Industrial Experience Types of Enterprises Industrial Experience

Objectives Define ‘Small-Medium Enterprise’ Discuss and evaluate types of animal enterprises Research specific types of enterprises for upcoming assignment

What is an S.M.E? Small-Medium Enterprise How is it defined? Employee definition Characteristics definition Turnover definition (The Bolton Report, 1972)

Employee definition Dependant on the type of enterprise- e.g. Manufacturing: 200 employees or fewer Construction: 25 employees or fewer Farming: 25 employees or fewer

Characteristics definition It has a small share of the market It is managed by its owners or part-owners in a personalised way Limited investment and resources On-the-job learning It is operated independently (Clarke, 1972) Major decisions are made by one or two people who manage and risk their own money Investments are made usually with owners’ personal money and are therefore limited as opposed to impersonal investors such as shareholders in big businesses. May also be a reluctance to spend money on any resources except bare essentials for short-term obvious returns. Many business owners acquire their business knowledge on the job, and will have devised the business systems based on their own experiences Operated independently- no shareholders, government is not involved, not a branch of larger firm, etc.

Turnover definition Dependent on type of enterprise- e.g. Retail: Turnover of £50,000 pa or less Wholesale: Turnover of £200,000 pa or less Services: Turnover of £50,000 pa or less

SMEs are often... Run by an owner/manager … usually the ‘founder’ Family businesses Other structures, for example …. Venture capitalists / angel investors Consortiums Franchises Venture capitalists: invest money for start-up or expansion but generally want a higher rate of return than more traditional investors- e.g. dragon’s den Angel investors-offer business experience as well as money to a business e.g dragons den Consortium-combination of businesses, investors, etc participating in a joint venture Franchise: owner sells goods under a trademark name. Trademark name takes a % of profits.

It is often said that, when compared with larger businesses, SMEs... Are more flexible Can rapidly adapt to changing markets/environment Are more creative Have a clearer sense of direction Have more ‘drive’ Make better use of teamwork Can you see any reasons why the above may not be correct ?? Some areas of the business may be lacking due to the owners’ experience- e.g. the owner may understand good marketing but on the other hand may lack experience in financial forecasting. Owners may have been in the job a long time- change may be feared- e.g. reluctance to create a website due to good existing customer base (Hunscote kennels) Owners may lack creative skills and therefore need an ‘intrapreneur’ Clear sense of direction is only achieved with regular reviews of missions, aims, objectives and SWOT analysis Teamwork is an attribute of individuals coming together- not all employees may possess these skills and therefore training is needed (which costs time and ££!)

Some areas of the business may be lacking due to the owners’ experience - e.g. the owner may understand good marketing but on the other hand may lack experience in financial forecasting Owners may have been in the job a long time - change may be feared- e.g. reluctance to create a website due to good existing customer base Owners may lack creative skills and therefore need an ‘intrapreneur’ Clear sense of direction is only achieved with regular reviews of missions, aims, objectives and SWOT analysis Teamwork is an attribute of individuals coming together - not all employees may possess these skills and therefore training is needed (which costs time and ££!)

Types of Enterprises Type of Enterprise Who Owns Who Controls Sources of Finance Sole Trader 1 person Owners savings, bank loans, overdrafts, profits Partnership 2+ owners partners Partners savings, bank loans, overdrafts, profits Company 2 to any number of shareholders Major decisions by directors Shares, bank loans, overdrafts, venture capital and profits Franchise Franchisee with license from franchisor Franchisee with guide by franchisor Franchisee’s savings, borrowings, profits Lecture 01 M McNeil

Sole trader Owned and run by one individual No legal distinction between owner and business Unlimited liability Discuss and list some advantages / disadvantages of being a sole trader All profits and losses accrue to the owner, all assets belong to the owner Unlimited liability- all debts are to the owner and they must pay with their personal resources should the business collapse e.g. house may need to be repossessed etc

Sole trader Advantages Easier to set up Owner has full autonomy with decisions Fewer regulations applied (certain taxes wavered) Owner takes all profits Disadvantages Harder to raise capital Solely responsible for all debts Long hours Taxes wavered- double taxation e.g. taxes taken on foreign investment and then again on transferring earnings home

Partnership Owned and run by business partners Share both profits and losses of the business Unlimited liability Discuss and list some advantages / disadvantages of being in a partnership Dividend tax- payments made to shareholders

Partnerships Advantages Debts are shared Work load shared Double the capital can be invested Ideas can be discussed Disadvantages Compromises may need to be made Profits are shared One partner may wish to sell up

Company Can be owned by a number of investors / shareholders Profits are divided between all individuals depending on what % of the business they own Limited liability Discuss and list some advantages / disadvantages of being in a company Limited liability: investors/ shareholders are not personally liable for company losses other than what they have invested. If the company has no profits to allocate then company shares will be worth zero.

Company Advantages Limited liability Easier to raise capital Wider range of knowledge/ expertise Disadvantages Profits are shared between a number of people Conflicts can occur

Franchises Independent owner operates under a trademark The franchisor takes a % of gross profit Franchisor supplies things like advertising, training, etc Owner still ‘owns’ the business e.g. stock, premises, etc Discuss and list some advantages/ disadvantages of being a franchisee Gross profit= sales minus all costs directly related to those sales Net profit= total revenue minus all expenses

Franchises Advantages Alternative way of owning a business Quick to start Guidance with expansion Support with training, advertising, etc. Reputation of trademark already in place Disadvantages No guarantee business will succeed No real control over the business May not be allowed to source less expensive alternative products Conflict between franchisor / franchisee

Enterprise Sectors Primary "Take" - this involves taking resources from the land or the sea e.g. farming Manufacturing "Make" - e.g. pet toys Service "Serve" - providing a service to others e.g. groomers Quaternary Information and office based industry e.g. making computer software Discuss these four sectors and list as many animal enterprises that you can think of Quaternary- differing to manufacturing- e.g. making a product for a manufactured product- usually intangible such as software, data and stats Lecture 01 M McNeil

Task For the business / organisation that you have completed your commercial experience investigate the following: The role of the business within its specific industry and enterprise sector What type of enterprise (e.g. sole trader, company, etc. Location (and how this impacts on the business) Brief history (how it was initially set up and developed) Be prepared to discuss this next lesson. (HINT: Doing this will aid you with your next assignment!)

Reading The article has a veterinary context but the overview of the pros and cons of different business options is relevant to SMEs in general Openshaw, N. (2011) Legal considerations for limited companies. In Practice 33: 482-484