INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE How entrepreneurial are you? Do you have...
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Transcript of INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE How entrepreneurial are you? Do you have...
INFLUENCES IN ESTABLISHING A SMALL TO
MEDIUM ENTERPRISE
How entrepreneurial are you?Do you have what it takes?
Your task 3-4 mins
To create a profile of a successful business person operating an SME:
What does a successful business person look like?1.What personal qualities?2.What qualifications?3.What skills?4.What sort of motivation?5.Do they need to be entrepreneurial?6.Is there a better cultural background for
establishing a business?7.What gender should you be?
What experience
There is no such thing as the right sort of experience to set up your own business...!
Chapter 11, Influences in establishing a small to medium enterprise, FIGURE 11.3, pg. 342
qualifications, skills, motivation, entrepreneurship, cultural
background, gender
qualifications
Although it is not necessary to have any formal qualifications to start a business, business owners are becoming better educated.
Business owners increasingly attend courses to improve their business skills. A key feature of any business course, including Business Studies at high school, is that it teaches potential business owners to consider every aspect of their business idea and to complete a business plan.
Skills
Why would you want to start your own business?
Motivation.
What are the rewards of business ownership?
Chapter 11, Influences in establishing a small to medium enterprise, FIGURE 11.4, pg. 344
Entrepreneurship
To have entrepreneurial ability very basically means to be naturally good at business in the same way that some people are naturally skilled at playing sport, painting or playing music.
Entrepreneurial ability is also knownas business acumen. It is to have wisdomand expertise in establishing and runninga successful business.
An entrepreneur is someone who will take a calculated risk to turn an idea into a successful business operation.
The risk is calculated because the entrepreneur will weigh up all the potential costs and compare them to the potential benefits of the new business venture.
If the risk is too great, a sensible person will not make the decision to invest.
Cultural Background
Australia has a multicultural society. Today there is far greater acceptance of cultural style in business.
When you look at the great variety of restaurants available in your local area or shopping centre, the significance of culture or nationality becomes apparent.
Many other types of business illustrate this point.
After Anh Do and his family arrived as refugees in Sydney, he had one aim in life. Having survived two pirate attacks on their boat from Vietnam, then several months in a Malaysian refugee camp, he was determined to help lift his family from poverty.''From an early age, all I wanted to do was earn money to buy my mum a house,'' recalls Do, now 33 and a well-known comedian.His father had left the family when Do was 13 and his mother earned just $6.80 an hour in a clothing sweatshop.At 14, he started a small business breeding tropical fish, after learning that $15 spent on adult fish could spawn 500 babies.
As a first-year university student at UTS, studying law and business, he ran a market stall selling American Indian artefacts to capitalise on the Dances with Wolves craze. The stall soon grew to four franchised stores.Just six months from finishing his five-year degree, Do turned down law firm job offers to focus on stand-up comedy, figuring that was a faster way to earn money.
He took every gig he was offered, including spruiking fruit and vegetables in shopping malls and hosting boxing tournaments, until he'd saved a $40,000 deposit.''I gave the house to her for Christmas 2000,'' recalls Do, who was then 23. ''We all cried.''
Read more: http://www.smh.com.au/money/investing/profile-anh-do-20110131-1abk3.html#ixzz3iMlLoxjy Follow us: @smh on Twitter | sydneymorningherald on Facebook
Gender
Social acceptance of women in the workplace has increased, as have pressure and expectations for women to achieve higher levels of promotion in their employment.
Many women are striving for a successful career as well as a satisfying personal life.
An increasing number of business owners are women.
Some survey data suggest that businesses with female operators and owners have a lower failure rate than those operated and ownedby males.
Yet an entrepreneur’s gender will not determine whether his or her business will be a success.
Studies of successful women in business have concluded that one factor in their success has been their ability to form business networks of friends and associates to whom they canturn for assistance and advice.
In comparison with their male counterparts, women are more likely to seek professional help sooner.
Earlier intervention by an accountant, business planner or solicitor can prevent small problems escalating and causing failure.
In many cases, women try to eliminate a lot of the risk through deeper research, asking more questions to improve understanding, and thorough planning.
They possibly choose the less risky alternatives and want a sound basis for more likely success. Many of these businesses are self-employment, operate from their own home office and take out very little debt finance.
SOURCES OF ADVICE TO HELP YOU SET UP YOUR BUSINESS
Research local, state and federal government agencies and non-governmental organisations that can provide information to assist entrepreneurs:
What websites or places can you turn to or click on for support?
You should have already done this for your business plan...
SOURCES OF ADVICE
http://www.abs.gov.au/ http://
www.ausindustry.gov.au/Pages/AusIndustry.aspx
http://www.nswbusinesschamber.com.au/Home.aspx
http://www.becaustralia.org.au/
NetworksTrade associationsFederal, state and
local government departments
AccountantsSolicitorsBank ManagersTAFE collegesUniversities
WHAT ARE THE DIFFERENT WAYS TO ESTABLISH A BUSINESS?
Establishment options for a business
1: create a new business from scratch2: Take over an existing business that
already has a good reputation: good links with suppliers and a track record of trading.
3: Franchise: a business pays for the right to use an established businesses' trade name and business formula – the franchisor is hte seller of hte business concept
What are the advantages and disadvantages of each type of business
Advantages and disadvantages of
establishing a new business from scratch
ADVANTAGES DISADVANTAGES
advantagesadvantages disadvantagesdisadvantages
Owner is free to make every decision
Less expensive to establish than an existing business or franchise
Can choose an ideal location Can select own name No goodwill to pay for No hidden problems from the
previous owners If funds are limited, possible
to start on smaller scale
Harder to obtain debt finance without a past record or sales
Can take months or years to break even and earn a profit; slow to build a customer base
Need time and energy to recruit and train staff
No network of suppliers establishes; no goodwill with customers
Time delays in building, setting up the work place, gaining licenses/permits, business registration
No past records of business performance
No procedures in place Existing and potential clients are
unknown
Advantages and disadvantages of starting a new business
Chapter 11, Influences in establishing a small to medium enterprise, TABLE 11.2, pg. 360
Buying an existing business
Business can be purchased as a turnkey operation: all systems, procedures, policies and operations are in place and no changes are needed to improve the business
Total cost is known Loyal customers already exist,
generating income immediately Advice and assistance may be
sought from existing trained staff and former owners
Business has already passed through difficult establishment and possibly growth phase
Easier to obtain finance as has past records of performance and established cash flow
Restrictions in size, procedures and layout
Existing image and policies of the business may be difficult to change/hard to shake poor reputation
Inefficient systems and operations can be difficult to change
May be difficult to assess the value of goodwill
If the business premises are leased, the new owner may have difficulties with the existing landlord
Some employees may resent change of owners
Past success may be based on personality/talent of previous owner
Chapter 11, Influences in establishing a small to medium enterprise, TABLE 11.3, pg. 361
Buying a franchise
Only about 12% of franchises fail Expert backing and advice
provided by franchisor/training R&D carried out by franchisor Suppliers and materials already
established Immediate benefit from
franchisor’s goodwill Well-planned advertising often
exists Volume buying is possible, often
resulting in cheaper stock Well established procedures,
inventory control systems (JIT) and operating manuals
Selling a proven, well-established, profitable product
May cost more to establish franchise than start anew business
Franchisor controls the overall operations
Threat of franchise termination can be carried out in some circumstances
Profits must be shared with franchisor Goals of franchisor may be
incompatible with those of the franchisee
Poor service and products provided by one outlet ay adversely affect other outlets
The franchisee may feel like an employee, without the benefits and security
Products may become ‘out of date’ resulting in decreased sales and profits
QUESTION
EVALUATE THE CHANGES IN THE BUSINESS ENVIRONMENT THAT HAVE AFFECTED
THE SUCCESS RATE OF NEW BUSINESSES
Market analysis!
Syllabus points:Market: goods and/or services, price, location
Why is market analysis important?
What is market analysis?
A market analysis involves collecting, summarising and analysing information about the market
WHY IS MARKET ANALYSIS IMPORTANT?
Businesses fail without a market (customers) for their goods or services, so they must always undertake a market analysis
Goods and/or services: You must be very familiar with the good or service that you
wish to sell Research to determine the size of the market for your product
and where the actual target groups are located e.g.? Identify your target market – who are they and how will you
advertise them. Research area where you will sell your product to find out
age, sex and occupation to see if there will be demand for your product there
Make sure product is not a ‘copy’ of an already existing business
PRICE
Need to establish an appropriate price for the product offered to the market
Price the business can charge will be determined by prices of similar competitors’ products
You need to know what it actually costs you to product the good or provide the service (COGS)
You will need to have a price high enough to make a profit (price cutting in order to compete would probably result in a loss and closure of your business)
PRICE: summary
Price can be set by following a recommended retail price, using percentage mark-ups, price leadership or finding what the market will bear.
Location
• One of the key decisions of a prospective small business owner is concerning the actual location of the business.
Cost to rent or buy the site is always a key consideration, but depending on the type of business that is being established, the owner may also want to consider visibility, the proximity of suppliers and support, and even whether or not the area chosen will lend the business an air of professionalism.
• Different types of business will be suited to different locationsRetail/service sectors: high visibility and high traffic levels. Wholesalers: want to close to transport such as main roads, railway to reduce
costs and save timeManufacturing: need to reduce costs, be close to suppliers and markets
(zoning requirements factories will be located on outskirts of cities)Demographic of market: luxuryClusters: food courts, shopping districtsSupport services: located close by
FINANCE
Syllabus: source, cost
EVERY business has start up costs that they must be concerned about. How much will obtaining premises cost? How about inventory? What about staff, marketing and utilities? Interest due on money used to start the business
Decision of whether to lease of buy has a large effect on these calculations (buying vs leasing)
Cost of goodwill – intangible asset
What other questions are there to consider?
Chapter 11, Influences in establishing a small to medium enterprise, FIGURE 11.22, pg. 371
Sources of finance
Starting a business does not require as much capital/finance as people may believe: many start with $5,000 of less
21% of businesses in Australia operate from a home address Initially business owner should continue to work part time to have a
reliable source of income or have a partner working full time for bills etc
What are the two options of financing for the budding entrepreneur?
2 sources of finance:DEBT AND EQUITY
EQUITY FINANCE: comes from internal sources, such as the owner’s savings and profits reinvested in the business, or external sources such as prom shareholders in a private company (private equity)
DEBT FINANCE: or loans. Is provided by a number of financial institutions outside the
business. Major banks are the biggest providers of finance for SMEs. They have many offerings for small business needs.
Investment banks provide finance for large businesses. SMEs are not in their target market. They also provide investment advice, takeover and merger assistance.
Government organisations have finance available as grants and low-interest loans to businesses that have export potential or will contribute significantly to the economy and employment
http://www.grantslink.gov.au/
Chapter 11, Influences in establishing a small to medium enterprise, FIGURE 11.23, pg. 372
Chapter 11, Influences in establishing a small to medium enterprise, TABLE 11.4, pg. 374
Ethical issue
Is it ethical for the owner of a small business to use his or her personal credit card to pay for business expenses and to purchase inputs in order to earn frequent flyer points and personal rewards?
LEGAL
Syllabus: Legal – business name, zoning, health and other regulations
Of the many laws and regulations that small business owners need to comply with, some important ones are:
– business name registration– land zoning– health regulations.
BUSINESS NAME
it is a legal requirement for a business to register its business name. A business will generally have a trading name. When the trading name is different from the name of the owner it must be registered with NSW Fair Trading. Business Names Act 2002 (NSW) Registering the business name allows any stakeholder to identify who the
owners are. The business is issued with a certificate, which must be displayed where customers can easy see it.
Must also apply for an ABN – Australian Business Number which must be recorded in all transactions, letters and documents this is obtained via the ATO
Business owners can check whether the name they wish to use has been taken by consulting the National Names Index on ASIC’s website.
ZONING
Local governments have the legal power to restrict where certain businesses can be located.
Zoning regulations or laws create areas, where land can only be used for particular purposes. WHY?
The typical zones are: residential, commercial, light industrial and heavy industrial, open spaces and recreation
As communities grow areas can be rezoned
Health regulations
Local governments require businesses in their region to be registered and hold all relevant permits and licences.
Health regulations exist to protect consumers from diseases and food poisoning.
Every business in Australia is covered by occupational health and safety legislation. In NSW it is the OH and S act 2000 (NSW)
Many industries have specific requirements for health, such as those businesses involved in food preparation and service – they must: Have a clean kitchen, free from vermin (rats and cockroaches) Use clean cooking utensils Prepare food in a hygienic manner Cook and store foot at appropriate temperatures NEED TO RENEW LICENCES ANNUALLY – PHYSICAL INSPECTION by LOCAL GOVT’s
ENVIRONMENTAL HEALTH DEPARTMENT
When establishing a business it is the responsibility of the owner to ensure that hte business complies with all health and safety requirements stated in govt laws and regulations. If it does not the business could be sued for negligence if a person’s health is affected. Business may be prevented from trading
Other regulations
There are many regulations that affect SMEs but the most well known are: Competition and Consumer Act 2010 (Cth) formerly the Trade Practices act
1974 (Cth) re patents and licences.This is a federal government law that applies to nearly every aspect of the
operation of a business. It controls and influences how businesses can act in the market when trading. The aim of the Act is to prevent businesses from gaining an unfair advantage over competitors. Under this act all businesses and consumers in Australia have rights and obligations including the following:
Products must be safe Businesses cannot make false claims or mislead consumers in their
advertising – e.g. Stating made in Australia when this is not true – only make in Aus can display AusBuy logo www.ausbuy.com.au
Goods must be priced openly. Prices cannot be fixed to prevent fair competition. It is illegal for sellers to agree among themselves to set prices at a high level
Act prohibits any anti-competitive and unfair business practices that take advantage . ACCC enforces the act www.accc.gov.au
Patents
A patent is a right that is granted for any device, substance, method or process that is new, inventive, and useful. A patent is legally enforceable and gives you (the owner), exclusive rights to commercially exploit the invention for the life of the patent.
ACCC particularly involved in regulating and price fixing are:
Bank feesElectricity and gasInsurancePetrol pricingPostal servicesRailwaysTelecommunications
HUMAN RESOURCES
Syllabus:Human resources:SkillsCosts – wage and non-wage
Having the right staff is very important to a business’s success. It is the employees who are the face of the business when dealing with customers and they perform the tasks planned by management
Skills
Employees must be an asset for the business Must be hard working, share the vision of the business and
be able to handle any change within the organisation Staff need appropriate experience and skills to perform the
tasks required Newly qualified accountants/lawyers often ‘learn’ for 1-1.5
yrs before they are fully productive – business needs to spend much time instructing juniors on how to complete a job
Large businesses will have an HR department to organise complete training and development of new as well as current staff to enhance and improve their skills: mentor programs, tertiary study courses – all aim to improve skills so they become more productive and a greater asset to the business
Skills of staff
• One of the most important influences when establishing a SME is staffing.
• If a SME owner decides to hire staff, many sources are available.
• The overriding recruiting objective is to attract a pool of qualified applicants with the most suitable skills.
• Skilled employees are more productive and create wealth for a business.
• A business will only employ someone if the return is greater than the cost
Costs
Employees are often the firm’s biggest assets.
When planning the number of staff likely to be needed, it is necessary to calculate both the amount each person is likely to contribute to the business and how much each person will cost.
The first of these calculations will end up being a ‘guestimate’ because it will largely depend on the effectiveness of the staff.
The second calculation is the cost of each position and will depend on such things as bonuses, whether staff members are full time or part time, minimum and negotiated pay rates etc.
Some of the cost factors of employees that need to be considered when planning staff numbers are:
Long service leaveHoliday payLeave loadingSick leaveBonuses if relevantPayroll taxFacilities etc
As a rough guide it is acceptable to calculate these additional costs to the business (on-costs) at 25 per cent of what each employee is paid.
Chapter 11, Influences in establishing a small to medium enterprise, FIGURE 11.28, pg. 381
Summary• One of the most important influences when establishing a SME is staffing.
• If a SME owner decides to hire staff, many sources are available.
• The overriding recruiting objective is to attract a pool of qualified applicants with the most suitable skills.
• Skilled employees are more productive and create wealth for a business.
• A business will only employ someone if the return is greater than the cost.
• On-costs are payments for non-wage benefits, including long service leave, workers’ compensation and annual leave loading.
Summary• One of the most important influences when establishing a SME is staffing.
• If a SME owner decides to hire staff, many sources are available.
• The overriding recruiting objective is to attract a pool of qualified applicants with the most suitable skills.
• Skilled employees are more productive and create wealth for a business.
• A business will only employ someone if the return is greater than the cost.
• On-costs are payments for non-wage benefits, including long service leave, workers’ compensation and annual leave loading.
Chapter 11, Influences in establishing a small to medium enterprise, pg. 385
Chapter 11, Influences in establishing a small to medium enterprise, TABLE 11.6, pg. 386
Summary• Taxation is the compulsory payment of a proportion of earnings to the government.
• Businesses are responsible for checking their obligations concerning group tax (PAYG), fringe benefits tax, goods and services tax, company tax, capital gains tax, stamp duty, land tax and payroll tax.
• Goods and services tax (GST) is a 10 per cent value added tax imposed on most goods and services.
• The customer pays GST when buying goods and services, which is passed on to the business that in turn passes it on to the Australian Taxation Office (ATO).
• GST collection and payments to the ATO are recorded on the business activity statement (BAS), which is also the means by which a business can claim input tax credits.
• The Australian Business Number (ABN) is a single identifying number that a business uses when dealing with government departments and agencies.
• Property rates is the main local government charge a business will face.
Summary• Taxation is the compulsory payment of a proportion of earnings to the government.
• Businesses are responsible for checking their obligations concerning group tax (PAYG), fringe benefits tax, goods and services tax, company tax, capital gains tax, stamp duty, land tax and payroll tax.
• Goods and services tax (GST) is a 10 per cent value added tax imposed on most goods and services.
• The customer pays GST when buying goods and services, which is passed on to the business that in turn passes it on to the Australian Taxation Office (ATO).
• GST collection and payments to the ATO are recorded on the business activity statement (BAS), which is also the means by which a business can claim input tax credits.
• The Australian Business Number (ABN) is a single identifying number that a business uses when dealing with government departments and agencies.
• Property rates is the main local government charge a business will face.
Chapter 11, Influences in establishing a small to medium enterprise, pg. 389