Business Start Up Flashcards
Business Start Up
- The ownership structure that needs to be adapted
- The location of the business
- Finance
- The choice of production methods
- Developing a Business Plan
Ownership Structure
- Sole Trader
- Partnership
- Private Limited Company
- Co-operative
- Franchise
The Sole Trader
The Sole Trader owns and runs their own business. The Sole Trader is the one who makes all decisions and provides the money in their business
This type of ownership model is typical in small retail and service sectors.
The owners have UNLIMITED LIABILITY
Partnership
A partnership is a business where between 2 and 20 people come together to set it up and share control of the business. The owners have UNLIMITED LIABILITY!!
A set of rules and responsibilities for the company are agreed and written down in a partnership deed
Private Limited Companies
Is formed when between 1 and 149 people put together money to start a new business. The people who put money in are called shareholders.
If the company makes a profit, shareholders receive a dividend. The dividend received depends on the amount of shares you invest. 1 share = 1 vote, the more shares, the more votes.
Co-Operative
Co-operatives pool resources to achieve common goals, which as individuals they may not achieve alone. The people who set it up are called members and all profits go to the members
Each member has one vote regardless of the amount of shares they own
Franchise
Franchising is a business arrangement whereby one person (franchiser) sells the right to use their name, idea or business to others (franchisees) and allows them to set up an exact replica of that business.
Business Location
The location of the business will play a key role in both the visability and profitability of a business. The following factors are important when selecting business location:
Accessability
Location is of utmost importance to businesses that sell goods or services directly to customers. The business needs to be accessable to its target market
For example, a book shop in Navan Town Centre is more likely to attract customers than a similar shop located in a less busy area.
Competition
A business’s location can affect the competition it faces from businesses that sell similar products and services.
A book shop could be very close to Eason’s, and so starting a business in an area with few direct competitors can increase the likelihood of attracting customers.
Operating Expenses
The location of a business can influence the total cost of operation. Renting a storefront on a popular street shopping centre is likely to be more expensive than opening a store in a small commercial district in a residential area.
A business could be better off opening its doors in an area that is cheap, even if it results in fewer total sales`
Availability of Workforce
Businesses that need skilled workers will have to locate to a place that s accessable for workers. Very often, businesses will locate close to transport links so the workers can reach the job on time. This may however have an impact on start up and running costs
Sources of Finance
Think back to Sources of Finance in Unit 3. The entrepreneur has to decide where to get the money from
Production Methods
If a new business is involved in manufacturing it will need to use one of the following Production Methods:
• Job Production
• Batch Production
• Flow Line Mass Production
Job Production
This involves making products one at a time. Each product is both individual and unique, like a customised suit, wedding dress, or birthday cake. These products are generally made to order.
Batch Production
This involves making a limited number of production items in one go. The product is the same for all customers. Because it is the same, it can be made in batches, in advance, and ready for the customers when they need it.
Mass Production
Mass Production is making the product continuously, 24/7/365. Therefore, you use mass prodcution for proucts that will be in high demand. The product is the same and made in advance, and the product is also the same for all customers.
Change Ownership Structure
A business may need to alter their ownership, for example a sole trader to private limited company, to increase investment. This can have implications for control, however it will be unlimited liability
Marketing Plan
A revised marketing plan will beed to be developed and implemented to cater for the increased level of goods produced
Investement
Batch and Mass production may need investment to purchase machines and buildings, and complete regular health and safety and quality checks. This will of course cost more money for the business and so investment will be needed. This will come in the form of a long term finance option
Stock Control
If a business alters from job production, they will no longer be making goods to order, and so an efficient stock control system will need to be developed, increasing costs for the business
Outsourcing
This means that a business employs another firm to manufatcure or produce part of the product or whole product. In order to reduce costs, many large multinational companines outsource some of their production.
The Business Plan
A business plan is a written document prepared by the entrepreneur
about the business and its objectives (where it wants to go) and strategies in areas such as marketing (analysis and plan), ownership, production, finance and the identifying of opportunities.
The Main Sections of the Business Plan
Nature of the Business Ownership Marketing Plan and Market Analysis Production Plan Financial Plan
Nature of the Business
This is the idea behind the business, what the business will be about. It will set out the type of business as well as what its main intention will be
Ownership
This will outline the type of business it will be, e.g. Sole Trader/Franchise/Private Limited Company, the name of company directors and shareholders, as well as the skills and experience of these owners
Marketing Plan and Market Analysis
This contains the 4 P’s (Product, Price, Place, Promotion). It shows important information such as the branding of the product,how it will promote its product through advertising etc.., as well as its pricing strategy
Production Plan
This will give production details such as what machines, labour, and raw materials are needed to produce a product, as well as time and costs to do so also. Production targets and types of production (e.g. batch etc…) are also outlined
Financial Plan
The financial plan contains details of how the business will be financed, its ratio analysis, cash flow forecasts, and financial statements and projections that will show where its money comes from and also that the business will not run out of money as it begins trading
The Importance of the Business Plan
Seeking Finance/Investors
Sets Targets
Gives Focus
Viability
Seeking Finance/Investors
It is a vital document (helps to ‘sell’ the idea to investors) when approaching any financial institution, grant agencies or other investors seeking funds (capital) for the enterprise
Sets Targets
A business plan well set out it’s targets and strategic objectives. All key areas of success are focused on which should increase the chance of business success.
Gives Focus
A business plan allows all stakeholders in the business to be on the same page when it comes to business activities. All stakeholders have a clear blueprint to follow and so time is not wasted
Viability
The business plan would usually include financial projections, ratios, cash flow forecasts and break even charts. This will measure the viability of the business moving forward
Business Plans for Stakeholders
Employees Investors (the profitability) Financial institutions (the cash position) Management/employer Suppliers
Employees
Employees are interested in a business plan to confirm if the business is going to survive so they can have employment security. They may also be interested to see if the business is going to expand
and possibly offer opportunities for promotion in the future
Investors (the profitability)
Investors will be interested in a business plan to see if the business is capable of making a profit and offering a good return on their investment. Projected sales and market research results may persuade investors to provide capital to a business.
Financial institutions (the cash position)
Financial institutions require business plans from a business when they are seeking loan capital. It helps finance providers to make a decision regarding finance approval as they can see the experience of the owners/management and analyse their ideas. It is the primary tool to convey the potential viability of the business to finance providers.
Management/employer
Management will use a business plan as a source of control. They will use it to measure actual performance against goals and see if the business has progressed satisfactorily. The management have goals to be reached and the business plan provides benchmarks which they can use to monitor actual business performance against the set targets in the business plan.
Suppliers
Suppliers will be interested in a business plan of one of its customers to ensure that the business is viable and can sustain any line of credit that is offered to them.
