The various problems relating the establishment of a new enterprise are: 1. Promotion of Business 2. Investigation 3. Form of Business Organisation 4. Adequate Capital 5. Size of Business Unit 6. Selection of Site 7. Plant Layout 8. Efficient Management 9. Launching an Enterprise.

Problem # 1. Promotion of Business:

It is the first stage in the establishment of a new enterprise. Without promotion, there would be no new enterprises and economic growth would be limited. Discovery is the first step in promotion relates to the conception of ideas and its thorough scrutiny to examine the commercial possibilities.

The reasons for the conception of the idea may be:

(i) To start a new business;


(ii) To expand the existing business;

(iii) To form a combination; and

(iv) To purchase a running business.

Problem # 2. Investigation:

For every new promotion effort the technique of “stop, look and listen” should be followed. The investigation is universally needed.


Here, the promoter must see the following problems:

(i) He should investigate and fully examine his own conception. If there is an idea about a new formula for manufacture of a particular product, he should experiment it before really implementing the scheme on a large scale.

(ii) The promoter should also see into the possible competition and the strength of the rivals.

(iii) He should also investigate into the possibilities of getting the requisites- men, machines, materials, money and managerial ability.


(iv) Problems of production and distribution such as plant location, layout and building size, supply of fuel and power, transportation and communication, extent of market, etc. should also be carefully weighed.

(v) The promoter should also investigate the financial requirements of the business.

Problem # 3. Form of Business Organisation:

The pattern of ownership is an important decision to be taken before establishing a business enterprise. The forms of organisation are: Sole proprietorship, Partnership, Joint Stock Company, Co­operative Societies etc.

They have their own advantages and disadvantages. The selection of a suitable form of business organisation is an important managerial decision. It provides the best medium for the attainment of business objectives.

Problem # 4. Adequate Capital:


“Capital is the life blood of business.” No business can be established without an adequate amount of capital. The need for capital will depend upon the nature of business and scale of operations. A sole trade business will be suitable if the capital requirements are less. Joint stock company, a form of organisation, will be suitable if capital requirements are large.

Problem # 5. Size of Business Unit:

The determination of the size of a unit is also an important point to be taken into consideration before establishing a new enterprise. The size of units depends upon the nature of products and methods and equipments used for production. It is very difficult to measure an exact size of a unit because of lack of standard measures. The size of the business unit should be optimum.

According to E. A. G. Robinson, “By the optimum size we must mean that firm which, in existing conditions of technique and organising ability, has the lowest average cost of production per unit, when all those costs which must be covered in the long run are included.”

Problem # 6. Selection of Site:

The success of business also depends on the suitability of site. The entrepreneur has to select the exact site.


For this he has to consider the following:

(i) Availability of cheap and best raw materials.

(ii) Nearness to the sources of man power.

(iii) Suitability of the climate.


(iv) Supply of labour.

(v) Availability of transport and communication facilities.

(vi) Proximity to the markets.

Problem # 7. Plant Layout:

The layout of a manufacturing plant is more important, as it affects the flow of materials and processes, labour efficiency, supervision and control, use of space, expansion possibilities and plan appearance. Proper layout of plant increases the workers’ efficiency and satisfaction. Before starting a new enterprise, the entrepreneur must think over this point also.

Problem # 8. Efficient Management:


There is a direct and positive relationship between business and management. The success of business depends upon the efficiency of management.

According to E. F. L. Brech, “Management is the process of planning and regulating the activities of an enterprise.”

Problem # 9. Launching an Enterprise:

It means the actual starting of production. The problems which are discussed above are interdependent and hence the entrepreneur has to solve them by putting them in proper perspective. After solving the above mentioned problems he can go ahead with the actual launching of the business.