Business Formation Basics


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Almost every individual dreams of owning a profitable business. Some may also be interested in an undertaking for the common good, example in case of non-profit organizations. But when we speak of a profitable business, it is not merely inflow and outflow of cash. A lot of detailing needs to be done to make an undertaking profitable.

The foremost thing that one needs to decide before undertaking any business activity is the structure of the corporate. A business organization can be a sole proprietorship, partnership or a family undertaking depending on the extent of rights and liabilities that one wants to design. Sole proprietorship is perhaps one of the simplest legal structures. It a one man company. In a partnership, the company is jointly owned by several partners. When a sole proprietor seeks the capital investment from another partner, without any further interest of the latter in the business, it becomes a limited partnership.

The second step is formulation of business plan, though this may not be required in case of small companies. A business plan chalks out the entire framework of the activity one proposes to undertake. It not only brings clarity and goal orientation but also acts as a positive influence on banks to provide finance.

Finance is the lifeline of any business, be it a profit oriented organization or a social service undertaking. Depending upon the size of the business, the magnitude of finance required may vary. While a small sole proprietorship may raise resources easily from the owner itself, a large corporation may require external help. A business may approach banks, investors or finance companies for the money. While banks usually have tough rules, a finance company helps to come up with an easy bargain.

After the corporation is finally on its wheels, what becomes important is effective management. An important thing that is to be monitored is the direction in which the business proceeds. The business has to move in the direction and manner as was planned. Secondly, the relation of the management with its employees is very important. Unless the employees are motivated to do their jobs, they cannot give their best to the business. Proper encouragement can also work wonders. At the same time, the negative behavior of the employees needs to be discouraged. The organizations need to strive for a healthy office environment in order to attain its goals successfully.

Accounting is a tricky area for all the organizations. Every business needs to adhere with sound accounting purposes to ensure healthy economic growth. Accounting is required to calculate the tax, avail the tax benefits, determine liabilities, and most importantly to calculate the profits and worth of the business undertaking. Adverse accounting practices can attract various penalties and can also lead to closure of the business. Fraud is commonplace with business and accounting, and needs to be prevented.

Before starting with any business activity, one needs to be aware of the legal requirements and other related information. A meticulous preparation is required to make a simple business undertaking successful.

Mansi aggarwal writes about business formation. Learn more at .


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