SETTING UP OF A SMALL BUSINESS ENTERPRISE

FLOW CHART FOR SETTING UP A SMALL-SCALE

INDUSTRILA UNIT
1.Selection of a 8.Prepare Project 9.Apply & Obtain
project report Finance

10. Proceed to
2. Deciding on the 7.Arrange for
implement & Obtain
Constitution Infrastructure
Final Clearances

3.Obtain SSI 6.Arrange for Plant

Registration & Machinery

4. Obtain Clearance
5.Arrange for
from Department as
land/shed
applicable
STEP 1: PRODUCT/SERVICE SELECTION

a) Product or service selection

b)Location Selection

c) Project Feasibility Study

d) Business Plan Preparation

e) Preparation of a project profile

A) PRODUCT/SERVICE SELECTION
• Project Identification is concerned with collection, compilation and analysis of economic data for the
eventual purpose of locating possible opportunities for investment & with the development of such
opportunities.
• Sources for generating novel project ideas are personal observations of the surrounding environment,
trade fairs/exhibitions, technical & professional literature published in trade periodicals and magazines
• Development plans/schemes of Government may pinpoint toward a unique investment opportunity,
bulletins of research Institutes such as Ernst & Young, McKinsey, KPMG, AC Nielsen can provide valuable
insights on current state of various sectors, demand-supply gap and investment opportunity, if any.
• Contacting organisations such as District Industry Centres, Centres for Entrepreneurship Development,
Small Industry Services Institute, EDI, NIESBUD, KVIC, SIDBI, National Industrial Development
Corporation etc. and gathering information in the form of project profiles, feasibilities studies, industry
studies, area development studies etc. can be source of new idea.
CRITERIA FOR SELECTING A PARTICULAR PRODUCT

• Market Potential
• Degree of Competition
• Investment Size
• Location
• Availability of Raw Material, Technology & Equipment
• Availability of Infrastructural facilities such as land/shed, power, water, transport etc.
• Resource & Experience of the entrepreneur
• Government Policies & Procedures
• Packaging, Branding, Warranties & After Sales Service
B. LOCATION SELECTION

1. General Considerations: Location(city/town/village), proximity to nearest railway stations/sea port/air

port/, availability of essential raw material sources, skilled labour, law & order situation in the area, level of
industrial development in the area, etc.
2. Industrial Infrastructure Position: Land ( availability & price), water & power supply, effluent treatment
& disposal/drainage arrangement, postal, telegram & telecommunication facilities, banking facilities,
warehousing facility, professional resource person such as legal advisor. Chartered accountants,
management/industrial consultants etc.
B. LOCATION SELECTION

3. Financial Incentives Available: Investment subsidy (Central/State Government), income tax concession,
sales tax exemption/interest free sales tax loan, Octroi exemption, electricity duty exemption, local tax
exemption etc.
4. Social Infrastructure Position: Housing (availability, quality, price, public housing facilities), education
(primary, secondary and university education facility) and health(dispensary, hospitals & specialities)
5. Site-Specific Consideration: access to national highway or other roads provided by the state, soil type,
direction of town growth with reference to the site, overhead telephone or power lines or underground
water/drainage/gas line passing through the site, vantage or otherwise, frontage approach etc.
C. PROJECT FEASIBILITY STUDY

MARKET TECHNICAL FINANCIAL

ANALYSIS ANALYSIS ANALYSIS

ECONOMIC ECOLOGICAL
ANALYSIS ANALYSIS
MARKET ANALYSIS

• Consumption trend in the past and present consumption level

• Past and present supply position
• Production possibilities and constraints
• Imports and exports
• Structure of competition
• Cost structure
• Elasticity of demand
• Consumer behaviour, intentions, motivations, attitudes, preferences and requirements.
• Distribution channels & marketing policies
TECHNICAL ANALYSIS

• Has the availability of raw materials, power ad other inputs been established?
• Is the selected scale of operation optimal?
• Is the production process chosen suitable?
• Are the equipment & machine chosen appropriate ?
• Has provision been made for treatment of effluents?
• Is the proposed layout of the site, building and plant sound ?
• Have work schedules been drawn up realistically ?
• Is the technology proposed to be employed appropriate from the social point of view ?
FINANCIAL ANALYSIS
Financial Analysis seeks to ascertain whether the proposed project will be financially viable in the sense of
being able to meet the burden of servicing the debt and whether the proposed project will yield a satisfactory
rate of return. Few aspects require to be looked into such as :
• Investment outlay
• Means of financing
• Projected profitability
• Break-even point
• Cash flows of the project
• Projected financial position
• Level of risk
• Calculation of key ratios such as ROI, Liquidity & Solvency Ratios
ECONOMIC ANALYSIS

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

• What are the direct economic benefits and costs of the project measure in terms of shadow prices and
not market prices ?
• What would be the impact of the project on distribution of the income ?
• What would be the impact of the project on the level of savings and investment ?
• What would be the contribution of the project towards the fulfilment of certain criteria such as self-
sufficiency, employment and social order ?
ECOLOGICAL ANALYSIS

Ecological analysis should be done particularly for major projects which have significant ecological
implications such as power plants, irrigation schemes. Manufacturing of bulk drugs, chemicals, leather
processing etc. The key question raised in ecological analysis are as follows:
• What is the likely damage caused by the project to the environment ?
• What is the cost of the restoration measure required to ensure that the damage to the environment is
contained within acceptable limits ?
• Is the project causing water/air pollution or discharge of harmful chemicals ?
D. BUSINESS PLAN PREPARATION

• WHAT IS INCLUDED IN A BUSINESS PLAN.pptx

E. PROJECT PROFILE

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

• This may be used to obtain the Provisional Registration Certificate (PRC) from the District Industries
Centre or applying for land/shed to Industrial Area Development Board, State Small Industries
Development Corporation (SSIDC) etc.
• Important informational heads to be covered in a project profile are promoter’s background, product
description, market & marketing, plant & machinery, process details, cost of the project & profitability,
means of finance etc.
STEP 2. DECIDE ON THE CONSTITUTION

Sole proprietorship

Partnership

Corporation/limited company

Cooperative

Franchising
STEP 3. REGISTRATION

• Small-scale and ancillary units should seek registration with the Director of Industries of the concerned
State Government.
• Entrepreneur starting a small scale industry have to initially obtain a Provisional Registration Certificate
.Once the unit goes into production, the PRC has to be converted into a Permanent Registration
Certificate.
• The initial validity of the PRC is 2 years and it can be renewed subsequently, if needed.
• PRC is normally valid for 5 years and permanent registration is given in perpetuity.
BENEFITS OF REGISTRATION

• The registration scheme has no statutory basis. Units would normally get registered to avail some
benefits, incentives or support given either by the Central or State Govt. The regime of incentives
offered by the Centre generally contains the following:
• - Credit prescription (Priority sector lending), differential rates of interest etc.
- Excise Exemption Scheme
- Exemption under Direct Tax Laws.
- Statutory support such as reservation and the Interest on Delayed Payments Act.
States/UTs have their own package of facilities and incentives for small scale. They relate to development
of industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support
PROVISIONAL REGISTRATION CERTIFICATE (PRC)

• This is given for the pre-operative period and enables the units to obtain the term loans and working
capital from financial institutions/banks under priority sector lending.
• Obtain facilities for accommodation, land, other approvals etc.
• Obtain various necessary NOCs and clearances from regulatory bodies such as Pollution Control Board,
Labour Regulations etc.
REGISTRATION FORMALITIES FOR PRC

1. Prescribed court fees stamp

2. Copy of the project profile
3. Partnership deed/MOA/AOA
4. Affidavit as per the format on appropriate stamp paper
PERMANENT REGISTRATION CERTIFICATE (PMT)

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

1. income-tax and sales-tax exemption
2. Incentives and concessions in power tariffs
3. To apply for scarce raw materials and for imported raw materials.
4. Price and purchase preference for goods produced
5. To obtain central excise duty concessions
PROCEDURE FOR PERMANENT REGISTRATION
CERTIFICATE
Once the production commences, the organisation can proceed to apply for Permanent Registration Certificate (PRC).It is a life time registration
given after physical inspection of the enterprise and scrutiny of certain documents. Some of the formalities required to be completed for seeking
permanent registration are :-Clearance from the municipal corporation
• State pollution control board clearance
• Sanction from the electricity board
• Ownership/tenancy rights of the premises where unit is located
• Copy of partnership deed/Memorandum orarticles of association in case of a private limited company
• Sale bill of product manufacture
• Sale bill of each end product
• Purchase bill of each raw material
• Purchase bill of machinery installed
• An affidavit giving status of the unit, machinery installed, power requirement, etc
STEP 4. CLEARANCE FROM SPECIFIC DEPARTMENTS

• Specific Clearances usually depending on the type of units:

Agricultural land conversion
Urban land ceiling clearance
Building plan approval
Factories Act/trade licence
Pollution control board clearances
Sales tax/central excise registration
Drugs & cosmetics licence
Food adulteration act licence
STEP 5. ARRANGEMENT OF LAND/SHED

• For any industrial project, a suitable industrial site or a ready industrial shed is required. The promoters
of the unit could consider taking an industrial shed and constructing the shed as per the requirement.
• Using a ready industrial shed could be considered on lease/rental basis.
• In order to apply for industrial shed, few application formalities have to be complied including copy of
Provisional Registration Certificate, detailed project report, certified copies of educational
qualifications, applicable earnest money deposit.
STEP 6. ARRANGEMENT OF PLANT & MACHINERY

Direct
• The entrepreneur can select and purchase the requisite plant & machinery
from recognised and approved manufacturers.
• Banks and SFCs maintain a list of approved machinery supplies

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

Hire Purchase become the property of the industrial unit.

• An application in the prescribed format has to be submitted to the Director
of Industries of the State under whose jurisdiction the applicant operates.
ARRANGEMENT OF RAW MATERIAL
Raw Material procurement and planning are critical to success, of a start-up unit. The raw materials required
may be:-
• Domestically available (within the country).
• Imported from abroad:- For importing the raw materials the Government rules and regulations have to be
followed. The imports are regulated by the Foreign Trade (Development and Regulation) Act, 1992. The Act
provides for the appointment by the Central Government, of a Director General of Foreign Trade for the
purpose of the Act. The DGFT shall advise Central Government in formulating export and import policy and
implementing the policy.
Whatever be the source of raw materials it must be bought from reputed dealers and agencies only. Before
ordering, compare the prices and get quotation from at least 3-4 places and also check whether price is
inclusive or exclusive of transportation costs. While receiving the delivery, check the quality and quantity of the
materials
PROCESS SELECTION

• Before selecting any process technology, following considerations are to be taken care of:
• The level of skilled workers or complex machines required by the process.
• The quantity of water and / or power required.
• If any process or product patent is needed in order to utilize the selected process technology.
• Any special Pollution or Environmental regulation is to be followed.
• The appropriateness of the technology to the Indian environment and conditions.
STEP 7. ARRANGEMENT FOR INFRASTRUCTURE

• The main infrastructural facilities required for a SSI unit are land/shed, power connection, water supply
and telephone facility.
• Single Window Agencies are set up at district level for the benefit of small-scale industries. SWA
provides various services including allotment of land/industrial sheds/power connection, sanction of
term loans and working capital, disbursement of various incentives and concessions etc.
• The entrepreneur can avail of several concessions and incentives of State Government available for SSI
such as subsidised water/power tariff, transport subsidy, incentive for pollution control etc.
GETTING UTILITY CONNECTIONS
(WATER & POWER)
WATER SUPPLY:
• Find out the water requirement of the industry.
• Check out what is the best possible source of the required water supply i.e. river, canal, tube well and
how far is it from your land.
• Check the quality of water (PH, hardness) and does it meet you specific requirements.
• Rate/ water charges applicable as well as the common storage facility.
• Find out who is the operating authority (Public Works Department, Estate-Corporation, Municipality) of
the area.
• Water connection is obtained by applying in advance in formal forms
GETTING UTILITY CONNECTIONS
(WATER & POWER)
• POWER SUPPLY:
• Find out the power supply requirement of the industry.
• Locate the nearest substation from where you will get power supply. Also find out the power tariff rate
and the duration for which required supply will be available.
• A formal application needs to be made in a specific form to the concerned State Electricity Boards. An
electrical inspector is deputed for evaluation of application to factory site, after which the load is
sanctioned. In areas of power shortage, it is advisable to augment the power supply with a captive
generating set.
• After obtaining the power feasibility and sanction certificate, the power supply may be given to the
industry.
STEP 8. PREPARE PROJECT REPORT

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

1. Expected use of the project report
2. Elaborate details but retaining the confidential data
3. Proper validation of the data and information based on reliable sources
4. Effective presentation by use of charts, graphs and pictorial forms
5. Cost minimisation and timelines
6. Proper estimation of the requirement of number of copies.
CONTENTS OF A PROJECT REPORT

1.EXECUTIVE SUMMARY: introduction, financial performance, balance sheet analysis, project profitability &
analysis, SWOT analysis
2. COMPANY DETAILS: history, manufacturing facilities, promoters, shareholding pattern, board of directors, key
executives, major products/consumers, details of divisions and group units
3. OPERATIONAL DETAILS: capacity & utilization, profit & loss account, term loans & advances, marketing &
distribution network, marketing strategy, export sales
4.PROJECT DETAILS: Proposed project, orders & enquiries, location, manufacturing process, technical
feasibility/know-how, manpower, power/water supply, auxiliary services
5. PROJECT COST: land, building, plant & machinery, preoperative expenses, margin money for hire purchase &
working capital.
CONTENTS OF A PROJECT REPORT

6. MEANS OF FINANCE
7.PROJECT STATUS: implementation schedule, PERT & CPM analysis, current status of work flow
8.PROFITABILITY & RISK ANALSYIS: Financial of the project, analysis of break-even point, ROI, payback
period and internal rate of return.
9. COMPANY vis-à-vis RELATED INDUSTRY: General analysis, competing industries, knowledge about
existing monopolies and existing cartels.
10. EMPLOYMENT GENERATION
11. CONCLUSION
CONTENTS OF A PROJECT REPORT

12. ANNEXURE:
Promoter’s bio-data
Organisation chart
Details of group units
Statutory sanctions/approvals
Arrangement of land & building
Details of orders & enquiries
Process chart
Financial for project and company and its analysis
Any other relevant details
STEP 9. APPLY & OBTAIN FINANCE
The entrepreneur has few key decisions to be made:
1. Sources of finance: share capital, internal accruals, deposits – own/public, debentures, short-term
borrowings, long term loans, bridge loans and working capital loans.
2. Small scale units can obtain finance for their projects under two categories:
a. Term Loan
b. Working Capital Loan
3. Financial assistance in India for SSI units is available from a variety of institutions including Small
Industries Development Bank of India, SFC, NSIC, SIDC,DIC.Export Import Bank of India and Export Credit
and Guarantee Corporation are central agencies which provide credit for export/import and EXIM
guarantees.
STEP 10.IMPLEMENT THE PROJECT & OBTAIN FINAL
CLEARANCE
• Construct shed
• Order for machinery
• Recruit personnel
• Arrange for raw materials
• Marketing
• Erection & commissioning
• Obtain Final Clearance