There are two different types of laws that every business must abide by and follow all rules within it. My business must operate within the law as it acts as a constraint. Criminal law is the first one that is enforced by the government. All individuals and businesses can be prosecuted. The second one is Civil law which allows an individual or business to sue another individual or business to gain compensation. All businesses in the EU must operate within the same framework. If the laws in each country were not the same it may give another business a bigger advantage. EU law overrides the law of individual nation states. The Voluntary Codes of practice are regulations that businesses or organisations have drawn up between them. The advertising industry has a voluntary code of practice policed by the Advertising Standards Authority ASA for example. The Health and Safety Act 1974 means that the business must have certain regulations to be able to obey the law. Some of the provisions of this act are; employers must prepare a general policy on health and safety in written form, which should be put on display, employees have a legal obligation to comply with health and safety procedures, the business must give training information, instruction and supervision to employees on health and safety issues, trade unions which appoint safety representatives can inspect premises and investigate the cause of accidents and businesses must provide safety equipment and clothing to employees free of charge. There is also Employment law which is separated into two categories; Collective labour law and Individual labour law. Collective labour law deals with trade unions and industrial relations, and Individual labour law deals with the rights and obligations of individual employees. This could include employment rights, rights of workers, contract of employment and dismissal. The next law is the Data Protection Act. This law allows employees’ information to be protected and only they can access this information. The Equal Pay Act says that workers were entitled to the same pay rates and conditions as other workers in a place of employment doing the same or similar work. The Sex Discrimination Act is a law that makes it unlawful to discriminate on grounds of gender or marital status. The Equal Opportunities Act was based off this Act and contains the Race Relations Act 1976, The Disability Discriminations Act 1995, and The Minimum Wage Act 1998. There is also the Consumer Protection Act which has 5 major consumer legislation acts in criminal law; Weights and Measures Acts 1985, Trade Description Act 1968, Consumer Credit Act 1974, Consumer Safety Act 1978, Food Safety Act 1990. There is also the Competitor Law which also has 5 major consumer legislation acts; Monopolies Commission, Market Shares, Office of Fair Trading 1973, Competition Act 1998, Regulatory watchdogs.
Price is the amount of money a company charge for a product, which is not necessarily the retail price. Companies have to be very careful about the price they pick for certain products to make sure it fits in with the marketing range. E.g. if a product has a high quality packaging but its price is so low, customers might not believe it is a quality product.
Pricing strategies can be an appropriate price to support a brand image, a price charged for a product may not be related to cost of production or a price companies may charge by what they think customers will pay, and can be well above production costs. There are several different pricing strategies available to a business:
- Cost-plus pricing is setting a price by adding a fixed amount of percentage to the cost of making the product
- Penetration pricing is setting a low price to gain as many sales as possible
- Price skimming is setting a high price before any other business competitors can come into the market
- Predatory pricing is setting a low price to get rid of all other competition
- Competitor pricing is setting a price based on all competitors’ prices.
- Price discrimination is setting different prices for the same goods but to different markets
- Psychological pricing is setting a price just below a large number to make it seem like a smaller price e.g. £9.99 not £10
- Promotion Pricing is used when you want to price a product at a low price, for only a limited time only. This can be useful for getting rid of unwanted stock, and can help renew interest in an old product.
Demand for a product can vary, depending on how much is charged for it. If the price increases, then fewer people will want to buy it. If the price decreases, then there may be more demand for it.
For my business I am going to use the Cost-plus pricing by setting a price by adding fixed amounts to the cost of making the products and Psychological pricing by setting a price just below a larger number to make the product seem like it cost less. This will draw in my customers and make them want to buy a product.
Sources of Finance
Finance is considered to be either short-term, medium-term or long-term. Short-term is usually between 1-3 years, medium-term is between 3-10 years and long term is 10 or more years. Any of these terms can be internal or external.
Internal sources of finance can involve:
- Retained Profits
- Sale of stocks
- Debt collection
- Sale of Fixed assets
- Owners owning capital
External sources of finance can involve:
- Bank Loans
- Shared issues
- Overdrafts
- Factoring
- Additional Partners
- Leasing Assets
- Trade Credits
- Mortgage
- Hire Purchase
Trade Credit, Overdrafts and Bank loans are all external sources of finance that are short-term. Trade Credit is common for businesses as it is to buy raw materials, components and fuel and pay for them at a later date, usually between 30-90 days. Paying for these goods and services using trade credit seems to be an interest free way of raising finance. Overdrafts are the most frequently used form of short term bank finance. The bank allows the business to overdraw up to an agreed level of money. Bank Loans are taken out for fixed period, repayments either being in instalments or in full at the end of the term. Banks generally provide loans on a short, medium or a long term basis. This will be the main way I will start my business
Leasing, Hire Purchase are all external sources of finance that are medium-term. Leasing is when a business organisation may decide that they will lease an asset such as a computer or apiece of machinery instead of purchasing it. This means that the business pays a rental or lease payment for the asset on a regular basis. The business does not own the asset; however they have the use of the asset without the capital expenditure. Hire Purchase allows the business to use an asset without having to find the money immediately. A finance house buys the asset from the supplier and retains ownership of it during the period of the HP agreement. The business then pays a deposit and then further payments to the finance house as fixed in the agreement. At the end of the HP agreement ownership of the asset is passed to the business.
Bank Loans/Share issues, Mortgages and Government Grants are all external sources of finance that are long-term. Bank Loans/Share issues are in the case of a limited company, and extra finance may be raised by issuing new shares in the company and inviting members of the public to become shareholders. Mortgages are a loan secured on land and buildings and can either be used to finance the purchase of the property, or to provide security for a loan applied to some other purpose. It is a long term financing arrangement of typically 10 to 30 years. A mortgage is simply the name given to a long term loan which is secured on property. Government Grants are several systems of government grants that apply in Northern Ireland to assist businesses financially.
- Start-up costs are the costs that a business has to pay when starting up or expanding a business. They are usually paid only once at on go.
- Running costs are the costs that are paid more than once in order to keep the business running.
- Revenue is the money that a business receives from providing whatever it sells.
- Capital is the money that the owner him/herself has invested
- Internal finance is what a business can receive from its owner or from the profit it has made
- External finance is what a business has available to it from outside sources
- Profit is the sales revenue - running costs
- Budgeting is a plan that sets a business targets in terms of income and costs over a certain period of time
- Budget report is something that compares the budgeted figures to the actual figures
- Cash flow forecast is a budget that estimates the inflow and outflow of money to and from a business over a certain amount of time
- Breakeven is the point at which sales revenue is equal to running costs before this point the business is making a loss and after this point the business is making a profit
- Running costs - are the costs that a business pays on a day-to-day basis and they are affected by production.
- Fixed costs - These are costs that are not affected by production. They stay the same, as they are not affected by production.
- Profit and loss statement - This is a document that calculates the profit and loss that a business is making.
- Gross profit - this is the profit that a business makes before paying overheads
- Net profit - is the profit that a business makes after it has paid all its overheads
- Dividends - these are the payments from the total net profit that is given to shareholders of a limited company
- Assets - Items owned by a business or owed to the business
M1 – Explain and justify methods used to identify target market for the proposed business. Explain the purpose of each question, i.e. how the answer is going to help your business
The reason that market research should be done for your particular business is to reduce risk. This is the reliability of market research information cannot b e guaranteed and can reduce risk for a business. Without market research, some businesses might spend large sums of money developing and launching products which could prove to not work and waste money on waste products. Businesses are likely to waste more resources on failed ideas that marketing research may have carried out.
Primary research is research that collected first hand by either the business itself or another business that specialises in that area. The benefits of this kind of research is that your own data can be collected specific to your requirements, you can check yourself if the data is valid, the data will always be up to date and it can be collected easily to be analysed easy. The drawbacks of this kind of research is that it can be expensive to employ people or a particular company to take surveys outside of the business and you have to make sure that your information/data that has been collected is not bias or influenced by another’s decision.
There is several ways that primary research can be used. It can be distributed through surveys and questionnaires, consumer panels, by testing and observing people or desk research. Surveys and questionnaires can be sent to people through the post, email, internet pop ups or even is asked on the phone or on the street. Consumer panels are a group of people who ask questions to anyone on different products. Testing and observing is people’s reaction, e.g. a new shop window display. These can be recorded or seen by someone. Desk research is gathering research from existing data, e.g. from government reports and consumer bodies. I used the ONS service to find out about the customers who may visit my business and knowing this will help me provide the services they want.
M2 - Analyse the development needed to run the business successfully. As part of your skills audit (Refer to P3), explain why and how the skills mentioned in P3 are important for the successful running of your business.
Technical Skills:
- Computing/IT: I will need this as I may need to draw up graphs or put down information for my business
- Cash register: I will need to learn to use this as I need it to be able to make transactions from my customers
Personal Skills:
- Personal Presentation/Personable: I will need this in order to make myself presentable and polite to my customers
- Knowledge of the marketing business: I will need to know this to be able make my business profitable and how to apply my business to the market
- Motivation: I will need to have this to be able to go on and look after my business
- Customer Service: I will learn this from doing a part-time job and discovering how to talk to customers and deal with any problems they may have
Administration Skills:
- Book keeping: I will learn this by researching about book keeping and how i can keep track of all my business transactions
- Writing Letters: this will help me to develop my business by sending formal letters to people
- Stock taking : I will learn this from a part time job or my colleagues around me
M3 – assess the implications of legal and financial aspects that will affect start up of the business. Explain how the legal and financial aspects described in P4 will affect the start-up of your business.
I will now assess the implications of legal and financial aspects that affect the start up of a business. I will be investigating a business I have created called Raiinbow’s Clothes.
Legal aspects are aspects a business may need to think about depending on the size and how they are used properly. Some legal aspects are within the laws that people have to work by. For example the Health and Safety Legislation 1974 must be followed to all extents within my business e.g. keeping the shop cleaning, as it is under Criminal Law and if not followed can result in a prison sentence. This also goes for the Data Protection Act 1998 that protects employees’ information and allows the employer to access the information, the Equal Pay act which states all workers are entitled to the same pay rates and conditions and others doing the same/similar work, and the Sex Discrimination act that states it unlawful to discriminate on the grounds of gender or marital status. Other laws like this are the Race Relations act 1976, the Disability Discrimination act 1995, and the Minimum Wage act 1998. The Race Relations act 1976 is to prevent discrimination on the grounds of race, these of which include discrimination on the grounds of race, color, nationality, ethnic and national origin in the fields of employment, the provision of goods and services, education and public functions. The Disability Discrimination act is to make it unlawful to discriminate against people in respect of their disabilities in relation to employment, the provision of goods and services, education and transport. The Minimum Wage act 1998 is a minimum wage across the United Kingdom, currently £5.80 per hour for workers aged 22 years and older, £4.83 per hour for workers aged 18–21. Other legal aspects could include the legal status of your business, legal liabilities e.g. Tax and insurance and fire regulations.
Financial aspects are worked on the most on any business, because the whole purpose of the business is all around finance and how to deal with it. This could include costs of premises, equipment and supplies, running costs and employing staff.
