ENTREPRENEURSHIP DEVELOPMENT (KMB402) UNIT 4

 ENVIRONMENTAL SCANNING - INTERNAL & EXTERNAL ANALYSIS OF ENVIRONMENT

 

Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.

 

Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization.

 

As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market tastes and preferences.

 

While in external analysis, three correlated environment should be studied and analyzed —

• immediate / industry environment
• national environment
• broader socio-economic environment / macro-environment

 

Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an organization.

Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.

 

 

 

 

 

BUSINESS PLAN

 

Definition: A written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement .

A business plan is also a road map that provides directions so a business can plan its future and helps it avoid bumps in the road. The time you spend making your business plan thorough and accurate, and keeping it up-to-date, is an investment that pays big dividends in the long term.

 

What Is in a Business Plan?

Follow a plan format that ensures you research all the important areas of your business, and if it is being used for lending or investment purposes, that you have provided all the information that lenders need. Your first task is to decide why you are preparing this plan. Answer these questions:

• Why am I preparing this plan?

 • Who else will be reading it?

• Why will they be reading it?

• What do they need to know?

 

The size of the final document will be dependent on the size and complexity of your business and whether you are looking for outside funding. The end result should be professionally presented, with typewritten pages and a table of contents, and securely bound. Include the following sections

 

1.    Executive summary The executive summary should be no longer than two pages. Prepare it after the plan is complete, as it summarizes the whole plan in a nutshell. Make it dynamic and exciting to generate the reader’s interest. Loans officers or investors have read copious plans and tend to skip through them if they get bored.

 

2.    The company Introduce the business in more detail, outlining your type of business, giving its history (if you are purchasing an existing business) or an outline of the new business’s products or services. With an existing business, highlight any recent special achievements. This section should be broken down into the following subsections:

 

a) General business overview: A description of the business, where it fits into the marketplace, what needs it will fill, and how it will fill those needs. Describe the markets that will use your business and include any business history.

 b) Company structure: Outline the corporate structure of the business. Include a list of shareholders or partners and incorporation information.

c) Location: Describe the location, its benefits, amenities, and accessibility to customer traffic. Include freight routes if it’s a manufacturing or wholesale business, traffic statistics if available from your local county, and area demographics and growth rate. Detail parking and zoning information, the cost and terms of the lease, taxes, and utilities. List any foreseeable disadvantages to your location and explain why you chose it. Detail office space, storage, and operational facilities. List any renovations or alterations that need to be completed.

d) Key personnel: Include a brief profile of all key partners or employees, their duties and experience, and include their résumés in the appendix. Highlight their education, expertise, business qualifications, and history, and supply references if available.

e) Goals and objectives: Outline your goals and objectives, both long- and short-term. Many people neglect this area, failing to think past the startup stage. Your goals and objectives should be explained in more detail in other sections of your plan and be considered when preparing financial figures.

 f) Strengths and weaknesses: Blow your horn and detail the business’s strengths. Stress where and why you excel in these areas, whether it be great customer service, pricing, or a

 

strong distribution base. Don’t include marketing strengths and weaknesses—this will be covered in the marketing section. Discuss your weaknesses and how you plan to overcome them.

g) Mission and vision statements: A mission statement describes your company philosophy in a few sentences. A vision statement describes how you see your company in the future. Think carefully about each one. Study other mission statements and design one that is uniquely yours. A mission statement shows your commitment to the business and its customers and gives you a written promise to uphold.

 

3.    Products and services Your business is all about selling services or products, so ensure that what you are offering is marketable and profitable. Use the following headings to detail this information.

a) Product description: Describe your products or services, their benefits, and how they fill a need in the marketplace. Show your advantage over the competition and the volume you can output. Describe your business’s developmental stage. List potential or current contracts. Refer to any letters of intent from prospective clients and include these in the appendix.

 b) Cost of sales: The basis of your business is profit margins. Show what products sell for and provide the costs of raw materials, freight, packaging, wages, and so on. Note the expected gross profit margins and whether they will change if you diversify or expand. Clearly explain how the manufacturing or distribution process will operate, remembering that a lender may not be familiar with your type of business.

c) Future projections: If you plan future expansion, research, or development, include this information. List any potential threats or opportunities.

d) Legal concerns: If your business entails legal considerations such as patents, copyrights, trademarks or special licenses, include relevant information

 

4.    Marketing strategies Refer to both market research. As marketing is a key component to the success of your business, prepare this section in depth. Include the following topics.

 

a) Market research: Break this section down into the following subsections:

• An analysis of today’s market and trends

• Past and future industry, global, and consumer trends

• Your target market, its size, and demographics

• Your ideal consumer profile

• Your projected share of the market

• Geographic boundaries and seasonal trends

 • Customer service policies

• Strengths and weaknesses

• Market survey results

 

b) The competition: Both you and the lender must understand the strength of your competitors. Research and address the following topics:

• The current competition, their size, and market share

• Future competition

• The strengths and weaknesses of the competition

• How you can overcome their strengths and capitalize on their weaknesses

• Your strengths and weaknesses (use the SWOT analysis in Chapter 4)

• Your edge over the competition and your cost to stay competitive

 

c) Marketing and sales strategies: Part of your business plan will be a marketing plan, which details how you will find potential customers. A sound marketing plan includes a mix of methods, including using various media, promotional methods and one-on-one techniques. Address these topics:

• Promotional and media methods you will use

• Special services or policies

 

 

• The target market these methods will reach

• The effectiveness of each method

• The frequency of use

• How you will sell your products/service (agents, representatives, staff)

• Incentive or sales bonus schemes

 • The reach of your sales force

 

5. Operational information Plan how you will operate your business, from overhead costs to distribution channels. Include the following information:

 

a) Overhead costs: Explain your estimated overhead costs and demonstrate a break-even point. If future plans involve expansion, reflect these costs. A detailed explanation of these costs will be included in your projections, so don’t go into great detail here.

b) Suppliers: List your major suppliers, their terms of credit, and their product availability. Note whether you have to sign any personal guarantees to obtain credit from them.

c) Quality control: Describe your policies on quality control, any relevant hazards or environmental risks, and how you propose to overcome these obstacles. Mention any specific safety procedures relevant to your operation.

d) Distribution: Outline how your products will be distributed or delivered and any competitive advantages to your methods.

e) Employees: List the staff positions along with their job descriptions, areas of responsibility, and expected salaries.

f) Assets and equipment: Note any equipment on hand or to be purchased, its value or cost, and its life expectancy.

g) Insurance policies: List the various insurance policies you will take out, including liability, theft and fire, workers’ compensation, and key management and employee insurance.

h) Licenses and permits: List any licenses or permits that your business requires to operate and their cost.

 

6. Financial information The viability of your new venture will culminate when you prepare projections of income, expenses, and cash flow, and when you review how much money you may require. Even if you are not borrowing money, projections and cash flows facilitate making many future decisions. If you are attempting to borrow money, the financial section should include the following:

 

a)        Projections of income and expenses: Projections are a month-by-month estimation of sales and expenses, including start-up costs, itemized in the month the revenue was earned and the costs were incurred. Prepare the first year in months, and by quarters or annually for the following two to five years. The bottom line reflects profits or losses.

b)       Cash flow forecasts: The projections should be accompanied by cash flow forecasts for the corresponding periods. A cash flow forecast differs from projections, as it estimates when revenues will be received and when expenses will be paid, and includes income from loans and other sources. Samples can be found later in this chapter.

c)        Financial statements: Banks require a projected balance sheet and, if you are purchasing a business, past financial statements for the last two to four years.

d)       Capital expenses: Include a list of capital spending, such as asset purchases or building renovations. When a lender considers a proposal, these values help determine how a loan will be used and secured.

e)        Net worth statement: Lenders require personal statements of net worth from owners, partners, or shareholders. Loans are often personally secured, and this statement lists your personal assets, liabilities, and net worth. Net worth statements also indicate the stability of the key management players.

 

 

 

 

7. Funding requirements This section is devoted to the sum you need to borrow, how you expect to repay it, and over what time period. Your projections and cash flow forecasts should have indicated how much the business needs and can afford to repay. The total monthly loan payment shows on the cash flow forecast and loan interest only on the projections. You should explain how you intend to secure the loan and with what assets. If you are looking for an investment partner, note the share of the company available in return for their investment and what else you intend to offer them.

Outline the following:

• When you need the money and how much

• The type of loan you are applying for

• The desired terms of repayment

• A breakdown of how you will use the funds

 • Future funding requirements, if any

 

8. Appendix Include copies of any documents that back up and strengthen the information in your business plan, including:

• Up-to-date financial statements from the business you are purchasing

• Personal statements of net worth

• Letters of reference and letters of intent

• Product pictures or relevant newspaper articles

• Résumés of key employees or partners

• Incorporation or business registration papers

• Cash flow and projection forecasts

• Permits, licenses, trademarks, or patents

• Market surveys

• Equipment and asset appraisals

• Partnership or employee agreements

• Insurance policies and leases

 

Feasibility

 

A feasibility report is an investment proposal base on certain information and factual data appraising the project. This type of feasibility study may be required by the financing institutions, project sponsor, project owner.

 

The feasibility report enables the project holder to know the inputs required and if rightly prepared confirms to the convictions that he is proceeding in the right direction. In other words, a project needs to be fully defined in order to provide terms of reference for the management of the project.

 

A project can be considered to have been fully established when the following conditions are fulfilled.

 

·      The technical configuration of the project has been fully defined.

·      The performance requirement for the various technical system and the key equipment have been specified.

·      Cost estimate for the project is frozen.

·      Techno-economic viability of the project has been examined, appraised and approved.

·      An overall schedule for implementation of the project has been drawn-up.

 

The feasibility report is prepared during the definition phase of a project. It lies in between project formulation stage and appraisal and sanction stage. It is prepared to present an in-depth techno-commercial analysis carried out on the project idea for consideration of the financial institutions and other authorities empowered to take the investment decision.

 

 

 

Components of Feasibility Study

 

Project feasibility study comprises of market analysis, technical analysis, financial analysis, and social profitability analysis. The analysis is mainly interested only in the commercial profitability and thus examining only the market, technical and financial aspects of the project. But, generally the gamut of feasibility of a project covers the following areas.

 

1.                  Commercial and economic feasibility

2.                  Technical feasibility

3.                  Financial feasibility

4.                  Managerial feasibility

5.                  Social feasibility or acceptability

 

Commercial and Economic Feasibility

 

·           The economic feasibility aspect of a project relates to the earning capacity of the project. Earnings of the project depends on the volume of sales. If taken into consideration the following important indicators.

·           Present demand of the goods produced through the project. i.e. market facility (or) getting a feel of the market.

·           Future demand: a projection may be made about the future demand. The period normally depend upon the scale of investment.

·           Determining the extent of supply to meet the expected demand and arriving at the gap.

·           Deciding in what way the project under consideration will have a reasonable chance to share the market.

·           Anticipated rate of return on investment. If it is positive the project justifies the economic norm in the relationship between cost and demand.

 

Future demand can be estimated after failing into consideration the potentialities of the export market, the charges in the income and prices, the multiples use of the product, the probable expansion of industries and the growth of new industries. The share of the proposed project in the market could be identified by considering the factors affecting the supply

position such as competitive position of the unit, existing and potential competitors, the extent of capacity utilisation, units costs advantages and disadvantages, structural changes and technological innovations bringing substitute into the market.

 

 

The commercial feasibility of a project involves a study of the proposed arrangements for the purchase of raw materials and sale of finished products etc. This study comprises the following two aspects.

 

·           Arriving at the physical requirement of production input such as raw materials, power, labour etc., at various level of output and converting them into cost. In other words, deciding costing pattern.

 

·           Matching costs with revenues with a view to estimating the profitability of the project and the break-even point. The possibility ultimately decides whether the project will be a feasible proposition.

 

Technical Feasibility

 

The examination of this aspect requires a thorough assessment of the various requirements of the actual production process and includes a detailed estimate of the goods and services needed for the project. So, the feasibility report should give a description of the project in terms of

 

 

 

technology to be used, requirement of equipment, labour and other inputs. Location of the project should be given special attention in relevance to technical feasibility. Another important feature of technical feasibility relates the types of technology to be adopted for the  project. The exercise of technical feasibility is not done in isolation. The scheme has also to be viewed from economic considerations; otherwise, it may not be a practical proportion however sound technically it may be.

 

The promoters of the project can approach the problem of preparation of technical feasibility studies in the following order:

 

·      Undertaking a preliminary study of technical requirements to have a quick evaluation.

 

·      If preliminary investigation indicate favourable prospects working out further details of the project. The exercise begins with engineering and technical specifications and covers the requirements of the proposed project as to quality, quantity and specification type of components of plant & machinery, accessories, raw materials, labour, fuel, power, water, effluent disposal transportation etc.

 

 

Thus, the technical feasibility analysis is an attempt to study the project basically from a technician’s angle. The main aspects to be considered under this study are: technology of the project, size of the plant, location of the project, pollution caused by the project production capacity of the project, strength of the project. Emergency or stand-by facilities required by the project sophistication such as automation, mechanical handling etc. required collaboration agreements, production inputs and implementation of the project.

 

Financial Feasibility

 

The main objective of this feasibility study is to assess the financial viability of the project. Here, the main emphasis is in the preparation of financial statement, so that the project can be evaluated in terms of various measures of commercial profitability and the magnitude of financing required can be determined. The decision about the financial feasibility of a project should be arrived at based on the following consideration:

 

·      For existing companies, audited financial statements such as balance sheets, income statements and cash flow statements.

 

·      For projects that involve new companies, statements of total project cost, initial capital requirements, and cash flow relative to the projective time table.

 

·      Financial projections for future time periods, including income statements, cash flows and balance sheets.

 

·      Supporting schedules for financial projections stating assumptions used as to collection period of sales, inventory levels, payment period of purchases and expenses and elements of production cost, selling administrative and financial expenses.

 

·      Financial analysis showing return on investment return on equity, break-even volume and price analysis.

 

·      If necessary sensibility analysis to identify items that have a large impact on profitability or possibly a risk analysis.

 

 

 

 

 

Managerial Feasibility

 

The success or failure of a project largely depends upon the ability of the project holder to manage the project. Project is a bundle of activities and each activity has its own role. For the success of a project, a project holder has to co-ordinate all the activities in such a way that the additive impact of different inputs can produce the desired result.

 

The ability to manage and organise all such inter related activities come within the concept of management. If the person incharge of the project has the ability, has the ability to manage all such activities, the desired result can be anticipated.

 

There are three ways to measure the managerial efficiency.

a.                   Heredity skill

b.                  Skill acquired through training.

c.                   Skill acquired in course of work.

 

Social Feasibility

 

A project may cross all the above barriers mentioned above and found very suitable but it will lose its entire creditability, if it has no social acceptance. Though the social customs, conventions such as caste community, regional influence etc. are creating hindrance for development of a project should avoid all such social conflicts which will stand on the successful implementation of the project.

 

(e.g) Considering the interests of the general public; projects which offer large employment potential, which channelise the income from less developed areas will stimulate small industries.

 

In a nut shell, the feasibility report should highlight on these five testing stones before it can be declared as complete and only after judging through these indicators a project can be declared as viable and can be submitted for finance or any other assistance from any institutions.

 

Format of Feasibility Report

The sketch of feasibility report of project is given below:

 

1.        Introduction

2.        Summary and Recommendations

3.        Product- Capacity, Chemistry of the product, specifications, properties, application and uses.

4.        Market potential

5.        Process and know-how

6.        Plant and machinery

7.        Location of the unit

8.        Plot plan and building

9.        Raw materials availability

10.    Utilities, requirements

11.    Effluents treatment

12.    Personnel requirement

13.    Capital cost

14.    Working capital

15.    Mode of finance

16.    Manufacturing cost

17.    Financial analysis

18.    Implementation schedule

 

 

 

Check List for Feasibility Report

The following key elements must be presented in the feasibility report.

 

1.             Examination of public policy with respect to the industry project

2.             Broad specification of outputs and alternative techniques of production.

3.             Listing and description of alternative locations

4.             Preliminary estimates of sales revenue, capital costs and operating costs of different alternatives.

5.             Preliminary analysis of profitability for different alternatives.

6.             Marketing analysis

7.             Specification of product pattern and product price

8.             Raw material investigation and specification of sources of raw material supply.

9.             Estimation of material energy, flow balance and input prices.

10.         Listing of major equipment by type, size and cost.

11.         Listing of auxiliary equipment by type, size and cost.

12.         Specification of sources of supply for equipment and process know-how.

13.         Specification of site and completion of necessary investigation.

14.         Listing of buildings, structures and yard facilities by type size and cost.

15.         Specification of supply sources connection costs and other costs for transportation services, water supply and power

16.         Preparation of layout.

17.         Specification of skill-wise labour requirements and labour costs.

18.         Estimation of working capital requirements

19.         Phasing of activities, and expenditure during construction

20.         Analysis of profitability

21.         Determination of measures of combating environmental problems

State the preparedness to implement the project rapidly

ENTREPRENEURSHIP DEVELOPMENT (KMB402) UNIT 5

 

Types of  Business Ownership

The different types of Business Ownerships are as follows:

• Single ownership (Individual or Sole proprietorship)
• Partnership
• Joint stock companies
• Corporations
• Cooperatives

 

Sole Proprietorship:

One man owns this type of business. The business man invests capital, employs labour and machines. For example Retail-shops, Workshops etc. The single owner invests, maintains and controls the entire business. Hence all gains or loss from business goes to him. It should be noted that he is fully liable for all the debts associated with the business. This type of ownership is easy to establish and simple to run with a minimum of legal restrictions.

Advantages

• Easy formation: It is very easy to bring the business to existence
• Prompt decision making: Owner is prompt in decision making since there is 
  to be consulted
• Operational flexibility: The organization is easy to operate and it is extremely flexible
• Maintains secrecy: secrecy in business can be maintained by the owner.
• Easy to dissolve: The business can be dissolved at any time
• No coordination. There is no problem of coordination in the organization
• Coordination of effort and reward: efforts and rewards are directly related in this type of ownership

 

Disadvantages 

• Limited Capital: The amount of capital that can be invested will normally be very limited
• Owner is not a Master of All: The owner of the business cannot be a master of all techniques, like management, sales and engineering etc.
• Expanding Business is difficult: It will be difficult to raise capital in order to expand the business
• Sole Responsibility: The owner is liable fore all obligations and debts of the business.
• Limited opportunities for employees: There will be limited opportunities for employees to get profit sharing, bonus etc.
• Limited Life: The firm ceases to exist with the death of the owner
• Unlimited Liability: When the business fails, the creditors take away the personal property as well as business property to settle their claims.

 

Partnership:

 

• Partnership has been defined by the Indian partnership act 1932 as the relationship between persons who have agreed to share profit of a business concern carried on by all or any one of them acting for all.
• When 2 and up to 20 persons in the case of non - banking business and up to 10 in case of banking business enter into a contract to carry on a business allowed by law, with the object of making profit, a partnership is said to be formed.
• It should be noted that every partner is liable and responsible for the acts of other partners in that business. To avoid complications at later stages. the constitution of partnership is written in an agreement form. The partnership is usually optimal if the numbers of partners are less than 6. Lesser is always better.
• Usually persons with good ideas and experience in running a business make partnership with people who are financially sound. Thus both money and knowledge are brought together to earn profit
• Partnership comes into existence by means of an agreement. This written agreement is called a partnership deed.

Advantages of Partnership: 

• Easy formation: Formation involves less legal formalities. Registration expenditure and stamp duty are considerably less.
• Limited government restrictions: this kind of ownership is not subjected to strict government supervision. Hence, it enjoys more freedom
• More capital: More capital can be raised in comparison with sole proprietorship
• Knowledge or skill: As the abilities and skills of each partner are different, more knowledge is available to run the business.
• Success pays; success of partnership pays high incentive
• Legal status: there is a legal status for the firm and it can borrow money quiet easily from banks.
• Tax advantages: Partnership has tax advantages with it. As the total income is divided among partners. Each partner is assessed separately for income tax
• Losses are shared: for all losses, there is more than one person to share it.
• Consent of all: no major decisions can be taken without the consent of all partners.

Disadvantages of partnership 

• Unlimited liability: Each partner has unlimited liability, therefore risk involved is more.
• Limited period of existence after the death or retirement of any partners the partnership comes to an end.
• Limited partners means limited money: As there is a legal ceiling with respect to the number of partners, the total money that can be raised is limited when compared to a joint stock company
• Unstable: If anything happens to a partner, the partnership comes to a halt. Hence, partnership is unstable.
• Misunderstanding: Misunderstanding and friction are common among partners and this affects partnership.
• Mistakes affects all partners; Any mistake of a partner leads to a loss for all the partners
• Lack of public confidence: Partnership usually does not enjoy public confidence as it lacks proper publicity of its affairs.

 

Joint Stock Company

A joint stock company is an association of individuals, called shareholders, who join together for and agree to supply capital divided into shares that are transferable for carrying on a specific business other than banking business.
There are two types of joint stock companies 
1. Private limited company 
2. Public limited company 

A) Private limited company 

• The capital is collected from private partners; some of them may be active while others may be sleeping
• Private limited company restricts the right to transfer shares; avoids public to take shares or debentures.
• The number of members is between 2 and 200, excluding employees and ex-employee share holders.
• The company need not file document such as consent of directors, list of directors etc with the Registrar of Joint Stock companies
• The company need not obtain from the Registrar, a certificate of commencement of business.
• The company need not circulate the Balance Sheet, profit or loss account.
• A private company must get its account audited.

B) Public Limited Company: 

• In public limited company, the capital is collected from the public by issuing shares having small face value.
• The number of shareholders should not be less than seven but there is no limit to their maximum number
• A public limited company has to file with the Registrar of joint Stock companies, documents such as consent of directors, list of director directors contract etc. along with memorandum of association of articles.
• A public company has to issue a prospectus to the public
• It has to allot shares within 180 days from the date of prospectus.
• It can start only after receiving the certificate to commence business
• It has to hold statutory meeting and to issue a statutory report to all members and also to the registrar within a certain period.
• There is no restriction on the transfer of shares.
• Directors of the company are subject to rotation.
• The public company must get the account audited every year

 

Corporations

A corporation is very similar to a joint stock company. They are brought into existence by state or central government by special law of the country defining the powers, functions and forms of management and relationship to other government departments. Corporations are fully owned by the Government and are financially self supporting .Chief executive members of the board are nominated by the government. Corporations are formed due to the changed industrial policy of India in April 1948. The manufacture of arms and ammunitions, atomic energy, railway services post and telegraph, iron and steel production, aircraft manufacturing ship building etc. have fully come under Government control and ownership. 

Types of Corporations

 

• Government departments: Railways, defence, post and telegraph etc.
• Public Corporations: LIC of India, state power corporations, Indian airlines, State Road transport corporations etc.
• Government companies. HMT, BHEL, Hindustan Steel Etc.

Advantages: 

• It is an autonomous body and therefore it has the freedom of finance, management and flexibility of operation.
• Enjoys prompt attention and quick decisions as red tape and bureaucracy of departmental organization are avoided
• Ministerial directions and control ensures that the corporation is not run against public interest.
• Financial autonomy enables the firm to raise the required funds economically and conveniently

Disadvantages: 

• Autonomy and flexibility are only in name sake as ministers and politicians often interferer in the day today functioning of the organization
• As the chief officers are from the government they do not take much interest in improving the functioning of the enterprise.

 

Cooperative societies:

This is the most democratic form of business organization for the betterment of the general public. These cooperative societies help to protect the interest of the customers, small and independent producers and of the workers while fighting against monopolists and capitalists. The members of society supply the capital through shares; they manage the business and share the profit or loss.

The forms of cooperative societies are listed below.

 

• Customer cooperative societies: Its main objective is to eliminate the middleman's profit by directly purchasing things at cheaper rate and then distributing among the members at reasonable price
• Producers' Cooperative society: This is a society for manufactured goods .The society supplies raw materials tools and other things to the producers and takes up the output for sale and for the distribution among the members
• Marketing Cooperative society: These are voluntary organizations of independent producers organizes for the purpose of arranging for the sale of their output.
• Housing Cooperative societies: These are association of persons who are interested in securing the ownership of the house of obtaining accommodation at a reasonable rate.
• Credit Cooperative societies: These are voluntary associations of people with an objective of extending short term loans and habit of saving among them. The funds of these societies consist of share capital contributed by members.

 

PROJECT REPORT

A project report may be defined as a document with respect to any investment proposal based on certain information and factual data for the purpose of appraising the project. It states as to what business is intended to be undertaken by the entrepreneur and whether it would be physically possible, financially viable, commercially profitable and socially desirable to do such a business. Project report is an essential document for procuring assistance from financial institutions and for fulfilling other formalities for implementation of the project. The project report (Detailed Feasibility Report) is based on a preliminary report or pre-investment report. Thus the project report is a post investment decision report.

 

OBJECTIVES OF THE PROJECT REPORT

The basic aim of a project report is to assess the financial viability of a project as well as the soundness of its production, marketing and other related aspects. It serves the following main objectives.

1)        It facilitates business planning and planning the future course of action.

2)        It enables an entrepreneur to compare different investment proposals and select the most suitable project.

3)        It provides a SWOT analysis, wherein the strengths, weaknesses, opportunities and threats involved in the projects as shown.

4)        The project report enables the entrepreneur to ensure that he is proceeding in the right direction.

5)        In case of public sector projects this report would also enable the concerned authorities to take an objective decision on the project.

6)        It facilitates project appraisal.

7)        It helps the financial institutions to make appraisal as regards financial, economic and technical feasibility.

 

IMPORTANCE OF PROJECT REPORT

Project report is a written plan of the project to be undertaken for the attainment of objective. It enables an entrepreneur to know the inputs required and confirms that he is proceeding in the right direction. It spells out the reasons of allocating resources of the firm for the production of goods and services during a specific period. An important aspect of the project report lies in determining the profitability of the project with minimum risks in the execution of the project. The important uses of P.R. are summarized as follows:

1)   It helps the entrepreneur in establishing techno-economic viability of the project.

2)   It helps in getting term loan from banks and financial institutions.

3)   It helps in approaching bank for getting working capital loan.

4)   It helps in securing supply of scarce raw materials also.

5)   It gives a general idea of resource requirements and means of procuring them.

6)   It shows the feasibility of the project and possibility of achieving profits.

 

CONTENTS OF PROJECT REPORT

1)        INTRODUCTION: General information regarding the company and production description.

2)        BACKGROUND OF THE PROMOTER: - Name, address, age, family background, educational qualification, work experience, investment potential etc.

3)        PRODUCT: - Details of products to be produced, details of application of the product, proposed product mix, product standard etc.

4)        MARKET AND MARKETING:- Market potential analysis, major buyers, area to be covered, trade practices, sales promotion devices, trade practice and trade channels adopted by the competitors, demand analysis, proposed market research etc.

5)        LOCATION:- Locational advantages, criteria for selecting the location, exact location of the project, other choices.

6)        PRODUCTION PROCESS: - Details of technology, process flow chart, manufacturing process, production programme etc.

7)        RAW MATERIAL: - List of raw material required in terms of quality and quantity, sources of requirement, cost of raw material etc.

8)        UTILITIES: -Water, power, steam-sources and costs, effluent disposal etc.

9)        TRANSPORT AND COMMUNICATION: - Method, possibility of getting and costs of transport.

10)    MANPOWER REQUIREMENT: -Requirement of skilled, semi skilled personnel, technical and non-technical personnel, cost of procurement, capacity, and suppliers cost, alternatives available, cost of miscellaneous assets.

11)    LAND AND BUILDING: - Land area, construction area, cost of construction, detailed plan, plant lay out along with cost.

12)    PLANT AND MACHINERY: - Details of machinery and equipment required.

13)    COST OF PROJECT AND SOURCES OF FINANCE: - Working capital required, preliminary and pre-operative expenses, contingencies and arrangements for the meeting the cost of project.

14)    FINANCIAL VIABILITY OF THE PROJECT: -Cost of production and profitability for the first years, break even analysis, and analysis of cash flow and fund flow statements.

 

REQUISITES OF AN IDEAL PROJECT REPORT

1)        Project report should be prepared with the help of an expert team.

2)        Assumptions in the project report should avoid extremities.

3)        Project report is the means and not the end.

4)        Product demand, capital resources, raw material availability, labour resources etc must be estimated properly after considering varied factors.

5)        Project report should be based on proper survey and systematic preliminary study of the project.

6)        Thorough discussions must be made with experts, various personnel of concerned departments before finalizing the report.

7)        The end result should be to receive finance and to get the project implemented

8)        Complete satisfaction of the entrepreneur/promoter should be ensured before the report is submitted to the financial institutions.

 

PROBLEMS FACED IN THE PREPARATION OF PROJECT REPORT

1)        Strict condition of promoter’s contribution may dampen the enthusiasm of entrepreneurs.

2)        All lending institutions demand a lot of documents before credit is granted.

3)        Problems regarding working capital assessment due to unrealistic assumptions.

4)        Time overrun will lead to cost overrun.

5)        Lending institutions expect strict specifications with regard to size of the land, buildings, sources of machinery, their costs etc.

6)        A number of clearances have to be obtained from the government departments. This causes strain and wastage among entrepreneurs.