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:- Risk–bearing, 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.

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 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.

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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
that’s why encouraged
Top Management provide financial and technical
assistance to their ideas.

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 Entrepreneur V/s Intrapreneur
Basis Entrepreneur Intrapreneur

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

the company

2. Capital 2. Entrepreneur raises the requisite capital 2. Intrapreneur does not raise any
himself. capital.

3. Freedom 3. Entrepreneur works independently. 3. Intrapreneur is semi-independent.

4. Risk-taking 4. Entrepreneur is one who bears full risks of 4. Intrapreneur does not bear any
his business risks of business.

5. Guarantee 5. Entrepreneur guarantees payment to 5. No such guarantee is required to be

suppliers of inputs. given by the intrapreneur.

6. Norms and Rules 6. Entrepreneur operates independently. He 6. Intrapreneur operates from within
is the master of his own show as he frames the organization. He is an
norms and rules of his business. organization man and is bound by
organizational 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
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.
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
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 METHODS & PROCEDURE TO START AND
EXPAND ONE’S 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 person’s 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 firm’s 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. E.D-42
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:-

1. 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 firm’s venture,
expiry of partnership period /death of any partner.

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 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
More flexible and mobile labour motivates.

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II. 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.

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2. 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.

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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 more in
less and less time.

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 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 succession, a going
concern.

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 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 company’s common seal
which has the company’s 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.

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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 Co-
operative 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. E.D-68
 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.

E.D-69
 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
 A/C’S from Karta when leaving or disintegration of family.

E.D-70
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:-

E.D-71
 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 country’s industrial map, make
use of technical skills, give employment

E.D-72
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

E.D-73
 ACHIEVEMENT MOTIVATION
Achievement Motivation theory developed by David
McClelland
An individual’s 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.
E.D-74
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 country’s
economic development.

E.D-75
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.

E.D-76
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.

E.D-77
 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.

E.D-78
 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

E.D-79
Social Stigma-Compared to successful ones.
Time pressures
Legal constraints & Regulations (Not in
Residential Areas)
 First Generation Entrepreneurs
Entrepreneur by Accident since was
unemployed

E.D-80
 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
E.D-81
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

E.D-82
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.
E.D-83
 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.

E.D-84
 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. E.D-85
 IV. Lack of Knowledge About Tax-
Related 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.

E.D-86
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

E.D-87
 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

E.D-89
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

E.D-90
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.

E.D-92
 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
E.D-93
 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.

E.D-94
 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.

E.D-95
 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.

E.D-96
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.

E.D-97
 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

E.D-98
2. 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

E.D-99
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.

E.D-100
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.

E.D-102
 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.

E.D-103
 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

E.D-104
 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

E.D-106
 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.

E.D-107
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.

E.D-108
 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 sets.

E.D-110
 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.

E.D-111
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.

E.D-112
5. 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
non-standardized quality of products.
Can not afford much advertising, sales
personnel

E.D-113
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.

E.D-114
 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.

E.D-116
 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

E.D-118
 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.

E.D-119
 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.
2. Helps in approaching Dist. Industries centre for obtaining
provisional or permanent registration.
3. Helps in securing supply of raw-materials, water, power etc.
4. Approaching Bank / F.I. for working capital loans.
5. Obtaining term loans from SFCs/Banks/F.I.
6. Preparation of Techno-Economic viability reports of the
project.

E.D-122
 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.

E.D-124
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 Mkt-local,
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.

E.D-125
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

E.D-126
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.

E.D-127
 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.

E.D-128
 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 to
located his plant.

E.D-129
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.

E.D-131
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.

E.D-132
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

E.D-133
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.

E.D-134
 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.
E.D-136
 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

E.D-139
 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

E.D-141
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.
E.D-142
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.

E.D-145
 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

E.D-146
 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

E.D-147
 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

E.D-148
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 project’s 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.

E.D-151
 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  

E.D-152
 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

E.D-155
 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
 Public Deposits

E.D-162
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-in-
progress, 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
E.D-165
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
today’s 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 post-
independence 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 1980’s, 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 existing
methods or equipments.

E.D-174
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.

E.D-176
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

E.D-177
 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 entrepreneur’s 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.

E.D-178
 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 individual’s positive or negative
feelings about some object.
May be unconsciously held.
Can be considered as a way of thinking feeling and
behaving.
E.D-179
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

E.D-180
  
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.

E.D-182
 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.

E.D-184
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.
 

E.D-185
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.
E.D-186
 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 basic
infrastructure is weak, only innovative mind can’t work
E.D-188
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.

E.D-190
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 Mclleland’s Achievement Motivation – Already
Done

E.D-193
 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.

E.D-194
 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 sales–tax registration and
abide by Tax rules.
Normally lacking in rural entrepreneurs.

E.D-195
3. Poor Accounting System:-
 Good Knowledge about various costs, margins,
break-even 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.

E.D-196
 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

E.D-197
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.

E.D-198
 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.

E.D-199
 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

E.D-200
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.

E.D-201
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
E.D-202
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.
E.D-203
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.

E.D-205
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.
E.D-206
 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
E.D-207
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.

E.D-208
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.
E.D-211
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.
E.D-212
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 employee’s
efficiency
 Enjoy special govt. support for more
employment and diversification of industries.

E.D-214
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, toiletry-
preparations, 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

E.D-216
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, CI’s 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.
E.D-217
 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.

E.D-218
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 India’s 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

E.D-220
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.

E.D-221
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

E.D-222
 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

E.D-223
 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.

E.D-224
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. E.D-225
 CLASSIFICATION OF SMALL SCALE INDUSTRIES

Traditional Modern

With power
Khadi
Power Looms Small Scale
Without Power
Village Industries
Export Oriented
Handlooms
Ancillaries
Coir Industries
Tiny Enterprises
Sericulture
Silk worm breeding Small Scale Services
and business
enterprises
Cottage

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
E.D-230
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.

E.D-231
 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

E.D-233
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.
E.D-234
 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.

E.D-236
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 owner’s own money called equity.
In case of small scale unit, owner’s 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.

E.D-239
  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 owner’s 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 fiancé 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, semi-
finished goods etc.

E.D-240
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

E.D-243
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
information’s:-
— 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.

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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 source of
cashflows.

E.D-245