Ch. 5: Start Up Your Own Business

Learning Objectives Identify the characteristics and contributions of entrepreneurs. Explain why so many Hong Kong people try to be their own boss. Evaluate owning a business in comparison with working for others. Introduce three common ways of getting into business. Describe the procedures of setting up a new business.

Describe the procedures of buying an existing business. Evaluate setting up a new business in comparison with buying an existing one. Introduce the major contents of a business plan.

Factors of production The resources or inputs that are used in producing goods or providing services. These factors include land, labour, capital and entrepreneurship.

Capital goods They consist of equipment, machines, plants and tools,. They are used to produce other goods.

Entrepreneur A person who risks his capital and put his effort in starting up his own business.

The factors of production and their rewards Factors of production Rewards LandRent LabourWages CapitalInterest EntrepreneurshipProfits

Comparisons between workers and entrepreneurs WorkersEntrepreneurs Use their labourUse their creativity and innovation Work according to instructions High autonomy Low autonomy and flexibility May lose their capital Amount of wage is fixedAmount of profits varies Wages are guaranteedProfits are not guaranteed

Characteristics of successful entrepreneur Hardworking Highly independent Very ambitious Willingness to take risk Self-motivation Self-confidence Good management skills Ability to discover market opportunities

Contributions of entrepreneurs Technological advancement Employment opportunities Economic growth

Advantages and disadvantages of owning a business AdvantagesDisadvantages Enjoy higher flexibility and autonomy Have the risk of losing the capital and effort Entitled to give orders to the employees Heavy workload High profit potential

Business plan A written plan that describes the objectives and other major activities of the business.

Business Plan General Information: Objective of firm Product produced/service provided Location of a firm Form of business ownership Marketing Plan: Target market Competitions’ action Market research Formation of the 4P’s Production Plan: Production capacity Facility layout Organizational Plan: Organizational structure Organization chart Responsibility + authority of each position Financial Plan: Sources of finance Break-even analysis Budgeting Personnel Plan: Manpower planning Recruitment Training Remuneration

A business plan General information Determines the objectives of the business Decides the products produced or services provided Studies and chooses the location Decides the layout Select the legal form of ownership Marketing plan Chooses the key target market Gathers marketing information on the competition, market share of each competitor,etc. Formulates pricing, promotion and distribution strategies Production plan Determines the intended capacity Prepares a statement of the production facilities that are required

Organizational plan Decides the organizational structure Identifies the responsibilities and authorities of each job Prepares the organization chart Personnel plan Indicates the types and number of employees Establishes the other personnel policies Financial plan Estimates the startup capital required Analyze the fixed costs and variable costs Conducts breakeven analysis Budgets the cash flow situation Establishes the accounting system

Type of Objectives Growth Social Consolidation Survival Profit Maximization

Factors Affecting Business Objectives State of the economy Size of firms Business nature Stages of development of firms