Starting a Business
Starting A Business — Basic Factors
Starting a business is a complex undertaking that requires careful planning and consideration of various factors. An entrepreneur needs to make several key decisions before launching an enterprise to increase the chances of success.
These basic factors are inter-related, and a decision regarding one often influences the others. Ignoring any of these aspects can lead to significant challenges later on.
Selection Of Type Of Business
The first crucial decision is to identify the nature of the business activity. This involves choosing the specific industry or sector (e.g., manufacturing, trading, service) and the particular type of goods or services to be offered. This choice is often based on factors like:
- The entrepreneur's interest, skills, and experience.
- Market demand for the product or service.
- Availability of resources (capital, raw materials, labour).
- Potential for profitability.
- Level of competition in the chosen field.
Thorough market research is essential at this stage to understand the viability of the chosen business idea.
Size Of Business (Scale of Operation)
This involves deciding the scale at which the business will operate – small-scale, medium-scale, or large-scale. The size depends on several factors:
- Amount of capital available or that can be raised.
- Nature of the business (some industries are naturally suited for large scale, others for small scale).
- Level of demand for the product/service.
- Extent of risk the entrepreneur is willing to take.
- Access to technology and managerial expertise.
The size of the business will influence the choice of the form of organisation (e.g., sole proprietorship/partnership for small scale, company for large scale) and other operational decisions.
Location Of Business Enterprise
The location where the business will be set up is a critical factor, especially for manufacturing and retail businesses. A strategic location can provide significant advantages.
- Availability of Raw Materials: Locating near sources of raw materials can reduce transport costs.
- Proximity to Market: Essential for businesses selling perishable goods or products with high transportation costs. Also important for retail outlets.
- Availability of Labour: Access to skilled or unskilled labour force at reasonable wages.
- Availability of Infrastructure: Access to power, water, transport facilities (roads, railways, ports), communication networks.
- Banking and Financial Facilities: Proximity to banks and financial institutions.
- Government Incentives: Government policies offering subsidies, tax benefits, or infrastructure support for setting up businesses in specific backward or special economic zones.
- Climatic Conditions: Relevant for certain industries (e.g., textile mills need humid climate).
- Personal Factors: Preferences of the entrepreneur.
Financing The Proposition
Every business requires capital to start and operate. This involves estimating the total financial requirement and deciding the sources of finance. Financial requirements are broadly of two types:
- Fixed Capital: Funds needed to purchase fixed assets like land, building, machinery, furniture. This is a long-term investment.
- Working Capital: Funds needed for day-to-day operations, such as purchasing raw materials, paying wages, salaries, rent, and meeting other operating expenses until cash is realised from sales. This is a short-term requirement.
Sources of finance can be owners' own funds (equity) and borrowed funds (debt). The entrepreneur must decide the optimal mix of debt and equity and identify potential sources like personal savings, loans from family/friends, banks, financial institutions, venture capitalists, or public issue of shares (for companies).
Physical Facilities
This refers to the availability and arrangement of physical resources necessary to convert inputs into outputs. Key physical facilities include:
- Plant and Machinery: Selecting the right type of technology, machines, and equipment.
- Building and Layout: Deciding on the required factory or office building space and arranging the layout of machinery, equipment, and workstations for efficient operations.
The decision on physical facilities depends on the size of the business, the technology used, and the nature of the product/service.
Competent And Committed Worked Force
Having a skilled, competent, and motivated workforce is essential for the successful operation of any business. The entrepreneur needs to plan for:
- Recruiting and selecting the right personnel.
- Providing necessary training.
- Creating a positive work environment.
- Implementing fair compensation and incentive systems.
- Ensuring good labour relations.
The quality of the workforce directly impacts productivity and the quality of goods or services.
Tax Planning
Businesses are subject to various taxes, including income tax (corporate tax), Goods and Services Tax (GST), etc. Proper tax planning from the initial stages is important to minimise the tax burden legally.
Factors influencing tax liability include the form of organisation chosen, the level of income, location (some regions offer tax holidays or incentives), and the nature of business activities. Consulting with a tax expert (like a Chartered Accountant) is advisable.
Launching The Enterprise
After planning all the above factors, the entrepreneur proceeds with actually setting up the business. This involves fulfilling necessary legal formalities (registration, licenses), arranging funds, acquiring assets, recruiting staff, and finally starting operations.
Launching an enterprise requires coordinating all the resources and activities to bring the business plan into reality. It is the stage where the idea takes shape as a functioning entity.
The success of a business greatly depends on how thoroughly and effectively these basic factors are considered and managed during the planning and initial stages.