Business Planning Yr 11 Preliminary Course Part 2 The focus of this topic is: The processes of establishing and planning a small to medium enterprise What we will cover …the Syllabus  Students learn to  Examine contemporary business issues  Investigate aspects of businesses using hypothetical situations and actual business case studies  Prepare a small business plane  Students learn about  Small to Medium Enterprises (SME’s)  Influences in establishing SME’s  The business planning process  Critical issues in business success and failure The 4 main topics in business planning are: Small to Medium enterprises (SME’s) ✔ Completed Influences in establishing SME’s The business planning process Critical issues in business success and failure Part 2 in this topic Small to Medium enterprises SME’s Influences in establishing SME’s  personal ✔ Completed qualities  taxation The business planning process Critical issues in business success and failure Influences cover… Personal qualities  qualifications, motivation, entrepreneurship, skills, gender, background Sources of information  professional advisors, Government agencies, other sources The business idea  identifying opportunities, Finance  Sources, cost, requirements Legal considerations  Registrations, zoning, health regulations, trade practices Human resources  Skills, costs considering the competition Establishment options  Starting , buying an existing, a franchise Market considerations  good/service, price, location, online Taxation  Federal, state, local “Learn the Lingo” first! Using your text book find the meaning to these words, write it in your workbook Term Definition Entrepreneurship Business Opportunity Competition Market analysis Debt finance Bank overdraft Mortgage Equity finance Trade Practices Act 1974 Goods & Services Tax (GST) Its function is to protect both consumers and businesses in Australia. Starting a Business  All types of people own and operate thousands of businesses in Australia today.  Starting a business requires courage, determination and energy, and it demands a wide range of skills.  It’s important for people to recognise their strengths and weaknesses, decide if they have the right personal characteristics to be a business owner and learn the skills they don’t presently have. Personal qualities It is important for people to recognise their strengths and weaknesses and decide if they have the right personal characteristics to be a business owner Qualifications  Exceptional grades and a dazzling history in business are NOT essential!  For some types of SMEs there are few or no formal academic requirements needed to operate a business. If you do want to gain qualifications in small business, there are tertiary courses available.  Knowledge and understanding of what is required to successfully own and operate a SME can come from experience through working for other businesses eg. your part time job.  What is important is the eagerness to work long hours  Research suggests     approx. 75% of people who started their own SME spent at least 50 hours per week in the business 25% spent 65 hours per week or more There are NO age limits People between 20 – 25 years are operating a SME Qualifications cont.  There are 2 factors that are often mentioned that encourage individuals to go into business. These are:  Motivation  Entrepreneurial spirit Motivation  Refers to your personal drive, determination and desire to achieve a goal or objective.  The desire to be your own boss is a major reason for wanting to start your own business.  There is also the desire to transform an idea into a successful product by capturing the attention of potential customers Entrepreneurship  An entrepreneur is someone who starts, operates and assumes the risk of a business venture in the aim of making a profit.  The term can apply to any person  Entrepreneurial attitude is needed everywhere  in life; studies, hobbies and in working life - as well as an entrepreneur or an employee.  school plays an important role in growing to entrepreneurship. Entrepreneurship cont. Personal qualities needed Entrepreneurship cont. Benefits • sense of freedom and independence • owner has more control over their own destiny • they would expect the extra effort to be rewarded through profits • satisfaction also of guiding the business’s growth, overcoming obstacles, setting and meeting targets, gaining a larger customer base • sense of pride Burdens • requires owner’s full attention • work hours longer • constantly live and breathe the business problems • freedom and flexibility is often illusive • may need to reinvest the profits to generate long term growth • owner may not be able to draw a salary until the business becomes more established • commitment is enormous! Skills  Skills are essential and can be gained through experience, education and/or training  Experience  A person with “hands on” experience will have greater chance of achieving business success Skills cont.  Education and Training  Universities, TAFE and business colleges offer courses in many business and industry fields.  They can broad in nature – eg degree in business management OR specific such as a degree or diploma in marketing, human resource management.  TAFE and business colleges also offer vocational courses for establishing a SME  Some government agencies provide opportunities to learn about starting a business. The Business Enterprise Centres in NSW offer a range of services such as a business start up kit and how to write a business plan Skills cont.  All of these avenues for education, allow the business owner to develop the essential skills for establishing a business:  Accounting  Computer skills  Staff management  Business administration (incl. inventory control and rosters)  marketing Activity: Yuan Wong entrepreneur at 15!  Textbook, pg 346  Answer questions 1-5 Cultural background  This influence can arise from a community’s traditions and beliefs such as ‘ work ethic’ : the willingness to work long and hard in a effort to be successful  Many European and Asian cultures  It can also arise from centuries of experience in certain trades or services , enabling a person to use this knowledge to achieve business success.  E.g a person from Thai cultural background may be able to succeed in a restaurant business that aims to provide quality, specialist Thai food Gender  Due to growth in employment from establishment /expansion in the small business sector and its contribution to the economy, policies are being created by the government to assist small businesses.  As a response, and also due to the change in social attitudes, many women are setting their own businesses at 3x the rate of men. It is claimed that businesses owned by women fail at a far slower rate than those owned by men . Why? Women are more cautious in business and are better bale to compare the risks and rewards in business, and as a result are less likely to experience business failure ACTIVITY: Skills Set • Fill in the table below using your knowledge gained from the personal qualities, qualification and skills area in this topic that you possess and could bring to a small business. You can use your Business as Usual business idea. • Refer to diagrams pg 342, and 345 for help. Skills I have now Skills I would need to develop How would I obtain these new skills ACTIVITY: Do you have the right stuff?  Do you have the right stuff for the makings of an entrepreneur?  Using the list of character traits common to successful entrepreneurs, complete the table  Although it’s not necessary that you possess all of them, you should possess most! File: entrepreneur activity list Activity: Quick Quiz  Revision on SME/Entrepreneur – from Part 1  Marks out of 15  Refer resources folder –Teacher calls out questions. Student write answers in their workbook. Sources of Information  SME cannot be experts in all areas of their business AND they do not usually have the funds to employ a specialist/consultant to assist with management. THEY NEED TO POSSESS A VARIETY OF SKILLS The SME owner can receive assistance from a large number of government and private agencies. Government and Private support agencies are a source of advice Professional Advisors  Accountants  advice on financial management and taxation obligations  Solicitors  provide information on business formation and structures, registration, contracts, leases, partnership agreements, patents and legislation  Bank Managers  provide information and advice on financial services, sources of finance and basic business management  Management Consultants  If a business problem arises that the owner cannot deal with, then a consultant can assist as they can be more objective and view problems in an unbiased manner. Government Agencies  Federal government  Operates a website www.business.gov.au as a service to businesses of all sizes:  Offering access to all government departments on everything from fair trading to taxation Government Agencies  State governments  All state gov’t s have established agencies that provide support and advice to business owners. Examples include:  NSW Dept of State and Regional Development – Small Business  Provides: information and advice on starting a new business, buying a business, managing a small business and exporting, information on current issues affecting business ie technology, e-commerce, and workplace issues such as enterprise agreements and industrial relations  Business Enterprise Centres (BEC) Australia  Is a not for profit network of business enterprise centres that provides support to SME owners – how to establish a business, examples of business plans and methods and identifying business opportunities.  Local government is also more involved in encouraging business as it creates employment –local councils offer advice on land zoning, subsidised land and development applications Other sources offer the following Chambers of Commerce • Legal and financial help, economic and taxation advice, explanation of legislation and industrial relations information Small Business Association of Aust & NZ • This lobby group has a membership of thousands of individual small business owners, providing a forum for exchanging news and views relating to small business Trade Associations • Offer specific industry information such as product development and trends e.g Metal Trades Industry, Aust. Medical Association Aust. Bureau of Statistics (ABS) Libraries and Reference material • Most libraries have on line access to large databases with search facilities and trade /industry journals • Provides valuable data on social, economic and demographic trends, specialised data on business activities assisting the business owner in analysing and understanding changes to the external environment The Business Idea As well as determining whether or not they have the motivation and personal qualities to start a business, potential SME owners will have a clear idea of what they want to sell. Sometimes it is an original idea for a good or service that is quite different from anything on the market, or a distinct improvement on something already available. Or it may be that particular goods or services are unavailable in a a particular area Coke is it!  All businesses in the world must have started from an initial idea and then grown according to their success within the market. Coke started as a medicinal tonic sold off the back of a travelling wagon. Now, Coca –Cola Amatil is an internationally successful business that dominates the soft drink market globally. It is sold in 200 countries, there are 400 brands providing 3,000 different products, contributing to a global sales revenue of $38 billion (2010) The business idea….. Listening to people, particularly for ideas on goods and services Inspiration for ideas can come from Reading magazines and books, researching the internet Visiting displays, exhibitions in areas such as technology, or new products from overseas Identifying a ‘gap’ in the market – a demand that is NOT currently being satisfied Determining improvements that could be made to an existing product Assessing government statistics and research information The business opportunity  Identifying a business opportunity is NOT just having an idea. An opportunity is something a person can see as an avenue to success. It is often identified when a person feels they can provide goods and services in a better or different way from those already on the market. There are many ways to identifying an opportunity: Analysing and reviewing particular parts of the market to find an opening for particular goods and services Identifying whether many other people share a particular interest or hobby. This hobby may become the catalyst in identifying a business opportunity. There must be a large enough market to sustain sales of the product or service however. Competition  The most important area needing investigation before a business opportunity becomes a reality is the consideration of the competition  First the business owner must decide on the type of market in which their goods and services will compete. They must decide on whether to target :  A broad market (mass market)  A niche market (small, specialised) OR  The business owner is then able to identify the level of competition and who are the main competitors. How then do I make my business competitive?  Or in other words: How do I develop a customer base or gain market share from my competitors?  The type of market will influence the strategy used:  If a niche market – there are usually none if minimal competitors  If a broad market – extensive planning is required to determine how to capture market share from the competition Consider…..  You have an interest in music and would like to establish a store selling CD’s, stereo equipment, CD players and so on.  You would need to ask yourself….why would a customer buy a CD from MY store rather than JB Hi-Fi, Sanity or online from Apple Itunes?  If you cannot answer this question, you should not consider it a business opportunity There are 2 ways of achieving competitiveness  COST  The business that can produce a good or service at the lowest possible cost and then sell at the lowest price has the greatest ability to attract market share (in most markets).  DIFFERENTIATION  If you can differentiate your product or service, is it unique or better than the competition than you have a competitive advantage eg. Selling computer with extra service, lessons or added software. ACTIVITY: Know your competition!  Using your ‘Business As Usual’ business idea:  Identify what type of market are you in i.e mass or niche?  Outline if the level of competition is high, medium, or low  Clarify who are your competitors?  Determine if your product/service has a competitive advantage ie do you have a low cost position or a highly differentiated product/service? Establishment Options – there are 2 Set up a new business this may involve buying a franchise Buy an existing business Each has their advantages and disadvantages Setting up a new business – starting from scratch  Sometimes conditions are more favourable for starting a new business than for buying an existing business eg.  When a person has created something unique and starts a business to market their innovation or invention  When a person recognises a gap in the market –customers’ needs are not satisfied  When the market has grown and existing businesses cannot supply all customers Setting up a new business – starting from scratch Buying an existing business When an existing business is purchased, the business is already operating and everything associated with the business is included in the purchase e.g • stock and equipment • premises • existing customer base • staff • location • reputation and goodwill If you are purchasing an existing business, it is essential to know why the business is for sale, examine the accounts for past 3 years at least to determine the financial health of the business and that the goodwill and reputation is also not overstated. SEEK AN ACCOUNTANT! Buying an existing business Buying a franchise  People choose to start a franchise in the hope of avoiding many of the problems associated with starting a new business.  For a set fee, the small business owner receives the benefits of a successful business formula, a well recognised name and established trademarks.  Franchising operations tend to have fewer teething problems.  It is the fastest growing area of small business with approx 1300 franchisors in Australia. The franchise sector in Australia is worth $128 billion (2010) Buying a franchise Looking for a franchise  www.australianfranchise.com.au  www.franchisebusiness.com.au  www.franchise.org.au