A business may start with some idea occurred to and developed by a person. He will go ahead all alone or will get somebody like a relative or a friend for starting the business along with him. However, before starting the business, he needs to consider various aspects of the business. Following are 6 such important aspects which are essential to be taken into account.
Qualities Of The Entrepreneur
The people behind the business idea, their experience, knowledge, skills are some of the key factors responsible for the success of a business. The entrepreneur is also expected to build up a positive image of his business by keeping his commitments towards vendors, customers bankers etc.
Depending upon the need and complexity of the business he should be able to, form a Partnership or incorporate a Company. As the business grows the entrepreneur should be able to employ qualified professionals to manage some of the key functions.
It is aptly said that ‘’a good project at the hands of inefficient entrepreneurs is unlikely to succeed!’’
Technical aspects of a business is yet another important area to be looked into. It involves selection of appropriate process, the suitability of the technology identified and the adequacy of the design and layout.
Availability of infrastructure like suitable place, machinery/equipment, furniture, fixture, approach road, electricity, water etc. has to be ensured. It will also be essential to ensure continuous availability of raw material, labour etc.
The next important part is the study of Economic aspects. This, will include study of market size for the product/service, major competitors, future trends in volumes and pattern of demand & supply, the available gap and the share of business the firm/company is likely to get in the market segment.
For setting up of a business, lot of assets are required to be purchased or taken on rent. These are land/ building, machinery, furniture and other infrastructure. Also some provision has to be made for contingencies. The total project cost will have to be arrived at and the means of financing the expenditure should be identified.
So, on one hand the probable cost of the project is plotted and on the other the various avenues to fund these costs are identified. Funding can be by way of capital, loans from friends & relatives, subsidies, loans from Banks /FIs, etc.
The entrepreneur will have to take into account possibility of raising the funds and the cost associated with the loans/borrowed funds.
Once the business set up as discussed above is available, the business /firm will have certain installed production capacity. Based on market research, survey, and the likely demand for the product /service projections of some of the important parameters should be done.
- sales revenue,
- the running cost,
- the resultant profit or loss for the first and the subsequent years.
After doing this exercise, the entrepreneur will know at what level of sales the firm will start generating profit. It should be seen that the projected accruals i.e., profit + depreciation will be more than adequate to repay the debt and the interest.
Also, the study of inflow and outflow of funds will indicate the availability of cash as and when needed.
The entrepreneur can examine the commercial viability of the scheme also by using analytical tools like Break Even Point (BEP), Debt Service Coverage Ratio (DSCR).
Sensitivity analysis is one more tool which can be effectively used to study the capacity of the business to absorb the various shocks emanating from adverse changes in the critical factors like cost, volume and price.
a) Examine the government policies and the statutory obligations like registrations, licences, permits etc. and plan to ensure that the business meets with these compliances.
b) Also, examination of environment regulations and whether the business is in full compliance with the various environmental provisions in force need to be considered.
Mr. Arun Vartak
Mr. Vartak has 34 years of experience as a banker specialised in handling credit processing cells. He has served in many banks including State Bank Of India, Janata Sahakari , Saraswat Bank and various other management institutes.