Davanagere University

Department of Commerce, Shivagangotri, Davangere.

EL 3.4- Promotion and Management of Small Business Enterprises.

Present by: Mr. A.P. SUBRAMANYAN

M.A.F., (M Phil).,

Faculty Member and Research Scholar, Department of commerce, Davanagere University.

MODULE- 2: Steps for Starting a Small Industry

Contents:
Decisions to become an entrepreneur, Steps to be taken, Preparation of project report guidelines, Policies governing small-scale industries.

Decisions to become an Entrepreneur

When a multifaceted environment confronts the unemployed persons, if they posses strong orientation towards entrepreneurship and growth, the most appropriate decision would be to start small scale enterprise. An entrepreneur possessing the keen aptitude for setting up a small scale unit should formulate a business plan and take a number of steps to give shape to his business.

Steps to be taken
Selection of Product. Selection of Form of Ownership. Selection of Site. Designing Capital Structure. Acquisitions of Manufacturing Know-how. Preparation of Project Report. Obtaining Statutory License. Power Connection. Arrangement of Finance.

Continues
Selection of Product:
Designing a new product, or copy an established one, or improve upon an existing product in terms of additional uses, comfort or saving in cost. The economic viability of a product should cover the following demand aspects: Volume of existing demand in the domestic market. Volume of existing demand in the export market. Volume of aggregate existing demand in all market. Volume of potential demand. The degree of import substitution. The volume of demand by big units of ancillary products. Degree of substitution of an existing product.

1. 2. 3. 4. 5. 6. 7.

Continues
The information of these, can be obtained from, Technical publications, State development agencies, Industrial houses developing ancillary units, Giant public sectors like ITI, HAL, BHEL & ONGC etc, Import from other countries etc.. Research laboratories like CSIR & NRDC etc.., Consultants, Market survey.

Continues
Small scale enterprises in our country produce :
Readymade garments, Leather footwear, Detergent soap, Detergent liquids, Plastic items like Buckets, Jerry-Cans, Office trays, Luncheon boxes, Wallets and Purses, Food items, etc..

Selection of Form of Ownership

Sole proprietorship, Family ownership, Partnership, Private limited company.

Selection of Site
An entrepreneur has five option to choosing a suitable plot for factory or shed. Choose a land from an industrial area developed by the state development corporation like SIDCO, SIPCOT etc. Factory sheds in industrial estates constructed by state industrial development agency. Choose from plots/sheds developed by Private developers ( Private Industrial Estates). Buy private land and develop the same for industrial use. Select a site/shed available in free trade zones.

Continues
1. 2. 3. 4. 5. While selecting a site, an entrepreneur is to take into consideration the following factors: The site is situated in ones native place. The site enjoys most or all incentives provided by the Government. The site is near a market. The site is near the source of labour supply and raw material. The site has modern infrastructural facilities.

Designing Capital Structure

1. Own capital 2. Long term loans from friends and relatives 3. Term loans from banks and financial institutions

Acquisitions of Manufacturing Know-how

Many institutions like government research laboratories, research and development divisions of industries and also individual consultants provide the manufacturing know- how. The scale of operation is linked closely with technology, financial resources and market demand envisaged.

Preparation of Project Report

Prepare a project report according to the format of the loan application of the concerned term lending institutions. The report covers important items like sources of finance, availability of machinery and technical know-how, sources of labour and raw materials, materials and overall profitability.

Continues
1. Technical feasibility: technical feasibility would encompass factors such as description of the product specification to be adopted, raw materials available as per requirements, outline of Manufacturing process inclusive of a flow chart process, quality control measures, power supply, availability of water, transport facilities, and communication network.

Continues
2. Economic viability: it essentially involves compilation of demands for domestic and export markets, most appropriate installed capacity requirements, capturing a substantial share of market sale, revenue expected, suitable price structure and so on. 3. Financial implications: project cost covering non recurring expenses such as land and buildings, plant and machinery, equipments, pre-operative expenses, and so on and recurring expenses like working capital needs, raw material needs, wages for personnel and so on will have to be worked out in detail.

Continues
4.Mangagerial competency: the new entrepreneur manger entering the small scale sector should devote his full attention to the new venture and should consider the product line chosen as a major economic activity. He should maintain up to date information records pertaining to actual production, sales effected every month. In addition to gathering useful data on potential customers, new market segments, changes in fashions, designs, styles etc., . The new entrant must emerge itself as a customer satisfying and customer creating organism.

Continues
1. Registration as SSI 2. Provisional Registration provisional registration entitles the entrepreneur to: - Apply for a shed in an industrial estate or a developed plot in an industrial area. - Apply to corporation/ municipalities for other licenses. - Apply for power connection. - Apply for financial assistance from banks and other institutions. The application for this registration has to be sent in duplicate.

Obtaining Statutory License

Municipal License. - The next step would be to obtain Municipal License. - Registration with Central and State Sales Tax Department would be necessary. - Registration with inspector will also be required. Statutory License. Depending upon the product line chosen, size of the unit/workers employed and so on., the entrepreneur should seek approval for specific regulations applicable in his case.

Continues
Table 2.1- licensing authorities Product line/Activity/Service 1. Approval of production programmer for manufacturing Electronic items. 2. Manufacturing of Drugs and Cosmetics. Licensing Authority To approach state Directorate of Industries & Commerce, Madras or District Industries Centre in the particular District State Drug Controller, Drug Control Administration, Madras.

3. Manufacturing of fruit and Deputy Director- Food and vegetable based products- license Vegetable Preservation, Ministry under fruit product order. of Agriculture, Madras. 4. For registration of corporate body. Company Law Board, Shastri Bhavan Madras.

Power Connection
1. The low tension (LT) 2. The high tension (HT) A consumer can avail LT if the connected load is 75 HP and below. In connected load is between 75 HP and 130 HP the consumer has the option to avail either LT supply or HT supply. It connected load exceeds 130HP the unit is classified as HT consumer. - Most of the small scale industries fall under the LT category.

Arrangement of Finance
The funding requirements of a project are of 1. Long term requirements for acquiring fixed assets like land and building, plant and machinery and for security deposits. 2. Short term loans for working capital in the form of key loan/cash credit/bill discounting etc.

NEDA Scheme:
Indian Bank, has scheme to assist new entrepreneurs known as New Entrepreneur Development Agency (NEDA). Loan facilities are granted on the following conditions: Maximum loan granted under the scheme will be Rs. 10 lakhs (inclusive of fixed and working capital). The entrepreneur should posses minimum educational qualifications- a graduate or a diploma holder. Entrepreneur should be within the minimum age limit of 21-35 years. The scheme is only operated through the Head Office or the Zonal Office of the bank. The scheme is intended mainly for first generation entrepreneurs with entrepreneurial ability. The interest rate on term loan is 15.5% and on working capital it varies according to limits up to 20.25%.

1.
2.

3.
4.

5.
6.

Financial assistance to Industrial Co-operative Societies:

In order to promote industrial ventures through cooperative societies the government have introduced special schemes for promoting industrial cooperative societies. Generally the following rules are observed in the formation of and assistance to industrial Cooperative societies. 1. Should be a minimum of 25 persons as members of the society.

Continues
2. The share capital of the society depends on the project to be implemented by the society. 3. Loan to the extent of 10 times or 15 times of the paid up share capital plus reserves fund is given on viable schemes based on the project cost. 4. The financial transactions are preferably through the industrial co- operative banks and through Tamil Nadu State Co- operative ( TNSCB), District Cooperative banks etc.