• Training may give the business an advantage over rivals as it is important in competitive markets.
• Training is important if a business wants to be able to operate in international markets.
The need for training
Many businesses say that if it was up to them then they wouldn’t pay for training as it is too expensive and it won’t give them many benefits. If this was the case then there would be a market failure. When this happens the government tries to fix the problem either by:
If this is the case there is a labour market failure. When market failure happens the government usually attempts to solve the problem by either:
• Providing incentives for individuals or to encourage businesses to encourage employees to train.
Or
• Providing government training courses. The government sets training, education or learning targets in the UK.
There is a major problem in the UK with supply of labour skills shortages among workers. This is when there are a great number of vacancies because people do not have the skills, abilities, qualifications or experience needed to do the jobs which the employers are requiring.
Methods of training
There is a variety of different methods used when it comes to training an employee. Some types are on the job, others are away from the workplace. Sometimes it is a combination of both. On-the-job training is the traditional way of doing it as an experienced worker can show the new employee what to do so they do it the right way and also this way they will not need to hire a specialist from outside the business to train the new employee, this will save the business money.
-Coaching:
A coach will guide the trainee through a process or use of equipment in the same way a footballer is trained.
-Mentoring:
In this case the trainee is paired with the most experienced worker. The trainee will carry out the job but will discuss problems with tutor to help solve them.
-Job rotation:
This is when an employee works in different departments for short periods in order to pick up skills from each. This is so whenever the employee is promoted and reaches the top of the business they have a range of experiences.
-In-house courses:
A business may put on courses for their employees. Personnel departments may run courses for marketing and finance managers within the business. This could be to help them improve staff motivation. Some businesses even have their own training facility.
-Self-awareness training:
This is when the trainee completes self-assessment questionnaires, the questions may be about personal values and individual styles of learning, personality and how the individual interacts with others. The trainee will then receive feedback from the person who is carrying out the questionnaire.
-Traditional and modern apprenticeships:
Businesses in the past have took on trainee workers. They would have done an apprenticeship over a period of time. When they qualified they would have become employees of the business. Some of these schemes do not operate today.
-Graduate Training:
Business may run graduate training. These are for graduates with a degree and qualifications and are mostly used to train employees to become senior or management positions.
-Vocational courses:
There are a number of organizations that provide vocational training. This is when trainees work towards a vocational qualification. This is also known as hands on job.
-E-learning:
This is when trainees make use of multimedia to learn. It takes a number of forms. A business may use software to teach all its employees how to use Microsoft word for an example. Trainees can also learn by using materials.
If ever my partner and I have to recruit we will use on-the-job training as it is cheap and easy. They will be provided with the knowledge to operate all the machines efficiently. I will ensure that all my employees know how to:
- Operate all machines.
- Take temperature readings and record on a time sheet.
- Clear simple faults.
- Ensure that all machines are configured appropriately.
- Cash up correctly
- Ensure the machine are clean and hygienic
- Make the milkshakes efficiently
- Monitor waste, litter and use by dates.
Payment Methods
All employees must be rewarded for what they do as no employee is going to work for free.
There is many ways in which this can be done.
-Time rates:
These are used when workers are rewarded because of the amount of time they spend at work. Employees can be paid wages weekly or monthly. Employees who work longer than normal should be paid overtime or even a higher pay rate. In the UK, holidays with pay are included for most British industries.
-Piece rate:
This is the easiest method to use. This is when employees are paid an agreed rate for every product that they produce. This is why it is also known as Payment by Result system. This is mostly used in the textile industry. The more the workers produce the more they earn. But this system can cause problems. If machinery fails or if the quality is poor employees have no basic pay to fall back on. Because of this most organizations are made up of two elements. They have a basic pay on the amount of time worked and when a target has been reached.
-Commission:
This makes up the total earnings of the employees. Commission is like piece rate, it is a reward for the value of work. Employees are paid a percentage of the value of each service or good that is sold. It indicates the level of business that is won rather than just the output achieved.
-Fees:
These are the payments for people one-off tasks. Tasks tend to be geared towards the needs of the customer instead of the standard of service or product. The amount paid will depend on the time taken to finish the task.
-Fringe benefits:
These are payments instead of wages or salaries. They include things like profit related bonus schemes. Fringe benefits have become more important. Some employers think providing benefits is cheaper than pay as they do not have to pay National Insurance contributions.
Ongoing Management
I will undertake ongoing management so that I am sure every task is undertaken efficiently.
My partner and I consist of all marketing and financial skills. These skills are vital for increasing the knowledge and are the key to opening new doors to the future of my business. I also need these skills so that I can get a good understanding of the running and expanding of our business, my skills will also help me to make better decisions for my business for instance, making better use of financing and reinvesting in my business.
Although once the business has expanded the business will need a book keeper as they provide financial support to small to medium sized businesses. The book keeper will keep track of all the revenue and all the costs of the business, the book keeper will also have to keep records of the entire payroll and do the accounting for all stock. The book keeper will at least have to attain NVQ Levels 2, 3 and 4 and produce performance criteria to show previous experience as a high quality book keeper will only be employed as we do not want an inexperienced book keeper as they may not keep track efficiently of all the costs.
Recruitment of Employees
The four most popular ways of recruiting externally are:
Job centres - These are paid for by the government and are responsible for helping the unemployed find jobs or get training. They also provide a service for businesses needing to advertise a vacancy and are generally free to use.
Job advertisements - Advertisements are the most common form of external recruitment. They can be found in many places (local and national newspapers, notice boards, recruitment fairs) and should include some important information relating to the job (job title, pay package, location, job description, how to apply-either by CV or application form). Where a business chooses to advertise will depend on the cost of advertising and the coverage needed (i.e. how far away people will consider applying for the job
Recruitment agency - Provides employers with details of suitable candidates for a vacancy and can sometimes be referred to as ‘head-hunters’. They work for a fee and often specialize in particular employment areas e.g. nursing, financial services, teacher recruitment
Personal recommendation - Often referred to as ‘word of mouth’ and can be a recommendation from a colleague at work. A full assessment of the candidate is still needed however but potentially it saves on advertising cost.
Any recruitment will be undertaken by the business owners as they will be responsible for any employees within the business. As both the owners have a professional manner and excellent communication skills with the ability to spot appropriate employees that are confident with a positive attitude. Business owners will also be responsible of all the legal aspects and will have to know all the age categories for employment and pay at least the minimum wage to any employees. Every employee will have to be issued with the terms and conditions of the business that will have to be signed and returned to the business owners, which will then confirm the employee agrees with the conditions of employment.
In order for quality control and quality assurance to be maintained I will ensure to provide a good standard of equipment such as blending machines, and employees are of a high standard.
If we did ever need to recruit we would use job advertisements as it is cheap and effective as many people look in the newspaper and in shop windows for jobs.
Minimum wage
The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid.
The national minimum wage has risen around two percent in each age category. The government has extended the adult minimum wage rate to 21 year olds from October 2010. Previously the qualifying age for the National minimum wage was 22.
The National Minimum Wage threshold applies to the following:
- £5.93 an hour for workers aged 21 and over
- £4.92 an hour for workers aged 18 to 20
- £3.64 an hour for workers aged 16 to 17
Once my business has expanded and I feel that I can start employing new staff, it is vitally important that I acknowledge and apply the national minimum wage rates to all my employees so that I am not breaking the law.
To ensure staff are kept happy we will always pay them an amount over the national minimum wage to each age category, this is because I want to gain respect and trust from my staff. I will make sure my staff receive a Christmas bonus and in times where my business is making a lot of profit I may offer them bonuses.
National Insurance
Business owners will also be responsible for ensuring that all of the employees hold a national insurance number otherwise we could be breaking the law. If I did end up employing staff they would have to pay into the National Insurance contribution to HMRC. NICs are calculated and deducted within an employer’s payroll system. Due to my business being small this would have to be paid on a regular basis.
Physical Resources
Physical resources are the resources that are available to a business. This could be the things that are needed to run the business each day for example machinery. Physical resources include machinery, equipment, premises and materials.
If a business does not have premises they may not be able to establish and customers will not know about them, this is why it is important for a business to have premises. Premises are important as businesses need to sell products or run a service. If this isn’t the case then people may decide to run their business from home as it is cheaper and you don’t need to buy or rent new premises. There are drawbacks to this though as the customer may find it hard to find the house as it may be in an area that is not so familiar to them or it may cause problems within the family.
I chose to locate my premises in Almancil. The rent per month is €600 and the premises are in good condition. There is a customer car park, a kitchen, a bar area and toilets for both customers and staff. The reason for choosing these premises was because it is relatively cheap and in the middle of the town which is very busy. Customers will not have to park their cars on the road as there is a car park and also I could advertise my business in the town. I live close to the premises so I will have easy access to it and it is nearby the motorway.
I will have to abide by some rules to keep the business safe and secure:
• To be on the safe side I am going to have CCTV to do this I need to tell the information commissioner.
• As my business grows I may need to hire more people. I will have cleaning materials that are highly flammable so because of these I will need a fire certificate.
• Because my business is a milkshake bar and I am putting food into the milkshakes I will need a food premises registration.
• I will also need a performing right society. This is a license that allows me to play music in the background I can't play music in the background because it is copy right I can't play someone else's music without a license. If I don't get a license I can always just play the radio.
I also have to abide by the rules of the food industry this is also required by law:
• The General Food Regulation. This is the legalisation in the UK in line of requirements of the EC regulation and to keep human health. It also helps attract customers.
• Food safety. I am required to keep certain foods at a certain temperature.
• Food colouring regulation. It helps control and limits the/use of colouring in the food I sell.
• Genetically modified novel foods. A novel food is defined as a food or food ingredient that does not have a significant history of consumption within the EU before 15 May 1997.
Machinery
With my loan I will purchase three blending machines at the start up of my business. The machines are a vital necessity to my business and it is my job to make sure that they are of a high quality and in full working order. My blending machines will need to be eye catching and appealing to the customers as they will be surrounded by chocolate bars, otherwise I may not make as many sales as expected and this could lead to debt because if I am not making enough money I will not be able to pay back the bank loan which will then lead to a bad credit history. I will have a fridge and freezer to keep the milk and ice cream cold.
Stock
It is not good to have too much stock as it can go off but in my case the chocolate bars normally last for a while so that shouldn’t be a problem but milk and ice cream can go off easily so I need to make sure it is kept in the fridge or freezer and does not go out of date. On the other hand I don’t want to have too little stock as a customer might ask for something and we may not have it and this can mean a loss in profit as the customer may go somewhere else.
Throughout my research into stock I found it extremely hard to find a supplier that provides milkshake ingredients. When I found a suitable supplier I found that it was a little high in price. So I decided that I would continually research the milkshake market place to source new stock to find the most extensive range of high quality products and provide a comprehensive choice of chocolate.
I am aware that a healthy balanced diet is important to help maintain a healthy body weight and reduce the risk of diseases such as heart disease, cancer and diabetes. A healthy diet should include bread, potatoes, cereals, fruits and vegetables, together with moderate amounts of milk, dairy products, meat, fish and small amounts of foods containing fat and sugar. Food from the largest groups should be eaten most often and foods from the smallest group should be eaten least often. My milkshakes will mostly contain milk which is a vital ingredient that the body needs; Vitamin A.
I will visit lots of different wholesalers such as Costco, Makro, Break brothers etc., to find the highest quality ingredients and also to get the best value for money. However quality is the key. Finding the best products is as important to me as it is to the customers, which is why I will always look for food whose origin is recognized worldwide for its excellence.
Financial resources
A business requires finance to survive. All new businesses start up differently, some find that they need help from outside such as bank loans, others start up without borrowing a penny. If a business does decide they want to borrow money they should know how much they need, what it will be used for and how they will repay it.
Cash flow forecast is what the business predicts to spend and it's not likely that it will be an exact reflection of the way the businesses financial year works out to be. It will however serve as a plan to work for the future. Breaking down the first year into a monthly financial period will help the business work out their income and outgoings will compare in each period. This lets the business know when their borrowing requirement will be at its best. The business needs to be confident that it will generate enough money to repay the lender. The forecast will also help with this.
It is a tough economic climate at the minute with the credit crunch. So lenders are more reluctant to lend new businesses money. In order to get them to give businesses money they need to be sure that they will get their money back. So if a business is not clear about how much they want to borrow, how you it's going to be paid back and if there is no security on the offer they will not hand out any money. This is why it is vital that the business has an idea of they need. A good way to do this is to have a business plan.
When we first start up our business we need to know how much start up capital is needed. Start up capital is the money that my partner and I invest into the business to start it off. A loan can be taken up to pay off the start off capital or me and my partner can pay, or if the owner can only afford a certain amount then the bank will contribute and pay the rest of the money needed. The legal form of the business will determine how much capital can be invested.
A public limited company can raise capital from a stock market issue of share, when it ‘floats’ as a new company, the public can buy shares. A limited company can also raise capital through a specialist ‘Venture Company’ which can purchase shares, but conditions are attached. /limited companies can also raise capital from Business Angels. This is a picturesque term used for wealthy individual who invest in the start-up and growth of businesses in return for a share and sometimes an active part in the company. Business Angels will often have already made a fortune through other business ventures and will possible run a business of their own. A loan may also be taken out for the start up costs of the business and the bank will match whatever the sole trader has put into the business.
When decided which source of finance I am going to use for my business I will need to take into consideration that there are many different things I can choose from. So to choose the right Loan for my business I need to do a lot of research into what each source does.
Term loans are the most common general purpose loan. They are used for working capital, expansion, refinancing, and acquisitions. You can repay them monthly over a term based on the expected lifespan of the assets you're purchasing. This straightforward loan is most common for larger amounts.
Short term loans are almost always set up for terms of one year or less, and are repaid in a lump sum at the end of the term, instead of monthly. They're usually for smaller amounts - less than £100,000 - and are best for seasonal inventory build up or small investments with quick returns.
Equipment financing is generally easier to obtain than general lines of credit, simply because the equipment you buy serves as direct collateral for the loan. It is also less risky, in that if you are unable to make your payments, you don't have a lien against your entire business or your personal real estate: all you lose is the equipment you bought. Depending on the size of your business, equipment financing can cover huge expenses into the millions of dollars.
Bank Business Loan
A Business loan is a fixed medium-term loan, typically for between 3 & 10 years, it only covers the purchase of the capital items such as machinery and initial start up stock, as well as any vehicles needed to run and provide the business. Interest is charged on any bank loan and the rate depends on UK base rate.
Private Loans
A member of family may provide a loan towards the capital, however this only normally occurs when a small business is owned by a sole trader, except if a sole trader has an extremely wealthy member of their family. I may need some assistance when investing my half of the capital and may borrow from a relative; this then means I will not be paying any interest and I will be able to pay back any money I can afford to when I like.
Long terms of finance
Share capital:
This is the most important source of finance. Share sales can raise large amounts of money known as issue shared capital. The maximum amount of money stakeholders want to raise is known as authorized share capital. This is because it is not repaid by the business. When the share has been sold the buyer is entitled to dividend.
Sometimes a business may need to retain profit to help with future activities. Share holders can make a capital gain by selling their share for a higher price. Shares are usually sold back to the business. Public limited shares are sold in a market called the stock exchange.
Loan capital:
This can come from a number of resources:
• Debentures- This is a creditor of the company meaning that holders are entitled to an agreed rate but have no rights to vote. The amount that was borrowed must be repaid on a certain date.
• Mortgage- Limited companies can raise money from share and debentures. Small enterprises need long term funding, in order to buy premises.
• Industrial loan specialist- Many organizations provide funds for business and commercial purposes. These specialists cater for businesses with difficulties in raising funds from conventional sources. Over the years there has been a growth on venture capitalists. The give funds to small and medium sized businesses that have potential but are too risky for investors.
Government assistance
Another form of financing for business start-ups is promoted by the UK Government, through the DTI (Department of Trade and Industry) which provides assistance to new and expanding businesses in the form of grants and loans. This assistance is known as SFI (Selective Finance for Investments in England) it is designed for business operating or planning to operate in the designated assisted areas. However there is another newer scheme called the Enterprise Capital Funds which provides share capital finance for small growth orientated businesses.
Short terms of finance
Bank Loan
Loans require an agreement between the borrower and the bank. The borrowed amount must be repaid over a certain period of time. Usually bank loans are short or medium term. Banks aren't keen on long term lending because of their need for security.
Banks will sometimes change overdrafts into loans so that businesses are forced to repay at regular intervals.
Hire Purchase
This is mostly used by small businesses to purchase machinery and plants. A higher purchase agreement needs a down payment by the borrower. They agree to repay the remainder in instalment over a certain payment. If the buyer falls behind on payments the finance house can repossess the item. Finance houses are less selective than banks.
Trade Credit
Businesses often buy raw materials and pay for them later. They usually pay within in 30-90 days. Paying using trade credit appears to be an interest free way of raising finance. It is profitable during periods of inflation. Many companies encourage early payment by offering discounts.
Leasing- This is a contract for a business that requires the use of resources such as property machinery or equipment but in return they must get regular payments. The ownership never passes to the business in this type of finance. With a finance lease the agreement is usually for three years or more and at the end the business is given the choice of buying the resource. An operating lease is a short agreement and the payments are treated as revenue expenditure.
Capital is the money invested in a business made by the owners. The legal form of my business will determine how much capital can be invested.
Since my business is a partnership we will have to make up our capital with a personal contribution as well as a loan from the bank. It is vital for me to show the bank that I am also making a contribution to the start up of my business otherwise the bank will not provide me with the loan that I need. I will be taking out a bank loan of £12,000 to cover some the start up costs of my business. This is due to the fact that I need machines: to make my product, initial stock: to start up with, EPOS and money to advertise.
What is a Bank Business Loan?
A Business loan is a fixed medium-term loan, typically for between 3 & 10 years, it only covers the purchase of the capital items such as machinery and initial start-up stock, as well as any vehicles needed to run and provide the business. Interest is charged on any bank loan and the rate depends on UK base rate.
For my business I will be taking out a Bank Business Loan of £12,000. The loan has 4 year term paying £250 a month.
I decided on a four year loan as I did not want my business to go into a negative cash flow. As I would then not have enough money to restock and could lead to my business failing also making a less amount of repayments each month allows me to keep on track of my finances.
I believe that taking out a business bank loan is the best option for me because I can pay the money back monthly instalments and to keep track of my financial resources I have created a cash flow forecast along with a table to show the money coming in and going out each month. To ensure that I am managing my resources properly at the end of each month I would analysis the table and make a summary of the situation I am in at that time (whether or not I am ‘financially healthy’). I will also be able to determine what I can do with the business in order to improve and progress it. I can do this using my cash flow forecast which has an estimated recording of my income and expenditure and can be changed at any time for instance if I realised my stock was costing me less than I thought I am able to justify it with the correct amount. It is vital for me to monitor my finance due it enabling me to make more sensible choices when investing my money back into the business.