SRI JAYENDRA SARASWATHY MAHA VIDYALAYA COLLEGE OF ARTS&

SCIENCE
SIHS Colony, Singanallur, Coimbatore - 05

DEPARTMENT OF MANAGEMENT

Semester : VI
Subject : ENTREPRENEURSHIP AND
SMALL BUSINESS MANAGEMENT
Staff : Mrs. A. Saranya

SYLLABUS

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UNIT I Meaning of Entrepreneurship – characteristics, functions and types of
entrepreneurship – Entrepreneurial Motivation – Need for Achievement Theory –
Risk-taking Behaviour –Innovation and Entrepreneur – Role of entrepreneurship
in economic development

UNIT II Factors affecting entrepreneur growth - economic – non-economic.

Entrepreneurship development programmes – need – objectives – course contents
- phases - evaluation. Institutional support to entrepreneurs.

UNIT III Introduction to Small Business: Evolution & Development– Meaning –

concepts – categories – characteristics of small business – role, importance and
responsibilities of small business. Business Ideas – Sources and incubating;
Technical Assistance for small business – Preparation of Feasibility Reports,
Legal Formalities and Documentation.

UNIT IV Business Plan – Outline – components – Marketing strategy for small

business – Market Survey – Market Demands – Sales forecast – Competitive
Analysis – The marketing plan – Marketing Assistance through governmental
channels – Risk Analysis – Break even analysis

UNIT V Start-up costs – The financial Plan – Source of finance for new ventures
– small business – Institutional finance supporting SSIs – Bounties to SSIs –
Venture Capital – basic start-up problems.

UNIT-I

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Meaning :
Entrepreneurship, like many other economic concepts, has long been debated. It
has been used in various ways and in various senses. It is an elusive concept that cannot
be defined precisely. The word “entrepreneurship’ has been derived from a French root
which means‘to undertake’. Today, people call it by various names.e.g. adventurism,
‘risk taking’, ‘thrill seeking’, ’innovating’, etc.

Definition
According to A.H.Cole “entrepreneurship is the purposeful activity of and
individual or a Group of associated individuals, undertake to initiate, maintain or
aggrandize profit by Production or distribution of economic goods and services.

Nature and Characteristics(Dimensions)of entrepreneurship

1.Innovation
Entrepreneurship is a creative activity. An entrepreneur is basically an innovator
who Introduces something new into the economy. Innovation may be a method of
production not yet applied in the particular branch Of manufacturing, or a product with
which consumers are not yet familiar or a New source of raw material or a new market
hitherto unexploited or a new Combination of means of production.Entrepreneur
foresees the potentially profitable opportunity and tries to exploit it.Innovation involves
problem solving and the entrepreneur is a problem solver.An entrepreneur is not simply
an innovator. He also assumes risk and organizes human Efforts.

2. A Function of High Achievement

People with high need for achievement are more likely to succeed as
entrepreneurs. People with high achievement are not influenced by money rewards as
compared toPeople with low achievement. The latter type are prepared to work harder for
money or External incentives. On the contrary, profit is merely a measure of success
And competency for people with high achievement need.In order to raise the level of
achievement motivation, parents should set high standards For their children. Various
studies on the psychological roots of entrepreneurship reveal . The presence of high
achievement orientation among successful entrepreneurs.

3. Organisation Building Function

Entrepreneurship implies the skill to build an organization. Organisation building
ability is the most critical skill required for industrial development. This skill means the
ability to ‘multiply onself effectively delegating responsibility to others. Entrepreneur is
not an innovator but and organization builder who harnesses the new ideas of different
innovators to the rest of the organization. Entrepreneurs need not necessarily be the men
with ideas or men who try new combinations of resources but they may simply be good

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Leaders and excellent administrators.

4.A Function of Group level pattern

Entrepreneurial characteristics are found in clusters which may qualify
themselves as entrepreneurial groups. Entrepreneurial activity is generated by the
particular family background experience as a member of certain groups and as a
reflection of general values.

5.A function of managerial skills and Leadership

According to Hoselitz managerial skills and leadership are the most important
facets of Entrepreneurship. Financial skills are only of secondary importance. He
maintains that a person who is to become an industrial entrepreneur must have more than
the drive to earn profits and amass wealth. He must have the ability to lead and manage.
He identifies three types of business leadership, namely merchant money lenders,
managers and entrepreneurs. The function of the first group is market oriented, that of the
second is authority oriented while the third group has inaddition to these a production-
orientation.

6. Gap Filling Function

The most significant feature of entrepreneurship is gap filling. It is the job of the
entrepreneur to fill the gap or make up the deficiencies which always exist in the
knowledge about the production function. These gaps or deficiencies arise because all the
inputs in the production function cannot be marketed. Some inputs like motivation and
leadership are vague and their output is indeterminate. An entrepreneur has to marshall
all the inputs to realise final products. Thus entrepreneurship is a function of input
completing and gap filling.

7.A function of status withdrawal

Hagen has formulated a sequence of the formation of creative personality . He
identified child rearing practices as the main element in personality development. In
order to develop creative personalities in traditional socities powerful forces are required
to distrupt the highly stable traditional societies. Creative personalities emerge when the
members of some social groups experience” the withdrawal of status respect”.

8.A Function of social, political and economic structure

Entrepreneurs are not equally distributed in the population. Minorities( religious,
ethnic, migrated, displaced elites)have provided most of the entrepreneurial talent. But all
the minorities are not important sources of entrepreneurship.

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The supply of entrepreneurship depends upon four structures found in the society or
community.
 Limitation structure-in this structure the entrepreneur is viewed as the most
 important deviant individual and such behavioural pattern is restricted. The
Society limits specific activities and this limitation structure affects all the
members of a society. It is basically social and cultural in nature.
 Demand structure-It is mainly economic and changes with economic progress
and government policies. It can be improved by providing material rewards.
 Opportunity structure-It consists of all the availability of capital,management and
technological skills, information concerning production methods labour and
markets. Opportunity to learn and all the activities associated with the effective
planning and successful operation of industrial enterprises are also covered.
 Labour structure-It is concerned with the supply of competent and willing labour.
 Labour supply cannot be at par with the supply of material factors like capital.
 The supply of labour is governed by several factors such as available alternative
means of livelihood, traditionalism, and expectations of life.
 Entrepreneurial supply depends upon the four structures given above. Any
discrepancy between objective structures and the actual incidence of
entrepreneurs is due to Inadequate or incorrect perceptions of the various
structures.

9. A Function of Religious beliefs.

Max weber analysed religion and its impact on enterprising culture. According to
him the spirit of capitalism is a set of attitudes towards the acquisition of money and the
activities involved in it.

A Conceptual Model of Entrepreneurship

There are several obstacles in defining entrepreneurship clearly. First, everyone
has a personal opinion or understanding of entrepreneurship. Secondly, entrepreneurs are
viewed as the new cultural heroes and are held in awe due to which critical examination
of their characteristics is obscured. Thirdly, entrepreneurship is an abstraction, though
entrepreneurs are tangible persons. Fourthly, well-designed an d controlled research
studies on entrepreneurship are very few. Lastly, when it is assumed that
entrepreneurship is something opposed to or divorced from management defining
entrepreneurship become difficult..Kao has developed a conceptual model of
entrepreneurship.
The entrepreneurial task
The central task of the entrepreneur is to recognize and exploit opportunities.
Opportunity may come from various sources. But the entrepreneur must have the ability
to perceive opportunities where others do not. The entrepreneur is both a dreamer and a

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doer. As a doer or implementer, he has the ability to attend to details. He acts as a leader
when he offers hope to attract people to the enterprise or uses his charisma.

The Entrepreneurial environment

Entrepreneurship is to a great extent controlled by the environment. The world
surrounding organization influences, facilitates or hinders the growth of entrepreneurship
and the viability of the enterprise. Entrepreneurial environment is made up of several
elements-economic, socio cultural, political and others.Availability of capital and human
resources is very important. Without necessary capital and people with the required skills
and experience the opportunity cannot be pursued.

Intrapreneurs
The term intrapreneurs was coined in America in the late seventies. Several seniror
executives of big corporations in America left their jobs to start their own small
businesses because the top bosses in these corporation were not receptive to innovative
ideas.
 These executives turned entrepreneurs achieved phenomenal success in their new
ventures. Some of them posed a threat to the corporations they left a few years
ago. This type of entrepreneurs came to be known as intrapreneurs. Such
corporate brain drain is a world wide phenomenon and is not confined to the
united states.
 An American management expert. Gifford Pinchot III wrote his famous book.
 Intrapreneuring in 1985 and used the term intrapreneurs to describe the persons
who resigned from their wellpaid executive position to launch their own ventures.
 Intrapreneurs introduce new products, services and processes which enable the
company to grow and succeed in a changing environment.
 Large organizations should allow the executives to operate like entrepreneurs.
 Companies should provide such people with adequate financial resources and the
autonomy necessary for the development and application of their ideas.

Entreprenur
Oxford English Dictionary(1993) defined entrepreneurs as “one who undertakes an
enterprise, especially a contractor—acting as intermediary between capital and labour”.
Undertaking of an enterprise involves combining capital and labour for the purpose of
production. Anyone who undertaken this task is an entrepreneur. The entrepreneurial
class is an employing class as it creates jobs.
According to Evans”entrepreneurs are persons who initiate, organize,manage and control
the affairs of a business unit that combines the factors of production to supply goods and
services, whether the business pertains to agriculture, industry, trade or profession”.
An entrepreneur is a person who irrespective of his size and mode of operation tries to
develop and operate his own production, processing or business unit. The essence of

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entrepreneurship is operating one’s own enterprise. Judged by this definition, a
gambler(for taking abnormal risks),manager(for managerial functions),chairman of a
board(for decision making) are not entrepreneurs as they do not operate their own
enterprise. However, if a manager is also a partner in the firm, he becomes an
entrepreneur. An individual who runs inherited enterprise is also an entrepreneur.
The meaning of entrepreneurs may also depend upon the level of development of a
country. For, instance, in a developed country only people carrying out innovations are
termed entrepreneurs. But in under developed countries, imitators are also considered
entrepreneurs.Thus, the term’entrepreneur’ has been defined in various ways—an
innovator, a risk taker, a resource assembler, an organization builder, and so on.

Entrepreneur---Individual or Group
Whether entrepreneur is an individual or a group is a controversial issue. Most of
the Writers consider entrepreneur as an individual and not a group. In a recent study
casson defines an entrepreneur as someone who specializes in taking judgmental
decisions about the coordination of scarce resources.Some writers, however, consider
entrepreneur as a group. According to cole . Entrepreneurship is the purposeful activity of
an individual or a group of associated individuals, undertaken to initiate, maintain or
aggrandize a profit oriented business unit for production or distribution of economic
goods and services.

The entrepreneur is in essence an institution which comprises all the people required to
perform various functions. Such people not only introduce innovations but implement the
necessary adjustments in production units when they expand on account of change in
demand and its market conditions.In modern corporate enterprise several persons have to
put their efforts and skills—Together . Therefore, the promoter can be a group rather than
an individual.

QUALITIES OF A SUCCESSFUL ENTREPRENEUR

(common Entrepreneurial Traits)
Several research studies have been carried out to identify the traits of a true entrepreneur.
McClelland points out in his book Achieving society that successful entrepreneurs are
Characterized by: (a) an unusual creativeness (b) a propensity of risk-taking
(c) a strong need for achievement.
A distillation from fifty research studies reveals the following entrepreneurial traits.

 Total commitment, determination and perseverance

 Drive to achieve and grow
 Opportunity and goal orientation
 Taking initiative and personal responsibility
 Persistent problem-solving

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  Realism and sense of humour
 Seeking and using feedback
 Internal locus of control
 Calculated risk taking and risk seeking
 Low need for status and power
 Integrity and reliability

Professor Tandon has described the following qualities of a true entrepreneur

1.Capacity to assume risk

An entrepreneur assumes risk and , therefore, he must have self-confidence. He is
both an investor and a financier and should, therefore, be able to shift investments in
search of larger profits. He has to tie up capital and wait for good returns. He should be
willing to assume a relatively large degree of risk because he as to guarantee wages to his
employees, interest to his creditors and rent to his landlord. Risk and reward are
inseparable. Highest order of ability is required to bear risks and there by earn high
gains .
2.Technical Knowledge and willingness to change
Technological change is the prime mover in the process of economic growth. In
developing countries the search for and application of new technology should be the
primary goal of good entrepreneurs. Their success depends largely upon their ability to
adopt new technology. Technical knowledge implies the ability to devise and use new
and better ways of producing and marketing goods and services. A good entrepreneur is
one who is interested in changing the pattern of production to suite the available
resources, market conditions and quality of output.

3.Ability to Marshall resources

A true entrepreneur is one who has the ability to mobilize necessary resources in
the best possible manner for achieving the business objectives. He should have the ability
to minimize the cost of production without reducing the quality of the product or service.
In order to do this an entrepreneur needs sound judgment, accurate forecasting, vision
and knowledge of the world of business. He should be able to break up old traditions and
developing new ones.

4.Ability of organization and administration

The ability of building a sound organization is the most critical skill needed for
industrial development. The organization builder must be able to harness the new
ideas of different innovators to the best in his organization. He must be able to
select, train and develop persons who can properly manage and control the
labour force. He should have the capacity to pick and choose the right person and
to wisely delegate authority in order to multiply himself.

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 The qualities of a true entrepreneur may be classified as follows
 Capacity to take risk
 Capacity to work hard
 Above average intelligence and wide knowledge
 Self motivation
 Vision and foresight
 Willingness to defer consumption
 Imagination, initiative and emulation
 Inventive ability and sound judgement
 Flexibility and sociability
 Desire to take personal responsibility
 Desire to seek and use feedback
 Persistence in the face of adversity
 Innovativeness and future-orientation
 Mobility and drive
 Creative thinking
 Strong need for achievement
 Ability to marshall resources
 High degree of ambition
 Will to conquer and impulse to fight
 Will to prove superior to others

TYPES OF ENTREPRENEURS

1.Innovating nentrepreneurs
An innovating entrepreneurs sees the oppourtunity for introducing a new
technique or a new product or new market. He or she may raise money to launch an
enterprise, assemble the various factors, choose top executives and set the organization
going. Such an entrepreneur introduces new products and new methods of production,
opens new markets and re-organise the enterprise.Innovating entrepreneurs are very
commonly found in developed countries. A country with little or no industrial tradition
can hardly produce innovating entrepreneurs. Such entrepreneurs can emerge and work
only when a certain level of development is already achieved and people look forward to
change and progress.

2.Adoptive or imitative entrepreneurs

This kind of entrepreneurs are ready to adopt successful innovations created by
innovative entrepreneurs. Instead of innovating the changes themselves, they just imitate
the technology and techniques innovated by others. Such entrepreneurs are particularly
important of such economies. Imitative entrepreneurs are most suitable for the

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underdeveloped nations because in these nations people prefer to imitate the technology,
knowledge and skill already available in more advanced countries.In highly backward
countries there is shortage of imitative entrepreneurs also. People who can imitate the
technologies and products to the particular conditions prevailing in these countries are
needed.

3.Fabian entrepreneurs
Entrepreneurs of this type are very cautious and skeptical while practicing any
change. They have neither the will to introduce new changes nor the desire to adopt new
methods innovated by the most enterprising entrepreneurs. Such entrepreneurs are shy
and lazy. Their dealings are determined by custom, religion, tradition and past practices.
They are not much interested in taking risk and they try to follow the footsteps of their
predecessors.

4.Drone Entrepreneurs
Drone entrepreneurship is characterized by a refusal to adopt and use
opportunities to make changes in production. Such entrepreneurs may even suffer losses
but they do not make changes in production methods. When their product loses
marketability and their operations become uneconomical they are pushed out of the
market. They are conventional in the sense that they stick to conventional products and
ideas.

5.Individual and Institutional entrepreneurs

In the small scale sector individual entrepreneurs are dominant. Small enterprises
outnumber the large ones in every country. Such entrepreneurs have the advantages of
flexibility, quick decision making and state patronage. But a single individual can
establish, operate and control an organization upto a limit. Thereafter, it become
necessary to institutionalize entrepreneurship. The business will have to acquire a number
of new entrepreneurial skills through a corporate body.

6.Enterepreneurs by inheritance
At times, people become entrepreneurs when they inherit the family business. In
India, there are a large number of family controlled business houses. Firms in these
houses are passed from one generation to another.

7. Technologist entrepreneurs
With the decline of the joint family business and the rise of scientific and
technical institutions, technically qualified persons have entered the field of business.
These entrepreneurs may enter business to commercially exploit their inventions and

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discoveries. Their main asset is technical expertise.

8.Forced entrepreneurs
Many persons become entrepreneurs on account of the circumstances. The money
lenders of yesteryears enter into business due to decline of money lending business with
the growth of banking and government legislation.Entrepreneurs may also be classified
into first generation(new) and established entrepreneurs, rural and urban entrepreneurs,
male(men) and female(women) entrepreneurs, small scale and large scale
entrepreneurs ,etc. In a planned economy.Like India, Government has emerged as a major
entrepreneur.

Functions of an entrepreneur
 Perceiving market opportunities
 gaining command over scarce resources
 purchasing inputs
 marketing of the products and responding to competition
 dealing with the public bureaucracy(concessions, licences and taxes)
 managing human relations within the firm
 managing customer and supplier relations
 managing finance
 managing production(control by written records, supervision, coordinating input
flows with orders, maintenance)
 acquiring and overseeing assembly of the factory
 industrial engineering(minimizing inputs with a given production process)
 upgrading process and product quality
 introducing new production techniques and products
 innovation
 risk bearing
 organization and management

ENTREPRENEURS AND MANAGERS

Entrepreneurs are different from managers.
1.Innovation
The entrepreneur does not live with the status quo. He works to change in
accordance with his or her personal vision and values. He is more than an inventor. An
inventor only originates the invention. On the other hand, the manager keeps running a
business on established lines. He is neither an inventor or an innovator. An entrepreneur
change the factors combinations and thereby increases productivity and profit. But a
manager only deals with day to day affairs of a going concern. An entrepreneur is a
change agent while a manager is the product of change.

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2.Risk-taking
An entrepreneur takes calculated risks. He is not a gambler but he faces uncertainty
and assumes risk. The manager is less tolerant of uncertainty. He does not face the
uncertainty of a new venture with its potential failure and financial loss. He does not
share in business risks.

3.Reward
An entrepreneur is motivated by profits while the manager is motivated by externally
imposed goals and rewards. The gains of an entrepreneur are uncertain and irregular
and can at times be negative. The salary of a manager is contrary, fixed and regular
and can never be negative.

4.Skills
The roles of entrepreneurs and manger demand different types of personal skills. An
entrepreneur needs intuition, creative thinking and innovative ability among other
skills. On the other hand, a manager depends more on human relations and conceptual
abilities.
5.Status
An entrepreneur is self-employed and he is his own boss. Manager is a salaried
person and he is not independent of his employer, the entrepreneur.

6.Response to authority
This type of behaviour is largely absent in entrepreneurs . Management involves
combining or coordinating resources to produce whereas entrepreneurship involves
combining to initiate changes in production.

ENTREPRENEUR AND OTHER FACTORS OF PRODUCTION

The fundamental difference between an entrepreneur and all other factors of
production is that while the latter are employed and paid a fixed contractual
remuneration by the former the entrepreneur himself is not employed by anyone and
is not paid by a fixed salary. Further, the remuneration of all other factors rent for
land, wages for labour and interest for capital will always be positive, but the reward
of the entrepreneur-profit can sometimes be negative depending upon the
degree/grade of entrepreneurial talents.

Entrepreneur and speculator

The entrepreneur resembles a speculator but differs from the latter in originating and
introducing innovations.

Entrepreneur and Inventor

The entrepreneur is more than an inventor since he does not only originate as the

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inventor does but goes much further in exploiting the invention commercially. That
is, an inventor is concerned with his technical work of invention whereas an
entrepreneur converts the technical work into economic performance and the
invention into a business. Without entrepreneurial objectives even the greatest
inventor loses his business.

Role of entrepreneurship in Economic development

Economic development, if conceived without appropriate social changes, soon

becomes stultified. Comprehensive national planning is increasingly becoming an
instrument of socio-economic transformation in developing countries.
Economic development originates and fosters in relation to the strength and health of
the local entrepreneurship and depends on the rate of its generation and equally to the
intensity of its sense of social responsibility, its innovation quotient and its index of
managerial capabilities.
 It is the entrepreneur who powers the process of economic development
 Higher the rate of genuine industrial and innovative entrepreneurship, faster
will be the rate of economic growth
 Entrepreneurial density, innovative propensity and managerial capability in
the society in a particular period determine the character and future of
economic development

UNIT-II

Factors affecting Entrepreneurial growth

The factors that contribute to the growth of entrepreneurship are varied in nature and
vary many in number. The factors that tend to influence entrepreneurship can be
listed under five broad areas.
 Socio-demographic variables
 Economic variables
 The variables of systematic linkage
 Latent characteristics

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  Bio-characteristics of entrepreneurs

1.Socio-demographic Variables

The following factors may be grouped under the broad heading”socio-demographic

variables.
Education and technical qualification
 Emigration
 Family background
 Previous occupation

2.Economic variables
The factors that constitute the economic variables are:
 Ancestral property
 Prior income
 Initial investment
 Profit utilization
 Level of living
3.Variables of systematic linkage
There is the need for the entrepreneur to work with prestige groups to have
contacts at high political, social and Governmental levels either individually or through
relatives, friends, associations or training agencies. Since, systematic linkage comprises
expert and official contacts, mutual help, political affiliation social participation and
personnel training. It is considered to be an important factor influencing
entrepreneurship.
4.Latent characteristics
An entrepreneur becomes an accepted leader of industry, if he exhibits leadership
qualities, a personality that shows up the elements in him-innovativeness, risk-bearing,
self-reliance, eagerness to evaluate enterprise and to fix long and short-term goals.

5.Bio-Characteristics
Bio-characteristics that generally influence entrepreneurship are Age, Marital
status, religion and community. Caste and Religion to which a person is affiliated serve
as one of the contributory factors to entrepreneurship. Historical investigation in the
growth of entrepreneurship in India, reveals that big industrial entrepreneurs has emerged
from different social and religious communities.

Entrepreneurial Development Programmes

The entrepreneurs required a lot of information for setting up a business and in
that context the contribution of these programmes was essentially in the area of
disseminating knowledge on financial, technical and managerial aspects. To that extent,

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these programmes were not basically programmes towards entrepreneurship
development, but were in the nature of supportive programmes for the existing and the
new entrepreneurs.Based on the above experience and in the context of emergence of
financial and industrial development corporation in the states, it was visualized that
creation of all external facilities is not a sufficient condition for the promotion of
entrepreneurship. Equally important are the qualities of the individual who responds to
the external opportunities(i.e., availability of funds, financial incentives, etrc.) Also,
social and organizational factors help people to perceive the opportunities and learn to
respond to them.

Features of the programme

 Identification and careful selection of entrepreneurs for training
 Developing the entrepreneurial capabilities of the trainee
 Equipping the trainee with basic managerial understanding.
 Ensuring a viable industrial project for each potential entrepreneur
 Helping him to secure necessary financial, infrastructural and related assistance
 Training cost is highly subsidized and only a token fee is charged. A deposit is,
 however, taken to ensure commitment of participants.

Objectives of Entrepreneurial Training

 to let him set or reset the objectives of his business and work individually and
along with his group for the realization of them.
 To prepare him for accepting totally unforeseen risks of business for a long time
after such training
 To enable him to take strategic decisions
 To enable him to build an integrated team equal to the demands of tomorrow
 To communicate fast, clearly and effectively
 To develop broad vision to see the business as a whole and to integrate his
function with it
 To enable him to relate his product and industry to the total environment, to find
what is significant in it and to take it into account in his decisions and actions.
 To enable him cope up and coordinate the different types of paper work, most of
which is statutorily obligatory.

Need of EDP
 Identify potential entrepreneurs and that careful guidance in the selection of
suitable enterprises and appropriate practical training can develop successful
entrepreneurs.
 To strengthen potential entrepreneurs confidence in their own ability, to
impart necessary skills and knowledge about financial, technical, and
managerial aspects of business

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  To provide assistance in identifying, formulating, and implementing projects,
to help secure the required financial and technical assistance
 To offer follow-up services to assist them with the teething problems that
accompany the operation of a new enterprise

EDP-Course contents
Selection
Selection of trainees is the initial step in the entrepreneurial development
programme. The identification process is supervised by the programme’s trainer-
motivators, whose tools and techniques vary with the environment in which they
operate. By contacting social workers, teachers, bankers, and other socially
respected but non-political persons, they develop a list of suitable candidates.
Training
EDP emphasizes practical , hands on experience. It is designed to motivate
participants, guide them in the selection of appropriate opportunities, and develop
their management skills. The programmes uses behavioural and psychological
techniques to intensity the desire to achieve to develop the ability to define foals
realistically and to fulfil them,and to increase self-awareness and confidence.
Training normally entails a 150-hour programme, which is flexible and arranged
to meet the needs of participants. Its structure varies from six-week full –day
programmes for recent graduates and other unemployed participants to theree-
months evening programme for a mixed group of working and non-working
individuals. The cost of training may vary also, from approximately Rs.3,000
To 4,000 per trainee depending on the nature , timing and duration of training.

Faculty
Usually the programme uses to full-time faculty, other than a trainer-motivator
supported by an expert in project formulation. Most aspects of the actual training
are provided by managers or executives; experts from state industrial promotion
agencies, financial institutions, and technical consultancy organizations; and small
scale entrepreneurs. Experts are mobilized by the trainer motivators, who also
arrange field trips and inplant training in relevant enterprises. In-house core teams are
formed from the group of trainers or experts where resources from
industry or trade are not locally available.

Follow-up

The responsibilities of the programme, particularly those of the trainer-motivator,

extent beyond the completion of the project. Once business have begun operations,
trainers generally visit the new entrepreneurs to identify operational problems and assist

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them in obtaining what help might be needed from a network of experienced
entrepreneurs and supporting institutions that has been established by the programme.
Organisation
Currently 50 different agencies in 20 states are conducting Entrepreneurial
development programmes in India. The other states, however, have still not
evolved an institution like the CED, which has enabled Gujarat to accumulate
experience and learn form mistakes and experiments.

Result
Simple statistics, however , may not convey the nature of the programmes impact.
Many of those trained unemployed graduates, tribals, women, poor artisians, skilled but
frustrated employees created new opportunities not only for themselves but for others.
Their success, in addition, had a significant demonstration effect on potential
entrepreneurs.

Engineer Entrepreneur training programme(interest subsidy) scheme

Introduction
The government of India have been operating a scheme for the training and
assistance to unemployed engineer entrepreneurs in order to enable them to set up
their own small scale industries. The training programme was started at various
institutions specified by the government of India from January 1971. The scheme
envisaged a follow-up financial assistance to be provided to such of trainees as
have undergone training in these institutions in the form os subsidy on interest
payable on loans, if any taken by them from the banks, state financial
corporations and other financial Institutions.
Competent Authority

The scheme will be operated by the state governments and union territories on
behalf of the government of India.
Commencement
The scheme shall come into force with immediate effect and will remain
operative for a period of three years.
Definition
Engineer entrepreneur means a technically qualified person who has successfully
completed the training programme sponsored by the ministry of Industrial development
at any of the Institutions listed to this schme.
Scope of the scheme
The scheme will be applicable to any manufacturing industry or an Agro-service
centre in the small scale sector established on an individual/partnership/co-operative/joint
stock company basis by an Engineer entrepreneur Provided that where an engineer
entrepreneur starts an industry, other than in his individual capacity, the benefits under

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this scheme to such an industry shall accrue only if the engineer entrepreneur has a
majority share holding while the rest of the shares can be held by other persons
associated with the venture.

Nature of the subsidy

The difference between interest rate of 5% per annum and the normal rate of interest
charged on the loans advanced by the financial institutions in such cases shall represent
the quantum of subsidy by the Government of India.Provided that the total Quantum of
subsidy in any one case shall not exceed Rs 20,000 per annum.
Duration of the subsidySubsidies granted by the government of India shall be limited for
a period of three years commencing from the date of the first instalment of the principal
becoming due for repayment. Provided that in respect of industries set up in selected
backward areas such subsidies will be granted for a period of five years.

Procedure for claiming subsidy

The engineer entrepreneur however can claim the difference between the normal
rate of interest and 5% from the state government concerned. The state government on
receipt of such claims may get those verified by the financial institutions and thereafter
approach the government of India for reimbursement.
Rights of the state government
If any question arises as to the interpretation of any provision(s) of this scheme,
the decision of he government of India in the ministry of industrial developmenet shall be
final and binding.
Spurt in EDP Activity

 Indian Investment centre(IIC) also conducts EDPs though it is not the

centre’s main activity. These programmes are spread over one year within which time
trainees are expected to complete the setting up of their projects. Participation is
restricted to engineering graduates, diploma holders and applied science graduates. IIC is
at present conducting EDPs in Tamilnadu, Bihar, orissa and West Bengal.

 State Bank of India has achieved notable success in the conduct of EDPs.
The bank embarked on EDP activity in 1978. 16 officials with a
behavioural science background were trained as trainees. SBI gives
liberal financial assistance; those eligible under the entrepreneur scheme
are given 100% assistance.
 Entrepreneurial Motivation training centre(EMTC) in the North-Eastern
 Region. The SIET institute recently evaluated the Entrepreneurship
Development programmes in a Region conducted in this region. It has

18
 come to the conclusion that the north-eastern region has remained backward not
on account of the shortage of entrepreneurs.
 Xavier Institute of Social Service, Ranchi is engaged since the early
seventies in Training village entrepreneurs covering tribals and other backward
people in developing entrepreneurial talents.TCOs sponsored by the all-India
financial institutions, namely, KITCO, APITCO, UPICO,NEITCO, J & KITCO
and HIMCON have also taken up raining of entrepreneurs independently or in
collaboration with agencies like SIET Institute, Indian Investment Centre,
Development Banking Centre of MDI and State Bank of India.

Phases of EDP
The programmes conducted by the various agencies vary in duration ,
selection procedure, course content etc. Duration ranges from two weeks to
one year(in the case of IIC). The selection procedures generally adopted are a
combination of screening of applications and personal interviews. Some
agencies have adopted fact that any worth while programe has the the
following distinct phases.
 Initiation and preparation i.e., pretraining preparation
 Development or the actual training
 Support and follow-up i.e., post training centre
Initiation and Preparation
The first phase will include the creation of a proper atmosphere and
awareness among the people through publicity and promotional efforts about
opportunities available for which an essential prerequisite would be the preparation of
distinct dossiers highlighting the industrial potential. Selection of trainee entrepreneurs
on scientific lines through a well-structured application blank and written/phychological
tests and personal interviews.

Development or the Actual Training

The second phase covers the provision of motivational and managerial
training.
Support and Follow-up
The third phase refers to support for establishment of the unit and would
include provision of finance, infrastructure, raw materials, machinery, etc.
Merely providing support and leaving the entrepreneur to his own devices will
defeat the objective of the programme. Therfore, adequate follow-up and counseling of
the entrepreneur is also essential both during the implementation stage and when the unit
starts commercial production.
In all such programmes the support system has a crucial role to play. Most of the
existing support organizations are meant for maintenance or holding operations

19
 and not for innovative functions. Every entrepreneurship development programme has
to pass through these phases and each phase involves a considerable amount of work-
sometimes within the organization, but most of the time, in cooperation with other
development institutions.

Evaluation

1. Structure and Composition of EDPs

The structure and content of EDPs taking into account the regional variations, need
to be streamlined. The programme should have a practical content and needs a lot of
inter-institutional organizational arrangement to make it a success.
2.Areas of Operations
As has been earlier, in North-Eastern Area, entrepreneurial development activities
are lacking the support activities of the financial institutions. In these areas, programmes
have to be linked with support activities.
3.Fixing of priorities
Another area of fixing the priorities of EDPs is to consider their working in terms
of efficiency and social need criteris.
4.Follow-up
If the EDPs have to be the mechanism to substitute natural institutions have an
informal forum to share their experiences and derive lessons for the future. Intensive
followup work has to be done and systematized in the process to make it accessible to
entrepreneurs in formal and informal forums.

5.Spatial Dispersal of EDPs

EDPs are presently operating only in a few states/centres effectively. The
dispersal to rural/backward areas in particular should get top priority. Lead institutions
should be there for various states, entrusted with EDP responsibility with an Advisory
Body to direct and supervise the concerted action plan for the country as a whole.

Operational problems
 Inability to identify the need of the institution and difference of opinion prevailing
among the practitioners and also amongst the trainers.
 Seems to be low institutional commitment for thelocal support to entrepreneurs
and there is low involvement of marketing, voluntary and financial institutions in
the programme, except few.
 Non availability of various inputs i.e, raw materials, power,etc. and infrastructural
support entwined with poor follow-up by the primary monitoring institution,
result in failure of EDP.
 Ill planned training methodology, inconsistencies in programme design, its
content, sequence and theme and focus of the programme is not clear.

20
  Training institutions do not seem to have much concern for o0bjective
identification and selection of entrepreneurs for making successful entrepreneurs.
 Limited manpower support or narrow linkage with other support agencies.
 There does not appear to be standard course curricula even in terms of broad
module being adopted by such institutions.
 Majority of the institutions engagedin EDP are themselves not convinced of what
they are doing as a task delegated by the government of helping the policy in
attaining its social objective.
 Perceptual ambiguity of the EDP objective seems to have prelocated grass-root
level with a significant distortion both in terms of content and intent.

Institutional support to Entrepreneurs

District Industries Centre

DIC established in May 1978 in order to cater to the needs of small units. Each
district has a DIC at its headquarters. And the main responsibility of DIC is to act as the
chief coordinator or multifunctional agency in respect of various government departments
and other agencies. The metropolitan cities of Delhi, Mumbai, Calcutta and Chennai have
been kept outside the purview of the DIC.

Organisational set-up
Each DIC has one General Manager of the rank of Joint Director of Industries as
the head and seven managers each looking after a separate functional area as follows:
 Manager(Economic Investigation)
 Manager(Machinery and Equipment)
 Manager(Research ,Extension and Training)
 Manager(Raw Materials)
 Manager(Credit)
 Manager (marketing)
 Manager(KVIC and RAP)

The manager has to provide and effective leadership and coordination. Hence , the
success of the centre largely depends upon the functioning of General Manager and his
team of managers and other personnel.

Functions of DIC
 Identification of entrepreneurs
 Selection of projects
 Provisional registration under SSI
 Purchase of fixed assets
 Clearances from various departments

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  Assistance to raw material suppliers
 Assistance to village Artisans and Handicrafts\
 Interest-free sales tax loan
 Subsidy schemes
 Training programmes
 Self-employment for unemployed educated youth

District industries centres are supposed to provide pre-investment, investment and post-
investment assistance to entrepreneurs under one roof.

SMALL INDUSTRIES DEVELOPMENT ORGANISATION(SIDO)

SIDO is a policy-making coordinating and monitoring agency for the

development of small scale entrepreneurs. It maintains a close liaison with government,
financial institutions and other agencies which are involved in the promotion and
development of small scale units. It provides a comprehensive range of consultancy
services and technical, managerial, economic and marketing assistance to SSI units. It has
a network of 25 small Industries Institutes, 20 branch SISIs, 41 Extension centre, three
footwear training centres and five production centres.

Functions
 To assess the requirements of indigenous and imported raw materials and
components for the small scale sector and to arrange their supplies
 To collect data on consumer items which are imported and encourage the setting
up of new units by giving them coordinated assistance
 To prepare model schemes, project reports and other technical literature for
prospective entrepreneurs
 To assist and advise the controller of capital issues in regard to the issue of import
licences and the imposition of import restricitions on various products whose
manufacture has already been undertaken indigenously by the existing or new
units
 To secure reservations of certain products for the SSIs.

NATIONAL SMALL INDUSTRIES CORPORATION LIMITED

The NSIC was set up in 1955 with the objective of supplying machinery and
equipment to small enterprises on a hire-purchase basis and assisting them in procuring
government orders for various items of stores.The corporation’s Head office is at Delhi

22
and it has four regional offices at Delhi Mumbai, Chennai ,and Calcutta, and eleven
branch offices. It has one central liaison office at Delhi and depots and sub-centres.

Functions
 To develop small scale units as ancillary units to large industries
 To provide SSIs with machines on hire purchase basis
 To assist small enterprises to participate in the stores purchase programme of the
central government
 To assist small industries with marketing facilities
 To distribute basic raw materials through their depots
 To import and distribute components and parts to actual small-scale users in
specific industries
 To construct industrial estates and establish and run prototype production-cum-
training centres.

DIRECTORATES OF INDUSTRIES OF THE STATE GOVERNMENTS

The small scale industries is a state subject and, therefore, the development and
implementation of the schemes of assistance to SSIs is the primary responsibility of
the state government.Directorates of industries in each state do the work relating to the
development of industries in general and small-scale industries in particular. Each
directorate is staffed with administration and technical officers at state headquarters and
by a district industries officer with supporting staff in each district.
The state directorates run various training schemes, production schemes and
common facilities schemes. They also provide facilities of developed industrial land and
factory sheds in industrial estates, allocate quotas of scarce raw materials, certify
import requirements and organize industrial co-operatives.

STATE SMALL INDUSTRIES CORPORATIONS

Many state governments have set up small industries corporations in order to
undertake a number of commercial activities. The most important of these activities
are distribution of scarce raw materials, supply of machinery on hire-purchase basis,
constitution and management of industrial estates, procurement of orders form
government departments, assistance in export marketing and in certain cases
provision of financial , technical and managerial assistance to small enterprises.

TAMILNADU SMALL INDUSTRIES DEVELOPMENT

CORPORATION(SIDCO)

In TamilNadu SIDCO is the state small industries corporation. It plays a leas role in

23
 developing small-scale sector. It provides the following facilities to small scale units.

 Provision of constructed sheds/plots in industrial estates. These are sold to

entrepreneurs on hire-purchase basis or given on rental basis.
 Assistance in procuring some scarce key raw materials like iron and steel,
paraffin wax, potassium chlorate, fatty acids, etc., through its various
distribution centres.
 Financial assistance in the form of subsidies to industrial units I backward
areas like the central investment subsidy, state capital subsidy. Interest free
sales tax loans, power tariff subsidy and margin money.
 Marketing assistance to small entrepreneurs.

SMALL INDUSTRIES SERVICE INSTITUTES(SISIs)

Established in1956 this institute-one in each state-has been rendering very useful
service to small scale industries. The assistance rendered by the institute and its extension
centres in Tamilnadu are as follows

 Technical consultancy and Advisory Service-Selection of profitable small

enterprises, choice of appropriate machinery and equipment, appraisal of the
technique of manufacture, processing of raw materials, adoption of recognized
standards of testing, quality performance of the small industry products and
encouraging small units to participate in government stores purchase programme.
 Common facility serviced- this includes supply of design and drawings and
provision of workshop facilities for the manufacture of dies, tools, jigs and
fixtures and components
 Training facilities-Training is provided for workers in basic trades in the
workshops attached to this institute and its extension centres, to increase their
productivity and this help to encourage development of small scale industries in
rural areas.
 Testing facilities-Basis testing facilities(both physical and chemical) are provided
in the laboratories and workshops attached to this institute at concessional rates.
 Marketing assistance-Market survey for specific products of small enterprises is
also undertaken on a regional basis to enable the small industrialist to increase
the sales of his products in the region. The institute offers export promotion
service by counseling on export procedures and trends in foreign markets.

STATE INDUSTRIES PROMOTION CORPORATION OF TAMILNADU

LIMITED(SIPCOT)

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 SIPCOT was set up with the specific objective of playing a catalytic role in the
promotion and development of medium and Major industries and to hasten the
industrial dispersal in backward and underdeveloped areas of the state.
SIPCOT’s role is to plan, promote and develop medium and major industries and its
promotional activities comprise the following

 Provision of financial assistance on liberal terms to medium and major

industries under IDBI refinance scheme
 Implementation of a package of incentives for the benefit of entrepreneurs
 Development of potential growth centres and provision of developed lands at
reasonable cost on easy payment terms
 Provision of various ancillary services for the entrepreneurs

SIPCOT’s financial assistance for medium and major industries will be in the form of
 Term loan
 Seed capital
 Underwriting the capital issues and participation in equity
 Loan foe employing repatriates
UNIT III
Introduction to Small Business: Evolution
Small businesses are privately owned corporations, partnerships, or sole proprietorships
that have fewer employees and/or less annual revenue than a regular-sized business or
corporation. Businesses are defined as "small" in terms of being able to apply for
government support and qualify for preferential tax policy varies depending on the
country and industry. The meaning of small business cannot be said to be adequate in a
single definition. For many of these definitions are based on the background, orientation
and environment of the scholar.

Chris et.al (2000) define, small business as those which are owned and controlled by one
or a few persons, with direct owner(s) influence in decision making and having relatively
small share of the market in the applicable industry.

Robert (1994) see small business as an independently owned and operate; has capital
contribution from limited number of individuals, would operate in a local area; would
probably not be dominant in its field of operation

CHARACTERISTICS OF SMALL BUSINESS

The characteristics of small business from the definitions given above can be noted to be:

1. Small management body

25
2. Small capitalization

3. Small Market share

4. Employ Small number of people

5. Ownership and Control are fused

IMPORTANCE OF SMALL BUSINESS

Small business organizations play vital roles in every countries of the world in respective
of their levels of economic development and advancement. They serve as the life wire of
any nation economic, either developed or the developing countries. Small business
cannot be sideline in national development. Some of their usefulness will be examined in
general to pin-point the core reasons why they must be encouraged and supported.

The importances are listed bellowed:

I. Creation of employment

II. Provide the large scale businesses with raw material

III. Utilize local materials

IV. Develop local technology

V. Bridge market gap

DEVELOPMENT OF SMALL BUSINESS

Developing a Small Business Framework

Various researchers over the years have developed models for examining businesses (see
Exhibit 1). Each uses business size as one dimension and company maturity or the stage
of growth as a second dimension. While useful in many respects, these frameworks are
inappropriate for small businesses on at least three counts.

26
Exhibit 1 Growth Phases

First, they assume that a company must grow and pass through all stages of development
or die in the attempt. Second, the models fail to capture the important early stages in a
company’s origin and growth. Third, these frameworks characterize company size largely
in terms of annual sales (although some mention number of employees) and ignore other
factors such as value added, number of locations, complexity of product line, and rate of
change in products or production technology.

To develop a framework relevant to small and growing businesses, we used a

combination of experience, a search of the literature, and empirical research. (See the
second insert.) The framework that evolved from this effort delineates the five stages of
development shown in Exhibit 2. Each stage is characterized by an index of size,
diversity, and complexity and described by five management factors: managerial style,
organizational structure, extent of formal systems, major strategic goals, and the owner’s
involvement in the business. We depict each stage in Exhibit 3 and describe each
narratively in this article.

27
* John A. Welsh and Jerry F. White, “Recognizing and Dealing With the Entrepreneur,”
Advanced Management Journal, Summer 1978.

Exhibit 2 Growth Stages

28
Exhibit 3 Characteristics of Small Business at Each Stage of Development

Stage I: Existence

In this stage the main problems of the business are obtaining customers and delivering the
product or service contracted for. Among the key questions are the following:

Can we get enough customers, deliver our products, and provide services well enough to
become a viable business?

Can we expand from that one key customer or pilot production process to a much broader
sales base?

Do we have enough money to cover the considerable cash demands of this start-up
phase?

The organization is a simple one—the owner does everything and directly supervises
subordinates, who should be of at least average competence. Systems and formal
planning are minimal to nonexistent. The company’s strategy is simply to remain alive.
The owner is the business, performs all the important tasks, and is the major supplier of
energy, direction, and, with relatives and friends, capital.

Companies in the Existence Stage range from newly started restaurants and retail stores
to high-technology manufacturers that have yet to stabilize either production or product
quality. Many such companies never gain sufficient customer acceptance or product
capability to become viable. In these cases, the owners close the business when the start-
up capital runs out and, if they’re lucky, sell the business for its asset value. (See
endpoint 1 on Exhibit 4). In some cases, the owners cannot accept the demands the
business places on their time, finances, and energy, and they quit. Those companies that
remain in business become Stage II enterprises.

29
Exhibit 4 Evolution of Small Companies

Stage II: Survival

In reaching this stage, the business has demonstrated that it is a workable business entity.
It has enough customers and satisfies them sufficiently with its products or services to
keep them. The key problem thus shifts from mere existence to the relationship between
revenues and expenses. The main issues are as follows:

 In the short run, can we generate enough cash to break even and to cover the
repair or replacement of our capital assets as they wear out?

 Can we, at a minimum, generate enough cash flow to stay in business and to
finance growth to a size that is sufficiently large, given our industry and market
niche, to earn an economic return on our assets and labor?

The organization is still simple. The company may have a limited number of employees
supervised by a sales manager or a general foreman. Neither of them makes major
decisions independently, but instead carries out the rather well-defined orders of the
owner.

Systems development is minimal. Formal planning is, at best, cash forecasting. The major
goal is still survival, and the owner is still synonymous with the business.

In the Survival Stage, the enterprise may grow in size and profitability and move on to
Stage III. Or it may, as many companies do, remain at the Survival Stage for some time,
earning marginal returns on invested time and capital (endpoint 2 on Exhibit 4), and
eventually go out of business when the owner gives up or retires. The “mom and pop”

30
stores are in this category, as are manufacturing businesses that cannot get their product
or process sold as planned. Some of these marginal businesses have developed enough
economic viability to ultimately be sold, usually at a slight loss. Or they may fail
completely and drop from sight.

Stage III: Success

The decision facing owners at this stage is whether to exploit the company’s
accomplishments and expand or keep the company stable and profitable, providing a base
for alternative owner activities. Thus, a key issue is whether to use the company as a
platform for growth—a substage III-G company—or as a means of support for the
owners as they completely or partially disengage from the company—making it a
substage III-D company. (See Exhibit 3.) Behind the disengagement might be a wish to
start up new enterprises, run for political office, or simply to pursue hobbies and other
outside interests while maintaining the business more or less in the status quo.

Substage III-D.

In the Success-Disengagement substage, the company has attained true economic health,
has sufficient size and product-market penetration to ensure economic success, and earns
average or above-average profits. The company can stay at this stage indefinitely,
provided environmental change does not destroy its market niche or ineffective
management reduce its competitive abilities.

Organizationally, the company has grown large enough to, in many cases, require
functional managers to take over certain duties performed by the owner. The managers
should be competent but need not be of the highest caliber, since their upward potential is
limited by the corporate goals. Cash is plentiful and the main concern is to avoid a cash
drain in prosperous periods to the detriment of the company’s ability to withstand the
inevitable rough times.

In addition, the first professional staff members come on board, usually a controller in the
office and perhaps a production scheduler in the plant. Basic financial, marketing, and
production systems are in place. Planning in the form of operational budgets supports
functional delegation. The owner and, to a lesser extent, the company’s managers, should
be monitoring a strategy to, essentially, maintain the status quo.

As the business matures, it and the owner increasingly move apart, to some extent
because of the owner’s activities elsewhere and to some extent because of the presence of
other managers. Many companies continue for long periods in the Success-
Disengagement substage. The product-market niche of some does not permit growth; this
is the case for many service businesses in small or medium-sized, slowly growing
communities and for franchise holders with limited territories.

Other owners actually choose this route; if the company can continue to adapt to
environmental changes, it can continue as is, be sold or merged at a profit, or

31
subsequently be stimulated into growth (endpoint 3 on Exhibit 4). For franchise holders,
this last option would necessitate the purchase of other franchises.

If the company cannot adapt to changing circumstances, as was the case with many
automobile dealers in the late 1970s and early 1980s, it will either fold or drop back to a
marginally surviving company (endpoint 4 on Exhibit 4).

Substage III-G.

In the Success-Growth substage, the owner consolidates the company and marshals
resources for growth. The owner takes the cash and the established borrowing power of
the company and risks it all in financing growth.

Looking Back on Business Development Models

Business researchers have developed a number of models over the last 20 years that seek
to delineate stages of corporate growth.

Joseph W. McGuire, building on the work of W.W. Rostow in economics,* formulated a

model that saw companies moving through five stages of economic development:†

1. Traditional small company.

2. Planning for growth.

3. Take-off or departure from existing conditions.

4. Drive to professional management.

5. Mass production marked by a “diffusion of objectives and an interest in the welfare of

society.”

Lawrence L. Steinmetz theorized that to survive, small businesses must move through
four stages of growth. Steinmetz envisioned each stage ending with a critical phase that
must be dealt with before the company could enter the next stage.§ His stages and phases
are as follows:

1. Direct supervision. The simplest stage, at the end of which the owner must become a
manager by learning to delegate to others.

2. Supervised supervision. To move on, the manager must devote attention to growth and
expansion, manage increased overhead and complex finances, and learn to become an
administrator.

32
3. Indirect control. To grow and survive, the company must learn to delegate tasks to key
managers and to deal with diminishing absolute rate of return and overstaffing at the
middle levels.

4. Divisional organization. At this stage the company has “arrived” and has the resources
and organizational structure that will enable it to remain viable.

C. Roland Christensen and Bruce R. Scott focused on development of organizational

complexity in a business as it evolves in its product-market relationships. They
formulated three stages that a company moves through as it grows in overall size, number
of products, and market coverage:‡

1. One-unit management with no specialized organizational parts.

2. One-unit management with functional parts such as marketing and finance.

3. Multiple operating units, such as divisions, that act in their own behalf in the
marketplace.

Finally, Larry E. Greiner proposed a model of corporate evolution in which business

organizations move through five phases of growth as they make the transition from small
to large (in sales and employees) and from young to mature.|| Each phase is distinguished
by an evolution from the prior phase and then by a revolution or crisis, which precipitates
a jump into the next phase. Each evolutionary phase is characterized by a particular
managerial style and each revolutionary period by a dominant management problem
faced by the company.

Stage IV: Take-off

In this stage the key problems are how to grow rapidly and how to finance that growth.
The most important questions, then, are in the following areas:

Delegation.

Can the owner delegate responsibility to others to improve the managerial effectiveness
of a fast growing and increasingly complex enterprise? Further, will the action be true
delegation with controls on performance and a willingness to see mistakes made, or will
it be abdication, as is so often the case?

Cash.

Will there be enough to satisfy the great demands growth brings (often requiring a
willingness on the owner’s part to tolerate a high debt-equity ratio) and a cash flow that is
not eroded by inadequate expense controls or ill-advised investments brought about by
owner impatience?

33
Stage V: Resource Maturity

The greatest concerns of a company entering this stage are, first, to consolidate and
control the financial gains brought on by rapid growth and, second, to retain the
advantages of small size, including flexibility of response and the entrepreneurial spirit.
The corporation must expand the management force fast enough to eliminate the
inefficiencies that growth can produce and professionalize the company by use of such
tools as budgets, strategic planning, management by objectives, and standard cost
systems—and do this without stifling its entrepreneurial qualities.

A company in Stage V has the staff and financial resources to engage in detailed
operational and strategic planning. The management is decentralized, adequately staffed,

and experienced. And systems are extensive and well developed. The owner and the
business are quite separate, both financially and operationally.

Types of Small Business

 Small-scale manufacturing industries.
 Handlooms and power loom.
 Khadi
 Agro-based industries.
 Tuition Centres.
 Photography.
 Breakfast joint
 Printing.
 Coir
 Sericulture

Types of Small Businesses

 Retailers – whether you’re a franchisee or an independent store, there are plenty
of uses for working capital. For example, you can upgrade your point-of-sale
system or restock your inventory with the latest, and greatest, merchandise.
 Construction Businesses – whether it’s buying new equipment or just new
materials, having capital at your disposal is always useful.
 Home Service Professionals – with careers ranging from contractor to cleaning
services, this is one of the widest categories, but one that can use funds to increase
their workforce or advertise their services.
 Financial Professionals – by opening a second location or expanding their
workforce, financial professionals can use working capital to provide their clients
with a better
 Restaurants, Bars and Night Clubs – with a loan or merchant cash advance,
these industries would be able to do things like refurbish customer-facing areas,
buy new kitchen or bar inventory, or even expand with another location.

34
  Wholesale companies – wholesalers may be able to use alternative funding to
purchase things like upgraded warehouse equipment or even new packaging.
 Transportation Companies – working capital can be used by transportation or
trucking companies to buy things like brand new vehicles or even just fixing up
older ones.
 Real Estate companies – whether you’re buying ad space or working to increase
your market, funds are crucial to expanding your real estate business.
 Hospitality companies – anything from chain hotels or motels to B&Bs can use
working capital to refurbish their rooms or update their online booking system.
 Manufacturing businesses – it doesn’t matter the industry, manufacturers of all
types can use business funding on things like high-tech tools or updated safety
gear.
 Medical Offices – purchasing medical equipment and hiring new staff can be
crucial to running a medical office as effectively as possible.
 Franchises – getting the capital to open a franchise can make all the difference in
your career.
 Minority-owned businesses – alternative funding can be a great way of
promoting economic equality. Getting access to working capital can sometimes
make all the difference in the world.
 Women-owned businesses – a crucial part of the economy, women-owned
businesses may find traditional loans harder to obtain. Indeed, a recent study said
that only 39% of eligible women were granted traditional business loans as
opposed to 52% of eligible men. Alternative loans are working to close that gap.
 Veteran-owned businesses – over 3 million of our service men and women start
small business after getting out of the military. Small business loans and merchant
cash advances can be a great way for veterans to start, or expand, their business.
 Other types of businesses – hundreds of industries, such as auto repair, dry
cleaners or beauty salons, have gained access to loans and working capital
through Credibly – even businesses with bad credit as well.

Role of Small Businesses in India

1. Industrial units

In an economy so enormous as India, 95% of the industrial units in the country consist of
small business and 40% of total industrial output is contributed by these small industries.
Again, small businesses bag around 45% of the total exports from India.

2. Labour-oriented

Small business provides immense opportunities in the rural and semi-urban areas. The
weight of the unemployment faced by the Indian economy is lifted by these small
businesses. It is one of the most important roles of them. Like any other economy having
a large labour force, the Indian government also encourage the operations of small
businesses to utilise the labour by drafting policies and establishing low loan interest
rates.

35
3. Human resource

After agriculture, small businesses are the second largest employment provider in the
Indian economy. In comparison to big corporations, small businesses generate the most
number of employment opportunities per unit of capital invested. Therefore, they are the
second largest generators of employment in human resource.

4. Utilisation of local resources

The awareness of needs and demands of the local community make the small businesses
emerge in rural and semi-urban areas. Small business is community-based and generally
focused on fewer areas.

This gives the opportunity to the businesses to utilise the local resources like raw
material, local talent, labour and demographic opportunities. The utilisation and the
mobilisation of the local resources help elevate the economic condition of that particular
area.

5. Flexible and Adaptable

New business opportunity is captured at right time. The strength to adapt and grow in the
face of upcoming changes gives an edge to the small businesses. Also, being the
manufacturer and distributor, small businesses develop a sense of personal touch with the
area of business and their customers. Limited in size and finance, there is little or no
government intervention.

Any business whether small, medium or large has its opportunities and challenges. Every
coin has two sides and every line has a lineage.

Busienss ideas : sources :

The following are his 7 sources of innovative opportunity.

 The Unexpected. The market place is the number one area to look for
opportunities. ...
 The Incongruity. ...
 Process Need. ...
 Industry and Market Structure Change. ...
 Demographics. ...
 Changes in Perception, Meaning, and Mood. ...
 New Knowledge.

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Small Business Technical Assistance (SBTA)
Through Community Based Non-Profit Organizations (CBOs), the DC Department of
Housing and Community Development (DHCD) provides business support services to
small and retail businesses in eligible commercial areas in the District of Columbia.

Business support activity improves the overall economic viability of neighborhood

commercial corridors by spurring new private investment into commercial and nearby
residential areas. These technical assistance activities are essential to business attraction
and retention in neglected corridors. The assistance provided can include but is not
limited to micro-loan packaging, business planning, entrepreneurial training, one-on-one
business technical assistance, tax preparation assistance, accounting assistance, or legal
assistance.

FEASIBILITY REPORT:

A feasibility report is a paper that examines a proposed solution and evaluates whether it
is possible, given certain constraints. It includes six sections: introduction, background
information, requirements, evaluation, conclusions, and finally, the recommendation or
final opinion section.

A feasibility report of projects defines the problem and opportunities of the project that
is studied. The main objective of a project feasibility report executive summary is to
ensure that the project is legally and technically feasible, economically justifiable and to
determine the viability of an idea to a project.

Steps to Writing a FSR Example

1. Write Project Description. At this step, you need to collect background
information on your project to write the description. ...
2. Describe Possible Solutions. ...
3. List Evaluation Criteria. ...
4. Propose the Most Feasible Solution. ...
5. Write Conclusion.

6 Components of a Feasibility Study

 Description of the Business: Describes the product or services you plan to offer. 

 Market Feasibility: Describes the industry, the current market, anticipated future
market potential, competition, sales projections, and potential buyers.
 Technical Feasibility: Details how you will deliver your product or service,
including issues of materials, labor, transportation, where your business will be
located, and the technology needed. 
 Financial Feasibility: Projects how much startup capital you'll need and
examines potential sources of capital and returns on investment.

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  Organizational Feasibility: Examines the legal and corporate structure of the
business. You can also include professional background information about the
founders of the business and what skills they can contribute to the business.
 Conclusions: Discusses how you envision the business succeeding. You need to
be honest in your assessment because investors won't look at your conclusions
and take that as proof. They will look at the data and question your conclusions if
they appear unrealistic.

16 Legal Requirements for Starting a Small Business

1. Designate the proper business entity
2. Check which licenses, permits, and registrations your business needs
3. Make sure you are paying proper business taxes
4. Do proper bookkeeping
5. Get a founders agreement in writing
6. Set a vesting schedule for all founders and early employees
7. Get your employer identification number (EIN)
8. Protect your intellectual property
9. Classify your workers properly
10. Purchase workers compensation insurance
11. Make sure you’re in compliance with securities laws
12. Follow email regulations
13. Make sure your investors are accredited
14. Establish a privacy policy
15. Create a company handbook
16. Hire competent legal counsel

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 UNIT IV

BUSINESS PLAN:
A business plan is a formal written document containing business goals, the methods on
how these goals can be attained, and the time frame within which these goals need to be
achieved.
Simple business plan outline:
1. Executive summary. Write this last. ...
2. Opportunity. Describe the problem that you solve for your customers and the
solution that you are selling. ...
3. Market analysis summary. ...
4. Execution. ...
5. Company and management summary. ...
6. Financial plan.

Business Plan Outline

1) The Executive Summary

While appearing first, this section is written last. It summarizes the key elements of the
entire business plan and is the first thing anyone looking at your business plan reads so
it's critical that your executive summary is outstanding. (Reading this Executive
Summary Example will give you a sense of how to put yours together.)

2) The Business/Industry Overview

An overview of the industry sector that your business will be a part of, including industry
trends, major players in the industry, and estimated industry sales. This section will also
include a summary of your business's place within the industry. (Here's a Business Plan
Example of the Industry Section to serve as a model.)

3) Market Analysis

An examination of the primary target market for your product or service, including
geographic location, demographics, your target market's needs and how these needs are
being met currently. Your purpose here is to show the reader of your business plan that
you have a thorough knowledge of the people you are planning to sell your goods and/or
services to - so thorough that you can make educated predictions about how much of your
goods and/or services they might buy.

4) Competitive Analysis

An investigation of your direct and indirect competitors, with an assessment of their

competitive advantage and an analysis of how you will overcome any entry barriers to

39
your chosen market. In this section of the business plan, you need to distinguish your
business from the competition, persuading the reader(s) of your plan that your business
will be able to compete successfully. 

5) Sales and Marketing Plan

A detailed explanation of your sales strategy, pricing plan, proposed advertising and
promotion activities, and product or service's benefits. This is where you present the
reader with your new business's Unique Selling Proposition, describe how you're going to
get your goods and/or services to market and how you're going to persuade people to buy
them.

6) Ownership and Management Plan

An outline of your business's legal structure and management resources, including your
internal management team, external management resources, and human resources needs.
If the goal of your business plan is to get funding, it's wise to make sure that your
management plan includes an advisory board as a management resource.

7) Operating Plan

A description of your business's physical location, facilities and equipment, kinds of

employees needed, inventory requirements and suppliers, and any other applicable
operating details, such as a description of the manufacturing process.

8) Financial Plan

A description of your funding requirements, your detailed financial statements, and a

financial statement analysis. This part of the business plan is where you will present the
three main financial documents of any business, the balance sheet, the income statement
and the cash flow statement. (In the case of a new business, this last document will be a
cash flow projection.) The instructions on writing the Financial Plan section will show
you how to prepare all of these documents.

9) Appendices and Exhibits

In addition to the sections outlined above, at the end of your business plan you will also
want to include any additional information that will help establish the credibility of your
business idea, such as marketing studies, photographs of your product, and/or contracts or
other legal agreements pertinent to your business.

1. Executive Summary

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Your executive summary should appear first in your business plan. It should summarize
what you expect your business to accomplish. Since it’s meant to highlight what you
intend to discuss in the rest of the plan, the Small Business Administration suggests that
you write this section last.

A good executive summary is compelling. It reveals the company’s mission statement,

along with a short description of its products and services. It might also be a good idea to
briefly explain why you’re starting your company and include details about your
experience in the industry you’re entering.

2. Company Description
The next section that should appear in your business plan is a company description. It’s
best to include key information about your business, your goals and the customers you
plan to serve.Your company description should also discuss how your business will stand
out from others in the industry and how the products and services you’re providing will
be helpful to your target audience.

3. Market Analysis
Ideally, your market analysis will show that you know the ins and outs of the industry
and the specific market you’re planning to enter. In that section, you’ll need to use data
and statistics to talk about where the market has been, where it’s expected to go and how
your company will fit into it. In addition, you’ll have to provide details about the
consumers you’ll be marketing to, such as their income levels.

4. Competitive Analysis
A good business plan will present a clear comparison of your business to your direct and
indirect competitors. You’ll need to show that you know their strengths and weaknesses
and you know how your business will stack up. If there are any issues that could prevent
you from jumping into the market, like high upfront costs, it’s best to say so. This
information will go in your market analysis section.

5. Description of Management and Organization

Following your market analysis, your business plan will outline the way that your
organization will be set up. You’ll introduce your company managers and summarize
their skills and primary job responsibilities. If you want to, you can create a diagram that
maps out your chain of command.

Don’t forget to indicate whether your business will operate as a partnership, a sole
proprietorship or a business with a different ownership structure. If you have a board of
directors, you’ll need to identify the members.

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6. Breakdown of Your Products and Services
If you didn’t incorporate enough facts about your products and services into your
company description (since that section is meant to be an overview), it might be a good
idea to include extra information about them in a separate section. Whoever’s reading this
portion of your business plan should know exactly what you’re planning to create and
sell, how long your products are supposed to last and how they’ll meet an existing need.

7. Marketing Plan
In your business plan, it’s important to describe how you intend to get your products and
services in front of potential clients. That’s what marketing is all about. As you pinpoint
the steps you’re going to take to promote your products, you’ll need to mention the
budget you’ll need to implement your strategies.

8. Sales Strategy
How will you sell the products you’re building? That’s the most important question
you’ll answer when you discuss your sales strategy. It’s best to be as specific as possible.
It’s a good idea to throw in the number of sales reps you’re planning to hire and how
you’ll go about finding them and bringing them on board. You can also include sales
targets.

9. Request for Funding

If you need funding, you can devote an entire section to talking about the amount of
money you need and how you plan to use the capital you’re trying to raise. If you’ll need
extra cash in a year or two to complete a certain project, that’s something that’s important
to disclose

10. Financial Projections

In the final section of your business plan, you’ll reveal the financial goals and
expectations that you’ve set based on market research. You’ll report your anticipated
revenue for the first 12 months and your annual projected earnings for the second, third,
fourth and fifth years of business.

1. Branding – establish a clear identity

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In order to communicate what your company is, does and stands for, you need to have a
clear identity. Once you know what your company represents, you need a suitable name,
a logo, colors and imagery that convey this to your customers.

There are several different options for how to do this, including hiring a freelancer or
collaborating with an established agency. This kind of work can be costly, but it’s money
well spent. Think about how huge companies like Starbucks or McDonald’s are defined
by their brands, logos and colors.

When you have your logo, make sure you put it on everything, advertising, business
cards, envelopes, email signature and so on to build brand awareness and visibility. You
should also go beyond just “rubber stamping” your logo everywhere – your brand should
be memorable even if the logo is removed.

2. Know your business and know your customers

A common misconception is that there is some kind of one-size-fits-all marketing

strategy that you can follow and expect great results, whatever your business. This is
simply not true since all businesses are different, and all have different requirements.

Before you choose which elements to integrate into your overall marketing strategy, you
need to think carefully about your target customers. What is their demographic? How old
are they? Where do they live? What online services do they use? How do they look for
your product?

Being clear about details such as these will allow you to develop a targeted and more
effective overall strategy that focuses on the channels most likely to produce results for
you.

3. Use Facebook Ads

Facebook Ads are one of the best ways to target a specific group. Your advertising can
focus on factors such as age, sex, location, interests, online habits and so on.

The system is easy to use and is relatively inexpensive, making this a great way for you
to reach the maximum number of potential customers in a short time.

4. Have a great website

If there’s one thing that will put people off your company, it’s having a poorly
designed website. Think about it, you’ve done the hard part getting that click

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and bringing the customer to your site – and they find the site to be user-
unfriendly, hard to navigate or not logically laid out.

5. Understand the power of SEO

One of the most important ways of directing web traffic to your site is through Google
searches. Even as Google changes the search algorithms, you still need to keep your page
keyword optimized to make sure you rank highly on searches.

It is well known that having your site show up on the first page of results hugely
increases your chances of getting the click, so do everything you can to make sure that’s
where you are.

6. Don’t forget email

Email has many advantages as a marketing channel. It is easy to do, easy to automate,
allows instantaneous communication, costs very little and can reach a large number of
potential customers with the highest open rates, especially if you segment your list as
shown above.

Once you add somebody’s address to your mailing list, make sure you provide
interesting, valuable and relevant content that people will actually open rather than
deleting immediately or sending to the “spam” box – otherwise, you are just wasting your
time.

7. Use Google My Business

Google My Business is a particularly useful tool for local businesses with a local
customer base. When people in the local area search on Google for the product or service
you provide, this is a great way to have your business appear near the top of that search.

When potential customers see your profile and accompanying good reviews at or near the
top of the list, your business automatically gains credibility and people will be more
willing to trust you.

8. Sponsor a local sports team

With so much being done online nowadays, sometimes people forget the more traditional
ways of gaining visibility. For local businesses, sponsoring a local sports team is still a
great way to raise awareness of your company.

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People love their local sports teams and having your logo emblazoned on the kit will
make people associate your brand with the local area. They will be more likely to think of
you when they need your product and will be more likely to come to you due to that local
association.

9. Promote product awareness with free samples or demos

If you want to build awareness of your product, you need to let people try it. A great
example of this is when Keurig wanted to move from making coffee machines for the
office to producing machines designed for home use.

Despite the fact they had a fantastic product to sell, at the time a pod-based coffee
machine was still a very novel idea, so they made an effort to demonstrate their Keurig
Brewing System in stores and other high-visibility locations.

The strategy obviously paid off since the company has since gone on to dominate the US
home brew coffee market and become a way of life.

10. Work the referrals

Use your existing customers to drum up more business: try to incentivize referrals to
encourage your customers to bring in more.

It’s difficult to generalize here since this could take so many forms depending on what
kind of business you run. However, if you offer rewards like free products, gifts ,
discounts or something else, your already satisfied customers will be happy to bring in
more leads for you.

11. Use Google Adwords

While Google Adwords is more expensive than many other marketing options available,
you should still consider it – because when done well, it can be a very powerful
marketing tool.

Remember, the key is for people to find you when they search on Google, and by using
Adwords, you can greatly increase your chances of people seeing your name.

MARKET SURVEY:
Market Survey Definition. Market survey is the survey research and analysis of the
market for a particular product/service which includes the investigation into customer
inclinations. A study of various customer capabilities such as investment attributes and
buying potential.

45
Market survey is the survey research and analysis of the market for a particular
product/service which includes the investigation into customer inclinations. A study of
various customer capabilities such as investment attributes and buying potential. Market
surveys are tools to directly collect feedback from the target audience to understand their
characteristics, expectations, and requirements.

Purpose of Market Survey

 Gain critical customer feedback: The main purpose of the market survey is to
offer marketing and business managers a platform to obtain critical information
about their consumers so that existing customers can be retained and new ones
can be got onboard.
 Understand customer inclination towards purchasing products: Details such
as whether the customers will spend a certain amount of money for their
products/services, inclination levels among customers about upcoming features or
products, what are their thoughts about the competitor products etc.
 Enhance existing products and services: A market survey can also be
implemented with the purpose of improving existing products, analyze customer
satisfaction levels along with getting data about their perception of the market and
build a buyer persona using information from existing clientele database.
 Make well-informed business decisions: Data gathered using market surveys is
instrumental in making major changes in the business which reduces the degree of
risks involved in taking important business decisions.

Market Survey Templates

Product Surveys: New products/concept testing survey templates offer questions to

obtain insights about products and concepts. These survey questions are curated by
market research experts and can help in analyzing which kind of products or features will
work in a market.

Conference Feedback Surveys: Conference feedback survey templates provide

questions that can be asked to participants of a conference. An organization can organize
better conferences by implementing feedback received from these surveys such as
enhancing overall conference management, improved IT infrastructure, better content
coverage or other such factors.

Focus Group Surveys: Focus group survey templates can be implemented during and
after the recruitment of the focus group. Gaining insights from a dedicated group of 8-10
people can be done easily with this existent survey template.  

Hardware And Software Surveys: Hardware and software survey templates offer
editable questions about software product evaluation, hardware product evaluation, pre-
installation procedure, technical documentation quality and other such factors.

46
Website Surveys: Website survey templates are customizable as per application and
consist of questions pertaining to website customer feedback, visitor profile information,
online retail information etc.

Learn more: Market Survey Templates

Importance of Market Survey

There are 5 factors that depict the importance of a market survey.

1. Understanding the demand and supply chain of the target market: A product is
most likely to be successful if it is developed by keeping in mind the demand and supply
of the target market. This way, marketers can obtain insights about market capabilities to
absorb new products and concepts to develop customer-centric products and features.

2. Developing well-thought marketing plans: The World is a target market for an

organization, especially a well-established one. Getting data from the target market
through thorough market research using market surveys and segmentation can be a source
of creating concrete and long-term marketing plans.

3. Figure out customer expectations and needs: All marketing activities revolve around
customer acquisition. All small and large organizations require market surveys to gather
feedback from their target audience regularly, using customer satisfaction tools such as
Net Promoter Score, Customer Effort Score, Customer Satisfaction Score (CSAT) etc.
Organizations can analyze customer feedback to measure customer experience,
satisfaction, expectations etc.  

4. Accurate launch of new products: Market surveys are influential in understanding

where to test new products or services. Market surveys provide marketers a platform to
analyze the scope of success of upcoming products and make changes in strategizing the
product according to the feedback they receive.

5. Obtain information about customer demographics: Customer demographics form

the core of any business and market surveys can be used to obtain intricate and sensitive
details about customer demographics such as race, ethnicity or family income.

SALES FORECAST:

A sales forecast is an estimate of the quantity of goods and services you can realistically
sell over the forecast period, the cost of the goods and services, and the estimated profit.
Typically this is done by: Making a list of the goods and services to be sold. Estimating
of the number of each to be sold.\

Importance of Sales Forecasting:

47
Sales forecasting is a very important function for a manufacturing concern, since it
is useful in following ways:

(i) It helps to determine production volumes considering availability of facilities, like

equipment, capital, manpower, space etc.

(ii) It forms a basis of sales budget, production budget natural budget etc.

(iii) It helps in taking decision about the plant expansion and changes in production mix
or should it divert its resource for manufacturing other products.

(iv) It helps in deciding policies.

(v) It facilitates in deciding the extent of advertising etc.

(vi) The sales forecast is a commitment on the part of the sales department and it must be
achieved during the given period.

(vii) Sales forecast helps in preparing production and purchasing schedules.

(viii) Accurate sales forecasting is a very good aid for the purpose of decision making.

(ix) It helps in guiding marketing, production and other business activities for achieving
these targets.

Factors Considered for Sales Forecasting:

Following factors should be considered while making the sales forecast:

1. Competition:

To assess demand, it is the main factor to know about the existing and new competitors
and their future programme, quality of their product, sales of their product. Opinion of
the customers about the products of other competitors with reference to the product
manufactured by the firm must also be considered.

2. Changes in Technology:

With the advancement of technology, new products are coming in the market and the
taste and the likings of the consumer’s changes with the advancement and change of
technology.

3. Government Action:

When the government produces or purchases then depending upon the government policy
and rules, the sales of the products are also affected.

48
4. Factors Related to the Concern Itself:

These factors are related to the change in the capacity of the plant, change in price due to
the change in expenditure, change in product mix etc.

Accurate sales forecasting is essential for a business house to enable it to produce the re-
quired quantity at the right time. Further, it makes the arrangement in advance for raw
materials, equipment’s, labour etc. Many firms manufacture on the order basis, but in
general, every firm produces the material in advance to meet the future demand.

Types of Sales Forecasting:

There are two types of forecasting:

1. Short-term forecasting and

2. Long-term forecasting.

1. Short-Term Forecasting:

This type of forecasting can be defined when it covers a period of three months, six
months or one year. Generally, the last one is most preferred. The period is dependent
upon the nature of business. If the demand fluctuates from one month to another,
forecasting may be done only for a short period.

Purpose of Short-Term Forecasting:

1. To adopt suitable production policy so that the problem of overproduction and short
supply of raw material, machines etc. can be avoided.

2. To reduce the cost of raw materials, machinery etc.

3. To have proper control of inventory.

4. To set the sales targets.

5. To have proper controls.

6. To arrange the financial requirements in advance to meet the demand.

2. Long-Term Forecasting:

The forecasting that covers a period of 5, 10 and even 20 years. The period here also de-
pends upon the nature of business, but beyond 12 years, the future is assumed as
uncertain. But in many industries like ship-building, petroleum refinery, paper making

49
industries, a long term forecasting is needed as the total investment cost of equipment is
quite high.

Purpose of Long-Term Forecasting:

1. To plan for the new unit of production or expansion of existing unit to meet the
demand.

2. To plan the long-term financial requirements.

3. To train the personnel so that man-power requirement can be met in future.

Methods Used for Sales Forecasting:

Following are the methods generally employed for sales forecasting:

1. Survey of Buyers’ Views:

This is direct method for making forecasting for short-term, in which the customers are
asked what they are thinking to buy in near future say, in the coming year. In this method
all the burden is with consumers, which may misjudge or mislead or may be uncertain
about the quantity to be purchased by them in near future.

The disadvantages of this method are as follows:

1. Consumer’s buying intentions are irregular.

2. When consumers have to select between different alternatives, they are unable to
foresee their choices.

3. Buyers may be anxious for purchasing the products but due to certain limitations they
may be unable to purchase them.

2. Collective Opinion or Sales Force Polling:

In this method forecasting depends upon the salesman’s estimation for their respective
areas, because the sales-man are closest to the customers, hence can estimate more
properly about the consumers’ reaction about the product and their future requirements.

All the estimates of salesmen are consolidated to know the total estimate of the sales.
This final estimate then goes through severs checking to avoid undue imagination which
is done many times by the salesmen.

The revised estimates are then again examined in the light of factors like expected change
in design, change in prices, advertisements, competition, purchasing power of local
people, employment, population etc.

50
This method of collective opinion takes advantages of collective wisdom of salesmen,
senior executives like production manager, sales manager, marketing officials and
managers.

Advantages:

1. This method is simple and requires no statistical technique.

2. The forecasts are based on the knowledge of salesmen, who are directly responsible for
the sales.

3. In practice, this method is much useful in the case of new products.

Disadvantages:

1. This method is useful only for short-term forecasting, i.e. maximum for one year.

2. As the forecasting is dependent upon the salesmen’s estimation and if sales quotas are
fixed then they, in general under-estimate the forecast.

3. As Salesmen have no knowledge about the economic changes, the estimate by them
are not so correct many times.

4. As the estimation is full time job, the quality to look into the future must be with the
salesmen.

3. Trend Projections:

Well-established firms which have considerable data on sales, these data are arranged in a
chronological order, known as ‘time series’. Thus ‘time series’ are analysed before
making the forecasts.

There is a common method known as ‘Project the trend’. In this method the trend line is
projected by some statistical method, generally, by least square method.

The time series forecasts are the demand characteristics over time. These time series data
are analysed for forecasting future activity levels. Time series data refer to a set of values
of some variables measured at the equally spaced time intervals such as monthly
production levels, demands in the market etc.

COMPETITIVE ANALYSIS:

Competitive Analysis. Definition: Identifying your competitors and evaluating their

strategies to determine their strengths and weaknesses relative to those of your own
product or service. A competitive analysis is a critical part of your company marketing
plan.

51
A competitive analysis is a critical part of your company marketing plan. With this
evaluation, you can establish what makes your product or service unique--and therefore
what attributes you play up in order to attract your target market.

Evaluate your competitors by placing them in strategic groups according to how directly
they compete for a share of the customer's dollar. For each competitor or strategic group,
list their product or service, its profitability, growth pattern, marketing objectives and
assumptions, current and past strategies, organizational and cost structure, strengths and
weaknesses, and size (in sales) of the competitor's business. Answer questions such as:

 Who are your competitors?

 What products or services do they sell?
 What is each competitor's market share?
 What are their past strategies?
 What are their current strategies?
 What type of media are used to market their products or services?
 How many hours per week do they purchase to advertise through the media used
in this market?
 What are each competitor's strengths and weaknesses?
 What potential threats do your competitors pose?
 What potential opportunities do they make available for you?

A quick and easy way to compare your product or service with similar ones on the market
is to make a competition grid. Down the left side of a piece of paper, write the names of
four or five products or services that compete with yours. To help you generate this list,
think of what your customers would buy if they didn't buy your product or service.

Across the top of the paper, list the main features and characteristics of each product or
service. Include such things as target market, price, size, method of distribution, and
extent of customer service for a product. For a service, list prospective buyers, where the
service is available, price, website, toll-free phone number, and other features that are
relevant. A glance at the competition grid will help you see where your product fits in the
overall market.

MARKETING ASSISTANCE SCHEME:

Marketing, a strategic tool for business development, is critical for the growth and
survival of micro, small & medium enterprises. Marketing is the most important factor
for the success of any enterprise. Large enterprises have enough resources at their
command to hire manpower to take care of marketing of their products and services.
MSME sector does not have these resources at their command and thus needs
institutional support for providing these inputs in the area of marketing.

Ministry of Micro, Small & Medium Enterprises, inter-alia, through National Small
Industries Corporation (NSIC), a Public Sector Enterprise of the Ministry, has been

52
providing marketing support to Micro & Small Enterprises (MSEs) under Marketing
Assistance Scheme.

Emergence of a large and diverse services sector in the past years had created a situation
in which it was no longer enough to address the concerns of the Micro & Small
Enterprises (MSE) erstwhile known as Small Scale Industries (SSI) alone but essential to
include the entire gamut of enterprises, covering both SSI Sector and related service
entities, in a seamless web. There was a need to provide space for the small enterprises to
grow into medium scale enterprises, for that is how they will be able to adopt better and
higher levels of technology and remain competitive in a fast globalizing world. Thus, as
in most developed and developing countries, it was necessary that in India too, the
concerns of the entire range of enterprises – micro, small and medium, were addressed
and the sector was provided with a single legal framework. The Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006 addresses these issues and also
other issues relating to credit, marketing, technology upgradation etc concerning the
micro, small and medium enterprises. The enactment of MSMED Act 2006, w.e.f. from
2nd October, 2006 has brought medium scale industries and service related enterprises
also under the purview of this Ministry.

The need of the hour presently is to provide sustenance and support to the whole MSME
sector (including service sector), with special emphasis on rural and micro enterprises,
through suitable measures to strengthen them for converting the challenges into
opportunities and scaling new heights. Thus although the medium enterprises have also
been included as the target beneficiaries under the scheme, special attention would be
given to marketing of products and services of micro and small enterprises, in rural as
well as urban areas.

BREAK EVEN ANALYSIS:

A break-even analysis is a financial tool which helps you to determine at what stage
your company, or a new service or a product, will be profitable. In other words, it's a
financial calculation for determining the number of products or services a company
should sell to cover its costs (particularly fixed costs).

Components of Break Even Analysis

Fixed costs
Fixed costs are also called as the overhead cost. These overhead costs occur after the
decision to start an economic activity is taken and these costs are directly related to the
level of production, but not the quantity of production. Fixed costs include (but are not
limited to) interest, taxes, salaries, rent, depreciation costs, labour costs, energy costs etc.
These costs are fixed no matter how much you sell.
Variable costs
Variable costs are costs that will increase or decrease in direct relation to the production

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volume. These cost include cost of raw material, packaging cost, fuel and other costs that
are directly related to the production.

Benefits of Break-even analysis

 Catch missing expenses: When you’re thinking about a new business, it’s very much
possible that you may forget about few expenses. Therefore, if you do a break-even
analysis you have to review all your financial commitments to figure out your break-even
point. This analysis certainly restricts the number of surprises down the road.
 Set revenue targets: Once the break-even analysis is complete, you will get to know
how much you need to sell to be profitable. This will help you and your sales team to set
more concrete sales goals.
 Make smarter decisions: Entrepreneurs often take decisions in relation to their
business based on emotion. Emotion is important i.e. how you feel, though it’s not
enough. In order to be a successful entrepreneur, your decisions should be based on facts.
 Fund your business: This analysis is a key component in any business plan. It’s
generally a requirement if you want outsiders to fund your business. In order to fund your
business, you have to prove that your plan is viable. Furthermore, if the analysis looks
good, you will be comfortable enough to take the burden of various ways of financing.
 Better Pricing: Finding the break-even point will help in pricing the products better.
This tool is highly used for providing the best price of a product that can fetch maximum
profit without increasing the existing price.
 Cover fixed costs: Doing a break-even analysis helps in covering all fixed cost.

UNIT V
START UP COSTS:

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Definition: Startup costs are all expenses incurred to plan, register, organize and launch
a new business or social venture. It is the aggregated cost to bring any new business idea
to the open market.
For example, many new companies incur expenses for legal work, logo design,
brochures, location site selection and improvements, and other expenses. Startup
expenses also include expenses such as rent and payroll that start before launch and
continue from then on.

Financial plan:
A financial plan is a comprehensive document that includes details about your cash
flow, savings, debts, investments, insurance and other elements of your financial life. A
good financial plan takes the stress out of setting and prioritizing goals, and maps out
clear strategies for achieving them.

Objectives of Financial Planning

Financial Planning has got many objectives to look forward to:

a. Determining capital requirements- This will depend upon factors like cost of
current and fixed assets, promotional expenses and long- range planning. Capital
requirements have to be looked with both aspects: short- term and long- term
requirements.
b. Determining capital structure- The capital structure is the composition of
capital, i.e., the relative kind and proportion of capital required in the business.
This includes decisions of debt- equity ratio- both short-term and long- term.
c. Framing financial policies with regards to cash control, lending, borrowings, etc.
d. A finance manager ensures that the scarce financial resources are maximally
utilized in the best possible manner at least cost in order to get maximum
returns on investment.

Importance of Financial Planning

Financial Planning is process of framing objectives, policies, procedures, programmes

and budgets regarding the financial activities of a concern. This ensures effective and
adequate financial and investment policies. The importance can be outlined as-

1. Adequate funds have to be ensured.

2. Financial Planning helps in ensuring a reasonable balance between outflow and
inflow of funds so that stability is maintained.
3. Financial Planning ensures that the suppliers of funds are easily investing in
companies which exercise financial planning.
4. Financial Planning helps in making growth and expansion programmes which
helps in long-run survival of the company.

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 5. Financial Planning reduces uncertainties with regards to changing market trends
which can be faced easily through enough funds.
6. Financial Planning helps in reducing the uncertainties which can be a hindrance to
growth of the company. This helps in ensuring stability an d profitability in
concern.

SOURCES OF FINANCE FOR NEW VENTURES:

Sources of Financing for small business or startup can be divided into two parts: Equity
Financing and Debt Financing. Some common source of financing business is
Personal investment, business angels, assistant of government, commercial bank loans,
financial bootstrapping, buyouts.
The 5 Most Common Funding Sources
1. Funding from Personal Savings. Funding from personal savings is the most
common type of funding for businesses. ...
2. Debt Financing. Debt financing is a fancy way of saying “loan.” ...
3. Friends & Family. A big source of funding for entrepreneurs is friends and
family. ...
4. Angel Investors. ...
5. Venture Capitalists (VCs)

Types and Sources of Financing for Start-up Businesses

Financing is needed to start a business and ramp it up to profitability. There are several
sources to consider when looking for start-up financing. But first you need to consider
how much money you need and when you will need it.

Debt and equity are the two major sources of financing.

Equity Financing
Equity financing means exchanging a portion of the ownership of the business for a
financial investment in the business. The ownership stake resulting from an equity
investment allows the investor to share in the company’s profits. Equity involves a
permanent investment in a company and is not repaid by the company at a later date.

The investment should be properly defined in a formally created business entity. An

equity stake in a company can be in the form of membership units, as in the case of a
limited liability company or in the form of common or preferred stock as in a corporation.

Companies may establish different classes of stock to control voting rights among
shareholders. Similarly, companies may use different types of preferred stock. For
example, common stockholders can vote while preferred stockholders generally cannot.
But common stockholders are last in line for the company’s assets in case of default or

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bankruptcy. Preferred stockholders receive a predetermined dividend before common
stockholders receive a dividend.

Personal Savings
The first place to look for money is your own savings or equity. Personal resources can
include profit-sharing or early retirement funds, real estate equity loans, or cash value
insurance policies.

Life insurance policies - A standard feature of many life insurance policies is the
owner’s ability to borrow against the cash value of the policy. This does not include term
insurance because it has no cash value. The money can be used for business needs. It
takes about two years for a policy to accumulate sufficient cash value for borrowing. You
may borrow most of the cash value of the policy. The loan will reduce the face value of
the policy and, in the case of death, the loan has to be repaid before the beneficiaries of
the policy receive any payment.

Home equity loans - A home equity loan is a loan backed by the value of the equity in
your home. If your home is paid for, it can be used to generate funds from the entire
value of your home. If your home has an existing mortgage, it can provide funds on the
difference between the value of the house and the unpaid mortgage amount. For example,
if your house is worth $150,000 with an outstanding mortgage of $60,000, you have
$90,000 in equity you can use as collateral for a home equity loan or line of credit. Some
home equity loans are set up as a revolving credit line from which you can draw the
amount needed at any time. The interest on a home equity loan is tax deductible.

Friends and Relatives

Founders of a start-up business may look to private financing sources such as parents or
friends. It may be in the form of equity financing in which the friend or relative receives
an ownership interest in the business. However, these investments should be made with
the same formality that would be used with outside investors.

Venture Capital
Venture capital refers to financing that comes from companies or individuals in the
business of investing in young, privately held businesses. They provide capital to young
businesses in exchange for an ownership share of the business. Venture capital firms
usually don’t want to participate in the initial financing of a business unless the company
has management with a proven track record. Generally, they prefer to invest in
companies that have received significant equity investments from the founders and are
already profitable.

Angel Investors
Angel investors are individuals and businesses that are interested in helping small
businesses survive and grow. So their objective may be more than just focusing on
economic returns. Although angel investors often have somewhat of a mission focus, they
are still interested in profitability and security for their investment. So they may still
make many of the same demands as a venture capitalist.

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Government Grants
Federal and state governments often have financial assistance in the form of grants and/or
tax credits for start-up or expanding businesses.

Equity Offerings
In this situation, the business sells stock directly to the public. Depending on the
circumstances, equity offerings can raise substantial amounts of funds. The structure of
the offering can take many forms and requires careful oversight by the company’s legal
representative.

Initial Public Offerings

Initial Public Offerings (IPOs) are used when companies have profitable operations,
management stability, and strong demand for their products or services. This generally
doesn’t happen until companies have been in business for several years. To get to this
point, they usually will raise funds privately one or more times.

Warrants
Warrants are a special type of instrument used for long-term financing. They are useful
for start-up companies to encourage investment by minimizing downside risk while
providing upside potential. For example, warrants can be issued to management in a start-
up company as part of the reimbursement package.

A warrant is a security that grants the owner of the warrant the right to buy stock in the
issuing company at a pre-determined (exercise) price at a future date (before a specified
expiration date). Its value is the relationship of the market price of the stock to the
purchase price (warrant price) of the stock. If the market price of the stock rises above the
warrant price, the holder can exercise the warrant. This involves purchasing the stock at
the warrant price. So, in this situation, the warrant provides the opportunity to purchase
the stock at a price below current market price.

Debt Financing
Debt financing involves borrowing funds from creditors with the stipulation of repaying
the borrowed funds plus interest at a specified future time. For the creditors (those
lending the funds to the business), the reward for providing the debt financing is the
interest on the amount lent to the borrower.

Debt financing may be secured or unsecured. Secured debt has collateral (a valuable asset
which the lender can attach to satisfy the loan in case of default by the borrower).
Conversely, unsecured debt does not have collateral and places the lender in a less secure
position relative to repayment in case of default.

Friends and Relatives

Founders of start-up businesses may look to private sources such as family and friends
when starting a business. This may be in the form of debt capital at a low interest rate.
However, if you borrow from relatives or friends, it should be done with the same

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formality as if it were borrowed from a commercial lender. This means creating and
executing a formal loan document that includes the amount borrowed, the interest rate,
specific repayment terms (based on the projected cash flow of the start-up business), and
collateral in case of default.

Banks and Other Commercial Lenders

Banks and other commercial lenders are popular sources of business financing. Most
lenders require a solid business plan, positive track record, and plenty of collateral. These
are usually hard to come by for a start- up business. Once the business is underway and
profit and loss statements, cash flows budgets, and net worth statements are provided, the
company may be able to borrow additional funds.

Commercial Finance Companies

Commercial finance companies may be considered when the business is unable to secure
financing from other commercial sources. These companies may be more willing to rely
on the quality of the collateral to repay the loan than the track record or profit projections
of your business. If the business does not have substantial personal assets or collateral, a
commercial finance company may not be the best place to secure financing. Also, the cost
of finance company money is usually higher than other commercial lenders.

Government Programs
Federal, state, and local governments have programs designed to assist the financing of
new ventures and small businesses. The assistance is often in the form of a government
guarantee of the repayment of a loan from a conventional lender. The guarantee provides
the lender repayment assurance for a loan to a business that may have limited assets
available for collateral. The best known sources are the Small Business Administration
and the USDA Rural Development programs.

Bonds
Bonds may be used to raise financing for a specific activity. They are a special type of
debt financing because the debt instrument is issued by the company. Bonds are different
from other debt financing instruments because the company specifies the interest rate and
when the company will pay back the principal (maturity date). Also, the company does
not have to make any payments on the principal (and may not make any interest
payments) until the specified maturity date. The price paid for the bond at the time it is
issued is called its face value.

Lease
A lease is a method of obtaining the use of assets for the business without using debt or
equity financing. It is a legal agreement between two parties that specifies the terms and
conditions for the rental use of a tangible resource such as a building and equipment.
Lease payments are often due annually. The agreement is usually between the company
and a leasing or financing organization and not directly between the company and the
organization providing the assets. When the lease ends, the asset is returned to the owner,
the lease is renewed, or the asset is purchased.

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Financial Institutions Supporting Small Scale Industries in
India
The various schemes of financial assistance for SSI units are listed as follows:

(1) Refinance scheme for industrial loans for small and village industries

(2) Composite loan scheme

(3) Scheme for Scheduled Caste/Scheduled Tribe and Physically Handicapped

entrepreneurs

(4) National Equity Fund Scheme

(5) Special scheme of assistance to ex-servicemen

(6) Seed Capital Scheme

(7) Single Window Scheme

(8) Scheme for women entrepreneurs

(9) Mahjila Udyam Nidhi Scheme

(10) Refinance scheme for quality control

(11) Schemes of incentives for exports

(12) Equipment Refinance Scheme

(13) Refinance scheme for Modernization of Small Scale Industries

(14) Assistance to Small Road Transport Operators

(15) Refinance scheme for Rehabilitation of Small Scale Industries

(16) Foreign Currency Refinance Scheme

(17) Refinance Scheme under ADB Line of Credit

(18) Refinance scheme for setting up industrial estates

(19) Bills Rediscounting Scheme.

1. All India Financial Institutions:

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(i) Industrial Finance Corporation of India (IFCI),

(ii) Industrial Credit and Investment Corporation of India (ICICI),

(iii) Industrial Development Bank of India (IDBI),

(iv) Export Import Bank of India (Exim Bank),

(v) National Small Industries Corporation (NSIC), and

(vi) Small Industries Development Bank of India (SIDBI).

2. State Level Institutions:

(i) State Financial Corporations (SFCs),

(ii) State Industrial Development Corporations (SIDCs), and

(iii) State Small Industries Development Corporations (SSIDCCs).

What is Venture Capital?

It is a private or institutional investment made into early-stage / start-up companies (new
ventures). As defined, ventures involve risk (having uncertain outcome) in the
expectation of a sizeable gain. Venture Capital is money invested in businesses that are
small; or exist only as an initiative, but have huge potential to grow. The people who
invest this money are called venture capitalists (VCs). The venture capital investment is
made when a venture capitalist buys shares of such a company and becomes a financial
partner in the business.

Venture Capital investment is also referred to risk capital or patient risk capital, as it
includes the risk of losing the money if the venture doesn’t succeed and takes medium to
long term period for the investments to fructify.

Venture Capital typically comes from institutional investors and high net worth
individuals and is pooled together by dedicated investment firms.

It is the money provided by an outside investor to finance a new, growing, or troubled

business. The venture capitalist provides the funding knowing that there’s a significant
risk associated with the company’s future profits and cash flow. Capital is invested in
exchange for an equity stake in the business rather than given as a loan.

Venture Capital is the most suitable option for funding a costly capital source for
companies and most for businesses having large up-front capital requirements which
have no other cheap alternatives. Software and other intellectual property are generally

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the most common cases whose value is unproven. That is why; Venture capital funding is
most widespread in the fast-growing technology and biotechnology fields.

Features of Venture Capital investments

 High Risk
 Lack of Liquidity
 Long term horizon
 Equity participation and capital gains
 Venture capital investments are made in innovative projects
 Suppliers of venture capital participate in the management of the company

Methods of Venture capital financing

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  Equity
 participating debentures
 conditional loan

he venture capital funding process typically involves four phases in the company’s
development:

 Idea generation
 Start-up
 Ramp up
 Exit

Knowing the challenges and problems you may encounter in your start-up can help
you to prepare for the unexpected, and possibly help avoid common pitfalls.
 Money Problems. ...
 Poor Marketing. ...
 Managing Work and Home. ...
 Trying to Do It Alone. ...
 Poorly Priced Products, Services.

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