TOPIC 3: BUSINESS PLANNING
Influences in establishing an SME
- personal qualities - qualifications, skills, motivation, entrepreneurship, cultural background, gender
- sources of information
- the business idea - competition
- establishment options - new, existing, franchise
- market - goods and/or services, price, location
- finance - source, cost
- legal - business name, zoning, health and other regulations
- human resources - skills, costs (wage and non-wage)
- taxation - federal and state taxes, local rates and charges
Personal qualities
TASK:
The following resources may also assist:
The following video, '15 Characteristics of Effective Entrepreneurs', has many traits that the syllabus won't tell you about.
- Examine several profiles of entrepreneurs in http://www.dynamicbusiness.com.au/category/entrepreneur-profile
- Identify their personal qualities in the attached table, categorised as per the syllabus terms (with an extra category of ‘other’)
- Explain why they are important for running a business.
The following resources may also assist:
- 10 Important Skills for Young Entrepreneurs
- Degrees of ambition
- How to overcome obstacles as a female entrepreneur (mainly focuses on sources of finance in the USA)
The following video, '15 Characteristics of Effective Entrepreneurs', has many traits that the syllabus won't tell you about.
Sources of information
TASK:
- Think about the areas that establishing businesses need. For finance, taxation and general business advice accountants are good sources of information and solicitors for legal advice. Who else would you go to advice?
- Examine the types of services various providers such as Flying Solo, business.gov.au, and the Business Queensland offer small businesses to help them establish.
The business idea
ACCESS: Commercial Real Estate - Business
Imagine a friend has asked you to help them find a business they could buy. Identify a business opportunity from the various businesses listed on this website.
READ: Is your business idea good, bad or ugly?
ACCESS: Niche marketing
Think of a business that you could start. It does not need to be a new type of business with a new product. Think about a possible niche market.
Imagine a friend has asked you to help them find a business they could buy. Identify a business opportunity from the various businesses listed on this website.
- Evaluate the potential of the business as an ongoing success.
- Discuss why someone would consider buying this business and why you would recommend it to your friend.
READ: Is your business idea good, bad or ugly?
- How will your friend gain a competitive advantage in the business you chose?
ACCESS: Niche marketing
Think of a business that you could start. It does not need to be a new type of business with a new product. Think about a possible niche market.
- Outline what the business is.
- List the qualities, contacts, experience, time, resources you have to make it happen – all the things in your favour and also list the qualities, contacts, experience, and resources you lack or are weak in.
- Discuss the competition this business would face and strategies that could counteract it.
- Evaluate the viability of making this business a success.
Establishment options
READ: Starting, buying or franchising? and Should you start a business from scratch or buy an existing one?
TASK: Create a table listing the advantages and disadvantages of the three main methods of entering business (new, existing, franchise).
TASK: Create a table listing the advantages and disadvantages of the three main methods of entering business (new, existing, franchise).
Market influences
There are many decisions that need to be made when starting a business that are influenced by the market in which it operates.
1) Goods and/or services: Choosing what to sell is one of the first decisions a business owner makes and depends on the following factors.
1) Goods and/or services: Choosing what to sell is one of the first decisions a business owner makes and depends on the following factors.
- The target market: age, gender, location, occupation and household status of potential customers
- Expected sales and the costs of production
- Legal requirements eg licences, safety regulations
- Competitive advantage: the product’s point of difference or unique selling proposition (USP) compared to competitors’ goods and/or services
- Competitors' prices (eg Should the business undercut competitors' prices?)
- Cost of production (eg Should the business set a price that will make it a profit from the beginning or take losses in the beginning?)
- What customers are prepared to pay (market research would need to be conducted to determine this)
- The value image to be projected by the price set (eg bargain or prestige?)
3) Location: Choosing where to locate a business depends on many factors:
- Where customers are located
- Where suppliers are located
- Cost - renting vs buying
- Convenience
- Legal influences eg council zoning
- Size of premises available
Finance
Finance is the money needed to fund the activities of a business.
There are two main sources of finance:
There are two main sources of finance:
- Equity (capital) - the owners' financial contributions to the business (shareholders in the case of companies - public companies' shares are traded at the Australian Securities Exchange) and profits retained in the business (not paid out to the owners)
- Debt (liabilities) eg Short term for the day-to-day running of the business: bank loans, overdrafts, commercial bills; Long term for purchasing equipment, land, buildings and other non-current assets: mortgages, debentures, unsecured notes
- No need to share the ownership further (can dilute returns for the original owners)
- Interest paid on debt is tax deductible
- Certainty - know how much has to be repaid and when
- Cost of paying interest
- Repayment timing often not flexible
- Secured loans require an asset to be linked to the loan and if the loan is not repaid the asset may be repossessed
- No requirement to make regular repayments
- No interest (cheaper)
- Only paid back if the owner leaves the business
- Owners expect returns on their investment (out of profits) - hard to attract new contributors if profits are low
- Dilutes existing owners’ share of profits
- If the business is unincorporated owners are personally liable for debts of the business
- The type of finance
- The source of the finance
- The term
Human resources (HR)
- Employees are the most valuable resource of any business.
- Hiring the ‘right’ people at the ‘right’ time, with the ‘right’ skills in the ‘right’ quantity is crucial for business success.
- When establishing an SME the owner needs to decide how many employees, if any, will be required to operate the business.
- There are many sources for finding staff. The source chosen will depend on the size of the business, the type of position available and the nature of the labour force in the business’s particular area.
Skills
Skilled employees are highly productive and result in creating wealth for the business.
A business needs to recruit employees who will be an asset and thus need to be:
- hard-working
- share the vision of the business
- be able to handle any changes within the organisation.
If the skills level of employees is not adequate for them to fulfil their jobs effectively, then the business owner has two options:
- provide training to improve the skills level of existing employees
- recruit people who have the required skills.
Costs of HR - wages
Staff are paid a wage or salary.
- A wage is a weekly payment based on hours worked and an hourly rate of pay.
- A salary is an annual rate of pay, divided into equal pay periods. Wages may be determined by the award for that occupation.
- An award sets out the minimum wages and conditions for an occupation.
Costs of HR - non-wages
The cost of hiring staff is not merely their salary or wage. Additional costs, or on-costs, include non-wage costs that must be included. The main on-costs include:
- work health and safety requirements
- long service leave
- sick leave
- superannuation
- holiday pay
- study leave
- maternity and paternity leave
- workers’ compensation
Legal influences
Business name
Health regulations
Local government imposes health regulations under the Public Health Act 2010 (NSW), particularly for businesses handling food. Each local council stipulates requirements and standards to meet in order to receive a licence to operate. Some requirements include:
READ: the health regulations for my local council and check out the Name and Shame Register and click on Register of penalty notices and Register of offences (prosecutions)
- If you are a sole trader using your own first name and surname or your partner’s first name and surname in a partnership, then you do not have to register the name of the business.
- However, a business may want to you a business name different to the name of its owners. This name must be registered with the Australian Securities and Investments Commission (ASIC).
- The business should also have an Australian Business Number (ABN) . The ABN must be on all transactions, letters and documents.
Health regulations
Local government imposes health regulations under the Public Health Act 2010 (NSW), particularly for businesses handling food. Each local council stipulates requirements and standards to meet in order to receive a licence to operate. Some requirements include:
- the temperature for food storage
- kitchen layout
- employee clothing requirements
- time for which food can be kept
- correct food handling
READ: the health regulations for my local council and check out the Name and Shame Register and click on Register of penalty notices and Register of offences (prosecutions)
The NSW Food Authority is responsible for regulating and monitoring food safety across the entire food industry supply chain in NSW - from paddock to plate.
The Food Authority plays a vital role in protecting the health and wellbeing of the people in NSW through:
- mitigating food safety risks
- rapidly responding in the event of a food safety incident
- improving the clarity and accessibility of food information
- providing education, training and technical information to consumers and industry.
Source: http://www.foodauthority.nsw.gov.au/aboutus
Every business in Australia is covered by work health and safety legislation (WHS). The Work Health and Safety Act 2011 (Cth) is supported in New South Wales by the Work Health and Safety Regulation 2011 This Act provides the legal framework for safe employment and establishes the obligations for employers and employees that must be followed.
Other examples of health and safety regulations are those affecting the building industry. Toxic material and chemicals must be stored and handled in a safe manner to protect the health of employees. Certain dangerous products (such as asbestos) have been banned because of their severe and potentially lethal impact on workers’ health.
Work must also be performed in a safe manner; for example, using safety harnesses to prevent falls when working at heights and wearing hard hats on building sites.
Other health regulations include:
Zoning
Local government controls zoning regulations. In other words, they have the authority to restrict where certain businesses can locate. Zoning regulations specify the areas in which residential, industrial, recreational or commercial activities may take place.
When establishing a business, the owner must check which zoning regulations with the local council to determine where their business belongs. A manufacturing business that uses heavy equipment and wants to operate a 24/7, for example, would need to locate where it is allowed to operate under zoning regulations. It would not be suitable close to a residential area, mainly because noise is a problem.
The image below is a council's zoning map, with a few areas annotated to make it clearer (bushland, retail shops, offices, golf course and school). This particular area does not have an industrial zone for factories and the like
Other examples of health and safety regulations are those affecting the building industry. Toxic material and chemicals must be stored and handled in a safe manner to protect the health of employees. Certain dangerous products (such as asbestos) have been banned because of their severe and potentially lethal impact on workers’ health.
Work must also be performed in a safe manner; for example, using safety harnesses to prevent falls when working at heights and wearing hard hats on building sites.
Other health regulations include:
- smoke-free zones
- operating hours
- storing and disposal of rubbish
- public swimming pools
- pollution levels
Zoning
Local government controls zoning regulations. In other words, they have the authority to restrict where certain businesses can locate. Zoning regulations specify the areas in which residential, industrial, recreational or commercial activities may take place.
When establishing a business, the owner must check which zoning regulations with the local council to determine where their business belongs. A manufacturing business that uses heavy equipment and wants to operate a 24/7, for example, would need to locate where it is allowed to operate under zoning regulations. It would not be suitable close to a residential area, mainly because noise is a problem.
The image below is a council's zoning map, with a few areas annotated to make it clearer (bushland, retail shops, offices, golf course and school). This particular area does not have an industrial zone for factories and the like
Map source: http://maps.kmc.nsw.gov.au/KMCwebPROD.html
Other legal influences
The Australian Consumer Law (ACL) as part of the Competition and Consumer Act 2010 (Cth) designed to protect consumers, covering aspects such as:
The Australian Consumer Law (ACL) as part of the Competition and Consumer Act 2010 (Cth) designed to protect consumers, covering aspects such as:
- misleading packaging
- misrepresentation of the place of production
- product safety
- warranties and guarantees
- bait advertising
- liquor licence
- business parking permits
- background music licence
- public space signage licence
- fire safety certificate
Taxation
WATCH this video from the ATO providing an overview of taxes for businesses in Australia.
READ about the various taxes, duties and rate imposed on businesses:
READ about the various taxes, duties and rate imposed on businesses:
- Federal taxes
- NSW taxes and duties
- Rates charged by the City of Sydney