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Business Plan: Finance & HR

Financial plan, human resource plan, and organizational structure in the business plan.

Notes

Business Plan: Finance & HR

Class 12 CBSE Entrepreneurship — Unit 2: Entrepreneurial Planning

Financial Plan — Introduction

Financial Plan
Finance is the most important prerequisite to establish an enterprise, facilitating the entrepreneur to bring together resources (men, material, machines, methods) to produce goods/services. A sound financial plan discusses: (a) Financial requirements, (b) Sources of raising funds, (c) Exact assessment of revenue, cost, profits, cash flow, inventory, loans, etc.
King C. Gillette's Gillette Company, a multibillion business today, was $12,500 in debt in 1901. Gillette recalled being ‘backed up to the wall with our creditors lined up in front waiting for the signal to fire.’ He secured financing from a Boston Millionaire and saved his company. Henry Ford went bankrupt twice before the Ford Motor Company succeeded. Thus, an entrepreneur may face equally intense financial challenges many times.

What the Financial Plan Clarifies

  1. How much finance is required and for what purpose.
  2. What are the various sources from which funds can be raised.
  3. When and in what proportion will the funds be needed.
  4. How will the funds be managed and repaid.
  5. What is the projected profitability and cash flow position.

The Finance – Revenue Cycle

Revenue

Revenue is the lifeblood of the enterprise. It is generated from sales of goods or services and determines the firm's ability to survive and grow.

generates

Funds

Funds are the financial resources needed to start and operate the business. They come from owners, lenders, and retained earnings.

attracts

Investors

Investors provide capital in exchange for returns. They are attracted by strong financial performance and growth potential.

Components of the Financial Plan

A) Proforma Investment Decisions

Proforma investment decisions outline how the entrepreneur's funds will be invested. The entrepreneur must carefully estimate the total investment required and allocate it across various asset categories.

Items included in Proforma Investment:

  • Land and building
  • Machinery and plant
  • Installation cost
  • Preliminary expenses
  • Margin for working capital
  • R&D expenses
  • Investment in short-term assets
Inadequate or excess funds can severely damage the financial fortune of the enterprise.
Generally, three years of projected financial data are needed in a comprehensive financial plan.

Break-Even Point — Formula and Example

Break-Even Point (Units)

BEP =
Total Fixed CostsSelling Price per Unit − Variable Cost per Unit

Break-Even Point (Sales Value)

BEP =
Total Fixed CostsContribution Margin Ratio

Where:

  • Fixed Costs:Costs that remain constant regardless of production volume (rent, salaries, insurance).
  • Variable Costs:Costs that change in direct proportion to production volume (raw materials, direct labour).
  • Contribution Margin:Selling Price per Unit − Variable Cost per Unit — the amount each unit contributes to fixed costs.
  • Contribution Margin Ratio:(Contribution Margin ÷ Selling Price per Unit) × 100.
At BEP: Total Revenue = Total Cost. No profit, no loss. Above BEP → profit. Below BEP → loss.

Solved Example

Problem

A firm has total fixed costs of ₹50,000. The selling price per unit is ₹100 and the variable cost per unit is ₹60. Calculate the break-even point in units and in sales value.

Solution

BEP (Units) = 50,000 ÷ (100 − 60) = 50,000 ÷ 40 = 1,250 units. BEP (Sales Value) = 1,250 × ₹100 = ₹1,25,000.

Real-World BEP — A Chai Stall: A chaiwala in Mumbai rents a cart for ₹5,000/month (fixed cost). Each cup costs ₹3 to make (tea leaves, milk, sugar — variable cost) and sells for ₹10. BEP = 5,000 ÷ (10 − 3) = 715 cups/month, or 24 cups/day. If he sells 30 cups/day, he makes a monthly profit of (30 − 24) × ₹7 × 30 = ₹1,260. Simple math — powerful planning.

Manpower Planning

“The people working in a firm make it what it is.”— Hicks and Gullet

Manpower planning is the process by which an entrepreneur ensures that the enterprise has the right number of people, with the right skills, at the right place, at the right time — capable of effectively and efficiently completing the tasks that will help the enterprise achieve its overall objectives.

Step 1

What kind of people are required?

The first step in manpower planning is identifying the qualitative requirements — what kind of people does the enterprise need?

Factors to Assess:

  • Educational qualifications
  • Technical and professional skills
  • Knowledge and experience
  • Aptitude and attitude
  • Range from top-level managers to unskilled labour
1 of 3
Example — Zomato's Manpower Plan (2014): When Zomato expanded from 5 to 50+ Indian cities, they needed: What kind? — Delivery partners (2-wheeler, smartphone, local area knowledge) + Content writers (food reviewers) + Sales executives (restaurant onboarding). How many?— 20 delivery partners per city + 2 content writers + 5 sales execs = 27 per city × 50 = 1,350 people.How to procure? — Local recruitment drives, referral bonuses, tie-ups with delivery aggregators. Within 2 years, Zomato had 3,000+ employees — all planned through structured manpower planning.

Key Takeaways

Key Takeaways

  • Finance is the most important prerequisite to establish an enterprise. A sound financial plan covers requirements, sources of funds, and projections of revenue, cost, profit, cash flow, inventory, and loans.
  • The seven components of a financial plan are: Proforma Investment Decisions, Proforma Financing Decisions, Proforma Income Statement, Proforma Cash Flow, Proforma Balance Sheet, Break-Even Point, and Economic & Social Variables.
  • The break-even point (BEP) is where total revenue equals total cost — the firm neither profits nor loses. Above BEP the firm earns profit; below BEP it incurs losses.
  • BEP (Units) = Total Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit). A conservative approach to revenue forecasting lends credibility to the financial plan.
  • Manpower planning answers three fundamental questions: What kind of people are required? How many people are required? How to procure personnel?
  • The objective of manpower planning is to ensure the right person, at the right job, at the right time — enabling the enterprise to execute its business plan effectively.