Business Start up

Challenges when starting a business

• Owenership type

• How to raise finance

• Production method

• creating a usp

• Employing good staff 

• availability of good staff 

• Availability of good location 

• Marketing 

• Cost of Market research 

Ownership type

What type of ownership will the business have because each ownership structure has different needs and demands in terms of control, ownership, risk liability and tax implications

How to raise finances

Will the business get money from debt such as a long term loan or from equity such as selling shares

Production method 

What production method will be used; Will it be job mass or batch 

This will depend on the type of product being produced, the machinery and staff available and amount of storage space

Creating a USP

A business needs to develop something unique or different to other businesses to make a stand out and gain customers - this can be challenging as there are already so many different products out there in the marker and the business cannot infringe on any patents or copyrights

Employing good staff

The business will most likely need to be staffed so where are you going to get them from and how will you pay them

These staff will probably be currently in employment so how will you lure them to ur business to work for you instead of their current employer

Availability of good location 

The business will need to have a suitable location which will depend on the type of business it is - It may need to be close to customers or suppliers or good infratstructure - setting up a business in a premium location can be very expensive and will hugely impact the businesses costs 

Marketing

There can be a high initial cost for advertising a new product as normally sales are slow because nobody knows the business or their products - so the latter will have to invest a lot of time and money into advertising who they are

Cost of market research

#Firms will need to spend money and time into conducting field and desk research to get important information about the market they are in, their competitors, different market segments and customers

Types of ownership structures

• sole trader

• Partnership

• Private limited company

• Public limited company

Raising finance for a new business

• Owners savings

• Equity capital

• Debenture

• Grants from government

Owners savings 

A new business owner may have saved money in anticipation for setting up a new business so they use their personal savings to start the business 

Equity capital

A new business can be financed by selling shares in the business to shareholders of investors who invest in the business hoping for a return on their investment of good dividends every year this is also called share capital

Debenture

Getting a long term loan from the bank for a large sum of money which will be paid in regular installments over a number of years with interest

Grants from the government

This is money given by the government to business for a specific purpose new businesses can often avail of grants from Enterprise Ireland

Job production 

Producing a single product at a time and is usually customised to meet the needs of a particular customer - when work on one job is finished then the production of the next job can begin

it is when a product is produced as aone off

Advantages of job production

• It is easier to customise and individual product for a consumer

• a problem with one product doesnt necessarily mean that there is a problem with the other ones

• Greater employee involvement may lead to increased satisfaction

Disadvantages of job production

• Workers need to be highly skilled in order to handle the requirements of customised orders in job description - highly skilled workers will get higher paid wages 

• Requires a flexible workforce who are able and willing to carry out a wide range of tasks on one product 

Batch production

• Producing a limited amount of identicle products at the same time such as bread, books, croissants, donuts

• each stage of production will be completed for all the goods in a batch before all the goods move onto the next stage

Advantages and disadvantages of batch production

• More efficient less waste

• Employees do not need to be as skilled as job production

• The average cost of batch production is much less than job production

• More equipment is required

• it requires more efficient management to ensure that efficient planning and control of the larger amounts of produced goods takes aplace

Mass production

The continuous production of large quantities of identicle goods - this process is usually very highly automated with lots of machinery

it is used for goods that need to be produced in large amounts and is unsuitable for the niche market

Advantages and disadvantages of mass production 

• the use of highly automated machines will significantly reduce the production cost over time and se

• Heavy financial investment at the beginning to set up an automated system line and to keep the machiner functioning and the prodcution line flowing

• If there is breakdown in the production line this could potentially cause delays in the production of the goods 

• Staff morale can decline if they feel that their work is repetitive and all just done by machines 

Implicagtions of changing forms of production job to batch

Stock control - it will require a lot more stock control by the business because now they will be producing more products which will need to be sorted increasing business costs

• Investment - the business will need investment in order to install machinery that will allow them to automate the production process

Loss of USP

moving from job production will mean individual products are no longer unique to each customer so the business will have to find a new way to advertise these goods and market them

Implications of changing from batch to mass

• cost demand brand 

Factors to consider before choosing source of finance

Amount of capital needed

A business may be limited in how much capital they can access in some forms for example how much goods they can buy on credit

They may require an overdraft to get a higher amount of capital from the bank

Purpose of finance

Sources of finance need to be matched with uses for example a medium term use like a delivery vehicle should be financed with a medium term loan as opposed to an overdraft

Costs of borrowing

A business should consider choosing the cheapest source of finance available to them given the different terms on offer - the rate of interest is of great importance for the financial cost - the higher the interest rate the higher the overall cost of the finance 

Collaterol required

The business may not have enough assets to provide as security or collateral when borrowing money which can limit the amount of finance they can receive and also limit the sources of finance available

Factors for acessing a loan 

Loan size: Banks will ensure the loan is not too big so that the business casflow will be able to cope with the loan repayments and interest - they would take into consideration the annual turnover and net profits as long as the lenght of the loan 

Purpose of the loan

A bank would want to know what the finance is to be used for would there be a return on investment - they may not issue the loan if they feel it is not gonna be used by something that is profitable

Capacity to make repayments

the ability of the business to make profits will be reviewed by the lending institution - revenues will be compared to costs in a cashflow statement and the current economic climate will also be considered - a business looking to get a loan would also be required to give a business plan outlining predicted profitabilities

Credit history 

The creditworthiness of an applicant is a massive consideration before granting a loan - their credit history and record of paying back loans will be reviewed and any bad debts history a business may have would negatively affect their loan application 

Contents of a business plan

• Ownership

• finance

• market analysis

• marketing

• production

business plan

A written document prepared by the entrepreneur about the business and its objectives - it will cover the business strategies in all different business areas such as ownership, finance, market analysis and production

ownership

• Owners business experience

• owners relevant experience

• description of products and services given by the business

• long term vision of the business

finance

uses for finance (overdraft)

sources of finance

cashflow forecast

collateral that can be used as security for the busines

market anslysis

• Size of the market

• target market is it a niche or mass market

• market research conducted

• industry trends in sales, costs and competitors

Marketing 

• Product whats the USP

• Price such as what pricing strategy the business is planning on using premium ciost plus planning 

• Place where will the product be sold 

• Prommotion - how and where will the product be advertised and marketed to 

Production

• Job mass and batch

• size of the production and location capability

• where raw materials will be sourced

• staff and machinery required for production

• tqm and quality symbols

uses of a business plan

• Raise capital - investors will use a business plan to judge whether or not it is likely to succeed and become profitable- when a new business goes to a bank to request finance they will need to provide a business plan showing what the business will use the borrowed money for 

• Control a business

• future focused

• anticipates problems  a business plan will allow the entrepreneur to be proactive instead of reacting to problems as the arise they can prepare solutions in advance to avoid failure 

Importance of a business plan to other stakeholders

Investors - they see if the business is capable of making a profit and offering a good return on their investment 

Employees

It can confirm to them if the buisness is going tp survive and if whether they have employment security it indicates the business growth or expansion plans which can show paths for employees furthering their career

Suppliers

helps them calculate if the business is viable and and can sustain any line of credit that os offered to them

government

will be insterested if finance or any other form of assistacnce is sought by the business