ED and Finance(8)
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Transcript of 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