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


By Harshvardhan, the Subject Matter Expert at Edumarz

Solution: Starting a business enterprise is the same as any other human effort in which resources are employed to achieve certain objectives. The process of setting up one’s own business is called entrepreneurship. The person who set up his business

is called an entrepreneur. The output of the process, that is, the business unit is called a business enterprise. It is interesting to note that entrepreneurship besides providing

self-employment to the entrepreneur is responsible to a great extent for creation and expansion of opportunities for the other two economic activities too which are employment and profession and in the process, business entrepreneurship becomes crucial for the overall economic development of a nation. 

The factors to be considered while starting a Business can be described below:

  1. Selection of type of business: The first thing to be decided by an entrepreneur is the nature and type of business to be undertaken. He will obviously like to enter that branch of industry and commerce, which has the possibility of a greater amount of profits. The decision will be influenced by the customer requirements in the market and also the kind of technical knowledge and interest the entrepreneur has in producing a particular product.
  2. Size of business: The size of the firm or scale of its operation is another important decision to be taken at the start of the business. Whether the business is for the MSME sector or a large scale enterprise. Whether it will operate for the manufacturing or tertiary sector. Some factors favour a large size, whereas, others tend to restrict the scale of operation. If the entrepreneur is confident that the demand for the proposed product is likely to be good over time and he/she can arrange the necessary capital for business, he/she can start the operation at a large scale.
  3. Location of business enterprise: An important factor to be considered at the start of the business is the place where the enterprise will be located. Any mistake in this regard can result in a high cost of production, inconvenience in getting, right kind of production inputs or serving the customers in the best possible way. Availability of raw materials and labour; power supply and services, like banking, transportation, communication, warehousing, etc., are important factors while making a choice of location.
  4. Financing the proposition: Financing is concerned with providing the necessary capital for starting, as well as, for continuing the proposed business. Capital is required for investment in fixed assets, like land, building, machinery and equipment and in current assets, like raw materials, books, debts, stock of finished goods, etc. Capital is also required for meeting day-to-day expenses.
  5. Physical facilities: Availability of physical facilities, including machines and equipment, building and supportive services is an important factor to be considered at the start of the business. The decision relating to this factor will depend on the nature and size of the business, availability of funds and the process of production.
  6. Competent and committed Workforce: Every enterprise needs a competent and committed workforce to perform various activities so that physical and financial resources are converted into desired outputs. Since no individual entrepreneur can do everything himself, he/she 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.
  7. Tax planning: Tax planning has become necessary these days because there are a number of tax laws in the country and they influence almost every aspect of the functioning of modern business. The entrepreneur has to consider in advance the tax liability under various tax laws and its impact on business decisions.
  8. Launching the enterprise: After the decisions relating to the above-mentioned factors have been taken, the entrepreneur can go ahead with the actual launching of the enterprise which would mean mobilising various resources, fulfilling necessary legal formalities, starting the production process and initiating the sales promotion campaign. A business enterprise can be a sole proprietor firm, a partnership firm or a company for which proper financial planning must be done to determine –

(a) the requirement of capital

(b) source from where the capital will be raised and 

(c) the best ways of utilising the capital in the firm.

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