Intro to Business Unit Four Business Operations Chapter 12 Small 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 HAVEENTREPRENEURS ARE Problem-solving skillsPersistent Tolerance for ambiguityInquisitive Strong integrityEnergetic Personal initiativeGoal-oriented Ability to secure resourcesIndependent Capability to learn from failureCreative Willingness to work hardReliable Self-confidenceCompetitive

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 13 Managing 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 CategorySupporting ReasonOpposing 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 regularly Complete 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 company Choosing the Right People Applicant QualificationsInformation Sources Business and Technical Knowledge & SkillsTranscripts / Grade Reports Teacher References Employer References Work Samples Communication & Interpersonal SkillsPersonal References Interviews Role playing Employer References Attitude Towards Work and CustomersInterview Employer References Attendance Records Work History from Resume Work ExperienceResume Employer 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 Benefits Fringe BenefitValue to Employee Vacation TimeMuch needed breaks Opportunity to relax / de-stress Enjoy leisure time Health InsuranceReduces financial burden suffered by individuals because of injury or illness Life InsuranceProvides financial security for family members (If family provider dies) Uniforms/Clothing AllowanceShows employees commitment Reduces initial costs of dressing for work Flextime (Flexible Start/End Time) Allows employees control of work hours

Fringe Benefits Fringe BenefitValue to Employee Employee cafeteria Low-cost menus Helps employees save money Provide course of nutrition at work Daycare for employee childrenReduces anxiety about child care Keeps children close to parents Recreation facility (Gym)Provides convenient way for employees to stay fit and healthy Retirement IncomeProvides financial security during old age. Employee DiscountsOffer good value for purchases of company products

Intro to Business Unit Four Business Operations Chapter 14 Maintaining 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 income 2. 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  Forbes  Entrepreneur  Black Enterprise  The Wall Street Journal Professional Associations  National Federation of Independent Business  National Retail Merchants Associations

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)