Unit III starting a business

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1. I'd thought we'd begin today with a sort of general look at some of the problems involved in running a business, just as a sort of introduction. If you look at almost any newspaper today, you'll see lots of reports of businesses closing down and of other businesses starting up. And if you just walk down the high street of wherever you live, you'll notice that there are quite a number of little shops which only seem to last a few weeks. The next time you look, there's someone quite different there. Lots of people are starting up their own little businesses, but only a small number of them seem to succeed. Why is this so?

2. Well, there are several reasons. These are quite difficult times. There has been a pretty general recession – though they tell us the worst is over now – which means that unless you are part of a big, international concern – and not always even then! – it is quite difficult to make a living by making and selling things. Then there's the question of labour relations. One is used to hearing all kinds of horror stories about the activities of wicked trade unions, about excessive wage demands, and about what is officially called "industrial action", which usually means strikes. I'm sure there is no doubt that these factors do contribute to the rapid disappearance of many little businesses, but it is more than likely, in my opinion, that what really accounts for most of the failures is quite simply bad management. So I shall spend the next few minutes talking about management, and in particular about the management of money, which is the single most important aspect of managing a business.

3. Let's look at some of the ways in which a business may be badly managed, to see if we can learn some lessons from them about good management. First, many new businesses are under-capitalised, that is, there isn't enough money available to them to give them a real chance to succeed. If everything goes smoothly right from the start, they may survive. But if they encounter problems and delays, and they are under-capitalised, they will be in trouble. And we should remember, too, that enthusiasts tend always to be over-optimistic, so they underestimate the amount of capital they are going to need. So that is our first lesson: never attempt to start a new venture if you haven't got enough capital to see it through.

4. Second, many new businesses fail because they are in the wrong place or their premises are unsuitable – too big or too small, or something of the sort. This may mean that they can't afford to pay the rent and other costs, or they operate inefficiently because they haven't got enough room to plan properly or to expand if they need to. So our second lesson is: don't be too much of a hurry to settle on premises if you aren't quite sure they are right.

5. Third, some ambitious new businesses spend too much of their capital on presenting a glossy image, with expensive fittings and office furniture which cost a great deal of money but do not contribute anything to meeting the expenses. So that's our third lesson: get you priorities right and don't spend too much of your capital on non-productive items.

6. Fourth, far too many businesses fail because their managers have not done their homework, in two ways in particular – in researching the market to make sure that the product they have in mind is really in demand and not already available from lots of other companies at competitive prices, and in investigating and setting up ways of distributing the finished product, that is, of getting it to the customer on profitable term. Remember, even if you produce the finest product of its type in the world, but no one wants to buy it or you can't get it to the people who do, you will fail. And that's our fourth lesson: always research the market before you decide to enter it – and that includes taking a long, hard look at the competition. There is fifth lesson here, too. Be very sure you have a system of distribution ready before you even start to produce anything.

7. There are quite a lot of other factors to be taken into account: installing the right equipment, hiring a suitable workforce, ensuring a supply of raw materials on terms you can afford; controlling production and the storage of stock; keeping a close check on prices and customer credit; and so on. Some of these we shall be dealing with later in your course.

8. But above all remember today's golden rule. Plan every step of the way before you start... Any other time is too late.

Questions to the text:

1. Which reports will you see if you look at almost every newspaper?

2. Which factors contribute to the rapid disappearance of many businesses?

3. What is the single most important aspect of managing a business?

4. Can you start a new venture if you haven't got enough capital to see it through?

5. Why is it important to have the right premises?

6. What should the priorities be like? Is it essential to present a glossy image or better to spend money on productive items?

7. What are the two tasks the manager has to do before the company even starts to produce anything?

8. What are the basic problems involved in running a business? Name them.

9. Are there any other factors to be taken into account?