Setting up a Computer Business
Introduction
People often complain about the lack of availability of cheap computers and computer parts. This is because large companies like PC World are raising prices but they are doing it very slowly so people don't notice. For my business studies coursework I am going to place a computer superstore in the Prescot area. There are many different things I can add into my Business for example: -
1. Set up a computer superstore
2. Set up a computer repair service
3. Set up a mail order service
4. Setup a combination of them all
* The advantages of setting up a mail order service is that you do not need a large place in which you will have to sell the products from you could simply buy a warehouse where you can store all of your hardware. This also means that you can stretch your business to a much bigger area because your customers can order over the phone or over the Internet. But however the disadvantages are that most of the people will not be calling just for an impulse buy I will have to spend a lot on advertising, to make sure that I will get more orders to cover the running costs. Another high cost will be the cost of the delivery and this cannot be added to the price of the computer otherwise the price of the computers will be roughly the same as the larger superstores and that could be bad for business.
* The advantage of setting up a computer superstore is that it would be a place where many people could walk around and look at different types of computers. I would have to hire well-trained staff to help them with decisions. A well-advertised superstore would attract people from all over the country. The disadvantage of a superstore is that you would a large area in which to situate your business this would mean that your capital investment would have to be fairly large. Which is something that I would want to avoid, when starting off a smaller business. It would also mean that I would have large staffing costs, this could turn into a cash flow crisis as it adds up over the months.
* In setting up both businesses I would have a much larger business, I would also need a much larger initial investment, this is a big risk, but if all worked out would be a risk worth taking. This would mean I would have a much larger target market and this would also mean higher month-to-month running costs. One advantage of combining the above businesses is that I will not need an extra warehouse to store the equipment for the mail order service, it would just be took from the stock from the computer superstore. People would not have to wait long for their computers, as they could be delivered via next day delivery.
* In setting up a computer repair service it would be the cheapest of all the options because I would not need to purchase all of the hardware to get it up and running. There is a great demand for computer literate people to go out and perform on site repairs of computers, unfortunately the training would be very expensive and to service a large area, you would need a lot of staff. This would mean higher month-to-month running costs. The biggest disadvantage of this is that if you were working on a job, and at the end of it if I didn't manage to fix the problem then I would not be paid and I will have just wasted my time when I could have been fixing something that I could have been paid for.
I have decided to choose the computer superstore with a mail order service running in its background. This is because it is the easiest option to set up in the beginning and as most businesses fail in their first few years of trading, I want my business to be up and running as soon as possible. I want to make it large enough to compete with other businesses and therefore have the advantage of economies of scale, but not too large otherwise I won't be able to cover my start up costs. It would be no good selling my computers at a price that was not competitive, as this would lose sales.
I am confident that I can make my business successful with careful planning and good management. The biggest problem that I am going to have to overcome is that my computer parts are going to decrease in value very fast so to ensure that my business is making a profit; I am going to have to shift my goods very quickly. Hopefully in will be able to shift them through the mail order service this will mean they will not spend time decreasing in value. To complete my work I am going to need to find a place in which I can situate my business and find the best prices for the computer components I am going to buy.
Research
There are two types of research that are available to me; they are field research and desk research. Field research involves the collection of primary data; this is information no one else has collected. Desk research is also known as secondary research because it is information someone else has collected. An example of primary research is a questionnaire, this is useful because you can ask the exact questions that you want to ask and thus gathering the specific information required, secondary is often old and sometimes incorrect. The main disadvantage of field research is that the ...
This is a preview of the whole essay
Research
There are two types of research that are available to me; they are field research and desk research. Field research involves the collection of primary data; this is information no one else has collected. Desk research is also known as secondary research because it is information someone else has collected. An example of primary research is a questionnaire, this is useful because you can ask the exact questions that you want to ask and thus gathering the specific information required, secondary is often old and sometimes incorrect. The main disadvantage of field research is that the amount of time it takes to do. Businesses often spend thousands of pounds in labor doing market research.
Primary research includes:
- Questionnaires
- Surveys
- An observation checklist
- Interviews
Secondary research includes looking through:
- Textbooks
- Company accounts
- Company brochures
- Statistics
- Magazines and Journals
- Government publications
- Any other printed material
Location
I have decided where I am going to place my business. Factors that I will need to consider before choosing my location are:
? Price of land, rent price, price to buy
? Number of people who would pass outside the shop
? Parking facilities, transport links near to the shop
? Distance to markets
? Availability of labor
? Availability of land
The price of the land is very important in the first few years I don't want the land to be so expensive that I cannot pay for it every month, on the other hand I don't want the land to be so cheap so that nobody passes it or have little or no passing trade. The location needs to have relatively good parking nearby so that people don't need to walk far to get to it, often people buy heavy parts in big boxes and they don't want to walk far carrying them. The location also needs good transport links especially if I am running a mail order, as people would expect goods to be delivered in 36 working hours.
I have chosen to place my business in the Prescot retail park, my reasons for choosing this are:
> It has many people walking past it during the week especially weekends. To illustrate this I have collected some primary research by doing a head count and also a car count
> There is a massive amount of parking area in the retail park
> The transport links are good it the center there is a bus station and there is a taxi station and a train station nearby.
An interview with a local businessman
These are the questions I asked him and the answers he gave to me:
What made you want to set up your own business?
I wanted to feel more control in what I was doing. I was sick of taking orders from other people.
What is your main line of income?
Most of our income comes from upgrades of repairs. We don't actually sell brand new computers. It's as often as 2-3 a month.
How did you get the capital to set up your business?
We were actually quite lucky as the Natwest bank offered us a contract to repair all of their machines countrywide; in return they gave us an excellent deal on a loan, and a premises in which to situate our business. The downside is that we have to be available to go out and fix their computers 24 hours a day. This sometimes means that we have to close the shop and lose a day of business.
What are your main costs, if you don't have to pay rent?
Our main cost, which surprised me a little, was the insurance, because we do on site repairs, we have to pay some ridiculous rate of insurance.
Finally what advice would you give someone who was setting up their own business?
I would say don't buy cheap parts, because you have to give at least a 12 month guarantee, when you sell a computer, and cheap parts often go wrong and you end up spending more time and money fixing them than what you saved in the first place.
Different types of ownership
There are many different types of ownership that I could use for my business they are: sole trader, partnership, franchise and limited companies.
Sole trader
A sole trader is someone who works on his own; his own business is run entirely by himself. Here are some advantages and disadvantages of being a sole trader.
Advantages
> You make any decisions that the business has to make; you don't have to wait for everybody to o.k. them. This makes the decision very fast.
> All profits made in the business are for yourself
> A sole trader can set up a business instantly there are few complicated forms to fill in
> A sole trader needs much less capital than other types of ownership
> A sole trader has much more privacy than other types of ownership, only customs and excise need to know how good or bad the business is doing
Disadvantages
> A sole trader has a big disadvantage of unlimited liability, this means that if you go in debt you have to pay back the money yourself and you could even lose you car and house
> Because a sole trader runs the business by themselves if they are ill the business stops and so do the profits
> A sole trader has the problem of having to raise the capital by themselves. Many of them have to take a loan and have to pay it back with high interest this often runs them out of business
Partnership
A partnership can have between 2 and 20 partners by law. A partner is just someone who owns part of the business.
Advantages
> A partnership has many of the advantages of a sole trader
> Forming a partnership is a good way of raising capital as two people can often raise more money to set up or expand a business
> Partnerships can also have sleeping partners. These are partners whilst owning part of the business, pay little or no time in the day to day running of the business
Disadvantages
> Sometimes partners do not agree on a subject and if not come to a decision quickly could put their jobs in jeopardy
> Who the partners are
> How much capital each partner puts into the business
> What happens if one partner wants to withdraw from the business or a new partner is brought in
If there is no deed of partnership the law says each partners is equal
Limited companies
The owners of a limited company have limited liability, this is important because if the company goes bust, they will only lose the money they put into the business, they will not be forced to sell their personal possessions. The registrar general keeps records on all U.K. limited companies. Two documents have to be sent to the registrar of companies to set up a limited company.
They are the memorandum of association gives the details about the name of the company, the address of its registered office, a statement that the shareholder will have limited liability, the type and amount of share capital and a description of the business activities of the company.
The articles of association gives details about the voting rights of the share holders, how the profits will be shared and what duties of the directors of the company are.
The registrar of companies has to issue a certificate of incorporation before a company can begin to trade. At the end of each year, a limited company has to send audited accounts and various other documents to the registrar of companies house. These can be seen by anyone who asks to see them.
Here are some advantages and some disadvantages of setting up a limited company.
Advantages
The biggest advantage of setting up a limited company is that is a lot easier to attract shareholders to invest in the company because of limited liability. This helps the business to grow.
Disadvantages
One disadvantage of setting up a limited company is information about the business can be shown to anyone who requests to see them for example your competitors.
I have chosen a partnership. This is because I think that my biggest problem will be to raise the capital to start up my business. Being in a partnership means that I will be able to get the capital. I think that the best way is to have one partner who would run the business with me, and a number of sleeping partners who would supply me with the initial capital which I would need to begin setting up the business. I think it would be better than a sole proprietor because there will be more opportunities for expansion which means I will have better economies of scale. I don't think that my business is big enough to form a limited company. This is because it cost a lot of money to submit annual reports ETC.
SWOT Analysis
Strengths
Match product, or beat competitors price for similar products.
Can offer specification building, which is not offered by competitors
Weaknesses
Too small to keep large stock.
If one partner is ill business suffers.
Opportunities
Expand the shop / move to larger premises.
Expand number of staff
Threats
Other large computer companies may move into the area.
Advertising
There are many ways that I could advertise my products, they are:
> Media advertising. T.V., radio, cinema, magazines, newspapers
> Direct mail. Involves sending advertising leaflets directly to a household using the post
> Packaging. This needs to be instantly recognizable so that the consumer knows that they are buying your product
> Personal selling. This is selling the product door to door. I wouldn't need to promote my product because the consumer is finding out when the salesman knocks on the door
Commercial T.V.
As the proposed new store is in the border area, it will be possible for me to reach my entire target market through them. T.V. advertising has a great impact on viewers as it uses color, sound and movement. It is not selective in its target range. As my target age, is spread from about 10 - 70, I will be able to distribute the timing of my adverts between the low cost times, and the higher cost times, E.G. during Coronation Street.
Commercial radio
The use of advertising by this method has increased greatly over the last few years. The advantage of this kind of advertising is that it is relatively cheap, and can be repeated regularly. The disadvantage is that even though the radio can be listened to in a variety of different places, car, bus, home etc., it is often on as back ground noise and people may not be paying full attention to the advert.
Local press
As my target market is spread across the whole of England it is important for me to advertise in a number of different newspapers. The placing of the advert is also very important.
Shop display
The window inside display shops must be eye catching and tempting. There is an argument for putting a computer with interesting displays in the window, buy this had the opposite effect of increasing the chance of burglary on the shop.
Business cards
Business cards also help to advertise, the can be given to everyone to remind them about the business.
You could also use promotions to help sell a product for example they could:
> Have money off offers to people who buy in bulk
> Give discount vouchers, to give money off their next purchase
> Free gifts
> Competitions
For my marketing I will put an advertisement in the local newspaper and form a website where people can search through the products and order them using the mail order service. My main source of advertising will be in computer magazines, most of these will be mail order purchases. This is good because it means I will be able to order my computer parts as and when I need them. For my promotions I will be able to give away free software to people buying expensive computers. I will also give customers vouchers, to give the money off future purchases, encouraging them to use my company in the future. I think that my best method of advertising is word of mouth. As long as I provide a high quality service, word will get round very fast and I will get lots of business.
Shop layout
At all times of the year the inside of the shop should be bright, uncluttered and welcoming to tempt buyers in. all wall space should be used. The cash point should be placed at the rear of the shop for security reasons. I will also need to place a staff room so staff does not get too tired.
Here is a list of some of the products I am going to be selling.
A cheap Cyrix 6X86 MMX 233MHz Computer with 24 speed CD-ROM, 15" monitor, sound blaster PCI 128. I will include windows millennium edition and some word processing software. The price of this package will be £800.
A home computer system with an Intel Pentium 233 MMX. This is a far better processor than the Cyrix. It will have 128 Mb of super fast 133MHz ram and a DVD drive. It will include a large hard drive, a voodoo two, banshee chipset, for a graphics accelerator and a sound blaster live sound card. This would be the ideal computer for a game player. The price for this package will be £1000
A work machine. With an Intel celeron A333 processor and a slot 1 motherboard. This is an excellent computer and with a 32X CD-ROM and the voodoo 2 banshee will be able to cope with all graphics. I will include a 10 Gb hard drive and a useful 256 Mb of ram. The price for this luxury computer will be £1200.
My final package will be aimed right at the top end user. It will have the Intel Pentium 4, 500 MHz processor, again a EX Chipset slot 1 motherboard. It will have 512 Kb cache and 256 Mb of ram. This will also include a Primax 500 scanner and a Lexmark 250 printer this will be my most expensive package at £1500!!!
The way I am going to work out my balance sheets, is by taking an average price of a computer and multiplying it by the number of sales. To make it more realistic, I have said that I am going to sell more of the lower specification computers so the average price per machine will be £950
Capital
One of the hardest parts is raising the capital to start the business. There are a number of ways in which I could do this
> Friends and family. Getting friends and family to invest in the business, by lending me money in exchange for a percentage of the businesses profits. I could ask them to go guarantor on a loan, for the amount of money that I wish to borrow
> Own savings. Often people start up their own business because they have been made redundant, and therefore have money in which they can invest themselves
> Loan. Taking out a bank loan is a good way of raising capital, because you can pay it back, with interest over a number of years. This means that if the business is a huge success, the bank does not take a percentage of the profits. On the other hand if the business makes a loss, you still have to keep up with your repayments or risk going bust. In order to take out a loan I will need some assets in which the bank will lend me money. If I had a house they may let take out the loan against the equity. This is the difference between the current market value and the amount of mortgage outstanding
Startup cost
These are the costs that I am going to have when starting up the business. They will include
> Building costs, any improvements need to make the building nice
> Fixtures and Fittings, new desks shelving etc.
> Stock, this is usually the largest start up cost. It is the purchasing of the stock to get the business started. For the business I will not have to buy any stock, as I will only be buying the parts that I need. For example I will get an order then purchase the parts that I want, on express delivery. This means that I do not have to take loss of value into consideration, which going to be one of my major worries. Before my business can start I will need to hire a solicitor to ensure that the lease is legal on the premises and find an accountant to advise on the financial side of the business.
Staffing
The number of staff that my business employs is very important.
Staff responsibilities
To be sure that my business runs smoothly I am going to need full time employees, myself and my partner, and a part time member will work on the busier Saturdays. I will in charge of the shop displays and the other window displays and both of the full time workers will be in charge of building the computers and the part time worker would only work with the customers.
Recruitment
It will be necessary for me to recruit my part time staff the will need to have knowledge of computers and work in a polite manner with the customers.
In a interview I would ask the following questions:
. Why do you want to work for PC Carswell Computers?
2. What knowledge do you have of computers?
3. Do you have any previous experience in this line of work?
4. How would you deal with an awkward customer?
I included the last question because I think that it would help me on the decision on who to hire.
Business studies Questionnaire
What is your age?
1-20 21-30 31-40 41-50 50+
What is your gender?
Male Female
Do you own a computer?
Yes No
If yes, is there anything you would buy from a computer superstore?
Yes No If yes please mention:
If yes, would you consider replacing your computer in the nest 3 years?
Yes No
How much would you spend on a computer?
Less than £1000 More than £1000
Can you do your own computer repairs?
Yes No
Would you purchase anything from a mail order service?
Yes No
Thank you for completing my questionnaire?
Russell Carswell St Edmund Arrowsmith Comprehensive School.
Russell Carswell Business Studies Coursework