MGT 255 - Chapter 4

What are some advantages of organizing a small business from scratch?

Allows owner to define the nature of the business, the competitive environment which the business will operate, the appropriate market and the size/extent of operations.

Owner chooses building, equipment and location.

Owner gets fresh inventory.

Owner personally selects and trains staff.

Owner develops the information system such as the method used for bookkeeping and evaluation.

What are some disadvantages of organizing a small business from scratch?

Owner lacks historical info on which to base future plans.

Takes a hell of a lot of time to build, get inventory, set up, etc...

New businesses always have start-up problems or bugs that need to get worked out.

Owner faces the risk that there will be insufficient demand for the product or service.

What does a business plan do?

Provides a sense of direction for the business, a test of the idea's viability, assistance in achieving financing and a clear-cut implementation plan.

What are the main compontents of a business plan?

Table of contentsSynopsis of the plan in an exectutive summary and background statement.Describe the management teamEstablish business objectivesPlan the marketing approachDescribe the selection of the locationDetermine the physical facilitiesPlan the financingPlan the personnelInvestigate the legal requirements

Why is there a table of contents?

Mainly for the benefit of outside users of the business plan.

Why should you prepare a synopsis of the plan in an excetutive summary and background statement?

The exectutive summary is written at the conclusion of the business plan and is a short summary of the highlights of the plan.

The background statement provides a histroy of the project/business. It will identify the market, environment, strengths, and management preferences.

What are important aspects of the management team?

Qualifactions relating to experience and education of the owner-manager.

What are some examples of business objectives?

Business size, production levels, performance levels.

How do you plan the market approach?

Have a clear concept of the target market - determining market area, market area population, market potential and market share.

Understand the target market's needs, wants and purchasing habits - why do/will customers purchase the product or service.

Be aware of any uncontrollable factors that might affect the marketing of the product or service - Legisaltion, economy, competition, norms, new technology.

What are the essential aspects of the marketing program?

The product/service

The distribution system



What are the main aspects of the selection of the location?

The trading area

The site

The buy-or-lease decision

Running the business from one's home

What is the main aspect of physical facilities?


How do you plan the financing?

Establish capital requirements and make feasibility projections

Determine sources of funding

Plan the accounting and bookkeeping systems

Determine financial evaulation measures

What are some aspects concerning personnel?

Administrative structure

Employee recruitment and training

Personnel policies

What kind of legal structures are there?

Sole proprietorship