Business+Studies+Topic+3

Small to Medium Enterprises

Definition. There is no single universally accepted definition of a SME, a number of quantitative measurements (those based on statistical calculation) and qualitative measurements (those based on personal observations and a description of the business) can be used to determine whether a business is small or medium sized including number of employees and market share. The number of SMEs According to Australian Bureau of Statistics, (ABS) research, in 2010 SMEs accounted for approximately 98 per cent of all private sector business. During a boom time in the economy, the number of SMEs increases rapidly. During a recession, business failures far outweigh business commencements. Most figures quoted are merely estimates and range from a minimum of 1.5 million up to a maximum of 2.1 million small businesses in Australia in 2010. The ABS estimated that in 2010 there were approximately 78 000 medium businesses operating in the Australian economy. It is important to remember that even though medium-sized businesses represent only about two per cent of all SMEs, they play an important role because of the large number of people they employ. The role of SMEs They are considered the engine room of the Australian economy for a number of reasons. Although the individual efforts of each SME may appear insignificant, their total impact is enormous. Growing SMEs []
 * employ about 73 per cent of all the people working in the private sector (51 per cent in small businesses and 22 per cent in medium businesses)
 * have created 80 per cent of Australia's employment gains during the past ten years
 * produce approximately 50 per cent of all the products produced each year
 * generate an increasing amount of our total exports (see the following Snapshot)
 * account for 20 per cent of all money spent on R&D
 * provide a wide range of products used by large businesses
 * earn more profits and pay more taxes than do large businesses.

SMEs Economic Contribution An economy is a system or way of organising what goods and services are produced, how we produce these goods and services, and how these goods and services are distributed. an economy must answer the three basic questions of: Contribution to gross domestic product Economic growth occurs when a nation increases the real value of goods and services over time. One common measure to check whether economic growth has occurred is to see whether our gross domestic product (GDP) has grown. GDP is the total money value of all goods and services produced in Australia over a one-year period. The Australian Bureau of Statistics (ABS) estimates that SMEs contributed about 50 per cent of Australia's GDP. Contribution to employment Employment generates economic activity as people spend thei wages. In 2009–10, SMEs employed about 7.5 million people, which represents about 73 per cent of total private sector employment. (Fifty one per cent are employed in small businesses and 22 per cent in medium businesses.) During the last 20 years, the SME sector has been the major generator of new jobs in the Australian economy. In addition to providing employment, SMEs contribute to the revenue raised through taxation. Not only do they pay tax, their employees also pay income tax. Contribution to the balance of payments Evidence suggests the number of SME Australian exporters is growing faster than large exporters. SMEs in agribusiness, manufacturing and professional services are all experiencing rapid export growth. Exporting goods and services contributes to our balance of payments. The balance of payments (BOP) is a record of a country's trade and financial transactions with the rest of the world over time, usually one year. One way of maintaining a favourable BOP, as well as encouraging economic growth, is to export more than is imported. Many agree that the adaptability and flexibility of SMEs make them more responsive to the needs of overseas markets. The federal government is keen to promote export growth within the small business sector and encourages this with programs operated by Austrade. Contribution to invention and innovation An invention is the development of something new. Innovation occurs when something already established is improved upon. Invention and innovation are at the heart of our economy. Finding new ways to do things has resulted in improved efficiency and increased productivity. Studies confirm that the level of innovation among SME employees is much higher than among employees of larger businesses. This has resulted in more than half the major technological advances of the twentieth century originating with individual inventors and SMEs. A persistent difficulty that SMEs face when undertaking R&D is obtaining adequate finance. Traditional sources of finance, especially banks, perceive this type of finance request as high risk. One possible source of finance for R&D is venture capital. The investors take an equity position in the business (own part of it) and provide supplementary finance.
 * what to produce
 * how to produce
 * who will receive the goods and services produced.

SMEs Success and Failure Success of SMEs The five most common ‘keys’ to SME succes. [] [] [] [] []
 * 1) __Entrepreneurial abilities.__ Attitudes and personalities of owners will vary enormously. The majority will be highly motivated and optimistic, as outlined in the Snapshot below.
 * 2) __Access to information.__ It is difficult for a SME owner to choose relevant information and to gauge the quantity of information needed. As a bare minimum, the SME operator must have information regarding profitability, the quality of products and services, and the performance of employees.
 * 3) __Flexibility.__ The small size of the business allows the owner to adapt quickly to changes in the external environment. In addition, the close contact between owners and their customers allows the establishment of personal relationships, helping owners to respond quickly to clients' changing tastes and preferences.
 * 4) __Focus on market niche.__ Small businesses can concentrate their efforts on a few key customers or a specific segment of the market. This provides the opportunity for the SME to become more specialised and able to deliver a high level of service.
 * 5) __Reputation__. Because the SME is servicing a narrow market niche, it can develop enviable reputations for quality and service.

Failure of SMEs Sometimes enthusiasm and optimism cloud the owner's vision of reality and poor decisions are made. In the real world, success can be hard to achieve. In a sense, it is perhaps too easy to establish a business: there are no interviews, no tests to pass and no previous experience required. All that is necessary is a payment of $152 to register a business name and even this is not required if the business owners trade under their own name. It is not surprising then that many businesses end in failure. A SME is classified as a failure when it is:

SMEs failure rates
 * 1) unincorporated and declared bankrupt — a legal process of distributing among the creditors the property of a business or person who cannot or will not pay their debts
 * 2) incorporated and either forced into liquidation or voluntarily closes down because it cannot pay its debts and faces a cash flow problem.

Accurate figures are hard to obtain because not all business failures are reported. However, statistics collected by the Australian Bureau of Statistics point to an alarming trend: one in four businesses will fail within the first year of being established. This means that approximately 80 000 Australian small businesses fail each year — roughly 219 per day. []

The most common causes of SME failure are managerial inexperience and incompetence, undercapitalisation, and lack of planning. Many SMEs start out without sufficient capital — undercapitalisation — the business will not be able to purchase stock and materials. This inevitably results in lost sales or being unabale to pay creditors. When a prospective SME operator fails to develop a business plan, the SME owner has no certain goals or directions; there is no blueprint for the future growth. A common fault with many SMEs is their lack of adequate financial reporting and evaluation.

Future Growth of SMEs The prediction is that people with these specialised skills, who are also innovative and able to identify new market niches, will become a major segment of the SME sector.
 * 1) aged services

services as home-delivered meals, house cleaning, garden maintenance and healthcare will be among those in most demand.
 * 1) small office home office (SOHO)
 * 2) franchising

Australia is the most franchised nation per head of population in the world. contracting out of part of a another business's operations
 * 1) outsourcing.

Influences- Personal Qualities Qualifications. Some business require trade or professional skills but exceptional grades and a dazzling history in business are not essential. What does appear to be important is the eagerness to work long hours. Recent research revealed that about 75 per cent of people who started their own SME spent at least 50 hours a week in the business; 25 per cent of them put in 65 hours or more. Skills Luck has little to do with business success. Skills are essential. These skills can be attained through experience, education and/or training. Skills may include: Experience The best time for a person to gain management experience is before establishing the business. This can be done by either completing a management training course or by undertaking a management role within a business. The best way a person can gain business experience is to work in the type of business in which he or she intends to become self-employed. Education and/or training Universities, TAFE and business colleges offer courses in many business and industry fields. These courses may be broad in nature, such as a degree in business management, or specific, such as a degree or diploma in marketing, human resource management, computing or accounting. TAFE and business colleges also offer vocational courses and courses for establishing a SME. (Some government agencies provide opportunities to learn about starting a business. The Business Enterprise Centres in New South Wales are an example. The centres are run by business facilitators who have experience in establishing and operating a business. They offer a range of services, such as a business start-up kit that gives an overview of the requirements and regulations involved in starting a business, and of how to write a business plan). Motivation Motivation refers to your personal drive, determination and desire to achieve a goal or objective. Entrepreneurships Cultural Factors Cultural influence can arise from a community's traditions and beliefs, such as the 'work ethic' — the willingness to work long and hard in an effort to be successful — which is strong in many European and Asian cultures. Gender Governments of developed economies are realising that employment growth will not come from established large businesses but from the creation or expansion of the small business sector. Policies are being created specifically to assist small business in contributing to the national economy. In response to these policies, and to a general change in social attitudes, many women are setting up their own businesses (in particular in self-employment) at three times the rate of men (see the following Snapshot).
 * accounting
 * computer skills
 * staff management
 * business administration, including inventory control and rosters
 * marketing.
 * Entrepreneurs must be prepared to take a risk and incur the results of this risk, whether it is a success or a failure. They must be confident in decision making and willing to accept all responsibility for their decisions.
 * Flair and creativity allow the entrepreneur to create or seize new opportunities for business, new niche markets or new products and/or services.
 * The most important quality for an entrepreneur is the ability to set goals and have a vision for the business's future — continually adjusting to changing business, economic and customer markets

Professional Advisors.
 * 1) Accountants. provide advice on all financial management issues and taxation obligations. They have access to the latest changes to taxation and financial reporting requirements.
 * 2) Solicitors. provide information concerning business formation and structures, registration, contracts, leases, partnership agreements, patents and legislation.
 * 3) Bank managers. provide information and advice on financial services, sources of finance and basic business management.
 * 4) Management consultants. provide specialist knowledge. Coming from outside the business, the consultant is able to be more objective.

Government agencies State governments All governments have established agencies that provide support and advice to business owners. For Example: NSW Department of State and Regional Development — Small Business

Federal government The federal government operates a website, www.business.gov.au, as a service to businesses of all sizes, offering access to all government departments, with advice on everything from fair trading to taxation.

Local government This level of government is becoming more involved in encouraging business because it creates employment. Local councils offer advice on land zoning, assist with subsidised land and consider development applications.

Other sources Chambers of commerce Small Business Association of Australia and New Zealand Trade Associations

Influences - The business idea Opportunities may arise due to either a ‘gap’ in the market, or an interest or hobby. The successful identification of a gap in the market is a key to establishing a lucrative business. It means that the new business provides something not already available. The business owner must then decide how to make the business competitive or, more simply, how to develop a customer base or gain a market share from its competitors. This can be done by either reducing the costs of production or providing something not already available. Influences - Establishment Options (see handout sheet) There are two main ways of going into business: Setting up a busines from Scratch Buying an existing business. This usually involves purchasing the stock and goodwill. Buying a Franchise. Influence - Market Considerations __Three crucial questions__: Market analysis __involves collecting, summarising and analysing information about the state of the market, customers, the threats and opportunities that the market presents, and any advantages or disadvantages that the business is likely to have over its competitors.__ __can be set by following a recommended retail price, using percentage mark-ups, price leadership or finding what the market will bear.__ __Percentage mark-ups__ are commonly used by retail stores. The __cost price is increased by a fixed percentage to arrive at the selling price.__ Assume a sporting goods store has a mark-up of 100 per cent. A tennis racquet is bought for $200 and, with a 100 per cent mark-up, will have a selling price of $400. The percentage price mark-up is usually calculated so that it will allow the business to cover costs as well as make a profit. __Recommended retail price (RRP)__ is the __price recommenced by either a wholesaler or the manufacturer of the goods being sold__ by a retail business. These prices are recommendations only, as it is illegal for any manufacturer or wholesaler to dictate the price at which any product can be sold to the public. However, the RRP can provide useful guidance to the retail business owner, particularly if they are starting a new business. __Price leadership and competition__ To __follow the prices set by another seller__ is to acknowledge that business as a price leader. For instance, in a shopping centre with a number of shops selling the same items, the prices set by the most competitive of the shops may be used as a guide by the other shops. All businesses need to adjust their prices from time to time to ensure their prices are competitive when compared with the prices charged by other suppliers in the same market. Failure to do so could result in a loss of market share. Special promotions or weekly specials are often used to improve the competitive position of a business. __What the market will bear__ Location. __Different types of business will be suited to different locations.__ The significance of location Different types of businesses will be suited to different locations, and the business owner must consider a number of factors when determining the most appropriate location for their particular business. A suitable location might be a shopping centre or retail shopping strip, or the business owner may choose an online presence or prefer a home-based business. __Local government zoning determines where some types of businesses can operate.__ Zoning is designed to keep business activities separate from residential areas and prevent householders being disturbed by businesses operating late at night. The process sets aside commercial and industrial zones and it is in these areas that most SMEs will operate. __Shopping centre complex__ The suburban shopping centre complex has been in existence in Australia for less than 50 years. __Typical suburban shopping centre complexes have one or more supermarkets and a number of small specialist stores__ such as hairdressers, clothing stores, pharmacies, cafés, newsagents, and often a post office and bank branches. Larger regional shopping centres, such as Macquarie Centre, Centro Roselands, Westfield Bondi Junction and Warringah Mall often include major department stores and cinemas, as well as the full range of specialist retail outlets. __Retail shopping strips__ In metropolitan Sydney, shopping strips developed along major arterial roads during the second half of the 19th century. The busiest shopping strips were located near public transport, such as tram routes and suburban railway stations. Parramatta Road is an example of a major road in Sydney with extended shopping strips. Many shopping strips in the metropolitan area have struggled to compete with the growth of shopping centre complexes offering off-street parking and an air-conditioned environment. __Retail shopping strips offer the advantage of high visibility for passing traffic, but many shopping strips suffer from lack of parking,__ particularly those located on major arterial roads that are clearways during peak hours. Because many shopping centres close in the evenings, shopping strips have become popular locations for restaurants and 'after hours' entertainment. Norton Street in Leichardt is a good example of this. __Online presence__ Given the rapid rise in technology, __many businesses do not consider their location as important at all.__ Most SME owners have the use of a computer and access to the internet. __This allows for the possibility of conducting business online, so the business is no longer limited to dealing with people who can physically visit its premises.__ Such online activities can include:
 * 1) A business idea describes the core activities of the business, and the specific features and value of the goods or services it provides.
 * 2) A business opportunity is something an entrepreneur can see as an avenue to success.
 * 1) Competition is rivalry among businesses that seek to satisfy a market.
 * 1) setting up a new business from scratch, which may involve buying a franchise
 * 2) purchasing an existing business.
 * Advantages || Disadvantages ||
 * # The owner has the freedom to set up the business exactly as they wish.
 * 1) The owner is able to determine the pace of growth and change.
 * 2)  There is no goodwill for which the owner has to pay.
 * 3) If funds are limited, it is possible to begin on a smaller scale. || # There is a high risk and a measure of uncertainty. Without a previous business reputation, it may prove difficult to secure finance.
 * 4) Time is needed to develop a customer base, employ staff and develop lines of credit from suppliers.
 * 5) If the start-up period is slow, then the business may not generate profits for some time. ||
 * Advantages || Disadvantages ||
 * # Sales to existing customers will generate instant income.
 * 1) A good business history increases the likelihood of business success.
 * 2) A proven track record makes it easier to obtain finance.
 * 3) Stock has already been acquired and is ready for sale.
 * 4) The seller may offer advice and training.
 * 5) Equipment is available for immediate use.
 * 6) Existing employees can provide valuable assistance. || # The existing image and policies of the business may be difficult to change, especially if the business had a poor reputation.
 * 7) The success of the business may have been due to the previous owner's personality and contacts, so may be lost when the business is sold.
 * 8) It may be difficult to assess the value of goodwill, with the likelihood that the newcomer will pay more than it is worth.
 * 9) If business premises are leased, the new owner may experience difficulties with the existing landlord.
 * 10) Some employees may resent any change to the business operation. ||
 * Advantages || Disadvantages ||
 * # The franchisor often provides training.
 * 1) The franchisee does not need to have previous business experience.
 * 2) The investment risk may be lower.
 * 3) There is immediate benefit from the franchisor's goodwill.
 * 4) Equipment and premises design are usually established and operational.
 * 5) Well-planned advertising often exists.
 * 6) Volume buying is possible, often resulting in cheaper stock. || # The franchisor controls the operations.
 * 7) The threat of franchise termination can be carried out in some circumstances.
 * 8) Profits must be shared with the franchisor.
 * 9) The franchisor often charges a service fee for advice.
 * 10) The franchisee is often required to purchase stock from the franchisor.
 * 11) Contracts may be biased in favour of the franchisor.
 * 12) The goals of the franchisor may be incompatible with those of the franchisee.
 * 13) The franchisee may merely feel like an employee, but without the benefits and security.
 * 14) The franchisee must share any burden of the franchisor's business mistakes. ||
 * __Who will buy__ the goods or service?
 * __What is the most suitable price__ for the goods or service?
 * __What is the most appropriate location__ for the business?
 * __Price__
 * One of the key decisions of a prospective small business owner is concerning the actual location of the business.
 * using email to communicate with customers or suppliers
 * using the internet to find information, such as prices, business contact details, and different products and market trends
 * setting up a website to provide information about available products and services, or as a means by which customers can order goods online using the internet for online banking and payment of bills.

= Influences - Finance = __ Debt finance is money obtained through loans. __ __Debt financing has certain taxation advantages.__ For these two reasons, debt financing is the most popular source of finance used by businesspeople when starting a business. Once the type of finance has been decided, the next step is to choose the appropriate term or length of time. There are __three main terms for debt financing:__
 * __short term — less than one year (overdraft)__
 * __medium term — between one and five years__
 * __long term — greater than five years.__

__Equity finance__

also called e__quity capital, refers to the funds contributed by the business owner(s) to start and then expand the business.__

__If the SME is a company, then this contribution is referred to as shareholder's equity.__

Equity has an __advantage over other sources of finance because it does not have to be repaid unless the owners leave the business.__

__Disadvantage is that the owner may expect a good return on their investment, but the small amount of finance may only generate low profits and low returns.__

Equity finance can also be raised in other ways — for example, by taking on a partner, or another partner, by seeking funds from another investor (who then becomes an owner or shareholder) or by selling off any unproductive asset.

__Cost of finance__

__The cost of finance will depend on the following:__


 * __the type of finance__
 * __the source__
 * __the term.__

Debt financing requires the use of money from an external source, such as a bank, building society or finance company, and the cost is the interest (cost of borrowing money) charged by the institution.

__If capital is raised through equity finance, no interest is charged because the entrepreneur and/or partners and shareholders have invested the money. The cost of using this form of capital is the return paid at the end of the financial year if the business makes a profit. This return is called a dividend if the business is a company.__

__The cost of equity finance can also be measured in terms of liability.__ Liability is unlimited if the business is operated as a sole trader or partnership. This means that creditors will sell all business and personal assets to recover the debt. However, __liability of a company is limited to just the assets of the company and all funds put in by shareholders.__

nfluences - Legal

All business owners have a legal obligation to observe the statutory regulations when commencing and operating a business.

Some important ones are:


 * business name registration

Under the New South Wales' Business Names Act 1962, every business name must be registered, except when the name is that of the owner and then it is optional.


 * land zoning

Some businesses can only operate in retail or factory areas.


 * health regulations.

Local council require licences for food businesses.

The Trade Practices Act 1974 is a federal government statute that aims to:


 * promote fair trade and competition in the marketplace
 * protect both consumers and businesses from deceptive or misleading practices.

Influences - Human Resources.

The overriding recruiting objective is to attractqualified applicants with the most suitable skills.

Skilled employees are more productive and create wealth for a business.


 * A business will only employ someone if the return is greater than the cost. On-costs are payments for non-wage benefits, including long service leave, workers' compensation and annual leave loading.

Influences : Tax

Many different federal and state taxes apply to different businesses.


 * Tax || Levied by ||
 * Group tax — pay-as-you-go (PAYG)
 * 1) Imposed on the employee
 * 2) Taken from the employee's salary or wage directly
 * 3) Lodged with the tax department by the business
 * 4) Detailed in a group certificate that the employee receives at the end of the financial year || Federal government ||
 * Fringe benefits tax (FBT)
 * 1) Tax on the provision of a benefit to an employee — such as cars for private use, low-interest loans, entertainment expenses, and housing and accommodation — in place of salary or wage
 * 2) Paid by the employer at a rate of 48.5 per cent || Federal government ||
 * Goods and services tax (GST)
 * 1) A broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia
 * 2) See pages 000–0 for a detailed explanation || Federal government ||
 * Company tax
 * 1) Paid on the earnings of a company and calculated on the company's taxable income (which is income left after allowable deductions are calculated)
 * 2) Currently calculated at 30 per cent of taxable income || Federal government ||
 * Capital gains tax
 * 1) Calculated on the profit made on the sale of assets acquired after 19 September 1985, including the sale of a business or properties bought and resold within 12 months || Federal government ||
 * Stamp duty
 * 1) Imposed on documents that give evidence to transactions, such as leases and mortgages, motor vehicle registration and transfer, and the transfer of property (e.g. businesses, real estate and shares) || New South Wales government ||
 * Land tax
 * 1) A tax on land owned by individuals or businesses over a certain value (in 2010 it was $376 000 or more)
 * 2) Land zoned as rural and used mainly for primary production or an individual's residence are exempt from land tax || New South Wales government ||
 * Payroll tax
 * 1) Payable on wages paid by an employer to their employees on payrolls that exceed $638 000 at a rate of 5.5 per cent (2010) || New South Wales government ||

__Main Considerations for a new business.__ Australian Business Number (ABN) is a __single identifying number that a business uses when dealing with government departments and agencies.__ The ABN also allows the business to participate in the GST system. __If a business does not have an ABN, withholding tax tax at the rate of 48.5 per cent.__ and can be avoided by quoting an ABN on invoices for the supply of a good or service. Goods and services tax (GST) is a __broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia.__ The __GST is paid at each step in the supply chain, with businesses charging GST as part of the price of the goods and services they supply. Any business with an annual turnover of $75 000 or more operating within Australia must register for the GST.__ The __business is then entitled to claim input tax credits from the ATO for any GST included in the price of inputs that the business purchases.__ This means the consumer bears the cost of the GST, not the business providing the good or service. It is the responsibility of the business, however, to pay to the ATO the amount of GST collected from the consumer. The GST requires all registered businesses to prepare a set of accounts — the business activity statement (BAS) — at regular reporting intervals, either monthly or quarterly. The key to successfully managing GST reporting and associated ‘paperwork’, therefore, is to be organised, especially in terms of the input tax credit. Failure to claim for these credits will result in them becoming a cost to the business.

=Business Planning = The common elements of a business plan
 * Element || Purpose ||
 * 1. Executive summary || A brief overview of the plan ||
 * 2. Goals || What the business hopes to achieve ||
 * 3. Strategies || An overview as to how the business will attempt to achieve the goals ||
 * 4. Business description and outlook || An overview of the industry in which the business will operate, including a situational analysis ||
 * 5. Management and ownership || The nature and type of organisational structure ||
 * 6. Operational plans || Details the production process and the people required now and in the future ||
 * 7. Marketing plans || The product, price, promotion and distribution details ||
 * 8. Financial plans || A description of the business's financial needs and methods for evaluating its performance ||
 * 9. Human resource plans || Details both the present and future staff requirements ||


 * It is vital that a SME owner completes a business plan. Businesses do not plan to fail, they fail to plan.
 * A business plan is a written statement of the goals for the business, and the steps to be taken to achieve them. It is a summary and an evaluation of a business concept in written form.
 * A business plan will also assist the SME owner when arranging finance for the business.
 * A typical business plan may include, as a minimum, an executive summary, an operations plan, a marketing plan, a financial plan and a human resource plan.

Forecasting

Total revenue (TR)

__The total amount received from the sales of a good or service and is calculated by multiplying the selling price (P) by the quantity (Q) of units sold.__

__This can be represented mathematically as: P × Q = TR__

It is possible to forecast total revenue by estimating how many units are expected to be sold.

For example, if the price of each unit is $100 and 25 are expected to be sold, then the total revenue forecast will be $2500.

S__ales forecasting data:__


 * __can be gathered by using market research techniques such as customer surveys__
 * __are more precise if the business has some previous sales history to act as a guide.__

Total cost

The costs involved in operating a business can be broadly classified as either fixed or variable costs.

__ Fixed costs (FC) are costs that do not vary regardless of how many units of a good or service are produced. __

__ Variable costs (VC) are costs that depend on the number of goods or services produced. Variable cost, therefore, will increase if more goods and services are produced and decrease when fewer goods and services are produced. __

__Total cost (TC)__ of producing a certain number of goods or services is the sum of the fixed costs (FC) and variable costs (VC) for those units.

This can be represented mathematically as: __FC + VC = TC__

The forecast of total revenue and total cost make it possible to use the very useful forecasting technique referred to as the break-even analysis.

Break-even analysis

[]

D__etermines the level of sales (total revenue) that needs to be generated to cover the total cost of production.__

__Sales above the break-even point will mean a profit__

__Sales below the break-even point will mean a loss.__

__Get the handout sheet on break even analysis from Dr Stoney.__

Cash flow projections __Provides information concerning the business's expected cash receipts (cash inflows) and cash payments (cash outflows) over an accounting period, usually 12 months.__ A positive cash flow occurs when the amount of money coming into the business is greater than the amount leaving it. The cash flow projection is a tool for cash flow management. __It offers:__ Sources of Planning Ideas >   __Situational (SWOT) analysis__ __A situational (SWOT) analysis is an excellent technique for gathering information for use in the business plan.__ __SWOT is an acronym for strengths, weaknesses, opportunities and threats .__ It is a powerful tool that can be used at all stages of the planning process. __Analysis of the business's strengths and weaknesses is an internal analysis.__ __Opportunities and threats are generally external.__ __From this position, the business can set new goals.__ __A situational (SWOT) analysis can be used at all stages of the planning process.__ Vision statement (Mission Statement) __Broadly states what the business aspires to become; its purpose and its function.__ The vision of the National Australia Bank, for example, is ‘we will be a leading international financial services company which is trusted by you and renowned for getting it right’. Vision statements may relate to customers (using such phrases as ‘maximise customer satisfaction’, ‘remember that customers are our strength’, ‘never have a dissatisfied customer’) or employees (for example, ‘make the firm an enjoyable and rewarding place to work’, ‘offer opportunities for career advancement’, ‘remember that our employees are our strength’). A clear vision statement should be concise, creative, focused and realistic. It may contain any special features of the business, what it values and what it hopes to achieve. Purpose of the vision statement __The main purpose of the vision statement is to guide and direct the business owners, managers and employees. It creates the culture within the business and acts as a benchmark against which to measure all the business's decisions and operations.__ Goals
 * __the SME owner a clear indication of how much capital investment the business idea requires__
 * __a bank loans officer evidence that the business is a good credit risk.__
 * The internal and external business environments are sources of planning ideas.
 * Information is the essential ingredient to prepare a business plan.
 * __Once the goals have been established, a SME determines the objectives.__
 * __Objectives are specific statements detailing what a business needs to do to accomplish its vision.__
 * __Strategic goals, tactical and operational objectives are determined by different levels of management.__

Many businesses strive to achieve three broad goals: Personal goals for business owners are not normally included in the business plan or mission statement. Longer term growth depends on a business's ability to develop and use its asset structure to increase sales, profits and market share. For a business to not only survive competition but also prosper and grow, it must have a sustainable competitive advantage. Organising Resources After determining the vision, goals and objectives, the next stage in the planning process requires organising the resources — human effort, time, money, equipment and materials — needed to fulfil the plan. This results in the creation of an organisational structure, which defines how tasks are divided (as shown by the organisation chart) and resources used. __Resource allocation refers to the efficient distribution of resources so as to successfully meet the goals that have been established.__ __Each of the key business functions — operations, marketing, finance and human resources — require specific resources which need to be effectively organised.__ Organising resources — operations __This involves transforming different types of inputs (raw materials, labour, equipment and other resources) into finished or semi-finished goods or services.__ Organising resources — marketing __The marketing plan needs to become integrated into all aspects of the business. Adequate resources, therefore, must be devoted to the marketing plan.__ The efforts of all employees in the marketing department must be coordinated and this is best achieved by adequate resourcing. For example, the sales consultants, advertising personnel, market research staff, distribution people and so on must be provided with the informational, financial and physical resources to perform their jobs. Organising resources — finance Organising resources — human resources SME owners need to use good recruitment and selection processes to find employees.
 * Financial —
 * Profit.
 * Market share.
 * Growth and diversification.
 * Share price.keeping the share price rising and paying back healthy dividends.
 * Social —
 * Community service. For example: financially support educational, cultural, sporting and welfare activities.
 * Provision of employment. Many SME owners aim to continue their business in order to provide employment for family members.
 * Social justice. businesses to adopt fair and non-discriminatory policies.
 * Ecological sustainability. Businesses increasingly have to take responsibility for protecting the environment.
 * Personal —
 * Longer term growth -
 * What is the most appropriate source of financing.
 * What amount of equity (ownership of the business) and potential control a SME owner must hand over to obtain the necessary financing.

Critical Issues in Business Success and Failure

Business Plan

The business plan should contain:


 * 1)  a clear, concise statement of the goals of the business — what the business wants to achieve
 * 2)  well-developed plans for achieving these goals — how the business is going to achieve the goals
 * 3)  reliable control standards for measuring performance — has the business achievedthe goals; if not, what needs to be changed?

Professionalism is critical, therefore it is often a good idea to get professional help from an accountant, business adviser, solicitor or marketing consultant, particularly with plan elements such as the projected profit and loss statements, break-even analysis and market research.

Management


 * must make the best use of limited resources
 * is responsible for the business achieving its goals.

A manager's skill is the most critical factor in determining a business's success or failure.

If a SME owner wants the business to succeed, then it is essential to have employees who are satisfied and motivated as they will be more productive.


 * __Outsourcing__ of staff recruitment is becoming popular with SME owners.


 * __Teams__ are replacing individuals as the basic building blocks of businesses of all sizes especially in those businesses that are adopting flatter organisational structures.
 * How teams are managed is another critical issue determining business success.

Trend Analysis.


 * Trend analysis is a process of investigating changes over time and looking for a pattern (trend) in order to predict the future.
 * Trend analysis is a powerful tool which assists SME owners achieve business success by helping with forecasts.

Competitive Advantage.

__Business success and failure is linked (in the long term) to a business's ability to develop a strategy that allows it to gain a competitive advantage over other competitors in the market.__

A competitive advantage refers to a business's __ability to gain an ‘edge’ over its competitors.__

A competitive advantage is __achieved through__:


 * __price/cost strategy. This is best accomplished by achieving the lowest production costs, which in turn allow it to reduce the product price.__
 * __differentiation strategy. The concept behind this strategy is to offer customers something that is not already offered by business rivals.__

__Long-term success if a business sustains its competitive edge by limiting the advances of competitors__.

__A price/cost competitive advantage is best achieved by__:


 * __efficiency of operation__
 * __low-labour costs__
 * __economies of scale__
 * __technology.__


 * For a business to sustain a competitive advantage, the actions of management must be dynamic.