BEING AN ENTREPRENEUR

- REASONS FOR BEING SELF EMPLOYED- REQUIRED SKILLS AND PERSONAL

CHARACTERISTICS

Running a business

Entrepreneurs

Entrepreneur – a person who engages in business activities, especially those that involve risk, in order to make a profit.

Famous entrepreneurshttp://www.woopidoo.com/profession/entrepreneurs.htm

Choose one of the entrepreneurs who is of interest to you. Develop a short biography of the entrepreneur, focusing on his or her success in building and running a business.

REASONS FOR BEING SELF EMPLOYED

Independence

People have the chance to make more money

Personal satisfaction

Talents, skills, ideas and energies directed towards entrepreneur’s own goals

You can control decisions

Challenges of being self employed

Long hours

Hard work

Need to find employees

Have to deal with demands of customers, suppliers and financiers

Can be very stressful as may not be successful

Required skills and personal characteristics needed for success – the more characteristics the more likely to be successful

Adventurous

Determined

Energetic

Competitive

ConfidentAmbitious

Optimistic

Innovative

Resourceful

Syllabus - Planning for success

Selecting business opportunities Market research Location Demographics Competition Target markets

Selecting the appropriate structure Sole Trader Partnership Private Company Incorporated

Syllabus - Planning for success continued

Arranging finance

Establishing a new or purchasing an existing business Location Staffing New Established Franchising Equipping

Selecting business opportunities

When identifying opportunities for small businesses a number of factors need to be taken into consideration:

Market research - This involves talking with or surveying potential

customers and competitors as well as contacting trade and professional organisations for advice about the business and locations being considered.

- Obtaining data from the Australian Bureau of Statistics about the demographics of the people in the area.

Activity – Business opportunities

- Look up Roy Morgan Research www.roymorgan.com.au

OR

- ACNielson Australia http://www.nielsen.com/au/en.html

- Write a paragraph outlining the services provided by one of these organisations

Factors for selecting business opportunities continued

Location – factors to consider

- Where are potential customers?

- How far are they willing to travel?

- Does the business need to be in a retail area?

- Can the business have a base at the entrepreneur’s home?

- Is the business going to be an internet-based business?

- How much will the location cost?

Factors for selecting business opportunities continued

Demographics- Demography refers to details of the size of a particular

population and its characteristics.

- How many people will be able to access the business?

- How old are they?

- What gender or ethnic group are they?

- How much do they earn?

Factors for selecting business opportunities continued

Competition- What businesses will be competing against a new one?

- Are there more customers than the existing business can cater for?

- What will attract customers to a new business instead of an established business?

- Will the new product be cheaper?

- Will the product be of superior quality?

- How does the competing business market its product?

Factors for selecting business opportunities continued

- SWOT analysis – an assessment of a business’s: Strengths Weaknesses Opportunities Threats

ActivityComplete a SWOT analysis of your

market day business

Factors for selecting business opportunities continued

Target markets

- Definition – the group of customers to which an organisation intends to aim its marketing efforts.

- For example the product may be of particular interest to young people such as skateboard clothing.

Selecting the appropriate structure

Sole Trader Definition – a business with a single owner who is responsible for

every aspect of the operation of the business.

Examples – hairdressers, plumbers, dentists, video stores

- Control and manage business on their own

- Treat income as their own

- Income tax assessed on owner’s total income

- Owner personally liable for all debts incurred by the business

- Ability to borrow money limited by the owner’s ability to provide security for a loan

Selecting the appropriate structure - Sole Trader

Advantages Keep any profit Easy to establish Own boss Provides a sense of personal satisfaction Work the hours they want

Disadvantages Unlimited liability Limited access to finance to grow the business Pay income tax Difficult to take time off

Selecting the appropriate structure – Partnership

Partnership Definition – where two or more people share responsibility for the

operation of a business

Examples – Architects, accountants, lawyers, doctors

- A partner acting alone in the name of the business binds the other partners to his or her actions.

- A partner’s income from the partnership is added to his or her income from other sources

- All partners have unlimited liability for any debts incurred by the business.

- A partners’ personal assets can be sold to repay money owed by the company.

Selecting the appropriate structure – Partnership

Advantages Keep all the profit Share any losses More capital to establish the business Work shared between partners More people to make decisions Easier to borrow money

Disadvantages Partners have unlimited liability Partners share the profit Possibility of disagreements among partners If a partner leaves the business the partnership agreement must

be renegotiated

Activity

Form a partnership with two of your classmates

Decide on a name for the partnership and the type of business you plan to run.

Develop a partnership agreement that includes the name of your business and the roles and responsibilities of each partner.

Issues to consider – finance, administration, supply of inputs, promotion, production and the distribution of profits

Develop a partnership agreement for your market day business.

Selecting the appropriate structure – Companies

Companies

Definition – public company – a company listed on the stock exchange. Any member of the public can become a shareholder.

Definition – private company – a business that is not listed on the stock exchange and has 50 or fewer shareholders.

Selecting the appropriate structure – Companies

Characteristics

- Exists separate from its owners

- Earns all the profit and responsible for all the debts

- Individuals become owners or shareholders of the company by purchasing shares

- Profits the company makes are passed onto owners through a payment called a dividend

- If a shareholder no longer wants to be part of the company they sell all of their shares.

Selecting the appropriate structure – Company

Private Company Limited to 50 shareholders Board of directors elected to run the company Has Pty Ltd or Proprietary Limited at the end of the

company name Shares are not sold to the public

Public Company No limit to the number of people owning shares Listed on the Australian Stock Exchange and run by a

board of directors elected by shareholders Has LTD or Limited liability after its name

Selecting the appropriate structure – Company

Advantages More capital is available Borrowing money easier Liability of shareholders is limited A legal entity Specialised people employed to run different elements

Disadvantages Government regulations must be taken into account Limits placed on the board of directors Owners do not have control over decisions made Expensive to set up, maintain and organise Too large and inefficient

Companies - activity

Find a list of Australia’s top 50 companies in the sharemarket report from the ASX website or a major newspaper.

How many of these companies do you recognise?

Identify the goods and services provided by the companies you recognise.

List the companies and the goods and services they provide.

Incorporated association

Forming an incorporated association allows a small non-profit community based group an easier and inexpensive means of establishing a legal entity.

Sell goods and services but profits are returned to the association.

A legal entity that would suit a sporting or gardening club wanting to trade.

Activity

Look up the classified section of a major metropolitan newspaper. Select a ‘business for sale’ you would like to buy.

What interests you about this business?

What qualities or interests do you have that would enable you to run this business successfully?

Arranging finance

Starting a business can be costly.

A sole trader has the least costly set up and a company the most expensive.

Leasing equipment or buying through a hire purchase agreement can avoid upfront costs

Arranging finance can be continued

Finance can be obtained from:

Private sources – personal savings, a loan from family or friends.

A bank or finance company in the form of a loan, overdraft or mortgage.

The sales of shares to form a company.

Suppliers who are willing to be creditors, that is not be paid until the goods have been delivered.

Online banking for small businesses - activity

Many lenders allow businesses to apply for a loan online

Access one of the following sites and evaluate the range of finance available for the small business operator. Present your findings in a table.

St George www.stgeorge.com.au/smallbus/ Esanda www.esanda.com/business/finance/ National Australia Bank

www.national.com.au?Business_Solutions/

Loan application form activity

Download a loan application form from a bank or financial institution. In pairs complete the following tasks:

Select a type of business you might like to operate.

What type of information does the financial institution ask you to supply?

Complete the loan application form.

Establishing a business

Choices

Start business from scratch

Buy an existing business

Buy a franchise

Starting from scratch

Characteristics Create something unique and start to market Fill a gap in the market Market demands product or service

Advantages No inbuilt problems (a bad reputation) Freedom to set up business as choose No hidden costs (maintaining equipment)

Disadvantages Need to establish a good reputation High risk and uncertainity Raise funds to fit shop out and buy equipment

Buy an existing business

Characteristics The price usually includes goodwill Important to know why the business is for sale

Advantages Sales generate instant income Stock already acquired Seller may offer advice and training

Disadvantages It may be difficult to assess the value of goodwill Some employees resent change to the business operation Success of the business may have been due to the previous owner’s

personality and contacts

Buying a franchise

Characteristics A franchise is a business for which there is an

agreement for the use of a brand name and operating system in exchange for a fee.

Franchisors (the business firm that provides the goods, services and expertise for a franchise) have strict requirements to ensure their reputation is upheld by the franchisee (the owner of the franchise).

Examples – The Body Shop, Gloria Jean’s Coffees, Sumo Salad

Buying a franchise continued

Advantages Less start up capital needed Owners receive specialised training Advertising costs are shared Advice available from the franchisor Bulk buying can reduce costs Established goodwill and market recognition

Disadvantages Range of products sold determined by the franchisor Franchisee levied fees and charges to cover costs like

advertising Franchisee little say in how the business is promoted Products must be sourced from suppliers by the franchisor

Franchises - activity

Use free minder to develop a concept map of the names of franchises you are familiar with.

Categorise these according to business types like:

Clothing

Personal services

Business services

Franchises Activity

Use a major daily newspaper to locate advertisements for franchise-based businesses.

Categorise businesses by type

How are these businesses promoted to potential franchisees.

Considerations in establishing a business

New / Established/ Franchise

plus

Location

Staffing

Equipping

Location

Decisions need to be made about: Proximity to customers and suppliers Rent costs Size of property

Retail premises range from: very expensive for locations with a high number of

people passing by (like shopping malls) to relative cheap (far away from passing crowds)

Location - continued

Running a business from home Advisable to keep business in a separate part of the house Best if business involves consultancy on the clients

premises

Advantages Can be convenient in time and comfort

Disadvantages Domestic distractions Lower professional image A sense of isolation

Staffing

Before commencing operations staffing needs of the business must be assessed.

Steps involved in acquiring staff: Designing job descriptions including roles, desirable

characteristics, wages and conditions Recruitment Interviewing Hiring

Staffing continued

Wages, superannuation, taxes must be paid.

Staff entitlements like sick leave and holidays must be monitored.

Facilities like toilets and drinking water need to be provided.

Important to be aware of and complying with laws involved.

Equipment

A new business begins with an empty premises. It would only have Toilets A kitchen Light fittings

Much needs to be done including: Connecting utilities – electricity and telephone Painting Adding/changing light fittings Laying/changing floor coverings

Finally stationary and other equipment to produce or sell the product is required

Activity

Access the federal government’s Business Entry Point website www.business.gov.au

Complete the following: Outline the steps involved in starting up a business What assistance does the site provide for people

setting up a business?

Syllabus – Business operation

Meeting regulations Local State Federal

Selling products

Maintaining records Revenue statement Balance sheet Cash flow Taxation records

Syllabus – Business operation continued

Risk management Planning for the future

Aspects of key issues relating to running a business

Operating a business

Regulations

The operations of businesses are regulated by three levels of government.

Federal government

State government

Local government

Federal government

All businesses should have an Australian business number (ABN) or Australian company number (ACN)

ABN is available from the Australian Business Register (ABR) www.abr.gov.au

ACN is available from the Australian Securities and Investments Commission (ASIC)

These numbers identify the business/company for tax purposes and dealing with government agencies.

When doing business with other businesses the ABN/CAN needs to be on all invoices.

Federal government continued

Taxes administered by the federal government: Income tax Goods and services tax (GST) Fringe benefits tax Sales tax Customs and excise duty

Federal governments laws include: The Workplace Relations Act 1996 (Cwlth) Anti-discrimination legislation Superannuation legislation Occupational health and safety (OHS) legislation

State government

Workcover

The regulatory authority in NSW to achieve safe workplaces by administering:

- The Workers Compensation Act 1987 (NSW) – compulsory for employers to take out insurance to cover employees for work related injuries.

- The Occupational Health and Safety (OHS) Act – describes how businesses should generally keep a safe and healthy workplace.

Workcover - Activity

Access www.workcover.nsw.gov.au

Complete the following: Write a paragraph outlining the role of WorkCover

List WorkCover’s objectives

List the Acts of Parliament that are administered by WorkCover.

Access the frequently asked questions section of the website. Outline the OHS responsibilities of businesses. List the types of workplace hazards businesses need to focus on.

State government continued

ASIC

Sole Traders and Partnerships need to register their business names unless they are operating under their surnames.

Companies register a business name if the name it operates under is different from its company name.

Companies need to submit annual returns including financial statements.

ASIC - Activity

The Australian Securities and Investments Commission

Access the website www.asic.gov.au

Write a report outlining the role and history of ASIC

State government continued

NSW Fair Trading Legislation Aims to protect consumers from businesses behaving

unjustly. Laws govern warranties, misleading advertising, and

safety standards.

Licences Required by businesses like hair salons, real estate

agents, builders, solicitors Obtained from relevant licensing authority

NSW Office of Fair Trading - Activity

Access www.fairtrading.nsw.gov.au

Outline the role of the Office of Fair Trading as it relates to consumers, business and trader services, associations and cooperatives.

Local government

Businesses need to comply with town planning laws: Fire regulations Regulations concerning building structures Parking Health

Local government inspectors visit business premises to ensure relevant laws and regulations are being complied with.

Local government continued

Zoning determines the use of property No permission for commercial activity in an area

zoned residential.

Issue licences Cafes need a licence:

- To have tables and chairs on a footpath- For billboards

Selling products

Marketing strategies are needed to sell goods and services produced.

Marketing objectives must be defined:- To sell more of the same product- To offer a new or improved product- To target a new range of customers

The four Ps of marketing:- Product - Price- Promotion- Place

Four P’s of Marketing

Product – What products to sell What products look like or consist of What packaging the product should be in What extras are included or offered with the product

Price – Minimum price to be equal to the cost of creating the product Needs to be competitive Higher quality products tend to be a higher price

Four P’s of Marketing continued

Promotion –

Advertising – consider where, when and to whom to advertise- Signs in a shop window- Television campaign- Newspaper and radio advertisements- Catalogues- Brochures- Billboards- Freebies like product samples

Public relations – involvement with charities and sponsoring local community groups

Attending trade shows

Promotion - Activity

Select a product popular with people of your age group:

How is the product promoted?

Consider:- Packaging- Imagery / personalities used in the advertising

campaigns- Type of advertising used

Four P’s of Marketing

Place – Starts at the business premises

Important considerations:- Parking- Visibility- Signage- Opening hours- Delivery options- Store layout- Lighting

Four P’s of Marketing - Activity

Select a product

Develop a marketing plan using the four Ps as a guide.

Product Price Promotion Place

Maintaining records

Revenue Statement (Profit and Loss Statement) Revenue – expenses = profit or loss Completed for a financial year for external reporting purposes

including the Australian Taxation Office Completed monthly to monitor how the business is

performing

Balance Sheet Lists all the assets (items owned), liabilities (items owed) and

capital (money or assets contributed by owners) of the business

Assets = liabilities + capital A financial snapshot of the business taken at any point in time

Maintaining records continued

Cash flow statement Shows the movement of cash into and out of the

business.

The business can see if there is enough cash to cover payments when they are due or whether more borrowing is required.

Shows cash coming in (receipts) and cash going out (payments). Total left is cash available at the end of the time period.

Taxes

Business activity statement to report GST

A revenue statement and balance sheet for income tax purposes

Wage records to deduct tax from employees’ pay

Fringe benefits tax

Customs duty (tax on goods bought from other countries)

Payroll tax

Land tax

Stamp duty

Council rates

Activity:

Develop a table to

define each of the taxes

listed.

Risk management – Planning for the future

Definition of risk management – the processes involved in identifying, controlling and minimising the impact of uncertain events.

Common events that cause disruption to businesses include: Fire Flood Technological failures

Risk Management

Insurance is the most common method businesses use to protect themselves.

Legislation requires: Workers compensation Insurance for employees Compulsory third party insurance for motor vehicles

Other recommendations: Building insurance Contents insurance Comprehensive insurance for motor vehicles Public liability insurance

Activity

Develop a table with

two columns to summarise the 7 types

of insurance important

for businesses to minimise

risks.

Looking to the future – Bankruptcy or Insolvency

Bankruptcy – Occurs when a business can no longer pay its creditors. It may be voluntary or be ordered by the court. Sometimes referred to as insolvency.

Occurs when the business can no longer pay its debts.

Once declared bankrupt by a court the business assets are sold.

Money received from asset sales allow payments to debtors.

Activity – Bankruptcy / insolvency

Develop a mind map summarising the strategies a small business could use to minimise the risks of insolvency and bankruptcy.

Looking to the future continued

Considerations to avoid bankruptcy: Maintain good records

Careful expansion to avoid over extending

Budget for replacement of ageing equipment

Budget for changing appearance of the business as fashion changes (Consider products and shop layout)

Have good stock management so stock is available to meet demand but not too much and unable to be sold

Key aspects of running a business

Customers are the number one concern

Keep a close eye on competitors

Ensure cash flows

Look after employees

Keep costs down and sales moving

Manage risks where possible

Entrepreneur needs to be organised, efficient and continually planning ahead.

Comply with legislation

Continually consider new ways to improve such as technology

Activity

Make a collage in word art to summarise key aspects

to consider when running a business.