U5 - Starting Business Flashcards
Choosing Form of Business x10
- Kind of product or service
- Volume of product or service
- Economic Independence of business
- Management participation
- Continuity or Long-term existence of business
- Liability of members/shareholders
- Legislation requirements
- Possibilities of obtaining capital
- Possibilities of profit & profit sharing
- Income tax assessment
Sole Owner (One-man business) Definition x5
- Belongs to 1 person
- Own capital or borrows part of it
- Carries own risks
- Gets all profits
- Usually manages own business
Sole Owner Characteristics X11
-Normally people start one-man business who have right initiative, abilities, organisation & capital -> If successful can become large.
- No legal entity - owner & business cannot be separated
- No continuity - death/not enough financial resources ends business
- Transfer -sell, give, discontinue.
- Owner Liable for all debts & claims
- Own capital or borrows part of it
-Usually manages own business - easy to adapt to changes
- Legal requirements - few & simple
- Gets all profits -> motivation to run business well
- Taxation only applied to income & profit of owner
- Popular in small business sector -> close relationship between owner & clients.
Sole Trader Advantages x9
- Easy to set up -> -Legal requirements - few & simple
- Gets all profits
- Motivated to run business well because in own interest
- Close relationship between owner & clients
- Easy to adapt to changes
- Many one-man businesses -> strong competition -> service improves & keeps prices low
- Capable person gain experience quickly
- Can be creative & make & carry out own decisions
Disadvantages of Sole Trader x4
- Owner Liable for all debts & claims
- Limited capital = limited expansion
- Continuity depends on wellbeing of owner
- Management decisions by 1 owner = can neglect certain aspects
Close Corporation Advantages x8
- 1-10 members -> individuals -> businesses that are legal entities don’t qualify.
- Name MUST end with CC
- Unlimited existence - continues even if members change
-To become member -> give money, property or service
- Members have limited liability unless owes money to corporation or as security
- Owner = management
- To make profit doesn’t have to be objective
- Profit goes to corporation not members
Franchise Contract x10
- Expiry date of contract
- Start-up date for franchise
- *Franchisee**
- Possibility to renew contract
- Exclusive rights to do business in specified area.
- Independent contractor -> not employee of franchiser
- Should obey all laws & regulations
- Can’t share information about business of franchise to public.
- *Franchiser**
- Not liable for actions of franchisee
- Must approve business area.
- Can’t share info about franchisee & business with public.
Generating Business Ideas x7
1.Manipulating existing products & services
- Improve on existing product or service
- Easier & Less expensive
- Improved product = new product
- Market research -> check if need exists for improved product
2.Attribute analysis
- Product Attributes/features analysed & listed
- Alternatives written
- To find ways to improve existing products
3.Problem Redefinition
Product or service doesn’t satisfy needs of consumers -> describe problem in writing
Find solution to problem -> new product, service or method
Else redefine problem -> talk to people to help
4.Forced connections
- Unrelated products, services or concepts linked
- New concepts from 2 old concepts
- Eg. House + Car = caravan.
5.Mind mapping
- Visualise ideas
- Key words/phrases
- Link related
- > helps organise thoughts
6.Brainstorming
- Generate many ideas as possible
- Create list
- Evaluate ideas
- Select most feasible ones
- Metaphorical Analogy
- use solutions to specific problems to solve similar problems in different contexts - nest - crib
Protecting Business Ideas x4
Secrecy
Don’t tell all info to friends & family
Other party sign undertaking not to share or use idea
Legal action -> prove above
Patents
Grants author exclusive right to produce & market product or process for 20 years
Idea can’t be patented.
Very expensive & complicated to patent -> consult attorney
Trademarks
Work or symbol shown to differentiate product or service from similar ones.
Competitor can’t use word or symbol (name or logo)
Quite cheap to register & lasts forever
Copyright
Gives exclusive rights to author to copy work.
Protects work for entire life & 50 years after.
Legal action -> other copy without permission.
Business Plan
Detailed programme of action, showing every of proposed business opportunity
What intend doing
How intend doing
When intend doing
Why believe idea is viable
Source of reference, guide & bargaining tool
Survival of business = careful planning by entrepreneur
Right business plan = better chance of success
3 reasons to make business plan
- Gives entrepreneur better idea of whether of not to get involved in kind of business -> if problems with idea -> plan will show.
- Guide to check if reaching goals.
- Valuable documentation to outsiders - to decide whether to get involved.
Cash Flow Plan x3
Prediction of how much:
- -cash expected to come into business
- -cash expected to go out of business
- Ensure not run out of cash
Steps to make Cash Flow Plan x9
Step 1 - Cash at beginning of month Step 2 - Cash in from sales Step 3 - Any other cash in Step 4 - Total cash in Step 5 - Cash out for costs Step 6 - Cash out for planned investment in equipment Step 7 - Any other cash out Step 8 - Total cash out Step 9 - Cash at end of month
Information needed to compile cash budget
- Balance sheet
- Bank Balance at beginning of budgeting period
- Expected cash & credit sales
- Payment from debtors
- Credit conditions for debtors
- Expected cash & credit purchases of trading stock
- Payments to creditors
- Credit conditions for creditors & credit purchases
Information contained in cash budget x4
- Estimated cash to be received mainly from debtors for cash sales & credit sales during month
- Estimated cash to be paid for cash purchases & payment of credit purchases to creditors during month.
- Bank balance at beginning of month
- Estimated bank balance at end of month -> new opening balance for next month
Cash Budget Definition x5
-Business Plan -> Cash Budget (Detailed income statement) -> for at least 12 months.
- Important to check if enough money to pay for business activities.
- Not enough = problems or end of business.
- Budgeting period -> 1 year -> divided into months
- Shows how much money needed to finance activities -> will be too little / too much? -> shows comparison between cash available & needed
