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Business Management


Business Management Unit 2 2.1 How do Businesses Start? Unit 2.1 How do Business Start? In this unit you will find out about: Why businesses start Buyers and sellers ... – PowerPoint PPT presentation

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Title: Business Management

Business Management
  • Unit 2
  • 2.1 How do Businesses Start?

Unit 2.1 How do Business Start?
  • In this unit you will find out about
  • Why businesses start
  • Buyers and sellers
  • Help for business start-ups
  • Markets and market research
  • Risks for new businesses
  • Business Plans

Today you will find out
click here for startup video
click here for enterprise video
Starting A Business Business Ideas
Source of Idea Example
Developing a hobby Making wooden bowls
Using your skills Painting/Drawing/Calligraphy
A chance idea Radio shower
Spotting a gap in the market Home Help ie someone to do your housework while you are at work
Improving a product or service PlayStation 2
Combining 2 existing ideas Farm and Farm Shop
Solving problems for people Independent Financial Advisor
Listening to people Call Centre, eg Insurance
Entrepreneur has idea
after doing research to find out if people want
develops it
product goes into production
sold to buyers
resulting in profits hopefully!
  • Customers
  • The person who buys the product, but does not
    use it.
  • Consumers
  • The person who buys the product and uses it.
  • All businesses buy something
  • Raw materials
  • Semi-finished goods
  • Capital goods
  • Labour

  • All businesses sell their products/services at
    a price that gives them a profit.

Factors of Production - LAND
  • Farmland crops,animals
  • Buildings land needed for housing, businesses
  • Water
  • Coal-mining to provide heat

Factors of Production - LABOUR
  • Labour is physical and mental effort.
  • People who use mental effort include
  • Teachers
  • Bankers
  • People who use physical effort include
  • Assembly workers, eg a car production line
  • A baker mixing of ingredients to make bread and

Factors of Production - CAPITAL
  • Capital is the money and the things that can be
    purchased with money to make and sell goods and

Factors of Production - ENTERPRISE
Enterprise means having an idea for a new
business and taking risks with the other factors
of production to make the business a success
Help! where to get MONEY
  • Bank manager loan or overdraft
  • Family and friends
  • Redundancy money
  • Savings
  • Grant from Government or others eg Princes Trust
  • Finance from business partners
  • Credit from suppliers (buy now, pay later)

Help! where to get ADVICE
  • Local council
  • Bank manager
  • Government development agencies
  • Princes Scottish Youth Business Trust
  • Business partners
  • Consultants

Entrepreneur Risks
  • Losing all the money invested when starting the
  • Losing personal assets, eg house, car, buildings
  • No one buying the product/service
  • Not being able to pay debts, eg wages, suppliers,

Ways of Identifying/Minimising Risk
  • Market Research
  • Calculating break-even
  • Careful budgeting
  • Preparing a Business Plan

Why do Market Research
  • It will tell you
  • Is there demand for the product will people buy
  • What price will people pay?

Break-even calculation
Break even point is where costs are exactly equal
to revenue (income) there is no profit or loss
Break-even point
A business organisation will need to plan in
advance the break-even point so that it knows how
many sales it must make in order to be able to
pay for all its own costs
  • Careful budgeting ensures all expenses can be
  • Keep reserve in case of unexpected expenditure
  • Many small businesses experience problems with
    cashflow, ie ensuring the business has enough
    cash coming in to pay for immediate needs

Business Plan
  • This document outlines the objectives of a
    business and allows the bank, for example, to see
    if sufficient planning has been done
  • Click here for video

Sections of the Business Plan are
  • Premises and equipment location, cost and type
    of premises equipment required and cost
  • Profit estimates forecast of sales, breakdown
    of costs
  • Cashflow cash budgets for future, expected
    income and expenditure, source of income,
    loans/overdrafts required
  • Capital source of funding eg loans, grants etc
  • General details - name of business, ownership and
  • Human resources key people, skills,
  • The product/service nature and quantity of
    product, price, market research
  • The market target market (age, sex, income),
    size and potential growth, market research

  • A business plan is a report by a new or existing
    business that contains all of its research
    findings and explains why the firm hopes to
    succeed. A business plan includes the results of
    market research and competitor analysis. Analysis
    is when a business interprets information.
  • Drawing up a business plan forces owners to think
    about their aims, the competition they will face,
    their financial needs and their likely profits.
    Business plans help to reduce risk and reassure
    stakeholders, such as banks.

General Details Get Ahead, 12 Cut Lane, COMB G23 5TH
The business Sole Trader
Product/Service Haircutting, styling, manicure service
The Market Local men, women, all ages No other hairdresser within 2 miles Advertise in local papers and shops
Personnel Owner and junior Qualified hairdresser, junior in training
Profit Estimated at 1,500 per month
Cash Flow All payments by cash no credit. Monthly payment of stock and other bills
Finance Owners contribution - 10,000
Borrowing None required
What is a Market?
A market is a way of selling goods and services
to buyers. How many different types of markets
can you think of?
  • Outdoor market
  • Shopping mall
  • High street shop
  • Ice-cream van
  • Housing market
  • Banks/mobile banks
  • Mail order
  • Dispensing machine
  • Door to door eg Avon
  • Telephone sales
  • TV shopping channels
  • Internet
  • Cash dispensing machines

If people buy products/services in quantity,
there is a market. A market requires buyers and
What is Market Research
  • A new business starting up, or an established
    business launching a new product can be risky
  • Consumers may not want the product
  • They may not like the price charged
  • They may find it difficult to locate the product

Having information in advance by doing market
research can reduce such risks
Questions Market Research Might Answer
  • What would be the likely level of sales?
  • Do consumers have particular feelings about some
    aspect of the product eg the colour of a car, the
    taste of a toothpaste, the packaging on biscuits
    and sweets, the name of a washing powder?
  • What is the likely future trend in this market?
  • Is there any scope for selling in different parts
    of the country or in other countries?
  • What might happen if the price was altered in
  • Is there scope for advertising and if so where
    and in what form?

Primary Research (Field Research)
  • This method of research involves going out into
    the field and finding our information that you
    want through the use of
  • Questionnaires
  • Observations
  • Test marketing
  • Consumer panels/Focus Groups

Questionnaires these can be face-to-face, by post or over the telephone. Usually only a sample of people will be chosen to take part in the survey
Observations where possible customers are observed to note their reaction to advertisements, new displays etc
Test marketing by launching a product in a limited area to gain reactions and sort out teething problems before tackling a wider market
Consumer panels/Focus Groups To interview a group of people and gain their reaction to the possible introduction of the new product
Primary Research (Field Research)
  • Advantages
  • Collected for your own use and purpose
  • First-hand, you have collected it
  • Disadvantages
  • Time consuming
  • Expensive
  • Might not be accurate

Secondary Research (Desk Research)
  • This method of research involves using
    information which already exists
  • Looking at previous sales figures for the company
  • Customer suggestion boxes/complaints
  • Investigating what the competition are doing
  • Government Statistics, eg household income and
    census information
  • Published market research information, eg Mintel.
    Where information is gathered about a specific
    market, eg alcopops
  • Quality newspapers/magazines, eg market trends

Secondary Research (Desk Research)
  • Advantages
  • Cheaper
  • Quicker and easily obtained as it already exists
  • Disadvantages
  • Relates to old data
  • Might not know the reason/purpose for the
  • Biased towards reason/purpose collected

Market Segments
  • A market will be divided into segments of the
    different types of customers that buy the
    product/service. For example
  • Sex/Gender Male/Female products directly
    produced for females or males
  • Age eg Pampers, teenage magazines, SAGA holidays
  • Income people who can afford the latest gadgets
    when they first come onto the market
    (socio-economic groupings A, B, C1, C2, D and E)
  • Where they live eg garden centre who specialise
    in plants for the local area

Market Segments
(continued )
  • Lifestyle eg Halal meat (speciality butcher for
    beliefs and religion)
  • Family - Centreparc
  • Over the last few years some business
    organisations have had to look at their market
    and re-organise to take into account that the
    population are living longer and we are becoming
    an ageing population.

  • Why people set up a business
  • Who are buyers and sellers
  • The 4 factors of production
  • Land
  • Labour
  • Capital
  • Enterprise
  • How to get financial help for setting up a
  • How to get advice on setting up a business
  • What risks are involved in starting a new
    business and how avoid them
  • What are the different types of market
  • What is Market Research
  • Different types of Market Research field and
  • What is Market Segmentation