UNIT 5.

2
GETTING STARTED.
CHAPTER 15.
Chapter 15 covers areas that are dealt with in greater detail elsewhere in the book
such as:
Types of business structure (chapter 19)

Why start your own business? (Chapter 4)

(a) Money
(b) Own boss
(c) To succeed with your idea
(d) Realise potential
(e) Status
(f) Family Expectations

Problems faced by people starting new businesses

Finance
Suitable staff
Suitable business structure
Premises
Competition
Cash flow

Managing working capital

Role of a Credit controller (chapter 8)
Check credit status (references, Stubbs Gazette and other credit rating agencies)
Set credit limits.
Reservation of title
Charge interest for late payment
Give discounts for prompt payment
To chase overdue accounts
Get a personal guarantee

Keeping an eye on working capital

Ratio analysis (Current Ratio and Acid-test ratio)
Efficient Stock control (see chapter 8 on control)

Methods of Production
Job (made to order, one-off, expensive, high skill level, change-over costs) eg
shipbuilding, art,
Batch (certain quantity, some stock, semi-skilled, cheaper) shoes, clothing,
Mass (identical, large quantity, cheap, economies of scale, high capital expenditure)
biros, razors.

Sources of Finance for a Start Up Business

Be able to discuss the advantages and disadvantages of each under the following
headings: Cost, Amount, Security, Risk of loss of Control, Matching the source to
the asset.
Long Term
Owners/Equity Capital
Loans and Debentures
Venture Capital (often buy shares and have someone on the Board)
Grants (Enterprise Ireland, IDA, County Enterprise Boards etc.)

Medium Term
Leasing
Hire Purchase
Term Loans

Short Term
Overdraft
Trade Credit
Factoring

Business Plan.
The syllabus states that you should know the purpose and importance of a business plan.
You should also be able to prepare a sample business plan.

The Purpose of a Business Plan:

It states the aims, policies and specific objectives of the business.
It describes the nature of the business.
It describes the people.
It describes how production will happen.
It describes how marketing will happen.
It describes how the business will be financed.

The Importance of a Business Plan.

Forces entrepreneurs to think about what they will do.
Helps to anticipate problems and devise solutions.
Helps management control by providing something to measure against.
Encourages investors.
Convinces banks to give loans.
Convinces suppliers to give credit.

The main Elements of a Business plan.

1. Describes the business and its owners (includes names and addresses, founders
experience, type of organisation, aims and nature of business).
2. Market Opportunity (MR, potential market, competitors strengths and weaknesses).
3. Marketing Strategy (the four Ps).
4. Management Team (number, role, experience, possibly organisation structure).
5. Production Facility (details of equipment, quality control).
6. Financial Analysis (sources, projected financial statements, cash flow forecasts, tax
considerations, details of credit and stock control, Profit and Loss account and
Balance Sheet if not a start up).

Basic Legal Ownership Options.

Sole Trader (describe and give advantages and disadvantages)
Partnership (describe and give advantages and disadvantages)
Private Limited Company (incorporated, documents, advantages and disadvantages)

Factors to consider when choosing finance options.

1. Purpose.
2. Amount.
3. Cost.
4. Control.
5. Security.
6. Tax implications.
7. Economic Climate (interest rates).

Subcontracting/Outsourcing.
This means getting some other business to make a product or provide a service for your
business.

Reasons for subcontracting.

1. Saves cost of buying space and equipment for boom times only.
2. Keeps staff numbers down.
3. Keeps management team small.
4. Removes the hassle of organising sick pay, holidays, pensions and tax.
5. Avoids Industrial Relations problems.
6. Lack of Expertise

Problems with Outsourcing

Loss of Profit
Quality control
Might set up as a competitor