Question 8

What factors are to be considered while starting a business? Explain.


The factors are to be considered while starting a business:

1. Selection of line business: The first thing to be decided by any entrepreneur of a new business is the nature and type of to be undertaken. He will obviously like to enter that branch of industry and commerce, which has the possibility of greater amount of profit. The decision will be influenced by the customers’ requirement in the market and also the kind of technical knowledge and interest the entrepreneur has for producing a particular product.

2. Size of the firm: Size of the firm or scale of its operation is another important decision to be taken at the start of the business. Some factors favour the large size whereas others tend to restrict the scale of operation. If the entrepreneur is confident that the demand of the proposed product is likely to be good over time and he can arrange the necessary capital for business, he will start the operation at a large scale. If the market conditions are uncertain and risks are high, a small size business would be better choice.

3. Choice of form of ownership: In relation of ownership, the business origination may take the form of a sole proprietorship, partnership, or a joint stock company. Each form has its own merits and demerits. The choice of the suitable form of ownership will depend on such factors as the line of business, capital requirements, liability of ownership, division of profit, legal formalities, continuity of business, transferability of interest and so on.

4. Location of business enterprise: An important factor to be considered at the start of the business the place where the enterprise will be located. Availability for raw materials and labour; power supply and services like banking, transportation, communication, warehousing etc. are important factors while making a location choice.

5. Financing the proposition: Financing is concerned with providing the necessary capital for starting as well as continuing the proposed business. Capital is required for investment in fixed asset like land, building, machinery and equipments and in current assets like raw materials, book debts, stock of finished goods, etc. capital is also required for meeting day-to-day expenses. Proper financial planning must be done to determine (a) the requirements of capital, (b) source from which capital will be raised and (c) the best ways of utilizing the capital in the firm.

6. Plant layout: Once the requirement of physical facilities has been determined, the entrepreneur should draw a layout plan showing the arrangement of these facilities. Layout mean the physical arrangement of everything needed to manufacture a product including machines, person, raw materials and finished goods.

7. Competent and committed work force: Every enterprise needs competent and committed work force to perform various activities so that physical and financial resources are converted into desired outputs. Since no individual entrepreneur can do everything himself, he must identify the requirement of skilled and unskilled workers and managerial staff. Plans should also be made about how the employees will be trained and motivated to give their best performance.

8. Tax planning: Tax planning has become necessary these days because a number tax laws in the country influence almost every aspect of the functioning of modern business. The founder the business has to consider in advance the tax liability under various tax laws and its impact on business decisions.

9. Launching the enterprise: After the decisions relating the above mentioned factors been taken, the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilizing various resources, fulfilling necessary legal formalities, starting the production process and initiating the sale promotion campaign.

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