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  • 2. 2 CERTIFICATE OF ORIGIN This is to certify that I, Mr. AYUSH TAPARIA, a student of Under Graduate Degree in BBA-GENERAL (2012-2015), Amity School of Business, Noida has worked under the able guidance and supervision of Ms. JAYASHREE SAPRA, assistant professor. This Summer Project report has the requisite standard for the partial fulfillment the Under Graduate Degree in Business Administration. To the best of our knowledge no part of this report has been reproduced from any other report and the contents are based on original research. I am aware that in case of non-compliance, Amity School of Business is entitled to cancel the report. Signature (Student) Ayush Taparia A3906412187 Signature of Project Coordinator Signature (Faculty Guide)
  • 3. 3 ACKNOWLEDGEMENT I express my sincere gratitude to my faculty guide Ms. JAYASHREE SAPRA, assistant professor, for his/her able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible. Signature (Student)
  • 4. 4 TABLE OF CONTENTS Chapter No.Subject Page No. 1.0Executive summary 6 2.0 Introduction 01 Business7 02 Entrepreneur7 03 Characteristics of a Business Undertaking8 04 Classifications of business type9 05 Element of business10 06 Advantages/Disadvantages of business ownership11 3.0 Objectives13 4.0 Legal consideration and requirement 14 01 Regulatory requirements 1. Permits, licenses and regulations14 2. Tax15 3. Insurance17 02 Legal structure of your business 1. Type of business structure20 03 Employee responsibility23 5.0Start-up process24 01 Development of business idea 1. Coming up with a new idea25 2. Developing your idea25 3. Is Entrepreneurship For You? 26 4. Selecting and using professionals27 5. Selecting a business location28 6. Ownership option29 7. Idea Assessment and business development process30 02 Business Planning34 1. Develop a plan 35 2. The Right Look35 3. The background papers35 4. Business plan writing36 5. Mistakes to avoid46 6. Confidentiality47
  • 5. 5 03 Start-up and expansion 1. Arrange business financing 48 6.0 Key Regulation56 7.0 Business ethic57 8.0Industry example 01 Asap59 02 Jawed Habib61 9.0Research Methodology63 10.0 Conclusion64 11.0 Bibliography65
  • 6. 6 EXECUTIVE SUMMARY Starting and operating a new business involves considerable risk and effort to overcome the inertia against creating something new. In creating and growing a new venture, the entrepreneur assumes the responsibility and risks for its development and survival and enjoys the corresponding rewards. To be successful, an entrepreneurneeds expertise in various fields like finance, marketing, production, administration, human resource, labors laws, taxation, etc. in addition to possessing distinct qualities, values and attitude an entrepreneur will need to be informed about government policies, functions, enterprise launching and enterprise management abilities are a key to successful entrepreneurship. Enterprise has 3 important elements idea, capital and management team. Business required all three elementsto work. Starting point is most critical point for every business big or small. A right startup can lead to success but a single mistake in startup can lead to future loses or failure. Every entrepreneur has its own way/style to start up his business. Business has no particular way to startup but there is certain guide line which every business man should follow. The process discuss in project is not only element which is to be include while startup there are many more element which can be include according to type of business. The process discuss is just an outline of startup process which need to be followed by every business for successful startup. First step of startup process is development of idea. When a person get good or innovative idea to startup business there are many factor that a person should take consideration like can he be businessman, is his idea possible to be implement, do he/she has enough capital required to fulfill his business idea, look for the competition in the market, what will be structure of business (partnership, private company, public company etc.), location for his business, etc. Second step is formal step. As a person knows what he is going to doing so he need to disclose his idea to rest of people by writing idea on a paper. This is known as the business plan. It contains:- Executive Summary, Table of Contents, Description of the Business, Description of the Product or Service, Market Analysis (including a summary of your market research), Marketing Plan, Operational Plan, Financial Plan,. Risk Analysis and Contingency Planning, and Supporting Materials. Last step business startup and expansion. After the business plan it time to focus on its startup. According to business plan the business should be start. It deals with how the capital is collected and appropriate way to start up business. After the business is started the growth of business is required, so expansion is also an important part of business. Business ethics is the behavior that a business adheres to in its day-to-day dealings with the world. And maintaining good business ethic is responsibility of the entire entrepreneur to survive.
  • 7. 7 What is business? Anorganization or economic system is where goods and services are exchanged for one another or for money. Every business requires some form of investment and sufficient customers to whom its output can be sold on a consistent basis in order to make a profit. Businesses can be privately owned, not- for-profit or state-owned. A business undertaking is an organization which is involved in some industrial or commercial activity. It represents an institutional arrangement for carrying on any kind of business activity. It may be owned and controlled by a single individual or by a group of individuals who have entered into a formal or informal agreement to jointly conduct the business.Every business undertaking is a separate and distinct business unit. It has its own identity and separate ownership. It can be distinguished from other undertakings on the basis of its ownership, management and control. According to Wheeler, a business undertaking is a concern, company or enterprise which buys and sells, is owned by one person or a group of persons and is managed under a specific set of operating policies". Thus, a business enterprise may be defined as an organization operating under separate ownership, management and control and carrying on any business activity with independent risk- bearing.All business undertakings are directly or indirectly engaged in the transfer or exchange of goods and services for value. They deal in goods and services on aeven basis. Their main motive is to earn profits and they are exposed to various types of risks. An example of a Corporate business is PepsiCo, while a Dabbawala catering of Mumbai is a private enterprise. Entrepreneur An entrepreneur is someone who starts or operates a business venture and undertakes the responsibility for it. He or she provides goods or services to individuals or businesses for payment. Some personal qualities entrepreneurs have include: Inquisitiveness and creativity Motivation and self-confidence Willingness to take risks Eagerness to learn Ability to co-operate Ability to identify chances Ability to revolutionize (do something that nobody has done before) and lead Determination to overcome obstacles (‗never take no for an answer!‘) Ability to learn from faults made by oneself and others, etc.
  • 8. 8 Characteristics of a Business Undertaking The basic features of a business undertaking are as follows: 1. Separate identity: All business undertaking has a separate identity. It has a different name and distinct existence. Its assets and liabilities are independent of the other undertakings. Its accounts are distinct from those of the people who own it. 2. Recurring activities: Business activities are repeated in nature. Recurring buying and sales are regarded as identifying marks of the business. 3. Independent ownership: A business undertaking is owned by the people who contribute its capital. The proprietors may be private individuals or the government. Every business undertaking thus has an independent unit of proprietorship. 4. Organization: All enterprise needs an organization for its successful working. Many business activities are divided into departments, sections, and jobs. An organization creates the framework for managerial performance and helps in coordinating numerous business activities. A proper organization is helpful in the smooth running of the business and helps to accomplish its objectives. 5. Independent management: The arrangement of management of an undertaking depends on its nature and size and legal requirements. But all business undertaking has its own independent management. The management of one undertaking does not interfere in the working of other undertakings. The management of every undertaking takes independent decisions concerning diverse aspects of business. 6. Element of risk: Every business undertaking comprises risk. Profit is the prize for bearing risk. The risk of an undertaking is borne by its proprietors though some of the risks may be covered through insurance. 7. Financing: Business enterprises cannot move a step without finance. The finances are compulsory for providing fixed and working capital. The accessibility of other factors of production also depends upon the availability of finances. After estimating its financial requirements, the businessman tries to find out
  • 9. 9 the sources from which these requirements will be met. A proper capital structure is must for the success of the business. Classifications of business type: •Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals. •Financial businesses include banks and other companies that generate profit through investment and management of capital. •Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies. •Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers. •Real estate businesses generate profit from the selling, renting, and development of properties comprising land, residential homes, and other kinds of buildings. •Retailers and distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalog companies are distributors or retailers. •Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses. •Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs. •Utilities produce public services such as electricity or sewage treatment, usually under a government charter.
  • 10. 10 Elements of business Business is set up by combining three elements: 1. Business idea- A business idea is a concept which can be used for commercial purposes. It typically centers around a commodity or service that can be sold for money, according to a unique model. Without a business idea, there is no business. However, the idea is not the end of the creative process, it is its beginning. 2. Financial capital- Itis money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.Several sources available for start-up capital:Self- financing by the owner through cash, equity loan on his or her home, and or other assets, Loans from friends or relatives, Grants from private foundations, Personal savings, Private stock issue, Forming partnerships, Angel investors, Banks, etc. 3. Management- The process of achieving the objectives of the business organization by bringing together human, physical, and financial resources in an optimum combination and making the best decision for the organization while taking into consideration its operating environment. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.The management team is the critical element in setting up a business. New Business Idea Capital Management Team
  • 11. 11 ADVANTAGES OF BUSINESS OWNERSHIP 1. Independence-When a person is running his or her own business he/she can do whatever he/she want. He/she don‘t have to take orders from other person. He/she is responsible for all the business activities. 2. Financial Rewards.- In spite of high financial risk, running own business gives a chance to make more money than if you were employed by someone else. 3. Lifestyle- Owning a small business gives certain lifestyle advantages. Because you're in charge, you decide when and where you want to work. If you want to spend more time on non- work activities or with your family, you don't have to ask for the time off. If it's important that you be with your family all day, you might decide to run your business from your home. Given today's technology, it's relatively easy to do. Moreover, it eliminates commuting time. 4. Learning Opportunities- As a business owner, person can be involved in all aspects of business. This situation creates numerous opportunities to gain a thorough understanding of the various business functions. 5. Creative Freedom and Personal Satisfaction- As a business owner, a person is able to work in a field that he/she really enjoys. He/she is able to put his/her skills and knowledge to use and get personal satisfaction from implementing ideas, working directly with customers, and watching business succeeds.
  • 12. 12 DISADVANTAGES OF BUSINESS OWNERSHIP 1. Financial Risk. The financial resources needed to start and grow a business can be extensive. You may need to commit most of your savings or even go into debt to get started. If things don't go well, your financial loss can be great. In addition, there's no guaranteed income. There might be times, especially in the first few years, when the business isn't generating enough cash for you to live on. 2. Stress. As a business owner, you are the business. There's a bewildering array of things to worry about—competition, employees, bills, equipment break- downs, customer problems. As the owner, you're also responsible for the well-being of your employees. 3. Time Commitment. People often start businesses so that they'll have more time to spend with their families. Unfortunately, running a business is extremely time-consuming. Even though people have the freedom to take time off, person might not be able to get away. 4. Undesirable Duties. When you start up, you'll undoubtedly be responsible for either doing or overseeing just about everything that needs to be done. You can get bogged down in detail work that you don't enjoy. As a business owner, you'll probably have to perform some unpleasant tasks, like firing people.
  • 13. 13 OBJECTIVES The study is based on secondary data which is collected from the published reports, newspapers, journals, websites, etc. The study was planned with the following objectives: 1. To evaluate the process involved in setting up a new business firm. 2. To study legalities/government involved in setting up a new business firm. 3. To study the entrepreneurship ecosystem(business environment, ease of doing business, acceptability). 4. To determine the unique challenges entrepreneurs face in managing their businesses.
  • 14. 14 LEGAL CONSIDERATIONS & REQUIREMENTS As an entrepreneur, it is your responsibility to ensure that your business is properly complying with state and federal regulatory requirements, registration, permits, licenses, and employer responsibilities. Stiff penalties may be assessed against you and/or your company if you are found in violation of certain government requirements. This section will address three primary legal considerations: Regulatory requirements Legal structure of your business Employee responsibility REGULATORY REQUIREMENTS Permits, licenses and regulations Most businesses are required to obtain some kind of license or permit – city, state, and/or federal. Certain types of businesses may be required to obtain special permits from local health authorities, building inspectors, and police/fire departments. The business owner should take steps to ensure that the business does not violate any zoning regulations or ordinances regarding hazardous activities. Mistakes in obtaining the proper permits and licenses can be expensive, at best. Federal licenses and permits Most new small businesses are unlikely to require any federal permit or license to operate unless they are engaged in: Rendering investment advice Preparing meat products Selling alcohol, tobacco, and firearms Federal permits or licenses are also necessary to start some large-scale operations in regulated industries, such as: Radio or television stations Common carriers (telephone companies) Produce drugs or biological products Special licenses and permits In certain instances, such as contractors‘ licenses and bonding, day care certificates of competency, etc., you will need to obtain specific industry licenses and permits. City or local licenses and permits Business owners need to explore local licenses and permit requirements and, in some cases, special licenses which may be required (such as for alcohol, amusement, or child care). These licenses include privilege licenses, occupational licenses, and other miscellaneous licenses.
  • 15. 15 Privilege License All for-profit businesses located within city limits must have a privilege license before beginning business operations. In some cities, zoning and other related requirements must be approved before you can obtain a license. If the business is not located in a city, county privilege licenses may be applicable. Zoning The Zoning or Planning Department, city or county, determines if a business location is zoned correctly for the proposed business type. Some areas are not zoned for commercial businesses; therefore, inquiries need to be made before establishing a business. Some home-based businesses are required to have a Home Occupation Use Permit. Others qualify as a ―limited use business‖ that does not require a permit. Signs Sign sizes and locations are regulated within city or county limits and are determined by the Inspection or Planning Department. Contact the city or county prior to design and construction of a business sign to ensure it meets the regulations. Tax The form of business you operate determines what taxes you must pay and how you pay them. The following are the four general types of business taxes. Income Tax Self-Employment Tax Employment Taxes Excise Tax Income Tax All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established. The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return. For additional information refer to Publication 583. Estimated tax Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer toEstimated Taxes.
  • 16. 16 Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. If your net earnings from self-employment were $400 or more. If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization. Note: There are Special Rules and Exceptions for aliens, fishing crew members, notary public, State or local government employees, foreign government or international organization employees, etc. For additional information, refer to Self-Employment Tax. Employment Taxes When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following: Social security and Medicare taxes Federal income tax withholding Federal unemployment (FUTA) tax Excise Tax This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Manufacture or sell certain products. Operate certain kinds of businesses. Use various kinds of equipment, facilities, or products. Receive payment for certain services.
  • 17. 17 Insurance Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. Different Types of Commercial Insurance 1. Property Insurance Property insurance pays for losses and damages to real or personal property. For example, a property insurance policy would cover fire damage to your office space. You can purchase additional coverage‘s for business property, including: 2. Boiler and Machinery Insurance Boiler and machinery insurance, sometimes referred to as "equipment breakdown" or "mechanical breakdown coverage," provides coverage for the accidental breakdown of boilers, machinery, and equipment. This type of coverage usually will reimburse you for property damage and business interruption losses. For example, this coverage would cover fire damage to computers. 3. Debris Removal Insurance Debris removal insurance covers the cost of removing debris after a fire, flood, windstorm, etc. For example, a fire burns your building to the ground. Before you can start rebuilding, the remains of the old building have to be removed. Your property insurance will cover the costs of rebuilding, but not of removing the debris. 4. Builder's Risk Insurance Builder's risk insurance covers buildings while they are being constructed. For example, a Builder's risk policy would cover losses if a windstorm takes down your partially constructed condominium complex. 5. Glass Insurance Glass insurance covers broken store windows and plate glass windows.
  • 18. 18 6. Marine Insurance Inland marine insurance covers property in transit and other people's property on your premises. For example, this insurance would cover fire-damage to customers' clothing from a fire at your dry cleaning business. 7. Business Interruption Insurance Business interruption insurance covers lost income and expenses resulting from property damage or loss. For example, if a fire forces you to close your doors for two months, this insurance would reimburse you for salaries, taxes, rents, and net profits that would have been earned during the two- month period. 8. Ordinance or Law Insurance Ordinance or law insurance covers the costs associated with having to demolish and rebuild to code when your building has been partially destroyed (usually 50 percent). For example, your three-story building is 100 years old. A flood destroys the basement and first two stories. Because more than 50 percent of your building has to be rebuilt, a local ordinance requires that the building be completely demolished and rebuilt according to current building codes. Property insurance covers only the replacement value, not the upgrade. 9. Tenant's Insurance Commercial leases often require tenants to carry a certain amount of insurance. A renter's commercial policy covers damages to improvements you make to your rental space and damages to the building caused by the negligence of your employees. 10. Crime Insurance Crime insurance covers theft, burglary, and robbery of money, securities, stock, and fixtures from employees and outsiders. 11. Fidelity Bonds A bond company covers losses due to a bonded employee's theft of business property and money. 12. Liability Insurance Liability insurance covers injuries that you cause to third parties. If someone sues you for personal injuries or property damage, the cost of defending and resolving the suit would be covered by your liability insurance policy. A general liability policy will cover you for common risks, including customer injuries on your premises. More specialized varieties of liability insurance include: 13. Errors and Omissions Insurance Errors and omissions ("E & O") insurance covers inadvertent mistakes or failures that cause injury to a third party. The act must actually be an inadvertent error, and not merely poor judgment or intentional acts. For example, an E & O policy would cover damages arising from an insurance agent failing to file policy applications, or a notary forgetting to fill out notarizations properly.
  • 19. 19 14. Malpractice Insurance Malpractice insurance, or professional liability insurance, pays for losses resulting from injuries to third parties when a professional's conduct falls below the profession's standard of care. For example, if a doctor makes a mistake that other doctors of his specialty would not have made, his patient might sue him. A malpractice policy will pay his defense costs and any judgment or settlement. Malpractice insurance is available for doctors, dentists, accountants, real estate agents, architects, and other professionals. 15. Automobile Insurance Commercial automobile policies cover the cars, vans, trucks and trailers used in your business. The coverage will reimburse you if your vehicles are damaged or stolen or if the driver injures a person or property. 16. Directors' and Officers' Liability Insurance This type of insurance is generally purchased by corporations and nonprofit organizations to cover the costs of lawsuits against directors and officers. 17. Workers' Compensation Insurance Workers' compensation insurance covers you for an employee's on-the-job injuries. Businesses with employees are required by various state laws to carry some type of workers' compensation insurance. In most cases, workers' compensation laws prohibit the employee from bringing a negligence lawsuit against an employer for work-related injuries.
  • 20. 20 THE TYPE OF BUSINESS STRUCTURE There are several forms of business structures for you to consider. Selecting the business entity which is right for you will involve tax, business and estate planning, and financial considerations. In this section, we discuss the various structures and identify the advantages and disadvantages of each. The legal structure you choose will determine the organization, debt liability, and tax requirements as well as other aspects of business questions. 1. Private Sector Undertakings: These undertakings are owned, controlled and financed by private businessmen. There is no Government participation in them. The main motive of private sector undertakings is to earn profits. Their main characteristics are as under: (a) Private Ownership and Control: A private sector undertaking is fully owned and controlled by the private entrepreneurs. It may be owned by one individual or by a group of individuals jointly. When owned by one person, it is called Sole Proprietorship. A group of persons may joint own the firm in the form of joint Hindu family business, partnership, joint stock company or cooperative society. (b) Profit Motive: The main objective of private sector undertakings is earning profits. Profits provide the reward for the risk assumed and the required return on capital. (c) No State Participation: There is no participation by the Central or State Governments in the ownership and control of a private sector undertaking. (d) Private Finance: The capital of a private sector undertaking is arranged by its owners. The sole trader contributes the capital of a sole proprietorship. In case of partnership, capital is invested by the partners. A joint stock company raises capital by the issue of shares and debentures. A private sector undertaking can also raise loans to meet its long- term and short-term needs for funds. (e) Independent Management: A private sector undertaking is managed by its owners. In case of sole proprietorship and partnership, the owners directly manage the firm. The management of a joint stock company lies in the hands of directors who are the elected representatives of the shareholders. 2. Public Sector Undertakings:
  • 21. 21 These undertakings are owned and operated by the Central and State Governments. The main characteristics of public sector undertakings are given below: (a) State Ownership: Public undertakings are fully owned by the Government or some public authority. For example, Reserve Bank of India is owned by the Central Government, while Delhi Transport Corporation is owned by the Government of Delhi State. (b) Government Control: The ultimate control of a public sector undertaking lies with the Government. (c) Service Motive: The primary objective of a public sector undertaking is to render service to the public at large. In order to serve the public, it may even incur loss. For example, the Food Corporation of India provides food grains to the public at subsidized prices. (d) State Financing: The Government provides the capital and funds through appropriations from its budget. The Government may also provide loans from time to time from the State exchequer. (e) Bureaucratic Management: The management of public sector undertakings is bureaucratic in the sense that their operations are governed by certain rules and regulations prescribed by the Government. (f) Public Accountability: Public sector undertakings are accountable to the public at large for their performance and results. The annual audit of these undertakings is conducted by the Comptroller and Auditor General of India. Moreover, their annual reports are subject to discussion in the Parliament or the State legislature. 3. Joint Sector Undertakings: Joint sector consists of business undertakings wherein the ownership, control and management are shared jointly by the Government, the private entrepreneurs and the public at large. According to the guidelines laid down by the Government of India, the share capital of a joint sector undertaking (without foreign participation) is to be divided as follows: Government 26 per cent, private businessmen 25 per cent and the public 49 per cent. No single individual or organisation can hold more than 25 per cent of the paid-up-capital of a joint sector enterprise without the permission of the Central Government. In case of foreign participation, the respective shares will be: Government 25 per cent, Indian entrepreneur 20 per cent, foreign investor 20 per cent and the investing public 35 per cent. MarutiUdyog, Cochin Refineries and Gujarat State Fertilizers are examples of joint sector undertakings in our country.
  • 22. 22 The main characteristics of joint sector enterprises are as follows: (a) Mixed Ownership: The Government, private entrepreneurs and the investing public jointly own a joint sector enterprise. (b) Combined Management: The management and control of a joint sector enterprise lies with the nominees or representatives of the Government, private businessmen and the public. (c) Share Capital: The shares of the Government, private businessmen and the public in the capital are 26 per cent, 25 per cent and 49 per cent, respectively. The aim is to pool the financial resources and technical know- how of the State and the private individuals. How should one choose the appropriate form of business? The selection of a suitable form of business organisation on the basis of ownership and management is one of the most important tasks of the entrepreneur. Once the form of organisation is chosen, it is very difficult to switch over to another form, because it needs the winding-up of the existing organisation which is a waste of time, effort and money. Therefore, the form of an organisation must be chosen after careful thought and consideration. There are a number of factors to be considered while selecting an appropriate form of business organisation. Factors which are inter-related and inter-dependent as well: Nature of business Volume of business Area of operation Finance Ownership and control Liability Independence
  • 23. 23 EMPLOYER RESPONSIBILITIES No matter what form of business you decide to enter, if you plan to have employees you will face certain employee responsibilities, including payroll taxes, unemployment taxes, employee insurance and benefits, and providing a safe work place. Payroll taxes and employment taxes The Internal Revenue Service provides excellent publications by request or from their website ( These publications specifically address critical tax and payroll issues that new business owners must understand and comply with. Insurance benefits plan Most employees today expect some kind of benefit package. There are always costs associated with these plans. We recommend you seek professional advice to help you evaluate the options available to you.
  • 24. 24 THREESTAGESINTHESTART-UPPROCESS Start-up and expansion Business Planning Development of business idea
  • 25. 25 Research and develop your business ideas Developing your business idea into a viable product or service is a critical part of building a business. Thorough assessment and market research at an early stage will help you to establish whether there is a market for your product or service. Finding and developing your idea A new idea is often the basis for starting up a business. Many entrepreneurs spot a gap in the market and start businesses that provide a product or service that fills it. Others come up with ways to improve an existing product.  Coming up with a new idea If you want to start a business but don't yet have an idea to work with, there are many ways to go about identifying one. The following questions may help: Do you have any particular skills that could form the basis of a new business? Do you have a hobby that could be turned into a business? Has there ever been a time when you needed a particular service or product that nobody else provides? If you needed it, there is a good chance that other people will too.  Developing your idea Once you've got a business idea, take time to refine it. This will help you to decide whether it could be the foundation of a successful business. There are various established methods of developing a business idea. You can: conduct market research to discover whether your idea fills a gap in the market brainstorm your idea with friends, colleagues or staff - they can give different perspectives on the idea and may know if anyone else is doing the same thing think about whether your idea can take advantage of an opportunity created by new technologies, eg by trading online consider whether social trends will affect demand for your product, eg the increasing demand for organic food Is there a market for my idea? There are certain criteria you can use to establish this: Does it satisfy or create a market need? Can you identify potential customers? Will it outlive passing trends or capitalize on the trend before it dies away? Is it unique, distinct or superior to those offered by competitors? What competition will it face - locally, nationally and globally? Is the product safe for public use and does it comply with relevant regulations and legislation? Seek legal advice before proceeding.
  • 26. 26  Is Entrepreneurship For You? It is very important to know whether a person has capability to handle a business or not. It is very complicate task and it is not a cup of tea for everyone. It has many aspects to be focus on. So before a person think of starting a business no matter how many good ideas he/she has, should take consideration of whether he/she will be successful entrepreneur or not. Some important criteria are- Comfortable with taking risks: Being your own boss also means you‘re the one making tough decisions. Entrepreneurship involves uncertainty. Do you avoid uncertainty in life at all costs? If yes, then entrepreneurship may not be the best fit for you. Do you enjoy the thrill of taking calculated risks? Then read on. Independent: Entrepreneurs have to make a lot of decisions on their own. If you find you can trust your instincts — and you‘re not afraid of rejection every now and then — you could be on your way to being an entrepreneur. Persuasive: You may have the greatest idea in the world, but if you cannot persuade customers, employees and potential lenders or partners, you may find entrepreneurship to be challenging. If you enjoy public speaking, engage new people with ease and find you make compelling arguments grounded in facts, it‘s likely you‘re poised to make your idea succeed. Able to negotiate: As a small business owner, you will need to negotiate everything from leases to contract terms to rates. Polished negotiation skills will help you save money and keep your business running smoothly. Creative: Are you able to think of new ideas? Can you imagine new ways to solve problems? Entrepreneurs must be able to think creatively. If you have insights on how to take advantage of new opportunities, entrepreneurship may be a good fit. Supported by others: Before you start a business, it‘s important to have a strong support system in place. You‘ll be forced to make many important decisions, especially in the first months of opening your business. If you do not have a support network of people to help you, consider finding a business mentor. A business mentor is someone who is experienced, successful and willing to provide advice and guidance. Read the Steps to Finding a Mentor article for help on finding and working with a mentor.
  • 27. 27 SELECTING AND USING PROFESSIONALS Starting your own business involves many decisions, which often seem overwhelming. It has been shown that there is a strong correlation between using outside professionals and business success. In today‘s business world, where many new businesses fail within the first five years, it only makes sense to increase your chances for success by seeking the broad experience and expertise that professional resources and advisors can provide. Outside advisors can assist you in making decisions based on facts, not wishful thinking. They can also provide a reality check and give you insight in starting and guiding your business. There are two important categories of advisors: informal and professional. INFORMAL ADVISORS INCLUDE: • Other business owners • Friends and family • Members of other entrepreneurial groups or projects • Members of your board of directors PROFESSIONAL ADVISORS INCLUDE: • Lawyers • Accountants • Bankers • Insurance agents • Marketing professionals • Consultants • Small business assistance providers Most professional advisors will expect to be compensated for their assistance while informal advisors typically only need to be asked to help. When selecting a professional advisor, look for a skilled advisor who meets your needs. Attributes you should look for include: • Strong professional skills and knowledge • Integrity • Small business orientation • Engaging and creative • Positive attitude • Willing to listen • Team member and advisor Selecting the right professional advisor will not only provide advice and consistency to help your business succeed, but s/he can also be instrumental in identifying other professional team members. To go about finding the right professional advisor, you should: • Ask small business assistance providers • Ask other business owners • Call the professional and schedule an appointment. Interview them as you would an employee. Be sure to request references.
  • 28. 28 • Look for a comfort level and confidence; confidence in their integrity, discretion, and concern for your business. If you already have a good relationship with a banker or other professional, she is a good source of referral. SELECTING A BUSINESS LOCATION Location is more important to some businesses than to others. The importance of the location is determined by certain characteristics of the business. Factors that must be considered: • Do customers travel to the business or do employees travel to the customer? • Is convenience a key factor in relationship to what your business offers the customer? • Is your business offering a special product with little accessible competition? • Will your product or service require a specific location? • Will proximity to vendors and customers play an important role in your location? • Are transportation, labor, utilities, state and local taxes, zoning, and other regulations critical factors to consider in your site selection? • Do traffic flow, parking and other business establishments impact your site selection? • How much space is required? • Do you need expansion capability? • Should you lease or buy a facility? • What are the terms of your lease, if leasing? • How is your rent determined? (Rent = cost of space + advertising) • What are the insurance requirements? • Do you understand home-based business expenses and requirements? • Do you understand the zoning and code requirements? These questions represent some of the issues that need to be answered before making a business site selection. Additional questions and information may be required depending on whether your business is a service business, retail store, or manufacturing facility.
  • 29. 29 OWNERSHIP OPTIONS As we have already seen, you can become a small business owner in one of three ways: by starting a new business, buying an existing business, or obtaining a franchise. Each has its advantages and disadvantages. Starting from Scratch The most common—and the riskiest— option is starting from scratch. This approach lets you start with a clean slate and allows you to build the business the way you want. You select the goods or services to be offered, the location, and all your employees, and it's up to you to develop a customer base and build a reputation. Buying an Existing Business If you decide to buy an existing business, some things will be easier. You will already have a proven product, customers, suppliers, a known location, and trained employees. It will also be much easier to predict the future success of the business. But this route, of course, comes with its own disadvantages. First, it's hard to determine how much you should pay for a business. You can easily determine how much things like buildings and equipment are worth, but how much should you pay for the fact that the business has steady customers? In addition, a business, like a used car, might have problems of which you are not aware. Perhaps the current owners have disappointed customers; maybe the location isn't as good as it used to be. You might inherit employees that you wouldn't have hired yourself. Finally, what if the previous owners set up a competing business that draws away their former—and your current—customers? Getting a Franchise Lastly, you can buy a franchise. Under this set up, a franchiser (the company that sells the franchise) grants the franchisee (the buyer) the right to use a brand name and to sell its goods or services. Franchises are used to market products in a variety of industries, including food, retail, hotels, travel, real estate, business services, cleaning services, and even weight-loss centers and wedding services. There are thousands of franchises, many of which are quite familiar—SUBWAY®, McDonald's, 7- Eleven, Holiday Inn, Budget Rent-A-Car, Radio Shack, and Jiffy Lube. Franchising has become an extremely popular way to do business. A new franchise outlet opens once every 8 minutes in the United States, where 1 of 12 businesses is now a franchise. Franchises employ 8 million people and account for 40 percent of all retail sales in this country.
  • 30. 30 Idea Assessment and business development process An important aspect of successful business development is to follow a process of how you will assess a business idea or concept (project), decide whether to move forward with the project and build a business if it is decided to move forward. The five steps below help outline a simple process you can follow. The steps are not a rigid structure to follow. Rather they identify issues you need to address and when to address them. If you do not follow a process, you will find yourself going in circles and revisiting the same issues over and over without making progress. In addition to wasting time, the frustration may cause you to make poor decisions that can haunt you later. Following the steps above does not guarantee business success. However, it can greatly increase your chances of success. Step 1 – Initial Idea Exploration, Identification and Assessment The origination of a new business idea can originatefrom avariability of sources. It may come from the board room of an existing business or a group of creators sitting around the kitchen table. Regardless of the setting, you may want to use the subsequent approach to formulate the business concept. Form a project committee - Creating a good project committee involves taking together individuals who have the business development skills needed to investigate the idea/concept and carry through with business formation if the concept is viable.Formulate general business idea(s) or concept(s) - Define your business idea/concept and describe why it has worth. Your idea may contain filling an unmet need in the marketplace with a new product, providing an existing product in a new form, producing a product better or cheaper than competitors, or other ways in which worth can be added. Remember, an idea is only viable if people are ready to pay you for what it provides. For example, a premium product is only viable if someone is ready to pay more for it. Identify alternative business models or scenarios for the idea(s) - A business model describes how the business will function in producing the product or service and providing it to the customer. A business scenario is a logical assemblage of the essential business elements starting with raw materials procurement and ending with the sale of the final product, and all the stages in between. Investigate idea/concept and alternative business scenarios - Conduct an initial informal investigation of the validity of your idea. Investigate the scenarios or models. Early in the process this may be nothing more than a series of telephone calls to knowledgeable individuals. Does your idea make sense? Identify business scenarios/models for further study and eliminate those that are not viable. Formal investigation – You may want to conduct a formal assessment such as a pre-feasibility study or a marketing study of the idea and various scenarios or models. This may involve using consultants to investigate various aspects of the project. It may involve eliminating additional scenarios/models or identifying new ones.
  • 31. 31 Refine scenarios – Select those scenarios that are viable for further study and eliminate the rest. As you go through Step 1 you should accomplish two things: Through the process of elimination you will reduce the number of scenarios/models under consideration for further study.Refine and flesh-out the remaining scenarios/models. Step 2 - Idea/Concept and Scenario/Model Deliberation and Assessment Further refine the business scenarios/models – If you have conducted any of the formal assessments described above, you have information that can be used to further refine your business scenario/models. So by now you should have refined your idea to one or a small number of specific and detailed business scenario/models that you want to assess. This is critical before you move to the next step. Conduct feasibility study – A feasibility study will provide a comprehensive and detailed assessment of the market, operational, technical, managerial and financial aspects of your business project. These factors will feed into the economic assessment of your project (is it profitable?). If you have already conducted a pre-feasibility study, marketing study or other study; these materials can be used in the feasibility study. Feasibility studies are usually prepared by consultants, so you will need to investigate consultants who are familiar with your type of business and experienced in preparing feasibility studies. Analyze the feasibility study – When you receive the feasibility report, the first step is not to begin deliberations on whether to proceed with the project. Rather, you need to determine the completeness and accuracy of the study. Does it address the issues you want addressed? Was there a thorough investigation of the critical issues? Challenge the assumptions and conclusions of the study. Only after you have accepted the study as being complete and comprehensive can you move to Step 3. Further refine the idea and scenario/model – However, before you proceed you may see the need for further study of various aspects of the business project. It is not uncommon for the feasibility study to uncover new issues that need to be investigated. This may create the need for additional negotiations with your consultants to expand on the original scope of the feasibility study.
  • 32. 32 Step 3 - Go/No-Go Decision This is the most critical step in the entire business development process. In a sense it is the point of no return. Once you start down the path of creating a business, it is difficult to turn back. If you have unresolved doubts or reservations about the project, you should not proceed. That is why it is important to have an open, honest and thorough discussion when making this decision. You may find that there is division in your committee. Some members may want to move forward while others may want to end it. This is not uncommon. Each needs to take an honest look at the other side‘s arguments. If the issues cannot be resolved, each side needs to go its own way with no bad feelings. At this point the remaining members need to determine if they want to proceed with business creation. Commitment to the project is another important factor to consider before you proceed. Most beginners to business development greatly underestimate the time and effort required to start a business. A financial commitment by project members at this time (everyone throws some money in the pot) is an important sign of commitment to creating the business. This step involves making one of the three possible decisions listed below: Decide that the project is viable and move forward with it. Decide to do more study and or analyze additional alternatives. Decide that the project is not viable and abandon it. Step 4 – Business Plan Preparation and Implementation If you decide to proceed with creating a business, you will need to prepare a business plan. A business plan is an outline or blueprint of how you will create your business. If you conducted a feasibility study, it will provide some of the information needed for your business plan. Also, business planning often involves the use of consultants. However, don‘t turn the process completely over to a consultant, you need to stay integrally involved in the planning process. Remember, it is your business. Although planning can involve considerable time and effort, it is the easiest part. Implementing the plan is much more difficult. Many prospective businesses experience problems or failure due to the improper implementation of their business plan. This step requires commitment and dedication. Unforeseen problems will emerge. Your persistence is critical. Implementing your business plan will include, but is not limited to: Creating a legal structure Securing market access Raising equity and securing financing Hiring management/staff Constructing facility Other
  • 33. 33 Step 5 – Business Operations Now that you have successfully started your value-added business, your work has just begun. Producer groups often forget that once the business is created, it takes constant attention for it to remain healthy and viable. Operating a business is very different than starting a business. It requires a different set of skills. So the people who create the business may not be the best people to manage the business. Conclusion These are the five steps you will want to follow for taking an idea and making a viable business from it. These steps will not guarantee success. However, they will increase your odds of success. Also, you will make more efficient use of your time.
  • 34. 34 BUSINESS PLAN Planning is a vital part of successful business. Comprehensive plans are routinely prepared by firms as a normal business practice. They improve communication, general efficiency and decision making - important advantagesfor all businesses.Planning does not replace entrepreneurial skills but itcan help avoid failures by: discovering the problems and pitfalls making the right moves to avoid them preparing to take advantage of new opportunities Communication helps create a common purpose. You can use your written plan to explain your goals andstrategies to people inside and outside the operation: where the business is going, what needs to be done, the role of investors, family members andemployees The business plan is a game plan in which- Set objectives and guidelines on paper. Create a standard against which to compare your actual results with your anticipated results. Identify problems quickly, before they becomeunmanageable. keep on track Because planning is so crucial to operation, it‘simportant to examine every aspect of businesscarefully and honestly. Be realistic in assessing whatare capable of and the possibilities that exist for business. Some questions you should be askingyourself are: What exactly is the purpose of my business? How good is my concept? Will I be able tomarket my products? What are my personal and business goals? Do I have the necessary skills and abilities? What are my approximate cash needs? Do I havethe resources? If not, where could the funds come from? Am I willing to take time to plan for my success? A business plan puts a lot of valuable information at your fingertips, ready to help you make those tough decisions. The plan will also help you monitor progress and cope with change and competition. Your business plan should be prepared by you, the owner/manager of the farm. Even if you use outside professional help, your plan must be your own. You have to be able to present it, summarize it and explain it.
  • 35. 35 How to develop a plan? Planning is synonymous with number crunching. A business plan is much more. Look at the planthat a business should start with the foundation and built on the goals and priorities of a business. The business plan works through a process of development: + Analyzing the business and the industry * Determining the goals of the business and the family + Choosing the strategies to achieve the goals in terms of: * Markets for the products of the business + Production resources + Management and labour resources * Finances The number crunching builds in each step of theprocess. The financial planning serves as the realitycheck for the business plan rather than being the driver of the plan. Your business plan will answer three main questions: 1. Where are you now? 2. Where do you want to get to? 3. How are you going to get there? The Right Look Your business plan will likely be used to explain what you want other individuals, both inside and outside the business, to do for you. It is important to follow a recognized process and format to set up your plan. Also, as your business plan is a formal document, appearance is important. The document should * include a title page giving business name, date and time period covered have a detailed table of contents be typed, double-spaced with clean margins be simple and easy to read be geared to outsiders - avoid industry jargon be organized with essential information at the front have extra information in Appendices The background papers The formal plan will have the information needed to guide the user though the scenario you are pursuing. Meanwhile, you will likely be collecting all kinds of additional information about your business. These background papers are very helpful for further analysis and for future planning. You will want to set up an informal or working file to keep other information and ideas such as: detailed analyses and other numbers support and source documents inventories and valuations Projections based on other scenarios. other opportunities not pursued and why confidential information competitive edge information details of goals and objectives newspaper and magazine clippings sensitive or confidential information
  • 36. 36 BUSINESS PLAN WRITING Formats of business plans vary depending on the intended audience of the plan, the nature and size of the company, and the business training of the person who writes the plan; nonetheless, virtually all written business plans contain certain key elements. As a bare minimum, your finished business plan should include (in order) the following: 1. Executive Summary 2. Table of Contents 3. Description of the Business • Categorization • Mission & Goals • History • Management • Company Structure • Company Size and Location 4. Description of the Product or Service 5. Market Analysis (including a summary of your market research) • Industry Analysis • Competitive Analysis • Market Research • Target Market 6. Marketing Plan • Positioning • Marketing Mix (4 Ps) 7. Operational Plan • Production (or procurement) • Inventory Management • Human Resources • Action Plan 8. Financial Plan • Historic Financial Statements • Financial Projections • Financing Requirements and Capital Purchases • Break Even Analysis • Accounts Payable and Receivable 9. Risk Analysis and Contingency Planning • Competitive Reaction • External Risks • Internal Risks 10. Supporting Materials • Resume, Appendices, etc. Note that the order in which these business plan elements are completed is not the same as the order in which they appear. The table of contents, for instance, would obviously have to be done at the end after the lengths of the other sections were determined. The executive summary is often easier to do last after you know what will be in your plan. It is also generally easier to formulate mission statements and goals after you have done the market and financial analysis sections of your plan.
  • 37. 37 Description of the Business Business Type The first part of your plan should be a description of your business. You begin by categorizing your business as retail, manufacturing, wholesale, or service. Most businesses fall within oneof these major categories, but some may span two or more categories. For example, somefurniture companies may sell via both wholesale and retail channels. Mission & Goals The mission statement should encompass the primary long-term objectives of your company. It should be as specific and concise as possible and should be no more than one or two sentences. As the mission is a key element of your business plan, the time horizon for theseobjectives should be the same as the time-horizon of your business plan. After stating themission, this section should then list the most important goals for your business in the nextyear. These goals should be even more specific than your long-term goals, and ideally shouldbe precise and quantitative. History If your business is a start-up then you should list reasons why you are starting the business and why you think that it will succeed. If you are writing a plan for an existing business then you should describe briefly the history of the business in terms of when it started, who started it, why it was started, any major changes that occurred in the nature of the business or its structure (i.e. incorporating the business, taking on new partners, etc.) Management This section lists those persons involved in the management of the business including the owner(s) and directors that might be involved in decision-making. It describes the duties and responsibilities of each of the members of the management team and lists their relevant skills and entrepreneurial or industry experience. An analysis as to how these skills and experience can be best used in the business is beneficial. Company Structure This section describes the structure of the company in terms of proprietorship, partnership, limited partnership, or corporation. It also details the ownership of the company including all directors and all major shareholders or partners. Company Size and Location This section describes the location of your company's facilities including whether they are residentially, commercially, or industrially based, and where they are located relative to your customers, your suppliers, and your distributors. It also describes the size and nature of your facilities and the estimated number and type of employees.
  • 38. 38 Product or Service Description This section should describe the key features and benefits provided by your product(s) or service(s) to your customers. It should also describe any intellectual property protection that you may have in place on your product or service. These would include trademarks, industrial designs, copyrights or patents. For further information on intellectual property contact the Canadian Intellectual Property Office. Management team Management in all business and organizational activities is the act of coordinating the efforts of people to accomplish desired goals and objectives using available resources efficiently and effectively. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources. Since organizations can be viewed as systems, management can also be defined as human action, including design, to facilitate the production of useful outcomes from a system. This view opens the opportunity to 'manage' oneself, a prerequisite to attempting to manage others. Market Analysis Industry Analysis This section describes the industry in terms of size (number of companies, total revenue generated, etc.). It also discusses factors related to the growth potential of the industry, suchas changes in population or changing demand for the industry's product. Also included in thissection are barriers to entry, standards and regulations that affect the industry, and typicalcosts and profit margins. Industry trends, including opportunities and threats should also bediscussed. Competitive Analysis This section provides a detailed description of your main competitors, including size, location, products/services and market share. It should also discuss the similarities and differences between your product/service and those of competitors, your competitors‘ relative strengthsand weaknesses and your competitive advantage. For example, your competitive advantagecould be that you are more efficient than your competitors because you have lower production costs. It could also be that you have better quality products than your competitors or that youhave an innovative product or service that your competitors cannot easily duplicate. Anestablished base of loyal customers is also a competitive advantage. Do not assume thatbecause your product or services are somewhat unique in the marketplace you have nocompetition. Consider competition in light of consumer needs and the alternatives available tomeet those needs.
  • 39. 39 Market Research This section is a summary of all the information you gathered to in order to determine that there is a demand for your product or service. It is arguably the most important part of yourplan and should form the basis for all of your business plan and strategy. Also, potentialinvestors or lenders will be very interested in the accuracy and completeness of this researchand will not provide financing for businesses that cannot demonstrate sufficient marketdemand to make the business successful. For these reasons, this is a particularly importantsection for start-up businesses with no track record, or for those businesses expanding intonew products/services.The actual research conducted will fall into two categories: secondary research, and primaryresearch. Secondary research is information from second-hand sources such as books,magazines, internet, government sources, or industry research industries. Primary research isinformation that you collect firsthand including personal interviews and discussions, internetsurveys, telephone surveys, mail surveys, focus groups, etc. For more information on marketresearch and its uses please refer our guide on market research. Target Market This section identifies and defines your customer segments. A customer segment is a groupof customers defined in terms of common characteristics such as location, age, gender,income, family size, family life cycle, occupation, education, social class, lifestyle, personality,buying behavior, benefits sought, purchase occasion and motivation, usage frequency, orother relevant criteria.Once you have broken down the overall market into segments you need to assess whichsegments represent the most potential in terms of sales and profits for your business. Thosesegments will form your target market. Include a discussion of the criteria on which the varioussegments base purchase decisions. Describe why you will appeal to a particular market niche,the size of your market, and your anticipated market share. Discuss whether you plan to takemarket share away from particular competitors or to increase the size of the market byattracting new buyers. Outlooks for the market segments, including trends such as increasingsize or income levels should also be identified. Marketing Plan Positioning Product positioning describes what you are selling and to whom you are selling it. Examplesof positioning include: a high end fashion tie for male business executives, chips in a convenience store for impulse buyers, bread in a grocery store for low income consumers, a computer accessory for engineers, etc. These examples of positioning can be grouped into categories such as luxury item, impulse buy, necessity, specialty item, etc. The 4 Ps of the marketing mix (product, place, promotion, and price) should all be consistent with product or service positioning.
  • 40. 40 Marketing Mix (The Four P’s) Product Product strategy is made up of all decisions regarding the product or service itself. The core product is defined in terms of the primary benefit it provides. The actual product includes tangible features such as color, shape, size, packaging, etc. The augmented product includes additional features such as delivery, credit terms, or warranty. The way you position should dictate the actual features of your product. For example, if you are selling camping equipment to an upscale, younger market, then you might want to include recycled materials or other features that appeal to this environmentally conscious group. Packaging decisions are also important, as customers often buy based on the look of the package. You want a package that will catch the attention of your target market. In terms of the augmented product, service policy, warranties and other product/service add-ons must also be consistent with positioning strategy. Place (or Distribution) Distribution strategy includes all aspects of how your product is routed from your business to your customer, where your product or service will be sold as well as where and how it will be delivered. You need to identify intermediaries in your distribution network, such as wholesalers, distributors, etc. Choosing a channel of distribution often follows from the type of product or service. For instance, Starbucks coffee is only sold in Starbucks stores, whereas toilet paper is sold in virtually all grocery stores, drug stores, and department stores. Delivery is also based on your positioning, as well as your transportation costs. If you are selling high priced items that are low weight, where convenience is a factor (i.e. a pizza shop), then delivery is a viable option. One distribution channel that is becoming increasingly common is selling direct to consumers via the internet. It provides them with a new level and convenience and may result in increased sales. Promotion Promotional strategy is concerned with attracting the attention of your target market, getting them interested in your product, getting them to desire your product, and getting them to take action and buy it. An acronym to help you remember that is AIDA, which stands for attention, interest, desire, and action. Promotional techniques include different forms of media advertising, direct mail, internet promotion, media publicity, press releases, trade shows, and other non-price-related means of reaching your target market. Your promotional plan should include the timeframe over which you will conduct various types of promotion or advertising and a discussion as to how you will communicate the benefits of your products or services to your target market in a way that is meaningful to them. That is, in a way that connects their needs to your offerings. Your 8 promotional plan outlines the actual tools you will use to do this and estimate the associated costs over at least the next year. You should also describe how you would measure the effectiveness of your promotional efforts. For example, you could use customer surveys to find out how they learned about your product or service. Part of promotion is sales effort. In discussing sales, quantifiable sales targets should be set for unit sales over various time frames (i.e. day, month, year). If you have sales staff, you assign responsibility for periodic sales targets to them. A compensation scheme that motivates sales persons to maximize their efforts is also important.
  • 41. 41 Price Effective pricing strategy enables your business to cover its costs and to generate profit while motivating customers to purchase your products or services. Firms often lose money by charging the wrong amount for their products or services. Factors influencing the price you should charge include perceived value of your product, the prices that your competitors are charging, and the costs that you have to incur. As a minimum you should at least charge more for your product than you must pay out in direct costs otherwise you will lose money on each sale. In the long run you must also charge enough to cover your overhead costs or your business will not be able to break even. Your pricing should reflect your positioning relative to your competitors. For further information on pricing contact the Women‘s Enterprise Centre and ask for our guide on pricing. Operational Plan Production (and/or procurement) Specify the process by which your product is made or sourced or, in the case of a service business, how the service will be performed, including necessary preparation. You should specify the production requirements, capacity, and manufacturing time (or service delivery time). Describe the materials and facilities, including size and type of space needed (i.e. manufacturing, warehouse, administrative) and necessary equipment. Specify the location of suppliers, delivery times and methods of shipment. Describe any processes and standards for product improvement, research & development and quality control. Be sure to determine the ceiling for your capacity. That is, how much product/service you can produce with your current resources - physical and human. Inventory management Specify how the inventory will be managed. Describe what types of inventory you will have (i.e. raw materials, work in process, finished goods) and how much you will keep in stock. Decide when you will order and in what quantities you will order, bearing in mind lead times for order processing and delivery; methods of shipment; storage costs for inventory; payment terms; and most importantly, sales volumes. How fast will your inventory turnover (ie. How many times per year)? Inventory costs can be significant and having capital tied up in inventory can be very damaging to the cash flow of a small business. Turning inventory over fast and keeping levels low can result in huge benefits, so long as you can meet your customers' supply expectations. Human Resources (Staff) Management This section should outline the number of staff you require, including subcontractors. It should describe the qualifications for each job category, discuss labour availability, wages and benefits, training, personnel policies and workers compensation issues. Attracting and maintaining skilled workers is the main goal of human resource management. Other goals include compliance with government regulations and cost minimization. According to Bernhard Lieberman, there are seven major keys to building a winning employee team: providing continual feedback to employees;
  • 42. 42 managing employee perceptions of management and of the company; sharing information about company goals and plans with employees; focus on team problem solving; focus on employee decision making; encouraging employee input into the hiring process; and, creating compensation schemes that reward employees for adding value to the firm. One-Year Action Plan Your action plan outlines your hours of operation, licenses and permits required, regulatory issues such as potential environmental impacts, business insurance required, etc. Include a one-year action plan detailing the operational steps required to achieve this year‘s production and sales goals. This should be as specific as possible and outline the key actions to be under taken, and their timing. Financial Plan As important as the qualitative aspects of your plan may be, they will not tell you if your business is likely to be profitable. For this reason, accountants and financial analysts look primarily at the financial aspects of a plan when making lending or investment decisions. A financial plan should include historic financial statements (if applicable), financial projections, financing requirements, a break-even analysis and a discussion of accounts payable/receivable. Historic financial statements Existing businesses should provide balance sheets and income statements for the last three years of operation, as well as for the most recent interim period. Historic cash flow statements are also very important to potential suppliers of capital. Financial projections5 Financial projections should be completed for reasonable best case, worst case and expected case scenarios. Such variations are required for a proper evaluation of business risk. 1. You must include monthly cash flow projections, for a minimum of 12 months, based on your unit sales forecasts per month and corresponding costs of goods and operational expenses. Note that it is not enough to take your annual revenue and cost projections and divide them by 12. Nor can you determine your approximate costs and then estimate revenues based on what you need to cover those costs. Your projections should be estimated month-by-month and should be based on what your market research suggests will really happen and on when you predict money will be received or spent. 2. You must include projected income statements for the first and second full fiscal years of the business. 3. You must include a starting balance sheet. Financing requirements and capital Summarize the type and amount of financing required, use of funds, and proposed repayment terms. List all major equipment required with associated costs, based on quotes/estimates from reliable sources.
  • 43. 43 Break-even analysis Break-even is the number of units and/or revenues you need to cover all of your costs in agiven period. It is most often calculated for the first year of operations. Breakeven formulas: 1. Break even units = Fixed costs/ (price per unit - variable cost per unit) 2. Break even in dollars of sales = Break even units X selling price per unit Note: variable costs are costs like direct materials, direct (ie. production or service)labour and sales commissions. Fixed costs are costs like manager's salaries or officerent - costs that are the same month-to-month and do not vary with production andsales. Break-even example: You own a company that manufactures tents. The materials for 1 tent cost $10 and thelabour to make 1 tent is 1/2 hr. at $10/hr. You sell the tents to a wholesaler for $30. Yourtotal fixed costs for your first year of operation are $20,000. How many tents do you need to sell to break-even? How many dollars in sales do you need to break even? In this example your variable costs per unit would be $15 ($10 for material and $5 for labour). Break-even units = $20,000 / ($30-$15) = $20,000 / $15 =1,333.33. Since we cannot sell 0.33 of a tent we round up. We will need to sell 1334 tents to break-even in the first year. Break-even dollars = 1334 tents x $30/tent = $40,020 of sales required to break-even in the first year. Accounts Payable and Receivable Existing business should include a current schedule of aged accounts payable and accounts receivable. New businesses should include a discussion of policies surrounding payables and receivables. These policies are important as they affect the timing of cash flows. Make sure to take them into account when doing your cash flow projections. Like inventory control, collection of accounts receivable is imperative to small business survival. You probably won't have the cash reserves to finance your customers' purchases.
  • 44. 44 Risk Analysis and Contingency Planning A small business is inherently risky. Just as small size provides for quick reaction and flexibility in the marketplace, it also allows little room for error. Only a small percentage of businesses survive beyond the first few years. You need to assess the possible risks to your business and develop contingency plans to deal with them quickly. Ultimately, what will you do in the event of cost overruns or sales shortfalls? What protection can you build in now to deal with those risks? General statements like "sell more," "increase advertising," or "spend less" are not enough when you find yourself short of rent money. Three specific categories of risk are dealt with here: competitive reaction, external risks, and internal risks. Competitive Reaction This section seeks to determine the anticipated reactions by competitors to your product, service or marketing activity. Describe the potential reactions and how they might affect your sales and profitability. Describe what actions you will take to manage the various possible competitor reactions. State your plan for dealing with each contingency. External risks Identify key external risk factors for your industry and market. Possible risk factors include economic downturns, weather and climate changes, emergence of new competitors, supplier problems, product or service obsolescence due to technological change, political instability or change, changes in customer demand, etc. Develop and describe the actions you will take to manage and to mitigate each of these identified risks. Internal risks Identify the main internal risk factors that would negatively impact your business. Possible factors include sales projections not realized, cost overruns, key staff turnover, legal issues, computer or equipment malfunction, fire, theft, etc. Describe how you will minimize these risks and how you will deal with the potential negative impacts if they occur. Supporting Materials Supporting materials that should accompany your business plan or be including as appendices to your plan may include: • Additional financial projections or historical financial statements • Statistical tables from your research • Photographs or samples of your product • Resume(s) of owners and/or key members of the management team • Letters of intent or letters of support • Copies of required licenses/permits • Appraisals for property and equipment • Copy of partnership agreement or shareholders‘ agreement • Corporate charter • Corporate brochures • News articles about your company • A sample of any surveys or questionnaires conducted
  • 45. 45 Executive Summary The executive summary is a sales document for your plan. Very often potential investors or lenders have dozens of plans to review and are too busy to read your entire plan. They will rely on the executive summary to judge the overall plan and determine whether or not the business warrants a closer look. You need to convince them in a short piece (generally no longer than one page) that summarizes the key points covered in your plan, including a description of your company and product or service, a list of your key competitive advantages, and your proposed sources and uses of funds. A well-written executive summary can be a key to success. Even with a good plan, if your summary is not persuasive you may not achieve your desired results.
  • 46. 46 Mistakes to avoid when creating a business plan Submitting a ―rough draft‖ of the business plan. Coffee stains and crossed out words indicate to the reader the owner is not serious about the business – there are a number of businesses or printers that can help the small business owner with professional quality presentations. Outdated historical financial information or industry comparisons will indicate a lack of current research and investigation on the owner‘s part. Unsubstantiated assumptions can undermine a business plan. The owner must anticipate doubts or questions about every point of the plan. Failure to consider potential problems will lead the reader to view the plan as unrealistic. A lack of understanding of financial information is a drawback. If an outside source is used to prepare financial statements, the owner must fully comprehend the information. Absence of any consideration of the impact of outside influences on the business is a problem. The owner needs to discuss the potential impact of competitive factors as well as economic factors at the time of the request. Difficulties will arise if there is no verification of 30% investment by the owner. The lender will typically expect the potential owner to have at least 30% equity in potential business. If the owner does not or cannot personally guarantee a loan, questions will arise. Proposing unrealistic loan repayment terms. After the lender evaluates the viability of a business, he will discuss realistic loan terms. Too much focus on collateral is a problem in the business plan. Even for a cash secured loan, the banker is looking toward projected profits for repayment of the loan. Emphasisshould be on cash flow.
  • 47. 47 CONFIDENTIALITY The business plan contains sensitive information about every aspect of the business and the personal financial status of all owners. Therefore, it should be treated like a top-secret document. All copies should be consecutively numbered and strictly accounted for in writing. All recipients of the plan must sign an agreement that s/he will not make copies of the plan or disclose details to anyone other than financial advisors. The receipt also requires that if the person is not interested in investing in the company‘s future growth, the business plan will be returned. Distribute the business plan on a strict ―need-to-know‖ basis for the protection of the business and all those involved.
  • 48. 48 ARRANGE BUSINESS FINANCING One key to the successful startup and expansion of your business is your ability to adequately capitalize your company. Raising capital is an ongoing activity throughout the life of a business. Many entrepreneurs quickly discover finding financing is not always easy and often results in a frustrating experience. With proper information, preparation, and planning – and realistic expectations – you should be successful in accomplishing your financing needs. GETTING THE FUNDING YOU NEED Where do you go to find financing for the operation and expansion of your small business? The answer depends on several things: How much money do you need? What personal financial resources are you willing to invest in the business? How long have you been in business, and what is your track record? How much are you willing to give up, either in cost of credit or ownership of the company, to get the money you need? Start close to home Most small business owners suggest that you search ―close to home‖ for funds during the early stages of your company. The vast majority of Inc. 500 companies used personal savings, loans from friends and relatives, or obtained consumer loans from banks or mortgage companies to fund the start-up of their companies. Only 19 percent relied on commercial bank loans and only 2 percent received money from venture capital firms. Once you establish a profitable track record, you will find that it‘s easier to get financing, and then you will have a greater variety of funding sources to choose from. EQUITY VS. DEBT FUNDING There are two basic types of funding for a small business – equity and debt. You need to decide which type best suits your needs. Equity funding requires that you sell a partial interest or ownership in your company. In return for their money, equity investors ask for a share of your profit. Sources for equity funding include private investors, venture capital firms, and friends and relatives. Debt funding is simply borrowing the money that you need to finance operations and growth. Like automobile loans or mortgages, you enter into a legal obligation to repay the amount of money borrowed. Debt funding, or credit, is available from banks, non-bank institutions (such as asset-based lenders and brokerages), and friends and relatives.
  • 49. 49 Equity funding Equity financing allows investors to buy shares of ownership in your business. Equity partners will require an exit strategy. ADVANTAGES OF EQUITY FUNDING Provides capital on a permanent basis with no requirement of repayment of principle or interest Increases the company‘s net worth, hence improving the financial stability of the company and its ability for other debt financing Can result in outside expertise being available for management or Board of Directors responsibilities. DISADVANTAGES OF EQUITY FUNDING Carries a higher cost of capital; therefore, more expensive Dilutes ownership control of the business Profits must be shared Equity capital is permanent financing and is often difficult to obtain Potential for conflict between company founder and investors Controlling interest often becomes a critical issue with the founder Can require more detailed and timely reports. Types of equity investors The types of equity partners to be considered are: Informal investors Private or limited stock offering Venture capital firms Initial public offering (IPO) Informal investors Informal investors include family, friends, colleagues, suppliers, or private investors often called ―angels.‖ Private investors are difficult to find and will require detailed business plans. Investors may be identified by contacting accountants, bankers, stockholders, venture capitalists, or investment clubs. Private or limited stock offering Limited offering provides an opportunity for your company to raise significant amounts of equity from outside investors without the high cost and regulatory burden of a public offering. A limited stock offering is still subject to some state and federal regulations. You must make sure your offering complies with all provisions that exempt it from the public offering registration process.
  • 50. 50 Venture Capital Firms Venture capital firms are the most risk-oriented investors. Most venture capital firms have specific investment preferences in terms of: Business style Minimum size investment Rapid growth/high return The most important factors a venture capital firm considers are: Management team Ability to recover investment with substantial return in 5-7 years Venture capital is typically available to less than one half of one percent of all new businesses. Initial Public Offering (IPO) Most small business start-ups will not consider a public offering due to the expense and registration requirements, but it can be an option for the profitable, well-managed, growing small business. You should seek professional advice if you are considering offering your stock to the public. Debt funding Most small businesses prefer debt funding for financing. The cost is usually far less, since the owner does not give up ownership or control in how the business is managed. In addition, the cost of credit is generally far less than the return that an equity investor will require. On the other hand, debt funding will be difficult to get if the owner, or another key officer, has had previous credit problems, or if the business is a high-risk venture. Debt funding usually requires that the small business owner provide collateral that can be used as a guarantee for repayment of the loan. In addition, if the business fails, the borrower is still legally obligated to repay the loan. Types of debt funding There are three categories of debt funding that you should be familiar with: Personal loans Operations-related financing Business loans Personal loans Funds from these sources are often the easiest for a new small business owner to obtain. PERSONAL BANK LOANS A personal bank loan is one that you obtain from a bank and pay back in monthly installments. A personal bank loan can either be secured (collateral is required as a guarantee that you will repay the loan) or unsecured (no collateral is required).
  • 51. 51 LOANS FROM LIFE INSURANCE You may be able to borrow against the cash surrender value of your life insurance policy. In many cases, an insurance company will let customers borrow up to 95 percent of the paid-in value of a whole-life policy. CREDIT CARDS Although it is a more costly form of credit, your credit card can provide ready access to cash. You should only use this source if you have a credit limit high enough to cover your needs, and if you can pay off the card quickly. SECOND MORTGAGES (HOME EQUITY CREDIT) If you have enough equity in your home, you may qualify for a home equity loan or a line of credit. Including the first mortgage, you can generally borrow up to 80 percent for the appraised value of your home. This type of borrowing may offer tax advantages; however, if you fail to repay the loan, you are in danger of losing your home. FRIENDS AND RELATIVES Friends and relatives may offer financial support. If you use this option, make sure to treat the transaction in a professional manner. Pay a fair rate of interest, sign a legal promissory note, and repay the money as agreed. Operations-related financing This category of financing is dependent upon the day-to-day operations of your business. Some of these options are available to start-up businesses. SUPPLIER CREDIT The suppliers with whom you do business can be a source of funds if they extend favorable credit terms to you, such as ―net 30.‖ The availability of this form of credit will vary, depending on the industries you and your vendor are in. CUSTOMER CREDIT By getting your customers to make a deposit or pay in advance for products or services, you can create a form of credit. You may want to offer a discount as an incentive for your customers to prepay. LEASING Leasing is a rental arrangement that gives you the use of an asset – such as a car or a piece of machinery – that someone else owns. Although the total cost of leasing will be more than purchasing the item outright, this is a way to reduce the amount of upfront money you‘ll need to get your business off the ground.
  • 52. 52 ACCOUNTS-RECEIVABLE FINANCING If you have receivables – accounts that have been invoiced but not yet paid – you may be able to use these as collateral for a small business loan.Lenders that offer accounts-receivable financing will generally offer between 50 and 80 percent of the total invoice amounts outstanding, depending on the type of receivables and the ease of collection. FACTORING Instead of borrowing against your receivables, factoring allows you to sell them to a financing source, called a factor. You will be paid a percentage of the total value of these accounts, depending on the type of receivables and the ease of collection. Once you‘ve sold the receivables, the factor will collect the accounts and absorb any losses. ASSET-BASED FINANCING You may be able to borrow money on the assets your business owns, including the inventory and other fixed assets such as plant and equipment. Asset-based financing can be structured as a one-time extension of credit or as a revolving line of credit requiring a periodic review of the assets pledged as collateral. Business loans This category of credit is the most traditional and broadly used among businesses. Listed below are the most common forms of business loans used by small businesses: TERM LOANS These are simply installment loans that are paid back at consistent intervals over a specified length of time. These loans are granted for a specific purpose, such as for working capital or an upgrade in equip the funds, but it can range from short term to long term. DEMAND NOTES A demand note is a single-payment loan that is intended for very precise short-term needs. Although the contract will usually call for payment in full within 90 - 180 days, the lender can call for repayment of the note at any time. You may be asked to make periodic interest payments throughout the life of the note. LINES OF CREDIT A line of credit, like a credit card, establishes a credit limit and specific terms for repaying money that is borrowed. Lines of credit are easy to access and offer flexibility in managing the cash flow needs of a small business. Many small business owners establish a line of credit as a precaution, before they have anactual need for the money. Lines of credit are usually linked to short-term assets such as accounts materials, inventory, receivable, etc. GOVERNMENT-ASSISTED LOANS There are numerous loan programs in which the government either directly lends to small business owners or provides aassurance of repayment for other small business lenders. Government-assisted
  • 53. 53 small business loans are offered by federal agencies such as the Economic Development Administration (EDA), the Small Business Administration (SBA), and the Rural Economic and Community Development, as well as by state and local agencies. Government-assisted loans, like bank loans, usually require that the small business owner have their own money invested in the business in order to share the threat with the lender. HOW TO CHOOSE A BANKER Choosing a bank, or more precisely a banker, is one of the most vital decisions that a new or young business can make. A good banking relationship can make the difference amongdeath and life of a business during difficult times. Because the choice of a banker is such anvital decision, the new business must shop around before making a choice. The key watchword when choosing a bank should be service. Specifically, some significant criteria in choosing a banker should include: Size of the bank: A bank that is too small may be suitable while your company is small, however, they may not be able to service your needs for larger loans as your company grows. A bank that is too large may be indifferent to your requirements while your company is small. Familiarity and desire to work with small businesses: Some institutes maintain policies that are favorable to working with small business. They tend to be more familiar with special problems of the growing and young companies. How the bank will react to your problems: Will they foreclose the first time a payment is late, or will they be willing to give you some additional time to see your debt schedule? Is the bank helpful: Will they go out of their way for you, or are you just another account number? Does the bank have some special experience in your industry: A bank familiar with your industry is more likely to be tolerant of your difficulties and familiar with the workings of your company. Is there good personal chemistry: Do you feel comfortable with your banker? Do you feel they are responsive to your needs and really care about your business operation? This is possibly one of the most important considerations. On virtually every loan, a bank will make reservations or restrictions. Examples of loan restrictions include the following: Restrictions on the level of borrowing Minimum working capital levels Vowing other assets as loan collateral Keeping adequate insurance on people and property Maintaining your equipment Submission of financial statements and tax returns to the lender Failure to comply with any covenant or restriction can put a loan in default and give the lender the right to call on you to pay the balance of the loan. Loan restrictions are often as significant as the interest rate. Therefore, you should compare loan restrictions when you have the chance to choose among two different banks. For example, a constraint on the amount that can be borrowed in the future could severely limit the growth of a firm and cause a crunch on cash flow. Before borrowing, the business person must choose which restrictions are acceptable.
  • 54. 54 WHAT A LENDER LOOKS FOR A lender wants to be assured that company can and will repay the loan as agreed, and that the loan will not saddle with too much debt, which could cause financial problems. To get this assurance, the lender will assess business plan to learn about you, your associates, your objectives, and your plans for the company. The lender will be looking for the ―Five Cs‖ of credit: 1) Capital How much of your own money do you have financed in the business? How much money do you have in backup, in case of unexpected needs? 2) Collateral What is the reasonable market value of the security that you are offering to guarantee repayment of the loan? Does it meet the classic criteria for good collateral? o A ready and liquid market o Ease of transfer of title o Increasing in value o Low cost/no cost to maintain/service 3) Capacity to repay How much profit will company generate? Will cash flow provide with enough money on a regular basis to cover the repayment of the loan? Are projections for sales and profits realistic when compared to other firms in the same industry? 4) Conditions What are the demographic, economic, and regulatory trends which impact business? What terms can be negotiated to let the bank to evaluate the risk/reward considerations? 5) Character What is your track record—personal and professional—in paying credit obligations and managing finances? Who are the key managers in your business; do they have the experience and the skill to run this business successfully? How will lenders evaluate your proposal? Lenders have policies and rules to follow in the determining the risk and feasibility of your plan and evaluating loan proposal. In addition to business and financial projections, a lender will look for six significant factors: 1) Equity The lender expects the borrower(s) to have already invested from 10 - 30 percent of the loan amount. If your business has existed for less than 3 years, plan for 30 percent. 2) Debt-to-worth ratio This is usually most critical on the first day after loan approval and at the end of the first year of operation. This proportion is calculated from the balance sheet at dates which the lender will predetermine.
  • 55. 55 3) Collateral Lenders require adequate collateral to protect assets which reflect the following liquidity: o Real estate 75-80% o Certificate of deposit 100% o Vehicles 75-85% o Stock (publicly traded) 75% o Equipment 50-75% o Inventory 0-50% o Accounts receivable 50-75% 4) Capability to carry debt service The cash flow projections normally reflect this. 5) A secondary source of repayment Important especially in start-up venture (e.g., spouse has a full-time position) 6) Personal guarantees All parties to the loan request must be willing to pledge guarantees. Personal guarantees state that the borrowers truly believe in their venture.
  • 56. 56 Key Regulations Anbusinessperson has to take into account the basic regulatory requirements of the country in order to ensure sustainability of the profits and productivity of his/her business. The important regulation relates to the environment. The environmental regulatory requirements envisage a wide legislative framework covering all aspect of environment protection. Broadly, it comprises the emission standards for air, noise, water, etc. Separate set of laws for emission of hazardous wastes have also been passed. Every industry has to abide by these guidelines and limitations for environmental protection. An organization for its smooth and effective functioning must ensure health and safety of its workers. The mainlegislatures relating to Occupational Health and Safety in India are: - the Factories Act, 1948; the Mines Act, 1952 and the Dock Workers (Health, Safety & Welfare) Act, 1986. The Directorate General of Mines Safety (DGMS) and the Directorate General of Factory Advice Service and Labour Institutes (DGFASLI) are the two field organizations of the Ministry of Labour and Employment in the area of occupational safety and health in factories, mines and ports. Besides, the Government of India has taken steps like, announcing anenacting Competition Act, 2002, competition policyand setting up of Competition Commission of India, in order to ensure a fair and healthy competition in the market economy. These aim to prohibit the anti-competitive business practices, abuse of dominance by an enterprise as well as regulate various business combinations like acquisitions and mergers. For regulation of the export and import of services and goods an entrepreneur has to abide by the Foreign Trade (Development and Regulation) Act, 1992 and the EXIM policy announced by the Government from time to time. The Ministry of Commerce and Industry is the most vital organ concerned with the promotion and regulation of the foreign trade in India. The Ministry has an elaborate organizational set up to look after the various parts of trade. Within the Ministry, the Department of Commerce is accountable for formulating and implementing the foreign trade policy.
  • 57. 57 Business ethics Business ethics is the behavior that a business adheres to in its day-to-day dealings with the world. The ethics of a particular business can be varied. They apply not only to how the business interacts with the world at large, but also to their one-on-one dealings with a single consumer. Several businesses have gained a bad reputation just by being in business. To certain people, businesses are interested in making money, and that is the bottom line. It could be called capitalism in its cleanest form. Making money is not wrong. It is the method in which some businesses conduct themselves that brings up the question of ethical behavior. Good business ethics should be a part of all business. There are many factors to consider. When a firm does business with another that is considered unethical, does this make the first firm unethical by association? Some people would say yes, the first business has a responsibility and it is now a link in the chain of unethical businesses. Several global businesses, including most of the major brands that the public use, can be seen not to think too highly of good business ethics. Many major brands have been charged millions for breaking ethical business laws. Money is the major deciding aspect. If a company does not adhere to business ethics and breaks the laws, they usually end up being penalized. Many companies have broken anti-trust, ethical and environmental laws and received penalties worth millions. The problem is that the amount of money these companies are making outweighs the charges applied. Billion dollar profits blind the companies to their lack of business ethics, and the dollar sign gains. A business may be a multi-million seller, but does it use respectable business ethics and do people care? There are popular soft drinks and fast food restaurants that have been penalized time and time again for unethical behavior. Business ethics should eradicate exploitation, from the sweat shop children who are making sneakers to the coffee serving staff who are being ripped off in wages. Business ethics can be applied to everything from the trees cut down to make the paper that a business sells to the ramifications of importing coffee from some countries. In the end, it may be up to the public to make sure that a company follows correct business ethics. If the company is making huge amounts of money, they may not wish to pay too close attention to their ethical behavior. There are many companies that pride themselves in their correct business ethics, but in this competitive world, they are becoming very rare. Importance of Business Ethics 1. Stop business malpractices: Some unscrupulous entrepreneurs do business misconducts by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, etc. These business misconducts are harmful to the consumers. Business ethics help to stop these business misconducts. 2. Improve customers' confidence: Business ethics are needed to improve the customers' confidence about the quality, quantity, value, etc. of the products. The customers have more trust and confidence in the entrepreneurs who follow ethical rules. They feel that such entrepreneurs will not cheat them. 3. Survival of business: Business ethics are mandatory for the survival of business. The entrepreneurs who do not follow it will have short-term success, but they will fail in the long
  • 58. 58 run. This is because they can cheat a customer only once. After that, the customer will not buy goods from that entrepreneur. He will also tell others not to buy from that entrepreneur. So this will defame his image and provoke a bad publicity. This will result in failure of the business. Therefore, if the entrepreneurs do not follow ethical rules, he will fail in the market. So, it is always better to follow appropriate code of conduct to survive in the market. 4. Safeguarding consumers' rights: The consumer has many rights such as right to health and safety, right to be informed, right to choose, right to be heard, right to redress, etc. But many entrepreneurs do not respect and protect these rights. Business ethics are must to safeguard these rights of the consumers. 5. Protecting employees and shareholders: Business ethics are required to protect the interest of workers, shareholders, competitors, dealers, suppliers, etc. It protects them from manipulation through unfair trade practices. 6. Develops good relations: Business ethics are important to grow good and friendly relations between business and society. This will result in a steady supply of good quality goods and services at low prices to the society. It will also result in profits for the businesses thereby resulting in development of economy. 7. Creates good image: Business ethics create a good image for the business and entrepreneurs. If the entrepreneurs follow all ethical rules, then they will be wholly accepted and not criticized by the society. The society will always support those businessmen who follow this essential code of conduct. 8. Smooth functioning: If the business follows all the business ethics, then the workers, shareholders, customers, dealers and suppliers will all be happy. So they will give full support to the business. This will result in smooth operative of the business. So, the business will grow, expand and diversify effortlessly and rapidly. It will have more sales and more incomes. 9. Consumer movement: Business ethics are gaining importance because of the evolution of the consumer movement. Today, the customers are aware of their rights. Now they are more organized and hence cannot be cheated simply. They take actions against those entrepreneurs who indulge in bad business practices. They boycott poor quality, harmful, high-priced and duplicate goods. Therefore, the only technique to survive in business is to be honest and fair. 10. Consumer satisfaction: Nowadays, the customer is the king of the market. Any business simply cannot survive without the customers. Therefore, the main goal or objective of business is consumer satisfaction. If the customer is not satisfied, then there will be no sales and thus no profits too. Customer will be satisfied only if the business follows all the business ethics, and hence are highly needed. 11. Importance of labour: Labour, i.e. employees or workers play a very vital role in the success of a business. Therefore, business must use business ethics while dealing with the workforces. The business must give them appropriate wages and salaries and provide them with better working environments. There must be good relations between boss and workforces. The workers must also be given proper welfare facilities. 12. Healthy competition: The business must use business ethics while dealing with the players. They must have healthy competition with the players. They must not do cut-throat rivalry. Similarly, they must give equivalent opportunities to small-scale business. They must avoid monopoly. This is because a monopoly is harmful to the customers.
  • 59. 59 Industries Examples Ruchi Chopra, CEO, ASAP 24 year old Ruchi Chopra isn‘t exactly your ordinary NIFT Graduate. When her friends and classmates were opting for big brand names and established firms, Ruchi was busy establishing a firm of her own. ―When you start a company, you don‘t start it thinking that you will simply help you make money. You begin with a vision and you want to transform your dreams into a living reality,‖ says Ruchi. When one looks at her Company ASAP, which is an acronym for Any Surprise Any Place, one recognizes the value of her statement. Any Surprise Any Place is for all those people who truly care about their loved ones but don‘t know what presents will make them really happy. ―The reason behind creating my own Company was to make it accessible to the target clientele, ―she says. ―After all, if you haven‘t surprised your wife, parents, boss, girlfriends, sons, daughters or even your colleagues, all you will need to do is to pick up your phone and call us and we will do the rest for you.‖ Founded in April 2007, ASAP began to create an impact almost immediately after hitting the Entrepreneurship Scene. A six member team worked hard to establish a company that would look into the specific needs of each of its clients. For instance, if a client wants something sophisticated to be designed for him- anything from a holiday to a personalized limousine to a violin- ASAP is willing to go to great lengths to fulfill his dreams. However, every dream has its challenges and ASAP is no exception. ―Of course there were challenges, ―says Ruchi. ―When you start anything that is new, there are challenges which you must be prepared to overcome. When you start your own Company, ever penny must be saved and every decision contributes to your learning curve. As far as I am concerned, I am terrible at banking but I have learnt quite a bit about logistics and banking after having been on the job.‖ The obstacles and the hurdles that came her way were not very easy either. ―A big problem that we face as far as ASAP is concerned is sampling. This is because a lot of vendors make quality products but they do so en masse. However, since we cater to the individual needs of our clients, they find it very difficult to work with us because we have only one piece for one client.‖ Self-belief was not an easy thing to sustain either. ―There were moments when I would get frustrated and think of going back to a regular job, one that would pay me and also one that would mean a lot less responsibility. One summer when there were two bad business phases back to back I seriously considered quitting and going back to a regular job.‖ However, Ruchi decided not to give up on her Dream Project. ―There comes a point of time when your mind is not off work. There are no weekends and no holidays because if you are a self-employed Entrepreneur, your business venture ceases to be merely a business venture and becomes one of the pivotal points in your life.‖
  • 60. 60 ASAP works with individual, taking great care to create something special for each person. ―Each and every client is important for us and we lay great emphasis on that.‖ Ruchi believes that every organization must keep in mind that one should never give up, that one should work harder than one‘s competition, one should hire honest, trustworthy and competent people and one should start small but keep in mind the areas where the company can expand and gradually build on those areas. Also there is no point in reinventing the wheel- no matter what mistakes a young Entrepreneur makes when he/she starts out it is important for him/ her to remember that he/ she is definitely not the first one to come across a problem such as this. ―Someone or the other has gone through what you are going through, so ask someone who knows and it will help you avoid costly mistakes in future,‖ says Ruchi.
  • 61. 61 Jawed Habib He is a graduate in French literature, but now he hardly finds any time for prose or poetry – because he is busy travelling across different cities in India training people on how to cut hair, telling them about hair styling, looking good and feeling good. Jawed Habib is today a well-known figure in the beauty business, but when he started out in the industry, hair cutting or being a barber was anything but glamorous. While a large part of this perception is now over, Jawed has in his own unique way made a difference in changing the way people look at this profession. Being a hair stylist is today more acceptable than 40 years back and given the time people spend in looking good, Jawed should take a bow for playing an important role in this change. A large part of the grooming and wellness frenzy that we witness today was absent when Jawed decided he wants to change the way Indians look. ―When I started doing my workshops in 1986, people would come and ask me to teach them a Sadhana cut or a Dimple cut, educating them about things beyond this was very exciting,‖ says Jawed. After his graduation from Jawarharlal Nehru University in French literature, Jawed went to London‘s Morris School of Hair Design to specialize in hair coloring, setting and dressing out. The outlook in the West was very different from how Indians perceived the space and that is an opportunity Jawed spotted. Building a brand Javed Habib Call it beginners luck or an astute business sense, Jawed very early on realized that people would need haircuts forever and went about it in an organized manner. He setup 50 salons across many cities in the country in the first five years. Most places he would train the staff himself and open stores with the help of franchisees. He was extremely hands on in his approach and would conduct workshops and seminars to pull in the crowd to the salons he had started. His earlier clientele were mostly housewives and families who came for a differentiated experience to Jawed Habib salons compared to their neighborhoodparlors. But even the housewives back then would ask for minimal work, because of the fetish we Indians have for long hair. Today Jawed has 400 salons across 92 cities in India and he has set himself and ambitious goal of opening 2,500 more salons in another five years. Jawed comes from a family of barbers and his father JahirHabib used to be the personal barber for the Nehru family. However Jawed decided to venture out on his own because of his inherent streak of entrepreneurship. ―I learned a lot from my stint at McDonald‘s in London. It gave me the vision to build a business, because if McDonald‘s could sell burgers across the world, getting a haircut is a more important need,‖ says Jawed. In the early days he worked with many local agents in each city to help organize workshops and spread the word about his skills. Most participants in his workshop have been students keen to learn the art of cutting. However his association with celebrities and the high profile people, helped give the Jawed Habib brand more visibility. Jawed says he has been able to make an impact because he talks of hair and beauty as a science and not as much a skill. ―There are various nuances of haircare that I share during these workshops and seminars which is so much more to learn than just cutting,‖
  • 62. 62 says Jawed. It is perhaps this demystification that has made Jawed Habib a favorite among the masses today. Today there are three different entities that operate under the Jawed Habib brand name — Habibs Hair & Beauty Studio Private Limited, Jawed Habib‘s HairXpreso Private Limited and Jawed Habib Hair & Beauty Studio Private Limited. Sometime back Jawed was planning an IPO to raise money for expansion and if reports from that time is to be believed his brand is worth Rs 300 crore. The plans to go the IPO route were subsequently delayed because of a slow market and now Jawed has trained his eyes on the luxury segment of the grooming business. He recently launched his first store of JH Bevels – which is looking to tap into the high profile crowd, by providing a differentiated experience and being an aspirational player. The journey of entrepreneurship Jawed says ―I live one day at a time. I solve any problem at hand and don‘t think too much,‖ says Jawed about his mantra for success. Jawed is extremely confident about his own skills and that he thinks has helped him overcome all problems. ―If a franchise is worried about rentals, I will go to his salon and cut hair for a day and help him cover the costs,‖ says Jawed. Despite the meteoric growth, Jawed says he still loves cutting hair and talking to his clients, because that is the time he gets to understand their real needs and demands. ―Insights gained from these conversations has helped me innovate on my offerings and stay relevant.‖ Jawed today has a core staff of 100 people whom he relies on for carrying out the various operational responsibilities attached to his company. Jawed‘s never the die philosophy and a positive attitude has helped him stay relevant amidst growing competition. He does make entrepreneurship sound like a very easy thing and maybe for all the method there is in the space today, an important ingredient that Jawed says is important for success is ―madness and passion. If you don‘t have these two things, all the number crunching will not serve you much,‖ offers Jawed
  • 63. 63 Research Methodology These particular areas are important for the proper execution of proposed research project. . COLLECTION OF SECONDARY DATA. Secondary data was collected through internet websites. some articles on the research topic were also taken in consideration and data was also gathered from different business research books.
  • 64. 64 Conclusion Every businesses are different having different set of variables affecting them. Setting up a new business is a complicated process and there is no standardized step for the setup. An entrepreneurship is not every ones cup of tea because an entrepreneur should have a brief knowledge of every aspect of a business (marketing, finance, human resource, business environment factors etc). The most critical phase of the business is the startup phase and requires lots of brainstorming, planning and capital according to the requirement. There is no guarantee of success and success of a business also depends on political factors, competitors, demographic, technological etc. Every entrepreneur should strongly comply to all the legal processes for smooth running of the business. Also market research is vital for understanding feasibility of the business and deciding the fate of the business.
  • 65. 65 Bibliography WEBSITE        business-marketing  businesses-not-big-enterprises/   BOOKS  "The Start-Up Of You," by Reid Hoffman and Ben Casnocha  "The Startup Game," by William H. Draper