Advantages and Disadvantages of a Small Business - Essay Example

Heading: Business Plan Your name: Course name: Professors’ name: Date Introduction Currently, many entrepreneurs are striving to outdo the larger organizations in terms of customer satisfaction and profitability. To manage this, it is critical to develop a well defined business plan. This report intends to explore some of the issues involved in planning for a small business. It also gives some of the advantages and disadvantages of engaging in a small business as compared to the larger businesses. Advantages and disadvantages of a small business A small business may be defined as any autonomously held and run venture, which is not leading in its competitive vicinity and has less than 500 employees. For instance, a local restaurant that lacks dominance in the relevant industry in the particular region qualifies as a small business. Mostly, a small business is a sole proprietorship, which has its share of advantages and disadvantages. To start with, a small business is easy and least costly to run as compared to large businesses. This is because it requires fewer resources to start up and maintain it. Such a business is also beneficial as it gives the owner complete control and independence of his business. There is independence in terms of decisions on who to work with, business location, and business time (Stokes, 2010). It has an advantage relating to the income and profits received. Here, the owner does not have to share the profits with anyone and enjoys the benefit of numerous tax deductions. It is also flexible in that it enables the owner to be his own boss, spend enough time with his family, and engage in something that he enjoys. Moreover, small businesses may be beneficial compared to large businesses because they have an ability to customize their products and services in order to satisfy the particular needs and wants of customers. These firms tend to emphasize on well defined market position; that is specific customers. Furthermore, small businesses are advantageous compared to the large businesses in terms of focus and reputation. In terms of reputation, small businesses, due to their narrow focus, may develop high reputation for service and their quality. Nevertheless, a small business has its pitfalls including insufficient capital for start up, and maintenance of the business. Small business owners have high levels of stresses regarding employee issues, competition, new equipment, and rent increases among others. They tend to operate alone; hence too much workload. In addition, such businesses have high rates of failure as compared to the large firms. This is because of lack of guarantee of effectiveness. Small firms also face a challenge regarding managerial incompetence or inexperience. They have poor management which result in businesses failures. There is also a disadvantage of inability to manage fast growth. Growth always expects the owner to delegate a certain amount of authority and this is always to do; hence, poor performance (Hatten, 2011). Purpose of the business The intended purpose of the business involves a restaurant offering food and drinks. Some of the foods that the restaurant intends to offer variety various food and drinks, such as beverages and fast foods. The business’s mission is to offer the highest quality restaurant services in the region. The kind of food and drinks offered by the business will greatly boost the customers’ health statuses and improve their lifestyles. Additionally, I intend to start the business in order to fulfill my dream of owning a business; a restaurant. According to prior market research, it is evident that the business is critical in the region because consumers have a high demand for high quality and affordable restaurant services and products. Internal and external stakeholders Some of the business’ stakeholders include employees, customers, government, suppliers and the immediate community. Internal stakeholders involve customers and employees, while the external stakeholders include suppliers, government, and immediate community. Assessing the external and internal environment Here, the proposed business internal and external environment will be assessed using SWOT analysis. This entails the strengths and weaknesses for the internal environment, and the opportunities and threats for the external environment (Bangs, 2002). Strengths The firm will offer its products at affordable prices It will offer the highest quality services and products in the UK to the consumers It will be located in a strategic position to attract as many clients as possible It will enhance decentralized decision making It will employ highly committed and competent personnel Weaknesses High worker training expenses Probable short marketing budget Opportunities Steady growth of hospitality industry in the UK High demand for beverages, fast food, and soft drinks in the region Threats Stiff competition for market Potential economic recession and inflation Political instability and insecurity Types of business functions Just like any other business, the proposed firm sets to have a number of functions including operations, marketing, finance, human resources, procurement, and information technology. These functions are intended to work interdependently in order to propel the firm towards the achievement of its set goals and objectives. To start with, the operations function of the firm will entail the production and delivery of the services and products to the target consumers. As a tertiary sector, the proposed firm will employ its operations function in the production and delivery of its services. The function will be charged with the production location, appropriate way of production in terms of the necessary resources; range and volume of products; and cost and quality of the products and services. It will also concern research and development of new processes and processes (Panneerselvam, 2007). Secondly, the finance department will be crucial in the proposed business as it will organize the raising of funds to start and invest into new business projects. It will also be in charge of setting financial goals and allocation of funds in the business; that is budgeting. It will be responsible for setting budgets for a particular period. It will also prepare financial reports of the firm’s operations for specific times of the year. Thirdly, Panneerselvam (2007) says that the business will engage marketing function to handle the target customer needs. This will be possible through both primary and secondary market surveys. Upon identifying customer needs, marketing function will ensure that the company offers the products and services at the right price, time, and place. It will also devise an appropriate marketing strategy to help boost its sales and meet all the consumer needs. Fourthly, the firm’s human resource function will engage in the recruitment, selection, training, development, reward, and retention of employees. The function will ensure that the best employees are absorbed in the firm in order to achieve the desired results. On contrast, the procurement function of the firm will entail the purchasing and receiving of business raw materials. The information technology department will also be essential in the business as it will be concerned with research, innovation, and marketing activities of the firm (Panneerselvam, 2007). Structure of the business The proposed business will adopt a flat structure in which the business minimizes bureaucracy and enable employees to be more productive through involving them in decision making. This structure involves decentralization of decision making process in the business. This is also suitable in allowing the managers communicate freely with the employees. This is also important in achieving leaner budget by eradicating costly middle-managers’ salaries (Griffin, 2012). Selecting human resources In selecting the human resources, the human resource department in the business will engage in the selection of the employees. In the process, there will be collection of adequate information about the candidates, organization and evaluation of the information, assessing the candidates to predict their job performance, providing information to the candidates and judging whether they are willing to accept the offer. The most appropriate methods of selecting human resources will include a written test and an interview (Gitman, 2009). Marketing plan The proposed restaurant business intends to target end consumes that are both high class, and middle class individuals working and living in the region. It also targets individuals visiting the area. Since the business will offer quality and affordable services, it will attract various consumers despite their social classes, professions and nationality. In terms of the marketing mix, the firm will promote its products and services as follows: Product The business will offer varied products including fast food, soft drinks, and beverages. Some of the fast food will include sea food like oysters, eels, chicken, wildfowl, kebab, curry, Chinese noodles, pizzas and fries. In terms of the soft drinks, the business will offer sodas, and other locally blended juices. Some of the beverages will include brewed coffee, chocolate, and tea. Price The proposed business will adopt a low price-high quality pricing approach. It will also use prestige pricing in informing the consumers on the high quality services and prices. Traditionally, the businesses in the region have adopted high pricing-high quality strategy in marketing; hence, focusing only on wealthy consumers. On contrast, the proposed business will satisfy the needs and wants of both the high and the low class consumers. Promotion The proposed businesses will employ various promotional strategies including personal selling, advertising, public relations, as well as marketing tools to reach out to the target consumers. The promotion will be based on differentiation, and the planned promotional activities are set to reinforce the business’ best position status. They are meant to attract the consumers through creation of high reputation and image. Place/distribution The most preferred marketing channel for the business will involve direct sales to the target consumers (Hatten, 2011). This channel is appropriate for the restaurant business, as it enables consumers to enjoy retail prices. All food and drinks are available in the local restaurant. 3 year budget Year Amount of money required Year 0 $500,000 Year 1 $ 450,000 Year 2 $300,000 Year 3 $100,000 Total $1, 350, 000 Losses/revenues in the next 3 years Year 1 Year 2 Year 3 Revenue (sales) Training materials $800,000 $1,000,000 $2,000,000 Total revenue (sales) $1,000,000 $2,000,000 $4,000,000 Operating expenses Business development $400,000 - - Capital expenses $1,000,000 $1,000,000 $4,000,000 Promotion $200,000 $400,000 $600,000 Personnel $200,000 $600,000 $600,000 Consulting fees $5,000 $50,000 $200,000 Total operating costs $1,805,000 $2,050,000 $5,400,000 Pre-tax profit $30,000 $ 1, 000,000 $2, 000,000 Taxes (10%) $3,000 $100,000 $200,000 Net profit $27000 $900,000 $1,800 ,000 Risks of the business Some of the risks that the business is likely to face include stiff competition from competitors, such as, already restaurants in the region. There is also a risk of failure to attract competent workers because of insufficient startup capital. There is also impending criticisms from external stakeholders concerning health issues relating to fast foods that the business will offer. Additionally, there is a potential risk concerning the economic problems, such as, inflation and recession. Political instability and insecurity may also pose a challenge to the business. References Bangs, D.H. (2002). Market Planning Guide. Chicago, Kaplan Publishing. Pp. 67-100. Gitman, L. (2009). The future of business: the essentials. Mason, OH: South-Western Cengage Learning. Pp. 175-200. Griffin, R. (2012). Fundamentals of management. Mason, OH: South-Western Cengage Learning. Pp. 164-165. Hatten, T. (2011). Small business management: entrepreneurship and beyond. Mason, OH: South-Western Cengage Learning. Pp. 263-266. Knowles, R. (2011). Small business: an entrepreneur's plan. Toronto: Nelson Education. Pp.16- 20. Panneerselvam, R. (2007). Production and operations management. New Delhi: Prentice Hall of India. Pp. 1-20. Stokes, D. (2010). Small business management and entrepreneurship. Andover: Cengage Learning. Pp. 1-30. Read More