How to Start a Business? Steps to Set Up a New Business

How to Start a Business?

Starting a business means setting up a new business enterprise. This initiation is also known as the promotion of business.

Promotion of business is done by a Promoter or an Entrepreneur.

The Promoter has to take some steps to start a new business enterprise. Promotion of business is not an easy job. One mistake will cause many difficulties for the new business. Therefore, the promoter must be able to take good decisions. He must have technical knowledge about the business. He must be a hard-working and energetic. After setting up the new business, the promoter gives it to the owners or shareholders and directors. The promoter charges a commission for his services. He is paid cash or in shares.

Promotion of business is necessary for industrial growth of the country.

The procedure of setting up of new business enterprise is very lengthy and time consuming. It includes many steps and formalities. These are depicted in the following image. Click on it to get a zoomed preview.

Steps in starting a new business enterprise are as follows:

1. First, the promoter must discover a good business opportunity.
2. Then he must decide on the size of the business unit.
3. This must be followed by determining the form of business ownership.
4. He must take proper care while selecting the location of business.
5. The amount of finance or capital (money) required to run the business must also be fixed.
6. Good selection and well-organization of the physical facilities is crucial.
7. He must have a good plant layout.
8. Organizational structure is needed to run business smoothly.
9. He must use scientific methods to fulfill the requirement (demand) of efficient employees.
10. Before initiation, business shall be duly registered to avail a legal status and enjoy its all rights.
11. After registration, business can start its operation in full swing.
12. Once under operation, tax liability of the business must be properly planned, managed and cleared regularly to minimize taxes.

Generally; all this work is done by the Promoter.

Now let's discuss one by one important steps involved in setting up a new business enterprise.

1. Discover a business opportunity:

The Promoter first finds out a business opportunity. He can get this information from newspapers, magazines, market surveys, research, etc.

A business opportunity may be to:

• Start a new business,
• Expand or diversify the existing (old) business,
• Purchase another company,
• Enter a joint venture or foreign collaboration, etc.

All business opportunities look very good in the beginning. However, the Promoter must investigate the business opportunity very carefully. He must find out whether it is profitable or not. He must study the competition, future prospectus of the business, demand and supply position, availability of raw materials, etc. He must start the business only if he is fully satisfied.

2. Size of business:

The promoter has to decide about the size of the business unit. He has to decide whether the business unit will be a small, medium-one or large size. The size of the business depends on many factors such as economics of scale, future demand, finance, etc. He must see that there is optimum utilization of resources and maximum profit.

3. Form of business ownership:

The promoter must decide about the form of business ownership. The forms of business ownership are sole trader, partnership firm, private company, public company and co-operative society. The form of ownership depends on many factors such as size of business, finance, tax, extent of liability, etc.

4. Location of business:

The promoter must decide about the location of the business unit. He must consider factors like availability of land, electricity, water, nearness to market, transportation, scope for expansion, and so on. Unscientific location affects the efficiency of business. It increases the cost of production and decreases the profitability. Therefore, immense care must be taken while selecting the region, location and site for the business unit.

5. Capital needs:

Finance is the life-line of a business. As a result, the promoter has to decide about business capital requirements and also find out different sources of finance.

While starting a new business the promoter has to decide on:

1. The financial needs of the business. That is, short-term and long-term capital requirements.
2. Sources of finance like shares, debentures, loans from banks and other financial institutions.
3. Cost of collecting finance and the returns on capital invested.
4. The capital structure and appropriate time for collecting finance.
5. Sources of working capital.

6. Organization of physical facilities:

Physical facilities mean the resources used to convert raw-materials into finished products.

Promoter has to decide about the machines and equipment to be used, the process of production and the skilled and unskilled workers required to perform jobs. He must get the best-quality raw materials, machines and workers. So that he can produce good quality goods.

7. Layout:

Layout means an arrangement of physical facilities like machines, equipment and workers that are required for manufacturing goods.

Plant layout is a scientific and systematic arrangement of machines and equipment within the factory.

A good layout ensures minimum wastage, better use of available space, minimize production loss, safety and security of workers. It also increases the profits of the business. So the promoter must have a good plant layout.

8. Organizational structure:

A proper organizational structure is needed to conduct business smoothly and efficiently. The business is divided, according to functions, into departments. After making departments, the employees are assigned their duties and shouldered important responsibilities. This results into a superior-subordinate relationship between them. Organization structure is a pattern of relationships, and it is necessary to fix responsibilities on the employees.

9. Manpower requirements:

Business enterprise requires skilled and semi-skilled workers to do factory and clerical jobs. The success of any organization depends upon selecting a right man for the right job. The Promoter must use scientific methods for selection and training manpower (personnel) and match the right person with right job.

10. Registration:

Registering a new business is a very important step. Registration is not compulsory but is beneficial to business due to the following main reasons:

1. It gives a legal entity and status to the business, and so it can enforce its legal rights.
2. A registered business gets all government assistance and incentives.
3. A registered business can get licenses to import raw-material.

In short, after the registration, a business legally comes into existence and can enjoy its all legal rights.

11. Starting the business:

After registration, the promoter can launch (start) the business. He brings together the physical facilities, starts the production process, recruits labour, produces and distributes goods. If everything goes well, then the business runs smoothly and starts making profit.

12. Tax planning:

The promoter has to decide about the tax liability. Tax liability should not be avoided, but it can be minimized by better management. Tax planning does not mean non-payment of tax. It means to minimize the taxes and the effect of the taxes on the business. Therefore, tax planning influences the promoter's decision about location, size, form and profitability of the business.