Exam 1 Flashcards
What is a business plan?
A written document that describes in detail how a business defines its objectives and how to achieve the goals. Lays out a written roadmap for the operations from each of a marketing, financial, and operational standpoint.
Key questions to be answered before developing a business plan
The purpose of writing the BP
To obtain loans or investments or financial support?
To make the right decisions?
Who are the audiences and potential audiences?
How to develop a BP
Sense or identify a potential of service/ product business opportunity. Switch your role as customers, talk and keep thinking,
Conduct literature review or internet searches and organize information,
Complete BP.
The structure of a BP document
Cover sheet Table of contents Executive summary and loan request Company summary Description of the proposed business/program Marketing plan Competition analysis and strategy Implementation plan Financial Plan Appendices
Cover sheet
Serves as title page
Has the name of company, logo, and address
Author names
Prepare date
Executive summary and loan requests
Name of applicants for the business Brief description of business Objective statements- reflect personal and professional philosophy Summary of marketing plan Outcomes Summary of finance request Collateral
No more than 2 pages, uses bullets and brief description.
Table of contents
Complete outline and page numbers
Company summary
Brief description of the company
list vision, mission statements for the business, along with goals and objectives (measurable attainments)
Legal structure
Brief description about existing products or services.
Description of the proposed products/services
Describe the business opportunities
Describe the proposed products/services
Congruent with the company mission and business strength
Marketing operation/plan
Business opportunities- needs and wants
Marketing/operation plan (Target market and the 4 Ps principles)
4 Ps
Product
Price
Promotion
Place
SWOT analysis
Strength, weakness, opportunity, threat
Competition analysis and strategy
Implementation plan
Milestones and timetable
What results and when to be achieved.
Sales forecast, management structure.
Financial data and documents
Projection of short and long term sales volume, projected expenses, etc.
Project financial statements- income, balance sheet, cash flow statement
Break even analysis
Appendices
Limit to 15 pages, CV (limit to 1 page per member)
Any supporting document.
Steps in developing BP
Sense the needs and opportunities Define the proposed business or programs Conduct market research and analysis (literature review) Reimbursement from insurance companies Conduct competitor analysis Assess clinical and quality requirements Define process and operations Develop market strategies Develop financial projects Identify the action plan Assess critical risks and opportunities Establish an exit plan
Issues with past BP
Innapropriate objectives (clinical objectives), no SMART principle Inappropriate assumptions or market data. Inconsistent contents. Lack of teamwork.
What is modern management?
Management is “a process which brings together resources and unites them in such a way that, collectively, they achieve goals or objectives in the most efficient manner possible.
Uses planning, organizing, leading, and control to accomplish organizational goals.
Good company objective statements
Accord with the company vision and mission statements
Need to be feasible and challenging
Support and agree among the objectives by different departments.
Balance between short and long term objectives
Staff involvement and buy in
The management process- planning
Determine an organizations objectives and establish appropriate strategies to achieve them.
Vision statement
Inspires people to excellence- to strive toward higher expectation for themselves and the organization/department.
Vision is very broad and short.
What is a mission statement?
A sentence or short paragraph written by a company or business which reflects its core purpose, identity, values and principle business aims.
3 parts: the what, the how, and the why
What is MBO?
A systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available researches. To ensure that everyone within the organization has clear understanding of the objectives.
Continual process where superiors define major areas of responsibility and results expected of them.
Functions of MBO
Focus on results
Participative management
Achieve the balance between management and employee empowerment
Criteria for good objective statements
Specific Measurable Achievable Realistic/Relevant Timed
How to write objectives
To verb noun by date at cost by action
What is marketing?
A discipline which focuses on understanding consumer needs and then developing strategies for sales, promotion, and pricing
Functions of marketing
Attract customers Fulfill orders Retain customers and build loyalty Identify new opportunities Develop new products
Why study marketing?
Marketing is a way of problem solving in the real world and of influencing others.
Applying marketing can make you a more effective pharmacist and help you get the job you want.
Marketing focuses on
Needs, wants, demands
People
Value
Exchange
Transactional marketing
View the exchanges as isolated, individual transactions, never expect to do business again.
Goal- to maximize the benefit from each transaction.
Relationship marketing
View the exchange as a series of transactions over time.
Goal- satisfaction can lead to future business, long term benefits.
Why is relationship marketing useful for pharmacists?
BC it parallels pt care.
Marketing myopia
Focuses on selling the tangible product while failing to consider the needs of the customers
Uncontrollable variables for the marketing environment
Competitive environment, technology environment, sociocultural environment, economic environment, political environment
What are the control variables in marketing?
The 4 Ps
Product, place, price, promotion
Does the political environment affect marketing?
Yes
Durham-HUmpphrey amendment
Equal pay act
Medicare
Examples of technologies affecting marketing
Automatic pill counting systems, internet, e-prescriptions, gene therapy, artificial intelligence, etc.
What are the types of marketing competitors?
Intratype and intertype
Intratype competitors
Same or simular product
-Mcdonalds and Burger Kind
Compete by offering similar tangible and augmented products
Intertype competitors
Distinctly different products that meet similar customer needs and wants
Cinema and restaurant
SWOT analysis internal factors
Strengths- what do we do well?
Weaknesses- where would we like to improve?
SWOT analysis external factors
Opportunities- what is occurring in our “external” environment that may lead to opportunity?
Threats- what is occurring in our external environment that we should prepare for?
SWOT analysis of a drug store chain example
Strength- market leader, innovation, brand recognition
Weaknesses- store layout, higher prices
Opportunities- demographic change, MTM
Threats- increasing intertype competition, majority of sales from prescriptions
Product life cycle
Introductory stage
Growth stage
Maturity stage
Decline stage
Introductory stage
Primary task is to start the diffusion process by gaining adoption among innovators and early adopters.
Heavy marketing effort could shorten this stage.
Growth stage
Repeat purchase from old customers begins.
New competitors enter the market and lead to lower price.
Firms begin to offer new options or quality levels to reach new segments.
Industry profitability grows.
Maturity stage
Repeat sales become much more extensive than 1st time sales.
Customers are knowledgeable about alternatives and brand preferences are well established.
Few major technical advances withh be forthcoming, few competitive advantages on that front.
Decline stage
Sales and profits fall off rapidly and competitors become m ore cost-conscious.
Brand with strong acceptance by some customer segments may continue to produce profits.
Consumer adoption process
The mental steps through which an individual passes from first hearing about an innovation to final adoption.
Awareness, interest, evaluation, trial, adoption
Product diffusion
Innovators are technology enthusiasts and they enjoy having new products before others. In return for low prices, they conduct alpha and beta testing and report on weaknesses.
Early adopters are opinion leaders.
Early majority- deliberate pragmatists who adopt tech when benefits are proven.
Late majority- skeptical conservatives are are risk averse
Laggards- tradition-bound, resist innovation.
Portfolio analysis: growth-share matrix
Star- high profits, invest to turn into cash cow
Cash cow- produces good cash flow, use to support problem child or star
Problem child- low profits but potential star or cash cow; invest or dc
Dog- poor profits, most likely candidates for consolidation
Market growth strategies
Market penetration- least risk
Market development- current products in new markets
Product development- new products in current market
Diversification- new market, new product
Market consolidation strategies
Harvesting- gradually decreasing share of resources to support product.
Retrenchment- offer same product line but retreats to core markets.
Pruning- continue serving same market but not all segments within market.
Divestment- sell off business or product line.
Market share
Measures the markets portion of total units or dollar sales of a given product, relative to competitors
Outsourcing
Hiring other companies to perform certain functions that the selected firms can handle better
Organizational culture
Pattern of shared values and benefits that influences employee attitudes and behavior.
Target market
Fairly homogenous and well-defined set of present and potential customers that an organization attempts to satisfy.
Market segmentation
The process of identifying smaller markets (groups of ppl or orgs) that have one or more similar characteristics or similar needs or interests within the larger market.
Mass market strategy
Focus the market as all potential buyers of brands in a product category and offers them one market mix. To maximize sales.
Concentration strategy
Focus on developing one marketing mix for one segment of a larger market. Efficiency
Multisegment strategy
Focus on developing two or more marketing mix for two or more market segments. Maximize sales and efficiency.
Segmenting variables of a consumer market
Geographic, demographic, product-related, psychographic, behabioristical
Demographic variables
age, gender, marital status, etc.
Where the business is located, number of branches
Segmenting by product related variables
On the basis of benefits sought, amount of usage, type of usage, brand loyalty
Segmenting by behavioristical variables
Help you understand why someone purchases one thing over another.
Marketing niche
Area of unfulfilled need in a market.
Product
A product is a bundle of perceived tanglible and intangible attributes that has the potential to satisfy present and potential customer wants in exchange for money.
Tangible product classification
Convenience, shopping, specialty, unsought
Convenience products
Frequent purchase, little planning, little comparison or shopping efforts.
Staple, impulse, emergency
Shopping products
Less frequent purchases, much planning, shopping effort, and comparison of brands
Homogeneous= focuses on price comparisons
Heterogeneous= focuses on quality comparisons
Specialty products
Strong brand preference and loyalty, special purchase effort, less price sensitivity
Unsought products
Little product awareness and knowledge, even negative interest.
Regularly- existing products
Or totally new products
Total product concept
Core product
Extended product
Augmented product
Core product
Benefit resulting from the bundle of tangible goods, info, services
Meets the underlying need and product satisfies. (cosmetics, sports car)
Extended product
Customer expects to receive from a marketer. Situation specific.
Pts expectations of pharmacy services- counseling, slow wait times, friendly
Augmented product
Beyond what the customer expected. Value
Free home delivery, drive-thru, etc.
Intangibility
Potential problem- difficult to evaluate in advance.
Marketing strategy- brand and benefit linkage
Inseparability
Potential problem- consumer physical presence required
Market strategy- use electronic channel
Heterogeneity
Potential problem- consistent quality
Market strategy- establish SOP
Perishability
Potential problem- inadequate availability
market strategy-delivery.
Standard operating procedure (SOP)
set of step by step instructions compiled by an organization to help workers carry out complex routine operations
Service script
Establishes expected actions and responsibilities
Standardizes procedures
Based on best methods available
5 levels of brand familiarity
Rejection, nonrecognition, recognition, preference, insistence
Advertising AIDA model
Attract attention
Induce interest
Develop the desire to buy
Action of purchase
Push marketing strategy
Sales building strategy in which the producer actively promotes its product
Pull marketing strategy
Sales building strategy which the producer focuses on the final buyer
Why are marketing channels necessary?
A product can not reach its target market if its distribution is not planned and carried out carefully.
What information should you provide for financial decision making?
Past profit performance- P&L
Present financial status
In and out cash
Changes of the business over time
Asset
Things that are owned that can be used to generate income
Assets= liabilities + owners equity
Liabilities
Money owed to others
Owners equity
The owners own funds
Income statement (Profit and loss statement)
Reports the net income of a business for a specific period.
Net income= revenues-expenses
Balance sheet
Will report what a business owns (assets), what it owes (liabilities), how much is left over (equity)
Assests= liabilities + owners equity
Inventory vs cost of goods sold
Inventory- consists of all goods that the pharmacy holds for resale. An asset. Value of the ending inventory.
Cost of goods sold- refers to the cost of the merchandise that the pharmacy sold during the year. An expense.
COGS
cost of good sold COGS= BI + P - EI BI: beginning inventory value P: purchase value EI: End inventory value
Inventory valuation methods
Due to the units cost changes over the accounting period.
Difficult in matching inventory costs to physical flow of goods.
Gross margin method, last in first out, first in first out, weighted average cost method
First in first out (FIFO)
The first units bought are the first ones sold
Last in first out (LIFO)
The last units bought are the first ones sold
Weighted average cost (WAC) method
Use the overall average unit cost
Gross margin method
Use to generate financial statements, without doing physical inventory inspection.
COGS%= 1-GM% (gross margin)
$COGS= Sales x COGS%
$COGS= $BI+$P-$EI
Depreciation
The process of systematically and rationally determining how much a non-current assets initial cost is recognized as an expense in each year of its life.
Three depreciation methods
3 depreciation methods
Straight line method
Accelerated method
Double declining balance
Straight line depreciation method
Constant rate D= (C-R)/N C= acquisition cost R= residual value N= useful life
Accelerated depreciation methods
Assume assets lose more value early in life. Charge more depreciation early.
Methods- sum of years digits method, double declining balance method
Double declining balance
Annual depreciation based on book value
Book value = cost - accumulated depreciation
D= book value x 2/N
The final years depreciation is NOT based off of this method
Financial analysis methods
Ratio analysis
Comparative analysis
Ratio analysis
Complete a financial ratio analysis. Compare those ratios to the same enterprise during recent years.
Comparative analysis
Express each financial statement component as percent of sales (common-sized)
compare with the benchmark data
Major ratio analysis
Profitability- the bottom line
Efficiency
Solvency
Tests of profitability
Measurement of the overall financial success of a firm. Gross margin percent Net profit percent Return on equity Return on assets
Gross margin percent
Profitability before expenses considered (likely ratio 25-30%)
Net profit percent
Profitability after expenses are considered
Likely ration 2-4%
Return on equity/ return on investment
The effectiveness of funds managed, only equity considered
Likely ration 20%
Return on assets
Consider both debt and equity (likely ratio 15-20%)
How to increase GM%?
increase sales or reduce COGS
Implications of higher vs lower GM%
Higher GM%= charge higher numbers, better management for purchasing and inventory
Lower GM%- charge lower prices, ineffective purchasing or inventory management, shoplifting
Implications of return of equity (ROE)
TO improve ROW- increase net income by increasing revenue or reducing expenses. Decrease owner equity, decrease assets (most practical)
Tests of efficiency
Measure how efficiently assets are used
Ratios: accounts receivable collection period- 19-23 days
Inventory turnover- 5-12
Asset turnover- 5-12
Tests of liquidity
Ability to pay its current debt
Important to creditors
Three ratios-
current ratio, quick ratio, account payable period
