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SETTING UP OF A SMALL BUSINESS ENTERPRISE

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Page 1: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

SETTING UP OF A SMALL BUSINESS ENTERPRISE

Page 2: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

FLOW CHART FOR SETTING UP A SMALL-SCALE INDUSTRILA UNIT

1.Selection of a project

2. Deciding on the Constitution

3.Obtain SSI Registration

4. Obtain Clearance from Department as

applicable

5.Arrange for land/shed

6.Arrange for Plant & Machinery

7.Arrange for Infrastructure

8.Prepare Project report

9.Apply & Obtain Finance

10. Proceed to implement & Obtain

Final Clearances

Page 3: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 1: PRODUCT/SERVICE SELECTION

a) Product or service selection

b)Location Selection

c) Project Feasibility Study

d) Business Plan Preparation

e) Preparation of a project profile

Page 4: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

A) PRODUCT/SERVICE SELECTION

• Project Identification is concerned with collection, compilation and analysis of economic data for the eventual purpose of locating possible opportunities for investment & with the development of such opportunities.

• Sources for generating novel project ideas are personal observations of the surrounding environment, trade fairs/exhibitions, technical & professional literature published in trade periodicals and magazines

• Development plans/schemes of Government may pinpoint toward a unique investment opportunity, bulletins of research Institutes such as Ernst & Young, McKinsey, KPMG, AC Nielsen can provide valuable insights on current state of various sectors, demand-supply gap and investment opportunity, if any.

• Contacting organisations such as District Industry Centres, Centres for Entrepreneurship Development, Small Industry Services Institute, EDI, NIESBUD, KVIC, SIDBI, National Industrial Development Corporation etc. and gathering information in the form of project profiles, feasibilities studies, industry studies, area development studies etc. can be source of new idea.

Page 5: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

CRITERIA FOR SELECTING A PARTICULAR PRODUCT

• Market Potential

• Degree of Competition

• Investment Size

• Location

• Availability of Raw Material, Technology & Equipment

• Availability of Infrastructural facilities such as land/shed, power, water, transport etc.

• Resource & Experience of the entrepreneur

• Government Policies & Procedures

• Packaging, Branding, Warranties & After Sales Service

Page 6: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

B. LOCATION SELECTION

1. General Considerations: Location(city/town/village), proximity to nearest railway stations/sea port/air port/, availability of essential raw material sources, skilled labour, law & order situation in the area, level of industrial development in the area, etc.

2. Industrial Infrastructure Position: Land ( availability & price), water & power supply, effluent treatment & disposal/drainage arrangement, postal, telegram & telecommunication facilities, banking facilities, warehousing facility, professional resource person such as legal advisor. Chartered accountants, management/industrial consultants etc.

Page 7: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

B. LOCATION SELECTION

3. Financial Incentives Available: Investment subsidy (Central/State Government), income tax concession, sales tax exemption/interest free sales tax loan, Octroi exemption, electricity duty exemption, local tax exemption etc.

4. Social Infrastructure Position: Housing (availability, quality, price, public housing facilities), education (primary, secondary and university education facility) and health(dispensary, hospitals & specialities)

5. Site-Specific Consideration: access to national highway or other roads provided by the state, soil type, direction of town growth with reference to the site, overhead telephone or power lines or underground water/drainage/gas line passing through the site, vantage or otherwise, frontage approach etc.

Page 8: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

C. PROJECT FEASIBILITY STUDY

MARKET ANALYSIS

TECHNICAL ANALYSIS

FINANCIAL ANALYSIS

ECONOMIC ANALYSIS

ECOLOGICAL ANALYSIS

Page 9: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

MARKET ANALYSIS

• Consumption trend in the past and present consumption level

• Past and present supply position

• Production possibilities and constraints

• Imports and exports

• Structure of competition

• Cost structure

• Elasticity of demand

• Consumer behaviour, intentions, motivations, attitudes, preferences and requirements.

• Distribution channels & marketing policies

Page 10: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

TECHNICAL ANALYSIS

• Has the availability of raw materials, power ad other inputs been established?

• Is the selected scale of operation optimal?

• Is the production process chosen suitable?

• Are the equipment & machine chosen appropriate ?

• Has provision been made for treatment of effluents?

• Is the proposed layout of the site, building and plant sound ?

• Have work schedules been drawn up realistically ?

• Is the technology proposed to be employed appropriate from the social point of view ?

Page 11: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

FINANCIAL ANALYSIS

Financial Analysis seeks to ascertain whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing the debt and whether the proposed project will yield a satisfactory rate of return. Few aspects require to be looked into such as :

• Investment outlay

• Means of financing

• Projected profitability

• Break-even point

• Cash flows of the project

• Projected financial position

• Level of risk

• Calculation of key ratios such as ROI, Liquidity & Solvency Ratios

Page 12: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

ECONOMIC ANALYSIS

The questions sought to be answered in social cost-benefit analysis are as follows:

• What are the direct economic benefits and costs of the project measure in terms of shadow prices and not market prices ?

• What would be the impact of the project on distribution of the income ?

• What would be the impact of the project on the level of savings and investment ?

• What would be the contribution of the project towards the fulfilment of certain criteria such as self-sufficiency, employment and social order ?

Page 13: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

ECOLOGICAL ANALYSIS

Ecological analysis should be done particularly for major projects which have significant ecological implications such as power plants, irrigation schemes. Manufacturing of bulk drugs, chemicals, leather processing etc. The key question raised in ecological analysis are as follows:

• What is the likely damage caused by the project to the environment ?

• What is the cost of the restoration measure required to ensure that the damage to the environment is contained within acceptable limits ?

• Is the project causing water/air pollution or discharge of harmful chemicals ?

Page 14: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

D. BUSINESS PLAN PREPARATION

• WHAT IS INCLUDED IN A BUSINESS PLAN.pptx

Page 15: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

E. PROJECT PROFILE

• A project profile gives a bird-view of the proposed project.

• This may be used to obtain the Provisional Registration Certificate (PRC) from the District Industries Centre or applying for land/shed to Industrial Area Development Board, State Small Industries Development Corporation (SSIDC) etc.

• Important informational heads to be covered in a project profile are promoter’s background, product description, market & marketing, plant & machinery, process details, cost of the project & profitability, means of finance etc.

Page 16: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 2. DECIDE ON THE CONSTITUTION

Sole proprietorship

Partnership

Corporation/limited company

Cooperative

Franchising

Page 17: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 3. REGISTRATION

• Small-scale and ancillary units should seek registration with the Director of Industries of the concerned State Government.

• Entrepreneur starting a small scale industry have to initially obtain a Provisional Registration Certificate .Once the unit goes into production, the PRC has to be converted into a Permanent Registration Certificate.

• The initial validity of the PRC is 2 years and it can be renewed subsequently, if needed.

• PRC is normally valid for 5 years and permanent registration is given in perpetuity.

Page 18: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

BENEFITS OF REGISTRATION

• The registration scheme has no statutory basis. Units would normally get registered to avail some benefits, incentives or support given either by the Central or State Govt. The regime of incentives offered by the Centre generally contains the following:

• - Credit prescription (Priority sector lending), differential rates of interest etc. - Excise Exemption Scheme - Exemption under Direct Tax Laws. - Statutory support such as reservation and the Interest on Delayed Payments Act.

States/UTs have their own package of facilities and incentives for small scale. They relate to development of industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support

Page 19: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

PROVISIONAL REGISTRATION CERTIFICATE (PRC)

• This is given for the pre-operative period and enables the units to obtain the term loans and working capital from financial institutions/banks under priority sector lending.

• Obtain facilities for accommodation, land, other approvals etc.

• Obtain various necessary NOCs and clearances from regulatory bodies such as Pollution Control Board, Labour Regulations etc.

Page 20: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

REGISTRATION FORMALITIES FOR PRC

1. Prescribed court fees stamp

2. Copy of the project profile

3. Partnership deed/MOA/AOA

4. Affidavit as per the format on appropriate stamp paper

Page 21: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

PERMANENT REGISTRATION CERTIFICATE (PMT)

• A PMT enables the unit to get the following benefits:

1. income-tax and sales-tax exemption

2. Incentives and concessions in power tariffs

3. To apply for scarce raw materials and for imported raw materials.

4. Price and purchase preference for goods produced

5. To obtain central excise duty concessions

Page 22: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

PROCEDURE FOR PERMANENT REGISTRATION CERTIFICATE

Once the production commences, the organisation can proceed to apply for Permanent Registration Certificate (PRC).It is a life time registration given after physical inspection of the enterprise and scrutiny of certain documents. Some of the formalities required to be completed for seeking permanent registration are :-Clearance from the municipal corporation

• State pollution control board clearance

• Sanction from the electricity board

• Ownership/tenancy rights of the premises where unit is located

• Copy of partnership deed/Memorandum orarticles of association in case of a private limited company

• Sale bill of product manufacture

• Sale bill of each end product

• Purchase bill of each raw material

• Purchase bill of machinery installed

• An affidavit giving status of the unit, machinery installed, power requirement, etc

Page 23: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 4. CLEARANCE FROM SPECIFIC DEPARTMENTS

• Specific Clearances usually depending on the type of units:

Agricultural land conversion

Urban land ceiling clearance

Building plan approval

Factories Act/trade licence

Pollution control board clearances

Sales tax/central excise registration

Drugs & cosmetics licence

Food adulteration act licence

Page 24: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 5. ARRANGEMENT OF LAND/SHED

• For any industrial project, a suitable industrial site or a ready industrial shed is required. The promoters of the unit could consider taking an industrial shed and constructing the shed as per the requirement.

• Using a ready industrial shed could be considered on lease/rental basis.

• In order to apply for industrial shed, few application formalities have to be complied including copy of Provisional Registration Certificate, detailed project report, certified copies of educational qualifications, applicable earnest money deposit.

Page 25: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 6. ARRANGEMENT OF PLANT & MACHINERY

• The entrepreneur can select and purchase the requisite plant & machinery from recognised and approved manufacturers.

• Banks and SFCs maintain a list of approved machinery suppliesDirect purchase

• The plant & machinery can be taken on hire purchase from NSIC.• As per the agreement, once the leased instalment is paid, the assets will

become the property of the industrial unit.• An application in the prescribed format has to be submitted to the Director

of Industries of the State under whose jurisdiction the applicant operates.Hire Purchase

Page 26: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

ARRANGEMENT OF RAW MATERIAL

Raw Material procurement and planning are critical to success, of a start-up unit. The raw materials required may be:-

• Domestically available (within the country).

• Imported from abroad:- For importing the raw materials the Government rules and regulations have to be followed. The imports are regulated by the Foreign Trade (Development and Regulation) Act, 1992. The Act provides for the appointment by the Central Government, of a Director General of Foreign Trade for the purpose of the Act. The DGFT shall advise Central Government in formulating export and import policy and implementing the policy.

Whatever be the source of raw materials it must be bought from reputed dealers and agencies only. Before ordering, compare the prices and get quotation from at least 3-4 places and also check whether price is inclusive or exclusive of transportation costs. While receiving the delivery, check the quality and quantity of the materials

Page 27: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

PROCESS SELECTION

• Before selecting any process technology, following considerations are to be taken care of:

• The level of skilled workers or complex machines required by the process.

• The quantity of water and / or power required.

• If any process or product patent is needed in order to utilize the selected process technology.

• Any special Pollution or Environmental regulation is to be followed.

• The appropriateness of the technology to the Indian environment and conditions.

Page 28: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 7. ARRANGEMENT FOR INFRASTRUCTURE

• The main infrastructural facilities required for a SSI unit are land/shed, power connection, water supply and telephone facility.

• Single Window Agencies are set up at district level for the benefit of small-scale industries. SWA provides various services including allotment of land/industrial sheds/power connection, sanction of term loans and working capital, disbursement of various incentives and concessions etc.

• The entrepreneur can avail of several concessions and incentives of State Government available for SSI such as subsidised water/power tariff, transport subsidy, incentive for pollution control etc.

Page 29: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

GETTING UTILITY CONNECTIONS(WATER & POWER)WATER SUPPLY:

• Find out the water requirement of the industry.

• Check out what is the best possible source of the required water supply i.e. river, canal, tube well and how far is it from your land.

• Check the quality of water (PH, hardness) and does it meet you specific requirements.

• Rate/ water charges applicable as well as the common storage facility.

• Find out who is the operating authority (Public Works Department, Estate-Corporation, Municipality) of the area.

• Water connection is obtained by applying in advance in formal forms

Page 30: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

GETTING UTILITY CONNECTIONS(WATER & POWER)• POWER SUPPLY:

• Find out the power supply requirement of the industry.

• Locate the nearest substation from where you will get power supply. Also find out the power tariff rate and the duration for which required supply will be available.

• A formal application needs to be made in a specific form to the concerned State Electricity Boards. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. In areas of power shortage, it is advisable to augment the power supply with a captive generating set.

• After obtaining the power feasibility and sanction certificate, the power supply may be given to the industry.

Page 31: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 8. PREPARE PROJECT REPORT

• General Points to be kept in mind while preparing a Project Report:

1. Expected use of the project report

2. Elaborate details but retaining the confidential data

3. Proper validation of the data and information based on reliable sources

4. Effective presentation by use of charts, graphs and pictorial forms

5. Cost minimisation and timelines

6. Proper estimation of the requirement of number of copies.

Page 32: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

CONTENTS OF A PROJECT REPORT

1.EXECUTIVE SUMMARY: introduction, financial performance, balance sheet analysis, project profitability & analysis, SWOT analysis

2. COMPANY DETAILS: history, manufacturing facilities, promoters, shareholding pattern, board of directors, key executives, major products/consumers, details of divisions and group units

3. OPERATIONAL DETAILS: capacity & utilization, profit & loss account, term loans & advances, marketing & distribution network, marketing strategy, export sales

4.PROJECT DETAILS: Proposed project, orders & enquiries, location, manufacturing process, technical feasibility/know-how, manpower, power/water supply, auxiliary services

5. PROJECT COST: land, building, plant & machinery, preoperative expenses, margin money for hire purchase & working capital.

Page 33: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

CONTENTS OF A PROJECT REPORT

6. MEANS OF FINANCE

7.PROJECT STATUS: implementation schedule, PERT & CPM analysis, current status of work flow

8.PROFITABILITY & RISK ANALSYIS: Financial of the project, analysis of break-even point, ROI, payback period and internal rate of return.

9. COMPANY vis-à-vis RELATED INDUSTRY: General analysis, competing industries, knowledge about existing monopolies and existing cartels.

10. EMPLOYMENT GENERATION

11. CONCLUSION

Page 34: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

CONTENTS OF A PROJECT REPORT

12. ANNEXURE:

Promoter’s bio-data

Organisation chart

Details of group units

Statutory sanctions/approvals

Arrangement of land & building

Details of orders & enquiries

Process chart

Financial for project and company and its analysis

Any other relevant details

Page 35: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 9. APPLY & OBTAIN FINANCE

The entrepreneur has few key decisions to be made:

1. Sources of finance: share capital, internal accruals, deposits – own/public, debentures, short-term borrowings, long term loans, bridge loans and working capital loans.

2. Small scale units can obtain finance for their projects under two categories:

a. Term Loan

b. Working Capital Loan

3. Financial assistance in India for SSI units is available from a variety of institutions including Small Industries Development Bank of India, SFC, NSIC, SIDC,DIC.Export Import Bank of India and Export Credit and Guarantee Corporation are central agencies which provide credit for export/import and EXIM guarantees.

Page 36: SETTING UP OF A SMALL BUSINESS ENTERPRISE. FLOW CHART FOR SETTING UP A SMALL- SCALE INDUSTRILA UNIT 1.Selection of a project 2. Deciding on the Constitution

STEP 10.IMPLEMENT THE PROJECT & OBTAIN FINAL CLEARANCE

• Construct shed

• Order for machinery

• Recruit personnel

• Arrange for raw materials

• Marketing

• Erection & commissioning

• Obtain Final Clearance