Case study

Rajat was deciding to start his own business. He was busy creating a detailed, well written and pleasing formatted plan to present it to the stakeholder. His aim was to satisfy the concerns, queries and issues of each group. While preparing the business plan he focussed on the following points.

A. The manufacturing operation that he will follow

B. Established the exact route of each individual item, part of assembly

C. He decided the form of business organisation that he needs to set up. This was done so that the investors know who controls the organisation

D. He also designed the amount of finance required and created the break-even analysis

E. He drafted the number and type of people required and what will be the selection process

F. He carefully analysed and did SWOT analysis for the business

Once the plan was drafted Rajat presented it before the team of DM capital. DM capital agreed to invest ₹20 cr for 10% share in the company. Rajat invested ₹10 cr out of his saving and also borrowed ₹20 cr from a bank @10% interest. Rajat started business and at the end of the first year earned a profit of ₹30 cr after paying taxes.

Identify the importance of creating a business plan as aimed by Rajat.

Satisfying the queries and issues of the investors

The correct answer is option (4) - Satisfying the queries and issues of the investors.

Importance of the business plan : The business plan is valuable to the entrepreneur, potential investors, venture capitalists, banks, financial institutions, new personnel's suppliers, customers, advisors and others who are trying to familiarize themselves with the venture, its goals, and objectives. The business plan – a) helps in determining the viability of the venture in a designated market b) helps in providing guidance to the entrepreneur in organizing his/her planning activities as such:

i)                    identifying the resources required

ii)                   enabling obtaining of licenses if required etc.

iii)                 working out with legal requirements as desired by the government.

iv)                 helps in satisfying the concerns, queries, and issues of each group of people interested in the venture.

v)                   provides room for self-assessment and self-evaluation, requiring entrepreneur to think through various scenarios and plan ways to avoid obstacles.

vi)                 though not desirable, at times, business plan helps to realize the obstacles which cannot be avoided or overcome, suggesting to terminate the venture while still on paper without investing further time and money.

vii)               as the investors/lenders focus on the four Cs of credit : character, cash flow, collateral and equity contribution, it is the business plan which reflects the entrepreneur's credit history, the ability to meet debt and interest payments, and the amount of personal equity invested thus serving as an important tool in funds procurement.