Ch. 5: Start Up Your Own Business

Learning ObjectivesIdentify 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 productionThe resources or inputs that are used in producing goods or providing services. These factors include land, labour, capital and entrepreneurship.

Capital goodsThey 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

Land Rent

Labour Wages

Capital Interest

Entrepreneurship Profits

Comparisons between workers and entrepreneurs

Workers EntrepreneursUse their labour Use their creativity

and innovation

Work according to instructions

High autonomy

Low autonomy and flexibility

May lose their capital

Amount of wage is fixed

Amount of profits varies

Wages are guaranteed Profits are not guaranteed

Characteristics of successful entrepreneurHardworkingHighly independentVery ambitiousWillingness to take riskSelf-motivationSelf-confidenceGood management skillsAbility to discover market opportunities

Contributions of entrepreneurs

Technological advancement

Employment opportunities

Economic growth

Advantages and disadvantages of owning a

businessAdvantages Disadvantages

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 planA 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 eachposition

Financial Plan:•Sources of finance•Break-even analysis •Budgeting

Personnel Plan:•Manpower planning•Recruitment•Training•Remuneration

A business planGeneral information

Determines the objectives of the business

Decides the products produced or services provided

Studies and chooses the locationDecides the layoutSelect the legal form of ownership

Marketing plan Chooses the key target marketGathers marketing information on the

competition, market share of each competitor,etc.

Formulates pricing, promotion and distribution strategies

Production plan Determines the intended capacityPrepares a statement of the production

facilities that are required

Organizational plan

Decides the organizational structureIdentifies the responsibilities and

authorities of each jobPrepares 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 analysisBudgets the cash flow situationEstablishes the accounting system

Type of Objectives

Growth SocialConsolidation

SurvivalProfit

Maximization

Factors Affecting Business Objectives

State of the economy

Size of firms Business nature

Stages of developmentof firms