UNIT III : BUSINESS

Small Enterprises – Definition: A Small enterprise is an

industrial undertaking in which the investment in fixed assets
in plant and machinery, whether held on ownership term or
on lease or hire purchase, does not exceed Rs.1 Crore.

This investment limit is varied by the government from time

to time.

Entrepreneurs in small scale sector are normally not required

to obtain a licence either from the Central Government or the
State Government for setting up units in any part of the
country.

Registration of a small scale unit is also not compulsory.

Classification
 Definitions After 2nd Oct. 2006

Investment Ceiling for Plant, Machinery or Equipments

Classification Manufacturing Service Enterprises

Enterprises

Micro Up to Rs. 2.5 million Up to Rs. 1 million

Small Between 2.5 to 50 million Rs. 1 to 20 million

Medium Rs. 50 million to Rs. 100 million Rs. 20 to 50 million

Features of Small Enterprises
 Characteristics of Small Enterprises :
• A Small Enterprise is generally a “One Man Show”.
• Owner himself / herself is also a Manager of the Enterprise. Thus, a
Small Enterprise is managed in a personalized manner.
• A Small Enterprise has lesser Gestation Period compared to a Large
Enterprise.
• Small Enterprises generally carryout their operations so as to cater to the
Local & Regional Markets.
• Small Enterprises use indigenous resources & therefore can be located
anywhere subject to the availability of these resources like Raw Materials,
Labour, Transport Facilities etc.
• They are fairly Labour Intensive with comparatively smaller Capital
Investment than the Larger Units.
• Using Local Resources, Small Units are decentralized & dispersed to Rural
Areas & Smaller Towns
• Small Enterprises are more susceptible & highly reactive & receptive to
Socio – Economic conditions compared to larger enterprises.
 Steps for setting up a business enterprise
1. Identification of business opportunities.

2. Generation of the business idea.

3. Feasibility Study.

4. Preparation of a business plan.

5. Launching the enterprise.

 Identification of business opportunity

• Identify Market Inefficiencies

• Remove Key Hassles
• Customers Desire to Experience Something New
• Pick a Growing Sector/Industry
• Product Differentiation
• Cash Flow Considerations
• Listen to your potential clients and past leads. When you're
targeting potential customers listen to their needs, wants,
challenges, and frustrations with your industry.
• Listen to your customers.
• Look at your competitors.
• Look at industry trends and insights.
 Generation of business idea
here we need to understand what is meant by innovation
and creativity and how important they are for the
generation of business ideas in entrepreneurship.

Role of Innovation and Creativity

Innovation may be defined as exploiting new ideas leading to the

creation of a new product, process, or service. Innovation deals
with coming up with a creative idea and turning that idea into a
process. It may be defined as the process of doing new things or
doing old things in new ways.
Creativity means coming up with new ideas, concepts, processes,
and products. In other words, it means the ability to bring
something new into existence.
Stages In Creativity Process
 Feasibility Study
The feasibility study is conducted in the following
areas:

Market/ commercial Feasibility

Technical Feasibility

Financial Feasibility

Socio-economic Feasibility

Preparation of Feasibility Report

 Preparation of a business plan
A business plan, as defined by Entrepreneur, is a “written
document describing the nature of the business, the sales and
marketing strategy, and the financial background, and containing
a projected profit and loss statement.” It serves as the blueprint
for how you will operate your business. It is an effective means of
defining your goals and the steps needed to reach them.
It serves the following purposes:
• Maintaining Business Focus.
• Securing Outside Financing.
• Understanding consumers and competitors.
• Fuelling Ambitions and Mapping Growth.
• Enlightening Executive Talent or understanding employee
needs.
 Launching the enterprise and managing the
business

At this step, the entrepreneur fulfills some legal

formalities. He hunts for a suitable location,
designs the premises, and installs machinery. All
the statutory formalities are to be met.

a) Acquiring license.
b) Permission from local authorities.
c) Approvals from banks and financial institutions.
d) Registration etc.
Stages for setting up small enterprise
Ownership Structures
 Project Identification

 Project identification is the first phase of a project

cycle.
 It is a recurrent process for documenting, ranking and
approving candidate projects.

Project Formulation
 It refer to step by step investigation of resources
and development of project idea.
 To derive maximum benefits from minimum
expenditure in shortest possible time
Elements of Project Formulation
 Project Identification / Selection

Project selection process consist of Two main Steps:

• Project Identification
• Project Selection

Project Identification - Idea generation

Selection process starts with the generation of a product

idea.

In order to select the most promising project, the entrepreneur needs
to generate a few ideas about the possible projects he/she can
undertake.
Project identification is concerned with collection of economic
data and analyzing it.
Project Ideas - Ways or Sources: various internal and
external sources

Knowledge of potential customer needs (Opportunity

Scanning & Identification)
Watching emerging trends in demands for certain
products.
Scope for producing substitute / alternative product.
Going though certain professional magazines.
Success stories of known entrepreneur or friend or
relatives.
Making visit to trade fairs and exhibitions displaying
new products and services.
Meeting with government Agencies.
Idea given by the knowledgeable person.
A new product introduced by the competitor.