On the formation of a business

This is not a guide on how to do it, but rather a study on the beginnings of a business. How does a business grow?

How does a business start? How does it grow? What drives some to succeed and others to fail?

What is a business?

We all understand what a business is, but how is it defined?

A search between different sources will give you a range of different definitions. The Chambers dictionary lists it as defined below:

company name 1 the purchase and sale of goods and services.
This highlights the common theme between all definitions, buying and selling. No matter what the final product of the company or what service they provide, what matters is that someone wants to buy it.

The goal of any business, no matter how high the mission statement it intends to follow, is to make money. They need to provide something that other companies or customers will give away with money to have access to. It is important to remember that not all companies will aim to make a profit. A charity can be run as a business, they can give away all the money they receive or spend it on helping others, but they still need to have that revenue stream in order to operate.

How does it start?

I’m not going to go into depth on the formation of a business in a legislative sense, whether it’s a corporation, a partnership or a group, that information is for another time. I want to focus on the concept of a business in itself.

A business always starts in the same place. With an idea.

This idea must have a market value. Without a market value, the idea is just that, an idea. The market value is the amount that people would be willing to pay for your idea, whether it’s a physical product or an intangible service, it must have value.

These ideas can come from anything. Many come from people who already work in an industry and who see a specific gap in the market that they could fill. Some come from the archetypal inventor, creating in his garden a shed that the world has never seen before. Many of them will leave you with the same reaction: “Why didn’t I think of that?

From idea to business?

The most difficult part of the business is this part. How do you get your product or idea from your thoughts to existence and profit?

This is the key part that can make the difference between a successful business and a failure. Research. Successful companies know they will make a profit before they start, it may take several years, but they know it will work.

Find out the target market, the competition, the price points, the costs incurred in providing the service or product, the advertising, the overheads and calculating the margins to produce a profit without having to set a price to get out of the market. All of these things must be done and done well even before starting the process of establishing a functional business.

This is why creditors or investors would require a complete business plan before helping a business get started, no matter how good the idea itself. Bringing that idea to a functional point requires an enormous amount of effort and dedication.

Business Formation

The plan is in place. Profits are mapped and there is even a nice graph to show exactly when they will occur and how much they are expected to occur.

The next step is where your investors come in, you require an outlay to start a business.

Whether it’s a small outlay, renting an office and copyrighting the name of your company, or if it’s huge, building a factory to produce your product while employing and training all the staff to operate it, the crux is the same, you’ll need some investment.

Many small businesses start with only the savings of their founders, and this is enough, while others will turn to banks for commercial loans.

This is going to be the most expensive period your business will ever see, there is always an investment period before any return can be made. Once the returns begin to arrive, then further growth is possible, but before any profit comes to the initial investment.

Business Operation

The first goal of any new business is stability. Bring your business to a point where you don’t lose money. Obviously, all companies aspire to make profits as quickly as possible, but stability is more important.

An extraordinary period in a new business can lead to additional growth and outlay that the business cannot withstand and a quieter period after this can lead directly to financial difficulties.

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