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Business Studies > Avenues Of Starting A Business > Flashcards

Avenues Of Starting A Business Flashcards

1
Q

Starting a business Fresh

A

This is when an entrepreneur decides to start their own business from scratch this means that they decide on the concept, the name and structure of it

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2
Q

Advantages of starting fresh

A

All the ideas are your own
You can run the business as you see it
All profits are yours
Cheaper as there is no goodwill to pay for
Dont take over the problems of existing businesses
Freedom to introduce new things
Greater impact on the characters of a business
Capital is limited, so the business can start on a smaller scale

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3
Q

Disadvantages of starting fresh

A

Risky
High capital requirements
Nothing to measure the new business against to determine whether or not it will be successful
Competition and demand for products are not yet tested
No established systems in place
Initial costs may limit cash flow
An extra business sub divides the market even further

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4
Q

Contractual obligations for starting a business fresh

A

A sole trader has no contractual obligations
If there are 2 or more people and they form a partnership than a partnership agreement is recommended
All normal business requirements apply to running a business … registration for tax.. etc
The new business will have to have contracts with employees , suppliers, banks, landlords and customers if they are allowed to purchase on credit

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5
Q

Buying an existing business

A

This is where an entrepreneur buys a business that already exists and is making a profit

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6
Q

What you have to consider when buying a business

A
  • Why is the business being sold
  • do all the assets and stocks actually exist and been fairly evaluated
  • are there audited financial statements and tax returns for at least the past 3 years
  • who are the current suppliers and will they be willing to continue supplying to a new owner
  • how does the cost of business compare with setting up a similar one from scratch
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7
Q

Advantages of buying a business

A

Easier to raise finance if the business has a good history
Immediate cash flow as there are already established customers
The Market is not being further divided by another business
Existing assets from part of the old business, which means you dont have to buy them
Distribution, supply and staff are already established

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8
Q

Disadvantages of buying a business

A

Risk of over estimation of turnover of profit by the seller
Success of a business often rests on the reputation of the last owner or key member
Seller may attempt to overstate the return the new owner can expect to make on the investment

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9
Q

Contractual obligations in buying a business

A

The new owner will have to take over all existing contacts between employees and suppliers… etc
They will also have to enter into some new ones
The new owner can insist on a restraint meant of trade clause in the deed of a sale to prevent the seller from starting a similar business in the same area
When the business acquired is a legal entity (CC or private company) most legalities will just continue

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10
Q

Franchising

A

When a business or person gives another business the ra Ishtar to trade under the name of a large corporation. It is an excellent way of expanding a business

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11
Q

Franchiser

A

Person who created the original business and sells the right to trade under the name

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12
Q

Franchisee

A

The person who buys the right to trade under the name of a business in return for the right to operate a franchise the franchisee must pay royalty fees, they also rely on the skills, training and support of the franchiser

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13
Q

Contractual obligations with a franchise

A

a franchise agreement has to be set up

All other business contracts as well.. i.e. Employees contacts

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14
Q

Franchise agreement

A

Set up between the franchisee or franchiser for a set period of time and contains all info regarding the business and terms of purchase… it also includes…
Polices that govern the product/service
Termination clause
Form of ownership
Details of the pricing of the product, marketing strategy.. etc
A summary of what each partner should do
The franchisees payments.. the initial fee, royalty fees and renewal fees as well as the type of payments and the dates
What the franchiser will offer, the providing of training, equipment, store plans, stock, fittings, working capital, advertising and anything else agreed upon

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15
Q

Franchise Regulation

A

FASA- franchise association of South Africa is a supervisory body’s that regulates franchises business
Their aim is to promote franchising, supply guidance and provide a code of ethics
There are no requirements that make it compulsory to belong to the orgnaisation

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16
Q

Advantages of franchising

A
  • Other successful franchises can be studied before making a commitment
  • its a recognized name and trademark
  • will benefit from advertising from franchiser
  • receives support from the franchiser
  • Franchisee obtains certain rights for a specific area.. no competition
  • banks are more likely to lend money to businesses with a good name
  • relationships with suppliers have already been made
  • the business can communicate with all the other franchisers and gain ideas and help
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17
Q

Disadvantages of franchising

A
  • the costs may be higher than expected
  • the business will continue to pay royalty fees and may have to buy some products from the franchiser
  • there could be restrictions n how the business is operated.. stops creativity
  • the franchisor may go out of business
  • other franchises could give the brand a bad name
  • it may be difficult to sell a business along with the franchise
  • a % of sales are usually shared with the franchisor
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18
Q

Advantages for a franchisee

A
  • ongoing advice, training and development
  • easier and less risky
  • reduced capital outlay
  • brand awareness
  • buying power
  • business synergy
  • increased success rate
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19
Q

Disadvantages for a franchisee

A
  • purchasing rights, establishments and services fees are expensive
  • littler protection in the contract
  • franchisor may not fulfill promises
  • lose your independence
  • trade name is not always of value
  • management regulation
  • must pay royalty fees
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20
Q

Advantages for the Franchisor

A
  • can expand their business without having to invest more capitol and open it themselves
  • franchisees have to pay a % of their profit as well as royalty feees and renewal fees
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21
Q

Disadvantages for a franchisor

A
  • they have to provide guidance and training for franchisee
  • bears the costs of the franchise agreement
  • if a franchisee damages the reputation it suffers
22
Q

Outsourcing

A

When a business uses someone from outside of their business to perform certain tasks/ services rather than doing it themselves
Ex… cleaning services, gardening, IT assistants

23
Q

Vendor

A

The business which the function is being outsourced to

24
Q

What must be considered in outsourcing

A 
The vision and goals of each party are the same
The work that is being done is measured 
Built in penalties
Ensure accountably and transparency
Negotiating pricing carefully
25
Q

Advantages of outsourcing

A

Experts and specialized workers provide the service
Business saves on training and employment
Business is more focused on core activities
Don’t need to buy certain assets
Saves on cost and improves efficiency
Can reduce overhead expenses
Provides staff flexibility during peak times
Provides continuity and reduced risks
Develops internal staff by letting the internal staff work with the outsourced staff to learn new skills

26
Q

Disadvantages of outsourcing

A 
Loss of managerial control 
May be hidden costs 
Threat to security and confidentially 
Quality problems
Tied to financial well being of another company 
Poor internal and external publicity
27
Q

Leasing

A

A contract allowing certain assets to be leased to another party for a specific period of time and for a specific payment. A person is given the rights to use the assets of another but will not take ownership

28
Q

Lessor

A

The person or business who owns and leases out the assets

29
Q

The lessee

A

The person who is entitled to the use of the assets and has to pay a fee for the cover of using the asset

30
Q

True lease

A

This lessee acquires no rights to the property other than its use, and the lessor remains the owner

31
Q

Financial lease

A

This allowed the lessee to purchase the asset at the end of the term

32
Q

Contractual obligations with leasing

A

A lease agreement has to be made and signed by both parties

It specifies the time period or can be open needed.

33
Q

What is in the lease agreement

A 
Names and details of both parties
Duration of the agreement
Amount to be paid by the lessee
Responsibility of both parties
Conditions of renewal
Any specific conditions for default 
Details of insurance and maintenance 
Details of costs and upfront payments as well as installations
34
Q

Advantages of leasing

A

The business gains use of an asset with no initial costs
The business can gain the latest technology without having to invest in large amounts of capital
The business does not carry the risks of buying expensive equipment which then becomes useless as it is returned to the lessor
The lessor can give advice and assistance and take care of maintenance
For the lessor the lease payments are tax deductible
Leasing improves the cash flow of a business
Leasing is an expense to the lessee therefor not seen as a debt

35
Q

Disadvantages with leasing

A

The asset does not necessarily become your property
Maintained agreements are costly
The total of the lease payment may be more than the original purchase of the goods
The lessee is bound by the lease contract even when the business may not need the items any longer
When the owner wants to sell the business the lease will have to be taken over by the buyer of the new business

36
Q

Business plan

A

A written document which contains detailed goals and objectives of the business and how they will be achieved, once the business plan has been made it needs to be put into action

37
Q

Steps for transforming a business plan into an action plan

A
  1. Define the scope of the project.. ex what is its purpose
  2. Develop a work breakdown structure
  3. break the project down into smaller activities
  4. Set time frames and work out exactly how long each activity takes
  5. Set milestone targets
  6. Decide on accountabilities… who will be responsible for what
  7. Calcite the financial, human and technological resources needed
  8. Plot the activities onto a gnat chart
  9. Implement the project plan
  10. Communicate and review the process
38
Q

Project management

A

The management and control of a business
Planning and controlling how things are achieved in the business
Taking ideas and plans and making them a reality

39
Q

6 planning tools

A
  1. Work breakdown structure
  2. Task analysis
  3. Timelines
  4. Critical path analysis
  5. Action plan
  6. Gnat charts
40
Q

Work break down structure

A

Identifies what will be done
Planning tool used to…
-divide the project int manageable areas
-develop a schedule
-allocate responsibilities to staff members
It is divided into different level with each one giving more details
Elements are logically connected

41
Q

Task Analysis

A

This evaluates your tasks
And determines whether your tasks are…
-dependent… tasks cant be completed until another has ended
-parallel… task that can be done simultaneously to others

42
Q

Timelines

A

Helps to plot an action plan
Lists all the activities that need to be done in date order
Can be either vertical or horizontal

43
Q

Critical path analysis

A

Calculates the minimum and maximum time for each task to be completed
Can be done in a table or flow chart

44
Q

Action plan

A

A “to do list” describing all things that need to be done, who will do them, when they will be done by and the resources required for them
Similar to a business plan but gives more details
Part of the organizing of POLC

45
Q

Advantages of an action plan

A

Enables projects to be achieved on time
Helps people involved be organized
Helps to prioritize activities
It is a control measure

46
Q

Gnat Chart

A

Visual presentation of the action plan
It is clear and easy to see the timeline for activities
Can be manual or electronic

47
Q

Steps to doing a Gantt chart

A

Break the project into small components
Establish a sequence of activities
Estimate duration
List activities in a sequence of time

48
Q

Advantages of a Gantt chart

A 
Easy to prepare
Easy to read and understand
Events are in chronological order
Visual presentation
Parallel task are easily seen
Easy to identify person responsible
They show progress on each activity 
Interrelated tasks can be seen at glance
More info can be included by using color coding and symbols 
If adjustments have to be made it is easy to see the effect on other activities
49
Q

Environmental scanning

A

Looking for information on trends in the market and the external environment
Info on the viability of the product including competition, size of market, suppliers, and employees
The external environment includes all political, economic, social and technological environments

50
Q

Setting business goals using SMARTER

A

S- specific.. goal must easily be defined
M- measurable.. the goal should be easily measurable
A- achievable.. the business should be able to reach the goal
R- realistic.. it must be possible to reach
T- time bound.. needs to be achieved within realistic timeframe
E- ethical.. should be achieved in an ethical manor
R- recordable.. the goal must be recorded so it can be reviewed

51
Q

Turning a business plan into a business

A 
Relays on ...
Management strategy
Marketing strategy
Financial strategy
Production strategy
52
Q

Acquiring funding

A

This can be done by…
Your own capital
Or borrowed capital

Business Studies (8 decks)

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