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SMALL BUSINESS & ENTREPRENEURSHIP January 10, 2005
Recommended book STARTING AND MANAGING THE SMALL BUSINESS Third Edition Arthur H. Kuriloff John M. Hemphill, Jr. Douglas Cloud McGraw Hills International Edition
SME (Small and Medium Enterprise)means an entity(1) ideally not a public limited company,(2) which does not employee more than 250 persons (if it is manufacturing concern) and 50 persons (if it is trading / service concern) and(3) fulfills the following criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’ as relevant:(d)A trading / service concern with total assets at cost excluding land and buildings up to Rs 50 million.(b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million.(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements. ENTREPRENEUR One who undertakes an enterprise, a contractor, an employer **
Advantage of small businesses1: Catalyst for country’s economic growth2: Can move faster than large business – innovative idea, early approval, rapid development and launch…3: Shorter gestation period4: Communication is much faster in small businesses5: Authority can be delegated more readily in the small business than in the large.6: Company members can acquire decision-making skills faster in small company7: Rapid growth of youngster employees8: Close-knit and effective working teamsAll these advantages resulted in quite a few inventionsand rapid economical development.**
ENTERPRISES & ENTREPRENEURSHe who lead an enterprise is known as “entrepreneur”.What is “enterprise”? Quality of innovation separates from other forms of venturesOne may be called an entrepreneur only when carryingout innovations - Joseph A. Schumpeter - economistLeadership is important than the ownership.Entrepreneur may not bear financial risk, an investor mayinvest and bear the risk.But entrepreneur are always engaged in a risky activity.Uncertainty in ventures, difficult to find investors who wantassurance for ROI.
Return or profit on investment comes from innovations;erodes with competition coming in; entrepreneur cannotrest on laurels and has to work continuously.Businesses fail due to complacency. . Montgomery, Sunny, Textiles, Wool IndPromising companies have their experts on drawing boardsall the time. Gillette, Al-Hilal Candies, Gourmet, Waves, Sufi, DawlenceInvestors in service sector – IPP, Hospitals, Real estateVision and balanced business experience is a important.Basic strengths required to achieve balanced experience:1: Technical competence – know-how to get out the product or render the service in good style.2: Marketing Competence – niche, identified customers, right pricing, profits3: Financial competence – initial financial source – flow of working capital4: Human relations competence – healthy interpersonal relations & team workMany other things to start the business but these are fundamentals.***
YOU MUST KNOW THE BUSINESSOne should have experience of business he wants to start.Take job for a year of so…. Keep ears and eyes openTake notes of tricks of trade… You will be paid while learning.YOU MUST HAVE MANAGEMENT SKILLSManagerial skills are equally important for starting aswell as running the business.Marketing and financial planning are specially importantfor small business. Important to develop a business plan.**
DEVELOPING BUSINESS PLAN OR PROSPECTUSWhy? (1) To raise seed money for starting the business, and (2) To control and manage the business successfully once it is started. Flow diagram of the business process Money Facilities ProductYou + Idea + + Or + Marketing Credit People Service Money Profit Credit
IMPORTANCE OF BUSINESS PLANBusiness plan is the basic tool to raise or borrow money.By developing proper business plan you will be confidentand assure prospective investors, lenders, suppliers,customers and key employees that you have ability tocarry through your project successfully.Leverage to obtain bank loans when you need working capitalOfficials working out the prospects commit themselves tomake it come true. Bond to develop helping relationships.Business plan is a parameter to control the business limits –in which or what business we are in! Future plans.Should carry an end date. Becomes goal oriented organization.**
OUTLINE FOR DEVELOPING BASIC BUSINESS PLANA: Executive Summary1: Description of proposed business – product or service2: Proposed marketing method – target market, dist. channels.3: Summary of financial estimates - starting capital, estimated sales and profit for the first three years.Prospective investor “feels” basic strengths you and your team will bringto the business – Executive summary, a hook to catch the investorB: Statement of Objectives1: Advantages your products has over existing products.2: Long and short range objectives of your business.3: Any special expertiseInvestor will know unique attractiveness of your product, target growthrate to achieve the goals etc.
C: Background of Proposed Business1: Existing conditions of the business you want to enter. Where and How the product is being used2: Projections and trend for the industry, competition and your strategy for meeting the competition.3: Other important considerations like potential of the product in local as well as international market.Investor will study the market conditions, competitors strengths andyour strategies to face the competition, what is your uniqueness.D: Technical Description of product.How the product works, test data and results, test objectives.Your concept for next generation productThis shows your sophistication in recognizing the need to think aheadand plan your innovations for advanced products.
E: Marketing StrategyTarget market, distribution channel and expected shareof market in first three years.F: Marketing Tactics1: Methods you plan to use to promote the product e.g. electronic media (TV, Radio), direct marketing etc.2: Sample of brochures or other promotional material.3: Data supporting your ability to meet sales targets.4: Margins of safety you have counted for in your estimates.This section will describe to the investor how you plan to reach yourcustomers, your promotional tools, data for potential market andmargins of safety (20% sales calls are productive)
G: Plan of Operation 1: Organization chart and key positions and their qualifications 2: List of equipment, facilities and location 3: R&D facilities you will needInvestor will find out how competent people you have, how latest is theequipment and facilities and how you plan to improve your productwith in house research. Any subcontracting!H: Supporting dataDrawings of the product, list of capital equipment, financialdata e.g. income statement and balance sheet for first threeyears, cash flow projection for 2 years, break-even chart for2 years, etc.Facilitates investor to analyze the prospects and the business
I: Conclusion & Summary1: Total capital you will need, equity and how much you need more in the form of loan or share-holding2: Expected profit3: What %age of ownership you want to keep for yourself and your partners.4: Planned schedule for starting your business.5: Form of business ownership; proprietorship, partnership or corporation.Investor will need all this information to form his opinion.E