Establishing a New Enterprise

A U T H O R : A L PA N A TREHAN

Developing a Business Idea

The first step taken by an entrepreneur to establish an

enterprise. It involves recognizing opportunities and shaping them into feasible business concepts. While developing a business idea, an entrepreneur should consider the following questions:
How to create value for customers? How the products produced by the enterprise would be

different from that of its competitors? What would be the business strategies (sales, marketing, and distribution)?
The requirements for the development of business

idea:
Business opportunity Methods for idea generation
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Business Opportunity
It refers to the desired conditions for staring up a

new business or venture or new product.

The methods for searching an opportunity are as

follows:
Analyzing market trends Economic factors Social factors Technological factors Political and regulatory factors Problem identification
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Methods for Generating Ideas

Idea generation involves exploring ideas to

develop a new business. The methods for generating ideas are:

Brainstorming: Refers to the method that aims at

creating a pool of ideas based on four general rules. Focus Group: Refers to the formation of groups by an entrepreneur to generate business ideas with the help of people who are experienced in that field. Surveys: Refers to the method in which an entrepreneur tries to seek out information from people about their needs and desires.
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Process of Setting up a New Enterprise

Creating a Business Plan Selecting the Form of Organization Making a Product Choice Selecting the Location of Industry
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Pricing the Product

Financing the Startup Business Procuring Physical Resources

Fulfilling the Regularity Requirements Naming and Registering a Business

Hiring Human Resource

Setting up Infrastructure

Different Forms of Organization

Sole Proprietorship
Partnership Firm Private Limited Company Public Limited Company Co-operative Joint Hindu Family Business Limited Liability Partnership (LLP)

Sole Proprietorship
It is a one-man organization-owned, managed, and

controlled by a single individual. The proprietor is held responsible for the liabilities and profits generated. It does not require going through complicated legal formalities except acquiring license specific to the line of business. It involves capital supplied completely by the owner himself/herself. The drawbacks of Sole Proprietorship are:
Limited capital and unlimited liability Limited span of life

Partnership Firm
It is owned by two or more partners. It requires an oral or written agreement among the

partners. A Partnership deed is the written form of the agreement among partners that is stamped and registered. It involves no legal formalities. However, the firm can be registered to avail certain legal benefits. It carries equal right and authority for all the partners to participate in business activities. The drawbacks of Partnership Firm are:
Lacks in ultimate authority and Includes unlimited

liability for the partners Involves liability for the actions of other partners Enjoys limited span of life
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Private Limited Company

It is a voluntary association of minimum two and

maximum 50 members. It contains a different identity from its members legally. The Directors are shareholders of the company and the shares are distributed in the ratio of their capital investment. It involves a limited liability of the members. It enjoys unlimited life. The drawbacks of Private Limited Company are:
Allows no free transfer of shares Does not allow public to subscribe to its shares Represents undemocratic control

Public Limited Company

The shares are freely traded in the stock market.

It requires minimum seven members for its

startup. It is a separate legal identity that is different from the people who have incorporated it. It contains legal rules and regulations for the entry, working, and exit of a company. The drawbacks of Public Limited Company are:
Provides scope for directors for personal profit Represents undemocratic control
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Co-operative
It is a voluntary association of ten or more members

residing or working in the same locality with the aim of fulfilling their economic or business interest. It provides a right to members to leave the co-operative and pull out their capital at any time, after giving a notice. It requires a compulsory registration with the Registrar of Co-operatives Societies. It involves liability of the members, which is limited to the extent of their capital contribution. The primary motive of co-operatives is to serve its members rather than profit making. The drawbacks of Co-operative are:
Shows inability to collect sufficient capital Includes organizational limitations

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Joint Hindu Family Business

It is owned and maintained by the members of a

family. It involves unlimited number of members. It involves no compulsory registration, but can file a suit against third parties for claims of debt. It enjoys continuity of operations. The drawbacks of Joint Hindu Family Business are:
Confines to Indian families only Involves relatively limited capital

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Limited Liability Partnership

It has merits of Limited Liability Company and

flexibility of partnership firm with a low agreement cost. It involves no liability of any partner on account of independent or unofficial actions of other partners. It involves minimum two partners and at least two individuals as designated partners, of whom at least one has to be the resident of India. It enjoys continuity of operations. The drawback of Limited Liability Partnership are:
Involves an obligation that an LLP can be winded up

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either voluntary or by the tribunal established under the Companies 1956 2011, Dreamtech PressAct, :: Chapter 2

Factors Influencing the Selection of Form of Organization

Nature of Business

Scale of Operations

Degree of Control Desired by the Owner

Amount of Capital Required

Degree of Risks and Liabilities

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Determination of Size of New Enterprise

Target customers Location of target customers Number of customers Consumption rate of product/service

Seasonal demand
Competitors Expected market share

Finance
Quality standards
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Location of a Startup Enterprise

The location affects the present and future

requirements of an enterprise. It influences the arrangement of machinery and equipment and production process of the enterprise. The ideal location is one that facilitates minimum unit cost of production and generates maximum revenue. An entrepreneur makes the following two selections to determine the location of his/her enterprise:
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Selection of the region Selection of the appropriate site

Feasibility Study of New Enterprise

It helps in assessing the viability of a new venture and

provides information to make decisions. Feasibility analysis involves the following question:
Whether the idea generated in first stage is viable or

not? Should the enterprise proceed with the proposed idea? Is it feasible to start a business or not?
The different type of feasibility analysis for a new

enterprise are:

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Market Feasibility Financial Feasibility Organizational Feasibility Project Feasibility

PEST Analysis
It acts as a tool for understanding the

environment/surroundings in which a business operates. The components of PEST analysis are:

"P" Political factors "E" Economic factors

"S" SocioCultural factors

"T" Technological factors

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SWOT Analysis

This analysis helps in knowing and assessing the

strengths, weaknesses, opportunities, and threats of an enterprise. The various elements are:
Strengths: Refer to inherent capacities that an enterprise

can use to gain strategic advantage. Weaknesses: Imply an inherent inadequacy, which creates strategic disadvantages for an enterprise. Opportunities: Imply favorable conditions in the environment of an enterprise, which might strengthen the position of the enterprise. Threats: Refer to unfavorable conditions that exist in the environment of an enterprise.
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SWOT Strategy
S-O Strategies
Involves maximizing the strengths and using them as an opportunity to grow further W-O Strategies Involves minimizing the weaknesses and maximizing the opportunities by taking advantage of opportunities to mitigate weaknesses S-T Strategies Involves using strengths to deal with threats W-T Strategies Involves minimizing weaknesses and avoiding threats
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Porters Model
It is a tool used for industry analysis.

The profitability in an industry depends on the

level of competition in that industry. The Porter`s Five Forces Model is shown in the following figure:

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Business Plan
A business plan refers to a formal statement of

plans of an enterprise. It explains business goals of the enterprise and means to achieve those goals. If you are failing to plan, you are planning to fail. -- Tariq Siddique Its a document that convincingly demonstrates that your business can sell enough of its product or services to make a satisfactory profit and to be attractive to potential backers. --- David Gumpert
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Nature and Scope of Business Plan

If you are inclined to view the business plan as

just another piece of useless paperwork, its time for an attitude change. When you are starting out, investors will justifiably want to know a lot about you and your qualification for running a business and will want to see a step-by-step plan for how you intend to make it success. --- Mark Steven

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Users of a Business Plan

Entrepreneur/Management Team
Insiders

Employees

Business Plan Suppliers

Outsiders

Customers

Investors

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Elements of a Business Plan

Title Page Table of Contents Executive Summary Description of the Business

Market Plan
Equipment and Material Description Management and Organizational Plan

Financial Plan
Contingency Plan
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recap
The first step in setting up a new enterprise is to

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generate a number of ideas regarding the core business of the enterprise. Business opportunity refers to the desired conditions for staring up a new business or venture or new product. Establishing an enterprise involves various activities, such as financing, organizing, and promoting, which are undertaken by an entrepreneur. Feasibility analysis helps in assessing the viability of a new venture and provides information needed to make critical decision regarding going forward and starting the new venture. A business plan differs from enterprise to enterprise depending on various factors, such as complexity in organizational structure, types of products and services, and demand for the product.