1. Business Management Unit 2 2.1 How do Businesses Start?

2. 2 Unit 2.1 How do Business Start? In this unit you will find out about:  Why businesses start  Buyers and sellers  Help for business start-ups  Markets and market research  Risks for new businesses  Business Plans

3. 3 Today you will find out … click here for enterprise video click here for startup video

4. 4 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 marketHome Help ie someone to do your housework while you are at work Improving a product or servicePlayStation 2 Combining 2 existing ideasFarm and Farm Shop Solving problems for peopleIndependent Financial Advisor Listening to peopleCall Centre, eg Insurance

5. 5 Enterprise Entrepreneur has idea …develops it… …after doing research to find out if people want it… …product goes into production… …sold to buyers… …resulting in profits – hopefully!

6. 6 Buyers CCustomers CConsumers TThe person who “buys” the product, but does not use it. RRaw materials SSemi-finished goods CCapital goods LLabour TThe person who buys the product and uses it. AAll businesses “buy” something

7. 7 Sellers AAll businesses “sell” their products/services at a price that gives them a profit.

8. 8 Factors of Production - LAND Farmland – crops,animals Buildings – land needed for housing, businesses Water Coal-mining to provide heat

9. 9 Factors of Production - LABOUR Labour is physical and mental effort. People who use mental effort include:  Teachers  Bankers People who use physical effort include:  Assembly workers, eg a car production line  A baker – mixing of ingredients to make bread and cakes

10. 10 Factors of Production - CAPITAL Capital is the money and the things that can be purchased with money to make and sell goods and services.

11. 11 Factors of Production - ENTERPRISE Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success

12. 12 Help! – where to get MONEY  Bank manager – loan or overdraft  Family and friends  Redundancy money  Savings  Grant from Government or others eg Princes Trust  Finance from business partners  Credit from suppliers (buy now, pay later)

13. 13 Help! – where to get ADVICE  Local council  Bank manager  Government development agencies  Princes Scottish Youth Business Trust  Business partners  Consultants

14. 14 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

15. 15 Ways of Identifying/Minimising Risk  Market Research  Calculating break-even  Careful budgeting  Preparing a Business Plan

16. 16 Why do Market Research It will tell you…  Is there demand for the product – will people buy it?  What price will people pay?

17. 17 Break-even calculation Break even point is where costs are exactly equal to revenue (income) – there is no profit or loss Break-even point A business organisation will need to plan in advance the break-even point so that it knows how many sales it must make in order to be able to pay for all its own costs

18. 18 Budgeting  Careful budgeting ensures all expenses can be paid  Keep reserve in case of unexpected expenditure  Many small businesses experience problems with cashflow, ie ensuring the business has enough cash coming in to pay for immediate needs

19. 19 Business Plan  This document outlines the objectives of a business and allows the bank, for example, to see if sufficient planning has been done  Click here for video Click here for video

20. 20  Premises and equipment – location, cost and type of premises; equipment required and cost  Profit estimates – forecast of sales, breakdown of costs  Cashflow – cash budgets for future, expected income and expenditure, source of income, loans/overdrafts required  Capital – source of funding eg loans, grants etc GGeneral details - name of business, ownership and objectives HHuman resources – key people, skills, wages/salaries TThe product/service – nature and quantity of product, price, market research TThe market – target market (age, sex, income), size and potential growth, market research results Sections of the Business Plan are …

21. 21  A business plan is a report by a new or existing business that contains all of its research findings and explains why the firm hopes to succeed. A business plan includes the results of market research and competitor analysis. Analysis is when a business interprets information.  Drawing up a business plan forces owners to think about their aims, the competition they will face, their financial needs and their likely profits. Business plans help to reduce risk and reassure stakeholders, such as banks.

22. 22 General DetailsGet Ahead, 12 Cut Lane, COMB G23 5TH The businessSole Trader Product/ServiceHaircutting, styling, manicure service The MarketLocal – men, women, all ages No other hairdresser within 2 miles Advertise in local papers and shops PersonnelOwner and junior Qualified hairdresser, junior in training ProfitEstimated at £1,500 per month Cash FlowAll payments by cash – no credit. Monthly payment of stock and other bills FinanceOwner’s contribution - £10,000 BorrowingNone required SIMPLE BUSINESS PLAN FOR GET AHEAD

23. 23 What is a Market? €Outdoor market €Shopping mall €High street shop €Ice-cream van €Housing market €Banks/mobile banks €Mail order €Dispensing machine €Door to door eg Avon €Telephone sales €TV shopping channels €Internet €Cash dispensing machines A market is a way of selling goods and services to buyers. How many different types of markets can you think of? If people buy products/services in quantity, there is a market. A market requires buyers and sellers

24. 24 What is Market Research A new business starting up, or an established business launching a new product can be risky…  Consumers may not want the product  They may not like the price charged  They may find it difficult to locate the product Having information in advance by doing market research can reduce such risks

25. 25 Questions Market Research Might Answer  What would be the likely level of sales?  Do consumers have particular feelings about some aspect of the product eg the colour of a car, the taste of a toothpaste, the packaging on biscuits and sweets, the name of a washing powder?  What is the likely future trend in this market?  Is there any scope for selling in different parts of the country or in other countries?  What might happen if the price was altered in future?  Is there scope for advertising and if so where and in what form?

26. 26 Primary Research (Field Research) This method of research involves going out into the “field” and finding our information that you want through the use of: Questionnaires Observations Test marketing Consumer panels/ Focus Groups

27. 27 Questionnaires these can be face-to-face, by post or over the telephone. Usually only a sample of people will be chosen to take part in the survey Observations where possible customers are observed to note their reaction to advertisements, new displays etc Test marketing by launching a product in a limited area to gain reactions and sort out teething problems before tackling a wider market Consumer panels/ Focus Groups To interview a group of people and gain their reaction to the possible introduction of the new product

28. 28 Primary Research (Field Research)  Advantages  Collected for your own use and purpose  First-hand, you have collected it  Disadvantages  Time consuming  Expensive  Might not be accurate

29. 29 Secondary Research (Desk Research) This method of research involves using information which already exists: Looking at previous sales figures for the company Customer suggestion boxes/complaints Investigating what the competition are doing Government Statistics, eg household income and census information Published market research information, eg Mintel. Where information is gathered about a specific market, eg alcopops Quality newspapers/magazines, eg market trends

30. 30 Secondary Research (Desk Research)  Advantages  Cheaper  Quicker and easily obtained as it already exists  Disadvantages  Relates to old data  Might not know the reason/purpose for the research  Biased towards reason/purpose collected

31. 31 Market Segments A market will be divided into “segments” of the different types of customers that buy the product/service. For example  Sex/Gender – Male/Female – products directly produced for females or males  Age – eg Pampers, teenage magazines, SAGA holidays  Income – people who can afford the latest gadgets when they first come onto the market (socio-economic groupings A, B, C1, C2, D and E)  Where they live – eg garden centre who specialise in plants for the local area

32. 32 Market Segments  Lifestyle – eg Halal meat (speciality butcher for beliefs and religion)  Family - Centreparc  Over the last few years some business organisations have had to look at their market and re-organise to take into account that the population are living longer and we are becoming an ageing population. (continued …)

33. 33 TO SUM UP, DO YOU KNOW …  Why people set up a business  Who are buyers and sellers  The 4 factors of production  Land  Labour  Capital  Enterprise  How to get financial help for setting up a business  How to get advice on setting up a business  What risks are involved in starting a new business and how avoid them  What are the different types of market  What is Market Research  Different types of Market Research – field and desk  What is Market Segmentation