Chapters 1-3 Review

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Chapters 1-3 Review

• New Venture Development

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You will know

• 5 basic functions of a manager
• Difference between strategic plans and functional
  plans
• 3 factors that must be addressed when
  establishing goals
• Financial goals of a for-profit company
• 3-step process to take when using control
• How to compare and contrast different forms of
  business ownership
• The basic components of SWOT analysis
• What goes into a business plan

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5 functions of managing

1. Planning
2. Organizing
3. Staffing
4. Directing
5. Controlling operations

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Planning

• A systematic process that takes from a current
  state to some future desired state
• Strategic planning is development of long-term (gt
  1 year) plans for the business
• Functional planning relates to the different
  functional areas that are driven by the strategic
  plan
• Financial planning is determining monetary
  requirements
• Goal setting forces you to identify measurable
  objectives that are achievable and have timelines

5
Organizing

• Defining structures, responsibilities, and lines
  of communication
• This comes from the functional plan
• Who will do what?
• What skills they need?
• When do we have to accomplish specific tasks?
• How do we accomplish them?

6
Staffing

• Obtaining the most capable personnel to implement
  the business plans
• Each functional plan involves people assigned to
  specific jobs you will have to write the job
  requirements (education, personal skills,
  training) and the job description

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Directing

• Providing proper guidance and direction to others
  who will accomplish the organizational mission
• Good managers and employers have good long-term,
  loyal employees
• Directing in the financial arena is done through
  the budgeting process

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Controlling

• A three-step process that involves
• Establishing a standard of measurement
• Measuring actual performance against the standard
• Taking corrective action when actual performance
  deviates from established standard

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Starting a business

• One of the first decisions is legal formation (no
  business until owners establish it)
• Owner must determine how much money is needed to
  start the business (owners equity, outside
  financing)
• SWOT analysis

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SWOT analysis

• Strengths, weaknesses, opportunities, and threats
• Strengths the core competencies of your business
  succeed because you do these better than
  competitors
• Weaknesses areas where your business needs
  improvement (old equipment, untrained workers, no
  )

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SWOT analysis

• Strengths, weaknesses, opportunities, and threats
• Opportunities factors that exist in the business
  environment that will help the business grow
• Threats factorsthat will impede the business

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SWOT analysis

• Note opportunities and threats are also shaped
  by your own strengths and weaknesses
• Given my superior ability to write apps for
  iPhones, I can take advantage of the growing base
  of iPhone owners who use apps

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The business plan

• Tend to cover a common format to make it easier
  for investors to read
• The executive summary is everything. It is the
  first thing readers will see, but you should
  write it last
• You must convince your audience in two pages or
  less that they need to read the rest of your plan
• Autoshop example on wiki space

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Stages of business growth

• Seed/start-up the initial stage the company has
  a concept and is normally lt 18 months old
• Early less than 3 years old, product or service
  is commercially available
• Expansion older than 3 years old and has high
  revenue growth, but may not show a profit
• Later product or service is widely available
  generates revenue and has positive cash flow

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Sources of financing

• Personal assets savings, investments, credit
  cards, home-equity loans
• Equity financing company-retained earnings and
  fixed assets of company as collateral
• Bank loans
• Angel investors provide seed money for start-up
  and early-stage companies
• Venture capitalists provide financing at
  expansion and later stages of business development

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Differentiating types of costs

• Variable costs are directly related to the volume
  of product flow the cost you incur for each
  sale of a unit of product
• Variable costs X units sold total revenues
• Fixed costs are the operating costs associated
  with running the business but not directly
  related to revenues

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Income Statement Business

• Basic Format
• Sales, revenues, income from doing business
• Less cost of goods sold
• Gross profit
• Less operating expenses
• Operating income
• Less interest
• Net income (explain)

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Statement of Cash Flows

• Statement of cash flows shows how the companys
  working capital flows into and out of the
  business during the year.
• Statement of cash flows includes
• Cash flows from operating activities is the
  difference between all of the cash received by
  the business and all of the cash paid out by the
  business in conducting its day-to-day operations.
• Cash Flows from Investing Activities
• Acquisition or sale of Plant Assets
• Cash Flows from Financing Activities
• Proceeds from issuance or sale of stock
  (preferred common), bonds. Purchase of stock or
  the payment of long-term debt.

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Statement of Cash Flows (continued)

• Examples of operating cash flow
• Receipts All cash received from sales, changes
  in accounts receivable, changes in inventory.
• NOTE An increase in accounts receivable or
  inventory represents a negative cash flow. A
  reduction in receivables or inventory is a
  positive cash flow.
• Payments All payments made by the company to all
  accounts (suppliers, employees, rent, utilities,
  etc.).
• Net increase (decrease) in cash plus the cash
  balance, previous year equals cash balance,
  current year.

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• Types of activities
• Operating
• Investing
• Financing

Corporation
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Balance Sheet (Statement of Financial Position)

• Total assets
• Current assets
• Cash, accounts receivable, inventory, treasuries
• Anything in your possession that can be
  reasonably be expected to turn into cash in 90
  days
• Fixed assets
• Land
• Building equipment (less accumulated
  depreciation)
• Net building equipment

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Balance Sheet (Statement of Financial Position)

• Total liabilities
• Current liabilities
• Accounts payable, notes payable, taxes payable
• Long-term liabilities (debt)
• Total equity
• Preferred stock
• Common stock par value
• Paid-in capital in excess of par (common)
• Retained earnings

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Balance Sheet

• Basic Accounting Equation
• Individual
• Sole Proprietorship
• Partnership
• Corporation

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Family
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Balance sheet Partners equity
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• Assets
• Current assets
• Fixed assets
• Liabilities and SE Equity
• Current liabilities
• Long-term liabilities
• Shareholders equity
• Preferred stock
• Common stock
• Retained earnings

Corporation
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Whats accumulated depreciation?
Corporation
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Depreciation

• The wearing out of a business asset during its
  useful life
• The IRS establishes schedules that businesses use
  to determine the appropriate method of
  depreciation
• Land never depreciates, but equipment does,
  usually over 10-year period
• Break down depreciation schedules for each piece
  of equipment
• When a fixed asset is sold or disposed of, both
  its cost and accumulated depreciation go off the
  balance sheet

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Accumulated depreciation on the balance sheet
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Pro forma financials

1. Do revenues worksheet and costs worksheet
2. These assumptions feed into your income statement
3. Use the revenues and expenses from your income
   statement for your statement of cash flows
4. Use the new cash-on-hand value to adjust the
   balance sheet

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Pez Phone Financials