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CHAPTER 1: FINANCIAL MANAGEMENT AND

PROMOTION

1. TYPES OF CAPITAL?

Answer:

There are 2 types of capital. They are fixed capital and working capital:

Working capital:

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization or other entity, including governmental

entity. Along with fixed assets such as plant and equipment, working capital is considered

a part of operating capital. Gross working capital equals to current assets. Working capital

is calculated as current assets minus current liabilities. If current assets are less than

current liabilities, an entity has a working capital deficiency, also called a working capital

deficit.

A company can be endowed with assets and profitability but short of liquidity if its

assets cannot readily be converted into cash. Positive working capital is required to ensure

that a firm is able to continue its operations and that it has sufficient funds to satisfy both

maturing short-term debt and upcoming operational expenses. The management of

working capital involves managing inventories, accounts receivable and payable, and cash.

Calculation:

Working capital is the difference between the current assets and the current liabilities.

It is the amount invested by the promoters on the current assets of the organisation.

The basic calculation of the working capital is done on the basis of the gross current assets

of the firm.

Working capital = current assets - current liabilities

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Inputs Current assets and current liabilities include three accounts which are of special

importance. These accounts represent the areas of the business where managers have the

most direct impact:

Accounts receivable (current asset)

Inventory (current assets), and

Accounts payable (current liability)

The current portion of debt (payable within 12 months) is critical, because it represents

a short-term claim to current assets and is often secured by long term assets. Common

types of short-term debt are bank loans and lines of credit.

An increase in net working capital indicates that the business has either increased

current assets (that it has increased its receivables or other current assets) or has decreased

current liabilities—for example has paid off some short-term creditors, or a combination

of both.

Fixed capital:

Fixed capital is a concept in economics and accounting, first theoretically analyzed in

some depth by the economist David Ricardo. It refers to any kind of real or physical

capital (fixed asset) that is not used up in the production of a product. It contrasts with

circulating capital such as raw materials, operating expenses and the like.

So fixed capital is that portion of the total capital outlay that is invested in fixed assets

(such as land, buildings, vehicles, plant and equipment), that stay in the business almost

permanently - or at the very least, for more than one accounting period. Fixed assets can

be purchased by a business, in which case the business owns them. They can also be

leased, hired or rented, if that is cheaper or more convenient, or if owning the fixed asset is

practically impossible (for legal or technical reasons).

Refining the classical distinction between fixed and circulating capital in Das Kapital,

Karl Marx emphasizes that the distinction is really purely relative, i.e. it refers only to the

comparative rotation speeds (turnover time) of different types of physical capital assets.

Fixed capital also "circulates", except that the circulation time is much longer, because a

fixed asset may be held for 5, 10 or 20 years before it has yielded its value and is

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discarded for its salvage value. A fixed asset may also be resold and re-used, which often

happens with vehicles and planes.

In national accounts, fixed capital is conventionally defined as the stock of tangible,

durable fixed assets owned or used by resident enterprises for more than one year. This

includes plant, machinery, vehicles & equipment, installations & physical infrastructures,

the value of land improvements, and buildings.

The European system of national and regional accounts (ESA95) explicitly includes

produced intangible assets (e.g. mineral exploitation, computer software, copyright

protected entertainment, literary and artistic originals) within the definition of fixed assets.

2. FACTORS INFLUENCING TYPES OF CAPITAL?

Answer:

Main factors affecting the working capital are as follows:

(1) Nature of Business:

The requirement of working capital depends on the nature of business. The nature of

business is usually of two types: Manufacturing Business and Trading Business. In the

case of manufacturing business it takes a lot of time in converting raw material into

finished goods. Therefore, capital remains invested for a long time in raw material, semi-

finished goods and the stocking of the finished goods.

Consequently, more working capital is required. On the contrary, in case of trading

business the goods are sold immediately after purchasing or sometimes the sale is affected

even before the purchase itself. Therefore, very little working capital is required.

Moreover, in case of service businesses, the working capital is almost nil since there is

nothing in stock.

2) Scale of Operations:

There is a direct link between the working capital and the scale of operations. In other

words, more working capital is required in case of big organisations while less working

capital is needed in case of small organisations.

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(3) Business Cycle:

The need for the working capital is affected by various stages of the business cycle.

During the boom period, the demand of a product increases and sales also increase.

Therefore, more working capital is needed. On the contrary, during the period of

depression, the demand declines and it affects both the production and sales of goods.

Therefore, in such a situation less working capital is required.

(4) Seasonal Factors:

Some goods are demanded throughout the year while others have seasonal demand.

Goods which have uniform demand the whole year their production and sale are

continuous. Consequently, such enterprises need little working capital.

On the other hand, some goods have seasonal demand but the same are produced

almost the whole year so that their supply is available readily when demanded.

Such enterprises have to maintain large stocks of raw material and finished products

and so they need large amount of working capital for this purpose. Woolen mills are a

good example of it.

(5) Production Cycle:

Production cycle means the time involved in converting raw material into finished

product. The longer this period, the more will be the time for which the capital remains

blocked in raw material and semi-manufactured products.

Thus, more working capital will be needed. On the contrary, where period of production

cycle is little, less working capital will be needed.

(6) Credit Allowed:

Those enterprises which sell goods on cash payment basis need little working capital

but those who provide credit facilities to the customers need more working capital.

(7) Credit Availed:

If raw material and other inputs are easily available on credit, less working capital is

needed. On the contrary, if these things are not available on credit then to make cash

payment quickly large amount of working capital will be needed.

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(8) Operating Efficiency:

Operating efficiency means efficiently completing the various business operations.

Operating efficiency of every organisation happens to be different.

Some such examples are: (i) converting raw material into finished goods at the earliest,

(ii) selling the finished goods quickly, and (iii) quickly getting payments from the debtors.

A company which has a better operating efficiency has to invest less in stock and the

debtors.

Therefore, it requires less working capital, while the case is different in respect of

companies with less operating efficiency.

(9) Availability of Raw Material:

Availability of raw material also influences the amount of working capital. If the

enterprise makes use of such raw material which is available easily throughout the year,

then less working capital will be required, because there will be no need to stock it in large

quantity.

The requirement of fixed capital depends upon various factors which are explained below:

1. Nature of Business:

The type of business Co. is involved in is the first factor which helps in deciding the

requirement of fixed capital. A manufacturing company needs more fixed capital as

compared to a trading company, as trading company does not need plant, machinery, etc.

2. Scale of Operation:

The companies which are operating at large scale require more fixed capital as they

need more machineries and other assets whereas small scale enterprises need less amount

of fixed capital.

3. Technique of Production:

Companies using capital-intensive techniques require more fixed capital whereas

companies using labour-intensive techniques require less capital because capital-intensive

techniques make use of plant and machinery and company needs more fixed capital to buy

plants and machinery.

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4. Technology Up-gradation:

Industries in which technology up-gradation is fast need more amount of fixed capital

as when new technology is invented old machines become obsolete and they need to buy

new plants and machinery whereas companies where technological up-gradation is slow

they require less fixed capital as they can manage with old machines.

5. Growth Prospects:

Companies which are expanding and have higher growth plan require more fixed

capital as to expand they need to expand their production capacity and to expand

production capacity companies need more plant and machinery so more fixed capital.

6. Diversification:

Companies which have plans to diversify their activities by including more range of

products require more fixed capital as to produce more products they require more plants

and machineries which means more fixed capital.

3. CAPITAL STRUCTURE

Answer:

In finance, capital structure refers to the way a corporation finances its assets through

some combination of equity, debt, or hybrid securities.

A firm's capital structure is the composition or 'structure' of its liabilities. For example,

a firm that has $20 billion in equity and $80 billion in debt is said to be 20% equity-

financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this

example is referred to as the firm's leverage. In reality, capital structure may be highly

complex and include dozens of sources of capital.

Leverage (or gearing) ratios represent the proportion of the firm's capital that is

obtained through debt (either bank loans or bonds).

The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller,

forms the basis for modern thinking on capital structure, though it is generally viewed as a

purely theoretical result since it disregards many important factors in the capital structure

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process factors like fluctuations and uncertain situations that may occur in the course of

financing a firm. The theorem states that, in a perfect market, how a firm is financed is

irrelevant to its value. This result provides the base with which to examine real world

reasons why capital structure is relevant, that is, a company's value is affected by the

capital structure it employs. Some other reasons include bankruptcy costs, agency costs,

taxes, and information asymmetry. This analysis can then be extended to look at whether

there is in fact an optimal capital structure: the one which maximizes the value of the firm.

Capital Structure - What It Is and Why It Matters

The term capital structure refers to the percentage of capital (money) at work in a

business by type. Broadly speaking, there are two forms of capital: equity capital and debt

capital. Each has its own benefits and drawbacks and a substantial part of wise corporate

stewardship and management is attempting to find the perfect capital structure in terms of

risk / reward payoff for shareholders. This is true for Fortune 500 companies and for small

business owners trying to determine how much of their startup money should come from a

bank loan without endangering the business.

Let's look at each in detail:

Equity Capital: This refers to money put up and owned by the shareholders (owners).

Typically, equity capital consists of two types: 1.) contributed capital, which is the money

that was originally invested in the business in exchange for shares of stock or ownership

and 2.) retained earnings, which represents profits from past years that have been kept by

the company and used to strengthen the balance sheet or fund growth, acquisitions, or

expansion.

Many consider equity capital to be the most expensive type of capital a company can

utilize because it’s "cost" is the return the firm must earn to attract investment. A

speculative mining company that is looking for silver in a remote region of Africa may

require a much higher return on equity to get investors to purchase the stock than a firm

such as Procter & Gamble, which sells everything from toothpaste and shampoo to

detergent and beauty products.

Debt Capital: The debt capital in a company's capital structure refers to borrowed money

that is at work in the business. The safest type is generally considered long-term bonds

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because the company has years, if not decades, to come up with the principal, while

paying interest only in the meantime.

Other types of debt capital can include short-term commercial paper utilized by giants

such as Wal-Mart and General Electric that amount to billions of dollars in 24-hour loans

from the capital markets to meet day-to-day working capital requirements such as payroll

and utility bills.

Other Forms of Capital: There are actually other forms of capital, such as vendor financing

where a company can sell goods before they have to pay the bill to the vendor that can

drastically increase return on equity but don't cost the company anything. This was one of

the secrets to Sam Walton's success at Wal-Mart. He was often able to sell Tide detergent

before having to pay the bill to Procter & Gamble, in effect, using PG's money to grow his

retailer. In the case of an insurance company, the policyholder "float" represents money

that doesn't belong to the firm but that it gets to use and earn an investment on until it has

to pay it out for accidents or medical bills, in the case of an auto insurer.

Seeking the Optimal Capital Structure:

Many middle class individuals believe that the goal in life is to be debt-free (see Should

I Pay off My Debt or Invest?). When you reach the upper echelons of finance, however,

that idea is almost anathema. Many of the most successful companies in the world base

their capital structure on one simple consideration: the cost of capital. If you can borrow

money at 7% for 30 years in a world of 3% inflation and reinvest it in core operations at

15%, you would be wise to consider at least 40% to 50% in debt capital in your overall

capital structure.

Of course, how much debt you take on comes down to how secure the revenues your

business generates are - if you sell an indispensable product that people simply must have,

the debt will be much lower risk than if you operate a theme park in a tourist town at the

height of a boom market. Again, this is where managerial talent, experience, and wisdom

come into play. The great managers have a knack for consistently lowering their weighted

average cost of capital by increasing productivity, seeking out higher return products, and

more.

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4. FACTORS DECIDING CAPITAL STRUCTURE?

Answer:

Capital structure of a firm is determined by various internal and external factors.

Following are the main factors which affect the capital structure decision.

1. Size of a Firm:

There is a positive relation between the capital structure and size of a firm. The large

firms are more diversified, have easy access to the capital market, receive higher credit

ratings for debt issues, and pay lower interest rate on debt capital. Further, larger firms are

less prone to bankruptcy and this implies the less probability of bankruptcy and lower

bankruptcy costs. Therefore, larger firms tend to use more debt capital than smaller firms.

2. Growth in Sales:

Anticipated growth rate in sales provides a measure of extent to which earning per

share (EPS) of a firm are likely to be magnified by leverage. The firm is likely to use debt

financing with limited fixed charge only when the return on equity is likely to be

magnified. However, the firms with significant growth in sales would have high market

price per share as a result of which they might prefer equity financing. The firm should

make a relative cost benefit analysis against debt and equity financing in anticipation to

growth in sales to determine appropriate capital structure.

3. Business Risk:

There is negative relation between the capital structure and business risk. The chance of

business failure is greater if the firm has less stable earnings. Similarly, as the probability

of bankruptcy increases the agency problems related to debt become more aggravating.

Thus, as business risk increases, the debt level in capital structure of the enterprises should

decrease.

4. Debt Service Capacity:

The higher debt level in capital structure increases the probability of bankruptcy and

bankruptcy costs of the enterprises. Probability of bankruptcy refers to the chances of cash

flows to be less than the amount required for servicing the debt. The debt service ratio

measured by the ratio of operating income to total interest charges indicates the firm's

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ability to meet its interest payment out of its annual operating earnings. Therefore, the

higher debt service ratio shows the higher debt capacity of the enterprises. Hence, there is

the positive relation between the debt service capacity and capital structure of the firm.

5. Operating Leverage:

The use of fixed cost in production process also affects the capital structure. The high

operating leverage; use of higher proportion of fixed cost in the total cost over a period of

time; can magnify the variability in future earnings. There is negative relation between

operating leverage and debt level in capital structure. Higher the operating leverage, the

greater the chance of business failure and the greater will be the weight of bankruptcy

costs on enterprise financing decisions.

6. Stability in Cash Flow:

The firm's cash flow stability also affects its capital structure. If firm's cash flows are

relatively stable, then it may find no difficulties in meeting its fixed charge obligation. As

a result, the firm may attempt to take the benefits by using leverage to some extent.

7. Nature of Industry:

Capital structure of a firm also depends on the nature of industry in which it operates. If

there were no barriers in industry for the entry of new competing firms, the profit margin

of existing firms in the industry would be adversely affected. As a result, the firm may

find a more risky to use fixed charge bearing securities.

8. Asset Structure:

The sources of financing to be used are affected to several ways by the maturity

structure of assets to be used by the firm. If a firm has relatively longer term assets with

assured demand of their products, the firm attempts to use more long term debt. In contrast

to this, the firms with relatively greater investment in receivables and inventory rather than

fixed assets rely heavily on short-term financing.

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5. SOURCES OF CAPITAL?

Answer:

The sources of fixed capital are:

(i) Equity Shares:

Equity shareholders are the owners of the company and their contribution constitute the

main source of finance. The promoters are the first to contribute towards share capital of

the company and the remaining amount of funds are raised through sale of shares to

general public. Equity shareholders are the risk bearers of the company and are going to

absorb all stress and strains of the business.

Financial structure of the company is strengthened by equity capital. Equity

shareholders have limited liability and they enjoy voting rights. They can increase their

stake in the firm or can keep full control over the company through issue of right and

bonus shares. Equity capital is permanent capital of the firm and there is no liability for

repayment and even dividend payment to the equity shareholders is not obligatory.

(ii) Preference Shares:

These shareholders enjoy preference w.r.t. dividend and return of capital. Those

investors who opt for limited but steady return on their investment prefer preference

shares. Preference share capital possesses certain features of both equity and debt capital.

Preference shareholders receive dividend like equity shareholders. Similarly it is like debt

capital since the rate of dividend is predetermined.

Preference shares are not a permanent liability on the firm as dividend is payable only

when there are profits. A company can introduce flexibility in its capital structure by

issuing redeemable preference shares which can be redeemed when the company has

sufficient profits. These are not very popular in India and can be made more popular by

issuing cumulative convertible preference shares.

(iii) Debentures:

Debenture provides the firm with another option of raising term loans from the public.

Debentures are normally secured and yield a fixed percentage of interest. Thus they are

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less risky and give regular return to debenture holders. With the issue of debentures

shareholders can retain control and earn more return on their investment.

Debenture capital add more financial burden on the firm during hard times and increase

risk of insolvency of the firm. Many companies in India in recent years have issued

convertible or partly convertible debentures with the discretion to convert them into equity

shares of the company.

(iv) Term Loans:

These are the loans obtained from banks and financial institutions and constitute the

most important source of finance. Term loans are normally repayable within a period of

ten years or more and carry a fixed rate of interest.

Lending institutes insist on margin money from promoters and are ready to defer

repayment till gestation period is over. Term loans are raised for meeting fixed and

working capital needs. Term loans provide - the advantage of trading on equity and at the

same time allow owners to have control over the business.

(v) Retained Earnings:

Retained earnings refer to the surplus or reserve accumulated over years. This amount

can be re-invested in the enterprise for up gradation and expansion. The cost of

employment of this capital is practically nil and at the same time no liability worth the

name is created.

(vi) Capital Subsidy:

In order to tempt entrepreneurs towards backward areas the Central Government

provides capital subsidy. Similarly certain state governments too grant development loans

to entrepreneurs for setting up industries in exclusively notified areas in their states.

Long-Term Loans:

A loan is the amount of money that is given to an individual or a company on the

agreement they will repay the amount borrowed in a period that exceeds 12 months and at

predetermined interest rates. Long-term loans are usually secured against certain assets

and are offered by commercial banks, the government and financial institutions. This type

of loan provides the long-term working capital for the business.

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Short-Term Loans:

Short-term loans are loans that are to be repaid within a year from the time they are

borrowed. Savings banks, cooperatives and the government through the Small Business

Administration are some of the institutions that offer these loans. Bank overdraft is one

such source of business finance. A bank overdraft is a withdrawal made by a business that

exceeds the amount of balance in its bank account, although the amount of money does

not exceed a set limit.

Line of Credit:

This is a form of a loan agreement between the bank and the borrower that enables the

borrower to acquire some amount of the funds on demand, but the borrower does not have

to take the loan. A business may secure working capital through this service if it has

recurring expenses at regular intervals.

Trade Credit:

This credit service offered by suppliers allows businesses to get goods and pay for them

later. This is a source of working capital that may be acquired from all suppliers

depending on the business arrangements, the type of business you conduct and the worth

of the credit to be offered.

Asset-Based Financing:

A business may use its assets to secure working capital from financial institutions that

offer asset based loans. The asset includes machinery, vehicle or accounts receivable.

Accounts receivable are financial documents of people or companies that owe money to

the business and they may be traded in to finance working capital at discounting

companies.

6. BUSINESS FINANCE?

Answer:

Business finance is also referred as corporate finance or financial management.

Generally the term corporate finance is connected with financial management of

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companies. However, it is applied to all activities where finance is required such as

agriculture, industry and services.

Financial management is concerned with raising of funds and utilization of funds. The

main aim of financial management is to attain maximum return on investment.

Objectives of financial management:

The financial management is generally concerned with procurement, allocation and

control of financial resources of a concern. The objectives can be-

a. To ensure regular and adequate supply of funds to the concern.

b. To ensure adequate returns to the shareholders this will depend upon the earning

capacity, market price of the share, expectations of the shareholders.

c. To ensure optimum funds utilization. Once the funds are procured, they should be

utilized in maximum possible way at least cost.

d. To ensure safety on investment, i.e., funds should be invested in safe ventures so that

adequate rate of return can be achieved.

e. To plan a sound capital structure-There should be sound and fair composition of capital

so that a balance is maintained between debt and equity capital.

7. ENTREPRENEURSHIP DEVELOPMENT PROGRAM?

Answer:

As the term itself denotes, EDP is a programme meant to develop entrepreneurial

abilities among the people. In other words, it refers to inculcation, development, and

polishing of entrepreneurial skills into a person needed to establish and successfully run

his / her enterprise. Thus, the concept of entrepreneurship development programme

involves equipping a person with the required skills and knowledge needed for starting

and running the enterprise.

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The main purpose of such entrepreneurship development programme is to widen the

base of entrepreneurship by development achievement motivation and entrepreneurial

skills among the less privileged sections of the society.”

According to N. P. Singh (1985), “Entrepreneurship Development Programme is

designed to help an individual in strengthening his entrepreneurial motive and in acquiring

skills and capabilities necessary for playing his entrepreneurial role effectively. It is

necessary to promote this understanding of motives and their impact on entrepreneurial

values and behaviour for this purpose.” Now, we can easily define EDP as a planned effort

to identify, inculcate, develop, and polish the capabilities and skills as the prerequisites of

a person to become and behave as an entrepreneur.

Objectives of EDP:

The major objectives of the Entrepreneurship Development Programmes (EDPs) are to:

a. Develop and strengthen the entrepreneurial quality, i.e. motivation or need for

achievement.

b. Analyse environmental set up relating to small industry and small business.

c. Select the product.

d. Formulate proposal for the product.

e. Understand the process and procedure involved in setting up a small enterprise.

f. Know the sources of help and support available for starting a small scale industry.

g. Acquire the necessary managerial skills required to run a small-scale industry.

h. Know the pros and cons in becoming an entrepreneur.

i. Appreciate the needed entrepreneurial discipline.

j. Besides, some of the other important objectives of the EDPs are to:

k. Let the entrepreneur himself / herself set or reset objectives for his / her enterprise and

strive for their realization.

l. Prepare him / her to accept the uncertainty in running a business.

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m. Enable him / her to take decisions.

n. Enable to communicate clearly and effectively.

8. VARIOUS ORGANIZATIONS PROVIDING ENTREPRENEURSHIP

DEVELOPMENT PROGRAMME?

Answer:

The government has setup various centers or institutes to impart training and

development to entrepreneurs so as to improve their knowledge, attitudes, and skills. Some

of the various institutes are briefly explained as follows:

a. National institute for entrepreneurship and small business development:

NIESBUD is an apex body under the Ministry of Micro, Small & Medium Enterprises,

and Government of India for coordinating and overseeing the activities of various

institutions/agencies engaged in entrepreneurship development particularly in the area of

small industry and small business. The Institute which is registered as a Society under

Societies Registration Act, 1860 (XXI of 1860), started functioning from 6thJuly, 1983.

The policy, direction and guidance to the Institute is provided by its Governing Council

whose Chairman is the Minister of MSME. The Executive Committee consisting of

Secretary (Micro, Small & Medium Enterprises) as its Chairman and Director General of

the Institute as its Member-Secretary executes the policies and decisions of the Governing

Council through its whole-time Director General.

b. Small industries development organisations (SIDO):

The Small Industries Development Organization (SIDO) is the national SME

Development Agency of India. It is a major constituent of the Ministry of Small Scale

Industries of the Government of India. A senior official of the Government of India, who

is designated as the Development Commissioner for Small Scale Industries (DCSSI),

heads SIDO. He is also the ex-officio Additional Secretary in the Ministry of Small Scale

Industries; that is, he is second in command in the bureaucratic hierarchy of the Ministry.

Set up in 1954, SIDO provides services to small industry throughout the country by

implementing a broad program of activities and services including the following:

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• Entrepreneurship Development

• Tool Room Services

• Testing Centers

• Extension Services

• R&D Services

• Consultancy Services

• Policy Development

The strength of SIDO lies in its countrywide spread of almost 100 offices/service

centers, which employ over 2500 staff, mostly technical. SIDO partners and networks with

other national providers of support and financial services to SMEs such as the Small

Industries Development Bank of India (SIDBI), the National Small Industries Corporation

(NSIC), the Bureau of Indian Standards (BIS), the Reserve Bank of India (RBI) (India's

Central Bank) and relevant agencies of the Governments of the 28 States of the country.

The Government of India essentially funds SIDO but, of late, some its activities (such as

Tool Rooms, Testing Centers and Consultancy Services) are becoming increasingly self-

sustaining.

c. Entrepreneurship development institute of india (EDII):

EDI, an autonomous institution set up in 1983 as a pioneering institute for

Entrepreneurship Development and Training in India and around the globe.

The driving values at the Institute are innovation, experimentation, risk-taking,

inclusiveness, thinking out of the box and to offer need based & socially relevant

solutions.

EDI conducts several training programmes – both national and international,

implements projects for the state governments, central government and international

organisations, and offers two unique Post Graduate Programmes under its Centre for

Entrepreneurship Education & Research.

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d. National small industries corporation (NSIC):

National Small Industries Corporation Limited (NSIC) is a PSU established by the

Government of India in 1955 it falls under Ministry of Micro, Small & Medium

Enterprises of India.

It was established in 1955 to promote and develop micro and smalls scale industries

and enterprises in the country. It was originally founded as a Government of India agency

later made into a fully owned government corporation.

Government of India in order to promote small and budding entrepreneurs of post

independent India decided to establish a government agency which can mediate and

provide help to small scale industries (SSI). As such they established National Small

Industries Corporation with objectives to provide machinery on hire purchase basis and

assisting and marketing in exports. District industries centers (DICs):

DICs are the Nodal Offices towards development of Industries. All intending

entrepreneurs are welcome. DICs also depute Industrial Development Officers at the

Block Office.

Since the introduction in 1978, District Industries Centers are engaged for promotion of

SSI to achieve the goal of providing more employment and rendering economic

development. Identification and careful selection of potential entrepreneurs with the

appropriate traits and attributes are a major part of training and motivation activities of

DICs. Regular sitting with entrepreneurs and Block/ Gram Panchayat wise group

discussion to make them aware and motivate the local people and artisans are taken up.

In each District Industries Centre, there are groups of Managers in the rank of Asst.

Director of Industries and also a number of Industrial Development officers to assist the

General Manager who is the organizational Head of the District. Moreover in each block

of the state and in some boroughs of Kolkata and Howrah Municipal Corporation one

Industrial Development Officer is posted under the control of Block Development Officer

or G.M., DIC, Kolkata and Howrah in case of Borough, respectively.

e. National institute of small industry extension training (NISIET):

NISIET was originally set up as Central Industrial Extension Training Institute (CIETI)

in New Delhi in 1960 as a Department under the Ministry of Industry and Commerce,

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Government of India. It was decided to keep it free from the tardy and impeding

administrative controls and procedures, so that the Institute can play a pivotal role in the

promotion of small enterprise. Therefore the Institute was shifted to Hyderabad in 1962,

and was renamed as Small Industry Extension Training (SIET) Institute.

SIET, as it was fondly known for over two decades later, is managed by Governing

Council, appointed by the Government of India. The Founder-Chairman of SIET is Dr.

P.C. Alexander, the then Development Commissioner (Small Scale Industries).

SIET was conferred the status of national institute by the Government of India with the

charter of assisting in the promotion of Small Enterprises mainly by creating a pro-

business environment.

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CHAPTER 2: CHALLENGES AND RECENT TRENDS

1. VARIOUS CHALLENGES FACED BY ENTREPRENEURS IN INDIA?

Answer:

The Indian entrepreneurs have to face following challenges:

1. To understand, tackle and survive the era of globalization.

2. To take optimum advantage of business opportunities arose due to liberalization of

Indian economy since 1991.

3. To replace outdated technology with improved modern technology.

4. To motivate and properly manage needs and expectations of women and young

managers that makes an Indian workforce.

5. To follow marketing techniques that are result and consumer-oriented.

6. To professionally manage the financial activities of the business.

7. To improve production process and produce high-quality goods.

8. To balance profit earning capacity and social-welfare activities.

Discussed below are the challenges before Indian entrepreneurs:

1. Challenge of globalization:

A few years back the Indian entrepreneurs had to fight regional and national

competition. However, today, the scenario has changed and become much more complex

than what it was earlier. Now, almost all countries have opened up their economies, and

the world (globe) has become one giant global market.

To survive this competitive era of globalization, Indian entrepreneurs must prepare

themselves with new, better, and innovative business tactics and skills. They must accept

this global challenge willingly and try their best to seek business opportunities to establish

their dominant place in this ever-changing and always challenging open market.

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2. Liberalization in India, 1991:

Liberalization is a process of giving liberty or freedom to someone to do something,

which was previously restricted, banned or prohibited. In context of this article,

liberalization means removing all restrictions imposed on the entry and growth in trade or

business.

The Government of India (GOI) started the process of liberalization in India in year

1991. With its initiation, private entrepreneurs were granted liberty (freedom) to start any

business in any open domain (unreserved sector) of choice. However, this openness came

with few exceptions that were strictly restricted only for Indian government to operate and

manage, this included Railways, Water Supply, Defense, and other reserved public sectors

3. Adapting a modern technology:

With each passing day, Science and Technology are developing rapidly. Modern

technology not only improves quality of produced goods and services, but it also helps to

reduce their cost of production. It speeds up their process of production. High-quality

commodities, lower cost of production and faster production rate makes any company a

highly competitive one. Therefore, it becomes mandatory for every company to keep pace

with new emerging technologies and adapt it regularly to remain as cutthroat as possible.

4. Changing workforce in India:

In the recent decade, the workforce in India has undergone a remarkable change.

Statistics indicate the dominance of men in the workforce is shrinking day-by-day. A new

breed (generation) of highly educated Indian women has entered the workforce in India.

Breaking all traditional and social barriers, they have established themselves as efficient

employees and professional managers. Today, it is very common to see a lady professional

working in a corporate office. This presence of women in the workforce has brought new

challenges before Indian entrepreneurs.

5. Marketing is a big challenge:

Today, companies have formulated many new techniques to market their products and

services. High pressure salesmanship is used. Children are often targeted in the many

advertisements. It is so since kids compel their parents to buy products they are lured by.

Advertising is done to propagate marketing message and this is done through various

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media like television, newspapers, magazines, the internet, radio, cell phones, hoardings,

etc. Advertising is now become an inseparable part of modern marketing.

6. Managing the finance of business:

Finance is the life blood of a business. It can either make a business or break it. Under-

capitalization and Over-capitalization are very harmful to the business. Managing the

finance of his business is a big challenge for an Indian Entrepreneur. He must manage

both Fixed and Working capital properly. He must borrow money from the right source.

He must manage his Cash Flow properly.

7. Challenges in the field of production:

The Indian entrepreneurs have to face many challenges in the field of production. They

must replace all outdated plants and machineries with new modern ones. They must

provide continuous training to their production staff. They must use good quality raw-

materials to produce high quality finished goods. They must have a good Inventory

Control system. This will avoid Over-stocking and Under-stocking. Over-stocking will

block the working capital, and Under-stocking will block the production process. Indian

entrepreneurs should use a part of their profits for Research and Development (R & D).

They must pay special attention to Quality Control (QC). Now-a-days most companies

also use Total Quality Management (TQM) to ensure their finished goods are of good

quality.

8. Balancing economic and social Objectives:

This is also a big challenge before Indian entrepreneurs. They must balance between

earning high profit and doing social-welfare activities. They must use modern machines

without causing unemployment and harm to the environment. They must earn a profit

without reducing quality of their goods and services. They must earn a profit without

charging high prices for their products.

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2. PROBLEM OF WOMEN ENTREPRENEURS?

Answer:

Women entrepreneurs face a series of problems right from the beginning till the the

enterprise functions. Being a woman itself poses various problems to a woman

entrepreneur, the problems of Indian women pertain to her responsibility towards family,

society and lion work.

The tradition, customs, socio cultural values, ethics, motherhood subordinates to ling

husband and men, physically weak, hard work areas, feeling of insecurity, cannot be tough

etc. are some peculiar problems that the Indian women are coming across while they jump

into entrepreneurship.

Besides the above basic problems the other problems faced by women entrepreneurs are as

follows:

1. Family ties:

Women in India are very emotionally attached to their families. They are supposed to

attend to all the domestic work, to look after the children and other members of the family.

They are over burden with family responsibilities like extra attention to husband, children

and in laws which take away a lots of their time and energy. In such situation, it will be

very difficult to concentrate and run the enterprise successfully.

2. Male dominated society:

Even though our constitution speaks of equality between sexes, male chauvinism is still

the order of the day. Women are not treated equal to men. Their entry to business requires

the approval of the head of the family. Entrepreneurship has traditionally been seen as a

male preserve. All these put a break in the growth of women entrepreneurs.

3. Lack of education:

Women in India are lagging far behind in the field of education. Most of the women

(around sixty per cent of total women) are illiterate. Those who are educated are provided

either less or inadequate education than their male counterpart partly due to early

marriage, partly due to son's higher education and partly due to poverty. Due to lack of

proper education, women entrepreneurs remain in dark about the development of new

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technology, new methods of production, marketing and other governmental support which

will encourage them to flourish.

4. Social barriers:

The traditions and customs prevailed in Indian societies towards women sometimes

stand as an obstacle before them to grow and prosper. Castes and religions dominate with

one another and hinder women entrepreneurs too. In rural areas, they face more social

barriers. They are always seen with suspicious eyes.

5. Shortage of raw materials:

Neither the scarcity of raw materials, sometimes nor, availability of proper and

adequate raw materials sounds the death-knell of the enterprises run by women

entrepreneurs. Women entrepreneurs really face a tough task in getting the required raw

material and other necessary inputs for the enterprises when the prices are very high.

6. Problem of finance:

Women entrepreneurs suffer a lot in raising and meeting the financial needs of the

business. Bankers, creditors and financial institutes are not coming forward to provide

financial assistance to women borrowers on the ground of their less credit worthiness and

more chances of business failure. They also face financial problem due to blockage of

funds in raw materials, work-in-progress finished goods and non-receipt of payment from

customers in time.

7. Tough competition:

Usually women entrepreneurs employ low technology in the process of production. In a

market where the competition is too high, they have to fight hard to survive in the market

against the organised sector and their male counterpart who have vast experience and

capacity to adopt advanced technology in managing enterprises

8. High cost of production:

Several factors including inefficient management contribute to the high cost of

production which stands as a stumbling block before women entrepreneurs. Women

entrepreneurs face technology obsolescence due to non-adoption or slow adoption to

changing technology which is a major factor of high cost of production.

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9. Low risk-bearing capacity:

Women in India are by nature weak, shy and mild. They cannot bear the amount risk

which is essential for running an enterprise. Lack of education, training and financial

support from outsides also reduce their ability to bear the risk involved in an enterprises.

3. INTELLECTUAL PROPERTY?

Answer:

Intellectual property (IP) is a legal term that refers to creations of the mind. Examples

of intellectual property include music, literature, and other artistic works; discoveries and

inventions; and words, phrases, symbols, and designs. Under intellectual property laws,

owners of intellectual property are granted certain exclusive rights. Some common types

of intellectual property rights (IPR) are copyright, patents, and industrial design rights; and

the rights that protect trademarks, trade dress, and in some jurisdictions trade secrets.

Patents:

A patent grants an inventor the right to exclude others from making, using, selling,

offering to sell, and importing an invention for a limited period of time, in exchange for

the public disclosure of the invention. An invention is a solution to a specific technological

problem, which may be a product or a process.

Copyright:

A copyright gives the creator of an original work exclusive right to it, usually for a

limited time. Copyright may apply to a wide range of creative, intellectual, or artistic

forms, or "works". Copyright does not cover ideas and information themselves, only the

form or manner in which they are expressed.

Industrial design rights:

An industrial design right protects the visual design of objects that are not purely

utilitarian. An industrial design consists of the creation of a shape, configuration or

composition of pattern or color, or combination of pattern and color in three-dimensional

form containing aesthetic value.

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Trademarks

A trademark is a recognizable sign, design or expression which distinguishes products or

services of a particular trader from the similar products or services of other traders.

Trade dress:

Trade dress is a legal term of art that generally refers to characteristics of the visual

appearance of a product or its packaging (or even the design of a building) that signify the

source of the product to consumers.

Trade secrets:

A trade secret is a formula, practice, process, design, instrument, pattern, or

compilation of information which is not generally known or reasonably ascertainable, by

which a business can obtain an economic advantage over competitors or customers. In the

United States, trade secret law is primarily handled at the state level under the Uniform

Trade Secrets Act, which most states have adopted, and a federal law, the Economic

Espionage Act of 1996 (18 U.S.C. §§ 1831–1839), which makes the theft or

misappropriation of a trade secret a federal crime. This law contains two provisions

criminalizing two sorts of activity.

4. OPPORTUNITIES FOR RURAL ENTREPRENEURS?

Answer:

Rural entrepreneurs have a number of opportunities in several areas. Some of the

opportunities are as follows:

a. Manufactured items:

Some of the product categories are well established in rural areas which include:

• Means of transportation- bicycles, scooters, and motor cycles.

• Entertainment goods such as radios and TV sets.

• Agriculture related goods such as agricultural machinery, fertilizers, pesticides, etc.

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• Beverages such as packed tea etc.

b. Tourism sector:

Some of the rural areas provide a rich source of tourist attraction, especially waterfalls,

wildlife and so on. Therefore there is a good scope for entrepreneurs in rural areas in

respect of restaurants, transport operations and so on.

c. Raw materials industry:

Rural areas provide a good source of raw materials such as mineral ores, limestone and

so on. Therefore rural entrepreneurs can setup industries, such as mining, drilling etc. they

can also provide services such as transportation for transporting the raw materials from the

sites to the places of manufacturing.

d. Food processing industry:

Rural areas produce a number of food crops. Villagers also collect forest produce such

as honey. Therefore, rural entrepreneurs can setup food processing industries such as

making jam, honey, tomato ketchup, fruit juices etc.

e. Herbal products:

Rural areas provide a rich source of herbs. With the help of herbal research, rural

entrepreneurs can produce a number of health related herbal products. Now a days

ayurvedic and homeopathic medicines have become popular not only in India but also in

western countries.

f. Micro units:

Small entrepreneurs can setup small units such as carpentry works, small engineering

works, etc. central and state government provides a lot of incentives and support to setup

self-employment projects in rural areas.

g. Rural development projects:

The government takes various rural development activities such as construction of

roads, housing, water supply, irrigation projects, rural electrification etc. the rural

entrepreneurs can take sub contracts from the government to undertake rural development

activities.

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h. Dairy business:

Rural entrepreneurs have a good scope in dairy business. India is the largest producer

of milk in the world. Dairy products such as packed milk, ice-creams and other milk based

products have a good demand in the urban markets.

5. FUTURE OF ENTREPRENEURSHIP IN INDIA?

Answer:

In India, business was traditionally considered to be the domain of scholarly challenged

individuals or the result of natural inheritance within business communities. Gradually, the

appetite for risk and the acceptance of failure increased, but only recently have alternate

professions and the idea of "following one’s dream" gained approval. In particular,

entrepreneurship caught the fancy of the Indian middle class after the economy was

liberalized. The economic reforms introduced in 1991 reduced the bureaucratic controls,

promoted private enterprise, and lowered the barriers to creating new businesses. Coupled

with the emergence of knowledge economy, the demand for skilled employees greatly

increased and a trend emerged toward technology entrepreneurship in the services sector,

which is less capital-intensive than traditional industries.

Indeed, the future of entrepreneurship in India lies in the services sector, and the

Government of India is providing support to encourage this trend. However, there are as

many challenges as there are opportunities, as will be discussed below.

Traditionally, government programs, and support from the banking and finance

industry, were largely focused and aligned to the manufacturing sector with its strong

product focus. Industry associations such as the Confederation of Indian Industry (CII),

the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Associated

Chambers of Commerce and Industry of India (ASSOCHAM) have existed since the pre-

independence era and lobby the government for policy initiatives that favour traditional

businesses and industries. With the information technology sector emerging as a rapidly

growing segment of Indian industry the National Association of Software and Services

Companies (NASSCOM) was formed in 1988 as the industry association for information

technology industry.

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In 2000, the National Science & Technology Entrepreneurship Development Board

(NSTEDB) – under the aegis of the Department of Science and Technology (DST) –

launched the Technology Business Incubation (TBI) program, which is geared towards

supporting entrepreneurship in emerging technology areas such as information and

communications technology, manufacturing, biotechnology, nanotechnology, and

agricultural technology. This program was an extension of the Science & Technology

Entrepreneurs' Park program, which was initiated in 1985 by the NSTEDB in academic

institutions and research labs of excellence with an objective of promoting self-

employment for young science and technology graduates. The NSTEDB identified 120

technology business incubators in different technology areas within India (NSTEDB,

2009). Of these, 53 were promoted by the NSTEDB, 40 were software technology parks

promoted by the Ministry of Information and Communication Technology, and the

remaining 30 were promoted by other government departments, banks, financial

institutions, or private companies.

Recently, India is considered to be amongst the three top investment destinations.

According to a report released by Evalueserve research, over 44 U.S. based VC firms are

now seeking to invest heavily in startups and early-stage companies in India. Reports from

PricwwaterhouseCoppers predict that between 2010 and 2024, 2219 multinational

companies will emerge from India.

In conclusion, with a consistently growing local market for indigenous products,

supported by a reasonably efficient and transparent legal system, I believe India could

potentially emerge as one of the top 3 world economies in the world by 2020. This article

concludes with these lines from “The Mystery of Capital” by Hernando De Soto.

“People in developing countries “are not pitiful beggars, are not helplessly trapped in

obsolete ways and are not uncritical prisoners of dysfunctional cultures.” In fact, he says

and I can vouch from my experience that the developing world is teeming with

entrepreneurs who possess an “astonishing ability to wring a profit out of practically

nothing.

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CHAPTER 3: MANAGING A NEW ENTERPRISE

INTRODUCTION:

The study focuses on the establishment of women designer wear Boutique including

the operations of apparel designing, manufacturing, selling and marketing.

Clothing is a beautiful visual demonstration of the social and emotional needs of people

wearing it. It also portrays in a clearly understood visual manner, what people of different

cultures and styles want socially. Fashion, through times, has gone through so many rapid

changes and bizarre extremes that it has examples of nearly every kind of clothing

function.

However, in a boutique business, the specifications and descriptions of the designs and

clothes are so general that they can fit more than one costume, which actually are quite

different in nature from each other and this is solely dependent on the taste of the people.

The range of dresses is remarkably wide, according to the vast cultures, geographical

differences, purchasing capacities, influence of the western culture, and bewildering

diversities of the ethnic groups. One has, therefore, to sift and isolate, and then relate and

bring together, the ideas for creating various designs, which can fit in the context of the

fashion in vogue and the culture in practice.

In reference to India, the Boutique business is quite in vogue but has yet to be

formalized. The market of this enterprise is quite scattered and unorganized. There are a

few major players in Boutique business and these entrepreneurs have also taken an

initiative based on their caprice and experience in the field of fashion design. However,

there is a massive potential in this field, if one has the ability to design and market his/her

products through introducing innovative designs both in stitching as well as the fabric

sector.

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EXECUTIVE SUMMARY:

To take advantage of this expanding market for designer wear, a boutique has been

established named ELITE BOUTIQUE.

ELITE BOUTIQUE is a store for the quality and style-conscious consumers. Providing

unique and affordable product, we intend to generate a fair return to finance, continued

growth and expanded community involvement. To provide women with a boutique that

offers a comfortable and approachable environment. To showcase quality, well-

constructed fashion from prominent and cutting edge designers. To offer a variety of

beautiful and high-end fashion accessories. To help women learn what clothing and styles

go best with their unique personalities.

Deciding the location for the boutique is another important factor in the start-up

process. The boutique is located in Mumbai in an area of 800sq.ft. The boutique is located

on a good location in a high shopping area. We try to maintain good relations with the

customers and provide quality apparels with an excellent customer service.

Objectives:

To maintain profit margins at 15-20% through close attention to expenses and cost of

goods sold.

To drive awareness, build sales through mentions in both local print and the nation’s

top fashion magazines.

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To earn 80% market share and become the number one ethnic Traditional wear apparel

store.

To receive a 50% profit margin within the first year.

To have a customer base of 1,000 customers by the end of the first operating year.

Mission Statement:

“To make shopping a pleasant yet, inexpensive experience for women while providing

their lives with a sense of confidence and beauty.”

PROPOSED CAPACITY:

The Boutique business capacity greatly depends on the market size and the number of

potential clientele one can attract. Furthermore, the women fashion wear garments are

designed through a contracted designer and then stitched through in-house stitching unit.

On an average, a designer supplies forty designs per month from which nearly twenty

designs are selected on average. Approximately, total capacity of the defined unit with 5

stitching machines (basis on 8-10 hours shift) is about 500 dresses. The breakup of the

total number of dresses is as follows:

Total designs selected by designer 20

Number of dresses in each design 5

Number of dresses in each size 5

Total Number of dresses 500

This production and sales capacity is estimated to be economically viable and justifies

the capital as well as operational costs of the project.

Total Project Cost:

The Boutique shop needs a total investment of about Rs.40, 50,000. This includes a

capital investment of Rs.40, 21,200 and a sum of Rs.28,800 as working capital.

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MARKETING:

The marketing of boutique follows the conventional marketing pattern which is

dependent on selection of venue of the outlet/s and the product mix (designs and sizes), as

well as the promotional strategy. Furthermore, the techniques used for marketing are:

Usage of print media i.e. printing of posters and pamphlets as well as displaying it and

distributing it at proper places

Advertisement in print media i.e. newspapers and fashion magazines, etc.

Usage of electronic media i.e. projection of the boutique in fashion programs,

advertisement on television, and provision of dresses to various television plays and

films.

Event arrangement like fashion shows and photo-shoots.

Usage of e-commerce i.e. launching of website and advertising on web.

Moreover, in order to keep abreast with the emerging trends and client tastes, surveys

regarding customer satisfaction/needs should be a regular feature of this project.

As this project of Boutique deals in designer women wear, therefore the product mix

comprises of different styles of the female dresses in different sizes. Whereas, the styles

will be Shalwar Kameez, Pajama Kameez, Frocks, Kurtas, Party dresses, Casual Dresses

and other prevalent dresses based on the market trends. The average sale price per dress is

assumed to be Rs.2,100.

RAW MATERIAL:

The raw-material required for the project, is as follows:

Fabric: The fabric, which is the basic raw material requirement for a boutique and a major

component of the cost, is obtained from wholesale markets or from markets specializing in

designer cloth.

Accessories: Accessories such as buttons, laces, zippers, elastics, threads, needles,

embroidery threads, glasses, etc. is procured from the local market at competitive rates.

Labels, tags and packaging: Labels and tags are obtained on order, as these serve as an

identity for the boutique and are useful for promotion.

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PRODUCTION PROCESS FLOW:

The process for converting fabric in designer wear garments follows the below

mentioned sequence:

1 Design: The initial process starts from the designing phase. Various patterns of

clothing and the fashions in vogue, which also relate to the tastes of the concerned

clientele, are designed. This is done by the contracted designer as he/she will provide

the basic designs of which the fabric will be converted into the designer wear garment.

On average, a designer is supposed to provide 40 designs per month or 100-120

designs per season i.e. three months. From these designs, approximately 50% of the

designs are selected for further development of clothes.

2 Pattern Making/Cutting: Based on the designs selected, patterns for cutting are

developed and based on these patterns, fabric is cut, embroider, block printed, and

processed accordingly.

3 Stitching: The cutting is then followed by stitching which can either be done by the in-

house stitching unit or by outsourcing it. Labels are also attached to the apparels in this

process.

4 Finishing: The final phase is that of finishing, in which the garment will be checked

for quality control and will cleaned (if required) for final presentation at the outlet. The

garments will also be tagged for identification of sizes, prices, addresses, handling

instructions, etc.

5 Presentation/Market: Once the designer wear garment is ready after going through the

above-mentioned process, it is presented at the outlet/shop for sale to the clientele.

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HUMAN RESOURCE REQUIREMENTS:

POSITIONS REQUIRED

SALARY

PER

MONTH

SALARY

PER

ANNUM

Owner 1 30,000 360,000

Designer 1 15,000 180,000

Sales Girls 2 5,000 120,000

Production Supervisor/Cutting Master 1 8,000 96,000

Stitchers/Tailors 5 6,000 360,000

Press/Iron Man/Finishing man 1 3,000 36,000

Office Boy 1 2,000 24,000

Total 12 11,76,000

MACHINERY/EQUIPMENT DETAILS:

STITCHING MACHINERY NO. RS/UNIT RS

Single needle lock-stitch machine 4 20,000 80,000

Over-lock stitch machine 1 50,000 50,000

Accessories 50,000 50,000

Total 180,000

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OTHER EQUIPMENT NO. RS/UNIT RS

Air-conditioner 1 24,000 24,000

Stereo System 1 23,000 23,000

Computer and Printer 1 35,000 35,000

Telephone 1 10,000 10,000

Credit Card Machine 1 6,000 6,000

Total 98,000

INFRASTRUCTURE REQUIREMENTS:

INFRASTRUCTURE REQUIREMENTS SQ.FT

Main shop 400

Try room 36

Small Store 100

Utility area 64

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PROJECT ECONOMICS:

PROJECT COST:

DESCRIPTION COST (RS.)

Machinery & equipment 180,000

Furniture & Fixture (Interior Decoration) 216,000

Land and building 33,00,000

Pre-operating expenses

Salaries 98,000

Promotional Expenses 50,400

Total Capital Cost 1,48,000

Working Capital

Raw material (Fabric & Accessories) 28,800

Total Working capital 28,800

Project Cost 40,50,000

KEY SUCCESS FACTORS:

There are a number of factors, which contribute towards the success of a project. In

case of the project of Boutique, some of the Key Success Factors are as follows:

i Proper care while producing dresses should be adopted.

ii Proper Inventory management i.e. keeping minimum inventory as per past sales trend.

iii The dress designs should be according to the emerging trends and fashions.

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iv Designing of dresses according to the consumer tastes/preferences gathered through

consumer surveys.

v The location of the outlet should be properly selected and attractively decorated so as

to target the clientele effectively.

vi The customer satisfaction should be given due importance, because it is the customer

satisfaction, which can increase the sales. Hence, excellent customer service should be

provided.

KEY ASSUMPTIONS:

PRODUCTION ASSUMPTIONS:

Number of Stitching Machines 5

Production Capacity (No. of dresses per month) 500

Capacity Utilization for the first year (No. of dresses per month) 200

Self-Production (% of total production) 60%

Dresses manufactured on CMT basis (% of total production) 40%

Monthly self-production (Year 1) 120

Monthly Dresses manufactured on CMT basis (Year 1) 80

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COST ASSUMPTIONS:

Average cost per dress (Rs.)

Material & Fabrics 400

Accessories 25

Embroidery Cost 100

Direct Labor Cost 280

Direct Electricity Cost 20

Machine Maintenance Cost 4

Admin & Rent expenses & promotional expenses 446

Fixed electricity 30

Average unit cost per dress (Rs.) 1,305

SALES ASSUMPTIONS:

No. of dresses sold per month(Year 1) 120

Average unit price per dress (Rs.) 2,100

Average Monthly Sales through retail outlet (Rs.) 2,52,000

No. of dresses sold on CMT basis per month(Year 1) 80

Average unit price per dress on CMT basis (Rs.) 250

Average Monthly Sales through outsourcing(Rs.) 20,000

Total Average Monthly Sales (Year 1) (Rs.) 2,72,000

Sale growth rate (Units) 10%

Sale growth rate (price) 3%

OPERATING ASSUMPTIONS:

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Hours operational per day 8

Days operational per month (Production) 25

Days operational per month (Boutique) 25

EXPENSE ASSUMPTIONS:

Initial Promotional Expenses (Year 1) (%age of expected sales) 3%

Promotion Expenses after Year 1 (% of expected sales) 1.5%

Machine Maintenance per annum Rs.10,000

Direct Electricity per month (Year 1) 4,000

Fixed Electricity per month (Year 1) 6,000

Telephone and Internet charges (Year 1) 3,000

Raw Material Price Growth rate 1%

Payroll growth rate 7%

Machine Maintenance growth rate 2%

Direct electricity growth rate 10%

Fixed electricity growth rate 10%

Telephone and Internet charges growth rate 5%

Depreciation Method Straight Line

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