Business Creation

Business creation is an important and complex process that involves transforming a creative project into a profitable and sustainable economic activity. It involves a variety of steps and procedures that are formalised in a document called the business plan. This is a comprehensive document that covers all the aspects of the enterprise and provides a roadmap for its future. It is written by the entrepreneur and is an essential step in starting a new business.

An entrepreneur starts a business in order to exploit an opportunity or to pursue a dream or aspiration that is close to his heart. He or she takes on the financial risks of the initiation, operation and management of the enterprise in return for a share of its profits, known as equity. An entrepreneur may choose to start a small, local business organized as a sole-proprietorship or he or she may wish to one day grow the company into a large, multinational business organized as a corporation.

Entrepreneurship is a vital engine for the economy. It generates employment and contributes to the growth of the national income. Entrepreneurship leads to long-term economic development by replacing in whole or in part inferior offerings across markets and industries, creating a chain of production that increases productivity and stimulates technological progress. This is known as Schumpeter’s Gale of Creative Destruction and it is largely responsible for the long-term economic growth that accompanies an industrial revolution.

However, there are substantial social costs associated with business creation. For example, about two-fifths of nascent enterprises fail to reach profitability. Policy makers are thus confronted with the challenge of balancing the benefits and costs of firm creation.