Intro to Business

Unit Four Business Operations

Chapter 12Small Business Management

GOALS

Describe the characteristics of small business owners.

Identify key steps small business owners follow to start their business.

Explain the importance of a written business plan.

Detail various types of financing for a new business.

Characteristics of Small Business Owners

Advantages: Independence Control Set your own schedule Make your own decisions

Disadvantages: Long hours Customer complaints Making payroll Taking responsibility

for everything

Characteristics of Small Business Owners Small Business Ownership is risky Fewer than ½ of all new businesses survive 5 yrs

Personality–Based: Self-motivation Risk-taking Persistence

Business-Related: Knowledge & Skills

Management, finance, marketing, business operations

Most importantly – EFFORT

Key Steps in Starting a Business An Idea Plus Experience

Begins with an idea Hobbies, interests, and business experiences Training and experience from previous jobs Various aspects of business operations

Right Place and Time Location – customer traffic Location – manufacturers, wholesalers,

transportation, supplies accessible Timing – customer demand is high

Key Steps in Starting a Business Team Approach

Even the most independent people need help Team = employees with right abilities

Preparation and Research Preparation is most important step

Having adequate information to make good decisions Time spent gathering and studying information Info about: customers, competitors, operations and

activities, government regulations, etc. Sources: Libraries, Internet, Business Assistance Centers

Characteristics of Entrepreneurs

ENTREPRENEURS HAVE ENTREPRENEURS ARE

Problem-solving skills Persistent

Tolerance for ambiguity Inquisitive

Strong integrity Energetic

Personal initiative Goal-oriented

Ability to secure resources Independent

Capability to learn from failure Creative

Willingness to work hard Reliable

Self-confidence Competitive

Importance of Business Plan (Pg164) Business Plan: a written description of the

business idea and how it will be carried out, including all major business activities.

Key Features: General Description of Company Qualifications of the owner(s) Description of Products & Services Analysis of Market (demand, customers, competition) Financial Plan

Forces owner to consider activities, time & cost

Importance of Business Plan (Pg164) Why write a Business Plan?

Persuade lenders/investors top help finance venture

Developed plan to follow through with: Layout the idea Analyze the concept Make decisions about business activities

(production, marketing, staffing, financing, etc.)

Provides Owner with: Game Plan Timeline Goals

Elements of a Business Plan

Description of Business • The business idea Major products & services• Ownership structure Strengths and weaknesses• Long-term and short-term goals

Customer Analysis• Description of customers• Location, number, and resources of customers• Sales forecast

Operations Plan• Organization of the company Description of major operations• Analysis of resources needed Human resource plans

Marketing Plan• Description of major marketing activities• Description of resources needed• Schedule of marketing activities

Financial Plans• Start-Up costs Short-term and long-term financial needs• Sources of financing Budgets and financial statements

Financing Options

Start-Up Financing Amount of money needed to start the business

Short-Term Financing Money needed to pay for current operating activities of a

business; Usually LESS THAN 1 year

Long-Term Financing Money needed for the important resources of a business

(such as land, buildings, equipment) that will last for many years

Financing Options Sources of Financing

Owner’s funds Sole-Proprietorship = Personal savings Partnership = contributions from both parties

Borrowed funds Loans from banks Loans from other financial institutions Financing from private investors Financing from other companies

COMMON REASONS FOR SMALL BUSINESS FAILURE Not keeping adequate records Not having enough start-up money Lack of management experience Lack of experience with the type of business Not controlling operating expenses Poor location for the business Failure to manage credit offered to customers

Intro to Business

Unit Four Business Operations

Chapter 13Managing Human Resources

GOALS

Explain why human resources are important to the success of small business.

Identify factors to be considered by a small business owner when assessing human resource needs.

Outline types of compensation and typical benefits for employees.

Importance of Human Resource Human Resources

The people who work for a business

Small business may have few employees Impact of one person can be very noticeable Responsible for a number of activities May make key decisions & solve problems

Human Resource Needs Human Resource Management

Ensures that employees are available, that they are productive, paid, and satisfied with their work.

Human Resource Needs Categorizing Human Resources

Staffing is vital Once hired, employee is paid (profitable or not) Contribute to company’s profitability

Permanent: long term commitment Temporary: specific time frame or assignment

(seasonal) (Full/Part)

Full-Time: regular schedule, 30+ hours per week Part-Time: fewer hours, fewer days (afterschool)

Employee Category Supporting Reason Opposing Reason

Permanent Will know the business Employees will have a greater loyalty to it

Payroll expenses will continue no matter what the condition of the business (slow)

Temporary Can fill when business increases and be eliminated when business decreases

Difficult to find people who are qualified and want to work a short period

Full-Time Can be counted on to work regularlyComplete the important work of the business

Costs are usually higher because full-time must be paid some fringe benefits

Part-Time Can work during days and times when extra help is required

Will likely leave if a permanent job opportunity is offered by another business

Human Resource Needs Determining Employee Qualifications

What work needs to be completed? (current or new activities)

What skills are needed to do the work?

What type of employee? Permanent or Temporary; Full or Part-Time?

Goal: Hire people who can meet those needs

Human Resource Needs Locating New Employees

Young & Older Employees looking for part-time. Provides convenient location more flexible schedules pleasant work environment.

Skilled Workers Want more decision-making responsibility Greater variety of workload Prefer smaller organizations

Human Resource Needs Locating New Employees

High School Teachers & College Professors

High School or College Placement Offices

Recommendations of Current Employees

Classified Ads in Local Newspaper

Clubs and Social Organizations

Customers of the Small Business

Human Resource Needs Hiring New Employees

Less formal than large companyChoosing the Right People

Applicant Qualifications Information Sources

Business and Technical Knowledge & Skills Transcripts / Grade ReportsTeacher ReferencesEmployer ReferencesWork Samples

Communication & Interpersonal Skills Personal ReferencesInterviewsRole playingEmployer References

Attitude Towards Work and Customers Interview Employer ReferencesAttendance RecordsWork History from Resume

Work Experience ResumeEmployer References

Compensation & Benefits Compensation

amount of money paid to employee for work performed. Consists of two parts:

1. Salary & Wages: direct payment to employee for work completed

2. Benefits: indirect forms of payment (i.e. insurance, vacation, paid parking)

Compensation & Benefits Time Wage

Pays employee a specific amount of money for each hour worked. (40 Hour Week)

Straight Salary

Pays a specific amount per week or month worked. (may have worked 35 hours or 45 hours)

Neither based on amount or quality of work.

Compensation & Benefits Financial Incentives

Commission: performance reward (% of sales they were responsible for making)

Piece Rate: performance reward(amount per unit of work produced)

Base Plus Incentive: wage or salary in addition to (PLUS) performance reward

i.e. Profit Sharing: receive regular pay plus a share of the profits earned by the company

Encourages commitment to company, teamwork, effective customer service, etc. to ensure higher profits.

Compensation & Benefits Fringe Benefits

Businesses offer and pay costs of benefits: Compensation (including overtime pay) Social Security Medicare Unemployment Workers Compensation (injury) Insurance plans (Health, life, dental, disability)

Vacation Benefits Paid for time they aren’t working, but makes happier,

more productive employees in the long run.

Fringe BenefitsFringe Benefit Value to Employee

Vacation Time Much needed breaksOpportunity to relax / de-stressEnjoy leisure time

Health Insurance Reduces financial burden suffered by individuals because of injury or illness

Life Insurance Provides financial security for family members (If family provider dies)

Uniforms/Clothing Allowance Shows employees commitment Reduces initial costs of dressing for work

Flextime (Flexible Start/End Time)

Allows employees control of work hours

Fringe BenefitsFringe Benefit Value to Employee

Employee cafeteriaLow-cost menus

Helps employees save moneyProvide course of nutrition at work

Daycare for employee children Reduces anxiety about child careKeeps children close to parents

Recreation facility (Gym) Provides convenient way for employees to stay fit and healthy

Retirement Income Provides financial security during old age.

Employee Discounts Offer good value for purchases of company products

Intro to Business

Unit Four Business Operations

Chapter 14Maintaining Financial Information

GOALS

Identify common sources of financial information for small businesses.

Describe the 3 types of business budgets.

Outline the primary financial records needed to manage a small business.

Explain the financial statements used by a business.

Financial Planning Business Budget

1.Anticipate sources and amounts of income2.Predict the types and amounts of expenses for

a specific business activities or entire business

Income (Revenue) – Money Received Expenses – Cost of Operating

Financial Planning Sources of Information

Small Business Administration Planning tools for small businesses (develop budget)

Private Businesses (Collect & Publish Info) Dun & Bradstreet Value Line Standard and Poor

Financial Planning Sources of Information

Business Magazines Fortune http://money.cnn.com/magazines/fortune/ Forbes http://www.forbes.com/ Entrepreneur http://www.entrepreneur.com/ Black Enterprise http://www.blackenterprise.com/ The Wall Street Journal http://online.wsj.com

Professional Associations National Federation of Independent Business

http://www.nfib.com/ National Retail Merchants Associations

http://www.retailmerchants.com/

Budget Prep – Budget #1 Start-Up Budget

Plans income and expenses from beginning of the business until it becomes profitable

Needed before business can begin selling:

Buildings, equipment, inventory, supplies, materials, employees, utilities, licenses, advertising, transportation

Investments and loans help get them started

Budget Prep – Budget #2 Operating Budget

Financial plan for day-to-day operations of the business

Six months to a year

All revenue and expenses are listed and the planned net income (loss) for the period of time is shown.

Budget Prep – Budget #3 Cash Budget

An estimate of the actual money received and paid out for a specific time period

Anticipates that cash will come into a business and that cash will be paid out during each week or month of operation.

Basic Financial Equation Revenue – Expenses = Profit or Loss

Profit Revenue is greater than expenses Revenue > Expenses = Profit

Loss Revenue is less than expenses Revenue < Expenses = Loss

Financial Records Used to record and analyze the financial

performance of a business.

Cash Records: list all cash receipts and disbursements

Records of Accounts: Accounts Payable: identifies companies from which

credit purchase were made (we owe them)

Accounts Receivable: identifies companies that have made credit purchases (they owe us)

Financial Records

Inventory Records Identify the type and quantity of products available

for sale. (needed for control & security)

Asset Records Identify buildings and equipment owned by business,

their original and current value, & the amount owned if money was borrowed to purchase assets.

Financial Records - Payroll Payroll Records

Contain info on all employees and their earnings

What is the purpose of the payroll system? The purpose of the payroll system is to:

maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee

taking the proper legal state and federal deductions from each paycheck.

SAMPLE EARNINGS REPORT & DIRECT DEPOSIT RECEIPT

Financial Statements

Reports that summarize the financial performance of the business.

Balance Sheet

Income Statement

(next 2 Slides)

Balance Sheet Lists assets, liabilities, and owner’s equity (capital) Prepared every six months or every year

Income Statement Reports revenue, expenses, and net income (or loss)

from the business for a specific time period. Prepared every month (new) or 6 months (established)