SBDE212LEARNING UNIT 2

ROUTES TO A NEW BUSINESS

New business – creation of a business with a business idea that has not previously been used

Start ups – starting of a new business but not necessarily a unique business idea

Franchising – standardised product. Advantages of marketing, promotion etc. Disadvantages in terms of standardisation

Outright Purchase – purchase of an existing running business

ROUTES TO A NEW BUSINESSBuy in – Part purchase , existing owner sells

a section of their businessBuy-out – purchase where the buyer is in

some way already connected with the business

MAIN TYPES OF BUSINESSManufacturingRetailingServices

MANUFACTURINGCharacteristics The process and methods employed in

the transformation of tangible inputs (raw materials, semi-finished goods or subassemblies) and intangible inputs (ideas, information, know how) into goods and services.

Example Handicraft to hi-tech, e.g. clothing, packaging, electronics.

Advantages Intellectual property can be registered. Disadvantages  

Can be labour intensive. Requires sophisticated equipment/

technology. Success determined by efficiency. Raw materials can become scarce.  

Resources required Capitals, skilled human resources, inputs, know how, safety requirements.

RETAILINGCharacteristics Retailing consists of the sale of goods or merchandise from a fixed

location such as a kiosk, shop, or by post in small or individual lots for direct consumption by the consumer. Retailing may include subordinated services such as delivery. Consumers may be individuals or businesses.

Example Stationery store, Spaza shop, hardware store, mail order clothing and appliances.

Advantages   Purchase goods ready for resale in large quantities from

manufacturers, wholesalers or importers and then sell smaller quantities to the end user at a profit, therefore little or no technical expertise required.

Able to negotiate with suppliers. Usually situated near to readymade markets.  

Disadvantages   Goods may be perishable. Much competition. Customers can be fickle in their tastes and preferences.  

Resources required Capital, warehousing, ordering and delivery systems, customer-centric employees and sales staff.

SERVICESCharacteristics  

The supply of “intangible goods” or services to individuals or businesses.

Usually with ancillary products.  

Example Interior decorator, career counsellor, public relations business, real estate agent, pest control service provider, builder, web designer, editor.

Advantages   Tends to have low overheads. Return on investment is relatively high with little

or no need to manage stock in most cases. Little capital required to commence business.  

Disadvantages   It can be difficult to market a service, as there is

no product to view or handle (with the exception of service business such as food outlets).

Many service industries are highly regulated, e.g. financial advisors, estate agents.

 

Resources required Technical or professional know how, usually relatively little capital requirements, customer-centric employees.

INDIVIDUAL EXERCISECreate a visual representation of the ground rules for a service business (p34/35/36 in module manual)

TYPES OF BUSINESS ENTITYTwo categories:-

Profit making

Non-profit making

NON-PROFIT COMPANIESA company incorporated for public benefit

relating to community or group interests including cultural or social activities.

There is no profit motive and the income and assets do not belong to and cannot be distributed to its members or any other person, i.e. manager or treasurer.

PROFIT COMPANIES

Two categories:-

1. Companies that have no restrictions to selling of their shares on open market

2. Companies that have restrictions on the transferability of their shares and are prohibited from selling shares to the public

PROFIT COMPANIESProfit companies may take on one (1) of the following forms:

Public Companies; Private Companies; Personal Liability companies; State-owned Companies.

CLOSED CORPORATIONS (CC’S)CC’s registered before 1st May 2011 can continue to operate as legal entities

After this date no new CC‘s can be registered

PARTNERSHIPS

An association of between two (2) and 20 people who are contractually bound (Partnership Agreement) to one another to operate a joint, profit generating business.

Each partner contributes money, goods or services to a fund, agreeing that any profits made will be shared among them, as per the Partnership Agreement.

SOLE TRADERSThe owner is the sole employee,

contributing the capital, receiving accrued income but also liable for the businesses debt and taxes.

INDIVIDUAL EXERCISERevision questions p37 module manual