The Practical Problems of Business Startup

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The Practical Problems of Business Start-up
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FINANCE
Business start-ups find difficulty in raising
finance. WHY? Q How can individuals avoid the
high interest charges lenders give to them? Q
New businesses have set-up costs. What are
these? Once a business is up and running it will
also need adequate finance in order to meet
day-to-day costs (this is known as working
capital). Careful planning of cashflow is vital,
especially when the business is in its early
stages.
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CASHFLOW

• This is the money coming in and going out of the
  business.
• Q Why does more money tend to go out of the
  business in the early stages of its life?
• Research suggests 70 of business failure is due
  to poor cashflow management (even if the firm is
  potentially profitable).
• Firms must ensure they have adequate working
  capital to meet day-to-day needs.
• Banks provide 60 of the external finance for
  small business start-ups. The bank wishes to see,
  in most cases, a substantial amount of the
  entrepreneurs money in the venture (ensuring the
  entrepreneur is committed!) and also some form of
  security e.g. the borrowers house.
• Q The two main forms of bank lending are.?
• To overcome the reluctance of banks to lend to
  small business, the government has a Loan
  Guarantee Scheme (if the business fails, 80 of
  loans will be covered by the government).
• Q Why does the government do this?
• Two other sources of finance for start-ups are
• Venture capital
• Business Angels (see Marcouse pg531)

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BUILDING A CUSTOMER BASE

• This involves getting people to initially use
  your product/service, and making sure they use
  you again in the future and tell others about
  you!
• The key features to customer loyalty are
• Provide a good basic service
• Develop an after sales service
• Find out about your customer base
• Ensure a positive contact between staff and
  customers

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THE LOCATION DECISION

• This decision is fundamentally about costs and
  sales. There is rarely a perfect location,
  usually businesses have to weigh up all the
  options and decide on the one that they judge to
  be optimal. One must balance one factor against
  another e.g. should a very low cost site be
  accepted as opposed to a more expensive site
  which is in a better position with respect to the
  market.
• Factors affecting a location decision
• Material orientation (bulk loss)
• Market orientation (bulk gain)
• Transport firms aim to minimise the cost of
  transport in terms of money and time. Involves
  customers and staff as well as suppliers and
  distributors. This explains why despite
  government aid attempting to attract firms to
  Cornwall, West Wales etc. remains difficult.
• Rent and rates preferred locations carry higher
  costs e.g. industrial rent per square foot is
  approx. 12 in London, 10 in South East England
  and 2.50 in Mid Wales (1995 figures).
• Labour both in terms of numbers and skills. Local
  education, regional wage rates and industrial
  relations all play an important part
• Infrastructure this includes gas, electric,
  water, waste, communication links, legal and
  financial services etc. All these vary in
  availability and cost. E.g. manufacturing and
  distribution services may prefer to be out of
  town due to transport links and land.
• Concentration and inertia e.g. Silicon Valley in
  Detroit. Allied industries develop in the area
  such as specialist transport/ training/ suppliers
  etc.
• Government policy
• Management Factors relocation involves a number
  of costs in terms of general upheaval,
  interruption to production, customer
  inconvenience, time etc.
• The Environment This includes culture, leisure
  and education.
• Problems The North-South divide still exists.
  WHY?