Setting up a Business

Enterprise
 Promoter
Entrepreneur

Enterprise Brings enterprise into

Brings new enterprise successful venture
into existence
(Child)
Mother Midwife
 Entrepreneur Intrapreneur

Operates outside existing firm Operates within existing firm

Brings out a new venture Does not brings out a new venture

Arranges funds for venture No funds are arranged

Independent person and owner of Is a top level executive and not the
the enterprise owner of the firm

Assumes more risk Assumes less risk

Traits of Entrepreneurs

Innovation
Ability to generate new ideas and search new business opportunities
Desire to Achieve
Strong desire to achieve something

Risk Taking
Ability to take moderate risks

Energy
High level of energy and stamina for hardwork

Vision
Ability to look beyond the present

Organising Skills
Ability to mobilise and coordinate resources

Responsibility
Sense of personal responsibility
 Perceiving
market
opportunities

Building the Functions of

enterprise Carrying out
with all the
an Innovations
resources Entrepreneur

Taking
Calculated
Risks
I. Entrepreneurial Decisions
in setting up Business
Enterprise
 Line of Physical Plant
Business Facilities Layout

Size of Financial Internal

Unit Planning Orgn

Location
Form of Personnel
of
ownership
Business
1. Line of Business
Industrial, Trad Raw materials,
ing or Service technology, source
of supply

• Expected rate of
Probable
return
operating costs
• Degree of risk and proposed
• Technically feasible revenue by
market survey

Product
design, pricing, di
stribution &
publicity Product Decision
2. Size of the Units
• Determination of scale of operations
• Optimum size where average cost per unit is minimum
• Large scale – Offers economies of scale but involves huge
capital & expert managerial skills.
• If risk involved is high, its preferable to start small and then
grow.
• A careful analysis and reconciliation of
technical, managerial, financial, market and such factors
should be considered.
3. Location of Business
• It influences costs, profitability and growth
• Absolute care should be taken since its very difficult to change
the selected site.
• 3 stages are-
– Select region
– Choice of locality
– Selection of the site
• An unfavourable location may restrict the growth of the firm
in addition to higher costs.
4.Form of Ownership
• Determine the division of profits, authority, liability of
owners, continuity of business and transferability of interests.
• Forms
– Sole Proprietorship
– Partnership
– Joint stock company
• A good form of ownership should be easy to form, simple to
operate, durable, flexible, free from heavy taxation and legal
requirements.
5. Financial Planning
• Adequate funds must be provided at the right time for the
start & continuity
• Advance decisions in financial planning are-

Total amount Appropriate

of capital capital
required structure

Time, price
and method of Administration
marketing of funds
securities
6. Provision of Physical Facilities

• Selection of machines, equipments, plant and buildings.

• Nature and quantum depends upon the
– Size of the Firm – Large, medium or small
– Nature of the Business – Manufacturing, trading and service
– Process of Production- Capital-intensive or Labour-intensive
– Availability of funds
– Relative cost and effect on Productivity
– Availability of spares
– Maintenance services
– Skills of workers
7. Plant Layout
• Arrangement of physical facilities is called Plant Layout.
• Good layout is essential for efficient and economical
operations
• Helps reduce cost and efforts sof material handling, inventory
& space.
• Proper placement to ensure smooth flow of material.
• Layout should be flexible and adapt itself to changing
conditions to avoid delays in production process.
8. Internal Organization
• Creation and development of internal structures
• Departmentation, viz, Production, finance , marketing &
personnel
• Authority-Responsibility-Accountability
s relations
• Facilitates efficient operations, avoids duplication, promotes
mutual co-operation and coordination
• Departmentation, delegation, span of control decisions.
9. Personnel
• Need of people or human capital
• Human resource planning - Number & type of employees
• Procurement, development & motivation
s
• Proper compensation and non-financial incentives for
maximum contribution towards organizational goal.
10. Launching of the Enterprise
• Completion of physical, organizational and financial aspects.

• Final launch of the enterprise

s
II. Generation of Business Idea
Genration of Business Ideas

Sources of Business Idea

1. Observing Markets
2. Prospective consumers
3. Developments in other
nations
4. Study of project profiles
5. Governement Orgns
6. Trade fairs and exhibitions
Generating Ideas-
Approaches
1. Brainstroming
2. Improvement of an
existing product
3. New ways of doing things
4. Utilizing waste materials
5. Converting hobbies into
business
Selection of a Project Idea

Cost structure
must ensure
reasonable
return

Resources Compatible
Idea should required could with
match be easily Feasibility
legalities &
resources mobilized regulations

Sufficient
demand of the
product or
service
III. Innovation,Creativity & Invention
Creativity
Process of generating new and
novel ideas, they are of no use
Innovation unless converted into a product
Process of doing new things or or service
doing old things in a new way  Spontaneous
 Innovation  Technical
 Extension  Inventive
 Duplication  Innovative
 Synthesis

Invention
The creation of something
new, any idea or material.
 Results in creation of new
knowledge
Creativity Process

Germination Preparation Incubation Illumination Verification

Recoginition Search for Garnering of

of idea in Recognizing Validation of
knowledge to information
initial stage the feasibility the value of
rationalize and
of the idea ideas
the idea fantasizing
V. Feasibility Study

Commercial
Technical Aspects Aspect
• Location
• Size of plant
• Raw materials &
labour
• Plant & equipment
Financial Aspect
• Infrastructure
• Foreign Collaborations

Socio-economic
Aspect

Marketability
Aspect Good to Go..
VI. Project Appraisal

In-depth analysis made to decide selection or

rejection of the project.

Select Reject
VII. Project Report

Post feasibility study and project appraisal, the findings

and recommendations are presented in a report
known as Project Report.

• Its helpful in getting clearances from Govt.

• Also in applying loans from financial institution.
VIII. Preparation of Business Plan
• Written document
• Describes all relevant internal and external elements effecting
the start-up.
• Integration of functional plans, stating long term and short
, suppliers
term goals of the new venture.
– Self assessment by entrepreneur
– Determine the viability of venture in designated markets
– Helps in raising necessary funds.
– Judging the progress of the project at successive stages.
– Investors, lenders, suppliers know about entrepreneur’s plans.
IX. Launch Enterprise
• Once convinced of the feasibility and profitability of the
project, he assembles the necessary resources to launch the
enterprise.
• Once commissioned, the operational phase stage starts.
Queries..?