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Module ii

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Module ii

  1. 1. Module II Setting New Venture 12/5/2013 1
  2. 2. INTRODUCTION Setting New Venture • Feasibility Analysis • Making business Plan • Cost Benefit Analysis • Report Writing for business. 12/5/2013 2
  3. 3. WHAT IS BUSINESS PLAN? • Includes all external and internal elements involved in starting a new business. • External and internal elements includes: Finance Marketing Manufacturing Technology Human Resource 12/5/2013 3
  4. 4. WHAT IS BUSINESS PLAN? (CONT.) Questions raised while making business plan: 1. Where am I now? 2. Where I am going now? 3. How will I get there? 12/5/2013 4
  5. 5. WHO READS THE BUSINESS PLAN? 1. 2. 3. 4. 5. 6. 7. Employees Investors Bankers Venture capitalists Suppliers Advisors Consultants 12/5/2013 5
  6. 6. IMPORTANCE OF B-PLAN 1. It helps in determining the viability of venture in the market. 2. It provides guidance to the entrepreneur in organizing his or her planning activities. 3. It serves as an important tool in helping to obtain financing. 12/5/2013 6
  7. 7. INFORMATION NEEDS 1. Market information 2. Operation information a) b) c) d) e) f) Location Manufacturing information Raw material Equipment Labor skills Space 3. Financial information 12/5/2013 7
  8. 8. FEASIBILITY ANALYSIS • • • • • • • Environment and market analysis. Legal considerations Start-up costs Working capital requirements Equity requirement Equipment and building Target market 12/5/2013 8
  9. 9. WRITING THE BUSINESS PLAN 12/5/2013 9
  10. 10. WRITING THE BUSINESS PLAN (CONT.) 12/5/2013 10
  11. 11. WRITING THE BUSINESS PLAN 12/5/2013 11
  12. 12. USING AND IMPLEMENTING BUSINESS PLAN • Measuring Plan Progress – Inventory control – Production control – Quality control – Sales control – Disbursements • Updating the plan 12/5/2013 12
  13. 13. WHY SOME BUSINESS PLANS FAIL? • Goals set by entrepreneur are unreasonable. • Goals are not measurable. • Entrepreneur has not made total commitment to the business. • Entrepreneur has no sense of potential threats or weaknesses to the business. • No customer need was established for the proposed product or service. 12/5/2013 13
  14. 14. COST BENEFIT ANALYSIS/ FINANCIAL ANALYSIS 1. Operating & capital budget 2. Pro forma income statements sales - cost of goods sold = Gross profit operating expenses (salaries, insurance, selling expenses, advertising, rent, taxes, depreciation, interest) Profit before tax = Gross profit – total operating expenses calculate Profit after tax 12/5/2013 14
  15. 15. COST BENEFIT ANALYSIS/ FINANCIAL ANALYSIS (cont.) 3. 4. 5. 6. Pro forma of cash flows Pro forma of balance sheet Pro forma of sources and applications of funds Financial ratios 12/5/2013 15
  16. 16. MEASURING & EVALUTING ORGANIZATIONAL PERFORMANCE 1. Quantitative measures 2. Qualitative measures Organization Efficiency and Effectiveness 12/5/2013 16
  17. 17. LEGAL FORMS OF BUSINESS ORGANIZATION 1. 2. 3. 4. 5. 6. Sole proprietorship General partnership Limited liability partnership C corporation S corporation Limited liability company 12/5/2013 17
  18. 18. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) Sole proprietorship: Ownership requirement: One owner Liability: Unlimited personal liability Advantages: 1. Low start-ups. 2. Freedom from most regulations 3. Owner has direct control 4. All profits go to owner 12/5/2013 18
  19. 19. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) 5. Easy to go out of business if needed. Disadvantages: 1. Unlimited personal liability 2. Personal finance at risk 3. Total responsibility 4. May be more difficult to raise financing. 5. Limited by your personal skills and capabilities. 12/5/2013 19
  20. 20. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) General Partnership Ownership requirement: Two or more owners Liability: Personal assets of partners are at risk Advantages: 1. Ease of formation 2. Pooled talent 3. Pooled resources 4. Somewhat easier access to financing 5. Some tax benefits 12/5/2013 20
  21. 21. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) Disadvantages: 1. Unlimited personal liability 2. Divided authority and decisions 3. Potential for conflicts 4. Continuity of transfer of ownership 12/5/2013 21
  22. 22. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) Limited Liability Partnership: Ownership requirement: Two or more owners It’s a combination of general partners and limited liability partners. General partners actually operate and manage the business. They are the one who have unlimited liability. Liability: Limited, although one partner must return retain unlimited liability 12/5/2013 22
  23. 23. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) Advantages: Good way to acquire capital from limited partners. Disadvantages: 1. Cost and complexity of forming can be high 2. Limited partners can’t participate in management of business without liability protection. 12/5/2013 23
  24. 24. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) C corporation: Corporation is a legal business entity that is separated from its owners and managers. Corporation don’t trade stocks publicly. It works according to laws of state in which it operates. Ownership requirement: Unlimited number of shareholders Liability: Limited Advantages: 1. Limited liability 2. Transferable ownership 3. Continuous Existence 4. Easier access to resources 12/5/2013 24
  25. 25. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) Disadvantages: 1. Expensive to set up 2. Closely regulated 3. Double taxation 4. Extensive record keeping 5. Charter restrictions 12/5/2013 25
  26. 26. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) S corporation (Subchapter S Corporation): It is same as C corporation, but is unique in that owners are taxed as a partnership as long as certain criteria are met. 1. It must be domestic corporation. 2. It cant have nonresident alien as a shareholder. 3. It can issue only one class of common stock, which means all shares carry same rights, except voting rights. Ownership requirement: Up to 75 shareholders Liability: Limited 12/5/2013 26
  27. 27. LEGAL FORMS OF BUSINESS ORGANIZATION (cont.) Advantages: 1. Easy to set up 2. Enjoy limited liability protection and tax benefits of partnership Disadvantages: 1. Must meet certain requirements 2. May limit future financing options 12/5/2013 27
  28. 28. LEGAL ISSUES • • • • • Choosing a business name, slogan Patents Contracts Employment Laws Copyrights 12/5/2013 28
  29. 29. LEGAL ISSUES (cont.) Choosing a business name, slogan: Company’s name should not be trademarked by some other company. (Trademark can be a name, phrase, logo, symbol) Patents: Patent as a legal property that allows a holder to prevent others from employing this property for their own use for a specific period. 12/5/2013 29
  30. 30. LEGAL ISSUES (cont.) Three types of patents: 1. Utility patent 2. Design patent 3. Plant patent Utility patent: It covers inventions that work uniquely to perform some function. 12/5/2013 30
  31. 31. LEGAL ISSUES (cont.) Design patent: • New shape • New design Plant patent: New living plants like flowers, trees and vegetables. 12/5/2013 31
  32. 32. LEGAL ISSUES (cont.) What is invention? 1. Novelty 2. Non-obviousness 3. Usefulness 12/5/2013 32
  33. 33. LEGAL ISSUES (cont.) Contracts: Its an agreement that creates legal obligations and is enforceable in the court of law. Four essentials of contracts: 1. Mutual assent (both parties must agree) 2. Consideration (both parties must do or pay something as stated in the contract) 3. Legality of object (cant force to do something illegal) 4. Capacity of object (minors, unsound mind, drug addicted person) 12/5/2013 33
  34. 34. LEGAL ISSUES (cont.) Employment Law 12/5/2013 34
  35. 35. LEGAL ISSUES (cont.) Copyrights: Copyright protects original works of authorship. It does not protect the idea itself, but it allows someone else to use the idea or concept in a different manner. (e.g.) Music CD, books, theatrical works; oral presentations; drawings, paintings, buildings and sculptures; photographic works; and computer programs etc. 12/5/2013 35
  36. 36. TYPES OF ORGANIZATION STRUCTURE 1. 2. 3. 4. Mechanistic organization Organic organization Virtual organization Boundary-less organization 12/5/2013 36
  37. 37. TYPES OF ORGANIZATION STRUCTURE (cont.) Mechanistic organization: 1. High specialization 2. Rigid departmentalization 3. Clear chain of control 4. Narrow spans of control 5. High formalization 6. Limited information networking throughout the organization 7. Little participation in decision making by employees 8. Focuses on efficiency and cost minimization. 12/5/2013 37
  38. 38. TYPES OF ORGANIZATION STRUCTURE (cont.) Appropriate for these situations: 1. Cost efficiencies are critical 2. Large organization 3. Standardized products produced in routine fashion 12/5/2013 38
  39. 39. TYPES OF ORGANIZATION STRUCTURE (cont.) Organic organization: 1. Little work specialization 2. Minimum formalization 3. Little direct supervision of employees 4. Flexible in job 5. Employees are highly trained 6. Wide span of control 7. Cross functional teams 8. Decentralized 9. Free flow of information 12/5/2013 39
  40. 40. TYPES OF ORGANIZATION STRUCTURE (cont.) Appropriate for these situations: 1. Innovation is critical 2. Smaller organization 3. Customized products produced 12/5/2013 40
  41. 41. TYPES OF ORGANIZATION STRUCTURE (cont.) Virtual organization: 1. Each person contributes his or her skills 2. People are linked by common goal and information technology 3. Knowledge management 12/5/2013 41
  42. 42. TYPES OF ORGANIZATION STRUCTURE (cont.) Boundary-less organization 12/5/2013 42
  43. 43. ORGANIZATIONAL VISION AND MISSION Vision and mission: Vision is a broad comprehensive picture of what an entrepreneur wants his or her organization to become. It articulates current and future decisions and actions. (e.g.) Microsoft A computer on every desk 12/5/2013 43
  44. 44. ORGANIZATIONAL VISION AND MISSION (cont.) 1. 2. 3. 4. 5. Once vision is made, a mission statement talk about what organizational unit do and hope to achieve the vision of company. Organization unit includes: Customer service team Product development project R and D department Employee training Technology 12/5/2013 44
  45. 45. ORGANIZATIONAL VISION AND MISSION (cont.) Benefits: • A clear vision helps in aligning everyone towards the same future state or objective, providing a basis for goal congruence • A clear mission provides the basis for developing plans that can be executed to achieve the vision • Values statements make clear behaviors that are expected of everyone 12/5/2013 45
  46. 46. ORGANIZATIONAL VISION AND MISSION (cont.) Vision Statement Creation: Organizational Purpose Summary of what Org. does Broad Goals Core values and beliefs 12/5/2013 46
  47. 47. ORGANIZATIONAL VISION AND MISSION (cont.) Mission Statement Creation: • To create your mission statement, first identify your organization's "winning idea". • This is the idea or approach that will make your organization stand out from its competitors, and is the reason that customers will come to you and not your competitors. • Next identify the key measures of your success. Make sure you choose the most important measures (and not too many of them!) • Combine your winning idea and success measures into a tangible and measurable goal. • Refine the words until you have a concise and precise statement of your mission, which expresses your ideas, measures and 12/5/2013 47 desired result.
  48. 48. ORGANIZATIONAL VISION AND MISSION (cont.) Example: Take the example of a produce store whose winning idea is "farm freshness". The owner identifies two keys measures of her success: freshness and customer satisfaction. The mission statement of Farm Fresh Produce is: "To become the number one produce store in Main Street by selling the highest quality, freshest farm produce, from farm to customer in under 24 hours on 75% of our range and with 98% customer satisfaction." 12/5/2013 48

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