees, investors, partners and yourself — that you are committed to building the business. Creating your plan forces you
to think through and select the strategies that will propel your growth.

2. To establish business milestones: The business plan should clearly lay out the long-term milestones that are most important
to the success of your business.A milestone is something significant enough to start new business with new idea and creativity.

3. To better understand your competition: Creating the business plan forces you to analyze the competition. All companies
have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s
competitive advantages. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.

4. To better understand your customer: Why do they buy ? when they buy? Why don’t they when they don’t? An in-depth
customer analysis is essential to an effective business plan and to a successful business. Understanding your customers will not
only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via
advertising and promotions.

5. To assess the feasibility of your venture: How good is this opportunity? The business plan process involves researching your
target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. In some
cases, the result of your planning will be to table the venture. And it might be to go forward with a different venture that may
have a better chance of success.

6. To document your revenue model: How exactly will your business make money? This is a critical question to answer in
writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions
associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider.

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7. To determine your financial needs: Does your business need to raise capital? How much? One of the purposes of a business
plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for
raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you
need to raise additional funding in the future.

8. To attract investors: A formal business plan is the basis for financing proposals. The business plan answers investors’
questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit
strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also
thoroughly review your business plan.

9. To reduce the risk of following the wrong opportunity: The process of creating the business plan helps to minimize
opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other
opportunities. So you make the best decisions.

10. To force you to research and really know your market: What are the most important trends in your industry? What are the
greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your
product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your
marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.

11. To attract employees and a management team:To attract and retain top quality talent, a business plan is necessary. The
business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic
goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned
and motivated will be key to your success.

12. To plot your course and focus your efforts. The business plan provides a roadmap from which to operate, and to look to for
direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your
long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.

13. To attract partners. Partners also want to see a business plan, in order to determine whether it is worth partnering with
your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your
venture if they can read a detailed explanation of your company.

14. To position your brand. Creating the business plan helps to define your company’s role in the marketplace. This definition
allows you to succinctly describe the business and position the brand to customers, investors, and partners. With the industry,
customer and competitive insight you gain during the business planning process, you can best determine how to position your
brand.

15. To judge the success of your business. A formal business plan allows you to compare actual operational results versus the
business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and
operational goals (and why you have or have not).

16. To document your marketing plan. How are you going to reach your customers? How will you retain them? What is your
advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business.
And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is
critical.

17. To understand and forecast your company’s staffing needs. After completing your business plan, you will not be surprised
when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to
ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your
timing is right as it takes time to recruit and train great employees.

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18. To uncover new opportunities. Through the process of brainstorming, white-boarding and creative interviewing, you will
likely see your business in a different light. As a result, you will often come up with new ideas for marketing your
product/service and running your business.

Marketing Plan

A marketing plan is an operational document that outlines an advertising strategy that an organization will implement to generate
leads and reach its target market. A marketing plan details the outreach and PR campaigns to be undertaken over a period,
including how the company will measure the effect of these initiatives. It outlines the marketing strategy, promotional, and
advertising activities planned for the period.

KEY TAKEAWAYS

 The marketing plan details the strategy that a company will use to market its products to customers.
 The plan identifies the target market, the value proposition of the brand or the product, the campaigns to be
initiated, and the metrics to be used to assess the effectiveness of marketing initiatives.
 The marketing plan should be adjusted on an ongoing basis based on the findings from the metrics that show which
efforts are having an impact and which are not.
 Digital marketing shows results in near real-time, whereas TV ads require rotation to realize any level of market
penetration.
 A marketing plan is part of a business plan, which describes all of the important aspects of a business, such as its
goals, values, mission statement, budget, and strategies.

Structure of a Marketing Plan /Elements of a Marketing Plan

The structure of a marketing plan can include the following sections:

1. Marketing Plan Objectives: This section outlines the expected outcome of the marketing plan with clear, concise,
realistic, and attainable objectives. It contains specific targets and time frames such as target market share, the target
number of customers to be attained, penetration rate, usage rate, sales volumes targeted, etc. should be used.
2. Market Research – Market Analysis/Consumer Analysis:Market analysis includes topics such as market definition,
market size, industry structure, market share and trends, and competitor analysis. Consumer analysis includes the
target market demographics and what influences their buying decisions – e.g., loyalty, motivation, and expectations.
3. Target Market: This defines the target customers by their demographic profile, such as gender, race, age, and
psychographic profile, such as their interests. This will assist in the correct marketing mix for the target market
segments.
4. SWOT Analysis: A SWOT analysis will look at the organization’s internal strengths and weaknesses and external
opportunities and threats. SWOT analysis includes the following:
 Strengths are the organization’s competitive advantages that are not easily duplicated. They represent the
skills, expertise, and efficiencies that an organization possesses over its competitors.
 Weaknesses are impediments found in the operations of an organization, and they stifle growth. These can
include outdated machinery, inadequate working capital, and inefficient production methods.
 Opportunities are prospects for growth in the business through the adoption of ways to take advantage of
the chances. They could include entry into new markets, adopting digital marketing strategies, or new
trends.
 Threats are external factors that can affect the business negatively, such as a new powerful competitor,
legislative changes, natural disasters, or political situations.

5. Marketing Strategy:The marketing strategy section covers actual strategies to be included according to the marketing
mix.The strategy centers on the 8Ps of marketing. However, firms are also at liberty to use the traditional 4 P’s of marketing –

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product, price, place, and promotion. The correct marketing mix is determined by the target market. The most expensive
options are advertising, sales promotions, and PR campaigns. Networking and referrals are less costly.

6.Marketing Budget:The marketing budget or projection outlines the budgeted expenditure for the marketing
activities documented in the marketing plan. The marketing budget consists of revenues and costs stated in the
marketing plan in one document.It balances expenditures on marketing activities and what the organization can
afford. It’s a financial plan of marketing activities to be carried out – e.g., promotional activities, cost of marketing
materials and advertising, and so on. Other considerations include expected product volume and price, production
and delivery costs, and operating and financing costs.

7.Performance Analysis: Performance analysis aims to look at the variances of metrics or components documented in the
marketing plan. These include:

 Revenue variance analysis: An analysis of positive or negative variance of revenue. A negative variance is worrisome,
and reasons should be available to explain the cause of deviations.
 Market share analysis: An analysis of whether the organization attained its target market share. Sales may be
increasing whilst the organization’s share of the market is decreasing; hence, it is paramount to track this metric.
 Expense analysis: An analysis of marketing expense to sales ratio. This ratio needs to be compared to industry
standards to make informed comparisons.

 Product or Service Description: Descriptions of products or services involve three things: connecting with the
customer, showing them how the product or service can fix a problem they are having, and convince them to
purchase it. In order to do this, the writer needs to select the benefits and features that are most important.

1. Product and Service Features:A feature is a statement that defines a product or service's characteristics. It is a factual
statement. Features typically include measurements such as weight, height, or capacity. It also includes such
descriptors as color, whether a food is organic, what sort of mileage a vehicle is rated to have, and so on. Features do
not have as much influence on a buyer's decision as benefits but can help consumers make decisions by providing
information that they need
2. Product and Service Benefits:Benefits show potential customers the reason that they should buy the product or
service. Unlike features, however, the benefits focus on the end outcome and appeal to consumers by showing them
why they need it.For example, a feature of a drink cooler would be the length of time it can keep beverages cold,
while the benefit is that consumers can easily enjoy cold beverages whenever they like. If you are selling shoes, the
features might focus on how durable they are, while the benefit is that consumers won't have to replace them for a
long time.
3. What to Include in Descriptions: There are a few items that belong in most descriptions for products and services,
including:
 Description of the item's physical characteristics.
 How to use the product or service.
 Information about how the product or service has evolved throughout its development.
 How the offering compares to its competition.

4.The Value of Product and Service Descriptions: Even if your product is well-known, it's a mistake to assume that your
target consumer is familiar with it. Describing it thoroughly and carefully is important. If you are putting a new product or
service on the market, make the descriptions especially detailed and include extra references for further information if
necessary.

 Targeted market and customers: A target market is a group of people with some shared characteristics that a
company has identified as potential customers for its products. Identifying the target market informs the decision-
making process as a company designs, packages, and markets its product.A target market may be broadly categorized
by age range, location, income, and lifestyle. Many other demographics may be considered. Their stage of life, their
hobbies, interests, and careers, all may be considered.

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 Location of business establishment: Choosing a business location is not something that can be done on a whim—it's
a crucial step in starting a business. First things first, the business location you choose will depend on the type of
business you operate. Business parks, shopping malls, strip malls, professional buildings, and others are all designed
to meet the specific needs of various businesses. If you’re expanding from online-only to online and brick-and-mortar,
for example, your needs will be much different than if you’re an accountant looking to grow your firm and bring in
new clients.

1. Decide on a business location type:

 Home-based business - If you work from home but need more space, you might consider moving to a new
home or adding on to your existing home to create the office space you need.
 Retail business - Don’t limit yourself to downtown storefronts and strip malls. You can also find retail space
in airports, free-standing buildings, and special event kiosks.
 Mobile business - It used to be that the only businesses that moved around were circuses and festival
vendors. But today with mobile card readers, your restaurant can add a roaming food truck location and
your used book store can open a new pop-up shop near the beach.
 Commercial business space - Commercial business spaces offer flexibility for even more growth down the
road, but are typically best for businesses that don’t rely on heavy consumer traffic.
 Industrial site - If you operate a manufacturing or distribution business, you’ll have special needs and will
likely have limited choices when it comes to opening a new location. Industrial sites are needed for
companies that require large amounts of warehousing space, for companies that need access to major
transportation routes, or for companies that may produce pollutants as part of the manufacturing process.
2. Make sure the business location is within your budget: Of course, one of your major priorities will be
finding a location that fits within your company’s budget. However, that’s not all you need to examine when
it comes to money. There often other location-specific costs to consider beyond the purchase price or
monthly rent. Almost every location has different hidden costs that you need to account for: taxes,
renovations, utility upgrades, minimum wage requirements, and economic incentives. Even mobile
businesses need to consider the cost of permits and vehicle licensing when choosing a new business
location.
3. Consider your brand: Keep your brand in mind when developing your business location strategy and
looking at options. For instance, you probably wouldn’t want to plant your new office supply location right
in the middle of a high-end, boutique shopping district.
4. Think about vendors and suppliers: You'll need to secure a location that makes it easy for you to connect
with your vendors and suppliers; otherwise, you might experience significant delays or run into frequent
issues with inventory levels. When considering your options, ask yourself which location site makes it easier
and cheaper for you to get the raw goods you need to operate.
5. Find a safe location:Operating a business where you feel safe and protected should not be
underestimated. And besides your own safety and the safety of your employees, also consider your
business's safety as well. This is especially important for businesses with inventory that may be at a higher
risk for burglary and theft or if you'll frequently be running your business alone at night.
6. Go where there is demand: Ideally, you want to secure a business location that’s not saturated by your
competition. Look for areas where your product or service is in high demand or where your competition is
fairly low. If at all possible, you’ll want to expand to a location where the other businesses on the block are
complementary, to ensure your business fits into the local market.
7. Think about recruiting efforts:If you'll be hiring employees and managers for your business, you'll want
to make sure you open in an area where there's good access to public transportation or where potential
employees will be attracted. Finding high-quality employees is crucial to your business success, so plan your
location around where employees want to work.
8. Look for sites with parking options: No matter how attractive your business is, sufficient parking should
be a key consideration. Does your business location have a convenient parking lot, or will your customers
need to pay for parking—and will they be willing to? If paid parking is your only option, you'll also want to
consider if your business will offer validation. And don't forget about your employees here—they'll also
need somewhere to park.
 Estimation Of Market Demand

The marketing opportunities of a company are basically identified by conducting marketing research. After the research
identifies opportunities, target markets should be selected very carefully, evaluating the identified opportunities.To begin with,
the size, growth, and profit potential of each of the opportunities must be measured and forecasted by the management.
Demand estimates are used as a basis in sales forecasts. It is necessary to define market demand very carefully.

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 Competitor analysis: A competitor analysis is the process of identifying businesses in your market that offer similar
products or services to yours and evaluating them based on a set of predetermined business criteria. A good
competitor analysis will help you see your business and competitors through your customers' eyes to pinpoint where
you can improve. A competitor analysis focuses on identifying market participants positioned to achieve on your
opportunity and isolates each participant's operational strengths, substantive weaknesses, product offerings, market
dominance, and missed opportunities.
 Estimation of market share: Market share is the percent of total sales in an industry generated by a particular
company. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of
the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its
market and its competitors. The market leader in an industry is the company with the largest market share.

KEY TAKEAWAYS

 Market share represents the percentage of an industry, or a market's total sales, that is earned by a particular
company over a specified time period.
 Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the
industry over the same period.
 This metric is used to give a general idea of the size of a company in relation to its market and its competitors.

 Measures for Business Promotions: A promotion strategy is an actionable plan to influence people about your
business, generate more leads, and boost customer engagement. It visualizes how to perform your marketing
strategy and communication, who to target as your audience, and where and when to execute the promotion plan.
Many marketers spend more on business promotion each year, but they receive less. There are too many options and
marketing voices, so you have to make sure that your messages are really reaching the people you want to approach
when you promote your business.
The key promotion types are:
 Personal (face-to-face) selling – Salespeople from a company give you a sales presentation in person to
present their offer. Unlike the other approaches, it is easier to build relationships with you.
 Traditional advertising – You can use any paid advertisements to reach a bigger audience and prompt
short-term engagement and sales
 Direct marketing – It is direct communication with a highly targeted audience through marketing channels.
It has more chances to get quick feedback and retain customer relationships.
i.e. Emails, direct mail, digital ads, etc.
 Sales promotion – Performing a short-term marketing campaign to gain attention and encourage
conversion or purchase. You can get immediate responses and interactive, but it’s not good for developing a
long-term relationship.
i.e.)Contests, coupons,etc.
 Public relations – To build a good corporate image and cultivate a stronger customer relationship, you can
provide appropriate information and handle both positive and negative voices from consumers.
i.e.)Newspaper/magazine articles, seminars, speeches, etc.
 B2B promotions – a B2B company offers materials and services that other businesses need to work and get
benefits. It focuses on how people will benefit from using your offers.
i.e. Trade shows, case studies, online courses, etc.
 Word-of-mouth marketing – It is the process of motivating people to share information about your
products and services with others. Since people trust words from close people more than from a company,
it will bring qualified leads.
i.e. Referral program, customer reviews, influencer marketing, etc.
 Customer loyalty program – a Customer loyalty program induces your current customers to make frequent
purchases and retain them, which brings you great profits in the long run.

Business Operation Plan

An operational plan is a strategic document that outlines all the planning related to daily operations and processes
required for running a successful business. It entails all the activities that different teams or departments like

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recruitment, marketing, and finance, need to perform to achieve company goals and objectives.The main objective of
a well-defined operational plan ensures each manager and employee knows their specific responsibilities, as well as
how they should execute them within a definite timeline.

On a daily basis, your operations plan should answer these crucial questions:

 What are the strategies and tasks that need to be completed or achieved?
 Who are the individuals responsible for those tasks and strategies?
 When must each strategy be completed?
 How much will it cost?

Your strategic plan is a manual that ensures your company and all its employees execute day-to-day operations in a way that
ensures reaching your long-term business goals.

 Process of product or service creation

1. Idea generation: Many aspiring entrepreneurs get stuck on the first stage: ideation and brainstorming. This often is because
they’re waiting for a stroke of genius to reveal the perfect product they should sell. While building something fundamentally
“new” can be creatively fulfilling, many of the best ideas are the result of iterating upon an existing product.

2. Research: With your product idea in mind, you may feel inclined to leapfrog ahead to production, but that can become a
misstep if you fail to validate your idea first. Product validation ensures you’re creating a product people will pay for and that
you won’t waste time, money, and effort on an idea that won't sell. There are several ways you can validate your product ideas,
including:

3. Planning: Since product development can quickly become complicated, it’s important to take the time to plan before you
begin to build your prototype.When you eventually approach manufacturers or start looking for materials, if you don’t have a
concrete idea of your product’s design and how it will function, it’s easy to get lost in the subsequent steps.

4. Prototyping: The goal of the prototyping phase during product development is to create a finished product to use as a
sample for mass production. It’s unlikely you will get to your finished product in a single attempt—prototyping usually involves
experimenting with several versions of your product, slowly eliminating options and making improvements until you feel
satisfied with a final sample.

5. Sourcing: Once you have a product prototype you’re satisfied with, it's time to start gathering the materials and securing the
partners needed for production. This is also referred to as building your supply chain: the vendors, activities, and resources
needed to create a product and get it into a customer’s hands.

6. Costing: After research, planning, prototyping, and sourcing is done, you should have a clearer picture of what it will cost to
produce your product. Costing is a business analysis process where you take all information gathered thus far and add up what
your cost of goods sold (COGS) will be so you can determine a retail price and gross margin.

7. Commercialization: At this point you’ve got a profitable and successful product ready for the world. The last step in this
methodology is to introduce your product to the market! At this point, a product development team will hand the reins over to
marketing for a product launch.

 Required fixed assets

Fixed assets refer to long-term tangible assets that are used in the operations of a business. They provide long-term financial
benefits, have a useful life of more than one year, and are classified as property, plant, and equipment (PP&E) on the balance
sheet. Fixed tangible assets can be depreciated over time to reduce the recorded cost of the asset. Most tangible assets, such
as buildings, machinery, and equipment, can be depreciated. However, land cannot be depreciated because it cannot be
depleted over time unless it is land containing natural resources.

Examples of Fixed Assets

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 Land
 Machinery
 Buildings and facilities
 Vehicles
 Furniture
 Computer equipment
 Tools
 Level of capacity utilization

Capacity utilization can also be defined as the method used to calculate the rate at which the prospective levels of output are
being met or used. The rate is displayed as a percentage and provides an insight into the total utilization of resources and how a
company can increase its output without increasing the costs associated with production. The capacity utilization rate is also
called the operating rate.

Summary

 The capacity utilization rate is useful to companies as it provides an insight into the value of production and the
resources being utilized at any given time.
 It determines the company’s ability to cope with a rise in the production of output without increasing costs.
 A reduction in the rate indicates an economic slowdown while an increase signifies economic expansion.

 Depreciation & amortization

Depreciation: Depreciation is a method of reduction that breaks down the expenses associated with a fixed asset's
long-term costs. These fixed assets are physical or tangible assets that decrease in value over a specific timeframe.
Numbers related to depreciation help business owners determine the expense of an item in relation to the business
income it provides. Examples of fixed assets include:
 Land
 Vehicles
 Buildings
 Equipment
 Office furniture
 Machinery
 Computers

Amortization: Amortization refers to the decreased cost of an intangible item over a certain period of time. Examples of
intangible items include the following:

 Patents
 Trademarks
 Copyrights
 Franchise agreements
 Organizational costs
 Trade names
 Customer lists
 Employee relations

 Estimation office overhead and utilities

What are Overheads?

Overheads are business costs that are related to the day-to-day running of the business. Unlike operating expenses, overheads
cannot be traced to a specific cost unit or business activity. Instead, they support the overall revenue-generating activities of
the business.

Summary

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 Overheads are business costs that are related to the day-to-day running of the business.
 Overhead expenses vary depending on the nature of the business and the industry it operates in.
 Overhead costs are important in determining how much a company must charge for its products or services in order
to generate a profit.

Types of Overheads

There are three main types of overhead that businesses incur. The overhead expenses vary depending on the nature of the
business and the industry it operates in.

1. Fixed overheads:Fixed overheads are costs that remain constant every month and do not change with changes in business
activity levels. Examples of fixed overheads include salaries, rent, property taxes, depreciation of assets, and government
licenses.

2. Variable overheads: Variable overheads are expenses that vary with business activity levels, and they can increase or
decrease with different levels of business activity. During high levels of business activity, the expenses will increase, but with
reduced business activities, the overheads will substantially decline or even be eliminated.Examples of variable overheads
include shipping costs, office supplies, advertising and marketing costs, consultancy service charges, legal expenses, as well
as maintenance and repair of equipment.

3. Semi-variable overheads:Semi-variable overheads possess some of the characteristics of both fixed and variable costs.A
business may incur such costs at any time, even though the exact cost will fluctuate depending on the business activity level. A
semi-variable overhead may come with a base rate that the company must pay at any activity level, plus a variable cost that is
determined by the level of usage.Examples of semi-variable overheads include sales commissions, vehicle usage, and some
utilities such as power and water costs that have a fixed charge plus an additional cost based on the usage.

Examples of Overhead Costs

Overhead costs are important in determining how much a company must charge for its products or services in order to
generate a profit. The most common overhead costs that any business incur include:

 Rent
 Administrative costs
 Insurance
 Sales and marketing
 Repair and maintenance of motor vehicles and machinery

Organizational and Human Resource Plan

Human resource planning (HRP) is the first step in the HRM process. HRP is the process by which an organization ensures that it
has the right number and kind of people, at the right place, at the right time, capable of effectively and efficiently completing
those tasks that will help the organization achieve its overall objectives. Human Resource Planning or Manpower Planning (HRP)
is the process of systematically reviewing HR requirements to ensure that the required number of employees with the required
skills is available when they are needed. Getting the right number of qualified people into the right job is the crux(main root) of
the problem

 Estimating Manpower Requirement.

 Workload analysis
 Workforce analysis
 Absenteeism
 Labor turnover
 Recruitment & Selection
 Training and development

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 Personnel Development
 Motivation

 Legal status of business

Refers to the legal identity by which a person, entity, association or company is recognized , with sufficient capacity for taking
on obligations and carrying out activities that incur full legal responsibility, regarding themselves and third parties. It is obtained
from the first character of their tax identification code(PAN) or Citizenship number, and they are grouped into the following
categories:

 Sole Trading Concern ( Private Firm Registration Act, 2014)

 Partnership Firm ( Partnership Act, 2020)
 Joint Stock Company ( Company Act, 2063)
 Multinational Company ( Company Act, 2063 and Attracts many more existing Acts)

 Management structure
A management structure describes how a company organizes its management hierarchy. In almost all organizations, a
hierarchy exists. This hierarchy determines the lines of authority, communications, rights and duties of that
organization. It also determines how the roles, power and responsibilities are assigned, controlled, and coordinated.
 Hierarchical structure
 Functional structure
 Matrix structure
 Flat structure
 Divisional structure
 Network structure
 Line structure
 Team-based structure

 Human resource cost analysis: It is the study of behavior of cost in relation to one or more HR criteria. Controlling
manpower costs has now become important for organizations, particularly when we are required to look within for
cost savings to sustain organizational growth and profitability. To enforce control on HR costs, it is essential to
develop a check-list at the outset. This requires grouping of activities under different cost heads and then Identifying
the individual cost elements under each head. It includes the following:

 Recruitment cost

 Selection Cost

 Placement cost

 Training and Development cost

 Socialization and Orientation Cost

 Motivation Cost

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 Salary, Allowance, Dearness allowance etc and many more.

 Roles and responsibility of staff: Every role has key responsibilities that fit with that position. It’s important to
understand the meaning of the terms when considering the importance of roles and responsibilities. This will ensure
that everyone can perform their job efficiently. Job responsibilities refer to the duties and tasks of their particular
roles. This is sometimes referred to as the job description. Roles, however, refer to a person’s position on a team. The
individual roles that make up a team vary depending on the organization or business. Let’s take the role of a customer
service representative as an example. The duties and responsibilities of a customer service representative are to:

 communicate with customers via phone, email, and social media

 respond promptly to customers’ complaints and questions
 give customers information about products and services
 process orders, forms, applications, and requests
 maintain a positive and professional attitude toward customers

Financial plan
A financial plan is a document containing a person’s current money situation and long-term monetary goals, as well as
strategies to achieve those goals. A financial plan begins with a thorough evaluation of the person’s current financial
state and future expectations and may be created independently or with the help of a certified financial planner.
 Own Capital / Savings.
 Family & Friends.
 Banks.
 Small Business Loans.
 Personal Loans.
 Trade Credit.

 Working capital estimation: Working capital, also known as net working capital (NWC), is the difference between a
company’s current assets—such as cash, accounts receivable/customers’ unpaid bills, and inventories of raw
materials and finished goods—and its current liabilities, such as accounts payable and debts. NWC is a measure of a
company’s liquidity, operational efficiency, and short-term financial health. If a company has substantial positive
NWC, then it should have the potential to invest and grow. If a company’s current assets do not exceed its current
liabilities, then it may have trouble growing or paying back creditors. It might even go bankrupt.

KEY TAKEAWAYS

 Working capital, also called net working capital (NWC), represents the difference between a company’s current
assets and current liabilities.
 NWC is a measure of a company’s liquidity and short-term financial health.
 A company has negative NWC if its ratio of current assets to liabilities is less than one.
 Positive NWC indicates that a company can fund its current operations and invest in future activities and growth.
 High NWC isn’t always a good thing. It might indicate that the business has too much inventory or is not investing its
excess cash.

 Pre-operating expense: Pre-operating costs include any expenses incurred during the startup or formation of a new
business. They include expenses related to the investigation of a potential new business, as well as the actual costs
associated with forming or registering the company. Pre-operating costs are also known as startup costs or pre-
opening expenses.
 Legal cost (Govt. & Court related fees)

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 Professional fees (Lawyers, Chartered Accountants, etc.)

 Stamp duty
 Printing fee
 Recruitment and training of staff before opening.
 Market research
 Site visits
 Regulatory expenses (e.g. permits, licenses)
 Administrative expenses (e.g. office rental, stationery)
 Tuition for training programs, seminars, and other educational services.

 Source of investment: Choosing to start your own business can be an incredibly rewarding experience, both
personally and financially. However, in order to get your small business off the ground, you are going to need to raise
capital before you have sold a single product. Different types of investments can be obtained, and different forms of
businesses will be able to raise funds in varying ways.
 General Partnership
 Sole Proprietorship
 Corporation
 Limited Partnership
 Limited Liability Company

 Per unit cost of service or product: Cost Per Unit can be defined as the amount of money spent by the company
during a time period for producing single unit of the particular product or the services of the company which
considers two factors for its calculation i.e., variable cost and the fixed cost and this number helps in determining the
selling price of the product or services of company.

Cost Per Unit Formula

Cost Per Unit = (Total Fixed Cost + Total Variable Cost) / Total Number of the Units Produced

 Unit price and profit/loss estimation

Separating expenses into categories helps calculate your costs. It also helps to identify where costs are rising, or can be
reduced.You can break expenses down into:

1. Fixed expenses: Such expenses stay the same no matter how many sales you make, such as:
 rent
 insurance
 license fees
 utilities
2. Variable expenses: Variable expenses go up or down based on the sales you make, such as:
 advertising
 delivery charges
 electricity – if you're manufacturing

But electricity might be a variable expense for manufacturing businesses if it depends on sales.

3. Cost of goods for sale: Cost of goods for sale or COGS are the expenses that relate directly to sales, such as:
 buying stock or components from suppliers
 freight costs – if goods are shipped to your business
 wages – if a staff member produces items for sale

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Calculating the cost of goods

COGS = opening stock + purchases − closing stock.

Business plan appraisal

Return on investment: Return on investment (ROI) is a performance measure used to evaluate the efficiency
or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly
measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the
benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage
or a ratio.

KEY TAKEAWAYS

 Return on Investment (ROI) is a popular profitability metric used to evaluate how well an investment has performed.
 ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or
outlay.
 ROI can be used to make apples-to-apples comparisons and rank investments in different projects or assets.
 ROI does not take into account the holding period or passage of time, and so it can miss opportunity costs of investing
elsewhere.

 Breakeven analysis: A break-even analysis is a financial calculation that weighs the costs of a new business,
service or product against the unit sell price to determine the point at which you will break even. In other words, it
reveals the point at which you will have sold enough units to cover all of your costs. At that point, you will have
neither lost money nor made a profit.

Key Takeaways

 A break-even analysis reveals when your investment is returned dollar for dollar, no more and no less, so that you
have neither gained nor lost money on the venture.
 A break-even analysis is a financial calculation used to determine a company’s break-even point (BEP). In general,
lower fixed costs lead to a lower break-even point.
 A business will want to use a break-even analysis anytime it considers adding costs—remember that a break-even
analysis does not consider market demand.

 Risk factors

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 Market Fluctuations
 Fluctuations in foreign exchange and interest rates
 Natural Disasters
 Competition
 Implementation of Management Strategies
 Strategic Alliance and Corporate Acquisition
 Financing

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