Promotional functions denote a type of functions associated with promotional activities. Promotional activities are idea generation, scanning of best idea from among various alternatives, determination of objective, product analysis, assembling the requirements and financing the proposition.
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1. Discovery of an idea:
The first promotional function of entrepreneur is the conception of a new idea. He visualizes that there are opportunities for a particular type of business and it can be profitably run.
The idea may be to exploit a new area of natural resources or more profitable ventures in an existing line of business. He develops this idea with the help of technical experts in that field.
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If they are convinced that profitable avenues are available in that line of business then the idea is taken forward for more exhaustive analysis.
2. Detailed Investigation:
The entrepreneur will estimate total demand for the product. There may be certain concerns already in that type of business and so he will determine his share of demand. After determining the prospective demand for goods he will think of arranging finances for the venture.
The possible sources of finances are discussed in detail. The availability of power, labor, raw materials and machinery is also considered.
The cost structure of the product is analyzed to find out profitability from the venture. An expert opinion is sought of the viability of the project.
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The work of estimation becomes more difficult if the proposed line of business is new. The estimates should be based on proper analysis of different factors. A guess work creates problems later on.
3. Assembling the Requirements:
After making sure that the proposition is practical and profitable, the entrepreneur proceeds to assemble the requirements. He persuades some more persons to join hands with him by becoming directors of founder members.
If he has invented something new, he should get it registered in his name. He may also acquire some patent rights. The entrepreneur selects the factory site, decides about plant and machinery and contacts suppliers or raw materials, etc.
He does not purchase all these because it involves huge sums of money. Instead of going for outright purchase he uses option methods.
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The contracts are finalized by paying option money and the ultimate purchase is done only when the company is incorporated. If the company fails to come up, the entrepreneur only loses option money.
4. Financing the Proposition:
The entrepreneur decides about the capital structure of the enterprise. The requirements of finances are estimated first. Then the sources from which this money will come are determined.
How much share capital will be issued, the type of the shares to be issued, and the nature of loans, whether debentures or borrowing from financial institutions for a longer period all are finalized.
Generally commercial banks are helpful only in financing working capital requirements. The financial institution for a longer period. The financial requirements for short period and long period are estimated separately.