This document discusses sickness in small-scale business enterprises. It defines industrial sickness and provides criteria for identifying sick units according to various organizations. It identifies causes of sickness including internal factors like management incompetence and external factors like lack of infrastructure. Symptoms of sickness in businesses are discussed. Suggestive measures to address sickness are provided, including identification at early stages and rehabilitation programs. Key organizations that support small businesses and entrepreneurship development in India are also introduced.

1. OPPORTUNITIES
IN SMALL
BUSINESS
ENTERPRISES

2. SICKNESS IN SMALL SCALE UNITS
• Industrial Sickness :situation where revenues are not enough to meet ,
• the cost and the rate of return on investment is less
• According companies Act:
a)It was registered for at least 7 years
b)Cash losses have occurred in current and preceding year
c)Net worth eroded

3. • According to RBI
a)Cash loss for the year
b)Likely to incur Cash loss in current and following year
c)Imbalances in financial structure
• According to SBI
a)Fails to generate internal surplus on continuous basis
b)Depends on frequent infusion of funds

4. • According to IDBI
a)If it has defaulted payment of three instalments
• According to Development Commissioner
a)Capacity utilization is less than 50% of the highest achievement during preceding 5
years
b)Net worth eroded by more than 50%
c)Unit closed for a period more than 6 months

5. CRITERIA TO IDENTIFY SICK UNITS
• Continuous decline in gross output compared to the previous two financial years
• Delay in repayment of loan for more than 12 months
• Erosion of net worth to the extend of 50% of the net worth during the previous
accounting year

6. CLASSIFICATION OF SICKNESS
Genuine
Beyond the control of the
person
Incipient
Capacity utilization less
than 50% of the highest
achieved during last 5 years
Induced
Man made sickness
Internal external causes

7. SYMPTOMS
• Current Ratio &Quick Ratio
Current Assets/Current Liability
Current Assets- Stock/ Current Liability
If this ratio is not upto to the standard that means inability to meet short term
requirements
• High Cost of Inventory
Cost of capital > return on investment (bad health of business if the situation continues
for a longer period

8. • Piled Up Inventory:
Inventory , raw materials, WIP have piled up to a large extend- not able to dispose it-
warning signal
• Default in Payment of Interest to Debentures:
• Operating below break even point: if its not able to cover it fixed and variable costs out
of revenue then warning sign
• Ratio Analysis: Indepth study and calculation of various ratios helps in understanding

9. CAUSES OF SICKNESS
• External and internal causes
External – Beyond the control
Internal – which originate within the unit and can be under the control of management

10. EXTERNAL CAUSES
• Power cuts:
Power shortage – halt the production process and result in many other problems
• Non Availability of Inputs:
Either not available or available at a higher price
• Competition:
Some products are produced by small and large units simultaneously even though there
are reservations for SSI
Kills small units

11. • Government Policies:
Sudden changes in government policies can make viable units sick in short span
If imported then it affects the domestic SSI
• Lack of Infrastructural Facilities:
As a result cost of products of the units increases –bargaining power reduces –low
profitability
• Problems with Financial Institutions:
Delay sanction for loans
Unrealistic and unreasonable conditions are put forth
• Incapacity to Procure Credit loans:
Small volumes of productions as its small purchases no discounts, concessions

12. • Labour Problems:
Incessant demand of workers can be met by large units and not by small units
As they have low profitability and weak financial backup
High labour turnover and low productivity
• Limited Financial Base of Promoters:
Sometimes the unit steps into sickness before operations start

13. INTERNAL CAUSES
• Low quality :small units known for low quality products, focus more on bulk purchases
Low inventory turnover- sickness
• Poor Marketing Efforts
Unawareness about marketing, need to be updated
Over dependence on middlemen to avoid packaging, transportation etc
• Faulty Capital Structure
Not the right mix of long term sources of finance if Current ratio is less than 1it indicates
liquidity decline
High debt equity ration –bad health

14. • Managerial Incompetence:
Young entrepreneurs do not mind borrowing at high rate of interest , lack of
professional management leads to sickness
• Unplanned Capital Expenditure:
Capital expenditure decisions are irreversible as once invested it will not come back
Wrong decision leads to sickness
• Excessive Growth of Inventories:
Excessive growth of inventories block funds
As a result inventory turnover ratio increases , slow-moving non moving inventory leads
to sickness
• Limited Financial Base of Promoters:
Inexperienced entrepreneurs set up without having strong base of finance leading to
over dependency on loans - sickness

15. • Inadequate Margins:
Small units operate in tight finance arrangement and traders exploit them
Price of finished good offered will be much lower than the cost
• Long Credit Period:
Small units – low bargaining power, profit margin is less
Have to give longer credit periods to customers to meet competition
• Wrong Location:
In the point of view of market or supply of imputs

16. SUGGESTIVE MEASURES
• Identification at Incipient stage:
It takes 5-7 years for unit to become sick
The government and financial institutions should make necessary arrangement to
monitor and detect sickness
• Integrated Approach:
All diverge aspects should be integrated be it of management , labour, finance
• Change In Management:
Management should be changed if found indulging in malpractices,frauds

17. • Setting a screening committee
To provide recommendation – government should set
a)Taking over the unit from management
b)Merge sick with healthy unit
c)Selling unit after take over
d)Internally reconstructing
e)Forming new board

18. • Audit:
Ample scope of manipulation of financial statements- difficult to find out from audit
Cost audit helps in monitoring the expenses, reveal the malpractices and put light on
soundness of unit
• Regular Rehabilitation Programs:
Like rescheduling debts, sanctioning additional loans, enhancing WC limits
Technical, managerial, marketing assistance should also be given
• RBI Guidelines: Guidelines for identification of sickness and rehabilitation of sick units
should be communicated
Quaterly monthly monitoring
Creating study teams for techno economic viability
Conduct recovery campaigns
Conducting workshops, training programs, seminars to spread awareness

19. ENTREPRENEURSHIP DEVELOPMENT
INSTITUTE OF INDIA (EDII)
• 1983
• Sponsored by IDBI, IFCI, ICICI,SBI
• Registered under Societies registration act and Public trust act
• Mission: to promote entrepreneurship education , training and research
To provide innovative training techniques, competent faculty, consultancy and quality
teaching

20. FUNCTIONS
Create opportunities
of self employment
Develop competent
entrepreneurs
through training
Help in institution
building
Inculcate
entrepreneurial
spirit in youth
Promote micro
enterprises in rural
areas
Develop & Spread
new knowledge
through research
Improve
management
capabilities
Collaborate with
similar organizations
to achieve objectives

21. SMALL INDUSTRIES DEVELOPMENT
ORGANIZATION
• Apex body at central level for formulating policy of small scale industries headed by
Additional Secretary and development commissioner under ministry of Small Scale
Industries Govt of India

22. FUNCTIONS
Advice Govt on
policy matters
Provide techno
economic managerial
consultancy
Provide facilities for
technology upgradation
, quality improvement
HRD through
training and skill
Maintain good relations
with central ministers,
Planning commission
and other institution
Monitor PMRY scheme
Monitor working
of different tool
rooms

23. NATIONAL INSTITUTE FOR
ENTREPRENEURSHIP AND SMALL
BUSINESS DEVELOPMENT
• 1983
• To coordinate and oversee the activities of various institutions engaged in
entrepreneurship development

24. FUNCTIONS
To evolve standardized
materials and processes for
selection, training and
support of entrepreneurs
To help institutions carry
out training and
entrepreneurship
development activities
To serve as national
institute to accelerate
process of ED
To provide vital information
and support to trainers by
conducting researches
To train promoters and
consultants in various areas
of ED
To provide national
international forums for
interaction and experience
sharing
To offer consultancy
nationally or internationally
for ED
To share international
expertise in ED

25. NATIONAL SMALL INDUSTRIES
CORPORATION LTD
• 1995
• To promote, aid , foster growth of micro small and medium enterprises

26. FUNCTIONS
Provide machinery on hire
purchase scheme to SSI
Provide equipment leasing
facility
Help export products of
small scale industries
Participate in bulk
purchase program of
government
Distribute raw materials to
SSI
To help development and
upgradation of technology
to implement in SSI
To impart training
To set SSI in other
countries on turn key basis
To undertake construction
of industrial estates