Business Planning Unit 1: Influences in establishing an SME 1.1 Definition - The exact definition is not defined, however it can be divided into categories such as personalised personalised service, local ar!ets, independentl" operated, independentl" owned, closel" controlled b" owner#operator, not doinant in the industr", locall" based, bul! of capital provided b" owner, reliant on internal support services, owner responsible for decision a!ing and less than $% eplo"ees for non-anufacturing non-anufacturing and 1%% for anufacturing& anufacturing& 1.2 Role - The nuber of SMEs fluctuates over tie according to the state of the econo"& - In recent "ears, SMEs have created an" 'obs, becoe ore innovative and are increasingl" entering overseas ar!ets& 1.3 Economic Contribution - (n econo" is a s"ste used to deterine what to produce, how to produce and to who production will be distributed - SME)s contribute to the econo" through: Gross Domestic Product (GDP) - *+ is the t he total one" value of all goods and services produced in (ustralia over a one "ear period, easures econoic growth& - (S estiates SMEs contribute about .%/ to *+& Emploment - Eplo"ent !eeps the econo" health" and eplo"ees spend their wages which support other businesses& - SMEs eplo" 0/ of private sector eplo"ent and are ore li!el" to aintain existing eplo"ees during econoic downturn& - The" contribute to revenue raised through tax which benefits societ" as a whole& Balance of Paments (B!P) - 2 is an accounting record of all onetar" transactions between (ustralia and the rest of the world over one "ear& - SMEs are often ore successful at exporting than large businesses businesses as the adaptabilit" and flexibilit" of SMEs a!e the ore responsive to the needs of overseas ar!ets& - To aintain a favourable balance of pa"ents, exports ust be greater than iports& "n#ention and "nno#ation - SMEs are the ain source of ost inventions and innovations in (ustralia& - Invention and innovation are the heart of our econo" as the" iprove efficienc" and increase productivit"& - SMEs spend a large aount on 34+& - 34+ is intended to develop new ideas and iproveents in production however it is difficult for SMEs to obtain ade5uate finance as the" are perceived as high ris!& - Innovation aong SME eplo"ees is uch higher t han larger businesses& 1.$ %uccess and &ailure - 6 out of ever" . SMEs fail within first "ear& - Soe factors that t hat deterine business success: - 7ocation& - oo!-!eeping oo!-!eeping standards& - (ccess to finance&
- (daptabilit" 4 flexibilit" to change& - (ccess to inforation and resources& - +eand& - Entrepreneurial abilit"& - ( SME has failed when it is: - unincorporated and declared ban!rupt& - incorporated and either forced into li5uidation or voluntar" cessation& - The ost coon causes of SME failure are anagerial inexperience and incopetence undercapitalisation, and lac! of planning&
Unit $: Influences in establishing an SME 2.1 Personal 'ualities - ersonal 5ualities, otivation, experience and entrepreneurship are the priar" influences on an individual)s decision to establish a business& - usiness 5ualifications and s!ills can be attained through experience, education and#or training& - These factors will affect planning decisions on issues such as the t"pe and si8e of business, the business location, and the individual)s own role& - (n entrepreneur is soeone who starts, operates and assues the ris! of a business venture in the hope of a!ing a profit& - (n entrepreneur ust have a range of s!ills and characteristics to own and operate a business successfull"& - There are other influences at wor!, including cultural bac!ground and gender& 'ualifications - 9o foral acadeic re5uireents to coence operating but there are tertiar" courses available that give "ou !nowledge and understanding of what is re5uired to successfull" own and operate an SME& - nowledge and understanding can coe fro experience and wor!ing for other businesses& %ills - ;an be attained through experience, education and#or training: - Experience -
& - (llow the business owner to develop the essential s!ills for establishing a business such as accounting, coputer s!ills, staff anageent, business adin and ar!eting& oti#ation
- +esire to transfor an idea into a successful product b" capturing the attention of potential custoers& - usiness owners otivated b" the rewards the" believe can be gained fro business establishent in both onetar" and non-onetar" reward edius& Entrepreneurs*ip - Entrepreneurs ust be: - prepared to ta!e a ris! and incur the results of the ris!, either success or failure& - confident in decision a!ing and be able to ta!e responsibilit" for decisions& - willing to succeed& - creative and have flair, which allows the to create or sei8e new business opportunities& - able to set goals and have a vision for the future, including ad'usting business to changing environent and setting new goals as others are achieved& - continuall" ad'usting to changing business, econoic and custoer ar!ets& Cultural Bacground - ;ounit")s traditions and beliefs =e&g& high wor! ethic in fail">& - Experience in certain trades or services =e&g& Thai person coo!ing Thai food>& Gender -
- (usIndustr" provides advice on overseas exports and research and developent of new products and grants& !t*er %ources - ;habers of ;oerce offers legal and f inancial help, econoic and tax advice, explanation of legislation and industrial relations inforation& - Sall usiness (ssociation of (ustralia and 9ew @ealand is a lobb" group of SME owners that provide a foru for exchanging news and views relating to SME atters& - Trade (ssociations have specific industr" info and advice& - 7ibraries and 3eference Material allow access to reference aterial and the abilit" to locate specific aterial& - (ustralian ureau of Statistics provides data on social, econoic and deographic trends& 2.3 ,*e Business "dea-Competition - ( business idea describes the core activities of the business, and the specific features and value of the goods or services it provides& - ( business opportunit" is soething an entrepreneur can see as an avenue to success& - 2pportunities a" arise due to either a Agap) in the ar!et, or an interest or hobb"& - Successful identification of a gap in the ar!et is the !e" to establishing an appealing business& If there is no gap in the ar!et, businesses need to do soething exceptional to draw custoers awa" fro existing businesses& - ;opetition is rivalr" aong businesses that see! t o satisf" a ar!et& - SME owners ust decide how to a!e a business copetitive& This can be done b" either reducing the costs of production or providing soething not alread" available& - usiness needs to decide whether to target the product to the ass or a niche ar!et: - To help identif" the level of copetition and ain copetitors& - To help decide how to ar!et and achieve a larger ar!et share& -
+isadvantages
- The owner has the freedo to set up the business as the" wish& - The owner is able to deterine the pace of growth and change& - There is no goodwill for which the owner has to pa"& - If funds are liited, its is possible to begin on a saller scale&
- There is a high ris! and uncertaint"& -
E0isting
(dvantages
+isadvantages
- Sales to existing custoers will generate instant incoe& - ( good business histor" increases the li!elihood of business success& - Easier to obtain finance& - Stoc! has alread" been ac5uired& - The seller a" offer advice and training& - E5uipent is available for iediate use& - Existing eplo"ees can provide assistance&
- Existing iages and policies a" be difficult to change& - The success a" have been due to the previous owner)s contacts and personalit"& - It a" be difficult to assess the value of goodwill& - If the preises are leased, there a" be difficulties with the landlord& - Soe eplo"ees a" resist an" change to the business operation&
&ranc*ise (dvantages
+isadvantages
- The franchisor often provides training& - The franchisee does not need to have previous experience& - The investent ris! a" be lower& - E5uipent and preises design are usuall" established and operational& -
- The franchisor controls the operations& - The threat of terination can be carried out in certain circustances& - rofits ust be shared with the franchisor& - ;ontacts a" be biased in favour of the franchisor& - The goals of the franchisor a" differ fro that of the franchisee& - The franchisee a" erel" feel li!e an eplo"ee, but without benefits or securit"& - The franchisor ust share an" burden of the franchisor)s business ista!es&
2. aret Goods and ser#ices - usinesses will fail without a ar!et to purchase their products& - It is iportant for businesses to underta!e a ar!et anal"sis& - Mar!et anal"sis is collecting, suari8ing and anal"sing inforation about the ar!et& Price - If the price is too high, it leads to a decline in sales and is difficult to achieve a profit& - rice-setting strategies: 1& ercentage ar! up: increase cost prices b" a fixed percentage to give a selling price& $& 3ecoended retail price: recoended price b" wholesaler or anufacturer of goods to be sold& & rice leadership and copetition: a!ing sure that t he price is in line with copetitors& 6&
- It is easier to access - 7ocation a" be considered uniportant - Eas" for hoe-based businesses& 2. &inance - ( business cannot coence without finance to enable it to pursue its activities& - SME owners ust deterine how their business will be financed throughout the life of the business& - usinesses can obtain funds fro either internal =e5uit"> or external =debt> sources& - +ebt finance is one" obtained through loans and ust be paid bac!& - Short ter debt finance is less than one "ear and exaples include ban! bills, ban! overdraft and trade credit& - Mediu ter debt finance is one to five "ears and exaples include ter loans, personal loans and leasing& - 7ong ter debt finance is over five "ears and exaples include ortgages& - E5uit" is the funds contributed b" the owner=s> of a business to start and expand the business& - The business owner ust estiate the establishent costs =expenses that ust be paid to coence the business> and operating costs =the running costs for a full "ears operation>& - The t"pe of finance will influence cost of capital& - ?or debt finance the cost is interest& - ?or e5uit" finance the cost is the return =dividend for copanies> paid at the end of the financial "ear =if profit is ade>& The cost of e5uit" finance could also be easured in liabilit" as unincorporated businesses can have business and personal assets sold to recover debt, whereas incorporated businesses are liited to assets of copan" and investents& 2.4 egal - (ll business owners have a legal obligation to observe the statutor" regulations when coencing and operating a business& Business name - Ever" business nae ust be registered =except when the nae is that of the owner and no t" 7td, ;o, etc& at the end>& - If two traders want to register the sae nae, the first applicant for registration is accepted but the second ust register a different nae& 5oning - 7ocal governent controls 8oning regulations to plan areas for set purposes =eg& residential, warehouse> and to assist planning& - 2wners ust in5uire with the local council to deterine which 8oning regulations a" appl" to the& 6ealt* regulations - 7ocal councils have re5uireents and standards for businesses to eet to receive a license to operate their business& - Cealth inspectors assess the business regularl", often without warning& This is to ensure that the business aintains these standards& - The Trade ractices (ct 1D06 =;wlth> is a federal governent statute that ais to: - roote fair trade and copetition in the ar!etplace& - rotect both consuers and businesses fro deceptive or isleading practices&
2.7 6uman Resources - 2ne of the ost iportant influences when establishing a SME is staffing& - If a SME owner decides to hire staff, an" sources are available including advertiseents in edia, teporar"#casual services, schools, universities, T(?Es, internal searches, word of outh, private eplo"ent, recruitent agencies and ob Services (ustralia& 2.7.1 %ills - S!illed eplo"ees are highl" productive and result in creating wealth for the business& It is iportant for businesses to aintain the s!ill level of their eplo"ees& - Training is also an option to develop the s!ill base of existing eplo"ees& 2.7.2 Costs - ( business will onl" eplo" soeone if the return is greater than the cost& - 2n-costs are pa"ents for non-wage benefits, including long service leave, wor!ers) copensation, superannuation, sic! leave and annual leave loading& 2.8 ,a0ation - Taxation is the copulsor" pa"ent of a proportion of earnings to the governent& - In order to operate a legitiate businesses, all taxes ust be paid& - (n (9 is given to ever" business and is used when dealing with governent departents and agencies =e&g& (T2>& &ederal 9 %tate ta0es - Tax is an iportant source of funding for all levels of governent& - ?ederal Taxes include copan" tax, group tax =iposed on eplo"ee>, *ST and fringe benefits& - *oods and services tax =*ST> is a 1% per cent value added tax iposed on ost goods and services& - The custoer pa"s *ST when bu"ing goods and services, which is passed on t o the business that in turn passes it on to the (ustralian Taxation 2ffice =(T2>& - *ST collection and pa"ents to the (T2 are recorded on the business activit" stateent =(S>, which is also the eans b" which a business can clai input tax credits& - State taxes include stap dut" =leases, ortgage, car registration>, land tax and pa"roll tax& ocal rates and c*arges - Taxes iposed b" local governents include: - 7ocal land rates& -
Unit : The usiness lanning rocess 3.1 %ources of Planning "deas - ( business plan is a written stateent of the goals for the business, and the steps to be ta!en to achieve the& It is a suar" and an evaluation of a business concept in written for& - ( business plan will also assist the SME owner when arranging finance for the business&
- Soe benefits of a business plan include: - Identif" business strengths and wea!nesses& - (ssist the business to be proactive not reactive& - Indicates the ownerFs abilit" and level of coitent& - ?orces the owner to focus& - The internal and external business environents are sources of planning ideas& 3.1.1 %ituational +nalsis - S<2T stands for strengths, wea!nesses, opportunities, threats - ( situational =S<2T> anal"sis can be used at all stages of the planning process& ST3E9*TCS Internal factors e&g& what is the business good atG (re our eplo"ees otivatedG
223TU9ITIES External factors e&g& econoic boo, low interest rates, potential overseas ar!ets
TC3E(T External factors ;opetition is usuall" one e&g& new regulations =ipacting the business>
3.2 :ision; Goals and-or !b& - Social =e&g& counit" service, provision of eplo"ent, social 'ustice>& - ersonal =e&g& individual preferences>& - 7ong ter growth is the abilit" of a business to continuall" expand& - Strategies to achieve long ter growth: - ;ustoer feedbac!& - Supplier and custoer partnerships& - roduct innovation& - Siga six: anageent approach that attepts to iprove perforance b" iproving 5ualit", reducing costs and creating new opportunities and a!ing DD&DD/ of all anufactured products defect free& - 7onger ter growth depends on a business)s abilit" to develop and use its asset structure to increase sales, profits and ar!et share& 3.3 !rganising Resources - (n organisational structure is the fraewor! in which the business defines how tas!s are divided, resources are used and departents are coordinated& - 3esource allocation is the efficient distribution of resources to eet established goals&
3.3.1 !perations - +efined as transforing inputs into f inished or sei finished goods& - 9ecessitates the need to source e5uipent, supplies, !nowledge, storage and warehousing as well as deliver" s"stes& - (lso deterines the: - T"pe of e5uipent and raw aterials and their suppliers and cost& - Storage, warehouse and deliver" s"stes re5uired to operate& - 7evel of technical expertise re5uired for axiu production & - The business a" need to utilise ;(+ =coputer aided design> and ;(M =coputer aided anufacture> to axiise efficienc"& 3.3.2 areting - (ll sections of the business ust be involved in eeting custoer needs and wants& 3.3.3 &inance - 9ew business ventures re5uire funds to operate& - It is necessar" to copare various sources of finance to obtain the best rate& - The aount of e5uit" =business ownership> that the business owner is willing to hand over in order to obtain financing ust be deterined, so that ownership is aintained& - It is possible to explore governent funding and grants that include onetar" and financial assistance that does not have to be repaid& 3.3.$ 6uman Resources - Eplo"ees are an SMEs ost iportant resource& - ( rigorous recruitent and selection processes is necessar" to the functioning of the business& - (ll legislation ust be abided b", including anti-discriination and e5ual eplo"ent opportunit" laws& 3.$ &orecasting - ?orecasts are a businessFs predictions#pro'ections for the future& 3.$.1 ,otal Re#enue 9 ,otal Cost - These forecasts attept to predict the aount of one" a business will receive fro sales =revenue> and the aount of expenses the" will incur =cost>& These estiates can be ade b" deterining the deand for the businesses product and the aount of copetition& - Total revenue is the total aount received fro sales& This figure is calculated b" the 5uantit" of goods sold ultiplied b" the price that the")re sold for or T3 H x - Total cost is the su of fixed and variable costs& It is categorised into two parts: - ?ixed costs are costs that do not var" regardless of how an" units of a good or service are produced& - Bariable costs are costs that depend on the nuber of goods and services provided& - The forula for total cost is ?; J B; H T;& 3.$.2 Brea=e#en +nalsis
- ( brea!-even anal"sis deterines the level of sales that need to be generated to cover total production costs& - The forula for this is rea!-even SalesH ?ixed ;ost#=Selling rice K Bariable cost per unit> 3.$.3 Cas* &lo/ Pro
- rofit as a source of finance: profits need to be reinvested to ensure that the business can grow& - rofit as a perforance indicator: indicates business perforance& - rofit as a dividend pa"ent: for incorporated businesses, soe profit is allocated to shareholders& 3. ,aing Correcti#e +ction - ;orrective action is iportant to ensure the business can continue to function& - Modif"ing is the process of changing existing plans, using updated inforation, to shape future plans - If perforance standards cannot be et, the situation cannot continue and the business owner ust underta!e corrective action#odification&
Unit 6: ;ritical Issues in usiness Success and ?ailure $.1 "mportance of a business plan - usiness plans are essential for owners#anagers because: - The" allow the owner to clearl" define the goals, and future pro'ections& - The" assist in the securing of finance fro ban!ing institution or investors& - The" reflect the s!ills and abilities of the business owner& - ( business plan ust: - Cave a concise stateent of goals& - Cave detailed strategies for achieving goals& - Cave tools for easuring perforance =brea!-even anal"sis, forecasted profit 4 loss, ar!et research>& - e able to be presented to sta!eholders, investors, potential sources of finance, accountants etc& - 3eflect the s!ills and abilities of the owner& $.2 anagement - Manageent coordinates resources =inputs> to achieve the stated business goals& - 3esources need to be allocated and used efficientl" to axiise 5ualit" and iniise costs& - Manageent ust a!e the best use of liited resources& - Manageent is responsible for the business achieved its goals& - ( anager)s s!ill is the ost critical factor in deterining a business)s success or failure& %taffing - (s eplo"ees are a business)s ost iportant resource, necessar" resources need to be allocated to hire good eplo"ees& - 2utsourcing the recruitent process is becoing ore coon as it can be costl" and tie consuing when done in-house& - ( s!ills audit details the s!ills base of all eplo"ees in order to get the right ix of eplo"ees, plan s!ill ac5uisition and future training needs, identif" wea!nesses in s!ills& - ( s!ills inventor" is a database that outlines the s!ills, abilities and 5ualifications of eplo"ees& - (ppraisals are the process b" which an eplo"ee)s wor! behaviour is evaluated and the results are used to provide feedbac!, showing where iproveents are needed and wh"&
- The" can be used as a wa" of assessing s!ill base and deterining training needs and who will be prooted, deoted, retained or fired& ,eams - enefits associative of tea wor! include: - Idea sharing& - Infored decision a!ing& - 7ess need for supervision eaning eplo"ees onitor each other closel"& - Eplo"ee cooperation& - Iproved output& $.3 ,rend +nalsis - Trend anal"sis is a process of investigating changes over tie and loo!ing for a pattern =trend> in order to predict the future& - Trend anal"sis is a powerful tool which assists SME owners achieve business success helping with forecasts& - ( trend anal"sis highlights patterns and changes in business perforance& - Sales, revenue, operating costs, gross and net profit can be graphed& - Trends are used to forecast changes when budgeting for the future& $.$ "dentifing and %ustaining Competiti#e +d#antage - usiness success and failure is lin!ed =in the long ter> to a business)s abilit" to develop a strateg" that allows it to gain a copetitive advantage over other copetitors in the ar!et& - ( copetitive advantage is where a business does soething better than a copetitor and has the edge on copetitors in a particular area of production& - Sustainable copetitive advantage is a copetitive advantage that is aintained over tie& >as to maintain a competiti#e ad#antage? 1> ;osting and pricing strategies
- Undercutting copetitors - 3educing production costs - 3educing input costs - Specialising labour in production - (utoation =replace labour with achines - 2utsourcing expensive parts of the process - Increased production =in bul!> reduces unit costs - 2verseas production is cheap labour
$> +ifferentiate products
- roduce high end 5ualit" or low end throw awa" goods - Cave an innovative design - rand nae and iage - 7ocation and level of service - Mar!et research K pitching ar!eting at target ar!ets
> Sta"ing ahead of copetitors
- 3esearch 4 product developent - atents and cop"rights on inventions - ;reating barriers for entr" to copetitors - 7obb"ing governent and interest groups - Exclusive contracts with other businesses
$. +#oiding o#er=e0tension of finance and ot*er resources
- ( business can overextend financiall" b": - using hire purchase and#or leasing coitents ade on cars, e5uipent etc& - purchasing excess stoc!& - eplo"ing too an" staff for the business current needs& - 2verextending expenditure can create a high degree of business ris!& - To avoid overextending financiall", a business should: - underta!e thorough planning& - avoid over dependence on debt financing& - engage in long-ter financial planning& - grow at a sustainable rate& - 2verextension of stoc! ties up a business)s cash and can lose revenue& - 2verextension of staff results in eplo"ing too an" staff& $. @sing ,ec*nolog - 9ew technolog" changes the wa" business operates& - (dvantages include : - More efficient production ties& - Easier counication =resulting in reduced dela"s, reduced labour costs, realtie sharing>& - E-business is using the internet to conduct business =e&g& eails, schedules, licenses> - E-coerce is using the internet to bu" and sell goods and services& - Using new technolog" incur an initial cost however, the long ter benefits are far greater& $.4 Economic Conditions - The econo" affects the countr" as a whole& The better the econoic situation, the ore willing custoers are to spend one"& - ( nation)s econo" will experience periods of boo and recession& - In periods of strong econoic activit", consuer spending, sales of goods and services, production, and profits are rising& - In periods of wea! econoic activit", consuer spending, sales of goods and services, production, and profits are falling& - Econoic indicators include: - Inflation& - Spending levels& - +eand& - Econoic growth& - Uneplo"ent rates& - Savings& - Interest rates& - ?oreign investent& - ;urrenc"&
