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Entrepreneurial Goal Setting

Goal setting is the process of deciding what you want to accomplish and devising
a plan to achieve the result you desire. For entrepreneurs, goal setting is an
important part of business planning.
Successful people develop the habits of personal strategic planning. They sit
down and make a list of exactly what they want to accomplish in the short,
medium, and long term. They then use a powerful, seven-part goal-setting
methodology to create blueprints and plans of action that they follow every day.
In February 2003, USA Today reported on a study of people who had set New
Year’s resolutions the year before. They found that only 4 percent of the people
who had made New Year’s resolutions, but had not put them in writing, had
followed through on them. But 46 percent of those people who had written down
their New Year’s resolutions carried them out. This is a difference in success rates
of more than 1,100The seven-step formula
Many formulas and recipes exist for goal setting. As a rule, “any plan is better
than no plan at all.” Here is one of the best and most effective goal-setting plans
or formulas you will ever learn.
The seven-step formula
Step one: Decide exactly what you want in a certain area, and write it down
clear-ly, in detail. Make the goal measurable and specific.
Step two: Set a deadline for achieving the goal. If it’s a large goal, break it down
into smaller parts and set sub deadlines.
Step three: Make a list of everything you’ll have to do to achieve this goal. As
you think of new items, add them to your list until it’s complete.
Step four: Organize your list of action steps into a plan. A plan is a list of
activities organized on the basis of two elements, priority and sequence.
In organizing by priorities, you determine the most important things you can
possibly do on your list to achieve your goal. The 80/20 rule applies: 20 percent
of the things you do will account for 80 percent of your results. If you don’t set
clear priorities, you’ll “major in minors” and spend much of your time on small
and irrelevant tasks that don’t help you achieve your goal.
In organizing by sequence, you determine what must be done before something
else can be done. You create a checklist. There are always activities that are
dependent upon other activities being completed in advance. What are they, and
what is the logical order or sequence of completion?
Step five: Identify the obstacles or limitations that might hold you back from
achieving your goal, both in the situation and within yourself. Ask yourself, “Why
have I not achieved this goal already?”
Identify the most important constraint or limitation that’s holding you back, and
then focus on removing that limiting factor. It could be a certain amount of money
or a key resource. It could be an additional skill or habit you need. It could be
additional information you require. It could be the help or assistance of one or
more people. Whatever it is, identify it clearly and go to work to eliminate it.
Step six: Once you’ve determined your goal, developed your plan, and identi-fied
your major obstacle, immediately take action of some kind toward achieving your
goal. Step out in faith. Do the first thing that comes to mind. But do something to
start moving toward your most important goal.
Step seven: Do at least one thing every day that moves you toward your most
important goal. Make a habit of getting up each morning, planning your day and
then doing something, anything, that moves you at least one step closer to what’s
most important to you.
The habit of doing something every single day that moves you toward an
important goal develops within you the power of momentum. Daily action
deepens your belief that the goal is achievable and activates the law of attraction.
As a result, you begin moving faster and faster toward your goal, and your goal
begins moving faster and faster toward you.
Entrepreneurial Group Activities
Entrepreneurial activity is the enterprising human action in pursuit of the
generation of value, through the creation or expansion of economic activity, by
identifying and exploiting new products, processes or markets.
Understanding Entrepreneurial Activity
(a) enterprising human activity;
(b) the assembly of unique bundles of resources, identification of
market opportunities, and/or utilisation of innovative capabilities
(c) the significance of the business and wider environments, and
(d) the creation of value.
(a) enterprising human activity
The entrepreneur “cannot evade the law of the market. He can succeed only by
best serving the consumers. His profit depends on the approval of his conduct by
the consumers.
Entrepreneurs create new organizations through a dynamic process that involves
such activities as obtaining equipment, establishing production processes,
attracting employees and setting up legal entities.
b) Leveraging Creativity, Innovation and/or Opportunity
Resources include access to: (i) physical capital such as property or plant and
(ii)financial capital such as debt finance or equity
(iii) intangible resources such as intellectual property or technology. These
resources can typically be bought and sold by firms or individuals.
Changes in these resources can have dramatic implications for firm performance,
with changes in these resources typically resulting from (i) creative inventions or
discovery, or (ii) unusual and unique combinations of these resources such as
venture capital funding. Entrepreneurial activity in „creative resources‟ is
supported by the „entrepreneurial community‟, which includes venture
capitalists, debt providers, and intellectual property lawyers.
(c) the significance of the business and wider environments
In addition to the environmental factors, the business environment will impact
entrepreneurial activity. These factors could include industry structures, impacted
by bargaining power, threats and competitive rivalry. Policymakers can have
significant impact on these industry conditions.
(d) the creation of value
The entrepreneur creates extraordinary value in the sense that their
entrepreneurial activity results in sustained competitive advantage and super-
normal returns for a number of parties. Innovators (entrepreneurs) enjoy
“temporary monopoly power”. When imitators see a signal that above-normal
gains can be made, they enter and erode the entrepreneurs‟ profit and return the
market to equilibrium.
environmental scanning is defined the concept as "the way in which management
gathers relevant information about events occurring outside the company in order
to guide the company's future course of action." It is the search to identify trends
that create business opportunities and pose challenges to the continued success of
the organizations.
Environmental scanning is also more than gathering information. It is the process
of using environmental information in decision making. It is a means of
improving the organizational ability to deal with a rapidly changing environment.
The external environment of the firm refers to both its task environment
(competition, customers and suppliers), and general environment (economic,
regulatory, technological, and socio-cultural factors).
Entrepreneurs' knowledge is critical to building sustainable competitive
advantage in the 21st century. Because of increased globalization, rapid
technological changes, and increased competition, entrepreneurs are facing new
and unexpected challenges. These changes have significantly increased the
quality and quantity of information that entrepreneurs must consider when
making decisions. Entrepreneurs, therefore, must process and learn from the
information, and use the new knowledge for improved decision making. "New
knowledge is the key resource for creating a sustainable competitive advantage."
Despite the importance of the entrepreneurs' knowledge to new venture success,
many are faced with a capability gap because of the discrepancy between their
current knowledge and the information that is relevant to the current business
environment. To deal with this capability gap and to have the most up-to-date
information for decision making, entrepreneurs must increasingly acquire
information from outside the organization. One way of acquiring and using
outside information is through environmental scanning.
Most studies on environmental scanning were done with large organizations
while those done with small firms focused mainly on scanning practices. The lack
of conceptual work on the relationship among environmental scanning,
organizational learning, and entrepreneurial success is surprising. Scanning
allows the entrepreneur to learn from the environment; and individual and
organizational learning enhance the entrepreneur's' knowledge, and contributes to
the firm's success. The purpose of this paper is to contribute to the discussion by
examining the role of entrepreneurs environmental scanning and organizational
learning in entrepreneurial success.
Business opportunity: An idea for a business is the first step for any potential
entrepreneur who wants to start a business. Selection of a business is hard task
and an entrepreneur normally oscillates among opportunities.
Business opportunity basically exists in three sectors viz., Manufacturing, Service
and Trade. A naturally available basic material put into a process through
machines undergoes conversion to become a finished product is manufacturing.
Sand becomes bricks. Iron becomes nails or sheets. A product to which value is
added through a process using equipment’s are classified as service. Adding
value by painting a product. Simply buying and selling is called trading. A wise
and initial step will be to decide which of these sectors one has to choose.
Basic needs of human beings are Food, Shelter, Clothing. Today added to this
list is Education. A business in any of these needs is a sustaining model. It is also
true that this area faces stiff competition. A model with innovative idea, with
value added products, with high standard and quality and with a competitive price
may survive as the fittest.
A broad classification of business will be Agriculture and Non-Agriculture.
Agriculture again could be sub-divided as Direct Agriculture and Indirect
Agriculture. Direct Agriculture is in the actual fields. Growing and cultivation of
agri products of all nature. The support system to direct agriculture is indirect
agriculture, such as machineries and equipment’s for agri, cattle and cattle feed
Non-Agriculture we can find plenty of opportunities sector wise, such as,
Engineering, Civil, Mechanical, Electrical, Chemical, Information technology,
Communication, Education, Publications, Visual media and so on.
One can look for opportunities in new sunrise areas such as energy conservation,
healthy/organic/natural foods, waste conversion to wealth. More awareness is
being created in energy conversation where you may look for business
opportunities in solar technology, LED lights and products. Organic farming and
supply of organic food materials where plenty of opportunity exists. Waste to
wealth is a social need and where not more have ventured into though
opportunities are plenty.
PRODUCT SELECTION: The commencement of a business venture is a huge
investment in both material and human terms that it requires in depth planning.
Just as investment opportunities can be sourced from a number of sources, the
choice of products or services for the entrepreneur are very important. However,
selecting/choosing the appropriate product or service can be considered the
important building block of every business venture.
Methods of Selecting a New Product:
As a matter of fact, products serve the business as the most important and visible
first contacts with buyers i.e. end users. The physical nature of products to the
consumers typifies the psychological symbols of personal attributes, goal and
strategic pathways. In other words, consumers are most likely to form opinion
and perspectives for the entrepreneur.
Criteria and Factors to be Considered in New Product Selection Stages:
Supply- Demand gap
The size and scope of the potential and unsatisfied market demand, which forms
the bedrock of business opportunity, will dictate, to great proportions, the need to
settle for a particular product. One rule of thumb in developing a product selection
criteria template is that the product with the most frequency of need/demand
possesses the greater chance of bestowing success on the business, should be
selected. In plain terms, there must be existing demand (a market) for the chosen
This is one of the most important factors associated with product selection. The
size of the funds that can be accessed is another important consideration in
choosing a method of product selection permitted. Adequate funding is required
to carry out pre-launch activities such as development, production, promotion,
marketing and distribution amongst others, of the selected product.
Availability of and Access to Starter Materials
Differences in products require different starter materials. Factors such as the
source of the materials, the quality to be achieved as well as the quantity of the
raw materials are key management decisions. Will the raw materials be available
in sufficient quantities, over a continual basis? Where are the locations of raw
materials needed? Are they accessible? Will it be important to situate the business
close to these sources of raw materials? In the event of local sources being
incapable of meeting demand, are there viable alternatives abroad? The
entrepreneur must embark on a thorough analysis of these limiting factors before
settling for a particular product for a markets.
Technical Considerations
The production route for the product bears a lot of weight when it comes to
product selection process in entrepreneurship. The technical dynamics of the
chosen product on the existing production line will be x-rayed against factors
such as available technology, power requirement and even the use of automated
processes or human labour.
In addition, the choice of a particular product may warrant either the acquisition
of new equipment or refurbishing of used machinery. The product must also be
deemed technically satisfactory to the user.
Profit viability/Marketability
As is often the case, the product that meets the criterion of giving the optimum
return on investment, will be selected. However, a product may be chosen on the
ground that it utilizes dormant capacity or helps with the sales of existing
products. The product must also bear the important characteristic of being
Qualified and Skilled Personnel
Qualified personnel will be required to handle the production and marketing, on
an ongoing basis. The cost associated with manufacturing the product must be
kept to the barest minimum by reducing wastage. This is achievable through the
engagement of competent and skilled hands.
Government Policies and objectives
These product selection factors are often beyond the control of the entrepreneur.
The thrust of government policies on economics and commerce, over time, is
usually in the national interest, which may or may not be at odds with the
objectives of the business. For instance, the insistence of government on the use
of 100% locally sourced starter materials will greatly influence the decisions of a
business with regard to what business product to introduce to the market.
Standard global practices advocate identifying a number of criteria upon which
product selection can be carried out. Scores can be allocated to each criterion to
come up with an objective evaluation.
The process of gathering, analysing and interpreting information about a market,
about a product or service to be offered for sale in that market, and about the past,
present and potential customers for the product or service; research into the
characteristics, spending habits, location and needs of your business's target
market, the industry as a whole, and the particular competitors you face.
Market research provides relevant data to help solve marketing challenges that a
business will most likely face an integral part of the business planning process.
In fact, strategies such as market segmentation (identifying specific groups within
a market) and product differentiation (creating an identity for a product or service
that separates it from those of the competitors) are impossible to develop without
market research.
Market research involves two types of data:
Primary Information-This is research you compile yourself or hire someone to
gather for you. When conducting primary research using your own resources, first
decide how you'll question your targeted group: by direct mail, telephone, or
personal interviews. If you choose a direct-mail questionnaire, the following
guidelines will increase your response rate:
 Questions that are short and to the point
 A questionnaire that is addressed to specific individuals and is of interest
to the respondent
 A questionnaire of no more than two pages
 A professionally-prepared cover letter that adequately explains why you're
doing this questionnaire
 A postage-paid, self-addressed envelope to return the questionnaire in.
Postage-paid envelopes are available from the post office
 An incentive, such as "10 percent off your next purchase," to complete the
One of the most effective forms of marketing research is the personal interview.
They can be either of these types:
A group survey. Used mostly by big business, group interviews or focus groups
are useful brainstorming tools for getting information on product ideas, buying
preferences, and purchasing decisions among certain populations.
The in-depth interview. These one-on-one interviews are either focused or
nondirective. Focused interviews are based on questions selected ahead of time,
while nondirective interviews encourage respondents to address certain topics
with minimal questioning.
Secondary information-This type of research is already compiled and organized
for you. Examples of secondary information include reports and studies by
government agencies, trade associations or other businesses within your industry.
Most of the research you gather will most likely be secondary.
Secondary research uses outside information assembled by government agencies,
industry and trade associations, labour unions, media sources, chambers of
commerce, and so on. It's usually published in pamphlets, newsletters, trade
publications, magazines, and newspapers. Secondary sources include the
Public sources. These are usually free, often offer a lot of good information, and
include government departments, business departments of public libraries, and so
Commercial sources. These are valuable, but usually involve cost factors such
as subscription and association fees. Commercial sources include research and
trade associations, such as Dun & Bradstreet and Robert Morris & Associates,
banks and other financial institutions, and publicly traded corporations.
Educational institutions. These are frequently overlooked as valuable
information sources even though more research is conducted in colleges,
universities, and technical institutes than virtually any sector of the business
A marketing channel is the people, organizations, and activities necessary to
transfer the ownership of goods from the point of production to the point of
consumption. It is the way products and services get to the end-user, the
consumer; and is also known as a distribution channel. A marketing channel is a
useful tool for management, and is crucial to creating an effective and well-
planned marketing strategy.
Another less known form of the marketing channel is the Dual Distribution
channel. This channel is a less traditional form that allows the manufacturer or
wholesaler to reach the end-user by using more than one distribution channel. The
producer can simultaneously reach the consumer through a direct market, such as
a website, or sell to another company or retailer that will reach the consumer
through another channel, i.e., a store. An example of this type of channel would
be franchising.

Roles of marketing channel in marketing strategies:

 Links producers to buyers.
 Influences the firm's pricing strategy.
 Affecting product strategy through branding, policies, willingness to stock.
 Customizes profits, install, maintain, offer credit, etc.

There are four main types of marketing channels.

Producer → Customer (Zero-level Channel)
The producer sells the goods or provides the service directly to the
consumer with no involvement with a middle man such as an intermediary,
a wholesaler, a retailer, an agent, or a reseller. The consumer goes directly
to the producer to buy the product without going through any other channel.
This type of marketing is most beneficial to farmers who can set the prices
of their products without having to go through the Canadian Federation of
Agriculture. Typically, goods are that consumed by a smaller segment of
the market has influence over producers and, therefore, goods that are
produced in the response on the order of a few consumers are taken into
account. Normally goods and services of this channel are not utilized by
large market segments. Also, the price of the goods is subject to significant
fluctuations. For example, high demand dictates an increase in the price.
Producer → Retailer → Consumer (One-level Channel)
Retailers, like Walmart and Target, buy the product from the manufacturer and
sell them directly to the consumer. This channel works best for manufacturers
that produce shopping goods like, clothes, shoes, furniture, tableware, and toys.
Since consumers need more time with these items before they decide to purchase
them, it is in the best interest of the manufacturer to sell them to another user
before it gets into the hand of the consumers. It is also a good strategy to use
another dealer to get the product to the end-user if the producer needs to get to
the market more quickly by using an established network that already has brand
Producer → Wholesaler → Retailer → Customer ( Two-level Channel)
Wholesalers, like Costco, buy the products from the manufacturer and sell them
to the consumer. In this channel, consumers can buy products directly from the
wholesaler in bulk. By buying the items in bulk from the wholesaler the prices of
the product are reduced. This is because the wholesaler takes away extra costs,
such as service costs or sales force costs, that customers usually pay when buying
from retail; making the price much cheaper for the consumer.However, the
wholesaler does not always sell directly to the consumer. Sometimes the
wholesaler will go through a retailer before the product gets into the hands of the
consumer. Each dealer (the manufacturer, the wholesaler, and the retailer) will be
looking to make a decent profit margin from the product. So each time the buyer
purchases the merchandise from another source, the price of the product has to
increase, in order to maximize the profit each person will receive. This raises the
price of the product for the end-user. Due to the simultaneous and joint work of
wholesaler and retailer, a trade can only be beneficial if; a market is situated on a
larger area, the supply of goods and products is carried out small but urgent
consignments (products), it can be cost-effective and profitable by supplying
bigger consignments (products) to fewer customers.
Producer → Agent/Broker → Wholesaler or Retailer → Customer (Three-
level Channel)
This distribution channel involves more than one intermediary before the product
gets into the hands of the consumer. This middleman, known as the agent, assists
with the negotiation between the manufacturer and the seller. Agents come into
play when the producers need to get their product into the market as quickly as
possible. This happens mostly when the item is perishable and has to get to the
market fresh before it starts to rot. At times, the agent will directly go to the
retailer with the goods, or take an alternate route through the wholesaler who will
go to a retailer and then finally to the consumer. A mutual cooperation normally
occurs when parties, in particular, the last channel of marketing chain of
distribution meet. Due to the fact that producers, agents, retailers/wholesalers and
consumers of this channel aid each other and benefit from each other.
Government Assistance
The contribution of small industries and businesses to the Indian economy is
simply immeasurable. They not only create wealth and employment but are also
a big factor in social development. In fact, so great is their importance that we
have a special ministry dedicated to Micro, Small and Medium Industries. So let
us learn how our government assists and develops these small industries.
The Indian government has been supporting and developing small unit sectors.
India is focusing on rural industries and cottage industries. According to layman’s
language, a small business is a project or venture that requires a small budget or
is run by small group of people.
Both central and state government have been emphasizing more on self-
employment opportunities in rural sectors by providing help and support in
financing in terms of loans, training in terms of programs, infrastructure, raw
materials and technology.
The core purpose of the government is to utilise the local manpower and locally
available resources. Which are further transformed into action by local
departments, agencies, corporations, etc.
Role of DIC:
The 'District Industries Centre' (DICs) programme was started by the central
government in 1978 with the objective of providing a focal point for promoting
small, tiny, cottage and village industries in a particular area and to make
available to them all necessary services and facilities at one place.
following are the main objectives of DICs:
To identify the new entrepreneurs and providing assistance to them regarding
their own start up’s.
To provide financial and other facilities to smaller blocks.
To rise the complete efforts for industrialization at district level.
To enhance the rural industrialization and also the development of handicrafts.
To reach economic equality in multiple areas of the district.
To allow various government schemes to the new entrepreneurs.
To resize the regional imbalance of development.
To make all the necessary facilities to come under one roof.
The DIC’s programme is funded jointly by the concerned state and central
government. It took part in various promotional measures In order to bring out
the development of small unit sectors in the district level. The DIC’s performs
the following functions mainly:
1. To spot the entrepreneurs: DICs conducting various motivational
programmes so that they can find new entrepreneurs throughout the districts. It is
done particularly under some schemes and with the association of SIS’s and
TCO’s for conducting Entrepreneurial programmes.
2. Purchase of fixed assets: To purchase fixed assets, the DICs suggest loan
applications of the prospective entrepreneur to some of the concerned financial
and development institutions like NSIC, SISI etc., DCI’s also recommend
commercial banks so that to meet the working capital requirement of SSI to run
operations daily.
3. Offers subsidies and other incentives: DCIs help the rural people to
subsidies offered by the government on various schemes. It leads to the
betterment in boosting financial capacity of the units and may undergo for further
development activities.
4. Guidance of import and export: Government provides various types of
incentives for import and export on particular goods and services. The license to
the importer and exporter is issued on the basis of recommendation of DIC.
5. Entrepreneurial training programmes: DCIs allow a lot of training
programmes for the rural entrepreneurs who are new to the business world and
also recommend other institutions to take part in such training programs. These
are intended to give better assistance to the new entrepreneurs.
6. Provides employment for unemployed educated ones: The DICs have
introduced a scheme to guide the unemployed educated youth by providing them
facilities for self-employment. The age limits between 18 to 35 years with
minimum qualification of metric or technical trade. The notable thing here is that
the technocrats and women are given importance.
Role of SFC:
They play an effective role in the development of small and medium enterprises
and bringing about regionally balanced economic growth. Assistance Provide by
SFCs: SFCs aim at wider dispersion of small scale industries within each state
they meet term credit needs of such units.
There are 18 SFCs at present. Seventeen (17) of them have been set up under
State Financial Corporation Act 1951, by the respective state govt, as region of
institution. The Tamil Nadu Industries Investment Corporation Ltd. set up in 1949
under companies Act as Madras Industrial Investment. The activities of SFCs
were under the overall control and supervision of the IDBI and RBI till about
1990 after which the SIDBI and RBI have been performing the overseeing
Assistance Provide by SFCs:
SFCs aim at wider dispersion of small scale industries within each state they meet
term credit needs of such units. SFCs provide assistance to small scale industries
by way of soft loans, direct subscription to equity share /debenture guarantees,
discounting of bills of exchange and seed capital /special capital. Their main
objectives are to finance and promote these industries in the state for achieving
the balanced growth.
Small Industries Services Institutes (SISIs):
The main objective of the Institute is to provide technical & consultancy services
to small scale industries. Providing promotions & extension services to small
scale or ancillary & tiny units. Besides this, training, library, exhibition &
economic information, workshop facilities are also provided.
These institutes give on the spot technical assistance & to small units to
solve their technical problems. They also advice small units on new & improved
techniques of production & in the use of modern machinery & equipment. The
following are the services.
The SISIs were set up in state capitals and other industrial cities in the country.
There are all together 28 SISIs and 30 branch SISIs in India. Their performances
are overseen by the office of the DC (SSI).
The main functions of SISIs include:
- Technological development services and consultancy services
- Interface between Central and State Government.
- Entrepreneurship Development programme.
- Promotional programmes.
- Ancillary development.
Definition of MSME:
Micro, Small and Medium Enterprise is defined by RBI/GOI differently for the
Manufacturing and the Services Sector Manufacturing Sector.
Manufacturing sector refers:
Manufacturing sector refers to enterprises engaged in manufacture or production,
processing or preservation of goods. The definition of Micro, Small and Medium
Enterprises under the manufacturing sector is based on the Investment in plant
and machinery excluding land and building.

Enterprise Manufacturing sector Service sector

Investment in plant and Investment in
machinery equipment’s
micro Up to Rs 25 Lakh Up to 10 Lakhs

Small Rs. 25 lakhs to 5 crore Rs 10 lakhs to 2 crore

medium Rs 5 Crore to 10 crore Rs 2 crore to 5 Crore

Role of Ministry of MSME:
Ministry of Micro, Small & Medium Enterprises envisions a vibrant MSME
sector by promoting growth and development of the MSME Sector, including
Khadi, Village and Coir Industries, in cooperation with concerned
Ministries/Departments, State Governments and other Stakeholders, through
providing support to existing enterprises and encouraging creation of new
enterprises. The primary responsibility of promotion and development of MSMEs
is of the State Governments. However, the Government of India, supplements the
efforts of the State Governments through various initiatives.
The schemes undertaken by the Ministry to facilitate MSME
1. Adequate flow of credit from financial institutions/banks.
2. Support for technology up gradation and modernization.
3. Integrated infrastructural facilities.
4. Modern testing facilities and quality certification.
5. Access to modern management practices.
6. Entrepreneurship development and skill up gradation through appropriate
training facilities.
7. Support for product development, design intervention and packaging.
8. Welfare of artisans and workers.
9. Assistance for better access to domestic and export markets.
10. Cluster-wise measures to promote capacity-building and empowerment of the
units and their collectives.

Role of Banks in Enterprise Development And Financing:

There is no gain saying the fact that activities of banks reflect their unique role as
the engine of growth in any economy. Banks especially commercial and
specialized ever remain crucial to the growth and development of
entrepreneurship, and their operations provide a solid backing capable of
encouraging entrepreneurs in viable and profitable ventures. The role of banks
goes beyond their traditional functions which if entrepreneurs avail themselves
of could be of tremendous assistance in meeting their desired needs.
There are several ways banks could get involved in small and medium scale
enterprise finance, ranging from the creation or participation in SMEs finance
investment funds, to the creation of special unite for financing SMEs.
Along the lines of the main functions of banks mentioned above, we shall now
examine their role in entrepreneurship development and enterprise financing.
And; for the purpose of convenience and proper understanding, the roles can be
categorized as follows:
1. Statutory Roles
These consist in the main the functions for which banks were created in the first
place. Such roles are for example accepting of deposit and safekeeping of same,
transfer of money, giving of loans and advances, etc. By accepting deposit of
customers especially entrepreneur-customers, the banks will be providing
security for customers’ money and giving them opportunity to use their deposit
to borrow more money from the banks to finance the running of their enterprises.
By funds transfer, money is moved from one account to another and from one
place to another. A good payment system which provides speedy fund transfers
is vital for the efficient working of an economy. And with the development of
information technology in banks, the speed of service delivery has improved
while the cost of doing business has reduced tremendously. The services have
enabled entrepreneurs to make transactions outside their immediate environment
without necessarily having to carry money about.
2. Financing Roles The primary reason that banks want deposits is to enable
them grant loans and advances from which they earn interest income. Extension
of credit to the economy for the financing of business enterprises is the core link
that banks have to the real sector, acting like a catalyst and contributing to the
growth of the economy of the country. By financing entrepreneurs’ production,
consumption and commercial activities, banks lubricate the process of economic
growth with multiplier effect across all sectors of the economy. The various
methods by which banks can lend money to entrepreneurs include overdraft,
medium and long term loans, debt factoring, invoice discounting, asset finance
including commercial mortgages and equity finance.
3. Business Investment Promotion Roles
Because of the specialized and professional status of banks, they are in a position
to play investment promotion roles to entrepreneurs. Such roles may include
management of investment for customers, advice on sustainable lines of
investment to follow by analysing the pros and cons of each investment
alternatives to the entrepreneur-customer.
4. Advisory, Guaranty and Consultancy Roles. In addition to the normal
lending and other service, banks now also engage in business advisory, guaranty
and other consultancy services which help immensely in the promotion and
financing of entrepreneurship activities in the country. It is well known fact that
some enterprises/businesses fail simply because of mismanagement, faulty
investment decisions, inefficient capital and foul planning etc.
5. Other areas Other areas in which banks could offer advisory and consultancy
services to the SMEs include methods of control systems or measures to be
adopted by the enterprises with respect to defined lines of business or trend of
challenges. Advice on methods of raising capital or reorganization of a company
to bring about the desired level of efficiency. Advice on tax and tax related
matters. Status enquiry services could be offered to effect credit purchases within
the domestic market or overseas.
Procedure of setting of an enterprise:
Entrepreneur should undertake the task of preparing the business plan personally.
Although outsiders - consultants, accountants, and lawyers - should be tapped for
their advice and expertise, the promoter or the initial top management team
should be responsible for the writing. Personally drafting the plan will enable the
entrepreneurs to think through all aspects of the proposed business and ensure
that they are familiar with all the necessary details, for they will have to make
decisions about the new venture and be responsible for those decisions.
1. Creating a Business Plan
The business plan can personally benefit the entrepreneurial team. Usually a great
deal of money is at stake, and the consequences of poor decisions can affect many
people for a long time. In developing and writing a business plan, the
entrepreneurial team reduces these anxieties and tensions by confronting them in
advance. By projecting the risks of the new venture into the future, the team
comes to grips with potential negative outcomes and the possibility of failure.
Every business plan should include:
Profile of the company's management - Listing the names of top executives and
their qualifications and industry experience.
Kind of Business - A brief description of the industry your firm is focusing on
or the new venture’s strategy.
Objectives - The short term and long term objectives of the new business
Financial requirements - Briefly state how much finance is required indicating
the degree of flexibility you are willing to show in case the investor suggests any
changes in your plan.
Budget allocations - How you will be using the finance.
Market Analysis - The business plan should dwell upon the prevailing
competitive environment with a view to convincing the investor that his/her
product/service is a niche product or service with substantial prospects for growth
and capable of attaining a competitive position in the market.
Environmental Influences - The impact of the environmental influences such
as political, economic, technological, socio-demographic and ecological factors
that affect your area of business.
Quality - The quality control measures to be put into place for ensuring quality
of the product/service.
Marketing - Identify the target market which should be substantiated by a
thorough market research. Once the target market has been identified, focus on
the communication strategy including advertising, branding, packaging etc.
Sales Forecast - Sales forecast is primarily dependent on three factors - size of
the market, fraction of the market you will be able to capture as a result of your
marketing strategy and the pricing strategy.
Financial Plans - A new venture must show projected profit and loss statements
and cash flow statements.
Human Resources - Make an organisation chart with details of key executives
and profiles of individuals likely to be hired.
Form of Business - Describe the legal form of your business - whether it is a
sole proprietorship or a partnership, public limited co., private limited co. or
society, etc.
Critical Risks - As a legal and moral obligation, the entrepreneur must, in the
business plan, envision risks the investor would be undertaking in case he makes
a choice to invest in your business. This will protect you from civil and criminal
2.Choosing a form of Business Organisation
The right choice of the form of business is very crucial because it determines the
power, control, risk and responsibility of the entrepreneur as well as the division
of profits and losses.
The choice of the form of business is governed by several interrelated and
interdependent factors: -
 The nature of business is the most important factor. Businesses providing
direct services like tailors, restaurants and professional services like
doctors, lawyers are generally organised as proprietary concerns. While,
businesses requiring pooling of skills and funds like accounting firms are
better organised as partnerships. Manufacturing organisations of large size
are more commonly set up as private and public companies.
 Scale of operations i.e. volume of business (large, medium, small, micro)
and size of the market area (local, national, international).
 The degree of control desired by the owner(s).
 Amount of capital required for the establishment and operation of a
 The volume of risks and liabilities as well as the willingness of the owners
to bear it.
Comparative tax liability.

3. Naming and Registering a Business

All the business must be named and registered with the competent authorities as
 Sole Proprietorship - The registration can be done at District Industries
Centre (DIC), Gangtok for North and East Districts and Jorethang for
South and West Districts.
 Partnership firm - The registration can be done at Registrar of Firms,
District Administrative Centre, Gangtok.
 Co-Operatives - It must be registered with the Registrar of Co-Operative
 Private & Public Limited Company - Registrars to be done under Sikkim
Companies Act 1961, amended as Registration of Companies Act of
Sikkim, 2007. It must be registered with Department of Law, Government
of Sikkim, The Secretariate, Gangtok.
 Societies – It must be registered with the Registrar of Firm & Societies,
Law Department, The Secretariate, Gangtok.
 Hindu Undivided Family Business – It comes into existence by the
operation of Hindu law and not out of contract. The rights and liabilities of
co-parceners are determined by the general rules of the Hindu law.
Registration is not necessary, but the rights of its members to sue third
parties for claims of debt remain unaffected.
 Limited Liability Partnership (LLP) – To be registered on the website
of Ministry of Corporate Affairs, developed for LLP services

4. Making a Product Choice

The choice of a particular product or service to be manufactured by the firm can
be done by analysing the following:
 Assessing the size and structure of the market for the products.
 Determining the future demand pattern for each of them.
 Comparing their competitive positions in the market.
 Graphing the life cycle of each product.
 Finding the shelf life of each product.
 The ease of availability of raw materials.
 Technology for production.
 Manpower.
 Government policies, regulations and incentives by both state and central

5.Choosing the location of the Industry

Location of the business is the most important factor influencing its
success or failure. It is a long-term decision which should take into
consideration not only the present requirements of the organisation but
also its future expansion plans. Hence, the most advantageous location is
that at which the cost of gathering material and fabricating it plus the cost
of distributing the finished product to the customers will be at a minimum.
The choice of location depends on several important factors:

Factors affecting selection of a region-

 Availability of required raw materials.
 Availability of required grade of labour i.e. skilled, semi-skilled or
 Proximity to the product market.
 Availability of transport facilities
 Adequate supply of power and fuel.
 Climatic factors based on the product types.
 Government regulations and policies.
 Law and order situation.
 Existence of complementary and competitive industries

Selection of the exact site-

 The price and size of land.
 Disposal of liquid waste requires proper sewer-connections or river outlets,
while disposal of solid waste needs availability of a dump or an extra piece
of land for the purpose.
6. Setting up Infrastructure
Setting up of basic infrastructural facilities for commencing business operations
 Land and Construction of Building – For acquisition of the plot of land,
the entrepreneur must approach the concerned authority (Municipality,
Land Revenue & Settlement Department). The architectural design of the
factory must be approved by the concerned authority before starting the
construction of the building.
 The site must be well connected to the nearest transport network i.e. rail,
road or port.
 The availability of the basic amenities like, water, power supply is equally
 Setting up of a good telecom facility for the industry is necessary for the
growth and expansion of the business.
7. Sourcing Process, Raw Materials, Machineries and Equipment’s
The next important step is to select appropriate technology and equipment to
produce the same. In addition to this, the source of raw material has to be decided
upon. The requirements of all these can either be met through domestic sources
or can be imported subject to the regulatory requirements of the Government.
Process Selection:
While choosing the process technology, following considerations are essential: -
 The level of skilled workers or complex machines required by the process.
 The quantity of water and / or power required.
 If any process or product patent is needed in order to utilize the selected
process technology.
 Any special Pollution or Environmental regulation is to be followed.
 The appropriateness of the technology to the Indian environment and
Raw Materials:
Proper planning of raw materials is essential because non-availability of the
required raw material may result in production hold-ups, idle machinery and
Key issues to be considered by the entrepreneur regarding sourcing of raw
material are:
 Identify the raw material required for manufacturing the desired product.
 Whether locally available in sufficient quantity and quality or has to be so
 Price trends, demand & supply of critical raw materials.
 Products whose production is subject to seasonality of supply. Continuity
of supply to be assessed.
 Compare the prices and get quotation from at least 3-4 places and also
check whether price is inclusive or exclusive of transportation costs.
 Arrangements for procurement.
 Transportation to the site with respect to cost, wastage / damage during
transportation, etc.
 Whether raw materials can be purchased on credit, cash or advance.
Machinery and Equipment’s:
The machinery and equipment required may be either domestically available or
imported from abroad. The imports are regulated by the Foreign Trade
(Development and Regulation) Act, 1992. Generally, technology or process
provides with the necessary specifications relating to machinery and equipment
required. Otherwise, an extensive techno-economic survey of the available
machinery and equipment may be carried out.
Pricing your Product
Fixing the right price for a product is the most difficult task as it affects the
volume of sales of the product of the firm as well as the profits of the firm. Prices
are set by a firm by taking into consideration factors like costs, profit targets,
competition and perceived value of products. Taking into account the various
factors, the steps generally followed in setting the price of a product are: -
 Setting the pricing objective of the firm.
 Determining the demand for the product.
 Estimating the cost of operation and profit margin.
 Determining the competition for the product.
 Considering the governmental regulations on taxation.
Financing a Business
A business firm requires finance to commence its operations, to continue its
operations and for its expansion and growth. Hence, a financial plan needs to be
prepared, which indicates the requirements of finance, sources for raising the
finance and the application of funds. Financial planning for starting a business
begins with estimating the total amount of capital required by the firm for the
Loans from commercial banks - Medium-term loans can be raised from
commercial banks against the security of properties and assets. Funds required
for modernisation and renovation of assets can be borrowed from banks.
 Loan from financial institutions - Long-term and medium-term loans
can be secured from financial institutions (FIs). Loans agreed to be
sanctioned must be covered by securities by way of mortgage of the firm's
property or assignment of stocks, shares, gold, etc.
 Public deposits - Companies often raise funds by inviting their
shareholders, employees and the general public to deposit their savings
with the company. The Companies Act permits such deposits to be
received for a period up to 3 years at a time. Public deposits can be raised
by companies to meet their medium-term as well as short-term financial
 Reinvestment of profits - Profitable firms do not generally distribute the
whole amount of profits as dividend but, transfer certain proportion to
reserves. As these retained profits actually belong to the shareholders of
the firm, these are treated as a part of ownership capital. Retention of
profits is a sort of self-financing of business need of the business.

Steps Involved in Setting Up of an Enterprise

1. Selection of form of organization

2. Finding a proper business opportunity
a. Consider various opportunities
b. Consider risk factors involved therein.
c. Whether finance will be available for that or not.
d. Gathering necessary information about the activity.
e. Thus doing a feasibility study of the business.
3. Deciding size of the firm: it depends upon factors such as:
a. Financial
b. Technical (capacity to go into R&D)
c. Marketing
d. Managerial
e. In short the size of the firm should be optimum which will offer
maximum output at lowest cost of production.

4. Deciding the location

a. Easy availability of raw material and labour
b. Proper supply of water
c. Approachable market area
d. Developed infrastructure
e. Availability of banking and warehouse facility
f. Concessions offered by the government

5. Arranging for machinery and equipment’s

a. Machinery having latest technology
b. Quality of production
c. Cost of production
d. Maintenance required to the machinery
6. Planning finances
7. Arranging different facilities
a. Water
b. Electricity
c. Disposal of waste
d. Installation of machinery
e. Proper maintenance of machinery
f. Uninterrupted supply of raw material

8. Completion of legal formalities

a. Getting sanction from financial institutions
b. Preparation of documents such as partnership deed, MOU Etc.
c. Registration with departments such as sales tax authority, excise
department etc.

9. Designing internal organization structure

a. Arrangement of all activities
b. Departmentalization
c. Chain of command
d. Span of control
e. Division of work
f. Delegation of authority
g. Coordination among various departments

10. Manpower requirement

a. Meeting manpower requirement
b. Deciding their pay scales
11. Launching the enterprise proper
a. Acquisition of land
b. Construction of building
c. Setting up office
d. Purchasing of plant and machinery
e. Conduct of production on trial basis
Under this method the borrower is required to submit the Cash Budget to
the bank along with actual as well as projected Financial Statements. The
current level of bank finance requires as forecast by the split budget (on
monthly/quarterly) basis. ASSESSMENT OF WORKING CAPITAL
Methods of Working capital assessment

• Operating Cycle Method

• Drawing Power Method.
• Turnover Method.
• MPBF method (II method of lending) for limits of Rs 6.00 crores and
• Cash Budget method - Based on procurement and cash inflow). It is
mainly used for Seasonal Industries (Sugar/ Rice
Mills/Textiles/Tea/Tobacco/Fertilizers) Contractors & Real Estate
Developers, Educational Institutions, etc.
Operating Cycle Method

Meaning of operating cycle:

It begins with acquisition of raw materials and ends with collection of

• 1) Raw materials (RM/RM consumption)
2)Work-in-process (WIP/COP)
3)Finished Goods (FG/COS)
4)Receivables (Debtors/Credit sales)
• Creditors (creditors/purchases)
Example of Operating Cycle:
Length of operating Cycle:
a. Procurement of raw material: 30 days
b. Conversion/process time: 15 days
c. Average time of holding of finished goods: 15 days
d. Average collection period: 30 days
e. Total operating cycle: 90 days
f. Operating cycle in a year: 4
g. Total operating expenses per annum: Rs.60 lacs
h. Total turnover per annum: Rs.70 lacs
i. Working capital requirement: 60/4= 15 lacs

Drawing Power (DP) Method:

(for units with small limits)

Drawing power is arrived at on the basis of valuation of current assets

charged to the bank in the shape of hypothecation and assignment, after
deducting the stipulated margin
Paid stock – 4 Margin 25% - DP = 3
Semi-finished goods – 4 Margin 50% - DP=2
Finished goods -4 Margin 25% - DP = 3
Book Debts – 4 Margin 50% - DP = 2
Total DP= 10

Turnover Method:
(originally suggested by Nayak Committee for SSI units)

The WC requirements may be worked out on the basis of Naik Committee

recommendations for working capital limit upto Rs.6 crores from the
banking system, on the basis of minimum of 20% of their projected annual
turnover for new as well as existing units, beyond which WC be computed
on the basis of WC cycle, after fixing stipulated margins, on each
component of the WC. In case of borrowers desiring facilities under Naik
Committee recommendations and having a WC cycle of more than 3
months in a year, the WC requirements will be funded after assessing his
requirements on the basis of his WC cycle, after fixing proper margins.

Applicable for limits upto Rs.6 crores:
(a) Projected sales = Rs. 10,00,000
(b) Working capital requirements: 25% of projected sales i.e.
(c) Margin (contribution of Owner): 5% of projected sales i.e. Rs.
(d) Working capital to be funded by bank: Rs.2,00,000

MPBF Method
(Tandon’s II method of lending)
• Working capital gap: Current assets – current liabilities (other than
bank borrowings)
• Minimum stipulated net working capital= 25% of current assets
(excluding exports receivables)
• Actual projected NWC