10 Basic Factors for Starting a Business

All those economic activities, which are connected with production, purchase and sale of goods or supply of services with the objective of earning profit is known as Business. The term ‘Business’, means busy-ness or ‘state of being busy’ in economic activities. The activities consist of production or purchase of goods for sale, or exchange of goods or supply or services to satisfy the needs of people. Business requires dealing in goods and services on a regular basis and there is always uncertainty of return. 

In the words of Lewis H. Haney, “Business may be defined as human activity directed towards producing and acquiring wealth through buying and selling goods.”

In the words of Wheeler,” Business is an institution organised and operated to provide goods and services to society under the incentive of private gain”.  

10 Basic Factors for Starting a Business

Starting a business requires effort and various resources are employed to achieve the objectives of business. Now the complexities of business have increased a lot and various human, physical and financial resources are required to start a business. The success of the business depends upon the ability of the entrepreneurs or the starters who anticipate problems and solve them with minimum cost and time. For example, to start a factory, plans are made regarding the location of the business, kind of equipment, the layout of the shop, purchasing and financing needs, recruiting and hiring workers, etc. These plans and requirements become complex with the size of the business.

Some of the basic factors which must be kept in mind while starting a business are as follows:

1. Selection of line of Business

The first thing to be decided by any entrepreneur or new business is the nature and type of business to be undertaken. The entrepreneur would prefer the line or branch of industry and commerce which has more profit and less risks. This decision is influenced by the customer requirements, and by the kind of technical knowledge and interests of the entrepreneur. 

2. Size of the firm

The size or scale of the firm is another very important decision to be kept in mind at the time of starting a business. This includes the decision to whether set up a large scale or a small scale business. These factors depend upon a number of factors like availability of finance, market condition, etc. If the entrepreneur is confident enough that the demand for the proposed product or service would be high, and he can arrange the funds required for it, then he can go for a large scale business. But if the market conditions are uncertain, risks are high and funds are not easily available, then small scale business should be opted for. 

3. Choice of form of ownership

After deciding the line and scale of operation, the entrepreneur has to decide about the ownership or form of business. The business may take the form of Sole proprietorship, Partnership, or a Joint-stock Company, Each form has its own merits and demerits and decisions depends upon various other factors like requirement of funds, liability of owners, legal formalities, continuity of business, division of profit, etc.

4. Location of the business enterprise

Where the enterprise is to be located is another very important decision, which is to be taken by the entrepreneur. If any wrong decision is taken, then it would influence the costs, profitability, and growth of the business. Facilities like availability of raw material and labour, power supply, and services such as banking, communication, warehousing, etc., must be in close proximity to the business.

5. Financing the proposition

This decision is concerned with providing the necessary capital to the business. Capital is required for investing in fixed assets like land, building, machinery and other equipment. It is also required to buy raw materials and meeting day-to-day expenses. Proper financial planning must be done to determine the requirement of capital, sources of raising capital and the best way of utilising the capital.

6. Physical facilities

Availability of physical faculties, like machinery, land, raw material and other services is very important. The decision relating to this factor will depend on the nature, size of business, availability of funds, etc.

7. Plant layout

The next process after deciding on the physical facilities is deciding about the plant layout. The layout means the physical arrangement of machines and equipment needed for manufacturing products. The entrepreneur should draw a layout plan showing the arrangement of these.

8. Competent and committed workforce

An individual person cannot do everything alone, he needs a competent and committed workforce to convert raw materials and other resources into desired outputs. So, the decisions regarding the requirement of a number of skilled, unskilled and managerial staff is necessary. Means of training and motivating the employees are also decided while deciding on the workforce.

9. Tax planning

There are a number of tax laws which affect the functioning of the business. The entrepreneur has to consider these tax laws in advance and needs to consider tax liability under different tax laws and must plan accordingly. 

10. Launching the enterprise

After taking all the decisions successfully, the entrepreneurs can go ahead with launching the enterprise. By ‘launching the enterprise’, we mean mobilising the various resources, fulfilling necessary legal formalities, starting the production and starting the sales promotion campaign.