LESSON 10 STARTING A BUSINESS STRUCTURE 10.0
OBJECTIVES
10.1
INTRODUCTION
10.2
BUSINESS PLAN BASICS 10.2.1 10.2.2 10.2.3 10.2.4
PLAN YOUR WORK STARTUP BASICS W RITING THE PROJECT REPORT ELEMENTS OF A PROJECT REPORT
10.3
A BUSINESS ORGANIZATION
10.4
ADVANTAGES OF BUSINESS OWNERSHIP
10.5
W HY SMALL BUSINESSES FAIL?
10.6
ASSIGNMENTS 10.6.1 10.6.2
CLASS ASSIGNMENTS HOME ASSIGNMENTS
10.7
SUMMING UP
10.8
POSSIBLE ANSWERS TO SELF-CHECK QUESTIONS
10.9
TERMINAL QUESTIONS
10.10
REFERENCES AND SUGGESTED FURTHER READING
10.11
GLOSSARY
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10. STARTING A BUSINESS After completing this course on Textile Designing and Printing, one of the possible avenues of employment could be to become an entrepreneur and start a small Business of your own. For this it would be of relevance to familiarize yourself with the basic requirements for such an option. This Unit comprises of a series of three lessons which will take you through the entire process of starting business which includes preparation of a Project Report, arranging for Finance for the project and finally developing an understanding of what skills would be required for running a Business successfully.
10.0 Objectives After studying this lesson, you will: •
Acquire an understanding of the concept of a Business Plan and its importance.
•
Acquire an understanding of the various elements that go into making a good Business Plan.
•
Understand the reasons for failure of any Business venture.
10.1 Introduction Writing a Project Report is a very critical part of Business Planning. The greater the care and effort put in this exercise; the more are the chances of success. It helps create a focus and remains a reference point for effective utilization of time and resources. In this lesson we will briefly cover: •
Basics of a Business Plan
•
Structure & elements of a Business Plan
•
Evaluating your strengths & weakness for starting new Business
•
Advantages of Business ownership
•
Reasons for Business failure
10.2 Business Plan Basics A business plan is a project report for starting a new business. It precisely defines your business, identifies your goals, and serves as your firm's resume. The Business Plan helps you allocate resources properly, handle unforeseen 2
complications, and make good business decisions. It provides specific and organized information about your company and how you will repay borrowed money. Additionally, it informs sales personnel, suppliers, and others about your operations and goals. 10.2.1 Plan your work The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives. Before you begin writing your business plan, consider four core questions: •
What service or product does your business provide and what needs does it fill?
•
Who are the potential customers for your product or service and why will they purchase it from you?
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How will you reach your potential customers?
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Where will you get the financial resources to start your business?
10.2.2 Startup basics •
First steps n
Starting and managing a business takes motivation and talent. It also takes research and planning. Although initial mistakes are not always fatal, it takes extra skill, discipline, and hard work to regain the advantage. Take time beforehand to explore and evaluate your business and personal goals, then use this information to build a comprehensive and thoughtful business plan that will help you reach these goals. Developing a business plan & a project report will force you to think through some important issues that you may not otherwise consider. Your plan will become a valuable tool as you set out to raise money for your business, and it will provide milestones to gauge your success. Work •
Getting started
List your reasons for wanting to go into business. Some of the most common reasons for starting a business are: o Self-management o Financial independence o Creative freedom o Full use of personal skills and knowledge Next, determine what business is right for you. Ask yourself these questions: o What do I like to do with my time? o What technical skills have I learnt or developed? 3
o What do others say I am good at? o Will I have the support of my family? o How much time do I have to run a successful business? o Do I have any hobbies or interests that are marketable? Identify your business niche. Research and answer these questions: o What business am I interested in starting? o What services or products will I sell? o Is my idea practical, and will it fill a need? o What is my competition? o What is my business's advantage over existing firms? o Can I deliver a better quality service? o Can I create a demand for my business? The final step before developing your plan is the pre-business checklist. You should answer these questions: o What skills and experience do I bring to the business? o What legal structure will I use? o How will my company's business records be maintained? o What insurance coverage will be needed? o What equipment or supplies will I need? o How will I compensate myself? o What are my resources? o What financing will I need? o Where will my business be located? o What will I name my business? Your answers will help you create a focused, well-researched business plan that will serve as a blueprint for business operations, management, and capitalization.
Self-check Questions 1.
What is a ‘Business Plan’?
10.2.3 Writing the project report What goes in a Project Report? The body of the report can be divided into four distinct sections: • 4
Description of the business
•
Marketing
•
Finances
•
Management
10.2.4 Elements of a project report The elements of a Project Report are summarized in the following outline: 1. Cover sheet 2. Statement of purpose 3. Table of contents 4. The Business A. Description of business B. Marketing C. Competition D. Operating procedures E. Personnel F. Business insurance 5. Financial Data A. B. C. D. E. F. G. H. I.
Loan applications Capital equipment and supply list Balance sheet Breakeven analysis Pro-forma income projections (profit & loss statements) Three-year summary, Detail by month, first year, Detail by quarters, second and third years Assumptions upon which projections were based Pro-forma cash flow
10.3 A Business Organization Business Organization conducts business activity which is managed, coordinated & organized in a formal pattern of relationship relating to ownership & control. Various types of Business: Depending upon of ownership chosen, the following forms of Business Organizations are possible: •
Individual Proprietorship - a sole Proprietorship is a business owned & controlled by one person & is the simplest form of Business Enterprise.
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Partnership - two or more persons agree to share the profits of a business which they run together. It is the outcome of an agreement between the persons who after the agreement has been arrived at would be known as partners.
•
Company – a company is an association of persons in which money is contributed by them, to carry out some Business. Persons who contribute 5
the money are called shareholders of the company. Depending upon the type of restrictions you want to impose upon your Organization, you may form a - i) Private Company, or ii) a Public Company.
Self-check Questions 2.
Name three forms of business organizations: a)
b)
c)
10.4 Advantages of Business Ownership It is true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks. •
You will be your own boss.
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Hard work and long hours directly benefit you, rather than increasing profits for someone else.
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Earning and growth potential are far greater.
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A new venture is as exciting as it is risky.
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Running a business provides endless challenge and opportunities for learning.
Once you have completed your Business Plan, review it with a friend or business associate. When you feel comfortable with the content and structure, review and discuss it with your banker. The Business Plan is a flexible document that should change as your business grows.
10.5 Why Small Businesses Fail? Success in business is never automatic. It is not strictly based on luck although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees. In his book Small Business Management, Michael Ames gives the following reasons for small business failure:
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•
Lack of experience
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Insufficient capital (money)
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Poor location
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Poor inventory management
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Over-investment in fixed assets
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Poor credit arrangements
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Personal use of business funds
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Unexpected growth
Gustav Berle adds two more reasons viz., competition and low sales as the reasons, in The Do It Yourself Business Book.
Self-check Questions 3.
Name any three important reasons for business failure. a)
b)
c)
10.6 Assignments 10.6.1 Class assignment i) Define your business and identify your goals for a business plan. Prepare a pre business plan checklist. ii) What are the four core questions you should consider before writing a Business plan? Answer these questions for your plan. 10.6.2 Home assignments i)
What are the four distinct sections of your project report?
ii)
What type of a business organization would you like to associate with? Give reasons.
10.7 Summing Up In this lesson, the broad aspects of business viz., basics of business plan, writing a project report, elements of a project report, reasons for a business failure and types of business organizations were considered. The main points discussed were: •
A business plan precisely defines your business, identifies your goals,
•
Developing a Business Plan or a Project Report will force you to think through some important issues that you may not otherwise consider.
•
The body of a business plan can be divided into four distinct sections namely description of the business, marketing, finances, and last but not the least, management.
•
Individual proprietorship, a partnership and a company are the different types of business organizations.
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10.8 Possible Answers to Self-check Questions 1.
A ‘Business Plan’ is a Project Report for starting a new Business. It precisely defines your Business, identifies your goals and helps allocate resources properly.
2.
Three forms of business organizations are: a) Individual proprietorship
3.
b) Partnership
c) Company
Three reasons for business failure are: a) Lack of experience
b) Insufficient capital
c) Poor location
10.9 Terminal Questions 1. Discuss various types of business. 2. What are the advantages of business ownership? List your reasons for starting your business. 3. What are the reasons for failure of small businesses?
10.10 References and Suggested Further Reading 1.
Dollinger, M.J. 2006. Entrepreneurship: Strategies and resources. Pearson Education Ltd., New Delhi.
2.
Patel, B.M. Project Management: Strategic financial planning, evaluation and control. 2000. Vikas Publishing House Pvt. Ltd., New Delhi.
10.11 Glossary 1.
Basic
Fundamental
2.
Elements
A component part, a contributing factor
3.
Focus
Center of activity
4.
Goal
An end that one strives to attain
5.
Resume
A summary, bio-data
6.
Hinges
Depends
7.
Core
The central or most important part
8.
Potential
The capacity for use or development
9.
Motivation
Stimulation of the interest of a person to an activity
10. Marketable 8
Able or fit to be sold
11. Blueprint
Any detailed plan or outline
12. Capitalization
Establishing the capital stock of a business at a certain figure
13. Breakeven
That point at which profits equal losses
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