ENT 3315 Exam 2 (Allen)
Terms in this set (50)
Small business marketing
Consists of those business activities that direct the creation, devlopment, and delivery of a bundle of satisfaction from the creator to the targeted user. This definition emphasizes the benefits customers will gain from a product or service.
Emphasizes the products as the single most important part of the business.
Deemphasizes production efficiencies and customer preferences in favor of a focus on "pushing product."
-Believes that everything, including production and sales, centers ion the consumer and his or her needs. The result: All marketing efforts begin and end with the consumer. Needless to say, we believe that a consumer-oriented philosophy leads to success in many areas, not just marketing.
-But this is what it takes for a company to be successful in the long term. We strongly recommend that all new businesses begin with a consumer orientation.
Includes taking the steps necessary to locate and describe potential customers.
Marketing activities also encompass product and/or service, pricing., promotion, and distribution.
Marketing Plan cont..
A detailed discussion of the major benefits to customers provided by the new product or service should also be included in this section of the plan.
Marketing Strategy; The 4 P's
1)Product- Decisions that will transform the basic product or service idea into a bundle of satisfcation.
2)Place- (Distribution) activities that will set an acceptable exchange value on the tootal product or service.
3)Pricing- Decisions that will set an acceptable exchange value on the total product or service.
4)Promotional Activities- Communicate the necessary information to target markets.
May be defined as the gathering, processing, interpreting and reporting of market information.
Secondary Data Research
Information that has already been compiled is known as
. Generally, collecting secondary data is much less expensive than gathering new, or primary data.
-Surveys and experimentation are questioning methods that involve contact with respondents.
-Telephone surveys and personal interview surveys achieve higher response rates.
A group of customers or potential customers who have purchasing power and unsatisfied needs.
The process of dividing the total market for a product or service into smaller groups with similar needs, such that each group is likely to respond favorably to a specific market strategy.
Limitations of Forecasting
Despite the difficulties, a small business entrepreneur should not neglect the forecasting task. Instead, she or he should remember how important the sales outlook in the business plan is to obtaining financing. The statement "We can sell as many as we can produce" does not satisfy the information requirements of potential investors.
Not all members of a management team need competence in all areas - the key is balance.
To ensure balance...
To ensure balance, a management team should comprise both competent insiders and outside specialists.
In a sole proprietorship, an owner is free from interference by partners, shareholders, and directors. However, a sole proprietorship lacks some of the advantages of other legal forms. For example, there are no limits on the owner's personal liability - That is, the owner of the business has
, and thus his or her personal assets can be taken by business creditors if the enterprise fails.
Rights and Duties of Partners
Unless the articles of the partnership agreement specify otherwise, a partner is generally recognized as having certain implicit rights. For example, partners share profits or losses equally, unless they have agreed to a different ratio. But these rights are also balanced against serious liabilities. In a general partnership, each party bears
joint and several liability
, which means that a business decision by one partner binds all other partners, even if they were not consulted in advance, didn't approve the agreement or contract in question, or didn't even know about it!
The Corporate Charter
To form a corporation, one or more persons must apply to the secretary of state (at the state level) for permission to incorporate.
A partnership reports the income it earns to the IRS, but the partnership itself does not pay any taxes.
An S corporation does not pay income taxes but instead passes taxable income or losses on to the stockholders. This allows stockholders to receive dividends from the corporation without double taxation on the firm's profit (once through a corporate tax and again through a personal tax on received dividends.)
The Limited Liability Company
Compared to most other forms , it is easier to set up, is more flexible, and offers some significant tax advantages. But a limited liability company isn't always the best way to go. For example, under the following conditions, it would be better to use a C corporation.
-You want to provide extensive fringe benefits to owners or employees.
Contributions of Directors
By utilizing the experience of a board of directors, the chief executive of a small corporation is in no way giving up active control of its operations. Instead, he or she is simply drawing on a large pool of business knowledge. A group will typically make better decisions than will a single individual working alone.
Compensation of Directors
Sometimes, board members are also given a small percentage of the company's profits as a bonus for their participation, and some cash-strapped businesses may grant them stock (often 1 %, but as high as 2% or more to lure top talent) in lieu of compensation.
For many businesses, customer accessibility is an extremely important consideration in selecting a location. It is vital in industries in which the cost of shipping the finish product is high relative to the product's value.
Business Environment Conditions
To rank the states in terms of the costs of their tax systems on small business, the Small Business & Entrepreneurship Council publishes a "Business Tax Index" each year. In its 2014 report, the council found that the five states with the most favorable tax systems, in order, were Nevada, South Dakota, Texas, Wyoming, and Washington.
Availability of Resources
If raw materials required by a company's operations are not redily available in all areas, then regions in which these materials abound will offer significant locations advantages. This is especially true for businesses that are dependent on bulky or heavy raw materials that lose much of their size or weight in the manufacturing process. I.e. a sawmill
Suitability of Labor Supply
-The Suitability of the labor supply for a production process. Labor-intensive operations need to be located near workers with appropriate skills and reasonable wage requirements.
-Companies that depend on semiskilled or unskilled workers usually locate in an area with surplus labor, while other firms may need to be close to a pool of highly skilled labor.
Site Availability and Cost
Assuming that suitable building space is available, the entrepreneur must decide whether to lease or buy. More small business owners choose to purchase rather than lease their buildings (57% according to one study), but the benefits of leasing can sometimes outweigh the gains of owning.
- A large cash outlay is avoided, which can be especially important for a new small firm that lacks adequate financial resources.
No matter which platform they adopt, B2C e-commerce businesses certainly face unique challenges (payment security risks, customers who refuse to purchase a product without seeing it first or trying it on, etc). But they also enjoy the advantages of flexibility. For example, they are able to change merchandise mixes and prices quickly, and they can easily modify the appearance of their online store.
Nature of Online Presence
A second broad way of categorizing e-commerce models relates to a firms intended level of online presence. The role of a website can range from merely offering information and basic content to enabling complex business interactions.
Now the owners have to decide what to do with these profits. They can let the company pay them a dividend out of the profits, which represents a withdrawal of capital from the business (assuming cash is available to do so). Or, they can retain the profits in the business to help finance the firm's growth.
Order of Income Statement
1) Sales (revenue)
2) Cost of producing or acquiring the goods or services sold by the company
3) Operating expenses, such as marketing expenses, rent, managers' salaries and depreciation expense
4) Interest expense
5) Tax payments
The Balance Sheet
While an income statement reports the results of business operations over a period of time, a
provides a snapshot of a business's financial position at a specific point in time.
Balance Sheet cont.
It shows the assets a firm owns, the liabilities (or debt) outstanding or owed, and the smount the owners have invested in the business (owners' equity) on that date. In its simplest form, a balance sheet follows this formula:
Total assets = Debt + Owners' equity
The second type of assets in the balance sheet is the set of more permanent assets in a business.
, also called
property, plant, and equipment (PPE)
, include land, buildings, machinery, trucks, computers, and every other physical asset a company owns that will be used in the business for more than one year.
Current debt (short-term liabilities)
is borrowed moeny that must be repaid within 12 months.
Represent cash amounts borrowed from a bank or other lending source for 12 months or less.
Profit versus Cash Flows
An income statement is not a measure of cash flows because it is calculated on an accrual basis rather than a cash basis. This is an important point to understand. in
, profits are recorded when earned- whether or not the profits have been recieved in cash- and expenses are recorded when they are incurred- even if money has actually been paid out. In
, profits are reported when cash is recieved and expenses are recorded when they are paid.
Measuring a Firm's Cash Flows
To convert the company's income statement from an accrual basis to a cash basis, we take two steps:
1) Add back depreciation to net profits, since depreciation is not a cash expense
2) Subtract any uncollected sales (increase in accounts receivable) and payments for inventory (increases in inventory less increases in accounts payable).
A business- or a person, for that matter- that has enough money to pay off any debt owed is decrived as being liquid. The
of a business depends on the availability of cash to meet maturing debt obligations. The
is traditionally used to measure a company's liquidity. The ratio compares a firms current assests to its current liabilities, as follows:
Current Ratio = Current assets/Current liabilities
Return on Owners Equity
The last financial ratio considered here is the rate of return that the owners are receiving on their equity investment, or the
return on equity
. It is computed as follows:
Return on Equity = Net profits/Total owners equity
2) As the amount of a firm's debt increases, its return on equity will increase, provided that the return on assets is higher than the interest rate paid on any debt.
Pro forma financial statements
When starting a new business, however, there is limited, if any, past experience on which to base your numbers. You make assumptions, which may feel like no more than educated guesses.
Forecasting Financial Requirements
The greater a firm's sales, the greater the asset requirements will be and, in turn, the greater the need for financing.
Determining Asset Requirements
Although the assets-to-sales relationship varies over time and with individual businesses, it tends to be relatively constant within an industry. For example, assets as a percentage of sales average 20% for grocery scores, compared to 65% for oil and gas companies. This method of estimating asset requirements is called the
Use good judgement when forecasting
The overall approach to forecasting is straightforward - entrepreneurs make assumptions and, based on these assumptions, determine financing requirements.
Build projections from clear assumptions about marketing and pricing plans.
Raising new capital through equity financing would mean giving up a portion of the firm's ownership, and most owners of small firms resist giving up control to outsiders.
Out of an aversion to losing control, many small business owners choose to finance with debt rather than with equity. They realize that debt increases risk, but it also permits them to retain full ownership of the firm.
For someone who cannot acquire traditional financing like a bank loan, credit card financing may be an option- not a great option, but a necessary one. The interest costs can become overwhelming over time, especially because of the tendency to borrow beyond the ability to repay.
So why use credit cards? At times the only option open to a small business entrepreneur, credit cards also have the advantage of speed.
In addition to setting the interest rate and specifying when and how the loan is to be repaid, a bank normally imposes other restrictions on the borrower. These restrictions, or
require certain activities (positive covenants) and limit other activities (negative covenants) of the borrower to increase the chance that the borrower will be able to repay the loan.
1. The company must provide financial statements to the bank on a monthly basis or, at the very least, quarterly (positive covenant).
2. As a way to restrict a firm's management from siphoning cash out of the business, the bank may limit managers' salaries.
3. A bank may put a limit on various financial ratios.
4. The borrower will normally be required to personally guarantee the firm's loan.
Small Business Administration
For the most part, the SBA does not loan money but serves as a guarantor of loans made by financial institutions.
One way to sell common stock is through a
, in which the firm's stock is sold to select individuals - usually the firm's employees, the owner's acquaintances members of the local community, customers, and suppliers.