This project gives a fair idea of starting a venture which is particularly applicable in India due to its various tax and legal laws. But still it gives the essentials of starting a venture anywhere in the world

1. STAGES IN STARTING A VENTURE
OBJECTIVES OF THE PROJECT
To know various stages involved in starting a venture
To know the different sources through which market research can be
conducted
To understand the cost of starting a venture
To understand the various modes of financing a business
To check the legal formalities of starting a venture

2. RESEARCH METHODOLOGY
I have completed the project Stages In Starting A Venture using the secondary
data like Internet and various research, Management and news portals. Time
constraint and the maximum limit in the number of pages are the reasons of not
preparing the project report in detail as I wanted it to be but still I have tried to
explain in general, the way a venture is normally started in India.

3. Introduction
Many people dream of starting their own businesses, but not everyone is cut out for the
challenge of starting their own business. Being employed by someone else offers a slew
of advantages, from health insurance and matching retirement contributions to a regular
schedule and the company of coworkers. There are several personality traits that are
common among successful entrepreneurs, including discipline, frugality, self-confidence,
good communication skills, humility, honesty and integrity, superb record-keeping skills,
motivation, good health, optimism and more. Before one quits his job to become an
entrepreneur, one must first think of a concept, product or service that will generate a
steady stream of income. This may sound easy, but for most people, this is actually the
hardest part. One should conceive a plan that puts his knowledge, experience and
expertise to use in the most profitable way possible. One should try to start with areas
where one already has a great deal of interest in, and equipment and materials for. This
will help cut down startup costs. Doing something one likes isn't the only consideration.
One need to get an idea of the prospects for the potential business and try to find out the
answer to some questions like Is it a business with a market? Can one make money at it?
This will require some research into the marketplace as well as how other similar
businesses have fared.
So, starting a business can also be very stressful or unprofitable if one does not take the
necessary steps to ensure success. If a person is considering to start a new business, he

4. has to make sure that he will effectively plan every aspect of his business. This will lead
to a solid business strategy, which will help one to increase the chances of success. The
task of starting a business can be invigorating and eagerly fulfilling but it is not easy.
There are so many challenges to face and decisions to make. Many startups face a lot of
trouble in running the business and making it profitable. The pressure can cause a person
to make a poor decision which can, in turn, negatively impact the business potential and
give it a major setback. So one should spend quality time in planning and considering the
possible obstacles the new business might encounter in the long run. Therefore, one has
to go through various stages to start his business and to ensure its success.
 Identifying Business Opportunities
Identify productive inefficiency
If a person is able to produce any given output at a lower cost—or could produce more
output for given cost, then he may think of entering into that business. For example, a
company that is inefficient will have higher operating costs and will be at a competitive
disadvantage (or have lower profits than other firms in the market). E.g. Nirma Detergent
in India identified productive inefficiency by offering its detergent at a very low price as
compared to other foreign brands which were charging exorbitantly high prices.

5. Remove Key Hassles
One can take a look at some of the key hassles customers face when buying or using a
product or a service. One doesn’t necessarily have to have a new product or service. One
can be innovative and improve a product, a service or a business process. Purchasing
processes in some products categories are still a major source of irritation for customers.
One can think how he can improve and provide a superior alternative.
For example, look at how the search engine market developed. There were millions of
websites on the Internet and it was often very hard for customers to find what they were
looking for. Searching an index of webpages (on Google, or Yahoo) made it much easier
for customers to find information they were seeking.
Customers Desire to Experience Something New
One may or may not have a new business idea or business process to serve a market.
And perhaps there may be no market inefficiencies for a person to exploit. But
sometimes, gauging the customers’ desire to experience something new can be a
successful strategy.
Pick a Growing Sector/Industry
When considering a new business, it is important to look at whether or not one’s idea is
in a growing sector or industry. For example, a lot of start-ups in the IT sector in India
did very well because there was huge demand in that industry and the growth was
outpacing other industries. Investing in a stagnant sector/industry may not best serve a
person’s interests, unless he identifies a market inefficiency that he can exploit.

6. Product Differentiation
Creating superior products or services vs. alternatives is important for winning in the
market place. What factors will set one’s product apart from the existing ones? If there is
no such differentiating factor, the potential customers may just stick to the existing
product rather than adopt his product.
Cash Flow Considerations
At the start-up stage, cash flow considerations are just as important as any other business
function. If one runs out of cash, despite holding inventory or other assets, his business
will risk failure. There are some types of businesses in which cash is typically held up
for a long time. If a person is in manufacturing for example, his cash flow can be held up
for long periods of time, or money may be stuck in receivables. When picking the right
business, a person should consider one that provides fairly regular cash inflows and with
slower outflows (if possible). It is imperative that one understands the need for constant
cash flow in his business. Without cash flows, no matter how good a person’s idea or
business process is, he might be destined for failure.
Seasonal Business or All Seasonal Business
When picking a new business – it is to be seen whether it is seasonal or the year round. If
a person decides on a seasonal business, then he will need to consider how to operate
during off-season months. Managing the cash one makes during the season will help him
get through off-season. Financial planning will be of utmost importance.

7.  Checking the Feasibility of the identified opportunity
After thinking of a business idea and envisioning all the possibilities, one should make
sure that his Business Idea is indeed viable and that he is not getting carried away by the
sheer excitement.
Industry - Its size, its growth and its future. One should understand the prevailing trends,
Analyse Strengths as well as Weaknesses of existing players; Analyse Opportunities as
well as Threats to figure out whether a business opportunity exists. He should make sure
that the Business Opportunity is large enough to be attractive and the cost of doing
business is reasonable enough for the business to be viable.
Competition: One should study all aspects of Competition - Direct as well as Indirect.
He should dig deeper to find Gaps in Competition's Offerings and the Hassles faced by
customers. The existing competition in the market will pose a considerable threat to a
person’s startup when he launches his business. He should be aware about the activities
of his competition in the market, their business strategy, new partnerships, enhancement
of products etc. His competition will have a better knowledge about the market than him.
He should always ensure that he is updated about all the crucial developments in the
market and prepared to adapt to the changes that take place. He should pay attention to
his Competitiors, see what changes they are making and observe whether they have made
any changes in recent months or years. He should also observe if their products have
changed, or have they started to offer new services. His competitors may be making
changes as a result of the changing market needs.

8. Conducting Market Research
Market Research can be an expensive and time consuming task depending on the
methods of market research one chooses. However the information he obtains from it
can be very valuable to his business. It helps to understand what are the unmet needs and
what needs improvement. It is very important to meet and really understand the current
purchasers / users of his competitors products.
One can decide to hire a market research firm or can do his own market research.
1) Primary market research - Primary Market Research is first hand information from
customers and potential customers. Primary market research is more expensive and time
consuming to perform than secondary market research, however the information it offers
can be much more specific and valuable.
Market Research Surveys- Surveys by phone, mail or in person are used to assess the
potential success of a product or service. Surveys are a highly used method of small
business market research.
Market Research Focus Groups- A Focus Group is a group of people (usually 6-10)
who gather around to talk about a particular product, service, problems they have and
more. A focus group can help a person gain valuable insight about potential customers,
by discovering their likes, dislikes and problems.

9. Market Research Individual Interviews- Instead of conducting a group interview
(focus group) one can also conduct individual interviews. Conducting Market Research
Interviews provides him with the opportunity to meet individually with his target market.
Instead of conducting a group interview such as a focus group he can also conduct
individual interviews. In an individual interview the researcher asks the targeted buyer
questions similar to those in a focus group. The researcher asks about the interviewees’
likes, dislikes, problems and opinions of a product or service. One can choose to conduct
the individual interview in person or over the phone. One disadvantage of individual
interviews over focus groups is that the interviewees don’t get to interact with one
another. For example in a focus group, one person may say something that causes a
reaction in another and suddenly bursts of ideas start sprouting. In individual interviews
there isn’t that same kind of interaction. However an advantage of individual interviews
is that one gets to talk to his target buyer one-on-one and get more information about that
individual and their specific thoughts and opinions.
2) Secondary market research - Secondary market research is far more easer to conduct as
the information is readily available on the public domain.
Reports/ Studies (University studies)
Local Newspapers and business magazines -Many local newspapers and business
related magazines offer demographic data.

10. Library- In the reference section of the library one will find financial data and statistics
pertaining to the customer segments.
Market Research Statistics- There are many websites online that offer statistics for
small business market research. Statistics such as Demographics can help you get a sense
of population characteristics of your location.
Trade associations- There is a trade association for just about any industry. There is
usually a fee to join but it is an opportunity to network with other professionals in the
industry. One will also have access to market research which they conducted.
 Finding the niche
It is important to find a target segment which identifies the benefits a person offers
significantly more than alternatives
If the segment is distinct and its size economically viable, he may have discovered a
profitable niche
Finding one’s Niche is also important because he cannot afford to be everything to
everyone.
A profitable product / service must stand out and find quick acceptance amongst happy
& satisfied customers

11. Defining ones Niche
What is the person Selling?
Who are his Target Customers?
What benefits is the Target Customer Seeking?
How the Product or Service is different from one’s Competitor's Offerings?
How is a person’s Product / Service Superior v/s the Competition for the Target
Segment?
Which benefits / differentiators make one’s product unique?
 Deciding the Location of Business
Location of the business is the most important factor influencing its success or failure. It
is a long-term decision which should take into consideration not only the present
requirements of the organization but also its future expansion plans. Choosing the right
location for a startup will depend on the business one intends to run. If a person is starting
a restaurant or a retail business, he should choose a location that is accessible and familiar
to everyone. In case it is a manufacturing business, one can opt for a location that will
save up the cost for transportation of goods. Location of a plant has a bearing on the
layout of machinery and equipment as well as on the process of production. One should
keep in mind the convenience of the employees since it will help save time which is a
critical factor while managing a startup. The choice of location depends on several

12. important factors. Selecting a location for setting up an enterprise is dependent on the
following factors:
Availability of raw materials
The availability of good quality raw materials in required quantity at close hand is very
crucial for the success of a new enterprise. The region must have abundant supplies of
atleast the chief raw material required by the firm. Such a location helps to ensure
continuity of production and reduces the transport costs. Few raw materials such as
minerals, perishable food, cotton etc. play a vital role in influencing the location of the
plant. For e.g, paper manufacturing plants require a regular supply of a large quantity of
pure water and are, therefore, generally located near river banks.
Supply of Labour
The availability of the required grade of labour i.e. skilled, semi-skilled or unskilled is an
important factor influencing the location of the industry. Besides, the cost and
productivity of labour, attitude of trade unions and the state of industrial relations in a
particular region are also important. This also explains concentration of certain industries
in certain states.
Proximity to the Product Market
An industry should ideally be located close to the market for the product produced by the
firm. This on one hand reduces the cost of transporting the finished product to the market.
On the other hand it ensures maximization of profits by selling the goods at a competitive

13. price. Generally, in case of the industries having national and international markets,
plants are spread over wide geographical areas to have close proximity to all markets. In
case of regional demand, plants are located near to the immediate market.
Availability of transport facilities
A factory requires transport facilities both for getting its raw materials as well as for
reaching its finished products to the market. Hence, location is to be chosen in such a way
that its total transport cost is the lowest. Of the two elements of transport cost, which one
will have a decisive influence on the decision of location will depend on the
characteristics of the raw materials and the nature of the manufacturing process. If the
factory requires bulky commodities like iron ore, limestone, etc., it should be situated
nearer to the source of these raw material. But, if the manufacturing process is such that
the raw materials loose a substantial part of its weight like in the case of the chemical and
pharmaceutical products, the factory should be located nearer to the market. Therefore, a
region which provides adequate transport facilities attracts industrialists.
Supply of Power
With increased mechanisation, a location which ensures a regular and adequate supply of
power and fuel for the business has become an indispensable requirement.

14. Climatic factors
Certain types of industries require a particular type of climate. E.g. flour mills need a dry
climate while cotton mills require a humid climate. Natural factors are particularly
important in extractive industries like plantations, fishing, agriculture, etc. Climate
influences even the capacity to work on the part of the workers. But, the technological
advancements like, artificial humidification and air conditioning have reduced the
importance of climate as a factor.
Government Regulations and Policies
Central Government and the State Governments have made several policy
announcements from time to time in order to encourage development of industries.
Various incentive schemes have been provided to attract investment especially in
backward areas. All this has become an important factor while selecting a suitable
location.
Law and Order
Every entrepreneur is concerned about law and order as well as the political stability of
the area around which he wants to set up his industry. It is only natural for every
entrepreneur to locate his unit in those areas which are not subject to riots and political
disturbances. No industrialist can ignore such national and strategic considerations while
selecting the location of the industry.

15. Existence of complementary and competitive industries
Such a location on one hand provides backward and forward linkages for the industries
and on the other hand it provides a competitive environment for them. It increases the
supply of the required raw materials and enhances the demand for the goods produced. It
improves the labour market by attracting both skilled and unskilled manpower. It also
improves the banking, credit and communication facilities in the area. It brings into
existence various commercial services like warehousing, packing, forwarding, grading,
appraising, advertising, etc which helps in the growth and expansion of all the business
firms in the particular area.
Price of Land
It is an important factor while choosing the exact site for locating the business because
high price of land may wipe out the advantages provided by the availability of the other
factors. If it is proposed to lease out the land then the question of rent and taxes must be
considered as such charges will add to the working expenses. Also, the plot of land being
considered must be big enough to meet the needs of future expansion of the business.

16.  Deciding the legal structure / form of organization
There are several forms of business organizations that one may consider for his
company. Understand forms of Legal Structure and the factors one should consider while
deciding on the form of business organisation
Nature of business: - The organisation of one’s business will depend on the nature of his
business.
Scale of operations: - Volume of business and size of market area are key
considerations. Large market operations are better catered to by public or private
companies. Small operations are set up as partnerships or proprietorships.
Degree of Control: - If one wants direct control, then proprietorship is a good option.
Incorporation of a business involves separation of ownership and management.
Amount of Capital: - As need for resources grow, then for example, a partnership may
be converted into a company.
Volume of Risks & Liabilities: - Willingness of owners to bear risk. A sole
proprietorship bears high risk, whilst public or private companies have lower risks for
owners, as there is separation of the legal entity and ownership.

17. Comparative tax liability- An organisation’s tax liability will depend on the form of
business organisation one choose.
Forms of Business Organisations in India
Different forms of business organizations are as follows after having considered the
necessary factors for a business:
1) Sole Proprietorship
This is the oldest and most common form of business. Main features of this form are:
Ease of formation (no elaborate legal formalities)
Capital to be provided by owner himself
Complete control
No separation of ownership
Unlimited liability
Lack of continuity- the business ceases to exist if the owner dies
Difficulty in raising capital
Advantages:
Ease of formation
Incentives to owner to do well

18. Quick decisions and flexibility
Secrecy of business
Disadvantages:
Limited capital
Limited managerial ability
Limited life
Unlimited liability
Suitable for:
Businesses involving moderate risk
Small financial resources and small capital requirements.
2) Partnership Firm
A partnership can be defined as a relation between two or more persons who have agreed
to share the profits of a business carried on by all of them or any of them acting for all.
Main features of this form are:
Easy to form (no elaborate legal activities). Registration not essential.
Minimum partners – 2, Maximum partners – 10 (in banking), 20 for all other businesses.
No separation of legal existence.
Ownership of property carries right of management for each partner

19. Liability of partners is unlimited
Restrictions on the transfer of interest
Limited span of life (must be dissolved if one partner is unable to continue).
Difficult to raise a large amount of capital
Governed by Indian Partnership Act, 1932
Advantages:
Ease of formation
Greater capital and credit resources
Better judgment and more managerial activities
Disadvantages:
Absence of ultimate authority
Liability for actions of other partners
Limited life
Unlimited liability
Suitable for: Medium size businesses, involving limited capital.
3) Limited Liability Partnership (LLP)
The Limited Liability Partnership (LLP) is viewed as an alternative corporate business
vehicle that provides the benefits of limited liability but allows its members the flexibility

20. of organizing their internal structure as a partnership based on a mutually arrived
agreement. The LLP form would enable entrepreneurs, professionals and enterprises
providing services of any kind or engaged in scientific and technical disciplines, to form
commercially efficient vehicles suited to their requirements. Owing to flexibility in its
structure and operation, the LLP would also be a suitable vehicle for small enterprises
and for investment by venture capital.
It is governed by the provisions of the Limited Liability Partnership Act, 2008.
Salient features:
Separate legal entity
Perpetual succession- entity survives if the partners die (or unable to continue)
Provides flexibility in devising partnership agreement. The duties and obligations of
Designated Partners shall be as provided in the Limited Liabilities Partnership Act, 2008
Partners not accountable for actions of other partners. Liability is limited to their
contribution in the LLP.
Share transfer restricted
At least 2 partners needed to form a LLP, with a maximum of 50
Obligation to maintain annual accounts
Central government has investigative powers
A firm, private company or an unlisted public company is allowed to convert into a LLP
Provisions of The Companies Act, 1956 may also be included
Indian Partnership Act, 1932 shall not be applicable.

21. 4) Private Limited Company
A private limited company is defined as a voluntary association of not less than two and
not more than 50 members, whose liability is limited, the transfer of whose shares is
limited and not allowed to invite the general public to subscribe to its shares or
debentures. Main features are:
Independent legal existence
Less cumbersome to organise and operate as it has been exempted from many rules and
regulations a public limited company is subjected to. Some of them are:
o
Need not file a prospectus
o
Need not obtain a Certificate for Commencement of business
o
Need not hold statutory general meeting nor need it file the statutory report
o
Restrictions placed on the directors of the public limited company do not apply to its
directors.
Liability of its members is limited
Shares allotted are not freely transferable between members
Enjoys continuity of existence
Need a registered office and name
Requires signed Memorandum of Association and Articles of Association.
Advantages:
Continuity of existence

22. Limited liability
Less legal restriction
Disadvantages:
Shares not freely transferable
Not allowed to invite public to subscribe to shares
Suitable for: people seeking to take advantage of limited liability, but at the same time
desire to keep control over the business within a limited circle and maintain the privacy
of their business.
5) Public Limited Company
A public limited company is a voluntary association of members which is incorporated
and, therefore has a separate legal existence and the liability of whose members is
limited.
Main features are:
Separate legal existence
Governed by The Indian Companies Act, 1956
Minimum of 7 members, no upper limit
Collects capital via shares

23. Shares are freely transferable, without any prior notice to the company
Liability of a member of a company is limited to the face value of the shares he/she
owns.
Shareholders do not own management rights. This ensures separation of ownership and
management. Power of decision making given to Board of Directors.
Existence of company not threatened by insolvency, death of its shareholders.
Advantages:
Continuity of existence
Larger amount of capital
Unity of direction
Efficient management
Limited liability
Disadvantage:
May be subject to higher regulation than other business forms
 Creating a Business Plan
Every new venture should have a business plan. A business plan is the formal written
expression of the entrepreneurial vision, describing the strategy and operations of the

24. proposed venture. The business plan also goes by other names, depending on its intended
audience. Presented to a banker, it may be called a "loan proposal." A venture capital
group might call it the "venture plan" or "investment prospectus."
The business plan should include the following points –
Description
Goals
Marketing Plan
Financial Plan
Management Plan
The advantages of writing a business plan far outweigh the costs. The purpose of the plan
is to enable the top executives of the firm to think about their business in a
comprehensive way, to communicate their objectives to individuals who may have a
stake in the firm's future, to have a basis for making decisions, and to facilitate the
planning process.
Entrepreneurs should undertake the task of preparing the business plan personally.
Although outsiders - consultants, accountants, and lawyers - should be tapped for their
advice and expertise, the promoter or the initial top management team should be
responsible for the writing. Personally drafting the plan will enable the entrepreneurs to
think through all aspects of the proposed business and ensure that they are familiar with
all the details, for they will have to make decisions about the new venture and be
responsible for those decisions. Moreover, investors expect the founders to be involved in

25. and knowledgeable about the proposed enterprise.
The Benefits of Business Planning
The business plan can personally benefit the entrepreneurial team. Founding a new
business can be enormously fulfilling and exhilarating, but it is also an anxiety-ridden
and tense experience. Usually a great deal of money is at stake, and the consequences of
poor decisions can affect many people for a long time. In developing and writing a
business plan, the entrepreneurial team reduces these anxieties and tensions by
confronting them in advance. By projecting the risks of the new venture into the future,
the team comes to grips with potential negative outcomes and the possibility of failure.
The knowledge that comes from this experience can reduce the fear of being taken by
surprise by problems that could have been foreseen and provided for at the very outset.
 Understanding the Startup Costs
Depending on the business, the startup cost will vary. The startup cost would majorly
comprise of
Sales costs: Product inventory, raw materials, manufacturing equipment
Professional fees: Setting up legal structure of your organisation, trademarks, copyrights,
patents, drafting partnership

26. Administrative costs: Various types of business insurance, office supplies, licenses and
permits, express shipping and postage, product packaging, parking, rent, utilities
Technology costs: Computer hardware, computer software, printers, cell phones, website
development and maintenance, high-speed internet access, security measures
Wages and benefits: Employee salaries, workers compensation, payroll taxes, benefits
Sales and marketing costs: Marketing materials, advertising, trade association
membership fees, event or trade show attendance or sponsorship
It is important to decide whether each cost is essential or optional. Depending on this, the
decision to incur this cost is taken.
 Financing of Business
Finance is required by a business enterprise at almost every stage of the business life
cycle. MSMEs often find it difficult to arrange adequate finance for their operations as
well as for expansion and growth. These enterprises can raise finance by various
methods. Below are some of the ways to raise long term and short term capital.
Sources of Long Term Capital
Reinvestment of Profits
Profitable companies do not generally distribute the whole amount of profits as dividend
but, transfer certain proportion to reserves. This may be regarded as reinvestment of
profits or ploughing back of profits. As these retained profits actually belong to the

27. shareholders of the company, these are treated as a part of ownership capital. Retention of
profits is a sort of self financing of business. The reserves built up over the years by
ploughing back of profits may be utilised by the company for the following purposes:
Expansion of the undertaking
Replacement of obsolete assets and modernisation
Meeting permanent or special working capital requirement
Redemption of old debts
The benefits of this source of finance to the company are:
It reduces the dependence on external sources of finance
It increases the credit worthiness of the company
It enables the company to withstand difficult situations
It enables the company to adopt a stable dividend policy
It increases the debt raising capacity of the company
Loans from Commercial Banks / Financial Institutions
Medium and long term loans required for setting up projects can be obtained from banks
and or financial instituitions for all viable projects. Similarly, funds required for
modernisation and renovation schemes can be borrowed from them. Such loans are
generally secured by mortgage of the Company's properties, pledge of shares, personal
guarantees etc.

28. Public Deposits
Companies often raise funds by inviting their shareholders, employees and the general
public to deposit their savings with the company. The Companies Act permits such
deposits to be received for a period up to 3 years at a time. Public deposits can be raised
by companies to meet their medium-term as well as short-term financial needs. The
increasing popularity of public deposits is due to:
The rate of interest the companies have to pay on them is attractive.
These are easier methods of mobilising funds than banks, especially during periods of
credit squeeze
They are unsecured
Issue of Shares
It is the most important method. The liability of shareholders is limited to the face value
of shares, and they are also easily transferable. A private company cannot invite the
general public to subscribe for its share capital and its shares are also not freely
transferable. But for public limited companies there are no such restrictions. There are
two types of shares :-
Equity shares: the rate of dividend on these shares depends on the profits available and
the discretion of directors. Hence, there is no fixed burden on the company. Each share
carries one vote.

29. Preference shares: dividend is payable on these shares at a fixed rate and is payable only
if there are profits. Hence, there is no compulsory burden on the company's finances.
Such shares do not give voting rights.
Issue of Debentures
Companies generally have powers to borrow and raise loans by issuing debentures. The
rate of interest payable on debentures is fixed at the time of issue and the debentures
have a charge on the property or assets of the company, which provide the necessary
security. The company is liable to pay interest even if there are no profits. Debentures are
mostly issued to finance the long-term requirements of business and do not carry any
voting rights.
Sources of Short Term Capital
Trade Credit
Companies buy raw materials, components, stores and spare parts on credit from different
suppliers. Generally suppliers grant credit for a period of 3 to 6 months, and thus provide
short-term finance to the company. Availability of this type of finance is connected with
the volume of business. When the production and sale of goods increase, there is
automatic increase in the volume of purchases, and more of trade credit is available.

30. Factoring
The amounts due to a company from customers, on account of credit sale generally
remain outstanding during the period of credit allowed i.e. till the dues are collected from
the debtors. The book debts may be assigned to a bank and cash realised in advance from
the bank. Thus, the responsibility of collecting the debtors' balance is taken over by the
bank on payment of specified charges by the company. book debts may be assigned by
the seller to a FACTOR, who who will provide about 80 - 85 % or more of the value of
the book debt, as advance to the seller. The FACTOR will also undertake the task of
collecting the amount representing the debt (credit sales) from the debtors. Factoring is an
important avenue of raising short funds against the receivables for the MSME units. The
charges payable to the FACTOR is treated as cost of raising the funds.
Discounting Bills of Exchange
This method is widely used by companies for raising short-term finance. When the goods
are sold on credit, bills of exchange are generally drawn for acceptance by the buyers of
goods. Instead of holding the bills till the date of maturity, companies can discount them
with the commercial banks on payment of a charge known as bank discount. The rate of
discount to be charged by banks is prescribed by the Reserve Bank of India from time to
time. The amount of discount is deducted from the value of bills at the time of
discounting. The cost of raising finance by this method is the discount charged by the

31. bank which discounted the bill.
Bank Overdraft and Cash Credit
It is a common method adopted by companies for meeting short-term financial
requirements. Cash credit refers to an arrangement whereby the commercial bank allows
money to be drawn as advances from time to time within a specified limit. This facility is
granted against the security of goods in stock, or promissory notes bearing a second
signature, or other marketable instruments like Government bonds. Overdraft is a
temporary arrangement with the bank which permits the company to overdraw from its
current deposit account with the bank up to a certain limit. The overdraft facility is also
granted against securities. The rate of interest charged on cash credit and overdraft is
relatively much higher than the rate of interest on bank deposits.
Rating Parameters used by the Lenders before financing
The lenders (Banks/ Venture Capitalists, etc.) carefully assess one’s credit worthiness and
assign ratings by analyzing his business information with respect to various parameters.
The main parameters that are generally used to rate business entities are provided below
1) Management
Some of the key parameters considered include:

32. Background
Industry experience and knowledge
Past conduct of borrower with banks
Qualifications
Background and Capability of the Promotors
Organisation's Preparedness for meeting Challenges
Combined net worth of promoters
Associate concerns
2) Financial
Some of the key parameters considered include:
Current ratio
Debt equity ratio
Average turnover
Net profits
Income growth
Net cash accruals
Financial Projects and Debt Servicing Capabilities
Provision of security for proposed assistance
Quality of collateral security

33. 3) Operational
Some of the key parameters considered include:
Proximity to branch
Location of unit
Borrowers proximity to market
Type of technology
Equipment supplier
Quality certifications
4) Industry
Some of the key parameters considered include:
Nature of industry – cyclical/ seasonal
Eligibility under assistance scheme, if any
Competitive advantage
Branding of product
Number of applications of product/ machinery
5) Past Loan Performance
Some of the key parameters considered include:
Re-payment history
Missed installments
Revision in interest rates/ period

34. Prepayments
Defaults
Month of default
Amount of default
Reason of default, if provided
Security re-sale value
Capital loss to bank
 Hiring Human Resources
Human Resource is also an important determinant of business location and functioning.
Factors such as the availability of labour of different skill levels, productivity and cost of
labour, flexibility of labour, attitude and behaviour patterns of labour, nature of trade
unionism etc. are important to a business. The whole process begins with the task of
hiring manpower for starting a business for filling the present and prospective vacancies
in the company. The objective of hiring manpower is to procure the right number of
employees, with the required qualifications to do the right type of jobs. The hiring
process involves four main steps i.e. manpower planning, recruitment, selection and
placement. Each of these steps and sub-steps help the employer obtain more and more
information about the candidates and thus help in obtaining the best possible manpower
for the firm. This function must be performed carefully because any error committed at
the time of hiring manpower may prove to be very costly for the firm both in the short as

35. well as long term. These costs will be in the form of waste of time, money and energy in
repeated hiring process. The training costs incurred on them will go waste. The efficiency
of the organisation will go down due to hiring of unsuitable candidates. At the same time
the rate of absenteeism and labour turnover will be higher. Hence, an effective hiring
procedure includes the answers to the following questions :-

What are the requirements of the jobs to be filled?

What kind of persons are needed?

How many persons are needed?

What sources of recruitment may be utilised?

What steps should be taken to select the right type of candidates for employment?
 Fulfilling the legal requirements pertaining to the Business
Once a person has validated his idea with the necessary steps, it is time to delve into the
legalities and paperwork involved in launching the business. The main legal steps that is
taken is as follows:
Company Incorporation – Initial Steps:
• One should file the desired company name with the Registrar of Companies and make
sure it is available for use.

36. • Then the person has to submit the main objectives of the company to the Registrar of
Companies (ROC) for scrutiny. He will be informed of approval or any objections within
10 days.
• Then he has to obtain a Director Identification Number (DIN) online from the Ministry
of Corporate Affairs portal. This process calls for submitting attested support documents
as proof of identity and address.
• He has to then obtain a Digital Signature Certificate – a requirement for all those who
have to sign ROC forms and related documents. The certificate can be obtained from one
of the private agencies authorized by MCA 21.
Stamping of Documents:
• One should pay stamp duties and submit various incorporation forms and documents,
including unsigned copies of the Memorandum and Articles of Association for stamping.
- Memorandum of Association – This lists the main, ancillary, subsidiary and other parts
of the company. It also lists the authorized share capital of the company and the names of
theauthorizeddirectors.
- Article of Association – describes the rules and procedures for the routine conduct of
thecompany.
- These documents have to be executed by the promoters in their own hand and in the
presence of witnesses.

37. Certificate of Incorporation:
• One has to submit digital and physical copies of the following documents to the ROC in
order to obtain the Certificate of Incorporation:
Forms e-form 1 (stating that all requirements of the incorporation process have been
completed), e-form 18 (informing the ROC of the location of the registered office of the
company) and e-form 32 (stating the appointment of proposed directors) have to be filed
electronically by him.
Signed and stamped forms of the Memorandum and Articles of Association
On initial consent of directors
Original approval of name letter
Stamped Power of Attorney documents
Tax-related Procedures
• Permanent Account Number (PAN) – A PAN card can be obtained by filing an
application with the Income Tax department using Form 49A along with supporting
documents. In recent years, the government has tried to simplify this process through
service centres such as UTI Investor Services Ltd or TIN Facilitation Centers.
• Tax Account Number (TAN) – This is required for anyone responsible for deducting or
collecting tax. Use Form 49B for this and submit it at any TIN Facilitation Centre
authorized to receive e-TDS returns

38. • There is a mandatory registration process for Value-Added Tax (VAT) and other tax
requirements such as professional tax and service tax
Labour Law Procedures
• Registration with the Office of Inspector, Shops, and Establishment Act: The steps
involved in this may vary by state.
• Registration with the Employees’ Provident Fund Organization: This is required
only if the number of employees is 20 or more.
• Registration with the Employees’ State Insurance Corporation – A social security
scheme to provide protection to workers in the organized sector and their dependents in
contingencies such as sickness, maternity, death, disablement or occupational disease
The steps and procedures described above may vary depending on the state and type of
business. One should tackle these in a proactive and systematic manner to ensure that he
does not get caught in a legal tangle that will delay the launch of his business or hamper
its operation.
 Officially starting the venture
Now after completing all the basic formalities along with the legal requirements, the
Business would be able to start its operations in full flow. The workers, employees and

39. the managerial staff being recruited for the Business will be assigned various job roles as
per their abilities and skill. In the case of any manufacturing or trading concern, orders
for the raw materials of the Business would be given to the suppliers and vendors after
negotiating with them regarding the price of the raw material, the payment terms and the
credit period to be offered. Then as the raw materials would reach the organization, it
would start its production process whereby it will try to minimize the cost of production
by making optimum use of its available resources ensuring very little or no wastage.
Then as the products are ready to be sold, the firm would be undertaking marketing
activities in order to attract its customers and hoping to sell its product successfully.
In the case of service oriented organizations, they would look to make a name for
themselves in the market as a credible and trustworthy organization by providing good
customer services which would enhance their reputation leading to increase in their
customer base.
 Periodic Review / Follow Up
Now, after starting the business operations, the owner/owners of the organization should
continuously monitor the performance of their Business. They should see whether their
Business is performing well as expected by them . They should find out whether their
product is getting good response in the market which will in turn translate to more sales.
If not, they should try to analyze the reason for the same. They should look to address
those issues at the earliest. Even if the business is not making profits in the beginning, it
should be at least ensured that the business is not making huge losses which may even

40. affect the survival of the organization. The organization should simply try to deliver as
per the opportunities identified within the market by following the best practices in the
organization which would enable the Business to sustain itself in the market.
Conclusion
There are few things more satisfying and rewarding than launching and running a
business, but before diving in, a person should be sure to do his homework. Making a
business work is not an easy task, but proper planning along with following the above
steps would definitely increase its chances of success.

41. SUBMITTED BY
SREENIVAS SANKAR IYER