UNIT - II ORIGIN OF ENTREPRENEURS / SOCIAL FACTORS INFLUENCING THE EMERGENCE OF ENTREPS. 1. Disturbed Childhood A child may be continuously rejected by parents, friends & others. All dominate him. So he needs a relief. He may destroy himself by depression or became very creative & enterprising. He want to dominate and achieve something. Organization becomes a sours to achieve this. So he starts his own enterprise. 2. Rejected Group Entrepreneurs emerge as a group, when The group is not recognized in the society - Contract with important social networks are denied. 3. Religion & Culture Some religion & cultural values encourage money making, status & risk taking while others may discourage these. Following religion & cultural groups are enterprising - Marwarrs parsees, Jain, Chettiars in India - Protestants in UK & US - Samurai in Japan - Yoruba in Nigeria - Kikuyu in Kenya 4. Age of Entry - 2/3 of entrepreneurs start enterprise before 25 th age. But it differs among community. - Kamma community start earlier 1
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Unit - II Origin of Entrepreneurs / Social Factors Influencing
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UNIT - II
ORIGIN OF ENTREPRENEURS /
SOCIAL FACTORS INFLUENCING THE EMERGENCE OF ENTREPS.
1. Disturbed Childhood
A child may be continuously rejected by parents, friends & others. All dominate
him. So he needs a relief. He may destroy himself by depression or became very
creative & enterprising. He want to dominate and achieve something. Organization
becomes a sours to achieve this. So he starts his own enterprise.
2. Rejected Group
Entrepreneurs emerge as a group, when
The group is not recognized in the society
- Contract with important social networks are denied.
3. Religion & Culture
Some religion & cultural values encourage money making, status & risk taking
while others may discourage these.
Following religion & cultural groups are enterprising
- Marwarrs parsees, Jain, Chettiars in India
- Protestants in UK & US
- Samurai in Japan
- Yoruba in Nigeria
- Kikuyu in Kenya
4. Age of Entry
- 2/3 of entrepreneurs start enterprise before 25th age. But it differs among
community.
- Kamma community start earlier
- Kapu & Brahmin start the enterprise in young age.
- Vysya start in old age with experience.
5. Family background
- If family members have political influence, or in high status jobs, one can
become entrepreneur
- Youngsters in joint family may get moral & financial support.
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- In-laws may make one as a partner or help him to start one’s own business.
6. Education
- Technically educated persons may start manufacturing units with some
managerial training.
- Arts/Commerce/uneducated people can start service sector/trading center/
low-technology units.
7. Experience
- 25% entrepreneurs are inexperienced. They start after technical &
managerial training.
- 32% prefer the same line of business.
- 40% prefer different line of business.
8. Type of ownership
- 55% prefer sole proprefership concern
- 25% prefer partnership concern
- 20% prefer private limited
- 5% prefer public limited concern
9. Location
- 60% prefer backward areas for subsides & concessions. Govt provide built
in industrial estate with shed and infrastructure facilities.
- 40% prefer developed areas for convenience.
10. Environment
Environmental factors like Govt policy, political stability, peace within & between
the countries, cost of import, competition, infrastructure, financial support by banks &
financial institutions, etc, influence the emergence of entrepreneurs.
Limited Company with Capital of 1 Lakhs to 1 Crores.
Project Cost upto 3 Crores.
Quantum of Assistance
Loan up to 30 Lakhs.
Deferred Payment Guarantee upto 30 Lakhs.
Underwritting upto 25 Lakhs or 25% of Issued Capital, Whichever is Less.
Total Assitance of above Three should not exist 65 Lakhs Per Industry.
Condition for Loan
Rate of Interest varies from 10% to 14%. The Rate depends on type of
Industry, Loan Amount and Entrep.
Loan should be Repaid in 8 to 10 Half yearly Installments.
Repayment Holiday of 1 to 2 years is considered.
Deferred Payment guarantee Commission. 2% per Annum.
Underwriting Commission 2.5% for Backward Areas 1.25%
Minimum Promoters Contributions. For Technical Entrep 15%, backward areas
17.5%, Non Backward Areas 20% of the project cost.
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25% Security Margin on Fixed Asset Loan For Small Units;25 to 50% for
Medium Units.
25% on Deffered Payment Guarantee amount by Cash Deposit is Insisted.
Personal Guarantee of All or any of the Promoters or Directors.
15. DIC [District Industries Center]
It is a District Level Institution. The Plans of National level and State Level Institutions [NSIDCO, SIDCO, SIPCOT etc] are Implemented Through DIC in Each District.
Identifies Potential Entrep. Guides in Project Selection. Issues Provisional SSI Registration Certificate with Validity for one Year. This
Certificate is Essential to Approach Financial Agency. Provides Loan To Acquire Land And Buildings or Recommands to other
Financial Institutions For such Loans. Sanctions Margin Money Payable to Other Finance Agency to buy Plant and
Machinary [upto 25000],and recommands to the financial Agency. To Get the Speedy Power Connection request TNEB in the District Advisory
Committee Meeting Held by the Collector. After the Commencement of Productions, Final SSI Registration Certificate is
issued by DIC. It is Essential to get the financial Assistance and scarce Raw Materials.
Recommand to Supplier of Raw Materials. Issue Quota Cards to Get Scarce Raw Materials From the materials.
Issues Certificate to joint chief controller of imports and exports for theimport of machinery and raw materials.
DIC recommends SSIs to NSIC to sell the products through govt. purchase programme.
DIC recommends SSIs to SIDCO for general mardeting assistance. Interest free sales tax loan upto 8% of the units fixed assets provided in rural
areas. Power tariff concession upto 30% in 1st year, 20% in 2nd year, 10% in 3rd year are
provided for rural units. Provides interest subsidy for engineers. Subsidy of 1/3 of project cost subject to a maximum of 3000 is provided to rural
artisand and handicrafts by DRDA (District rural development authority) with DICs recommendation.
DRDA trains rural entreps under IRDP training scheme (Industrial rural development programme)
Self employment for unemployed educated youth(minimum SSLC), aged between 18 to 35 years can avail a loan upto 25000 from banks to start a business.
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16. TCO (Technical consultancy organisation Industrial potential survey Preparation / evaluation of project profiles Conducts EDP Technical and administrative assistance Assist in technical upgradation and modernisation
1. Investment Limits – (one) cr for SSI; 25 lacs for tiny sector.
2. Priority in allocation of scarce raw materials
3. Technology development cell & Export development cell in SIDO.
4. Marketing assistance through NSK, Co-ops, agencies.
5. 837 sectors are reserved fro SSIs.
6. 409 items should be bought only from SSIs.
7. Service sectors are treated as tiny sectors.
8. Support from National Equity Fund for projects upto 10 lacs.
9. Single window loan for projects upto 20 lacs.
10. Factoring service through SIDBI to overcome the delayed payment problem.
CENTRAL GOVT. INCENTIVES
1. Backward area incentives
a) 247 districts are declared as backward dist. These are divided into A, B & C categories.
b) Investment Subsidy
For A category dist. – 25% of investment, upto 25 lacs.
For B category dist. – 15% of investment, upto 15 lacs.
For C category dist. – 10% of investment, upto 10 lacs.
c) Liberal loan
SFC grants loan to buy fixed assets upto 30 lacs for ltd. Co. & upto 15 lacs for others at low margin, low interest & long repayment period.
2. Subsidy for indegenous technology
When the technology invented in Govt. labs, universities, are used to produce essential products, interest due to IFCI during the first 5 yrs. upto 5 lacs per year is subsidised.3. Transport subsidy
50% of transport cost of raw materials & finished goods are subsidised for
industries located in Jammu & Kashmir, Himachal Pradesh, Hill districts of U.P. & North
Eastern Regions.
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4. Seed Capital Loan
Interest free seed capital loan upto 15 lacs repayable in 5 yrs., is given 15 new generation entrepreneurs.
5. Rehabilitation allowance through tax
Units affected by flood, cyclones, fire etc. can deduct 60% of allowable deduction from the tax due.
TAMIL NADU STATE GOVT. INDUSTRIAL POLICIES & REGULATIONS
1. Subsidy for selected industries
Drug units, automobile ancillary units, Export oriented gold jewellery makers,
diamond processing units are eligible for a subsidy of 10% on fixed assets or Rs.20,000
for every regularly employed worker, whichever is lower, upto a ceiling of 10 lacs.
2. Interest free sales tax loan
Units outside 8 Km. of Madurai, Madras, Trichy, Coimbatore, Salem can avail
this loan upto 20% of fixed assets or 20 lacs whichever is less.
3. Concessional power tariff
a) High Tension power tariff is subsidised 66% in the first three years. 80% in
the 4th year, 90% in the 5th year.
b) Low Tension power tariff is subsidised 40% in Iyr, 30% in II yr, 20% in II yrs.
4. Concession in water royalty
New units in backward areas can draw water from public sources for the first 6
yrs, for Rs. 300 per yr. as water royally.
5. Project report subsidy
SIPCOT provides project reports at 10% of the project preparation cost. 40% of
the cost will be converted into loan.
6. Market study subsidy
75% of the cost of market study conducted by ITCOT, not exceeding Rs.15,000
is subsidised for new projects exceeding Rs. 3 cr.
7. Pioneer industry subsidy
Pioneer industry in each area is eligible for a capital subsidy of Rs. 25 lacs.
8. DIC’s single window clearance service
Spot clearance of building plan approval, pollution control regulations, & power
sanctions, etc are done in DIC itself.
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9. Sales tax waiver & deferral
Sales tax is waived upto 7 yrs, and deferred upto 14 yrs. based on the units
investment value.
10. Power generation subsidy
15% of the generator cost, upto 5 lacs is subsidised.
PROJECT REPORT
Definition
A project report can be defined as a well evolved course of action devised to
achieve the specified objective within a specified period of time.
The following are broad heads under which complete information on Relevant
Aspects should be included in the project report.
1. General Information
- Bio-data of promoters
- Industry profile
- Constitution and organisation
- Product details
2. Project Description
- Site (Plants Location)
- Physical infrastructre-Raw material, skilled labour
- Utilities
Power
Fuel
Water
- Pollution Control
- Communication System
- Transport Facilities
- Manufacturing Process
- List of Machinery and Equipment
- Capacity of the Plant
- Technology Selected
- Balancing of Plant
- Quality Control / Testing and Inspection
- Research and Development
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3. Marketing Factors
- Market Potential
Demand and supply position
Price expected to be Realized
- Marketing strategy
- After sales service
- Seasonality Factor
- Transportation
4. Capital Costs and Sources of Finance
- Land and Building
- Plant and Machinery
- Installation costs
- Other miscellaneous assets like furniture/fixtures, vehicles, tool etc.
- Preliminary and preoperative expenses.
- Contingency cushion against price rise/unforeseen expenses
- Margin for working capital
5. Assessment of Working Capital Requirements
The estimated working capital requirement should be shown along the total cost
of the project.
6. Other Financial Aspects (Estimated) :
- Profit & Loss Account
- Balance sheet
- Cash flow statement
- Break-even Analysis
7. Economic and Social Variables
- Employment Generation
- Import substitution
- Ancillarisation
- Exports
- Local Resource utilization
- Development of the Area
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8. Plant Layout
A copy of plant layout can also be furnished in the project report.
PROJECT APPRAISAL
I) TECHNICAL APPRAISAL
Plant Capacity
Capacity depends on product specification, product mix and raw materials. In a
textile mill, capacity varies with the composition of yarn of different counts. Sugar mill’s
capacity depends on the sugar content of the cane so the plant capacity should be
calculated.
Integration
An integrated textile mill with cotton as a starting material is more profitable than
an unintegrated mill producing fabric from grey cloth. So integrated projects are
preferred.
By Product Recovery
In a caustic soda plant recovery of chlorine and hydrogen improve profitability
than a plant without recovering this. So projects with by-product recovery are prefered.
Flexible Production
Stand – by equipments help maintain uninterrupted production. Quantity &
quality of the output should be easily modified.
Plant Layout & Design
If should ensure ease of operation, maintenance and capacity of expansion.
Inputs
Availability, quality and price of the inputs should be stable. Instability of there
factors in power, water & agri produce will affect the output.
Location
Ideal location is close to buyers and suppliers with good infrastructure. The
plant should not pollute the location by smoke, effluent, noise and machine vibration.
II) ECONOMIC APPRAISAL
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Employment Effect
Direct and indirect employments of skilled & unskilled employees created by the
project is assessed. Direct employment refers the employment within the project.
Indirect employment means the employment on input side (suppliers & service provides)
and output side (sales, distribution, transport jobs) of the project.
Foreign Exchange Effect
Exporting units increases the inflow of foreign currency Import substitution units
reduces the outflow of foreign currency. Such projects are preferred.
Social Benefit
Some projects develops the infrastructure in its area. [Road, water, transport,
power, housing, hospital, school etc.] This improves long term income of the society.
But some projects by polluting the environment affects public health and reduces the
fertility of land. This affects long term income of the society.
III) FINANCIAL APPRAISAL
Simple rate of return
It is the ratio of expected net profit to the initial investment.
i.e. Net Profit / Investment
The rate should be more than the cost of capital.
Pay Back Period
It measures the number of years required to recover the investment.
Investment – Annual cash flow.
Projects with short pay back period is preferred.
Internal Rate of Return (IRR)
It is the rate of return on discounted future cash in flows.
The project break evens if the cost of capital = IRR
The project is profitable if the cost of capital < IRR
Eg. : Investment = 18,00,000
Annual cash in flow for 5 years = 5,70,000 p.a.
18,00,000 = + +.... +
Net Present Value (NPV)
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A project is accepted if the discounted future cash inflow exceeds the
investment.
Cost of capital if interest rate may be the discount rate
Eg. Investment = 18,00,000 at 12% interest
Annual cash for 5 years = 5,70,000
Present value of cash inflow = + .... + = 20,54,700
The present value exceeds the investment. So the project is acceptable.
Current Ratio
Indicates projects ability to meet short – term obligations.
Current ratio = Current assets / Current liabilities
Current assets should be 1 ½ times of current liability (ration 1 :5 :1).,
Debt. Equity Ratio
Indicates projects ability to meet long term obligation
Debt. equity ratio =
Debt. could be upto four time the equity (4:1)
Debt. Coverage Ratio
Indicates the ability to repay principle & unit regularly Ratio = operating profit
(Principle + Interest)
It is good if the operating profit is twice the principle + interest.
Break even pint (BEP)
Indicates how much should be sold to avoid a loss.
70% BEP means 70% of the products should be sold to avoid loss.
Project with low BEP is good.
IV) MARKET ANALYSIS
Market Potential
Unfilled potential
Number and strength of the present and potential competitors.
Existing and future substitutes.
Seasonal fluctuations in sales.
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Govt. support through reserving for SSI’s govt. purchase scheme, compulsory
purchase schemes.
Trends in earning, spending, price, life style.
Distribution – Distribution cost, distributers cooperation, mode of transport, ware
house etc.
If these are favourable the project may be selected.
CAPITAL
Capital decision involves
Total amount (capitalisation)
Composition (Fixed + working – capital structuring)
Sources
Procedure of rising capital
FIXED CAPITAL
Factors influencing fixed capital need
Nature of business – Manufacturing Assembling Trading
Size of business – Large ; small
Technology – Modern / Imported
Sub – Contracting provision
Economy – Growing - for future expansion.
Avoid
Over Capitalisation – investing more than the need Reduce profitability.
Under capitalisation – investing less. loose the sales
Sources
Equity Shares
Repayment on liquidation only
Dividend is optional
Capital gain for share holders.
Preference Shares
Dividend is fixed, compulsory & on priority basis.
Priority in repayment of capital while liquisdation
Redeemable / convertible options
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Debentures
Assured repayment & fixed interest Less risky than equity shares.
Interest is treated as expense benefit for the co.
Repayment is burden for the co.
Secured / unsecured / convertible options
Deposits
Like unsecured debentures
Term Loans
Repayable within 25 years with interest in installment
Minimum interest 10.75% p.a.
Owners margin money/security is insisted.
Repayment not compelled during
Total loan can be returned at any time.
Cost of raising capital is low
Repayment not compelled during gestation period
Total loan can be returned at any time.
Cost of raising capital is low.
Reserves & Surplus
Retained profit after divident, share premium are used por modernisation &
expansion.
Deferred Credit (or purchase)
Fixed assets are brought on credit basis.
Cost with interest is paid in installments.
Supplier demands margin money & bank guarantee.
Subsiding & Concessional loans by govt. in backward area
WORKING CAPITAL
- Short term assets required for daily operations
- Components of working capital (current asserts)
Inventories (Raw / Finished / work in progress)
Cash, Bank bl.
A/c receivable.
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Advances paid
- Permanent w.c. should be maintained at any time.
LESS CREDIT AVAILABLE ON PURCHASE AND AOWANCE PAYMENTS REC
WORKING CAPITAL IN BUSINESS OR LIQUID SURPLUS
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SICKNESS IN SMALL SCALE
INDUSTRIES
Definition of Sickness
- Basically a sick unit is one which is not healthy.
- Different views on sickness (Workers, Investors, Financial Institutions)
“According to Reserve Bank of India, a Sick Unit is one which,”
- incurs cash for one year and it likely to continue to incur cash losses for current
year as well as the following year.
- Imbalance in financial structure,
- Cumulative losses each capital and reserves.
“According to the Dept. Commissioner SSI,”
- Capital utilization is below 50% in compasion with highest capital utilized.
- Closure of the unit for a period of more than six months.
SIGNALS AND SYMPTOMS OF IND SICKNESS PROCESS OF I.S.
Industrial Units Functional areas Generating Profits
Initial abberation in functional areasTending towards
sickness
Functional areas incures continues
cash
Functional areas becomes in efficient
Industrial Units
Tending towards sickness
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Signals of SS
(i) Decline is capacity utilisation
(ii) Shortage or Liquid funds
(iii) Inventories in excessive Quantity
(iv) Frequent Breakdowns & equipments
(v) Frequent turnover of Personal
Synttonis of I.W
(i) Persisting shortage of cash.
(ii) Continues tumble in prices of shares
(iii) Delay & Default in the payment of statutory dues.
(iv) Degradation of employees
(v) Despination among the team.
Magnitude of I-S
- Unfortunately nine out or ten sick small locate units are non-viable
- A sick unit is viable when
It would be in a position after giving a package of concessions.
Duration of seven years will be given for the repayment obligations.
- Incidence or sickness is higher in the Industrially backward states.
Causes of Industrial Sickness
It can be classified into eastern causes and Internal Courses.
External Causes
(i) Cases in Indi policies of Govt. from time to time.
(ii) Lack of adequate Demand for the product
(iii) Natural calamities like drought, floods, etc.
(iv) Inadequate availability of essential inputs.
(v) Shortage of finance.
Internal Causes
(i) Lack of Good mgmt (in Funel Areas)
(ii) Poor implementation (Improper planning)
(iii) Labour trouble
(iv) Technical / operational problems [choices of technly]
(v) Marketing problems
Eg. : Saraswathi wollen mills pvt. Ltd.
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Consequences of Industrial Sickness
Is lead to several healthful effects.
Financial Loss
Banks & Financial institutions
Loss of Employment
Widospread unemployment in country
Industrial unrest
Strikes, and other forms of unrest.
Harm to Investment
I-S create Great Lots to Invstrs & entrepreneurs Er’s are discouraged &
trustrated.
Loss of Public Revenue
- Govt. gets a sixeable proportion of its revenue by way of taxes levied on
Industrial units.
- The shortage of tax revenue due to Industrial Units ultimately affects various
programmes of social and economic depart or the country.
REMEDIAL MEASURES
1. Identification and detection of sickness in earlier stage.
2. BIFR should open a separate division to deal with sickness in small scale
industries.
3. Improper Rehabilitation programmes have to be changed and improved. The
programme should also taks care or mgl efficiency, marketability, power and raw
material.
4. Having taken a decision to rehabilitee sick unit the programme should be
finalised quickly and implemented speedily.
5. The Banks and financial institutions should periodically review the account of
SSI’s.
6. EDP programmes have to be conducted periodically.
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M.B.A. DEGREE EXAMINATION, APRIL/MAY 2005
Third Semester
Elective
BA 048 – ENTREPRENEURSHIP DEVELOPMENT
Time: Three hours Maximum : 100 marks
Answer ALL questions
PART A – (10 x 2 = 20 marks)
1. Mention the different features of an entrepreneurship.
2. List out any four problems faced by small-scale industries in India.
3. Give the importance of project monitoring and control.
4. State the factors that motivate people to go into business.
5. List the various factors determining the working capital requirements.
6. What are the major aspects generally to be considered in the process of project
appraisal?
7. How do you select a suitable channel of distribution?
8. What are the common errors made by the entrepreneurs in project formulation?
9. Mention the methods of training imparted to entrepreneurs in India.
10. List out the methods of project appraisal used to appraise a proposed proposal.
PART B – (5 X 16 = 80 marks)
11. (i) Explain the essential qualities needed for a successful entrepreneurs. (8)
(ii) What are the objectives of Entrepreneurs Development Programs? (8)
12. (a) (i) List out and explain the different classification of entrepreneurs. (8)
(ii) List out and explain the tools and techniques of marketing control. (8)
Or
(b) What are the various factors affecting the entrepreneurial growth? Explain. (16)
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13. (a) How will you carryout project planning? Explain in detail. (16)
Or
(b) What are the salient features of new small-scale enterprise policy in India?
Explain?. (16)
14. (a) How are project classified? Describe the stages involved in the identification
and selection of projects. (16)
(b) List out and explain the guidelines formulated by our planning commission for
formulating a project report. (16)
15. (a) What are the causes of sickness in small scale industries and explain the
measures for avoiding sickness? (16)
(b) (i) Name the different organizations assisting small scale industries.
Explain. (4)
(ii) Assuming that you are an entrepreneur planning to set up an
establishment catering to every day provisions need of a large housing
complex. How would you solve your working capital requirements?
Explain. (12)
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BA1734 ENTREPRENEURSHIP DEVELOPMENT 3 0 0 100
UNIT I: ENTREPRENEURAL COMPETENCE 6
Entrepreneurship concept – Entrepreneurship as a Career – Entrepreneur – Personality Characteristics of Successful. Entrepreneur – Knowledge and Skills Required for an Entrepreneur.
UNIT II: ENTREPRENEURAL ENVIRONMENT 12
Business Environment - Role of Family and Society - Entrepreneurship Development Training and Other Support Organisational Services - Central and State Government Industrial Policies and Regulations - International Business.UNIT III: BUSINESS PLAN PREPARATION 12
Sources of Product for Business - Prefeasibility Study - Criteria for Selection of Product - Ownership - Capital - Budgeting Project Profile Preparation - Matching Entrepreneur with the Project - Feasibility Report Preparation and Evaluation Criteria.
UNIT IV: LAUNCHING OF SMALL BUSINESS 10
Finance and Human Resource Mobilization Operations Planning - Market and Channel Selection - Growth Strategies - Product Launching.
UNIT V : MANAGEMENT OF SMALL BUSINESS 5
Monitoring and Evaluation of Business - Preventing Sickness and Rehabilitation of Business Units.Effective Management of small Business.
Total 45 periodsTEXT BOOKS:1. Hisrich, ‘Entrepreneurship’, Tata McGraw Hill, New Delhi, 2001.2. P. Saravanavel, ‘Entrepreneurial Development’, Ess Pee kay Publishing
House, Chennai -1997.3. S.S.Khanka, ‘Entrepreneurial Development’, S.Chand and Company
Limited, New Delhi, 2001.REFERENCES:
1. Prasama Chandra, Projects – ‘Planning, Analysis, Selection, Implementation and Reviews’, Tata McGraw-Hill Publishing Company Limited 1996.
2. P.C.Jain (ed.), ‘Handbook for New Entrepreneurs’, EDII, Oxford University Press, New Delhi, 1999.
3. Staff College for Technical Education, Manila and Centre for Research and