Entrepreneurship Final Exam

Dunkin' Donuts

"America runs on dunkin"

Lo'Real

"Because you're worth it"

TGI Friday's

"Come for the food, stay for the fun"

KFC

"Finger lickin' good"

Nike

"Just do it"

You create this strategy by:

- making specific plans for, and arrangements to deal with, foreseeable events - creating and enforcing an appropriate code of conduct for yourself and all employees - ensuring that valuable assets are physically secure - actively working to get rid of any physical hazards in your workplace BE PROACTIVE

3 types of accounting

- managerial accounting - financial accounting - tax accounting

Tagline

- memorable catchphrases that captures the idea of a business, its service, product, or customer - also known as a slogan

Uses of financial accounting

- reporting to Outsiders - record Keeping - taxation - control of Receivables - analysis of Business Operations

Crowdfunding for equity

-Document your business -Make a business plan -Create a compelling story -Create a professional-looking video -Develop a list of potential investors

Events related to customers and others

1) injuries suffered while upon business property 2) injury or damage that is caused during the use of the businesses' products - product liability: payment for injury or damage that occurs during the use of the businesses' products

Managing risk from violations of tax regulations

1) keep compete, accurate accounting records 2) establish a relationship with both an accountant and a lawyer who are expert in tax issues 3) make paying your taxes first financial priority

Common critical risks in a plan

1) overstated numbers 2) numbers that are wrong 3) inadequate cushion 4) inadequate payback 5) narrative and financials do not fit 6) no direct customer connection 7) uncertain sales 8) overlooked competition 9) experience deficits 10) "what" problems 11) deadly aggravations

Best strategy is to develop a business environment that minimizes:

1) probability of the event occurring 2) amount of loss that can be experienced if the event does occur

Insurance

a contract between two or more parties in which one party agrees, for a fee, to assume the risk of another

Cash recipients budget

a schedule of the amounts and timings of the receipts of cash into a business

Internal control

a set of rules and procedures that work to limit the opportunity for employee theft or malfeasance

Balance sheet

a statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity)

Income statement

a statement that lists revenues and expenses and shows the amount of profit a business makes for a specified period of time

Separation of duties

a type of internal control that separates the physical control of an asset from the person accounting for that asset

Vision

a very simple 5-10 word sentence or tagline that expresses the fundamental idea or goal of the firm

Angel investor

a wealthy individual who invests in companies in relatively early stages of development

Managerial accounting

accounting methods that are specifically intended to be used by managers for planning, directing, and controlling a business

Risk

cannot be prohibited, but can be controlled

Intellectual property rights

comprise the legal rights to use unique features of products or services that provide competitive advantage - only... if the holder of the intellectual property rights promptly reacts to infringement by making written objections to any and all infractions, can the legal rights be maintained

Usually with legal issues it is best to:

confront potential problems before they have a chance to get serious

Loss of key employees

is a particularly acute risk for small businesses

Antispyware programs

programs designed to report on your keystrokes or data, or give remote control of your PC to others

firewall

programs or pieces of equipment called routers which serve as a barrier between your PC and the Internet

Gift

valuable assets or services donated to the business without any obligation to repay or give up any ownership

Antivirus program

viruses are malicious programs designed to damage PCs

Coca-cola

"Open happiness"

Apple

"Think different"

Hourly fees

- a basis for legal charges in which the rate is based on a price per hour - often lawyers will charge for fractions of an hour

Setting up a computerized accounting system

- accounts payable - payroll - fixed asset - inventory - credit card sales - accounts receivable - investments

A properly conducted, independent interval audit will give you:

- an evaluation of your overall level of business risk - an objective evaluation of your risk control structure - a systematic analysis of your business processes and controls - information and irregularities detected during the audit process

Accounting equation

- assets equals liabilities plus owners' equity - specific to the balance sheet

Eight Top strategies for handling cash shortages

- borrow 20% - adjust scheduled purchases 19% - adjust scheduled payments 15% - try to collect money due 7% - sell investments 4% - sell receivables 3% - lay off employees 2% - other 5% - use personal money 25%

Tools for predicting and managing cash flow patterns

- cash recipients budget - cash disbursements budget

Techniques to increase cash flows

- deposits and progress payments - discounts for prompt payment - noncore projects - factoring receivables

Sources of financing for small businesses

- equity capital - debt - gift

The pecking order of funding sources of new firms

- external loans from commercial-rate lenders - external loans from motivated (high cost) lenders - loans or investments from family/friends/fools and trade credit - owner loans/retained earnings/owners' equity investments (where there in cash flow in the business - owner capital (personal savings, home equity credit line, etc.)

Why balance sheet?

- financial flexibility - financial strength

Most commonly identified sources of risk

- financial risk - nonpayment of debts - changes in technology - injury and illnesses suffered by employees - injury from accident incurred by customers - natural events - theft of business property - misbehavior by employees

Financial reports

- financial statements - common financial statements - income statement - balance sheet

"Crossing the Chasm" elevator pitch template

- for (target customers) - who are dissatisfied with (the current market alternative) - our product is a (new product category) - that provides (key problem-solving capability) - unlike (the product alternative) - our product (describe the key product features)

To make good decisions we need

- good information - Thus, the need for financial statements

Cash flow management is

- having enough cash available to meet business need - being able to obtain cash quickly from a variety of sources - understanding how (and when) cash is used by your business - closely monitoring accounts receivable for late payments - providing motivation for customers to make prompt payments - taking advantage of prompt payment payment discount only when it is cheaper than borrowing

A typical path to investment

- identify potential investors - elevator pitch or 1 page executive summary - 3 page executive summary - business plan - pitch deck - investor presentation

You and the law

- in a 2002 poll, less than 1 in 10 small businesses had been sued in the prior 5 years - it is easy to underestimate the number of laws that apply to small businesses - state laws applicable to small businesses are extraordinarily varied

Common financial statements

- income statement - balance sheet - cash flow statement

Property involves specific forms of risk

- inventory can be stolen, machinery can break - buildings can be damaged or destroyed - land may become laminated - patents may be infringed upon

Business liability insurance

- liability insurance pays for damage and injuries you cause to others - it also covers reputational harm a business does, such as slander - and it covers legal costs if the business is sued - a business owners policy (BOP) combines liability and property insurance

What are investors looking for?

- owners and investors want to make money - lender expect a return of this money - to get money from other people, you've got to show them that your business probably can make gains for them - growth potential is a primary concern for equity investors

Why accounting matters to small business

- proves what your business did financially - shows how much your business is worth - bankers, creditors, development agencies, and investors require it - provides easy-to-understand plans for business operations - you can't know how your business is doing without it

Sources of credit and debt from small businesses

- thrift 3% - other 9% - owner loans 12% - unknown 2% - family and friends 4% - leasing 2% - finance company 11% - commercial banks 57%

Techniques to decrease cash outflows

- trade discounts - noncash incentives - timing purchases - gaming the payment process

The path to the business plan

- vision - mission - elevator pitch - executive summary - business plan

Reasons bootstrapping is so common

-external equity capital is not available for most small business start-ups -banks do not loan to start-up businesses -owners often do not want to share ownership -owners usually want to be their own bosses -owners typically do not want to be responsible to others for losses of the business

Developing a comprehensive insurance program

-identifying risk is the first task - determine which risks are to be covered property vehicle liability worker's compensation product liability various types of malpractice coverage general liability

Cash can come from only 3 sources

1) cash can be obtained by selling products and services of the business and collecting cash from customers - called cash flow from operations 2) cash can be obtained from investments the business has made, suck as stock, bonds, land, buildings, or equipment - called cash flow from investing 3) a business may obtain cash through financing

The three primary causes of cash flow problems

1) difficulty collecting money from customers 2) seasonal variation of sales 3) unexpected decreases - sales stretch - overdraft at limit - creditor arrears - no working capital - lack of profitability - taxation arrears

Risks associated with business operations

1) events related to the property of the business 2) events related to personnel 3) events related to customers and others

Managing risk from employee violation of government regulations

1) have a written policy provided to each employee 2) conduct training of managers and employees concerning those policies 3) immediately and consistently act upon receipt of any complaint

Timely decisions and action may

avoid a problem altogether or may make solving the problem much easier and cheaper

Key employees

employees whose experience and skills are critical to the success of a business

Tax codes

laws and regulations that specify the requirements of taxation - include franchise or corporation taxes, income taxes, employee taxes, sales and use taxes, and property taxes

Protected classes

states of being that are expressly prohibited from suffering discrimination: race, color, religion, sex, national origin, gender, age, or disability

Bootstrapping

using low cost or free techniques to minimize your cost of doing business - how most small business start-ups are funded

Gaming the payment process

using methods to appear to be paying bills on time, when in fact payment is being delayed or avoided

Cash disbursements budget

a schedule of the amounts and timings of payments of cash out of a business

Mission statement

- 20 to 50 word paragraph that describes the firm's goals and competitive advantages - fell out of favor as they became too much like one another and too full of business jargon

Business plan

- 40 pages 1) cover letter 2) title page 3) table of contents 4) executive summary 5) the company 6) the industry 7) the market 8) the organization 9) the financials 10) the appendixes

Elevator pitch

- 60 to 100 words - 1 minute or less explaining who you are and why what you're offering is different and needed and why he/she needs to meet with you to discuss further

Executive summary

- a one-to-two page (250 to 500 words) overview of the business, its business model, market, expectations, and immediate goals - typically put at the start of a business plan and is the most popular summary form for a business plan

Pitch deck

1) title page 2) problem statement 3) solution 4) marketing opportunity 5) competitive landscape 6) target customers 7) business model 8) financials 9) business timeline 10) team 11) funding needs and uses 12) closing

Two reasons to do accounting

1) to produce information that is useful to you for managing your business 2) to meet legal or contractual requirements

The key things an influential person person looks for are:

1) your passion for your business 2) your expertise about the business and the plan 3) how professional you are in your work 4) how easy it would be to work with you

Cash flow statement

a statement of sources and uses of cash in a business for a specific period of time

Discounts for prompt payment

a reduction in sales price provided to credit customers for paying outstanding amounts in a timely manner

Financial flexibility

a businesses' ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs

Expense

a decrease in owners' equity caused by consuming your product or service

Business plan

a document designed to detail the major characteristics of a firm--its product or service, its industry, its market, its manner of operating (production, marketing, management), and its financial outcomes with an emphasis on the firm's present and future

Growth trap

a financial crisis that is caused by a business growing faster than it can be financed

Budget

a financial plan for the future, based on a single level of operations - a quantitative expression of the use of resources necessary to achieve a business' strategic goals

Financial accounting

a formal, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators - follows GAAP accounting rules

Debt

a legal obligation to pay money in the future

Money

a medium of exchange accepted by the community or what people buy things with or sell things for - provided a standard for measuring value, so that the worth of different goods and services can be prepared - a store of value that can be saved for later purchases

Timing purchases

a method of controlling the timing of cash outflows that is invisible to suppliers and vendors

Tax accounting

an accounting approach based on specific accounting requirements set by governmental tax agencies

Revenue

an increase in owners' equity caused by selling your product or service

Cash equivalents

assets that can quickly be converted to cash - demand deposits: money held in checking and savings accounts - currency: the bills and coins printed by governments to represent money

Factoring receivables

borrowing money secured by a firm's accounting receivable

Deposits and progress payments

cash payments received before product is completed or delivered

Total assets

current assets + non current assets

Total liabilities

current liabilities + non current liabilities

Internal understanding

extent to which employees, investors, and family members in the business know the businesse's purposes and operations

Financial statements

formal summaries of the content of an accounting system's records and transactions

Pro forma

indicates estimated or hypothetical information - will be developing Proforma Financial Statements for the B-Plan Project

Company book balance

the sum of cash inflows and cash outflows recorded in the firm's accounting records

Bank ledger balance

the sum of deposits and withdrawals recorded in a bank's accounting records

Regulation of the workplace

laws and governmental rules that limit the freedom of business owners to manage their businesses as they please

Liabilities

legal obligations to give up things of value in the future

Employee theft

misappropriation of business property by employees of that business

Equity capital

money contributed to the businesses in return for part ownership of the business

Cash

money that is immediately available to be spent

Commercial paper

notes issued by credit-worthy corporations

Trade discounts

percentage discounts from gross invoice amounts provided to encourage prompt payments

Cash flow management

planning and tracking the amounts and timing of money to be received and paid during the business cycle

How do you calculate profits?

revenue - expenses

Noncore projects

revenue-producing tasks and activities related to, but not part of, the primary strategy of a business

Noncash incentives

rewards that do not require payment of cash, such as stock options, compensating time off, or added vacation days

Bank available balance

the sum of money that has actually been received and paid out of a depositor's account

Cash-to-cash cycle

the time that is required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale - also called operating cycle

Total shareholder's equity

share capital + retained earnings

Computerized systems

simplify the accounting process by providing automatic error checking, entry screens that look like the common business forms, and automatic production of financial statements and management reports - example: quickbooks

Asset

something the business owns that is expected to have economic value in the future

Marketable securities

stocks and bonds that are traded on an open market

Financial strength

the ability of a business to survive adverse financial events

Owners' equity

the difference between assets and liabilities of a business

External legitimacy

the extent to which a small business is taken for granted, accepted, or treated as viable by organizations or people outside the small business or the owner's family

Pitch

the name given to the formal slide presentation summarizing your business plan given before judges or potential investors or partners

Business risk

the probability that the future state of the business will be less successful than planned, resulting in the loss of value of business assets

Pitch deck

the slideshow presentation that summarizes a business plan