el 3.4 module-2

7/29/2019 EL 3.4 Module-2

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Davanagere UniversityDepartment of Commerce,

Shivagangotri, Davangere.

EL 3.4- Promotion and Management of SmallBusiness Enterprises.

Present by:

Mr. A.P. SUBRAMANYAN M.A.F., (M Phil).,

Faculty Member and Research Scholar,Department of commerce,

Davanagere University.

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MODULE- 2:

Steps for Starting a Small Industry

Contents:

Decisions to become an entrepreneur,

Steps to be taken,

Preparation of project report guidelines,

Policies governing small-scale industries.

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Decisions to become an Entrepreneur

When a multifaceted environment confronts the

unemployed persons, if they posses strong orientation

towards entrepreneurship and growth, the most

appropriate decision would be to start small scaleenterprise.

An entrepreneur possessing the keen aptitude for

setting up a small scale unit should formulate a

business plan and take a number of steps to give

shape to his business.

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Steps to be taken

Selection of Product.

Selection of Form of Ownership.

Selection of Site.

Designing Capital Structure.

Acquisitions of Manufacturing Know-how.

Preparation of Project Report.

Obtaining Statutory License.

Power Connection.

Arrangement of Finance.

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Continues… Selection of Product:

- Designing a new product, or copy an established one, orimprove upon an existing product in terms of additional

uses, comfort or saving in cost.- The economic viability of a product should cover the

following demand aspects:

1. Volume of existing demand in the domestic market.

2. Volume of existing demand in the export market.

3. Volume of aggregate existing demand in all market.

4. Volume of potential demand.

5. The degree of import substitution.

6. The volume of demand by big units of ancillary products.

7. Degree of substitution of an existing product.

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Continues…

Small scale enterprises in our country

produce :

Readymade garments, Leather footwear, Detergent

soap, Detergent liquids, Plastic items like Buckets,

Jerry-Cans, Office trays, Luncheon boxes, Wallets

and Purses, Food items, etc..

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Selection of Form of Ownership

Sole proprietorship,

Family ownership,

Partnership,

Private limited company.

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Selection of Site

An entrepreneur has five option to choosing a suitable

plot for factory or shed.

- Choose a land from an industrial area developed by

the state development corporation like SIDCO,

SIPCOT etc.- Factory sheds in industrial estates constructed by state

industrial development agency.

- Choose from plots/sheds developed by Privatedevelopers ( Private Industrial Estates).

- Buy private land and develop the same for industrial

use.

- Select a site/shed available in free trade zones.

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Continues…

While selecting a site, an entrepreneur is to takeinto consideration the following factors:

1. The site is situated in one‟s native place.

2. The site enjoys most or all incentives provided bythe Government.

3. The site is near a market.

4. The site is near the source of labour supply and raw

material.

5. The site has modern infrastructural facilities.

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Designing Capital Structure

1. Own capital

2. Long term loans from friends and relatives

3. Term loans from banks and financial institutions

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Acquisitions of Manufacturing Know-how

Many institutions like government research

laboratories, research and development divisions of

industries and also individual consultants provide the

manufacturing know- how.

The scale of operation is linked closely with

technology, financial resources and market demand

envisaged.

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Preparation of Project Report

Prepare a project report according to the format of

the loan application of the concerned term lending

institutions.

The report covers important items like sources of finance, availability of machinery and technical

know-how, sources of labour and raw materials,

materials and overall profitability.

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Continues…

1. Technical feasibility: technical feasibility would

encompass factors such as description of the

product specification to be adopted, raw materials

available as per requirements, outline of “Manufacturing process inclusive of a „flow chart

process‟, quality control measures, power supply,

availability of water, transport facilities, and

communication network.

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Continues… 2. Economic viability: it essentially involves

compilation of demands for domestic and exportmarkets, most appropriate installed capacity

requirements, capturing a substantial share of market

sale, revenue expected, suitable price structure and so

on.

3. Financial implications: project cost covering „non

recurring expenses‟ such as land and buildings, plant

and machinery, equipments, pre-operative expenses,and so on and „recurring expenses‟ like working

capital needs, raw material needs, wages for

personnel and so on will have to be worked out in

detail.

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Continues… 4.Mangagerial competency: the new entrepreneur

manger entering the small scale sector should devote

his full attention to the new venture and should

consider the product line chosen as a “ major

economic activity”.He should maintain up to date information records

pertaining to actual production, sales effected every

month. In addition to gathering useful data on “

potential customers‟, “ new market segments”, “changes in fashions”, “ designs”, “styles” etc., . The

new entrant must emerge itself as a “ customer

satisfying and “ customer creating” organism.

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Continues… 1. Registration as SSI

2. Provisional Registration

provisional registration entitles the entrepreneur to:

- Apply for a shed in an industrial estate or a

developed plot in an industrial area.- Apply to corporation/ municipalities for other

licenses.

- Apply for power connection.

- Apply for financial assistance from banks and otherinstitutions.

The application for this registration has to be sent induplicate.

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Obtaining Statutory License

Municipal License.

- The next step would be to obtain Municipal License.

- Registration with Central and State Sales Tax

Department would be necessary.

- Registration with inspector will also be required.

Statutory License.

Depending upon the product line chosen, size of theunit/workers employed and so on., the entrepreneur

should seek approval for specific regulations

applicable in his case.

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Continues… Table 2.1- licensing authorities

Product line/Activity/Service Licensing Authority

1. Approval of production

programmer for manufacturing

Electronic items.

To approach state Directorate of

Industries & Commerce, Madras

or District Industries Centre in the

particular District

2. Manufacturing of Drugs and

Cosmetics.

State Drug Controller, Drug

Control Administration, Madras.

3. Manufacturing of fruit andvegetable based products- license

under fruit product order.

Deputy Director- Food andVegetable Preservation, Ministry

of Agriculture, Madras.

4. For registration of corporate

body.

Company Law Board, Shastri

Bhavan Madras.

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Power Connection

1. The low tension (LT)

2. The high tension (HT)

A consumer can avail LT if the connected load is 75

HP and below.In connected load is between 75 HP and 130 HP theconsumer has the option to avail either LT supplyor HT supply.

It connected load exceeds 130HP the unit isclassified as HT consumer.

- Most of the small scale industries fall under the LTcategory.

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Arrangement of Finance

The funding requirements of a project are of –

1. Long term requirements for acquiring fixed assets

like land and building, plant and machinery and for

security deposits.2. Short term loans for working capital in the form of

key loan/cash credit/bill discounting etc.

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NEDA Scheme:Indian Bank, has scheme to assist new entrepreneurs known asNew Entrepreneur Development Agency (NEDA).

Loan facilities are granted on the following conditions:

1. Maximum loan granted under the scheme will be Rs. 10 lakhs(inclusive of fixed and working capital).

2. The entrepreneur should posses minimum educational

qualifications- a graduate or a diploma holder.

3. Entrepreneur should be within the minimum age limit of 21-35years.

4. The scheme is only operated through the Head Office or the

Zonal Office of the bank.5. The scheme is intended mainly for first generation entrepreneurs

with entrepreneurial ability.

6. The interest rate on term loan is 15.5% and on working capital itvaries according to limits up to 20.25%.

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Financial assistance to Industrial Co-operative

Societies:

In order to promote industrial ventures through co-

operative societies the government have introduced

special schemes for promoting industrial co-

operative societies.Generally the following rules are observed in the

formation of and assistance to industrial Co-

operative societies.

1. Should be a minimum of 25 persons as members of

the society.

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Continues…

2. The share capital of the society depends on the

project to be implemented by the society.

3. Loan to the extent of 10 times or 15 times of the paid

up share capital plus reserves fund is given on viableschemes based on the project cost.

4. The financial transactions are preferably through the

industrial co- operative banks and through Tamil

Nadu State Co- operative ( TNSCB), District Co-

operative banks etc.

el 3.4 module-2

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