Definition of a business plan: A report describing the marketing strategy, operational issues and financial implications of a business start-up.
Benefits/Purposes of a Business Plan:
- To help the entrepreneur set clear objectives
- To guide the entrepreneur towards strategies/actions needed to meet these objectives
- To encourage entrepreneurs to think plan through thoroughly therefore increasing likelihood of success
- To persuade lenders to invest capital in to their business by demonstrating why they are likely to succeed - banks will require a business plan to look at before giving bank loans or overdrafts.
- Can aid the overall running of the business as the working document can be used to monitor progress and progress can be reviewed regularly.
Disadvantages of a Business Plan:
- Weaknesses must be recorded for accuracy.
- Plans often underestimate start-up and operating costs.
- Overly optimistic on potential.
- Competitor information can be too vague.
- Overly optimistic in financial forecasts.
- Do not always allow for delayed payments or bad debts.
Contents of a Business Plan:
1. Details about the business
Includes: Name, Location, Legal structure of business, Trade Description
2.Personal Information
Details of the owner and those managing the business.
Includes Their: CVs, skills, experience, financial commitments, training, staff
3. Objectives
Must be SMART (Specific, measurable, agreed, realistic and time-bound)
4. Marketing Plan
Shows: The gap in the market, Results of market research, Market analysis (e.g. type, size), Pricing strategies, USPs, competitor details, details of potential customers, promotional/selling techniques
5. Production Plan
Includes: How goods/services will be made, day-to-day practical details of activities involved (e.g. materials, staff, equipment, capacity)
6. Fixed Assets
e.g. Premises and Equipment
7. Financial Forecasts
Includes: Sales and Cash-flow Forecasts, Projected profit and loss account, balance sheet for 3 years, breakeven.
8. Finance Needed
Includes: How Much?, When?, What form?, How it will be used, forecast speed of repayment/rate of return on investor's capital.
9. Collateral
What security is being offered? How much is it worth?
10. Long term Plans
11. SWOT Analysis
How the business intends to build their strengths, exploit their opportunities, reduce its weaknesses in order to overcome any threats.
Here is an example of a SWOT Analysis below:
Sources of information for a business plan:
- Market Research
- The owner's business experience
- Bank managers for financial advice
- Accountants for financial advice
- Local enterprise agencies
- The Prince's Trust - offer help and funding for entrepreneurs aged 18-30 and those over 50 respectively
- Business Link - a government funded service that provides general advice and support to start ups.
Q: Explain how any start-up business might benefit from an organisation such as Business Link. (5)
A: Any start-up business might benefit from an organisation such as Business Link as they provide information, advice and support needed to start, maintain and grow a business. They can help with making your business plan. This would be very beneficial as the business may not have large teams or all the skills necessary to plan and run a business. Business Link can also help you to raise finance by providing information on loans and grants that they may be able to access. They can also give you advice about the most appropriate bank accounts to open, information on trademarks and advice on exporting etc.. They can also support you when you are going to meetings with your bank managers as the advisors will accompany you to these meetings.
Points of analysis when discussing the importance/helpfulness of a business plan:
Clarifying Objectives=
- Clarifying objectives is important because otherwise you would not know if you have made any progress.
- Can compare progress against targets allowing you to see if business is succeeding or failing.
- If they fall short of an objective then action can be taken to rectify the problem.
- Objectives can give direction.
- Objectives can allow you to monitor the company to check it is on track, its employees and the departments.
- Clarifying objectives could be seen as a waste of time as you do not need to write it down to know your objectives.
Bank Loan=
- You have to have a GOOD business plan in order to gain a bank loan. Could they still set up the business without the bank loan? Would the business have succeeded without the bank loan?
-The bank loan can help expansion. Leading to more customers, more revenue.
- You could argue that bank loans are not essential as you could use other sources of finance like your own savings.
Thinking Plans through thoroughly=
- Allows business to think through their plans thoroughly and so reducing risks.
- SWOT analysis can help to make improvements, expand, find opportunities etc...
Overall=
- Depends on the size of the business
- Elements of the business plan are vital for future success of the business.
- Key to success is not the business plan but how well the entrepreneur implements their business plan.
- Other factors influence its final success
Key Terms:
- Resources/Inputs - the elements that go into producing goods and services.
- Factors of Production - The categorisation of the resources used to convert inputs into outputs, into four distinct elements: Land, Labour, Capital and Enterprise.
- Production - The process whereby resources (factors of production) are converted into a form that is intended to satisfy the requirements of potential customers.
Factors of Production:
1. Land
Natural sources used in production.
Examples: Land, mineral resources (e.g. coal and gold), livestock and fish
2. Labour
Physical and mental effort involved in production, including all types of jobs.
Example: Manual effort in producing finished goods, accountants, window cleaners.
3. Capital
Capital means goods that are made in order to produce other goods and services.
Examples: Machinery, Lorries, Factories, Computer systems, shelving.
4. Enterprise
The act of bringing together the other factors of production to create goods/services.
Carried out by the entrepreneur - who makes decisions and provides the finance.
Improving the efficiency of factors of production:
- Improve the fertility of the land (e.g. use fertilizers)
- Use renewable/recyclable resources -> Reduces waste
- Better education and training of workforce -> to gain greater output from each employee
- More investment in capital equipment -> Higher quality capital can improve speed of production
- Improve entrepreneurial skills and a willingness of entrepreneurs to take risks
- Extend overall scale of production -> lead to greater efficiencies (such as bulk buying)
The Transformation Process
Purpose of a business: To provide goods or services.
Key Terms:
1. Primary Sector: Those organisations involved in EXTRACTING raw materials
- e.g. farming, fishing, forestry and the extractive industries, such as oil exploration, mining and quarrying
2. Secondary (manufacturing) Sector: Those organisations involved in PROCESSING or refining the raw materials from the primary sector into finished or semi-finished products
- e.g. paper mills, oil refineries, textile manufacturers, food processors, vehicle manufacturers
3. Tertiary Sector: Those organisations involved in PROVIDING SERVICES to customers and to other businesses, in either the public or private sector.
- e.g. education, health, hairdressing, retailing, restaurants, leisure services
Outputs
- A restaurant is an example of a transformation process that produces goods and services.
- Production can lead to undesirable outputs (e.g. pollution and waste) or unacceptable processes (e.g. the exploitation of child labour) as well as the goods/services.
- Firms are being held responsible for these outputs through pressure groups, consumer actions and government laws and regulations.
Feedback
It is the final part of the transformation process. Feedback of information is used to adapt the process in the future to meet customer needs.
Q: Why is the tertiary sector largest in the UK?
A: This is because as economies develop, the tertiary sector tends to grow faster than the secondary sector. As the UK is a wealthy country, the desire for more services increases.
Adding Value
This is how output is measured.
Key Terms:
1. Value added: Sales Revenue - Costs of materials, components or services.
2. Adding value: The process of increasing the worth of resources by modifying them.
Q: How can GBK achieve higher levels of added value than McDonalds?
A:
- Good Quality
- Restaurant environment
- Relaxed atmosphere
- Healthier
- Trendy
- Branding
These are the 4 main sources of IDEAS for entrepreneurs:
1. Spotting trends and anticipating their impact
For example: Innocent Smoothies, Primark, Nintendo Wii
2. Identifying a market niche
For example: Red Letter, Gift Experiences, Tangle Teezer, Curved Nail File, Build-a-Bear Workshop
3. Copying Ideas from other countries
For example: Starbucks, Pink berry (Frozen Yoghurts)
4. Taking a scientific approach
For Example: Dyson's cyclonic cleaner, Dreamliner Aeroplanes, Apple
Gap in the Market
Definition: Is a business opportunity that is either a completely new idea or adds something different to an existing product or service.
Market Niche
Definition: A small segment of a larger market.
Franchising
Definition of a Franchise: Is when a business (the franchisor) gives the right to supply its product or service to another business (the franchisee).
Types of Franchise
1. Business format Franchise
- The franchisor grants the franchisee with a licence to another person/business to use their business idea (often in a specific geographical area). The franchisee sells the franchisor's products/services and trades under their trade name/trademark. The franchisee also gain help and support from the franchisor.
Example: McDonalds, Subway
2. Distributorship and dealership
- It sells the products but does not trade under the franchise name. This gives the franchisee more freedom over how their business is run.
Example: In car sales a particular showroom may be the main dealership for Toyota cars.
3. Agency
- Where the franchisee sells goods/services on behalf of the supplier/franchisor.
Example: A Newsagent
4. Licensing
- Where the right to produce and sell a product is given.
Example: Microsoft Office, Mickey Mouse
Advantages of a Franchise to the Franchisee:
- Lower Risk than non-franchisees - 93% of franchises are profitable after 5 years and have higher chance of success
- Established brand name - Proven track record of success
- Helps to attract finance from banks - Because of proven reputation
- Franchisor provides marketing and other services - Lowers advertising and promotional costs.
- Training provided by franchisor
- Franchisee usually has monopoly in local area - Has exclusive rights to be the only one of that franchise in the local area.
- Suppliers usually organised by franchisor - Also has an established relationship making it easier to manage.
Disadvantages of a Franchise to the Franchisee:
- Fee to franchisor and so higher start-up costs - Including: Initial cost and on-going fees (Royalties).
- Franchisor fee may also lower profit margins
- Reputation may be adversely affected by other franchises
- Less independence- Restrictions on how it is run, can't make changes to the market or make decisions.
- Have to sign non-competition clauses - means the franchisee cannot set up a similar business for a significant period of time.
Advantages of a Franchise to the Franchisor:
- Regular flow of income from the franchisee
- Risk shared with franchisee
- Expansion paid for by franchisees
- Rapid growth of franchise is possible
- Franchisor can retail a high level of control
Disadvantages of a Franchise to the Franchisor:
- Reputation may be adversely affected by actions of franchisees
- Can be expensive to monitor franchisees
- Profit from franchisor's idea is shared with franchisees
Protecting a Business Idea
1. Copyright
- Legal protection against copying authors, composers and artists.
- Owner can charge licence fees or royalties on the material.
- Material could be: Books, sound recordings, films, computer programs etc...
- Governed by the: Copyright, Designs and Patents Act 1988
2. Patent
- Can be applied for to prevent others copying an invention.
- The Copyright, Designs and Patents Act 1988 gives patent holders the monopoly (sole producer) the right to use, make, licence or sell the invention for up to 20 years after being registered.
- Full drawings must be submitted to the UK Intellectual Property Office (UK-IPO)
Benefits:
- No close competition for 20 years and so the owner has the monopoly.
- Can be an attractive proposition for a large firm to obtain the patent/ for an investor.
Consequently it can generate: Higher sales, sell at higher prices and patent holder can receive revenue from selling the rights to another firm.
But...
- Expensive
- Takes a long time to apply for and to protect a patent
- Preventing other firms using your patent = high legal costs
3. Trademarks
Definition: These are signs, logos, symbols or words displayed on a company's products or on its advertising, including sounds or music, which distinguish its brands from those of its competitors.
- Registered at the UK Intellectual Property Office (UK-IPO)
Benefits:
- Provides an image that is instantly recognisable to customers.
- Creates a USP by differentiating a product from its competitors
- Makes it easier to launch new products by using widely recognised trademark.
Welcome to Biz Nest!
I am going to begin posting about Unit 1 (BUSS1): Planning and financing a business.
This is AS Business Studies, with AQA exam board.
Chapter 1 - Enterprise
Key Words:
Business-
An organisation that is set up to provide goods and services to customers in return for payment. Often, the main aim of the business will be profit.
Enterprise -
Almost any business or organisation can be called an enterprise, but the term usually refers to the process by which new businesses are formed and new products and services are created and brought to the market.
Enterprise Skills -
Skills that allow an individual or organisation to respond effectively to changing market situations. They include problem solving skills, thinking and acting innovatively and creatively, and understanding the importance of risk and uncertainty.
Entrepreneurs-
Individuals who have an idea that they develop by setting up a new business and encouraging it to grow. They take the risk and the subsequent profits that come with success, or the losses that come with failure.
Reasons for failure:
1. Lack of finance
2. Poor infrastructure
3. Skills Shortage
4. Complexity of regulations
What is 'Opportunity Cost'?
Definition: The next best alternative forgone, i.e. the next best thing that you could have chosen but did not.
IT IS THE DECISION THE ENTREPRENEUR DID NOT MAKE.
Example: The opportunity cost of setting up a business might be the wage from their old job that an entrepreneur gives up.
Why be an entrepreneur?
1. The Government encourages entrepreneurial skills and enterprise (We did this in school - enterprise day)
2. The country has seen an increase in wealth. This gives people more business opportunities and it also means there is less risk.
3. Things are changing quickly, this allows for constant new opportunities to be available.
4. People now want more independence at work - to be your own boss.
5. A drive to make money
6. A desire to make use of a skill/talent you possess in a useful and profitable way
7. An attempt to provide employment or wealth to the local area.
How do Governments support enterprise/entrepreneurs?
