BA4032 Entrepreneurship Development

BA 4032-Entrepreneurship Development
3 Credits-45 Periods
UNIT-1 Entrepreneurial Competence
 Entrepreneurship Concept
 Entrepreneurship as a Career
 Entrepreneurial Personality
 Characteristics of Successful Entrepreneurs
 Knowledge and Skills of an Entrepreneur.
Hallmark Business School-Trichy 2

UNIT-2 Entrepreneurial Environment
 Business Environment
 Role of Family and Society
 Entrepreneurship Development Training
◼ Other Support Organizational Services
 Centraland State Government Industrial

Policies and Regulations.

UNIT-3 Business Plan Preparation
 Sources of Product for Business
 Prefeasibility Study
 Criteria for Selection of Product
 Ownership
 Capital Budgeting
 Project Profile Preparation
 Matching Entrepreneur with the Project
 Feasibility Report Preparation and Evaluation
Criteria.
UNIT-4 Launching of Small Business
 Finance and Human Resource Mobilization
 Operations Planning
 Market and Channel Selection
 Growth Strategies
 Product Launching
 Incubation, Venture capital, Start-ups.
UNIT-5 Management of Small Business
 Monitoring and Evaluation of Business
 Business Sickness
◼ Prevention and Rehabilitation of Business Units
 Effective Management of Small Business

 Case Studies.

BA 4032 – Course Objectives
 To equip and develop the learners’
entrepreneurial skills and qualities essential
to undertake business
 Toimpart the learners entrepreneurial
competencies needed for managing
business efficiently and effectively.

BA 4032 – Course Outcomes
 Afterthe completion of the course, the
students:
1. Will gain entrepreneurial competence to run the
business efficiently.
2. Are able to undertake businesses in the entrepreneurial
environment
3. Are capable of preparing business plans and undertake
feasible projects.
4. Are efficient in launching and develop their business
ventures successfully
5. Shall monitor the business effectively towards growth
and development.

Unit 1
Entrepreneurial Competence
Competitive
Advantage
Distinctive
Competence SCA
Competence
Capability
Ability
Skill
Knowledge
Resources How to Develop
Sustainable Competency
EBETi – Faculty of Management 10
1.1 Entrepreneurship Concept

Concept of Entrepreneurship
 The concept of entrepreneurship is elusive
 Psychologist / Behavioral Scientist see it as:
◼ “the need for achievement, perceived locus of
control, and risk-taking propensity

David C McClelland
Achievement Orientation
An Indispensable Need
NAch
Achievement Oriented Competencies
 Initiative
 Sees and Acts on Opportunities
 Persistence
 Information Seeking
 Concern for High Quality of Work
 Commitment to Work Contract
 Efficiency Orientation
14
Achievement Oriented Competencies …
 Systematic Planning
 Problem Solving
 Self-Confidence
 Assertiveness
 Persuasion
 Use of Influence Strategies
15
Locus of Control

Locus of Control…

Concept of Entrepreneurship…
 The Economist looks at it as:
◼ “bringing together the factors of production
(land, labor, capital, and entrepreneur) and
bearing the risk of uncertainty”

Organizing

Entrepreneurial Risks

 While the sociologist views it as:
◼ the ability to recognize and act upon market
opportunities in order to provide social
services.
◼ Are Business Opportunities ‘Discovered’ or

‘Created’?

 According to Joseph A Schumpeter:
◼ “Entrepreneurship is based on purposeful and
systematic innovation.
◼ It includes not only the independent
businessman but also the company directors
and managers who actually carry out
innovative functions.”

Innovation Process
GRG School of Management Studies 24

 ‘The willingness and ability of an individual to
seek out investment opportunities in an
environment and be able to establish and run an
enterprise successfully’
 ‘The process of creating something different with
value by devoting the necessary time and effort,
assuming the accompanying financial,
psychological and social risk, and receiving the
resulting rewards of monetary and personal
satisfaction’

 ‘An attempt to create value through recognition of
business opportunities, communicative, and
management skills to mobilize human, financial
and material resources necessary to bring a project
to function’
 ‘The process of identifying, developing and
bringing a vision to life. The vision may be an
innovative idea, an opportunity, or simply a better
way to do something. The end result of this
process is the creation of a new venture, formed
under conditions of risk and considerable
uncertainty’ Hallmark Business School-Trichy 26
 Basic Elements of Concept of Entrepreneurship
are:
 Innovation
 Risk-Bearing
 Discovery/Creativity
 Vision
 Organization




1.2 Entrepreneurship as a Career

Career Options

The Difference
Salaried Employment Self-Employment
 Self-saturation  Self-actualization
 Limited Scope  Unlimited Scope
 Routine or Status Quo  Imaginative, creative, innovative
 Fixed Earnings, Given  Generate Flexible Earnings
 Satisfaction through  Satisfaction by transforming
compliance of rules creativity in to reality
 Status is ‘Employee’  Status is ‘Employer’
Charms of being an Entrepreneur
 Opportunity to create one’s own destiny
 Opportunity to make a difference
 Opportunity to reach one’s full potential
 Opportunity to reap impressive profits
 Opportunity to contribute to the society
 Opportunity to do what one enjoys
1.3 Entrepreneurial Personality

Personality Types of Entrepreneurs
 The Improver
◼ Using the company as a means to improve the world
◼ Companies working on a noble cause will be rewarded
 The Advisor
◼ High level of assistance and advice to customers
 The Superstar
◼ The business is centered around the charisma and high
energy of the entrepreneur

 The Artist
◼ Reserved but highly creative. Business built around the
entrepreneur’s unique talents & capabilities
 The Visionary
◼ High degree of curiosity to understand the world around
and set-up plans to avoid landmines
 The Analyst
◼ Focus on fixing problems in a systematic way. Often the
basis for science, engineering or computer firms.

 The Fireball
◼ Full of life, energy and optimism. Customers feel the
company has a ‘Just do it’ attitude in a playful manner.
 The Hero
◼ Incredible ability to lead the world and business through
any challenge to create great companies.
 The Healer
◼ Provide nurturing and harmony to business with an
uncanny ability to survive and persist with an inner
calm.

1.4 Characteristics of Successful
Entrepreneurs

Characteristics
 Hard Work
 Desire for High Achievement
 Self-imposed standard of excellence
 Highly Optimistic
 Independence
 Foresight
 Good Organizer
 Innovative
 Perseverance
 Team Spirit
1.5 Knowledge and Skills of an
Entrepreneur

Competency = Competence + Commitment
Competence Characteristics Commitment Characteristics
 Technical Knowledge  Self Confidence
 Functional Information  Self Motivation
 Business Knowledge  Honesty and Integrity
 Communication Skills  Determination
 Interpersonal Skills  Positive Attitude
 Leadership Skills  Winning Attitude
 Team Building Skills  Learn from Mistakes
 Decision Making Skills  Perseverance
 Time Management Skills  Enterprising
 Result Oriented
UNIT-1 Entrepreneurial Competence
 Entrepreneurship Concept
 Entrepreneurship as a Career
 Entrepreneurial Personality
 Characteristics of Successful Entrepreneurs
 Knowledge and Skills of an Entrepreneur.

Unit 1-Entrepreneurial Competence
Completed!
Unit 2
Entrepreneurial Environment


2.1 Business Environment

Internal Environment

External Environment - Micro

External Environment - Macro

External Environment – Macro…
 Political
◼ Political Atmosphere, Quality of Leadership
 Economic
◼ Economic Policies, Labour, Trade, Tariffs,
Incentives, Subsidies
 Social
◼ Consumer, Labour, Attitudes, Opinions,
Motives

External Environment – Macro…
 Technological
◼ Competition and Risk, Efficiency, Productivity,
Profitability
 Environmental
◼ Pollution, carbon emission, biodegradability
 Legal
◼ Rules, Regulations, Taxation, IPR, RTI, CSR
 Cultural
◼ Structure, Aspirations And Values

2.2 Role of Family and Society

Family Support to Entrepreneurs
Source: The Bank of America Small Business Owner Report

Society Support to Entrepreneurship

Entrepreneurial Ecosystem

Types of Support
Family / Societal
Support
Operational Financial Emotional

Support Support Support

Typical Roles Played
 Takeon roles as advisers, employees,
partners, investors, etc. for free or at
subsidized cost
 Providing business financial support as a
gift
 Providing interest free loan to fund their
business
 Provide personal financial support
Typical Roles Played…
 Bea customer and buy goods and services
from the entrepreneur
 Referthe entrepreneurs product / service to
others and thus play the role of a ‘brand
ambassador’
 Volunteer operational help
 Provide emotional support

2.3 Entrepreneurship Development
Training

Role and Relevance of EDP

Objectives of EDP
 Develop and strengthen the entrepreneurial
quality, i.e., motivation and need for
achievement
 Analyze the environment relating to small
business
 Select the product
 Formulate project proposal
Objectives of EDP… …
 Understand the procedure involved in
setting up a small enterprise
 Know the sources of information and
support available for starting a small
business
 Acquirethe necessary managerial skills to
run a small business

Entrepreneurship Development Process
Confidence
Idea Lab, Opportunity
Building Through
Industry Identification and
Entrepreneurial
Interface Selection
Lab
Mentoring & Business Plan,

Funding
Guidance DPR Preparation
Enterprise Business Sustenance &

Launching Management Growth

1.1 Pre-training Phase
Phases in 1.2 Training Phase

Conducting EDP
1.3 Post-training Phase

Selection of Entrepreneurs
1.1 – Pre-training
Arrangement of Infrastrucute
Tie-up with guest faculty for training
Arrangement for Inauguration and Promotion
Pre-potential survey of opportunities in the region
Opportunity Guidance
1.2 - Training
Phases in Achievement Motivation Training
Business Plan Preparation
Conducting EDP How to set up a small business
Review of Pre-training work
1.3 – Post-training
Review of Training Process
Review of past trining approach

Selection Procedure for
EDP Trainees
Analysis of
Application Form
Education
Psychological
Tests
Training
Achievement Motivation Group Planning
Experience
Exercise
Risk Propensity
Commitment to Task Personal
Personal Efficacy Interview
Team Spirit
Leadership Quality Social Participation
Planning Ability
Knowledge
Organizing Ability
Project Involvement
Decision Making
Problems of EDPs
 Trainer’s motivations in hand-holding trainees to
start their own enterprise is low
 ED organizations lack in commitment and
sincerity in conducting the EDPs
 Non-conducive environment and constraints make
the trainer-motivator’s role ineffective
 Banks, FIs and other organizations involved are
unwilling to take risk in supporting entrepreneurial
ventures.

Support Organizational Services
 NSIC-National Small Industries Corporation
 SIDO-Small Industries Development Organization
 SSIB-Small Scale Industries Board
 SSIDC-State Small Industries Development Corporations
 SISI-Small Industries Service Institute
 DIC-District Industries Centre
 Special Institutions
 Industrial Estates
 TCO-Technical Consultancy Organization

Organization Services
▪ Machinery on hire purchase scheme

▪ Equipment leasing
▪ Credit support
▪ Marketing support for export and within India
NSIC ▪ Preference in government purchase programs
▪ Technology support and upgradation
▪ Distribute basic raw material
▪ Training on various industrial trades
▪ Undertake construction of industrial estates
❖ Coordinate policies and programs of governments

SIDO ❖ Industrial development
❖ Extension services such as technical, consultancy & training
SSIB • Development of SSI in the country
➢ Procure and distribute scarce raw material
➢ Supply machinery on hire purchase
SSIDC ➢ Marketing assistance
➢ Construct industrial estates and allied infrastructure
➢ Management assistance
✓ Provide consultancy and training
✓ Interface between state and central governments
✓ Provide technical, consultancy, training and workshops support
SISI
✓ Carry out industrial potential surveys
✓ Conduct EDPs
✓ Initiate promotional programs
 District level single window agency for promotional and
development of SSI
 Conduct industrial potential & techno-economic surveys
DIC  Implement schemes of state and central governments
 Guide entrepreneurs on all aspects of their project
 Project appraisal
 Marketing assistance

 Central Institute of Tool Design, Hyderabad
 Central Tool Room Training Centers
 Central Institute of Hand Tools, Jalandhar
 Institute for Design of Electrical Measuring Instruments, Mumbai
 National Institute of Entrepreneurship and Small Business
Special Development, Noida
Institutions  National Institute of Small Industries Extension Training,
Hyderabad
 Electronics Training and Services Institute, Nainital
 Central Machine Tools Limited, Bangalore
 Central Institute of Plastics Engineering and Tools, Chennai
 National Institute of Foundry and Forging Technology, Ranchi
 Provide infrastructure and accommodation facilities
 Encourage development of SSI
Industrial
 Decentralize industries to the rural and backward area
Estates
 Encourage ancillaries around major industries
 Develop entrepreneurship by creating a favorable climate
 Prepare project profiles and feasibility studies
 Undertake industrial potential surveys
 Provide technical and management assistance
TCO  Project supervision
 Export consultancy
 Conduct EDPs
 Merchant Banking Services

2.4 Central and State Government
Industrial Policies and Regulations

SSI Development Objectives
 Generation of immediate employment with
low investment
 Promotion of more equitable distribution of
national income
 Effective mobilization of untapped capital
and human skills
 Dispersal of manufacturing activities

Industrial Policy Resolution (IPR)
 First framed in the year 1948
 Subsequently revised and improved in:
▪1956 ▪1977 ▪1980 ▪1990 ▪1991 ▪2006
 In August 1991, the GoI, for the first time, framed
“Policy measures for Promoting and Strengthening and
Supplementing Small, Tiny and Village Enterprises”
 In 2006, the GoI set up a separate Ministry of
Micro Small and Medium Enterprises (MSME)
and enacted “MSME Development Act”

MSME Definition (Sept. 2006)
Manufacturing
Criterion – Investment in Plant & Machinery
Enterprises
Micro Enterprises Investment up to Rs. 25 Lakhs
Small Enterprises Investment above Rs. 25 Lakhs and up to Rs. 5 Crores
Medium Enterprises Investment above Rs. 5 Crores and up to Rs. 10 Crores
Service
Criterion – Investment in Equipment
Enterprises
Micro Enterprises Investment up to Rs. 10 Lakhs
Small Enterprises Investment above Rs.10 Lakhs and up to Rs. 2 Crores
Medium Enterprises Investment above Rs. 2 Crores and up to Rs. 5 Crores
 In calculating the investment in plant and machinery, the cost of pollution control,
research and development, industrial safety devices, etc may be excluded.

MSME Definition (July 2020)
Mfg. & Service
Criterion
Enterprises
Micro Enterprises
Investment* does not exceed Rs. 1 Crore and turnover does not
exceed Rs. 5 Crores
Small Enterprises
Investment* does not exceed Rs. 10 Crores and turnover does
not exceed Rs. 50 Crores
Medium Enterprises
Investment* does not exceed Rs. 50 Crores and turnover does
not exceed Rs. 250 Crores
* Investment means investment in P&M or Equipment

 In calculating the investment in plant and machinery, the cost of pollution control,
research and development, industrial safety devices, etc may be excluded.
 https://msme.gov.in/know-about-msme

Salient Features of MSME Act, 2006
 Recognition of the concept of ‘Enterprise’
comprising both manufacturing and service
sectors
 Integrating the 3 tiers of these enterprises,
viz., Micro, Small and Medium
 Statutory consultative mechanism at the
national level comprising stakeholders from
all 3 tiers

Salient Features of MSME Act, 2006 … …
 Establishing funds for promotion, development
and enhancing competitiveness of these
enterprises
 Progressive credit policies and practices
 Preference in government procurements
 Mitigating the problems of delayed payments
 Simplification of the process of closure of business

Package for Micro & Small Enterprises
 Promotional Package
 Fiscal Support
 Support for Cluster Based Development
 Technology and Quality Upgradation Support
 Marketing Support
 Support for Entrepreneurial and Managerial Development
 Empowerment of Women Owned Enterprises
 Strengthening of PMRY Scheme
 Strengthening of Data Base for MSME Sector

Tax Benefits
 Tax Holiday
 Depreciation
 Rehabilitation Allowance
 Investment Allowance
 Expenditure on Scientific Research
 Amortization of Preliminary Expenses
 Tax Concession for Rural Areas
Tax Benefits … …
 Tax Concession to SSIs in Backward Areas
 Expenditure on Acquisition of Patents and
Copyrights
 Profits from Business of Publication of
Books

Incentives and Concessions for SSI
 Exemption of excise duty limit raised from Rs. 50
lakhs to Rs. 100 lakhs
 The composite loan limit raised from Rs. 10 lakhs
to Rs. 25 lakhs
 Small scale service and business enterprise up to
Rs. 10 lakhs will qualify for priority lending
 In the National Equity Fund Scheme, the project
cost limit is raised from Rs. 25 lakhs to Rs. 50 lakhs

Incentives and Concessions for SSI
 Eligibility limit for coverage under Credit
Guarantee Scheme is raised from Rs. 10 lakhs to
Rs. 25 lakhs
 Capital subsidy is provided at 12% for investment
in technology in selected sectors
 Setting up of incubation centers in sunrise
industries such as IT, biotechnology, electronics,
non-conventional energy sources will be supported
 Family income level under PMRY has been raised
from Rs. 24,000 to Rs. 40,000 per annum
Some Useful Links
http://www.dcmsme.gov.in/schemes/listof358itemsreserved.pdf
https://my.msme.gov.in/MyMsme/Reg/Home.aspx
http://laghuudyog.gov.in/publications/reserveditems/Reserved_item_lis
t_114_items.pdf



Unit 2-Entrepreneurial Environment
Completed!
Unit 3
Business Plan Preparation
 Ownership
Criteria.
3.1 Sources of Product for Business

What is a Business Idea?
 An entrepreneurial idea should be:
◼ Practically Possible
◼ Technically Feasible
◼ Economically Viable
◼ Financially Profitable
◼ Socially Acceptable and
◼ Environment Friendly
 Importantly,the idea shall have utility to

prospective customers.
Sources of Business Ideas
 Customers
◼ Survey among existing and prospective
customers
 Existing Businesses
◼ Study their product features and capacity
utilization
 Distribution Channels
◼ Channel members can suggest improvements
or completely new products

Sources of Business Ideas… …
 Government
◼ Patents filed
◼ Government regulations, Industrial policy,
incentives, etc.
◼ Govt organizations bring out publications
 FIs and Development Agencies

◼ Provide ready projects and details on that
 Research & Development

◼ Entrepreneur’s own R&D, formal or garage
type

 Trade Fairs & Exhibitions
◼ Showcase new technologies, innovations, new
m/c, processes
 Focus Groups
◼ A moderator leads a group of people through
an open, in-depth discussion to elicit ideas
 Collective Notebook Method

◼ Members record ideas three times a day
◼ End of the month, a list of the best ideas is
developed from suggestions
 Brainstorming
◼ No criticism is allowed, no negative comments
◼ Freewheeling is encouraged
◼ Quantity of ideas is desired
◼ Combinations and improvements of ideas are
encouraged
 Heuristics Ideation Technique (HIT)
◼ Short-cut to processing voluminous of data
◼ Ex: Trial and error, a rule of thumb or an
educated guess.

 Checklist Method
◼ Put to other uses? New ways to use as is?
Other uses if modified?
◼ Adapt? What else is like this? What other ideas
does this ‘ suggest? Does the past offer
parallel?
◼ Modify? New twist? Change meaning, sour,
motion, odor, form, shape? Other changes?
◼ Magnify? What to add? More time? Greater
frequency? Stronger? Larger? Thicker? Extra
value? Plus ingredient? Duplicate? Multiply?
Exaggerate? 11
Hallmark Business School-Trichy
◼ Minify? What substitute? Smaller? Condensed?
Miniature? Lower? Shorter? Lighter? Omit?
Streamline? Split up? Understated?
◼ Substitute? What else instead? Another

ingredient? Other material? Another process?
Other power? Other places? Other approaches?
◼ Rearrange? Interchange components? Other

Pattern? Other layouts? Other sequences?
Transpose cause and effect? Change schedule?
◼ Reverse? Transpose positive and negative?
How about opposites? Turn it backward? Turn
it upside-down? Reverse roles? Change shoes?
Turntables? Turn other cheeks?
◼ Combine? How about a bend, an alloy, an

assortment, an ensemble? Combine units?
Combine purposes? Combine /appeals?
Combine ideas?

 Dream Approach
◼ Think big on the new idea
◼ Don’t impose any constraint
◼ Then bring it to workable form
 Market Gap Analysis

 Life-style Analysis Method
◼ It involves measuring consumers’ major:
▪ Activities (work, hobbies, shopping, sports, social
events)
▪ Interests (food, fashion, family, recreation) and
▪ Opinions (about themselves, social issues, business,
products). Hallmark Business School-Trichy 15
3.2 Prefeasibility Study

What is a Pre-feasibility Study (PFS)?
 A PFS is a rough screening of the business ideas
generated in the previous stage
 Aim is to identify the most promising idea(s) and
discard the unattractive options
 This reduces the number of options thus saving
time and money
 Often, the pre-feasibility study returns only one
most promising option.
 PFS is conducted for the purpose of determining
whether the idea is worth pursuing.
Objectives of PFS
 Theobjectives of a PFS are to determine
whether:
◼ All possible project alternatives have been
examined
◼ The project concept justifies a further detailed

analysis
◼ The project idea is attractive enough for

investment

Nature of a PFS
 A pre-feasibility study should be viewed as an
intermediate stage between a project
opportunity study and a detailed feasibility
study
 The structure of a pre-feasibility study should
be the same as that of feasibility study
 The difference is in the degree of detail of the
information obtained and the intensity with
which project alternatives are discussed

Business Idea Progression

Pre-feasibility Analysis Process

Benefits of a PFS
 Improves project team focus
 Provides valuable information for the “go/no
go” decision
 Narrows the business alternatives
 At times, helps to discover new opportunities
 Identifies the valid reason(s) to undertake the
project

Benefits of a PFS… …
 Outline various business scenarios and the
strengths and weaknesses of each
 Determines whether a full-blown feasibility
study is warranted
 Enhances the success rate through
evaluating multiple parameters
 Aids decision-making on the project
 Identifies reasons to not proceed
PFS is the Foundation for FS

PFS Focus
 Technical Feasibility
 Market Feasibility
 Organizational Feasibility
 Financial Feasibility

Reasons Given for not Doing a PFS/FS
 We know it’s feasible… an existing business
is already doing it
 Why do another feasibility study when one
was done just a few years ago?
 The market analysis has already been done
by the business that is going to sell us the
equipment
… ……

Reasons to Conduct a PFS/FS
 Givesfocus to the project and outline
alternatives
 Enhances the probability of success
 Provides quality information for decision
making
 Providesdocumentation that the business
venture was thoroughly investigated
 Helpsin securing funding from FIs, Banks
or equity investors.
FS Vs Business Plan
 Timing
◼ FS is conducted before the ‘go/no-go’ decision
◼ BP is prepared after the ‘go/no-go’ decision
 Function
◼ FS provides Investigative function
◼ BP provides Planning function
 No. of Projects
◼ FS is done on several projects to select one
◼ BP is done on the one project selected

3.3 Criteria for Selection of Product

Factors to be Considered
 Does it fulfill a felt ‘Need’ or a ‘Want’?
 Doesit give an edge over other products in
the market?
◼ Product Differentiation (better)
◼ Speed (faster)
◼ Cost Leadership(cheaper)
 Product Acceptance (research and testing)
 Future of the Product (obsolescence)

Factors to be Considered … …
 Demand-supply gap (price sensitivity)
 Project Feasibility
 Value Proposition
 Government Policies and Support

Selection Criteria
 Technical Criteria
 Market Criteria
 Organizational Criteria
 Financial Criteria

Technical Criteria
 Determine facility needs: m/c, equipment,
h/w, s/w, auxiliary equipment…
 Suitability of production technology
 Availability and suitability of:
◼ Project site
◼ Raw material
◼ Other inputs such as power, gas, furnace oil…
◼ Labour
 Identify points of vulnerability

Market Criteria
 Determine:
◼ Market demand and the price at which
demanded
◼ Industry structure
◼ Industry Competition
◼ Market potential
◼ Access to market outlets
◼ Market share & Sales projection

Organizational Criteria
 Determine:
◼ Human resource required and their skills
◼ Organizational structure
◼ Background of Promoters
◼ Competency of Management
◼ Legal form of the organization

Financial Criteria
 Profit and loss projection:
◼ A 12 month P&L projection
◼ A 5 year P&L projection
 Cash-flow projection
 Projected balance sheet
 Breakeven calculation
 List of assumptions made in the P&L

3.4 Ownership

Basis for Selection of Ownership Form
 Number of promoters
 Nature of business
 Capital considerations
 Tax structure
 Promoter liability
 Compliance burden
Basis for Selection of Ownership Form …
 Cost and ease of setting up the organization
 Management ability
 Business continuity
 Degree of control
 Exit strategy

Factors Influencing Choice of Form

Tax Implications
 Proprietorship – Taxed as individual, based
on the total income of the proprietor
 Partnership, OPC and LLP – Profits are
taxed at 30%
 Private
Limited – 25.168% for existing and
17.16% for new, both without tax exemption;
from 26% to 34.94% with tax exemption
 Surcharge and Cess extra

Sole Proprietorship-Features
 One-man Ownership
 Full Control, no interference
 Unlimited Liability
 Sole risk bearer and profit recipient
 Free from Government Regulations
 No separate entity; proprietor & firm are
identical
Sole Proprietorship-Pros & Cons
Advantages Disadvantages
 Ease of Formation  Limited Resources
 Direct Incentive  Limited Managerial
 Complete Degree of Control Ability
 Quick in Decision Making  Lack of business
 Flexibility in Operation Continuity
 Confidentiality  Unlimited Liability
 Catering for Individual Tastes
 Credit Standing
 Low Government Regulation

Features of Partnership Form
 Contractual Relationship
 Plurality of Persons – min 2, max 20 (50 from
2014)
 Lack of business continuity
 Sharing of Profits
 Mutual Agency – both ‘agent’ & ‘principal’

Partnership-Pros & Cons
Advantages Disadvantages
 Ease of Formation  Unlimited Liability
 Benefits of Larger Resources  Limited Resources
 Benefits of Combined
 Possibility of Conflict
Ability
 Balanced Decision Making  Lack of Continuity
 Sharing of Risk  Lack of Public Confidence
 Confidentiality  Heavy Burden through
Implied Authority

Types of Partners
 Active Partner
 Sleeping or Dormant Partner
 Secret Partner
 Nominal Partner
 Partner by Estoppel
 Partner by holding out
Implications of Partner Type

OPC –Features
Aseparate legal entity registered under the
Companies Act, 2013
 Director and Nominee Director have limited
liability
 Only2 people viz. Director and Nominee
Director
 Ownership can be transferred

OPC –Features … …
 Existence
not dependent on the Director or
Nominee Director
 Couldbe dissolved only voluntarily or by
Regulatory Authorities
 No requirements to conduct annual
statutory meetings
 Mustfile annual accounts with the Registrar
of Companies

LLP – Features
 LLPwill be registered with the Ministry of
Corporate Affairs under the LLP Act, 2008
A separate legal entity
 Limited Liability
 Minimum 2 persons required to start
 Can have unlimited number of partners
 Foreigninvestment allowed with prior
approval of RBI and FIPB
LLP – Features … …
 Ownership can be transferred
 Existence of a LLP is not dependent on the
Partners
 Could be dissolved only voluntarily or by an
order of the Company Law Board
 No requirements to conduct annual
statutory meetings
 Must file annual accounts & solvency
Features of Limited Company
 Artificial Person
◼ Created by law
◼ Exists independent of its members

◼ Can own property, incur debts, borrow money,
enter into contracts, sue and be sued
 Separate Legal Entity
◼ Acquires an identity distinct from its members
◼ Its assets and liabilities are separate from
those of its owners
◼ Law does not recognize the business and
owners to be one and the same
Features of Limited Company …
 Formation
◼ Time consuming
◼ Expensive and complicated process
◼ Involves the preparation of several documents and
◼ Compliance with several legal requirements
 Perpetual Succession
◼ Members may come and members may go, but the
company continues to exist
 Control
◼ With Directors who are accountable to shareholders; but
shareholders don’t have right in day-to-day operations of
the company
Features of Limited Company …
 Liability
◼ Limited to the extent of the members’ capital
◼ It is the company and not the members that owes debts
◼ Members must contribute to the loss only to the extent of
the unpaid amount of share held by them
 Common Seal
◼ The company being an artificial person cannot sign
◼ Therefore, every company is required to have its own seal
which acts as official signature
 Risk Bearing
◼ The risk of losses in a company is borne by all the
shareholders
Limited Company –Pros & Cons
Merits Demerits
 Limited Liability  Complexity in Formation
 Transfer of Ownership  Lack of Secrecy
 Perpetual Existence  Impersonal Work
 Scope for Expansion Environment
 Numerous Regulations
 Professional Management
 Slow Decision Making
 Oligarchic Management
 Conflict of Interest

Difference Between a Public & Private
Company

Cooperative Society
 Cooperative means working together and with
others for a common purpose
 Is a voluntary association of persons
 Motive is welfare of the members
 Ten adult persons required to form a society
 Capital raised from its members through issue of
shares
 Registration under the Cooperative Societies Act
1912 is compulsory
 The society acquires a distinct legal identity after
its registration
Features of Cooperative Society
 Voluntary Membership
 Legal Status
 Control
by members elected through a
democratic voting process
 Service
Motive; surplus distributed as
dividend to members

Cooperative Society-Pros & Cons
Merits Demerits
 Equality in Voting  Limited Resource
Status  Inefficiency in Mgmt.
 Lack of Secrecy
 Stable Existence
 Govt. Controls
 Economy in Operations
 Difference of Opinion
 Support from Govt.
 Ease of Formation

Types of Cooperative Societies
 Consumers’ Cooperative Societies
 Producers’ Cooperative Societies
 Marketing Cooperative Societies
 Farmers’ Cooperative Societies
 Credit Cooperative Societies
 Cooperative Housing Societies
3.5 Capital Budgeting

What is Capital Budgeting?
 Capital budgeting is the process of evaluating
investments to get best returns
 It is the process of deciding whether or not to
invest in a particular project
 The rate of return from the project should be more
than the cost of financing that project
 The expected cash inflows from the project are
discounted at a rate equal to the cost of capital

Traditional Methods
(Non-discounting Methods)
❖ These methods are based on the useful life of
the project and its expected returns
❖ These methods depend upon accounting

information
❖ These methods will not take into account the

concept of ‘time value of money’

Payback Period
 Determines the length of time in which an
investment pays back its original cost
 Lower the payback period, better is the
investment/project
 Focus is on cost recovery or liquidity
 Net returns before depreciation, but after
taxes is taken for cashflows
𝑪𝒂𝒔𝒉 𝑶𝒖𝒕𝒍𝒂𝒚 𝑶𝑹 𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑷𝒓𝒐𝒋𝒆𝒄𝒕
 𝑷𝒂𝒚𝒃𝒂𝒄𝒌 𝑷𝒆𝒓𝒊𝒐𝒅 =
𝑨𝒏𝒏𝒖𝒂𝒍 𝑪𝒂𝒔𝒉 𝑰𝒏𝒇𝒍𝒐𝒘
Payback Period - Limitations
 Itignores all cash flow after the initial cash
outflow has been recovered
 It ignores the time value of money
 Itdoes not take into account the risk of the
cash flows
 Notconsistent with the firm’s objective of
maximizing the market value of shares

Accounting Rate of Return (ARR)
 ARR is:
◼ the average net income an asset is expected to
generate divided by
◼ its average capital cost
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒
𝐴𝑅𝑅 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 =
𝑁𝑜. 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 =
2

Accounting Rate of Return …
 Allprojects with ARR higher than the
minimum rate are selected and
 Projects
with ARR lower than the expected
minimum rate are rejected
 This method can also help the management
to rank the proposal on the basis of ARR

ARR – Limitations
 Ignores time value of money
 Doesn’t consider the length of life of the
projects
 Not
consistent with the firm’s objective of
maximizing the market value of shares

Modern Methods
(Discounted Cashflow Methods)
❖ Calculates the cash inflow and outflow through
the life of an asset
❖ These are then discounted through a
discounting factor
❖ The discounted cash inflows and outflows are
then compared
❖ Takes into account the interest factor and the
return after the payback period

Net Present Value (NPV)
 NPV is the present value of future returns,
discounted at the required rate of return, minus the
present value of the cost of the investment
 Here, the cash inflow that is expected at different
periods of time is discounted at a particular rate
 The original investment is subtracted from the
present value of the cash inflow. The balance is
NPV
 If NPV is positive(+) then the project is accepted
or otherwise rejected.
Net Present Value (NPV) … …
𝑨𝟏 𝑨𝟐 𝑨𝟑 𝑨𝒏
𝑵𝑷𝑽 = + + + ……+ -C
(𝟏+𝒌)𝟏 (𝟏+𝒌)𝟐 (𝟏+𝒌)𝟑 (𝟏+𝒌)𝒏
𝑛
𝑨𝒕
= ෍ 𝒕
−𝐂
(𝟏 + 𝒌)
𝒕=𝟏
 Where
◼ A1, A2…. represent cash inflows
◼ k is the firm’s cost of capital
◼ C is the cost of the investment proposal and
◼ n is the expected life of the proposal

NPV Method - Merits
 It recognizes the time value of money
 Itis based on the entire cash flows
generated during the useful life of the asset
 It
is consistent with the objective of
maximization of wealth of the owners
 The ranking of projects is independent of
the discount rate used for determining the
present value

NPV Method - Demerits
 NPV is an absolute monetary measure of the
project returns
 Where two or more competing projects with
different capital investments are to be
evaluated, NPV may not be the right choice

Internal Rate of Return (IRR)
 IRR is defined as the discount rate at which the
present value of the stream of future benefits from
a project is equal to the initial project outlay
 Alternatively, at IRR, the discounted cash ‘inflow’
is equal to the initial cash ‘outflow’
 This method considers time value of money
 If IRR is more than the ‘hurdle rate’, then the
project is accepted. Otherwise the project is
rejected
IRR Formula
𝑨𝟏 𝑨𝟐 𝑨𝟑 𝑨𝒏
𝑪= 𝟏
+ 𝟐
+ 𝟑
+ ⋯+
(𝟏 + 𝒓) (𝟏 + 𝒓) (𝟏 + 𝒓) (𝟏 + 𝒓)𝒏
𝑛
𝑨𝒕
𝑪= ෍
(𝟏 + 𝒓)𝒕
𝒕=𝟏
 Where
◼ A1, A2…. represent cash inflows
◼ r is the IRR to be calculated based on trial-and-error
◼ C is the initial project outlay and
◼ n is the expected life of the project

IRR - Merits
 It considers the time value of money
 Ittakes into account the cash flows over the
entire useful life of the asset
 Ithelps to compare two are more projects
and rank them on the basis of timing and
magnitude of their returns
 It
conforms to the company’s objective of
maximizing shareholders’ wealth

Profitability Index (PI)
 Itis the ratio of the present value of future
cash benefits at the required rate of return to
the initial cash outflow on the project
 Itmay be gross or net PI. Net PI is simply
gross PI minus one
 The formula to calculate profitability index
(PI) or benefit to cost (BC) ratio is as
follows:
Profitability Index (PI) … …
 PI or Benefit to Cost Ratio
Present Value of Future Cash Inflows
=
Initial Cash Outlay
 If the gross PI is more than one, the proposal is accepted
else rejected
 If there are more than one investment proposal with gross

PI>1, then the one with the highest PI is be selected
 This method is more useful incase of projects with different

cash outlays and hence is superior to the NPV method.

PI - Merits
 Itrequires less computational work than
IRR method
 Ithelps to accept / reject investment
proposal on the basis of value of the index
 It is useful to rank the proposals on the basis
of the highest/lowest value of the index
 It takes into consideration the entire stream
of cash flows generated during the useful life
of the asset
 Ownership
Criteria.
3.6 Project Profile Preparation

What is a Project Profile?
 Itgives a bird’s-eye view of the proposed
project
 Useful for:
◼ Obtaining Provisional Registration Certificate
from DIC
◼ Applying for shed or land with SSIDC
◼ Applying for getting clearances from
Government departments
◼ Develop inputs for preparing project report

Project Profile Content
 Introduction
 Promoters background
 Management expertise
 Product description
 Market demand and strategy
 Plant and machinery required
 Details of infrastructure required
Project Profile Content … …
 Manufacturing process
 Raw materials required
 Human resource requirement
 Cost of the project and means of financing
 Cost of production & Profitability
 Break-even point
 Bottle-necks / Challenges / Risk factors
The
Entrepreneurial
Process

3.7 Matching Entrepreneur with the
Project

Need for Matching
 Entrepreneur’s:
◼ Personal choice and Preferences
◼ Aptitude and Interest
◼ Likes and Dislikes
◼ Values and Beliefs
◼ Cultural upbringing …
affect the choice of business idea
 This is in addition to the feasibility/viability
aspects of the project discussed earlier
 Entrepreneur’s character and the project’s
nature should align well.
Aspects Necessitating Matching
1. Characteristics of the Product or Service
2. Ownership Form
3. Location of Project
4. Capital Structure
5. Technical Know-how
6. Market Served
7. Barriers to Success…
1. Characteristics of the Product or Service
 Fishing Trawler
 ETP / STP
A Slaughter House
 Scrap / Waste Material Aggregator
 Running an Asylum
…

2. Ownership Form
 No. of promoters Vs Capital requirement
 Limited Liability Vs Compliance burden
 Control Vs Business Continuity
 Ease of formation Vs Managerial bandwidth
… ……
 Ex: Tata Sons, PwC, Amazon…

3. Location of Project
 Proximity generally preferred for startup
venture
 Government incentives
 Availability of RM, HR, local demand, etc.
 Locational Competitive Advantage (NLC)
 Mines, Hydel, Tea Factories, Hill Resorts …

4. Capital Structure
 Own Equity
 Private Equity
 Public Equity
 Debt
 Subsidy
 Incentives
 Crowd-funding …
5. Technical Know-how
 Promoter’s technical skills
 Cost of technical know-how
 Product Vs Process (mfg.) technology
 Inseparability
◼ Music Album Production
◼ Dance Academy.

6. Market Served
 Government Contracts - B2G
◼ Ex: Supplies to noon-meal scheme
 Ancillary/Subcontract - B2B
◼ Ex: Auto Ancillaries, electronic sub-assemblies
 Direct-to-customer
- B2C
 Government Scheme Implementation – G2C
◼ EDPs, DDU-GKY, Education, LPG, Petrol…
 Customer-to-Customer – C2C
◼ eBay, AirBnB, Olx, Car24, MagicBricks, etc.
7. Barriers to Success
 License
◼ Mining, explosives, Desalination …
 Certification / Accreditation
◼ Education, NABL, FSSAI …
 Unionism
 Technology Obsolescence
 Cartels
 Government Regulations (CRZ) …
Matching Factors
 The entrepreneur needs to match the
following factors with his profile, before
deciding on the business opportunity:
◼ Suitability of technology/process know-how
◼ Acceptability of the degree of risk involved
◼ Backup during Gestation period
◼ Extent of competition’s aggression
◼ Manageability of capital investment
◼ Capability to meet Government regulations
◼ ………

3.8 Feasibility Report Preparation

Content of Feasibility Report
1. Description of the Product or Service
2. Market Feasibility (Strategy)
3. Technical Considerations
4. Financial Projections or Economic Feasibility
5. Organization Structure and Managerial
Feasibility
6. Evaluation Criteria
7. Study Conclusions.
1. Description of the Product or Service
 Identification and Exploration of Business
Scenarios
◼ Business Models – Who is our customer, what is
his need, how do we generate profits
◼ Select the best scenario
 Define Project and Alternative Scenario

◼ Product/Service, Business Model, Location,
Inputs, Mfg. Process, Gestation …
 Relationship to the Surrounding Geographic

Area
◼ Economic, Environmental and Ecological impact
2. Market Feasibility (Strategy)
 Industry or Marketplace Description
◼ Size, scope, direction, stable/changing, life-
cycle, segments…
 Industry Competitiveness
◼ Major competitors, concentration, entry
barriers, bargaining power, price
 Specific Market Potential
◼ Emerging, niche, commoditized/branded,
segment / differentiation specific, share
 Access to Market Outlets
 Sales Projection.
3. Technical Considerations
 Facility Needs
◼ M/c, Equipment, Dies & Moulds, Jigs &
Fixtures, Utilities, Infrastructural, MFA, Land &
Building
 Suitability of Production Technology
 Availability and Suitability of Site
◼ Roads, Telecom, Electricity, Water…
 Raw Materials
◼ Quality, Quantity, Cost, Access…
 Other Inputs
◼ Labour, Skill Level, Wage Rate…

4. Financial Projections or Economic Feasibility
 Estimate the Total Capital Requirements
 Estimate Equity and Credit Needs

 Expected Costs and Returns
◼ Profitability ratios, GPM, NPM, EBIDTA,
Breakeven, Sensitivity

5. Organization Structure and Managerial Feasibility
 Business Structure
◼ Legal form, Hierarchy, JV, Alliances…
 Business Founders and Management.

◼ Vision, Mission, Objectives
◼ Credit standing, Bona fide
◼ Qualification, Experience, Expertise.

6. Evaluation Criteria
 Technical, Market, Organizational…
 Financial:
◼ Debt-Equity Ratio
◼ Debt Service Coverage Ratio
◼ Breakeven Point
◼ Sensitivity Analysis
◼ Return on Investment
◼ Earnings Per Share (EPS)
◼ Net Present Value (NPV)
◼ Internal Rate of Return (IRR).
7. Study Conclusions
 Thisfinal step is the “go/no go” decision
 Course of Action:
◼ Choosing the most viable business scenario or model and
then developing that scenario’s business plan
◼ Identifying additional scenarios for further study
◼ Deciding that a viable business opportunity is not available

and moving to end the business investigation process
◼ Following another course of action.

 Ownership
Criteria.
Unit 3-Business Plan Preparation
Completed!
Unit 4
Launching of Small Business
4.1 Finance and Human Resource Mobilization

Finance Mobilization

Sources of Finance
Internal External
Owner’s Capital Term Loan
WC Loan
Family & Friends
Hire Purchase /
Leasing
Personal Loan
Seed Capital
Retained Earnings Subsidy

Capital Structure
 The composition of equity and debt in the capital
of an enterprise is called ‘Capital Structure’
 It is the ratio between debt and equity (DER)
 Capital structure refers to only long-term sources
of funds
 Financial structure refers to how the firm’s assets
are financed by raising funds from both long-term
and short-term sources.

Long-term Loans (LTL)
 LTL are taken for a duration of 5 to 15 years
 LTL are used for capital assets such as:
◼ Land (including site development)
◼ Building and civil works
◼ Plant and machinery
◼ Installation expenses and
◼ Miscellaneous fixed assets
 Sources of raising LTL are:
◼ Financial Institutions, Commercial Banks
◼ Debentures
◼ Public Deposits
Short-term Loans (STL)
 STL are obtained for a period up to one year
 Required for day-to-day business operations
 i.e. meeting the working capital
requirements of the business
 Sources of short-term funds are:
◼ Loans from Commercial Banks
◼ Trade Credit
◼ Bill Discounting & Factoring
◼ Bank Overdraft & Cash Credit
◼ Advances from Customers.
Hire Purchase
 In hire purchase, the purchaser agrees to
pay the price in certain number of
instalments
 The hire vendor retains the ownership of the
goods until last instalment is paid and…
 … then transfers the ownership to the
purchaser
 The instalments paid consists of principal
and interest payments
Leasing
A contract where the owner of the asset
(called ‘Lessor’)…
 grants to another party (called lessee)…
 the exclusive right to use the asset for an
agreed period of time…
 for the payment of rent.

Hire Purchase Vs Leasing
 HP instalments – Principal + Interest
 Leasing – Only Rent for use of asset
 HP – Option to buy the asset

 Leasing – No such option is provided
 HP – Only interest component is revenue exp.

 Leasing – The entire rent paid is revenue exp.
 HP – Ownership passes on to hirer on last payment

 Leasing – Ownership does not pass on after the last
instalment.
Factoring
 Factoring is an arrangement under which the
‘Factor’ undertakes the task of collecting the book
debts of its clients in return for a service charge
 Factoring involves sale of receivables to
specialized firm called Factors
 Factors advance cash against receivables to clients
 Factors collect receivables on behalf of clients
 Factor also provides protection to clients from bad
debts.

Human Resource
Mobilization

Meaning of HR Mobilization
 Human resource mobilization means:
◼ the recruitment and bringing together of
human resources
◼ for a collective action designed to enhance the
firm’s performance.

Meaning of HR Mobilization …
 Itis the process by which an entrepreneur
ensures that he has the:
◼ right number of people
◼ right kind of people (with appropriate skills)
◼ at the right place and
◼ the right time to do work
and are economically the most suitable.

HR Sourcing Process
1. Identifying Job Requirements
▪ Job Analysis, Job Description and Job
Specification
2. Recruitment
3. Selection
4. Training & Development
5. Determining Remuneration

1. Identifying Job Requirements
 Job Analysis
◼ Skill, qualification, duties & responsibilities, job
title, department, relationship with other jobs,
types of material and equipment used, mental
and manual dexterity, working condition
 Job Description
◼ Deals with what, why, when and how tasks are
to be performed
◼ A written statement of work conditions, time
involvement and job responsibilities

1. Identifying Job Requirements…
 Job Specification
◼ Salient features of the person to be recruited
in the specific job like their knowledge, skills,
experience, qualities of leadership, decision
making abilities, etc.

2. Recruitment
 Internal Sources
◼ Promoting existing employee
 External Sources
◼ Employees Referrals
◼ Recommendations
◼ Unsolicited Applications
◼ Advertisements
◼ Gate hiring

3. Selection
 Involves matching job requirements with the
profile of the candidate
 Selection process involves:
◼ Preliminary Interview
◼ Application Screening
◼ Psychological Test (aptitude, performance)
◼ References
◼ Personal Interview
◼ Placement and
◼ Orientation.

4. Training & Development
 Objectives of Training are to:
◼ Improve job performance
◼ Prepare employees to discharge new

responsibilities
◼ Impart skills on how to operate machinery or
equipment
◼ Reduce wastage and avoid accidents
◼ Develop a second line for succession

4. Training & Development …
 Methods of Training:
◼ On-the-job training
• Demonstration
• Performance
• Inspection
◼ Apprenticeship Training
◼ Job Rotation
◼ Outside Training

4.2 Operations Planning

Meaning of ‘Operations’
 Theterm production management is more
used for a system where tangible goods are
produced
 Operations management is used to refer to

both service organizations and
manufacturing enterprises

Some Types of Process
 A PROCESS is any activity or group of activities that take one or more
inputs, transforms them, adds value to them, and provides an output for
a customer
Business Process Facility
Physical or chemical change of

Factory raw materials into products
Plant & Machinery
Movement of Passengers &

Airline luggage
Aircrafts, Airports
School Education of students Class Rooms
Operation Theatre,
Healing of sick and wounded
Hospital patients
Lab, MEE, Patient
Rooms

Value Addition- What it Means?
The difference between the cost of inputs
and the value or price of outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor Services
Process
Capital
Feedback
Control
Feedback Feedback

Operations Planning
1. Demand Forecasting
2. Capacity Planning
3. Facility Location
4. Facility Layout
5. Material Requirements Planning
6. Manufacturing Resource Planning
7. Enterprise Resource Planning
1. Demand Forecasting
 Systematic methods to know the future by
scientific analysis based on facts and
possible consequences is called forecasting
 Demand/Sales forecasting is the basis of
planning various activities such as:
◼ Production, Pricing, Personnel, etc.
 Forecasting Methods
◼ Survey of Buyers’ intentions, Sales force
opinion, Executive judgment, Expert opinion,
Market test and Trend projection.
2. Capacity Planning (CP)
 Objective of CP is to match the level of
operations to the level of demand
 CP should consider future growth and
expansion plans, market trends, sales
forecasting, etc.
 Capacity is usually expressed as volume of
output per period of time

3. Facility Location
 Determining where the plant should be
located for maximum operating economy
and effectiveness
 To adopt a systematic step-by-step method
◼ Country, region, locality and the exact site
 Location choices is influenced by:
◼ Availability of RM, Labour, Power, Transport
◼ Nearness to Market
◼ Suitability of Climate
◼ Government Policy

4. Facility Layout
 Layout of facility refers to:
◼ the configuration of departments, WorkCentres
and equipment and machinery
◼ with focus on the flow of materials or work
◼ through the production system
 Types of Layout
◼ Process or Functional Layout
◼ Product or Flow-line Layout

◼ Project or Fixed-position Layout
◼ Mixed or Combined Layout
Example 1: Process Layout (Function)

Example 2: Process Layout (Function)

Example 1: Product Layout (Flow-line)

Example 2: Product Layout (Flow-line)

Example: Mixed or Combined Layout

Example 1: Project Layout (Fixed-position)
Ship Building

Example 2: Project Layout (Fixed-position)

5. Material Requirements Planning
 MRP is a technique of determining the
Quantity and Timing of RM needed to meet
the production schedule
 Objectives of MRP are:
◼ Inventory reduction
◼ Reduction in the mfg. and delivery lead times
◼ Realistic delivery commitments
◼ Increased efficiency

6. Manufacturing Resource Planning (MRP)
 MRP breaks down the Business Plan into
specific tasks that people agree to execute
and are held accountable for
 It involves all departments viz.:
◼ Materials
◼ Engineering
◼ Sales & marketing
◼ Purchasing and
◼ Manufacturing
 MRP lays the basic foundation for shop-
floor control.
7. Enterprise Resource Planning
 ERP is a BPM software package developed for
optimum use of resources in a planned manner
 ERP integrates the entire enterprise starting from
the supplier to the customer
 This will enable the enterprise to increase
productivity by reducing costs
 Once the ERP is implemented, a single solution
addresses the information needs of the whole
organization.

4.3 Market and Channel Selection

What is a Market?
 A market is the set of actual and potential
buyers of a product or service
 These buyers share a particular need or want
that can be satisfied through exchange
relationships
 Originally a market was a physical place where
buyers and sellers gathered
 Today it can be over phone, the Internet, email,
etc.
What is Marketing?
 Marketing means managing markets to
bring about profitable customer
relationships
 Activities such as:
◼ Consumer Research
◼ Product Development
◼ Communication
◼ Distribution
◼ Pricing and
◼ Service
are core marketing activities.
Modern Marketing System
Each party in the

system adds ‘value’ Arrows represent relationships
vital for adding ‘value’
Concept of ‘Sales’ Vs ‘Marketing’

Marketing Management
 What customers will we serve? -target market and
 How can we serve these customers best? -value
proposition
 The market will be divided into segments of
customers (market segmentation) and…
… segments to be focused will be selected (target
marketing)
 Simply put, marketing management is customer
management and demand management.

Value Proposition
 They answer the customer’s question:
◼ Why should I buy your brand rather than a
competitor’s?
A brand’s value proposition is the set of
benefits or values it promises to deliver to
consumers to satisfy their needs
 Value proposition is derived from how the
brand is going to differentiate and position
itself in the marketplace

Possible Value Propositions

Differentiation
 Itis the process of distinguishing a product
or service from others
 To make it more attractive to a particular
target market
 To create a competitive advantage
 Itis not just standing out from the
competition, but also standing above too

Marketing-mix

Positioning
 The way a product is defined by consumers
on important attributes
 The place it occupies in consumers’ minds
relative to competing products

Positioning Map : Large SUVs

Segment & Segmentation
A market segment consists of a group of
consumers who respond in a similar way to a
given set of marketing efforts
 Market segmentation refers to dividing a
market into distinct groups of buyers who
have:
◼ different needs, characteristics, or behaviors
◼ and who might require separate marketing
strategies or mixes

Marketing Strategy

Marketing Channels
A set of interdependent organizations that
help make a product or service available for
end-user.
 Also known as Distribution Channels
 Channel Functions:
▪ Information ▪ Negotiation
▪ Promotion ▪ Physical distribution
▪ Contact ▪ Financing
▪ Matching ▪ Risk taking
The Digital Channels Revolution
 Online retail store or e-commerce has been
growing at double digit rate
 Customers expect seamless channel integration so
they can:
◼ Enjoy helpful customer support in a store, online,
or on the phone
◼ Check online for product availability at local stores
before making a trip
◼ Order a product online and pick it up at a
convenient retail location
◼ Return a product purchased online to a nearby
store of the retailer…

Flows in Marketing Channel

Channel Selection Decisions
 To
select a marketing channel system,
marketers analyze:
◼ customer needs and wants
◼ establish channel objectives and constraints and
◼ Identify / evaluate major channel alternatives
 Location
and Geographic concentration of
customers affect channel selection

Evaluating Channel Alternatives

Breakeven Cost

Channel Selection

Channel Selection …
 Marketing Factors
◼ Customer preferences
◼ Channel intermediaries acceptance
◼ Channel margins
◼ Blitzkrieg
 Manufacturer Factors
◼ Financial strength
◼ Core competence
◼ Lack of managerial bandwidth
◼ Fear of losing control over pricing, promotion..

Channel Selection …
 Product Factors
◼ Large and Bulky products – Direct Selling
◼ Perishables – Direct selling
 Competitive Factors
◼ Competitors clout
 Channel Integration
◼ Minimal in independent distributorship
◼ Maximum in wholly-owned distributorship
◼ In-between in franchise operation

4.4 Growth Strategies

Why Grow?
 Why business enterprises need to grow?
 To gain strength and stamina
 Toenable the firm to face competition,
challenges, recession, etc.
 Need to adopt appropriate technology
 To handle complexity and rigmarole
 Entrepreneur’s craving for social recognition
 Growth is vital for ‘Survival’
What is Growth?
 How does growth manifest?
 Increase in:
◼ Sales turnover
◼ Volume of output (Economies of Scale)
◼ Product / Service range (Economies of Scope)
◼ Geographical presence
◼ No. of Customers served
◼ ……

Economies of Scale

Economies of Scope

Growth Strategies:
Where to Look for
Growth Opportunities ?

Based on Knowledge of Product and / or Market

1. Penetration Strategies
 Focus
on existing product in its existing
market
A strategy to grow by encouraging existing

customers to buy more of the firm’s current
products
 Ex:Offering discounts for buying more…

(quantity discounts) to grab market share
from competitors

2. Market Development Strategies
 Involve
selling existing products to new
groups of customers
 New Groups of Customers can be

categorized in terms of:
◼ Geographics
◼ Demographics and / or
◼ New use of the product

3. Product Development Strategies
 Involve developing and selling new products
to people who are already purchasing the
firm’s existing products
 Leverage existing:
◼ Customer knowledge
◼ Distribution system
◼ Reputation

4. Diversification Strategies
 Involve selling a new product to a new
Market

Vertical Integration

4.5 Product Launching

Launch Process

4.6 Incubation, Venture capital, Start-ups

What is Incubation?
 Business incubation is a unique and highly
flexible combination of:
◼ business development processes
◼ infrastructure and
◼ people
designed to nurture new and small
businesses by helping them to…
… survive and grow through the difficult
and vulnerable early stages of development.
Incubation Services

Venture Capital
 Venture capital (VC) is financial capital provided
to early-stage, high-growth, startup companies
 The venture capital firm earns money by owning
equity in those companies
 Firms having innovative technology or business
model are preferred
 VCs can provide large sums of money, business
advice and contacts for the startup firms to become
successful
Venture Capital …
 VCs require the following features in the startups:
◼ Rapid, steady sales growth
◼ A proprietary new technology or dominant position in an
emerging market
◼ A sound management team
◼ The potential for being acquired by a larger company or
getting listed in the stock exchange
 Venture Capital Types:

◼ Seed financing, start-up financing, second-stage
financing, bridge financing, and leveraged buyout.

Venture Capital …
 Types of Venture Capital Firms:
◼ Private Venture Capital Partnerships
◼ Industrial Venture Capital Pools
◼ Investment Banking Firms

Startups
A startup is a young company:
◼ that is beginning to develop and grow
◼ is in the first stages of operation, and
◼ is usually financed by an individual or small
group of individuals

Startup Ecosystem

Effective Operational Management of Startups

Startup Funding Process

Unit 4- Launching of Small Business
Completed!
Unit 5
Management of Small Business

 Case Studies.

5.1 Monitoring and Evaluation of Business

Monitoring Vs Evaluation
 Monitoring is the continuous and systematic
assessment of activities to determine whether they
are proceeding as planned
 Evaluation involves periodic and time-bound
assessment of activities towards achievement of
results, milestones and outcomes
 Both M & E are focusing on:
◼ What is being done?
◼ How it is being done?
◼ Whether the plans are working? and
◼ When circumstances has changed?

What is Monitoring?
 Monitoring is designed to provide constant
feedback on:
◼ the progress of a project / process
◼ the problems it is facing and
◼ the efficiency with which it is being
implemented
 It enables you to determine:
◼ whether the resources available are sufficient
and are being well used
◼ whether the capacity you have is sufficient and
◼ whether you are doing what you planned to do.

What is Evaluation?
 Evaluation relies on data generated through
monitoring of activities, as well as
information obtained from other sources
 Evaluation:
◼ tracks the actual performance against what
was targeted
◼ by collecting and analyzing data on the

indicators
◼ according to pre-determined standards.

Objectives of M & E
 M&E focus on the following common
objectives w.r.t the process / project:
◼ Relevance
◼ Efficiency
◼ Effectiveness
◼ Impact
◼ Sustainability
◼ Causality
◼ Alternative strategy.
Balanced Scorecard (BSC)
 BSC links long-term strategy with goals and
actions
 BSC allows to evaluate the firm from 4
perspectives:
◼ Financial Performance
◼ Customer Knowledge
◼ Internal Business Processes and
◼ Learning & Growth

Balanced Scorecard (BSC)…
A properly constructed BSC is ‘Balanced’
between:
◼ Short and long-term measures
◼ Financial and non-financial measures
◼ Internal and external performance perspectives
 BSCwas developed by Robert S Kaplan and

David P Norton.

Balanced
Scorecard
5.2 Business Sickness

What is Industrial Sickness?
 Sickness is easy to understand, but difficult
to define
 It is a relative term
 Sick industry is one which is not healthy
A healthy unit is one which earns reasonable
profit, i.e. RoCE…
… and which builds up reserves.
Definition of Industrial Sickness
 According to the RBI (1989):
◼ Incurred cash losses for one year and is likely
to incur cash losses for the current and next
years
◼ And has imbalances in its financial structure
 Financial Structure:
◼ Current ratio of less than 1:1 and worsening
DER i.e. the ratio of total outside liabilities to
the net worth and
◼ Cumulative losses exceed capital and reserves.

Definition of Industrial Sickness …
 Thus,RBI’s emphasis is on Profitability,
Liquidity and Solvency
 According to the Sick Industrial Companies
(Special Provisions) Act of GoI (SICA) 1985:
◼ An industrial company (>7 years of age)
◼ which at the end of any FY has accumulated
losses => its net worth and
◼ has also suffered cash losses in the FY
immediately preceding such FY
Definition of Industrial Sickness …
 According to SBI’s Report on Small Scale
Industry Advances (1975) a sick unit is:
◼ “One which fails to generate internal surplus
on a continuing basis and
◼ Depends on its survival upon frequent infusion
of external funds”

Weak Industrial Unit
 Accordingto SBI’s Report (1975):
 A Weak Unit:
◼ is one that has at the end of any AY accumulated
losses =>50% of its net worth in the
immediately preceding 5 AYs
◼ A current ratio of less than 1:1 and
◼ Suffers a cash loss in the immediately preceding

AY

Current RBI Guidelines
A small enterprise is considered to be sick if:
◼ Principal or interest in respect of any of its
borrowal accounts has remained overdue for a
period exceeding one year
OR
◼ There is erosion in the net worth due to
accumulated cash losses to the extent of 50%
of its net worth during the previous AY
AND
◼ The unit has been in commercial production for
atleast two years

Incipient Sickness of MSME
 As per RBI, an MSME is in incipient sickness /
potential sickness, if any of the following events
are triggered:
◼ There is delay in commencement of commercial
production by more than 6 months
◼ The company incurs losses for two years or cash loss for
one year
◼ The capacity utilization is less than 50% of the projected

level in terms of quantity or the sales are less than 50%
of the projected level in terms of value

Rule of Thumb for Sickness
• 1. Cash: Positive
Healthy • 2. Net Working Capital: Positive
Unit • 3. Net Worth: Positive
• 1. Cash: Negative
Tending • 2. Net Working Capital: Positive
Towards • 3. Net Worth: Positive
Sickness
Incipient • Two or more Negatives

Sickness
• All are Negative

Sickness

Signals of Sickness
 Decline in capacity utilization
 Shortage of liquid funds
 Excessive inventories
 Irregularity in bank accounts
 Frequent breakdowns in plants
 Decline in quality of products
 Delay or default in payment of dues
 Frequent turnover over of personnel
Causes of Industrial Sickness
Causes of
Sickness
External Internal
Causes Causes

External Causes of Sickness
 Changes in the industrial policies
 Scarcity of inputs like RM, Power, HR
 Lack of demand for the product
 Recessionary trends
 Technological obsolescence
 Industrial strikes, unrest
 Shortage of financial resources
 Natural calamities
Internal Causes of Sickness
 Working capital shortage
 Lack of demand / Marketing problems
 Non-availability of RM
 Technical/Operational problems
 Labour problems
 Power shortage
 Management problems

Consequences of Sickness
 Financial losses to Banks and FIs
 Loss of employment
 Emergence of industrial unrest
 Wastage of scarce resources
 Loss of revenue to Government
 Adverse effect on prospective investors
Business Sickness
Prevention and Rehabilitation

of Business Units

Prevention of Sickness

Prevention of Sickness
 Proper project planning
 Appropriate location of project
 Ensuring availability of RM, labor &
technical staff
 Arranging finance at reasonable rates
 Systematic Market Analysis

Prevention of Sickness …
 Scientific demand forecasting
 Study of opportunities & threats
 Assessing Consumer tastes & preferences
 Selecting the right marketing channel
 Competent management
 Good performance reporting System
Government Remedial Measures
 Proper monitoring and control of operations
 Setting up common facilities and infrastructure
 Support for technology upgradation
 Identification of sickness at the incipient stage
 Evolving yardsticks to detect sickness at an
early stage
 Providing training
 Rehabilitation funding
 Liquidation
Rehabilitation of Sick Units

Industrial Reconstruction Corporation of India
(IRCI - 1971)
 The GoI set up IRCI in 1971 to:
◼ reconstruct and restructure the financial base as
well as the management of the assisted units
◼ Providing financial assistance and technical/
managerial guidance.
 The control measures adopted by IRCI

include:
◼ Transfer of major shares in the name of IRCI
◼ Appointment of IRCI nominees in the Board,
personnel in key managerial post
◼ Frequent plant and factory inspections

Industrial Reconstruction Bank of India
(IRBI - 1985)
 IRCIwas reconstituted as IRBI in 1985
under the IRBI Act, 1984
◼ With the primary purpose of rehabilitating and
reconstructing ailing industrial concerns
◼ Act as the principal credit and reconstruction

agency for industrial revival
◼ Take over the management, lease out or sell the

sick undertaking as a running concern or
◼ Prepare schemes of merger or amalgamation and

submit them for Central Government’s approval

SICA - 1985
 In1985, the Sick Industrial Companies
(Special Provisions) Act was passed
◼ In SICA, the Government removed sick
industrial companies from the purview of the
MRTP Act, for purposes of modernization,
expansion, amalgamation or merger
◼ Where the net worth has been substantially
eroded, FIs have been directed to stop
assistance to the units concerned
◼ The Act also provides for the setting up of a
board of experts for industrial and financial
reconstruction.

BIFR - 1987
 The Board for Industrial and Financial
Reconstruction
 This is the most significant step by GoI to
curb industrial sickness
◼ The sick firm should report to BIFR within 60
days of finalization of audited accounts
◼ Banks/FIs who have lent and RBI, Central/
State governments can also report to BIFR
◼ BIFR will enquire, verify with stakeholders and
declare sickness within 60 days

BIFR – Rehabilitation Process
 Establish ‘potential viability’
 That is, after availing relief over 5 years, the
firm should be able to start repaying from 6th
year onwards
 Units becoming sick due to:
◼ Willful mismanagement
◼ Willful default
◼ Diversion of funds
◼ Disputes among partners / promoters
will not be considered for rehabilitation
BIFR – Relief and Concessions
 Waiver of penal interest
 Interest free funding of overdue interest
 Reduction in term loan interest rates upto 2%
 Working Capital Term Loan for overdrawn
principal at up to 3% lower rate of interest
 Funding of cash losses at reduced rates
 Additional working capital at minimum
lending rate
BIFR – Relief and Concessions…
 Contingency loan assistance for meeting
escalation in rehabilitation plan cost
 Funds
for startup expenses and margin
money for working capital
 Promoters’ contribution at 20% of long-term
rehabilitation package to be brought in.

Fresh RBI Guidelines
 Consortium banks must participate in the
rehabilitation package also
 Ifworkers plan to takeover the sick unit by
forming a cooperative it should be actively
supported
 Banks can sell their ‘sticky’ debts or NPAs
to other banks at a discount

Fresh RBI Guidelines …
 Scheme for the grant of excise loan:
◼ Sick units are eligible for excise loan
◼ not exceeding 50% of the excise duty actually

paid for 5 years
◼ subject to the ceiling of 33% of the total cost

of the rehabilitation

5.3 Effective Management of Small
Business

Effective Management of SME

Managing an Entrepreneurial Business
 Create a business plan
 Separate personal and business finances
 Determine funding requirements correctly
 Hire the right people
 Train the employees
 Invest in marketing
 Learn to delegate
 Communicate Effectively
 Cope with Dynamic Environment

Responsibilities of Small Business Owner
 Design and implement the company’s budget
 Set sales goals and ensure that the team is on track
to achieving them
 Handle production, marketing and administrative
functions
 Recruit, hire and train new employees
 Manage inventory and make purchase decisions
 Ensure the day-to-day operations are running
smoothly
 Ensure financial goals of the business are being
achieved.

 Case Studies.

Unit 5- Management of Small Business
&
BA4032 – Entrepreneurship Development
Course
Completed!
Best Wishes for
Success in your Exams!

BA4032 Entrepreneurship Development

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BA 4032-Entrepreneurship Development

Hallmark Business School-Trichy 2

 Centraland State Government Industrial

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 Effective Management of Small Business

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◼ Are Business Opportunities ‘Discovered’ or

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 Centraland State Government Industrial

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Source: The Bank of America Small Business Owner Report

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Operational Financial Emotional

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Mentoring & Business Plan,

Enterprise Business Sustenance &

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Phases in 1.2 Training Phase

1.3 Post-training Phase

Tie-up with guest faculty for training

Arrangement for Inauguration and Promotion

Pre-potential survey of opportunities in the region

Business Plan Preparation

Conducting EDP How to set up a small business

Review of Pre-training work