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Edexcel Business Communicaitons Unit - Introduction to Small Business - Ebook

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  • 1. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.com1Version1.1January2013

2. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comBusinessOpportunityBusinessesUnderstandingCustomerNeedsMarketMappingCompetitionAddedValueFranchisingEnterpriseEnterpriseThinkingCreativelyQuestionsInventionandInnovationCalculatedRiskEnterpriseSkillsStartingUpObjectivesEntrepreneurialQualitiesEstimatingRevenue,Cost&ProfitsCashFlowForecastingCashFlowProblemsSWOTAnalysisTheBusinessPlanPurposeFinanceEffectiveStartupsEverybodyHasACustomerThe4PsCompanyTypesLegalStartupIssuesTaxIssuesCustomerService&SatisfactionEmploymentEmploymentLawEconomicContextSupply&DemandInterestRatesExchangeRatesTheBusinessCycleStakeholdersKeyterms 2 Version1.1January2013 3. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comBusinessOpportunitySpottingabusinessopportunityismuchmorethansimplycomingupwithagoodidea.Toknowthatyourideawillbesuccessfulyoumust Identifyabusinessopportunity Considerthefinanceoptionsavailable Calculateprofitabilityforyourbusiness Sourcesuppliers Investigatethelegalimplicationsofsettingupyourbusiness Lookatexistingcompetitors Analyseyourcustomerneeds 3 Version1.1January2013 4. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comBusinessesIntheUKthereisabout1businessforevery13peoplelivingintheUK,thesebusinessrangefromthelargeorganisationssuchasTescotoyournextdoorneighbormakingandsellingcakesforchildrensbirthdayparties.SmallBusinessesBusinessesareconstantlybeingstartedandclosed.200,000businessescreatedintheUKeachyear1in10willcloseinthefirst12months1in3willclosewithin3years50%(ormore)willclosewithin5yearsPurposeofabusinessBusinessesexisttomakegoodsandprovideservices.70%ofbusinessesintheUKprovideservices8outof10peopleworkinserviceindustriesProductionBusinessesmaketheirgoodsandservicesbybuyingmaterialsandcombiningthemtomakeproductsordeliveraservice.EquipmentthephysicalproductthatissoldorusedtoprovidetheserviceRawmaterialsthepetroltorunavehicle,theelectricitytopoweracomputerTimelabourtheworkersarethemostimportantpartofanybusinessSuppliers&CustomersSuppliersarethepeoplewhothebusinessbuysfrom.Customersarethepeoplethebusinesssellsto.MarketsThemarketiswhereabusinessexchangesitsgoods/servicestocustomers.Marketscanbesplitintosegments.GHDhairstraightenersaresoldinthewomanshairmarketthesegmentmaybesaidtobewomenfrom13to45.4Version1.1January2013 5. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comUnderstandingCustomerNeedsAcustomersneedsarethethingstheywanttosatisfythem.Thismaybecost,location,convenience,range,quality,serviceetc.Beforestartinganybusinessitisimportanttounderstandyourcustomerneedsinordertogivecustomersatisfaction.MarketResearchBeforestartinganewbusinessthemarketshouldbecarefullyresearchedtoestablishifthereisaneedforthebusiness,whothecustomersmightbeandwhattheyarelikelytopayforyourgoods/servicesPrimaryresearchNewinformationwhichyougatheryourself.Mayinclude Surveys Questionaires Focusgroups Observations ExperimentsSecondaryresearchInformationwhichisalreadyavailable.Mayinclude Findingsimilarbusinesses Lookingforonlinecompetitors Readinglocalnewspapers LookingfordemographicinformationaboutyourcustomersDataTypesQualitativedataThisisopinions,judgements&attitudesQuantitativedataDatawhichcanbeanalysedyes/noanswers,ratingsetcDirectCustomerContactOncethebusinessisupandrunningtheownermustlistentocustomerfeedbackasthiswillbevitalingivingthemmarketknowledge.InterpretingDataOnceabusinesshasgathereddataitmustanalyseitanddrawconclusionsfromtheresults.Ifthequalitativedatarevealsanyneeds/desiresthebusinesshasnotanticipatedthebusinessshouldactuponit.Theoverallresultsshouldconfirmiftheanticipateddemandforthebusinessreallyexists. 5Version1.1January2013 6. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comMarketMappingTheprocessoflookingatthepotentialcustomersandcompetitorstomatchupneeds/desiresacrossmarketsegments.AnalysingthecustomerStartbyfindingout Whoarethepotentialcustomers Whatsortofproduct/servicestheywouldbuy Whatsortofpricestheyarepreparedtopay Whenwouldtheywanttheproduct/service Howoftentheywouldwanttheproduct/service IfyoucanidentifythebuyinghabitsofthecustomersMarketsegmentsGroupsofcustomerswhohavesimilarbuyinghabits.Thismaybebrokendownbyage,sex,ethnicity,religion,income,area,socioeconomicgroupMarketMappingOftenadrawnmapwiththecrossesofqualityandpricetopositioncompetitorsandidentifythenearestcompetitorsorhelppinpointyourpositioninthemarket.MarketGapsWherethereisnobusinessservingtheneedsofcustomersfortheproduct/service. 6 Version1.1January2013 7. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comCompetitionOtherbusinessesofferingasimilarproduct/service.AnalysingthecompetitionAnewbusinessshouldlookatthefollowingpointsandanalysetheofferingsacrosstheircompetitors Productrange Quality Design Sellingexperience Aftersalesservice Price Brandimage SuppliersStrengths&WeaknessesFromtheanalysisofthecompetitionabusinessownershouldbeabletoidentifytheirstrengthsandweaknessesthesewillhelpthebusinessownerseeanygapsorsaturationinthemarket.7Version1.1January2013 8. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comAddedValueAnybusinessneedstoaddvaluetotheirproductorservice.Thesourceoftheaddedvaluecanvary Quality Design&formula Convenience Speed&qualityofservice Branding UniqueSellingPointTheimportanceofaddedvalueItistheaddedvaluethatbecomestheprofitmarginthedifferencebetweenthecostoftheproduct/serviceandthesellingprice. 8Version1.1January2013 9. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comFranchisingAfranchiseiswhereabusinessstartuphasboughtalicensetosellaproduct/serviceonbehalfofabigger,wellknowncompany.SomefranchisesonthehighstreetincludeStarbucks,Subway,McDonalds,Toni&GuyandBSM.AdvantagesTherearemanyadvantagestofranchisingincluding Training Equipment Materials Findingcustomers Advertising Listingoncompanywebistes Sponsorship Backupservices Brand ExclusiveareaCoststothefranchiseeTheaveragestartingcostofafranchiseisaround250,000.Usuallythereisanupfrontcostforbuyingthelicensethenanongoingfeeorpercentageastheproductissold.Suppliesusuallyhavetobepurchasedfromtheparentcompanytoo.DisadvantagesAlthoughthereisareducedriskandmuchsupportgiventherearedrawbackssuchas Highinitialinvestment Cantsellwithoutpermission Franchisorhastherighttoendthearrangement 9Version1.1January2013 10. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comEnterpriseCertainskillsareneededinordertobeenterprising.AnEntrepreneurwillneedtothinkcreativelytodevelopacompetitiveadvantageandmayhavetotakearisktobringanewproduct/servicetomarket.Theymayneedtoraisefinance,showinnovationandliterallybewillingtoputeverythingonthelinefortheirideas. 10 Version1.1January2013 11. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEnterpriseAnybusinessisanenterprisebutsomearecreatingusingenterpriseskills.EnterpriseAnentrepreneurclearlyshowsenterpriseskillsbysettingupbusiness(es)bysettingupnewventures,takingrisksandshowinginitiative.Theseareenterpriseskills Risktaking Showinginitiative UndertakingnewventuresGoodsAgoodisbothtangibleandphysical,itcanbeseenandtouchedandbuyingagoodmeansyouwalkawaywithsomethingyounowown.ServicesAserviceisanintangibleproductwhichcannotbetouched.Servicesincludeeducaiton,healthcare,transportetc.11 Version1.1January2013 12. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comThinkingCreativelyLotsofbusinessescopyideaswhichmaynotbeenoughtocreateasuccessfulbusiness.Afranchiseisalsoacopyofanidea.Thinkingcreativelymeanscomingupwithanewideaanddevelopingthatuniqueideatocreateacompetitiveadvantage.Acompetitiveadvantageisnoteasilycopiedbutmeansthatabusinessisbetterinatleastonewaythanitscompetitors.Examplesofhowabusinessmighthavecompetitiveadvantagecouldbe: Abetterproduct Betterproduction,resultinginlowercostsorbetterquality Betterthanrivalsatselling Givesbettercustomerservice Usesauniquetechnologyorserviceinproduction AuniqueproductorserviceDeliberateCreativityMostcreativethinkinghappensaccidentallyandoftentheseideasarenotusedinanorganisedway.Usingdifferentmethodsofthinkingtechniquestostimulateideasisdeliberatecreativity.Lateralthinkingisaboutproducingideasthatwouldnotcomeupinthenormalthoughtprocessbythinkingoutsidetheboxandusingothertechniquesthatpromotelateralthinking.Blueskiesthinkingworkingindividuallyyouwouldstartwithanidea,objectorquestionthenwritedownanythingthatpopsintoyourmindwhilstlooking/thinkingaboutit.Afterasettimeorwheneveryonehasrunoutofideasyouanalyseyourideastoworkoutwhichareimportant,whatcouldbeusedtomoveyourideaforwardetc.Sixthinkinghatsthisisatechniquethathelpsyouorganiseandfocusideasyouhavecomeupwith.Agrouptrieseachhatinturntofleshouttheirideas Whitehatexploresthefacts Redhatlooksatemotionsandgutfeelings Blackhatevaluatestheproblemsanddifficultiesofanidea Yellowhatseesthepositivesoftheidea Greenhatthecreativeapproachtogettingroundproblems,maximisingbenefits Bluehatthinkingaboutthinking,thefacilitatordrivingtheprocesswillbebluehatthinking,everyoneinagroupwillbeinvolvedinbluehatthinkingatthestartlookingatwhattheywanttoachieveandattheend12Version1.1January2013 13. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comQuestionsAllentrepreneursshouldaskthemselvesquestionsthisallowsthemtoexplorealternatives,sortoutissuesandgetwhatsbestforthebusiness.Why?Whydoyouwanttostartabusiness,isittoearnmoremoney,achievejobsatisfaction,getabetterwork/lifebalance?WhyNot?Whynotstartabusinessinanestablishedfield?Orinafieldwhereyouhaveexperience?What?Whatdoyouwanttodo?Whatinterestsyou?Whatusesyourskills?How?Howwillyougoaboutstartingthebusiness.Howwillyouproducetheproduct/service?Howwillyoumarketyourbusiness?Howwillyouearnaprofit?Where?Wherewillyoustartyourbusiness?Wherecanyougethelp/advice?Wherecanyoubuystock?When?Whencouldyoustartthebusiness?Whatif?Whatifiswhereyoulookatthemanyvariablesinvolvedinrunningyourbusiness.Whatifyoudidntmakemoneystraightaway?Whatifyouwereill?Whatifyourcustomersdidntlikeyourproduct/service?Whateverdecisionyoumakewhenstartingabusinessshouldbemadeafterdoingawhatifanalysis. 13Version1.1January2013 14. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comInventionandInnovationNewbusinessideascomeaboutindifferentways.Somebusinessesaredevelopedbypeoplewhoalreadyhaveagoodunderstandingoftheirproduct.Othersfrompeoplewhousetheirproduct.Manybusinesses/productscomefromtheresearchdepartmentsofexistingcompanieswhoarelookingtodevelopaninnovativeproduct.Thinkabouthowvideogameshavemovedfrombeingrelativelypassive(GameCube,PS2etc)tobecomingactive,multiplayerexperiences(Wii,Kinect)InventionThediscoveryofnewproductsisinventionInnovationTheprocessoftransforminganinventionintoaproduct.RiskThereisalotofriskinvolvedwithinventionandinnovation.Muchinnovationleadstofailureandgetsabandoned.Thereisalsoariskthatsomeonewillcopyit.PatentsRegisteringapatentgivesyoutherighttoprotectionforyourpatentedideafor20years.PatentsareregisteredwiththeIntellectualPropertyOfficeCopyrightForintellectualproductssuchasfilms,musicandbookscopyrightgivestheoriginalinventorthesolerightstoproduce,controlandcopythework.CopyrightprotectioncanberegisteredwiththeIntellectualPropertyOfficebutgivesmuchlongerprotectionthanapatent.Authorsowncopyrightoftheirbooksfortheirlifetimeand70yearsafter.TrademarkAtrademarkisaregisterednamesuchasADIDAS.Atrademarkednamecannotbecopied. 14 Version1.1January2013 15. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comCalculatedRiskAcalculatedriskisaboutputtinganumericalvalueorprobabilityontherisk.Schoolscarryoutriskassessmentallthetimeandputnumericalvaluesontherisk.Whatistheriskofastudentburningthemselvesonabunsenburner?Risks&RewardsWhensettingupanewbusinessanentrepreneurwillbepreparedtotakecalculatedrisks.Intheirbusinessplantheywillhavehighlightedthesealongwiththedownsidesandupsidesoftheirbusiness.DownsidesWhatcangowrongwithyourbusiness,withyourproduct,yourservice,yourcustomers.Abusinessownershouldtryandputafigureonwhatcouldbelostifthingsgowrong.UpsidesWhatcangowellforyourbusiness.Wouldlargesalesvolumeleadtomorediscountedstockandgreaterprofits?MistakesIfaftertakingacalculatedriskabusinessownerfindsthedownsidesaremorethantheupsidesthismistakecouldputthemoutofbusiness.Itisimportantforbusinessownerstolearnfromtheirmistakesandbuildupontheirsuccessesfortheirnext/continuedventure.15Version1.1January2013 16. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEnterpriseSkillsAnentrepreneurneedsmanyskillstobesuccessfulsomeoftheseareoutlinedonthispage.SeeingOpportunitiesEventhesmallestopportunityisseizedbyanentrepreneur.Manysuccessfulentrepreneursstarttheirfirstsmallbusinessesintheirschooldaysbyspottinganopportunityandseizingthechancetouseit.ThinkingAheadTheabilitytothinkaheadgivesabusinessowneranadvantageastheycanplanforfuturechangesinthebusinessorevenfutureenterprises.DeterminationDeterminationinthefaceofsetbacksisanextremelyimportantskill.Facingproblemsheadonwithadeterminationtoovercomeobstacleswillhelpanybusinessownerbeultimatelysuccessful.PlanningCarefulplanningisarealkeytothesuccessofanybusiness.Goodplanswillhaveassessedrisksandtakendownsidesintoconsideration.Considerthemindmap,itsaverypowerfultoolforplanningasitallowsyoutoeasilywritedownallofyourideasaroundagiventopic.Ahandyfreemindmaptoolwww.mind42.com16Version1.1January2013 17. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.com StartingUpThissectioncoversstartingupthebusinessfromtheidea.Itwilltakeyouthroughthefinancialandnonfinancialobjectivesandhelpwiththeplanningstageoffinance.Startingupthebusinessisoftenthehardestpart,itmayinvolveleavingsecureemployment,borrowingmoneyandhavingabigperiodofuncertaintyinyourlifeuntilyouhavethebusinessupandrunningsucessfully. 17Version1.1January2013 18. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comObjectivesObjectivesarenotalwaysfinanciallydriven,whilstanentrepreneurmayultimatelywanttomakeaprofittheirinitialobjectivesmaybesimplersuchasbeingtheirownboss,orimprovingwork/lifebalance.Somebusinessaresocialenterprises,wheretheprofitsareabyproductofthebenefittothecommunity.FinancialObjectivesFinancialobjectivesarenotmerelytomakeaprofitwhenstartingabusinessaprofitislikelytobeinthefuture.Financialobjectivesinclude. Income Thebusinessmustprovideandincomefortheentrepreneur,initiallythismaybelessthanthey werepreviouslyearninginemploymentbutinthelongtermthiswouldbeexpectedtorise. Survival Theexpensesatthestartofanybusinessmakeithardtosetupandturnaprofitinitially survivalthroughthefirstfewmonths/yearsisaclearfinancialobjective. Security Owningabusinessneedstoprovidelongtermsecurity,althoughthereisnoriskofredundancy thereisalwaysariskofbankruptcy. Wealth Abusinessshouldovertimebecomeanassetwhichcanbesoldtogeneratewealthfromthe valueofwhathasbeenbuiltup.SuchwealthwouldoftenbeusedtofundretirementNonFinancialObjectivesThenonfinancialobjectivesarelikelytobefarmoreimportanttoanentrepreneur. Independance Owningabusinessgivesindependancefrombeinganemployee. Control Beingyourownbossgiveacontroloveryourlifethatyoudonthaveasanemployee,you choosehowtoorganiseyourtime Challenge Creatingabusinessfromscratchgiveanentrepreneurthechallengeofcreatingsomething successfulfromnothing. PersonalSatisfaction Runningabusinesscangivegreatsatisfactionandsenseofachievement. HelpingOthers Socialenterprisesaresetupwiththemaingoalofhelpingothers/communities.18 Version1.1January2013 19. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comEntrepreneurialQualitiesTherearelotsofqualitiesshownbyentrepreneursthispageoutlinesthemajorones.InitiativeMakingthefirstmove,spottingopportunities,actingearlyandbeingproactiveareallsignsofinitiative.AnyentrepreneurwillbeaselfstarterandtaketheinitiativetosetupthebusinessRiskTakingAbusinessmaysucceedorfailitisriskiertoownabusinessthanbeanemployee.Youmayneedtoborrowmoney,orputyourassetsupassecurity.Entrepreneursneedtoberisktakersinordertosucceed.DeterminationIttakesalotofdeterminationtosetupabusiness,atthebeginningtherewillbealotofexpenditureandthenoftenaverysmallincomeuntilyouturnaprofit.Determinationiswhatcarriesyouthroughthedifficultearlystages.DecisionMakingAnybusinessownermustbewillingtomakedecisions,makejudgementsandlistentoadvice.Onlythebusinessownercanberesponsiblefordecisionmaking.PlanningGoodplanningisessentialforanentrepreneur,theoriginalplanswillbecomeabusinessplanandthenthedaytodayrunningofthebusinesswillrequiregoodplanningandtimemanagementskillsforboththeentrepreneurandforthemtodirecttheirworkerseffectively.PersuasionAgoodentrepreneurwilloftenneedtopersuadecustomers,suppliersandstafftodowhattheywantthemtodotoworkextrahard,tobuymoreproductortogiveabetterdiscount.LeadershipStrongleadershipskillshelptheentrepreneurtomanagetheirstaffandensurethattheyfollowtheirvision.SelfconfidencehelpsgreatlywithleadershipskillLuckAgoodsliceofluckisgreatforanybusiness,theeconomydoingwell,yourproductbecomingfashionable,maybeevenyourpromotionalvideogoingviral!19 Version1.1January2013 20. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEstimatingRevenue,Cost&ProfitsWhenestimatingtherevenues,costsandprofitsagoodbusinessownerwouldusealotofwhatifquestionstomodeldifferentscenarios.RevenueRevenueistheamountofincomethebusinessearnsoverasetperiodoftime.Theymaybecalledsalesrevenue,turnoverorsalesturnover.Toestimaterevenuesyouneedtopredicthowmanysaleswillbemade(orjobscompleted)andwhatwillbetheaveragepricethatyouwillcharge.TotalRevenue=PricexQuantityOrTR=PxQCostsCostsaresplitintotwopartsFixedcostswhatyouhavetopayregardlessofnumberofsales/jobs.Fixedcostscouldincluderent,loanrepayment,wagesetcVariablecostsvarywithsales/jobs.Fixedcostsmightincludepetrolfordeliveries,giftwrappingetc TotalCosts=FixedCostsxVariableCosts Or TC=FCxVCProfitTheprofitisthedifferencebetweenTotalRevenueandTotalcosts P=TRTCIftheprofitendsupasaminusfigureitisaLOSS.20Version1.1January2013 21. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comCashFlowForecastingPartoftheplanningstageofabusinessistoproducecashflowforecasttogiveapredictionofhowcashwillflowIandoutofthebusinessinthefuture.Thisforecastwillhelptheentrepreneurdecideifthebusinessisviableandidentifyanyareasofweaknessandplanactionaccordingly.CashFlowCashflowisthemoneygoinginandoutofabusiness.Itconsistsofinflows(moneycomingin)andoutflows(moneygoingout).Thenetcashflowistheinflowoutflow.Anybusinessshouldkeepcopiesofallreceiptsandinvoicestoproperlyaccountfortheircashflow.Anybusinesswithoutsufficientcashflowwillbeunabletopayitsbills/wagesandwillbecomeinsolvent.CashFlowForecastsItisvitaltoplanaheadtomakesurethatabusinesswillhavesufficientcashtosurvive,thebusinessmayhavegoodmonthsandbadmonths.Intheexamplebelowweseeastartupbusinesswithahighinitialstockcostandlowongoingcosts,howeverthisisalargelyseasonalbusinessandtakingsarehigherinsummer.Thecashflowforecastis partofthebusinessplan helpstoshowifactionwouldneedtobetakentoavoidacashcrisis canbeusedatthebanktohelpgetaloan21 Version1.1January2013 22. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comCashFlowProblemsGoodforecastingcanpredictcashflowproblemsandallowabusinesstomakeplansfortheseproblems.Ifthereisapointinthefuturewherethecashflowwillbecomenegativethiswouldmeanthatsupplierscouldntbepaid,staffcouldntbepaidandthebusinesswouldbecomeinsolvent.Shouldthisbeatemporarysituationthebusinessownercouldplantoinjectcashintothebusinessandremoveitagainwhentheproblemisresolved.CashFlowFactorsTheflowofcashinandoutofabusinesscanbeaffectedbyanumberoffactors. SeasonalVariationssomebusinesshavemassivevariationsinsalesatdifferenttimesofthe year.Atoyshopwouldbeexpectedtomakealotofsalestowardstheendoftheyearas Christmasapproaches.Afloristwouldexpecttobebusyinsummerwhenweddingswere happening. ChangingCostspricesgoupovertime,particularlyforpetrol/diesel.Wagesalsoincrease overtimeandoftensuppliersincreasetheircosts. Stockchangeskeepinganoverstockcostsabusinessmoneyiftheyarebuyinginmore suppliesthantheysell.Goodforecastingallowsabusinesstominimisetheamountofstock thatiskept.Majorsupermarketskeephardlyanystockoutbacktheyrelyonjustintime deliveryinstead.Lessoverstockmeanslessproductsspoilingandhavingtobethrownaway. ChangingCreditTermstypicallybusinessespaysuppliersusingtradecredit,within30days. Abusinessmightincreasethiscreditperiodto60daystopreventacashflowcrisis.22 Version1.1January2013 23. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comSWOTAnalysisStrengthsWeaknessesOpportunitiesThreatsStrengthsandweaknessesareinternalfactorsandaffectthepresent(whatareyougoodat,whatdoyoustrugglewith?)Opportunitiesandthreatsareexternalfactorsandmaychangeovertime(isthereagapinthemarket,whatareyourcompetitiondoing?)ASWOTanalysismaybecreatedeasilyinamindmappingapplication.TryMind42atwww.mind42.com23Version1.1January2013 24. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comTheBusinessPlanAnybusinessstartingupshoulddevelopabusinessplan.Thisdocumentsshowplansfordevelopmentaswellasforecastingforsales,costs&cashflow.Businessesstartingwithoutabusinessplanarelesslikelytosurvivethefirstfewyearsoftrading.WhattoincludeIfyouarelookingforfinancethebanksyouareapproachingwilltellyouwhattheyexpecttoseeinyourbusinessplan.Itshouldincludedetailsofproduction/supply,resources,marketingandfinance.Thelistbelowwouldbeagoodstartforabusinessplan. Businessdetailsname,history,location,ownersdetails,legalstructure Equipmentwhatequipmentisneededandwhatitwillcost Premisessize,location,cost Suppliersdetailsofyoursuppliers Personnelemployeesandtheirsalaries Product/Servicedetailsoftestingandmarketresearch Productionwhatproductionmethodswillbeused(ifmakingaproduct) Marketinghowyouintendtomarketyourproduct/service SWOTAnalysishowyourproductwillutiliseitsstrengthsandminimiseweaknesses Costs&Revenueswhatyourtotalcostsandrevenuesareestimatedtobe CashFlowForecastyourpredictionsforthefirst12months FinanceyourfinancesourcesforyourstartupPurposeThepurposeofthebusinessplanistogiveallstakeholdersaclearpictureoftheexpectationsforthebusinessandthedirectionthebusinesswilltake.Fortheentrepreneurswritingthebusinessplanencouragesthemtothinkclearlyaboutallareasofrunningabusinessandlookclearlyatallthecostsandanypotentialpitfalls.Forfinanciersthebusinessplanshowsthemthatthebusinessisaviablepropositionandthatitwillbeabletomaintainagoodcashflowandkeepuprepaymentsonloans.Awellwrittenbusinessplancanalsobeshowntoexistingsuccessfulentrepreneurswhomaybeabletogiveadviceonthefeasibilityofthebusiness.24Version1.1January2013 25. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comFinanceAllbusinessstartupsneedtobefinanced.Someentrepreneursmaybeabletofinancetheirownprojectsorgatherfinancefromtheirexistingprojects.Otherswillneedtoobtainfinancefromoutsidethebusiness.LongtermFinanceAnyfinanceborrowedorinvestedformorethanayeariscalledlongtermfinance. ShareCapitalSharesinthebusinessareissuedinreturnforinvestmenttheamountraised isthesharecapital LoansMoneyisborrowedandrepaidwithinterest,usuallysecuredagainstassetsorproperty (mortgage) VentureCapitalistsPeoplewhoinvestinabusinesswithaviewtosellingtheirsharesfora profitonceitbecomessuccessful RetainedProfitMoneyretainedbythebusinesstoreinvestinitsfuture LeasingRentingequipmentorvehiclesratherthanbuyingthemoutright GrantsGrantsaregivenbygovernmentsandcharitiestohelpbusinessesstartup,theydonot usuallyhavetoberepaidbutmayhaveconditionsattachedShorttermFinanceFinancewhichneedstoberepaidquickly,usuallyinunderayearisreferredtoasshorttermfinance. OverdraftTakingyourbankaccountintotheredbyanagreedamountandpayinginterestfor thatfacility TradeCreditGoodsboughtareinvoicedanddonothavetobepaidforimmediatelyusually 30daysaregivenbutthiscanbestretched FactoringAFactorbuysyourinvoicesandpaysthemimmediatelythenkeepsthemoney whentheyarepaidbyyourcustomerstypicallyafactorwillpay90%oftheamounttoyouand keep10% 25Version1.1January2013 26. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comEffectiveStartupsToensurethestartupiseffectivetheentrepreneurmustworkveryhardinthebeginningtomakesurethebusinessissetupfullyincompliancewithlegislationandminimisetheirriskbychoosingtherightcompanytype.Itisalsohighlyimportanttobetotallycustomerfocusedandgetthemarketingmixright.Startupsoftenfailwithinthefirstyearwhentheentrepreneurhasoverlookedoneoftheseelements. 26 Version1.1January2013 27. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEverybodyHasACustomerAllbusinessneedcustomerstosurviveandmustconstantlystrivetomeetcustomerneeds.Todothiseffectivelythestartupshouldlookcloselyatwhotheircustomersareanddevelopaprofileofatypicalcustomer.CustomerFocusTosurviveabusinessmusthaveenoughcustomerswillingtopayahighenoughpricetoallowthebusinesstomakeaprofit.Sothebusinessshouldfocusonwhatthecustomerwantstoensuretheyaremeetingtheircustomerneeds,whichmaychangeovertime.IdentifyingNeedsAbusinessmustunderstandwhatthecustomerwantsfromTHEIRproduct.PrimarkandHollisterbothsellclothesbutthecustomerhasdifferentideasabouteachproductandthecompaniesunderstandthis.ThePrimarkcustomerwantstohaveawidechoiceofbudgetpricedclothessothattheycanchangethemasfashionchanges,andforthistheyarewillingtoshopinhugebrightlylitstoreswherethestockispiledhigh.TheHollistercustomerwantstofindshoppinganexperiencetoenjoyandthestoresreflectthisintheirlookandfeeltoletthecustomerknowtheyarebuyingaqualitybrand.AnticipatingNeedsTokeepontopabusinessmustunderstandwhatitscustomerswantinadvance,theymustfollowfashionsandtryandanticipatethechangesincustomerneeds.MeetingCustomerNeedsHavingidentifiedandanticipatedneedsthebusinessmustmeetthemwitharobustproductatthecorrectprice.Thismeansusingtherightqualityofmaterialstomeetthecustomerrequirementswhilstkeepingthecostsdownandstillproducingagoodqualityofproduct.27Version1.1January2013 28. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comThe4PsBusinessesmustconsiderthemarketingmixwhichhelpsthemselltheirproducts.Thisisknownasthe4Ps Price Product Promotion PlacePriceThepricehastoreflectthevaluethatthecustomerputsontheproduct.Anextremelyhighqualityproductmadewiththebestmaterialsmaysellforahighprice.Howeverifthecustomerislookingforavaluetypeproductthenthematerialsneedtobecheaperandthisisreflectedintheprice.ProductTogettheproductrightthebusinessneedstothinkagainaboutthecustomerneeds.Theproductmustdothejobrequiredandmeetthepricethecustomeriswillingtopay.Againthemarketsegmentthatthebusinessisservicinghastobeconsidered.PromotionPromotionmeansmakingthecustomersawareoftheproductandpersuadingthemtheywanttobuyit.Promotionmightincludeadvertising,salespromotions,socialmarketing,wordofmouthandawholerangeofotheroptions.PlaceTheproducthastobeavailabletocustomerswheretheywantitandwhentheywantit.Lotsofbusinessesareseasonalorhavetimesofyearwhensalesboom.ThinkabouthowtheturnoverofatoyshopwillbefairlysteadyallyearandtheincreasemassivelyasChristmasapproaches.IfyourproductwereanewtoyyouwouldwanttolaunchitintimeforChristmas,notinJanuary.28Version1.1January2013 29. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comCompanyTypesWhensettingupacompanythequestionofliabilityhastobeconsidered.Acompanycanhavelimitedorunlimitedliability.Liabilityisthelegalresponsibilityfordebts.Withunlimitedliabilitythereisnodifferencebetweenthebusinessandtheownersfinances,ifthebusinessbecomesinsolventthentheownersassetsmayhavetobesold.SoleTraderThesoleownerofabusinessisasoletrader.Theyhaveunlimitedliabilitybutthereisnolegalsetupandalltheprofitsbelongtotheowner.ASoleTraderhastoregisterthebusinesswithHMRCfortaxandwillsendselfassessmenttaxreturnseachyear.OrdinaryPartnershipAnordinarypartnershipisthesameasasoletraderbuttheremustbeanominatedpartnerwhoisregisteredforthetaxreturnsandsendsintheselfassessmenteachyear.Anordinarypartnershiphasunlimitedliability.LimitedCompanyMostsmallLimitedCompaniesarelimitedbyshares.Anexamplewouldbeissuing1000sharesworth1eachtooneowner.Ifthecompanygoesintoinsolvencytheownerwouldhavetorepaythevalueofhisshares1000butthatwouldbetheendoftheirliability.ALimitedCompanyhastobesetupwithcompanieshouse,registeredwithHMRCandsubmitstatutoryaccounts,anannualreturnandacompanytaxreturnANNUALLY.Theaccountsofalimitedcompanyarepublicandcanbelookedupbyanyone.ThecompanymustregisterforVATifyouexpectitstakingstobemorethan77,000ayear.29Version1.1January2013 30. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comLegalStartupIssuesTherearefewlegalconsiderationstothinkaboutwhenstartingabusiness.Mostlythesearejustcommonsenserelatedandrequireyoutodolittleexceptkeeprecordsandpaytaxes.BusinessNameYourbusinessneedsanameandalthoughthisdoesnthavetobeuniqueitmustbedifferentfromexistingtrademarkednames.YoucantbeTesco.Ifyouarestartingalimitedcompanythebusinessnamemustbeuniquealthoughyoucanregisterunderonenameandtradeasanother.Yournameshouldntbetoosimilartootherbusinessesinyourareaalthoughlotsofbusinessestradeunderrathercommonnames(searchforAcorn).Yournamecouldpromoteyourbusinessbydescribingwhatitdoes(webuyanycar.com)ormightsimplybeaderivationofyourname,orinitialssuchasAMSTRAD(AlanMichaelSugarTrading).KeepingRecordsRecordkeepingisamustforanybusinesswhichisgoingtobesuccessful.inaserviceindustryitisgoodpracticetokeepdetailsofyourcustomersasyoumaywanttocontacttheminthefuturewithnewproducts,specialoffersetc.Thelawrequiresyoukeepgoodfinancialrecordsofeverytransactionassociatedwithyourbusiness.Thesewillbeusedtocalculateyourtaxesandalsoforyoutokeepaneyeontheprofitabilityofyourbusiness. 30Version1.1January2013 31. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comTaxIssuesAllbusinessesarerequiredtopaytaxes,howmuchandwhichtaxesdependsontheprofitabilityofyourbusiness.VATAbusinessonlyhastopayVATifitssalesaremorethan70,000ayear.NothavingtopayVATgivesasmallbusinessanadvantageoveralargeroneasitdoesnothavetochargeanextra20%onitsgoodsorservices.OnceabusinessispayingVATitisimportanttokeepgoodrecordsasitcanclaimtheVATbackonequipment/serviceswhichitbuysin.IncomeTaxAsasoletraderthebusinessownermustpaytaxontheirearnings.IfthebusinesshasanyemployeesitisalsoresponsiblefortakingtheirincometaxfromtheirwagesandpassingittoHMR&C.NationalInsuranceContributions(NICs)NICshavetobedeductedfromanyworkersearnings,alongwiththeirincometax.AbusinessalsohastopayNICsforeachemployee,whichisapercentageoftheirwages.ASoleTraderpaysaflatrateplusapercentageofnetearnings.CorporationTaxLimitedcompanieshavetopaycorporationtaxontheirprofits.31Version1.1January2013 32. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comCustomerService&SatisfactionCustomerservicecanbemorethandealingwiththeinitialsale,itmayalsoencompassdealingwithproblemsorcomplaints.CustomerServiceApositiveexperiencewhenaninitialsaleismadeisgreatcustomerserviceastheywillfeeltheirexpectationshavebeenmet.Customerservicecovers Treatment Thequalityoftheproduct Staffknowledge Stafffriendliness Aftersalesservice ComplaintsproceduresCustomerSatisfactionSatisfiedcustomerstalkabouttheirpositiveexperiences,makerecommendations,writereviewsandingeneralhelpoutsmallbusinessesthroughwordofmouth.Customersatisfactionleadstoaverygood,free,versionofadvertising.RepeatBusinessManycustomerswillbuyagainandagainfromthesamebusiness.Thereareanumberofwaysyoucantryandgainrepeatbusiness. Cheaperprices Agoodonlineexperience Effectivecustomerservice Promotionsforexistingcustomers 32Version1.1January2013 33. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEmploymentAnysuccessfulbusinesswillprobablyneedstaffatsomepoint.Recruiting,trainingandmotivatingstaffcanbeanimportantareathatanentrepreneurisinexperiencedat,ifyouwanttoretaingoodstaffmotivationisveryimportant.RecruitmentProcessTherecruitmentprocesswouldstartwiththecreationofthefollowingdocuments JobDescriptionAnoverviewofthedutiesinvolved PersonSpecificationAdescriptionofthepersonalskillsexpected JobParticularsInformationaboutthebusiness,conditionsofthejobandhowtoapply JobAdvertAshortadvertgivingbriefdetailsandhowtogetfurtherinformation ApplicationFormAformfortheapplicanttocompletewhenapplying(sometimesthisisnot createdbutapplicantsareaskedtosendaCVandcoveringletterinstead)Thejobmaybeadvertisedinanumberofplaces,thejobcentreisafreeoption,localpapersarealowcostoption,oftenjobsareadvertisedonsocialmediatoo.SelectionTherecruitmentprocessoutlinedabovewillhopefullygetapplicantsforthejobandthenextstageofthisprocessistofindtherightpersonforthejob.Oftentherewillbealotofapplicantsandthefirstthingtodoisdrawupashortlistbyreadingthroughtheapplicationsandlookingforthosewiththerightexperience,rulingoutanyonewhoseemstohavenotsoldthemselveswellintheirapplication(poorspelling,impropersentences,lotsofirrelevantcomments).Oncetheshortlisthasbeendrawnupthoseonitcanbeinterviewed.Thefinalstageistotakeupreferencesfromthesuccessfulcandidate.TrainingItisimportanttogivestaffregulartrainingnotonlyonthethingstheydoeverydaybutonareasofyourbusinessthatareoutsidetheirrole,iftheyarewelltrainedtheywillbeabletohelpoutwhenothersareabsentandyoumayalsobeabletopromotefromwithinyourownorganisationwhenvacanciesoccur.Theinvestmentintrainingalsohelpstheemployeetofeelvaluedandmotivatedindeedsomeofthebestmotivatedemployeesdofurthertrainingintheirowntime(maybelearningtousenewsoftware).MotivationMotivationcancomeinvariousformsandifyourstaffarewellmotivatedtheywillperformwellanddevelopgoodloyaltytoyourcompany.Motivationcaninclude Afairwage Goodworkingconditions Informedworkers Empoweredworkers Sympathytowardsfamilyissues Consistenttreatment 33Version1.1January2013 34. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEmploymentLawThereareanumberoflawsthathavetobefollowedinrelationtoemploymentandtherecruitmentprocess.Theselawsareconstantlychangingandbeingupdatedsoitiswisetokeepabreastofthem.DiscriminationEmployeescannotbediscriminatedagainstonthegroundsofage,sex,raceordisability.EqualPayEmployeesmustbepaidthesamefordoingthesamejob.Health&SafetyEmployeesmustbeprotectedfromaccidentsunderhealth&safetylaws.PensionAccesstoapensionschememustbeprovided(althoughatpresentemployersdonothavetomakecontributions).UnfairDismissalOnceanemployeehas12monthsofservicetheyareprotectedagainstunfairdismissal.MaternityLeaveWomenareallowedtimeofftohavechildrenandtheirjobshavetobeheldopen.WorkingTimeDirectiveEmployeesarenotallowedtoworkmorethanasetnumberofhoursperweekMinimumWageTherearecurrentlythreeagedbasednationalminimumwageratesandanapprenticerate,whichareusuallyupdatedinOctobereachyear.Theratesthatapplyfrom1October2012areasfollows: forworkersaged21yearsormore:6.19perhour forworkersaged18to20inclusive:4.98perhour forworkersagedunder18(butabovecompulsoryschoolage):3.68perhour forapprenticesagedunder19:2.65perhour forapprenticesaged19andover,butinthefirstyearoftheirapprenticeship:2.65perhourFullinformationonminimumwagecanbefoundherehttp://www.hmrc.gov.uk/paye/payroll/daytoday/nmw.htm 34 Version1.1January2013 35. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comEconomicContextAllbusinessesareaffectedbyeconomicfactors,nomatterhowsmall.Themostobviousinteractionsareoilpricesandinterestratesbutinrealityabusinessmayalsobeaffectedbyexchangerates,anddifferentstagesofthebusinesscycle.35Version1.1January2013 36. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comSupply&DemandCommoditymarketssuchasoil,coal,electricity,wheat,milketcallaffectadiverserangeofbusinessesSupplyTheamountthatsellersarewillingandabletosellatagivenprice.Thesupplyofwheatforexampleoftendependsonweatherconditions,pests,diseases.DemandTheamountofaproductthatbuyersarewillingandabletobuyatagivenprice,thedemandforwheatisalwaysgreatasitisusedtocreatealotoffoodsandfeedsforlivestock.ShortageIfthereisashortfallbetweensupplyanddemandashortageiscreatedandthepricesrise.SurplusIfthesupplyexceedsthedemandthenthereisasurplusandthepriceswillfallaccordingly.MarketDifferencesAlthoughthepriceofacommoditysuchasoilfluctuateswildlyoveragivenperiodthisisnotalwayspassedontotheconsumer.Inagoodsmarketconsumersexpectpricestostaythesamesoalthoughthechangingpriceofoilwillaffectthecostsofanyproductonashelfpricesarelikelytostaythesame,whichmeanprofitmarginschangeintheconsumermarket.CommodityPrices&PlanningCashflowforecastsshouldtakeintoaccountthechangingpricesofcommodity.Inthewinteroilpricestendtoriseandthisshouldbeaccountedforinanycashflowforecasts,ifoilpricesrise,deliverypricesrisethereforecashflowwillchange.EnergyCostsEnergycostsaffectallbusinesses.Therisingpricesofgas,oilandelectricityaffectusallandbusinessescanbeaffectedevenmoreastheircostscanspiralandleadthemtohavingtoincreasetheirpricesorreducetheirprofitmargins.Manybusinesseshavetoabsorbthecostsofrisingenergypricesforexampleacoffeeshopwillnotincreasethepriceofitslatteeverytimetheelectricitycostsrisealthoughtheyusealotofelectricitytomakethelatte.Deliverycompaniesthoughwilloftenpassonthecostsofdieselrisesastheirprofitmarginsaresmalltostartwith. 36Version1.1January2013 37. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comInterestRatesInterestrateshaveaneffectonallbusinesseseventhosewhohaventborrowedastheywillaffectpricesacrossthewholemarketastheyaffectconsumerspending.Inthecaseofmostsmallbusinessestheyrelyonloansoroverdraftswhichtheypayintereston.Usingbankloansforlongtermcreditandoverdraftsforshorttermcreditaswelookedatwhenwewerediscussingcashflows.TheBankofEnglandTheBankofEnglandsetstheinterestrateforthecountryasitisthecentralbank.ThisisNOTtherateofinterestabusinesswillpayontheirloansoroverdraftsbutthisinterestrateaffectstheratesetbythebanksonloansandoverdrafts.Fixed&VariableInterestRatesTheinterestratechangesimposedbytheBankofEnglandonlyaffectabusinessifithasavariablerateonitsloans/overdrafts.Itisusualforoverdraftstobesubjectedtovariableinterestrates,thereforewhentheBankofEnglandraisesinterestratessodoesthebusinessesbank.Itisusualforloanstobefixedrate,thereforethechanginginterestratedoesnotaffecttheloan.SavingsAsmallbusinessmayhavesavingsthattheywilluseasacontingencyfundintheeventofacashflowcrises.Assavingsearninterestthenthechanginginterestrateaffectstheamountofinterestearnedonsavings.ConsumerSpending&InterestRatesInterestratesaffectconsumerspendingasmanyconsumersarealsoborrowing.Wheninterestratesarehighthenconsumerrepaymentsarehighandtheymayhavelessdisposableincometospendongoodsandservices.37 Version1.1January2013 38. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comExchangeRatesExchangeratesaretheratesatwhichonecurrencyischangedintoanother.Exchangeratesaffectallbusinessesasitisimpossibletooperatewithoutmovingoutsidethedomainofyourowncountry.ForinstanceoilpricesarechargedinUSDollarssothefluctuationoftheexchangeratesaffectthepricesofoilandnobusinessoperateswithoutusingoilinsomemanner.ImpactofaRiseinValueofthePound Firmsexportinggoodswillselllessastheyaremoreexpensive Firmscompetingagainstimportedgoodswilllosesalesastheyareunabletocompeteonprice FirmsimportingmaterialswillseetheircostsfallandprofitsriseImpactofaFallinValueofthePound Firmsexportinggoodswillsellmoreastheirgoodsarecheaper Firmscompetingagainstimportedgoodswillgainsalesastheimportedgoodsaremore expenvsive Firmsimportinggoodswillseetheircostsriseandprofitsfall38 Version1.1January2013 39. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comTheBusinessCycleEconomiesmoveatdifferentrates,therewillbeyearswhentheyriseandyearswhentheyslowdownandthetendencyforthesedifferenteconomicratesiscalledthebusinesscycle.TheEconomyTheeconomyismillionsofpeoplemakingdecisionstobuygoodsandservicecreatingeconomicactivitywithinacountry.Whenpeopleareconfidentaboutthefuture,jobsecurityandtheirpayrisingsteadilyweseeeconomicgrowth.Whentheyarelesssureweseetheeconomicgrowthslowdownandthenifitslowsfor2successivequartersweseearecession.TheEffectonBusinessesDuringaboom(strongperiodofeconomicgrowth)peopleareconfidenttobuygoodsandservicesfromthehighendofthemarket,cars,houses,electricalgoodsetc.Thiscannotlastforeverthoughandtheactivityslowsdownseeinglesspeoplebuyingthesehighpriceitems.Inthisdownturnthemarketforfoodmaynotbeaffectedbutthemarketforluxurygoodsislikelytoshrinkaspeoplecutback.Ifbusinessesstarttosufferandtherearejobcutsthenpeoplemightcutbackevenfurthertoaffectmoreofthemarket.Iftheslowdownbecomesarecessionthensometypesofbusinessaremorelikelytosufferthoseattheluxuryendofthemarket.Risingfromarecessiontakesalongtimesothispartofthemarketwillremainweak. 39 Version1.1January2013 40. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comStakeholdersStakeholdersaretheindividualsorgroupsthathaveaninterestinabusiness.Anybusinessdecisionhasaneffectonstakeholdersbutitcanbedifferentoneachstakeholder.Abusinessmayfaceproblemsmeetingthedemandsofstakeholders.OwnersWanttobesuccessfulsotheycanearnagoodlivingorevensellataprofitManagersWantafirmtobesuccessfulforjobsecurityandagoodsalaryWorkersWantafirmtobesuccessfulforobsecurityandgoodworkingconditionsCustomersWantafirmtogivegoodreliableserviceandaqualityproductatafairpriceSuppliersWantthefirmtocontinuebuyingfromthemGovernmentWantstocollecttaxesandensurethefirmfollowsthelawCommunityWantsjobsprovidedandthefirmtobegoodneighbours40Version1.1January2013 41. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comKeytermsAddedValueTheincreasedworththatabusinesscreatesforaproductApplicationForm TheformanapplicantfillsinwiththeirpersonaldetailsandcareerhistoryBankofEnglandThecentralbankBlueskythinkingParticipantsareencouragedtothinkoflotsofideasaboutanissueor problemBrandAnamedproductwhichthecustomersseeasdifferentfromothersBrandImageTheidea/impression/imagethatcustomershaveinmindaboutthebrandBusinessCycle FluctuationsineconomicactivityoveraperiodoftimeBusinessPlanTheplanforthedevelopmentofabusinessgivingforecastsofcashflow, sales,costsetcCalculatedRiskTheprobabilityofanegativeeventhappeningCash MoneyinthebankCashFlowCashgoingintoandoutofthebusinessCashFlowForecast PredictionofhowcashwillflowthroughabusinessoveraperiodoftimeClosingBalanceTheamountinabusinessattheendofaperiodCommoditiesRawmaterialssuchasoil,wheat,electricity,soyaCommodityMarketsWherebuyersandsellersmeettoexchangecommoditiesCompaniesBusinesseswhoseshareholdershavelimitedliabilityCompetitiveAdistinctiveanddefensibleadvantagethatenablesabusinesstoperformAdvantagebetterthanitsrivalsConsumer ThepersonwhousesaproductCopyrightLegalownershipofmaterialsuchasbooks,music,filmsCorporationTaxAtaxontheprofitsoflimitedcompaniesCreativethinkingComingupwithnewanduniqueideasCumulativeCashFlow Thesumthatflowsintoabusinessovertime 41Version1.1January2013 42. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comCurriculumVitaeAlistofthemaindetailsofthepersonandtheircareerhistoryCustomerApersonwhobuysgoodsorservicesfromabusinessCustomerNeedsWhatthecustomerwantsordesireswhenbuyingaproduct/serviceCustomerSatisfaction HowsatisfiedisthecustomerwiththeproductorserviceCustomerServiceTheexperienceacustomergetswhendealingwiththebusinessDeliberateCreativity IntentionalcreationofnewideasthroughrecognisedtechniquesDemandTheamountconsumersarebuyingDividendAprofitsharegiventoshareholdersDownsides WhatcangowrongwithacourseofactionEconomicActivity AmountofbuyingandsellingoveraperiodoftimeEconomicGrowth RisesintherateofeconomicactivityinaneconomyEconomy TheeconomicactivityofacountryEnterpriseAnindividualorbusinesstakingarisk,showinginitiativeand/orundertakingnewventuresEnterprises AnotherwordforbusinessesEntrepreneurApersonwhoownsandrunstheirownbusiness(es)andtakesrisksExchangeRate ThepriceofforeigncurrencyExportThesaleofagoodorservicetoaforeignbuyerFactoring AbusinessreceivedcashimmediatelyfrominvoicesinreturnforpayingafeeFinancialObjectivesObjectivesexpressedinmonetaryterms,suchasmakingaprofit,earningasetincomeorincreasingwealthFixedCosts CostswhichremainconstantregardlessofsalesFixedinterestRate AratewhichstaysthesameoveranagreedperiodFocusGroup PeoplebroughttogethertodiscussaproductorserviceFranchise TherightgivenbyonebusinesstoanothertosellgoodsorproductsusingitsnameFranchiseeThebusinessthatagreestomanufacture,sellordistributethebrandedproduct/servicethathasbeenlicensed42 Version1.1January2013 43. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comFranchisorThebusinessthathaslicenseditsproduct/servicetobesoldGoods AphysicalproductGoodsMarkets ThemarketforeverydayproductsHMR&C HerMajestiesRevenue&Customs,theauthoritywhichcollectstaxesImportThepurchaseofagoodorservicefromaforeignsellerIncomeTaxAtaxontheincomeofworkersandSoleTradersInflowReceipts,cashcomingintothebusinessInnovationTransforminginventionsintoproductsInsolvencyAbusinessthatcantpayitsdebtsInterestRate TheamountchargedtoborrowmoneyorpaidonsavingsInvention ThediscoveryofnewprocessesandpotentialnewproductsJobApplicant SomeonewhoappliesforajobJobDescription AnoutlineofthedutiesinvolvedinthejobLateralthinkingThinkingdifferentlytotryandfindnewandunexpectedideasLeasing RentingequipmentorpremisesLegislation ThelawLimitedCompany AregisteredbusinesswithlimitedliabilityLimitedliability ShareholdersareliableuptothelimitoftheirinvestmentinthecompanyLoanBorrowingmoneyandrepayingwithinterestLongtermFinance MoneyborrowedorinvestedformorethanayearMarketresearch Gaininginformationaboutcustomers,competitorsandmarkettrendsMarketsegmentPartofamarketcontainingagroupofcustomerswithsimilarbuyinghabitssuchasageorincomeMarketingMix CombinationoffactorsthathelpthebusinessmarkettotheircustomersMarkets WherebuyersandsellersexchangegoodsandservicesMortgageAloanwhereapropertyisusedassecurityMotivationThedesiretodothejobwellandhelpthebusiness43Version1.1January2013 44. IntroductiontoSmallBusiness @KathrynWikicvskev.wikispaces.comNetCashFlowReceiptspaymentsNICsNationalInsuranceContributionsataxontheearningsofworkers&sole tradeshastobepaidbyboththeindividualandtheemployerNonFinancialObjectivessuchaspersonalsatisfaction,increasedworklifebalanceObjectivesOpeningBalanceTheamountinabusinessatthestartofaperiodOrdinaryPartnership TwoormoreindividualswhoownabusinessjointlyOutflowPayments,thecashflowingoutofthebusinessOverdraftBorrowingfromabankaccountuptoanagreedlimitandpayingbackwith interestPatent RegisteredownershipofaninventionorprocessPayments CashflowingoutofabusinessPersonSpecification AdescriptionofthequalitiesexpectedinthepersonwhodoesthejobPersonalSavings MoneythatanindividualhassavedPlaceThewaytheproductisdistributedPriceThepriceoftheproductPriceMakers Firmsthatdictatetheprices(withinthelawofdemand)PricesensitiveWhenthepriceisimportantinthedecisiontobuyornottobuyPriceTakers FirmsthattakethepricesofferedPrimaryresearch GatheringnewinformationwhichhasnotbeencollectedbeforeProductMakingtheproductmeetcustomerneedsProductrangeAgroupofsimilarproductsmadebyabusinessPromotionHowtomarketyourproducttoyourcustomersQualitativedata Informationaboutopinions,judgementsandattitudesQuantitativedataDatawhichcanbeexpressedasnumbersandstatisticallyanalysedQuestionnaireQuestionsaskedtogatherdataReceipts TheflowofcashintothebusinessRecessionNegativeeconomicgrowthfor2successivequarters 44Version1.1January2013 45. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comRecordsPaperbasedorcomputerfilesshouldbekeptofalltransactionsRecruitmentTheprocessoffindingandemployingnewstaffRepeatPurchases PastcustomersmakingafurtherpurchaseRespondentsThosewhoansweredquestionsRetainedProfitProfitkeptbackandusedforfurtherinvestmentRisk AchancethatlossordamagecouldhappenaftermakingadecisionSalesTurnover Incomereceivedfromsellinggoods/servicesoveraperiodoftimeSalesVolume Numberofproducts/servicesoveraperiodoftimeSecondaryresearch ResearchingexistinginformationwhichhasbeengatheredbyothersSecurity AssetsownedbyabusinesswhichareusedtoguaranteealoanServices AnonphysicalproductsuchasabusrideShareApartownershipofabusinessShareCapitalThemonetaryvalueofacompanywhichbelongstoshareholdersShareholders TheownersofacompanyShorttermFinance Moneywhichneedstoberepaidquickly,inunderayearorlessShortage WhendemandisgreaterthansupplySocialEnterpriseAbusinesssetupprimarilytobenefitacommunitySoleTraderAnindividualwhoownsabusinessStakeholderAnindividualorgroupwhohaveaninterestinabusinessStockProducts/materialsthatabusinessholdsSupplier AbusinesswhichsuppliesproductstoanotherbusinessSupply TheamountsellersareofferingforsaleSurplusWhendemandislessthanthesupplySurvey ResearchundertakenbyaskingquestionsSWOT Strengths,Weaknesses,Opportunities&ThreatsTotalCostsBothfixedandvariablecostsTradeCredit Wheregoodsaresuppliedoninvoicetermsandpaidforafterasetperiod45 Version1.1January2013 46. IntroductiontoSmallBusiness@KathrynWikicvskev.wikispaces.comTrademarks Registeredsymbols/signsorfeaturesofaproductorbusinessUniqueSellingPoint Acharacteristicoftheproduct/servicethatmakesitdifferentfromothers(USP)UnlimitedLiabilityThelegalobligationfortheownerofthebusinesstopayoffalldebtUpsidesAdvantagesofacourseofactionVariableCosts CostswhichchangeaccordingtovolumeofsalesVariableInterestRate Aratethatchangesovertimeinresponsetotheratesetbythecentral bankVATValueAddedTaxpaidonsalesVentureCapitalist Anindividualorcompanywhobuysshareswithaviewtosellinginthe longterm 46Version1.1January2013