foundations test 2

basics of funding a business

Funding typically starts with the founder and his or her personal resources

market potential

-Takes a macro look at the market -Estimates sales based on the number of potential consumers in the target area -Data is modified by a likely percentage of those attracted to the business

float

-critical in cash flow analysis -difference between when the money goes out and when it comes in (like the lag when a credit card is charged) -businesses should plan for this if they have to make payments etc.

elements of HR

1.Hiring and retaining employees 2.Dealing with difficult employees

legal forms of business

1.Sole proprietorship 2.Partnership, including both general and limited liability 3.Corporation: C, S, and LLC

pricing floor

Break-even point, or the lowest amount that can be charged for a product or service while still making a minimal profit

final activities in decision process

Testing Drug testing is common Testing candidates on the basic requirements of a position •May be as simple as a basic math test to be eligible for an interview Many firms conduct personality testing or work behavior testing

initial funding

To calculate maximum amount of outside financing needed, you must multiply the lowest ending cash balance on the cash flow statement by 1,5 •Resulting balance is recommended for initial equity or equity-plus-debt investment •This amount is connected with the % of the firm that was previously determined to be available to other investors

forecasting sales- 2 methods

market potential or customer demand

gross profit

net sales - cost of goods sold

dealing with difficult employees includes

probation/ firing

predicting the performance

•Correctly predicting a business's performance can help secure better terms with vendors and suppliers

Profit and Loss Statement (P&L)

•Financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time •Brief and easily understood document that should be prepared monthly

long-term liabilities

•Liabilities that are owed by the business and are ultimately due more than a year from the current date •Include mortgages payable, owners' equity, and stockholders' equity

location suitability

•What businesses are best suited for a strip shopping center? •What businesses might not work in such a space?

legal issues with pay

Fair Labor Standards Act •Established a minimum wage for workers •Requires overtime pay

venture capital or vc

Fund organized to make equity investments in high-growth new ventures (seek to cash out at definite time) -usually organized as a limited partnership. Limited partners that may include: •Wealthy individuals •Insurance companies •Other businesses •Retirement funds

accounts payable

Separate accounts payable record should be maintained for each creditor All invoices should be recorded with a record of payment, including: •Date paid •Amount paid Check number or transfer tracking number

bonding

covers damage done by employees

net profit before taxes

gross profit minus all expenses

balance sheet

is a summary of the assets and liabilities of the entrepreneurial business. - want the balance sheet to total zero -snapshot of a business at one point in time -Assets minus liabilities (incl. equity) should total to zero •Assets and liabilities balance each other

granularity

provides maximum insight to the owner Aids in predicting where the firm's revenues will come from and in analyzing the actual revenue sources for the new entrepreneurial firm

net profit after taxes

taxes are calculated/estimated and subtracted from net profit

New organization should be able to make initial payments for

•Security deposits •Utility setup fees •Purchase or lease of initial equipment and installation •All licenses and inspections •All initial supplies •Hiring and training of initial staff •Initial advertising expenses Bank setup fees

mail-order catalogs

-Many businesses have no fixed location but reach customers through the mail -Identifying which customers to mail the catalogue to is a critical part of the process -Entrepreneurs must be able to handle credit card sales and returns •Credit card fraud is troublesome for this industry •Transaction fees should be accounted for in the price

distribution channels

-Not limited to geographic location since they may be selling an industrial product that has the potential for a nationwide distribution, or they involve situations, such as Internet services or sales, where there is no limit due to geography. -Methods of distributing products and services •Independent sales agents •Contract sales force •Web •Mail-order catalogs

cost-plus pricing method

Firm determines the cost of its product and then adds onto that cost some level of profit it determines to be appropriate -this can be difficult to implement effectively -Entrepreneur needs to include an estimated cost of marketing •This cost may change; therefore, the price should be adjusted as the marketing plan is refined

partnerships

Formed by two or more people Formation is simple but requires a partnership agreement specifying: •Who is involved and each party's contributions •How profits, losses, and draws are to be treated •How one partner can buy out the others •How new partners are brought into the partnership •How disputes are to be settled Draw: Distribution of funds from the business •Cash dispersion in advance of salary •Bonus •Expected year-end distribution

board of advisors

Group formed at the discretion of the founders composed of individuals outside the business who advise the founder Advisors need to have experience in: •Local licensing requirements •Industry regulations •New start-up experience and success •Financial and accounting background with new start-ups •Human resources experience, especially establishing personnel criteria

corporations as equity investors

Large firms such as Microsoft, Intel, and Cisco have been among the most active equity investors in new start-up firms in the technology sector

corporations

Viewed as separate entities •If a corporation suffers substantial losses, the founders will lose only their investment in the business Common forms 1.Subchapter S Corporation 2.Subchapter C Corporation Limited Liability Corporation or LLC

virtually free promotion

Widely referred to as bootstrap marketing, because it requires little capital Speaking opportunities with schools, clubs, and religious groups can be utilized •Presentation should be generic and not a simple promotion Entrepreneur can put together something interesting for local news or talks shows

OSHA (Occupational Safety and Health Administration)

oCharged with protecting the health of workers oLenient toward small businesses → less record-keeping and fines

retaining employees includes

•Compensation and benefit systems •Wage and hour requirements •Performance reviews

use a critical path chart

-Efficient use of time is an absolute imperative for any organization, but especially for a new business -First operational step for a new business •Identifying the actions that must occur, in what order they should occur, and what order will be most efficient

customer demand

-Takes a micro look at the market -Estimates the number of customers the business can handle given its location, staffing, and other details -Founder then estimates the number of customers it will take to break even or make X profit

fixed assets

: Assets that have a physical presence, including land, buildings, office equipment, machinery, and vehicles -harder to convert to cash

asset-based lending

: Loan provided for the purchase of a necessary asset for the business

developing and effective board

Boards of advisors and boards of directors help foresee potential legal liabilities: oNew business should have at least one of these entities that will advise the founder oCorporations must have a board of directors oIn new corporations, the shareholders and the board of directors are often the same individuals

variable costs

Costs that vary according to how many goods are produced

shrinkage

Difference between what is sold and what was brought into the business. It often results from either employee or customer theft.

retaining employee

Entrepreneurial business needs to retain those employees that perform well and add value to the firm Key issues •Compensation and benefits / Method and means of reviewing performance

equity funding

Evaluation needed to determine the % of ownership each founder will have in the business and the percentage that will be reserved for investors •Investors can be active or passive, majority or minority, other companies, and slash or suppliers

debt

Generic term to describe any type of non-equity funding tied to the business Any form of capital infusion that must be paid back with interest

living wage

Index wage that requires the minimum wage to be at least what someone who works 40 hours a week needs to stay out of poverty

insurance

Insurance is one way to limit liability concerns Basic types: •Property insurance covers the building, fixtures, and inventory •Key concern: Whether the insurance covers replacement cost or only current value •Coverage for fire, windstorms, hail, and smoke is standard •Special policies cover floods and earthquakes

subchapter S corporation

Org. form that treats the firm as an entity separate from the individuals •Allows owners treat income as they would if the firm were a sole proprietorship or a partnership •Has limitations in the number and type of shareholders Advantages •Limited liability (to investment) for owners •Potential to consolidate financial statements of business and personal income for the tax benefit of the owners •Relatively easy formation compared with a Subchapter C Corporation •Legitimacy in the market as a more established form of business Disadvantages Formation process is cumbersome and expensive Limited number of shareholders, which is set at a maximum of 75 shareholders •Significant limitation for a company that wishes to go public

petty cash register

Petty cash fund operates like a savings account •Founder purchases a small lockbox and writes a check of X amount to petty cash •Register is maintained to track the amount of money in the box •Withdrawals are made for small purchases •When the balance lowers, the founder writes another check to bring it back up to X amount

time value of money

Value of money over time at a given rate of inflation or other type of return Calculated as the value of your investment in time and money if you did not do the proposed venture -entrepreneurial breakeven

cash flow

actual cash that flows into the firm, minus the cash that goes out of the firm -not same as profit -must have cash flow to survive early days and establish entity

workers compensation insurance

covers liability for workers who are injured on the job, can be a major expense

human resources

has been defined in economics as the quantity and quality of human effort directed toward producing goods and services. -What this means to an entrepreneur is far more than simply having the right number of people with the right skills for a particular job. -The success of entrepreneurial firms pursuing new opportunities requires a number of deliberate actions by the business founder concerning human resources issues.

hiring steps

job description, job advertising, interview, testing, job offer

workers compensation

oEmployees disabled/injured while on the job are provided pay oRegulated by state, payments limited to partial wage replacement and med bills oEmployee cannot sue for the injury after receiving workers' compensation payments

unemployment compensation

oFinancial assist. for those people who lose their jobs through no fault oPerson receiving payments must look for a job oEntrepreneur funds the system by paying an unemployment tax oTax varies by state and the experience rating of the company

factoring

•Accounts receivable that are sold at a discount to another company to receive immediate cash -If the firm needs to generate cash in the short run, these accounts can be sold at a discount -The benefit for the entrepreneur is that the new business gets the money from the accounts receivable immediately. -The negative is that the new business will not receive the full amount of the debt that is due to it.

contract

•Agreement between two parties to perform certain activities for some consideration •Does not have to be written, but writing it is advisable

current liabilities

•Liabilities or debts that the entrepreneurial business has to pay within one year •Include accounts payable, notes payable such as bank notes, and accrued payroll

information on job applicaion

•Name, address, phone, and e-mail address •Work history •Date available for work •Conviction record and its details, if any •Position for which the candidate is applying •How the person heard about the job •Education and training •Professional organization memberships •References

subchapter C corporation

•Organizational form that treats the firm as a unique entity responsible for its own taxes •No limitations to shareholder participation (IPOs) •Owners are protected beyond their equity investment Requirements for Subchapter S or C Corporation •Corporate name •Location of the corporate headquarters •General nature of the business •Names, addresses, and titles of all founders •Time horizon for the firm's existence •Authorized stock and capital •By-laws of the organization

poor employee had a triple impact on an entrepreneurial firm

•Owner's time is lost •Firm does not fully benefit from the employee •Problems may bleed over to other employees Where larger firms can absorb the resulting difficulties due to their built-in slack (excess resources), an entrepreneurial firm can be devastated by a bad hiring decision. The process of finding and hiring new employees is critical and should involve a series of deliberate steps.

strip shopping center

•Small retail center located typically along a major road •Has only small businesses and the center itself occupies only a small strip of land along the major street

firms may need other sources of funds

•Sources may be small and may or may not be tied to an ownership interest in return for the funding

Americans with Disabilities Act

•Specifies protections in business for those with disabilities •Applies to firms +15 employees and in some communities has been applied to all businesses •No discrimination in the hiring, management, or dismissal of employees with disabilities •Businesses must accommodate people with disability •Retail and office businesses must make their places of business accessible to people with physical disabilities •Requirements of the law change and must be monitored

inclusions in contracts

•Who the parties are in the contract •What each party agrees to do and for what consideration •When the transaction is to take place •Timing of payment, activities and length of the contract •Warranties •How the contract can be terminated •Whether the contract is transferrable •Which state's laws apply if the firms are in different states

cash flow statement for a new business

•is much different from one generated by a publicly traded corporate annual report •Used to describe all of the activities that provide and use cash during the period being examined

cash based accounting

, cash-based accounting recognizes expenses as they are paid and recognizes revenue as it is generated.

liability insurance

-covers lawsuits resulting from accidents -product liability insurance is obtainable

3 key issues with starting a firm financially

1.Funding and funding level of the firm 2.Establishment of an accounting system 3.Need for specific attention to the flow of information When considering funding, the firm needs to evaluate not only the amount provided but also the sources of that funding

evaluating comparable employees- systematic review of employees includes 4 steps

1.How they performed relative to their objectives 2.Plans for future growth through experience and training 3.Defined objectives for the next year 4.Pay raise being awarded

common forms of debt

1.Loans from banks or finance companies, individuals, and founders 2.Credit cards 3.Supplier credit

legitimacy

Acceptance by key stakeholders, such as customers and suppliers, that you are a genuine business that will still be in operation next year -Critical to the long-term survival of the business -Developing the perception of legitimacy for both customers and suppliers can be difficult, although it is critical to the long-term survival of the business. Both customers and suppliers want to ensure your business will be operating for the long term before they do business with you.

Accrual Basid Accounting

Accrual-based accounting is the more typical form of accounting used, with expenses and revenues recorded when they actually occur, regardless of when the cash is received.

type and condition of equipment needed for a start-up

Acquiring initial equipment can be daunting and one of the most expensive tasks •Purchasing new equipment is expensive and may be delayed •Purchasing used equipment has risks but should be investigated •Leasing has low initial costs but high long-term costs Clear understanding of what equipment is needed, both now and in the future New business owner should prepare a chart comparing the price and the positives and negatives of buying new, buying used, or leasing that equipment

advantage and disadvantage of general partnership

Advantages •Owners report profits or losses on their personal income tax •Business expenses have some flow-through to personal tax forms, but the restrictions are significant •Easy to establish and easy to dissolve Disadvantages •Partners are jointly liable for all debts incurred by the partnership •Partners have a responsibility to watch out for the best interests of other partners

deviation analysis

Analysis of the differences between the predicted and the actual performance assists the entrepreneur in: •Developing realistic forecasts •Pointing out differences between actual and predicted performance at a point in time -Allows maximum flexibility in making changes during growth

interview

Applications that best fit the job description should be considered for an interview Discriminatory topics should be avoided •Age, race, disability, gender, national origin, religion or creed, and so on Interview discussion must be based on the needs of the job Realistic preview of the job and company should be provided to the interviewee

current assets

Assets such as cash or those assets that can easily be converted to cash, such as accounts receivable and notes receivable

negative cash flow

Carrying inventory of any type results in payments for those supplies taking place long before any cash is received by the business

offer- extending to top candidate

Consideration that candidate might wish to negotiate the deal Once an offer is agreed upon, it should be: •Put it in writing by the founder, signed, and given to the candidate •Considered closed when a signed original of the offer letter is returned by the candidate

loans

Contractual agreements whereby the firm receives some amount of money that must be repaid over a specified period of time at a specified interest rate Banks may provide asset-based lending Family and friends are another source Founders may choose to loan to the business

fixed costs

Costs that must be paid no matter how many goods are sold, such as rent for the building

working capital

Current assets minus current liabilities

expense accounts

Daily or weekly listing of expenses allows a monthly tracking and ultimately, an annual recording of all expenses Entrepreneur will have to: •Use check register and petty cash register to record all outflow of funds •Record credit card interest as an interest expense •Break payments up by card type Review IRS requirements for travel expenses

sources for non-equity funding

Debt from: •Banks •Credit cards •Asset leasing companies •Individuals and slash or suppliers → Grants (Gov. and Foundations) and Winnings from business plan competitions

target customer

Entrepreneur needs to once the geographic area is defined: •Define the particular segment of the market that he or she is seeking to serve •Identify the specific customers who meet those criteria in the market area chosen

job advertising

Entrepreneur needs to try to attract the largest pool of applicants possible Promotional options at little to no cost •College placement offices •Trade associations •Employment agencies •Online job posting •Posting on discussion boards where people with the specific skill set visit if a business is virtual

HR within a family business

Hiring practices: The person is just hired informally •This does not eliminate issues of discrimination if the firm is large Managing family members can be difficult •Business and human resources have more in common with family counseling than they do with the legalistic methods Tricky HR issue is succession •Who in the next generation becomes the leader of the business?

discrimination

In the workplace, hiring, dismissal, level of pay, or promotions based on race, color, gender, religious beliefs, or national origin of the employee •Such actions are prohibited by federal and state laws -Job descriptions and job advertisements must be written in a nondiscriminatory manner •Terms such as salesman, handyman, young, or counter girl should be avoided Advertising widely and using a job description help ensure that all individuals are judged on the same basis

key issues of leases

Key Issues: •Help protect long-term businesses •Are multidimensional and should be carefully crafted before signing •Prevent problems by investigating legal issues and employing experts when needed

establishing a bank relationship

Key issues for a new business •Establishing a revolving line of credit or working capital •Acquiring a business credit card account •Setting up a basic business checking account Business accounts require a primary signatory and a confirmation signatory as an audit safety condition Picking which bank to work with is more than choosing the closest bank

promotion

Means by which a business advances its product or service to potential customers •Pure promotions: Strictly financial arrangements in which you pay for some outputs, such as radio ads •Mixed-model promotions: Cost something but also have an element of community support •Virtually free promotions: Have very limited financial cost but have time-commitment requirements from individuals in the firm

importance of proper accounting when starting a business

Most new entrepreneurs can meet their accounting needs with available software Entrepreneurs must determine if they will use cash- or accrual-basis accounting system •Cash = when it is received / Accrual = when it occurs

payroll

Record should be maintained for every employee Employee record should be maintained that tracks every payroll check issued to the employee Record will list all of the items that make up the check •Date, check number, and number of hours worked •Base pay and overtime hours worked •Overtime pay rate, gross pay, and taxes Benefit deductions and net pay

equal pay act

Requires that an employer not discriminate in pay to men and women who do the same job Child labor laws must be followed

mixed promotions or community support

Schools are in constant need of sponsors •Angling sponsorship to activities maximizes exposure to potential target base, such as sports teams, clubs, or events •Helps associate one's name with positive activities and reach the customers one seeks Church groups look for sponsors to help in activities for the community or for their youth

pro forma

Term describing estimates of what the balance sheets and income statements will look like in the future -simply means that the entrepreneur estimates what the balance sheets and income statements will look like in the future, in order to plan well.

break-even analysis

Tool for the estimation of when a business's income exceeds its expenses -provides some judgment about when the firm will reach a point of being self-sustaining after the business is begun -recognizes that the growth in sales does not occur all at once

pricing a service

`•Time is the primary operational cost •Overhead expenses still exist, but education + experience are the value inputs •Requires closer examination of competitors' pricing Pricing: Valuable tool to balance customer flow with the time available - make recommendations

copyright

copyright can be claimed on creative materials generated, such as books, magazines, advertising copy, music, artwork, or virtually any other creative product, whether published or unpublished. The copyright is valid for the life of the author plus 70 years. •Legal means to protect intellectual property •Grants ownership on creative materials generated (books, magazines, advertising copy, music, artwork), or any other creative product, whether published or unpublished

Expensive means to locate potential employees

is a traditional help-wanted ad on a job-placement website •Varies widely in cost and ability to reach the desired audience For unique skill requirements, outside companies that recruit and place an employee for entrepreneurs can be considered •Service can be quite expensive

trademark

is legal protection of the intellectual property that is associated with a specific business. This may be the name of the firm, a symbol representing the firm, or the names of its products. Most large companies have trademarked their company name, symbols, and tag lines

carrying inventory of any

type results in payments for those supplies taking place long before any cash is received by the business, resulting in negative cash flow.

online businesses

•Analysis changes for online businesses •Definition of a customer is the same as for all other firms •Company's web presence is a significant factor because of large geographic customer base •Using Search Engine Optimization or SEO techniques improves one's chances of being "seen" online

equity theory

•Argues that we all judge how we are treated relative to how we see others being treated → senior faculty FSU

some key reports people should be prepared to generate

•Chart of accounts, petty cash register, check register, expense accounts, inventory accounts, accounts payable, and payroll

asset leasing

•Form of lease tied to an asset used by a business to conserve cash and maintain latest versions of equipment available -Instead of owning the assets, the company simply leases what it needs.

hiring employees includes

•Job descriptions and advertisements •Discrimination •Job interviews / Testing •Job offers

limited liability corporation or LLC

•Relatively new •Has limited liability feature •Allows more investors and other corporations to hold stock •May have as few as one member •Allows profits to be handled flexibly and owners to flow the profits through to their personal returns to avoid double taxation •Has a low cost of formation Limited by some states

cost-plus pricing

•The entrepreneur initially determines the cost structure and then determines what profit margin is desired and adds that to the cost •Plus aspect can be a percentage added to the cost basis •Part of the desired profit margin will be determined by competitors' prices and company overhead •Price deviation between a firm and its competitors must be justified and have merit with customers

For a proposed business, the focus is on its ability to generate positive cash flow in the shortest possible time

•Viability of the firm will be decided by cash flow, not profitability •Profit is desirable, but cash pays the bills and the payroll

Entrepreneurial breakeven

•When a new venture's net cash flow exceeds the initial investment + time value of money invested

check register

Create a listing of all checks that have been written and all that have cleared through the bank is essential •Made easier by online banking Entrepreneur must record and balance the company account on a monthly basis

how timing is a competitive advantage

Entrepreneur should select the time to enter the market based on when it provides the greatest competitive advantage Timing is a function of several factors •General environment •Competitor moves •Cycles in purchasing or supply patterns •Lifestyle issues

path chart- entrepreneurs should

Entrepreneurs should: •Constantly update their critical path analysis •Chart is continually updated as tasks are accomplished, delayed, added, or changed •Share the critical path analysis with potential suppliers, friends, and industry experts -The critical path analysis is a living document that should be modified during the process of actually accomplishing the tasks

radical transparency

-When considering funding, the firm needs to evaluate not only the amount provided but also the sources of that funding. -A key aspect of how the funding will be used is found in the information provided by the business, and that comes through the accounting system and the data flow management.

independent representatives

-can be used to sell industrial products •Representatives for a variety of products for a number of companies in a given domain •Agree to sell or distribute products for a percentage of the sales price •Promote the products for which they make the most money •Securing the right representatives for the right price can be crucial to achieving success when using this distribution channel

income statement

-focused on profitability oRevenue of the firm minus expenses oFocus is on profit rather than cash flow oPredicting sales for the entrepreneurial firm is a key to developing an income statement Provides both the gross and the net profit figures

other comp options

1) Profit sharing •Relatively low salary level but shares a percentage of the profits at the end of the year or some other period of time with the employees •Example of a hybrid compensation system 2) Bonus •Reward offered to employees based on their performance •Similar to profit sharing

helpful steps in time management

1.Listing what has to be accomplished in all parts of the business formation 2.Prioritizing which tasks are critical and which would be helpful 3.Segmenting items in terms of the time frame they need to be accomplished 4.Allocating time that is strictly for dealing with operational issues 5.Writing tasks down and marking them off when they are accomplished

identifying your market

Focused approach to market the firm's offerings to customers that are likely to buy its products or services at the price desired •Advertising specifically to that market New businesses must target the right geographic area with the right marketing tool for success Make a reasonable estimate of what they can do with the least resources to reach the most people as efficiently as possible

limited liability partnership or llp

Has at least two individuals who are partners in the venture Classes of partners •General partner: In an LLP, the individual considered the manager of the firm, who, as such, has unlimited liability for the debts or judgments against the firm •Limited partners who can work for the firm but cannot actively manage •If one of the partners in an LLP or LLC mishandles a case and is later sued, the other partners don't have to cover this partner's debts. Requirement: At least one partner must be the general partner

how location can be a competitive advantage

Location is a critical factor in the successful operation of a new non-Internet business Best location for the money can be decided by breaking the business down into the critical design features of the business •Aided by the use of the list developed earlier in the process that shows all the resources and capabilities

location analysis

Locations can be graded by the type and amount of traffic that the particular location draws •An "A" location in a mall, on a busy street, or in a tourist-heavy downtown area may not be required for setting up a warehouse Entrepreneurs should match the type of business and the amount of money they wish to invest in the first years of operation and the long term Commercial real estate agents seek to locate properties that match new business owners' needs

laws, rules, and regulations benefit new firms

New businesses deal with fewer regulations than established larger businesses Some regulations apply regardless of size: •Employer Identification Number •Payroll requirements Specific cities may have unique regulations Most locations have local information resources

marketing plan

Plan developed by the entrepreneurial business to specify: •Who the customers are •How they will be attracted to the company

supplier credit

Provided on: •Physical assets •Refrigerators/ Molding equipment •Actual supplies provided -another form of non-equity funding that is available. -Accepting supplier credit can tie you to that supplier, limiting your ability to shop around for a cheaper source. -The terms can be quite generous and the rates are usually more competitive than those available from traditional bank sources.

production chart

Provides a detailed understanding of a firm's production process Details each step that must occur within the production process vStarts with the order being received vFinishes with the final delivery to the customer Some steps can occur simultaneously while others must occur concurrently

quality as a competitive tool

Quality is an assumed standard Founders need to put monitoring and measuring systems into place to successfully deliver quality Deming - Father of the quality movement, suggests: •Quality must be improved constantly and consistently •Goals for quality must be set •Scientific method should be used when making changes •Quality of inputs, which affects outputs, should be the focus

patent

covers a specific innovation. A patent is good for 20 years from the point that it is filed, fees are paid, and it is accepted by the U.S. Patent and Trademark Office for processing. •Currently granted on a "first to file" basis •Expensive to obtain and maintain •Types: Utility, Design, and Plant (Nike +5,000 patents) •Can be a potent entry barrier for a business •Only recognized in the countries where it is filed

ADA or Americans with Disabilities Act

oFirms with +15 employees / Access to all people oMay be required to offer special accommodation to employees oSome states or cities have additional requirements

pricing in startups

oStart-up should offer a greater value for the money charged to build a customer base oSmall increments of money should be avoided oNew business owner will need to determine if he or she wishes to offer a quantity discount

new firms typically have one type of activity:

operations. Everything that involves cash in/cash out is related to the operation of the business

methods of establishing legitimacy

•Business checking account •Business credit card •Bank line of credit •Professional business cards •Professional letterhead, billing slips, envelopes •Professional advertising material Board of advisors and slash or directors Endorsements High-quality Web page Prestige of the business address Job titles Telephone answering support

examples of licenses and permits

•Business license •Local A B C, or Alcoholic Beverage Control, liquor license •Occupancy permits •Federal liquor license from the Bureau of Alcohol, Tobacco, Firearms, and Explosives •Business license from the local city and county authorities •Sign permits •OSHA permits for food handling •Fire safety permit

credit card

•Card entitling one to revolving credit that is not tied to any particular asset •Does not have a set repayment schedule •Has a set upper limit •Tied to a much higher interest rate than that of a bank loan -another type of credit

entrepreneurs should do this for interview

•Check as many references as possible •Keep open mind about candidates after the initial interview and background check and then conduct a second interview •Keep records of all advertisements, who responded, and the criteria for the job

compensation

•Compensation is going to be a hot topic among employees, which makes equitable treatment in an employer's best interest •In building the compensation system, the entrepreneur needs to maintain a fair and equitable system for all employees, both now and in the future

sales management system

•Consistent approach and image designed around a firm's mission statement •Process starts with hiring a sales force •Key to success: Developing a relationship with customers •Returning customers look for an understanding of their needs, not just a fixation upon making a sale •Relationship management is a process and a practice

understand how benefits affects cost structure

•Costs hit more severely than in large business •Health insurance can be a competitive disadvantage •Pay more p/employee for health insurance than large firms •401k and Roth 401k programs are offered by an employer so that employees can contribute to their retirement on a tax-free basis

production management system

•Defines the steps involved in moving your product or service to the point of sale •It is important to emphasize that all businesses have production systems, whether or not they are codified •Can be put together for the most common and expected routines •Most important elements - Production charting and quality

critical path chart

•Demonstrates how the activities necessary to start the firm fit together and build on each other •Allows one to understand which activities can occur concurrently and which must already be in place before the next activity can occur

job description

•Document that describes the job that is to be filled •Required for all positions •Ensures all dimensions of the job are considered •Shares information with the potential employee •Forces the business owner to consider changes as the firm grows •Should be clearer for virtual employees

sensitivity analysis

•Examination of the best- and worst-case cash flow scenarios •Essential to the development of cash flow statements --a judgment call by the new-business person about whether the business could survive the worst-case or successfully carry out the best-case scenario

inventory account

•Factors to include: the item, the quantity, an item number, a unit cost, and a total cost •Should be taken at scheduled times during the year and an exact match should be completed between starting inventory, units sold, and ending inventory •Second record should be kept to track inventory ordered and inventory received

entrepreneurs can hire and fire employees

•Firing requires legitimate, well-documented reasons Employees should be provided with the opportunity for improvement •Paper trail needs to be developed Entrepreneur should ensure employees sign a noncompete or a secrecy agreement upon initial hiring •Agreement may prove to be a critical document upon dismissal

crowdfunding

•Funds received by a business by soliciting a large number of very small investors usually via the Internet -relatively new means for raising capital that may result in either an equity approach or an in-kind exchange for the firm. -Internet sites such as Kickstarter.com, EquityNet.com, Indiegogo.com and others have systematized the process.

equity investment

•Funds received by a business in exchange for a percentage ownership of the business -where someone provides funding in return for some ownership in the new business.

business angels

•High-net-worth individuals who invest in businesses not as a business but as an individual •New businessperson should seek those with relevant knowledge

compensation options

•Hourly wage: Amount paid per hour for work performed •Salary: Set amount of compensation for a given time period •Commission: Payment by the entrepreneur as a percentage of sales and associated with the compensation of sales representatives •Hybrid compensation system: Commission is paid in addition to a basic salary

issues to be considered in sales management

•How many contact points will the business have with each customer? •How will each customer be greeted? •What is the process for managing a customer once an order has been placed? •What look will the sales force present? •What controls are in place to ensure the quality of the product delivery? •How much information will be collected on each customer? •What will the business do with the information collected?

new firms should answer a few questions

•How many of the target customers exist within your market area? •What percentage of this population could you attract? •What percentage of the general population uses your product? •Do these numbers match your cash flow projection? •What kind of community are you trying to create?

importance of hiring

•If a large organization has 1,000 employees, one problem employee represents only 0.1 percent of its workforce •In a small entrepreneurial firm with five employees, one employee causing problems represents 20 percent of the workforce

contract sales force

•Independent salespeople with a wide variety of experiences and contacts, provided by a company on a contract basis •Sales force can be hired for a given period of time •Although expensive, it could be the difference between success and failure

web- distribution channel

•Internet-based marketing employs the Web in the same way a fixed-site store uses its physical location as an advantage •Company Web page displays the products, provides the means to ask questions about those products, and allows the customer to buy the products •Web design is a crucial part of the company process •Every firm needs to determine if the Web will be its only outlet or if it will use the Web to supplement the business's fixed location •Complexity increases with capabilities

strategic alliance

•Joining together of firms to form long-term, mutually beneficial relationships

writing the advertisement: entrepreneur should

•Keep it concise and oriented to basic information needed for applicants to evaluate qualifications •Make it distinct so that it will draw attention •Write the ad to sell the job and the business honestly •Ask for a résumé and a short list of references •Establish a deadline for application

why do big companies invest

•Least expensive means for new ideas or products or methods •Developing ideas in-house detracts a firm from its core business, whereas investing in start-ups does not •Successful start-ups are purchased and brought into the core organization

anchor store

•Major retail stores, such as department stores in a mall •Serve as the anchor for the retail establishment

sales management

•Methods employed to, and the individuals who build and maintain relationships with customers •To a certain extent everyone in an organization is involved in sales •Refers to how the whole sales process is managed -sales management refers to how that whole sales process is managed

managing data flow

•New businesses will differ in the time frames that they need to obtain data based on industry and experience •New firms do not have the complex data measurement methods of large firms, but they should have the same basic philosophy •Key is obtaining data in a timely manner that is tied to the strategic needs of the firm

benefits for employees

•Paid vacations and holidays •401k plan •Medical care •Retirement plan •Sick leave •Life insurance

how to develop a pricing model

•Pricing of a product or service is a critical consideration for the new business •Products can be valued for what one believes they are worth on the market •Most businesses charge a premium for their products or services •The higher the profit, the faster competitors will challenge the business

loss leader

•Product/service sold at a nonoperating loss - price only accounts for the actual cost of the product, to simply get customers in the store •Don't employ loss leaders until the business has gained momentum •Becomes a burden if customers purchase only these products and not the other products offered by a business

performance review

•Review of the employees' goals and outcomes on those goals over some given period •Workers are motivated by more than salary •Employees must know exactly how their performance is compared to expectations •Setting of goals for employees is central to any review

pure promotions

•Signs: Simple but distinctive •Flyers: Produced cheaply but have small impact •Social media: Knowledge and expertise of specialists are critical •Newspapers: Broad-based shotgun type of advertising •Radio and television: Difficult and expensive options •Trade shows: Expensive to participate in

supplier investment

•Simpler •Restrictions: •Deal involves an exclusivity agreement to use only that supplier's products •Founders should be careful not to lose flexibility needed in the future

Sole Proprietorship

•Simplest form of business organization → person who owns the business and the business are the same entity •Major Benefit: Easy to form and dissolve •Disadvantages: Only one owner is allowed, there is liability for the owners associated with it, and the value of the business is limited •Popular among individuals who are unsure, have a very small business, and have a business with low costs and low risks

budget

•Statement that projects all the costs that will be incurred by the organization over a period and allocates those expenses evenly over the relevant time period •Should not be confused with cash flow statement •Helpful, but one needs to know the amount of cash he or she needs to pay the bills

performance review downsides

•Struggling employees are a reality that most entrepreneurs will have to deal with at some point •The Center for American Progress finds that businesses spend one-fifth of an employee's annual salary to replace that employee