Starting up a business

Why is a service business easier to start up than a manufacturing business?

• It needs less capital to set up the business.

• It is more aware of what its customers want.

• It has no difficulty finding trained staff.

• It depends on personal recommendation.

New service sector businesses may face a cash flow problem because they

• have to reduce prices in order to attract customers.

• cannot always get a big enough loan from their bank.

• have used most of their capital to set up the business.

• may not have an immediate demand for their service.

Variation in demand is not usually a problem for manufacturers because they

• need less cash once the initial investment has been made.

• know that there is a steady market for their product.

• can use off-peak periods to build up stocks of their product.

• are able to reduce their prices to encourage sales in off-peak periods.

The phrase “market-oriented approach” (lines 53-54) means that service providers must

• promote their business through advertising.

• be aware of their customers’ changing needs.

• keep a tight control over their cash flow situation.

• take care to maintain a balance between costs and profits.

Why do manufacturers suffer when customer demand disappears?

• They cannot respond quickly to changes in the market.

• They make most of their money in peak periods like Christmas.

• They might have a lot of stock that they cannot sell.

• They have to keep to very strict budgets.

Manufacturers trade with higher profit margins because

• their initial investment is higher so they need a higher return.

• their customers are unaware of the costs involved in manufacturing.

• their costs include a much higher budget for advertising and promotion.

• their products are generally more expensive to make.