BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

BUSINESS STUDIES
GRADE 11

PAPER 2

TERM 3

CHAPTER 15

STARTING A BUSINESS VENTURE ON AN ACTION PLAN

REVISED NOTES

2024

TABLE OF CONTENTS
TOPICS PAGES
Exam guidelines for starting a business 3
venture on an action plan
Terms and definitions 2
Aspects must be considered when initiating a 3-4
business.
Factors that must be considered before start- 4-5
up
Reasons why businesses need funding 5
Sources of funding 5-6
Factors that influence the choice of funding 7-8

This chapter consists of 8 pages

1
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES

Learners must be able to:

 Outline/Mention/Explain/Discuss aspects that must be considered when initiating a business
e.g.:
o Strategy
o Operations
o Productivity
o Size of a business etc.
 Outline/Mention/Explain/Discuss factors that must be considered before start-up e.g.:
o Culture of the organisation
o Environmental changes
o customer services
o Business growth
o Cost saving etc.
 Analyse the above-mentioned factors from scenarios/case studies and make recommendations
for improvement.
 Explain/Discuss reasons why businesses need funding.
 Outline/Mention/Explain sources of funding.
 Explain/Discuss/Describe factors that influence the choice of funding e.g. nature of finance,
amount of capital needed, risk, cost of finance etc.

TERMS AND DEFINITIONS

TERMS DEFINITIONS
Strategy Plans created by the entrepreneur that is spelt out in the business plan
and enforced in the action plan
a long-term plan of action to achieve a goal

Collateral The asset that is pledged to the bank in case of a default in the
repayment of a loan.

Interest Money paid as a percentage for the use of borrowed money.

Operations the different activities businesses use to achieve their goals in order to
be successful.
Productivity the effectiveness of production in terms of the rate of output per unit of
input.
Cost- saving the plans made by the business to cut on the cost/expenses of the
business.
Business growth the expansion of the size of the business.
Risk a credit provider will always consider how safe their investment will be
by looking at factors that will endanger the recovery of the debt.

Mortgaged bond A debt instrument issued for more than one year with the purpose of
raising capital from borrowing.
Incentives Cash or tax relief to encourage investment in economic sectors
It could also be a payment to workers to encourage productivity.
Venture capitalists Financing is given for an ownership share in the business at its start-up.

2
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

Equity Capital The total amount of money and assets invested in a business by the
owner that comes from its sources.

Grants Money given by the government or an NGO for a specific purpose e.g.
funding small businesses.

Bank Overdraft A customer withdraws more than the money that is available in the bank
account.

Trade credit Time, usually between one and three months a business before it has to
settle the debt.

Angel funding These are wealthy business people who want to invest in promising
small businesses in return for a profit share in the business.

Microlenders Businesses that offer small loans to people at high-interest rates without
collateral.

1 Aspects that must be considered when initiating a business

1.1 Strategy
 A strategy is a plan of action that must be carried out by an entrepreneur
 An action plan outlines the vision, mission, goals and objectives.
 The action plan must be used to develop the systems and processes for the business.
 Systems and processes should be in place for the business to achieve its goals.
 Businesses must ensure that strategies such as marketing/management/public relations are
implemented and continuously reviewed.

1.2 Operations
 The business plan, action plan identifies the operational plan, timelines and key deliverables.
 Operations need to be implemented, staff employed and trained.
 Resources must be acquired and managed continuously
 Constant monitoring & evaluation need to be done to ensure that resources are used
effectively.
 Businesses must implement the activities that are outlined in the action plan.

1.3 Productivity
 The action plan includes budget and financial planning
 Budgets need to be assessed and amended
 Costs need to be decreased and output increased
 to ensure productivity - costs need to be decreased & output increased
 improvements need to be implemented constantly to improve profits
 Productivity is the effectiveness of production in terms of the rate of output per unit of input.
 Businesses must ensure that there is a high rate of productivity in all aspects of its
operations.

3
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

1.4 Size of the business

 The success of a business depends on its management and staff.
 The bigger the businesses the more difficult to manage
 It is difficult to keep control of the quality of each of the employees, work and productivity
levels.
 Businesses must decide on the most appropriate size for successful operations.

1.5 Culture, training, and Quality of Staff

 It is essential to establish an organisational culture from the beginning so that staff are
familiar with what is acceptable.
 Staff need appropriate training to achieve the desired outcomes and deliver the best quality.
 Managers should ensure that all new staff know the business dress code.

1.6 Risk and change

 All businesses need to take risks and amend the original action plan several times.
 The introduction of new technology or new machine may influence a budget and it may be
necessary for the business plan to be adapted
 Management and leadership teams must be flexible to adapt to changes in the market
and/or macro environment.

1.7 Customer service

 A successful business gives customers what they want.
 Businesses need to change their market plan/adjust their products and prices to ensure
sales increase.
 They also need to establish a good relationship with their customers.

1.8 Market research

 Businesses should conduct ongoing market research to identify profitable markets for their
product.
 Many businesses benefit from conducting market research in local/familiar markets.

1.9 Business cycles

 Businesses obtain profit and experience losses.
 Changes in the market & macro environment can either have a positive or negative impact
on business operations.
 Businesses should constantly make adjustments to reduce costs where possible.
 Reducing costs increases profitability.

4
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

2 Factors that must be considered before start-up.

2.1 Culture of the Organisation

 Establish an organisational culture so that the staff is familiar with what is acceptable.
 Ensure that a code of conduct is in place and enforce it from the start
 The staff must know the dress code and the code of conduct of the business from the start.
 They must ensure that staff knows the culture of the business and that their
 behaviour does not damage the business image.
 Entrepreneurs must decide what the culture of their business will be before starting up.

2.2 Environmental changes

 Continue to network and research to avoid changes in the business environment which may
upset the business operations.
 Consider the risk and success factors.
 Plan for risks and minimise the impact.
 The economy fluctuates up or down daily, resulting to businesses having to change some of
their operations.
 New competitors enter the market and driving existing businesses out of the market.
 New technology force businesses change some of their original plans.

2.3 Customer service

 Make an effort to satisfy the needs of customers.
 Change the action plan accordingly to accommodate the needs of customers
 Establish a good relationship with customers.
 Identify their potential customers before start up.

2.4 Business Growth

 Managed and backed up growth by using a solid strategy.
 The success of a business is often dependent on its management and staff.
 Devise a suitable strategy to manage and control a larger group of employees.
 Keep control of the quality of each employee.
 Determine the size and the growth of the business before they start up their business.
 The size and growth of the business will determine the most appropriate form of ownership
for the business.
 Many businesses want to grow too quickly, which can cause problems such as lack of
infrastructure and funding.
 The long-term vision of the size of the business must also be reflected in the organogram of
the business.

2.5 Cost saving

 Cut costs by controlling unnecessary expenditures.
 Businesses could do a joint advertising campaign with other businesses that sell
complementary products to reduce the advertisement cost.
 Businesses could save on office costs by using recycled printer cartridges and buying good
quality used equipment.
 Hire temporary employees or use independent contractors to save costs.
 Business could save costs by considering other aspects such as insurance, credit, online
transactions, etc.

2.6 Risk and change

5
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

 Management and leadership teams must be flexible to adapt to changes in the market.
 The original action plan may need to be changed and amended several times.
 The introduction of new technology may influence a budget.

2.7 Other factors that must be considered before starting a business.

 Planning and minimising the environmental impact on the business.
 Action plan to satisfy the needs of customers.
 The sources of raw materials/suppliers.
 The sources of funding that the business would use.
 The forms of ownership that will be used by the business.
 The registration of the business.
 The location/business premises to be used.

3 Acquiring funding
3.1 Reasons why businesses need funding.
Businesses require funding to:
 Cover the start-up costs including g premises/machinery/raw materials etc.
 Run the business and have enough money to pay employees/suppliers of raw materials etc.
 Pay for the cost of input such as wages, telephone other expenses
 To expand the business as the orders/sales increase and bigger premises need to be
established.

3.2 Sources of funding

3.2.1 Equity Capital
 Equity capital is the total amount of money and assets invested in a business by the owner
that comes from their own sources
 Capital that is contributed by the owner is referred to as the owner’s interest.
 Owner’s equity increases when the owner puts in additional funds to expand the business.
 The benefit of putting own capital into the business is that it encourages a commitment from
the owner.
 The higher the owner’s interest in the business, the higher the potential of profit and this will
encourage greater commitment from the owner.

3.2.2 Issuing of shares

 New companies can issue shares to obtain capital.
 Shareholders receive a share certificate as proof of ownership
 The Memorandum of Incorporation and prospectus list the details of the shares that are
offered for sale
 Ordinary shares are the most type of share offered by companies to shareholders
 All shareholders receive a portion of the profits called a dividend.

3.2.3 Debt Capital

 Many businesses need to borrow funds.
 The business plan will indicate how much debt capital is crucial for business funding.
 The business must show the ratio between equity capital and debt capital in its business
plan.
 The solvency of the business is determined by the ratio of equity capital and debt capital.
 It is very important that businesses must be solvent at all times.
 The following sources of finance are available to the entrepreneur:

Bank loan

6
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

 The business can borrow money from the bank.

 The amount will be specified for a set period.
 Interest is payable on the loan.
 The period can be fixed for the time of the loan or variable in line with the current interest
rate.

Trade Credit
 This is the time that a business has before it has to settle a debt.
 Suppliers usually allow a small business a period between buying materials and paying for
them.
 Trade credit is an agreement between a supplier and the business.
 Businesses can sell or develop new products to be able to pay off their
 debt during the trade agreement period.

Bank Overdraft
 This is when a bank allows a business to draw more than what is deposited in the bank
account.
 The bank decides on the maximum amount to be drawn known as the overdraft limit
 The business pays interest on the amount of money they withdraw and for the period they
have overdrawn.
 Businesses with a current check account organise a bank overdraft with the bank.

3.2.3 Leasing and hire purchase

 Businesses can lease certain assets from suppliers.
 Assets such as machinery/vehicles/computer systems can be leased.
 A fixed amount of money is paid monthly for the use of the asset
 The lease agreement can be renewed when the asset is returned/replaces.
 In the contract the fixed amount of monthly premium must be specified.
 Businesses can use leasing because it is easier to find finance for a lease agreement than
for the purchasing of an expensive asset.

3.2.4 Grants
 Grants are funds that are received from government departments/local development
agencies and other organisations that support small business developments.
 The business can qualify for government support to help get started.
 The main advantage of grants is that it is cheap financing.

3.2.5 Venture capital

 Financing is given in exchange for a share in the business at its start-up.
 Some venture capitalists also request a position in management or on the board.

3.2.6 Angel funding

 These are often wealthy entrepreneurs who offer financing in exchange for a share in the
business.
 This carries a high risk for the investor.

4 Factors that influence the choice of funding

Nature of finance
 This depends on the owners if he/she wants to use their own or borrowed capital as well as
short- or long-term loan.
 Some types of financing like shares and debentures are not available to certain forms of
ownership like sole traders and partnerships.
7
BUSINESS STUDIES GRADE 11 NOTES CHAPTER 15

 Sole traders and partnerships should make use of other forms of funding.

Amount of capital needed

 Business owners usually use their capital if a small amount is needed.
 The larger the amount of capital that is needed the owners will have to look at borrowed
capital as well.

4.3 Risk
 Providers of own capital are usually willing to accept greater risks than providers of borrowed
capital
 Interest on the loan is legally compulsory and may lead to the liquidation of a business in
bad economic circumstances.

4.4 Cost of finance

 Businesses will generally choose the funding with lower costs/interest
 The income earned on borrowed capital must exceed its cost otherwise it will be to the
disadvantage of the holders of own capital.
 Borrowed capital may be cheaper because the holders of their own capital require a higher
income owing to the higher risk

4.5 Period of financing

 If needed for a long period might rather use their capital because borrowing would be too
expensive over a long period.

4.6 Availability
 If more own capital is not available, the business might be forced to use borrowed or the
other way around.

4.7 Tax considerations

 Interest on borrowed capital is tax deductible. Dividends on own capital are not deductible.