Entrepreneurship CHP 1

Course Content : (A) Entrepreneurial Perspective: Concept of Entrepreneur, advantages Entrepreneur Entrepreneurship and Enterprise ;
1) Nature and Development of Entrepreneurship; Gender Issues in Entrepreneurship. 2) The dynamic role o Small Business? Industry in Economic Development
3) Personality of an Entrepreneur! Entrepreneur

4) Innovation and Entrepreneurship
ENTREPRENEURSHIP
A French word entrepreneur meaning between- taker or go-between. Marco Polo who attempted to establish trade routes to the far East. As a go between he would sign contracts with a money person to sell his goods. As a merchant-adventurer he took the active role in trading, bearing physical and emotional risk. While the capitalist was the passive risk taker.
Doing new things or doing things that are already being done in a new way is therefore a simple definition of entrepreneurship.
Entrepreneurship can be described as a creative and innovative response to the environment. Such responses can take place in any field of social endeavour business agriculture, education, social work and the like.
QUALITIES OF ENTERPRENEUR

High level of motivation Moderate risk taker Self confident with positive self image Excellent leadership qualities Good business acumen Managerial competence. Problem solving attitude Flexibility and adaptability Realistic approach to planning Independence of thought and action Ability to perceive opportunities and threats
QUALITIES OF ENTERPRENEUR
Entrepreneurs are quick to see possibilities for achievements, unlike managers in large sedate organizations where they are generally blinded by the in-grown culture. As we are aware that ideas for new products and services often originate in unexpected places, entrepreneurs are the first one to embark on these innovative ideas or opportunities.
ENTREPRENEUR
Grabs such novel ideas, develops them and pursues their success doggedly with unflagging spirit thus these people are entrepreneurs in true sense of the word. They are self starters and doers who organize and build successful enterprises. They are not opportunist because it is not only selfish interest that drives him but he also meets the needs of the people.
Global Views on Entrepreneurship

Dr. Joseph A. Schumpeter well-known expert on entrepreneurship, emphasizes Innovation as the key factor that distinguishes enterprises from other form of endeavors. No body is an entrepreneur all the time one behaves as entrepreneur only when carrying out innovative activities.
Dr. Joseph A. Schumpeter well-known expert on entrepreneurship, emphasizes.

Early English Entrepreneurs demonstrated the key factor of enterprising person-the innovative personality. They were involved in developing inventions for commercial use and in applying new scientific discoveries to productive purposes. They set a standard basic value for entrepreneurs who were to follow.
Dr. David C McClelland-key researcher in the area of entrepreneurship-findings

Achievement motivation is one of the key factor contributing to success of an entrepreneur. Prime psychological drives that motivates an entrepreneur is high need for Achievement identified as N-Ach. A drive towards accomplishing a goal embodying a reasonable challenge to the individuals competence.
Dr. David C McClelland-key researcher in the area of entrepreneurship-findings

Desire for responsibility prefer to use their own resources in there own fashion in working towards the goal. Would like to be accountable personally for the result. Preference of moderate risk Sets goals requiring high level of performance, which demands exertion & are confident of meeting
Dr. David C McClelland-key researcher in the

area of entrepreneurship-findings

Perception of probability of success- Confidence in their ability to succeed. Stimulation by feedback-Stimulated to higher level of
performance from feedback regarding their efforts as the task progress Energetic Activity -Exhibit high level of energy active&mobile,engaged for long time in getting tasks done in novel ways. Future orientation-Plans and thinks ahead Skill in organizing-both work and people for achieving the goals. Attitude towards money-financial gains is secondary in importance to achievement.
Entrepreneur & Interpreneur
Entrepreneur/Interpreneur
An Entrepreneur operates in an open world. An Intrapreneur operates within an organization fighting with bureaucratic hurdles and inertia in the organization to keep the Entrepreneurial spirit alive. He is an internal entrepreneur in an organization.
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Intrepreneurship is the development, within a large corporation, of internal markets and relatively small autonomous or semiautonomous business units, producing products, services or technologies that employ the firms resources in a unique way. Intrepreneurship gives the manager of a corporation the freedom to take initiative and try new Ideas. It is entrepreneurship within an existing business.
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Companies recognize that an individual could make major contributions without becoming a manager-by inventing or making technical breakthroughs. Many innovative companies-IBM, Tektronic, EM and Texas Instrument created a second career path through which inventor could win prestige and salary increase without assuming Managerial roles.
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Intrepreneruship offered a third career path to bridge the gap between a manager and an inventor. Like entrepreneurs they are not necessarily in a new product or service their contribution is in taking new ideas and even working prototype and turning them into profitable products and business.
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When the ideas have become solid and functioning business, intrapreneurs tend to grow bored, proven managers are need to take over to maintain and develop the business while they go back to build new ventures for others to manage. Intrapreneurship is corporate entrepreneurship whereby an organization seeks to expand by exploring new opportunities through new combinations of it existing resources. A tool for stimulating and capitalizing on individuals who believe that something can be done differently and in a better way.
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Advantages of Intrapreneurship.

Intrapreneurial ideas offer a way to build onto or improve the corporate business. Capital for ideas is easy to come from internal sources within a corporate identity. The established corporate image helps to boost the chances of success of an intpreneurial idea. Corporates offer continuing access to the organizational proprietary technology to stay competitive. Corporates offer economies of scale in marketing distribution and services. Unique advantage of multidisciplinary team work. Interpreneur retains job security as well as enjoys freedom of prosperity.
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Creating Intrapreneurial Environment
Research & Development-R&D efforts are key sources for successful new product ideas. It is an investment for sustainability & growth. Funding-corporate venture funds.If a co can invest in other companies, why cant they invest in ideas of their own employees. Creating a climate-define what a intrapreneurial culture means in different parts of their organization & appropriate for their industry.
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Training-for employees at different levels on how to behave in accordance with intrapreneurial values and motivational factors. Developing creativity through brain storming session and other means. Most organization encourage idea that has a strategic fit with the company. Reward System-well defined transparent reward system. Stock Option appears to be the best and most widely accepted approach. While rewarding success, the failure should not be harshly penalized.
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Multi-disciplinary Team: An Idea can be converted into an enterprise only by critically viewing all aspects. Organizations have to allocate people from different function for an intrapreneurial project and reabsorb them after the project. Commitment-by top,upper & middle management levels for intrapreneurship in order to undergo the cultural climate change necessary for implementation. A long term horizon should be set to evaluate the success of the programme. HP, Dupont AT&T Xerox G.E, Ranbaxy Levers, Telco, M&M, Godrej, Infosys, Satyam computers are companies were transformation is brought about by intrapreneurship
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Entrepreneurial/Intrapreneurial comparison
Parameter Intrapreneurial Characteristics Primary Freedom and access motives to corporate resource Time 5-10 years. Looks for orientation incremental achievement Skill & Much like experience entrepreneur, Doesnt get discouraged by hierarchy Entrepreneurial Characteristics Wants freedom, self reliant &Self motivated 5-10 years. Looks for incremental achievement Knows business very well & can put together resources
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Environment Same as entrepreneur must deal with corporate environment Resources Macro-environ. & Micro environ. relevance
Derived primarily from Assembled & slack within the acquired from the organization factor markets Sensitive to corporate attitudes. Attempt to hide errors. Will learn from mistakes Own errors. All errors public & visible.
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Failure & Mistakes
Decisions Needs to get others to share vision, willing to accept compromise Follows own vision, makes own decision May not compromise
Attitude to Dislike system but learned May have done well with bureaucracy to live and manipulate it the system,grew impatient & left to start own venture.
Risk preference
Accepts moderate risk Puts career & job on line Corporate symbols demeaning & worthless
Accepts moderate risk. Has money & reputation at stake Willing to accept long period of low status.
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Attitude to status
ENTREPRENEUR/PROFESSIONAL

INNOVATOR RECOGNIZED BY THE TRAITS IN PURSUIT OF NEW IDEAS & ENVIRONMENTS. SEEKS ADVICE & SUPPORT OWNS ENTERPRISE
EXPERT RECOGNIZED BY QUALIFICATION AND EXPERIENCE IN PURSUIT OF ENHANCMENT OF EXPERTISE PROVIDES ADVICE & SUPPORT MAY OWN OR WORK FOR ORGANISATION
Nature & Development of Entrepreneurship

Entrepreneurship collectively has the power to change the destiny of family, city, state or country. Punjab & Haryana has high economic growth as compared to other states like Bihar,Orissa because of strong entrepreneurial base. Individuals in economically backward states search for jobs. South Indian states are catching up on entrepreneurial activity which can speed up economic growth in current decade.28

Earlier entrepreneur were Marwaris,Baniyas SIDC & SISI has made some efforts to train entrepreneur. Short term courses have been conducted by them to develop capabilities in entrepreneurs. There have shortcomings in these projects.

Reasons for limited success in Nurturing Entrepreneurship. General Lack of Entrepreneurs in the country. Rural India people prefer jobs to self employment Need for research and re-strategizing developmental schemes. Candidates selected for these courses are the ones who have failed to get a job. Qualified men seek government jobs Unemployed people lack experience and ability to perceive the project and build the enterprise. They are more likely to fail strengthening belief to take up jobs.

Source for ample supply of entrepreneurs could be management institutes. Business schools need to re-orient management education in India. Presently producing administrative managers whereas developing countries like ours need entrepreneurs. Entrepreneurship should be made a compulsory subject & cases on successful entrepreneurs should be presented in these courses.
Project work on entrepreneurial venture should be introduced-could be a feasibility report. In AIMs Manila students do not pass unless they submit a xerox copy of cheque issued by Bank approving the feasibility report prepared by him. Talks by successful entrepreneurs should be organized Emerging entrepreneurs from sunrise industry should be call for such talks. Encourage students to generate new ideas for launching new ventures specially in new technology areas. Talks by successful entrepreneur- alumni will be more impactful in nurturing entrepreneurship.

Institute should start Entrepreneurship centres to do research on the subject and recommend policy measures to strengthen entrepreneurship in management student. IIT has established such a centre to convert engineers into entrepreneurs. Entrepreneurs should preferably start with trading/marketing/service providing, with less capital need and less risk and avoid temptation of building. Once he has the feel of the market then he could backward integrate.
BUSINESS PLAN
Business Plan
A Business plan provides all necessary
information about the unit to be set up. It is useful for the entrepreneur and also for various development agencies who will help the entrepreneur in setting up the unit. Wealth of information is available which will help the entrepreneur to prepare the business plan various branches of SISI (small Industries service Institute, publishes guideline on industries which contain statistical information on a large no of items
Business Plan
Present installed capacity Production & capacity utilization
Government approach towards the item
The information helps to ease the task of the entrepreneur. All he has to do now is. Decide on the production & Activity level Match financial resources with amount required Prepare the business plan. The Technical Consultancy organization set up by IDBI also helps the entrepreneur to prepare a Business plan.
Business Plan
The size of the business plan depends on the
following. The size of the unit to be set up The nature of production and the product The amount of financial assistance required
Business Plan
Business Plan format typically consists of
seven selections. General Information Project Description Market Potential Capital Cost and Sources of finances Assessment of Working capital requirement Other financial aspects Economic and social variables
Preparing a Business Plan

General Information-This section must contain the
following information: Name & Address of the entrepreneur. Qualification, experience & capabilities If there are any partners then the above details of the partners must be included. Reference to the industry to which the product to be manufactured must also be included. Trends in the industry, Past production trends, future demands must be presented. Organization structure and constitution of firm.
Preparing a Business Plan

Information whether the firm is registered with
Director of Industries. The certificate no and other details pertaining to the registration should be mentioned.Though the registration is not compulsory it helps In obtaining power connection from the SEBs In getting raw material quotas when in short supply. While dealing with other government agencies.
Project Description
Mention of the site, indicate town and
industrial estate. Whether the land is owned or leased. In case the project is being set up in an approved industrial area indicate whether permission has been taken. If the project is not to be set up in approved industrial area, then indicate whether a NOC has been obtained from the local Municipal corporation.
Project Description
Some suggestion on the choice of location-
depending on the type of industry. Demand based industry-the location must be near the market. Resource based industry- must be closed to the resource (sugar industry) Skill based industry- must be closed to the skill center (carpet weaving, diamond )
Project Description
Physical infrastructure facilities available. Raw material-whether imported or locally available,
licensed or control. The price, availability & method of procurement of the Raw Material. Availability of skilled labor communication & transport facilities, power & fuel. Availability of water. Method of waste disposal. How environmental hazards are handled-water & air pollution.
Project Description
Technology selected whether indigenous or
imported. If imported, mention the name of the foreign collaborator and method of technology transfer. Details of the manufacturing process-draw the production flow chart. If the manufacturing process is known, then mention the following. Machine required for each sub process. Their specification ,cost and capacity Balancing equipment required and their cost. Quality control method to obtain ISI or Agmark(food industry) certification.
Market Potential
This section must contain following information. The total demand & supply position at present.
Future demand & supply position.

The demand supply gap. In case demand is greater
than supply mention how this will affect profitability. The expected price-with justification. If price is more than the competitors-justify how the high price has been arrived at and why the product will sell at that price.This information may be required by the banks- to know how the high price could be realized.
Market Potential
How the product is proposed to be sold? What is
the distribution network?Are there any arrangements with the distributors or suppliers. Will you be ancillary for another unit or will your product be sold by a reputed marketing organization under its own name. Proposed after-sales service? Particularly relevant in the consumer durable industry. In case of seasonal items, what would be done during off-season? What will be the warehousing arrangement for such items during off-season. Goods transportation details if the product is bulky or requiring controlled temperature .
Capital cost & Sources of Finance.

There are two types of Capital Costs. One time cost ( Fixed cost) Land building-Plant & Machinery Installation costfurniture/fixtures,vehicles, tools, dies, jigs,etc. Contingency cushion against price rise/ unforeseen expenses Margin of working capital Report should also include present& probable
sources of finance. The sources of fund should equal the cost of a project. The resources of funds would include the owners fund together with loans and deposits raised as well as the limits expected by the financial institutions/banks.
Capital cost & Sources of Finance

Working capital costs. This includes cost incurred in
Raw Material, Work in Progress & Finished goods inventory & accounts receivable. Assessment of working Capital.
Planning working capital is crucial. Most units fall sick
because of inadequate assessment of working capital requirements. The Account receivable a component of working capitalaverage credit period need to be calculated on the basis of industry average. The entrepreneurs assess the working capital requirements in their own way this has a problem as the banks have their own assessment. Hence it is a good idea to calculate the working capital requirements according to the bank formats.
Other financial Aspects

The other aspects to be included in the Business Plan. Prepare the projected Balance Sheet.
Prepare the projected Profit & Loss Account

Prepare the cash flow statement. Calculate the Break Even point. BE=FX100
F=Fixed cost, (S-V) S= Sales at Full capacity V=Variable cost

Calculate & Indicate the following ratios in the plan. 1)Profitability ratio = Net Profits X 100
Sales
2)Return on Investment= Net profits X 100

Capital employed

Debt : Equity ratio = Debt
EQUITY
Debt Service Coverage Ratio (DSCR)
= Net Profit after tax+ Depreciation+Interest for one year Installments + Interest (for one year) The DSCR indicates to the banker or the financial institution about the capacity of the unit to repay it loan installment and interest. TSCR must work out to 2:1
Economic and Social Variables

Here, the entrepreneur must perform a cost-
benefit analysis with respect to its impact on the economy and on the society. The entrepreneur must include Abatement costs or costs incurred to control environmental damage.This the value of additional engineering & technology required for effluents, reducing noise pollution etc.

The following social & Economic benefits
could be mentioned. Promoting employment:The number of persons the unit proposes to employ vis--vis the current employment situation in the area Import substitution:How much foreign exchange will be saved by the unit. What is the proposed indigenisation programme? Ancillary: If any work would be subcontracted, what will be the level of ancillary and additional employment thus generated

It would be wise to include details of the plant
layout. Because ultimately, the business plan must serve as blueprint for the entrepreneur and a plant layout would be very useful to him. The plan implementation schedule must be mentioned. For SSIs however it would suffice to include a simple plan implementation schedule.

The various activities could include the following. Acquiring Land
Registration
Obtaining bank loans Construction of building
Ordering plant and machinery

Supply & installation of plant machinery Recruitment of personnels Training of personnels Trial Production Commercial Production.
Business Financing
Financial Management is an integral part of business administration and ranks equally in importance with other key areas such as Production & Marketing. Fundamental objective of any venture are Survival,Growth & maximization of profits along with other social objective. Financial management plays a major role in fulfilling the above objectives & it includes function like analyzing & forecasting financial needs, managing working capital, planning the capital structure etc.
Business Financing
Short term & Long term Finance. Short term finance is used for short term requirements & Long term finance is deployed to meet both long term and short-term uses. Short term finance include
Sundry creditors Bank borrowings for working capital Deposits/borrowing from friends relatives & others Advance received from customers Credit available from suppliers.
Business Financing
Long term Finance Include. Equity/owners Capital & Deposits. Term Loans from financial Institutions & Banks Seed Capital, Margin Money & subsidy from government and financial Institution. Besides the above external sources, there is an internal source of funds through retention of Profits or conversion of assets into funds. For sound financial health of any industry, it is essential that short term finance be utilized for acquisition of current assets only which are converted into cash within one year.Long term finance is utilized for acquiring fixed assets as also financing current assets, that is for meeting margin on working capital
Business Financing
The application for loan or say short-term finance always needs the back-up of a project Report, which is essential when the small-scale unit wants to apply for the loan for monetary support. Estimation of Fixed Assets
Land, Building, Plant & machinery-these are by and large, met out of market borrowing or terms loans from financial institution including banks
Fixed Assets
A Land
Location, Area, Whether freehold or leasehold Purchase price of land, if owned Rent in case of Leased Land Term of Lease Ground rent Payable per Year Location, Whether owned or leased Purchase price of Building if owned Rent in case of leased/rented premises Terms of lease
B Building
Fixed Asset- Building & Machinery

Structure
Type of Structure Dimension Area Sq. Mtrs Actual Cost/Rs Date of Erection
1 2 3 4
Workshop Godown Administrative Other Buildings
Cost of Machinery
Evaluation of Pre-operative expense

Sr No
A B C D E
Pre-operative Expense Cost already Incurred Establishment Rent, rates & Taxes Traveling Expense Miscellaneous Exp. Interest &commitment charges on borrowings
Proposed to be Incurred
Total
Evaluation of Pre-operative expense

Sr. Pre-operative Expense Cost Proposed to No already be Incurred Incurred F Insurance during construction including erection insurance G Mortgage expenses (Stamp duty, registration charges & other loan expenses H Interest on deferred payment if any Total
Evaluation of Working Capital Requirement A. Current Assets Sr. Item No 1 Raw Materials -Imported (month consumption) -Indigenous(month consumption) Other consumable spares Stock in process
(Months cost of production)
1st Year of 2nd Year 3rd Year Operation Operation Operation
2 3
Evaluation of Working Capital Requirement A. Current Assets Sr. Item 1st Year 2nd Year 3rd Year No Operation Operation Operation 4 Finished Goods
(months cost of sales)
Receivables other than exports & deferred receivables (including

bills purchased & discounted by bankers) Months domestic sales excluding deferred payment sales.
Export Receivables
(including bills purchased by bankers) Months export sales
Evaluation of Working Capital Requirement A. Current Assets Sr. Item No 1st Year 2nd Year 3rd Year Operation Operation Operation
Advance to suppliers of raw materials & stores/ spares consumables Other current assets including cash & bank balance & deferred receivable due within one year Total current Assets (A)
Evaluation of Working Capital Requirement B. Current Liabilities

Sr. No
Item
Other than bank borrowing for Working Capital. Creditors for purchase of raw material & Stores & Consumables spares (Months purchases) Advances from customers Accrued expenses Statutory Liabilities Total Current Liabilities (B)
1st Year Operation
2nd Yr. Operat.
3rd Year Operat.
1
2
3 4 5
Evaluation of Working Capital Requirement OTHER ITEMS

Sr. No
Item
Working capital gap (A-B) Margin on working capital (25% of C/25%of A) Bank borrowing (C-D)
1st Year Operation
2nd Yr. Operat.
3rd Year Operat.
Management of Working Capital

Working capital is that part of the capital which is invested in the working or current assets like stock or raw material semi finished goods, Sundry debtors, bill receivable etc. This capital is also known as circulating capital or revolving capital. Working capital is used for financing current assets ie. the day to day business needs. Also used for purchasing raw materials. A major portion of the capital lies in the business in the form of semi-finished, finished goods & cash.

Working capital is also required for payment of wages & salaries,overhead expenses like power, rent taxes repairing & maintenances of machinery. The amount in respect of goods sold on credit (sundry Debtors) represent a vital portion of working capital. Classification of working capital. Regular working capital-meeting continuous day-to-day business needs of the firm, it is re-invested in business. It is called as fixed or regular working capital. Variable working capital-not regular, not static but required to meet periodic or seasonal rise in quantity of goods produced. This is called seasonal working capital. Special working capital-need on special occasion viz increasing price of raw materials, business recession, strike or failure of machinery, fire etc.

Working Capital is classified as
Gross Working Capital: Total of all current Assets. Net Working Capital:Difference between Total Current Assets & Total Current Liabilities.
On going review of Gross Working capital is essential for efficient management of current Assets. Long-Term View we have to concentrate on net working capital.

Net working capital of a healthy unit should be positive. Periodic study on changes in net working capital is necessary. Changes in net working capital can be measured in terms of value as also in percentage by comparing current assets, current liabilities & working capital over a given period.This involves basic approach to working capital analysis.
Deployment of Working Capital is called Operating cycle Stage V Sundry Debtors Receivables Stage I Cash Stage II Raw Material
OPERATING CYCLE
Stage IV Finished Goods Stage III Stock in process

Operating cycle is also called the cash to cash cycle. Working Capital is the total cash that is circulating in this cycle. It also becomes clear that working capital cash be turned over, or reused after completing the cycle. Therefore Management of Working Capital means, apart from finding out the source of meeting capital requirements, ways of reducing the cycle time for optimum results.

The following factors forms a force affecting the working capital needs:
Nature of business Production policies Manufacturing process Growth & expansion of business Business cycle fluctuations Terms of Purchase and sales Withdrawal by promoters etc.
For an industry there are likely to be periodic changes in any or all of the above. Therefore management of working capital becomes a dynamic activity.

Working Capital requirements are met through internal as well as external source. Major external source is the Banking system. Bank offers various types of credit facilities for meeting the financial requirements like
Credit against inventory holdings. Book debts & bills receivable. export finance (Pre-shipment & Post-shipment credits)Certain contingent facilities like issuing letter of credit & guarantees are also offered by them.

Working capital requirements above 10 Lakhs are required to comply with norms laid by Tandon committee & chore committee which is accepted by Reserve Bank of India. Tandon committee : Important features
Classification of Industry and fixation of inventory/receivables norms Application of Margin & eligibility of borrowing:
In order to avoid double financing, the committee recommended that only a part of the working capital gap(current assets-current liabilities excluding bank borrowings) could be financed by the banks

Tandon committee suggested 3 methods for computing the maximum permissible level of bank borrowings.
Method 1. Bank would finance 75% of the WC gap the remaining 25% to come from long term sources such as owned funds or term borrowing. Method 2. Borrower should provide 25% of the gross current assets through long term source & the rest to be provided by trade credit, other current liabilities & the bank Method 3.Similar to 2 further stipulates that the core current assets should be taken out from the current assets separately funded from long term sources.
Also recommended submission of periodic statements regarding operation of the units for the purpose of effective monitoring & supervision by banks.

Chore committee norms-important recommendations.
The borrower enjoying aggregate working capital limits of Rs. 50 lakhs and over require to conform to second method of lending prescribed by Tandon committee which would give a minimum current ratio of 1.33. Borrower would be required to submit to the bank quarterly requirement of funds on the basis of his budget & provide periodical information of the actual performance vis--vis the estimates. Liberalized Norm: A new norm to compute Working capital introduced in 1992 with ceiling enhanced from time to time. SSI units having aggregate WC requirement upto 1 Crore. The bank calculates the limit on the basis of simple calculation of 20% of their annual turnover. This is for units having turnover less the 5 crores per annum.
Financial Forecasting
A systematic projection of the expected actions of the management in the form of financial statements, budgets etc. Process involves use of past records, funds flow behavior, financial ratios and expected economic conditions in the industry as a whole as well as the unit. A working plan formulated for a specific period by arranging future activities.
Advantages of financial forecasting

Enables optimum utilization of funds Helps in planning the units growth & in setting performance goals. Anticipate financial needs & reduce adhoc & emergency decision. Good basis not only for negotiating confidently with banks/financial institution. These projected statement provide and important base for financial reasonable estimate of revenue, costs, profits, taxes,other uses & sources of funds.
Projected Profit & Loss statement

Statement begins with the estimate of the expected sales for the forecast period . The purposes of this statement is to have a fair & reasonable estimate of expected revenue, costs, profits, taxes etc..
Projected Balance Sheet

Forecast of expected funds flow of each item therein. Various items of assets & liabilities of the projects balance sheet are explained below. Assets:
Cash: There is an assumption for a minimum level of cash or liquid funds desired at the end of the period of forecasting. It can also be a balancing of assets & liabilities

Trade Debtors: Magnitude of debtors is closely linked to sales.Based on past trend/performance, expected credit policy & the pattern of future clientele, a certain number of days debtors or receivables is expected to be outstanding. Thus to forecast debtors one has to study historical data about the industry,market conditions and nature of customers.

Inventories:estimate of inventories is prepared on the basis of past operating data together with an examination of future policies. It involves analysis of the additions to opening stocks, purchases & productions of goods during the period and reduction therein through use & sale.

Fixed Assets: Outlays for factory building, plant & machinery are generally planned in advance. Adjustments have to be made for additions and sales of the old assets. Adequate provision for depreciation should be made year by year to generate funds for replacement of the relative assets.

Liabilities
Trade creditors-creditors can be estimated by analyzing schedules of purchase payment maturing during the period or by calculating the ratio of accounts payable to purchases. Loans & advances-This is usually the balancing figure to equalize assets and liabilities

Accrued Liabilities- These are arrived at by analyzing the pattern of wage payments, the tax dues, interest obligation & repayment of loans. Provision for taxes- will be found by starting with the opening balance of the provision for taxes, adding the new provision for taxes & deducting the actual payment of taxes.
Cash Management
Cash flow statements will forecast the probable time of receiving cash from sales and estimate the time after which the bills are paid. Projected cash flow statement show all cash receipts from every source as they are expected to be received and of cash payments by the business as there are to be made.
Cash Management
Importance of cash flow Statement Cash flow gives the following
A list of bills giving details on how much is due and when it is due A schedule of anticipated cash receipt. A schedule of priorities for the payment of accounts Estimate of the amount of money needed to borrow in order to finance day to day operations. This is perhaps the most important aspect of a complete cash flow projections
Cash Management
Format for planning the most effective use of your cash. A measure of the effects of unexpected changes in circumstance ie loss of many bids, bankruptcy of general contractor or a developer strikes, poor estimate etc. An outline to show the financer the sufficient cash to make loan payments, if there any plans to borrow money on a long term basis.
Cash Management
Preparation of Cash Flow statement involves six basic steps.
Estimate cash receipts for the budget period. Estimate cash disbursement for the budget period. Calculate the net cash inflow (or outflow) Add in cash on hand at the beginning of the month Compute cash balance (or shortages) Project amount of loans necessary. A cash flow statement is normally prepared for twelve months. It is computed on an on-going basis and is revised as the situation changes. It assist in financial planning, inventory purchases & formulating credit & collection policies. It serves as an early indicator when expenses are getting out of line.
Estimating your operating cash requirements

Cash flow statements estimate the amount of money required to be borrowed to finance the day to day operation. When the cash flow statement is ready we realize how much operating capital must be injected into business by doing the following calculation. Identify your initial bank loans balance or overdraft before the start of the year. Proceeding month by month add the increase or deduct decrease in your operating bank loan to determine the monthly operating loan balance. Identify the highest operating balance, this represent the minimum operating loan or line of credit that should be obtained
Break-even Analysis
Break even analysis also called cost-volume profit analysis helps in finding out the relationship of cost & revenue to the output. The analysis can be done only after calculating the Break even Point BEP. BEP is defined as that level of sales at which the total cost equals total revenue ie the sales level at which there is no profit or no loss. BEP is calculated using the following formula: BEP= fixed expense/contribution per unit where the contribution is sales minus variable cost per unit.This will be in units. BEP=fixed expense* sales/Total contribution where contribution is the total sales minus the total variable expense.This will be in Rupees.
Break-even Analysis
For calculating BEP, it is essential to classify the expense into fixed expenses and variable expenses. The break-even point shows the level of sales at which there is no profit or loss.This information is of immense use to the units because it gives the minimum level at which the unit should operate, at given cost and price to start generating profits.
Cost & Sales Revenue Rs Break even Point
Sales Revenue Line
Total cost Line
Variable Cost Line
Fixed cost
Volume of output in units
Break-even Analysis
Break-even Analysis
Break even analysis is useful in the following areas: Determining product mix. This is done by knowing the contributions of different products and choosing the products in such a way the the total contribution is maximized. Make or buy decisions. If the variable cost is less than the price that has to be paid to an outside supplier, it may be better to manufacture than buy. Knowing profits at given sales volume and finding the effects of changes in fixed and variable costs to profits. In case of SSI units it is essential that the break-even point is as low as possible. This can be ensured by minimizing the fixed expenses or increasing the contribution. However the contribution is dependent on market condition, it is necessary to keep the fixed expenses at the minimum level.
Venture Capital Financing

Venture Capital Plays an important role in financing small-scale enterprises, particularly Innovative ones where the growth prospects are high but the risk factor is equally high. Investment is needed at any stage of implementation of the project between start-up and commencement of commercial production. It is recognized as an industry by itself in the developed countries in the early 1960 and is established in India also now.
Venture Capital Financing

Venture capital providers offer services like
Development of the business Approval of project ideas Financial assistance Overall management expertise
The main features of venture capital financing can be listed as:

Long term source of investment. Usual period is 5 to 10 years. Venture capital firms in most situation insist on quality participation through direct purchase of shares or convertible securities. Ensures continuous participation of venture capitalist in the management of the entrepreneurs business.
Features of venture capital financing

Provides services of marketing management of technology and developing appropriate organization structure. Venture capitalist comes into the game when it is not easy to access funds from the conventional sources. Business must have a high potential of growth. Venture Capitalist is not averse to the risk. The flow of fund from the venture capitalist is in a phased manner and can be in the form of debt also in the initial stage. Venture capitalist is not a permanent equity holder. Ensure the exit route in the appropriate manner ensuring the interest of the entrepreneur
The Preliminary screening:
Venture Capital -Process
Begins with receipt of the Business Plan from the entrepreneur to the venture capital provider. A good plan should have a clear-cut mission, clearly stated objectives in depth industry & market analysis & key financial statements
While evaluating the business the venture capitalist first determines that the proposal fits in his long-term policy & short-term needs in developing a portfolio balance. He investigates the economy of the industry & ensures that he has appropriate knowledge & ability to invest in the project. Return on Investment is the key issue but the credentials & capability of the entrepreneur is also an important factor.

Due diligence:
This stage cover the agreement on principal terms between the entrepreneur & the venture capitalist before making the major commitment of money, time & efforts involved. Detailed review of the companys history, the business plan, the resumes of the promoters & their key managers, financial background of the promoters and target market are scrutinized.Risk Analysis of the business is jointly undertaken.

NEGOTIATIONS:
Once the viability of the project is clearly understood the negotiation process starts. This stage will cover the amount of investment to be made by both promoters & venture capitalist, total funds to be made available by the venture capitalist, debt component & the interest rate for the loans, securities, equity and other convertible securities, protective clauses,right to control the management of the business, buy-back arrangements and finally the exist routes.

Contract or Memorandum of Undertaking (MOU)
Taking into consideration the negotiations the final agreement or MOU is signed between both the parties. This should take into consideration the regulatory laws as well.
Flow of funds
This now progress as per the terms of the agreement or MOU. A change in the external environment does happen and flexibility is very much desired on the part of both the parties. Periodical reviews at each stage of project launch are done.
Exit
A venture capitalist is not a permanent associate. He likes to quit at the appropriate stage. Buy-Back of the equity, initial public offering, mergers & acquisition & smooth transition are the components of the exit strategy.
A few Tips for the Entrepreneur

Select the venture Capitalist carefully Do not hesitate to get all the facts and the previous background of the venture capitalist. It is better to have an intermediary, who is respected and has a pre-existing relationship with the venture capitalist Avoid lawyers, accountants or other advisors in the initial stages Be very careful about what is projected or promised. Disclose your strengths and weakness to build a good relationships. Be flexible & patient. Always remember that it it the performance, which will build the trust.
Venture Capital Provider- Indian Scenario.

There are many venture capital provider in India in the form of individuals and firms. A large number of entrepreneurs have set up their enterprises through venture capital financing particularly in the field of information technology. Most banks & financial institutions have promoted Venture funds. To name a few SIDBIS Venture capital fund. Technology Development and Information Company of India Limited (TDICI) Risk Capital& Technology Finance Corporation Limited. (RCTC) SBI Capital Venture fund. Canbank Venture Capital Fund
1) 2) 3)
4) 5)
Venture Capital Provider- Indian Scenario.

6) 20th Century Venture Capital Fund 7) Indus Venture Capital Fund 8) Andhra Pradesh Industrial Development Corporation -Venture Capital Ltd. 9) India Investment Fund In order to promote this concept, tax concession are being offer by the Government of India to Venture Capital providing firms. However the regulatory mechanism also operates through SEBI
PREREQUISITE FOR ENTREPRENEURSHIP
Prerequisites for Entrepreneurship

INDIVIDUAL ENVIRONMENT SOCIO-CULTURAL FACTOR NORMATIVE BEHAVIOUR RISK TAKING INDEPENDENCE WORK CULTURE SOCIALIZATION SUPPORT SYSTEM

INDIVIDUAL Three Major Attributes
ENTREPRENEURIAL MOTIVATION
Achievement-Power-Extension Motivation
PERSONAL EFFICICACY
Project Development Enterprise Management
COPING CAPABILITY
Sustain Grow Strategies to meet competitive demand

Environment
Knowledge of economic-political environment Polices of Govt., Financial & Commercial Inst. Availability of raw material,infrastructuretransportation, power& market in proposed location. Agencies providing financial, material, consultancy. Schemes from Industries, State Government, Associations

Environment
choice of enterprise will be more rewarding if one has wide knowledge of alternative industries & bearing of them on the one chosen. Manufacturing process-product & commercial feasibility Various technologies & their cost benefit.

Socio-Cultural Factors
Family background & immediate social circle Values, attitudes & pressure of values inherited Initiative, risk taking, self reliance, working with ones own hand for required tasks are results of socialization process in family,school & society Appreciation, encouragement & other external & internal devices get reinforced in developing related values & norms.

Normative Behaviour Family expectation & pressure to do independent
work and earn to maintain standard of living.
Familys role in small business-Philippines model

Husband wife teams up as entrepreneurs. Classmates plan enterprise during college days Husband takes up job & supports family with income Wife starts small stores & the income ploughed back to expand business & later Husband quits job to take over the expanded business.

Risk-taking important for success. -Takes moderate risk, does not gamble nor
opts to play safe
Independence.
self reliant, works out own plans, searches and explores resources & uses experience & inner urge to make the enterprise a success.
Work
Willing to work with own hands indefinite work schedule.
Socialization
Family & other social institution plays crucial role in training an indiviual.

Support System.
Several agencies & organization help to support an entrepreneur. Corporation set up to develop small industries in a region. Financing institution including banks. Department of Industries, NGOs of small industries, consultants & private agencies & educational institutions like Institute of Technology, Institute of Management etc. Development administration in the district. Large industrial establishment interested in developing ancillary industries provide guidance for growth.
Relation of Environmental Factors To Entrepreneurship

Findings of a Research conducted at Mumbai to isolate environmental factors related to entrepreneurship in order to have a better understanding of the developmental process of an entrepreneur.

Entrepreneurial Behavior (EB) is a function of individuals personality characteristic and environmental factors. Represented as EB=f(P,E) P=Personality characteristics E=Environmental factors. Environmental factors could be either nurturant or impediments to entrepreneurial development

Greater Emphasis was laid on determining environmental facts at micro level that correlated with development and success. The factor that were concentrated on.
Social/psychological factors including family, peer group, formal and informal association, etc. Financial Material availability Technology availability/applicability.

At the macro level, the study tried to establish the relationship between the state of national economy and the development of entrepreneur. The success was measured based on. Increase in profits Increase in turnover Increase in assets Extent of diversification.

The sample was 51 respondents from the list of 700 members of Small Scale Industries Federation. Structured questionnaire with certain open ended question were administered. 12 of the member were also interviewed after three months, cases were constructed based on these interviews . Conclusions where drawn to further revalidate these finding of the study.

For the purpose of study, entrepreneurs life was divided into two stage, initiation and subsequent success of an entrepreneur Following were the variables studied and the findings. Educational background: Against the earlier notion that those lacking educational qualification went in for business 41.18 % had professional qualification 27.45% were graduates and rest non-graduates or SSC and below. No significant relationship could be established between the educational background and entrepreneurship of a person.

Age: Mean age at which entrepreneurs started an enterprise was found to be 24.6 yrs. 82.35% thought of starting business befor the age of 30. Maximum concentration was determined between the age of 25-30 years indicating that ideal time to impart entrepreneurial training would be between 18 to 25 years.So after highlighting all the alternatives the entrepreneur is ready to start a new venture at the age of 30 yrs,

From the sample studied not a single entrepreneur started business between 40 to 50 years. Indicating a tendency not to take risk at middle age or postpone the idea of entrepreneurship till retirement. Comparing the average the entrepreneurs actually started business at 28 and the average age at which they thought of the starting business at 24.6 it takes 3.5 years from conceiving the idea to commencing the business.Therefore sowing the idea of entrepreneurship in the form of training should be undertaken before the age of 25.

Also 37 of the 51 entrepreneurs started business at 30 years There were no fresh business ventures between 41 to 50 years. Only 20 % of the entrepreneurs started their business between the age of 31 and 40 years.

Friends: influence was found to play a significant role to the extent of 29.4%. While selecting a prospective entrepreneur for intensive training it is advisable to gather information of his friends.As an entrepreneur friend is likely to induce people towards entrepreneurship. It is recommended to establish an Entrepreneur Club by agencies associated with development of entrepreneurship for speedy development, vital for economic growth.

Community: 13 of the 51 entrepreneurs surveyed quoted this as a determining factor as the community, family members and relatives made significant contribution in inculcating entrepreneurship.

Prior Occupation status: As regards the status of entrepreneurs before their entry into business 70.59 percent were previously employed,21.57 percent studying 7.84 percent unemployed. Looking out for opportunities while studying and starting a business immediately after completion or many join family business gain some experience and start their own venture Being unemployed and taking to entrepreneurship as a last resort. Failure in the category will be the highest. Government programmes also concentrate on this category.

After serving for some years, accumulating some capital, leaving the jobs to take up entrepreneurial roles. Of the 36 falling in this category, 13 worked for large companies, 11 in medium size and 11 in small companies and 1 in state government. 17 of these people left their job due to dissatisfaction. It is possible to locate prospective entrepreneur amongst those working in commercial undertaking who are either dissatisfied or having high achievement motivation. Also due to attractive policies and money making opportunities one would like to take up entrepreneurship

Family size: Only 13.72% came from small family having one or two children.23.53% came from families having 5 children and as high as 54.9% came from families having 5 or more children. Financial difficulties spurring children to take up economic activities with higher determination /N.Ach or the feeling of support from brothers & sisters in times of need should explain this phenomenon. Family size no way related to entrepreneurial success

Except one respondent, all fathers of entrepreneurs had crossed the age of 40. Possible that these parents gave mature advice because of their age and experience. Parents education had no correlation to development of entrepreneurship. A large 58.2% of entrepreneurs came from families where their parental profession had influence.However there was no correlation with the later success. Also there was no correlation with the individuals entrepreneurship and his brothers profession

Wife: Seeks support at the beginning of the entrepreneurial venture & wife is in vantage position to provide the emotional and financial support. With exception of 6 (11.77%) cases of early marriage rest had married at normal ages for urban population. There were 8 bachelors. There was one solitary non matric wife rest were reasonably well educated which was in contrast with respect to mothers of entrepreneurs.

An educated wife is an asset to an entrepreneur as she can assist or take up a job, should need arise. Risk taking abilities of the entrepreneur was reinforced in such above cases. (58.6%) of the wives were unemployed. Though they were safety devices during lean periods. Education background of wives had no correlation with the success of the entrepreneurs.

Joint family: Often thought to be impediment to nurturance of entrepreneurship in Hindu families. Finding disprove this notion as 45.10% were from joint families. Though family status was not found to have any bearing on the entrepreneurs success.

Migration: Though no relationship could be determined between these two factors in the initiation stage it was found to correlate with success of entrepreneurship. Such movement serves to inculcate coping capabilities which is desirable quality for success.

Peer Group: The finding of 56.8% having at least one entrepreneur friend substantiated the initial notion that peer group had significant effect on the thinking and behavior of entrepreneurs. This finding could be used while selecting prospective entrepreneurs development programmes or other support from governmental agencies. No relationship was found between having an entrepreneur friend and the later success.

Association Membership: 7 member had membership 44 replied in the affirmative. Two members subsequently became members. It is suggested that entrepreneur club be started with support from government or SIDC having a mix of existing and would be entrepreneurs to generate more prospective entrepreneurs. This may be only for initiation of entrepreneur, no correlation has been found between this factor to the success of an entrepreneur.

Financial Status of family: 23.53% came from rich families the rest from middle and low income group. 32.59% concentration was from low income group below Rs. 10000 per annum. 66% were from middle class. Willingness to take risk is not very high in low income group but very high in middle income group

People coming from lower middle and lower income group has relatively high risk in taking up entrepreneurship. High income families with income over Rs. 1 Lakh were mostly engaged in business. Indian tradition of taking up hereditary profession must have contributed to children from such families to take up entrepreneurship. More successful entrepreneur came from such business environment with ability to take higher risks.

This finding is somewhat contrary to socioeconomic objective of the government which feel concerned about the rich getting richer and poor getting poorer. 16.29% had married into rich families 79.07% married into middle class and 4.65% into lower income groups. Of the 51, 16 had received financial aid from relatives ranging Rs. 5000 to Rs. 50000. & 12 had received aid from friends varying from Rs. 1000 to Rs. 50000

Most of the entrepreneurs had accumulated capital before starting their venture 68.3% had accumulated capital above Rs, 10000, few depended on help from wife relatives or friends. No relationship was established between these aids and their success.

Availability of Material Only 7.84% claimed that availability of material in their areas of stay was an aid to their becoming entrepreneurs. Though easy availability of raw material is a good reason for starting an industry it may be worthwhile to isolate such materials and give support to certain selected entrepreneurs to develop industries related to these materials

Availability of Technology Only 4 entrepreneurs stated this reason for starting venture. Thus some members may become entrepreneurs due to easy availability of technology in nearby areas but it is not a necessary condition.

Entrepreneurship collectively has the power to change the destiny of family, city, state or country. Punjab & Haryana has high economic growth as compared to other states like Bihar,Orissa because of strong entrepreneurial base. Individuals in economically backward states search for jobs. South Indian states are catching up on entrepreneurial activity which can speed up economic growth in current decade.145

Earlier entrepreneur were Marwaris,Baniyas SIDC & SISI has made some efforts to train entrepreneur. Short term courses have been conducted by them to develop capabilities in entrepreneurs. There have shortcomings in these projects.

Reasons for limited success in Nurturing Entrepreneurship. General Lack of Entrepreneurs in the country. Rural India people prefer jobs to self employment Need for research and re-strategizing developmental schemes. Candidates selected for these courses are the ones who have failed to get a job. Qualified men seek government jobs Unemployed people lack experience and ability to perceive the project and build the enterprise. They are more likely to fail strengthening belief to take up jobs.

Source for ample supply of entrepreneurs could be management institutes. Business schools need to re-orient management education in India. Presently producing administrative managers whereas developing countries like ours need entrepreneurs. Entrepreneurship should be made a compulsory subject & cases on successful entrepreneurs should be presented in these courses.

Project work on entrepreneurial venture should be introduced-could be a feasibility report. In AIMs Manila students do not pass unless they submit a xerox copy of cheque issued by Bank approving the feasibility report prepared by him. Talks by successful entrepreneurs should be organized Emerging entrepreneurs from sunrise industry should be call for such talks. Encourage students to generate new ideas for launching new ventures specially in new technology areas. Talks by successful entrepreneur- alumni will be more impactful in nurturing entrepreneurship.

Institute should start Entrepreneurship centres to do research on the subject and recommend policy measures to strengthen entrepreneurship in management student. IIT has established such a centre to convert engineers into entrepreneurs. Entrepreneurs should preferably start with trading/marketing/service providing, with less capital need and less risk and avoid temptation of building. Once he has the feel of the market then he could backward integrate.

Entrepreneurship CHP 1

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Entrepreneurship CHP 1

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Course Content : (A) Entrepreneurial Perspective: Concept of Entrepreneur, advantages Entrepreneur Entrepreneurship and Enterprise ;

3) Personality of an Entrepreneur! Entrepreneur

Global Views on Entrepreneurship

Dr. Joseph A. Schumpeter well-known expert on entrepreneurship, emphasizes.

Dr. David C McClelland-key researcher in the area of entrepreneurship-findings

Dr. David C McClelland-key researcher in the area of entrepreneurship-findings

Dr. David C McClelland-key researcher in the

Entrepreneur & Interpreneur

Creating Intrapreneurial Environment

Creating Intrapreneurial Environment

Creating Intrapreneurial Environment

Failure & Mistakes

Nature & Development of Entrepreneurship

Nature & Development of Entrepreneurship

Nature & Development of Entrepreneurship

Nature & Development of Entrepreneurship

Nature & Development of Entrepreneurship

Nature & Development of Entrepreneurship

Government approach towards the item

Preparing a Business Plan

Preparing a Business Plan

Future demand & supply position.

Capital cost & Sources of Finance.

Capital cost & Sources of Finance

Other financial Aspects

Prepare the projected Profit & Loss Account

F=Fixed cost, (S-V) S= Sales at Full capacity V=Variable cost

Other financial Aspects

2)Return on Investment= Net profits X 100

Other financial Aspects

Debt Service Coverage Ratio (DSCR)

Economic and Social Variables

Economic and Social Variables

Economic and Social Variables

Economic and Social Variables

Ordering plant and machinery

Fixed Asset- Building & Machinery

Workshop Godown Administrative Other Buildings

Evaluation of Pre-operative expense

Evaluation of Pre-operative expense

1st Year of 2nd Year 3rd Year Operation Operation Operation

Receivables other than exports & deferred receivables (including

Evaluation of Working Capital Requirement B. Current Liabilities

1st Year Operation

2nd Yr. Operat.

3rd Year Operat.

Evaluation of Working Capital Requirement OTHER ITEMS

1st Year Operation

2nd Yr. Operat.

3rd Year Operat.

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Management of Working Capital

Advantages of financial forecasting

Projected Profit & Loss statement

Projected Balance Sheet