they have been made redundant and start up their own business as an alternative to unemployment
they have a hobby which gradually turns into a business, eg a keen gardener
People who have been successful in starting their own business are said to have shown “enterprise”
some famous people who have shown “enterprise” … Richard Branson Duncan Bannatyne Using the Internet, see what you can find out about these entrepreneurs and their businesses Anita Roddick Michelle Mone Rachel Elnaugh
A Business Plan outlines the objectives of a business and how it intends to achieve these objectives.
Information contained in a business plan may include:
a description of the business (name, structure etc)
how the business will be financed
a description of the product/service
the market at which the product is being aimed
any market research that may have been carried out
who the main competitors are
the resources being used – staff, premises, equipment etc
projected sales figures, cash flow forecasts and profit estimates
Why produce a business plan? Sometimes the person starting up in business will not have all the finance they need. Therefore a business plan may convince someone (possibly a bank manager) to lend the business initial start-up cash. The Business Plan shows that the person starting up the business has taken time to consider their idea.
Trade Associations – Provide advice in their area of business. Examples include the Association of British Travel Agents and the Institute of Plumbing
Banks – give advice on sources of finance and drawing up a business plan.
Inland Revenue – gives advice on taxation matters
Lawyers – give advice on legalities associated with setting up a business and employment legislation.
Where does the money come from to finance a business?
FINANCE All businesses need money (finance) in order to set up and run the business. This money will be used to pay for a range of goods and services they will require, such as:
Land & Premises
Stock for Resale
Heat & Light
The sources of finance available to a business varies greatly depending on:
The size of the business . Generally the larger the business the easier it tends to be for it to borrow money since lenders prefer to lend money to ‘safe bets’.
(If a business does not have the money to pay back a lender, it can always raise the cash needed by selling its assets. Assets used to raise cash in an emergency are known as ‘collateral’.)
what the money is needed for
the amount of money involved
There are 2 main ways in which a business can get finance: INTERNALLY – finance from within the business, eg selling assets, reinvesting profits and the owner investing their own savings (introducing more capital)
Internally generated funds have advantages for a business in that it does not need to:
Convince others that it is a ‘safe bet’
Externally Generated Finance The main types of external finance for businesses include:
Small Business Loans Guarantee Scheme
Issuing Shares This is an option for Limited Companies and can raise very large amounts. If they require more capital then they may be able to issue shares. Shareholders have limited liability and receive an annual dividend in return for their investment. However, the cost of issuing shares can be expensive.
Issuing Debentures This is a source of finance used by plcs. A debenture is a type of long term loan. Debenture holders (the people who have loaned the money) receive fixed interest over the period of the loan and then receive the full amount of the loan back at the end (eg after 25 years).
Loans Loans are usually a medium term form of financing a business. The bank (or other lender) agrees to lend an amount of money for a specific period of time, with the borrower repaying it back in instalments. The borrower must remember that interest will be repayable on any amount borrowed.
Hire Purchase This is when a business buys assets now and pays for them later. It is a common way of purchasing new vehicles. The business will pay a deposit with the balance being repaid in equal instalments. This results in the cost of the asset being spread, making it easier to afford. However, the asset is not owned fully by the business until it is fully paid, and interest rates can be high. If payments are not made the asset may be repossessed by the Hire Purchase Company
Overdrafts Overdrafts are a short term source of finance. The customer arranges to take out more from their bank account than they have in it. It is simple to arrange and the amount of overdraft varies. Interest is only charged on the amount overdrawn for the actual number of days overdrawn. It can however work out expensive if used for a long period of time.
Leasing Agreements A business may rent their premises, equipment or vehicles from a leasing company. By leasing the business never owns the asset however it can be used to avoid major expenditure on assets. At the end of the lease, the asset can be changed with a new model (usually ideal for vehicles and computing equipment)
Trade Credit Businesses will receive stock from suppliers now and pay for them at a later date (usually 30 days). This is useful for new businesses that do not have a steady flow of income. However discount for prompt payment may be lost.
Grants Some businesses receive a grant from either central or local government, the European Union or Enterprise companies. This may be an incentive for organisations to locate in certain parts of the country needing regenerated because of high unemployment etc. They are one off payments.
Small Business Loans Guarantee Scheme This is a government backed scheme that guarantees that 80% of a business loan will be paid back by the government if the business defaults (fails to make their payments)