Assistance of Key Personnel in Making Business Decisions - Case Study Example

Part A Question CAMPARI analysis of Ms.Thomas business proposal. Character is one way in which a business plan is evaluated.Ms.Ffion Thomas has not had a personal track record in business. She only has a business idea that she intends to try out and see whether it can work. From her background information, she was working previously as a policewoman. Both her physical and mental impression about the business is good. First of all, she has a vision in which she plans to implement and see it as a reality. She also has targets in which she intends to achieve for instance as seen in the short term and the medium plans that she has proposed. Furthermore, Ms. Thomas feels that her enthusiasm towards the task will enable her become a successful sole proprietor. However, there seems to be some drawbacks in that she has a dispute with her husband with whom they have separated but this does not seem to deter from achieving her goals. Ms. Thomas has never been an entrepreneur and therefore she does not have any records to indicate that she has engaged in business before. Financially, Ms.Thomas seems to have some financial commitment because as indicated, she has had a bank account for ten years. In her business proposal, she has left out some essential information, which would assist her in the in understanding the kind of business she wants to engage in. A business plan is also evaluated by looking at one's ability to run a business. In business, it involves one's ability to manage resources. From Ms. Thomas history, she has little or no experience that she can use to manage her business. This would be very challenging to her because, in order to run a business well, one needs to have knowledge that will assist her in the management of the physical, human and financial resources. Due to the fact that this is the first time that she is engaging in business, she may not have any business documents to support her claim that she has the ability to keep financial records. In this case, if requested by the bank to show the business records, then, she would not have any to show since this is one requirement that a bank would ask for when one is requesting for a business loan. Management would also be evaluated in a business plan. This would be done in terms of assessing the quality of the key personnel that she would employ the relevance of decision makers and also the level of education and training displayed by the key personnel. In Ms. Thomas proposal, she does not explain in any way in which the personnel would be recruited to assess their credibility in terms of offering quality service to the clients. In this case, she would not be in a position to know if the key personnel are helping her in making relevant decisions in the business. The purpose of a business should also be analyzed in a business plan. One needs to explain why a banking facility is needed, whether the facility will be based on serving the customers, whether it would be used for trading purposes or for purchasing fixed assets. Ms. Thomas proposal clearly outlines the purposes for which she would use the facility. For instance, she would request a mortgage from the bank to buy fixtures, fittings and stock and also in the acquiring of a premise. In business plans, an analysis is done on amounts. In this case, one has to balance between the customers stake versus the bank. Ensuring that all costs have been included and that they are correct would do this. When analyzing amount, one needs to ensure that the customers' money is injected into the business before the bank lends it money. In the case of Ms. Thomas proposal, she has stated that she would give all her customers priorities but she has not included the costs that would be incurred in running the business. Furthermore, her business is new so she does not have any money from sales that is essential to show to the banks that she indeed has a business that is going on and bringing in cash from customers. In repayment analysis, one assesses whether the business can generate enough money to service debts incurred by the business, whether the business is realistic and any upcoming contingencies, the profits and the sources from which the repayment interests would be paid. In Ms. Thomas case study, she has not shown the way in which she would repay the loan that she intends to borrow from the bank. Insurance cover should be taken into consideration when one is deciding to put up a business. It is important because it gives the business security depending on the type of insurance cover one decides to take. The security values one takes should match the current business climate. An insurance cover taken should also cover key personnel in the business and the business against all potential risks that a business may face. Ms Thomas has not indicated in her business proposal that she would provide insurance to her business once she begins running it. Why I would help Ms. Thomas set up her business. First of all, Ms. Thomas wants to start her own business and this means that she will earn own and manage the business. Secondly, she has some capital that she can rely on since her parents are willing to provide some financial support. This means that with the little money she has, she can start the business. How much help she requires. When planning to start her business, she should have accurate estimates of the amount of money that she would require to start the business. Since she confessed that she hardly has information about management, she requires some training on how to manage a business and the resources involved. Ms. Thomas also needs to be empowered on issues on loan repayment since she intends to borrow loans from banks. She also needs to find out on the various types of insurance covers offered by insurance companies. This is because she will be able to choose the cover she will take against all the business risks and the employees if she intends to expand her business. On how to market her business, she should be able to pinpoint the customers before hand and use promotion and advertising to attract more customers to make her business known (Moore, et al, p149-152, 2008). Question 2. How the role of the small business changes over time. The role of the business owner can change over time through innovation. Innovation can be achieved through various ways. One way in which this can be done is by creating new ways of getting goods and services to the market. A business owner can for instance use several ways of marketing instead of relying on mainly on one or two ways of marketing his or her commodities. The entrepreneur can use channels like the Internet, mail or telephone amongst other methods. An entrepreneur may also create new developments in technology. For example the use of e-commerce that is the buying and the selling of products or services through electronic devices like the Internet and other computer networks. Innovation in e-commerce can be well explained through the use of electronic funds transfer, supply chain management, Internet marketing and online transaction process. Through innovations, one can be able to do things in a cheaper and better way. For instance, if the business is mainly concerned with the provision of services, then, the entrepreneur should ensure that the service offered is of quality and is affordable to the customers. This would help the business owner attract and retain many business customers. Through invention, of new products and services, customers are attracted to the enterprise since there is a variety to choose from. According to Burns, entrepreneur needs to have certain qualities in order to achieve innovation. Stamina is one such quality that he points out. It involves taking most of the time working and thus leaving little or no time to rest. To have stamina, one needs to work hard so as to become successful in business. Commitment and dedication are other qualities that an entrepreneur should strive to achieve. For one to be motivated towards making great achievements in business, these two qualities are a prerequisite. They involve being disciplined and also making personal sacrifices. This can put strain on relationships and therefore, a business owner needs to take advantage of all business opportunities that may present themselves (Burns, p55-73, 2007). Why the role of the small business owner changes over time. According to burns, the challenge that a business owner is likely to face as his or her firm develops is the issue of leadership. He states that that the description of a leader may be brought out in five elements. The five elements are; effective communication, having visions and ideas, formation of an appropriate culture, the ability to undertake long-term strategic planning and lastly monitoring and controlling performance in leadership (Burns,p215-240, 2007). In the leadership style, the role of the leader is usually based on some authority, which may be from one's status, expert skills, legal position and their personality. Burns says that leadership is a skill that can be developed. There are different styles of leadership and they may be effective with different groups, contexts, and tasks. No particular type leadership style can characterize a successful business (Burns, p215-240, 2007). The style of leadership is dependent on a leaders concern on a particular task given as opposed to his or her concern on people. Normally, entrepreneurs are often concerned with the completion of a task but as a firm continues to grow they become more concerned with people so that tasks are accomplished according to schedule. When there is low concern for the task and people, no leadership is present at that time. A leadership style normally depends on the relationship of a leader and the group that he or she is leading. When the group that is being led has low autonomy, but the leader has high autonomy, he or she tends to adopt the autocratic style, which involves giving instructions on what is to be done. If a leader has low authority, there is a tendency that he or she will adopt a paternalistic style, which involves cajoling workers to perform their duties. When a group has high autonomy and the leader has low authority, a participating style will be adapted. This means that the entire group would be involve in making decisions so as to build a consensus. A consultative style is used when a leader has high authority (Burns, p215-240, 2007). A leadership style depends on the context or situation that is used to approach a given task. Burns gives the implications of entrepreneurial situation as the following; entrepreneurs should be good at using informal influence, entrepreneurial leaders should not use dictatorial leadership styles and the entrepreneurial leaders should be adept to conflict resolution. Main issues that a growth oriented business should consider. In business, growth is usually defined in terms of growth in profitability, sales, and employment and in total assets. A growth-oriented business should consider both the internal and the external determinants of growth. There are several internal determinants of growth and they include: the entrepreneur or own -management team, human resource, marketing, management and the planning and control (Burns, p293-311, 2007). The external determinants of growth are essential to the growth of firms. The markets/sectors are external determinants of growth. It has to do with the noticeable difference between markets and sectors in terms of growth. The sector that dominates largely depends on other factors. The location is brought out well as seen in the differences between the rural and the urban businesses. According to studies done, some argue that regional barrier to entry is likely to assist growth in rural areas while others argue that accessibility to resources and the market is key to growth. For business in the urban areas, they tend to have a higher concentration of customers because of better infrastructure (Minniti, et at, p 181-184, 2006). There is also access to resources as an external determinant of growth. For an idea to grow there has to be resources to support it. Access to resources is important so that growth is experienced in a firm. Government support is another key factor in determining the growth of a firm. Though no studies have completely linked the relationship between the levels of state support and the propensity for growth, there is some weight when we say that growth firms are more likely to access sources of funding. In the area of information and advice, firms that are growth oriented seek advice and support from banks, accountants and consultants. This is because they are entities that can be trusted to give relevant information. Growth oriented businesses are more aware of their competition. They know their competitors well and in the case of a hostile environment, they have the ability to change to suit that environment. Lastly, for a business to be able to export its goods and services, it has to be of a certain size. The medium sized growth firms are more likely to export goods and services than the small firms. (Minniti, et at, p 181-184, 2006). Part B Question 3. Critically evaluate the merits of buying an existing business in comparison to a new business start up. There are several things that a potential buyer of a business should find out before purchasing a business. Firstly, he or she should look at the opportunities there are for the business to grow once he or she purchases the business. This includes the probability of the business growing after change of ownership. One should also look at his or her financial ability to buy the business. The questions that one asks himself or herself are whether he or she will be comfortable buying the business at the stated price or whether it is worth buying the business. A potential business should also be evaluated and this can be done through the use of the CAMPARI analysis. An entrepreneur considering buying a business should verify any revenue information that is provided. Using the business's recorded data from financial books such as the balance sheet and the income statement can do this. Finally, a potential buyer should look at the pros and cons of buying an existing business instead of starting a new business. The buying of an existing business has many advantages as compared to starting a new business. While making the decision of acquiring a new business it becomes important for an entrepreneur to consider some very important issues. It is important that the purchaser find out the reason for the sale. While the business may seem to be a good idea the business could having a lot of problem with the with government agencies in terms of its tax returns. Other reasons are that it could be having financial problems or the product line is fast becoming obsolete (Turner, p257-259, 2004). It is also imperative to find out whether the existing business fits into your current business needs and expectations. The purchaser must also to look at the whether they are capable of financing the business in the future. A checklist of the operations of the business is very crucial for the purchaser of the business. The check list includes the accounts payable, accounts receivables, the management of inventories, trademarks, liabilities, lease agreements, income statements, the competitors, marketing strategies together with the plants and machineries in the business. While purchasing the business it is also imperative that the purchaser of the business reviews the draft agreement with a lawyer so that it gives them an insight of the implications in the future. The current worth of the business and the future prospects must be considered in details (Moore, et al, p149-152, 2008). When acquiring an existing business it saves a lot of time and energy because the entrepreneur does not have to go to the details of searching for a new business premise. The process of trying to locate business and writing a business plan is quite lengthy and tedious. For a business that already exists and that one that has a proven record it becomes easier to get finances from financiers. Most financiers will want that you provide evidence of your performance for a given period of time and for a business that is already in existence the documentary evidence is available quite easily. The track record of the already existing business will assist the purchaser to have a rough idea of what the company's expenses ,profits and sales are thus enabling one make appropriate decisions The infrastructure of a business consists of many players some of who include the suppliers, employees, systems and processes. Such infrastructure is very already established in existing business and as such they tend to provide continuity to the business. The existing owners can also be very helpful as they provide insight into what transpires in the business. Training and consultations with the existing management from the experienced employees is a major step in acquisitions. For example an experienced accountant of the business can assist the buyer of the business in analyzing the financial statements that contain the information on the profitability of the firm also determine what would be the purchase price (Moore,et al, p149-152, 2008). When you start a new business the possibility of the business to generate cash flow immediately is almost guaranteed because the owners do not have to spend much money on advertising and branding as the business has already acquired its market share. An already existing business has a guaranteed income with a good customer base and thus the business is likely to be more successful. When you acquire a business the foundation of the business is usually in place for the new owner and therefore it give the new owner a chance to make on new improvements and expand on it thus increasing the owners chances of making progress .Once you are able to focus on the customers need then opportunities avail themselves to enhance the performance of the business (Turner,p257-259,2004). Some people are selling business so as to finance some emergency therefore as a purchaser you actually get a very good deal out of the sale. If a person decides to sell a business at a t throw away price a purchaser can capitalize on it and once the business is your hands you can later resell it at a higher price. It is also to note that when you are acquiring an existing business the initial capital that a purchaser requires is lower than staring a new business. Sometimes it is possible to negotiate the price of the business with the owner while at some other time the seller may agree that you buy the business in installments. The owners of an existing business are also able to finance the existing business at lower interest rates as compared to the financial institutions. An existing business already has an existing trademark that is widely acceptable by the public therefore the buyer doesn't have to spend much time trying to sell its brand name (Moore, et al, p149-152, 2008). Part C Question 4. Critically evaluate the types of strategies a small firm can implement to achieve growth. There is no clear definition of the term small firm as it is used in business. There is though a definition that is based on the number of employees or the financial criteria. There has been criticism on the issue of comparing companies based on the number of employees since companies that provide products and services that require labor intensive work employ more people. Burns however defines small or medium sized enterprise as having less than 500 employees, a micro business having up to 99 employees and the medium sized business as having up to 499 employees. According to Bolton 1971, issues such as independence, personal influence and also the market influence a small firm. Evaluation of the types of strategies a small firm can implement to achieve growth. Porter 1985 has identified four general marketing strategies. The commodity supplier is one of the strategies that he identified. When a small business owner is selling a given commodity on price alone, he or she should be the lowest cost producer .By doing this, he or she would be making the most of any economies of scale that are available. The firm also tries to achieve cost leadership by utilization of their capacity and the experience that they have in the market. The other strategy is the market trader. A small business owner may be selling a given product on price. This would be done by using economies of scale in a particular low overleads to keep costs low. The third strategy is the niche player. This refers to when a business person is selling a differentiated product or service to a targeted narrow market segment. Differentiation means that the firm is offering a unique product that allows the firm to charge an extra price for its products as compared to the normal price. The aim of differentiation involves improving on the quality of the product, design, appearance as well as the firm's ability to offer after sale services after the sale of the product. Another strategy that can be used by small firms involves the diversification srtartegy.This means that the firm tries to balance the risk element in the firm's portfolio by venturing into new products and new markets. It is a very high risk strategy as it involves introducing very new products in the market that are new to the market and therefore customers may shy away from them. It therefore requires that the firm undertakes brand campaign and marketing so as to try and woo customers and thereafter enjoy a wider customer base. Diversification can either be related or unrelated diversification. Related diversification means that the firm enters into a market and offers new products that are in line to whatever they have been offering in the market while unrelated diversification means that a firm introduces products that are very new to their product line (Burns, p293-311, 2007). There are other firms that engage in the defender type of strategy .It involves exercising tight control over the market in which one operates in so a to protect the market.Threrefore the management of these small firms do not necessary have to look for opportunities that present themselves in the market but they try to make the firm become more competitive as compared to their competitors. The prosecutor type of strategy allows the firms to always look for new opportunities in the market. It therefore means that the firm tries to venture into new products, markets or try both. These firms are therefore very flexible in every aspect of the management so that they can be able to penetrate into the markets better. Firms must always try to maintain close relationships with their customers and if the relationship is good there arises the need to improve on the products that they offer in the market. With this in mind the firm therefore engages in the product development strategy, while improving on the already existing products they also try to introduce goods that seem familiar to products already being offered by their current competitors. The reason for product development is that the demand for those goods is always rising while the customers continuously stay loyal to the company. For example Virgin is a product that has successfully been improved thus satisfying the customers need. Finally, the outstanding success is a strategy that can be applied by a small firm to achieve growth .This normally happens when some niche firms expand beyond their expectations after becoming outstanding in the market in which they originally sold. References Burns, P 2007, Entrepreneurship and Small Business, 2nd edn, Macmillan, London. Petty, A 2007, Practical Lessons in Leadership: A Guidebook for Aspiring and Experienced Leaders, Trafford Publishing, London. Turner, M L2004, The unofficial guide to starting a small business,2nd edn, John Wiley and Sons, London. Price, R W 2004, Roadmap to Entrepreneurial Success: Powerful Strategies for Building a High-profit Business, AMACOM Div American Mgmt Assn, United States of America. Burns, P and Dewhurst, J 1996, Small Business and Entrepreneurship, 2nd edn, Macmillan, London. Carsrud, A L and Brnnback, M E 2007, Entrepreneurship, Greenwood Publishing Group, London. 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