Chapter 4 Flashcards
What are the three methods of establishing a business ?
- organize business from scratch
- purchase existing business
- become a franchise
Advantages of starting a business from scratch
- owner defines the nature of the business, the competitive environment, the appropriate market, and the size and extent of operations
- states the preference of the physical facilities: building/ equipment/location
- acquires inventory based on target market (minimizes risk of obsolescence and inventory turn over)
- select and train employees
- develop personalized information system
- reduce costs compared to buying a business or become a franchisee
Disadvantages of starting a business from scratch
- lack of historical information on which to base for future plans
- personally assembling physical facilities can become a liability become it is time consuming
- New businesses always have start up problems that need to be worked out
- establishing relationships with financial institutions, suppliers and other key professionals is time cosuming
- risk of insufficient demand
Why is the small business plan relevant?
- raise funds and organize short term and long term goals
- internally it serves as a blueprint
- externally it is seen by lenders and investors prior to funding
- update business plans according to market conditions
What are the 11 components of a business plan ?
- Table of contents
- Executive summary and background
- description of the management team
- business objectives
- market approach
- location
- physical facilities
- financial aspects
- personnel
- legal requirements
- risk assessment
Define executive summary and background
Provides a synopsis of highlights, addresses key issues of interest to readers, generates interest
Define description of the management team
provides background on the entrepreneur and management team and their relevant experiences
Define business objectives
- define firm’s mission, vision and values
- state quantitative objectives for first and following years
Define market approach
- target market
- states market potential, market share, industry analysis, competitor analysis, technological factors
- provide information on the marketing mix
define location
describes
- trading area
-economic base
- attitude towards new businesses
- competitors saturation level
- taxes
define physical facilities
site cost, age, history, restrictions, accessibility, proximity to other businesses, buy or lease decision, lease costs and terms, leasehold improvement, insurance
What are the financial aspects
- capital requirements, feasibility projections
- sources, type of funding, proposed collateral for debt and/or ROI for equity
- information on accounting and bookkeeping systems
- financial evaluation measures
Define personnel
- administrative structures
- personal policies
- employee recruitment and training
Describe the legal requirements
- describe legal structure of the firm
- discuss requirement for license, permit and taxes
- provide information about intellectual property protection
Describe risk assessment
- discuss contingency plans if business risks materialize (competitor reaction, loss of customer or supplier, change in government policies)
- discuss contingency plans if industry risk occurs
