Starting a business Sources of capital VOŠ – 3. ročník – 2. semestr ©Lenka Lexová

Definition when entrepreneurs start a business, they begin to produce some goods or to provide some services most businesses are privately owned businesses are typically formed to make a profit and grow the personal wealth of their owners ©Lenka Lexová

Business organization The major factors affecting how a business is organized are usually: the size and scope of the business the sector and country limited liability tax advantages     ©Lenka Lexová

Business factors capital and reserve funds location premises such as land or buildings fitting knowledge about the trade skilful staff advertising ©Lenka Lexová

Management it is the study of the efficient and effective operation of a business main branches of management are: financial management marketing management strategic management production management service management information technology management ©Lenka Lexová

Capital capital is money used by businesses to buy what they need in order to make their products or provide their services initial capital – needed to start a business additional capital – needed to run a business ©Lenka Lexová

Raising the capital raising of capital depends on the state of the firm, of the national economy, government and banking policies it can include: personal savings personal loans – guarantees in form of mortgages on property and premises are needed ©Lenka Lexová

Sources of capital the most common sources of capital are: Bank overdraft Bank loan Leasing Factoring Ploughing back profits Trade credits ©Lenka Lexová

Bank overdraft occurs when withdrawals from a bank account exceed the available balance which gives the account a negative balance it is used to pay for current assets such as material or stock ©Lenka Lexová

Bank loans it is the redistribution of financial assets over time, between the lender and the borrower a loan is a type of a debt it is used for buying specific assets such as fittings and machinery ©Lenka Lexová

Leasing is the right to use personal property or real property given for a fixed or indefinite period of time the lessee obtains possession of the property in return for paying the fixed or determinable payment at the end of the lease the firm can buy the property at a low price ©Lenka Lexová

Factoring is a form of commercial finance when a business sells its debts at a discount the business is no longer dependent on the debt from customers businesses benefit from the acceleration of cash flow by obtaining cash from the factor ©Lenka Lexová

Ploughing back profits profits made by the company are immediately invested back into the enterprise the money gained as profit is not used to repay loans or other debts ©Lenka Lexová

Trade credits one firm provides goods or services to a customer with an agreement to bill them later or receives a shipment or service from a supplier under an agreement to pay them later is the largest use of capital for a majority of business to business sellers ©Lenka Lexová

Other sources of capital credit cards the user is able to make purchases from merchants accepting that credit card up to a pre- established credit limit cheques enable to pay a specific amount of a specific currency from a specific demand account held in the depositor's name with the bank ©Lenka Lexová

Starting a new business Low taxes Skilled staff Low interest rates Cheap rents Stable economy Good transport Training courses High unemployment A strong currency Government grants Which of the following items are important for people starting a new business? Choose three most important. Can you think of some others? ©Lenka Lexová

Types of ownership Post office TV/newspaper Energy Cars Rail Water Telecoms Airlines In many countries there is a mix of public and private sector businesses. Think of Czech and foreign companies in the areas above. Which of them are public and which are private? In which area would you like to start your own business and why? ©Lenka Lexová

Listening Imagine that you are going to open your own clothes shop in your home town. What kinds of office equipment and supplies do you think you will need to run your business? What source of capital will you use to start your business? What sources of capital will you use to run your business? At a clothes shop ©Lenka Lexová

Imagine the following situation You are a producer of electronics and would like to expand your company and start up an overseas branch, which of the following countries would you choose and why? Discuss with your partner. Country A Economic growth: 2% Inflation: 5% Unemployment: 30% The country has a lot of debt and old infrastructure Transport: good railways, poor roads Labour: unskilled workers, low wages The country has military government and political problems. Country B Economic growth : 1,5% Inflation: 0,5% Unemployment: 3% Modern industrial economy Transport: good roads and railways, international airport Labour: not a lot of skillful workers, high wages The country has a stable government. Country C Economic growth : 8% Inflation: 10% Unemployment: 12% Transport: good sea transport, poor roads, small airport Labour: nor much skilled workers, fast rising wages Democratic government, not much paperwork required for exporting goods, but limits on profits of foreign companies. ©Lenka Lexová

Resources English in Economics, Miroslav Kaftan, Libuše Horáková:, Karolinum 2004 Market Leader, D. Cotton, D. Falvey, S. Kent, Pearson Longman, 2007 http://www.esl-lab.com/ www.wikipedia.org ©Lenka Lexová