1 Standard Grade Business Management Unit 2.1: How do Businesses Start?

2 In this part of Unit 2 unit you will learn about How a business starts and where to get advice Business risks What is needed to start a business How to prepare a business plan

3 Starting A Business: Business Ideas Source of IdeaExample Developing a hobbyMaking wooden bowls Using your skillsPainting/Drawing/Calligraphy A chance ideaRadio shower Spotting a gap in the market Home Help ie someone to do your housework while you are at work Improving a product or service PlayStation 2 Combining 2 existing ideasFarm and Farm Shop Solving problems for people Independent Financial Advisor Listening to peopleCall Centre, eg Insurance

4 ENTERPRISE An entrepreneur has an idea for a product or service Shows enterprise – develops the product After trying to find out if people want this Product goes into production Product is sold to buyers Hopefully profits will result

5 Entrepreneur Risks Losing all the money invested when starting the business Losing personal assets, eg house, car, buildings No one buying the product/service Not being able to pay debts, eg wages, suppliers, electricity

6 Resources An entrepreneur will use the following resources known as the FACTORS OF PRODUCTION

7 Factor of production - Land LAND The natural resources and the products from them, eg Fish, timber etc. Return to land is rent.

8 Factor of production - Labour Labour the mental and physical effort taken to run the business. –The Return to labour is wages.

9 Factor of production - Enterprise Enterprise The coming up of a successful idea and being willing and able to put the idea into action. This brings together all the other factors of production. Return to enterprise is profit.

10 Factor of production - Capital Capital The money, machinery and buildings needed to Operate the business. Return to capital is interest.

11 What’s in a Business Plan A business plan will: Outlines name and purpose of business Shows how aims and objectives will be achieved within a timescale Drawn up to show Bank Manager – that you are a good risk

12 A closer look at a Business Plan General details about the business –Name –Objectives –Purpose –Location –Type of ownership – sole trader, partnership or limited company

13 What’s in a Business Plan Human Resources –Key people in the business –Skills required –Positions of authority and responsibility –Wages and salaries

14 What’s in a Business Plan The product or service –Nature of product or service to be provided –Quantity to be produced or provided –Price of the product or service –Market research required

15 What’s in a Business Plan The market –The market target (eg by age, sex, income occupation –Size and potential growth of the market –Results of market research –Intentions about advertising and promotion

16 What’s in a Business Plan Premises and equipment –Location of premises –Cost of premises and equipment –Type of premises and equipment –Amount of equipment reauired –Expected lifespan eg 10 years

17 What’s in a Business Plan Profit estimate –Forecast of sales –Costs and break-even points –Projected timescale for profit-making

18 What’s in a Business Plan Capital –Source of initial funding All from owners Partly funded from loans

19 What’s in a business plan Cash Flow –Cash budgets for future period –Expected income and expenditure –Source(s) of income –Scale of loan or overdraft needed

20 Who is the business plan prepared for? A business plan is usually shown to an external agency such as a Bank who, it is hope, is going to lend money to the business.

21 Information and Advice When you have a really good idea for a business, where do you start finding out about how to start your business? How do you go about establishing this idea and turning it into a business?

22 Information and Advice You can get advice from: –Government Agencies, eg Scottish Enterprise –Development Agencies eg PSYBT (Prince’s Scottish Youth Business Trust) –Consultants –Business Partner(s)/Friends/Family

23 Information and Advice You might e able to get money from –Banks, eg overdraft/loan –Government Grant, eg Prince’s Trust –Private loan ie family/friends –Finance from business partner –Credit from suppliers ie buy now pay goods later –Own Capital

24 Other Sources of Finance Trade Credit Overdraft Factoring Leasing and Hire Purchase Loans Mortgages Profit Retention Government Grants Venture Capital Equity

25 Sources of Finance may be Short Term –Trade Credit –Overdraft –Factoring –Leasing and Hire Purchase –Loans Long Term –Mortgages –Profit Retention –Government Grants –Venture Capital –Equity

26 WHAT THE ENTREPRENEUR NEEDS TO KNOW When starting up in business the entrpreneur must be aware of: Legislation which may affect him/her Where consumers will get information if there are problems

27 Protecting The Consumer The Sale of Goods Act, 1979 The Trade Descriptions Act The Weights and Measures Act The Food and Drugs Act The Food Safety Act

28 Advice for The Consumer Trading Standards Environmental Health Citizens’ Advice Bureau Trade Associations, eg BETA Utilities watchdogs, eg gas, water, electricity The Consumers’ Association – they produce Which? magazine