 | Starting from scratch:
 | Advantages:
 | the owner has the freedom to set up the business
exactly as they wish |
| the owner is able to determine the pace of growth
and change |
| there is no goodwill for which the owner has to pay
|
| if funds are limited, it is possible to begin on a
smaller scale |
|
| Disadvantages:
| there is a high risk and a measure of uncertainty.
|
| time is needed to develop a customer base, employ
staff and develop lines of credit from suppliers |
| if the start-up period is slow, then the business
may not generate profits for some time. |
|
|
| Buying an existing business:
| Advantages:
| sales to existing customers will generate instant
income |
| a good business history increases the likelihood of
business success |
| a proven track record makes it easier to obtain
finance |
| stock has already been acquired and is ready for
sale |
| the seller may offer advice and training
|
| equipment is available for immediate use
|
| existing customers can provide valuable assistance
|
|
| Disadvantages:
| the existing image and policies of the
business may be difficult to change, especially if the business had a poor
reputation |
| the success of the business may have been due to
the previous owner's personality and contacts, so may be lost when the
business is sold |
| it may be difficult to assess the value of
goodwill, with the likelihood that the newcomer will pay more than it is
worth |
| if the business premises are leased, the new owner
may experience difficulties with the existing landlord |
| some employees may resent change to the business
operation |
|
|
| Buying a franchise:
| Advantages:
| the franchisor often provides training |
| the franchisee does not need to have previous
business experience |
| the investment risk may be lower |
| there is immediate benefit from the franchisor's
goodwill |
| equipment and premises design are usually
established and operational |
| well-planned advertising often exists |
| volume buying is possible, often resulting in
cheaper stock |
|
| Disadvantages:
| the franchisor controls the operations |
| the threat of franchise termination can be carried
out in some circumstances |
| profits must be shared with the franchisor
|
| the franchisor often charges a service fee for
advise |
| the franchisee is often required to purchase stock
from the franchisor |
| contracts may be biased in favour of the franchisor
|
| the goals of the franchisor may be incompatible
with those of the franchisee |
| the franchisee may merely feel like an employee,
and without the benefits and security |
| the franchisee must share any burden of the
franchisor's business mistakes. |
|
|
| Capital is the total assets or wealth of a business,
both fixed and working. |
| Fixed capital consists of assets such as land, building
and equipment. |
| Working capital consists of current assets used for the
day-to-day operations of a business |
| When starting a business the entrepreneur must first
answer these two questions:
| How much money do I need to commence operation?
|
| Where will I get the money? |
|
| Types of finance:
| Debt- other people's money from banks, finance
companies, credit unions, building societies, solicitor's trust accounts,
life assurance companies etc. |
| Equity- your own, or a partners or shareholders
money. |
|
| The cost of capital:
| debt- the cost is interest to be paid to the lender
|
| equity- dividend to be paid to the shareholders
|
|
| Gearing (also called leverage) refers to the proportion
of debt and equity finance that a business uses to finance its activities.
|
| Taxation is the compulsory payment of a proportion of
earnings to the government. Examples include: group tax (PAYE), sales tax,
fringe benefits tax, provisional tax, company tax, capital gains tax, stamp
duty, land tax, payroll tax. |
| On-costs are payments for non-wage benefits. The
remuneration package is the combination of wage and non-wage benefits.
|
| Superannuation is a scheme set up by the federal
government. It requires all employers to make a financial contribution to a
fund that employees can access when they leave or retire from a job. The main
aim of superannuation is to give employees a sum of money that can be accessed
when they retire. But they can access the money if they leave a job although
tax disincentives apply. |
| Leave loading is an extra amount added to an employees'
holiday pay, paid by the employer. |
