Latha started her business of making dosa batter from her home during her free time and started selling the same to households in her area. The batter was a huge success as the quality was good and according to the taste of the target market. She decided to make it into a full-time business. Her entire family supported the venture. She approached few family members and friends who lent her around Rs.2 lakh. With that money she purchased some machinery and took a small space on rent to start producing the batter. Her batter in the name of 'Home Taste' was a huge hit in the market. Within a span of few years her business grew double fold.
She was talking about her successful venture to her brother who is also a chartered accountant. He suggested her that she should improve her business model so that it will enable mass production. They analysed that they will have to make a list of all pros and cons of increasing the business. Keeping this in mind, her brother prepared a document which described formally the relevant external and internal elements involved in starting the venture on a large scale. This document comprised of various components. Explain in detail any six items which should be included in the component which gives a projection about the economic feasibility of the enterprise

Question

Latha started her business of making dosa batter from her home during her free time and started selling the same to households in her area. The batter was a huge success as the quality was good and according to the taste of the target market. She decided to make it into a full-time business. Her entire family supported the venture. She approached few family members and friends who lent her around Rs.2 lakh. With that money she purchased some machinery and took a small space on rent to start producing the batter. Her batter in the name of 'Home Taste' was a huge hit in the market. Within a span of few years her business grew double fold.

She was talking about her successful venture to her brother who is also a chartered accountant. He suggested her that she should improve her business model so that it will enable mass production. They analysed that they will have to make a list of all pros and cons of increasing the business. Keeping this in mind, her brother prepared a document which described formally the relevant external and internal elements involved in starting the venture on a large scale. This document comprised of various components. Explain in detail any six items which should be included in the component which gives a projection about the economic feasibility of the enterprise

Accepted Answer

The document prepared by Latha's brother is the **Business Plan**, and the sub-component that gives a projection about the economic feasibility of the enterprise is the **Financial Plan**. A business plan is a comprehensively written down document prepared by the entrepreneur describing formally all the relevant external and internal elements involved in starting a new venture. The six items which should be included in the financial plan component are: 1. **Proforma investment decisions** — This relates to how funds are invested in assets for highest possible returns. It includes estimate of capital components such as land and building, machinery and plant, installation cost, preliminary expenses, margin for working capital, and investment in short-term assets like raw material and cash level. 2. **Proforma financing decisions** — This summarizes projected sources of funds including owner's funds and borrowed funds. The entrepreneur selects the best mix to minimize capital cost and financial risk, and maximize return on investment and profitability. 3. **Proforma income statement** — This is the projected net profit calculated from projected revenue minus projected costs and expenses. It summarises profit data for the first year.

4. **Proforma cash flow** — This reflects the projected cash available, calculated from projected cash receipts minus projected cash disbursements. 5. **Proforma balance sheet** — This reflects the business position at the end of the first year, summarizing projected assets, liabilities, and net worth. 6. **Break-even point** — The level of production volume where the firm neither profits nor losses (total revenue equals total cost). It helps in determining the volume of sales needed to cover total variable and fixed expenses.