Shishir Chaturvedi
1. Creating a Business Plan:
Before starting any business there should be a perfect business plan there. A business plan should have, along with others, the following thing:
a. Cover Page
Cover page should define objective, Mission and Vision of the Business.
b. Table of Contents
There should be a table of content for easy reference of different sections of the business plan.
c. Executive Summary
An executive summery should summarize whole womb to tomb (end to end) process of the business and relevant controls for managing entire process along with a SWOT analysis.
d. Trading/ Production/ Service:
This section should define Business plan in details with respect to production, product and services in case of manufacturing / trading or service sector respectively.
e. Resource Requirement:
Here should be a clear assessment of resources and procedure for arranging them defined. Analyse the type of resources required at each stage of production such as financial, human, physical, technological, etc.
• Quality – Discuss the quality control measures to be put into place to ensure the quality of the product/service.
• Marketing – Once again underscore the market potential for your product by describing your product’s exclusivity; describe how it will exploit your competitor’s weaknesses.
Identify the target market which should be substantiated by a thorough market research.
Once the target market has been identified, focus on the communication strategy including advertising, branding, packaging etc. Like always list the costs involved for each segment of marketing.
• Sales Forecast – Sales forecast is primarily dependent on three factors – size of the market, fraction of the market you will be able to capture as a result of your marketing strategy and the pricing strategy.
• Financial Plans – A new venture must show projected profit and loss statements and cash flow statements.
• Human Resources – Make an organisation chart with details of key executives and profiles of individuals likely to be hired.
• Critical Risks – As a legal and moral obligation, the entrepreneur must, in the business plan, envision risks the investor would be undertaking in case he makes a choice to invest in your business. This will protect you from civil and criminal liability.
Also mention the time schedules against each stage of your venture. Along with your business plan make sure to support your document with flow charts, photographs, market surveys, sample brochures, advertisements, tax returns, resumes of board members, letters of recommendations etc. All this should form a part of appendixes.
f. Format and Presentation:
Describe the legal form of your business – whether it is a sole proprietorship or a partnership, public limited co. etc. Further mention here the number of approvals to be obtained or already been obtained by the Business for doing any specific Venture.
g. Summary:
Summary of entire planning with glossary of terms and specific definition of some key terms (if you want to give specific meaning to a term) should be presented at the end of Business Plan.
2. Making a Product / service Choice:
Making a product choice is not an easy task. One should consider every pros and cons before identifying the product or services to be produced/ provided. One may consider the following as indicatives:
• Population of target market.
• Population mix of the target market.
• Buying habits of the target customers.
• Buying capacity of the target customers.
• Utility of the product / service for target customer.
3. Choosing a form of Business Organization:
A business may be owned and organized in several forms. Each form of organization has its own merits and demerits. The ultimate choice of the form of business depends upon the balancing of the advantages and disadvantages of the various forms of business. The right choice of the form of the business is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses. Being a long term commitment, the choice of the form of business should be made after considerable thought and deliberation.
The choice of the form of business is governed by several interrelated and interdependent factors:-
a. The nature of business:
Businesses providing direct services like tailors, restaurants and professional services like doctors, lawyers are generally organized as proprietary concerns. While, businesses requiring pooling of skills and funds like accounting firms are better organized as partnerships. Manufacturing organizations of large size are more commonly set up as companies.
b. Scale of operations:
Large, medium, small and size of the market area (local, national, international) served are the key factors. Large scale enterprises
catering to national and international markets may be more successfully as companies. Small and medium scale firms are generally set up as partnerships and proprietorship.
c. The degree of control:
A person, who desires direct control of business, prefers proprietorship, because a company involves separation of ownership and management.
d. Degree of Compliance of different statutes:
One should also consider the degree of compliance with the different statutes by the business before selecting the form of business different forms like Partnership, Company or Sole proprietorship may have to follow with different statutes. Further there are several incentives available for different formats of business. Effect of tax code over different forms should also be evaluated.
4. Naming and Registering a Business:
Naming and registering the business is a most important thing. One should have a clear and a distinctive name for his business and he must register this name. Further all the brands, procedures, mixtures, inventions etc. should be clearly registered as an exclusive property of the business as its Intellectual Property.
5. Setting up Infrastructure and choosing location:
Like identifying the product, the setting up the infrastructure and choosing a perfect location are equally important. A well settled infrastructure and planned location may provide an undue advantage over competitors while a scattered and unorganized infrastructure may lead to death of the business. Further one must evaluate the expense to be incurred on infrastructure and the cost effectiveness of the same. While drawing a budget for infrastructure one must consider the buy or lease analysis for machinery, property etc.
6. Financing a startup Business:
One needs money to make money. Finance is the lifeline of business. A business firm requires finance to commence its operations, to continue its
operations and for its expansion and growth. There must be continuous flow of funds in and out of business. Sound plans, efficient production and marketing are all dependent on smooth flow of finance. Hence, a financial plan needs to be prepared, which indicates the requirements of finance; sources for raising the finance and the application of funds. Financial planning for starting a business begins with estimating the total amount of capital required by the firm for the various need of the business.
The financial plans of an enterprise should be formulated by taking into consideration the following factors:
• The financial objectives of the business.
• Nature and size of the business.
• The image and credit-worthiness of the enterprise.
• Growth and expansion plans.
• Government regulations.
7. Sourcing Process, Raw Materials, Machineries and Equipment:
Once the firm has decided on the foremost issues of which product it wants to produce and the location of the industry, the next important step is to select appropriate technology and equipment to produce the same. In addition to this, the source of raw material has to be decided upon. The requirements of all these can either be met through domestic sources or can be imported.
The firm should do a careful cost and benefit analysis before going ahead with the process of placing the orders to minimize the production costs and hence increasing the profit margins. Various sources of Capital should be explored and the cost of capital should be analyzed cautiously.
8. Hiring Human Resource:
Human Resource is also an important determinant of business location and functioning. Factors such as the availability of labour of different skills levels, productivity and cost of labour, flexibility of labour, attitude and behavior patterns of labour, nature of trade unionism etc. are important to a business. The whole process begins with the task of hiring manpower for starting a business for filling the present and prospective vacancies in the company. The objective of hiring manpower is to procure the right number of employees, with the required qualifications to do the right type of jobs. The hiring process involves four main steps i.e. manpower planning, recruitment, selection and placement. Each of these steps and sub-steps help the employer obtain more and more information about the candidates and thus help in obtaining the best possible manpower for the firm. This function must be performed carefully because any error committed at the time of hiring manpower may prove to be very costly for the firm both in the short as well as long term. These costs will be in the form of waste of time, money and energy in repeated hiring process. The training costs incurred on them will go waste. The efficiency of the organisation will go down due to hiring of unsuitable candidates.
An effective hiring procedure should include the answers to the following questions:
• What are the requirements of the jobs to be filled?
• What kinds of persons are needed?
• How many persons are needed?
• What sources of recruitment may be utilised?
• What steps should be taken to select the right type of candidates for employment?
9. Pricing of Product:
Fixing the right price for a product is the most difficult task as it affects the volume of sales of the product of the firm as well as the profits of the firm. Although non-price factors have become more important in recent decades, price remains one of the important elements in determining the market share and profitability. Prices are set by taking into consideration factors like costs, profit targets, competition and perceived value of products. Taking into account the various factors, the steps generally followed in setting the price of a product are:-
a. Setting the Pricing Objective:
It is the most important step as it varies among business. Setting a lower price may attract more customers and thus fetch a larger market share for the firm’s product. But charging a higher price might reflect a high quality and prestige product.
b. Determining the Demand for the Product:
Demand for the product sets a ceiling price. Penetration pricing is used when the product has a highly elastic demand and there is strong competition in the market. Under this policy, prices are fixed below the level in order to obtain a larger share of the market. Once your product is in demand or is accepted in the market, the price of your product is increased. But when the demand for the product with respect to price is more inelastic, higher prices are charged for the product. This policy is generally followed during the initial stages of introduction of the new product.
c. Estimating the Costs and Profits:
Costs set a floor price. Amount spent and return expected is the key factor in deciding the price. The various costs involved in producing the product must be covered in pricing the product. On a long term basis also the price must take into consideration the costs of doing business. This also includes sales forecast and profit margin.
d. Determining the Competition for the Product:
Competitor’s prices and the price of substitutes provide an orientation point. The number of competitors for the product in the market as well as the policy followed by them is also an important factor. Competitive pricing is used if the market is highly competitive and the product is not differentiated from that of the competitor’s.
e. Considering the Governmental Regulations:
Government policies and incentives are also taken into account. Prices are also affected by various tax liabilities which a company and the product is subjected to. It includes, excise duty, sales tax and local taxes like octroi.
f. Selecting a Suitable Pricing Method/Policy:
Right price for the product can be determined through pricing research and by adopting test-marketing techniques. The various pricing methods are:-
• Perceived value pricing:
In which a firm sets its price in relation to the value delivered and perceived by the customer. Perceived value is made up of several elements like buyer’s image of the product performance, warranty, trustworthiness, esteem, etc.
• Value pricing:
In which companies develop brand loyalty for their product by charging a fairly low price for a high quality offering.
• Going rate pricing:
If it is difficult to ascertain the exact costs involved and the competitive response, Hence, firms base their price on competitor’s price by charging the same, more or less than the major competitor.
• Introducing a product at a premium price:
When a product is innovative and competition is low or non-existent, this policy can be applied. Thus profits are optimized. But when competition arises prices are lowered.
• Ethical pricing:
Price is fixed keeping the welfare of the society in mind. For many lifesaving drugs, this particular policy is used. The product is sold at the lowest possible price with either a very reasonable margin or no profit at all. Profit may be earned from other products.
• Full Line pricing:
If you are selling a range of particular product for example pickles, then you price the product in a particular range, this way you may earn more profit in one flavor and less on the other. But, you cannot sell only the one that gives you maximum profit, or else customer may switch over to another brand where he would be able to exercise an option for other flavors.
