establishing a new enterprise author: alpana trehan chapter-2 © 2011, dreamtech press :: chapter 2...

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ESTABLISHING A NEW ENTERPRISE

AUTHOR: ALPANA TREHAN

CHAPTER-2

© 2011, Dreamtech Press :: Chapter 2

The fi rst 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

DEVELOPING A BUSINESS IDEA

© 2011, Dreamtech Press :: Chapter 2 2

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

BUSINESS OPPORTUNITY


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.

METHODS FOR GENERATING IDEAS


PROCESS OF SETTING UP A NEW ENTERPRISE


Creating a Business

Plan

Selecting the Form of Organizatio

n

Making a Product Choice

Selecting the Location of Industry

Setting up Infrastructur

e

Naming and Registering a Business

Fulfilling the Regularity

Requirements

Pricing the Product

Financing the Startup

Business

Procuring Physical

Resources

Hiring Human

Resource

Sole ProprietorshipPartnership FirmPrivate Limited CompanyPublic Limited CompanyCo-operative Joint Hindu Family BusinessLimited Liability Partnership (LLP)

DIFFERENT FORMS OF ORGANIZATION


It is a one-man organization-owned, managed, and controlled by a single individual.

The proprietor is held responsible for the liabilities and profi ts 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

SOLE PROPRIETORSHIP


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 fi rm can

be registered to avail certain legal benefi ts. 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

PARTNERSHIP FIRM


It is a voluntary association of minimum two and maximum 50 members.

It contains a diff erent 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

PRIVATE 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 diff erent 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

PUBLIC LIMITED COMPANY


It is a voluntary association of ten or more members residing or working in the same locality with the aim of fulfi lling 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 profi t making.

The drawbacks of Co-operative are: Shows inability to collect suffi cient capital Includes organizational limitations

CO-OPERATIVE


It is owned and maintained by the members of a family.

It involves unlimited number of members. It involves no compulsory registration, but can fi le 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

JOINT HINDU FAMILY BUSINESS


It has merits of Limited Liability Company and flexibility of partnership fi rm with a low agreement cost.

It involves no liability of any partner on account of independent or unoffi cial 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 either voluntary or by the tribunal established under the Companies Act, 1956

LIMITED LIABILITY PARTNERSHIP


Nature of Business

Scale of Operations

Degree of Control Desired by the Owner

Amount of Capital Required

Degree of Risks and Liabilities

FACTORS INFLUENCING THE SELECTION OF FORM OF

ORGANIZATION


Target customers Location of target customers Number of customers Consumption rate of product/serviceSeasonal demandCompetitors Expected market share Finance Quality standards

DETERMINATION OF SIZE OF NEW ENTERPRISE


The location aff ects 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: Selection of the region Selection of the appropriate site

LOCATION OF A STARTUP 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 diff erent type of feasibility analysis for a new enterprise are: Market Feasibility Financial Feasibility Organizational Feasibility Project Feasibility

FEASIBILITY STUDY OF NEW ENTERPRISE


It acts as a tool for understanding the environment/surroundings in which a business operates.

The components of PEST analysis are:

PEST ANALYSIS


"P" Political factors

"E" Economic

factors

"S" Socio-Cultural factors

"T" Technological factors

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.

SWOT ANALYSIS


• Involves maximizing the strengths and using them as an opportunity to grow further

S-O Strategies

• Involves minimizing the weaknesses and maximizing the opportunities by taking advantage of opportunities to mitigate weaknesses

W-O Strategies

• Involves using strengths to deal with threats

S-T Strategies

• Involves minimizing weaknesses and avoiding threats

W-T Strategies

SWOT STRATEGY


It is a tool used for industry analysis.The profi tability in an industry depends on the level

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

following figure:

PORTER’S MODEL


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

It’s a document that convincingly demonstrates that your business can sell enough of its product or services to make a satisfactory profi t and to be attractive to potential backers. --- David Gumpert

BUSINESS PLAN


If you are inclined to view the business plan as just another piece of useless paperwork, it’s 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

NATURE AND SCOPE OF BUSINESS PLAN


Business Plan

Insiders

Entrepreneur/Management Team

Employees

Outsiders

Suppliers

Customers

Investors

USERS OF A BUSINESS PLAN


Title PageTable of ContentsExecutive SummaryDescription of the BusinessMarket PlanEquipment and Material DescriptionManagement and Organizational PlanFinancial PlanContingency Plan

ELEMENTS OF A BUSINESS PLAN


The fi rst step in setting up a new enterprise is to 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 fi nancing, 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 diff ers from enterprise to enterprise depending on various factors, such as complexity in organizational structure, types of products and services, and demand for the product.

RECAP


establishing a new enterprise author: alpana trehan chapter-2 © 2011, dreamtech press :: chapter 2...

Documents

new business

business ideas

startup business

business plan

line of business

business opportunity

development of business

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