What factors are to be considered while starting a business? Explain.
Before starting a new business venture, an entrepreneur must carefully consider various aspects. He or she must evaluate each aspect, considering the various positive and negative consequences. The following are some of the important factors that must be considered while starting a business.
(a) Selecting the line of business: The line of business is the foremost decision that involves choosing the kind of product to produce, analysing its existing and future market demand, profit considerations and the level of technical knowhow possessed by the entrepreneur.
(b) Scale of the business: Once the line of business is selected, the entrepreneur needs to decide the scale of the business, i.e., the business size, whether to operate on large scale or small scale. The choice of scale of business is made on the degree of risk embedded in
(i) the line of business
(ii) the ease of obtaining capital and
(iii) the projected demand for the product
A larger scale of business is preferred if the risk involved is low and the entrepreneur is confident about the high demand for the product. Similarly, the greater the ease of obtaining capital, the greater is the ease of operating a business on a large scale and vice versa.
(c) Location: The choice of business location is dependent on numerous factors such as easy and cheap availability of raw material and labour, well-connected transportation facilities, and power and other infrastructural facilities. Generally, locations where good infrastructure is available are preferred.
(d) Financial requirement: Finance is required for every aspect of business—from the purchase of raw material and machinery to further investment for the growth of the business. Therefore, while starting a business, the availability of alternatives to raise funds must be carefully analysed.
(e) Efficient workforce: A competent and trained workforce is the basic input to carry on various business activities. In this regard, the entrepreneur must appropriately identify the requirement of human resources for the business, both at the worker level and at the managerial level.
(f) Physical requirements: These requirements include machinery, other equipment, tools and technology that add to the efficiency of a business. The entrepreneur must carefully consider and decide the physical requirements on the basis of the nature and production scale of the business.