Entrepreneurship: the word is derived from the French word ‘Entrependne’ and Schumpter’s innovation theory: John Schumpter
ohn Schumpter an economist was the first to
the German word ‘Uternchmen’ both of which refers to individuals who are
undertakers i.e. who can undertake ‘risk’ by setting up a new enterprise. They are
contractors who bear the risk of profit as well as loss. They are soldiers of fortune,
adventurers or merchants.
Benefits of Entrepreneur: 1. provides opportunities for self expression and
realization of one’s own passion of doing something new and different. 2. Offer
opportunities for growth and self development. 3. Monetary rewards are more. 4.
he has the power of decision making. 5. Rewards of working for oneself is highly
satisfying and motivating. 6. Contributes to the development of the community as
one generates employment for others. 7. Entrepreneur initiates and constitutes
change in the economic development and structure of business.
Characteristics ENTPSHP: 1. Hardworking 2. Desire for high achievement 3.
Highly optimistic 4. Independent 5. Have excellent foresight 6. Good organizers 7.
Innovative 8. Excellent communication skills 9. Excellent technical knowledge 10.
Have very clear objectives 11. High risk taking capability.
Types of risk faced by entrepreneur: 1. Financial risk 2. Family and social risk 3.
Career risk 4. Psychological risk.
Roles of entrepreneur: 1. Combining factor of production 2. Risk acceptance. 3.
maximizing shareholders’ return 4. Using market information for opportunities.
Steps in the process of entrepreneurship: 1. Identifying opportunities 2.
Establish vision 3. Persuade others 4. Gather resources (Capital, land and
manpower) 5. Organize these resources to develop new product 6. Create the
product 7. Adapt according to market changes.
Difference between Entrepreneur and Entrepreneurship:
Entrepreneurship: 1. process 2. organized form of initiation 3. risk taking activity 4.
innovative process 5. crux of leadership 6. decision making activity 7. planning
process of a new enterprise 8. Result of a vision 9. initiating activity of setting up
an enterprise.
Entrepreneur: 1. person 2. organizer 3. risk taker 4. innovator 5. leader 6. decision
maker 7. good planner 8. a visualize 9. initiator.
Types of entrepreneurs: 1. Based on ownership {a. Pure entrepreneur b. Second
generation business owned entrepreneur c. Franchisee d. Owner manager} 2.
Based on personality Traits {a. Personal achievers b. Induced entrepreneurs c.
expert idea generators d. Real manager e. Real achievers} 3. Based on type of
business {a. Business enterprise entrepreneur b. Trading entrepreneur c.
Industrial entrepreneur d. corporate entrepreneur e. Agricultural entrepreneur} 4.
Based on use of technology {a. Technical Entrepreneur b. Non-technical
entrepreneur} 5. Based on Motivation {a. Pure entrepreneur b. Induced
entrepreneur c. Spontaneous entrepreneur d. motivated entrepreneur} 6. Based
on growth {a. Growth entrepreneur b. Super-growth entrepreneur}7. Based on
stages of development {a. First generation entrepreneur b. Modern entrepreneur c.
Classical entrepreneur d. Women entrepreneur} 8. Other kinds of entrepreneurs
{a. Innovative entrepreneur b. Initiative entrepreneur c. Fabian entrepreneur d.
Drone entrepreneur}
Entrepreneurial motivation: The term motivation has been derived from the word
‘motive’ which means drive i.e. motivation is the drive and efforts to achieve goals.
There may be several reasons as to why an entrepreneur may undertake risk and
start a new enterprise. It may be financial scarcity, family or social status, or
dissatisfaction from present life. Classifying entrepreneurial motivation according
to Maslow’s need theory, they would fall in the category of the higher order
needs (sociological, esteem and self actualization needs) but this does not mean
that the lower order needs of physiological and safety needs don’t contribute to
entrepreneurial motivation. If we categorize the same in McClelland’s theory of
needs, the entrepreneur would generally be labeled as an individual with a high
need for achievement, moderate need of power and low need for affiliation.
Researchers have pointed out varied ranges of entrepreneurial motivation like
need for achievement, dissatisfaction from present job, work and family situations
etc. but most of them have agreed that need for achievement is the most important
motivation for an entrepreneur.
Objectives of Government policy measures: 1. create immediate employment
opportunities on a massive scale at low cost. 2. to meet the demands of the
customer by producing simpler goods at low cost. 3. help in modernization of
resources which may otherwise remain unutilized. 4. helps in increasing the
income and the standard of living of village entrepreneurs. 5. to make export
orientation of small industries and help in export promotion.
Industrial policy measures: 1948: supported deve of cottage and SSI and played
a big role for overall development of country. advocated that healthy expansion of
cottage and SSI depends on a number of factors like provision of raw materials,
cheap power and labor, technical advice and organized marketing of products.
1956: it supported development of cottage and SSI by restricting the volume of
production, differential rates of taxation and exercising direct subsidies. 1977: It
supported development of cottage and SSI and their promotion and dispersal in
small towns and rural areas. Industrious centers and tiny industry sectors were
established. 1980: objectives: 1. Deve and boosting of economy. 2. Making steady
flow of capital to SSI. 3. Encouraging markets to satisfy the needs of customers. 4.
Creating various provisions for subsidies and facilities to SSI units. 5. Organizing
appropriate training programs to strengthen the quality of entrepreneurs. 6.
Providing preferential treatment for industries in backward regions. 1990: It was
established for creating agro-based small industries in particular. Major objectives:
1. explore employment opportunities by promotion of SSI in backward regions. 2.
disperse fruits of industries in rural areas order to improve quality and standard of
living. 3. enhance the export feasibility of nation. For this purpose a new scheme
known as the central investment subsidy was introduced exclusively for SSI unit.
1991: it was announced by the government of India to promote and develop tiny
industries. essence of this policy lies in the growth of small sector with special
reference to village and cottage industries. The major objective of the policy was to
make easy provision of funds by simplifying the credit plan of nationalized banks.
Relevance of EDP: 1. EDP proved that entrepreneurs can be made and are not
born. 2. EDP are expected to bring about economic and social change in behavior
of entrepreneur. 3. EDP can convert ordinary persons to risk takers, innovators
and above all business leaders. 4. EDP can develop individuals to become the
economic leaders upon whom the economic wellbeing of the society depends. 5.
helps the people sense innovativeness and as a result the trainees are expected
to produce things that common people have never dreamt of. 6. helps the
entrepreneurs create conditions for env improvement. 7. EDP are expected to
create the sense of social responsibility in the minds of budding entrepreneurs.
put human agents at the centre of the process of economic development. To him
an entrepreneur is an ‘innovator’ i.e. he has the potential to do things in a new way.
This economic development is not a spontaneous or automatic process. It must be
deliberately and actively promoted by some agency within the system. According to
Schumpter, there are five different ways to act as an entrepreneur: 1. Introduction
of better quality or new product or services. 2. Introduction of new production
technology. 3. Discovery of new market. 4. Discovery of new sources of supply of
raw materials. 5. New form of organization structure in industry. -- The
entrepreneur provides leadership. By nature, he is neither a technician nor a
financer. Entrepreneurship is not a profession nor it is the permanent occupation.
Psychologically entrepreneurs are not motivated by profits or rewards. The profits
come out of the economic progress. Such kind of entrepreneurs are mostly
motivated by the desire to establish a personal kingdom and the will to conquer.
Criticism: 1. Conceived in the context of industrial revolution. 2. Modeled on big
private enterprises and not applicable to developing countries.
McClelland’s need for achievement theory: David McClelland an American,
psychologist in 1960 gave the concept of need for achievement. It is the need for
achievement (also known as n-Ach) which provides drive to the entrepreneur to set
up a new enterprise, to achieve goals or targets, to innovate, to identify problems
and opportunities, to take risk and most importantly to run the business
successfully. The entrepreneurs strive for personal satisfaction rather than profits
or rewards. They have a desire to do something new or something of better quality
that has been done before, high achievement differentiate themselves from others
by their desire to do something better, they seek situations where they can attain
personal responsibility for finding solutions to the problems. High achievers are not
gamblers. They take up reasonably challenging goals. They dislike succeeding by
chance rather they like to take calculated amount of risks, they prefer the challenge
of working for a problem and accepting personal responsibility for success or
failure, rather than learning outcomes to chances or action of others.
R. A. Sharma categorized the factors that motivate entrepreneurs into two types: 1.
Internal factors: a. Desire to achieve something. b. Educational background. c.
Experience. 2. External factors: a. Government assistance and support. b. Easy
availability of raw materials and cheap labor. c. Encouragement from big business
houses. d. Promising demands for the product.
Hoselitz’s theory of entrepreneurship based on managerial skills and
leadership: According to him, a person desirous of becoming an industrial
entrepreneur, must have additional personality traits extending beyond a desire to
gather wealth in addition of being motivated by an expectation of profit. He must
have managerial and leadership abilities. Financial skills have secondary role.
There are 3 types of business leaders (merchant money lenders, manager type
leader, entrepreneur type leader).
Harbison’s theory of entrepreneurship as an organization building function:
According to F. Harbison, organization building is the most important and critical
skill needed for industrial development. Entrepreneurship is the skill which is
essential to build an organization. The crux of entrepreneurship consists in the
ability to multiply oneself by effectively delegating responsibilities to others, he lays
more emphasis on managerial skills and creativity and harnesses innovative ideas
for use in organization. To him, entrepreneur is an organization builder and if
organization is absent, it cannot stimulate economic growth.
Entrepreneurship and economic growth / development: economic development
of any region is the outcome of purposeful human activities. According to
Schumpter, the economic development consists of employing resources in a
different way bringing in new factors of production or combination of the factors.
The entrepreneur looks for innovative ideas and puts them into effect for economic
development. The entrepreneur occupies a crucial place in the process of
economic development by acting as a trigger head to give spark to economic
activities. Some of the development activities are as follows: 1.increase in the
income. 2. Brings change in the structure of business and society. 3. Wealth
creation. 4. New products, services and business. 5. Generation of employment. 6.
Increase in the standard of living.
Entrepreneurial development program (EDP): it is designed to help a person in
strengthening and fulfilling his entrepreneurial motives and in acquiring skills and
capabilities necessary to play his role effectively and efficiently.
Entrepreneurial development in India: Stage 1 (emergence of entrepreneurial
classes; pre-independence period): During British era, large portion of India
consisted of villages which were self sufficient. The villages and economy were
constituted by farmers, craftsmen and gram-panchayats. They produced various
products and provided services. They represented the culture and possessed the
characteristics of an entrepreneur. The barter system mainly prevailed in the
economy. The art, sculptures, crafts, textile, spices and minerals attracted world-
wide attention. Village craftsmen used to receive patronages from kings for their
work. Exports of these were also done throughout the world. Stage 2 (Decline of
entrepreneurship during the British rule; pre-independence period): During this
period, Indian entrepreneurship received a huge blow because of the
mechanization in the British industries which initiated the industrialization process
in Britain. Moreover, the British industries that required raw materials were supplied
by India. The raw materials received from India were then converted into machine
made cheap products that flooded the Indian markets pushing out the handmade
(more expensive) products which contributed in the complete destruction of the
Indian handicraft industry. Stage 3 (Post independence growth of
entrepreneurship): Post independence, the Indian economy was full of interesting
developments in the field of entrepreneurial development. It was conditioned by
various economic, social and political factors. The industrial policy (1947)
introduced government’s help in starting, supporting and maintaining small and
medium scale industries.
Objectives of EDP: 1. promote development of small and medium scale industries
that encourages self employment among potential entrepreneurs. 2. To provide, in
the rural areas, special programs designed to stimulate new ventures and
encourage expansion of existing activities of small and medium scale industries. 3.
generate employment and self employment opportunities in the society. – These
objectives focused to help achieve the following objectives: 1. Develop and
strengthen their quality and motivation. 2. Analyze environment related to small and
medium scale industries. 3. Select the project or product. 4. Formulate the projects.
5. Understand the procedure of setting up of small and medium scale industries. 6.
Acquire quality management skills.
Libenstein’s gap filling or input completing theory: theory was postulated in
1968. He identified two broad categories of entrepreneurial activities: 1. Routine
entrepreneurship: it is associated with the managerial functions of the
entrepreneurs. 2. New entrepreneurship: Schumpter’s kind of innovation.
Entrepreneurship consists of filling gaps in knowledge about the production
function. The gaps here represent deficiencies. The gap in production function
exists because some of the inputs like leadership and motivation are vague in their
nature. Hence, the output cannot be exactly measured. The entrepreneur moves
for work to fill up these gaps. His function is input completing. According to
Libenstein, entrepreneur is an individual or a group of individuals having these 4
characteristics: 1. Establishment of connection between different markets. 2.
Capability to identify and make up the market deficiencies i.e. gap filling activities.
3. Input completion. 4. Creation or expansion of inputs transforming entities like
business firms. The supply of entrepreneurs is governed by: 1. Input completion
capacity. 2. Motivational capacity. 3. Investment criteria. 4. Training.
Hagen’s theory of entrepreneurship as a function of status withdrawal:
Everett Hagen considered the process of change in a society as transition to
economic growth on the basis of the analysis of traditional societies. He
discovered that the position of authority is based not on ability but on status.
Persons of status in societies have authoritarian personalities. Since traditional
societies are stable, strong forces are needed to disrupt them. According to
Hagen, such disruption is necessary for the emergence of creative personalities
such kind of personalities emerge when members of social group experience
status withdrawal i.e. displacement from their established positions by some other
groups. On account of displacement of status, the affected group may give any of
the following responses: 1. Ret realism: the group continues to work in the society
but remains indifferent to its work. 2. Ritualism: the group develops defense
mechanism and begins to act with the ways acceptable to the society but without
the hope of improvement. 3. Reformism: the group develops rebellion power and
attempts to establish a new society. 4. Innovation: The group members focus on
creativity and develop the possibility of setting up a new enterprise.
Hagen’s works are based on experiences of the back ward areas of Asia and Latin
America, hence, in his theory he has identified status withdrawal to be the prime
factor of becoming an entrepreneur.
Max Weber’s theory of entrepreneurship as a function of religious beliefs:
Max Weber analyzed religion and its impact upon the enterprise culture. The spirit
of capitalism is a set of attitude towards acquisition of money and the activities
necessary to achieve the goal. This spirit of capitalism can be generated only
when mental attitude of the society is favorable to capitalism. Such an attitude is
prevalent in the society and professional culture as well as protestant culture but
had been singularly absent in Hinduism culture with its belief in karma and
immunity to external values and influences. The spirit of capitalism infuses beliefs
which lead to systematic and intensive exertion in occupational pursuits and
systematic ordering of means and documentation of assets. The Hindu ethical
ideas are more directed towards individuals than the society as a whole.
Criticism: Tripathy has criticized Weber’s theory and assumptions as simplistic.
Hinduism according to him is a collective name for many beliefs. Rapid growth of
entrepreneurs in India after independence is a proof that Hinduism is not averse to
the spirit of capitalism and that Weberian model is inadequate for explaining
entrepreneurship in Indian context.
Role of EDP: A. Stimulatory Roles: 1. Entrepreneurial education. 2. Publicity for
identifying opportunities. 3. Identification of potential entrepreneurs through
various scientific methods. 4. Motivational training for new entrepreneurs. 5.
Guides in selecting products and project report formulation. 6. Availability of local
professional agencies with trained personnel for training and development of new
entrepreneurs. B. Supporting Roles: 1. Registration of units. 2. Arranging sources
of finance. 3. Providing factors of production. 4. Guidance for selecting and
identifying suitable machinery. 5. Supply of scarce raw materials. 6. Providing
common facilities. C. Sustaining Roles: 1. Helps in modernization. 2. Helps in
diversification or expansion. 3. Helps in assisting with additional finance for
sustained growth of enterprise. 4. Help in maintaining quality through Total Quality
Management (TQM). D. Socio-Economic Roles: 1. Augmenting or introducing the
qualities of a person to become an entrepreneur. 2. Providing and utilizing raw
materials for building entrepreneurship. 3. Helps in regional development. 4.
Creating employment opportunities in small scale industries. 5. Ensuring equal
distribution of national income and wealth in different regions.
Entrepreneurship development institutions: A. NIESBUD (National Institute for
Entrepreneurship and Small scale Business Development): Location: New Delhi.
Activities: 1. Helps in evolving model syllabus for training several groups. 2.
Provides effective training strategies, methodologies, tools etc. 3. Helps in
conducting training programs for trainers and entrepreneurs. 4. Helps in
supporting and facilitating central and state government institutions. 5. Help in
developing entrepreneurial culture in the society. B. EDII (Entrepreneurship
Development Institution of India): Location: Ahmedabad, Gujarat. Activities:
1.conducts research, training and institutions building activities for encouraging
participation of backward regions and special target groups in entrepreneurship. 2.
Its EDP consists of: a. Practical training and work experience. B. Identifying and
selecting potential entrepreneurs. C. Product selection and project report
formulation. D. Training for motivation. E. Business management training. The
program run by EDII is said to be the largest, most comprehensive, organized and
successful EDP in the country. C. NISIET (National Institute for Small Scale
Industry Extension and Training): Location: Hyderabad. Activities: 1. impart
training to the persons engaged in small industry service institute sector. 2.
undertake EDP and MDP for entrepreneurs. 3. undertake research studies relating
to small scale industries. 4. provide small and medium scale enterprises. Conducts
short term courses in business management, industrial management,
management services and export management for benefit of entrepreneurs and an
enterprises as a whole. D. Small Institute for Service Sector Industry: Location: 28
offices across country. Activities: 1. Provide assistance to trade related activities.
2. undertake consultancy services. 3. Helps prepare projects and profit report for
SSI. 4. Organizing various EDPs and MDPs.
Linkage of innovation and creativity on entrepreneurship: innovation is
different from invention and invention is the discovery of new methods whereas
innovation is the utilization of invention to produce better quality of products. The
importance of innovation and creativity has risen from the increased competition
amongst the corporates. Successful entrepreneurs are realizing that creativity,
innovation and implemental value addition are necessary ingredients to survive in
the rising competition. (Now write Schumpter model)
Difference between Entrepreneur and Manager:
Entrepreneur: 1. undertakes the combination of resources to introduce change in
production. 2. launches a new enterprise, main function is to change the factor
combinations to increase productivity and profits. 3. takes calculated risks by
defining and confining risk. operates in uncertain environment and gains are also
uncertain and irregular. 4. Profits constitute the rewards of an entrepreneur (Profit /
loss). 5. Innovation is the essence of entrepreneurship. It consists of bringing about
changes in the factor combination to maximize profits. 6. skills are different from
manager (innovator, creator and capable risk taking. 7. a relatively independent
person who owns the enterprise.
Manager: 1. combines the resources to produce. 2. operates in an enterprise and
deals with the daily affairs. 3. has a low risk taking tolerance. does not participate in
uncertainty. Failure means little more than looking for a job. 4. gets his reward as
fixed and regular remuneration. rewards are never negative. 5. main function of
manager is to translate the entrepreneur’s idea into practice, he simply executes
the ideas prepared by the entrepreneur. 6. they are professionally trained persons
who apply conceptual skills and theories for running enterprise. 7. He is a salaried
employee who works under the instructions of the entrepreneur.
Innovation: Innovation is the successor of creativity. When a series of actions and
thoughts which create new ideas are given the shape of a physical objective or
service, the action is called innovation.
Types: 1. Invention 2. Extension 3. Duplication 4. Synthesis.
Internal and External sources of innovation: 1. Unexpected occurrences. 2.
Incongruities. 3. Process needs. 4. Demographic changes. 5. Market changes. 6.
Knowledge based concepts.
Creativity: it is the process of developing a new or original product, service or idea
that makes a socially recognized contribution, hence creativity is the ability to bring
something new into existence.
Stages of creativity process: 1. Inception 2. Preparation 3. Incubation 4. Idea
generation 5. Idea validation 6. Outcome assessment.
Intrapreneurship: It refers to the entrepreneurial activities that acquire
organization’s sanction and commitment of resources for the sole objective of
innovative results. It aims at boosting the entrepreneurial activities and spirit with
the limits of the organization. Thus creating a development oriented environment. It
centers around restructuring and reemergence of the firm’s capacity to develop
innovative skills and new ideas.
Characteristics: 1. They bridge the gap between the investors and managers.
They like new ideas and turn them into profitable ventures. 2. They have proper
vision and courage to accomplish what they think. 3. They can imagine what
business realities will follow from the way customers respond to their innovations.
4. They have the ability to plan necessary steps for the actualization of their ideas.
5. They have high need for achievement and can take moderate calculated risks.
Business plan: it is an outline of business which deals with all the aspects of the
business such as finance, assets, staff, products and services, market etc. it guides
the entrepreneur by identifying and solving suitable problems and is also used in
finding applications. A business plan sets out how the owner of the business
intends to achieve his objectives.
Functions: 1. Enables the entrepreneur to think through the business in a logical
and structured way and sets out the stages in the achievement of the business
objectives. 2. Helps the entrepreneur to plot, progress against the plan. 3. Ensures
the resources needed to carry out the plan. 4. Ensures that the entrepreneur has
gone through the crucial aspects of the venture. 5. It is a means for making all the
employees of the business aware of their function. 6. It is an important document
for discussion with prospective investors and leaders of finance. 7. If the
management intends to start a new phase of growth, the business plan is an
important tool to articulate the activities with the ideas alongside suitable manpower
in the place.
Project: a project is a course of planned actions intended or considered for
implementation. It is a scheme to be performed within a definite time and estimated
cost.
Characteristics: 1. Diversity in actions. 2. Planned activities. 3. Management. 4.
Profitability. 5. Controlling. 6. Transferability of resources.
Sources of business ideas: 1. Present and potential customers. 2. Existing
companies. 3. Raw material providers. 4. Distributors and retailers. 5. Researchers.
6. Existing employees.
Factors in preparation of project: 1. Environmental protection. 2. Economy in
production. 3. Objective orientation: A. upgradation and optimum use of available
technology. B. removal of poverty. C. generation of massive employment
opportunities to create higher purchasing power and raise the standard of living. 4.
Adequate provisions: A. use of non-conventional energy. B. good quality of control.
C. safety and protection in operation. D. Consideration of water. E. Use of natural
gas and coal. F. partial replacement of old or obsolete plant and machineries. G.
better production system. H. Renewal of existing plant and machinery. 5. Social
welfare.
Objectives of a successful project report: 1. A project should be appropriately
arranged with an executive summary, a table, of contents and its chapters in the
correct order. 2. A project report should have an impressive and bright attractive
appearance. 3. It should give a sense of what one and his company wants to
accomplish. 4. It should explain in qualitative and quantitative terms the benefits to
the user of the company’s products or services. 5. It should provide hard evidence
of the marketability of the company’s products and services and also should justify
financial means and channels of selling the product. 6. It should describe the
manufacturing and operating process and its process and its associated cost. 7. It
should portray the management as an experienced team with appropriate business
skills. 8. It should contain believable financial projections with the key data and
documentation.
Project feasibility study/report factors: 1. Applicability of the project. 2.
Applicability of new products and services. 3. Technical application of the project.
4. Effectiveness or profitability of the project. 5. Financial viability of the project. 6.
Marketability of the products and services. 7. Cost effectiveness of the project. 8.
Social adaptability of the project. 9. Ecological adaptability of the project.
Sources of Finance: 1. Debt. 2. Equity. 3. Other sources: i. Internal sources: A.
Retained profit. B. Controlling working capital. C. Sale of assets. D. Owner’s
personal savings. E. Reducing stock. F. Trade credit. Ii. External Sources: A.
Debentures. B. Share issues. C. Commercial banks. D. Venture Capital.
Project Feasibility study: the most important elements in the project feasibility
study are: 1. Market analysis. 2. Technical analysis. 3. Financial analysis.
Market Analysis: conducted for the following reasons: 1. to estimate the
aggregate demand of proposed product or services. 2. estimate the mkt share of
the proposed product or service in the future.
The demand analysis and mkt share are the important facts of mkt analysis. These
are based on number of factors like consumption pattern, availability of substitute
products or services, type of competition etc. Steps to conduct mkt analysis: 1.
setting objectives for mkt feasibility: first step of mkt feasibility analysis where a
preliminary comprehensive discussion with retailers, distributors, suppliers and
consumers are needed to answer all the basic questions. 2. collection of primary
data: primary data are those which are directly collected from the field of enquiry. It
is generally undertaken through mkt survey (census / sample survey).
Entrepreneurs must perform the research on mkt survey effectively and efficiently
as it is very crucial and important for preparation of feasibility report.
Technical / Operational Analysis: It is done to assess the operational ability of
the proposed business enterprise. The cost and availability of technology is of
critical importance to feasibility of the project. It collects data on the following
parameters: 1. material availability (availability of quality and quantity, factors on
which availability depends, price sensitivity, time of transfer of material from
source). 2. material requirement planning. 3. plant location. 4. analysis of the
choice of technology.
Financial analysis: it is undertaken to assess the financial issues of proposed
business. Following cost estimates have to be done: 1. cost of land and building.
2. cost of plant and machinery. 3. preliminary cost estimation to assess the
quantity of capital required. 4. working capital expenses required for running the
business. 5. estimates of the cost of production which includes raw material, labor
costs, power, fuel, water etc.