MGT 421 final exam

Big three of cash management

1.Accounts receivable 2.Accounts payable 3.Inventory •The Big Three interact to create a company's cash conversion cycle: -The length of time required to convert inventory and accounts payable into sales and accounts receivable and finally back into cash. leading indicators of a company's cash flow

Entrepreneurial success means

"lean and mean." Trimming wasteful expenditures, investing surplus funds, and carefully planning and managing the company's cash flow enable them to compete effectively.

ten strategies for going global

- expat entrepreneur - creating a web site - relying on trade intermediaries - joint ventures - foreign licensing - international franchising - countertrading and bartering - exporting - importing and outsourcing - international locations

Company culture

-Distinctive, unwritten, informal code of conduct that governs the behavior, attitudes, relationships, and style of an organization. -"The way we do things around here." In small companies, culture plays a important part in gaining a competitive edge a strategy does •Hiring for cultural fit •Respect for work and life balance •Sense of purpose •Sense of fun •Engagement •Diversity •Integrity •Participative management •Learning environment

challenges of family businesses

-Executive entrenchment -Limited capital to fund both family needs and business growth needs -Nepotism -Aversion to risk and debt -Entrepreneurial leadership's inflexibility and resistance to change -Disparate family goals, values, and needs -Ownership and management succession

expat entrepreneurs

-Keep their citizenship in their home country but live and run their businesses on foreign soil.

passing the torch - family biz

-Only 30% of first-generation businesses survive into the second generation. -Of those that do survive to the second generation, only 12% make it to the third generation. -Only 3% make it to the fourth generation and beyond. Family businesses are most vulnerable when they are ready to make the transition from one generation of leaders to the next.

competitive advantages of family businesses

-Quick decision-making/Speed to market -Committed family/non-family employees -Higher product and service quality -Generational time frame/patient capital -Long-term orientation -Skills and knowledge transfer

characteristics of successful family bizness

-next generation planning -balancing risk -Culture and responsibility -Managing and retaining talent -Growth and profitability -managing capital -family governance -effective tax management

Cash Flow Cycle

-the time lag between paying suppliers for merchandise or materials and receiving payment from customers - Small companies, especially those that buy from or sell to larger businesses, are finding that their cash flow cycles are growing longer as large companies have stretched their invoice payment times to suppliers and decreased their invoice collection times from customers to improve their cash flow.

stages of family businesses

controlling owner, sibling partnership, cousin consortium

two components of family biz (optional thrid)

family •Private •Traditional •Emotional •Accepting business •Public •Competitive •Changing •Data-based ownership •Management •Marketability •Information •Profit

Building a team

•80% of employee turnover is caused by bad hiring decisions. •Most common causes of poor hiring decisions: -Relying on candidate's description of themselves. -Failing to follow a consistent, evidence-based selection process. -Failing to provide candidates with sufficient information about the job. -Succumbing to pressure to fill a job quickly. -Failing to check candidates' references.

CASH BUDGET

•A "cash map" that shows the amount and the timing of a firm's cash receipts and cash disbursements over time. •Predicts the amount of cash a company will need to operate smoothly. •Helps to visualize a company's cash receipts and cash disbursements and the resulting cash balance. The need for a cash budget arises because in every business the cash flowing in is rarely in sync with the cash flowing out of the business.

foreign licensing

•A relatively simple way for even the most inexperienced business owner to extend his reach into foreign markets. •Ideal for companies whose value lies in its intellectual property. •Minimize risk by ensuring that proper patents, trademarks, and copyrights are in place.

inventory

•Monitor inventory closely; it can drain a company's cash. •Avoid inventory "overbuying." -It ties up valuable cash at a zero rate of return. •Arrange for inventory deliveries at the latest possible date. •Take advantage of discounts: -Quantity discounts Cash discounts

S corporation

•No different from any other corporation from a legal perspective. •An S corporation is taxed like a partnership, passing all of its profits (or losses) through to individual shareholders. Avoids double taxation

Reason to go global

•Offset sales declines in the domestic market •Increase sales and profits •Lower manufacturing costs •Lower product cost •Improve competitive position •Raise quality levels •Become more customer-oriented

Management succession difficulties

•Primary causes of lack of continuity among family businesses: -Inadequate estate planning. -Failure to create a management succession plan. -Lack of funds to pay estate taxes. Sibling rivalries and personality conflicts.

Family business

1.Any business where the family has effective control over the strategic direction of the business and the business contributes significantly to the family's wealth, income, or identity. 2.The family has control over the business and ownership and have intergenerational intent. 3.Multiple members of the same family are involved as major owners or managers over time. -90% of all biz in US are family owned -account for 10-90% gdp -employ 62% of private work force -35% of fortune 500 companies -78% created new jobs •Family businesses are 33% more profitable than nonfamily businesses and 15% faster growing than industry average

Preparing a cash budget

1.Determining an adequate minimum balance. -The most reliable method of deciding the right minimum cash balance is based on past experience -Many financial experts recommend that businesses build a cash reserve or contingency fund large enough to cover three to six months of operating expenses. 2.Forecasting sales. -The heart of the cash budget. -Sales are ultimately transformed into cash receipts and cash disbursements. -Cash forecast is only as accurate as the sales forecast from which it is derived. -owners must be careful not to be excessively optimistic in projecting sales •"Lumpy" or seasonal sales patterns are common. •Prepare three sales forecasts: -Pessimistic -Optimistic -Most Likely 3.Forecasting cash receipts. -Record all cash receipts when the cash is actually received (i.e. the cash method of accounting). -Determine the collection pattern for credit sales; then add cash sales. -Monitor closely: Slow and non-payers -Sales constitute the primary source of cash receipts. 4.Forecasting cash disbursements. -Record disbursements when you expect to make them. -Start with those disbursements that are fixed amounts due on certain dates. -Review the business checkbook to ensure accurate estimates. -Add a cushion to the estimate to account for "Murphy's Law" (i.e., "Anything that can go wrong will go wrong"). Don't know where to begin? Try making a daily list of the items that generate cash and those that consume it -The key factor when forecasting disbursements for a cash budget is to record them in the month in which the owner will pay them, not when the business incurs the obligation to pay. 5: Estimating the end-of-the-month cash balance -Take Beginning Cash Balance ... -Add Cash Receipts ... -Subtract Cash Disbursements -Result Is Cash Surplus or Cash Shortage (Repay or Borrow?) -Preparing a cash budget not only illustrates the flow of cash into and out of a small business but also allows the owner to anticipate cash shortages and cash surpluses.

three tasks as a leader

1.Hire the right employees and constantly improve their skills. 2.Create a culture for retaining employees. 3.Plan for "passing the torch" to the next generation of leadership.

Partnership

A partnership is an association of two or more people who co-own a business for the purpose of making a profit. In a partnership, the co-owners (partners) share the business's assets, liabilities, and profits according to the terms of a previously established partnership agreement (if one exists). •Three key elements of any partnership under RUPA: -Common ownership in a business. -Agreement on how the business's profits and losses will be shared. -The right to participate in managing the operation of a partnership. Advantages: •Easy to establish •Complementary skills of partners •Division of profits •Larger pool of capital •Ability to attract limited partners •Minimal government regulation •Flexibility •Taxation Disadvantages: •Unlimited liability of at least one partner •Capital accumulation •Difficulty in disposing partnership interest without dissolving the partnership •Potential for personality and authority conflicts •Partners bound by law of agency

Advantages and disadvantages of sole proprietorship

Advantages: •Simple to create •Least costly form to begin •Profit incentive •Total decision making authority •No special legal restrictions •Easy to discontinue A sole proprietorship, as its name implies, is a business owned and managed by one individual Disadvantages: •Unlimited personal liability -The company's debts are the owner's debts. •Limited skills and capabilities •Feelings of isolation •Limited access to capital •Lack of continuity of the business

family business dilemma

Balancing business goals and family's needs

Job analysis

Step 1: •Create a job description: -A written statement of the duties, responsibilities, reporting relationships, working conditions, and materials and equipment used in a job. •Step 2: -Create a job specification: §Written statement of the qualifications and characteristics needed for a job, stated in terms such as education, skills, and experience.

Mngmt Succession Plan

Step 1: Select the successor. Step 2: Create a survival kit for the successor. Step 3: Groom the successor. Step 4: Promote an environment of trust and respect. Step 5: Cope with the financial realities of estate and gift taxes.

Leadership

The process of influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. •A succession plan is a crucial element in transferring leadership.

Corporations

a separate legal entity from its owners. •Types of corporations: -Publicly held: a corporation that has a large number of shareholders and whose stock usually is traded on one of the large stock exchanges. Closely held: a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends

accounts recievable

•About 90% of industrial and wholesale sales are on credit, and 40% of retail sales are on account. •Dun & Bradstreet: only 13% of large U.S. companies pay invoices by the due date. •Remember: "A sale is not a sale until you collect the money." Accounts receivable goal: Collect your company's cash as fast as you can

Limited Liability Partners

•All partners in a business are limited partners. -Gives the advantage of limited liability for the debts of the partnership. -Does not pay taxes - income is passed through to the limited partners who pay taxes on their share of the company's income.

Hiring "Winners"

•Commit to hire the best talent. •Elevate recruiting to a strategic position. •Create practical job descriptions and job specifications. •Plan an effective interview. •Conduct the interview. •Contact references and conduct a background check.

Importance of cash

•Common cause of business failure: Cash crisis! •It is possible for a business to earn a profit and still go out of business by running out of cash. -Valley of death: the time period during which start-up companies experience negative cash flow as they ramp up operations, build their customer bases, and become self-supporting. •Profit is the difference between a company's total revenue and total expenses. •Cash is the money that is free and readily available to use. Cash flow measures a company's liquidity and its ability to pay it bills

Counter trade and barter

•Countertrade: -A transaction in which a company selling goods in a foreign country agrees to promote investment and trade in that country. •Barter: -The exchange of goods and services for other goods and services.

barriers to international trade

•Domestic Barriers -Attitude: "My company is too small to export." -Lack of information about how to get started. -Inability to obtain adequate financing. •International Barriers -Tariffs: A tax a government imposes on goods and services imported into that country. -Nontariff barriers: Governments that protect domestic industries. •Quotas: Limits on the amount of a product imported into a country. •Embargo: Total ban on imports of certain products. •Dumping: Selling large quantities of a product in a foreign country below cost to gain market share. •Political barriers: Rules, regulations and political risks. •Business barriers: Different cost structures and business practices. •Cultural barriers: Differing languages, philosophies, traditions, and accepted practices.

trade intermediaries

•Domestic agencies that serve as distributors in foreign countries for companies of all sizes. •Types of intermediaries: -Export Management Companies (EMCs) -Export Trading Companies (ETCs) -Manufacturer's Export Agents (MEAs) -Export merchants -Resident buying offices Foreign distributors

Joint ventures

•Domestic joint venture: -Two or more U.S. companies form an alliance for the purpose of exporting their goods and services abroad. •Foreign joint venture: -A domestic firm forms an alliance with a company in the target nation.

Signs of impending cash flow crisis

•Excess supplies of inventory •Large stock of "old" inventory items that never sold •Significant volume of fixed asset purchases, such as machinery and equipment •Accounts receivable that are past due and growing •Failing to take advantage of cash discounts from vendors and suppliers •Late payments to vendors and suppliers •Missed quarterly tax payments •Past-due loan payments •Above-average interest expense because of excessive business debt •Average collection period ratio above the industry median •Missed sales because popular inventory items are out of stock •Difficulty meeting payroll on time •Rapid increase in business expenses •Rapid increase in accounts receivable balance •Minimal or no financial controls in place to monitor potential theft •Infrequent preparation and use of financial statements as a managerial tool Failure to develop cash flow forecasts

Types of partners

•General Partners: -Take an active role in managing a business. -Have unlimited liability for the partnership's debts. -Every partnership must have at least one general partner. •Limited Partners: -Cannot participate in the day-to-day management of a company. -Financial investors Have limited liability for the partnership's debts.

International locations

•Having an international location can offer numerous benefits including: -Lower start-up costs. -Lower labor costs. -A better understanding of local customer preferences. -A better understanding of local business practices.

international franchising

•Identify the country or countries that are best suited to the franchiser's business concept. •Generate leads for potential franchisees. •Select quality candidates. •Structure the franchise deal. -Direct franchising -Area development Master franchising

Effective interview

•Involve others in the interview process. •Develop a series of core questions and ask them of every job candidate. •Ask open-ended questions rather than questions calling for "yes or no" answers. •Create hypothetical situations candidates would encounter on the job and ask how they would handle them. -Situational interviews •Probe for specific examples in the candidate's work history that demonstrate the necessary traits and characteristics. •Ask candidates to describe a recent success and a recent failure and how they dealt with them. •Arrange a "non-interview" setting that allows others to observe the candidate in an informal setting. Steps: •Break the ice. -Goal: diffuse nervous tension. •Ask questions. -Puzzle interviews. -Remember the 25/75 Rule. -Be respectful and keep it legal! •Sell the candidate on the company. -The best candidate will have other job offers. -Convince the best candidate that your company is a great place to work.

Strategic recruiting

•Look inside the company first. •Look for employees with whom your customers can identify. •Make employment advertisements stand out. •Use multiple channels to recruit talent. •Encourage employee referrals. •Recruit on campus. •Forge relationships with schools and other sources of workers. •Recruit "retired" workers. •Consider using offbeat recruiting techniques. Offer what workers want

Importing and outsourcing

•Make sure that importing or outsourcing is right for your business. •Establish a target cost for your product. •Do your research before you leave home. •Be sensitive to cultural differences. Do your groundwork. •Protect your company's intellectual property. •Select a manufacturer. •Provide an exact model of the product you want manufactured. •Stay in constant contact with the manufacturer and try to build a long-term relationship.

How to reduce turnover

•Provide rewarding, challenging work. •Pay employees fairly. •Provide training opportunities and mentoring relationships. •Offer flexible work schedules. •Provide simple (and inexpensive) rewards such as thank-you notes for extra effort or "good job" notes for jobs well done. •Conduct exit interviews when employees leave to determine areas that require improvement.

LLC

•Resembles an S Corporation but is not subject to the same restrictions. •Two documents required: -Articles of organization: creates an LLC by establishing its name and address, method of management, its duration, etc. -Operating agreement: establishes for an LLC the provisions governing the way it will conduct business. offers its owners limited personal liability for the debts of the business, providing a significant advantage over sole proprietorships and partnerships.

Exporting

•Small and medium-size companies account for nearly 98% of the 304,000 U.S. businesses that export, but generate just 1/3 of U.S. exports. -Small companies generate 1/3 of U.S. export sales. •Key benefits of exporting: -Increased sales and profits. More diversified customer base

forms of ownership

•Sole Proprietorship (72%) •General Partnership (1.8%) •Limited Partnership (1.2%) •Corporation (5%) - make the most money •S Corporation (12.9%) •Limited Liability (6.8%)Company

accounts payable

•Stretch out payment times as long as possible without damaging your credit rating. •Verify all invoices before paying them. •Negotiate the best possible terms with your suppliers. •Be honest with creditors; avoid the "the check is in the mail" syndrome. Schedule controllable cash disbursements to come due at different times

Factors affecting the choice of the different forms of ownership

•Tax considerations •Liability exposure •Start-up and future capital requirements •Control •Managerial ability •Business goals •Management succession plans •Cost of formation

Creating a legal business entity

•The average cost to create a legal business entity is about $1,000, but it can range from $500 to $5,000. -Can use Web sites like MyCorporation and BizFilings and incorporate for just $100. -But, be careful! The cost of filing incorrectly can be high. -States have different regulations on forming business entities. -You can also hire an attorney to help -Local SBA and SBDC Business Development Officers can also help

C corporation

•Traditional form of incorporation. •Pays taxes at the corporate tax rate and stockholders also pay taxes on dividends they receive at their individual tax rates. Double taxation: a disadvantage of the corporate form of ownership in which the corporation's profits are taxed twice, once at the corporate rate and again at the individual rate on the portion of profits distributed to shareholders as dividends