BB0016- SBM

Spring 2010

Roll No.: 531010562

Name: Shaiju Thomas

Study Centre: Kuwait Educational Centre (2527)

Subject Name: Small Business Management

Subject Code: BB0016

Date of Submission: 00th August, 2011

of 17

Spring 2010

Assignment Set- 1

1. a. What are the features of small scale industries? How are they linked with the big

industrial sectors?

Features of small scale industries

of 17

Spring 2010

“Small-scale industry is beautiful” because of its following important characteristics:

1) A small-scale unit is generally a one-man show. Even the small units, which are run by a partnership firm or company, the activities are mainly carried out by one of the partners or directors. In practice, the other is simple as sleeping partners or directors who mainly assist in providing funds.

2) In case of small-scale industries, the owner himself/herself is a manager also. Thus, these units are managed in a personalized fashion. The owner has first hand knowledge of what is actually going on in the business. He takes effective participation in all matters of business decision taking.

3) Compared to large units, a small-scale industrial unit has a lesser gestation period, i.e. the period after which the return on investment starts.

4) The scope of operation of small industrial undertaking is generally localized catering to the local and regional demands.

5) Small units use indigenous resources and, therefore, can be located anywhere subject to the availability of these resources like raw materials, labour etc.

6) Small industries are fairly labour intensive with comparatively smaller capital investment than the larger units. According to P. C. Mahalanobis, small-scale units require very little capital. About six or seven hundred rupees small-scale would get an artisan family started. With any given investment, employment possibilities would be ten or fifteen or even twenty times greater in comparison with corresponding factory system.

7) Using local resources, small units are decentralized and dispersed to rural areas. Thus, the

development of small-scale industries in rural areas promotes more balanced regional

development, on the one hand, and prevents the influx of job seekers from rural areas to

cities and urbanizing centres, on the other.

8) Compared to large-scale units, small-scale units are more change susceptible and

highly reactive to socio-economic conditions. They are more flexible to adapt changes like

introduction of new products, new method of production, new materials and new markets, new

forms of organisation, etc.

Relationship between Small and Large Units

of 17

Spring 2010

Going through the distinct characteristic of small-scale industries, one should not

assume that the both small and large are antithetic to each other. In other words,

the both cannot sustain in an economy. It is, in fact, true the other way round,

and to a great extent, one is often ancillary or complementary to the other.

The relationship between the small and the large industrial units can be seen in various respects.

Yet, the following are the important ones:

1. Competitive: Small-scale industry cannot compete with large industry in certain

circumstances and in selected products. Examples of such industries are bricks and tiles, fresh

baked goods and perishable edibles, preserved fruits, goods requiring small engineering skill,

items demanding craftsmanship and artistry.

2. Supplementary: Small industries can fill in the gaps between large-scale production and

standard outputs caused by large-scale units. This is due to this supplementary role of small units.

3. Complementary: Apart from supplementary relationship, small industry has been a

complementary to its large counterparts. In the real world, many small units produce intermediate

products for large units. Such subcontracting relationship between the small and large was

particularly marked in the economic history of today’s industrially developed Japan. As

industrialization proceeds, small firms seem naturally to shift from activities that compete with

large firms to complementary ones.

4. Initiative: Attracted by the high profits of large units, small units can also take initiative to

produce the particular product. If succeeds, the small unit grows too large over a period of time.

Staley quotes such initiation that many of the automobile factories started this way in the United

States of America. In our country too, the electronic industry looks like following to this initiative

pattern of development.

5. Servicing: Small industries do also install servicing and repairing shops for the products of

large units. In the case of India, such small servicing units can be seen proliferating in respect of

large industries like refrigerators, radio and television sets, watches and clocks, cycles and motor

vehicles.

b. Define a joint stock company. Mention its important features?

of 17

Spring 2010

A company is an artificial person being created by the law that has an existence separate and

apart from its owners. In other words a company is an artificial person created by law, with a

distinctive name, a common seal and perpetual succession of members. It can sue and can be

sued in its own name. Let us consider a few more definitions of company.

The Indian Companies Act, 1956 defines a joint stock company as a company limited by shares

having a permanent paid up or nominal share capital of fixed amount divided into shares also of

fixed amount, held and transferable as stock and formed on the principles of having in its

members only the holders of those shares or stocks and no other persons”. Main Features

Based on the above definition, given below are the main features of company form of

ownership:

i) Artificial Legal Person: A company is an artificial person created by law. Though it has no

body, no conscience, still it exists as a person. Like a person, it can enter into contracts in

its own name and likewise may sue and be sued by its own name.

ii) Separate Legal Entity: A company has a distinct entity separate from its members or

shareholders. Therefore, a shareholder of the company can enter into contract with the

company. He/she can sue the company and be sued by company.

iii) Common Seal: Being an artificial person, company cannot sign the documents.

Hence, it uses a common seal on which its name is engraved. Putting the common seal on

papers relating to company’s transactions makes them binding on the company.

iv) Perpetual Existence: Unlike partnership, the existence of a company is not affected by death,

lunacy, insolvency or retirement of its members or directors. This is because the company

enjoys a separate legal existence from that of its members. It is said, “Members may come,

members may go but the company goes forever”. It is created by law and is dissolved by law

itself.

of 17

Spring 2010

v) Limited Liability: The liability of the members of a company is normally limited to the

amount of shares held or guarantee given by them.

vi) Transferability of Shares: The member of a public limited company can sell his shares to

others without the consent of other shareholders. He has to follow the procedure laid down in the

Companies Act for transferring his shares. However, there are restrictions for ransferring shares

to others in case of a private limited company.

vii) Separation of Ownership from Management: The shareholders, i.e., owner being scattered

all over country give right to the directors to manage the affairs of the company. The directors

are the representatives of the shareholders. Thus, ownership is separated from management.

viii) Number of members: In case of a public limited company, the minimum number is seven

and there is no maximum limit. But, for a private limited company, the minimum of members is

two and the maximum is fifty.

2. What is the purpose of a project report? What elements must it contain? How does

one prepare a good project report?

Purpose of a Project Report:

A Project Report is a blue print giving the complete framework and structure of the venture that

is taken for implementation. When an entrepreneur takes up the task of setting up an industry he

has to take the help of and interact with other agencies as well. For example he has to get his

unit registered to avail of the facilities he can get from the government and the other

industry related governmental agencies. At the time of obtaining the registration the application

for registration has to be accompanied by the project report.

The entrepreneur has also to obtain finance from the banks and financial institutions. A

bank will never lend to an individual or an industry unless it makes sure of the credit

worthiness of the borrower, like technical and economic feasibility of the venture and the

capacity of the borrower to repay the loan. To get a first hand information of all these

requirements the banks also insist on getting a copy of the project report for its own scrutiny.

of 17

Spring 2010

The project report also serves as a guide to the entrepreneur and enables him to proceed step in

implementing the project. It also stops him from side tracking and deviating from the project plan

and leads him to the right destination.

Project Report Contain

1. General Information and Introduction: This should include the reason and justification for setting up the project, the product to be manufactured or the services to be offered and the goals and objectives to be achieved.

2. Organisational Structure: How is the industry constituted ? It is a proprietorship, a partnership, a company or a co-operative ? Relevant documents like the partnership deed in the case of a partnership, the memorandum of association in case of a company or the by laws in the case of a co-operative should accompany the project report.

3. Promoters: An introduction of the promoter along with his educational background, experience, technical and managerial competence should be given. If there is a key person hired in implementing the project or if there is an involvement of the state or governmental agencies in the project, the same should be given in detail.

4. Location: The site to locate the plant, the reason for selecting the site, in the context of the infrastructural facilities available and waste disposal arrangements to be stated.

5. Land and Building: Land area available, building area, estimated cost and building plan to be provided. If the building is taken on rent a lease deed copy to be enclosed.

6. Product Details: This contains information of the product, its uses, estimated production, special features of the product, like quality and durability and estimated price.

7. Plant and Machinery: List of machinery and equipment to be installed along with capacity details, guarantee period, manufacture’s name, brand and model details, price, taxes, transportation and installation charges along with a proforma invoice should be given.

8. Production Process: A format of the production process and layout, a process flow chart, technology and techniques adopted, preparedness for technology ungradation and scope for innovation to be furnished.

9. Raw Material: Details of raw material requirement with sources of supply, availability, quality standards, price, provision to store the raw material and the quantity of material needed at a time to be given. If the material is to be allotted by the MMTC, STC, DIC, or other agencies, such particulars should be furnished.

10. Manpower: A plan showing the human resources needed detailing the requirement of skilled, semi skilled and unskilled workers, managerial, production, sales and other personnel needed should also be given.

11. Power and Water: This should give the requirement of electricity, water, diesel, kerosene and other fuels needed for daily operational use in the plant for the next 10 years.

12. Utilities: Requirements relating to utilities like electricity, diesel, kerosene, water and compressed air for 10 years along with its availability should be mentioned, on a yearly basis.

13. Production Programme: Production turnover and out put on a weekly, monthly and yearly basis upto 10 years must be stated. The input output ratio should be given and any national and international standards set for quality assurance with respect for the production

of 17

Spring 2010

programme should be indicated.

14. Market: A detailed report has to be given relating to the following: market survey results and use of the product, substitutes available, major buyers, channels of distribution, market strategy to be adopted, trade practices adopted by the competitors, area and regions where the product would be marketed and so on.

15. Miscellaneous Assets: The nature of the miscellaneous assets that form part of the project like air conditioners, office automation systems and related assets should be furnished along with the price and source of procurement.

16. Requirement of Capital: A break cost of the project giving the following aspects should be given:

1. Cost of land, Building and Machinery

2. Tools, Fixtures and Dies, Pre-project expenses

3. Furniture and Office Equipment

4. Escalation Cost and

5. Margin Money for Working Capital

17. Source of Finance: Funding pattern to meet the capital expenditure like the promoter’s capital, funds from financial institutions and banks, subsidies from the state and industry support institutions should be mentioned.

18. Working Capital: Total inventory of raw material, finished products and work in process inventory should be indicated. The working capital should be worked out for each production cycle. The nature of credit facilities available from suppliers of raw material should be stated. A list of working capital requirement containing the following should be given:

1. Raw Material and Component cost

2. Labour and Wages

3. Maintenance and Repairs

4. Transportation Cost

5. Power and Fuel Cost

6. Production Cost

7. Marketing Costs and

8. Other Establishment Cost

19. Cash Flow Statement: A statement showing cash inflow and cash outflow indicating how much money is coming into the business and how much money is going out of the business should be given.

20. Break-even Analysis: As part of the business plan the quantum of production and output giving the cost break up over periods of time in the form of a Break-even Analysis showing the break-even point should be shown.

21. Project Economics: Project economics containing a complete list of items of expenditure and the sources of revenue by way of sales and miscellaneous income to cover the cost and estimated profit balance should be stated.

of 17

Spring 2010

22. Profitability Projections: Cost of production and projected profitability over the next 10 years should be worked out and indicated.

Implementation: A clear picture and plan of how the project would be put together

organised and implemented should be clearly given along with data to substantiate where

required.

How to prepare a Good Project Report:

The entrepreneur should know how to prepare the project report so that he

knows well what it contains. If the work of preparing the project report is given to

a consultant then the promoter should give the basic idea, the objective and the

promoter of the project should give all the guidelines to him. The entrepreneur

should be in a position to discuss and present each and every aspect in the

report convincingly and with authority whenever such a need arises.

3. Explain the marketing mix strategy of any one leather company (Small Scale

Industry).

All marketing resources will eventually talk about your marketing mix, but what do they mean exactly? Marketing mix is a term that the marketing world tries to hold as a private term that only the industry knows about, but as a small business owner, you need to understand how to plan and implement your marketing mix.

The marketing mix is defined as the four P’s of marketing: product, price, place, and promotion. These four areas make up the complete outline for product or service marketing. Once you have defined the variables for each P, you have a basis for proper marketing.

Market research will play a major role in each area of your marketing mix. You must understand what you are competing with in regards to products and pricing. Although you may have a new and unique item with an innovative type of distribution, you still must compare your product or service to existing ones.

marketing mix strategy of a leather company:- Here are the four P’s of your marketing mix for small business marketing.

P #1: Product

The product or service or selling must be defined first. What are you selling? How will it be packaged? Determine your product’s features, and then build the benefits from them. At this point, you will make all of the decisions relating to your product or service: style, quality, packaging, warranty, etc.

P#2: Price

of 17

Spring 2010

Pricing actually plays a vital role in the branding and image of your product. Determining your price can be difficult, especially if you product is in a widely-variable industry. You must determine pricing strategy, retail and wholesale pricing, possible bundling, and any type of discounts.

P#3: Place

Place refers to how you will distribute the product. Will you sell to retail stores, or will you sell directly to customers? Is your product a wholesale item? The decisions made about distribution will affect your marketing mix in terms of how you will warehouse your products, how you will process orders, what types of channels will you use, and how will you cover the market.

P#4: Promotion

Promotion is the area where you will make decisions on how people will learn about your product. What types of sales strategies and promotions will you use? What kind of sales force will you need to sell your product? How will you use public relations and publicity to support your product? There are many aspects of the promotion element of your marketing mix. In fact, the other three P’s will affect your promotion strategy.

Decide on the first three P’s before you tackle Promotion, but ultimately, each P will coordinate with the others. Once you complete your marketing mix decisions, review the entire plan to make sure you have a consistent and precise marketing mix plan in order to properly sell, distribute, and promote your product.

There are a number of aspects involved in marketing a product. Some of them

are controllable and others are uncontrollable. The examples of controllable

aspects may be the features of the product, its price, its selling through own

salesmen or retailers, its advertisement through various means like television,

newspapers and so on. In all these cases, there are a number of alternatives

available to choose. The entrepreneur always tries to choose a mix of

alternatives/decisions amongst the alternatives which may yield the maximum

returns for him/her. There are usually four main decision areas, viz., product

price, promotion and place which constitute a mix of decisions. The same mix is

termed as ‘marketing mix’. McCarthy classified the four factors under 4 Ps, viz.

Product, Price, Promotion and Place (Physical distribution).

The term ‘marketing mix’ was coined and introduced by Professor Neil H. Borden

of the Harvard Business School. Both the term and concept have since been

adopted throughout the world. Since then, several authorities have tried to define

this new concept of ‘marketing mix’ in different ways. Following are a few of

them:

According to Prof. Borden, the term ‘marketing mix’ consists of the following:

of 17

Spring 2010

(i) A list of the important elements of ingredients that make up the marketing programmes, and

(ii) A list of the forces that bear on the marketing operation of a firm and to which the

marketing manager must adjust in his search for a mix or programme that can be successful.

R. S. Davar, a well-known authority on marketing management opines, “The policies

adopted by manufacturers to attain success in the market constitute the marketing mix.”

Philip Kotler says, “The firm’s task is to find the best settings for its marketing decision

variable. The setting constitutes its marketing mix.”

Thus, the marketing mix is the tailoring the product, its price, its promotion and distribution to

reach the target customers. In the present time, marketing mix has become an essential part of

marketing management.

Assignment Set – 2

of 17

Spring 2010

1. a. Explain briefly the various sources of funds to finance a small scale sector.

Sources of Finance

Required funds could broadly be classified into two sources. These are :

a. Internal Sources

b. External Sources

a) Internal Sources

Under this source, funds are raised from within the enterprise itself. The internal

sources of financing could be owner’s capital known as equity, deposits and

loans given by the owner, the partners, the directors, as the case may be, to the

enterprise. One source for raising funds internally may be personal loans taken

by the entrepreneurs on his/her personal assets like Provident Fund, Life

Insurance Policy, buildings, investments, etc. In addition to these, in case of a

running enterprise, funds could also be raised through the retention of profits or

conversion of some assets into funds. The principle of financial management

also suggests that an entrepreneur should religiously plough back a good portion

of his/her profits into the enterprise itself. However, the scope for raising funds

from internal sources particularly in the case of small-scale enterprises remains

limited.

b) External Sources

The funds raised from other than internal sources are from external sources. The external sources

usually include the following :

1. Deposits or borrowings from relatives and friends and others.

2. Borrowings from the banks for working capital purposes.

3. Credit facilities from the commercial banks.

4. Term-loans from financial institutions.

5. Hire-purchase or leasing facility from the National Small Industries Corporation

(NSIC) and State Small Industries Corporations (SSICs)

of 17

Spring 2010

6. Seed/Margin money, subsidies from the Government and the financial institutions

If we now lump both the sources together, these can broadly be classified as

follows :

1. Personal funds or Equity Capital

2. Loans from relatives and friends

3. Mortgage Loans

4. Term-Loans

5. Subsidiaries

b. Write a note on the Industrial Disputes Act.

The Industrial Disputes Act, 1947

The main object of the Act is to make provision for the investigation and settlement of

industrial disputes.

The Act seeks:

i) to provide a suitable machinery for the just, equitable and peaceful settlement of

industrial disputes

ii) to promote measures for securing and preserving amity and good relations between employers

and employees

iii) to prevent illegal strikes and lockouts

iv) to provide relief to workers against layoffs, retrenchment, wrongful dismissal and

victimisation

v) to promote collective bargaining

vi) to improve the condition of workers

1. Authorities: The Act provides for the setting up of the following for effective investigation

and settlement of industrial disputes:

(a) Works committees

of 17

Spring 2010

(b) Conciliation officers

(c) Boards of conciliation

(d) Courts of inquiry

(e) Labour courts

(f) Industrial Tribunals

(g) National Tribunal

Arbitration, conciliation and adjudication machinery is provided for settlement and

prevention of industrial disputes. The Act makes it obligatory for an employer to

set up a 'Grievance Settlement Authority' in an industrial establishment in which

fifty or more workers have been employed in the preceding twelve months. This

authority shall have the responsibility to settle industrial disputes concerning an

individual worker.

2. Obligation of Employer: Under the Act, an employer is required

(a) To constitute works committees and provide all facilities for their proper working;

(b) To implement all agreements, settlements and awards, and produce all documents and render

other assistance for conciliation and adjudication of disputes;

(c) To desist from declaring any illegal lockout;

(d) Not to layoff or retrench workmen or close undertakings without prior permission of the

Government;

(e) To pay compensation for layoff, retrenchment and closure, and to re-employ retrenched

workmen;

(f) To avoid any change in service and employment conditions without notice;

(g) To report to the Government or its specified authority any strike or any notice of

strike/lockout received/given within five days of receiving/giving the notice;

(h) To maintain status quo tendency of disputes in conciliation and arbitration, and

avoid taking disciplinary action against the workmen connected with disputes and 'protected

workmen' as required under the Act; and

(i) To avoid unfair labor practices.

of 17

Spring 2010

2. a. Explain the benefits and drawbacks of partnership format of ownership.

Advantages

As an ownership form of business, partnership offers the following advantages:

1. Easy Formation: Partnership is a contractual agreement between the partners to run an

enterprise. Hence, it is relatively ease to form. Legal formalities associated with formation

are minimal. Though the registration of a partnership is desirable, but not obligatory.

2. More Capital Available: Partnership overcomes the problem of limited fund to a great extent,

because there are more than one person who provide funds to the enterprise. It also increases

the borrowing capacity of the firm. Moreover, the lending institutions also perceive less risk in

granting credit to a partnership than to a proprietorship because the risk of loss is spread over a

number of partners rather than only one.

3. Combined Talent, Judgement and Skill: As are more than one owner in partnership, all

the partners are involved in decision-making. Usually, partners are pooled from different

specialized areas to complement each other. This gives the firm an advantage of collective

expertise for taking better decisions. Thus, the old maxim of “two heads being better than

one” aptly applies to partnership.

4. Diffusion of Risk: In case of partnership, the losses of the firm are shared by all the partners

as per their agreed profit-sharing ratios. Thus, the share of loss in case of each partner will be less

than in case of proprietorship.

5. Flexibility: Like proprietorship, the partnership business is also flexible. The partners can

easily appreciate and quickly react to the changing conditions. No giant business organisation

can stifle so quick and creative response to new opportunities.

6. Tax Advantage: Taxation rates applicable to partnership are lower than proprietorship and

company forms of business ownership.

Disadvantages

In spite of above advantages, there are certain drawbacks associated with the partnership

form of business organisation. Descriptions of these drawbacks/disadvantages are as

follows:

of 17

Spring 2010

1. Unlimited Liability: In partnership firm, the liability of partners are unlimited. Just as in

proprietorship, the partners’ personal assets may be at risk if the business cannot pay its debts.

2. Divided Authority: Sometimes the earlier stated maxim of two heads better than one may

turn into “too many cooks spoil the broth”. Each partner can discharge his responsibilities in his

concerned individual area. But, in case of areas like policy formulation for the whole enterprise,

there are chances for conflicts between the partners. Disagreements between the partners over

enterprise matters have destroyed many a partnership.

3. Lack of Continuity: Death or withdrawal of one partner causes the partnership to

end. So, there remains uncertainty in continuity of partnership.

4. Risk of Implied Authority: Each partner is an agent for the partnership business. Hence,

the decisions made by him bind all the partners. At times, an incompetent partner may lend the

firm into difficulties by taking wrong decisions. Risk involved in decisions taken by one

partner is to be borne by other partners also.

b. Identify the essential qualities that a good leader must possess.

Qualities of a good Leader

1. Physical Qualities: Sound health, stamina, enthusiasm and nervous energy, force fullness.

2. Intellectual Qualities: Intelligence, sound judgement, decisiveness, maturity, vision.

3. Moral Qualities: Integrity, moral image, fair play, will power, sense of purpose and

responsibility, achievement drive, objectivity.

4. Social Qualities: Ability to inspire, tactfulness, persuasiveness, self-confidence,

empathy, initiative, knowledge of human nature, communication skills.

of 17

Spring 2010

3. Prepare a market survey questionnaire for starting a new small business in

agriculture area.

Market survey questionnaire for starting a new small business in agriculture area are also

make up the executive summary of a business plan. Following are the prime considered

questionnaire for a sole proprietor ship businessman.

1) What is the product/ service?

2) What is its Unique Value Proposition?

a) What makes it different or better

3) What is the market opportunity?

a) What problem do you solve?

b) How large is the market

c) How fast is the market growing?

d) Who is the competition?

4) How do you make money?

a) What is the revenue model?

5) Who is the Management team?

a)How are they uniquely qualified

6)What is the strategy?

a) What is the long term goal?

7) How do you Sale or market your product?

8) How much capital do you need / intend to raise?

a) What are the primary start-up costs?

9) What are the projected financials for the company?

a) What is the projected income statement?

10) What is the preliminary valuation of the company?

a) How much would you sell a percentage of your company for?

of 17

BB0016- SBM

Documents

Transcript of BB0016- SBM