How to Start a Business in 12 Steps

How to Start a Business

Starting a business means setting up a new enterprise and initiate its promotion in the market. The setup and initiation of a company is a foundational work done by a Promoter or an Entrepreneur.

The entrepreneur has to take some crucial steps to start a business. Doing its promotion is not an easy task. One mistake can create many problems for newly founded business. Therefore, the skills and qualities of a promoter matter a lot.

The promoter must be a wise decision-maker. He must be sound with the technical knowledge and expertise required to run the business. He must also be energetic, hard-working and dedicated.

After a new business is established, the promoter must promote his business idea in the market to attract investors. The investment will help to fund the activities of the new company. Once a company goes public, the promoter must give its charge to the newly formed Board of Directors (BOD) elected or appointed by its shareholders (real owners). He charges a commission for his services and gets paid either in cash or shares.

Promotion of businesses is necessary for the industrial and economic growth of a country.

The twelve steps to start a business are lengthy as well as time-consuming and usually involves following principal formalities:

Image Credits © Gaurav Akrani.

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

Now let's discuss above steps to set up a new business.

1. Discover a Business Opportunity

The Promoter first finds out a business opportunity. He can discover this information from newspapers, magazines, market surveys, research, etc. He may find out an opportunity to:

1. Start a new business, company or enterprise,
2. Expand or diversify the existing (old) business,
3. Purchase another company,
4. Enter a joint venture or foreign collaboration, etc.

All business opportunities look excellent in the beginning. However, the promoter must investigate the possibility very carefully. He must find out whether a step forward would be profitable or not. He must study the competition, future prospects of the business, demand- supply position, availability of raw materials, etc. He must initiate in this direction only if he is completely satisfied.

2. Decide the Size of Business

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

3. Decide Form of Business Ownership

The promoter must decide about the type or form of business ownership whether a sole trader, partnership firm, a private company, public company, cooperative society, etc. The decision on selecting form depends on many factors such as the size of business, finance, tax, extent of liability, etc.

4. Select Location of Business

While choosing the location of the company the promoter must consider crucial factors like availability of land, electricity, water, nearness to market, transportation, the 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. Fix Capital Needs of Business

Finance is the lifeline of a business. As a result, the promoter has to decide about business capital requirements and also find out different sources of funding.

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

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

6. Organize Physical Facilities

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

The promoter has to decide about the machines and equipment to be used. The process of production and the skilled and unskilled workers required for performing jobs. He must get the best-quality raw materials, quality machines and skilled workers. Only then that he can produce the best quality goods.

7. Plan a Good Layout

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

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

A good layout plan ensures minimum wastage, better use of available space, minimize production loss, safety and security of workers. It also increases the profits of the business.

Therefore, the promoter must have a good plant layout.

8. Proper Organizational Structure

A systematic organizational structure is needed to conduct business smoothly and efficiently. The company is divided, according to functions, into various departments. After forming departments, the employees are assigned their duties and shouldered significant responsibilities. This organization results in a superior-subordinate relationship.

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 individual for the right job.

The promoter must use scientific methods for selection and training manpower (personnel) and match the right person with an appropriate job.

10. Registration of Business

Registering a new company is a critical step. It is not compulsory but is beneficial to due to the following main reasons:

1. Registration 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. Such a business can get licenses to import raw material.

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

11. Starting the Business

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

12. Tax Planning

The promoter must not avoid the tax liability of the business. Better management can legally minimize the tax obligation.

Tax planning does not mean non-payment of tax. It means to reduce the taxes and the effect of the taxes on the business.

Therefore, tax planning also influences the promoter's decision about choosing the location, size, form and profitability of the enterprise.