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Starting a business can be easy or otherwise, it all depends on the idea and course of the business that would be operating, the place where it would be operating, the customers that it would be targeting, the sources of funds to be collected, and most importantly the potential in the market and presence or absence of competitors. Starting a business is Entrepreneurship; in fact, the definition of entrepreneurship revolves around the idea of innovation, taking risk, and bringing on the value to the customers in a novel way.
Entrepreneurs are much more sensitive and responsive to the changing environmental conditions and customer demands; hence they cannot just simply go and set up a business.
Entrepreneurs are well aware of the fact that they have an innovative idea that needs enough research and planning in order to make it feasible and successful, because the probability of failure in entrepreneurship is quite high. Therefore, before starting a new venture they do some written work too, and that is to draw the course of the business in a ‘Business Plan’.
Business plan is a written document that specifies all the necessary requirements and plans for conducting the business activities, supporting them, and most importantly, is used to present them in such a way that entices the venture capitalists, investors, customers, and suppliers.
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The important factors of a business plan direct to convey the interests through three perspectives – creativity and technological perspective, marketing perspective, and investors perspective.
The reasons why business plan is decisive are that it determines the viability of the business, provides guidance to entrepreneur to effectively operate the venture, and also serves as an important tool of obtaining finance from venture capitalists or investors (Hisrich, Peters, & Shepherd, n.
d). Elements of a Business Plan The business plan might take a lot of time for an entrepreneur to develop a business plan, but it all depends on the knowledge and as well as the purpose that is intended to be served.
There are several elements that need to be covered in a business plan to fully get aware of the business idea, its feasibility, market conditions, finances, marketing, and organizational planning. Let’s discuss all those crucial elements of a business plan in detail. Introductory Page The introductory page of a business plan consists of the details of the entrepreneur or partners that are starting the venture; such details would encompass around their names, name of the business, and address of the entrepreneur and business.
The nature of the business should be outlined in the introductory phase of a business plan, as in the type of the business, what it provides, whom it caters to, and the market in which in would be operating. Not only this, the need for financing must be mentioned because the sole purpose of the business plan before starting the business is to involve and entice the investors and venture capitalists and loosen up their pockets. The security purposes are important for an entrepreneur and hence for that, the statement of confidentiality of report is written that the idea of the business would not be leaked out and passed to others.
Another element that is covered under the introductory phase is of ‘Executive Summary’ which consists of three to four pages and outlines the whole business in a concise form. Industry Analysis Analyzing the industry involves the assessment of external uncontrollable variables that may impact the business plan. The basic motif and purpose of an entrepreneur to start a business is to have growth in whichever market the business would be; therefore, analyzing the potential for growth in the market is very much necessary along with its past trends.
Past trends enable an entrepreneur to learn and not to introduce certain things that failed before; in fact, doing secondary and primary research allows him to determine future trends and bring on changes according to it for fruitful results. Conducting PEST analyses lets an entrepreneur to have a big picture of the market by analyzing each and every single aspect that is not in control of him; they include Political, Economic, Social & Cultural, and Technological factors.
Along with political factors that include support or confrontation for a particular business, the economic factors play a major role such as, the per-capita income of a country, its GNP, unemployment rate, disposable income, and exchange rates. Technological evaluation makes it easier for an entrepreneur to introduce the technology or machinery that would be under usage for better and safe production of the products and services. Furthermore, the review of the trends in industry and competition gives a clearer idea about the feasibility and growth potential of the venture in a given market.
Industry demand identifies the demand for a particular product or service in the market along with the changing needs and wants of the consumers. In addition, the competitors operating in the market also give an idea what kind of the market economy is – whether it is monopolistic, oligopolistic, or competitive market, and to what extent efficiency and marketing activities are required. Description of Venture This is the main part that becomes the focus of most of the venture capitalists, consumers, and suppliers.
The description of the venture includes the identification and elaboration about the products or services that the business would offer to its customers, the size of the business, whether it would remain domestic or go international, what type of equipments or machinery would be used, where it would be imported or purchased from, the hiring of the personnel and workers, defining their requirements and job description, and the background of entrepreneur, as in, what was his previous work, what type of work that was, and what experience did he actually gain from it.
To be more elaborative, there are several questions that this part of the business plan answers, such questions are as follows. What is the mission of the new venture? What are the reasons for into business? Why will this venture be successful? What development work has been complete so far? What is the product(s) or service(s)? Describe the products and services, including patent, copyright, or trademark status. Where will the business be located? Is the building new or old? Does it need renovations? Is it leased or owned? Why is the location best for your business?
What office equipment will be needed? Will it be purchased or leased? And what experience and expertise an entrepreneur has in order to successfully implement the business plan? Furthermore, an entrepreneur should also feel free to explain the hurdles that might come into the plan and obviously must also define the ways to tackle those obstructions. Production Plan Suppliers and vendors are usually most concerned with this part of the business plan, since it identifies the ways and methods of production for the products or services that the business would adapt.
Also, the suppliers get the clue as in how they would be supplying the raw materials, what distance is there, and what would be the total costs. An entrepreneur should outline the physical plant layouts, the machinery and equipment needed to perform the manufacturing operations, the names and number of raw materials required, the names and addresses of the suppliers including the terms and conditions, the costs that would incur over the manufacturing process, and other future capital equipment needs.
There are some other questions that are indirectly directed towards the entrepreneurial responsibility and entrepreneurial process; providing a clear picture of which would make the investors or suppliers to develop a perception that the entrepreneur is confident enough about his idea and does not hide or run away from taking responsibility of the course of business. Some of the questions that the business starter focuses on answering include, Will he be responsible for all or some part of the manufacturing operation?
Who will be the subcontractors for production processes? Why were those subcontractors selected? What will be the layout of the production process? What would be the capacity planning for production? The total costs of the manufacturing process that includes transportation, storage, production, and delivery costs. And most importantly, what would be the course of production – whether mass production, low-volume high variety production, or high- volume low variety production (Heizer & Render, 2006). Operational Plan
All the businesses whether they are manufacturing or nonmanufacturing, must include an operational plan as part of the business plan. This section goes beyond the manufacturing process and describes the flow of goods and services from the production to the customer. This includes inventory or stage of manufactured products, shipping, inventory control procedures, and customer support services. A non-manufacturer such as a retailer or service provider would also need this section in the business plan in order to explain the chronological steps in completing a business transaction.
For instance, internet retail sports clothing operation need to describe how and where the products are offered and would be purchased? How they would be stored, how the inventory would be managed? How products would be shipped, and how a customer would log on and complete a transaction? Operational plan of a business venture gives a sense of idea about the effectiveness and efficiency of a business, that is what type of measures and methods the company adapts to in order to be more effective and productive as compared to other competitors.
The whole value chain for the business process is underlined here in this section that includes the flow of orders for goods or services. For many firms, the performance often depends on location, facility, layout, and personnel, that can, in turn, affect service quality which involves the presence of some factors such as, reliability, responsiveness, and assurance. Technology utilization is another aspect that is covered under this section, which deals with the capacity of production, cycle time for production, and efficiency of the technology or machinery being used.
Marketing Plan Either it is a manufacturing business or service business, the marketing has to be done in a suitable manner as to target the audience, communicate the message or value to them, entice them with providing different packages and offers, ensure reliability and credibility, and effectively coordinate with them as to provide after sales services to keep the customers satisfied and contented. The marketing plan describes the market conditions and strategies related to how the products and services will be distributed, priced, and promoted.
Moreover, product forecasts and controls are also included in the marketing plan. The entrepreneur is usually required to make product forecasts according to the needs and demands of the consumers by analyzing what features and specifications they want. What type of variants they like and what sort of SKUs (Stock Keeping Units) they feel easy to purchase. In other words, there are four P’s of marketing that must be taken into consideration by the organization and that are – Product, Price, Place, and Promotion (Kotler & Keller, 2006).
Talking about the distribution systems, the business must have strong and reliable distributors who charge economical fee and have many contacts in the market to supply the products. Pricing strategies can be bundled pricing, low-cost pricing for market penetration and high-price low sales pricing in order to gain large profits and incurring low variable costs. Promotion can be done through above the line or below the line activities that involve advertisements on media and door to door campaigns, respectively.
Strong marketing plan revolves around the presence of new and innovative techniques that entice the customers to purchase the products (Kotler & Armstrong, 2008). Organizational Plan It’s the basic part of the business plan that informs the viewers of the business plan about the type of ownership, lines of authority, and responsibility of members of new venture. Some of the most common types of ownership are sole proprietorship, partnership, or the corporation.
These all three types of ownership possess different characteristics, advantages, and disadvantages; hence it all depends on the funding and type of business that is to be carried out by the entrepreneur. Secondly, an entrepreneur must mention in this section about the principal shareholders that might have some part of the ownership when they would buy the shares of the company. Moving on, the organizational plan includes the structure of the business company; it identifies whether the company has a flat structure with fewer hierarchies or has a tall or mechanistic structure with many hierarchies.
Culture is another crucial part that speaks up for the mission, vision, values, beliefs, and preferences of a business; open-book communication, friendly ambience, and involving employees in decision-making process are the part of an organizational culture. In addition, the most important thing that an entrepreneur needs to get done is to understand the total number of employees or workers that need to be hired, assigning them with the appropriate job tasks that match their skills and capabilities, and forming the pay-rolls for them to determine salary expenses.
The retention of those employees must be ensured by providing them with effective training and development to keep inline with the changing environment, offering them with attractive compensation packages, and favorable working conditions (Mc Shane & Travaglione, 2003). Financial Plan Financial plan of a venture outlines the projections of key financial data that determine economic feasibility and necessary financial investment commitment. There are three financial areas that must be discussed in this section.
It should start with the summary of the forecasted sales and the appropriate expenses for at least first three years, with the first year’s projections provided monthly. This involves forecasting the sales, costs of goods sold, and the general administrative expenses after which net profit after taxes can be projected. Another major area that must be highlighted is of Cash flow figures for three years. It is important for an entrepreneur to determine the demands on cash on a monthly basis, especially in the first year.
Sales might fluctuate or get erratic, cash receipts might not be received in time, plus the borrowing – either short-term or long-term – can also be volatile. Lastly, the projected balance sheets must be there to depict the financial condition of the business at a specific time, which could summarize the assets and liabilities of the business along with the equity that involves the investment made by entrepreneur, partners, or shareholders. Investors are quite interested in knowing that when the business would reach its breakeven, or when it would start earning profits.
Since, shareholders get their value out of their investment when profits start coming for a business, so they prefer investing in a business that rewards them with handsome returns in less time period. Sources and application for funds also let the investors and suppliers know about the financial condition and support that the company would have to run the business. Assessment of Risk It is of no wonder that the probability of failure in entrepreneurship is high, so there must be some underlying risks that cause the business to falter.
This part of the business plan identifies potential hazards and alternative strategies to meet business goals and objectives. Pointing out the weaknesses of a business is not a negative sign considered by the investors; in fact, they find it as a positive signal because the entrepreneur is wise enough to think of the long-term and pitfalls of the business. It is better to mention them, before the investors ask about them and the entrepreneur has nothing to answer. Entrepreneurs do SWOT analysis that elucidates the strengths, weaknesses, opportunities, and threats of the venture.
Alongside, the entrepreneur also develops and presents the contingency or backup plans that would be brought into action when the initial strategy fails due to some unfavorable circumstances. Appendix This is the last part of the business plan that comprises of letters from customers, distributors, or subcontractors; leases and contracts or any other type of agreements that have been initiated; market research findings that were collected through secondary or primary means; and price lists from the suppliers can be added too.
Graphs and charts would further make it easier for the investors or venture capitalists to have a clear picture of the data and findings, compare them, and make decision based on the future projection made by the entrepreneur. Therefore, these are the parts or sections of the business plan that must be written down and evaluated based on the type of the business. What do bankers, lenders, or investors see in a business plan?
There are certain aspects that must be addressed by the entrepreneur in his or her business plan, and those include three major perspectives as mentioned earlier – Creativity & technological perspective, marketing perspective, and investors’ perspective. Self-assessment is what is sought by the investors; they try to find whether the entrepreneur is confident enough over the success of the business plan. Flexibility is what is favored by the investors or bankers; lenders focus on 4 C’s of credit – Character, cash flow, collateral, and equity contribution.
They want the entrepreneur to think from the perspective of an investor, as in when, how, and how much return would the investors get. Future projected cash flows and financial stability, if are good, can really induce the lenders to loosen up their pockets fund the venture. Advice for an Entrepreneur An entrepreneur, before presenting the plan to a banker for funding purpose, must make sure that he is depicting the positive and right side of his picture. It means that he must have spotless character, past records, enough experience in his industry, and good references.
Secondly, the bankers would evaluate the sufficiency of the value of collateral that would be kept by the entrepreneur to borrow the huge sum of money. Moreover, he must ensure the timely return of the principal and as well as well the interest amount by making the lender realize about the future goals and profits that would be achieved successfully. Summary Entrepreneurship is the name of starting a business or venture that is based on the idea which is totally new and has to do something with innovation. An entrepreneur takes risk, innovates, and set up the business by fully understanding the feasibility for its success.
Before going ahead, an entrepreneur prepares a written document called Business Plan, which outlines all the necessary elements that deal with the course of the business. Such elements include Introduction, industry analysis, description of venture, organizational, production, marketing, operational, and financial plan, followed by the assessment of risk and appendix. The reasons why business plan is necessary before the start of the business are that it provides an entrepreneur with the feasibility of the business, the problems that it might face in the future, and the ways to cope with them.
Moreover, it is an essential requirement for convincing the lenders – investors and venture capitalists – to fund money for the start up of the business, and also the customers and suppliers to favor the venture. The lenders that include banks too, usually seek for 4C’s of credit that involves the character, collateral, equity contribution, and future cash flows. The character, personality, and past records of an entrepreneur count to a great extent because it shows whether the person is credible and reliable enough to be lent such a heavy amount of money.
Moreover, the business plan must be presented in such a manner that automatically entices the lenders to get interested in it and lend money; therefore, the plan should be explained to them with their own perspective and told about their stakes and interests in the plan. In short, we can say that starting a business is made much easier with a business plan that not only guides an entrepreneur regarding the business activities but also bring him the funds required to set up and operate the business. References Heizer. J & Render. B. (2006).
Operations Management. Eighth edition. India. Pearson Education, Inc. Dorling Kindersley (India) Pvt. Ltd. Hisrich. R. D; Peters. M. P; & Shepherd. D. A. (n. d). Entrepreneurship. Seventh edition. Kotler. P. & Armstrong. G. (2008). Principles of Marketing. Edition: 12th. India. Pearson Education. Inc. Kotler. P. & Keller. K. (2006). Marketing Management. Edition: 12th. India. Prentice Hall of India. McShane. S. and Travaglione. T. (2003). Organisational Behavior on the Pacific Rim. Australia. McGraw-Hill Australia Pty Limited.
Entrepreneurship Assignment. (2020, Jun 02). Retrieved from https://studymoose.com/entrepreneurship-assignment-new-essay
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