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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 businesses

1: Catalyst for country’s economic growth
2: Can move faster than large business – innovative idea,
   early approval, rapid development and launch…
3: Shorter gestation period
4: Communication is much faster in small businesses

5: 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 company
7: Rapid growth of youngster employees

8: Close-knit and effective working teams
All these advantages resulted in quite a few inventions
and rapid economical development.
**
ENTERPRISES & ENTREPRENEURS

He who lead an enterprise is known as “entrepreneur”.

What is “enterprise”?   Quality of innovation separates
                        from other forms of ventures

One may be called an entrepreneur only when carrying
out innovations - Joseph A. Schumpeter - economist

Leadership is important than the ownership.
Entrepreneur may not bear financial risk, an investor may
invest and bear the risk.

But entrepreneur are always engaged in a risky activity.

Uncertainty in ventures, difficult to find investors who want
assurance for ROI.
Return or profit on investment comes from innovations;
erodes with competition coming in; entrepreneur cannot
rest on laurels and has to work continuously.
Businesses fail due to complacency.                                                  .
                                                 Montgomery, Sunny, Textiles, Wool Ind


Promising companies have their experts on drawing boards
all the time. Gillette, Al-Hilal Candies, Gourmet, Waves, Sufi, Dawlence
Investors in service sector – IPP,        Hospitals, Real estate

Vision 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, profits
3: Financial competence – initial financial source – flow of working capital
4: Human relations competence – healthy interpersonal relations & team work

Many other things to start the business but these are fundamentals.
***
YOU MUST KNOW THE BUSINESS

One should have experience of business he wants to start.
Take job for a year of so…. Keep ears and eyes open

Take notes of tricks of trade… You will be paid while learning.


YOU MUST HAVE MANAGEMENT SKILLS
Managerial skills are equally important for starting as
well as running the business.

Marketing and financial planning are specially important
for small business. Important to develop a business plan.


**
DEVELOPING BUSINESS PLAN OR PROSPECTUS

Why? (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    Product
You + Idea +             +                Or      +   Marketing
                Credit   People         Service




                               Money
                                                      Profit
                               Credit
IMPORTANCE OF BUSINESS PLAN

Business plan is the basic tool to raise or borrow money.
By developing proper business plan you will be confident
and assure prospective investors, lenders, suppliers,
customers and key employees that you have ability to
carry through your project successfully.

Leverage to obtain bank loans when you need working capital

Officials working out the prospects commit themselves to
make 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 PLAN
A: Executive Summary

1: Description of proposed business – product or service
2: 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 bring
to the business – Executive summary, a hook to catch the investor

B: Statement of Objectives
1: Advantages your products has over existing products.
2: Long and short range objectives of your business.
3: Any special expertise

Investor will know unique attractiveness of your product, target growth
rate to achieve the goals etc.
C: Background of Proposed Business

1: Existing conditions of the business you want to enter.
   Where and How the product is being used
2: 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 and
your 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 product

This shows your sophistication in recognizing the need to think ahead
and plan your innovations for advanced products.
E: Marketing Strategy

Target market, distribution channel and expected share
of market in first three years.


F: Marketing Tactics

1: 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 your
customers, your promotional tools, data for potential market and
margins 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 need

Investor will find out how competent people you have, how latest is the
equipment and facilities and how you plan to improve your product
with in house research. Any subcontracting!

H: Supporting data

Drawings of the product, list of capital equipment, financial
data e.g. income statement and balance sheet for first three
years, cash flow projection for 2 years, break-even chart for
2 years, etc.

Facilitates investor to analyze the prospects and the business
I: Conclusion & Summary

1: Total capital you will need, equity and how much you
   need more in the form of loan or share-holding
2: Expected profit

3: 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

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Introduction 1

  • 1. SMALL BUSINESS & ENTREPRENEURSHIP January 10, 2005
  • 2. Recommended book STARTING AND MANAGING THE SMALL BUSINESS Third Edition Arthur H. Kuriloff John M. Hemphill, Jr. Douglas Cloud McGraw Hills International Edition
  • 3. 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 **
  • 4. Advantage of small businesses 1: Catalyst for country’s economic growth 2: Can move faster than large business – innovative idea, early approval, rapid development and launch… 3: Shorter gestation period 4: Communication is much faster in small businesses 5: 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 company 7: Rapid growth of youngster employees 8: Close-knit and effective working teams All these advantages resulted in quite a few inventions and rapid economical development. **
  • 5. ENTERPRISES & ENTREPRENEURS He who lead an enterprise is known as “entrepreneur”. What is “enterprise”? Quality of innovation separates from other forms of ventures One may be called an entrepreneur only when carrying out innovations - Joseph A. Schumpeter - economist Leadership is important than the ownership. Entrepreneur may not bear financial risk, an investor may invest and bear the risk. But entrepreneur are always engaged in a risky activity. Uncertainty in ventures, difficult to find investors who want assurance for ROI.
  • 6. Return or profit on investment comes from innovations; erodes with competition coming in; entrepreneur cannot rest on laurels and has to work continuously. Businesses fail due to complacency. . Montgomery, Sunny, Textiles, Wool Ind Promising companies have their experts on drawing boards all the time. Gillette, Al-Hilal Candies, Gourmet, Waves, Sufi, Dawlence Investors in service sector – IPP, Hospitals, Real estate Vision 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, profits 3: Financial competence – initial financial source – flow of working capital 4: Human relations competence – healthy interpersonal relations & team work Many other things to start the business but these are fundamentals. ***
  • 7. YOU MUST KNOW THE BUSINESS One should have experience of business he wants to start. Take job for a year of so…. Keep ears and eyes open Take notes of tricks of trade… You will be paid while learning. YOU MUST HAVE MANAGEMENT SKILLS Managerial skills are equally important for starting as well as running the business. Marketing and financial planning are specially important for small business. Important to develop a business plan. **
  • 8. DEVELOPING BUSINESS PLAN OR PROSPECTUS Why? (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 Product You + Idea + + Or + Marketing Credit People Service Money Profit Credit
  • 9. IMPORTANCE OF BUSINESS PLAN Business plan is the basic tool to raise or borrow money. By developing proper business plan you will be confident and assure prospective investors, lenders, suppliers, customers and key employees that you have ability to carry through your project successfully. Leverage to obtain bank loans when you need working capital Officials working out the prospects commit themselves to make 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. **
  • 10. OUTLINE FOR DEVELOPING BASIC BUSINESS PLAN A: Executive Summary 1: Description of proposed business – product or service 2: 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 bring to the business – Executive summary, a hook to catch the investor B: Statement of Objectives 1: Advantages your products has over existing products. 2: Long and short range objectives of your business. 3: Any special expertise Investor will know unique attractiveness of your product, target growth rate to achieve the goals etc.
  • 11. C: Background of Proposed Business 1: Existing conditions of the business you want to enter. Where and How the product is being used 2: 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 and your 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 product This shows your sophistication in recognizing the need to think ahead and plan your innovations for advanced products.
  • 12. E: Marketing Strategy Target market, distribution channel and expected share of market in first three years. F: Marketing Tactics 1: 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 your customers, your promotional tools, data for potential market and margins of safety (20% sales calls are productive)
  • 13. 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 need Investor will find out how competent people you have, how latest is the equipment and facilities and how you plan to improve your product with in house research. Any subcontracting! H: Supporting data Drawings of the product, list of capital equipment, financial data e.g. income statement and balance sheet for first three years, cash flow projection for 2 years, break-even chart for 2 years, etc. Facilitates investor to analyze the prospects and the business
  • 14. I: Conclusion & Summary 1: Total capital you will need, equity and how much you need more in the form of loan or share-holding 2: Expected profit 3: 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