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According to First Research, a Dun & Bradstreet firm, the global market research industry
produces about $50 billion in annual revenue.
Quality, professional market research helps you to ask the right questions for your business.
Good market research reports will use a mixture of primary and secondary research to provide
accurate information and conclusions.
Primary research is information gathered through surveys, interviews and other direct contact
with industry experts and participants. For example by contacting industry leaders and
canvasing their opinions.
Secondary research is information gathered from company reports, trade association
documents and industry journals, and published market research reports.
It is a good plan to carry out both Primary and Secondary research. Then you should check out
competition and assess your potential consumer base. This should give you a fair idea of the
viability of your business.
If you commission professional advice, you can expect a report that will cover the following
points;
Context/Background: This is a review of the recent history of the market; how it has
developed into its current size and shape. It will also consider the market in the context of
factors such as the economy, social and cultural changes, globalization, and technology, and
consider how these factors are affecting the market.
Detailed Market Data: While context and analysis are critical, this section will look at
Trend Analysis: This will look at what the data indicates about the health of the market
and opportunities for future growth. It should cover emerging markets, and new forms of
competition.
An understanding of the market potential should be gained from the information above. The size
of the market and its possible growth will determine the viability of opening up a business in the
sector.
So from this report, or from your own research, you should be able to consider the following
types of questions.
Assume your intended business is selling potted plants:How many people buy potted plants?
What is the market value?
What is your cost price?
What is the likely gross profit you could make selling a potted plants?
How many potted plants must you sell to run a successful business
Is this a realistic number for your business model?
Is the market already saturated or near saturation?
Can you enhance your business model-for example can you offer other products, services, sell
online, open other outlets?
Market research should answer key questions, expose risks, and will probably throw up other
questions. Professional analysts who study markets, products, industries, sectors, and
consumer demographics are trained to provide unbiased factual information, clearly stating the
risks associated with a market.
If you plan to conduct your own research rather than commissioning a professional Market
Research project, be careful that you dont seize on information and data to back up what you
are hoping to find that your business is a great idea!!
But take care to be open to market realities and factors that may even enhance your business
plans. Keep a look out for niche markets that may present better opportunities than mainstream,
where there is more competition.
Carefully assess market factors. There are many factors which can affect the size of a market
and its pace and direction of growth. They include:
competitors do not?
Finding customers is the most difficult part of running a business. But without them you dont
have a business, so do some demographics research as well, to establish who your customer
is.
Make sure you know as much as possible about who will be buying from you.
For example, if youre marketing to consumers:
Knowing the answers to these questions will help you promote your business much more
effectively.
Then you need to consider marketing and advertising .How will you attract consumers attention,
get them to purchase your product, and come back to you for repeat purchases.
Some of the more common advertising routes include Websites, Social networking sites (such
as Facebook), Radio, Television, E-mail marketing, E-bay, You Tube, Internet, magazines,
newspapers. Trade magazines, Forums and Billboards.
Social media advertising, blogging, and use of other online social forums, has rapidly become
one of the biggest platforms on which to advertise your business.
What type of advertising will work best for your business depends on who you are trying to
reach, your budget, and your product. You need to find the most cost effective method for you.
All of this information will be valuable in formulating your business plan, which we will discuss in
another lesson. Having all this information at your fingertips will give you an edge over your
competitors, an understanding of your client base and will improve your businesses chances of
survival.
Most people starting a new business will need to develop a formal business plan
in order to access finance. But actually it is a very good discipline in itself to have an up to date
business plan, whether you are starting a business, or have been trading a while. If you use a
good template it will force you to go through the whole rationale for your business, look at every
aspect of it, and examine or re-examine it in terms of likely profitability -which for most people is
the objective.
Once you have a plan, it is relatively simple, and a good discipline, to review each year and
check you are still on track. Your management team can review short, medium and long term
objectives. You will also be asked to submit a business plan regularly if you have successfully
accessed funding from a bank or investors.
When banks and other financial institutions are considering a loan application, they will be
looking for businesses that have good cash flow management, a strong balance sheet, a sound
business plan, a well-balanced management team, a good business record, and who are
looking to develop and grow. A business plan is a key first step.
Also if you make an application for a grant or any other State Aid, they will inevitably ask to see
your business plan. It is always easier to update an existing plan that to start from scratch.
As always there are several different formats, none of which is right or wrong. A good small
business plan defines exactly what you want to achieve and how you plan to achieve it.
As a minimum your small business plan should clearly state:
You may also consider including the mission and objectives of a business, development plan,
market strategies, competitive analysis, operations and management structure, employee need
and financial details.
Many banks will have a template you can use, and there are free templates available on the
Internet.
The format I like to use is to have a cover page listing contents, like this example. These are the
sections I like to use, you can use what suits you best.
Download an example Business Plan
Click Here;
Example Business Plan
Executive summary.
Although this will be the first section in your plan, it is easiest to write it last, as with all
summaries.
Introduce the company, its geographical location, provide an overview of product and market,
legal status and sector
Clarify your vision, objectives and aims.
Mention planned launch date.
Then, depending on the reason for writing the plan, you will probably mention the rationale for
the funding you are seeking whether it is start-up funding, working capital, or for an expansion
plan.
Summary of Background
Provide some background. Explain why the business was established, its history to date, what
the goals are and how you plan to get there. Are you looking for steady growth or fast
expansion? Why do you need to expand, or secure more capital?
Business Environment
Start by describing your business what does it do and what makes it different from rivals?
(USP)
Business background
Operations
Go to Market Plan
Investment
Projected sales (different income streams with their own line of information)
Cost of sale, Rent, rates, utilities, insurances, fuel, loan repayments, salaries, any other
Company Structure
The Company structure you select for your business is critical. It influences the
Directors personal liability, the ability to raise funding, impacts the liability for tax and the
paperwork required. Learn which structure is the best for you, as we review the different types
of company structure, and the advantages and disadvantages of each.
Partnership
Limited company
The limited liability company (LLC)
Limited liability partnership (LLP).
Employee ownership
Not for profit
Charity
Sole trader
The most basic structure is the sole trader or proprietorship, which usually involves just one
person who owns and operates the business. You have complete control over your business
and make all the decisions.
If you decide to start your business as a sole trader but later decide to take on partners, you can
reorganize as a partnership or other entity.
The tax aspects of a sole proprietorship are simple. The income and expenses are included on
your personal income tax return. This means that any business losses you suffer may offset the
income you have earned from other sources.
The disadvantage is that you are personally responsible for your companys liabilities. As a
result, you are placing your assets at risk, and they could be seized to satisfy a business debt or
a legal claim filed against you.
Raising money may be difficult. Banks and other financing sources may be reluctant to make
business loans to sole traders, so you will have to depend on your own financing sources, such
as savings, home equity or family loans.
Partnership
If your business will be owned and run by several people, structuring your business as a
partnership may be right for you.
Partnerships can be general partnerships or limited partnerships. General partners are liable for
all debts and obligations of the company, limited partners can contribute capital and are not
liable for debts and obligations over that amount as long as they do not receive back their
contribution or take part in the management of the business.
Limited partnerships are more complex administratively; a general partnership is much easier to
form.
One of the major advantages of a partnership is the tax treatment. A partnership does not pay
tax on its income but passes any profits or losses to the individual partners.
But personal liability is an issue if you use a general partnership. General partners are
personally liable for the partnerships obligations and debts. Unless the partnership agreement
forbids it, each general partner can act on behalf of the partnership, and may take out loans and
make decisions that will affect and be legally binding on all the partners.
Partnerships are more expensive to establish than sole proprietorships because they require
more legal and accounting services.
The corporate structure is more complex and expensive than most other business structures. A
corporation or limited company is an independent legal entity, separate from its owners; it has to
comply with more regulations and tax requirements.
The biggest benefit for a business that is incorporated is the liability protection. A corporations
debt is not considered that of its owners, so if you organize your business as a corporation, your
personal assets are not at risk.
A corporation can retain some of its profits without the owner paying tax on them. However
many banks and finance companies will often insist on Directors offering personal guarantees
for business loans.
Limited companies or corporations can be privately or publicly owned.
It is also easier for a public corporation to raise money, by selling stock to raise funds.
Corporations do not depend on the involvement of named partners but can continue to trade,
even if one of the shareholders retires, dies or sells the shares.
Disadvantages are higher costs, and more complex rules and regulations. You will probably
need the services of accountants and lawyers.
Another drawback to forming a public corporation is the tax situation. Companies pay corporate
income tax but earnings distributed to shareholders as dividends are taxed as personal income.
However salaries and compensation are paid before corporation tax.
A shareholders agreement can provide for and deal with other important issues, including:
Although these points can be included in the companys articles of association, most of them will
not be included by default on the incorporation of a company, so would need to be amended.
The articles of association is a public document and any provisions included would be subject to
company law, limiting the scope of bespoke provisions.
The shareholders agreement is a private document, enforceable only between the parties. This
affords flexibility to tailor the provisions according to personal requirements and circumstances.
The parties exit strategies should be considered when drawing up these documents, and may
be factored into agreements.
Employee ownership
Employee ownership is becoming a popular alternative business structure for start-ups seeking
employee commitment, long-established businesses dealing with a succession challenge, or
new forms of public service delivery vehicles.
In the UK, employee ownership already contributes more than 30bn each year to GDP.
Growing interest in this form of business structure in both the private and public sector led to a
10% increase in the number of employee owned companies created in the UK in 2012.
Economic competitiveness and high performance are a feature of employee owned business,
which tend to have higher productivity, greater levels of innovation, better resilience to economic
turbulence and more engaged workers than externally owned organisations. Shares in
employee owned businesses have significantly outperformed those in the FTSE All-Share Index
over the last 15 years.
The implementation of employee ownership can be simple and straightforward. The costs of
creating an employee owned business from the outset or achieving an employee buyout are
modest compared with other types of company formations or mergers and acquisitions.
Building a structure that creates a genuine sense of ownership amongst employees is one of
the considerations when selecting the model.
Other issues to be considered include;
These companies can exist in a range of formats from social enterprises, trades unions, public
arts organisations, community interest companies, voluntary and community organisations,
independent schools, faith groups, housing associations, friendly societies, and mutual
societies.
They must be registered and approved by the relevant governing body and abide by their
regulations. Because they broadly exist for public benefit they are usually eligible for a range of
income and property tax exemptions.
Whatever option you choose for your structure, the name you choose for your business should
reflect the image you want to project to your market. Select one thats easy to pronounce and
remember. And make sure that its not already in use, that it is available as a web address and
will work on your business stationery
Directors Duties
Company Directors have responsibilities which include ensuring that the company trades
lawfully and complies with all legislation and regulation.
Their responsibilities are a series of statutory, common law and equitable obligations owed by
members of the Board of Directors to the organisation that employs them.
Statutory and regulatory responsibility varies in different jurisdictions, but there are a number of
similarities in the framework for directors duties.
While this system works well in many countries, some countries have a weaker culture and
tradition of enforcing these values, and a greater cultural tolerance for conflict-of-interest.
Judges may be less likely to review transactions to decide whether they are fair to minority
shareholders.
As a director of a limited company, you have a duty to try to make the company a success,
using your skills, experience and judgment. You must also follow the companys rules, make
decisions for the benefit of the company, not yourself, and declare to other shareholders if you
personally benefit from a company transaction or contract.
The board of directors of a company is primarily responsible for:
The Chief Executive Officer, or Managing Director if there is no CEO, is responsible for the
performance of the company, in line with the Boards overall strategy. He or she reports to the
Chairman or Board of Directors.
The first directors of a company are appointed at the time of its registration. Subsequent
appointments are governed by the companys Articles of Association or Shareholders
Agreements.
On appointment a new director will be asked to provide certain personal information for
registration. They will normally give notice of any interests in contracts involving the company
and their interest in the companys shares.
A newly appointed Director should make themselves familiar with the companys Memorandum
and Articles of Association, details of the business e.g. recent board minutes and management
accounts, and the statutory reports and accounts for at least the past two years.
The Directors are responsible for the management of the company within the relevant legal
system and the articles of association. For example, articles of association may include
restrictions on borrowing by the company.
The directors must act collectively as a board but the articles usually allow the board to delegate
powers to individual directors as appropriate.
Directors need to be aware that they are personally subject to statutory duties in their capacity
as directors of a company. In addition the company, as a separate legal entity, is subject to
statutory controls and the Directors are responsible for ensuring that the company complies with
them.
In the UK the Companies Act 2006 sets out seven general duties of directors which are:
to act within powers in accordance with the companys constitution and to use those
powers only for the purposes for which they were conferred
to promote the success of the company for the benefit of its members
to exercise independent judgment
to exercise reasonable care, skill and diligence
to avoid conflicts of interest
not to accept benefits from third parties
to declare an interest in a proposed transaction or arrangement
In the UK these statutory duties are interpreted in accordance with previous case law which
remains relevant.
In addition to the seven general duties listed above, a director will be subject to other regulation
and legislation including the Insolvency Act 1986, the Company Directors Disqualification Act
1986, the Health and Safety at Work Act 1974 and the Corporate Manslaughter and Corporate
Homicide Act 2007.
Directors may be liable to penalties if the company fails to carry out its statutory duties. If they
had reasonable grounds to believe that a competent person, such as another director or third
party, had been given the duty to see that the statutory provisions were complied with, then they
may use that as a defence.
Another responsibility of the directors is to ensure that the company maintains full and accurate
accounting records. A balance sheet and a profit and loss account for each financial period must
be presented to shareholders and filed with the Registrar of Companies.
Directors are personally liability, both civilly and criminally, for their actions or omissions, when
directing the company. They can also be disqualified from acting as a director of a company,
and can in certain circumstances be made personally liable for the companys debts.
They also need to ensure Health and Safety at Work is complied with and can be charged with
Corporate Manslaughter and Corporate Homicide. If a director is found guilty of these acts or
omissions they can be fined and imprisoned and disqualified.
You can ask other people to manage some of these things day-to-day. For example, an
accountant can manage your accounts for you but youre still legally responsible for them
What are potential investors looking for in a company? They want to see
research and establish the potential risks and returns involved in investing. Do you know who to
approach for finance, and how? What do they expect from you, what are the legal issues, what
documentation will you be expected to sign? Should you offer personal guarantees or other
security?
Nearly every business being launched will require some investment capital. If you can rely on
savings or family and friends for seed financing that is a great start. Many banks and investors
will expect to see that you and your family have invested in the venture.
But, most entrepreneurs will need additional financing to get a business started.
Check if there are any starts up or support grants in your area.
If you have a business idea that could benefit from an injection of capital, the most usual
financing route is Banks or venture capitalists. Angel investors are becoming more common,
and crowd funding is a growing source of investment.
Investors will expect you to check carefully what you are committing yourself to. So if you are
not clear what something means, ask for clarification. Be clear at the outset about any strings
attached to the finance that are mentioned in the documentation. Ask for a detailed term sheet
early on in the process.
They may ask for personal guarantees or other security, and may set financial covenants. You
should be wary of using your home as security, and be sure covenants are achievable and
clearly understood.
Crowd funding is the current alternative trend in raising finance. While banks are still reluctant to
offer competitive finance, small businesses are searching for alternative sources of investment.
Similar to Angel Investment, Crowd Funding is a way of raising finances by selling part of your
equity. The main difference is that instead of there being just one investor, you sell your
investment idea to a crowd.
The success of Crowd Funding has disrupted the investment business, giving entrepreneurs the
opportunity to access funding from the masses, without the usual upfront fees. The winners
seem to be those with the highest social capital or largest database. It demonstrates the value
of trusted relationships and an engaged network.
Business investors want to put their capital behind exciting new projects. Many are finding that
more traditional forms of investment are showing very poor returns. They appreciate that with
new businesses sometimes an exceptional Return on Investment (ROI) is achievable. Some
enjoy the spirit of adventure.
All of them will be successful business people in their own right, they are often strong-willed,
determined, dedicated and hard-nosed. These days it is as much about the entrepreneur
choosing their investor as the other way around.
So check that your chosen Crowd Funding platform complies with the relevant authorities, or
you could put your business and yourself outside the law.
Be aware that investors will want to see some detail of your business before investing. This
could leave your idea vulnerable to copying, so when you are drafting your business pitch for
potential investors, provide enough information to attract attention and interest, without giving
any vital information away. Then, when potential investors come forward, ask them to sign a
NDA (non-disclosure agreement) before you provide further information.
A common error Entrepreneurs seeking additional investment often make is underestimating
their funding requirement. Then when the finance is agreed and provided, they may find that
they need more capital. This can be very damaging to the relationship with the investor and will
leave you short of funds to complete your plans. So ask for a little more than you think you
actually need so that you have a reserve or contingency fund.
If used properly, Crowd Funding can be more successful than sourcing the full investment
required from a single individual or organization. But make sure you have done your research
and taken precautions to protect your business and yourself.
Profitability is important in the long run; in the short run, cash flow has to be
carefully managed to avoid running out of cash and potentially being forced into liquidation.
What processes can you put in place to manage the situation, what tools are available? Learn to
forecast when the business may run out of cash and take preventative action, in the form of
chasing payments, speaking to your bank manager, or raising a private injection of cash.
Inability to stay on top of cash-flow is a common downfall of companies who can then no longer
cover their required outgoings such as salaries, rent, or raw material supplies.
Running out of cash is the reason for the majority of companies being forced into liquidation.
Although profitability is important in the long run for a company, in the short run, cash flow has
to be very carefully managed.
It is important to ensure that you have a regular payment run with processes that are set up
correctly. If you dont send your invoices out to the right contact, at the right time and chase
payment when appropriate, you will probably not be paid on time. Remember to allow time for
the payment to clear in the bank as well.
One of the biggest problems for Small and Medium Enterprises (SMEs) is that many large
companies are increasing their standard payment terms, which are sometimes up to 90 days.
Smaller companies may have no option other than to wait for payment.
Know how much it is going to cost to run the company over the next 6 months.
Carry out regular cash-flow forecasts. This will vary according to your business, but weekly is
probably a good idea if finances are shaky. The tricky part is predicting payments accurately for
the current week, and future sales. Plan expenses carefully, and be aware of what has to be
paid regularly, as well as one off payments.
Review this every week or month and look at your actual position against your budgeted
position. If you are not on target, then find out why and do something about it. Are payments
late? Do you need to call and chase payment? Are you buying stock at the right price? Are you
making your profit margins on sales?
If your accounting records are well maintained, this becomes a relatively simple task. They will
give you a base for your calculations, combining the sales you believe you will have, and the
costs you know are likely to occur.
By doing this you are able to see clearly when the business may run out of cash and take
preventative action, in the form of chasing payments, speaking to your bank manager, or raising
a private injection of cash.
Some tips:
Unless you are dealing with your State Department, consider debt protection. It will cover you if
a suppliers business fails, but check prices carefully. Sometimes cost are prohibitive and
outweigh benefits.