Chapter 11 venture growth management

Why accounting matters to small businesses

- 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 can't know how your business is doing without it

To make good decisions we need:

1. Good information 2. Efficient ways to condense information so it is understandable 3. Methods to help compare alternatives

Leasing: operational issues

1. Hidden charges 2. Use of premises 3. Noncompete 4. Hours of operation 5. Rent default 6. Moves and remodels

Why does accounting matter

1. MACRS rate: The modified accelerated cost recovery system. Let's taxpayers depreciate more of the cost earlier 2. Depreciation: regular and systematic reduction in income that transfers asset value to expense overtime.

Fulfillment center

A company that will warehouse your products and fill your customers' orders for you.

Expense

A decrease in owners equity caused by consuming your product or service

sales promotion

A form of communication that encourages the customer to act immediately, such as coupons, sales, or contests

price gouging

charging an outrageously high price for something

Law of supply and demand

the economic theory that describes how the demand for products or services and the supply of them affect each other

Pricing strategy wrap up

-Temporary reduction in price won't tarnish your product image -Consumers also feel smart about buying something at a better price -They will feel they got a great deal

The fundamentals of pricing: value

-The value delivered to the customer is second in order of importance to the pricing decision -In addition to demand and value provided, you must consider the prices set by your competition

The fundamentals of pricing: contextual factors

-decide what is the optimum price -examine existing market prices for similar products and services -consider your business costs -your company objectives -marketing strategy -channels of distribution -competition -legal and regulatory issues

Key factors for determining optimum price

1. Demand for the product or service 2. Value delivered to the customer 3. Prices set by competing firms 4. Your business strategy and product placement

Price Lowering Techniques

1. Periodic or random discounting: sales conducted at either predictable or non-predictable intervals 2. Off peak pricing: charging lower prices at certain times to encourage customers to come during slack periods 3. Bundling: combining two or more products in one unit and pricing it less than if the units were sold separately 4. Multiple or bonus pack: combining more than one unit of the same product and pricing it lower than if each unit were sold separately

Pricing strategies

1. Skimming: setting a price at the highest level the market will bear, usually because there is no competition at the time 2. Prestige or premium pricing: setting a price above that of the competition so as to indicate a higher quality or that a product is a status symbol 3. Odd-even pricing: Setting a price that ends in the numbers 5, 7, or 9 4. Partitioned pricing: setting the price for a base item and then charging extra for each additional component 5. Captive pricing: setting the price for an item relatively low and then charging much higher prices for the expendables it uses 6. Price lining: the practice of setting, usually, three price points: good quality, better quality, best quality

Only 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

Service firms

3 typical locations 1. 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 2. At a mutually accessible location: too much specialized equipment to be readily transported. A need for at least one client involvement. Barbershops, dentist offices, video rental stores, restaurants 3. At your firms location

Manufactures suggested retail price

A Target price set by a manufacturer for a product or service intended to provide profit for each intermediary in the distribution channel

Public business

A business that has its stock bought and sold on an organized stock exchange, such as the New York Stock Exchange.

Financial flexibility

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

Liquidity

A measure of how quickly a company can raise money through internal sources by converting assets to cash

Direct mail

A method of selling in which catalogs, brochures, letters, videos, and other pieces of marketing materials are mailed directly to customers from which they can mail, call, or email an order. Direct faxing and direct emailing are more modern forms of direct mail.

Microinventory

A set of goods or service that consists of only one or a few items.

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

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

Low customer contact businesses

Accelerator: an organization that supports start ups, typically of a particular type. Internet, biotech, fashion, sports,. With a financial investment, free or an expensive office space, mentoring, a variety of free or low-cost support services, and other resources. Goal of an accelerator is to accelerate a start up from its early stages to being ready to pitch for investment. Most take in equity stake in the companies they help. Co-working space: a type of incubator light, offering low cost shared space and basic business services, Wi-Fi, desks, coffee, conference room, copier, etc. For a daily weekly or monthly rental fee. Rarely get any equity in the business as using the space

Setting up an accounting system

Accounts payable, payroll, fixed asset, inventory, credit card sales, accounts receivable, insurance register, investments, leasehold

Revenue

An increase in owner's equity caused by selling your product or service

International strategies

Born international: a new term that opens a website immediately, just being exposed to customers from around the world

build, buy, or lease

Building: has the advantage of having the perfect layout in the perfect location and the street appeal of a new building, but it is costly and slow. buying: something already in existence shortens the time and may be somewhat cheaper Leasing: is an option with a considerably lower initial cash outlay. Often the only feasible choice. Lease expenses are deductible business expenses

Cash flow statement

Cash flow statement: A statement of the sources and uses of cash in a business for a specific period of time Operating activities: activities involved in producing and selling goods and services Investing activities: the activities and sale of land, buildings, equipment, and securities Financing activities: activities through which cash is obtained from and paid to lenders, owners, and investors

Telemarketing

Contact via telephone for the express purpose of selling a product or service. Can either be inbound, customer calls company, or outbound, company calls customer

Manufacturers

Contract manufacturing: an existing firm with the correct manufacturing capabilities makes your product for you Sheltered workshop: a nonprofit organization or institution that provides business services by using workers who have disabilities or who are rehabilitated

Exporting

Direct export in: exporting using no intermediaries Indirect exporting: exporting using intermediaries such as agents, export management companies, or export trading companies Freight forwarder's: firm specializing in arranging international shipments - packaging, transportation, and paperwork Letter of credit: a document issued by a bank that guarantees a buyers payment for a specified period of time upon compliance with specified terms Documentary draft: a draft which can be exercised only when presented with specified shipping documents

Non-direct distribution

Etailer: an electronic retailer; a store that exists only on the internet. Wholesaler: a intermediary business which buys, typically in large quantities, and sells, typically in smaller quantities, to businesses rather than consumers Agent: a middleman business which represents a manufactures product or service to other business to business middleman firms

Mail order

Sales made from ads in newspapers or magazines, with purchases made online or by phone as well as by mail

Uses of managerial accounting

External (cost) factors: aspects of the world outside the business which could cause the businesses costs to change Internal (cost) factors: aspects of or choices within the business which could cause the businesses costs to change Cost volume profit analysis: a managerial accounting technique which looks at the fixed and variable cost of a business to arrive at a number of unit sales, volume, to maximize profit. Variable, fix costs. Variable costs: those costs that change with each unit produced, for example, raw materials Fixed costs: those costs that remain constant regardless of quantity of output, for example rent.

Location

First choice for many entrepreneurs is their hometown. Local bankers know you, more likely to loan money. You understand markets needs and wants. Friends and family are usually first customers

Financial statements

Formal summaries of the content of an accounting systems records of transactions

just-in-time inventory

Having just enough product on your shelves to meet the immediate purchases. This usually requires frequent shipment from your supplier.

Site selection

High customer contact business- three critical site selection considerations, traffic, customer ease, and competition. Presence of traffic generators in the area. Parking is also an issue. Low customer contact business Dash manufacturing business. Commercial space might be appropriate. Support businesses will be in or near the area. Business incubator

Importing

Importing: similar to exporting, but buyers and sellers are reversed

Long-term

In Accounting, long term refers to an asset that will still have value to the business more than one year from now or a liability that will still be owed more than one year from now

Account

In terms of accounting practice, and account is a chronological list of all additions to and subtractions from a single type of asset. Example: cash, receivables, loans outstanding

Five common financial statements

Income statement Statement of retained earnings Statement of owner's equity Balance sheet Cash flow statement

Liabilities

Legal obligations to give up things of value in the future

Types of accounting

Managerial accounting: accounting methods that are specifically intended to be used by managers for planning, directing, and controlling a business. Tax accounting: in accounting approach based on specific accounting requirements set by governmental taxing agencies Financial accounting: a formal, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators

The fundamentals of pricing: margin pricing and elasticity

Markup pricing: A price setting method where an amount is added to the cost of a product to set the retail price and provide a profit Markup: The amount an entrepreneur adds to costs to provide a profit Margin: the amount of profit, usually stated as a percentage of the total price Elasticity: from economics, the idea that the markets demand for a product or service is sensitive to changes in its price Inelastic product: product for which there are a few substitutes and for which a change in price makes very little difference in quantity purchased elastic product: product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased Pricing elasticity graph in one note

Completing a master budget

Master budget: a budget which consists of sets of budgets that detail all projected receipts and spending for the budgeted period. Also referred to as a comprehensive budget. Cost of goods sold budget: A schedule that shows the predicted cost of product actually sold during the accounting. Activity-based cost estimates: in accounting method which assigns costs based on the different types of work a business does in order to sell a particular product or service

Direct sales

Methods of going directly to your customer in order to sell your product. Vending machines, door-to-door salespeople, leasing space at a craft fair, farmers markets, party sales, and most industrial sales are methods of direct selling

Budgeting relationships graph

One note

Organization of the balance sheet graph

One note

Organization of the income statement screenshot

One note

Channels

People and firms who connect producers of goods and services with customers

Direct response advertising

Placing an advertisement in a magazine or newspaper, on television or radio, or in any other media. The ad contains an order blank with a phone number and e-mail or regular mail address with the intent of having the customer place an immediate order

Distribution

Process of getting your product to the customers. Where are my customers? Where should I be?

Uses of financial accounting

Reporting to Outsiders Record Keeping Taxation Control of Receivables Analysis of Business Operations

Direct marketing

Selling your goods or services to consumers without intermediaries, typically to select customer groups and typically with tracking of the results

Variance

The Difference between an actual and budgeted revenue or cost

Financial strength

The ability of a business to survive adverse financial events.

going concern concept

The accounting concept that a business is expected to continue in existence for the foreseeable future.

Permanent accounts

The accounts of assets, liabilities, and owners equity, excluding accounts for revenues and expenses

Business entity concept

The concept that a business has an existence separate from that other it's owners

Articulate

The concept that information flows from the income statement through the statements of retained earnings and owners equity to the balance sheet

Owners equity

The difference between assets and liabilities of a business

Manufacturer

The entity which produces a product or service to be sold

Optimum price

The highest price that would produce your desired level of sales, or revenues, in your target market

Breakeven point

The point at which total costs equal gross revenue. Economy of scale: the idea that it is cheaper per item to make many of an item them than few.

Variance analysis

The process of determining the effect of price and quantity changes on revenues and expenses

Generally excepted accounting principles (GAAP)

The standardized rules for accounting procedures set out by the financial accounting standards board and used in all audits and submissions of accounting reports to the government.

Accounting equation

The statement that assets equal liabilities plus owners equity. Assets = liabilities+owners equity

Retained earnings

The sum of all profits and losses, less all dividends paid since the beginning of the business.

guerilla marketing

The use of creative and relatively inexpensive ways to reach your customer. Examples include door-knob hangers, flyers under windshield wipers, T-shirts, balloons, and messages written on sidewalks.

Multi channel marketing

The use of several different channels to reach your customers, for example, a website, direct mail, and traditional retailing

Internal reference price

a consumer's mental image of what a product's price should be

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 businesses strategic goals

External reference price

an estimation of what a price should be based on information external to a consumer, such as advice, advertisements, or comparison shopping

Retailer

an intermediary that buys products from manufacturers or wholesalers and sells them to consumers. Typically in single or small quantities

Pro forma

indicates estimated or hypothetical information