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Developing a Small Business
A Structured Approach
1. The Business Idea
a. Gaining the support of your family
b. Skills required to run a business
c. Sort of business you want to start
d. Starting your business
i. New business
ii. Franchise businessiii. Existing business
e. Inesting in your business
i. Financial
!. "ash
ii. Non#financial
!. $ssets
2. Complying with Legislation
a. %ealth and Safety at &ork $ct
b. 'ata (rotection $ct
c. Form of business
i. Sole trader
ii. (artnership
iii. "ompany
!. (riate company limited by shares
a. )embers* liability is limited to the
amount unpaid on shares they hold
+. (riate company limited by guarantee
a. )embers* liability is limited to the
amount they hae agreed to
contribute to the company*s assetsif it is wound up
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,. (riate limited company
a. No limit to the members* liability
-. (ublic limited company
a. "ompany*s shares may be offeredfor sale to the general public and
members liability is limited to the
amount unpaid on shares held by
them
d. "hoosing a usiness name
i. "heck to see if it is already being used
e. (rotecting business ideas
i. (atentsii. "opyright
!. (aintings
+. (hotographs
,. &ritings
iii. /rademarks
f. Inland reenue
i. National insurance contributions
!. "lass 0ne 1 applies to all employed people
and is paid by both the employer and the
employee
+. "lass /wo 1 paid at a flat rate by all self#
employed people whether they are sole
traders or partners
,. "lass /hree 1 (ayable by the self#
employed as a percentage of profitsbetween a minimum and maximum leel
ii. Self assessment tax returns
iii. 2alue $dded /ax 32$/4 registration
!. !5.67 # standard rate charged on most
goods and serices
+. 67 # reduced rate charged on domestic
fuel and power by charities
,. 87 # 9ero rate where no 2$/ is charged
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g. /rading laws
i. "onsumer (rotection $ct !:;5
ii. /rade 'escriptions $cts !:
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you offer that are not? or cannot be? offered
by you competitors
i. Indications for the future 1 what the business
will do.c. )arketing ob@ecties
i. Sell existing products to existing markets
ii. Extend existing products into new markets
iii. 'eelop new products for existing markets
i. 'eelop new products for new markets
$. De%ining Business Strategya. (ES/E analysis
i. (olitical 1 health and safety legislation
goerning conditions in the workplace and
consumer protection legislation coering
labelling and packaging
ii. Economic 1 effects of inflation? interest rates
and exchange rates
iii. Social 1 changing demographic trends in your
customer base
i. /echnological 1 deelopment of Information
/echnology has affected the ways in which
business is conducted including the use of
faxes and email and the opportunities created
by the Internet
. Enironmental 1 consider genetic engineeringthe process of manipulating genes of a plant or
animal to produce desirable characteristics
b. >esource audit
i. (hysical >esources
!. (lant and machinery
+. /ools and equipment
,. 2ehicles
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ii. %uman >esources
!. Skills of each indiidual
+. Estimate of their adaptability under
changing circumstancesiii. Financial >esources
!. Finance from own resources
+. Finance from borrowed funds
c. "hoice of strategy to an existing business
i. &ithdraw from the market entirely
ii. "onsolidate the existing position within the
market
iii. Increase market positioni. Introduce new products or serices
d. Implementing the strategy
i. (lanning and allocation of resources
!. (hysical
+. %uman
,. Financial
ii. Structure of the business
!. For a new business it is likely to be
uncomplicated
iii. )anagement of the people and systems in the
business
!. )anaging your staff
+. "ontrol and information systems
e. Strategic threats
i. New entrantsii. Substitute products
iii. (ower of suppliers and buyers
!. Sole supplier of a particular product will
be in a strong position
+. uying power has an impact in the
grocery market.
i. "ompetitie rialry
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&. !"taining 'ight Support
a. usiness links
i. (roide a ariety of adice and guidance tobusinesses
b. Enterprise agencies
i. Not#for#profit organisations that proide
adice? counselling? information? training and
practical help to businesses
c. "hambers of "ommerce
i. Information and eents
ii. /rainingiii. Export assistance
i. "ost saings on bulk purchasing power
d. Federation of small businesses
i. Free serices to members including
!. /elephone helplines
+. Export information and guidance
,. =egal assistance
-. /axation adice
(. )ar*et 'esearch
a. Segmentation
i. Geographic
ii. 'emographic
iii. 0ccupation and social classi. $"0>N segmentation
!. $ "lassification 0f >esidential
Neighbourhoods which analyses
households on the basis of the type of
property
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$"0>N )ain "lassification %eadings
$ )odern family housing for manual workers
)odern family housing for higher incomes
" 0lder housing of intermediate status' 2ery poor quality? older terraced housing
E >ural areas
F Arban local authority housing
G %ousing with most oercrowding
% =ow income areas with immigrants
I Students and high status non#family areas
B /raditional high status suburbia
C $reas of elderly people
b. "ompetitie adantage
i. Financial
!. Efficiency saings which lead to lower
costs of production
+. =ower selling price to the consumer
ii. 'ifferentiation in serice!. =onger opening hours
+. Improed deliery serice
,. )easurable difference in the quality of
serice
-. %igher quality product
iii. "ompetition
!. 'irect 1 generated by businesses that
offer the same products or serices asyou in the same market
+. Indirect 1 businesses that although
operating in different markets and with
different products may pose a threat if
they can easily diersify into your
market
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,. Industry 1 businesses that operate in
the same product area but which sell in
different markets
-. =inked 1 businesses that offer the sameserice but delier in a different manner
c. S&0/ $nalysis 1 encourages you to think about the
positie sides of your business as well as the negatie
sides. It should also be used to assess your competition.
i. Strengths
ii. &eaknesses
iii. 0pportunities
i. /hreatsd. Anique Selling (oint 3AS(4
i. "rucial element in defining your competitie
adantage. Dou must establish what makes you
different from your competitors.
!. &ill the customers in the market
perceie this as an adantage
+. Is it significantly different from what
my competitors are offering
,. &ill my customers actually beliee in this
AS(
-. &ill my customers receie some benefit
from this AS(
6. &ill this AS( motiate customers
sufficiently to make a purchase
e. "ritical Success Factorsi. Examples include
!. 'eliery times
+. Speed of serice
,. uality of the product
-. "ompetitie pricing
+. Identi%ying ,our -roducts
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a. oston "onsulting Group 3"G4 )atrix 1 established
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therefore relates only to products and markets and gies
you four alternatie courses of action
i. Selling existing products to existing markets
ii. Extending existing products into new marketsiii. 'eeloping new products for existing markets
i. 'eeloping new products for new markets
/hese four options are set out in a four#box matrix that plots
your existing and potential products against your existing and
potential markets as follows
A5S!66 )atri-resent products 5ew products
-resent
mar*ets
)arket (enetration (roduct 'eelopment
5ew
)ar*ets
)arket Extension 'iersification
)ar*et -enetration1 increasing the existing share in the
existing market to facilitate further growth)ar*et 7tension1 taking existing products into new markets
-roduct Development1 offering new products or modifying
existing products into the existing markets
Diversi%ication1 either with related products and markets or
unrelated products that are totally unconnected with the
existing products and markets
d. >ight (roduct into the >ight )arket
i. Existing products into existing markets
ii. Existing products into new markets
iii. New products into existing markets
i. New products into new markets
!. >elated diersification 1 the
deelopment of new products that are
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complementary to the existing product
range
+. Anrelated diersification 1 products that
take the business outside of the industryin which it normally operates
e. (roduct management 1 relates to the oerall brand
image of your product.
8. The 'ight -rice
a. Importance of price to the consumeri. Asers 1 the person who will actually use the
product
ii. 'eciders 1 the person who will actually take
the decision to make a purchase but who does
not necessarily buy the product themself
iii. uyers # the person who actually buys the
product
i. Influencers 1 people who hae some influence
oer the decision to purchase
b. Selecting the right price
i. "osts
ii. "ompetitors
iii. usiness ob@ecties
c. (rice as an effectie marketing tool
i. =inking price with promotion!. =oss leaders 1 products sold at low prices
that indiidually make a loss? but entice
the consumer into the shop? after which
they may well buy other products at the
same time
+. 'iscounts or sales 1 these are often used
to dispose of excess stock
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,. Short term interest free credit 1 this is
often used to tempt the consumer to
Hbuy now and pay later*
-. )aintenance or other serice guarantees1 these can either be sold alongside the
product or offered on a free basis.
ii. /arget market pricing
!. )arket segment 1 if you hae segmented
your potential market on? for example? a
nationwide basis? it is possible to charge
different prices according to location
+. "onsumer group 1 differential pricingdepending on the consumer? is a ery
common pricing structure
iii. 0pportunist pricing 1 sometimes a product can
be priced with no relationship to its true alue.
i. $dded alue pricing 1 inoles a different
price for products that increasingly offer
further features and benefits as in the retail
clothes market
. =inked product pricing 1 where one product
requires another product as matter of course?
the pricing of both constituent parts can be
manipulated
i. 'ual charging 1 the most common example of
this pricing strategy is in the rental industry.
For example? in car rentals a basic charge perday is often made with a further charge
depending on the mileage drien.
9. 7mploying sta%%
a. >ecruitment and selection
i. &riting a @ob description
ii. )ethods of recruitment
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!. Newspaper adertisements
+. "areers serices
,. >ecruitment agencies
-. /he Employment Serice and Bob centreiii. )aking a selection
b. Employer >esponsibilities
i. 'iscrimination
ii. Equal 0pportunities
iii. %ealth and Safety
c. Employee >ights
i. /erms and conditions of employment
ii. Fair and unfair dismissaliii. Notice periods to terminate employment
i. )embership or non#membership of a /rade
Anion
. redundancy payments
i. National )inimum wage
ii. )aternity and parental leae
iii. Stakeholder pensions
ix. Statutory sick pay
x. Statutory maternity pay
xi. &orking time regulations
d. /ax and National Insurance
i. Income tax and National Insurance are
deducted at source under (ay $s Dou Earn
3($DE4 scheme
e. Staff $ppraisali. )otiating staff
ii. Identifying any deelopment or training
requirements
iii. (lanning for growth
asics of Staff $ssessment
&hat are you going to assess
a. "ommunication skills
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b. /echnical knowledge
c. Standard of customer serice
d. Effectieness at soling problems
%ow often will you carry out an assessment
a. /hree months initially
b. %alf yearly or annual assessments thereafter
%ow will you make the assessment
a. $ppropriate grading from one to fie
i. Ansatisfactory
ii. elow standardiii. Satisfactory
i. Good
. 0utstanding
Structuring the assessment
1:. 'ight Location
a. Importance of location
i. 'epends upon the type of business
!. >etailers
+. &holesalers
,. )anufacturers
-. Serice businesses
b. )ethods of distributioni. Selectie distribution 1 selectie about how
you distribute the products
ii. Exclusie distribution 1 associated with
products perceied to be of high or unique
quality
iii. Intensie distribution 1 aims to make your
products as widely aailable as possible
c. >ight distribution method
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i. >eliability 1 delier the right products at the
right time
ii. Suitability 1 products are packaged in such a
way that they will not be damaged in thedistribution process
iii. Functionality 1 consumer will be concerned
about what happens if the product fails to
function in the future
d. Effectie supply chain
11. Business -romotiona. Importance of promotion
b. )arketing promotion mix
i. $dertising
!. /eleision
+. >adio
,. (osters
-. (ress
ii. (ublic relations and publicity
iii. Sales promotions
!. /rade 1 incenties to wholesalers or
retailers 1 financial such as discounts or
non#financial incenties such as proision
of free display materials
+. "onsumer 1 money#off ouchers
,. Internal 1 offered to sales staff 1bonuses for exceeding sales targets
i. (ersonal selling
. Asing the Internet
c. Ealuate promotion options
i. &hat exactly are you selling
ii. &hat are the market conditions
iii. &hat are your marketing ob@ecties
i. Is the adertising going to be cost effectie
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12. -ro%essional ;elp
a. $ccountants
i. "omplying with legislationii. Establishing internal control systems
iii. $ssisting with pricing and profitability
decisions
i. >aising finance
. )anaging the growth of your business
b. Solicitors
c. "onsultants
i. Strategyii. 0rganisation design and deelopment
iii. uality management
i. )anufacturing systems
. usiness planning
i. Financial management
ii. (ro@ect management
iii. Information technologyinformation systems
ix. %uman resource management
x. )arketing
xi. 'esign and creatiity
xii. /ransport management
1. 6inancial 6orecasts
a. "ash flow Forecast 1 used to pro@ect the flow ofcash into? and out of? your business.
i. Income from sales
ii. 'ealing with credit sales
iii. 0ther income
!. Introduction of new capital
+. =oans or grants receied
,. >eceipts from sale of fixed assets
i. (ayment categories
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!. (ayment to creditors
+. Salaries and wages
,. "apital expenditure
-. =ight? heat and power6. >ent and rates
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iii. usiness ackground and %istory
!. &hen the business was started
+. %ow it has deeloped since then
,. $ny significant achieements-. $ny accreditation gained such as quality
standard awards
i. /he product or serice
. 0perations
i. )arket analysis
!. 0erall si9e of the market
+. )arket trends
,. 'irect competitors-. )arket segmentation
6. (ricing expectations
eleant legislation such as health and
Safety
:. Enironmental concerns
!8. >eleant independent market
research information if aailable
ii. )arketing strategy
!. S&0/ $nalysis
+. "ustomers and markets
,. (roduct
-. (rice
6. (romotionisk ealuation
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1(. 'aising 6inance
a. Inesting your own moneyi. Financial
!. 'irect in@ection of cash
ii. Non#financial
!. $ssets such as motor ehicles? tools and
equipment
b. Short term finance
i. 0erdrafts
ii. /rade creditiii. Factoring 1 organisation that takes oer the
running of your sales ledger and will issue
statements and debtor reminders according to
an agreed timetable
$dantages
Improes cash flow
>emoes the need to chase unpaid inoices
Simple process
'isadantages
"ustomers know that you are using the factor 1 stigma
"an proe costly in oerall terms
'ifficult to extricate yourself from the factoring arrangement
i. Inoice discounting # similar to factoringexcept the control of the sales ledger is
retained by you and therefore you need to
control the debtors and chase for late
payment. Inoice discounting is not eident to
your customers.
c. =ong term finance
i. =oans
!. 2ariable rate loans
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+. Fixed rate loans
ii. %ire purchase
iii. =easing
!. Finance lease 1 the lessor pays for theasset and becomes the owner
+. 0perating lease 1 lessor is responsible
for sericing? maintaining and updating
the equipment
,. "ontract hire 1 similar to an operating
lease 1 for example to finance a fleet of
motor ehicles
i. Soft loans 1 loans aailable on generous terms
and at lower rates of interest than would be
charged commercially. /hey are proided
through local Enterprise $gencies
d. Gaining Equity Finance
i. usiness angels
ii. 2enture "apital
!. Seed capital 1 new high technology
product
+. Start#up capital
,. Expansion capital
1+.
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d. (rofit and =oss $ccount most important account for
all businesses
e. "omputer#based $ccounting Systems
i. =ess time spent Hdoing the books*ii. $ccurate
iii. Ap#to#date
i. Faster production of annual accounts
. "ost saings on book#keeping and accountancy
charges
Software (ackages
Sage/$S ooks
(egasus
Intuit
18. 6ranchises
a. $dantages
i. /ried and tested
ii. rand image
iii. =ess risk
i. "omprehensie training
b. 'isadantages
i. No room for indiiduality
ii. 'ifficult to dispose as there are limitations on
any re#sale
iii. 'ifficult to enforce exclusie territory rightsc. /ypes of franchise
i. Bob franchise 1 purchasing a @ob for yourself 1
for example mobile car mechanics and
domestic carpet cleaners
ii. usiness franchise 1 purchase of a complete
business 1 for example fast food operation
iii. Inestment franchise 1 substantial inestment
1 for example hotels and restaurants
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d. Franchise costings
i. 0ngoing costs
!. )anagement fees
+. Serice charges,. >oyalties
19. 7isting Businesses
a. 2aluing
i. alance sheet
ii. Fixed assets
!. =and and buildings
+. (lant and machinery
,. /ools and equipment-. )otor ehicles
iii. "urrent assets
i. =iabilities
. Goodwill
b. )anaging the purchase
c. Financial considerations
i. 0wn capital
ii. 2enture capital
iii. ank loan
2:. 4uality Standards
a. uality and business ob@ecties
i. >educe product returns
ii. Increase customer satisfactioniii. Inest in new technology
i. Andertake market research
. >educe the costs of production
b. uality and competitie adantage
i. Free deliery
ii. Free maintenance for a limited period
iii. Free appliance fitting
i. Free telephone support
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c. "ustomer "omplaints
d. uality )anagement System
i. IS0 :88!+888
21. ;andling -ro"lems
a. "risis )anagement plan
i. External crises 1 outside of the control of the
business 1 fire? flood? bomb alert or explosion
ii. internal crises 1occur within the business 1
power or machinery failure? computer crash?
data corruptionb. Insurance
i. Employer*s liability
ii. Fire
iii. /heft
i. "onsequential loss
. (rofessional indemnity
i. Cey person
c. (ersonal insurance
i. $ccident and sickness
ii. "ritical illness
iii. 'eath