Discuss About The Entrepreneurs In Family Business Dynasties.
This report analyzes the retail business enterprise to determine the advantages of the venture and the challenges that an entrepreneur may face when they invest in this sector. The aim of the report is to identify the sources of capital for the new business. The report also identifies how these finances will be obtained and the capital structure of the business. The report also explains why the business venture was chosen and the advantages of the business other options that could have been chosen. There are various challenges in the external environment that could face the business venture. These external factors are analyzed using PESTEL method of analysis. An environmental analysis is required in order to help understand the business environment that the business will operate and hence help the management put in place strategies that will help the business succeed in the specific environment (Davidsson, 2008).The competitive environment of the venture is also analyzed in order to determine the level of competition in the retail industry in Australia. Before starting any business venture, it is important to identify and analyze the potential risks that the business venture may face. This is very crucial in helping to put measures in place to help minimize the likelihood of the risk occurring.
There are several sources of funding that startups such as Quicksave can take advantage. These sources range from personal savings, the contribution from family and friends, long term and short term loans as well as grants from the government (Apostola, Goodrich & Killackey,2013). This section discusses the available sources of funding for Quicksave and how they can be assessed.
Angels, in this case, are defined as wealthy individuals who directly invest in small firms owned by other people. These individuals provide technical and management knowledge which is crucial to the growth of the business ventures. Angel funding involves an individual with cash injecting capital in a business in exchange for a share of the business. They also demand to have a say in the day to day running of the business by sitting on the board of directors of the company. Therefore, a business venture such as Quick save can get between $25,000 and $100,000 from angel financing.
When starting a business a person has to ensure that they have saved some finances as startup capital. This is because it is difficult to start a business while entirely depending on borrowed capital. A person intending to start a business must have some financial foundation which can be supported by other sources of funding to support the business. (Durkin, 2017) Personal savings of the Quicksave entrepreneur can be used to register the company to finance the purchase of furniture, computers and other minor expenses. Personal savings may not be enough to start a large business but its very important since its used to finance important logistics for the business. Personal cash proves to other investors that the entrepreneur is committed to the business for the long-term and the entrepreneur has a lot of interest in the business.
Venture capitalism is a type of private equity financing that is provided by either an organization or an individual to fund early startups that have high growth potential.Venture capital normally comes from entrepreneurs who are rich, investment banks and other financial institutions. Venture capital can also be provided through technical and managerial expertise. Venture capital is a very strategic source of capital for QuickSave supermarket since it provides a large source of capital which is enough for the business to open up (Nihoul & Skoczny,2015). The other advantage of venture capital as a source of finance for Quicksave is that it can provide the much needed technical knowledge that may be necessary for the management of the business. The disadvantage of venture capital is that the person providing the funds will have an ownership share in the company and hence denying the entrepreneur control over the company.
Government agencies in Australia provide funding for startups in Australia. This is done at both state level and at the federal level. Getting grants can be tough due to the stringent requirements that are in place. The requirements of the grants may be such that the business seeking the grant covers 40% of the total cost. The requirements for a business like Quicksave to get a grant include; having a detailed project description, a detailed justification of the project and complete application forms that are required.
A bank loan is one of the most commonly used sources of funding for small and medium-sized businesses. Banks offer customers loans at an agreed interest rate and the customers are required to repay the amount due within a given period of time (Gunn & Durkin, 2010). Banks offer loans under different conditions and the interest rates vary across the banks. The advantage of banks as a source of capital is that they provide huge finances that can help the business to invest in important infrastructure to help the business run smoothly. The disadvantage with banks as a source of capital is that at times they charge a very high-interest rate which may make the cost of capital too high for the business (Peris-Ortiz &Sahut, 2014). The requirements for a start-up business to get loan funding from a bank are very strict since most of the banks require collateral which may not be available for many new businesses like Quicksave.
This is money borrowed from parents, spouses, family, and friends. The people who lend this money to the business expect to be refunded once the business grows and begins making profits. The amount of capital contributed by friends and relatives is very little to fund a business venture such as a supermarket and therefore it cannot be largely depended on as a source of funding. The contribution from family and friends is important for small and medium business such as the retail supermarket.
The local politics of the region that the supermarket can affect the business in case the local government enacts policies that might be against the business venture.The political environment may become unstable in the future and hence make it difficult for business in this region to thrive. At present the political environment in Australia is stable and therefore the retail business is unlikely to be affected by political instability (McCuddy, 2007).
In addition to this, the business may struggle to repay the borrowed capital due to the fact that the business may start at a slow pace before making enough profits. During the initial stages of a business, the business is overburdened with fixed costs such as rent expenses as well as wages. The business may struggle to meet these costs in the beginning. These costs have a big burden on the business operations unless measures are in place to cater for these costs (Knox & Knox, 2015). Therefore, it will be challenging for Quicksave supermarket to meet the fixed costs before the business gains ground to the point of making profits.
The other economic factors that could affect the business include the rate of growth of the economy. If the economy of the country slows down, the rate of growth of the business will slow down and hence affecting the profit margins.
Startups may also be affected by interest rates.Increase in the lending rates will have a great impact on the new business. This is because an increase in interest rates means that cost of getting credit will rise and hence discourage borrowing. A business like Quicksave will, therefore, find it difficult to access additional capital to help the business expand. Fluctuating exchange rates will also be an economic challenge for Quicksave.
Changes in tastes and preferences of consumers in future present a major challenge for the business. The modern consumer is very complex and their preferences keep changing from time to time and hence its important for the business to keep up with the trends. The customer base of the company consists of people with different demographics and hence its important for the business to understand the demographics so as to serve the market better.
New purchase modes of payment such as the use of electronic cards and mobile money will affect the retail business. Increase in popularity of online retailers will also be a major challenge for the business.
The business needs to come up with creative ways to manage its waste in order to ensure that it complies with the government legislation regarding the environment.
Legal requirements for registration of business need to be fulfilled in order for the business to start operations.
There are various risks that an entrepreneur planning to start a retail supermarket business is likely to encounter especially in the initial stages of the business. Some of the challenges include securing enough funds to run the business, marketing challenges, as finding the right staff to help run and manage the business. Starting a new business comes with harsh challenges but they are rewarding in the long term (Haltiwanger, 2017). Establishing the brand to keep up with competition in the very competitive industry is also a huge challenge for the retail business. The following is a detailed discussion of the potential challenges that the supermarket business may face.
Despite there being many sources of business capital, it is difficult to secure enough capital to start a business with a substantial capital requirement such as a supermarket. Most of the lenders of finances have placed very stringent lending conditions and hence making it difficult to qualify for the loans and therefore the entrepreneur risks failing to raise enough capital for the business (Hougaz, 2015) The stringent conditions for getting funding limits the sources of funding and hence, the business may struggle in the initial stages due to insufficient capital. The retail business may initially start without enough stocks on the shelves.
The business faces a risk of failing to pick the right team of employees for the new business. Assembling the right team is stressful and may involve substantial costs for the business. It is very important for a business to bring together individuals who are highly motivated and with enough experience in the retail sector in order to ensure that the level of customer satisfaction is high and hence help to attract new customers and retain existing customers. (Andersen, 2014)Therefore,it will be a huge challenge for the business to bring together a team that will be able to grow the company and establishes the brand.
Competition is very stiff in the retail industry in Australia. The business risks losing to the competitors in the market.There are very many established supermarket chains in Australia which are very competitive and they have a very big market share (Hisrich&Ramadani, 2017). The big supermarket chains establish such as Coles offer products at low competitive prices. This is because they enjoy large economies of scale. The new supermarket will take some time to establish its own brand that will be attractive to customers.It is, therefore, a big challenge for a new supermarket to compete against the existing enterprises.
Conclusion
This report analyzes and describes the retail business in Australia. The business discussed is a new supermarket by the name Quicksave supermarket. There are various sources of capital for Quicksave and they include; Love money, personal savings, loans, grants and government loans and venture capital. The report discusses the sources of capital and the way in which they can be obtained. The report discusses the potential challenges that the business is likely to face a particular focus on the external environment of the business. The risks that the business faces include; risk of failing to raise enough capital, the risk of business failure due to competition and risk of failure to assemble the right team of employees.
References
Andersen, T. J. (2014). Contemporary challenges in risk management: Dealing with risk, uncertainty and the unknown.
Apostola, A., Goodrich, S., & In Killackey, F. (2013). Taking back retail: Transforming traditional retailers into digital retailers.
Davidsson, P. (2008). The entrepreneurship research challenge.
Durkin, C. (2017). Social entrepreneurship: A skills approach. Policy Press.
Gunn, R., & Durkin, C. (2010).Social entrepreneurship: A skills approach. Bristol, UK: Policy Press.
Haltiwanger, J. (2017). Measuring Entrepreneurial Businesses: Current Knowledge and Challenges.University of Chicago Press.
Hisrich, R. D., &Ramadani, V. (2017).Effective Entrepreneurial Management: Strategy, Planning, Risk Management, and Organization.
Hougaz, L. (2015). Entrepreneurs in family business dynasties: Stories of Italian-Australian family businesses over 100 years.
Knox, M., & Knox, M. (2015).Supermarket monsters: The price of Coles and Woolworths’ dominance. Collingwood: Schwartz Publishing Pty, Limited.
Nihoul, P., & Skoczny, T. (2015). Procedural fairness in competition proceedings.
Peris-Ortiz, M., &Sahut, J.-M. (2014). New challenges in entrepreneurship and finance: Examining the prospects for sustainable business development, performance, innovation, and economic growth.
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