Small-Business-Management by Nirodh Chandra Dahal

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BBM SIXTH - SEMESTER

EED 212: Principles of Small Business Management
(Entrepreneurship and Enterprise Development-focus area II)
COURSE CONTENT
Unit 1. INTRODUCTION
Unit 2: Options for Going into Business
Unit 3: Business Plan
Unit 4: Legal Issues
Unit 5: Financing New and Growing Business
Unit 6: Marketing
Unit 7: Operations Management
Unit 8: Human Resource Issues
Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

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Unit 1: Introduction
 Economic significance of the small business sector
 Concept of small business – generic definitions and national definition
 Differences between small business and large business
 Advantages and disadvantages of operating a small business
 Factors leading to success and failure of small business
 Entrepreneur vs. business owner-manager
 Small - business vs. Entrepreneurship .
1.1 Economic significance of the small business sector
Enterprise is the ability to turn a thought into a successful business. A company is different, as it
combines the other three factors: land, employment, and capital. Enterprise is a different word
for a profit enterprise or enterprise, but it is most often linked with business enterprises.
There are many small enterprises in Nepal both inside Kathmandu Valley- The Capital City Of
Nepal and outside Kathmandu Valley.
 What Is The Role Of Enterprises In Economic Development?
In the economic development of a country, SMEs (Small and Medium-sized enterprises) play an
important role. Their role is very critical in terms of production, job creation, export contribution,
and income. The contribution of small and medium-sized enterprises to generating jobs,
eliminating poverty, and to advancing the private sector, in general, is extremely important.
The 2010 study showed that SMEs employ about 57 percent of the entire workforce in
Nepal. SMEs makeup over 96% of all industries and contribute 83% to the generation of
industrial jobs. They also account for 80% of the contribution of the industry to the national
gross domestic product (GDP). However, in addition to the nation's macro-challenges to political
instability and insufficient resources, access to finance and poor governance are restricted for
SMEs.
 How Is Government Helping To Boost Small Enterprises In Nepal?
The services to help smaller producers improve their capacities by spreading information about
companies and markets, improving their skills, regulating them minimally and making
government agencies more hastily, and easing alliances. It is also done by networking
arrangements between small enterprises as well as larger producers and exporters.
The government is taking various steps towards small and medium-sized enterprises. Further,
various government policies to support infrastructure, upgrade technology, preferential
access to credit, preferential policy support, etc have supported and encouraged the SMEs.

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A large number of capable and potential entrepreneurs, deprived of appropriate opportunities,

may be provided with opportunities by the small sector. It can help to make small capital
available for productive use. SMEs can take advantage of lean output and find new, cost-
effective lean output techniques.
 Economy Of Small Enterprises
Since small units can more efficiently utilize resources without waste to their full capacity, they
can achieve higher allocation efficiency. Because the risk element in SMEs is low, a large
number of workers use more resources. The starting point for developing economies towards
industrialization are micro, small, and medium scale enterprises (MSMEs). But the impact of
MSMEs on revenue, tax revenues and jobs, efficient resource use, and family income stability is
important. MSMEs are now widely recognized for their contribution to jobs, growth, and
sustainable development.
In both developed and developing countries, their contribution to job creation and output growth
has become widely accepted. It can also help to make the benefits of economic growth fairer and
thus help to alleviate some of the problems associated with the uneven distribution of income.
There are several micro and small enterprises in many developing and least developed countries
(LDCs) that play a key role in the economic developments of the country.
The Nepalese population is approximately 2.61 million, and its economy depends heavily on
agriculture, where over 78.1% of the workforce total is employed and about 39% of GDP. There
is still a small but rapidly growing manufacturing industry. This represents approximately 10%
of GDP. On the other hand, the vast countryside has 85.8% of the country's population.
The poverty reduction strategy has been focused on the country's economic plans on generating
and improving autonomous jobs through the development of micro-enterprises. PNUD Nepal
funded a program for the development and sustainable development of micro-enterprise
enterprises (MEDEPs) in rural households to address the problem of poverty and employment.
The mid-term program review in 2000 however showed that a favorable policy and regulatory
environment is critical to the growth of micro-companies.
The 1998/99 Nepal Labor Survey found 1.6 million people employed in MSEs. However,
women work in micro-businesses more than men, while men are more likely to work in small
businesses than women. The 2005 ILO MSE survey showed that three employees per MSE were
on average. However, this number increased to 17.9 employees per company when looking at
small companies alone. The manufacturing sector, followed by trade and services, is the most
employed.
 What Is The Current Status Of Small Enterprises In Nepal?
The ratio of self-employed people in micro-businesses was high at 75.4% compared with
17.5% for small companies. Consequently, micro-enterprises have created job opportunities for
the self-employed. A 1999/2000 survey showed that in Nepal there were 87,342 small

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production facilities. Until 1990/9 1, the cottage industry was totaling 47,426 registered,
which is 2009/10 amounted to 2.16,663.
The survey found that 60.3% of small companies were registered. It is estimated that
approximately 6,00,000 micro-enterprises operate in both registered and unregistered rural and
urban areas. As an agricultural country, most established micro-enterprises are either agro-based,
forest-based, or animal-based, and others include metal-based products and weaving, and shops
and restaurants.
Small and family-owned micro-businesses are generally run from home. Depending on the
company, it can adversely affect the home environment (e.g. poultry raising, wool carding,
chemical dyeing, welding, furniture repairing). This impact is rarely documented because of its
origin at home. Notwithstanding these restrictions, micro-businesses tend to be more profitable
because they do not value their work and the overhead is reduced. Micro-enterprises are among
the more viable options for job creation and consequently poverty reduction in underdeveloped
countries such as Nepal.
Moreover, the development of such companies may provide a relatively broader section of the
NEPAL population with jobs, thereby reducing the income disparity, as the Nepalese company is
characterized by social exclusion. In the informal sector, a large number of small companies are
located. The various industrial acts of Nepal do not regulate these companies, although they
generate significant revenues and local jobs and are often ignored by the government.
1.2 Concept of small business – generic definitions and national definition

The term business denotes activities of an individual or group of individuals relating to trade,
commerce, and industry carried out to make profits. A business may also be defined as an
organization, which is involved in production and marketing of products and services to make
profit through customer satisfaction. A small business is a business that is independently owned
and operated with a small number of employees and relatively low volume of sales. Small-scale
businesses are normally privately owned corporations, partnerships or sole proprietorships.
A business which functions on a small scale level involves less capital investment, less number of
labour and fewer machines to operate is known as a small business.
Criteria for defining small business (Generic definition )

• The legal definition of “small” often varies by country and industry. Different countries have
their own criteria for measuring small business
. • In USA, manufacturing firms employing up to 500 employees are regarded as small. For
wholesale, retail and service firms, the annual sales should not exceed US$ 3.5 million.
• In the U.K., manufacturing firms with 200 employee and construction/ mining/ quarrying firms
employing up to 25 employees regarded as small.

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• In Japan, it is less than 300 employees for manufacturing/ mining, less than 100 employees on
wholesale and less than 50 for retail services. Continued..
• In Australia, it is less than 100 employees for manufacturing and less than 20 employees for
non-manufacturing.
• In India, it is capital assets up to Rs 10 million (original value of plant & machinery only)
• UNDP defines small business is the one that employs 20 to 100 employees.
• In Nepal, small industry that has fixed assets up to Rs. 30 million, such fixed assets include
specified movable and immovable assets.
Economic Backbone
• Economic Backbone Small business is the backbone of Nepalese economy. About 90 percent
of manufacturing establishments are small business. They account for 21 percent of census value
added.
• Merchandise small businesses (wholesale and retail trade business) are found all over the
country. They have been a major source of employment for family members, relatives and
friends. They maintain close relations with customers.
• There are about 10,000 (Class D) small business construction contractors in Nepal. They have
created substantial seasonal employment.
• Small business in tourism and transport are also important sources of employment.
Continued…
• Common marketing techniques for small business include net working, word of mouth,
customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards),
paint, email, marketing and internet.
• More than 75 percent of Nepali populace are engaged in agriculture. In developing the living
standard of the majority of the people, the small business helps with great responsibility. Small
businesses are the economic backbone, which creates employment for the people.
1.3 Differences between small business and large business

There are many distinctions between small and large businesses depends on various aspects. The
below points shows the same as follows-
1. Small businesses are those businesses that operate at a low scale of production making its
owner the price taker. On the other hand, large businesses are those businesses that operate at a
large scale of production making its owner price maker.
2. Small business has lack funds and employ low-skilled employees. On the other hand, large-
scale businesses attract educated and skilled employees.
3. Small business has no brand value, whereas the large businesses have a brand value.

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4. Small business faces a higher risk of failure, whereas the large business has a low risk of
failure.
5. Small businesses are managed by owners themselves, whereas large businesses are managed
by employees.
1.4 Advantages and disadvantages of operating a small business
Owning a small business has its advantages and disadvantages. Each entrepreneur must weigh
the pros and the cons carefully and decide whether or not the risk is worth the reward.
Advantages of Small-Business Ownership
 Independence. Entrepreneurs are their own bosses. They make the decisions. They choose
whom to do business with and what work they will do. They decide what hours to work, as
well as what to pay and whether to take vacations. For many entrepreneurs the freedom to
control their destiny is enough to outweigh the potential risks.
 Financial gain. Entrepreneurship offers a greater possibility of achieving significant
financial rewards than working for someone else. Owning your own business removes the
income restraint that exists in being someone else’s employee. Many entrepreneurs are

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inspired by the mega-millionaire entrepreneurs we see today, such as Steve Jobs, Elon
Musk, Jeff Bezos, and Mark Zuckerberg.
 Control. It enables one to be involved in the total operation of the business, from concept
to design to creation, from sales to business operations to customer response. This ability
to be totally immersed in the business is very satisfying to entrepreneurs who are driven by
passion and creativity and possess a “vision” of what they aim to achieve. This level of
involvement allows the business owner to truly create something of their own.
 Prestige. It offers the status of being the person in charge. Some entrepreneurs are
attracted to the idea of being the boss. In addition, though, there is the prestige and pride of
ownership. When someone asks, “Who did this?” the entrepreneur can answer, “I did.”
 Equity. It gives an individual the opportunity to build equity, which can be kept, sold, or
passed on to the next generation. It’s not uncommon for entrepreneurs to own multiple
businesses throughout their life. They establish a company, run it for a while, and later sell
it to someone else. The income from this sale can then be used to finance the next venture.
If they’re not interested in selling the business, the goal may be to build something that can
be passed down to their children to help ensure their financial future. One thing is sure: In
order to fully reap the financial benefits of a business venture, you need to be the owner.
 Opportunity. Entrepreneurship creates an opportunity for a person to make a contribution.
Most new entrepreneurs help the local economy. A few—through their innovations—
contribute to society as a whole.
In addition, small businesses have certain advantages over large businesses. Flexibility, generally
lean staffing, and the ability to develop close relationships with customers are among the key
benefits of small businesses. The digital communication revolution has significantly lowered the
cost of reaching customers, and this has been a boon to small startups and big businesses alike.
Disadvantages of Small-Business Ownership
As the little boy said when he got off his first roller-coaster ride, “I like the ups but not the
downs!” Here are some of the downsides to owning a small business:
Time commitment. When someone opens a small business, it’s likely, at least in the beginning,
that they will have few employees. This leaves all of the duties and responsibilities to the owner.
Small-business owners report working more than eighty hours a week handling everything from
purchasing to banking to advertising. This time commitment can place a strain on family and
friends and add to the stress of launching a new business venture.
Risk. Even if the business has been structured to minimize the risk and liability to the owner,
risk can’t be completely eliminated. For instance, if an individual leaves a secure job to follow an
entrepreneurial dream and the business fails, this financial setback can be hard to overcome.
Beyond financial risk, entrepreneurs need to consider the risk from product liability, employee
disagreements, and regulatory requirements
Uncertainty. Even though the business may be successful at the start, external factors such as
downturns in the economy, new competitors entering the marketplace, or shifts in consumer
demand may stall the businesses growth. Even entrepreneurs who go through a comprehensive

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planning process will never be able to anticipate all of the potential changes in the business
environment.
Financial commitment. Even the smallest of business ventures requires a certain amount of
capital to start. For many people starting small businesses, their initial source of funding is
personal savings, investments, or retirement funds. Committing these types of funds to a business
venture makes them unavailable for personal or family needs. In most cases where a small
business receives start-up funding through a loan, the entrepreneur must secure the loan by
pledging personal assets, such as a home. Risking the equity in one’s home is a financial
commitment not all entrepreneurs are willing to make.
1.5 Factors leading to success and failure of small businesses

Nepal lacks a concrete policy framework for small and medium-sized enterprises(SMEs), let
alone a strategy for their internationalization
• inadequately trained/skilled workforce, high tariffs on raw materials and intermediate goods
coupled with an ineffective duty drawback system, high time and cost of transit when importing
and exporting, insufficient attention to the logistics and trade facilitation
Challenges of SMEs
 Weak supply chain linkages. ...
 Seasonal nature of business. ...
 Low capital and thin margins. ...
 Expected continuation of decline in demand. ...
 Lack of awareness of relief packages from Government. ...
 Rise of platform business and its adoption. ...
 Return of migrant labor (domestic and international)
Scenario of SMEs during COVID-19 in Nepal
At the start of 2020 Nepal’s government was optimistic of attaining the targeted GDP growth of
8.5% in FY 2019/2020. The promotion of Visit Nepal 2020 was also gaining momentum with
high hopes; however, with advent of recent events, business as usual took an unexpected spiral
fall since late March when the government decided to enforce a nation-wide lockdown to contain
the spread of COVID-19. Although Nepal registered its first case in January 2020, stringent
measures from the government were enacted only from 24th March 2020 onwards. Since the
imposition of the lockdown, Nepal’s economy is estimated to have lost more than NPR 100
billion (USD 820 million) during the period of mid-March- mid April 2020 with the World Bank
has revised the growth forecasts to the range of 1.5–2.8% for FY 2019/2020. As of FYE 2074/75
(2018/19), a total of 275,433 small and medium enterprises (SMEs) were registered in Nepal.
The Industrial Enterprise Act 2016 defines small enterprises as businesses as having fixed capital
up to NPR 100 million and medium enterprises as businesses have fixed capital between NPR
100 million and NPR 250 million. The SME sector contributes an estimated 22% to the GDP
while creating employment for 1.7 million people (SME Financing in Nepal, Nepal Rastra Bank,
2019).

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Challenges of SMEs
Weak supply chain linkages
Weak supply chain has been a key challenge for the Nepali business landscape historically with
producers unable to find markets while consumers anguished with periodic shortage of goods.
With the national lockdown, the situation has only further worsened as producers are now facing
the problem of selling their finished goods as well as availing manufacturing inputs/ raw
materials given the travel and import restriction along with limited resource mobilization
capabilities. Likewise, on the consumer end, limitation or unavailability of infrastructural and
logistical access has escalated the supply chain problems. Despite being allowed by the
government to operate, essential produce manufacturers are forced to operate in lower capacity.
For instance, the dairy industry is reported to be operating at 50% capacity due to difficulties to
procure milk from farmers as issues with getting vehicle permits (preference for four wheelers)
to operate during lockdown has restricted smallholder farmers and collection centers to transport
milk. Similarly, in the livestock sector, the feed manufacturers are operating at 33% capacity as
they are unable to import the raw materials and market the finished merchandise, while livestock
farmers are abandoning business such as poultry citing lack of access to feed and of a market for
their birds and eggs due to closure of some markets and time-restrictions imposed on retail
market operation while also coping with transport restrictions. Limited operation of retail
markets, and outflow of labor has restricted access to feed from the local dealers and labor for
farm work.
Seasonal nature of business

Various M/SME businesses are seasonal in nature. The onset of wedding season from April 2020
would in normal times create high seasonal demand for services ranging from flower decor,
food, meat, catering service, apparels, photo/video service, grooming services, hotel room and
banquets, event management, precious metal consumption (gold, silver), the sale of electronic
goods, furniture and so forth. It can be implied that even when the situation starts to normalize
(post lockdown) weddings are likely to be a smaller affair with only few guests, thus curtailing
demand for seasonal services related to weddings for the current year. Likewise, the cancellation
of spring mountaineering expeditions and complete halt in tourist flows since late March,
absence of celebration events during Nepali New Year (April 13th), halt in domestic tourism
travel and business travel has created a major slump for travel related businesses. MSMEs and
SMEs traditionally rely on the surge in demand during peak season to weather businesses
through the lean period. Even post lifting of lockdown, the tourism industry is at best expected to
pick momentum in 4-6 months while normalization is expected after the 2nd quarter of FY
2020/2021.

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Low capital and thin margins

An estimated 33% of SMEs in Nepal fund their initial capital from ancestral property, 26% use
the savings of their proprietor while only 16% is financed through bank loans. The survival of
businesses in the current scenario will depend on the financial position and runway available.
Although typically businesses will likely weather a one-month halt in transaction by eroding on
the business’ cash reserves or proprietors’ personal savings or utilizing existing lines of working
capital credit from financial institutions. Although some businesses have the privilege of
continuing activities via work from home, others have reportedly started sending employees on
sick leaves/ unpaid leaves, partial payment of salary while some are mulling laying off
employees if the situation continues. The prolongation of the lockdown and expected delay in
restarting businesses will have stronger implications on SMEs’ survival. A large number of
white-collar and blue-collar workers have left cities and travelled to their home districts to
weather the uncertainties of the COVID-19 crisis. This implies that it will take at least several
weeks until all of them will have returned to their work destination domestically for business to
start operating normally. Access to capital will be tighter and government intervention and
stimulus will be the only support structure that businesses will look to for survival and recovery.
Expected continuation of decline in demand
As businesses fail to generate transactions, the resultant slump in earnings will impact the
demand for non-essential goods and services. In addition to this, the halt in economic activities
in migrant destination countries has resulted in layoffs with some countries sending laborers
back home. Nepal receives an estimated USD 8 billion in remittance annually, which is evidently
headed to spiral downwards to create a serious slump in consumption demand. This will create a
further precarious situation for the survival of many businesses. Remittance alone generates one
third of Nepal’s GDP.
Lack of awareness of relief packages from Government
The survey carried out by Nepal Rastra Bank in 2019 on SME Financing had highlighted that the
vast majority of SMEs are unaware of programs launched by the government and central bank.
This has contributed to the low uptake of subsidized or concessional finance.. Given these
circumstances, it becomes evident that even when the government launches stimulus and relief
packages, the lack of awareness amongst SMEs will curtail their impact . As 85% of SMEs take
loans from commercial banks, it becomes crucial that the latter take proactive steps to ensure
clear communication with clients on how to reap benefits from government programs, or to
explore options for loan restructuring, based on projected revival of particular businesses so as to
keep businesses afloat during the crisis. The same has also been observed during the earthquake
and other crises which stand validation for the need to have special focus on a tiered and aligned
approach of awareness and execution.

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One of the objectives of the Ninth Plan (1997-2002) is to diversify exports and increase exports
originating from rural areas.
It envisages: · Identifying new export products; · Promoting agro-based exports; · Introducing
quality control measures; · Facilitating information networks in partnership with the private
sector; · Attracting foreign investment and technology; · Implementing the duty drawback
system in a more efficient and systematic way; · Creating an export promotion fund; ·
Establishing an export refining zone and developing an export-oriented village aimed · at
reducing the cost of production and integrating exportable items; · Mobilizing foreign missions
to facilitate Nepalese exports; · Establishing an export- import bank; and · Promoting external
and internal trade exhibitions.
1.6 Entrepreneur vs Business Owner Manager
Entrepreneurs vs Managers
Who is an Entrepreneur?
Very basically speaking, an entrepreneur is a one-man show that runs entrepreneurship. However,
such a person usually has some unique attributes that allow him to be successful in his endeavors.
He is essentially an initiator and a leader. He brings business ideas to fruition thus starting off his
venture.
A successful entrepreneur is usually a responsible person. He is accountable for the success or the
failure of his venture, and he takes this responsibility very seriously. And since he is the only person
in-charge he is automatically the leader. In fact, leadership qualities are one of the main aspects of
an entrepreneur.

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Who is a Manager?
A manager, on the other hand, is not an owner of an enterprise. Instead, he is the one that is
responsible for the management and administration of a group of people or a department of the
organization. His day to day job is to manage his employees and ensure the organization runs
smoothly.
A manager must possess some of the same qualities as an entrepreneur, like

leadership, accountability, decisiveness etc. He must also be a good manager of people. So qualities
such as warmth and empathy are also very important in a manager.
Difference between Entrepreneur and Manager
 The key difference between an entrepreneur and a manager is their standing in the
company. An entrepreneur is a visionary that converts an idea into a business. He is the
owner of the business, so he bears all the financial and other risks. A manager, on the other
hand, is an employee, he works for a salary. So he does not have to bear any risks.
 The focus of an entrepreneur lies in starting the business and later expanding the business. A
manager will focus on the daily smooth functioning of the business.
 For an entrepreneur the key motivation is achievements. But for the managers, the motivation
comes from the power that comes with their position.
 The reward for all the efforts of an entrepreneur is the profit he earns from the enterprise. The
manager is an employee, so his remuneration is the salary he draws from the company.
 The entrepreneur can be informal and casual in his role. However, a manager’s approach to
every problem is very formal.
 The entrepreneur by nature is a risk taker. His has to take calculated risks to drive the
company further. A manager, on the other hand, is risk-averse. His job is to maintain the
status quo of the company. So he cannot afford risks.

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Main Difference Between
1.7 Entrepreneurship and Small Business

1. Entrepreneurship accepts and explores new opportunities constantly while small business
does not explore new opportunities.
2. Entrepreneurship does not extensively focus on profit- making rather on innovation, unique
and creative products and services while small business extensively focuses on profit-making
and not on innovation.
3. The business expansion in entrepreneurship is rapid and fast while the business does not
expand rapidly in small businesses.
4. Entrepreneurship has the willingness and capacity to take high risks while small businesses are
not capable of taking high risks.
5. The returns from entrepreneurship are bigger while the returns from small businesses are
smaller.

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Unit 2: Options for Going into Business
Course content
• Issues to consider before going into business – personal goals and abilities
• Starting a new business–advantages of starting a business
• Purchasing an existing business
• Entering a franchise system–advantages and disadvantages
• Comparison of options
• Procedural steps when starting a business venture
2.1 Issues to consider before going into business
1. Nature of the business : The first you need to think about is what will you offer. What are
you going to sell in your business? In general, you can choose to provide the following: service,
merchandising or manufacturing.
• Service – it can either be selling time and expertise, such as professionals, event organizers, IT,
marketing, etc.; or it can also be restaurants, food kiosks, transportation, salon, spa, etc.
• Merchandising – also referred to as retail, wholesale, trading or distribution. Buy-and-sell of
goods. Examples are grocery and department stores, retail outlets, online resellers, etc.
• Manufacturing – combining raw materials, labor and use of equipment, then turn it into a
saleable product. Example are manufacturers of cars, gadgets, clothing, bags, daily essentials,
etc.
2. Target Customer : Having a service or product to sell is not gonna make you profitable if you
do not have customers who will buy it. If you plan to start a business and you know what to sell,
before you begin, study if there is a market for it. Identify who your customers are. Remember
the saying, a product or service for everybody is a product or service for nobody.
3. Location In many business events I’ve attended, I always hear this advice “location is
everything”. “Location, location, location”. Make sure you identify or look for the best location
for your business. Your business must be seen by your target customer or at least near them.
4. Formation : Once you’ve identified what to sell, who to sell it to and where to sell it, now
think about how you’ll form the business. You can choose on sole proprietorship, partnership or
corporation.
• Single proprietorship – you’re the sole owner of the business.
• Partnership – you can divide the business with another person(s) which you will call partners.
You need at least two people to form partnership.

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• Corporation – you can register as One-Person Corporation (OPC) or divide the business with
two (2) or more individual.
5. Capital :Capital is the amount or value you need to put in the business to get it started and
operating. It can be cash or non-cash. To know how much capital you need, list down all the
possible spending you need to make to start and operate, such as assets to purchase, renovation,
lease payments, operating expenses etc.
6. Asset Requirements : When starting a business, plan the assets that you’ll need to operate.
This may include the following example: computers, equipment, furniture, vehicle, etc. List
down not only the item but also the quantity and price.
7. Lease, Renovation and Improvements : Next item to consider is if you will rent out a space.
When renting, normally lessors require advance rent and security deposits which is equal to three
(3) to six (months) of monthly rent. Also, rental space are usually bare and requires renovation
and improvements. Consider these costs in your business plan.
8. Suppliers: Identity potential suppliers needed to produce the service or goods you will sell.
Consider their price, location, reliability and operating hours.
9. Operating Expenses: Identify and list down all the expenses or spendings you need to operate
the business such as salary, rent, office supplies, utilities, etc. Consider the monthly costs in your
business plan. This step is also important in your capital requirement because normally you have
to keep at least six (6) months to one (1) year of monthly spendings as capital.
10. Hire People or Outsource : people management is one of the toughest job of business
owners. This may be the reason why outsourcing is in demand. If you plan to start a business,
include in your consideration if you will hire people or just outsource it. If you decide to hire,
consider the salary and other government regulations you need to comply with such as DOLE,
SSS, PHILHEALTH and Pagibig. If you consider to outsource, consider the expertise and
reliability of the company you will outsource to.
11. Registration : After considering all the capital and expense requirement, before you start
operating, make sure you have the registrations needed to legalize your business. At a minimum,
you must have DTI or SEC, Barangay, Mayor and BIR. If you employees register to SSS, PHIC
and HDMF.
12. Bank account for the business: Consider opening a bank account separate for your
business. This is to simplify your record keeping and avoid mixing your personal to your
business especially if you are a single proprietor. When choosing a bank, it must be accessible
and available.
13. Marketing: Rarely a business sell without a good marketing plan. Marketing is one of the
key factor why businesses succeeds, and why it fails. Choose the right marketing platform for
your business.
14. Government Compliance: Another important item to consider, but often neglected, is the
government reporting you need to comply with every month, quarterly and annually. I’ve seen
many business succeeds but later on faced with government penalties due to neglect on this

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important item. Government Compliances include at minimum filing and payment of taxes,
SSS/Philhealth/Pag-ibig contributions. As well as yearly payment of Barangay and Mayor’s
permit.
15. Accounting and Financial Analysis : Last but not the least, when you start a business, ensure
you have a reliable accounting and financial reporting process in place. Accounting is the
language of business. To know what’s really happening in your business, you must have a
reliable accounting and financial reporting system.
Personal goals and abilities
Futurpreneur (
Before you can set long-term goals, it’s important to have a clear vision of where you want your
business to be three, five, and ten years from now. In order to get to this point, we like to use
what we call the High Definition Destination (HDD). We define your HDD as a vivid picture of
your business’ processes, values, and organizational structure that will help aid in setting defined
business goals that will produce the results you’re looking for.
First consider what you want to achieve, and then commit to it. Set SMART (specific,
measureable, attainable, relevant and time-bound) goals that motivate you and write them down
to make them feel tangible. Then plan the steps you must take to realize your goal, and cross off
each one as you work through them.
• S – Specific (or Significant).
• M – Measurable (or Meaningful).
• A – Attainable (or Action-Oriented).
• R – Relevant (or Rewarding).
• T – Time-bound (or Trackable)
To give a broad, balanced coverage of all important areas in your life, try to set goals in some of
the following categories (or in other categories of your own, where these are important to you):
• Career – What level do you want to reach in your career, or what do you want to achieve?
• Financial – How much do you want to earn, by what stage? How is this related to your career
goals?
• Education – Is there any knowledge you want to acquire in particular? What information and
skills will you need to have in order to achieve other goals?
• Family – Do you want to be a parent? If so, how are you going to be a good parent? How do
you want to be seen by a partner or by members of your extended family?
• Artistic – Do you want to achieve any artistic goals?

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• Attitude – Is any part of your mindset holding you back? Is there any part of the way that you
behave that upsets you? (If so, set a goal to improve your behavior or find a solution to the
problem.)
• Physical – Are there any athletic goals that you want to achieve, or do you want good health
deep into old age? What steps are you going to take to achieve this?
• Pleasure – How do you want to enjoy yourself? (You should ensure that some of your life is for
you!)
• Public Service – Do you want to make the world a better place? If so, how?
Financial Position. Your finances play a huge part in the growth and delegation of resources
within your business. Where would you like your business to be in three to five years? Will you
measure your financial position in earnings, revenue, or internal rate of return?
• Market Position. At some point in your life, you learn whether you were born a leader or a
follower. When it comes to your business, it’s important to decide early on if you’re going to
lead the market or let the market lead you.
• Business Areas. What areas of business do you intend to be in? Will you be selling commodity
products? Or do you have something that is highly differentiated?
• Innovation. Similar to market position, you’ll have to decide if you’re going to be an innovator
or use off-the-shelf technologies. Will research and development be an integral part of your
business’ future? Or will you invest money elsewhere?
• Insider Perception. Nothing is as important as the perception of your business from the people
who are most invested – employees and investors. What is the insider view of the company?
How do your stakeholders view the company? Do your employees enjoy working there?
Outsider Perception. How do you want people to view your business? Do you want them to
associate your brand with terms like growing and profitable? Or innovative and customer-
oriented?
• Workforce Characteristics. What types of skills and abilities will your workforce have? Will
they have special talents that help differentiate them from your competitor’s workforce?
• Brand: Yes or No. Are you going to have a branded product or a commodity product? Will you
be an original equipment manufacturer to another company?
• Corporate Culture. Culture is arguably one of the most important components of a business
both internally and externally. What is your vision for your company culture? How do you want
potential employees and consumers to view you?
Corporate Citizenship. How, if at all, do you plan on making an impact on the community
around you? Do you plan on donating to charities? Or volunteering in programs that help people
around the world? Why?

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• Ownership. How do you plan on facilitating ownership within your business? Will your
company be public, private, or have an employee stock plan?
• Incentive Philosophy. Incentives can be a beautiful thing in business if used correctly. What
will your incentive plans be based on? Straight pay, shared risk, or rewards based on results?
Starting a new business–advantages of starting a business

Reasons to Run Your Own Business
• You Control Your Own Destiny. ...
• You Can Find Your Own Work/Life Balance. ...
• You Choose the People You Work With. ...
• You Take on the Risk – And Reap the Rewards. ...
• You Can Challenge Yourself. ...
• You Can Follow Your Passion. ...
• You Can Get Things Done – Faster. ...
• You Can Connect With Your Clients.
Independence. As a business owner, you’re your own boss. You can’t get fired. More
importantly, you have the freedom to make the decisions that are crucial to your own business
success.
• Lifestyle. Owning a small business gives you certain lifestyle advantages. Because you’re in
charge, you decide when and where you want to work. If you want to spend more time on non
work activities or with your family, you don’t have to ask for the time off. If it’s important that
you be with your family all day, you might decide to run your business from your home. Given
today’s technology, it’s relatively easy to do. Moreover, it eliminates commuting time.
• Financial rewards. In spite of high financial risk, running your own business gives you a chance
to make more money than if you were employed by someone else. You benefit from your own
hard work.
• Learning opportunities. As a business owner, you’ll be involved in all aspects of your business.
This situation creates numerous opportunities to gain a thorough understanding of the various
business functions.
• Creative freedom and personal satisfaction. As a business owner, you’ll be able to work in a
field that you really enjoy. You’ll be able to put your skills and knowledge to use, and you’ll
gain personal satisfaction from implementing your ideas, working directly with customers, and
watching your business succeed.

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Purchasing an existing business

• Running a small business is not a job for the faint of heart. Entrepreneurs work long hours and
take on many different challenges requiring a broad range of business skills. Potential business
owners looking for a new venture may choose to build a company from the ground up, or buy an
existing company or franchise. Companies with a loyal customer base and steady revenue stream
can be enticing, though the initial investment might be higher than starting small and building
slowly. Let's look at some of the pros and cons of buying an existing business.
Advantages
1. Better financing options : Existing businesses already generate a revenue stream to help
cover costs, whereas startups often seek financing to pay expenses before they even open
their doors to customers. Often, established businesses have a reputation in the
community and a customer base. This gives lenders assurance and can persuade them to
offer financing options with more favorable terms. Established businesses may also use
assets and inventory as collateral, which can secure favorable financing in comparison to
startups.
2. Already established brand : An established business often enjoys brand loyalty with
customers and is known in the market. As a new owner, you may have ideas about
tweaking the existing brand, but you won't need to make a large investment in marketing
to develop something completely new. Adjusting a brand when you already have a loyal
customer base is much easier than building a market presence from nothing.
3. Existing customers : Being able to count on a reliable number of customers from the
outset is one of the advantages of buying an existing business. The benefit is twofold: a
solid customer base and a steady cash flow.
4. Well-established supply chain : Existing relationships with vendors and other business
partners are essential to a smooth business transition. Your supply chain not only
provides an important network of business contacts but also can offer help and advice on
how to sustain or improve the business. They've been working with the established
company for years, and they may know what systems or operations are working well and
what needs improvement. Comparatively, owners of startups must spend more time and
energy seeking out and creating valuable business relationships and growing them
incrementally.
5. Access to trained staff and proven internal processes : Among the many pros of buying
an existing business, perhaps none is more critical than starting out with the workforce
and established operational systems that presumably made the company attractive enough
for you to buy it in the first place.
6. More financial reward in growth: Growing an already established revenue stream can
provide a larger payoff compared with initial business generated by a startup. Practically
speaking, the energy and effort required to grow either a new or established business by
25 percent may be about the same. The key difference is there can be more financial
reward with an existing business purchase because the added revenue stream comes from
a larger base of customers. The original owner has lent expertise and knowledge
developed over the years to build more efficient processes, which in turn can bring in
more profit. Initial investments in marketing, which generally take years to pay off, may
also benefit second owners.

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7. Greater likelihood of success: Based on 12 years of tracking by the Small Business

Administration, 80 percent of small businesses survive their first year — meaning around
20 percent do not succeed. This can be compared with the report that one in 12 of all
small businesses close each year, which is around 8 percent. If a business has weathered
the first five years or more, chances are that the original owners did something right or hit
upon a product or service with a verified market in the community. When you buy a
business that's already successful, you're likely increasing your chances of success
compared to an untested startup.
Disadvantages
• You will inherit all problems that run with the business. If the previous owner had
trouble attracting new customers, paying the lease, or running new campaigns, you will
have to deal with everything to set things right before you can even start to think about
moving forward. If the business has a history of disappointing customers, you may also
have a hard time convincing people that things will change under your direction.
• The purchase will probably mean a large initial investment, usually much higher than it
will require to start a business from scratch. The investment will also have to be in a lump
sum, and you won't have the chance to go through the process in phases.
• The business might need major improvements to old plant and equipment.
• You often need to invest a large amount up front, and will also have to budget for
professional fees for solicitors and accountants.
• The business may be poorly located or badly managed, with low staff morale.
• External factors, such as increasing competition or a declining industry, can affect
future growth.
• Under-performing businesses can require a lot of investment to make them profitable.
• The seller's personality and their established relationships may be a major factor for the
success of the business.
• You often need to invest a large amount up front, and will also have to budget for
professional fees for solicitors, surveyors, accountants etc.
• You will probably also need several months' worth of working capital to assist with
cashflow. • If the business has been neglected you may need to invest quite a bit more on
top of the purchase price to give it the best chance of success.
• You may need to honour or renegotiate any outstanding contracts the previous owner
leaves in place.
• You also need to consider why the current owner is selling up and how this might
impact the business and your taking it over.
• It's possible current staff may not be happy with a new boss, or the business might have
been run badly and staff morale may be low.
Entering a franchise system –advantages and disadvantages
• Franchising is a legal and business relationship that can help grow your business.
• A franchise is created by a legal agreement that involves the license of a trademark, the
payment of a fee, and control over the operations of a business. When you franchise your
business you’ll be creating the legal documents, pre-sale disclosures, and operational

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requirements needed to comply with the franchise laws and sell franchises to individuals
who become your franchisees.
• A franchise (or franchising) is a method of distributing products or services involving a
franchisor, who establishes the brand’s trademark or trade name and a business system,
and a franchisee, who pays a royalty and often an initial fee for the right to do business
under the franchisor's name and system. Technically, the contract binding the two parties
is the “franchise,” but that term more commonly refers to the actual business that the
franchisee operates. The practice of creating and distributing the brand and franchise
system is most often referred to as franchising.
There are two different types of franchising relationships. Business Format Franchising is
the type most identifiable. In a business format franchise, the franchisor provides to the
franchisee not just its trade name, products and services, but an entire system for
operating the business. The franchisee generally receives site selection and development
support, operating manuals, training, brand standards, quality control, a marketing
strategy and business advisory support from the franchisor. While less identified with
franchising, traditional or product distribution franchising is larger in total sales than
business format franchising.
1. Growth and unit expansion: Unlike opening additional locations the organic way,
where a business owner invests more of their own capital or takes on a business
partner, franchising allows businesses to scale by selling franchise opportunities to
franchisees. Although franchisors still provide franchisees with resources for running
their franchised locations, franchising creates a franchisorfranchisee relationship that
provides a good legal barrier and doesn’t carry the same risks as a joint venture while
growing your business.
2. Capital: For business owners, franchising can help reduce some of the financial
burdens associated with growing a business. Unlike organic growth, where an
entrepreneur continues investing more of their own capital as they open new
locations, franchising provides opportunities for unit-level expansion where the
franchisee supplies the capital for the franchised location they bought. Franchisees
pay an initial fee to join the franchise network, and they invest their own capital to
develop and open their location.
3. Managerial talent: Every business owner knows how difficult it can be to onboard
new, qualified team members and managers as your business grows. Franchising
helps solve that problem by shifting hiring responsibilities to franchisees, who handle
the process of hiring new managers and employees at each franchise location.
Franchisees have an incentive to hire and retain quality staff at their locations because
their income depends on having a consistent and high-quality team.
4. System scalability and supply chain As the number of franchise locations operating
under your brand increases, so does your ability to leverage the supply chain. This
can mean negotiating better pricing from suppliers due to larger and more consistent
orders, and potentially rebates or other programs and incentives that can benefit you
as the franchisor, as well as your franchisees.
5. Legal protections Unlike joint ventures, franchising is regulated by laws at both the
federal and state levels. Franchisors adopt a Franchise Disclosure Document (FDD)
when franchising their business. With the right legal team and compliance with

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regulations and laws, those legal regulations can become a shield rather than a
liability.
6. Exit strategy As your franchise and brand recognition grows over time, its assets,
private equity, EBITDA cash flow, and other revenue streams could take on a higher
level of valuation. Even if you have no plans of selling your franchise in the early
stages of franchising, every good franchise system should be built to sell.
Disadvantages..
1. Initial capital investment Every new business, whether it’s a franchise or an independent
company, requires capital to start. Franchisors will have to invest their own capital at first
to get their franchise off the ground. You’ll also need to work with an experienced legal
team to develop your franchise program, prepare your FDD, and set up your corporate
structure. Initial capital investments can range anywhere from $25,000 to $100,000 or
more. Learn more about the cost of franchising your business.
2. Ongoing capital investment Although some companies claim you’ll be able to start
making money right away off your franchise system, that isn’t necessarily the case.
Franchisors should plan a five year success plan when starting their franchise.
a. Franchise sales: During your first year as a franchisor, you should expect to invest your
own capital into developing an FDD and strategically positioning your offerings, setting
up a website, and developing an initial franchise sales marketing plan. Even if you’re
focused on organic growth in the first year, you should still expect your initial costs to
include PR and digital marketing.
b. Franchise development : In the second year, you’ll continue developing your franchise
offerings. This means investing more capital into promoting the brand support you offer
to franchisees, developing your franchise system, and building your team. Over time,
franchisors will continue to build their brand, but you should expect the first two years at
minimum to be an uphill climb that requires the initial investment of your own capital to
succeed.
3. Time commitment: Every new business requires a time commitment from its owners,
and franchising is no exception. You should plan to invest time and energy into franchise
development, legal compliance, team building, marketing, education, and networking
with franchise brokers.
4. Control : Unlike operating an independent business, franchisors may lose a little bit of
control over their business when franchising. Good franchising agreements and solid
FDDs can help franchisors retain control over their brand by creating operating territories
for each franchise, setting guidelines, and establishing an approval process for
franchisees’ activities. Still, you should plan to occasionally have to deal with
noncompliant franchisees, so it’s important to consider the tradeoffs before franchising
your brand.
5. Legal regulation: When franchisors fail to comply with laws and regulations, the
regulations that govern franchises at the federal and state level can become a liability.
Franchisors can turn those regulations into assets, though, by taking the right steps and
working with a good legal team.
Procedural steps when starting a business venture

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 Write a business plan

 Review the legal requirements to start a business
 Determine your business' legal structure
 Register your business' name
 Understand small business tax requirements
 Create a customer acquisition strategy for your business
 Market the business
 Sell your products and services
 Keep your customers happy
 Fund the business
1. Go Through a Self-Assessment Process: As exciting as it may sound to start a new
business, there are a few things to consider before taking the plunge. It’s vital to go
through a thorough self-assessment process before getting started. You’ll have to
examine your skills, expertise, and possible obstacles headed your way.
Ask yourself these questions:
• What are your biggest strengths and weaknesses?
• What are your passions?
• Are you someone that likes to take risks?
• What is your current financial situation?
• How will starting a business impact your personal life?
• Be honest with yourself as you consider these difficult questions. From there, you
can move on to find the right business for you.
2. Find a Business Idea: Now it’s time to hunt for business ideas you’d like to start. As
you begin planning, takes notes on each of the subjects below:
• Business structure: Think about the types of businesses available and which kind
appeals to you. Do you want to open up a franchise? Or are you looking to start a
company you can run from home?
• Previous experience: They say that experience is the best teacher. What skills do
you have from previous work experience? Remember to include job-specific skills
like finance or marketing as well as soft skills like leadership, communication and the
ability to work with people.
• Interests: You should have identified your passions during the self-assessment
process. Consider ways you might be able to turn what you love into a full-time
business.
• Social media: Platforms such as Twitter and Instagram can be goldmines for
business ideas. Explore what people are discussing online and learn how you can help
with the right product or service.
3. Conduct Market Research: So you’ve brainstormed some ideas and know what type
of business you want to start. Great! The next step is to research the market to know
what you’re getting into. Studying the market beforehand will not only help you
figure out what’s viable now, but it will also come in handy for building a marketing
plan down the road. Here’s what you’ll need to dig up:
Is there an unmet need you can solve?
• Who’s your target market?
• What’s the size of the industry?
• How much money and effort will it take to launch your business?

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• What’s your unique value proposition?

4. Choose a Business Location: Whether you’re looking at small towns or sprawling
cities, the location you pick for your company can make or break your business. You
need a site that's within your budget, accessible, and easy to find for potential
customers.
Here’s what to consider when searching for the perfect business location:
• If the location is zoned for your business type
• How close your customer base will be to your business
• Safety and attractiveness of the area, especially if you’ll depend on foot traffic
• Competition in the neighborhood
• Business history in the area, including if businesses tend to be successful or close
after a short period of time
5. Find a Business Mentor: One of the best things you can do to skyrocket your growth
is find a business mentor.A mentor has already been in your shoes and knows what
works. You can learn from their mistakes to avoid making them yourself — saving
time and money in the long run:
Here are some places you can find your future mentor.
• Friends and family: Start with your own circle. Talk to extended family members
and friends to see if anyone has applicable experience to help you on your journey.
You’re least likely to get a “no” from this group.
• Look into extended contacts: Your friends might know someone in the industry you
want to work in. Reach out to acquaintances and former coworkers. You’ll be
surprised how far your network reaches.
• Go to networking events: Consider attending events where potential mentors might
show up. Make sure to do your research on them before you make your introduction
so you come prepared. It shows that you took enough interest in them to understand
their work and background and makes it more likely you’ll further your acquaintance.
• Use LinkedIn: This business social networking tool created a way to connect users
with mentors. Take advantage of Career Advice, a tool that shows you a list of
potential mentors customized to the type of advice you're looking for.
• Pay for mentorship: The most direct way to find a mentor is to invest your own
money. Many business specialists offer their expertise to help you out during your
journey. The downside is that this can be expensive, and you’ll likely have several
business expenses as you get up and running.
• Join a program where mentorship is included: Franchises help you out with
training, but a network like Main Street pairs you with one-on-one coaches for
personalized support. When you’re considering routes to starting your own business,
look for a process that includes both training and mentorship.
6. Make Your Business Legal: As you launch your business, you want to make sure it’s
set up properly. Failure to do can result in government fines or unnecessary personal
liability.
Get ready for a lot of paperwork. Here’s an overview of what you’ll need to prepare to
make your business legal.
• Business name: Make sure that your business name is legally available and not
protected by someone else’s copyright.

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• Register your business: You’ll need to create a legal business entity by registering your
company as a sole proprietorship, LLC, or corporation.
• Get the necessary license and permits: Certain states require you to get specific business
licenses or permits to run your company.
• Get your federal and tax ID: You’ll have to declare taxes on your earnings. Make sure
to get a federal and tax ID so that the IRS can identify your business.
• Open a business bank account: The final step is to open a bank account for your
company to accept checks in your business name.
7. Set Up a Business Plan: A business plan is a written document that serves as a
roadmap for your company’s future. It helps define strategies to get to your goals and
is a must-have to qualify for funding. According to the Small Business
Administration, here’s what you’ll need to include in your business plan:
Executive summary: Detail what your company is all about. Include information
about your values and employees.
• Company description: Explain how your company solves the problems of your
clients and why it will be successful.
• Market analysis: Who are your competitors, and what are they doing? How does
your company do it better?
• Service or product line: Describe what you offer to clients and how they benefit
from it.
• Funding request: If you need funding for your company, you can include your
request here.
• Financial projections: Highlight how much your company expects to make to prove
you’re following a reliable business model.
• Appendix: In this section, you can include other required materials, such as permits.
8. Hire Good Employees or Work With Subcontractors: Surrounding yourself with the
right people is key to business success. Hiring unqualified employees can not only
cost you time and money but damage your company's reputation as well.
We know it can be difficult to find top talent, which is why we’ll help guide you
through the process of hiring subcontractors if you choose to launch a Main Street
business. For any business, here are some steps to help you hire the right way.
Make your job description clear: Take the effort to write a comprehensive job outline.
Make sure to include any duties, preferably as bullet points a reader can skim, and
any perks you might offer.
• Ask the right questions during the interview: Filter candidates based on their
answers to your questions. For example, what made them apply for this position?
What career project are they most proud of?
• Use social media: LinkedIn can be a great tool for finding prospective candidates.
Look at their work history as well as any certifications or education they might have
on their profile. You can often get a feel for the individual’s style by seeing what
posts they’ve liked or shared.
• Learn management skills: To develop a quality team of people, you need to be a
quality leader yourself. A good manager knows how to empower each employee so
they reach their personal best.

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9. Market and Grow Your Business: Now that you have everything set up for your
business, it’s time to take action.
Here’s what you can do to grow your company and take it to the next level:
• Optimize your website: Make sure your website is optimized for conversion. You’ll
need effective web design, compelling copy, and calls-to-action (CTAs) at the right
places throughout your site.
• Use digital marketing tactics: You’ll need a solid online presence to stand out from
the competition. A few ways to get yourself found online include blogging about your
expertise, being active on social media, and advertising on Google.
• Continue to network: We can’t stress enough the importance of networking during
your business journey. Even after you’ve started your business, you should remain
active in your community. Put yourself out there and build relationships with other
leaders in your industry — you never know where it may lead.

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Unit 3
Business Plan
Course content
• Concept of business plan
• –advantages and disadvantages of planning
• Elements of a business plan
• Different types of plans–specificity, length and audience
• The business planning process–
setting preliminary goals,
conducting initial research,
confirming goals,
conducting subsequent detailed research,
writing business plan,  critically assessing proposed plan,
implementing and evaluating the plan.
Concept
What Is a Business Plan?
• A business plan is a written document that describes in detail how a business—usually a

startup—defines its objectives and how it is to go about achieving its goals. A business plan lays
out a written roadmap for the firm from marketing, financial, and operational standpoints.
• Business plans are important documents used for the external audience as well as the internal
audience of the company. For instance, a business plan is used to attract investment before a
company has established a proven track record or to secure lending. They are also a good way
for companies' executive teams to be on the same page about strategic action items and to keep
themselves on target towards the set goals.
• Although they're especially useful for new businesses, every company should have a business
plan. Ideally, the plan is reviewed and updated periodically to see if goals have been met or have
changed and evolved. Sometimes, a new business plan is created for an established business that
has decided to move in a new direction.
In a nutshell, a business plan is a written expression of a business idea and will describe your
business model, your product or service, how it will be priced, who will be your target market,
and which tactics you plan to use to reach commercial success.
Advantages and Disadvantages of Planning

What Are the Pros of a Business Plan?
A business plan is a guide that you can use to make money. By understanding what your
business is about and how it is likely to perform, you’ll be able to see how each result receive
can impact your bottom line. With comprehensive plans in place, you’ll be prepared to take
action no matter what happens over the course of any given day. Here are some more benefits to
think about.

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1. It gives you a glimpse of the future.

A business plan helps you to forecast an idea to see if it has the potential to be successful.
There’s no reason to proceed with the implementation of an idea if it is just going to cost you
money, but that’s what you do if you go all-in without thinking about things. Even if the future
seems uncertain, you’ll still get a glimpse of where your business should be.
2. You’ll know how to allocate your resources.
How much inventory should you be holding right now? What kind of budget should you have?
Some resources that your business needs to have are going to be scare. When you can see what
your potential financial future is going to be, you can make adjustments to your journey so that
you can avoid the obstacles that get in your way on the path toward success.
3. It is necessary to have a business plan for credit.
In order for a financial institution to give you a line of credit, you’ll need to present them with
your business plan. This plan gives the financial institution a chance to see how organized you
happen to be so they can more accurately gauge their lending risks. Most institutions won’t even
give you an appointment to discuss financing unless you have a formal business plan created and
operational.
4. A business plan puts everyone onto the same page.
When you’re working with multiple people, then you’re going to have multiple viewpoints as
to what will bring about the most success. That’s not to say that the opinions of others are
unimportant. If there isn’t any structure involved with a business, then people with a differing
opinion tend to go rogue and just do their own thing. By making sure that everyone is on the
same page with a business plan, you can funnel those creative energies into ideas that bring your
company a greater chance of success.
5. It allows others to know that you’re taking this business seriously.
It’s one thing to float an idea out to the internet to see if there is the potential of a business
being formed from it. Creating a business plan for that idea means you’re taking the idea more
seriously. It shows others that you have confidence in its value and that you’re willing to back it
up. You are able to communicate your intentions more effectively, explain the value of your
idea, and show how its growth can help others.
6. It’s an easy way to identify core demographics.
No matter what business idea you have, you’re going to need customers in order for it to
succeed. Whether you’re in the service industry or you’re selling products online, you’ll need to
identify who your core prospects are going to be. Once that identification takes place, you can
then clone those prospects in other demographics to continue a growth curve. Without plans in
place that allow you to identify these people, you’re just guessing at who will want to do
business with you and that’s about as reliable as throwing darts at a dartboard while blindfolded.
7. There is a marketing element included with a good business plan.
This allows you to know how you’ll be able to reach future markets with your current products
or services. You’ll also be able to hone your value proposition, giving your brand a more
effective presence in each demographic.
What Are the Cons (disadvantages) of a Business Plan?
A business plan takes time to create. Depending on the size of your business, it could be a time
investment that takes away from your initial profits. Short-term losses might happen when you’re
working on a plan, but the goal is to great long-term gains. For businesses operating on a

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shoestring budget, one short-term loss may be enough to cause that business to shut their doors.
Here are some of the other disadvantages that should be considered.
1. A business plan can turn out to be inaccurate.

It is important to involve the “right” people in the business planning process. These are the
people who are going to be influencing the long-term vision of your business. Many small
business owners feel like they can avoid this negative by just creating the business plan on their
own, but that requires expertise in multiple fields for it to be successful. A broad range of
opinions and input is usually necessary for the best possible business plan because otherwise the
blind spots of inaccuracy can lead to many unintended consequences.
2. Too much time can be spent on analysis.
Maybe you’ve heard the expression “paralysis by analysis.” It cute and catchy, but it also
accurately describes the struggle that many have in the creation of a business plan. Focus on the
essentials of your business and how it will grow. Sure – you’ll need to buy toilet paper for the
bathroom and you’ll want a cleaning service twice per week, but is that more important than
knowing how you can reach potential customers? Of course not.
3. There is often a lack of accountability.
Because one person is generally responsible for the creation of a business plan, it is difficult to
hold that person accountable to the process. The plans become their view of the company and the
success they’d like to see. It also means the business plan gets created on their timetable instead
of what is best for the business and since there isn’t anyone else involved, it can be difficult to
hold their feet to the fire to get the job done.
4. A great business plan requires great implementation practices.
Many businesses create a plan that just sits somewhere on a shelf or on a drive somewhere
because it was made for one specific purpose: funding. When a solid business plan has assigned
specific responsibilities to specific job positions and creates the foundation for information
gathering and metric creation, it should become an integral part of the company. Unfortunately
poor implementation has ruined many great business plans over the years.
5. It restricts the freedom you once had.
Business plans dictate what you should do and how you should do it. A vibrant business
sometimes needs its most creative people to have the freedom to develop innovative new ideas.
Instead the average plan tends to create an environment where the executives of the company
dictate the goals and the mission of everyone. The people who are on the front lines are often not
given the chance to influence the implementation of the business plan, which ultimately puts a
company at a disadvantage.
6. It creates an environment of false certainty.
It is important to remember that a business plan is nothing more than a forecast based on plans
and facts that are present today. We live in a changing world where nothing is 100% certain. If
there is too much certainty in the business plan that has been created, then it can make a business
be unable to adapt to the changes that the world is placing on it. Or worse – it can cause a
business to miss an exciting new opportunity because they are so tunnel-visioned on what must
be done to meet one specific goal.
7. There are no guarantees.
Even with all of the best research, the best workers, and a comprehensive business plan all
working on your behalf, failure is more likely to happen than success. In the next 5 years, 95 out

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of 100 companies that start-up today will be out of business and many of them will have created
comprehensive business plans.
Business plan (components/Elements)
1. Executive Summary :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 that you’re entering.
2. Company Description: A company description includes key information about your business,
goals and the target customers that you want to serve. This is where you explain why your
company stands out from other competitors in the industry and break down its strengths,
including how it offers solutions for customers, and the competitive advantages that will give
your business an edge to succeed.
3. Market Analysis: This is where you show that you have a key understanding of the ins and
outs of the industry and the specific market you plan to enter. Here you will substantiate the
strengths that you highlighted in your company description with data and statistics that break
down industry trends and themes. Show what other businesses are doing and how they are
succeeding or failing. Your market analysis should also help visualize your target customers —
how much money they make, what their buying habits are, which services do they want and
need, etc. Above all, the numbers should help answer why your business can do it better
4. Competitive Analysis : A good business plan will present a clear comparison of your business
vs your direct and indirect competitors. This is where you prove your knowledge of the industry
by breaking down their strengths and weaknesses. Your end goal is show how your business will
stack up. And if there are any issues that could prevent you from jumping into the market, like
high upfront costs, this is where you will need to be forthcoming. Your competitive analysis will
go in your market analysis section. 5. Description of Management and Organization : Your
business must also outline how your organization is set up. Introduce your company managers
here and summarize their skills and primary job responsibilities. An effective way could be to
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.
6. Breakdown of Your Products and Services While your company description is an overview, a
detailed breakdown of your products and services is intended to give a complementary but fuller
description about the products that you are creating and selling, how long they could last and
how they will meet existing demand. This is where you should mention your suppliers, as well as
other key information about how much it will cost to make your products and how much money
you are hoping to bring in. You should also list here all relevant information pertaining to patents
and copyright concerns as well.

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7. Marketing Plan This is where you describe how you intend to get your products and services
in front of your target customers. Break down here the steps that you will take to promote your
products and the budget that you will need to implement your strategies.
8. Sales Strategy : This section should answer how you will sell the products that you are
building or carry out the services that you intend to offer. Your sales strategy must be specific.
Break down how many sales reps you will need to hire and how you will recruit them and bring
them on board. Make sure to include your sales targets as well.
9. Request for Funding : If you need funding, this section focuses on the amount of money that
you need to set up your business and how you plan to use the capital that you are raising. You
might want to include a timeline here for additional funding that you may require to complete
other important projects.
10. Financial Projections : This final section breaks down 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.If you’re trying to apply for a personal loan or a small business loan, you can always
add an appendix or another section that provides additional financial or background information.
Parts of a Business Plan: 7 Essential Sections
• Executive Summary.
• Company Description.
• Products and Services.
• Market analysis:
• Strategy and Implementation:
• Organization and Management Team:
• Financial plan and projections:
The business planning process

setting preliminary goals,
conducting initial research,
confirming goals,
writing business plan,
critically assessing proposed plan,
implementing and evaluating the plan
1. setting preliminary goals: Business goals are a predetermined target that a business or
individual plans to achieve in a set period of time. These goals are often split into short-
term goals and long-term goals. Business goals can be general and high level, or they can
focus on specific measurable actions.
A good example of a general business goal is a mission statement. Missions statements
are a general goal because they don't have one metric that defines their success. They’re
more often used as a guiding North Star—something your team can strive for as opposed
to hitting hard numbers.
Alternatively, you can set specific goals—measurable goals that are easy to track as your
team progresses towards them. When someone talks about "setting goals" or the "goal

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setting process," they're talking about specific goals. A common goal setting process to
use is the SMART goals process.
2. Conducting initial research: A rigorous, well-designed market research plan can help you
make better business decisions. Not only can it help you determine whether or not there's
a viable market for your products, it will also help you hone and tweak your products to
fit customer needs and desires.
Although your research may not fill all the gaps in your knowledge—especially under
the constraints of a tight budget—it has the potential to dramatically improve your
decision-making. And that can mean the difference between success and failure.
Here are three common missteps that we see:
I. Relying on free data from the Internet : The web is a great starting point, but often this
information may be incomplete, outdated or too superficial to be relevant to your
business decisions.
II. Surveying your personal network : Again, it can be a great starting point to talk to
friends and colleagues. But for truly meaningful insights, you need to hear from sales
prospects, customers, suppliers and other stakeholders in your business. 3. Relying only
on anecdotal feedback
III. Businesses often receive feedback from customers and other stakeholders. But a few data
points are not enough. Business insights need to be collected in a systematic way.
3. Confirming Goals: Once your business objectives have been set, invest time in ensuring
they’re regularly monitored and that progress is measured. As a minimum create a
checklist of objectives and regularly review progress against them – though you can use
online project management tools such as Basecamp and Teamwork to list all the goals,
actions and targets and who is responsible for them.
Hold regular review meetings for the team to share progress against targets and use the
time to discuss actions needed to ensure that the company meets its business objectives.
OTHER PROCESSES ARE SAME LIKE THAT OF COMPONENTS…

writing business plan,  critically assessing proposed plan,
implementing and evaluating the plan
For business Plan :

https://tunepal.sharepoint.com/:b:/s/mahmc_759403_BBM_6_EED212/EXIQTERdtjZHq
G6xa2qP_YMB7p9EVpYIG6qSDCe_Dz-dfw?e=rp6hNk

33
Unit – 4
Legal Issues
 Legal structures –
» sole proprietorship,
» partnership, company,
» cooperative and trust;
» Comparing legal structures;
 Business registration,
• PAN and VAT registration;
• obtaining intellectual property rights –procedures for obtaining such rights,
• contract law,
• income tax and property tax laws,
• labor laws and environmental laws.
Legal structures
Concept :
Business legal structure refers to legal framework used to create and define business
organization and ownership at inception in a particular jurisdiction.
The following are categories of business structures:
• limited liability company (LLC)
• partnership
• corporation
• sole partnership
Private firms in Nepal

In Nepal, sole proprietorships are referred to as private firms. The private firm is described in
the Private Firm Registration Act 1958. Sole proprietorship firms do not have a separate legal
and natural person, and the liability of the owner is not limited. These forms of business are
mostly used by individuals undertaking trading activities: retailers, shops and importers of
goods, and professional service providers like lawyers and accountants. Private firms are
easy to establish and dissolve. They are also easy to control; decision making is prompt and
flexible since there is only one person operating it.
To register the firm, you will need to provide the documents to the concerned department:
• Department of Commence in the case of a commerce-related firm
• Department of Cottage and Rural Industry in the case of the cottage and rural industry
• Department of Industry for any other industry.

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These are the required documents for private firm registrations:

• The name of the private firm
• The address of the private firm
• Objectives, functions, and the particulars of goods or commodities to be transacted by the
private firm
• The name and address of the owner and the name of their parents and grandparents
• Other details, prescribed by the Government of Nepal by publishing a Notification in the
Nepal gazette.
Based on the capital of the firm, the registration fee needs to be paid. It costs between NPR
600 and 15,000.
No more than one private firm related to the same or similar objectives can be registered in
the same person's name.
Private Firm Registration in Nepal
Submission of an application for the registration of a private firm and registration:

(1) A person who intends to register a private firm may submit an application in the format as
prescribed to the concerned Department along with the prescribed fee. Such application shall
set out the following particulars;
(a) The name of the private firm.
(b) The address of the private firm
(c) Objectives, functions and the particulars of goods or commodity to be transacted by the
private firm.
(d) The name and address of the owner, and the name of his/her father, mother and
grandfather, grandmother
(e) Other particulars prescribed by the Government of Nepal by publishing a Notification in
the Nepal gazette.
(2) After the submission of an application pursuant to Sub-section (1) the concerned
Department shall hold an inquiry in to the application and if there is a reasonable reason to
believe that the particulars set out in the said application are true or if the concerned
Department finds reasonable reasons to operate a private firm, it shall register in the register
book as prescribed and issue a certificate in such format as prescribed.

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(3) Notwithstanding anything contained in Sub-section (2), no more than one private firm
related to commerce which has same/similar objectives shall be registered in the name of the
same person.
Validity period of the certificate of a private firm and method of renewal:

The validity period of the certificate of the firm registered under this Act, the method thereof
and the fee for renewal shall be as prescribed.
Registration and renewal of partnership firm in Nepal

Partnership concerns are registered under partnership act 2020. Procedures of registration:
1. Apply for registration. Application form is needed to be filled up and apply for
registration. The application must include the following things
A. Name of firm
B. Address of the firm
C. Objective of the firm
D. Name and address of partners and address of the partners
E. Type of partnership
F. Amount of capital invested by each partner
G. Method of sharing profit and loss
H. Duration of business.
I. Other particular things.: necessary documents, registration fees, copy of citizenship
2. Deposit registration fee : Registration fee should be deposited in the Nepal Rastra Bank.
Voucher is needed for the deposit of registration fee. It should be enclosed in application
form. If the firm is commercial then recommendation letter from Nepal chamber of
commerce is required.
3. Receiving the certificate of registration : Concerned department receive the application.
Than an authorized officer will examine. It satisfied then the form is approved and
“certificate of registration” is issued and then legal business can be operated.
4. Procedure of renewal : The entire registered firm should be renewed each year within 35
days of time period. He should fill application for renewal with renewal fee to the concerned
department. This amount is dependent upon the capital invested.
5. Effect of non-registration and non renewal : If the partnership firm is operated without
registration and renewal then it is considered illegal. It can’t get loan from any financial
institution. This department will charge from rs 5 to rs 50 as fee. The effect of non
registration and non renewal is if he is not registered and renewed then fee is charged. If

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same crime is done for 3 times, additional rs 10 are to be paid. If it is committed gain then
partnership firm is closed and no any concern can be established under any partners’ name.
Dissolution of partnership firm in Nepal

• Existing partners can dissolve the firm by another agreement
• Dissolution by notice, any partner can dissolve the firm by giving notice to all the partners
• If any partner is unable to take responsibility of partnership deed.
• If partner do not pay the amount payable to the firm
• If shares are transferred without consent of other partners
• If right of partners is taken over by the court of compensation
• Liable for negligence
• Death of partner
• Dissolved by concerned department
• Commits illegal work or violate the rules of the firm
• If not renewed in given time.
Concept of joint stock company

Joint stock companies first came into being in the 18th century in Britain, and were
mainly concerned with foreign trade. Initially, the organizational form was viewed with
suspicion, it being supposed that it encouraged managerial efficiency and corruption. A
corporation, chartered by the state in which it is headquartered is considered by law to be
unique entity, separate and apart from those who own it. A corporation can be taxed; it can
be sued; it can enter into contractual agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors (BOD) to oversee the major policies
and decisions. The company has a life of its own and does not dissolve when ownership
changes. A company is a voluntary association, an incorporated association, an artificial
person created by law, having a common seal and perpetual succession. Shareholders are
owners of the company but management lies in the hands of BOD. Company means a
company registered under an act. According to H.L Haney: “A joint company is a voluntary
association of individual for profit, having its capital divided into transferable shares the
ownership of which is the condition of membership.”
Incorporation of joint stock company in Nepal

Following things are to be observed for incorporation of Joint Stock Company in Nepal:
1. File an application It is the first step. In any company registration, promoters have
to file application in company registrar office. The application has to be signed by

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at least 1 promoter in case of private company and at least 7 in case of public

company. Along with application, following document should be submitted,
• Memorandum of association
• Article of association
• Copy of agreement (public company)
• Copy of consensus agreement (private company)
• License
• Promoters certified copy of citizenship (Nepalese)
• Permission letter obtained under law to make investment or run business in Nepal
(foreigner)
• Citizenship of concerned country
2. Submitting registration fee Registration fee should be deposited in the Nepal Rastra Bank.
Voucher is needed for the deposit of registration fee. It should be enclosed in application
form.
3. Certificate of incorporation: After submitting the application form along with necessary
document and registration fee, the office of the registration examines all these documents
submitted by the promoters and it will register company name within 15 days the receipt of
the application. After registering the office, the registrar issues the certificate of incorporation
to the company. Now a private company can run its business.
4. Certificate of commencement of business A report of proof about the full payment of
shares by the promoters with signature by at least 1 director and 7 promoters must be filled.
The registrar examines all the documents. If it gets satisfied then it issues certificate of
commencement of business. Then only public company is legally able to run business and it
can issue prospectus also.
Co-operatives and trust

A cooperative organization can carry out its functions only after its registration under the
cooperative act 2048. For registration of cooperatives following procedures should be
followed.
1. Preliminary meeting: According to the cooperative act 2048 there should be at least 25
members to form a cooperative society. Preliminary meeting must be held before
applying for the registration. The meeting is held in the presence of 25 members under 1
chairman among them.
The following things should be discussed in the meeting:
• Commencement of the business
• The name and address of the society
• The objectives of the society
• The value of each share
• Membership fee
2. Filing an application for registration: After preparing and passing proposed by laws and
working schemes in the preliminary general meeting. In application should be submitted
to the office of registrar, department of cooperatives, and government of Nepal.
The following things are mentioned in the application form :

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• Proposed name of society

• Address
• Objectives
• Working areas
• Liabilities
• Total share capital
• Total number of shares to be paid
• Two copies of law of proposed society
• Original copy of working scheme
• Copies of citizen certificate
• Application must be signed by chairman
3. Receiving the certificate of registration: After filing application for registration,
certificate of registration is to be received. After applying application along with
document, they are submitted at the registration office. Then the registrar checks all the
documents. If the documents are satisfactory then registrar will issue certificate of
registration. After receiving certificate of registration, the society can operate.
4. Legal provisions for dissolution of cooperative society:
According to the cooperative act 2048 cooperative society can be dissolved under
following circumstances :
• Two third majority of total number of society can take decisions of dissolution.
• Registrar can dissolve it, if application with reasonable clause is received.
• Registrar can dissolve it, if the society is found inactive and not operating for two years.
• The registrar can dissolve it, if it is found operating against the law and objectives of it.
(Small Business Registration process in Nepal)

If any-one is willing to start your own business in Nepal but wondering about the process,
here are the steps you can follow:
Step 1: Business Registration Certificate from the Municipality : To register your
business, you need to have a unique name for your business. The first step to register your
business is to get a Business Registration Certificate from the Municipality. Every business
location has its own Municipality. The required documents in this process are as follows:
(i). Agreement Paper: This is the house agreement paper made between the business owner
and the house owner. This agreement should state that you are renting the space for your
business which includes the time period and other terms and conditions between the two
parties (business owner and the house owner).
(ii). Citizenship Copy: This includes citizenship copies of business owners and the house
owner.
(iii). Tax Holder's Property Evaluation and Tax Determination Statement: Recently, the
Municipality has started to ask for copies of house owner's property evaluation and Tax
Determination Statement. The house owner has to get this from the related Metropolitan city.
(iv). Passport size photo: The business owner needs to submit 2 passport size photos for the
certificate.

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When you submit these documents along with the business registration fee, the Metropolitan
office registers your business and provides you with the Business Registration Certificate.
The business registration fee depends upon the nature of your business.
Step 2: PAN Registration/VAT Registration:

(i). Fill up online form: After registering your business, you need to fill up an online form to
request for PAN registration. Go to this website:
https://taxpayerportal.ird.gov.np/taxpayer/app.html Click the plus sign beside the
“registration” folder to access to access the registration form.
(ii). Submit documents: In this process you need the same documents as Step 1 (Agreement
paper, Citizenship copy &Tax Holder's Property Evaluation and Tax Determination
Statement) except for passport size photos as they have the provision to click a business
owner's photo by themselves. The business owner needs to submit copies of these documents
along with a Business Registration Certificate and online PAN registration form.
When you complete these processes, your business will be registered in PAN which is
required for the tax payment at the end of every fiscal year. You need to pay the tax in order
to renew your business.
(Intellectual Property-Patent Design and Trademark Act, 1965)

The Patent Design and Trademark Act, 1965 highlights the legal provisions related to
patents, designs and trade-marks for the convenience and economic benefits of the general
public. The following are some of the important features of this act.
Patent
1. Application for acquiring right over patent : A person desirous of having any patent
registered in his/her name should submit an application to the department (Department of
Industry or as prescribed) with the following particulars.
 Name, address and occupation of the person inventing the patent
 If the applicant him/herself is not the inventor, how and in what manner he/she
acquired title thereto from the inventor
 Process of manufacturing, operating or using the patent
 The theory of formula if any, on which the patent is based
The applicant should submit map and drawings of the patent along with other particulars with
the application.
2. No registration : The department does not register any patent under this act in the
following circumstances;
 If the patent is already registered in the name of any other person
 If the applicant him/herself is not the inventor of the patent nor has acquired rights
over it from the original inventor

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 If the patent is likely to adversely affect the public health, conduct or morality or the
national interest
3. Term : The term of the patent is valid only for a period of seven years from the date of
registration.
Design
1. Application : A person desirous to register the design of any article manufactured or to
be manufactured should submit an application to the department together with four copies of
such design and maps, and drawings and required particulars.
2. Registration : On receipt of the application, the department registers the design in the
name of the applicant and issues a certificate.
3. Term : The design registered under this act remains valid for a period of five years from
the date of registration.
4. Punishment: No one can copy or use the design without transferring the ownership or
written permission. If a person does so, a fine not exceeding fifty thousand rupees may be
imposed, and articles and goods connected with such offence can be confiscated.
Trade Mark
1. Application : A person desirous to register the trademark of his business registered
should submit to the Department an application in the prescribed format along with four
specimens of such trade-marks.
2. Registration : The department registers trademark in the name of the applicant after
necessary investigation.
3. Prohibition : No trade-mark may be used as a registered trade-mark without registering

it at the Department.
4. Time limit: In case a trade-mark registered at the Department is not brought into use
within one year from the date of registration, the department conducts necessary inquiries
and cancels such registration.
5. Term : The title of the person in whose name a trade-mark has been registered remains
valid for a period of seven years from the date of registration.
6. Punishment : If one uses trademark of others without transforming the ownership or

written permission, or the trade-mark registered is not brought into use within one year from
the date of registration, the department imposes a fine not exceeding one hundred thousand
rupees and articles and goods connected with such offense are also confiscated.

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(Income Tax Act, 2002)

This act deals with the legal provisions of income tax administration in the country. Some of
the notable features of this act are as follows.
1. Confinement of all related matters : This act has abolished all tax related provisions in
other acts. It has confined all income tax related matters within it. Hence, it is considered as a
code for the income tax matters.
2. Broadened tax base: This act has broadened the tax base. Tax rates are spelled out in the
act. The tax rates and concessions are harmonized on equity grounds.
3. Deduction of related expenses : All real expenses incurred in generating incomes from
business or investments are allowed for deductions. This act seems to be more liberal than
previous income tax acts of Nepal in respect of expenses deduction.
4. PCC and R&D : Special provisions are made for some specific expenses (PCC-
Pollution Control Cost, R&D- Research and Development cost, Interest paid to the
controlling entity) incurred by the taxpayer. Certain conditions and limitations are also
specified regarding this.
5. Block base depreciation : Provision relating to depreciation has been simplified. It has
introduced a block based depreciation system. For this, assets have been classified into five
categories. It has the provision of charging depreciation on intangible assets as well.
6. Set-off and carry forward of loses : A liberal loss set-off provision has been developed.
Inter-head as well as Inter-sources adjustments of losses have been made possible. Carry
forward and backward of losses are allowed under given circumstances.
7. Method of tax accounting : Tax accounting methods have been clearly specified for
different persons (taxpayers) under different income heads. In general, this act has followed
both the cash and accrual basis of accounting.
8. Residential Status: This act has distinguished the resident and non-resident. A resident
has been clearly defined and the provision in respect of taxing the resident's global income
has been made. Non-residents are also taxed on their incomes from Nepal.
9. Minimize tax evasion : The act has made a strong mechanism to discourage the
tendency of tax evasion. For this, there are provisions for General Anti-Avoidance
Rule(GAAR), control mechanisms of transfer pricing, income splitting and, thin
capitalization and, thin capitalization and dividend stripping.
10. Medical tax credit : For a resident natural person, medical tax credits as well as other
specific deductions are provided.
11. Self tax assessment : This act has followed a full-fledged self -tax assessment system to
establish a taxpayer friendly environment.

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12. Discretionary interpretation : The scope of discretionary interpretation of the tax

administration has been drastically reduced ensuring simplicity, uniformity and transparency.
This act has also defined the power and authority of the tax administration.
13. Administrative and Judicial responsibilities : This act has separated administrative and
judicial responsibilities by distinguishing civil liabilities of taxpayers from criminal
liabilities.
14. Capital gain tax : A detailed provision relating to taxation of capital gains has been
made. It has separately explained the provision regarding quantification, allocation and
characterization of amounts under different chapters.
15. International taxation : This act has introduced the provision for international taxation.
The foreign source income of a resident has been brought into the tax net.
16. Fine and penalties : Stringent fine and penalty provision has been developed to take
action against the tax defaulters. The tax authorities are empowered to impose penalty and
interest to the taxpayer committing an ordinary offence.
17. Appeal : The appeal system has been streamlined by making it mandatory for the
taxpayers to file an objection with the Inland Revenue Department for administrative review
before appealing to the Revenue Tribunal.
(Labour Act, 2017)

The labour Act, 2017 has recently replaced the existing Labour Act, 1992. It deals with
appointment working conditions and other terms and rules regarding labour in Nepal. The
main provisions of this act are highlighted below :
The following are some of the notable provisions of this act.
1. No work no pay : Employees will not be paid when no work is done.
2. Allows strike : This act has allowed employees to hold strikes for their demands, and
urges employers to address them by conducting bilateral talks.
3. Payment during strike : Workers who hold protests within the legal framework will be
paid half a day's wages even though no work is done.
4. Formation of tribunal : If the contentious issues put forth by the employees cannot be
resolved through bilateral talks, the government can form a tribunal to find a solution.
5. Categorization of employees : This act has divided employees into four categories:
regular employment, task-based employment, casual worker and time-bound workers,
including short-term workers and part-time workers.

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6. Performance evaluation : This act has made provision work performance evaluation of
employees, and a worker can be fired if performance does not appear satisfactory during
three successive assessments.
7. Firing : An employer cannot fire workers without a valid reason and without fulfilling
lawful obligations.
8. No discretionary termination : Employers can no longer terminate the workers at their

own discretion.
9. Compulsory retirement : The age for compulsory retirement has been increased to 58
from the previous 55.
10. Probation period : The probation period has been shortened to 6 months from the
previous 1 year.
11. Working hours : Working hours continue to be 8 hours a day and 48 hours a week.
Overtime has been increased to 24 hours per week from 20 hours a week.
12. Head count threshold : The new labor act is applicable to all entities regardless of
number of employees.
(Environment Introduction of Protection Act 1997)

Environment means the interaction and inter-relationship among the components of natural,
cultural and social systems, economic and human activities. Protection means the safety care
maintenance, promotion, management and proper utilization of the environment and national
heritage. The Environment Protection Act (1997) makes legal provisions in order to maintain
clean and healthy environment by minimizing adverse impacts likely to be caused from
environmental degradation on human beings, wildlife, plants, nature and physical objects.
The Act further aims to protect the environment with proper use and management natural
resources taking into consideration that sustainable development could be achieved. Nobody
shall create pollution in such a manner as to cause significant adverse impacts on the
environment or hazardous to public health. The environment must not be affected by heat
radioactive rays and wastes from any mechanical devices, industrial enterprises, or other
places contrary to prescribed standards. If it appears that anyone has carried out any act
contrary to rules and caused significant adverse impacts on the environment agency may then
concerned agency may prohibit the carrying out of such an act. If it appears that the use of
cause significant adverse impacts on the environment then ministry may by a notification in
the Nepal gazette, forbid the use of such substance, fuel, tools or device.
Prevention and Control of Pollutions
All industries which are currently in operation shall apply within 90 days from the date of
commencement of these rules and the industries which were registered prior to the
commencement but are not in operation shall be registered within the 60 days from the date
of beginning of production to the concerned body shall conduct inquiry and seek opinions

44
and suggestion of the village development committee or municipality where the industry is
operating. If it is found thereafter that the operation of such industry shall cause no
substantial adverse impact on environment or there is possibility of reducing or controlling
such effect, then concerned body shall issue a provisional pollution control certificate valid
for one year to the applicant within ninety days from the date of receipt of the application. In
cases of no adverse impact on environment, the concerned body shall require to issue a
permanent pollution control certificate valid for three years after having their examination
from the designated laboratory. On failing issue to the provisional or permanent pollution
control certificate within the stated time period, the concerned body may issue certificate
within additional three months from the date of lapse of such time period. While issuing the
provisional or permanent pollution control certificates, the concerned body may prescribe all
or any of the following conditions the to be complied by such industry
a. To install within the stated time the equipment required to reduce or control pollution,
b. To properly use the installed equipment of pollution control,
c. To operate the industry only at stated time,
d. To take specific measures to control such activities carried out in the premises of any
industry which generate pollution,
e. To take specific measures to control the activities of any industry which generate
pollution outside the premise of the industry,
f. To make available the equipment necessary for the monitoring activities at the fixed time
g. To work as per other conditions prescribed and defended necessary by the concerned
body in view of the nature of industry.
h. The provisional pollution control certificate shall be renewed every years and the
permanent pollution control certificate shall be renewed every three year.
The terms and conditions mentioned in the provisional or permanent pollution control
certificate shall be put in the places of operation of industry seen by all. The concerned body
shall maintain the updated list of the industries who obtained the certificates. Any individual,
institution or industry does not control pollution or emits waste in contravention of the
condition then individual, institution village development committee or municipality may
lodge complaint to the concerned body. During the course of investigation, if the concerned
body finds any institution or industry does not controlled pollution or emitted waste in
contravention of the condition shall immediately issue a notice to the concerned individual,
institution or industry to control pollution immediately. While issuing a notice to the
concerned individual, institution or industry the concerned body may order him/her to take
all or any of the following actions
a. Measures to be adopted immediately adopted for controlling or reducing pollution, or for
not emitting waste
b. To use, operate, or improve any device or equipment,
c. Not to use all or any of the equipment currently being used or operated,
d. To adopt the specified monitoring programs and submit a report to it
e. To adopt various alternative measures for controlling pollution and avoiding emission of
waste
f. To develop environment management system and furnish information thereof

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g. To perform other functions which are deemed appropriate for controlling pollution and
prohibiting waste emission activities
(Contract Law)
Meaning of Contract
The Law of Contract is the most important branch of business law. It is relating to the
business of commercial transactions. It has existed from the beginning of organized society.
Like, safety of person and property depends upon the rules of criminal law, similarly, the
security and stability of the business depends upon the law of contract.
The law of contract affects every one of us, because every one of us enters in to contract
several times in a signal day. While purchasing in the market or a ride on a bus, taxi or drink
a cup of tea in a hotel in all these and many other affairs of daily life are possible due to the
law of contract. For this reason the study of the general principles of contract law is
important and essential not only business person but for all of us.
A contract is an agreement enforceable by law. The law of contract is the foundation of the
business. Every business activities are determined and guided by the agreement of the
concerned parties. It is concerned with rights and obligations of the parties entering to any
business or commercial activities. A law of contract is an important part of business law
because the act of transaction is performed between two or more than two parties and
relationship between them regulated by the law of contract.
Nature of Contract
A contract is an agreement between two or more parties which is enforceable by law, such
agreement is the outcome of consensus and meeting of mind of the parties. It has some
specific nature which can be mentioned as follows:
a. Civil Nature:
The contract has civil nature because it creates rights and obligation to the parties. It is
relating to the property and position. In the case of breach of contract, aggrieved party has
right to claim compensation. There is no question of punishment as criminal law.
b. Social and Business Nature:

Contract is relating to social and business sector. It regulates the social behavior like, sale of
goods, court marriage and several transactions of business.
c. Autonomous Nature:
Every persons has right to choose his act. Under this freedom of people, they can make
contract to do or not to do something according to made contract. So, it possesses an
autonomous character.
d. Limited Nature:
Contract is limited upon the parties. The parties have rights to determine terms and
conditions only for their extent. They have no right to impose any obligation to the third
party. Therefore the contract is limited in nature only to the contracting parties.

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e. Relating to promise and obligation:

Contract emerges from the promise. Promise creates the agreement and legal enforceability
of an agreement is recognized as contract. Therefore contract is relating to the promise and
obligation.
Nepal Contract Act 2056
Nepal Contract Act 2056 mentions few provisions as an essential element of valid contract.
a. Plurality of parties:
There must be at least two parties to form a contract. A single person cannot enter into a
contract. Two parties, namely offered and acceptor must be under an agreement for a valid
contract.
b. Proper offer and acceptance:

There must be at least two parties one making the offer and the other accepting it. Offer
means if somebody
makes proposals to do something or not to do something. Offer and acceptance is most
important elements for valid contract. Offer helps to create an agreement. If somebody offers
in one way other party accepts it in another way that is not acceptance. Offer and acceptance
must be in same way which is mostly called the meeting of the mind. There must be meeting
of two minds. The term of offer must be definite and acceptance of the offer also must be
absolute and unconditional.
For example, Ram makes an offer for sending to Hari to sell his horse for Rs 10,000/- and
Hari agrees to purchases Ram's horse in prescribed offer. Here proposal is offer and consent
to purchase is acceptance.
c. Intention to create legal relationship:

When the two parties enter in to an agreement their intention must be to create legal
relationship between them. If there is not such intention of either party of an agreement, there
is no contract between them. To constitute a contract legal relationship between or among
parties should be seen otherwise remedy of that contract could not be achieved. Agreement
of domestic nature will not constitute contract.
For an Example, In a case Balfour vs. Balfour: A husband was employed in a government
post in Ceylon. He returned with his wife to England on leave but she was unable to go back
to Ceylon with him for her medical reasons. Husband promised orally to make her an
allowance of £30 a months until she rejoined him. He failed to make this payment and she
sued him. The Court of Appeal held that, husband and wife never intended to make bargain
which conduct be enforced in law. Hence wife could not claim the money.4
d. Lawful Consideration:
Another essential element of valid contract is the presence of lawful consideration.
Consideration has been defined as the price paid by one party for the promise of other. To get
something in exchange is consideration. An agreement is legally enforceable only when each
of the party gives something and gets something. Consideration has been defined as the price

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paid by one party for the promise of other. It may be a promise to do or not to do something.
But it must be real and law full which may be in past, present and future. Nepal Contract Act
has defined consideration as the promise made to do or not to do any work in return of doing
or not doing of any work mentioned in the proposal. (Section 2(d) of Nepal Contract Act,
2056)
e. Free Consent:
Free consent of all the parties to an agreement is another essential element of valid contract.
Consent means that the parties must have agreed up on the same thing in the same sense. If
the agreement is vitiated by any of the following factors the contract would be voidable and
can not be enforced by the party. Other party can reject the contract. (Section 14 of Nepal
Contract Act 2956)
• Coercion;
• Undue influence;
• Fraud;
• Misrepresentation;
• Mistake etc.
For example, 'X' threatens to beat 'Y' if he does not buy his cycle in rupees, 5000/- to so.
Here 'Y's consent is not regarded as free consent because 'Y's acceptance is made due to
threatens.
f. Capacity of the parties:

The party to an agreement must be competent to enter into an agreement of contract.
Otherwise it cannot be enforceable by a court of law. In order to be competent enter into
contract the parties must be the age of adult, (According to Nepal contract Act, attained 16
years of age. Section 3.1) sound mind and must not be disqualified by any law to which they
are subject. If any of the party suffers from lunacy, idiocy and drunkenness the agreement is
not enforceable by law. For example, Ram is years old enter into agreement to sell his house
to Shyam; an adult. This contract is void ab initio, that is in operative from the beginning
because ram, being a minor.
g. Lawful Object:
For the formation of a valid contract it is also necessary that the parties to an agreement must
agree for a lawful object. The object for which the agreement has been entered in to an
agreement must not be fraudulent, illegal, immoral, or opposed to public policy or must not
imply injury to the person or property of another. If the object is unlawful for one or the other
of the reasons mentioned above the agreement is void. A contract of such objectives
is not enforceable by law. They are void from the beginning. (Section 13 of Nepal Contract
Act, 2056) e.g. When a landlord knowingly lets a house to a gambler to carry illegal
gambling he can not recover the rent through a court of law.
h. Written form and registration:

According to the Indian Contract Act, a contract may be oral or in writing. But in certain
special cases it lays down that the agreement to be valid must be in written form and

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registered. But there is no specific provision in Nepal which made that contract should be
registered. If parties wish they can registered it but not mandatory.
i. Certainty and Clarity:

To be a valid contract the objective and obligation of contract must be clear and certain. The
term of agreement must not be vague or uncertain. It must be possible to ascertain the
meaning of the agreement otherwise it cannot be enforced. (Section 13(g) of Nepal Contract
Act 2056)
For example, Ram agrees to sell to Hari 10,000 tons of oil there is nothing whatever to snow
what kind oil was intended it may be kerosene oil, it may be sunflower oil and may diesel oil.
j. Possibility to Performance:
Another essential element of valid contract is that it must be capable of performance. If the
act is impossible in itself physically or legally the agreement cannot be enforced by law.
Impossible contracts are not valid because performance is most essential elements of valid
contract. Any act which should not be done or is non performable does not create legal
obligations. (Section 13(i) of Nepal Contract Act, 2056)
For example, Ram contract to change the color of sky with Shyam it is initially impossible to
perform by Shyam. So it is void as initio.
k. Not expressly declared void:

The agreement must not be expressly declared void by any prevailing law of country. If a
contract is made contrary to current law is regarded as void. Section 13 of Nepal Contract
Act 2056 declares that those types of contract will be void which are clearly as void under
the prevailing law.
l. Legal formalities:
A contract may be made expressly but some contracts are recognized after fulfilling certain
legal formalities. Section 88 of Nepal Contract Act, 2056 has the provision that- "in case any
current laws prescribes that any specific procedure must be followed for executing any
specific contract or that any specific contract must be registered at a government office, a
contract signed without fulfilling such formalities shall not be valid. An agreement becomes
enforceable by law when all the essential elements of a valid contract are present.
Thus, absence of any of the above said elements is adequate to make the contract invalid.

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UNIT – 5
(Financing New and Growing Business)
COURSE CONTENT
 Need for financial planning
 Types of financing – debt and equity
Debt finance – bank overdraft, trade credit, Term loan and leasing
Equity finance – owner’s equity, family and friends, business angels,
venture capital and publicly raised equity
 Alternative sources of finance – debt factoring and discounting.
 Need for financial planning
Small businesses often need money. This is especially true for companies in the beginning stages
of development. A financial plan is the most important thing a small business needs. It’s a road
map, a guideline, a reminder of what your goals are–what you are trying to achieve in the short-
term and the long-term. It lays out what your possible costs are, and it seeks out to address
avenues for how to manage these costs. It is so important that investors, bankers, and creditors
won’t even set up a meeting with you if you don’t have a financial plan for your small business.
Your financial plan helps you manage your cash flow. Most businesses have income that varies
from season to season. A good financial plan takes these vicissitudes into account so that there
aren’t shortages in the long term. Having a cash cushion helps ensure that your business can take
a poor season and still come out on top. Planning your taxes, prudishly spending your cash flow,
and budgeting carefully can result from careful financial planning.
When someone is in the thick of running his/her business, he /she can lose sight of the long term
goals that ensure proper growth of your small business. A solid financial plan can be a reminder
of all the necessary expenditures to keep your small business growing so as to stay ahead of the
competitors in your market.
The decisions of the small business owner takes can have positive or negative consequences. A
good financial plan can spot positive and negative trends where they may have become lost in a
sea of numbers. This will help you better allocate funds to the areas that are making your
business money, and avoid expenditures that didn’t yield enough results.
Financial planning can also help you prioritize expenditures. In small businesses, conserving
financial resources is a must. A well thought out financial plan can help you prioritize what areas
need to be funded immediately, and where your expenses can wait until you have a better season.
Even the world’s largest corporations go through a process of prioritization of expenditures
resulting from careful cost/benefit analysis.

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Overall, the financial plan is there to help you measure your progress. How did your season go?
What steps have been made in achieving your goals? When a small business owner is knee-deep
in the day-to-day operations of running their business, they can often lose sight of what strides
they have made to grow their small business. The financial plan helps the small business owner
see precisely what is occurring through reviewing and analyzing the hard data.
In short, every small business owner must have a methodical business plan that is updated
regularly if they want to operate successfully for years to come.There are two basic types of
funding available to small businesses— Debt financing and Equity financing
Debt Financing
Purchasing a home, a car, or using a credit card are all forms of debt financing. You are taking a loan
from a person or business and pledging to pay it back with interest. Debt financing for your business
works similarly.
As a business owner, you can apply for a business loan from a bank or receive a personal loan from
friends, family, or other lenders, all of which you must payback. Even if family members lend you money
for your business, they must charge the minimum IRS interest rate to avoid the gift tax.
The advantages of debt financing are numerous. First, the lender has no control over your business.
Once you pay the loan back, your relationship with the financier ends. Next, the interest you pay is tax-
deductible. Finally, it is easy to forecast expenses because loan payments do not fluctuate.
The downside to debt financing is authentic to anybody who has debt. Debt is a bet on your future
ability to pay back the loan. What if your company hits hard times or the economy, once again,
experiences a meltdown? What if your business does not grow as fast or as well as you expected? Debt
is an expense, and you have to pay expenses regularly. This could put a damper on your company's
ability to grow.
Sources and types of debt financing
1. Loans from family and friends One of the safest ways to fundraise for your small business is to refer to
the friends and family you trust. If you treat the process professionally, set realistic milestones, and
create thorough documentation, you can have access to secure funds on your terms. Don’t take the
agreement lightly though, because not only are funds at stake, but personal relationships too.
2. Bank loans A Bank Term loan from lenders in the SmartBiz network is a short-term, fixed-rate loan
with stable monthly payments. These loans are a great fit when you need funds quickly and want to lock
in your interest rate. The same streamlined process SmartBiz uses for SBA loans is used for term loans.
Proceeds from a Bank term loan can be used in a variety of ways to meet your business goals. Funds can
be used for working capital, debt refinance, new equipment purchase, and more. Additionally, paying
off a Bank Term loan responsibly helps to build business credit.

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3. Personal loans A personal loan is funding borrowed from a bank, credit union or online lender. These
loans can be used for any number of purposes, including funding a business. Most personal loans are
unsecured, which means they don’t require collateral. They are typically paid back in fixed monthly
payments, usually over two to five years. As long as your lender has no restrictions against using a
personal loan for your business, you can use the money for various business building initiatives like
equipment purchases, marketing, or other costs you incur when starting a business.
4. Government-backed loans, such as SBA loans If you can qualify, an SBA 7(a) loan is generally the best
option for working capital. The 7(a) Loan Program is the Small Business Administration’s primary
program for helping small businesses with financing. The SBA does not actually make direct loans;
instead, it provides loan guarantees, promising the bank to pay back a certain percentage of your loan if
you are unable to. Frequently seen as the “gold standard” in small business loans, an SBA loan might
have the longest-terms (10 years) and lowest-interest available in the marketplace. SBA lenders look for
established businesses and applicants with good credit, a solid business plan, collateral, and a
demonstrated ability to repay the loan. In addition to working capital, SBA 7(a) loans can be used for
debt refinance and commercial property purchase or refinance.
5. Lines of credit An outright loan is a lump sum of borrowed money, but a business line of credit is a
revolving line you can draw against as you need it. You only pay for the money that you use. Lines of
credit can be extended by a large bank, a small local bank or an alternative online lender. Lines of credit
have advantages over regular business loans. The use of funds is flexible, there are no set monthly
payments and no interest is charged on the unused money in the account. When you repay a borrowed
amount, those funds are immediately available again.
6. Credit cards A business credit card is intended for use by a business rather than for an individual's
personal use. Business credit cards are available to businesses of all sizes. They can help businesses build
a credit profile to improve future credit borrowing terms. Read The Pros and Cons of Credit Cards for
more information.
7. Equipment loans Business equipment loans are used for acquiring larger equipment that might be too
pricey to expense outright. Whether it’s new computers for the office, heavy machinery, or anything in
between, the tool you're planning to purchase will usually act as collateral for its own loan.
8. Personal Loans from Family and Friends: One of the safest ways to fundraise for your small business is
to refer to the friends and family you trust. If you treat the process professionally, set realistic
milestones, and create thorough documentation, you can have access to secure funds on your terms.
Don’t take the agreement lightly though, because not only are funds at stake, but personal relationships
too.

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Equity Financing
The public does not understand equity financing and debt financing because equity financing involves
investors. You could offer shares of your company to family, friends, and other small investors, but
equity financing often involves venture capitalists or angel investors. The popular ABC series "Shark
Tank" highlights entrepreneurs who present their business ideas to a group of investors in an attempt to
secure equity financing.
The significant advantage of equity financing is that the investor takes all of the risks. If your company
fails, you do not have to pay the money back. You will also have more cash available because there are
no loan payments. Finally, investors take a long-term view and understand that growing a business takes
time.
The downside is large. To gain the funding, you will have to give the investor a percentage of your
company. You will have to share your profits and consult with your new partners any time you make
decisions affecting the company. The only way to remove investors is to buy them out, but that will
likely be more expensive than the money they initially gave you.
Major Sources of Equity Financing
When a company is still private, equity financing can be raised from angel investors, crowdfunding
platforms, venture capital firms, or corporate investors. Ultimately, shares can be sold to the public in
the form of an IPO.
1. Angel investors Angel investors are wealthy individuals who purchase stakes in businesses that they
believe possess the potential to generate higher returns in the future. The individuals usually bring their
business skills, experience, and connections to the table, which helps the company in the long term.
2. Crowdfunding platforms Crowdfunding platforms allow for a number of people in the public to invest
in the company in small amounts. Members of the public decide to invest in the companies because
they believe in their ideas and hope to earn their money back with returns in the future. The
contributions from the public are summed up to reach a target total.
3. Venture capital firms Venture capital firms are a group of investors who invest in businesses they
think will grow at a rapid pace and will appear on stock exchanges in the future. They invest a larger sum
of money into businesses and receive a larger stake in the company compared to angel investors. The
method is also referred to as private equity financing.
4. Corporate investors Corporate investors are large companies that invest in private companies to
provide them with the necessary funding. The investment is usually created to establish a strategic
partnership between the two businesses.
5. Initial public offerings (IPOs) Companies that are more well-established can raise funding with an
initial public offering (IPO). The IPO allows companies to raise funds by offering its shares to the public
for trading in the capital markets.

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Alternative sources of finance – debt factoring and discounting.

What is invoice financing?
Invoice finance is a way to monetise your company’s outstanding invoices. Essentially, your business is
fronted a percentage of the invoice’s value by a third-party in return for a fee (typically 5% of the total
value of the invoice). As such, invoice finance allows businesses in need of a short-term cash injection to
get paid immediately, instead of waiting for days/weeks to collect payment from the customer. There
are two main types of invoice finance: invoice factoring and invoice discounting. While the concepts are
relatively similar, there are a couple of key differences to get your head around.
Invoice factoring
• Invoice factoring is a type of invoice finance that enables you to “sell” some of your outstanding
invoices. In this scenario, a factoring company will pay you around 80-90% of the invoice amount
immediately. Then, after the customers pay the factoring company for the full value of the invoice,
they’ll pay you the remaining amount, minus their fee. Invoice factoring can be an excellent way for
companies with a large number of outstanding invoices to navigate cash flow problems and improve
revenue stability.
Invoice Discounting
With invoice discounting, the discounting company will lend your business a percentage of the money
listed in the accounts receivable ledger. In effect, it’s like having an overdraft facility that’s secured
against your accounts receivables. So, how does invoice discounting work? After you raise invoices for
goods or services, the discounting company lends your business an amount commensurate to the full
value of the invoices, minus a small percentage. Then, after you receive payment from your customers,
you repay the loan, plus an agreed upon fee to cover the cost, interest, and risk (usually 1-3% of the
total invoice value).
Invoice factoring Invoice discounting
Used for small – medium sized businesses, Used mainly by medium – large businesses, with turnover over
with turnover under £500k/td> £500k
The invoice factoring company has control The business requesting finance has full control over the sales
over the sales ledger ledger
Factor collects payments and chases Normally a confidential facility – customers do not need to
customers on behalf of the business know that an invoice discounting facility is present
Can be more expensive than invoice factoring, especially if the

Often cheaper than invoice discounting invoice finance is non-recourse (i.e., funder takes the risk of
non-payment from the end customer
Invoice factoring is useful for one-off Whole or selective invoices can be used against one or numerous
single invoices invoices respectively
Credit control and collection services allow Discounting facilities can fit and work alongside accounts

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Invoice factoring Invoice discounting
the business the ability to focus on other payable, finance and accounting teams within the company
time and resources
In summary, the benefits of invoice finance are as follows:
• Release around 80-90% of the value of invoices straight away
• Other assets are not needed to access invoice finance
• Can be used even if you’ve been previously rejected from the bank, might not be creditworthy, or
have only recently started trading
• Competitive pricing
• Helps bridge the gap between invoicing the end customers and receiving final payment

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Unit -6
Marketing
COURSE CONTENT…
 Concept of marketing
 Role of market research
 Conducting market research
 Marketing process – goal setting and understanding the market
 Marketing mix – product or service, promotion, price, placement, people, process and physical
evidence
 Evaluation of marketing.
Concept of marketing
• Marketing meant different things to different people; to the housewife it meant shopping for
food; to the farmer it means the sale of his product; and to the fertilizer distributor it meant the
selling to the farmer.
• In short, marketing would include all the activities performed from the stage of production to
ultimate consumption. In other words it refers to functions of marketing viz., assembling,
warehousing, grading, barding, packing, labeling, distribution, selling and servicing
• The components of marketing concept are as under:
a. Satisfaction of Customers: In the modern era, the customer is the focus of the organization. The
organization should aim at producing those goods and services, which will lead to satisfaction of
customers.
b. Integrated marketing: The functions of production, finance and marketing should be integrated to
satisfy the needs and expectations of customers.
c. Profitable sales volume: Marketing is successful only when it is capable of maximizing profitable sales
and achieves long-run customer satisfaction
 Marketing refers to all activities a company does to promote and sell

products or services to consumers.
 Marketing makes use of the "marketing mix," also known as the four
Ps—product, price, place, and promotion.
 At its core, marketing seeks to take a product or service, identify its
ideal customers, and draw the customers' attention to the product or
service available.

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Collins Dictionary has the following definition of the term:
“Marketing is the organization of the sale of a product, for example, deciding on its
price, the areas it should be supplied to, and how it should be advertised.”
Below is the American Marketing Association’s definition:
“Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners,
and society at large.”
Marketing refers to the activities of a business related to buying and selling a product or
service. It involves finding out what consumers want and determining whether it is
possible to produce it at the right price. The company then makes and sells it.
According to domycreatinvewritings.com, marketing covers a vast area of business,

including:

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 how you communicate

 the brand
 the design
 pricing
 market research
 consumer psychology
 measuring effectiveness
At the core of marketing is an understanding of what customers need and value. A

company’s long-term success depends on learning what its customers’ needs are. It
then finds ways to add value through different approaches.
Concepts of marketing
1. The Production Concept. This concept is the oldest of the concepts in business. It holds
that consumers will prefer products that are widely available and inexpensive. Managers
focusing on this concept concentrate on achieving high production efficiency, low costs,
and mass distribution. They assume that consumers are primarily interested in product
availability and low prices. This orientation makes sense in developing countries, where
consumers are more interested in obtaining the product than in its features.
2. The Product Concept. This orientation holds that consumers will favor those products
that offer the most quality, performance, or innovative features. Managers focusing on
this concept concentrate on making superior products and improving them over time.
They assume that buyers admire well-made products and can appraise quality and
performance. However, these managers are sometimes caught up in a love affair with
their product and do not realize what the market needs. Management might commit the
“better-mousetrap” fallacy, believing that a better mousetrap will lead people to beat a
path to its door.
3. The Selling Concept. This is another common business orientation. It holds that
consumers and businesses, if left alone, will ordinarily not buy enough of the selling
company’s products. The organization must, therefore, undertake an aggressive selling
and promotion effort. This concept assumes that consumers typically sho9w buyi8ng
inertia or resistance and must be coaxed into buying. It also assumes that the company
has a whole battery of effective selling and promotional tools to stimulate more buying.
Most firms practice the selling concept when they have overcapacity. Their aim is
to sell what they make rather than make what the market wants.
4. The Marketing Concept. This is a business philosophy that challenges the above three
business orientations. Its central tenets crystallized in the 1950s. It holds that the key to
achieving its organizational goals (goals of the selling company) consists of the company
being more effective than competitors in creating, delivering, and communicating
customer value to its selected target customers. The marketing concept rests on four
pillars: target market, customer needs, integrated marketing and profitability.
5. The Societal Marketing Concept. This concept holds that the organization’s task is to
determine the needs, wants, and interests of target markets and to deliver the desired
satisfactions more effectively and efficiently than competitors (this is the original
Marketing Concept). Additionally, it holds that this all must be done in a way that
preserves or enhances the consumer’s and the society’s well-being.

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Role of market research

• Marketing research serves marketing management by providing information which is
relevant to decision making. Marketing research does not itself make the decisions, nor
does it guarantee success. Rather, marketing research helps to reduce the uncertainty
surrounding the decisions to be made.
• "Marketing research is the systematic and objective search for, and analysis of,
information relevant to the identification and solution of any problem in the field of
marketing."
Market research helps you:

• Improve communication. It drives your communication not only with your current customer
base but with target prospects as well. Market research shows you where your customers can
be reached, as well as what language will be most effective in attracting their attention and
resonating with them on an emotional level.
• Identify opportunity. Market research helps you identify both high-level and more accessible
opportunities for reaching and converting new customers. It can be the best way to discover
new platforms for advertising, consumer concerns you were unaware of, and gaps within
your market that you can fill.
• Lower your risk. Concrete data keeps you focused on the real opportunities and helps you avoid
unproductive effort. When you understand your customers, you can use your resources to reach
them more effectively, with less risk of wasting time, money, and effort on marketing initiatives
that don't work. Market research also helps you identify low-risk, high-reward areas where your
company can expand or offer new services,
How to Conduct Research for Your Business?

• Define the problem. Start by identifying the focus of your research. Knowing what
question you are trying to answer will help you structure your research effectively.
• Determine your budget and timeframe. How much can you afford to spend on the
research process? How soon will you need to have data collection completed? Like all the
strategies that you use to grow your business, research should be conducted within your
available resources. However, depending on the urgency of the questions you are
answering, it may be worth spending more money to get the most comprehensive results
possible.
• Design your method and needs. Identify what data needs to be collected and how you
will gather it. Some options are observation, surveys, telephone calls, or focus groups. If
you are unsure how to structure your data collection, consider working with a
professional research firm.
• Choose a sampling method. How will you select the participants for your research? You
may need a random sampling from the general population of consumers, a group that all

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have a single lifestyle factor in common, or responses only from people who are already
your customers. Create a plan for identifying and contacting your participants.
• Plan for data analysis. Decide how you will analyze your data. Will you need
quantitative data for statistical analysis or qualitative, observational data to give you a
broad picture? Will you use software or do it by hand? Take time to learn about various
methods of analysis to find the one that will best answer your research question.
• Data collection. Once you know what question you want to answer and have designed a
research method to answer it within the constraints of your available budget and time, it's
time to collect data. Many businesses work with professional firms or consultants to
conduct their actual research.
• Analysis of the data. No matter how straightforward your data seems at first glance,
you'll want to use specific methods of analysis to ensure that you understand what it is
telling you. The methods of analysis that you use will depend on the type of data you
collected. This should also be when you check for errors, which can occur in your
sampling method, data collection, and analysis.
• Create your report. The final step of the research process is drafting a report on your
findings. Your report should outline the entire research process, from developing your
problem statement to the results of your data analysis.
The Marketing Research Process is comprised of the following steps:
• Step 1: Problem Definition

• Step 2: Development of an Approach to the Problem
• Step 3: Research Design Formulation
• Step 4: Field Work or Data Collection
• Step 5: Data Preparation & Analysis
• Step 6: Report Preparation & Presentation

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Marketing Mix
What are the 7Ps of marketing?

• Products/Services: How can you develop your products or services
• Prices/Fees: How can we change our pricing model
• Place/Access: What new distribution options are there for customers to experience our
product, e.g. online, in-store, mobile etc

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• Promotion: How can we add to or substitute the combination within paid, owned and
earned media channels
• Physical Evidence: How we reassure our customers, e.g. impressive buildings, well-
trained staff, great website
• Processes: Are there internal process barriers in the way to delivering the best customer
value
• People: Who are our people and are there skills gaps
• Partners: Are we seeking new partners and managing existing partners well?.
9 Ps
Be sure your company is taking good care of their customers
• (People/Purchasers),
• and having the right Planning and targeting (People),
• the right Product or Service,
• right Place or distribution,
• right Price,
• right Promotion,
• right Partners, and
• the right Presentation,
• with the right amount of Passion in delivering the 9P’s of Marketing.
Evaluation of marketing
• Market evaluation is a research of a marketplace aimed at determining whether a new
company can perform well and succeed in a new business environment. It helps receive
insights into competitors, market trends and make strategic business decisions.
An accomplished entrepreneur who has clear objectives and plans won’t rely on their
feelings only. They know that a great idea for a startup can’t guarantee their success and
wealth. The first thing you should do is to research a market you strive to enter and evaluate
it. You should do an analysis that will help you find out whether your company can blossom
forth in a particular marketplace.

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How to evaluate your market?

There are many great business ideas all around the world, but only a few of them bring profit.
The process helps you concentrate only on startups with the highest potential to succeed. Let’s
discover how to do it.
• Analyze your target audience and rivals. If you aim to determine whether the demand
for your product or service is high, you need to conduct research. Split up your customers
into segments based on their age, occupation, gender, and interests to understand if they
actually need your product. Once you are finished with the analysis, you’ll know what to
do next. Apart from customer research, consider performing a thorough competitor
analysis Evaluating the strength and weaknesses of your rivals empowers you to decide
on the strategies and product differentiation.
• Assess your potential marketplace. In addition to customer and competitor analysis,
remember to research your market. To determine how successful your business can be,
you need to have such information as market size, the number of customers, the barriers
to entry, the industry value chain, and the level of competition.
• Find some adjacent opportunities. Corporations with systematic and disciplined
approaches are the most profitable. They manage to expand their core business and reach
new geographic. That’s why you should prepare the best marketing strategies that suit
your business and look for adjacent opportunities to scale in the future. To reach new
categories, you can leverage the same channels and techniques.
• Explore your business environment. Understanding the general business environment
gives a clear picture of a potential influence on your company’s performance. Before
entering the marketplace, you need to be aware of the factors that can impact your
business, such as government regulations, trade policies, social and cultural norms, and
technological developments.
The following outline is the suggested format for writing the research report:
1. Title page
2. Letter of Authorization
3. Summary of findings
4. Table of contents
List of tables
List of figures
5. Introduction
Background to the research problem
Objectives
Hypotheses

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6.Methodology
Data collection
Sample and sampling method
Statistical or qualitative methods used for data analysis
Sample description
7. Findings
8. Limitations
9. Results, interpretation and conclusions.
10. Recommendations
11. Appendices
12. Bibliography

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Unit 7: Operations Management

Course content
• Operations as a management process;
• Physical site factors–premises, location and internal layout;
• Production process and work flow;
• Service blueprinting–inventory and supply management, and operating equipment;
• Evaluating, improving and securing operational activities;
• Procedural systems and quality assurance;
• Risk management
7.1 Operations as a management process
Operations management is an area of management concerned with overseeing, designing,
and controlling the process of production and redesigning business operations in the
production of goods or services.
In simple words, operation management as a systematic design direct and control of the
process.
Operation management involves the systematic direction and control of the process that
transform resources (input) into finished goods or services for customers or clients
(output).
• Operations management is an area of management concerned with designing and
controlling the process of production and redesigning business operations in the
production of goods or services.It involves the responsibility of ensuring
that business operations are efficient in terms of using as few resources as needed
and effective in meeting customer requirements.
It is concerned with managing an entire production or service system which is the process
that converts inputs (in the forms of raw materials, labor, consumers, and energy) into
outputs (in the form of goods and/or services for consumers).Operations produce
products, manage quality and create services. Operation management covers sectors like
banking systems, hospitals, companies, working with suppliers, customers, and using
technology. Operations is one of the major functions in an organization along with supply
chains, marketing, finance and human resources. The operations function requires
management of both the strategic and day-to-day production of goods and services.
Ford Motor car assembly line: the classical example of a manufacturing production
system.
In managing manufacturing or service operations several types of decisions are made
including operations strategy, product design, process design, quality management,
capacity, facilities planning, production planning and inventory control. Each of these
requires an ability to analyze the current situation and find better solutions to improve the
effectiveness and efficiency of manufacturing or service operations.

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Production process and work flow
Service blueprinting–inventory and supply management, and operating equipment

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What Is a Service Blueprint?

Definition: A service blueprint is a diagram that visualizes the relationships between different
service components — people, props (physical or digital evidence), and processes — that are
directly tied to touch points in a specific customer journey.
Think of service blueprints as a part two to customer journey maps. Similar to customer-journey
maps, blueprints are instrumental in complex scenarios spanning many service-related offerings.
Blueprinting is an ideal approach to experiences that are omnichannel, involve multiple touch
points, or require a cross functional effort (that is, coordination of multiple departments).
A service blueprint corresponds to a specific customer journey and the specific user goals
associated to that journey. This journey can vary in scope. Thus, for the same service, you may
have multiple blueprints if there are several different scenarios that it can accommodate. For
example, with a restaurant business, you may have separate service blueprints for the tasks of
ordering food for takeout versus dining in the restaurant.
Service blueprints should always align to a business goal: reducing redundancies, improving the
employee experience, or converging siloed processes.
Operations and Supply Chain Management

• Operations and Supply Chain Management (OSCM) includes a broad area that covers
both manufacturing and service industries, involving the functions of sourcing, materials
management, operations planning, distribution, logistics, retail, demand forecasting, order
fulfillment, and more.
• It covers everything along the path goods travel from suppliers to eventual consumers.
• Every environment from government to banks to schools to hospitals either consumes or
sells items, and they need raw materials or product with which to work.
• A supply chain is involved in processing or using these materials or even providing
services to customers using these materials. Professionals in these fields also work with
processes and increasing efficiencies with processes. Operations and supply chain
professionals have a place in all of these environments.
Consider environments where there are large volumes of movement; movement of people,
product, raw material, data, money or consumers. This occurs in almost any environment and
any industry.

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Service blueprint at hotel
Service Blueprint at Bank

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Evaluating, improving and securing operational activities

• The simple words can lead to endless debate and misunderstanding when used in an
operational context. So, before we bring in the big guns of strategy and organization
design, let’s have a go at unpacking operational efficiency, operational effectiveness, and
operational excellence.
Operational effectiveness
• Operational effectiveness is about doing the right things. It revolves around making sure
that all the core work done by the organization creates value to their end customer; that
the core Value Stream is correctly designed. Organizational effectiveness denotes the
concept of how effectively an organization achieves the outcomes it intends to
produce. It’s about WHAT work is done.
Operational efficiency
• Operational efficiency is about doing things right. In other words, it means ensuring that
the workflows are error-free, thus preventing delays and cost increases caused by delays
and rework. Or, preventing below-specification products and services from reaching the
customer. Operational efficiency entails the capability of an organization to deliver
products or services to its customers in the most efficient manner possible, while still
ensuring the high quality of its products, service, and support. It’s not about cost-cutting
— it is about HOW work is done.
Operational excellence
• Operational excellence is an organization’s value proposition to its customers; in itself,
it’s a strategy. An operational excellence strategy aims to accomplish cost leadership, and
it proves ideal for markets where customers value cost over choice, which is often the
case for mature, commoditized markets where cost leadership provides a vehicle for
continued growth. Operational excellence is about WHY work is done.
10 Steps to Improve Operational Efficiency

• Know your operation. ...
• Train, train and train again. ...
• Put people first. ...
• Keep an order fulfillment focus. ...
• Improve customer service. ...
• Remove barriers to success. ...
• Raise the bar. ...

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• Review processes.
• Benchmark against your peers
• Assess the power of your system
Procedural System Development Process

The structured approach for developing procedures has proved highly effective from the
standpoint of acceptance, timeliness, and effectiveness. As stated previously, the process uses the
concepts of system engineering for complex interdisciplinary systems. This combination of
scientific method supplemented with administrative technique can be broadly summarized as
follows:
• Establish requirements and parameters.
• Define interfaces at all levels.
• Identify end use requirements.
• Define system.
• Establish plans and system design to meet requirements.
• Test the system.
• Determine if results satisfy system design.
• Implement system.
Quality Assurance
What is Quality?
• Quality is extremely hard to define, and it is simply stated: “Fit for use or purpose.” It is
all about meeting the needs and expectations of customers with respect to functionality,
design, reliability, durability, & price of the product.
What is Assurance?
• Assurance is nothing but a positive declaration on a product or service, which gives
confidence. It is certainty of a product or a service, which it will work well. It provides a
guarantee that the product will work without any problems as per the expectations or
requirements.
Definition of QA:
• According to experts, “Quality assurance is the systematic way to determine whether the
products or services of a company meet quality standards and satisfy customer
expectations.”

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• QA is designed to make customers happy and build trust between them and the
company’s products or services. In simple words, it raises the credibility of the company.
Quality Assurance Process
Plan – Organization should plan and establish the process related objectives and
determine the processes that are required to deliver a high-Quality end product.
Do – Development and testing of Processes and also “do” changes in the processes
Check – Monitoring of processes, modify the processes, and check whether it meets the
predetermined objectives
Act – A Quality Assurance tester should implement actions that are necessary to achieve
improvements in the processes.
Best practices for Quality Assurance

• Create a Robust Testing Environment
• Select release criteria carefully
• Apply automated testing to high-risk areas to save money. It helps to fasten the entire
process.
• Allocate Time Appropriately for each process
• It is important to prioritize bugs fixes based on software usage
• Form dedicated security and performance testing team
• Simulate customer accounts similar to a production environment

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Quality Assurance Certifications

• There are several certifications available in the industry to ensure that Organizations
follow Standards Quality Processes. Customers make this as qualifying criteria while
selecting a software vendor.
• ISO 9000
• This standard was first established in 1987, and it is related to Quality Management
Systems. This helps the organization ensure quality to their customers and other
stakeholders. An organization who wishes to be certified as ISO 9000 is audited based on
their functions, products, services and their processes. The main objective is to review
and verify whether the organization is following the process as expected and check
whether existing processes need improvement.
• This certification helps –
• Increase the profit of the organization
• Improves Domestic and International trade
• Reduces waste and increase the productivity of the employees
• Provide Excellent customer satisfaction
Risk management
Risk management is the process of identifying, assessing and controlling threats to an
organization's capital and earnings. These risks stem from a variety of sources including
financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents
and natural disasters.
A successful risk management program helps an organization consider the full range of risks it
faces. Risk management also examines the relationship between risks and the cascading impact
they could have on an organization's strategic goals.
This holistic approach to managing risk is sometimes described as enterprise risk
management because of its emphasis on anticipating and understanding risk across an
organization. In addition to a focus on internal and external threats, enterprise risk
management (ERM) emphasizes the importance of managing positive risk. Positive risks are
opportunities that could increase business value or, conversely, damage an organization if not
taken. Indeed, the aim of any risk management program is not to eliminate all risk but to
preserve and add to enterprise value by making smart risk decisions.
Thus, a risk management program should be intertwined with organizational strategy. To link
them, risk management leaders must first define the organization's risk appetite -- i.e., the
amount of risk it is willing to accept to realize its objectives.

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The formidable task is to then determine "which risks fit within the organization's risk appetite
and which require additional controls and actions before they are acceptable," explained Notre
Dame University Senior Director of IT Mike Chapple in his article on risk appetite vs. risk
tolerance. Some risks will be accepted with no further action necessary. Others will be mitigated,
shared with or transferred to another party, or avoided altogether.
Response to Risks
Response to risks usually takes one of the following forms:
• Avoidance: A business strives to eliminate a particular risk by getting rid of its cause.
• Mitigation: Decreasing the projected financial value associated with a risk by lowering
the possibility of the occurrence of the risk.
• Acceptance: In some cases, a business may be forced to accept a risk. This option is
possible if a business entity develops contingencies to mitigate the impact of the risk,
should it occur.

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Unit 8: Human Resource Issues

Course content
• Concept and functions of HRM;
• HRM as a business strategy;
• Acquisition of staff–employ or not employ, organization structure, job analysis, setting
selection criteria, remuneration and rewards and recruitment sources;
• Employment contract;
• Maintenance-orientation and induction , and motivation mechanisms;
• Performance appraisal;
• Termination;
• Regulatory requirements.
Concept and functions of HRM

Human Resource Management
Human Resource Management is a function within an organization which focuses mainly on the
recruitment of, management of, and providing guidelines to the manpower in a company. It is a
function of the company or organization which deals with concerns that are related to the staff of
the company in terms of hiring, compensation, performance, safety, wellness, benefits,
motivation and training.
Human Resource Management is also a premeditated approach to manage people and the work
culture. An efficient human resource management enables the workforce of an organization to
contribute efficiently and effectively towards the overall achievement of a company’s goals and
objectives.
The traditional method of human resource management involved planned exploitation of staffs.
This new function of human resource management involves HRM Metrics and measurements
and strategic direction to display value. Under the influence of giving away the traditional
method, HRM has got a new terminology called Talent Management.
Human Resource Management functions can be of three types like Operative, Managerial, and
advisory. Let’s see them one by one.
Functions of Human Resource Management

☆ Operative Functions
1. Recruitment: This is the most challenging task for any HR manager. A lot of attention and
resources are required to draw, employ and hold the prospective employees. A lot of

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elements go into this function of recruitment, like developing a job description, publishing
the job posting, sourcing the prospective candidates, interviewing, salary negotiations and
making the job offer.
2. Training and Development: On the job training is the responsibility of the HR department.
Fresher training may also be provided by some companies for both new hires and existing
employees. This Fresher training is mainly done to make the employees up to date in their
respective areas as required by the company. This function makes the employees understand
the process and makes it easy for them to get on their jobs with much ease. During the
process of the training and development, the results are monitored and measured to find out
if the employees require any new skills in addition to what he/she has.
3. Professional Development: This is a very important function of Human Resource
Management. This function helps the employees with opportunity for growth, education,
and management training. The organization undertakes to sponsor their employees for
various seminars, trade shows, and corporal responsibilities. This, in turn, makes the
employees feel that they have been taken care by their superiors and also the organization.
4. Compensation and Benefits: A company can attain its goals and objectives if it can
acclimatize to new ways of providing benefits to the employees. Some of the benefits given
by companies are listed below for our understanding:
1. Working hour flexibility
2. Extended vacation
3. Dental/Medical Insurance
4. Maternal/Paternal Leave
5. Education Reimbursement for children
5. Performance Appraisal: The employees of any organization will be evaluated by the HR
department as per the performance. This function of Human Resource Management is to
help the organization in finding out if the employee they have hired is moving towards the
goals and objectives of the organization. On the other hand, it also helps the company to
evaluate whether the employees needs improvement in other areas. It also helps the HR
team in drawing certain development plans for those employees who have not met the
minimal requirements of the job.
6. Ensuring Legal Compliance: To protect the organization this function plays a crucial role.
The HR department of every organization should be aware of all the laws and policies that
relate to employment, working conditions, working hours, overtime, minimum wage, tax
allowances etc. Compliance with such laws is very much required for the existence of an
organization.
☆ Managerial Functions
1. Planning: This function is very vital to set goals and objectives of an organization. The
policies and procedures are laid down to achieve these goals. When it comes to planning the
first thing is to foresee vacancies, set the job requirements and decide the recruitment
sources. For every job group, a demand and supply forecast is to be made, this requires an
HR manager to be aware of both job market and strategic goals of the company. Shortage
versus the excess of employees for that given job category is determined for a given period.
In the end, a plan is ascertained to eliminate this shortage of employees.
2. Organizing: The next major managerial function is to develop and design the structure of
the organization. It fundamentally includes the following:
1. Employees are grouped into positions or activities they will be performing.

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2. Allocate different functions to different persons.

3. Delegate authority as per the tasks and responsibilities that are assigned.
3. Directing: This function is preordained to inspire and direct the employees to achieve the
goals. This can be attained by having in place a proper planning of career of employees,
various motivational methods and having friendly relations with the manpower. This is a
great challenge to any HR manager of an organization; he/she should have the capability of
finding employee needs and ways to satisfy them. Motivation will be a continuous process
here as new needs may come forward as the old ones get fulfilled.
4. Controlling: This is concerned with the apprehension of activities as per plans, which was
formulated on the basis of goals of the company. The controlling function ends the cycle
and again prompts for planning. Here the HR Manager makes an examination of outcome
achieved with the standards that were set in the planning stage to see if there are any
deviations from the set standards. Hence any deviation can be corrected on the next cycle.
☆ Advisory Functions
1. Top Management Advice: HR Manager is a specialist in Human Resource Management
functions. She/he can advise the top management in formulating policies and procedures.
He/she can also recommend the top management for the appraisal of manpower which they
feel apt. This function also involves advice regarding maintaining high-quality human
relations and far above the ground employee morale.
2. Departmental Head advice: Under this function, he/she advises the heads of various
departments on policies related to job design, job description, recruitment, selection,
appraisals.
HRM as a business strategy

The business of HR is an increasingly interesting and often complex environment. The level of
time and resources allocated to the HR function within an organisation varies dramatically.
Human Resource Management is a process of bringing people and organizations together so
that the goals and objectives of each are achieved. In this chapter, we will discuss how
important it is to ensure that the HR functions are properly aligned with the overall business
strategy of an organization.
Integrating HR Strategy with Business Strategy
Today, human resource departments have a more precise, strategic role in companies, and an
HR strategy affects the bottom line. Let us look into HR as part of a complete business strategy.
HR Strategy as Business Strategy
In real world, no margin in the sand is drawn between human resources strategy and business
strategy. A successful business owner understands the strong connection between the two.
Progressing human capital is essential to the longevity and success of a business.

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Human resources strategy today includes executive leadership teams conferring with human
resources experts to improvise complementary goals for human resources and the complete
business.
HR Strategy and Business Productivity
The recruitment and selection process in human resources department is paramount to creating a
productive workforce. Maintaining a workforce where employees enjoy high levels of job
satisfaction and job security converts into a workforce that assists in achieving business goals.
Trends Affecting HR and Business Strategy
Presently, we can say that HR technologies have become an integrated engine in advancing the
broader needs of businesses, supporting far more than the basic transactions, and advancing HR
and business agenda for future.
Human resources information system (HRIS) is integral to the progress of performance
management, recruitment, selection. It also plays a vital role in the rejection of candidates, their
promotions and postings, etc.
A key component of linking business strategy to HRM is a culture of clear communication and
trust within an organisation. When employees are encouraged to become involved in various
aspects of the business strategy it develops higher levels of trust and respectability between
employees and the management team. This trust is built on the knowledge sharing which allows
employees to also share in the vision and goals of the organisation. The right strategy therefore
helps to retain talent and develop highly competent employees.
The Michigan model is often referred to in discussion around strategic HRM. The model is based
on strategic control, organisation structure and people management processes. While it focuses
on reward systems for motivating employees it also concentrates on managing human resources
to achieve strategic goals. Therefore, having the right structure in place ensures issues are
addressed in a timely and effective manner. Most importantly it gets ‘buy in’ from employees as
they feel involved in contributing to the overall strategic plan of the organisation. This can result
in higher levels of productivity from a high performing workforce.
It takes strong leadership and commitment to consistently maintain the link between HR
practices and the strategic plan of the business. There are some barriers such as varying levels of
financial support towards the implementations and follow up of HR, development and training
policies. There may also be market pressures due to economic difficulties which make it difficult
to recruit the preferred talent for specific roles within the organisation. The presence of Trade
Unions and threats of industrial action can also have an adverse effect on an organisation’s
development and performance in relation to the implementation of Strategic HR Management.

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Interaction among Executive Leadership
The best way to cultivate a relationship between HR and C-level executives is by demonstrating
the return on investment (ROI) in human resources activities and practices. This may include
explaining the link between reduction in employee turnover and improvement in job satisfaction
that improves the bottom line.
Example
Till now, we are very clear about integration of HR strategy with business strategy, business
productivity, their interdependencies and the way their relationship influences the organization
as a whole.
Acquisition of staff–employ or not employ,
organization structure,

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job analysis,
setting selection criteria,
remuneration and rewards and
recruitment sources
Successful employee acquisition involves much more than job interviews and acceptance. It's
all about finding the ideal candidate, with the right fit, and making a great first impression.
When done strategically, employee acquisition can reduce risk and save money over the long
haul.
Staff acquisition involves getting the human resources needed (individuals or groups) assigned to and
working on the project. In most environments, the “best” resources may not be available, and the
project management team must take care to ensure that the resources which are available will meet
project requirements.
Inputs to Staff Acquisition
1 Staffing management plan
2 Staffing pool description. When the project management team is able to influence or direct staff
assignments, it must consider the characteristics of the potentially available staff. Considerations
include, but are not limited to:
• Previous experience—have the individuals or groups done similar or related work before? Have
they done it well?
• Personal interests—are the individuals or groups interested in working on this project?
• Personal characteristics—are the individuals or groups likely to work well together as a team?
• Availability—will the most desirable individuals or groups be available in the necessary time
frames?
3 Recruitment practices: One or more of the organizations involved in the project may have policies,
guidelines, or procedures governing staff assignments. When they exist, such practices act as a
constraint on the staff acquisition process.
Tools and Techniques for Staff Acquisition :
1 Negotiations: Staff assignments must be negotiated on most projects. For example, the project
management team may need to negotiate with:

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• Responsible functional managers to ensure that the project receives appropriately skilled
staff in the necessary time frame.
• Other project management teams within the performing organization to assign scarce or
specialized resources appropriately. The team’s influencing skills play an important role in negotiating
staff assignments as do the politics of the organizations involved. For example, a functional manager
may be rewarded based on staff utilization. This creates an incentive for the manager to assign available
staff who may not meet all of the project’s requirements.
2. Pre-assignment: In some cases, staff may be pre-assigned to the project. This is often the case when
(a) the project is the result of a competitive proposal and specific staff were promised as part of the
proposal, or (b) the project is an internal service project and staff assignments were defined within the
project charter.
3 Procurement: Project procurement management can be used to obtain the services of specific
individuals or groups of individuals to perform project activities. Procurement is required when the
performing organization lacks the in-house staff needed to complete the project (e.g., as a result of a
conscious decision not to hire such individuals as full-time employees, as a result of having all
appropriately skilled staff previously committed to other projects, or as a result of other circumstances).
Outputs from Staff Acquisition
1 Project staff assigned. The project is staffed when appropriate people have been reliably assigned to
work on it. Staff may be assigned full-time, part-time, or variably, based on the needs of the project.
.2 Project team directory. A project team directory lists all the project team members and other key
stakeholders. The directory may be formal or informal, highly detailed or broadly framed, based on the
needs of the project.
organization structure
An organizational structure is a system that outlines how certain activities are directed in
order to achieve the goals of an organization. These activities can include rules, roles, and
responsibilities. The organizational structure also determines how information flows between
levels within the company.
An organizational structure details how certain activities are delegated

toward achieving an organization's goal. It outlines an employee's role
and various responsibilities within a company. The more authority
employees have, the higher up they'll be on the organizational
structure. In addition, the more organized a structure is, the more
efficiently a company operates. There are four types of organizational
structures: functional structures, flatarchy structures, matrix structures
and divisional structures.
Organizational structure is a system used to define a hierarchy within an organization. It
identifies each job, its function and where it reports to within the organization. This structure is

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developed to establish how an organization operates and assists an organization in obtaining

its goals to allow for future growth. The structure is illustrated using an organizational chart.
The 6 Building Blocks of Organizational Structure

1) Chain of Command
One of the most basic elements of an organizational structure, chain of

command is exactly what it sounds like: an unbroken line of authority that
extends from the top of the organization (e.g. a CEO) all the way down to the
bottom. Chain of command clarifies who reports to whom within the
organization.
2) Span of Control
Span of control refers to the number of subordinates a superior can effectively

manage. The higher the ratio of subordinates to superiors, the wider the span
of control.

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3) Centralization
Who makes the decisions in an organization? If decision-making power is

concentrated at a single point, the organizational structure is centralized. If
decision-making power is spread out, the structure is decentralized.
While a decentralized structure promotes a more democratic decision-making

process, it can also slow down the decision-making process, making it harder
for organizations to operate efficiently.
4) Specialization
Also known as division of labor, specialization is the degree to which activities

or tasks in an organization are broken down and divided into individual jobs.

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High specialization can be beneficial for an organization, as it allows

employees to become “masters” in specific areas, increasing their productivity
as a result.
However, low specialization allows for more flexibility, as employees can more
easily tackle a broader array of tasks (as opposed to being specialized for a
single task).
5) Formalization
Similar to specialization, formalization deals with the how jobs are structured
within an organization. The key differentiator here is that formalization also
takes into account the degree to which an employee’s tasks and activities are
governed by rules, procedures, and other mechanisms.
A formal organizational structure seeks to separate the individual from the role
or position, as the role or position stays the same regardless of who’s holding
it. An informal organization, on the other hand, places more value on the
individual. It allows for the evolution of a role or position based on an
individual’s preferences, skill set, etc., and places less importance on what
team or department that individual is part of.

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6) Departmentalization
Departmentalization refers to the process of grouping jobs together in order to

coordinate common activities and tasks.
If an organization has rigid departmentalization, each department or team is

highly autonomous, and there is little (or no) interaction between different
teams. In contrast, loose departmentalization entails that teams have more
freedom to interact and collaborate.
Mechanistic vs. Organic Organizational Structures

Organizational structures fall on a spectrum, with "mechanistic" at one end
and
"organic" at the other.

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Take a look at the diagram below. As you'll probably be able to tell, the
mechanistic structure represents the traditional, top-down approach to
organizational structure, whereas the organic structure represents a more
collaborative, flexible approach.
Here's a breakdown of both ends of the structural spectrum, their advantages

and disadvantages, and which types of businesses are suited for them.
Mechanistic Structure
Mechanistic structures, also called bureaucratic structures, are known for
having narrow spans of control, as well as high centralization, specialization,
and formalization. They're also quite rigid in what specific departments are
designed and permitted to do for the company.
This organizational structure is much more formal than organic structure,

using specific standards and practices to govern every decision the business
makes. And while this model does hold staff more accountable for their work,
it can become a hindrance to the creativity and agility the organization needs
to keep up with random changes in its market.
As daunting and inflexible as mechanistic structure sounds, the chain of

command, whether long or short, is always clear under this model. As a
company grows, it needs to make sure everyone (and every team) knows
what's expected of them. Teams collaborating with other teams as
needed might help get a business off the ground in its early stages, but
sustaining that growth — with more people and projects to keep track of —

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will eventually require some policymaking. In other words, keep mechanistic

structure in your back pocket ... you never know when you'll need it.
Organic Structure
Organic structures (also known as "flat" structures) are known for their wide
spans of control, decentralization, low specialization, and loose
departmentalization. What's that all mean? This model might have multiple
teams answering to one person and taking on projects based on their
importance and what the team is capable of — rather than what the team is
designed to do.
As you can probably tell, this organizational structure is much less formal than
mechanistic, and takes a bit of an ad-hoc approach to business needs. This
can sometimes make the chain of command, whether long or short, difficult to
decipher. And as a result, leaders might give certain projects the green light
more quickly but cause confusion in a project's division of labor.
Nonetheless, the flexibility that an organic structure allows for can be

extremely helpful to a business that's navigating a fast-moving industry, or
simply trying to stabilize itself after a rough quarter. It also empowers
employees to try new things and develop as professionals, making the
organization's workforce more powerful in the long run. Bottom line? Startups
are often perfect for organic structure, since they're simply trying to gain brand
recognition and get their wheels off the ground.
Now, let's uncover more specific types of organizational structures, most of

which fall on the more traditional, mechanistic side of the spectrum.
Types of Organizational Structure

1. Functional Organizational Structure
2. Product-Based Divisional Structure
3. Market-Based Divisional Structure
4. Geographical Divisional Structure
5. Process-Based Structure
6. Matrix Structure

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7. Circular Structure
8. Flat Structure
9. Network Structure
Job Analysis – Meaning:
Job analysis is a systematic and detailed examination of jobs. It is the

process of collecting information about a job — that is, the knowledge,
skills, and the experience needed to carry out a job effectively. The
jobholder is supposed to possess job-related knowledge useful to carry
out the job easily.
In other words, job analysis refers to the anatomy of the job. It is a

complete study of job, embodying every known and determinable
factor, including the duties and responsibilities involved in its
performance, the conditions under which the performance is carried
on, the nature of the task, the qualities required in the worker, and
such conditions of employment as pay hour, opportunities and
privileges. It also emphasises the relation of one job to others in the
organisation.
Job Analysis – Definitions:

(1) According to Edwin B. Flippo – “Job analysis is the process of
studying and collecting information relating to the operations and
responsibilities of a specific job. The immediate products of this
analysis are job descriptions and job specifications.”
(2) Further, David A. De Cenzo and Stephen P. Robbins has defined
“job analysis is a systematic exploration of the activities within a job. It
is a basic technical procedure, one that is used to define the duties,
responsibilities and accountabilities of a job.”
Job analysis provides the following information about a job:

i. Nature of jobs required in a concern;
ii. Nature of organizational structure;
iii. Type of people required to fit that structure;

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iv. The relationship of a job with other jobs in a concern;
v. Kind of qualifications required for a particular job;
vi. Provision of physical condition to support the activities of a

concern;
vii. Materials, equipments and methods used in performing the job.
Job Analysis – Process (How to Conduct Job

Analysis?):
How to conduct job analysis? We should perform eight steps as follows
for conducting job analysis.
These are mentioned below:

Step 1- Identify Purpose of Job Analysis:
First of all we should identify the purpose of job analysis. Otherwise
we will not be able to collect all the pertinent information concerning
job analysis and job analysis methods.
Step 2- Selection of Analyst:

We have to choose analyst to whom responsibilities will be assigned
for job analysis. The analysts will be taken from professional human
resource, line managers, incumbents or consultants.
Step 3- Selection of Method:

We will select representative positions to analyze because it may not
be necessary to analyze all jobs and there may be too many similar
jobs to analyze. After selecting representative jobs we must identify
the appropriate method which is the best one in order to analyze a
particular job.
Step 4 -Train the Analyst:

If we use internal analyst then we have to give them appropriate
training so that they can use the selected methods of job analysis in an
efficient and effective way.

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Step 5- Preparation of Job Analysis:

It includes communicate the project in the organization and preparing
the documentation.
Step 6- Collection of Data:

Job analysts will collect data relating to job activities, employee
behaviours, working conditions, human traits and abilities to perform
the job, etc.
Step 7- Review and Verify:

Analysts must verify the collected data to confirm that the information
is factually correct and complete.
Step 8- Develop a Job Description and Job Specification:

Develop a job description and job specification from the job analysis
information. A job description is a written statement that describes the
activities and responsibilities of the job, working conditions, safety
and hazards. A job specification summarizes the personal qualities,
traits, skills, and background required for getting the job done.
Job Analysis – Methods:

Methods of collecting job analysis information include direct
observation, work method analysis, critical incident technique,
interview and questionnaire method.
These are given below:

1. Direct Observation Method:
Direct Observation is a method of job analysis to observe and record
behaviour / events / activities / tasks / duties when the worker or
group engaged in doing the job. Observation method can be effective
only when the job analyst is skilled enough to know what is to be
observed, how to analyze, and what is being observed.
2. Work Method Analysis:

Work methods analysis is used to describe manual and repetitive
production jobs, such as factory or assembly-line jobs. Work methods
analysis includes time and motion study and micro-motion analysis.

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3. Critical Incident Technique:

Critical incident technique is a method of job analysis used to identify
work behaviours that classify in good and poor performance. Under
this method, jobholders are asked to describe critical incidents
concerning the job and the incidents so collected are analyzed and
classified according to the job areas they describe.
4. Interview Method:
Interview method is a useful tool of job analysis to ask questions to
both incumbents and supervisors in either an individual or a group
setting. Interview includes structured interviews, unstructured
interview, and open-ended questions.
5. Questionnaire Method:
It includes 6 techniques, which are as follows:
a. Position Analysis Questionnaire (PAQ Model):
PAQ model is a questionnaire technique of job analysis. It developed
by McCormick, Jeanneret, and Mecham (1972), is a structured
instrument of job analysis to measure job characteristics and relate
them to human characteristics. It consists of 195 job elements that
describe generic human work behaviours.
b. Functional Job Analysis (FJA Model):

FJA model is a technique of job analysis that was developed by the
Employment and Training Administration of the United States
Department of Labour. It includes 7 scales (numbers) that measure- 3
worker-function scales- measure percentage of time spent with: data,
people, things; 1 worker-instruction scale; 3 scales that measure
reasoning, mathematics, and language.
c. Work Profiling System (WPS Model):

WPS model is a questionnaire technique of job analysis, is a computer-
administered system for job analysis, developed by Saville& Holds
worth, Ltd.
d. MOSAIC Model:
MOSAIC model is a questionnaire technique of job analysis used to
collect information from incumbents and supervisors. It contains 151

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job tasks rated in terms of importance for effective job performance

and 22 competencies rated in terms of importance, and needed
proficiency at entry.
e. Common Metric Questionnaire (CMQ Model):

CMQ model is a technique of job analysis that was developed by
Harvey as a “worker-oriented” job analysis instrument designed to
have applicability to a broad range of exempt and nonexempt jobs. It
includes 41 general questions of background section, 62 questions of
contacts with people, 80 items of decision making, 53 items of
physical and mechanical activities, 47 items of work setting.
f. Fleishman Job Analysis System (FJAS Model):

FJAS model is a technique of job analysis that describes jobs from the
point of view of the necessary capacities. It includes 52 cognitive,
physical, psycho-motor, and sensory ability; each of the categories
consists of two parts – an operational and differential definition and a
grading scale.
setting selection criteria,
remuneration and rewards and
recruitment sources
The selection process can be defined as the process of selection and

shortlisting of the right candidates with the necessary qualifications and
skill set to fill the vacancies in an organisation. The selection process
varies from industry to industry, company to company and even
amongst departments of the same company.
Every organisation creates a selection process because they have their

own requirements. Although, the main steps remain the same. So, let’s
understand in brief how the selection process works.

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 Preliminary Interview
This is a very general and basic interview conducted so as to

eliminate the candidates who are completely unfit to work in the
organisation. This leaves the organisation with a pool of potentially
fit employees to fill their vacancies.
 Receiving Applications
Potential employees apply for a job by sending applications to the

organisation. The application gives the interviewers information
about the candidates like their bio-data, work experience, hobbies
and interests.

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 Screening Applications
Once the applications are received, they are screened by a special

screening committee who choose candidates from the applications to
call for an interview. Applicants may be selected on special criteria
like qualifications, work experience etc.
 Employment Tests
Before an organisation decides a suitable job for any individual, they

have to gauge their talents and skills. This is done through
various employment tests like intelligence tests, aptitude tests,
proficiency tests, personality tests etc.
 Employment Interview
The next step in the selection process is the employee interview.

Employment interviews are done to identify a candidate’s skill set
and ability to work in an organisation in detail. Purpose of an
employment interview is to find out the suitability of the candidate
and to give him an idea about the work profile and what is expected
of the potential employee. An employment interview is critical for
the selection of the right people for the right jobs.
 Checking References
The person who gives the reference of a potential employee is also a

very important source of information. The referee can provide info
about the person’s capabilities, experience in the previous
companies and leadership and managerial skills. The information
provided by the referee is meant to kept confidential with the HR
department.

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Employee Remuneration
Employee Remuneration refers to the reward or compensation given to the employees for their work performances.
Remuneration provides basic attraction to a employee to perform job efficiently and effectively.
Remuneration leads to employee motivation. Salaries constitutes an important source of income for employees and
determine their standard of living. Salaries effect the employees productivity and work performance. Thus the
amount and method of remuneration are very important for both management and employees.
There are mainly two types of Employee Remuneration
1. Time Rate Method

2. Piece Rate Method
Methods of Employee Remuneration

1. Time Rate Method: Under time rate system, remuneration is directly linked with the time spent or devoted
by an employee on the job. The employees are paid a fixed pre-decided amount hourly, daily, weekly or
monthly irrespective of their output. It is a very simple method of remuneration. It leads to minimum
wastage of resources and lesser chances of accidents. Time Rate method leads to quality output and this
method is very beneficial to new employees as they can learn their work without any reduction in their
salaries. This method encourages employees unity as employees of a particular group/cadre get equal
salaries.
There are some drawbacks of Time Rate Method, such as, it leads to tight supervision, indefinite employee
cost, lesser efficiency of employees as there is no distinction made between efficient and inefficient
employees, and lesser morale of employees.
Time rate system is more suitable where the work is non-repetitive in nature and emphasis is more on
quality output rather than quantity output.
2. Piece Rate Method: It is a method of compensation in which remuneration is paid on the basis of units or
pieces produced by an employee. In this system emphasis is more on quantity output rather than quality
output. Under this system the determination of employee cost per unit is not difficult because salaries differ
with output. There is less supervision required under this method and hence the per unit cost of production
is low. This system improves the morale of the employees as the salaries are directly related with their
work efforts. There is greater work-efficiency in this method.
There are some drawbacks of this method, such as, it is not easily computable, leads to deterioration in
work quality, wastage of resources, lesser unity of employees, higher cost of production and insecurity
among the employees.
Piece rate system is more suitable where the nature of work is repetitive and quantity is emphasized more
than quality.

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Sources of Recruitment:
The eligible and suitable candidates required for a particular job are
available through various sources. These sources can be divided into
two categories, as shown in Figure 5.5.
Internal Sources of Recruitment:

1. Promotions:
The promotion policy is followed as a motivational technique for the
employees who work hard and show good performance. Promotion
results in enhancements in pay, position, responsibility and authority.
The important requirement for implementation of the promotion
policy is that the terms, conditions, rules and regulations should be
well-defined.
2. Retirements:
The retired employees may be given the extension in their service in
case of non-availability of suitable candidates for the post.
3. Former employees:
Former employees who had performed well during their tenure may
be called back, and higher wages and incentives can be paid to them.

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4. Transfer:
Employees may be transferred from one department to another
wherever the post becomes vacant.
5. Internal advertisement:
The existing employees may be interested in taking up the vacant jobs.
As they are working in the company since long time, they know about
the specification and description of the vacant job. For their benefit,
the advertisement within the company is circulated so that the
employees will be intimated.
Benefits of Internal Sources of Recruitment:

1. The existing employees get motivated.
2. Cost is saved as there is no need to give advertisements about the

vacancy.
3. It builds loyalty among employees towards the organization.
4. Training cost is saved as the employees already know about the

nature of job to be performed.
5. It is a reliable and easy process.
Limitations of Internal Sources of Recruitment:

1. Young people with the knowledge of modem technology and
innovative ideas do not get the chance.
2. The performance of the existing employees may not be as efficient

as before.
3. It brings the morale down of employees who do not get promotion

or selected.
4. It may leads to encouragement to favouritism.
5. It may not be always in the good interest of the organization.

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External Sources of Recruitment:

1. Press advertisement:
A wide choice for selecting the appropriate candidate for the post is
available through this source. It gives publicity to the vacant posts and
the details about the job in the form of job description and job
specification are made available to public in general.
2. Campus interviews:
It is the best possible method for companies to select students from
various educational institutions. It is easy and economical. The
company officials personally visit various institutes and select students
eligible for a particular post through interviews. Students get a good
opportunity to prove themselves and get selected for a good job.
3. Placement agencies:
A databank of candidates is sent to organizations for their selection
purpose and agencies get commission in return.
4. Employment exchange:
People register themselves with government employment exchanges
with their personal details. According to the needs and request of the
organization, the candidates are sent for interviews.
5. Walk in interviews:
These interviews are declared by companies on the specific day and
time and conducted for selection.
6. E-recruitment:
Various sites such as jobs.com, naukri.com, and monster.com are the
available electronic sites on which candidates upload their resume and
seek the jobs.
7. Competitors:
By offering better terms and conditions of service, the human resource
managers try to get the employees working in the competitor’s
organization.
Benefits of External Sources of Recruitment:

1. New talents get the opportunity.

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2. The best selection is possible as a large number of candidates apply

for the job.
3. In case of unavailability of suitable candidates within the

organization, it is better to select them from outside sources.
Limitations of External Sources of Recruitment:

1. Skilled and ambitious employees may switch the job more
frequently.
2. It gives a sense of insecurity among the existing candidates.
3. It increases the cost as advertisement is to be given through press

and training facilities to be provided for new candidates.
Employment Contract
An employment contract is a signed agreement between an individual employee
and an employer or a labor union. It establishes both the rights and
responsibilities of the two parties: the worker and the company.
Review information on what to expect when you're asked to sign a contract,

types of agreements that cover employees in the workplace, and the pros and
cons of employment contracts.
An employment contract is an agreement that covers the working relationship

between a company and an employee.1 It allows both parties to clearly
understand their obligations and the terms of employment.
More specifically, an employment contract can include:
 Salary or wages: Contracts will itemize the salary, wage, or commission

that has been agreed upon.
 Schedule: In some cases, an employment contract will include the days
and hours an employee is expected to work.
 Duration of employment: An employment contract will specify the length
of time the employee agrees to work for the company. In some cases, this
might be an ongoing period of time. In other cases, it might be an
agreement set for a specific duration. At other times a minimum duration is
laid out, with the possibility of extending that period.
 General responsibilities: Contracts can list the various duties and tasks a
worker will be expected to fulfill while employed.

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 Confidentiality: Although you may have to sign a separate non-disclosure

agreement, some contracts include a statement about confidentiality.
 Communications: If an employee's role involves handling social media,
websites, or email, a contract might state that the company retains
ownership and control of all communications.
 Benefits: A contract should lay out all promised benefits, including (but not
limited to): health insurance, 401k, vacation time, and any other perks that
are part of the employment.
 Future competition: Sometimes, a contract will include a noncompete
agreement or noncompete clause (NCC). This is an agreement stating
that, upon leaving the company, the employee will not enter into jobs that
will put them in competition with the company. Often, an employee will
have to sign a separate NCC, but it might also be included in the
employment contract.
Other possible terms of the agreement could include an ownership agreement

(which states that the employer owns any work-related materials produced by the
employee) as well as information on settling disputes at work. The contract may
even qualify where the employee can work after leaving the company, as a way
to limit competition between related companies.
 Alternate names: Contract of employment, employment agreement.
TYPES OF EMPLOYMENT:
The nature of employment determines the end date of employment. Employer can hire employee for following
types of employment:
1. Regular Employment: The employment contract does not have an end date and the nature of job is such that
it is regularly required to the entity.
2. Work based Employment: Employees are hired to perform a specific work or to provide specific service.
3. Fixed term Employment: The employment contract has a specific end date, and the contract is terminated on
such date. However, the employment contract will be extended if the project associated is extended or the
contract is extended due to nature of job.
4. Casual Employment: The employee is hired for the job for a period of seven or less days in a month. It can be
terminated as per the will of employee or employer.
5. Part-time Employment: It is wherein the employee is engaged in work for 35 or less hours in a week.
Pros and Cons of an Employment Contract

Pros
 Clearly defines duties and benefits

 Protects each party
 Provides stability
Cons

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 Limits flexibility
 Legally binding
 Can only be changed through renegotiation
Pros Explained
 Clearly defines duties and benefits: There's no wondering what
responsibilities are included in the job, or what the pay or benefits are,
because they are spelled out in the contract.
 Protects each party: Both employer and employee are covered under the
agreement.
 Provides stability: With a contract in place, both the worker and the
company know what to expect for the foreseeable future.
Cons Explained
 Limits flexibility: Once the employee is hired under the contract, they
can't just leave if they feel like it, and the employer can't just let them go if
they decide they don't need them anymore.
 Legally binding: There are consequences for breaking the terms of the
agreement.
 Can only be changed through renegotiation: Both sides must agree to
any changes to the original agreement.
Maintenance-orientation and induction, and motivation mechanisms;
Induction is a short-term event, usually completed on a new employee's

first day. Orientation is the process to familiarize new hires with company
policy and guidelines. It's all about compliance and getting new hires up to
speed on processes, paperwork, and the company's general administrative
structure.
The new employee orientation process is important to both the company and the
employee. The company gets a chance to complete the necessary employment
paperwork and begins the process of obtaining productivity from the new employee.
The employee has the opportunity to become familiar with her new surroundings and
to find out what her exact job duties will be. Using the proper employee induction and
orientation procedures can insure a smooth transition for the employee and company.

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Executive Staff
A new employee can feel welcomed to a company if the welcome is extended by the
executive staff. When executives take the time to introduce themselves to the new hire
class, it gives the new hires a feeling that the company is accessible. Rather than
having executives be a group of faceless people that the employees read about, the
new employee induction begins with an in-person meeting, creating a strong and
positive way of introducing new employees to a company.
Office Tour
Employees tend to take office layout for granted. As part of the new employee
induction, a human resources associate should take the new hire class on a tour of
the office. It is a chance for the new hires to learn where to find the break room and
emergency exits. It also gives new employees a chance to meet co-workers that they
may have otherwise not come into contact with. For example, a new accounting
employee may not meet people from engineering if there was no induction office tour.
Employee Manual
The employee manual is a critical part of employee orientation. The manual includes
company policies and procedures, information on company benefits, the company
name directory and company history. It serves as a valuable reference tool and can be
used as a teaching aid during new employee orientation.
Shadowing
A general orientation program and needs to be followed up by a departmental
orientation. Rather than placing new employees in their position without any
preparation, have new employees shadow existing employees for at least one week,
working with existing employees through the day to become familiar with job duties.
Check that the new employees will be performing the same job duties as the
experienced employee so that the shadowing will be effective.
Induction vs orientation
Posted By Terms Compared Staff | May 14, 2020 | Management |
Once a new employee is hired in an organization, he/she may have to undergo certain processes
to get introduced to the organization and learn about its rules and regulations. Induction and
orientation are the processes employed by companies for this purpose. These two terms are
interrelated and are part of an introductory program that is developed to make employees feel
comfortable at the workplace and to obtain the information they need to work efficiently.
As both the processes occur during the initial days when the employee has just joined
the company, it becomes difficult to differentiate between them. Induction is essentially the

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process used to introduce the new employee to the company and the work setting, while
orientation is the process through which the new employee is provided basic information about
the company so as to inform them about its rules and work policies.
In this article, the two terms will be explained in detail and the differences between them will be
clarified.
Definitions and explanations

Induction
Induction basically refers to welcoming a new employee in the organization. This process
officially introduces a fresh recruit in the organization so that they formally take charge of their
position. In this process, the newcomers are provided an opportunity to learn about the
organization and get to known their co-workers as well as the workplace.
The induction process is usually of a short duration and may be carried out on the day the
employee joins the organization. The employee is explained the main things that he/she needs to
know about the organization so that they can quickly adjust to the new settings. This will help
them in achieving the highest efficiency in the lowest possible time. Through this process, a
favorable first impression is created on the new employees that they are part of the organization.
In the induction process, the employee is provided an overview of the company and is explained
the organizational hierarchy. The employee may also be given information about the vision,
mission, objectives, values, norms, policies, clients, company history and dress code of the
company. The new employees are informed about the people they have to report to and
the training that they may have to go through to carry out the rules and responsibilities allocated
to them.The process of induction is in the form of a presentation, and not training.
Orientation
The orientation process is carried out to assist the new employees in adjusting to their position,
department, responsibilities and the work environment. This process is more formal in nature and
extends over a longer time period as organizations spend a few weeks or often, even a month on
the orientation of their new employees.
In the orientation period, the employee will be explained about the assignments allocated to
them, their team members and the different systems and processes of the organization. The new
recruit is helped in becoming familiar with the work setting and the tasks he/she is supposed to
carry out.
The goal of the program is to make the employees feel relaxed at the workplace by removing
anxiety and fear from their minds. When employees have just joined an organization, it is normal
for them to feel apprehensive and worried about whether they will be able to effectively execute
the tasks assigned to them. During the orientation process, employees are provided vital
information about the work environment so as to decrease their anxiety. Any mistakes made by
the employees during the orientation period are considered as part of their learning process.
There is a gradual decrease in the occurrence of these mistakes, and by the end of the orientation
period, the employees become well prepared to handle the complexities of their job on their own.

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Difference between induction and orientation

Some points of difference between induction and orientation are listed below:
1. Meaning
Induction is the process of welcoming new employees into the organization and officially
making them a part of the organization. Orientation is a more formal process that occurs after
induction and is carried out to help the employees adjust to their position and the work
environment.
2. Duration
Induction is of a shorter duration and is typically carried out on only the day the employee
formally joins the organization. Orientation, however, extends for longer time periods and may
often be carried out for a few weeks.
3. Order
Induction typically occurs first and is followed by orientation.
4. Includes
In the induction process, the employee is introduced to other employees and the work
environment to make them feel at ease in the new setting. Employees are provided a preview
about their jobs and the company so that they know the kind of people and environment they will
be working with. In the orientation process, the employees are made familiar with the work
environment, machines, tools and tasks that they are supposed to carry out.
5. Kind of process
The induction process is more like a presentation that is made by the employer for the employee,
i.e. it is a one-way process in which the employer explains the new recruits about their job. On
the other hand, orientation is more like a training process where the employees are made to learn
about the job. It is a two-way process where both the manager and the employee interact with
one another and with other employees in the organization.
6. Level of formality
Induction is an informal process, whereas orientation is more formal in nature.
Induction vs orientation – tabular comparison

A comparison of induction and orientation in tabular form is presented below:
INDUCTION VS ORIENTATION
Meaning

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The process of introducing new employees and welcoming them The process of making new employees familiar with th
into the organization environment so that they can adjust to their new posi
work environment
Duration
Short-duration Long-duration
Order
Occurs first Occurs after induction
Includes
Preview of company, organizational hierarchy, policies, etc. given Employees are explained about the work processes, te
to the employees members, tools and equipment they may have to use
Kind of process
One-way process; carried out in the form of a presentation Two-way process; carried out as a training program
Level of formality
Informal Formal
Conclusion – induction vs orientation

It is important for every organization to carry out an induction and orientation program
so that the employees become aware of the rules and policies of the company and align
themselves with the company as soon as possible.

104
Each organization may have a different induction and orientation program; however,
their overall objective is to enable smooth integration of the new recruits into the
organization. Through these programs, trust and confidence of the employees is
developed, as well as a feeling of being part of the organization. This will ensure that
they work efficiently to fulfill their tasks and hence, accomplish overall organizational
objectives.
Performance appraisal: Definition

Performance appraisal is defined as a process that systematically measures
an employees personality and performance usually by managers or
immediate supervisors against the predefined attributes like skillset,
knowledge about the role, technical know-how, attitude, punctuality and so on.
Performance appraisal has many names across organizations, some call

it performance evaluation, some prefer performance review, merit rating,
annual reviews, etc.
This process is carried out to identify the inherent qualities of an employee

and the abilities and level of competency of an employee for their future
growth and development and that of the organization they are associated with.
It aims at ascertaining the value of an employee and his/her offering to the
organization.
Performance appraisal helps managers and supervisors place the right

employee to do the right job, depending on the skill set they possess. Without
an ounce of doubt, every organization needs a robust performance appraisal
system.
There are various methods that are used by managers and supervisors to
evaluate employees based on objective and subjective factors, however, it
can get a bit tricky, but to effectively evaluate an employee both factors are
essential.
Objectives of performance appraisal

Following are the objectives to conduct performance appraisal year after
year:
 This is an essential first step towards promoting an employee, based on the

subjective and objective factors- performance and competency.

105
 To identify the training and development needs of an employee.

 To provide confirmation to those employees who were recently hired and
are on their probation period.
 To take a concrete decision what should be the percentage of hike in the
salary of an employee based on the work done by them.
 To encourage a proper feedback system between the manager and
employees.
 To help employees understand where they stand in the current year and
what is the scope of improvement.
Performance appraisal process

Step 1: In most organizations, the performance appraisal process means
evaluating an employee every 6 months or one year for the period an
employee has continually worked with the organization. In modern times, the
Human Resources department sends out an employee survey for them to fill
out to collect data related to their engagement and satisfaction levels.
Step 2: The employee’s immediate manager or supervisor will then evaluate

the quality of the employee’s performance based on the work done in the
previous year and then meet face-to-face to discuss the facts and figures.
Step 3: The feedback received from the survey can be kept anonymous. This
feedback can be analyzed real-time by using
QuestionPro’s Workforce platform, that measures, analyzes and activates
data to get actionable insights.
For probationary employees, the probation period usually lasts between three
to six months. Their evaluation is based on whether they have come at pace
with the work and culture of the organization and if they are ready to take up
more responsibilities.
Performance appraisal methods

There are 5 performance appraisal methods. Using one of these methods for
performance appraisal can help organizations gain partial information.
However, combining one or more methods will lead to extracting better
information and accurate data. It is one thing to collect data and another to do
something actionable with it.

106
1. Self-evaluation: This is an important way to get insights from the

employees, evaluate themselves. You need to first get information about
how an employee evaluates himself/herself, after conducting this evaluation
the management has an opportunity to fairly appraise an employee based
on their thoughts.
2. 360-degree appraisal system: 360-degree feedback, an employee is
evaluated by his/her supervisor/manager, peers, colleagues, subordinates
and even management. Inputs from different sources are considered before
talking to the employee face-to-face. In this process, each employee is rated
according to the job done based on the job descriptions assigned to them.
3. Graphics rating scale: This is one of the most commonly used methods by
managers and supervisors. Numeric or text values corresponding to values
from excellent to poor can be used on this scale. Members of the same
team who have similar job descriptions can be parallelly evaluated using
this method. This scale should ideally be the same for each employee.
4. Checklists: The evaluator is given a checklist of several behaviors, traits,
attributes or job description of the employee who needs to be evaluated.
The checklist can contain sentences or simply attributes and the evaluator
thus marks the employee based on what describes the job performance of
the employee. If the evaluator believes that the employee has certain traits it
is marked positive otherwise it is left blank.
5. Essay method: This is also known as “free form method”. As the name
suggests, it is a descriptive method which elaborates performance criteria. A
major drawback of this method is to keep biases away.
Advantages of performance appraisal
1. A systematic performance appraisal method helps the
managers/supervisors to correctly identify the performance of employees
and also highlight the areas they need improvement in.
2. It helps the management place the right employee for the right kind of job.
This is a win-win situation for both the employee and the organization.
3. Potential employees who have done some exceptional work are often
offered a promotion on the basis of the result of performance evaluation.
4. This process is also effective in determining the effectiveness of the training
programs conducted by the organization for the employees. It can show
managers how much an employee has improved after the training. This will
give actionable insights to the managers on how to improve the programs.
5. It creates a competitive environment amongst the employees in a good way.
Employees try to improve their performance and get better scores than their
colleagues.
6. Managers use this as a platform to get first-hand feedback from employees
to talk about their grievances and how to handle them.

107
7. Keeping year on year record of appraisals gives managers a very good idea
what is the pattern of the growth rate of employees and which ones have a
declining rate and what actions need to be taken to improve it.
Disadvantages of performance appraisal
1. If the attributes being used in this method are not correctly defined the data
collected won’t be useful.
2. Sometimes biases can be an issue in this system.
3. Some objective factors can be vague and difficult to pin down. There are no
known scientific methods to measure that.
4. Managers sometimes are not qualified enough to assess the abilities of the
employees, thus be detrimental to the growth of an employee.
Employment Termination/Severance
An employment contract can be terminated at the end of the contract period (if for a
fixed term), upon completion of the work (if work-based), by the employee and by the
employer. Employers must have a valid reason for dismissing an employee.
The law says that an employer may terminate the employee based on poor
performance. However, the employee should be provided an opportunity to submit
explanation giving at least seven days by the employer.
If the employee has declared disabled by the medical practitioner, then the employer
may terminate the employment based on ill health. However, if the worker suffers injury
due to accident in the workplace and undergoing the treatment, the employment cannot
be terminated for one year. The employment of a worker undergoing the treatment
cannot be terminated until six months unless certified by a medical practitioner.
An employee can terminate the employment voluntarily by submitting a written

resignation letter. The employer must approve the resignation within 15 days. If the
employer fails to accept the resignation within the 15 days, it will be deemed accepted.
The resignation can be cancelled by mutual consent or if the employee continues
working after the last day.
Both employers and employees are required to provide notice of termination or

resignation, except for dismissals for misconduct. The notice requirement is linked to
the length of service.
TERMINATION OF EMPLOYMENT
1. Grounds of Termination
2. Expiry of the Term
 For employees in fixed term employment, the employment is terminated upon expiry of the term provided in
the employment agreement.

108
 However, if the employee’s employment is linked to a project, the employment continues if the term of the
project is extended, or if the term is extended to complete the given work.
2. Completion of Work
 For employees in work-based employment, the employment is terminated upon completion of the work
specified in the employment agreement.
 However, if the employee’s employment is linked to a project, the employment continues if the term of the
project is extended, or if the term is extended to complete the given work.
3. Casual Employment
 Voluntary termination by employee or employer at any time.
4. Voluntary Resignation
 Employee may voluntarily resign from the employment.
5. Unsatisfactory Work Performance
 If the performance of the employee is found unsatisfactory in three or more consecutive performance review,
the employment may be terminated.
 The performance review shall be done as per the grounds mentioned in bylaws and pre-informed to the
employee.
6. Bad Health
 If the employee is physically or mentally disabled or injured and the medical practitioner recommends that the
health condition has rendered the employee unable to work or he\she requires a long time for treatment
effecting in the work of the enterprise, the employment of such employee may be terminated.
 However, if the employee suffers the accident in the course of employment or suffers from occupational health
hazard, the employment may not be terminated for the entire period of treatment if the employee is undergoing
treatment in hospital and for a period of one year if the employee is undergoing treatment at home. Such
employee should be provided full salary for such period.
 The employment of the employee undergoing treatment due to reasons other than mentioned above shall not be
terminated for a period of six months unless the medical practitioner recommends that the employee would not
be able to return to work.
7. Compulsory Retirement
 For regular employees
 Upon completion of 58 years of age.
2. Notice Period
Except for termination due to misconduct, employee or employer terminating the employment relationship
shall provide the notice as follows:
Term of Employment Notice Period
Of up to 4 weeks 1 day
4 weeks to one year 7 days
Exceeding one year 30 days
3. III.Retrenchment
 Grounds of Retrenchment:
 Financial difficulty
 Excess number of employees due to merger
 Partial or full close down of the enterprise due to any other cause.
 Notice: A notice stating the ground for retrenchment, possible date of retrenchment and likely number of
employees to be retrenched 30 days in prior to Labor Office and authorized trade union of the enterprise, if any
or effective trade union or Labor Relation Committee.
 Priority Order in Retrenchment:
 Foreign Nationals
 Employee subjected to disciplinary action more often
 Employee with poor work performance

109
 Last appointed employee among the employees engaged in similar nature of work.
 Compensation: One-month’s basic salary for each year of service. For employees who have not completed
one year of service, the compensation amount should be calculated proportionately. Retrenched employees
receiving unemployment allowance shall not be entitled to compensation.
 Re-hiring of Retrenched Employee: If the enterprise starts operation or requires employees within 2 years of
retrenchment, retrenched employees should be provided the priority. Such retrenched employees should be
provided a notice of 15 days. However, new employees may be hired other than retrenched employees if
enterprise cannot hire retrenched employees due to the reason of (i) installation of new technology or change in
production process, or (ii)age or physical capability of the retrenched employee.
The concerned labor Office can issue the order to reinstate the employee in wrongful termination.
4. Misconducts subject to Termination of Employment
 Causing bodily harm or injury or taking hostage of employer or any employee or service provider or any
person related to workplace, or causing disturbance or dismantling in the workplace, with or without using
arms,
 Accepting or offering bribe,
 Stealing property of any person in the workplace,
 Embezzlement of property of the enterprise,
 Knowingly causing damages to the property of the employer or property in use of the employer,
 Absence from work for more than consecutive 30 days without getting leave approved,
 Doing any act disclosing confidential information regarding technology and production process of the
enterprise with an intention to cause damages to the enterprise or workplace the employee is employed in,
 Working together with the competing employer or operating competing business or disclosing the confidential
information of the enterprise to the competing business,
 Convicted in a criminal offence involving moral turpitude,
 Submission of false educational and other certificates required for appointment,
 Consumption of narcotic drugs or alcoholic drinks during working hours,
 Having subjected to disciplinary action more than two times for other misconducts within three years,
 Other similar misconducts where the prevailing laws prescribe the disciplinary action of termination,
 Other serious misconducts as provisioned in bylaws of the enterprise after obtaining the approval from
Department of Labor or agreeing in Collective Bargaining Agreement.
5. Sexual Harassment
 The employment of the employee committing sexual harassment may be terminated depending upon the
situation and seriousness of the offence.
6. Other Misconducts
 Provision regarding the misconduct and disciplinary action may be made in the bylaws of an enterprise if the
concerned regulatory body has provisioned a specific kind of disciplinary action for any specific misconducts.
7. Procedure for Disciplinary Action
 The employee should be provided seven days’ notice to present clarification. The notice should be
accompanied with the facts of committing the misconduct and the disciplinary action that shall be taken in case
it is proved that the employee had committed the misconduct.
 The clarification should be asked within 2 months from the date of having obtained the knowledge of the
occurrence of misconduct.
 The disciplinary action should be taken within 3 months from the date of initiation of the procedure.
 Authority to issue disciplinary action: Chief executive officer or the managerial level employee who is
delegated the authority in Bylaws of the enterprise.
 Appeal on the disciplinary action taken by the enterprise: should be filed within 35 days from the date of
having obtained the notice of such disciplinary action. The appeal should be filed in the Labor Court.
Regulatory requirements

110
Labour law in Nepal: Highlights of the Labour Act,

2017
10 June 2021
1. Introduction
The Labour Act, 2017 (“Labour Act“) came into effect on 04 September 2017 (2074-05-19)
replacing the Labour Act, 1992 (“Previous Act“), Industrial Trainee Training Act, 2039 and
Retirement Fund Act, 2049. The major provisions of the Labour Act are briefly set out below:
Applicability of the Labour Act
Note: The Labour Act is applicable to all entities regardless of headcounts. The Previous Act
was only applicable to entities where 10 or more employees were engaged.
2. Types of employment
The Labour Act has categorized different types of employment as explained in the below table:

111
3. Term of probation
The Labour Act provides for a maximum of 6 (six) months of probation period to evaluate the
work of an employee. If the work is not found satisfactory, the term of such employee can be
terminated. The employment contract with the employee under probation, if not terminated, shall
be deemed automatically valid after the end of provided probation period.
4. Provision related to intern and trainee

4.1 Intern
a) Any person may be allowed to work as an intern pursuant to the approved syllabus of an
educational institution and after agreeing with that educational institution.
b) The interns should not be engaged at work exceeding 8 (eight) hours a day and 48 (forty-
eight) hours a week.
c) They are entitled to health and safety arrangements, medical expenses and compensation in
case of an injury at work and deemed as a regular employee if engaged in work other than
prescribed in the agreement between educational institution and entity.
4.2 Trainee
a) A trainee employee may be appointed for a period of training not exceeding 1 (one) year
unless otherwise prescribed by law.
b) All trainees shall be entitled to social security benefits including provident fund, gratuity and
minimum remuneration.

112
c) The employer is not obliged to appoint the trainee as a regular employee upon the completion
of the training period. However, if such trainee is appointed for work, probation period will not
be applicable.
5. Working hours
Note: 30 minutes’ break must be provided after 5 (five) hours of work where such break is also
considered as working hour.
6. Remuneration
6.1 Minimum remuneration/wage: The minimum remuneration was revised by the Ministry of
Labour, Employment and Social Security on 03 May of 2021. The new minimum remuneration
applicable from 16 July 2021 is NPR 15,000 per month. Overtime remuneration must be 1.5
times the regular remuneration.
6.2 Increment of the remuneration: Annual increment is applicable to an employee who has
worked for at least 1(one) year and must be at the rate of half-day salary of the monthly basic
remuneration.
6.3 Payment of the remuneration:
The payment of the remuneration must be done on the following basis:
7. Holidays and leave

The Labour Act has provided for the following holidays and leave:

113
8. Social Security Fund

The provisions relating to the establishment of the Social Security Fund was first introduced in
the Labour Act. Subsequently, Social Security Act, 2017 and Social Security Regulations, 2018
were enacted for the establishment and operation of a Social Security Fund. Further, Social
Security Scheme Operational Directives, 2018 was enacted for the implementation and
management of various social security schemes. The Previous Labour Act required employers to
contribute 18.33% (comprising of 10% provident fund and 8.33% gratuity) additional amount
from the basic salary of the employee. The Social Security Act and Social Security Regulations
now require contribution of additional amount equal to 20% of the basic salary of the employee.
The major provisions of the Social Security Act, Social Security Regulations and Social Security
Scheme Operational Directives are as follows:
 Mandatory enrollment requirement of employers and employees in the Social Security Fund.
 Total rate of contribution in the Social Security Fund set as 31% with 11% contribution to be deducted
from the basic salary of the employee and 20% additional contribution by the employer.
 Introduction of social security schemes including medical treatment, health and maternity protection
scheme, accident and disability protection scheme, dependent family protection scheme and old age
protection scheme for the employees.
9. Disciplinary action to employee
Based on the nature of misconduct done by the employee, following disciplinary action can be
taken:
 Warning;
 Deduction of one day’s remuneration;
 Withholding of Annual Salary Increment for one year or Withholding Promotion for one year;
 Withholding of Annual Salary Increment for one year or Withholding Promotion for one year;
 Termination upon misconduct; or

114
 Employment termination based on the seriousness of the offence.

10. Employment termination
10.1 Grounds of employment termination
10.2 Requirement of the notice before termination
11. Retrenchment
The provisions of retrenchment provided by the Labour Act are not applicable to entities with
less than 10 (ten) employees.
11.1 Conditions for retrenchment

Employees can be retrenched in any of the following circumstances:
 If due to the harsh economic conditions, there is a problem in the operation of the industry as usual;
 If there is an increment in the number of employees as a result of the merger; or
 If, due to any other situations/circumstances, the enterprise has to be a closed party or wholly.
11.2 Process of retrenchment
The employer should provide the details of retrenchment prior to 30 (thirty) days by specifying
the reasons for retrenchment, possible date of retrenchment and number of employees to be
provided to the Labour Office and authorized trade union or labour relation committee (if any).
11.3 Compensation for retrenchment

115
The employees are entitled to retrenchment compensation at the rate of 1 (one) month salary for
each year of service. Likewise, compensation must be paid on a proportionate basis for service
rendered below 1 (one) year.
12. Collective Bargaining

12.1 Formation of collective bargaining committee
The Labour Act provides that an entity can form a collective bargaining committee if there are
10 (ten) or more than 10 (ten) employees. The committee should be formed by an authorized
trade union or by all trade unions in absence of an authorized trade union or by the signature of
60 (sixty) per cent workers in absence of any trade union.
12.2 Procedure for settlement of collective dispute
12.3 Collective bargaining agreement

The following arrangements can be done through collective bargaining:
 To reduce the remuneration of the employee;

 Arrangement for Interim Management during the transfer of ownership;
 To agree on certain facilities in lieu of overtime payment;
 To determine facilities for which the employer may deduct the remuneration;
 To determine the grounds of transfer of employees;
 Determination of rate of remuneration during the period of legal strike or lockout;
 To add the grounds of termination upon misconduct; and
 To determine the alternative option of retrenchment, and criteria and terms of retrenchment.

116
13. Labour Court

13.1 Establishment of Labour Court
The Government of Nepal can establish required number of labour courts by publishing the
notification in the Nepal Gazette. The Labour Court consists of one Chairperson and two
members to decide the case relating to labour disputes.
13.2 Jurisdiction of Labour Court

The Labour Court may use the following powers in the course of deciding a case:
 Witness examination;
 Seek necessary explanation from respondent treating it as a written statement;
 The Labour Court, based on application or nature of the case, suomoto may give an order to summon
any party during the hearing even though such party has been made neither defendant nor respondent
in the case and if necessary make him a party to the case;
 Inspect places of work relating to the dispute;
 If an application filed by any party to the case to keep a case sub judice in the Labour Court in pending
or give continuity till it is finally decided and disposed is found reasonable, notwithstanding the state
of the case, the Labour Court may issue an interlocutory order against any of the parties to stop any act
for a specified time or give continuity to any activity with or without fixing a period;
 Confirm or invalidate or alter any directive or decision or order given by the Labour Office or an
employer;
 The Labour Court, when carrying out the court proceeding and disposing of the case, shall be the
powers as prescribed over the matters specified in the Labour Act or the Regulations made thereunder
and in other matters, it shall have the powers equivalent to that of any other District Court.
13.3 Enforcement of decision
The case must be resolved within 90 (ninety) days of filing the application in the Labour Court.
The Government of Nepal is responsible for enforcing the decision provided by the Labour
Court.
13.4 Appeals in the Supreme Court

The dissatisfied party regarding the decision of the Labour Court in a case looked into by the
court from the beginning to the end may appeal in the Supreme Court within 35 (thirty-five) days
from the date of announcement of such decision.
14. Sanctions for non-compliance

A brief outline of the sanctions provided in the Labour Act are as follows:
14.1 Labour Department can impose the following sanctions to the Employer on the
following nature of non-compliance:

117
14.2 Labour Office can impose the following sanctions to the employer on the following
nature of non-compliance:
14.3 Labour Court can impose the following sanctions to the Employer on following nature
of non-compliance:

118

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1

BBM SIXTH - SEMESTER

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1.1 Economic significance of the small business sector

 What Is The Role Of Enterprises In Economic Development?

 How Is Government Helping To Boost Small Enterprises In Nepal?

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

A large number of capable and potential entrepreneurs, deprived of appropriate opportunities,

 Economy Of Small Enterprises

 What Is The Current Status Of Small Enterprises In Nepal?

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1.2 Concept of small business – generic definitions and national definition

Criteria for defining small business (Generic definition )

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1.3 Differences between small business and large business

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1.4 Advantages and disadvantages of operating a small business

Advantages of Small-Business Ownership

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Disadvantages of Small-Business Ownership

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1.5 Factors leading to success and failure of small businesses

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Weak supply chain linkages

Seasonal nature of business

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Low capital and thin margins

Expected continuation of decline in demand

Lack of awareness of relief packages from Government

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1.6 Entrepreneur vs Business Owner Manager

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

A manager must possess some of the same qualities as an entrepreneur, like

Difference between Entrepreneur and Manager

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Main Difference Between

1.7 Entrepreneurship and Small Business

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Unit 2: Options for Going into Business

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Starting a new business–advantages of starting a business

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Purchasing an existing business

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

7. Greater likelihood of success: Based on 12 years of tracking by the Small Business

Entering a franchise system –advantages and disadvantages

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Procedural steps when starting a business venture

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

 Write a business plan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

• What’s your unique value proposition?

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

• A business plan is a written document that describes in detail how a business—usually a

Advantages and Disadvantages of Planning

Note by : Nirodha Chandra Dahal Mahendra Multiple Campus, Dharan

1. It gives you a glimpse of the future.