Business Plan - Chapter 2 2472v

Chapter II New Ventures and Business Plan

Dr. Gopalakrishna BV Associate Professor AJIM, Mangalore

      

Contents Need for a Business Plan Steps in the preparation of business plan Need for marketing research Operating plans and financial plans Dynamics of Small business environment Causes for small business failure Success factors for small business

 A business plan is a written document prepared by the entrepreneur - details information about starting a new venture.  All the relevant external and internal elements involved in starting a new venture.  It must describe current status, expected needs and projected results of the new business.  Every aspects of new venture – marketing, finance, manufacturing, human resources, research and development, management, critical risks and milestones etc.  Before undertaking a business plan it is important for Proper Planning is the first and most crucial step for starting a business.

 A carefully charted and meticulously designed business plan converted a simple idea into successful business venture.  It also addresses both short-term and long term decision making for first three years of operations.  Thus, the business plan sometimes referred to the game plan or road map – answers the questions, Where am I now? Where am I going? How will I get there? Potential investors, suppliers, and even customers will request a business plan.  The business plan is the entrepreneur’s roap for a successful enterprise.

 A well crafted business plan identifies opportunities – scans the external and internal environment and finally leads to the success of the plan.  In some professional areas the business plan is referred to as a venture plan, loan proposal or investment prospectus.  Whatever the name, the business plan is the minimum document required by any financial source

Introduction Page – name, address, nature of business, financial statements II. Executive Summary (2-3 pages) III. Operations IV. The Business a) Objective for setting up business b) Brief history of past performance c) Form of ownership d) Name, qualification of the owners e) Proposed/actual headquarters f) Proposed/actual capital structure V. Financial Plan a) Pro forma income statement b) Cash flow projections c) Pro forma balance sheet d) Break-even analysis e) Sources and applications of funds VI. Production Plan a) Manufacturing process b) Physical plant c) Machinery and equipment d) Names of suppliers of raw materials I.

VIII. Organizational plan a) Organizational Chart b) Details about the Board of Directors c) Manpower Planning d) Legal Aspects of Labour IX. Marketing Plan a) Pricing b) Distribution c) Promotion d) Product forecast e) Controls X. Assessment of Risk a) Evaluate weakness of business b) New Technology c) Contingency plan XI. Appendix a) Letters b) Market research data c) Leases or contracts d) Price lists form suppliers

What is a Business Plan?  A business plan is the blueprint of the step-bystep procedure followed to convert a business idea into successful business venture.  A business plan includes – generation of idea into a successful venture - research internal and external opportunities, threats, strength and weakness of the new venture.  Allocation of resources (production, finance, human resources) in the best possible manner to make the plan successful.

Objectives of Business Plan 1. To give directions to the vision formulated by entrepreneur. 2. Objectively evaluate the prospects of business. 3. To monitor the progress after implementing the plan. 4. To persuade others to the business 5. To seek loans from financial institutions. 6. To visualize the concept in of market availability, organizational, operational and financial feasibility.

7. To guide the entrepreneur in the actual implementation of the plan. 8. To identify the strengths and weakness of the plan. 9. To identify challenges in of opportunities and threats from the external markets. 10. To clarify ideas and identify gaps in management information about their business, competitors and the market. 11. To identify the resources that would be required to implement the plan. 12. To document ownership arrangements, future prospects and projected growths of the business venture.

 Preparing a business plan is not an easy task.  A business plan makes the entrepreneur forcibly plan all the critical dimensions of business and also ensures R and D about the business venture.  The process of researching and writing the business plan helps to identify the gaps in the existing plan.  The functional plans reveal the resources required, strategies planned and the budgeted expenditure of each functional area.

 They also determine when the company would break-even and when it would begin ing profits.  The preparing a business plan is not just a one-time activity, but is an ongoing process.  A successful business enterprise constantly keeps improvising its business plan based on market dynamics and learning experiences.  The challenge in preparing a business plan for an entrepreneur is to communicate the business idea clearly and precisely to the stakeholders.

Preparing a Business plan  The business plan should be prepared by the entrepreneur, he or she may consult with many other sources in its preparation.  Lawyers, ants, marketing consultants and engineers are useful in the preparation of the plan.  The various steps involved in preparing a business plan 1. Preliminary investigation 2. Business Planning Process

1. Preliminary Investigation 1. Reviews business plan 2. draw key business assumptions – inflation, exchange rates, market growth and competitive pressure etc. 3. Scanning the external and internal environment to assess – SWOT (Strengths, weakness, opportunities and threats. 4. Seek professional advice – Lawyers, ants, marketing consultants, and engineers are useful in the preparation of the plan. 5. Friends, relatives who is already into similar business if any





 

2. Business Planning Process The successful entrepreneur lays down a step-bystep plan that she/he follows in starting a new business venture. This business plan acts as a guiding tool to the entrepreneur and dynamic in nature. It needs continuous review and updating the plan in the changing business environment. The various steps involved in business planning process are - Idea Generation, Environmental Scanning, Feasibility Analysis, Project Report Preparation and Evaluation, control and Review

Business Planning Process Idea Generation

Environmental Scanning

Feasibility Analysis

Project Report Preparation

Evaluation, Control and Review





 

1. Idea Generation Idea generation is the first stage of business planning process. Entrepreneurship is not just limited to innovation (generation of an new concept, product or services) but also encomes incremental value addition to the product or services. Hence value addition is the key word that an entrepreneur needs to keep in mind while generating new ideas. Entrepreneur is a highly creative person who gets an innovative idea about a product or service into a market.

 Idea generation of new concepts, ideas, products or services satisfy the existing demand and future demands of the market.  The various sources of new ideas – 1. Brainstorming, reverse brain storming, brain writing. 2. Group discussion 3. Data collection through questionnaires and schedules etc – consumers, dealers, retailers 4. Invitation of ideas through ments, mails and internet sources 5. Value addition to the current products/services 6. Market research 7. Commercializing inventions



  

2. Environmental Scanning Once a promising idea generation executive, next step is environmental scanning. The environmental scanning includes both internal and external environment information about the possibility of SWOT. Which is carried out to analyze the prospective strengths, weakness, opportunities and threats of the business enterprise. The different variables to be scanned in of socio-cultural, economic, governmental, technological, demographic changes taking place in the external environment.

 And availability of raw-material, machinery, finance, human resources etc with the entrepreneur.  The various sources for gathering the information are formal and informal sources.  Informal sources - family, friends, colleagues etc and formal sources - bankers, magazines, newspaper, govt departments, seminars, dealers, competitors.  The objective of a successful environmental scanning should be to maximise the information and hence the entrepreneur should collect information form many sources.

Business Environment

External Environment

Internal Environment Value System Mission & Objectives

External Macro Environment

External Micro Environment

Corporate culture

Share holders

Organisational structure

Creditors

Human Resource

Bankers & FIs

Physical Resources

Competitors

Social & cultural Technological

Suppliers Market Intermediaries Customers

Economic Political International Natural

Macro Environment Legal Micro Environment Financiers

Global

Demographic

Internal Environment

Customers

Suppliers

Political

Business Decision

Publics

Competitors Market Intermediaries

Social/Cultural

Technological/natural

Business Environment



 



3. Feasibility Analysis Feasibility study is done to find whether the proposed project would be feasible or not. It is important to demarcate environmental appraisal and feasibility study at this point. Environmental appraisal is carried out to assess the external and internal environment of the geographical areas, where, entrepreneur intends to set up his business enterprise. Hence, though feasibility study would be dependent on environmental appraisal yet it is far more descriptive

 

    

Market analysis estimate the demand of the product in future Estimate the market share of the proposed product in future. Technical analysis Cost and availability of technology Purchasing capital equipment Material availability Analysis of choice of technology Plant location

       

Financial Feasibility Cost of land and building Cost of plant and machinery Preliminary cost estimation Provision for contingencies Working capital estimates Cost of production Sales and production estimates Profitability projections.



  

Marketing plan Marketing Mix – product, price place and promotion Marketing information system – demands Marketing segmentation Identification of the target markets



 

   

Production Plan Location and reasons for selecting the location Physical layout Cost and availability of machinery, equipment and rawmaterials Distributors Cost of manufacturing Quality Management Production scheduling

Organizational Plan  Types of ownership – single proprietary, partnership firm, t stock company, private limited or public limited  Organizational structure and human resource management



     

Financial Plan Financial requirements of the proposed business enterprise Cost incurred – marketing and human resources Projected cash flow Projected income statements Projected break-even point Projected ratios Projected balance sheet.

 

 



4. Project Report Preparation After environmental scanning and feasibility analysis, a project report is prepared. It is a written document that describes step by step, the strategies involved in starting and running a business. 5. Evaluations, control and Review It is imperative to continuously review and evaluate the business constantly. This is because the competition in today’s globalised world is intense and technological changes are taking place at much faster rates. In this dynamic business environment it is important to evaluate, control and review the business periodically and introduce changes to keep up with a dynamic and changing market.

Introduction Page – name, address, nature of business, financial statements II. Executive Summary (2-3 pages) III. Operations IV. The Business a) Objective for setting up business b) Brief history of past performance c) Form of ownership d) Name, qualification of the owners e) Proposed/actual headquarters f) Proposed/actual capital structure V. Financial Plan a) Pro forma income statement b) Cash flow projections c) Pro forma balance sheet d) Break-even analysis e) Sources and applications of funds VI. Production Plan a) Manufacturing process b) Physical plant c) Machinery and equipment d) Names of suppliers of raw materials I.

VIII. Organizational plan a) Organizational Chart b) Details about the Board of Directors c) Manpower Planning d) Legal Aspects of Labour IX. Marketing Plan a) Pricing b) Distribution c) Promotion d) Product forecast e) Controls X. Assessment of Risk a) Evaluate weakness of business b) New Technology c) Contingency plan XI. Appendix a) Letters b) Market research data c) Leases or contracts d) Price lists form suppliers









Project Report Preparation After environmental scanning and feasibility analysis, a project report is prepared. It is a written document that describes step by step, the strategies involved in starting and running a business. A project report helps to understand the opportunities, problems and weakness of the business. It guides the entrepreneur in actually starting up and running the business venture.

 It helps him to monitor whether the business is growing as was projected in the business plan or not.  It helps in documenting the cost estimates of the business.  It can be used as a handy tool to persuade investors and financial institution to fund the project.  It can help in proper utilization of all the resources.  It can keep the morale of employees, owners and investors up.  It can finally lead to a sustainable development of the organisation.

Essentials of a project Report 1. The project report should be sequentially arranged 2. The project report should be exhaustive (details about the proposed project) 3. The project report should not be very lengthy and subjective 4. The project report should logically and objectively projected. 5. The projections should appropriately be made from 2 – 10 years. 6. The project report should be professionally demonstrated by entrepreneurs. 7. The project report should justify the financial and market needs 8. The project report should also have a high aesthetic value

Outline of the Business Plan 1. 2. 3. 4. 5.

Introduction page Executive Summary The Business Funding Requirement The Product or Services

6. The Plan A. Marketing Plan B. Operating Plan C. Organizational Plan D. Financial Plan 6. Critical Risks 7. Exit Strategy 8. Appendix



 

 

1. Introduction Page This is the cover page that provide brief summary of the business plan’s contents. The introductory page contains – Name and address of the company. The name of the entrepreneur (S) – Telephone No., Fax No., E-mail address and website address. Nature of business – sole proprietor, t stock company etc. A statement of the confidential report.





 



2. Executive Summary Executive summary is the first impression about the business proposal – first impression is the best impression. A careful presentation of information should be done to attract the attention of the evaluators. It should be in brief – not more than three pages. It should briefly describe the company – mention some financial figures and some salient features of the project. Generating interest in the minds of the readers is the prime motive of the executive summary.



  



3. The Business This will give details about the business concept. It will discuss the objective of the business A brief history about the past performance of the company Form of ownership – sole proprietor, partnership, co-operative society or company. It would also label the address of the proposed headquarters.



  

4. Funding Requirement Investors and financial institutions are one of the key bodies examining the project report – it is one of the primary objective of preparing the project report. A careful, well-planned funding requirement should be documented. It is also necessary to project how these requirements would be fulfilled. Debt equity ratio should be prepared, which can give an indication about how much finance would be require to the project.









6. The Product or Services A brief description of product or services is given in this subsection. It includes the key features of the product, the product range – customers awareness – advantages and features of the product. It also gives details about the patents, trademarks, copyrights, franchises and licensing agreements. 7. The Plan Now the functional plans for marketing finance, human resources and operations are to be drawn.

A. Marketing Plan  Marketing mix strategies are to be drawn, based on the market research.  The market research will provide information about the following parameters – 1. Marketing demography – age, sex, family income, occupation and location. 2. Strengths and weaknesses of competitors 3. SWOT analysis of the market.

 A thorough market research is the backbone of success and failure of any product in the market.  Based on the information collected through market research – product, price, promotion and distribution

B. Operational Plan – physical facilities, inventory management, human resource requirements and legal and insurance issues.  The operational plan would give information about – 1. Plan location – why a particular location chosen, is it vicinity to market place, suppliers, labour 2. Plant layout 3. Plan for material requirements, inventory management and quality control.

 Finally, the budget for operational plan is also drawn.

    

C. Organisational Plan The organisational plan indicates the pattern of flow of responsibilities and duties amongst people in the organisation. It provides details about the board of directors It can also enlist the manpower plan that would be required to put life into the company. It also enlist the details about the laws governed in managing the employees of the organisation. In the end the organisational plan is also budgeted.

D. Financial Plan  The financial plan is usually drawn for two to five years for an existing company.  A summary of previous financial data is given, whereas for a new organisation the following projections are drawn –        

Projected Sales Projected Income and Expenditure Statement Projected Break Even Point (BEP) Projected Profit and Loss Statement Projected Balance Sheet Projected Cash Flow Projected Funds Flow Projected Ratios





  

8. Critical Risks The investors are interested in knowing the tentative risks to evaluate the viability of the project and to measure the risks involved in the business. This can further give confidence to the investors as they can calculate the risks involved in the business form their perspectives as well. 9. Exit Strategy The exit strategies would provide details about ho w the organisation would be dissolved. What would be the share of each stakeholder in case of winding up of the organisation. It further helps in measuring the risks involved in investing.

10. Appendix  The appendix can provide information about the –     

Curriculum Vitae of the owners Ownership Agreement Certificate from Pollution Board Memorandum of Understanding Article of Association and all the ing documents.

Introduction Page – name, address, nature of business, financial statements II. Executive Summary (2-3 pages) III. The Business a) Objective for setting up business b) Brief history of past performance c) Form of ownership d) Name, qualification of the owners e) Proposed/actual headquarters f) Proposed/actual capital structure VI. The Funding Requirement a) Debt b) Equity V. Financial Plan a) Pro forma income statement b) Cash flow projections c) Pro forma balance sheet d) Break-even analysis e) Sources and applications of funds VI. Production Plan a) Manufacturing process b) Physical plant c) Machinery and equipment d) Names of suppliers of raw materials I.

VIII. Organizational plan a) Organizational Chart b) Details about the Board of Directors c) Manpower Planning d) Legal Aspects of Labour IX. Marketing Plan a) Pricing b) Distribution c) Promotion d) Product forecast e) Controls X. Assessment of Risk a) Evaluate weakness of business b) New Technology c) Contingency plan XI. Appendix a) Letters b) Market research data c) Leases or contracts d) Price lists form suppliers

Marketing Research  The success of any business venture lies in the existence of markets.  Unless the entrepreneur identifies the existing needs or potential needs of the market he cannot translate these needs into products/services that would be acceptable by the market.  In the past, the intuitive ability of the entrepreneur was a good enough method for understanding the needs of the consumer.

 Marketing research is the process of collecting information on any facts relevant to market.  Marketing research is the systematic collection of information, its analysis and interpretation to strategize some relevant business decision.  Marketing research is the systematic gathering, recording and analysing of data about marketing problems to facilitated decision-making.  The marketing research is a tool of marketing information system which has become an important function of management.

Gathering

Recording

Market Research

Analysing

Interpretation

Marketing information through Market Research The total size of the current market

Consumer buying behaviour

The total size of the potential market

Current price analysis

The growth rate of the market

Current sensitivity analysis

Consumer demography – age, gender, income and occupation

Distribution level

Consumer preferences – tastes and habits

Effectiveness of distribution network

Consumer perception – product quality, price and brand etc

Effectiveness of distribution network

Consumer satisfaction

Effectiveness of promotional efforts

Product usage rate

Competitior’s analysis – market share, pricing strategies, distribution and promotional efforts.





 

Definitions American Marketing Association (AMA) – defines marketing research as the systematic gathering, recording and analysing of data about problems relating to the marketing of goods and services. Philip Kotler – Marketing research is the systematic problem analysis, model building and fact finding for the purpose of improved decision making and control in the marketing of goods and services. Richard D. Crisp – defines Market Research as the systematic objectives and exhaustible search for the study of facts relevant to any problem in the field of marketing. Clark and Clark – defines Marketing Research is the careful and objective study of product design, markets and such transfer activities as physical distribution, warehousing, advertising and sales management.

 Marketing management needs essential information regarding products, prices, market conditions of demand and supply, consumer needs and desires, selling methods, physical flow of goods, competitive decisions, external marketing environment and other factors of marketing management.  Marketing research has proved an essential tool to meet all the needs of marketing management.  Marketing research therefore, is the scientific and controlled process of gathering and analysis of marketing information to meet the needs of marketing management.

Salient features of Market Research 1. MR consists of fact findings based on data 2. Systematic collection of data 3. Market Research is objective 4. MR converts data into information 5. MR is a continuous process 6. MR draws heavily from different disciplines – multi-disciplinary subject 7. MR is only a tool to the Decision-making

   

1. MR consists of fact finding based on data These data relate to any area of marketing function From a study of the market place to a study of buyer behaviour. They cover an expanse of products, prices, distribution & promotion. The collection data analyzing data interpretation - for the use of the decisionmakers.

 

  

2. Systematic collection of data The data are collected by a systematic procedure Firstly, identification of a problem – for example sales declining - poor advertising, prices, competition. Formulation of objectives Sample selection – collection of data Analyzing interpretation presentation in the form of report

  

  

3. Marketing Research is objective We do not pre-suppose things We just put forth a hypothesis collect data and either accept the hypothesis or reject it The research is never carried out to a predetermined result. 4. MR converts data into information Data as such are not meaningful But on processing by systematic record, analysis and interpretation. They become useful information for the decisionmaker.

5. MR is a continuous process  Since marketing activities is a continuous one where there are changes in product mix, promotion mix, distribution channels & prices.  Marketing Research also is carried out on a continuous basis.  But in the light of changed environment the data also changes and so continuous monitoring is called for.





  

6. MR draws heavily from different disciplines MR draws heavily from Economics, Psychology, Sociology, Statistics, Operation Research, Computer Science and such other subjects. MR is a multi-dimensional cross – disciplinary subject. 7. MR is only a tool to the Decision-maker MR does not replace decision-making process It only serves as an input to the decision-making process. It is at best a tool that guides the decision-makers.

Objectives of Marketing Research 1. Help in the selection of right course of action. 2. Identify various opportunities or problems. 3. Evaluate the need of the customers. 4. Analyze the probable market for the product 5. Briefly study the competitors and the substitute products. 6. Identify the best sources of distributing the products. 7. Estimate future sales and expected share of the market. 8. Analyse the effectiveness of ment 9. Assess the sales representative efficiency.

Marketing Research Process  The marketing research process involves identification of problems, research design, collection of data, sample design, analysis of data and interpretation of data for reporting the conclusions to solve specific problems.  All research problems require their own special emphases and approaches.  Since every marketing research problem is unique in some ways, the research process is typically tailored.  However, there are some basic steps to be followed in each marketing research process.

 Each research process must be carefully planned, effectively coordinated and integrated.  There are seven research steps involved in almost all types of market research  Identification of research problems research design selection of data sample design analysis and interpretation report writing (preparation) Recommendation  If all the steps are taken in a systematic manner the research conducted becomes quite effective.

Steps in Marketing Research  The marketing research process is carried out according to a designated series of steps which are required – chronological order Step I Formulation of Problem Step II Research Design Step III Data collection Step IV Sample Design Step V Analysis and Interpretation Step VI Report Writing Step VII Recommendation

Stage I Identification of Probelm

Stage II Research Design Stage III Determining Sources of Data Stage IV Sample Design Stage V Analysis & Interpretation Stage VI Research Report

Stage VII Recommendation

  

 

1. Identification of Problem In the first step in MR process is to define the problem chosen for investigation. This step is a very significant one and a problem well defined is half solved. On the other hand, if the problem is defined vaguely, a wrong problem is defined – research results may be completely useless for the management. When the problem is carefully and precisely defined, the research can provide a pertinent solution. The problem formation should be neither too broad nor too narrow.

 

  

2. Research Design Once the problem is defined, the next step, that is the research design, becomes easier. A research project conducted scientifically has a specific framework of research from the problems identification to preparation of the research report. It is a Master Plan or blue print according to which the research is to be conducted. Research can be conducted without a research design but it may not solve the problems. The research design specifies the methods for data collection and data analysis.

 The basic objective of research cannot be attained without proper research design – it leads to loss of money, energy and time.  The success of good marketing research project is depends on good/sound research design.  A good research design has the characteristics – problem formulation, specific methods of data collection and analysis, time required for research project, estimate of expenses to be incurred.

 The research design specifies the methods for data collection and data analysis  The researcher specifically pin points that to carry out research properly – Types of data collection – primary or secondary Which instruments uses for data collection What sample plan

   

 

3. Selection of Sources of Data There are two types of data – primary and secondary data – fresh data and existed data Primary data - are original data from which the researcher directly collects data that have not been previously collected. Collection of data directly - on brand awareness, brand preferences, brand loyalty and other aspects of consumer behaviour. Primary data are directly collected by the researcher from their original sources. Secondary data means data which have be already been collected and analysed by some one else. Secondary data may either be published data or unpublished data.

4. Sample Design  Sampling may be defined as the selection of some part of an aggregate or totality on the basis of judgment of aggregate.  In other words, it is the process of obtaining information about an entire population by examining only a part of it.  In most of the research work and surveys, the usual approach happens to be make generalizations or to draw inferences based on samples about the parameters of population.

 The researcher quite often selects only a few items from the universe for his study purposes.  All this is done on the assumption that the sample data will enable him to estimate the population parameters.  Sample should be truly representative of population characteristics without any bias.  For example, we test the warmth of our coffee by taking a slip.  In marketing research too, we try to draw conclusions on the basis of a sample for the whole group known as universe.

Sampling Methods Non-probability Sampling Methods

Probability Sampling Methods Simple Random Sampling

Stratified Sampling

Proportionate allocation

One side Cluster

Cluster Sampling

Convenience Samples

Judgmental Sampling

Quota Sampling

Optimal allocation

Systematic Cluster

Two side Cluster





 

A. Simple Random Sampling Simple random sampling is a sampling technique in which each element of the population get equal chance of being selected. For example – sampling frame of 300 population each element theoretically has 1/300th chance of being selected. In a population of 300, each element has 1/300th chance of being selected. In a population of 1000, each element has 1/1000th chance of being selected.

B. Systematic sampling - chance  In this case the sample numbers are chosen in a systematic manner from the entire population.  Each member has a known chance of being selected but not necessarily equal one.  We want to select a sample of 250 from a population of 2500 employee one out of every 10 since ratio of sample size to population size as show below N 2500 = = 10 n 250

C. Stratified Random Sampling  A stratified random sampling is used when the researcher is particularly interested in certain specific categories within the total population.  The population is divided into strata on the basis of measurable characteristics of its member – age, income and education.  Stratified sampling is usually used when a large variation exists within a population and the researcher has some prior knowledge about natural subgroups.



  

D. Cluster Sampling In cluster sampling, the population is first divided into clusters (sub-groups) that are convenient and economical for sampling. Next, clusters (sub-groups) are selected at random or systematic method. Finally, some of the times in the selected cluster are taken at random or by systematic method to make up the sample. A cluster sample is useful in two situations – 1.When there is incomplete data on the composition of the population. 2.When it is desirable to save time and costs by limiting the study specific geographical areas.

2. Non Probability sampling  In non-probability sampling, the chance of any particular unit in the population being selected is unknown.  Since randomness is not involved in the selection process, an estimate of the sampling error cannot be made.  There are three types of non-probability sampling – 1. Judgment Sampling 2. Convenience Sampling and 3. Quota Sampling

     

A. Judgment Sampling Judgment sampling method in which the sample items are selected by using a researcher’s personal judgment. It is usually in expensive to implement and takes little time to isters. B. Convenience Sampling Sometimes when researchers want to obtain information, there is little time or money available to perform an elaborate study. In these cases, researchers may do convenience sampling selection. In this method, the same units are chosen primarily on the basis of the convenience to the investigator. C. Quota Sampling In quota sampling method is similar to stratified sampling where the population is divided on the basis of characteristics of population – age, income, race, gender and so on.



 



5. Analysis and Interpretation The raw and crude data is collected from the field may not be useful. It should be analysed but before analysis it should be edited, coded and tabulated. The types of statistical tests to be employed for the analysis and interpretation are edited, coded and tabulated. The types of statistical tests to be employed for analysis and interpretations and dependent upon the methods of data collection.

 The data analysis can be conducted by using simple statistical tools – percentages, averages and measures of dispersion.  Alternatively, the collected data may be analysed by using diagrams, graphs, charts, pictures etc.  Data may be cross-tabulated to produce useful relationships among the variables involved.  Various statistical tests – t, F, Z, X2 etc.  The most complicated and sophisticate analysis uses – multiple-regression analysis, multiple correlation analysis, discriminate analysis, factor analysis, cluster analysis etc  The conclusion, summary and recommendations of research are based on the statistical analysis.

6. Report Writing  After the collected data is analysed and interpreted, the job of marketing researcher is to present research results in the form of systematically typed printed report.  A specifically designed format must be used for research report preparation and result presentation.

  

   

7. Recommendation Follow up Research follow up is essential for the validity of marketing research The validity appropriateness, acceptability and control are the essential factors of recommendation follow up. Control requires some check on various aspects such as time, cost, quality of work and so on. The marketing researcher should audit its performance validity, meaning the correctness of various aspects of the research process. Errors should be prevented to the greatest possible extent. The findings should be derived as per the objective. The findings should be acceptable to the executives.

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

Title Page Table of contents Preface Foreword (introduction and need for the study and R.L) Statement of objectives and hypotheses Research methodology • Research design • Data collection methods • Sampling plan • Field work • Interpretation of data • Limitation and scope 7. Analysis and interpretation of data 8. Findings, conclusions and recommendation 9. Appendix, bibliography & questionnaires



 

 

Small Scale Industry Small scale industries (SSI) play a key role in the industrialisation of any developing countries like India. It is a vital component in Indian Economy. The Govt of India has recognized the importance of small-scale industry for achieving socioeconomic objectives – generating employment, removal of regional disparities and economic backwardness of rural areas. The small-scale sector has contributed about 55% of the total industrial production and for about 40% of export from the country. The employment provided by this sector is 175 lakh people in 31.75 lakh units.

 The sector has developed from the production of simple consumer goods to manufacture of sophisticated and electronic components, medical equipments, TV sets and others.  Over 7,500 products are manufactured by the small scale industry.  Small-scale industries basically make use of local raw-materials, local skills, local finance and generally local markets.  The small scale industries consists of – small scale industrial undertaking, ancillary industrial undertaking, export-oriented units, tiny units, women entrepreneur enterprise.

Small Scale Industry

Modern Small Scale Industry

Cottage Industry

Village Industry

Ancillary Industry

Classification of SSI

Traditional Industries

Khadi and Village Industry Hand loom

Handicrafts Coir Sericulture

Modern Industries

Small scale industrial undertaking Export oriented units Ancillary Industrial units Tiny Industrial units Small business enterprises



  



1. Small Scale Industrial Undertaking An industrial undertaking in which the investment in plant and machinery does not exceed Rs. 10 million. 2. Ancillary Industrial Undertaking An industrial undertaking which is engaged in the manufacture of parts, components, sub-assemblies, tooling or intermediaries. It must supply not less than 50% of its production or services. The investment in plant and machinery does not exceed Rs. 10 million. 3. Tiny Units A unit where investment in plant and machinery does not exceed Rs. 25 lakh, irrespective of the location of the unit.



  

4. Women Entrepreneur Enterprise An SSI unit/industry related service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns – share capital of not less than 51 percent as partners of private limited company. 5. Modern Small Scale Industries These are small firms using modern techniques to produce a wide range of products. They make use of sophisticated machinery and equipment and are mostly located in large towns. They use hired labour and raw materials supplied by large scale enterprises.

 

 

 



Traditional Small Scale Industries These include village industries, khadi and handloom, handicrafts, coir etc. These are highly labour intensive and provide only subsidiary or part-time employment to agricultural labourers and artisans. These units are located mostly in rural and semi-urban areas. Cottage Industries These industries which provide part time or whole time work in rural and semi-urban areas. They are generally associated with agriculture. Agro-based Industries These industries are engaged in the processing of agricultural produce and provide inputs to agriculturalists. Large scale agro based industries are set-up in cities whereas small scale agro-based industries are located in rural areas.

Overall Performance of SSI in India Number of Units (in lakhs) Year

Production in Crores

Employment in Lakhs

Exports (Rs. Crores)

ed

Uned

Total

1994-95

11.61

6.27

79.60

122.210

191.40

29.068

1995-96

11.57

67.99

82.84

148.290

197.93

36.470

1996-97

11.99

71.27

86.21

168.413

205.86

39.248

1997-98

12.04

74.12

89.71

189.178

213.16

44.442

1998-99

12.00

77.67

93.36

212.901

220.50

48.979

1999-2000

12.32

84.83

97.15

234.255

229.10

54.200

2000-01

13.10

88.00

101.10

161.289

239.09

69.797

2001-02

13.75

91.46

105.21

282.270

249.09

71.244

2002-03

14.68

95.42

110.10

311.993

261.38

86.013

2003-04

15.54

98.41

113.95

364.547

271.42

97.644

2004-05

16.57

102.02

118.59

429.796

282.57

1,24.417

2005-06

18.70

104.70

123.46

497.886

299.35

1,50.242

2006-07

20.32

108.12

128.44

585.112

312.52

1,77,600

2007-08

21.46

110.10

133.68

695.126

322.28

1,96.750

Performance of SSI in India 120 100

80 60

40 20

0

ed

Uned

Overall Performance of SSI in India 1200 1000 800 600 400 200 0 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 200795 96 97 98 99 2000 01 02 03 04 05 06 07 08

     



Definitions The definition of small scale industry varies from country to country, time to time and region to region. In most of the countries the criteria for defining a small scale industry relates to the size of employment or capital or both. In USA – employment less than 500 people. – less than 300 workers. Japan – investment should not exceed 100 million yen with 300 employees. South Korea – 2 lakh dollars and employment is 200 people. India – A unit employing less than 50 people, if using power and less than 100 persons without the use of power and with a capital asset not exceeding Rs. 5 lakhs.

Details of Ceiling limit of investment in SSIs over the time period

SL No.

Year

Ceiling limit for SSIs

1.

1950 Capital assets up to Rs. 5 lakhs

2.

1958 Capital investment up to Rs. 5 lakhs

3.

1960 Gross value of fixed assets up to Rs. 50 lakhs

4.

1966 Value of plant and machinery up to Rs. 7.5 lakhs

5.

1975 Plant and machinery Rs. 10 lakhs

6.

1980 Plant and machinery up to Rs. 20 lakhs

7.

1985 Plant and machinery up to Rs. 35 lakhs

8.

1991 Plant and machinery up to Rs. 60 lakhs

9.

1997 The investment limit was raised to Rs. 3 crores

10.

2000 The investment limit was reduced to 1 Crore

11.

2007 Limit is 1 crore only

Characteristics of Small scale industries 1. A small unit is generally a one-man show – even if SSI is run on partnership or company. 2. The scope of operation of SSI is generally localized, catering to the local and regional demands. 3. SSI requires relatively less amount of capital and therefore SSI can be developed even in capital-scale economies – labour intensive technology. 4. SSI generates more employment per unit of capital invested – output and employment ratio 5. SSI has short gestation period – short term rewards 6. SSI relies less on infrastructure and hence can be located even in under developed regions. 7. SSI growth promotes distribution of economic powers.

1. 2. 3. 4.

5. 6. 7. 8.

Objectives of Small scale industries To generate immediate and large scale employment opportunities with relatively low investment. To eradicate unemployment problem from the country. To encourage dispersal of industries to all over country covering small towns, villages and economically lagging regions. To bring backward areas too, in the main stream of national development. Promote balanced regional development in the whole country. To ensure more equitable distribution of national income. To encourage effective mobilization of country’s untapped resources. To improve the standard of living of people in the country.

    

Scope of Small scale industry The scope for small scale industries is quite vast, covering a wide range of activities requiring less sophisticated technology. Small scale industries consists of both traditional industries and modern industries. Traditional industries – Khadi and Village, Handloom, Handicrafts, Coir, Sericulture etc. Modern Industries – small scale industrial undertaking, export-oriented units, ancillary industrial units, Tiny units etc. The classification are also done on the basis of the units falling in the organised and unorganised sectors based on – employment and use of power. 1. Organised sectors – Factories Act 1948 2. Unorganised sectors – un ed to Factories Act 1948.

Popular Areas of Small Business Enterprise •

• • •

• • •

•

Services Retailing Construction Financial Insurance Wholesaling Transportation Manufacturing

Manufacturing 5% Finance & Insurance Other 10% 1.7% Wholesale 8%

Construction 10% Transportation 5%

Retailing 22.7%

Services 37.6%

 In India, the small scale sector is protected by the Govt, by way of reservation.  This means that the Indian Govt has made a list of 114 items which are reserved for exclusive production in small sector.  No large scale industry may produce any of these items reserved in favour of SSI’s.  The main objective of this reservation policy is to insulate the small sector from unequal competition with the large industrial establishments.  Although this policy has some negative effects, by and large it has helped SSI.  Some of the items in the reserved list of 114 as it stands today are -

1. Leather products

12. Cotton hosiery

2. Rubber products

13. Scientific instruments

3. Natural essential oils

14. Auto ancillary

4. Boat making

15. Electrical goods

5. Tricycles and perambulators

16. Printing presses

6. Stationery item

17. Wooden furniture

7. Sports goods

18. Foundries

8. Ceramics

19. Flour mills

9. Electro plating

20. Ice creams

10. Food processing

21. Pickles and Chutneys

11. Lock making

22. Khadi products

Advantages of Small scale industry 1. Employment Generation 2. Use of Local Raw-materials 3. Balanced Regional Development 4. Decentralisation of Industries 5. Mobilisation of capital 6. Developing Entrepreneurship 7. Equitable Distribution of Wealth 8. Efficient use of productive factors 9. Promotion of Exports



 



1. Employment generation The small-scale industries are labour intensive and they can provide more employment per unit of capital. The employment generating capacity of small scale sectors is eight times that of large scale sector. In cottage and household industries, with given investment, employment possibilities would be ten or fifteen times greater in comparison with corresponding factory industries. In an economy, characterized by abundant labour supply and scarce capital, the small-scale industry assume special significance.

2. Mobilisation of Local Resources  Small scale industries help to mobilise and utilize local population, local natural resources local raw-materials, local market, local laborers etc. which might otherwise remain idle and unutilized.  They help to perfect and promote traditional family skills and handicrafts.  These industries facilitate the growth of local entrepreneurs and self-employed professionals in small towns and villages.





  

3. Export Promotion Small scale industries help in reducing pressure on the country’s balance of payments in two ways. First, they do not require imports of sophisticated machinery or raw-materials. They are now producing electro-medical equipment, drugs etc which were being imported earlier. Secondly, small scale industries earn valuable foreign exchange through exports. There has been a substantial increase in exports from the small scale sector. Small scale sector contributes about 35% of India’s total exports and 90% of non traditional exports.



 



4. Consumer surplus Small scale industries now produce a wide range of mass consumption items. Over 5,000 products are being manufactured in the small scale sector. By providing goods of daily use on a large scale small scale industries serve as an antiinflationary force. About one half of the output of manufacturing sector in India comes from small scale and village industries.

    



5. Feeder to Large Scale Industries Small scale industries play a complementary role to large scale sector. They provide parts, components, accessories to large scale industries. They serve as ancillaries to large units. Social Advantage Small scale sector contributes towards the development of a socialistic pattern of society by reducing concentration of income and wealth. They provide an honorable and independent living to people with limited resources. They facilitate wider participation of public in the process of development and thereby serve the cause of democracy and self-governance.



  

6. Development of Entrepreneurship Small scale units have helped to develop a class of entrepreneurs. These units facilitate self-employment and spirit of self-reliance in the society. The development of small scale industries contributes to increase in per capita income or economic development in various ways. It generates immediate employment opportunities with relatively low capital investment, makes effective utilization of untapped local resources, facilitates development of backward areas and weaker sections of society.



 



7. Decentralisation of Industries The concentration of industries in urban areas encourages migration of people from rural areas to urban areas encourages migration of people from rural areas to urban centers in large numbers. This creates a number of problems such as pollution, slums and shortage of civic facilities. The dispersal of small industries in different areas reduce the intensity of the problem. Further, decentralization helps to tap the local resources such as raw materials idle savings, local talents.



  



8. Balanced Regional Development Large industries are mostly concentrated in big cities and metropolitan cities. The small towns and rural areas are deprived of the benefit of industrialisation. In order to benefit the country as a whole, the industries should be dispersed in all regions. It is possible to start small-scale industries in almost all areas such as villages, hill areas and even remote corner of the country. Thus small-scale industries are helpful in achieving wider dispersal of industries and thereby ensure balanced regional development.

Disadvantages of small scale industries 1. Problem of Raw-materials 2. Problem of Finance 3. Problem of Marketing 4. Problem of under utilisation of capacity 5. Outdated technology 6. Poor project planning 7. Inadequate Infrastructure 8. Regulations 9. Competition 10.Sickness

   



1. Problem of Raw-materials The availability of raw material is a great problem for small-scale units. These units use either local raw materials, or imported raw materials. The problem of raw material has assumed the shape of – an absolute scarcity a poor quality of raw material and a high cost. Earlier, the majority of small scale units mostly produced items dependent on local raw materials. The shortage of right type of raw materials at standard price affects the capacity utilisation and production programme.

   



2. Problem of Finance Inadequate finance is the major problem for small scale units. Since most of the SSI units are either proprietary concerns or partnership firms their internal resources are small. The credit provided by the various institutional agencies such as banks, SFCs and SIDBI are inadequate to meet the requirements of small units. The initial investment of small units comes from relatives, friends, non-banking and non-governments sectors..The institutional agencies are still reluctant to advance money to small industries as they are unable to offer security or guarantee required by them. The shortage of funds makes it difficult to install modern machinery and maintain well organised and fully equipped factories.

  

  

3. Problem of Marketing One of the main problems faced by small scale units is in the field of marketing.. The small units have to face competitions from other small units and large scale industries. The small units do not possess their own marketing organization. They do not have the resources and expertise to market their products effectively. Therefore, the small industries suffer from a comparative disadvantage vis-a-vis large scale units. Further, their products are often not standardized and of variable quality. These small units often do not possess any marketing network – they often to sell at local area at lower prices.

4. Problem of Underutilisation of Capacity  The small industries have an inherent problem of underutilization of capacity due to two reasons 1. Frequent power cut 2. Inability to go for alternatives like generators and installation of thermal units.

 There are studies that clearly bring out the gross underutilization of installed capacities in small scale industries.  On an average 40% to 50% of the capacity is not utilized in small units.

    

5. Outdated Technology Most of the small scale units use only obsolete and outdated technology and old machineries and equipment. Adoption of latest technology alone can ensure good quality and higher productivity. Due to limited capital, the small industries find difficult to modernize their plant and machinery. As a result, the cost of production tend to be higher and quality of products lower as compared to the products of large industries. The small industries are financially weak to undertake research and development activities.

  



 

6. Problem of Recovery One of the basic problems of small-scale industry is recoveries from sales. The buyers do not pay their dues in time, most of the Principals do not pay the ancillaries for six months or even longer after purchase of goods. The financial assistance obtained from a bank is taken advantage of by the customers of small scale units. 7. Poor Project Planning In the absence of education and experience, small scale businessmen often depend upon consultants. They do not fully understand project details. Due to poor planning of projects, cost and time overruns arise.

  

   

8. Problem of Recovery One of the basic problems of small-scale industry is recoveries from sales. The buyers do not pay their dues in time, most of the principals do not pay the ancillaries for six months or even longer after purchase of goods. The financial assistance obtained from a bank is taken advantage of by the customers of small-scale units. 9. Inadequate Infrastructure Insufficient quality and quantity of transportation, communications and other basic services particularly in backward areas is another problem. Infrastructural gap results in underutilization of capacity and wastages. For example – instability of voltage, unscheduled power cuts and long delays in getting power connections are common. Poor communication and transportation, low quality of civic services etc.

 





10. Regulations Small scale units face endless hassles from government agencies. As many as 30-4- inspectors from various departments visit them. Small entrepreneurs face cumbersome procedures. 11. Competition Small units face severe competition from large firms, MNCs and cheap imports from china and Korea. 12. Sickness There is widespread sickness in small scale sector. More than 10% of the small scale units are sick due to one reason or the other.

Reasons a Business Might Fail • Problems exist because managers cannot specialize in any one area but rather must function with broad-based knowledge. • Expert knowledge in specific functional areas does not guarantee management ability. • Management skill is often gained separately from functional knowledge. • The best salesperson may have little interest or ability in managing an organization that requires knowledge in all aspects of the business operation.

Reasons a Business Might Fail • A small business owner is expected to efficiently manage every aspect of the business, such as: – The initial strategy – How the business is going to operate internally and externally

• A business plan can provide assistance in resolving questions, such as: – Determining how much space is needed for operations – How much space to leave for future expansion for diversification into other lines or fields

• The business plan is a written description of the firm, its objectives, and the steps necessary to achieve them.

Reasons a Business Might Fail • A small business owner is expected to also contend with employee issues, such as – – – – –

The number needed initially Task specialization Compensation Scheduling Amount and extent of delegation of responsibility

• As the owner, one must act as a financial advisor for the business and be able to interact well with employees, customers, and suppliers.

Reasons a Business Might Fail

• Possess strong management and organizational skills, which are required for the daily operation • In addition to knowing the business thoroughly, one must keep abreast of important aspects, such as: – – – –

Competition Cyclical trends of the industry Technical advances The operational environment for related industries

• Be aware of the external environment and the forces that impact upon his or her operations.

Reasons a Business Might Fail

• Good overall planning looks at several factors, such as site analysis, good merchandising policies, thorough record keeping and expense analysis, and the determination of break-even point. – Site planning • An important reason for business failure is poor location.

– Marketing • Price, place, product, promotion

– Record keeping • Maintaining detailed information about purchases, sales, orders, expenses, and cash balances from a double-entry bookkeeping system

Reasons a Business Might Fail • Improper financing: Common causes of financial business failure can be grouped into several categories: – – – – – – – – –

Poor sales High operating costs Poor credit and collection policies Too many fixed assets and wrong inventory Inflation Taxes Competition Government regulations Interest rates

Reasons a Business Might Fail

• Poor management is the main reason businesses fail, according to Dun & Bradstreet. – Incompetence – Lack of experience and knowledge – Requirement of additional funds to finance operation and growth

Reasons a Business Might Fail (contd.) Percentage of business failures

Requirements for Success • A great deal depends on the owner’s own personality. • Successful managers tend to exhibit desirable characteristics

– – – – – – – – – – – –

Energy Initiative Organization Appearance Technical competence istrative ability Good Judgment Restraint and patience Ability to communicate well Leadership qualities Pre-ownership experience Good managerial ability