Process of Setting Up A Business Easy Notes-2022



Business Organisation

Process of Setting Up A Business Enterprise

Process of Setting Up A Business Easy Notes-2022

A. Process of Setting Up A Business Enterprise

The process of setting up a business unit is a time-consuming, complex, and complicated activity. It involves various steps, procedures, and formalities.

The following steps are involved in process of setting up a business enterprise:-

  1. Identification of business opportunities.
  2. Generation of a business idea.
  3. Feasibility Study.
  4. Preparation of a business plan.
  5. Launching the enterprise.

Process of Setting Up A Business Enterprise


Step 1. Identification of business opportunity

This is the first step in setting up a business unit Entrepreneur is an opportunity seeker. As observed by Albert Einstein “In the middle of every difficulty lies opportunity”. He perceives an opportunity and strives to translate the opportunity into an idea. Opportunities do not come suddenly. Entrepreneurs must show alertness to grab opportunities when they come. The opportunities must be carefully scrutinized and evaluated.

The process of identifying opportunities involves identifying the needs and wants of the customers, scanning the environment, understanding the competitor’s policy, etc. To identify the right business opportunity, an entrepreneur needs to consider the following:-

  • Identify Market Inefficiencies.
  • Remove Key Hassles.
  • Customers Desire to Experience Something New.
  • Pick a Growing Sector/Industry.
  • Product Differentiation.
  • Cash Flow Considerations.
  • Listen to your potential clients and past leads. When you’re targeting potential customers listen to their needs, desires, challenges, and frustrations with your industry.
  • Listen to your customers.
  • Look at your competitors.
  • Look at industry trends and insights.

Step 2. Generation of business idea

This is the most important function of an entrepreneur.

The ideas that provide value for the customer, profit for the entrepreneur, and benefit for society and can be transformed into products or services are called business ideas. The idea is generated through vision. Idea generation is a critical skill in entrepreneurship and involves insight, observation, experience, education, training, etc. It involves a lot of creativity on the part of the entrepreneur and generally arises from an opportunity in the market.

The various sources of information for business ideas can be a personal experience, observing markets, prospective consumers, developments in other nations, government organizations, and trade fairs & exhibitions. This can be done through environmental scanning and market survey.

Role of Innovation and Creativity

Innovation may be defined as exploiting new ideas leading to the creation of a new product, process, or service. Innovation deals with coming up with creative ideas and turning those ideas into processes. It may be defined as the process of doing new things or doing old things in new ways. Entrepreneurship is a source of innovation.

Creativity means coming up with new ideas, concepts, processes, and products. In other words, it means the ability to bring something new into existence.

Stages In Creativity Process

In the nutshell, we can say that Ideas evolve through a creative process whereby a person with imagination germinates ideas, nurtures them, and develops them successfully.

Step 3. Feasibility Study

After the selection of a worthy idea, an entrepreneur undertakes various research relating to market selection, competition, location, machinery and equipment, capital, customer preferences, etc. to test the feasibility of the project.

A feasibility study is conducted in the following areas:-

Market/ commercial Feasibility Study

It involves the study of the market situation, current market, anticipated future market, competition, potential buyers, etc.

Technical Feasibility Study

This study involves the study of technical aspects related to the business, like the location of the business, layout, infrastructure, plant and equipment, effluent treatment and discharge, foreign collaboration, transportation, resource availability, etc.

Financial Feasibility Study

Financial feasibility denotes the financial aspects of the business. This study helps to understand the requirements of start-up capital, sources of capital, return on investment, etc. It helps to assess the financial health of the business.

Socio-economic Feasibility Study

This study is important to determine the extent to which the project is meeting its social economic objectives of development. It involves a social cost-benefit analysis for testing national profitability. It helps to know the contribution of the project towards employment generation,
income distribution, foreign exchange savings, development of backward regions, etc.

Preparation of Feasibility Report

The feasibility report is the conclusion drawn about the business after conducting the feasibility study. The feasibility report includes the confirmation of the proposed project. It gives the detail about technical, economic and financial, environmental, socio-cultural and
operational aspects of the project.

Step 4. Preparation of a business plan

In this step, an entrepreneur prepares a good business plan and designs and creates the organizational structure for the implementation of his plan. This plan is further used to achieve realistic goals.

A business plan, as defined by Entrepreneur, is a “written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement.” It serves as the blueprint for how you will operate your business. It is an effective means of defining your goals and the steps needed to reach them.

Preparation of a business plan

Need and purpose of a business plan

A business plan spells out your purpose, vision, and means of operation. It also serves as your company’s resume, explaining your objectives to investors, partners, employees, and vendors.

It serves the following purposes:-

  1. Maintaining Business Focus.
  2. Securing Outside Financing.
  3. Understanding consumers and competitors.
  4. Fuelling Ambitions and Mapping Growth.
  5. Enlightening Executive Talent or understanding employee needs.

Step 5. Launching the enterprise and managing the business

At this step, the entrepreneur fulfills some legal formalities. He hunts for a suitable location, designs the premises and install machinery. All the statutory formalities are to be met.

  1. Acquiring license.
  2. Permission from local authorities.
  3. Approvals from banks and financial institutions.
  4. Registration etc.

Once the project is set up, the entrepreneur must try to achieve the target of a business plan. This involves setting up an appropriate business process. Only proper management can ensure the achievement of goals. The entrepreneur must be capable of turning his ideas into reality.

He should also have the foresight to anticipate changes to avail of opportunities and meet threats likely to arise in the near future.

B. Problems in setting up a business

Problems in setting up a business – the factors that affect the growth of the business are explained below in detail:-

1. Lack of legal knowledge

The entrepreneur should have adequate legal knowledge to handle legal affairs efficiently. Lack of legal knowledge on the part of entrepreneurs may affect the smooth conduct of business. He should have knowledge regarding Factories Act, Wages & Salaries Act, Workers Compensation Act, etc.

2. Lack of experience

An entrepreneur should have enough experience to manage the business efficiently. Lack of adequate experience may create major problems and adversely affect the experience. The major hurdles that new entrepreneurs face are the availability of resources to carry out such a business. The most important is the allocation of funds that comes in the form of money to
research and development.

3. Lack of finance

Finance is the lifeblood of every business. Starting up a new venture requires adequate capital. It is required to meet business expenses like the purchase of raw materials, payment of wages and salaries, payment of interest on loans, etc. Lack of finance can create hurdles in setting up a business unit.

4. Lack of technology

Technology is never constant, it keeps on changing. Sophisticated technology helps in increasing the production capacity and quality of the products. A lack of suitable technology can hamper the reputation of the firm. Adoption of suitable technology can prove beneficial to the
business’s success and vice versa.

5. Problem of human resource

An organization is made up of people and people make an organization. A firm requires skilled, qualified, and talented employees. Lack of competent staff is another major issue for a business unit.

6. Problem of data

Entrepreneurship is based on research work. The Entrepreneur need to conduct a survey for gathering information regarding market condition, competition, technology, consumer, etc. the data collected may not be accurate and precise. At times it is incorrect and outdated. This hampers the survival of a business.

7. Problem of Marketing

The Entrepreneur should have marketing knowledge. This helps to face cut-throat competition in all sectors. Lack of marketing efforts and knowledge with respect to the product, pricing, distribution, and promotion hampers Entrepreneurial growth.

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