Small business opprtunity
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Small business opprtunity Small business opprtunity Document Transcript

  • Module: Business FinanceTutor: Paul BridgeAssignment nr: 5.2Assignment Title: Small Business OpportunityStudent name: Iveta ErmaneStudent nr: 1105617
  • ContentContent………………………………………………………………………………..2Introduction…………………………………………………………………………...3Task A…………………………………………………………………………………4Task B…………………………………………………………………………………5Task C…………………………………………………………………………………6Task D…………………………………………………………………………………9Appendices….....................................................................................................11References…………………………………………………………………………...12 2
  • IntroductionIt is very important for starting up any type of business to understand, what is Businessventure, how to describe it, understand Risk capital, where to get emergency cash ifcompany will need it, advantages and disadvantages from potential investors or banks,and to understand how to avoid any risk and cash flow issues.This report has been written for University of Bolton, by student Iveta Ermane, and willintroduce readers with all this main aspects. 3
  • Company name: Bolton carsCompanies address: BoltonBusiness type: Used cars buying and selling, Task A:Company: Bolton cars provides the best valued cars and car services, such as carwash, body shop; paint shop, tire shop and mechanic work in Bolton area.Property: After searching for property for Bolton cars in local state agents and internet,has been found property where had before already Motor garage. Company is asking£23.500 for all machinery and fixtures. There is very good parking place and evenacceptable price for rent - £600 per month and Business rates to Bolton council is £400per month. With starting Business has been paid to state agent £1500 (include deposit).Company owner: Owner to this company is Business ideas author Iveta Ermane. MissErmane is sole trader and that mean that she will own and control a business and haveunlimited liability. Advantages of sole trader is that it is easy to set up Business anddon’t have lots of formalities. Also as a sole trader author will can make all decisionsand keep all profits. Self employment also defers income tax and reduces Nationalinsurance contributions.Personal resources: £75 000 assets. Business ideas author got degree in Businessmanagement. She has knowledge about how to run Business, knowledge about financeaspects and will work together with manager who has 20year experience about buyingand selling cars. Market research: Company Bolton cars have wide range with different style and typeof cars for anyone. Whether customer is looking for easy car, van or minibus, we willalways have choice for anyone. Customers also can choose between convertible cars,diesel or automatic cars.Also company offer services such as Body shop, tires shop, auto mechanic servicesetc.Risk: As a sole trader shortage of capital makes increase difficult. To borrow money willmay be expensive and to get more capital sometimes may mean to take a partner. Thatmay bring company to loss of control because decisions will need to be shared. Alsoself employed national insurance entitlements have less benefit. Also as self employedthere is tax relief on pension contributions restricted. 4
  • Recruiting people: In start up:2 persons for car wash, 1 mechanic, 1 person for body shop, 1 for paint shop, 1 for tiresshop and middle manager who has 20 years experience with selling cars. Wages isNational minimum wages or higher depending on previous experience. Working HoursMonday- Saturday 8.00- 17.00. Task B:There is 3 different types of loans: Short term (1-2 years), medium term (3-10 years),and Long term (11-30 years).The more money company will borrow then more interest it will have to pay back.Banks always set up percentage above on the current Base rate.At moment it is lots different options how to borrow £50 000 for Business. Exampleoverdrafts, Bank Business loans, friends, family, private investments etc.Overdraft always is short term borrowing on a bank current account. It’s always smallamount of money, and will not help in this situation, but company will take overdraft infuture, if will need some short term financial help.Some people borrowing money from friends or family, but some borrowing from banks.The main advantage borrowing money from friends or family is that usually it is lowinterest, but disadvantage is that if company will can’t pay back then it can spoilrelationships with them.There are lots of advantages to borrowing money from bank, main reason it is quick.Companies can get additional capital even in less than an hour and sometimes banksmay offer help and advice for businesses.Main disadvantage borrowing from bank is interest pay and its can lead to decreasedcash flow. Interest pay to all banks is various. Also if Company can’t repay back loanthen can lose everything what had been given to bank as a security (example house,car etc.) This Business author is sole trader and from this point of view it may be risky,but from second side author to this Business don’t own any property, that is why there isnothing to lose, therefore if will need author will take additional capital from bank,because don’t have any friends or family with so large amount of money. 5
  • Business ideas author is long time Lloyds TSB customer and for that reason LloydsTSB bank was first where had been asked for £50 000 loan. Lloyds TSB bank is veryfriendly bank and with different options, where customers can choose from fixed orvariable payments, what suits companies’ Cash flow.Also advantage borrowing money from banks is low interest pay. Interest to Businessloan usually is 2%-3% on top the Base rate.Also some new businesses can get Grant from Government, its may be little bit morecomplicated than get money from Bank, but main advantage is that Grant fromGovernment don’t need to repay back, and at least it worth to try. There is some keyaspects about asking grant from Government: Industry, location, and size. Task C:Opening balance starting up Business: £75000Bolton cars had been identified and providing Balance sheet and Income statement fornext 12 month. (see appendices)Balance sheet had been made based on Used Car market research in UK. Researchproved that most people buy new cars in autumn or winter. That is why in Balancesheet from September-December is more income from car sales than in summer orspring.Also the same happens with tires shop. People mostly change and buy new tires inwinter. That is why in Balance sheet income from Tire shop in winter is more thansummer or spring.Value added tax (VAT): At moment VAT is 17.5%Wages:NMW=£6.089h/day £6.08x9x6=328(p/w) (or 1312 p/m)Wages for 7 employees is 1312x6=7872(p/m)Rent: £600/month, £1500 first payment together with depositAdvertising: it is very important to advertise any new organization. CompanyVistaprint.co.uk offers different type Business essentials and cards for low price. Withstarting Business company will buy from Vistaprint.co.uk about 500 leaflets, some cups 6
  • with companies Logo, pens, stamps etc. For opening Business company will spend£500 for advertising and after that about as little as £100 monthly for some additionalBusiness cards and leaflets.Balance sheet: In first month of Balance sheet can see that expenses is higher thanincome, but closing balance is positive , reason for that is because opening balance onfirst month is £75000.Also reason for Positive balance sheet is that company Bolton cars don’t have anyliabilities. All £75000 with starting a business is Business assets.Current ratio =Pricing: Material costs+ Labor costs+ Overheads+ %Tax, National insurance and pensions: The sole trader is self employed not selfemployee. This has implications for tax and pension requirements.Tax must to be paid on any profit in Business. As a self-employed the sole trader willnot pay tax as income is earned, but on retrospective basis.National insurance contributions for self employed people are payable as: 1. A weekly rate (class 2)- £2.50/week 2. A percentage of profits (class 4) – it is 9%, between £7.225-£42.475, and further 2% on over that amount. Class 2 NI contributions can pay only that companies where profit is expected to be less than £5.315, that mean Bolton cars will have class 4 NI contribution.£76486-£42475=£340112%of £34011=£6809%of £42475=£3822 7
  • NI contribution together will be £680+£3822=£4502 (approximately)Profit: Net profit = Gross profit – Expenses,Average net profit per month to Bolton cars is £9109, but net profit per year is £76486.ROCE (Return on capital employed) is the profit what had been made by a business asa percentage of the capital, what was invested in Business. Can see in Businessbalance sheet that company made profit for first year more than actually invested incompany. x100= x100= 101.98% x 100= x 100= 16.43% (Per year) (Per year) 8
  • Task D:All Business people know that Cash is any Business “blood”. When money is notcoming into the company, then business fails. Therefore setting up any Business firstneed to understand, how to avoid any cash issues and risk.For to avoid any cash flow it is important to understand from where cash is coming andwhere it goes in company’s regular balance sheet every month, or even somecompanies are doing it every week. (see appendix)It is very important to never spend more money than company can make.Result of cash flow failure is business failure.For to avoid any cash flow issues firstly need always keep company accounts up to dateand sorted.In any Business it is risk in money flow. Fardon M. describes that all companies alwaysmust be ready on different cash flow danger points, example: What if there is no money to pay wages? What if there is no money to pay suppliers? What if bank will not lend any loan or overdraft? What if customers fail to pay? EtcAuthor to this report suggest that one of main effects how to avoid cash flow issues is tokeep Emergency cash into company.Cash is part of working capital and its must circulate for Business to survive.There are some more options, how to avoid cash flow issues. Bridge P. described somemain suggestions, example, keep on later capital expenses, sell non-essential assets,rescheduling loan payments or even defer corporation tax.Mainly cash flow issue for lots companies is overtrading. It is very important to avoidtake more than company can actually manage.Also, some companies have serious cash flow issues because they have too muchdebt; author to this report suggests that need to stop any business when it goes intodebts.One of main issue for Cash flow is also Overheads. Overheads are costs that are notdirectly related to the cost of producing a product or services, but however they are 9
  • include in company balance sheet. Overheads are indirect costs. Overhead exampleswould be heating and lighting, rent, administration costs etc.It is also very important for to avoid any cash flow issues having Good manager. Goodmanager will know how to pay suppliers as late as possible (of course within agreedterms), how to not hold on top too much stock, etc. Often period is 30 days, howeverBusinesses often pays on the statement issued on the end of month (approximately UKit is 45 days). 10
  • Appendices One year cash flow Per Jan Feb March April May June July Aug Sept Oct Nov Dec yearOpening balance 75000Cash from Car sales 20000 23000 25000 24000 19000 18500 18500 19000 28000 28000 28000 28000 279000Cash from car wash 2300 2000 2300 2300 2200 2600 2600 2400 2600 2800 3000 3000 30100Cash from paint shop 2500 2500 3000 2800 3000 3400 3400 3200 3200 3300 3200 3400 36900Cash from body shop 2600 2700 2800 2500 2300 3400 4500 4300 3400 4200 4100 3300 40100Cash from mechanic 4000 4300 4300 4100 4200 4100 4400 4300 4600 4200 4100 4300 50900Cash from tire shop 2300 2100 2100 2400 2300 2100 2300 2100 2300 2800 2700 2900 28400Total Income 108700 36600 39500 38100 33000 34100 35700 35300 44100 45300 45100 44900 465400Machinery 23500Wages 7872 7872 7872 7872 7872 7872 7872 7872 7872 7872 7872 7872 94464Buy cars 45000 17000 20300 18600 13000 12400 12350 13000 22000 22400 22500 23700 242250Utility 300 300 300 300 300 300 300 300 300 300 300 300 3600Raw materials 3000 2800 2800 2700 2100 2500 2600 2400 2400 2100 3000 3000 31400Business rates 400 400 400 400 400 400 400 400 400 400 400 400 4800Entertainment 100 100 100 100 100 100 100 100 100 100 100 100 1200Rent 1500 600 600 600 600 600 600 600 600 600 600 600 8100Advertising 500 100 100 100 100 100 100 100 100 100 100 100 100Insurance 250 250 250 250 250 250 250 250 250 250 250 250 3000Total Expenses 82422 29422 32722 30922 24722 24522 24572 25022 34022 34122 35122 36322 388914Profit 26278 7178 6778 7178 8278 9578 11128 10278 10078 11178 9978 8578 76486 11
  • ReferencesAtrill P., McLaney E. (2008), Accounting and finance for Non-specialists, Hants, AshfordColour Press.Bridge P. (2011) Handout on Working Capital, Cash flow, Access to HE Business Management,Intake 2011/12, University of BoltonBusiness loans, Lloyds TSB,http://www.lloydstsbbusiness.com/finance/businessloan.asp?WT.mc_id=43000000174214777WT.srch=1Fardon Michael (2001) Advanced Finance, Worchester, Osborne Books LimitedJenkins A (1998), A-Z Business studies handbook, Kent, Greengate PublishingNational insurance- the basics.(2011),HM Revenue and Customs,http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/NationalInsurance/IntroductiontoNationalInsurance/DG_190048 12