Small Business Management: Define a Small Business: * It has relatively small share of the market in which it operates * It often caters to a specialised market * It is run by its owners or part owners * It's management is personalized rather than formal * It is not part of a larger group What distinguishes a small business from a large business? * Turnover (Mostly) * Size * Number of employees (<25 - Non-industrial, <100 - industrial) * Resource constraints (Economies of Scale) Why do people go into Small Business? * Employment * An alternative form of employment * To be their own boss * To develop an idea, invention, innovation * To make money!! * To reach potential - Business and Personal What sorts of people go into small business? * All types!! But what sort of people are likely to succeed in small business? Small Business in dominated by personal traits and personal skills. So we have: * Self-Starters/Highly motivated * Those with a high need for achievement * Innovators, those with a creative flair * People who are in control of themselves (their emotions) * Good money managers * Those who are prepared and know their industry well (managerial and technical) - experience * Those with family support * Those who KNOW their LIMITATIONS and ARE willing to seek external advice (support services such as lawyers/solicitors, accountants, etc!) The importance of small business: * Most business is small business (85%-98% in all sectors) * 798,700 out of 843,700 of Businesses in Australia in 1989-1990, were Small Businesses, which is 96% of all Australian Businesses in that period * Today it is thought that 800,000 small businesses exist in Australia * About 50% of the labour force is employed in small business * Small business has been the major contributor to recent employment growth * Small business is often the seed for larger family businesses. The only limitation is people's imaginations in satisfying customer wants Survival rates of small business The level of small business failure is high. The costs and consequences of this failure can be extreme both personally and financially FIRST YEAR: 20%-40% FAIL THIRD YEAR: 48%-65% FAIL FIFTH YEAR: 50%-70% FAIL 90% of Businesses fail after 5 years The major causes of this failure are: * Inadequate preperation/knowledge of the industry * Bad financial Management - or lack of finances (liquidity) * Bad Management * Poor record keeping * The economy Franchises have a much lower rate of failure. WHY? 1. Access to support services 2. Established name 3. And more... Traditional areas for Small Business in Australia: * Service Industry, eg. Tourism, Food, Entertainment Growth areas for Small Business in Australia: * 25% increase in Small Businesses between '84 and '90 * Mining industry - Increase of 11.6% in six years * Home-Service Industry - Such as mail order, i-TV technology, and more... Getting into small business Simply there are two ways - (A) Buy one (purchase) (B) Create one (set up) (A) Purchasing an existing business The major advantage should be that the business is a going concern, plus: * New owner can draw on previous experience of previous owner * Often the previous owner they will stay on for a period to provide training * The business will generate an immediate income flow Disadvantages: Many! Therefore Purchase Evaluation of the market potential of the business is indicated. Check to the following areas should be made either by the purchaser or if they are not technically competent by an objective person with industry experience. 1. Why is the business for sale? * Check with competing businesses, supplier(s), licensor(s) 2. Check all regulations affecting the business. * Any vital changes which may indicate a reason for sale 3. Where are the business products in their life cycle(s)? 4. Check out the finances. * Use an accountant * Profits Vs Tax returns ? * Don't be cheated by illegal practises used in the past 5. Check out the business assets. * What inventory? * Owned/Leased? 6. Assess the competition. 7. Inventory of human resources. * Assess the existing staff This is not the place to make an emotional judgement. Just because you've always wanted one doesn't mean this is the one. BE OBJECTIVE. BE CONSERVATIVE. (B) Starting your own business Advantages: * You can shape it your own way in all areas. However... Disadvantages: * The risks are high (loss of funds, assets - personal, family breakdown) * You'll need reserves as income flows tend to be low to begin with * Often difficult for a small business to borrow * You only get employee benefits if you provide them Planning is vital Objectives: What do you want to achieve? What are the financial and personal costs? Develop a business plan: * A document setting out the nature of the - business * A step-by-step plan of how the business will - be established (Use a SWOT Analysis) A Marketing Plan is essentail: Objectives Situation Anaylsis Marketing Strategy Financial Analysis Controls The BUSINESS PLAN * Product - marketing concept * Market - customers * Estimate of revenue and costs - profit * Evaluation of viability - investment required / rate of return * Legal Situation * Resources - Finances (Where??) - Personal - Staffing (H.R.M.) Typical headings in a business plan (when giving in when applying for a loan) * Introduction * The Business * Product * Legal Devices (patents, etc) * Propreitors * Objectives * Market Stratergies * Operational * Financial * H.R.M. * R&D (Research and Development) - Factors which effect the Business Plan: * Objectives of owners * Market Size * Goodwill * Source of finance * Finance * Freehold/leasehold * Pattern of cash flow * Suppliers * Transfer lead time * Innovation * Licencing * Franchising * Government restraints/assistance * Legislations * Legal & other specialists advice * Skills & Personal required Managing the Small Business: Marketing: - Product - Price - Placing - Promotion Staffing: - Hiring - Allocation of duties - Motivation - Performance Appraisal (Otherwise known as H.R.M.) Records Management: - A major reason for failure (eg. losses from debt collection) - Legal requirement - taxation - Essential ongoing input to management Risk Management and Insurance: - Reduce / Eliminate some risks - Occupational Health and Safety - Insurance: Fire/Workers Compensation/Public Liability Budgeting: - Plan ahead - At all levels - Cash flow: Sales/Expenditure Stock Control: - Records - Cost - Turnover Credit Policy: - Who gets credit? - Action taken when customers don't pay Distribution: - How? Alternative methods Evaluation: - Change - Financial performance/profitability - Actual Vs's Budget - Personal Goals - Market Share - Growth. eg. SWOT analysis constantly Important questions to know about this subject: - What is Small Business? - Why do Small Businesses fail? Be able to give figures/statistics Know the reasons why they fail! - Know Management techniques - Know about the advantages/disadvantages of buying an existing business and starting a new business - Know what a Business Plan is - Know how to create a Business Plan - KNOW TERMINOLOGY!
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