Small Enterprises and Enterprise Launching Formalitites UNIT III

Unit III Small Enterprises and Enterprise
Launching Fomalities
Small Enterprises
Employs small number of people , doesnt have a high volume of sales
Can be Privately owned , sole proprietorship , small scale enterprise or Partnerships.
No Fixed deﬁnition , Varies from country to country,time to time and on government
policies.
Rationale of Small Scale Industries.
Employment Argument : SSI’s that have a potential to create immediate large scale
employment opportunities.
Equality Argument : They promote a more equitable distribution of national wealth.
They are wide spread and has labor intensive units.
Decentralization : Big industries are concentrated every where in urban areas, but small
industries can be located in rural or semi-urban areas to use local resources and to cater
to the local demands. Hence it promotes balanced regional development in the
country. Decentralization will help tap local resources,idle savings, and local talents and
improves the standard of living even in erstwhile backward areas.
Latent Resource Small enterprises are capable of mapping up latent and unutilized
resources like hoarded wealth and ideal entrepreneurial ability
Objectives
To create more employment opportunities with less investment
To remove economic backwardness of rural and less developed regions of the economy.
To reduce regional imbalance.
To mobilize and ensure optimum utilization of unexploited resources of the country.
To improve standard of living of people.
To ensure equitable distribution of income and wealth.
To solve unemployment problem.
To attain self reliance.
To adopt latest technology aimed at producing better quality products at lower costs.
Scope
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The scope for entrepreneurial activities in small business sector can broadly be
classified into:
Industrial sector
Agricultural and allied industrial sector
Service sector
Industrial Sector
Provides wider scope for potential entrepreneur to develop his/her own industry.
Good Scope to use technology based products in SSI.
Entrepreneur can exploit any profitable venture into any industry under SSI.
Agriculture and Allied industrial sector
By establishing the link b/w entrepreneurial activities and allied industries , the rural
entrepreneur can exploit the opportunities in areas of farming ,agriculture processing
and marketing.
Government provides adequate credit(money) to small and marginal farmers by
establishing agricultural banks.
He can trade product domestically or overseas to customer by starting single line
store,speciality shop m departmental store etc.
Service Sector
It is rapidly expanding.
includes all kinds of business and provides opportunities to the entrepreneurs in business
such as hotels, tourist services, personal services such as dry cleaning, beauty shops,
photographic studies, auto repair, electric repair shops, wielding repair etc.
Transport in urban and rural areas.
Role of SSI in economic Development of India
It contributes almost 40% of the gross industrial value added in the Indian economy.
Produces 4.62 million worth of goods or services with an approximate value addition of
ten percentage points.
Employment :
Creates largest employment opportunities for the Indian populace, next only to
Agriculture
It has been estimated that 100,000 rupees of investment in fixed assets in the
small-scale sector generates employment for four persons.

Export :
45%-50% of the Indian Exports is contributed by SSI Sector.
35% Direct Exports and 15% Indirect Exports.
Export take place through merchant exporters , trading houses and export houses.
Opportunity
The opportunities in SSI is due to following factors
Less Capital Intensive
Extensive promotion and support by Government.
Funding - Finance and Subsidies
Skill India Mission
Export Promotion.
Tooling and Testing support
Reservation of Exclusive purchase by government.
SSI Registration
There are two stages of registration
Provisional : granted at pre-investment phase
Permanent : just before launching production facilities.
Functional Enterprise need not apply for provisional since they are already functional
they directly apply for permanent registration.
SSI is basically a state subject i.e., responsibility of state.
Objectives
Maintain a roll of small industries to which incentives and supports are granted
Provide a certificate enabling the units to avail statutory benefits mainly in terms of
protection.
To serve the purpose of collection of statistics.
To create nodal centers at the Center, State and District levels to promote
Procedure for Registration
Unit applies for PRC in prescribed application form. No field enquiry is done
and PRC is issued.
PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period,
he can apply afresh at the end of five years period.
Once the unit commences production, it has to apply for permanent registration on the
prescribed form.
The following form basis of evaluation:

The unit has obtained all necessary clearances whether statutory or
administrative. e.g. drug license under drug control order, NOC from Pollution
Control Board, if required etc.
Unit does not violate any location-al restrictions in force, at the time of
evaluation.
Value of plant and machinery is within prescribed limits.
Unit is not owned, controlled or subsidiary of any other industrial undertaking
as per notification.
NOC from Pollution Board
Issue of No Objection Certificates from the environmental pollution point of view
including adequacy of the site from the environmental angle.
Issue of Consent under provisions of section 25/26 of the Water Prevention and Control
of Pollution) Act, 1974.
Issue of Consent under provisions of section-21 of the Air (Prevention and Control of
Pollution) Act, 1981.
Assessment and collection of Water Cess, under provision of Water (Prevention and
Control of Pollution) Cess Act, 1977.
Identification and assessment of industrial and municipal pollution sources and control
there of.
Assessment of ambient air quality.
Assessment of quality of inland surface waters.
Mass awareness program.
Notification of e�uent and emission standards.
Development of Pollution Control technologies.
Instituting legal action against defaulters.
Issue of Authorization under the Hazardous Waste Management Rule, 1989.
Identification of isolated storage's, onsite crisis management plans etc. under the
Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989.
Implementation of Biomedical Waste Rules, 1998.
Machinery and Equipment Selection.
The equipment selected should possess certain desirable characteristics or
meet certain criteria to be best suited to the desired task. Some of these
criteria are:
Fit into the system;
Be as simple as possible;

Require minimum space;
Be flexible and adaptable;
Require minimum of loading, unloading and rehandling;
Call for as little maintenance, repair, power and fuel as possible;
Have a long useful life;
Capable of higher capacity utilization;
Perform the operation e�ciently and economically.
Project Report Prepration
It helps promoters understand that in many years the endowments can be forfeited.
It helps in identifying the product line and target market of the sector, besides
evaluating the level of skill and accuracy.
A small scale industry project report must contain 5-7 years evaluations in context of
revenues, expenditures, cash flows and outflows, balance sheet of legal responsibilities
and assets in hand, and reimbursement agendas of working capital and long-term loans,
etc.
In the competitive market ambiance, industrialist must not make a foray into a new
sector or set up a new business without preparing Project Reports.
The other users who could require the project reports are industrialists,
Financiers, banks, Financial Analysts, merchants, clients, certifying
authorities, Management Accountants, etc
Specimen of Project Report
Introduction of the Research
Descriptions
Small scale sector
Auxiliary sectoral enterprises
Purposes and range of the Research
Methodology of the research work
Promotional ideas and their association to the nature of the industry
Contemporary perception of advertising
Promotional method
Service sectors
Demand variable of several kinds of products
Break even assessments
Kinds of values
Chief techniques of costing

Break even ideas of costing
Drawbacks of small scale industries
Fundamentals for initiating a small scale industry
Drawbacks
Reasons of company failure
Explanations for dealing with financial crunch
Management skills
Additional SIDO services
Fiscal Data
Technical support
Quality enhancement and analysis
Sectoral administration and guidance
Expansion programs: DIC and motivation in di�dent areas
Technical advisory firm
Excise exclusion allowance
Commercial expansion strategies
Auxiliary development and sub- contracting exchanges
Upgrading plans
Government store procurement plan
Provision of goods for manufacturing
Fiscal aid
Conclusion
References
Bibliography
Project Planning and Scheduling using Networking Techniques of PERT/CPM
Procedure
Draw the "Network" connecting all the activities. Each Activity should have unique event
numbers. Dummy arrows are used where required to avoid giving the same numbering
to two activities.
�.
Assign time and/or cost estimates to each activity�.
Compute the longest time path through the network. This is called the ccritical path.�.
Use the Network to help plan, schedule, monitor and control the project.�.
The Key Concept used by CPM/PERT is that a small set of activities, which make up the
longest path through the activity network control the entire project. If these "critical"
activities could be identified and assigned to responsible persons, management
resources could be optimally used by concentrating on the few activities which
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determine the fate of the entire project.
Non-critical activities can be re-planned, rescheduled and resources for them can be
reallocated flexibly, without a�ecting the whole project.
�.
Five useful questions to ask when preparing an activity network are:
Is this a Start Activity.
Is this a Finish Activity?
What Activity Precedes this?
What Activity Follows this?
What Activity is Concurrent with this?
�.
Some activities are serially linked. The second activity can begin only after the first
activity is completed. In certain cases, the activities are concurrent, because they are
independent of each other and can start simultaneously. This is especially the case in
organisations which have supervisory resources so that work can be delegated to various
departments which will be responsible for the activities and their completion as planned.
�.
When work is delegated like this, the need for constant feedback and co-
ordination becomes an important senior management pre-occupation.
�.
Method of Project Appraisal
Discount rate
The discount rate is a concept related to the NPV method. The discount rate is used to
convert costs and benefits to present values to reflect the principle of time preference.
The calculation of the discount rate can be based on a number of approaches including,
among others:
The social rate of time preference
The opportunity cost of capital
Weighted average method
Internal Rate of Return (IRR)
The IRR is the discount rate which, when applied to net revenues of a project sets them
equal to the initial investment. The preferred option is that with the IRR greatest in
excess of a specified rate of return. An IRR of 10% means that with a discount rate of
10%, the project breaks even.
The IRR approach is usually associated with a hurdle cost of capital/discount rate, against
which the IRR is compared. The hurdle rate corresponds to the opportunity cost of
capital. In the case of public projects, the hurdle rate is the TDR. If the IRR exceeds the
hurdle rate, the project is accepted.
Benefit / Cost ratio (BCR)
The BCR is the discounted net revenues divided by the initial investment.The preferred

option is that with the ratio greatest in excess of 1. An any event, a project with a benefit
cost ratio of less than one should generally not proceed. The advantage of this method is
its simplicity.
Payback and Discounted payback
The payback period is commonly used as an investment appraisal technique in the
private sector and measures the length of time that it takes to recover the initial
investment. However this method presents obvious drawbacks which prevent the
ranking of projects. The method takes no account of the time value of money and neither
does it take account of the earnings after
the initial investment is recouped. A variant of the payback method is the discounted
payback period. The discounted payback period is the amount of time that it takes to
cover the cost of a project, by adding the net positive discounted cash flows arising
from the project. It should never be the sole appraisal method used to assess a project
but is a useful performance indicator to contextualise the project’s anticipated
performance.
Sensitivity analysis
Sensitivity analysis is the process of establishing the outcomes of the cost benefit
analysis which is sensitive to the assumed values used in the analysis. This form of
analysis should also be part of the appraisal for large projects. If an option is very
sensitive to variations in a particular variable (e.g. passenger demand), then it should
probably not be undertaken. If the
relative merits of options change with the assumed values of variables, those values
should be examined to see whether they can be made more reliable.
Scenario analysis
The scenario analysis technique is related to sensitivity analysis. Whereas the sensitivity
analysis is based on a variable by variable approach, scenario analysis recognises that the
various factors impacting upon the stream of costs and benefits are inter-independent.
Switching values
This process of substituting new values on a variable-by-variable basis can be referred to
as the calculation of switching values. These can provide interesting insights such as
what change(s) would make the NPV equal zero or alternatively, by how much must
costs or benefits fall or rise, respectively, in order to make a project worthwhile.

Small Enterprises and Enterprise Launching Formalitites UNIT III

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