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ENTREPRENEURSHIP
The word entrepreneur is derived from a French word entreprendre which means to command. An entrepreneur
is a person who puts together capital and labour and converts his idea into reality
Definitions
Entrepreneurship
Entrepreneurship is the propensity of mind to take calculated risks with confidence to achieve a pre-determined
business or industrial objective. In substance it is the risk taking ability of the individual, broadly coupled with
correct decision-making.
Entrepreneur
According to the Peter .F. Drucker, “An entrepreneur is one who always searches for change, responds to it and
exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, the means by which they exploit
change as an opportunity for a different business or service”.
Enterprise
Enterprise simply means an economic Organisation or activity. Thus enterprise is an integrated whole of values,
orientation
FUNCTIONS OF ENTREPRENEUR
(DR ASIMO)
Decision Making
Risk-Taking
Accepting Challenges
Skilful Management
Innovation
Making the Enterprise A Success
Organisation
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QUALITIES/ CHARACTERISTICS OF ENTREPRENEUR
o Mental Ability:Mental Ability consists of intelligence and creative thinking. An entrepreneur must be
reasonably intelligent and should have creative thinking. Entrepreneur must be able to engage in the
analysis of various problems and situations.
o Clear Objectives: An entrepreneur should have a clear objective. A Successful entrepreneur may have
the objective to establish the product, to make profit or to render social service.
o Communication Ability:An entrepreneur who can effectively communicate with customers, employees,
suppliers and creditors will be more likely to succeed than the entrepreneur who does not.
o Human Relation Ability: An entrepreneur who maintains good human relations with customers,
employees, suppliers and creditors will be more likely to succeed than the entrepreneur who does not.
o Initiative: An entrepreneur must have initiative, accepting personal responsibility for actions, and above
all make good use of resources.
o Persistent problem –solver: An entrepreneur must have an intense desire to complete a task or solve a
problem. Creativity is an essential ingredient.
o Goal Setter: An entrepreneur must be able to set challenging but realistic goals.
o Self-confidence: Entrepreneurs must have belief in themselves and the ability to achieve their goals.
o Business Secrecy: Leakage of business secrets to trade competitions is a serious matter which should be
carefully guarded against by an entrepreneur.
o High energy level: Success of an entrepreneur demands the ability to work for long hours for sustained
period of time.
o Commitment and Conviction - should be committed to the project and should be at peace only when
the goal is achieved .He should have strong conviction and should complete the tasks as desired.
Bridge the gap between knowledge and application:Entrepreneur can bridge the gap between knowledge and
applications. Entrepreneur can convert the knowledge into an economic activity and gain out of it. But he has
to take risk. Knowledge conversion is a complicated issue.
Converting an idea into money :Being an entrepreneur, one may push up ones innovative ideas into reality.
He/she puts societal resources into societal use.
Be your own boss: Many people would like to enjoy their lives independently. They feel excited by doing so.
Better utilistion of skill and knowledge: The advantage of becoming an entrepreneur is the creative skill and
knowledge of individual can be used for the society otherwise which would gowasted.
Competition: By adapting innovative ideas of entrepreneur the product/service can be produced at a low cost.
This facilitates the organization to face the competition in the market
Originality, respected: The creative and original business ideas of an individual can be used for societal
benefit and with this the originator respected in the society. Originators feel that they can offer a new service/
product that no one has offered before.
Business Opportunity: People with entrepreneurial ability can seize such opportunities and have personal gain.
This also facilitates the society to tap the resources for improving the standard of living of the people.
Management: Entrepreneur will be the boss of one‟s own business and decision making will be again a critical
factor.. But the greatest limitation is that entrepreneur being the top person in the chain of command, may take
decisions which may prove abortive for the business.
Experience: An unskilled person with an unskilled staff will have difficult time in running the business.
Therefore an inexperienced person without entrepreneurial ability cannot manage one‟s own business.
Time management: An entrepreneur will be taking more risk, time is very precious for him. Time is money for
him. The work schedule of an entrepreneur is never predictable. An emergency can come up in a matter of a
second and late hours will have to be put in.
Remuneration: Entrepreneur works on his own for economic gain. But he/she is not assured of positive
economic gain. This means without taking to self-employment, had he/she worked as a paid employee he/she
would have got regular monthly income. To become an entrepreneur, he/she may work on the principle of
opportunity cost and decides to get into own business. His expected grown in terms of profits/assets may not
happen. Therefore, in entrepreneurship development, reward may be positive or negative.
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Benefits: Being an entrepreneur, a person not gain much in initial stages. The start-up problems being more. It
takes considerable time to reap the benefit of being an entrepreneur. Even in long-run benefits will not be
extraordinary.
Entrepreneurs play a very important role in the economic growth of the country. By creation of employment
opportunities both in rural and urban areas it helps to improve the standard of living of the weaker sections of
the society. They serve to mobilise financial and other resources even as they reduce regional imbalances in
distribution of wealth.
Entrepreneurs thus are an important catalyst in the overall development of the Society. A conducive
environment is created through the positive and interest of the government. The role played by an entrepreneur
is significantly important in a mixed economy as it permits the growth of both public and private sector.
Distinguish Between
ENTREPRENEUR MANAGER
1.An entrepreneur is a person who is motivated 1.A Manager has a primary motive of
to satisfy high need for achievement in getting Rewards being promoted. So he is
Innovative and creative activities. He is the either motivated by money or power.
owner of the business which he has established
and so is a self motivated person.
2.The reward for an entrepreneur is profit which 2.The reward for a manager is salary which
is Highly uncertain. is certain and fixed.
3.Risk bearing – being the owner of the business 3. As a servant or employee of the business
He certainly bears all the risk and uncertainties they need not bear any risk.
Of running the business.
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TYPES OF ENTREPRENEURS
Entrepreneur
Classification
Fabian 3. Cognitive
Drone
Innovative:Innovative entrepreneur is one who assembles and synthesises information and introduces new
combination of factors of production.
Fabian : The Fabian entrepreneur is timid and cautious. He imitates other innovations only if he is certain that
failure to do so may damage his business.
Drone : His entrepreneurial activity may be restricted to just one or two innovations. He refuses to adopt
changes in production even at the risk of reduced returns.
Empirical: He is an entrepreneur hardly introduces anything revolutionary and follows the principle of rule of
thumb.
Rational: The rational entrepreneur is well informed about the general economic conditions and introduces
charges which look more revolutionary.
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Cognitive: Cognitive entrepreneur is well informed, draws upon the advice and services of expert and
introduces changes that reflect complete break from the existing scheme of enterprise.
Private: Private entrepreneur is motivated by profit and it would not enterthose sectors of the economy in
which prospects of monetary rewards are not very bright.
Public entrepreneurship: In the underdeveloped countries government will take the initiative to share
enterprise.
Small Scale: The classification is specially popular in the underdeveloped countries. Small entrepreneurs does
not posses the necessary talents and resources to initiate large scale production and introduce revolutionary
technological changes.
Large Scale: In the developed countries most entrepreneurs deal with large scale enterprises. They poses the
financial and necessary enterprise to initiate and introduce new technical changes. The result is the developed
countries are able to sustain and develop a high level of technical progress.
1. Business Entrepreneurs:
Business entrepreneurs are the one who conceive an idea for a new product or service and then create a business
to materialise or convert their idea into reality.
2. Trading Entrepreneurs:
They are those entrepreneurs who take up trading activities but are not concerned with its manufacturing i.e.
they concentrate on marketing and not production.
3. Industrial Entrepreneurs:
Are those entrepreneurs who identify the potential needs of the customers and manufacture the product or
service to meet marketing needs i.e. they concentrate more on Production and not marketing.
4. Corporate Entrepreneurs:
Are those entrepreneurs who demonstrate the innovative skills by converting the Idea into reality organizing
and also managing the undertaken business.
5. Agricultural Entrepreneurs:
The entrepreneurs who take up agricultural activities like raising & marketing Crops, fertilizers, insecticides and
other related agricultural products and services are called Agricultural entrepreneurs.
6. Technical Entrepreneurs:
These are those entrepreneurs who develop new and improved quality of goods. Because of their craftsmanship
and concentrate more on production than marketing.
7. Non-Technical Entrepreneurs:
These are the ones who are not concerned with the technical aspects of the Product. They are more into
introducing new styles of advertising, sales promotion etc…,
8. Professional Entrepreneurs:
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They are entrepreneurs who are interested in establishing a business but do not like to manage or operate the
business once it is established. They prefer to sell the set Business and start another venture with the sales
proceeds.
9. Pure Entrepreneurs:
The entrepreneurs who undertake business activities for personal satisfaction in terms of status, ego or work and
are generally interested in psychological and economic rewards are called as pure entrepreneurs.
12.Spontenous Entrepreneurs:
Individuals who are bold, confident, have strong conviction, have the ability to take the risk and initiate
business and moreover start the business as they are naturally talented or have the inborn talent are called as
spontaneous entrepreneurs.
15.Modern Entrepreneurs:
Entrepreneurs who change with the change for demand in the market and undertake those business which
modify with the changing are modern entrepreneurs .
19.Forced Entrepreneurs:
These are entrepreneurs who are driven out from other vocations but tosatisfy their physiological needs or to
run their life are forced to start their business.
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20. Inheritance Entrepreneurs:
Businesses which are inherited by family members are inherited ventures and the entrepreneur who accepts the
business the way it is runned by his forefathers are Inheritance Entrepreneurs.
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WOMEN ENTERPRISE-DIFFERENT PROBLEMS FACED BY WOMEN ENTREPRENEURS -
DIFFERENT ASSOCIATIONS PROMOTION WOMENENTREPRENEURS.
According to Government of India “An enterprise which is owned and controlled by women entrepreneurs with
50% of employment opportunities to women”.
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finance. The men in the family are not willing to stand as surety or provide security to the financing agencies
so that the loan can be granted, external finance also becomes a hurdle.
Marketing skills of women entrepreneurs are considered to be weak as compared to men entrepreneurs
maintaining existing business and access to fresh business requires strategic marketing skills, this is the major
barrier for women entrepreneurs to either enter the business or expand it.
Other problems
Apart from the above problems mentioned women entrepreneurs have other problems like lack of self
confidence, society‟s attitude towards women entrepreneurs, men dominated society lack of motivation,
unequal opportunities etc are very important and vital problems among many.
SHG is a small, economically homogeneous group which is voluntary in nature, to share the facilities equally
b/w members.All member of SHG have to be active, attend all meetings & discuss the Programmer and
problems. The funds will be provided by members as well as supporting institutions Such as NGO‟s, govt &
funding agencies.
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This was founded in 1993.The help in providing network facilities to women entrepreneurs in the country &
abroad to develop their business.It helps in providing facilities in the area of marketing, quality control,Export
management, standardization etc.
Provides facilities to expand the business of members of member associations. It helps in providing facilities for
members to participate in national & international conference, fairs, exhibitions etc.
3. WTI – Women’s India Trust
Established in 1968. It is used to market the products of WTI members from door to door Under kamila trust.
Then opened the shop in London named KASHI and also extended in Europe Germany etc. Has started
educational programme in nursing & kinder garden training has planned to launch computer training for me.
8. Central and State government schemes DWCRA – Development of women & children in rural areas –
1982 – 83
This is for the women development it helps women in providing facilities different types of trades & business
houses on sustained basis for development of economic, social health & educational status ofRural women.
Registered in 1972. Under trade union act.This is to empower poor rural women and urban entrepreneurs
have become members of Sewa to become self employed.
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d) Development of both rural & urban areas in social & economically self reliable,irrespective of their
academic, social & economical background.
e) It enhances the status of women in the society by creating culture of entrepreneurship among women in both
rural & urban areas and thereby enhances the status of women in society.
Questions:
Section A (2 marks)
1. Define entrepreneur
2. What is entrepreneurship?
3. What is an enterprise?
4. Who is a Drone entrepreneur?
5. Expand AWAKE and FIWE.
Section B (6 marks)
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UNIT 2
Definitions:
1. Small Scale industrial Undertaking: An industrial Undertaking in which the investment in fixed
assets in Plant and Machinery, whether held in ownership terms or on lease or by hire purchase, does
not exceed Rs.100 Lakhs is called a Small Scale Industrial Undertaking.
2. Ancillary Industrial Undertaking : An industrial undertaking which is engaged or proposed to be
engaged in the manufacture or production of parts, components, sub-assemblies, tooling or
intermediates or the rendering of services and the undertaking supplies or renders or proposes to
supply or render not less than 50% of its production or services as the case may be to one or more
other industrial undertakings and whose investments and whose investment in fixed assets in plant
Machinery, whether help on ownership terms or on lease or on by hire purchase doesn‟t exceed Rs
100 Lakhs is called an Ancillary Industrial Undertaking.
3. Tiny Enterprise: All small-scale units with investment limit in Plant and Machinery up to Rs.25
Lakhs irrespective of the location of the unit are called tiny enterprise
4. Export Oriented Units : Units having fixed assets in Plant and Machinery not exceeding Rs.100
Lakhs and which undertake to export at least 30% of its current production by the end of 3rd years
from the date of its commencing of production are called Export Oriented Units(EOU).
5. Small Scale (Industrial related) service and Business Enterprises(SSSBE):Industry related
service and Business Enterprises with investment up to Rs.5Lakhs in fixed assets excluding Land
and Building are called Small Scale (Industry related) Service and Business Enterprise(SSSBE).
6. Women Enterprises: Women enterprises are those Small-scale units, where one or more women
entrepreneurs have not less than 51% of financial holding. Such units are given more concessions
and encouragement.
7. Village and Small scale Industries (24.12.1999)
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Handlooms
Handicrafts
Coir Units
Importance of SSI
Small is beautiful: Easy to manage and monitor. It helps in utilising local labour and resources in a very
efficient manner.
Innovative : New ideas with less investment and with no R&D. It is known that tiny groups tend to
outperform than larger labs with hundreds of people.
Productive: Productive use of products where products can be made from by products or recycled items
which could be better utilised with innovative ideas.
Symbols of National Identity: Small enterprises are almost locally owned and controlled they can
strengthen extended family and other social systems, values etc
Individual taste and Fashion: helps in quickly and easily knowing the changing trends and fashions of
consumers in adjusting production process and production accordingly.
Happy work environment: as small enterprises provide happy work environment with better working
facilities.
Always winners of the Game: SSI has exploited all sectors of market and is successful in making a
benchmark.
Dispersal over wide Areas: They are dispersed over wide areas by playing a major role in
industrialisation of developing countries since they have shorter gestation and lower investments
Advantages of SSI’s:
1. They do not require high level of Technology
2. They do not require high investment
3. They are labour intensive
4. Short gestation period
5. Easy to avail raw materials for production
6. Easy to earn Forex by exporting goods
7. Trains Entrepreneurs in decision making
8. Provides equitable distribution of income
9. Improves standard of living
10. Creates employment
11. Contributes in the development of nation
12. Creates competitive environment
13. Increases demand for consumer goods
14. Improves rural economy
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15. Do not require heavy and costly infrastructure
16. They development is integrated with rural development programs
PRODUCT RANGE
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CAPITAL INVESTMENT
FINANCIAL PLAN(FP)
Financial Plan is a concept which clearly indicated the total project outlay of a business activity. A sound
financial plan will be an integrated financial statement which explains the financial status of business activity.
The following chart can reveal these aspects.
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GENERAL INVESTMENT DECISION (GID)
Investment decision is concerned with allocation of funds. Since financial management deals with mobilization
and deployment of funds, equal importance must be given to both the functions. The process though which
different projects are evaluated is known as „Capital Budgeting‟.
1. Capital Return: It refers to the payback of investment. The management, while taking an investment
decision has to assess as to how soon it will get back the investment. The decision is influenced by the
liquidity concept. Therefore, financial manager has to carefully evaluate the proposal at the time of
finalizing the investment decisions.
2. Earnings:If the earning capacity of the project is not good, it is not advisable on the part of the financial
manager to take such decisions. Earnings can be measured with the minimum earnings or cut-off point
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of the same firm or of the industry. If the estimated profits are below the cut-off rate and the industry or
the firm, the investment becomes useless.
3. Lending Policies of the Financial Institutions: The policies with regard to various covenants of term
loan. Documentation, security margin money, prime lending rate, general state of the economy, money
supply etc. will have direct impact on the flow of funds or lending policies.
4. Working Capital: There are two types of working capital requirement that arise in the industry, viz
Permanent Working Capital and Variable Working Capital. Financial manager has to consider working
capital requirement of the firm in finalizing the investment decision.
5. Accounting Policies: The accounting policies are different for different types of projects. The treatment
of depreciation directly affects the cash inflows. Accounting practices have to be carefully planned for
availing financial assistance. The knowledge of these instruments helps the financial manager in making
investment decisions.
6. Immediate need of the Project: Some of the decisions of investment may not yield immediate returns,
e.g. Investment decisions for explansion, diversification and on R&D. Definitely these areas of
investments are long-term. Any wrong decision taken by him at this stage will become too costly for
organization.
7. Trends of earnings: As the business risk is associated directly with the profitability fluctuation in the
earnings are normally seen from the project. It is the duty of the finance manager to consider fluctuating
cash flows for the proposes of making investment decisions.
8. Structure of Capital: Financial structure or Capital structure may contain only equity or both debt and
equity. Debt-equity ratio will offer leverage benefits, through which a firm increase returns. Hence the
composition of securities in the Capital structure influences the investment decisions.
9. Taxation Policy : If the firm prefers to enjoy the benefit of tax holiday concessions in the sales tax,
stamp duty, excise duties, direct subsidies., it has to choose the investment proposal judiciously.
Therefore, finance manager has to consider Taxation Policy at the time of taking the decision in capital
budgeting.
10. Availability of Funds: Funds are available in different sources. Equity capital, Debentures and
preference capital can be raised through the Primary market. The investment decisions are to be planned
in such a manner, so that it can raise cheaper source of funds quickly. Ultimately project should have the
target of recovering the cost of funds which always vary on the basis of availability.
11. Government Policy: The industrial policy, foreign trade policies and finance policies of the
government will have direct bearing on the investment policies of a company. This has been practically
experienced by the Indian firms after the introduction of Liberalisation, Privatisation and Globalisation.
All these changes are to be noted while making investment decisions.
12. Economic Value of the Project: The investment decisions are also influenced by the economic value
of the project. Economic value means how best the project can expand cash inflows and outflows with
the initial investment and satisfy the funds need of the project. The project must be capable of running
its activities mainly by the generated funds.
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OWNERSHIP PATTERNS
Sole proprietorship: it is a form of business organisation in which an individual invests his own capital, uses
his own skill and intelligence in the management of its affairs and is solely responsible for the results of its
operations.
Features
1. Sole ownership
2. One man control
3. Sole decision making power
4. Unlimited risk
5. Undivided risk
6. No separate entity of the firm
7. No government regulations
Merits
1. Easy and simple formation with less policies or procedure to follow
2. Smooth management with less oppositions or clashes
3. Promptness in decision making as the proprietor is free to conduct the affairs of business
4. Direct motivation
5. Provides direct incentives to work
6. Personal touch to customers
7. Secrecy can be maintained in terms of important matters relating to the business
8. Provides social advantage by providing employment to many.
Limitations
1. Limited financial resources
2. Limited Managerial Ability
3. Unlimited liability in covering risks and bearing losses
4. Mortality rate in terms of continuing the business is high
Partnership Organisation: it the relationship among persons who have agreed to share profits of a business
carried on by all or any of them acting for all.
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Features:
1. There should be atleast two persons to form partnership organisation
2. It has a contractual relationship
3. No legal relationship between firms and partners
4. Unlimited liability
Merits
1. Easy formation
2. Flexibility in terms of making changes w.r.t no of partners, capital etc.
3. Pool of resources and skills
4. Division of risks among the partners
5. Strong credit position
6. Less incidence of Tax as the burden is shared among partners
7. Encourages mutual trust
Demerits
1. Limited resource financially, technically
2. Unlimited liability
3. Instability as the business can come to an end due to quarrels among partners
4. Lack of harmony of interest
Joint Stock companies: It is a voluntary association of persons who contribute to the capital but their liability
remains limited, it carries on business for profit as a legal entity. It can sue and can also be sued in its own
Features:
Co operative societies: it is an association of persons usually of limited means who voluntarily join together to
achieve a common economic end through formation of a democratically controlled business organisation,
making equitable contribution to the capital required and accepting a fair share of risks and benefits of the
undertaking.
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Role of SSI’s in Development of Economy / Contribution to Economic Development
1. Self Employment: Small scale sector provides numerous opportunities for self employment. A self
employed entrepreneur is the master of his own show and he thus gets opportunity for doing something
creative, new and different.
2. Equitable spread of income and wealth: Ownership of small scale industries is widespread and offer
more employment potential as compared with large scale industries. Large scale industries result in
concentration of income and wealth in few hands. Whereas small scale industries ensure Equitable
spread of income and wealth amongst all and that too at all places. Small scale industries thus promote
the objective of social justice.
3. Employment Generation: Small scale industries employ labour intensive technology and hence
generate more employment opportunities. In a country like India confronted with the twin problems of
unemployment and scarcity of capital, it is only the small scale industry which can solve these problems.
Small scale industries can be located anywhere and hence can provide employment to workers near their
homes, more work for the under employed and additional work for the farmers when they are idle.
4. Supporting Large scale industries:Small scale industries can facilitate growth and development of
large scale industries by providing various parts, components and accessories to large scale industries.
Small scale units serve as ancillaries to large units by playing a complementary role.
5. Contribution to foreign exchange: This sector is helping in realization of the objective or export
promotion and import substitution. Nearly 50 percent of the output of the manufacturing sector in our
country is produced by small scale sector.
6. Optimum use of capital: Small scale enterprises require relatively lesser amount of capital as compared
with large scale enterprises. Small scale units help in capital formation by mobilizing idle and small
scattered savings of the people and put theses into productive use by investment in small scale units.
7. Facilitate entrepreneurial development: The units provide self employment to educated unemployed
and reduce their overdependence on the government. It also generates feeling of self reliance amongst
the people.
8. Use of local resources: Small scale enterprises employ local resources like raw material, savings, and
entrepreneurial skill more effectively. Small scale sector generates employment opportunities and
income for local population.
9. Balance regional development: Small scale industries utilize local resources and promote
decentralized development of industries. It is only through dispersal of industries in rural and backward
areas that the objective of balanced regional development can be achieved.
10. Contribution towards national economy: Small scale industries have made rapid strides over years
and can produce wide range of products having mass consumption.
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PROBLEMS FACED BY SSI’S
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POLICIES
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Questions:
Section A (2 marks)
1. Define SSI
2. What is an ancillary unit?
3. Define micro enterprise
4. What is a sick unit?
Section B (6 marks)
1. Explain the different kinds of ownership with their merits and demerits
2. Elaborate on the “New industrial policy of 1991”
3. Explain the problems faced by SSI‟s. Write of the measures taken to solve the problems.
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Unit 3
Business Opportunity
The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes.
Every entrepreneur has started his business unit because there was business opportunity without the opportunity
one could not have established his/her own business unit. But if such unit does not have business strength to
provide an economic gain, the whole effort becomes useless. Therefore to establish a small or big business there
should be an opportunity.
Identification
The business opportunity cannot be identified casually. There is scientific approach to identify the opportunity.
Following preliminary investigation about governing factors will help the identification of sound business
opportunity.
a. It becomes essential to conduct a small survey to know the existing condition of proposed product to be
manufactured or service to be rendered.
b. The functional aspects of the proposed business such an s market condition or behaviour, consumer behaviour,
financial support, legal aspects and economic viability have to be examined.
c. Market behaviour tells whether tells whether the proposed business to produce a product or service has potential
to sell without any problem or what will be the probable disturbance which hinders the sales.
d. Consumer behaviour explains the demand situation of the proposed unit. Demand depends upon the taste,
fashion and preference of the consumers.
e. Business opportunity is also governed by strong financial support. This study examines the size of finance
required for the project; whether it can run only on own finance or it has to resort to borrowing from external
agencies.
f. Legal aspects also determine the type of business opportunity available in a particular place. Business
opportunity should have legal support.
g. Cost benefit analysis of a proposition in a given business environment will also tell whether the opportunity can
be seized.
Evaluation of alternatives
Establishing a small business unit involves and requires the preliminary study of several factors associated with
it. The study of these factors will help the evaluation of different alternatives available to continue or drop the
proposed business. For each of the proposed business it is always necessary to prepare two to three plans
considering the existing resource and competencies of entrepreneur. Of these proposed plans a viable plan has
to selected or all plans can be rejected, if it is not viable on any score in long-term
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A. Conceiving The Business Idea: Establishing a successful business mainly depends upon conceiving a business
idea which has to be fruitful. Conceiving ideas take place sometimes by intuition of the entrepreneur or by
examining the environment in terms of factors conducive for development of business.
B. Screening the ideas: Of the ideas conceived, the entrepreneur has to identify one idea that he hopes to run
successfully at a reasonable profit. While screening the business ideas he has to make a comparative analysis of
all conceived ideas in terms of location availability of infrastructure, financial aspects, capabilities of
entrepreneur himself, marketing opportunities of each idea, general behaviour of target consumer etc. Screening
of ideas is starting point of the feasibility analysis.
C. Business analysis: This is mainly concerned with cost benefit analysis. Detailed investigation of all costs
involved in the business has to be made. Costs include the fixed cost as well as variable cost. These may be
otherwise called fixed capital and working capital. The cost determining factors or variables are; Size of
investment or total outlay, location cost, cost of technology adapted in production process , equipment cost like
plant cost, erection cost, other moving equipment like cranes, trolleys etc , marketing and distribution cost,
various operating costs.
D. Feasibility Report: Considering every aspect of business, a detailed draft project report has to be prepared.
This report gives a clear picture of the proposed business. This also helps the entrepreneur to take to the
proposed project or to drop it. As project idea is examined in the context of internal and external constraints,
three alternatives could be considered.
E. Alternative Plans: The feasibility report provides all types of data relating to the proposed business. This draft
report contains techno-economic analysis, project design and network analysis, input analysis, financial
analysis, cost-benefit analysis. Based on the basic report entrepreneur has to prepare two or three alternative
plans, focusing on different aspects.
F. Preparing a Right Plan: A comparative analysis of all the alternative plans has to be made and a final action
plan has to be prepared considering the best aspects of each plan. This is very rigorous task because in each
component of the plan, economic viability has to be considered on a long term basis.
G. Project Implementation: After finalising the ultimate project plan, the entrepreneur starts implementing the
various activities to commence business. Project implementation is time consuming process. When business is
ready, trial production starts or business will be launched.
H. Feed Back and Commercial Production: When trail production is on problems may crop up, entrepreneur has
to adapt corrective measures and go in for commercial production. When once the project takes off for
commercial production, entrepreneur has to divert his attention to the marketing of the product to generate
revenue.
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Availability of sufficient space
Easy availability of Labour
Availability of raw material at reasonable price
Availability of industrial fuel and its supply
Availability of transport facility
Availability of power and degree of dependability of its supply
Water supply as per requirement
Facilities available for education, health, recreation, shopping, religios and social life and
professional services
Laws and regulations conducive for establishing a business unit
Climate condition of the area
Tax incentive available in that locality
Nearness to the market
Provision for disposal of waste
Cheap power supply
5. Preparation of Project Profile : A project profile gives a bird‟s-eye view of the proposed project. This
may be used for obtaining the provisional registration certificate from the district industries centre and
for making, applying for industrial areas development board or state small industries development for
shed and other infrastructures.
6. Arrange for Infrastructure: The main infrastructure facilities required for a SSI unit are land or shed
for the project, power connection, Water supply, telephone facility, connectivity to the nearest rail, road
or port etc..
7. Designing capital structure : Arrangement and management of capital is an important task of an
entrepreneur. The initial capital will be from the following resources: own capital, long term loans taken
from friends and relatives, term loans from banks and financial institutions. The institutional lending has
increase but is not the dominant source for small industry; banks generally provide working capital
finance.
8. Clearances and permits : Several types of clearance and permissions have tp be obtained from
different agencies
10. Registration: Registration of small scale industrial units is not compulsory. However registration with
the state directorate of industries or district industry centre facilitates obtaining of assistance from the
government benefits like concession, subsidies, and quota for scare or controlled raw materials.
1) Provisional Registration: Provisional certificate is issued within a week of applying except in the
case where proposed unit is one which needs raw- materials which the government has declared
non-available due to shortage of the same. The validity of provisional certificate instance is for one
year which can be extended for two more years on the condition of submission of certificate by the
entrepreneur that he has taken steps for setting up unit and he required more time for the completion
of the project.
2) Permanent Registration : After construction of factory building, taking power connection,
purchasing and installing of machinery and pollution control equipments, obtaining license from
Municipal Corporations or other local authorities etc., the entrepreneur can proceed ahead and apply
for permanent registration of his unit. Permanent registration is life time registration granted to SSI
which has commenced production. It is given after physical inspection of the enterprise.
11. Marketing : Marketing is the most important activity as far as the entrepreneurial development is
concerned .Various aspects like how to reach the customer distribution channels, commission
structure,pricing,advertising,publicity etc.Have to be decide by the entrepreneur. It will also assist the
entrepreneur in carrying out modification or additional in designs and features of the product. Having
successfully test marketed the product, commercial marketing can be undertaken. The entrepreneur can
contact the small industries marketing corporation.
12. Quality Assurance: Before marketing the product quality certification from BIS (Bureau of Indian
standard) AGMARK/HALLMARK etc should be obtained depending upon the product .If there is no
quality standard specified for the products, the entrepreneur should evolve his own quality control
parameters. Quality ensure long-term success.
13. Marketing Research: Once the product or service is introduced in the market, there is strong need for
continuous market research to assess needs and areas for modification, upgradation and growth.
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Marketing becomes the waterloo for most SSI entrepreneurs as they ignore this vital function initial
success should not lure the entrepreneur into a sense of complacency.
14. Monitoring: Periodical monitoring and evolution not only of markets but also production, quality and
profitability helps in knowing where the firm stands in comparison to performance envisaged in the
business plan. It also identification direction of future growth.
SSI-Concept to Commissioning
After identifying the business opportunity, entrepreneur has to commission this concept. He/She has to work on
the proposal with the issue involved in selection of a proper site for locating the unit, availing all clearance,
analysing the feasibility of finance, societal reaction and potential market for the product or service of the
proposed unit. These issues are
1. Location
2. Clearance and permits
3. Licensing
4. Registration
5. Market Feasibility
6. Financial Feasibility
7. Technical Feasibility
8. Social Feasibility
1. Location: Selecting a place to locate the proposed unit is a real challenge to entrepreneur. It is said that “good
location is half the problem solved”. A thorough analysis of the location to be selected is to be undertaken by
the entrepreneur before he selects a particular site. The issues to be examined are:
Availability of sufficient space including the space requires for future expansion
Availability of raw material at reasonable price
Easy availability of skilled / unskilled labour
Availability of industrial fuel and supply
The type of transport facility, the proposed unit requires and its availability
Distribution facilities available for the proposed product or service
Availability of power and degree of dependability of its supply
Water supply as per the requirement
Facilities available for education, health, recreation, shopping, religious and social life and professional services
Housing facilities available to employees of the proposed project.
Laws and regulation conducive for establishing a business unit
Tax incentives available in that locality
Climatic condition of the area
Thus selection of a best place for establishing a business unit plays a major role in successful operation of
proposed venture
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2. Clearance and Permits: Several types of clearance and permissions have to be obtained from different
agencies. General clearance applicable to SSIs and other size of business are enlisted.
Following types of industries have obtain Provision Registration from the respective District Industrial Centres‟
(DICs)
a. SSI‟s
b. Ancillary industries whose investment in plant and equipment below Rs 1 Crore
c. Tiny industries (Investments below Rs 25 Lakhs in plant and machinery)
d. Women entrepreneurs where one or more women entrepreneur has not less than 51% financial holding.
Other Clearances
a. Land/Location: Environmental clearance from government of India; No objection certificate (NOC) from
Pollution Board of the respective state; Change of land used from District Collector/Government in municipal
Administration and Urban Development through Director/ Town and Country Planning/ Urban Development
Authority; Exemption from Land Ceiling.
b. Building: Permission for building layout need to be taken from Gram Panchayat/ Municipality/Town and
Country Planning Department/ Urban Development Authority.
c. Plant and Machinery: Approval of layout needs to be taken from the departmental of Factories/Boilers
d. Raw Material: Need to get permit of scarce raw materials like Coal, Molasses, alcohol, paraffin wax etc. If
required from Industries Department.
e. Power: Need to get power feasibility from concerned State Electricity Board; to obtain approval Captive
Generation, if need be; Agreement with private power producer to purchase power from private generating
stations.
f. Water: Water supply services can be obtained from the following:-Own captive source; Public Supply (local
Bodies); Supply from the state Government Authority in case of Industrial Parks/ Industrial Development
Areas; Supply from state Irrigation Department for bulk consumption.
3. Licensing: This is a part of clearance activity. All legal aspects to establish a business unit irrespective of the
size have to be strictly followed.
- Any entrepreneur is open to set up an industrial unit in the small scale sector, no formal permission from the
state government is necessary for this purpose.
- Also, industries employing less than 100 workers and having fixed asset of Rs 10 Lakhs need not obtain any
licence under the industries(Development Regulation) Act.
- Small scale units have to follow the rules and regulation prescribed by the state or local authorities under
Factories Act, the Commercial Establishment Act, the Town Planning Rules and rules mage for the issue of
quotas of raw materials etc.
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- However Power looms do not come under the purview of small scale industries programme. For installing
power looms the prior permission of the Textile Commissioner, Government of India is required.
4. Registration: In their own interest, all existing small scale unit or intending entrepreneur employing more than
10 workers should get themselves registered with Director of Industries in their state.
- A copy of the Registration Application has to be sent to the Director of SSI Institute in the Concerned State.
- Such registration with the Director of Industries and Small Industries service Institute will be of considerable
help to small unit in obtaining financial assistance from the government and for obtaining machinery on hire
purchase basis from National Small Industries Corporation.
- Assistance in the supply of controlled raw material essentiality certificate for imported raw materials and
components and facilities for export promotion would then be easily made available to small scale units
registered with the State Director of Industries.
Feasibility Analyses:
1. Market Feasibility: Marketing of the product or service is the biggest task of any business enterprise.
- Entrepreneur involved in small business should feel that their business will be secured with good marketing
effort.
- The success of any business is mainly depending on its marketing effort and the market share that it possesses.
- For beginners it is not advisable to get into a project particularly the first which would not mean survival amidst
cut throat competition involving direct selling to the ultimate consumer.
- Marketing objective is to match total enterprise resource against market requirement and opportunities.
- The focus should be on marketing strategies and planning.
- The firm has to manufacture what it can sell.
- Marketing seeks to create markets and develop saleable products.
2. Financial Feasibility: The financial aspect of any business will tell us the total capital outlay of the proposed
business, the sources through which they can be availed, the cost of capital and its implication in the proposed
business. The comprehensive analysis of these issues will give an indication whether the proposed business is
viable or not.
- The areas where finance would be needed after the small scale industrialist has acquired the land are:
- Purchase and installation of machinery
- Procurement of raw materials and components and the manufacture of products
- Working funds
- Availability of funds until the realisation of sales.
- The State Director of Industries provides loans for block capital under industries Act.
- State Finance Corporation (SFC) provides long term credit for the purchase of fixed assets.
- The application should be submitted to the SFCs along with the following documents
a. Project Report
b. Copy of registration
c. Cash flow statement
- Commercial banks provide medium term instalment credit. It also provides loans for meeting working capital
for purchase of raw materials and also day to day requirements.
- In order to get loan from a commercial bank the entrepreneur has to fill an application.
- The purpose of loan application is to convince a lender that the project is a desirable investment that it not only
possesses the potential for profit but also the proposed management team has the capability to achieve the
potential.
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The investment proposal normally contains
a. General information on the product, company history, the nature of industry and the reputation and
qualifications of the existing or proposed management.
b. A description of the project, which usually consists of extracts from economic feasibility studies and includes
information on such items as market, production, selected manufacturing method and a financial statement.
c. Miscellaneous information such as the step taken for the implementation of the project and the qualifications of
the technical partners envisaged or selected.
- A financial analysis study has to made which should include the following
a. For projects that involve new companies statement of total project cost, initial capital requirement and cash
flows relative to the project schedule.
b. For all projects, supporting schedules for financial projection, stating assumption made as to the collection
period of sales, inventory levels, payment period of purchases and expenses and the element of production cost,
selling, administrative and financial expenses.
c. It is necessary to have a sensitivity analysis to identify items which have a substantial impact on profitability or
possibly a risk analysis
d. For all project a financial analysis showing returns on investment, returns on equity, break even volume and
price analysis.
Once the industry is identified a financial feasibility report giving a comprehensive idea of an industry‟s
financial requirements and viability of proposed business.
3. Technical Feasibility: This is another vital issue to be examined in detail by the entrepreneur.
- Small projects need not go for very high technology based product which involves huge cost.
- It is better to adopt proven technology that is indigenously available.
- In techno economic analysis, estimation of the project demand potential and aid in project design.
- Technical feasibility analysis gives the proposed business on unique individuality and sets the stage for detailed
design development.
- The technical analysis of the proposed SSI establishes whether the project is technically feasible or not.
- It also provides an opportunity for consideration of the effect of various technical alternatives on employment,
ecology, infrastructure demands, capital services, support of other industries, balance of payment and other
factors.
- Some of the following factors are examined where the proposed to be adopted is not well established
i. Whether the technology/process is patented or not;
ii. Degree of reliability of proposed process;
iii. Scale of development i.e., whether laboratory scale, pilot plant scale etc.
iv. Flexibility i.e., whether the equipment for the process can be used for alternative processes or products.
In order to expedite the examination of technological aspects, the borrower should be fully prepared
with explanations for selecting a particular process, technology and its techno-economic advantages over the
available process. The borrower should also prepare flow charts, material balance sheet, and requirement of
utilities and specifications of process parameters.
4. Social Feasibility: Apart from looking into the various issues of a project in terms of investment costs and
benefits which accrue to the project directly, it is necessary to consider the total impact of the project on the
society. With a view to evaluate the project, the social cost benefit analysis is used.
- Social cost benefit analysis does not look as just an investment proposition.
- Whatever may be the impact of the project on the economy or nation, it takes into account just as the existing
equilibrium of the economy.
- In the cost benefit analysis also the extent to which the project which will help the society to improve its image
or profile is indicated.
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- Entrepreneur who take to a particular business activity besides considering various start up issues should also
consider whether the proposed business activity satisfy the social need of the society.
- Social need concept considers several societal aspects
i. Environmental protection
ii. Maintaining values in the society
iii. Stopping depletion of rain forest
iv. Creating employment opportunities for the people of the locality etc
- As far as possible the proposed business should serve the cause of the society and should not be an obstacle for
the value maintenance of the society.
- Social cost benefit analysis considers the following
i. The estimation of cost and benefits which will accrue to individual members of the society as consumers or as
suppliers of factor input.
ii. Costs and benefits accrue to the community
iii. Cost and benefit accrue to the entrepreneur over the period of time to determine the feasibility of the proposed
business activity.
In social feasibility analysis entrepreneurs have to study the problem of social economy to know as to how their
business would help the society in enhancing the social values and returns.
To conclude entrepreneur should examine all the start up issues such as locations, clearance formalities,
licensing, registration, market feasibility, financial estimates, technical and social feasibility to succeed in his
venture.
Questions:
Section A (2 marks)
1. Define feasibility
2. What do you mean by business opportunity
Section B (6 marks)
CHAPTER 4
The business plan is a writtendocumentprepared by the entrepreneur that describes all the relevant external and
internal elements involved in starting a new venture. It is often an integration of functional plans such as
marketing, manufacturing and human resources.
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Financial plan
A financial plan is an outline of a company‟s financial goals and the steps that are necessary to reach them.
Marketing plan
It describes the market conditions and the strategy related to how products and services will be distributed,
priced and promoted. Marketing research evidence to support any of the critical marketing decision strategies as
well as for forecasting sales should be described.
Seed capital
The seed capital scheme was introduced in 1976 with a view to assist the new entrepreneurs who do not have
adequate resources of their own to set up industrial project in the small and medium sectors with project cost
not exceeding Rs. 3 Crores.
Marketing segmentation
Market segmentation is the act of identifying and profiling distinct groups of buyers who might require separate
products and / or marketing mixes. It is the process of splitting customers into different groups or segment,
within which customers with similar characteristics have similar needs.
Trademark
A trademark may be a word, symbol, design or some combination of such, or it could be a slogan or even a
particular sound that identifies the source or sponsorship of certain goods or services. A trademark can last
indefinitely, as long as the mark continues to perform
It‟s indicated function.
Copyright
A copyright protects original works of authorship. It is the right given to prevent others from printing, copying
or publishing any original works of authorship. The protection in a copyright does not protect the idea itself, and
thus it allows someone else to use the idea/concept in a different manner.
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Financial aspects of the business plan
Before preparing the business plan, the entrepreneur must have a complete evaluation of the profitability the
venture. The assessment will primarily tell potential investors of the business will be profitable, how much
money will be needed to launch the business and meet short term financial needs, and how this money will be
obtained (E.g.: Stock or debt)
1) Expected sales and expense figures atleast the first three years.
2) Cash flow figures for the first three years
3) Current balance sheet figures and preformed balance sheets for The first three years.
(i)Well defined market: A market that is well – defined will make it easier to target it at right people, project
market size and determine subsequent market goals for the new venture.
(ii)Channel strategy: Itis also necessary to take into account the channel strategy i.e. how the product/service
will reach the consumers. There are different channels available. The choice of the channel will depend on the
nature of product/service to be sold and the industry in which it is operating.
(iii)A Positioning statement: Then needsto beprepared. A positioning statement will put fort attributes/benefits
of the product/service and create a favourable image in the minds of customers. It will also describe, in what
way the product has been designed and tailored to meet the needs of the target Customer
(iv)The pricing strategy: needs to be explained i.e. On what basis is the price determined and why it will be
Effective with target customers. Also, the discounts Offered at each level of the channel need to be Considered.
(v)Communication Strategy: Communicates the benefits of using the product/service to the consumer Via
media advertising, outdoor advertising, p-o-p public Relations, e-commerce and the like. Brand name, logo
Tagline, colour scheme, packaging etc. will all go in creating a brand image
(vi)Sales Strategy: Last but not the least, the sales Strategy will describe the manner in which the
product/Service will be sold i.e. through sales force, Telemarketing, direct mail, etc. The procedure of
Generating leads, recruiting, training and compensation the sales force also need to be established.
The marketing plan should be designed to meet certain criteria. Some important Characteristics that must be
incorporated in an effective marketing plan are as follows:
It should provide a strategy for accomplishing the company mission or goal .
It should be based on facts and valid assumptions.
It must provide for the use of existing resources
Allocation of all equipment, financial resources must be described.
An appropriate organization must be described to implement the marketing plan.
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It should provide for continuity so that each annual marketing plan can build on it, successfully meeting
long term goals are excluded.
It should be simple and short. A voluminous plan will be placed in desk drawer and is never likely to be
used. However, the plan should not be so short that detail on how to accomplish a goal are excluded.
The success of the plan may depend on its flexibility, changes if necessary, should be incorporated by
including “what if” scenarios and appropriate responding strategies.
It should specify performance criteria that will be monitored and controlled if not attained, then new
strategy or performance standards may be established.
An efficient and competent team of people is a prerequisite to the success of any Organisation. The talents and
experience that the team brings to the business is very valuable. A description of the organizational structure
along with organizational chart is needed.
Top management: The structure of the top management should be listed Down .It is the apex body which
makes policies, sets goals, pool the resources etc.
Middle management: Middle management is responsible for putting the plans into action.
Operations management: Operations management has people who are working at the operational level, be it
the shop floor in case of Manufacturing, on the field in case of sales and service personnel, and in different
branches in case of service providers. These are the people who interact with the customers and vendors
directly.
Supporting staff: The supporting staffs play an important role in the Organisation. Hence its duties need to be
clearly laid down.
Advisors: Advisory services in case of matters such as legal, quality, finance, and auditing are required. These
services are needed because an entrepreneur requires expert opinion from time to time. The following
information about human resources in the business plan will add clarity:
- Number and type of employees
- Pay structure
- Training methods
- Job Descriptions
When outlining the plan of technology it should be borne in mind how the company might grow or change.
Also the technology chosen should be simple and flexible. Technology can be used in:
Accounting, taxes, finance
Order taking and tracking
Inventory management
Database management
Presentations
Human resource management
Internet marketing etc.
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Following factors should be borne in mind while choosing Technology:
Functions
Ease of use
Security
Flexibility
Maintainability
Financial consideration
A business has certain social responsibilities in addition to the objective of maximizing profits. An ideal
business firm should:
- Take the welfare of society in to consideration
- Focus on values of society
- Optimise the use of resources
- Protect the environment, ecology by undertaking anti-pollution measures
- Participate in social welfare programmes, make charitable contribution.
- Undertake social forestry, adopt villages for their all round development and share the gains arising out of
improved production technique with all those who have interests in the business.
This is the title or cover page hat provides a brief summary of the business plans contents it should contain the
following:
- Name and address of the company
- Name of the entrepreneur, telephone number, fax number, e-mail address
(if any)paragraph describing the company and nature of business amount of finance required
- A Statement of the confidentiality of the report for security purposes.
II Executive summary
This section of the plan is written after the total plan is prepared. The executive summary should stimulate the
interest of the potential investor, it would highlight in a Concise and convincing manner the key points in the
business plan.
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Industry Demand: Whether market is growing or declining, the number of new Competitors and possible
changes in consumer needs.
- Competition: Potential threats from larger corporations, their strengths and Weaknesses.
V Production / Operational plan: If the new venture is a manufacturing operation a production plan is
necessary. This is plan will describe the complete manufacturing process, the subcontractors (if any), including
location, reasons for selection, cost and any contracts that have been completed.
If the venture is not a manufacturing operation but a retail store, service, or some other type of non
manufacturing business, this section would be titled operational plan and the entrepreneur would then need to
describe the chronological steps in completing a business transaction.
VI Marketing plan: It describes the market conditions and the strategy related to how products and services
will be distributed, priced and promoted. Marketing research evidence to support any of the critical marketing
decision strategies as well as for forecasting sales should be described in this section.
VII Organisational plan: It describes the form of ownership and lines of authority and Responsibility of
members of the new venture. This information provides the Potential investor with a clear understanding of who
controls the organization and how other members will interact in performing their management functions.
VIII Assessment of Risk: This is section will identify the potential hazards and
Alternative strategies to meet business plan goals and objectives. Major risks for a new venture could result
from a competitor‟s reactions; weaknesses in the marketing, production or management team; and new
advances in technology that might render the new product obsolete.
IX Financial Plan: This gives the projections of key financial data that determine economic feasibility and
necessary financial investment commitment. The first area should summarise the forecasted sales and the
appropriate expenses for at least the first three years. Second information needed is cash flow figures for three
years and the last information needed is the projected balance sheet.
X Appendices: The Section generally contains any backup material that is not necessary in the text of the
document. Reference to any of the documents in the appendix should be made in the plan itself.
(i) The Executive Summary: The Executive summary is the starting point of the business plan. It gives brief
and quick information of who you are and what the business is all about.
(ii)Description of the business: Name of the business, its location, its goals, and the strategies adopted.
(iii)Product/service: Describe the nature of products/service offered, the target market being served and the
customer demand situation.
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(iv)Management: Form and type of organization and its culture.
(vi)Organisation description: Responsibility and authority, organization chart describing the level and status
of each executive legal structure.
(vii)Industry: Industry size, Market share analysis. Principal markets, factors affecting industry, customer
tastes and preferences, nature of competition, competitor‟s strengths and weaknesses.
(viii)Marketing strategy: Pricing policy, promotion policy, field support, Technology adopted intellectual
property.
The different financial projection techniques are the planning tools designed to
Provide the entrepreneur with a clear picture of where funds come from, how they are
Disbursed the amount of cash available, and the general financial well being of the new Venture.
1. Proforma Income Statement: It provides a sales estimate in the first year (monthly basis) and projects
operating expenses each month. These estimates will be determined from the appropriate budgets that would be
based on marketing plan projections and objectives.
2.Proforma cash flow: cash flow is not the same as profit. It reflects the difference between cash actually
received and cash disbursements. Some cash disbursements are not operating expenses (eg. RepaymentOf
principal on loan) likewise, some operating expenses are not a cash disbursement (eg depreciation). Many new
ventures have failed because of lack of cash, even when the venture is profitable.
3.Proforma balance sheet: It reflects the condition of the business at the end of a particular period. It
summarises the assets, liabilities and net worth of the firm.
i.Assets: These represent everything of value that is owned by business. The asset are categorized as current
assets includes cash and anything else that is expected to be converted into cash or consumed in the operation of
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business during a period of one year or less. Fixed assets are those that are tangible and will be used over long
period of time.
ii.Liabilities: These accounts represent everything owned to creditors some of these amounts maybe due within
a year (current liabilities) and others may be long term debts such as loan taken to purchase equipment and
support cash flow.
iii.Owner Equity: Owner Equity represents the amount owners have invested and / or retained from the venture
operations. It represents the net worth of the business. Any profit from the business will also be included in the
net worth as retained earnings, Thus, all revenues increase assets and owner equity, and all expenses decrease
owner equity and either increase liabilities or decrease assets.
4.Breakeven point: The breakeven point is a no profit no loss zone. The breakeven point can be determined
from the projected income. At this point the total revenue equals total cost. This provides insight into the
financial potential for the start-up business.
While there is no specific format that every business plan has to compulsorily follow, there are definitely some
common pitfalls that have to be avoided by first time entrepreneurs.
Some of the common pitfalls / errors observed while preparing business plans are:
Capacity utilization:
Generally entrepreneurs assume wrong capacity utilization figures. This assumption is based on complete
discount of current market conditions, availability of raw materials, competition, etc.
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Selection of appropriate machineries:
This is an area where faulty decisions are common. Many entrepreneurs get carried away by words of vendors
of the technology/machineries. These vendors may not have clear idea about your business, product and finance
but still influence the decision to buy them.
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Business plans, by their very nature are founded on assumptions. However, these assumptions need to be
justifiably true and relevant for the plan to be accepted. Unrealistic and unfounded assumptions can derail the
business plan.
Inadequacy of research
If the research done prior to the writing of the business plan is inadequate, it is made visible to the readers in the
plan itself. It is important to tie the assumptions together with accepted facts. Well intentioned investors will
question the seriousness of your business venture if there is no sufficient research done to substantiate your
assumptions and forecasts.
The lack of risk identification and measures to manage it / Underestimating the risks involved
There is no business that can claim to be completely risk free. However, lack of risk identification and measures
to manage it or underestimating the risks involved can derail the business plan completely.
Questions:
Section A (2 marks)
Section B (6 marks)
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CHAPTER 5
INSTITUTIONAL ASSISTANCE TO SMALL SCALE ENTERPRISES
Introduction
With the quickened pace of economic development under the impetus of the Five- Year Plans, the most
striking change in the Indian economy has been the initiation of an industrial revolution and the re-emergence
of small scale industries. Not only have the established small industries increased their installed capacity and
output but a wide range of new small industries has also come into existence. These far reaching developments
and the scale and scope of operation of small scale industries have brought to fore the importance of provision
of administrative and institutional assistance at various levels.
Institutional Support
The scale and scope of operation of entrepreneurs and the far reaching developments in the economic
climate have brought to the fore the importance of institutional assistance at various levels. In fact the success
of entrepreneurship depends solely on the well established institutional set up.
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2. Industrial Development Bank of India(IDBI)
3. Industrial Finance Corporation of India (IFCI)
4. Industrial Credit and Investment Corporation of India (ICICI)
5. Industrial Reconstruction Bank of India (IRBI)
6. Commercial Banks
7. Life Insurance Corporation (LIC)
8. General Insurance Corporation (GIC)
9. United Trust of India (UTI)
10. Small Industries Development Bank of India (SIDBI)
11. Mutual Funds
12. Leasing Companies
13. Risk Capital Foundation
14. National Bank for Agriculture and Rural Development (NABARD)
15. Khadi and Village Industries Commission (KVIC)
16. Stock Exchange
17. Venture Capital Finance
18. Housing Development Finance Corporation of India
19. The Shipping Credit and Investment Company of India
20. The World Bank
21. Asian Development Bank
22. Infrastructure and Leasing Finance Corporation
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- KSFC assists entrepreneur to set up new industries and to expand, diversify or modernize existing ones-
anywhere in Karnataka.
- Borrowers can be proprietary concerns, Partnership Firms, Private Limited Companies, Limited Companies,
Hindu Undivided Families, Trust or Co-operative Societies.
- KSFC offer additional incentives for SC/ST entrepreneurs, Women, Disabled people.
- It also offers special financial schemes and services through Leasing Finance, Hire Purchase, Merchant Banking
Divisions and Rental Discounting and Corporate Loans.
- Priority Sector Lending: Credit to the small scale is ensured as part of the priority sector lending by banks.
Banks are required to compulsory ensure that defined percentage of their overall lending is made to priority
sector as classified by the government.
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- Institutional Arrangement: Small industries Development Bank of India (SIDBI) was set up as the apex
refinance bank. Term loans are provided by the State Finance Corporations and Scheduled Banks. Credit
lending in direct/indirect forms is also undertaken to some extent by NABARD, NSIC etc.
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The corporation participates in the direct equity share capital mainly in respect of assisted/ joint sector
companies. The participation will be upto 11% of the paid-up equity capital depending upon the merit of the
project. In certain sectors the participation is expected to be disinvested by the corporation within a maximum
period of three to five years on a mutual agreed disinvestment formula entered into at the time of investment.
Share Capital
Bonds and Debentures
Other Borrowings
NON-FINANCIAL ASSISTANCE
District Industries Centre (DIC)
District Industries Centre focuses on
Objectives of DIC
Accelerate the industrialization process in the district through education, training and support.
Encourage the spread of industries to rural areas through supporting to cottage industries.
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Decentralize the industrialization process so that regional economic imbalances are minimized.
Implement various support schemes of government in the respective district, thus encourage new entrepreneurs.
Acts as a single window to minimize the time required to obtain various statutory permission like licenses,
registration, subsidies, financial assistance etc.
DIC acts as a nodal agency to spread the process of industrialization in the respective region.
Prepare the profile of the industry located in district
Collects the statistical data of various kinds of industries located in the district.
Based on the local resources and the needs of the society, DIC prepares list of product and services which can
be produced in the district.
Assists the entrepreneurs in accessing various infrastructure facilities like quality testing, transport, raw
material, packaging technology, prototype development, warehousing etc.
Organize entrepreneurship awareness programmes and entrepreneurship development programmes about
various tenders by government and other.
Acts as a link between entrepreneur and the lead banks, credit cooperative societies, rural banks, agricultural
banks etc. Depending on the nature of business.
Assistance/Consultancy to prospective Entrepreneur: SISIs assists and guides the prospective entrepreneurs
on various issue.
Assistance/consultancy: Existing unit require the guidance from time to time on various issue like raw material
procurement
Preparation of state economic and Industrial profiles: SISI in each state collects and publishes various
information is spread to the state. This information is spread to entrepreneur through books, seminars and
training programmes.
Preparation/ Updation of District Industrial potential surveys: SISI periodically conducts survey to identify
emerging business opportunities. This information helps upcoming entrepreneur to take up potential business
opportunities.
Project Profiles: Prepares profiles on various projects. These projects profile explains various issues like the
extent of demand for product/ service, production issues, marketing issues, financial issues and expected growth
in the demand.
Entrepreneurship Development Programmes (EDP): EDP can convert ordinary person into risk takers,
innovators, employers, leaders and visionaries. SISI periodically conducts various programmes to bring
awareness to motivate and build skills among people to take up businesses of their own.
Production Index: It measures the monthly/yearly performance of various industries in the country. Due to its
periodicity and detailed breakdown by branches of economic activity, it is the central and up-to-date indicator
of the development of business activity. SISI collects data from industries about the production of various goods
and services and publishes for the benefit of entrepreneurs.
Quality Control and up gradation: SISI conducts various training programmes, workshops and seminars to
bring awareness about the quality aspects in business operations. SISI helps to deploy appropriate quality
systems and processes in the SME sector.
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Export Promotion: Small business sector is contributing in a big way to country‟s export. SISI updates
entrepreneurs about visits of foreign delegates and trade visits, so that entrepreneurs get a chance to meet
prospective buyers
Ancillary Development: Ancillary industrial unit is one which supplies 50% or more of its production to one
or more industrial undertakings. Along with development of small industries SISI also focuses on setting up of
ancillary industries. This accelerates the process of industrialization.
Common Facility workshop/Lab: SISI offers common facility services like general engineering works,
electrical and electronics, product designing etc. It is difficult and expensive to set up such kind of facilities in
every small scale units.
Preparation of Directory of specific Industry: SISI prepares directories for specific industries like directory
on manufacturers of automobile spare parts, agricultural implements, and electrical equipments. These kinds of
directories help to promote a particular industry in terms of creating awareness, bridging the gap between
buyers and sellers etc.
Coordination with DICs: SISI provides extensive back up support to DICs in the state in promoting industrial
development by providing technical and economical information, project profiles on industries, participating in
EDPs and seminars organized by DICs, conducting industrial potential surveys etc.
Linkage with State Government Functionaries: SISI acts as a central point of contact and coordinates with
various government functionaries like various ministries, committees, financial institutions, commodity boards,
commercial banks, training institutes etc.
Market Surveys: In coordination with various government agencies SISI regularly conducts market survey on
various products and services.
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Small Industries Development Organization (SIDO)
Small Industries Development Organization in functioning Under Department of SSI, Government of India. The
main functions of SIDO are:
It is currently operated by the Ministry of Commerce with a view to encourage exporters to access and develop
overseas
The scheme offers funding for participation in international fairs, study tours abroad, trade delegations,
publicity etc.
Direct assistance under MDA for small-scale units is given for individual sales-cum-study tours, participation in
fairs/exhibitions and publicity.
SIDO provides exhibition space and shipment of exhibits Ex- Mumbai free cost for this purpose.
SIDO provides exhibition space and shipment of exhibits
With a view to rendering assistance to Small Scale Sector exhibit their products in the International Exhibition,
require assistance and support is provided.
Packaging for exports: With a view to improve SSI Exporters of the latest packing standards, techniques etc.
Training programmes on packaging for export s are organized regularly by SID in various parts of the country.
These programmes are organized in association with Indian Institute of Packaging.
Consultancy Services
Technical and Managerial Consultancy Services: Technical and Managerial Consultancy services to the SSI
manufacturers/ exporters are provided through a network of field offices of this office so as to ensure higher
level of production and generation of higher exports.
Technology Trends and Trade Reports: SIDO and SISI are involved in activities to build databases and report
on technology trends and Trade reports. The activities encompass
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Association of Women Entrepreneurs of Karnataka (AWAKE)
It is today one of India‟s premier institution totally devoted to entrepreneurship development among women.
Established in 1983 AWAKE‟s success has been recognized worldwide.
It aims to empower women through entrepreneur development to improve their economic condition, enhance
their social status and develop a spirit of individuality and creativity.
AWAKE organises conventions/seminars. The seminars will emphasise the imperative need for growth of
women owned enterprises in the changing economic scenario.
To provide an international platform focussing on economic empowerment of women and international trade.
To provide an opportunity for interaction between entrepreneurs to learn about the best business practices
Business to Business trade meets
Networking of Business Associations
To evolve pro-women entrepreneur policies
Exposure to new ideas of marketing access to finance/ technology/ innovation.
Exploring business opportunities.
Objectives of KVIC
Financial assistance for purchase of land, building, workshop, shed, machinery and equipment at the rate of 4%
interest.
Working capital Provision
Equity capital
Loan provision for purchase of raw material
Marketing avenues and selling centres for the products of artisans and craftsmen
Subsidies for the registered societies of artisans and craftsmen belonging to scheduled castes, scheduled tribes,
ex-service men, women etc
In addition to these schemes, KVIC provides various facilities for cottage industry like integrated village
development programme, special beneficiary schemes, silk industry development scheme interest subsidy
scheme, artisans employment guarantees etc. The government has defined “Gramodyog” (Village Industries) as
Population of the village should not be more than ten thousand people
Investment in the place of products,, machines and equipments should not exceed Rupees Fifteen Thousand.
Manufacturing can be done either with power or without power.
It has approved nearly 96 industries under the purview of the KVIC. These industries are under the following
categories:
Under this rate of interest scheme, loans upto Rs 6500 as term loans and Rs 1500 as working capital are
provided by the commercial banks to the weaker section at a concessional rate of interest of 4% per annum.
This scheme was introduced in 1972 with a view to increase the credit flow to the weaker sections for various
productive purposes.
The eligible borrowers under this scheme are identified in relation to income concept i.e. Rs 2000 per family per
annum in rural areas and Rs 3000 per family per annum in urban areas.
It was introduced in 1978 with a view to meet the entire financial requirements of artisans, village and cottage
industries where the total credit requirements for equipment finance and working capital do not exceed Rs
25000. (Currently the limit raised to Rs. 50000)
In respect of projects sponsored by SC/ST entrepreneurs, the requirement of minimum contribution (presently 5
% of the project cost) has been totally waived.
The ceiling on the population of the village/ town, where the unit is located has been raised from Rs 50000 to
Rs 5 Lakhs.
The loan is payable in 7 to 10 years or even more with an extension/grace period of 12 to 18 months for
payment of interest and principal.
The maximum rate of interest chargeable for such loans is 10% for the units located in specified backward areas
and 12 % for those located in other areas
The loans under the scheme are available both from the Commercial Banks and State Financial Corporations.
In order to provide margin money assistance to the tiny units, the Margin Money Scheme was introduce by the
Government of India in 1977.
Under this scheme assistance is provided to the small scale unit whose investment in plant and machinery does
not exceed Rs 2 Lakhs and are located in village and towns with a population of less than 50000.
The extent of assistance in the form of margin is limited to 10% of the total investment, comprising fixed capital
investment, Pre-operative expenses and three months working capital requirements or Rs 20000 whichever is
less.
In case entrepreneurs belong to SC/ST assistance is admissible upto 15% of the total investment or Rs 30000
whichever less is.
This scheme is operated by the State Govt. Through District Industries Centres
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The IDBI is operating a special capital scheme for extending equity of assistance to such entrepreneur who
possess the necessary skill and experience but do not have adequate financial resources to set up projects,
primarily in the small scale and tiny sector.
The maximum assistance admissible under the scheme is 20% of the project cost of Rs 4lakhs, whichever less.
The assistance is interest free and carries only a service charge of 1% per annum.
Grace period for repayment of interest and upto 5 years for payment of instalments.
The scheme is operated by the IDBI through the State Financial Corporation
The scheme was introduced by the IDBI in 1976 with a view to assist the new entrepreneur who do not have
adequate resource of their own to set up industrial project in the small and medium sectors with project cost not
exceeding Rs 3 Crores.
Seed capital upto Rs 15 Lakhs is made available to proprietary and partnership firms in the form of interest free
soft loans.
In case of private limited companies, the assistance is available in the form of subscription to 1 % cumulative
redeemable preference shares
While in the case of public limited companies it will cover subscription to 1% cumulative redeemable
preference shares or both.
Soft loans assistance is normally payable over a period of 10 years with a grace period of 5 years.
Under this scheme, the State Bank of India provides interest free assistance to the small entrepreneurs for
meeting the equity gap in the project.
The assistance provided under the Scheme varies between Rs 5000 to Rs 50000
The actual amount of assistance admissible is the difference between 25% of the total project cost and the
capital available with the entrepreneur.
Grace period of 5 to 7 years is allowed for repayment of the amount. Thereafter it is to be repaid over a period
of 5 to 7 years through monthly/quarterly/half yearly instalments.
Under this scheme IDBI provides financial assistance to the units in selected industries to overcome the backlog
of renovation/ replacement of plant and machinery, so as to improve their productivity and competitiveness.
The assistance under the scheme is need-based and as such no minimum or maximum limit for individual loan
has been prescribed.
The maximum rate of interest chargeable by credit institutions on such assistance is 11.5% per annum
The scheme is operated by the IDBI in collaboration with Industrial Credit and Investment Corporation of India
(ICICI).
Loans upto Rs 5 Lakhs are covered under the Automatic Reference Scheme.
This scheme was introduced by the IDBI in 1965 with two objectives
- To help the manufactures of indigenous machinery and equipment to push the sales of their products by offering
deferred payments facilities to the prospective purchaser-user
- To enable the purchaser-user of the machinery to utilise the machinery acquired and repay its cost over a
number of years.
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Bill/Promissory notes drawn in favour of or by the machinery manufacturers are discounted by them with
bankers who in turn rediscount the same with IDBI. There is no restriction of minimum amount of transaction
in the case of small scale units.
In order to ensure larger flow of assistance to small scale sector, IDBI have introduced special concessional
rates of discount/ rediscount for purchaser-user as well as seller-manufacturer in this sector.
IDBI has also been sanctioning special rediscounting limits to banks for exclusive utilisation by the small scale
sector.
Normally the facilities under this scheme are not available for purchase of machinery for new projects.
However exception has been made in the case of small-sector.
This scheme was introduced by the Government of India in 1982 with a view to help the State Government in
the revival of sick small scale units.
Under this scheme matching assistance is provided to the State Governments who wants to operate the scheme.
Margin money to the extent of a minimum of Rs 1000 and a maximum of Rs 20000 is sanctioned to sick small
scale units in the form of loans by the State Government on the recommendation of the State Level
Coordination Committee for Sick Units.
The Small Scale units which have been assisted by State Finance Corporations are classified as sick are eligible
for assistance under the scheme.
The extent of relief depends upon the merits of individual cases.
The rehabilitation assistance may cover margin money for additional term loan and working capital term loan,
payment of statutory liabilities, cash losses that may incur during the nursing programme, overdue instalments
agree to be refunded into a separate term loan, apart from the minimum capital expenditure required for
restarting the unit on viable level.
With a view to encourage banks and financial institutions to grant loans to small-scale industries, the
Government of India had introduced a Credit Guarantee Scheme operated by the Reserve Bank of India.
This scheme has been replace by the Small Loans Guarantee Scheme 1981 of the Insurance and Credit
Guarantee Corporation with effect from 1st April 1981.
Under this scheme guarantee are extended to borrowers engaged in small-scale industrial activities and also in
respect of credit facilities granted to organizations assisting workers, artisans and other self employed persons
engaged in industrial activities.
The extent of the amount to be covered by the guarantee varies from 50% to 90%.
The claim liability per borrower under the scheme is not to exceed Rs 10 Lakhs, irrespective of the number of
financial institutions from which he might have borrowed.
In most developing countries, the taxation policy aims at the promotion of agriculture and industry.
Industrial development may however be stimulated by means of a reduction in the normally applicable tax
liability in the form of either an exemption from income tax on the amount invested or a concession in the tax
rate.
Government has provided a number of taxation benefits for Small Scale industries development programmes.
In fact special tax concessions to SSI are desirable for the accumulation of capital and for directing it into right
channels.
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Tax Benefits relates to the following
Income Tax
Excise Duty
Sales Tax
Octroi
Apart from these small scale industries are entitled to Central capital and transport subsidies.
Concession in matters of taxation for industries have three supportive roles like
- Marketing Support
- Investment support
- Raw material support
- Concession in profit tax/dividend tax
Every year the department formulates pre-budget proposals in consultation with the technical division of the
same department and appropriate suggestions/ modifications in respect of direct and indirect taxes are sent to
the Ministry of Finance for their consideration.
Tax Holidays
New industrial undertakings include small industries are exempted from payment of income tax under 80 J of
the Act on their profits upto 6 % per annum of the capital employed.
The deduction at the rate of 6% from the total income is allowed in the assessment year in which the unit begins
to manufacture, provided that the conditions specified in section 80 J are fulfilled by small scale industries.
This concession is for five years from the commencement of production.
Small scale units should satisfy the following conditions before they become eligible for tax benefits:
- They should not have been formed by the splitting or reconstitution of an existing unit;
- They should employ 10 or more workers in a manufacturing process with power or 20 or more persons without
power
Depreciation
Under Section 32 of the Income Tax Act, a small scale industry is entitled to a deduction on depreciation
account on buildings, furniture, plant and machinery at the prescribed rates.
In case of small scale industries the deduction from the actual cost of plant and machinery is allowed upto 20
Lakhs; in case of any machinery or plant hired by a unit, the actual cost thereof the owner of such machinery or
plant.
The depreciation is calculated on reducing balance system.
Full depreciation is available for a year irrespective of the actual number of days for which the asset is used so
long as it is used for the purpose of business or profession at any time during the year.
Any machinery or plant costing less than Rs 750 is allowed to be written off completely in the year in which it
was first used in business.
The term industrial estate is defined to indicate the provision of basic infrastructure for the rapid development
of the area.
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It is group of factors, constructed on economic scale in suitable sites with facilities of water, transport,
electricity, steam, bank, post office, canteen, watch and first aid; and provided with special arrangements for
technical guidance and common service facilities.
Questions:
Section A (2 marks)
1. Write a note on export finance scheme
2. Explain the different types of industries
3. What are the benefits of taxation?
4. What is seed money?
5. What is venture capital?
6. What is hire purchase?
7. What do you mean by leasing finance?
8. What do you mean by margin money?
9. What do you mean by financial assistance?
10. What do you mean by industrial estate?
11. Expand : SIDBI, IFCI , SIDO ,TECSOK, TCO, EDI,SISI, AWAKE, KVIC, IDBI, NABARD, DIC,
SSIDC, CREED, SFC, NSIC, SSIC, SIETI, STC, EPC,KSFC, KSSIDC
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Section B (6 Marks)
1. Explain the different financial & non financial benefits provided to SSI.
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