Process of setting up a business

enterprise
Unit 3
 Promoter
Entrepreneur

Brings new enterprise

Enterprise Brings enterprise into
successful venture
into existence

Step by step
Idea procedure
 Line of

Line of Business Physical Facilities Plant Layout

Financial Internal
Size of Unit Planning Organization

Location of Forms of Personnel

Business ownership
 Raw materials,
technology, source of
Industrial, Trading or supply
Service

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

Product design,
pricing, distribution &
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 the 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 un-favorable 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 Appropriate
amount of capital
structure
capital
required

Time, price and

Administration
method of
of funds
marketing
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 of 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 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
• 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.