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July 21, 2017

Common Problems Before Starting a New Business

July 21, 2017


The present business world is extremely competitive and in this situation starting a new business is a big challenge whether it is a small or large business. But knowing the business start-up challenges and problems will possibly help you to success your business. In this article we will figure out some common problems and challenges that an entrepreneurs face before establishing a new business.


Business Startup Problems

1. Type of Ownership

There are four types of ownership:

      a. Sole proprietorship

      b. Partnership

      c. Joint Stock Company

      d. Cooperative society

a. Sole proprietorship:  A business run by a single person is known is sole proprietorship. He solely enjoys all the profits and responsible for the losses. He also enjoys greater flexibility of management and fewer taxes. However,   he has unlimited liability for the debts of his business.

b. Partnership:  A business run by two or more persons is called partnership. They invest capital and share profits, losses, and management of the business. A partnership firm is usually operated under partnership agreement. The minimum limit of partners is two and maximum is twenty. In case of banking, the maximum limit of partners is ten.

Partnership has following kinds:
  • General partnership
  • Limited partnership
General partnership: A general partnership is one in which all partners contribute to the day-to-day management of the business. They have authority to make business decisions and are responsible for debts of the business.

Limited partnership: A limited partnership has both limited and general partners. The general partners have unlimited liability. While limited partners have limited liability.  There must be at least one general partner who is responsible for all debts of the business.

c. Joint Stock Company:  Mainly there are two types of companies.
  • Private limited company
  •  Public limited company
Private limited company: It is usually run by family members or relatives. They cannot sell their shares to general public on stock exchange. Their liability is limited to the amount they have invested in the company.   The minimum limit of shareholders is two and maximum limit is fifty. The word limited must be used with the name of company. The company must obtain registration certificate from the register.

Public limited company: It is more complex business.  It is run by board of directors. They sell shares to general public on stock exchange. A person who buys shares is known as shareholder.  The liability of shareholders is limited to the amount they have invested in the company. Memorandum of association, articles of association and prospectus are fundamental documents required in the formation of a public limited company which must be registered with the registrar of the company.   The minimum limit of shareholders is seven and there is no limit for upper. It is compulsory to use the word of limited with the name of company.

d. Cooperative society: Cooperative society is an association established for the purpose of providing services to its members on the basis of no profit, no loss.   It is owned and managed by its members. They pay stipulated amount of fee annually which is used to finance day to day expenses in the operation of business. Member’s liability is limited only if the society is registered otherwise it is unlimited.

If you want privacy, full control of business and having small amount of capital, then sole proprietorship is the best choice. On the other hand, if you have large amount of capital and want stability, company is the best choice. Partnership is the best for sharing management and raising capital.

2. Type of Business

Mainly there are three types of business:
  • Manufacturing
  • Merchandising
  • Services
Manufacturing: Using components, parts or raw materials to make finished goods is known is manufacturing.   This type of business has more legal regulations and environmental laws to deal with as compare to merchandising and services business. It also requires a large amount of capital to commence.

Merchandising: It is one of the most common types of business. It refers to purchase of finished goods from distributors domestically or internationally and resell them to consumers.  This type of business also known as non-manufacturing.

Servicing: If a person or firm provides facility of intangible products such as accounting, banking, consulting, education, or medical treatment, they are involved in servicing business.  This type of business does not require maintaining inventory system.

You may choose manufacturing, merchandising, or servicing business. But the decision should be made based on the availability of capital, scope of business, nature of demand, and your experience.

3. Finance Problems

Finance is the lifeblood of business. Before starting a new business, you have enough finance that sustains your business in the market. The business finance is required to purchase equipment, land, machinery, plant, merchandise and raw materials. The business enterprise has to meet other expenses such as salaries, insurance, and rent. 

The sources of business finance include:
  • Capital: It includes cash or other types of assets invested by owners, such as sole proprietor, partners or shareholders.
  • Loans: It can be borrowed from banks, financial institutions, or individual.
  •  Retained earnings: It is the amount of profit a company has left over the previous year.

4. Location

Choosing right location for business is very important. If your business is difficult to find and surrounded by competitors, you will be struggling to get your potential customers.  Following factors should be considered for choosing right location:

·         Customer traffic

·         Competition

·         Nearness to the market

·         Utilities (power, water, gas)

·         Infrastructure   (road, transportation, communication system)

·         Building cost

·         Image of site

·         Availability of employees

·         Availability of parking area

·         Delivery convenience

5. Labor Problems

Labor may be divided into three categories:
  • Skilled laborers: They have special training or skills to perform the task. They include   doctors, engineers, layers, auditors, professors, airplane pilots, computer programmers, and   business administrators.
  • Semi-skilled laborers:   They have less training or skills than skilled laborers. They include   machine operators, carpenters, drivers, clerks, and administrative assistance.
  • Unskilled laborers:  They don’t require special training or skills to perform the task. They    have minimal economic value for the work performed. They include cleaners, peons, loaders,  baggage carriers, hotel and domestic maids.
A business enterprise can hire workers through advertisements. When workers are hired, they should be provided training for better performance. They are offered salaries, allowances, provident fund, and other facilities. Workers should be hired based on type, requirements and wages.

6. Types of Goods and Services

The business enterprise has to decide what type of goods and services are to be produced or bought in order to offer to consumers. Goods may be vehicles, computers, plants, textiles, electronic items, sport items, toys, cosmetic products, oil and petroleum products. Services may be consulting, education, banking, accounting, freelancing, traveling services, hotels and restaurants. Goods are offered to consumers on the basis of price, color, size, design, model, packing and warranty. While services are rendered on the basis of price and hours. 

7. Marketing

Through marketing goods and services moved from producers to consumers. Thorough research your market before starting a new business.  Also discover the size of market and its sustainability of demand for the product or service.  You can market your product through different advertising media such as TV, newspapers, radio, pamphlets, and online. Follow those marketing strategies that motivate customers to make a purchasing decision. Marketing is based on 4 Ps, product, price, place and promotional strategy. 

8. Dealing with Competition

Competition is another problem when starting a new business. Competition is a situation when a large number of suppliers exist in the market. Follow the given below points to deal with competition:
  • Know your competitors: Know about your competitors that where they are, where they are going and how fast they are going to get there. It will help you to differentiate your business. 
  • Know your customers: know about your customers that what they want and make your marketing strategy accordingly. Offer better customer service by being more responsive to their needs and expectations.  
  • Treat customers as guest: Mostly customers want to go there where they get value. So treat customers as guest not only customers. If you do so, next time they will prefer to come to you.
  • Don’t overlook the competition: Your competitors may come in different ways, but they have one thing in common -- they all want to beat you.
  • Providing quality products: Customers are always looking for quality products with lowest possible price, if you offer them, they will come to you.
  • Future of business: Today’s products get outdated tomorrow. The business has to go for future technologies and follow consumer trends.
  • Competitors are not always competitors:  If you think your competitor is growing more than you or getting tough competition, you may go for business combination. 

9. Risk

Risk is a crucial part of every business. It must be calculated before starting a new business. Risk is a chance of harm or loss. It may be in the form of change in prices and tastes, new technologies, competition, financial and operational risk, government regulations, consumer preferences, obsolescence, accidents, fire, and theft.  Every business organizations carry various nature of risk.  So they must be identified on a regular basis to avoid or reduce losses.

10. Legal Requirements

Before starting a new business the investor must fulfill all the legal requirements.  They include factory act, company act, partnership act, income tax act, custom duties etc.  It would be better to appoint a legal adviser who can offer advice in the early set up stages of a business.
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