Most of us carry a strong desire to start business. This new year is a perfect time to start business and fulfill your long-cherished desire. It’s an era of start-up, being independent and creating wealth.
Why business?
The major reasons why people want to start business are,
- A business helps in creating a source of livelihood by oneself. In job whatever be the position, we need to work under somebody.
- In business, we can be independent and decide our own course of life.
- In business we earn profit, in job we earn income. The possibility of earning more profit through hard work is high in business. In job earning more income has limitations.
- A business can be passed on to next generation. In job it is not possible.
- In business we can be creative; apply our intelligence and reap benefit. In job we have to go by rules.
There could be many more reasons depending upon an individual’s choice.
What is a business?
A business is an activity which earn money for our livelihood as well as create wealth. Though business is meant for profit, it can be non-profit making also. It depends upon the objective of starting a business.
An individual can start business as a proprietorship concern. A group of individuals can create legal entity such as partnership farm, public or private limited company, registered society, co-operative etc. to start business.
We often confuse business with self-employment. A practicing profession is not a business. For example interior designer, architect, doctor, CA etc. Business is an activity which leverage the labour of employed resources like people, capital, machine etc.
What is required to start business?
Most often people start business looking at apparent opportunity and profit. The chances of failure of such business venture is high. The best way to start business is to gather details about the business idea and analyse the same before taking the final decision. If you seriously wants to start business in India in 2023, follow the step by step process as below:
The business idea
Now-a-days all business have many dimensions. It is not simple as it looks. For example we may take restaurant business. It can be in many format – fast food, fine dine, café, Chinese food, European food, Indian food, ethnic food, arabian food, sit & eat, takeaway, cloud kitchen etc. In clothing it could be ethnic, western, designer, mixed etc. Whatever be your idea, first and foremost brainstorm the same and finalise the idea around which a business is proposed to set up.
The business plan
The next step is to prepare a business plan. Any business project where investment is more than ₹5 lakh should have a business plan. It enhances success chances by many folds. It will capture all details like a) promoter profile, b) technology assessment, c) market assessment, d) financial viability and f) different approval required.
The business plan works as a guiding document to progress in the business. It also become handy if you have to apply for bank loan like Mudra loan.
Promoter profile
It will include details about the persons behind the project. Their educational background, experience in the line of business, networth, management strategy to run the business etc.
The networth indicate how resourceful are the promoter to start business. A strong requirement is having liquid cash or funds to invest for the business. Having high netwroth with illiquid assets may hinder in deploying money for the business.
The promoter or the person who owns the business should have a support hand all the time to manage the business. It enables to continue the business in difficult phase.
Technical assessment
The technology for different manufacturing or service activity is changing very rapidly. Therefore, it is important to evaluate in details of whatever technology is to be adopted for the business. It could be some machinery, software, fittings & fixtures.
It also includes availability of utilities like electricity, water, approach road, skilled labour etc.
Location is another important aspect to start business. Depending upon nature business, the choice of location can very. Certain business can be done from home, while others require prime location for easy attraction and access of customers.
Market assessment
We assess demand of a product or service from our own perspective. However, market reality could be different. A complete market assessment is required before we take up any business. It should be in terms of local demand, overall performance of the industry, competitors, entry and exit barrier, pricing and most important profitability.
Further more it should be evaluated how quickly business can be scaled up to higher volume.
Financial viability
There is something called economic size in business. A business is profitable only if it is set up with an economic size. Each industry has its own minimum economic size. Therefore, the business set up should atleast meet the minimum economic size. Most of the time entrepreneur comprise due to shortage of funds.
The cost estimate for setting up the business should be based quotations and market trends. Instead of doing a lumpsum cost estimate, all cost head should be estimated in details. The cost heads may include land, building, plant and machinery, miscellaneous fixed assets, furniture and fixtures, preliminary expenditure etc. There should also be a provision for cost escalation.
Once cost is estimated, the same need to funded with promoter’s money and bank borrowing, if needed. The promoter should always be ready with resources to fund any cost escalation during project implementation time.
There will be a requirement of funds for day to day operation of the business, which is called working capital. The promoter should have adequate resources to fund the working capital from his own pocket or bank borrowing.
As a part of financial evaluation, the future profitability is prepared at least for coming five years. It is dependent on various assumptions taken to prepare the statement. The thump rule is the earning should always be taken conservatively and expenditure on higher side.
The level of operation should also be taken conservatively. If the project still shows financially profitable, then it will survive all ups and downs during actual operation of the business.
Documents required to start business
Any business to operate in India require various licenses, permissions and approval from Government authority. The most important of them are as below (wherever applicable).
- Company incorporation certificate or partnership firm deed or proprietorship firm registration
- Permanent Account Number (PAN) card of promoter. If business is in the name of any farm or company, then PAN should be in the name of the entity.
- Trade license
- Shop and establishment license
- GST registration
- Udyami Registration Certificate
- Power sanction letter
- Pollution control certificate
- No Objection Certificate from local authority
- Digital signature and Director Identification number, if comapny
Dos and Don’ts
- Start a business in a line where you have experience either as an employee in some organisation or by virtue of existing business. In absence of self-experience, someone with experience may be taken as co-promoter.
- Start small and grow in phases. The reality of a business is known only when it is started. Growing by phases help in improving past mistakes.
- Keep a client first attitude. Reputation of the business is key to success.
- Have a long term plan and keep pushing until the goal is achieved.
- Never start business in a haste. A thorough brainstorming is must. It brings in clarity, level of interest and commitment.
- Don’t start business pouring all your resources. Keep resources to meet requirement during actual operation.
- Don’t expect profit at the initial stage. Many business takes 3 to 4 years to show a reasonable profit.
- Don’t look for shortcut. Abide by the rules and regulations. As we know shortcut results are temporary and its price is heavy.
If you want a business plan format, do let me know in comments. I shall be providing it for free.