How to Start a Business from Scratch

How to Start a Business from Scratch

Though it is dangerous to start a Business from scratch, it is one of the most rewarding feelings. Starting up and operating their 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 into. Entrepreneurs need to build methods that offer them a place ahead of the market. Steps to mitigate expenses and optimise income should be taken while thinking about beginning a company. To have growth opportunities, 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. For an organisation to thrive, corporate investors must have some expertise in the area they choose to participate in. Owing to a 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 of 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.

How to Start a Business from Scratch

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. 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.

 Also Read: 7 ways to hire the right person for your business!

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 differentiation of the business based on variables such as lifestyle, age, and income into separate divisions. 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, a 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.

Product-making technologies should also be considered. Technological developments in the manufacture of several items on the market are evolving. A crucial element in growing the strategic edge of being able to manufacture higher commodity units and increase 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.

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 labour requirements become determined in this step. The availability of labour should also be taken into consideration. The cost of labour is easily determined once the type and amount of hands needed become known.

The location of the business should be the 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, labour 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. The availability of power lines, water and all-weather access roads promotes the production and distribution of goods. Proximity to labour sources ensures the availability of cheap, unskilled labour 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 on 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 neighbourhood promotes the confidence of the staff. Resources such as healthy and filtered drinking water should be readily available.

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 before startup.

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 of the business. This assists in making an informed decision of whether the product deserves investment.

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 to 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 to other modes of capital provision. When borrowing remains the only viable option, the company should approach many lending institutions to gather vital information such as the rates of interest and the loan terms of borrowing, the security required and the repayment terms. Through a comparative analysis of the institutions, the company can 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 a 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 the least expenditure possible to propel positive growth. Other options such as buying of raw materials on credit, and paying upon sale of the product, should be explored.

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 the 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. Before the identity as a company, the investors must sign an article of association which is prepared by a lawyer, subject to paying an 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.

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 the 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 resources, engineering, sales and marketing, purchases and procurement, and finance.

The production department, headed by the 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 worker efficiency which can, in turn, be used in promoting or rewarding the workers. This information is shared with the human resource department. The records on units produced at certain times of the year assist the purchasing department in forecasting the raw material demand to source for supplies.

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 to satisfy the customer. If a customer complaint reaches the company, it is channelled through the quality assurance department which investigates the source of the anomaly.

 Corrective measures are recommended to prevent 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 form 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.

The sales and marketing department facilitates the movement of finished goods to the customer. It is their mandate to ensure that the goods reach the customers at the 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 increases or decreases in demand for the product. This information becomes useful to the production department which can adjust their levels of production in consistency with the demand trend.

The purchases and procurement department has the mandate of sourcing 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 raw materials to promote sound planning. Once the demand for the product rises, the sales and marketing department raises a signal to the production department to increase its 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.

The human resource development is one of the core departments an organization should have. All the staffing needs are addressed by this department. The personnel in the department then organize hiring by holding interviews in which they seek to employ highly qualified people to take up various positions. In addition, the department organizes training of the staff in various departments to make sure they are at par with the 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.

The finance department imposes control on the company’s expenditure. Each of the departments receives a budget in which to work. The finance department mobilizes funds to settle invoices raised by the engineering department for the 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 to request funds to facilitate paying of the employees. The finance officer scrutinizes the amount requested before 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 seasons. When profitability is on an upward trend, the management can be advised on incentives to invest by purchasing more advanced equipment for the sake of improving efficiency.

In the running of a company, various relationships exist between the departments. As seen above, the 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 an exchange of schedules between the production sales and marketing and an 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.

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