Professional Documents
Culture Documents
OF
ENTREPRENEURSHIP
DEVELOPMENT PROGRAMME
FOR
PMEGP BENEFICIARIES
I N D E X
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1.
COMMUNICATION
& PRESENTATION
Process of Communication :
It involves group activities participation and co-operation. It connects two terminals
namely (1) sender of message, (2) Receiver of message by using any media. It involves,
3
not only transmission of information but also its follow-up and feedback. Following are the
various elements involved in the process of communication.
1.
2.
3.
4.
5.
6.
7.
8.
Message
It is any peace of information relating to any fact, idea, opinion feeling, attitude or the
course of action.
Transmitter
It is the communicator or sender of message. It conceives and initiate messages, it
motivates and tries to change the behavior of the receiver.
Encoding
The message consists of certain information which will be translated / converted into
assets of figure science, symbols, words, actions, pictures, charts, graphs, diagrams,
audio-visual etc. it is called encoding.
Channelising
The transmitter selects a suitable channel of communication to transmit the encode
message to the receiver. The channels of communication includes the use of
different media like radio, video, Dictaphone, telephone, telax, fax, e-mail or face to
face conversation.
Receiver
Receiver is the person to whom the message is meant for. It is the second important
terminal. He or she has to receive interpret perceive understand and act upon the
message.
Decoding
It is the process translating /converting and uncoded message into ordinary
understandable language in day to day life. The receiver decodes the message by
converting the words, figures, science, symbols, charts, graphs etc. into
understandable substance of meaning. It is necessary for interpreting and
understanding a peace of message.
Acting / Implementing
The receiver will act and implement the message in practice according to his
understanding of the message.
Feed Back
It is the last but not least element/communication process. It involves passing of the
information about the response follow-up and implementation of message by the
receiver to the sender / transmitter.
12
Role play
To understand the importance of proper communication divide batch into 5 groups.
Provide one paragraph to each group.
a.
b.
c.
d.
e.
f.
g.
h.
I
2.
LEADERSHIP
2.LEADERSHIP
A leadership is one of the important aspects, which shall be developed by each and
every human being. The effective leadership is required to lead and guide the subordinate
to perform organizational task effectively and efficiently. The leadership is the activity of
influencing people to strike willingly for group objections.
The role/importance of leadership are under here :
1.
Goal Setting :
The leadership has to set the goals and objectives for his section or group.
Goal setting is one of the important functions of a leader. The goals may be set all
by himself, or he may take the help of his subordinates in setting goals.
2.
Developing Morale :
One of the important function of a leader is to develop morale in his
subordinates. He always strives to keep his subordinates in good mood or high
spirits. He always tries to develop positive attitude of his subordinates.
3.
Securing willing participation :
The leader influences the subordinates to work willingly towards group
objectives. A good leader never uses force to make the subordinates works. As a
good example on his part, he takes active part in the activities of the group.
4.
Encourages initiative :
The leader encourages initiative among his subordinates. He provides them
with freedom to come up with new innovative suggestions and ideas. He creates a
healthy environment in which subordinates take active interest in the
accomplishment of objectives.
5.
Developing Team Spirit :
The leader coordinates the activities of his subordinates. If there is any
difference of opinion among his subordinates, he strives to solve the differences. He
make s every effort to develop team spirit in his subordinates. A good leader does
not believe in divide and rule policy.
6.
Representation :
The leader is the representative of his subordinates. He represents his
subordinates when ever there is a need to express their views with higher authorities
within or outside the organization.
7.
Creating confidence :
A good leader creates confidence in his subordinates. He makes them to
accept and face challenges.
8.
Providing guidance :
An effective leader provides vital guidance and assistance to his followers
whenever it is required.
3.
ENTREPRENEUSHIP
CHARMS
AND
CHALLENGES
10
disposal to succeed as such. The shocks are there in entrepreneurship too, but
they can be absorbed if one is cast in an entrepreneurial mould.
d.
The Government of India and the States offer so many facilities incentives and
schemes to help new entrepreneurs and particularly technology graduates in
taking up entrepreneurial career. This career path is no more as thorny as it used
to be decades ago.
e.
As an entrepreneur, one is not only employed but creates employment for others
one is not only realizing the goal in his life but is also a source of livelihood for so
many. The pride of being a lord of ones own destiny is coupled with the
satisfaction
of
being
the
benefactor
of
so
many.
It is not enough to be technically qualified and experienced; one has to let the
society, nation at large to benefit from ones technical competence and
experience. Entrepreneurship provides an excellent opportunity to realize both
the goals the individual status as well as an individuals contribution to the
society.
Setting up your own enterprise is one way to achieve that double fulfillment.
The following case of Shri Ramaswamy, a technocrat, should leave no doubts in
your mind
2.
Achievements of a Technocrat Entrepreneur :
(Here is the story of a technocrat, who is now enjoying the fruits of his success after
a determined effort and hard work put in by him. An innovative product and his technical
background are key factors to his success, over and above his own entrepreneurial
characteristics.
The path to any success is slow and gradual. You can also plan your way to reach such
innovative goals, banking on your science and technology base and an entrepreneurial
spirit)
11
Bank of India and convinced the Officer and got a loan for that particular work. He
completed the work before the schedule date which give him a profit of Rs. 1 lakh.
At that time he thought of diversifying and started searching the market. He
made a trip to Europe and some Arabian countries. In Saudi Arabia he saw a light
motor pump weighing just 10 kg. which attracted his attention. The ordinary pump
manufactured at that time in India weighed about 50 kg.
He thought that if he entered in that particular line it would have a better
future. He purchased one pump an started developing it in his factory. Within 6
months he was successful in developing the motor and gave it to a leading
educational institute. Then people gradually started asking for the light weight motor
pump for their own use. Its performance was also very good. He slowly expanded
his unit and entered the South India market through dealers.
At present he is manufacturing about 15000 motor pumps per year and has
10% of the Southern market share. He started three other units to cater to the
market needs and now he as a labour force of 120 persons. He has 4 professional
engineers looking after each factory. According, to him he plans in advance and
executes the job in consultation with the staff and finishes it at the appointed time.
Every year he arranges his dealers conference gets feed back and improves quality
constantly.
Two years back he got ISI trade mark for his motor pumps.
Mr. Ramaswamy has become one of the most respected and recognized
entrepreneurs of the region. In 1983, he was elected President of the Coimbatore
District Small Scale Industries Association and Vice-President of the Rotary Club of
Coimbatore. He was given the NATIONAL AWARD for Small Scale Industries in the
year 1983.
12
4.
QUALITY
STANDARDS
13
4 QUALITY STANDARDS
Customers pay only for what is of use to them and this gives them value. Nothing
else constitutes value Peter Drucker
In the prevailing economic situation, large and small enterprises in developing
and developed countries are discovering that the old ways of doing business do not
work any more and that new approaches are called for. Companies are adopting
new system of management for both internal and external purposes. The use of
TQM principles and quality management systems in cooperating with other
companies, entering into agreement, and developing, manufacturing and supplying
the required products and services meeting customer expectations is becoming
more and more a business imperative.
Quality management has thus become a fundamental management function.
Deliberate actions are taken to ensure that customer requirements are identified and
met through the implementation of quality planning, quality control, quality assurance
and continuous quality improvement, in such a way as to obtain maximum
advantage. Quality assurance is considered to mean all the actions taken to ensure
that the customers requirements are understood and met.
Economic studies point out that meeting quality, delivery and cost
requirements is the only effective long-term method for success in the export trade.
Furthermore, recent studies show that quality is a dynamic, ever-changing concept
that has become the business imperative of the day for enterprises of all sizes in
both their domestic and export markets and especially so for developing counties.
Export promotion is vitally linked to economic development, and unless a
country exports quality goods and services meeting customer requirements, there
can be no steady economic growth. No enterprise can afford to compromise on
quality if it is to establish a good image for its products and for its country. A single
consignment of inferior quality can tarnish the good name of the exporter and the
country as a whole.
Customer dont complain, they switch. And in most cases, they dont even let you
know that they are unhappy. Deming.
What Deming says about customers (see inset above) is true generally, and
applies to both internal and external markets. However, many importers do complain
bitterly, and stigmatize the name of the company and the name of the country of
origin in the same breath, and then switch. Some exporters have to live with this
switch for a lifetime.
14
15
Many factors influence product quality: these normally cover the raw material,
production machines and equipment, production processes, and the workers. For
these reasons, it becomes difficult, if not impossible, to make two products identical
in quality, as there will always be the expected and obvious variations common to
any statistical distribution. In practice, however, the process needs to be designed
so that it results in products with small or acceptable variations in quality
characteristics, resulting in a more uniform and stable quality level meeting the
stated and implied needs of the customer. Product quality should normally meet the
requirements of the market, as well as contractual and organizational demands, and
these requirements should be expressed in functional parameters and documented.
Among the contributors to product quality are the following.
o Continuous improvement or updating of the product to meet the evolving
requirements of the market place.
o Building quality into the design of the product to meet the requirements and
opportunities of the market place.
o Providing support throughout the life cycle of the product so as to maintain its
design characteristics and value for the customer.
Needless to say, for certain products, reliability, maintainability and availability
will be important quality characteristics.
Service quality :
In recent times, services have become the fastest-growing sector of the world
economy. Excessive preoccupation with product quality and the difficulties
inherent in defining roles, functions and quality characteristics in the services
sector were responsible for the low priority given to the sector in the past.
Another important reason for negligence was that customer complaints in the
sector were taken lightly and were seen as an irritant rather than an opportunity
for improvements; any investment in quality in the services sector was viewed by
management as an unnecessary expense.
Quality standards can be more easily established for goods than for services.
Goods can be inspected and tested for conformity, defectives can be identified,
corrective actions can be taken, provided performance levels have been
established. Services are usually produced and consumed at the same time, and
service deficiencies cannot be eliminated before delivery, services being
personalized and subjective. In additional, service quality standards are difficult
to establish because measurements are subjective, and customers will have their
own expectations about what service quality is or should be.
For export of services, the usual inquiries from the buyer relate to assurance
of continuity of supply and consistency in quality. In addition, services are
usually labour-intensive, involving complex cross-functional integration of several
16
supporting systems. Thus all processes that affect a suppliers ability to provide
a quality service, such as those listed below, need to be included in the quality
assurance system.
Quotations for client works;
Contracting with clients;
Developing a work plan;
Implementing the work plan and a review of work;
Client review
The implementation of a quality system based on the ISO 9000 series should
provide an opportunity for evaluating how an enterprise is conducting its
business, and whether or not there are further opportunities for meeting the
service needs of its clientele.
ISO 9004-2:1991, Quality management and quality system elements Part 2:
Guidelines for services, embraces all the processes needed to provide an
effective service, from marketing to delivery, which are appropriate to all sizes of
enterprise. With services, we need to:
Define clearly the requirements of a service in terms of characteristics that
are observable and subject to customer evaluation;
Define clearly the processes that deliver a service in terms of
characteristics that may not always be observable by the customer but
that will directly affect service performance.
Furthermore, a service or service delivery characteristic may be quantitative
or qualitative depending on the method of evaluation and who evaluates it, whether it
is the service organization or the customer. When it come to exports, it is not
necessary to emphasize that there should be a programme for the continuous
improvement of service quality. This should identify changing market demands, any
ineffective or insufficient quality system controls, and estimate and reduce costs.
All possible means of getting customer feedback needs to be explores, with
continuous evaluation of the customers needs, requirements and perception of
service quality, as these parameters and any corrective action they may require are
important for profitability and competitive survival.
This is especially important for SMEs with limited facilities, know-how and
infrastructure.
Process quality :
Before looking at process quality, we need to have a global view of the
business process to enable us to visualize the overall flow of resources and
activities and to determine the purpose and scope of the key processes. The core
business process is identified as the flow and interaction of activities concerned with
meeting customer requirements and which convert market opportunity into actual
revenue. In all businesses there are what we call supporting processes : processes
17
within the organization required to maintain the effectiveness of the core business
process. Keeping tight control of activities deemed critical for the business is
essential. Having said this, we should emphasize that all operations associated with
product or process characteristics that can have a significant effect on a product
quality needs to be identified and controlled.
In any activity, process quality, since it is an important parameter, should be :
Planned to be attained under controlled conditions.
Documented as work instructions, as required.
Examined to determine the effectiveness of the process.
Verified at key production points to minimize the occurrence and the effects of
errors and to maximize yields. For example, are the hardware of software,
processing steps, raw materials or processed inputs, processing services and
the working environment at these points conducive to obtaining process
quality.?
Monitored and controlled in relation to finished product specifications or other
requirements as may be necessary.
Planned and specified in relation to all in-process and final verifications with
documented procedures for testing each quality characteristic.
The development of new methods for improving process quality should be
encouraged.
Higher levels of product quality require continuous monitoring, control and
improvement of processes. The final product is simply the sum total of several
processes. Quality improvement thus starts at the process level.
18
5.
Manpower
Management
19
5.Manpower Management
You alone cant manage the show, and your will need to hire people for
various kinds of job. In a small scale unit you may need to recruit perhaps 5 to 8
persons only. But that is precisely why you must be very careful in recruiting the
right ones.
A small firm has its own style and ways. You need people who are
competent, who can understand you and work for you. But many small business
entrepreneurs recruit their own relatives, friends and others at low wages to
make more profits ! And this is the most dangerous things to do ! You may spoil
both your relations and work. You may perhaps save on salary, but then lose by
way of poor control over performance.
1. Hiring is a Commitment Activity :
It is advised that you act as a businessman and as a professional, and not as
a social worker !! Recruit people with the right approach and get what you want
from them; otherwise they can have their pleasure at your cost. Remember you
are hiring a person, for his competence and not for his life.
It is often faster, cheaper and safer to hire someone with the necessary
expertise than to experiment with developing a home-grown expert at your cost.
SSI units do not have that much time, money and resources to train and develop
their men at their own cost, at least not initially !!
Be on the look out for right kind of people, from the day you have started,
thining of your unit. You will have to identify them. So keep your eyes open and
do not think, it is too early for that. You may recruit them at a later stage but can
definitely start tapping the resources now. The sources through which you can
recruit may be many. Before that you specify :
Skills and expertise you need
Kind of experience that will help you
Benefits and remuneration you can afford to pay
2.
Sources of Recruitment :
Your own resources
Persons working in nearby factories
Employment Agencies
Advertisement in newspapers or business journals
Technical institutes and colleges
3.Process of Recruitment :
Entrepreneurs will have to adopt systematic approach for recruiting staff so as
to avoid complications. It is advisable to give a written order to the person being
employed, specifying all terms and conditions of the appointment. Specific
mention about the probation (trial) period should be made so as to ensure that
20
unsuitable and unwanted persons are not recruited for a long time. It ay also be
advisable to enter into contract with someone in case of special services required
for short time only. The recruitment procedure should involve various kinds of
tests and interviews to identify whether a person possesses necessary skills and
abilities for the required job.
It is also important to note that people working for you will need something
more over and above their salary. It will be long term interest for both employer
and employee to offer some attractive and reasonable incentives and benefits to
employees to sustain their motivation and interest in the work.
4.
Training :
During recruitment of persons, the entrepreneur should also consider the
possibility of training staff for specific skills. Though in a small-scale unit it may
not be possible to train staff members regularly due to costs involved, an
intelligent effort to train personnel in small groups should be initiated. It is only
through training that you can always update the skills and knowledge required to
perform job duties better.
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6.
TIME
MANAGEMENT
22
6.TIME MANAGEMENT
Busy lives and work schedules can sometimes affect the way we think and make
decisions. Rushed decisions can lead to costly results. The secret to good management of
a business is good time management. Ensuring that your company runs like clockwork
must start at top level. Bad management can only decrease the morale and efficiency of
the company.
Good leadership is the key to success of any business. The decisions and future of
the company relies at Management level, but ensuring that decisions are made correctly
and action is taken promptly relies on the individuals Time Management. A delay in making
a decision or reacting to a problem can be a costly business mistake.
Time Management is something that needs to be learned and practiced, it must be
mastered and become part of your life to be truly effective. Once you have mastered good
time management skills at work, you will find that your automatically apply them to other
areas of your life.
Tools for good Time Management :
Planning
Prioritizing
Being prepared
Delegating
Allocating Resources
Following up
These tools are a guide to assist you in implementing Good Time Management practices
both personally and throughout your business.
Planning Time Management Skills :
Good planning is probably one of the most important aspects of good time
management. Knowing what is happening at present and what will be happening in the
future will help you to plan your time more efficiently.
Find out what is going on in your business, anything that could have an impact on
resources or become a critical issue needs to be considered. Analyse the issues and be
prepared for them. Estimate the work load required, who does what and how long it will
take. Anything that can be done earlier in preparation should be done and therefore easing
the pressures at the critical stages.
For ex. if yours business is currently quoting on a major job, then analyse the
resources that will be required if yu win the contract. Will you required any additional staff,
or perhaps your staff might need some specialized training, do systems need to be altered,
will special equipment be required, who will manage the process, what are the critical
milestones?. Knowing this information can assist you to prepare a planning schedule and
ensure that when the time comes, your company will be ready. Not only will it ease the
pressure buy it will also ensure customer satisfaction.
23
Estimating the time a task will take is extremely important. If accurate estimation is
difficult, then break down the task into smaller sections, then estimate these. It is also
important to work out who will do what, and what needs to be done in what order. Set
deadlines for each milestone and ensure everyone is aware of these.
No matter how small the job is, preparation and planning are essential so that you
can get things done properly and on time. Northing worse than leaving something to the
last minute and then finding out that it is going to take longer than you expected or worse
the deadline has been moved forward.
Keep a diary and maintain it accurately. Set deadlines for yourself on every task or
job and ensure that stick to these. If your make diary entries for everything that your need
to do everyday, you will soon be able to gauge at a glance how busy you can expect a day
to be before you commit yourself to anything extra.
Review your diary at the end of each day and if something got missed or wasnt
finalized move it to a new day and allocate a new deadline. Try and stick to your plan, there
will be times when the unforeseen happens, however with good planning this should have
minimal impact on your time.
Prioritizing Time Management Skills :
Assess your tasks for the day and work out a priority system. Critical tasks,
important tasks, essential tasks and other tasks. From your list, give each task a priority
and within each priority an order of importance. Once you have done this, you can begin
tackle each to task in order of importance. So even if your day ends up being chaotic, at
least your critical tasks would have been done.
Most busy people will tell you that it is amazing how much you can fit in a day. This
is often true, the reason is because when you have very little time, you try and get as much
done in it, whereas when you have a lot of time, you tend to relax more and therefore
achieve less.
Make each minute count, if you can manage to do a couple of things at once then
better still. If you are on hold on the phone, may be you can type a memo or letter while you
wait. If you own a mobile phone, you would be amazed at how much you can achieve on
the way to work in the morning. Dont wait to get to the office before your confirm your
appointments for the day, do it on the way in. more time saved!.
Being Prepared Time Management :
Being prepared will ensure you dont waste any valuable time. There are many ways
of being prepared from being informed to ensuring you have everything ready. Knowing
what is coming up in the future and by anticipating what might be required of your will
ensure that you are prepared adequately.
We mentioned before that knowing what is coming up in the future will help you to
allocate resources and ensure you have everything ready for when the time comes. This
applies equally on a personal basis as well as company wide. As the month progresses you
can add information and keep your notes updated. By the time your meeting comes, you
24
will be ready in just a few minutes instead of in hours. Less pressure and you will ensure
you havent forgotten anything or left out anything important.
Delegating and Allocating Resources Time Management :
Learn to delegate effectively and you will be more efficient at everything you do. It is not a
matter of getting everyone else to do your work; it is more a matter of using resources
wisely. There is no point you attempting to do something and wasting 3 hours on it, when
someone else could do it in hour.
Sometimes, we tend to waste time looking for information or trying to analyse something,
when someone else might already have this available. Get to know your staff better, find out
who does what and what each persons strengths are. Use your staffs knowledge and
abilities to their highest potential.
Consider external resources when something needs to be done. There are specialists in
just about every field, chances are they have the knowledge, equipment and a better
understanding of the work required. This would enable you to be free to handle other more
important matters.
Following up Time Management :
Following up on outstanding issues will ensure there is no last minute panic. By
ensuring that things run on track and work is progressing steadily, you will ensure that
deadlines are met comfortably. Leaving things to the last minute or finding out that
something hasnt been done at the closing of a deadline is not good time management.
Spread the tasks over a period of time and follow up to ensure that each one is
completed as per the plan. If something is running behind find out the why. The reason
could be that the task has been allocated to the wrong person, or perhaps that problems
have arisen and these were not anticipated.
If you continually follow up each task and deadline, then you can react to any
problems encountered while there is still time.
There are many tools to assist you in good time management, diaries, palm pilots,
alarms, software applications and other things, however the best time management tool is
being organized.
25
7.
CHARACTERISTIC
OF AN
ENTREPRENEUR;
A MATTER OF
ATTITUDE AND
SKILL
26
calculate their chances very closely. Thus, paradoxically they present a picture of boldness
in the face of the unknown and prudence in the face of the familiar. They usually win by
applying their special insight and skill.
8.
Independence :
It is found that most entrepreneurs start off on their own because they do not like to
work for other people. They like to be their own masters and want to be responsible for their
own decisions.
9.
Flexibility :
Most successful people after weighing the pros and cons of a decision, tend to
change if the situation so demands. They do not hesitate in revising their decisions.
Successful entrepreneurs are persons with open minds, not rigid.
10. Planner :
Most successful people tend to set a goal for themselves and pal to achieve that
goal in a certain time limit.
11. Interpersonal Skills :
An entrepreneur is a person who during the course of his activities, comes across
many types of persons with whom he has to deal. He has to make them work for him, with
him and help him to attain his objectives. Hence he should be a person who likes working
with people and who has skills of dealing with people.
12. Motivator :
In the course of his career, an entrepreneur, will be required in many situations to
influence people and make them think in his way and act accordingly. He motivates people
to act.
13. Stress Taker :
As a central figure in your enterprise, you will have to cope up with many situations
at the same time and make right decisions which may involve a lot of physical and
emotional stress. All this can be done if you have the capacity to work long hours and keep
cool under a lot of tension.
14. Positive Self Concept :
An achiever directs his fantasies towards the accomplishment of worthwhile goals
and sets standard of excellence in what he is doing. This is based upon the awareness of
his strength and weaknesses. He uses positive knowledge to support his thinking. He is
rarely negative.
15. Orientation to Future :
Entrepreneurs show a high level of future orientation. They do not allow the past to
obsess them. They are oriented towards present and future. So it was, but now what to do;
this is their usual response.
No entrepreneur has all these qualities. But most of them will have many. So the
first step for a person aspiring for entrepreneurship is making an inventory of the traits he
28
possesses. This self-awareness and analysis will help define his strength and help
overcome his weaknesses.
29
8.
BUSINESS PLAN
PREPARATION
30
(iii).
33
34
9.
DESIGN
AND
PACKING
35
Type of packages
Quality standards
Package sizes and dimensions
Suitability for display
Ease of unpacking and price marking
General graphic layout
3.
Consumer Requirement :
The consumers world over are not the same. They differ from region
to region and their preferences with respect to shape, colour, layout of the
package need to be studied and some of the points are given below
Has the product itself been adapted/modified to the consumers tastes and
requirements on the target markets vis--vis, e.g. product design, shape,
colour, scent, sugar content, spicing, etc ? Has this been verified by field tests
among consumers in the target markets ?
Is the package convenient for the consumer to handle, open, recluse, empty,
close, reuse, destroy after use, etc.?
If the package is provided with an opening device, it this clearly indicated and
easy to use?
Is the general layout of the graphic design acceptable to the taste of
consumers in the target markets? Has this been verified by field tests among
consumers in the target markets?
Does the text on the package/label provide consumers with comprehensive
and easy-to-understand information on the special features of the product and
its use?
4.
Types of Consumer packages :
Different packaging options are available in terms of material and forms and
their selection depends on many factors and they have to be studied such as
Have these alternative types of consumer packages been thoroughly
analysed as to their
Availability from local suppliers ?
Their technical and promotional quality for eg. Printing ?
Has the alternative readymade packages been objectively studied ?
Has the mechanization of the packing process been studied for possible
savings in costs, or for meeting the general hygiene/exact quantity
requirements in target markets?
5.
Promotional design of consumer packages :
Promotion of the product in the consumer shelf in super markets is a very
important aspect in the packaging design requirement since it has to act as a silent
salesman. The product in the shelf will be competing with other brands of the same
37
product and your product has to have a striking appeal over other products and that
should make the consumer to select your product over other products. The general
layout and graphics of the package plays a vital role in this regard and some of the
points which need attention are discussed below
General layout :- Should the general layout/positioning of the package or label
design put emphasis on The brand: Corporate brandmark/logotype or product brand name ?
The product: Product designation, illustration, use, quality, Unique Selling
Proposition, etc?
The target: Men/Women/Children, whole family, ethnic groups, age
high/medium/low income groups, etc?
Should the layout reflect only one of these concepts or consist of a
combination of two or all three of them?
ILLUSTRATION:
Does the illustration provide a true and honest picture of the product as it is
inside the package as to size, colour, degree of processing, ingredients used,
etc.?
Is the illustration in conformity with the existing laws and regulations in the
target markets ?
Is the illustration understandable, and in good taste, to the consumer in the
target market, e.g. with respect to moral or religious concepts ?
Is the illustration suitable for reproduction in black and white in advertising or
on television ?
Is it possible for the local printer to reproduce the illustration in acceptable
quality, and at reasonable cost ?
Colour :
Are there any particular colours which are preferred or should be avoided in
the selected target markets?
Have fashion trends been observed in the selection of colours?
Are the selected colours strongly associated with the type of product, and the
consumer target group?
Has the visibility and readability/ contrast of texts, and the effect of colours on
apparent package size, been taken into consideration ?
Have the technical and economic aspects of the selected number of colours
been discussed with the printer?
Is the number of colours in proportion to the desired effect of the design and
to essential commercial requirements? Is there a strong reason for each
additional colour?
38
Shape :
Does the shape of the package reinforce the brand image of the product?
Is the shape of the package convenient for the consumer to handle? Does it
cause problems in the filling line, e.g. through instability?
Is the package easy and stable to stack in retailers displays?
Does the shape and dimensions of the package conform to eventually
existing standards or trade practices in the target markets?
Text :
Is the text easy to understand, clearly visible, easily readable and does it
have a high attention value on the shelf?
Is the typography up-to-date, and consistent throughout the package/label
design?
Is the product name correctly expressed and does it stand out clearly from the
background ?
Is the text in conformity with the laws, regulations and trade practices in the
target markets.
Is the text printed correctly in the required languages, in the required size,
and positioned according to eventual regulations?
Does the text clearly state how the product should be stored? If it is food item
or medicine.
Has the brand name and logotype been correctly and uniformity used on all
packages/labels. ?
As per the recent circular of Ministry of Health and Family Welfare that all
products should carry a label of Nutrition Value / Contents of the products on
its packaging which will be mandatory wef 19-03-2009. details will include
contents of calories, proteins, carbohydrates, sugar, fibre, vitamins etc., and
also details of transfacts contents available in the products.
39
10.
COSTING,
PRICING AND
PROFIT MAKING
40
3.
42
operation, it is necessary to sit down and make a list of all items of costs which then can be
divided into Direct and Indirect Costs.
The next step would be to estimate how much you would spend on each of these
categories and segregate the items of Indirect Cost, which as per unit of the output can then
be calculated by dividing the total indirect cost by the number of units proposed to be
produced in that year. The calculation is not all that simple if you have more than one
product. We will later find out how to calculate Indirect Cost pr unit in a multi-product
situation.
In the illustration that we are talking of, let us say that the total Indirect Cost including
rent, insurance, repairs and maintenance, postage, telephones, stationery, salary to office
staff, watchman etc., cost of publicity/advertisement and interest on loan put together works
out to Rs. 1,20,000/- per year. At an annual production level of 1,000 tables, the Indirect
Cost per unit will come to Rs. 120/-.
Thus, the total cost of one table is Rs. 564/- which includes:
Direct material Cost -Rs. 300, Direct Labour Cost -Rs. 144,Indirect Cost Rs. 120
Let us think of a situation where the order booking in a given year is at peak and the
unit produces 1500 tables instead of 1000 tables. The Indirect Cost per table would then be
Rs. 80/- (total indirect cost amounting to Rs.1,20,000/-) instead of Rs.120/- which means, a
reduction of Rs. 40/- in the cost per table.
Likewise, if you produce only 500 tables instead of Rs. 1000, may be due to lack of
orders or non-availability of raw-material, the Indirect Cost per table would be increased to
Rs. 240/- (rs.1,20,000/500 tables) representing an increase of Rs. 120/- per table.
Thus, you might have by now noticed that the indirect cost per unit is inversely
related to the level of production i.e. an increase or decrease in product\ion level would
correspondingly decrease indirect cost per unit and ultimately, the total cost.
Thus, more you produce from the buildings, machines and office staff you have, in
other works given the same level of overheads, lesser will be the total cost of our products.
Here, we are making an assumption that with the change in the production level, there will
not be any change in the quantum of overheads or indirect expenses. This assumption is
valid in most of the cases. However, as a matter of caution, it is necessary to examine each
item of Indirect Cost closely to determine whether it remains constant and if not, to what
extent it would change given the change in the output level. For example, if you double
your production assuming that the working space and the capacity of the machinery you
already have permit the same, you may need to employ additional office staff/managerial
staff to handle the increased quantum of your business operations, in which case, the
Indirect Cost would be added to each of the product. Noted below is a brief of one such
method
At the first instance, you find out how many persons directly involved in production
activities are actually working in a given year. If your unit is not yet in operation you may
43
have to make estimates to arrive at the said figure. The, find out how many hours they work
in a day and how many days in a year, to arrive at the number of hours of Direct Labour that
goes into production in a given year. After separately calculating the total Indirect Cost per
year, divide this by the number of man-hours or the number of hours of direct labour that go
into production in that year, to arrive at the Indirect Cost per hour of Direct Labour.
Indirect Cost Per Hour
=
Total Indirect Cost
of Direct Labour
Total Hours of Direct Labour
Then, calculate the total number of hours spent on producing each of the 4 items.
This calculation becomes a bit complicated since more than one worker will be engaged in
producing a given item. A careful study of the production process would help you to make
an estimate of the number of hours required to be put in to make one piece of chair or table
or any such item right from raw-material stage to finishing. Thus, after finding out how many
hours it takes to produce a given item, you can calculate the Indirect Cost for that item by
multiplying the said figure with the hour rate i.e. the Indirect Cost per hour of Direct Labout
that you have calculated earlier.
4.
Lest You Forget :
Add the cost of transportation and unloading charges for the raw materials that you
procure i.e. take into account landed cost of the raw material, not just the amount
you pay to the raw material supplier. It is obvious for running business but not so
obvious in proposed venture where all calculations are based on
estimates/projections.
If you intend to manufacture an excisable item, in most of the cases you have to
pay the excise before you remove the goods from factory/warehouse. But then, you
will realize the same from the customers after sometime depending on the duration
of the credit that you intend to provide. The interest on funds so blocked is very
much a part of the cost. This again is obvious for on-going business, but not so for a
proposed venture.
As a part of costing exercise, when you make exhaustive estimates on number of
man-hours required to produce a given product, we normally presume that the
workers would be working on-the job for the entire duration of the paid working
hours. Normally, the assumption does not hold good since by nature, people tend to
relax a few minutes now and then, and chat with fellow workers for such losses while
calculating direct man-hour cost.
If you propose to manufacture some product that needs service or warranty, it will
involve expenses on men and materials as a part of after-sales-service. You have
to make proper estimates of such expenses right at the planning stage lest underquote your product.
Before you go ahead implementing your project and even thereafter, there is a need
to study the production process carefully and account for the losses of materials
during production. Such losses may occur due to sub-standard raw-material,
44
improper handling of the same or due to the very nature of the production process. It
is necessary to take these into account while arriving at Direct Material Cost and
make adequate provision for the same.
Similarly, it is possible that a part of the output may be rejected during quality tests at
your end or by the customer himself. Such rejections may or may not be avoidable.
Especially, for that portion of the rejections that are not avoidable, adequate
provision is to be made so that the loss due to rejections in the natural course of the
business is reflected as an expenditure and ultimately, as a part of the total cost.
More often than not, it may be difficult to anticipate the eventualities as
indicated above at a time when you are still planning your project. That does not
undermine the importance of the exercise. It only suggests that it is necessary to
look for indicators, clues, information from the existing manufactures in order to
arrive at cost figures as accurately as possible.
45
11.
RAPPORT
BUILDING AND
UNFREEZING
MICROLAB
46
47
o Form into triads. Share with each other one significant experience you can recollect
from your childhood. (4)
o Walk slowly; when you walk, greet each other non-verbally.
o Form into triads. Think of an entrepreneur you came across whom you consider as very
effective. Share with each other his qualities and what impressed you about him. (5)
o Walk around.
o Form into new triads. Think of an experience where you did something wonderful or an
experience when you felt great. Share with others the details of this experience. (5).
o Walk around.
o Form into new triads. Tell a story what you learnt from your parents or in the school which
had impressed you. Share with others the story and why it had impressed you. (5).
o Form into groups of four. Discuss the general problems of entrepreneurs and make
a list of the problems. One of you may present it to the total group. (5)
o Presentation by groups on problems. (5)
o Walk around. Close your eyes while you walk. (1)
o Stop and open your eyes. Pair with the person closest to you. Share with each
other your experience of any one occasion when you faced a problem and could
solve it successfully. (3)
o Re-arrange into groups of four. Discuss the characteristics of entrepreneurs. One of
you may present them after five minutes to the total group. (4)
o Presentation by groups on characteristics. (4)
o Walk around.
o Form into pairs. Tell your partner the qualities you would like to develop in yourself
to become an entrepreneur. Share with each other how you feel being here and
participating in this exercise. (3)
o Form into groups of four. Each of you will give a new project idea to the group. When you
are doing this, this, the others will ask you one question each on the idea. (1)
48
49
12.
THEMATIC
APPERCEPTION
TEST (TAT )
50
51
2.
3.
4.
5.
6.
7.
8.
After the story writing by the participants is over, the facilitator may create an
atmosphere where the hold-up thinking and feeling may surface in the group. This
can be done by putting some lead questions like:
What do you feel now ?
How much involved were you?
What do you find in this exercise ?
Would you like to work on it ?
This creates further interest amongst the participants, to involve themselves in the
scoring and analysis of data.
The facilitator then reveals the purpose of the exercise, that is to know the
achievement thinking or achievement motivation present in the participants. Also,
the significance of using pictures to assess the need for achievement is high-lighted.
How can we tell whether one has the need for achievement in his thinking ?
We have standardized the scoring process based on which it has to be found
out whether our stories fulfill any of the following criteria :
i). Desire for success in competition with others.
ii). Desire for success in competition with a self-imposed standard of excellence.
iii). Unique accomplishment.
iv). Long-term involvement
If the stories fulfill any of the stated criteria, it would be scored as AI
(achievement imagery) and indicates, therefore, the presence of achievement
motivation. Whenever there is any doubt whether or not one of the criteria for
achievement imagery has been met, and yet the story is not totally unrelated to
achievement, it is classified as TI (task imagery). Stories in which there is no
reference to any achievement goal are scored as UT (unrelated imagery).
The concept of scoring AI, UI and TI is given with examples and the participants
doubts are clarified before they go in for the subsequent steps.
The participants are given a set of sample stories and are asked to score for
AI, UI, and TI.
A discussion is generated about the scored stories and the facilitator clarifies the
doubts of the participants. An impression is also given to the participants that they
are progressing well within the time frame.
Another set of practice stories may be given to the participants and they may be
asked to score for AI, UI and TI quickly.
The facilitator may disclose the expert scoring of the second set of practice stories and ask
them to find out the points of difference, if any. By now it is expected that the participants
will feel secure and confident to a great extent in scoring AI, UI and TI.
10.
They may be asked to score their own stories in terms of AI, UI and TI.
52
11.
The facilitator may ask them to form a group of three or four and interchange their
scored stories and discuss the difference of view points, if any. The facilitator has to
act as an expert to short out the differences.
12. At this stage, the facilitator brings forward the concept of the level or intensity of ach.
Motivation present in any story which has scored an AI. The concept may be
highlighted with the help of the following questions.
i).
Some of us/all of us/few of us have found AI in our stories. What does it
mean ?
ii).
Does it mean that all those securing AI have the same level of achievement
motivation ?
iii).
How can we know the level of achievement motivation ?
13. The facilitator explains the level of motivation in terms of an-associate net-work.
14. They are reminded of the practice stories scored as AI and are asked to score
for the presence of elements in these stories.
15. A discussion with participants on the elements scored by them and clarifying their
doubts.
16. The participants are asked to score elements in their own stories.
17. A discussion around total scores obtained by the participants.
18. The facilitator may focus on the frequently occurring elements and the absence of a
few elements.
19. At this point, a suggestion is made to write a hypothetical story incorporating all the
elements.
20. A discussion on :
Why the presence of all elements is desirable ?
What the elements mean to us ?
Consciously manipulating all the elements in a story is also not easy.
It requires a deliberate attempt to internalize the elements and reflect them in
our thinking and action.
It is possible to acquire a high need to achieve.
A small concept session on (a) characteristics of a person with need to
achieve and (b) achievement motivation vs entrepreneurs highlight of researches
and experiences.
Trainers Guide
All the steps stated earlier are present in the following four major aspects
concerned in the exercise.
Excitement
Action
Experimentation and
Facilitation
53
1
2
3
54
13.
SCORING
MANUAL FOR
ACHIEVEMENT
MOTIVATION
55
(B).
Desire for success in competition with self
In this case a standard is set which is primarily self-imposed. It could be explicit; he
wants to compete the job by the best possible technique.; or it could be implied, by
referring to sentiment or feelings; example. He is pleased that he found the best
possible technique to complete the job.
(C). Unique accomplishment
When a character in a story is working on something that is out of his line of usual
work, then he is achieving a unique accomplishment. This could be: creative work,
scientific discovery, invention, etc. Here, a unique accomplishment need not
necessarily be explicit or implied; the very fact that a person is involved in achieving
something unique, is a personal accomplishment, and hence, it is evident that the
character clearly expresses a desire to meet a high standard of excellence, without
mentioning it.
(D).
Long-term involvement
If a character in the story states that he is referring to an achievement goal, which
constitutes a lengthy time period, then it is obvious that the involvement which could be in
terms of a career or any primary goals, is in itself a standard of excellence. Examples:
Career involvement : He wants to become a manger. He has worked hard all these years
to become an entrepreneur.
56
3. Goal anticipation
(a) Positive goal anticipation
(b) Negative goal anticipation
4. Obstacle or blocks
(a) Personal blocks
(b) Worldly blocks
5. Help
6. Feeling
(a) Positive feeling
(b) Negative feeling
7. Achievement theme
Act +
or
Act
or
Act ?
+1
Ga +
Ga --
+1
+1
Bp
Bw
H
+1
+1
+1
Fe +
Fe -Th
+1
+1
+1
_____________________________________________________________________
Stories with AI
+1
_____________________________________________________________________
Maximum obtainable score in one story will be + 11
58
N.B.
AI
UI
N
Act
+
ACT
Act ?
Ga+
GA --
Achievement Imagery
Unrelated Imagery
Stated Need
Successful action
towards goal
Unsuccessful Action
Doubtful Action towards the goal
Positive goal anticipation
Negative anticipation
59
Bp
Bw
H
Fe+
Fe-Th
Personal Block
Worldly Block
Help
Positive Feeling
Negative Feeling
Achievement Thema
14.
PURCHASING
INVENTORY /
MATERIAL
MANAGEMENT
60
61
In case your require more output, the existing equipment can always be
operated on extra shift.
In your sheer enthusiasm dont show your eagerness to buy ! You must
negotiate! Suppliers are also interested in business and there is always
competition. Try to take advantage ! !
While purchasing the raw materials, their availability, quality and feasibility of
procuring the same regularly may be seen.
Calculation on the required raw-material stock according to availability of the same.
Sr.
No.
Same table can be used for machineries also
62
15.
BREAK EVEN
ANALYSIS
63
Fixed Cost :
Fixed Cost is that cost which does not vary or change with other factors in the
production level. In other words, there are certain items of cost such as, interest on longterm loan, rent on factory shed of office if they are rented, depreciation on machinery and
building if they are owned by you etc., which are to be incurred whether your factory is
working at full capacity or whether your factory is closed.
For example, if you have borrowed Rs.1 lack from a bank or State Finance Corporation
for buying machinery for your factory to produce 100 tons of a product per year (Product A)
and the interest rate on the loan is 12.5%, you will have to pay Rs.12,500/- an interest per
year irrespective of the fact that your production is 10 tons or 15 tons or absolutely nothing.
Just to make sure that you have understood the concept of fixed cost, let us go through
another illustration. Your factory building it rented and the rent per month is Rs. 1,000/-.
The production on monthly basis is 500 units in January, 800 in February and 600 in March.
Now, the question is what is the fixed cost for your factory as such for the months of
January, February and March ? Likewise, what is the fixed cost per unit of the output in
these months ?.
The fixed cost for the factory unit as such, assuming that there are no other costs, would
be Rs. 1000.00 per month for each of these 3 months. The fixed cost per unit of the output
can be obtained by dividing fixed cost for a month by the number of units produced / to be
produced for that month as noted below:
64
Month
Fixed Cost/No of units
Fixed Cost per unit of output
January
1000/500
Rs. 2.00
February
1000/800
Rs. 1.25
March
1000/600
Rs. 1.66
Another interesting point you will note from the above example is that though the total
fixed cost for the factory as such remains constant (i.e.Rs. 1000/- per month), there is an
increase in fixed cost per unit of the output when the production decreases and likewise,
there is a decrease in the fixed cost per unit when the production increases.
Variable Costs :
Variable Cost is variable with the level of production i.e. variable cost is directly related
to the quantity of output. For example, if you need Rs. 100/- worth of raw-materials to
produce 1 ton of Product A, the variable cost can be calculated as below :
Raw-material cost per ton of output i.e.
Variable Cost per ton
=
Rs.100/Month
Output
Variable Cost
January
500 Kgs.
Rs. 50,000/February
800 Kgs.
Rs. 80,000/March
600 Kgs.
Rs. 60,000/As you will see from the above illustration, that the total variable cost for your Factory as
such increases/decreases along with the increase/decrease of production level. But the
variable cost remains constant for every unit of output.
In short, any item of cost which does not change with the level of production is fixed
cost and that item of cost which changes with the level of production is variable cost.
Fixed cost is fixed for your factory as such. But fixed cost per unit of the output varies with
change in production level. Variable cost for the factory as such is variable as per the
production level. But variable cost per unit of output may remain constant.
When we make an attempt to classify various items of cost into fixed and variable cost
we may come across certain items of costs such as, wages which remain fixed till you reach
a particular level of production but vary whenever that level is crossed. In other words,
there are certain items of cost which can be termed as semi variable. But for operational
convenience, it is sufficient if you could classify the cost components into Fixed and
Variable without going into further analysis.
Having understood the level of Fixed Cost and Variable Cost, let us now see how best
we can understand the concept of Break Even Point.
65
Such a 2-stage analysis to identify the production level at which you make neither profit
nor loss is called Break Even Analysis. The said production level is called Break Even
Point.
We can now put it mathematically as below :
i). Total Cost as X production = Variable Cost for X No. of units (VC) + Fixed Cost.
ii). Contribution (CN) = Sales Revenue (SR) Variable Cost (VC)
iii). Profit (P) at X level of production = (Sales Revenue for X No. of Units) Total Cost.
i.e. SR (VC + FC) or SR VC FC
i.e. Profit = Contribution (SR-VC) Fixed Cost (FC)
To clarify the concept, let us now look at the illustration mentioned below. The
calculations are done at 3 different production levels to illustrate the relation between the
level of production and profit.
Selling Price per unit
Rs.
10.00
Variable Cost per unit
Rs.
4.00
Fixed Cost for the Project
Rs. 90,000.00
Production Levels :
10,000
15,000
20,000
units
units
units
Sales Revenue
1,00,000
1,50,000
2,00,00
Variable Cost
40,000
60,000
80,000
60,000
90,000
1,20,000
This Income Contribution is not profit as we have to meet Fixed Cost also.
Considering the Fixed Cost for the Project is Rs. 90,000/- then at 10,000 units production
level, the company is incurring a net loss of Rs. 30,000/- (Rs.60,000 Rs. 90,000); at
15,000 units production level, there is no profit or loss (Rs. 90,000 90,000) and at 20,000
units production level, a net profit of Rs. 30,000/- - (Rs.1,20,000 Rs. 90,000) is made.
66
Thus, Profit = Contribution (CN) Fixed Cost (FC). At 15,000 units production level, the
company is just breaking even and so, it is called Break Even Point (BEP) of production.
At this level, the Contribution = Fixed Cost i.e. CN = FC.
BEP can be expressed either in terms of number of units that you have to produce to
reach No profit No Loss Level or in terms of sales revenue. First,
i). Capacity Utilisation Indicator :
Usually, Break Even Point is expressed in terms of capacity utilization. In other
words, suppose your factory can produce a maximum of 100 tons of Products. A per year
which we can call the installed capacity, at what percentage of installed capacity you must
operate to reach the Break Even level of production ? This could be found out using the
below noted formula FC____
BEP =
SR VC
x 100 = -------- %
Where BEP = Break Even Production Level in terms of percentage.
FC = Fixed Cost per year in Rs.
VC = Variable Cost during that year
SR = Sales Revenue during that year
ii). Sales Revenue Indicator :
Break Even Point in terms of Sales Revenue could be calculated using just two figures
viz., fixed Cost and Profit Volume Ratio.
One of the important ratios to watch in business, especially in Break Even Analysis is P/V
Ratio. It expresses the relation between Contribution (Sales Revenue Variable Cost) and
Sales. This indicates the percentage of Contribution in relation to the volume of sales. In
other words, it tells you that after meeting Variable Cost, what percentage of sales revenue
is available to you to meet fixed cost and then, earn profit.
Contribution =
Sales VC
SR VC
Thus, P/V Ratio =
Sales
Sales
OR
SR
Suppose, the Sales Revenue per year is Rs. 4,000/- and the variable cost is Rs. 2,000/-,
then the P/V Ratio is calculated as under :
= 0.5
P/V Ratio = Contribution/Sales = SR VC/SR = 4000 2000 =
4000
In other words 0.5 or 1/2 % of your Sales Revenue is available to meet fixed cost.
Having understood the concept of P/V Ratio, we can now see how to calculate Break
Even Sales Revenue using the below noted Formula :
B.E. Sales Revenue =
Fixed Cost =
FC
P/V Ratio
(SR VC)/SR
67
Total Contribution
Production
Contribution unit
Fixed Cost
Contribution Per unit
Rs. 3,07,000
1500 Kgs.
3,07,000
1500
1,16,000 (FC)
204.67
= 566.76 Kgs.
68
You must sell at least 566.76 Kgs. of your product to reach Break Even level assuming
that selling price remains the same.
Suppose, there is uncertainty in power supply or in the supply of raw material which may
prevent you from operating at full capacity, then you would like to know what would be the
profit if such problems force you to operate at say 70% or 80% of the full capacity. In other
words, you would like to know the profit at various levels of production. You can arrive at
profit figures by calculating cost of production at various levels of output. But then, this is a
lengthy and cumbersome procedure. Using BEA, you can quickly find out likely profits at
any level of output. Let us see the calculation below
o Installed capacity = 1500 Kgs, per year
o Probable operating capacity = anywhere between 50-90%
o Contribution per kg. of output = Rs. 204.67 (As per calculations shown above).
What would be the profit at 90%, 80%, 70% and 50% of the full capacity ?
When you calculate BEP you would be knowing the Fixed Cost and the Contribution per
unit. You know that Profit = Contribution Fixed Cost.. With this data for a given level of
production, say 750 Kgs, you can calculate Contribution by multiplying contribution per kg.
of the output i.e. Rs. 1,53,500. the moment you know the Contribution at a given level of
production, you can calculate the profit at that production level just by deducting Fixed Cost
from Contribution. In this case, the Contribution at 750 Kgs. is Rs. 1,53,000. the Fixed Cost
is Rs. 1,16,000. Therefore, the Profit is Rs. 37,500. Such calculations are possible because
of two principles:
i). That the Fixed Cost for the Project remains constant irrespective of production level :
ii). That the Contribution per unit of the output remains constant irrespective of production
level.
69
The detailed calculations of profit at various production capacity are given as under :
Probable
operating
capacity %
Product in kgs.
Contribution Rs.
Fixed Cost
Profit
50%
750
1,53,500
1,16,000
37,500
60%
900
1,84,200
1,16,000
68,200
70%
1050
2,14,900
1,16,000
98,900
80%
1200
2,45,600
1,16,000 1,29,600
90%
1350
2,76,300
1,16,000 1,60,300
100%
1500
3,07,000
1,16,000 1,91,000
Suppose, during the course of managing your unit, you come across a situation
where you have sufficient orders to reach break even level. You feel that by offering
some discount you can sell more or build up customer relation for that matter. Now, the
question is how to decide the amount of discount to be offered. Taking the example of
the chemical unit as described earlier, we have seen that the unit will break even at a
production of 566.7 Kgs. per year. You also know that the contribution (SR-VC) per Kg.
of the output is 204.67. This means that for every Kg. of output, after covering the
variable cost, you earn around Rs. 204.67 to cover your fixed cost. Thus, at a
production level of 566.7 Kgs., the total contribution is Rs. 1,16,000 (566.7xRs.204.67)
which is equal to fixed cost. When you reach the Break Even Production level, all your
fixed costs are covered. So, after reaching Break Even Production Level, for every
Kg. of the chemical that is produced in excess of Break Even production would earn a
profit of Rs. 204.67. In simple terms, for every unit of the output that is produced in
excess of Break Even production Level, the Contribution is equal to the Profit. In the
case of the Chemical Unit, the Break Even Product is 566.7 Kgs. and the production at
full capacity is 1500. In other words, the production at full capacity is 933.3 Kgs. in
excess of Break Even production Level (1500 566.7). With Contribution of Rs.
204.67 per kg. of output, the Contribution for 933.3 Kgs. which is in excess of Break
Even Production level is Rs. 1,91,000 (204.67 x 933.3). Going by the principle that after
Break Even Production Level whatever contribution is equal to profit, the profit for the
Chemical Unit at 100% capacity (1500 Kgs. production) should be Rs.1,91,000/Coming to the question of deciding the discount, you first decide how much you want
to earn as profit per kg. of output. In this case, let us say that you add this amount to the
variable Cost of the Unit. Total Variable Cost as per Pt. C above is Rs. 9,68,000/- at a
production level of 1500 Kg. Therefore, the Variable Cost per unit is Rs. 645.33. Adding
Rs. 100/- to this, the total Variable Cost per unit comes to Rs. 745.33. per Kg., you will
earn Rs. 100 per kg. as profit. Your original selling price is Rs. 850/- per kg. (refer Pt.
No. 11 of 8 above). So, the maximum discount you can offer if you want to earn Rs. 100
as profit per Kg. of out put is Rs. 850/- Rs. 745.33 = Rs. 104.67.
70
This works out to be around 12% of the selling price. Therefore, towards the end of
your financial year, if you have already reached break even production level, you can
announce a Special Discount of 12% and still make a profit of Rs. 100 per unit sold in
excess of break even production level.
Imagine, what would happen if your announce such a discount right at the beginning
of the financial year. You are bound to lose because the discount when offered right at
the beginning of the financial year is applicable to the entire production in that particular
year and not to that part of output which is in excess of break even production level.
You might wonder how such discount can be offered only for a part of your total
production, you might have noticed that some of the companies announce clearance
sale by offering additional discounts. They announce such sales only to clear the
stocks and that too, after making sure that they have already reached break even
production level or they are in a position to cover all the fixed costs and still make a profit
after offering a discount.
Taking the example of the chemical unit, let us assume that you have to quote for a
tender involving a supply of say, 1200 Kgs. You know that there are several other
companies sending their quotations. You have to quote a competitive price so that you
can get the tender. The question is what price you have to quote. Let us now see how
to answer this question:
You know that the order is for 1200 Kgs. and your annual production is 1500 Kgs.
You also know that the Variable Cost per Kg. is Rs. 645.33. Now, the Variable Cost per
unit x No. of units will give the total. In this case, the total Variable Cost would be Rs.
1,16,000. So the total cost for 1200 Kg. is Rs. 8,90,400 (Rs. 7,74,400 + 1,16,000). In
other words, the total cost per Kg. of the chemical is Rs. 742/- (Rs. 8,90,400 +1200).
Thus, you can quote Rs. 742/- per Kg. without the fear of incurring loss and at the same
time without making any profit.
Suppose, you have to pay Rs. 30,000/- in that year to the State Finance Corporation
towards the money you have borrowed for purchase of land, building and machinery and
suppose you need Rs. 30,000/- per year to meet your personal expenses, what price is
to be quoted ? The price should be such that must cash at least Rs. 60,000/- after
covering all the costs. In other words, you must earn Rs. 9,50,4000/- (Total cost =
Rs.8,90,000 + Rs. 60,000) to meet all the cost and then to pay your loan instalment and
also meet your personal expenses. Under such circumstances, you can quote a price
Rs. 792/- Kg. (Rs. 9,50,400 + 1200). Since you have the cost data, you can check these
calculations by actually working out the profitability at a production level of 1200 Kgs.
71
16.
ESTABLISHMENT
OF AN
ENTERPRISE:
SYSTEMATIC
APPROACH
72
Remarks
- No Legal obligation
- Agreement to be
Registered with Registrar
of firms.
- Incorporation of company
with Registrar of
Companies in the State.
Temporary
Registration
&
Permanent Registration after
establishment of the unit.
Registration for subsidy for State
D.I.C. or I.C. Office.
level and central level both,
whichever applicable.
Registration for Sales Tax No. for
interstate & state transaction.
Sales Tax Deptt. Legal Advisor
For units other than SSI.
Registration for Excise for
DGTD
scheduled industries.
Dept.of Excise or Customs
For more than 9 workers, under
Factory Act Registration.
Factory Inspector in the State or Legal For non-manufacturing activities
Advisor
registration for Gumastas.
For exclusive right over use of
Office of Shop & Establishment Local mark or design.
Authorities
Legal Advisor or Trade Mark Registry.
Local authorities Municipal, Panchayat
Collector etc. Ind. Dev. Corpn.
Water & Air Pollution Control Board or
Authorities
73
Dept. of Inds.
- SISI
- DIC
- Drug & Cosmetic
Dept of Indus. or
- DIC
- Small Inds. Dev. Corpns.
Industrial Dev. Corporations
- Local Authorities
Explosive, Police Dept. Fire Brigade
Chief Inspector of Boilers
- Inspector for Weight & Measures
(Dept of Inds.)
Legal Advisor
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
75
Industries
Centres/Export-Import
Industries
Centre/Export-Import
Industries
Centre/Export-Import
(B)
24
25
26
27
28
29
30
31
(C)
32
33
34
35
36
37
DURING IMPLEMENTATION
Application
for
power
connection
Application for Water
Application for C Form-SalesTax
Application for State Sales Tax
Registration
Application for Central Sales
Registration
Application for Exemption from
Sales-Tax
Application for Exemption from
Octroi Duty
Application for storing rawmaterials
AT OPERATIONAL STATE
Application for permanent
Registration Number
Application for Subsidy Claim
Application for Power Subsidy
Application for FPO Licence
76
17.
LEGAL
FORMALITIES
FOR
SETTING UP OF
UNIT
77
78
18.
MARKETING
STRATEGY AND
SALES
TECHNIQUES
79
80
4. Pricing :
The price is usually associated with
i). Value
ii). Status
iii). Quality
iv). Durability
The point to remember is that a consumer is more sensitive to price when the
purchase frequency is high or when the quality of competing products is more or less
the same. Examples of this are hardware, matches, gums, stationery, chemicals,
petroleum products, etc.
There are five different methods that can be employed in pricing products.
1. Pricing in line with similar products already in the market.
2. Pricing slightly higher than the price leader in the market.
3. Pricing slightly lower than the price leader in the market.
4. Pricing on a cost plus basis.
5. Pricing on the basis of profit yield at different sales levels.
Before fixing the price of your products always ask yourself the following questions
1. At what range of price will the product be economically attractive to the
consumer?
2. What sales volume can you expect at different price levels ?
3. What will be the competitors reaction to your price.
Attempts at answering these questions will help the entrepreneurs in price
fixing.
5. Distribution :
The objective of a distribution network is to conveniently make available
goods to the largest number of consumers in required quantities where and
when they are needed. This can be achieved through
1. Agents
2. Stockiest
3. Whole-Sales
4. Distribution
5. Manufactures Shops
6. Retailers
7. Street Vendors
8. Mail Order
The selection of sale outlets will depend on nature of product, number of
consumers and the financial resources.
81
6. Selling :
A sale can be described as converting goods into cash. Most people confuse
a sale to be booking of an order. However, no sale is complete till the goods have
been delivered and their value recovered. This must be kept in mind when assessing
the performance of your own sales staff and also when finalizing terms with agents,
distributors etc.
The most effective method of selling is personal selling, i.e. through your own
trained staff. This is so since no agent, distributor, stockist or dealer would know your
product or its plus points as well as your own sales staff would. However, it is seldom
possible for a SSI unit to resort to personal selling since it cannot afford a large sales
organization to cover the vast geographical area of our country.
Wherever personal selling is resorted to compensation to salesman can be in terms of
1. Salary
2. Salary-cum-commission
3. Commission-cum-retainer
4. Commission
While commission on sales is one of the biggest motivational factors, other
motivational methods are
1. Merit awards
2. Salesmens meetings
3. Contests
In case of operating through your own sales force the different methods for
maintaining effective control are
1. Sales reports
2. Personal meetings
3. Field Visits
4. Fixing of sales quotas
5. Evaluation on basis of compensation earned
6. Territorial development
However, where selling through outside agencies is involved it is essential that the
sales staff of such agencies be given suitable product training and also sufficient
sales aids to make them more effective.
To motivate outside agencies methods that can be employed are
1. Volume discount in addition to normal discounts
2. Contests
3. Dealer Meetings.
82
Bill-boards
Cinema slides and short film advertisements
Stalls at exhibitions and fairs.
Internet web-site.
Direct mailing of literature
Demonstrations
10. Research :
1. Planning
2. Branding
3. Pricing
4. Distribution
5. Selling
6. Packaging
7. After-Sales service
8. Sales promotion
9. Advertising
10. Credit Control
84
19.
ACCOUNTS
AND
BOOK- KEEPING
85
1. Why Accounts ?
This question has been asked to many persons. You will be surprised to know that
99% of the people are not aware of the benefits which result from maintaining systematic
and regular accounts.
The chief of a world renowned Bank was once asked, what would be your only
advice to industrialist and businessmen? his reply was, The person who is setting up any
industry or business, should form a system of maintaining books of accounts from the
beginning. If he cannot afford the cost of forming such a system, he should not start a
business. Inadequate system of maintaining accounts is one of the important reasons of
failure of newly set-up business units.
Accounts can be defined as a mirror of trade or industry. Accounts shoe the
economic condition of any business or industry.
Definitions:
Book Keeping:
It is an art of recording business transaction in a set of books.
It is an art of keeping accounts in a regular and systematic manner.
Accountancy:
Accounting is the art of recording classifying and summarizing the transactions.
Difference between Book-Keeping and Accountancy:
Book- Keeping is a very primary stage in accounting. It includes only recording function.
Accountancy is a very broad term which includes besides recording of transaction
summarizing analyzing and interpreting the figures recorded.
86
It is said that maintenance of accounts can be used effectively for the following purposes:
1) To ascertain whether the business is making profit or loss.
2) To get information regarding amounts payable to others and amounts receivable
from others.
3) To find out whether income or expenditure have increased or decreased in
comparison with those in previous years ( in this manner, account can be used
as means to control expenditure).
4) To ascertain the financial position of the business.
5) To arrive at accurate planning of the business.
6) To meet the requirements of various statutes like Income Tax, Sales Tax, Excise
Duty and Labour Legislations.
7) For deriving cost of the product.
8) For calculating the rate of return from business.
9) For readily obtaining figures of investments and type of capital investment in
business.
10) To get a comparative picture of your business in relation to other similar
business.
11) For avoiding shortfall of funds.
12) For developing qualities such as accuracy and methodology.
Some steps an entrepreneur must take to derive these advantages from accounts:
a) First of all a good accounting system should be designed. This is a specialists job.
b) An expert in the field or a trained person should be employed.
c) Accounts should be written regularly.
d) Accounts should be supervised periodically.
e) The entrepreneur must discipline himself to give regular and accurate information.
The following methods are commonly used in India for maintaining accounts:
1) Deshi Nama System( traditional system in which accounts can be
written in all regional languages).
2) Double Entry Book- Keeping.
Attend to the Following Matters :
Whatever method you adopt for maintaining accounts, the following matters should
be carefully attended to:
Account books, statements and other stationery as required should be maintained.
All entries should be recorded on a daily basis.
The Accountant should submit the collection list everyday before leaving the office.
Similarly the list of creditors should be submitted regularly at least a week in
advance. List of major payments should be submitted at least 15 days in advance.
Trial Balance , Trading Account and Profit and Loss Account should be prepared by
the end of every month.
87
Cash Flow statement of the firm or unit for the next six months should be always
kept ready in advance.
Bank Balances should be reconciled periodically with your books.
The owner should frequently call on his tax consultant and keep him informed
regarding his business.
Similarly he should also regularly see the head of the financial institution or Bank
which has advanced the loan to his business and keep him informed regarding his
progress and plans.
Arrangement should be made for receiving the figures of income and expenditure
and purchase and sales daily.
Comparison of actual expenditure should be made with the estimated amounts and
the owners attention should be drawn by the accountant if the difference is high.
Bills, receipts etc. should be prepared with complete description and details.
Similarly, vouchers should also show all necessary details.
Purchasing Fixed Assets:
The following points should be considered before taking any decision for the purpose
of a fixed asset.
a) Whether the surplus funds equivalent to the cost of the assets are
available.
b) If the surplus funds are not available whether necessary loans can be acquired.
If no surplus funds are available and a long term loan is not possible for
the acquisition of an asset, then the idea should be dropped. For, if the
asset is purchased out of the current liabilities, there is every likelihood of
the business getting into serious problems in the near future.
Just as money transactions are recorded in Accounts, the fixed assets and stock
of goods should also be entered systematically. Stock Register should be checked
frequently. Any goods which are lying for a long period are not only occupying
valuable space for along period but also lead to loss of interest.
Care should be taken to despatch the required return forms to Banks or Government
/ Semi- Government Organisations.
Amounts payable should always be paid before due dates.
If it is not possible to make timely payment, the creditor should be advised
accordingly.
Care should be taken to ensure that no cheque is dishonoured by the bank. Postdated cheques should never be issued.
Accounts for every paisa should be tallied.
Payments should not be made without recording the same and receipts should be
prepared immediately on receiving the payments. There should be a receipt every
income and voucher for every payments. The expenditure which requires the owners
sanction should be cleared by the owner before it is paid.
88
PERSONAL
ACCOUNT
IMPERSONAL
ACCOUNT
REAL / PROPERTY
ACCOUNT
89
NOMINAL ACCOUNT
Personal accounts are those accounts which relate to or pertain to any person. The
person may be a customer or a supplier, lender or a borrower, banker or owner.
Impersonal accounts are those accounts which are other than personal account.
These impersonal accounts may relate to the property or asset or income or expenditure.
Impersonal accounts can further divided into two categories.
1. Real account : relate to any property or asset
2. Nominal account : relate to expense or income.
The Golden Rules of Debit and Credit:
ACCOUNT
1) Personal
2)Real
3)Nominal
RULE
the receiver
What comes in
Expenses or losses
the giver
What goes out
Incomes or gains
90
20.
CRISIS
MANAGEMENT
91
20.CRISIS MANAGEMENT
Crisis management is a business plan of action that is implemented quickly when a
negative situation occurs. The Institute for Crisis Management defines a business crisis as a
problem that: 1) disrupts the way an organization conducts business, and 2) attracts
significant new media coverage and/or public scrutiny. Typically, these crises have the
capacity to visit negative financial, legal, political, or governmental repercussions on the
company, especially if they are not dealt with in a prompt and effective manner.
Over the past several years, high-profile public relations disasters (the Firestone tire
problems on Ford sport utility vehicles, various product recalls, disturbing product tampering
incidents) have thrown an intense spotlight on the issue of crisis management. Indeed, as
companies have witnessed the damage that poor crisis management can wreak on
business fortunes, a growing percentage of firms have intensified their efforts to put
effective crisis management strategies in place.
Hundreds of potential threats exist for every organization. Corporate crises can take
the form of plant fires, loss of competitive secrets, workplace violence, product defects,
embezzlement and extortion, industrial accidents, sabotage, and natural disasters. Any of
these eventsas well as numerous otherscan cause an immediate and prolonged
financial loss to a company, require an intensive communications effort directed to
investors, employees, consumers and other entities, and may present a series of regulatory,
community relations and competitive challenges.
To assess whether a particular company has a higher exposure than others to
categories of crisis, a company may employ a risk or crisis manager who may prepare
statistical models, review industry data, or work with consultants to understand how one or
more crises could impact the organization. Once this process of risk is completed, many
companies then design a Crisis Management Plan (CMP) to determine how negative events
can be avoided or reduced in scope. But business consultants and public relations experts
counsel all companies to put CMPs in place, no matter how remote such threats seem.
Indeed, many businesses are able to secure lower insurance premiums if they have written
crisis management procedures in place, which is a sure indication of the importance of such plans.
Smoldering crises, meanwhile, are defined by the Institute as "any serious business
problem that is not generally known within or without the company, which may generate
negative news coverage if or when it goes 'public' and could result in more than U.S.
$250,000 in fines, penalties, legal damage awards, unbudgeted expenses, and other costs."
Examples of smoldering business crises include indications of significant regulatory action,
government investigations, customer allegations, media investigations. "In some instances,"
Irvine added, "crisis situations may be either sudden or smoldering, depending on the
amount of advance notice and the chain of events in the crisis."
According to Irvine, while companies need to make sure that they prepare as best
they can for sudden crises, it is often the slow-burning smoldering crisis that causes the
most damage to a company's image and bottom line. "You really need to be focused on the
less dramatic, more complicated, and ultimately more costly smoldering crises that are likely
to be brewing in your business. The problem is that these smoldering crises often are the result of
management decisions, or indecisions. They may be caused be shortcuts to win contracts,
questionable actions by top producers or someone who has had an unblemished record with your
organization and is close to retirement. In short, they often are tough to detect and then to resolve
because they directly or indirectly involve management decisions, and management has a tough
time admitting errors because it reflects on their egos and abilities."
93
94
95
96
21.
CUSTOMER
RELATIONSHIP
MANAGEMENT
97
Front office operations Direct interaction with customers, e.g. face to face
meetings, phone calls, e-mail, online services etc.
Back office operations Operations that ultimately affect the activities of the front
office (e.g., billing, maintenance, planning, marketing, advertising, finance,
manufacturing, etc.)
Business relationships Interaction with other companies and partners, such as
suppliers/vendors and retail outlets/distributors, industry networks (lobbying groups,
trade associations). This external network supports front and back office activities.
Analysis Key CRM data can be analyzed in order to plan target-marketing
campaigns, conceive business strategies, and judge the success of CRM activities
(e.g., market share, number and types of customers, revenue, profitability).
98
Types/Variations of CRM :
There are several different approaches to CRM, with different software packages
focusing on different aspects. In general, Customer Service, Campaign Management and
Sales Force Automation form the core of the system (with SFA being the most popular[citation
needed]).
Operational CRM :
Operational CRM provides support to "front office" business processes, e.g. to sales,
marketing and service staff. Interactions with customers are generally stored in customers'
contact histories, and staff can retrieve customer information as necessary.
The contact history provides staff members with immediate access to important
information on the customer (products owned, prior support calls etc.), eliminating the need
to individually obtain this information directly from the customer.
Operational CRM processes customer data for a variety of purposes:
Managing campaigns
Enterprise Marketing Automation
Sales Force Automation
Sales Management System
99
Analytical CRM :
Analytical CRM analyzes customer data for a variety of purposes:
Cross-selling/Up-selling/Switch-selling opportunities
Customer drift
Sales performance
Customer trends
Customer margins
Customer aligment
Campaign Management :
Campaign management combines elements of Operational and Analytical CRM. Campaign
management functions include:
Target groups formed from the client base according to selected criteria
Sending campaign-related material (e.g. on special offers) to selected recipients
using various channels (e.g. e-mail, telephone, SMS, post)
Tracking, storing, and analyzing campaign statistics, including tracking responses
and analyzing trends
100
Collaborative CRM :
Collaborative CRM covers aspects of a company's dealings with customers that are
handled by various departments within a company, such as sales, technical support and
marketing. Staff members from different departments can share information collected when
interacting with customers. For example, feedback received by customer support agents
can provide other staff members with information on the services and features requested by
customers. Collaborative CRM's ultimate goal is to use information collected by all
departments to improve the quality of services provided by the company.[3]
Consumer Relationship CRM :
Consumer Relationship System (CRS) covers aspects of a company's dealing with
customers handled by the Consumer Affairs and Customer Relations contact centers within
a company.[1] Representatives handle in-bound contact from anonymous consumers and
customers. Early warnings can be issued regarding product issues (e.g. item recalls) and
current consumer sentiment can be tracked (voice of the customer).
Geographic CRM :
Geographic CRM (GCRM) combines geographic information system and traditional CRM.
Geographic data can be analyzed to provide a snapshot of potential customers in a region
or to plan routes for customer visits.
Strategy :
Several CRM software packages are available, and they vary in their approach to CRM. However,
as mentioned above, CRM is not just a technology but rather a comprehensive, customer-centric
approach to an organization's philosophy of dealing with its customers. This includes policies and
processes, front-of-house customer service, employee training, marketing, systems and
information management. Hence, it is important that any CRM implementation considerations
stretch beyond technology toward the broader organizational requirements.
The objectives of a CRM strategy must consider a companys specific situation and its customers'
needs and expectations. Information gained through CRM initiatives can support the development
of marketing strategy by developing the organization's knowledge in areas such as identifying
customer segments, improving customer retention, improving product offerings (by better
understanding customer needs), and by identifying the organization's most profitable customers.
101
CRM strategies can vary in size, complexity, and scope. Some companies consider a CRM
strategy only to focus on the management of a team of salespeople. However, other CRM
strategies can cover customer interaction across the entire organization. Many commercial
CRM software packages provide features that serve the sales, marketing, event
management, project management, and finance industries.
Implementation Issues :
Many CRM project "failures" are also related to data quality and availability. Data cleaning is
a major issue. If a company's CRM strategy is to track life-cycle revenues, costs, margins,
and interactions between individual customers, this must be reflected in all business
processes. Data must be extracted from multiple sources (e.g., departmental/divisional
databases such as sales, manufacturing, supply chain, logistics, finance, service etc.),
which requires an integrated, comprehensive system in place with well-defined structures
and high data quality. Data from other systems can be transferred to CRM systems using
appropriate interfaces.
Because of the company-wide size and scope of many CRM implementations, significant
pre-planning is essential for smooth roll-out. This pre-planning involves a technical
evaluation of the data available and the technology employed in existing systems. This
evaluation is critical to determine the level of effort needed to integrate this data.
Equally critical is the human aspect of the implementation. A successful implementation
requires an understanding of the expectations and needs of the stakeholders involved. An
executive sponsor should also be obtained to provide high-level management
representation of the CRM project.
An effective tool for identifying technical and human factors before beginning a CRM project
is a pre-implementation checklist.[5] A checklist can help ensure any potential problems are
identified early in the process.
Privacy and data security :
One of the primary functions of CRM software is to collect information about customers.
When gathering data as part of a CRM solution, a company must consider the desire for
customer privacy and data security, as well as the legislative and cultural norms. Some
customers prefer assurances that their data will not be shared with third parties without their
prior consent and that safeguards are in place to prevent illegal access by third parties.
102
22.
ENTERPRISE
GROWTH,
PRODUCT
DIVERSIFICATION
AND EXPANSION.
103
Exporting
Franchising & Licensing
IPO
Merger & Acquisition
Venturing Overseas
Market Penetration :
In this strategy, it would mean that the firm aims to sell more of its existing products in the
markets that they are already in. This would translate into allocating more resources and
efforts to build up sales and marketing activities to attain revenue growth. Indirectly, the firm
104
is also trying to increase its market share. Generally, this may seem less risky to a certain
extent because the firm is already dealing in the same markets and products, however there
may be limitations as to how much growth one can derive in this strategy.
Market Development :
For this strategy existing products/new markets, this happens when a firm decides to sell
its existing products into new geographical markets or new market segments (another
defined target market). For example, it could mean selling an existing computer model to a
new market overseas or alternatively, selling it to a new market segment (e.g. second-hand
market). The firm would also need to spend on sales and marketing to persuade consumers
in new markets to purchase the product / services.
Product Development :
This strategy on the other hand, necessitates developing new products to be sold in existing
markets. This can be seen as a quite common process because for a company to sustain its
presence and growth, it cannot rely on a single product range. For instance, in the retail
industry of product consumables like shampoo, cosmetics and even apparels, companies
are competitively refreshing their product lines to keep in touch with consumers as well as to
keep up with certain trends, market needs/tastes and etc. One would need some good
grasp of market knowledge and skills to come with new product introductions that suits
consumer's needs.
Diversification :
Often seen as a high risk strategy, diversification is where the firm sells entirely new
products to new customers in new markets. The reasons for such a business strategy could
be due to a rise in opportunity that the firm has identified, or feel the need to tap and rely on
new sources of growth and so on. While it is considered as a more risky approach that the
others, the firm must be able to carefully assess its abilities before plunging into a new area
that it may or not have competencies in.
There are two types of diversification: related and unrelated diversification.
Related diversification means that the firm remains in a particular industry, but diversify
into another type of product to be sold to new markets. For example, a chocolate
manufacturer diversifies into a bread/pastry manufacturing or a ladies fashion retailer
decides to go into retailing of children's apparel. This way, with some knowledge and skill in
a particular area (food or apparel), a firm is going into a new product line to serve new
markets.
Unrelated diversification refers to a situation where the firm completely ventures into a
new business area to serve new markets with its new product development. New capital
investments are also needed. In this scenario, it would mean that the firm is entering into an
industry that it has little experience with limited or no knowledge of the industry. For
example, is Virgin brand from the UK, in which the firm that deals with airlines (travel and
tourism) went into other diverse areas such as in media and telecommunications, shopping
and etc.
105
Whichever growth options you decide, a few critical things to bear in mind would be the
suitability of your brand in other areas/sectors; time, human and labour resources as well as
market and consumer expectations. At the end of the day, the reward or benefit of
embarking into a particular strategy should outweigh its costs.
Franchising & Licensing :
Franchising and licensing are considered as viable business growth options. In both
situations, you build your business through intellectual property and sharing a proven way of
running a business effectively. In these circumstances, you must have a good
understanding of your rights as to whether you are a franchisor or franchisee, licensor or
licensee. The agreements must then of course be translated into a legal binding contract for
a
certain
period
of
time
for
selected
market(s).
You would also need to be able assess what makes a franchise or license sustainable or
marketable. The Franchising and Licensing Association (FLA) Singapore provides more
information
on
this.
Initial public offering (IPO) :
IPO refers to the company's first equity issue made available to the public to raise new
sources of funds to finance its next stage of growth. In other words, it is the first time a
company offers its shares to the public which was previously unlisted, at a particular price.
The reasons for an IPO are typically associated to a firm's decision to raise additional
capital. If the firm decides to put up a sale of its stock and sells part of their ownership to the
public, it then engages in an IPO. Before even making the step towards IPO, the firm must
go through a meticulous process of weighing its benefits and costs.
Merger & Acquisition:
Merger is a business term used to describe a tool implemented by corporations for
expansion purposes. Normally, a merger means the combination of two business firms that
results into one bigger entity. Acquisition or acquiring refers to the act of taking control over
another corporation. By taking control over a another business entity, one would hope to
gain access to certain key functions, skill or knowledge in a particular industry.
While the above are not meant to be an exhaustive list, there are various reasons for
taking on different options. In determining your growth path, it is very critical to have both
inward and outward looking approach. Identify key resources that you need within your firm
is one way and understand what is in for you should go with any strategy.
106
23.
RISK TAKING
BEHAVIOUR
107
108
2.
3.
4.
5.
6.
7.
109
24.
SUSTAINABILITY
OF AN UNIT
PRECAUTIONS
NEEDED
110
Sr.
No.
Wrong choice of - Insufficient /low Sales or
1
product
Profit
- More time consumed for
product development
- No sense of achievement
- Reluctance on the part of
financial agencies in
financing the venture.
- experts advice
- comparing technology
- studying existing technology/
units.
111
Poor
Market - No order or unexpected
Assessment
Orders
- Different specifications and
quality
- No repeated orders
- Unremunerative prices
offered by wholesalers
customers.
- Consequently low turnoverprofit ratio.
Wrong
Fixed -Heavy burden of interest
Investments
- Poor utilization of
equipments(idle M/c)
- No one lends when needed
100% loan
- Book loss due to unduly
high depreciation.
112
Sr.
No.
1
Delay
- No replies from suppliers or
1)
Machinery Bankers.
supply
-Time schedule as per
2) Loan Sanction project report
3) Formalities
- Upset
- Cost estimates proving
wrong .
Preventive Measures
-Strict time bound plan of
activities
- Check suppliers reputation
- Devote full attention on followup
-Submit a complete loan
application with all required
documents.
- Make check list of all formalities
to be completed & all
documents to be submitted.
-Study approach of financial
institution through informal
chats with officials or borrowers
Improper
estimates
113
3. At operational stage :
Sr.
Cause
No.
1
Financial
Wrong
Strategies
Symptoms
- Absence of records; cost
data
- Withdrawal for personal use
- Changes in priorities for
payments
- Liquidity problems
- Lack of working capital
funds
- No recovery or delayed
recovery
- Cash inflow not matching
sales level
-List all possible uses
- Long over dues and Bad
debts
- Low efforts of marketing
- No repeat orders
- Wrong choice of customers/
market segmentation
114
Preventive Measures
- Proper records, uptodate data
(hire an accountant )
- Preparing cash flow
statements
- Anticipating needs and making
advance applications for loans.
- Maintaining list of debtors agewise & continuous follow up
recovery.
Symptoms
- Change in technology,
consumption patterns or
consumers, preference
- Market saturation
- Reduction in the rate of
increase of turnover
- Loss of orders
- New entries in market
- New trade policy or product
development by
competitors
Preventive Measures
- Proper market survey
- SWOT Analysis: assessing
Unawareness
about
competitors
Critical Shortage
a) Power
b)Raw materials
- Idle capacity
- Frequent breakdown
- Piling up of orders and
delivery delays.
Changes
Government
Policies/
Regulations
115
- Membership in industry
Association
- Reading industry journals
official publications.
-Get regular feedback from your
salesman/dealers.
- Choose a location where power
is regular and not through rural
feeders.
- Proper Inventory
-Having more than one Supplier
-Provide for captive generation
right at the stage of preparing
project report.
25.
VALUE ADDED
TAX
116
117
VAT Example
Raw Material
Producer
Manufacturer
Whole Seller
118
3) Goods purchased from unregistered dealers (URD) or sold in the same form.
Registration under M. VAT ACT 2002 Registration U/S.16.
(U/R 8,9,10,11,12,13 &14)
A dealer liable to pay tax under this act should have registration i.e. TIN NO.
Dealer who has to get registration under MVAT in the following circumstances:
a) Voluntarily
b) On the basis of turnover of sales.
c) Change in the constitution
d) Transfer of Business by succession i.e. death.
Application for registration should be in Form No. 101. It should be complete in all
respect.
It should be properly filled and filled in Black ink.
A person or a dealer who is registered under this Act shall be liable to pay tax during
the period in which registration is effective even if it is found subsequently that no
registration was necessary in his case.
Cancellation of Registration :
1) Discontinuation of Business
2) Transfer of Business.
3) Turnover of the dealer u/s.3 has reduced or gone below the prescribed limit i.e. Rs.
5,00,000/- in the previous year.
In all these cases the dealer has to apply for cancellation of Registration granted
in Form No. 103. Important Fact in these cases is that it does not affect the Tax
Liability or penalty or interest up to the date of cancellation. The Assessment may
take place after cancellation.
In the following cases the dealer has to apply for amendment in the certificate of
Registration granted.
a) Change in the name of business.
b) Change in the address of Business in local area? W.e.f. 8.9.2006
c) Change in the partners i.e. introduction of new partner or partners or Retirement of
partner or partners.
d) Change in the trustees in the case of Trust.
e) Change in the Guardian of Ward.
f) Change in the karta of Hindu undivided Family.
g) Pvt. Ltd. Company is converted into Public Ltd. Co.
Time limit :
a) For Voluntary registration there is no time limit. When it is required the dealer can
apply.
b) In the case of turnover limit the dealer has to apply within 30 days of completion
of required turnover of sales i.e. 5,00,000/c) In other cases it is 60 days i.e. in succession
119
U/s. 17 of M.VAT Act fresh registration is prescribed under this section the
Commissioner may requires every dealer who holds a valid registration certificate
on a specified date notified by him in U/s. 18 of M. VAT Act & under rule 15 of
M.VAT Act the dealer should inform the department in:a) Change in the name of business, type of business, place of companies.
b) Discontinuation of Business.
c) Merger and demerger of Company, & amalgamation of Companies.
d) Likewise u/s.44 (4) change in the constitution of firm or HUF or transfer of
business.
In all these circumstances the dealer should inform the VAT Authority within 30 days.
Turnover limits:
U/s. 3 of M. VAT Act. The limits of turnover for registration and liability to pay tax.
Importer: Turnover of sales of Rs. 1,00,000/- and the value of Taxable goods sold or
purchased by him during the year is not less than 10,000/-.
Other dealer: Turnover of sales of Rs. 5,00,000/- and the value of Taxable goods sold or
purchased by him during the year is not less than 10,000/-.
120
26.
INCOME TAX
121
26.INCOME TAX
What is Income Tax
Income Tax is the tax levied on income as defined by Income Tax Act. It is an annual tax
collected by the Central Govt. for each financial year on the total income of the previous
year. The financial year of the Central Government is from 1st April to 31st March and,
therefore, the taxes have to be paid for each assessment year on the income of the
previous year relevant of it. The Income- Tax rates are decided by the Central Government
every year while presenting the budget. The important things that an entrepreneur has to
keep in mind regarding this are as under:
I. Accounting Year:
A businessman has a freedom to choose his accounting year. He can keep his accounting
year ending in any month of the calendar year or Vikram Samvat year, etc. it is his choice.
Once the choice is exercised, the change in the accounting year cannot be made without
the permission of Income- Tax Officer..
II. The businessman has to understand his legal and residential status. The status is very
important because the tax rates are different for different status. According to the legal
status, the following is the classification of the assesses.
1) Individual
2) Hindu Undivided Family
3) Company
4) Partnership Firm
5) Association of Persons.
According to the residential status, the categories are:
1) Resident (Resident and Ordinarily Resident)
2) Resident but not ordinary resident
3) Non- resident.
Since the rates of tax, exemptions, deductions vary with the legal status of the assesses,
the entrepreneur must understand the implications of his status.
III. Income- tax is levied on the income as determined and defined by the Income- Tax Act.
The government is giving various kinds of exemptions, deductions and incentives which
reduce tax burden. These deductions are related sometimes to the status of the tax- payer
(Individual, Company, Partnership), sometimes with the size of the industry (small scale),
nature of industry (Poultry farming) location of the industry (Backward District). For
example, all the interest paid by a company is deductible in deciding taxable income. In
case of partnership, interest and salary paid to the partner are not regarded as deductible
from the income. Since the exemptions keep on changing, the entrepreneur will be well
advised to consult of his tax expert, who could guide him in planning out his affairs in such
a manner that the tax liability is reduced to legally minimum possible.
IV. As far as the business income is concerned, the following are the general
permissible deductions.
122
125
27.
SALES TAX
126
27.SALES TAX
Sales Tax is a state levy made applicable whenever the goods are purchased from within
the state. When the goods are procured from outside the state Central Sales Tax (CST)is levied.
Since it is the duty of the seller to charge the sales tax and hand it over to the government, a
businessman has to acquaint himself with the broad outlines of the sales tax.
127
128
1)
He has to register his business under the Sales Tax Law if his
business turnover crosses the limit prescribed. This registration is
granted by the Sales Tax Department of the state as per the
procedures decided by them.
2)
There are other formalities, like information about the change in the
name and style of the business, change in the constitution of the
firm, change in the accounting year, etc. to be complied with. One
has also to be careful in preparing the format of the invoice which
will show the amount, date, sales tax registration number,
description of the goods sold, rate of tax charged, name and
address of the purchaser and sometimes the sales tax registration
number of the purchaser also.
Implications on Sale Price, Cost and Competencies :
It would be clear that no beginner can proceed further without giving proper importance to
sales taxation, because the goods manufactured by him perhaps may not attract Central
Excise but sales tax is always leviable which ultimately is going to raise his sale price. The
beginner should bear in mind that the price should not be higher as compared to his
competitors. Sometimes it may happen that only because of higher rate of tax, some raw
materials may prove to be costly to you as compared to the cost in the neighboring state .
So a new entrepreneur should bear in mind the following:
1) Know the exact rate of tax on raw materials and finished goods.
2) Benefit or incentives declared by the state.
129
28.
MANAGEMENT
OF WORKING
CAPITAL
130
133