Enterprenuership Class Xii

CONTENTS
S.No Topic Page No
I Rationale, General Objectives, Methodology, Syllabus and 2

Design of the paper and Mark distribution for topics.
II Chapter wise Chapter Summary

1. Entrepreneurial Opportunity
7
2. Enterprise Planning 19
3. Enterprise Marketing 36
4. Enterprise Growth Strategies 52
5. Business Arithmetic 58
6. Resource Mobilization 73
III Chapter Outlines 91
IV PROJECT WORK 105
V Chapter wise Question Bank 125
VI Unit 5 – Business Arithmetic – Practice Questions 137

Rationale, General Learning Objectives, Methodology and Syllabus
For The Academic Year 2017-18: Entrepreneurship (Code No. 066)
Rationale
Development of school curriculum is a dynamic process responsive to the society and reflecting
the needs and aspiration of its learners. Fast changing society deserves changes in educational
curriculum particularly to establish relevance to emerging socio-economic environment; to
ensure equity of opportunity and participation and finally promoting concern for excellence. In
this context the course on entrepreneurship aims at instilling and stimulating human urge for
excellence by realizing individual potential for generating and putting to use the inputs,
relevant to social prosperity and thereby ensure decent means of living for every individual.
Objectives:
 Acquiring Entrepreneurial spirit and resourcefulness
 Familiarization with various uses of human resource for earning dignified means of
living
 Understanding the concept and process of entrepreneurship - its contribution in and role
in the growth and development of individual and the nation
 Acquiring entrepreneurial quality, competency and motivation
 Learning the process and skills of creation and management of entrepreneurial venture
Unit Marks Periods

30 40
1. Entrepreneurial Opportunities
2. Enterprise Planning 40
20 40
3. Enterprise Marketing
4. Enterprise Growth Strategies 20
20 40
5. Business Arithmetic
6. Resource Mobilization 20
30 Data 40
7. Project Work
TOTAL 100 150
Design of the Question Paper for Annual Examination
Question Wise Division of Marks
S.No Particulars Question Wise Division of Marks Total
Marks For Each Question 1 Mark 2 Marks 3 Marks 4 Marks 6 Marks

1.
Number Of Questions in 5 5 7 4 3 24
2.
Theory Paper Questions
Total Marks allocated for Written Paper 5*1=5 5*2=10 7*3=21 4*4=16 3*6=18 70 Marks
Total Marks allocated for Unit Tests 3*1=3 3*2=6 4*3=12 2*4=8 1*6=6 35 Marks
Methodology
 Topics will be discussed in class.
 A handout to cover topics not given adequately in the text will be given wherever required.
 Flow charts to facilitate quick recap will be used for revision.
 Assignments to cover previous year Board questions will be given for writing practice.
 Extra question covering HOTS questions for the chapter will be discussed in class.
 A monthly class test will be given to assess learning of students.
 Any other method used for a topic in addition to what is mentioned above will be given in the details
given below.
Assessment
 All questions in the Smart Skills will be discussed in class and attempted by students in their
note books.
 Worksheets containing application based questions will be given at the end of every chapter.
Question Paper Design
Total %
VSA SA LA I LA II ESSAY
S. No Typology of questions TYPE Marks weigh
Remembering: (knowledge based simple recall questions to know 2 1 2 1 - 14 20

1.
specific facts, terms, concepts, principles of theories. Identify, define
recite or information.)
Understanding: ( comprehension based – to be familiar with meaning 1 1 1 1 - 10 14
2.
and to understand conceptually, interpret, compare, contrast, explain,
paraphrase or interpret information)
Application: (use abstract information in concrete situation, to apply 1 2 1 - 2 20 29%
3.
knowledge to new situations, use given content to interpret a situation,
provide an example or solve a problem)
High Order Thinking Skills: (analysis and syntheses – classify, compare, 1 1 2 - 1 15 21%
4.
contrast or differentiate between different pieces of information.
Organize and / or integrate unique pieces of information from a variety
of sources.)
Evaluation and Multi disciplinary: ( appraise, judge and/or justify the - - 1 1+1 11 16%
5.
value or worth of a decision or outcome or to predict outcomes based on (Value
values) Based)
 VSA = very short answer carrying 1 mark

 SA = short answer I carrying 2 marks
 LA I = short answer II carrying 3 marks
 LA = long answer carrying 4 marks
 ESSAY = carrying 6 marks
Class XII/ Entrepreneurship: Study Material/4

Topic and Objectives
Unit 1 Entrepreneurial Opportunities & Enterprise Creation

 Sensing Entrepreneurial Opportunities
 Environment Scanning
 Problem Identification
 Spotting Trends
 Creativity and Innovation
 Selecting the Right Opportunity
 Understand the concept and elements of business opportunity
 Understand the process involved in sensing opportunities
 Give the meaning of environment scanning - To understand the need to see the
 environment
 Enlist the various forces affecting business environment
 Understand the different fields of ideas
 Enlist the various sources of idea fields
 Understand the process of transformation of ideas into opportunities
 Explain the meaning of trend spotting
 Understand the concept of opportunity assessment
 Explain the meaning of trend spotting
 Identify the different ways of spotting trends
 Differentiate the process of creativity and innovation
Unit 2 Enterprise Planning

 Forms of Business Entities – Sole proprietorship, Joint Stock Company, etc.
 Business Plan
 Organizational
 Operational and production
 Financial
 Marketing Plan
 Human Resource Planning
 Creating the Plan
 Formalities for starting a business
 Understand the concept of entrepreneurial planning
 Understand the forms of business enterprise
 Distinguish among the various forms of Business enterprise
 Explain the concept of Business plan
 Appreciate the importance of a Business Plan
 Describe the various components of Business plan
 Differentiate among the various components of Business plan
Unit3: Enterprise Marketing

 Goals of Business; Goal Setting. SMART Goals
 Marketing and Sales strategy
 Branding - Business name, logo, tag line
 Promotion strategy
 Negotiations - Importance and methods
 Customer Relations
 Employee and Vendor Management
 Quality, Timeliness and Customer Satisfaction
 Business Failure – Reasons
 Understand the goal setting and SMART goals
 Enlist the various marketing strategies used in a firm
Page 5 of Smart Skills/ Entrepreneurship/Class XII

 Explain the concepts of Product, Price, Place and Promotion
 Understand the concept of Branding, Packaging and Labelling
 Describe the various methods of pricing.
 Explain the various channels of distribution
 Appreciate and discuss the various factors affecting the channels of distribution
 Understand the sales strategy
 State the different types of components of sales strategy
 Enumerate the different tools of promotion
 Understand the meaning and objectives of Advertising
 Able to discuss the various modes of Advertising
 Will be able to understand the concept of personal selling and sales promotion
 Discuss the various techniques of sales promotion
 Understand the meaning and methods of negotiation
 Understand the concept of customer relationship management
 State the importance of Customer Relationship Management
 Explain the concept of management in a firm
 Explain the concept and importance of vendor management in a firm
 Explain the factors for effective employee relationship
 Explain the various reasons for business failure
Unit 4: Enterprise Growth Strategies

 Franchising
 Merger and Acquisition
 Moving up the Value Chain and Value Addition
 Understand the concept of growth & development of an enterprise
 Explain the concept of franchise
 Explain the different types of franchise
 Explain the advantages and limitations of franchise
 Understand growth of a firm is possible through mergers and acquisitions
 Explain the different types of mergers
 State the meaning and types of acquisitions
 Understand the reasons for mergers and acquisitions
 Understand the reasons for failure of mergers and acquisitions
 Explain the concept of value addition
 Describe the different types of Value Addition
 State the meaning of value chain
 Discuss the Porters Model of Value Chain
 Understand the requirements for value chain management
Unit 5: Business Arithmetic

 Unit of Sale, Unit Cost, Unit Price for multiple products or services
 Break Even Analysis for multiple products or services
 Importance and use of cash flow projections
 Budgeting and managing the finances
 Computation of working capital
 Inventory control and EOQ
 Return on Investment (ROI) and Return on Equity (ROE)
 Understand the concept of Unit Cost
 Understand the concept of unit price
 Calculate Break-even point for Multiple products
 Understand the meaning of inventory control
 Understand the meaning of Economic Order Quantity
 Enumerate the meaning of cash flow projection

 Explain the concept of working capital
 Understand the terminologies- financial management and budgets
 Calculate Return on Investment
 Explain the concept of Return on Equity
Unit 6: Resource Mobilization

 Angel Investor
 Venture Capital Funds
 Stock Market - raising funds
 Institutions
 Specialized Financial Institutions
 Understand the need of finance in the Business
 Understand the various sources of funds required for a firm
 Understand the methods of raising finance in primary market
 Understand the importance of secondary market for mobilization or resources
 Give the meaning of stock exchange
 Raising funds through financial markets
 Understand the relevance of stock exchange as a medium through which funds can be raised
 Understand the role of SEBI
 Explain the concept of angel investors
 Explain the concept of venture capital
 Explain the role played by IDBI, SIDBI, IFCI,NABARD, IIBI, SFC, TFCI, SIDC

Unit 1: Entrepreneurial Opportunity
Peter F.Drucker defined entrepreneur as one who has always searches for an opportunity. The
basic test of a successful entrepreneur is the identification of business opportunity in the
environment and initiating steps to produce and sell goods and services to make use of the
opportunity.
Entrepreneur Entrepreneurship Enterprise
The Person The Process The Outcome
What is a Business Opportunity?
 Business opportunity can be described as an economic idea which can be implemented to

create a business enterprise and earn profits.
 A business opportunity may be described as an attractive economic idea which could be
implemented to create a business, earn profits and ensure further growth.
 Before selecting an opportunity, the entrepreneur has to ensure two things in order to be
successful -
 There is a good market for the product he is going to produce
 The rate of return on the investment is attractive to be accepted by him
 Can all ideas be converted into opportunities?

o If the entrepreneurs conceive an idea and start their business without even analysing
the market, they launch a product that has very few customers.
Elements of a business opportunity:

A business opportunity has five elements which are as follows:
 Assured market scope
 An attractive and acceptable rate of return on investment
 Practicability of the idea
 Competence of the entrepreneur to encash it
 Potential of future growth

Exploring Opportunities in the Environment:
 Opportunity should be suitable for him in terms of customers to be served and profits
expected. An opportunity may be derived from the needs and problems of the society.
 Sensing entrepreneurial opportunities is a process of converting an idea into an opportunity

into an enterprise. The first stage is to spot the needs by looking into the needs and problems
that exist.
E ENVIRONMENT E
N N
V Problems V
I I
R Opportunity Creativity & Innovation & Project R
O Need Spotting Ideas Product Business O
N ENVIRONMENT N
M M
E E
N N
Enterprise Process Diagram
T T
This diagram shows the following stages:

i. Opportunity spotting by analysing the needs and problems that exist in the environment
ii. Evaluating the ideas received from different sources to find a creative solution
iii. Identifying a product or service through innovation
iv. Setting up a project and nurturing it to success
Perceiving and Sensing Opportunities:
The entrepreneurs perceive opportunities, synthesize the available information and analyse
emerging patterns that escape the attention of other people. They are people with vision, capable
of persuading others such as customers, partners, employees and suppliers to see the opportunity,
share and support it.
Factors involved in sensing opportunities:

To sense an entrepreneurial opportunity, an entrepreneur employs his sharpened skills of
observation, analysis and synthesis to identify an opening. The most important factors involved in
the process are:
1. Ability to perceive and preserve basic ideas which could be used commercially
2. Ability to harness different sources of information
3. Vision and creativity

1. Ability to perceive and preserve basic ideas:
 Spotting of an idea often triggers the process of sensing an opportunity.
The following are the various sources which lead to the emergence of basic ideas.
i. Problems: When a problem exists and an idea leads to a solution to resolve that
problem, it emerges as a business opportunity.
ii. Change: A change in social, legal, technological aspects etc. leads to new
opportunities to start a business.
iii. Inventions: Invention of new products or services leads to new business
opportunities.
iv. Competition: Competition often results in emergence of new and better ideas that
result in new business opportunities.
v. Inventions: It includes creating new things of value as well as new and creative
processes that add value to the existing products or services. Eg., computers to
tablets
2. Ability to harness different sources of information:

 Various sources like magazines, journals, books, seminars, trade shows, family
members, customers, friends etchelp in getting information that helps in evolution of
basic ideas.
 The entrepreneur brings together various sources of information and knowledge,
and analyzes it to the best possible extent to identify of the right opportunity to start
a new business.
3. Vision and creativity

 Creativity in innovating a solution and vision. The entrepreneur should be able to
creatively identify an idea to generate a valuable solution to a problem. Once the
solution is identified their vision to convert the solution into business opportunity
helps them to move forward, overcoming all the obstacles. They constantly-
a. Overcome the adversity
b. Will be able to exercise control over the business
c. Will be capable of making significant difference.

Environment Scanning:
 Business environment may be defined as all those conditions and forces external to a business
unit under which it operates.
 Entrepreneurship does not emerge and grow spontaneously. Rather it is dependent upon
several economic, social, political, legal and other factors.
 What is environment scanning? Careful monitoring of an organization's internal and external

environments for detecting early signs of opportunities and threats that may influence its
current and future plans.
 Why do we need to scan our environment?In rapidly changing environments, the right
information, combined with the right adaptations, can determine an organization's future
viability. If an entrepreneur is not aware of what the environment surrounding his business
he is sure to fail. Eg., HMT watches lost its market to Titan;
 Importance of environment:Sensitivity to environmental factors is crucial for an

entrepreneur. If a company is able to adapt to its environment, it would succeed in the long
run. Eg.,Sony failing to understand the changing trends in mobile phones and therefore losing
its market share. The benefits of understanding the relevant environment of business are:
i. Identification of opportunities to get first mover advantage:an enterprise can
identify opportunities and find strategies to capitalise on the opportunities at
the earliest.
ii. Formulation of strategies and policies:It helps in identifying threats and

opportunities in the market. These can serve as the basis of formulation of
strategies to counter threats and capitalise on opportunities in the market.
iii. Tapping useful resources: It can tap raw materials, technology and even
financial resources from the market at economical prices at the right time.
iv. Better performance:Proper take timely action to deal with the threats and avail
opportunities for the purpose of improvement in the performance of the firm.
v. Sensitisation of entrepreneurs to cope up with rapid changes:sensitise the

entrepreneur to the changing technology, competition, government policies and
changing needs of the customers. Eg., changing trends in clothing.
vi. Image building: It will come out with new products and services to meet the
requirements of the customers. This would build the image or reputation of the
firm in the eyes of the general public.

Analysis of Environment:
 Environment analysis is the process of monitoring the economic and non-economic
environment to determine the opportunities and threats to an organisation.
 Such an analysis involves

o Data collection,
o Information processing and
o Forecasting to provide a rational basis for developing goals and strategies for
business survival and growth.
 Information for environmental scanning can be collected from several sources. These
include
a. verbal information from customers, wholesalers, retailers, distributors, consultants., etc
b. records of companies
c. government publications
d. publications by various financial institutions
e. formal studies conducted by strategic planners
The data so obtained is processed and analysed with the help of quantitative and qualitative
techniques.
Opportunity – Project Interface
Interface
Spotting an Scanning of Identification Starting Project

Opportunity Environment of
product/service
An opportunity received by the entrepreneur should be tested against important environmental

parameters to arrive at a sound business choice. This interface is basically an evaluative process
leading to a judgement. Is it a viable idea? Does it make sound business sense? If yes, the
entrepreneur can proceed to the next stage of product or service identification.
The

Environmental Factors:
Entrepreneurship environment refers to the various forces within which various small, medium
and large enterprises operate. These factors exert influence upon each other and do not operate in
isolation.
The external environment consists of two levels,
 Micro environment and
 Macro environment.
Business
Environment
Micro
Macro Environment
Environment
A. Political
A. Suppliers B. Economic
B. Customers C. Social
C. Intermediaries D.
D. Competitors Technological
E. General Public E. Ecological
F. Legal
(Pestel)
The PESTEL Model:

a) Political:
The political environment includes taxation policy, government stability and foreign trade
regulations
b) Economic:
The economic environment includes interest rates, inflation, business cycles,
unemployment, disposable income and energy availability and cost.
c) Social:
The social/cultural environment includes population demographics, social mobility,
income distribution, lifestyle changes, attitudes to work and leisure, levels of education
and consumerism.
d) Technological:
It is influenced by government spending on research, new discoveries and development,
government and industry focus of technological effort, speed of technological transfer and
rates of obsolescence.
e) Ecological:
It considers the ways in which the organisation can produce its goods or services with the
minimum environmental damage.
f) Legal:
It covers influences such as taxation, employment law, monopoly legislation and
environmental protection laws.

Idea Generation:
What is idea generation?
 Idea generation refers to the process of creating, developing, and communicating ideas
which are abstract, concrete, or visual.
 The process includes
o The process of constructing through the idea,
o Innovating the concept,
o Developing the process, and
o Bringing the concept to reality.
 Business ideas come from
o a careful analysis of market trends and consumer needs;
o Others come from serendipity.
 If you are interested in starting a business, but don't know what product or service you
might sell, exploring these ways of getting business ideas flowing will help you choose.
Idea Fields
 Idea Fields can be described as: ‗convenient frames of reference for streamlining the
process of generation of ideas.‘
 By following different ways for generating ideas an entrepreneur collects a number of

ideas. The process of generation of ideas can be streamlined by developing an awareness
for different ‗idea fields‘.
 This will help the entrepreneur in enlarging the scope of thinking, and at the same time,
structuring the ideas according to convenient frames of reference.
Various Sources of Idea Fields

Natural Resources Existing Products or Services
Idea
Fields
Market or Demand driven Trading Related
Service Related Creative Efforts
a) Natural Resources:
 Ideas can be generated based on natural resources.
 A product or service may be derived from
o forest resources, agriculture, horticulture,
o mineral,
o animal husbandry,
o wind, sun, and
o human resource

b) Existing products or services:
 Thinking about existing products and services can generate a number of ideas to
o Improve existing products or services
o To provide a cheaper substitute
o Bring about an improvement in the production process so as to reduce the prices.
 A great business idea combines skills with imagination and market demand.
 A business opportunity or idea often comes from everyday problems that someone solves.
Successful businesses find a need and fill it by providing a service or product.
Entrepreneurs who look at ways to make an existing product or service better can be as
successful as those who create or invent products.
 While it may seem like only good can come from improving, adding to, or changing
different products around, this is not always the case. It must be done skilfully, or else
other problems can arise.There are a number of pros to changing or improving your
existing product line.
 There is a constant and consistent effort on the part of all entrepreneurs to improve the
products and services already existing in the markets.
 Oftentimes, a company will improve or change their existing products. There are many
reasons for doing this. It can make a substantial difference in the success of your company
and even take it in a whole new direction. However, it can also spell disaster if not done
correctly.
 Change or improvement in an existing product can come about in many ways. Perhaps
you sell a skincare line and would like to change the ingredients around a little. Or maybe
you run a math tutoring business and would like to expand into other subjects, like science
or reading.
c) Market driven or demand driven ideas:

 We have already seen that one of the important methods for generating ideas is to carry
out a market research. Such a study yields valuable data about trends of supply, demand,
consumer preferences.
 Market research can be defined as ‗any organized effort to gather information about target
markets or customers. It includes social and opinion research is the systematic gathering
and interpretation of information about individuals or organizations using statistical and
analytical methods and techniques of the applied social sciences to gain insight or support
decision making.
 Market research is a key factor to maintain competitiveness over competitors. Market

research provides important information to identify and analyze the market need, market
size and competition.
 It is a very important component ofbusiness strategy. The term is commonly interchanged

with marketing research; however, expert practitioners may wish to draw a distinction, in
that
o Marketing research is concerned specifically about marketing processes,
o While market research is concerned specifically with markets.

 Whatever the source of information about the market, it is a promising field for generation
of ideas.Idea generation is knowledgeable, creative and systematic.
 Market research develops from knowledge of the consumer, the market, the technology
and the general environment,
o It creates newness in product, production and marketing.
o It systematically develops product ideas to satisfy the aim of the project and
therefore the business strategy.
d) Trading related ideas:

 Trade in simple terms is buying goods and services and selling them to consumers at a
profit. One big advantage that trading has over other types of businesses is that it is easier
to launch and less risky.
 Trading these days is not limited to ordinary grocer or distributor outlets. With increasing
consumerism, the scope and nature of trade has enlarged; local trade , import and export,
e-commerce are all making trading a very wide area of enterprise.
 It is however, necessary for a prospective trader to be aware of the trends in an economy.
o With the opening of the market to International Companies, large size
departmental stores, chain shops and umbrella markets have become omnipresent;
o Competition has become intense and
o To survive in the market new entrants will have to acquire skills, competencies and
knowledge required to launch, manage and expand business opportunities.
e) Service Sector Ideas:

 Entrepreneurial opportunities are not restricted only to the manufacturing field. Service
sector is the most growing fields these days the world over, thanks to emerging
knowledge societies and advances in Information and Technology. So new opportunities
can be identified by understanding the linkages to different business activities.
 India's low labour related service costs can provide a cost-effective solution to the
millions, while generating good returns on investment for the entrepreneur.
 Case Study of Food Sector in India.
 The list of opportunities ready for the taking in the food and other service areas is rather
long. Amongst the most interesting ones in the food sector are the following:
o Indian fast food/finger food: While pizzas and burgers and popcorn may find a lot
of favour from Indians across India, and across all age and income groups, the fact
remains that almost all regions of India still have their own local fast food options
and outsell the "imports" by a mile.
o MacDonald's and Pizza Hut can be the role models in terms of efficiency of service,
hygiene, quality, and overall value but the menu should be "Indian" rather than
Indianised version of American food.
o Family diners: These can be based on the ubiquitous American Diner concept or
even the Indian version like Nirula's offering Indian style "Plated or Combo" meals
with table service and overall good price-value equation.

o Sandwich & salad parlours: Subway's success in select locations, despite
somewhat inconsistent product quality, poor service, and high prices, indicates the
tremendous opportunity in this segment. Prêt a Manger (A Macdonald business,
operating largely in the UK) seems like an interesting format for India.
o Ice-cream and juice/beverage parlours: Sadly, there have been many start-ups and
some continue to do well such as Nirula's. However, there is a glaring gap between
the appropriate price/value need and the available options if one were to note that
Nirula's is largely Delhi-based and the only other choice is perhaps Baskin Robbins.
o Lack of success in the recent past of some of the start-ups only highlights the need for a
better conceptualisation and execution of the format, rather than a lack of market
opportunity.
 Indian "desserts" and "snack food" chains: Lastly, in the genre of food and
food service chains, one of the biggest opportunities remains in starting
national or at least regional chains offering Indian mithai, namkeen/farsaans,
and snack-foods such as pakodas and samosas. Haldiram's success should
certainly put any doubt on this opportunity to rest. What is needed is a belief
that the Haldiram business model can be replicated (and certainly improved
upon from the customer service perspective) by even large business houses
such as ITC and others.
 Case Study of Tourism Industry in India.
 Specialty tourism: India is incredibly blessed with one of the most diverse set of options
when it comes to tourism. Fortunately, the perception of India as a tourist destination is
also undergoing a very positive change outside India.
 Creating specialised options for high-end tourists from the West offers a tremendous
potential, with many segmentation possibilities based on the target market as well as
special interests. Role models can be the likes of Abercrombie & Kent.
 Case Study of Other Industries in India.
o Personal grooming salons: It may surprise some that the biggest organisedplayer
for personal grooming, with focus on hair care, example, Habib's to talk about.
o Career counselling centres: With over 25 million births per year, and at least 3
million of these likely to go for studies beyond the 12th grade but having little idea
about the job and vocation trends in India and beyond, this is one sector that is
poised for rapid growth.
o Chain of repair and maintenance services for electrical/electronic products:
 India is seeing massive increase in the penetration of electrical/information
technology products.
 Yet, the ambient infrastructure, as well as relatively low income levels,
requires most of these gadgets to be given for repair unlike the more
affluent countries where many faulty appliances/gadgets may just be
"written off" by the consumer in view of high cost of repairs.
f) Creative Efforts:
 We have seen elsewhere that creativity is an important and key component of the talents
and abilities needed for an entrepreneur.

 Apart from applying creativity to spot and harness opportunities, it can also be applied to
develop new products and services.
 There are basically five ways in which creative ideas can be generated:
1. Develop a new product or service.
2. Improve an existing product or service
3. Find a new process or resource for manufacturing a product.
4. Find new markets for existing products or services.
5. Find a new use for a product or service.
 A very useful concept to bear in mind is that most often creative products and services
are born as results of problem solving.
o Someone found that while tightening screws, over tightening often resulted in
damage to the fixtures. Here was a problem and the solution came in the form of a
self-adjusting screwdriver which prevented over tightening. Similarly when
doctors found monitoring of dosage of medicine to be administered to patients on
a regular basis through traditional methods using a syringe cumbersome, a
pharmaceutical firm developed a new process of implanting the required
medicine in the patient for constant discharge of regulated and required dosage in
to the blood stream.
g) Other considerations: An entrepreneur while selecting projects choose to go for
employment generation, area development, community upliftment, environment
preservation, empowerment of women. It is necessary for the entrepreneurs to follow a
path of sustainable development that is in consonance with the values, environment
protection and judicious management of natural resources.
Transformation of Ideas into Opportunities

 While the initial spotting of ideas is of a random nature, the development of ideas after scanning
the environment is a more purposeful activity.
 The former is an experiential process while the latter is a strategic process.
 All basic ideas have to undergo a vigorous process to identify valuable opportunities. This process
includes:
 Examination,
 Evaluation,
 Analysis And
 Synthesis.
This process of a basic idea becoming an opportunity is shown in the diagram below:
Skills Knowledge
Opportunity
Idea Processing
Competencies Creative Thinking

Conversion of idea into opportunity
 The above figure shows that a strategic positioning is required to convert an idea into
opportunity.
 Knowledge, skills, competencies and creative thinking needed to develop an idea are
backed by factors critical for market success. When knowledge, skills, competencies and
creativity are strategically applied or market orientation, a viable venture is born.
Idea and Opportunity Assessment

In a sense generating ideas is a relatively easy exercise, especially if it is done in groups. However,
this process can also become a wild goose chase because all ideas need not necessarily become
sound business opportunities. We have to assess an in terms of the potentiality of the opportunity.
The steps involved in this type of investigation are discussed below:
1. Product identification:
 An idea should lead the entrepreneur to a definite product/service which he can
sell.
 The steps involved in this process are:
o obtain a concept of the product or service suggested by one idea
o See whether this product is already available in the market or not. If it is,
then we should identify the reason for introducing the same product or
service in the market.eg.Innovating a new pen drive especially for teachers
which will have a built in antivirus and which can be worn like a watch so
it minimises the problem of losing the pen drive.
2. Application and use:
 Ideas should be examined for their real life use and application.
 If it already exists in the market we will have to find out its present use. Then we
may think of modifying it for better use. In the above mentioned example we can
clearly see that even though there are lot of companies manufacturing pen drives,
the latest will be in consonance with the latest trends.
3. Level of operation:
 Depending on the use of the product/service, that is, the amount that is expected
to be consumed, the entrepreneur will produce it in cottage industry or a small
scale industry or a large scale industry.
4. Cost:
 What is the per unit costof the product at particular level of operation?
 Whether this cost is comparable with that of other competitive products?
 This will ultimately decide the sale price.
5. Competition:
 Any product or service will face market competition at some stage.
 So market competition should be assessed through a study of the trends in
demand and supply.
6. Technical complexity:
 What type of technology is required to produce the product?
 Whether training and application of such technology will be locally available or
will it have to be supported from other places?
 What would be the position of supply of plant and machinery for such a
technology? These are important issues that have to be resolved.

7. Annual turnover and profit margin:
 Ideas should also have to be examined on the basis of expected annual turnover.
This will also indicate the market share of the product or service.
Once the entrepreneur has assessed the opportunities on these bases he should go ahead and
assess the market also.
Market Assessment
Selection of a product or service will depend upon many factors. While assessing the
market, an entrepreneur has to prepare details on the following lines:
1. Demand:
The demand assessment will be based on the size of market being targeted, ie., local
markets, market at state level or national/international market. It will also involve a study
of the target groups of consumers, their preferences, tastes and other related variables.
2. Supply and nature of competition:

While assessing market, supply position is also studied by entrepreneurs. By supply
position what is meant is the complete picture of quantities of the product made available
in the market by all the existing players. It should take into account future supplies from
possible entrants in the field.
3. Cost and price of product:

 It is important to determine the cost of the product and its comparison with
available products in the market.
 Cost variable of competitors in terms of transportation delays, wastage, storage
etc., have to be studied to spot cost advantage.
 This will influence the delivery mechanism of the identified product or service.
4. Project innovation and change:

 Market assessment will require a study of prevailing innovations and changes
being carried out by existing entrepreneurs.
 Technological advancements in the field have to be analysed because they may
change the quality and influence the cost and price ultimately.
Trend Spotting
 It means identification of new trends. This will help the entrepreneur to understand the
market and produce goods or provide services in sync with the market trends.
 One of the keys to business success is to anticipate what the market will want or need before
the entrepreneurs are aware of it themselves. Since it‘s unlikely for an entrepreneur to see into
the future, the best way to do this is to become a trend-spotter.
 Professional trend-spotters charge big money for reports and industry trend updates. But
there are some entrepreneurs who spot these trends themselves.There are so many ways to
spot trends.

Ways in Which an Entrepreneur Spots Trends:
1. Read trends.
o Regularly read the leading publications and websites affecting their business. This
could include industry publications, trade association sites, major newspapers, key
business magazines, thought leaders and influential bloggers.
o They use tech tools like RSS feeds, e-mail newsletters or Twitter to keep on top of it all
and get the info they want.
o So many trends start overseas (London, Paris, and Tokyo), so they make sure that they
read about what‘s going on in those cities.
 At first, they scan information from a wide variety of sources -- from
international news on down to niche bloggers focused on specific aspects of
their industry. Obviously, there‘s a tsunami of information available.
 They understand quickly which sources are valuable and which should be
avoided
2. Talk trends.
o Talking to people is an equally important trend-spotting tactic. They get involved in
specific industry‘s trade association and attending events both online and offline.
o They also take advantage of social networking tools like LinkedIn and Facebook.
o They even start or join groups on the networks and see what people are buzzing about
and about the latest trends.
o It's also important to talk to customers and prospective customers, both online and
offline.
o They use social media or online surveys to get input on what customers are thinking,
buying, craving and doing.
o They also use Facebook and Twitter to identify key influencers and trendsetters in their
target markets.
o In addition, they pay attention to ratings and review sites -- not just what customers
are saying about the business, but what they‘re saying about the competitor‘s business.
3. Watch trends.
o There‘s no substitute for getting out in the marketplace. They make it a point to
regularly go where their target customers hang out.
 If the customers are teenagers, that might be the local mall.
 If they‘re businesspeople, it might be the region‘s ―power lunch‖ restaurant or
office park restaurant center.
o The entrepreneur spends some time simply watching and observing. What are people
eating, doing, wearing, using? What stores or restaurants draw crowds and which sit
empty?
o Trade shows are a great place to get trend ideas, too -- even if they are not looking to
buy product, they attend many shows simply to see what‘s hot.
4. Think trends.
o As an entrepreneur begins regularly gathering all this information, they‘ll start to
develop a ―trend-spotter mind.‖
o As they absorb and mull about what they‘ve read, heard and observed, they‘ll start to
make connections and observations that will lead to business-boosting insights.
o The news about rising shrimp prices, the lines out the door at the Asian-fusion
restaurant downtown, and something one of the customers said last week will all come
together and they‘ll have a great idea for a new menu item, a new product line or even
a whole new business.

Creativity:
 Creativity is important to entrepreneurs because it is the first stage in the process of
innovation, providing the stimulus for opportunity discovery and new venture creation.
 As new entrants, entrepreneurs often justify themselves using some other dimensions and
giving them the same weight as creativity. These dimensions may be: novelty, usefulness,
and appropriateness.
 Arguably, one of the first tasks demanded of an entrepreneur is to manifest creative ability
through the conceiving of new product-market opportunities and unique value
propositions.
 From these initial acts of creativity, entrepreneurs must build effective organizations that
can repeatedly bring ideas to commercially valuable forms in order to survive and grow.
The Creative Process:

The process of creativity involves five steps:
1. Idea germination,
2. Preparation,
3. Incubation,
4. Illumination and,
5. Verification.
1. Idea germination:
a. This is the seeding stage of a new idea. It is the stage where the entrepreneur
recognises that an opportunity exists.
b. The idea germination taken place according to interest, curiosity of the
entrepreneur according to which opportunity is explored and exploited to its best
potential.
c. Besides the interest, the need of a specific problem or area of study can also be
sources of Idea germination.
2. Preparation :
a. On the basis of the idea, interest and curiosity, the need is adjudged by the
entrepreneur and he starts looking for the answer to implement the idea.
b. If the idea is to launch a new product or service then market research is conducted.
c. That happens because the seed of curiosity has taken form of anidea; the
entrepreneurs foresee the future of the product.
3. Incubation:
a. This is the subconscious assimilation of information. This is the transition period.
b. The entrepreneur starts thinking about the idea and its implementation in his sub-
conscious mind.
4. Illumination:
a. In this period of illumination the idea re-surfaces in realistic way and entrepreneur
comes out with viable plan to give practical shape by:
i. Collecting raw-material,
ii. Arranging funds,
iii. Policy making for implementation of idea.
5. Verification :
a. Also called the validation or testing stage.
b. This is where the idea is verified to prove that it has value.
c. This is the most difficult phase of creativity as obstacles begin to appear.
d. This is the developing stage in which knowledge is developed into application.

Innovation:
It is the process of entrepreneurship which involves the translation of a useful idea into an
application which has commercial value. It takes persistent efforts to work out
analytically the details of the enterprise or service, to develop marketing strategies to
organize finances and strategize operations.
Elements in the Innovation Process:

 Analytical planning – Carefully identifying the product or service features, design
as well as the resources that will be needed.
 Resource organization – Obtaining the required resources, materials, technology,
human or capital resources.
 Implementation – Applying the resources in order to accomplish the plans and
delivering results.
 Commercial application – The provision of value to customers, reward employees,
and satisfy the stake holders.
Selecting the Right Opportunity:

The entrepreneur should look into various factors before deciding on the opportunity.
Even if the opportunity looks promising, an entrepreneur should look into the
environmental factors before choosing the best opportunity.

Questions for Revision:
1. What is the basic test of a successful entrepreneur?
2. Define Business Opportunity
3. What should an entrepreneur ensure before selecting an opportunity?
4. Can all ideas be converted into an opportunity?
5. Elements of Business opportunity
6. Draw the enterprise process diagram and explain it. (6 marks)
7. Factors involved in securing opportunities
8. Various sources which lead to the basic ideas
9. What is Business Environment?
10. Define environment scanning.
11. Why do we need to scan the environment? (3 marks)
12. Importance of environment
13. Name the sources from which information for environmental scanning can be collected.
14. What is analysis of environment?
15. Draw the flowchart for opportunity project interface-Opportunity – Project Interface
16. Define entrepreneurial environment.
17. What are the levels of external entrepreneurship environment?
18. Give examples of Internal factors (Micro environment)
19. Explain the PESTEL model explaining environmental factors
20. What is problem identification?
21. What is Idea Generation:
22. Explain the process of idea generation.
23. Explain the Sources of business ideas
24. Explain the sources of Ideas fields
25. Examine the food sector in India as a source of service sector ideas.
26. What is speciality tourism?
27. What is the process that needs to be undertaken to identify valuable opportunities?
28. What kind of investigations is needed for opportunity assessment? (6 marks)
29. On what lines should an entrepreneur assess the market? (4 marks)
30. Define trends. (1 mark)
31. Explain the ways in which entrepreneur spots trends.
32. Name the steps in creative process. (5 marks)
33. Define innovation. (1 mark)
34. Name the elements in the innovation process.
35. What is meant by Selecting the Right Opportunity:

Unit 2: Enterprise Planning
Activity is thus, a symbol of human life and may broadly be categorized into:
(a) Economic Activities:
(b) Non-Economic activities:
TYPES OF ECONOMIC ACTIVITIES:

Activities which are inspired mainly by economic consideration can be classified in three broad
categories:
(1) Profession
(2) Employment
(3) Business
All Entrepreneurial activities can be divided into three major categories: Manufacturing,
Trading and Service.
1) Manufacturing
 Production of merchandise for use or sale using labour and machines, tools, chemical and
biological processing, or formulation. most commonly applied to industrial production,
 The term is used in all economic systems:
o In a free market economy, directed toward the mass production of products for sale to
consumers at a profit.
o In a collectivist economy, directed by the state to supply a centrally planned economy.
o In mixed market economies, manufacturing occurs under some degree of government
regulation.
2) Service
 A service is intangible, is not stored and does not result in ownership.
3) Trading:
 Refers to the activity or process of buying, selling, or exchanging goods or services, the
amount of things or services that are bought and sold the money made by buying and
selling things or services , the act of exchanging one thing for another
Business is a continuous human economic activity with objective to earn profit by producing,
and buying and selling of goods and services.
 Essential characteristics of Business :

(1) Presence of an entrepreneur
(2) Economic Activity
(3) Production or Procurement of Goods and Services: Consumers or Producers goods
,Services
(4) Sale or Exchange of Goods and Services
(5) Regularity
(6) Utility Creation: Form Utility, Place Utility, Time Utility
(7) Profit earning
(8) Uncertainty of Return
(9) Element of Risk

FORMS OF BUSINESS ORGANISATION:
 An enterprise is a separate and distinct unit, institutionally arranged to conduct any type
of business activity.
 Every business entity needs to select an appropriate legal structure or framework to work
in.
 From the point of view of ownership and management, business enterprises may be
broadly classified under three categories.
O Private Sector Enterprises
O Public Sector Enterprises
O Joint Sector
(1) Private Sector Enterprises: owned, controlled, and managed by private individuals, with
the main objective of earning profit comes under this category.
Private individuals thus could start a venture as:
(a) Sole-proprietorship (c) Joint Hindu Family (d) Co-operative Society
(b) Partnership Business (e) Company
(2) Public Sector Enterprises: owned, controlled and operated by public authorities, with
welfare as primary and profit as secondary goals, are called public sector enterprises.
 Either the whole or most of the investment in these undertakings is done by the
Government(s). These enterprises have the following form of organization:
(a) Departmental (b) Public (c) Government
undertaking Corporations Companies
(3) Joint Sector Enterprises:

 Partnership between the private sector and the government. Here, management is generally in
the hands of private sector, and with enough representation on Board of Directors by the
Government too. Resources are mostly borne equally.
Private Sector Public Sector Joint Sector
Sole Proprietorship Departmental Undertaking
Partnership Public Corporations
Statutory Corporation
Joint Stock Company
Hindu Undivided Family
Co-operative Society

 The first decision that an entrepreneur has to take is to select the form of ownership (or
structure of business/ legal configuration) that is right for him/her or for his new venture.
This will define the:
(a) Control,
(b) Personal liability,
(c) Rights and liabilities of participants in the business's ownership
(d) Life span, and
(e) Financial structure.
 This decision will have long-term implications so must be taken after consulting experts and
professions. In making a choice of Form of ownership, entrepreneur will want to take into
account the following:
1) Vision regarding the size and nature of business.
2) The level of control the entrepreneur wishes to have.
3) The level of "structure" entrepreneur is willing to deal with.
4) The business's vulnerability to lawsuits.
5) Tax implications of the different organizational structures.
6) Expected profit (or loss) of the business.
 From the entrepreneur's point of view the most commonly opted out forms for starting a
new venture are:
1) Sole Proprietorship
2) Partnership
3) Company
I. SOLE PROPRIETORSHIP:
Definition :The most commonly used forms of business organization which is owned
financed, controlled and managed by only one person is called as sole proprietorship,
Characteristics of Sole Proprietorship Form of Business:

As 'sole' means single and 'proprietor' means owner, this type of business is one-man show
exhibiting following features:
1. Individual ownership
2. Individual management and control
3. Individual financing
4. No separate legal entity
5. Unlimited liability
The proprietor is liable/responsible for all losses arising from business. In case the
business assets are insufficient to pay off liabilities, his/her personal property can be called
upon to pay his business debts. (Important)
6. Sole beneficiary
7. Easy formation and closure
Suitability of Sole Proprietorship Form of Business:

 This type of form is suitable when:
1. Capital requirement is limited
2. Confidentiality / secrecy is important
3. Market is local
4. Goods are of artistic nature or demands customized approach
5. Quick decision making is necessary
6. Size of venture is small.

Legal Formalities Involved Sole Proprietorship Registration Procedure
 Does not need to be registered and is therefore an inexpensive manner of commencing
business.
 To start a sole proprietorship an entrepreneur requires certain industry specific licenses.
1. Business name:
2. Service tax registration: .
3. VAT/CST registration:
a. If proprietorship is selling tangible goods within a state then VAT applies, if it
is inter-state then CST applies.
b. The threshold for registration for VAT varies depending on the city in which
entrepreneur commences business but a CST registration is imperative if
he/she affect an inter-state transfer.
4. Others: PAN Card no., Bank account no., Shops & Establishment License, Employee
Provident Fund Registration or Importer Exporter Code (if in export-import business).
5. Payment of taxes: Sole trader bears the state and federal taxation requirements of the
business.
 Limitations of sole proprietorship i.e.

a. Limited Capital
b. Limited Managerial ability
c. Limited Continuity.
II. PARTNERSHIP:
 Partnership form of organization has developed due to the inherent limitations of sole
proprietorship.
 Meaning: A partnership is an association of two or more persons to carry on, as co-owners, a

business and to share its profits and losses.
Characteristics of partnership:
1. Two or more persons 6. Mutual agency
2. Agreement 7. Utmost good faith
3. Profit sharing 8. Restriction on transfer of shares
4. Unlimited liability 9. Continuity
5. Implied authority
Suitability of Partnership:
Partnership form of a business is an ideal choice for starting a new venture, if the entrepreneur's.
(1) Capital and Managerial requirements are higher as compared to that of sole
proprietorship.
(2) Enterprise falls in the category of either being a small or a medium scale enterprise.
(3) Direct contact with the customers is essential.

Consequences for non–registration of a partnership firm:
 Partnership firms in India are governed by the Indian Partnership Act, 1932.
 While it is not compulsory to register your partnership firm as there are no penalties for non-
registration, it is advisable since the following rights are denied to an unregistered firm:
o A partner cannot file a suit in any court against the firm or other partners for the
enforcement of any right arising from a contract or right conferred by the Partnership
Act.
o The firm cannot take any action in a court of law against any other party for settlement
of claims.
o The firm cannot claim adjustments for amount payable to or receivable from any other
party through a Court of law.
Drafting of partnership deed

 When the agreement is in written form, it is called 'Partnership Deed'.
 It must be duly signed by the partners, stamped and registered.
 Any alteration in partnership deed can be made with the mutual consent of all the
partners.
 A partnership deed generally contains the following:
i. Name of the firm.
ii. Nature of the businesses.
iii. Profit sharing ratio between the partners.
iv. Amount of salary and commission, if any, payable to the partners.
v. Settlement of accounts in the case of dissolution of the firm.
Registration procedure
o Step: 1 :
 Application for partnership registration
o Step: 2
 Every partner needs to verify and sign the application. Ensure that the
necessary documents and prescribed fees are enclosed with the registration
application.
o Once the Registrar of Firms is satisfied that the application procedure has been duly
complied with, he shall record an entry of the statement in the Registrar of Firms and
issue a Certificate of Registration.
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III. JOINT STOCK COMPANY:
 A company means an voluntary association of a person‘s formed for some common object
with capital divisible into units of equal value called 'shares' and with limited liability.
 Thus, a company is an association of persons who contribute money in the shape of shares and
the company gets a legal entity and enjoys a permanent existence.
 Characteristics of a Company
I. Voluntary association. VI. Transferability of shares.
II. Artificial person. VII. Diffusion of ownership and
III. Separate legal entity. management.
IV. Common seal. VIII. Number of members
V. Limited liability. IX. Limitation of action
X. Winding up.

 Number of members
a. In case of a private company:– Minimum members required are : 2 Maximum
members : 50 (excluding employees) And for a public company:– Minimum
requirement is : 7 Maximum number : No Limit
 Limitation of action
a. The scope of this artificial person is determined by the Indian Companies Act,
Memorandum of Association and Articles of Association
Any work done beyond what is stated in these documents can lead to winding up process
of the company.
Choice to Be Made: An entrepreneur, under the 'Company' form of organisation has a further
choice to incorporate enterprise either as a:
(a) Private Company or (b) Public Company
(A) Private Company

A private company is one which:
(1) Has a minimum of 2 and a maximum of 50 members excluding its past and present
employees.
(2) Restricts the right of its members to transfer shares.
(3) Prohibits an invitation to the public to subscribe for any shares in or debentures of the
company, or accept any deposits from persons other than its directors, members or
relatives.
(4) Has a minimum paid up capital of one lakh rupees (subject to change)
(5) Uses the word 'pvt. Ltd.' at the end of its name.
(B) Public Company

Under Section 3(i) (ii) of the Companies Act, a public company is a company which is not a
private company. By implication, a public company is one which:
(1) Has minimum seven people to commence it with no upper limit to membership
(2) Does not restrict any transfer of shares
(3) Invite public to subscribe for its shares, debentures and public deposits.
(4) Has a minimum paid up capital of five lakh rupees.
(5) Uses the word 'Ltd.' at the end of its name.
Why Private Company Is More Desirable : In spite of certain restrictions imposed on a private
company, it enjoys certain privileges under the Companies Act. Because of the following
important privileges being granted, a substantial number of entrepreneurs prefer to form a private
company.
The privilegesgranted to a private company are:
(1) Only two members are required to form a private company.
(2) Only two directors are required to constitute the quorum to validate the proceedings of the
meetings.
(3) Such company is not required to file prospectus or a statement in lieu of prospectus with
the Registrar of Companies.
(4) It can commence its business immediately after incorporation.
(5) Holding of statutory neither meeting nor filing of a statutory report is required by a
private company.
(6) A non-member cannot inspect the copies of the Profit and Loss A/c filed with the
Registrar.
(7) Limit on payment of maximum managerial remuneration does not apply to a private
company.

(8) Restrictions on appointment and reappointment of managing director does not apply.
(9) Maintaining of Index of Members is not required by a private company.
(10) Directors of the private company need not have qualification shares.
The company form of organisation has shown phenomenal increase in almost all countries of the
world in the twentieth century.
Legal formalities expected to be complied by the entrepreneur:

1. Obtain PAN number from Income Tax Department
a. What is PAN?
b. Who must have PAN?
II. Open a current account
a. Who can open a current account
b. Basic common documentation
 For individuals:
 Public or private limited companies
III. Register your company (Pvt. Ltd/Public limited Company)
IV. Register for service tax
V. Register for VAT/Sales Tax
VI. Excise duty (If applicable)
VII. Customs duty
VIII. File entrepreneurship memorandum at DIC (optional)
IX. Permissions required at the construction stage
a. Pre construction clearances
b. Post construction clearances
X. Employee's Provident Fund (EPF)
XI. Employee's State Insurance (ESI) scheme
Basis of Difference Private Limited Companies Public Limited Companies

1. Minimum Number Of 2 7
Persons Required
2. Minimum Paid Up Rs. 1 lakh Rs. 5 lakh
Capital
3. Maximum Number Of Not exceed fifty No such restriction on the maximum
Members number of members
4. Right To Transfer Restricted Shares are freely transferable
Shares
5. Prospectus Cannot issue May invite the general public to
subscribe for its shares or debentures
6. Directors At least two Directors At least three Directors
7. Commence Business After receiving the certificate of Can commence business only when it
incorporation, receives a certificate to commence
business from the registrar of
companies.
8. Statutory Meeting Need not hold a statutory Must hold a statutory meeting and file
meeting a statutory report with the registrar.
9. Quorum Two members personally present At least 5 members to be personally
form the quorum present form the quorum

IV. JOINT HINDU FAMILY / FIRM (HUFs):
o Unique form of business organisation prevailing only in India Governed by Hindu law and
represents a form which is owned, managed and controlled by the male members of a Joint
Hindu Family.
o Meaning of HUFs: a family, which consists of male lineally descended from a common
ancestor and included their wives and unmarried daughters."
o Schools of law under HUF – Two schools of law are there in order to create a HUF:
a) Dayabhaga
b) Mitakshara .
 There are two conditions for existence of HUFs. They are :

a. Minimum two members must be there in the family.
b. Existence of some ancestral property.
Characteristics of Hindu Undivided Family

1. Creation: by status or operation of Hindu Law.
2. Membership: A male member = member merely by his birth/adoption,
3. Management: The senior most male member = 'Karta' manages the affairs, having unlimited
powers. The other male members = 'Coparceners' have no right to deal with outsiders or
inspect accounts.
4. Liability: The liability of Karta is unlimited and that of coparceners is limited to the extent of
their share in property.
5. Right of Accounts: The members other than Karta do not have right to inspect and/or copy
contents of the account books.
6. Minor as member: A male from the time of his birth becomes the member in this form of
enterprise.
7. Dissolution: The HUF continues to operate forever , there is no limit to its membership. But if
all members want to mutually dissolve the firm, they can do so.
8. Implied Authority: Only the Karta has implied authority to bind the HUF by acts done in the
ordinary course of the business of the firm. That's why he alone has unlimited liability.
Legal formalities involved Steps involved in creation of HUFs

1. Capital and members: Capital can be in the form of ancestral property, assets gifted by
relatives and friends, or received by the HUF through a will. The minimum no. of members
required is two.
2. Select a suitable name.
3. Form a Deed.
4. Apply of PAN.
5. Open a Bank Account.
V. CO-OPERATIVES ORGANISATIONS:
 The Indian Co-operative Societies Act, 1912 defines co-operative in Section 4 as, "Society
which has its objectives the promotion of economic interests of its members in accordance
with co-operative principle."
 Co-operative organisation is a voluntary association of persons desirous of pursuing a

common objective.

 Features of Co-operative societies:
1. Voluntary organisation.
2. Democratic management.
3. Service motive
4. Capital and return thereon: A member can subscribe subject to a maximum of 10%
of the total share capital or Rs. 1,000 whichever is higher. Shares cannot be
transferred but surrendered to the organisation. The rate of dividends paid to the
members/ shareholders is restricted to 9% as per the Co-operative Societies Act,
1912.
5. Government control.
6. Distribution of surplus: After giving dividends to the members, the surplus of
profits, if any, is distributed among the members on the basis of goods purchased
by each member from the society.
 Entrepreneur does not find this form as a very desirable structure to start a new venture
because of his / her:
1) Quest for excellence 5) Creative and innovative nature
2) Drive for independence 6) "Must be own boss", attitude.
3) Tendency to be project champion 7) Love for being a 'Leader' in the field.
4) Strong desire to succeed and earn profit 8) Zeal to capture major market share.
Selection of Form of Ownership

 Selection of an appropriate form of business orgnaisation is a very difficult decision. No
single factor can help to decide the form. Thus, it's a summative effect of the factors to be
taken into consideration before opting the form of business ownership.
 With regards to special requirements of the enterprise if any, mostly the selection of a form
is to a great extent affected by:
Criteria Best suited Worst suited
1. Capital requirement of the Company Sole Proprietorship
enterprise
2. Owners‘ Risk and liability Company, Coop Society Sole Prop, Partnership
involved
3. Managerial control desired Sole Proprietorship Co-operative Society,

Company
4. Scale of operations involved Company Sole Proprietorship
5. Continuity and stability Company, Co-Op Soc Sole Prop, Partnership

demanded
6. Government regulations Sole Proprietorship Co-operative Society,
involved Company
7. Tax burden on the
entrepreneur/enterprise
8. Nature of business Decided according to requirements
9. Confidentiality required Sole Proprietorship Co-operative Society,

Company

10. Flexibility desirable. Sole Proprietorship Company
11. Economy in formation Sole Prop, Partnership, HUF Co-Op Soc, Company
12. Ease of formation Sole Prop, Partnership Co-Op Soc, Company
13. Transfer of ownership or share Company, Sole Proprietorship Partnership, HUF, Coop Society
in firm
14. Initial costs, Sole proprietorship company
BUSINESS PLAN
 Planning can be defined as "thinking in advance what is to be done when it is to be done, how
it is to be done and by whom it should be done."
 The entrepreneur must make some important decisions and gather information about the
external and internal factors so as to address the integration and co-ordination of effective
business objectives and strategies related to his proposed venture.
WHAT IS A BUSINESS PLAN?

 The business plan is a comprehensively written down document prepared by the
entrepreneur describing formally all the relevant external and internal elements
involved in starting a new venture.
 Thus, a business plan is a comprehensive project report which not only encompasses the
entire range of activities which are being planned in the business, but also:
a) Helps to understand the feasibility and viability of the proposed venture,
b) facilities in assessing and making provisions for the bottlenecks in the progress and
implementation of the idea,
c) Discusses the potential for the success of the project along with the risk factors
involved.
 Business plan are decision-making tools:
i. Describing all necessary inputs to the enterprise.
ii. Explaining the mode of utilization of the resources.
iii. Detailing the strategies for the execution of the project.
iv. Outlining the desired goals
v. Assessing market sensitivity and the profitability of the
venture.
Thus, the content and the format of the business plan is such which is able to represent all
these aspects of business planning process.
WHO CAN WRITE THE PLAN?

 A business plan represents all aspects of business planning process declaring vision and
strategy alongside sub-plans to cover:
o Marketing o Human resources
o Finance o Legal compliance
o Operations o Intellectual property rights, etc.

 Entrepreneur should consult the following while preparing it:
i. Lawyers, vi. Officially Appointed Or/And Set-Up
ii. Accountants, Banks, Specialized Financial Institutions Or
iii. Marketing Consultants, Agencies To Promote Entrepreneurship
iv. Engineers vii. Friends, Relatives, Mentors Etc.
v. Internet Sites
IMPORTANCE OF THE BUSINESS PLAN:

 The business plan is valuable to the entrepreneur, potential investors, venture capitalists,
Banks, Financial institutions, new suppliers, customers, advisors and others who are trying to
familiarize themselves with the venture, its goals, and objectives.
 The business plan –

a) Determining the viability of the venture
b) Helps in satisfying the concerns, queries, and issues of interested groups
c) Provides room for self-assessment and self-evaluation,
d) Helps to realize the obstacles which cannot be avoided or overcome, suggesting to
terminate the venture while still on paper without investing further time and money.
e) Reflects the entrepreneur's credit history, the ability to meet debt and interest payments,
and the amount of personal equity invested thus serving as an important tool in funds
procurement.
f) Helps in providing guidance to the entrepreneur in organizing his/or her planning
activities as such:
i. Identifying the resources required
ii. Enabling obtaining of licenses if required etc.
iii. Working out with legal requirements as desired by the government.
 Hence, a business plan gives adequate clarity to the entrepreneur, Investor(s) and the
government of:
o What an entrepreneur is doing,
o Why he/she is doing it, and
o How he/she will do that?
FORMAT OF BUSINESS PLAN:

 The depth and detail in the business plan depends on the size and scope of the proposed
new venture. There is no fixed content for a business plan as it varies according to the
entrepreneur's goals and audience (i.e. who are being targeted).
 Thus, it is common for especially start-ups to have three or four formats as follows for the
same business plan.
i. Elevator pitch:
 It is a three minute summary.
ii. A pitch deck with oral narrative:
 slide show and oral narrative that includes the executive summary
and a few key graphs showing financial trends and key decision making
benchmark.
iii. A written presentation for external stakeholders:
 A detailed, well written, and pleasingly formatted plan targeted at
external stakeholders.

iv. An internal operational plan:
 A detailed plan describing planning details that are needed by
management but may not be of interest to external stakeholders.
 Depending upon the entrepreneur's experience, knowledge and purpose, generally a business
plan outlines sequentially following components or parts:
I. Introductory cover IV. Production plan VII. Marketing plan
page/general introduction V. Operational plan VIII. Financial plan
II. Business venture VI. Human resource plan IX. Assessment of risk
III. Organisational plan X. Miscellaneous/
appendix
I. INTRODUCTORY PROFILE /GENERAL INTRODUCTION

 This is the title or cover page - a brief summary of business plan's contents:
i. Entrepreneur's bio-data:
ii. Industry's profile:
iii. Constitution and organization: i.e. the legal form of the proposed enterprise
iv. Product details:
II. DESCRIPTION OF VENTURE/BUSINESS VENTURE

 "Mission Statement" by the entrepreneur and
 Description about the following key elements.
i. Site ii. Physical infrastructure:
III. ORGANIZATIONAL PLAN

 The organizational plan is that part of the business plan that describes the
proposed venture's opted form of ownership adequately mentioning necessary
details. All businesses will fall into one of the four basic categories: Manufacturing,
Wholesale, Retail and Service.
 Organizational plan describes the proposed venture's form of ownership. Each type of
business differs significantly in terms of:
a) Commencement procedures d) Accounting methods
b) Legal constraints e) Marketing and promotional strategies
c) Financial requirement f) Risk and liability
 The entrepreneur have access to following forms to choose from to start his/her venture:
a) Sole proprietorship b) Partnership c) Joint Hindu family d) Cooperative, or e)
Corporation
 Each of these forms has important implications on (i) Taxes (ii) Liability (iii) Continuity
(iv) Financing (v) Ownership. No form is the best form. Entrepreneur in light of multiple
factors (as already discussed) decides the legal structure, best suited to attain his dream.
 To conclude, both the entrepreneur and the potential investors stands to gain from the
organizational plan as the design of the organization so opted helps even in:
o Specifying the types of skills needed and the roles that must be filled by the
member
o Chalking out informal organization or culture.

IV. PRODUCTION PLAN
 Aims at “Plan your work”
 The objective of preparing a Production Plan =
 Visualizing every step in a long series of separate operations,
 So as to ensure that each step is to taken in the right place of the right degree, and
at the right time and
 each operation to be done at maximum efficiency",
 Hence, a production plan helps to plan the work in such a manner that one can clearly
form an idea about:
 Production schedule and/or budget
 Machinery, equipment requirement
 Manufacturing method and process involved
 Plant layout
 There may be three situations before the venture viz complete manufacturing, partial
manufacturing and no manufacturing.
IV. OPERATIONAL PLAN

 Operations plan ensures "work your plan".
 It is actually a blue print prepared right in advance of actual operations —
i. Ensuing orderly flow of materials in the manufacturing process
ii. Facilitating continuous production, lesser work-in-progress and minimization of
wastage.
iii. Co–ordinating the work of engineering, purchasing, production, selling and
inventory management.
iv. Describing the flow of goods / services from production point to the consumers.
v. Introducing a proper system of quality control
vi. Undertaking the best and most economic production policies and methods.
 Elements of operational plan: Operation plan, in a way is planning:

i. For production in advance of operations.
ii. Establishing the exact route of each individual item, part of assembly.
iii. Setting starting and finishing dates for each important assignment/work.
iv. Regulating the orderly movement of goods through the entire manufacturing cycle
i.e. right from procurement of all materials to the shipping of finished goods.
 Nature of venture  Scale of operation, and
 Type of product/service  Technology involved
 Thus, to obtain the above mentioned objectives, entrepreneur specifically pays attention to
the following elements of the plan:
a) Routing d) Follow-Up
b) Scheduling. e) Inspection
c) Dispatching f) Shipping

VII. MANPOWER PLANNING
 An organisation's performance and resulting productivity are directly proportional
to the quantity and quality of its manpower.
 Manpower planning is a process by which an entrepreneur ensures that he/she has
the right number of people, and the right kind of people with appropriate skills, at
the right place and the right time to do work for which they are economically most
suitable.
 Manpower planning thus helps to assess:
i. What kinds of people are required?
ii. How many people are required?
iii. How to procure personnel?
 Procurement of "right man, at right job, at right time" is the objective of human
resource plan.
VIII. MARKETING PLAN

 Describes the market conditions and strategies related to how:
a) Products/services will be distributed,
b) Priced
c) Promoted.
 It is a guideline regarding the marketing objectives, strategies and activities to be followed
by the new enterprise.
 Provides answers to three basic questions:
a. Where have we been?
b. Where do we want to go?
c. How do we get there?
 Normally, each year the entrepreneur should prepare an annual marketing plan so as to
gel well with the changing business environment and its forces
 Steps in preparing the marketing plan - procedure for preparing the marketing plan
involves following steps:
a) Business situation analysis
b) Identify the target market
c) Conduct SWOT analysis
d) Establish goals
e) Define marketing strategy
f) Implementation and monitoring of the plan
VI. FINANCIAL PLAN

 Finance brings together men, material, machines and methods to produce goods/services.
 As timely availability of funds in right volume is key to entrepreneurial success, the
entrepreneur should develop a sound financial plan discussing:
a) Financial requirements
b) Sources of raising funds
c) Exact assessment of the revenue, cost, profits, cash flow dynamics, stock of
inventory loans etc.

 Financial plan is a projection of key financial data about:
a) The potential investment commitment needed for the new venture, and
b) Economic feasibility of the enterprise
 The financial plan is so designed that the entrepreneur and the investors could have a clear
picture of:
a) How much funds are required?
b) Where will funds come from?
c) How are they disbursed?
d) The amount of cash available
e) General financial well-being of the new venture i.e. probable revenue forecast for
the first year at least.
 As the financial plan must explain to any potential investor how the entrepreneur plans to
meet all financial obligations and maintain its liquidity in order to either pay off debt or
provide good return on investment, several financial projection techniques and tools are
made use of by the entrepreneur. In general, the financial plan will need three years of
projected financial data to satisfy any outside investors.
 Components of financial plan Major financial items that should be included in the
financial plan are:
a) Proforma Investment Decisions d) Proforma Cash Flow
b) Proforma Financing Decisions e) Proforma Balance Sheet
c) Proforma Income Statements f) Break-Even Analysis
g) Economic And Social Variables
IX. ASSESSMENT OF RISK

a. There are some hazards, risks, or/and obstacles always present in the competitive
environment. In a business plan, entrepreneur should:
 Identify potential hazards
 Develop alternative strategies to either prevent minimize or respond to the
risk.
X. APPENDIX
a. contains any backup material that is not necessary in the text of the document as:
 Letters from customers, distributors etc. , Any primary or secondary
research data , Copies of contracts, agreements or any price lists if received.

Factual questions and Basic Terms Used in the Chapter
SOLE PROPRIETORSHIP
1. When is a sole proprietor required to file for registration for service tax?
 Service tax = is a tax levied on the transaction of certain services.
 These are specified by the Central Government under the Finance Act, 1994.
 It is an indirect tax, which means that normally, the service provider pays the tax
and recovers the amount from the person or organisation who receives such
taxable service.
 Service tax registration: Form ST 1 is to be filled if the taxable services are more
than 10 lakh for a financial year.
2. When is VAT registration mandatory for a sole proprietor?

 Value added tax (VAT) = Tax is levied at each stage of value addition.
 The amount of tax is calculated on the amount of value added at the given
stage of production. Eg, for a bakery, if they buy rew material that has already
been taxed, eg wheat costing Rs 100 and convert it into bread and sell it for Rs
150, value added to wheat = Rs 50 and VAT will be calculated on Rs 50.
 The term 'value addition' implies the increase in value of goods and services at
each stage of production or transfer of goods and services. VAT is a tax on the
final consumption of goods or services and is ultimately borne by the
consumer.
a. If proprietorship is selling tangible goods within a state then VAT applies.
b. The threshold for registration for VAT varies depending on the city in which
entrepreneur commences business
3. When is CST registration mandatory for a sole proprietor?

a. Sales tax = levied on the sale of a commodity, which is produced or imported and
sold for the first time. If the product is sold subsequently without being processed
further, it is exempted from sales tax.
b. It is paid by every dealer on the sale of any goods made by him in the course of
inter-state trade or commerce.
c. Sales tax ID number : A state Sales Tax ID number is essentially a business version
of your PAN number, under which you collect and pay tax for any service or
product you sell, which in turn, qualifies for taxation in your state.
d. If proprietorship is selling tangible goods inter-state then CST applies.
e. The threshold for registration for CST registration is imperative if he/she affect an
inter-state transfer.
4. Name the documents and licenses required for starting a sole proprietorship:
a. Service tax registration or VAT/CST registration
b. PAN Card no. of the sole proprietor,
c. Bank account no. in the name of sole proprietorship business,
d. Shops & Establishment License,
e. Employee Provident Fund Registration or Importer Exporter Code (if in export-
import business) as and where applicable, have to be complied with.

JOINT STOCK COMPANY
1. What is PAN?
a. Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued by
the Income Tax Department.
b. PAN, acts as an identifier for the person with the tax department.
c. It is mandatory to quote PAN in all documents pertaining to financial transactions.
d. PAN enables the department to link all transactions of the person with the
department. These transactions include tax payments, TDS/TCS credits, returns of
income/wealth/ gift/FBT, specified transactions, correspondence, and so on.
2. Who must have PAN?

a. All existing assesses or taxpayers or persons who are required to furnish a return of
income, even on behalf of others, must obtain PAN.
b. Any person carrying on any business or profession whose total sales, turnover or
gross receipts are or is likely to exceed five lakh rupees in any previous year;
c. Any person, who intends to enter into financial transaction where quoting PAN is
mandatory, must also obtain PAN.
d. The Assessing Officer may allot PAN to any person either on his own or on a
specific request from such person.
3. Who can open a current account

 Any person, competent to contract and satisfactorily introduced to the Bank may
open an account in his/her own name. He/she may not open more than one such
account. Accounts may be opened in the names of two or more persons and may be
made payable to.
 Accounts can be opened for sole proprietorship firms, partnership firms, private
limited and public limited companies, Joint Hindu families, trusts, clubs, associates
etc. satisfactorily introduced to the Bank and on fulfilling laid down procedures
and tendering required credentials.
 Accounts can be opened by minors of 14 years and above, if able to read and write,
in their sole names.
4. What is the Basic common documentation required to open a Current Account?

o For individuals:
 Proof of Identity: PAN Card, Voter Id Card, Passport, Driving License
 Proof of Address: Latest Telephone Bill or Electricity Bill
o Public or private limited companies
 Certificate of incorporation and commencement of business , Memorandum
and Articles of Association , List of directors with residential addresses
 Board resolution authorizing the opening and operation of the account , PAN
or GIR No. or completed Form 60

5. Name the steps required to be complied with to Register your company (Pvt. Ltd/Public
limited Company)
 The following steps are involved in incorporating a private or public company in India
1. Name of the business entity 6. Apply for approval of the name of the
2. Register for e-filing at MCA (Ministry of company
Corporate Affairs) portal 7. Formulate Memorandum of Association
3. Apply for Director Identification 8. Formulate Articles of Association
Number (DIN) 9. Verify, Stamp & Sign Articles of
4. Obtain Digital Signature Certificate Association
(DSC) 10. Verify the various forms required for
5. Register DSC at MCA website incorporation of company
6. What is TIN?
 For identification/registration of dealers under VAT, the Tax Payer's
Identification Number (TIN) is used. TIN consists of 11 digit numerals
throughout the country. Its first two characters represent the State Code and the
set-up of the next nine characters can vary in different States.
7. Excise duty (If applicable)

 Excise duty is a tax on manufacture or production of goods.
o Excise duty on alcohol, alcoholic preparations, and narcotic substances is
collected by the State Government and is called "State Excise" duty.
o The Excise duty on rest of goods is called "Central Excise" duty and is collected
in terms of Section 3 of the Central Excise Act, 1944.
 Sales Tax = a tax on the act of sale while Excise duty = tax on the act of manufacture or
production of goods.
 Generally the following categories of persons are required to get themselves registered
with the central excise department:
o Every manufacturer of dutiable excisable goods;
o First and second stage dealers or importers desiring to issue Cenvatable
invoices;
o Persons holding bonded warehouses for storing non-duty paid goods;
o Persons who obtain excisable goods for availing end-use based exemption.
8. What is the procedure for obtaining Excise Duty registration?

a. Apply to the nearest central excise division office in form A.1 along with a self-
attested copy of the PAN issued by the income tax department.
b. After verification, a regular registration certificate in form RC is normally issued
immediately, as far as possible.
9. What is meant by Customs duty?

 Customs Duty is a type of indirect tax levied on goods imported either in or to India, not
both, as well as on goods exported from India.
 Taxable event is imported into or exported from India.
o Import of goods means bringing goods to India from a place outside India.
o Export of goods means taking goods out of India to a place outside India.
o India includes the territorial waters of India which extend up to 12 nautical miles
into the sea to the coast of India.

10. File entrepreneurship memorandum at DIC (optional)
 Although not mandatory, you may file part I of entrepreneurs memorandum to the district
industries centre.
 This may be necessary for claiming certain incentives / subsidies and for certain
formalities at the state level.
11. Apply for TAN

 TAN or Tax (deduction and collection) Account Number is a 10 digit alpha numeric
number required to be obtained by all persons who are responsible for deducting or
collecting tax.
 It is compulsory to quote TAN in TDS/TCS return (including any e-TDS/TCS return), any
TDS/TCS payment challan and TDS/TCS certificates.
12. Who must apply for TAN?

a. All those persons who are required to deduct tax at source or collect tax at source
on behalf of Income Tax Department are required to apply for and obtain TAN.
13. What are the Permissions that are required to be obtained from the Government by a
company at the construction stage?
a. These are some permissions which are required to be obtained from the
government:
 Pre-construction clearances
o Application for plot/shed, offer letter, payment of earnest money deposit
o Allotment of plot/shed, payment of balance occupancy price, taking over
possession thereof
o Application for issuance of NOC/SSI registration
o Execution of lease agreement
o Application for grant of connection for construction water
o Application for grant of connection for construction power
 Post construction clearances
o Building completion/drainage completion/tree plantation certificate
o Permission for mortgage
o NOC from Pollution Control Board
o Final fire clearance
o NOC from environment department
o Industrial safety permit
o Sanction of permanent power
o Sanction of permanent water and sewerage connection
14. When does a firm require registration for Employee's Provident Fund (EPF) account?
 Applicable for establishments employing 20 or more persons and engaged in industry.
15. When is Employee's State Insurance (ESI) scheme applicable to a firm?

 The Act is applicable to non-seasonal factories employing 10 or more persons.
 The scheme has been extended to shops, hotels, and restaurants, cinemas including
preview theatres, road-motor transport undertakings and newspaper establishments
employing 20 or more persons.

Unit 3: Enterprise Marketing
What Is The Goal Of Business?
– Fundamental goal of business is to make profit; this always need not be in terms of money but
improved customer relations, goodwill etc.,
– What is goal setting?
 "Establishing short or long term objectives, usually incorporating deadlines and
quantifiable measures."
– Why is goal setting important?
 For ensuring the appropriate performance.
 Ensures clarity of vision, alignment to the organizational goals, clarity of purpose
and higher probability of achieving the goals.
 Allows us to be proactive, instead of just being reactive.
– Goals need action
 Goal setting strategy.
 Provides us with direction and motivation.
 Set the right goals, that is, goals that will keep our business on track rather than
derail it.
 Rules for goal setting:
i. Business goals need to be relevant.
ii. Business goals need to be actionable.
iii. Business goals need to be achievable stretches.
 What are smart goals? Specific, Measurable, Attainable, Relevant, Time-Based
Marketing Strategy
– Marketing strategy is defined by David Aaker as "a process that can allow an organization to
concentrate its resources on the optimal opportunities with the goals of increasing sales and
achieving a sustainable competitive advantage."
– What does the Marketing strategy of a company include?
 All basic and long-term activities in the field of marketing.
 Analysis of the strategic initial situation of a company.
 Formulation, evaluation and selection of market-oriented strategies that contributes
to the goals of the company and its marketing objectives.
 Strategies for growth as well as interrelated components called the marketing mix.
Components of Marketing Mix:

– Definition –
– According to Philip Kotler, "A Marketing mix is the mixture of controllable marketing variables that
the firm uses to pursue the sought level of sales in the target market."
– The 4Ps that make up a typical marketing mix are –
i. Price, Product, Promotion and Place.
ii. May also include several other Ps like Packaging, Positioning, People and
even Politics as vital mix elements. We will be concentrating only on the
typical 4P‘s.

Product Mix
– Product:
– Refers to the item actually being sold. The product must deliver a minimum level
of performances; otherwise even the best work on the other elements of the
marketing mix won't do any good.
– Product Mix involves the following decision areas:

i. What does the customer want from the product/service? What needs does it
satisfy?
ii. What features does it have to meet these needs?
iii. Are there any features you've missed out?
iv. Are you including costly features that the customer won't actually use?
v. How and where will the customer use it?
vi. What does it look like? How will customers experience it?
vii. What size(s), color(s), and so on, should it be?
viii. What is it to be called?
ix. How is it branded?
x. How is it differentiated from the competitors?
xi. The components of Product mix are: Branding, Labeling and Packaging.
– The product mix has four crucial components.

i. Branding
ii. Logo and tagline
iii. Labeling
iv. Packaging
– Branding:
– A product is
o It includes physical objects, services, personalities, places, organizations and ideas.
o As a product is any tangible and/or intangible offering that is required to satisfy the
needs or aspirations of a consumer,
– It is important to understand:
o the "underlying motives" behind "buying" of the product,
o To ascertain whether the buyer is really satisfied by having the same product.
– Every product satisfies a 'generic' requirement, = the core benefit, a product offers to the
customer.
– If products were sold by generic names, it would be very difficult for the marketers to
distinguish their products from that of competitors.
– Branding is an effective differentiation strategy commonly adopted by marketers when

dealing with the products which cannot be easily distinguished in terms of tangible features.
– Branding as a Concept - A brand is "a name, term, sign, symbol, or design or a combination of
them which is intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of the competitors."

– Common terms related to branding are:
1. Brand = denotes a name, term, sign, symbol, design or combination of them to:
 Identify the products of one firm, and
 Differentiate them from those of the competitors.
 Brand has three components
o Brand name.
o Brand mark.
o Trade mark.
– Qualities of a good brand

1. Short, simple and easy to pronounce.
2. Noticeable, easy to recognize and remember.
3. Pleasing, impressive when uttered.
4. Neither obscene, negative, offensive or vulgar.
5. Adaptable to packaging, labelling requirements, to different advertising
media and languages.
6. Linked to product, symbolically eye catching.
7. Contemporary, capable of being registered and protected legally.
 Entrepreneur's perspective on brand name

i. Different policies can be followed while choosing a brand name.
ii. It helps a new product to get public attention.
iii. The entrepreneur should legally protect his/her brand name or mark
through trade mark. Trade mark is meant to guard against ditto imitations.
iv. An entrepreneur should be very careful in deciding/in choosing its brand
strategy
v. Various types of brands available are:
 Individual brand name  Corporate names.
 Family brand name.  Alpha-numeric names.
– Logos And Tag Lines
 Logo 'Logo'
i. Short for Logotype
ii. Identifying symbol for a product or business.
iii. It is a graphic mark or emblem commonly used by commercial enterprises,
organizations and even individuals to aid and promote instant public
recognition.
iv. Can be either:
1. Purely graphic (symbols/icons) or
2. The name of the organization (a logotype or word mark).
 Purpose
1. Anchors Company‘s brand.
2. Are the "Identity" of an enterprise
3. Provide essential information about a company that allows customers to
relate with the enterprise's core brand.
4. Short path for advertising and other marketing materials.
5. Act as the key visual component of an enterprise's overall brand identity.

– Tagline
 Taglines are basically simple but powerful messages that help to communicate an
enterprise's goals, mission, distinct qualities and so much more.
 It is a small amount of text which serves to clarify a thought and is designed with a
dramatic effect. They can come in the form of:
i. Questions
ii. Statements
iii. Exclamations
 Creates a memorable dramatic phrase that will sum up the product.
– Packaging
 Packaging is often the key element in assisting, mainly consumer goods companies,
to achieve a comparative advantage.
 The critical decisions that must be made on the package are concerned with :
i. The functions the product pack will perform and
ii. The mix of packaging components best able to perform in different degrees,
the particular functions of the packaging.
– Labeling
 It is the display of information about a product on its container, packaging, or the
product itself.
– Importance of Intellectual Property for an entrepreneur
 Intellectual property (IP) rights are the legally recognized exclusive rights to creations of
the mind. Under this law, owners are granted certain exclusive rights to a variety of
intangible assets.
 Common types of intellectual property rights include
o Copyrights o Industrial Design Rights
o Trademark o Trade Secrets.
o Patents
Price Mix
– Price
o = the value that is put for a product.
o It depends on
 Cost of production, Segment targeted, Ability of the market to pay, Supply -
demand and a host of other direct and indirect factors.
o There can be several types of pricing strategies, each tied in with an overall business plan.
o Pricing can also be used as a demarcation, to differentiate and enhance the image of a
product.
o Price is the only revenue generating element amongst the four P's, the rest being cost
centers.
o Some Methods Of Pricing which are used in pricing decisions are as follows: Cost Plus
Pricing, Penetration Pricing, Price Skimming and Variable Pricing

a. Cost-Plus Pricing
– The manufacturer charges a price to cover the cost of producing a product plus a
reasonable profit. The cost-plus method is simple, but it does not encourage the efficient
use of resources.
– Cost-plus pricing is typically based on a manufacturing estimate.
– Estimates are made of the resources required, the cost of those resources and the time for
which they will be used.
– Advantages of cost plus pricing

1. A company knows exactly the amount of expenditure and therefore they can add
profit margin accordingly.
2. It is the simplest method.
3. Easier for a company to evaluatethe reasons for escalations in expenses and therefore it
can take corrective action immediately.
– Disadvantages of cost plus pricing
1. This method does not take into account the future demand.
2. It also does not take into account the competitor actions.
3. It can result in the company overestimating the price.
b. Penetration Pricing
o Price is initially set at a price lower than the eventual market price, to attract new
customers.
o The expectation is that customers will switch to the new brand because of the lower price.
o Penetration pricing is most commonly associated with a marketing objective of increasing
market share or sales volume.
o The advantages of penetration pricing to the firm are:
1. Result in fast diffusion and adoption. This can achieve high market rates quickly.
2. It can create goodwill among the early adopters segment.
3. It creates cost control and cost reduction pressures from the start.
4. It discourages the entry of competitors. Low prices act as a barrier to entry
5. It can create high stock turnover throughout the distribution channel
6. This can create critically important enthusiasm and support in the channel.
o Disadvantages or penetrating price method:
1. The main disadvantage with penetration pricing is that it establishes long–term
price expectations for the product and image preconceptions for the brand and
company.
2. Another potential disadvantage is that the low profit margins may not be
sustainable long enough for the strategy to be effective.
c. Creaming or Skimming
o Goods are sold at higher prices. Usually employed to reimburse the cost of
investment of the original research into the product.
o This strategy is often used to target "early adopters" of a product or service who
generally have a relatively lower price-sensitivity.
o This strategy is employed only for a limited duration.
o Advantages of skimming price
i. Helps the company recovering the research and development costs.
ii. If the company caters to consumers who are quality conscious rather
than price conscious.

o Disadvantages of skimming price
i. This strategy can backfire if there are close competitors.
ii. Not viable when there are strict legal and government regulations.
iii. If the company has history of price skimming then consumers will
never buy a product when it is newly launched, they would rather
wait for a few months and buy the product at lower price.
d. Variable price method

 Permits different rates to be extended to different customers for the same goods or
services.
 Often employed where potential buyers are allowed to participate in a bidding situation,
such as in an auction.
 Variable pricing may come into play when the customer is committing to the purchase of
large volumes of goods or services. When this is the case, the customer must usually
comply with specific criteria in order to enjoy pricing that varies from the standard cost.
 One of the classic examples of the use of variable pricing has to do with street vendors
who sell various types of small goods. The real estate market also functions with the use of
variable pricing.
 Examples: Difference in order size of the customers , Difference in the anticipated business
from different customers.
 Variable pricing does provide some benefits, but also has the potential for drawbacks.
 Benefit = move goods that have failed to perform as originally anticipated, allowing them
to earn a modest profit or at least recoup their investment in the products.
 Drawback = A it can lead to losing other customers who paid full price for their purchases,
if they find out that a more recent customer was able to receive a lower price.
Place mix (Distribution)
– Place: Refers to the point of sale. In every industry, catching the eye of the consumer and
making I it easy for her to buy is the main aim of a good distribution or 'place' strategy.
– A channel of distribution or trade channel is defined as the path or route along which goods
move from producers or manufacturers to ultimate consumers or industrial users.
 This channel consists of:
i. Producers, consumers or users and the various middlemen like wholesalers,
selling agents and retailers (dealers) who intervene between the producers
and consumers.
 Therefore, the channel serves to bridge the gap between the point of production
and the point of consumption thereby creating time, place and possession utilities.
– A channel of distribution consists of three types of flows:

 Downward flow of goods from producers to consumers
 Upward flow of cash payments for goods from consumers to producers
 Flow of marketing information in both downward and upward direction.
– An entrepreneur has a number of alternative channels available to him. These channels of

distribution are broadly divided into four types.

– The Channels of distribution are broadly divided into four types.
Producer-customer (Direct channel-zero level)
 Producer-retailer-customer (Indirect-one level)
 Producer-wholesaler-retailer-customer (Two level)
 Producer-agent-wholesaler-retailer-customer (Three level)
 Producer-customer (Direct channel-zero level):

i. Simplest and shortest channel in which no middlemen is involved.
ii. It is fast and economical.
iii. The producer performs all the marketing activities and has full control over
distribution.
iv. A producer may sell directly to consumers through door-to-door salesmen,
direct mail or through his own retail stores.
v. Big firms adopt this channel to cut distribution costs and to sell industrial
products of high value. Small producers and producers of perishable
commodities also sell directly to local consumers.
 Producer-retailer-customer (Indirect-one level):

i. This channel of distribution involves only one middleman called 'retailer'.
ii. Under it, the producer sells his product to big retailers (or retailers who buy
goods in large quantities) who in turn sell to the ultimate consumers.
iii. This channel relieves the manufacturer from burden of selling the goods
himself and at the same time gives him control over the process of
distribution.
iv. This is often suited for distribution of consumer durables and products of
high value.
 Producer-wholesaler-retailer-customer (Two level):

i. Two middlemen i.e. wholesalers and retailers are involved.
ii. This channel is suitable for the producers having limited finance, narrow
product line and who need expert services and promotional support of
wholesalers.
iii. This is mostly used for the products with widely scattered market.
 Producer-agent-wholesaler-retailer-customer (Three level):

i. This is the longest channel of distribution in which three middlemen are
involved.
ii. This is used when the producer wants to be fully relieved of the problem of
distribution and thus hands over his entire output to the selling agents..
iii. This channel is suitable for wider distribution of various industrial
products.
– An entrepreneur has to choose a suitable channel of distribution for his product such that
the channel chosen is
 Flexible, Effective and Consistent with the declared marketing policies and
programmes of the firm.
– While selecting a distribution channel, the entrepreneur should

 Compare the costs, sales volume and profits expected from alternative channels of
distribution and take into account the following factors.

o Considerations Related To o Considerations related to market
Product - 1. Number of buyers
1. Unit value of the product 2. Types of buyers
2. Standardized or 3. Buying habits
customized product 4. Buying quantity
3. Perishability 5. Size of market
4. Technical nature
o Considerations related to o Others

manufacturer/company 1. Cost
1. Goodwill 2. Availability
2. Desire to control the 3. Possibilities of sales
channel of distribution
3. Financial strength
o Considerations related to government
– Promotion Mix
– This refers to all the activities undertaken to make the product or service known to the user
and trade.
– This can include advertising, word of mouth, press reports, incentives, commissions and
awards to the trade. It can also include consumer schemes, direct marketing, contests and
prizes.
C. SALES STRATEGY
– A plan that positions a company‘s brand or product to gain a competitive advantage.

– Help the sales force focus on target market customers and communicate with them.
– A successful sales strategy conveys how their products or services can solve customer's
problems so that the sales force spends time targeting the correct customers at the right time.
– Significance of an Effective Sales Strategy

1. An effective sales strategy requires looking at long-term sales goals and analyzing
the business sales cycle, as well as meeting with sales people about their personal
career goals.
2. Helps gain a more intimate knowledge of the sales intervals, seasonal changes and
what motivates the sales team.
3. Creates long-term sales strategy based on which, sales managers should create
monthly and weekly sales strategies. Allows for short-term performance
measurement of the sales team.
– Types - Businesses employ one of two basic types of sales strategies to their overall plan:
direct or indirect.
 With the direct sales strategy, sales people attack the competition head on.
 Indirect sales approaches apply more subtle techniques by demonstrating features
and benefits not available with the competition‘s products or services without ever
mentioning them by name.
– Components = Product Placement + Promotion + Testimonials + Core Selling Strategies

– Function
 A firm many use a direct or indirect sales strategy, or a combination of the two.
 A sales strategy lays out the steps and methods necessary for customers in different stages.
 Potential customers - introduces the brand and product or service in ways that
show how it can solve his or her problems.
 Current customers
i. Require more personal communication about new features or benefits.
ii. Promotions and referral discounts work to motivate current customers.
– Considerations
 Requires market knowledge, awareness of competitor activities, awareness of
current trends and detailed business analysis.
 Small business owners wishing to create and implement a sales strategy for the first
time may want to hire a professional business consultant to help guide the process.
D. PROMOTION STRATEGY
– Promotion is the method to spread the word about the product or service to customers,
stakeholders and the broader public.
– There are various approaches a company can use to promote its products. They are:
 Above-the-line
 Below-the-line
 Through-the-line
– Above-the-line
 Uses mass media methods. Focuses on advertising to a large audience. It includes
conventional media like print, online, television and cinema advertising.
 Include advertisements in the press.
 It is difficult to tailor a promotion to a specific group of consumers because it is
viewed by a mass audience with different tastes and needs.
 Very expensive.
– Below-the-line
 Very specific, memorable activities focused on targeted groups of consumers.
 They are under the control of the organization.
 The purpose of these activities has been to develop the brand by creating
awareness and building a brand profile.
– Below-the-line methods include Sponsorship, Sales Promotions , Public Relations ,
Personal Selling , Direct Marketing.
– Through-the-line
 Refers to an advertising strategy involving both above and below the line
communications in which one form of advertising points the target to another form
of advertising thereby crossing the "line".
 Difference between above the line (ATL) and below the line (BTL) Bases: Target ,
Promotions - help in, Measurability , Examples
– A mix of the following can be used to promote their products or services.
i. Advertising
ii. Personal Selling
iii. Sales Promotion
iv. Public Relations

i. Advertising
– What is advertising?
 Advertising is a form of communication designed to persuade potential customers
to choose the product or service over that of a competitor. Successful advertising
involves making the products or services positively known by that section of the
public most likely to purchase them.
– Why advertise?
i. Make business and product name familiar to the public
ii. Create goodwill and build a favourable image
iii. Educate and inform the public
iv. Offer specific products or services
v. Attract customers to find out more about your product or service
– The rules of advertising

There are four rules to consider when planning any advertising activity – i.e. before we
prepare and book any form of advertising.
i. Aim
ii. Target
iii. Media
iv. Competitors
– Developing effective advertising (AIDA) Good advertising generally elicits the following
four responses:
 Attention, Interest, Desire and Action.
– Commonly used media

 Which media we use will depend on who we are trying to reach, what we want to
say looking into the budget.
 Often a combination of media can be used to good effect.
i. Stationery v. Television ix. Cinema
ii. Window display or vi. Direct mail x. Point of sale
office front vii. Outdoor xi. Online
iii. Press advertising viii. Ambient xii. Directory listings
iv. Radio
ii. Personal Selling

– What is personal selling?
– It involves oral presentation of message in the form of conversation with one or
more prospective customers for the purpose of making sales. A salesperson plays
three different roles
i. Persuasive role
ii. Service role
iii. Informative role
iii. Sales Promotion
– What is sales promotion?

– Sales promotion relates to short term incentives or activities that encourage the
purchase or sale of a product or service.

– What are the major sales promotion activities?
– Sales promotion activities can be targeted toward final buyers (consumer
promotions), business customers (business promotions), retailers and wholesalers
(trade promotions) and members of the sales force (sales force promotions).
– Consumer promotions – Business promotions

i. Point of purchase display material i. Seminars and workshops
ii. In-store demonstrations, samplings and ii. Conference presentations
celebrity appearances iii. Trade show displays
iii. Competitions, coupons, sweepstakes and iv. Telemarketing and direct mail
games campaigns
iv. On-pack offers, multi-packs and bonuses v. Newsletters
v. Loyalty reward programs vi. Event sponsorship
vii. Capability documents
– Trade promotions – Sales force promotions

i. Reward incentives linked to purchases i. Commissions
or sales ii. Sales competitions with prizes or
ii. Reseller staff incentives awards
iii. Competitions iii. Back to top
iv. Corporate entertainment
v. Bonus stock
iv. Public Relations
– What is Public Relations?

– It is the deliberate, planned and sustained effort to establish and maintain mutual
understanding between an organization (or individual) and its (or their) public.
– Building good relations with the stakeholders (public) of the business by obtaining favorable
publicity, building a good corporate image and handling or heading off unfavorable rumors,
stories and events.
– Who is a stakeholder?
– Stakeholders are the various groups in a society which can influence or pressure your business
decision making and have an impact on its marketing performance. These groups include:
i. Clients/customers iv. Strategic partners vii. Local community
ii. Staff v. Media viii. Financial institutions
iii. Shareholders vi. Government ix. Community groups
– What are the main public relations tools?

 Typical public relations tools include:
i. News creation and distribution (media releases)
ii. Special events such as news conferences, grand openings and product
launches
iii. Speeches and presentations
iv. Educational programs
v. Annual reports, brochures, newsletters, magazines and AV presentations
vi. Community activities and sponsorships

E. NEGOTIATION
– Negotiation is a process where two or more parties with different needs and goals discuss an
issue to find a mutually acceptable solution.
– In business, negotiation skills are important in both informal day-to-day interactions and
formal transactions such as negotiating conditions of sale, lease, service delivery, and other
legal contracts.
– Good negotiations contribute significantly to business success, as they:

1. Help in building better relationships
2. Deliver lasting, quality solutions
3. Helps in avoiding future problems and conflicts.
 Negotiation can be categorized in different ways. Below are just a few ways that we can look
at negotiation:
 Integrative negotiations, Distributive negotiations , Inductive , Deductive , Mixed
F. CUSTOMER RELATIONS
– CRM is the abbreviation for customer relationship management.

– It entails all aspects of interaction that a company has with its customer, whether it is sales or
service-related.
– It is the process of carefully managing detailed information about individual customers in
order to manage loyalty.
– CRM is often thought of as a business strategy that enables businesses to:

 Understand the customer
 Retain customers through better customer experience
 Attract new customer
 Win new clients and contracts
 Increase profitability
 Decrease customer management costs
– How CRM is used today

 Enable companies to provide excellent real-time customer service through the
effective use of individual account information.
– The impact of technology on CRM

– Advancement in technology have also changed consumer buying behavior and
offers new ways for companies to communicate with customers and collect data
about them.
– customer relationship is being managed electronically.
– Many aspects of CRM relies heavily on technology; however the strategies and
processes of a good CRM system will collect, manage and link information about
the customer with the goal of letting you market and sell services effectively.

– The benefits of CRM
a. Having all your business data stored and accessed from a single location.
b. Storing all the data from all departments in a central location gives
management and employees immediate access to the most recent data
when they need it.
c. Departments can collaborate with ease
d. Other benefits include
– A 360-degree view of all customer information, knowledge of what
customers and the general market wants and
– Integration with your existing applications to consolidate all
business information.
G. EMPLOYEE MANAGEMENT
– A process that companies use to effectively manage all interactions with employees, ultimately
to achieve the goals of the organization.
– The human resources department can play a critical role in this process.
– Factors which lead to effective employee relationship
i. Identifying objectives
ii. Determining employee needs
iii. Balancing work and life needs
iv. Open and honest communication
v. Measuring and monitoring results
vi. Relationships are interpersonal
H. BUSINESS FAILURE
– Business failure refers to a company ceasing operations following its inability to make a profit
or to bring in enough revenue to cover its expenses. A profitable business can fail if it does not
generate adequate cash flow to meet expenses.
– The 12 broad causes that lead to a business failure are summarized below.
i. Lack of industry experience vii. Unworkable goals

ii. Inadequate financing viii. Diminished customer base
iii. Lack of adequate cash flow ix. Uncontrolled growth
iv. Poor business planning x. Inappropriate location
v. Management incompetence xi. Poor system of control
vi. Ignoring the competition xii. Lack of entrepreneurial skills
I. VENDOR MANAGEMENT
– Vendors are individuals or businesses that supply goods or services to other individuals or
businesses.
– Vendor management is a term used to describe the process of finding, qualifying and doing
business with vendors.
– Common activities include researching vendors, negotiating contracts, obtaining quotes,
evaluating performance, creating and updating vendor files, and ensuring that payments are
made properly.

– How is vendor management done?
i. Once a business determines that it has a need that must be outsourced, vendor
management begins.
ii. The company must find one or more vendors that can supply the good or
service needed and evaluate each vendor.
iii. After vendors are selected, managing a pool of vendors, assigning jobs or
contracts as needs arise, monitoring vendor performance, and ensuring that
contract terms are followed.
iv. In large companies, a vendor manager often has more than one vendor in the
pool for each type of product of service.
v. Vendor management often involves a great deal of electronic or manual
paperwork.
vi. If the vendor will have access to proprietary or private information, a non-
disclosure or other such agreement must usually be signed and placed in the
vendor files.
vii. The term vendor management is usually used within the context of business
operations, but individuals may also need to manage vendors from time to
time.
– Quality, timeliness and customer satisfaction
 Quality is the totality of features and characteristics of a product or service that
bear on its ability to satisfy stated or implied needs.
 A company that satisfies most of its customer needs most of the time is called a
Quality Company.
 Impact of quality:
i. Product and service quality, customer satisfaction and company
profitability are intimately connected.
ii. Higher level of quality results in higher level of customer satisfaction,
which supports higher prices and (often) lower costs.
iii. Companies that have lowered costs to cut corners have paid the price when
the quality of the customer experience suffers.
 Quality is clearly the key to value creation and customer satisfaction.

Unit 4 – Enterprise Growth Strategies
A. Growth and Development Of An Enterprise

 Growth is always essential for the existence of abusiness concern.
 One should onlyexpand when there are untapped opportunities thatcan benefit the business.
 An entrepreneur has a dual role to play- one, that of a leader and the other of a manager.
 The expansion of a concern may be in the activities or acquisition of ownership and control
ofother concerns. Thus, expansion may be:
a. Internal Expansion
b. External Expansion
a. Internal expansion
 Internal expansion results from the gradual increase in the activities or production
capacity of the concern.
 It may be done by
i. Adding more machines or byreplacing old machines.
ii. Taking up other units to increase the production capacity
iii. Entering new fields on the production and marketing sides.
 Internal expansion may befinanced by the issue of more share capital, generating funds
from old profits or byissuing long–term securities.
 The net result of internal expansion is the increase inbusiness activities and broadening
the present capital structure.
b. External expansion or business combination

 Business combination where two or more concerns combine and expand their
business activities.
 Combination = two or more units engage in similar business or related process or
stages. Sometimes stages of the same business join with a view to carry on their
activities or shape their polices on common basis some other or in coordination for
mutual benefit or maximum profits.
 The combination may be among competing units or units engaged in different
processes. After combination, the constituted firm pursues some common
objectives or goals.
 Main forms of external expansion are Franchising and Mergers and Acquisitions
Franchising
 Franchising allows entrepreneurs to be in business for themselves, but notby themselves.

o Franchising is as "an arrangement whereby the manufacturer or sole distributor of
atrademarked product or service gives exclusive rights of local distribution to
independentretailers in return for their payment of royalties and conformance to
standardized operatingprocedures".
o The person offering the franchise =franchisor.
o Franchisee = theperson who purchases the franchise.
o Foundationof this relationship =Franchise Agreement.

 The main ingredients of a franchise agreement:
a. Contract Explanation
b. Operations Manual
c. Proprietary Statements
d. On-going Site Maintenance
 Big brands make head towards for franchising

 Companies that have opted for this mode of expansion are Dabur,Raymond Ltd. ,
NIIT, Mahindra & Mahindra Ltd..
 Types of franchising
a. Product franchise business opportunity
b. Manufacturing franchise opportunity
c. Business franchise opportunity ventures
d. Business format franchise opportunity
 How Franchising help start-ups:

1. Product has an established goodwill in the market
2. Lesser requirement for training
3. Lower running costs
4. Mutual interest
 Advantages and disadvantages of franchising
 Advantages to the franchisee Advantages to the franchisor

1. Product acceptance 1. Quick expansion
2. Management expertise 2. Cost advantages
3. Capital requirements
4. Knowledge of the market
5. Operating and structural control
Disadvantages to the franchisee Disadvantage to the franchisor

1. Right and the only way of doing things: 1. Difficulty in identifying quality franchisees.
2. Continuing cost implication:
3. A Risk of franchisor getting bought:
4. Inability to provide services:
Growth through Mergers and Acquisitions (M&A)

 There are various reasons that firms may choose to grow through M&A instead of
expanding internally.
o The company already exists in place, with its own production capacity, distribution
network and clientele.
o M&A may usually turn out to be less expensive

Mergers
 A merger is a combination of two companies into one larger company.
 This action involves stock swap or cash payment to the target. In merger, the acquiring
company takes over the assets and liabilities of the merged company. All the combining
companies are dissolved and only the new entity continues to operate.
o Combination involves firms that are of similar size=consolidation.
o When the two firms differ significantly bysize = merger. It takes two forms.
 Amalgamation = two entities combine together and form a new entity.
 Absorption = one entity gets absorbed into another.
Types of Mergers
1. Conglomerate 4. Product extension mergers
2. Horizontal merger 5. Vertical merger
3. Market extension mergers
Acquisitions
 Acquisition refers to a corporate action in which a company buys most, if not all, of the
target company's ownership stakes in order to assume control of the target firm.
 . Acquisitions are often paid in cash, the acquiring company's stock or a combination of
both. An acquisition, also known as a takeover, is the buying of one company (the target) by
another.
 Types -There are four types of acquisitions:

1. Friendly acquisition 3. Back flip acquisition
2. Reverse acquisition 4. Hostile acquisition
 Reasons For Mergers And Acquisitions Reasons for Failure of Merger and
1. Synergy- can take the following forms: Acquisitions
 Operating synergy 1. Unrealistic price paid for target
 Financial synergy 2. Difficulties in cultural integration
2. Acquiring new technology 3. Overstated synergies
3. Improved profitability 4. Integration difficulties
4. Acquiring a competency 5. Poor business fit
5. Entry into new markets 6. Inadequate due diligence
6. Access to funds 7. High leverage
7. Tax benefits 8. Boardroom split
9. Regulatory issues
10. Human resources issues
B. VALUE ADDITION
 Business adds values to goods and services by modifying them in a particular way to
create a new product of greater value to customers.
 Added value,
o From a financial point of view= difference between the value of inputs to a
production process and the value of the outputs of that process.
o From a marketing perspective, = means adding value that turns a commodity into
a branded product.

 Common examples of adding value include:
 Turning cotton into fabric, Turning milk into cheese, etc.
 Adding Value is a Business Strategy for Growth (Kevinzhengli) - Types of added value
 There are several types of added values that a business can employ to improve its
products and services.
1. Quality
2. Environmental
3. Cause-related
4. Cultural
The different types of added value are not mutually exclusive and can be employed at
any phase of the production or service cycle.
Adding value can be used as a marketing strategy to differentiate a product from
competing products. Such strategies should be fully researched and included in a
business plan to show the potential benefits to a business.
C. MOVING-UP THE VALUE CHAIN
 A value chain is the whole series of activities that create and build value at every step.
The total value delivered by the company is the sum total of the value built up all
throughout the company.
 Michael Porter developed this concept. In simple words 'Value Chain' is a high level
model of how business receive raw-materials, add value to the raw-materials through
various processes and sell as finished products to customers. 'It looks at every step of
business, from raw-materials to the eventual end users, with one goal to deliver
maximum value.
 If they are run efficiently, the value obtained should exceed the costs of running them.
 Primary Activities Support Activities

1. Inbound logistics: 1. Procurement:
2. Operations: 2. Technological development:
3. Outbound logistics: 3. Human resource management:
4. Marketing and sales: 4. Firm infrastructure:
5. Services:
Six Requirements for Value Chain Management

Value chain managers are always looking for ways to improve the company's processes.
1. Coordination and collaboration
2. Technology investment
3. Organizational process
4. Leadership
5. Employee/human resources
6. Organizational culture and attitudes

Unit 5 – Business Arithmetic
Unit of Sale, Unit Price and Unit Cost (Multiple Products or Services)
 Unit of sale is required for tracking progress, comparing past with the future and to be
able to take corrective action. In short, it is a management tool.
 The entrepreneur can use Unit of Sale it for determining and establishing its
o Pricing,
o Cost per unit,
o Gross profit per unit,
o Sales trend,
o Sales target etc.
 The business person some quick and easy way of checking the progress of the business or
plan corrective actions.
o Defining the unit of sale, unit price and unit cost & resultant gross profit in a
meaningful way is the answer.
Business Unit of Sale Unit Price Unit Price per Unit of

Sale
Grocery store, A customer Average purchase Average purchase made
by one customer‘
Restaurant A diner Average amount billed Average amount billed
per diner
Beauty Parlour or A customer Average billing Average billing per
Saloon customer
 Many industries have their unique thumb rules for the relationship between Unit Price and
Unit Cost.
o In Fast Moving Consumer Goods Industry it could be 80 or 85% (cost as percentage age
of selling price).
o In food industry, it could be 30 to 35% (COG as percentage age of selling price).
o Electronic items may have a different thumb rule. Where none exists, you may be able
to develop your own.
Some formulas:
1. Unit Price per customer = Total Billed Amount .
Number of Customers
2. Unit Cost per product = Total Sale .

Number of Unit Sold
3. Gross Profit = Selling price per unit-cost price per unit
Break Even Analysis - (Multiple Products or Services)

 Breakeven point is the level of sales (or revenue generated) that equals all the expenses
required for generating that revenue.
 It is not more than the expenses (i.e. no profit) nor is it less than the expenses (i.e. no loss).
In other words there is neither loss nor profit.

At the breakeven level
 B.E. Qty =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
(Selling price per unit – variable cost per unit)
 Thus, Break even quantity is the quantity where Total Revenue = Total Expenses, where
o Total Revenue = Total Quantity x Price Per Unit = Qty x Unit Price
o Total Expenses = (Total Quantity x Cost Per Unit) + Fixed Costs
= (Qty x Unit Cost) + Fixed Exp
 that is, at Break even quantity, (Qty x Unit Price) = (Qty x Unit Cost) + Fixed Exp
 (Qty x Unit Price) - (Qty x Unit Cost) = Fixed Exp
 Qty x (Unit Price – Unit Cost) = Fixed Exp
 Qty x Gross Margin (or Profit) per Unit = Fixed Exp
B.E. Qty for a single product = Fixed expenses .

Selling price per unit – variable cost per unit
B.E. quantity for multiple products:

= Fixed expenses .
Weighted Average Selling Price per Unit – Weighted Average Variable Cost per Unit
Please note: Gross margin and gross profit are one and the same.
 Usefulness of Break–Even Analysis

1. Forecasts
2. Identify problem areas
3. Cost estimation
4. Price policy
Sales mix break-even point calculation

 Sales mix = proportion in which two or more products are sold.
 For the calculation of breakeven point for sales mix, following assumptions are made:
1. The proportion of sales mix must be predetermined.
2. The sales mix must not change within the relevant time period.
3. All cost can be categorized as variable or fixed.
4. Sales price per unit, variable cost per unit and total fixed cost are constant.
5. All units produced are sold.
Calculation method for the break-even point of sales mix

 Based on the Contribution Approach Method.
 Since we have multiple products, they will have different contribution margin per unit.
 Thus, we calculate
o ‗Weighted average contribution margin per unit‘ and
o ‗Weighted contribution margin ratio‘.
 These are then used to calculate the break-even point for sales mix.

Importance and Use of Cash Flow Projections
 Cash (or money, which means both currency and checks) is the lifeblood of every business. It
is the most important asset for the operations of a business.
 Cash Flow refers to the movement of money in and out of a business during a specific period
of time. It is a record of a company's inflows and outflows.
a. Cash inflow is defined as the movement of money into a business and
b. Cash Outflow is defined as the movement of money out of a business.
 Cash Flow Projection shows how cash is expected to flow in and out of your business.
a. It is an important tool for cash management, as it helps one estimate if outflows are
too high or when you might want to arrange short term investment to deal with a cash
surplus.
 Comparison of Cash Flow Projection and Cash Flow Statement.
Cash Flow Statement Cash Flow Projection

a. Describes the past cash flow a. Shows cash anticipated to be generated
or expended
b. Does not manage day to day b. Critical management tool
requirement.
Why Cash Flow Projection?

 Every business must want to manage its affairs in a very efficient manner. Which means
o It must pay its suppliers as per agreed terms,
o Pay the employees their wages on stipulated dates,
o Pay government levies etc as per rules,
o Procure services and
o Pay for the same, pay utility bills & rent etc on time.
 Similarly it must collect what is due to it also in a timely manner.

 Often, when business is expanding, your outflows can be more than in your inflows.
o There is always a lag between your spending and your receiving the sales revenue.
o Receipt of sales revenue may be delayed .
In such situations, you should be equipped with sufficient information to be able to
arrange for needed funds.
 Cash Flow Projections is not a static document. It must be used as a dynamic tool.
o Calculations of cash Flow Projections are based on certain assumptions. Actual
performance will be different.
o To avoid such situations, it is important to review projections periodically and recast

the future based the current status
o An important question that arises is about the frequency and period (unit of time) of
preparing Cash flow projections.

o The answer depends on the purpose for which the projection will be used.
 If it is for a Business Plan (to attract investors and lenders),
 It will be prepared at the initial stage – monthly for the first year,
quarterly for the next two years and annual thereafter.
 These projections are meant for demonstrating the fluctuating need of
the short term funds (working capital or overdraft facility).
 It takes the form of cash flow statement and because it is for the future,
it is also referred to as pro-forma cash flow statement.
 If it is for running the day to day operations, then
 The projections would cover a much shorter period of say 3 to 6 months
(13 to 26 weeks). The unit of time could be a month or even a week.
 The length of the period is closely related to the volatility of the business
and one‗s ability to forecast accurately.
 Decide the frequency and develop a format that suits your business.
 As you would be preparing this projection on periodic basis, please make sure that when one
‗period‘ is over, it is dropped and a new period is added, keeping the length of the horizon
intact.
 How accurate a Cash Flow Projection is depends on the period and horizon involved.
How to develop a cash flow projection?

1. Decide on the frequency & period as well as horizon .
2. Develop the format, with items appropriate for your business,.
3. A projected cash flow begins with the existing cash balance.
4. Where payment dates are variable, assume that you will pay suppliers as soon as possible
but not receive payment from customers until the last possible date.
5. Adding all outflows then enables you arrive at the surplus or deficit for the period.
Particulars April ( ) May ( ) June ( )
Sources Of Inflow:
A Total Inflows
Forthcoming Expenditure
B Total Expenditures
Surplus Or (Deficit)
(A – B)
Opening Balance
Closing balance

Budgeting & Managing the Finances
What is financial management?

 Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise.
 It means applying general management principles to financial resources of the enterprise.
Objectives of financial management

 procurement, allocation and control of financial resources of a concern.
 The Main objective of Financial management is maximization of shareholder‗s wealth.
o Here, owners are shareholders and wealth maximisation refers to increasing the
market price of shares consistently in the long run.
 This may be achieved by:
a. Ensuring regular and adequate supply of funds to the concern.
b. Ensuring adequate returns to the shareholders.
c. Ensuring optimum funds utilization. Once the funds are procured, they should be
utilized in maximum possible way at least cost.
d. Planning a sound capital structure-There should be sound and fair composition of
capital so that a balance is maintained between debt and equity capital as well as
long term and short term uses and sources.
Process of financial management

1) Financial planning - ensure that enough funding is available at the right time to meet
the needs of the business.
2) Financial control - addresses questions such as:
 Are assets being used efficiently?
 Are the businesses assets secure?
 Does management act in the best interest of shareholders and in accordance with business
rules?
3) Financial decision-making
 The key aspects of financial decision-making relate to investment, financing and
dividends:
o Investments must be financed in some way – debt or equity
o Whether profits earned by the business should be retained or distributed as
dividends.
Budgeting
 ‗Budget‘ = ‗allocation of resources‘.

 For any business, a budget is a quantitative expression of a plan for a defined period of
time. It may include planned sales volumes and revenues, resource quantities, costs and
expenses etc.
 Essentials of budget include:
 To control resources
 To communicate plans to various responsibility center managers.
 To motivate managers to strive to achieve budget goals.
 To evaluate the performance of managers
 For accountability

 Types of budgets include
a. Sales budget – an estimate of future sales, in units and currency. Helps create sales goals.
b. Production budget – an estimate of the number of units that must be manufactured. It also
estimates the various costs involved with manufacturing those units, including labour and
material.
c. Capital budget - used to determine whether an organization's long term investments are
worth pursuing.
d. Cash flow/cash budget – a prediction of future cash receipts and expenditures for the
short term future. Helps the business determine whether the company will need to seek
outside financing.
e. Marketing budget – an estimate of the funds needed for promotion, advertising, and
public relations.
f. Project budget – a prediction of the costs associated with a particular company project.
These costs include labour, materials, and other related expenses.
 Budgets and budgeting
o budget = the final product, budgeting = the process of arriving at a budget.
o A budget is an allocation of money for some purpose.
o Modern formal budgets limit expenditures; predict income, profits, and returns on
investment a year ahead.
o They have evolved into tools of control and are also used as a means of
determining such rewards as profit-sharing and bonuses.
 Budgeting as a process
o In large corporations, budgeting is a collective process in which operating units
prepare their plans in conformity with corporate goals published by top
management.
o Each Unit managers calculates and presents to a reviewing upper management
panel
 Projections of sales, operating costs, overhead costs, and capital
requirements.
 Operating profits and returns on the investment they intend to use.
o The reviewing upper management panel and May, thereafter, make whatever
changes result from instructions from or negotiations with the higher level.
o Approved budgets then become the road-map for operations in the coming year.
o Ideally monthly or quarterly budget reviews track performance against the budget.
As part of such reviews, changes to the budget may be approved. At yearend
managers are judged by their performance against the budget.
 Benefits of budgeting
o For a new business, it is a roadmap that can help them set goals and assess the
validity of their business concept.
o For established small businesses, it determining how the business is performing
through the years, and helping identify possible future investments.
o By regularly consulting a budget, business leaders can compare actual figures and
catch potential business shortfalls or other problems early.
o Budgets can also be instrumental in winning over investors,.
o It ensures that responsible managers take time to think about their operation by
looking at all of its aspects.

Budgeting creates a comprehensive picture of the future and makes both opportunities
and barriers conscious. This foreknowledge then helps guide day-to-day activities.
 Cost of budgeting
o The chief cost of the budget processis time.
o Much of the negative attitude that has developed concerning this activity has its
roots in unnecessary bureaucratic bottlenecks on the one hand and unreliability
because of rapid change a few months out.
 Forms Budgeting Process

o The two dominant forms of budgeting processes are traditional and zero-based.
Business planning is usually a combination of the two.
1. Traditional budgeting = based on a review of historical performance and
then the projection of such findings to the future with modifications..
2. Zero-based budgeting is the creation of a completely new budget from the
ground up. When using this method, the operation must justify and
document every item of expenditure and income anew.
o Budgeting is an important and integral part of running a business.

1. Various future strategies planned in the business must be translated in to
numbers.
2. Budget and budgeting help one manage the business by numbers.
Working capital
 Need for capital
 For procuring or investing in longer term assets – land, building, machinery,
equipment etc. These are typically known as Fixed Assets. Once pressed in to
service, they last over a reasonably longer period. These are placed in service for
carrying out the main activity of the business – production and sales or service etc –
and are not traded or sold to receive money (except when they have outlived their
life). In other words, money invested on these items does not result in direct cash
inflow for the business.
 For buying raw materials, packing materials, paying rent, insurance premium,
utility bills, wages and salaries and for many other services and/or materials used
in the production or service. In other words this is the money needed for the day-
to-day operations of the business.
 Money needed to fund the normal, day to day operations of a business is known as the
Working Capital. It ensures you have enough cash to pay your debts and expenses as they
fall due.
 Need for working capital.

 If one is involved in manufacturing activity,
a. buying raw materials and packing materials to be ‗converted‘ in to the end
product.
b. During the time required to convert raw material to end product, various
expenses like wages, rent, salary, utility bill, insurance etc are to be paid.

c. Once the end product is ready, for credit sale, it is received after the credit
period.
d. The duration between buying the raw material and receiving the cash from
the customer is known as the ‘Operating Cycle’. It is also referred to as the
Cash Conversion Cycle.
e. The cash conversion cycle (CCC or Operating Cycle)
 Length of time between a firm's purchase of inventory and the
receipt of cash from accounts receivable.
 Represents the number of days a firm's cash remains tied up within
the operations of the business.
 Different products will have different operating cycles.
o If the conversion takes longer then the cycle will be longer.
For trading, where there is no manufacturing (or
conversion), the operating cycle will be shorter.
o Longer the operating cycle, working capital quantum is
more; shorter the cycle, less working capital is needed.
OPERATING CYCLE
Inventory of finished goods

Operating Cash
Cycle for a
Trading
Concern
Receivables
Operating Cash Raw Materials Work in progress

Cycle for a
Manufacturing
Concern
Receivables Finished Goods
 Gross and net working capital

 Gross working capital is also known as current capital or circulating capital
 It is the sum total of all current assets of the business. These include
a. Cash,
b. Inventory (raw materials, work in process, finished goods, spares etc) and
c. Accounts receivable (or trade debtors).
 Current assets comprise items that would get converted in to cash in the short-run,
say, within the normal operating cycle (or cash conversion cycle) of the business.
 Current liabilities represent short-term source of funds and are expected to fall due
or mature for payment in a short period, generally within a year. These typically
consist of payables to vendors and service providers, employees, other short term
borrowings and provisions.
 Current assets: Stock Trade , Debtors , Cash, Short term investment
 Current liabilities: Trade creditors, Short term loans, Outstanding expenses

Inventory Control and Economic Order Quantity
Inventory
 The word inventory = raw materials, semi-finished goods, consumables, spare parts,
finished goods etc.
 It deals with tangible items.
 We will examine two types of businesses
o Manufacturing and
o Trading (wholesale or retail) and not service.
 In the accounting jargon, inventory refers to the value of all the items in the inventory list
that is owned by the business.
Control
 An inventory control system is expected to help achieve ‗desirable behaviour‘ of the
inventory items. Higher the conformance with the ‗desirable behavior‘ using a system, that
system can be labeled as a better system.
 Desirable behaviour of any inventory item =
o Moment the need (demand) arises we should be able to supply the item – without
losing any time.
o The above should be at the lowest possible cost.
 A well conceived and thought through system can help in achieving the two different
aspects of control – physical and fiscal (or monetary).
Items that make up the inventory

For a good inventory control system, we need to take care of both physical and fiscal
aspects. But before we deal with those two, let us understand the nature of items that
make up the inventory.
1. Stock keeping unit 5. Lead time 9. Shelf lif
(SKU) code 6. Standard vs made to 10. Safety aspects
2. Motley crowd order 11. Obsolescence
3. Space 7. Seasonality of supply
4. Value 8. Demand not uniform
or not predictable
1. Stock keeping unit (SKU) code
 A unique code identifying inventory. May be a combination of alpha and numeric.
Bar Codes and RFID (Radio Frequency Identification).
2. Motley crowd
 In our stock of inventory, SKUs can be classified as Raw Materials, Packing
Materials, Spare Parts, Semi Finished Goods (or WIP – Work In Progress), Finished
Goods, Consumables etc.
3. Space
 Space requirement for all items will not be identical; neither will it have
proportionate relationship with the cost of the item.
4. Value
 Not all SKUs have same value.
5. Lead time
 Lead time = time taken to manufacture or procure an item.
 It depends on many factors and the combined effect of these factors.

6. Standard vs made to order
 Some of the items in the inventory could be commodity items or many suppliers
produce to same specifications and hence easy to choose from.
 Others may be specifically made to order and hence possibly limited sources to
order from.
7. Seasonality of supply
 If the item is an agricultural product (grains, vegetables, fruits etc.), the supply
would be seasonal.
8. Demand not uniform or not predictable
 Demand for an item could be seasonal. It may be easy to forecast but in others not
so easy.
9. Shelf life
 If items are perishable in or have expiry dates, they impose certain constraints on
10. Safety aspects
 If items are hazardous in nature and special precautions have to be taken in their
storage.
11. Obsolescence
 Due to advancement in technology, certain items may not be used and their
demand drops off.
 These are the various characteristics of SKUs that have to be kept in mind while designing
inventory control systems.
Pareto's Principle and ABC analysis for control

 This principle holds that in a given system, a relative handful of "causes" will produce the
majority of "effects."
 The overall point still stands: A relatively handful of things will generate the bulk of the
results or in any group will have “vital few and trivial many”
o In ABC analysis, a company reviews its inventory and sorts all SKUs into three categories.
Once a company has conducted its ABC analysis, it can devise an inventory-control strategy
that focuses effort where it will have the greatest effect.
"A" Inventory "B" Inventory "C" Inventory

Ratios Between The 10-20% of the items 15-25% account for 10- 65-75% account for 5-
Number Of Items And account for 70-80% of 20% of the purchase or 10% of the purchase
The Currency Value the purchase or consumption. or consumption.
Of The Items consumption.
Purchased/Consumed
On A Repetitive Basis
Degree Of Control A - outstandingly B - of average C - Relatively

important and so importance; unimportant as a
tightly controlled basis for a control
scheme.

"A" Inventory "B" Inventory "C" Inventory
Strategy Used Tightly controlled, Watched closely, but Least expensive, the
meaning the company the company reviews company can order
keeps close tabs on its ordering strategy them in bulk and
how much it has in less often. exercise minimal
stock; pays close controls; all that
attention to current really matters is that
demand and forecasts the company doesn't
for future demand; run out.
and carefully plans its
ordering so that it
neither runs out nor
winds up with too
much excess inventory
that can become
obsolete.
Differences between
(A) items (High (B) items (Moderate (C) item (Low
Consumption Value) Consumption Consumption
Value) Value)
Degree of control Very strict consumption Moderate control Loose control
control
Safety stock No/very low safety stock Low safety stock High safety stock
Delivery Phased delivery (Weekly) Once in three Once in 6 months
months
Control report Weekly Monthly Quarterly report
Follow up Maximum follow up Periodic follow up Exceptional
Sources of supply As many sources as Two or more reliable Two reliable
possible
Accuracy of forecasts Accurate forecasts Estimates on past Rough estimate
data
Centralized purchasing Central purchasing Combination Decentralised
/storage purchasing
Max. efforts to control LT Moderate Min. clerical efforts
Level of management To be handled by Sr. Middle level Can be delegated
officers

Economic Order Quantity
 When to place an order =Reorder Point and how much to order = Economic Order
Quantity.
 Reorder point takes due note of the lead time and demand during lead time.
o Reorder formula = Average daily usage rate × Lead time in days
 Under ideal situation, the new quantity will arrive, just as the stock reaches zero. Real life
is not that simple or straightforward.
o There is variability in the rate of demand (or consumption) as well as in the supply.
To cater to such variability, the concept of safety stock is used.
o Thus, Reorder formula = Average daily usage rate × Lead time in days + Safety
Stock
Costs
There are two costs involved:
 One for Ordering (which includes paperwork for placing order, receiving, inspection,
warehouse handling etc) and another for holding the inventory or
 Inventory Carrying Cost (which includes cost of money tied up i.e. interest, space cost,
insurance etc).
The following model assumes:

1. Future demand is known and is uniform throughout the period.
2. Unit price of item does not vary with qty ordered. (In real life, the price varies. We will
then have to use a different model. That is not discussed here.)
Formula for calculating EOQ =

 D = Annual demand for the item
 P = Cost of placing and receiving one order (does not include purchase price)
 C = Inventory carrying cost per unit.
o = unit price of the item x carrying cost expressed as percentage of the unit price.
 S = Safety Stock level for the item.
 Q = Economic order quantity
Final note on inventory control and EOQ

 Inventory control has many facets – monetary, physical, safety and many others.
 It is crucial to understand these aspects in designing an inventory control system.
 ABC system is one such. There are other different system, including Just-in- time (JIT),
perpetual inventory etc. These have not been elaborated here.
 Economic ordering quantity is a key factor (but not the only one) in managing any
inventory.
 However, the formula we have arrived at in the earlier pages is a simplified one. There are
more advanced formulae available – that take care of seasonality of demand, fluctuations
in lead time as well as price breaks based on quantity ordered etc. Those are beyond the
scope of current discussion.

Return on Investment and Return on Equity
Measure of profitability
 Return on Investment (ROI) and Return on Equity (ROE) are two such critical profitability
ratios.
Return on investment
ROI = Net Profit x 100
Total Capital Invested
Return on equity
ROE = Net Income x 100
Equity
Which one to use? ROI or ROE:

EBITDA
 The acronym EBITDA stands for earnings before interest, taxes, depreciation and
amortization.
 Why calculate EBITDA and what its utility is.
o When financial statements are prepared, the results are a combination of different
factors: some are managerial decisions, others entrepreneurial and some others are
government policies.
o To measure or compare true effectiveness of one operation and the managerial
decisions with another one, the extraneous factors must be normalized. Let us
review these.
o Interest
 Interest is an expense but it arises due to a funding decision and not
because of business operations. So we must cancel back its effect. Adding
back the interest to PBT, takes away the effect of this funding decision.
o Taxes
 Taxes are levied by the government.
 If you are comparing profits of one period to another, the rates might have
changed.
 The business owner or manger has no control over these. To avoid
distortion in the profit, tax component is added back to the profit.
o Depreciation & amortization
 There are different options available to write off the value or ‗depreciate‘
(tangible asset) or ‗amortize‘ (intangible asset).
 One company may use a particular method and another one a totally
different one. One may write off slowly and another one fast – both being
allowed by the authorities.
 So to avoid distortion due to differing practices being followed,
Depreciation & Amortization is added back.
o When one wants to assess the efficiency of operations – either for acquisition or
comparison with benchmarked operations or over different time periods, ability to
generate cash by business is crucial. EBITDA is one such measurement. It is one of
the most widely used measures for evaluating a business for acquisition etc.
o Price for a business is often quoted in terms of a multiple of its EBITDA – say (M) x
(EBITDA). M has numerical value that varies from industry to industry.

Note:
Valuation of business for buying or selling uses EBITDA as one of the criteria. Basic philosophy in
this thought process is when someone buys a business, he or she buys the ―future Cash Flows‖
from that business. Hence they are willing to pay a ―multiple‖ of the EBITDA. However, there are
timing issues and people use concepts like DCF (Discounted Cash Flow) or IRR (Internal Rate of
Return) etc. These are beyond the scope of the current topics.

Unit 6 – Resource Mobilization
Thus, 'Finance' refers to funds or monetary resources needed by individuals, business houses and
the government.
 Finance assists in the formation of new businesses, and allows businesses to take advantage of
opportunities to grow and expand. Right from the very beginning i.e. conceiving an idea;
finance is required to:
a) Promote or establish the business
b) Acquire fixed assets
c) Make market investigations
d) Develop product
e) Keep men and machines at work
f) Encourage management to make progress and create value.
g) Expand, diversify, improve and grow.
h) Be enough to meet unexpected/unplanned business expenses.
 Before doing anything, an entrepreneur should clearly answer the following three
questions:
a. How much money is required?
b. Where will money come from?
c. When does the money need to be available?
 The money needed can be estimated by developing a statement of various assets required
by the enterprise. Integral to total amount needed is to decide about its arrangement or
sources. The various sources from which an enterprise can raise the required funds could
broadly be classified into 2 major categories.
1) Internal sources
2) External sources
 Not all of them are equally appropriate to all enterprises at all times as these different
sources carry very different:
1) Obligations
2) Responsibilities
3) Opportunities
 Internal sources referred to as owner's own money is also known as 'equity'.

 Particularly in the case of small entrepreneurs the owner's money is very small. Therefore,
an overwhelming portion of money is arranged from the external sources.
I. CAPITAL MARKETS
 The role of transferring financial resources from the surplus units to the deficit units is
what is referred to as "Financial Intermediation".
 A capital market may be defined as an organized mechanism meant for effective and
smooth transfer of money capital or financial resources from the investors to the
entrepreneurs.

 Capital markets are the most important source of raising finance for the entrepreneurs as
this market can:
a) Mobilize the financial resources on a nation-wide scale.
b) Secure the required foreign capital and know-how.
c) Ensure the most effective allocation of the mobilized financial resources.
1. Access to capital: 2. Other advantages:
a. Growth and expansion, a. Mergers and acquisitions.
b. Repaying existing debt, b. Higher valuations.
c. Corporate marketing and development c. Benchmark trading price.
d. Acquisition capital. d. Capital formation.
e. An entrepreneur's financing alternatives e. Incentives.
stands greatly increased f. Reduced business requirements.
g. Less dilution.
h. Liquidity.
i. Prestige.
 The capital market satisfies the tastes of savers and the needs of investors through its
various financial instruments and institutions.
a. Primary Market (New Issues Market)
 Primary market is basically to facilitate transfer of resources from the savers to the
entrepreneurs seeking funds for:
a) Setting new enterprises
b) Expanding
c) Diversifying
The 'new issues' may be issued by:
1) New companies – also called initial issues.
2) Old companies – also called further issues.
Initial Issues
 When for the first time, entrepreneur for the purpose of obtaining capital funds decides to
issue securities to the public in the primary market for the first time; such issues of
securities are referred as "new money issues".
 Methods Of Flotation Of New Issues - One of the most difficult problems in the new
venture creation process is obtaining finance. An entrepreneur can raise the required
capital in the primary market by the following methods:
1. Public issue
2. Rights issue
3. Private placement
4. Offer to the employees
1. Public Issue / Going Public

 When an entrepreneur offers shares to the public for subscription he/she is required to
comply with all the restrictions and formalities pertaining to the initial issues,
prospectus drafting and launch.

Advantages of Public Issue –
 Drawbacks of Going Public -:
a. Increasing accountability
b. Need to maintain dividend and profit growth trends
c. vulnerable to an unwelcome takeover
d. adhere strictly to the rules and regulations by governing bodies
e. Increasing costs higher level of reporting requirements
f. Relinquishing some control
g. a loss of privacy
 Overall, going public is a complex decision that requires careful consideration and
planning. Entrepreneurs should examine their current and future capital needs, and be
aware of how an IPO will affect the availability of future financing.
2. Rights Issue
 Rights issue is a method of raising additional finance from existing shareholders by
offering securities to them on pro-rata basis.
 In case they are not willing to subscribe, they can renounce the same in favour of another
person.
3. Private Placement
 Private placement means the direct sale by a company of its securities to a limited number
of sophisticated investors.
 Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors
like:
a. Unit Trust of India
b. Life Insurance Corporation of India
c. General Insurance Corporation of India
 Entrepreneurs both from public limited and private limited sector, bank heavily upon
raising funds through the issue of varied financial instruments under this segment as at
times they do not wish to disclose information to the open market.
4. Offer to Employees
 Stock options or offering shares to the employees has gained much popularity in many
countries of the world. This method enables employees to become shareholders and share
the profits of the company leading to:
a. Higher efficiency
b. Low labour turnover
c. Better industrial locations
d. Low floatation cost
e. Wider/higher generation of funds.
b. Secondary Market (Old Securities Market)

 Capital markets aid in the mobilization of individual savings to make them readily
available to those who need them in:
o Industry
o Trade
o Finance
o Government

 The secondary capital market, which is also known as old securities market or stock
exchange deals with buying and selling of old securities.
 From the firm’s point of view, enhances the marketability of securities and provides liquidity
to investments.
 From the investor's point of view, imparts liquidity to the long-term securities held by them.
 It operates through the medium of stock exchanges which regulate the trading activities in
this market and ensures a measure of safety and fair dealings to the investors.
 Features of Stock Exchange Stock exchange performs a number of

functions
1. Association of persons. 1. Continuous and ready market for

2. Recognition from central government securities.
3. Market for securities. 2. Facilitates evaluation of securities.
4. Deals in second hand securities 3. Checks on brokers.
5. Regulates trade in securities. 4. Provides safety and security in
6. Allow dealings only in listed securities. dealings -.
7. Transactions effected only through 5. Regulates company management.
members. 6. Intensifying capital formation.
8. Working as per rules. 7. Facilitates raising of new capital
9. Specific location. 8. Facilitates public borrowing
10. Financial barometers 9. Serves as economic barometer
10. Facilitates bank lending
 Importance of a stock exchange –

1. From the viewpoint of investors 2. From the viewpoint of entrepreneurs
a. Dissemination of useful /companies
information. a. Recognition.
b. Ready market. b. Wide market.
c. Investors' interests protected. c. Higher share values
d. Genuine guidance about the
securities listed. 3. From the viewpoint of society
e. Barriers of distance removed. a. Rapid capital formation.
f. Knowledge of profit or loss on b. Economic development.
investments. c. National projects.
 Organization and Management of Stock Exchanges

1. Governed by the provisions of The Securities Contracts (Regulation) Act, 1956.
2. The governing body is responsible for policy formulation and proper functioning
of the exchange, having wide range of powers viz.....
1) Elect the office bearers and set up committees.
2) Admit and expel members
3) Manage the properties and finance of the exchange
4) Interpret rules, regulations and by-laws
5) Adjudicate disputes
6) Conduct the affairs of the exchange.

 Securities And Exchange Board Of India (SEBI)
1. History –
 SEBI was officially established by The Government of India in the year 1988 and given
statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament.
 SEBI has its Headquarter in Mumbai, and has Northern, Eastern, Southern and
Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad
respectively
 Initially SEBI was a non–statutory body without any statutory power. However in
1995, SEBI was given additional statutory powers by the Government of India
2. SEBI's establishment
 SEBI was established as a supervising and regulatory body to curb certain
malpractices and to promote the securities markets in India.
 SEBI is managed by its members, which consists of following:
i. Chairman who is nominated by Union Government of India.
ii. Two members, i.e. Officers from Union Finance Ministry.
iii. One member from The Reserve Bank of India.
iv. The remaining 5 members are nominated by Union Government of
India, out of them at least 3 shall be whole-time members.
3. SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi
executive.
 It drafts regulations in its legislative capacity,
 It conducts investigation and can enforce action in its executive function and
 It passes rulings and orders in its judicial capacity.
Though this makes it very powerful, there is an appeal process to create accountability. There
is a Securities Appellate Tribunal which is three-member tribunal. A second appeal lies
directly to the Supreme Court.
4. Powers of SEBI - For the discharge of its functions efficiently, SEBI has been vested with the
following powers:
i. To approve by-laws of stock exchanges, SEBI
ii. To enquire the stock exchange to amend their by-laws.
iii. Inspect the books of accounts and call for periodical returns from recognized stock
exchanges.
iv. Inspect the books of accounts of financial intermediaries.
v. Compel certain companies to list their shares in one or more stocks exchanges.
vi. Levy fees and other charges on the intermediaries for performing its functions.
vii. Grant license to any person for the purpose of dealing in certain areas.
viii. Delegate powers exercisable by it.
ix. Prosecute and judge directly the violation of certain provisions of the Companies Act.
x. Power to impose monetary penalties.
II. ANGEL INVESTORS

 Business angel or informal investor or an angel investor, is an affluent individual who
provides capital for a business start-up and early stage companies having a high-risk,
high-return matrix usually in exchange for convertible debt or ownership equity.
 They fill the gap in start-up or early stage financing between "friends and family", by
providing seed funding and formal venture capital.

 Features of Angel Investors
1. They are current or retired executives, business owners or high net worth
individuals who have the knowledge, expertise, and funds that help start-ups
match up to industry standards.
2. As angel investors bear extremely high risk and expect a very high return on
investment.
3. Apart from investing funds, most angels provide proactive advice, guidance,
industry connections and mentoring start-ups in its early days.
4. Their objective is to create great companies by providing value creation, and
simultaneously helping investors realize a high return on investments.
5. They have a sharp inclination to keep abreast of current developments in a
particular business arena, mentoring another generation of entrepreneurs by
making use of their vast experience.
III. VENTURE CAPITAL
 Venture capital is a type of private equity capital provided as seed funding to early-stage,
high potential, high risk, growth up companies/entrepreneurs who lack the necessary
experience and funds to give shape to their ideas.
 Thus, venture capital is an equity based investment in a growth-oriented small to medium

business to enable the investors to accomplish objectives, in return for minority
shareholding in the business or the irrevocable right to acquire.
 Venture capital can best be characterized as a long-term investment discipline, usually

occurring over a five-year period that helps in the creation of:
a. Early-stage companies,
b. The expansion and revitalization of existing businesses, and
c. The financing of leveraged buyouts of existing divisions of major or privately
owned enterprises.
 Thus, venture capital finance has the following features:

a. It is basically equity finance in relatively new companies.
b. It is long-term investment in growth-oriented small or medium firms.
c. Venture capitalists not only provide capital but also business skills to investee
firms.
d. It involves high risk-return spectrum.
e. It is a subset of private equity.
f. The venture capital institutions have a continuous involvement in the business
after making the investment.
g. Such institutions disinvest the holdings either to the promoters or in the market.
 Funding –
o Obtaining venture capital is substantially different from raising debt or a loan from
a lender as a venture capital is invested in exchange for an equity stake in the
business.

o Venture capitalists are typically very selective in deciding what to invest in and as
a rule of thumb:
i. They may invest in one in four hundred opportunities presented to it,
ii. Looks for the extremely rare, yet sought after qualities, such as :
1. Innovative technology,
2. Potential for rapid growth,
3. A well-developed business model
4. An impressive management team.
iii. Looks for an "exit" in the time frame of typically 3-7 years.
iv. Is inclined towards ventures with exceptionally high growth potential.
 Thus, entrepreneurs are expected to carry out detailed due diligence prior to seeking
venture capital as a source of financing. As venture capitalists investments are liquid,
requiring extended time frame to harvest, an entrepreneur should carefully evaluate and
analyse, the stage which he/she would require venture capitalist to assist in.
 When to seek venture capital finance

o Entrepreneurs can typically seek venture capital to assist at any of the following
four stages in the company's development.
1) Early stage financing - This stage includes:

(a) Seed capital
(b) Pre-start up and start up
(c) Second-round financing.
2) Last stage financing /bridge /pre-public stage
a) Seed capital finance

 Capital required at pre commercialization stage. During this stage, the entrepreneur has to
convince the investor (VC) why his idea/product is worthwhile.
 The investor will investigate into the technical and the economical feasibility of the idea.
 As the risk element at this stage is very high, investor (VC) may deny assisting if he does
not see any potential in the idea.
b) Start up finance
 At the second or start-up stage, A business plan is presented by the entrepreneur to the VC
firm‘s management team.
 A prototype is developed and fully tested at this stage. In some cases, clients are also
attracted for initial sales.
 The management-team establishes a feasible production line to produce the product.
c) Second-round financing
 At this stage, the idea is transformed into a product and is being produced and sold.
 The entrepreneur, at this stage, needs assistance from the Venture Capitalist for expansion,
modernization, and diversification so that the economies of scale and stability could be
attained.

 In general, this is the last stage of the venture capital financing process.
 The main goal of this stage is for the venture to go public so that investors can exit the
venture with a profit. At this stage, the venture achieves a certain amount of market share.
This gives the venture some opportunities for example:
i. Merger with other companies
ii. Keeping new competitors away from the market
iii. Eliminate competitors
iv. Development capital
 Entrepreneurs to watch out

o Unlike public companies, information regarding an entrepreneur's business is
typically confidential and proprietary. As part of the due diligence process, most
venture capitalists will require significant detail with respect to a company's
business plan.
o Entrepreneurs are typically well-advised to protect truly proprietary intellectual
property.
o Mainly due to the increasing deregulation and the emergence of technocrat
entrepreneurs, this source of financing which has so far not taken deep roots in
India, is having enormous scope for progress.
IV. SPECIALISED FINANCIAL INSTITUTIONS
 Certain sections of the industry face greater difficulties than others in procuring long-term
finance. These include
a. Small and medium sized concerns,
b. New concerns set up by new entrepreneurial group,
c. Specific industries, which required funds for modernization,
d. Enterprises involved in innovation and new technological developments,
e. Enterprises requiring extra-ordinarily large amounts of finance with a long
gestation period,
f. Ventures in backward regions.
 Why were SFIs established?

Ans:
i. SFIs were established to meet the long-term financial requirement of such
enterprises on economic and social ground.
ii. These Specialized Financial Institutions in India are not only committed to financial
services but are also devoted towards playing a role of a promotional "mentor"
&technical advisor to a wide range of the upcoming and existing entrepreneurs.
iii. Thus, these Specialized Financial Institutions (SFIs) make an important source of
medium and long-term financing amongst all the financial institutions in India, to
the industry.

 Need for and Importance of Specialised Financial Institutions (SFIS) As SFIs provide
developmental finance, that is, finance for investment in fixed assets, they are also known
as development banks' or 'development financial institutions'. Establishing of SFIs
facilitated:
a. Provision of sufficient long-term funds in the desired sectors.
b. New and small entrepreneurs in setting up industry.
c. Development of (i) small scale industry and (ii) projects in backward areas.
d. Provision of technical and managerial advice to the entrepreneurs, facilitating thus,
in identification, evaluation and execution of new investment enterprises.
e. Underwriting of and direct subscription to the issue of shares and debentures in
thecapital market of the upcoming ventures.
f. Establishment of enterprises which require extra-ordinarily large amount of finance
for their projects with a long-gestation period.
 Types of Specialised Financial Institutions - Entrepreneurs have access to any of the

following SFIs to choose from, according to their needs and requirements:
A) At National Level/All India Development Banks

a. Industrial Development Bank of India (IDBI)
b. Small Industries Development Bank of India (SIDBI)
c. Industrial Finance Corporation of India (IFCI)
d. Industrial Credit and Investment Corporation of India (ICICI)
e. National Bank for Agriculture and Rural Development (NABARD)
f. Industrial Investment Bank of India Ltd. (IIBI)
B) At State Level
a. State Financial Corporation (SFCs)
b. Tourism Finance Corporation of India (TFCI)
c. State Industrial Development Corporations (SIDC)
C) FUNCTIONS FERFORMED BY SPECIALISED FINANCIAL INSTITUTUIONS:

i. It provides medium and long-term loans;
ii. It subscribes to new issues of shares,;
iii. It guarantees loansand deferred payment;
iv. It provides technical and managerial assistance;
v. It provides merchant banking services.
vi. To underwrite or to subscribe to shares or debentures
vii. Some may also provide assets on lease to industrial concerns. For example, assets
are owned by ICICI but allowed to be used by industrial concerns for a
consideration called lease rent.

BASIC OBJECTIVES OF THE INDIVIDUAL INSTITUTIONS
a. Industrial Development Bank of India (IDBI)

 The objective was to allow RBI to concentrate on its central banking function and allow
IDBI to grow into a development agency.
 The main objectives of IDBI are to serve as the apex institution for term finance for
industry in India.
II. Small Industries Development Bank of India (SIDBI)

 SIDBI is the principal financial institution for promotion, financing and development of
small-scale industries in India.
III. Industrial Finance Corporation of India (IFCI)

Its main objects is to provide medium and long term credit to eligible industrial
enterprises in corporate sectors of the economy, particularly to those industries to which
banking facilities are not available.
IV) Industrial Credit and Investment Corporation of India (ICICI)

 The ICICI has been established to achieve the following objectives:
a) To assist in the formation, expansion and modernization of industrial units in the
private sector;
b) To stimulate and promote the participation of private capital (both Indian and
foreign) in such industrial units;
c) To furnish technical and managerial aid so as to increase production and expand
employment opportunities.
viii. Rs. 5 lakhs is the minimum amount sanctioned by it to a single concern and normally it
does not go beyond the maximum limit of Rupees one crore.
V) National Bank for Agriculture and Rural Development (NABARD)

 NABARD was established according to the preamble to the Act, "for providing credit for
the promotion of:
i. Agriculture,
ii. Small-scale Industries
iii. Cottage and Village Industries
iv. Handicrafts and other rural crafts, and
v. Other economic activities in rural areas with a view to promoting IRDP and
securing prosperity of rural areas...."
 Objectives
1. The bank will serve as a financing institution for institutional credit such as long-
term, short-term, and for the promotion of activities in rural areas.
2. To provide direct lending to any institution as may be approved by the Central
Government. These include State Cooperative Banks, State Land Development
Banks, Regional Rural Banks and other approved financial institutions by RBI.
 Functions - The primary functions of NABARD can be classified under three heads –
1) Credit Functions -
2) Developmental Functions
3) Regulatory Functions

VI. Industrial Investment Bank of India Ltd. (IIBI)
 It was set up by IDBI at the instance of the Government of India in April 1971 for
rehabilitation of sick industrial companies.
VII. State Financial Corporation’s (SFCs)

 To meet the financial needs of small and medium enterprises, the government of India
passed the State Financial Corporation Act in 1951, empowering the State governments to
establish development banks for their respective regions.
 Objectives - The objectives of state financial corporations are as under:
a. Provide financial assistance to small and medium industrial concerns. Provide long
and medium-term loan repayment ordinarily within a period not exceeding20
years.
b. Grant financial assistance to any single industrial concern under corporate or co-
operative sector with an aggregate upper limit of rupees Sixty lakhs. In any other
case (partnership, sole proprietorship or joint Hindu family) the upper limit is
rupees thirty lakhs.
c. Provide Financial assistance generally to those industrial concerns whose paid up
share capital and free reserves do not exceed ` 3 crores.
d. To lay special emphasis on the development of backward areas and small scale
industries.
VIII. Tourism Finance Corporation of India (TFCI)

 To promote a separate all-India financial institution for providing financial assistance to
tourism-related activities/projects.
 Functions
a) TFCI provides financial assistance
b) It also provides advisory and merchant banking services in this field.
c) The projects with a capital cost of ` 1 crore or above are generally eligible for
assistance from TFCI. Smaller projects would also be considered.
d) TFCI has sanctioned assistance to 2003 projects aggregating to ` 5.2 billion during the
last five years, resulting in more than 12,217 hotel rooms and direct employment to
22,938people.
IX. State Industrial Development Corporation (SIDCs)

 Incorporated under the Companies Act 1956 SIDCs were setup in different states as
wholly owned companies for promoting industrial development in their respective
states.

DETAILED NOTES FOR ALL INSTITUTIONS
I. Industrial Development Bank of India (IDBI)

 Introduction
o The purpose was to enable the new institution to benefit from the financial support
and experience of RBI and allow IDBI to grow into a development agency.
 Objectives: The main objectives of IDBI are to serve as the apex institution for term
finance for industry in India. Its objectives include:
a. Co-ordination, regulation and supervision of the working of other financial
institutions.
b. Supplementing the resources of other financial institutions.
c. Planning, promotion and development of key industries and diversifications of
industrial growth.
d. Devising and enforcing a system of industrial growth that conforms to national
priorities.
II.) National Bank for Agriculture and Rural Development (NABARD)
 NABARD was established "for providing credit for the promotion of:
vi. Agriculture,
vii. Small-scale Industries
viii. Cottage and Village Industries
ix. Handicrafts and other rural crafts, and
x. Other economic activities in rural areas with a view to promoting IRDP and
securing prosperity of rural areas...."
 Objectives
3. The bank will serve as a financing institution for institutional credit such as long-
term, short-term, and for the promotion of activities in rural areas.
4. To provide direct lending to any institution as may be approved by the Central
Government.
 Functions - The primary functions of NABARD can be classified under three heads –
o Credit Functions, Developmental Functions & Regulatory Functions
1) Credit Functions - NABARD provides different types of refinance to eligible

institutions. They assist entrepreneurs through:
I. Short-term credit for the following purposes:
i. Financing seasonal agricultural operations,
ii. Marketing of crops,
iii. Pisciculture activities
iv. Production/procurement and marketing of cooperative weavers
and rural artisans societies and individually,
v. Production and marketing activities of industrial cooperatives.
II. Medium-term credit for converting short-term loans to medium-term for
approved agricultural purposes.
III. Long-term credit.
IV. Refinance to cottage/village/small-scale industries located in rural areas.

2. Developmental Functions
I. NABARD coordinates the operations of rural credit institutions
II. It develops expertise to deal with agricultural and rural problems so as to
assist in rural development efforts.
III. It acts as an agent to the Government and RBI in the transaction of business
in relevant areas and provides facilities for training, research and
dissemination of information in rural banking and development.
IV. Contributes to the share capital of eligible institutions.
V. Provides direct loans to centrally approved cases.
5. Regulatory Functions
I. NABARD is empowered to undertake inspection of RRBs and Cooperative
Banks, other than the Primary Cooperative Banks.
II. A recommendation of NABARD is imperative by RRBs or Cooperative
Banks before seeking permission from RBI to open a new branch,
III. RRBs and Cooperative Banks, along with RBI, are required to file returns
anddocuments with NABARD.
III. Small Industries Development Bank of India (SIDBI)

 SIDBI was established in April 1990, and is the principal financial institution for
promotion, financing and development of small-scale industries in India.
 Objectives - SIDBI's objectives are:
a. Initiate steps for technological up gradation, and/or modernization of existing
units, marketing of SSI sector products in India and abroad.
b. Promote employment – oriented industries.
 Functions - The financial assistance of SIDBI to the small scale sector is channelized
through the following two routes:
1. Indirect assistance
2. Direct assistance
IV. Industrial Finance Corporation of India (IFCI)

 IFCI‗s main objects is to provide medium and long term credit to eligible industrial
enterprises in corporate sectors of the economy, particularly to those industries to which
banking facilities are not available.
 Objectives - The primary role of IFCI is to provide 'direct financial assistance' on medium
and long term basis to industrial projects in the corporate and co-operative sectors. The
objectives of the corporation are stated below.
a. To provide long and medium-term credit to industrial concerns engaged in
manufacturing, mining, shipping and electricity generation and distribution.
b. The period of credit can be as long as 25 years up to a maximum amount of
rupees one crore.
c. Guarantee loans and deferred payments;
d. Underwrite and directly subscribe to shares and debentures issued by
companies;
e. Assist in setting up new projects as well as modernization of existing industrial
concerns in medium and large scale sector;
f. Assist project under co-operatives and in backward areas.

V) Industrial Credit and Investment Corporation of India (ICICI)
 Objectives - The ICICI has been established to achieve the following objectives:
d) To assist in the formation, expansion and modernization of industrial units in the
private sector;
e) To stimulate and promote the participation of private capital (both Indian and
foreign) in such industrial units;
f) To furnish technical and managerial aid so as to increase production and expand
employment opportunities.
 Functions
ix. It provides medium and long-term loans in Indian and foreign currency for
importing capital equipment and technical services. Loans sanctioned generally go
towards purchase of fixed assets like land, building and machinery;
x. It subscribes to new issues of shares, generally by underwriting them or directly
subscribing the same;
xi. It guarantees loans raised from private sources including deferred payment;
xii. It provides technical and managerial assistance to industrial units, along with
consultancy services for new projects;
xiii. It provides assets on lease to industrial concerns. In other words, assets are owned
by ICICI but allowed to be used by industrial concerns for a consideration called
lease rent.
xiv. It provides merchant banking services.
xv. Rs. 5 lakhs is the minimum amount sanctioned by it to a single concern and
normally it does not go beyond the maximum limit of Rupees one crore.
VI. Industrial Investment Bank of India Ltd. (IIBI)

 The Industrial Investment Bank of India Ltd. (IIBI) was formed for rehabilitation of sick
industrial companies.
 Functions - IIBI offers a wide range of products and services such as:
1. Term-loan assistance for project finance.
2. Short duration non-project asset – backed financing working capital/other short
termloans to companies,
3. Equity Subscription Asset Credit
4. Equipment finance
5. Investments in Capital Market and Money market instruments.
VII. State Financial Corporation (SFCs)
 To meet the financial needs of small and medium enterprises, SFCs have been established
by State governments to meet the financial requirements of medium and small sized
enterprises.
 There are 18 SFCs at present.
 Objectives - The objectives of state financial corporations are as under:

a. Provide financial assistance to small and medium industrial concerns. These may
be from corporate or co-operative sectors as in case of IFCI or may be partnership,

individual or joint Hindu family business, engaged not only in the manufacture,
preservation or processing of goods, but also mining, hotel industry, transport
undertakings, generation or distribution of electricity, repairs and maintenance of
machinery, setting up or development of an industrial area or industrial estate, etc.
b. Provide long and medium-term loan repayment ordinarily within a period not
exceeding20 years.
c. Grant financial assistance to any single industrial concern under corporate or co-
operative sector with an aggregate upper limit of rupees Sixty lakhs. In any other
case (partnership, sole proprietorship or joint Hindu family) the upper limit is
rupees thirty lakhs.
d. Provide Financial assistance generally to those industrial concerns whose paid up
share capital and free reserves do not exceed ` 3 crore.
e. To lay special emphasis on the development of backward areas and small scale
industries.
 Functions
1. Grant of loans and advances to or subscribe to debentures of, industrial concerns
repayable within a period not exceeding 20 years, with option of conversion into
shares or stock of the industrial concern.
2. Guaranteeing loans raised by industrial concerns which are repayable within a
period not exceeding 20 years.
3. Guaranteeing deferred payments due from an industrial concern for purchase of
capital goods in India.
4. Underwriting of the issue of stock, bonds or debentures by industrial concerns.
5. Providing technical and administrative assistance to any industrial concern or any
person for the promotion, management or expansion of any industry.
6. Planning and assisting in the promotion and development of industries.
VIII. Tourism Finance Corporation of India (TFCI)
 The Tourism Finance Corporation of India (TFCI) is a specialized all-India development
financial institution to cater to the needs to the needs of the tourism industry.
 Functions
a) TFCI provides financial assistance to enterprises for setting up or the development
of tourism-related projects, facilities and services.
b) It also provides advisory and merchant banking services in this field.
c) The projects with a capital cost of ` 1 crore or above are generally eligible for
assistance from TFCI. Smaller projects would also be considered.
d) TFCI has sanctioned assistance to 2003 projects aggregating to ` 5.2 billion during
the last five years, resulting in more than 12,217 hotel rooms and direct
employment to 22,938people.
IX.State Industrial Development Corporation (SIDCs)
 The main functions of SIDCs are as follows:

a) Providing term finance to all small, medium, and large industrial enterprises set up in
the state,
b) Underwriting and directly subscribing to shares, and debentures of industrial
enterprises being set up in the state,

c) Preparing feasibility studies, conducting market surveys and motivating private
entrepreneurs to set up their industrial ventures in the state;
d) Collaborating with private entrepreneurs to set up industrial ventures in joint and
assisted sector.
e) Implementing IDBI's scheme of seed capital in the state.

Chapter Outlines
Unit 1: Entrepreneurial Opportunity

1. Business Opportunity
Business opportunity can be described as on economic idea which can be implemented to create a
business enterprise and earn profits.
2. Elements of Business opportunity

a. Assured market scope
b. An attractive and acceptable rate of return on investment
c. Practicability of the entrepreneur to encash it
d. Competence of the entrepreneur to encash it
e. Potential of future growth
3. Exploring opportunities in the environment

a. Opportunity spotting by analyzing the needs and problems that exist in the environment
b. Evaluating the ideas received from different sources to find a creative solution
c. Identifying a product or service through innovation
4. Factors involved in securing opportunities

a. Ability to perceive and preserve basic ideas which could be used commercially
b. Ability to harness different sources of information
c. Vision and creativity
5. Various sources which lead to the basic ideas

a. Problem
b. Change
c. Inventions
d. Competition
e. Innovation
SWOT analysis: Strength, Weakness, Opportunity, Threat
6. Environment Scanning:
a. Definition
b. Need for environment Scanning
c. Importance of environment
i. Identification of opportunities to get first mover advantage
ii. Formulation of strategies and policies
iii. Tapping useful resources
iv. Better performance
v. Sensitization of entrepreneurs to cope up with rapid changes
vi. Image building
7. Analysis of environment
a. Verbal information from customers, wholesalers, retailers distribution, consultants, etc.
b. Record of companies
c. Government publications
d. Publications by various financial institutions
e. Formal studies conducted by strategic planners

8. Environmental factors
a. Internal factors (Micro environment)
b. External Factors (Macro environment)
c. PESTEL Model
I. Political, IV. Technological,
II. Economic, V. Ecological &
III. Social, VI. Legal
Problem Identification – uses and objectives

9. Idea Generation:
a. The process of creating, developing and communicating ideas which are abstract, concrete or
visual
b. Sources of business ideas

i. Examine your own skill set for business ideas
ii. Keep up with current events and be ready to take advantage o business opportunities
iii. Invent a new product or service
iv. Add value to an existing product
v. Investigate others markets
vi. Improve an existing product or service
vii. Get on the band wagon
c. Ideas fields
i. Natural resources
ii. Existing products/services
iii. Market driven ideas/demand driven ideas
iv. Trading related ideas
v. Service sector ideas
vi. Creative effort of the entrepreneur
d. Five ways in which creative ideas can be generated:

i. Develop a new product or service.
ii. Improve an existing product or service
iii. Find a new process or resource for manufacturing a product.
iv. Find new markets for existing products or services.
v. Find a new use for a product or service.
10. Transformation of ideas into opportunities
The process of basic idea becoming an opportunity is shown in the diagram below:
Skills Knowledge
Processing
Idea Opportunity
Competencies Creative Thinking

11. Conversion of idea into opportunity
12. Idea and opportunity assessment

a. Product identification:
b. Application and use:
c. Level of operation:
d. Cost:
e. Competition:
f. Technical complexity:
g. Annual turnover and profit margin:
13. Market Assessment

a. Demand:
b. Supply and nature of competition:
c. Cost and price of product:
d. Project innovation and change:
14. Trend spotting

a. Ways in which an entrepreneur spots trends:
i. Read trends.
ii. Talk trends.
iii. Watch trends.
iv. Think trends.
15. Creativity:
a. The Creative Process:
i. Idea germination:
ii. Preparation :
iii. Incubation:
iv. Illumination:
v. Verification :
vi. Innovation:
16. Elements in the Innovation Process:

a. Analytical planning.
b. Resource organization
c. Implementation
d. Commercial application
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Unit 2: Enterprise Planning
1. Activity is thus, a symbol of human life and may broadly be categorized into:
a. Economic Activities:
b. Non-Economic activities:
2. Types Of Economic Activities- which are inspired mainly by economic consideration can
be classified in three broad categories:
a. Profession
b. Employment
c. Business
3. All Entrepreneurial activities can be divided into three major categories:

Manufacturing, Trading and Service.
(1) Manufacturing - The term is used in all economic systems:
 In a free market economy, directed toward the mass production of products for
sale to consumers at a profit.
 In a collectivist economy, directed by the state to supply a centrally planned
economy.
 In mixed market economies, manufacturing occurs under some degree of
government regulation.
(2) Service
(3) Trading:
4. Business is a continuous human economic activity with objective to earn profit by

producing, and buying and selling of goods and services.
5. Essential characteristics of Business
6. FORMS OF BUSINESS ORGANISATION: From the point of view of ownership and

management, business enterprises may be broadly classified under three categories.
a. Private Sector Enterprises:definition and forms
b. Public Sector Enterprises: definition and forms

C. Joint Sector Enterprises
7. Factors defined by the decision that an entrepreneur selecting the form of ownership
8. Factors that will be taken into account while making a choice of Form of ownership
9. From the entrepreneur's point of view the most commonly opted out forms for starting a
new venture are:
4) Sole Proprietorship
5) Partnership
6) Company

10. Sole Proprietorship:
(1) Characteristics of Sole Proprietorship Form of Business
(2) Suitability of Sole Proprietorship Form of Business
(3) Legal Formalities Involved Sole Proprietorship for Registration Procedure
(4) Limitations of sole proprietorship
11. Partnership:
(1) Meaning
(2) Characteristics of partnership
(3) Suitability of Partnership
(4) Consequences for non–registration of a partnership firm
(5) Drafting of partnership deed
(6) Registration procedure
12. Joint Stock Company:

(1) Definition
(2) Characteristics of a Company
(3) Choice to Be Made: Private Company vs Public Company
(4) Why Private Company Is More Desirable
(5) Legal formalities expected to be complied by the entrepreneur
(6) Differences between Private limited and Public Limited Companies
13. Joint Hindu Family / Firm (HUFs)

(1) Definition - Meaning of HUFs: Schools of law under HUF –Dayabhaga &
Mitakshara .
(2) Characteristics of Hindu Undivided Family
(3) Legal formalities involved/Steps involved in creation of HUFs
14. Co-Operatives Organizations:

(1) Definition,
(2) Features of Co-operative societies,
(3) Reasons why Entrepreneurs does not find this form as a very desirable
structure
15. Selection Of Form Of Ownership
16. Business Plan

(1) What Is A Business Plan?
(2) A business Plan helps a business to________
(3) Business plan are decision-making tools:
(4) Who Can Write The Plan?
(5) Importance Of The Business Plan
(6) Format Of Business Plan
(7) Parts of a business Plan

Parts of a Business Plan
(a) Introductory Profile /General Introduction
i. Biodata of entrepreneur and
ii. General report on the industry
(b) Description Of Venture/Business Venture
i. Mission statement
ii. Site
iii. Physical infrastructure
(c) Organizational Plan
i. Definition
ii. Category of Business (Manufacturing, Wholesale, Retail and Service.)
iii. Proposed Venture's Form of Ownership (Choose Between Sole
Proprietorship/ Partnership/ HUF/ Cooperative, or Corporation) With
Implications of Each W.R.T Taxes, Liability, Continuity, Financing and
Ownership.
iv. Design of the organization to help in specifying - skills needed, roles filled
by the member and chalking out informal organization or culture.
(d) Production Plan:
i. Aims At ―Plan Your Work,
ii. Objective Of Preparing A Production Plan,
iii. Factors That Production Plan Helps Form An Idea About And
iv. 3 Situations Viz Complete Partial and No Manufacturing.
(e) Operational Plan
i. Definition
ii. Objectives Of An Operational Plan,
iii. Elements Of Operational Plan
iv. Areas the Entrepreneur Needs To Pay Attention To In Order To Obtain The
Above Mentioned Objectives.
(f) Manpower Planning
i. Definition.
ii. Areas That Manpower Planning Helps To Assess.
iii. Objective of Human Resource Plan.
(g) Marketing Plan
i. Definition.
ii. Provides answers to three basic questions:
iii. Time period of preparation.
iv. Steps in preparing the marketing plan
(h) Financial Plan
i. Definition.
ii. The entrepreneur should develop a sound financial plan discussing
iii. Financial plan is a projection of key financial data about:
iv. The financial plan is so designed that the entrepreneur and the investors
could have a clear picture of
v. Components of financial plan
(i) Assessment Of Risk
i. Definition
ii. In a business plan, entrepreneur should
(j) Appendix
i. Definition
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Unit 3: Enterprise Marketing
1) What Is The Goal Of Business?

a. What is goal setting?
b. Goals need action
c. Why is goal setting important?
d. Rules for goal setting
e. What are smart goals
2) Marketing Strategy
 Marketing strategy – Definition
 What does the Marketing strategy of a company include?
i. Components of Marketing Mix:
(a) Definition
(b) The 4Ps that make up a typical marketing mix.
ii. Product Mix

(a) Product Mix: definition
(b) Decision areas involved in Product Mix.
(c) 4 crucial components of product mix.
(d) Branding:
i. Define a product
ii. What is ‗generic requirement‘ of a product?
iii. Branding as a Concept
1. Definition
2. Common terms related to branding
3. 3 components of Brand
4. Qualities of a good brand
5. Entrepreneur's perspective on brand name
6. Different policies that can be followed while choosing a
brand name.
7. Various types of brands available are:
(e) Logos
i. Define Logo
ii. Types of logo
iii. Purpose of logos
(f) Tagline
i. Define ‗Taglines‘
ii. Taglines can be in the form of:
iii. Forms that taglines can come in.
(g) Packaging
i. Define Packaging.
ii. The critical decisions that must be made on the package.
(h) Labeling
i. Define ‗Labeling‘.
(i) Importance of Intellectual Property for an entrepreneur
i. Define Intellectual property (IP) rights.
ii. Common types of intellectual property rights include

iii. Price Mix:
a. Definition
b. Price mix decision depends on:
c. Methods of Pricing Strategies.
i. Definition
ii. Advantages of cost plus pricing
iii. Disadvantages of cost plus pricing
b. PenetrationPricing
i. Definition
ii. Advantages of penetration pricing
iii. Disadvantagesof penetration pricing
i. Definition
ii. Advantages of creaming pricing
iii. Disadvantagesof creaming pricing
i. Definition
ii. Advantages of variable pricing
iii. Disadvantagesof variable pricing
iv. Place Mix (Distribution)

a. Define Place
b. Define channel of distribution or trade channel
c. 3 types of flows that a channel of distribution consists of.
d. 4 types that channels of distribution can broadly be divided into:
e. Considerations taken into account to select distribution channels,
v. Promotion Mix
i. Define promotion mix
vi. Sales Strategy

i. Definition
ii. What is a successful sales strategy
iii. Significance of an Effective Sales Strategy
iv. Types - direct or indirect.
v. Components = Product Placement + Promotion +
Testimonials + Core Selling Strategies
vi. Function of a sales strategy for potential customers and
current customers.
vii. Considerations
vii. Promotion Strategy:

i. Definition.
ii. Approaches a company can use to promote its products.
iii. Difference between above the line (ATL) and below the line
(BTL) Bases: Target , Promotions - help in, Measurability ,
Examples
iv. The 4 strategy mix that can be used to promote their products or
services.

ii. Advertising
1. What is advertising?
2. Why advertise?
3. The rules of advertising
4. Developing effective advertising (AIDA)
5. Commonly used media
6. Combination of media that can be used.
ii. What is personal selling?

o Definition.
o Roles played a salesperson.
iv. Sales Promotion
1. What is sales promotion?

2. What are the major sales promotion activities?
v. Public Relations
i. What are Public Relations?
ii. Who is a stakeholder?
iii. What are the main public relations tools?
iv. Typical public relations tools include:
E. NEGOTIATION
i. Define negotiations.
ii. How do good negotiations contribute significantly to business success,
iii. Categorization of Negotiation: Integrative negotiations, Distributive
negotiations , Inductive , Deductive , Mixed
F. CUSTOMER RELATIONS
i. CRM = customer relationship management.
ii. It entails all aspects of interaction that a company has with its customer,
whether it is sales or service-related.
iii. It is the process of carefully managing detailed information about
individual customers in order to manage loyalty.
iv. What does CRM enable businesses to?
v. How CRM is used today?
vi. The impact of technology on CRM.
vii. The benefits of CRM.
G. EMPLOYEE MANAGEMENT
i. Definition.
ii. Factors which lead to effective employee relationship
I. BUSINESS FAILURE
i. Definition
ii. The 12 broad causes that lead to a business failure are summarized
below.

H. VENDOR MANAGEMENT
i. Definition
ii. Common activities included in vendor management.
iii. How is vendor management done?
iv. Quality, timeliness and customer satisfaction
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Unit 4 – Enterprise Growth Strategies
Growth and Development of An Enterprise

i. Definition ii. When should a business iii. Types of expansion
grow
1. Internal expansion:
a. Definition
b. How can it be done?
c. How is it financed
d. What is the net result of internal expansion?
2. External expansion or business combinations

a. Definition
b. Main forms
3. Franchising:
a. Definitions of franchising, franchisor, franchisee and franchise agreement.
b. Main ingredients or components of a franchise agreement
c. Names of companies that have opted for franchising
d. Types of franchising with examples
e. How franchising helps start-ups
f. Advantages and disadvantages of franchising for:
i. Franchisee and
ii. Franchisor
4. Growth through Mergers and Acquisitions.

1. Reasons why a firm chooses Mergers and acquisitions
2. Mergers
iii. Definition
iv. Difference between mergers and consolidations:
1. Combination involves firms that are of similar
size=consolidation.
2. When the two firms differ significantly bysize = merger. It
takes two forms:
a. Amalgamation = two entities combine together and
form a new entity.
b. Absorption = one entity gets absorbed into another.

v. Types of Mergers
3. Acquisitions
i. Definition
ii. Types of acquisitions
iii. Reasons for mergers and acquisitions
iv. Reasons for failure of mergers and acquisitions
Value Addition
1. Definition
2. Values added – financial and marketing point of view.
3. Examples of value that can be added.
4. Adding Value is a Business Strategy for Growth (Kevinzhengli) - Types of added value
Moving up the Value Chain

1. Define value chain
2. Michael Porter’s 'Value Chain' model
a. Definition
b. Types of activities:
i. Primary – definition and components
ii. Support Activities - definition and components
c. 6 requirements of Value Chain Management
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Unit 5 – Business Arithmetic
1. Unit of Sale, Unit Price and Unit Cost (Multiple Products or Services)
a. Why is Unit of sale required?

b. Examples of Unit of sale.
c. What can be determined and established by the entrepreneur using unit of sale?
d. Unit of sale, unit price and unit price per unit of sale for a Grocery store, restaurant and
a beauty parlor or salon
e. Thumb rules for the relationship (cost as percentage age of selling price) between Unit
Price and Unit Cost in Fast Moving Consumer Goods Industry, food industry,
Electronic items or other industries.
f. Some formulae:
 Unit Price per customer = Total Billed Amount .
Number of Customers
 Unit Cost per product = Total Sale .

Number of Unit Sold
 Gross Profit = Selling price per unit-cost price per unit

2. Break Even Analysis - (Multiple Products or Services)
a. Definition
b. Usefulness of breakeven analysis
c. Sales mix breakeven point calculations –
i. Definition
ii. Assumptions
d. Steps and Formulae for calculation of breakeven point:
i. Single Product
 Calculate gross margin/contribution = Selling price per unit – variable cost per
unit
 B.E. Qty= 𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

𝐺𝑟𝑜𝑠𝑠𝑀𝑎𝑟𝑔𝑖𝑛𝑃𝑒𝑟𝑈𝑛𝑖𝑡
iii. B.E Qty x Selling price per unit = B.E in Rupees
ii. Multiple Product Business

 Calculate Gross Margin/Contribution/Profit Per Unit
 Find Weighted Contribution For Each Product
 Total Weighted Contribution
 Calculate B.E. Quantity For Multiple Products
 Find The Proportionate Quantity Sold For Each Product
The formulae to calculate the figures given in the above steps can be been given as:
i. Gross Contribution per Unit = Selling price per unit – variable cost per unit
ii. Find Weighted contribution for each productby multiplying the Gross
Contribution Per Unit with the proportion or the units sold for each product, that
is,
Weighted contribution for Product = Gross Contribution per Unit x units sold
iii. Find Total Weighted contribution by adding all the Weighted contribution for
Products, that is
Weighted contribution for Product A +Weighted contribution for Product B +

Weighted contribution for Product C = Total Weighted contribution

iv. Calculate B.E. quantity for multiple products
BE Qty = Fixed expenses .

Total Weighted contribution
v. Find the proportionate quantity sold for each product where
Qty sold for A = Units sold for A x BE Qty
Total Units sold
Qty sold for B = Units sold for B x BE Qty

Total Units sold
Qty sold for C = Units sold for C x BE Qty

Total Units sold
3. Importance and Use of Cash Flow Projections

a. Define Cash
b. Define cash Flow
c. Define cash flow projections.
d. Comparison of Cash Flow Projection and Cash Flow Statement.
e. Why cash Flow Projections
i. Types of payments made by business
ii. Reasons why outflows may be more than inflows
f. Cash Flow Projections as a dynamic tool:

i. Accuracy of assumptions and requirement of Review of projections
ii. Frequency of reviews depends on purpose –
 Business Plan OR
 Running day to day operations
iii. Accuracy of Cash Flow Projection is depends on the period and horizon involved
g. How to develop a cash flow projection
4. Budgeting & Managing the Finances
a. What is financial management?
b. Objectives of financial management.

i. Define
ii. Main objective is to maximize owners wealth.
iii. How can the objective ne achieved?
c. Process of Financial management

i. Financial planning
ii. Financial control –questions addressed
iii. Financial decision making
 How to finance investments
 Dividend decisions

d. Budgeting
i. Definition vi. Benefits of budgeting
ii. Essentials of a good budget vii. Cost of budgeting
iii. Types of budgets viii. Forms of budgeting process
iv. Budgets and budgeting ix. Why is Budgeting is an important and integral
v. Budgeting as a process part of running a business
5. Working Capital
a. Need for capital
b. Fixed and Working Capital – Definitions
c. Need for working capital
i. Operating Cycle or Cash Conversion Cycle
 In manufacturing activity and trading concern
 Different products have different CCCs
d. Gross and Net Working capitals

e. Definitions and examples of Current assets and Current liabilities.
6. Inventory Control
a. Define inventory
b. Define inventory control systems
c. Desirable behavior of any inventory item
d. Items that make up inventory
i. Stock keeping unit (SKU) code ii. Motley crowd iii. Space
iv. Standard vs. made to order v. Lead time vi. Safety aspects
vii. Seasonality of supply viii. Value ix. Shelf life
x. Demand not uniform/particular xi. Obsolescence xii.
e. Pareto's Principle and ABC analysis for control

i. Basic principle followed
ii. Categories of inventory
iii. Ratio between number of items and currency value of items consumed.
iv. Difference between A, B and C inventory
7. Economic Order Quantity

a. Definition
b. Reorder point = when to place an order and EOQ = how much to order
c. Reorder formula = Average daily usage rate × Lead time in days+ Safety Stock
d. Costs of inventory: definition
i. Ordering Cost/ Cost of Placing an order
ii. Carrying costs/ holding costs
e. Formula for calculating EOQ =

 D = Annual demand for the item
 P = Cost of placing and receiving one order/ ordering costs (does not include
purchase price)
 C = Inventory carrying cost per unit/ holding cost per unit
o = unit price of the item x carrying cost expressed as percentage of the
unit price.

√ + S
f. Final note on inventory control and EOQ

i. Inventory control has many facets
ii. There are other different inventory system , including Just-in- time (JIT), perpetual
inventory etc. These have not been elaborated here.
iii. Economic ordering quantity is a key factor (but not the only one) in managing any
inventory.
8. Return on Investment and Return on Equity

a. Definitions
b. Return on investment
c. Return on equity
Equity
d. The acronym EBITDA stands for earnings before interest, taxes, depreciation and
amortization.
e. Why calculate EBITDA and what its utility is.
f. The extraneous factors must be normalized to measure or compare true
effectiveness of one operation and the managerial decisions with another
one(interest, taxes, depreciation and amortization)
g. Price for a business is often quoted in terms of a multiple of its EBITDA – say (M) x
(EBITDA). M has numerical value that varies from industry to industry.
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Unit 6 – Resource Mobilization
1. Define finance
2. Reasons why finance is needed right from the beginning.
3. 3 questions related to finance to be answered before an entrepreneur does anything.
4. Sources from which an entrepreneur can raise funds.
5. All of them have different Obligations, Responsibilities and Opportunities.
6. Sources of funds

Sources Of Funds
Internal (Equity) External
External Sources
Angel Venture
SFIs Capital Markets
Investors Capital
Secondary Primary
Market Market
Public Issue Rights issue
Offer Private
to Placement
Employees
7. Capital Markets:
a. Definition
b. Why is it considered to be the most important source of capital for an entrepreneur?
c. Primary (new Issues) Market
i. Used by entrepreneurs for:
ii. May be issued by
iii. Methods of floatation of new issues:
5. Public issue
a. Definition
b. Advantages of public issue
i. Access to capital( uses of such funds)
ii. Other advantages
c. Drawbacks of going public
6. Rights issue
7. Private placement
8. Offer to the employees (leads to)

d. Secondary (Old Securities) Markets
i. Definition
ii. Importance from the firm‘s view and the investor‘s view.
iii. Features of Stock exchange
iv. Functions performed by a Stock Exchange
v. Importance of Stock Exchange:
1. From the viewpoint of investors
2. From the viewpoint of entrepreneurs/companies
3. From the viewpoint of society
vi. Organization and management of Stock Exchanges
vii. SEBI
1. History
2. SEBIs establishment
3. Quasi-legislative, quasi-judicial and quasi executive functions of SEBI.
4. Powers of SEBI.
8. Angel Investors
a. Definition
b. Features of Angel Investors
9. Venture Capital
a. Definition
b. Venture capital helps in creation of:
c. Features of venture capital
d. Funding
e. When to seek venture capital - Entrepreneurs can typically seek venture capital to
assist at any of the following four stages in the company's development.
(a) Seed capital
(b) Pre-start up and start up
(c) Second-round financing.
f. Entrepreneurs to watch out for
10. Specialized Financial Institutes

a. Sections of industry facing difficulty in seeking funds.
b. Need for and importance of SFIs.
c. Types of SFIs:
i. At national level/ all India Development banks
ii. At state level
d. General functions performed by all SFIs
i. It provides medium and long-term loans;
ii. It subscribes to new issues of shares,;
iii. It guarantees loansand deferred payment;
iv. It provides technical and managerial assistance;
v. It provides merchant banking services.
vi. To underwrite or to subscribe to shares or debentures
vii. Some may also provide assets on lease to industrial concerns. For example,
assets are owned by ICICI but allowed to be used by industrial concerns for a
consideration called lease rent

e. Detailed discussion (Objectives and functions) on:
i. Industrial Development Bank of India (IDBI)
ii. Small Industries Development Bank of India (SIDBI)
iii. Industrial Finance Corporation of India (IFCI)
iv. Industrial Credit and Investment Corporation of India (ICICI)
v. National Bank for Agriculture and Rural Development (NABARD)
1. Credit functions
2. Development functions
3. Regulatory functions
vi. Industrial Investment Bank of India Ltd. (IIBI)

vii. State Financial Corporations (SFCs)
viii. Tourism Finance Corporation of India (TFCI)
ix. State Industrial Development Corporation (SIDCs)

Question Bank- Class XII- Entrepreneurship
Unit 1
1 mark questions
1. Define an entrepreneur.
2. What is a Business opportunity?
3. Can all ideas be converted into opportunity? Give reason in support of your answer
4. From where can opportunity be derived?
5. What is meant by sensing entrepreneurial opportunity?
6. What is meant by business environment?
7. What is the next level after ‗opportunity spotting‘ and ‗scanning of environment‘?
8. What is meant by environment scanning?
9. In which period the idea resurfaces in a realistic way?
10. What is meant by problem identification?
11. Describe idea fields.
12. What is idea generation?
13. What is testing stage?
2 mark questions
1. State what has to be ensured by an entrepreneur before selecting an opportunity?
2. Enlist any two factors involved in sensing opportunities.
3. Why do we need to scan our environment?
4. Enlist any four micro factors in business environment.
5. Differentiate between ‗marketing‘ and ‗market research‘.
6. In transformation of ideas into opportunities different processes are followed. Name and
state the process.
7. Give two examples for ‗service sector ideas‘.
8. What is the basic test of a successful entrepreneur?
3 mark questions
1. Enlist any three elements of a business opportunity.
2. Explain vision and creativity as a factor in the process of sensing opportunities.
3. Enlist any three sources from where information for environment scanning can be
obtained.
4. What is meant by perceiving and sensing opportunities?
5. Enlist the objectives of problem identification.
6. With the help of an example explain the meaning of ‗Watch trends‘.
7. Why is creativity important for an entrepreneur?
8. ‗This is the subconscious assimilation of information‘. Identify and explain the stage in
creative process.
9. What is meant by analysis of environment and what does it include?
4 mark questions
1. Draw and explain the ‗Enterprise Process Diagram‘.
2. Draw and explain the opportunity project interface.
3. What is ―Problem Identification‖? State how it helps an entrepreneur.

4. Sudhalives in Solan and she was always fascinated by the abundant availability of good
quality and cheap fruits in the hilly region. Influenced by this abundance she decided to
starther own business of fruit juices. Identify and explain the idea field from where she
had got the idea.
5. Explain how ‗service-sector ideas‘ act as ‗Ideafields‘.
6. There are various ways in which an entrepreneur spots trends. Explain any two.
7. Explain the various elements involved in the innovation process.
8. When is a viable venture born?
9. Identify the various ways of spotting trends in the below mentioned situations:
a. Arvind is an avid reader of all business newspapers and magazines
b. Raja loves to spend time in a coffee shop or a mall all by himself.
c. Keshav likes to assimilate all the information he has collected
d. Ranjana is an active blogger in all social networking sites.
10. Mr.Jagat had been transferred from Delhi to Mumbai. He was disappointed because of
non-availability of home cooked north Indian food in Mumbai. He found many of his
colleagues and other people were facing the same problem. Sensing the need for home
cooked food, Mr.Jagat tied up with a group of people who could cook a variety of dishes.
Together they started ‗Home cook- A tailor made meal plan outlet‘, providing north
Indian food for `65-70 per meal. Due to meetings or some other reasons if the prepared
food was not taken by any person, the same was distributed amongst underprivileged
children.
a. Identify and explain the entrepreneurial function performed by Mr.Jagat
b. State two values conveyed by him to the society.
6 mark questions
1. Explain with the help of an example any three sources which lead to the emergence of
basic ideas.
2. Explain the various factors an entrepreneur has to keep in mind while assessing the
market?
3. Explain any four benefits of understanding business environment.
4. What are the various steps involved in in assessing the potentiality of an opportunity?
5. Explain PESTEL model with the help of an example.
6. Explain with the help of an example the ways in which creative ideas can be generated.
7. Isha was travelling around the country, when she realised that people tend to eat chips in
all the parts of the country. She was wondering if she could introduce new variety of chips
such as carrot chips, Bitter gourd chips etc., and also use a new technology which can air
fry the chips without using any oil. Explain the various steps involved in assessing the
potentiality of an opportunity keeping in mind the product identified.
8. The process of creativity involves various steps. Explain the steps.
9. Yash, a budding entrepreneur is planning to introduce an innovative bag which can
charge cellphones using solar power which will be useful for travellers. The market
assessment of this product depends on many factors. Explain the factors.

Unit 2
1 mark
1. Name the different types of economic activities.
2. What is meant by business?
3. Name the business enterprise which is owned, controlled and operated by public
authorities.
4. What is TIN?
5. Define partnership.
6. What is meant by partnership deed?
7. Define a company.
8. What is PAN?
9. What is meant by state sale tax ID?
10. Differentiate between sales tax and excise duty.
11. Who must apply for TAN?
12. For which type of industries EPF is applicable?
13. Define a co-operative society.
14. Differentiate between production and operations plan.
15. What is a financial plan?
2 marks
1. Enlist any two inherent limitations because of which partnership form of business venture
was formed.
2. One of the characteristic of partnership is ‗It can be carried on by all the partners or any of
them acting for all \. Identify the characteristic of partnership.
3. What is meant by separate legal entity?
4. What is the minimum and maximum number of members required in a company form of
organisation?
5. Who all must have PAN?
6. What is service tax?
7. What is meant by VAT?
8. Differentiate between state and central excise duty.
9. Explain custom duty.
10. What is TAN?
11. Give the meaning of HUF.
12. Differentiate between mitaksara and dhayabhaga as two schools of law under HUF
13. What is a business plan?
14. Before entering into a venture an entrepreneur had to fulfil some formalities and one of
them is to open a current account. Who all call open a current account?
15. What is an elevator pitch?
16. How does an organizational plan help an entrepreneur?
17. Give the meaning of Proforma financing decisions as a component of financial plan?
18. How does ‗manpower planning‘ helps an entrepreneur?
3 marks
1. Explain the following terms:
a. Manufacturing; b. Trading; c. Service
2. Identify the utility created by the following business activities:
a. Process of storing goods when not required
b. Transporting goods to the place of consumption
c. Changing raw material into finished goods

3. Explain ‗ unlimited liability‘ as a feature of partnership
4. State the situations when partnership form of business is an ideal choice
5. State the consequences for non- registering a partnership firm?
6. Give three reasons as to why entrepreneurs do not find the co-operative form of
organisation attractive.
7. Enumerate business plans as decision making tools.
8. Explain the elements which should be included in the production plan in case of complete
manufacturing industry.
9. How does framing an operational plan help an entrepreneur?
10. Explain proforma investment decision.
11. Explain proforma income statement.
12. What is proforma cash flow?
4 marks
1. Enlist any 4 ways in which a private individual can start a business venture.
2. Name the factors an entrepreneur has to keep in mind whilst choosing a business
enterprise.
3. Differentiate between a private company and a public company.
4. State the situations when a company form of business is more suitable?
5. What categories of persons are required to obtain registration with the Central Excise
Department?
6. State the various permissions required in the construction stage?
7. Explain any four features of co-operative organisations.
8. Who should write the business plan?
9. Explain the various formats of business plans.
10. Meenu was involved in partial manufacturing of wardrobes. Explain the elements which
should be included in her production plan.
11. How does a production plan help an entrepreneur?
12. State the various elements involved in an organizational plan?
6 marks
1. What are the characteristics of sole proprietorship?
2. Define sole proprietorship state when this type is more suitable?
3. Explain in detail the registration procedure to be followed in sole proprietorship.
4. Elaborate on the essential features of partnership.
5. What is a partnership deed? Enlist the various contents of the deed.
6. Explain the registration procedure of a partnership concern
7. ‗Members may come, members may go ; neither the company stops nor is slow‘.In the
light of the given statement explain the characteristics of a company.
8. Why is a private company more desirable?
9. Explain the main features of HUF.
10. What are the legal formalities involved in formation of HUF.
11. Explain the importance of a business plan.
12. Elaborate on the various elements of operational plan.
13. Explain any four major components of financial plan.
14. What elements should be included in manpower planning?
15. Explain the various steps involved in preparing a marketing plan.

Unit 3
Mark 1
1. What is the goal of business?
2. What is goal setting?
3. Explain the term ‗Logo‘.
4. What is a trademark?
5. Identify the type of negotiation which is commonly referred to as ‗win-win‘.
6. What is meant by the term ‗Promotion‘?
7. What is ‗Through-the-line‘ promotion strategy?
8. Explain the term ‗personal selling‘ .
9. What is advertising?
10. Which negotiation is termed as ‗win-lose‘?
11. This negotiation method involves starting on small details and working upward until a
settlement is reached. Identify.
12. What is the goal of advertising?
13. Explain the term ‗sales promotion‘.
14. Explain ―CRM‖.
Mark 2
1. Define marketing strategy.
2. Explain the term ‗Brand‘.
3. Define branding.
4. Differentiate between trademark and brand mark.
5. What is an alpha numeric name in an industrial product?
6. Differentiate between individual brand name and family brand name.
7. Explain tagline with the help of an example.
8. What is a sales strategy?
9. Enumerate the significance of sales strategy.
10. Name any four major sales promotional activities?
11. What is meant by Public Relations?
12. Explain the term ‗Negotiation‘.
13. Identify the type of negotiation in the following situations:
a. It starts with an agreed upon strategy
b. They are most common form of negotiation.
14. How is CRM used today?
15. What is meant by vendor management?
Mark 3
1. Why is goal setting important?
2. State the rules for goal setting?
3. What does the marketing strategy of a company include?
4. Explain the components of Product mix.
5. Explain the three components of brand.
6. What is the importance of intellectual property for an entrepreneur?
7. Differentiate between patent, copyright and industrial design.
8. Explain Place mix as an element of marketing mix.
9. What considerations related to manufacturer affect the choice of channel of distribution?
10. Explain the different types of sales strategies.
11. What are the components of sales strategies?

12. Why should we advertise?
13. Enumerate the roles played by a salesperson.
14. Enlist the main public relation tools?
15. Who is a stakeholder?
16. How does CRM help an organisation?
17. What is the impact of technology on CRM?
18. What is meant by employee relationship management?
Mark 4
1. Explain the four components of marketing mix.
2. Enlist the qualities of a good brand name.
3. Enumerate the purpose of logos.
4. What are the various considerations related to a product an entrepreneur has to keep in
mind while choosing channel of distribution.
5. Explain cost plus pricing method of price determination
6. Explain ‗variable pricing method‘ of price determination with the help of an example.
7. When a manufacturer selects some channel of distribution he had to take into
consideration various market related factors. Explain any four such factors.
8. Differentiate between ‗above-the-line‘ and ‗below-the-line‘ promotion strategies.
9. Explain the rules of advertising.
10. Enumerate the benefits of CRM.
11. Explain AIDA.
12. How is vendor management done?
Mark 6
1. Give the meaning of S.M.A.R.T goals.
2. Differentiate between ‗Price skimming‘ and Penetration pricing‘ as methods of pricing
with the help of examples.
3. What is meant by channels of distribution. Also state the different levels of channels of
distribution.
4. Explain the various promotion strategies a company can use to promote its products.
5. Explain any six commonly used media options to advertise.
6. Explain the various ways of negotiation.
7. Explain any three factors which lead to effective employee relationship.
8. Explain any six reasons for business failure.

Unit 4
1 mark
1. Give the meaning ‗franchising‘ as an enterprise growth strategy?
2. Differentiate between franchisor and franchisee.
3. What is meant by the term ‗merger‘?
4. What is synergy?
5. Who developed the concept of value chain?
6. Define value chain.
7. According to Michael Porter, an organisation can be divided into two activities. Name
them.
8. What is back flip acquisition?
2 mark
1. What are the two roles that an entrepreneur needs to play?
2. Differentiate between inbound and outbound logistics.
3. Explain ‗financial synergy‘ as a reason for merger of acquisition.
4. What is meant by franchise agreement?
5. Give the meaning of acquisition.
6. What is value addition?
7. Explain horizontal merger.
8. What does business format franchising opportunity mean?
3 mark
1. Explain the meaning of franchising and give two examples of franchising in India.
2. Enlist the advantages of franchising to the franchisor.
3. Enlist the advantages of franchising to the franchisee.
4. How mergers and acquisitions will help in the growth of a business?
5. Identify the type of merger:
a. Merger between companies in the same industry
b. Merger between two companies that deal in the same product but in separate markets
c. Merger between two companies producing different products for one specific finished
product
6. Draw the diagram of porter‘s generic value chain.
7. Explain the merger between firms that are involved in totally unrelated business activities.
4 mark
1. Explain the following terms:
a. Internal expansion b. External expansion
2. Explain the main features of franchise agreement.
3. Rekha is planning to start a food business. How franchising help her?
4. Enlist the disadvantages of franchising to the franchisor and franchisee.
5. Explain the two forms in which mergers can take place?
6. Explain the different types of acquisitions.
7. What are the different types of value addition that a company can employ to improve its
products?

6 mark
1. Explain the different types of mergers with the help of an example.
2. Explain the reasons for mergers and acquisitions.
3. Give six reasons for failure of mergers and acquisitions
4. Explain the various primary activities.
5. Explain the activities which help the primary activities.
6. Explain the requirements for value chain management.

Unit 5
1 mark
1. Give an example of a unit of sale?
2. What is meant by ‘gross profit‘?
3. Give the meaning of the word ‗Inventory control‘.
4. Explain the meaning of ‗capital employed‘?
5. Give the formula for calculating multiproduct breakeven point?
6. Why gross profit is calculated?
7. Explain the term ‗budget‘.
8. What is meant by working capital?
9. Give the formula for calculating ‗Reorder quantity‘.
2 mark
1. In case of multi product or services industries how unit cost is calculated?
2. Identify expenses which are not a part of gross margin?
3. Why ROI decreases if rate of tax increases?
4. Why is depreciation and amortization added back to profit?
5. Why will debit be added while calculating capital employed?
6. What is meant by financial management?
7. What is the chief cost of budgeting process?
8. State the need for working capital.
9. Give some examples of gross working capital.
10. What is meant by ‗lead time‘?
11. Give the formulae for calculating ROI and ROE.
3 mark
1. Give the meaning of ‗ EBITDA‘? Why is it calculated?
2. State any three objectives of return on equity.
3. How can ROI of a company define its earning capacity of business?
4. If the cost of product is 75% of selling price. Calculate the gross margin per unit.
5. Net profit after interest but before tax 65,000; Shareholders funds 3,00,000 15% debt on
1,00,000. Calculate ROI.
6. What is contribution approach method?
7. State the objectives of financial management.
8. Differentiate between budget and budgeting.
9. What is Economic Order Quantity?
4 marks
1. What is meant by cash flow projection?
2. State the essentials of a budget.
3. Give the benefits of budgeting.
4. Explain the two forms of budgeting process.
5. Explain the ‗Pareto Principle‘ of ABC analysis
6. How EOQ is calculated

7. Calculate ROI from the following information: (App.)
Equity share capital. 5,00,000
12% preference share capital. 1,00,000
Reserve 1,54,000
10% debentures 1,20,000
15% loan 2,40,000
Current liabilities 75,000
Preliminary expenses 10,000
Net profit (after interest and tax) 96,000
Rate of tax 50%
6 Mark
1. A grocery store sold in one day the following items at the prices indicated.
Products Price per unit (`Rs.) Quantity sold
40/Kg 35 Kgs
Dal
40/Kg 4 Kgs
Chilli powder
5/Kg 5 Kgs
Salt
15/Packet 10 packets
Chips
10/Pack 5 packs
Juice pack
The shopkeeper also found out, based on the number of bills issued by him,
that there were 50customers. If customer is the unit of sale, what is the
―Unit Price‖ in this case? If the cost of each grocery item is 75% of its selling
price, calculate the ―Unit Cost‖ and the ―Gross Marginperunit of sale.
2. Explain in detail as to how to develop cash flow projection.

3. Elaborate the three key elements in the process of financial management.
4. Explain in detail the different types of budget.
5. Explain cash conversion cycle with the help of a diagram.
6. Briefly explain the various items which make up the inventory.
7. What is ABC analysis and why is it required in an organization?

Unit 6
1 mark
1. Define Finance.
2. Why is finance considered as a lubricant for business
3. State why finance is required for business
4. Why is finance considered as a Pre-requisite for setting up an enterprise
5. Define Financial Markets
6. When and to which institution are sick industries referred to?
7. Enlist any two financial institutions at the national level.
8. What is the primary role of IFCI?
9. Why was NABARD established?
10. What is TFCI?
2 mark
1. Explain Initial Public Offer.
2. Differentiate between ‗rights issue‘ and ‗ private placement‘ as methods of raising finance.
3. What is crowd funding
4. Who are angel investors?
5. What is the bridge stage?
6. List any two specialised financial institutions at national level
7. State any two objectives of IDBI.
8. Explain the role of IIBI.
9. What is SIDC?
3 mark
1. What is meant by Money Markets? State its features.
2. Who are the major participants in Money Markets ?
3. Explain the different instruments of Money Market.
4. Differentiate between commercial paper and Commercial bill.
5. Why is the capital market the most important source of finance.
6. What do these stand for.
a) NAV
b) SEBI
c) ROC
7. Give the meaning of private placement.
8. Explain the features of angel investors.
9. State any three points which highlights the need for specialised financial institutions?
10. Explain the functions of SIDBI.
4 mark
1. Explain the limitations of Public Issue.
2. Company A goes for public issue of 10,000 shares @Rs.10 each. Applications were received
for only 5,000 shares. Can the company proceed with the process of issuing shares? Give
reason in support of your answer.

3. Company B goes for public issue of 10,000 shares @Rs.10 each. Applications were received
for 12,000 shares. As a company secretary make suggestions to the board in accordance
with the companies act regarding issue of shares.
4. Explain the merits of offering equity to employees.
5. Differentiate between Bulls and Bears in context with the Stock Markets.
6. Differentiate between Brokers and jobbers in context with the Stock Markets.
7. What is a demat account. Explain its importance.
8. Differentiate between Angel investors and venture capital companies.
9. Explain the importance of stock exchange from the viewpoint of investors.
6 mark
1. Explain the steps involved in issuing shares.
2. What is a Stock Exchange and explain its features.
3. Explain the role of a stock exchange in facilitating new capital and public borrowings.
4. Stock Exchange Indices' serve as an economic barometer. Explain.
5. "Stock Markets are important only for Companies" Comment.
6. Angel investors are blessings to the new/start-up enterprises. Explain. How?
7. Explain the functions of NABARD.
8. Explain the functions of SIDBI.
9. Explain the functions of IDBI.
10. Enlist the powers of SEBI.
11. Explain the features of venture capital.
12. When to seek venture capital finance?

Unit 5 – Business Arithmetic – Practice Questions
 CBSE Written paper – Practical Examination:

 The students will get a 5 mark question from any one or a combination of the given topics:
 Calculation of EOQ.
 Calculation of Working capital Requirements
 Calculation of Breakeven point.
 Identification and calculation of start up costs/fixed costs/variable costs.
Unit of Sale, Unit Price and Unit Cost (Multiple Products or Services)
Question 1: A stationery store sold in one day the following items at the prices indicated. The
shopkeeper also found out, based on the number of bills issued by him, that there were 50
customers. If customer is the unit of sale, what is the Unit Price in this case? If the cost of each
stationery item is 75% of its selling price, calculate the Unit Cost and the Gross Margin per unit of
sale.
Products Price per unit Quantity sold

40 35
Student note book
40 40
Reynolds pens
5 5
Erasers
15 10
Scale (12‘ plastic)
10 5
Flip chart
25 3
Sketch pens (one DOZEN)
Solution:
Products Price per Quantity Total Billed Amount ( )

unit sold
40 35
Student note book
40 40
Reynolds pens
5 5
Erasers
15 10
Scale (12‘ plastic)
10 5
Flip chart
25 3
Sketch pens (one DOZEN)
Total Billed Amount ( )
Total No. of Customers _____ customers
Unit Price per Unit of Sale or, Unit Price per Customer =
_________
Total Billed Amount ( ) = ( )
Total No. of Customers 50

 Cost of each stationery item is 75% of its selling price,
o Unit Cost = 75%of Unit Price per Customer
o Unit Cost = 75 x 93 = Unit Cost = 69.75
100
 Gross Margin per unit of sale = Unit Price Per Customer – Unit Cost Per Customer
o Gross Margin per unit of sale = 93 – 69.75
o Gross Margin per unit of sale = 23.25 per customer
Question 2: Beauty parlor

A Beauty parlor had varying number of customers during 5 weeks. This information and the total
weekly billing are in the following table. What are the Unit of sale and the Unit Price in this case?
If the cost of goods sold or variable cost is 60% of the sale price, calculate the Unit Cost and the
Gross Margin per Unit of Sale.
Week No. Of Customers Total Amount Billed ( ) Average Amount Billed

( ) Per Customer
10 1,000 100
1
17 1,445 85
2
13 923 71
3
22 5,082 231
4
18 3,150 175
5
80 11,600
Total
Solution:
Week No. of customers Total amount billed ( ) Average amount billed

( ) per customer
10
1
17
2
13
3
22
4
18
5
80
total
Total Billed Amount ( )
Total No. of Customers
___________________
Total Billed Amount ( ) = 11,600 ( )

 Cost of goods sold or variable cost is 60% of the sale price,
o Unit Cost = 60%of Sale price
o Unit Cost = 60 x 145 = Unit Cost = 87
100
o Gross Margin per unit of sale = 145 – 87
o Gross Margin per unit of sale = 58 per customer
Illustration 2: Restaurant
Number of people who took their meals and the total billing for each of the 5 weeks is in the
following table. What are the Unit of sale and the Unit Price in this case? If the variable cost is 50%
of the sale price, calculate the Unit Cost and the Gross Margin per Unit of Sale.
Week No. Of Customers Total Amount Billed (`) Average Amount Billed
Taking Meals
(`) Per Customer
120 18,000 150
1
60 12,300 205
2
70 10,220 146
3
80 17,680 221
4
90 21,600 240
5
420 79,800
total
Solution:
Week No. of customers Total amount billed (`) Avg amt billedper customer
120 18,000 150
1
60 12,300 205
2
70 10,220 146
3
80 17,680 221
4
90 21,600 240
5
420 79,800
total
Total Billed Amount ( ) 79,800
190
Total Billed Amount ( ) = 79,800 ( )

 Cost of goods sold or variable cost is 50% of the sale price,
o Unit Cost = 50%of Sale price
o Unit Cost = 50 x 190 = Unit Cost = 95
100
o Gross Margin per unit of sale = 190 – 95
o Gross Margin per unit of sale = 95 per customer
Break Even Analysis - (Multiple Products or Services)
At the breakeven level

 B.E. Point in value =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
 B.E. Point in value =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

Contribution per unit
 B.E. Qty = 𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

Gross Margin per Unit
Question:
Calculate breakeven point expressed in amount of sales in rupees.
Selling price per unit 40
Variable manufacturing cost per unit 22
Variable selling costs per unit 3
Fixed factory overheads 1,60,000
Fixed selling costs 20,000
Solution:
 B.E. Point =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
 B.E. Point = 1, 60,000 + 20,000 .

40 – (22+3)
 B.E. Point = 1, 80,000 . = 12,000 units

15
 B.E. Point in Value = 12,000 units x 40 per unit = 4,80,000

Question I:
Toy craft produces toy alligators and toy dolphins. Fixed costs are 12, 90,000 per year. Sales
revenue and variable costs per unit are as follow:
Product Alligators Dolphins
25
Sales price per unit 20
10
Variable cost per unit 8
Fixed Costs 12,90,000 per year
Questions:
A. Suppose the company currently sells 140,000 alligators per year and 60,000 dolphins per
year (Sales Mix Percentage 14:6). Assuming the sales mix stays constant how many
alligators and Dolphins must the company sell to break even?
B. Suppose the company currently sells 60,000 alligators per year and 140,000 dolphins per
year (Sales mix percentage 6:14). Assuming the sales mix stays constant, how many
alligators and dolphins must the company sell to break even per year?
C. Explain why the total number of toys needed to break even in (a) is the same as or
different from the number in (b).
Solution: 1A

25
10
15
Contribution Margin per unit = Sales Price – Variable 12
Costs
Number of Units Sold 1,40,000 60,000
9,00,000
Contribution Margin = 16,80,000
= Contribution Margin per unit x Number of Units Sold
Total Contribution Margin = 16,80,000 + 9,00,000 =

Contribution margin of Alligators and Dolphins 25,80,000
Less :Fixed Cost (12,90,000)
= Net Income 12,90,000
 Weighted Average Contribution margin = Total Contribution .

Total units

Where total units = 1, 40,000+60,000 = 2, 00,000 and Total Contribution Margin = 25,80,000
So, Weighted Average Contribution margin = 25,80,000 .
2,00,000 Units
= 12.9 per unit
 Breakeven Point = Fixed Cost .= 12,90,000
Weighted Average Contribution 12.9
 Breakeven Point = 1,00,000 units

 Allocating TOTAL UNITS to each product based on EXPECTED UNITS PROPORTION
 2,00,000 units are sold of which 1,40,000 are alligators and 60,000 are dolphins, so the
proportions of units sold are 14,00,000 and 60,000 that is, 14 and 6 .
2,00,000 2,00,000 20 20
o Sales Mix Percentage = 14, 00,000: 6, 00,000, that is, 14:6 = 14 : 6 .

20 20
o Alligators to be produced for Breakeven = 1,00,000 x 14/20
= 70, 000 units
o Dolphins to be produced for Breakeven = 1,00,000 x 6/20
= 30,000 units
Solution: 1B

25
10
Contribution Margin per unit = Sales Price – Variable Costs
Number of Units Sold 60,000 1,40,000
Contribution Margin =
= Contribution Margin per unit x Number of Units Sold
Total Contribution Margin =

Contribution margin of Alligators and Dolphins
Less :Fixed Cost
= Net Income

 Weighted Average Contribution margin = Total Contribution .
Total units
 Weighted Average Contribution margin = .

2, 00,000 Units
= _______per unit
 Breakeven Point = Fixed Cost .

Weighted Average Contribution
 Breakeven Point in units = _______________________ Units
 Allocating TOTAL UNITS to each product based on EXPECTED UNITS PROPORTION
o Sales Mix Percentage = 14, 00,000: 6, 00,000, that is, 06:14 = 06 : 14 .

20 20
o Alligators to be produced for Breakeven = = _______________units
o Dolphins to be produced for Breakeven = _______________units Solution: 1C
The total number of toys needed to break even in (A) is different from the number in (B) and
lower also. This is due to the reason as weighted contribution per unit has increased; fixed cost
spreads over greater number of rupees letting the breakeven to be achieved early. Perhaps (b)
sales mix is more efficient and gives the firm a hint to produce toy dolphins more as contribution
per unit of a toy dolphin is also higher.
Question II:
Let us look at a manufacturing plant that produces four different types of machine tools and their
cost, price and BE Qty. The fixed costs are allocated – taking in to consideration the utilization of
common resources for different products. Here is the basic data:
 Products: A, B, C and D
 Selling Price: 100,000; 50,000; 70,000 and 2,00,000 respectively
 Variable Cost: 30,000; 25,000; 30,000 and 100,000 respectively
 Allocated Fixed Expenses per month: 350,000; 250,000; 1,000,000 and 1,500,000
respectively

Solution II:
Computation of Break Even Level:
Product A B C D
50,000 70,000 2,00,000
Sales price per unit 1,00,000
25,000 30,000 1,00,000
Variable cost per unit 30,000
Gross Profit per Unit

3,50,000 10,00,000 15,00,000
Fixed Exp Per Month 3,50,000
BE Qty per Month =

. 𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
𝐺𝑟𝑜𝑠𝑠 Profit 𝑃𝑒𝑟𝑈𝑛𝑖𝑡
 Each product has it‗s BE level.
 If a particular product consistently fails to move beyond the BE level, then it is a candidate
for some management discussion
o How to increase sales or
o Reduce costs (variable as well as fixed) etc.
o If all else fails, then dropping the product is the preferred management action.
 BE analysis helps in such decision making. Please note that such decisions are product
related and not business related.
Question III:
Textile shop - please calculate breakeven point. Garments sold are silk saris, cotton saris, suit
materials, kids wear.
Product Silk Saris Cotton Saris Suit Material Kids Wear

900 1,800 450
Sales Price Per Unit 3,500
270 540 135
Variable Cost Per Unit 1,050
15,750 63,000 70,875
Allocated fixed expenses 45,000

Solution III:
Product Silk Saris Cotton Saris Suit Material Kids Wear

900 1,800 450
Sales Price Per Unit 3,500
270 540 135
Variable Cost Per Unit 1,050
Gross Profit per Unit
15,750 63,000 70,875

Allocated fixed expenses 45,000
BE Qty per Month =

. 𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
𝐺𝑟𝑜𝑠𝑠𝑀𝑎𝑟𝑔𝑖𝑛𝑃𝑒𝑟𝑈𝑛𝑖𝑡
= = = =
Inventory Control and Economic Order Quantity

Inventory
 Reorder formula = Average daily usage rate × Lead time in days
 The following model assumes:

1. Future demand is known and is uniform throughout the period.
2. Unit price of item does not vary with qty ordered. (In real life, the price varies. We
will then have to use a different model. That is not discussed here.)
Formula for calculating EOQ =
 D = Annual Usage or Annual demand for the item
 P = ordering cost per unit or Cost of placing and receiving one order (does not include
purchase price)
 C = carrying cost of inventory (per unit)

= unit price of the item x carrying cost expressed as percentage of the unit price.
=𝐸 √
OR

𝐸 √
Example 1:
Annual qty of jeans sold by a shop is 1,200 at the rate of 100/- per month. Cost of placing an
order and receiving goods is 500/- per order. Inventory holding cost is 30/- per annum. What
is the economic order Qty for the shop keeper?
Here, D = 1,200; P = 500 and C = 30.
So 2 x P x D = 12, 00,000
This divided by 30 = 40,000.
Square root of which is = 200. So the EOQ is 200 jeans.
Example 2:
A book shop sells pens – 30,000 qty per year. Demand is uniform. Purchase cost is 6/- per pen.
Holding cost per annum is 20% of purchase cost. Ordering cost is 500/- per order. What should
be the EOQ for the shop keeper?
Here, D = 30,000; P = 500 and C = 1.2 (20% of 6)
So 2 x P x D = 3, 00,00,000
This divided by 1.2 = 2, 50,00,000
Square root of which is = 5,000
So the EOQ is 5,000 pens.
Example 3: find out EOQ from the following information:

 Annual usage 6,000 units
 Cost of material per unit 20/-
 Cost of placing and receiving one order 60/-
 Annual carrying cost of one unit 10% of inventory value
𝐸 √
Annual usage = 6,000 units, ordering cost = 60

Annual carrying cost of one unit = 10% of inventory that is, 20x10 =2
100
𝐸 √

Return on Investment and Return on Equity - Measure of Profitability
Return on investment

If, for example, you spend 100,000/- to open a grocery shop and make a net profit of 20,000/- in
one year, your annual ROI equals (20,000/100,000) x 100 = 20 percent. When calculating ROI, the
investment will include not only what the investor spent out of his/her pocket, but also all
borrowed funds. In the example, the owner might have invested 40, 000/- of his own money
(equity) and secured a loan for ` 60, 000/-.
Return on equity
You can calculate ROE by dividing the net income by the equity of the investor and multiplying
the result by 100. In the example, the grocery owner has an equity stake of 40,000/- in the
business. He has borrowed 60,000/-. This will attract an interest of 6,000/- @ of 10% per
annum. The net profit, then would be 14,000/- (= 20,000 – 6,000). So, ROE is (14,000 / 40,000) x
100 = 35 percent. This means that for every Rupee of own money the owner put into the business,
he made 35 paisa. The ROI of 20 percent, on the other hand, means that for every Rupee of
combined assets and loans invested, the business yielded a 20 paisa average profit per Rupee
invested (equity plus loan).

Equity
Illustration 1: Please calculate return on investment and return on equity.

You have newly started a beauty parlor business, you spend `1, 50,000/- to open the parlor of
which you invested 70,000/- of your own money and borrowed a loan for 80,000/-. Interest
rate per annum is 7%. Sales revenue per month is 80,000/-. Cost of goods sold is 30,000/- per
month. Fixed expenses is 30,000/- (salary 20,000/-, rent and utility 10,000/-), depreciation
3,000/- and tax @ 14%.
o Investment = owner‘s capital + borrowed funds.
o
Illustration 2: Please calculate return on investment and return on equity.
You have newly started a restaurant business, you spend 10, 00,000/- to open the restaurant.
You have invested 4, 00,000/- of your own money and borrowed a loan for 6, 00,000/-.
Interest rate per annum is 10%. Monthly sales revenue is 6, 00,000/- and cost of goods sold is 3,
00,000/-. Fixed expenses per month 2, 00,000/- (salary 1, 50,000/-, rent and utility 50,000/-),
depreciation 10,000/- and tax @ 20%.

Illustration 1 Illustration 2
Total Investment = X
Source Of Funds
Equity = Y
Loan = Z
Total
Income Statement For 1 Yr

Sales Revenue (A)
Less Cost Of Goods Sold (B)
Gross Margin C= (A-B)
Fixed Expenses
Salary Etc
Rent, Utility Etc
Interest
Depreciation & Amortization
Total Fixed Expense= (D)
Profit Before Tax = (C-D)
Tax @ 20% =E
Profit After Tax = F= (C-D-E)
Some Ratios
ROI =(F/X)
ROE = (F/Y)
Calculation of EBITDA
Profit Before Tax (PBT)
+ Interest
+ Depreciation
+ Amortization
EBITDA/Investment
EBITDA/Equity
EBITDA – Stands For Earnings Before Interest, Tax, Depreciation And Amortization. This Is Arrived At By
Adding Interest, Depreciation And Amortization To PBT.

Practice Questions:
Breakeven Analysis
Question 1 A factory manufacturing shirts gives you the following information:
Sales 2,00,000
Direct labour costs(for 1000 units) 20,000
Direct material costs(for 1000 units) 50,000
Direct expenses(for 1000 units) 10,000
Fixed Costs 60,000
Find out
a. Variable cost per unit
b. Total cost
c. Quantity to be sold at breakeven point
Solution 1 a. Variable cost per unit = Direct labour costs + Direct material costs + Direct expenses
Number of Units
Variable cost per unit =_____________________________________________

Units
Variable cost per unit = ________________________per unit
b. Total Costs = Fixed Costs + Total Variable Costs
Total Costs = ________________________ + ________________________
Total Costs = _____________________________
c. B.E. Point =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units

Question 2 A factory manufacturing shirts gives you the following information:
Sales 4,00,000
Direct labour costs(for 2000 units) 40,000
Direct material costs(for 2000 units) 1,00,000
Direct expenses(for 2000 units) 20,000
Fixed Costs 1,20,000

Find out
i. Variable cost per unit
ii. Total cost
iii. Quantity to be sold at breakeven point
Solution 2 Variable cost per unit = Direct labour costs + Direct material costs + Direct expenses
Number of Units

Units
Variable cost per unit = ________________________per unit
Total Costs = Fixed Costs + Total Variable Costs
Total Costs = ________________________ + ________________________
Total Costs = _____________________________
B.E. Point =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units
Question 3 Find Breakeven point if Fixed costs = 40,000; Variable Cost = 2 per unit and sales price =
4 per unit.
Solution 3
B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units

Question 4 a. Find Breakeven point if Fixed costs = 1, 00,000; Variable Cost = 5 per unit and sales
price = 10 per unit.
b. What will happen if sales price is reduced by 10%?
Solution 4 a. When selling price = 10 per unit

B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units

b. When selling price of 10 per unit is reducd by 10%, that is, selling price = 9 per
unit
B. E. Point =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units
Question 5 a. Find Breakeven point if sales = 1,00,000 and

i. Fixed costs = 30,000;
ii. Direct labour costs (1000 units) = 10,000
iii. Direct material costs (1000 units) = 25,000
iv. Direct expenses (1000 units) = 5,000
Solution 5 a. Variable cost per unit = Direct labour costs + Direct material costs + Direct expenses
Number of Units
Total Costs = Fixed Costs + Total Variable Costs
Total Costs = ________________________ + ________________________
Total Costs = _____________________________


B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units
Question 6 A company has invested 20,000 on land; 10,000 on building and 10,000 on furniture. The
selling price of its product is 10 per unit and the variable cost of the same is 2 per unit.
Calculate the breakeven point.
Question 7 You are given the following information:

a. Sales = 2,00,000
b. Fixed costs = 90,000
c. Variable costs = 1,40,000
How much is the sales volume to be increased by in order for the company to achieve break
even sales?
Question 8 You are given the following information:

a. Selling price per unit = 20
b. Fixed costs = 1,08,000
c. Variable costs per unit = 15
i. Calculate BEP.
ii. What should the selling price per unit be if the breakeven point is 12,000 units?
Solution 8
(i) B.E. Point =𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
B.E. Point = .
(____________ per unit – _________ per unit)
B.E. Point = __________________ units
(ii)
12,000 = 1, 08,000 .
Selling price per unit – 15

12,000 (Selling price per unit ) – (12,000 x 15) = 1,08,000
12,000 (Selling price per unit ) = 1,08,000 + 1,80,000 = 2,88,000
Selling price per unit = 2,88,000 = 24 per unit

12,000
Economic Order Quantity

Question 1 Calculate EOQ from the given information:
a. Annual consumption = 30,000
b. Cost of placing and receiving an order - 15
c. Annual carrying costs = 20%
d. Price per unit = 2
Carrying cost per unit = 20% of 2 = 40/100
𝐸 √
𝐸 √
EOQ = 1,500 units

Question 2 The demand of an item is 3000 units. The cost of each unit is 10. Purchase price of each unit
is 6 and holding charges are 10. Calculate EOQ.
Question 3 The annual usage of an item is 20,000 units, ordering costs are 100 per order and carrying
costs are 20 per unit per year. Calculate EOQ.
Question 4 A company purchased 9,000 parts of a component for its annual requirement. Ordering cost of
one component is 20, carrying cot is 15% of the cost of one component per year. Advise the
management for procurement policy (calculate EOQ).
Question 5 Calculate EOQ if the company has to pay a carrying cost of 60 per unit, the monthly usage
rate is 80 units and the cost to place an order is 10.

Assessment of Working Capital
Calculate working capital Raja & Co. has the following items in its Balance sheet: Stock -
Question 1
50,000: Trade creditors – 32,000; debtors – 75000; cash – 1,00000 Dividend payable – 50,000;
Tax – 44,000; Short term loan – 61,000; Short term investments – 76,000 Calculate gross and
net working capital.
Solution 1
Particulars Amount( ) Total Amount ( )
Current Assets:
Stock
Debtors
Cash
Short Term Investments
Total Current Assets
Current Liabilities:
Trade Creditors
Dividend Payable
Tax
Short Term Loan
Total Current Liabilities
Gross Working Capital = Total Current Assets

Gross Working Capital = _________________________
Net Working Capital = Total Current Assets + Total Current Liabilities
Net Working Capital = _________________________ + _________________________
Net Working Capital = _________________________
Ramu is buying and selling ice-cream. Explain his working capital requirement.
Question 2
Particulars Amount( ) Total Amount ( )
Current Assets:
Stock
Cash

Total Current Assets
Current Liabilities:
Trade Creditors
Total Current Liabilities
Gross Working Capital = Total Current Assets

Gross Working Capital = _________________________
Net Working Capital = Total Current Assets + Total Current Liabilities
Net Working Capital = _________________________ + _________________________
Net Working Capital = _________________________
Question 3 An entrepreneur proposes to produce 100 leather bags per week for which he needs 5,500 for
purchasing raw material and 2,500 for payment of labor charges. Calculate the working
capital requirements.
Working capital requirement = Total Expenses For The Month
Working capital requirement = _____________ + _____________
Working capital requirement = ___________________________________
Question 4 If the operating cycle of a product is 2 months, calculate the working capital requirements if
miscellaneous expenses incurred monthly is 8,000; depreciation charged is 5% on the fixed
assets worth 16,00,000 and raw material required for the month is expected to be 16,000.
 Operating Cycle = _______________ months
Expenses Amount( ) Amt Per Month ( )
Misc expenses
Deprecation
Raw material
Total Expenses For The Month =
Working capital requirement = Total Expenses For The Month x operating cycle
Working capital requirement = _____________ x _____

Question 5 If the operating cycle of a product is 4 months, calculate the working capital required for an
enterprise where monthly salaries distributed are 15,000; rent paid for a month is 20,000;
miscellaneous expenses incurred is 8,000 monthly. Depreciation charged is 5 % on fixed
assets worth 16, 00,000 and raw material required for the month is expected to be 16,000.
Salaries
Rent
Misc expenses
Deprecation
Raw material
Working capital requirement = _____________ x _____
Question 6 Calculate working capital when raw material is 15,000 for 3 months; salaries = 10,000
(including outstanding salaries of 2,000) for 1 month; monthly rent to be paid 5,000.
Bimonthly telephone bills 1,500; electricity charges for 1 month 7,500 and operating cycle of
a product is 2 months.
Raw materials 15,000 for 3 months 5,000

10,000 per month 10,000
Salaries
5,000 5,000
Rent
1,500 bimonthly 3,000
Telephone bills
7,500 per month 7,500
Electricity charges
Working capital requirement = _____________ x 2

More Practice Questions - Break Even Analysis - (Multiple Products or Services)
Question I:
A company produces 2 products, A and B. Fixed costs are 18, 00,000 per year. Sales revenue and
variable costs per unit are as follow:
Product A B
650
600
Suppose the company currently sells 500 units of A per year and 2,000 units of B per year.
Assuming the sales mix stays constant how many A and B must the company sell to break even?
Question II:
Product A B
380
340
Suppose the company currently sells 6,000 units of A per year and 4,000 units of B per year.
Question III:
Product A B
385
335
Suppose the company currently sells 10,000 units of A per year and 8,000 units of B per year.

ENTREPRENEURSHIP PROJECT WORK XII: 2015-16- GENERAL GUIDELINES
The main objective of the course in Entrepreneurship is to generate among students the initiative,
creativity, self-reliance and enthusiasm so as to empower them to become entrepreneurs, both in
spirit and performance. A number of skills such as observation, evaluation, communication,
resource mobilization and management, risk assessment, teams building etc. are also to be
developed in the students. Leadership qualities, sensitivity to business ethics and adherence to a
positive value system are the core disciplines that the course highlights while presenting different
concepts related to entrepreneurship. Such a course should necessarily have a strong experiential
component in the form of practical work. The objectives of the practical work for students are:
1. To introduce them to the world of business by developing in them the core skills and
competencies required for an entrepreneur.
2. To develop qualities such as leadership, confidence, initiative, facing uncertainties,
commitment, creativity, people and team building, integrity and reliability.
3. To acquire the skills and knowledge needed for conducting surveys, collecting, recording
and interpreting data and preparing simple estimates of demand for products and services.
4. To prepare a Project Report.
5. To equip themselves with the knowledge and skills needed to plan and manage an
enterprise through case studies, conducted and recorded by the students in different fields such as
resource assessment, market dynamics, finance management, cost determination, calculation of
profit and loss etc.
6. To instill important values and entrepreneurial discipline.
 Guidelines for assessment of Project
ASSESSMENT FOR PROJECTS : 30 MARKS
 External Practical Written Paper  5 marks.
 Viva  5 marks.
 Business Plan  10 marks
 Market survey report  10 marks
The student will have to prepare 2 projects and prepare 2 project files. They will also have a
written paper worth 5 marks that they will have to appear for on the day of the CBSE Practical
Examination
 Written paper:
 The students will get a 5 mark question from any one or a combination of the given
topics:
 Calculation of EOQ.
 Calculation of Working capital Requirements
 Calculation of Break Even point.
 Identification and calculation of start up costs/fixed costs/variable costs.

 Project I: Market Survey – Choose any ONE of the following Surveys:
 Survey 1:
 A Simple market research with the objective of estimating the
demand for an existing product in the market and also gives
innovative suggestion for the product‘s improvement.
 Survey 2:
 Conduct a survey for a NEW INNOVATIVE product
 Survey 3:
 Conduct a survey for a study on:
o Smoking habits
o Skill trading option in an economically backward
neighborhood
o Wearing helmets
o Attitudes of road users
o Conservation of electricity
o Re-harvesting of rain water
 Project II: Business Plan
o The project is to be done individually by students.

o Only white inter-leaf sheets are to be used.. Please avoid using coloured sheets except for
the title pages.
o The total length of the projects will be at least 25-30 pages each.
o The projects should be presented in a neat folder.
o The projects must be neat and well presented and must be completely hand-written. No
whiteners to be used or written matter to be crossed out. In case of any mistakes, redo the
sheet.
o Do not number sheets or write dates unless so instructed by your teacher.
o Color graphs and pie charts (if it is relevant for any aspect of your project) to make them
look attractive. These may be printed with prior permission of your subject teacher.

Market Survey Project- Final Presentation
Market Survey:
COVER PAGE Name of Student: Certificate of

Authenticity
CBSE Roll Number
Year:2016-17
Acknowledgements Executive Summary Index
Introduction to the Profile of the

Objectives
Topic Organization
Analysis of questions:
 Tally-Bars
Data Analysis and Blank Questionnaire
 Analysis
Interpretation
 Decisions
 Pie-Chart S &
Bar Diagrams
Conclusions and Photographs Bibliography

Recommendations
Appendix Teacher’s Observations

1. Cover page
 Design an attractive cover
2. Certificate of Authenticity
 Print the Certificate
3. Acknowledgements
I , ______________________, do hereby declare that this project is my original work and I
would like to thank Ms _______________________, my Entrepreneurship teacher, for her
wholehearted support and guidance for making it possible to complete this project on time. I
would also like to thank CBSE for giving us an opportunity to widen our knowledge base by
introducing this topic of study and my school for giving us this subject option.
I would also like to thank my friends and family members for their kind support and
guidance without which this project could not have been completed.
4. Executive Summary
 For my Market Survey, I choose to find out the feasibility of producing a
______________ and the innovation I introduced was----------------------------------.
OR
For my Market Survey, I choose to find out the feasibility of providing a
______________ service and the innovation I introduced was---------------------------.
 To see whether my business would be successful or not, I prepared and administered
a questionnaire containing ______ questions to 25 respondents.
 Once my respondents filled in these questionnaires, I analysed them. For every
question, I prepared tally bars that summarised their responses, and I identified the
least and the most favourable responses.
 On the basis of these responses, i took decisions that helped me to plan out the 4 P‘s
for my product namely:
i. The features that my product/service should have
ii. The price that they will be willing to pay for my services
iii. The distribution network they would prefer
iv. The ,promotion techniques that I should use for my product.

5. Index
 Print or make an index in the order of presentation.
6. Introduction to the Topic

MARKETING
What is marketing?
The definition that many marketers learn as they start out in the industry is:
Putting the right product in the right place, at the right price, at the right time.
It's simple! You just need to create a product that a particular group of people want, put it on sale some
place that those same people visit regularly, and price it at a level which matches the value they feel they
get out of it; and do all that at a time they want to buy. Then you've got it made!
The marketing mix and the 4 Ps of marketing are often used as synonyms for each other. In fact, they are
not necessarily the same thing.
Marketing Mix
There are a large number of factors that affect marketing decisions. They can be classified as:
 Non-controllable factors and Controllable factors:
To be successful, a firm needs to take sound decisions wrt controllable factors while keeping the
environmental factors in mind.
To develop marketing tools, marketing managers use the abovementioned controllable factors and the set of
marketing tools that a firm uses to pursue its marketing objectives in the target market is described as
Marketing Mix.
Success of a market offer will depend upon how well these ingredients are mixed to create
superior value for customers and simultaneously achieve their sales and profit objective. Thus, an
ideal marketing mix would need:
 Producing satisfying products
 Offered to buyers at a reasonable price
 Conveniently available
 About which communication is offered.
Marketing mix" is a general phrase used to describe the different kinds of choices organizations have to
make in the whole process of bringing a product or service to market. The 4Ps is one way – probably the
best-known way – of defining the marketing mix, and was first expressed in 1960 by E J McCarthy. The
4Ps are:
 Product (or Service), Place, Price and Promotion.
A good way to understand the 4Ps is by the questions that you need to ask to define your marketing mix.
Here are some questions that will help you understand and define each of the four elements:

Product/Service
 Product mix relates to decisions regarding planning, developing and producing the right type of
products and services for the consumers.
 Product is the tangible/intangible product, which is goods/services/anything of value that is offered
to the market for exchange.It relates to not only the physical product but also the benefits offered by
the product from the customers’ point of view.
 Important decisions in this area include deciding about the features and quality of the product, its
packaging, labeling, trademark and branding of products.
o What does the customer want from the product/service? What needs does it satisfy?
Place Mix:
 Set of decisions that need to be taken in order to make the product available for purchase and
consumption of the target market at the right place, in the right time and at the right price.
 It includes all the activities involved in transferring ownership and physical possessions of the
product o the consumer.
 It involves decisions wrt:
o Channels of distribution- selection of intermediaries/dealer to reach the customers, providing
support to the intermediaries etc.
o Physical distribution-managing inventory, storage, warehousing and transportation of goods
from the place where they are produced to the place where it is required by the buyer.
Price Mix:
 It is a value that a buyer passes on to the seller in lieu of the product or services provided.
 It is a source of revenue for the seller.
 Decision also includes pricing methods, pricing strategies, pricing policies, price changes, discounts
to be offered, credit terms etc.
 Price is the cost the customers has to bear for the product and so must be set so that the customers
perceive the price to be in lieu with the value of the product.
Promotion Mix:
 These are activities undertaken to persuade and motivate people to buy their products.
 It involves communicating the features, attributes, availability, merits etc of the product to both the
customers and the participants in the channels of distribution in order to achieve sales goals.
 Tools used include advertising, sales promotion, personal selling etc.
The 4Ps model is just one of many marketing mix lists that have been developed over the years. And,
whilst the questions we have listed above are key, they are just a subset of the detailed probing that may be
required to optimize your marketing mix.
The reason why I selected this product is _____________________________________________________

__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________

7. Objectives
 To identify our target market and find out their key needs.
 To find out the possibility of marketing a ______________________
 To conduct a market survey that will give an indication about whether the product that I
have designed meets the needs of my target market.
 To help me get an idea about the :
i. Price range at which I should offer my product.
ii. What channel of distribution I should use to distribute my product.
iii. The similarities and differences between my products and customers and my
competitors' products and customers.
iv. To understand when do customers buy and the factors that influence their buying
decisions- Convenience, price, quality, reputation, location, selection, brands,
impulse, etc.
v. To find out how do customers buy - Cash, credit, etc.
vi. To find what price they will be willing to pay for my product.
vii. To identify the promotion schemes that will have a positive impact on their buying
behaviour.
8. Profile of the Organization

Write about the product/service you have chosen:
1. Give details about
a. The features of your product
 Ensure that you have highlighted the innovation that you have introduced.
b. The target market of your product
 This includes who buys the product or service. Give some details about them that may cover aspects
such as where do they live, what income levels are in the market, what is the age pattern in the
market,
 Answers to these questions help identify target markets, specific products or services and advertising
efforts. Use demographic characteristics to identify customers. Demographics include age, gender,
income, race, marital status, education, occupation, home ownership, number in the household and
age of the home.

c. The competitive brands
 Try to identify 3 competitive brands and their compare them with your product. One
sample is given below. You can add or delete basis of comparison.
Basis of comparison I have Competitor #1 has
1.Brand names
2.Delivery
3.Installation
4.Warranty service
5.Variety of selection
6.Credit terms
7.Return policy
8.Convenient location
9.Parking
10.Appropriate atmosphere
11.Convenient store hours
12.Experienced personnel
13.Concern for customers
9. Data Analysis and Interpretation

 Give one blank questionnaire
 Analyze each question and for each question, give:
i. The question
ii. Tally bars
iii. Analysis of responses
iv. Conclusion drawn/ decision take.
One example is given below:

 Question: What motivated you to buy this washing detergent?
 Tally Bars:
Options Tally bars Total
Quality of Detergent IIII IIII II 12
Price IIII 5
Brand image III 3
Total 20
 Analysis:
On the basis of survey conducted maximum number of consumers are motivated to
buy a washing detergent by looking at the quality of detergent, as 12 respondents
look at quality whereas 5 and 3 respondents focuses on price and brand image of
detergent respectively.
 Conclusion or Decision taken:

So we can conclude by saying that quality is the most important factor in selecting a
detergent followed by Brand image and price.
10.Conclusions and Recommendations

The Conclusion or Decision taken for every question in the project to be presented here in
points in one or two pages.
11.Photographs(if any)
12.Bibliography
Names of books used and website addresses.
13.Appendix
 Any specific terms used are to be defined here.
 All filled in questionnaires are to be attached here.
 Any printed research material to be attached here.
14.Teacher’s Observations
 Take a print of the market survey Evaluation form.

Business Plan- Title Pages, Format, Theory to be copied and Work Sheet
Business Plan:
Name of Student: Acknowledgements

Certificate of Authenticity
CBSE Roll Number
Year:2016-17
Index Objectives Name of the Business,

Logo and Tagline
Competitive advantage
and USP of your Marketing Plan Cost Decisions
product/service/firm
Selling Price Start Up Costs Risk Analysis
Statement Of Profit And

Loss Break Even Analysis Bibliography
Appendix Teacher’s Observations

Choose Your Business idea. You can choose any one Product/Service given below or opt for any
other:
Product Services Trading
 Tiffin service
 Chocolates  Stationary
 Crèche
 Soap  Flower shop
 Pet care center
 Detergent powder/
liquid soap
 Sandwiches
1. Cover page
 Design an attractive cover
2. Certificate of Authenticity
 Print the Certificate
3. Acknowledgement
4. Index:
(Print the index given and then copy the theory given below)
BUSINESS PLAN
 Planning can be defined as "thinking in advance what is to be done when it is to be done, how it is to be
done and by whom it should be done."
 The entrepreneur must make some important decisions and gather information about the external and
internal factors so as to address the integration and co-ordination of effective business objectives and
strategies related to his proposed venture.
WHAT IS A BUSINESS PLAN?

 The business plan is a comprehensively written down document prepared by the
entrepreneur describing formally all the relevant external and internal elements involved
in starting a new venture.
 Thus, a business plan is a comprehensive project report which not only encompasses the entire
range of activities which are being planned in the business, but also:
a) Helps to understand the feasibility and viability of the proposed venture,
b) facilities in assessing and making provisions for the bottlenecks in the progress and
implementation of the idea,
c) Discusses the potential for the success of the project along with the risk factors involved.

 Business plan are decision-making tools:
i. Describing all necessary inputs to the enterprise.
ii. Explaining the mode of utilization of the resources.
iii. Detailing the strategies for the execution of the project.
iv. Outlining the desired goals
v. Assessing market sensitivity and the profitability of the venture.
Thus, the content and the format of the business plan is such which is able to represent all these
aspects of business planning process.
WHO CAN WRITE THE PLAN?

 A business plan represents all aspects of business planning process declaring vision and strategy
alongside sub-plans to cover:
o Marketing o Human resources
o Finance o Legal compliance
o Operations o Intellectual property rights, etc.
 Entrepreneur should consult the following while preparing it:

viii. Lawyers, xiii. Officially Appointed Or/And Set-Up Banks,
ix. Accountants, Specialized Financial Institutions Or Agencies
x. Marketing Consultants, To Promote Entrepreneurship
xi. Engineers xiv. Friends, Relatives, Mentors Etc.
xii. Internet Sites
IMPORTANCE OF THE BUSINESS PLAN:

 The business plan is valuable to the entrepreneur, potential investors, venture capitalists, Banks,
Financial institutions, new suppliers, customers, advisors and others who are trying to familiarize
themselves with the venture, its goals, and objectives.
 The business plan –
g) Determining the viability of the venture
h) Helps in satisfying the concerns, queries, and issues of interested groups
i) Provides room for self-assessment and self-evaluation,
j) Helps to realize the obstacles which cannot be avoided or overcome, suggesting to terminate the
venture while still on paper without investing further time and money.
k) Reflects the entrepreneur's credit history, the ability to meet debt and interest payments, and the
amount of personal equity invested thus serving as an important tool in funds procurement.
l) Helps in providing guidance to the entrepreneur in organizing his/or her planning activities as
such:
iv. Identifying the resources required
v. Enabling obtaining of licenses if required etc.
vi. Working out with legal requirements as desired by the government.
 Hence, a business plan gives adequate clarity to the entrepreneur, Investor(s) and the government
of:
o What an entrepreneur is doing,
o Why he/she is doing it, and
o How he/she will do that?

FORMAT OF BUSINESS PLAN:
 The depth and detail in the business plan depends on the size and scope of the proposed new
venture. There is no fixed content for a business plan as it varies according to the entrepreneur's
goals and audience (i.e. who are being targeted).
 Thus, it is common for especially start-ups to have three or four formats as follows for the same
business plan.
i. Elevator pitch:
a. It is a three minute summary.
ii. A pitch deck with oral narrative:
a. slide show and oral narrative that includes the executive summary and a
few key graphs showing financial trends and key decision making benchmark.
iii. A written presentation for external stakeholders:
a. A detailed, well written, and pleasingly formatted plan targeted at external
stakeholders.
iv. An internal operational plan:
a. A detailed plan describing planning details that are needed by management but may
not be of interest to external stakeholders.
 Depending upon the entrepreneur's experience, knowledge and purpose, generally a business plan
outlines sequentially following components or parts:
1. Introductory cover 4. Production plan 7. Marketing plan
page/general introduction 5. Operational plan 8. Financial plan
2. Business venture 6. Manpower Planning 9. Assessment of risk
3. Organisational plan 10. Miscellaneous/appendix
I. INTRODUCTORY PROFILE /GENERAL INTRODUCTION

 This is the title or cover page - a brief summary of business plan's contents:
i. Entrepreneur's bio-data:
ii. Industry's profile:
iii. Constitution and organization: i.e. the legal form of the proposed enterprise
iv. Product details:
II. DESCRIPTION OF VENTURE/BUSINESS VENTURE

 "Mission Statement" by the entrepreneur and
 Description about the following key elements.
i. Site ii. Physical infrastructure:
III. ORGANIZATIONAL PLAN

 The organizational plan is that part of the business plan that describes the proposed venture's opted
form of ownership adequately mentioning necessary details. All businesses will fall into one of the
four basic categories: Manufacturing, Wholesale, Retail and Service.
 Organizational plan describes the proposed venture's form of ownership. Each type of business
differs significantly in terms of:
1. Commencement procedures 4. Accounting methods
2. Legal constraints 5. Marketing and promotional strategies
3. Financial requirement 6. Risk and liability

 The entrepreneur have access to following forms to choose from to start his/her venture: a) Sole
proprietorship b) Partnership c) Joint Hindu family d) Cooperative, or e) Corporation
 Each of these forms has important implications on (i) Taxes (ii) Liability (iii) Continuity (iv)
Financing (v) Ownership. No form is the best form. Entrepreneur in light of multiple factors (as
already discussed) decides the legal structure, best suited to attain his dream.
 To conclude, both the entrepreneur and the potential investors stands to gain from the
organizational plan as the design of the organization so opted helps even in:
o Specifying the types of skills needed and the roles that must be filled by the member
o Chalking out informal organization or culture.
IV. PRODUCTION PLAN

 Aims at “Plan your work”
 The objective of preparing a Production Plan =
 Visualizing every step in a long series of separate operations,
 So as to ensure that each step is to taken in the right place of the right degree, and at the
right time and
 each operation to be done at maximum efficiency",
 Hence, a production plan helps to plan the work in such a manner that one can clearly form an idea
about:
 Production schedule and/or budget
 Machinery, equipment requirement
 Manufacturing method and process involved
 Plant layout
 There may be three situations before the venture viz complete manufacturing, partial
manufacturing and no manufacturing.
V. OPERATIONAL PLAN
 Operations plan ensures "work your plan".
 It is actually a blue print prepared right in advance of actual operations —
ii. Ensuing orderly flow of materials in the manufacturing process
iii. Facilitating continuous production, lesser work-in-progress and minimization of
wastage.
iv. Co–ordinating the work of engineering, purchasing, production, selling and
v. Describing the flow of goods / services from production point to the consumers.
vi. Introducing a proper system of quality control
vii. Undertaking the best and most economic production policies and methods.
 Elements of operational plan: Operation plan, in a way is planning:

i. For production in advance of operations.
ii. Establishing the exact route of each individual item, part of assembly.
iii. Setting starting and finishing dates for each important assignment/work.
iv. Regulating the orderly movement of goods through the entire manufacturing cycle
i.e. right from procurement of all materials to the shipping of finished goods.
 Nature of venture  Scale of operation, and
 Type of product/service  Technology involved

 Thus, to obtain the above mentioned objectives, entrepreneur specifically pays attention to the
following elements of the plan:
a. Routing d. Follow-Up
b. Scheduling. e. Inspection
c. Dispatching f. Shipping
VI. MANPOWER PLANNING

 An organisation's performance and resulting productivity are directly proportional to the
quantity and quality of its manpower.
 Manpower planning is a process by which an entrepreneur ensures that he/she has the right
number of people, and the right kind of people with appropriate skills, at the right place and
the right time to do work for which they are economically most suitable.
 Manpower planning thus helps to assess:
i. What kinds of people are required?
ii. How many people are required?
iii. How to procure personnel?
b. Procurement of "right man, at right job, at right time" is the objective of human resource
plan.
VII. MARKETING PLAN

 Describes the market conditions and strategies related to how:
a. Products/services will be distributed,
b. Priced
c. Promoted.
 It is a guideline regarding the marketing objectives, strategies and activities to be followed by the
new enterprise.
 Provides answers to three basic questions:
a. Where have we been?
b. Where do we want to go?
c. How do we get there?
 Normally, each year the entrepreneur should prepare an annual marketing plan so as to gel well
with the changing business environment and its forces
 Steps in preparing the marketing plan - procedure for preparing the marketing plan involves
following steps:
i. Business situation analysis
ii. Identify the target market
iii. Conduct SWOT analysis
iv. Establish goals
v. Define marketing strategy
vi. Implementation and monitoring of the plan.
VIII. FINANCIAL PLAN

 Finance brings together men, material, machines and methods to produce goods/services.
 As timely availability of funds in right volume is key to entrepreneurial success, the entrepreneur
should develop a sound financial plan discussing:
a) Financial requirements
b) Sources of raising funds

c) Exact assessment of the revenue, cost, profits, cash flow dynamics, stock of inventory loans etc.
 Financial plan is a projection of key financial data about:

a) The potential investment commitment needed for the new venture, and
b) Economic feasibility of the enterprise
 The financial plan is so designed that the entrepreneur and the investors could have a clear picture
of:
a) How much funds are required?
b) Where will funds come from?
c) How are they disbursed?
d) The amount of cash available
e) General financial well-being of the new venture i.e. probable revenue forecast for the first year at
least.
 As the financial plan must explain to any potential investor how the entrepreneur plans to meet all
financial obligations and maintain its liquidity in order to either pay off debt or provide good return
on investment, several financial projection techniques and tools are made use of by the
entrepreneur. In general, the financial plan will need three years of projected financial data to
satisfy any outside investors.
 Components of financial plan Major financial items that should be included in the financial plan
are:
1. Proforma Investment Decisions 4. Proforma Cash Flow
2. Proforma Financing Decisions 5. Proforma Balance Sheet
3. Proforma Income Statements 6. Break-Even Analysis
7. Economic And Social Variables
IX. ASSESSMENT OF RISK
a. There are some hazards, risks, or/and obstacles always present in the competitive
environment. In a business plan, entrepreneur should:
i. Identify potential hazards
ii. Develop alternative strategies to either prevent minimize or respond to the risk.
X. APPENDIX
a. contains any backup material that is not necessary in the text of the document as:
i. Letters from customers, distributors etc. , Any primary or secondary research data ,
Copies of contracts, agreements or any price lists if received.
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5. Objectives:
 To find out the feasibility of starting a business to sell ______________
OR
 To find out the feasibility of starting a business to provide ______________________ services
OR
 To find out the feasibility of starting a business to trade in _________________.
In addition to the above, in this project, i have tried to:

o To identify my key objectives for the next three to five years and how they will be
achieved.
o To work on the following areas:

o A marketing plan giving details about my competitor, my target customers and
how will you reach them, my advertising and promotion idea, Packaging (if
applicable), Distribution , quality certification required,
 A financial plan to identify fixed and variable costs
 To fix the selling price and choosing the pricing strategy to be adopted by my
firm
 To estimate my start-up costs
 To identify possible risks that my firm may face
 To prepare a projected Statement of profit and Loss
 To conduct a break even analysis
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6. Name Of The Business, Logo And Tagline
A logo is a graphic mark or emblem commonly used by commercial enterprises, organizations and even
individuals to aid and promote instant public recognition. Logos are either purely graphic (symbols/icons)
or are composed of the name of the organization (a logotype or word mark).
In the days of hot metal typesetting, a logotype was a uniquely set and arranged typeface or colophon. At
the level of mass communication and in common usage a company's logo is today often synonymous with
its trademark or brand.[2] The current era of logo design began in the 1870s with the first abstract logo,
the Bass red triangle. Today there are many corporations, products, brands, services, agencies and other
entities using an ideogram (sign, icon) or an emblem (symbol) or a combination of sign and emblem as a
logo. As a result, only a few of the thousands of ideograms people see are recognized without a name. An
effective logo may consist of both an ideogram and the company name (logotype) to emphasize the name
over the graphic, and employ a unique design via the use of letters, colors, and additional graphic
elements.
Tagline In entertainment, a tagline (or tag line) is a small amount of text which serves to clarify a
thought for, or designed with a form of, dramatic effect. Many tagline
slogans are reiterated phrases associated with an individual, social group, or product. As a variant of
a branding slogan, taglines can be used in marketing materials and advertising.
The idea behind the concept is to create a memorable phrase that will sum up the tone and premise of
a audio/visual product,[note 1] or to reinforce and strengthen the audience's memory of a literary product.
Some taglines are successful enough to warrant inclusion in popular culture. Consulting companies
which specialize in creating taglines may be hired to create a tagline for a brand or product.
a. Name of my Business is _____________________________________.

b. The reason/s why I selected this name is:
i. ………………………………………………………………………………………
……………………………………………………………………………….………
ii. ………………………………………………………………………………………
……………………………………………………………………………….………

iii. ………………………………………………………………………………………
……………………………………………………………………………….………
c. My logo is
d. My tagline is _________________________________________________
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7. Competitive advantage and USP of your product/service/firm
Competitor analysis in marketing and strategic management is an assessment of the strengths and
weaknesses of current and potential competitors. This analysis provides both an offensive and defensive
strategic context to identify opportunities and threats. Profiling coalesces all of the relevant sources of
competitor analysis into one framework in the support of efficient and effective strategy formulation,
implementation, monitoring and adjustment.
Competitor analysis is an essential component of corporate strategy. [2] It is argued that most firms do
not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is
called ―informal impressions, conjectures, and intuition gained through the tidbits of information about
competitors every manager continually receives.‖ As a result, traditional environmental scanning
places many firms at risk of dangerous competitive blind spots due to a lack of robust competitor
analysis.
Competitive advantage occurs when an organization acquires or develops an attribute or
combination of attributes that allows it to outperform its competitors. These attributes can include
access to natural resources, such as high grade ores or inexpensive power, or access to highly trained
and skilled personnel human resources. New technologies such as robotics and information
technology can provide competitive advantage, whether as a part of the product itself, as an advantage
to the making of the product, or as a competitive aid in the business process (for example, better
identification and understanding of customers).
The unique selling proposition (USP), or unique selling point, or "'unique selling product"' or "'
unique selling price"' is a marketing concept first proposed as a theory to explain a pattern in successful
advertising campaigns of the early 1940s. The USP states that such campaigns made unique
propositions to the customer that convinced them to switch brands. The term was developed
by advertising pioneer Rosser Reeves of Ted Bates & Company. Theodore Levitt, a professor at Harvard
Business School, suggested that, "Differentiation is one of the most important strategic and tactical
activities in which companies must constantly engage." The term has been used to describe one's
"personal brand" in the marketplace. Today, the term is used in other fields or just casually to refer to
any aspect of an object that differentiates it from similar objects.
Unique propositions that were pioneers when introduced include:

 Anacin "Fast, fast, incredibly fast relief." In 1952, Rosser Reeves created a TV commercial that
capitalized on Anacin's "special ingredient," caffeine, by suggesting limitations of other aspirin and
repeating, three times, the differentiation proposition: fast.[4]
 Domino's Pizza: "You get fresh, hot pizza delivered to your door in 30 minutes or less—or it's free."
 FedEx: "When your package absolutely, positively has to get there overnight."
 Competitive advantage of my product or service is:

 ………………………………………………………………………………………………
…………………………………………………………………………..………….………
 ………………………………………………………………………………………………
…………………………………………………………………………..………….………
 ………………………………………………………………………………………………
………………………………………………………………………………..………….…
 My USP is
 ………………………………………………………………………………………………
………………………………………………………………..………………………….……
 ………………………………………………………………………………………………
……………………………………………………………………………………………
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8. Marketing Plan
A target market is a group of customers towards which a business has decided to aim its marketing efforts
and ultimately its merchandise. A well-defined target market is the first element to a marketing strategy.
The marketing mix variables ofproduct, place (distribution), promotion and price are the four elements of
a marketing mix strategy that determine the success of a product in the marketplace.
Target markets are groups of individuals that are separated by distinguishable and noticeable aspects.
Target markets can be separated by the following aspects:
 Geographic segmentations - addresses (their location climate region)
 demographic/socioeconomic segmentation - (gender, age, income, occupation, education, household size,
and stage in the family life cycle)
 psychographic segmentation - (similar attitudes, values, and lifestyles)
 behavioural segmentation - (occasions, degree of loyalty)
 product-related segmentation - (relationship to a product)
In addition to these segmentations, market researchers have advocated a needs-based market segmentation
approach to identify smaller and better defined target groups. Some approaches to these smaller groups
are:
 Select the target audience – the customers are grouped based on similar needs and benefits sought by
them on purchase of a product.

 Identify clusters of similar needs – demographics, lifestyle, usage behaviour and pattern used to
differentiate between segments.
 Apply a valuation approach – market growth, barriers to entry, market access, switching, etc. are used.
 Test the segments – A segment storyboard is to be created to test the attractiveness of each segment’s
positioning strategy.
 Modify marketing mix – expanding segment positioning strategy to include all aspects of marketing
mix. The four lelments of Marketing Mix are:
Product Mix:
 Product mix relates to decisions regarding planning, developing and producing the right type of
products and services for the consumers.he four elements of marketing mix are:

 Product is the tangible/intangible product, which is goods/services/anything of value that is offered
to the market for exchange.It relates to not only the physical product but also the benefits offered by
the product from the customers’ point of view.
 Important decisions in this area include deciding about the features and quality of the product, its
packaging, labeling, trademark and branding of products.
o What does the customer want from the product/service? What needs does it satisfy?
Place Mix:
 Set of decisions that need to be taken in order to make the product available for purchase and
consumption of the target market at the right place, in the right time and at the right price.
 It includes all the activities involved in transferring ownership and physical possessions of the
product o the consumer.
 Place Mix involves decisions wrt:

o Channels of distribution- selection of intermediaries/dealer to reach the customers,
providing support to the intermediaries etc.
o Physical distribution-managing inventory, storage, warehousing and transportation of
goods from the place where they are produced to the place where it is required by the buyer.
Price Mix:
 It is a value that a buyer passes on to the seller in lieu of the product or services provided.
 It is a source of revenue for the seller.
 Decision also includes pricing methods, pricing strategies, pricing policies, price changes,
discounts to be offered, credit terms etc.
 Price is the cost the customers has to bear for the product and so must be set so that the
customers perceive the price to be in lieu with the value of the product.
Promotion Mix:
 These are activities undertaken to persuade and motivate people to buy their products.
 It involves communicating the features, attributes, availability, merits etc of the product to both
the customers and the participants in the channels of distribution in order to achieve sales goals.
 Tools used include advertising, sales promotion, personal selling etc.
 The 4Ps model is just one of many marketing mix lists that have been developed over the years.
And, whilst the questions we have listed above are key, they are just a subset of the detailed
probing that may be required to optimize your marketing mix.

a. My Market Research Plan.
i. My 3 primary competitors are:
1. _________________________
2. _________________________ and
3. _________________________
b. Demand for my product:

ii. There is there a demand for my product / service
OR
iii. At present there is no demand for your product / service but I think I can
create it?
c. Comparison of my product with my competitor:
Basis of comparison I have Competitor 1 has Competitor 2 has Competitor 3 has
i.
ii.
iii.
iv.
v.
vi.

d. My target customers and how will I reach them.
(from the given table, choose any 5 that are relevant for you)
Details of target market Reasons for my choice
i. Where do they live
ii. What income levels

are in the market,
iii. What is the age

pattern in the market,
iv. Age,
v. Gender,
vi. Marital status
vii. Education,
viii. Occupation,
ix. Home ownership,
x. Number of members
in the household
xi.
xii.
e. My advertising and promotion idea.
Options Tools of promotion I would use (please tick) Reasons for my choice
– Advertising Media available:

– Stationery, Window display or office front, Press
advertising, Radio , Television , Direct mail ,
Outdoor, Ambient , Cinema, Point of sale ,Online
, Directory listings
– Personal Selling
(if used)

– Sales Promotion i. Consumer promotions
1. Point of purchase display material
2. In-store demonstrations, samplings
and celebrity appearances
3. Competitions, coupons, sweepstakes
and games
4. On-pack offers, multi-packs and
bonuses
5. Loyalty reward programs
ii. Business promotions

1. Seminars and workshops
2. Conference presentations
3. Trade show displays
4. Telemarketing and direct mail
campaigns
5. Newsletters
6. Event sponsorship
iii. Trade promotions
1. Reward incentives linked to
purchases or sales
2. Reseller staff incentives
3. Competitions
4. Corporate entertainment
iv. Sales force promotions
1. Commissions
2. Sales competitions with prizes or
awards
3. Back to top
– Public Relations  News creation and distribution (media
releases)
 Special events such as news conferences,
grand openings and product launches
 Speeches and presentations
 Educational programs
 Annual reports, brochures, newsletters,
magazines and AV presentations
 Community activities and sponsorships
iv. Packaging used (if applicapable)

1. ………………………………………………………………………………
………………………………………………………………………………
2. ………………………………………………………………………………
……………………………………………………………………………….
3. ………………………………………………………………………………
………………………………………………………………………………
Eco friendly packaging used if any __________________________________________

f. Distribution – I intend to reach my consumers using:
v. Channels of distribution selected –
1. Direct (zero level)
OR
2. Indirect (one/two or three levels)
vi. Explain the reasons for your choice of Channels of Distribution
1. ………………………………………………………………………………
………………………………………………………………………………
2. ………………………………………………………………………………
……………………………………………………………………………….
3. ………………………………………………………………………………
………………………………………………………………………………
g. What does quality mean for my product/service?
4. ………………………………………………………………………………
……………………………………………………
vii. Standardization mark applicable for my product:_______________________
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9. Cost Decisions
Costing is a managerial accounting method that describes when all fixed and variable costs, including
manufacturing costs, are used to compute the total cost per unit. Full costing includes these costs
when computing the amount of money it takes to produce and distribute one unit of output.
In the early industrial age, most of the costs incurred by a business were what modern accountants call
"variable costs" because they varied directly with the amount of production. Money was spent on
labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could
simply total the variable costs for a product and use this as a rough guide for decision-making
processes.
Some costs tend to remain the same even during busy periods, unlike variable costs, which rise and fall
with volume of work. Over time, these "fixed costs" have become more important to managers.
Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments
such as maintenance, tooling, production control, purchasing, quality control, storage and handling,
plant supervision and engineering.[2] In the early nineteenth century, these costs were of little
importance to most businesses. However, with the growth of railroads, steel and large scale
manufacturing, by the late nineteenth century these costs were often more important than the variable
cost of a product, and allocating them to a broad range of products lead to bad decision making.
Managers must understand fixed costs in order to make decisions about products and pricing.

In management accounting, fixed costs are defined as expenses that do not change as a function of the
activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills
irrespective of sales.
In accounting terminology, fixed costs will broadly include almost all costs (expenses) which are not
included in cost of goods sold, and variable costs are those captured in costs of goods sold. The implicit
assumption required to make the equivalence between the accounting and economics terminology is that
the accounting period is equal to the period in which fixed costs do not vary in relation to production. In
practice, this equivalence does not always hold, and depending on the period under consideration by
management, some overhead expenses (e.g., sales, general and administrative expenses) can be adjusted
by management, and the specific allocation of each expense to each category will be decided under cost
accounting.
h. Compute the Fixed Costs (per month)
Particulars Costs
i. Consultation Charges
ii. Rent
iii. Insurance
iv. Salaries
v. Utilities(water, power etc)
vi. Transport
vii. Miscellaneous
viii. Promotion expenses

ix. Monthly Interest
Amt of loan(if any) * Rate of Interest * 1 .

100 12
_______________ * * 1 =
100 12
x.
xi.
Total Fixed Expenses ( Cash)

xii. Depreciation (non-cash expense)
Total depreciable Assets * Rate of Depreciation * 1 .

100 12
_______________ * 10 * 1 =

100 12
(assuming that assets have a useful life of ten years and so

we charge 1/10th or 10% as depreciation every year)
Total Monthly Fixed Costs(Cash and Non-Cash)
i. Compute the Variable Costs per Unit - Any of the following details can be added:
Particulars Variable costs per unit
i. Packing Charges (per unit)
ii. Raw Material (per unit)
iii. Power (per unit)
iv. Wages (per unit)
Total Variable Costs (per unit)
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10.Selling Price
– Price is the value that is put for a product.

– It depends on
 Cost of production, Segment targeted, Ability of the market to pay, Supply - demand and a
host of other direct and indirect factors.
o There can be several types of pricing strategies, each tied in with an overall business plan.
o Pricing can also be used as a demarcation, to differentiate and enhance the image of a product.
o Price is the only revenue generating element amongst the four P's, the rest being cost centers.
o Some Methods Of Pricing which are used in pricing decisions are as follows: Cost Plus Pricing,
Penetration Pricing, Price Skimming and Variable Pricing

– The manufacturer charges a price to cover the cost of producing a product plus a reasonable profit.
The cost-plus method is simple, but it does not encourage the efficient use of resources.
– Cost-plus pricing is typically based on a manufacturing estimate.
– Estimates are made of the resources required, the cost of those resources and the time for which they
will be used.
– Advantages of cost plus pricing

1. A company knows exactly the amount of expenditure and therefore they can add profit margin
accordingly.
2. It is the simplest method.
3. Easier for a company to evaluate the reasons for escalations in expenses and therefore it can take
corrective action immediately.
– Disadvantages of cost plus pricing

1. This method does not take into account the future demand.
2. It also does not take into account the competitor actions.
3. It can result in the company overestimating the price.
b. Penetration Pricing
o Price is initially set at a price lower than the eventual market price, to attract new customers.
o The expectation is that customers will switch to the new brand because of the lower price.
o Penetration pricing is most commonly associated with a marketing objective of increasing market
share or sales volume.
o The advantages of penetration pricing to the firm are:
1. Result in fast diffusion and adoption. This can achieve high market rates quickly.
2. It can create goodwill among the early adopters segment.
3. It creates cost control and cost reduction pressures from the start.
4. It discourages the entry of competitors. Low prices act as a barrier to entry
5. It can create high stock turnover throughout the distribution channel
6. This can create critically important enthusiasm and support in the channel.
o Disadvantages or penetrating price method:
1. The main disadvantage with penetration pricing is that it establishes long–term price
expectations for the product and image preconceptions for the brand and company.
2. Another potential disadvantage is that the low profit margins may not be sustainable long
enough for the strategy to be effective.
o Goods are sold at higher prices. Usually employed to reimburse the cost of investment of the
original research into the product.
o This strategy is often used to target "early adopters" of a product or service who generally
have a relatively lower price-sensitivity.
o This strategy is employed only for a limited duration.
o Advantages of skimming price
i. Helps the company recovering the research and development costs.
ii. If the company caters to consumers who are quality conscious rather than
price conscious.
o Disadvantages of skimming price
i. This strategy can backfire if there are close competitors.
ii. Not viable when there are strict legal and government regulations.

iii. If the company has history of price skimming then consumers will never
buy a product when it is newly launched, they would rather wait for a few
months and buy the product at lower price.
 Permits different rates to be extended to different customers for the same goods or services.
 Often employed where potential buyers are allowed to participate in a bidding situation, such as in
an auction.
 Variable pricing may come into play when the customer is committing to the purchase of large
volumes of goods or services. When this is the case, the customer must usually comply with specific
criteria in order to enjoy pricing that varies from the standard cost.
 One of the classic examples of the use of variable pricing has to do with street vendors who sell
various types of small goods. The real estate market also functions with the use of variable pricing.
 Examples: Difference in order size of the customers , Difference in the anticipated business from
different customers.
 Variable pricing does provide some benefits, but also has the potential for drawbacks.
 Benefit = move goods that have failed to perform as originally anticipated, allowing them to earn a
modest profit or at least recoup their investment in the products.
 Drawback = A it can lead to losing other customers who paid full price for their purchases, if they
find out that a more recent customer was able to receive a lower price.
j. My selling price is: ______________________
k. The pricing strategy I have selected is _____________________________________.
11.Start Up Costs
Start-up costs are non-recurring costs associated with setting up a business, such as accountant’s
fees, legal fees, registration charges, as well as advertising, promotional activities, and employee
training. Also called start-up expenses, preliminary expenses, or pre-opening expenses
a. Details of my Start Up costs

Particulars Costs
i. Land
ii. Building (Depreciable)
iii. Computers (Depreciable)
iv. Equipments (Depreciable)
v. Machinery(Depreciable)
vi. Vehicles (Depreciable)
vii. Vessels
viii. Software
ix. Hardware (Depreciable)
x. Inauguration ceremony expenses
(or any other promotional expense)
xi. Raw materials

xii. Salary
xiii. Rent in advance
Total Start-up Costs
I would meet my start up costs by:
 Investing my own funds to the tune of ________________________ and / or
 Borrowing ______________________________ @ ___________% interest per annum
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12.Risk Analysis
 The term business risk refers to the possibility of inadequate profits or even losses due to
uncertainties e.g., changes in tastes, preferences of consumers, strikes, increased competition,
change in government policy, obsolesce etc .Every business organization contains various risk
elements while doing the business.
 Business risks implies uncertainty in profits or danger of loss and the events that could pose a risk
due to some unforeseen events in future, which causes business to fail.
 For example, an owner of a business may face different risks like in production,risks due to irregular
supply of raw materials, machinery breakdown, labor unrest, etc. In marketing, risks may arise due
to different market price fluctuations, changing trends and fashions, error in sales forecasting, etc.
In addition, there may be loss of assets of the firm due to fire, flood, earthquakes, riots or war and
political unrest which may cause unwanted interruptions in the business operations. Thus business
risks may take place in different forms depending upon the nature and size of the business.
 Business enterprises constantly face two types of risk:
o Speculative risks: involve both the possibility of gain as well as the possibility of loss.
o Pure risks: involve only the possibility of loss or no loss.
 Business risks can be classified by the influence by two major risks: internal risks (risks arising
from the events taking place within the organization) and external risks (risks arising from the
events taking place outside the organization).
o Internal risks arise from factors (endogenous variables, which can be controlled) such as
human factors (talent management, strikes), technological factors (emerging technologies),
physical factors (failure of machines, fire or theft), operational factors (access to credit, cost
cutting, advertisement).
o External risks arise from factors (exogenous variables, which cannot be controlled) such as
economic factors (market risks, pricing pressure), natural factors (floods, earthquakes),
political factors (compliance and regulations of government).
 Causes Of Business Risks
a) Natural causes: eg earthquake, flood, drought etc.
b) Human causes: eg losses due to carelessness or dishonesty of employees.
c) Economic causes: eg price fluctuation, changes in the market conditions etc
d) Other causes: e.g. accidents, equipments becoming outdated or damaged.

The likely risk factors of my business and how I would meet them you meet them:
Type of risk Risk faced by my firm How will we meet them
Speculative risks
Pure risks
Internal risk
external risks
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13.Statement Of Profit And Loss
 A financial statement that summarizes the revenues, costs and expenses incurred during a specific
period of time - usually a fiscal quarter or year. These records provide information that shows the
ability of a company to generate profit by increasing revenue and reducing costs. The P&L
statement is also known as a "statement of profit and loss", an "income statement" or an "income
and expense statement‖.
 It is referred to as an income statement, or profit and loss account, revenue
statement, statement of financial performance, earnings statement, operating statement,
or statement of operations.
 The statement of profit and loss follows a general form as seen in this example. It begins with an
entry for revenue and subtracts from revenue the costs of running the business, including cost of
goods sold, operating expenses, tax expense and interest expense. The bottom line (literally and
figuratively) is net income (profit). Many templates can be found online for free, that can be used in
creating your profit and loss, or income statement.
 It is one of the financial statements of a company and shows the company’s
revenues and expenses during a particular period.
o It indicates how the revenues (money received from the sale of products and services before
expenses are taken out) are transformed into the net income (the result after all revenues
and expenses have been accounted for, also known as ―net profit‖).
o It displays the revenues recognized for a specific period, and the cost and expenses charged
against these revenues. The purpose of the income statement is to
show managers and investors whether the company made or lost money during the period
being reported.
It‘s now a year since I started my Business. I am presenting one month‘s Profit and Loss
Statement for the first month of the second year to cover the following main items:

Units Rupees Rupees
Sales
A
Cost Of Sales
B
Gross Profit = a - b
C
Fixed Expenses:
i. Consultation Charges
ii. Salary
iii. Rent
iv. Insurance
v. Salaries
vi. Rent
vii. Utilities(water, power etc)
viii. Transport
ix. Miscellaneous
x. Monthly Interest
Amt of loan(if any) * Rate of Interest * 1 .

100 12
_______________ * * 1 =
100 12
xi. Depreciation

100 12
_______________ * 10 * 1 =
100 12
(assuming that assets have a useful life of ten years and so we

charge 1/10th or 10% as depreciation every year)
xii. Consultation Charges
xiii. Salary

xiv.
xv.
D Total Fixed Expenses ( Cash)
D Total Fixed Expenses ( Cash)
E xiv. Depreciation

100 12
_______________ * 10 * 1 =
100 12
(assuming that assets have a useful life of ten years and so we

charge 1/10th or 10% as depreciation every year)
F Total Fixed Expenses
(Cash And Non-Cash)
G Operating Profit Or Loss

=C–F
H Taxes = Use 25% On Profits Only
I Net Profit Or Net Loss

=G-H
End here)
----------------------------------------------------------------------------------------------------------------------
(Next Page)
14.Break Even Analysis
 Breakeven point is the level of sales (or revenue generated) that equals all the expenses required for
generating that revenue.
 It is not more than the expenses (i.e. no profit) nor is it less than the expenses (i.e. no loss). In other
words there is neither loss nor profit.

 At the breakeven level
 B.E. Qty = 𝐹𝑖𝑥𝑒𝑑𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
 Thus, Break even quantity is the quantity where Total Revenue = Total Expenses, where
o Total Revenue = Total Quantity x Price Per Unit = Qty x Unit Price
o Total Expenses = (Total Quantity x Cost Per Unit) + Fixed Costs
= (Qty x Unit Cost) + Fixed Exp
That is, at Break even quantity, (Qty x Unit Price) = (Qty x Unit Cost) + Fixed Exp
 (Qty x Unit Price) - (Qty x Unit Cost) = Fixed Exp
 Qty x (Unit Price – Unit Cost) = Fixed Exp
 Qty x Gross Margin (or Profit) per Unit = Fixed Exp
B.E. Qty for a single product = Fixed expenses .

Selling price per unit – variable cost per unit
B.E. quantity for multiple products

= Fixed expenses .
Weighted Average Selling Price per Unit – Weighted Average Variable Cost per Unit
 Usefulness of Break–Even Analysis

1. Forecasts
2. Identify problem areas
3. Cost estimation
4. Price policy
For my firm,
 B.E. Point in value = 𝐹𝑖𝑥𝑒𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .
 B.E. Point in value = 𝐹𝑖𝑥𝑒𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

Contribution per unit
 B.E. Qty = 𝐹𝑖𝑥𝑒𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 .

Gross Margin per Unit
Calculate breakeven point expressed in amount of sales in rupees.

Selling price per unit
Variable cost per unit
Fixed costs
Solution:
 B.E. Point = 𝐹𝑖𝑥𝑒𝑑 Expenses .

 B.E. Point = = .
( – )
 B.E. Point =. = _____________________ units
 B.E. Point in Rupees = _______________ units x ________ per unit = _______________

15. Conclusions: The complete findings of the project to be presented here in points in ½ or 1
page.
1. Name Of The Business,
2. Logo And
3. Tagline
4. Competitive advantage and USP of your

product/service/firm
5. Marketing Plan
 My main competitors ,
 My target market ,
 Advertising and promotion idea,
 Packaging (if applicable),
 Distribution,
 Quality
6. Cost Decisions
 Fixed costs
 Variable costs
7. Selling Price
 Selling price per unit
 Pricing strategy followed
8. Start Up Costs
 Total startup costs
 How will I meet them
9. Risk Analysis
 Causes of risk
10. Statement Of Profit And Loss
 Projected Profits/losses
11. Break Even Analysis
 Breakeven point in rupees
 Breakeven point in units
Page 177 of Business Plan - Entrepreneurship (Case Study): Class XII

Page 178 of Business Plan - Entrepreneurship (Case Study): Class XII

Enterprenuership Class Xii

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CONTENTS

S.No Topic Page No

I Rationale, General Objectives, Methodology, Syllabus and 2

II Chapter wise Chapter Summary

4. Enterprise Growth Strategies 52

III Chapter Outlines 91

IV PROJECT WORK 105

V Chapter wise Question Bank 125

VI Unit 5 – Business Arithmetic – Practice Questions 137

Unit Marks Periods

S.No Particulars Question Wise Division of Marks Total

Marks For Each Question 1 Mark 2 Marks 3 Marks 4 Marks 6 Marks

Remembering: (knowledge based simple recall questions to know 2 1 2 1 - 14 20

 VSA = very short answer carrying 1 mark

Class XII/ Entrepreneurship: Study Material/4

Unit 1 Entrepreneurial Opportunities & Enterprise Creation

Unit 2 Enterprise Planning

Unit3: Enterprise Marketing

Page 5 of Smart Skills/ Entrepreneurship/Class XII

Unit 4: Enterprise Growth Strategies

Unit 5: Business Arithmetic

Page 6 of Smart Skills/ Entrepreneurship/Class XII

Unit 6: Resource Mobilization

Page 7 of Smart Skills/ Entrepreneurship/Class XII

Entrepreneur Entrepreneurship Enterprise

The Person The Process The Outcome

What is a Business Opportunity?

 Business opportunity can be described as an economic idea which can be implemented to

 Can all ideas be converted into opportunities?

Elements of a business opportunity:

Page 8 of Smart Skills/ Entrepreneurship/Class XII

 Sensing entrepreneurial opportunities is a process of converting an idea into an opportunity

This diagram shows the following stages:

Perceiving and Sensing Opportunities:

Factors involved in sensing opportunities:

Page 9 of Smart Skills/ Entrepreneurship/Class XII

2. Ability to harness different sources of information:

3. Vision and creativity

Page 10 of Smart Skills/ Entrepreneurship/Class XII

 What is environment scanning? Careful monitoring of an organization's internal and external

 Importance of environment:Sensitivity to environmental factors is crucial for an

ii. Formulation of strategies and policies:It helps in identifying threats and

v. Sensitisation of entrepreneurs to cope up with rapid changes:sensitise the

Page 11 of Smart Skills/ Entrepreneurship/Class XII

 Such an analysis involves

Spotting an Scanning of Identification Starting Project

An opportunity received by the entrepreneur should be tested against important environmental

Page 12 of Smart Skills/ Entrepreneurship/Class XII

The PESTEL Model:

Page 13 of Smart Skills/ Entrepreneurship/Class XII

 By following different ways for generating ideas an entrepreneur collects a number of

Various Sources of Idea Fields

Service Related Creative Efforts

Page 14 of Smart Skills/ Entrepreneurship/Class XII

c) Market driven or demand driven ideas:

 Market research is a key factor to maintain competitiveness over competitors. Market

 It is a very important component ofbusiness strategy. The term is commonly interchanged

Page 15 of Smart Skills/ Entrepreneurship/Class XII

d) Trading related ideas:

e) Service Sector Ideas:

Page 16 of Smart Skills/ Entrepreneurship/Class XII

Page 17 of Smart Skills/ Entrepreneurship/Class XII

Transformation of Ideas into Opportunities