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Factors Determining the Type of Business to Start

A person thanking about owning a business should examine the following factors:

* Capital Requirements: The starting of funds necessary to finance the operation.

* Risk: The amount of risk a person is willing to undertake by starting the business.

* Control: The amount of authority the owner can exercise.

* Managerial abilities: The skills needed to plan, organize, and control the business.

* Time requirements: The time needed to operate the business and provide guidance to the employees.

* Tax liability: The amount of taxes a business must pay to governments on earnings of the business.

Foundation of Business

For understanding business, understanding economics is essential. Economics is the study of how a society (people) chooses to use scarce resources to produce goods and services and to distribute them for consumption. This definition raises certain issues that are key to understanding economics: (1) resources (2) goods and services and (3) allocation of both resources and products.

1. Resources:

A nation’s resources consist of three broad categories like-

* Natural resources are provided by nature in limited amounts; they include –oil natural gas, minerals, timber and water.

* Capital resources are produced goods for the purpose of making other types of goods and services. Some capital resources are called current assets, have a short life and are used up in the production process. For example-fuel, raw materials, paper and money. Some assets are also considered as fixed capital like-factory buildings, machineries, personal computers, etc.

* Human resources are human talents, skills and competence, available in the nation.

2. Goods and Services:

A nation’s resources are used to produce goods and services that will meet people’s needs and wants. Needs lead to wants. For example, we use food and for that matter we want rice.

3. Allocation:

The process of choosing how resources will be used to meet a society’s needs and wants; includes the distribution of products to consumers.

Organizational Response to Natural Environment

Some organizations can take on active roles in promoting environmental awareness. Some managers choose merely to adhere to the legal requirements, while others go so far as to assert environmental values through their organization’s product and marketing. Mangers especially at higher levels-must monitor the external environment and try to forecast changes that will affect the organization. They may use strategic planning and organizational design to adjust to the entrainment.

Stakeholders are the people and groups of people who have an interest in what goes on in the organization. Stakeholder are of two types-

External Stakeholder : It includes customers, suppliers, government, special interest groups, the media, labor unions, financial institutions and competitors.

Internal Stakeholder : It includes- employees, owners, shareholders, and board of directors.

Differences between Natural and Organizational Environments

Managers must recognize the elements of internal organizational environments, such as stakeholders. In addition, managers must also understand the relationship of elements of the natural environments that can affect the organization.

Importance of External Environment

The rapid changes taking place in the external environment of organizations require increasing attention from managers. The external environment contains numerous resources upon which organizations rely. This means that organizations are inevitably affected by what goes on in the environment.