A-Level Business Studies: April 2013

Tuesday 30 April 2013

Every business needs to have a consistent and sustainable business plan if it's to survive in the long term.

Potential investors are usually impressed by a business start-up that has a strong and clear focus. It gives them a high level of confidence because they know that there are potentially tremendous rewards available to them in return for investing in a particular business.

When a business looses its way, having a business plan review enables the business to refocus and move forward. An appraisal of the business plan should be conducted regularly.

Planning is essential to the day to day running of a business. It also means that targets and goals must be established which would help the business function effectively daily. As the days turn to weeks and weeks to months, the business can see that it is indeed exceeding its working targets and meeting it's goals as set out in the business plan.

Activity 14 - Why do you think a business plan should be reviewed regularly?

Performance indicators are commonly used tools which measure the impact the business activities are having on its market. These indicators include:

New product development - the more product lines a business has that attract more customers, the stronger will be its performance
Market share - this is the percentage of the total market which is controlled by the business
Profit generated over the given time period
Individual and collective business productivity levels

There are many benefits to having a business plan, but there are also disadvantages. It can be easy to get carried away with a business plan and ignore the reality of the company and the environment.

It's great to be optimistic about the future, but it's important to be realistic. Business plans must appreciate that there are serious risky activities that any business which intends to survive must avoid. Hence, it needs to make appropriate provision for the avoidance of such risks.

Any investor or lender needs to know that the business is well organised and has realistic and achievable goals. Also that it's prepared for obstacles and setbacks which will inevitably occur and can react to them without excessing cost impacts.

Business plans are the first impressions which portray the business in positive or negative light. No enterprise wants the first impression to be negative. Therefore, vagueness of ideas and lack of clarity needs to be avoided. Numerous business proposals have been rejected because they lacked enough information.

A good business plan must show that the owners are knowledgeable about the market they are getting into. The more research information is shown in the plan, the better the plan will be understood by anyone who reads it. Market research, when properly conducted, shows how viable a business is and whether it can withstand market conditions to emerge successful over a period of time.

Business plans are frequently weak regarding information on competitors. This is a significant mistake; these should be identified and analysed with suitable depth if the business plan is to be robust and meaningful.

The business plan should be properly presented (and look professional), grammatical accuracy, proof reading and spell checking of documents are an absolute necessity. Investors will not be impressed by a poorly written document.

Information and evidence in the business plan should be clear, accurate and honest. Do not attempt to mislead or lie.

Self Assessment Questions

1. What is the purpose and content of a business plan?

The purpose of a business plan is to provide an overview of what your business is about and to portray the businesses aims and objectives and how you plan on implementing them. It should include:

An executive summary
Business Summary
Production Plan
Marketing Plan
Human Resource Plan
Operations Plan
Financial Plan

2. Highlight the advantages and disadvantages of plans and planning.

There are many advantages to having a business plan. The most prominent is that the content and structure of your business plan portrays the first impression of your business for potential investors. It also acts as a guideline for running the business and as a contingency if things don't go to plan. A major disadvantage of a business plan is that many people get carried away with the plan and loose focus on reality and their environment.

3. Give examples of the sources of information and guidance for business start-ups.

There are many organisations and institutions out there designed specifically to help business start-ups with advice and services. Some include:

Government Organisations
Trade Associations
Business Link
The Institution of Directors
Chamber of Commerce

4.2 - Where to get Information and Guidance

Businesses can gain access to a vast array of support and information in order to guide them when starting up a new enterprise. Some examples are Government Organisations, Trade Associations and Business Links.

A trade association is designed to safeguard the interests of its members in a particular industry. These associations exist within various industries and all work for the interests of their members. Members usually pay an annual fee. The association will provide advice, often legal advice, to their clients along with other potential services (advice with HR matters etc). Trade associations also negotiate changes to the law or national policies with governments in the interests of their members.

Business Link also provide businesses with support services. This is a national organisation and has offices throughout Great Britain. Business Link can also help with the writing of a business plan. Furthermore, they provide training services. They also specialise in European Union regulations which pertain to the production of high quality goods and services.

The Institute of Directors also provides support services to businesses. They range from advisory services, training, to information provision and release of publications, this institute has contributed to lending a voice to the government in matters concerning it's members.

Chamber of Commerce are located across all areas of Great Britain with representative members from various industries. This organisation seeks to provide the best opportunities for members and can liaise with the central and local governments, to provide grants and training support for businesses.

The European Union is the international body which regulates its member states all across Europe. Great Britain is a member which automatically entitles businesses within the United Kingdom to benefit from the services and information which the European Union can provide.

Organisations like Business Link provide businesses with the opportunity of accessing the European Funds in supporting their enterprise.

Private support services are available for enterprises and these include:

Communication Services - providing telecommunications, mobile, postal and internet, advertising and media services to the business
Solicitors - providing legal services ranging from advice on contracts and law, to debt recovery
Auditors and Accountants - providing services which create accurate financial data, book-keeping and audit checks to make sure that the business is in the healthy condition and complying with current legislation

Financial services are necessary for the survival of the business. Banks and insurance companies are there to provide the best and often customised packages for businesses depending on their circumstance. Areas they provide support for include:

Cash Handling
Direct debits and standing orders
Foreign exchange handling and international money transfers
Cash and cheques processing

4.1 - Why Make a Business Plan? / Purpose and Content of a Business Plan

A business plan is a document which details the following:

The businesses objectives
Plans
Strategies
Financial forecasts
The market in which the business will be operating

It's primary aim is to provide an overview of the company in order to secure financial backing and funding from financial institutions and prospective investors. A business plan is also used as an instrument of measurement to compare the actual performance of the business to forecasted figures.

Business plans provide essential information on how the business is expected to take off and develop. It's also important to give achievable timescales for the goals that are set as unachievable timescales will make you look unprofessional.

The business plan must also show how money invested intends to be properly managed and that there are adequate accountability measures in place. This gives the business a high level of credibility because any potential investor knows that in the near future, it will be reaping the rewards of investing in the business.

The executive summary introduces the business plan and contains vital information needed to gain the attention of any potential investor. It should be precise and a maximum of two pages.

The other key elements of the business plan should include:

Description of the proposed business
Business marketing and sales strategy
Operations information (Location, production and infrastructure)
Forecasts figures

The proposed business must be clearly explained in the business plan, including the activities of the business, and it's goals for the near future. It should include the following:

The business start date
Sector in which it should be categorized
History of the business
Legal structure

The product details and services offered need to be very clear on the following information:

Unique attributes of the product
Target market
Relevant information on the sector
Patents, trademarks, copyrights as applicable

Features of the market must be very clear:

Market niche and basis for identifying such a market
Competition in the marketplace and who the major players are
Characteristics of the market including current issues affecting the market, development and size of market

Marketing methods, sales tactics and financial forecasts are crucial information which must be practical and achievable:

How will potential customers be identified and targeted
The methods of positioning the business to have a favourable competitive advantage
Pricing policy - standard for all customers of flexible to adapt to different customers
Distribution process for the products to reach customers
Sales tactics to be utilised - face to face, website, telephone or others

Details of the financial figures and amount for starting up the business needs to be precise, accurate and very clear:

Forecast on profit and loss which estimates the sales projections, the costs involved in production and expenses and business running costs or overheads
Cash flow statement - with flow of cash in and out of the business for the first 12 months
Sales forecast - anticipated income from the sales of products

Activity 13 - Outline what you would put in a business plan.

Section 4 - Business Planning

Introduction

In this section we will look at the basis for setting the objectives and goals of a business into visible action. Documenting goals and systems gives the business (and the entrepreneur) a clear focus on the future direction of the business.

The business plan defines the business and gives the prospective reader and impression of the organisation. The first impression may be the only impression created of the business, therefore the business plan needs to be a true representation of what the business stands for.

Investors, creditors and lenders, prospective business partners are among the potential readers of the business plan. Therefore it's imperative that any business plan is robust, accurate, well written and can serve through scrutiny.

Government organisations, trade associations, confederations and many more are sources of information and support for businesses. These organisations have advisory services available, websites and a host of other links which are designed to provide excellent services to businesses.

Business planning involves a lot of hard work and organisation. This unit identifies the merits of planning and how it's beneficial to the business. The shortcomings and pitfalls to avoid are also covered.

Wednesday 17 April 2013

3.5 Adding Value

This is a process of combining resources to produce a finished product and using expertise skills and high-level techniques to create the most efficient products to meet the demand and needs of the end-user.

A business that intends to be in the market for a long period must have the resources to provide end products which will add the most value on a consistent basis.

This enables the business to increase its competitiveness and increase its stance as a market leader and force to be reckoned with. The brand becomes more prominent and recognised when customers are prepared to pay for it.

The creation of value is the core function of any business. It must be at the centre of how the business conducts its activities.

Consumers will compare products and tend to only buy those which satisfy their requirements; products can only achieve this in the consumers eye when they are seen to be of great value to the consumer.

Part of the process of adding value is to ensure that the end result, the goods and services, are efficiently produced. It must also be cost-effective.

Over time, it is normal for perceptions of value to be changed and shifts to take place. Since customers ultimately want the best products with the ultimate satisfaction, they will shift demands to other competitors based on price, quality and reliability among other issues.

Any business that intends to remain competitive must take the value adding factors above into consideration when producing products and services for their clients.

In doing so, relationships and networks need to be established with business partners that identify with and share common value adding principles. There needs to be greater automation and time management plus enhanced efficiency and cost reduction. In combination with each other, the business will be able to adopt to the changes in value demands of the market and sustain a profitable competitive position in the market.

Analysis of Value

Strategies and methods to increase the process of adding value need to be created by any business in order to derive the greatest level of value.

There is always a fierce and constant competition between rival companies which makes it imperative to constantly monitor how your current processes are performing and whether it is meeting the desired expectations.

Since competition can be on different aspects such as price, a consistent level of evaluation must be in place. This identifies new area where value needs to be created which were not previously obvious. For example, many banks now offer current accounts with additional extras like car breakdown cover and fraud insurance.

By thoroughly examining the areas of potential for adding value, the business will also identify whether or not it has to create external sources because internal resources cannot meet the demands of creating a high level of value. This is called outsourcing. It involves engaging the services of a contractor or supplier who can provide the resources or demands of present value-adding needs. It must be of a high quality and at the same time very cost-effective. Today, numerous business engage in outsourcing activities including distribution, customer services, production and many more.

Self-Assessment Questions

1. What are the differences between inputs and outputs? Explain their respective roles in transformation.

An Input refers to the 'material' that is first entered into the chain to be transformed to an output. An output is the finished product that will be consumed by the end-user. They play a major role in transformation as without the input, there would be no output. Starting with an input into the primary sector, it's transformed using various techniques and skill-sets which ultimately ends up as an output that will be consumed by the consumer.

2. The primary, secondary and tertiary sectors are interdependent and jointly produce optimum results for the business and the economy as a whole. Discuss.

This is true. The primary, secondary and tertiary sector are all dependent on each other to ensure a smooth flowing economy. For example, the primary sector would have no customers if the secondary sector didn't exist and buy their materials. This is also true for the secondary and tertiary sector. Furthermore, without the primary sector, there would be no use for the secondary and tertiary sector as they have no products coming up the chain. Ultimately, the failure of one sector would result in the failure of the others and respectively, the failure of the economic system.

3. Explain the importance for value adding for a business.

Value adding for a business is fundamental in terms of innovation and maintaining their competitive edge. Consumers are constantly looking for ways to save money and other factors while still maintaining the quality, through comparison. To illustrate, if a business has a steady client base that bring a lot of repeat business but this slowly starts to decline. The business is being subject to competitors adding more value than them and ultimately 'stealing' their customers. To counter this, the business could then look at adding some incentives for consumers in order to compete with the value of their competitors which will result in most of their client base sticking with them based on the value, and other factors such as an already established relationship.

3.4 The Tertiary Sector

The tertiary sector, often called the service sector, supplies businesses and customers with the manufactured products and services. Therefore, any business that does not extract or manufacture products falls in this category. There are various businesses involved in this sector including the following:

Retail shops and outlets
Accommodation service providers
Communication services - mobiles, land, internet connections
Financial services - banks, insurers, building societies
Transportation - buses, airlines, trains, coaches, ferry companies
Education
Public administration - local and central government

This sector is very large and employs around 3/4 of the total workforce in the UK. Major employers in this sector include:

Healthcare
Banking
Tourism
Retail
Education

The trend for high employment in this sector is matched by most developed nations. It is important to note that due to technological development and efficient production, plus a decline in the manufacturing sector due to business closures, there has been a rapid rise in the tertiary sector in recent decades.

The Service Sector

This sector is responsible for providing intangible products and services including knowledge, skills and expertise. It does not provide physical products to any other sector or end-user. Information services, experience and advice are all provided by the service sector.

As a country develops, it increases it's tertiary sector workforce. This is because as technology, mechanisation and various drives to enhance efficiency in the primary sector are taken, there will be a decline in the need for human effort. Hence, growth opportunities in the tertiary sector become apparent.

The Quaternary Sector

For a long time, the quaternary sector has been categorised as a part of the tertiary sector, however it's becoming more distinguishable as a sector in its own right.

It's associated with information technology, high-tech industry and science industry. Research, Information services, consultancy and development are all part of this sector.

The major purpose of this sector is paving the way for groundbreaking and cutting edge advancement and development in businesses due to the high levels of competition. As enterprises become more innovative and competitive, this sector has to continually create opportunities for enhancement opportunities in order to help businesses sustain their competitive advantage and meet the evolving needs of customers and businesses.

3.3 The Secondary Sector

The secondary sector deals with the businesses which process the products from the primary sector, for this reason it is sometimes called the manufacturing sector.

Natural resources and raw materials are transformed into all kinds of goods and services by this sector. Not only does it deal with the raw products from the primary sector, it's also involved in utilising already processed goods. Therefore, several processed goods can be combined to produce a completely new product or service.

An example of this sector is the clothes industry. Primary sector fabric is used in the manufacturing process, and the output is clothing. If the clothing were made of cotton, the cotton is harvested from the cotton plant and sold to the secondary sector fabric manufacturer.

The fabric manufacturer who weaves or spins the fabric sells it on to another manufacturer who makes unique patterns with the manufactured cotton fabric. In addition, the sewing machines, buttons, thread, patterns and other components to make a complete dress outfit have to be bought from other secondary sector manufacturers for a complete dress to be made.

In the UK, there are businesses which are unique to certain regions:

The Midlands, London and North England - clothes manufacturing
South-East England and Scotland - hi-tech computer manufacturing
East Midlands, Northern Ireland, North West England - textile manufacturing
North West, South East England and North England - chemical manufacturing
North West, South West and South East England - aerospace industry

A wide range of businesses in the manufacturing industry include:

Drinks - This includes non-alcoholic and alcoholic beverages
Printing - Newspapers, journals, books, junk mail
Clothing - Synthetic fabrics, cotton, linen, wool
Ceramics - Tableware, pottery, china, toilets
Steel - Road building, construction, cutlery

Manufacturing is now typically high-tech and specialised in the UK, although working conditions can still be difficult, as in an automotive plant for example.

The food and drink industry is a major employer with approximately 600,000 employees. As it goes through a recovery phase, this sector is very competitive and world-class. The biotechnological industry is the largest in Europe; the aerospace is the second largest in the entire world.

The prospects of growth in this sector are quite reasonable given the high skill level of UK workers, and the currently relatively high levels of unemployment. Continuous development in technology means that employers will require a high-skills and knowledge base.

There is also some government support for the industries in this sector through investment initiatives to boost the sector as a whole. For example, the area of nanotechnology has received investment from the government to bolster development.

Britain needs to remain at the forefront of innovation and competitiveness and the sector is receiving government backing to make this happen.

Major manufacturers in the UK include:

Nissan - Car manufacturing and large employer
Airbus - Aircraft and aerospace manufacturer
ICI - Chemical product manufacturers
Proctor and Gamble - Home product manufacturers
Glaxo Smith-Kline - Drugs and baby product manufacturer

Activity 12 - Why do you think employment in the UK manufacturing sector has declined in recent decades?

3.2 The Primary Sector

The primary sector is very broad and includes: forestry, fishing and agriculture. Raw materials are specifically recovered or created by this sector. The following areas are covered by this sector:

Extraction - Oil and Gas, Fish, Oil
Agriculture - Animal Husbandry, Farming, Forestry

Across the globe, it's common to see various countries with regions which are unique for certain primary sector activities. From farming, to mining, to livestock rearing, certain regions in most countries are renowned for one or more activities in this sector.

The United Kingdom encourages numerous agricultural activities. Farming and agrarian practices still thrive in various regions across Britain which has vast arable lands that are dedicated to farming. Regions and their farming practices are highlighted below:

Wales - Rearing of animals (cattle and sheep) and vegetable farming
Eastern England - Poultry farming, arable farming, vegetable farming
Scotland - Growing potatoes, sheep and cattle rearing
South-West England - Sheep and cattle rearing, potato farming
Midlands - Arable farming
North Midlands - Poultry, pigs and arable farming

Mechanisation is used today by developed countries to till and harvest the soil. It's very efficient and allows farmers to successfully collect the harvest and produce larger amounts in a shorted period of time.

Pesticides and sprays are also in use and have the benefit of reducing crop and livestock losses from disease.

This is a huge development considering that many years ago it was extremely labour intensive and time consuming. However, the drawback is that it now requires less employees to labour on farms; there is always a trade off with technological advances.

Less developed countries still require this labour and typically they have a larger proportion of the workforce involved in this sector.

Without the natural resources produced by the primary sector, other sectors cannot survive and in return, the economy will fail (or at least they will have to rely upon more expensive imports).

Oil drilling and refineries are important to the secondary and tertiary sectors. Another example is with wood production by the primary sector. It's then sold onto a paper mill in the secondary sector, where high quality glossy paper for magazines is made. This is then sold to then magazine publishing company which uses the paper to print stories and articles. These magazines are then distributed to the tertiary sector - retail outlets, supermarkets and high street shops, where these magazines are sold to the consumer.

The primary sector utilises many natural resources including:

Water - with numerous businesses which provide water for different purposes. It also involves management of reservoirs, springs, canals, lakes, rivers and underground water
Fishing - this involves farming across the various coasts of the United Kingdom for the best sources for market usage
Forestry - This involves afforestation and deforestation for economic uses. The Forestry Commission is responsible for regulating the production of wood, whose demand has grown tremendously over the years
Minerals - which are used for building and construction among other uses. These come from different formations in the earth like rocks. Minerals are found in soil formations as well. Products from minerals include Limestone, Gravel, Chalk and Salt.

3.1 What are Inputs and Outputs and their Role in Transformation?

Inputs are all the resources which a business requires in order to make its product or service (essentially the raw materials). These resources are either:

Tangible - Those that can be physically held. Examples include wood, brick, crude oil etc.
Intangible - Those which are abstract and not physically measurable. Examples include the skills and expertise of the workforce.

The three sectors have respective types of inputs. In the primary sector, inputs could be categorized as the animal feed for the farm animals. Secondary sector inputs include the skills of the work force in an automotive manufacturing plant. The tertiary sector such as service companies like call centres.

Transformation of raw materials to product

With the inputs and raw materials available to make ideas into products, a process must take place known as the transformation process. Outputs can only be made after the process of transformation occurs.

The transformation process differs from sector to sector. In the primary and secondary sectors, processes tend to require the physical goods and raw materials to undergo mostly mechanical transformation in order for the output to be obtained. Let us make some examples for each sector:

Wood
Cars
A bank account

Wood is an output from the primary sector which is used in various forms to make other products produced by the secondary sector. It is derived from the raw material input (trees) which is processed and used to make wood in its various manufactured forms.

Cars are made in the automotive sector in a manufacturing plant using very many component parts. Human expertise and specialisation is also required to assemble the parts together with machinery.

The tertiary sector, often referred to as the service sector, will include things like the provision of banking and bank accounts. We are all very significant users of the tertiary sector, often without realising it.

It's important to note that intangible inputs are utilised in order to provide the services in this sector. In other words, the support skills, knowledge and technical expertise which will be used to provide the repair services for the notebook are not physically visible.

The transformation from input to output is not exclusive to one location. Depending on the sector and what is to be produced, the location tends to vary.

A primary sector example is the cutting of log woods by the farmer in the field, which has multiple uses on the farm including building sheds, producing wood shavings for the farm animals and as fuel.

The secondary sector uses metal and steel in construction of bed frames in the factory. In this case, metal is the input which is transformed in the factory to the bed frames (output).

Tertiary sector example includes provision of account handling services to clients in a financial services company. This takes place in an office. Outputs can be physical or intangible products and it can also be services. Regardless of the sector, outputs must always be greater in value than the combination of inputs.

Any business enterprise whose costs of inputs outweigh the value of the outputs is doomed to failure. Therefore, it is imperative that the output must be of high value and cover the cost of the input - in any of the sectors.

Activity 11 - Give 5 examples of products from each sector.

Section 3 - Transformation of Resources into Goods and Services

Introduction

Depending on the product, many different processes are involved in the transformation form an input (a raw material) to an output (a finished product). Various resources are utilised which can either be tangible or intangible.

The economy has 3 main sectors:

Primary
Secondary
Tertiary

The primary, secondary and tertiary sectors of the economy are important and play major roles in developing goods and services. Raw materials and resources which are further enhanced and made into other products are developed by the primary sector.

The secondary sector is the manufacturing sector and continues the development of the raw materials provided by the primary sector.

The tertiary sector provides the final output of the manufacturing and primary sectors. Sub-sectors are found in these 3 major sectors. Also, there are sectors that are not categorized in the three major sectors. They play important roles and contribute immensely to the economy.

Adding value is an important principle which makes businesses know their unique factors that make them perform optimally in terms of providing products and services to consumers. No successful business underestimates the importance of creating and adding value for the consumer.

Activity 10 - Give some examples of Primary, Secondary and Tertiary industries.

Tuesday 16 April 2013

2.4 Copyright, Patents and Trademarks

Protecting ones intellectual property is always vital, especially in the early stages. This is because it can be copied and used by third parties with no recompense to you. The idea of protecting business concepts is not just restricted to fundamental ideas. Businesses of various sizes endeavour to make sure that all original ideas are exclusively restrained by them. For this reason, copyrights, patents and trademarks are used across the globe.

Confidentiality agreements are signed between parties when a business idea is in its early stages and there is the need to divulge the idea to someone else. This agreement provides some level of security for the inventor and initiator of the idea because if the other party breeches the agreement of confidentiality and tries to reproduce the idea in any format, they are liable and the inventor can bring legal action.

Copyrights

This is the right of the inventor (or creator, writer etc) to retain exclusivity of the original work that they have established to last for at least the entire lifetime of the creator of the work. The holder of a copyright may choose to grant another individual the right to make copies of their original work. While it protects the original work, it's not applicable to the protection of the idea which can be adapted elsewhere. Artists, singers and writers for example, tend to use copyrights.

Intellectual property rights are granted to designers and do not need to be registered. The inventor of the design would have to provide proof of originality for instance where the design was created and the period it was made. The UK Intellectual Property Office provides the opportunity for designers to register their design rights and they are protected for up to 25 years for a minimal fee.

Patents

Patents are used to protect the functional or technical part of a product idea or process. The patent covers every aspect of the functionality from its design stages to completion. The UK Intellectual Property Office provides protection for patents for a minimal fee which is payable within a year from making an initial patent application. This initial patent application needs to be made for new designs. The patent lasts for 20 years during which period the exclusive rights to the patent are retained by the patent holder. It is possible for the patent holder to sell the patent rights to another business.

Trademarks

A trademark is used to protect business processes and brand image. It can be registered or unregistered and provide protection for products and services. Obtaining a trademark has the benefit of deterring competitors for using such names for themselves or any of their business processes. To register a trademark is relatively cheap and eliminates the risk of having a business name imitated by another business. The consequences of such include having one's customers poached bu another business that pretends or passes itself off as your business.

Self-assessment questions

In what ways can an enterprise source opportunities for finding business ideas?
Explain the methods of creating a product niche
What is the importance of copyright, patents and trademarks and how do they affect businesses?

2.3 What are Franchises?

Purchasing a franchise is an excellant way for an entrepreneur to minimise risk when starting a business due to the prominence of an already proven successful business and brand.

The owner of the business is usually referred to as the Franchisor and the buyer, the Franchisee.

Franchisee's tend to operate in a different area or region, executing the same concept and brand name as the franchisor. The franchisee will usually pay an upfront fee and at the end of a given period (a month or a quarter), the owner of the franchise will receive a percentage of the profits from the franchisee (or a percentage of the turnover). This is usually justified by allowing the franchisee to have a licence to duplicate the business concepts and make money from it.

Franchises can be highly rewarding for both parties and has been used by a lot of new businesses. Fast food restaurants such as McDonalds and Burger King operate in this manner.

The package offered by the franchisor usually includes several services and it also provides support to include the following:

A product which the franchisee sells to consumers
Purchase of the franchises products at a discounted rate to the franchisee
Potential list of customers available in the geographical region where the franchisee will be based
Provision of support services including insurance, advisory services, human resources support and loans often at a preferential rate
Necessary training for optimum performance for the franchisee
A leading brand name
Advertisement benefits which will promote the location of the franchisee
Essential equipment to commence business operations such as shop fittings

Benefits to the Franchisor

The most obvious benefit of establishing franchisees is the minimising of financial risk, while creating the opportunity to expand the business. All business operations expenses and costs are the responsibility of the franchisee. Furthermore, the franchisee has to pay initial start-up costs to the franchisor in order to start trading which is an immediate injection of cash to the franchisor.

Franchises strengthens relationships and business networks between the franchisor and franchisee, this relationship is mutually beneficial. There is a lot of motivation on both sides to ensure there is success as the potential financial prospects are huge. The franchisee has a strong drive for success after purchasing the franchise licence, plus the financial costs that have already been invested into the business.

The business will generally tend to grow more rapidly with an established brand name over the door. There will also be an existing strong network of suppliers, customers and a host of numerous support available.

British Franchise Association

In order to regulate the practices of franchise relationships, the British Franchise Association was formed. It has the responsibility of checking that members adopt a strict code of business practice.

The failure rate of franchises is small, only around 6%-7%, but even given this the association tries to provide advice and support for businesses to help them reach their full potential.

The concept of franchising is great and is designed to be a winning formula. Should it be well managed, the reputation of both the franchisor and the franchisee is tremendously enhanced. Furthermore, business gets better and there is scope for greater expansion in the near future.

Activity 9 - What is the difference between turnover and profit?

Turnover is the total sum of all sales made by the business within a certain time frame. Profit refers to the amount of money the business has made after subtracting all costs from the turnover figure.

Pages

Tuesday 30 April 2013

Introduction

Wednesday 17 April 2013

Introduction

Tuesday 16 April 2013