1. Operations Management
10.1 Operating Procedures
10.2 Inventory Management
10.3 Financial Management

2. Lesson 10.1 Operating Procedures
Goals
Define the five functions of management.
Describe five types of policies that should be included in an operations manual.
Chapter 10

3. Vocabulary manager management organizational structure
authoritative management
democratic management
operations manual
Chapter 10

4. Management Functions manager management
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
Chapter 10

5. Planning Strategic planning Intermediate-range 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
Chapter 10

6. Organizing Assignment of tasks Grouping of tasks into departments
determining which employee is responsible for specific tasks
Grouping of tasks into departments
grouping closely related tasks together
Chapter 10

7. Organizational structure
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
Chapter 10

8. Staffing Managing the personnel needs of a business through: obtaining
training
compensating
Chapter 10

9. 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
Chapter 10

10. authoritative management
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
Chapter 10

11. 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
Chapter 10

12. What are the functions of management?
Chapter 1

13. Operations Manual operations manual employee handbook
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
Chapter 10

14. Customer Service Policies
Operating Policies
Set daily operating hours that are convenient for customers.
Customer Service Policies
Customer satisfaction is the goal.
returns
follow-up service
Chapter 10

15. Delivery Policies often offered for customer convenience
The policy should cover:
whether you will offer delivery
delivery fee
delivery timeframe
Chapter 10

16. Hiring Policies Safety Policies application process
testing requirements
background checks
Safety Policies
Employees should be trained in emergency procedures.
Chapter 10

17. What type of information should be included in an operations manual?
Chapter 1

18. Lesson 10.2 Inventory Management
Goals
Prepare a purchasing plan for inventory.
Describe the perpetual and periodic inventory methods.
Determine how much inventory to keep in stock.
Chapter 10

19. Vocabulary perpetual inventory method stock card
point-of-sale software system
periodic inventory method
stock turnover rate
Chapter 10

20. Meet Inventory Needs inventory Inventory costs include:
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.
Chapter 10

21. Purchasing Plan
The sales forecast can be used to calculate required inventory.
Ending inventory =
Beginning inventory + Purchases ─ Sales
Chapter 10

22. Chapter 10

23. What are some of the concerns managers have regarding inventory?
Chapter 1

24. Track Your Inventory
You will need to take a physical inventory once or twice a year.
Chapter 10

25. Perpetual Inventory Method
monitors inventory levels daily
efficient
avoids inventory shortages
stock card
a paper inventory record for a single item
electronic versions available
Chapter 10

26. reorder point the minimum amount you want to keep in inventory
indicates when you should place an order to receive more units
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27. Chapter 10

28. Use a Computer point-of-sale (POS) software system
updates inventory as each sale happens
provides up-to-date inventory levels
Chapter 10

29. Periodic Inventory Method
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
Chapter 10

30. How does the perpetual inventory method differ from the periodic inventory method?
Chapter 1

31. Manage Your Inventory Costs of Carrying Inventory
Costs can increase for many reasons including:
obsolescence
deterioration
interest fees
insurance
storage
Chapter 10

32. Costs of Being Out of Stock
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
Chapter 10

33. What three factors determine the amount of inventory a business keeps in stock?
Chapter 1

34. Lesson 10.3 Financial Management
Goals
Describe strategies for managing cash flow.
Evaluate a business’s performance through financial statement analysis.
Chapter 10

35. Vocabulary
cash budget
gross sales
net sales
Chapter 10

36. 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
Chapter 10

37. Chapter 10

38. Improve Your Cash Flow 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
Chapter 10

39. What are some ways you can improve your cash flow?
Chapter 1

40. Prepare and Analyze Financial Statements
Prepare Financial Statements
cash flow statement
cash inflows
cash outflows
Chapter 10

41. income statement balance sheet revenues expenses
net income or loss over a specific period or time
balance sheet
assets
liabilities
owner’s equity
Chapter 10

42. Analyze Sales Sales records can: show trends and patterns
be used to forecast future sales
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43. Analyze Sales by Product
helps you decide what type of inventory to stock
helps you increase sales and profits
Chapter 1

44. Chapter 10

45. Analyze Net Profit on Sales
Net income after taxes ÷ Net sales
Chapter 10

46. Calculate Net Sales gross sales net sales = gross sales ─ returns
dollar amount of all sales
net sales =
gross sales ─ returns
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47. Calculate Net Income After Taxes
Gross profit =
Net sales ─ Cost of goods sold
Net income from operations =
Gross profit ─ Operating expenses
Chapter 10

48. Net income before taxes =
Net income from operations ─ Interest expense
Net income after taxes =
Net income before taxes ─ Income tax paid
Chapter 10

49. Chapter 10

50. Calculate and Analyze 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
Chapter 10

51. Set and Meet Profit Goals
Profit goals reflect the amount of profit you hope to earn during a particular year.
Chapter 10

52. 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.
Chapter 10

53. Chapter 10

54. 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

55. 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

56. 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

57. 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

58. 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

59. Chapter 1

60. Why is it important for an entrepreneur to analyze the financial statements of the business?
Chapter 1