Starting a business is essentially a risk taking venture which only gutsy souls undertake. But it isn’t always the case. Scenarios also change when people are forced to undertake a business because they couldn’t find any other job to eke out a living. So that construes not all the skilled are the ones who undertake business and not all who are undertaking business out of will, are the ones who make profits. Squarely , this sums up to one thing.
There are certain pre-requisites of starting your business. Its a general trend that people go into herd behaviour. If your neighbor made good profits with a grocery store you too try setting up something similar. That’s going to affect both of your businesses which many don’t realise. Supply doesn’t create its own demand in this case as a new business that is set in will necessarily dig into the already existing demand for the commodity.
This means, the creation of a substitute is going to downsize the demand for the already existing company while giving u meagre profits as only the existing base of consumption is shared between two firms.
Starting a business that never fails:
Getting carried away by your neighbor’s profits is the greatest mistake an entrepreneur can make.
– Start a business with afeasibility analysis. Feasibility tells us how financially, legally and profitably viableis the supposed venture.
– Defining and deriving your own demand curve by studying the preferences of the consumers. Knowing the demand for the product is going to reflect if the firm is going to make any decent profits.
– Taking a loan is one pre-requisite in running a business. The scenario gets into something like this within a few years where the business is always running on loans while gaining profits and clearing one loan only means the entrepreneur is taking another loan. This happens in such a concentric nature thus an entrepreneur should possess knowledge to rotate these loans. Debts are an integral part of any business. These debts are to be managed well so that they don consume the whole firm in turn.
Debt management if a pretty easy concept if followed properly. Say for example A had to buy a car for $30,000. Instead of paying all the $30,000 in cash, A has an option to take a loan and pay the whole amount in installments. So A pays $6000 and the rest $24,000 as a loan for an interest of 8%. As A paid $6000 and now he is left with 24,000$ as his cash in hand ( the bank loan has paid for his car) he is going to invest this money for a returns of 10% . This means A has leveraged the interest rates into his own favour which means A doesn’t actually bear the effect of the interest rate.
Time and again I have thoroughly stressed , so did many economists, that in the long run everything is bright and sunny. There can be an other side , the other side is always concerned about short term turbulence. I have read elsewhere, about Prof. Jeremy Siegel stressing how markets are always on the upside at long run providing his historical basis over the last 200 years. Citing that, we can conclude that stocks held with a long termed due date are always the best bet to invest. The strength of a stock can be guessed by the period an average investor in that stock has been holding the stock. The more the number of investors holding the stock for long periods, its reflective of the strength the company has given to the investments.
If these economic concepts are thoroughly met before one starts his business, the risk taking is just another fun game for you.