Analysis of a New Business or Purchase of an Existing One

Introduction

Huber Butchery and Asian Food is a firm, which operates within the food industry and is family owned. According to Klein, Smyrnios and Poutziouris (2006, p.56), there are various elements which are used in defining a family business. One of these elements includes participation of the family members in running the business. As a result, the family members have a significant control over the firm’s direction.

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The firm has been successful over the number of years it has been in existence. The decision to establish the firm resulted from the need to increase the level of income. This resulted from realization of the fact that there is a high probability of an individual increasing his or her disposable income from a business compared to being employed as a civil servant or a company. The business owner enjoys all the profit resulting from the operation of the firm. In addition, the owner realized that there are high chances of attaining a high level of freedom by establishing a business.

This arises from the fact that the owner becomes his or her own boss. By establishing a business, the owner is able to attain his or her desired lifestyle. For instance, establishing the firm enabled the owner to integrate the concept of flexible-work to life. The firm’s operations are redefined towards provisions of high quality products. In addition, it is ensured that exceptional services are integrated in the process of product and services delivery.

In it operation, the firm deals with a variety of Halal meat products such as sheep, goats, cows and chicken. In addition, the firm also trades in different food items such as Arabic and Indian foods such as spices, preserves, herbs and rice. To ensure high quality of the products, the firm has integrated comprehensive criteria in the process of selecting its suppliers.

Legal structure

It is required that every business should adopt a given legal structure in the course of its operation. Business structure refers to the organizational framework that is adopted by a firm in conducing particular commercial activities. It is required that the organizational framework adopted be s legally recognized by a given jurisdiction. There are a number of legal structures that a firm can adopt. These include a company, sole proprietorship and a partnership.

The different legal structures are differentiated from each other by a number of elements, which include liability, risk, control, expense and formality, and continuity of existence. In establishing business ventures, entrepreneurs accept a given degree of liability, which represents a given degree of risk in the course of the firm’s operation. One of the major form of risk that entrepreneurs face relate to contract risk such as the risk of dealing with customers, vendors and the financing risk.

In its operation, the firm has adopted the sole proprietorship form of business structure. Klein et al (2006, p. 58), defines a sole proprietor as an unincorporated firm which is owned by a particular individual. According to Klein et al (2006, p.58), a family business can be categorized as a sole proprietor. In some cases, small family businesses do not source their employees from the external labor market. As a result, these firms use the family members as a source of labor. This source of labor may be either paid or nonpaid. Klein et al (2006, p.60) asserts that this source of labor is mainly integrated during the firm’s start up phase.

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The decision to adopt sole proprietorship business structure resulted from recognition of the benefits associated with this form of business structure. For instance, there are minimal legal formalities, which are involved in the cause of setting up the business. This makes it easy for an individual to establish his or her own business entity. In addition, as the firm undergoes growth and development, the owner has a room of converting the business structure into another form such as company. This would culminate into the firm witnessing an increment in the firm’s level of profitability.

It was also recognized that it is relatively easy to establish and maintain the operation of a sole proprietorship due to minimal complexities involved in its operation. For instance, there are minimal administrative costs, which are imposed by law in comparison with other legal structures. A short duration is taken in the process of establishing the firm. This increases the probability with which the firm can maximize on its profit level. The ultimate effect is that the firm is able to attain a high level of return on investment.

Despite the benefits associated with sole proprietorship, the local external environment has not sufficiently supported its operation. For instance, the government has limited the operation of the firm through taxation. The sole proprietorship businesses are required to pay Goods and Services Tax (GST). In addition, the firm is required to pay other charges related to business registration such as registration of business name to the relevant authorities. Firms within the food industry are also required to renew their operation licenses and pay for health insurance annually. These expenses are subject to change culminating into an increment in the firm’s cost of operation (Fletcher, 2002, p. 19).

Comparison of advantages and disadvantages of starting up over purchasing existing firm

An individual may venture into business through various ways. Some of these include establishing a new business from scratch, buying an already existing business or through inheritance. Huber Butchery and Asian Food business was established through purchasing. There are a number of advantages and drawbacks associated with starting a new firm. For instance, a new business gives the owner total control on the operation of the firm.

As a result, the owner is able to determine the direction that the business will take in an effort to develop competitive advantage. For instance, the owner can determine the products to deal with, business culture to adopt, target customer base and the financial strategy. On the other hand, purchasing an already existing firm limits the control of the owner since he or she will be required to assume responsibility of different operation procedures, which he or she might not be conversant with. In addition, it might take a considerable amount of time to adjust these procedures (‘Flexible support for business: buying an existing business’, 2010, para. 4).

Establishing a new business benefits the entrepreneur through cost minimization. This results from the fact that a start up firm does not have ongoing costs in relation to the competitors. In addition, purchasing already existing firm results into additional costs from inefficiencies, which have been built up in the course of the firm’s operation. Cost minimization also results from the fact that a new establishment has low fixed costs. By purchasing an already existing firm, the entrepreneur may be required to pay for additional items such as existing assets and goodwill. In some case, the entrepreneur will be required to pay for these items despite the fact that he or she might not utilize them.

A new business establishment has a relatively high level of flexibility compared to purchasing existing one. It is easy for the owner to easily mould the firm to meet either his or her objectives and at the same time meet the market requirement. This is because it is easy to incorporate the concept of innovation. It is also easy for startup firms to build their projects over time thus ensuring the firm to meet the market needs more effectively. This level of flexibility does not exist by purchasing an existing firm. This results from the fact that an existing firm has already established organizational procedures and systems that limits the degree of the firm’s response to rapid change.

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Purchasing an existing firm can result into a high level of business efficiency since the firm will have an already established business model. According to Magretta (2003, p. 5) business model entails identification and definition of the customer and knowing what the customer values. In addition, the business model clearly defines how the firm intends to attain its profit maximization objective and at the same time deliver value its customers in the most cost effective way.

Establishing a business model by a start up firm may take a considerable duration. An entrepreneur benefits by purchasing an existing firm since the firm will have attained market recognition. As a result, there is a high probability of the firm having a well-established customer base to enable the firm make sufficient amount of profits by trading immediately. It is also easy for the firm to access credit facilities from the financial institution due to the firm’s history. On the other hand, a startup firm does not have immediate customers to create a viable business (‘Flexible support for business: buying an existing business’, 2010, para. 5).

There are a number of disadvantages associated with starting a new firm. For instance, the investor may face a challenge in the course of raising initial capital. This is because firm does not have a well established financial history to enable it access finances from financial institutions. As a result, most of the financial institutions may be reluctant in extending credit to the firm. In the event that the owner dos not have sufficient finances, the firm may collapse shortly after its inception due to financial constraints in relation to working capital.

Start up firms experience cash flow shortages upon their inception due to lack of sufficient customers. As a result, the firm experiences financial constraint during the initial years limiting their capacity to cope with market changes.

Business customers and market communication

Individual customers mainly compose the firm’s customer base. The firm’s customers are mainly Muslims. Over the years, the firm has greatly benefited from an increment in the demand of halal meat amongst the Muslims. The firm’s management has formulated a comprehensive market communication strategy to ensure that sufficient market awareness regarding the firm and its products (Kaplan & Norton, 2001, p.1). This has been attained by incorporating advertising and sales promotion the main market communication strategies. Various mediums such as television, radio and local print media are utilized in creating the firm and product awareness. Sales promotion is conducted by integrating the concept of ‘Buy 2 get 1 free’.

Reasons why customers purchase the product

There are a number of reasons as to why individual customers purchase halal meat from the firm. For example, one of the reasons behind this is the high quality of the firm’s products. The firm has adopted a corporate philosophy, which entails ensuring that the customers attain a high level of satisfaction. This philosophy was adopted from the realization of the fact that customers intend to maximize their level of utility and at the same time receive value for their money.

To attain this, the firm sources its supplies from the farms, which enhances the quality control process. In addition, the firm is able to eliminate the cost resulting from the intermediaries. This benefit is passed to the consumers by allowing the firm set the price of the products at a relatively low point compared to the competitors. Customer satisfaction is also ensured through product diversity by dealing in a variety of halal meat products such as goat, cow, chicken, and Asian and Arabic foods.

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Dislikes about the business

The owner of the firm and family members undergo a lot of hard work in their daily operations. For instance, the members are forced to work for a long duration, which is cumbersome. The firm is also faced by risks resulting from both internal and external business environment due to lack of managerial skills.. The firm has not integrated an effective customer service, which has culminated into a low rate of increment in its customer base.

Alternative business structure

To ensure effectiveness and efficiency in the operation of such a firm, a partnership form of business is necessary. The business partners will contribute towards a high efficiently in the management of the firm since the preferred partners will have diverse skills. This will culminate into an increment in the level of customer service delivery.

Business skills requirement

For such and establishment to succeed, it is important for the partners to have managerial and market research skills. Marketing skills will aid in the identification of the changes in consumer purchasing behavior. As a result, the firm will be able to adjust its operations to meet the market demand. On the other hand, managerial skills will ensure effective policy formulation and implementation (Freeman, Hitt & Harrison, 2003, p.411). These skills can be attained through incorporation of continuous human resource development.

Conclusion

From the analysis, venturing into business can result into the entrepreneur increasing his or her level of income compared to formal employment. The business established must be within the stipulated legal structures, which include sole proprietorship, partnership or a company. The decision on the business structure to adopt should be based on the advantages associated with each. In most cases, family businesses adopt sole proprietorship business structure. As a result, they source their labor from the family members. Venturing into business can either be attained through starting a new firm from scratch or buying an existing firm. In determining the strategy to adopt, the entrepreneur should assess the advantages and disadvantages associated with each.

For a firm to succeed in the long term as a going concern entity, the entrepreneur should ensure that the customers attain a high level of satisfaction. This can be attained by ensuring that the products are of high quality and effective customer service. In addition, the management should ensure that it creates effective market awareness.

To deal with the challenges faced by sole proprietors, such as lack of managerial and marketing skills, the entrepreneur should consider other business structures such as partnership. This is because the partners will have diverse skills to enable the firm to succeed in the competitive business environment.

Reference List

Fletcher, D. 2002. Understanding the small family business. (On-line).New York: Routledge Publication. Web.

Freeman, E., Hitt, M.& Harrison, J. 2003. Blackwell handbook in strategic management. Washington DC: Wiley-Blackwell.

Kaplan, S.R. & Norton, D. 2001. The strategy focused organization: how balanced scorecard companies thrive in new business environment. New York : Harvard Business Press.

Klein, S., Smyrnios, K. & Poutziouris, P. 2006. Handbook of research on family business. New York: Edward Elgar Publishing. Web.

Lywodraeth Cynullaid. 2010. Flexible support for business: buying an existing business. Web.

Magretta, J.2003. Why business models matter. Harvard business review. New York: Harvard University.

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