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 How to Start a Business from Scratch: Factors and Process

Though it is dangerous to start a company from scratch, it is one of the most rewarding feelings. Starting up and operating their own interests is the hope of any entrepreneur. It is paramount to perform proper research before beginning the company to figure out the right market to venture. Entrepreneurs need to build methods that offer them a place ahead of the market. Steps to mitigate expense and optimise income should be taken while thinking about beginning a company. In order to have opportunities for growth, smart thinking can be used.

Factors to Consider when Starting a New Business

Before beginning a business, there are different variables to remember. The sector of experience and information is one aspect. Entrepreneurs ought to come together to determine the degree of competence in supplying their organisation with the product or service they expect to market. In order for an organisation to thrive, corporate investors must have some expertise in the area they choose to participate in. Owing to lack of awareness, several organisations struggle. Exposure can emerge from jobs in other industries or organisations that provide similar goods or services.

To prevent frustrations, the awareness can be strengthened by analysis into the future of the commodity faring well on the market. A unique collection of skills is needed for any niche of a market and, thus, some need more experience than others. Awareness and the ability to excel can be mixed. Instead of dwindling zeal, several starters struggle in business until they encounter difficulties. Therefore, if the enterprise wants to take off the ground, the individuals who wish to launch the organisation need to have a culmination of enthusiasm (Marinel 5).

The competition and demand for the commodity is the second element to remember. It would be important to calculate, before investing in the product, how much of the product would be produced for a given amount of time. In order to project profitability, this is a key marker. The primary motive for beginning a company is to make a profit and revenue volumes require profit. The commodity can be marketed in markets where there is a sense of need for it. In the domestic sector, certain goods perform better, and others do well in the foreign market.

In order to evaluate the region in which the product would have adequate demand to support the company’s production, comprehensive testing should be undertaken. It should also define the target customers. This allows to demarcate the business based on variables such as lifestyle, age, and income into separate divisions. In order to promote the recovery of the original expense as well as move the company forward, precision in identifying a consumer segment is important. This is facilitated by the willingness of goods to fulfil consumer demands. To build a consumer base, the product launch should also be timely (Longenecker 28).

The next element to remember could be rivalry. Entrepreneurs should be willing to assess, upon joining the business, the amount of rivalry they foresee. This is crucial in deciding if they have a strategic edge over rivals who have already developed. If the clients find the commodity to be of better quality than the ones on the market, the competitive advantage is generated. The product idea should be measured for the opportunity it provides for companies. A genius idea would not always mean a perfect potential for investment (Longenecker 29).

Product-making technologies should also be considered. Technological developments in the manufacture of several items on the market are evolving over time. A crucial element in growing the strategic edge of being able to manufacture higher commodity units and increasing cost performance is the technical component. If the product to be sold has been established, investors should analyse their technologies and decide if it can efficiently help them fulfil demand and if it will reduce operating costs or increase product quality. The technology could be in the machinery, new methods of production, new formulations as well as office equipment (Moore 65).

Staff and manpower is another aspect to consider when starting a company. The people employed possess the capability to drive the company to success or failure. The skills required should be outlined and characterized. The amounts of skilled or unskilled labor requirements become determined in this step. The availability of the labor should also be taken into consideration. The cost of labor is easily determined once the type and amount of hands needed becomes known (Marinel 84).

Location of the business should be next factor to consider. Where to locate the business will be determined by several underlying factors. The nature of the product, the effect on the environment, and the legal requirements all come into play in determining a business location. In addition, the labor availability, accessibility to infrastructure and the market can also influence the business location. When a business is established near the market for the product, costs of distribution are reduced. Availability of power lines, water and all weather access roads promote production and distribution of goods. Proximity to labor source ensures availability of cheap, unskilled labor when required. The nature of the product determines the legal requirement for location due to the likely impact on people living near the plant. Noisy factories have to be located away from places of residence.

The type of waste that the factory produces influences the impact on the environment. Governments, therefore, set locations for various business establishments based on the likely impact to the environment. The location of the business directly affects the supply chain due to the access to suppliers of the raw materials. The nearer to the raw material source a business is, the lower the cost of production due to the ability to negotiate terms. The location also determines the security status. To be successful, a business should be located in an area not prone to theft or vandalism. A secure neighborhood promotes the confidence of the staff. Resources such as healthy and filtered drinking water should be readily available (Longnecker 295).

The total project cost should also be determined. This should be accurately carried out to give an accurate figure in terms of the inventory to be kept during the initial trading period. The cost of premises, machinery, legal licenses and the staff salaries for the business should be determined prior to startup (Morris 68).

Consideration can also be extended to the return on investment. The opportunity provided by the product of choice should be compared to the opportunity offered by other goods. These should be expressed in monetary terms to forecast the returns in the business. This assists in making an informed decision of whether the product deserves investment.

In order to start a business, capital is required. The company should have as many options as possible in financing the business. The options range from savings among the partners, grants, and loans. Some governments provide incentives to businesses which aim at providing employment opportunities. Grants are the best sources of capital since the money is free. Since grants are not obvious, the company should keep an open mind for other modes of capital provision. When borrowing remains as the only viable option, the company should approach many lending institutions in order to gather vital information such as the rates of interest and the loan terms of borrowing, security required and the repayment terms. Through a comparative analysis of the institutions, the company is able to come up with the option that accords the most lucrative benefits.

The source of choice must be able to finance the business to the end of the initial / start-up phase. Some businesses fail to proceed due to lack of funds. The management should determine the type of loan required. This can be short term or long term. Once the source of capital has been established, a budget needs to be drawn to map out how the money will be utilized. Before borrowing, however, the necessity should be fully evaluated and measures induced to reduce the amounts. This is because loans accrue interest and the young company requires least expenditure possible in order to propel positive growth. Other options such as buying of raw materials on credit, and paying upon sale of the product, should be explored (Moore 298).

Before the start of any business, there are legal requirements to be considered. The legal requirements range from product to product. A company should research the legal implications created by the product they want to market. The first thing to consider is the business name. The company name must be registered under the registrar of companies. The name should not be offensive, misleading or criminal. It must also be original. The product to be manufactured should also be legal under the country’s law. It should be of high quality and assure safety of consumers. It should, therefore, have undergone quality tests before its launch into the market. When determining the company name, the investors should consider the message they want to communicate in the name. It should be expressive and memorable. The suggested name goes through the government registrar for approval and to avoid a double registration.

Once registered, the name cannot be used by any other entity. Prior to the identity as a company, the investors must sign an article of association which is prepared by a lawyer, subject to paying of incorporation fee. The article of incorporation, among other things, outlines; the business name, names of directors in the first year of operation, location of the principal office, voting privileges and the maximum number of shares the company is allowed to use, and restrictions on share transfers. In addition, the shareholders in the company should have share certificates (Longnecker 272).

Business Start-up Process

Once all the factors have been considered, and the legal requirements met, management of the company needs to assign roles towards achieving their goal. Usually, this calls for the creation of various departments within company’s production chain. This varies between companies and activities within the company. Departmentalization within the company requires job groupings among the staff to allocate various suited people specific roles. For a company offering finished goods, various departments should be recognized. These include the production department, quality assurance department, human resource, engineering, sales and marketing, purchases and procurement, and finance (Daft et al 285).

The production department, headed by production manager, performs the purpose of transforming the raw material into a finished product which can be sold to meet the demand of the customer. This department is the most important since this is where value for money gains shape. The department keeps records of the units of the product that have been produced within a certain period and indicates the staff on duty. This information forms the basis for calculating the worker efficiency which can in turn used in promoting or rewarding the workers. This information is shared with the human resource department. The records on units produced in certain times of the year assist the purchasing department in forecasting the raw material demand so as to source for supplies (Daft et al 291).

The quality assurance department acts as an intermediary between the production department and consumers of the product. The purpose is to ensure that the products reaching the customer are of the highest achievable quality. In addition, the department ensures that the products comply with the legal requirements and are safe for use. As such, the production and quality departments work hand in hand in satisfying the customer. If a customer complain reaches the company, it is channeled through the quality assurance department which conducts an investigation into the source of the anomaly.

 Corrective measures become recommended preventing the anomaly in future. In addition to the quality, the department ensures that the production department maintains the consistency of the product. This encourages customers to be loyal and helps expand the business. In their responsibility, the department ensures that the raw materials entering the production zone comply with preset quality attributes. If materials do not comply, they are rejected. Once goods are rejected, the department raises a rejection from which is used by the purchases and procurement officer to decline payment of an invoice to the supplier. The material can then be replaced, and if the problem is persistent, the supplier’s tender becomes refuted (Daft et al 285).

The sales and marketing department facilitate the movement of finished goods to the customer. It is their mandate to ensure that the goods reach the customers in proper time at the right price and at the place where the products are needed. The marketing department keeps records of sales which can be used in identifying trends such as increase or decrease in demand of the product. This information becomes useful to the production department who can adjust their levels of production in consistency with the demand trend (Daft et al 285).

The purchases and procurement department has the mandate of sourcing for suppliers of the required raw material to be used in making the product. The department interviews suppliers to ensure that the raw materials are availed throughout the production period. This creates signals to the production department whenever there is a shortage or a glut of the raw material to promote sound planning. Once demand for the product rises, the sales and marketing department, raises a signal to the production department to increase their output. The production department then signals the purchases department to bring in more raw materials by procuring new supplies or urging existing ones to increase the volumes (Daft et al 285).

The engineering department ensures the smooth flow of the production channel by maintaining the machines in use. Downtime is the period under which the machine remains unproductive as a result of mechanical breakdown. The engineering department and the production department, exchange job cards which signal problems in the machines to facilitate a prompt repair (Daft et al 287).

The human resource development is one of the core departments an organization should have. All the needs for staffing are addressed to this department. The personnel in the department then organize for hiring by holding interviews in which they seek to employ highly qualified people to take up various positions. In addition, the department organizes for training of the staff in various departments to make sure they are at par with changing market environment. This department takes care of employee complaints by negotiating solutions with the top management. Issues of salaries, conflict resolution and discipline between coworkers are addressed through this department. The department keeps employee records for the entire organization. Such records come in handy during employee appraisal for purposes of promotion (Daft et al 287).

The finance department imposes control on the company’s expenditure. Each of the departments receives a budget in which to work within. The finance department mobilizes funds to settle invoices raised by the engineering department for purchase of spare parts. It also settles the invoices raised by the procurement department in paying off the suppliers. In addition, it files the tax returns on behalf of the company while tracking the profitability. The department acts as the advisor to the company’s top management concerning the performance of their investment.

 During payments, the human resource department raises an invoice to the finance officer in order to request for funds to facilitate paying of the employees. The finance officer scrutinizes the amount requested for prior to releasing the money or giving the bank a go ahead to credit the accounts of the employees. By preparing quarterly reports, the management can be advised on the most profitable and least profitable season. When profitability is on an upwards trend, the management can be advised on incentives to invest by purchase of more advanced equipment for the sake of improving efficiency(Daft et al 291).

In the running of a company, various relationships exist between the departments. As seen above, sequential relationship takes Centre stage in the medium company. The procurement department gets goods which are used as input in the production department. Once the raw material is converted into a finished product, it becomes the input for the sales department. There is exchange of schedules between the production and sales and marketing and exchange of plans between the production and purchases department. A reciprocal relationship exists between the human resource and all other departments whereby meetings are held and minutes recorded. The success of any new business depends on the effectiveness of communication between the departments as well as the desire to succeed which should be outlined in the company mission statement (Moore 24).

  • Daft, Richard L. Organization Theory and Design. Mason, Ohio: South-Western Cengage Learning, 2010. Print.
  • Longenecker, Justin G. Small Business Management: Launching and Growing New Ventures. Toronto: Nelson Education, 2009. Print.
  • Moore, Carlos W, and Justin G. Longenecker. Managing Small Business: An Entrepreneurial Emphasis. Australia: South-Western/Cengage Learning, 2008. Print.
  • Morris, M J. Starting a Successful Business: Start Up and Grow Your Own Company. London:Kogan Page, 2008. Print.
  • Stone, Phil, and Phil Stone. Start and Run Your Own Business: The Complete Guide to Setting Up and Managing a Small Business. Oxford: How To Books, 2004. Print.

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