Business Planning Information

Introduction

In this report I will be investigating why people decide to set up in their own business, how you carry out suitable market analysis into your business to produce an idea that can create potential competition or fill a gap in the market. Explaining what resources are needed for setting up and running a business, to recognize the distinctive features of your product and that you can recommend a suitable price, a list of the main resources that the business would need before it could start producing and selling, details of the type of business ownership chosen for the business and how this affects profits, liability and the way the business must be registered, an outline of the legal requirements that a business must meet before it can start trading, and details of suitable sources of finance for your business. I set up a business with four other people set for the theme of Valentines Day. We set out to make a profit, substantial enough for four people.

Reasons for setting up in business

There are many reasons for people setting up in business these include,

To have more control over your working life.
To make a profit.
Dissatisfaction of current employment.
Belief that they have a potentially successful idea.
Recognition that there is a gap in the market.
The need to have work of some kind. (Self satisfaction)
Incentives from government or other organisations.
Following the route of family or friends.

Another reason for people setting up in business is “redundancy”. Redundancy money is given to an employee when a business is made redundant, so this can be used as capital to set up their business. The advantages of owning your own business is that you can keep all the profits depending on the type of business ownership

Seeking sources of help and advice

There are many sources of help and advice available to small businesses. There is even help and assistance for businesses before they set up. The first source that I have researched is HSBC Bank. This was done through the Internet and looking at their website.

HSBC inform and give advice on writing a business plan. A business plan can be defined as:

“A written document that describes a business, its objectives, strategies, market and financial forecast.”

The website tells you how to write a business plan and how it should be set out. The next stage, according to HSBC, is the forming of a business. Once you have made up your mind to go ahead, you need to get to grips with the legal requirements for forming a business. Setting up your business in the right way keeps costs down. It can also help prevent your working relationships turning sour, one of the major causes of business failure. There are four main choices for the legal form of your business.
If you are a sole trader, you are self-employed, with no special legal structure.
In a partnership, two or more self-employed people work together as partners and share the profits (or losses).
A limited company is a separate legal entity, distinct from its shareholders, directors and employees.
Unlike a sole trader or partnership, it is not the same as the individuals who own or run it.
A limited liability partnership has some of the advantages (and disadvantages) of both a company and a partnership.
For example, it is a separate legal entity and can continue despite the resignation or death of some members. We as a group decided that we shall write up a business plan and think everything through before hand so we don’t make any mistakes and waste any resouces. The idea of this section is to keep you in control of the business so it doesn’t go spiraling into debt. We shall conduct market research and join together to make our business.

Research into your market

In groups we were asked to set up a business that corresponded with the 14th February, Valentines Day. We were asked to analyse the market, to try and find a gap in the market, by asking questions to our target market. By doing so we can set up our business idea and make a profit, we only had two weeks only to set up our business idea, conduct our advertising and market research and then launch the product. Our target market is the year nine pupil’s of New Mills School we obtained our target market from the questionnaire that we produced. We have decided to sell valentines cards along with a messaging service, in which we deliver the valentines cards to the classroom of the secret admirer.

In market research, companies have two types of data in research and they are primary and secondary data. How you obtain the data on your market research depends on what type of information you use. Secondary research, which is also known as “desk research” involves using data that has already been created or provided by one of the following,
Government statistics
Market research companies, e.g. Gallop
News papers
The internet
The advantages of this market research are that the information is already available and it is cheap and also you can find out what other competitors are doing, but this information may be out of date and difficult to make sense of. And the information may not be relevant. To avoid this, primary research is done also known as field research and this information that is newly created and can be collected either by research firms, i.e. Gallup and Mori, or can be collected by the firm itself. There are lots of ways that you can conduct field research and they are as follows.
Test marketing
Surveys
Observation
Consumer panels
Questionnaires
Interviews
Electronic (EPOS)
Postal
Face to face
Telephone
Open ended
Group interviews
The advantages of this kind of research are that you obtain the information you want; the information is up to date and the competitors will not have this information but this information is expensive, is difficult to obtain and takes longer to obtain. The market research that my group and I conducted was known as field research. This consisted of a questionnaire made up of specially selected questions that may draw the answer we want from the pupil. We have conducted field research for our business idea. We put together a questionnaire for our market research, which consisted of the questions that you see below.

How much would you pay for a Valentines Day card?

£1.00 £1.25 £1.50 £ 1.75

How much would you expect to pay for the valentine card to be delivered

25p 50p 75p £1.00

What year group are you in?

Yr7 yr8 yr 9 yr10 yr11 6th form

What would you buy them for valentines day

Cards jewellery

Chocolate teddy

Roses other

Perfume

If you have picked other please will you state your answer______________

Our target market is the year nines in our school. I found that I naturally aimed this questionnaire at the year nines as they may be experiencing a first love and are new to the giving of presents to loved ones. We are selling valentines cards aimed at both male and female and also year nines are our target market as they hang around in one big group in the library. We asked about 60 pupils questions from our questionnaire the questions, forty-one pupils said they would pay a pound for a valentines card, four said they would pay one-pound twenty-five, eight said they would pay one pound fifty and seven said they would pay one pound seventy five. We then asked them how much extra they would pay for a delivery service and sixty pupils said that they would only pay twenty-five pence for the charge of the delivery service of the cards.
We have also had to compete with all of the other shops in New Mills that sell cards and they are;
Pricilla’s, the late shop, church road stores and the Co-op. all of these shops sell valentines cards at a price of up to two pounds. We had to find card that was a reasonable thickness so the cards aren’t too flimsy and that was at a good price. The cheapest we could find was 25p for one piece of card but the card was good quality. For the design we found little packs of foam hearts, which were cheap also and made for good use. Based on the market research and the price of the competitions cards we decided to charge one pound twenty five for the card and the delivery service.

Deciding on the type of business ownership

The presentation that I did was on a sole trader, I have copied the slides as evidence for this assignment, and these slides are detailed below:

My group and I have decided to choose a partnership for our type of business ownership, as a sole trader was not suitable for this type of business activity. The advantages of choosing this type of business ownership meant that we could share the responsibilities of the tasks ahead to make a quick, fast and efficient launch of our advertising and our product as we only had a time scale of two weeks. Here is a list of the advantages of a partnership:
Easy to set up, but a deed of partnership is advisable.
Usually small so less capital is needed.
Responsibilities can be shared.
Decisions can be shared.
And can be run as a family business.
Accounts can be kept private.
And money comes from the partners.

A partnership is more suitable for our business type as our time scale is small, we can operate effectively sharing out tasks, decisions and paper work.

Section 7 Legal Requirements
There are certain legal agreements that must be followed before a business can start trading. A partnership is a business run by two or more people together. There should be a written agreement detailing this arrangement. Profits are usually shared between partners according to the agreement. Although profits may be shared unequally, liabilities, which may arise, are shared jointly. This is something that everyone involved should be very clear about. Even if you only own 1% of the business you will still be responsible for 100% of the liability.
A partnership is a very risky type of business to get involved in, just because of all the potential for conflict, and the financial effect conflict between partners would be likely to have on the business. However, now the Limited Liability Partnerships Act has received Royal Approval and will become Law by the end of the year. There are a number of advantages to LLP including limiting liability (as with a Limited Company) and the tax advantages of a Partnership. Your obligations are the same as for a Sole Trader. Your liabilities are the same as for a Sole Trader. The good side choosing a partnership is that often more money can be raised to start the business if more than one person is involved. You will need to keep records for Inland Revenue (and also for VAT if you are VAT registered), but there are no other legal requirements. Each partner should submit a P/SE/1 and you are taxed as an individual. If you leave the partnership your tax liability will follow you (unlike in the past when the remaining partner had to pay it)

The workload can be shared. Fair trading regulations exist to protect the consumer from exploitation.

The consumer has basic legal rights if the product is:

• Given a misleading description
• Of an unsatisfactory quality
• Not fit for its intended purpose

There are three main consumer protection laws:

Trade Descriptions Acts of 1968 and 1972

False or misleading information must not be given about products.

For example, “fresh” must mean that the food has not previously been frozen.

Consumer Credit Act 1974

This protects you when you borrow or buy on credit.

• Businesses must have licences to give credit.
• No one under 18 is to be invited to borrow or buy on credit.
• Businesses have to state an Annual Percentage Rate (APR).
• If you sign a credit agreement at home you have several days in which you can tear up the agreement. It is called a “cooling off period”.

Sale and Supply of Goods Act 1994

This Act says that all products have to be of a “satisfactory quality”. This means that they have to:

• Be safe
• Last for a reasonable amount of time
• Be fit for their intended purpose
• Have nothing wrong with them (unless the defect was noted at the time of sale)

Sources of finance

Businesses need finance, for the reasons that the business may need to start up. Sources of finance are available for businesses that want to find new technology, open new markets, acquisitions or moving to a new premises or the day-to-day running of the business. Businesses have internal and external sources of finance. Internal finance comes from trading of business, day-to-day cash from sales to customers, loans from trade suppliers through extended credit, reductions in amounts of stock held by the business and a sale of surplus assets (no longer needed). The external sources of finance are from individuals or organisations that do not trade directly in business also other sources are banks, investors or government grants. A business also needs long term and short-term finance for the long run of the business so an owner can budget for a bad spell (a decrease in sales). Short-term is needed for the day-to-day running of the business this is paid back in a short amount of time so it is less risky for the lender. Long-term sources of finance are usually used for big projects that will pay back over a longer period of time. This is usually risky for the lender as the business may go into debt so the lender usually asks for some sort of insurance or security just in case the business can’t pay back the loan. A mortgage is an example of secured long-term finance. The main sources of finance are Mortgages, bank loans and share issues and debentures. Depending on the amount of money you want to borrow and the circumstances you must decide which source you choose. The criterion for choosing a source of finance depends on:

• Amount of money required
• How quickly money is needed
• Cheapest option available
• Amount of risk involved for the reason for the cash.

Using your own source of finance is the cheapest and most reliable source since is carries no obligation to pay back or pay interest, you don’t have to divide the business control to another paying partner. It is a more flexible source, as there are no authorisations to overcome and you can add more finance if required (and if available). There are various tax incentives for people who invest in their own business. Sources of finance for sole traders and partnerships include:

• Bank loans
• Bank Overdraft
• Trade credit
• Retained profits
• Taking on a new partner
• Government grants (depending on the area and the activities)
• Remember- there is no company; so a sole trader or partnership cannot have shareholders providing finance. .

There are two types of limited company that define the way money can be raised through shares. Private limited company’s can sell shares only to designated people and there is a limit to how much capital can be raised through this method. Public limited companies can issue shares to the public so this means that any one can have a share in the business. In companies such as Sainsbury’s shares are sold to gather capital, this is very different to a loan, as the money does not have to be paid back over a fixed period of time. When one shareholder sells his or her share(s) the company does not raise any additional funds. There are also preference shares and ordinary shares; ordinary shares are the most common form of share capital and these shareholders can vote at business meetings but the amount of dividends they receive will vary due to the share price. Preference shares do not have a say at meetings so they cannot vote. The dividends of these shares are usually fixed at a rate of five percent of the share price and are given out once a year. Preference shareholders receive their dividends before ordinary shareholders.

Conclusion

I have concluded through our research and our investigations that our business idea and business plan was successful as we chose the right target market and the right resource and selling pitch. It was original; it wasn’t too expensive for our product in the overall cost and the investment was payable and payable with interest. This shows that investment into our business would be a good investment and a secure investment.