Objectives

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Chapter 11

• Objectives
• Recognize the different types of direct marketing
  and their pros and cons
• Master using the Internet as a distribution
  channel
• Learn how to do non-direct distribution
• Differentiate the types of international
  strategies
• Identify the factors to consider in selecting
  your business location
• Set up your home-based business location
• Know what to look for in a potential site layout
• Understand the pros and cons of buying, building,
  or leasing

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• Focus on Small Business Steve Niewulis and Tap
  It!
• Rosin bag attached to a wristband
• Stores were not interested preferred to buy from
  companies with several products in their product
  lines
• Began attending trade shows set up a booth
• Met up with Baseball Express

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• Distribution
• Distribution process of getting your product to
  your customers
• Where are my customers?
• Where should I be?
• Direct marketing
• Can be simple and inexpensive
• Much more control over where your product or
  service goes
• Many forms

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• Typical Distribution Channels

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• Word-of-mouth
• Direct sales primary way of selling to
  businesses
• Salesperson contacts businesses likely to use
  your product or service and arranges to meet with
  the decision maker
• Local fair, cultural event, flea market, craft
  fair
• Vending machines

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• Direct mail easy for part-time entrepreneurs
• Can take many forms postcards, catalogs, videos,
  brochures, leaflets, CD-ROMs
• Getting the addresses is a major hurdle
• PCS Mailing List Company (www.pcslist.com)
• Focus USA (www.focus-usa-1.com)
• Practical Marketing (www.practicalmarketing.net)
• Google Directory (www.google.com/dirhp)

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Chapter 11
Question

• Which marketing style is a telephone call from a
  salesperson?
• a) telemarketing
• b) direct marketing
• c) guerilla marketing
• d) direct response advertising

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• Telemarketing telephone calls from salespeople
• Most expensive form of direct marketing
• Many states have adopted do-not-call lists
• Inbound telemarketing customer calls the
  manufacturer or service provider

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• Direct response advertising you place an ad
  somewhere
• Wait for the orders to come in

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• Guerilla marketing unusual and nearly free
  advertising
• Placing flyers under windshield wipers of cars
• Waving signs at passing customers
• Business cards on bulletin boards
• Key is to catch the customers attention

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• Multichannel marketing using several outlets for
  contacting your customers
• Phone number
• Web site
• E-mail address
• Direct mail

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• Internet very cost-effective and efficient way
  to contact your customers
• Small businesses need to have a Web site
  regardless of whether or not they use it for
  actual sales
• Multichannel marketing
• Web site listed on your business cards

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• eBay the megamall of e-malls
• Strongly suggest using the auction feature
• 12 million items available daily
• 2 million new postings a day
• 150 new items for sale listed every minute
• 69 million eBay users
• Spend 59 million a day

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• Tips for selling on eBay
• Use detailed descriptions
• A picture is worth a thousand words
• Watch out for misspellings and typos
• Be honest and factual
• Respond as soon as possible
• Be honest and up-front about shipping
• Customer service is very important

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• Other Internet options
• Amazon.com (www.amazon.com)
• Variety of selling options
• Elance (www.elanceonline.com)
• Offers service providers the opportunity to bid
  on potential projects

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• Other Internet options cont.
• Contracted Work (www.contractedwork.com)
• www.freelancersdirect.com
• Business-to-business e-malls
• Business.com (www.business.com)

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• Distribution issues for direct marketing
• Youll need to know where to go to find the
  information
• The amount the seller pays
• Fulfillment center (www.clearcommerce.com/eguide)
• Nondirect distribution
• Middlemen provide the service of getting the
  product to the end consumer
• Functions such as inventory control, advertising,
  and promotion

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• Nondirect distribution cont.
• Many distributors and wholesalers are not
  interested in taking on a start-up product
• Be able to prove that it sells well
• Showing your product at trade shows and gaining
  sales and recognition
• An e-tailer might be willing to take a chance

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• International strategies
• Born international new firm that opens a Web
  site immediately, thus being exposed to customers
  around the world
• Exporting three questions
• Are we ready?
• Where should we go?
• Whom do we contact over there?
• A Basic Guide to Exporting
• http//www.unzco.com/guide.html

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Chapter 11
Question

• Exporting using no middlemen is
• a) Indirect exporting
• b) Freight forwarding
• c) Express exporting
• d) Direct exporting

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• Direct Exporting exporting using no middlemen
• Indirect Exporting exporting using middlemen
  such as agents, export management companies, or
  export trading companies
• Freight Forwarders firms specializing in
  arranging international shipments packaging,
  transportation, and paperwork

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• Exporting cont.
• Are you ready to export?
• Are you going to target one country, a region or
  the whole world
• Do you know what customers want
• Do you know what the import requirements are
• Are you ready for the costs and headaches of
  exporting

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• Exporting cont.
• Where should we go?
• United Nations has 191 member countries
• Pick one or two as first markets
• Safest bets Canada, United Kingdom, Australia

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• Exporting cont.
• Whom do we contact over there?
• Government services you have already used can
  provide lists of potential middlemen or end users
• U.S. Commercial Services (www.export.gov)
• BuyUSA.com through U.S. Dept. of Commerce
• Participate in trade shows and trade missions

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• Exports cont.
• Next step is to export
• Pricing becomes complicated need to cover
  transportation
• Shipping documentation and other paperwork are
  very specific to the product and the country
• Variety of payment procedures available
• Financing and insurance become important

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Example

• How to Start an Import/Export Business
• Big guys make up only about 4 percent of all
  exporters and the other 96 percent of exporters
  are small outfits like yours
• Trade channel - the means by which the
  merchandise travels from manufacturer to end user
  
• Types of Import/Export businesses
• Export management company
• Export trading company
• Import/export merchant

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• Importing similar to exporting, but buyers and
  sellers are reversed
• Travel abroad look for products that are selling
  well in the country youre visiting
• Trade mission and domestic and international
  trade shows are also good sources
• Many of the paperwork and insurance details will
  be your sources responsibility

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Chapter 11
Question

• Entrepreneurs generally choose their hometown
  for a location for all the following except
• a) You know the local banker
• b) Zoning laws are strict
• c) Friends and Family will be customers
• d) Know the markets needs and wants

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• Location
• First choice for many entrepreneurs is their
  hometown
• Local banker knows you, more likely to loan money
• You understand markets needs and wants
• Friends and family are usually first customers
• Reasons to consider a different location
• Business laws in area (zoning laws)
• Certain types of businesses may be banned

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• Service firms
• Three types of locations
• At the clients location
• At a mutually accessible location
• At your firms location
• Marketing niches have been carved out
• Dry cleaning and restaurant dining are services
  provided at a place accessible to both parties

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• At the clients location
• Services include such things as house or office
  cleaning, pest control, remodeling, lawn and
  gardening services, carpet cleaning, and similar
  services which must be performed at the clients
  house
• As the firm grows, it may outgrow its home-based
  headquarters

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• Mutually accessible location
• Too much specialized equipment to be readily
  transported
• A need for at least some client involvement
• Barbershops, dentist offices, video rental stores
  restaurants

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• Remote locations
• Face-to-face meetings with the clients are
  infrequent
• Medical transcription, data processing,fulfillment
  centers, and some consulting work
• Ideal for home-based businesses

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• Site selection
• Once you have determined the general location of
  your business, you need to determine the exact
  location for your operation
• Three categories to look for
• Home-based businesses
• High customer contact
• Low customer contact

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• High customer contact business
• Three critical site selection considerations
• Traffic
• Customer ease
• Competition
• Presence of traffic generators in the area
• Parking is also an issue

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• Low customer contact business
• Manufacturing business
• Commercial space might be appropriate
• Support businesses will be in or near the area
• Business incubator www.nbia.org
• 850 business incubators in the United States
  sponsored by government, universities, or private
  investment groups
• Require a stake in your company

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• General comments on site selection
• Looking for for sale and for rent
• An experienced real estate broker will also be
  able to assist you in your search
• Level with them about what you can spend

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• Home-based businesses
• Check with the city for zoning restrictions
• Choose a work location inside your home that is
  away from distractions
• Youll need a comfortable, usable desk, and
  adequate lighting
• Tools typically include a telephone and
  high-capacity Internet service
• Separate business line with an answering machine

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• Layout particular to the type of business you
  are in
• Layout of a potential site must be considered
  carefully
• Consider the amenities that are already there
• Check the exterior

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• Typical Manufacturing Layout

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• Typical Retail Layouts

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• Build, buy, or lease three choices available to
  the business
• Buying something already in existence shortens
  the time and may be somewhat cheaper
• Renting is an option with a considerably lower
  initial cash outlay
• Often the only feasible choice
• Rent expenses are deductible

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Example

• Relocate Your Business
• Buying requires more upfront capital investment,
  but provides security and the opportunity for
  capital appreciation
• Costs less to get into leased space--and it's
  easier to get out, too--but monthly payments may
  be higher
• Consider a lease with an option to own

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Chapter 12

• Objectives
• Understand the importance of a marketing plan
• Recognize the major methods of conducting market
  research
• Use sales forecasting methods
• Find or create a products differential advantage
• Identify the critical components of a marketing
  plan

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• Focus on Small Business Kwok Kee Restaurant
• Friends raved about familys porridge recipe
• Business founded in 1968
• Kwok-Foon Lai needed a way to be different
• Decided to stay local for personal convenience
• Major street near a large complex of apartments
• Costs were much lower than the competitions

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• Marketing Plan
• Marketing plan a systematic written plan of all
  phases of marketing for a business, including
  information on the product, price, and
  distribution and promotion strategy, as well as a
  clear identification of the target market and
  competition
• Will help you articulate what it is that you are
  going to do

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Chapter 12
Question

• Secondary data is
• a) Information gathered to answer a specific
  marketing question
• b) Information that is extremely current
• c) Information already collected for some other
  purpose than the current problem
• d) Data gathered by observation

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• Marketing research
• Can verify the size of the potential market
• Show what the competitors are doing correctly
• Also, their weaknesses
• Reveal where potential customers are likely to
  shop
• Primary research gathered to answer a specific
  marketing question

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• Secondary research research for some other
  reason than your specific question
• Secondary data information already collected for
  some other purpose than the current problem
• BizStats.com
• Economic Census census.gov
• Business Expenses Survey www.census.gov/csd/bes/
• Capital Expenditures Survey www.census.gov/csd/ac
  e/

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• Primary data information is extremely current
• Take some more time and money to gather it
• Marketing research firms can do this for you
• Zoomerang (www.zoomerang.com)
• Vista (www.vanguardsw.com/vista)
• Web hotlinks
• SCORE (www.score.org)

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Chapter 12
Question

• Data collection method using a questionnaire is
• a) Ethnographic research
• b) Scalar research
• c) Focus group
• d) Survey

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• Methods for gathering data
• Ethnographic research data gathered by simple
  observation seeing what consumers do, rather
  than asking them
• Focus group form of data gathering from a small
  group led by a moderator
• 8-20 people
• Make sure questions are asked the right way
• Participants paid for their time

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• Survey data collection method using a
  questionnaire
• In person tends to be the most expensive
• Ask for clarification, or expand on the answer
• Mail is the least expensive
• Has the lowest return, and does not allow much
  flexibility
• Internet surveys are gaining in popularity

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• Question types
• Scalar questions answered by some sort of scale
• On a scale of 1 to 5, how do you like this
  book?
• Dichotomous questions only two possible choices
• Have you shopped here before?
• Categorical questions answered by selecting the
  proper category
• What is your ethnicity?
• Open-ended questions allows respondents to
  express themselves

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• Sales Forecasting
• One of the most important pieces of marketing
  plan
• Knowing what your sales will be
• Companies often base sales forecasts on
  historical sales, but new companies cannot do
  that

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• Products or services are tied to others
• Estimate total market
• Calculate what percentage of that market you can
  get
• Other products and services are not tied as
  neatly to others
• Good situation for some marketing research
• Next step is to estimate average amount of sales
  per customer

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• See what competitive products are going for in
  the market
• Search will find competitive products
• Price bots
• Froogle (www.froogle.com)
• Mysimon (www.mysimon.com)
• Elance (http//www.elanceonline.com/)
• Specialized in books (www.bestbookbuys.com)

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Example

• Creating a Sales Forecast
• Sales forecast sets the standard for expenses,
  profits and growth
• Should show sales by month for the next 12 then
  by year for the following two to five years
• Some tips to get you started
• Develop a unit sales projection
• Use past data if you have it
• Use factors for a new product
• Break the purchase down into factors
• Be sure to project prices

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Chapter 12
Question

• Characteristics that separate one company from
  another is called
• a) Divisional Advantage
• b) Differential Advantage
• c) Competitive Advantage
• d) Diversity

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• Differential Advantage
• Differential advantage characteristic that
  separates one company from another
• Competitive advantage
• Create a differential advantage with one of the
  parts of the marketing mix (Price, Product,
  Place, Promotion)

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• The Marketing Plan
• Components
• Discuss your target market
• Explain your current situation (your competition)
• Marketing strategy and objectives
• 4 Ps Product, Promotion, Price, and Place

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• Target market
• Market segmentation process of dividing the
  market into groups that have somewhat homogeneous
  needs for a product or service
• Geographic segmentation many business choose to
  operate in one country
• Service industries have no choice but to segment
  geographically

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• Target market cont.
• Demographic segmentation income, ethnicity, sex,
  education level, marital status, etc
• Life cycle position
• Benefit segmentation benefits they seek (speed,
  safety, capacity, and the like)
• Good value versus those more interested in
  reputation

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• Target market cont.
• Three targeting strategies
• Undifferentiated uses no segmentation assumes
  that all consumers have virtually identical needs
  and can be reached by the same marketing mix

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• Target market cont.
• Three targeting strategies cont.
• Differentiated market selects two or more
  distinct groups of consumers and design specific
  marketing mixes to meet their needs
• Concentrated marketer selects one specific group
  of consumers and designs a marketing mix
  specifically for that group

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• Target market cont.
• Why bother with targeting?
• Dont waste a lot of effort and money
• Determine purchasing behavior
• Identifying the best ways of reaching these
  potential clients
• Also pays to think about secondary target markets

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• Current situation what you have done over the
  past year and how effective these actions were
• Reflect on the political, economic, cultural, and
  other external environments
• SWOT analysis
• What things do you do very well and what things
  do you do less well

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• Current situation cont.
• Key component is considering your competition
• Direct competition other companies that make a
  similar product or provide a similar service
• Direct competition for Coca-Cola includes all
  other soft-drink providers

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• Current situation cont.
• Key component is considering your competition
• Indirect competition companies that provide
  alternates that are dissimilar to your
  product/service that consumers might choose to
  meet a similar need
• Indirect competition for Coca-Cola includes any
  other company providing items to quench thirst

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• The 4 Ps Product, Promote, Price, Place
• When defining your product, describe all the
  details
• Features, options, sizes, service elements
• What improvements or changes do you foresee
• Price determined by cost structure
• How does it compare to that of the competition
  and industry?

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• What advertising tools will you use?
• Flyers, Internet, print ads, television, radio,
  banners, and posters
• Schedule
• Distribution system
• Mail order
• Boxes to local post office or UPS
• Daily or weekly
• Cost to ship, packing materials

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• Written plan specific details about your target
  market
• Present and near-future situation, including
  competitors
• Identify differential advantage
• May include financial projections
• Include budget
• Major overall goals

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• Written plan cont.
• What should the written plan look like?
• Software packages that help you work through the
  plan step-by-step
• Marketing Plan Pro www.marketingplanpro.com
• Consideration of whether the marketing plan is to
  be part of a business plan, or whether it is to
  stand alone
• See Table 12.2

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Example

• Market Planning Checklist
• Use this list to develop your marketing plan
• Have you analyzed the total market for your
  product or service? (features of your product?)
• Have you described how your product or service
  will benefit your clients?
• Have you prepared a pricing schedule?
• Have you prepared a sales forecast?
• How will you distribute your product?

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• Whats Next?
• Successful businesses are constantly tweaking
  their marketing plan
• Decide what you want to accomplish next
• Revise your marketing plan to reflect this next
  step
• Low-cost help
• www.sba.org
• www.score.org
• www.entrepreneur.com

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Chapter 13

• Objectives
• Review the basic concepts of accounting
• Understand the requirements for a small business
  accounting system
• Be comfortable with the content and format of
  common financial statements
• Understand how accounting information can help
  you manage your business effectively
• Learn how to craft budgets for your business
• Gain understanding of how people make decisions

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• Focus on Small Business Acropolis Computers
• After three years of hard work, they were not
  making much money
• Sales were growing with 600-700 customers
• High rate of referrals
• Did not understand costs, revenues, and profits
• Lost minutes in labor resulted in 40,000 annual
  loss
• Success has come directly from understanding
  Revenue, Gross Margin, Overhead, and Burdened
  Labor

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• Why Accounting Matters
• Proves what your business did financially
• Shows how much your business is worth
• Banks, creditors, development agencies, and
  investors require it
• Provides easy-to-understand plans for business
  operations
• You cant know how your business is doing without
  it

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Question

• All of the following are types of accounting
  except
• a) Financial accounting
• b) Tax accounting
• c) Expense accounting
• d) Managerial accounting

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• Three types of accounting
• Managerial accounting used by managers for
  planning and control
• Tax accounting used for calculating and
  reporting taxes
• Financial accounting used by banks and outside
  investors

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• Basic Concepts
• Business entity concept a business has an
  existence separate from that of its owners
• Going concern business is expected to continue
  in existence for the foreseeable future
• Accounting equation assets liabilities
  owners equity

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• What is a cost? What is an expense?
• Costs real changes in what you own
• Expenses entries made in your accounting system
  to record your use of goods and services
• Managerial accounting is focused on predicting
  the future, so it uses expenses only for
  budgeting and planning purpose

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• Information usefulness must be accurate and
  relevant
• Only two reasons to do accounting
• To produce information that is useful to you for
  managing your business
• To meet legal or contractual requirements

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• Computerized accounting most commonly used
  (QuickBooks, Peachtree)
• Systems should easily accomplish
• Easy-to-understand user interface
• Context-sensitive help function
• Income statements
• Classified balance sheet
• Development of a cash budget
• Produce financial statements

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Example

• Which Accounting Software is Best for You?
• Two main types of accounting software
• industry specific and generic
• Consider the following for choosing a package
• The size of your business
• The industry you're in
• The components you need
• Available support
• Financial resources
• Professional recommendations
• Ease of use

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• Setting Up an Accounting System
• Accounting functions
• Accounts payable
• Payroll
• Fixed asset
• Inventory
• Credit card sales

• Accounts receivable
• Insurance register
• Investments
• Leasehold records

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• Financial Reports
• Five common financial statements
• Income statement
• Statement of retained earnings
• Statement of owners equity
• Balance sheet
• Cash flow statement
• Important thing is that the information flows all
  the way from the income statement to the balance
  sheet

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• Income statement primary source of information
  about a business profitability
• Revenues Expenses Net income
• Difficulties in understanding the income
  statement
• Disagreements about what exactly should be
  reported as revenue
• Disputes over when to recognize revenues
• Most small business do not have problems with
  these sales are cash, or the same as cash

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• Balance sheet Statement of Financial Position
• Snapshot of financial holdings and liabilities at
  the close of business on a specified date
• Minimum detail is to report assets and
  liabilities in two categories Current and
  Long-term
• Used to determine the liquidity, financial
  flexibility, and financial strength of the
  business

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• Balance sheet cont.
• Limitations
• All values listed are historical values
• Value recorded in the accounting records can be
  widely different from the assets current value
• Balance sheet might not completely reflect the
  business
• Certain assets and liabilities are omitted from
  the balance sheet

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• Cash flow statement sources and uses of cash by
  the business
• Cash flows from operating activities
• Cash flows from investing activities
• Cash flows from financing activities
• Net effect of foreign exchange rates
• Net change in cash balance during the period
• Non-cash investing and financing activities

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Example

• Building a Financial Budget
• Business budgeting is one of the most powerful
  financial tools available
• Most effective financial budget includes both a
  short-range month-to-month plan for at least a
  calendar year and a quarter-to-quarter long-range
  plan you use for financial statement reporting
• It is important to budget both the income
  statement and balance sheet

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• Financing activities actions taken by management
  to finance the operations of the business
• Net effect of foreign exchange rates rates often
  vary rapidly
• Net change in cash balance reconciles the net
  increase and decrease with the beginning balance
• Non-cash investing and financing exchange of
  value other than cash takes place

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• Financial accounting can be a highly valuable aid
  in decision making
• Reporting to outsiders
• Record keeping
• Taxation
• Control of receivables
• Analysis of business operations

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• Managerial accounting techniques will make you a
  better small business manager
• More accurate at forecasting profits, planning
  operations, and conserving scarce resources
• Managerial functions
• Planning, organizing, staffing, directing, and
  controlling

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• Cost-Volume-Profit analysis technique which
  looks at the fixed and variable costs of a
  business to arrive at a number of unit sales
  (volume) to maximize profits
• Variable Costs costs that change with each unit
  produced
• Raw materials
• Fixed Costs costs that remain constant
  regardless of quantity of output
• rent

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Question

• The point at which total costs equal total sales
  is called the
• a) Breakeven Point
• b) Equalization Point
• c) Neutral Point
• d) Variable Point

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• Breakeven Point point at which total costs
  equal total sales

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• Business Plan and the Budget
• Business plan specifies the amounts and types of
  inputs required to achieve a set of desired
  outcomes
• Based on assumptions
• How risks can be controlled
• What opportunities can be taken
• Budgets have the advantage of being comprised of
  a series of small schedules

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• Planning / budgeting process through which
  strategy is mapped into a series of tactical and
  operational actions
• Budget becomes a standard against which
  performance can be measured
• Basis for controlling activities and the use of
  resources
• Few small business owners consistently budget

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• Sales budget projected future level of sales in
  units multiplied by the sales price per unit

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• Purchases budget number of units that are
  expected to be acquired during the budget period

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• Cost of Goods Sold Budget predicted cost of
  product actually sold during accounting period
• Labor budget amount and cost of labor needed to
  meet required production
• Assume that labor can easily be increased or
  decreased
• Can easily be modeled as a fixed cost

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• Manufacturing overhead budget usually treated as
  fixed costs
• Becoming more common for managers to use
  activity-based cost estimates for overhead

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• Selling, general, and administrative budget
  SGA, contains both costs that change with
  production and costs that do not
• Advertising and freight are variable costs in
  respect to sales

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• Budgeted income statement budgets that have been
  completed to this point are combined into pro
  forma financial statements
• Common to create the statement in only a fiscal
  year format

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• Completing a comprehensive budget
• Final processes to be accomplished to produce a
  complete master budget
• Budgeted cash receipts
• Budgeted cash payments
• Cash budget
• From these statements, prepare
• Pro Forma projected balance sheet
• Pro Forma projected cash flow statement

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• Controlling
• Managerial accounting provides information that
  allows managers to determine how well the
  business is doing in attaining its goals
• Variances should be evaluated to determine the
  significance they occur due to one of these
  events
• Prices are different from what was estimated
• Quantities are different from what was estimated

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• Decision Making
• To make good decisions, you need
• Good information
• Efficient ways to condense information
• Methods to help compare alternatives

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Question

• A source of information and a methodology to
  reduce the complexity of information is
• a) Financial accounting
• b) Cost accounting
• c) Tax accounting
• d) Managerial accounting

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• Managerial accounting is both a source of
  information and a methodology to reduce the
  complexity of the information
• Accounting is useful for
• Managers of small businesses
• Record keeping
• Reporting to absentee owners
• Substantiating assertions made to regulators and
  taxing agencies

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