0:00:13 > 0:00:17Hundreds of different businesses make a festival a festival.
0:00:17 > 0:00:20From poncho sellers to ice cream vendors,
0:00:20 > 0:00:24they all started as someone's money-making bright idea.
0:00:25 > 0:00:28You see, it's all about spotting a gap in the market
0:00:28 > 0:00:30and then using your head to make a bit of cash.
0:00:30 > 0:00:32Do that and you'll be well on your way
0:00:32 > 0:00:35to becoming a full-on entrepreneur.
0:00:35 > 0:00:37Matt Pickup and his friends
0:00:37 > 0:00:40spotted an opportunity in 2004
0:00:40 > 0:00:42and have never looked back.
0:00:42 > 0:00:44He might look like any other festival-goer,
0:00:44 > 0:00:46but the tent we're pitching is one of
0:00:46 > 0:00:49350 we've got to get through.
0:00:49 > 0:00:51This could take a while!
0:00:52 > 0:00:56Matt is a co-owner of tent hire company Tangerine Fields.
0:00:56 > 0:00:58Here at Reading, their 350 tents
0:00:58 > 0:01:01can be rented for up to £90 per person.
0:01:01 > 0:01:03Last year the company turned over
0:01:03 > 0:01:05one million pounds.
0:01:05 > 0:01:09It's a classic tale of spotting and seizing an opportunity.
0:01:09 > 0:01:13Myself and my business partners were at the Big Chill Festival.
0:01:13 > 0:01:16We were really tired and just wanted to get home on the Monday morning
0:01:16 > 0:01:20and had noticed that others were obviously in the same frame of mind
0:01:20 > 0:01:23but they just couldn't be bothered to take their tents down
0:01:23 > 0:01:25so they'd bought and pitched them and left them.
0:01:25 > 0:01:28And so we thought, if people are willing to do that,
0:01:28 > 0:01:31they'd be willing to not buy the tent, not pitch it and leave it.
0:01:31 > 0:01:32As simple as that!
0:01:32 > 0:01:36Er, yeah. It was a simple idea that took off.
0:01:36 > 0:01:39How did it go from the idea to becoming a proper business?
0:01:39 > 0:01:42We took a risk and invested some money in buying some tents.
0:01:42 > 0:01:45Spoke to the Big Chill Festival and laid out our idea to them.
0:01:45 > 0:01:48It seemed quite popular and from there it doubled
0:01:48 > 0:01:50and doubled in size each year and
0:01:50 > 0:01:53now we've moved up to 26 festivals this summer.
0:01:57 > 0:02:00If Matt needed any more inspiration, he need look no further
0:02:00 > 0:02:03than some of our most successful entrepreneurs.
0:02:03 > 0:02:05You're fired.
0:02:05 > 0:02:08Scary Lord Sugar began his business life trading out of a van,
0:02:08 > 0:02:12and is now worth £770 million.
0:02:13 > 0:02:16Levi Roots charmed the Dragons in the den
0:02:16 > 0:02:19and within a year was shifting 40,000 bottles
0:02:19 > 0:02:21of his Reggae Reggae Sauce a week.
0:02:21 > 0:02:23And let's not forget Posh Spice,
0:02:23 > 0:02:26whose clothing range has helped push brand Beckham's worth
0:02:26 > 0:02:29up to an eye-watering £165 million.
0:02:31 > 0:02:34What those guys have got, apart from a big bank balance,
0:02:34 > 0:02:37are some special qualities that make them top entrepreneurs.
0:02:37 > 0:02:39But what exactly are those qualities?
0:02:42 > 0:02:45Confident and good at talking to people.
0:02:45 > 0:02:47If you're shy I don't think you're going to get anywhere.
0:02:47 > 0:02:49Smart and well presented.
0:02:49 > 0:02:53Yeah, dress well, good first impression.
0:02:54 > 0:02:57Guts, I think. I think you have to be really brave
0:02:57 > 0:02:59because it's all about taking chances
0:02:59 > 0:03:01and working out whether gambles are worth doing.
0:03:01 > 0:03:04There's no magic formula for being an entrepreneur,
0:03:04 > 0:03:07but there are qualities which could help.
0:03:07 > 0:03:08Creativity is essential
0:03:08 > 0:03:11for transforming an opportunity
0:03:11 > 0:03:13into a real business idea.
0:03:13 > 0:03:16Guts - starting up a new business is always a risk,
0:03:16 > 0:03:19so you need to be daring to be successful.
0:03:19 > 0:03:22Drive - getting an idea off the ground isn't easy,
0:03:22 > 0:03:25but with determination you could hit the big time.
0:03:29 > 0:03:31Even some of the world's most successful entrepreneurs
0:03:31 > 0:03:33have had failures in the past.
0:03:33 > 0:03:35So it's all very well having a great idea.
0:03:35 > 0:03:38The key is putting that idea into practice,
0:03:38 > 0:03:39like the traders are doing here.
0:03:39 > 0:03:43Once you've had your idea, you need to think about the practicalities.
0:03:43 > 0:03:46Before starting, think about whether you might be able
0:03:46 > 0:03:48to legally protect your idea against copying.
0:03:48 > 0:03:50Where are you going to base your business?
0:03:50 > 0:03:52If you've got an ice cream van,
0:03:52 > 0:03:54don't park it on a quiet country lane.
0:03:54 > 0:03:56Instead, go to a festival
0:03:56 > 0:03:58with loads of people with cash to spend.
0:03:58 > 0:04:02Finally, what sort of business model best suits your idea?
0:04:02 > 0:04:03Should you act as a sole trader?
0:04:03 > 0:04:06Or do you need to form a limited company?
0:04:10 > 0:04:13But one of the most important things to think about is the big R.
0:04:13 > 0:04:15And by the big R I mean research.
0:04:15 > 0:04:19and I don't just mean buying a few books and surfing the web!
0:04:22 > 0:04:24To find out more, I've ditched the wellies
0:04:24 > 0:04:25and left the music behind to meet
0:04:25 > 0:04:27a man who spotted a - how can I put it?
0:04:27 > 0:04:30An "interesting" opportunity at a festival
0:04:30 > 0:04:34and backed it up with some hefty market research.
0:04:34 > 0:04:36This is Richard Wharton,
0:04:36 > 0:04:38and the cardboard box he's putting together
0:04:38 > 0:04:42is his solution to an age-old festival problem -
0:04:42 > 0:04:44yes, going to the toilet.
0:04:44 > 0:04:47I'm at my festival,
0:04:47 > 0:04:50I've got to go, so I whip this out and just sit?
0:04:50 > 0:04:53- Yeah, absolutely. It'll take your weight.- It'll take my weight?
0:04:53 > 0:04:56Yeah, that'll take up to 20 stone in weight.
0:04:57 > 0:04:59- And then do my business?- Yeah.
0:04:59 > 0:05:02Festival lover Richard came up with the idea
0:05:02 > 0:05:04in 1989 after visiting the toilets
0:05:04 > 0:05:06at Glastonbury.
0:05:06 > 0:05:10Once you had the idea, what did you do in terms of market research?
0:05:10 > 0:05:13We made up just short of 300 and gave them away
0:05:13 > 0:05:17to mates, festival-goers to trial out
0:05:17 > 0:05:19and what we found from that was
0:05:19 > 0:05:20we had a Marmite product.
0:05:20 > 0:05:23Some found it embarrassing to use in their own tent,
0:05:23 > 0:05:25other people didn't care at all
0:05:25 > 0:05:30and at 3 o'clock in the morning at a festival, it was a godsend.
0:05:32 > 0:05:34Sending out samples as Richard did
0:05:34 > 0:05:36is one of many market research methods.
0:05:36 > 0:05:38The other options include...
0:05:39 > 0:05:40Field research.
0:05:40 > 0:05:42That's asking people their opinion -
0:05:42 > 0:05:45in person, on the phone or online.
0:05:46 > 0:05:47Desk research.
0:05:47 > 0:05:49Gathering information related to your idea
0:05:49 > 0:05:51from books and the internet.
0:05:52 > 0:05:55Research can be qualitative - about people's reaction
0:05:55 > 0:05:57to the product. Do they think it's a good idea?
0:05:57 > 0:05:59Or quantitative -
0:05:59 > 0:06:03gauging the number of people who'd actually be willing to pay for it.
0:06:04 > 0:06:06So being an entrepreneur is more than just
0:06:06 > 0:06:10coming up with an idea. You have to take a calculated risk
0:06:10 > 0:06:12and actually do something with those ideas.
0:06:12 > 0:06:14And if you do, with the right qualities, you never know,
0:06:14 > 0:06:17you too could be sat on a fortune!
0:06:17 > 0:06:20And if you'll excuse me, I need some privacy now, so...cheers.
0:06:33 > 0:06:36Three days, 80,000 people,
0:06:36 > 0:06:3840 brilliant bands,
0:06:38 > 0:06:41the Reading Festival is where every aspiring rock star
0:06:41 > 0:06:43wants to play. But the music business
0:06:43 > 0:06:46is about more than just the glamour of a festival.
0:06:46 > 0:06:48One type of businessperson might ply their trade
0:06:48 > 0:06:51a world away from the noise and chaos of Reading,
0:06:51 > 0:06:54but still play a really important role in the music industry.
0:06:55 > 0:06:58This is Jake Travis and this is his record shop.
0:06:59 > 0:07:02Nine years ago Jake turned his passion for reggae into his job.
0:07:02 > 0:07:05He swapped the factory production line for the freedom of being
0:07:05 > 0:07:09his own boss, and became a sole trader. Put simply,
0:07:09 > 0:07:14sole traders are the only owner of their business.
0:07:14 > 0:07:17I'm not a great one for being told what to do and having to stick to
0:07:17 > 0:07:20a time schedule.
0:07:20 > 0:07:23You're your own boss, you're your own business.
0:07:23 > 0:07:27You come and go as you please and you answer only to yourself,
0:07:27 > 0:07:29so, you know, that is a major plus.
0:07:29 > 0:07:31As a sole trader, what are you responsible for?
0:07:31 > 0:07:34Bills, rent, rates,
0:07:34 > 0:07:36I have to buy stock,
0:07:36 > 0:07:38I have to buy bags.
0:07:38 > 0:07:41Everything that you see here is sort of
0:07:41 > 0:07:45stuff that I've bought and had to sort of literally price up and
0:07:45 > 0:07:48physically put in the racks. You're responsible for everything.
0:07:48 > 0:07:50Even though they're their own boss,
0:07:50 > 0:07:54sole traders like Jake have a lot of responsibility on their shoulders.
0:07:56 > 0:07:58For starters, they decide what to sell.
0:07:58 > 0:08:00They source their stock and make sure they've got
0:08:00 > 0:08:03enough of it. They price and market
0:08:03 > 0:08:05their product, and to top it all off,
0:08:05 > 0:08:07they physically sell it too.
0:08:08 > 0:08:12And like every business, they need to make sure VAT, income tax
0:08:12 > 0:08:16and National Insurance payments are in bang on time.
0:08:16 > 0:08:19That's a lot for one person to take on,
0:08:19 > 0:08:21but, believe it or not, the majority of businesses
0:08:21 > 0:08:23in this country are sole traders.
0:08:23 > 0:08:25And they're not all involved in selling products.
0:08:26 > 0:08:30Some provide a service, like plumbing or hairdressing - or music.
0:08:30 > 0:08:33Genevieve Wilkins is a percussionist. She's played with
0:08:33 > 0:08:37huge stars including Lionel Richie and Akon, and also performs in West End shows.
0:08:37 > 0:08:43But today is her lucky day, because she's got the chance to teach me.
0:08:43 > 0:08:46This is one of my favourite instruments around.
0:08:46 > 0:08:49It's called a cajon. And it's the Spanish word for box.
0:08:51 > 0:08:55Because Genevieve is a sole trader, she's responsible for everything.
0:08:55 > 0:08:57Cool. So what do I need, a flat hand?
0:08:57 > 0:08:59From advertising her services
0:08:59 > 0:09:01to giving lessons.
0:09:01 > 0:09:02And then you can start...
0:09:02 > 0:09:04that's it! I'll keep going like that
0:09:04 > 0:09:07and you can just add in things like that. That's it!
0:09:07 > 0:09:09- Now we're rocking.- What are
0:09:09 > 0:09:11the advantages of being a sole trader?
0:09:11 > 0:09:14I can have a variety of what I do for a living, so I can do pop gigs,
0:09:14 > 0:09:17I can do classical music gigs, I can do some teaching..
0:09:17 > 0:09:19And the nicest thing is that
0:09:19 > 0:09:21I can pick and choose
0:09:21 > 0:09:23to do the projects that I love. I'm never really doing
0:09:23 > 0:09:25any of them just for the money.
0:09:25 > 0:09:27You're your own boss. It's brilliant.
0:09:27 > 0:09:29So how did you become a sole trader?
0:09:29 > 0:09:32I was really lucky to get a part-time teaching job
0:09:32 > 0:09:34in a really good music school,
0:09:34 > 0:09:38and as I graduated university, and I started performing as well,
0:09:38 > 0:09:42you have to be a sole trader. You've got so many incomes from so many different places.
0:09:42 > 0:09:44Being your own boss sounds great,
0:09:44 > 0:09:47but there are financial and legal implications.
0:09:48 > 0:09:51Sole traders have what's called unlimited liability.
0:09:51 > 0:09:54This means they have a personal responsibility for everything
0:09:54 > 0:09:56to do with their business.
0:09:56 > 0:09:59If they go bust and owe money, they could have to sell
0:09:59 > 0:10:03everything they own to pay off their debts.
0:10:03 > 0:10:07In the worst case, that could include cherished possessions
0:10:07 > 0:10:10like their TV, car or even house.
0:10:11 > 0:10:15Jake is well aware of the pressures that come with being his own boss.
0:10:15 > 0:10:17If people don't walk through the door,
0:10:17 > 0:10:20you don't earn money.
0:10:20 > 0:10:22And that comes with its pressures -
0:10:22 > 0:10:26your security is in the hands of the general public, as it were.
0:10:27 > 0:10:30But the pros often outweigh the cons.
0:10:30 > 0:10:31I'm the boss, I'm the performer,
0:10:31 > 0:10:33I'm the accountant, I'm the manager,
0:10:33 > 0:10:35I have to find some gigs for my duo.
0:10:35 > 0:10:38You have to do sort of do absolutely everything,
0:10:38 > 0:10:40so the skills have been really good.
0:10:40 > 0:10:43I've learnt lots of different things I thought I'd never learn how to do.
0:10:43 > 0:10:46It can be hard work and long hours, but for many,
0:10:46 > 0:10:50the dream of owning their own business makes it all worthwhile.
0:10:50 > 0:10:52Putting all the hard work to one side,
0:10:52 > 0:10:54there is one great advantage to being a sole trader.
0:10:54 > 0:10:57You alone are responsible for any money you make
0:10:57 > 0:10:59and it's yours to do what you want with.
0:10:59 > 0:11:02So, put the hours in, and that record shop or drum kit
0:11:02 > 0:11:04could be your passport to a great profit!
0:11:20 > 0:11:24Of all the businesses trying to make a little cash at Reading,
0:11:24 > 0:11:27from the T-shirt vendors to the burger vans
0:11:27 > 0:11:31and noodle bars, there's one that's different from all the rest.
0:11:31 > 0:11:33And it's not because of what it sells,
0:11:33 > 0:11:35but because of the special way it's set up.
0:11:35 > 0:11:38Ice cream is a festival staple -
0:11:38 > 0:11:39particularly when the sun is out,
0:11:39 > 0:11:42and Dominic Daniele knows how to cash in
0:11:42 > 0:11:44on this captive market.
0:11:44 > 0:11:47He's dishing out gallons of the stuff to the hungry crowds
0:11:47 > 0:11:50from his seven Wall's ice cream vans around the site.
0:11:50 > 0:11:53And what makes his business different
0:11:53 > 0:11:54is that it's a franchise.
0:11:54 > 0:11:57We've all heard the word before, but how many of us
0:11:57 > 0:11:58actually know what it means?
0:11:58 > 0:12:01What's a franchise? I don't want to look stupid.
0:12:01 > 0:12:06It's when one company develops a string of companies, like McDonald's is a franchise.
0:12:06 > 0:12:09A franchise is a business which is owned by yourself,
0:12:09 > 0:12:12it's a big business which is owned by individual people.
0:12:12 > 0:12:15It's a simple idea, really.
0:12:15 > 0:12:17You pay an established company a fee
0:12:17 > 0:12:22and that gives you the right to use its name and sell its products.
0:12:22 > 0:12:24Franchises are common on our high streets.
0:12:24 > 0:12:27The burger you wolfed down at McDonald's for lunch,
0:12:27 > 0:12:30or that pizza from Dominos and the photos printed off at Snappy Snaps
0:12:30 > 0:12:33were all bought from franchises.
0:12:33 > 0:12:38In fact, there are an estimated 897 different franchises in the UK.
0:12:38 > 0:12:41What is the advantage to having a franchise like this, then?
0:12:41 > 0:12:44We've got a multi-million pound company
0:12:44 > 0:12:46that is basically doing all of our advertising,
0:12:46 > 0:12:49and we do have the bestselling products
0:12:49 > 0:12:52in the ice cream line in the UK.
0:12:52 > 0:12:54We've bought five brand-new vans,
0:12:54 > 0:12:58and our sales and our purchasing power has increased.
0:12:58 > 0:12:59Are there any disadvantages?
0:12:59 > 0:13:02The only disadvantage is cosmetic,
0:13:02 > 0:13:07because when you own a business, you want your name in lights,
0:13:07 > 0:13:09but after five or ten minutes
0:13:09 > 0:13:12of Walls' products flying out of the window,
0:13:12 > 0:13:15that passes right away, so there's hardly any disadvantages.
0:13:15 > 0:13:16Now, Dom,
0:13:16 > 0:13:19I'd feel like I'd do myself an injustice if I'm
0:13:19 > 0:13:22at an ice cream van chatting to the owner and not having a go.
0:13:22 > 0:13:23Please can I have a go?
0:13:23 > 0:13:24I've always wanted to.
0:13:24 > 0:13:25Sure, hop on in.
0:13:28 > 0:13:29Ahhh!
0:13:29 > 0:13:30There you go, sir,
0:13:30 > 0:13:31you can have that one.
0:13:31 > 0:13:33Thank you.
0:13:33 > 0:13:34Anyone else want one?
0:13:34 > 0:13:35Oh! Look at that!
0:13:35 > 0:13:38One shot, one shot, and a shot in the middle.
0:13:38 > 0:13:40That deserves two flakes.
0:13:40 > 0:13:44That's one, and that's two.
0:13:44 > 0:13:47Anyone want...a lunch and dinner?!
0:13:47 > 0:13:49Fortunately for Dominic, given my huge servings,
0:13:49 > 0:13:52it's not just the number of ice-creams he sells
0:13:52 > 0:13:54that's crucial to the success of his business.
0:13:54 > 0:13:57But there is one important group he has to impress
0:13:57 > 0:14:00to ensure he keeps his vans on the road.
0:14:00 > 0:14:02And that's the franchisor.
0:14:02 > 0:14:05The franchisor is a big and well-established company
0:14:05 > 0:14:07that charges a fee to franchisees like Dominic,
0:14:07 > 0:14:11giving them the right to trade under its name, and sell its products.
0:14:11 > 0:14:14In Dominic's case, the franchisor is Wall's, part of Unilever,
0:14:14 > 0:14:18a multinational company worth billions of pounds.
0:14:18 > 0:14:22Franchisees like Dom seem quite happy with their lot,
0:14:22 > 0:14:24but what's in it for the franchisor?
0:14:26 > 0:14:29Bob Bhartiya is Dominic's boss. He's franchise manager
0:14:29 > 0:14:32for Walls. It's his job to keep an eye on the 15 franchises
0:14:32 > 0:14:37that run over 200 ice cream vans across the country.
0:14:37 > 0:14:38From Wall's point of view,
0:14:38 > 0:14:41the benefits of selling franchises are clear.
0:14:41 > 0:14:43We can get our product
0:14:43 > 0:14:44to market very quickly,
0:14:44 > 0:14:46and pretty inexpensively.
0:14:46 > 0:14:48Our investment is really around
0:14:48 > 0:14:50the graphicing of the equipment
0:14:50 > 0:14:52and also on the point of sale. We have
0:14:52 > 0:14:55operational standards that franchisees must meet.
0:14:55 > 0:14:58We have a very strict code on pricing,
0:14:58 > 0:15:02there is a minimum and a maximum size that ice creams should be,
0:15:02 > 0:15:03and monitoring those
0:15:03 > 0:15:06standards can be sometimes challenging.
0:15:08 > 0:15:09That means if a franchisee
0:15:09 > 0:15:13mucks up, it's the reputation of the parent company that suffers.
0:15:14 > 0:15:17So, to recap, a franchise is a partnership
0:15:17 > 0:15:19between two parties and that means there are
0:15:19 > 0:15:23good and bad sides to the arrangement.
0:15:23 > 0:15:26On the plus side, the franchisee gets to sell an established product,
0:15:26 > 0:15:30which means they don't have to take such a risk going into business.
0:15:30 > 0:15:33And they don't have to worry about marketing costs,
0:15:33 > 0:15:35because that's usually met by the franchisor.
0:15:36 > 0:15:40Often, the franchisor will pay for staff training too.
0:15:42 > 0:15:44There are some downsides for the franchisee.
0:15:44 > 0:15:47They don't get much choice about what to sell
0:15:47 > 0:15:50and there's less room for being entrepreneurial.
0:15:50 > 0:15:52For Dominic though,
0:15:52 > 0:15:55the advantages massively outweigh any disadvantages.
0:15:55 > 0:15:58My father-in-law he built the company by himself for 40 years
0:15:58 > 0:16:02and we've trebled the business since we joined Walls.
0:16:02 > 0:16:05The vans are impeccable, the ice cream is fantastic,
0:16:05 > 0:16:07so we just have to sit here and serve the public.
0:16:10 > 0:16:12I've learned two things today.
0:16:12 > 0:16:15That franchising can be a very effective way of running a business,
0:16:15 > 0:16:18but more importantly, that I'm actually not that bad
0:16:18 > 0:16:21at making ice cream, and it is quite tasty.
0:16:35 > 0:16:40We Brits love nothing more than a weekend of music, mayhem and mud.
0:16:40 > 0:16:45Festivals have become so popular that now over 400 take place every year.
0:16:45 > 0:16:49Reading is the oldest and attracts some of the world's biggest names.
0:16:49 > 0:16:53But Reading is more than just a bit of fun - it's a business.
0:16:53 > 0:16:56And for the 200 or so companies that provide bottles of water
0:16:56 > 0:17:01and wacky sunglasses, it's an opportunity to make a lot of money.
0:17:01 > 0:17:04Though they make the festival experience better, it's important
0:17:04 > 0:17:07to know the companies are not all run the same.
0:17:09 > 0:17:10To find out more, I'm heading
0:17:10 > 0:17:13somewhere pretty special - backstage.
0:17:14 > 0:17:17I'm meeting a man who provides something you can't see or touch
0:17:17 > 0:17:21but without which there definitely wouldn't be any music at all.
0:17:25 > 0:17:28Rob Hutchinson owns Innovation Power, which provides
0:17:28 > 0:17:31all the electricity needed to run everything
0:17:31 > 0:17:34from the stage lights to the guitars.
0:17:39 > 0:17:40This is the main stage supply
0:17:40 > 0:17:43so there's not just one big supply to the stage.
0:17:43 > 0:17:45There's several supplies. There's the sound,
0:17:45 > 0:17:47the lights, the video.
0:17:47 > 0:17:50- Not like plugging your Hoover in, is it?- No, not at all.
0:17:50 > 0:17:53So what would happen if I switched off one of these?
0:17:53 > 0:17:55I'm itching to in a way, can I do something?
0:17:55 > 0:17:58Those people out there would get very angry. Really?
0:17:58 > 0:18:00Yeah. I'd be running off in that direction.
0:18:02 > 0:18:05Supplying power to Reading isn't straightforward.
0:18:05 > 0:18:07Neither is Rob's company structure.
0:18:07 > 0:18:11That's because, with an average annual turnover of £1.5 million,
0:18:11 > 0:18:16Rob decided to make Innovation Power a Private Limited Company.
0:18:16 > 0:18:19It's quite different to being a franchise or a sole trader.
0:18:22 > 0:18:24One of the main differences is that an owner like Rob
0:18:24 > 0:18:28has a separate legal identity from his business.
0:18:28 > 0:18:31That gives the business what's called limited liability,
0:18:31 > 0:18:34which means should it go bust, bosses like Rob
0:18:34 > 0:18:39would only lose the money invested rather than their personal wealth.
0:18:39 > 0:18:41Also, in terms of structure,
0:18:41 > 0:18:44a limited company needs at least one shareholder.
0:18:44 > 0:18:48The more shares you own, the more control you have of the company.
0:18:49 > 0:18:53We started in the '80s as a sole trader stroke partnership.
0:18:53 > 0:18:56In the '90s we got busier. We were picking up bigger and bigger events.
0:18:56 > 0:18:59I said to the accountant, "If something went wrong,
0:18:59 > 0:19:02"what's going to happen?" He said, "Well, they might sue you!"
0:19:02 > 0:19:05As you grow, you need to protect what you've worked for
0:19:05 > 0:19:07and if you're not limited, you know, if you've not got
0:19:07 > 0:19:10that suit of armour on, you're going to lose everything.
0:19:10 > 0:19:13You'll be out on the street in your shirt tails!
0:19:13 > 0:19:16What are the disadvantages of a private limited company?
0:19:16 > 0:19:18Red tape, it's always red tape.
0:19:18 > 0:19:22Your finances are more complicated and your accounts are published.
0:19:22 > 0:19:26People can go to Companies House, electronically download,
0:19:26 > 0:19:30have a look at your accounts and see if you're viable.
0:19:30 > 0:19:32You're open to scrutiny.
0:19:35 > 0:19:38That's all pretty straightforward so far, right?
0:19:38 > 0:19:41However, there's one more important thing to know
0:19:41 > 0:19:42when discussing companies.
0:19:42 > 0:19:45There's actually more than one type of limited company.
0:19:45 > 0:19:49Limited companies can either be private limited companies,
0:19:49 > 0:19:52like Rob's, or public limited companies.
0:19:52 > 0:19:54Most of the ones around the festival site are private.
0:19:56 > 0:19:59It's all to do with who owns them.
0:19:59 > 0:20:03All companies are owned by a group of people known as shareholders.
0:20:03 > 0:20:06In a private limited company, people can only buy shares
0:20:06 > 0:20:09if they're invited to do so by the main shareholder.
0:20:09 > 0:20:11You can tell if a company is private
0:20:11 > 0:20:13because it will have the letters L-T-D after its name.
0:20:15 > 0:20:19But in a public limited company, anyone can buy shares
0:20:19 > 0:20:21which are openly traded on a stock exchange.
0:20:21 > 0:20:25So it's a good way of increasing investment and expanding quickly.
0:20:25 > 0:20:29These companies have P-L-C after their name.
0:20:29 > 0:20:32There are around 9,000 PLCs in Britain,
0:20:32 > 0:20:34and many of them are household names.
0:20:36 > 0:20:38One of those is Future PLC,
0:20:38 > 0:20:41publisher of some of the world's most popular music magazines.
0:20:41 > 0:20:45With over 200 shareholders and multi-million pound profits,
0:20:45 > 0:20:48it dwarfs Innovation Power.
0:20:48 > 0:20:51Stevie Spring is the boss.
0:20:51 > 0:20:57The main advantages of being a PLC are access to different lines of cash.
0:20:57 > 0:21:01So instead of just being able to go to the bank,
0:21:01 > 0:21:05we can go to our shareholders and get extra money
0:21:05 > 0:21:07to expand, to grow the business.
0:21:07 > 0:21:11It might be a good way of expanding, but becoming a plc involves
0:21:11 > 0:21:14even more transparency than private limited companies.
0:21:14 > 0:21:19Everything from my salary to how much profit we make
0:21:19 > 0:21:22to any company that we might be thinking of buying
0:21:22 > 0:21:24has to be announced to the public
0:21:24 > 0:21:28so that everybody who is buying or selling shares
0:21:28 > 0:21:30is doing it with the same information base.
0:21:32 > 0:21:35So companies aren't as straightforward as you might think.
0:21:35 > 0:21:36They come in all shapes and sizes,
0:21:36 > 0:21:39from private limited companies to PLCs.
0:21:39 > 0:21:42But they all have one thing in common, and that is to make cash,
0:21:42 > 0:21:45whether that's for two shareholders or a thousand.
0:21:58 > 0:22:02There's one thing above all else that festival traders dream of -
0:22:02 > 0:22:05no, not the chance to headline the main stage,
0:22:05 > 0:22:08but taking home a big fat profit.
0:22:09 > 0:22:14But doing this isn't as simple as setting up a stall and opening for business.
0:22:14 > 0:22:16What if your product doesn't sell?
0:22:16 > 0:22:20Or maybe it rains so much that no-one bothers coming to your stall?
0:22:20 > 0:22:21Even if you do sell stuff,
0:22:21 > 0:22:23it doesn't mean you'll make a profit.
0:22:23 > 0:22:24Actually, what is a profit?
0:22:27 > 0:22:30- What's profit? Making money! - Yeah.
0:22:30 > 0:22:31Making money, isn't it?
0:22:31 > 0:22:34Don't know how to explain it...
0:22:34 > 0:22:35She's the smart one, ask her!
0:22:35 > 0:22:38It's like making money, more than you already spent, isn't it?
0:22:38 > 0:22:43So you make money from what... how would you phrase that?
0:22:43 > 0:22:45Profit is actually easy to define.
0:22:45 > 0:22:48It's simply the money you're left with
0:22:48 > 0:22:50after you've covered your costs.
0:22:50 > 0:22:52Profit is never guaranteed
0:22:52 > 0:22:55but it's the reward you get for taking a calculated risk.
0:22:55 > 0:22:58That risk could be anything from adding a new product
0:22:58 > 0:23:01to your range or even trading at a new festival.
0:23:03 > 0:23:06One man who knows all about making a profit is Simon Baldwin.
0:23:06 > 0:23:10For over 20 years he sold hats and clothes from a shop,
0:23:10 > 0:23:12but now he's switched to selling at festivals.
0:23:12 > 0:23:15It was the chance to increase profits that prompted the move.
0:23:18 > 0:23:21The joy of a festival stall over a shop is that the overhead
0:23:21 > 0:23:24stops tomorrow, and if a shop is losing money,
0:23:24 > 0:23:27you'll continue losing money, whereas a festival,
0:23:27 > 0:23:30if it's losing money, you stop, so the risk is less.
0:23:30 > 0:23:32It sounds like an obvious question,
0:23:32 > 0:23:34but how important is profit in a business?
0:23:34 > 0:23:36Profit is ultimately everything.
0:23:36 > 0:23:38Profit is crucial, then,
0:23:38 > 0:23:40and there's one factor which dictates
0:23:40 > 0:23:43the amount a business like Simon's will make -
0:23:43 > 0:23:44the selling price.
0:23:44 > 0:23:48That's the amount he charges for every product.
0:23:48 > 0:23:53And this year, there's one item fuelling Simon's profits.
0:23:53 > 0:23:57This festival, they're all mad keen on the animal hats.
0:23:57 > 0:23:59They are great, though.
0:23:59 > 0:24:02Yes. A very festival item.
0:24:02 > 0:24:05- And these go for £10? - They're £10, yes.
0:24:05 > 0:24:08- So my monkey costs me £10 to buy from you.- Correct.
0:24:08 > 0:24:11How much does it cost you to buy?
0:24:11 > 0:24:13I get them made in Nepal,
0:24:13 > 0:24:15and they cost me £2.50 landed in the UK.
0:24:15 > 0:24:19So we make a gross profit of £7.50.
0:24:19 > 0:24:24A £7.50 profit seems like a huge amount for one hat.
0:24:24 > 0:24:26But, as Simon says, this is a gross profit,
0:24:26 > 0:24:29which means it's the TOTAL profit
0:24:29 > 0:24:31before he's paid off any of his costs,
0:24:31 > 0:24:33and there are a heck of a lot of them.
0:24:33 > 0:24:37That £7.50 helps to pay, amongst other things,
0:24:37 > 0:24:41for hiring the stall at Reading, for staff wages, and for petrol
0:24:41 > 0:24:44for his van to get his products to and from the festival site.
0:24:46 > 0:24:48There's nothing to stop Simon
0:24:48 > 0:24:50doubling the price of his hats to £20,
0:24:50 > 0:24:52but that wouldn't necessarily increase his profits,
0:24:52 > 0:24:56because fewer people would buy them at such a high price.
0:24:56 > 0:24:58Get the selling price right,
0:24:58 > 0:25:00and your business will take off.
0:25:00 > 0:25:03Get it wrong, and your business could go bust.
0:25:03 > 0:25:06While we'd all love to be loaded, it's not just profits
0:25:06 > 0:25:08and the selling price you need to worry about.
0:25:08 > 0:25:11To keep a business going you need to have cash coming in,
0:25:11 > 0:25:13to cover your costs and to help it grow.
0:25:13 > 0:25:17Money coming in and out in this way is called cash flow,
0:25:17 > 0:25:21and it's what keeps all businesses ticking over.
0:25:21 > 0:25:24Cash coming into the business comes from selling your products,
0:25:24 > 0:25:29but also from other sources, like bank loans and personal savings.
0:25:29 > 0:25:32Cash going out is also known as your costs,
0:25:32 > 0:25:36and can take two forms - fixed and variable.
0:25:36 > 0:25:38Fixed costs have to be paid
0:25:38 > 0:25:41even when your business doesn't produce anything.
0:25:41 > 0:25:44Variable costs change as the business grows.
0:25:44 > 0:25:49Mismanagement of cash flow is the failure of most businesses,
0:25:49 > 0:25:52and I learnt that myself the hard way
0:25:52 > 0:25:55and I run it very, very strictly.
0:25:55 > 0:25:57Every week you have to be aware of your cash flow.
0:25:57 > 0:26:00And what are the consequences of bad cash flow?
0:26:00 > 0:26:03You'll start running out of cash just when you need it
0:26:03 > 0:26:06and then you can't pay your suppliers, for example,
0:26:06 > 0:26:10you can't pay the bank and they won't take kindly to that,
0:26:10 > 0:26:12and they, of course, will pursue you
0:26:12 > 0:26:15for that money and that could fold you.
0:26:15 > 0:26:18It's important to remember, though, that cash flow
0:26:18 > 0:26:21and profit aren't the same thing.
0:26:21 > 0:26:24Cash flow is the money going in and out of the business.
0:26:24 > 0:26:28Profit is the money left when ALL costs have been covered.
0:26:28 > 0:26:32But putting profit to one side, there's one very basic thing
0:26:32 > 0:26:37that all business like Simon's want to achieve. That's this.
0:26:37 > 0:26:42When a business covers all its costs, it's hit that magic point
0:26:42 > 0:26:44called breaking even.
0:26:44 > 0:26:46Every sale from then on is profit.
0:26:46 > 0:26:50So once you've broken even, you're on your way to making a fortune!
0:26:50 > 0:26:52All this talk of money
0:26:52 > 0:26:55has made me want to make my own, so I'm leaving the music behind
0:26:55 > 0:26:58to do some selling and put everything I've learned
0:26:58 > 0:27:01about pricing, cash flow,
0:27:01 > 0:27:03break even and profit into practice.
0:27:04 > 0:27:07Simon's given me five hats. They cost him a pound each,
0:27:07 > 0:27:11so if I sell these for £5 a hat, that'll be £20 profit.
0:27:12 > 0:27:14Let's give it a go.
0:27:14 > 0:27:17Anyone want any hats?
0:27:17 > 0:27:19Anyone for hats at all?
0:27:19 > 0:27:20There must be someone!
0:27:20 > 0:27:25After a sluggish start with no sales and therefore no chance of a profit,
0:27:25 > 0:27:28my luck starts to change.
0:27:28 > 0:27:31- You want that one?- Thank you. - Thank you very much!
0:27:32 > 0:27:33Thank you. Have a great day!
0:27:35 > 0:27:37With just one £5 sale, I've covered the cost of all the hats
0:27:37 > 0:27:41and broken even, and soon things get even better.
0:27:41 > 0:27:44My next sale takes me into profit. Can I interest you in that for £5?
0:27:44 > 0:27:45Yeah, definitely.
0:27:45 > 0:27:50OK, thank you very much. There's your hat. Enjoy!
0:27:50 > 0:27:51Thank you!
0:27:51 > 0:27:55£10 achieved, two hats sold...this is easy!
0:27:55 > 0:27:57Too easy!
0:27:58 > 0:28:01Two £1 hats sold for £10 equals an £8 profit.
0:28:01 > 0:28:05And the great thing is, because I've got no real costs,
0:28:05 > 0:28:08that profit is all mine.
0:28:08 > 0:28:12But you need to continue working hard to keep the cash coming in.
0:28:12 > 0:28:17Unfortunately, I start getting a little distracted.
0:28:17 > 0:28:19I sold two hats for £10 and then
0:28:19 > 0:28:22people started recognising me and then it became distracting,
0:28:22 > 0:28:26the hat sales then dropped off, so actually
0:28:26 > 0:28:28the business has stalled for a bit.
0:28:28 > 0:28:30I shudder to think what the Lord Sugars
0:28:30 > 0:28:31and Richard Bransons of this world
0:28:31 > 0:28:34would make of that performance, but I have learned one thing.
0:28:34 > 0:28:39It takes hard work to deliver big profits.
0:28:39 > 0:28:41Oh, well, it's not all bad. At least I've added
0:28:41 > 0:28:44three snazzy new hats to my wardrobe!