1. BUSINESS MANAGEMENT UNIT 1
Chapter 4: Major decision making prior to starting a small business

2. Decision 1: Suited to operate a
small business?
Steps to evaluate:
The reasons why the potential business operator is going into business
The personal skills, abilities, and personality of the business operator in order to
assess if they are suited to being a small business operator.
What are the reasons for going into small business?
Be their own boss, become wealthy, more flexible working hours and conditions,
family tradition and many other varied reasons.

3. What skills are needed for
success?
Good communication skills
Technical and production skills
Planning and organisation skills
Accounting/financial skills
Marketing/promotional skills
Administration skills
Computer skills
Negotiation skills
Leadership skills
Complete Activity 4.1 into your workbooks

4. What kind of personal qualities help to run a
small business?
Prepared to take risks
Can think outside the square
Confidence
Self-belief
Can work independently
Can accept responsibility
Can set goals
Flexibility
A sense of humour
Determination
Sound decision maker
Hard worker
Can achieve long term goals
Can adapt to change
Be a ‘doer’

5. Complete Activity 4.3 into your workbooks

6. Decision 2: What type of business?
What type of business to enter into can be a very complicated issue, an idea for a new small
business can eventuate from:
Listening to family and friends
Personal inspiration
Researching new ideas and concepts on the internet
Looking overseas for new ideas not in the current market
New inventions (you invent!)
Other sources such as trade events, personal observation, competitors etc.

7. The most important aspect to take into consideration is
filling a current need or want that customers desire that is
not being currently met. Small businesses may need to take
new ideas or inventions and commercialise them for the
purpose of improving their own products or services, this
process is called innovation.
Once an innovation has been developed, it must be
protected as the innovation is considered your intellectual
property (def. Pg 46). List 5 different types of intellectual
property from page 47 of your text.
Complete activity 4.4 into your workbooks

8. Decision 3: Developing a business
concept
For a business to be successful, a business needs to be viable.This is the extent to which a
business is capable of developing and growing. One way of finding this out is to conduct a
feasibility study which is the initial research required to determine whether a business is
potentially viable.This study should include the information:
A description of the business idea, products, services
An overview of why the business will be successful
Profiles of key people involved
A description of the area/type of market the business will operate in
Definitions of products/services offered
Identification and analysis of competitors
Location and layout
A brief analysis of proposed operations

9. Another method of assessing the viability of a
business is to conduct market research. Market
research is the systematic approach used to assist
in making decisions about consumers and the
workplace
Complete activity 4.6 into your workbooks

10. Decision 4: Start from scratch of an
existing business?
There are 3 decision to make:
Start a new business from scratch
Purchase an existing business
Buy into a franchise
Starting from scratch
Probably the best idea is the business will be using a new idea or concept not currently available in the
market.
ADVANTAGES
Owner has complete control
No goodwill costs will be incurred
More freedom as own boss

11. DISADVANTAGES
More degree of business failure
More work initially
Harder to obtain finance/backing
No existing client base
And many more
Buying an existing business
Are easier to do than starting your own but do come with their own problems
ADVANTAGES
Much simpler process (name, location, staff already done)
Total cost of buying is fixed
Existing suppliers, client base
Can begin operating much quicker
And many more

12. DISADVANTAGES
Extra costs incurred such as:
Premises, plant, equipment
Goodwill
Previous Employees
Old stock
And many more
Buying a franchise
A franchise is a legal agreement between a producer or a well known product (franchisor) and another
business distributor (franchisee), where the franchisee buys the rights to use the franchisor’s name,
reputation, products, methods and systems. Franchisor may charge the franchise like:
An initial, up front fee
A percentage of sales each month
A regular advertising and marketing fee
Or all of the above

13. ADVANTAGES
Hugely reduced risk of failure
Less risky business decisions made by owner
Staff training provided
Brand name already established
DISADVANTAGES
Far less independence
May not be able to implement own ideas
Costs can be excessive
Performance appraisals
Read facts about franchising from pg 56 of your text
Complete Activity 4.7 into your workbooks

14. Decision 5: Form of ownership?
SoleTrader –This is the simplest form of
business ownership. Involves one owner
under one trading name. the owner makes all
the decision for the business and reaps all the
profits.The only problem is the owner is
under unlimited liability where they take
total responsibility for all business debts and
personal assets can be sold to clear business
obligations.

15. Partnerships – is a more complex form where a business is owned by
between 2 and 20 people. Each partner is jointly liable for the business
debts.The partners then draw up a partnership agreement where partners
produce a legal document outlining the terms/conditions of the
partnership.There are 2 types of partnerships:
General – all partners are deemed equally responsible for the management
of the business
Limited – involves passive investors or ‘silent partners’ who are involved
with the business only in an ‘investment’ sense and not in the day to day
management.Their liability is limited to their proportion of investment.
Complete activity 4.8 into your workbooks.

16. Company (public and private) – the next step is
to form a company, this is called
corporatisation. Companies have their own
legal identity. Corporations can be either
private or public. Private companies are usually
smaller and are limited to a max of 50
shareholders and always end with the prefix
‘Pty Ltd’. Public companies have unlimited
shareholders and end with the prefix ‘Ltd’.
Read table 4.1 as a group and discuss the pro’s
and con’s of the different forms of ownership

17. Decision 6: Business Location
This is one of the most critical of business decisions, and can often be the ‘make or break’ of business decisions.
Here are some factors to consider when choosing a business location.
Area profile: Demographics, Economic trends, Levels of support/services/competition, reputation of the area,
zoning regulations.
Site accessibility and visibility
Suitability of the buildings
Costs
Accessibility to transport
Pending planning proposals for the area
Proximity of large business with pulling power (coles, safeway)
Complete Activity 4.9 into your workbooks

18. Decision 7: Layout of premises
The physical layout of the business is also another important factor to consider. Factors to consider are:
Fixtures and fittings
Placement of these to maximise traffic flow
Placement of stock
Efficient traffic flow
Optimal use of space
Good access
Effective use of lighting + colour
See ‘hints for retail operations’ pg. 81
Then Complete Activity 6.9 (handout) onto an A3 page

19. END OF CHAPTER
COMPLETE CHAPTER
SUMMARY QUESTIONS