Small Business Enterprises

Setting up a small business

Enterprise
 JA Schumpeter
• “Long range investing under rapidly
changing conditions, especially under
conditions that change or may change at
any moment under the impact of new
commodities and technologies, is like
shooting at a target that is not only distinct
but also moving and moving jerkily at that”.
 How to identify a Business
• Opportunity:
>to be your own boss
> to implement your ideas
> to generate sufficient
surplus
To be successful in any business you need a
combination of
> Hard work
> Skills
> Perseverance (determination) and
definitely the > LUCK
 Two broad Groups
• Generally , people start their own business can
be grouped into two broad categories
• The first group consists of people who know
exactly what they want to do and are merely
looking for the opportunity or resources to do it.
Already developed many of the skills and are
familiar with industry customs and practices.
• The second group consists of people who want
to start their own business but do not have any
real definite ideas about what they would like to
do.
 Age Concerns in Starting a
Business

Early Career Concerns Late Career Concerns

1. Getting an education 1. Fulfilling family
responsibilities
2. Gaining work experience
2. Attaining seniority
3. Acquiring financial in employment
resources 3. Earning investment in
a retirement program

20 25 35 45
Age

Fig 1.3
 Business opportunities in various
sectors
• Green Business: that stresses upon the
prevention of waste at the source rather
than treating the waste at the end of a
process.
A concept of waste minimization:
a new and creative way of thinking about
products and processes that make them
less polluting
 Business opportunities continues
• Biotechnology: genetic engineering, drought resistant
crops, drugs and even super computers.
• Events management: generating huge economic benefits
and employment.
• Food , fruits and vegetables processing, refrigeration
and transportation. e.g. Knore cooked food, oranges of
Mandi Bahaud Din region.
• Mineral water.
• Courier services.
• Insurance sector
• Telecommunication
• Tourism Sector
• Plastic industry
 Opportunities in Home based
businesses
• Outdoor catering service
• Beauty parlours
• Health clubs
• Travel agencies
• Medical clinics
• Courier services
• Tution centers
• Language centers
 Advan/Disadvantages of home
based businesses
• Start up cost will be lower
• Operating cost will also be lower
• More flexible in your schedule
• Much more interruptions from member of
the family
• Less accessible to suppliers
• Bad Image
• May run out of space
 Formalities for setting a SME
Select a Project

Decide on the constitution

Obtain registration Obtain clearnancesfron departments

Arrange for land and shed Arrange for plant and machinery Arrange for infrastructure

Prepare project report

Apply and obtain finance

Proceed to implement
 1. Project selection
• Product or service selection
• Location Selection
• Project feasibility study
• Business plan preparation
• Project profile preparation
 Product or service selection
• Background and experience of the entrepreneur.
• Availability of technology and know how for the
project.
• Marketability of the product/service.
• Investment capacity.
• Availability of plant and Machinery.
• Availability of raw materials.
• Availability of proper infrastructure facilities.
 Point of discussion
• Sometimes in short run • It depends upon the
there is a shortage of a situation .
particular commodity in • If the shortage period
the market. Does that may continue for a longer
mean you can jump into period of time then
that business? definitely we have to
invest otherwise not.
• care full analysis of future
demand and supply
should be done
 Small businesses with export
potential
• Special requirements for packaging.
• Specific country requirements.
• Currency rate
• Mode of transportation
• Mode of communication
• Special jargons of the country
 Which business can export
• External demand
• Supply capability
• Handle complex market situations
• Having investment to penetrate
 2.Location selection: where to set
the unit
• Proximity to Market
• Availability of raw material
• Availability of transportation and
communication facilities
• Availability of concessions and incentives
• Availability of suitable infrastructure
facilities
 Location continues
• Normally we identify two or three locations
and then select a few possible sites at
each of these locations.
• For the evaluation of sites we consider the
following checklist
 Checklist

• General considerations:- • Industrial and

• Location (city/town/village) infrastructure position:-
• Nearest large city • Land: availability and price
• Connection to nearest & other • Water supply: source, distance,
major cities (rail, road , air) quality, rate, storage facility.
• Distance from major raw material• Power supply: availability,
sources quality, nearest grid, feeder,
tariff rate and type. Gas supply
• Law and order situation in the
area • Effluent treatment and disposal:
disposal point, individual
• Distance from important
arrangement or common
geographical markets & ports arrangement
• Level of industrial development •
Approach road/ internal roads,
street lights. warehousing
• Bankfacility postoffice telegram
 checklist

• Financial incentives: investment subsidy,income

tax concession, sales tax exemption, electricity
duty exemption.
• Social infrastructure position: Housing
availability, quality and price, Education and
Health.
• Site specific considerations: Direction of town
growth with reference t site, Non agriculture
status of the site, Site contours and proximity to
railway line , motorway, National highway
• Wind direction and even soil type.
 3.Project feasibility study
• Market Analysis: we see • Technical Analysis:
aggregate demand and market • Analysis of technical and
share. engineering aspects
• Consumption trends in the • Preliminary tests
past and the present • Optimal Selected scale
consumption level.
• Suitable production process
• Past and present supply
position • Appropriate equipment and
machines
• Imports and exports
• Cost structure
• Elasticity of demand
• Consumer behavior
• Distribution channels and
marketing policies
 Project feasibility
• Financial analysis: • Economic Analysis
• Means of financing (social cost-benefit
• analysis):
Break even point
• Impact on the distribution
• Cash flows of the project
of income in the society
• Projected financial
• Impact on the level of
position
savings and investment
• Level of risk
• Contribution towards self
• Projected profitability
sufficiency, employment
and social order.
 Project feasibility
• Ecological analysis-Damaged caused by
the project to the natural environment.
• Externality.
• Solid waste generation, air ,water and
noise pollution .
 4.Business plan preparation
• A business plan is document where you plan
your business to have an organized and
effective response to a situation which may arise
in future.
• A document that sets out the basic idea
underlying a business and related startup
considerations.
• Its for reassurance of lenders and investors.
• Used for measuring operational progress, to test
planning assumptions and to adjust forecasts.
What is a “BAD” Business Plan?
• One That Doesn’t Meet Its Objectives
• Fails to Help Launch a Successful
Business
• Fails to Identify Key Obstacles / Problems
• Fails to Attract Interest:
– Of Investors
– Of a Team
– Of Partners
– Of Other Resource Providers
First Clue That You’re
Reading a “Bad Plan”…

You Don’t Want to Keep

Reading!
• It Doesn’t Capture Your
Attention
• It’s Hard to Get Through
• You Just Don’t Get It!
 Features of a workable business
plan
• To determine where the company wants to
go
• Forewarns of possible road blocks
(barriers)
• Formulating responses to contingencies
• Goal oriented efforts
 Most Common Errors in a Plan

• Lack of Understanding of Value Proposition

– …Or Significantly Overstates It
• Lack of Understanding of Customer
– And How to Reach Them
• Lack of Focus
• Underestimating Inertia
• Underestimating Effort & Resources
Required
 Most Common Errors in a Plan
(Cont’d)
• Failure to Identify Competition
• Lack of a Competitive Advantage
• Unproven Team
• Inconsistent Facts
• Inconsistent Logic
• Over-Optimistic Financial Projections
 5. Project profile
A project profile gives a bird’s eye view of the
proposed project.
 Introduction
 Product description
 Details of infrastructure
 Plan and machinery
 Process details
 Raw materials
 Cost of the project and means of finance
Decide on the business constitution
• Sole proprietorship
 Single individual is the owner of such a
unit
 Informal type of business . No audit no
bank account.
 Even they donot have bank account no
credit , no deposit in banks, banks will
have less efficiency.
 ABCDE.
 Advantages/Disadvantages
• Easy to set up • Bankrupt can result in
• No boss seize of other
• Keep your own profits possessions.
• • Can result in lethargic
No public disclosure
attitude.
• No tax returns
• No assistance from
anyone.
Decide on the business constitution
• Partnerships
 An association of two or more persons, subject
to a maximum of 20.
 All partners contribute capital equally
 All partners share profits and losses equally as
defined.
 No partner should be paid salaries
 No interest for the capital
 Pooling resources
 More capital
 Partnership agreements
• Profit sharing: how profits • Admitting and expelling a
and losses are divided partner.
• Withdrawing money: it is • Conflicting interests:
important to limit the partners are free to
amount of money each engage in other business
partner can take out of activities unless the
the business each month. partnership agreement
• Time off : which day and prohibits this.
which partner will take a • Getting capital out:
holiday dissolution and
• Duration of partnership distribution
Decide on the business constitution
• Corporation/limited company
 A company may be private limited or public
limited.
 A company registered in accordance with the
companies act is a separate legal entity, distinct
from its shareholders, directors and managers.
 The liability of the shareholders is limited to the
amount paid or unpaid on issued share capital.
 A company has unlimited life.
 Advantages/Disadvantages
• Limited financial liability • Expensive to set up
upto the amount of • May need professional
money paid for shares help
• Easy appointment , • Need to be registered
retirement and removal of • All details are present for
directors.
the public inspection.
• Extra capital can be
• Auditable
raised by selling more
shares .
• Disposal is easy
• Death, withdrawal or
bankruptcy of any
member will not affect the
company.
Decide on the business constitution
• Cooperatives
 An enterprise owned and controlled by the
people working in it.
 Mat be working on the principle of one
person one vote.
 Profits can be retained in the business or
distributed in proportion to members’
involvement, for instance hours worked
Decide on the business constitution
• Franchising
 Between entrepreneurship and employment
 A franchise is a system of distribution that enables the
supplier – franchiser to arrange for a dealer – franchisee
to hold a specific product or service under certain
mutually agreed upon conditions.
 Franchiser : company which has tested its business and
wants to increase
 Franchisee: A group or individuals which need a right to
trade under franchiser name. For that they pay a fee.
 The franchisee can be a sole proprietor, partner or
private company.
 Major factors influencing
Franchising
• Conversion of independent businesses to
franchises. Like shirt brands
• Globalization of franchising e.g. KFC or
McDonalds.
• Rapid growth and expansion of service
type businesses.
• Leveling off of sales growth among
franchise outlets.
 Types of franchise agreements
• Franchising of a product or service: the
franchisee receives a product from the
franchiser and sells it through a wholesale or
retail outlet. Using a trade name under the
license.
• Franchising of the entire business enterprise: the
business operation, appearance of
establishment, merchandise and even operating
procedures and service are standardized.
 Adv and Disadv of franchiser
• No direct investment in • One bad image can be
an outlet. taken as a general bad
• Inventory and equipment image.
owned by franchisee. • Franchisee can terminate
• More determined an agreement and can
franchisee than employee run the same business.
• Sometimes franchisee
may think of itself as an
independent entity.
• They may initiate new
things.
 Adv and Disadv of franchisee
• Access to already • Strict check by the
developed business franchiser
format. • Royalty or the
• Enjoying a repute. management fee may
• Publicity through direct appear as a severe cause
and indirect promotion. of dispute.
• Direct and close • The goodwill remains the
assistance during the property of the franchiser.
start up period. • The franchisee is not
• Training and assistance absolutely at liberty to sell
facility. (site, equipment the franchise.
And inventory level and • Territory agreements may
design of the premises) be difficult to enforce in
practice.