FORMALITIES FOR SETTING UP OF A SMALL BUSINESS ENTERPRISE

ByProf. N. N. Panda

GIACR Engg. College, RAYAGADA

The formalities for setting up of a small business enterprise is given in the figure given below –

1. Selection of a Project In order to set up of a small scale industry, a suitable project has to be decided upon. This involves selecting a product or service, and a location for the unit. Based on these selections, a project feasibility study has to be made and then a brief profile has to be prepared for the proposed project.

Project selection is the initial decision which an entrepreneur has to make. Project selection and preliminary activities involves the followings – a. Product or Service Selectionb. Location Selectionc. Project Feasibility Studyd. Business Plan Preparatione. Prepare Project Profile

a. Product or Service Selection

The entrepreneur has to decide on a suitable product or a service based on which a project can be started. He has to consider various factors before deciding on a suitable project. The main factors are as follows – --Background and experience of the entrepreneur(s).--Availability of technology and know-how for the project.--Marketability of the product/service.--Investment capacity.--Availability of raw materials.--Availability of plant and machinery.--Availability of sufficient infrastructure.

Make a careful analysis of the product or service you are choosing. A good entrepreneur always examines the pros and cons before setting up a business. There are many organizations which are in possession of information on business opportunities. You can contact these organizations to get idea about a product/service.--District Industry Centre--Technical Consultancy Organizations--Centres for Entrepreneurship Development--Small Industry Service Institutes--National Industrial Development Corporations--Small Industries Development Bank of India--Commissioner of Cottage Industries--Entrepreneurship Development Institute of India

b. Location Selection

One of the major decisions an entrepreneur has to make is about the location of the project-where to set, the unit. Some of the major aspects to be considered before deciding on the location of the project are--Proximity to market--Availability of raw materials--Availability of transportation and communication facilities--Availability of incentives--Government policy--Availability of infrastructure

General PointsLocationNearest large cityConnection to nearest major citiesDistance from the other marketsComposition of industrial developmentDistance from major raw material sourcesAvailability of manpowerLaw and order situation in the area

Industrial PositionLand availability and priceSource of water supply, quality and distancePower supplyEffluent treatment and disposal Approach road/internal roads and street lightingBank FacilityTyping / photocopyingFacility of electrification and fabricationPainting and gas supplyWarehousing facilityPostal, telegram and communication facility

Financial PositionInvestment subsidyIncome tax concessionsSales tax exemptionsPromoters’ contributionsOther tax concessions

Social PositionHousingEducationHealth

c. Project Feasibility Study The important facets of a project feasibility study are as follows.--Market analysis--Technical analysis--Financial analysis--Economic analysis--Ecological analysis

d. Business Plan PreparationA business plan is a document where you plan your business to have an organized and effective response to a situation which may arise in future. Business plan is not just for a start-up company but also for those which are growing. It can be used to establish realistic goals or targets to achieve and determine current position.

A good business plan contains the following – --Determines where the company needs to go--Forewarns of possible roadblocks along the way--Formulates responses to contingencies--Keeps the business in track to reach its planned goals

While making a business plan keep the following things in mind.--Keep target audience in view--Strategy-core of a business plan--Think competitively throughout--Be realistic--Involve people--Factual and succinct

e. Project Profile – A project profile gives a bird’s-eye view of the proposed project. This may used for obtaining the Provisional Registration Certificate(PRC) from the District Industries Centre and for making, applying for Industrial Areas Development Board for land or State Small Industries Development Corporation(SSIDC).

2. Decide on the Constitution – Many first time entrepreneurs do not have a clear perspective of the issues, legal or otherwise, involved in choosing one or the other form of business. This often results unavoidable mistakes, which later cost time and money to rectify. In India setting up a private limited company is most popular choice among entrepreneurs.

To start an industry, the promoters have to decide on the constitution of the unit. The following are the various alternatives.---Sole proprietorship---Partnership---Company---Cooperative

3. RegistrationObtain SSI Registration – Small scale and ancillary units that is undertakings with investment in plant and machinery of less than Rs. 1 crore should seek registration with the Director of Industries of the concerned State Government. Entrepreneurs desiring to start 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.

Provisional Registration Certificate – It is the initial registration for starting a small scale industry. It enables the entrepreneur to initiate necessary steps to bring the unit into existence. A PRC is necessary for applying for infrastructure facilities, finance, and so on.

The PRC will be normally issued immediately, across the table on submission of the application. The initial validity of the PRC is for two years and it can be renewed subsequently, if needed.

Permanent Registration Certificate (PMT) – An SSI unit can get PMT when it goes into commercial production. In the initial stages it would have obtained a PRC and it would be converted to PMT when the unit goes into production. The PMT registration will help SSI units in several ways, listed below.--To apply for scarce raw materials--To get working capital from backs and financial institutions--To obtain central excise duty concessions, etc

De-registrationA small-scale unit can violate the regulation in the following ways which will make it liable for de-registration.---It crosses the investment limits---It starts manufacturing a new item or items that require an industrial license or other kind of statutory license.---It does not satisfy the condition of being owned, controlled, or being a subsidiary of any other industrial undertaking

4. Clearance from Specific DepartmentsSeveral clearances are required from different authorities depending on the type of industry and the location of the unit.The following are the specific clearances usually required depending upon the types of units---Agricultural land conversion ---Urban and ceiling clearance---Building plan approval---Factories Act---Trade license

---Pollution Control Board clearances---Sales tax registration---Central excise registration---Bureau of Indian Standards (BIS) certificate---Fruit Products Order (FPO) license---Food Adulteration Act license---Power loom registration---Electronics industries registration---Drugs and cosmetics---Approvals of hotels---100% export-oriented unit

5. Arrange for Land/Shed For any industrial project, a suitable industrial site or a ready industrial shed is required. The promoters of the units could consider taking an industrial site and constructing a shed as per their requirements. Alternatively, they could consider taking a ready industrial shed on or on ownership basis.

Industrial Land Once the location of the unit is decided, the land for the project could be conveniently taken from the State Industrial Areas Development Board. However, private land could also be purchased, but it has to be converted for industrial purpose and other necessary legal/formalities will have to be completed.

Industrial ShedFor setting up an SSI unit, the promoters could consider using a ready industrial shed. This could be on rent or on ownership basis. Rental sheds have to be arranged from private owners.

6. Arrange for Plant & Machinery The plant and machinery required for the project could be purchased from recognized manufactures/dealers. The plant and machinery could also be taken on a hire purchase scheme operated by the National Small Industries Corporation (NSIC).

The entrepreneur has to select and buy the required plant and machinery from recognized and approved manufacturers or dealers. Banks and State Financial Corporations maintain a list of approved machinery suppliers. The entrepreneur is advised to refer to such list before deciding on the supplier.

The entrepreneur should compare the quality, performance, and service terms, price, and other details of the alternate plant and machinery that may be available in the market. Detailed quotations should be taken for preparing the project and also for submission to SFC along with the loan application.

7. Arrange for Infrastructure

The main infrastructure facilities required for a SSI unit are land or shed for the project, power connection, water supply, and telephone facility.

Single Window Agencies (SWAs) are set up at district level for the benefit of small scale industries.

The assistance given by the SWA is as follows.--Grant of land in industrial areas and allotment of sheds in the industrial estates for all tiny and small scale units--Grant of power up to the limit prescribed by the State government--To review and recommend sanction of term loans and working capital loans by SFC and commercial banks within the district--Grant and disbursement of all incentives--General review the position regarding problems faced by entrepreneurs within the district

After deciding the location and site, three important factors have to be kept in mind before purchasing/leasing the land.a. Availability of basic amenities like power, waterb. Connectivity to nearest rail, or portc. Price of the land

8. Prepare Project Report The project report is a document created through systematic recording of all the details about a project, with an analysis and validation of data/information. This is the most important document of any project. The project report must imbibe the following characteristics.

--Standard format--Completeness of data

--Proper definitions of assumptions--Imparting of data/information from reliable sources--Emphasis on the main objectives of the project--Scientific analysis of the data--Preservation of confidential data/information--Effective presentations--Cost effectiveness--Timeliness

Before preparing a project report, some homework on the following points is very necessary.--Idea about the new task--Promoter’s bio-data--Organization chart--Process chart--Technical details--Manpower requirements--Availability of raw materials--Technical collaborations--Other financial details

Contents of a Project Report--Executive Summary--Company details--Operational details--Project details--Project cost--Means of finance--Project status--Profitability and risk analysis--Company vis-à-vis related industry--Employment generation--Conclusion--Annexure

9. Apply and Obtain FinanceThere are various sources of funds. They are as follows--Share Capital--Internal accruals--Deposits – own/public--Debentures--Short-term borrowings--Long term loans--Bridge Loans--Working capital loans like cash credit

Arranging FinanceTo start and set up business, all SSI units need

monetary support. Before seeking funds, estimate the cost including that of working capital required for minimum of six to eight months and always keep a provision for buffer. Financial assistance in India for SSI units is available from a variety of institutions. The important ones are as follows.--Small Industries Development Bank of India--State Financial Corporations--National Small Industry Corporation--Commercial/Cooperative Banks--District Industry Centre--All India financial institutions such as IDBI, IFCI and ICICI

10. Implement the Project & Obtain Final ClearancesThe entrepreneurs will have to take necessary steps to physically implement the project after obtaining the various licenses, clearances, infrastructure facilities and so on. The following are the major activities that the entrepreneurs have to undertake for implementing the project.

Construct Shed – If the entrepreneurs have taken a readymade shed from the State Small Industries Development Corporation or have made arrangements for rental shed/premises, then they need not go through this step. However, if they have obtained land in an industrial estate or have made arrangements for vacant land privately, then they have to take steps to construct the shed for their industry.

Order for Machinery –Entrepreneurs should take steps to order the necessary machinery, equipments and so on, through dealers or make arrangements to get them on hire purchase through NSIC or any other suitable organization.

Recruit Personnel – Depending upon the size of the industry and type of product, the entrepreneurs will have to hire different types of personnel for the industry. Certain managerial and technical personnel may be required in the initial stage of the project.

Arrange for Raw Materials – Entrepreneurs should plan for required raw materials as soon as they proceed to implement the project. During the implementation of the project, they should finalize the source of raw materials and quality and quantity requirements for the project.

Marketing – Entrepreneurs would have already put thought to the market for their project and the marketing plan that they desire to take up for the products. They have to undertake the necessary groundwork of contacting prospective customers and preparing necessary plans for marketing.

Erection and Commissioning – Once the building is ready and the necessary plant and machinery arrived, the entrepreneur have to take steps to erect the machinery in a proper plan. Sometimes sophisticated machinery is supplied along with the service of erection. In such cases, the erection and commissioning will be undertaken and completed by the machinery suppliers.

Obtain Final Clearances – Entrepreneurs are required to take several final clearances when the unit is ready for commissioning or as soon as it goes into production. Accordingly, entrepreneurs are advised to refer to the various preliminary clearances they have obtained from different departments/organizations and take necessary steps to obtain final clearances.