chapter 15 Business Start-Ups Flashcards
challenges of setting up a business
long-term finance
attracting investment, balancing souces- not taking on too much debt (repayments), not giving away much equity (loss of control)
challenges of setting up a business
working capital
having enough cash to meet day-to-day expenses (cash flow)
challenges of setting up a business
production method
choosing job, batch or mass (depending on USP, customer, price)
challenges of setting up a business
ownership
choosing suitable structure- sole trader, partnership or limited company
challenges of setting up a business
marketing
conducting research to know where to advertise, cost if sales promotions, how to use social media and public relations for publicity
challenges of setting up a business
market research
finding useful, up-to-date research, conduct field research (takes time and money)
challenges of setting up a business
creating a USP
developing features to stand out from competitors and existing products
challenges of setting up a business
location
cost of buying/leasing shops or premises (the right place for the target market)
challenges of setting up a business
staff
availability/ cost of staff, interviewing, employee legislation, tax
name 3 organisation options
sole trader
partnership
private limited company
sole trader
one person
farmers, local pubs
owner/company are the same
unlimited liability
if the business goes bankrupt and owes a lot of money, the sole trader will become responsible for paying the debts
benefits of sole trader
quick and easy to set up
keep profits
private (finance records don’t have to be published)
quick decisions can be made
challenges sole trader
unlimited liability expansion is difficult (can’t sell shares) lack of experience in some areas requires a lot of effort and stress no continuity of existence
partnership
2-20 people
solicitors, doctors etc
jointly owned
partnership benefits
easy to set up more capital losses shared optional to have a deed of partnership more experience private- financial records don’t have to be published
deed of partnership
profits to be shared each partner is responsible for it what happens if business closes salaries of partners can partners withdraw money
challenges partnership
disagreements profits shared unlimited liability decision making slower not a separate legal entity
private limited company
owned by 1-149 shareholders limited liability directors run the business on behalf of the shareholders ltd follows the name cannot sell shares to the public separate legal entity
limited liability
in Irish law the company is separate from its owners, the company makes the contract therefore the company is sued not the shareholders
private limited company benefits
limited liability more experience workload shared easy to raise extra capital lower tax rates (12.5%) than PAYE continuity of existence
private limited company challenges
complicated to set up legal issues registration expenses submission of audited acc. companies. Registration Office- costly publish financial accounts- not private
name 3 production options
1 job production
2 batch production
3 mass production
job production
high quality single product produced to order unique products no stock holding highly skilled labour payment in advance products tend to be expensive boat-making
batch production
producing a large amount in one go all products are the same average quality stock of goods planned for sale careful planning required semi-skilled labour (lower wages) cheaper products than job economies of scale eg fashion clothing
mass production
once used- need to replace buy the item time and time again products are in constant demand huge economies of scale unskilled labour storage facilities are essential and costly large quantities, standard quality goods costly machinery marketing is essential to achieve mass salea eg Biro pens
impact of going from job to batch
1 investment required
purchase machines
lower wages less skilled
offer redundancies
2 loss of USP
unique products lost
lose competitive advantage
lose loyal customers
3 effective stock control
storage space
too much stock
too little stock
4 reduced prices
premium pricing will jot work
sell at a lower price
5 lower profit margins
GP will fall
NP will fall
overall profit will increase
list impact of job to batch
1 investment required 2 loss of USP 3 effective stock control 4 reduced prices 5 lower profit margins
impact of going from batch to mass in general
fewer options for consumers because only one product no variation USP will be a low price does a larger market exist? capital investment required brand image impacted
batch to mass impact on staff
redundancies
bad industrial relations
low morale
repetitive tasks
batch to mass less diversified business
less flexible
less variety
low to respond to market changes
selecting a source of finance
cost- interest, charges
risk- what happens if there’s a problem repaying
security- is collateral required
ownership- is part of the business given away
accrued expenses
cost- free, no interest
risk- failure to pay reputation damaged
security- no security
ownership- full ownership required
bank overdraft
cost- expensive, high rate of interest, extra charges for exceeding limit
risk- failure to pay, reputation damaged, repayment can be demanded at any time
security- no security
ownership- full ownership retained
trade credit
cost- free, no interest
risk- failure to pay, reputation damaged
security- no security
ownership- full ownership retained
hire purchase
cost- expensive rate of interest
risk- failure to pay, reputation damaged, asset repossessed
security- no security
ownership- full ownership retained
leasing
cost- rent could be more expensive than buying
risk- failure to pay- reputation damaged
security- no security
ownership- full ownership retained
medium term loan
cost- cheaper than HP and leasing
risk- failure to pay, reputation damaged
security- security needed, collateral required
ownership- full ownership retained
grants
cost- free
risk- must be repaid if agreement broken
security- no security
ownership- full ownership retained
debentures
cost- fixed rate of interest each year
risk- failure to pay, reputation damaged, security can be taken if default occurs
security- security required
ownership- full ownership retained
equity capital
cost- dividends paid each year directors decide amount risk- bankrupt, directors are banned from being involved in a company for 5 years security- security required ownership- ownership is reduced
business plan
written statement objectives want to achieve strategies to achieve them direction map
description of business
the people who are starting the business, experience
products, USP
long term objectives, mission statement, strategic planning
market analysis
viable market for product compete with competition competitive advantage target market market trands
marketing plan- marketing strategy
product
price
place
promotion
production plan
how to make the product manufacturing process equipment used ensure quality source raw materials
finance
cost to finance the business
how much money they will invest
how much extra money is needed
is collateral available
projected- profit and loss account, balance sheet, cash flow forecast
short, medium, and long term sources of finance
list importance of a business plan
1 convince investors
2 set targets
3 guide for a business’ success
4 anticipate problems
explain importance of a business plan
1 convince investors sound idea projected P&L account sufficient future profits to repay finance 2 set targets performance can be measured corrective action can be taken control progress can occur 3 guide for a businesses success sets out objectives outlines strategies to achieve them all stakeholders have a coordinated approach helps to know where your business should be 4 anticipate problems corrective action prepare solutions helps to keep you on the right road
