Setting up a Small Business: Exploring the Opportunities, Objectives, Nature of Business, Financial Planning and Location of Business (For CBSE, ICSE, IAS, NET, NRA 2022)

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It is very easy to start a small business if you have sufficient amount of money for the business. But actually, it is not an easy task howsoever small the business may be. It requires so many decisions and steps to be taken at various stages. You have to take decisions about the nature of business, location of business and sources of raising necessary capital. You also have to take a decision regarding physical, monetary and intellectual resources. Though the procedure for setting up a business is not the same for all types of businesses, there are certain steps which you have to take to start any small business. In this lesson you will learn some of the important steps in setting up of a small business unit.

Exploring the Opportunities

  • Establishment of a successful business unit begins with choosing a good idea for the business. This idea may be to produce something new or existing product; to buy and sell a new or an existing product; or to provide some existing or new service to the customers. But the question arises as to how you would decide on the product and the type of business activity you should take up.
  • While selecting a particular product you have to conduct market and product analysis from the viewpoint of consumers. The data on consumers՚ preference and needs are to be collected by using various market research techniques. You may survey the local area to find out the demand for any product. If the existing demand is substantial in the area and growing, then you may consider selecting that product. You may also foresee some new opportunities expected to be arrived in near future due to any change in social, political and technological activities. The various developmental activities of the Government also generate other related activities. For example, when government decides to set up projects like oil refinery, cement plant, steel plant etc. then various other activities like transportation, availability of food, clothes and other items of daily need also come up. In any case, the selected venture must have the scope for a reasonable amount of sales volume and the possibilities for growth.


After studying this lesson, you will be able to:


Preparing a Plan of Action

Once you have selected a specific product and decided to establish a business unit, you will have to prepare a plan of action. You will have to decide in advance each and every step you are going to take in that connection till it starts functioning. It will be helpful in avoiding delay at the initial stages of starting business.

Preparing a Plan of Action

Nature of Business

At first, decision is to be taken about the nature of business. To decide about the nature of business you want to launch, you have to consider the following factors:

  • whether the business would be profitable.
  • how much capital would be required?
  • what would be the degree of risk?
  • whether there would be sufficient market demand for the goods; and
  • whether there would be opportunities to grow and expand.

The above factors will help you to decide as to which line of business you can successfully pursue.

Choice of Form of Organisation

A small business may be organised as a sole proprietorship or a partnership firm. Advantages and disadvantages of both the forms will have to be considered and the decision taken. As a sole proprietor, you will have full authority in managing the business and will be entitled to get the entire profit generated, but then you will also have to bear the entire risk of loss involved. In case of partnership, there will be others to share the risk and contribute capital and help in management. But then the profit earned will also have to be distributed among the partners. Sometimes company form of organisation may also be considered for the purpose specially when one plans an industrial undertaking.

Financial Planning

A business cannot be started and run without sufficient amount of capital. Capital is required to buy fixed assets like land, building, machines and equipment. Capital is also required to buy raw material and meet day to day expenses of the business-like salary and wages, electricity charges, telephone bill, carriage, etc. An estimate has to made regarding the amount of capital required for the various purposes and decisions taken regarding the sources and methods of raising it. The amount to be contributed by the owners and the amount to be borrowed from financial institutions, banks, etc. must also be decided well in advance.

Location of Business

Where to establish a business is also to be decided in advance. It primarily consists of decision regarding the choice of locality and selection of site. The deciding factors usually are nearness to the source of supply of raw material, nearness to the market, availability of labour, transportation and banking facilities.

Physical Facilities

Decisions have to be taken regarding plant and machinery and equipment to be provided for the business, building and other physical facilities like water and power supply, transportation, etc. The factors that may affect the decisions in this regard are the size of business, techniques of production to be used, availability of funds.

Plant Layout

After selecting the machinery and equipment required, it is necessary to decide about their installation in a proper manner. This is called plant layout. A good layout makes the operations efficient and economical. It reduces the costs of material handling, storage of inventory, use of space, etc. It helps in optimum utilisation of all resources.

Manpower and Raw Materials

  • The number and type of employees to be appointed have to be estimated and decided in advance and the process of their recruitment, selection and training duly planned.
  • Raw materials are an important input for producing goods. To maintain continuity of production, raw materials must be available in adequate quantity and in nearby areas. Type, quantity and quality of materials to be purchased should be decided in advance, and their sources of supply ensured.

Production Process and Operations

The whole production process is to be visualised and the various activities involved in its operation are to be planned well in advance.

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