BUSINESS PLANNING

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BUSINESS PLANNING Some Factors for Consideration
in Developing a Business Plan for Small and
Medium Scale Enterprises (SMEs). Lionel
Munaweera
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Displaced women in El Salvador shown working on
the Business Plan for their group
enterprise. Photo credit Deborah Ziska OEF
International. Washington, D.C. USA.
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1) INTRODUCTION WITH POVERTY RUNNING AT
47.2 AND INFLATION AT CLOSE TO 30 THERE IS A
PUSH TOWARDS MICRO-FINANCING AND THE FINANCING OF
SMEs IN SRI LANKA TODAY. THIS PUSH IS SOMETIMES
OVERT WHEN COMMERCIAL FINANCIAL INTERESTS ARE
INVOLVED SINCE THEY USE MICRO-FINANCING FOR
CROSS-SELLING OF OTHER FINANCIAL PRODUCTS IN A
HITHERTO UNTAPPED MARKET. THERE ARE DIFFERING
VIEWS ON MICRO-FINANCING. ON THE ONE HAND,
MICRO-FINANCING CAN RAISE BORROWERS STANDARDS OF
LIVING AND HELP REDUCE POVERTY. POSITIVE EFFECTS
INCLUDE WOMENS EMPOWERMENT BETTER NUTRITION
INCREASES IN HOUSEHOLD INCOMES AND, IMPROVED
SCHOOL ENROLLMENT.
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• ON THE OTHER HAND, LITTLE EVIDENCE EXISTS THAT
  MICRO-FINANCING, ON AVERAGE, COMMONLY, DIRECTLY
  AND QUICKLY ENABLES BORROWERS TO BECOME
  ECONOMICALLY INDEPENDENT. IN FACT, IN SOME
  SITUATIONS, MICRO-FINANCE HAS MADE POOR PEOPLE
  VICTIMS OF REVOLVING DEBT.
• IN BANGLADESH IN 2001 APPROX. ONE IN FOUR
  HOUSEHOLDS HAD AT LEAST ONE MICRO-LOAN. HOWEVER,
  THE IMPACT ON THE COUNTRYS DEVELOPMENT
  PERFORMANCE WAS QUESTIONABLE. IN 1991,
  BANGLADESH RANKED 136TH ON THE UNDPS HUMAN
  DEVELOPMENT INDEX (HDI A MEASURE OF SOCIETAL
  WELL-BEING). IN 2006, FIFTEEN YEARS LATER,
  BANGLADESH RANKED 137TH ON THE HDI.

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• NOT EVERYONE IS CUT OUT TO BE AN ENTREPRENEUR.
  THEREFORE, IN TERMS OF POVERTY ERADICATION, YOU
  MAY VERY WELL GET MORE MILEAGE FOR YOUR
  INVESTMENT BY SUPPORTING LITERACY VOCATIONAL
  TRAINING AND ACCESS TO TECHNOLOGY, OR LOBBYING
  FOR REGULATORY CHANGES THAT MAKE STARTING AND
  GROWING A BUSINESS EASIER. IN OTHER WORDS,
  SUPPORTING THE GROWTH OF SMEs IN REGIONS OF
  POVERTY.
• GRADUATING BORROWERS OUT OF MICRO-FINANCE INTO
  SMALL BUSINESS IS ONE WAY OF MOVING TOWARDS TRUE
  ECONOMIC INDEPENDENCE AT THE INDIVIDUAL LEVEL.
  ANOTHER WAY IS STABLE, REWARDING EMPLOYMENT
  THROUGH EDUCATION TRAINING. BUSINESSES THAT
  CREATE LONG-TERM, PRODUCTIVE, NON-EXPLOITATIVE
  JOBS AND VIBRANT LOCAL ECONOMIES, STILL
  CONSTITUTE THE BEST SUSTAINABLE PROGRAM FOR MASS
  POVERTY ERADICATION EVER CREATED.

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• AT THE INDIVIDUAL SMALL BUSINESS LEVEL THERE MAY
  NOT BE AN ADEQUATE EMPHASIS ON BUSINESS PLANNING.
  ESPECIALLY CONSIDERING THE REALITY THAT
  BUSINESSES ARE LARGELY PRONE TO SUCCEED ONLY IF
  THE PROPONENT IS MAINLY RESPONSIBLE FOR
  PREPARATION OF THE UNDERLYING BUSINESS PLAN.
• IT HAS BEEN OBSERVED THAT IN THE RUSH TO DISBURSE
  FUNDS, IN MANY INSTANCES, LOANS OFFICERS ARE
  UNFORTUNATELY FAR TOO INVOLVED IN DEVELOPING THE
  BUSINESS PLAN, WITH THE RESULT THAT THE BORROWER
  (PROPONENT) OFTEN DOES NOT UNDERSTAND THE FULL
  IMPLICATIONS OF WHAT HE/SHE IS GETTING INTO

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• THIS SITUATION IS MOST COMMON WHEN SHORT-TERM
  TARGETS ARE SET FOR LOANS OFFICERS REGARDING THE
  ANNUAL NUMBER OF BUSINESSES THAT THEY HAVE TO
  START UP, THE ANNUAL VOLUME OF FUNDS THEY HAVE TO
  DISBURSE, AS WELL AS THE ANNUAL PERFORMANCE OF
  THE LOAN PORTFOLIO IN TERMS OF RATE OF
  REPAYMENT.
• IN FACT, ALTHOUGH NOT WIDESPREAD, BUT STILL
  STRICTLY AGAINST BANKING RULES AND REGULATIONS,
  THERE ARE ALLEGATIONS OF SITUATIONS WHERE LARGER
  NEW LOANS HAVE BEEN VIRTUALLY SHOVED DOWN THE
  THROATS OF CLIENTS, MERELY IN ORDER TO ABSORB THE
  UNPAID PORTION OF THE OLD LOAN AND THEREBY
  COSMETICALLY DISPLAY SUCCESSFUL PERFORMANCE ON
  THE OLD LOAN, WHILE PUSHING THE CLIENT DEEPER
  INTO DEBT!

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• MOST OF THESE KINDS OF PROBLEMS CAN BE ADDRESSED
  BY SETTING REALISTIC LONG-TERM TARGETS FOR LOAN
  PORTFOLIOS AND THE LOANS OFFICERS WHO MANAGE
  THEM, CONSIDERING THAT A LARGE NUMBER OF BUSINESS
  VENTURES USUALLY TAKE ANYWHERE FROM 3 TO 5 YEARS
  TO BREAK EVEN NEVER MIND MAKING PROFITS!

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• FUNDAMENTAL TO SUCH AN EXERCISE IS THE INSISTENCE
  THAT THE PROPONENT (WITH HELP IF NECESSARY), IS
  RESPONSIBLE FOR PREPARING HIS/HER OWN BUSINESS
  PLAN.
• A FURTHER REQUIREMENT SHOULD BE THAT THE EMPHASIS
  IN PLANNING SHOULD MOVE AWAY FROM BEING OVERLY
  OUTPUT-ORIENTED, TO A BALANCE BETWEEN OUTPUTS AND
  OUTCOMES.
• IN THIS CONTEXT, THE RESULTING BENEFITS TO THE
  FAMILY UNIT/S INVOLVED (PROPONENT/EMPLOYEES IF
  ANY) SHOULD BE STRESSED. APART FROM DIRECT SOCIAL
  BENEFITS, THIS WOULD ALSO HIGHLIGHT, TO CERTAIN
  INDIVIDUALS WHO HAVE AN UNCANNY KNACK OF
  DIVERTING BUSINESS PROCEEDS TO OTHER INTERESTS
  SUCH AS BOOKIES, BARS AND CIGARETTE VENDORS, WHAT
  IS REALLY IMPORTANT IN TERMS OF RESULTS.

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• THERE HAVE BEEN EXAMPLES, IN SMALL BUSINESS
  FINANCING, WHERE A LOAN IS NOT MADE TO A MARRIED
  PERSON UNLESS THE SPOUSE IS A CO-SIGNATORY, AND
  HAS BEEN INTIMATELY INVOLVED IN THE BUSINESS
  PLANNING, AS WELL AS BEING SCHEDULED TO BE
  INVOLVED IN THE SUBSEQUENT RUNNING OF THE
  BUSINESS EVEN IF ONLY TO BE A CO-SIGNATORY OF
  ALL CHEQUES AND A PARTY TO CRUCIAL DECISIONS.
  SUCH DECISIONS ARE SOMETIMES DIFFICULT TO DEFINE
  AND ARE THEREFORE OFTEN CATEGORIZED IN TERMS OF
  EITHER FINANCIAL OUTLAY OR PROJECTED FINANCIAL
  IMPACT.

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• IT IS ALSO OF CRUCIAL IMPORTANCE THAT, IN
  DETERMINING THE VIABILITY OF THE BUSINESS
  PROPOSITION, THE PROPONENT HAS PAID HIMSELF/
  HERSELF ADEQUATELY. THERE IS ABSOLUTELY NO USE IN
  THE PROPONENT TAKING BELOW LIVING WAGES, JUST TO
  MAKE THE FINANCIAL PROJECTIONS LOOK GOOD. WHAT
  THEN INVARIABLY HAPPENS IS A SIPHONING-OFF FROM
  THE BUSINESS TO MEET FAMILY NEEDS, WITH
  CONSEQUENT BUSINESS FAILURE SOMEWHERE
  DOWN-THE-ROAD.

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• IT IS SIMILARLY IMPORTANT, ESPECIALLY IN
  HIGH-RISK SITUATIONS, THAT A COMPETENT
  ADVISOR/AUTHORITY ON THE TECHNICAL ASPECTS OF THE
  PROPOSED BUSINESS REVIEWS THE BUSINESS PLAN FOR
  TECHNICAL SOUNDNESS AND ALSO THAT ALL REQUIRED
  ENVIRONMENTAL CLEARANCES ARE OBTAINED FROM THE
  RELEVANT AUTHORITIES.
• IN THE MID-NINETIES A CERTAIN APEX ORGANIZATION
  IN THE NORTHWEST WAS ADVISED (BY A CONSULTANT
  ATTACHED TO AN INGO) ABOUT THE SCIENTIFIC
  UNSOUNDNESS OF THE PRAWN-FARMING GLUT THAT WAS
  BEING ACTIVELY ENCOURAGED (BY VARIOUS LENDING
  AGENCIES AND OTHER INVESTORS), ON THE NORTHWEST
  COAST OF SRI LANKA.

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• THE ADVICE WAS REJECTED AND THE CONSULTANT TOLD
  THAT SRI LANKAN PRAWN FARMS HAD NO PROBLEMS
  TO-DATE WHICH WAS JUST THE POINT
  ENVIRONMENTAL DEGRADTION SOMETIMES TAKES 2 TO 3
  YEARS (AND EVEN MUCH LONGER) TO SURFACE, EVEN IN
  VISIBLY UN-HYGIENIC CONDITIONS. THE DEVASTATION
  THAT FOLLOWED (WHITE SPOT AND YELLOW HEAD
  DISEASES), WAS ENTIRELY PREDICTABLE AND IN FACT
  PREDICTED!

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• 2) MICRO-FINANCING AN EXPLANATORY NOTE
• IN TERMS OF CONVENTIONAL LENDING AND THE BANKING
  INDUSTRY, MICRO-FINANCING IS A COMPARATIVELY NEW
  FIELD, AND SOME EXPLANATION IS WARRANTED.
• MICRO-FINANCE ENTAILS THE FOLLOWING
• PROVISION OF CREDIT (IN THE FORM OF SMALL,
  SHORT-TERM, UNSECURED LOANS) AND OTHER FINANCIAL
  SERVICES, IN VERY SMALL AMOUNTS, TO THE POOR IN
  RURAL, SEMI-URBAN AND URBAN AREAS
• PROVISION IS EITHER DIRECTLY OR THROUGH A GROUP
  MECHANISM
• THE APPROACH IS CREDIT PLUS
• OBJECTIVE IS TO ENABLE THE POOR TO IMPROVE THEIR
  LIVING STANDARDS
• MICRO-FINANCE IS NEEDED IN ORDER TO PROVIDE
  FINANCIAL INCLUSION. THIS MEANS TO PROVIDE
  ACCESS TO APPROPRIATE FINANCIAL SERVICES AT AN
  AFFORDABLE COST, TO PEOPLE WHO ARE FINANCIALLY
  EXCLUDED.

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• HOW IS IT THAT SOME PEOPLE GET FINANCIALLY
  EXCLUDED?
• SUPPLY SIDE EXCLUSION
• DISTANCES ARE TOO LONG FOR SERVICING AND
  SUPPORTING THE ACCOUNTS
• HIGH TRANSACTION COSTS PARTICULARLY IN DEALING
  WITH A LARGE NUMBER OF SMALL ACCOUNTS
• LACK OF COLLATERAL SECURITY
• LACK OF A DATA BASE AND ABSENCE OF CREDIT HISTORY
  OF PEOPLE WITH SMALL MEANS
• HUMAN RESOURCES RELATED CONSTRAINTS BOTH IN TERMS
  OF INADEQUACY OF STAFF AND LACK OF PROPER
  ORIENTATION/EXPERTISE
• EXPANDING THE BRANCH NETWORK IS NEITHER FEASIBLE
  NOR VIABLE

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• DEMAND SIDE EXCLUSION
• LACK OF AWARENESS
• HIGH TRANSACTION COST AT THE CLIENT LEVEL DUE TO
  EXPENSES SUCH AS TRAVEL COSTS WAGE LOSSES AND,
  INCIDENTAL EXPENSES
• DOCUMENTATION ISSUES
• NON-AVAILABILITY OF IDEAL FINANCIAL PRODUCT TO
  SUIT BORROWER REQUIREMENTS
• PRIOR EXPERIENCE OF REJECTION BY / INDIFFERENCE
  OF THE FORMAL BANKING SYSTEM
• EASY AVAILABILITY OF TIMELY AND DOORSTEP SERVICES
  FROM MONEYLENDERS AND INFORMAL SOURCES

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• THE CONCEPT OF MICRO-FINANCE
• THE POOR CAN SAVE
• THEY ARE BANKABLE AND CAN REPAY THEIR LOANS
• THE POOR REQUIRE NOT ONLY CREDIT BUT ALSO OTHER
  FINANCIAL SERVICES
• PARTICIPATORY FINANCIAL SERVICES MANAGEMENT IS
  MORE EFFECTIVE THAN NON-PARTICIPATORY MANAGEMENT
• SMALL AFFINITY GROUPS OF THE POOR, WITH INITIAL
  OUTSIDE SUPPORT, CAN EFFECTIVELY MANAGE AND
  SUPERVISE CREDIT AMONG THEMSELVES
• COLLECTIVE WISDOM OF THE GROUP AND PEER PRESSURE
  ARE VALUABLE COLLATERAL SUBSTITUTES

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• HOW IS MICROFINANCE DIFFERENT FROM CONVENTIONAL
  LENDING?
• CONVENTIONAL LENDING PARADIGM
• POOR MAINLY NEED CREDIT
• POOR CANNOT SAVE
• POOR CANNOT AFFORD HIGHER INTEREST RATES, HENCE
  REQUIRE SUBSIDY
• UNSECURED LOANS ARE HIGHLY RISKY
• CANNOT REACH ALL VILLAGES, ESPECIALLY IN ISOLATED
  AREAS BECAUSE OF ACCESS AND COST LIMITATIONS

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• MICRO-FINANCE REALITY
• POOR NEED COMPREHENSIVE FINANCIAL SERVICES IN
  ADDITION TO CREDIT
• POOR SAVE AND ACCESS TO SAVINGS PRODUCTS
  SERVICES IS EQUALLY IMPORTANT TO THEM AS TO
  ANYONE ELSE
• RATE OF INTEREST IS NOT THE DETERMINANT OF CREDIT
  SOURCE
• COLLATERAL SUBSTITUTES ARE MORE EFFECTIVE
• IT IS POSSIBLE TO DESIGN APPROPRIATE MODELS WHICH
  ARE COST-EFFECTIVE

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• ADVANTAGES OF MICRO-FINANCE
• COST EFFECTIVE APPROACH TO ADDRESS THE FINANCIAL
  REQUIREMENTS OF THE POOR
• ALTERNATIVE FINANCIAL DELIVERY CHANNEL
• FACILITATES WIDER OUTREACH, SIMULTANEOUSLY
  REDUCING COST OF DELIVERY AND ENSURING IMPACT AT
  GROUND LEVEL
• DEVELOPS COLLATERAL SUBSTITUTES
• TACKLES FINANCIAL EXCLUSION
• EMPOWERS POOR, ESPECIALLY WOMEN

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• THE TRIANGLE OF MICRO-FINANCE
• SUSTAINABILITY
• OUTREACH .IMPACT
  
  
• MICRO-FINANCE POVERTY ALLEVIATION
• ORGANIZES THE POOR
• BUILDS THEIR CAPACITIES
• EXPANDS THEIR LIVELIHOOD OPPORTUNITIES
• SOME DIFFERENT MICRO-FINANCING MODELS
• THE GRAMEEN MODEL (BANGLADESH)
• THE SEWA MODEL (INDIA)
• CREDIT COOPERATIVES

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• THE GRAMEEN MODEL
• THE GRAMEEN BANK
• STARTED AS AN ACTION RESEARCH PROJECT OF DHAKA
  UNIVERSITY, IN JOBRA VILLAGE, BANGLADESH IN 1976
  BY PROF. MOHAMMED YUNUS
• CONVERTED TO A BANK IN 1983
• 94 CAPITAL WITH THE BORROWERS AND 6 WITH THE
  GOVT. IN 2006
• COVERS ABOUT 60 OF THE TOTAL VILLAGES IN
  BANGLADESH
• TARGETS WOMEN BORROWERS

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• OPERATIONAL MODALITIES
• CAREFUL TARGETING OF THE POOR THE LANDLESS
• SEVERAL GROUPS OF 5 WOMEN FORM A CENTRE
• MOTIVATION MONITORING WEEKLY MEETINGS
• DE-CENTRALISED OPERATIONS IN THE BANK
• LOANS BY BANK DIRECT TO MEMBERS
• NO PERSONAL COLLATERAL
• MOST LOANS FOR 1 YEAR _at_ MAXIMUM 20 PER ANNUM
• 2 MEMBERS OF THE GROUP TAKE FIRST LOAN. IF
  REPAYMENTS ARE REGULAR, AFTER 6 MONTHS, ANOTHER 2
  CAN TAKE LOANS, FOLLOWED BY THE FINAL MEMBER
  AFTER ANOTHER 6 MONTHS
• EACH LOAN IS APPROVED BY THE SMALL GROUP, THE
  CENTRE AND THE BANK REPRESENTATIVE
• REPAYMENT RATE ABOVE 95

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• THE SEWA MODEL
• SEWA IS A TRADE UNION OF SELF-EMPLOYED WOMEN. THE
  OBJECTIVES OF SEWA ARE TO
• ORGANIZE WOMEN FOR SELF-RELIANCE AND FULL
  EMPLOYMENT IN EACH FAMILY BY FOLLOWING GANDHIAN
  PRINCIPLES
• ORGANIZE SUPPORTIVE SERVICES FOR POOR WOMEN
• THE SEWA BANK (AN URBAN COOPERATIVE BANK) IS
  FULLY OWNED BY THE MEMBERS (SELF-EMPLOYED WOMEN)
  OF THE TRADE UNION, WHO ARE ITS SHARE-HOLDERS.
• POLICIES ARE FORMULATED BY THEIR OWN ELECTED
  BOARD OF WORKING WOMEN.
• THE BANK IS RUN BY QUALIFIED MANAGERS WHO ARE
  ACCOUNTABLE TO THE BOARD.

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• CREDIT COOPERATIVES
• THERE ARE SEVERAL TYPES OF CREDIT COOPERATIVES
  THAT GET INVOLVED IN MICRO-FINANCING, INCLUDING
• COOPERATIVE SOCIETIES
• SELF-HELP GROUP (SHG) COOPERATIVES
• PRIMARY AGRICULTURAL COOPERATIVE CREDIT SOCIETIES
  (PACS) AT VILLAGE LEVEL. OFTEN SUPPORTED BY
  DISTRICT AND STATE LEVEL COOPERATIVE BANKS
• SHGs WHICH ARE MEMBERS OF PACS
• THE MICRO-FINANCE INSTITUTIONS (MFI) MODEL
• THERE ARE SEVERAL DIFFERENT LEGAL ENTITIES THAT
  COMPRISE THE RANGE OF MFIs, INCLUDING
• SOCIETIES
• TRUSTS
• COOPERATIVE SOCIETIES
• COMPANIES, INCLUDING NON-BANKING FINANCE
  COMPANIES (NBFCs) AND, NOT-FOR-PROFIT COMPANIES

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• THESE ENTITIES GENERALLY USE EITHER ONE OF THE
  FOLLOWING MODELS
• THE BULK LENDING MODEL
• FUNDERS PLACE FUNDS AT THE DISPOSAL OF MFIs FOR
  ON-LENDING
• SOME COMMERCIAL BANKS ALSO FOLLOW THIS ROUTE
• ON-LENDING TO EITHER INDIVIDUALS OR GROUPS, WITH
  VARIOUS METHODS OF DELIVERY
• THE PARTNERSHIP MODEL
• SOME BANKS FOLLOW THIS MODEL, WITH THE LOANS
  SHOWN IN THE BOOKS OF THE BANK
• MFI ORIGINATES LOAN, EVALUATES, RECOMMENDS,
  ASSISTS IN DISBURSEMENT AND SUBSEQUENTLY TRACKS
  AND COLLECTS
• SERVICE CHARGE IS COLLECTED FROM BORROWERS BY MFI
• FIRST LOANS USUALLY CONSIST OF ABOUT 10 OF A
  BANKS PARTNERSHIP LOAN PORTFOLIO. MFIs PROVIDE A
  FIRST LOAN DEFAULT GUARANTEE (FLDG) ON THIS
  COMPONENT

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• THERE HAS BEEN SOME CRITICISM OF THE NEED FOR
  TRANSPARENCY AND DISCLOSURE NORMS WITH REGARD TO
  MFIs
• SOME REASONS WHY MICRO-FINANCE HAS WORKED
• DESIGNED MOSTLY AROUND COMMUNITY STRUCTURE
• VALUES EVEN THE SMALLEST AMOUNT OF MONEY
• PROVIDES FLEXIBILITY IN USAGE
• LEAVES DECISION-MAKING TO THE COMMUNITY GROUP
  WITHIN DEFINED BOUNDARIES
• FLEXIBLE BUT CALLS FOR DISCIPLINE IN OPERATIONS
  SUCH AS REGULARITY IN MEETINGS, SAVINGS AND
  REPAYMENTS
• HAS HELPED IN REALIZATION OF UNTAPPED BUSINESS
  POTENTIAL IN RURAL AREAS
• HAS RESULTED IN SOCIAL EMPOWERMENT OF THE POOR,
  ESPECIALLY WOMEN

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• SOME REASONS WHY MICRO-FINANCE IS IMPORTANT TO
  BANKS
• READYMADE CUSTOMERS MADE AVAILABLE BY NGOs
• MAJOR SCOPE FOR CROSS-SELLING IN AN UNTAPPED
  MARKET (EG INSURANCE, PENSIONS, CHILDRENS
  EDUCATION INSURANCE, INWARD OUTWARD
  REMITTANCES, ETC)
• MICRO-FINANCE CAN HELP BANKS GROW, MAXIMIZE
  MARKET SHARE AND SPREAD RISK
• PREVIOUSLY UNPROFITABLE BRANCHES CAN BE MADE
  VIABLE
• SOME OF THE MICRO-FINANCE CUSTOMERS WILL GROW
  INTO BIG CUSTOMERS AND CONTINUE RELATIONSHIP WITH
  THE BANK
• BY AND LARGE, MICRO-FINANCE CUSTOMERS ARE LOYAL
  TO THE BANK
• THROUGH MICRO-FINANCE, BANKS CAN ENHANCE BOTH
  THEIR IMAGE AND THEIR BALANCE SHEETS AT THE SAME
  TIME
• FACILITATES COMPLIANCE / FINANCIAL INCLUSION

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• IF YOU INTEND SUPPORTING A MICRO-FINANCING
  INITIATIVE, INSIST ON A SET OF CLEARLY DEFINED,
  STANDARDIZED, READILY AVAILABLE, OUTCOME-BASED
  MEASURES OF SUCCESS, SUCH AS INCOME GROWTH
  QUALITY OF HOUSING SCHOOL ENROLLMENT AND,
  NUTRITION. BE WILLING TO PAY FOR THE MEASUREMENTS
  THROUGH A BASELINE STUDY AND SUBSEQUENT ANNUAL
  UPDATES.
• REPAYMENT RATES AND OTHER COMMONLY REPORTED
  COMMERCIAL BANKING-ORIENTED MEASURES SAY
  NOTHING ABOUT THE IMPACT OF THE PROGRAM ON
  POVERTY.
• DONT GET ME WRONG. BUT MICRO-FINANCING IS NOT AN
  ECONOMIC SILVER BULLET. IT CAN LIFT MANY
  BORROWERS OUT OF POVERTY, BUT FOR THEM TO BECOME
  ECONOMICALLY INDEPENDENT IT IS USEFUL TO
  REITERATE THAT IT MEANS THEY HAVE TO GRADUATE OUT
  OF MICRO-ENTERPRISE AND INTO SMALL MEDUIM
  ENTERPRISE (SME) WHICH IS WHERE BUSINESS
  PLANNING COMES IN.

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• 3) IMPORTANT ELEMENTS IN BUSINESS PLANNING FOR
  SMEs
• WHAT ARE THE ELEMENTS OF SOUND BUSINESS PLANNING
  IN THE SME CONTEXT? FIRSTLY, ONE HAS TO HAVE AN
  OVERVIEW OF THE BASIC BUSINESS DATA RELATED TO
  THE PROPOSAL, AS WELL AS THE PERSONAL DATA OF THE
  PROPONENT.
• 3.1 BUSINESS DATA
• TYPE NATURE OF BUSINESS
• CONTACT DETAILS
• APPLICANT/S NAME/S
• BUSINESS STRUCTURE (PROPRIETORSHIP/PARTNERSHIP/COR
  PORATION/OTHER)
• BUSINESS STATUS (NEW/ EXISTING)
• ESTIMATED PROJECT COST SOURCES OF FUNDING
• RELATED BUSINESS INTERESTS (IF ANY)

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• 3.2 PERSONAL DATA
• NAME/S
• IDENTIFICATION
• CONTACT DETAILS
• FAMILY INFORMATION
• EDUCATION TRAINING
• EMPLOYMENT HISTORY
• PREVIOUS BORROWING HISTORY
• PERSONAL ASSETS
• PERSONAL LIABILITIES
• OTHER BUSINESS INTERESTS (IF ANY)
• REFERENCES (WHICH SHOULD BE FROM UNRELATED
  PERSONS, PREFERABLY NOT KNOWN POLITICIANS, AND
  SHOULD ALWAYS BE CHECKED)
• ONE THEN MOVES ON TO THE BUSINESS PLAN PROPER,
  AND THE FOLLOWING IS A TYPICAL OUTLINE

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• 3.3 BUSINESS PLAN CONTENT
• 3.3.1) SUMMARY OF PROPOSAL
• OUTLINE OF THE PROPOSED BUSINESS
• DESCRIPTION OF THE PURPOSE OF THE BUSINESS
• 3.3.2) IMPACT ON THE COMMUNITY
• ENVIRONMENTAL IMPACT (EI)?
• HAS EI BEEN ADDRESSED IN ENVIRONMENTAL ASSESSMENT
  (EA) THAT IS PART OF THE BUSINESS PLAN IF NOT,
  NO GO!
• JOBS TO BE CREATED WITHIN COMMUNITY DESCRIBE
• VOCATIONAL TRAINING?
• ESTIMATE OF ADDITIONAL COMMUNITY INCOME THAT WILL
  BE GENERATED
• MULTIPLIER EFFECTS?
• ANY ANTICIPATED REDUCTION IN CASH FLOWING OUT OF
  THE COMMUNITY?
• GENDER RELATED ISSUES?
• YOUTH RELATED ISSUES?
• POLITICAL ISSUES?

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• 3.4 PROPOSED USE OF PROCEEDS
• TYPE NATURE OF ASSETS TO BE ACQUIRED (WITH
  DOCUMENTED QUOTATIONS AND TIME ESTIMATED FOR
  DELIVERY INSTALLATION)
• WORKING CAPITAL REQUIREMENTS (WITH RATIONALE)
• SITE PLAN
• LEVEL OF INVENTORY RECEIVABLES
• COLLECTION POLICY (INCLDING RECOMMENDED
  COLLECTION PERIOD)
• ONGOING MONITORING EVALUATION BY THE LENDING
  AGENCY
• 3.5 PROPOSED SOURCES OF FINANCING
• WHERE IS THE FINANCING COMING FROM?
• WHAT IS THE AMOUNT NATURE OF OWNER EQUITY?
  NOTE SWEAT EQUITY (IE WORK EITHER
  CONTRIBUTED OR TO BE CONTRIBUTED WITHOUT CHARGE),
  MUST BE CLEARLY DEFINED

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• 3.6 SECURITY
• DETAILS REGARDING ANY ASSETS THAT MAY BE PROVIDED
  AS SECURITY AGAINST THE PROPOSED FINANCING
• REAL PROPERTY, WHEN OFFERED MUST BE CAREFULLY
  CHECKED FOR ACTUAL LOCATION, LEGAL OWNERSHIP AND
  MARKET VALUE
• CHECK INSURANCE ON THE SECURITY OFFERED
• CHECK NET WORTH OF THE PROPONENT
• 3.7 BUSINESS STRUCTURE HUMAN RESOURCES
• OUTLINE OF THE ORGANIZATION, ITS OWNERSHIP AND
  THE KEY PERSONNEL
• LEVELS OF EDUCATION
• TRAINING
• CAREER HISTORY
• NATURE OF PROPOSED DUTIES
• AVAILABILITY OF WORKERS WITH THE REQUIRED SKILL
  LEVELS
• ANY PROPOSED TRAINING PROGRAMS
• SALARIES WAGES

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• 3.8 FACILITIES EQUIPMENT
• BRIEF DESCRIPTION OF FACILITIES EQUIPMENT
  EITHER AVAILABLE OR TO BE PURCHASED
• ECONOMIC LIFE OF THESE ASSETS IN RELATION TO
  PROPOSED TERM OF THE FINANCING SOUGHT
• WARRANTY PROVISIONS PLANNED MAINTENANCE
  PROGRAMS
• 3.9 MARKETING
• THE MARKET FOR THE GOODS/SERVICES TO BE PROVIDED
  MUST BE CLEARLY INDICATED
• MARKET SURVEY
• SEASONAL INFLUENCES
• COMPETITION
• CREDIT TERMS
• ANTICIPATED MARKET SHARE
• PRICE STRUCTURE
• PROJECTED SALES
• GROSS PROFIT MARGINS

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• 3.10 OPERATIONS
• DESCRIPTION OF OPERATIONS TO BE UNDERTAKEN
• BREAKDOWN OF SIGNIFICANT OPERATING COST
  COMPONENTS EG SUPPLIES ( SUPPLIERS) CREDIT
  TERMS ALTERNATIVE SOURCES

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• 3.11 OCCUPATIONAL SAFETY, SECURITY HEALTH
  (OSSH) AND ENVIRONMENTAL
• ASSESSMENT
• MUST COVER ENVIRONMENTAL EFFECTS THEIR
  MITIGATION AS WELL AS OSSH
• INITIAL ENVIRONMENTAL ASSESSMENT (IEA) IS
  NECESSARY, AND BASED ON THAT, CLEARANCE FROM
  LOCAL AUTHORITIES AND THE CENTRAL ENVIRONMENTAL
  AUTHORITY (CEA)
• IN SOME CASES A FURTHER ENVIRONMENTAL IMPACT
  ASSESSMENT (EIA) AND MITIGATION MEASURES WILL BE
  REQUIRED THESE MUST BE COMPLIED WITH
• OSSH LONG NEGLECTED IN SRI LANKA NEGLECT
  NEVER ACCEPTABLE BUT OFTEN POSSIBLE TO GET AWAY
  WITH IN THE PAST
• TODAY, THIS WILL NOT BE PERMITTED LAWSUIT IS
  CERTAIN FOR ANY BUSINESS THAT COMPROMISES ITS
  EMPLOYEES OCCUPATIONAL SAFETY, SECURITY HEALTH

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• 3.12) QUALITY ASSURANCE
• MEASURES THAT WILL BE ADOPTED TO ENSURE ONGOING
  PRODUCT/SERVICE QUALITY
• STANDARDS THAT WILL BE ACHIEVED AND
  CERTIFICATIONS THAT WILL BE OBTAINED
• HOW THIS WILL BE ACCOMPLISHED
• HOW THE PROPOSED INITIATIVES WILL COMPARE WITH
  WHAT IS REQUIRED FOR THAT PARTICULAR
  INDUSTRY/SERVICE, BOTH LOCALLY WORLDWIDE
• 3.13) RESEARCH DEVELOPMENT (RD)
• THE ONGOING RD THAT WILL BE UNDERTAKEN TO ENSURE
  THE BUSINESS IMPROVES ITS EXISTING
  PRODUCTS/SERVICES AND IS CONSTANTLY INNOVATING IN
  TERMS OF NEW PRODUCTS/SERVICES
• THE EXPERTISE REQUIRED TO DO THIS
• IS IT AVAILABLE IN-HOUSE AND IF NOT HOW WILL IT
  BE OBTAINED?
• THE ASSOCIATED COSTS

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• 3.14 ADMINISTRATION INFORMATION
  COMMUNICATIONS TECHNOLOGY (ICT)
• ACCOUNTING RECORDS
• LEVEL OF EXPERTISE OF ACCOUNTING PERSONNEL
• LEGAL RESPONSIBILITIES
• INSURANCE TAX CONSIDERATIONS
• COMPANY SECRETARY
• AUDITORS
• TYPE/S OF ICT TO BE USED (HARDWARE/SOFTWARE)
• ORGANIZATIONAL LEVEL OF EXPERTISE IN SUCH ICT
• ANY ICT TRAINING REQUIRED
• ICT SERVICE PROVIDER
• OTHER SIGNIFICANT INFORMATION NOT PROVIDED
  ELSEWHERE IN THE BUSINESS PLAN

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• 3.15 KEY FINANCIAL INFORMATION
• MORE BUSINESSES FAIL DUE TO POOR CASH FLOW
  MANAGEMENT THAN DUE TO INTRINSIC LACK OF
  PROFITABILITY. THEREFORE, NO LOAN SHOULD EXCEED
  THE CAPACITY OF THE BORROWER TO REPAY, IN AN
  ORDERLY MANNER, AS CLEARLY DEMONSTRATED IN THE
  PRO-FORMA FINANCIAL STATEMENTS.
• FINANCIAL HIGHLIGHTS (EG WORKING CAPITAL
  DEPRECIATION PRICE VOLUME SENSITIVITY
  PROFITS BREAK-EVEN ANALYSIS)
• RELATED BUSINESSES
• MAXIMUM LOAN AMOUNT (BROKEN DOWN BY AMOUNTS
  DIRECTED AT COST OF FIXED ASSETS AND AT WORKING
  CAPITAL)
• LOAN REPAYMENT TERMS SCHEDULES
• HISTORICAL (WHERE APPLICABLE) AND PRO-FORMA
  FINANCIAL STATEMENTS (EG BALANCE SHEET, PROFIT
  LOSS STATEMENT, CASH FLOW PROJECTIONS)

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• NOTES
• IT IS CERTAIN THAT WITHOUT ADEQUATE BUSINESS
  PLANNING THE CHANCES OF SUCCESS ARE VERY SLIM.
  HOWEVER, ADEQUATE IS A SUBJECTIVE TERM
• THE SECRET OF SUCCESS IS NOT ONLY TO KEEP IT
  SIMPLE, BUT TO ALSO DETERMINE WHAT LEVEL OF
  DETAIL IS REQUIRED, AND TO ENSURE THAT THIS
  PARTICULAR LEVEL OF DETAIL IS INDEED ADDRESSED
• WHEN CONSIDERING LOAN REPAYMENT, IT IS NOT ONLY
  ABILITY TO PAY, BUT ALSO INTENT TO PAY THAT IS
  IMPORTANT. MOST USEFUL IS TO ANSWER THE QUESTION
  DOES THE PROPONENT HAVE A TRACK RECORD AND IF
  SO, WHAT IS IT? SUBSEQUENT ADEQUATE COLLECTION
  EFFORT ON THE PART OF THE LENDER IS ALSO A KEY
  REQUIREMENT

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• COLLECTION EFFORT DOES NOT MEAN EMPLOYING A THUG
  (AS FOR EXAMPLE IS COMMONLY PRACTICED IN MOTOR
  VEHICLE SEIZING IN SRI LANKA). IT MEANS THE
  DEVELOPMENT IMPLEMENTATION OF A CLEAR CREDIT
  MANAGEMENT REGIME, WITH PROVISION FOR MUTUALLY
  ACCEPTABLE RENEGOTIATION OF PAYMENT TERMS, IF
  THAT IS SEEN AS THE MOST VIABLE ALTERNATIVE TO
  SOLVING A PROBLEM
• CREDIT MANAGEMENT PROBLEMS DO NOT OFTEN APPEAR
  OVERNIGHT. THEY TAKE SOME TIME TO DEVELOP, BUT
  MUST BE NIPPED-IN-THE-BUD AND NOT PERMITTED TO
  GET OUT OF HAND BEFORE ONE DECIDES TO ACT. THE
  ONLY WAY TO ENSURE THIS IS THROUGH PROPER
  MONITORING EVALUATION (ME) BY THE LENDER

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• THE SINGLE MOST IMPORTANT AREA THAT NEEDS TO BE
  CAREFULLY CHECKED IN EVERY BUSINESS PLAN (HOWEVER
  LARGE OR SMALL) IS THE ASSUMPTIONS THAT WENT
  INTO MAKING THE PLAN. WHO MADE THE ASSUMPTIONS
  AND ON WHAT BASIS? WHAT ARE THE SUPPORTING FACTS
  (ESPECIALLY MARKET RESEARCH)?
• HOW MUCH GUT FEEL? (BY THE WAY, GUT FEEL,
  WHEN IT COMES FROM EXPERIENCE IS A VALID FACTOR
  AND SHOULD NEVER BE AUTOMATICALLY REJECTED. IT
  SHOULD BE CAREFULLY ASSESSED AND GIVEN DUE
  RECOGNIZANCE). HAVE ALL THE RISKS BEEN ASSESSED,
  AND IF SO, DONT BE AFRAID OF TAKING SOME
  CALCULATED RISKS

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• EVERY BUSINESS PLAN IS DIFFERENT. THERE IS NO
  SUCH THING AS A SUCCESSFUL COOKIE CUTTER
  APPROACH TO BUSINESS PLANNING, WHERE A LOANS
  OFFICER USES A STANDARD TEMPLATE AND JUST
  FILLS-IN THE BLANKS THAT IS A SURE RECIPIE FOR
  DISASTER AND WAS ANOTHER FACTOR THAT WAS
  UNFORTUNATELY IN EVIDENCE DURING THE SHORT-LIVED
  NORTHWEST SRI LANKA PRAWN FARMING BOOM!

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• THE SENSITIVITY ANALYSIS THAT IS RELEVANT TO ONE
  BUSINESS IS NOT NECESSARILY APPLICABLE TO ANOTHER
  ESPECIALLY IN DIFFERENT SECTORS. WHAT, FOR
  EXAMPLE HAPPENS TO A TRANSPORT BUSINESS IF THE
  GOVERNMENT DECIDES TO END FUEL SUBSIDIES AND
  PERMITS PRICES TO FLOAT AT WORLD MARKET LEVELS?
  THE POTENTIAL IMPACT WILL BE CONSIDERABLY
  DIFFERENT TO WHAT MAY FOR EXAMPLE BE EXPERIENCED
  BY AN ART DEALERSHIP
• ERADICATING POVERTY IS ACHIEVED PRIMARILY THROUGH
  SUSTAINABLE ECONOMIC ADVANCEMENT AT THE FAMILY
  LEVEL, EITHER THROUGH ENTREPRENEURSHIP OR THROUGH
  EMPLOYMENT. IN TODAYS SRI LANKAN CONTEXT THIS
  FOCUSES ON RURAL AND ESTATE FAMILIES AS WELL AS
  THE URBAN POOR.

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• ECONOMIC ADVANCEMENT IS MAINLY DEPENDENT UPON
  SUCCESSFUL PRIVATE ENTREPRENEURSHIP, OF WHICH
  SMEs ARE A VITAL COMPONENT. BUT FOR ADVANCEMENT
  TO TAKE PLACE, APPROPRIATE INITIATIVES MUST BE
  CREATED AND MUST FLOURISH.
• IN TERMS OF ENTREPRENEURSHIP, DEPENDENT WORKERS
  MUST METAMORPHOSE INTO INDEPENDENT FREE
  ENTERPRISERS SOMETHING EASIER SAID THAN DONE
  BUT MOST LIKELY TO HAPPEN ONLY IF SMALL
  ENTREPRENEURS ARE ENCOURAGED AND SUPPORTED.

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• 4) WHAT SERVICES COULD CHA PROVIDE IN DEVELOPING
  BUSINESS PLANS?
• WHAT COULD BE PROVIDED BY CHA DEPENDS ON WHAT THE
  MEMBERSHIP WANTS AS WELL AS WHAT CHA MANAGEMENT
  WANTS TO PROVIDE. THAT SAID, SOME POSSIBILITIES
  INCLUDE
• DIRECT BUSINESS DEVELOPMENT SERVICES
• - WORKING WITH PROPONENTS TO DEVELOP THEIR
  OWN BUSINESS PLANS

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• MEMBERSHIP SOURCED BUSINESS DEVELOPMENT SERVICES
• - WORKING THROUGH MEMBER ORGANIZATIONS TO ASSIST
  THER CLIENTS/PARTNERS/STAKEHOLDERS TO DEVELOP
  THEIR OWN BUSINESS PLANS
• DIRECT TO PROPONENTS SENT TO CHA BY MEMBER
  ORGANIZATIONS
• THROUGH CBOs DIRECTED TO CHA BY MEMBER
  ORGANIZATIONS
• IN THIS CONTEXT, CONSIDERATIONS INCLUDE THE NEED
  FOR SELF-GENERATED REVENUE FOR CHA, WHICH ENTAILS
  SOME OF ITS SERVICES BEING BASED ON A PROFIT
  CENTRE, FEE-FOR-SERVICE CONCEPT.

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Q A FURTHER INQUIRIES devadvisor_at_cha.lk
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