Researching the market
Businesses only survive if they can attract customers and at least make enough money to cover their costs. So it is important to find out whether there are likely to be enough customers. There are two ways of researching the market.
- Desk Research – involves finding existing information about the market. For example, a person wanting to set up a beauty salon would look in the Yellow Pages to find the locations of other salons in the area in order to assess the likely competition.
- Field Research – involves finding information that is not available in books etc. For instance, questionnaires and surveys are a good way of finding out whether there is a market for the business.
Researching the product
Some people who set up their own business know exactly what they are going to sell and how they are going to sell. Most people though have to research their product. Businesses also have to decide how the product is to be made.
Finance
No businesses can be set up without finance. Most people who start their own business underestimate the amount of money they will need to set up. They are often UNCAPITALISED and this causes problems as the business expands. Some businesses have the potential to be highly profitable but fail because they run out of cash at a crucial early stage in the life of the business. So it is very important to work out how much money is needed to start the business and to identify where the money will come from.
Identifying the sources of help
Most new businesses don not survive for more than three years of trading. However, their chance of success is much greater if those setting up the business have received help from experts before the launch. Many new businesses turn to Business Link or to their local TEC. They can identify any grants, loans or benefits that are available from government or from bodies like the Prince’s Trust. They can also organise training in setting up small businesses that is so often vital to the survival of the business.
The business plan
Drawing up a business plan is very important. The business plan sets out how the business is to be set up and run. It contains projections of the future sales, revenues and costs. It will include how the project is to be made or bought and how it is to be marketed. Drawing the business plan makes sure that all aspects of the business have been researched and considered. It helps people to be more realistic about the problems they are likely to face when the business starts trading. What is more, any applications for loans or grants will usually need to be supported by a business plan. So a business plan is crucial for financing the business.
Operating the business
The environment in which businesses work is constantly changing. Sometimes it has meant changing from being a sole trader to becoming a limited company. It has meant coping with disappointments like a great loss of money. Unless businesses change, they die. If, like other companies, the business is constantly adapting to changing conditions, then the business is more likely to survive and prosper.
As part of setting up a business I will have to make very important decisions. My first one is to decide what legal form my business organisation and ownership I should take and there are many factors that should be explored before doing so:
- How many people are going to own my business?
- Can I the take the risk of having unlimited liability?
- What will be the tax position of my business?
- How much control I want over my business?
- Do I want all the profits from my business or am I prepared to share the profits?
- Do I want complete privacy in the affairs of my business?
- What will happen to my business in case of my illness or death?
- Whether I can get the necessary money to start up my business?
- The size of my business and how easy it is to get extra money to finance growth.
- How prepared is my business to deal with the extra work involved in running a limited liability company.
Having to examine all these factors I have reached a decision to run my business as a partnership rather than a sole trader. My partner will be a sleeping partner. This is a partner who whilst owning part of our business plays little or no part in the day to day working. When joining the partnership, this partner provides vitally needed money to help set up or expand our business. One the advantages of me choosing to work in partnership with someone else is that my business would be easier to set up and I would not have to employ solicitors or accountants to help run the business. Profits belongs will belong to just me and my partner (having only one partner apart from myself, splits the profit to 50% each. The less number of partners the more profit I get to have). The affairs of our partnership can be kept private because our tax authorities need to be told how much each of us need to be earning and what is the profit of our business.
Forming a partnership is a good way of getting extra capital for the business. Two people can normally raise more money to start or expand a business than one. Getting a partner willing to invest money in the business is a way of financing expansion. Equally the partner might be able to add expertise to the business. For instance, the partner I chose was my father, Mr Ken Akinola, who has studied Economics at Cambridge University and is very clear in his thinking about business decisions.
However, there are a few disadvantages in partnerships. When you are in partnership it means you have to work together. Sometimes people disagree and when partners in a business disagree, it can be very bad for the business. This is the main reason why businesses in partnerships draw up a Deed of Partnership. This is a legal contract which sets out:
- Who are the partners;
- How much money or capital each partner has put into the partnership;
- How profits should be shared out;
- How many votes each partner has in any partnership meeting;
- What happens if any of the partners want to withdraw from the business or if new partners are brought in?
If there is no deed of partnership, the law states that every partner is equal. Each partner then gets an equal share of the profit and has the same voting power as any other partner.
The basic objectives for my business are:
- To make the largest possible profit
- To grow and expand
- To survive (break even)
- To provide a service and quality products to ensure the satisfactory of our customers
The targets for my business are:
- Growth in profits
- Growth in sales turnover
- Increase in market share
- Expansion of the product range
- Selling into more areas of the country or the world
- To become an even bigger business like a PLC