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Entrepreneurship and Small Business Management
Notes Banks and other lenders use business plans to evaluate a company’s ability to handle more debt
and, in some cases, equity financing. The business plan documents the company’s cash flow
requirements and provides a detailed description of its assets, capitalization, and projected
financial performance. It provides potential lenders and investors with verifiable facts about a
company’s performance so that risks can be accurately identified and evaluated.
Finally, the business plan is the primary source of information for potential purchasers of a
company or one of its divisions or product lines. As with outside lenders and investors, business
plans prepared for potential buyers provide them with verifiable facts and projections about the
company’s performance. The business plan must communicate the basic business premise or
concept of the company, present its strengths as well as weaknesses, and provide indications of
the company’s long-term viability. When a company is attempting to sell off a division or
product line, the business plan defines the new business entity.
Self Assessment
State whether the following statements are true or false:
6. A company’s performance and progress cannot be measured against planned goals
involving sales, expenditures, time frame, and strategic direction.
7. Business plans also cover such areas as marketing opportunities and future financing
requirements that require management attention.
8. The business plan is the secondary source of information for potential purchasers of a
company or one of its divisions or product lines.
9. The business plan must communicate the basic business premise or concept of the company.
10. Business plans can also be used in the restructuring or reorganization of a business.
7.3 Preparation and Evaluation of Business Plan
A plan, which looks very lucrative/feasible at the first instance, might actually not be when the
details are drawn. Hence documenting the business plan is one of the early steps that an
entrepreneur should take. As discussed above, the successful entrepreneur lays down a
step-by-step plan that she/he follows in starting a new business. This business plan acts as a
guiding tool to the entrepreneur and is dynamic in nature – it needs continuous review and
updating so that the plan remains viable even in changing business situations. The various steps
involved in business planning process are:
7.3.1 Preliminary Investigation
Before preparing the plan entrepreneur should:
1. Review available business plans (if any).
2. Draw key business assumptions on which the plans will be based (e.g. inflation, exchange
rates, market growth, competitive pressures, etc.).
3. Scan the external environment and internal environment to assess the strengths, weakness,
opportunities and threats.
4. Seek professional advice from a friend/relative or a person who is already into similar
business (if any).
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