ED and Finance(8)

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What is Entrepreneurship ?


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First concept developed in the year 1700s The term comes from French verbentrprendre and German wordunternehmen , both means to undertake


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Bygrave and Hofer in 1891 defined theentrepreneurial process asinvolving all thefunctions, activities, and actions associated with

the perceiving of opportunities and the creationof organisations to pursue them

According to Joseph Schumpter the carryingout of new combinations we call enterprise, andthe individuals whose function it is to carry themout we call entrepreneurs.


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Schumpter tied entrepreneurship to thecreation of five basic new combinations

namely introduction of a new product,introduction of a new method ofproduction, opening of a new market, the

conquest of a new source of supply andcarrying out of a new organization ofindustry.


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Peter Drucker (1985) proposed thatentrepreneurship is a practice..

Entrepreneurship begins with action, thecreation of a new organisation. Whenindividuals create a new organisation, they

have entered the entrepreneurshipparadigm


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Entrepreneurship ----mindset

covers motivation and capacity

identify an opportunity

produce new value or economic success

creativity or innovation to compete


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Entrepreneurial traits and Motivation

A successful entrepreneur must be a personwith technical competence, initiative, good

judgment, intelligence, leadership qualities, self-confidence, energy,

attitude,creativeness,fairness,honesty,

tactfulness and emotional stability


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Mental ability Clear objective

Business secrecy Human relations ability Communication ability Technical knowledge


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Motivator Self confidence

Long-term involvement High energy


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Characteristics of small scaleentrepreneurs

They are young men They are energetic/zealous/enthusiastic

They have minimum basic education They are pleasant mannered They are hard working They are determined They are systematic


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They are self made men They are self-confident

They are disciplined men They follow a planned approach They are trained/experienced They have entrepreneurial zeal They have meager capital


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Their area of operation is small Generally they deal in one product

They employ a few people Their turnover is small They are flexible


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Financial Resources for New

VentureAsset Managementcash is the most important asset to manage

To generate cash , business must generatesales

Generate sales---must have inventory,

facilitiesWhat assets to obtain, when they must beobtained and how to gain access to them


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Inventory decisions

Accounts receivable decisions Equipment decisions Facilities decisions


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Types of industrial finance

Short term finance ( one year / two-banks, trade credit, installment credit andcustomer advances)

Required to meet variable expenses,seasonal / temporary WC


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Medium term finance ( one to fiveyears)

-- for permanent WC

small expansions

replacement

Modernizations etc

(issue of shares, debentures, banks,financial institutions, sloughing back ofprofits ( for existing )


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Long term finance (Exceeding five years)to procure fixed assets

establishment of new business

expansionmodernization

Sourcesissue of shares, debentures, loans,

ploughing back of profits


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Govt. schemes

Technicians scheme: technically qualifiedor experienced professions up to Rs 7.50lakhs

Special capital schemes:-soft loan assistanceup to Rs 4 lakhs is available on soft terms

along with term loan for technicallyqualified or experienced persons


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Seed capital scheme: assistance towardsequity on soft terms up to Rs 15 lakhsalong with term loan for technicallyqualified or experienced persons

Composite Loan Scheme: Both equipmentfinance and working capital up to Rs50000 for artisans and rural industries


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Disabled entrepreneurs: 100% finance up

to 50000 to disabled entrepreneurs Modernization: for replacement /

renovation of equipment for successful

units which are in existence since 5 yearsassistance up to Rs 90 lakhs

Electro Medical equipment : fordoctors/private nursing homes up to rs 90lakhs


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Equipment finance; for procurement ofnew machinery / equipment by existing

industrial units up to Rs 90 lakhs Quality control equipment : 100%

assistance for setting up quality facility by

existing and new SSI units-up to rs.7.50lakhs


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Assistance to ex servicemen;- Term loan

up to rs 9 lakhs and seed capital up to rs1.80 lakhs for gaining self employment

Single window scheme: Both term loan

and working capital together to new tinyand small scale industrial units up to rs7.50 lakhs towards term loan and up to Rs3.75 lakhs onwards working capital


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Mahila Udyam Nidhi scheme-- to s et up newindustrial projects in SSI sector by womenentrepreneurs

National Equity fund Scheme: Assistance

towards equity for new projects tiny and smallscale sector up to Rs 75000

Assistance for marketing : Maximum assistanceup to Rs 3 lakh per sales van, not exceeding sixvehicles per borrower, assistance up to Rs 7.50lakhs for setting up new sales out lets


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Working Capital management

Integral part of overall corporatemanagement

WC is the amount of funds which a smallscale industry must have to finance its dayto day operations.

Portion of total capital which is employedin short term operations


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Effective utilisation of working capitalresults in the maximization of productivity

and profitsA proper WCM helps to maintain minimum

cash reserve

Profitability and solvency are the twoobjectives of the WCM


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Constituent parts of working capital---Current Assets:

Inventories, Raw materials, components

Work in progress, Finished goods, Etc.,

Loan and advances and other debtorbalances, s.debtors,prepayments, cashand bank balances


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Current liabilities:

Loans, trade dues,S.creditors, advancereceived

**Gross WCtotal of all the current assets

of the enterprise**Net WCdifference between the current

assets and current liabilities


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Commercial banks provide credit facilities

to meet working capital requirements tofacilitate production

WC facilities could be---

Lock and key pledge of stocksHypothecation advances

advances against stock in process

advances against billspacking credit to exporters


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Banks provide both term-loan and working

capital together n composite loans

The total cost of the SSI project oscomputed as under

1. The cost of fixed asses proposed to beacquired

2.Total working capital requirements

3. Preliminary and preoperative expenses


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Factors Determining the Amount ofWorking Capital

Size of the small scale unit Process of production Proportion of raw materials to total cost Terms of purchase and sales

Turnover of inventories Importance of labour


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Cash requirements Seasonal variations Banking facilities

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