Opportunity Assessment Essay

Explain the purpose and value of a business plan to a new or existing business. There is a whole host of reasons to justify the preparation of a business plan, not just for business start-up enterprises, but as a model of good practice for established organizations. First, the process of producing a business plan acts as a very efficient method of focusing the ideas of entrepreneurs in terms of defining their objectives and assessing their own abilities to organize and run the business. A business plan also acts as a means of testing the viability of the business proposal before actually committing its proposers to any substantial expenditure or investment. As there are relatively few entrepreneurs who have the resources to be totally self-financing, most are faced at some point in time with the need to raise external finance. The possession of a business plan is crucial to the business’ future; an appointment with the financier or bank manager who is a potential investor or source of loan to discuss a proposal is a bit like an audition in a Hollywood film – if they blow their lines, they blow their chances, or at least, they reduce their prospects of getting the part they want. Written business plans are essential to guide bankers, lenders or investors in understanding and monitoring the financial strength of the business entity. So the most important thing is to prepare the plan thoroughly and to present it in a professional and competent manner. The elements of a business plan is primarily for the benefit of the lending institution and should not be confused with the strategic or detailed operating plans the business may use for internal management purposes. The kind of business plan any banker, lender or investor looks for should provide broad-based financial and organizational information. It should be made available upon submission of the initial credit request and updated periodically thereafter. Financial statements, together with management’s analysis of financial performance, for the past three-year period are especially essential. In addition, the banker, lender or investor will want to see financial performance projections for the coming two or three years. Define the term `micro business` and outline the contribution micro business make to the Australian economy. The term micro business tends to better describe the smallest niche within the small business world. A micro business is, in general, fewer than ten people and includes some unique needs to that space. It typically requires less than US$15,000 in start-up capital, which means that it does not have access to the commercial banking sector because initial loan needs are usually less than US$15,000. In most micro-enterprises, the owner is the sole operator and worker. The capital needs of micro-businesses are too small to be of interest to formal financial markets, yet too large to be covered by the personal means of business starters particularly if they come out of precarious situations. In more cases than not, micro business owners mix personal expenses with business expenses, clouding the company’s functional cost relationships and making ratio analysis very difficult. Typical micro business operators only keep cash records during the year. They present a ‘shoe-box’ of records to their accountants at year end. They only use their accountant to generate a tax return and set of accounts, which might be received six months after the year end. Market niches tend to be defined geographically. Typically, competitive businesses turn over very rapidly, with frequent new entrants to the market, many ownership changes, and a high percentage of bankruptcies and liquidations. Micro business is a key niche to keep in mind in today’s economy and a field that is quickly starting to gain enterprise attention. The economic significance of micro-businesses to the economy of Australia as well as to the global economy is highly acknowledged. This is for the reason that the involvement that micro-businesses create for both employment and the income it produces. Micro-businesses put in $20,193 million to the Australian industry’s GNP and provide work for more than 1/3 of micro-business workers (Khosrowpour 525). Briefly explain the role market research plays in the evaluation of a business opportunity. An entrepreneur must make a commitment to pursuing a business opportunity long before the outcome of that decision is known. How can he know whether the opportunities he is pursuing have a perfect fit with the marketplace, need to be expedited on a rush basis, and are the right decisions to go ahead with? Market research is the answer. Market research is the compilation and examination of any trustworthy information that improves managerial decisions. An entrepreneur needs to do market research to identify and assess an opportunity. Intuition, personal expertise, and passion can take businessmen only so far. Both traditional and nontraditional marketing research can be used to assess opportunity. Research is vital in strategic evaluation if new ideas for diversifying the business are evaluated or tested out. A company entering a new market with a new product is unlikely to know much about that market, and is going to be dependent on good information for decision making for developing sales of the new product and services. The research is likely to reduce the uncertainty about pursuing the diversification opportunity, and to help managers to plan, based on known and defined customer needs. In all practical terms, the application of market research to identify problems and opportunities and to evaluate programs of activity is as important as in other areas of marketing communications. It is the methodical and objective recognition, compilation, study and distribution of information for the intention of supporting business decision-making activities connected to the detection and resolution of business troubles and prospects. Certainly market research plays an important role in business decision making, but ultimate success in markets is determined by many other factors, not least the commitment of the team, the size and mix of marketing budget, and the ability to react to unforeseen problems. Briefly describe the process by which the total cost price of a product or service is established. Pricing, as a process, can simply be defined as setting or adjusting a price charged to a customer in exchange for a good or service. The need for correct pricing decisions has become even more important as global competition has become more intense. Organizations that have been successful in making profitable pricing decisions have been able to raise prices successfully or reduce prices without competitive retaliation. Pricing policy cannot be established in a vacuum. The selling price of the product or service should be consistent with the entrepreneur’s marketing goals, the image he or she is attempting to project, and the perceptions and expectations of the target market. Also, the pricing decision must be viewed as in interactive process in that there is a strong need for cross-functional interaction. It should be clear that effective pricing decisions involve considerations of many factors, and no single model will fit all pricing decisions. While all pricing decisions cannot be made strictly on the general model to be presented in the next paragraph, it does break pricing strategy into a set of manageable stages that are integrated into the overall marketing strategy. Given a product or service designed for a specific target market, the pricing process begins with a clear statement of the pricing objectives. These objectives guide the pricing strategy and should be designed to support the overall marketing strategy. The evaluation of the relationship of product or service to pricing with respect to the distinctiveness, perishability and stage of the life cycle a product/service is in all affect pricing. In addition, marketers need to consider what value the product/service has for customers and how price will influence product/service positioning. The other components of the marketing mix need to be also examined in relation to the pricing component, in order to arrive at a total price. Although the main basis should be the product or service cost, marketers should combine various criteria in setting prices rather than considering only the costs. What is the difference between a projected Profit and Loss Statement and a Projected Cash Flow? Why do you need both? There are several distinctions between projected cash flow and projected profit and loss statement. Although both are only estimates, one difference is that the projected cash flow statement will record budgeted cash receipts from customers, while the projected income statement will show forecast revenue for the period. Further, the projected cash flow statement will record budgeted cash payments to suppliers, while the projected income statement will show forecast of sales, which will reflect opening inventory, plus purchases, less closing inventory. Furthermore, the projected cash flow statement shows the budgeted cash payments for the expenses such as wages, electricity and rates while the projected income statement will record the expenditure expected to be consumed in the period, reflecting any accounts or prepayments. Lastly, the projected cash flow will reflect the cost of purchasing a non-current asset at the expected date of purchase and the proceeds at the date of sale, while the projected income statement will record a depreciation charge for the consumption of the asset and a profit or loss on disposal. The business needs both of these projected statements because they are important tools of financial analysis. Projected cash flow statement, for instance, is a point of comparison for actual cash flow statement so that the firm can find out the variation and take necessary remedial measures. It also helps in overcoming the problem of meeting deficit cash or investment of surplus cash because projected cash flow is usually prepared on the basis of the past year’s experience. Using the cash flow forecast enhances the business’ versatility and allows it to adjust its planning horizon as the business grows. A projected income statement is likewise an invaluable tool. It will help the business estimate its approximate income and expenses in the short term, from months to a few years. It will give a gauge to judge the financial progress of the company. Outline the legal avenues available to an individual to protect intellectual property. Even though it is an intangible term for a theoretical concept, intellectual property is nevertheless completely well-known to practically everybody. While the underpinnings of material property rights are clear, those of intellectual property rights appear clouded. Intellectual property rights have seen perceptible, indeed substantial extensions in the last decade alone. Copyrights, service marks, trademarks and patents are all types of intellectual property, and are avenues for individuals in the United States to protect their intellectual property. The examination of intellectual property law is significant since intellectual property is captivating an escalating implication worldwide. Copyright and trademarks are directly related to the Web, patents less so except if the thing being patented is a new type of technology that affects how the Web is actually used. Trademarks and service marks are used to protect logos, unique elements, phrases, services and official names that have sufficient distinctive character by which the government recognizes the concept as being unique and wholly owned by the individual. At common law, the individual who utilized a symbol or mark to classify a company or manufactured good was sheltered in the employment of the trademark. Service marks protect services rather than products, which is its main difference with trademark, in where the later protects products. Copyright protects everything that goes into a website or in print. It provides the inventor of a work the right to the restricted utilization of that said work for a certain time. Copyright infringement is all too common, often resulting in lawsuits in which individuals receive handsome compensation for having their work ripped off. A patent is a government endowment that bestows an inventor the private right to produce, utilize and put up for sale the invention for a time of twenty years since the time of filing a request for a patent. If a firm produces, utilize and put up for sale a patented blueprint, produce or procedure without the consent of the owner of the patent, it is obligated with the tort of patent infringement. What are the main advantages of operating your business as a company rather than as a sole trader or partnership? Are there any disadvantages? The primary advantage of operating the business as a corporation is protection against liability. The corporation can protect one’s personal assets in the event of a judgment against the business. This is because the corporation’s assets (cash, real estate, securities, accounts payable, etc. ) do not include one’s personal property and assets such as car, house, bank account, and other personal property. One’s personal property is considered separate from the property and assets of the corporation. A second advantage over sole proprietorship or partnership is organization and efficiency. No matter what form the business takes, keeping one’s personal and business finances and assets separate is crucial to the survival of the business. If one’s business and personal finances are intertwined, it will prove difficult and eventually impossible to sort them out to the satisfaction of say, banks and other financial institutions where one may be applying for business loans. A third advantage is savings. There are myriad instances where, as a corporation, one may be able to save on business costs – savings that might otherwise be unavailable to one as a sole proprietor or partnership business. For instance, business equipment amortization IRS allowance and schedules are generally more favorable for corporations than for individuals and partners. Also, financial institutions tend t give more favorable credit and lending rates to corporations as opposed to individuals and partners. The primary disadvantages, on the other hand, are the record-keeping that is required and the fact that corporations are subject to double taxation – the corporation pays taxes on its profits, and if one receives some of those profits as dividends, he/she will be taxed, too. Moreover, the business has to maintain minimal corporate formalities that will take some time and effort, including government regulation of the creation of the corporation, issuance of stock and operations of the organization. The lack of management skills is the cause of 92% of business failure. Does a successful business operator have to be expert or competent in all facets of business management? Long ago in business literature, experts have researched the role of the entrepreneur in firm failure. Managerial deficiencies, inexperience, and inefficiency are consistent themes in the literature explaining business failure. Researchers found that many firm characteristics – particularly decision-based ones – were directly related to the entrepreneurial characteristics. These included lack of insight, inflexibility, and emphasis on technical skills. Additionally, managerial deficiencies and the financial shortcomings of the entrepreneur also contributed to failure. Other researchers have further found support for the case that lack of management expertise along with financial matters was the most common causes of business failure. Some of these researchers pointed to poor management skills as the most frequently identified common theme in business failure. The significance that is placed on management deficiencies as a cause has therefore warranted a closer examination of the specific areas where these deficiencies are greatest. Although this is the case, it is often unfeasible for a business operator to be an expert on all facets of business management. This is the role of consultants; experts that business owners hire too assist in the facilitation of business management processes. The business operator may not possess the expert comprehension of the specialist (such as technology specialist) but it is the business operator who is familiar with the worth and the prospect of expert knowledge. Thus the management expert has specialized knowledge and the business operator has knowledge breadth and it is through the organization that the two kinds of knowledge are united to create wealth. The proven formula for success involves leveraging limited human and financial resources. For example, most business operators lack at least one critical management function, such as a controller or a sales manager. An outside accounting firm, a part-time employee, a channel partner, or a retired person could perform these functions. You have been approached by a person who has identified a business opportunity and who needs some assistance to evaluate it. Outline the advice you would give to such a person? An opportunity is not just an idea. A business opportunity must grow an idea with the potential to develop with the enterprise that has a reasonable chance to succeed. This means that all of the pieces of the puzzle must come together, and in the right order. There should first be the evaluation of external and internal factors that may influence the potential of the business opportunity. External analysis should consider both the general environment, and big picture, and the industry setting in which the venture might do business. Identifying potential affecters in the external environment is definitely worth the effort, but business concepts make sense only if they fit well with the internal potentials of the business. In other words, the entrepreneur’s understanding of potential business opportunities should be combined with insights into what the entrepreneur is able to do. With respect to the chosen sector/industry, learners need to know how to perform a systematic search for new business opportunities as well as how to analyze and evaluate them. There are many different tools identifying opportunities to determine ideas that are worthy of further development, like Drucker’s Seven Sources of Innovative Opportunity, Boston Consulting Group Matrix, GE Planning Grid, 7-S Model and Competitive Strength vs. Market Attractiveness Model. Assessment can be more ‘real world’ if the task of evaluation relates to an idea, plan or proposal with which an individual can identify personally. Determining whether an opportunity is possibly right for a company is not the same as deciding to enter a business, nor is evaluating an opportunity the same as evaluating a business plan. Grabbing a business opportunity is appropriate only after it has been determined that the opportunity itself is both valid and right for the company and the company has a business strategy and plan to which it is prepared to commit. Once a business has become established, it requires sound management systems to operate efficiently. Describe the system you would put in place to operate and control a small business. If the strategic objectives of the business are to be successfully implemented, then first, it is critical to identify the systems that will need to be in place in order to achieve them. The key management systems will typically be those that actively contribute towards the primary goals or profitability of the business. This includes the production functions that manufacture goods for sale and the sales and marketing that sell those goods to the customers. This is all about having the right resources in place to achieve the desired objectives of the business. Without these key systems in place, the strategic development of the business will not work, which is precisely why they must be right before anything can be started. The second stage is to ensure that the support systems are in place. These are the functions that enable the key systems to operate smoothly, such as the purchasing, stores, administration and distribution functions, not forgetting the management systems to organize and coordinate these. The third stage is to ensure that adequate monitoring and control systems are in place both to monitor the expansion of old or the implementation of new systems, and to monitor the efficacy of the whole strategic process and its component parts. In order to implement both the key systems and support systems, it will be necessary to produce an action plan which identifies the critical dates by which each one of these systems must be in place. The action plan should be regarded as a means to an end, as opposed to something that, once set, cannot be changed. Although it sets the guidelines and targets for the process, it must be flexible enough to account for, and respond to, any factors that are beyond the control of the process. The planning procedures must be, like the workings of each of the systems, subject to the same planning and review cycle if they are to function efficiently.