An

entrepreneur is supposed to be an opportunity seeker. Their first task is to identify and select an attractive opportunity. Good market scope An attractive return on investment
Technical/production

commercial/managerial viabilities Availability of raw materials Manpower needs Power requirements

and

 Identification

of a suitable project is a very crucial decision, as the ultimate success of the venture greatly depends upon the selection of the right type of product.
identifying a suitable project one should make a proper SWOT analysis of ones own strengths and weaknesses in respect of the sources that one has at hand.

While

 Opportunities

in Hilly or forest area and in

Gujarat
Entrepreneurs Opportunities

follow the herd mentality. for SSI and medium and large

scale projects

 Workable

definition of good business opportunity is that It is an end result that the entrepreneur definitely wants and that is also attainable by the entrepreneurial team.
are useless unless used.

Ideas An

entrepreneur is driven by opportunity, which is found in the needs of customers and a favorable situation, competitive advantage and timing.

Family Background Previous experience Special interests Skills Managerial Technical Personal traits Training exposure ENTREPRENEUR

Policy Levels of technology Economy Socio-cultural Competition Resource infrastructure

Industry line Size Technology Activity Original structure Form of org. ENTERPRISE Location Product type & range

ENVIRONMENT

1. Environment
o

Population, occupational pattern, socio-economic background etc.

2. Current business scene

Present pattern of trading, inter regional flow of commodities, local consumption, Emerging trends

3. Resources
Industries based on minerals, agricultural, marine, and other natural resources. 4.

Linkages
Backward and forward integration

5.

Ancillary development projects

products which either obtained from outside the region or the country.

6.
7.

Export oriented/import substitution products Market shift or growth

increased population or purchasing power, changes in life style, standard of living etc.

8. Special products
Research and Invention based products
skills/knowledge based products foreign collaboration

9.

Service sector R & M service facilities, workshops established.

 Consumers
Existing

companies Distribution channel Government Research and development

 Focus

group of individuals providing information in a structured format Brainstorming Problem inventory analysis Evolution of ideas

Idea germination Incubation Illumination Verification Unexpected success & unexpected failure

 Incongruity Process

need Industry and market structure Demography Changes in perception New knowledge

Return on investment

Finance

Technical Business opportunities Selection of business opportunities

Market

Infrastructure Criteria of business opportunity process

Government policy

Tourism and Hospitality Auto Ancillaries Two Wheelers Garments Software Light and Medium Engineering Industry Trading/Supplies Education and Training Poultry Food Processing Fruit and Vegetable Processing Manufacture of Business Attires Corporate Gifting Herbal Medicines and Skincare Products Mineral Water Paints, Enamels and Varnishes Organic Farming

 Music

and Entertainment Writing Instruments Plastics Toys Floriculture Health-care Sector Biotechnology Information Technology (IT) Enabled Services Education Portals Organized Retailing Processing, Refrigeration and Transportation of Food, Vegetables and Fruits Courier Services

 Plant
Size

layout

of business unit location

Plant

 Efficient

and economic material handling Optimum use of available floor space Quick disposal of work and minimum waste of time in production Efficient production control Higher employee safety and amenities Smooth flow of factory operations, minimum bottlenecks Quality improvement and cost reduction Adequate storage and packing facilities Built-in provision for future expansion

 Better

material handling Improved working Higher efficiency General advantage

Available space is utilized properly The accident rate is lower There is saving in power load Production control is easily facilitated

 Process

layout : functional basis

Product

layout : straight line basis

 People

, resource and customers Cost considerations raw materials transportation of raw materials availability of workforce with required skills ecological requirement public utilities (power, sewage, etc) transportation of finished goods scope for expansion Competitors

 Standards

for measuring the size for the unit

OUTPUT Volume of output Value of output Combination of volume and value

INPUT Net worth Size of assets Employment

Raw materials required

Power used Number and capacity of plant

business plan is a written summary of what you hope to accomplish by being in business and how you intend to organize your resources to meet your goals.
experts say it is the road map for operating any business and measuring progress along the way. say it is the blueprint for building a business on solid grounds.

Some

Others

Business idea
Business objectives
Business strategies

Budget Business plan

 An

ideal business plan should answer the following questions. 1. What business am I in? 2. What do I sell? 3. Where is my market? 4. Who will buy my product? 5. Who is my competitor? 6. What is my promotion strategy? 7. How much money is needed to operate my firm? 8. How will I get the work done? 9. What management controls are needed? 10. How can they carried out?

11. 12. 13. 14.

Where will the business be twelve months from now? Where will it be two years from now? When should I revise my plan? Where can I go for help?

 It

serves as a tool for internal use to track the progress of the firm helps in seeking capital for external use

It

 Helps

in reducing an emotional bias Provides SWOT analysis Test ones commitment Enables one to justify his/her plans and ideas Tests the ideas on paper Helps one to develop a consistent strategy Helps in convincing others about the idea

well researched and designed business plan include details of all the elements necessary to get it going. For larger ventures, plans are often written separately with specific purposes. All business plans must take into consideration, the various govt. policy requirements varying from municipal by-laws for zoning to methods of soliciting finance. As every business proposal must assume the worst case scenarios at the planning stage itself and work out strategies to keep the business on track.

 The

35 elements of a business plan can be studied as follows. 1. Summary 2. Introduction to the business plan Phase I Data collection and analysis 3. General description of the industry 4. Description of the firm 5. Description of products and services 6. Market area, size and characteristics 7. Customers 8. competition

Phase II Strategy formulation 9. Overall marketing strategy 10. Location 11. Advertising and promotion 12. Pricing 13. Method of selling and distribution 14. Servicing, warranties, and packaging 15. Sales and credit terms 16. Other marketing strategy elements 17. Description of premises and facilities 18. Production methods and equipment 19. Materials and sources of supply 20. Key personnel

Compensation and ownership 22. Staffing plan 23. Supporting professional services 24. Management assistance and staff training 25. Long-range plans 26. Critical risk and assumptions Phase III Forecasting results 27. Estimated market share 28. Sales forecast 29. Determining cash requirement 30. Pro-forma profit and loss statement
21.

31. 32. 33. 34. 35.

pro-forma cash flow statement Pro-forma balance sheet Break-even analysis Explanation of projections Ratio analysis

1.

Introduction of the project selected

Product selected The usage of that product in that area, region or country Future demand in the targeted market area Entrepreneurs Bio-data Market Analysis Layout details about the unit

2. 3. 4.

 Preliminary

information Production program Production procedure Raw materials

Sr no Items Rate /unit Quantity Total value

Consumables/

utilities Machinery cost Personnel requirement Administrative expenses

 Working

capital calculation Total cost of the project Financing of the project Profitability calculation

BEP Cash flow statement Fund flow statement

Supplementary

details do u own house/ property etc. own insurance policy any interest in other firms do u belong to S.C./S.T./O.B.C. present monthly income

 Feasibility

report is a document with respect to any investment proposal based on certain information and factual data for the purpose of appraising the project.
study enables an entrepreneur to know the inputs required and if rightly prepared, confirms that he is proceeding in the right direction.

Feasibility

 Project 1. 2. 3. 4. 5. 6.

feasibility analysis Technical feasibility Commercial and economic feasibility Financial feasibility Managerial feasibility Market analysis Social profitability analysis

Main areas studied under technical feasibility are: basic availability of land , raw materials , Fuel, Power , Water , Skilled and unskilled labor Appropriateness of plant , Machinery , Techniques of production

SPECIFIC REQUIREMENT Soft water , high tension power , technology adapted is capable of producing the intended good & services which can satisfy the customer.

 Success

of the project is based on the sound marketing conditions. Assess the scope for successful marketing of goods and services. Existing demand & supply position in the market The prospective market for the product The nature of competition Whether project will be able to break even within 2-3 years matching with realistic cost estimates.

 It

examines the reliability of the cost estimates. Adequacy of provision made with regard to the fixed and working capital. Dependability made about the sources of finance. Evaluates whether project will give sufficient profitability and repayment capacity. BEP Tax element in price Cash flow and fund flow statement

 Brief

description of the market. Analysis of past and present demand Analysis of past and present supply with source.

 Government

evaluation in terms of

Economic feasibility Social profitability Social cost benefit analysis

 With

reference to a new entrepreneur this may be most difficult because it is difficult to evaluate the potential managerial capability or competence. Once a unit is established, the entrepreneur has to become its manager. Based on entrepreneurial vision Past records resourcefulness

 Appraisal

is performed by a financial institution or lending bank prior to the sanction of term loan / working capital assistance to the project promoter.

Technical aspect of project appraisal Marketing aspect of project appraisal Financial aspect of project appraisal

 Technological

and engineering aspects are

considered

Plant and machinery selected Technology proposed to be used Raw material sources Availability and arrangement of supply Manpower availability Promoters competence

 Examination

of location & adequacy of

market. Competitive envt., share of competitors, what market share the promoter hopes. Distribution channels. Analyze if the promoter propose to create new market, entrench himself deeper in existing markets or wider use of the product.

 Cost

study Price study Funds to be raised Income-expenditure profile

 Internal

constraints

Internal constraints is more with the entrepreneur or with his system of functioning.
External

constraints

beyond the control of the entrepreneur and more so in the general environment in which the enterprise exists.

 One

of the most difficult problems in the new venture creation process is obtaining financing. Debt or equity financing

Debt financing is financing method involving an interest bearing instrument, unusually a loan, the payment of which is only indirectly related to the sales and profits of the venture.

 Internal

sources

Profits Personal saving or family & friends Sale of assets Reduction in working capital Reducing stocks Extended payment terms Account receivables Retained earnings Depreciation fund Trade credit

 External

sources

Ordinary shares Preference shares Debenture Commercial banks Other loans Overdraft facilities Leasing and hire purchase Lines of credit from creditors Government loan / grant programs Venture capital Mortgages Factoring services

 Long

term sources

Shares Venture capital Government grant Bank loans Mortgages Owners capital Retained profit Selling assets

 Short

term sources

Bank overdraft Trade credit Leasing Bank loans Credit cards

 Personal

funds Family and friends Commercial banks

Account receivable loans(factoring) up to 80% Inventory loans up to 50% Equipment loans(leasing) 50 to 80% and 3-10 years Real estate loans(mortgage) up to 75%

Cash

flow financing

Installment loans 30-40 days seasonal needs Straight commercial loans 30-90 days Long term loans up to 10 years Character loans

 Bank

lending decisions

Character Capacity Capital Collateral Condition

Decisions are based on the quantifiable information and subjective judgment.

 Role

of SBA (Small Business Administration) in small business financing Research and development limited partnerships

Contract, sponsoring company , limited partners Eg. Syntex corporation raises $23.5 million to develop five medical diagnostic products.

Government

grants

Federal agencies participating in small business innovation research program (SBIR) 1. Department of defense (DOD) 2. National aeronautics and space administration (NASA) 3. Department of energy (DOE) 4. Health and human services (HHS) 5. National science foundation (NSF)

6.

7.
8. 9. 10.

11.

U.S. department of agriculture (USDA) Department of transportation (DOT) Nuclear regulatory commission (NRC) Environmental protection agency (EPA) Department of education (DOED) Department of commerce (DOC)

Phase I up to $ 100000 for 6 months Phase II up to $ 750000 for 24 months Phase III funds from the private sector or regular govt. procurement contracts are needed to commercialize the developed technologies
Another

grant program available to the entrepreneur is the small business technology transfer (STTR)

 Private

placement

A formalized method for obtaining funds from private investors. Private offering is faster and less costly when a limited number of sophisticated investors are involved who have the necessary business acumen and ability to absorb risk.

Bootstrap

financing

Bootstrap financing involves using any possible method for conserving cash. Eg. Take advantage of supplier discount, bulk packing instead of individual items, advertising with channel member so that cost is shared.

Most misunderstood type of risk capital market. Consists of virtually invisible group of wealthy investors, often called business angels. Typically investing anywhere from $10000 to $ 500000. One article determined that the angel money available for investment each year was about $ 20 billion. There are about 250000 angel investors who invest an amount of $10 billion to $ 20 billion annually in about 30000 firms.

Demographic pattern and relationships

Well educated, with many having graduate degree Will finance firms anywhere, particularly in the united states Most firms financed within one days travel Majority expect to play an active role in ventures financed Many belong to angel clubs

Investment record
Range of investment $ 10000 to $ 500000 Average investment is $ 50000 One to two deals each year

 Venture

preference

Most financing in stat-ups or ventures less then 5 years old Most interest in financing

Manufacturing industrial/commercial products Manufacturing consumer products Energy/natural resources Services software

Reasons

for rejecting proposals

Risk/return ratio not adequate Inadequate management team Not interested in proposed business area Unable to agree on price Principals not sufficiently committed Unfamiliar with area of business

 The

investment are in early stage deals as well as second and third stage deals In fact venture capital can best be characterized as a long term investment discipline, usually occurring over a fiver year period. In each investment venture capitalist takes an equity participation through stock, warrant and convertible securities and has an active involvement.

 Before

world war II, venture investment activity was a monopoly led by wealthy individuals, investment banking syndicates and few family org. First step took place in 1946 with the formation of American Research & Development Corporation (ARD) in Boston. The next major development is Small Business Investment Company Act in 1958. The 1960 saw a significant expansion of SBICs with 585 SBIC approval and more than $205 million private capital.

 During

the late 1960s, small private venture capital firms emerged. These were usually formed as limited partnerships with the venture capital company acting as the general partner that received a mgt fee and a % of profit earned on a deal. Eg. Insurance co., endowment funds, bank trust departments, pension funds & wealthy individuals and families. In response to the need for economic development, a forth type of venture capital firm has emerged in the form of the state sponsored venture capital fund.

 These

state sponsored funds have a variety of formats. While the size and investment focus and industry orientation vary from state to state. Besides the four types there is now emerging university sponsored venture capital funds. These funds, usually managed as separate entities invest in the technology of the particular university Eg. School such as stanford, columbial, western reserve university etc

Private venture capital firms (general partners and limited partners) Small business investment company (SBIC) Types of venture capital firms Industry sponsored Banks and other financial institutions Non financial co. State government sponsored

University sponsored

1.
1. 2.

Preliminary screening
Begins with receipt of business plan VC first determine if the deal or similar deals have been seen previously Determines proposal fits his or her long term policy and short term needs. Determine whether the business can reasonably deliver the ROI required.

3.
4.

2.
1.

Agreement on principal terms

VC wants a basic understanding of the principal terms of the deal before making the major commitment of time and effort.

3.
1. 2. 3.

Due diligence
This is the longest stage General evaluation time is from 1-3 months Detailed review of companys history, business plan the resumes of the individuals their financial history and target market customers.

4.
1. 2. 3.

Final approval
A comprehensive internal investment memorandum is prepared. VC findings and details of invt terms and conditions. Both the entrepreneur and VC will sign to finalize the deal.

Factors in valuation 1. Nature and history of the business 2. Examination of the financial data of the venture compared with that of other co. in the industry 3. The book value (net value) of the stock of the company and the overall financial condition of the business. 4. Previous years earnings are generally not simply averaged but weighted with the most recent earnings receiving the highest weighting. Income by product line should be analyzed to judge future profitability and value.

5.
6. 7. 8.

Dividend paying capacity of the venture. An assessment of goodwill and other intangibles of the venture. Assessing any previous sale of stock Market price of the stocks of companies engaged in the same or similar lines of business.

 Liquidity

ratios

Current ratio

This ratio is commonly used to measure the short term solvency of the venture or its ability to meet its short term debts A ratio 2:1 is generally considered favorable, entrepreneur should also compare this ratio with any industry standards.

 Quick

ratio
current assets inventory current liabilities

This is a more rigorous test of the short term liquidity of the venture Usually 1:1 ratio would be considered favorable in most industries.

 Activity

ratios Average collection period

Account receivable Average daily sales This ratio indicates the average number of days it takes to converts accounts receivable into cash.

 Inventory

turnover
Cost of Goods Sold inventory

This ratio measures the efficiency of the venture in managing and selling its inventory. A high turnover is a favorable sign indicating that the venture is able to sell its inventory quickly.

 Leverage

ratios Debt ratio

Total liabilities total assets This ratio helps to assess the firms ability to meet all its obligations (short term & long term)

 Debt

to equity
Total liabilities Stock holders equity

This ratio assesses the firms capital structure It provides a measure of risk to creditors by considering the funds invested by creditors (debt) and investors (equity).

 Profitability

ratio Net profit margin

net profit net sales This ratio represent the ventures ability to translate sales into profits

 Return

on Investment
net profit total assets

The

ROI measures the ability of the venture to manage its total investment in assets.