In the past few years, a dramatic change has been witnessed within the Indian economy as a host of economic reforms have been introduced by the government. Such reforms aimed at:
- encouraging privatization
- liberalization and deregulation of the domestic trade
- encouraging FDI
- emphasizing ease of doing business in India
As per World Banks ‘Doing Business Report, 2019’, India ranks 77 among 190 countries with regards to ease of doing business. This rank has shifted from 100 to 77 as a result of a number of measures taken by the regulators and the Indian government.
It means that Indian business landscape now is all set to embrace emerging businesses and ideas. This is on account of small business being the backbone of the Indian economy and government providing support in the form of various schemes, incentives etc.
Thus, this article would help you as its a complete guide on how to start a small business in India if you are an individual seeking to know how to start a small business in India?
1. Come Up With A Business Idea
You need to understand as a small business owner that your business idea should be such that it solves the problem of a section of people.
Many startups fail at the idea generation phase itself. According to CB Insights, 42% of the startups fail because there is no market need for their product or service. Another 9% fail because the business owners lacked passion for the business idea they seek to materialize.
Hence, to come up with a business idea that caters to the pain areas of the market as well as complements your passion, you need to:
- identify the need
- understand where your passion lies
- explore and experiment beyond your comfort zone
- seek networking opportunities to refine your idea
- see and understand what successful people are doing
- keep going and not let failures hold you back
- test your ideas
2. Make A Business Plan
If your business idea isn’t creating value for people, it’s bound to go nowhere. Chasing a business idea without understanding the realities can be very dangerous.
- Is your idea practical?
- What purpose will it solve?
- Will your customers pay for such a product or service?
All this needs to be thought of or put on paper before starting off with anything.This is where a business plan comes handy.
A business plan is any written document that allows you to visualize how your business idea will take shape. It’s the description of what you plan to do and how you plan to implement the same.
Merely putting your business idea on paper won’t do much until it generates results for your business.
Thus, a good business plan must be:
- simple to understand
- realistic in terms of goals, strategy and implementation
- one that specifically delegates work, sets milestones, defines cost, financial plan, sales and marketing strategy and implementation
- the one that generates results for your business
3. Plan Your Finances
Bank lending to start-ups remains difficult due to the inherent riskiness in start-up business. Equity financing also is quite challenging due to the existence of risk aversion among institutional and other investors.
Therefore, start-ups cannot solely depend on the traditional ways of raising finance in order to give wings to their ideas. They need to be aware of the alternative sources of finance as well. This is to avoid any challenges involved in raising finance in the initial stages of growth.
So, following are the alternative ways of business startup funding in India:
- crowdfunding platforms such as Kickstarter, Indiegogo, GoFundMe, Patreon
venture capital firms like Canaan Partners, Nexus Venture Partners, Helion Venture Partners, Mayfield Fund
- angel investors including Angel Network, Mumbai Angels, Let’s Venture etc
- government loan schemes like MSME Business Loans in 59 Minutes, Pradhan Mantri Mudra Loan Yojana (PMMY), Credit Guarantee Fund Scheme for Small Industries, Credit Linked Capital Subsidy Scheme For Technology Upgradation (CLCSS)
- bank loans including Term Loans, Working Capital Loans, Bank Overdraft, Personal Loans, Supplier Cash Advances, Invoice Factoring
- business line of credit
- equipment financing
- incubators and accelerators like Indian Angel Network(IAN) Incubator, Khosla Labs, Villgro, SeedFund and Chitkara Innovation Incubator.
4. Choose A Business Structure
There are different types of business structures that have their own advantages and disadvantages. You as a business owner need to choose the right type of business organization.
This is because the form of organization thus selected determines your control, power, risk and responsibility an entrepreneur.
Further, it also determines how the profits and losses in such an organization are distributed. Thus, the choice of business organization must be made after extreme thought and discussion.
This is because you as an entrepreneur commit to your organization for a long period of time.
Following are the various types of business structures you can choose from:
5. Register Your Business Name
After finalizing the type of business structure, the next step is to choose an appropriate business name and get it registered with the concerned local authority. Each business structure has a separate procedure for registration.
In case of a sole proprietorship business, no agreement is required to be made and thus it is not essential to get the firm registered. However, the sole proprietor needs to obtain a licence specific to his line of business or trade from the local authority.
In case of partnership, a firm may register by filing an application along with appropriate documents in a prescribed format with the Registrar of Firms. Such an application should be made to the Registrar of Firms of the area in which the place of business of the firm is situated.
Similarly, for registration and incorporation of a company, an application needs to be filed with the Registrar of Companies (ROCs). These ROCs have been appointed to register companies functioning in respective states and UTs. Further, the ROCs see that these companies adhere to the statutory requirements provided in the companies act.
Also, the application for registration of a company must be accompanied by selected names, MOA, AOA and other necessary documents.
6. Get Licenses And Permits
In order to start your own business, you need to obtain certain licenses and permits to undertake the business activity. These licenses depend upon the following factors:
- type of business
- sector or area of business
- place of business
- number of employees etc
Here is a list of commonly used licences and permits across various businesses:
1. Registration Certificate
Every business has to register itself with the appropriate and obtain a registration certificate or certificate of incorporation to start a business.
A sole proprietorship needs to obtain a licence specific to its line of business from the local authority. However, it is not essential for such a firm to get registered.
A Partnership firm needs to make an application in a prescribed format to the Registrar of Firms of the area in which it has its place of business.
Finally, a company needs to make an application with the Registrar of Companies for its incorporation. Along with the application it must submit MOA, AOA and other necessary documents.
2. GST Registration
Every business entity in India needs to register under GST and obtain a GST identification number. Such a number is obtained in order to collect tax on behalf of the government and avail Input Tax Credit.
The minimum threshold turnover for GST registration is Rs. 40 lakhs in case of goods and Rs. 20 lakhs in case of services. This means that if your entity’s annual aggregate turnover is more than the threshold limit, you need to register under GST Act necessarily.
However, entities having business units in special category states like Jammu and Kashmir and north eastern states need to register under GST if their aggregate turnover is more than Rs. 20 lakhs.
3. Shop and Establishment Licence
If you are a business owner who owns a shop or an establishment, you need to get it registered under the Shops and Establishment Act compulsorily.
In order to obtain this licence, the business owner needs to submit an application in the prescribed form to the chief inspector. The Chief Inspector must belong to the area where the shop or establishment is located.
Such an application needs to be made within 30 days of starting any work in such a shop or establishment. Additionally, the business owner must also pay the prescribed fees along with the application.
Lastly, if you wish to start a shop or establishment in the state of Maharashtra, you need to obtain Gumasta licence for the same.
4. Udyog Aadhaar Certificate
All micro, small and medium enterprises manufacturing goods or providing services need to obtain an MSME certificate known as Udyog Aadhaar if it falls within the turnover limits.
Udyog Aadhaar registration is basically a single page online registration of an MSME. Under this, MSMEs can register via self declaration in Udyog Aadhaar Memorandum (UAM) with no additional documents to be submitted.
The MSME Act defines the threshold limits for micro, medium and small enterprises in order to get registered under the act. It also mentions MSME registration procedure as well as other set of rules of compliance.
7. Setting Up Infrastructure
Every business needs to set up basic infrastructural facilities in order to commence its operations. This includes purchasing land for construction of factory or establishment and purchase of an office space or other commercial establishment.
Such a site must be well connected to the nearest transport network and must have all the infrastructural facilities like wifi, 24×7 power supply, equipment like desktops, telephone connection etc.
The government too provides support to new and existing small enterprises by providing incentives in the form of tax concessions for land and building, relatively reduced prices of property etc. It also provides concessions in other infrastructural facilities like water, power, equipment etc.
All these concessions and subsidies are offered on the basis of location, size of investment and category of industry.
The most important factor that influences the success or failure of a business is its location. Deciding on the location of a business is long term in nature.
Hence, a business owner needs to take into consideration the present needs as well as future expansion plans while making a decision for its business location.
In case the business location decision goes wrong, it gets quite challenging and expensive to correct such wrongdoing.
Hence, the very aim of business location plan must be to look for the best location for a specific business unit. Such a choice depends upon a lot of factors like:
- the kind of products to be manufactured or services to be rendered
- costs of production of goods or distribution of services
- availability of resources such as raw material, labor, transport etc
- demand for product or service
Furthermore, the location of business must also comply with environmental guidelines and other regulations set by the government for specific industries.