MODULE -III

START UPS

The process of setting up a small business. Preliminary Check list and feasibility aspects of a
business ideas.

Learning Objectives
 To know the concept of Small Scale Industry
 To learn the process of setting up a small Business
 To know the feasibility aspects of the business

Reference:
 Essential of entrepreneurship and small business management- Thomas W Zimmer
and Norman .M. Scarborough
 The Dynamics Of Entrepreneurial Development And Management – Vasant Desai
 Entrepreneurship & Small Business Management - Gupta C.B and Khanka S.S
 Website of MSME ( Government of India)
 Hand book for small business- Score

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Introduction

Small Scale Industry is an industrial undertaking in which the investment in fixed assets in
plant and machinery whether held on ownership terms on lease or on hire purchase does not
exceed the investment limit of 5 crores( for manufacturing enterprises) and 2 crores ( for
service enterprises)

The chart below states the ceiling of investment on Micro/Small/ Medium industries. This
cap on investment was introduced since 2006-07

The chart below states the ceiling of investment on Small Scale industries prior to 2006

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references mentioned in the introduction of the module. Compiled by Sunitha.B.K.
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This module is strictly for Private circulation only. This is compiled by using the
references mentioned in the introduction of the module. Compiled by Sunitha.B.K.
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This module is strictly for Private circulation only. This is compiled by using the
references mentioned in the introduction of the module. Compiled by Sunitha.B.K.
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 HOW TO START A SMALL SCALE INDUSTRY

The steps involved in starting a small-scale industry are:-

STEP ONE- MARKET SURVEY

o Conduct Market Survey and Study the products as regards their demand in the market.
o Check whether it is a seasonal product or it has demand through the year.
o Study similar products available in the market that can be probable competitors.
Analyze them as regards their utility, quality and cost.
o Find whether the product can be exported.
o Explore the possibility whether some product can be manufactured in collaboration
with a foreign country. This provides readymade technical know how and save a lot
of time and money otherwise wasted in developing a suitable method of manufacture.

STEP TWO- MANUFACTURING

Decide the product that you are going to manufacture, on the basis of:-

o Market Survey
o Financial implication involved
o Technical knowhow available
o Experience in the line, etc.

STEP THREE- FORM OF OWNERSHIP

Form of ownership (Choosing either of the form of ownership)
 Proprietary concern
 Partnership
 Limited company
 Cooperative society

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STEP FOUR - INFRASTRUCTURE
o Selecting a proper site for locating the unit.
o Taking a building for factory on hire or construct a own factory building.
o Location of the enterprise should be easily accessible to all stake holders like
suppliers, distributors (Early availability of transport facility at cheaper rates.)etc

o Being conversant with the rules and other information available from
Ministry of Micro, Small and Medium Enterprises, New Delhi.

STEP FIVE - FINANCE

 Preparing a scheme in detail to manufacture the selected product such a scheme
should include the requirement of and the approximate cost of:-

1. Land and building

2. Machinery, tools and other equipment
3. Direct labour
4. Indirect labour
5. Direct material cost
6. Indirect material cost
7. Selling and distribution overheads
8. Working Capital for a unit time
9. Depreciation
10. Total production cost per unit time
11. Percentage of profit.

STEP SIX – HUMAN RESOURCES

 Check the availability of the skilled labour at reasonable rate

STEP SEVEN

 Check the concessions that Government has to offer

 Concessions that Government offer like establishment of small scale industrial
estates, subsidies, etc

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STEP EIGHT
Registration Process and approval
Registration Process
The Registration of units under SSI sector enables the entrepreneurs to take
up all preliminary steps required to set up the unit, such as, to apply for loans,
sheds/plots in Industrial Estates, power/water connection, to purchase/import plant
and machinery, raw material, machinery on hire purchase basis, etc.
It is done in two stages:
a. Provisional Registration, and
b. Permanent Registration.

Provisional Registration

 Provisional Registration Certificate is issued to a SSI unit, which is not in production

and is not banned either by Government of India or Government of respective state
Government, within a period of 24 hours, on application made in the prescribed
format.
 This enables the unit to take up all preliminary steps to set up the units, such as to
apply for loans, sheds/plots in Industrial Estate, power connection, to purchase/import
plant and machinery, raw material, machinery on hire purchase basis, etc. within the
validity period of the Provisional Registration Certificate.
 The Director of Industries(DIC), Trade and Commerce, as well as, the General
Manager (DIC) reserves the right to seek copies of Project Report and other relevant
information required to ensure the types of raw materials proposed to be used in the
manufacturing process, type of machinery involved and other aspects of the unit.
 The Provisional Registration Certificate (PRC) is valid for a period of five years from
the date of issue and gets lapsed automatically on completion of five years or from the
date the unit goes into commercial production, whichever is earlier.

Permanent Registration
 The Provisional Registration is converted into Permanent Registration on confirming
that the unit has taken all the effective steps, including installation of machinery and
equipments, obtaining power/water connection, etc. and after the Registering
Authority is satisfied that the unit has gone into commercial production and has
produced all the necessary NOCs/Documents/clearances from the concerned
Authorities and on submission of the requisite documents/information as per the
check list of Ministry of MSME

 The application for issue of Permanent SSI Registration Certificate has to be

submitted by the entrepreneur complete in all respects in the prescribed format costing
Rs.20/-, to the Directorate of Industries, Trade and Commerce.

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  Application received at the facilitation counter is verified thoroughly by the Industries
Inspector/Extension Officer (Industries) and if any deficiency is observed, the
entrepreneur is directed to furnish the remaining documents /information. On receipt
of such documents, the Industries Inspector/Extension Officer (Industries) inspects the
unit for physical verification of the machinery, equipments and other assets of the
factory/unit, verification of the documents, etc and submits his Inspection Report
within a period of 15 days, along with all the documents to the General Manager
(DIC), Directorate of Industries, Trade and Commerce, ( of the respective State)
 The Industries Inspector’s report and other documents are then further scrutinized by
the Registration Section of the Directorate and if found in order the case of Permanent
Registration is approved by the General Manager (DIC)

APPROVALS REQUIRED FOR STARTING A SSI DEPENDING ON WHAT

ENTREPRENEUR WANT TO MANUFACTURING

(a) NOC on pollution angle from the Department of Science, Technology and
Environment
(b) Approval of Factory Building and Machinery lay out from the Inspectorate of
Factories;
(c) Site clearance from Town and Country Planning Department;
(d) Permission for land use conversion and ground water clearance from
Agricultural Department;
(e) Power feasibility Certificate from Electricity Department;
(f) Building Plan approval from Town Planning Authority;
(g) Clearance from Health Department;
(h) Clearance from Fire Service Department;
(i) Clearance from Revenue Department;
(j) Licence from Food and Drugs Administration;
(k) Licence from Civil Supplies Department.

Most of the state governments have created

Single Window clearance for all approvals.

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 Preliminary Check list for SSI (check list defers from business
to business)
1 ------ Choose & Register a Business Name
2.____Decide on the Legal Form for the Business
3.____Write a Business Plan
4.____Set Up a Relationship with a Banker
5.____Set Up Other Professional Relationships
6.____Set Up a Relationship with an Attorney, if Needed
7.____Meet Legal Requirements for Operating a Business
8.____Get Licenses and Permits
9.____Set the Price for Your Product or Service
10.____Determine the Financing
11.____Obtain Office Space, Equipment and Suppliers
12.____Plan for Risk & Insurance
13.____Set up Record keeping Systems
14.____Set up a Financial Management System
15.____Develop a Marketing Plan
16.____Hire Employees
17.____Develop a Day-to-Day Managerial Plan

Feasibility Analysis
For many entrepreneurs, the easiest part of launching a business is coming up with an idea for
a new business concept or approach. Business success, however, requires much more than
just a great new idea. Once entrepreneurs develop an idea for a business, the next step is to
subject it to a feasibility analysis to determine whether they can transform the idea into a
viable business.
 A feasibility analysis is the process of determining whether an entrepreneur’s idea is
a viable foundation for creating a successful business. Its purpose is to determine
whether a business idea is worth pursuing. If the idea passes the feasibility analysis,
the entrepreneur’s next step is to build a solid business plan for capitalizing on the
idea. If the idea fails to pass muster, the entrepreneur drops it and moves on to the
next opportunity. He or she has not wasted valuable time, money, energy, and other
resources creating a full-blown business plan, or worse, launching a business that is
destined to fail because it is based on a flawed concept.
 A feasibility study is not the same as a business plan; both play important, but
separate, roles in the start-up process.
 A feasibility study answers the question, “Should we proceed with this business
idea?” Its role is to serve as a filter, screening out ideas that lack the potential for
building a successful business, before an entrepreneur commits the necessary
resources to building a business plan.
 A feasibility study primarily is an investigative tool. It is designed to give an
entrepreneur a picture of the market, sales, and profit potential of a particular business

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 idea A business plan, on the other hand, is a planning tool for transforming an idea
into reality. It builds on the foundation of the feasibility study but provides a more
comprehensive analysis than a feasibility study. It functions primarily as a planning
tool, taking an idea that has passed the feasibility analysis and describing how to turn
it into a successful business. Its primary goals are to guide entrepreneurs as they
launch and operate their businesses and to help them acquire the necessary financing
to launch.
 Feasibility studies are particularly useful when entrepreneurs have generated multiple
ideas for business concepts and must winnow their options down to the best choice.
They enable entrepreneurs quickly to explore the practicality of each of several
potential paths for transforming an idea into a successful business venture. Sometimes
the result of a feasibility study is the realization that an idea simply won’t produce a
viable business, no matter how it is organized. In other cases, a study shows an
entrepreneur that the business idea is a sound one but must be organized in a different
fashion to be profitable.

Conducting a Feasibility Analysis

A feasibility study is an important step in business development. The success of a
feasibility study is based on the careful identification and assessment of all of the
important issues for business success.

 Product/Service Feasibility
 Financial Feasibility
 Technical Feasibility
 Organizational/Managerial Feasibility
 Legal Feasibility

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 Product/Service Feasibility
A market, whether a place or not, is the arena for interaction among buyers and sellers.
From seller’s point of view, market analysis is primarily concerned with the aggregate
demand of the proposed product/service in future and the market share expected to be
captured. Success of the proposed project clearly hinges on the continuing support of
the customers. However, it is very difficult to identify the market for one’s
product/service. After all, the whole universe cannot be your market. Entrepreneur has
to carefully segment the market according to some criteria such as geographic scope,
demographic and psychological profile of the potential customers etc. It is a study of
knowing who all customers, for this entrepreneur require information on

Industry description.
 Describe the size and scope of the industry, market and/or market segment(s).
 Estimate the future direction of the industry, market and/or market segment(s).
 Describe the nature of the industry, market and/or market segment(s) (stable or going
through rapid change and restructuring).
 Identify the life-cycle of the industry, market and/or market segment(s) (emerging,
mature)

Industry competitiveness.
 Investigate industry concentration
 Analyze major competitors.
 Explore barriers/ease of entry of competitors into the market or industry.
 Determine concentration and competitiveness of input suppliers and product/service
buyers.
 Identify price competitiveness of product/service.

Market potential.
 Will the product be sold into a commodity or differentiated product/service market?
 Identify the demand and usage trends of the market or market segment in which the
proposed product or service will participate.
 Examine the potential for emerging, niche or segmented market opportunities.
 Explore the opportunity and potential for a "branded product".
 Assess estimated market usage and potential share of the market or market segment

Sales projection.
 Estimate sales or usage.
 Identify and assess the accuracy of the underlying assumptions in the sales projection.
 Project sales under various assumptions (ie. selling prices, services provided).

Access to market outlets.

 Identify the potential buyers of the product/service and the associated marketing costs.
 Investigate the product/service distribution system and the costs involved.

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 Financial Feasibility
The objective of financial analysis is to ascertain whether the proposed project will be
financially viable in the sense of being able to meet the burden of servicing debt and whether
the proposed project will satisfy the return expectations of those who provide the capital.

Estimate the total capital requirements.

 Assess the "seed capital" needs of the business project and how these needs will
be met.
 Estimate capital requirements for facilities, equipment and inventories.
 Determine replacement capital requirements and timing for facilities and
equipment.
 Estimate other capital needs
 Estimate start-up capital needs until revenues are realized at full capacity.
 Estimate contingency capital needs (construction delays, technology malfunction,
market access delays, etc.
 Estimate other capital needs.

Estimate equity and credit needs.

 Identify alternative equity sources and capital availability -- producers, local

investors, angel investors, venture capitalists, etc.
 Identify and assess alternative credit sources -- banks, government (ie. direct loans
or loan guarantees), grants, local and state economic development incentives.
 Assess expected financing needs and alternative sources -- interest rates, terms,
conditions, etc.
 Establish debt-to-equity levels.

Budget expected costs and returns of various alternatives.

 Estimate expected costs and revenue.

 Estimate the profit margin and expected net profit.
 Estimate the sales or usage needed to break-even.

Technical Feasibility

Technical Feasibility is to assess the extent to which the system can be successfully designed,
developed and installed. The issues involved in the assessment of technical analysis of the
proposed project may be classified into those pertaining to inputs, throughputs and outputs.

Input Analysis: Input analysis is mainly concerned with the identification, quantification and
evaluation of project inputs, that is, machinery and materials. Entrepreneur has to ensure that
the right kind and quality of inputs would be available at the right time and cost throughout

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the life of the project. Entrepreneur has to enter into long-term contracts with the potential
suppliers. The activities involved in developing and retaining supply sources are referred to
as supply chain management.

Throughput Analysis: It refers to the production/operations that you would perform on the
inputs to add value. Usually,the inputs received would undergo a process of transformation in
several stages of manufacture. Where to locate the facility, what would be the sequence, what
would be the layout, what would be the quality control measures, etc

Output Analysis: this involves product specification in terms of physical features- colors,
weight, length, breadth, height; functional features; chemical material properties; as
well as standards to be complied with such as BIS, ISI, and ISO etc.

Other issues of Technical Feasibility

Suitability of production technology.

• Investigate and compare technology providers.
• Determine reliability and competitiveness of technology (proven or unproven, state-
of-the-art).
• Identify limitations or constraints of technology
Availability and suitability of site.
• Access to markets.
• Access to raw materials.
• Access to transportation.
• Access to a qualified labor pool.
• Access to production inputs (electricity, water, etc.).

Availability and suitability of site.

• Investigate emissions potential.

• Analyze environmental impact.
• Identify regulatory requirements.
• Explore economic development incentives.
• Explore community receptiveness to having the business located there.

Organizational/Managerial Feasibility
Managerial Feasibility is to assess the human resources needed in the business and
determine if business has sufficient skills/resources to bring product/service to market
successfully.
• Identify availability of skilled and experienced business managers.
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 • Identify availability of consultants and service providers with the skills needed
to realize the project, including legal, accounting, industry experts, etc.
• Outline the governance, lines of authority and decision making structure.
Business founders.
• What key individuals will lead the project?
• Is there a reward system for the founders? Is it based on business
performance?
• Have the founders organized other successful businesses?

Legal Feasibility
Legal Feasibility is to assess the legal formalities and constraints of the business.
These include, choice of the form of business organisation, registration and clearances
and approvals from the diverse authorities. ( this part is given in how to start a SSI )

End of the third module

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