Unit (8)

Why set up?Why do people set up in business?- Independence, people prefer to make their own

decisions rather than being told what to do.- To increase rewards, people setting up their own

business to earn more than if they were working for an employees.

- As a result of redundancy, Redundancy can be used to fund the business.

- Commitment to a product, a business may be set up to sell a new invention, or because of commitment to a product no-one else wants to produce.

- Sometimes people extend their hobbies into a business.

Setting up in business

-To satisfy creative needs, A worker on a production line packing biscuits may be artistic, setting up a business to paint portraits may allow the individual to satisfy these needs.- A person may want to work in a particular job, but can’t find employment, so he may find that setting up their own business is the only alternative to being unemployed.- An employee may be dissatisfied with their job.

Implications :What faces a person setting up their own business?He or she will come up against many problems and challenges.-They way in which the entrepreneur works will be different to that of an employee.- The responsibility for the business would fall on to the owner.- They must be able to come up with new ideas tasks in order of priority.- He must also decide if the task can be done by someone.- People who set up in business talk a bout the lack of time to get things done.

-This puts great stress on their personal and social life and their family and friends.- The entrepreneur must also consider the skills they have and whether they are enough.- As workers are hired, the entrepreneur must develop personal skills to control, motivate and organize the workforce.- The owner will also need to sell himself and the company a skill that is unlikely to be part of his role as an employee.

- If a skill is needed which the entrepreneur does not have he can.( 1 ) Retrain, the owner does not have enough time to attend a course, and available coursed one not always designed for specific needs.( 2 ) Hire full time employees with the necessary skills.( 3 ) Employing a specialist.( 4 ) Find a partner or take over another business this is dealt with later.

Setting up :People who want to set up in a business must follow some steps :( 1 ) They must have a business idea before they can begin.-Ideas can come from many places.( 2 ) To consider whether the business is likely to be a success - If the entrepreneur is sure that the business will be a success, then the can go a head.( 3 ) Planning setting up the business without care feel planning can lead to problems.-It is a devisable to plan the business and take a device before setting up.( 4 ) The entrepreneur must make the final decision of how to set up the company.- Set up it on his own, with a partner or by buying an existing business.

The chances of success :If a business is going to be a success, the entrepreneur must consider a number of factors.( 1 ) The basic a business idea, what business is the person entering, and what will be sold?- It may be better to sell high quality product.- It may be possible to target an audience such as 25-35 years old in a certain income bracket.( 2 ) The market, how many products exist already?-What are the strengths and weaknesses of the competition.- what price can be charged ?- Can the business compete in some other way such as advertising.

( 3 ) People :-What are the main skills needed to run the business?- What skills are needed to manufacture the products?- How workers can be attracted and retained?- How much do you know about the legislation regarding employment?

( 4 ) Finance :- How much money is needed to start up?- How much is available to invest?- How much more will be required before cash flows into the business?

( 5 ) The product or service offered.-Is the product ready for sale?- If not how far has it been developed?- If the idea has not get been developed, is the product ideas safe.

( 6 ) The cost of production :- Is a production cost effective?- The way that the good is produced, location of production organizing the production process and the materials used.- Each of the previous items will affect the cost and speed of production.

( 7 ) Risk, time scale and cost :- What are the main risks involved in the venture?- How can they be reduced ?- Who can help and how?

Planning :- Most firms must plan carefully, what they aim to achieve, and how to do it?- Answering the questions in the last section will help the business to produce a business plan.- Business plan is a statement that outlines the way that the business will achieve it’s objectives.- The business plan is vital and can used to :( 1 ) Gives a clear idea of it’s direction and operation.( 2 ) show a bank or other institution it’s likely position and it’s ability to pay back a loan.( 3 ) Identify problems and deal with them before occur.( 4 ) Highlight it’s strengths and weaknesses.

Who can help and in what way?- There are a variety of organizations that provide help and advice for new businesses.- Advice may take many forms as follows :( 1 ) A specialist.( 2 ) A detailed discussion.( 3 ) Organizations that provide funds.( 4 ) Specialist information an markets.

Where can an entrepreneur obtain help?( 1 ) Individuals :-It may be possible to get advice from people, who have started their own business.-They may be able to point out what they did right and wrong.- Advice about specific skills needed might come from, an accountant, a solicitor, and an insurance adviser.( 2 ) Banks :-Commercial banks provide advice for potential business people.- This ranges from information about sources of finance to helping to draw up a business plan.( 3 ) Training and enterprise councils (TECs):-There are government agencies.- TECs run a special enterprise allowance scheme aimed at those unemployed who want to set up in a business.

( 4 ) Enterprise agencies :- These were created specially by the government to help small businesses.- Most offer free advice on how to start up and run a business.

( 5 ) Other organizations :- The department of trade and industry.- Trade associations.- The federating for small business.- The princes youth trust .- Live sine.

Getting finance :- Where do new businesses find the finance that is needed to buy materials, pay wages ect?- Funds can come from a number of sources.( 1 ) Personal savings or past earnings.( 2 ) Funds from partners or investors.-A partnership can obtain finance from all partners.- Limited companies can raise large a mount of finance.- Investors buy a share of the company by purchasing share.

( 3 ) Credit :-It is possible to buy machinery and equipment and pay for it at a later date or over a period of time.( 4 ) leasing :-A business may decide to lease or hire equipment from a hire company.( 5 ) Banks or other financial institutions.-Banks offer loan and overdraft facilities and charge interest.- Banks often ask for security against a loan, this can be any assets owned by the business.- Banks may ask for a business plan.

( 6 ) Government funds :-There are a variety of grants available from government and local authorities.- This allows firms that do not have security to borrow.- The government guarantees part of a loan.( 7 ) EC Grants :-Are available from both the EC and the government for businesses in certain area.( 8 ) The department of trade and industry.( 9 ) Certain industries can sometimes offer funds for businesses.

How to set up?- Business person must decide, what form of new business will take? And what alternatives are available?( 1 ) Setting up a new business a lone.-The simplest way of starting a business, is to set up a lone.- Sole trader is one form of this type of business.- The owner will have to take all the responsibility and bear all costs.( 2 ) Setting up with others.-One way of avoiding the problems of a sole trader is to set up with others.- Allow the business person to share the load of running and to raise more finance.- It is possible to start a business as a limited company.

( 3 ) Buying a business :-Buying an existing business.- Managers, shareholders or directors may wish to leave one company and sell it to others.- In some cases the business from the shareholders, because they feel the company can be run better.( 4 ) Buying a franchise :-It include a contract between the franchisor and franchisee.- Franchising might be the ideal solution to give a business person more independence.

Types of franchising :( 1 ) Dealer Franchises :-The company (the franchisors) agree that other businesses (the franchisees) can sell their product.- A written agreement between the two will cover areas such as, the back up service of the franchisor, maintaining the image of the franchisor.( 2 ) Brand Franchising :-This is designed to allow an inexperienced franchisee to sell up from scratch.- The franchisor already have a reputation for a product.- It sells the rights of these branded products to the franchisee.- The franchisees are monitored to make sure that the standard is maintained.

The benefits to the franchisor might be :-Using the specialist skills of a franchisee.- The market will be increased without expanding the firm.- Profit or money is guaranteed even if a loss is made by the franchises.- Risks are shared.

The advantages to franchisee might be :-The franchisor might advertise and promote the product nationally.- They are selling recognized product, so the chance of failure is reduced.- Services such as training, and administration may be carried out by the franchisor.

Running a business :- There are many legal and operational tasks must be carried when running a business. ( 1 ) Keeping records :-All transactions must be recorded.-This includes all sales of goods or services, the purchase of all materials, and the payment of all bills.-There are certain records that some businesses must keep by law.

( 2 ) The use of documents :- All transactions should be documented.- When goods and services are bought and sold, a

number of documents are used.(1)An invoice – a document with goods sold on trade

credit informing the purchaser that payment is due on a certain date.

(2)A cash receipt – a proof of purchase given when something is paid for in cash.

(3)A reedit note – a document issued to purchaser when these over paid, allowing credit on future payment.

(4)Proof of delivery, proof that items have been delivered and received at a certain destination.

( 3 ) Tax and insurance :- Part of any revenue earned by a business

must be paid to the government.- Taxation, profits made by a business are

liable for tax.- Value added tax (vat). Business must pay

(vat) on any goods they sell, and they add this on to the price of a good.

- National insurance contributions. Employees must make national insurance contributions to the government and must also remove these contributions from the employees.