Business Objects deals with databases, for every universe you need to specify a database connection. flat files dont have the database format so you'll need to convert them into some database. to do that, you will need to write a procedure which will read data from flat files & relate it according to surrogate keys, then using that procedure populate the database & then use that database for the source of the universe.

using flat files ONLY , you can not create universe. because there is nothing as database connection available for flat file.