Business Planning

1. Business Planning Yr 11 Preliminary Course Part 1 The focus of this topic is: The processes of establishing and planning a small to medium enterprise

2. What we will cover …the Syllabus • Students learn about • Small to Medium Enterprises (SME’s) • Influences in establishing SME’s • The business planning process • Critical issues in business success and failure • Students learn to • Examine contemporary business issues • Investigate aspects of businesses using hypothetical situations and actual business case studies • Prepare a small business plan

3. The 4 main topics in business planning are: Small to Medium enterprises (SME’s) Influences in establishing SME’s The business planning process Critical issues in business success and failure

4. “Learn the Lingo” first!

5. Lingo List cont.

6. Let’s start with SME’s • Small to Medium enterprises • SME’s • Defined • Characteristics • Their role • Economic contribution • Success & Failure • Their future Influences in establishing SME’s The business planning process Critical issues in business success and failure

7. do you recognise any of these?

8. Small business is diverse from traditional hairdressing salons to designer homes!

9. SME’s can be defined both quantitatively and qualitatively • Quantitative Definition: • The ABS adopted a definition, using employmentas the main basis of classifying businesses by size. SME’s

10. SME’s can be defined both quantitatively and qualitatively • Qualitative Definition: • Based on personal observations and a description of the business such as: • Number of employees • Type of ownership • Sources of finance • Legal structure • Market share • Management structure Note: There is no universally accepted definition of a SME

11. Characteristics of SME’s It is best to use a checklist of characteristics to determine the size of business

12. The role of SME’s • SME’s account for approx. 98% of all private sector business (Source: ABS, 2010) • Their role in the Australian economy is therefore very important as they: • Employ approx 73% of all people working in the private sector • Have created 80% of Australia’s employment gains during the past 10 years. • Contribute approx 50% of all products provided each year • Generate an increasing amount of our total exports • Account for 20% 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

13. Economic contribution of SME’s • SME’s are the ‘engine room’ of the Australian economy • Their contribution to the economy consists of • Being responsible for much of the employment growth that occurs in an industrial economy • They can react to change in the business environment and produce new goods and services • They invest in new technologies and production processes NEW industries have a large number of SME’s. Example: The information technology industry in Australia has many SME’s which brings growth, employment and change to the industry and to the economy.

14. Economic contribution of SME’s • Contribution to the economy is via: • GDP – Gross Domestic Product • Employment • BOP – Balance of Payments • R&D – Research and Development GDP • The ABS estimates that SME’s contribute approx 50% of Aust’sGDP or $560 billion. • This is a total of the output of Australia’s collection of SME’s – ranging from highly specialised professional and technical firms to the local corner store.

15. Economic contribution of SME’s • Contribution to the economy is via: • GDP – Gross Domestic Product • Employment • BOP – Balance of Payments • R&D – Research and Development Employment • SME’s employed 7.5 million people in Australia (2009-10) or 73% of total private sector employment • The SME sector has been the major generator of new jobs in the Aust. Economy • Employed Australians will use their wages earned to buy goods and services supporting businesses and further opportunities for job creation • SME’s contribute to the revenue raised through taxation as not only does the business pay tax, their employees also pay income tax. Taxation is used to provide goods and services that will benefit the community eg better education system

16. Economic contribution of SME’s • Contribution to the economy is via: • GDP – Gross Domestic Product • Employment • BOP – Balance of Payments • R&D - Research and Development BOP • Exporting goods and services contributes to our BOP • One of the increasing awarenesses by SME’s is the need to service overseas markets. The number of SME Australian exporters is in fact growing faster than large exporters. • The adaptability and flexibility of SME’s makes them more responsive to the needs of overseas markets • SME’s contribute 5% of the BOP yet this is growing rapidly

17. Economic contribution of SME’s • Contribution to the economy is via: • GDP – Gross Domestic Product • Employment • BOP – Balance of Payments • R&D - Research and Development R&D • Invention and innovation is the heart of our economy, finding new ways to do things has resulted in improved efficiency and productivity. • Over the past 10 years , SME spending on R&D has almost trebled in real terms. • Studies confirm that the level of innovation among SME’s employees is much higher than of employees in larger businesses.

18. ACTIVITY: Making Big Waves • Read the case study ‘Extreme Solutions International’ • Pg 330 in your textbook • Answer the questions 1-5 • Refer to the last page in your textbook for definitions ‘identify, outline, discuss, account, predict’.

19. SME Success and Failure • Many entrepreneurs are driven by the desire to be their own boss, do what they want to do and turn passions into profit making businesses AND some businesses are successful, some fail. • Psychological and financial pressures often lead to SME owners being victims of physical stress. They are not only the owner but the accountant, marketer, sales rep, receptionist etc. Juggling home and work responsibilities is a key challenge also. For every 10 businesses that start up, 7 go out of business within five years!

20. Keys to SME success There are 5 common keys to success

21. 5 keys to success: flexibility • The small size of the business allows the owner to adapt quickly to changes in the external environment • There are fewer levels of management • Decisions can be made quickly • The close contact between owners and their customers allows the establishment of personal relationships, allowing owners to respond to client’s changing tastes and preferences

22. 5 keys to success: reputation • As the SME is servicing a narrow market niche , it can develop enviable reputations for quality and service “It takes many good deeds to build a good reputation, and only one bad one to lose it” Benjamin Franklin

23. 5 keys to success: 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

24. 5 keys to success: entrepreneurial ability • The people in SMEs are crucial to the success of the enterprise. • Attitudes and personalities of owners will vary – some have drive and enthusiasm, many set targets, some will take big risks, some thrive on the challenge of a potential failure, enjoying the process of solving the problem. • The majority of SME owners will be highly motivated and optimistic.

25. 5 keys to success: access to information • It is often difficult for a SME owner to choose relevant information and to gauge the quantity of information needed. • At a bare minimum, the owner must have information regarding profitability, the quality of products and services, and the performance of employees. • Accurate and up to date information allows for better decision making.

26. SME Failure • 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’s required is $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 that many businesses fail!

27. Reasons for SME failure - failure is not caused by one single factor but a combination of

28. The most common causes of SME failure are • Managerial inexperience • Incompetence • Undercapitilisation • Lack of planning

29. A SME is classified as a failure when it is • 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. • Incorporated and either forced into liquidation (involuntary) or voluntarily closes down because it cannot pay its debts and faces a cash flow problem .

30. SME failure rates Period from commencement Cumulative total of approximate failure rate (%) After 1 year 25 2 years 42 3 years 54 4 years 64 5 years 71 That is 1 in 4 businesses fail in their first year – approx 80,000 each year or 219 per day!

31. The Future of SME’s • SME’s are an essential feature of business in Australia. • One growing trend area that has the potential to revolutionise the SME sector is the expansion of high technology (high tech) • I.e. new and innovative types of businesses that depend on advanced scientific and engineering knowledge. The predication is people with these specialised skills who are also innovative and able to indentify new market niches, will become a major segment of the SME sector.

32. The Future of SME’s • The service sector is another growth area for SME’s. • Research suggests that successful businesses will be the ones whose business owners are prepared to cater their services to the individual and make them as personally appealing as possible. • 4 areas likely to represent future opportunities are: • Aged Services • Small office home office (SOHO) • Franchising • Outsourcing

33. The Future of SME’s is in the service sector

34. SME Facts • Every year in Australia about 320 000 businesses commence operating. 300 000 close for one reason or another. • During a boom time in the economy, the number of SMEs increases rapidly. During a recession, business failures far outweigh business commencements. • Many SME owners want to stay small to avoid the pressures and difficulties often experienced in larger businesses. They are content with the size of their business, especially knowing they can offer personalised service to their customers. • Female owned businesses have a higher survival rate than those operated by men, and businesses jointly operated by both men and women have the highest survival rate of all.

35. ACTIVITY : Tall Poppy • Using your textbook and the following article ‘ Poppy’s New Life’ (Source: Sunday Herald Sun December 10, 2006) Complete the following activity