ENTREPRENEURSHIP DEVELOPMENT

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ENTREPRENEURSHIP AND ITS SCOPE Who is an Entrepreneur? Person responsible for setting up a Business or an enterprise. Takes initiative, has skills for innovation and looks for achievement. Agent of change and work for the good of people. Opens up employment opportunities, creates wealth and boosts other sectors.

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 Highly self-motivated person, who take risks to achieve goals. Firm believer in social betterment. Visionary having outstanding leadership. Desire to excel, strongly believes in R & D.

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 Found in all areas.

Play important role in economic growth.

Aims at high goals. Person, who identifies an opportunity, gathers the

necessary resources, ultimately responsible for the performance of the organization.

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 A French economist Richard cantillon in 1755, was the

first to use the term Entrepreneur.

He said Entrepreneur is one who buys factors of

production at Certain Prices and sells his Products at uncertain prices, thereby bearing a non-insurable risk that may arise, due to depressed demand for his product.

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 Peter F. Drucker said Entrepreneurs are innovators.

Innovation is the specific tool of entrepreneurs, this means by which they exploit change as an opportunity for a different business or a different service. He always searches for changes, responds to it an exploits it as an opportunity

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 We can now say that entrepreneur is a person who

bears the non-insurable risk, works under uncertainty, combines and manages the factors of production, innovates on all fronts on regular basis, functions as proprietary capitalist and is motivated by profit. Associated with three elements:- Riskbearing, organizing, innovating.

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QUALITIES / TRAITS / CHARACTERISTICS OF AN ENTREPRENEUR

Strong achiever
Self-Reliant & Independent

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 Determined and committed

Hungry for success, optimistic

Self confidence and self-faith Sustained enthusiasm

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 Courage & Self-motivated

Ability to survive defeat

Single-Mindedness Willing to accept responsibility

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 Never ending energy

Both thinker and doer

Clear objective & creativity organization skills

Intelligent and have technical knowledge

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TYPES OF ENTREPRENEURS 1. INNOVATING ENTREPRENEURS: Introduces something new into the economy New

technique of production, a new source of material or product, opens a new mkt. Aggressive in experimentation. Puts attractive possibilities into practice. Commonly found in developed countries, as people of such countries also look for change and progress, extensive research feasible.
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 ADOPTIVE OR IMITATIVE ENTREPRENEURS:-

Adopt successful innovations created by innovating

entrepreneurs. Copy the technology and techniques, knowledge Commonly found in developing countries as can not afford expensive research. Have capacity to start ventures with limited resources. Face lesser risks. Very important for developing countries as he brings change.

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 FABIAN ENTREPRENEURS:-

Very cautious and skeptical for change.

Lack the will to adopt new methods. Shy and lazy for taking risks Dealings determined by customs, traditions, past

practices. May change only for survival

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 DRONE ENTREPRENEURS: Conservative and laggards Resist change, continue past methods. Struggle to exist, not to grow May be pushed out of the market, when they loose the

market.

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FUNCTIONS OF AN ENTREPRENEUR 1. INNOVATION:- Conceives / ideas for production of

new products/services or improvements in the quality of production For this he considers the economic viability and technological feasibility. Introduction of different kinds of electronic gadgets innovation Includes introduction of new products, creation of new markets, application of new process of production, discovering new and better sources of Raw-Materials, New form / culture of Industrial organization. Innovation produces satisfaction & profits as he works on inventions new knowledge. E.D-16

2.

ASSUMPTION OF RISK OR RISK TAKING:-

Assumes all possible risks of business.

Also involves risks due to changes in tastes/behavior of

consumers, competition, new inventions and techniques of production. For all such risks, he may bear losses as he takes up the responsibilities. Invests capital, pays interest to lenders, Wages/ salaries, rent, working capital expenditures and after all these, may be left with little or no profits. Being Enterprising, assumes risks and tries to manage / handle it by his skills, innovation, judgement, planning, expansion etc. E.D-17

3. BUSINESS DECISIONS AND ORGANIZATION BUILDING

Decides nature & types of goods/services to be produced.
Crucial decision of entering a particular industry, prospects

of products in future and most profitable methods of production. Decides about changes in size of business, its location, new branches, techniques, ways to develop business. Organizes and monitors various factors of production, minimize costs of production. Takes majority of core decisions himself but delegates authority and decision making when business grows and decisions become complex.
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4. MANAGERIAL FUNCTIONS: Also performs managerial functions of planning,

directing, controlling, leadership etc. Formulates plans, arrange finance, procure raw materials, arrange production facilities, HRD functions. Large organs:- Delegated to paid managers.

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 5. EARNING PROFITS:- As he takes up ventures,

takes risks for earning profits. Have strong motivation to earn profits and have success.
For this exploits opportunities.

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ROLE OF ENTREPRENEURS IN THE ECONOMIC GROWTH OF A COUNTRY

i)

AS AN INNOVATOR

They commercialize the inventions made by inventors, to produce better goods to yield both satisfaction and profits. They implement inventors ideas as the same product made by many entrepreneurs. Converts technical work of the inventor into economic performance Assumes the role of a pioneer and an industrial leader. Innovational activities raise the productive efficiencies of the economy resulting in greater output / income. Have to be innovative for survival and better performance, to solve all the problems of business. All the resources combined by him.

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II) BALANCED REGIONAL DEVELOPMENT OF

INDUSTRIES:Growth of Industry and Business leads to large number of public benefits like road transport, health, education, entertainment. Rapid Development of Entrepreneurship ensures balanced regional development. e.g. builders making townships and shopping malls in many places in the country. Competition in big cities force the entrepreneurs to setup business in small towns, helping development of backward areas. Small scale industries found everywhere requiring meagre resources.
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III ) FOREX EARNINGS:-

By exports, bring foreign exchange for the country,

enabling it to handle imports bills.

Foreign exchange reserves for any country improve the

financial standing of the economy.

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IV) AUGMENTING AND MEETING LOCAL DEMAND:-

Entrep. help in meeting wide variety of demand for

goods/services.
Need for new goods, products also get created by

them, by many methods of promotion, education etc.

Many times in backward areas and states,

entrepreneurs from other places come and start a business thus harnessing local resources, found abundantly and fulfill local as well as national demand.
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INTRAPRENEURSHIP
Also called intra corporate entreps.

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 Persons with deep desire of personal achievements

within organization are internal Entreps.

Creative and innovative people within the

organization, catch hold of new ideas for product, service or process and work to bring their vision into reality.

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 Work independently but do not assume ownership

from employer. They are on the payrolls of the company. Incharge for an identifiable activity. Allowed to reap the full benefit of their creative effort May leave the company to start their own venture and compete with the company Dynamic executive, leads company to greater heights thats why encouraged Top Management provide financial and technical assistance to their ideas.

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Entrepreneur V/s Intrapreneur

Basis 1. Status Entrepreneur 1. Entrepreneur is the owner of the business. Intrapreneur 1. Intrapreneur works as employee of the company

2. Capital

2. Entrepreneur raises the requisite capital himself.

3. Entrepreneur works independently.

2. Intrapreneur does not raise any capital.

3. Intrapreneur is semi-independent.

3. Freedom

4. Risk-taking

4. Entrepreneur is one who bears full risks of his business 5. Entrepreneur guarantees payment to suppliers of inputs. 6. Entrepreneur operates independently. He is the master of his own show as he frames norms and rules of his business.

4. Intrapreneur does not bear any risks of business. 5. No such guarantee is required to be given by the intrapreneur. 6. Intrapreneur operates from within the organization. He is an organization man and is bound by organizational norms and rules.

5. Guarantee

6. Norms and Rules

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DISTINCTION BETWEEN ENTREPRENEUR AND MANAGER

ENTREPRENEUR
1. Introduces new ideas to increase profits. 2. Sets up new venture

MANAGER
1. Runs the business on established lines. 2. Runs an existing venture. 3. Undertakes no risk 4. Earns salary which remains relatively fixed and regular 5. An employee and dependent on the owner. 6. Formal education more important. 7. Commitment and self-motivation may be relative

3. Assumes risks of economic

uncertainties 4. Earns profits which fluctuate. 5. Own boss and independent status. 6. Formal education not essential. 7. Very high amount of commitment, self-motivation required.

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METHODS & PROCEDURE TO START AND EXPAND ONES OWN BUSINESS

Decide which type of business organization would like

to have Type of organization determines risk, control, responsibility, decision of profits. Decision to be taken after due care, clear vision, long term view.

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VARIOUS FORMS OF BUSINESS ORGANISATIONS

Sole Proprietorship Partnership Firm

Joint Stock Company

Co-operative Society Joint Hindu Family Firm

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SOLE TRADER
Oldest form owned, controlled by one Bears all responsibilities, risks & profits

Manages himself, however may take the help of family

members/relatives/paid employees Simplest and easiest form No need for any legal formalities

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Features of Sole Proprietorship

One persons control Single ownership

Unlimited & undivided risk

No. Govt. regulation / formality No separate entity of the firm

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ADVANTAGES
Easy and simple formations No legal formalities/approval/licenses required, start, close, expand sole trading concern anytime.
Quick Decision Making: Sole authority to decide and no interference

quick decisions. Direct & Exclusive Control: Full direct authority to run the business Exclusively accountable to himself
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 Maintenance of secrecy: Handles business single-handedly, so business &

trade secrets, remain with him Self-Motivation and direct Incentive for work:Direct relation between efforts / rewards. Personal touch with customers: Always possible to develop close relations with the customers, better understanding of the customers and better satisfaction provided, goodwill improves.
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 Economies in Management: As compared to other forms of business,

majority of the activities controlled by the sole trader himself. Thus economies of scale do occur in business Minimum govt. regulation/interventions. Socially Significant:- Many individuals start with reasonable ease a sole trading concern in many sectors and places, generates self-employment, livelihood, initiative, confidence levels etc.

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DISADVANTAGES OF SOLE PROP.

Limited Financial Resources
Limited Managerial Abilities Unlimited Liability:- Debts of business relate entire

property. Limited Growth:- Lack of capital and managerial skills lead to limited growth. Uncertainty of continuity:- If dies, there is no guarantee of continuity.

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Suitability of Sole Proprietorship

Where capital required is small, limited.
Where limited risk is involved. Where personal attention to individual customers

tastes & fashion required beauty parlors, tailoring shops. Where demand local seasonal, temp-fruit sellers etc. Where activities / Operations simple do not require skilled management.

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PARTNERSHIP
Limitations of sole trader and need to expand the business lead to the need to create a partnership firm.

Group of persons with different skills, capital, resources set up a combined business with common ownership and Management. Risks, responsibilities shared

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 Sec-4 of Indian Partnership Act, 1932-

Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Individually called partners & jointly a firm. Terms / conditions contained in an agreement called Partnership deed.
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FEATURES OF A PARTNERSHIP FIRM

More persons required:- Minimum two Max. 10

persons for banking business and 20 for Non-banking business. Sharing of profits / losses as per agreement Unlimited Liability:- if the assets of the firm fall short to meet firms obligations the private assets of partners can be used. Contractual Relationship:- Oral or written agreement among partners.
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 Lawful business:- partner to carry on lawful business &

share profits / losses. Utmost good faith and honesty required: Principal Agent Relationship:- Business carried by all or anyone of them acting for all. Each partner represents the firm and other partners while performing business. Thus partner is an agent of the firm and also other partners. Restrictions on Transfer of share:- No partner can transfer his share to an outsider without the consent of other partners.

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PARTNERSHIP DEED
The agreement can be oral or written.
Advisable to have written agreement to avoid litigations and misunderstandings in future. Agreement in written form called partnership deed which has to be signed by all the partners, stamped & registered. Any modification only with mutual consent of all partners.

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A partnership deed generally contains the following: Name of the firm Nature of the business Names of the partners Place of business Amount of capital contributed by each partner Salary / Commission payable to each partner

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 Ratio of Profit sharing Loans / Advances from partners &

incentives to be paid. Duties, powers and obligations of partners. Arbitration in case of disputes among partners. Accounts settlement in case of dissolutions. Maintenance of Accounts and arrangement for Audit.
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ADVANTAGES OF PARTNERSHIP
Easy Formation - However some difficulty in selection

of partners. Enhanced financial resources. Risks Divided Flexibility:- Easy to introduce changes like introduction of a new partner, raising new capital, expansion of business. Combined abilities & balanced Judgment:- Brains ideas, skills, capital of more than two persons pooled together for better management of business. Joint consultatrans may produce better business results.

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 Business Secrecy Maintained:- No legal requirement to publish and circulate annual accounts / Financial statements. Mutual Trust and Inter-dependence: Each partner an agent of other partners Team sprit and inter-dependence develops All partners get equal rights & powers. Easy Dissolution:- Can be dissolved by the partners merely by expressing to each other their desire to do so.
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DISADVANTAGES OF PARTNERSHIP: Availability of Limited Resources: Unlimited Liability:-

Held personally liable for debts of firm. Lack of Public Confidence Annual accounts not published & made public Hardly any legal control over these firms
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 Instability:- Firm dissolved if any partner dies or

become insolvent.
Small disputes may lead to dissolution.

Non-Transferability of Interest:- No partner can

transfer the business interest, to an outsider without the consent of all other partners. Even then it may not came easily. Risk of Implied Authority:- Any partner can act as an agent of the firm or other partners. If negligent, acts carelessly, commits a mistake, other partners became equally liable. Lack of centralized Authority:- Lack of a supreme and a centralized authority, as all partners enjoy the power of management. E.D-45

Registration of Partnership Firm

Not mandatory as per partnership Act. But desirable to have registration Registration process Firm applies to the registrar of

firms of the state Govt. in the prescribed applications form, signed by all.

Following information filled: Name of the firm. Location of the business place. Other places, if any where the firm is carrying on the business.
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 Date of the commencement of the business. Date of joining of all the partners. Names and permanent addresses of all the partners. Duration of the firm, if applicable.

When the registrar is satisfied with all the above details, he registers the firm by making an entry in the Register of firms.

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Dissolution of a Partnership Firm

When a partner ceases to be associated with the business,

it is dissolution of partnership. Winding up of the business dissolution of firm, new agreement among remaining partners Three ways:Dissolution by Agreement:- As per P. Deed, compulsory dissolution as per agreement. 2. Dissolution by the court:- if one partner becomes of unsound mind/ one partner transfers his share to third party without authority. 3. Dissolution due to contingency- completion of firms venture, expiry of partnership period /death of any E.D-48 partner.
1.

ENVIRONMENTAL FACTORS AFFECTING THE SUCCESS OF A NEW BUSINESS

Entrps. require conducive social, political

and economic environment to start business and be successful. Right environment, alongwith their efforts make them achievers. Developed countries provide better environment.
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ENVIRONMENT FACTORS AFFECTING SUCCESS

I. ECONOMIC FACTORS: Availability of Capital Basic need is capital, to arrange for land, materials, machines, equipments.
Easy availability motivates entrepreneurs to start and grow.

Raw materials Availability

Raw materials required for manufacturing and industrial

enterprises. Easy availability and access to raw-materials encourage entrepreneurs Labour:- Quality / Quantity of Labour and its cost influence the entrepreneurship E.D-50 More flexible and mobile labour motivates.

Social Factors 1. Education:- gives knowledge and better understanding for solving day to day problems. Any country, the system of education has an impact on people to inculcate and develop entrepreneurial values. The knowledge given by education regarding growing economy, new business opportunities, trade on global standards, changing consumer behaviour influence some people to show their initiative and entrepreneurial talent.
II.
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Caste Factor :- In every society, there are certain cultural practices and values that influence the actions of individuals. Right from early life, people develop same inclination towards certain occupations, business global trend. In Indian society also, certain caste show better entrepreneurial initiatives.
2.

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3.

Family Background :-

Exp. of a family in some business a

motivating factor to encourage family members. Success factor encourages family members. Expertise, traits, practices available within the family

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4. Market:- all the goods and services produced must get a market with customers willing to buy and with capacities to pay. Entrepreneurs feel encouraged if there is potential in the market. Consumption trends provide encouragement to the entrepreneurs. Size of the markets and its composition relating to number of suppliers, competition, types of customers, their profiles motivate entrepreneurs and they look for opportunities to exploit.
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5. Infrastructure:- Availability of required infrastructure encourage entrepreneurs. Developed communication, transportation, power facilities big support for entrepreneurs. With these better infrastructural facilities, entrepreneurs can develop new business and also enlarge their markets / supplies.
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III. PSYCHOLOGICAL FACTORS

Need Achievement:- Sense of need achievement /

achievement motivation leads to growth of more entrepreneurs. Motives:- Motive to earn wealth, seek power, prestige and be independent. Entrepreneur thinks he can control his own life independently, does not believe in luck/ fate Risk taking is quite high, confident of handling business risks. Power of tolerance helps entrepreneurs. They must have a certain amount of tolerance for ambiguity/Uncertainty. Entrepreneurs have the thinking of achieving more and E.D-56 more in less and less time.

IV. POLITICAL FACTORS

Entrepreneurs function effectively if govt. provides

them support. Govt must ensure that infrastructure is created, required resources available and accessible to entrepreneurs. Various polices of the Govt. relating to prices, capital availability, labour, taxation greatly affect entrepreneurship. Providing incentives/ Subsides/ Tax benefits provide encouragement. Stable Govts. Provide required encouragement.
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JOINT STOCK COMPANY

Bigger form of business organ. Most of the limitations of other forms of businesses get

removed here. Most appropriate for large scale productions, economies of scale, using advanced technology and arranging large capital. A company is a voluntary association of persons, recognized by law, having a distinctive name and a common seal. Formed to carry on business for profit with capital divisible into transferable shares Members/ shareholders have limited liability. Organ has a corporate structure and a perpetual E.D-58 succession, a going concern.

FEATURES / MERITS OF A COMPANY

Separate legal Entity
Company has a separate legal entity, independent of its members.

Company owns property and enters into contracts in its own name
Can sue and get sued in its own name.

Limited Liability: Liability limited to the extent of ownership of shares held.

If the company has to pay the creditors, members/shareholders

liable to the extent of shares held or unpaid amount of shares subscription. Prepetual Succession : Not affected by the death, insolvency of a member or a director. Services as long as not wound up Old members may go and new may come but no effect on the existence of the company.
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 Artificial Legal Entity:- as created by law, does not

come into existence through natural birth, called on artificial entity. Common Seal:- as it is an artificial legal entity, it can not sign for itself, so as per law, it needs to have a common seal as a substitute for its signature.
Approves its documents by putting the companys

common seal which has the companys name engraved on it, alongwith signature of at least two directors or other authorized officials.

Transferability of shares: Shares of public Ltd. Co. transferable easily Can be sold, purchased through brokers at the market price Some restrictions in a Pvt. Ltd. Co. E.D-60

 Ownership & Management Separated: a public co. may have large no of

shareholders but can not be asked to run the co. and look after the affairs of the company so they choose same representatives called Directors, to run the company.

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 Incorporated association of Persons: No single individual can make/run a company Is a registered association of persons, requires at least seven persons to start a public limited company and two to start a Pvt. Ltd. Co. Procedures to add more persons.

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 Availability of Large Financial Resources

shares, Debentures, Bonds, Loans, etc. Professional Management : Employees Professional Mgrs as has large

financial resources, perpetual succession and growth path

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 Considerable scope for growth and

expansion:- due to large financial management, technical resource very good scope for growth. Public confidence: People / shareholders have lot of faith, trust in a Public

ltd. Co. based on its performance, sales, quality, audited accounts and since regulated by companies Act., get listed, trading done liquidity available.

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Suitability of a Company
Appropriate for large scale business and where: Owners want limited liability. Business involves uncertainty / heavy risks, like shipping, mining etc. Heavy, basic industries requiring huge finances. Large scale operations crucial for economies of scale manufacturing etc. CO-OPERATIVE SOCIETY Profit Motive Substituted with Service Motive. An association of persons, usually of limited means, who have voluntarily joined together to achieve a common economic end. Associate together to promote common interest Generally formed and registered under the co-operative societies Act 1912. Form of business organizations can be applied to every type of economic activity. Members supply the capital by buying the shares of the society. Each shareholder has one vote in the management of the business, irrespective of the number of shares held.
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FEATURES OF A CO-OPERATIVE SOCIETY

Voluntary association
Democratic style of Management Equal voting Rights.

Service Motive Limited Returns of Capital:-

Limited rate of interest presenting max 10% is given as capital invested.

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 State Control:- Working governed by the Cooperative societies Act of 1912 or the state co-

operative Act of the state Society to be registered under these Acts and rules, regulations followed Accounts to be audited and a copy to be submitted to the registrar. Separate Legal Entity: - as it has to be registered can own property, enter into contracts sue and be sued in its own name.
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 Equitable Distributions of surplus:- Equitable

distributions of surplus to its members, irrespective of the capital contributions.

As per co-operative society Act. 25% of its profits, after

meeting its trading expenses and paying a fixed rate of interest on capital not exceeding 10% to be transferred to general reserve. Also, portion of the profit not exceeding 10% to be utilized for the general welfare of the locality where the society is functioning. Remaining distributed to members, collectively.

Suitability:- For small and medium business like

retail stores, building societies, etc.

Few cases of Large Amul kaira dist. Co-operative

society.

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JOINT HINDU FAMILY FIRM

Also called Hindu undivided family.

Found only in India and governed by the provisions of Hindu Law.

Family consisting of Grand Parents, parents and

sons carry on business. HUF defined as a form of business organ in which all the male members of a HUF carry on business under the Management and control of the Head of the family called Karta This business disappearing due to decline of the Joint family system.

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FEATURES OF HUF
Membership for male child by birth. Minors can become full-fledged members Restrictions on Female Membership (can not Join) No limit on members minimum two No need of registration as per Hindu Law.

Management by Karta Senior Most Member.

Liability of Karta is unlimited. Perpetuality Death of a member or karta is no matter

Rights / Duties governed by Hindu sucession Act 1956.

Fluctuating share due to birth or Death of a Male Member. Right to Accounts Members can ask details of
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A/CS from Karta when leaving or disintegration of family.

MOTIVATION OF ENTREPRENEURS
Motivation is something that moves the

person to action and continuous him in the course of action already initiated. Factors that motivate some people to start business enterprises are:-

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I. Internal Factors
Educational Background

Occupational Experience
Desire to do Something Pioneering and Innovative Desire to be Free & Independent

Family Background
Internal factors lead to do something creative, introduce an entirely new product in the market,

place hometown on countrys industrial map, make use of technical skills, give employment
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II. External Motivating Factors

Assistance from govt.
Financial assistance from institutions Availability of Technology / Raw Material

Encouragement from big business units

Others Availability of surplus funds, sick

units available at cheaper price, support of friends / relatives, dissatisfaction of job held
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ACHIEVEMENT MOTIVATION
Achievement Motivation theory developed by David

McClelland An individuals need for achievement (n-ach) refers to the need for personal accomplishments. A drive to excel and strive for success. Person with high achievement motives takes calculated risks and wants to win. Take personal responsibility for initiatives and solving problems. Plus keep on evaluating themselves how well are they doing and what more required.
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 Do something better and more efficiently than others

have done before Not for social recognition but for the inner feeling of personal accomplishment. This need for achievement motivate some persons to take risks and prove themselves. Such persons behave in Entrepreneurial way and take initiatives. McClelland considers the need for achievement to be the most important and critical element for countrys economic development.
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 He termed the need for achievement as inner spirit.

Higher it is, more energetic entrepreneur would grow, high need for achievement motivates entrepreneur to take risks, work hard, innovate, save more, reinvest savings in business. Said-achievement motivates lower in underdeveloped countries compared to developed countries lack of ambitions explains the lack of enterprise in underdeveloped nations. The ambition motivate people, make them active, broaden success and make their life meaningful, builds up achievement pressure in persons.
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 Duty of leaders and teachers to build up ambition into

the minds of young people. Ambition nourish the achievement motivates and brings economic growth. However ambition differs among individuals on the basis of the environment in which they are born and brought up.

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Becoming Entrepreneur Personal and environmental barriers to entrepreneurship

Entrepreneurship is influenced by many

personal & environmental barriers. Personal barriers or factors can be Qualifications, skills, experience, knowledge and environmental factors could be economic, social, and political factors.
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PERSONAL BARRIERS
Lack of Viable concept
Lack of Market Knowledge Lack of Technical Skills

Lack of Seed Capital

Lack of Business Know-How

Complacency Lack of Motivation

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 Social Stigma-Compared to successful ones.

Time pressures Legal constraints & Regulations (Not in

Residential Areas) First Generation Entrepreneurs Entrepreneur by Accident since was unemployed
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ENVIRONMENTAL BARRIERS
ENTREPRENEURSHIP IS ENVIRONMENTALLY ORIENTED
Sudden Changes in Government policy

Sudden Political Upsurge

Outbreak of war or regional conflicts e.g. Sons of the soil call

Political Instability or hostile govt. attitude towards industry

Excessive red-tapism and corruption among

government agencies

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 Ideological and social conflicts Unreliable supply of power, material,

finance, labour and other inputs Rise in costs of inputs Unfavorable market fluctuations. Non co-operative attitude of Banks and Financial Institutions Competition
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PROBLEMS IN SETTING UP A NEW VENTURE

I. Lack of Managerial experience or poor knowledge of the particular line of production: All-round knowledge about various aspects of Production, Processes, Management Not known what, how and when to produce, how to market the products, maintenance of accounts, financial transactions understanding etc. None of the above areas can be ignored Changing technology, methods of production not known.
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II. Lack of Accounting knowledge/ system

Information, Understanding about costs,

gross margins, break-even point, depreciation is lacking, thus decision making may become difficult. Difficult to maintain proper accounting Data etc.

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III.Wrong / Inadequate Estimate of cash requirements or faulty capital planning / budgeting.

Proper Financial Planning Essential for proper functioning of the enterprises New enterprise feels cash crunch when: Production does not reach optimum level Production is below Break-Even Point

Fails to Create and Increase the Demand for products. Result wastage of Finance
Delay in various activities will cause need for

additional finance.

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IV. Lack of Knowledge About TaxRelated Matters

May not be Aware of provisions related to Income Tax

/ Sales Tax, Obtaining of Sales Tax Registration at the right Time, Filing Tax Returns. V. Erratic Shortages of Raw Materials. VI. Flourishing Black market VII Gaps between official promise and performance by various deptts. VIII. Irresponsible attitude of employees. IX. Rising cost of capital & credit.
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X. Arrogance and Non Co-operative Attitude of Bankers XI. Inadequate common services like road, power, water in the area XII. Emerging competition XIII. Lack of knowledge about inventory management

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STAGES FOR SETTING UP A NEW VENTURE Or PROMOTION OF A VENTURE

Foundation of an enterprise is the project or the venture
Venture is a plan or an idea which is intended to be

carried out in the future Ventures can be industrial, agricultural, Production, Services etc. Entrepreneur originates the idea, makes a detailed study of various aspects of project, estimate the profit, finally implements it. Setting a New Business not an easy Task Various difficulties to be faced in creating the business and making it successful E.D-88

BASIC CONSIDERATIONS IN SETTING UP A NEW BUSINESS UNIT/STAGES

An entrepreneur wanting to start a new venture has to

take decisions with regard to following:1. SELECTION OF A LINE OF BUSINESS: Proposed idea analysed to find out whether the business would be profitable, including probable risks and the capital required. Conduct survey of various business opportunities. Make feasibility reports, surveys Estimated Costs, Profits, Returns Analysed

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2.

CHOICE OF FORM OF OWNERSHIP

Could be sole proprietorship, P.Ship or a Joint stock company Choice of form will determine the authority of the entrepreneur Size of business also will determine the form of organ. Company form more suitable for large business Sole Trader / P.Ship for Small / Medium Capital requirements, Managerial Skills, Coverage will also decide the form
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3. SIZE OF BUSINESS
Size of the firm influenced by various factors like

Technical, Managerial, financial and Marketing Some factors favour the large size of business while others operate to restrict the scale of operation Wherever Entrepreneurs confident of marketing their products widely and arrange large resources can start large business For new ideas / business beginning can be made on small / medium scale. Forces of risks and uncertainties can restrict the size of business Basic purpose of the optimum size to achieve max. output at minimum cost E.D-91

4. Financing the Proposition

Adequate amount of capital for starting and

running the business to be arranged. Capital to be arranged for fixed as well as working capital Large businesses to arrange capital from various sources.

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5. Location of Business
One of the very difficult decisions
Location to be reviewed from the point of

view of access to raw materials, labour, power, Markets and services like banking, Insurance, Transport, communication. Location has to be optimum to have minimum costs of production from and distribution
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6. Machines and Equipment

Choice will depend upon availability of capital, size of

production, nature of production processes. Mechanisation needs to be optimum, leading to higher productivity.

7. Human Resources
Right kind of Skilled, Unskilled and Managerial Staff

necessary to avoid huge losses of time, money and effort. Proper Training and Motivation to be provided.
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8. Plant Layout
An efficient Plant Layout allows materials to

move through rapidly and the most direct way possible. It reduces Transport, Materials Handling, Clerical and other Costs and increases inventory turnover. Experts Services can be used. Must reduce chances of delay and bottlenecks in the Production Systems.
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9. Procedural Formalities
No formalities in sole Traders and Partnerships.

Co. exposed to greater procedural formalities both at incorporations and during its life.
Incorporation compulsory, documents and fee

deposited with the Registrar of cos. A public co. also obtains certificate of commencement. Co. also required to send periodical returns to the registrar of cos. and stock exchange authorities.
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10. Tax-Planning
Entrepreneurs to visualize well in advance

the various taxes to be paid. 11. Launching the Business Enterprises: Promoter actually arrange men, material,

machinery, money and the managerial ability. Makes organ. Structure, various deptts. Mkg., Prod., Finance, HR Made to accomplish goals. Advtg. Sales Promotions to be done.

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ENTREPRENEURIAL INPUTS
Emergence and development of Entrepreneurship

depends upon many economic, social, political, psychological factors. Various Entrepreneurial Inputs influencing the entrepreneurship are as under:-

I.

ECONOMIC INPUTS

Capital:- Most important Input

Required for arranging Land, Raw Material, and

Machines and finally for production. Additional capital also required for expansion of business. Entrepreneurship increases if capital supply increases
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Labour:- Quality of Labour more important than the quantity of Labour for entrepreneurship. Entrepreneurship gets encouraged of flexible and mobile labour force available Considerations of economic and emotional security inhibit Labour Mobility. Entrepreneurs may find it difficult to secure sufficient Labour, at cheap costs. At times costly arrangements may have to be made to recruit the necessary labour
2.
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3.

Raw-Materials: Easy and sufficient availability of Raw-Materials leads to emergence of Entrepreneurship Areas rich in many types of raw-materials encourage persons to come forward to start enterprise. Good quality raw-material available is a big boost to the entrepreneur Sugarcane as raw material in U.P. has given rise to many sugar mills in U.P.

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4. MARKET: Potential of the Markets becomes a determinant for entrepreneurial activity and initiatives. From Market will come sale and profit for entrepreneur Size and composition of the Market bath are crucial for entrepreneurs. Monopolistic condition in the market liked by an Entrepreneur but fact remains that markets are competitive. Competitive Market Condition can be tackled by improved Quality, innovative techniques, better services. Progressive Markets encourage entrepreneurs E.D-101

5. Infrastructure Needed and Required Infrastructure encourages entrepreneurs Properly developed Communication, Transportation, Insurance Facilities leads to boost the Entrepreneurial activity. Good Infrastructure helps in expansion of business and also for new initiatives. e.g. Industrial Estates give good push. Trade Associations, good business schools provide inputs, informations. Government must take care of good Infrastructural facilities if it wants good Industrial Development.

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II. SOCIAL INPUTS

Some social factors do contribute towards

development of Entrepreneurship 1) Family Background: Type and Economic status of family, matters. Wealthy and Landloard families exhibit higher levels of Entrepreneurship. History of a family in business lead to entrepreneurial ventures. Background of a family in Manufacturing provides a source of industrial Entrepreneurship Business families are more venturesome.
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2. Caste Factor
Many cultural practices and values do encourage

entrepreneurship, in each society These divisions, practices are normally very old E.g. Hindu Society, prima facie business people were categorized and majority of businesses emerge from there. Social caste equations, to a great extent provided monopoly in business ventures Dominance of entire groups in entrepreneurship global phenomena
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3. Education
Education is power to provide skills and

knowledge to deal with day to day problems. In a society, the system of education plays an important role in developing Entreprenurial values. In general in India, our educational system does not encourage entrepreneurial initiatives but prepares for different jobs. However development of vocational courses and professional course is encouraging entrepreneurship.

E.D-1054

4. Cultural Values
Entrepreneurial Growth requires proper motives like profit making, prestige, attaining social status & power.
Persons having such strong motives normally try to venture out, take business risks & start enterprises. Culturally wealth accumulations is a way of life will encourage entrepreneurship

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III. Psychological Inputs. Many theories of Entrepreneurship indicate towards some psychological inputs required to be entrepreneurs. Mental thinking, inner spirit, commitment, outgoing mind, hard work, leadership quality are also responsible for encouraging entrepreneurial initiatives. Need Achievement: McClelland talked about need achievement to excel. Need achievement motivates to take risks and stimulates for taking more efforts. Other theories talked about Leadership, Managerial Skills.

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 Innovative Mind: Creative Minds more likely to be Entrepreneurs.

Sense of Achievement:- Personal sense of achievement motivates some to do something on their own. Motives:- Seek power, prestige, service to society, independence encourage Entrepreneurship.
Others:- Non influenced by Luck, fate and take

initiatives and risks, tolerance for ambiguity.

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Political Inputs
Government support required for the success of entrepreneurs As Entrepreneurs contribute towards the well being of the society,

Government must provide required resource to them by taking various actions. Government must make appropriate economic policies regarding availability of capital, Labour, raw-materials, Taxation, income distribution, economic growth, infrastructure, transportation etc. as they affect the growth of entrepreneurs to a large extent. Incentives, subsidies, Tax benefits by the Government motive them further. Easy Licensing, restriction on monopolies also desirable. Political stability provide consistent growth oriented policies and support to entrepreneurs. Opening up of some sectors by the Government for private sector also encourage many entrepreneurs to show their worth. E.D-109

PROBLEMS OF SMALL BUSINESS

1. Shortage of Material & Power: Face acute shortage of basic raw materials at times. Under a handicap in obtaining raw materials of requisite Quality at reasonable prices. Some short supply of raw material may increase the prices and rise in prices puts pressure on these firms to procure the Materials etc. Some times few bogus units take away Quota of Scarce Materials and create shortage. Also face power shortage and are not able to fully utilize their plant capacity Power not available due to cuts and can not install their own power generating E.D-110 sets.

2. Lack of Adequate Finance: Often unable to procure adequate financial resources for purchase of machinery, equipment, raw materials due to their weak financial standing credit may also not be available. 3. Competition from Big Players: Low goodwill and little fixed investment make it difficult to borrow at reasonable interest or lower interest rates. Largely depend upon internal resources as are not able to borrow easily from others.
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4. Outdated Technology: Most firms use old Techniques of Prod. and outdated machinery / equipment. Can not use latest ones Quality suffers Research & Development not possible on a continuous basis and thus Productivity / Quality suffers.

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Inadequate Marketing Facilities: Many difficulties faced in marketing and distribution do not have their own Marketing Network. Find it difficult to sell at remunerative prices due to high cost of production and nonstandardized quality of products. Can not afford much advertising, sales personnel
5.
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6. Weak Organization & Management: As generally managed by owners, not qualified. Lack of Distribution of Labour. 7. Lack of Trained Personnel: Find it difficult to recruit, retain and motivate skilled managerial and technical people as they leave for large business.
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PREPARATION OF FEASIBILITY REPORTS

Before starting any venture / enterprise, an entrepreneur

must study the feasibility of the project. Type of Industry / Business to start, where to start and how to start. Various items / area can be listed, shortlisted which have scope for development PROJECT FEASIBILITY ANALYSIS Includes Market analysis Financial analysis Technology analysis Profitability analysis To study the strengths and weaknesses of the projects. E.D-115

MARKET ANALYSIS INCLUDES

Market area / size, methods of

transportation, channels of distribution and general trade practices. Study past and present demand, consumption patterns, major common pockets, future potential past and present supply domestic and imported, extent of competition selling power, quality and marketing practices of competition.
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TECHNICAL ANALYSIS INCLUDES

Whether the project is technically feasible or not, costs

involved. Study the techniques, processes to be applied. Description of the product physical, mechanical and chemical specifications, uses of the product. Processes flow chart justifications for use of a particular process. Plant size and prod. Schedule. Selection of Machinery, equipment, quotations, suppliers, delivery, terms of payment, spare parts availability. Location of the plant, raw material. Cost of setting up building, other infrastructure. Estimate of the production cost of the product E.D-117

FINANCIAL ANALYSIS INCLUDE

Capital Required

Sources of Financing
Total Project Cost

Initial Capital Required

Working capital required Break even point study Cost Price analysis
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PROJECT REPORT
What is a project?
The foundation of an Enterprise is a Project as it will

lead to success or failure. An idea or a plan that is intended to be carried on in future or is being carried out at present, is a Project. Has a distinct mission, for the completion of which a group of activities are carried on. Every entrepreneur wants to complete the project successfully. E.g. Industrial Projects, Construction Projects, Making of Flyover, running a School.

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PRODUCT IDENTIFICATION & PROJECT FORMULATION

Entrepreneur comes across many business opportunities &

becomes difficult to identify the most suitable one Prduct identification involves collection, compilation and analysis of economic data, for the final choosing of the best opportunity for investment. The success of the Project or venture will depend upon the right choice made. The skills, availability of resources, background, and qualifications play very important role in identifying the right project. Before identifying the right project, study should be made with respect to raw materials, potential customers. Also study of environment, Government policies, technology to be used etc E.D-120

PROJECT FORMULATION
A process where the entrepreneur makes an

objective & independent assessment of the various aspects of a project idea to determine its total impact & liability. Specialists and consultants provide advice. Careful weighing of various components. Analytical stage where aim is to achieve the project objectives with the minimum expenditure & adequate resources. Project formulation leads to making up a project report which is very crucial for setting up an enterprise E.D-121

PROJECT REPORT
After selecting a particular project product or service, a project

report has to be prepared by the entrepreneur. A project report provides all the necessary information / details of the project / unit offering a product or service. Required by financial Institutions / Development Institutions offering finance or other assistance. A project report will enable the entrepreneur to know: Money, Manpower, Machines Required Technology, Location Economic viability and gains. Technical Managerial, Financial needs. Project report, prepared by C.A., Management Consultant, Experts. Entrepreneurs own judgment, views important as it will bring him close to realities. His own involvement in making of a project is very crucial. E.D-122

SIGNIFICANCE OF A PROJECT REPORT

The important benefits of a project report are:-

1.

Helps in procuring suitable developed land or shed from concerned deptt. of the Govt.
obtaining provisional or permanent registration. Helps in securing supply of raw-materials, water, power etc. Approaching Bank / F.I. for working capital loans. Obtaining term loans from SFCs/Banks/F.I. Preparation of Techno-Economic viability reports of the project.
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2. Helps in approaching Dist. Industries centre for 3. 4. 5. 6.

CONTENTS OF A PROJECT REPORT

No Short cut to prepare a well-prepared business plan or a

project report. Project report to be prepared with great care and should be a concrete, complete and clear. A good project report should have the following contents: General Information:- Product / Profile and details of the product. Promoter:- Name full address, educational and other qualifications, work experience and project related experts. Location :- Exact location of the project, lease or freehold, locational advantages. Land & Buildings:- Land area, construction area, type of construction of building, cost of Land, building, plant layout etc

E.D-123

 Plant & machinery:- Details of machinery required,

capacity, suppliers, cost, various alternatives available. Production Process:- Details of production process, process flow-chart, technical know-how, production programmes, targets etc. Utilities Required:- Water, power, steam cost estimates, sources of utilities. Transport & Communications:- Modes of transport / Communication to be used, various costs involved. Raw-Materials:- List of raw material required, Quality-Quantity and source of procurement, costs, supply arrangement etc.

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 Manpower:- Various types of Labour, to be

employed, sources of Manpower cost of recruitment / selection, training etc. Products:- Product Mix Variants estimate of sales, distribution channels, product standard & quality, competition etc. Market:- End users of the products, - Type of Mktlocal, domestic or international, trade practices, sales promotions methods, marketing research. Working capital Requirements:- Sources of working capital and amount required, need for collateral security, nature and extent of credit facilities which will be available, etc.
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 Funds requirement:- Break up of project cost

in terms of cost of land, building, machinery, preliminary expenses contingencies, total amount required for setting up the full project. Cost of Production & Profitability for first 10 years. Break-Even Analysis Point at which no profit, no loss. Schedule of Implementations

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SELECTION OF A FACTORY LOCATION

Multiple locations may be available for locating a

factory. Few sites more suitable Factors for a suitable location can be raw material, transportation, labour, supply of water, power, and attitude of local Govt. etc. Different type of business may prioritise the above factors. A good balance of all these factors may lead to choosing the right location.
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THREE STEP PROCESS

Selection of the region, district, state.

Particular part of the city/district East/West.

Selection of the plant site, plot etc.

One follows the other All are inter-related.

The comparisons play very important role. Lot of information do help.

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FACTORS AFFECTING INDUSTRIAL / FACTORY LOCATION

1. FACTORS AFFECTING SELECTION OF A REGION While keeping in view the nature of business, the following are considered when choosing a region:1. Availability of Raw Material Cost of raw materials an important issue for cost of production. Nearness to the raw-materials very useful. 2. Labour Availability: Labour an important factor of Production and it greatly affects the location Entrepreneurs want easy supply of labour at low wages Location should attract mobility of labour More organized Labour in some state may discourage entrepreneur E.D-129 to located his plant.

3.

Accessibility to Markets: Sole aim of manufacturing is selling Easy, quick access to the markets crucial factor for locations. Industries whose products are costly to carry, on account of fragility, perish ability or bulky may be located in close proximity to the markets. Nearness to markets have many benefits Saves time & transportation costs. 4. Fuel, Water, Power Supply: For arriving at the final cost of production the cost of power, water, fuel will have to be considered. Sources of energy / fuel like coal, gas, electricity and their easy and cheaper availability will help in locations. If certain industries need lot of water for its processes then a place with good availability of water must be chosen. E.D-130

5.

Communication Transport Facilities Raw materials to be brought to the factory & finished products to be dispatched economically. Good transportation facilities including storage, handling & service facilities in a place will motivate an entrepreneur to locate his factory at an ideal place Cheap and easy transportation is an important considerations Sometimes, to save transportation costs, the entrepreneurs may try to locate the factory from where raw-material may be nearer. Better communication facilities are very useful for the success of the business. Their easy availability will also help in choosing a right location.

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6. Natural and Climatic Considerations Topography of a region, level of ground, drainage facilities, disposal of waste products and the climate also greatly affect the locations. Extractive industries like coal, iron ore located in regions where they are available in plenty. Dry climate is required for flour mills in U.P. Humid climate required for cotton Mills Mumbai. Good Climate also encourages employees to work better / harder.
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7. Personal choice of the Entrepreneur being home town or some other personal preference. 8. Open a factory in a region where all the facilities are already there, including an established mkt

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9.

Political and strategic considerations. Political stability may also influence setting up industry in a particular state. Disturbed area and failure of the Govt. to curb the disturbances is also a negative factor. 10. Govt. Policy:- Govt. Encourages setting up industries in backward areas by giving subsidies, tax-rebate, good transport. This attracts entrepreneurs and the state achieves balanced regional growth.
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 Financial Facilities:- Finance life blood.

Availability of financial institutions and easy terms for finance also a

consideration for locations. Offices of Financial Institutions. Locating a factory a long term proposition and so above points to be considered wisely FACTORS AFFECTING SELECTION OF A COMMUNITY, DISTRICT WITHIN THE REGION: Adequate labour supply in Quantitative and Qualitative Terms General attitude of the people should be industry friendly. Should not indulge in frequent strikes. Prevailing wage-rates be reasonable. Availability of complementary or supplementary enterprise supplying various raw-materials etc. Tax burden be moderate and compliance of laws, acts etc. Living conditions in the place should be favourable so that the employees at all levels get proper social life. Urban or Rural area to be decided, as both have merits / demerits. E.D-135

III. FACTORS AFFECTING SELECTION OF A SPECIFIC SITE: Last stage- for actual plot / site. Size of plot for present and future needs. Load-bearing capacity of land for heavy building. Better water and power facilities. Easy sewage, waste disposal facilities. Easy approachable roads, rail links. Cost of the land.
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INDUSTRIAL ESTATES
Specially designed area where factories can

be built (a U.K. concept for encouraging industrial growth in selected area.) Basic infrastructure & common services facilities created for development of industrial units. Utility services water, power, drainage, transport available to all units low, subsidized rates
E.D-137

Objectives of Industrial Estates

Promotion of small / medium industries

backward areas. Removal of congestion in Industrial cities / towns. Balanced reg. development by decentralizing industry. Growth of ancillary industries in the townships surrounding major industrial units. E.D-138

Advantages of an Industrial Estate to Entrepreneur

Offers industrial sites / plots at reasonable rates and the decision to buy can be quick
Utility services water, power, drainage and common services testing center workshops, banks, insurance, courier available at subsidized rates etc. Promoters of such estate provide safety, security and protection. Combined strength of Entrepreneurs can help the entrepreneurs to bargain
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Demand Analysis & Market Potential Measurement

Q.1. What is the likely total demand for my product / service? Q.2. What share of the market my product will enjoy?

E.D-140

 While searching answers to above questions demand analysis get made. (Consumption, competition, substitutes) Demand Analysis is the in-depth study of and assessment of many factors including: Patterns of consumption Growth. Composition of the market Nature of competition Availability of substitutes Reach of distribution channels Increase of the consumers Price elasticity of demand
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KEY STEPS FOR DEMAND ANALYSIS

1. Situational analysis and specification

of objectives.
Informal talks with customers, competition

middlemen, others etc. and details gathered. Situation analysis generates enough data Little later, specific objectives, with relation to the product / service to be stated, questions made. Answers will bring clues for demand of the product.
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2.

Collection of Secondary Information

Secondary Information which is already

available, as gathered in some other context. Secondary information provides the base and the starting point for demand analysis books, journals. Provides clues for collecting more primary informations. Sources can be census reports, economic survey, annual reports, economic survey, annual reports of Ministries, Journals, Research Reports etc.
E.D-143

3. Conduct of Market Survey

Primary information in the shape of Market

survey supplements secondary information. Survey can be Product / customers / Segment / Behaviour specific Costly and time consuming Population or sample survey

E.D-144

4. Characterization of the market

Demand for the product / service has to be described

with respect to: Effective demand in past & present Total demand broken down as per the segments. Competitive Pricing / Competitions. Methods of distribution & sales promotion methods

required. Consumers behaviour, attitudes, likings Govt. Policy import duties, export incentives excise duties, import policy etc.
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5. Demand Forecasting
Attempt made to forecast future demand
Sale in monetary terms / units to be sold. Will help greatly the sales deptt.

Various methods / intuition used in

forecasting demand computers used

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6. MARKETING PLANNING
An appropriate Market Plan required to

enable the product to reach the right markets. All 4 Ps of Mktg. to be taken care

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MARKET POTENTIAL MEASUREMENT

A market potential is an estimate of the maximum possible sales opportunities present in a particular market segment and open to all sellers of a good or service during a stated future period.
By using the appropriate marketing methods, how much a particular product can be sold to a particular segment in a specified future period.

Cell phones, Luxury case, Laptops

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STEPS TO MEASURE MKT. POTENTIAL

Market identification:- Identify the Mkt./Users,

market segment, their interests, patterns. Market Motivation:- Find why customers buy the product today & why potential customers will buy in future study mind factors of users. Measuring the Market Potential:- Cases not be done directly straightaway. Market factors to be analyzed all do not buy LIC Policy to save taxes
E.D-149

CAPITAL SAVING & PROJECT COSTING

Financial analysis most important tool for appraising the real worth of a project.
Looks at capital cost, operations, cost and operating revenue. Cost of the project concerned with the size of the funds required. Every projects cost to be calculated to bring together land, labour, assets, machinery, materials etc. Wherever possible, capital needs to be saved.
E.D-150

 Ideal piece of land, right kind of Raw

Material Quantities to be purchased. Capital to be borrowed at minimum possible rate of interest. Cost of borrowings should be minimum. Incentives / subsidies available as per Acts / Law should be fully utilised. All tax benefits to be fully utilised.
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PROJECT COSTING
Costing is the calculation to determine how much

each product or service costs to produce and sell. Knowing the various costs helps in setting prices, reducing costs and improving profits.
Project Costing

Project Capital Costing

Project Operating Costing

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Project Capital Costing

Sum total of the expenditure expected to be incurred till the date of starting the

commercial production of a project. Includes All advance expenditure for the project before taking a final investment decision. Cost of fixed assets (land, machinery) Duties and taxes on imported goods. Consultancy expenses Pre-operative expenses Interest charges paid during the construction phase. Advance expenditure on feasibility report, consultancy charges. Land charges for basic cost of land plus for its acquisition & development. Cost of plant & machinery basic & duties if imported. Training costs, cost of patents, copy rights, trade marks are project capital costs. Can be some misc. costs also.
E.D-153

Project Operating Costing

Once project started commercial prod. Expenses

incurred for day to day operations. Operating costs generate operating revenues, so very important Costs vary with the outputs. The matching of operating costs and revenues result in profits or losses. Costs used for making profit & loss A/c, Balance Sheet, Cash flow statements. Operating costs classified into Direct / Indirect / Fixed / Variable / Marginal
E.D-154

 Main components of operating costs: Raw Materials costs

Labour Costs
Energy Costs Plant Maintance Costs.

Supervision Costs
Administrative & Management Costs. Depreciation Charge and the interest on

borrowings. Selling and distribution costs Promotion Expenses

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WORKING CAPITAL REQUIREMENT

Working capital required for day to day successful operation &

continued existence. Efficient Management of working capital basic necessity for sound operational health. Basically means Management of current assets, current liabilities and interrelationships, between the two Current assets are: Advance given for purchase of raw materials etc. Inventories (raw materials, store, packing materials, spare parts) Work-in-process Finished Goods Cash & Bank Balance Marketable securities. All current assets (except cash) get converted into cash. Current liabilities include payment of bills, interest, to creditors etc E.D-156

DETERMINANTS OF WORKING CAPITAL

Many factors influence the working capital needs of a

business. Needs change over different periods of time for the same firm and also needs are different for different firms. Total investment in working capital depends upon: Nature & Size of Business:- Trading, Financial, Retail Stores More working capital and less in fixed assets. Manufacturing Cycle:Larger the manufacturing cycle more working capital required Minimum time Sh. Be taken in processes
E.D-157

3.

Business Fluctuations: Many firms face seasonal and cyclical fluctuations in the demand for their products. These variations affect the working capital requirements. Due to upward swing in the economy, the sales will increase more investment in Inventories will be required, borrowings made.

4.

Production Policy: Production policy has to be a policy to produce as per the changing demand and thus the working capital will be required and adjusted accordingly

E.D-158

5. Firms Credit Policy: Credit allowed by the company to its customers and its policy of collection also affect the working capital requirements. There is also a risk of some credit turning into bad debts. 6. Availability of Credit: Liberal credit terms available from the suppliers / creditors will need less working capital as the firm will have time to pay.

E.D-159

7. Growth and expansion activities: A growing firm needs more working capital, as sales grow and more production required. More investment needed in current assets to support enlarged production. A growing firm needs working capital funds on a regular basis, to be arranged from internal / external sources. 8. Profit Margin & Appropriation: Profit is also a source of working capital A firm earning high net profit can contribute more to working capital Cash Profits can be allocated to increase the stocks, thus less working capital to be arranged from external sources. E.D-160

9. Price Level Changes: Changes (increase / decrease) in price levels affect working capital requirements. Rising price levels will require a firm to maintain higher amount of Working Capital Some levels of current assets will need increased investment when prices are rising. 10. Operating Efficiency: Should be optimum utilization of resources at minimum cost. Better utilization of resources improve profitability and helps in releasing the pressure on working capital.
E.D-161

SOURCES OF FINANCE FOR WORKING CAPITAL

1. Trade Credit:- Primary source and the most popular Few days credit given by seller/supplier to the buyer. 2. Bank Credit:- Primary Institutional source. Banks offer both secured and unsecured loans to business like cash credit, overdrafts, loans, purchase & discounting of bills. 3. Non Bank Short Terms Borrowing: Private loans. Cash advance from customers. Inter corporate deposits deposit made by one company with another, for a period upto six months. 4. Long-Term sources comprising equity capital and long term borrowing. Equity Debenture E.D-162 Public Deposits

MANAGEMENT OF WORKING CAPITAL

Working Capital means administration of both current

assets and current liabilities. Satisfactory level to be maintained. Following different components of working capital need to be managed. 1. Management of Cash: Adequate cash required to pay current liabilities and also unexpected contingencies. Avoid idle cash to prevent loss of income Cash flows to be managed.
E.D-163

2. Management of Inventory: Include raw material, finished goods, work-inprogress, supplies. Minimum stock of inventory required to carry on operations. 3. Management of Accounts receivable:- Goods sold on credit needs to be monitored. Terms of credit sales, credit period, terms, cash discount, efficiency of collection to be managed. 4. Management of Accounts Payable:- Liberal terms of credit can be obtained from suppliers Save interest cost through delayed payments.
E.D-164

PROFIT & TAX PLANNING

Profit Planning Profit is a major objective of any business An award for entrepreneur for his efforts, risk taking ability. Profit planning includes
Arriving at minimum costs Break even point and the level of operations.

Margins of profits.
Profit planning for future years depends on the

capacity utilizations
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 Profits do not happen, need to be produced. Profit planning is part of an overall planning

process.\ Profit planning represents an overall plan of operations. Cover a definite period of time and formulates the planning decisions of the Management. Consists of the operating budget, financial budget and appropriation budget Preparation of profit plan begins months before end of the year & chief executive makes it.
E.D-166

 Long term profit planning implies a sacrifice of todays

profit for tomorrow on the belief that management makes the future of a business today. Long range profit planning is systematic and formalized process for purposefully directing and controlling future operations with a view to achieving the desired objectives for periods extending beyond one year. Process includes budgetary planning and control programme, costs, profits, working & fixed capital, dividend distributions.

E.D-167

 Sales, prod., purchase, inventory budgets

provides the basis for making a profit plan. Largely a routine exercise and covers a definite span of time. Profit planning is an indicator of what the future holds for a company. The ultimate objective of profit planning is profit Maximisation

E.D-168

EMERGENCE OF ENTREPRENEURIAL CLASS

Entrepreneurs started emerging from the times of

Industrial revolution when men with mechanical rather than financial and commercial skills started setting up industrial establishments on small scale. They mostly worked with their own hands whose innovations were in the field of technology, cause from lower / middle classes. In India, growth of Entrepreneurship in postindependence era has been significant. Number of entrepreneurs in the small / medium scale sectors has increased significantly over the years.
E.D-169

 Self Motivated and talented class of people who are

engaged in the development of new enterprises. Upto the 19th century, entrepreneurs included those persons who bore risks of future uncertainty of profits in new ventures. Used efficiently the economic resources of the society and contributed to higher productivity and greater yields. Here an important difference was made between entrepreneurs and the capital suppliers. Those taking risk by forming new ventures and earning profits were called entrepreneurs. Others were people who earned profits by supplying capital. They had different kind of risks and job profiles.
E.D-170

 During 20th Century, the Entrepreneurs not only took risks

of new ventures but also innovated new useful products, technologies and markets. Maximized opportunities by innovating new products, taking initiatives, organizing some social and economic mechanisms (understanding needs of society and arranging new sources of capital, learning economies of scale and also accepting risks of failure.) In view of time and effort put in by such people they were seen as a different class real entrepreneurs and differentiated from venture capitalists who provided finance and earned interest there on. Entrepreneurs made lot of research, made innovative products, competition intensified and customers started getting better products E.D-171

 Since 1980s, a new class called the Intrapreneurs have

started emerging. Emerge from with in the confines of an existing enterprise. In big organs. Top Mgrs. are encouraged to catch hold of new ideas and convert them into innovative products with the help of the research and development facilities available in the organs. This class becoming popular in developed Nations and India also. Of late women are also emerging as a new class of entrepreneurs
E.D-172

ENTREPRENEURIAL BEHAVIOUR
An entrepreneur performs many tasks: perceives opportunity make business plan organize resources manage & oversee production Undertakes marketing manage financial activities Establish liaison with Govt. officials. Establish liaison and manage various stakeholders. Innovate, bear risks and build an organization Face competition & beat it. All above require sound values and attitudes on the part of the entrepreneur

E.D-173

CORE VALUES AMONG ENTREPRENEURS

i) INNOVATION & CREATIVITY: Most important value Are guided by these values when they come out with creative ideas, new products, services, processes etc. to solve specific problems of the society. Discovering new opportunities, working out new combinations and seeing the new idea through to the end- are all different facets of the uniquely creative and innovative spirit of the entrepreneurs. Innovativeness can be seen through actions like Experimenting with new ideas, facing uncertainty, valuing unconventional behaviour, finding new use for E.D-174 existing methods or equipments.

 ii) Independence or Self-Reliance: Entrepreneurs drive great satisfaction in their sense of

independence or ownership. A very strong and positive ego drive involved in the action plans of entrepreneurs. Enables them to develop a mission concept which drives them to achieve their goal with a clear vision. Want to work in an atmosphere of freedom, master of their own destiny. Quality of self-reliance an imp. asset as it provides courage and confidence to undertake risks of trying with innovative things. Need to be independent to accomplish the sense of achievement. Dependence on others for decision undermines independence. E.D-175

iii) Respect for work: Have great respect for work. Successful entrepreneurs believe that they can achieve anything through hard work. Concentre on work to achieve goals. Nothing deviates them. This value encourages them to pursue right path and they realize the incentives / rewards linked to degree of hard work.

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iv) Quest for outstanding performance or achievements orientation: This value makes their organs. vibrant and successful. Challenges stimulate and motivate entreps. Set for themselves certain standards of excellence and deal with unexpected obstacles with confidence. Quest for excellence resolves problems under pressure. Are persistent and work harder when things go wrong. Find another way to solve problems. Leads to systematic planning

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What are values?

Values are beliefs that guide actions and judgment

across a variety of situations. E.g. a businessman is expected to supply true information rather than making false claims. Values are standards of morality Relatively permanent in nature. Value system influences an entrepreneurs decisions and his solutions to various problems. Parents, friends, teachers and external reference groups can influence individual values. A persuasive values develop as a product of learning and experience in the cultural setting in which he lives.

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What are attitudes?

Attitudes constitute an important psychological attribute of individuals which shape their behaviour. An attitude may be defined as the way a persons feels about some thing a person, a place, a

situation. It explains an individuals positive or negative feelings about some object. May be unconsciously held. Can be considered as a way of thinking feeling and behaving.
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 Entreps. have attitude of developing user-friendly products for customers.

Attitudes are invisible but the results may speak a persons is higly productive. We may infer that he has a positive attitude towards his work. Attitudes acquired from direct personal experiences (handwork pay), associates with good people.
Optimists have positive & pessimist have negative attitud

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ESSENTIAL ATTITUDES OF SUCCESSFUL ENTREPRENEURS

Attitude towards imaginations to visualize

opportunities. They imagine to solve the problem of the people, by intuitions & efforts. Att. Towards risk take calculated risk, do not become gamblers. Towards initiative do not remain on lookers, basically leaders, endeavour to turn dreams into reality. Towards change like change, accept challenges thrown open. Towards freedom of expressions & actions/think on their own and act. E.D-181

 Towards performance (successful completion of

targets) Give outstanding performances against odds satisfaction. Towards personal capacity own efforts not luck is emphasized. Towards building relations or networking Solve many difficulties in business by having networking with suppliers etc. Towards customers put customers first give respect, top priority for cust. Satisfactions, best quality feedback, improve.
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SOCIAL RESPONSIBILITY OF ENTREP.

Entrep. Part of society

Society provides opportunities

It provides resources like capital, materials, human

resources, infrastructures etc. Since entreps. utilize resources of the society, must assume social responsibility. SR means obligations to act in a manner which will best serve the interests of the society. Relates to the voluntary efforts on the part of business organs. To contribute to the social well-being. Refers to the concern for the welfare of the society. A business unit owes its very existence to the society E.D-183

MAJOR AREAS OF S.R. OF ENTREPS.

Honoring contractual commitments. fulfill them

for bank, suppliers, workers etc. Concern for ecology & envt:- SR for not causing air, water, pollution SR to keep it under control devices. Concern for consumers produce goods which meet the needs of the consumers of different classes, tastes and with different purchasing power. Give reasonable prices, give prompt, adequate service, handle grievances quickly, ensures regular supply, truthful advts.

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4.

Concern for workers. Pay reasonable wages & salaries to lead a good life. Provide good working conditions Provide service benefits like housing, medical, retirement benefits. 5. Concern for community & society: Ensure safety of local surroundings. Generate employment opportunities Provide quality products to society Discourage social evils like hoarding, black mktg., overcharging etc.

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6. Obligations towards suppliers. Make payments to suppliers in time and also be transparent in dealings Ensure timely payment of interest and principal to lending institutions 7. Concern for healthy competition. for survival & growth, should increase productive efficiency, improve product, quality, design, use etc. Do not use by unfair means in business dealings 8. Statutory obligations Abide by law & guidelines issued by the govt., pay taxes honestly, avoid corrupting Govt. officials, follow labour laws, adopt fair dealings in foreign trade.

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COMPETING THEORIES OF ENTREPRENEURSHIP

Good quality entrepreneurs are very important for

economic growth of an economy. Entrepreneurs bear non-insurable risks. All economic activities carried on by the entrepreneurs. THEORIES 1. Entrepreneurship: A function of Innovation. propounded by Joseph A. Schumpeter (1934) Entrepreneurship plays critical role in economic development. Economic development is not an automatic process, but takes place when a new product is introduced in the market, new production technology is introduced, a new market is developed, new sources of supply are found out and there is new organization of the industries. E.D-187

 All above changes must be actively and deliberately

promoted by the agents entrepreneurs. They provide economic leadership to bring dynamic changes, regularly. He is an innovator. Psychologically, entrepreneurs not solely motivated by profit. Theory conceived in the context of the industrial revolution, innovations, inventions of that time. Such innovations attracts surplus for reinvestment and the entrepreneurs can invade various economic fields with great success. Theory modeled on big private entrepreneurship as large volumes can be handled by the entrepreneurs in Pvt. Hands. Entrepreneurship is shy in an underdeveloped region as E.D-188 basic infrastructure is weak, only innovative mind cant work

2. Entrepreneurship: A function of group level pattern by Frank W. Young

One individual cannot take entrepreneurial

initiative. One must find entrepreneurial groups for a joint effort, as groups have higher differentiation and different capacities. Members of a group can show more solidarity. Unified actions & mutual understanding will bring better results.
E.D-189

 Some members of the groups excel at combining the resources like labour, capital etc. in new ways

and thus they become better entrepreneurs. Entrepreneur does not work single handedly. Individual characteristics are not above group effort. Entrepreneurial activity is generated by the particular family background and combined experiences.

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3. Entrepreneurship: A function of Managerial skills & leadership. By Bert. F. Hoselitz (1952) Person / Entrepreneur has a drive to amass wealth motivated by profit expections. But must have some managerial abilities, including the ability to lead. Managerial abilities and leadership are the prime concern and financial skills have a secondary concern. More matured and developed personalities make better entrepreneurs leading to productivity, creative integration of resources and the establishment of social institutions. An open society also develops good entrepreneurs. E.D-191

 4. Entrepreneurship: An Organization building

Function: By Frederick Harbison. Ability of Organizations building most critical skill in industrial development. Entrepreneurship is the skill to build an organ. He effectively delegates responsibilities to others and thus multiplies himself. Harnesses the ideas of other innovations and becomes an Organizer builder. Good leaders are excellent administrators. More stress on managerial skills and creativity. Ability to create an organ is most crucial skill as it facilitates the economic use of other innovations. E.D-192

4.

Entrepreneurship: A function of high achievements or achievement motivation.

N-Achievement & Management Success It is Mcllelands Achievement Motivation Already

Done

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ENTREPRENEURIAL SUCCESS IN RURAL AREAS

Entrepreneurship most crucial factor in the economic

development of each and every region including rural areas. 70% of people in our country live in rural areas where agriculture main occupation, allied activities but there is a limit to the rural labour force getting engaged in Agriculture. Despite rural migration to cities, rural unemployment remains a problem. Thus entrepreneurship becomes crucial in non-agricultural activities also. In India Rural Industrialization is characterized by small scale sector. Big employment generator, next to agriculture in rural areas.
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PROBLEMS OF RURAL ENTREPRENEURS

1. Lack of Managerial experience. Less knowledge of Management, A/cs, finance Can not afford to employ specialists. However ideally should have knowledge about different aspects of Prod., Mkg., A/cs, Fiannce. 2. Lack of knowledge about Tax-related Matters. Should have Income Tax Knowledge to file returns and sales tax to obtain salestax registration and abide by Tax rules. Normally lacking in rural entrepreneurs.
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3. Poor Accounting System: Good Knowledge about various costs, margins, breakeven points lacking may hamper good decision making.

4. Inadequate estimate of cash requirements: Prod. Not reaching optimum level, not reaching break-even point, less demand Creates poor cash Mgt. delays means more cash requirements. Expert advice also not available.

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CHOICE OF A SUITABLE FORM OF BUSINESS ORGANIZATION

Choice to be made at two occasions:-

I Choice at the starting of a new business: Following factors to be considered: Nature of business trading, manufacturing or service. Degree of control by the owner. Scale of operation small / medium / large. Size of market area local, regional, national etc. Amount of capital required.

Capacity to take risk / liability.

Tax liability and Govt. control. Profit margin and distribution
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II Choice for expanding business: Increase in demand and the success of business may require expanding the business. To expand and changing over to other form of business, following need to be analysed.
Additional capital required. Need for internal re-organization. Arrangement for specialized services. Increase in risk / liabilities Retention of effective control. Increased Tax Liability.
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ALTERNATIVES AVAILABLE FOR CHANGING EXISTING FORMS OF BUSINESS

SOLE TRADER:-

1. Employing A Manager V/s changing over to partnership: Sole trader needs additional capital and help in

management to expand business. Either can hire a paid manager or can consider one / more partners.

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Let us examine this further

Capital:- If Manager hired, the additional capital to be

arranged by the owner himself. However, does not share profits with the Manager can repay the loans out of the profits.
If partners taken will bring more capital but will also

share profits. No need to take loans and repay them.

Re-organization of the business structure:-

Manager taken existing structure does not change. If partners taken from sole trader to partnership firm P. Deed registration difficult to get a good partner

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 Management:- A skilled or qualified Manager may

improve the quality of management.

With fixed salary, may not show full worth and not take

full interest. Partners became owners, bring capital and run the business with full interest, as they will also share profit.

Control of the business: Managers control with the owner. Partners control gets diluted.

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 Sharing of business risks: Managers risks with owner, losses are borne,

loans/int. Repaid. Partners Risks, losses get shared. Busines secrecy:- Mgr Secrecy maintained. Partners information to be shared Continuity of business: Business comes to an end if sole trader dies, insolvent Partners remaining partners may carry on the business
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 2. Partnership V/s Private Company: When partnership grows option are: Induct more partners Go in favour of a Private Company. Points to be considered will be: Additional Capital: Partnership Max 10 or 20 Pvt. Co. 50 Max. More cap available Liability concerns: P.Ship Liability Unlimited Pvt. Co. Limited Liability Positive Legal formalities for the re-organization of

business:- Pvt. Co. Legal formalities. Will be there.

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 Issue of management: P.Ship all partners to be consulted, so conflicts,

disputes may hamper business. Pvt. Co. Elected Directors have full authority. Control over the business: P.Ship Joint Control Pvt. Co. Original owner becomes M.D. has full authority. State regulations. Filing of Accounts Co. files audited A/cs/ -Reg. Continuity Co. continues for long. Tax benefits:- P.Ship pay taxes on profits at progressive rates Co. at flat rate pay more.

E.D-204

3. PRIVATE CO. OR PUBLIC CO.: When business of a Pvt. Co. grows, Either continues as a Pvt. Co. or Convert it into a Public Ltd. Co. Following points to consider: Capital Requirements:- Public co. can arrange huge financial resources. Re-organizations:- A public co. has to raise minimum subscription, obtain certificate for commencement of business etc. to convert a Pvt. Co. to public, articles of association to be amended.

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 Management: Pvt. Directors close associates Public Directors may be no-owners, experts form outside

having sp. Mgt. skills. Degree and extent of control:Pvt. Owners have close control, by having key positions. Public Control shared with share holders, financial institutions, C.A., etc. Secrecy:- Pvt Published accounts filed with registrar, not open to public, for inspections. Public Open to inspection on payment of fee. Govt., Regulations:- Pvt. Co. closely held not much regulations Public:- widely held various govt. acts regulates these cos. entp. Must analyse above points.
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STAGES FOR SETTING UP A NEW BUSINESS VENTURE THREE STAGES

Pre-Investment Stage: Setting of aims & Objectives Forecasting of Demand Selection of Best Means, Strategies, to achieve objectives Evaluations of resources or inputs required.

Projection of financial plan.

Cost-benefit analysis. Pre-investment appraisal of all resources, approvals, etc.

Project Idea converted into a concrete investment proposal

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The Construction Stage: Starts after the investment decision is taken. Resources like land & buildings, plant & machinery, transport, communication & other services technology, arranged & assembled. Processes made for control systems, sales & marketing, managerial and other personnel, policies for acquisition of raw materials, supplies assembled and allocated to create tangible project.

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Normalization stage: The allocated resources of assets (created in the 2nd stage) utilized / employed to produce end results i.e. output of goods and services. Production of Actual Goods and Services fulfill the project objectives. Final Stage Project starts operating Processing inputs and generating outputs. Goods Distributed and customers created
E.D-209

GROWTH OF & DEVELOPMENT OF SMALL SCALE INDUSTIES-DEFINITION OF SMALL ENTERPRISE

Small Scale used to describe industrial units referring

to the scale of investment in plant & machinery. Small enterprises exist in every country of the world but more in developing country, like India. Small scale industries tend to be labour intensive or capital saving. Provide better opportunities for generating employment, better utilization of local resources, wider dispersal of industries & for equitable distribution of national income DEFINITION OF SMALL ENTERPRISE: What is small enterprise depends on the character of economic activity. Different countries define small business in different ways E.D-210

Two standards have been used to define small business: Size of Business:- Very often, small firms that have not grown beyond a certain size are termed as small. The criteria used to measure the size of small enterprises include: The number of persons employed. Amount of capital invested The value of annual sales turnover.
USA Any plant employing less than 200 workers is

termed small. India Fixed investment is the basis of defining small business.
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 Qualitative Criteria:- Complexity and quality of Material also criteria for defining small enterprise,

like: Ownership in the hands of one individual or a small group of individuals. Management is independent & personalized. Area of operation is mainly local though the goods might be exported. Technology employed is labour Intensive. Business enterprise is relatively small in comparison with the largest units in the field in which it operates.

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DEFINITION OF SMALL BUSINESS IN INDIA

Industries regulation and development ACT (IRDA) 1951, defined a

small scale unit as one that employed not more than 50 persons when using power and 100 when not using power and with a capital investment not exceeding Rs. 5 Lacs. In 1960, all industrial units with capital investment of not more than Rs. 5 Lacs irrespective of the number of persons employed, was termed as small business. In 1966 not more than Rs. 7.5 Lacs. In 1975 not more than Rs. 10 Lacs. In 1980 not more than Rs. 25 Lacs. In 1990 not more than Rs. 60 Lacs.

On the recommendation of Abid Hussain Committee, Govt. of

India once again revised the definition of Small scale Industry, if the Plant and machinery is upto Rs. 1. Crore
E.D-213

 Can offer personalized services to their customers. The No. of persons employed cannot exceed 50,

using power or 100 without power. Greater motivation possible as owner can maintain personal rapport with the employees efficiency Enjoy special govt. support for more employment and diversification of industries.

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SCOPE OF SMALL SCALE INDUSTRIES IN EMERGING SCENARIO

Wide scope for small scale business in various sectors.
Scope of small businesses can be understood by their

operation in various areas of eco. Activity:1. Manufacturing:- Engaged in assembling and processing various types of products, some produce small parts, some make & supply finished products. They manufacture electronic components, optical instruments, lab equipments, eatables, furniture, construction equipment, mat-weaving, basket-making, stationery items, toys, cosmetics, soaps, hosiery, sports goods, bicycles, foot wear, and handicrafts. Some make useful components for large business E.D-215

 2. Wholesale Trade:- Small business carried on for

distribution of consumer and industrial goods. These wholesale small business channels for distribution are very economical for manufacturers and retailers. They provide lot of services from their firms. Small firms carry wholesale trade in textiles, toiletrypreparations, bakery products, fruits & vegetables etc. 3. Retail Trade:- Retailing dominated by small scale firms. Small retail stores found in every area of business. Wholesalers and sell them to consumers, maintaining variety. Deal in daily use articles; take care of varied consumer needs and provide consumer needs and provide convenient shopping to consumers
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 4. Services:- No. of services are increasing day by day in

every area of business. Small scale business very suitable for providing services of a local and personal nature. Doctors, attorneys, property dealers, CIs tax consultants, financial advisors, restaurants, repair shops, beauty parlours, gyms, fast food outlets operate as small scale firms. Can provide personal attention and care. 5. Franchising and agency business:- Small business very suitable for those who want to take franchising without making much investments. They follow methods, policy of franchisor. Many foreign cos. also interested to tie with small firms.
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SMALL BUSINESS
ROLE OF SMALL BUSINESS
Small business achieve many goals:-

1.

Employment : Use labour intensive techniques to provide more employment. In India, small / tiny units employ people next to agriculture. Create more employment in scattered areas more than large scale units.
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 Balanced Regional Development: Promote decentralized development. Help removing regional disparities.

Leads to industrialization in rural and backward areas.

Check migration from rural areas and their living standards

improve there. Optimization of Capital:Require less capital per unit of output and thus greater output can be obtained with small investment. Due to shorter gestation period, quick returns can be obtained. Mobilization of local resources:Facilitate mobilization and utilization of local resources and skills which might otherwise remain unutilized. Promote a new cadre of small entrepreneurs, self employed and encourage local talent E.D-219

 Foreign Exchange earnings: Do not require imports of sophisticated machinery and equipment, thus reducing pressure on foreign exchange. Also earn valuable foreign exchange through export of their products, 35% of Indias total exports now Promote more equitable distribution of national

income and wealth: Help in reducing concentration of economic power in

few hands. Benefits of small scale business spread over wider population. Standard of living of rural people improves

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 Feeder to large Industries: Manufacture various components, spare parts, tools

required by the large scale sector. Also distribute the goods made by large scale firms. Social Advantages: Offer Opportunity for an independent way of life to people with small means. Help to raise per capita income and standard of living. Widely diffused ownership permits wider participation of people in the process of economic development. Promotes entrepreneurship by providing an excellent opportunity to young men and women with limited money to start their own business ventures.

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Need & Rationale of Small Business

Development of Entrepreneurship.

Introduction of new products. Better to start at a small scale. Limited demand for local products.
Flexibility in operations for making changes in

products etc. Personalized services Auto / TV repairs, interior decorations etc. Relations with employees Support to large enterprises
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THE DEFINITION OF SMALL SCALE INDUSTRY

In India, the small scale industry has been defined in

three ways The conventional definition includes cottage and handicraft industries which employ traditional labor Intensive methods to produce traditional products.
Operational Definition for policy purposes includes

all those under-takings having an investment in fixed assets plant & machinery whether held on ownership terms or by lease or hire purchase, not exceeding Rs. 1 Crore
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 Ancillary and tiny units also come under the umbrella of

small scale industries. A tiny unit where investment upto Rs. 5 Lacs. An ancillary unit whose investment is not more than Rs. 75 lacs. And is engaged in: The manufacture of parts, tooling, intermediate parts. The rendering of services of supplying 1/3 per cent of their total service or production to other units production of other articles. Third Definition of small scale industries relate to national income accounting includes all processing and manufacturing activities including repair and maintenance services undertaken by both house hold and non house hold small scale units, not regd, under factories act.
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 Accordingly a small scale industry is presently defined: As a unit engaged in manufacturing servicing,

repairing, processing and preservation of goods having an investment in plant & machinery at an original cost not exceeding Rs. 1. crote. An ancillary unit is defined as A unit having investment in fixed assets in plant and machinery not exceeding Rs. 75 lacs and engaged in manufacture of parts, components, sub assemblies, tooling or intermediaries or rendering of services and supplying 50% of their prod. of articles provided that no such undertaking shall be subsidiary or owned or controlled, by any other undertaking. Govt. of India announced a new policy for tiny sector and kept the investment limit of Rs. 5 Lacs, irrespective of location the unit.

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CLASSIFICATION OF SMALL SCALE INDUSTRIES

Traditional Khadi Power Looms Village Industries

Modern With power Small Scale Without Power Export Oriented

Handlooms Ancillaries Coir Industries Tiny Enterprises Sericulture Silk worm breeding Cottage Small Scale Services and business enterprises

Artisans

TECHNOLOGY KNOW-HOW AND APPROPRIATE TECHNOLOGY

Growth of small scale sector industries has not been very

satisfactory despite the various provisions for its promotion in the Industrial Policy. One reason is the absence of latest technology which can ensure quality and high rate of productivity. Should keep abreast of developments in technology so as to:Remain in the market Lower the cost of production Improve the quality of products Pass on the benefits to the customers Even without the facility of a sophisticated laboratory and gadgets, by using his intellectual capabilities and utilizing the knowledge gained by others. E.D-227

SMALL INDUSTRIES SERVICE INSTITUTES FOR TECHNICAL ASSISTANCE

They prepare improved designs and drawings for products. Also assist in making tools, dyes fixtures etc.

Help in optimum utilization of men, material and machinery.

Prepare management control charts for maximization of

profits and train managers and supervisors in industrial management train workers to upgrade their skills. Demonstrate modern technical processes. National Small Industries Corp. N. Delhi: Give advanced training in their prototype prod-cum-training centres in the operations of modern machineries. COUNCIL OF SCIENTIFIC AND INDUSTRIAL RESEARCH. NEW DELHI: Develops new technological processes and provides the same to industry E.D-228

 PRODUCTIVITY COUNCILS:- Train the factory owners

to increase the productivity. SMALL INDUSTRY EXTENSION TRAINING INSTITUTE, HYDERBAD:- Gives full time Management Training to Managers and proprietors in small Industry sector. CENTERAL INSITUTE OF TOOL DESIGN (CITD):Specializes in provision of technical consultancy and tool facilities, training in design and manufacture of tools. INSTITUTE FOR DESIGN OF ELECTRICAL MEASURING INSTRUMENTS (IDEMI):Provides technical know-how and testing, laboratory, workshop and training vacilities to electrical measuring instrument manufacturers. E.D-229

APPROPRIATE TECHNOLOGY FOR SMALL BUSINESS

Underdeveloped / developing economies face a number of

serious and complex problems one of them is the unemployment. Blind imitation of and wholesale adoption of the established technology from industrialized countries may aggravate the problem of unemployment. India, an agricultural economy is also labour-intensive. Issue is whether our small scale sector should try to follow the scientific discoveries of advanced countries? We should always think of our large number of labour force. Small industries offer same remedy for the monitoring unemployment problems

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 Appropriate technology should be used so that it takes

care of millions of idle hands and at the same time, facilitate prod. of goods of comparable quality at a reasonable cost. Such a technology is required for the small scale sector, called as Appropriate technology. Also linked with the affordability Scientific capabilities and innovative talents can provide a solution. Urgent necessity to develop this appropriate technology in view of economic factors and factors of our economy.

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LEGAL ASPECTS OF SSI

PROCEDURE FOR REGISTRAION OF SMALL SCALE INDUSTRIES: Registration done in two stages: Provisional Registration Permanent Registration PROVISIONAL REGISTRATION: Helps the party to take necessary steps to bring the unit into existence should be converted into a permanent registration once the unit comes not existence. Granted at the state / UT / District level by the state Director of Industries or his designated authority. Valid for one year in the first instance and thereafter may be renewed by a period of two or more years in six-monthly extensions by the designated authority on submission of satisfactory proof that the party is working. Lapse automatically at the end of three years. Application for extension of validity period and for permanent registration to be made within validity period. E.D-232

The provisional registration entitle the party to: Apply for a shed in an industrial estate/develop

site in an industrial area / material for the construction of the shed as the case may be. Apply to municipal corporations, panchayat or other local authorities for permission to construct the shed to establish a unit. Apply for power connection
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 Apply for financial assistance to SFC /

Nationalized banks or other financial institutions on the basis of a project report as may be required by them. Apply to NSIC / SSIC / Other institutions for procuring machines on his re-purchase basis. Obtain sales tax, excise registration etc. whenever required. Take other steps / approvals that may be necessary to establish the industrial units including obtaining import license for capital goods / raw materials.
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PERMANENT REGISTRATION
When the entrepreneur has taken all the steps to establish the unit,

like: Factory building / Sheds ready Required Machinery, equipment ready. Power connection obtained. Then: Application for permanent registration can be made within seven days of the receipt of application. The General Manager, District industries centre or other designated officer will inform the party of the date and time of inspection of the unit. On being satisfied that the unit is capable of productions activity, a registration certificate may be issued by the Directorate of Industries within one month of receipt of application. All registered units should submit half-yearly reports of raw materials.
E.D-235

DEREGISTRATION OF SMALL SCALE UNITS

A small scale unit already registered may be de-registered by the
registering authority on any one or more of the following grounds: If the unit remained closed continuously for a period exceeding one year. If the unit failed / refused or avoided to give full and truthful information as called upon by registering authority form time to time and in particular the half-yearly report. If the unit has been proved to have misutilised the raw material allocated to it. If the unit is found to be a subsidiary of or owned or controlled by medium or large scale undertakings. If the fixed investment in plant and machinery exceeds the fixed investment ceiling prescribed in the definition of small scale / ancillary units.
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 The order of the de-registration will have to be signed by an

officer not below the rank of Joint Director of Industries or the G.M. of the District Industries Centre where the unit was reported to be closed, the notice may be duly pasted on the premises. Action for de-registering the unit may be taken only after the expiry of the 30 days time from the day of parting the notice. Any unit aggrieved by the order of de-registration may appeal to the next higher prescribed authority as notified by the state Govt. within one month on receipt of the intimation of the same. The appellate authority many, after examining the case and making necessary enquiry, pass suitable order whether to set aside the order of de-registration or maintain it. One of the important decision to be taken by the entrepreneurs when he propose to start his unit is to decide about the firm of ownership of the industry whether to set up a proprietary / partnership or a company. E.D-237

FINANCIAL AND MARKETING MANAGEMENT OF SSI

FINANCIAL PLANNING
Finance very important pre-requisite to start an enterprise,

life-blood. Enterprise must chalk-out clearly its future financial requirements right in the beginning. The decisions taken by the entrepreneur in advance regarding the future financial aspects of the enterprise is called financial planning. It is a financial forecast made for the enterprise in the beginning itself. In a Financial Plan, The enterprise must answer the following questions very clearly: How much finance is needed? Where will money come from? When does the money need to be available? E.D-238

 In every business, including a SSI, capital is arranged

from two sources international and external. Internal source is owners own money called equity. In case of small scale unit, owners capital in this. External sources include sources like financial institutions and bank. Finance required for construction of factory building, purchase of plant, machinery, equipment and also for working capital requirements. Money also required for expansion, renovations or modernization of plant machinery.

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 LONG TERM & SHORT TERM CREDIT FLOWS 1. Long term finance required for procuring fixed assets, establishment

of new business, substantial expansion of existing business, modernization etc. It is such money whose repayment is arranged for more than 5 years in future. The sources of long term finance could be owners equity, term-loans from financial Institutions, credit facilities from commercial bank, hire-purchase, leasing facilities from specific organs, ploughing back of profits etc. Also provides by SFCS, National small industries corp (NSIC), St. Ind. Dev. Corp. (SIDC) etc. SHORT TERM CAPITAL (CREDIT FLOWS):- This is borrowed capital that is to be repaid within one year. The sources of short-term fianc include bank borrowing, for working capital, borrowings from friends and relatives, short term credit flows usually required to meet variable, seasonal working capital requirements, short term finance can also come from trade credit, customer advances etc. finance for working capital requirements also provided by state industrial & investment corporations and also the co-operative banks. In small places, even money lenders also advance loans. Short term finance / credit used for current assets like raw-materials, E.D-240 semi-finished goods etc.

 The project appraisal is a process whereby a leading

financial institution makes an independent and objective assessment of the various aspects of an investment propositions for arriving at a financial decision and is assigned at determining the viability of a project, and sometimes modifying some provisions and contents so as to improve its viability.
The financial institutions has to take special care with

regard to the managerial aspects of the project. The promoter, mgt. must be efficient and competent. The financial appraisal ensures that the project has a sound financial base. Analysis of cost, pricing, availability and utilization of funds, income and expenditure and fair return on investment areas are covered under financial appraisal.
E.D-241

A Financial Institution requires a detailed evaluation of the feasibility from the following major points of view:1. Managerial competence: Will find out whether the entrepreneur possesses

needed managerial skills. The project report should contain information like family background education qualifications, any past experience, innovative ideas so as to enable the financial institutions to assess managerial capabilities of the entrep. Not necessary that the entre., should have all managerial skills but the managerial structure should be explained to the financial institutions
E.D-242

2. Technical Feasibility:- Deals with the reso8urces and technical aspects, to be mentioned in the project report. Technical appraisal will deal with: Location of the unit. Size of plant Process of Prod. Factory Layout Personnel Availability and Cost of Raw-Material Power and water facilities Technology used / required for making the furnished products
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3. Market Analysis: Marketing activity produces revenue while all other activities incur expenditure. Thus success of the project will depend on how it is able to sell the product / services in the market. Supply / Demand of the product / Service to be estimated and market opportunities also to be judged. The project report should contain the following informations: Present demand for the product. Market segments identified. Short and long term demand / Projections. Extent of completions in the industry. Broad pricing structure The strategy of Marketing. E.D-244

 Economic Viability:- An important criteria for evaluating a

project. Whatever may be the motivation in starting a project from the point of view of the promoters, it shall be necessary that the operators quantified on a year to year basis should generate sufficient profits. A project without adequate profits or which is likely to incur losses. Could not be classified as economically and commercially viable. Evaluation of economic of economic viability can be carried out through the projection of profitability worked out for a period ranging from three to ten years. Financial Viability:- The appraisal of the financial aspects involve the scrutiny:- Cost of the project and the means of financing. Estimate to be made for cost of land, building, fixed assets, machinery, preliminary expanses etc. Then sources to be listed Cash flow estimates to be analysed. A cash flow statement is a projection of future sources of cash and application profit is also a E.D-245 source of cashflows.