IB2170 Starting a Business Lecture 14

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IB2170 Starting a Business Lecture 14

• Getting Started and Trevor Baylis Story

2
ISSUES

• Dimensions of Start up
• Legal Form
• Premises
• Employing People

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ISSUES

• Dimensions of Start up
• Legal Form
• Premises
• Employing People

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Growth of Small Firms
The Entrepreneur
The Firm
Strategy
Source David Storey
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Factors Influencing Growth in Small Firms
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Comparison

• RELATIONAL
• MOTIVATIONAL
• TERRITORIAL
• RESOURCES
• PROGRESSION
• FRAGMENTATION
• Source Nigel Sykes

• EVALUATE OPPORTUNITY
• DEVELOP BUSINESS CONCEPT
• ASSESS REQUIRED RESOURCES
• ACQUIRE NEEDED RESOURCES
• MANAGE AND HARVEST
• Source Stevenson, Roberts Grousebeck

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DIAGNOSTIC
RELEASE
RELATIONAL
PROGRESSION
VISION
MOTIVATIONAL
RESOURCES
TERRITORIAL
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EGG TO BUTTERFLY
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ISSUES

• Dimensions of Start up
• Legal Form
• Premises
• Employing People

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Buying an Existing BusinessBe careful - the
seller just might be more clever or cunning than
you are? Test all assertions - get professional
advice

• Potential advantages
• saves start-up time, costs and effort
• established business with current customers
• less guesswork needed in testing product/service
• previous owner is a source of mis? information
• Potential disadvantages
• market demand may have changed
• name/image may no longer be attractive
• plant/technology/site may be superseded
• stocks may be excessive and/or unsaleable

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Buying an Existing BusinessIn evaluating the
proposal/price

• Reasons for selling
• Earning Power
• Liabilities
• Tangible Assets
• Intangible assets including staff customers
  trademarks, R D goodwill
• A projected business plan with sensitivity
  testing will allow
• you to ascertain the key variables and the effect
  of their
• changing - this does not remove, but it does help
  reduce, the
• risks inherent in the purchase

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Starting a New Enterprise

• For the majority of novel ideas, products and
  services, there will be no choice other than
  starting a new business
• Can go it alone as sole trader or company or
• With others, in partnership, company or
  co-operative

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Forms of Business Organisation

• Sole Trader
• Partnership
• Company
• Co-operative
• A new business should carefully review the pros
  and cons of each type of possible business
  structure

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Sole TraderThe person is the business - there
are no legal or tax distinctions

• Advantages
• easy-minimal formal and legal requirements
• own boss
• keep all profits
• business expenditure set against personal tax
• no public disclosure apart from VAT if
  registered
• no audit requirements

• Disadvantages
• total personal liability including personal
  assets
• lonely
• life of business is life of owner
• all profits taxed as personal income/no tax
  relief on retentions
• no possibility of equity status
• ambivalent status regarding some
  customers/suppliers

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Partnership1980 Partnership Act - Two or more
persons

• Advantages
• easy - no legal requirements
• access to additional finance, skills and
  experience
• no public disclosure
• no audit

• Disadvantages
• high degree of mutual trust needed
• each partner responsible for all liabilities,
  including those of partners dishonesty, unpaid
  taxes etc.
• changing partners/interests brings risks
• death or bankruptcy dissolves the partnership
• partners estate can still be liable after death

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PartnershipThe choice of partners and the need
to produce an effective Partners Contract are
critical

• The contract should define
• profit sharing
• duration
• time off
• responsibilities
• policy decision processed
• withdrawal of capital/valuation
• sleeping/limited partners

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Limited Company

• Defined under Companies Act 1985
• A company exists independent of its owners
• Requires a minimum of 2 persons one of whom must
  be a director
• The name, registered office and auditors must be
  stipulated
• Legal documentation includes Memorandum and
  Articles of Articles of Association, and
  Certificate of Incorporation

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Limited Company

• Advantages
• limited financial liability
• clear legal and management structure
• easier to raise external capital especially
  equity
• existence not threatened by death/bankruptcy
• some potential tax advantages

• Disadvantages
• more complicated to organise
• more expensive to set up
• public disclosure
• audit costs
• directors are employees thus PAYE and NI costs
• limited liability may not be a reality
• company pays corporation tax and owner/employees
  pay personal taxes

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Co-operatives

• Can be set up under Companies Acts, Industrial
  Provident Societies Act 1965 or, more rarely, as
  a Partnership
• Industrial or Worker Co-operatives have increased
  in popularity in the 1980s
• The National and Local Co-operative Development
  Agencies have a promotional responsibility

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Co-operative Principles

• To be registered as a Co-operative, the following
  principles must be reflected in the M AS or,
  for a Society, the Rules
• members benefit from participation not as
  investors
• one member one vote
• interest on shares and loans is limited
• surpluses profits are shared pro rata to
  members participation
• share capital stays at par value
• membership is unrestricted

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Co-operatives

• Advantages
• high level of commitment and control
• job satisfaction
• ideology

• Disadvantages
• difficult to manage, especially growth
• often confused decision making
• erosion of democracy to autocracy
• difficult to take capital gain

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Franchising Definition

• Basically two types
• Product and Trademark
• Business Format
• A franchise is a system of distribution that
  enables a supplier the franchiser to arrange
  for a dealer the franchisee to handle a
  specific product or service under certain
  mutually agreed conditions. In most cases the
  franchisee is given the right to distribute and
  sell goods or services within a specific area.
  The business itself is owned by the franchisee
  and the franchiser is paid a fee and/or
  commission on sales - Hodgets
• A continuing relationship in which the
  franchiser provides a licenses privilege to do
  business plus assistance in organising, training,
  merchandising and management in return for a
  consideration from the franchisee. International
  Franchise Association

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FranchisingProduct and Trademark

• Some examples
• Distribution
• petrol
• soft drinks
• cars
• furnishing fabrics
• Product
• chemical processes eg. Courtelle
• manufacturing processes eg. Float Glass
• Celebrity
• endorsement of products eg. Skiing, tennis

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FranchisingBusiness Format Covers

• Location analysis
• Store development and leasing negotiation
• Store design and equipment purchasing
• Initial employee and management training
• Management counselling
• Advertising and merchandising counselling and
  assistance
• Standardised procedures and operations
• Centralised purchasing
• Financial assistance in establishing the business
• Current market research results

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FranchisingPros and Cons to the Franchisee

• Advantages
• reduced risk of failure
• easier borrowing
• limited capital requirements
• established operation
• access to training and support
• faster and easier start
• scale economies

• Disadvantages
• not your own creation
• loss of independence/autonomy
• shared profits via royalties, fees, etc.
• locked into franchise system
• fixed term contract
• disclosure to franchiser of information
• vulnerable to brand image

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FranchisingAdvantages for the Franchisor

• Less capital
• Less management
• Greater expansion rate
• Better customer service
• Wider geographical spread
• More motivated management
• Higher rate of return on capital

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Franchising Particular Information required

• History and track record of franchiser
• evidence of other franchisees
• Audited records
• Set-up costs
• Provision for training
• Ongoing field support and product development
• Exclusive territory
• Competition
• Term of franchise
• Fees - franchise management service and
  advertising levy
• Operations Manual
• Franchise Agreement
• Exit Terms

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ISSUES

• Dimensions of Start up
• Legal Form
• Premises
• Employing People

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SELECTING PREMISES

• Nature of the business
• Accessibility and location
• Incentives to locate in certain areas
• Professional advice
• Survey
• Size and future plans
• Lease or buy

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ISSUES

• Dimensions of Start up
• Legal Form
• Premises
• Employing People

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EMPLOYING PEOPLE

• Team attributes
• Recruitment
• Responsibilities
• Future

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ALIGNMENT OF TALENT
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BATON PASSING

• THE ENVISIONER,
• ENABLER AND
• ENACTOR (THE 3Es)
• ARE NOW ALIGNED
• AND RELEASE THE
• IDEA TOWARD
• COMPLETION.