Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ChapterChapter10 Operations Management 10.1 Operating Procedures 10.2 Inventory Management 10.3 Financial Management

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 2 Management Functions manager the person responsible for planning, organizing, staffing, implementing and controlling the operations of a business management the process of achieving goals by establishing operating procedures making effective use of people and other resources

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 3 Planning Strategic planning planning for the three to five years ahead setting broad, long-range objectives Intermediate-range planning planning for a one-year period set target dates for task completion Short-term planning planning for daily operations

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 4 Organizing Assignment of tasks determining which employee is responsible for specific tasks Grouping of tasks into departments grouping closely related tasks together

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 5 a plan that shows how the various jobs in a company relate to one another often represented in a chart Allocation of resources across the organization determining the most efficient use of resources Organizational structure

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 6 Staffing Managing the personnel needs of a business through: obtaining training compensating

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 7 Implementing Implementing involves directing and leading people to accomplish the goals of an organization. management style the way a manager behaves toward and works with employees

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 8 the manager is directive and controlling democratic management employees are involved in decision making the manager provides less direction mixed management a combination of authoritative and democratic management authoritative management

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 9 Controlling Controlling is the process of: setting organizational standards ensuring those standards are met comparing actual revenues and expenses with projected revenue and expenses determining if operations are running effectively inspecting products and services to ensure they are meeting performance standards

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 10 Operations Manual operations manual contains all the rules, policies, and procedures that a business should follow to function effectively employee handbook details the rules, policies, and procedures that apply to employees

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 11 Set daily operating hours that are convenient for customers. Customer Service Policies Customer satisfaction is the goal. returns follow-up service Operating Policies

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 12 often offered for customer convenience The policy should cover: whether you will offer delivery delivery fee delivery timeframe Delivery Policies

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 13 application process testing requirements background checks Safety Policies Employees should be trained in emergency procedures. Hiring Policies

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 14 Meet Inventory Needs inventory the stock of goods a business has for sale Inventory costs include: storage insurance taxes purchase price of inventory Inventory must be well managed if you want to make a profit.

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 15 Purchasing Plan The sales forecast can be used to calculate required inventory. Ending inventory = Beginning inventory + Purchases ─ Sales

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 16

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 17 Track Your Inventory You will need to take a physical inventory once or twice a year.

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 18 Perpetual Inventory Method perpetual inventory method monitors inventory levels daily efficient avoids inventory shortages stock card a paper inventory record for a single item electronic versions available

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 19 the minimum amount you want to keep in inventory indicates when you should place an order to receive more units reorder point

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 20

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 21 Use a Computer point-of-sale (POS) software system updates inventory as each sale happens provides up-to-date inventory levels

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 22 taking a physical count of merchandise at regular intervals Take a Physical Inventory counting the number of items in stock should be done once or twice a year can highlight discrepancies caused by a failure to record sales theft damage Periodic Inventory Method

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 23 Manage Your Inventory Costs of Carrying Inventory Costs can increase for many reasons including: obsolescence deterioration interest fees insurance storage

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 24 Stock shortages can lead to: loss of sales loss of customer loyalty Stock Turnover Rate the rate at which inventory is sold and replaced with new inventory Months of inventory to stock = Months in year ÷ Stock turnover rate Costs of Being Out of Stock

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 25 Manage Your Cash Flow Create a Cash Budget cash budget shows the projection of your cash coming in and going out estimated cash flow actual cash flow the difference between the two

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 26

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 27 Increase Cash Receipts discounts for timely payment tighter credit policies collect unpaid accounts receivable hold shipments to customers with unpaid bills Decrease Cash Disbursements inventory reductions reducing the payroll use credit from suppliers reduce variable expenses Improve Your Cash Flow

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 28 Prepare and Analyze Financial Statements Prepare Financial Statements cash flow statement cash inflows cash outflows

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 29 revenues expenses net income or loss over a specific period or time balance sheet assets liabilities owner’s equity income statement

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 30 Analyze Sales Sales records can: show trends and patterns be used to forecast future sales

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Slide 31 helps you decide what type of inventory to stock helps you increase sales and profits Analyze Sales by Product

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 32

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 33 Analyze Net Profit on Sales Net profit on sales = Net income after taxes ÷ Net sales

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 34 Calculate Net Sales gross sales dollar amount of all sales net sales = gross sales ─ returns

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 35 Calculate Net Income After Taxes Gross profit = Net sales ─ Cost of goods sold Net income from operations = Gross profit ─ Operating expenses

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 36 Net income from operations ─ Interest expense Net income after taxes = Net income before taxes ─ Income tax paid Net income before taxes =

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 37

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 38 Calculate and Analyze Net Profit on Sales Net profit on sales = Net income after taxes ÷ Net sales Net profit helps to determine the profitability of your business. can compare with prior years can compare against industry standards

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 39 Set and Meet Profit Goals Profit goals reflect the amount of profit you hope to earn during a particular year.

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 40 Perform Breakeven Analysis breakeven point the volume of sales that must be made to cover all business expenses Profit occurs after the breakeven point is exceeded.

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Slide 41

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Analyze Debt and Equity The four key areas entrepreneurs should review using data from the balance sheet are: Ability to pay debt as it comes due Return on assets Amount of debt the company is using Rate of return by the owners on their equity investment Chapter 1 Slide 42

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ability to Pay Debt A company is liquid if it has enough money to pay off any debt. Current ratio = Current assets ÷ Current liabilities Chapter 1 Slide 43

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Return on Assets ROA indicates how profitable a company is relative to the total amount of assets invested in the company. Return on assets = Net income ÷ Total assets Chapter 1 Slide 44

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Debt Ratio The amount of debt, relative to total assets, used to finance a business should be examined. Debt ration = Total debt ÷ Total assets Chapter 1 Slide 45

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Return on Equity The ROE is the rate of return the owners are receiving on their equity investment. Return on equity = Net income ÷ Owner’s equity Chapter 1 Slide 46

Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Slide 47