Setting Up a Small Business: Supply of Manpower, Financing, Nature and Size of Business

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Supply of Manpower

In most cases, the owner will have to employ some persons to help him in various business activities. These workers can be unskilled, semi–skilled and skilled. To run a business smoothly, it has to be ensured that sufficient requisite manpower is available at the right time and at competitive rates. The whole process, which ensures a regular supply of required manpower of right type, is called recruitment. The various sources of recruitment are:

  • Employment Exchanges.

  • Technical institutions and institutes of education and training like ITIs.

  • Advertisement through newspaper, employment news, Internet etc.; and

  • Placement agencies.

These sources are useful for recruitment of skilled workers. For unskilled labour, sources of recruitment are

  • Persons available at factory gate,

  • Through contractors,

  • Reference by the existing employees.

Financing of Business

  • This step essentially involves two things: Estimating the requirement; and deciding about the sources and their proportion. You are well aware that business cannot be run without capital. Adequate capital is required to establish any business whether it is small or big.

  • The capital requirement of a business is of two types,

    • Fixed capital; and

    • Working capital.

  • Fixed capital refers to funds required for acquiring fixed assets like land, building, machinery and equipment, whereas working capital is required to meet the routine expenditure like payment of salary, wages, electricity and telephone bill, purchase of raw materials, payment for transport, etc.

The amount of capital required by a business depends upon a number of factors like nature of business, size of business, production process, technology used etc. Let us now make up some of these factors.

Factors Determining Fixed Capital

As fixed capital is needed to meet the long-term requirements of the business, it is necessary to estimate the amount with utmost care. Following are the important factors that may be kept in view for estimating fixed capital requirements.

Image of Factors Determining Fixed Capital

Image of Factors Determining Fixed Capital

Image of Factors Determining Fixed Capital

Nature of Business

The business may be in the form of a manufacturing unit, a service undertaking, or a trading concern. In a manufacturing firm larger amount of fixed capital is required for land, building, machines etc. which require more funds to be invested. In a trading concern fixed capital requirement is lesser as the fixed assets like furniture etc. do not involve large investment.

Size of Business

The amount of fixed capital required also depends upon the size of business i.e., larger the size greater will be the need for fixed capital.

Types of Goods Produced

If a business manufactures consumer goods like soap, hair oil etc. amount of capital required is small, but if it manufactures industrial goods like machine tools and equipment, large amount of fixed capital will be required.

Production Technology

In a capital-intensive production unit, the amount of fixed capital required will be more while it will be small if labour intensive technology is used.

Method of Acquisition of Fixed Assets

Fixed assets may be purchased or acquired on lease or on hire purchase basis. If the fixed assets are purchased it will require more fixed capital initially as compared to the assets procured on lease or hire purchase.

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