Local community
The local community are the people who live in the area of the business. They are the people who are interested on what is going on, for example, [GCSE Applied Business for EDEXCEL, page 153] “residents of a large housing estate might welcome a supermarket opening on the edge of their estate, but be concerned about the number of lorries making late deliveries to the store”. These are advantages and disadvantages which are clashing together, as the advantage for having a new store by their homes are that its really close to their houses, but the disadvantages may be a lot of traffic by their houses with customers going to the stores etc. the local community care a lot about pollution if there are factories and safety of others if there is a mechanical company. Some of the local community may care about some of the business activities reducing the values of their houses. The local community are also concerned about new motorways being built. As that would also damage the environment and increase the traffic within the residential areas, they are also concerned about the chemicals from factories and if they are building prisons near that area, as there is always a fear if someone escapes. Some of the local community feel very strongly about certain things, and may chain themselves up to trees or protest by the company if they are planning to do something, and they disagree with it. The local community is an external stakeholder.
‘Actors Vision’s Local community will care about the expansion of the business, so if they are trying to make it a lot bigger, it will cause a lot of damage to the environment and noise pollution. They may protest outside of the store for days just to get their own way and their say with all of this. The importance of ‘Actors Vision’s local community is that they can have a relationship with everyone else, and that they can see what the local community has to say before they begin expanding their business, for example. If they did not have a local community, then there would be a lot more conflicts between the locals and ‘Actors Vision’.
Competition
There is no business that operates in isolation; whatever product they are producing, there will be other businesses and companies that are selling similar items to that store. The reasons why businesses are in competition with other businesses are so that they can have the customers they need. All businesses want customers to buy their own products and their own goods, but if they begin to ignore what other firms are doing, then they may start to lose their customers. Therefore knowing all of your competition and what they are doing is imperative. Competition refers to a situation where there are rival businesses which allow a customer to decide which place they want to go to. The more competition there is in an industry, the more choice a customer has and this could affect the way in which a business behaves. If there is a lot of competition in their area, then a business will try to keep their prices as low as possible, so that they can try to encourage the customers to shop at their store so that they can be making the profit. If the prices in the rival businesses are similar, then they will need to think of other things to attract the consumers and find different things to make them unique.
The area in which I have situated my business has no competition. As the business that I am providing is unique, and then I would not expect to have any rival businesses affecting me. Although people may think of competition as a downfall, it would motivate my business to succeed. I feel that the prices at which I am selling my products at are reasonable, and I would not need to lower the prices just to meet the customer’s needs.
Sometimes, there may be conflict with different stakeholders, for example, the local community will campaign if a business is trying to expand, but on the other hand, the employees would want job security. Also shareholders would want high dividends, (which are payments made by a corporation to its shareholder members), but on the other hand, managers want to use profits for investment. And finally, the suppliers may want high prices for the goods that they are selling, but the customers would want the prices low, as they do not want to be paying as much. Some of the neighbour’s would appreciate some job opportunities, as the store is around their local area. They also want healthy and regenerated communities and support for local causes and initiatives.
I will now be moving on to the next section of my work, which is about market research. I will talk about market research and segmentation in general and then directly about my business.
Market research is an organised effort which has been carried to out to gather information about the market or customers. It is a very important component of business strategy. Market research is for discovering what people want, what they need or even what they believe. It can also involve discovering how they act. Once the business or company has completed their market research, it can be used to determine how to market their product. A few ways in which businesses can conduct market research is by questionnaires and interviews with the general public. For starting up a business, there are some important things that they have to think about.
Market information
Through market information the businesses can know the prices of different products that are being sold in the market, as well as the supply and demand situation. Information about the markets can be obtained from a range of different sources, formats and varieties, as well as the sources and varieties that have to be obtained to make any business work.
An essential part of business planning is the market research. This is when some employees of the business or the owner will go around the general public and ask those questions about what their needs are, and other questions relating to their business. When the business are conducting market research, they need to look at their market, and they need to see how big their market is and what types of consumers they are trying to attract. In my case, my market size will be pretty average, as I know there are many schools, theatres and actors living in my local area, and the types of consumers that I am trying to attract are people like directors, actors, producers and other people in that category, as my business would not be relevant to someone that wants nothing to do with theatre.
When my business, ‘Actors Vision’ begins their market research, they also need to begin looking at the product, so we may start to get some focus groups or representative groups and when we show them our products, we want to see what their reaction is to it, and if they think the product we are selling are at a high standard and not something that will break within the first few months. In my business, it is really important that I have some focus groups that look at my products that I am selling, as if they are not good enough, then the theatres that are using my product may lose their trust in my business, and it will begin to have a bad reputation. If the focus groups disagree with the product that I am selling, and says that it’s not good enough, then I may have to change my strategies and find a different supplier.
When conducting my market research, the main thing I will need to look for is my competition, and the questions that I will be asking myself is who are my key competitors, and how can I differentiate my product for theirs. As I am located in Flintshire, I have looked around and I have noticed that there are no businesses like mine anywhere in North Wales, the closest thing that is similar to my business is when people sell fancy dress costumes, and its hardly competition, as I sell many other items like lighting, sound systems etc. There is a fancy dress store in Mold, a 10 minute drive from my location, and the products they sell are not of a high standard as mine, so I have very minimal competition.
When businesses conduct market research, they need to think about the prices of their product, and if they are selling their product at a really high price, or at a really low price. Consumers are really sensitive when businesses begin to change their prices, for example, if the business start off at a low price, and they realise that they are selling their products to cheap, and raise the price, the customers may get upset, as they are having to spend more money. In my business, I will need to go on the internet on businesses websites that are similar to mine, and I need to look at how much they are selling their products, and what type of products they are selling. If I notice that I am selling my products at a ridiculously high price, then I will have to change my strategies and lower the price, as I know customers are always looking for bargain prices.
When any businesses conduct market research, they need to see if they want to promote their business in a certain way, for example, if they want people to go out to the general public, and if it’s a food shop, then they may have samples of the products they would be selling at their store, and from the customers reactions, they can see if the product would sell well, and if it would, then the customers that tried the product will most likely buy their product. In my business, it would be hard to walk out of my store with a portable lighting system and show everyone on the street. What my business could do is set up a stand in an area where a lot of people shop, and have products such as sound systems and sound boards that will play when people are shopping, and have examples of the costumes and scripts that I would be selling.
Different types of market research.
There are two different types of market research. These are field research, which is also known as primary research, and desk research, will is commonly known as secondary research.
Field research is research that collected primary data. This would be data or information that does not already exist. The way in which this can be collected is by customer questionnaires. This is the best way to conduct primary research, as any business can have specific questions that they need to complete their market research, and the give them out to their customers that complete them and the business look at the all and make certain decisions. When businesses conduct questionnaires, they need to make sure that it is not that time consuming for the general public, as they don’t want to be standing in the high street filling in a piece of paper. Also, a business should not overload the customers with loads of questions on the questionnaire, as it would look daunting and it would put the customer off right from the start.
Another way that they can conduct field research is by having focus groups. A focus group is a form of qualitative research in which a set of people are asked questions about their opinions, their perceptions, beliefs and attitudes towards a product. The questions are asked in an interactive group setting where the participants are free to talk with the other group members. When businesses conduct field researches, they sometimes call a group of people together and they will ask for their honest opinions about the products that they are selling, and what they think should be improved, and it can range from who the supplier is, to the pricing and colour of the product. This is a really good way that a business can see if their product will sell, as these people are really honest, sometimes harsh, but the business can see where the flaws are, and they will known exactly how to deal with it. For my business, I would get a group of people, and then I would show them my products and ask for an honest opinion, and even though they may be giving me criticism, it is constructive criticism, and it will be something to work on. If I ignore their comments, then the customers may have the same opinion about my products, and they will not buy my product.
Other ways in which businesses can conduct field research (primary research) is by either direct mail surveys, web based surveys and customer interviews. When a business wants to know if their product will sell, they will set up an interview with one of their potential customers, and they will show them their product and see what their honest opinions are. This is almost like a focus group, but the only difference is that it’s with an individual. This is a really good way to find out their customers needs, because if they do not complete this type of market research, or a different type of market research, then they will not know their customers needs, and their business will not be as successful as they would like it to be. For my business, I would not cut corners when I set up my business, I will use each different method of primary research to get the best answer possible off the public. This would mean that I would have a great advantage as I will know the customers needs and if they disagree with an aspect of my business, then I will improve it until it reaches a certain standard.
Desk research is research using secondary data. This is data that has not been collected by them, but it has already been found and published. This may mean that they are using government published statistics, this basically means that the government have already carried out a research, and they have made statistics, and they published it on a website so that people can use it. This would be really helpful to any business, as someone else has already conducted a survey and the business will then have the relevant information to carry out some more market research. Places in which this information can be obtained can be from the Office for National Statistics or it can be obtained from international organisations. For my business, I could use this information for the Office for National Statistics, but the only downfall is that the survey can be from a few years ago, and customers needs change so often that the data might not be relevant to me or my business.
Another way in which market research can be conducted by using secondary research is by using existing market research information from specialist market research companies. This is a good way in which businesses can retrieve information because they are getting information that is already out there, and the information will be used so that the business can see what their customers needs are and what they do not like in a business, and what they do like. The disadvantage of using this method is that the data may be very old, and as I have already explained, the customers needs change so often that the data might not be relevant anymore. For my business, this idea would work fine for me, as I would be retrieving valuable information that would improve my business, and it would show me what my customers expect from me, for example, for the prices of some products to be at a certain price, or the music in the stores to be at a quiet level.
Another way in which market research can be conducted by using desk research is by using sales figures from their competition (if they allow it), together with pricing and product information. This would be the hardest set of information to obtain, as it would be less than likely for a business to give out their personal market research, and for them to show their sales figures. The reason why the other competitors won’t give out this information is because if I saw that they are selling a certain product at a specific price and I saw the amount of people buying them, I could lower the price of the same product in my business and then I would have all of the customers. In my business, there is no other local businesses that would have market research relevant to mine, but one thing that I could do is get information of a large theatre shop down in a big city like London, and then they would be less hesitant to give me the data as I am at the other end of the country and I am only a local store.
Both primary research and secondary research need to be treated with caution where the sample cannot be controlled, as the sample may not be representative of the population you are trying to reach.
Market segmentation
Market segmentation is the division/segment of the market or population into subgroups with similar motivations. It is widely used for segmenting on geographic differences, so that would be their location, personality differences, demographic differences, techno graphic differences, use of product differences, psychographic differences, and gender differences.
I will now go on to explain some of these in detail.
Demographic
This section is about people in general. Segments in this classification include peoples age, their gender, how big their family is, their income levels, so how much they are earning, their ethnic backgrounds, so what race they are, and their occupation, so if they are a student or working. Other segments in this classification include their education, religion and socio-economic backgrounds.
Demographic segmentation consists of dividing the market into groups based of different things, such as age groups, gender and income levels. Demographic segmentation variables are amongst the most popular bases for segmenting customer groups. This is partly because customer’s needs are closely linked to variables such as income levels and age groups. I will now go on to explain each one in detail.
Age Groups
I am now going to look at the way age affects the way I sell this product. As my business is a theatre shop, the average teenage child will most probably not buy them, as the products that I am selling are more targeted towards theatres, and amateur companies. The only way that I will have young customers or teenagers at my shop is if they are looking for costumers for a fancy dress party or Halloween, as I sell different costumes. Another way in which I will have teenagers at my store are if they are doing drama in their school, and if they have taken it for GCSE or A Level, then they might want some scripts or books that will help them with their studies. Not all of the teenagers will buy this product as it is more of a ‘mature’ shop, and the regular teenager won’t be attending my shop to purchase different lighting equipment. The people that I think my business would sell to would be 20+, as I know from that age; they usually start directing plays, and are involved with that type of activity. The older generation will be more likely buy this, as even though some of them don’t direct play or are even plays. The reason for this is because I sell scripts and they are sometimes interested in plays and they like going to the theatre, so they may want to have an insight in the play before they go to watch it. Overall, my product would sell more to the older generation on a day to day basis, but when there is a special occasion, for example, Halloween or Christmas, I would see people from a range of age groups buying products at my store, ‘Actors Vision’.
Gender
Gender is usually an issue when products are put on the market, as people usually think that it may be to girly or boyish to buy. The products that I would be selling at my store are neither a boy product nor a girl product, as they sell to both of their consumers equally. The main time when the males buy more than the female is when they are directing plays, as even though there are many female directors, you see that more people that direct plays are males. On special occasions, for example, Halloween or Christmas, there would be an equal amount of people buying products, as they will be buying for an occasion. As there usually more females doing drama than there are males, and my business sells items that would help them for their studies, then the females would begin to shop at my store. In the market, this product is not really targeted to a specific age group of gender, it’s open to everyone, which is a big advantage for my business as I would have got most of the general public buying my products, and ‘Actors Vision’ would be making a big profit. Items that usually split the public are products like hair products, clothes and computer games because there would be more girls buying items like hair products and clothes, and more boys purchasing items like computer games. As my business does not sell any of these items, there would not be a split. If I began to see that there were hardly any females shopping at my store, then I may have to change my strategies and try and get different products which might attract the females. The only reason I would do this is because my business would not be successful if it was just targeted to the males, so if I have both genders shopping at my store, then I would be getting a higher profit, then by business would be doing well and I would have the money to either expand, buy new product, bring new equipment into my store etc.
Income
Many companies target wealthy consumers with luxury goods and convenience services. Good examples include Coutts bank; Moet & Chandon champagne and Elegant Resorts - an up-market travel company. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. Examples include Aldi (a discount food retailer), Airtours holidays, and discount clothing retailers such as TK Maxx.
My businesses products are a little bit more expensive than the regular the regular stores that are in the market. The reason for this is because the quality of the products I sell, and because it is of an exceptionally high standard, the pricing of my product would have to be a bit higher. Some of the products that I would be selling at my store may be a bit cheaper, as the pricing for a script or some make-up will not be as expensive as the lighting boards or the sound systems. Compared to the good quality products that are in the stores, for example, London Theatre Store, it is pretty cheap. I am selling the same products, but as London is a big place, and all the best shows take place there, then it would be. As I am a sole trader, my products will be pretty expensive, as I have already explained before that I cannot buy in bulk and I need to be making a profit. My products would sell to a higher class group, as it is pretty expensive and not a lot of people will begin to buy expensive items if they are on a low income.
In conclusion, my product would be selling to customers with an age range of 20+, but I will have the odd teenager enter my shop if they are buying fancy dress costumes or scripts or drama books. I will have mainly males enter my store, but it does not mean that females will not be entering my store, as its open to everyone. Finally, the products that I am selling would sell to a higher class group, as the prices of my product, which I will go onto later, are pretty expensive.
Geographic
This segment of my work involves the area where the customers are living. In different regions of the country, they have different cultures and the type of area it is might influence the way people spend their money. This could be something very simple like the so-called ‘north-south’ divide to more localised differences. People in Wales, for example, have different traditions to those living in parts of the south-east of England. The average teenager living in Cornwall might have different spending habits than teenagers living in cities like Birmingham and Manchester. Businesses can use this information to target customers more effectively.
In different parts of the UK, the shops are different. For example, in Chester, there are many high street clothes shops, like Primark and New Look, but in places like Blackpool, there are also shops there, but the difference is that there’s a pleasure beach, and that there are many arcades. The difference would be that in Blackpool, people are used to spending money on the arcades and on the rides, but in Chester, everyone are used to spending money in the fashion stores. The area in which I have chosen to set up my business is in Flint. The reason in which I have chosen to set up my business there is because I know there are no other businesses like it, as mine is the unique one, and as there are many schools, pubs and small theatre organisations, it would be the best place to base my business. The pubs usually have karaoke nights and other special occasion nights, and if they are looking for a lighting board or system, then they can come to my store. My business would then be selling to a variety of people. As there are about 7-8 schools in Flint, and many others in Flintshire, and most of the schools put on performances annually, I know that they would need specific equipment, like props or costumes and as I am based in the middle of Flintshire, it is easily accessible for people that live in Holywell, and for people that live in Mold. The population in Flint is pretty big, and in 2008, the population size has risen to 12,804 and now it is the second largest town in Flintshire. Recently, around 70 new houses have been made, and they are about 4-5 people houses, so the population size has increased yet again. This is perfect for my business as I would have a lot of customer and if I based my business in an area where only about 2,000 people live in, then I would be getting such a good profit and not good total revenue. Flint is getting bigger and bigger, so the population density and their population growth rate is increase drastically. There have been more plans for hotels to be made, and more houses to be made. This is a big advantage for my business, as I would have a variety of people who would have a reason to shop at my store.
As my business is only small, the advertising of my business would just be in the local area, so it would be in Flintshire. The reason for this is because I have just started up and I have not got the money to be advertising around North Wales. In the future, I will think of expanding, and having a website for people around the country to look at and purchase certain items off.
Psychographic
This section deals with the personality of the people living in the local area, which in my case, is Flint. All of these people would have their own opinions and attitudes towards different things, so they may like one thing, and on the other hand, another group of people might disagree with it. This section of my work would refer to a lot of people’s lifestyle, and what their values are in life. We see lots of examples of how people are classified in this way – white van man, goths, hippies, wrinklies, yuppies, Essex man/woman, chav, boy racer, geek and so on.
In most cases, these are what we call ‘stereotypes’. The way we look at these groups might be simplified and exaggerated but they do serve to identify certain characteristics. These might be useful to a business looking to target particular markets.
If I used this method for my business, then I would find out what types of costumes some people would want, and what types of plays some people would want me to sell, so what genres, like a tragedy, or a comedy or romance. This would be very beneficial to me, as I would not be buying unnecessary items and therefore, I would not be wasting money. What I would be doing is selling products that customers actually want and what they are interested in, and that’s why I am here, to sell products that would help the customers or would interest the customers.
Once I have the correct products, I need to see what type of customers that I would attract, as I want a wide range of people from different groups, so for the older person (wrinklies), most of the store would be of relevance to them, but for the younger person (chav,goth), I would have to think about what item they would want. As I would have conducted my market research, I would know what product they would want, and what type of product they would like to purchase. The reason why I want to cater for everyone is because if I only have a small group of people buying my product, then I would not be making a lot of money, as not many customers are coming to my store.
In conclusion, understanding different market segments and making them relevant to my business is very important if I want to make a profit. When I am conducting market segmentation, I need to think about the different age groups, people’s income levels and their gender. This would be called ‘demographic segmentation’. Geographic segmentation is important as well because I need to understand what the best location for my business is, so I have to think about transport links and competition around me. Finally, I had to think about psychological segmentation, and as there are different stereotypes, I feel that I should cater for each one of them, so I would look at my products and see if it would sell to them all.
The next section that I will be moving on to is ‘Pricing Strategy’. A definition of pricing policy/strategy is the “Standard procedure use by a firm to set wholesale and retail prices for its products or services”.
When any business is starting up, getting the price is very important. All of the businesses must make sure that the difference between the cost price and the selling prices leaves them enough profit to cover all of their operating costs. A lot of business suppliers usually recommend a retail price for each of the items that they stock. When a business is setting the prices for their business, they need to consider how much they are going to set their prices, to draw in their competitors customers. Usually, a business will start of with a business selling the products really cheap, and once they have their local/regular customers, they will increase the price, as they know that they have the customers where they want them. A business would also need to consider if they really need to have discounts. Some businesses find that discounting is an inevitable part of their business; however, a business may be able to establish a reputation for good after-sales service that will mean that customers are prepared to pay that little bit extra. Many businesses will use this following technique, and it is called the ‘key price points’. It basically means that by dropping a product by a few pennies, customers are more attracted to it. For example, pricing a product at £99.95 rather than £100 is ‘key price points’.
There are many different types of pricing; premium, penetration, economy, skimming, psychological and value. I will now go into depth about some of these and then relate it to my business.
Premium Pricing
Premium Pricing is the practice of keeping the price of a product or service artificially high in order to encourage favourable perceptions among buyers, based solely on the price. This approach is used where a substantial competitive advantage exists.
Penetration Pricing
Penetration Pricing is the price charged for products and services are set artificially low in order to gain market share. A business would initially begin selling their product at such a low price, but as their reputation builds, and their customers attend the store regularly, they will increase the price, as they know that they have drawn in their customers and they want to start to make a bigger profit. This approach was used by France Telecom and Sky TV. A deal that I know Sky TV has used in the past is that they offered £1 extra a month for either music/movies/sports/discovery channels for the first six months, and after that, they drastically increased the price, and they knew that their customers enjoyed the programmes they were getting, so they kept the channels and agreed to pay the increased price.
This type of pricing strategy would involve my business going into the market at a lower price. The outcome of this would be that my business is selling products at low prices, but in large bulks. For example, if a new range of sound and music equipment was introduced into my theatre shop, and I decided to use this type of pricing strategy, I could sell the older products at a low cost which could then result in my customers buying the new products that are on sale. This type of pricing strategy could work for the number of customers the products are sold to. For example, if I sold one of the new sound equipments at a low price, I would be making a bigger profit because I would have a lot more customers buying that product than if I was selling it at its original price. Once I draw my customers in and begin to have regular customers, I will sell them at its original price, as I would already have a reputation. The way this could work is that the customers I sold my low price new equipment to could tell other people about the product and they would be more than likely to buy the product as they believe it’s a good product.
Loss Leaders
A loss leader is a product which has been sold at a low price (it could be either at cost or below cost) to stimulate other, profitable sales. In a sense, its similar to sales promotion, which is marketing concentrating on the pricing strategy. A loss leader would sell the goods below the cost price deliberately to encourage the sales elsewhere. Places in which you usually see this taking place is in large supermarkets, and they would lower a specific product and hope that the customers would be attracted to the other things in the store. In the end, purchases of other items more than covers ‘loss’ on the items sold. Times in which we should use loss leader pricing are in when you need to move overstock. This basically means that if you have an inventory that isn’t moving, or if you are overstocked on a specific item, a loss leader can easily move it. By cutting price drastically, not only will you free up the shelf spaces and reduce inventory, but a business will definitely increase cash flow. Another time in which loss leader pricing should take place is in brand awareness. This basically means that if you would like to be known for having low prices then the loss leading pricing strategy will help associate your business with that belief. Another time it should be used is in increased traffic. Using the loss leaders as a marketing tool can help gain new customers and increase return visits. Many people love a bargain and if they know that that particular store sell good products at a low price, then they will be more than likely to return back to the store.
This type of pricing strategy is an extremely effective method and supermarkets around the country use this type of strategy. I understand that this type of strategy would work for my business, ‘Actors Vision’; because if I sell sound systems and props at a low price, once the customer is in the store they can buy the product, but they can see a product which is being sold at a full price and they would buy the product.
Price Skimming
Price skimming is a pricing is a pricing technique which is designed to allow any business to charge each potential customer the most that they would be willing to pay for the product. The product is first offered at the highest price that customers will pay, and the price is incrementally dropped until it reaches a level designed to be viable for the long term. This type of pricing strategy is suitable for products that have short life cycles or which will face competition at some point in the future.
Psychological Pricing
This type of pricing strategy is a marketing practice based on a theory that certain prices have a psychological impact. The retail prices are often expressed as ‘odd prices’; a little less than a round number, e.g. £29.99 or £2.98. The psychological pricing strategy is based on one or more of the following hypotheses. One of them is that the consumers ignore the least significant digits rather than do the proper rounding. Even though the pennies are seen and not totally ignored, they may subconsciously be partially ignored. Some people have suggested that this effect may be enhanced when the pennies are printed smaller - £19.99. Another hypothesis is that fractional prices suggest to consumers that good are marked at the lowest possible price. Finally, the last hypothesis is that now the consumers are used to psychological prices, the other prices look odd.
In my business, this strategy would make people in my theatre shop psychologically buy different product. This would be an excellent strategy to employ within my business as I can sell sound systems, lighting boards, props, costumes and scripts at prices which are rounded up or down and therefore I would be making a profit.
As I have come to the end of pricing strategies and I must now analyse what type of strategy I must use for my business. Although they all have their advantages, some of them would work a lot better for my business. The strategy that I am going to use is psychological pricing and the main reason for this is that I fall for this strategy and I know that if I use it in my business; I will be getting a larger profit, as people would be more than likely to start purchasing some of my items.
Section B
For the next section of my work, I will be talking about the human, financial and physical resources. I will talk about these in general, and then apply these to my business scenario. All of these resources are imperative to my business as I need to have the correct number of employees in my business for me to do well, and for me to get the money I need without ever needing to go over budget. As I am going to start my business, I will need to get all of my money and place it into my business account. Once I have got these resources under control, I will need to ensure that I monitor and on a day-to-day basic, review the progression of my business. By completing this, it will keep me on target for my aims and objectives.
Human Resources
This section of my work will refer to the ‘people’ working within my business. The employees are vitally important if my business is to achieve its objectives. Without any of my workers, I would be unlikely to achieve a profit, growth or be able to survive. If I want my business to achieve all of its objectives it is important that my workers understand all of the objectives, they agree with my aims and they start to work towards these objectives. Many business objectives will be linked to productivity, which compares the output of a firm to the input used. It basically means that it measures the efficiency of a business. This basically means that any business wants as much out of their employees as possible, so that they can survive, expand and make a profit.
The main human resources that I will need are the employees. The main reason why I have chosen this to be my main human resources is because without these employees, I cannot have a healthy business and I could not carry on with the business if it is just me at the store. These employees would help me to maintain a business, and they would help me to create a successful service and then the customers would be getting a unique service that I would be offering. I now have to decide how many employees I am going to hire for my business. I do not want to have too many employees, as I am a sole trading business which is pretty small, and the more employees I have, the more wages I will have to pay out, and more conflicts may occur. If I begin to have conflicts with my employees, and the customers recognise this, then my quality of service will decrease as I am not running a business effectively. On the other hand, if I do not employ enough staff, then the hours for me will be too long, and I will not have enough staff to help me manage the store and therefore it would result in the productivity of my business failing as there are not enough employees to carry out specific jobs. At my store, I need employees to have specific skills. The reason for this is if someone enters my store and asks for a specific sound system, and asks which one they think is better to use, I would want my employee to understand which is better and then they could pass the message on to my customers. If I have skilled employees, then I know that I would be satisfying all of my customers.
Having the correct number and types of workers is crucial if these people are to help the business achieve their objectives. This would require very careful planning, to ensure that there are enough workers at the business and that the workers that a business hires have the required skills to fulfil the job. In order for this to be done effectively, a business should think of a workforce plan. Within this workforce plan, it would include things like looking at the businesses objectives, analysing their present workforce, planning for the future requirements in the workforce and developing a strategy so that a business can meet these future requirements.
When a business is creating a workforce plan, they must consider the following: recruitment; induction; training; labour turnover; dismissal; redundancy; legal issues.
Once any business has identified a vacancy in their firm, they need to start thinking about filling the spot. The way in which it will be done is to write up a job analysis, and then they need to have a job description, have a person specification and then advertise the job. Once this has been done, and the potential employees have filled in the applications, the business will then receive the applications and then short-list the applicants. This means that they will pick the people they want to see again, and the people that they feel don’t live up to the role. They will then interview the people that are good and once they complete the interviews, they will appoint the successful candidate and that person will have the job.
When I am assessing my applicants, I could follow a certain routine. There are a number of ways in which I can assess my applicants, these can be by their letters of application, their application forms, the way in which they respond to my interview and I could put them through certain tests. The tests that I can put my candidates through are their aptitude, their IQ test and their personality/psychometric tests. These are some of the ways in which I can assess my candidates and see who the best for the job is.
I think that I will need 4 employees, but at least one of them will be part-time. I would not have the sufficient funds to give all of them full-time jobs, so by having part–time jobs for at least one of the employees, it’s helping me financially, and at the store, it would not be too crowded. Also, by having a small amount of employees, the customers may get personal service, and that would make the customers feel appreciated and welcome into the store. When I have my 3 full time employees, I will think of promoting one of them to a major role, and the role that I am willing to award is the role of deputy manager. The main reason why I want to have a deputy manager is if I am away on a course, I will know that my business would be in safe hands with my deputy manager and as I have chosen that deputy manager, I know that they can fill in for me and take over and I know that it would run smoothly. Also, if there is another employee on training, the deputy manger (DM) could have that responsibility to organising who does what shift and if they need to bring in the part-time worker in for a few more shifts.
The technique that I will be using within my business will be the Paternalistic approach, where I would be appointing a deputy manager. The definition for Paternalism is “Paternalism refers to an attitude or a policy reminiscent of the hierarchic pattern of a family based on patriarchy”. This Paternalistic approach is a way where the deputy manager for any business would have concerns for the feelings and opinions of the other people around them, e.g. customers, fellow employees etc. Although DM’s make decisions which would have been cleared by myself, they will still need to take into account the feelings and opinions of their fellow employees because if my DM ignores what my employees say and carry something out, there would not be a good working relationship in my business. I will also take this approach to my leadership style because I want to know that my staffs are happy working for me, and that they feel valued. I would hate it if my employees dread coming to work because they don’t feel that they have a connection with me, or that they think that the way I am treating them is bad. I want to have a good relationship where my employees can come to me and tell me if they don’t like the way I am treating them, or any other concerns that is bothering them. For the role of deputy manager, I will be looking for someone that if definitely interested in my business, and not interested just for the pay I will be giving them. The candidate will need to have a very high level of management in order to provide all of my employees with the push, drive and determination they need to help my business, ‘Actors Vision’; very successful. The deputy manager that I will be employing has to be strict. I need them to be fair but firm. There would be no point in having a DM if they are not stringent and got no authority. They need to be in control of the business when I am either away from the store, or in a meeting. I know that having a DM with the best qualities will really be beneficial to my business because I know that it will be a lot more orderly and it will have a high sense of order about it.
Before I begin the process of choosing my staff, I need to decide of what type of people I want to have working for me. The types of people that I want in my business are people that are dedicated to the cause, people that have a good friendly nature and people that have the willingness, drive and determination to help me build this business up and to function properly. I want to know that they would be willing to take extra shifts if people need to go on courses or other reasons, for example, illnesses. As I explained before, I need people who understand the subject, and they need to have a clear background understanding on all of the products in my store. The minimum age I want to employ my staff at is 18. The main reason for this is because if I have employees younger than that age, I do not think that they would be able to relate to my customers, and it would be hard for them to understand the background information that is needed to carry out certain functions. The younger the employee is, the harder it will be for them to empathise with the customers, and if customers ask for a specific product, they may not understand what they are asking for. As I would need as much as possible and I need to know that my employees can stick with the job for a minimum of six months. The reason why I would not employ anyone under the age of 18 is because at 15-17, they would be in the process of completing their GCSE’s and their A-Levels. I know that they could not be committed to the job, as they would need to revise for their exams and it would be unfair to them if they had to sacrifice good grades in the summer term just to work for me.
I would prefer to have employees which are older, as they would be easier to relate to, and they would be able to have a better connection with the customers, as I know if I asked them to carry out a job, they would conduct it, but sometimes, if you employ younger staff, they may be a bit aggressive and retaliate and not conduct the job.
Although I have decided to have 3 full time employees and 1 part time employee, this may change in the future due to the flexibility of people. The reason why I would employ more people is because some of the staff may want to be with their families, and as there are a few people working for me, the hours for them will be a lot longer. What I will plan to do is employ a few more part time staff, and the main reason why I would have done this is so that my full time employees can take a break from time to time, and I would hope that they would appreciate what I am doing for them, and the relationship between myself and them would be strong.
I will need to advertise my business, ‘Actors Vision’; for the employees therefore I will need to decide how I am going to advertise my business. I am either going to advertise my business locally, or advertise it nationally. As I am a small and local business, I would not need someone from the other end of the country to come to my small local store and work for me. The best way that I think I need to advertise my business is to advertise it locally. The way in which I can advertise my business locally is to have some ads in the newspapers, or place posters in shop windows, or in the local Job Centre. The job vacancy can be advertised on the internet, on websites which a lot of people go on to see if there are any job vacancies for them. Instead of the local newspaper, the job vacancy can be advertised in the national newspaper, where I am more than likely to get an application form off. The other two places in which I can advertise a job vacancy are in trade journals and internally. Internally means places via the notice boards or journals. There are many shops in Flintshire, so the more shops I place my poster in the better. There are a few Theatres, for example, Theatre Clwyd, and I know that if I have a few posters there, I will definitely get some employees as the people going to the theatre are interested in that area of work, so they would be more than likely to apply. All of these areas I place my ad in for my business will be very beneficial to me, as I can easily contact them if I need to. One of the big advantages of having someone local that lives near my business and works for me is that they will tell their family and friends and I know that I would be attracting a lot more customers. In order for me to attract the right employee, I will need to write up a description of what type of person I want working for me, what type of skills and background information about them. This will then, hopefully, give me the right information and give me the opportunity to speak to the right people who have applied for the vacancy. By conducting an employee description, I will not be wasting any time in interviewing the wrong candidate, as people that think they fit the person description will apply giving me a number of people who I think that will suit the job. In order to hire new employees, I can’t just rely on them thinking they fit the person description; I will put them through many tests, for example, a personality test. By conducting this personality test, it will give me an insight into how these potential employees will react to certain problems and different situations. It will also give me a basic idea of how they will work on a day to day basis.
I cannot expect my future employees to understand everything in my business, and understand what to do in case of an emergency and how to work on the tills and with different equipment, so I will need to ensure that I conduct some training with them. Training will be imperative to my business and staff as I want to ensure that they are confident in their sector and that they will understand a question if a customer challenges them. Training should be an ongoing process for all of my workers. Training may be provided for many different reasons. These could be that the workers are being asked to take on new roles, workers being given additional skills to motivate them so that they feel valued, the workers are being ‘multi skilled’ which could help many businesses when they need people to cover absences, and training may be given if the workers are being prepared for a promotion. When a business conducts training, they know that it will be expensive, so it is important that it is planned to meet the needs of the workers being trained, keeps all of the workers interested and the feedback is used to improve future training. There are so many ways in which business can conduct training for their employees, for example, having induction days, going away on courses, one-to-one tuition. In order for me to expect the highest level of customer service from my employees, I need to ensure that I provide them with the correct training.
When they first begin working for my, I will place them on an induction day. This induction day will show the employees what equipment is what, where everything is in the store, how to work different equipment, and where each different category is. This will allow my employees to know is expected of them, what props would be suitable for someone is they are working on a Greek Tragedy, and whilst they are on this induction course, they will have the chance to ask me all the questions they feel that they need to know to work for me. By conducting this induction course, the employees will begin to familiarise themselves with the environment, as that would be the place where they would be spending most of their time at. On the induction course, the employees will be told all of the disciplinary procedures, which include a few different types or warnings and what each one of them meant. I would tell them about their first warning, verbal warning, written warning and then finally the dismissal. I do not believe in immediate dismissal if they do something wrong. The reason why I believe having four stages to the dismissal stage is because I want my employees to know that I will give them a chance, but I don’t want them to abuse this. If I feel that they have abused this chance then it will be an immediate dismissal. After the induction day, their training will go on continuously, as I would want them to carry on improving on their skills.
One of the courses that I will try and get in from the very start is the First Aid at Work course. This course would someone the confidence to help someone if there has been a serious injury, and that an ambulance is called if it is seriously bad. First Aid at Work covers the arrangements you must make to ensure this happens. It can save lives and prevent minor injuries becoming major ones. As I am First Aid at Work qualified, I can teach them what I know, and then send them on a course for them to be tested. I want all of my employees to be able to save lives, as my store has much electrical equipment, with props and scripts which are very flammable. The quicker this is introduced, the fewer things I have to worry about. I know that it may be a little bit time consuming, but the great advantage is that I only have a small number of employees; therefore I could do it all at once.
There is a type of training that is called ‘On the job training’. This basically means that when my employees are at the store, they would undergo training whilst working on my premises. There are five main methods when doing on-the-job training, these are; observing, mentoring, coaching, secondment, and action learning (e.g. special assignments). The main advantage/benefit to that is that the cost will be a lot lower, as I do not have to pay on the transport down there and then paying extra for the course, as work will be undertaken whilst most of my employees are learning. There may be a few disadvantages of having on the job training, one of the disadvantages would be that one of the days of work for me would be lost, and if one of my employees makes a mistake it could result in a loss in a customer/product/profit. I cannot afford to have these losses at such an early stage of my business career, as I need as much money as possible to keep the business going, and as sole traders have a reputation of being disbanded really quickly, I would fight to make sure that wouldn’t happen.
Whilst conducting their on-the-job training, the employees would be learning about different items in my store and enable all of them to be ‘multi skilled’ within my business. This would then allow my employees to be able to complete other jobs if they need to, for example, set out the layout of the prop section, or place all of the scripts in alphabetical order. It would also help them to be able to clean the store, as I know it cannot stay in an immaculate state all the time. By doing this, it will help them to complete all of these jobs by training them how to clean in a professional way and also be able to sort the scripts in genre, for example, tragedy, comedy and satyr.
Another type of training that is used in many businesses is something called ‘Off the job training’. As the name speaks for itself, this is training that is not on the premises of the business, but it’s in another place, for example, a college or training centres. The main advantage to this type of training is the total opposite on the ‘on the job training’. If one of my employees makes a mistake, it would not be affecting my business in the slightest, and my business could carry on being very successful and I can concentrate on actual training. The main disadvantage, which is pretty obvious, is that sending my employee on the course would be particularly expensive. The reason for this is because I would have to pay for them to travel to the course, as I would not expect my employees to pay for their own way there. Also, I need to pay for them to be on the course, and many of them are a few hundred pounds. Another disadvantage would be that my employees would be away from the workplace, so if anything bad happened, or if they needed to be there for some more extra shifts, it would not be possible as they would be on a course somewhere.
If I feel that my employees are not living up to the standard that I feel that they should be at, I will have speak to them and tell them my concerns, and if they don’t improve, and start to be rude to myself and my customers, then I will think of ending their employment. There are 3 ways in which a business can reduce the number of workers that they have; this may be by making them redundant, termination by notice and dismissal.
A dismissal is where an employee has their contract ended because of their actions. Some of the legitimate reasons would include; misconduct (for example, thieving), lack of ability (e.g. unable to do the job they are employed for), harassment of other employees and non-disclosure of a relevant criminal record. It is important for businesses to demonstrate that they have done as much as possible to help, such as training; otherwise that business may be accused of unfair dismissal. Before an employee is dismissed from a business they usually receive 2 ‘verbal’ warnings and 1 ‘written’ warning.
There is something called ‘Unfair Dismissal’, which is where an employee has their contract ended in such a way as to breach employment law. Industrial tribunals decide whether dismissal has been unfair. A few examples of unfair dismissal would be if someone was pregnant, if someone had been discriminated against religious beliefs, or something along those lines. Other unfair dismissals would be if they are a member of a trade union or if they have a criminal record which does not relate to the job. If an employee is judged to have been unfairly dismissed, they can claim damages.
Redundancy is when the employer ceases trading, if the employer changes location and if there is insufficient work for the employee. When this occurs, the employer must make a redundancy payment, which is sometimes called ‘severance’. The amount usually considers the number of year’s service and current pay levels. Redundancy is a very expensive process for employer and many will therefore reduce workers through ‘natural wastage’.
The final way of ending employment is termination by notice. This happens when a short term contract end or when notice is given by either party that they wish to end the contract. The amount of notice required will usually be stipulated in the Contract of Employment. Usually this will be quoted in weeks and the employers usually have to give longer notice than employees. Failure to give sufficient notice can result in financial penalties.
I now need to decide what types of courses I want my employees to go on for them to understand everything they need to know. One of the courses that I have previously explained that I want my employees to go on is the ‘First Aid at Work’ course, and this will help them to understand what they need to do in case of an emergency. People may think that they don’t need to know that at the moment, but if anything bad happens, they know what to do, and more importantly, it’s a life long skill that will never go away. The course will last for 3 days, as I will be thinking of completing this course with ‘Yale College’. At the end of the course, this is what my employees will be able to perform:
- Understand the role of the first aider including reference to the importance of preventing cross infection, the need for recording incidents and actions and the use of available equipment;
- Assess the situation and circumstances in order to act safely, promptly and effectively in an emergency;
- Administer first aid to a casualty who is unconscious (including seizure);
- Administer cardiopulmonary resuscitation;
- Administer first aid to a casualty who is choking;
- Administer first aid to a casualty who is wounded and bleeding;
- Administer first aid to a casualty who is suffering from shock;
- Provide appropriate first aid for minor injuries (including small cuts, grazes and bruises, minor burns and scalds, small splinters);
- Administer first aid to a casualty with…
- Injuries to bones, muscles and joints, including suspected spinal injuries;
- Chest injuries;
- Burns and scalds;
- Eye injuries;
- Sudden poisoning;
- Anaphylactic shock;
- Recognise the presence of major illness and provide appropriate first aid (including he art attack, stroke, epilepsy, asthma, diabetes).
(This information was off the Yale College website)
The HSE Certificate is valid for 3 years. The First Aiders should ensure that they attend a 2 day re-certification course within 3 months prior to the Certificate expiry date.
However, I need to consider certain factors when I send my employees on these courses. One of them is the cost of sending them on the courses, and the biggest downfall for me is that I have not got the sufficient funds at this moment to send them on all of the courses, so the best thing that I need to do is ask the government to provide me with a grant. If the government end up providing me with a grant, it would mean that I would have the sufficient funds to send all of my employees on the courses that they need to go on for them to be fully qualified. I cannot afford to have all of my employees go on courses, and use the profit money, because if I did do that, then the only other alternative would be to cut their wages, as my business would begin to break and end up disbanded. Another disaster that could occur is that my business goes into bankruptcy. In order for me to balance my money out, and keep things steady, I can only send around 2 employees a time on a course, and then send the others on a later date. The reason for this would also be that I need people running my store whilst the others are on courses. By using this technique, it will give me a lot more time to raise the money to put the other employees on the courses, and once all of my employees are fully qualified, I can rely on them to carry out an exceptional job for me.
Another course that my employees will be going on is a course called the ‘Basic Skills Pledge’ course. This skills pledge course is a voluntary commitment by the leadership of a company to support all of its employees to develop their basic skills. The skills that they will be expanding on are literacy and numeracy and it will work towards a relevant, valuable qualification in at least an NVQ Level 2, which is equivalent to 5 good GCSE grades. This course basically improves my employees overall working abilities. By completing this course, it will help my employees relate to my customers, and communicate and have a better relationship with them. It will also help them solve different problems a lot more effectively, as they will understand how to do it. Within this ‘Basic Skills Pledge’ course, there are many different sub-courses that would really benefit my employees for this job, and for any other job that they might move onto in the future. These courses include Report Writing, Maths for the Workplace, Basic Computers and Support in the Workplace. Some of these are to do with numeracy and working on computers, and as some of them will be doing stock counts and working on the tills, they will need to understand everything about them. The only course that I feel that I need to enrol my employees on is the Basic Computers course, and the reason for this is for my business to carry on functioning properly, I will need to ensure that I have a computer technician, so that if there are any faults with the computer systems, I have an employee to solve the problems. On the person description that I would have written, I will not say that they need to be qualified in computers, as I will be sending them on the course anyway. It would be helpful if they did have some computer skills as it would be a bonus for my business. My employees will be getting paid to go on this course, which is at Deeside College, not far from Flint, where my business is situated. At the end of the course, my employees will have a qualification in the basic skills pledge.
Once I know that all my staff have been trained and they have gained all of their qualifications, I can look into something which is called the ‘IIP’. This stands for ‘Investors in People’ award. This is a really good award and what it basically does is shows the ‘Investors in People Standard’ that I have trained all of my staff to such a level which they I feel is high customer service quality. The IIP award wants businesses that have employees, who meet up to their high standard, but I feel that I will meet their standards in my very own unique way. The time in which it will take me to complete this award will be around a year to 18 months, and in order for me to obtain this award, I need to show them how good by customer service is, and how well my business is doing. Once I have been awarded this, I can show my customers that I have achieved this and I will have evidence to show them that I provide great customer service.
Having a good customer service is imperative to a business. All customers are worth money to all businesses. The business will want to provide a good customer service to everyone who shops at their store. Businesses want satisfied customers so that they will come back to their stores, as they are worth money to them. All companies want their customers to tell their friends and spread the word, so that they will have more of an income to the business, and its popularity will increase with more people spreading the word about how good the business is. With good customer service, it enhances the company’s reputation, and keeps their status up high in the country. Also, the customers can provide feedback, on how good the company is, and how well it has improved or maintained. By knowing this feedback, it helps the firm to keep or increase its market share. By having good customer service, it increases the sales revenue and profits, as the customers would be returning back to the store, and purchasing more items.
At my business, customer service applies to all of them which I have stated. I will try to maintain a good customer service to ensure that the customers will return to my store and keep coming, and by having a good customer service, consumers tell their friends, which go and shop at the same store. If my customer service was not very good, the customers would be less inclined to shop at my store. Customer service plays a vital part in any business, as well as my because of the nature of the business and that the customers are important to the business. In my, I would make home/business deliveries, so it’s a lot easier to get items delivered at home, if the package is really big, for example, props for a play that is being developed, or large sound boards that cannot fit in a car, and it makes the customer feel better, as they know that I am going out of my way to deliver items to the customers. In my business, ‘Actors Vision’; I have facilities for the customers, if it’s from toilets for the customers, mother and baby rooms, and a customer returns policy.
In conclusion, human resources is very important in my business, as when I am deciding who to employ, I need to ensure that I am making the right decision. This is very important because I need the right employees and if I hire the wrong people, then I cant do well, on the other hand, if I have the right people, and give them the right training, then my business can be very successful.
Physical Resources
When I am setting up my business, I will need to think about some of the physical resources, which would mainly include things like stock, machinery, equipment and the stock. I understand that these resources will cost a lot of money, therefore the store in which I will be setting up my business will be a pretty small shop, situated in Flint, and it will be big enough to fit everything in and accommodate lighting boards, sound decks, props, scripts, costumes and other items. Some of these resources will be start up costs and some of these resources will be running costs.
Start-up costs are payments which are made before, or soon after, the start of a project. This type of cost only occurs once, and the price may be pretty high, for example, the building cost. A few other examples of start-up costs are new machines, which include installation, office equipment, which includes ICT, market research and advertising, the initial stocks of materials, installation of gas, electricity and telephone lines and new vehicles. Some people get confused with stock being in both categories, but the initial cost would be in the start-up category, and the stock afterwards would be in the running cost category. If the bill is paid once, then it is a start-up cost.
Running costs begin once the project or business has started. This type of cost will arise on a regular basis and it must be paid for as long as the project lasts. A few examples of running costs are wages and salaries, heating and electricity, repairs and maintenance, business rent and rates, materials and stationary equipment, telephone, advertising and vehicle running costs, for example, fuel. If the bill is paid regularly, then it is a running cost.
There are different physical resources that relate to my business, these are premises, equipment and machinery and stock. I will now go into detail about each one, and how some of them may affect my business.
Premises
I understand that this type of physical resource will set me back the most, as it will cost the most. I am not going to buy the largest store, as I am a small business and I do need space, but not too much. The reasons for this is that I may not be able to purchase a large store, as I am a sole trader, starting up a business and having to use my money wisely. I am going to get a store which is big enough to accommodate all of my items within my store. When choosing premises, the type of business that it is needs to be thought of. If the business is office related, then it’s obviously going to be set in an office, if it’s a clothes shop, then its going to be an ordinary shop which is situated near the local customers and if it’s a shoe manufacturer, then its going to be a factory somewhere. For my business, it’s an ordinary shop, so there does not need to be any uniqueness about the store I chose, but it needs to be located near to the customers. I need to store to be pretty big, as it needs to have items such as sound equipment, lights, props, scripts, costumes, along with the tills and desks. I need to have an office in the back where I can complete orders, payments and staff wages.
Local estate agents can give details of costs and availability of a business premises. I went on an estate agent website and I saw a few ways in which I can get my premises. The different ways are to lease the business, to buy the business straight up or rent the business. There are some pros and cons for renting and buying:
Capital – if I was to buy my premises, I would need to sink some capital into my building and probably take out some commercial mortgage as well. Although it may affect the profitability of my business for some time, I am investing in someone else’s long-term asset.
Cash flow – By renting my business, it will give me greater control over my cash flow. Rents tend to be fixed, whereas mortgage payments will be affected by interest rate rises. I would have to pay for extra building insurance and there will always be other costs to consider; (utility bills, business rates and stamp duty). Sometimes, tenants have to pay this on a commercial lease.
I will now need to think if I want to lease my business. The definition of leasing is “Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of payments”. Some advantages of leasing my business would be that leasing offers fixed rate financing, so I would be paying the same amount each month. Leasing is inflation friendly, so as the costs go up over five years, I would still pay the same rate as when I began the lease. By leasing, there is less upfront cash outlay; I do not need to make any large cash payments for the purchase of needed equipment. There is typically an option to buy equipment at the end of the term of the lease and finally, I can keep upgrading; as new equipment becomes available I can upgrade to the latest models each time my lease ends.
Leasing is a preferred means of financing for many businesses. However, this is not for every business. The type of industry and type of equipment required also need to be considered. I would have an obligation to continue making my payments. Leasing may not be terminated before the original term is completed. I would have no equity until I decide to purchase the equipment at the end of the lease term, at which point the equipment may have depreciated significantly.
After seeing the pro’s and con’s of each of the possible ways to purchase my premises, I feel that the best way is to lease my business. The reason for this is because I am using my premises for my theatre shop for an agreed period of time and in return I have to may regular payments to the lessee. I feel that this is a lot more popular than buying a property because it will cost thousands of pounds to buy out and if something goes wrong within my business then it would have been a waste of money. However, by leasing a property would mean that I can go somewhere else if my business fails. I feel that this is the best way and I am going to use this method to purchase premises.
Equipment and Machinery
It is imperative to my business that I have some sort of equipment. Acquiring machinery and equipment requires a very careful planning process. It must be done in conjunction with the cash flow. Equipment is both a running cost, and a start up cost. Some of the start up costs, which would be my initial equipment, would be items like the furniture in the room, the tills and desks, shelves, computers and a specific type of software to sell and search for my products. Although these are start up costs, In about 5 to 10 years of running by business, I know that it will need to be updated/changed, as some pieces of equipment, such as computers, change a lot and for my business to do well, I need to have the best equipment, so that I can make the right changes etc. There may be software which is better than the one I have currently where I can do a lot more with and by buying new software, it will enable me to make more use of the software and be up to date with everything. This will show the customers that I am willing to make some changes and that I want to make things better not only for myself, but also for them. I will also need to keep some types of machinery which will be in my store, for example, a till. I can’t just have a tin in which I keep all of my money in, I would need a till, where I could store all of my money in which is a safer place as it would have a lock. It would also record all the incomes and outcomes of my business, so I can keep track of what I am spending, and what I am selling. This would help me a lot more to keep to my budget or see if I am going over the budget that I have set myself. A till would be classed as a start up cost, as I do not have to keep paying for the item; it’s a one off payment. As technology is improving, I may buy an upgraded till or something related to that in the future if I have to, not because I want to. By buying new tills, it would allow me to do a lot more and sell my products, such as lighting equipment, sound boards, props, costumes, scripts and stage make up to my customers. There is always a tendency to buy all of the equipment at once, however financially this would be very unwise. It is important to consider the specific things when deciding when to buy new equipment, these would include which pieces of equipment are necessities, how much will they cost to buy and most importantly maintain, and how much money is available. The last one is the most important for me as I do not want to go over the budget I have set myself as that’s my financial plan which shows me the in/outflows of my business.
In my business, I will be using the EPOS system. EPOS stands for Electronic Point of Sale. The reason why I would be using the EPOS system is that it would help to ensure accurate pricing, the transactions would be a lot faster, it would reduce human errors and it would improve data integrity. As I am a business starting from the beginning, and I have never done this before, it will be very hard for me to keep track of my stock, and for some of the products, there will be loads, not to mention the prices of all of these items. If it was a specific time of the year, and I wanted to change the prices of all of my items, or have some special offers, it can be done very easily using EPOS and getting the data on how all of these changes would make an impact on the sales and how they could be obtained very easily.
Stock
The word stock can refer to a number of things, these could include raw materials and other components, which are the things that go into the production process, work in process, which are the products that are not yet finished but where the production process has started, finished goods, which are the products that have been completed to the right quality and are waiting to be delivered to the customers and finally the spares, in case of machinery break down. The stock will be a running cost for me, as I will have to buy new stock as they would be running out. Its also a running cost because one I sell my products, I will need to buy some more products just so that I can not only satisfy the customers, but have a secure stock. There needs to be a balance when I am buying the stock, I don’t want to buy too many because it will just be sitting there in the back and the money that I spent on the items that aren’t being sold could be used somewhere else. Businesses want to hold as little stock as possible due to many different reasons; these are the higher insurance costs, since the value of the company on paper is higher, shrinkage, obsolescence, storage costs, finance and opportunity cost. ON the other hand, I do not want to have too little stock, and if there is insufficient stock, then my business may encounter a loss in sales, a loss in goodwill and longer lead times. This is why I need to create a budget so I can see how much I will spend on the stock initially, and then throughout the year. This would benefit my business a lot more as it would be a lot more controlled and by having a cash flow, I can see the months where I would be doing well in, and the months where the outflows are higher than the incomes. Stock is really expensive, especially to my business, ‘Actors Vision’; because if my business is not successful, then I have spent a lot of money on products which won’t be sold. I need to ensure that I carry on paying for the water, gas and electric, as they are important running costs to my business. These are all important as they will be running things like computers, tills, lights and heat so that the customers are warm in my business. There are two ways in which I can control the way I am buying my stock, these are the use of EPOS and the use of Stock Control Charts. The Stock Control Charts are used to maintain favourable stock levels, and they are based upon 3 assumptions, all of the deliveries are made correctly and on time, there are no faulty stocks and the stock is used up at a constant rate.
Giving careful thoughts to the physical requirements to my business is absolutely essential in the early stages of planning. Hopefully by identifying all these requirements in my business, it will enable me to work out fairly accurately the finance that I need to run a business. This now leads me on to the next and final resource that I need to investigate, which is ‘Financial Resources’
Financial Resources
Many businesses will have to obtain financial resources at a certain stage. There is a wide variety of different sources. As I am a small business, I may struggle to persuade lenders and investors to provide funding. It is to be said that small businesses are often considered too risky by those who are providing their funds.
As any other business, I need to have a source which would deal with the money side of the business, as well as physical and human resource. Money is very important and it is clearly a vital part of setting up a business. A new business is unlikely to have enough money and this means that finance must be acquired and managed carefully by using budgets and cash flow forecasts. There are many lenders that are reluctant to lend to new businesses and some of the reasons are because they do not have a record of success, so they might not be able to get their money back, they are usually small and they are a very high risk. There are two different types of finance, internal and external. Internal finance is money that is obtained from within the business, for example, last year’s profit. Using this type of finance is a lot cheaper, but it means that the money cannot be used for anything else. External finance is the money that is obtained from outside the business, for example, a bank loan. This usually requires interest to be paid on the money that has been obtained. The type of finance a business will use often depends upon how long they need the money for, and the different times are short-term, medium-term and long-term. Short term refers to the finance that is only required for a maximum of 12 months. Medium-term refers to the finance that is required for more than 1 year, but less than five year whereas long-term refers to finance that is required for more than five years.
One of the things that I will need to consider for my business is my future financial situations. Depending of the current state of my business at the time and the reason for needing some financial help, there are many different resources I can look to in order to get the help. However, my major downfall is that it will be hard for me to get the help as I need to create the trust with some of the resources, and I know that many people are hesitant in giving money to sole trading business, as they have a reputation of being disbanded very early on in their business life. I need to show them that I am capable of making my business a success and that I would not let them down. There are long and short term finances where I can borrow money off a source, but it has to be repaid after a certain amount of time.
Owners Capital is a financial resource which has come directly from me and I would put it into my business. This type of capital is raised when starting up a new business venture or when they are expanding a business. I do not have to pay the money back to anyone so I don’t feel that this comes under any type of finance as it is money that I have given in myself. This will show potential lenders that I am willing to sacrifice my own money into my business, and it is really important that I give some of my own money into the business because when I go to the bank and ask for a specific loan, they usually ask how much money I have already placed into the business, and if they see that I have put a certain amount into it already, they will see that they can rely on me, trust me, and prepared to invest money into my business. They can hopefully trust me to pay the money back to the bank and make a very worthy investment with it. As I am a sole trader and they have no record of success and that would make it harder for me to get people on my side.
When a business is issuing shares, there needs to be some careful consideration when they need to pay a dividend to shareholders. The amount of dividend paid is decided by the Board of Directors of that company. An advantage of raising finance from a shareholder is that the company is not legally obliged to pay a set return each year. On the other hand, if the company keeps asking the shareholders for more money, then they may lose confidence in the business and decide not to loan any more money to them.
Profit Retention has a connection with owner’s capital as it is like my own money. One of the most important sources of finance for any business is from the profits that have been put back in. Primarily, profits are subject to corporation tax, which are payable to something called the Inland Revenue. A proportion of what is left is then distributed to the shareholders as dividends, which are the shares of the profits. The way in which this is connected to owner’s capital is that it is like my own money and what I do with it is up to me. This will be something that I will be looking at in the near future, as I will not have this to begin with. This type of source will be linked in with the long term finance. The reason why I think this is because once I start making a profit, it will continue to come into my business, which would allow me to carry on putting profits back into the business. Finally, the profits can be ploughed back into expansion.
Bank loan are a source of finance that are very popular and very important. A business may take out a short term loan with a bank for example. The amount, with an additional cost of interest, must be repaid in regular monthly instalments, which are usually within a short period such as a year. This can be inflexible and the interest which is being charged might be quite high. If I was to take some money out of the bank, it would only be for a specific period of time and it would be repaid in instalments. It could also be repaid in full at the end of that specified period. Depending on how long you have agreed to have the money for, it might be a short term source of finance or a long term source of finance. Relating to my business, it would be a long term source of finance, as the money would help me pay for expensive materials such as premises, initial stock and equipment, which are all items to get my business started. Bank loans are usually funded on a short to medium term basis, and there would be relatively few loans which are over more than ten years in duration. When I am repaying the loans that I have been given by the bank, I will also be required to pay an interest fee and possibly an arrangement fee. This would definitely be a good source of finance for my business, as it would allow me to budget for my business.
Bank overdrafts are another source of finance which I can fund from the bank. They are the most frequently used form of short term bank finance and it is used to sort some situations out, for example, it would be used ease some of the cash flow problems. There’s a big misconception when people talk about bank loans and overdrafts, and many people don’t understand the difference. A bank loan means that the bank is loaning or lending you the money that must be repaid within a specific amount of time, and when it is paid back, it must include interest. A bank overdraft means that a customer has written checks against their bank account which total more than the amount of funds they have available in their account, otherwise known as a bounced check. Basically, a bank overdraft involves a business spending more money that is has in its account. My business can use the banks money to go overdrawn up to an agreed limit. The bank overdrafts are pretty flexible and interest is only charged when the business is overdrawn. Interest rates are very competitive but if my business exceeds its overdraft limit the rates can be very high.
Hire purchase is something which is very popular with most businesses and it is a short term source of finance. It is otherwise called HP and be a short term source of finance if a business buys some equipment, for example, and pays for it over a year in monthly instalments. This specific type of financial resource will allow me to use a piece of equipment or vehicle without paying for it straight away. I would possibly use this to pay for some vehicles which would allow me to deliver props and lighting equipment to my customers, or the theatres. Once I have fully paid for my vehicle, it would then be of my ownership. Hire purchase allows many businesses to use an asset, for example a computer, without having to find the money immediately. There is something called a finance house buys the asset from the supplier and retains ownership of it during the period of the hire-purchase agreement. My business would pay a deposit and then further payments to the financial house, which has been set out in the agreement. Nearing the end of the HP agreement, the ownership of the asset is passed to my business. The repayments which are made by my business are in excess of the cash price of the item. The main difference is the finance charged to the financial house.
I may begin to look into leasing. Leasing an asset would provide similar benefits to hire purchase, in that a leasing agreement with a lesser, and in this case it would be finance house, allows the lessee, and in this case it would be my the business, to use an asset without having to buy it outright. On the other hand, by leasing, it does not give an automatic right to eventual ownership of the asset. It is a very popular form of finance for company vehicles, factory machinery and office equipment. I would possible use this in order to finance funds for my premises. It would therefore allow me to use a building without paying out a large sum of money in one payment. This would then allow me to rent the premises until I have the money. This type of finance would be a long term source of finance. There is a big misconception as even though the leasing period would be over after a few months, it does not give me right to ownership. I feel that this would give me the advantage that if I decided towards the end of my agreed leasing period I wanted to relocate to a different location I can therefore I would not be committing my business to anything. Opposed to a hire purchase of my vehicles, I could lease them and the company from which I would lease the vehicle from will be responsible for maintaining it.
Suppliers would be another source of finance, and these would be the people that I will be dealing with. These people are extremely important to my business as they will give me credit which would allow me to pay them back eventually, opposed to immediately. Just as my business may give credit to my own customers, I may be able to negotiate credit terms with my suppliers. Credit terms are typically 30 days from date of supply to the end of the month following a delivery, for example, thirty to sixty days. These are usually the most valuable source of finance, therefore once I have decided on a credit term, I will need to make sure that I keep these terms otherwise I could lose them. This type of finance would be a short term source of finance. I would consider using this type of finance to buy new tills and computers and I would definitely use this when I am ordering new stock for my business.
Government loans/grants would be the final source that I will be looking into in depth. Government funding is attractive because it is often very cheap. The Small Firms Loan Guarantee Scheme guarantees loans from financial institutions for small businesses that have viable business proposals but which have tried and failed to get a conventional loan as a result of the lack of security. The loans are available for periods between two and ten years on sums from five thousand to one hundred thousand pounds. These are a variety of other grants and loans which are available. To qualify for financial help, businesses often have to set up in areas where unemployment is relatively high.
These are very hard funds to get as the Government that they are making the right decision when they start to give money to my business and that I will benefit from their grant and it would need to show them this. Grants are free and I will not have to pay any of it back, which is a great advantage. One of the conditions I would have to satisfy is the area in which I have situated my business needs to have a high unemployment rate, and the area in which I have situated my business, which is Flint, has not got any problem with the employment rate.
Another condition may be that my business had to have been in the area for a certain period of time and as it stands not I don’t satisfy this condition either. As I am setting up my business, I would have not been in the area for the amount of time the government expect. This shows that this is something I can look into in the future and I could satisfy these conditions in 10 years possibly. At present Flintshire aren’t offering any grants to businesses however this doesn’t affect my current state. I could also receive a grant from the European Union and the National Lottery but as with the Government grant there will also be certain conditions I need to apply to my business to obtain these.
As I have looked at each of these financial resources, and I have analysed each one, I have come to a conclusion that I will be using many of these resources, but some of these may be used near the beginning of my business, and some of them will be used near the middle of my business. I will not use all of these resources, as I feel that I do not need to use all of these resources, but two or three at a time would be acceptable.
Quality
As I am starting up my business, I need to ensure that the quality of my products is of a very high standard. I understand that quality is very important to my business, as I need to start making a profit. In order for me to create a profit, I need customers who keep returning back to my store, and purchasing my products. Customers will only carry on coming back to my store if they feel that the quality of my products is up to a high standard. One of my aims and objectives was “Offer the highest quality service to all customers” and for me to provide highest quality service to my customers, I need to go out of my way to purchase even more expensive items, and then they would see that if I am selling high quality products, with some of the best brands, then the customers will feel that they are getting their moneys worth, and that they have a store where they can purchase quality items. I need to make sure that I keep on thinking about this and that every time I think of buying a new product, I think about what my aims and objectives are, and see that by buying that product, one of them are either being met, or on the way to being met.
By enhancing quality into ‘Actors Vision’; I can build a good customer relationship, as well as a business relationship. It would also reduce the complaint that I may be receiving. Usually, businesses that sell ‘shabby’ products get more complaints, and even though they feel that they are taking a shortcut, they are not as in the long run, they will be losing money. Also, by employing quality into my business, it would make the life cycle last longer if I did use a good quality supplier and if I charge a high level of quality in my product, and by doing so, I would be making a large profit.
The importance of monitoring quality
There are many businesses that try to achieve quality in production and if they do so, then they are likely to benefit. The business might be able to attract customers and increase the sales, ensure the waste is minimized and control costs and to increase the profits. My business must ensure that the quality is maintained throughout and at all times to achieve these benefits. This would involve the use of various methods to ensure the quality. This would include quality control, quality assurance and the Total Quality Management.
When customers come to any business, the do look for many things, good customer service, the products they sell and the quality of the products that they sell. If customers come to a business and they see that there are no aspects of good customer service and product quality, then they will look elsewhere, as they will not waste their money on ‘shabby’ products. As I want the best for both my business and my customers, I will ensure that when a customer enters my store, the greeting they get is well given and they would help the customer find exactly what they need. If I succeed in this, then I know that my customers will not choose another business on the basis of quality, as my quality would be very high.
Quality Assurance
The main aim of quality assurance is to develop a certain approach where the quality is maintained throughout every stage in all processes used in the business. My business might identify some of the quality standards at each stage in the process. These standards that have been set in place will satisfy or even exceed the customer’s expectations and my staff will be committed to achieving them. If I make sure that all of these are achieved, all of the time, then there would be no doubt that quality can be guaranteed or assured.
There are some businesses that try to achieve quality standards. This would show that this process would have been carried out to a very high standard and to a stated specification. Once my business has been assessed and shown that it can reach and also maintain all of these high standards, and then it will be accredited.
There are a few different ways in which I can ensure that I provide my customers with the best quality service and products. There are three of them and they are Prevention, Inspection and Correction & Improvement. I will now go on to explain each one and relate it to my business; ‘Actors Vision’.
Prevention
As I have already looked at each of these methods, I have come to a conclusion that this would be the most effective method to use. The aspect which this deals with is something called Quality Assurance. This is the process of determining whether a businesses product or service meets customer’s expectations. This is a process-driven with specific steps to help define and attain goals. This process considers design, development, production, and service.
In order for me to follow this Quality Assurance, it will involve the design of my products that I am selling, the quality of the raw materials used, the quality of the production, the delivery systems and lastly customer service before the sale and after the sale. These all contribute to quality assurance, if I complete all of these stages to a high standard, then I will be selling excellent quality products, therefore making the customers visit to my store worthwhile.
There are some businesses that try to achieve quality service. It shows that the processes have been carried out to a very high standard and to a stated specification.
Inspection
This method is very traditional where people strive to get the best quality service and this method is also very popular. Even though this method is very popular, the major downfall is that it tends to be very expensive and cost a lot of money, and as I have already stated previously in this assignment. This may cause a negative outcome on my cash flow and I cannot afford to have that at this stage. When I am investigating my business for quality, it involves me sampling all of my props, making sure that the materials that are used are of a high standard, checking all the lighting boards and sound systems, making sure that they are the best brands, and checking the materials on my costumes are of a high standard. All of these would contribute towards my business selling quality products. Another inspection process that I have to go through is analysing my employees, and making sure their relationship with the customers are of a high standard, and that they understand all of the equipment, how to identify what the customers are looking for and work well with others. I would hope by this stage that my employees understand all of the different equipment, as they have been on training and they have had their induction when they began, so that should be easy for them to pass. The reason why these costs will be high is because it is to do with the wages, and covering for some of the damages that may occur in my business. There is a knock on effect, as it causes other problems to the employees. This is because it isn’t foolproof and it would be very tedious to the workers as they should all know it by now, but it’s a process that I may have to go through. In this present day, there are new methods coming out all the time and these new methods would have a lot less problems that may occur.
Correction & Improvement
This method being used utilizes both of the previous methods, prevention and inspection. Businesses that have been going for a while, or are a lot more modernised approach this type of method by using something called ‘benchmarking’. Benchmarking allows me to choose the best method for my business when I am creating my products, and it would also have information about the delivery process. In order for me to create the best method, there would be a lot of research needed and the ways in which I will research these are by primary and secondary research. The main purpose of benchmarking is to evaluate and understand the current position. This would mean that I am already looking into the future and seeing where I want to improve and develop my business.
There are also newer ways in which I can improve my businesses quality, and these two mains are Total Quality Management and Quality Circle. I will now go into detail about each of these.
Total Quality Management (TQM)
TQM basically adopts the modern approach to quality control. It specialises in reducing most of the errors made in a business and finding different ways to prevent them. There are a few steps where it can help my business reduce the amount of errors that it causes, and these steps are:
Design is the first stage where Total Quality Management begins, and TQM begins in the design stage of the product. You understand the importance of TQM as it starts before the product has been created. The way in which TQM works at this stage of the process is that if I wanted to make a script, I would have it as a hardback copy, rather than a paperback, and this would be recognised when people enter my store. The quality can be improved if certain materials are recommended or if a product can be made in such a way that there would be no errors occurring.
Quality chains are when everyone is working in a business and every person working at the business is a link in a chain. Relating to my business, a quality chain is a chain of people from the manufacturer of the script or soundboard to the buyer of these products. Basically, they are both a customer and a supplier. The quality chain will break if poor work affects the next person down the line.
Total commitment is essential in my business because if I want Total Quality Management (TQM) to occur, then I expect all of my employees to be fully committed to all of my products and to my business. This commitment needs to be of a high quality for me to achieve this goal. For me to achieve this goal, I need to show my employees that I am fully committed and when they see how dedicated and devoted I am to my business, they will then, in turn, do so. All of my staff should take pride in the work that they are doing, and this would include the cleaners, my deputy manager, the rest of the employees and then me.
Monitoring my business is vital and imperative. In order for my business to produce quality the Total Quality Management (TQM) would have to monitor my business, and that would cover a broad range of performance steps which will ensure that all of the standards are met. In order for me to do this, I will need to gather a lot of numerical information throughout the whole production process and then be able to analyse all of the information which has just been gathered. Once in gather the information and then find out that the standards have not been met, and then I would have to carry out an investigation to see where the flaws are in the business. This whole process is called the ‘statistical process control’.
Teamwork is extremely important within my business. The reason why enhancing teamwork is very important to my business is because the employees will need to work together on a day to day basis, and
Customer focus is important and Total Quality Management is customer driven. When a business is using TQM, they are mainly focussing on the customers and the business must respond to the customer’s needs, as they are the people that are giving the business an inflow. In my business, I need to make sure that if there are any complaints by the customers, that I can analyze the situation and then use it as a basis for product improvement. There are some benefits of Total Quality Management, for example TQM improves my customer’s satisfaction, better quality right across ‘Actors Vision’; less waste and lower costs, improved communications and finally, a foundation for further improvements.
I understand that Total Quality Management is pretty expensive to implement because of the high training costs the employees must go on. It would also require a lot of paperwork to be filled in and the only way that Total Quality Management will be successful is when everybody is committed.
The importance of monitoring performance
As I am the business owner of ‘Actors Vision’; I have to monitor the performance of my business. This would help to ensure that the objectives are met. The targets are usually set and unless checks are made there will be no way of knowing whether the business has met them. Also it would help them to avoid trading difficulties, for example, by checking the cash position of my business regularly, it is less likely to run out of cash. Finally, it would help to identify times to take corrective action if the performance is not meeting its objectives. By checking my cash-flow forecast, and looking at my working capital, it would show me how I am doing at this present moment and it would help me in the long run, as I would see what my expenditures are and what my inflows are and what I could do to improve my business. Occasionally, I would have a negative cash flow at certain points in my business, especially when I am starting up, as I would need to pay for all of the initial start up costs, so if I was monitoring my performance correctly, I could see this would occur and I would ask for an overdraft to be drawn out.
There are so many ways in which I can monitor and then review my business; these are Solvency, Measuring profits, Complying with laws and Identifying areas for improvement. I will now go into each one of these sub sections.
Solvency
When starting up a business, I know that this will be one of my main aims, and that is basically to remain solvent. Solvency is related to the cash flow within my business and if I have the sufficient amount of money to pay off any of my outstanding debts. If a business becomes insolvent it has to cease trading, so I need to make sure that my business does not become insolvent. Insolvency occurs when a firm’s liabilities (the amount a business owes to someone) is greater than their assets (the value of resources owned). Basically, if my business had a higher outflow rate than it did have inflow, then I would be losing money, therefore being insolvent. I need to ensure that my cash flow is being constantly monitored to compare cash inflows with cash outflows. This is because if there is a higher outflow rate than inflow, I will need to look at my forecast and see where the areas are that needs to be cut down. For my business to remain solvent, I must avoid taking on too much debt and make sure that I have sufficient cash to pay my immediate bills. One of the reasons why solvency needs to be monitored is that each month will vary in terms of cash flow from a negative to a positive or visa versa. For me to be able to monitor this cash flow, I will need to create something which is called a cash flow forecast, where I can see what my expenditures are for a certain month, and what the inflows are for a certain month. Cash flow forecasts are very important, and the importance of these is that it will help me to control my cash flow to allow me to pay the bills, the wages and the raw materials. It will also help me in the future, as it can be used as evidence. In order for my business to allow for solvency, I will need to monitor the debt levels as I need to make sure that I am in control of it and that I do not let it get on top of me. One way that I can prevent the debts getting on top of me is to pay them off as soon as possible; therefore I would not have a build up, as they would be gone very quickly. This will be very beneficial for me, as it would ease my money issues and it would hopefully prevent me from being insolvent, which would mean to give up trading my business and this would happen if the liabilities are higher than the assets. The value of my assets against the liabilities is associated with solvency because if I see that the liabilities are higher than the assets, I would have to think of a different solution which would allow me to make my assets have a greater value. A good value for assets to liabilities is 2:1. Another way that I could be monitoring the cash flow is to compare the planned cash position at the end of each month with my business. Sometimes, they may vary, some of them would be higher than expected and unfortunately, sometimes they may be lower than expected and be loosing money.
Measuring Profits
By measuring how much money is coming into the business, I can therefore see how profitable my business actually is. A profit is the total revenue subtracted by the total costs. Profitability is calculated by the percentage from the sales revenue. Owners will be particularly interested in the profit made by the business. They will be interested in both profit levels and profit margins.
Profit levels - Profit is the amount of money that has been left over from sales revenue after all of the business costs have been met. As I am a new business, I may not expect to make very much profit, if any, to start with. However, I must still monitor my profit levels even if there are losses being made. To help my business, I will calculate the profit made each month and compare it with the planned profit figure. This will show me if I am on target, higher than expected or lower than expected. If the actual profit is below the planned profit, then there may be a need for corrective action. One of the ways in which I could do this is by advertising more, as that may be needed if I want to boost the sales.
Profit margins - There are owners that might also be interested in the profit margins, which is the amount of profit expressed as a percentage of the sales revenue. The higher the profit margin the better. For my business, I will be making a plan so that I can achieve a target profit margin. Ways in which I can do this is to do regular checks on my plan, and see if they are being achieved. My profit margins can be increased by raising the prices or even lowering the costs. Within my business, I could use the calculations of ‘profit’ and ‘profitability’ to review the position of ‘Actors Vision’. I understand that the figures will be changing months, so by checking them regularly and closely monitoring them as any great change may cause changes in other areas of my business.
In terms of profitability I really need to make sure that the percentage of the profit from my sales stay at a reasonable figure. Even though I want my rate to stay at a reasonable figure, I cannot just leave my business as it is, as I want to have more customers shopping at my store, so I will need to do other things to ensure that I am getting more and more customers. There are many ways in which I could attract customers, advertising, looking to employ and new and better pricing strategy to suit the needs to other customers and providing a better quality of service to the customers and training to my staff. Although I am to provide a unique service through use of having quality in my business, there will still be ways in which I can constantly improve the quality.
Complying with laws
All businesses have to operate within the law. A number of laws have been passed which are aimed at the businesses. These would include: employment legislation, health and safety legislation, consumer legislation, environmental legislation and company laws. As I am a business I need to also monitor and review my position with the law, along with the money. As I am the owner, I am the person that is solely responsible for the failure of my business if that happens, but also, I am the person that is solely responsible for keeping the business in line with the law. If my business fails to comply with the law then the consequences could be damaging and far reaching. It may also suffer a blow to my reputation, and I could not deal with that at this moment, as I would be trying to get a good reputation, as I am a new business. As a result I may lose sales and potential employees may be discouraged from applying for posts.
One of the laws that would affect my business would be employment legislation, and within this legislation, there are many different acts. These would include Minimum Pay Act, Sex Discrimination Act, Race Relations Act and the Disability Discrimination Act. Another legislation that is related to my business would be the Health and Safety legislation, and that obviously deals with Health and Safety at Work Act. Another legislation that is relative to my business is the Consumer legislation, which includes the Sales of Goods Act, Trade Description Act and Consumer Protection Act and finally, the Environmental legislation, which I would also have to comply with. One of the laws that I will also have to be complying with is the Data Protection Act.
There are so many acts that are relevant to my business therefore I will need to look into some of the main laws that I will be following which are Minimum Pay Act, Health and Safety at Work Act, Sale of Goods Act, Trade Descriptions Act and Consumer Protection Act, Data Protection Act and any Environmental legislation.
The Minimum Pay Act law states that I must guarantee all my employees a minimum wage and I would be breaking the law if I paid less than this. By guaranteeing this wage my workers would be more attracted to take the job and providing the area with a lower unemployment rate. As I am a small business and I have just started up my business, I will have to comply with this because I won’t be paying my staff a high salary.
The Health and Safety at Work Act is to protect not only myself, but also my fellow staff members when we are all at work. This act states that the owner, which is myself, needs to have a written policy which is only display for all of the staff to see, to ensure that everyone is complying with this act and finally, to ensure that all of my staff members are receiving the appropriate training, which I have explained previously in this assignment, and information in terms of health and safety. The level of risk in my theatre store would be not high, but not too low, as I am selling electrical equipment, but sometimes, the risk is not to do with the products, but the store itself. I need to make sure that the floor is appropriate, because I don’t want my staff to fall over when they are stocking up the top shelves of my scripts or carrying heavy electrical equipment. I need to look at all of the hazards and then try my best to prevent the accidents from happening within my business as it will reduce some of the accidents, reduce my staff members having to miss work because of an injury and reduce the insurance claims that may be given against my business.
The Sales of Goods Act is to mainly protect all of my customers. The main reason why this needs to be employed into my business is so I can build a good relationship with all of my customers, and that they know that I am thinking about them when I am setting up my business. This act states that the product must match the description given, be of an adequate quality and be fit for purpose. For example, if I advertise to everyone that I am selling one of my new scripts with a hard back copy, then it has to be sold like this, and the quality of the books need to be high, as I cannot be giving them second hand equipment, or equipment that has been damaged in delivery. This is why quality has been employed into my business, as all of these small things are what makes a business successful, and show them that I would complete all of the small details to make this business a success.
The Trade Description Act is a law that protects to rights of all of my customers by protecting them when I provide them with information about some of my new products that are on sale. I need to make sure that when I am giving my customers information about a certain product, which it is not misleading in any way, and that I am not giving them any false information, and I need to make sure that the description on the product matches the product itself and that it is the truth.
The Consumer Protection Act is a law that protects the safety of my product when they are sold to the customers. The Consumer Protection Act also requires me to provide the correct safety information to the customers. Its not important for me to comply with this law to protect all of my customers, but I also need to comply with the Health and Safety at Work Act as this would therefore reduce the customers from taking out insurance claims against my business is anything bad occurred.
The Data Protection Act is an act where I need to make sure that all of the information that I am keeping does not get into the wrong hands and that it is not misused. As like any other business I will collect information on both customers and staff therefore I am instantly required to respect confidentiality. There are 8 conditions in which the Data Protection Act requires the information held. These are that the information must not be kept longer than necessary, should be processed fairly and lawfully, accurate, adequate relevant and not excessive, processed in accordance with customers/staffs rights, processed only for limit purposes, kept secure and finally, not transferred to countries outside the European Union.
Providing the information held, matches these conditions there will be no problems with breaking the law. However I must ensure that these are followed and do to do this I can provide customers with their own individual ID, use software to protect files on the computers about customers and staff, restrict the number of staff whom have access to information kept, update the information regularly and if customers wish access to the information held, it must be through an application form.
Environmental Legislation
Although it may not be obvious there are certain issues involving the environment which affect my theatre business. The main environmental law I will need to comply with is The Environment Act 1995. This has been produced by The Environment Agency in order to monitor pollution. The pollution my business will be very minimal, as the only things that would pollute would be when they are making my scripts. There are numerous ways I could avoid creating pollution from the trees and an example of this is by using recycled paper as this would be more environmentally friendly. However the implication this would have for both my business and the customer is the cost implication as recycled products tend to be more expensive. There is also another way in which I could reduce the number of environmental issues and that is by planting 2 or 3 more trees every time a tree is cut down.
I may also create damage to the air through global warming as when my products are transported to my theatre shop the emissions from the vehicle will add to the ongoing problem of the greenhouse effect. I could resolve this problem however by locating a manufacturer who is closer to my theatre shop in Flint; therefore the journey isn’t as long. I could also use a train to transport the products as oppose to a road vehicle as a train could be making the journey anyway. This would be very beneficial to the environment, as there would be no need to make an extra journey, as the train would be heading in that direction or that area anyway.
Areas For improvement
Now I have come up with strategies which allow me to monitor and review my business I can look at areas within ‘Actors Vision’ which can be improved. Most businesses will want to improve performance even if their objectives have already been met. This is because business is an ongoing activity and will be subject to many external influences, for example competition. For my business to grow market share, I have to be very innovative and ever improving. One of the aims that I have given to my theatre business is to provide a very unique service and therefore I would need to constantly improve all the different aspects within the business. The areas for improvement come under the section of monitoring and reviewing because the results of these, give me the foundation for where improvements can be made. As I am only a small business, it is harder for me, because if I was a larger business, then I would have many other people that would be in charge of these decisions, as that would be part of their job.
There are many other ways in which I can identify areas for improvement. One of them would be to listen to all of my customers, for example listening to their complaints or even doing market research. This would be one of the first things that I would do, because at the end of the day, they are the people that are shopping at my store, and if the majority of customers think that something needs to be changed, and then I will take it into consideration and then most probably rectify the problem. Another way I can identify for areas for improvement is by not only listening to my customers, but listening to my staff. A lot of staff members have very good ideas, but they never have the courage to come out and tell them to their owners, so what I will be doing in my business is having a few staff meetings, at least once a month, where we could all discuss a few problem and then ask them what they think is a good idea, and then I will take all these ideas on board and change things for the better. Also, I could identify this by listening to the advisors or specialist that I may employ into my business.
At the beginning, I will take all of these ideas into consideration, and not make any drastic changes. The main reason for this is because I need as much money as possible for me to be successful, and once I have made a generous profit, then I will start applying them ideas into my business.
The performance of my business can be improved by training my staff to even higher levels and in more tasks; by modifying or even launching new products to meet the ever-changing customer needs; by raising productivity, for example, by introducing new technology or new working practices; by raising quality and finally, by enhancing customer service, for example, by acting on customers complaints.
In conclusion, quality is exceptionally important to my business, as it covers a large proportion of my business. Without quality, then I would just be an average business, without anything that would make my business unique, and that is exactly what I am trying to do, make my business unique and therefore bring in a lot of customers who are impressed by all of my products that I sell, which are of a high quality.
SECTION C
Financial Management for Actors Vision
In this section of my work, I will be looking at the financial management that is within my business. I will initially be identifying my start up and running costs, understanding what different documents I would be using within my business, so that I would look all of my financial records and be able to keep up with them all. I will then construct a cash flow forecast, and see how budgeting would help, as this would enable me to keep my business afloat and not be affected by the recession.
There is a great pressure on my business to monitor the financial side of the business from customers. In order to ensure I don’t become bankrupt I need to regularly check the state of my finances. By doing this I will give me time to spot a problem and fix it therefore increasing the performance of my business.
By organising the financial side of my business, it would help me to conquer many problems that businesses have. One of them would be for me to maintain adequate cash levels. The most important resource in my business is my cash levels because I need to have a sufficient amount for me to achieve a successful business, and for me to be able to do things with my business. If I find out that my business has insufficient funds, then it would mean that I may not be able to trade, buy any stock, and be able to afford the upkeep of my business.
Another one would be for me to keep the costs down, because if I begin to keep the costs down and not spend too much, it would mean that there would be an increase in profits. As I have explained previously in this assignment, a way in which I can keep my costs as low as possible is to not employ a lot of staff members, as I need enough to help me around the small shop. Another way in which I can keep the costs down is to make sure is to make sure that I do not buy items that are not essential. After a while and I know that I have a large profit, I can start buying items that would make the store look a lot more appealing, and other items like that.
Another way in which I can do this is by avoiding over-borrowing. I understand that at some point in my business career, I will have to borrow some money off people, but I need to make sure that I keep this to a minimum, as I know that they will want interest on it. If I needed to take out a loan or an overdraft, then I need to make sure that I am doing this for a suitable reason, not on a regular basis.
In order for me to not become bankrupt, I need to make sure that I maintain very strict credit control. As I am a new sole trading business, I understand that I am the person that is in charge of all of the financial issues that arise within my business, and I need to make sure that I am very strict and ruthless in order for me to maintain a positive cash flow. I cannot afford to vary my prices to some of the customers, and let me off by a small price, I need to make sure they pay the full price and at the right time, therefore enhancing my target, which was to maintain strict credit control.
Another way that I can ensure that I do not become bankrupt is to achieve all of my profit targets. I need to make sure that I set certain targets for my business, and make sure that they are being achieved, and be realistic with the targets I set myself. One of my targets that I explained previously in this assignment was to try to stay afloat; therefore I need to make sure that I conduct everything to a high standard for this to be successful.
It is very important that I keep financial records in my business, as this would show me what my expenditures are, and also, it will help me a lot when I planning for future finances. This would include being aware of my expenses, revenue, assets & liabilities of my business.
Previously in this assignment, I said that I will be employing a ratio of 2:1 for asset to liabilities. This will ensure that I am covered if I was to become in trouble in terms of cash flow. These are the most important resources to my business because as long as I have 2 assets to every 1 liability I know I can be covered in terms of money. I won’t become bankrupt until I loose all of my assets therefore these act as a safety net.
The definition of liabilities is “an amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debt, interest, and mortgage payments”. If I take out a loan from the bank, it would mean that I would owe them the money back, therefore being a liability. I understand that I will have some liabilities when I am starting up my business, but I need to ensure that I have a sensible number of them. Other ways in which I can have liabilities is if I owe money to other businesses or suppliers, but I need to ensure that I pay them off as soon as possible.
When I am buying different products, and paying out money to different people, they are called me ‘Expenses’. For example, I would need to pay for all of my electricity bills, and the rent of my business. When I am paying off my expenses, they need to be done as soon as possible, before the deadlines and entered into my cash flow forecast, so I can see what my business has made or lost for that month.
Money that I will receive from the sales that I make from my business is called the ‘Revenue’. This shows me how much money I am making from my business, and I need to keep a close eye on this. The reason for this is because if my sales are down, I would need to make a few cut backs on my products, for example, lowering some of the prices. This would consequently boost the selling rate of the product and therefore making me money, just taking longer to get there.
There are many ways in which I can make sure that all of these factors are monitored would mean to use different charts and accounts. The five financial accounts are Budgets, Breakeven Charts, Profit & Loss Accounts, Balance Sheets and Cash Flow Forecast. I will now go into each one of these in detail.
Budget
A budget is a financial document which shows the inflows and outflows of a business. All businesses are able to create a budget, so that they can get the financial part of their business dealt with. My budget is a plan to ensure that I have money for future activity, to control my finances and most importantly, for me to be able to make many confident financial decisions. All budgets are a set amount of money which is allocated for a particular purpose. For my business, ‘Actors Vision’; the budget would help me to achieve all of my financial goals which I have set and it would limit the chances of my business overspending, and therefore, using money which may be needed for another aspect of the business. The budget would help me to organise all of the financial issues, and also help me understand what sources the money is coming from, whether it is a loan that I have been granted, or my own capital. By starting a budget, it will be an extremely beneficial element for my financial management as I am a new sole trading business, and I understand that for the first few months, I will be in the negative figures, as I would have had to pay for the start up costs, therefore by using this budget, it would limit my spending in some areas of the business to ensure that I have sufficient money throughout my financial year.
Breakeven Chart
All breakeven charts consist of the evaluation of profits, losses and volume which present the cash flow as an easy to read chart. This chart is very important and will be very beneficial to me, because it will show me how much money I need to make in order for me to breakeven, and then begin to start making a profit. By breaking even, my total revenue will end up equalling my total costs and where the breakeven point is on my chart, it will tell me that revenue will be exactly the same as the cost of the manufacturing of my products. This chart is very important, as it shows me, the owner of ‘Actors Vision’; it provides me with how much money is being used, and most importantly, how much money is being made/lost. The chart would plot the revenue of my business with the sales or costs on the vertical axis and the volume of sales on the horizontal axis; the chart also easily shows the break-even point. If my business is doing really well, then my total revenue will be higher than the total costs, but on the other hand, if my business is not doing as well, then the total revenue line will be lower than the total costs. After the breakeven point, everything I make will be a profit, and everything before the breakeven line will be a loss. If I made breakeven in the first year of my business life, then it would be a great achievement.
Here is an example of what a breakeven chart looks like:
Profit & Loss Account
A profit and loss account keeps the record of the sales, costs and profit or loss made over a year. This would therefore allow me to keep on track with the revenue, costs and profit that I am making throughout a business year. By using this I can see exactly where the revenue and profits has come from and where the costs have come from. This can then allow me to prepare for the future as I will know what I need to do in order to improve sales or reduce costs. The profits will depend on the sales that I have made and the losses will depend on running costs, for example, stock and the rent of the premises. The accounts will consider the increase and decrease of a business’s finance and is shown in a balance sheet. To determine whether a business has made a profit or a loss the total income (goods sold) and subtract the total outcome (various running and start-up costs).
A profit and loss account will also allow me to see what costs have been made for resources, which would be used in the future. A profit and loss account would also help me to identify what my gross profit is, which is basically the deduction of the cost of sales from the buying those product. However this doesn’t include my expenses such as rent and electricity therefore I can’t calculate the net profit until I have found the sum of the expenses. The net profit can then be calculated using the expenses minus the gross profit leaving me with the actual profit my business has made.
Balance Sheets
A balance sheet is very similar to a profit and loss account, but the main difference is that it does not deal with the sales, costs and profit/loss of a business; it concentrates on the debts, capital and resources. The Balance Sheet is a snapshot taken at a particular time during the profit and loss accounts giving a picture of what my business owns and what my business owes at that time. This balance sheet would be very beneficial to my business, as it would provide me with the information about where my business is at a specific time, and it would give me information concerning all of my assets, liabilities and capital. As I explained before, my asset to liability ratio will be 2:1 and this balance sheet will show me this. If the 2:1 ratio is not shown, then it may consequently mean that my business is getting into some sort of debt and then I may need to owe more money that I am actually getting.
The capital will always balance because what my business owns is financed by what my business owes. It allows me, the owner of ‘Actors Vision’; to analyse the cash flow and confirm how much I owe or own so that, if needed, the correct actions can be taken in order for my business to stay as solvent as possible.
Cash Flow Forecast
A cash flow forecast is a very important element to my business when I am managing all of my finances, as they would allow me, the owner of ‘Actors Vision’; to predict the profits and losses in a cash flow. These predictions are usually set over a year (12 month) period, so all then the businesses can make evaluations at the end of each month. By having a cash flow forecast, it would help to monitor the money that is being spent in my business, and it will also show the minimum requirements for my business to succeed. It will also help the estimation of how much money I need to borrow from loans if my own finances will not cover certain costs. This will be a valuable process for me, as this cash flow forecast would enable me to estimate the money that is coming into my business, my expenses and then finally, it would calculate my expected monthly cash flow. This cash flow would be very beneficial to me, as it would help me control my money and consequently, prevent me from being in debt.
As I am just starting up a new business, the cash flow forecast would help me to plan for the future. By having a cash flow forecast, it would not only help me to control my money, but if I wanted to take out a loan, they would want to see some evidence of my credit history and a cash flow forecast would be a very good piece of paperwork that I can show them, and it would show the people I am getting the loan off, for example the bank, that I am able to make correct decisions, and most importantly, able to pay them back after a while. It will also show the people that I am taking a loan off that I am serious about the business, as I have all the correct documents, and most importantly, the passion.
Effectively the forecast will monitor my cash flow. I can then compare the amount of the forecast with the bank statement amount because this is the exact amount. This will show me areas in which I will need to be very attentive due to the cash problems. This could result in a more positive cash flow in future as I have thoroughly planned.
When I am purchasing items for my store, it comes up under two different types of cost, start up cost and running cost. By categorising items into both of these sections, it shows me what will cost me the money throughout my financial year.
A start up cost is a payment which is usually an initial payment, and is usually only paid for once in a business life. On the other hand, running costs are payments which are made on a regular basis, and items that may run out a lot.
Some of the start up and running costs were mentioned previously in my assignment, in Section B, but I will now go over what some of my start up costs are going to be, and what some of my running costs are going to be.
The start up costs for my business will be:
Premises: This type of start up cost will cost me the most money for my business. I could either buy the premises, or I could rent the premises, but I am more inclined to renting the premises, as there are a lot more advantages renting the premises rather than buying it. Premises is another one of the most important asset for a business and will properly cost the most to have, if I were the rent the premises, I would not have too much of a problem with money and spending a lot on the premises. By renting the business, I would not be tied up in as much capital as when you buy the premises, and this would free up the much needed cash that could be used elsewhere in your business. Also, by renting the premises, I would not be exposed to interest rate rises, although my rent may rise periodically as a result of annual rent reviews.
Another advantage that I looked at when renting out a premises for my business is that it would decrease the risk of any unexpected financial shocks, unless I wished to sell the remaining term on my lease to someone else, the falls in property will not affect me. Finally, by renting the business would definitely give me the space for negotiation, as I could negotiate any aspects of the lease at any given time.
Equipment: All businesses need different equipment or goods to sell, and for my theatre shop, this would be one of the most important start up costs, premises being the main one, as I need to equipment to sell in order for me to make the money for my business. When I am buying the equipment, I understand that it will take up a lot of my start up money, because I will need a lot of equipment for my business to get started therefore when I order in large numbers, as it will cost a lot more if I bought just a few pieces of equipment at a time. I would rather pay off all of my equipment right at the start of my business, so that I will not have to pay it again in the long run. I will end up upgrading the equipment after a year or so, because if I want my business to survive, then I need to keep up with the technology. Just to reiterate, I will need to buy quite a lot of equipment, such as cash tills, computers & software’s and many others.
Fixtures & Fittings: This would range from things such as paint on the walls, to fitting the flooring. Fixtures and fittings is where I have to pay for items to be set up around my business, so shelves on the walls, cabinet storing, new doors and new windows. This would cost a lot of money, as doors, windows and storage boxes costs quite a lot of money, even if it is bought from a cheaper supplier. These would be very important to my business because when the customers enter my store, I want it to look presentable and looks like there has been a lot of time and thought spent in making it look good, as well as providing them with the quality products there are looking for. If they entered a store and the doors were all destroyed and the walls weren’t painted then the customers would be less inclined in returning to my store. The majority of the fixtures and fitting will be bought straight away, but some other fixtures may be on hold, for example, pictures and canvases on the walls can be bought at a later date.
Other start up costs could also include items such as the initial stock, the transport, and a few others.
Even though I have classed all of these as a start up cost, it does not mean that one day I may not have to replace them. For example, some of the computers and machinery may need to be updated from time to time, for my business to be able to function properly. Another example could be some of my cash tills and the payment methods, as technology is getting better every year, and I need to be able to receive payments from many different methods.
The running costs for my business will be:
Stock: It is obvious that stock is the most important running cost for my business. The reason why stock is the most important running cost for me is because without anything to sell, I will not be making any money, and I would not be able to make a profit, therefore my business would fail and most probably go bankrupt. When I purchase the stock, I always need to buy more stock (which is the products that I am selling) in order for my business, ‘Actors Vision’; to keep going. Depending on how well my business is doing, the stock will run out pretty fast, as there would be a high demand on certain products that sell well, therefore I will need to order the stock and pay for it straight away when I get it. Since this is a cycle and always goes round, I would be continually paying for my stock, which would put it under the running cost column.
When I am starting my business, stock will be classed as a start up cost. The reason for this is because I will need to buy the initial stock for me to start selling, as this is how my business will be taking off. This is why stock is considered as both start up cost and running cost. The stock will most probably be a standard cost rate depending on how much profit the supplier is making out of it.
Bills: When I talk about bills, it covers different bills such as lighting, electricity, water, accounting and telephone bills. These bills need to be paid by everyone whether they are a business or they are at home. As I just explained, there are a lot of bills that need to be paid, and the bills have to be paid on time in order for my business to continue with its work. All of the businesses need gas and electric, so my business would have to pay for my gas and electric in order for the services to carry on working. All of the bills will be a main standard rate, so that means that they will cost the amount depending on how much electric and gas my business is using. On the other hand, I could have a deal with some of the companies which allows me to pay a certain amount of money no matter how much of their services that my business, ‘Actors Vision’; is using.
Loan payments: As my business has loan repayments, it would mean that it would be the first thing that I want to pay off, as it would be very important. The reason why I need to pay this off as soon as possible is because if my business does not pay back the loan in the time that they have given, the source where I got my loan from, in this case the bank, is liable to take my business or whatever it is that the loan was used for.
Other items that could be classed as a running cost could be wages, renting of the premises, insurance and promotion costs.
These are all classed as my running costs, as they will be needed to paid on a weekly/monthly basis, as my stock would run out, so I would have to replenish them, and I need to pay my employees for working at my store.
Cash Flow Forecast
In this section of my work, I will be constructing a 12 month cash flow forecast, in order for me to see how well my new business can done and what the businesses potential could be in the near future. The cash flow forecast would consist of Inflows and Outflows. Inflows are money that is coming into the business, and it can be in many different ways, for example, sales, own capital and loans from banks and suppliers. Outflows are the expenses that I have to pay out of my business. These can be things like wages, promotions, different bills and advertising.
Evaluation of cash flow
Now I have made my cash flow forecast I will have to evaluate it. This means that I will need to look at all the figures of my cash flow forecast and I will have to comment on these figures and say why I think I did not do as well in certain months as I did in others as well as give my opinions on it.
Since I am a new business, I understood that I would not do extremely well within the first 12 months, as it is very natural for a new business to be in the red when they first start up, and by that I mean the chances of a business making a loss more then a profit is quite high. This is not to be worried about because sometime during the next 12 months or I’d hope to properly be finished with paying of debts and loans and so on, so there will be more chance of making a profit.
As I have explained previously in this assignment, the cash flow is very important to my business; this is why I have produced one for my business, to see how well the business is doing and for looking into area in which I could improve to make my profit higher. I will now write about specific months, and evaluate them.
January
In the first month of my cash flow forecast, my sales were not very high, as I only made £1200 on sales, and as I am a new sole trading business, I understood that this was normal, and it shows that because I am a new business, and that I have not got the reputation yet, the profits will not be that high. Many people in the local area would not have heard about my business, or even seen it, so there will not be that many people spending money there.
In that very same month, I have had to take a loan out of the bank, for me to be able to buy essential products and equipment for my business. The amount of money that was taken out was £3000, and this money would have helped me to pay for the equipment and machinery in my business, as well as the initial stock. I understand that these loans have to be paid back to the bank, and as you can see in my outflows, under ‘loan repayments’; I will pay them back £1000 back starting from February. The reason why I have not repaid the loan in January is because I would expect to start repaying the loan until the end of the month.
In the first month of my cash flow, I would be paying my staff a salary of £2500, and the reason for this is because I will not be employing a lot of people, I explained in previously in the assignment, and I would not employ a lot of people when setting up the business, just enough to help set up the business and get it ready.
In the first month I also spent £4,000 on capital items. This means that I used the loan from the bank to pay for specific items. I spent the £4,000 on capital items that I needed to start up my business, for example, I used some of the money to buy all the machinery, like cash tills and different software’s that are needed to start up my business. I used a majority of the money to pay for the initial stock, as I need decent amount of products for me to sell, but I do not want too many so that I have wasted money on products that aren’t selling. Using the loan from the bank, it would hopefully help my business to take off and then start to make a profit.
For my business to be recognised, I need to ensure that I am advertising my business well, so in the first month, I understand that it will cost a lot more than the months following it. In the first month, my advertisement costs are at £100; and for the next three months, they are only £40. Once I know that my business has been recognised, I can reduce the cost of advertising, but after a few months, I will advertise more, so that I get more customers. I would really need to start advertising as soon as possible if I want to make a profit, because if I buy all of the stock, and have a few customers entering my shop, I would not be making a profit. The advertisement cost does change over the next couple of months for different reason of which I will explain later on in this assignment.
Throughout my business life, I will have to pay insurance, but in the first month, I will not have to pay insurance, mainly because I am a new business setting up. I will also not need to insure any of the equipment or stock as I have until the next month in which I should have mad a lot more of a profit.
February
In my second month, the sales of my business increased from £1,200 to £3,500, this shows that my business has made an increase in the sales which means that my business is being recognised a lot more and more people are shopping at my store, so that would cause an increase in not only my reputation, but an increase in my sales. This is also a small increase in profits.
In the second month the wages of my employees have maintained the same amount of £2500 and the main reason why I have not increased it is because I will not need too many staff members, as it’s a small sole trading business and I do not need to pay out too much money to my employees. Some days I will need all of my staff working there at once, but on the majority of the time, I will only need around 1 or 2 people working with me.
In the second month, the telephone bill is £0; the reason for this is because I have worked out an agreement with the supplier of my telephone and have worked out a system where I only have to pay £150 once every 3 months. This works really well for my business because I am not getting as much taken away from my profits I some month then I am in others. This also applies to my electric bill where I only have to pay £170 every 3 months.
In February, the insurance I will have to pay increase by £700, this is because since my business is now up and running and I have a lot more stock and equipment, I will need to insure my stock and such in case of emergencies. In a similar case, the loan repayments also increase to £1000 per month, this is because I need to start paying back my loans as soon as possible.
In the second month, advertising has gone down from £100 to just £40, the reason for this is since people now know about my business, I will not need to spend much more money on tell people what they already know about. I spent a lot of money in the first month to make sure that my business was recognised in the local area but later on in the cash flow I do increase my advertisement prices again for different reasons, which I will explain later on in this assignment.
My closing balance would have decrease even more, to £-3610. I understand that the first few months I will be in the negative figures and because I started to pay the insurance and loan repayments this month, I knew that I would be losing even more money, but I hope to slowly improve over the next few months.
March/April/May
In the next three months on my business life, the inflows and outflows are pretty similar, but with a few changes within some of the months.
These months will see a slight increase in sales (£6,400, £6,600, £6,400) and the main reason for this large increase is because around these months is when the most plays are performed. They usually start rehearsing around Christmas time, and then the performance would be between March – July, so I would expect more directors and other companies to buy costumes, props, different sound sets and lighting equipment.
The salary that I am paying my staff will have increase by £200 each month, and the main reason why I have increase their salary is because due to the high demand on products for performances, I will need more staff members working at my store. I won’t be losing a lot of money as a result of the increase in wages, because I will have a large increase in sales over the next few months, which is exactly what I expected.
My bills will maintain the same price and some of them will be paid on specific months. My telephone bill is paid every three months, which is £150, the gas will stay maintain the same price, which is £100 and my electricity bills will be paid every three months, which is £170.
In March and April, my advertising costs will stay at £40, and the main reason is because I will not need to advertise a lot, but in May, it will increase to £110 and the main reason is because I know that these months have a lot of play going on, so if I advertise in local shops, bill boards and maybe on the local radio station, I will have an increase in sales, which will compensate for the increase in advertisement costs.
At this point in time my business isn’t creating any profits but I don’t see any concerns that will affect my business not creating any profits on the following months. I have noticed that since my business started I have lost exactly £12,735 but my business is going to face losses before I feel the sales making a difference. This is because of the loan repayments and the initial costs of actually starting up my business. Over time this margin will steady decrease and eventually turn into profits.
June/July
These next two months are the months which I expect most of the action to take place. These are the months where my business should be making the most sales, and I would hope to finally be in the positive figures.
My sales have increase from May to July, as in June I made £7,400 and in July the sales rocketed to 12,000. In July I also received a loan of £5000 which was means that I can buy any necessary equipment and stock. The reason why I have a loan in July is because I may have trouble with the amount of stock I have, as June/July are the best months for my business and I may be short of certain equipment, and as my sales were so high these two months, it became clear that my business was making a wealthy profit.
The salary at which I pay my employees has gone back down to £2500, as even though it’s the best months for my business; I need to make sure that I move into the positive figures. The next time when I expect to have an increase in wages is around November/December.
My bills have maintained the same, so some of them are being paid over three months, and others are being paid on a regular basis. There are no increases in my bills, as there would be no reason to, the store is staying open at the same time, and it is summer, so the heaters would not be on a lot, as it would be hot enough already.
In June I spent £4000 on capital items, and this would have included items such as stock. As I have explained previously, I will need as money as possible to compensate for the amount of stock that I will be using, as these months will be very good for my business.
My closing balance for June is £-3590 so I am still losing money. In July I am pleased to say that my business has finally left negative figures over 6 months, and my closing balance is £7745. I knew that I would begin to reach positive figures around this time of the month, so I am pleased that my business is functioning how it should be and mainly, that I have survived half of my year, as many sole trading businesses don’t do well.
August/September
Over the next two months I would still expect to be making a lot of money, even though all the major plays have finished. The main reason for this is because as it’s been over half a year, I would expect my reputation to be pretty high, and as I was recognised locally, I would hope to start appealing to the rest of North Wales, which would be my next step in my business.
I would expect my sales to be increasing from now until December, and in August, my sales were £14,000, which was £2000 more than the previous month. The sales for September are £16, 050, and I will not be receiving any loans and that would be because I have only just received a £5000 loan.
Over August and September, I would be paying out a total of £4,500 for capital items/stock, and that would be because I would have sold a lot of products, so I need to make sure that I have a sufficient amount to help me through the autumn season.
My bills have maintained the same, so some of them are being paid over three months, and others are being paid on a regular basis. There are no increases in my bills, as there would be no reason to, the store is staying open at the same time, and it is autumn, so the heaters would not be on a lot, as it would be hot enough already.
In August and September, my advertising costs will stay at £70, and the main reason is because I will not need to advertise a lot, but over the next few months, I will need to try to promote my business even more, if I want to maintain a positive cash flow, so if I advertise in local shops, bill boards and maybe on the local radio station, I will have an increase in sales, which will compensate for the increase in advertisement costs.
My loan repayments will maintain at £1000 a month and my insurance will stay at £700, so if I need to make sure that I have a good sales figure for me to makes sure that this doesn’t affect my business.
My closing balance for August will be £15,900, so it would be an increase by £8155, and for September, it will be £22,605, so that would be an increase of £6,705. This is what I was expecting, so I am on target and I hope to make a bigger profit throughout the year.
October/November
My sales figures for October are £17,500 and for November it is £22,800. Even though there is a peak season around June-July time, there is also one around November-December, so this is the time where I expect a lot of my profits to be made. I would have all the equipment that they would need to carry out the performance, like costumes, sets, scripts, props, lighting and sound equipment, so my sales would be high. I would need a loan of £3000 in October so that I have the money to purchase more products to make sure that I have a sufficient amount for my customers.
The wages that I would be paying my staff will maintain the same, as there would be no reason for me to increase their salary. The only time that I will increase their salary is for a Christmas bonus, so they will be getting an increase soon.
Some of my bills have maintained the same, so some of them are being paid over three months, and others are being paid on a regular basis. There is an increase in my gas bills, as it has increased by £50, and the main reason for that is because it is getting colder now, so I will need to run the heating in the store for a lot longer than usual.
My advertisement costs will be the same for October, staying at £70, but in November, it will increase a lot, to £230, and the reason for this is because I want to promote my business to all the theatres so that I can be one of their main suppliers when they are carrying out their performances. I would use the same advertisement techniques, so newspapers, bill boards, internet, shop windows, but I will use this money to place it in more news papers, and more bill boards, to make sure that I am one of the theatres main supplier.
My loan repayments will maintain at £1000 a month and my insurance will stay at £700, so if I need to make sure that I have a good sales figure for me to makes sure that this doesn’t affect my business.
My closing balance for October is £37, 390, so it has increase from the previous month by £14,785, and in November, my closing balance is £54,635, so it would have increased from the previous month by £17,245, which is more than what I would have expected.
December
In the final month of my business year, I would hope to be making a lot of money, so leaving my financial year with at least a turnover of £60,000. My sales have decreased slightly by £600, making it a total of £22,200, so even though it’s not as high as the previous month, I am still making a lot of money. The reason why it is not as high is because the plays would be going on this month, and directors and companies usually purchase products at least a month before the performance takes place.
I would be paying my staff £3000 this month, as it is Christmas and they have done an exceptional job for me this year, so I would pay them an extra total £500.
Some of my bills have maintained the same, so some of them are being paid over three months, and others are being paid on a regular basis. The increase in my gas bills has stayed at £150, and the main reason for that is because it is getting colder now, so I will need to run the heating in the store for a lot longer than usual.
My loan repayments will maintain at £1000 a month and my insurance will stay at £700, so if I need to make sure that I have a good sales figure for me to makes sure that this doesn’t affect my business.
My final closing balance of my financial year is £70,280, which is more than what I expected, as I estimated my annual turnover to be around £60,000. I am more than happy that I have not only beat my target, but I have stayed afloat and that I was not one of those sole trading businesses that failed to function and lost too much money. I knew that I would make a loss for the first few months, but I knew that I had to have faith in my business, and I hope that next year, as I have been recognised throughout Flintshire, my local area, I will be recognised around North Wales. With this money I can now invest in my business activities and could consider buying the property outright, buying high tech equipment for the store, or simply invest the money for future developments. However I shouldn’t spend all the money for now in case anything happens within my business and this money will be vital for survival then.
On the positive side my business has successfully met one of there aims and objectives. This is to “To increase the business’ profit within the first year”. I have shown through my analysis my business has created little profit’s after 6 months but it isn’t till the 12th month we see how huge these profit margins are becoming. We have met this aim after 1 year which is how successful business will run where they complete the aims before they are due. Since I have completed this aim I can now set my business a new aim which is to double there profit by the end of the year. This will motivate my employee’s as they will receive a bonus if the aims are completed.
Calculating Breakeven
Breakeven charts are very important to all businesses, as it shows the exact point where a business is going to start making a profit. The point at which it breaks even is when the sales equalise and the sales turn into the profits. If I use a breakeven chart correctly, I can see how many customers I will need to shop at my store for me to breakeven. I still need to understand that even though my business has broken even I can still slip into the losses if I don’t keep a close eye on my sales figures. The way in which breakeven works is that it is when the fixed costs divided by the (selling price-variable costs). The variable cost is something that varies and changes throughout the business year, for example, the stock and the sales whereas the fixed costs are costs that stay the same throughout, for example, loan repayments and insurance. Both of these costs are compared with the sales revenue which will give me the level of sale volume which I can determine at the point where by business is neither making a profit nor loss, therefore being classed as breakeven. Breakeven, just to reiterate, is when the expenditures/outflows are the same as the income/inflows).Once a breakeven chart has been made for my business, I can use it to make further decisions for my business in order for it to be improved.
There are numerous reasons for which break even is used within a business which are the reasons I am going to calculate it in my business. There are many reasons why I need a breakeven chart, and the main reason is to work out how many products I need to sell in order for me to begin making a profit. If I was going to introduce a new type of sound system to my business, I could easily calculate the breakeven point with this new product and it would give me results telling me if it is good investment or not. An important use for calculating the breakeven is that it will show me how changes within prices of the products I sell affect the breakeven point. One example I could use is that if I wanted to reduce one of the lighting boards that did not sell a lot, I could see what affect it would have on my business as a whole. This breakeven chart will help me when I am setting targets because if I aimed to make a certain amount of profit at the end of the business year, I would know how much I would need to sell in order for me to reach the target.
The breakeven point is calculated using fixed costs, variable cost and total revenue. These 3 costs will help me calculate where exactly my breakeven point will be.
Here is an example of a breakeven chart that I found on the internet and I have annotated the different aspects of the chart.
The next section of my work will deal with the different scenarios and the effects they will have on the breakeven point. If I changed the costs in my business the breakeven point will differ providing me with a different result on how many products it will take me to breakeven. Some of the ways I can reach breakeven quicker is to increase the prices of the product, decrease the outflows of my business, for example, wages, and purchasing the products off suppliers at a cheaper price. This will be a guide of what I think my outcome will be, and they are only as accurate as the figures that are entered in the place.
The formula to calculate the breakeven point is:
Fixed Costs
Selling Price - Variable Cost
1.
The first scenario that I will be doing is if my fixed costs were £5275 and the average price that my products were sold at was £200. The variable costs for my business will be £50.
5275
______________ = 35
200-50
This means that I would need to sell items to 35 customers in order for me to just breakeven, and then I would need to sell more to start making a profit. This figure seems pretty high, but this would be over a month, and looking at my cash flow forecast, it shows me that for the first few months I will not be reaching this target, mainly to do with my reputation, but as the months go on, my reputation increases and so do my customer.
2.
The second scenario is that if my fixed costs increased by £225, how many customers I would need to sell to in order for me to reach breakeven. My fixed costs would be £5500, the selling price of my products would still be £200 and the variable costs will still be £50. The calculations would be:
5500
______________ = 37
200-50
Even though I have raised my fixed costs by £225, I only have to sell to an extra two customers in order for me to breakeven. Even though the figures are still high for my business to only breakeven, it’s still not as big of an increase as I thought. The variable cost for my business is pretty high, and that would mean that I am enforcing quality, as I am purchasing the products at a high price.
3.
Instead of lowering my fixed costs, the selling price per unit has decreased. Instead of it being £200, I have changed the selling price to £150 and kept the variable cost at £50. The calculations will look like this:
5275
______________ = 53
150-50
Even though my customers are buying products at a cheaper price, it would mean that it would take a lot longer for me to actually breakeven. On the plus side, by decreasing the prices of my products, I would have a lot more customers purchasing the items, so that could in affect increase the selling rate, so the target of 53 would be fine. The variable cost for my business is pretty high, and that would mean that I am enforcing quality, as I am purchasing the products at a high price.
4.
This scenario deals with if I increased my fixed cost to £5500, and decreased my selling price to £150 and kept the variable cost at £50. The calculations would look like this:
5500
______________ = 55
150-50
Even though I have raised my fixed costs by £225, I only have to sell to an extra two customers in order for me to breakeven. Even though the figures are still high for my business to only breakeven, it’s still not as big of an increase as I thought. Even though my customers are buying products at a cheaper price, it would mean that it would take a lot longer for me to actually breakeven. On the plus side, by decreasing the prices of my products, I would have a lot more customers purchasing the items, so that could in affect increase the selling rate, so the target of 55 would be fine. The variable cost for my business is pretty high, and that would mean that I am enforcing quality, as I am purchasing the products at a high price.
5.
This scenario deals with if I kept my fixed costs at the same price as it started off with, and the selling price per unit had stayed the same, but the only difference is if my variable costs increased from £50 to £65. This would mean it was an increase by £15 and the calculation for this is:
5275
_____________ = 39
200-65
The variable cost in this case has increased, and the reason why I don’t mind the outcome of this is because previously in this assignment, I wrote about quality, and by purchasing items at a higher price, it must mean that it is decent and that my customers will be pleased with the products that I am selling.
6.
The next scenario that I am going to do is if I lowered my fixed costs. There are many ways in which my fixed costs can be lowered, for example, using other companies rather than the one that I am using at the moment, for example, insurance and utilities. I would estimate that my fixed costs could be lowered to £5000. The selling price will be £200 and the variable cost will be £50.
5000
______________ = 33
200-50
This means that I would need to sell items to 33 customers in order for me to just breakeven, and then I would need to sell more to start making a profit. This figure is pretty low, and the lowest out of all the scenarios. In order for me to have my fixed costs at £5000, there would need to be some compromise.
To summarise the importance of break even is the fact that the business needs to make the same amount or most of the time more money then what they spent to making or producing the goods. This can also be a good target to aim for within a business to motivate the employees and managers of the business to achieve their potential. Although changing the costs will produce a variety of break even figures these may have good and bad effects on my business. Bad effects could include loosing loyal customers and setting a break even point which is too unrealistic therefore failing to reach this. Good effects could include more customers, more loyalty and a better profit for my business.
Although breakeven can be used as a useful financial measure, there are certain limitations that I would have to consider when using this method of measuring my business’s finances. Here are just some of the ones I think are most important:
Fixed costs are meant to stay the same, but the main problem is that in the real world, the fixed costs have to change in order to fit in with the situation at hand. There are many different things that these could be, but the main one is the government, with the taxes and bills. These two are both considered as a fixed cost and they will stay the same, but taxes can sometimes change depending on what situation the government is in. The best example that I could give is that if the government feels that it isn’t making enough money, they will end up raising the taxes, which would then change them, and cause a debate whether they are actually a fixed cost, therefore a stepped fixed cost line would provide a more accurate guide.
All breakeven charts show a short term relationship and the forecasts are therefore going to be unrealistic when the proposals cover a number of years.
This basically means that the breakeven points are not made every day or week, and this is because of the cost of different things and the market is changing all the time. This is the main reason why many businesses create breakeven charts each year, rather than a weekly or daily basis. For my business, I would say that it would be feasible to make one each month only if the market has been monitored and has no changed dramatically in the last month or so.
A break even analysis is mainly based upon the accuracy of the break even chart and the forecasts. The reason why I feel that it is so important to have excellent accuracy with the figures when the breakeven is being calculated is because all businesses need to have a clear idea of how many items are needed to be sold to the customers in order for them to start gaining some money. Of the figures were not realistic and inaccurate, then the breakeven point that they have calculated may be way off target and when they think that they are making a profit, there are in fact making a loss.
There are many organisations that fail to reach breakeven because of certain limiting factors that would be restricting their ability to do so. Some of these could include the shortage of space, labour and orders. There are many businesses in the UK that suffer from this and they themselves have their own reasons why. The only one that I think that I may suffer by is the shortage of space. The main reason is because of the products I am selling, and because I sell stage props, sets and lighting boards, they do fill up a lot of space, and as I am a sole trading business, I only have a small store in which to keep all of my products. There are many ways out of it, for example, instead of having the stage sets in my store, I would have a catalogue and once the customers finds the one they want, it can be ordered.
Each of the financial methods that I have spoken about in this section is very important in regards to the financial management of my business. The cash flow forecast is a way of making predictions within the finance of my business and that would help towards the understanding of the inflows (money coming in) and the outflows (money going out) of the business every month. The breakeven chart will give me, the owner of ‘Actors Vision’; an idea of how many products are needed in order for me to reach the breakeven point. Both of these financial methods play a significant role in giving me a clear idea of the financial ‘health’ of the business.
The final part of this section is to have an understanding of what both liquidity and profitability means, which I will now go on to.
Liquidity
When anyone is starting up a business, they would at least need to have a basic understanding of liquidity, along with the different financial measures in order to maintain a very successful cash flow and finance system. The term ‘liquidity’ can be used within a business and is known as the amount of capital available to that business. This is that even though a business has debts, liquidity means that they are still able to gather assets for their business to recount the 2:1 ratio of assets to liabilities. If there is a company and they have the liquidity property then it means that they can somehow get their hands on money/assets when they need them the most. If there is a company or a business that has not got the liquidity property, then they would be unable to gather any assets from anywhere. This would mean that the business in under threat of losing their current assets to liabilities and then they may get taken over by debt, which in most cases result to bankruptcy. To generalise, liquidity links in with the ability to pay back the bills as they come in, and that they would be prepared for any of the unexpected setbacks within the finance of the business. To pay for these, a business needs to have a good reserve of current assets which can be easily converted into cash easily in order to make payments without making a substantial loss.
A business which is liquid has less of a chance of being unable to make debt payments, in regard to an illiquid one. There are some businesses which could have a large amount of assets, but unless they are current the business may begin to struggle when it comes to the payments of the bills and the rest of the financial side of the business.
In order for my business to be liquid, there are certain tasks that I need to follow. One of them would be to regularly monitor my assets and my liabilities so that I know I have enough assets which would be able to be converted into cash quickly if there was ever a situation. By being a liquid business, it would mean that I would have the cash to pay off any emergency payments which I wouldn’t be expecting. As a new sole trading business, this is very important, because sole trading businesses are known to be disbanded really early on, and some people fall into this trap, that they are not a liquid business and they have not got the sufficient funds to pay off any outstanding debts. If I did not have many liquid assets there would be more of a chance of some financial problems which I would not be able to pay for and therefore the debts would end up increasing and I would have to start to compromise with things to meet these payments, for example raising the prices of my products or lowering the wages for my staff. As I am a new business, I need to have a good reputation and I need to be able to keep as many customers as possible and by raising the prices of the products, I may lose some of them as they would not be willing to pay those prices, so therefore I have to have a substantial amount of liquid assets.
Balance sheets are very important when it comes to liquidity. A balance sheet contains information about the debts, capital and the resources which are owned by the business. It will show the value of my fixed assets as well as the current assets.
Profitability
Profitability refers to the ability of a business to earn a profit, and the term relates to how successful the business is doing. One of the financial methods which are very beneficial to calculating the profitability of a business is the profit and loss account. The profit and loss account would help the owners, which would include me, to see whether our businesses have either made a profit or a loss. In ‘Actors Vision’; the profits will be made due to trading, as this would take into account the cost of sales. The cost of the sales refers to the cost of production of the products. By not having the cost of sales, there would be no such thing as a gross profit. For a manufacturer, it could include the direct costs of labour, materials and other costs such as the machinery maintenance.
The gross profit is the basic raw measure of a profit. It is the total sales value minus the cost of producing the goods or actually providing the service. The gross profit would not take into account other overheads and operating costs, for example, tax, distribution, administration or marketing expenditures. The gross profit is the actual money left from sales to cover the costs of marketing the product, operating the business and retaining some money in the business.
A net profit is the money which is left after all of the costs have been added up and the total cost is deducted from the money that is coming into the business from the sales. The net profit does not take into account all the expenses or operating cost of running the business. These would include the following: overheads and operating costs, such as tax, distribution, administration and marketing costs.
Once my business has produced the profit and loss account, I would then be able to determine whether I am paying too much for the cost of sales, paying too much on the expenses or providing my customers with a price for products that are too low. As always, the first of my financial business year is the most important, and I really need to aim high to make sure I make as much profit as a possibly can. By using this account, I would be able to determine which areas need to be improved, whether it is to change my prices, therefore increasing the chance of a higher profit for my business and increase my profitability.
By using a profit and loss account I would be able to determine in which area I am paying too much or whether I need to change my prices, therefore increasing the chance of a higher profit for my business and increasing my profitability.