business planning: Influences in establishing an SME (establishment options))

Question 1

what are the three different establishment options?

Answer 1

1. setting up a business from scratch
2. purchasing an existing business
3. purchasing a franchise

Question 1

what does it mean to start a business from scratch?

Answer 1

To start a nonexistent business:
- usually started for a brand new product or innovation
- there’s a gap in the market

Question 2

Advantages of starting a business from scratch

Answer 2

• the owner has the freedom to set their business up exactly as they wish
• there is no goodwill for the owner to pay
• if the funds are limited it is possible to begin on a smaller scale

Question 3

Disadvantages of starting a business from scratch

Answer 3

• there is a high risk and measure of uncertainty as there is no goodwill (reputation) of the business
• if the startup period is slow then businesses may not generate profits for sometime

Question 4

What does it mean to buy an existing business

Answer 4

when an owner of a business decides to sell the business and someone purchases it

• usually brought for the existing customer base and goodwill of the business

Question 5

advantages of buying an existing business

Answer 5

• there is already an existing customer base
• there is already goodwill associated with the company meaning it won’t have to be built up
• the seller may offer advice and training

Question 6

disadvantages of buying and existing business

Answer 6

• the image and policies of the business may be hard to change
• the success of the business may have been determined by the previous owner’s characteristics (personality)

Question 7

what does it mean to buy a franchise?

Answer 7

a person is buying the rights to use the business name and distribute the products or services of an existing business

Question 8

advantages of buying a franchise

Answer 8

• immediate benefit from the franchisor goodwill because the name is established
• the business is established with its products/services and has been proven successful

Question 9

disadvantages of buying a franchise

Answer 9

• the franchisor often charges additional service fees for advice
• a percentage of all profits has to be paid to the franchisor