Business Management

Unit 22.1 How do Businesses Start?

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Unit 2.1 How do Business Start?

In this unit you will find out about: Why businesses start Buyers and sellers Help for business start-ups Markets and market research Risks for new businesses Business Plans

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Today you will find out …

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click here for startup video

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Starting A Business: Business Ideas

Source of Idea Example

Developing a hobby Making wooden bowls

Using your skills Painting/Drawing/Calligraphy

A chance idea Radio shower

Spotting a gap in the market Home Help ie someone to do your housework while you are at work

Improving a product or service PlayStation 2

Combining 2 existing ideas Farm and Farm Shop

Solving problems for people Independent Financial Advisor

Listening to people Call Centre, eg Insurance

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Enterprise

Entrepreneur has idea …develops it……after doing research to find

out if people want it…

…product goes into production……sold to buyers……resulting in profits – hopefully!

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Buyers

Customers

Consumers

The person who “buys” the product, but does not use it.

Raw materials Semi-finished goods Capital goods Labour

The person who buys the product and uses it.

All businesses “buy” something

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Sellers

All businesses “sell” their products/services at a price that gives them a profit.

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Factors of Production - LAND

Farmland – crops,animals

Buildings – land needed for housing, businesses

Water

Coal-mining to provide heat

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Factors of Production - LABOUR

Labour is physical and mental effort.People who use mental effort include:TeachersBankers

People who use physical effort include:Assembly workers, eg a car production lineA baker – mixing of ingredients to make bread and cakes

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Factors of Production - CAPITAL

Capital is the money and the things that can be purchased with money to make and sell goods and services.

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Factors of Production - ENTERPRISE

Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success

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Help! – where to get MONEY

Bank manager – loan or overdraft Family and friends Redundancy money Savings Grant from Government or others eg Princes

Trust Finance from business partners Credit from suppliers (buy now, pay later)

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Help! – where to get ADVICE

Local council Bank manager Government development agencies Princes Scottish Youth Business Trust Business partners Consultants

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Entrepreneur Risks

Losing all the money invested when starting the business

Losing personal assets, eg house, car, buildings

No one buying the product/service

Not being able to pay debts, eg wages, suppliers, electricity

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Ways of Identifying/Minimising Risk

Market Research

Calculating break-even

Careful budgeting

Preparing a Business Plan

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Why do Market Research

It will tell you…

Is there demand for the product – will people buy it?

What price will people pay?

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Break-even calculation

Break even point is where costs are exactly equal to revenue (income) – there is no profit or loss

Break-even point

A business organisation will need to plan in advance the break-even point so that it knows how many sales it must make in order to be able to pay for all its own costs

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Budgeting

Careful budgeting ensures all expenses can be paid

Keep reserve in case of unexpected expenditure

Many small businesses experience problems with cashflow, ie ensuring the business has enough cash coming in to pay for immediate needs

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Business Plan

This document outlines the objectives of a business and allows the bank, for example, to see if sufficient planning has been done

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Premises and equipment – location, cost and type of premises; equipment required and cost

Profit estimates – forecast of sales, breakdown of costs

Cashflow – cash budgets for future, expected income and expenditure, source of income, loans/overdrafts required

Capital – source of funding eg loans, grants etc

General details - name of business, ownership and objectives

Human resources – key people, skills, wages/salaries

The product/service – nature and quantity of product, price, market research

The market – target market (age, sex, income), size and potential growth, market research results

Sections of the Business Plan are …

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A business plan is a report by a new or existing business that contains all of its research findings and explains why the firm hopes to succeed. A business plan includes the results of market research and competitor analysis. Analysis is when a business interprets information.

Drawing up a business plan forces owners to think about their aims, the competition they will face, their financial needs and their likely profits. Business plans help to reduce risk and reassure stakeholders, such as banks.

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General Details Get Ahead, 12 Cut Lane, COMB G23 5TH

The business Sole Trader

Product/Service Haircutting, styling, manicure service

The Market Local – men, women, all agesNo other hairdresser within 2 milesAdvertise in local papers and shops

Personnel Owner and junior Qualified hairdresser, junior in training

Profit Estimated at £1,500 per month

Cash Flow All payments by cash – no credit. Monthly payment of stock and other bills

Finance Owner’s contribution - £10,000

Borrowing None required

SIMPLE BUSINESS PLAN FOR GET AHEAD

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What is a Market?

€ Outdoor market€ Shopping mall€ High street shop€ Ice-cream van€ Housing market€ Banks/mobile banks

€ Mail order€ Dispensing machine€ Door to door eg Avon€ Telephone sales€ TV shopping channels€ Internet€ Cash dispensing machines

A market is a way of selling goods and services to buyers.

How many different types of markets can you think of?

If people buy products/services in quantity, there is a market. A market requires buyers and sellers

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What is Market ResearchA new business starting up, or an established

business launching a new product can be risky…

Consumers may not want the product They may not like the price charged They may find it difficult to locate the product

Having information in advance by doing market research can reduce such risks

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Questions Market Research Might Answer

What would be the likely level of sales? Do consumers have particular feelings about some

aspect of the product eg the colour of a car, the taste of a toothpaste, the packaging on biscuits and sweets, the name of a washing powder?

What is the likely future trend in this market? Is there any scope for selling in different parts of

the country or in other countries? What might happen if the price was altered in

future? Is there scope for advertising and if so where and

in what form?

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Primary Research (Field Research)

This method of research involves going out into the “field” and finding our information that you want through the use of:

Questionnaires Observations Test marketing Consumer panels/

Focus Groups

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Questionnaires these can be face-to-face, by post or over the telephone. Usually only a sample of people will be chosen to take part in the survey

Observations where possible customers are observed to note their reaction to advertisements, new displays etc

Test marketing by launching a product in a limited area to gain reactions and sort out teething problems before tackling a wider market

Consumer panels/Focus Groups

To interview a group of people and gain their reaction to the possible introduction of the new product

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Primary Research (Field Research)

Advantages

Collected for your own use and purpose

First-hand, you have collected it

Disadvantages

Time consumingExpensiveMight not be

accurate

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Secondary Research (Desk Research)

This method of research involves using information which already exists:Looking at previous sales figures for the

companyCustomer suggestion boxes/complaints Investigating what the competition are doingGovernment Statistics, eg household income

and census informationPublished market research information, eg

Mintel. Where information is gathered about a specific market, eg alcopops

Quality newspapers/magazines, eg market trends

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Secondary Research (Desk Research)

Advantages

Cheaper Quicker and easily

obtained as it already exists

Disadvantages

Relates to old dataMight not know the

reason/purpose for the research

Biased towards reason/purpose collected

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Market SegmentsA market will be divided into “segments” of the

different types of customers that buy the product/service. For example

Sex/Gender – Male/Female – products directly produced for females or males

Age – eg Pampers, teenage magazines, SAGA holidays

Income – people who can afford the latest gadgets when they first come onto the market (socio-economic groupings A, B, C1, C2, D and E)

Where they live – eg garden centre who specialise in plants for the local area

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Market Segments

Lifestyle – eg Halal meat (speciality butcher for beliefs and religion)

Family - Centreparc

Over the last few years some business organisations have had to look at their market and re-organise to take into account that the population are living longer and we are becoming an ageing population.

(continued …)

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TO SUM UP, DO YOU KNOW …

Why people set up a business

Who are buyers and sellers The 4 factors of production

Land Labour Capital Enterprise

How to get financial help for setting up a business

How to get advice on setting up a business

What risks are involved in starting a new business and how avoid them

What are the different types of market

What is Market Research Different types of Market

Research – field and desk What is Market

Segmentation