business topic 3 (chap 12-13) Flashcards
role of business plan
set out the desired goals and direction of the business
-essential to long-term success **
- necessary for all businesses, regardless of size/function.
-neglect**, business failure because no clear understanding of the business’s future.
-fundamental to constantly refer back to plan
-sticking too rigidly/not adopting to internal and external changes to bus environment detrimental
-identiies strengths and weakness, opp and threats, probability of success
-without, impossible make projections and evaluate performance
why sould business plan be professionally presented
-may be read by bank managers, accountants, financial advisers, company directors, potential purchasers or interested partner
- poorly presented plan will convey the impression that little thought has been given to the planning process.
-reflect poorly on owner and capabilities
transnational corp
- comprehensive, hundreds of pages, time, effort, money to prepare
-highly professional distributed to large no. company’s senior management
SME
-10-15 pages
-processed at home
-circulated to few ppl
main reasons why business owners fail to plan
- want to start business straight away
-impulsive actions and mistakes
-working hard doesn’t guarantee success
9 common elements of business plan 9
!1. EXECUTIVE SUMMARY(brief overveiw)
- GOALS
- STRATEGIES
-how to achieve goals - BUSINESS DESCRIPTION AND OUTLOOK
-overveiw of industry where bus operate
-situational analysis -
MANAGEMENT AND OWNERSHIP
-nature and type of organisational structure
!6. OPERATIONAL PLANS
-PP, staff
!7. MARKETING PLANS
-product
-price
-promotion
-ditribution details
!8. FINANCIAL PLANS
-financial needs
-methods to evaluate performance
!9. HUMAN RESOURE PLANS
-present and future staff requirements
benefits of a business plan 4
plan = direction –> saves money, time, effort, increases likelihood of success
1.** tests viability** of business
2. proactive > reactive
3. maintain operation, focusing on goals and objectives
4. identifies strengths and weaknesses
4 sources of planning
diff lvls of management/employees
R&D
external enviro (political, social, eco, tech, geo, legal)
specialists (accountants, finance brokers, consultants) provide knowledge
situational analysis
colection of methods managers can use to analyse bus’ internal and external enviro
SWOT analysis
1 method of situational analysis
identification and analysis of internal strengths and weaknesses of bus
-opportunities, threats of external enviro
-all stages of planning process
-only small part process
-doesnt provide solutions/help owner choose best options
Strengths (INTERNAL analysis)
Weaknesses (INTERNAL analysis)
Opportunities (EXTERNAL
Threats (EXTERNAL)
strengths examples for SWOT analysis
-popularity
-loyal customers
-skilled, motivated workforce
-solid financial position
weakness examples of SWOT analysis
-outdated tech
-poor customer service
-weak brand reputation
opportunities examples SWOT analysis
-tech
-strong national eco
-low interest rates
-possible new markets
-acquire other bus to expand organisa
threats example SWOT analysis
-trends in markets
-new regulation
-new competitors (taking market share)
business planning process
vision
business goals
long term growth
vision statement
provides you and your employees with direction, purpose, motivation and inspiration to achieve the desired outcome for your business.
senior managemnt goals
set STRATEGIC GOALS (long term, holistic (yrs) broad aims apply bus as whole)
-4 key bus functions (OMFH)
MIDDLE MANAGEMET GOALS
TACTICAL OBJECTIVES
-mid term(months), departmental issues
-describe course of action to achieve strategic goals
eg. increase market share –> research consumer tastes and preferences
front line managers/supervisors goals
OPERATIONAL OBJECTIVES
short term (days/weeks) issues describe action to achieve bus’ tactical objectives
-market share –> arrange 20 customers to attend focus group
relationship betw vision, goal, objective
VISION: BROAD STATEMENT of OVERALL PURPOSE
GOAL: SPECIFIC statement of INTENDED to ACHIEVE
OBJECTIVE: VERY SPECIFIC statement HOW goal ACHIEVED
LONG TERM GROWTH
ability for bus to continually expand
-depends on bus ability to develop and use asset structure to increase sales, profits, market share
-requires comprehensive, strategic planning
-sustainable competitive advantage to survive comp and grow
6
strategies to achieve long term growth
-
UNIQUE G/S
consistence marketing plan, relationship marketing philosophy to encourage CUSTOEMR LOYALTY -
CUSTOMER FEEDACK
-use internet to listen to customers -
SUPPLIER & CUSTOMER PARTNERSHIPS
-opp to develop products consultation with bus designers -
COST
-produce affordable products
-cost-effective production to maintain low prices - SIX SIGMA
-business management approach
-improve bus performance by improving quality, reducing costs and creating new opp -
STAFF MOTIVATION
-align with bus objectives to inspire harder work and achieve bus goals
how can SMEs enter global market for LONG TERM growth
-extensive research for gap in market
-sell product with affordable price
-social media to generate brand awareness and penetrate domestic market
-expand product range
organising resources for business planning OMFH
- form vision, goals, objectives
- determine activities using resources (labour, time, money, equip, materials)
- determine gr (objectives) oup activities **employees perform
O: machining, designing, quality
M: sales, ads, price
F: accs, loans, debt control
H: recruit, train, compensate - assign tasks & delegate authority
- design hierarchy of relationships
create ORGANISATIONAL STRUCTURE : framework how tasks divided, resources used, departments coordinated
benefits of properly implemented organising process 4
- establishes chain of command –> orderly communication
- creates coordinated work enviro –> outlines guidelines for tasks
- common purpose –> all employees work towards common vision/goal/obj
-
organise resources efficiently, employees perform tasks
-requires RESOURCE ALLOCATION (work performed by who/machine under ? conditions)
-materials ordered
-tasks distributed to diff departments
organising resources revision from chapter 8
OPERATIONS
transform inputs (raw material, labour, equip) to semi/finished g/s
-type of equip & resources needed
-suppliers to purchase stuff
-money allocation to purchase
-storage, warehouse,delivery systems
-technical expertise employees need for max production
enables owner clarify changes made to structure of bus/PP
-arrange finance to purchase machine, revise bus plan
organising resources
MARKETING
marketing plan only succeeds if all sections of bus involved in satisfying customer needs and wants while achieving goals
-marketing plan integrated into all aspects
-adequate resources devoted to marketing plan
-training needed to lvl up employee expertise/skill
-more funds to accomplish all marketing objectives to specific department
-adequate resourcing to coordinate employees in marketing department must provide info, financial, physical resources for marketing staff
organising resources
FINANCE
revise chap 8 & 11
nrew business ventures require funds to operate
-most appropriate source of financing (venture capital [private equity investors provide to start ups & small bus lack access to loans], banks for SME)
-amt **equity (ownership of bus) **and potential to control owner hands over for necessary financing
if funds business using equity capital, investor given part ownership
SMEs want relatively moderate growth use debt capital with owners retaining most/all equity
explore range of fed and state gvt GRANTS (monetary/financial assistance doesn’t have to be repaid)
-usually no grants for starting
-provided for expanding, R&D, innovation, exporting
ogranising resources chap 8
HUMAN RESOURCES
business ventures require employees contribution, msot important resource
consider
-how many workers needed, what skills
-how to attract and recruit suitable employees
-how to motivate and retain
-training offer to grow bus
-fair pay and safe working conditions
-legal responsibilities to employees
-resolve disputes
-
FORECASTING in planning process TBC
1.total revenue & cost
2. break-even analysis
3. cash flow projections
forecasts/projections are predictions of bus future
-enable effective planning
-forecast availability of labour, raw materials, finance, building requirements
-rely on internal and external info sources
total REVENUE and cost to forecast
REV
-total received from sales of g/s
-PRICE X QUANTITY = TOTAL REVENUE
-expect how much sold
-use demand for g/s and amt competition in marketplace
-use market research techniques (customer surveys)
-more precise if bus more previous sales history to guide
total revenue and COST to forecast
fixed/variable costs
fixed dont vary regardless no. units produced
variable depend on no. g/s produced
-increase if more g/s produced
-decrease when fewer produced
-FIXED COSTS + VARIABLE COSTS + TOTAL COSTS
-estimate change in variable costs at diff lvls production
-makes possible to use break-even analysis
break even analysis to forecast
-determines lvl sales (total rev) needs to be generated to cover total prod costs (fixed + variable costs)
-sales ABOVE break even point PROFIT / then loss
-imp cause management determine lvl sales required to obtain proit
-determine effect on profit if sales inc/decrease
-revenue = total costs –> break even pt
-usedi n STRATEGIC PLANNING stage BEFORE BUDGETS prepared
TOTAL FIXED COSTS
\ = QUANTITY
UNIT PRICE - VARIABLE COSTS PER UNIT
examples of fixed costs
rent
insurance
salaries of staff
rates
depreciation
interest on loans & office expenses
examples of variable costs
direct labour & materials
commission on sales
delivery
packaging
cash flow projections to forecast
shows changes to cash position brought by operating, investing and financial activities of business
-provides info of bus expectedcash receipts (cash inflos) and cash payments (cash outlows) over 12 months (accounting period)
-owner estimate bus’ bank balance monthly & identify extent & duration of possible cash shortfalls
-point periods when expenses too high/short term investment possible during cash surplus
offers
-SME owner indication how much capital investment bus requires
-bank loans officer evidence bus is good credit risk
cash flow plans from cash flow projections
month-to-month projection of money flow into business
-cash transactions recorded: cash sales, collect debts, expected payments
cash flow projection vs cash flow statement
cash flow statement indicates how much cash flowed into and out of business in PAST PIT
cash flow projection shows cash EXPECTED made/spent over PIT into FUTURE
3 areas that need MONITORING and EVALUATIONS in business planning process
SBP
SALES BUDGETS PROFITS
-monitor and evaluate environment and take corrective action - adjust plan to avoid problems
-constant to make accuracy modifications necessary
monitoring and evaluating process 4
GMEA
- ESTABLISH GOALS AND OBJECTIVES
-what u wanna achieve -
MONITOR PERFORMANCE
-what is happening -
EVALUATE PERFORMANCE
-is whats happening good/bad, why is it happening - TAKE CORRECTIVE ACTION
monitoring
measuring actual against planned performance
-constantly ask what bus wants to achieve, are goals being achieved
-true achievements than generalisations
-asked every stage of developing plan
- establish forecast performance standards
-bus outline aims to accomplish (performance standard)
-performance standard is forecast lvl performance against actual eg. 5% increase in monthly sales -
compare actual against forecasted performance
-use budgets, sales statistics, cost analyses
evaluating
assess whether bus achieved goals
-ask profit performance, as planned? improved? to other businesses?
-SME owner ask if operations achieved desired results and why failed
-if successful, examine what starts and reuse
-identiy weaknesses and improve, modify plan
monitoring and evaluating sales
no sales = no g/s sold
-evaluate performance esp marketing strats
-regularly perform sales management control function (compare budget vs actual sales, changes necessary)
-above/below forecast success/corrective action
DIFFERENCE = DIFFERENCE/FORECAST SALES X100
MONITORING and evaluting BUDGETS
budget: estimation of bus financial performance for period in future
-cash flow budgets, budgeted income statements, budgeted balance sheets prepared monthly, quarterly, yrly
-constant monitoring of goals, whether achieved
-basis for administrative control, production planning, stocks control, control of expenses, production costs
-used in planning and monitoring aspects of business (owner can measure planned vs actual performance)
budget perparation must account for:
estimation of revenue and expenses that’s made for a specified future PIT.
-review past figures, trends, estimates from departments
-potential markets/market share
-trends & seasonal fluctuations in market (external enviro)
why should budget regularly compared with actual revenue and expense amts
detect discrepancies
-can ask why certain targets not reached/better anticipated
-establish standards to compare actual
how will a profit budget establish viability of business
predicting how much profit made from expected sales
-estimates need to be realistic
-include sales, gross profit, net profit
what can owner do once budget ocmpleted
owner can determine extent and timing of financial requirements
-reviewed at least once monthly
-compare projected to actual, implement modifications for discrepancies
monitoring and evaluating PROFIT 5 reasons
- profit as REWARD
- profit MAXIMISATION
-long term - profit as SOURCE of FINANCE
- profit as PERFORMANCE INDICATOR
-main indicator
-changes to profit guides how succeed/failing - profit as DIVIDEND payment
-incorp bus a prop of profit allocated to shareholders as dividends
what will evaluating profit levels reveal
info of bus costs and revenues
-owners need to identify source and quantity
-challenging for small businesses, recommend calculating financial ratios
-comparing financial ratios to competitors and industry average help managers evaluate profitability of business
3 financial ratios to evaluate profit
net profit ratio
gross profit ratio
return on equity ratio
taking corrective action by modifying
modifying: changing existing plans and using updated info to shape future plans
-change materials, output, costs of production, management practices, delivery to market
-change human resources bc ind’s performance as important as product
critical issues leading to bus success/failure
- bus plan
- managing employees
- analysing trends
- identifying and sustaining competitive advantage
- wondering eco conditions
business plan should contain 3 things
- clear, concise statement of goals
- plans to achieve goals
- reliable control standards for measuring performance
-if goals achieved, if not, corrective action
business plan presentation and preparation
professional for bank managers, accountants, company directors, potential purchases/partners
-reflect skills and abilities f owner
-advised to get help from accountant, solicitor, marketing consultant to plan projected proit and loss statements, break even analysis and market research
-reflects amt time, effort, research for high performance
management (staffing and teams) for bus success/failure
management must make best use of limited resources and is responsible for business achieving goals
-skill most critical determining success/failure, if all equip outstanding if cannot make efficient use of resources, fail
2 areas HR manager must pay special attention
STAFFING(competitive advantage esp offers service with direct contact with customers)
-recruitment
-employee skills databases
-skills audit
-skills inventory
TEAMWORK
mistake SME owners often make when recruiting
not providing enough time/financial resources to satisfactorily carry recruitment process
-hasty selection ends in increased costs and lower productivity
-outsource and use external recruitment agency
use of recruitment agencies
recruitment
time consuming to advertise and interview use **recruitment agencies to decrease time searching
-pay agency to interview candidates** and recommend potential employee/s suitable for position
-outsourcing popular with small businesses as skill shortage worsens and owners adv using expert to ensure hiring best
employee skills databases when recruiting
once employed, need to achieve right mix and lvl of employees skills
-use skills audit and skills inventory for best results
skills audit when recruiting
process establishes current skill lvls of employees and future skills requirements
-identify skill gaps of staff, assess current skillbase,
aim to identify
-skills give competitive adv
-weaknesses in skills base unless overcome by training/recruit,ent, threaten survival
skills inventory for recruitment
database tracks skills, abilities and qualifications of existing staff
-regularly update as new ppl join and existing leave
-to search appropriate candidates to fill positions
managers using teams for superior performance
due to flatter organisational structures
-feel safe, promote dependability, provide structure, communicate
-make informed, creative decisions
-greater lvls employee cooperation
-improved customer service/production output
-need have positive culture and strong leadership and not become complacent
why do SMEs struggle with teams
time/expertise to develop high functioning teams
-professional help from training/coaoching
-invest time and money to develop and train team, rewarded with improved productivity
trend analysis adv & disadv, other stuff to do on top
investigate** changes over time, finding pattern** to accurately forecast
-assist SME owners forecast
-potential sales, total rev, total operating costs, gross & net profits,
advantage
past performance often good indicator of future performance
disadvantage
** factors** in the internal/external business environment may cause changes in the level of sales,
eg. industry is in decline/bus loses/gains experienced employees.
Other factors should consider,
-general eco conditions
-changes to the following:
* level of competition
* in store/pricing policies
* employee motivation
* legislation
* the demographics of the local area
* marketing strategies.
identifying and sustaining competitive advantage 3 strats
strats used by bus to ensure edge over competitors
-
price/cost strategy
lowest production costs to reduce product price -
differentiation strategy
offer customers something not already offered by business rivals. - sustains its competitive edge long term by limiting the **advances of competitors (quality, innovate, customer service**)
price/cost competitive advantage strategy 2 ways
how to reduce costs
reducing price
-lower than competitors
-reduce potential profit
more effective to reduce costs
-reduce product price while maintaining healthy profit margin
-ensure quality not compromised against competitors
-improve efficiency of operations (streamline)
-technology (automation, service: computerisation of client info, advanced communication mediums eg email)
-buying inputs in bulk
-outsourcing
-achieve economies of scale
how can economies of scale be achieved
reduce cost of inputs (more machinery, buy bulk, increase specialisation of labour) to increase lvl outputs
SMEs diferentiation competitive advantage strategy
SMEs diff to compete on cost due to large budgets of bigger companies and ecos of scale achieved
-differentiation value, quality, brand image, service, flexibility
-must sustain competitive advantage while competitors attempt to match strat
ensuring long term success for competitive advantage
-resist actions of competitors that introduce new strats while tracking changes within industry esp tech, maintain competitive for long time
-manager/owner must be constantly aware of issues may affect operation, market share, profit
-manager must predict trends and act on predictions
how can SMEs limit advances of competitors and reduce opps available to competitors (long term success for competitive adv)
-
R&D
helps develop innovative products - copyrights protect against copied inventions
- exclusive contracts with suppliers gives supplier preference to bus
- lobbying gvt to limit foreign comp to restrict imported products
more debt than can repay (1/3)
avoiding overextension of finance
-start small and graduall expand, most careful in establishment/takeover stage –> excess expenditure financed primarily by external sources (banks)
-fixed expenditures (bus has lease contract valid for certain period/1-2yrs
-creates higher deg of risk, if eco conditions weaken higher debt-to-equity ratio under greater financial pressure, more susceptible to bankruptcy
or if owner purchases business premises (lease instead) bc of overborrowing
-cannot meet capital & interest payments, working capital(current assets - current liabilities) affected
how do businesses overextend financially
- using hire purchase/leasing commitments on equip, machinery
- purchasing excess stock
- employing too many staff then current needs
tips for businesses ANY SIZE AND TYPE to avoid overextending financially 4
- BUSINESS PLANNING
-complete cash flow projections, preliminary establishment costs, personal financial budgets, set bus goals/objectives -
AVOID OVERDEPENDENCE ON DEBT FINANCING
-avoid problems during weak eco periods where lenders/creditors unwilling wait for bus to overcome difficulties -
LONG TERM FINANCIAL PLANNING
-concerns current and future financial aspects of business
+planning bus direction (growth, expansion)
-determine if can obtain funding to maintain/expand bus
-determine what resources to operate bus -
START SMALL
-start slow and allow market to determine right times for growth & expansion
expansion as cause of bus failure
OVEREXPANSION
owners confuse success with how fast they can expand bus
-foxus slow steady growth best
-many bankruptcies
-expansion requires large funds, (overextension of financing)
-put emphasis on earning profit, controlling debt, managing cash flow
-diff for owners to judge right amt growth needed but if too quick insolvency/bankruptcy
-grow too quickly to try catch up to competitors, needs time between growth to assess position
-limits to how fast bus can grow, compress effort and growth short period not as effective as spreading over longer
-growth & expansion need careful planning, decisions made through extensive planning
stock and staff
overextension of other resources NEED TO BE MONITORED BY MANAGEMENT
STOCK
stock is unrealised sales, too much ties up own cash but loses revenue potentially
-invested too much money in raw materials
-bus anticipates customer demand incorrectly w/o establishing if saleable among customers
-avoid stockpiling, keep limited supplies and order regularly
STAFF
-overoptimism of sales lvls/poor job allocations & hiring
reduce dependence by outsourcing, and using more equip/machinery
using tech for success/failure
-reduced communication time
-improved distance communication betw staff, suppliers, customers
-higher productivity, greater flexibility –> reduce costs
-need prepare use some form of tech for success
tech available to all businesses
-
CUSTOMER TRANSACTIONS
-mobile payments
-digital currencies Paypal -
COMMUNICATION EQUIP
-mobile phones, email, video conferencing - SOCIAL MEDIA
- MACHINERY and EQUIPMENT**
-machines 3D printing - LOGISTICS
drones, automation
internet applications (e-business and e-commerce) for bus success/failure
competitive, must adopt appropriate tech, competitors strive to capture greater market share and develop sustainable competitive advantage
-need to actively develop online presence
-quick access to search info 24/7 for support, legal requirements, work health and safety
e-buasiness vs e-commerce
using internet to conduct business
customer service, risk management, internal & ext interactions eg. employees & stakeholders,
e-commerce part of e-business, buy & sell g&S via internet (only transactions)
E-BUSINESS COMPETITIVE advantages to SME owner
-reach large no. customers (domestic and global)
-more opp with online presence
-customer satisfaction online access 24/7
-easy access for customers, suppliers, employees
-save time and money through internet banking
-additional marking tool
disadvantages of electronic info services through internet and e-business/e-commerce
expense of hardware, software, service provider charges
-virus corruption
-unwanted spam
economic conditions that promote business success
STRONG GROWTH:
1. HIGH LVLS CONSUMER SPENDING
-bus greater capacity to sell g&s bc consumer has higher lvl disposable income
-output increase to meet trends, opp for future ^ sales and profit
- FALLING UNEMPLOYMENT
-bus can afford to hire more employees when sales & profits steady & growing
-meet increased demand, bus increase size of workforce -
INCREASED PRODUCTION
-bus output increase to meet buoyant trends provide opp for future increased sales & profit
eco conditions that lead to bus failure
WEAK ECO ACTIVITY
1. LOWER LVLS CONSUMER SPENDING
-bus reduced capacity to sell g&s –> profits decline
-bus sell necessities and (cheap stuff) will benefit
-consumers become cost conscious, seek g&s consider value for money
-
RISING UNEMPLOYMENT
-bus cannot support current employee nos when sales & profits decreasing
-cutting back production lvls reduce inventories of g&s potentially unsaleable
-existing employees may be made REDUNDANT -
DECREASED PRODUCTION
-bus output decrease as consumer spending falls
-profits decrease
adv & disadv of dynamic nature of tech for aus bus’
adv
-functions easier, quicker
-less labour-intensive
-computerise processes –> higher productivity, flexibility –> reduce costs –> increase profits
-open 24/7
disadv
-increase working hrs of employees –> QOL
-job redundancies, bus downsizing –> structural unemployment, retrain skills, job security
