There are also some figures from a Weighing federation survey of industry: 1998 and beyond, which can be found on the following pages. This allows for trends to be spotted, however this doesn't have a major impact on the market but shows the competitions average progress
Context & process of the business start up.
As I have already briefly described earlier the business was started through the abilities of the proprietor. As a child he had a fascination with electronics. He left school at 15 with minimal qualifications and got an apprentice job Avery scales ltd. His interview for that job involved him proving he could lift two 56Lb weights! Whilst at Avery his ingenuity in electronics prevailed and by the age of 23 he was the highest-ranking engineer for the company and was assigned many projects to improve efficiency of production, which he achieved with much success. He left Avery as he felt that he had no further challenges remaining, which demonstrates a large part of an entrepreneur’s aptitude towards life. He took on various other jobs with the main influential job being a managerial/engineering job for a weighing company called Stevens. In his time he, through the help of staff increased turnover from £600,000 to £1.2 million. He gained recognition for this achievement, but no financial incentives and this inspired him to set-up his own business in order to benefit more profitably from his hard work.
The business started as sole trader “organisation”. The finance was obtained by providing a concise business plan to the bank, which displayed his ability to succeed. Janet Marsden was employed on the administrative side of the business and the main part of the accounts being audited. In the beginning he had no customers but knew that there was potential in the market for a local, quality, value for money firm to solve every customers weighing problem. His theory proved correct and soon he had a rapidly growing customer base. The speed at which it grew was unplanned due to many customers being dissatisfied with their current suppliers due to either cost and/or service levels. The business soon grew to a workforce of 8 and a turnover of 1/3 of a million, with the gross profit margin always being maintained between 47-50% and the net profit margin of 17-19%. This was a large motivational factor, along with the pride that also grew parallel to the business’ success. Over time the demand from the business’ growth meant many extra hours had to be supplemented by the proprietor placing a much greater strain and commitment without a proportional gain financially. The extra hours were worked at unreasonable social costs such as family degradation. This therefore led to a cutback in the work undertaken and therefore a reduction in turnover and workforce.
The Proprietors Motivations Through Motivational Thesis.
The motivation of the proprietor was based on many inter-related schools of thought, whom he adopted without fully knowing motivational theories, but gained from experience and applied to his aptitude and business.
He never warmed to the scientific approach to management because as an apprentice he had felt the “cold shoulder” of this style because of the high levels of alienation from the division of labour, low morale from repetitive jobs and lack of responsibility and praise.
He saw that economic and social success was based upon much more than just financial and productive variables in the workforce. He believed that his workforce’s and own personal performance could be improved by praise and recognition for their efforts, which he had experienced in his later jobs. He also felt that workers should be consulted in any decisions that affected them therefore being more democratic rather than earlier authoritarian style managers such as F.W Taylor. This led him to adopt laissez-faire cross-paternalistic approach to his leadership style.
His own personal motivations have hinged on previous job experiences. In his first job he felt that he had achieved the highest demands and that there were no further challenges, therefore he left his position to find better opportunities and peruse the motivational factors of job content. In the next two jobs he worked with the motivational idea of the carrot and stick with the carrot being commission based and the stick being disciplinary procedures.
Through the time he worked at these companies he saw the mistakes that were being made by these companies and after making quite critical decisions which boosted the companies’ revenue and not receiving an equitable bonus along with degrading working conditions or failure to meet hygiene factors as described below, he left.
Before he left his last job, he had thought about starting his own business and had started to gather market and customer information and compile a database to which he could operate a business.
Some of the above factors relate to parts of Hertzberg’s two-factor theory and Maslows hierarchy of needs. Hertzberg’s theory was published in 1959 relating to research regarding factors affecting satisfaction and dissatisfaction in the workplace among 200 engineers and accountants in the USA. Some of the key quotes from this publishing are as follows: (results of research are at bottom of page)
“On the two factor theory - Motivators and Hygiene factors are equally important, but for different reasons. On movement – if you do something because you want a house or jaguar, that is movement not motivation. The risk of giving bonuses – a reward once given becomes a right. The Importance of training – the more a person can do, the more you can motivate them. The importance of always treating staff fairly – a remembered pain can lead to revenge psychology. On communication – In industry there is too much passive communication, but if people are doing idiot jobs then they really don’t give a damn. On participation – when participation is suggested in terms of control of overall goals it is usually a sham.”
The main point here is that fulfilling hygiene factors prevents dissatisfaction but does not motivate and motivator factors do not prevent dissatisfaction but achieve motivation. Therefore a balance must be struck in order to motivate oneself and staff. The main motivators are: Achievement, recognition, the work itself, responsibility, advancement and growth. The main hygiene factors are: Company policy and administration, supervision, relationship with supervisor, work conditions, salary, and relationship with peers.
The entrepreneur saw that by owning his own business he could control some of these factors that affected him and influence those factors that affected his workforce. He provided the lower order needs as expressed in Maslows hierarchy of needs (bottom of page) such as the physical and safety needs allowing his employees to go on to gain the upper order “wants” such as social and esteem needs leading, hopefully to self-fulfilment in which the workforce would have the highest productivity giving the business the highest chance of success. This would eventually evolve into a mutual circle of gain.
The proprietor’s motivation was also based upon these theories in which he gained from the success of the business as this provided the physical requirements such as food, shelter and warmth. The safety requirements were harder to fulfil as being a sole trader also has its disadvantages of unlimited liability and although work capacity may have been at full utilization the cash flow might have been crippled by bad/aged debtors placing great constrictions on working capital and large degree’s of stress and instability upon the proprietor. Having said this there are periods in which these needs are satisfied and allow for him to progress to social and esteem needs eventually leading to self-fulfilment, which he has achieved in peaks over time.
The main motivation comes from the “carrots” of success such as the financial benefits and other fringe benefits that this carrot brings like a nice house, car exotic holidays and other luxuries. The social side is also influential and the pride of a successful business plays a part in striving for success. The “stick” theory also played a part in motivating the proprietor as if he failed to succeed then due to the unlimited liability all his possessions would be repossessed casting his family into uncertainty and insecurity with a marked drop in the quality of life which, as a bonus at the time had become taken for granted. The economic side was not the only “stick” as the social affects of failing were a constant weight on his shoulders, how would he look to his peers if he could provide no food, shelter or warmth for his family some of the most basic human needs.
It was a concoction of neo-human relation theories and management that helped mould the proprietor’s character into whom he is today. It is these factors, which influence the way in which he approaches management and leadership allowing him to manipulate his aptitude and develop his workforce to become a tool for success for both them and himself.
The Extent to which business methods are implied.
Due to the size of the firm (PWS), the entrepreneur applies some of the business methods such as cash flow forecasting, break-even analysis and liquidity but not all- available methods like health and safety indicators and waste levels, as they are inappropriate.
This is as some of the figures of those methods not implied would show minor trends which occur as part of the natural business process and tie up the entrepreneurs time researching and analysing figures for facts he already knows.
However there are other methods which to a large extent are applied as these show business performance and how the life blood of the business (cash) is either flowing or not as it maybe the case. A recent cash flow forecast undertaken shows that from the period 01/01/04 to 31/12/04 that there will be a negative cash flow of £3,558 as shown in cash flow forecast listed in the appendix. This demonstrates the need to improve the time taken for bad debtors to pay.
Balance sheet and profit and loss analyses are extremely important but due to the extensive entrepreneurs, experience in this field full analysis is not necessary. This is as he can see through the blur of figures and deduce an approximate which he knows is either good or bad and come up with possible solutions or strategies to employ to remedy the problem, providing it is within his control such as the following:
- Poor cash flow
- Insufficient Revenue
- Poor Liquidity
- Poor Personnel performance
Recently motivational strategies have been applied in order to raise personnel performance. One such strategy is the "carrot and stick". Although the most simple it is, still one of the most effective in business, if done right. That is that the employee doesn't feel that the carrot has become a right and the stick has been abolished. This has been achieved through a form of competition, in which the entrepreneur sets unique targets for each department employee, if these are met for 1 month the employee receives £50 cash-in -hand, tax free. However, if the targets are not met a procedure of disciplinary action may be taken. All targets set are to improve both efficiency of the business and well being of the employee by making them feel a more valued contribution to the business.
Cash flow management has a high priority and notification is sent weekly to outstanding debtors ranging from reminders to court summons.
Poor liquidity is dealt with by reducing stock and other factors, which tie up money.
Insufficient revenue is tackled by the experienced sales person and the entrepreneur who almost never fail to find a sale to boost revenue; however the sale must come within the month end for it to be successful strategy.
In conclusion, the most important methods are applied with mainly success although external influences are hard to oppose due to the power of the influence in comparison to the size of the firm (PWS).
Analysis and evaluation of Accounting figures and ratios.
The figures show past details, trading account year ended 30th June 2003 and future predictions 12 month forecast to 31/12/04 on a range of themes.
The first topic under analysis is cash flow. The information shows that there will be predicted peaks of positive cash flow: February +738, June +1,129, July +1,866, August +1,159, September +4,972, October +3,783, November +372 and troughs of negative cash flows: January –6,932, March –377, April –8564, May –392, December –1,312. The overall net cash flow for the year is –3,558 this highlights the need for improved management of cash inflows and outflows which can be done in a number of ways.
Firstly to increase cash inflows: Shorter credit periods for customers, although 30 days is as low as it can realistically go or Factoring may be a last resort due to the high expense of this service unless turnover was dramatically increased to between £500,000 and 1 million or profit margins were increased to absorb the costs.
Secondly cash outflows could be delayed / reduced by: Longer credit periods from suppliers, which might result in the trading account being put on stop or renting or leasing instead of buying assets such as premises or equipment this may prove costly in the long run though and cutting/delaying expenditure may be an option to reduce overheads.
Finally if the above have failed for one reason or another other sources of finance may have to be found to cover the short fall which may include, overdraft, short-term loan or long term loan all of which have there drawbacks mainly interest rates or raising gearing.
In conclusion this is the biggest pitfall for the business and to solve this problem it will be a combination of these factors which will be the solution.
The second topic to be analysed is the balance sheet from June 2003 to June 2004(mainly forecasted) in which all the figures will be stated first followed by a detailed summarised evaluation. The analysis shows that the fixed asset value has risen by £4,501 from £14,867 to £19,368 and current assets have risen by £12,867 from £31001 to £43,868. However liabilities have also increased by £26,057 from £30,131 to £56,188 this has had an impact upon net current assets causing the figure to fall by £28057 from £15,737 to £-12,320. The closing for June 2004 closes positive though at £5,134 which is still £10,603 down from June 2003 figure of £15,737(before tax).
The reason for the increase in fixed assets, current assets and expenses is due to re-location and partial re-structuring which will involve much expenditure financed by an overdraft initially but partially repaid later by government grants. This has reduced the net current asset figure into the minuses. In 2004 the long term liabilities also rose but only to £1914 which will be decreasing gradually over time. The prospects of the business look encouraging from a balance sheet point of view as towards the end of 2004 the high costs have fallen with sales rising, net current assets becoming positive and closing balance amount also rising steadily from an expensive re-location project.
The third topic under examination is the profit and loss account from the end of 2003 to the end of 2004. All figures will again be sated first before giving a summarised evaluation. Sales have increased by £20,071 from £199,791 to £219,862 with purchases also increasing by £7,646 from £67,107 to £74,753. Gross profit has therefore also increased by £12,425 from £132,684 to £145,109 whilst however net profit has fallen by £19,829 from £38,027 to £10,198 due to high levels of expenses which have increased by £40,254 from £94657 to £134,911
These figures are not surprising the increased sales shows that PWS is successfully targeting its market and achieving is corporate aims. The increased purchase and expenses total co-insides with sales and the requirement for new phone and IT systems as well as furniture and the building of new office’s all of which will be placed on overdraft, which incurs interest charges but is more flexible than a loan and doesn’t higher the gearing of PWS.
The fourth topic to be analysed is of the ratios which puts all of the figures into a more manageable perspective allowing better comparisons of performance.
The gross profit margin of 2003 was 66.4%, roughly the same as 66% for 2004, the net profit margin was significantly lower at 4.7% for 2004 compared to 19% for 2003 which is explained by the rise in the expenses ratio from 47% in 2003 to 61% in 2004 due to re-location and re-structuring.
Liquidity was nearly perfect in 2003 at 0.995:1 which has altered in 2004 to 0.745:1 due to more money being tied up in assets. Gearing remains at 0 and has done for both years as alternate methods of finance have been found.
In evaluation of the overall picture painted by the accounting figures and ratios the financial stability will not be as good as the last few years due to the turmoil and stresses placed on the business by relocation and the myriad of factors which will play their part in determining the short term future of the business. However in the long run the relocation will move the business towards greater stability and offer much greater opportunities both in the weighing industry and allow for diversification in to other areas.
The Future of the business.
The entrepreneur has conducted a survey of his customer base in order to establish the level of customer satisfaction of both products and service’s. From his analysis a new business plan will be derived to improvise and adapted to the current market needs given the political and economic externalities, given that manufacturing in the NW England is in decline, and that as a whole the weighing industry is static. There fore it is necessary to obtain a greater share of the market segment or diversify.
In the past few months the business has been asked to leave its premises as the landlord who owns the business next-door wishes to expand. This has led the entrepreneur to purchase a property for £40,000 with half the finance from himself obtained by re-mortgaging his house and half from one of his most loyal workers, Janet Marsden. PWS has also become a limited company to reduce the pressures upon the entrepreneur. Janet Marsden will receive rental payment from PWS LTD to pay off her investment.
The site acquired will give PWS LTD additional facilities and area, which will be used productively to diversify into new markets, of which plans have already been constructed. This move should help rejuvenate the goals and motivations of the entrepreneur and the workforce to better their current position.
Trade has been sought abroad and personal contacts of the entrepreneur have highly recommended his products and services to large firms such as L.G Phillips from which they have ordered £16,000 of equipment to be shipped to china. Other orders have also been received from Holland and other E.U states.
The survey findings in relation to other evidence.
The customer survey was conducted recently and the sampling method used was random to give a clear cross section of what is happening across the board and not to be biased towards popular customers. This survey showed that many customers were more than happy with the overall service and not one customer out of the 31 that replied saying it was fair or poor but all stating it was good or by majority excellent. There were a few negative comments towards office staff, which will have arisen from “pestering” by the accounts department for overdue payment. The main thing that has come out of the survey is that PWS needs to continue to with its current service. Another possibility is to take a larger sample size or even try to survey the whole of its customer base and place a note of each customers needs on their records to suit the business to an individual level, this however many not be practical and would need further consultation before being applied. The results of the survey don’t really correlate with any other evidence other than the fact that encouraged the entrepreneur to set-up the business, which was a need for a local, reliable service with excellent quality at the right price. The customer survey shows that all of these factors have been met and will continue to be at the forefront of PWS marketing strategy.
The Roles and rewards of being an entrepreneur.
The roles of the entrepreneur are many, and change as the business, customer demands and market conditions change. One of the roles is to lead and motivate through both times of success and hardship with both being equally important. As in times of success the workforce and the entrepreneur may become complacent and during times of hardship the business as a whole may feel that their hard work is rewarded by nothing more than another set back which can be extremely demoralising. It is therefore essential that the entrepreneur can keep a focus on the aims and objectives of the business and create/continue the common vision of the firm in order to maintain success or alleviate downturns in economic progress.
The second role is to do the jobs that everyone hates and be able to do them competently. For most entrepreneurs this comes naturally as in the beginning of the business they had to do all jobs and do them well in order to gain a customer base.
An entrepreneur must also have the ability to innovate and adapt his products or services to suit the consumer’s sovereignty; if he fails to posses this quality then the business will almost surely fail in times of change.
Change will also demand that the entrepreneur can make decisions fast and make the right decisions. Not only will he have to make this correct decision but be able to communicate it correctly to the workforce so when it is applied it will work correctly and efficiently.
Another important role and quality of an entrepreneur is to see opportunities that others have not and be willing to take the risks required to make the possibilities, possible and profitable.
The above statement forms some of the rewards also as spotting an opportunity allows for capitalisation on this fact giving not only a unique selling point but also allows for a broader choice of pricing strategy and instead of price taker, price skimming maximising profits which is a major reward.
Being ones own boss gives freedom from superior authority (besides their mum!) and this leads to a feeling of self-satisfaction both of which most employees stride to achieve and is shown by the large increase in new business setting up across the country.
Being the owner of a successful firm and having built it up from scratch also brings pride and respect from ones peers which can prove a motivational factor when times of failure loom on the horizon as no-one wants to be seen as a failure no matter how much they have achieved in the past.
Conclusion.
In evaluation I have explored the achievements, motivations and aptitudes of John Blackburn, the entrepreneur. I have also explored the advantages, disadvantages and rewards of being an entrepreneur as well as achieving the objectives which I set out to complete as listed below.
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Looked at the business, its market and its competitors.
- Described the Context of and process of the business start-up
- Identified the proprietors motivations through motivational theory
- Analysed the extent to which business methods are applied
- Examined and evaluated accounting figures and ratios
- Envisaged the future of the business
- Completed a customer survey and produced the results
- Studied the surveys findings and its relation to other evidence
- Considered the role & rewards of being an entrepreneur
- Concluded the above factors (see below)
The first thing to conclude is that being an entrepreneur is not totally positive and with its benefits comes its drawbacks as I have shown. The degree of time, responsibility and dedication required to succeed are high and come with heavy costs. However it does have its rewards which can balance and outweigh the costs, which inspires many people to become self-employed every year in Britain.
The second thing to conclude is that the perception towards successful motivation of leaders, bosses and managers starts during their younger years at work but this must not be taken as the only way to approach things and theory change with time. What seemed successful many years ago to Taylor would not work in today’s business culture which is where the Japanese have succeeded by changing culture rapidly through motivation and HRM to ever evolving internal and external influences.
Finally, not all people who set out to achieve becoming an entrepreneur will succeed; it takes a combination of knowing your market, customers, competition and product portfolio. Understanding of all aspects business processes, tactics, strategies and solutions to problems. And last but not least the will to succeed, profitably and ethically.
