Buscom Short Notes x) Business: Introduction to Small Business TOPIC 1.

1 Spotting a business opportunity 1 Business In the UK there are over 4 million businesses. This is about one business for every 13 people living in the country. Many new businesses are created every year but only a very few survives. Most business are said to close down in three year and a few will exist after five years. What is the purpose of a small business? Businesses exist to make goods and services. Businesses make goods and services. They do this by buying resources such as raw materials, labour and machines and then using them to make products. Suppliers A business which sells/ supplies products to another business. Customers A person/ organisation which buys or is supplied with a product by a business. Consumers The person who ultimately uses/ consumes a product. What is a market? A market is where buyers and sellers meet to exchange goods and services. If you want to start a business there are several things you should think about, like: You have spot a business opportunity There was finance to think about What would you have to buy to get the business up and running? There were the legal aspects to think about. If a business is not making enough profit it is more likely that the business will close down. 2 Understanding customer needs What are customer needs? These are the wants and desires of buyers of a product or the customers a business. Convenient location Reasonable price Good range Good quality Knowledgeable and friendly customer service What is market research? This is the process of gaining information about the customers, competitors and market trends through collecting primary and secondary data. Primary Research This is also known as field research. This involves the collection of primary data information which no one else has collected. x) Surveys Asking respondents (people who reply to questions asked) questions. A list of questions asked is called a questionnaire. x) A focus group This is a small group of people. They are called over to come and talk together about a product or idea. The researcher records the responses. x) Observation Looking and recording how people or businesses behave. x) Experiments Building a prototype to see the reaction to the product.

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Buscom Short Notes x) Secondary Research This is also known as desk research. This involves the collection of information which is already available both from within an existing business and from outside. x) Telephone directory x) Internet x) Local newspaper x) Market reports Qualitative data Information about opinions, judgements and attitudes. Quantitative data data that can be expressed as numbers and can be statistically analysed. 3 Market Mapping Analysing the customer : Who the potential customers might be? What sort of products they would like to buy? What sort of prices the customers are ready to pay for a product? When they would want to use the services of the business? How many times the customers would use the business? Whether you can identify buying habits of potential customers?

What is a market segment? This is a part of a market that contains a group of buyers with similar buying habits, such as: Age Children, teens Gender male or female Income Low, middle, high income Area national company, customers in Scotland Ethnicity White, Chinese, Asian Religious groups Jewish, muslim Socio-economic group working class, middle class, upper class Price sensitive This is when the price is very important in the decision about whether or not to buy. What is a market map? This is also known as a perceptual map or a positioning map. This is a diagram that shows the range of possible positions for two features of a product, such as low price and low quality.

Diagram on page 18

What are market gaps? This occurs when no business is currently serving the needs of a customer for a particular product.

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Buscom Short Notes x) 4 Competition If you are planning on starting up a new business you need to find out more about you competitors, their strengths and weaknesses. This is when you should analyse you competition. These are a few criterias on how to judge your potential competition: =] Product range This is a group of similar products made by a business, like a number of different soap powder. =] Quality =] Design =] Selling experience =] After sales service =] Price =] Brand (brand a named product which customers see as being different from other products and which they can associate or identify with. ( brand image the idea/impression that customers have in their mind about the brand) =] Suppliers 5 Added value What is added value? This is the increased worth that a business creates from a product.( The difference between the total value of sales and what it has to pay for its suppliers. Sources of added value: [= Quality [= Design and formula [= Convenience [= Speed and quality of service [= Branding [= Unique selling point (USP) This is a characteristic of the product that makes it different from other similar products being sold in the market such as design, quality or image. Why is added value important for businesses? Every business must add value to survive and be successful. The higher the added value the more likely the business will survive, grow and be successful in long term. 6 Franchising What is a franchise? This is the right given by one business to another to sell goods or services using its name. Who is a franchisor? This is the business that gives franchisees the right to sell its products, in return for a fixed sum of money or a royalty payment. Who is a franchisee? This is the business that agrees to manufacture, distribute or provide a branded product, under licence by a franchisor.

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Buscom Short Notes x) What are the benefits of a franchise? There are certain advantages to some businesses of using a franchise as the means of starting up a business. Training Franchisees usually receives training from the franchisor. Equipment Most franchises provide equipment to entrepreneurs as part of the total package. Materials to use in the product of a good or service Franchisors typically sell their franchisees some or all of the material used in production. Finding customers Franchisors help new owners through national advertising. They also provide publicity materials such as posters. The brand name of the business will also help the new owner. Back up service The franchise package includes many back up services such as loans and insurance cover. Brand name The new owner does not have to worry about the brand name since the business is already an expanded one and customers are highly aware of the business. Exclusive area New franchise operations are given an exclusive area from which to draw customers. This means the franchises are not direct competition with each other. What are the costs to the franchisee? The average amount of money needed to start up a franchise is around 250,000 according to the British Association. Franchisors charge a fixed sum at the start of the franchise agreement to cover the costs of starting up a new branch. They charge a fee or royalty. They also charge high prices of the products they sell to the franchisee, making a profit on this. Advantages for the franchisee Starting up your own business is very risky. Starting up a franchise reduces those risks. =] The franchisor should select people from those who want to buy a franchise. This eliminated people who are unsuitable for the business. =] The franchisor sets out at the start how much money the franchisee needs to put into the business. =] The franchise formula has already been tested and has been successful. =] Franchisor provides on-going support and can help the franchisee to sort out any problems such as quality control and tax problems. Disadvantages for the franchisee =[ The initial investment can be very high and may not be affordable. =[ The franchisee cannot sell the business without the permission of the franchisor. This limits the freedom of the owner. =[ The franchisor can end the franchise agreement without having to give any reason or pay any compensation. =[ Some franchises are successful than others so it is important to choose the right business. Location Location is very important to the success of any business. The location of the business will depend on what kind of the business it is. It is important that a business is set up at a suitable location.

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Buscom Short Notes x) TOPIC 1.2 SHOWING ENTERPRISE 7 What is enterprise? What is enterprise? It is the willingness by an individual or a business to take risks, show initiative and undertake new ventures. Who is an entrepreneur? A person who owns and runs their own business and takes risks. Enterprises are another name for businesses.

RISK TAKING!!! SHOWING INITIATIVE!!! This means making the first move and making things happen.

WILLINGNESS TO UNDERTAKE NEW VENTURES!!! Starting something new knowing it will be more successful.

8 Thinking creatively Thinking creatively or creative thinking is coming up with new and unique ideas. Developing a unique idea can give a new business a competitive advantage (advantage a business has that enables it to perform better than its rivals in the market) Examples of competitive advantages: =] Have a better product than other businesses =] Have a better way of producing what is makes to lower costs or for better quality =] Give its customers better service =] Be better than its rivals at selling its products to customers =] Come up with an idea or product that is unique =] Use some technology or technique that makes it product or service unique Deliberate creativity is using a range of techniques to stimulate thinking and the production of new ideas.

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Buscom Short Notes x) Lateral thinking is about producing ideas that people would not come up with during their normal day-today lives. It is about creating new and unexpected ideas. It is also described as thinking outside the box. Blue skies thinking is a technique of creative thinking where participants are encouraged to think of as many ideas as possible about an issue or a problem. ( start with an idea or an object or a question) What are Six thinking hats? Blue skies thinking involves putting all ideas down on paper. Six thinking hats in a technique that helps organise and focus those ideas. White Hat thinking about facts. What are the facts about the problem or issue? Red Hat thinking about emotions and gut feelings. Excitement and gut feelings that businesses might now like their idea/product. Black Hat thinking about the problems and difficulties. Looking at things pessimistically at what can go wrong. Yellow Hat thinkgin about the positive aspects. Looking at things optimistically at what can go right? Green Hat creative thinking. It is about lateral thinking. If there is a problem how can you get around? Blue Hat Thinking is thinking about thinking. Finally thinking about all the hats and coming to a conclusion on what to do. 9 Questions to be asked It is important for future entrepreneurs to ask themselves questions. Questions allow them to sort out issues and explore alternatives. It helps to them to get at what is best for the business and for them to see what should stay the same and what should be changed. WHY? Why do I want to make this change? You should think carefully about why you are doing what you are doing. WHY NOT? Why not set up my own car rental business? Think of other possibilities. WHAT? What do you want to do? , What are you passionate about?When setting up a new business you should know why you are doing it and why you chose that particular business. HOW? WHERE? WHEN? This is how to turn ones passion into a real business. Where will I make them and where will I sell them? When could I start the business? How do I set up a business? How will I earn a profit from the business? How will I research my market?

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Buscom Short Notes x) WHAT IF? What if my business loses money? What if my customers do not like my product? What if I fall ill? What will happen if the economy slows down? After asking all these questions an entrepreneur must make his decision, whether to start up his business or not! 10 Invention and innovation How new business ideas come about? Some business ideas are developed by people who use a product. Some business ideas are developed by people who already have a good understanding of their product. They may work for a large company but develop a new idea or their own and start up a small business. Many business ideas are developed by research departments in medium to large companies. What is invention? This is the discovery of potential new products and new ways of making products. What is innovation? This is the process of transforming an invention into a product that customers will buy. RISK inventions and innovations are very risky. Many inventions never get to the point where an actual product is sold. Innovations often lead to failure. PATENTS this is the right of ownership of an invention or process when it is registered with the government. COPYRIGHT this is the legal ownership of material (books, movies, films) which prevents these being copied by others. TRADEMARKS this is the symbol, sign, or other features (name of a business/product) that cannot be copied because it is protected by law. 11 Taking a calculated risk What is calculated risk? This is the probability of a negative event occurring. There are risks and rewards of a new business. In a business plan the entrepreneur must carefully weigh out the downsides as well as the upsides of the business. Downside disadvantages of a course of action, including what can go wrong Upside advantages of a course of action, including what can go right Making mistakes: Even though the business was supposed to be a success it might turn out to be a total failure.

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Buscom Short Notes x) 12 Important enterprise skills There are many skills needed for an entrepreneur to be successful.

EFFECTIVE PLANNING!!! This is vital for success of any business. This will help the business run efficiently. Poor planning will lead to difficulty.

THINKING AHEAD!!! Thinking of what will happen in the future.

SKILLS NEEDED FOR AN ENTREPRENEUR TO BE SUCCESSFUL!!!

SEEING OPPORTUNITIES!!! To get the maximum out of something. Spotting for more ways to make a better profit.

DRIVE AND DETERMINATION!!! Driven in business, being very motivated. Determination is important cause there can always be setbacks. An entrepreneur should be determined to succeed.

(MINDMAP) Making connections one technique that is often useful when planning, thinking ahead and seeing opportunities is to use mind maps (diagram that records words and ideas to the main word). Mind maps are sometimes used in blue skies thinking sessions. This can be helpful in getting an overview of all the different things that businesses have to think about and to see where connections can be made. TOPIC 1.3 PUTTING A BUSINESS IDEA INTO PRACTICE 13 Objectives when starting up There are financial objectives and non-financial objectives. What are financial objectives? These are targets expressed in money terms such as making a profit, earning income or building wealth. Survival: Making sure the business does not close down. Profit and income: Workers are more motivated with they are given incomes and wages. Wealth: A successful business will earn more and become wealthier. Financial security: Owning a business carries risks. What is any loses are made, customers are lost? Therefore this must be a long term objective. 8|Page

Buscom Short Notes x) What are non-financial objectives? Targets expressed, not in terms on money. Personal satisfaction: The owner would feel proud and get a sense of achievement. Challenge: People find it exciting to challenge themselves to create a successful business out of scratch. Independence and control: You can be your own boss and you are in control of what is happening. There is more flexibility. Helping others: Charity work. 14 The qualities shown by entrepreneurs What are the qualities an entrepreneur should have? Determination: should be able to take control of events. The owner should be committed to what he does. Initiative: making the first move. Spotting opportunities early. Being pro-active. Making decisions: Being successful decision makers means being good at making judgments.

Taking risks: They have to be risk takers. Planning: running a business requires planning. They need to be successful planners, they should know what they want to do with their business and have mapped out how they can achieve those objectives. Showing leadership: they should have good leadership skills. Having a vision. Being good at planning and having a gift of persuasion. 15 Estimating revenues, costs and profits Estimating revenues: What is revenue? The amount of income received from selling goods or services over a period of time. Also known as sales revenue, turnover or sales turnover. To estimate total revenue, you should predict: How many jobs you will do ( sales volume- number of items/ products/ services sold by a business over a period of time) What will be the average price that can be charged for each job Total Revenue = Price x Quantity T=PxQ Persuasion: Good entrepreneurs are able to persuade others to do what they want them to do.

Luck: Businesses need some luck to do well.

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Buscom Short Notes x) Estimating costs: What are fixed costs? These are costs which do not vary with the level of output. What are variable costs? These are costs which will vary with the level of output. What is Total cost? All the costs of a business OR Total costs = Fixed costs + Variable costs TC = FC + VC Price, cost and profit: When you earn money, you have to use it to cover up your costs. What is a profit? Occurs when the revenues of a business are greater than its costs over a period of time. What is a loss? Occurs when the revenues of a business are less than its costs over a period of time. Total revenue, total cost and profit: Profit/Loss = Total Revenue Total Cost P/L = TR TC The impact of profits and losses: THIS IS COMMON SENSE!!!! xP 16 Forecasting cash flows Cash is vital for the success of any business. (Notes, coins, money in the bank) What is cash flow? This is the flow of money into and out of a business.

Cash inflow: cash coming into the business.

Cash from the entrepreneur

Loan from the bank

Cash from sales

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Buscom Short Notes x) Why is cash flow important? A business cannot survive without cash. A person who owns a business has bills to pay, employees to give salaries to, and if he does not have the money he wont be able to pay his debts. Insolvent when a business can no longer pay its debts. A business needs enough cash to survive on a day to day basis. What is a cash flow forecast? This is a prediction of how cash will flow through a business in a period of time in future. They can use this to see: How well they should be performing in the near future If action needs to be taken to avoid cash crisis To take to the bank if the business needs a loan to cover a shortage of cash

Total receipts- Cash coming into the business Total payments Cash going out of the business Net cash flow = Total receipts Total payments Opening balance cash balance at the start of the month Closing balance = Net cash flow + Opening balance The closing balance becomes the opening balance of the next month (Cumulative cash flow) Cash flow problems that a business might come across... The cash flow forecast might show a loss or a period that the business will run out of money. BUT owners can take action by: Increasing sales revenue Reducing costs Putting more of his own money into the business or getting a bigger bank loan What affects cash flow? 1) Sales can change 2) Costs can change 3) Credit terms can change (trade credit where suppliers give customers a period of time to pay a bill once the good/service is delivered) 4) Stock level can change (stocks material that business holds) How can a business avoid cash flow problems? Careful planning might help. GET IT Get help and support of the bank and investors Ensure market structure is thorough Thoughtful cash flow planning may avoid problems Investigate where you can help with spreading payments more evenly Track the actual cash flow against the forecast before it becomes a problem

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Buscom Short Notes x) 17 The business plan What is a business plan? This is a plan for the development of a business giving forecasts of items such as sales, costs and cash flow. What is the purpose of a business plan? It would help to think of all aspects of a business and just aspects like design and computers. It would help to make a forecast of cash flow which will help to reduce the risk of the business failing in its first couple of years in operation. It would also help to see if the business stood a chance of being successful. What should be included in a business plan? Name of the business, brief history, location, legal structures What equipment would be needed and its costs What premises would be needed Who would supply the business Production methods of the business How the service could be marketed Cash flow forecast for the first 12 months The product Sources of finance

Business plan

18 Obtaining finance When starting up a business you should always prepare a business plan. Then you should raise the money to start up and run the business. What is long term finance? Sources of money for businesses that are borrowed or invested for more than a year. Share capital the momentary value of a company which belongs to its share holders Loans Borrowing a sum of money which has to be repaid with interest Retained profits Profit which is kept back in the business and used for investment in the business Leasing Renting equipment or premises Grants amount of money given to businesses by the government. Money does not have to be repaid and there is no interest

What is short term liability? Sources of money for businesses that may have to be repaid either immediately or fairly quickly. Bank overdraft Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged. 12 | P a g e

Buscom Short Notes x) Trade credit A time period given to the customer by the supplier before the supplies have to be paid. Factoring Where a business is able to receive cash immediately for the invoices it has issued from a factor, such as a bank, instead of waiting for 30 days. TOPIC 1.4 MAKING THE START- UP EFFECTIVE 19 Customer focus and the marketing mix

Identifying needs: What the customer wants from the business

Customer focus
Meeting customer needs: indetifying and anticaipating customer needs is not enough. Businesses have to meet those needs Anticipating needs: understanding what the customer wants in advance

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Buscom Short Notes x)

The marketing mix

Price: product must reflect the value the customers place on the product

Product: The product sold must meet customer needs

Promotion: Giving knowledge about the product

Place: having a product available to customers where they want it, when they want it

The marketing mix is different for each business and for each industry! 20 The importance of limited liability Who is a sole trader? The only owner of a business which has unlimited liability. Also known as a sole proprietor. Unlimited liability - a legal obligation on the owner of a business to settle all debts of the business. Sometimes he might have to use his personal belongings to do so. Private limited companies have limited liability. This means shareholders are not personally liable for the debts of the company. The most they can lose is the value of their investment in the shares of the company. What are the differences between private limited companies and sole traders? Risk Limited liability is less risky Control Sole traders have more control of the company Profits - Sole traders get to keep all the profit Privacy Private limited company accounts are recorded by the government but no one has a right to see the accounts of a sole trader. 21 Start up legal and tax issues BUSINESS NAME : There are two main ways you have to think about in doing this The name should be usually different from the name of any other business. You cannot choose the name of an established business which carries a trademark. The name should promote the business.

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Buscom Short Notes x) KEEPING RECORDS: What are records? Evidence of what has happened in the past. Her Majestys Revenue & Customer (HMR&C) - the government authorities in the UK responsible for collecting tax The tax a business has to pay depends on: The amount of sales it has over a year Whether or not it employs any workers Whether it sets up as a sole trader or a limited company TAXES ON BUSINESSES: =P VAT (Value Added Tax) This is a tax on the value of sales: paid to the government. =P Income tax This is a tax on the value of income earned by workers. =P National Insurance Contributions (NICs) This is a tax on the earnings of workers. =P Corporation tax This is a tax on the profits of limited companies. 22 Customer satisfaction What is customer service? This is the experience that a customer gets when dealing with a business. Important points about customer service: It must be convenient to use the service Orders must be dispatched as quickly as possible and always on time Orders must be 100% accurate. If they are not, this will cause customer dissatisfaction If there are any complaints about the service, they must be dealt with immediately and the business should be always very polite to their customers What is customer satisfaction? This is a measure of how products can meet customers expectations. What is repeat business or repeat purchase? Orders or sales that occur from customers who have bought the product or service in the past. BY: Cheaper prices An easy to use website with fast ordering and quick payment methods Effective customer service through fast deliveries Promotions aimed at existing customers 23 Recruiting, training and motivating staff Application: =] Job advert Advertising the job. It gives a brief description of the job and the sort of skills and experience it is looking for in an applicant =] Job particulars Gives information about the business and about the job. What is expected of a job applicant. =] Job description sets out what the person appointed on the job will have to do =] Person specification This is a description of the sort of person who would be suited to the job =] CVs and Application forms - a document to be filled with personal details Selection: Choosing someone to fill a job. Potential workers are shortlisted. Then they are called for an interview.

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Buscom Short Notes x) Training staff: On- the- job training: Training workers in the workplace as they work Off- the- job training: Where workers are taken away from their work to be trained. Skills and attitudes of workers are important in recruitment and training. What is motivation? The desire to complete a task and meet the needs of the business consistently. A business can motivate its workers by: Pay its workers a fair wage Provide decent working conditions Keep its workers informed about what is going on in the business Give workers as much power as possible Be sympathetic about requests for time off due to family and other problems Be consistent in how staff is dealt with The law: Appointment and training of staff Workers cannot be discriminated against on the basis of age, sex, race or disability. Protection at work The law says workers must be paid the same for doing the same job. For example, female workers cannot be paid less than male workers for the same work. Leaving work Workers are protected from unfair dismissed by law. They cannot lose their jobs without a good reason. Other rights Impact on laws can be greater on small businesses than in larger firms. For example, women can take time off to take care of their children and their jobs have to be held open. TOPIC 1.5 UNDERSTANDING THE ECONOMIC CONTEXT 24 Demand and supply What are commodities? They are raw materials such as oil, coal, iron ore, wheat and soya. What are commodity markets? Where buyers and sellers meet to exchange commodities (examples of commodity markets, London metal exchange and New York Mercantile Exchange) What is demand? The amount consumers are willing and able to buy at a given price. What is supply? The amount sellers are willing to offer for sale at any given price. What are goods markets? Market for everyday products such as clothes, food and petrol. The prices of normal goods are more stable than the prices of commodities. Businesses have little control over the price they have to pay for many of the raw materials they have to buy. The prices are determined on international markets. For small businesses the largest single cost is paying wages to employees or paying yourself a wage. 25 The impact of interest rates Banks charge interest on the money they lend out. Interest is the price that has to be paid to borrow money. 16 | P a g e

Buscom Short Notes x) What are interest rates? It is the percentage reward or payment over a period of time that is given to savers or paid by borrowers on savings and loans. Bank of England is the central bank for the UK. What are variable interest rates? Interest rates that can change over the lifetime of a loan depending on what is happening to the other interest rates in the economy. What are fixed interest rates? Interest rates that stay the same over an agreed period of a loan. If a business has loans, a change in the interest rate can increase or decrease the cost of and thus affect the cash flow. Changes in interest rates influence decisions by consumers about what they buy. Interest rates decrease = increase in sales Interest rates increase = sales slow down 26 The impact of changes in exchange rates What are exchange rates? Price of buying a foreign currency. To convert pounds to a foreign currency, multiply the amount of pounds by the rate. To convert an amount in a foreign currency to pounds, divide by the rate. 27 The impact of the business cycle What is an economy? All the people and businesses in a country that engages in buying and selling. What is an economic activity? The amount of buying and selling that takes place in a period of time. What is economic growth? Rises in the rate of economic activity in an economy. What is business cycle? Fluctuations in the level of economic activity over a period of time. Recession a situation when the level of economic growth is negative for two successive quaters. 28 Business decisions and stakeholders

Owner
Manager

Suppliers

Stakeholders
Th e local community

Workers

Government

Customers

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Buscom Short Notes x)

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