Things to Consider When Starting a Business

Considerations for Starting A Business

Maurice Wheeler

Ashford University

Managerial Economics

BUS 640

Mr. Mustafa Sayim

November 05, 2012

Considerations for Starting A Business

Executive Summary, when considering whether to enter into a business venture the potential owner should consider what level of risk they are comfortable with. Business ventures represent a higher than normal level of risk as evidenced by the normally required personal contribution of capital and therefore should not be undertaken by persons who are risk-averse. Additionally, the individual should consider what costs are relevant, such as the explicit and implicit costs, and opportunity costs. Among these costs are sunk and committed costs which should by-and-large be ignored in this decision making process and they are costs that will be borne, regardless of the alternative selected.

Other costs that can and should be considered when potentially undertaking a business venture are variable input costs or employees. The number and amount you pay employees can significantly impact a business owner’s total revenue and can easily tip the scale of profitability either in favor of a business case or solidly against one. Moreover, for a business case to be made for entering into a business ultimately rests with the market that one is deciding to compete in. Are the barriers to entry high or low? Is the product or service that you offer price elastic? Ultimately, a potential business owner has to definitively answer all of these questions if a sound business decision is to be made.

When considering whether to start a business, there are many factors that should be considered. This paper will cover those areas I believe are most important to be considered. I will supply notional data to help provide context to the some of the mathematical considerations, while simply describing still other important factors. But, each must be given the appropriate weight when considering...