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