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Establishing a Business
Principles of Business
Topic Three

Establishing a Business

A business is an organization or entity engaged in commercial, industrial or professional activities. A business transacts its activities through the production of a good, offering of a service or retailing of already manufactured products.

The Entrepreneur

An entrepreneur is one who undertakes the risk of investment to create and market a good or service for financial gains. He/she is very perceptive and takes advantage of business opportunities that will generate high profits. Entrepreneurs can be sole traders, partners in a business or a group of shareholders.

The Role of the Entrepreneur

Entrepreneurship is important for the following reasons:

Conceptualization – the entrepreneur is the person who comes up with the business idea. The idea could have stemmed from his observation of a need for a product which he believes could satisfy customers. Development of managerial capabilities - the most important benefit of entrepreneurship is that it helps in identifying and developing managerial capabilities of entrepreneurs.

Creation of organisation – When entrepreneurs embarks on setting up their businesses, they will in turn be creating organizations which are important for the economic development of the country.

Risks – the entrepreneur takes the risks of the business

Create Jobs – by establishing their business, entrepreneurs will need workers to assist them in producing the products and services to be offered to customers in the market. So they create jobs.

Setting up a Business

There are standard steps involved in starting up of a business. These steps are as follows:

Conceptualization – All business ventures begin with the conceptualization of an idea. This is where the vision of the product or service is envisioned. Entrepreneurs will identify the need for a particular goods or service by observation.

Market Research – Before starting a business venture, the prospective business owner must undertake a market research to determine the required needs in order to establish the business. The purpose of market research is to examine the market associated with a particular good or service to determine how the market will receive it.

Identification of resources – After the market research has been conducted and there is scope for the product, the entrepreneur must now identify the necessary resources to operate business.

Creation of a Business Plan – A business plan helps the business determine whether or not the business will be a success. The business plan will outline vision, mission, objectives and the strategies that will be employed to achieve the intended goals and objectives.

Operation of the Business – Efficiency of the business is very important in order to be successful. This will mean that the business should have policies and procedures to ensure that the business is operated according to best practice and in accordance with the highest possible standards and according to national laws.

Sources of Information

Market research is the process of assessing the viability of a new good or service through research conducted directly with the consumer which allows a company to discover the target market and record opinions and other input from consumers regarding interest in the product. Sources of information can either be primary or secondary.

Primary research is defined as factual, firsthand accounts of the study written by a person who
was part of the study. One way you can think of primary research is that it is typically original
research. Primary information comes straight from the original source, in other words it is made
up of original documents and raw data.

Secondary research is defined as an analysis and interpretation of primary research or data that
already exists. Secondary market research is when people use previously completed studies and
apply the results to your own situation. A good example is information from the internet or from
books and journals.

Factors affecting Industry Location

The following are some factors that influence business location:

The proximity to market or customers – it is important that there be easy access to customers by the business. Many companies choose to operate in areas that are highly populated such as in the cities or in shopping malls.

The proximity to raw materials – it is far more cost effective and beneficial for businesses to be located as close to its source of raw materials. This will indeed result in lower transportation and total cost.

Availability to suitable labour supply – it can also be stated as a fact that businesses that are located close to a readily abundant supply of labour will tend to be much more successful than businesses that are located far away from quality human resources.

Adequate Infrastructure – businesses will tend to benefit more when they are located in areas where is an adequate system of infrastructure such as shopping malls, transportation network, ports, airports, water, roads and communication facilities.