Resource Mobilization

This page contains the CBSE entrepreneurship class 11 chapter Entrepreneurship as Resource Mobilization notes. You can find the questions/answers/solutions for the chapter 7 of CBSE class 11 entrepreneurship in this page.

Mobilization of Resources

What did you understand by the term resources?

Any tangible or non-tangible means essential to carry out the activities of an enterprise so that the enterprise is able to realize its goal are called as resources.

What role does the resources play in the organization?

Resources primarily act as the life blood of the enterprise. The success of the organization directly depends on

  1. The successful identification of the resources in time
  2. procurement
  3. utilization





How do you achieve mobilization of the resources?

Resource mobilization refers to the process of procuring the required resources from the resource provider, through different means. The resources thus procured are optimally utilized to realize the organization’s goals. These resources should be acquired at the right time, right prices and should be of right type.

From which state level organizations can you procure information related to the infrastructural facilities?

We can procure the information related to the infrastructural facilities from

  1. District Industries Center (DIC)
  2. Electricity Board (EB)
  3. Local Authorities (LA)

What are different channels which help the entrepreneurs to get professional assistance?

The following are the various channels which help the entrepreneurs to procure professional assistance.

  1. Captive Unit arrangement
  2. Contractual arrangement
  3. Lease basis
  4. Part time arrangement
  5. Regular basis
  6. Third party arrangements

Define and provide examples of physical resources.

The resources which are made by humans by putting their skills and abilities are known as physical resources. These physical resources are influenced by the place where the enterprise is established.

The following are the examples of the physical resources.

  1. Building
  2. Machinery
  3. Plant

Which factors do you take into consideration to decide about the resources required?

The following factors should be taken into consideration while deciding about the resources required.

  1. Nature or type of the activity
  2. Nature or type of the business
  3. Size of the activity
  4. Product specification

Which resources are primarily required for setting up an enterprise?

The resources which are primarily required for setting up an enterprise are as below.

  1. Capital
  2. Labour
  3. Land

If you want to start an educational institution, you need help of professional experts. Can you identify any five of them?

  1. A marketing survey expert to assist in the market survey regarding what kind of school can be started in premises (Nursery, Boarding, Montessori, Curriculum etc).
  2. A lawyer to look into the legal work required.
  3. A financial expert to prepare the budget plan (both operational budget and capital budget).
  4. An architect/builder to look into the building plan etc.
  5. A marketing expert to promote or advertise about the school.

Which factors should be given due consideration while deciding about the physical resources required?

The following factors should be given due consideration while deciding about the physical resources required.

  1. Access to market to procure raw materials as well as to sell finished goods.
  2. Affordability of manpower.
  3. Availability of other resources
  4. Availability of water fuel, gas and other required utilities.
  5. Capital Cost.
  6. Communication and transportation expenses.
  7. Cost of production.
  8. Regulations related to the pollution..

Is it helpful to seek professional expert services for setting up an enterprise? If yes, why?

It is of immense help to seek professional expert services while establishing an enterprise.

It helps in

  1. Availing quality service in stipulated time and at lower cost.
  2. Better focus on the areas that need attention.
  3. Cost, Energy and time saving.
  4. Explore new markets and grow in the existing markets.
  5. Efficient and expert quality of service available at disposable.
  6. Growth of business as additional expertise is available.
  7. Reduced risk
  8. Reduced infrastructural requirements as the professionals will already have their own infrastructure
  9. Reduced wastage.

How does an enterprise achieve efficient utilization of human resources?

An enterprise can achieve efficient utilization of human resources through

  1. Managerial Staff: The managerial staff forms the core of the enterprise. They formulate the goals, objects and policies to be implemented in the enterprise and get the work done through the workers.
  2. Non-managerial staff: They are the workers who help in converting the raw materials into the finished goods. Depending on the type of work their quality and quantity varies.
  3. Trained Technical staff: These are technical experts who help in
    1. Selection of machinery
    2. Installation of machinery
    3. Supervision of work
    4. Operations
  4. Administrative staff: They provide support services to all the above namely the managerial, non-managerial and technical staff. They’re not directly involved in production. They role is to help and maintain the business operations..
  5. Professional staff: They are professionals like
    1. Auditors
    2. Bankers
    3. Chartered Accountants
    4. Lawyers
    5. Other professionals

    who are available for consultation. As these professional services are expensive, they are only consulted if required and may not be part of regular staff.

As the enterprise comprise all the above staff, the efficient utilization of the human resources is possible only if

  1. The organization is able to estimate the total amount of work to be done.
  2. The right type fo personnel who can perform the required job.
  3. Put the right person for the right job.

Why do the entrepreneurs strive to put the right person in the right job at the right time?

Human resources are the most important assets of any organization because they are the ones who put all the non-living resources(tools, machinery, digital equipment etc) into best use. The quality and quantity of the human resources has a significant direct impact on the performance and productivity of any enterprise. Having a Right human resource working on the right job at the right time helps in benefiting from

  1. Advantage of specialization
  2. Low wastage of resources
  3. Lowered absenteeism
  4. Lowered inefficiencies
  5. Lowered labour turnover ratio
  6. Reduced cost of production

Due to these reasons the entrepreneurs strive to put the Right person in the right job at the right time

What do you know about intangible resources?

The resources that are neither seen nor felt nor can be touched nor can be preserved but at the same time for a strong base for the existence of an enterprise are known as intangible resources. These resources help the business to gain profits in addition to the normal profits earned by any other similar enterprise. These are critical resources of an organization.

What are the various intangible resources that an organization possess?

An organization usually possess the following intangible resources.

  1. Brands: The success or failure of a business depends on how strong is the brand it is associated with. The worth of the brand need to be computed. A strong brand often brings in higher margins easily.
  2. Intellectual Property: Intellectual property comprises the critical commercial rights protected by trademarks and patents. These are very important and should be given due consideration.
  3. Goodwill: The value of the business will be much more than the total value of all the tangible assets it possesses. In other-words when someone want to buy a business they will be willing to pay more than the total value of the tangible assets. This additional value is known as the goodwill. A startup enterprise may not have earned any goodwill yet. But if an entrepreneur is acquiring an already existing enterprise or forming a partnership or a joint alliance, the he will be able to earn the goodwill.
  4. Reputation: Reputation is associated when the strategic objectives of a business are continually met. A reputed business have the advantage of gathering the necessary support from the employees and the suppliers.

What moral ethics should an entrepreneur following in utilizing the resources?

The following are few of the moral ethics and entrepreneur should follow to utilize the resources.

  1. Avoid over consumption of resources, especially when they are scarce.
  2. Basic resources like air, water, fuel etc are used only to the extent required. Especially when they are scarce and need to be shared with the living beings in that area.
  3. Careful use of the resources so that they do not cause any pollution and damage the environment.
  4. Do not cross the legal permissions in procuring and utilization of the resources.
  5. Ensure proper facilities are provided to the human resources and they are not over worked. In other-words they should abide by the labour laws.
  6. Financial resources are not overt-utilized and all the stakeholders are paid properly, especially the ones who have provided the fundings.

Define material resources.

The materials required to arrive at the final product or service offered by an organization are called as material resources. The raw materials, machines, tools, power, processing and assembling need to be combined to perform the essential operations to arrive at the finished product or service. These are known as material resources. In short any material that is found in nature and can be utilized in the product or manufacturing process is known as raw material.

What are important decisions to be made by the entrepreneur while planning for the material resources?

The following are the important decisions to be made by the entrepreneur while planning for the material resources.

  1. Availability of the spare parts and support services (after sales service)
  2. Basic raw materials required and their types.
  3. Capacity required for installation and the size of the unit.
  4. Details of the machinery required and the technical insight of the machinery (like how to operate how to repair etc)
  5. Estimation of the technical training required.
  6. Future maintenance costs
  7. Gathering of the quality controls systems needed.
  8. Identification of supplies of the raw materials, the quantity required and their location.
  9. Job and type of technical staff required.
  10. Kind of wear and tear and the rate at which the wear and tear of the assets take place.

Is acquiring the physical resources is an easy or difficult tasks? Give your reasons.

Acquiring the physical resources is a difficult task as it requires the following issues to be minimized by a very careful selection of the place. If the place is not properly selected these issues will be intensified.

The issues that are likely to be taken into consideration are

  1. Access to market for procuring the raw materials.
  2. Access to market for selling the finished goods.
  3. Access to other resources.
  4. Availability of manpower and the associated cost.
  5. Availability of utilities like electricity, fuel, gas, water etc.
  6. Capital cost.
  7. Cost of manufacturing or production.
  8. Cost of Communication.
  9. Cost of Transportation.
  10. Concerns related to pollution etc.
  11. Degree of the legal requirements like taxes, procuring permissions etc

What are all need to be planned for procuring the physical resources?

The following factors should be planned for procuring the physical resources.

  1. Asset durability and utility(to what extent they will be useful) expected.
  2. Basic size of the market to be covered. Depending on the size of the market the size or capacity of the manufacturing unit will be decided.
  3. Cost associated with the short and long term duration of the project.
  4. Decide the range of products to be introduced and which technology to adopt by assessing the market needs.
  5. Ease and feasibility of transfer of technology. Whether or not the technology/technique can be acquired and implemented
  6. Feasibility of facilitating the training the staff in the new technology.
  7. Growth potential in the future.
  8. Handling the quality concerns.

Estimating Financial Requirement

What is your understanding of capitalization?

The long-term funds contributed by the shareholders and creditors to a business is called as capitalization.

The funds are invested in the form of

  1. Debentures
  2. Free reserves
  3. Long term loans
  4. Shares

What did you understand by the term business finance?

Business finance refers to the process where in the capital funds are acquired and utilized so that the financial requirements are met and the overall business objectives are attained.

How do you define Capital Structure?

The long term funds that include different types of funds like

  1. Bonds
  2. Debentures
  3. Loans
  4. Reserves
  5. Share Capital

whether borrowed or invested by the entrepreneur himself/herself is known as capital structure.

Which plan depicts the flow of funds into the business and their utilization?

Financial plan is the one that depicts that flow of funds into the business and their efficient utilization to meet the goals of the organization.

What critical role does the finance play in setting up the business?

Finance plays critical role to bring the various resources like human resources, machinery, raw material, methods and processes, land etc to realize the business goal. It is due to this critical role played by the finance that the following proverbs came into place.

  1. Finance is the lubricant to the production process.
  2. Finance is the lifeblood of the business.
  3. Whoever has the gold makes the rule.

While raising the finance for the business, which important factors should be considered in decision making.

The following important factors should be considered in decision making while raising the finance for the business.

  1. Amount of finance needed: The finance raised should neither be excessive nor it should be insufficient.
  2. Term:
    The term could be

    1. Short term: upto a period of 1 year to meet the working capital.
    2. Medium term: From 1 to 5 years to proceed with the modernization needs.
    3. Long term: More than 5 years to
      1. Procuring fixed assets
      2. To carry out research operations.
      3. To execute expansion or diversification plans.
  3. Sources from where finance is procured: The various funds are:
    1. Owner’s fund: This is entrepreneur’s own fund such as equity, preference, margin/seed capitals.
    2. Borrowed funds: Outside sources include:
      1. Issue debentures
      2. Loan from Banks
      3. Loan from financial institutes
      4. Loan from private lenders

      Again depending on the collateral security demanded by the lender the loans can be secured or unsecured.

Explain with examples how the nature of business impacts the fixed capital requirement.

The nature of business like whether it is trading or manufacturing or services affects the working capital required.

For example in case of a manufacturing business like car manufacturing, huge investment is required to procure the land, building, equipment, hiring highly skilled technical human resources etc. Thus the investment required would be more.

Another example is a trading business where in the finished goods are brought purchased from the suppliers and sold to the customers or retailers. In this case there is no need of huge land, building, equipment or highly skilled human resources. And hence the investment required would be less.

Compare Capitalization and capital structure.

Capitalization Capital Structure
Capitalization is the total amount of long-term capital fund raised by a business from its creditors and shareholders. Capital structure is the combination of various types of long-term capital raised by a business. The capital can be either from the owner or borrowed.
It comprises of debentures, free reserves, shares and long-term loans It comprises of bonds, debentures, loans, reserves etc.
It determines the optimum capital requirements to cater to various business needs. It determines the kind of securities to be issued for raising the required funds. In other words it determines the patterns of financing
It is necessary to see that the capital is neither surplus nor short. To ensure the liquidity and solvency of the company it is essential to maintain a good proportion between the fixed and variable yield-bearing securities.

State the objectives of financial planning.

The following are the objectives of the financial planning.

  1. Allocate the funds among the different departments so as to achieve the objectives set.
  2. Build a reserve of funds for meeting future contingencies.
  3. Capitalization to assess the various types of financial requirements and segregating them into short, medium and long term.
  4. Decide the capital structure so as to procure the funds from the appropriate resources. While doing this the principles of convenience, economy, financial commitments and ownership are taken into consideration.
  5. Establish an effective control over financial status.
  6. Fund raising to an optimum level to accumulate the working capital of the business.

What are the dissimilarities between the fixed capital requirement and working capital requirement.

The differences between fixed capital requirement and working capital requirement on the basis of various criterion are giving below.

  Fixed Capital Requirement Working Capital Requirement
Meaning This is the capital required to meet the long term or permanent needs of the business. This is the capital required to meet the short term or current needs of the business and also to meet the day to day operational expenses
Scope Capital needed for Permanent or long term assets like building, land, equipment and plant. Short term Capital needed for wages, utilities, maintenance etc.
Nature Nature is permanent or long term and exists in the form of tangible or intangible assets of the enterprise. Nature is short term and exists in the form of capital needed for daily expenses of the enterprise.
Duration Fixed capital is permanent and long term in duration. Working capital is short term in duration.
Sources of procurement used Procured through the long term financial resources like

  1. Issue of shares
  2. Issue of debentures
  3. Gathering public deposits
  4. Reinvesting the profits
  5. Long term loans taken from bands and other financial institutions.
Procured through the financial resources like

  1. Short/medium term loans from banks or financial institutions.
  2. Other finance companies
  3. Internal sources
  4. Public deposits

State and justify the amount of capital required for selling ice-creams. Specify the factors justifying your response.

Selling ice-creams require a small amount of working capital. The sale of ice-creams has a small number of customers. It is also seasonal and requires small amount of inventory and equipment required is also less expensive. Hence a small working capital is required.

State and justify the amount of capital required for a business that offers liberal credit policy. Specify the factors justifying your response.

Offering credit payments require large amount of working capital. The business need to maintain huge amount of cash and as the amount it tied up usually with the customers, it needs to maintain huge stocks. Due to this reason this requires large working capital.

State and justify the amount of capital required for the business dealing in steel wares. Specify the factors justifying your response.

Expensive equipment is needed to manufacture the goods and also huge amount is required to be maintained. The inventory need to be distributed to the wholesalers and retailers and involves huge distribution costs. Hence large amount of capital requirements are involved.

State and justify the amount of capital required for the business involved in capital intensive technology. Specify the factors justifying your response.

Usually businesses require capital intensive technology for mass production. As the volume of production is more, large capital requirements are involved in this case.

What are the factors that determine the amount of working capital required by an enterprise?

Working capital is that part of the capital which is needed for running working or current requirement of the enterprises and also for taking care of the day-to-day operational expenses. It varies among different enterprises. The following factors determine the working capital required by any enterprise.

  1. Nature and size of business: A business that has a production process requires more working capital compared to a business that deals with the trade services. Also, large scale units require large working capital and small scale units require small working capital.
  2. Business Cycle: When the demand for the business varies, the business needs more working capital during the boom period and less working capital during depression.
  3. Gestation Period: When there is large time gap between the beginning and ending of a manufacturing process, more working capital is required. A smaller gestation period requires comparatively small working capital.
  4. Volume and procurement of raw material: If the nature of the business is such that more capital need to be invested on the raw materials, it requires huge capital amount. When the cost of raw material is low, it requires small amount of working capital.
  5. Manual v/s Automation: Compared to an automated business, a business where in more man power is needed requires more working capital.
  6. Need to stock up inventories: When the nature of the business requires more amount of raw materials/stock to be maintained in inventory, it requires more working capital. If the inventory is low, the working capital is also low.
  7. Turnover of working capital: When the turn over is more, the working capital is recovered at a faster rate from the sale of finished goods. So, it requires less working capital compared to the business where in the turnover is less.
  8. Terms of Credit: When the business has to sell the goods on credit, the investments are locked up in the form credit with the buyers(clients or customers). Hence it requires more working capital compared to a business that sells on cash.

What is Fixed Capital Requirement?

Fixed capital refers to the capital that is required for meeting the permanent or long term needs of the business. Fixed capital exists in the form of investment made in fixed assets like land, building, plant and machinery etc.

Which factors need to be considered while planning the fixed capital requirements?

The following factors should be considered while planning for the fixed capital requirements.

  1. Nature of the business: The amount of fixed capital depends on whether the business is trading or manufacturing or service oriented.
  2. Size of the business: Large business requires large fixed capital and small business requires small fixed capital.
  3. Technology used in the production: The more the sophisticated the technology, the more the requirement for the fixed capital. On the otherhand if the business is labour intensive, then the amount of fixed capital required might be less.
  4. Range of production: If the business deals with diversified range of products (the number of products is more), then more fixed capital is needed. On the otherhand if the business deals with a single or less number of products, less fixed capital is needed.
  5. Type of product manufactured: If the product is more complex (like a car or computer), it requires more complicated machinery and hence more is the fixed cost. On the otherhand, if the product manufacture is simple (like a mobile phone case), the fixed capital required is less.
  6. Method of acquisition of fixed assets: When the business decides to buy the fixed assets, the fixed capital required is more. On the other hand, if the business decides to hire or lease the fixed assets, the fixed capital requirement is comparatively lesser.

An ideal capital structure is the result of great planning and team work. Which factors should be given due consideration while planning the capital structure.

The following factors should be given due consideration while planning the capital structure.

  1. The total amount of finance needed to implement the business plan.
  2. The forms and proportion of various securities that should be used to raise the capital.
  3. The policies of using and administering the capital requirement.

The financial planning entails the policies and procedures for proper coordination between the various functional areas of business, requiring effective allocation of resources across the different departments. It enables smooth functioning of the enterprise.

What is working capital?

Working capital is that part of the capital which is needed for running working or current requirement of the enterprises and also for taking care of the day-to-day operational expenses. It varies among different enterprises.

State the factors that help in calculating the working capital requirements of any business.

The following factors determine the working capital required by any enterprise.

  1. Nature and size of business: A business that has a production process requires more working capital compared to a business that deals with the trade services. Also, large scale units require large working capital and small scale units require small working capital.
  2. Business Cycle: When the demand for the business varies, the business needs more working capital during the boom period and less working capital during depression.
  3. Gestation Period: When there is large time gap between the beginning and ending of a manufacturing process, more working capital is required. A smaller gestation period requires comparatively small working capital.
  4. Volume and procurement of raw material: If the nature of the business is such that more capital need to be invested on the raw materials, it requires huge capital amount. When the cost of raw material is low, it requires small amount of working capital.
  5. Manual v/s Automation: Compared to an automated business, a business where in more man power is needed requires more working capital.
  6. Need to stock up inventories: When the nature of the business requires more amount of raw materials/stock to be maintained in inventory, it requires more working capital. If the inventory is low, the working capital is also low.
  7. Turnover of working capital: When the turn over is more, the working capital is recovered at a faster rate from the sale of finished goods. So, it requires less working capital compared to the business where in the turnover is less.
  8. Terms of Credit: When the business has to sell the goods on credit, the investments are locked up in the form credit with the buyers(clients or customers). Hence it requires more working capital compared to a business that sells on cash.

Sources of Finance

Define public financing.

Public Financing: The process of procuring the finance from the public, in the form of shares and debentures is known as public financing.

How can we classify the debentures as sources of finance?

Debenture is document issued by a company under its seal to acknowledge the debt that need to be paid pack after the completion of prescribed period. Debentures thus act as a source of raising long term finance from outside.

Why is equity share capital is also termed as Risk Capital

Equity shares are the ones that are not preference shares. The company does not bear any obligation to pay them either principal amount or dividend and there by making the equity share holders the true risk bearers. Due to this reason the equity share capital is also termed as risk capital from the equity shareholder’s perspective.

Which type of capital is used to procure the raw materials?

Raw materials are procured as part of the day-to-day operations of the business and hence working capital is used to purchase the raw materials.

How do you classify the sources of finance based on the duration?

Based on the duration, the sources of finance are classified as follows:

  1. Long term finance: Capital financed for more than 5 years. This includes
    1. Debentures
    2. Equity Shares
    3. Issue of right shares
    4. Leasing
    5. Loans from financial and industrial institutions
  2. Medium term finance: Capital financed for a duration of more than one year and below 5 years. This includes
    1. Commercial banks
    2. Debentures
    3. Loans from Specialized finance institutions
  3. Short term finance: Capital financed for a duration of less than one year. This includes
    1. Advance from customers
    2. Bank overdraft
    3. Cash Credit
    4. Discounting bills
    5. Finance against bill of lading
    6. Installment credit
    7. Trade creditor open book account

What are the sources of finance available for a public limited company?

The following are the sources of finance available for a public limited company.

  1. Equity shares: The company issues shares to the public and provide the equity shares to them. The equity share holders become the virtual owners of the company. The company will however will be under no obligation to pay the equity share holders the principal amount or dividend.
  2. Preference shares: These shares will have a priority regarding
    1. the payment of dividend at a fixed rate before paying the dividend to the equity share holders.
    2. the return of the capital in case the company is wound up.

State the shares preferred by the organizations when it comes to tax benefits. Is it debentures or the preference shares?

The companies prefer debentures as it yields tax benefit to them. When debentures are issued, the company is liable to pay interest on the amount borrowed under debentures. This interest can be claimed under tax deduction as it fall under tax deductible expense. So, the companies prefer the debentures.

Define personal financing.

Personal financing refers to the initial investment capital arranged by the entrepreneur himself/herself. Entrepreneurs use either their personal cash or they convert their assets into cash and use it.

What are the sources of personal finance?

Entrepreneurs use their personal resources for making the initial investment in the enterprise. They also use other options like their private assets, cash from the members of the family, near and dear relatives and friends. The friends and relatives who helped in the investment may not have any legal hold on the business. They remain as silent partners and extend their informal assistance.

All these sources of personal finance may be classified as below:

  1. Personal Savings: Entrepreneurs usually invest their own personal savings as these are readily available and also as they do not have to undergo any liability. The savings could be small or large and become as internal sources. These can easily meet small, short term requirements.
  2. Friends and Relatives: Entrepreneurs can also procure finance from
    1. Friends
    2. Relatives
    3. Other acquaintances

    This form of procurement is informal but one of the popular.

  3. Chit Funds: Chit fund is a kind of customary source of finance. In this few members form into a club or committee or party or association. Each member contribute a monthly deposit. If someone is in sudden need of money they can claim the chit. This premature en-cashing of the deposited amount will act as a personal finance source.
  4. Deposits from Dealers: The enterprise can collect security deposits from the dealers selected. The security deposit collected depends on the credibility, reputation and goodwill of the enterprise. This security deposit collected becomes a short term source of financing. However, this source is applicable only for businesses which need dealers or distributors.

Enumerate the differences between Equity Shares and Preference Shares

The following are the differences between Equity Shares and Preference Shares

Equity Shares Preference Shares
The company is under no obligation to pay the dividend to the equity shareholders. The preference shareholders gets priority over the payment of the dividend at a fixed rate before any dividend is paid to the equity shareholders.
The company is under no obligation to pay the principal amount to the equity share holders. The preference shareholders gets priority to recover the capital invested in case the company is winding up.
Rate of dividend varies based on profits earned by the company. Rate of dividend is fixed.
The arrears of dividend can not be accumulated. They have the option to accumulate or not to accumulate the dividend.
They have right to participate in management. The preference shares have the option either to participate or not to participate.
Equity shares can never be converted. Preference shares have the option to either get converted or to stay not converted.
Equity shareholders are the true risk bearers. Risk is very low as compared to the equity shareholders.

Enumerate the differences between Owner’s fund and Borrower’s fund

The following are the differences between Owner’s fund and Borrower’s fund

Owner’s fund Borrower’s fund
Arranged by the entrepreneur during the initial and in some cases during the later stages. Borrowed from the public/financial institutions/investors.
It is asset It is liability to be paid
Provided from personal savings. Collateral is required to procure the funds.
Exists in the form of Owner’s equity Exists in the form of Debentures/loans
Risk of losing the capital. Owner is under obligation to clear the borrowings.

Provide your supportive points in favour of Public deposits are a good source of raising medium term finance.

Public deposits are a good source of raising medium term finance due to the following reasons.

  1. The public deposits comes from the savings of the public and is readily available.
  2. No need to show the assets as collateral.
  3. As there is a constraint that the deposit should not exceed 36 months, it is ideal for medium term finance.
  4. As against the banks, the depositors will not have any rights in the management of the company.
  5. The depositors are creditors to the company and the company is not under any obligation to pay back the amount

Under which conditions it makes sense to take the finance from the financial institutions?

The entrepreneur should procure the finance from the financial institutions under the following conditions.

  1. To take advantage of the finance facilities provided by the government for industrial development.
  2. When there is a need for both owner and land capital for long and medium term requirements.
  3. When the other commercial banks are not available.
  4. When setting up the industries in backward areas.
  5. When there is a need to obtain technical assistance.
  6. Take advantage of the investment markets.

Define the terms : preferential share holder, equity holder, secured creditors of a company and asset/lease financing.

A preferential share holder is the person who is holding the “Preference Shares”. This person will be given preference in the payment of a fixed rate of dividend and repayment of the capital.

Equity holders: These are the owners of the company and hold equity in the enterprise along with the investors. In other-wards, these persons are the owners of the company.

Secured creditors of a company: A bank or other financial institutions releases a loan to an enterprise against a collateral security. These(the bank or any other financial institution) are often termed as the secured creditors of an enterprise.

Asset/Lease Financing : Asset or lease financing is a form of debt financing in which the right to use an asset for a specific period of time is worked out, against a series of regular payments.

How do the entrepreneurs raise funds through venture capital?

Entrepreneurs raise funds through venture capital using the following modes.

  1. Approach them during the second or third stages of development.
  2. When the venture is in the area of software, biotechnology, high-potential venture, high technology venture or having high growth prospects and returns, finance can be obtained during the start up stage also.
  3. By sharing the equity or ownership with the venture capitalist.
  4. When the business is highly inclined towards profits.
  5. When it is difficult to procure loans from banks.

How do entrepreneurs raise financing capital through ownership?

Ownership or equity finance is raised in the following ways.

  1. Retained Profits/Sloughing back of profits: Instead of distributing all the profits to the shareholders in the form of dividend, it is partly retained and reinvested into the business. This is usually used by already established enterprises that are making profits. Not possible for a new venture.
  2. Equity Shares: Equity shares are issued to give away part of the ownership to the equity shareholders. Equity shareholders are like virtual owners of the business. However, the business is under no obligation to pay back to them. Thus equity shareholders bear high risk. However, they possess the voting rights.
  3. Preference Shares: Under preference shares the shareholders gets priority to receive the dividend before any dividend is paid to the equity shareholders. There is also preference for these shareholders to regain their capital if the company is likely to wind up. These shares can be
    1. Cumulative or non-cumulative.
    2. Participating or non-participating
    3. Convertible or non-convertible.
  4. Seed Capital: Seed capital is procured for funding the initial investment to develop a prototype or to prove the feasibility of the capital.

The equity/ownership finance can be procured by

  1. Asking banks to buy equity shares.
  2. Through self
  3. contacting specialized agencies or organizations.

Define debt financing.

Debt financing refers to the finance procured by the entrepreneur from the bank in the form of interest-bearing instrument. This is usually in the form of loan against a collateral like a car or house etc. Due to this reason it is also known as asset-bearing finance. The payment is indirectly related to the sales and profits of the venture.

What is the role played by the banks in debt financing?

Commercial banks provide short or medium term loans to firms of all sizes through the following various options and thus act as important sources of debt financing.

  1. Overdraft: This is a temporary provision allowing the entrepreneur to withdraw more than the amount available in his account. This works as follows:
    1. The entrepreneur opens a current account with the bank.
    2. The bank issues permission enabling the entrepreneur to withdraw amounts more than available in his account.
    3. The excess amount withdrawn attracts interest.
    4. The entrepreneur should submit an asset as security or it might be a personal security.
  2. Cash Credit: This is similar to overdraft. Its features are
    1. Entrepreneur can borrow up-to specific limits.
    2. The borrowed amount is credited to the entrepreneur’s account.
    3. The amount can be withdrawn as and when needed.
    4. The withdrawn amount attracts interest.
    5. Usually a bond or some other security should be provided to avail this facility.
  3. Discounting of bills/Factoring: In this mode the bank en-cashes customer’s bills before they become due. For providing this facility there will be nominal charges. The entrepreneur is liable to pay the amount if the bill is dishonoured.
    Factoring is a financial service rendered by a specialized person called as Factor. This person deals in realizing book debts, bills receivable, managing sundry debtors and sales registers of the commercial and trading firms. This person acts as an agent and charges a commission known as commercial charges or discount. Thus it is the sale of accounts receivable to the bank or finance company or others involved.
  4. Loans and Advances: In this case the entire loan amount is arranged to the entrepreneur either in cash or through wire-transfer. In this case
    1. The entrepreneur can withdraw the entire loan amount or in installments depending on his requirements.
    2. Irrespective of the amount withdrawn, interest is charged on the entire amount of loan.
    3. Usually security of certain assets is required to procure the loans.
  5. Term loan: These loans are granted to the entrepreneur by the bank for a fixed period to buy
    1. Machinery
    2. Trucks/scooters
    3. Houses

    This loan amount should be repaid in monthly/quarterly/half yearly/annual installments.

  6. Demand Loans: To procure these loans, the entrepreneur has to furnish security of Fixed Deposit Receipts (FDR), Government securities, Life Insurance Policies etc. The name demand loan implies that the bank has the authority to demand the loan at any time by issuing a notice to the entrepreneur.

Mentor-ship

Define Mentor.

A mentor is

  1. An adviser
  2. trusted guide
  3. wise intellectual person

who uses their mind creatively, especially in occupational settings, and advises the others to achive their goals.

Who is a Business mentor?

A business mentor is a person who has the experience of successfully establishing and running a business and is capable and willing to offer invaluable

  1. advice
  2. guidance
  3. and support

to a new entrepreneur.

What is the difference between Group mentoring and Peer mentoring.

Group mentoring is the one in which the mentor mentors a group of 4 to 6 people in one go where as peer mentoring is the one where in the mentor maintains the mentoring relations with their peers either formally or informally.

Define informal mentoring.

Informal mentoring is the type of mentoring where in

  1. Goals of the relationship are not specified
  2. Outcomes are not measured
  3. Depending on the basis of personal chemistry, the mentor and mentee self-reflect.

What role does a mentor play?

Mentors play a critical role to provide support, recognize the strengths and weaknesses of the entrepreneur and guide them to take corrective measures. Their role involves helping the entrepreneur in

  1. Assessing the entrepreneur’s areas of shortcomings and strengths and Provide valuable feedback to them in important areas.
  2. business partner identification
  3. Coordinating the activities related to the assessment of funds and new technologies and provide consultation.
  4. Defining and understanding the current situation of the enterprise and diagnosing the order.
  5. Evaluate the ‘highs’ and ‘lows’ during the venture starting through their experience and create awareness in the entrepreneur to identify the threats and risks of market.
  6. Finding the relevant information
  7. Guidance and support in preparing and implementing the development activities/plans/projects so as to achieve effective business results.
  8. Help related to the preparation of documentation for the enterprise and enterprise support programs.
  9. Introducing the entrepreneur(mentee) to the relevant accountants, consultants, lawyers, suppliers, trainers etc so as to inculcate confidence in them.
  10. Justify the identification, procurement and utilization of the required resources.
  11. Knowledge, Learning, specific skill acquisition, unspoken rules essential for the success of the venture.

What is the gain for the mentor to mentor others?

Mentor gains the following benefits by mentoring others.

  1. Acquire insights from the mentee’s background and history which can be of help in mentor’s personal and professional growth.
  2. Builds an ally and there by helps in organizations well-being.
  3. Career of the mentor is re-energized.
  4. Discover more about the other areas withing the organization (especially if the mentee is from a different department or so)
  5. Earns personal satisfaction through sharing his expertise with others.

Define the concept of mentoring with examples.

A mentor is

  1. An adviser
  2. trusted guide
  3. wise intellectual person

who uses their mind creatively, especially in occupational settings, and advises the others to achieve their goals.

Everyone has a learning need. Learning through a mentor will play a critical role in the overall development in specific area. As mentors have already have practical knowledge, they will be able to mentor others to achieve systematic results by applying their expertise.

Mentors will usually

  1. Advise the mentee about specific issues.
  2. Builds a safe learning environment for taking risks
  3. Coaches the mentee in a specific skill
  4. Directs the mentee towards challenges and help them to go beyond their comfort zone.
  5. Encourages the mentee’s total development.
  6. Facilitates the mentee growth by sharing their networks and resources.

Examples include:

  1. Angel investors who guides the new entrepreneurs through their knowledge and expertise, to help them realize their goals.
  2. A trusted friend or family member who already have vast experience in the entrepreneurial pursuit advising and guiding the entrepreneurs.

Give an account of different ways in which the mentor can be mentored.

The following are the different types of mentoring.

  1. Mode of construction: This is based on the way the mentor-ship is structured.
    1. Formal mentoring:
      1. Mentor and mentee are paired depending no the compatibility.
      2. The goals are pre-set before the mentor-ship is started.
      3. Outcomes are measured.
      4. Formal mentoring is further classified as
        1. Traditional mentoring
        2. Special project mentoring.
    2. Informal mentoring: In this type of mentoring
      1. Mentor and mentee are paired on depending on the personal chemistry they have
      2. The goals are not pre-set.
      3. Outcomes are not measured.
  2. Mode of delivering: This is based on the way the mentor-ship is rendered. This is further classified as
    1. One to one mentoring: One mentor is paired up with one mentee👬.
    2. Group mentoring: One mentor👴 works with 4-6 mentees at one time👬👫👭.
    3. Online mentoring: Mentoring relations through online collaboration tools💻.
    4. Peer mentoring: Maintain mentoring relations either formally or informally with the colleagues🙋🙋.

Explain how mentor-ship benefits not just the entrepreneur but the whole organization.

Mentor-ship benefits not just the entrepreneur but the whole organization in the following ways:

  1. Achieve improvement in strategic business initiatives.
  2. Breaks down the “silo” mentality that reduces the co-operation between different departments or divisions.
  3. Creates a mentoring culture that help in the growth and development of the employees
  4. Decreases the turnover costs
  5. Encourages retention.
  6. Fosters and increases the professional development.
  7. Gains productivity
  8. Helps in linking employees who has invaluable knowledge and information with other employees who are in need of such information.
  9. Increase knowledge transfer from merely getting information and to retaining practical experience and knowledge gained from long-term employees.
  10. Justify the use of own employees rather than external consultants as internal experts from professional development.
  11. Keep up the creation or diverse workforce through establishing mentoring relationships among employees from various cultural backgrounds and ensure that everyone has equal access to mentoring.

What is the role of importance of mentoring?

Mentors play a critical role to provide support, recognize the strengths and weaknesses of the entrepreneur and guide them to take corrective measures. The role and importance of the mentoring is summarized below.

  1. Assessing the entrepreneur’s areas of shortcomings and strengths and Provide valuable feedback to them in important areas.
  2. business partner identification
  3. Coordinating the activities related to the assessment of funds and new technologies and provide consultation.
  4. Defining and understanding the current situation of the enterprise and diagnosing the order.
  5. Evaluate the ‘highs’ and ‘lows’ during the venture starting through their experience and create awareness in the entrepreneur to identify the threats and risks of market.
  6. Finding the relevant information
  7. Guidance and support in preparing and implementing the development activities/plans/projects so as to achieve effective business results.
  8. Help related to the preparation of documentation for the enterprise and enterprise support programs.
  9. Introducing the entrepreneur(mentee) to the relevant accountants, consultants, lawyers, suppliers, trainers etc so as to inculcate confidence in them.
  10. Justify the identification, procurement and utilization of the required resources.
  11. Knowledge, Learning, specific skill acquisition, unspoken rules essential for the success of the venture.

Define mentoring.

Mentoring is the process of a person helping other person to realize their goals. Mentoring involves a mentor and a mentee. A mentor is

  1. An adviser
  2. trusted guide
  3. wise intellectual person

who uses their mind creatively, especially in occupational settings, and advises the others to achieve their goals. The mentor creates an informal environment where in the mentee feels comfortable to express their needs openly by confiding in the mentor. Organizations view this as a very powerful personal development and empowerment tool.

The mentor provides help and support in a non-threatening manner which is received by the mentee in an appreciating and valuable pattern. Mentoring involves supporting and encouraging people so that they can manage their own learning in the most efficient manner, acquire or improve the skills, improve their performance and realize their goals.

Enumerate the characteristics of mentoring.

The following are the characteristics of mentoring.

  1. Absolutely focuses on professional development or career growth. At times this might be outside the mentee’s area of work.
  2. Builds the relationships beyond job boundaries.
  3. Carried out outside and beyond the manager-subordinate relationship. Also it happens by the mutual consent of the mentor and the mentee.
  4. Develops personal relationship. As the relationship is personal the mentor will be willing to support both professionally and personally.
  5. Employer or the organization initiates this initiative. But the relation may be initiated by a mentor through this initiative.
  6. Formally it should last for nine months to one year. However, the mentor and mentee may continue the mentoring relationship informally.

Sources of Information

What is the Census Method of collecting data?

Census Method is a method of collecting data where in all the units associated with a particular problem are studied. It is also called as Enumeration Survey Method.

Who are called as the main producers of information?

The following are the main producers or originators of information.

  1. Government Agencies
  2. Academic Institutions
  3. Private Sector
  4. Individuals

When an entrepreneur wants to seek information related to plant and machinery, where should he consult at the state and central level for procuring the required information?

The entrepreneur seeking information related to plant and machinery should consult the following institute.

  1. SFC – State Finance Corporation
  2. CCIE – Chief Controller of Import and Export

Name few of the major small scale industry groups in India.

The following are few of the major small scale industry groups in India.

  1. Hosiery factories in Ludhiana
  2. Scientific instruments making factories in Ambala
  3. Carpet making factories in Panipat
  4. Radio, TV, etc manufacturing factories in Delhi
  5. Garment making Gurgaon
  6. Handlooms and Textiles industries in Hisar

Aren’t the last two catchy? 😀

What purpose does the Information serve to the entrepreneur?

Information serves the following purposes for the entrepreneur.

  1. Application, Feasibility, Utility and Viability of the idea.
  2. Business favourable market conditions prevailing at present viz. competitors, demand, supply etc.
  3. Calculating the impact of prevailing environmental factors on the feasibility of the idea.
  4. Different types of resources required and their suppliers.
  5. Expected Profitability

Which information resource centres are available at the state and central level for the entrepreneur to collect information related to the product standardization and quality mark?

The following information resource centers are available at the state and central level for the entrepreneur to collect the information related to product standardization and quality mark.

  1. ISI – India Standards Institute.
  2. RT – Register of Trade Mark.

Which information resource centres are available at the state and central level for the entrepreneur to collect information related to the technical know-how?

The following information resource centers are available at the state and central level for the entrepreneur to collect the information related to technical know-how.

  1. DDCA – Directorate of Drug Control Association.
  2. CIPET – Central Institute of Plastic and Engineer Tool.

Which information resource centres are available at the state and central level for the entrepreneur to collect information related to the selection of project?

The following information resource centers are available at the state and central level for the entrepreneur to collect the information related to the selection of project.

  1. DTC – District Industrial Centre.
  2. ITC – Indian Investment Centre.
  3. SFC – State Finance Corporation.

Which information resource centres are available at the state and central level for the entrepreneur to collect information related to the Registration?

The following information resource centers are available at the state and central level for the entrepreneur to collect the information related to the Registration.

  1. NSIC – National Small Industrial Corporation.
  2. CCIE – Chief Controller of Import and Export.
  3. STC – State Trading Corporation.

Enumerate the differences between primary, secondary and tertiary sources of information.

The following are the differences between primary, secondary and tertiary sources of information.

  Primary Secondary Tertiary
Definition The primary sources of information are original material. The other research studies will be based on these primary sources. Secondary sources of information are based on the primary or original information. They appear in a modified or selected or rearranged for a specific purpose or audience. Information derived from primary and secondary source after collection and distillation.
Collector (the one who collects this information) The data is collected by the investigator himself for the first time The data is prepared by someone who did not have fist hand experience or did not participate in the events/situations that are being researched. Usually not credited to any specific author
Purpose It reports a discovery or share new information. It analyzes, comments, describes, discusses, evaluates and interprets the evidence given by primary sources. Intended only to provide an overview of what the topic includes, its basic terminology. Often, references to further reading are included.
Presentation Presents the information in its original form. The information is not condensed, evaluated or interpreted by others. Presents the information in modified form. Presents the information in condensed, digested and reformatted form. It is put into a convenient, easy-to-read form.
Nature They are evidence or accounts of the events, practices being researched. Summaries of evidence or accounts of the events, practices being researched and derived from primary sources. They are in easy to read reformatted, condensed and convenient form.
Appearance / Existence They formally appear in print or electronic formats. In the form of publications. Few reference materials and textbooks.
How to collect? Can be collected through

  1. Direct personal Investigation.
  2. Indirect oral investigation.
  3. Local Correspondents.
  4. Mailed questionnaire.
  5. Questionnaire through enumerators.
Through published and unpublished documents. Through

  1. Abstracts
  2. Bibliographies
  3. Classifications
  4. Directories
  5. Encyclopedias
  6. Fact Books
  7. Guide books

Define primary source of information.

Primary sources are original materials, usually collected by the investigator in-person, and becomes the reference for other research studies. It reports a discovery or share new information. This information is first hand accounts and is relevant to an event.

Give an account of methods used in collecting the primary data.

The following are the methods used in collecting primary data.

  1. Direct personal investigation: The investigator directly approaches the source and personally collects the information.
  2. Indirect oral investigation: The investigator approaches certain sources who are connected with the information directly or indirectly and personally collects the information.
  3. Local Correspondents: The investigator appoints local agents or correspondents in different parts of the area under investigation and collects the information through them.
  4. Mailed questionnaire:The investigator prepares a questionnaire with questions related to the objective of the inquiry and send it to informants by post and collects the information through them.
  5. Questionnaire through Enumerators: In this case the investigators appoints enumerators. The enumerators visit the informants along with the questionnaire. The informants fill the questionnaire which will be helpful to fulfill the investigators answers.

Size and Capital Based Classification of Business Enterprises

What is a tiny enterprise?

The tiny enterprise is a business enterprise that falls under the tiny sector where in the total amount invested in plant and machinery does not exceed ₹ 25 lakhs at present and is likely to increase in future.

What is a large scale enterprise?

The industrial units whose investment in plants and machinery exceeds ₹ 10 crores is known as large scale enterprise.

What is Medium Scale Enterprise?

A medium scale enterprise is one in which the investment in plant and machinery is more than ₹ 5 crores and less than ₹ 10 crores.

What are the differences between an ancillary unit and a tiny unit?

The following are the differences between an ancillary unit and a tiny unit.

  Ancillary Unit Tiny Unit
Definition A small industrial unit which supplies minimum 50% of its production to the parent unit. A Tiny unit is a business enterprise that falls under the tiny sector where in the total amount invested in plant and machinery does not exceed ₹ 25 lakhs at present and is likely to increase in future regardless of the location of the unit.
Demand As ancillary units supply the components manufactured to their parent unit, there is a guarantee of demand. These units supply their products to the external unit and hence there is no guarantee of demand.
Technical knowledge As they are associated with the parent unit, they benefit from the technical expertise of the parent unit. They need to build their expertise in the technology by themselves.
Production They produce sub-components which can be used in the main product. They have their own production line and produce finished goods or products.
Financial Help Privileges like financial grant etc can be availed only once. Government has launched separate package for tiny units through which these units can avail many facilities like financial help, land allotment etc again and again.

What is the pre-requisite to call any activity as Business Activity?

The pre-requisite to call any activity as business activity is that the activity should be undertaken in connection with the place of the business to the place of consumption

The basis of classification of the business activities is different in different countries.

  1. the activities connected with the production are known as Industry
  2. the activities that are connected with the distribution of the goods produced from production unit to consumers is known as commerce

In addition to the above, the business activities can also be classified base on

  1. Activity
  2. Size
  3. Ownership





How do you classify the business enterprise on the basis of size?

The business enterprise is classified as follows on the basis of the size.

  1. Volume of capital
  2. Volume of output
  3. Value of output
  4. Number of employees

In India, it is adjusted on the basis of the volume of the capital invested whether the enterprise is large or small. Based on the volume, the industries are categorized as follows.

  1. Small Scale: Small scale industries are the ones in which the investment in plant and machinery does not exceed ₹ 5 crores. They have the following features.
    1. They employ labour.
    2. They use machines
    3. They use electricity to run these machines.
    4. The following are the examples.
      1. Hosiery factories in Ludhiana
      2. Scientific instruments making factories in Ambala
      3. Carpet making factories in Panipat
      4. Radio, TV, etc manufacturing factories in Delhi

    The following are the various types of small scale units.

    1. Tiny Sector
    2. Ancillary/Auxiliary Small Units
    3. Micro-business
    4. Small-Scale Service and Business (Industry Related) Enterprise.
    5. Small-Scale Industries Owned and Managed by Women Entrepreneurs.
    6. Export Oriented
    7. Cottage and rural.
  2. Medium Scale: The enterprises in which the investment in plant and machinery is more than ₹ 5 crores but less than ₹ l0 crores.
  3. Large Scale: The industrial units whose investment in machinery exceeds more than 10 crores.

What are the characteristics of Cottage and Rural Industry?

The cottage industry is an industry which is run either as whole-time or part-time occupation with full or partial help of the family members. The following are the characteristics of cottage and rural industry.

  1. They are run by the members of the family (they do not employ labour)
  2. They are mainly run by artisans at their homes.
  3. Requires very small investment
  4. They often cater to the needs of surrounding localities
  5. They use the Machines very rarely.
  6. Usually traditional items like mats, shoes, pottery are made in these units. Other examples are the units where khadi and handicraft products are produced.

Discuss the enterprises which fall under the category of SSI units.

The following are the enterprises which fall under the category of the SSI units.

  1. Tiny Sector: Tine sector refers to those business enterprises whose investment in plant and machinery is less than ₹ 25 lakhs. However, this amount is likely to increase irrespective of the location of the unit. To promote these industries, the government has announced a package. This package allows these units to avail the privileges of many kinds like land allotment, electricity connection, technology etc. to continuously utilize. This package is not applicable to other small industries.
  2. Ancillary/Auxiliary Small Units: This is a small-scale industry unit that manufactures components for its parent unit and supplies 50% of its production to its parent unit. These units benefit from the guaranteed demand from its parent unit. They also have technical and financial help from their respective parent units.
  3. Micro-business: This is a business unit that has invested in plant and machinery not exceeding ₹ 25 lakhs.
  4. Small-Scale Service and Business (Industry Related) Enterprise: These are MSME (Ministry of Micro, Small and Medium Enterprises). These are further classified as:
    1. Micro-enterprise: Investment in equipment is less than ₹ 10 lakhs.
    2. Small enterprise: Investment in equipment is more than ₹ 10 lakhs and does not exceed ₹ 2 crores.
    3. Medium enterprise: Investment in equipment is more than ₹ 2 crores and less than ₹ 5 crores.
  5. Small-Scale Industries owned and Managed by Women Entrepreneurs: These are operated individually or jointly by a group of women. Their capital share is more than 51%. The government offers them concessions.
  6. Export Oriented: These are the units that export more than 50% of its production. The government offers them subsidies. The ministry of MSME & ARI will bring out a specific list of hi-tech and export oriented industries which would need the investment cap to be raised upto ₹ 5 crores to allow them to upgrade their technology and stay competitive.
  7. Cottage and Rural: The cottage industry is an industry which is run either as whole-time or part-time occupation with full or partial help of the family members. The following are the characteristics of cottage and rural industry.
    1. They are run by the members of the family (they do not employ labour)
    2. They are mainly run by artisans at their homes.
    3. Requires very small investment
    4. They often cater to the needs of surrounding localities
    5. They use the Machines very rarely.
    6. Usually traditional items like mats, shoes, pottery are made in these units. Other examples are the units where khadi and handicraft products are produced.

Need more material?



You might also want to refer the following pages.

Books & Other Material

  1. Entrepreneurship: Concept and Functions
  2. An Entrepreneur
  3. Entrepreneurial Journey
  4. Entrepreneurship as Innovation and Problem Solving
  5. Concept of Market
  6. Business Finance and Arithmetic