Steps to set up a Project Check list of SIDBI

Project Selection Technology and Machinery Arranging Finance Unit Development SSI Registration Approvals Clearances Quality Certification

How to Setup a Project? Project Selection It all begins with an Idea The overriding reason for anyone to think of establishing a SSI unit can be summarized in one word - opportunity. An opportunity to provide a product or service, which can generate sufficient surplus. This is all the more true if one is a believer in the maxim, "Small is Beautiful". However, ideas need to be filtered through a multi-layer sieve. This model is shown in the following flow: Does the idea fire up your motivation? Is it a viable business proposition in your area? Does it match the needs of your clientele? Check it out with basic market research Test it out at market place Consult with the experts Look out for competition in the field Is it a sunrise industry? Your business opportunity Project conceptualization

Once the ideas are screened and a viable business opportunity emerges the project has to be conceptualized in all its dimensions. The 4 Ps of Project Conception is: PRODUCT (Shape, Size and Nature) PROCESS (Technology to produce the product) PLACE (Location of Plant) PARTNER (Technological or Financial Collaborator)

Making a Product Choice In a project conceptualization stage while making a product choice following factors are related to product need to be considered: Product Line - Depth, Width Packaging Branding

Warranties After Sales Service

Some other factors that one should consider while finalizing the product choice are: Ease of availability of raw-material Process Technology Accessibility to the market Incentive and support from Government Market information is also important for product selection. Products, which are likely to have a number of players in the market, are best avoided. Some such products in the recent past have been plastic footwear, audio cassettes, disposable gloves and bulk drugs. In case the entrepreneur is looking for a product, which has export potential, the following additional questions need to be asked: What should be the contents of export-product portfolio? What are the special requirements for packaging if one has to export the products? What product adaptations are needed to be made for exporting a product to a specific country? Are any WTO conditionalities involved e.g. "child labour free", ISO 9000 certified, GMP followed etc. The development of export-product portfolio can be done by considering 4 parameters viz. External demand conditions Internal supply capability Complexity of marketing tasks Amount of investment required to penetrate the market Analysis can be conducted using this four dimensional model. The obvious choice is a product which scores a high rating on first two parameters and low rating on last two parameters. EXIM (Export Import Bank of India) Bank has also developed an excellent model to conduct the export-product portfolio analysis based on three parameters viz. Supply Capability In Product Group Domestic Environment Export Market Attractiveness This analysis gives rise to product groups with high potential or low potential. With regard to special packaging requirements one has to be careful about laws of the country one is exporting to. For instance, while exporting to Australia, woodenpackaging cannot be done. Product adaptations for country's specific needs look into things like whether voltage supply is 220V or 110V for electric appliances and for automobiles whether left-hand drive or right-hand drive is appropriate.

It has now become important to understand the implications of the various agreements, which form part of WTO. Once the product is finalized, choices of process technology emerge. Technology and Machinery Process Selection Choices of process technology emerge once the product is finalised. For some complex products, process know how has to be imported. In such cases agreements for technology transfer should be made with due care to safeguard interest. A lot of appropriate technology is being developed at CSIR and Defense Research Labs and some of this technology can now be bought. Indigenously developed process knowhow has intrinsic benefits such as appropriateness and relative inexpensiveness. While checking out on a process technology, the following things need to be considered with utmost care: Whether process requires very high level of skilled workers or complex machines? Whether process requires large quantities of water and/or power? Whether any process or product patent needs to be honoured while utilising the selected process technology Any special pollution or environmental regulations Finally, the appropriateness to the indian environment and conditions. Machinery and equipment One of the major deficiencies in the small industry scenario is the prevalence of outdated production and management methods hindering the efficient operation of small-scale units. It was also found that the most important reason for the reluctance of the small industrialists to install modern machinery and equipment was the lack of investible funds. The main objective of National Small Industries Corporation (NSIC) is to provide financial, technical and marketing support to SSIs. Now the Place and Right Partner has to be selected and Project Report has to be prepared. Arranging Finance No SSI unit can take off without monetary support. This need for finance can be classified into following types: Long and medium term loans Short term or working capital requirements Risk Capital Seed Capital/Marginal Money Bridge loans Financial assistance in India for SSI units is available from a variety of institutions. The important ones are NSIC: National Small Industry Corporation Limited SIDBI: Small Industries Development Bank of India (refinance and direct lending)

SFCs: State level Financial Corporation e.g. Delhi Financial Corporation. Small Industry Development Corporations of various states. Commercial/Co-operative Banks. DIC: District Industry Centre.

Long and medium term loans are provided by State Financial Corporations, SIDBI and State Industrial Development Corporations. Banks also finance term loans. This type of financing is needed to fund purchase of land, construction of factory building/shed and for purchase of machinery and equipment. Term loans are secured against mortgage of assets such as land, building, machines, equipment and other stocks. The short-term loans are required for working capital requirements, which fund the purchase of raw material and consumable, payment of wages and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks. There is, however, a SINGLE WINDOW SCHEME, for SSI units. Under the scheme, one agency, either the bank or the financial institution, funds both the term loan and working capital requirements. This scheme applies to all SSI projects with project cost upto Rs. 5 million. The working capital loan is generally secured against Pledging of stocks, raw materials and finished goods, Advances against work-in-progress (WIP), Advance against bills. For loans from financial institutions and commercial banks a formal application needs to be made. The details of documentation that need to be provided with the loan application are shown here. Documentation for Loan Application Balance Sheet and Profit Loss Statement for last three consecutive years of firms owned by promoters Income Tax Assessment Certificates of Partners/Directors Proof of Possession of Land/Building Architects estimate for construction cost Partnership deed/Memorandum and Articles of Associations of Company Project Report Budgetary Quotations of Plant and Machinery A sanction or rejection letter is issued by bank after its assessment of the application. After receiving a sanction letter applicants need to indicate in writing their acceptance of terms and conditions laid down by FI/ Banks. Subsequent loan is disbursed according to the phased implementation of the project. In today's environment there are other choices apart from commercial banks and Government owned financial institutions. These options include venture capital funds and non-government finance companies. Unit Development After deciding the issues of product and process, the next important question is where to set the unit up?

For many tiny units and service-based units, the home is perhaps the best starting point. Setting up an establishment is much more than putting a signboard up and waiting for customers to walk in. It requires negotiating a favourable plot or shed purchase, organising for proper construction of building, design of interiors and finding good deals for equipment and machinery. Construction of Building Once an industrial plot for the unit is secured, then the next job is that of finding a suitable architect. Design of factory building has to be in consonance with the type of industry and have an appropriate plant layout. An architect's estimate of building construction is essential for loan applications. Further, architect's certificate for money spent on building is needed for disbursement of loan. Getting the Utility Connections Among the utilities of prime importance are power and water. In many cases getting power connection causes delay in setting up of plant. Therefore it is imperative to commence work on these aspects with diligent follow up. Power connections are generally of either LT (Low Tension) or HT (High-tension) type. If connected load is upto 75 HP, LT connection is provided. For connected loads of 130 HP or higher only HT connection is provided. A formal application needs to be made in a specified form to the state electricity board. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. In areas of power shortage, it is advisable to augment the power supply with a captive generating set. Water connection is also obtained likewise by applying in advance in formal forms. The water supply can be augmented by installation of tubewell. Getting 3M's Right Men Projections for manpower and staffing are made in the project report. However it is necessary to time the induction of manpower in a planned manner. The engineers and operatives must be available before the installation of the machinery. Machinery Choosing and ordering of right machinery is also of paramount importance. In many cases technology or process provides us with specifications which is not provided, then an extensive techno-economic survey of machinery and equipment available must be carried out. International trade fairs and engineering fairs are good places to look at available options. The entrepreneur must also consult experts, dealers / suppliers as well as users, prior to making a selection of equipment and machinery. The advice of DIC, SISI and NSIC can also be sought. Materials Materials procurement and planning are critical to success, of a start-up with a SSI unit. Inventory management can lead to manageable cash flow situations; otherwise if too much is ordered too soon considerable amount of working capital gets locked up. On the other hand, non-availability may result in production hold-ups, and idle

machine and manpower. For essential imported raw material whose lead-time is large proper planning is all the more essential. SSI Registration Small Scale and ancillary units (i.e. undertaking with investment in plant and machinery of less than Rs. 10 million) should seek registration with the Director of Industries of the concerned State Government. Registering your SSI Unit The main purpose of Registration is to maintain statistics and maintain a roll of such units for the purposes of providing incentives and support services. States have generally adopted the uniform registration procedures as per the guidelines. However, there may be some modifications done by States. It must be noted that small industries is basically a state subject. States use the same registration scheme for implementing their own policies. It is possible that some states may have a 'SIDO registration scheme' and a 'State registration scheme'. Benefits of Registering The registration scheme has no statutory basis. Units would normally get registered to avail some benefits, incentives or support given either by the Central or State Govt. The regime of incentives offered by the Centre generally contains the following: Credit prescription (Priority sector lending), differential rates of interest etc. Excise Exemption Scheme Exemption under Direct Tax Laws Statutory support such as reservation and the Interest on Delayed Payments Act. (It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law have incorporated the word SSI in their exemption notifications. Though in many cases they may define it differently. However, generally the registration certificate issued by the registering authority is seen as proof of being SSI). States/UTs have their own package of facilities and incentives for small scale. They relate to development of industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support. Both the Centre and the State, whether under law or otherwise, target their incentives and support packages generally to units registered with them. Objectives of the Registration Scheme They are summarised as follows: To enumerate and maintain a roll of small industries to which the package of incentives and support are targeted. To provide a certificate enabling the units to avail statutory benefits mainly in terms of protection. To serve the purpose of collection of statistics. To create nodal centres at the Centre, State and District levels to promote SSI.

Features of the Scheme Features of the scheme are as follows: DIC is the primary registering centre Registration is voluntary and not compulsory. Two types of registration is done in all States. First a provisional registration certificate is given. And after commencement of production, a permanent registration certificate is given. PRC is normally valid for 5 years and permanent registration is given in perpetuity. Provisional Registration Certificate (PRC) This is given for the pre-operative period and enables the units to obtain the term loans and working capital from financial institutions/banks under priority sector lending. Obtain facilities for accommodation, land, other approvals etc. Obtain various necessary NOCs and clearances from regulatory bodies such as Pollution Control Board, Labour Regulations etc. Permanent Registration Certificate Enables the unit to get the following incentives/concessions: Income-Tax exemption and Sales Tax exemption as per State Govt. Policy. Incentives and concessions in power tariff etc. Price and purchase preference for goods produced. Availability of raw material depending on existing policy. Permanent registration of tiny units should be renewed after 5 years. Procedure for Registration Features of the present procedures are as follows: A unit can apply for PRC for any item that does not require industrial license which means items listed in Schedule-III and items not listed in Schedule-I or Schedule-II of the licencing Exemption Notification. Units employing less than 50/100 workers with/without power can apply for registration even for those items included in Schedule-II. Unit applies for PRC in prescribed application form. No field enquiry is done and PRC is issued. PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period, he can apply afresh at the end of five years period. Once the unit commences production, it has to apply for permanent registration on the prescribed form. The following form basis of evaluation: The unit has obtained all necessary clearances whether statutory or administrative. e.g. drug license under drug control order, NOC from Pollution Control Board, if required etc. Unit does not violate any locational restrictions in force, at the time of evaluation. Value of plant and machinery is within prescribed limits. Unit is not owned, controlled or subsidiary of any other industrial undertaking as per notification.

De-Registration A Small Scale Unit can violate the regulations in the following ways which will make it liable for de-registration: It crosses the investment limits. It starts manufacturing any new item or items that require an industrial license or other kind of statutory license. It does not satisfy the condition of being owned, controlled or being a subsidiary of any other industrial undertaking. Approvals Every SSI unit has to comply with various regulations in force. These include regulatory, taxation, environmental and certain product specific clearances. This section looks into the methodology of obtaining these approvals and clearances. Exemption from Compulsory Licence Licensing in the Industries sector is governed by the licensing exemption notification issued by Govt. of India in July 25 1991 under the Industries (Development and Regulation) Act, 1951. In SSI, there are virtually no licensing restrictions. No industrial license is required except in case of 6 product groups included in compulsory licensing (these products groups mainly cover products that can only be made in large sector.) But if a small-scale unit employs less than 50/100 workers with/without power then it would not require a license from the Govt. of India even for the 6 product groups covered in licensing under Schedule II of the notification. Subject to this, an entrepreneur can set up a SSI unit anywhere in the country without any restriction. The units are, of course, subject to the locational/land use and zoning restrictions in force under the local laws. Clearances An entrepreneur has to obtain several clearances or permissions depending upon the nature of his unit and products manufactured. Regulatory or Taxation Clearances 1. Registration under Sales Tax Act - Commercial Tax officer of area concerned 2. Registration under Central Excise Act - Collector of Central Excise or his nominee for area 3. Payment of Income Tax - ITO of the area concerned 4. Registration of Partnership deed - Inspector General of area concerned 5. Calibration of weights & measures - Weights and Measures Inspector of State 6. Power Connection - Designated Officer of State Electricity Board 7. Employee strength exceeding 10 with power connection or 20 without power - Chief Inspector of Factories Environment & Pollution Related Clearances The method of granting consent under water and air pollution to SSI units has been simplified. Except for 17 critically polluting sectors given below, in all other cases SSI

units will merely have to file an application and obtain an acknowledgement which will serve the purpose of consent: 1. Fertilizer (Nitrogen/Phosphate) 2. Sugar 3. Cement 4. Fermentation & Distillery 5. Aluminium 6. Petrochemicals 7. Thermal Power 8. Oil refinery 9. Sulphuric Acid 10. Tanneries 11. Copper smelter 12. Zinc smelter 13. Iron & Steel 14. Pulp & Paper 15. Dye and Dye intermediates 16. Pesticides manufacturing and formulation 17. Basic Drugs and Pharmaceuticals Product Specific Clearances 1. Establishing a Printing Press - District Magistrate 2. License for Cold Storage Construction - Designated Official in State 3. Pesticides - Central/State Agricultural Department - Ministry of Agriculture 4. Drugs and Pharmaceuticals - Drug license from State Drug Controller 5. Safety Matches/ Fireworks - License under Explosives Act from Directorate of Explosives, Nagpur 6. Household Electrical Appliances - License from Bureau of Indian Standards 7. Wood Working Industry within 8 km from forest - District Forest Officer 8. Milk Processing & Milk products manufacturing units - Approval under Milk and Milk Products Order from State Agricultural/ Food Processing Industries Department above a designated capacity. Quality Certification ISO 9000 Scheme Quality certification has become extremely important in competitive markets and especially in gaining foothold in exports. To avail the certification of ISO-9000, a unit has to undertake significant costs; the small scale industries have been found wanting mainly on account of resource crunch to implement quality systems to obtain this certification. However, as a paradigm shift, SSI must make 'Quality' a way of life. It has been decided to push the quality upgradation programme in the SSI Sector in a big way. A scheme has been launched to give financial incentive to those SSI units who acquire ISO-9000 certification, by reimbursing 75% of their costs of obtaining certification, subject to a maximum of Rs. 0.75 lacs per unit.

In order to promote modernisation and technology upgradation in SSI, the units are assisted in improving the quality of their products. A new scheme has been launched to assist SSI units in obtaining ISO-9000 or an equivalent international quality standard. Subject to an upper ceiling of Rs. 075 lacs, each unit is given financial assistance equal to 75% of the costs incurred in acquiring the quality standard. The SSI units are also encouraged to participate in quality awareness and learning programmes organised specially for their benefit.

A Standard Business Plan Outline

As I write here about business plan outlines, please remember that your plan should be only as big as what you need to run your business. While everybody should have planning to help run a business, not everyone needs to develop a complete formal business plan suitable for submitting to a potential investor, or bank, or venture contest. So dont include outline points just because they are on a big list somewhere, or on this list, unless youre developing a standard business plan that youll be showing to somebody else who expects a standard business plan. And in that case, if you do need a standard plan, then there are predictable contents of a standard business plan. For example, a business plan normally starts with an Executive Summary, which should be concise and interesting. People almost always expect to see sections covering the Company, the Market, the Product, the Management Team, Strategy, Implementation and Financial Analysis. If you have the main components, the order doesnt matter that much, but heres the order I suggest.

1. 2. 3. 4. 5. 6. 7. 8.

Executive Summary: Write this last. Its just a page or two of highlights. Company Description: Legal establishment, history, start-up plans, etc. Product or Service: Describe what youre selling. Focus on customer benefits. Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc. Strategy and Implementation: Be specific. Include management responsibilities with dates and budgets. Make sure you can track results. Web Plan Summary: For e-commerce, include discussion of website, development costs, operations, sales and marketing strategies. Management Team: Describe the organization and the key management team members. Financial Analysis: Make sure to include at the very least your projected Profit and Loss and Cash Flow tables.

I dont recommend developing the plan in the same order you present it as a finished document. For example, although the Executive Summary obviously comes as the first section of a business plan, I recommend writing it after everything else is done. It will appear first, but you write it last.

Standard Tables and Charts There are also some business tables and charts that are normally expected in a standard business plan. Cash flow is the single most important numerical analysis in a plan, and should never be missing. Most plans will also have Sales Forecast and Profit and Loss statements. I believe they should also have separate Personnel listings, projected Balance sheet, projected Business Ratios, and Market Analysis tables. I also believe that every plan should include bar charts and pie charts to illustrate the numbers. Expanded Plan Outline 1.0 Executive Summary 1.1 Objectives 1.2 Mission 1.3 Keys to Success 2.0 Company Summary 2.1 Company Ownership 2.2 Company History (for ongoing companies) or Start-up Plan (for new companies) 2.3 Company Locations and Facilities 3.0 Products and Services 3.1 Product and Service Description 3.2 Competitive Comparison 3.3 Sales Literature 3.4 Sourcing and Fulfillment 3.5 Technology 3.6 Future Products and Services 4.0 Market Analysis Summary 4.1 Market Segmentation 4.2 Target Market Segment Strategy 4.2.1 Market Needs 4.2.2 Market Trends 4.2.3 Market Growth 4.3 Industry Analysis 4.3.1 Industry Participants 4.3.2 Distribution Patterns 4.3.3 Competition and Buying Patterns 4.3.4 Main Competitors 5.0 Strategy and Implementation Summary 5.1 Strategy Pyramids 5.2 Value Proposition 5.3 Competitive Edge 5.4 Marketing Strategy 5.4.1 Positioning Statements

5.4.2 Pricing Strategy 5.4.3 Promotion Strategy 5.4.4 Distribution Patterns 5.4.5 Marketing Programs 5.5 Sales Strategy 5.5.1 Sales Forecast 5.5.2 Sales Programs 5.6 Strategic Alliances 5.7 Milestones 6.0 Web Plan Summary 6.1 Website Marketing Strategy 6.2 Development Requirements 7.0 Management Summary 7.1 Organizational Structure 7.2 Management Team 7.3 Management Team Gaps 7.4 Personnel Plan 8.0 Financial Plan 8.1 Important Assumptions 8.2 Key Financial Indicators 8.3 Break-even Analysis 8.4 Projected Profit and Loss 8.5 Projected Cash Flow 8.6 Projected Balance Sheet 8.7 Business Ratios 8.8 Long-term Plan

Keys to Better Business Plans

Write a better business plan by focusing on implementation.

Use a business plan to set concrete goals, responsibilities, and deadlines to guide your business. A good business plan assigns tasks to people or departments and sets milestones and deadlines for tracking implementation. A practical business plan includes 10 parts implementation for every one part strategy. As part of the implementation of a business plan, it should provide a forum for regular review and course corrections. Good business plans are practical.

Business plan donts

Dont use a business plan to show how much you know about your business. Nobody reads a long-winded business plan: not bankers, bosses, nor venture capitalists. Years ago, people were favorably impressed by long plans. Today, nobody is interested in a business plan more than 50 pages long.

How Long Should a Business Plan Be?

Page count is not a good way to measure length. A 20-page plan with dense text and no graphics is much longer than a 35-page plan broken up into readable bullet points, useful illustrations of locations or products, and business charts to illustrate important projections. Measure a plan by readability and summarization. A good business plan should leave a reader a good general idea of its main contents even after only a quick skimming, browsing the main points, in 15 minutes. Format, headings, white space, and illustrations make a big difference. Summaries are very important. Main points should show up in a business plan as quickly as they do in a business presentation. Unfortunately, many people still use page count as measurement. And in that context, some of the more practical, internal-use-only business plans can be only 5 or 10 pages long. Corporate business plans for large companies can run into hundreds of pages. The more standard start-up and expansion plans developed for showing outsiders normally run 20-40 pages of text easy to read, well-spaced text, formatted in bullets, illustrated by business charts and short financial tables plus financial details in appendices. The right length of the plan depends on the nature and purpose of the plan. Will it include descriptions of the company and management team for outsiders to read? Does it need an executive summary good enough to stand alone? Does it include detailed research, plans, drawings, and blueprints? Is it worded to withstand legal scrutiny as part of an investment proposal? Form follows function. Venture contests often limit a plan to 30 pages, sometimes 40, rarely 50 and that includes detailed financials in the appendices. Unfortunately the page limitation leads some contestants to very bad choices, as they cram content into dense typefaces and thick texts, making their plans worse, not better. Palo Alto Softwares business plan contest ran four years. Several hundred plans entered that competition. Finalists never had less than 20 pages or more than 50 pages. Most run 30-40 pages. These are all 20-30 pages of text, not counting useful graphic additions to show locations, designs, menus, etc., and not counting the appendices pages containing monthly financial projections, resumes of team leaders, etc. Youll want to add some pages for the standard financials; usually that means appendices with monthly tables for sales, personnel, income statement, cash flow, and balance sheet. You also want to include the main annual numbers of those tables in the body of the plan. Dont ever shorten a plan by taking out useful graphics. Page count matters far less than readability. Use business charts to illustrate numbers so your projections are easier to absorb. Use photographs and drawings to show locations, products, sample menus, product pictures, and other illustrations as much as possible. However, dont ever add extra graphics, like clip art, not directly relevant to the matter at hand, as if that would make a plan better.

The Financials

Cash flow is the most important. Businesses run on cash. No business plan is complete without a cash flow plan. Profit and loss, incorporating sales, cost of sales, operating expenses, and profits. This of course is also a pro forma income statement. In most cases it should show sales less cost of sales as gross margin, and gross margin less operating expenses as profit before interest and taxes (also called gross profit, and contribution to overhead). Normally there is also a projection of interest, taxes, and net profits. Pro-forma balance sheet: Aside from cash and income, there is the balance of assets, liabilities, and capital. Sales forecast: The form may vary to suit the business, but it is hard to imagine a plan without a sales forecast. Some plans forecast in excruciating detail, some summarize, but the forecast should be there. In the simplest of plans, the sales forecast might be a single line in the pro-forma income statement. Personnel plan: Personnel costs are so intimately related to fixed costs that they should often be set aside and discussed. In some simple plans, they too, like the sales forecast, can be just a line or two in the income statement. Business ratios: The numbers are there, when there is pro-forma income, cash, and balance sheet, so the ratios can be calculated. This isnt as necessary for an internal plan as for one for bankers and investors, but some key ratios are almost always a good idea. They should probably include some profitability ratios like gross margin, return on sales, return on assets, and return on investment; plus some liquidity ratios such as debt to equity, current ratio, and working capital. You already know which ratios you like to use, and how to calculate them. A banker will have a similar view. Break-even analysis: Most of the break-even analyses included with business plans have little value, but most bankers and analysts like to see them. Market forecast: Aside from the sales forecast, which is essential, a market forecast is also a good idea. How many potential customers are there? How does market growth stand to impact this business?