Unit 5: Mobilizing Resources (10 Lectures)
B.Com 3rd Sem CBCS Pattern
Mobilizing Resources for Start Up
Mobilization of resources is the mean to assemble, organize and procure the required resources for the successful establishment of an enterprise. Resources mobilization process is an essential part of a “New Business Development”. All kind of enterprise need resources, but the type, intensity and nature of resources tends to vary. Primarily, business resources can be categorized as:
1. Financial Resources: Financial Resources are the most important of all resources. Sufficient funds are prerequisite for acquiring other resources. Every entrepreneur, after assessing the availability of funds with himself, procures the remaining funds from outside. There are various sources available for procurement of funds such as:
– Long-term funds- Equity, preference, debenture, loans from financial institute, public deposit, etc. These are basically required to buy fixed assets and maintaining minimum working capital.
– Short-term funds- Trade creditors, commercial banks, customer advances, deposits, and borrowing etc. These are required to meet seasonal and cyclical variation for day to day expenses.
2. Human Resources: Human Resource is the next vital resource which facilitates the effective utilization other resources. It includes skilled as well as unskilled manpower. Procurement of right number and right type of people who will work for the enterprise is very essential. They must be chosen very carefully, as the success of any enterprise largely depends upon the quality of its human resource.
3. Physical Resources: After acquiring the necessary funds and arranging human resources the entrepreneur will procure physical resources like Land & Building, plant & machinery, furniture & fixture, raw material, etc. Every enterprise should design and develop a suitable procedure for procurement of physical resources depending upon the size of the firm, the type of material required, supply sources, etc.
4. Technology: Another significant resource to be mobilized is the technology which the enterprise intends to use. Procurement of technology or self-developing a technology is a very crucial decision for any entrepreneur. The new enterprise will be called an innovator or a laggard depending upon how seriously it has taken the innovation and disruption process. In case, the technology is to be procured from outside India then formal approval must be taken from Government of India under FDI policy and foreign technology transfer agreement.
5. Location: It refers to the location of the plant where the business unit will be set up. It includes main plant location, warehouse, packing unit, etc. It is essential for every entrepreneur to select the most suitable accommodation for his enterprise taking into consideration the various factors like nearness to the market and source of raw material, availability of labour, availability of various utilities, general climatic conditions, transportation cost, availability of water, and easy availability of skilled labour etc. Location decision holds an essential key to the success of an enterprise.
6. Utilities: Utilities are also an indispensable resource to be mobilized. These comprise of essential things which facilitate the smooth functioning of the enterprise. It includes water and gas supply, electricity, internet facility, telecommunication line, etc. Utilities must be timely procured, as in their absence even the best enterprises will not be able to function efficiently.
7. Market: While mobilizing resources, market is also one of the crucial aspects which should not be missed. Once all the above said resources have been procured, the entrepreneur should not identify the market he intends to cater. The market segment must be carefully chosen after taking into consideration all the essential factors like nature of product, customer base, competition etc.
Preliminary Contracts and Parties to Preliminary Contract
Preliminary contracts are the contracts entered into by the entrepreneur before the formal commencement of the enterprise to bring it into running mode. They are also called pre-incorporation contracts and are usually entered into by the promoters of the enterprise/company for acquiring some property or right for the company which is yet to be incorporated. Usually an entrepreneur enters into the preliminary contract with the following parties:
1. Vendor: Vendor refers to the people from whom the enterprise purchases its various assets and raw material. A contract to purchase the agreed assets and material before the commencement of the enterprise are called preliminary contract with the vendors. An entrepreneur must ensure that the contract with the vendor clearly communicates the term so as to avoid any confusion regarding terminology, performance expectation and service content. He should also review the contract time and again to ensure its timely execution.
2. Suppliers: Refers to the person that supplies goods and services. He is different from the contractor who usually adds inputs to the deliverables. They are usually the people who supply basic utility and services like power, water, telephone, internet and raw material etc. An entrepreneur after deciding to do business with the supplier must document the terms of trade in a written contract covering the issues like- supply condition, ordering and delivery period, payment terms, etc. This written formal document is called the preliminary contract with the suppliers.
3. Financial Intermediary and bankers: The most common financial intermediary is the bank which provides funds to the new enterprises for fulfilling their financial needs. Preliminary contracts with bankers are the contracts entered to acquire the initial funds for formal establishment of the enterprise. Finance being the most critical part of business, the contracts with the bankers must be entered very carefully to avoid any unwanted financial setback. The terms & conditions of the contract must be duly signed by both the parties in the well drafted written agreement.
4. Principal Customers: These are customers who have approved to become the buyer of the products once the enterprise is established. All the contracts entered with these initial customers are called preliminary contract. These contracts comprise of the terms & conditions regarding the purchases, type of goods, nature and quality of goods, quantity of goods, price and delivery options.
Contract Management is the management or the administration of the contracts. It is the process of systematically and efficiently managing the contract creation, execution and analysis for the purpose of maximizing financial and operational performance and minimizing risk. An entrepreneur must realize the contracts are the foundation for all business activities and require the proper management. With the enterprises becoming more global, transparent and functionally diverged, the contract management has become a significant instrument in allowing enterprises to fulfill their organizational goals. Most of the businesses have smoothly transitioned to cloud computing, with many even going for paperless conduct of their operations. The contract management has evolved so much so that traditional lengthy contract documents have been replaced with precise e-forms which offer the option of signing of contracts online as well. .
Elements of Contract Management
The contract management’s aim is to meet the operational, functional and business objectives required by the contract and provide a profitable interaction. This involves carrying out of the key contract management activities which are as:
1. Contract Initiation: It is the formal recognition of the fact that a contract is required along with the identification of the parties with whom to enter into contract. This is the first step from where the contract management begins.
2. Negotiation: It refers to conciliation between the parties to arrive at an acceptable conclusion. This is the second step in the contract management which determines the terms and conditions of the contract.
3. Contract Approval: It means the final agreement of both the parties over the acceptable terms and conditions to give the formal shape to the contract. This brings the contract into existence.
4. Contract Execution: It is the actual implementation of the agreed terms and conditions of the contract which ensures correct execution.
5. Contract Analysis: This is the final step in contract management involving careful investigation of the executed contract. This evaluation will reveal the areas which require modification and amendments.
Accommodation and Utilities
1. Accommodation: Accommodation refers to the location of the business enterprise. Every enterprise must carefully select the most suitable location for its business operations as it is the place which will give identity to the enterprise. It connotes to registered office, branches, warehouses, factories, packing units etc.
The following factors must be considered carefully at the time of selection of location.
- Rates of land/office space
- Nature of operation (retail store, super mart, etc.)
- Availability of raw material
- Accessibility to market
- Availability of skilled labor
- Prevailing wage rates
- Transportation and communication facilities
- Road connectivity
- Climatic conditions
- Availability of fuel, power, electricity, water, gas pipelines etc.
- Possibilities of expansion
- Convenience of parking
2. Utilities: Utilities refers to the essential convenience services necessary for making the business function efficiently. Their purpose is to facilitate the smooth operations of the business enterprise in addition to ensuring safety and efficiency at workplace. The utilities required by the new enterprise depend upon the size of operation and the nature of business. However, the common utilities required by almost all sort of enterprises are:
- Water: Water is the first necessity for any business. Clean, pure and undisrupted water supply must be secured by every enterprise. • Sewage: Every enterprise must install a proper septic tank and connect it to the drainage system by having proper sewage plan.
- Trash Service: Enterprise must arrange for proper trash management and ensure its direct transportation to the closest landfill.
- Telecommunication: This includes telephone, cable TV, internet etc. An entrepreneur can either buy it as a package or procure individually.
- Electricity: It involves making proper arrangements for securing undisrupted power supply.
Basic Startup Problem
Startup problem refers to the initial teething problem faced by new enterprises during their start up phase. Opening a new business can be an exciting and passionately rewarding experience but on the other hand it can be quite a complicated and challenging job. A prior knowledge of possible challenges helps the entrepreneur in handling the situation better and avoiding the common pitfalls. Following are the basic start up problem encountered by entrepreneurs:
- Issues related to the feasibility of the idea in terms of its practical viability.
- Issues related to obtaining of various licenses and approvals.
- Non availability of required funds and resources.
- Inadequate skilled manpower for carrying out operations.
- Non availability of suitable location where the business operations needed to be carried out.
- Insufficient infrastructure causing hindrance in the smooth functioning of the business.
- Local regional problems disrupting the commencement of business.
- Lack of knowledge and insufficient understanding about contract management.
- Compliance issue regarding issuing stocks to angel/family and friends.
- 10.Tax and tariff complications.