Theories used when setting up a new business Essay Example for Free

Theories used when setting up a new business Essay When setting up a new business many business theories have to be considered and thought about. To enable a successful business set up, many features must be pre planned and thought over carefully. These features are such as:   Business plan   Cash flow forecast   Break-even figure   Entrepreneur skills Business reasons why set up the business?   Success how will they succeed in the market?   Finance where will it come from?   Government how can they help?   Setting up how will they set up the business? Who will run the business? All of the above 10 business theories are vital and must be considered and thought out carefully in order for business success. Businesss that start up without consideration of the above are less likely to survive in their market than those who are set up properly with all the above theories planned and worked out. The listed theories will need to be developed and will each contain high levels of detail. It is therefore necessary for me to know exactly what information will be required for when applying these theories to my business proposal planning. Theories Explained: Business Plan: The business for which I am planning and making a proposal for will need a business plan. This will state the company name, where it will be (planned to be) situated, its aims and objectives, what type of business it will be and other important information about the company. Cash Flow Forecast: The business will also need this document which will state a general figure of the estimated figures of the amount of money that will be needed to be spent for various matters for a given time period. This is so that it can be seen when cash will be short so that appropriate loans can be taken. Break-Even: The business will require funding and money invested into it before it can begin trading/operating. For this money to be redeemed the amount spent/invested firstly has to be gained back in the form of revenue. The break even point is when the total amount of revenue equals the total amount of money spent. After this point, the revenue will be profit. Entrepreneur Skills: The entrepreneur creates the business idea, and then hires others to carry out the activity. The may also wish to invest some of their personnel money in hope to gain profit out of the business after establishment. They will need skills to ensure that they make the right plans, and hire the right people/organizations to help them. Any wrong actions taken can lead to failure of the business. Reasons to set up: There has to be some reasons as to why a business should be started. Many people start business because they want to be their own boss, they want full control over everything, they want a fresh start, and they have enough experience and want to run their own business. Success: Before setting up the business, a strategy must be available to help keep the business stable and in the market. Once this is ensured the businessperson needs to make a strategy to help the business succeed in its aims and objectives. Its aims are most likely to be: to survive, break-even, make profit, gain/increase market share etc. Finance: Before the business can start operating it needs some finance. Money will be required to establish the business as well as keep it going. Finance will be required to buy stock, advertise the business, hire staff etc. Also if the business wishes to be a limited company, then the procedure also costs. Usually a bank loan or personnel investment by the businessperson is used however shareholders can also invest into the business. It is vital to know how much money is required to establish the business and keeps it going for a certain period of time so that adequate loans/investments can take place. Government: Sometimes the government can also provide support for a new business. The government may get involved for one of 3 reasons; to control areas of high business congestion, encourage firms to locate in high unemployment areas, or to attract foreign business to UK. The government does this with various schemes such as enterprise zones where taxes are exempt (for a given period) in order to attract business into the area. Setting Up: Before setting up the business the businessperson needs to know and decide how they are going to set up the business. Therefore, they would need a business idea, business plan etc. When setting up they can then either decide to set up on their own by taking a loan or investing their personnel money, or setting up the business with a partner. Running the Business: The businessperson must also understand what is required for running a business. He must have adequate staff, enough money to buy stock and pay staff, enough stock to sell, business/product advertising etc. The businessperson must have enough resources (Land, Labour and Capital) to meet all the above needs to keep the business running smoothly.