14.4. Business Resources

Planning, organizing and managing resources

In order to create a successful business, it is necessary to obtain and manage human, physical, and financial resources in order to achieve business goals within specific timescales. The hardest tasks in setting up a new business are to:

• Correctly identify the quantity and quality of resources required

• Obtain the resources needed at a reasonable cost

• Manage the resources efficiently and effectively over a period of time, in order to achieve desired goals

This section considers some of the resource issues and questions which must be asked by entrepreneurs starting a new firm.

Human resources. Labour, or human resources, provides the physical and mental effort necessary to run a business. To be successful, a business needs the right management and workforce. The first step an entrepreneur should take when setting up a new business is to ask, ‘Do I have the necessary experience and expertise to run this business? If not, how will I be able to run it, and who else can help me?’

Sometimes the answer may prompt the entrepreneur to become an employee first in a similar kind of business, in order to ‘learn the ropes’. It is clearly very important to consider the kind of skills that would-be employees might need, and how staff with the right skills might be recruited. This might involve undertaking a survey of the employment market, in order to see what terms and conditions of employment staff are offered elsewhere.

Once the entrepreneur has identified whether or not the right management and staff can be found, it is necessary to look at the kinds of systems that will be needed to manage the human resources of the organization. As a business begins to grow and take more staff, the owners will have to ensure that they can meet the requirements of employment legislation and can manage the deduction of income tax under the PAYE (pay-as-you-earn) system and the payment of National Insurance contributions. The costs of advertising, recruiting, and training staff must all be carefully estimated, because these will make up a significant proportion of the total costs of setting up a new business.

Physical resources. Physical resources include the premises that the business will operate from, the machinery and equipment it will use, and the stocks of materials and other consumables, such as paper, it will need to purchase. Choosing the right premises in the right location and at the right price is a key factor in the success of any new business, particularly a retail outlet.

Types of business premises can include shop, office, factory unit/factory, or home. An increasing number of people are running small businesses from home, because it is often the cheapest and most convenient option. Many home businesses will either manufacture products that do not require a large amount of machinery and other equipment, such as stuffed toys or dried flower arrangements, or will provide services such as child-minding, cleaning, photography, or painting and decorating.

Because working from home changes the use of the property, it may be necessary to obtain planning permission from the local authority before the business can be established. Certain mortgages or leases also contain conditions which limit the use of the property.

However, operating from home is not usually an option for people who start up new retail outlets or factories. Shops will need to be accessible by car and public transport, and near to other shops to pick up passing trade. A factory will need to house machinery and receive deliveries. The best location will, therefore, vary with the kind of business in question.

When considering premises, traders should consider the following issues:

• Are there any plans which might change the character of the area in future, for example, new roads, office blocks, or changes in the parking regulations?

• Are there any financial gains to be had by locating in the area? For example, is it a development area which qualifies for government financial assistance?

• What local authority grants are available for new start-ups in the area?

• What is the availability of labour in the area?

Traders should also consider:

• The location of suppliers who will make regular deliveries to the business

• Ease of access both for customers and for suppliers (e.g. locating in a restricted parking area may cause problems)

• Security of the premises and how much it would cost to make them secure (wire grills, locks, alarms, etc.)

• Availability of facilities such as washbasins and toilets and whether they meet health and safety requirements

• Storage facilities

• Floor area in relation to anticipated sales turnover and number of employees

• Fire exits, stairways, and lifts

• Space for expansion, car parking, etc.

• Costs of legal fees, rent, rates, refurbishment, and insurance

• Costs and other terms and conditions of letting

• Local competition. For example, it would be unwise to set up yet another shoe shop in a small town area already served by ten other.

Once suitable premises have been found, it is necessary to consider carefully the basis on which the property will be occupied. If the land and property are freehold, the owners can buy them outright and use them as they wish (subject to planning and local authority regulations). However, freehold ownership is not the norm for new businesses, because of the heavy financial commitment involved in taking out a commercial mortgage, and also because commercial properties tend to be available only on a leasehold basis.

Leasehold land or property is rented from its owner for a set number of years. This is the cheaper option, and the basis on which most firms operate.

If premises have been used for different purposes in the past, the entrepreneur will need to ask the local authority if formal planning permission is required for a ‘change of use’. For example, a scheme to establish a wine bar in premises previously used as a furniture store will certainly need formal permission from the council. Obtaining planning permission will involve the local council investigating the views of other traders and local residents and considering any objections they may have. Some businesses may also require a special license from the local authority to operate. For example, restaurants, bars, tobacconists, and nurseries all require a local authority license. The license may be removed at any time, if the local authority has evidence that the trader is not operating to the required standards.

Financial resources. When setting up a business, the owners need to consider:

• How much start-up capital they can raise from their own savings, or from family and friends

• The balance which needs to be raised from external sources

Calculating a realistic figure for the amount of external finance to be raised when starring a business is one of the most difficult tasks in business planning. Entrepreneurs are often unrealistic and underestimate the amount of money they will need. However, lenders, such as banks, are unlikely to be sympathetic if the business later starts to struggle because of a lack of finance.

A new business will require finance for:

• The purchase of fixed assets such as buildings and machinery

• Working capital, or the day-to-day financing requirements of the firm

In considering which sources of finance to use, business owners will need to carefully consider:

• The total amount of money required

• How long they need to borrow money for

• The relative costs of different sources of finance

A variety of external organizations will consider providing finance to businesses on different terms over different periods of time. These include banks, building societies, finance companies, and venture capitalists. Hire purchase and leasing should also be considered as methods of financing equipment.

Time management

Good management requires that resources are used to achieve particular goals within specified periods of time. For example, capital borrowed from a bank must be converted into goods and services for sale, and back into cash for repayment of the loan, within a period acceptable to the bank. One of the key issues in time management is the prioritizing of tasks, so that the most urgent ones are identified and carried out first. For example, when converting business premises, planning permission needs to be obtained before builders are contracted to make the alterations. Although this may seem obvious, when many hundreds tasks need to be completed, the planning and organizing of tasks in this way is essential.

Businesses use two key techniques to help them plan and manage tasks:

Critical path analysis (CPA) is a technique used to break down a project into its component activities, place them in the right sequence, and then decide when to carry them out. The aim is to identify the minimum amount of rime required to complete the entire project.

For example, in marketing there are a series of stages, including market research, research and development (R&D), test marketing, pricing, distribution, promotion, selling and after-sales service, which can be further broken down into key steps and prioritized. Some of these activities are critical, such that if they are delayed, the whole project will take longer than expected. For example, the lead time between ordering and taking delivery of materials is critical in production.

The objective of CPA is to schedule tasks in a way that minimizes time and costs. A series of lines, each one representing an activity, can be drawn in the form of a network diagram, or PERT chart (Program Evaluation and Review Technique). Adding the time each activity is expected to take allows a business to identify the critical path of the project – that is, the minimum time needed to complete it.

Figure below shows a PERT chart for a project to install new computer equipment in an office. It shows that no activity in the network can be started until all preceding activities have been completed. To complete all the individual tasks would take 31 days. But because some tasks can be carried out at the same time, the whole project could be completed in 20 days. A delay in any one of the activities on the critical path will delay the whole project.

Move furniture and files (2 days)

Remove old equipment (3 days)

Replace furniture and files (1 day)

Rewire office

(5 days)

Install new equipment

(4 days)

Agree funding

(5 days)

START

FINISH

Order new equipment (10 days)

Check equipment (1 day)

Fig. A PERT chart for installing new computer equipment

A GANNT chart is simply a horizontal bar chart, each bar representing a different activity. The vertical axis records the different activities which need to be undertaken, and the horizontal axis records time. The length of each bar is determined by the amount of time needed to complete each activity. Bars can also be shaded to show how much work has been completed under each task.

A GANNT chart for installing new computer equipment

Tasks / Date	27.01	03.02	10.02	17.02	24.02
Agree funding Order new equipment Remove old equipment Move furniture and files Rewire office Replace furniture and files Check equipment Install new equipment

Work completed

Work outstanding

To prepare a GANNT chart, a manager will list all the activities necessary to complete a project, and then estimate the time required for each one. Progress is then checked against the chart. If the project is ahead of schedule, the manager may decide to move some employees to another project. If the project is behind schedule, extra labour may be required to finish it on time.