UME 1943: ENTERPRENEURSHIP

Unit 3 - Business
 Unit-3 Business

➢ Small Enterprises – Definition, Classification –

Characteristics

➢ Ownership Structures
➢ Project Formulation – Steps involved in setting up a
Business – identifying, selecting a Good Business
opportunity, Market Survey and Research, Techno
Economic Feasibility

➢ Assessment – Preparation of Preliminary Project Reports –

Project Appraisal – Sources of Information – Classification
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 Small Enterprises
➢ The economic reconstruction of India depends on the balanced
growth of economy in the fields of agriculture and industry.
➢ Due to scarcity of capital and finance in India, the Government of
India has encouraged small scale industries, as an alternative to
agriculture and heavy industries, as these can operate on limited
resources.
➢ A small-scale industry can be operated by an entrepreneur without
sophisticated machinery and modern technology.
➢ These small scale industrial units can be established in semi urban
and rural areas where the infrastructure is underdeveloped.
➢ The objective is to use local raw material for raising production with
the help of local skills

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 Small Enterprises
➢ The small scale units need short gestation period in establishment,
are less dependent on imported raw material and machinery and
help in meeting a substantial part of demand of consumer goods.
➢ These units also help in balancing regional disparities in economic
growth
➢ These units have played a very important role in the socio economic
development of our country since independence.
➢ This traditional sector in India is considered to have huge growth
prospect with its wide range of products. It has a significant
contribution in the growth of GDP, employment generation and
exports.

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 Small Enterprises
➢ The small-scale industrial sector in India is acting as engine of
growth in the new millennium.
➢ It contributes almost 40 percent of the total industrial output and 35
percent share in exports. The small-scale sector has grown rapidly
over the years.
➢ The number of small-scale units has increased from an estimated
0.87 million units in the year 1980-81 to over 33.70 lakhs in the year
2020 and accounts for 95 percent of the industrial units.
➢ The production of small-scale sector at current prices is about Rs.
6,45,496 crores. It gives employment to 186 lakh persons.

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 Small Enterprises - Meaning and Definition
➢ Small Scale Industries (SSI) are those industries in which the
manufacturing, production and rendering of services are done on a
small or micro scale.
➢ The definition for industrial undertakings has changed over time.
Initially they were classified into two categories- those using power
with less than 50 employees and those not using power with the
employee strength being more than 50 but less than 100.
➢ However, the capital resources invested on plant and machinery
buildings have been the primary criteria to differentiate the small-
scale industries from the large and medium scale industries.

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 Small Enterprises - Meaning and Definition
➢ An industrial unit can be categorized as a small- scale unit if it fulfills
the capital investment limit fixed by the Government of India for the
small-scale sector.
➢ As per the definition which is effective since December 21, 1999, for
any industrial unit to be regarded as Small-Scale Industrial unit the
following condition is to be satisfied:
❑ Investment in fixed assets like plants and equipments either held on
ownership terms on lease or on hire purchase should not be more than
Rs 10 million(one crore).
❑ Such plant and machinery may be owned or obtained on lease.
❑ While calculating the investment in plant and machinery items like land,
building and some equipments required for quality control, pollution
control etc, are excluded.

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 Small Enterprises - Meaning and Definition
❑ However the unit in no way can be owned or controlled or ancillary of
any other industrial unit.
❑ In case of Tiny units the cost limitation is upto Rs 5 lakhs
❑ In case of Ancillary units the cost limitations is Rs 75 lakhs.

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 Classification of Small-Scale Industries

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 Classification of Small-Scale Industries

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 Classification of Small-Scale Industries
Small scale enterprises can also be classified based on the amount of
capital invested in their operation. In this scenario, these industries can be
classified into the following

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 Characteristics of Small-Scale Business
➢ High Labor Intensity: Small scale industries are fairly labour-
intensive. They provide an economic solution by creating
employment opportunities in urban and rural areas at a relatively low
cost of capital investment.
➢ Less Capital Intensive: Small scale industries can be started with
very less investment. They usually have much smaller capital than
larger enterprises.
➢ The term “shoe-string budget” refers to businesses that operate
under very tight budgets. Small businesses are sometimes run out
of a room in the business owner’s home; this cuts the cost of renting
office space.

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 Characteristics of Small-Scale Business
➢ Use of Local Skills and Knowledge: The Government of India is
striving to improve the economic and social conditions of rural
population and non-farm sector through a host of measures
including creation of productive employment opportunities based on
optimal use of local raw materials and skills
➢ Flexibility: Small scale industries are flexible in their operation. They
adapt quickly to various factors that play a large part in daily
management. Their flexibility makes them best suited to constantly
changing environment.

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 Characteristics of Small-Scale Business
➢ Entrepreneurial Spirit: A small scale unit is generally a one-man
show. It is mostly set up by individuals. Even some small units are
run by partnership firm or company; the activities are mainly carried
out by one of the partners or directors.
➢ Therefore,’ they provide an outlet for expression of the
entrepreneurial spirit. As they are their own boss, the decision-
making process is fast and at times more innovative
➢ Use of Indigenous Raw Materials: Small scale industries use
indigenous raw materials and promote intermediate and capital
goods.
➢ They contribute to faster balanced economic growth in a transitional
economy through decentralization and dispersal of industries in the
local areas.
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 Characteristics of Small-Scale Business
➢ Localised Operation: Small scale industries generally restrict their
operation to local areas in order to meet the local and regional
demands of the people. They cannot enlarge their business
activities due to limited resources.
➢ Lesser Gestation Period: Gestation period is the period after which
the return on investment starts. It is the time period between setting
the units and commencement of production.
➢ Small scale industries usually have a lesser gestation period than
large industries. This helps the entrepreneur to earn after a short
period of time. Capital will not be blocked for a longer period.

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 Characteristics of Small-Scale Business
➢ Workplace Culture: Small businesses have fewer employees.
Employees of small businesses are less specialized than in larger
businesses.
➢ In larger enterprises, employees have specific job descriptions, but
in small businesses employees are more often expected to help with
a variety of tasks, because there are fewer people to do everything.

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 Objectives and Features of Small-Scale
Industries
➢ They create employment opportunities in developing countries like
India. Since capital investment and technology usage is limited in
this sector, it mostly relies on manpower, thus generating
employment.
➢ These industries help to boost the underdeveloped sectors of the
economy – for example rural and cottage industries.
➢ These industries also aid in addressing the problem of financial
imbalance between the rural and urban sectors of the economy.
➢ These industries often adopt the implementation of technology that
can help to produce quality products at lower costs.
➢ India’s export industry is largely dependent on these small-scale
enterprises. Almost half of the goods exported from India are either
produced or manufactured in these industries.
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 Role of Small-Scale Industries in the Indian
Economy
➢ They are the major sources of employment for the people living in
rural areas and therefore, play a vital role in generating employment
in an economy.
➢ Small scale industries account for almost 40% of the total goods and
services in India hence, is a very important contributor to the
economy.
➢ Small scale industries help in promoting the Make in India initiative
which helps in increasing demand for local made products.
➢ Majority of the export materials are provided to the Indian
companies from the small scale industries. It is estimated that
around 50% of all the material exported are produced from such
industries

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 Role of Small-Scale Industries in the Indian
Economy
➢ Contribution in GDP Small industries in India account for 95 % of the
industrial units in the country. They contribute almost 40 % of the
gross industrial value added in the economy. (ii) Contribution in
Exports 45% of the total exports from India come from small scale
industries
➢ Contribution in Exports 45% of the total exports from India come
from small scale industries. Gems and jewellery, handicrafts, sports
goods, etc are some items of exports from small scale sector.

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 Ownership Structures

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 Factors for Comparing Forms of Business
Ownership
➢ Concept of Limited Liability - The concept of limited liability is an
important factor for ensuring that personal assets or properties of
owner of the business are not at stake to cover debt or liabilities of
the business.
➢ For example in a sole proprietorship ownership form businessman
do not have limited liability and if someone sues his/her business
their own properties of assets like car, house, and money etc. are at
stake.
➢ In a Company ownership form businessmen do have limited liability
and his/her personal assets are not at stake
❑ Limited liability is especially desirable when dealing in industries that
can be subject to massive losses, such as insurance. A limited liability
company (LLC) is a corporate structure in the United States whereby
the owners are not personally liable for the company's debts or
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 Factors for Comparing Forms of Business
Ownership
➢ Burden of Paying Taxes - Some forms of business ownership are
taxed more than others as the individual owner is separate from
business organisation.
➢ To illustrate, Company form of business organization are subject to
double taxation i.e. the business and shareholders pay their tax
individually for same business income
➢ A Possibility of Raising Capital- For certain business structures it is
not difficult to raise money considering other business structures.
➢ For example, in a company form of business organization the capital
can be raised by issuing shares to the public and required
arrangement of money can be made. However, whenever company
is issuing shares to the public, they are selling a portion of
ownership to the buyer of shares.
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 Factors for Comparing Forms of Business
Ownership
➢ Licenses and Permits - The complexities involved in setting up or
initiating business is different from one form of business organization
to other form of business organization.
➢ A Company form of business organisation for example needs more
paperwork and is more expensive to set up than a sole
proprietorship

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 Sole Proprietorship
➢ When the ownership and management of business are in control of
one individual, it is known as sole proprietorship or sole trader-ship.
➢ In every country, every state, every locality Sole Proprietorship id
seen everywhere. For example, the shops or stores which one see
in his/her locality i.e. the vegetable store, the sweets shop, the
grocery store, the chemist shop, the paanwala, the stationery store,
the STD/ISD telephone booths etc. come under sole proprietorship.
➢ It is not necessary that a sole trader-ship business must be a small
one but, it is also possible that the volume of activities of such a
business unit may be quite widespread or large.
➢ In general, since such business is owned and managed by one
single individual, often the size of business remains small.

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 Partnership
➢ Where two or more persons are associated to run a business with a
view to earn profit is called partnership form of organization.
➢ Persons from similar background or persons of different aptitude
and skills, may join together to carry on a business known as
partnership firm.
➢ Each member of such a group is individually known as ‘partner’ and
collectively the members are known as a ‘partnership firm’.
➢ These firms are governed by the Indian Partnership Act, 1932.
➢ In India there is Limited Liability Partnership Act of 2008 in which the
liability of partners are limited but, till date it does not have a
widespread use in the form of business organization

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 Private Company or Joint Stock Company
➢ Joint Stock Company form of business organisation is given a legal
status; is subject to certain legal regulations; is a voluntary
association of persons to carry on business.
➢ Joint Stock Company is an association of persons who generally
contribute money for some common purpose and such contribution
is called the capital of the company.
➢ The persons who contribute capital are its members of Joint Stock
Company. Every member contribute money as per their own ability
and desire and the proportion of capital to which each member is
entitled is called his share, therefore members of a joint stock
company are known as shareholders and the capital of the company
is known as share capital.

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 Private Company or Joint Stock Company
➢ The total share capital is divided into a number of units known as
‘shares’.
➢ One may have heard of the names of joint stock companies like
Birla Group of Companies, Reliance Industries Limited, Tata Iron &
Steel Co. Limited, Hindustan Lever Limited, Larson & Tubro Steel
Authority of India Limited, Balsara, Ponds India Limited etc.
➢ The companies are governed by the Indian Companies Act, 1956.
➢ The Act defines a company as an artificial person created by law,
having separate entity, with perpetual succession and a common
seal.

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 Characteristics of Company
➢ Artificial Person: A Joint Stock Company is created by law and does
not possess physical attributes of a natural person and therefore
called as an artificial person. However, it has a separate legal status
and it can sue or can be sued by any person.
➢ Separate Legal Entity: The major advantage is that being an artificial
person, a company has an existence independent of its members.
❑ Joint Stock Company can own property, enter into contract and conduct
any lawful business in its own name and can sue and can be sued in
the court of law.
❑ A shareholder cannot be held responsible for the acts of the company
like sole proprietorship or partnership firms.

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 Characteristics of Company
➢ Common Seal: As Joint Stock Company is created by law and does
not possess physical attributes of a natural person every company
has a common seal by which it is represented while dealing with
outsiders and all its stakeholders.
❑ Company is responsible for use the company seal. Any document with
the common seal and duly signed by an officer of the company is
binding on the company.
➢ Perpetual Existence: A Joint Stock Company is created by law and
its survival is not affected by the death, lunacy, insolvency or
retirement of any of its members.
❑ Company once formed continues to exist as long as it fulfills the
requirements of law. The owner of the firm may change due to transfer
of ownership of shares to others, but it does not affect existence of the
company
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 Characteristics of Company
➢ Limited Liability: In case of payment of debts by the company, a
shareholder is held liable only to the extent of the face value of
share. The liability of a member of a Joint Stock Company is limited
by guarantee or the shares he owns, and his personal property are
not at stake for payment of company’s liability.
➢ Transferability of Shares: The members/shareholders of a company
are free to transfer the shares held by them to anyone else and
there is no restriction to own shares.
➢ Formation: When company has been registered by completing the
formalities prescribed under the Indian Companies Act 1956 it
comes into existence.
❑ A company is formed by the initiative of a group of persons known as
promoters who complete all the legal formalities and submit required
documents to the Registrar of the Companies in their respective
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territories
 Characteristics of Company
➢ Membership: There is difference between number of members for
Private Limited Company and Public Limited Company. For Private
Limited Company there should be minimum two persons as a
member and maximum limit is fifty members excluding present
employees as members and ex employees as members.
➢ But in case of a Public Limited Company, the minimum is seven and
the maximum membership is unlimited.
➢ Number of Directors: In case of Public Limited Company there
should be minimum 03 board of director & maximum 12, and there is
provision for appointing more number of directors provided
permission is taken from central Government for the same.
➢ In case of Private Limited Company minimum 02 directors and for
maximum number of directors there is no limit
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 Characteristics of Company
➢ Management: Joint Stock Companies follow the democratic
management and control where only elected directors manage the
business. In other words, the company is managed by the elected
representatives of shareholders known as Directors.
➢ Even though the shareholders are the owners of the company, all of
them cannot participate in the management process.
➢ Raising of Capital: A Joint Stock Company generally raises a large
amount of capital through issue of shares to public at large.
Company can collect required finance through issue of different
types of shares such as Equity Shares, Preference Shares, and
Debentures. Company can also collect deposits from public to meet
the financial requirement

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 Suitability of Company
➢ A joint stock company form of business organisation is suitable in
certain situations where the volume of business is quite large;
➢ Where the area of operation is widespread; where the risk involved
is heavy; where there is a need for huge financial resources and
manpower.
➢ It is also preferred when there is need for professional management
and flexibility of operations.
➢ In certain businesses like banking and insurance, business can only
be undertaken by joint stock companies.
➢ The company organization is most suitable is for larger businesses.

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 Suitability of Company
➢ For small business, this form is too burdensome and may be too
expensive.
➢ The company form of business organization is found in large-sized
manufacturing, trading, and service activities as such organization
need huge amount of capital outlay in fixed and other assets which
can be collected by an entrepreneur by the company form of
organization.
➢ For example, large construction plants; fabricating plants and
various trading enterprises like big departmental and chain stores
and services organizations like big transportation and engineering
firms are also organized in the form of companies.

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 Private Company Registration Process

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 Project Formulation
➢ Project Formulation, as name suggests, is simply a systematic
expression and concise or exact statement of project usually to set
boundaries or limits of work that is going to be executed by project.
➢ In Contrast, Project Report, as name suggest, is simply report that
provide general state and is prepared for plan action that is going to
be undertaken which usually covers details like technical, social,
marketing and management.
➢ Project formulation is a step by step investigation and development
of the project where each step is for further development of project
idea.
➢ It is a control mechanism which provides for restricting expenditure
on project development. So, it enables to control the expenditure
and if at any step there are signs of anything going wrong or if
weakness is observed in the project at any stage of investigation,
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the project may even be called off.
 Project Formulation
➢ Project formulation is the systematic development of a project idea
for the eventual objective of arriving at an investment decision. It has
the built-in mechanism of ringing the danger bell at the earliest
possible stage of resource utilization
➢ Need for Project Formulation
❑ Selection of Appropriate Technology
❑ Influence of External Economies
❖ Supply of raw material
❖ Requirements of power and its supply
❖ Supply of tools, spare parts
❑ Non-availability of Technical Manpower
❑ Resource Mobilisation

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 Elements of Project Formulation

➢ Feasibility analysis
➢ Techno-economic analysis
➢ Project Design and Network analysis
➢ Input analysis
➢ Financial analysis
➢ Social Cost-benefit analysis
➢ Project appraisal

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 Elements of Project Formulation
Feasibility analysis
➢ Feasibility analysis is a process undertaken to determine whether
the project idea is worth proceeding with or not.
➢ It evaluates the future of the project idea within the limitations
imposed by the environment upon it and also the constraints of the
implementing body.
➢ Generally, the outcome of the study can give a positive result under
which the decision to proceed with the project is taken otherwise the
project can be abandoned.
➢ Sometimes, the data is not sufficient to arrive at any decision and in
that case further information is collected till a decision can be
reached. The feasibility analysis consists of three stages. These are
pre-feasibility study, feasibility study and Project report
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 Elements of Project Formulation
Techno-Economic Analysis
➢ It is concerned with finding out the demand potential of the project
and the right technology required attaining the objective of the
project.
➢ It is important to analyze whether the economy will absorb the
output. The technology would mean the project design, the
methodology and the process required.
➢ Thus it is to be understood in a broader sense. This analysis
consists of two important segments.
➢ The first segment is related with ascertainment of maximum project
output whereas the purpose of second segment is the selection of
optimal strategy to achieve the output

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 Elements of Project Formulation
Project Design and Network Analysis
➢ It is related with the flow of various individual activities and their
inter-relationship in order to complete the project. It identifies
activities which can be started and also the activities which can be
taken up simultaneously. It is generally depicted in the form of a
network diagram. .
Input Analysis
➢ After all the analysis the next step is to find out all the resources that
are required to complete the project. These resources form the
inputs of the project. It also identifies all the different phases where
the resources are required.

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 Elements of Project Formulation
Financial Analysis
➢ The estimates about the financial costs of the project and the
revenue generated by it so as to determine whether it will be
profitable to undertake the project or not is termed as financial
analysis.
➢ The following norms are adopted by Financial Institutions in the
examination of financial feasibility of project:
❑ Cost estimates of the project are to be examined whether such costs
are realistic and
❑ escalation is taken into account.
❑ Time and cost over-runs should be considered.
❑ Sources of finance i.e. debt-equity ratio, financing of fixed assets,
financing of working capital, promoters contribution towards share
capital, etc. debt equity ratio of 2:1 should be maintained.
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 Elements of Project Formulation
❑ Financial viability i.e., profitability, sensitivity analysis, cash flow are to
be examined thoroughly.
❑ IRR should be worked out.
❑ Interest coverage ratio should be calculated.
❑ The level at which the project is likely to break-even is also examined.
❑ Loan repayment schedule is drawn up as per financial projections.
Repayment should be made out of internal resources.
❑ In case of existing company, the impact of new project on the level of
production, net earnings, borrowings, costs, etc. is to be seen.
❑ Unsecured loans from promoters are allowed only in restricted
circumstances and with a condition that they should not withdraw the
amount without permission of the financial institution

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 Elements of Project Formulation
Social Cost-benefit analysis
➢ The concept of social cost–benefit analysis (SCBA) has been
introduced by the French economist Jules Dupuit.
➢ Social Cost benefit Analysis is a systematic evaluation technique for
long-term decision making in capital projects appraisal. It is an
analytical tool in decision making which enables a systematic
comparison to be made between the social costs and related social
benefits with due emphasis on technical and other feasibility studies
but focusing more on social impact.
➢ In the context of planned economies, the social costs benefit
analysis aids in evaluating individual projects within the planning
framework.

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 Steps involved in setting up a Business
Deciding to go into Business:
➢ This is the most crucial decision a youth has to take, shunning
wage-employment and opting for self-employment/entrepreneurship.
Analyzing Strengths/Weaknesses:
➢ Having decided to become an entrepreneur, the young person has
to analyze his/her strengths/weaknesses. This will enable him/her to
know what type and size of business would be most suitable. This
will vary from person to person.
Product Selection
➢ The next step is to decide what business to venture into, the product
or range of products that shall be taken up for manufacture and in
what quantity.

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 Steps involved in setting up a Business
Product Selection
➢ The level of activity will help in deciding size of business and form of
ownership. One could generate a number of project ideas through
environmental scanning, short list a few items, closely examine each
one of these and zero on to a final products.
Market Survey
➢ It is easy to manufacture an item but difficult to sell. So it is prudent
to survey the market before embarking upon production and satisfy
the product chosen is in demand changes in product design
required, determining demand-supply gap, extent of competition,
your potential share of the market, pricing and distribution policy,
etc.

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 Steps involved in setting up a Business
Form of Ownership:
➢ A firm can be constituted as proprietorship, limited company, (public
or private) co-operative society, etc. This will depend upon the type
purpose and size of your business. One may also decide on the
form of ownership based on resources on hand or from the point of
saving on taxes.
Location:
➢ The next step will be to decide on the place where the unit is to be
located. Will it be hired or owned? The size of plot and covered and
the last one identified. This will be useful in determining the
machinery and equipment to be installed.

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 Steps involved in setting up a Business
Machinery and Equipment:
➢ Having chosen the technology, the machinery and equipment
required for manufacturing the chosen product/s have to be decided,
suppliers identified and then costs estimated. One may have to plan
well in advance for machinery and equipment especially if it has to
be procured from outside the town, state or country that is, have to
be imported.
Project Report:
➢ The economic viability and technical feasibility of the product
selected has to be established through a project report. A project
report that may now be prepared will be helpful in formulating the
financial, production, marketing and management plans. It will also
be useful in obtaining finance, shed, power, registration, raw
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 Steps involved in setting up a Business
Finance:
➢ Money is no problem for starting scale industry. But an entrepreneur
has to take certain steps and follow specific procedures to obtain it.
A number of financial agencies will give loans on concessional
terms.
Power Connection:
➢ The site chosen should either have adequate power connection or
this should be arranged now.
Installation of Machinery:
➢ Having arranged finance, work shed, power, etc. the next step is to
procure the machinery and begins its installation.

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 Steps involved in setting up a Business
Recruitment of Manpower:
➢ Once machines are installed manpower will be required to run them.
So the quantum and type (skilled, semi-skilled, unskilled,
administrative, etc.) of labour have to be determined, sources of
getting desired labour identified and labour/staff recruited. Possibly,
the labour has to be trained either at the entrepreneur’s premises or
in a training establishment.

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 Identifying and Selecting a Good
Business opportunity
➢ Identifying a business opportunity is not just about having an idea.
An opportunity is something that a person can see as an avenue to
success, such as a ‘gap’ in the market that is not already being
satisfied by existing businesses.
➢ To turn a business opportunity into reality, an entrepreneur should
undertake
❑ some market research,
❑ choose a suitable location,
❑ estimate the number of potential customers,
❑ examine the competition and select a suitable group of people to sell to.

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 Identifying and Selecting a Good
Business opportunity
➢ Market research involves collecting and analysing information about
customers and the business opportunities available. Surveys,
questionnaires and interviews are used to reveal the facts and the
attitudes of customers.
➢ Market research helps the entrepreneur to make better decisions by
understanding consumer behaviour. Market research asks questions
such as:
❑ Who are our customers?
❑ What are they like?
❑ Why do they buy our product?

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 Identifying and Selecting a Good
Business opportunity
➢ Location: A good location can make the difference between success
and failure. It is an asset and will lead to high levels of sales and
profits. A bad location is a liability, affecting sales adversely.
➢ Therefore, the choice of location is important. This is particularly true
for retail and service-oriented businesses which need a constant
flow of people walking past the store — the passing trade — and for
this reason will need to be located in a shopping centre, mall or main
street
➢ Demographics: It is important for an entrepreneur to understand the
changes that are taking place in the make-up of the population.
Demographic factors are population characteristics that affect
customer spending and include age, ethnicity, gender, marital
status, family size and income. An examination of a region’s
demographic pattern will provide a clearer picture of a business’s
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possible customers
 Identifying and Selecting a Good
Business opportunity
➢ Competition: When identifying a business opportunity, the
entrepreneur must decide on the type of market in which their good
or service will compete.
➢ This means deciding whether to target the goods or services at a
broad market (mass market) or a more specialized market (niche
market).
➢ Once this decision is made, the entrepreneur is able to identify the
level of competition and the main competitors. An entrepreneur
should aim to achieve a sustainable competitive advantage over his
or her competitors so as to capture a larger share of the market

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 Identifying and Selecting a Good
Business opportunity
➢ Target market
➢ Many entrepreneurs are so enthusiastic about starting, they often
overlook one crucial question: who will buy my good or service?
➢ Sales are the lifeblood of the business, so it is necessary to have a
good understanding of one’s target market.
➢ Target market refers to the group of customers to which the
business intends to sell its products.
➢ Once the target market has been identified, the business
concentrates its marketing activities on that group.
➢ A women’s fashion boutique in central Sydney, for example, would
normally aim its marketing activities at the following type of
customer:
❑ Female, 25–45, city-based, high income
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 Market Survey and Research
➢ Market research (or marketing research) is any set of techniques
used to gather information and better understand a company’s
target market. Businesses use this information to design better
products, improve user experience, and craft a marketing strategy
that attracts quality leads and improves conversion rates.
➢ The information sought in a market survey may relate to one or
more of the following:
❑ Total demand and rate of growth of demand
❑ Demand in different segments of the market
❑ Income and price elasticities of demand
❑ Motives for buying Purchasing plans and intentions
❑ Satisfaction with existing products Unsatisfied needs
❑ Attitudes toward various products
59 ❑ Distributive trade practicesv 1.0
and preferences
 Market Survey and Research
➢ Market research (or marketing research) is any set of techniques
used to gather information and better understand a company’s
target market. Businesses use this information to design better
products, improve user experience, and craft a marketing strategy
that attracts quality leads and improves conversion rates.
➢ The information sought in a market survey may relate to one or
more of the following:
❑ Total demand and rate of growth of demand
❑ Demand in different segments of the market
❑ Income and price elasticities of demand
❑ Motives for buying Purchasing plans and intentions
❑ Satisfaction with existing products Unsatisfied needs
❑ Attitudes toward various products
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and preferences
 Steps for Market Survey and Research
➢ Define the Target Population: In defining the target population the
important terms should be carefully and unambiguously defined. The
target population may be divided into various segments which may
have differing characteristics. For example, all television owners
may be divided into three to four income brackets.
➢ Select the Sampling Scheme and Sample Size: There are several
sampling schemes: simple random sampling, cluster sampling,
sequential sampling, stratified sampling, systematic sampling, and
nonprobability sampling.
➢ Each scheme has its advantages and limitations. The sample size
has a bearing on the reliability of the estimates-the larger the sample
size, the greater the reliability.

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 Steps for Market Survey and Research
➢ Develop the Questionnaire: The questionnaire is the principal
instrument for eliciting information from the sample of the
respondents.
➢ Developing the questionnaire requires a thorough understanding of
the product/service and its usage, imagination, insights into human
behaviour, and familiarity with the tools of descriptive and inferential
statistics to be used later for analysis
➢ Recruit and Train the Field Investigators: Recruiting and training of
field investigators must be planned well. Great care must be taken
for recruiting the right kind of investigators and imparting the proper
kind of training to them..

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 Steps for Market Survey and Research
➢ Obtain Information as per the Questionnaire : Respondents may be
interviewed personally, telephonically, or by mail for obtaining
information. Personal interviews ensure a high rate of response.
➢ Scrutinize the Information Gathered : Information gathered should
be thoroughly scrutinised to eliminate data which is inconsistent and
is of dubious validity.
➢ Analyse and Interpret the Information : Information gathered in the
survey needs to be analysed and. interpreted with care and
imagination. After tabulating it as per a plan of analysis, suitable
statistical investigation may be conducted, wherever possible and
necessary. For purposes of statistical analysis, a variety of methods
are available.

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 Techno Economic Feasibility
Assessment
➢ Feasibility analysis is a process undertaken to determine whether
the project idea is worth proceeding with or not.
➢ It evaluates the future of the project idea within the limitations
imposed by the environment upon it and also the constraints of the
implementing body.
➢ The feasibility analysis consists of three stages. These are pre-
feasibility study, feasibility study and Project report.
➢ The projects identified are usually analyzed so as to establish the
viability of the project from the point of view of technical, marketing,
financial, etc.
➢ The feasibility analysis involves detailed analysis and evaluation of
the project from all relevant angles. The comprehensive guidelines
for project feasibility studies and evaluation are published by several
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 Components of (Techno Economic)
Feasibility Assessment
➢ The following are the main components of an effective feasibility
study:
❑ a) Scope of the Project
❑ b) Current Analysis
❑ c) Requirements as per the object of the Project
❑ d) Recommended course of action
❑ e) The cost effectiveness of the approach
❑ f) Concluding part
➢ Scope of the Project
➢ It is used to formulate a business problem. The scope should be
very well defined and specific. It is also important to define different
parts of the business that are directly or indirectly affected by the
project. A very many projects which start with great promises but
65 without well-defined scope vwither
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with time and do not reach their
objectives.
 Components of (Techno Economic)
Feasibility Assessment
Current Analysis
➢ The existing method of implementation is required to be defined and
understood under current analysis. It may be in relation with system,
product or any other parameter.
➢ There is a need to identify the strengths and weaknesses of the
existing system. It is always possible that certain elements under the
current system and product may still be useful equally in the new
system also.
➢ It means that no new fresh efforts are required on these elements.
There may be few modifications and adaptations only. It will
certainly save precious time and money. The feasibility study may
be completed well in time.
➢ Had this analysis not been undertaken, these useful elements would
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 Components of (Techno Economic)
Feasibility Assessment
Requirements as per the object of the Project
➢ The requirements of the project are to be identified and documented
as per the basic object of the project. These requirements may be in
relation to infrastructure, technology, information system, software,
special operating system, utilities, heavy equipment, etc.
➢ This element of feasibility study is as important as it is the nature
and type of project on which the requirements are based.
➢ For example, a manufacturing project may require substantial land
resources, but software solution project requires relatively lesser
space but expert IT professionals.

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 Components of (Techno Economic)
Feasibility Assessment
Cost Effectiveness of the Approach
➢ The approach selected should also be tested with respect to cost
effectiveness. In this segment not only the estimated total cost of the
recommended project is considered but also the cost of other
alternatives in order to facilitate comparison.
➢ The approach to development projects is different in the sense that
a project schedule is prepared showing the entire project path i.e.
from the very beginning and up to the end showing clearly the
sequence of all the activities.
➢ Thereafter a summary is prepared which elucidates the cost benefit
analysis as well the final return on investments

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 Components of (Techno Economic)
Feasibility Assessment
Concluding Part
➢ This is the assembly portion of the feasibility study wherein all the
preceding elements are considered with a formal review.
➢ There are two fundamental purposes of the review. The very first
being a thorough checks so as to substantiate its accuracy and the
ultimate purpose is to take final call on the acceptability of the
project.
➢ It is important to note that it is not necessary to take an affirmative
decision always. It may be rejection of the project or may be
required to be revised before finalization of any decision.

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 Major Areas of Feasibility Study
➢ 1. Technical Feasibility
➢ 2. Economic Feasibility
➢ 3. Legal Feasibility
➢ 4. Operational Feasibility
➢ 5. Scheduling Feasibility
➢ 6. Market and real estate feasibility
➢ 7. Resource feasibility
➢ 8. Cultural feasibility
➢ 9. Financial feasibility
➢ 10. Market research study
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 Major Areas of Feasibility Study
Technical feasibility
➢ The technical Feasibility Study aims to determine whether or not the
product is technically feasible.
➢ This study determines how the technical requirements of the project
can be fulfilled, which location would be the most appropriate and
what should be the size of the plant?
➢ This study and demand and market feasibility study are the
important pre-requisites for evaluating project prospects for
commercial profitability and national economic profitability upon
which the final decision should depend.
➢ The technical study also provides the basis for cost estimating

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 Major Areas of Feasibility Study
Aspects to be covered in Technical feasibility
➢ A suitable technical feasibility should cover the following steps:
❑ 1. Materials and Inputs
❑ 2. Production Technology
❑ 3. Product Mix
❑ 4. Location and Site
❑ 5. Plant Capacity
❑ 6. Structures and Civil works
❑ 7. Machinery and Equipment
❑ 8. Project Chart and Layouts
❑ 9. Work Schedule

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 Major Areas of Feasibility Study
Economic feasibility
➢ The proposed project should provide favorable economic benefits to
the entity. The economic feasibility assessment is conducted to
analyze this aspect.
➢ There is also a need to identify and quantify the economic benefits
that is expected to be provided by the project.
➢ This feasibility necessarily involves comparative analysis of cost and
benefits.

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 Preparation of Preliminary Project
Reports/Business Plan
➢ A project report or business plan is a written statement of what an
entrepreneur proposes to take up.
➢ It is one kind of course of action about what the entrepreneur hopes
to achieve in his business and how is he going to achieve it.
➢ It delineates what the business is all about or what it intends to be
over time.
➢ It helps in determining the business feasibility. It offers a guideline to
start-ups. It covers all aspects of business i.e., financial, technical,
administration and so on.
➢ Business plan is ins and outs (details) of a business. In General, this
report or plan provides comprehensive business analysis and help
you to understand business and help you to raise the funds

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 Preparation of Preliminary Project
Reports/Business Plan
➢ After having selected the project/product or the service to be
rendered, the entrepreneurs has to prepare a project report.
➢ A project report is a report which provides all the necessary
information of the unit proposed to be setup for the manufacture of a
product or rendering a service.
➢ Financial institutions and banks require project report for providing
financial assistance.
➢ Various developmental agencies which help set-up the project also
require project report.
➢ A well-prepared project report will help the bankers in appraising the
project report and offer financial assistance.

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 Preparation of Preliminary Project
Reports/Business Plan
➢ A project report enables the entrepreneur to know how much
money, man-power and material would be required to set-up the
project, type of machine and technology required, and the economic
gains from the project.
➢ Information regarding economic, technical, financial, managerial and
production aspects of the project/service are covered by the project
report

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 Contents of a Project Report

➢ 1. General Information.
➢ 2. Project Description.
➢ 3. Market Potential.
➢ 4. Capital Costs and Sources of Finance.
➢ 5. Assessment of Working Capital Requirements.
➢ 6. Other Financial Aspects.
➢ 7. Economic and Social Variables

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 Contents of a Project Report
General Information :
➢ Bio-Data of Promoters
➢ Industry Profile
❑ A little reference of analysis of industry to, which the project belongs,
e.g., past performance, present status, the way it is organized, the
problems it faces, etc.
➢ Constitution and Organisation
❑ The constitution and the organizational structure of the enterprise. In
case of a partnership firm, whether it is registered with the Registrar of
Firms.
❑ Whether a Registration Certificate from the Directorate of
Industries/District Industries Centre has been obtained or will be applied
later on.

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 Contents of a Project Report
➢ Product Details
❑ The utility of the product and the range of products to be manufactured.
One could even provide the product designs /drawings along with and
made a mention of the advantages the proposed product offers over its
substitutes
Project Description
A brief description of the project covering the following aspects should
be given in the project report.
➢ Site :
❑ Location (town, street, number etc.) whether owned or leasehold land;
whether the site is in approved industrial area? Is it suitable to the type
of enterprise being planned? The open/covered area availability needed
should be mentioned. If the location is in a residential area then the
copy of No Objection Certificate from the Municipal authorities should
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 Contents of a Project Report
Project Description
➢ Physical Infrastructure : Availability of physical infrastructure
consisting of the following items :
❑ (i) Raw Material : Whether imported raw material is also required? If so
whether the license has been obtained. Which are the sources of raw
material and what is the probability of getting it on a continuous basis at
fair prices?
❑ Skilled Labour : Whether skilled labour is available in that area? If not,
what arrangements have been made to train the labour in various skills?
➢ Utilities
❑ Power : Inadequate supply of electricity or its high unit cost in an area
may become a major constraint in running a project. The project report
should contain the information regarding the power requirements, the
load sanctioned, stability of supply of power and the price at different
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 Contents of a Project Report
➢ Utilities
❑ Fuel : Whether other fuel items like coal, coke, oil or gas, are required
and if yes, then state their avail ability position.
❑ Water : Water is an important factor for projects like brewery, tannery,
ice plant, soft drinks and chemicals. The source and the quality of water
in such cases should be clearly stated.
❑ Pollution Control : Most industrial plants produce waste material or
emissions that may create significant problems. The emission may be of
various types like (i) gaseous (smoke, fumes, etc.) (ii) physical (noise,
heat, vibration, etc.) or (iii) liquid or solid discharge through pumps and
sewers. State clearly the aspects like scope of dumps, sewage system
and sewage treatment plant.
❑ Communication System, Transport Facilities, Manufacturing Process,
List of machinery and Equipment

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 Contents of a Project Report
Market Potential : The following aspects relating to market potential
should normally be covered in the project report:
➢ Demand and Supply Position :
❑ State the data regarding total expected demand of the product and
present supply position. How-much of this gap will be filled up by the
proposed unit?
➢ Price Expected to be Realized :
❑ An estimate of the price expected should be furnished to assess the
margin of profit. A comparative statement of competitor’s selling price
would be helpful.
➢ Marketing Strategy :
❑ What strategy for selling the products is proposed to be followed?
Whether any arrangements have been made with reputed suppliers and
distributors for lifting the production?
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 Contents of a Project Report
➢ After-Sales Service :
❑ In some items it is very vital. Even due to a loose screw or snapping of a
wire, the customer may find the instrument either not working or working
improperly and without after-sales service.
➢ Seasonality Factor :
❑ Whether the product has seasonal fluctuations in sales? If so, the
arrangements made for warehousing or stocking of the goods in off-
season should be stated
➢ Transportation :
❑ Whether the unit will depend for the transportation of goods on public
carrier, or will it like to own its own transport? If own transport is needed,
state the probable cost and the amount of assistance required.

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 Contents of a Project Report
Capital Costs and Sources of Finance : An estimate of the various
components of capital items required by the unit should be given in the
report.
➢ These components may be the following:
❑ Land and building, Plant and machinery, installation costs, - Other
miscellaneous assets like furniture/fixtures, vehicles, tools, dies,jigs,
fixtures, patterns, types etc, Preliminary and preoperative expenses, -
Contingency cushion against price rise/unforseen expenses, - Margin
for working capital.
➢ Besides the cost factors, the report should include probable sources
of finance. These sources of funds should equal the cost of a project
as otherwise the project cannot be set-up in full.

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 Contents of a Project Report
Assessment of Working Capital, Requirements :
➢ Planning for working capital requirements is equally crucial for an
entrepreneur. While estimating the capital costs, margin for working
capital has considered.
➢ Any unit will be able to function only when adequate working capital
requirements have been made and shown along with the total cost
of the project
Economic and Social Variables :
➢ What will be the abetment costs i.e., costs for controlling the
environmental damage (e.g., pollution)? The abetment cost will
constitute the value of the additional engineering and technology
needed for treating the effluents -and emissions

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 Contents of a Project Report
Economic and Social Variables :
Whether the project will have some socioeconomic benefits, of which
the following are a few examples:
❑ (a) Employment Generating : The number of persons proposed to be employed
vis-a-vis employment situation of that area may be mentioned.
❑ (b) Import Substitution : The manner in which it is planned to be achieved and
the amount of benefit expected may be mentioned.
❑ (c) Ancillarisation : Whether the unit will need sub-contracting functions of such
type that ancillary industrial units may be promoted to meet them?
❑ (d) Exports : Quite likely the products proposed for manufacture may be exported
in full or in part.
❑ (e) Local Resource Utilisation: Certain local resources which are presently a
waste may be usefully utilised upon the project going on stream.
❑ (f) Development of the Area : How the establishment of the unit will bring on
overall development in the area of its operation

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 Contents of a Project Report
Project Implementation Schedule :
➢ Preferably a PERT/CPM chart can be appended to the project
report. If this is not feasible then in a tabular form, likely dates of
completion of the following activities can be mentioned.

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 Project Appraisal
➢ Project appraisal means the assessment of a project. It is critical
and analytical evaluation of the project from different angles.
➢ While appraising a project, technical, commercial, economic,
ecological, social and managerial aspects are taken into
consideration.
➢ Project appraisal is usually done by a financial, institution which
besides making an analysis of costs and benefits of a proposed
project assesses the project from the various aspects of an
investment proposition before extending finance.
➢ Project appraisal is, therefore, a process whereby a leading financial
institution makes an independent and objective assessment of the
various aspects of an investment proposition for arriving at a
financial decision and is aimed at determining the viability of a
88 project. v 1.0
 Components of Project Appraisal

➢1. Managerial Competence.

➢2. Technical Feasibility

➢3. Market Analysis.

➢4. Economic Viability

➢5. Financial Viability

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 Components of Project Appraisal
Managerial Competence:
➢ Successful entrepreneurs are found to be possessing managerial
and entrepreneurial traits. Funding agencies would therefore, like to
find out whether the individual interested in setting up the venture
possesses needed managerial traits.
➢ A project report should contain information such as family
background, educational qualifications, past experience of service,
business or industry, interest in other firms and innovative ideas of
promoters so as to enable financial institutions to assess managerial
capabilities of the individual..
➢ It is not necessary that entrepreneur should possess all managerial
traits and perform all the functions himself.

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 Components of Project Appraisal
Managerial Competence:
➢ He should either be able to perform all such functions himself or
should be competent and resourceful enough to hire and use the
required managerial resources. Project report, should therefore,
mention about the managerial structure of the enterprise.
➢ It is very difficult indeed to evaluate managerial and entrepreneurial
capabilities of an individual. Even if the promoter himself wants to
evaluate his capabilities the evaluation may not be very correct.
➢ It is likely to happen because the sense of self-esteem is prevalent
in every individual and it inhibits proper self-assessment

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 Components of Project Appraisal
Technical Feasibility:
➢ The technical feasibility of the proposal/project contains the resource
and technically analysis of the feasibility study. It deals, with the
production cost of the item.
➢ If the production cost of the item is low, the item can be sold at a
competitive price in relation to a similar quality product. For
example, hand operated fan at cheaper cost will be economically
feasible but technically unsound.
➢ The use of solar energy may be technically viable but it is not
economically feasible yet because the experiment on this line has
not been finalized.

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 Components of Project Appraisal
Technical Feasibility:
➢ Technical appraisal deals with the following components:
❑ (a) Location of the unit.
❑ (b) Size of the plant.
❑ (c) Process of Manufacture.
❑ (d) Factory layout
❑ (e) Personnel.
❑ (f) Availability and cost of raw material.
❑ (g) Power and water, facilities.
❑ (h) Technological viability in the application of the finished product

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 Components of Project Appraisal
Market Analysis :
➢ The success of project depends on how it is able to sell the
product/service in the market. This is because marketing is the only
activity which produces revenue while all other activities incur
expenditure.
➢ Therefore, the product/service should be marketable. The supply
and demand for the product/service must be estimated and see
whether there is any market opportunity.
➢ A detailed market analysis should be conducted covering market
opportunity and strategy for converting the opportunity into a reality.
➢ It is, therefore, suggested that the report should contain the following
information:
❑ The size and composition of the present demand.
94 ❑ Market segment (s) identified
v 1.0 for the proposed venture (The market)
 Components of Project Appraisal
Market Analysis :
❑ Market segment (s) identified for the proposed venture (The market)
segmentation may be done based on income, age and sex of
consumers, geography of the area, etc.)
❑ Short and long- term demand projection of the overall market and of the
segment(s) identified for the proposed project.
❑ The market penetration that the proposed unit is expected to achieve
over the, projected period. This may be planned in view of the
increasing national and international competition and changing need of
the consumers.
❑ Broad pricing structure based on which future demand has been made
and market penetration ratio has been calculated.
❑ The strategy of marketing in the target markets

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 Components of Project Appraisal
Economic Viability :
➢ Economic viability is an important criteria for evaluating a project.
Whatever may be the motivation in starting a project from the point
of view of the promoters, it shall be necessary that the operations
quantified on a year-to-year basis should generate sufficient profits.
➢ A project without adequate profits or which is likely to incur losses,
could not be classified as commercially viable.
➢ Evaluation of economic viability can be carried out through
projection of profitability worked out for a period ranging from three
to ten years. In case of financial applications, such projections
should be carried out for a period covering the term of the loan to be
negotiated with banks and financial institutions.

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 Components of Project Appraisal
Economic Viability :
➢ In any case, the profitability of a project should be established on a
long-term basis, keeping in view a spread of five years after a
reasonable level of capacity utilization is achieved.
➢ A Projected Profitability Statement has to be prepared by taking into
account-capacity utilization and all costs, it shall be necessary to
proceed further and calculate certain ratios to evaluate the economic
viability of the project.
➢ Some of the ratios are debt service coverage ratio, pay back period,
average rate of return, net present value, break-even sales and
internal rate of return.

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 Components of Project Appraisal
Financial Viability:
➢ The appraisal of the financial aspects involves scrutiny of:
❑ Cost of the project and means of financing.
❖ Land and site development, Plant and machinery, Buildings, Technical –
know how fees, Miscellaneous fixed assets, Preliminary expenses, Pre-
operative expenses
❑ Cash flow estimates.
❖ A cash flow statement is a projection of future sources of cash and their
application. In the cash flow statement, profit is the most important source of
inflow and profit depends on how accurately the cost of production and sales
estimated have been arrived at.
❑ Project balance sheets
❖ Projected balance sheets are to be prepared for. each of the years covering
the entire period of the term loan. The projected balance sheets report the
effect of the plan of operations on the assets, liabilities and capital of the
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 Sources of Information
➢ The Library is a primary resource for information. Government
agencies have a variety of publications which may be useful. Some
colleges and universities have reference libraries which may have a
circulation section available to the public.
➢ The Internet can be used to carry out research and to find useful
information and data. Examples of these search engines are
Google, Bing, Ask etc Also E-mail can be used to communicate with
providers of information who have websites on the internet.
➢ Subscribing to Trade Papers and Magazines. Desirable
entrepreneurs should have time to read articles especially in
understanding new trends and developments relating to business.
❑ It is advisable to keep a file of pertinent articles for future reference.
Example of such is page 4 of punch newspapers (Nigerian Newspaper)
which carries articles that are related to entrepreneurship and business.
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 Sources of Information
➢ Industrial Data is helpful in comparing a business to other similar
businesses. The data is available from trade associations or
government agencies and includes ratios such as; stock turnover,
cash discounts percentage mark-up, etc.
➢ Membership-Based Organisations can provide services such as
conducting research, organizing education and training programs,
implementing new technology, responding to members’ questions
and concerns and disseminating information through newsletters,
magazines, and special reports.
➢ Training Programmes can help entrepreneurs to develop formal
plans for improving their managerial skills and ability. Training
courses and adult education programs are designed by many
institutions, agencies, and associations.

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 Sources of Information
➢ Employees. The people who work for a business can provide
answers to specific problems in a business. For example,
entrepreneurs might ask employees for their advice and assistance
about stock display or customer attitudes. Employees are in a good
position to give valuable advice providing they know that their
opinions and suggestions are valued.
➢ Other Business Owners. Most businesses have common problems
and owners are generally willing to discuss their problems with one
another.
❑ Occasionally, the competitive nature of the business may discourage
this frank exchange, but if business is unrelated and do not compete for
the same customers, entrepreneurs may be willing to share ideas
concerning solutions to a common problem.

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 Classification Need for Project Formulation
➢ In many developing countries the entrepreneurs are facing a number
of problems while establishing a new project. To over come this
problem there is need for project formulation. They are

➢ Selection of appropriate technology

➢ Influence of External Economies
➢ Non-availability of technical personnel
➢ Mobilization of resources
➢ Lack of knowledge of government regulations

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 Agencies of Project Formulation

➢ 1. National Small Industries Corporation Ltd. (NSIC)

➢ 2. Small Industries Development Organisation.(SEDO)
➢ 3. Small Scale Industries Board (SSIB)
➢ 4. State small Industries Development Corporation
(SSIDC)

➢ 5. Small Industries Service Institution (SISIs)

➢ 6. District Industries Centers (DlCs)

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