Discuss About The Brand Protection Challenges Counterfeiting.
A business venture is a small business invested in by one or more individuals (backers) with the hope of proving financial gain for all the backers. They usually spring up due to a demand for a particular product or a gap in the supply in the market. New business ventures need financing because they are too small to raise enough capital for upfront payment. As a result, many promising business ideas have met a dead end and came to a sad ending due to insufficient funds.
Starting a new business is not just having a good idea, there are start-up costs. Start-up costs are the costs sustained in starting a new business. It may be different for every industry, but some of the common ones are as follows; security deposits for example lease deposits and utility deposits, machinery and paraphernalia, offices, inventory, advertising costs, working capital and unpredicted costs. Once the costs are established, the next step is to find the funding for those costs. Businesses acquire funding in different ways, but those entire sources can classified into two major categories, debt financing and equity financing.
Commercial banks are always offering credit to small business (Ghosh and Moon 2010, p. 568). They can offer short-term loans like lines of credit or long-term loans such as installment loans. When offering the loans, the banks consider provisions such as how favorable the market is to the business, the valuation of the collateral, credit records, the capability of the business to compensate the loan, the entrepreneurship capabilities of the business owner and surely the current economic situation with the country.
The government has a range of funding plans for small businesses, these vary from grants, venture capitals to soft loans. The government offer favorable playing field for the new ventures by offering tax incentive and guarantee schemes (Jung, Cho and Roberts 2015). The objectives of these financial assistance are to help small business improve their workforce, improve their technology, promote their product and to repay their loans.
According to Lally and Prasad (2014), other sources of finance for new ventures come from finance companies like American Express or Wells Cargo, which offer alternative funding should a loan application fail. They are mainly interested in high-risk opportunities in order to charge higher interest rates for their loans. But to their credit, some industries would not even exist without the help of finance companies (Wilson, 2010).
Sometimes a new business management can be funded through equity. A fresh entrepreneur first looks into their personal savings. Most lenders actually prefer to see the owner allocate some of their own finance before investing some of their own. Private investors are also a major source of finance. As stated by Massa, Mataigne, Vermaelen and Moqi (2016), friends and family are a good source of finance, they invest in the business with the hope of making a profit should the business succeed. They can also join in as partners either sleeping or active, which would allow for the accumulation of funds. Partners come together to donate their funding, collectively manage and share in the risks/loses and rewards/profits of the business. Another source of finance is venture capital firms. They too like finance companies offer capital to a new venture; the only difference is they only operate within a specific industry where they are certain of high growth and profitable returns. A venture can also sell their shares to the public as a way to crowd source the capital (Covas and Den Haan, 2012). Shares can be sold privately or publicly, however, the owner has to accept giving up ownership and losing control.
In severe circumstances, a business can get financing from sources such as factoring, which is selling the account receivable for a lower price than the face value of the accounts. The business could also lease the machinery and equipment that are still too expensive to buy to reduce the expenses. Some startups just rely upon credit cards to fund the business. This is a good alternative because credit card companies don’t really care how you spend your money as long as the accounts are settled. That said, it is a risky way to fund a business and should be used with caution. It is difficult to pick which funding option is better than the other, the venture has to consider factors such as the cost of funding, the time period of financing and the owner’s need for ownership and control.
A new venture faces several challenges during its infancy. These challenges are classified into the following categories, legal, technological, social and cultural, political, economic and environmental. Some of these challenges include;
Most owners think they understand the legal requirements for the business, that all it takes is a license and paying taxes. Below are some of the legal challenges faces by new ventures.
Choosing the type of business organization. This is the first legal issue. In order to confirm the type of business organization, the owner first has to determine the capital structure of the business, meaning, those who are identified as the value owners of the business. Next, owner determines which of the following entities the business fits. The C Corporation, the S corporation or the LLC (Limited Liability Company). Another legal issue is avoiding common mistakes. New ventures have to obey security and tax laws as well as to secure its right to intellectual property.
Equity-based Compensation of employees- Due to lack of financial resources for a start-up, use of stock for employees, directors and consultants have become acceptable for new ventures. Another issue under employee compensation is how to determine how much stock or options are to be set aside for employees. In order to answer that question, the owner has to ask himself why the employees are paid in stocks/ options. After answering this questions, the owner then has to come up with a plan for making awards of stock/options, which is done by setting up pre-venture capital investment, then post first-round venture capital (basically setting aside some sock/options for future awards) and finally writing a long-term plan
And finally, valuation- After determining capital expenses and the right source of capital, the business and source of finance must determine the value of the business. Valuation is basically determining the current value of the business and determining the future value at the time investors can register the return on investment. Valuation is done by pricing the first round of funding, meaning, how many shares are you willing to give up or sell to fund the business. This is an easy way to determine the value of the business at the beginning.
Keeping up with changing world of technology-Today most software is outdated and the hardware does not work smoothly with the new software. Business startups deal with the problem of having to keep up with the constant change in technology. The cost of repairing, maintaining and updating technology is expensive. This is another challenges, and so is storing data and security. Business, whatever size, has an immense amount of data, it becomes challenging to find a good and secure firm to store and backup the data.
The main economic challenge for a new venture is the economic climate. Entrepreneurial growth in a society depends on the opportunities available in that society. A slow economy will surely discourage any investments, for example, businesses that were started the during the period of financial meltdown suffered a great financial breakdown (Johnson, 2017).
Another challenge is competition. New ventures in an industry have to battle already established brands some of which have been around for a long time. Given that the society is not as adventurous as would be required, people tend to go with already established brands, this makes it hard for new ventures to acquire clients. The other problem is the availability of capital is starting to decrease given that family, friends or the society are not providing capital in the present times, new business owners depend entirely on financial institutions.
A well designed training facility could of great importance to an entrepreneur, it can help sharpen their managerial skills, leadership skill, problem-solving skill and time management, sadly these institutions are not available to all. The ones available are ineffective, expensive, not specialized and are at times not familiar with the local market. Batra (2011) found that small business face the problem of bad debts. In most cases, customers take loans and do not pay. One business owner was quoted saying, sometimes their customers would rather leave the country than pay back their debts (Jha and Singh, 2015).
Starting a new business creates tension for the family unit. They are vulnerable especially to issues of mistrust, dishonesty and a lack of understanding between the couples. These effects are largely visible in new couples starting a new business venture (Matzek & Werbel, 2010). The culture of a society has the power to determine the rates of entrepreneurial ventures and entrepreneurial capacity. Entrepreneurial capacity is the number of people in an environment with entrepreneurial characteristics and the inclination to start a business.
Entrepreneurs have a responsibility to create a team with whom they will work, but, it does not just stop at assembling a team, they also have to transfer their vision and dream to this team. Cultural differences and society present a major challenge to new entrepreneurs.
Government policies in regards to new ventures affect the emergence of new business. Policies on tax laws, tariffs and entry mode regulations can encourage or discourage new business owners to initiate their venture. In addition to that, licenses to operate a new venture changes all the time and operation duties always go up. Another challenge is the stability of government in an area. Constant attacks and instability will surely discourage any entrepreneurial progress. The geographical location of a place, its climate and weather influence the population of that are and therefore the market. The waste disposal laws of an area can influence the entrepreneurial opportunities. Other environmental challenges include energy consumption regulation and people’s attitude towards the environment.
Businesses face several risks both at startup and during business. Some of this risks can be managed with insurance, like a fire. But there are those risks to small business that cannot be insured. All business have a risk that is unique to it but they all can be categorised into three major components, budget risk, quality risk and schedule risk. A risk management plan is required for any business. However, this plan is only as good as the risks identified, these risks have to be the root hazard. The following are just some of the risks small business would have to face as identified and explained by Kennedy J, (2016).
In case of a fire or a natural disaster and the main office is unusable, is your business ready? What would you do? Of course, there is an insurance policy to cover the losses but the business would have to move to a temporary place. This move is covered by a different insurance policy that is usually overlooked by business owners.
It does not matter how good you plan, when running a small business you will be hit by unexpected surprises. Business owners protect their business by getting general liability insurance coverage. This offers protection against personal injury, advertising injury and property damage caused by your product.
Small business like their larger counterparts has an obligation to compensate employees injured at or during employment. From medical cost to lost business time, these injuries have an actual impact on insurance premiums, but thanks to managing exposure and promoting safety, it is possible to minimize employee’s injuries. Other risks include managing electronic data and computer resource (the risk of hackers), a key person loses, environmental exposure, managing supply chain, contracts (oversight risk) and employment practices. There is usually an insurance coverage for any risk a business may face for most businesses. However small business owners miss these or they just do not see the potential risk.
Conclusion
In conclusion, small business ideas will always exist. But making a business is not just about having an idea; several challenges and obstacles lie in the way of actualizing the business idea. Financial institutions are willing to help fund small business ventures but given the pop up of several business ideas that require funding, less of the ideas get funded. The government keeps making policies that support the eruption of small ideas but the larger conglomerates buy these ideas in their infancy to prevent competition or in other cases, they simply cripple the growth of the business. Challenges and risks lie in the way of a new business, political, legal, environmental, social and cultural. The personality, character and tenacity of the entrepreneur are what will keep the business afloat and make it competitive. The growth of a business is the responsibility of the stakeholders in the business and the business owner has to overcome all the challenges in order to conduct an effective business.
References
Batra, V. (2012). The State of Microfinance in India: Emergence, Delivery Models and Issues, Journal of International Economics, 3(1), 0976-0792.
Covas, F., & Den Haan, W. J. (2012). The Role of Debt and Equity Finance Over the Business Cycle* The Role of Debt and Equity Finance Over the Business Cycle. Economic Journal, 122(565), 1262-1286. doi:10.1111/j.1468-0297.2012.02528.x
Ghosh, A. & Moon, D. (2010). Corporate Debt Financing and Earnings Quality. Journal Of Business Finance & Accounting, 37(5/6), 538-559. doi:10.1111/j.1468-5957.2010.02194.x
Heidrich, O., & Tiwary, A. (2013). Environmental appraisal of green production systems: Challenges faced by small companies using life cycle assessment. International Journal Of Production Research, 51(19), 5884-5896. doi:10.1080/00207543.2013.807372
Jha, J. K., & Singh, M. (2015). Human Resource management (HR) &Social Challenges Faced by Microfinance in India: A Framework. Indian Journal Of Industrial Relations, 50(3), 494-504.
Johnson, B. (2017). Small businesses launched on the eve of the Great Recession took a financial beating. The ones that figured out how to adapt are thriving. Njbiz, 23.
Jung, S., Cho, S., & Roberts, R. K. (2015). The impact of government funding of poverty reduction programmes. Papers In Regional Science, 94(3), 653-675. doi:10.1111/pirs.12089
Kennedy, J. (2016). Proposed Solutions to the Brand Protection Challenges and Counterfeiting Risks Faced by Small and Medium Enterprises (SMEs). Journal Of Applied Security Research, 11(4), 450-468. doi:10.1080/19361610.2016.1210487
Lally, M., & Prasad, V. (2014). New Zealand finance companies and risk premiums. Accounting & Finance, 54(4), 1207-1229. doi:10.1111/acfi.12039
Massa, M., Mataigne, V., Vermaelen, T., & Moqi, X. (2016). Choices in Equity Finance A Global Perspective. INSEAD Working Papers Collection, (22), 1-57.
Matzek, A. E., Gudmunson, C. G., & Danes, S. M. (2010). Spousal capital as a resource for couples starting a business. Family Relations, 59, 58–71.
Wilson, W., Rose, L. and Pinfold, J., (2010). Examination of NZ finance company failures: the role of corporate governance. Management Online Review, February, 1–23.
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