Chapter 5 - Setting up a Small

Business Enterprise

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 a shooting at a target that is not only
indistinct but also moving and moving jerkily at that.
- JA Schumpeter
 Learning Objectives
• To identify the business opportunities
• To understand the procedure for setting
up of a small-scale industrial unit
• To present a business plan
 Before Starting Your Own
Business
• Does the idea fire your motivation and is it adequate
enough to keep you going for next one to two years?
• Is it a viable business proposition in your area?
• Does it match the needs of your clientele, local or
otherwise?
• Check it out with basic market research.
• Test it out in the market.
• Consult with experts.
• Look out for competition in the field.
• Is it a sunrise industry?
• Evaluate Your business opportunity.
• Project conceptualization.
 Home-based Businesses
• There are many businesses especially in the services
sector, which can be run efficiently from home. A list of
some of such industries:
– Courier and messenger service
– Outdoor catering service
– Mail order retailing
– Beauty parlours
– Health clubs
– Travel agencies
– Clearing and maintenance services
– Travel agencies
– Date processing
– Medical clinics
– Crèches
 Business opportunities Need to be
Filtered through a Five-layer Sieve
• Researching your industry. how can you learn more
about your chosen industry and about the resources
that are available to help you?
• Market assessment. is there a market for your
product or service? If so, how much income can you
expect to derive from it?
• Profitability assessment. how much will starting a new
business cost you? Can you afford a lengthy “red ink”
period following start-up, as well as periodic lulls in
cash flow? Can you afford to fail?
 Business opportunities Need to be
Filtered through a Five-layer Sieve
• Financing assessment. will you be able to obtain the necessary
financing for your business? If so, from where?

• Legal assessment. what potential legal liabilities are you exposing

yourself to by starting a new business? Are the costs of
protecting yourself worth the trouble?

The potential sectors for business opportunities are:

Green business, Biotechnology, Events management, IT enabled
services, Food processing, Mineral water, Courier services,
Insurance, Telecommunication, Herbal, Travel and Tourism,
Vermiculture, and Plastic.
 Flow chart for setting up a small-scale
industrial (SSI) unit
1. Selection of a project
a. Product or service selection
b. Location selection
c. Project feasibility study
d. Business plan preparation
e. Prepare project profile

2. Decide on the constitution

3. Obtain SSI registration 4. Obtain clearances from

departments as applicable

5. Arrange for land/shed 6. Arrange for plant and 7. Arrange for infrastructure
machinery

8. Prepare project report

9. Apply and obtain finance

10 a. Proceed to implement
b. Obtain final clearances
Project feasibility study: a schematic
diagram
Generation of ideas

Preliminary Work
Initial screening

Is the idea prima facie promising

No
Yes
Plan feasibility analysis Terminate
Analysis

Conduct market analysis Conduct technical analysis

Conduct financial analysis

Evaluation

Conduct economic & ecological analysis

Is the project worthwile?

No
Yes
Prepare funding proposal Terminate
Table of Contents of a Business
Plan
I. Title Page

II. Executive Summary

– Vision and Mission Statement
– Fact Sheet

III. Company Plan

– Company Description
– Merchandising Plan
– Operating Plan
– Organisational Plan
Table of Contents of a Business Plan
Cont…

IV. Marketing Plan

– Market Description and target market
– Competition analysis
– Methods of distribution
– Advertising
– Pricing
– Product/service design
– Timing of market entry
– Industry trends
Table of Contents of a Business Plan
Cont…

V. Financial Plan
– Summary of financial needs
– Sources and uses of funds
– Cash flow statement
– Three year income projection
– Break even analysis
– Balance sheet
– Income statement
– Risk assessment
– Business financial history
Table of Contents of a Business Plan
Cont…

VI. Supporting Documents

– Personal resumes
– Personal financial statement
– Credit reports
– Copies of leases
– Letters of reference
 Information Heads in a Project
Profile
• Introduction
• Promoter(s) Background (education, experience, and so on)
• Product(s) description (specification, uses, and so on)
• Market and marketing
• Details of infrastructure needed
• Plant and machinery (description, capacity, cost, and so on)
• Process details
• Raw materials (requirements, specification, cost, and so on)
• Manpower required (type of personnel required and salaries/wages)
• Cost of the project and means of finance
• Cost of production and profitability
 Alternatives
To start an industry the promoter's have to
decide on the constitution of the unit. There are
four major alternatives.

a. Sole proprietorship
b. Partnership
c. Corporation/Limited company
d. Cooperative
e. Franchising
 A Mutual Dependence
• Small scale industries should seek
registration with the Director of Industries of
the concerned State government.

• Obtain a Provisional Registration Certificate.

Once the unit goes into production, the PRC
has to be converted into a Permanent
Registration Certificate (PMTC).
 The Specific Clearances Usually
Required Depending on the Type of Unit

• Agricultural land • Bureau of Indian Standards (BIS)

conversion certificate
• Fruit Products Order (FPO) licence
• Urban land ceiling
• Food Adulteration Act licence
clearance
• Power loom registration
• Building plan approval • Electronics industries registration
• Factories Act • Drugs and cosmetics licence
• Trade licence • Approvals of hotels
• 100 per cent export-oriented unit
• Pollution Control Board
clearances
• Sales tax registration
• Central excise registration
 NSIC Procedures for Hire Purchase of
Machinery
• The hire purchase application has to be
made on the prescribed form.

• The Director of Industries of the State

under whose jurisdiction the applicant
happens to be, forwards the application to
the head office of the NSIC at Delhi with
his recommendation and comments.
 NSIC Procedures for Hire Purchase of
Machinery Cont…
• All applications for indigenous or imported machines are
considered by acceptance committees comprising the
representatives of the Chief Controller of Imports,
Development Commissioner, Small-Scale Industries, and
other concerned departments.
• The decision of these committees is conveyed to the
parties concerned with copies to the regional offices of
the NSIC and the concerned Directorate of Industries.
• It is open to an applicant whose case has been rejected
to get his application reviewed by a high powered
committee known proforma invoice.
 NSIC Procedures for Hire Purchase of
Machinery Cont…
• Once the entrepreneur completes all these formalities,
instructions are sent to the suppliers to dispatch the
consignment (duly insured for transit risk) to the
entrepreneur and to send the R/R or C/R, as the case
may be, to the regional office.
• The NSIC after ensuring that the entrepreneur has paid
all dues, releases the R/R or C/R to him for taking
delivery of the machines.
• In case of imported machines, the procedure is slightly
different inasmuch as the shipping documents are sent to
the clearing agents for clearing the consignment from the
Customs and dispatching it to the entrepreneur.
 The Project Report is Generally Prepared to
Cover the Following Seven Broad Segments

1. Executive summary
2. Existing company details (if any)
3. Operational details of the existing
company (if existing)
4. Project details
5. The company vis-à-vis related industry
6. Conclusion
7. Annexure
 Regulatory or Taxation Clearances
• Registration under Sales Tax Act.Commercial Tax officer
of the area concerned.
• Registration under Central Excise Act.Collector of Central
Excise or his nominee.
• Payment of Income Tax.ITO of the area concerned.
• Registration of Partnership deed.Inspector General of area
concerned.
• Calibration of weights and measures.Weights and
Measures Inspector of State.
• Power connection.designated officer of State Electricity
Board.
• Employee strength exceeding 10 with power connection, or
20 without power - Chief Inspector of Factories.
 Product Specific Clearances
• Establishing a printing press.District Magistrate.
• License for cold storage construction.designated official in State.
• Pesticides - Central/State Agricultural Department.Ministry of
Agriculture.
• Drugs and pharmaceuticals.drug licence from State Drug Controller.
• Safety matches/fireworks.licence under Explosives Act from
Directorate of Explosives, Nagpur.
• Household electrical appliances.licence from the Bureau of Indian
Standards.
• Wood working industry within 8 km from forest.District Forest Officer.
• Milk processing and milk products manufacturing units.approval under
Milk and milk Products Order from State Agricultural/Food Processing
Industries Department above a designated capacity.