Starting a Business — Basic Factors

Starting a business is like 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 does so is an entrepreneur; and the resulting business unit is a business enterprise.

Why entrepreneurship matters

• Besides giving the entrepreneur self-employment, entrepreneurship helps create and expand opportunities for the other two economic activities — employment and profession — and so becomes crucial for the overall economic development of a nation. By choosing it, a person becomes a job-provider rather than a job-seeker, and gains various financial and psychological rewards.
• Entrepreneurship is defined as a "systematic, purposeful and creative activity of identifying a need, mobilising resources and organising production with a view to delivering value to customers, returns for investors and profits for the self, in accordance with the risks and uncertainties associated with business."
• Starting a business does not happen spontaneously; it is the outcome of interaction between a person and the business environment. The choice lies with the individual, who must weigh both the factors in the environment and the individual's own perception of desirability and feasibility.

Basic factors to consider before starting

• Selection of the type of business: The first decision is the nature and type of business to undertake. The entrepreneur will prefer the branch of industry or commerce that offers greater profit, guided by customer requirements and by the technical knowledge and interest he or she has for making a particular product.

• Size of business: The scale of operation must be decided — whether the business belongs to the MSME sector or is large-scale, and whether it will be manufacturing or tertiary. Some factors favour a large size, others restrict it; if demand for the product is likely to remain good and the necessary capital can be arranged, operations can begin on a large scale.

• Location of the business enterprise: The place where the enterprise is set up matters greatly; a wrong choice can mean high production cost and difficulty in obtaining inputs or serving customers. Key considerations are the availability of raw materials, labour, power supply, and services such as banking, transportation, communication and warehousing.

• Financing the proposition: Financing means arranging the capital needed to start and continue the business. Capital is required for fixed assets (land, building, machinery, equipment), for current assets (raw materials, book debts, stock of finished goods) and for day-to-day expenses.

• Physical facilities: The availability of machines and equipment, buildings and supportive services is an important factor. The decision depends on the nature and size of the business, the funds available and the process of production.

• Competent and committed workforce: Every enterprise needs a skilled and committed workforce to convert physical and financial resources into the desired outputs. Since the entrepreneur cannot do everything alone, he or she must identify the need for skilled and unskilled workers and managerial staff, and plan how employees will be trained and motivated to perform their best. …