Donald will need to consider if there will be any competitors in Crawley. Donald should not locate near competitors because it is hard work having to constantly strive to keep ahead of competitors nearby. If Donald lowers his prices too much to beat the competitor(s) nearby, then he may lose profit or may not make any profit, which will lead his business to go bust. However if Donald has no competitors nearby, then consumers will have less choice about who to buy a product from so they will go to Donald’s store. This will benefit Donald because he could increase his prices because he will know that consumers will have no other shop, which is nearby, to go to and buy the product they want, so they would continue buying the product from Donald’s store despite the price. If Donald was to open up a new clothes shop in County Mall or in the town square, then he will have a lot of competition since there are many competitors nearby. However, if Donald was to open up a florist in the County Mall or the town square then he would not have any competitors nearby and so will gain profit no matter the price of his products since the consumers would have less choice about who to buy flowers from.
Donald may need to consider if there are any big stores in Crawley. The areas near big stores tend to get busy so if Donald located his shop near a big store, then he would get potential customers, which are passing by from the big store, to browse in his store. Some big stores include Mark’s and Spenser’s, supermarkets such as Asda, and Blockbuster.
Crawley is a good location for Donald to set up his new retail outlet because it has links to the M25, which is only 3 minutes away from Crawley’s shopping centre. Crawley also has one of the highest employment rates in England, which means Donald would get many potential customers buying his products, allowing him to make a reasonable profit. Also, there are fast bus routes around Crawley, 2 major railway stations adjacent to the town centre called Crawley Station and Three Bridges Station. There are many car parking spaces around the town centre and high street areas for customers. There are many big stores in Crawley, which Donald could locate near to attract passers-by to his shop. However, since Donald will be opening up a clothes store, he will have competitors nearby. Although this is a disadvantage, many people will have their own preferences to their type of clothing so there won’t be as much competition compared to the amount of competition there would be in grocery stores. The most important factor, which Donald should consider, is the price and cost. I think Donald should set up in the town square because there are many passers-by in the area so Donald would get many potential customers and there are parking areas for customers nearby too. I would not advise Donald to set up a shop in the County Mall just yet because it will be very expensive and Donald has a limited budget to spend.
Section 4
I am investigating the different types of business organisations that Donald could operate as. The types of business I will be investigating will be a sole trader, partnership, private limited company, and a franchise. There are certain advantages and disadvantages to each of these business organisations, which will be examined carefully and to choose the right option.
A sole trader is a business owned by one person. This person provides all of the capital invested into it. A sole trader business tends to be small in size and is the most common business ownership in the UK. The owner has complete control of the business however you are also totally responsible for the business’ success or failure.
There are many advantages to starting up a sole trader including there is a small start up cost. However, you must tell the income tax authorities and the Department of Social Security. Also, all profits are kept to yourself. This money could be saved up and used to pay tax, interest charges on loans, and VAT. A small business is also more flexible. If one kind of business activity is not profitable, the owner can quickly switch to something else.
However there are also certain disadvantages including the fact that Donald will have unlimited liability – Donald will be completely responsible for any debts the business has. To repay the debts, Donald may need to sell off his personal things e.g. His house, car etc. Also, the risk of failure is high because there is usually high competition around. He may also find it difficult to raise capital for the business because he is the only person working in the business. The firm growth will be slow because Donald will only be able to do a limited amount of work. Finally, the business stops with the owner’s death.
A cash flow plan will increase your chances of getting a loan from the bank, which will be your main source of outside finance. You will need to find a suitable location to work in. You could start at home but without planning permission from your local council you could get into trouble for making too much noise or having too many visitors. From the results given by the questionnaires, 72% of inhabitants tend to go elsewhere to shop for clothes. If Donald opens up a clothes store he may get more potential customers since people would come to his store. Also, there is not much competition around for Donald so this will be a beneficial thing for him. In order to achieve success, Donald will need to be dedicated, hard working, adaptable and willing to take risks and to overcome problems.
4/10
A partnership is like 2 or more sole traders. By law, a business can have between 2 and 20 partners. Partnerships have an equal say in making decisions and an equal share of the profits- unless they have an agreement called a ‘deed of partnership’ that says otherwise. Partnerships are not that common in the UK but are found a lot in jobs like accounting, solicitors and doctors.
There are certain advantages for this form of business organisation including there will be more owners in the business, which means more ideas, and more people to share the work. Also, there will be more owners in the business, which means that more capital can be invested into the business. This capital can be used to keep the business going and also to improve it as well as paying taxes. A partnership business is usually small so Donald will need less money to set his business up. All of the business’ financial accounts and documents are kept private so no one outside the business will know of the business affairs.
However there are also certain disadvantages one of which is that each partner is legally responsible for what all the other partners do. Also, similarly to sole traders, partnerships have unlimited liability. If there are more owners in a business there will be more disagreements too because there will be several bosses. If the partners disagree about which direction the business should go in and how much time to put in, it might lead to the business closing down. According to law, there is a limit on the number of partners in a partnership business – only 2-20 partners are allowed.
Donald will need a Deed of Partnership if he wants to set up this type of business organisation. A Deed of Partnership is a legal document that states the rules of the business. It should state who the partners are, how much money each partner has invested into the business, how profits should be shared out, how many votes each partner has in any of the meetings, the procedures for partners leaving or joining the business. However if the partners do not get on well on certain things, then he may be putting his business at stake. Although, the more partners in a business, the more specialists, with unique skills, there are. However, if Donald opened up a sole trader business, he would have a limited amount of skills and won’t feel completely lonely.
7/10
- Private Limited Company (Ltd.)
A Private limited company is owned by at least 2 shareholders. Shares are sold privately to friends and family who invest money into the business. The people who invest money into this type of business organisation receive a dividend in return. The shareholders in a business vote for the board of directors, who run the business.
The advantages to setting up a Private Limited Business include the fact that shareholders have limited liability, which will mean that the shareholders will not have to put their personal possessions at stake when investing capital. The firm tends to be bigger if Donald sets up as a Ltd. compared to if he sets up as a partnership or sole trader. The business can also employ specialists to make the best out of the product or service the business supplies to the public. Also, death or illness will not affect the business.
However, there are also certain disadvantages to setting up a Private Limited Company. Shares cannot be sold or bought over the stock market since they can only be sold to friends and family members. This will mean that the company Donald sets up will gain capital slower. This type of business is also hard to set up and profits need to be shared amongst shareholders by paying dividends. The profits will be shared according to how many shares each shareholder has so the more money they have put into a business the more they will get.
To become a limited company, applicants have to submit a Memorandum of Association, which states the business' name, address and main purpose. It also describes the liability and amount of capital invested. The internal workings of the company including the number of directors, how they are elected and what their roles are described in The Articles. This also describes how profits will be divided. When the Memorandum of Association has been submitted the Registrar of Companies issues a Certificate of Incorporation which allows a limited company to begin trading.
If Donald decides to set up this type of business then he will have limited liability. Also Donald will have himself and 1 or more companion(s) with him too. This will benefit him because many different skills from each shareholder will be used in the business since each person would be specialising on a particular area – if all the skills are put together, the business will be able to be imaginative with its style and creations. However, a Ltd. is going to be expensive to set up. Donald will find it hard to seek money to set up this type of business organisation because he has a budget of £10,000. Although, if Donald is able to find enough shareholders, amongst his family and friends, who are willing to invest into his business, Donald will obtain more profits and will be able to add these profits to the money he already has.
7/10
- Public Limited Company (Plc.)
A Public Limited Company is the biggest type of private business in the UK. A public limited company first has to raise capital, through selling its shares to the public. It has to produce a prospectus, which explains how the business is run, and what it intends to do in the future. Once all this has been done, the Registrar issues a Trading Certificate, which would allow Donald’s new PLC to start trading.
The main advantages of becoming a Plc. include the fact that Donald will be able to sell his shares to the public. This will benefit Donald because if the public buy his shares, it will allow him to raise more capital and gain more profits in return. The firm will also be bigger and so will be easier to negotiate with suppliers. Similarly to Private Limited Companies, the shareholders who invest into a Private Limited Companies have limited liability and Donald is also able to employ specialists. Employing specialists will benefit Donald because it will enable the business to come up with more ideas from different people’s perspective, which Donald can take into account when buying clothing from his suppliers (e.g. A person who has fashionable skills will have a different perspective compared to an ergonomist. This is because someone with fashionable skills will talk about how the clothes will look on people however the ergonomist will be concerned with the health and safety of the clothing rather than the looks). Similarly to a partnership and an Ltd, a shareholder’s death or illness will not affect the business working as a Plc. Also, shares can be given to workers to motivate them if they are performing particularly well.
However, there are also certain disadvantages to consider. If Donald sets up as a Plc, anyone will be able to take over his firm without his permission. The financial accounts of the business are not kept private; instead they are published on to the stock exchange so the public is able to view them. A Plc. is also expensive – it cost over £50, 000 to set up this type of business organisation. A Public Limited Company has to share the profits it makes amongst the shareholders as dividend.
I think that Donald would benefit from a Plc because he will be able to raise more capital for the business since he can sell his shares to the public. However, a big disadvantage is that his firm is vulnerable to be taken over by anyone off the London stock exchange.
7/10
I think Donald should set up a partnership because setting up this type of business will be fairly cheap. Also, if there are more partners in his business, there will be more ideas. Furthermore, if there are more people, they can share the amount of work between them. Whereas, if Donald sets up as a sole trader, he will only be able to do a limited amount of work on his own. The more partners in his business, the more capital Donald will be able to raise for his business. The partners will get an equal share of the profits unless it states otherwise on the Deed of Partnership. I would not advise Donald to set up as a limited company because Donald has only been given £10, 000 redundancy payment – setting up as a limited company is expensive.
Section 5
Donald will need some help when setting up his business. There are many different sources of help that Donald can consider, which can be found in the private sector and the public sector. Firstly I will be discussing the sources of help in the Public sector.
The Regional Aid Programme is run by the government and gives money to the businesses as a grant. This grant will get the business to locate in poorer economic areas of the UK. These areas are known as assisted areas. The Government gives grants to set a business up in a poorer area to help reduce unemployment in areas, which have a relatively high unemployment rate. The advantage of this source of help would be that Donald will not have to pay interest rates to the Government – he will not have to pay the Government back. However, Donald wants to set up in Crawley, which is not a poor area in the UK since it has a relatively high employment rate. Since Donald will be setting up in Crawley, he may not be able to get the grant from the government. Also, Donald will not want to set up in a poorer area, which has a relatively low employment rate, because Donald will not get potential customers that are able to afford his products.
- Department of Trade and Industry (DTI)
The DTI is responsible for the success of a business in the UK. The Department of Trade ad Industry provide advice and leaflets and also display a lot of advice on their official website: . Donald would benefit from the DTI because it will give him plenty of helpful advice to get him started. Donald will benefit from the DTI because he will get advice for free however, the information may not be helpful for Donald.
- Central Statistical Office (CSO)
The Central Statistical Office provides a wide range of issues, which will be of use to many businesses. The CSO are able to provide information such as population statistics, spending patterns, inflation, unemployment rates and much more. The population statistics are important for Donald because it will give Donald an idea of how many customers will visit his shop. Although the CSO will be able to provide a lot of information to Donald, Donald may find it difficult to interpret this information into his business because he has not been professionally trained as yet.
- Training and Enterprise Councils (TECs)
Training and Enterprise Councils can be found in most large towns and cities and they offer services to small businesses. TECs also operate the enterprise allowance, which is a grant available for the unemployed (e.g. this might be due to becoming redundant) that start up a business. If Donald uses the help of the TEC his employees and he will be able to get day seminars of training on how to run the business. Donald may also receive a grant, which he will not need to repay. However, the TEC takes a long time to offer services to businesses because Donald will need to register for it – lots of paperwork is involved. Also, Donald may not have enough time to attend the training sessions.
The Loan guarantee scheme encourages banks to give loans to small businesses. The Government guarantees loan repayments for some small businesses to encourage banks to lend and provide finance. If Donald uses this type of help source, he will be guaranteed up to 85% of a loan by the Government. However, Donald will be expected to pay back the loan along with the full interest.
The EU provides grants to the public and private sector businesses. These grants can be provided for research and development, job creation and training schemes, improving infrastructure and developing energy supplies. Donald will be able to get grants from the EU so will not have to pay money back to the EU. However, it will take a long time for Donald to register for the EU.
There are also sources of help provided by the private sector. Unlike the public sector, the private sector will be expensive for Donald. Help sources from the private sector include banks, accountants, trade association and chamber of commerce.
Banks provide businesses with sources of finance and also advice. Many of the main high street banks have specialist advisors to support small businesses. Banks will be able to provide Donald with loans and overdrafts as well as accounts, foreign currency, safety deposits and much more. If Donald uses the bank for help, such as taking loans, he will have to repay these loans with interest. However, unlike the Loan Guarantee Scheme, the Government will not guarantee paying up to 85% of the loan for Donald. Also, since Donald will be opening up a small business, the bank may refuse to give loans to Donald if they do not trust him enough to pay them back – the bank may feel they are taking a risk by providing Donald with a loan.
A management consultant will be able to assess Donald’s business and can indicate how his business can be improved. Although management consultants are specialists, Donald will need to pay a great amount for this source of help.
Accounts can analyse Donald’s accounts and provide him with helpful financial advice. Accountants can be able to help Donald is various areas, for example, they can advise him on how to avoid shortages of money. Although accountants are able to advise Donald in financial areas, they are very expensive compared to the DTI, which is free.
Trade associations provide helpful advice, concerning the industry, for businesses. Donald can get advice on the latest fashion trends, changes in technology, what problems to expect if he carries out certain actions. Donald will benefit from advice on the latest fashion trends because he will need to know what types of clothing to sell and which will allow him to make greater profits.
Chambers of Commerce are voluntary organisations, which give advice to businesses within a certain locality. This organisation protects the interests of local businesses. The Chamber of Commerce can give advice to Donald of specific areas, such as, if there were road works outside Donald’s retail outlet, the Chamber of Commerce would be able to advise Donald on how to overcome this problem. However, this organisation will be expensive for Donald.
Section 6: Conclusions and Recommendations
- What product should Donald retail?
I think Donald should set up a clothes store because 72% of the people questioned went elsewhere to get their clothes. This may be because there may not have been enough shops in Crawley, which sold clothes. If Donald opened up a clothes shop in Crawley, there will be a greater chance for him to get more customers, visiting his shop. I think Donald should open up a clothes shop for teenagers because many teenagers tend to shop in Crawley compared to other ages. Also, I think Donald should sell a range of clothing however they will not be too fancy because many teenagers would prefer simplicity compared to fancy dresses.
- What factors should Donald Powell consider in locating his potential retail outlet?
I think Donald should locate his retail outlet in the Queen’s Square, Crawley. This is because Crawley shopping centre is a busy year all year round so Donald’s store will be visited by many customers. Also, the shopping centre is only 3 minutes away from the M25. Donald will also be able to make a reasonably high profit because Crawley has one of the highest employment rates in England. Crawley has fast bus routes and 2 major railway stations too, which are adjacent to the town centre. Many car parking spaces are available around the town centre for customers and due to the big stores, plenty of passers-by will visit Donald’s outlet. The price and cost will be the most important factor, which Donald will have to consider. Since the County Mall shopping centre will be very expensive, I think Donald should set up in Queen’s Square.
- What is the best type of business organisation for Donald Powell to operate as?
Donald should set up as a partnership because this will be fairly cheap. Also, if more people are in his business, work will be able to get done quicker and there will be more ideas and suggestions for the business to improve. If more people are in Donald’s business, there will be people who specialise, which will be cost-effective since they will become more efficient in certain aspects of the clothing business. Also, more people in a business is better than having one (i.e. a sole trader business) because there will be thoughtful decisions, contacts and skills. I would not recommend Donald setting up a sole trader because he will have to much pressure put on him as well as unlimited liability. Also, a Ltd. or a Plc. business will be too expensive for Donald to set up since he has a limited budget of £10, 000.
- What are the best sources of help for Donald Powell in setting up his business?
I think that Donald should use the various sources of help for his business’ success. Donald should use the help the bank, which is from the private sector. Although taking bank loans will be expensive to repay, Donald could also get the help of the Loan Guarantee Scheme since this is free and the Government are able to pay up to 85% of the loan for Donald. The bank will also provide Donald with helpful advice for his business since they have specialist advisors and services to support small businesses like Donald’s retail outlet. Also, I think Donald should consider taking the help of the Department of Trade and Industry. This source of help will be free to use and will make sure that Donald’s business will be a success in the UK. Donald will also find the Training and Enterprise Councils useful because they will provide training sessions and a grant for Donald since he is going to be setting up a small business for the first time. The EU will also be helpful because they will provide grants for research and development, job creation and training schemes, improving infrastructure and developing energy supplies.
