SSI- SMALL SCALE INDUSTRY

Small scale & Large scale enterprises are two legs of industrialization process of a country Definition of SSI varies from country country and from time to time. to

SSI - Definition
Year Invesment Criterion SSI Ancillary Employment Criterian
50 with power 100- w.out power
50 with power 100- w.out power

Up to 1958
1959 1960 1966 1975 1980 1985

Up to 10 lakhs
Value of M/cs Old or New Fixed assets 5 Lakhs 7.5 Lakhs 10 Lakhs 20 Lakhs 35 Lakhs

Same as SSI
Same as SSI Fixed assets 10 Lakhs 10 Lakhs 13 Lakhs 25 Lakhs 45 Lakhs

Dropped Dropped Dropped Dropped Dropped

1991
1997 1999

60 Lakhs
3 Crores 1 Crore

75 Lakhs

Dropped

50 Lakhs Tiny Unit Dropped A.U sells 50% of Products to industries

Small Scale Industry

Modern SSI

Cottage Industry

Village Industry

Ancillary Industry

Types of SSIs
Manufacturing Industries : industries Produces articles for processing

Feeder Industries : Specialized in certain type of products and services Casting , Electroplating, Welding etc. Servicing Industries : Light repair shops to maintain machineries Ancillary to Large Industries : Produces parts/Components and render services Mining and Quarrying construction. Industries : Support Industries for

Characteristics of a SSI
1. One man show - sleeping partners 2. Owner acts as Manager 1st hand infotakes Decisions 3. Lesser gestation period period of getting returns 4. Scope of operation depends on local demand 5. Can be located anywhere subject to resources 6. Fairly labour intensive wit small capital 7. Can be in rural areas and helps Balanced regional development 8. Flexible to adopt changes lik New Product/Method

Objectives of SSI
1. To provide immediate large scale employment wit low investment and to Eradicate unemployment problem 2. To encourage dispersal of industries to all areas of country and to promote balanced regional development in country 3. To bring backward areas too to the main stream of development 4. To ensure more equitable distribution of National income 5. To encourage effective mobilisation of countrys untapped resources 6. To improve the level of living of people

Important SSIs thrust areas

-Food and allied products -Textile products -Leather products bag, footwear -Rubber products -Plastic products -Chemicals and chemical products -Natural Essential oils -Glass and ceramics -Mechanical transportation equipments -Metal cabinets, Electrical appliances -Electronic equipments -Boats, truck body building -Sports goods,stationeries etc.

Ownership structures
Legal form of an enterprise Importance : When entrepreneur wishes to raise loan, a banker/financial institution/ pvt. Lender like to know the ownership form of the enterprise. Personal capacity to take decisions-bear to risk-economic soundness-educational qualifications etc.

Types of Ownership structures

PROPRIETORSHIP PARTNERSHIP Partnership deed COMPANY Private Public CO-OPERATIVE

Proprietorship
Oldest Easiest and simplest form The enterprise is owned by only one person master manages business Features : One man ownership No separate business entity No separation betwn Ownership and management Unlimited liability Profits/losses to owner-Less formalities

Proprietorship
Advantages : Simple form of Org. Owners freedom to take decisionsHigh secrecy Tax advantage Easy dissolution. Disadvantages : Limited resources Limited ability Unlimited liability Limited life of Enterprise form.

Partnership
When more capital,managerial skills and liability reqrd for expansion More persons come together to join with different ages and start business. Ex. Person lacks managerial skills but have capital joins wit a person who is good manager but may not have capital.. Pool their capital and skills to organise a business it is called partnership.

Partnership
An association of two or more persons who have agreed to share the profits of a business which they run together. This business may be carried on by all or any one of them acting for all. Partners firm

Partnership
Features : More persons Profit and loss sharing Contractual Relationship Existence of lawful business- Utmost Good faith and honesty Unlimited liability Restrictions on transfer of share Principal Agent relationship.

Partnership
Advantages : Easy formation More capital Available Combined talent ,Judgement skill Diffusion of Risk Flexibility Tax advantage

Partnership
Disadvantages : Unlimited Liability Divided Authority Lack of Continuity Risk of Implied Authority Partnership deed : Written agreement

Partnership
Dissolution : dissolution of partnership- ceasing of partnership does not imply dis of firm dissolution of firm closing business implies dis of partnership By agreement Compulsory due to contingencies by court Settlement of Accounts

COMPANY
A legal form of ownership that provide limited liability for the owners and perpetual life for the business. A company is an artificial person being created by the law that has an existence separate and apart from its owners.It can sue and be sued in its own name.

COMPANY
An association of many persons, who contribute money or moneys worth to a common stock and employ it for a common purpose. The common stock if denoted in money and is the capital of the company.The persons who contribute it are members.The proportion of capital to which each member is entitled is his share.

COMPANY
Features : Artificial Legal Person Separate Legal Entity Common seal Perpetual Existence Limited Liability Transferability of shares Separation of ownership from management Number of members Private - Public

Private Vs Public Company

Basics of Difference 1.Members 2.Directors 3.Prospectus 4.Documents (MOUs) 5.Allotment of Shares 6.B. Commencement Private Company Min. 2 - Max. 50 Min. 2 Filing a statement not req. 4 allotting shares 2 members should sign Can commence before minimum subcription Soon after incorporation Public Company Min.7 No Max. Limit Min. 3 Filing of Prospectus is nessary 4 alloting shares 7 members should sign Cannot commence before min. subscription Aftr obtaining certificate

7.Transfer of Shares
9.Statutory Meeting 10.Directors

Restricted by articles
No need to fwd reports No provisions consent/ pay/qualification shares

Freely transferable Must file BS wit registrar

Must hold to fwd reports All these apply to at least 3 of the directors

8. Filing of Balance sheet No need

Privileges of a Private company

A non member can not inspect the copies of the Profit/Loss A/c filed with the Registrar No limit of max. managerial remuneration No restrictions of Appoinment/Reappoinment of directors No need to maintain Membership index.

COMPANY
Advantages : Limited liability Perpetual existence Professional Management Expansion potential Transferability of Shares Diffusion of Risk Disadvantages : Lack of Secrecy Legal restrictions Management mischieves Lack of personal Interest

CO-OPERATIVE
Based on Self Help and Mutual Help Aims at rendering services not profits

It is an association of persons,usually by limited means, who have voluntarily joined together to achieve a common economic and to through the formation of a democratically controlled business oraganisation, making equitable contributions to capital required and accepting a fair share of risks and benefits of the undertaking.

CO-OPERATIVE
Features : Voluntary Org , Needs to be registered with Co-operative Societies of State Govt. Control Member 10% of share or Rs.1000 Shares not tranferable but can be surrendered - Minimum of 10 members and No maximum limit. Members are Owners to contribute Capital and get dividends Liability of members is limited. The elected managing committee manages the affairs of the Co-op Org.

CO-OPERATIVE
Advantages : Easy formation Limited liability Perpetual existence Social service Open membership Tax advantage State assistance Democratic management Disadvantages : Lack of secrecy Lack of Business acumen Lack of interest Corruption Lack of mutual interest.

Selection of Ownership structure Nature of Business Area of Operations Degree of control Capital Requirements Extent of risk and liability Duration of business Government regulations.

Ownership pattern in India

The Business
The state of being busy Business is any enterprise which makes, distributes or provides any article or service which other members of community need and are able and willing to pay for.. Business concerns with buying and selling goods, manufacturing goods or providing services in order to earn profit..

PROJECT - Definition
Well begun is half done An idea/plan intended to be carried out A project typically has a distinct mission that is designed to achieve and a clear termination point , the achievement of the mission. A scientifically evolved work plan devised to achieve a specific objective within a specified period of time.

Classification of Projects
Based on Size, nature,objectives,time duration and complexity 1a. Quantifiable Projects Industrial projects, Power generation,Mineral development 1b. Non- Quantifiable Projects Health,Education,Defence related projects

Classification of Projects
2. Sectoral Projects : - Agricultural & allied sector - Irrigation and power sector - Industry and mining sector - Transport and Communication sector - Social services sector Useful Economic sectors at macro levels.

Classification of Projects
3. Techno Economic projects :
a. Factor Intensity-Oriented projects

- Capital intensive / Labour intensive

b. Causation Oriented Projects

- Demand based/ Raw material based

c. Magnitude Oriented Projects

- Large / Medium / Small scale

PROJECT PHASES
I. Project Identification : A project having good market
External & Internal Sources to identify Project.... i. Knowledge of Potential customer needs ii. Watching emerging trends for certain products iii. Scope for producing substitute products iv.Professional magazines catering specific interests lik Electrncs,Comp v.Success stories of Entrepreneurs. vi.Visits to trade fairs, exhibitions dipalying new products/services vii.Meeting with Govt. agencies. viii.Ideas by knowledgeable persons ix.Knowledge abt Govt. Policies,concessions,incentives list of SSI items x. A new product introduced by competitor.

PROJECT PHASES
II. Project Selection : Nut-bolt manuf/Leather/ Photo copying unit/Computer servicing /Mobile Servicing/Polythene bags for textile industry SWOT Analysis
Strength Weakness Opportunities Threats Zeroing in process

PROJECT FORMULATION
Conceptual Idea to Production involves numerous decisions to be taken Project Report is the 1st Corner stone
Project Report or Business plan is the written statement of what an Entrepreneur proposes to take up It serves as a big road Map to reach the Destination

Project Report
A well evolved course of action devised to achieve the specified objective within a specified period of time Operating Document with2 Essential functions 1. Describes the Direction the enterprise going in.. What Where How Goal 2. It attracts lenders & Investors

Project Report Contents

1.Gen. Information - Product Details 2.Promoter Qualification/Experience 3.Location Exact location lease 4.Land/Building Area/Cost/Plant estimate 5.Plant /Machinery Capacity,Suppliers,Cost 6.Production process Process
chart,Techinical know how,Tech alternatives available,Production program

7.Utilities Water,Power,Steam,Compressed
air,Cost estimates,Sources

Project Report Contents

8.Transport /Communication Mode,Cost 9.Raw Material List,Quantity,Source, Cost,
Tie-up,Alternate raw material. Cost,Training cost

10.Manpower Skilled,Semi skilled,Source,

11.Products Product mix,Estimated
sales,Distribution channels,Competitions and their capacities,Product standard,Input-Output ratio,Product substitute. National, Inter National,Trade practices,Sales promotion devices,Market research

12.Market End users, Distribution Local,

Project Report Contents

13.Requirement of Working Capital Working capital required,Sources,Nature and extent of credit facilities offered 14.Requirements of Funds Break up project cost of Land,Building,Machinery,Miscl.assets, Preliminery expenses,Contingencies and Margin money of working capital 15.Cost of Productn & Profitability of 1st 10 years 16.Break Even Analysis 17.Schedule of Implementation

Project Report Formulation

Project formulation - 8 stages of Project development

1. General Information 2. Project Description 3.Market potential 4.Capital Costs and Sources of finance 5.Assessment of Working Capital Req. 6.Other Financial aspects 7.Economic and Social Variables 8.Project Implementation.

Other Financial Aspects

Profit Loss Statement/Projected balance sheet/Cash flow statement Break Even point is the level of production/sales where the industrial enterprise shall earn neither profit or incur loss.It indicates the gestation period and time of repayment of loans. Break Even Point = BEP = F ----S V F-Fixed Cost , S Sales projected, V- Variable cost
Indicates at what % of sales the enterprise break even

SPECIMEN OF PROJECT REPORT

PROJECT PROFILE FOR A MANFACTURING UNIT A. PRODUCT DESCRIPTION : B.PRODUCTION & GENERAL EVALUATION OF PROSPECTS: C.MARKET ASPECTS : 1. 2. 3. 4. Users : Sales Channels & Methods Geographical Extent of Market : Competitive Situation: a) Domestic Market b) Export Market 5. Market needed for plant described

SPECIMEN
D. PRODUCTION REQUIREMENTS: Salient Features : 1. Annual Capacity (1-2-3 Shifts) 2. Capital Requirements Land,Building on rent,Equipment Furniture, Working caiptal Rs.

3. Total capital (i) Own (ii) Borrowings

4. Expected Net Profit per annum E.CAPITAL REQUIREMENTS: Rs. 1. Fixed Assets & Working capital (a) Land , Building (b) Equipments (i) Production Equipments (ii) Tools (iii) Furniture & Fittings (c) Working capital Total

SPECIMEN
II. Raw Material & Allied Supplies (Annual)
Description Quantity Rate Rs. Annual Requirements

1.
2. 3. Power,Fuel & Water 4.Maintenanace & Allied Supplies 5.Other supplies III. Man Power (Annual) Description No. Rate Rs. Annual Cost Rs.

Total

Manager Foreman/Supervisors Skilled Workers Semi Skilled /Unskilled Workers Office Staff /Others

Total

SPECIMEN
IV. Other Costs (Annual) (a) Depreciation on Equipment, (b) Interest on capital ( fixed & (c ) Administrative Costs (d) Sales cost (Including sales, (e) Provision for discount,bad debts (f) Training costs F. TOTAL ANNUAL COSTS,SALES (a) Annual Costs Rent for Land,RM,Manpower (b)Annual Sales Revenue (c) Expected Annual Net profit (d) % Profit on Own capital (e) % Profit on Total Annual Sales (f) % on Total Investment REVENUE AND NET PROFITS Commision,Advertisement etc.) miscl. contigencies Furniture& Fittings annum Working capital )

Turnover

Total

Project Appraisal
Assessment of a Project Proposed project Ex-ante Analysis Executed project Post-ante Analysis Costs and Benefits analysis of different aspects of proposed project with an objective to adjudge its viability Scarce resource alternate projects For appraising a project its economic,financial,technical,market,mana gerial & social aspects are analysed.

Project Appraisal
Financial Institutions do PA to assess its credit worthiness before extending finance to a project An independent objective assessment of various aspects of an investment proposition for arriving at a financial decision to determine viability,sometimes to modify its scope/content to improve its viability.

METHODS of PRO.APPRAISAL
1.Economic Analysis Raw material,Level of capacity,anticipated sales/expenses, propable profits Demand of product Govt. policies incentives on location of enterprise/product. 2.Financial Analysis Fixed capital / Working capital assessment- money needed to meet daytodays operations (WC serves like lubricant) 3.Market Analysis Anticipated market study a.Opinion polling
i.Complete Enumeration survey - 1000/1000 ii.Sample survey 50 /1000 iii. Sales expertise method sample market iv. Vicarious method Indirect Dealers opinion study

METHODS of PRO.APPRAISAL
b.Life cycle segmentation Analysis : S Curve Analysis

Sale
The sales at different stages can be anticipated
Introductn Growth Maturity Saturtn Decline

Time

METHODS of PRO.APPRAISAL
4.Technical Feasibility The adequacy of the proposed plant and equipment to produce the product within the prescribed norms. Tech.colloborations legal terms a. Land/site b.Water/power/transport/communication c. Service- machine shops/eletric repair shops d. Coping with Antipollution law e. Work force f. Raw material 5.Management Competence One man show - lack of managerial competence or mismanagement will lead the enterprise to fall sick.

 End of Unit 3