SMALL ENTERPRISES

AND ENTERPRISE
LAUNCHING
Module 3
SMEs
• SME stands for small and medium-sized enterprises. These are
enterprises that have less than a specific level of investment and
turnover. SMEs include both manufacturing and service businesses.
Manufacturing enterprises are defined in terms of investment in plant
and machinery (excluding land and buildings) and further classified into
the following categories:
• Micro-enterprises: Enterprises having investment up to Rs. 25 lakh
• Small enterprises: Enterprises having investment above Rs. 25 lakh
and up to Rs. 5 crore
• Medium enterprises: Enterprises having investment above Rs. 5 crore
and up to Rs. 10 crore
Service enterprises are defined in terms of their investment in
equipment(excluding land and buildings) and further classified into the
following categories:
• Micro-enterprises: Enterprises having investment up to Rs. 10 lakh
• Small enterprises: Enterprises having investment above Rs. 10 lakh
and up to Rs. 2 crore
• Medium enterprises: Enterprises having investment above Rs. 2 crore
and up to Rs. 5 crore
• Earlier industries that manufactured goods and provided services on a
small scale or micro-scale basis were granted Small Scale Industries
(SSI) registration by the Ministry of Small Scale Industries. However,
after the government passed the MSME (Micro, Small and Medium
Enterprises) Act in 2006, the small and micro-scale industries came
under the MSME Act.
Objectives and Scope of MSEs
1.Business Growth: One of the primary objectives of SMEs is to
achieve sustainable growth in terms of revenue, market share, and
profitability. This growth may involve expanding into new markets,
diversifying products or services, or increasing production capacity.
2.Innovation and Adaptability: SMEs often focus on innovation to
stay competitive in dynamic markets. They may invest in research and
development (R&D) to create new products, improve existing ones, or
adopt innovative business processes and technologies. Additionally,
SMEs must be adaptable to changes in market trends, customer
preferences, and regulatory environments.
3. Job Creation and Employment: SMEs are significant contributors
to employment generation, especially in sectors like manufacturing,
services, and technology. Their objective includes creating job
opportunities for local communities, supporting livelihoods, and
contributing to overall economic stability.
4.Financial Stability: Ensuring financial stability involves managing
cash flow effectively, maintaining a healthy balance sheet, and having
access to adequate funding sources for growth and investment.
5. Employee Development: SMEs recognize the importance of their
workforce and strive to attract, retain, and develop talented employees.
This includes providing training, creating a positive work environment,
and offering opportunities for career advancement.
Scope of Small and Medium Enterprises

There is a huge scope for the small enterprises which some includes a variety
of business activities ranging from manufacturing to retailing There exist
particular areas of economic processes that can be effectively managed by
creating SME. The scope of SME is explained as follows :
• 1) Manufacturing Industries:
These include small business units which are mainly involved in
manufacturing of products consumed directly by the customers and also by
other processing firms. These are of following types :
i) Village and Cottage Industries :
These industries are established in the homes of the workers, mostly in villages
and rural regions.
ii) Hand-looms and Handicrafts :
These industries are mainly formed with the help of craftsman, artisans,
technicians, etc., who operate from their houses. Such industries are
pollution-free and typically require workplace of less than 300 square feet,
power consumption of less than 2KW and employees not more than 5. These
industries mostly produce handicrafts, small plastic and paper products, toys,
dolls, electronic and small electrical gadgets.
iii) Modern Small Industries :
These industries include :
• a) Small Enterprises :
Small scale industry is defined by the Government of India as an undertaking
which has the maximum investment of 1 crore in plants and machinery.
• b) Ancillary Industries :
According to Government of India, if the total investment in the plant and machinery
of industry does not exceed more than 75 lac, then it will be termed as ancillary
industry. These industries are mainly involved in the production of parts, components,
sub-assemblies, tooling or intermediaries, or in offering services of production to other
units supplying 30% of their production or services.
• c) Tiny Units :
Industries which have fixed investment in plant and machinery of not more than 5 lacs
are called tiny units. These units include various types of service providers such as
laundry. zeroing, repairs, maintenance of customer equipment and machinery.
hatching, poultry, etc.
• 2) Trading Industries :
Firms which are mainly involved in the sales and purchase of the goods and
services are termed as trading industries. These industries act as a middleman
between the consumers and producers. Wholesaler, retailer and commission
agents are the typical examples of trading industries.
• 3) Service Industries :
Business units which provide various types of services in the rural areas (or
towns having maximum population of 5 lacs) are termed as service industries.
These industries must not have investment of more than 72 lacs in plant and
machinery. These industries may provide the following services :
Professional services, e.g.. legal services. Consultancy, accounting medicine,
etc.
Commercial services, e.g.. real estate. transport. repair shops, constructing
warehousing, etc.
Personal services, e.g. dry cleaning. restaurants, fashion shops, etc.
 Role of SMEs in Economic Development of India
• Employment Generation :
Besides agriculture, SMEs sector is the second largest sector which provides job
opportunities to the people in India. It has been projected that an investment of nearly
a lakh rupees in assets is required for the generating the employment of only four
individuals.
• Production :
Small scale industries contribute approximately 40 per cent in the total manufacture of
India. About 4,62 lacs worth of products or services are produced by the small scale
sector with an investment of one lac rupees in the fixed assets. This provides at least
10 per cent points of value addition.
• Export Contribution :
Small scale industries also contribute largely in the export performance of Indian
economy. Mostly 45-50 per cent of exports come from the SMEs sector. From the
gross exports almost 35 per cent is accounted to be the direct exports from SMEs
sector. Around 5000 or more small scale units are engaged in direct exports activities.
• Efficient Utilization of Resources :
The small and medium enterprises are proficient in making the best use of
insufficient capital resources. They also collaborate with big enterprises by
supplying semi-processed and unprocessed raw materials available in the domestic
markets.
• Increases GDP :
Where the income increases it automatically increases the GDP growth
rate .increases the export
• Increase Standard of Living :
Many small and medium scale enterprises have started their operations in rural areas
and adjacent regions and towns. These enterprises have provided many types of
basic and essential facilities to rural population. These facilities include electricity,
educations, water, employment, proper roads, other modes of transportation, banks,
etc. All these amenities enhance the standard of living of rural people.
Problems faced by women entrepreneurs
• Fewer sectors are Women friendly
• Lack of Social and Institutional Support
• Gender Bias and Discrimination
• Balancing Work and Family Responsibilities:
• Lack of Role Models:
• Low Risk-Bearing Ability
• Safety Concerns
• Lack of self confidence
• Limited Industry Knowledge
• Limited Access to Funding
 Floating of SME
• Floating of SMEs refers to the process by which small and medium-sized
enterprises (SMEs) become publicly traded companies by offering their shares to
the public for investment.
• This is often done through an initial public offering (IPO), where the company's
ownership is divided into shares that are then sold to investors on a stock
exchange.
• Floating can provide SMEs with access to capital from a wide range of investors,
which can be used for business expansion, innovation, and other growth
initiatives.
• Additionally, becoming a publicly traded company can enhance the visibility and
credibility of SMEs in the market, potentially attracting more customers,
partners, and opportunities.
• However, floating also comes with regulatory requirements, increased scrutiny,
and the need to manage shareholder expectations and communication effectively.
Steps involved in floating of SME s
Preparation: Before going public, the SME needs to prepare extensively. This
includes financial audits, compliance with regulatory requirements, and
developing a compelling business plan and prospectus for potential investors.
Selection of Advisors: The SME may need to engage various advisors such as
investment bankers, legal experts, auditors, and consultants to guide them
through the IPO process. These advisors help in structuring the offering,
valuing the company, and ensuring compliance with legal and regulatory
frameworks.
Valuation: Determining the valuation of the company is crucial. This involves
assessing the company's financial health, growth potential, market position,
competitive landscape, and industry trends to arrive at a reasonable valuation
that would attract investors.
Securities Regulation: SMEs looking to float shares must comply with
securities regulations and requirements set by regulatory bodies such as the
Securities and Exchange Commission (SEC) in the United States or the
Financial Conduct Authority (FCA) in the United Kingdom. This includes
disclosing financial information, risks, and other material facts to potential
investors.
Offering Process: The offering process involves marketing the IPO to potential
investors through roadshows, presentations, and meetings. Investors are given
the opportunity to subscribe to shares at a specific price during the IPO.
Listing: Once the offering is successfully completed and shares are allocated to
investors, the SME's shares are listed on a stock exchange, making them
tradable in the secondary market. This provides liquidity to shareholders and
allows the company to access capital markets for future fundraising.
Post-IPO Compliance: After going public, the SME must continue
to comply with reporting and disclosure requirements, financial
audits, and corporate governance standards to maintain its listing
status and investor confidence.

Floating SMEs can be a strategic decision for companies seeking

capital for expansion, acquisitions, debt repayment, or other
corporate purposes. However, it also involves complexities, costs,
and ongoing regulatory obligations that companies must carefully
consider before pursuing an IPO.
EXAMPLES OF SSI IN INDIA

• Bakeries
• School stationeries
• Leather belt
• Small toys
• Paper Bags
• Photography
• Beauty parlours
• Spinning and weaving industry
• Coconut oil making
• MSME companies in india includes :
• National small industries corporation(NSIC)
• Khadi and village industries commission (KVIC)
• National institute for micro,small and medium
enterprises(NIMSME)
MSME registration
• 1) Start Registration Process
• 2) Fill Application Form At the first step, you have to fill in basic details in
the MSME Registration form that will include all the necessary details of
your business such as company name, registration number, GST number, and
so on.
• 3) Enter Personal Details At this stage, you are required to fill in all your
personal details such as name, address, PAN Card, bank account details, and
some common information that is mandatory during the MSME registration
process. Also, a photo needs to be uploaded. Ensure that the size of the photo
is within the permissible limits for it to be uploaded on the site.
• 4) Executive Will Process Application At this process, an MSME
executive will review your application. In case of any discrepancy, you
will be notified about the process and make the relevant changes.
• 5) Receive Certificate of Mail After filling the complete form you will
get the certificate for MSME Registration. To know how it would be,
you can download a copy of the Sample MSME Certificate. The
Ministry will not issue you any hard copy for it. You will get a virtual
certificate for MSME Registration. This is the process for the MSME
registration for companies. Note that the entire registration process is
free of cost. However, there are many online portals that do the
registration process on behalf of the companies at a certain fee.
Benefits of MSME Registration
• Higher priority given in government licensing
• The loan interest rates are cheaper.
• There are several tax rebates.
• The credit of Minimum Alternate Tax is longer.
• Exclusive government tenders.
• Easy access to loans.
• Concessions in trademark registration.
• Concessions in patent registration
Documents Required For MSME Registration
• MOA and AOA of the company.
• Residential proof of the business.
• Copies of all the licenses.
• Bills of all the machineries.
• Certificate of Incorporation/ Partnership
NOC Pollution Control Board

• Getting an NOC certificate is a mandatory step before starting any

industry. The Environment is one of the most discussed topics in
the 21st century. The Industry must make sure that they are not
disturbing the environmental balance.
• To oversee and maintain standards for air pollution and water
pollution, the Pollution control board was established. It acts as an
authority for balancing pollution-related issues. It also issues
various directives and policies from time to time regarding
pollution and its management.
• The Board while issuing NOC provides recommendations on any
matter concerning prevention and control of water and air pollution
and improvement of the quality of air.
• To modernize its industrial plant, increase in the air and water
pollution load, under the provisions of the Water Pollution Act, 1974
and Air Pollution Act, 1981, it is essential to obtain the NOC from the
Pollution Control Board. The entrepreneur is mandatorily required to
apply for renewal of 'consent to operate' after the expiry of the same.
• Getting NOC from the PCB helps in ensuring Sustainable development.
• Getting NOC from the PCB helps in controlling the prevention of natural
resources.
• Getting NOC from the PCB protects the environment by implementing effective
waste management programs.
• Getting NOC from the PCB also creates awareness among the consumers.
• NOC is important to get the other licenses and NOCs.
• Getting NOC from the Pollution Control Board also binds the industry to follow
the pollution-related compliances.
• NOC from the Pollution control board provides consent to operate and consent to
establish
General steps to obtain an NOC:

1.Preparation and Documentation:

• Identify the type of pollution your SME might generate (air, water,
hazardous waste, etc.).
• Prepare a detailed project report including the proposed activities, raw
materials used, production processes, waste generation, pollution
control measures, etc.
• Ensure that your SME complies with all relevant environmental laws
and regulations.
2. Application Submission:
• Contact the local Pollution Control Board office or visit their website to
understand the specific requirements and procedures for obtaining an
NOC.
• Fill out the application form accurately and attach all necessary
documents, including the project report, site plan, water and air pollution
control measures, waste management plan, etc.
3. Site Inspection:
• The Pollution Control Board will conduct an inspection of your SME's
premises to assess its compliance with environmental norms.
• Make sure that your facility is ready for inspection and that all pollution
control measures are in place and operational.
4.Compliance Assessment:
• After the site inspection, the Pollution Control Board will review the
submitted documents and inspection findings to determine if your SME
meets the required environmental standards.
• They may request additional information or modifications to your
pollution control measures if necessary.
5. Issuance of NOC:
• If your SME meets all the environmental criteria and complies with
regulations, the Pollution Control Board will issue the No Objection
Certificate.
• The NOC will specify the conditions and measures your SME must adhere
to regarding pollution control and environmental management.
6.Renewal and Compliance Monitoring:
• NOCs are typically valid for a specific period, after which they need to be
renewed.
• The Pollution Control Board may conduct periodic inspections to ensure
ongoing compliance with environmental regulations.
7.Compliance with NOC Conditions:
• It's crucial for your SME to strictly adhere to the conditions mentioned in
the NOC, including regular monitoring of emissions, effluents, waste
disposal, etc.
• Failure to comply with NOC conditions can result in penalties or
revocation of the certificate.
Equipment and Machinery
Machinery and Equipment Selection is a crucial decision for any
business, as it directly impacts productivity, efficiency, and overall
performance.
Equipment and machinery are those major tools and implements used in
the operation of the business.
For a service company, these can include computers, copiers, telephone
systems, and any electronic gear.
For a manufacturing company, they include such things as drill presses,
lathe machines, sanders, and other large tools.
• The equipment selected should possess certain desirable
characteristics.
1. Fit into the system.
2. Require minimum of loading, unloading and rehandling.
3. Call for as little maintenance, repair, power and fuel as possible.
4. Have a long useful life.
5. Capable of higher capacity utilization.
6. Perform the operation efficiently and economically.
Machinery and Equipment Selection is a crucial decision for any business, as it
directly impacts productivity, efficiency, and overall performance. Here are some
essential points to consider while choosing machinery and equipment for your
business:
• Requirements and Purpose:
• Clearly define your specific requirements and the purpose of the machinery or
equipment. Consider factors such as capacity, output, functionality, and whether it
aligns with your business goals and processes.
• Quality and Reliability:
• Look for machinery and equipment from reputable manufacturers known for
producing high-quality and reliable products. Investing in reliable equipment can
reduce downtime and maintenance costs in the long run.
• Performance and Efficiency:
• Evaluate the performance capabilities of the machinery. Check factors
like speed, energy efficiency, accuracy, and the ability to handle
varying workloads effectively.
• Safety Features:
• Ensure that the machinery and equipment meet all necessary safety
standards and have built-in safety features to protect operators and
prevent accidents.
• Maintenance and Support:
• Consider the maintenance requirements and availability of technical
support and spare parts. Easy access to spare parts and a reliable
support network can minimize downtime and repair costs.

• Cost and ROI:

• Compare the initial purchase cost with the long-term return on
investment (ROI). Sometimes, a slightly higher initial investment in
better quality equipment can lead to cost savings and improved
productivity over time.
• Training and Skill Requirements:
• Evaluate the level of expertise required to operate and maintain the
machinery. Consider providing appropriate training for your
workforce if needed.
• Environmental Impact:
• Consider the environmental impact of the machinery and equipment.
Energy-efficient and eco-friendly options can reduce your carbon
footprint and may be eligible for incentives or certifications.
• Warranty and Service Contracts:
• Review the warranty coverage and service contracts offered by the
manufacturer. Understand the terms and conditions to make an
informed decision.
• User Reviews and Recommendations:
• Read user reviews and seek recommendations from other businesses
or industry experts who have experience with similar machinery or
equipment.
Project appraisal
• It means checking if the project is good idea before the spending
money on it.
• People look at things like if the project can be done, if it will make
money, and if it’s good for the environment and society. They also
think about the risks. This helps decide if the project is worth doing or
not.
• It will b carried out for both proposed as well as already executed
projects.
• Appraisal of a proposed project is called “ ex-ante analysis”
• Appraisal of a executed project is called “post-ante analysis”.
Project appraisals are normally done in the following situations
(1) When a bank has to compare different proposed projects to produce the
same product and select the best proposal.
(2) When a financial institute has scarce funds and has to select a proposed
project among several, even if they are producing different products.
(3) When an entrepreneur is looking at various expansion plans for an already
existing unit, he has to appraise all the plans and select the one that suits
him the best
(4) Even if there are no other Project proposals to compare, finance institutes
routinely do project appraisals to assess the creditworthiness of projects.
Project Appraisal, therefore, is a cost-benefit analysis of different aspects of a
proposed project with the objective of judging its viability
Sometimes the terms 'Project Appraisal' and 'Project evaluation' are used
interchangeably.
Methods of project appraisal
• Market feasibility
• Technical feasibility
• Financial feasibility
• Social feasibility
 Market feasibility study

• Carried out to asses the market potential of a project

• Market Feasibility Study determines the depth and condition of a
particular market and its ability to support a particular development.
• Understanding the market to ascertain whether there is a sufficient
demand for the business to be successfull is the primary goal of a
market feasibility study.
• It offers a deeper and more comprehensive study than any other kind
of market research.
• It is an excellent instrument for predicting the probability of failure or
success of a new business venture
• It can be adopted in cases of incorporating new products and ideas into
business
• It includes all probable actions that are required to be taken for
determining whether a business idea is meant to succeed
• It is a stepwise process to weigh the pros & cons of each step before
getting into the actual process
• It helps through making key decisions to move forward with the ideas,
whether to refine or leave them altogethe
There are two methods for market feasibility study

1. Demand forecasting technique

2. Life cycle segmentation analysis
 1.Methods of demand forecasting.
1. Survey method 2. Statistical method 3.Expert opinion

Complete Sample End Trend projection Regression

enumeration survey use

4. Collection 5.Market
opinion experiment
1.Survey method
1. Complete Enumeration Method: Under this method, nearly all the
potential buyers are asked about their future purchase plans.
2. Sample Survey Method: Under this method, a sample of potential
buyers are chosen scientifically and only those chosen are interviewed.
3. End-use Method: It is especially used for forecasting the demand of the
inputs. Under this method, the final users i.e. the consuming industries
and other sectors are identified. The desirable norms of consumption of
the product are fixed, the targeted output levels are estimated and these
norms are applied to forecast the future demand of the inputs
2.Statistical method
• Trend Projection Method: This method is useful where the
organization has a sufficient amount of accumulated past data of the
sales. This date is arranged chronologically to obtain a time series. It is
assumed that the past trend will continue in the future. Thus, on the
basis of the predicted future trend, the demand for a product or service
is forecasted.
• Regression Analysis: This method establishes a relationship between
the dependent variable and the independent variables. In our case, the
quantity demanded is the dependent variable and income, the price of
goods, the price of related goods, the price of substitute goods, etc. are
independent variables. The regression equation is derived assuming
the relationship to be linear. Regression Equation: Y = a + bX. Where
Y is the forecasted demand for a product or service
3.Expert opinion
• Usually, market experts have explicit knowledge about the factors
affecting demand. Their opinion can help in demand forecasting.
• Also known as “Delphi technique”.
• experts are given a series of carefully designed questionnaires and are
asked to forecast the demand. They are also required to give the
suitable reasons. The opinions are shared with the experts to arrive at a
conclusion. This is a fast and cheap technique.
4. Collection opinion
• Salesmen are closest to the consumers
• The salesperson of a firm predicts the estimated future sales in their
region. The individual estimates are aggregated to calculate the total
estimated future sales.
• These estimates are reviewed in the light of factors like future changes
in the selling price, product designs, changes in competition,
advertisement campaigns, the purchasing power of the consumers,
employment opportunities, population, etc.
• Also known as Salesforce opinion or Grassroots approach method.
5. Market Experiment Method
• Another one of the methods of demand forecasting is the market
experiment method. Under this method, the demand is forecasted by
conducting market studies and experiments on consumer behavior
under actual but controlled, market conditions.
• Certain determinants of demand that can be varied are changed and the
experiments are done keeping other factors constant. However, this
method is very expensive and time-consuming.
2.Life cycle segmentation analysis

Every products has it’s own life span. In fact , every products goes through the
following stages before dying, although the duration for each stage may vary
from product-to-product.
Economic Viability:
• Economic viability refers to the ability of a project to generate positive
economic benefits or returns over its lifespan.
• It involves assessing whether the project will contribute to the overall
economic welfare of the stakeholders involved, including the investors,
the community, and the economy at large.
• Factors considered in economic viability include the project's impact on
employment, income generation, GDP growth, technological
advancement, environmental sustainability, and social well-being.
• Economic viability analysis often takes a broader perspective beyond
financial metrics and considers both tangible and intangible benefits and
costs.
1.Cost-Benefit Analysis: This involves comparing the total costs associated with
a project (including initial investment, operational costs, and maintenance)
against the expected benefits (such as revenue, savings, and other positive
impacts). If the benefits outweigh the costs over the project's lifespan, it is
considered economically viable.
2.Return on Investment (ROI): ROI measures the profitability of a project by
calculating the ratio of net gains (or benefits) to the initial investment. A higher
ROI indicates better economic viability.
3.Net Present Value (NPV): NPV is a financial metric that assesses the present
value of a project's expected cash flows, taking into account the time value of
money. A positive NPV suggests that the project is economically viable, as it
generates more value than the initial investment.
4.Payback Period: The payback period indicates the time required for a project to
recoup its initial investment through generated cash flows. A shorter payback
period is often preferred, as it signifies faster economic viability.
Financial institutions
• A financial institution (FI) is a company engaged in the business of
dealing with financial and monetary transactions such as deposits,
loans, investments, and currency exchange.
• Financial institutions are vital to a functioning capitalist economy in
matching people seeking funds with those who can lend or invest it.
• Financial institutions encompass a broad range of business
operations within the financial services sector including banks,
insurance companies, brokerage firms, and investment dealers.
• Financial institutions vary by size, scope, and geography.
• Financial institutions play a crucial role in developing small businesses.
They provide funding and support to these businesses, which helps them
grow and expand .
• Financial institutions, such as microfinance banks and MFIs, offer long-
term loans and credit schemes to small businesses, enabling them to
secure the necessary capital for their growth .
• These institutions also contribute to the overall performance of the
economy by providing accessible financial products and services to
micro and small enterprises . Additionally, they play a significant role in
job creation, as small businesses are major employers in many countries .
• To effectively support small businesses, financial institutions need to
understand their unique needs and tailor their services accordingly .
• This requires a client-centric approach, dedicated staff, and appropriate
technologies . Overall, financial institutions are instrumental in fostering
the development and growth of small businesses.
Roles Performed by Financial Institution

• Financial institutions help small and medium-scale enterprises set up

themselves in their initial business days.
• They provide long-term as well as short-term funds to these companies.
The long-term fund helps them form capital, and short-term funds
fulfill their day-to-day working capital needs.
• Development of backword areas
• Employment Generation
• One such institution that works in India is Small industries
development bank ok India. This is also known as SIDBI.
Institutions for Entrepreneurial Development

1. DIC :- (District industry centres)

2. MSME –DO :- ( Micro Small and Medium Enterprise
Development organisation )
3. NSIC :- (National Small industry corporation)
4. SISI :- ( Small Industries service Institute)
5. SIDBI :- ( Small Industries Development Bank of India)
6. TCO :- ( Technical Consultancy Organization)
Projected financial statements
• Projected financial statements show the summary of the statement of
income, balance sheet, and cash flow statement which helps the
managers to take future decisions accordingly. It plays a big role in the
business planning process as it forecasts the future financial position
of the company.
• It’s a type of pro forma statement. Some examples of pro forma
financial statements include projected income statements, balance
sheets and cash flow statements.
• Short term projections mainly cover one year and breaks into
monthly projections. This type of projection is mostly useful for small
businesses where the only plans related to increasing sales and
revenue are considered.
• Long term projections cover mainly the next three to five years and
is used in large businesses for creating strategic plans for expansion
and development are made. It also attracts investors so that they invest
a large amount in their business.
Preparation of projected financial statement
• Project your spending and sales
• As you develop your business plan, list the key expenditures you will
need to make to get your company off the ground and your subsequent
costs to operate.
• Be sure to include recurring expenses—salaries, rent, gas, insurance,
marketing, raw materials, maintenance and the like—and one-time
purchases, such as machinery, website design and vehicles. Research
industry spending to get a better idea of the numbers.
• Also, create a sales forecast and use it to project anticipated monthly
revenues. A careful study of your potential market will help you arrive at
realistic numbers.
Projected financial statement preparation
• Create financial projections
• Plug your expenses and revenues into a cash flow projection that shows
monthly inflows and outflows of money for the first 12 months of
operations. For the second year, you can make quarterly or yearly
projections.
• To create the projections, you can use an Excel spreadsheet or tools
available in your accounting software. Don’t assume sales equal cash in the
bank right away. Enter them as cash only when you expect to get paid based
on industry averages and any prior experiences of your team.
• Use your cash flow projections to prepare annual projected income (profit
and loss) statements and balance sheet projections.
• Determine your financial needs
• Your financial projections will help you see if your business plans are
realistic, whether you’ll have any shortfalls and what financing you
may need. The documents will also be vital for building a case for
business loans.
• Use the projections for planning
• It can be useful to include various scenarios—most likely, optimistic
and pessimistic—for each projection in order to help you foresee the
financial impacts of each one.
• Your projections can also help you analyze the impacts of different
strategies for your new business. What if you charged a different price
? Or were able to collect bills more quickly? Or opted for more
efficient equipment? Plugging in various numbers shows how such
decisions would affect your finances.
Plan for contingencies
• What would you do if an unexpected event threw off your projections?
It’s a good idea to do some contingency planning ahead of time.
• Also consider setting aside a cash reserve, just in case. Many
entrepreneurs like to have enough cash for 90 days of operations
(including cash in the bank and/or room on their line of credit).
• Monitor
• As your business starts operations, compare your projections against
actual results to check if you’re on target or need to make changes.
Monitoring helps you learn about your company’s cash flow cycle and
spot looming shortfalls early on, when they’re usually easier to
address.
•THANK YOU