Slide 1 Unit 16.1: Understanding how to prepare for business

16.1.3: Benefits of Running a Business

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Although there are several problems and pitfalls associated with running a small business, there are also some potential benefits

16.1.3/1: Personal ObjectivesThere are several reasons why people want to run their own business. Most entrepreneurs would say there is more than one which applies to them. The main ones are:

to make money. Some people aim to get rich, others just want to make enough to provide a reasonable standard of living. Others want to save enough to retire early

Key term: Entrepreneur Person who uses their own money to start a business enterprise with the aim of making a profit.

Classroom activity: As individuals, think of a small business owner you know.

Then, from the list of personal objectives, pick three which you think would most apply to them.

Then share your ideas as a group.

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16.1.3/1: Personal Objectives sporting a business which is up for sale and deciding to buy it

having a good business idea. Some entrepreneurs start businesses because they have tried to obtain a product or service and found that they could not, so they fill the gap

a change in circumstances, such as being made redundant or inheriting money

having the personal satisfaction of seeing the successful results of their own work

to have more control over their own lifestyle. Some small business owners work for two to three days a week and still make a decent living

to turn a hobby into a business

to provide work for family members.

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16.1.3/2: Business objectivesSetting targets or objectives can help businesses to focus on what is

important and to make progress. Examples of possible business objectives include:

to make a profit of £30,000 in the next year

to sell £20,000 worth of products in the next month

to move to premises which have a cheaper rent

to provide the highest-quality service

to keep the stock level of consumables down to two weeks' usage.

These are just examples to illustrate a point. Each business will have its own unique set of objectives.

Class activity: SMART objectivesGood objectives are SMART (Specific, Measurable, Achievable, Realistic & Time dependant). Identify the objectives above that are SMART and those that are not. Justify your choices.

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16.1.3/3: Profitability of the business

The basic principles of profitability apply to small businesses as they do to large organisations. The main points are as follows.

The profit is found by subtracting the total expenditure from the total income.

The profit made can be used to pay the owners an income and for reinvestment to improve or expand the business.

The balance between how much profit goes to the owner(s) and how much is reinvested in the business is an important issue. In the early years, some owners take as little as possible for themselves so that the business can develop and grow. This should mean that the business is more profitable in the future.

Some entrepreneurs expand their businesses slowly by reinvesting profit rather than borrowing money from the bank.

They say that they feel more in control this way.

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16.1.3/3: Profitability of the business Continuation

Tax has to be paid on the profit. Exactly how it is paid depends on the legal status of the business.

The profit figure is probably the best way of measuring the success {or otherwise) of the business.

If profits are low or, worse still, the business consistently makes a loss, it will eventually fail.

Gross Profit = Sales Revenue – cost of sales

Net Profit = Gross Profit – Expenses

Slide 6 Unit 16.1: Understanding how to prepare for business

16.1.3/4: Other considerations Other potential benefits of setting up and

running a small business are often personal to the individual. These include:

being able to choose their own working hours, particularly if a

person's experience of previous employment has included shift work or weekend working

choosing working hours that help with family arrangements

feeling more in control of their lives and being less stressed

doing a type of work they have chosen, which means that the work is enjoyable, particularly if it started as a hobby.