Running a business
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Running a business. Planning for success. Syllabus - Planning for success. Selecting business opportunities Market research Location Demographics Competition Target markets Selecting the appropriate structure Sole Trader Partnership Private Company Incorporated. Arranging finance

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Running a business

Running a business

Planning for success


Syllabus planning for success

Syllabus - Planning for success

  • Selecting business opportunities

    • Market research

    • Location

    • Demographics

    • Competition

    • Target markets

  • Selecting the appropriate structure

    • Sole Trader

    • Partnership

    • Private Company

    • Incorporated

  • Arranging finance

  • Establishing a new or purchasing an existing business

    • Location

    • Staffing

    • New

    • Established

    • Franchising

    • Equipping


Selecting business opportunities

Selecting Business Opportunities

When identifying opportunities for small businesses a number of factors need to be taken into consideration


Market research

Market Research

  • This involves talking with or surveying potential customers and competitors as well as contacting trade and professional organisations for advice about the business and locations being considered.

  • Obtaining data from the Australian Bureau of Statistics about the demographics of the people in the area.


Activity business opportunities

Activity – Business opportunities

  • Look up Roy Morgan Research www.roymorgan.com.au

    OR

  • ACNielsonAustralia http://www.nielsen.com/au/en.html

  • Write a paragraph outlining the services provided by one of these organisations


Location

Location

  • Where are potential customers?

  • How far are they willing to travel?

  • Does the business need to be in a retail area?

  • Can the business have a base at the entrepreneur’s home?

  • Is the business going to be an internet-based business?

  • How much will the location cost?


Demographics

Demographics

  • Demography refers to details of the size of a particular population and its characteristics.

  • How many people will be able to access the business?

  • How old are they?

  • What gender or ethnic group are they?

  • How much do they earn?


Competition

Competition

  • What businesses will be competing against a new one?

  • Are there more customers than the existing business can cater for?

  • What will attract customers to a new business instead of an established business?

  • Will the new product be cheaper?

  • Will the product be of superior quality?

  • How does the competing business market its product?


Running a business

SWOT

  • SWOT analysis – an assessment of a business’s:

    • Strengths

    • Weaknesses

    • Opportunities

    • Threats

      Activity

      Complete a SWOT analysis of your market day business


Swot layout

SWOT Layout


Target markets

Target Markets

  • Definition – the group of customers to which an organisation intends to aim its marketing efforts.

  • For example the product may be of particular interest to young people such as surfer clothing.


Selecting the appropriate structure

Selecting The Appropriate Structure

What kind of legal business structure will best suit your way of doing business?


Sole trader

Sole Trader

  • Definition – a business with a single owner who is responsible for every aspect of the operation of the business.

  • Examples – hairdressers, plumbers, dentists, video stores

    • Control and manage business on their own

    • Treat income as their own

    • Income tax assessed on owner’s total income

    • Owner personally liable for all debts incurred by the business

    • Ability to borrow money limited by the owner’s ability to provide security for a loan


Sole trader1

Sole Trader

  • Advantages

    • Keep any profit

    • Easy to establish

    • Own boss

    • Provides a sense of personal satisfaction

    • Work the hours they want

  • Disadvantages

    • Unlimited liability

    • Limited access to finance to grow the business

    • Pay income tax

    • Difficult to take time off


Partnership

Partnership

  • Definition – where two or more people share responsibility for the operation of a business

  • Examples – Architects, accountants, lawyers, doctors

    • A partner acting alone in the name of the business binds the other partners to his or her actions.

    • A partner’s income from the partnership is added to his or her income from other sources

    • All partners have unlimited liability for any debts incurred by the business.

    • A partners’ personal assets can be sold to repay money owed by the company.


Partnership1

Partnership

  • Advantages

    • Keep all the profit

    • Share any losses

    • More capital to establish the business

    • Work shared between partners

    • More people to make decisions

    • Easier to borrow money

  • Disadvantages

    • Partners have unlimited liability

    • Partners share the profit

    • Possibility of disagreements among partners

    • If a partner leaves the business the partnership agreement must be renegotiated


Activity

Activity

  • Form a partnership with two of your classmates

  • Decide on a name for the partnership and the type of business you plan to run.

  • Develop a partnership agreement that includes the name of your business and the roles and responsibilities of each partner.

  • Issues to consider – finance, administration, supply of inputs, promotion, production and the distribution of profits

  • Develop a partnership agreement for your market day business.


Companies

Companies

  • Definition – public company – a company listed on the stock exchange. Any member of the public can become a shareholder.

  • Definition – private company – a business that is not listed on the stock exchange and has 50 or fewer shareholders.


Companies1

Companies

  • Characteristics

    • Exists separate from its owners

    • Earns all the profit and responsible for all the debts

    • Individuals become owners or shareholders of the company by purchasing shares

    • Profits the company makes are passed onto owners through a payment called a dividend

    • If a shareholder no longer wants to be part of the company they sell all of their shares.


Company

Company

  • Private Company

    • Limited to 50 shareholders

    • Board of directors elected to run the company

    • Has Pty Ltd or Proprietary Limited at the end of the company name

    • Shares are not sold to the public

  • Public Company

    • No limit to the number of people owning shares

    • Listed on the Australian Stock Exchange and run by a board of directors elected by shareholders

    • Has LTD or Limited liability after its name


Company1

Company

  • Advantages

    • More capital is available

    • Borrowing money easier

    • Liability of shareholders is limited

    • A legal entity

    • Specialised people employed to run different elements

  • Disadvantages

    • Government regulations must be taken into account

    • Limits placed on the board of directors

    • Owners do not have control over decisions made

    • Expensive to set up, maintain and organise

    • Too large and inefficient


Activity1

Activity

  • Find a list of Australia’s top 50 companies in the sharemarket report from the ASX website or a major newspaper.

    • How many of these companies do you recognise?

    • Identify the goods and services provided by the companies you recognise.

    • List the companies and the goods and services they provide.


Incorporated association

Incorporated Association

Forming an incorporated association allows a small non-profit community based group an easier and inexpensive means of establishing a legal entity.

Sell goods and services but profits are returned to the association.

A legal entity that would suit a sporting or gardening club wanting to trade.


Arranging finance

Arranging Finance


Money money money

Money, Money, Money

Starting a business can be costly.

A sole trader has the least costly set up and a company the most expensive.

Leasing equipment or buying through a hire purchase agreement can minimise upfront costs


Finance sources

Finance Sources

  • Private sources – personal savings,

    a loan from family or friends.

  • A bank or finance company in the form of a loan, overdraft or mortgage.

  • The sales of shares to form a company.

  • Suppliers who are willing to be creditors, that is not be paid until the goods have been delivered.


Activity2

Activity

  • Many lenders allow businesses to apply for a loan online

  • Access one of the following sites and evaluate the range of finance available for the small business operator. Present your findings in a table.

    • St George www.stgeorge.com.au/smallbus/

    • Esandawww.esanda.com/business/finance/

    • National Australia Bank www.national.com.au?Business_Solutions/


Establishing a new or purchasing an existing business

Establishing A New Or Purchasing An Existing Business

Location

Staffing

New

Established

Franchising

Equipping


The initial decision

The Initial Decision

Start a business from scratch

Buy an existing business

Buy a franchise


Starting from scratch

Starting From Scratch

  • Characteristics

    • Create something unique and start to market

    • Fill a gap in the market

    • Market demands product or service

  • Advantages

    • No inbuilt problems (a bad reputation)

    • Freedom to set up business as choose

    • No hidden costs (maintaining equipment)

  • Disadvantages

    • Need to establish a good reputation

    • High risk and uncertainty

    • Raise funds to fit shop out and buy equipment


Buy an existing business

Buy An Existing Business

  • Characteristics

    • The price usually includes goodwill

    • Important to know why the business is for sale

  • Advantages

    • Sales generate instant income

    • Stock already acquired

    • Seller may offer advice and training

  • Disadvantages

    • It may be difficult to assess the value of goodwill

    • Some employees resent change to the business operation

    • Success of the business may have been due to the previous owner’s personality and contacts


Buying a franchise

Buying A Franchise

  • Characteristics

    • A franchise is a business for which there is an agreement for the use of a brand name and operating system in exchange for a fee.

    • Franchisors (the business firm that provides the goods, services and expertise for a franchise) have strict requirements to ensure their reputation is upheld by the franchisee (the owner of the franchise).

    • Examples – The Body Shop, Gloria Jean’s Coffees, Sumo Salad


Buying a franchise continued

Buying a franchise continued

  • Advantages

    • Less start up capital needed

    • Owners receive specialised training

    • Advertising costs are shared

    • Advice available from the franchisor

    • Bulk buying can reduce costs

    • Established goodwill and market recognition

  • Disadvantages

    • Range of products sold determined by the franchisor

    • Franchisee levied fees and charges to cover costs like advertising

    • Franchisee little say in how the business is promoted

    • Products must be sourced from suppliers by the franchisor


Activity3

Activity

  • Access the federal government’s Business Entry Point website www.business.gov.au

  • Complete the following:

    • Outline the steps involved in starting up a business

    • What assistance does the site provide for people setting up a business?


Physical location

Physical Location

  • Decisions need to be made about:

    • Proximity to customers

    • Proximity to suppliers

    • Rent costs

    • Size of property

    • Parking

    • Delivery opportunities for suppliers


Retail premises

Retail Premises

  • Range from:

    • Large shopping malls to relatively cheap (often far away from passing crowds) such as small local shopping centres or corner shops

  • Advantages

    • Passing trade may take advantage to make impulse purchases

    • Gives a professional image of the business

  • Disadvantages

    • Cannot always choose own trading hours - may have to operate hours according to mall management

    • Rents & other costs can vary extensively between mall managers (e.g. Stockland & Westfield) and shop sizes


Running a business from home

Running A Business From Home

  • Advisable to keep business in a separate part of the house

  • Best if business involves consultancy on the clients premises

  • Advantages

    • Can be convenient in time and comfort

    • Lowers outlay costs

  • Disadvantages

    • Domestic distractions

    • Lower professional image

    • A sense of isolation


  • Staffing

    Staffing

    • Before commencing operations staffing needs of the business must be assessed.

    • Steps involved in acquiring staff:

      • Designing job descriptions including roles, desirable characteristics, wages and conditions

      • Recruitment

      • Interviewing

      • Hiring


    Staffing costs to be considered

    Staffing Costs To be Considered

    Wages, superannuation, taxes must be paid.

    Staff entitlements like sick leave and

    holidays must be monitored.

    Facilities like toilets and drinking

    water need to be provided.

    Important to be aware of and complying with laws involved.


    Equipment

    Equipment

    • A new business begins with an empty premises. It would only possibly have

      • Toilets

      • A kitchen

      • Light fittings

    • Much needs to be done including:

      • Connecting utilities – electricity and telephone

      • Painting

      • Adding/changing light fittings

      • Laying/changing floor coverings

    • Finally stationary and other equipment to produce or sell the product is required


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