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business proposition business competition chain. Word count: 400 words B) Based idea produced question 1 part A, explain main difficulties/barriers? Word count: 400 words Question 2 A) Reflect possibility finance business.
In the current context of the unstable economy, more and more people and firms have come to lose their activity and their savings. In such a context, they seek to become engaged in new opportunities, to create new business ventures and to ensure their functioning and living. In other words, despite the still ongoing effects of the economic crisis, fact remains that some business ideas could turn into successful ventures. One example in this sense is that of providing child care services.
The small firm would operate in its own facility, but would provide a series of services outside its facilities, as well. For instance, the company could pick the children up in the morning and drive them to school or daycare. After their hours are over, the company could drive the children to its facility, where they would receive help with their homework, and could also spend some time playing constructive games. In the afternoon, the company could drive the children back to their houses.
The viability of the idea with child care services is supported in today's economy, especially since parents tend to work harder and longer in order to preserve their jobs and provide financial support for their families. They are then less likely to spend time helping their children with their homework. Furthermore, in the educational context, it has to be noted that the curricular in the schools continues to change, and parents find it more difficult to provide useful input in their children' homework preparation. In such a setting then, the new service comes to serve a social need pre-existent to the crisis, but also one accentuated by the recession.
As the idea is generated, it is now important to note how it could be applied into practice. This can be achieved with the aid of the business competition chain, as revealed below:
From the standpoint of the business competition chain, the generated idea would first have to attract the interest of the entrepreneurs, in the meaning of attracting the entrepreneurs willing to apply the idea into practice. Then, the next step is represented by the generation of capitals, which is a step normally completed by the entrepreneur. As the funds are collected, the company is actually formed -- at this level, emphasis is placed on the purchase of the materials and equipments necessary, the renting of the facility or the hiring of the personnel. The service is then released into the market, with the aid of marketing campaigns to attract customers.
As it has been presented throughout the previous section, the new service to provide child care at multiple levels appears an attractive business idea. Nevertheless, it has to be noted that there are numerous barriers to the successful implementation of the business idea. Some of them are generated by the parents, whereas other barriers have more technical natures.
At the level of the parents for instance, the barriers raised could be represented by the lack of trust in a new firm. The children are the most important persons in the lives of the parents, and adults tend to be very careful when placing them in the care of other people. The fact that the service is new means that it is not tested and not yet trusted. In other words, the company has to prove its worth within the market.
Then, still at the level of the parents, a barrier to attracting children to the day center is represented by the costs involved. As numerous parents have lost their jobs, they will already be at home and their children will not need to go to other places for safety, supervision and help with the homework. Unemployed parents then are less likely to respond to the service provided by the new firm, but this limitation is accepted as the company will normally target employed and busy parents.
Aside from the perceptions of the parents, another notable barrier would be represented by the need to comply with the regulations. Regulations raise challenges for any business, but even more so for child care services, which have to comply with legislations, such as the need to get a permit to operate the facility from the Department of Health (Missouri Department of Health and Senior Services). The legislative hurdles can delay the company from launching its operations.
Finally, a last barrier to be hereby mentioned is represented by the need to obtain the necessary financial resources. When providing multiple services, the company will have to possess the facility (or rent) for the children to play and learn, the vehicles to ensure their transport, the staffs to look after them and so on. The initial investment is as such a relatively high one, and the return on profit is expected to be slow. The company will as such face the financial barrier.
Due to the challenges raised by the financial aspect of the business, it is now necessary to assess the mechanisms by which the firm will finance its operations. In order to discuss this, one starts at the assumption that the entrepreneur possesses some of the financial resources that are necessary, yet not all of them. This assumption is based on the belief that no sound business venture can be launched fully on credit, without an initial investment from the entrepreneur; without this initial investment, no creditor would be convinced to sign on.
The first option presented to the entrepreneur is represented by the collection of the still necessary funds through a bank loan. This means of collecting the money implies that the entrepreneur approaches the commercial banks with the business plan and evidence of their own resources, as well as the collateral solicited by the banking institution. The borrowed capitals allow the company to launch its operations and also to preserve the integrity of its control over the organizational decisions; the firm will have to pay a specific sum of money, on monthly bases, regardless of its financial outcome.
The second option is represented by the possibility for the entrepreneur to seek an additional investor. This investor would bring in the still needed sums of money, sharing in the risks of the initial entrepreneur; the new investor will nevertheless own capital and will as such influence the decision making process in the firm, diminishing the control of the initial investor (Longenecker, Moore, Palich and Petty, 2006).
As it has been mentioned previously, the company is faced with two primary options to finance its enterprise, namely equity financing and debt financing. Debt financing involves the bank and implies the constant need to pay the principal and the interest rate to the bank; equity financing eliminates this obligation, yet generates the loss of control for the original entrepreneur.
In general lines, these are the primary characteristics of equity and debt financing, but in order to make a final decision, it is necessary to conduct a more thorough analysis of the totality of the risks they involve. In this order of ideas, the primary risks associated with debt financing include the following:
The obligation to pay the monthly sum of money owed to the bank, namely the principal and the interest rate. This obligation is inflexible and has to be honored regardless of the actual financial results and capabilities of the firm. For start-up operation, with unstable incomes, such a risk is increased.
In cases when the company fails to produce the necessary money to ensure the monthly payment, the cost of capital can further increase as the bank will impose additional fees for delayed payments.
Debt financing requires the entrepreneur to present collateral, which means that the asset brought in as collateral is blocked and the company can not utilize it to its maximum potential. In addition, in case of late payments, the bank can even decide to seize the respective collateral.
The final risk associated with debt financing is that the commercial banks and other lending institutions prefer to collaborate with firms that are already established, rather than startups. Furthermore, when they do grant loans to startups, the sums allocated are normally limited, meaning that the entrepreneur may have to supplement the borrow funds from other sources (Reference for Business).
Equity financing also presents the entrepreneur with a series of shortages, making their decision even more complex. Ultimately, it will be up to each and every entrepreneur to choose the solution that provides the most benefits for their specific situation. Returning to equity financing however, the risks associated with this include the following:
The loss of proprietorship in the firm, combined with the loss of full control, as the new investors will own shares in the firm and will participate in the decision making process; this will impact the firm at the level of its entire value cycle
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