small scale industries

1. Small Scale Industries
 Small scale industries are referred to as those
industries in which the process of manufacturing,
production and servicing are done on a small scale.
 The investment on such industries is one time and
these investments are mostly done on plant and
machinery, the total investment on such industries do
not exceed Ugx 10,000,000.
 In small scale industries, the manufacturing of goods
and rendering of services are done with the help of
smaller machines and very limited manpower.
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2.  Small scale industries or SSIs are known as the lifeline of
an economy, which is very important for a country like
Uganda.
 Being a labor intensive industry, it is very helpful in creating
employment opportunities for the population of the country.
 They are also a crucial part of an economy from a financial
standpoint, as they help in stabilizing the per capita income
of the country.
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3. Characteristics of Small Scale Industries
•Small scale industries generally have a single
ownership, which means it either has a sole
proprietorship structure or a partnership.
•The management of the small scale industries rests
with the owners and therefore, the owner plays an
active role in the day to day functions of the
business.
•Small scale industries are very much labor intensive,
hence there is limited use of technology.
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4. Characteristics of Small Scale Industries…
•Small scale industries are flexible and adaptable to a
changing business environment, unlike the large
industries.
•Small scale industries work in a restricted area which
makes them able to meet local and regional
requirements.
•Small scale industries use resources that are local and
readily available, which helps the economy fully utilise
the natural resources and bear minimum wastage.
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5. Objectives of Small Scale Industries
The objectives of small scale industries are as follows:
•To create job opportunities for the population.
•To help in the development of the rural areas of the
economy.
•To play an active role in reducing the regional imbalances
in the nation.
•To help in improving the standard of living for people in
rural areas.
•To ensure there is equal distribution of wealth and income
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6. Examples of Small Scale Industries
i. Paper Bags industries
ii. Leather belt manufacturing industries
iii. Small toys manufacturing industries
iv. Bakeries
v. School stationeries
vi. Water bottles manufacturing industries
vii. Beauty parlours
viii.Pickle manufacturing industries
ix. Incense stick manufacturing industries
x. Paper plate manufacturing industries
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7. Role of SSI’s in Development of Economy / Contribution to
Economic Development
 Self Employment:
Small scale sector provides numerous opportunities for self employment.
A self employed entrepreneur is the master of his own show and he thus gets opportunity for
doing something creative, new and different.
 Equitable spread of income and wealth:
Ownership of small scale industries is widespread and offer more employment potential as
compared with large scale industries.
Large scale industries result in concentration of income and wealth in few hands.
Whereas small scale industries ensure Equitable spread of income and wealth amongst all
and that too at all places. Small scale industries thus promote the objective of social justice.
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8.  Employment Generation:
Small scale industries employ labour intensive technology and hence generate more
employment opportunities.
In a country like Uganda confronted with the twin problems of unemployment and
scarcity of capital, it is only the small scale industry which can solve these problems.
Small scale industries can be located anywhere and hence can provide employment to
workers near their homes, more work for the under employed and additional work for
the farmers when they are idle.
 Supporting Large scale industries:
Small scale industries can facilitate growth and development of large scale industries
by providing various parts, components and accessories to large scale industries.
Small scale units serve as ancillaries to large units by playing a complementary role.
Role of SSI’s in Development of Economy…
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9. Role of SSI’s in Development of Economy…
 Contribution to foreign exchange:
This sector is helping in realization of the objective or export promotion and import substitution.
Nearly 50 percent of the output of the manufacturing sector in our country is produced by small scale
sector.
 Optimum use of capital:
Small scale enterprises require relatively lesser amount of capital as compared with large scale enterprises.
Small scale units help in capital formation by mobilizing idle and small scattered savings of the people and
put theses into productive use by investment in small scale units.
 Facilitate entrepreneurial development:
The units provide self employment to educated unemployed and reduce their overdependence on the
government.
It also generates feeling of self reliance amongst the people.
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10. Role of SSI’s in Development of Economy…
 Use of local resources:
Small scale enterprises employ local resources like raw material, savings, and entrepreneurial
skill more effectively.
Small scale sector generates employment opportunities and income for local population.
 Balance regional development:
Small scale industries utilize local resources and promote decentralized development of
industries.
It is only through dispersal of industries in rural and backward areas that the objective of
balanced regional development can be achieved.
 Contribution towards national economy:
Small scale industries have made rapid strides over years and can produce wide range of
products having mass consumption.
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11. Capital Investment
FINANCIAL INVESTMENT
• Financial Plan is a concept which clearly indicated the total project
outlay of a business activity.
• A sound financial plan will be an integrated financial statement which
explains the financial status of business activity.
GENERAL INVESTMENT DECISION (GID)
• Investment decision is concerned with allocation of funds.
• Since financial management deals with mobilization and deployment of
funds, equal importance must be given to both the functions.
• The process though which different projects are evaluated is known as
Capital Budgeting .
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12. FACTORS INFLUENCING THE INVESTMENT DECISSIONS
 Capital Return:
• It refers to the payback of investment.
• The management, while taking an investment decision has to assess as to how
soon it will get back the investment.
• The decision is influenced by the liquidity concept. Therefore, financial
manager has to carefully evaluate the proposal at the time of finalizing the
investment decisions.
 Earnings:
• If the earning capacity of the project is not good, it is not advisable on the part
of the financial manager to take such decisions.
• Earnings can be measured with the minimum earnings or cut-off point of the
same firm or of the industry.
• If the estimated profits are below the cut-off rate and the industry or the firm,
the investment becomes useless.
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13. FACTORS INFLUENCING THE INVESTMENT DECISSIONS…
 Lending Policies of the Financial Institutions:
• The policies with regard to various covenants of term loan.
• Documentation, security margin money, prime lending rate, general state of
the economy, money supply etc. will have direct impact on the flow of
funds or lending policies.
 Working Capital:
• There are two types of working capital requirement that arise in the
industry, viz Permanent Working Capital and Variable Working Capital.
• Financial manager has to consider working capital requirement of the firm
in finalizing the investment decision.
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14. FACTORS INFLUENCING THE INVESTMENT DECISSIONS…
 Accounting Policies:
• The accounting policies are different for different types of projects.
• The treatment of depreciation directly affects the cash inflows.
• Accounting practices have to be carefully planned for availing financial
assistance.
• The knowledge of these instruments helps the financial manager in
making investment decisions
 Immediate need of the Project:
• Some of the decisions of investment may not yield immediate returns,
e.g. Investment decisions for expansion, diversification and on R&D.
• Definitely these areas of investments are long-term. Any wrong decision
taken by him at this stage will become too costly for organization
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15. FACTORS INFLUENCING THE INVESTMENT DECISSIONS…
 Trends of earnings:
• The business risk associated directly with the profitability fluctuation in
the earnings are normally seen from the project.
• It is the duty of the finance manager to consider fluctuating cash flows for
the proposes of making investment decisions.
 Structure of Capital:
• Financial structure or Capital structure may contain only equity or both
debt and equity.
• Debt-equity ratio will offer leverage benefits, through which a firm
increase returns.
• Hence the composition of securities in the Capital structure influences the
investment decisions.
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16. FACTORS INFLUENCING THE INVESTMENT DECISSIONS…
 Taxation Policy:
• If the firm prefers to enjoy the benefit of tax holiday concessions in the sales
tax, stamp duty, excise duties, direct subsidies., it has to choose the investment
proposal judiciously.
• Therefore, finance manager has to consider Taxation Policy at the time of
taking the decision in capital budgeting.
 Availability of Funds:
• Funds are available in different sources. Equity capital, Debentures and
preference capital can be raised through the Primary market.
• The investment decisions are to be planned in such a manner, so that it can
raise cheaper source of funds quickly.
• Ultimately project should have the target of recovering the cost of funds which
always vary on the basis of availability.
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17. FACTORS INFLUENCING THE INVESTMENT DECISSIONS…
 Government Policy:
• The industrial policy, foreign trade policies and finance policies of the
government will have direct bearing on the investment policies of a company.
• This has been practically experienced by the Indian firms after the introduction of
Liberalisation, Privatisation and Globalisation.
• All these changes are to be noted while making investment decisions.
 Economic Value of the Project:
• The investment decisions are also influenced by the economic value of the
project.
• Economic value means how best the project can expand cash inflows and
outflows with the initial investment and satisfy the funds need of the project.
• The project must be capable of running its activities mainly by the generated
funds
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18. OWNERSHIP PATTERNS
The different types of ownership organizations are;
1. Sole proprietorship
2. Partnership
3. Co-operative society
4. Joint stock company
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19. Sole Proprietorship
It is a form of business organisation in which an individual invests his own
capital, uses his own skill and intelligence in the management of its affairs and is
solely responsible for the results of its operations
Features
i. Sole ownership
ii. One man control
iii. Sole decision making power
iv. Unlimited risk
v. Undivided risk
vi. No separate entity of the firm
vii. No government regulations
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20. Merits
i. Easy and simple formation with less policies or procedure to follow
ii. Smooth management with less oppositions or clashes
iii. Promptness in decision making as the proprietor is free to conduct
the affairs of business
iv. Direct motivation
v. Provides direct incentives to work
vi. Personal touch to customers
vii. Secrecy can be maintained in terms of important matters relating to
the business
viii.Provides social advantage by providing employment to many.
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21. Limitations
i. Limited financial resources
ii. Limited Managerial Ability
iii. Unlimited liability in covering risks and bearing losses
iv. Mortality rate in terms of continuing the business is high
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22. Partnership Organisation:
It the relationship among persons who have agreed to share profits of
a business carried on by all or any of them acting for all.
Features
i. There should be at least two persons to form partnership
organisation
ii. It has a contractual relationship
iii. No legal relationship between firms and partners
iv. Unlimited liability
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23.  Merits
i. Easy formation
ii. Flexibility in terms of making changes w.r.t no of partners, capital etc.
iii. Pool of resources and skills
iv. Division of risks among the partners
v. Strong credit position
vi. Less incidence of Tax as the burden is shared among partners
vii. Encourages mutual trust
 Limitations
i. Limited resource financially, technically
ii. Unlimited liability
iii. Instability as the business can come to an end due to quarrels among
partners
iv. Lack of harmony of interest
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24. Joint Stock companies:
It is a voluntary association of persons who contribute to the capital but
their liability remains limited, it carries on business for profit as a legal
entity. It can sue and can also be sued in its own
Features
i. It has its own existence
ii. It is a separate legal entity
iii. It is considered to be a person in the eyes of law
iv. It is an association of members
v. It involves legal formalities
vi. It is intangible , invisible artificial being
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25. Co-operative societies:
It is an association of persons usually of limited
means who voluntarily join together to achieve a
common economic end through formation of a
democratically controlled business organisation,
making equitable contribution to the capital
required and accepting a fair share of risks and
benefits of the undertaking
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26. Factors determining the form of ownership to
be undertaken
i. Type of business
ii. Scope of operation
iii. Control Dimension in terms of Sole trading and Joint stock co
iv. Capital requirement
v. Magnitude of risk
vi. Continuity
vii. Policy and procedures
viii.Tax advantage
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