The present business world is
extremely competitive and in this situation starting a new business is a big challenge
whether it is a small or large business. But knowing the business start-up
challenges and problems will possibly help you to success your business. In this
article we will figure out some common problems and challenges that an entrepreneurs
face before establishing a new business.
1. Type of Ownership
There are four types of
ownership:
a. Sole proprietorship
b. Partnership
c. Joint Stock Company
d. Cooperative society
a. Sole proprietorship
b. Partnership
c. Joint Stock Company
d. Cooperative society
a. Sole proprietorship: A
business run by a single person is known is sole proprietorship. He solely
enjoys all the profits and responsible for the losses. He also enjoys greater
flexibility of management and fewer taxes. However, he has
unlimited liability for the debts of his business.
b. Partnership: A business run
by two or more persons is called partnership. They invest capital and share
profits, losses, and management of the business. A partnership firm is usually
operated under partnership agreement. The minimum limit of partners is two and
maximum is twenty. In case of banking, the maximum limit of partners is ten.
Partnership has following
kinds:
- General partnership
- Limited partnership
General partnership: A general partnership is one in which all
partners contribute to the day-to-day management of the business. They have
authority to make business decisions and are responsible for debts of the
business.
Limited partnership: A limited partnership has both limited and
general partners. The general partners have unlimited liability. While limited
partners have limited liability. There must
be at least one general partner who is responsible for all debts of the
business.
c. Joint Stock Company: Mainly
there are two types of companies.
- Private limited company
- Public limited company
Private limited company: It is usually run by family members or
relatives. They cannot sell their shares to general public on stock exchange.
Their liability is limited to the amount they have invested in the
company. The minimum limit of
shareholders is two and maximum limit is fifty. The word limited must be used
with the name of company. The company must obtain registration certificate from
the register.
Public limited company: It is more complex business. It
is run by board of directors. They sell shares to general public on stock
exchange. A person who buys shares is known as shareholder. The liability of shareholders is limited to
the amount they have invested in the company. Memorandum of association,
articles of association and prospectus are fundamental documents required in
the formation of a public limited company which must be registered with the
registrar of the company. The minimum limit of shareholders is seven and
there is no limit for upper. It is compulsory to use the
word of limited with the name of company.
d. Cooperative society: Cooperative society is an association
established for the purpose of providing services to its members on the basis
of no profit, no loss. It is owned and managed by its members. They
pay stipulated amount of fee annually which is used to finance day to day
expenses in the operation of business. Member’s liability is limited only if
the society is registered otherwise it is unlimited.
If you want privacy, full
control of business and having small amount of capital, then sole
proprietorship is the best choice. On the other hand, if you have large amount
of capital and want stability, company is the best choice. Partnership is the
best for sharing management and raising capital.
2. Type of Business
Mainly there are three types
of business:
- Manufacturing
- Merchandising
- Services
Manufacturing: Using components, parts or raw materials to make
finished goods is known is manufacturing.
This type of business has more legal regulations and environmental laws to
deal with as compare to merchandising and services business. It also requires a
large amount of capital to commence.
Merchandising: It is one of the most common types of business. It
refers to purchase of finished goods from distributors domestically or
internationally and resell them to consumers.
This type of business also known as non-manufacturing.
Servicing: If a person or firm provides facility of intangible
products such as accounting, banking, consulting, education, or medical
treatment, they are involved in servicing business. This type of business does not require
maintaining inventory system.
You may choose manufacturing,
merchandising, or servicing business. But the decision should be made based on
the availability of capital, scope of business, nature of demand, and your
experience.
3. Finance Problems
Finance is the lifeblood of
business. Before starting a new business, you have enough finance that sustains
your business in the market. The business finance is required to purchase
equipment, land, machinery, plant, merchandise and raw materials. The business
enterprise has to meet other expenses such as salaries, insurance, and rent.
The sources of business finance
include:
- Capital: It includes cash or other types of assets invested by owners, such as sole proprietor, partners or shareholders.
- Loans: It can be borrowed from banks, financial institutions, or individual.
- Retained earnings: It is the amount of profit a company has left over the previous year.
4. Location
Choosing right location for
business is very important. If your business is difficult to find and
surrounded by competitors, you will be struggling to get your potential customers. Following factors should be considered for
choosing right location:
·
Customer traffic
·
Competition
·
Nearness to the market
·
Utilities (power, water, gas)
·
Infrastructure
(road, transportation, communication system)
·
Building cost
·
Image of site
·
Availability of employees
·
Availability of parking area
·
Delivery convenience
5. Labor Problems
Labor may be divided into
three categories:
- Skilled laborers: They have special training or skills to perform the task. They include doctors, engineers, layers, auditors, professors, airplane pilots, computer programmers, and business administrators.
- Semi-skilled laborers: They have less training or skills than skilled laborers. They include machine operators, carpenters, drivers, clerks, and administrative assistance.
- Unskilled laborers: They don’t require special training or skills to perform the task. They have minimal economic value for the work performed. They include cleaners, peons, loaders, baggage carriers, hotel and domestic maids.
A business enterprise can hire
workers through advertisements. When workers are hired, they should be provided
training for better performance. They are offered salaries, allowances,
provident fund, and other facilities. Workers should be hired based on type,
requirements and wages.
6. Types of Goods and Services
The business enterprise has to
decide what type of goods and services are to be produced or bought in order to
offer to consumers. Goods may be vehicles, computers, plants, textiles,
electronic items, sport items, toys, cosmetic products, oil and petroleum
products. Services may be consulting, education, banking, accounting,
freelancing, traveling services, hotels and restaurants. Goods are offered to
consumers on the basis of price, color, size, design, model, packing and
warranty. While services are rendered on the basis of price and hours.
7. Marketing
Through marketing goods and services
moved from producers to consumers. Thorough research your market before
starting a new business. Also discover
the size of market and its sustainability of demand for the product or
service. You can market your product
through different advertising media such as TV, newspapers, radio, pamphlets,
and online. Follow those marketing strategies that motivate customers to make a
purchasing decision. Marketing is based on 4 Ps, product, price, place and
promotional strategy.
8. Dealing with Competition
Competition is another problem
when starting a new business. Competition is a situation when a large number of
suppliers exist in the market. Follow the given below points to deal with competition:
- Know your competitors: Know about your competitors that where they are, where they are going and how fast they are going to get there. It will help you to differentiate your business.
- Know your customers: know about your customers that what they want and make your marketing strategy accordingly. Offer better customer service by being more responsive to their needs and expectations.
- Treat customers as guest: Mostly customers want to go there where they get value. So treat customers as guest not only customers. If you do so, next time they will prefer to come to you.
- Don’t overlook the competition: Your competitors may come in different ways, but they have one thing in common -- they all want to beat you.
- Providing quality products: Customers are always looking for quality products with lowest possible price, if you offer them, they will come to you.
- Future of business: Today’s products get outdated tomorrow. The business has to go for future technologies and follow consumer trends.
- Competitors are not always competitors: If you think your competitor is growing more than you or getting tough competition, you may go for business combination.
9. Risk
Risk is a crucial part of
every business. It must be calculated before starting a new business. Risk is a
chance of harm or loss. It may be in the form of change in prices and tastes,
new technologies, competition, financial and operational risk, government
regulations, consumer preferences, obsolescence, accidents, fire, and
theft. Every business organizations
carry various nature of risk. So they
must be identified on a regular basis to avoid or reduce losses.
10. Legal Requirements
Before starting a new business
the investor must fulfill all the legal requirements. They include factory act, company act,
partnership act, income tax act, custom duties etc. It would be better to appoint a legal adviser
who can offer advice in the early set up stages of a business.
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