Running a business

1. Running a business BEING AN ENTREPRENEUR REASONS FOR BEING SELF EMPLOYED REQUIRED SKILLS AND PERSONAL CHARACTERISTICS

2. Entrepreneurs Entrepreneur – a person who engages in business activities, especially those that involve risk, in order to make a profit. Famous entrepreneurs http://www.woopidoo.com/profession/entrepreneurs.htm Choose one of the entrepreneurs who is of interest to you. Develop a short biography of the entrepreneur, focusing on his or her success in building and running a business.

3. REASONS FOR BEING SELF EMPLOYED Independence People have the chance to make more money Personal satisfaction Talents, skills, ideas and energies directed towards entrepreneur’s own goals You can control decisions

4. Challenges of being self employed Long hours Hard work Need to find employees Have to deal with demands of customers, suppliers and financiers Can be very stressful as may not be successful

5. Required skills and personal characteristics needed for success – the more characteristics the more likely to be successful

6. Syllabus - Planning for success • Selecting business opportunities • Market research • Location • Demographics • Competition • Target markets • Selecting the appropriate structure • Sole Trader • Partnership • Private Company • Incorporated

7. Syllabus - Planning for success continued • Arranging finance • Establishing a new or purchasing an existing business • Location • Staffing • New • Established • Franchising • Equipping

8. Selecting business opportunities • When identifying opportunities for small businesses a number of factors need to be taken into consideration: • Market research • This involves talking with or surveying potential customers and competitors as well as contacting trade and professional organisations for advice about the business and locations being considered. • Obtaining data from the Australian Bureau of Statistics about the demographics of the people in the area.

9. Activity – Business opportunities • Look up Roy Morgan Research www.roymorgan.com.au OR • ACNielsonAustralia http://www.nielsen.com/au/en.html • Write a paragraph outlining the services provided by one of these organisations

10. Factors for selecting business opportunities continued • Location – factors to consider • Where are potential customers? • How far are they willing to travel? • Does the business need to be in a retail area? • Can the business have a base at the entrepreneur’s home? • Is the business going to be an internet-based business? • How much will the location cost?

11. Factors for selecting business opportunities continued • Demographics • Demography refers to details of the size of a particular population and its characteristics. • How many people will be able to access the business? • How old are they? • What gender or ethnic group are they? • How much do they earn?

12. Factors for selecting business opportunities continued • Competition • What businesses will be competing against a new one? • Are there more customers than the existing business can cater for? • What will attract customers to a new business instead of an established business? • Will the new product be cheaper? • Will the product be of superior quality? • How does the competing business market its product?

13. Factors for selecting business opportunities continued • SWOT analysis – an assessment of a business’s: • Strengths • Weaknesses • Opportunities • Threats Activity Complete a SWOT analysis of your market day business

14. Factors for selecting business opportunities continued • Target markets • Definition – the group of customers to which an organisation intends to aim its marketing efforts. • For example the product may be of particular interest to young people such as skateboard clothing.

15. Selecting the appropriate structure • Sole Trader • Definition – a business with a single owner who is responsible for every aspect of the operation of the business. • Examples – hairdressers, plumbers, dentists, video stores • Control and manage business on their own • Treat income as their own • Income tax assessed on owner’s total income • Owner personally liable for all debts incurred by the business • Ability to borrow money limited by the owner’s ability to provide security for a loan

16. Selecting the appropriate structure - Sole Trader • Advantages • Keep any profit • Easy to establish • Own boss • Provides a sense of personal satisfaction • Work the hours they want • Disadvantages • Unlimited liability • Limited access to finance to grow the business • Pay income tax • Difficult to take time off

17. Selecting the appropriate structure – Partnership • Partnership • Definition – where two or more people share responsibility for the operation of a business • Examples – Architects, accountants, lawyers, doctors • A partner acting alone in the name of the business binds the other partners to his or her actions. • A partner’s income from the partnership is added to his or her income from other sources • All partners have unlimited liability for any debts incurred by the business. • A partners’ personal assets can be sold to repay money owed by the company.

18. Selecting the appropriate structure – Partnership • Advantages • Keep all the profit • Share any losses • More capital to establish the business • Work shared between partners • More people to make decisions • Easier to borrow money • Disadvantages • Partners have unlimited liability • Partners share the profit • Possibility of disagreements among partners • If a partner leaves the business the partnership agreement must be renegotiated

19. Activity • Form a partnership with two of your classmates • Decide on a name for the partnership and the type of business you plan to run. • Develop a partnership agreement that includes the name of your business and the roles and responsibilities of each partner. • Issues to consider – finance, administration, supply of inputs, promotion, production and the distribution of profits • Develop a partnership agreement for your market day business.

20. Selecting the appropriate structure – Companies • Companies • Definition – public company – a company listed on the stock exchange. Any member of the public can become a shareholder. • Definition – private company – a business that is not listed on the stock exchange and has 50 or fewer shareholders.

21. Selecting the appropriate structure – Companies • Characteristics • Exists separate from its owners • Earns all the profit and responsible for all the debts • Individuals become owners or shareholders of the company by purchasing shares • Profits the company makes are passed onto owners through a payment called a dividend • If a shareholder no longer wants to be part of the company they sell all of their shares.

22. Selecting the appropriate structure – Company • Private Company • Limited to 50 shareholders • Board of directors elected to run the company • Has Pty Ltd or Proprietary Limited at the end of the company name • Shares are not sold to the public • Public Company • No limit to the number of people owning shares • Listed on the Australian Stock Exchange and run by a board of directors elected by shareholders • Has LTD or Limited liability after its name

23. Selecting the appropriate structure – Company • Advantages • More capital is available • Borrowing money easier • Liability of shareholders is limited • A legal entity • Specialised people employed to run different elements • Disadvantages • Government regulations must be taken into account • Limits placed on the board of directors • Owners do not have control over decisions made • Expensive to set up, maintain and organise • Too large and inefficient

24. Companies - activity • Find a list of Australia’s top 50 companies in the sharemarket report from the ASX website or a major newspaper. • How many of these companies do you recognise? • Identify the goods and services provided by the companies you recognise. • List the companies and the goods and services they provide.

25. Incorporated association Forming an incorporated association allows a small non-profit community based group an easier and inexpensive means of establishing a legal entity. Sell goods and services but profits are returned to the association. A legal entity that would suit a sporting or gardening club wanting to trade.

26. Activity • Look up the classified section of a major metropolitan newspaper. Select a ‘business for sale’ you would like to buy. • What interests you about this business? • What qualities or interests do you have that would enable you to run this business successfully?

27. Arranging finance Starting a business can be costly. A sole trader has the least costly set up and a company the most expensive. Leasing equipment or buying through a hire purchase agreement can avoid upfront costs

28. Arranging finance can be continued • Finance can be obtained from: • Private sources – personal savings, a loan from family or friends. • A bank or finance company in the form of a loan, overdraft or mortgage. • The sales of shares to form a company. • Suppliers who are willing to be creditors, that is not be paid until the goods have been delivered.

29. Online banking for small businesses - activity • Many lenders allow businesses to apply for a loan online • Access one of the following sites and evaluate the range of finance available for the small business operator. Present your findings in a table. • St George www.stgeorge.com.au/smallbus/ • Esandawww.esanda.com/business/finance/ • National Australia Bank www.national.com.au?Business_Solutions/

30. Loan application form activity • Download a loan application form from a bank or financial institution. In pairs complete the following tasks: • Select a type of business you might like to operate. • What type of information does the financial institution ask you to supply? • Complete the loan application form.

31. Establishing a business • Choices • Start business from scratch • Buy an existing business • Buy a franchise

32. Starting from scratch • Characteristics • Create something unique and start to market • Fill a gap in the market • Market demands product or service • Advantages • No inbuilt problems (a bad reputation) • Freedom to set up business as choose • No hidden costs (maintaining equipment) • Disadvantages • Need to establish a good reputation • High risk and uncertainity • Raise funds to fit shop out and buy equipment

33. Buy an existing business • Characteristics • The price usually includes goodwill • Important to know why the business is for sale • Advantages • Sales generate instant income • Stock already acquired • Seller may offer advice and training • Disadvantages • It may be difficult to assess the value of goodwill • Some employees resent change to the business operation • Success of the business may have been due to the previous owner’s personality and contacts

34. Buying a franchise • Characteristics • A franchise is a business for which there is an agreement for the use of a brand name and operating system in exchange for a fee. • Franchisors (the business firm that provides the goods, services and expertise for a franchise) have strict requirements to ensure their reputation is upheld by the franchisee (the owner of the franchise). • Examples – The Body Shop, Gloria Jean’s Coffees, Sumo Salad

35. Buying a franchise continued • Advantages • Less start up capital needed • Owners receive specialised training • Advertising costs are shared • Advice available from the franchisor • Bulk buying can reduce costs • Established goodwill and market recognition • Disadvantages • Range of products sold determined by the franchisor • Franchisee levied fees and charges to cover costs like advertising • Franchisee little say in how the business is promoted • Products must be sourced from suppliers by the franchisor

36. Franchises - activity • Use free minder to develop a concept map of the names of franchises you are familiar with. • Categorise these according to business types like: • Clothing • Personal services • Business services

37. Franchises Activity • Use a major daily newspaper to locate advertisements for franchise-based businesses. • Categorise businesses by type • How are these businesses promoted to potential franchisees.

38. Considerations in establishing a business New / Established/ Franchise plus Location Staffing Equipping

39. Location • Decisions need to be made about: • Proximity to customers and suppliers • Rent costs • Size of property • Retail premises range from: • very expensive for locations with a high number of people passing by (like shopping malls) • to relative cheap (far away from passing crowds)

40. Location - continued • Running a business from home • Advisable to keep business in a separate part of the house • Best if business involves consultancy on the clients premises • Advantages • Can be convenient in time and comfort • Disadvantages • Domestic distractions • Lower professional image • A sense of isolation

41. Staffing • Before commencing operations staffing needs of the business must be assessed. • Steps involved in acquiring staff: • Designing job descriptions including roles, desirable characteristics, wages and conditions • Recruitment • Interviewing • Hiring

42. Staffing continued Wages, superannuation, taxes must be paid. Staff entitlements like sick leave and holidays must be monitored. Facilities like toilets and drinking water need to be provided. Important to be aware of and complying with laws involved.

43. Equipment • A new business begins with an empty premises. It would only have • Toilets • A kitchen • Light fittings • Much needs to be done including: • Connecting utilities – electricity and telephone • Painting • Adding/changing light fittings • Laying/changing floor coverings • Finally stationary and other equipment to produce or sell the product is required

44. Activity • Access the federal government’s Business Entry Point website www.business.gov.au • Complete the following: • Outline the steps involved in starting up a business • What assistance does the site provide for people setting up a business?

45. Syllabus – Business operation • Meeting regulations • Local • State • Federal • Selling products • Maintaining records • Revenue statement • Balance sheet • Cash flow • Taxation records

46. Syllabus – Business operation continued • Risk management • Planning for the future • Aspects of key issues relating to running a business • Operating a business

47. Regulations • The operations of businesses are regulated by three levels of government. • Federal government • State government • Local government

48. Federal government • All businesses should have an Australian business number (ABN) or Australian company number (ACN) • ABN is available from the Australian Business Register (ABR) www.abr.gov.au • ACN is available from the Australian Securities and Investments Commission (ASIC) • These numbers identify the business/company for tax purposes and dealing with government agencies. • When doing business with other businesses the ABN/CAN needs to be on all invoices.

49. Federal government continued • Taxes administered by the federal government: • Income tax • Goods and services tax (GST) • Fringe benefits tax • Sales tax • Customs and excise duty • Federal governments laws include: • The Workplace Relations Act 1996 (Cwlth) • Anti-discrimination legislation • Superannuation legislation • Occupational health and safety (OHS) legislation

50. State government • Workcover • The regulatory authority in NSW to achieve safe workplaces by administering: • The Workers Compensation Act 1987 (NSW) – compulsory for employers to take out insurance to cover employees for work related injuries. • The Occupational Health and Safety (OHS) Act – describes how businesses should generally keep a safe and healthy workplace.