Solution:

The failure of new enterprise and visible problems for business may be traced to the following errors/oversights:

• (1) Lack of managerial experience or poor knowledge of the particular line of production.

• (2) Poor accounting system which results in non-availability of basic data necessary for decision-making.

• (3) Wrong/inadequate estimate of cash requirements or faulty capital planning/ budgeting.

• (4) Lack of knowledge about tax-related matters.

A brief explanation of these factors is given below :

(1) Lack of Managerial Experience:

• The new entrepreneur should have all round knowledge about the various aspects of management. He has to bear in mind the fact that he cannot afford to employ experts/specialists for various specialized jobs.

• Hence, he has to be an all-rounder in management or his job is a multifaced one. As an all-rounder he must look after:

• (a) What, how and when to produce;

• (b) Marketing of the products manufactured;

• (c) Accounting systems; and

• (d) Finance.

• The owner of a small scale industry should be well-versed in all these areas.

• If he fails in one of these areas, that is enough to give him heavy losses, which will result in the failure of the enterprise.

• A technocrat may give much emphasis on technical aspects, but ignore marketing etc.

• Similarly, one who is well experienced in sales may give undue importance to marketing, but ignores technical aspects.

• So what is required is a good knowledge about all the aspects of production, marketing, accounting and finance.

(2) Poor Accounting System :

• A good accounting system would provide information regarding costs, gross margin, ,break-even point etc.

• which are highly useful for decision-making. In the absence of proper accounting data, decision making would be difficult and the decisions made would not give the desired effect.

(3) Inadequate Estimate of Cash Requirement :

• A proper estimate of cash, requirements will help the proper functioning of the enterprise.

• A new enterprise feels cash crunch when,

• (a) production does not reach optimum level

• (b) production is below the break -even point,

• (c) it fails to create and increase the demand for the product/services.

• All these factors result in the depletion of cash very easily. This is because the time required for these has been calculated wrongly.

• Delay in any one of these activities means more cash requirements.

• Hence the entrepreneur has to estimate the time and also how a month-by- month delay in starting the project would proportionately increase the capital requirements.

• Costs escalate with the passage of time, therefore calculations have to be made in advance taking into account the capital requirements by taking the time factor.

(4) Lack of Knowledge about Tax Related Matters :

• The entrepreneur must make himself aware of the provisions relating to income-tax and sales tax.

• He must pay special attention to sales-tax laws and regulations - especially obtaining sales tax registration at the appropriate time, filing tax returns regularly etc.