11th Class Business Studies Nature And Purpose Of Business

  • question_answer 22)
    What factors are important to be considered while starting a business? Explain.


    Business firms encounter some basic problems while starting a business. Various decisions have to be taken regarding the business while, starting it. Some of the basic factors to be considered while starting a business are as follows (i) Selection of Line of Business The first thing to be decided by any entrepreneur of a new business is the nature and type of business to be undertaken. One should enter an industry which is in growth phase and thus has a higher possibility of profits. Technical knowledge and interest the entrepreneur has for producing a particular product is also important in this regard. (ii) Size of the Firm Size of the firm refers to the scale of its operation. Business can be started at a large scale if the entrepreneur is confident that the demand for the proposed product is likely to be high over time and he has the necessary skills and capital for business. Business should be started at a small or medium scale if the market conditions are uncertain and risks are high. (iii) Form of Ownership There are various forms of ownership in a business organization like sole proprietorship, partnership or a joint stock company. The choice of the suitable form of ownership will depend on such factors as the capital requirements, liability of owners, division of profit, transferability of interest and so on. (iv) Location of Business Enterprise Plant location is an important factor to be considered at the start of the business. Availability of raw materials and labour; power supply and services like banking, transportation, communication, warehousing, etc, are important factors while making a choice of location. (v) Financing Decisions Financing is concerned with providing the necessary capital for starting as well as for continuing the proposed business. Capital is required for investment in fixed assets and current assets. Proper financial planning must be done to determine the requirement, source and allocation of funds. (vi) Physical Facilities Availability of physical facilities including machines and equipment, building and supportive services is a very important factor to be considered at the start of the business. The decision relating to this factor will depend on the nature and size of business, availability of funds and the process of production. (vii) Plant Layout Plant layout refers to a layout plan showing the arrangement of physical facilities such as machines and equipments for production. It should be drawn by the entrepreneur after deciding about the scale of operation and physical facilities to be acquired. (viii) Competent and Committed Employees In present time, the most crucial resource for a business is the human resource. Every business depends on the competence and commitment of its work force to perform various activities so that physical and financial resources are converted into desired outputs in an efficient and effective manner. (ix) Tax Planning Every business has to pay certain taxes as levied by the government. Tax planning and management for reducing tax liability as far as possible is acceptable both legally and ethically. The entrepreneur must consider in advance the tax liability under various tax laws and its impact on business decisions. (x) Launching the Enterprise After the decisions relating to the above mentioned factors have been taken, the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilizing various resources, fulfilling necessary legal formalities, starting the production process and initiating the sales promotion campaign.

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