STARTING A BUSINESS : BASIC FACTORS
The complexities of business have increased manifold. Various human, physical and financial resources are assembled to start a business enterprise. The success of a business depends on the ability of the entrepreneurs to anticipate problems and to solve them. An entrepreneur has/ to consider various factors before starting a business. Some of the key factors are as follows:
1. Selection of Line of Business: The first thing to be decided is the nature and type of business activity, which the entrepreneur wants to start.
This decision is influenced by the customer requirements in the market, kind of technical knowledge required, interest of the entrepreneur, etc.
• Entrepreneur aims to start that branch of industry and commerce, which could generate maximum profits with minimum possible risk .
2. Size of the Firm: After selecting the line of business, the entrepreneur has to decide the size of business, i.e whether to set up large scale or small scale business.
• It depends on number of factors like availability of finance, competence of the entrepreneur, market conditions, etc If the entrepreneur expects good demand for the proposed product and he can arrange required capital and other resources, then he may go for large scale business.
• However, if the market conditions are uncertain and risks are high, then a small size business is preferred)
3. Choice of Form of Ownership:After deciding the line and size of business, the entrepreneur has to decide the form of business, i.e whether to set up sole proprietorship, partnership or joint stock company .
Each form has its own merits and demerits. This decision depends on several factors such as capital requirements, liability of owners, division of profit, legal formalities, etc.
5. Location of Business Enterprise: Another important factor, which the entrepreneur must consider at the start of the business, is to decide the place where the enterprise will be located.
• Appropriate location influences the costs, profitability and growth of the business Any wrong decision may cause huge inconvenience to the business or can result in high cost of production.
• Facilities like availability of raw materials and labour, power supply and services like banking, transportation, communication, warehousing, etc must be considered before making a choice of location.
5. Financing the Proposition: Business cannot be started without capital. So after deciding the location of business, the entrepreneur has to decide the finance (or capital), needed to start as well as to continue the proposed business .
• Capital is needed for investment in fixed assets (like land, building, machinery,etc) current assets (like raw materials, book debts, etc.) and for meeting day-to-day expenses.
• Proper financial planning must be done to determine:
(a) Requirement of capital
(b) Sources of raising capital,
(c) Best way of utilising capital.
6. Physical Facilities: Availability of physical facilities including machinery, land and building raw materials, and other support services is a very important factor to be considered at the start of the business.
The nature and quantum of physical facilities depend on the nature and size of business, availability of funds and the process of production.
7. Plant Layout: After determining the requirements of physical facilities, the entrepreneur should draw a layout plan showing the arrangement of these facilities Layout means the physical arrangement of machines and equipment needed to manufacture a product.
8. Competent and Committed Work Force: As an individual entrepreneur cannot do everything himself, there is a strong need for competent and committed workforce.
The entrepreneur has to decide the number of skilled workers, unskilled workers and managerial staff required to carry on the business activities.
• Entrepreneur must also decide the ways and means through which workforce will be trained and motivated to give their best performance.
9. Tax Planning: There are number of tax laws in the country, which considerably influence the functioning of modern business. So, the entrepreneur has to consider the tax liability under various tax laws and its impact on business decisions.
10. Launching the Enterprise: After mobilising the various resources, designing plant layout, selecting location for business and fulfillment of legal formalities, the entrepreneur can go ahead with actual launching of the enterprise.
It means starting the production process and initiating the sales promotion campaign.
Thats all you have to do prior to legal formalities.
In our upcoming posts, we'll discuss what are the legal formalities and steps for registering a business.
Till then keep reading,keep learning.
Thank You
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