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Unit-3
Starting a small industry
introduction
• Small – scale industries play a key role
• They provide large scale employment.
• Shorter gestation period.
• Lower investment.
• Dispersal of industries in small towns and rural
areas.
• Industrial policy and multinationals has
hampered the growth of small scale
industries.
• The need of the hour is an appropriate
industrial policy for the development of
SSIs.
Following factors are consider before
starting a business
• Business opportunity
• Identification
• Scanning the business environment
• Evaluation of alternatives
Business opportunity
• Every entrepreneur start business because of
opportunity.
• Eg:
• So,business opportunity is a concept which
explains the situation that there is a
wonderful opportunity to start a business
Business opportunity is governed by
following factors
• Good business environment
• Economic feasibility
• Whether business will serve and satisfy the
target consumers.
• Competitors
• Cost – benefit analysis.
• All these issues will tell us whether
there is sufficient opportunity to start
a business or not
Identification
• Business opportunity cannot be identified
casually.
• Investigations has to be done.
How to identify the business
opportunity
• Conduct a small survey to know the existing condition.
• Market condition, consumer behavior, financial
support, legal aspects have to be examined.
• Market study helps to predict the factors affecting the
sales.
• Study on consumer behavior explains the demand
situation of the proposed business.
• Financial assistance available.
• Legal aspects
• HUL
Scanning of business environment
• Environmental forces have two types of
variable
i)controllable or internal factors
ii)Uncontrollable or external
factors
• By evaluating all these factors will help the
entrepreneurs to find the possibility of
starting a business
Scanning the environment reveals the
following factors
• The environment is conducive to start or not to
start.
• Proposed production is needed in that locality or
not.
• Whether production facilities are available or not.
• Whether product can be produced at cheaper
cost
• Whether technology to produce is available and
at what cost.
• Can it easily market its products.
• whether total cost of the project can be arranged.
Answer to these questions will help the
entrepreneur to take decision to establish his
enterprise.
Evaluation of alternatives
• Study of these factors will help the
entrepreneurs to CONTINUE OR DROP the
business idea
• It help to select the best alternatives.
• It is necessary to prepare 2 to 3 plans.
Stages involved in preparing action
plan
• Develop the business idea
• Screening the ideas
• Business analysis
• Feasibility report
• Alternative plans
• Preparing a right plan
• Project implementation
• Feedback and commercial production
Develop the business idea
• Business idea is like sowing a quality seed to reap fruit of success .
• Good business idea makes way for successful business activity.
• Idea must be good for entrepreneurs
• Entrepreneur should have 5 to 6 ideas.
• Best idea can be selected based on cost involved, environmental
factors, risk involved, less dependent on external fund etc
Screening the ideas
• Entrepreneur has to identify one best idea by
making comparative analysis of location,
availability of infrastructure, financial aspects,
marketing opportunity ,target customers etc
Business analysis
• It is concerned with cost benefit analysis.
• Costs include fixed cost and variable cost.
• Total investment cost includes location cost , cost of
technology , equipment cost, marketing and
distribution cost etc..
• After examining the total capital and its cost,
entrepreneur should know the time involved to get
profit.
• Business analysis includes
Technical analysis
Marketing analysis
Financial analysis
• When the firm reaches the BEP (break even
point) and when it start making profit should
be known.
Feasibility report
• A detailed draft report has to be prepared.
• This report gives the clear picture of proposed
business.
• Three alternatives to be considered
Feasible –next step can be taken
Not feasible – drop the idea
Unable to arrive at conclusion – collect
more data
Alternative plans
• Feasibility report provides all data relating to the
proposed business.
• All the results of all analysis are put together to
arrive at right conclusion.
• Entrepreneur has to prepare 2 to 3 alternatives
plan
• Example : Plan A- is financial aspects
Plan B – is labor aspects
Plan C – is government regulations
These alternative plans will help the
entrepreneur to select best idea
Preparing a right plan
• A comparative analysis of all alternative plans
has to be made and final action plan has to be
prepared to implement the business idea
Project Implementation
• In this entrepreneur start implementing various
activities to start his business.
• Entrepreneur should see that the gestation
period is as minimum as possible
• When the business is ready, trial production
starts.
Feed back and commercial production
• Entrepreneur has to adapt for commercial
production and concentrate on marketing the
product to generate the revenue
Steps involved in starting a business
venture
• Decision to become an entrepreneur
• Selection of product
• Decide on form of ownership
• Identification of location
• Preparation of project profile
• Arrange of infrastructure
• Designing capital structure
• Clearances and permits
• Licensing
• Registration
Market Feasibility
• Marketing of a product is the biggest task for any
business.
• Success of any business depends on its marketing
effort and market share that it possess.
• If the products are not accepted and readily sold within
a year then the units become sick.
• The customer consideration is paramount in business
• SSIs cannot set up distribution network on
large scale and they are facing difficulty in
marketing their product
Limitation of SSI towards marketing
• SSI products take time to standardize
• Lack of quality finishing
• Poor bargaining power
• Poor after sales service
• Stiff competition from large industry
• Shortage of finance for marketing and hence less
advertising
• Normally SSI sell their products to large units
and hence they lose their identity.
• So SSI should prepare a proper marketing
plan.
Financial Feasibility
• Financial aspects tell us the total capital
required for proposed business.
• Areas where finance would be needed are:
Purchase and installation of machinery
Procurement of raw material and so on
• SFC (State Finance Corporation) provide long
term credit for purchase of fixed assets.
• Application should be submitted along with
following documents:
Project report
Copy of registration
Cash- flow statement
• Commercial banks provides loan for meeting
working capital needs, purchase of raw
material.
Investment Proposal normally
contains:
• General information on the product, company
history, the nature of the industry.
• Information on manufacturing methods and
financial statement.
• Information on steps taken to implement the
project
Financial Analysis should include:
• Total project cost
• Schedules for financial projection
• Returns on investment
• Risk analysis
Technical feasibility
• Small projects need not go for very high
technology. It is better to adopt indigenous
technology.
• Technical analysis will help the entrepreneur to
know whether the project is technically feasible
or not
Important aspects to be considered
while selecting a technology
• Technology should be already established(well-known).
• Degree of success and risk should be calculated.
• Technology should work under local conditions
• Technology should be tune with the national goals
• In selecting a particular technology, the risk of
obsolescence should be analyzed.
Social Feasibility
• It is necessary to consider the total impact of
the project on the society.
• Social cost-benefit analysis should be done
• Social cost-benefit analysis include:
(i)estimation of cost for consumer’s benefit
(ii) cost for community development(iii)cost
for economic development.
• Entrepreneur should consider whether the
proposed business will satisfy the social need
of the society
• Social needs means environmental protection,
maintaining values in the society, addressing
to social problems etc
• Entrepreneur cannot run the business against
the society.
• Social cost- benefits analysis will help the
entrepreneur to understand the social
feasibility of the project.
• In social feasibility analysis, entrepreneur have
to study the problem of society and how the
business will help to overcome the societal
problem.
• To conclude entrepreneur should examine all
the start up issues in order to run his business
successfully.
Small industry start-up issues
• Location
• Clearances and permits
• Licensing
• Registration
Location
• Reason for selecting a site:
new business
expansion
leased one and renewal is not possible
problem with existing location
• Thorough analysis should be done before
selecting an Optimum location(beneficial
location)
Clearances and permits
Licensing
• Provisional registration from DICs(District
Industrial Centers) has to be obtained for
following types of industries:
SSI – investment below 1cr
Ancillary Industries – investment below 1cr
Tiny industries – investment below 25lakhs
Other clearances
• Environmental clearances from GOI
• NOC from pollution Control Board
• Permission for building layout from Gram Panchayat/Municipality
• Plant and machinery approval from Department of Factories.
• Need to get permit for scarce raw materials from Industries
Department.
• Power – State Electricity Board
• Water – own source, public supply and for
bulk consumption from State Irrigation
Department. Supply from State Govt Authority
incase of Industrial Parks.
Licensing
• Industries employing less than 100 workers
and having fixed assets less than Rs10 lakhs
need not obtain license
Registration
• Any SSI employing more than 10 workers should get registered with
Director of Industries in their state.
• A copy of this application for registration should be sent to the Director
of SSI institute in that state
• Such registration will help SSI to obtain financial assistance, marketing
assistance, raw material assistance, export assistance etc from govt

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Starting a small industry

  • 2. introduction • Small – scale industries play a key role • They provide large scale employment. • Shorter gestation period. • Lower investment. • Dispersal of industries in small towns and rural areas.
  • 3. • Industrial policy and multinationals has hampered the growth of small scale industries. • The need of the hour is an appropriate industrial policy for the development of SSIs.
  • 4. Following factors are consider before starting a business • Business opportunity • Identification • Scanning the business environment • Evaluation of alternatives
  • 5. Business opportunity • Every entrepreneur start business because of opportunity. • Eg: • So,business opportunity is a concept which explains the situation that there is a wonderful opportunity to start a business
  • 6. Business opportunity is governed by following factors • Good business environment • Economic feasibility • Whether business will serve and satisfy the target consumers. • Competitors • Cost – benefit analysis.
  • 7. • All these issues will tell us whether there is sufficient opportunity to start a business or not
  • 8. Identification • Business opportunity cannot be identified casually. • Investigations has to be done.
  • 9. How to identify the business opportunity • Conduct a small survey to know the existing condition. • Market condition, consumer behavior, financial support, legal aspects have to be examined. • Market study helps to predict the factors affecting the sales. • Study on consumer behavior explains the demand situation of the proposed business.
  • 10. • Financial assistance available. • Legal aspects
  • 11.
  • 12.
  • 13.
  • 14.
  • 16.
  • 17.
  • 18.
  • 19. Scanning of business environment • Environmental forces have two types of variable i)controllable or internal factors ii)Uncontrollable or external factors • By evaluating all these factors will help the entrepreneurs to find the possibility of starting a business
  • 20.
  • 21. Scanning the environment reveals the following factors • The environment is conducive to start or not to start. • Proposed production is needed in that locality or not. • Whether production facilities are available or not. • Whether product can be produced at cheaper cost
  • 22. • Whether technology to produce is available and at what cost. • Can it easily market its products. • whether total cost of the project can be arranged. Answer to these questions will help the entrepreneur to take decision to establish his enterprise.
  • 23. Evaluation of alternatives • Study of these factors will help the entrepreneurs to CONTINUE OR DROP the business idea • It help to select the best alternatives. • It is necessary to prepare 2 to 3 plans.
  • 24.
  • 25. Stages involved in preparing action plan • Develop the business idea • Screening the ideas • Business analysis • Feasibility report • Alternative plans
  • 26. • Preparing a right plan • Project implementation • Feedback and commercial production
  • 28. • Business idea is like sowing a quality seed to reap fruit of success . • Good business idea makes way for successful business activity. • Idea must be good for entrepreneurs • Entrepreneur should have 5 to 6 ideas. • Best idea can be selected based on cost involved, environmental factors, risk involved, less dependent on external fund etc
  • 30. • Entrepreneur has to identify one best idea by making comparative analysis of location, availability of infrastructure, financial aspects, marketing opportunity ,target customers etc
  • 32. • It is concerned with cost benefit analysis. • Costs include fixed cost and variable cost. • Total investment cost includes location cost , cost of technology , equipment cost, marketing and distribution cost etc.. • After examining the total capital and its cost, entrepreneur should know the time involved to get profit.
  • 33. • Business analysis includes Technical analysis Marketing analysis Financial analysis • When the firm reaches the BEP (break even point) and when it start making profit should be known.
  • 34. Feasibility report • A detailed draft report has to be prepared. • This report gives the clear picture of proposed business. • Three alternatives to be considered Feasible –next step can be taken Not feasible – drop the idea Unable to arrive at conclusion – collect more data
  • 35. Alternative plans • Feasibility report provides all data relating to the proposed business. • All the results of all analysis are put together to arrive at right conclusion. • Entrepreneur has to prepare 2 to 3 alternatives plan
  • 36. • Example : Plan A- is financial aspects Plan B – is labor aspects Plan C – is government regulations These alternative plans will help the entrepreneur to select best idea
  • 37. Preparing a right plan • A comparative analysis of all alternative plans has to be made and final action plan has to be prepared to implement the business idea
  • 38. Project Implementation • In this entrepreneur start implementing various activities to start his business. • Entrepreneur should see that the gestation period is as minimum as possible • When the business is ready, trial production starts.
  • 39. Feed back and commercial production • Entrepreneur has to adapt for commercial production and concentrate on marketing the product to generate the revenue
  • 40. Steps involved in starting a business venture • Decision to become an entrepreneur • Selection of product • Decide on form of ownership • Identification of location
  • 41. • Preparation of project profile • Arrange of infrastructure • Designing capital structure • Clearances and permits
  • 43. Market Feasibility • Marketing of a product is the biggest task for any business. • Success of any business depends on its marketing effort and market share that it possess. • If the products are not accepted and readily sold within a year then the units become sick. • The customer consideration is paramount in business
  • 44. • SSIs cannot set up distribution network on large scale and they are facing difficulty in marketing their product
  • 45.
  • 46.
  • 47. Limitation of SSI towards marketing • SSI products take time to standardize • Lack of quality finishing • Poor bargaining power • Poor after sales service • Stiff competition from large industry • Shortage of finance for marketing and hence less advertising
  • 48. • Normally SSI sell their products to large units and hence they lose their identity. • So SSI should prepare a proper marketing plan.
  • 49. Financial Feasibility • Financial aspects tell us the total capital required for proposed business. • Areas where finance would be needed are: Purchase and installation of machinery Procurement of raw material and so on
  • 50. • SFC (State Finance Corporation) provide long term credit for purchase of fixed assets. • Application should be submitted along with following documents: Project report Copy of registration Cash- flow statement
  • 51. • Commercial banks provides loan for meeting working capital needs, purchase of raw material.
  • 52. Investment Proposal normally contains: • General information on the product, company history, the nature of the industry. • Information on manufacturing methods and financial statement. • Information on steps taken to implement the project
  • 53. Financial Analysis should include: • Total project cost • Schedules for financial projection • Returns on investment • Risk analysis
  • 54. Technical feasibility • Small projects need not go for very high technology. It is better to adopt indigenous technology. • Technical analysis will help the entrepreneur to know whether the project is technically feasible or not
  • 55. Important aspects to be considered while selecting a technology • Technology should be already established(well-known). • Degree of success and risk should be calculated. • Technology should work under local conditions • Technology should be tune with the national goals • In selecting a particular technology, the risk of obsolescence should be analyzed.
  • 56. Social Feasibility • It is necessary to consider the total impact of the project on the society. • Social cost-benefit analysis should be done
  • 57. • Social cost-benefit analysis include: (i)estimation of cost for consumer’s benefit (ii) cost for community development(iii)cost for economic development. • Entrepreneur should consider whether the proposed business will satisfy the social need of the society
  • 58. • Social needs means environmental protection, maintaining values in the society, addressing to social problems etc • Entrepreneur cannot run the business against the society.
  • 59. • Social cost- benefits analysis will help the entrepreneur to understand the social feasibility of the project.
  • 60. • In social feasibility analysis, entrepreneur have to study the problem of society and how the business will help to overcome the societal problem. • To conclude entrepreneur should examine all the start up issues in order to run his business successfully.
  • 61. Small industry start-up issues • Location • Clearances and permits • Licensing • Registration
  • 62. Location • Reason for selecting a site: new business expansion leased one and renewal is not possible problem with existing location • Thorough analysis should be done before selecting an Optimum location(beneficial location)
  • 63. Clearances and permits Licensing • Provisional registration from DICs(District Industrial Centers) has to be obtained for following types of industries: SSI – investment below 1cr Ancillary Industries – investment below 1cr Tiny industries – investment below 25lakhs
  • 64. Other clearances • Environmental clearances from GOI • NOC from pollution Control Board • Permission for building layout from Gram Panchayat/Municipality • Plant and machinery approval from Department of Factories. • Need to get permit for scarce raw materials from Industries Department.
  • 65. • Power – State Electricity Board • Water – own source, public supply and for bulk consumption from State Irrigation Department. Supply from State Govt Authority incase of Industrial Parks.
  • 66. Licensing • Industries employing less than 100 workers and having fixed assets less than Rs10 lakhs need not obtain license
  • 67. Registration • Any SSI employing more than 10 workers should get registered with Director of Industries in their state. • A copy of this application for registration should be sent to the Director of SSI institute in that state • Such registration will help SSI to obtain financial assistance, marketing assistance, raw material assistance, export assistance etc from govt