Business Section 1 - Starting a Business
- Created by: ryyansb
- Created on: 22-03-15 12:12
Why Businesses exist
People set up businesses for different reasons:
- Financial reasons - e.g. making a fortune on firms profits
- Personal reasons - e.g. independence of being own boss
- Help others - e.g. start a charity
Businesses can have different aims - Most businesses have 1 main aim - make a profit in order to survive. If the business doesn't make a profit it will likely go bust
Businesses have other aims too:
- Some will try to be the biggest in their market
- Other might try to provide the best quality of service possible
- Some might focus on expanding the business
- Satisfying customers or trying to limit environmental damage
Enterprise
Entrepreneurs take advantage of business opportunities
- Enterprise involves identifying new business opportunities and then taking advantage of them. Always a risk of failure.
- Enterprise can involve starting up a new business or helping an existing one expand
- A good business idea is usually a product/service that no other business is already providing i.e. a gap in the market
- A market niche is a small part of the overall market and made up of customers with a particular need
Enterprise means taking risks
- An entrepreneur needs to gather together all the resources needed to start or expand a business. The key resource is money.
- Very often entrepreneurs use their own money but maybe banks or investors as well
- They will hope the business will make enough profit to pay back any money borrowed
- Good entrepreneurs will take calculated risks, do research, plan the business carefully and weigh up consequences of failure
Entrepreneurs
A successful entrepreneur is likely to have the following qualities
- ability to think ahead - identify opportunities for the future
- initiative - seek out or seize business opportunities
- drive and determination - turn ideas into practice
- decisiveness - don't shy away from making tough decisions
- networking skills - identifying people who can provide money
- leadership skills and powers of persuasion - motivate others
- willingness to take calculated risks - profit from enterprise activities
- ability to plan carefully - minimise risk of failure
- ability to learn from mistakes - see mistakes as learning to succeed
Sole Traders
Sole Traders - easiest business to start
Most small businesses are sole traders
Advantages:
- Easy to set up
- Get to be your own boss
- You alone decide what happens to profit
Disadvantages:
- Have to work long hours - not many holidays either
- Unlimited liabilty
Partnerships
Equal say in the business and profits - deed of partnership
Advantages:
- More ideas and more people to share work
- More capital canbe put in
Disadvantages:
- Responsible for other partners
- Unlimited liability
- More disagreements
Private Limited Companies (Ltd)
- Limtied Liabilty
- Memorandum of association - who the business is and where it is
- Article of association - how the business will be run
- Owned by shareholders
Advantage - limited liability
Disadvantages:
- More expensive to set up
- Legally obliged to publish accounts every year
Franchises
A franchise is the right to sell another firms products
Advantages:
- Buying rights to sell an established product - less risk of it failing
- Benefit from wider marketing
- Franchisor would provide training
Disadvantages:
- Only be able to sell the franchisors products
- Have to run the business to the franchisors riles
Advantages for franchisor - increase market share without increasing size of their own firm - very profitable way to expand
Disadvantages to franchisor - if franchisee is poor it could affect the brand
Aims, objectives and business objectives
Success for a business can mean different things:
- Survival - over two thirds of businesses close within five years
- Profit - may take a few years
- Growth - increasing number of employees, products sold and income
- Market share - increase market share
- Environmental sustainability - minimising impact of firms activities on environment
- Ethical considerations - acting in a way society believes is right
- Customer satisfaction - how happy consumers are
Objectives help businesses achieve their aims - objectives are more specific than aims - they are measurable steps on the way to the aim. For example if a firms aim is to grow then there objective could be to increase sales by 30%
Stakeholders
Influence of stakeholders
Internal - inside the firm such as owners and employees
External - Outside the firm such as customers, suppliers, government and the local community
All types of stakeholders:
- Employees are interested in job security and promotional prospects
- Suppliers are interested in the firm doing well so they purchase more supplies
- Local community are interested in jobs and sponsorship but could suffer from noise and pollution
- Customers want high quality products at low prices
- Government are interested in the firm making a profit
Business Plan
Outline of what a new business will do and how it aims to do it
Includes at least 7 sections:
- 1. Personal details of the owner and important personnel - like their CVs
- 2. Mission statement - a way of describing the broad aims of the company
- 3. Objectives - more specific than aims
- 4. Product description - including details of the market and competitors. Should explain how the firm will achieve product differentiation (also called USP - unique selling point). Marketing strategies - 4Ps.
- 5. Production details - how the firm will make the products - include equipment and location
- 6. Staffing requirements - how many staff, job descriptions, wage bill
- 7. Finance - explain how much money is needed to start the business, cashflow forecasts, profit and loss accounts and balance sheet
Location of production
Location is influenced by the following factors:
- 1. Location of raw materials - located nearby to lower transport costs
- 2. Labour supply - area of high unemployment will lower wages
- 3. Transport - sea, road, rail
- 4. Economies of concentration - similar businesses nearby so easier to find skilled labour - already local suppliers
- 5. Communication links - good telephone, post, internet
- 6. Location of the market - where customers can easily get to them
- 7. Government policy - pay big multinational companies to locate in their country
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