My pricing structure: I plan to use the crucial pricing point, and to sell my goods at a penetrating price on a permanent basis. This is because using the "crucial pricing point" makes my goods seem cheaper, so I will sell more. The reason that I will use penetration pricing is that this should attract customers, destroyer pricing is impractical as I would find it hard to compete with the large companies like Dixon’s, or Currys. To get my promotional price I would add on a certain amount to the price, around 15%.
Field Research Conclusion
I asked 29 people in Ballymena for information that I would find helpful for me in order to make this study conclusive. I have displayed the information in a database on the following page. I have filtered and shown clearly what I have found by filtering down the database and displaying my findings in graphs.
On page 9 I have filtered the data according to people who pay for delivery, on the page after I have filtered by people who pay for both delivery and installation. I found 56% of people pay for delivery and 37% pay for both, the average cost paid for these items is £1230, this shows people who purchase expensive items will require these services. I think that I will have to investigate this service in further detail throughout my study.
On the previous page I have a bar chart showing the market segments in the local area. It shows that locally Laser has the biggest percentage closely followed by Electric World, both these shops are at opposite ends of the town from each other showing that location doesn’t play a big part in influencing the market segments.
The fact that each local company’s market segment is fairly equal shows that there is no monopoly going on here. This suggests that there is more than likely space for my company in this market.
Surprisingly enough my target audience will not be mainly males, from this research. 52% of males and 48% of females visit electrical shops regularly. Therefore realistically I will have to target both genders for my marketing to be successful.
Additional Services
I visited a number of similar shops in the town and found delivery can be anywhere from £30 - £10 if you live in the Ballymena district. Installation can be £50 - £10, this I think is outrageous. Most shops I found offer the following for free:-
- Price match
- After sales service
- Customer credit
Yet most shops I visited charge for:
- Warranty
- Home delivery
- Instillation
I have found that the majority of shoppers only pay for delivery if the item is in the range of £200 - £3000. Therefore I propose to offer free delivery to items over £150 in a rage of 15 miles. If a small van does 25mpg and petrol is £3.40p per gallon, the person delivering is paid around £6 an hour, it takes on average one hour to travel 15 miles return. That amounts to nearly £10, therefore it is viable for me to offer this service free to large orders. If the customer requires installation chances are that it will also be delivered, if it takes the member of staff 30 minutes to install the total is £13.
This therefore will attract people to the store if they think this will all be done for free rather than paying nearly £70 in the worst cases for an item which may only have cost £200.
Location
There are many factors for me to consider when locating my business which all play a vital role in my business being successful. There are a number of points to consider when deciding the location of this business:
- Can be seen clearly by the public
- Has good parking facilities
- Not far from the target market
- Cost of the site
To help me decide I have taken four of my local competitors and placed there locations on a map of the town centre. This will help me see the places that they have chosen:-
As can be seen above all of these shops are very close to busy roads. I have chosen to investigate setting up close to the pink circle. This is close to the rest, has parking facilities and is close to two main roads. I must now consider the costs of the site, I will need to find out-
- How long the site will be needed?
- Should it be rented or purchased?
- Will the building be fitted with basic requirements?
- What is the level of rates payable to the local council?
- Is there room for expansion?
- Are there any risks with the site will this raise the insurance premiums?
Laws I must Obey
As with everything there is do’s and don’ts, for my business these laws will be the ones set by the UK Government and Health and Safety. I have to ensure the customer is protected and guarantee that my store is safe and has all required facilities.
By law, my business must have employers' liability, motor insurance for my delivery vehicles and insurance for the building its self.
Employers' liability is necessary so that my business can meet its legal obligations if an employee is injured or made ill by work and there has been negligence by the employer. A certificate of employers' liability must be displayed somewhere in my store.
There are other types of insurance a business can get, but which are not legal obligations and these include insurance against fire, loss of profits, loss of goods in transit, public and product liability, and credit insurance.
1968 Trade description act, means the product description cannot be misleading
1974 Consumer credit act, allows the customer to have a copy of the credit agreement.
1979 Sales of goods act, does not allow:
- The selling of faulty, dangerous products
- The selling of products that are not fit to be used for the required task.
- The selling of products that do not do what they are claimed to be able top do
1987 Consumer protection act, makes the supplier responsible for faulty goods, and stops the supplier from making misleading claims.
Discrimination
My company can not discriminate on the basis of:
Disability
Age
Religion
Race
Gender
1992 The Workplace Regulations say that employers must “provide an adequate and free supply of drinking water at easily accessible places in the workplace, together with cups (unless the water comes from a drinking fountain). The water should be marked as drinking water if there is a chance employees will drink from another water source not suitable for drinking, unless that source is marked as not for drinking”
Health & Safety at Work Act 1974, Section 2
When I read through the various health and safety leaflets that I have been sent I was surprised about the number of rules I must abide by in order to not receive fines. The laws I must conform to include:
Health & Safety at Work Act 1974, Section 2
- Employers have a general duty to ensure the health safety and welfare of their employees at work.
- The workplace should be ventilated, and fresh clean air should be able to enter. Warm humid air should also be removed by ventilation.
- The temperature in the workplace should be at least 16ºC.
- Shelving should be of adequate strength and stability for things to be placed on it.
- There should be sufficient lighting so people can work and move around safely. Lighting/fittings shouldn’t create a hazard.
- Sanitary conveniences and washing facilities should be provided. They should be clean, and well ventilated and lit. There should be running hot and cold water, and a means of cleaning and drying.
- The workplace furnishings and fittings should be clean, as should surfaces of walls floors and ceilings.
What Type of Organization?
There are five main forms of business organisations in the private sector. These are
- Sole traders
- Partnerships
- Private Limited Companies
- Public Limited Companies
- Co – operatives
Each type has its own advantages and disadvantages as well as costs and benefits. In this section I will investigate which type will be the best for me and why.
The most common form of business organisation. It is a business owned and operated by just one person – although the sole trader can employ others, the owner is the sole proprietor. The legal regulations that must be followed are:-
- The owner must register with, and send annual accounts to, the Inland Revenue or Tax Office
- The name is displayed on all of the firm’s documents and a notice is put in the main office stating the owner.
The advantages of this type are:
- Fewer legal regulations
- I would be in full control of the company
- Freedom to control working hours, prices and employees
- Close contact with all customers
- Incentive to work harder as profits are my own
- Complete secrecy in business matters
The disadvantages are:
- Has no liability
- Finance limited to owners savings
- Restricted capital
- No continuity
There are three main types of partner in the UK:
- A general partner is someone who is actively involved in the everyday running of the business. General partners are liable to the full extent of their wealth to help pay off any debts that their partnership has. This means that they could be liable for an amount greater than their initial financial investment; they are considered to have unlimited liability.
- A limited partner is liable for debts only up to the amount of their initial financial investment. They are not allowed to participate in the day-to-day running of the business; neither can they withdraw their financial investment in the course of ordinary events.
- A dormant or sleeping partner is someone who merely invests their money into a partnership enterprise and does not participate in the management of the business. While dormant partners are similar to limited partners, they do not have to comply with the formalities required for establishing a limited partnership, in that they do not register themselves (with Companies House) as limited partners. Sleeping partners are considered to be general partners as regards liability, and hence have unlimited liability for any partnership debts.
Partnerships can be set up very easily. A partnership agreement needs to be written, this will contain:
- The amount of capital invested by both partners
- The tasks to be undertaken by each partner
- The way in which the profits will be shared
- How long the partnership will last
- Arrangements for absences, retirements and how new partners could be admitted.
All partners will have to sign this agreement.
The advantages of this type are:
- More capital can be invested
- Responsibilities can now be shared
- Both partners are motivated by the profit
- Partners can specialise
The disadvantages are:
- Has no liability
- Business has no separate legal identity
- Partners can disagree on important decisions
- A partner can be dishonest or very inefficient
- No continuity
The advantages of this type are:
- Shares can be sold to a number of people giving larger sums of capital
- All shareholders have limited liability
- I would be in full control of the company
- Separate Legal Identity
- Continuity
The disadvantages are:
- Cannot sell shares to the public
- Legal Formalities
- Public accounts
- Not easy to transfer shares
This form of business organisation is most suitable for very large businesses. Most of the businesses are well known to the public, as they own large chains or many factories.
The advantages of this type are:
- Opportunity to raise very large amounts of capital
- All shareholders have limited liability
- No restriction on the buying, selling or transfer of shares
- Separate Legal Identity
- Continuity
- Easier to get investment
The disadvantages are:
- Legal Formalities
- More regulations and controls
- Selling shares is expensive
- I may lose control
- Public accounts
This is where a group of people who agree who work together and pool their resources. They can take several different forms, but co-operatives have certain common features.
- All members have only one vote
- All members help in the running of the company
- All profits are shared equally
Conclusion of Company Type
After carefully studying all five types of business organisations I have decided that they best type for my business is a private limited company. I think this as the advantages far out weigh the disadvantages. There is one essential difference between a company and an unincorporated business, such as a sole trader or partnership. A company is a separate legal unit from its owners. This is great for me as it means that:
- My company exists separately from me and will continue to exist if I die
- My company can make contracts or legal agreements
- Companies’ accounts are separate from my own.
This is perfect for my company as this is all the things I will need. Although there is a few disadvantages such as there is a lot of legal formalities that I will need to get sorted before I open my store. I will need to complete the Articles of Association, this contains the rules under which the company will be managed. It states the rights and duties of all of the directors, the rules concerning the election of directors and the holding of official meetings and the procedure to be followed for the issuing of shares. I also need to fill out my Memorandum of Association; this contains very important information about the company and directors. The official name and address of the registered offices of the company must be stated. The objects of the company must be given and also the amount of share capital that the directors intend to raise. The number of shares to be bought by each of the directors must also be clear.
Both of these documents are intended to make sure that companies are correctly run and to reassure shareholders about the purpose and structure of the company.
Once the Registrar of Companies has received these documents then Certificate of Incorporation will be issued to allow my company to start trading.
A public limited company also offers these advantages; I have not chosen to be a PLC as in order to start a PLC I need to raise £50,000, which is slightly unrealistic at this early stage in my company. If I later decide I should maybe convert to a public limited company it is not very difficult.
Finance
To make this section consist I will need to find out my basic overheads and start up costs. First, I will be listing the cost of my business premises, equipment, advertising, stock/supplier, etc. I will then need to consider the work force I will employ and the costs of doing so, the office supplies I may need such as printed notepaper, computers etc.
To help me in this project I decided to visit a number of banks to see which bank would give me the best interest rate to borrow money for my start up capital. I visited 6 banks in total, AIB, Nationwide, Ulster Bank, Northern Bank, Bank of Ireland and the Woolwich. Every single one of these banks refused to give me information on small business start ups as soon as I said I need the information for school. I will now have to use information on the internet to help me with this matter.
There are two types of capital, start up capital and fixed capital. Start-up capital will be mainly funded by this loan, it will be used for the initial start up of my business, such as premises, equipment, initial advertising.
Fixed capital will be mainly taken from my business income, this will be used to keep my business running, and also it will be used to pay for monthly/quarterly bills.
To help me acquire capital from a loan, I will be required to create a business plan, this will make clear aims and objectives of my business, and how I am going to carry out these aim and objectives.
There are other ways I can gather the required capital, and not just be using a loan. I will try looking at the Invest NI website, and I will research how much finance they may be able to offer my business.
Finance Options
There are a number of options I can turn to in order to finance the setting up of my business. These include:
- A bank loan
- Venture capital
- Investment from family and/or friends
- 'Business angels' - independent, wealthy individuals looking for investment opportunities
Each option has advantages and disadvantages - a bank loan can be expensive, for instance, but allows me to keep a greater control of the business. I will also have to check on interest rates on loans and overdrafts to try and get the best value for my money, as at this time so early in the business money is important.
My business is likely to employ workers from many different areas of society which could qualify me for a small business grant. The best place to start investigating possible grants is the local LEDU office which is now called Invest NI.
Either way I will also have to construct a fully detailed business plan before I even think about choosing any of the above options.
I will construct a cash flow forecast, as this will show me my businesses predicted financial future.
Insurance
UK law mandates certain minimum levels of business insurance cover (even if I have only a single employee). Some I MUST have, others are optional.
The following insurances are common, highly practical and in some case a legal requirement.
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Employer’s liability insurance If I employ anyone, I am required by law to purchase employer's liability insurance. This insurance offers protection for any liability arising from injury or illness sustained by employees while they are working for me.
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Motor insurance For my delivery van, I have to insure at a minimum against third party liability by law. I may also strongly consider extending your protection to cover your motor vehicle from collision and theft.
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Public liability This will protect me from any liabilities from a Third Party (other than your employees) bodily injury or damage to their property that may occur during the normal operation of your business.
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Products liability This will protect me from any liabilities from a Third Party bodily injury (other than your employees) or damage to their property that may occur from products you sold or supplied.
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Material damage insurance There are several different insurances that are designed to cover your various assets (building, computer equipment, stock, or contents) from loss or damage caused by various causes (fire, flood, theft or other disasters).
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Business interruption insurance This covers me from the loss of turnover or trading profits from damage to your property that prevents the normal operation of your business.
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Goods in transit insurance Covers me for accidental loss, destruction or damage to goods in transit and the cost of alternative transport if needed.
All of these insurances are highly advisable for a start-up business when money is of the up most importance. I have received a quotation for all these policies, it amounts to £720 a year, this is meant to be reasonable for a retail outlet.
I have decided it is better to have this than be sued and lose the company. I will have to make sure this is included in my cash flow forecast.
Cash Flow Analyzes
Starting with sales I am projecting how much stock will be sold each month, this should rise as the company advertise and more people are aware of its exists It should also rise as the company matures and people hear good reviews of our products and services notably the sales should rise coming up to Christmas and again for the new year sales.
The sales is how much of my stock I sell that month, this rises as the company advertises more as people are made aware of it. It also rises as the company gets older, and people hear good reviews of our products and services. Noticeable the sales rise coming up to Christmas and again at the time of the New Year sales.
Personal cash injection is my input into the business, for this I could sell my car and drive the company van and use a percentage of my savings (I am aware that there will be an impact on my tax using a company vehicle).
The loan will be from a local bank, I have calculated to calculate an average interest rate, and planned to have it repaid within 9 years.
The business will need to purchases two computers and some office, check out equipment and such like estimated at £2,000. I feel it’s better to purchase these rather than lease.
Initial stock is based on an initial purchase of £10,000 and I will have 30 days credit on a number of items which will help my initial start up.
Payroll expenses are to pay me and a colleague to work 6 days a week, nine hours a day.
Outside services includes cleaners, security etc.
Supplies include items such as paper, pens and till roll.
Repairs include painting and general items.
Advertising is explained on a separate section.
Delivery includes cost of the petrol and temporary packaging.
Rent is the £15,000 paid once a month at a rate of £1,250.
A company van will be rented on a three year lease at £290 a month including maintenance.
Advertising
My main aims while advertising will be to
- Create a brand
- To inform people about my business
- To gain customers
- increase sales
As with nearly all business, especially start-up business, my foremost aim will to catch the attention of possible new customers leading to increased sales.
There are many possible ways for me to advertise:
I could advertise on UTV which is a regional division of ITV. This has a range of 500,000 – 750,000 at anyone time. Currently there is 54,000 people in Ballymena, these people make up my target market. As it is very expensive, the Television would not be very realistic to my company.
As around Christmas time when this market is booming we have a local charity radio station, this would be a highly realistic way to advertise. Not only is it fairly cheap but it also reaches your target market and puts the company name in good light as its supporting a charity.
If I were to place an ad in the local newspaper I know that this would be seen by people all over the local area. It would also be a fairly low cost. However the disadvantages are that readers do not always look at the advert and if I were to show an ad in a newspaper then it would be limited to black and white unless I paid a lot more to have it in colour.
Advertising Conclusion
I have determined that to make best use of my money I will advertise in three places. Local newspaper, this way it is seen by a lot of people and captures my target market.
I have also decided that it would be good ideas is to have my store advertise on the local charity radio, as it also captures my target market as well as my third option. My third option is advertising on bill boards.
Bill boards are seen by most drivers, and even pedestrians. This option is more expensive than either of the first yet it is still just as effective.
Advertising via television would be a waste of time and money; I have to pay to have it shown and also pay to have it made. The amount of money need to do this is probably more than my annual cash flow and will most likely not attract that many new customers, yet it may help me develop a brand image if done correctly.
Staff
The first part of recruiting is analyzing the job and determining the nature of the position I need filled. Then I will need to agree on essential experience and qualifications the candidates will necessitate to posses.
I will have one open job position within my business; this is for a sales assistant/electrical goods installer. They will be required to serve and assist the customers on their demands, be able to drive a small van, able to lift heavy goods and have knowledge of installing electrical goods.
In order to keep my costs at a minimum, I will also fill this position until the company has matured and is capable of support another member of staff. I may later consider this in a year or so.
My staff will require being flexible as they will need to both deliver and install stuff as well as serve customers in the shop and answer their questions.
They will need to fully understand each product in the store, know the price, function and all other related information. They will need a mechanical understanding as they will be required to install the items. They will need to work Monday to Saturday 9am till 5pm, and have a valid drivers licence.
Loans
Loans come in several different forms but the two most important aspects to consider are the interest rate and the repayment schedule for the loan.
There are two options to determine my interest rate:
With a fixed rate the interest rate applied to the outstanding principal remains constant through out a predetermined period that may or may not equal the length of my loan. The interest rate is set at the beginning of my loan by examining the risk involved and the current market rates. The advantage of a fixed rate loan is that my interest rate is fixed and the payments constant and they will not rise if the market rate rises. The disadvantage is that I will not benefit from a decline of the market rate.
With a variable interest rate the interest rate applied on the outstanding principal amount fluctuates in line with changes to the Bank Base Rate as a result. The interest rate for each period will be the current market rate plus a predetermined premium that remains constant throughout the life of your loan. The advantage of a variable interest rate loan is that you save money when the market rate decreases. The disadvantage is that you are not protected from an increase in the market rate and the interest you pay will increase with the market rate.
There are 4 methods of repayment:-
This type of loan requires me to pay the same amount each period for a specified number of periods. Part of each payment goes toward interest and the rest goes toward principal. After the specified number of periods I will have paid back the entire loan plus all interest.
- "Equal" Payment and a Final Balloon Payment:
This type of loan requires me to make equal monthly payments of principal and interest for a relatively short period of time. After I make the last installment payment, I must pay the balance in one payment, called a balloon payment. Some lenders will give me the option to refinance the loan to help me stretch out the final balloon payment.
- Single Payment of Principal and Interest:
If my lender agrees, I can promise to pay off the loan all at once at a specified date. This payment includes the entire principal amount and the accrued interest. Borrowing money on these terms is best for a short-term loan.
- Equal Principal Payments:
This type of loan requires me to pay the same amount of principal each period for a specified number of periods. The total payment for each period will be variable (and should decline) as I pay interest only on the outstanding principal at the beginning of the period. Borrowing money on these terms requires larger payments in the beginning of the loan
Conclusion on Loan Type
I have decided that I should go for the variable interest rate loan. This is because there is a predicted down turn in the market, therefore I can benefit on this as my interest rate will lower. I will also pay back my loan once a month in equal amounts requires. This loan will be a long term loan of 9 years and will be for £25,000.
I will have to make sure that my leader are likely to charge a redemption penalty in the first 3 to 5 years of the loan if I want to be free to pay off the loan at any time before its due date. They are likely to charge a redemption penalty at the start of the loan. But after that initial period, I should make sure that my loan agreement gives me this flexibility and try to avoid a prepayment penalty for paying off the loan or part of the loan early. This is called prepayment.
Aims
The aim of my business is to focus on the household appliance business. Despite a number of players already in this market, I believe my business model will be successful as it provides value added services, which are not currently provided for in this sector. If I can achieve these goals, I should be able to deliver increased gross profit margin and with good control on my overheads, the business should make a pre-tax profit within a short time of opening.
Unless I can offer real ‘value added’ benefits the business can only compete on price, which is not where I want to position the business.
Location Conclusion
I have chosen to start-up in the new premises at the Braidwater Retail Park. I have looked through seven possible locations. I ruled out most of these locations as they did not have good parking facilities. Parking is a key factor in this type of retail business; a customer does not want to carry a microwave across town to where their car may be parked. Some of these locations are also located in the inner town. This means that it maybe difficult to reach our store via car during the day due to traffic congestion.
The majority of these premises were far to small for my business to trade from. This means that all my stock would not be seen by the public, therefore leading to fewer sales as they cannot find what they want.
The premises at Braidwater Retail Park can be seen clearly by the public, ideal parking facilities, it is not far from my local competition and its relatively cheap compared to its size and terms of lease.
Target Market
From my findings drawn from the questionnaire I should be able to determine my target market. Using basic common sense, I know that the base age for my typical large goods customer will be no less than 17 years. I know this as many teenagers will not be buying TV’s, cookers, washing machines personally as most of them are living at home where these items are provided.
If it is true to say that my target market is the customers that visit regularly then my target market is very broad. 52% are males that visit and 48% are females, therefore my advertising will be aimed at both genders starting at the age of 17. I think that the elderly on a pension will not be buying many large goods.
I will be aiming my business broadly at all economic groups from A – E, but will concentrate more on the top from A – C. They generally have more money to spend on household appliances.
Closing Conclusion
For this item of coursework I was asked to produce a comprehensive study into starting a business of my own in the Ballymena District. For me to ensure that this study is comprehensive and not lacking in detail or facts I had to research all aspects of starting this business. I feel that I have completed this task and fulfilled all my predetermined objectives. These are listed and described below.
- Find out if there is space in the market for my business.
I researched the individual market share of each electrical business in the local area, to find that there was no monopoly going on, and that the markets shares were divided fairly evenly.
- What additional services must I offer to attract customers
I found that a large percentage of customers who buy large goods will pay for delivery and installation. I have calculated it out to find that, I can in fact offer free delivery on large goods and still obtain a reasonable profit margin
- Find out my target market
My target market realistically is both genders starting at the age of 17 to the age of around 60 primarily social economic groups A – C.
- Decide on my company type
I have decided that they best type for my business is a private limited company. I have decided this as the advantages far out weigh the disadvantages of any of the other company types.
I used books, the internet, banks, insurance brokers, and similar businesses.