94397404 ed ppt bba vi semester
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ENTREPRENEURSHIP DEVELOPMENT
PREPARED BY PROF. S.K. DOGRA
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ENTREPRENEURSHIP AND ITS SCOPE
Who is an Entrepreneur?
Person responsible for setting up a Business or an enterprise.
Takes initiative, has skills for innovation and looks for achievement.
Agent of change and work for the good of people.
Opens up employment opportunities, creates wealth and boosts other
sectors.
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Highly self-motivated person, who take risks toachieve goals.
Firm believer in social betterment.
Visionary having outstanding leadership.
Desire to excel, strongly believes in R & D.
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Found in all areas.
Play important role in economic growth.
Aims at high goals.
Person, who identifies an opportunity, gathers thenecessary resources, ultimately responsible for the
performance of the organization.
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A French economist Richard cantillon in 1755, was the
first to use the term Entrepreneur.
He said Entrepreneur is one who buys factors of
production at Certain Prices and sells his Products atuncertain prices, thereby bearing a non-insurable riskthat may arise, due to depressed demand for hisproduct.
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Peter F. Drucker said Entrepreneurs are innovators.Innovation is the specific tool of entrepreneurs, thismeans by which they exploit change as an opportunityfor a different business or a different service. He alwayssearches for changes, responds to it an exploits it as anopportunity
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We can now say that entrepreneur is a person whobears the non-insurable risk, works underuncertainty, combines and manages the factors ofproduction, innovates on all fronts on regular
basis, functions as proprietary capitalist and ismotivated by profit. Associated with threeelements:- Riskbearing, organizing, innovating.
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QUALITIES / TRAITS / CHARACTERISTICS OF AN ENTREPRENEUR
Strong achiever
Self-Reliant & Independent
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Determined and committed
Hungry for success, optimistic
Self confidence and self-faith
Sustained enthusiasm
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Courage & Self-motivated
Ability to survive defeat
Single-Mindedness
Willing to accept responsibility
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Never ending energy
Both thinker and doer
Clear objective & creativity
organization skills
Intelligent and have technical knowledge
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TYPES OF ENTREPRENEURS
1. INNOVATING ENTREPRENEURS:-
Introduces something new into the economy New
technique of production, a new source of material orproduct, opens a new mkt.
Aggressive in experimentation.
Puts attractive possibilities into practice.
Commonly found in developed countries, as peopleof such countries also look for change and progress,extensive research feasible.
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ADOPTIVE OR IMITATIVE ENTREPRENEURS:-
Adopt successful innovations created by innovatingentrepreneurs.
Copy the technology and techniques, knowledge
Commonly found in developing countries as can not affordexpensive research.
Have capacity to start ventures with limited resources.
Face lesser risks.
Very important for developing countries as he bringschange.
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FABIAN ENTREPRENEURS:-
Very cautious and skeptical for change.
Lack the will to adopt new methods.
Shy and lazy for taking risks Dealings determined by customs, traditions, past
practices.
May change only for survival
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DRONE ENTREPRENEURS:-
Conservative and laggards
Resist change, continue past methods.
Struggle to exist, not to grow
May be pushed out of the market, when they loose themarket.
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FUNCTIONS OF AN ENTREPRENEUR
1. INNOVATION:- Conceives / ideas for production ofnew products/services or improvements in the quality ofproduction
For this he considers the economic viability and
technological feasibility. Introduction of different kinds of electronic gadgets
innovation
Includes introduction of new products, creation of new
markets, application of new process of production,discovering new and better sources of Raw-Materials,New form / culture of Industrial organization.
Innovation produces satisfaction & profits as he works on
inventions new knowledge. E.D-16PREPARED BY: PROF. S.K. DOGRA
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2.ASSUMPTION OF RISK OR RISKTAKING:-
Assumes all possible risks of business.
Also involves risks due to changes in tastes/behavior ofconsumers, competition, new inventions and techniques of
production.
For all such risks, he may bear losses as he takes up theresponsibilities.
Invests capital, pays interest to lenders, Wages/ salaries,
rent, working capital expenditures and after all these, maybe left with little or no profits.
Being Enterprising, assumes risks and tries to manage /handle it by his skills, innovation, judgement, planning,
expansion etc. E.D-17PREPARED BY: PROF. S.K. DOGRA
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3. BUSINESS DECISIONS AND ORGANIZATION BUILDING
Decides nature & types of goods/services to be produced.
Crucial decision of entering a particular industry, prospectsof products in future and most profitable methods of
production.
Decides about changes in size of business, its location, newbranches, techniques, ways to develop business.
Organizes and monitors various factors of production,
minimize costs of production.
Takes majority of core decisions himself but delegatesauthority and decision making when business grows anddecisions become complex.
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4. MANAGERIAL FUNCTIONS:-
Also performs managerial functions of planning,directing, controlling, leadership etc.
Formulates plans, arrange finance, procure rawmaterials, arrange production facilities, HRDfunctions.
Large organs:- Delegated to paid managers.
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5. EARNING PROFITS:- As he takes up ventures,takes risks for earning profits. Have strongmotivation to earn profits and have success.
For this exploits opportunities.
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ROLE OF ENTREPRENEURS IN THE ECONOMIC GROWTH OF A COUNTRY
i) AS AN INNOVATOR
They commercialize the inventions made by inventors, toproduce better goods to yield both satisfaction and profits.
They implement inventors ideas as the same product madeby many entrepreneurs.
Converts technical work of the inventor into economicperformance
Assumes the role of a pioneer and an industrial leader.
Innovational activities raise the productive efficiencies of theeconomy resulting in greater output / income.
Have to be innovative for survival and better performance, tosolve all the problems of business.
All the resources combined by him. E.D-20PREPARED BY: PROF. S.K. DOGRA
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II) BALANCED REGIONAL DEVELOPMENT OFINDUSTRIES:-
Growth of Industry and Business leads to large numberof public benefits like road transport, health, education,entertainment.
Rapid Development of Entrepreneurship ensuresbalanced regional development. e.g. builders makingtownships and shopping malls in many places in thecountry.
Competition in big cities force the entrepreneurs tosetup business in small towns, helping development ofbackward areas.
Small scale industries found everywhere requiringmeagre resources.
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III ) FOREX EARNINGS:-
By exports, bring foreign exchange for the country,enabling it to handle imports bills.
Foreign exchange reserves for any country improve thefinancial standing of the economy.
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IV) AUGMENTING AND MEETING LOCAL DEMAND:-
Entrep. help in meeting wide variety of demand forgoods/services.
Need for new goods, products also get created bythem, by many methods of promotion, education etc.
Many times in backward areas and states,entrepreneurs from other places come and start abusiness thus harnessing local resources, foundabundantly and fulfill local as well as nationaldemand.
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INTRAPRENEURSHIP
Also called intra corporate entreps.
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Persons with deep desire of personal achievementswithin organization are internal Entreps.
Creative and innovative people within the
organization, catch hold of new ideas for product,service or process and work to bring their vision intoreality.
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Work independently but do not assume ownership
from employer. They are on the payrolls of thecompany. Incharge for an identifiable activity.
Allowed to reap the full benefit of their creative effort
May leave the company to start their own venture andcompete with the company
Dynamic executive, leads company to greater heightsthats why encouraged
Top Management provide financial and technicalassistance to their ideas.
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Entrepreneur V/s Intrapreneur
Basis Entrepreneur Intrapreneur
1. Status 1. Entrepreneur is the owner of the business. 1. Intrapreneur works as employee of
the company
2. Capital 2. Entrepreneur raises the requisite capital
himself.
2. Intrapreneur does not raise any
capital.
3. Freedom 3. Entrepreneur works independently. 3. Intrapreneur is semi-independent.
4. Risk-taking 4. Entrepreneur is one who bears full risks of
his business
4. Intrapreneur does not bear any
risks of business.
5. Guarantee 5. Entrepreneur guarantees payment to
suppliers of inputs.
5. No such guarantee is required to be
given by the intrapreneur.
6. Norms and Rules 6. Entrepreneur operates independently. He
is the master of his own show as he frames
norms and rules of his business.
6. Intrapreneur operates from within
the organization. He is an
organization man and is bound by
organizational norms and rules.
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DISTINCTION BETWEEN ENTREPRENEUR AND
MANAGERENTREPRENEUR MANAGER
1. Introduces new ideas to increase
profits.
2. Sets up new venture
3. Assumes risks of economic
uncertainties
4. Earns profits which fluctuate.
5. Own boss and independent status.
6. Formal education not essential.
7. Very high amount of commitment,
self-motivation required.
1. Runs the business on established lines.
2. Runs an existing venture.
3. Undertakes no risk
4. Earns salary which remains relatively
fixed and regular
5. An employee and dependent on the
owner.
6. Formal education more important.
7. Commitment and self-motivation may
be relative
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METHODS & PROCEDURE TO START AND
EXPAND ONES OWN BUSINESS
Decide which type of business organization would liketo have
Type of organization determines risk, control,responsibility, decision of profits.
Decision to be taken after due care, clear vision, long
term view.
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VARIOUS FORMS OF BUSINESS
ORGANISATIONS
Sole Proprietorship
Partnership FirmJoint Stock Company
Co-operative Society
Joint Hindu Family Firm
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SOLE TRADER
Oldest form owned, controlled by one
Bears all responsibilities, risks & profits Manages himself, however may take the help of family
members/relatives/paid employees
Simplest and easiest form
No need for any legal formalities
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Features of Sole Proprietorship One persons control
Single ownership Unlimited & undivided risk
No. Govt. regulation / formality
No separate entity of the firm
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ADVANTAGES Easy and simple formations No legal
formalities/approval/licenses required, start, close,expand sole trading concern anytime.
Quick Decision Making:-
Sole authority to decide and no interference quick decisions.
Direct & Exclusive Control:-
Full direct authority to run the business
Exclusively accountable to himself
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Maintenance of secrecy:-
Handles business single-handedly, so business &trade secrets, remain with him
Self-Motivation and direct Incentive for work:-
Direct relation between efforts / rewards. Personal touch with customers:-
Always possible to develop close relations withthe customers, better understanding of thecustomers and better satisfaction provided,goodwill improves.
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Economies in Management:-
As compared to other forms of business,majority of the activities controlled by the soletrader himself. Thus economies of scale do occur
in business Minimum govt. regulation/interventions.
Socially Significant:- Many individuals start withreasonable ease a sole trading concern in many
sectors and places, generates self-employment,livelihood, initiative, confidence levels etc.
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DISADVANTAGES OF SOLE PROP. Limited Financial Resources
Limited Managerial Abilities
Unlimited Liability:- Debts of business relate entireproperty.
Limited Growth:- Lack of capital and managerial skillslead to limited growth.
Uncertainty of continuity:- If dies, there is noguarantee of continuity.
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Suitability of Sole
ProprietorshipWhere capital required is small, limited.
Where limited risk is involved.
Where personal attention to individual customerstastes & fashion required beauty parlors, tailoringshops.
Where demand local seasonal, temp-fruit sellers etc.
Where activities / Operations simple do notrequire skilled management.
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PARTNERSHIP Limitations of sole trader and need to expand the
business lead to the need to create a partnership
firm. Group of persons with different skills, capital,
resources set up a combined business withcommon ownership and Management.
Risks, responsibilities shared
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Sec-4 of Indian Partnership Act, 1932-Partnership is the relation between personswho have agreed to share the profits of a
business carried on by all or any of themacting for all.
Individually called partners & jointly a firm.
Terms / conditions contained in anagreement called Partnership deed.
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FEATURES OF A PARTNERSHIP FIRM More persons required:- Minimum two Max. 10
persons for banking business and 20 for Non-bankingbusiness.
Sharing of profits / losses as per agreement
Unlimited Liability:- if the assets of the firm fall shortto meet firms obligations the private assets of partners
can be used. Contractual Relationship:- Oral or written agreement
among partners.
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Lawful business:- partner to carry on lawful business &
share profits / losses. Utmost good faith and honesty required:-
Principal Agent Relationship:- Business carried by allor anyone of them acting for all. Each partner
represents the firm and other partners whileperforming business. Thus partner is an agent of thefirm and also other partners.
Restrictions on Transfer of share:- No partner cantransfer his share to an outsider without the consent ofother partners.
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PARTNERSHIP DEED
The agreement can be oral or written.
Advisable to have written agreement to avoid
litigations and misunderstandings in future.Agreement in written form called partnership
deed which has to be signed by all the partners,stamped & registered.
Any modification only with mutual consent of allpartners.
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A partnership deed generally contains
the following:- Name of the firm
Nature of the business
Names of the partners
Place of business
Amount of capital contributed by each partner
Salary / Commission payable to each partner
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Ratio of Profit sharing
Loans / Advances from partners &incentives to be paid.
Duties, powers and obligations of partners.Arbitration in case of disputes among
partners.
Accounts settlement in case of dissolutions.Maintenance of Accounts and arrangement
for Audit.
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ADVANTAGES OF PARTNERSHIP
Easy Formation - However some difficulty in selectionof partners.
Enhanced financial resources.
Risks Divided
Flexibility:- Easy to introduce changes likeintroduction of a new partner, raising new capital,
expansion of business. Combined abilities & balanced Judgment:- Brains
ideas, skills, capital of more than two persons pooledtogether for better management of business. Joint
consultatrans may produce better business results. E.D-42PREPARED BY: PROF. S.K. DOGRA
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Business Secrecy Maintained:- No legalrequirement to publish and circulate annualaccounts / Financial statements.
Mutual Trust and Inter-dependence:-
Each partner an agent of other partners
Team sprit and inter-dependence develops
All partners get equal rights & powers.
Easy Dissolution:- Can be dissolved by thepartners merely by expressing to each other theirdesire to do so.
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DISADVANTAGES OF PARTNERSHIP:-
Availability of Limited Resources:-
Unlimited Liability:-
Held personally liable for debts of firm.Lack of Public Confidence
Annual accounts not published & made
public
Hardly any legal control over these firms
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Instability:- Firm dissolved if any partner dies or
become insolvent. Small disputes may lead to dissolution.
Non-Transferability of Interest:- No partner cantransfer the business interest, to an outsider without
the consent of all other partners. Even then it may notcame easily.
Risk of Implied Authority:- Any partner can act asan agent of the firm or other partners. If negligent,
acts carelessly, commits a mistake, other partnersbecame equally liable.
Lack of centralized Authority:- Lack of a supremeand a centralized authority, as all partners enjoy the
power of management. E.D-45PREPARED BY: PROF. S.K. DOGRA
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Registration of Partnership Firm
Not mandatory as per partnership Act.
But desirable to have registration
Registration process Firm applies to the registrar of
firms of the state Govt. in the prescribed applicationsform, signed by all.
Following information filled:-
Name of the firm.
Location of the business place.
Other places, if any where the firm is carrying on thebusiness.
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Date of the commencement of the business. Date of joining of all the partners.
Names and permanent addresses of all thepartners.
Duration of the firm, if applicable.
When the registrar is satisfied with all the above
details, he registers the firm by making an entry inthe Register of firms.
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Dissolution of a Partnership Firm
When a partner ceases to be associated with the business,it is dissolution of partnership.
Winding up of the business dissolution of firm, new
agreement among remaining partners Three ways:-
1. Dissolution by Agreement:- As per P. Deed, compulsorydissolution as per agreement.
2. Dissolution by the court:- if one partner becomes ofunsound mind/ one partner transfers his share to thirdparty without authority.
3. Dissolution due to contingency- completion of firmsventure, expiry of partnership period /death of anypartner. E.D-48PREPARED BY: PROF. S.K. DOGRA
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ENVIRONMENTAL FACTORS AFFECTING
THE SUCCESS OF A NEW BUSINESSEntrps. require conducive social, political
and economic environment to start business
and be successful.Right environment, alongwith their efforts
make them achievers.
Developed countries provide betterenvironment.
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ENVIRONMENT FACTORS AFFECTING
SUCCESSI. ECONOMIC FACTORS:- Availability of Capital
Basic need is capital, to arrange for land, materials,machines, equipments.
Easy availability motivates entrepreneurs to start and grow.
Raw materials Availability
Raw materials required for manufacturing and industrialenterprises.
Easy availability and access to raw-materials encourageentrepreneurs
Labour:- Quality / Quantity of Labour and its cost influencethe entrepreneurship
More flexible and mobile labour motivates. E.D-50PREPARED BY: PROF. S.K. DOGRA
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II. Social Factors
1. Education:- gives knowledge and betterunderstanding for solving day to day problems.
Any country, the system of education has animpact on people to inculcate and developentrepreneurial values.
The knowledge given by education regardinggrowing economy, new business opportunities,
trade on global standards, changing consumerbehaviour influence some people to show theirinitiative and entrepreneurial talent.
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2. Caste Factor :- In every society, there arecertain cultural practices and values that influencethe actions of individuals.
Right from early life, people develop same
inclination towards certain occupations, business global trend.
In Indian society also, certain caste show better
entrepreneurial initiatives.
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3. Family Background :-
Exp. of a family in some business amotivating factor to encourage familymembers. Success factor encourages familymembers.
Expertise, traits, practices available withinthe family
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4. Market:- all the goods and services
produced must get a market with customerswilling to buy and with capacities to pay.
Entrepreneurs feel encouraged if there is
potential in the market. Consumption trends provide encouragement to
the entrepreneurs.
Size of the markets and its composition relatingto number of suppliers, competition, types ofcustomers, their profiles motivate entrepreneursand they look for opportunities to exploit.
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5. Infrastructure:-Availability of requiredinfrastructure encourage entrepreneurs.
Developed communication, transportation,
power facilities big support forentrepreneurs.
With these better infrastructural facilities,
entrepreneurs can develop new businessand also enlarge their markets / supplies.
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III. PSYCHOLOGICAL FACTORS Need Achievement:- Sense of need achievement /
achievement motivation leads to growth of moreentrepreneurs.
Motives:- Motive to earn wealth, seek power, prestige andbe independent.
Entrepreneur thinks he can control his own lifeindependently, does not believe in luck/ fate
Risk taking is quite high, confident of handling businessrisks.
Power of tolerance helps entrepreneurs. They must have acertain amount of tolerance for ambiguity/Uncertainty.
Entrepreneurs have the thinking of achieving more andmore in less and less time. E.D-56PREPARED BY: PROF. S.K. DOGRA
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IV. POLITICAL FACTORS Entrepreneurs function effectively if govt. provides
them support.
Govt must ensure that infrastructure is created,
required resources available and accessible toentrepreneurs.
Various polices of the Govt. relating to prices, capitalavailability, labour, taxation greatly affect
entrepreneurship. Providing incentives/ Subsides/ Tax benefits provide
encouragement.
Stable Govts. Provide required encouragement.
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JOINT STOCK COMPANY Bigger form of business organ.
Most of the limitations of other forms of businesses getremoved here.
Most appropriate for large scale productions, economies ofscale, using advanced technology and arranging largecapital.
A company is a voluntary association of persons,recognized by law, having a distinctive name and acommon seal.
Formed to carry on business for profit with capital divisibleinto transferable shares
Members/ shareholders have limited liability.
Organ has a corporate structure and a perpetualsuccession, a going concern. E.D-58PREPARED BY: PROF. S.K. DOGRA
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FEATURES / MERITS OF A COMPANY Separate legal Entity
Company has a separate legal entity, independent of its members.
Company owns property and enters into contracts in its own name
Can sue and get sued in its own name.
Limited Liability:-
Liability limited to the extent of ownership of shares held. If the company has to pay the creditors, members/shareholders
liable to the extent of shares held or unpaid amount of sharessubscription.
Prepetual Succession :-
Not affected by the death, insolvency of a member or a director.
Services as long as not wound up
Old members may go and new may come but no effect on theexistence of the company.
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Artificial Legal Entity:- as created by law, does notcome into existence through natural birth, called on
artificial entity. Common Seal:- as it is an artificial legal entity, it can
not sign for itself, so as per law, it needs to have acommon seal as a substitute for its signature.
Approves its documents by putting the companyscommon seal which has the companys name engravedon it, alongwith signature of at least two directors orother authorized officials.
Transferability of shares:- Shares of public Ltd. Co. transferable easily
Can be sold, purchased through brokers at the marketprice
Some restrictions in a Pvt. Ltd. Co. E.D-60PREPARED BY: PROF. S.K. DOGRA
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Ownership & Management Separated:-
a public co. may have large no of
shareholders but can not be asked to runthe co. and look after the affairs of thecompany so they choose same
representatives called Directors, to runthe company.
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Incorporated association of Persons:-No single individual can make/run a
company
Is a registered association of persons,requires at least seven persons to start apublic limited company and two to start a
Pvt. Ltd. Co. Procedures to add more persons.
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Availability of Large Financial Resources shares, Debentures, Bonds, Loans, etc.
Professional Management :- Employees Professional Mgrs as has large
financial resources, perpetual succession and
growth path
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Considerable scope for growth andexpansion:- due to large financial management,technical resource very good scope for growth.
Public confidence:- People / shareholders have lot of faith, trust in a Public
ltd. Co. based on its performance, sales, quality, auditedaccounts and since regulated by companies Act., getlisted, trading done liquidity available.
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Suitability of a Company
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Suitability of a CompanyAppropriate for large scale business and where:-
Owners want limited liability. Business involves uncertainty / heavy risks, like shipping, mining etc.
Heavy, basic industries requiring huge finances.
Large scale operations crucial for economies of scale manufacturing etc.
CO-OPERATIVE SOCIETY
Profit Motive Substituted with Service Motive. An association of persons, usually of limited means, who have voluntarily
joined together to achieve a common economic end.
Associate together to promote common interest
Generally formed and registered under the co-operative societies Act 1912.
Form of business organizations can be applied to every type of economicactivity.
Members supply the capital by buying the shares of the society.
Each shareholder has one vote in the management of the business,
irrespective of the number of shares held. E.D-65PREPARED BY: PROF. S.K. DOGRA
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FEATURES OF A CO-OPERATIVE
SOCIETYVoluntary association
Democratic style of Management
Equal voting Rights.Service Motive Limited Returns of Capital:-
Limited rate of interest presenting max 10%
is given as capital invested.
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State Control:- Working governed by the Co-
operative societies Act of 1912 or the state co-operative Act of the state
Society to be registered under these Acts andrules, regulations followed
Accounts to be audited and a copy to besubmitted to the registrar.
Separate Legal Entity: - as it has to be registered
can own property, enter into contracts sue andbe sued in its own name.
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Equitable Distributions of surplus:- Equitabledistributions of surplus to its members, irrespective of
the capital contributions. As per co-operative society Act. 25% of its profits, after
meeting its trading expenses and paying a fixed rate ofinterest on capital not exceeding 10% to be transferred
to general reserve. Also, portion of the profit not exceeding 10% to be
utilized for the general welfare of the locality where thesociety is functioning.
Remaining distributed to members, collectively. Suitability:- For small and medium business like
retail stores, building societies, etc.
Few cases of Large Amul kaira dist. Co-operative
society. E.D-68PREPARED BY: PROF. S.K. DOGRA
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JOINT HINDU FAMILY FIRM
Also called Hindu undivided family. Found only in India and governed by the
provisions of Hindu Law.
Family consisting of Grand Parents, parents andsons carry on business.
HUF defined as a form of business organ in whichall the male members of a HUF carry on business
under the Management and control of the Head ofthe family called Karta
This business disappearing due to decline of the
Joint family system. E.D-69PREPARED BY: PROF. S.K. DOGRA
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FEATURES OF HUF Membership for male child by birth. Minors can become full-fledged members
Restrictions on Female Membership (can not Join)
No limit on members minimum two
No need of registration as per Hindu Law.
Management by Karta Senior Most Member.
Liability of Karta is unlimited.
Perpetuality Death of a member or karta is no matter
Rights / Duties governed by Hindu sucession Act 1956.
Fluctuating share due to birth or Death of a Male Member.
Right to Accounts Members can ask details of
A/CS from Karta when leaving or disintegration of family.
E.D-70
PREPARED BY: PROF. S.K. DOGRA
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MOTIVATION OF ENTREPRENEURS
Motivation is something that moves theperson to action and continuous him in the
course of action already initiated.Factors that motivate some people to start
business enterprises are:-
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I. Internal Factors
Educational Background Occupational Experience
Desire to do Something Pioneering and Innovative
Desire to be Free & Independent Family Background
Internal factors lead to do something creative,introduce an entirely new product in the market,place hometown on countrys industrial map,make use of technical skills, give employment
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II.
External Motivating Factors
Assistance from govt.
Financial assistance from institutions
Availability of Technology / Raw MaterialEncouragement from big business units
Others Availability of surplus funds, sick
units available at cheaper price, support offriends / relatives, dissatisfaction of job held
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ACHIEVEMENT MOTIVATIONAchievement Motivation theory developed by DavidMcClelland
An individuals need for achievement (n-ach) refers to
the need for personal accomplishments.A drive to excel and strive for success. Person with high
achievement motives takes calculated risks and wantsto win.
Take personal responsibility for initiatives and solvingproblems. Plus keep on evaluating themselves howwell are they doing and what more required.
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Do something better and more efficiently than others
have done before Not for social recognition but for the inner feeling of
personal accomplishment.
This need for achievement motivate some persons to
take risks and prove themselves. Such persons behave in Entrepreneurial way and take
initiatives.
McClelland considers the need for achievement to bethe most important and critical element for countryseconomic development.
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He termed the need for achievement as inner spirit.Higher it is, more energetic entrepreneur would grow,high need for achievement motivates entrepreneur totake risks, work hard, innovate, save more, reinvestsavings in business.
Said-achievement motivates lower in underdevelopedcountries compared to developed countries lack ofambitions explains the lack of enterprise inunderdeveloped nations. The ambition motivate
people, make them active, broaden success and maketheir life meaningful, builds up achievement pressurein persons.
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Duty of leaders and teachers to build up ambition intothe minds of young people. Ambition nourish theachievement motivates and brings economic growth.
However ambition differs among individuals on thebasis of the environment in which they are born andbrought up.
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Becoming Entrepreneur
Personal and environmental barriersto entrepreneurship
Entrepreneurship is influenced by manypersonal & environmental barriers.
Personal barriers or factors can beQualifications, skills, experience, knowledgeand environmental factors could beeconomic, social, and political factors.
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PERSONAL BARRIERS
Lack of Viable concept
Lack of Market Knowledge
Lack of Technical SkillsLack of Seed Capital
Lack of Business Know-How
Complacency Lack of Motivation
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Social Stigma-Compared to successful ones.
Time pressures
Legal constraints & Regulations (Not inResidential Areas)
First Generation Entrepreneurs
Entrepreneur by Accident since wasunemployed
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ENVIRONMENTAL BARRIERS
Sudden Changes in Government policy
Sudden Political Upsurge
Outbreak of war or regional conflicts e.g. Sons ofthe soil call
Political Instability or hostile govt. attitudetowards industry
Excessive red-tapism and corruption among
government agencies
ENTREPRENEURSHIP IS
ENVIRONMENTALLY ORIENTED
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Ideological and social conflicts
Unreliable supply of power, material,finance, labour and other inputs
Rise in costs of inputsUnfavorable market fluctuations.
Non co-operative attitude of Banks and
Financial InstitutionsCompetition
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PROBLEMS IN SETTING UP A NEW
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PROBLEMS IN SETTING UP A NEW
VENTURE
I. Lack of Managerial experience or poorknowledge of the particular line of production:-
All-round knowledge about various aspects of
Production, Processes, Management Not known what, how and when to produce, how to market theproducts, maintenance of accounts, financialtransactions understanding etc.
None of the above areas can be ignored
Changing technology, methods of production notknown.
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II. Lack of Accounting
knowledge/ system Information, Understanding about costs,
gross margins, break-even point,depreciation is lacking, thus decisionmaking may become difficult.
Difficult to maintain proper accountingData etc.
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III Wrong / Inadequate Estimate of
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III.Wrong / Inadequate Estimate of
cash requirements or faulty capital
planning / budgeting.
Proper Financial Planning Essential for properfunctioning of the enterprises
New enterprise feels cash crunch when:-
Production does not reach optimum level
Production is below Break-Even Point
Fails to Create and Increase the Demand forproducts. Result wastage of Finance
Delay in various activities will cause need for
additional finance. E.D-85PREPARED BY: PROF. S.K. DOGRA
IV Lack of Knowledge About Tax
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IV. Lack of Knowledge About Tax-
Related Matters May not be Aware of provisions related to Income Tax
/ Sales Tax, Obtaining of Sales Tax Registration at theright Time, Filing Tax Returns.
V. Erratic Shortages of Raw Materials.VI. Flourishing Black market
VII Gaps between official promise and performanceby various deptts.
VIII. Irresponsible attitude of employees.
IX. Rising cost of capital & credit.
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X. Arrogance and Non Co-operativeAttitude of Bankers
XI. Inadequate common services like road,
power, water in the areaXII. Emerging competition
XIII. Lack of knowledge about inventory
management
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STAGES FOR SETTING UP A NEW VENTURE
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STAGES FOR SETTING UP A NEW VENTURE
Or
PROMOTION OF A VENTURE Foundation of an enterprise is the project or the venture
Venture is a plan or an idea which is intended to becarried out in the future
Ventures can be industrial, agricultural, Production,Services etc.
Entrepreneur originates the idea, makes a detailed study
of various aspects of project, estimate the profit, finallyimplements it.
Setting a New Business not an easy Task
Various difficulties to be faced in creating the business
and making it successful E.D-88PREPARED BY: PROF. S.K. DOGRA
BASIC CONSIDERATIONS IN SETTING UP A NEW
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BUSINESS UNIT/STAGES
An entrepreneur wanting to start a new venture has to
take decisions with regard to following:-1. SELECTION OF A LINE OF BUSINESS:-
Proposed idea analysed to find out whether the
business would be profitable, including probable risksand the capital required.
Conduct survey of various business opportunities.
Make feasibility reports, surveys
Estimated Costs, Profits, Returns Analysed
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2. CHOICE OF FORM OF OWNERSHIP
Could be sole proprietorship, P.Ship or a Jointstock company
Choice of form will determine the authority of the
entrepreneur Size of business also will determine the form of
organ.
Company form more suitable for large business Sole Trader / P.Ship for Small / Medium
Capital requirements, Managerial Skills, Coveragewill also decide the form
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3 SIZE OF BUSINESS
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3. SIZE OF BUSINESS Size of the firm influenced by various factors like
Technical, Managerial, financial and Marketing Some factors favour the large size of business while
others operate to restrict the scale of operation
Wherever Entrepreneurs confident of marketing theirproducts widely and arrange large resources can startlarge business
For new ideas / business beginning can be made on
small / medium scale. Forces of risks and uncertainties can restrict the size of
business
Basic purpose of the optimum size to achieve max.
output at minimum cost E.D-91PREPARED BY: PROF. S.K. DOGRA
4 Fi i h P i i
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4. Financing the Proposition
Adequate amount of capital for starting andrunning the business to be arranged.
Capital to be arranged for fixed as well asworking capital
Large businesses to arrange capital from
various sources.
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5 L i f B i
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5. Location of Business
One of the very difficult decisions
Location to be reviewed from the point of
view of access to raw materials, labour,power, Markets and services like banking,Insurance, Transport, communication.
Location has to be optimum to haveminimum costs of production from anddistribution
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6. Machines and Equipment
Choice will depend upon availability of capital, size ofproduction, nature of production processes.
Mechanisation needs to be optimum, leading tohigher productivity.
7.Human Resources
Right kind of Skilled, Unskilled and Managerial Staff
necessary to avoid huge losses of time, money andeffort.
Proper Training and Motivation to be provided.
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8. Plant Layout
An efficient Plant Layout allows materials tomove through rapidly and the most directway possible.
It reduces Transport, Materials Handling,Clerical and other Costs and increasesinventory turnover.
Experts Services can be used.Must reduce chances of delay and
bottlenecks in the Production Systems.
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9 P d l F li i
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9. Procedural Formalities
No formalities in sole Traders and Partnerships. Co. exposed to greater procedural formalities both
at incorporations and during its life.
Incorporation compulsory, documents and feedeposited with the Registrar of cos.
A public co. also obtains certificate ofcommencement.
Co. also required to send periodical returns to theregistrar of cos. and stock exchange authorities.
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10. Tax-Planning
Entrepreneurs to visualize well in advancethe various taxes to be paid.
11. Launching the Business Enterprises:-
Promoter actually arrange men, material,machinery, money and the managerial ability.
Makes organ. Structure, various deptts. Mkg.,Prod., Finance, HR Made to accomplish goals.
Advtg. Sales Promotions to be done.
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ENTREPRENEURIAL INPUTS
Emergence and development of Entrepreneurshipdepends upon many economic, social, political,psychological factors.
Various Entrepreneurial Inputs influencing the
entrepreneurship are as under:-I. ECONOMIC INPUTS
Capital:- Most important Input
Required for arranging Land, Raw Material, and
Machines and finally for production. Additional capital also required for expansion of
business.
Entrepreneurship increases if capital supply increasesE.D-98PREPARED BY: PROF. S.K. DOGRA
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2. Labour:- Quality of Labour more important
than the quantity of Labour for entrepreneurship. Entrepreneurship gets encouraged of flexible and
mobile labour force available
Considerations of economic and emotionalsecurity inhibit Labour Mobility.
Entrepreneurs may find it difficult to securesufficient Labour, at cheap costs.
At times costly arrangements may have to be madeto recruit the necessary labour
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3. Raw-Materials:-
Easy and sufficient availability ofRaw-Materials leads to emergence ofEntrepreneurship
Areas rich in many types of raw-materialsencourage persons to come forward to startenterprise.
Good quality raw-material available is a bigboost to the entrepreneur
Sugarcane as raw material in U.P. has givenrise to many sugar mills in U.P.
E.D-100PREPARED BY: PROF. S.K. DOGRA
4 MARKET:-
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4. MARKET:-
Potential of the Markets becomes a determinant for
entrepreneurial activity and initiatives. From Market will come sale and profit for
entrepreneur
Size and composition of the Market bath are crucial for
entrepreneurs. Monopolistic condition in the market liked by an
Entrepreneur but fact remains that markets arecompetitive.
Competitive Market Condition can be tackled byimproved Quality, innovative techniques, betterservices.
Progressive Markets encourage entrepreneurs E.D-101PREPARED BY: PROF. S.K. DOGRA
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5. Infrastructure
Needed and Required Infrastructure encouragesentrepreneurs
Properly developed Communication, Transportation,Insurance Facilities leads to boost the
Entrepreneurial activity. Good Infrastructure helps in expansion of business
and also for new initiatives.
e.g. Industrial Estates give good push.
Trade Associations, good business schools provideinputs, informations.
Government must take care of good Infrastructuralfacilities if it wants good Industrial Development.
E.D-102PREPARED BY: PROF. S.K. DOGRA
II SOCIAL INPUTS
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II. SOCIAL INPUTS Some social factors do contribute towards
development of Entrepreneurship
1) Family Background:-
Type and Economic status of family, matters.
Wealthy and Landloard families exhibit higher levelsof Entrepreneurship.
History of a family in business lead to entrepreneurialventures.
Background of a family in Manufacturing provides asource of industrial Entrepreneurship
Business families are more venturesome.
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2 C t F t
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2. Caste Factor
Many cultural practices and values do encourageentrepreneurship, in each society
These divisions, practices are normally very old
E.g. Hindu Society, prima facie business people were
categorized and majority of businesses emerge fromthere.
Social caste equations, to a great extent providedmonopoly in business ventures
Dominance of entire groups in entrepreneurship global phenomena
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3 Education
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3. Education
Education is power to provide skills andknowledge to deal with day to day problems.
In a society, the system of education plays animportant role in developing Entreprenurial
values.
In general in India, our educational system doesnot encourage entrepreneurial initiatives but
prepares for different jobs. However development of vocational courses and
professional course is encouragingentrepreneurship.
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4 Cultural Values
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4. Cultural Values
Entrepreneurial Growth requires proper motiveslike profit making, prestige, attaining socialstatus & power.
Persons having such strong motives normally tryto venture out, take business risks & startenterprises.
Culturally wealth accumulations is a way of life will encourage entrepreneurship
E.D-106PREPARED BY: PROF. S.K. DOGRA
III. Psychological Inputs.
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y g p
Many theories of Entrepreneurship indicate towards
some psychological inputs required to beentrepreneurs.
Mental thinking, inner spirit, commitment,outgoing mind, hard work, leadership quality are
also responsible for encouraging entrepreneurialinitiatives.
Need Achievement:-
McClelland talked about need achievement to excel.
Need achievement motivates to take risks andstimulates for taking more efforts.
Other theories talked about Leadership, ManagerialSkills.
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Innovative Mind:-
Creative Minds more likely to be Entrepreneurs. Sense of Achievement:- Personal sense of
achievement motivates some to do something on
their own. Motives:- Seek power, prestige, service to society,
independence encourage Entrepreneurship.
Others:- Non influenced by Luck, fate and take
initiatives and risks, tolerance for ambiguity.
E.D-108PREPARED BY: PROF. S.K. DOGRA
Political Inputs
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Political Inputs Government support required for the success of entrepreneurs
As Entrepreneurs contribute towards the well being of the society,Government must provide required resource to them by taking
various actions.
Government must make appropriate economic policies regardingavailability of capital, Labour, raw-materials, Taxation, incomedistribution, economic growth, infrastructure, transportation etc. asthey affect the growth of entrepreneurs to a large extent.
Incentives, subsidies, Tax benefits by the Government motive themfurther.
Easy Licensing, restriction on monopolies also desirable. Political stability provide consistent growth oriented policies and
support to entrepreneurs.
Opening up of some sectors by the Government for private sector
also encourage many entrepreneurs to show their worth. E.D-109PREPARED BY: PROF. S.K. DOGRA
PROBLEMS OF SMALL BUSINESS
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PROBLEMS OF SMALL BUSINESS1. Shortage of Material & Power:-
Face acute shortage of basic raw materials at times.
Under a handicap in obtaining raw materials ofrequisite Quality at reasonable prices.
Some short supply of raw material may increase theprices and rise in prices puts pressure on these firms toprocure the Materials etc.
Some times few bogus units take away Quota of Scarce
Materials and create shortage.Also face power shortage and are not able to fully
utilize their plant capacity Power not available due tocuts and can not install their own power generating
sets. E.D-110PREPARED BY: PROF. S.K. DOGRA
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2. Lack of Adequate Finance:-
Often unable to procure adequate financial resourcesfor purchase of machinery, equipment, raw materialsdue to their weak financial standing credit may alsonot be available.
3. Competition from Big Players:- Low goodwill and little fixed investment make it
difficult to borrow at reasonable interest or lowerinterest rates.
Largely depend upon internal resources as are not ableto borrow easily from others.
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4. Outdated Technology:-
Most firms use old Techniques of Prod. andoutdated machinery / equipment.
Can not use latest ones Quality suffers
Research & Development not possible on acontinuous basis and thus Productivity /Quality suffers.
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5. Inadequate Marketing Facilities:-
Many difficulties faced in marketing anddistribution do not have their ownMarketing Network.
Find it difficult to sell at remunerative pricesdue to high cost of production and non-standardized quality of products.
Can not afford much advertising, salespersonnel
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6. Weak Organization & Management:-
As generally managed by owners, notqualified.
Lack of Distribution of Labour.7. Lack of Trained Personnel:-
Find it difficult to recruit, retain and
motivate skilled managerial and technicalpeople as they leave for large business.
E.D-114PREPARED BY: PROF. S.K. DOGRA
PREPARATION OF FEASIBILITY
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PREPARATION OF FEASIBILITY
REPORTS(documentation required) Before starting any venture / enterprise, an entrepreneur
must study the feasibility of the project.
Type of Industry / Business to start, where to start and howto start.
Various items / area can be listed, shortlisted which havescope for development
PROJECT FEASIBILITY ANALYSIS
Includes Market analysis
Financial analysis
Technology analysis
Profitability analysis
To study the strengths and weaknesses of the projects. E.D-115PREPARED BY: PROF. S.K. DOGRA
MARKET ANALYSIS INCLUDES
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MARKET ANALYSIS INCLUDES
Market area / size, methods oftransportation, channels of distribution andgeneral trade practices.
Study past and present demand,consumption patterns, major commonpockets, future potential past and presentsupply domestic and imported, extent ofcompetition selling power, quality andmarketing practices of competition.
E.D-116PREPARED BY: PROF. S.K. DOGRA
TECHNICAL ANALYSIS INCLUDES
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TECHNICAL ANALYSIS INCLUDES Whether the project is technically feasible or not, costs
involved.
Study the techniques, processes to be applied.
Description of the product physical, mechanical andchemical specifications, uses of the product.
Processes flow chart justifications for use of a particularprocess.
Plant size and prod. Schedule.
Selection of Machinery, equipment, quotations, suppliers,delivery, terms of payment, spare parts availability.
Location of the plant, raw material.
Cost of setting up building, other infrastructure.
Estimate of the production cost of the product E.D-117PREPARED BY: PROF. S.K. DOGRA
FINANCIAL ANALYSIS INCLUDE
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FINANCIAL ANALYSIS INCLUDE
Capital RequiredSources of Financing
Total Project Cost
Initial Capital Required
Working capital required
Break even point study
Cost Price analysis
E.D-118PREPARED BY: PROF. S.K. DOGRA
PROJECT REPORT
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PROJECT REPORTWhat is a project?
The foundation of an Enterprise is a Project as it willlead to success or failure.
An idea or a plan that is intended to be carried on infuture or is being carried out at present, is a Project.
Has a distinct mission, for the completion of which agroup of activities are carried on.
Every entrepreneur wants to complete the projectsuccessfully.
E.g. Industrial Projects, Construction Projects, Makingof Flyover, running a School.
E.D-119PREPARED BY: PROF. S.K. DOGRA
PRODUCT IDENTIFICATION & PROJECT
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PRODUCT IDENTIFICATION & PROJECT
FORMULATION Entrepreneur comes across many business opportunities &
becomes difficult to identify the most suitable one
Prduct identification involves collection, compilation and analysisof economic data, for the final choosing of the best opportunity for
investment. The success of the Project or venture will depend upon the right
choice made.
The skills, availability of resources, background, and qualifications
play very important role in identifying the right project. Before identifying the right project, study should be made with
respect to raw materials, potential customers.
Also study of environment, Government policies, technology to be
used etc E.D-120PREPARED BY: PROF. S.K. DOGRA
PROJECT FORMULATION
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PROJECT FORMULATION
A process where the entrepreneur makes anobjective & independent assessment of the variousaspects of a project idea to determine its total impact& liability.
Specialists and consultants provide advice. Careful weighing of various components.
Analytical stage where aim is to achieve the project
objectives with the minimum expenditure &adequate resources.
Project formulation leads to making up a projectreport which is very crucial for setting up an
enterprise E.D-121PREPARED BY: PROF. S.K. DOGRA
PROJECT REPORT After selecting a particular project product or service a project
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After selecting a particular project product or service, a projectreport has to be prepared by the entrepreneur.
A project report provides all the necessary information / details ofthe project / unit offering a product or service.
Required by financial Institutions / Development Institutionsoffering finance or other assistance.
A project report will enable the entrepreneur to know:- Money, Manpower, Machines Required
Technology, Location
Economic viability and gains.
Technical Managerial, Financial needs. Project report, prepared by C.A., Management Consultant, Experts.
Entrepreneurs own judgment, views important as it will bring himclose to realities.
His own involvement in making of a project is very crucial. E.D-122PREPARED BY: PROF. S.K. DOGRA
SIGNIFICANCE OF A PROJECT REPORT
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SIGNIFICANCE OF A PROJECT REPORT
The important benefits of a project report are:-1. Helps in procuring suitable developed land or
shed from concerned deptt. of the Govt.
2. Helps in approaching Dist. Industries centre forobtaining provisional or permanent registration.
3. Helps in securing supply of raw-materials, water,power etc.
4. Approaching Bank / F.I. for working capital loans.5. Obtaining term loans from SFCs/Banks/F.I.
6. Preparation of Techno-Economic viability reports ofthe project.
E.D-122PREPARED BY: PROF. S.K. DOGRA
CONTENTS OF A PROJECT REPORT
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CONTENTS OF A PROJECT REPORT No Short cut to prepare a well-prepared business plan or a
project report.
Project report to be prepared with great care and should be aconcrete, complete and clear.
A good project report should have the following contents:-
General Information:- Product / Profile and details of theproduct.
Promoter:- Name full address, educational and otherqualifications, work experience and project related experts.
Location :- Exact location of the project, lease or freehold,locational advantages.
Land & Buildings:- Land area, construction area, type ofconstruction of building, cost of Land, building, plant layout etc
E.D-123PREPARED BY: PROF. S.K. DOGRA
Pl t & hi D t il f hi i d
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Plant & machinery:- Details of machinery required,capacity, suppliers, cost, various alternatives available.
Production Process:- Details of production process,process flow-chart, technical know-how, productionprogrammes, targets etc.
Utilities Required:- Water, power, steam cost
estimates, sources of utilities. Transport & Communications:- Modes of transport /
Communication to be used, various costs involved.
Raw-Materials:- List of raw material required,
Quality-Quantity and source of procurement, costs,supply arrangement etc.
E.D-124PREPARED BY: PROF. S.K. DOGRA
Manpower:- Various types of Labour, to be
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p yp ,employed, sources of Manpower cost of recruitment
/ selection, training etc. Products:- Product Mix Variants estimate of sales,
distribution channels, product standard & quality,competition etc.
Market:- End users of the products, - Type of Mkt-local, domestic or international, trade practices,sales promotions methods, marketing research.
Working capital Requirements:- Sources ofworking capital and amount required, need forcollateral security, nature and extent of creditfacilities which will be available, etc.
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Funds requirement:- Break up of project costin terms of cost of land, building, machinery,preliminary expenses contingencies, totalamount required for setting up the full project.
Cost of Production & Profitability for first 10years.
Break-Even Analysis Point at which noprofit, no loss.
Schedule of Implementations
E.D-126PREPARED BY: PROF. S.K. DOGRA
SELECTION OF A FACTORY LOCATION
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SELECTION OF A FACTORY LOCATION
Multiple locations may be available for locating afactory.
Few sites more suitable
Factors for a suitable location can be rawmaterial, transportation, labour, supply of water,power, and attitude of local Govt. etc.
Different type of business may prioritise the above
factors. A good balance of all these factors maylead to choosing the right location.
E.D-127PREPARED BY: PROF. S.K. DOGRA
THREE STEP PROCESS
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THREE STEP PROCESS
Selection of the region, district, state.
Particular part of the city/district East/West.
Selection of the plant site, plot etc.
One follows the other All are inter-related.The comparisons play very important role.
Lot of information do help.
E.D-128PREPARED BY: PROF. S.K. DOGRA
FACTORS AFFECTING INDUSTRIAL /
FACTORY LOCATION
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FACTORY LOCATION1. FACTORS AFFECTING SELECTION OF A REGION
While keeping in view the nature of business, the following areconsidered when choosing a region:-
1. Availability of Raw Material
Cost of raw materials an important issue for cost of
production. Nearness to the raw-materials very useful.
2. Labour Availability:-
Labour an important factor of Production and it greatly affects the
location Entrepreneurs want easy supply of labour at low wages
Location should attract mobility of labour
More organized Labour in some state may discourage entrepreneur
to located his lant E.D-129PREPARED BY: PROF. S.K. DOGRA
3. Accessibility to Markets:-
S l i f f t i i lli
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Sole aim of manufacturing is selling
Easy, quick access to the markets crucial factor for locations.
Industries whose products are costly to carry, on account offragility, perish ability or bulky may be located in close proximityto the markets.
Nearness to markets have many benefits
Saves time & transportation costs.
4. Fuel, Water, Power Supply:-
For arriving at the final cost of production the cost of power,
water, fuel will have to be considered. Sources of energy / fuel like coal, gas, electricity and their easy
and cheaper availability will help in locations.
If certain industries need lot of water for its processes then a
place with good availability of water must be chosen E.D-130PREPARED BY: PROF. S.K. DOGRA
5. Communication Transport Facilities
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Raw materials to be brought to the factory &
finished products to be dispatched economically. Good transportation facilities including storage,
handling & service facilities in a place will motivate anentrepreneur to locate his factory at an ideal place
Cheap and easy transportation is an importantconsiderations
Sometimes, to save transportation costs, theentrepreneurs may try to locate the factory from where
raw-material may be nearer. Better communication facilities are very useful for the
success of the business. Their easy availability will alsohelp in choosing a right location.
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6. Natural and Climatic Considerations
Topography of a region, level of ground, drainagefacilities, disposal of waste products and theclimate also greatly affect the locations.
Extractive industries like coal, iron ore located inregions where they are available in plenty.
Dry climate is required for flour mills in U.P.
Humid climate required for cotton Mills Mumbai.
Good Climate also encourages employees to workbetter / harder.
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7. Personal choice of the Entrepreneurbeing home town or some otherpersonal preference.
8. Open a factory in a region where allthe facilities are already there, includingan established mkt
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9. Political and strategic considerations. Political stability may also influence setting up
industry in a particular state.
Disturbed area and failure of the Govt. to curb
the disturbances is also a negative factor.
10. Govt. Policy:- Govt. Encourages setting upindustries in backward areas by giving
subsidies, tax-rebate, good transport. Thisattracts entrepreneurs and the state achievesbalanced regional growth.
E.D-134PREPARED BY: PROF. S.K. DOGRA
Financial Facilities:- Finance life blood.
Availability of financial institutions and easy terms for finance also aconsideration for locations
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consideration for locations.
Offices of Financial Institutions.
Locating a factory a long term proposition and so above points to beconsidered wisely
FACTORS AFFECTING SELECTION OF A COMMUNITY, DISTRICTWITHIN THE REGION:-
Adequate labour supply in Quantitative and Qualitative Terms
General attitude of the people should be industry friendly. Should notindulge in frequent strikes.
Prevailing wage-rates be reasonable.
Availability of complementary or supplementary enterprise supplying
various raw-materials etc. Tax burden be moderate and compliance of laws, acts etc.
Living conditions in the place should be favourable so that the employees atall levels get proper social life.
Urban or Rural area to be decided as both have merits / demerits E.D-135PREPARED BY: PROF. S.K. DOGRA
III. FACTORS AFFECTING SELECTION
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OF A SPECIFIC SITE:-
Last stage- for actual plot / site.
Size of plot for present and future needs.
Load-bearing capacity of land for heavybuilding.
Better water and power facilities.
Easy sewage, waste disposal facilities.Easy approachable roads, rail links.
Cost of the land.
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INDUSTRIAL ESTATESSpecially designed area where factories can
be built (a U.K. concept for encouragingindustrial growth in selected area.)
Basic infrastructure & common servicesfacilities created for development ofindustrial units.
Utility services water, power, drainage,transport available to all units low,subsidized rates
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Objectives of Industrial EstatesPromotion of small / medium industries
backward areas.
Removal of congestion in Industrial cities /towns.
Balanced reg. development bydecentralizing industry.
Growth of ancillary industries in thetownships surrounding major industrialunits.
E.D-138PREPARED BY: PROF. S.K. DOGRA
Advantages of an Industrial Estate
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to Entrepreneur Offers industrial sites / plots at reasonable rates
and the decision to buy can be quick
Utility services water, power, drainage and
common services testing center workshops,banks, insurance, courier available at subsidizedrates etc.
Promoters of such estate provide safety, securityand protection.
Combined strength of Entrepreneurs can help theentrepreneurs to bargain
E.D-139PREPARED BY: PROF. S.K. DOGRA
Demand Analysis & Market
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Potential Measurement
Q.1. What is the likely total demand for myproduct / service?
Q.2. What share of the market my productwill enjoy?
E.D-140PREPARED BY: PROF. S.K. DOGRA
While searching answers to above questions
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While searching answers to above questionsdemand analysis get made. (Consumption,competition, substitutes) Demand Analysis is thein-depth study of and assessment of many factorsincluding:-
Patterns of consumption Growth. Composition of the market
Nature of competition
Availability of substitutes Reach of distribution channels
Increase of the consumers
Price elasticity of demandE.D-141PREPARED BY: PROF. S.K. DOGRA
KEY STEPS FOR DEMAND ANALYSIS
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KEY STEPS FOR DEMAND ANALYSIS
1. Situational analysis and specificationof objectives.
Informal talks with customers, competitionmiddlemen, others etc. and details gathered.
Situation analysis generates enough data
Little later, specific objectives, with relation to the
product / service to be stated, questions made.Answers will bring clues for demand of the
product.
E.D-142PREPARED BY: PROF. S.K. DOGRA
2. Collection of Secondary Information
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Secondary Information which is alreadyavailable, as gathered in some other context.
Secondary information provides the base and thestarting point for demand analysis books,
journals. Provides clues for collecting more primary
informations.
Sources can be census reports, economic survey,annual reports, economic survey, annual reports ofMinistries, Journals, Research Reports etc.
E.D-143PREPARED BY: PROF. S.K. DOGRA
3. Conduct of Market Survey
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Primary information in the shape of Marketsurvey supplements secondary information.
Survey can be Product / customers /Segment / Behaviour specific
Costly and time consuming
Population or sample survey
E.D-144PREPARED BY: PROF. S.K. DOGRA
4. Characterization of the market
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Demand for the product / service has to be describedwith respect to:-
Effective demand in past & present
Total demand broken down as per the segments. Competitive Pricing / Competitions.
Methods of distribution & sales promotion methodsrequired.
Consumers behaviour, attitudes, likings Govt. Policy import duties, export incentives excise
duties, import policy etc.
E.D-145PREPARED BY: PROF. S.K. DOGRA
5 Demand Forecasting
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5. Demand Forecasting
Attempt made to forecast future demand
Sale in monetary terms / units to be sold.
Will help greatly the sales deptt.Various methods / intuition used in
forecasting demand computers used
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6. MARKETING PLANNING
An appropriate Market Plan required toenable the product to reach the right
markets.All 4 Ps of Mktg. to be taken care
E.D-147PREPARED BY: PROF. S.K. DOGRA
MARKET POTENTIAL MEASUREMENT
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A market potential is an estimate of the maximumpossible sales opportunities present in a particularmarket segment and open to all sellers of a good or
service during a stated future period. By using the appropriate marketing methods, how
much a particular product can be sold to aparticular segment in a specified future period.
Cell phones, Luxury case, Laptops
E.D-148PREPARED BY: PROF. S.K. DOGRA
STEPS TO MEASURE MKT. POTENTIAL
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Market identification:- Identify the Mkt./Users,market segment, their interests, patterns.
Market Motivation:- Find why customers buythe product today & why potential customers
will buy in future study mind factors ofusers.
Measuring the Market Potential:- Cases not be
done directly straightaway. Market factors to beanalyzed all do not buy LIC Policy to save taxes
E D-149PREPARED BY: PROF. S.K. DOGRA
CAPITAL SAVING & PROJECT COSTING
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Financial analysis most important tool forappraising the real worth of a project.
Looks at capital cost, operations, cost and
operating revenue. Cost of the project concerned with the size of the
funds required.
Every projects cost to be calculated to bringtogether land, labour, assets, machinery, materialsetc.
Wherever possible, capital needs to be saved.E D-150
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Ideal piece of land, right kind of RawMaterial Quantities to be purchased.
Capital to be borrowed at minimumpossible rate of interest.
Cost of borrowings should be minimum.
Incentives / subsidies available as per Acts /Law should be fully utilised.
All tax benefits to be fully utilised.
E D-151PREPARED BY: PROF. S.K. DOGRA
PROJECT COSTING
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Costing is the calculation to determine how mucheach product or service costs to produce and sell.
Knowing the various costs helps in setting prices,reducing costs and improving profits.
Project Costing
Project Capital Costing Project Operating Costing
E D-152PREPARED BY: PROF. S.K. DOGRA
Project Capital Costing Sum total of the expenditure expected to be incurred till the date of starting the
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Sum total of the expenditure expected to be incurred till the date of starting thecommercial production of a project.
Includes
All advance expenditure for the project before taking a final investmentdecision.
Cost of fixed assets (land, machinery)
Duties and taxes on imported goods. Consultancy expenses
Pre-operative expenses
Interest charges paid during the construction phase.
Advance expenditure on feasibility report, consultancy charges.
Land charges for basic cost of land plus for its acquisition & development.
Cost of plant & machinery basic & duties if imported.
Training costs, cost of patents, copy rights, trade marks are project capital costs.
Can be some misc. costs also.
E D-153PREPARED BY: PROF. S.K. DOGRA
Project Operating Costing
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j p g g
Once project started commercial prod. Expensesincurred for day to day operations.
Operating costs generate operating revenues, so veryimportant
Costs vary with the outputs.
The matching of operating costs and revenues result inprofits or losses.
Costs used for making profit & loss A/c, Balance Sheet,Cash flow statements.
Operating costs classified into Direct / Indirect / Fixed/ Variable / Marginal
E D-154PREPARED BY: PROF. S.K. DOGRA
Main components of operating costs:-
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p p g
Raw Materials costs
Labour Costs
Energy Costs
Plant Maintance Costs.
Supervision Costs
Administrative & Management Costs.
Depreciation Charge and the interest on
borrowings. Selling and distribution costs
Promotion Expenses
E D-155PREPARED BY: PROF. S.K. DOGRA
WORKING CAPITAL REQUIREMENT Working capital required for day to day successful operation &
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Working capital required for day to day successful operation &continued existence.
Efficient Management of working capital basic necessity forsound operational health.
Basically means Management of current assets, current liabilitiesand interrelationships, between the two
Current assets are:- Advance given for purchase of raw materials etc.
Inventories (raw materials, store, packing materials, spare parts)
Work-in-process
Finished Goods Cash & Bank Balance
Marketable securities.
All current assets (except cash) get converted into cash.
Current liabilities include payment of bills, interest, to creditors etcE D-156
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DETERMINANTS OF WORKING CAPITAL
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Many factors influence the working capital needs of a
business. Needs change over different periods of time for the same
firm and also needs are different for different firms.
Total investment in working capital depends upon:-
Nature & Size of Business:- Trading, Financial,Retail Stores More working capital and less infixed assets.
Manufacturing Cycle:-
Larger the manufacturing cycle more working capitalrequired
Minimum time Sh. Be taken in processes
E D-157PREPARED BY: PROF. S.K. DOGRA
3. Business Fluctuations:-
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Many firms face seasonal and cyclical fluctuations
in the demand for their products.
These variations affect the working capitalrequirements.
Due to upward swing in the economy, the sales willincrease more investment in Inventories will berequired, borrowings made.
4. Production Policy:- Production policy has to be a policy to produce as
per the changing demand and thus the working capitalwill be required and adjusted accordingly
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5. Firms Credit Policy:-
Credit allowed by the company to its customersand its policy of collection also affect the workingcapital requirements. There is also a risk of some
credit turning into bad debts.6. Availability of Credit:-
Liberal credit terms available from the suppliers /creditors will need less working capital as the firm
will have time to pay.
E D-159PREPARED BY: PROF. S.K. DOGRA
7.Growth and expansion activities:-
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A growing firm needs more working capital, as sales
grow and more production required. More investment needed in current assets to support
enlarged production.
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