Exam Prep Flashcards
Business Concept
Description of idea Description of products and services Intended market Potential competitive advantages High-level revenue versus cost
Business Life Cycle
Intro
Growth
Maturity
Decline
Market feasibility
Opportunity sufficient to achieve goals or objectives
TAM
Total available market
SAM
serviceable available market
SOM
Share of market
Technical feasibility
Logistics
- time and capacity constraints
- location constraints
- technology constraints
Financial Feasibility
Ensure projected revenue surpasses costs
- startup and overhead cost
- sources of funds
- anticipated revenue
Business Plan Structure
1-executive summary 2-customer and market analysis 3-product and service description 4-business model and competitive advantage 5-competitor analysis 6-implementation plan 7-risk 8-financial highlights and assumptions 9-overview of team 10-detailed financial projections as needed 11-under resume as needed in appendix
Business Plan purpose
- plugging the gaps/contingency plans
- establishing the framework
- long-term perspective
- motivating/selling
- inviting feedback
- big picture
Vision Statement
Describes what and where an organization wants to be / optimal future state
Mission Statement
Fundamental purpose, including:
- key market (target customer)
- contribution (what products or services)
- distinction (competitive advantage)
What is Strategy in regards to a business plan?
The plan to achieve the vision and mission statement
Effective strategies …
- provide direction
- is company wide
- considers strategic fit
PESTI
Political, economic, social and cultural, technological, international
SWOT analysis
Strengths, weaknesses, opportunities, threats
Porters Five Forces Model
Some boys can't tie shoelaces 1- substitutes 2 - bargaining power of customers 3 - competitive rivalry 4 - threat of new entrants 5 - bargaining power of suppliers
Porter’s chain model - primary activities
- Inbound/outbound logistics
- marketing
- operations
- CRM (customer relationship management)
Porter’s chain model - support activities
- Finances/procurement
- management
- human resources
- technology
Strategy Statement
1- identify competitive advantage
2 - consider long-term goals and overall vision
3 - boundaries, barriers of service and service model
4- Tie strategy to long-term goals
5 - dynamic dimensions within industry and company (market landscape)
Types of Strategy
- differentiation
- cost leadership
- growth
- merger and acquisition
- product elimination
- innovation
- integration
- diversification
- defensive (lost mitigation, cost reduction etc)
- hybrid
Change Management Steps
Create a climate for change - increase urgency, build the guiding team, get the right vision
Engage and enable the whole organization - communicate for buy-in, empower action, create short-term wins
Implement and sustain change - don’t let up, make it stick
Market cycle quadrants
Phase one - recover (declining vacancy, no new construction)
Phase 2 - expansion (declining vacancy, new construction)
Phase 3 - hypersupply (increasing vacancy and new construction)
Phase 4 - recession (increasing vacancy, more completions)
Organization Types
- Proprietorship
- Partnerships
- Corporations
2 types of partnerships
- general/equal (equal ownership / liability)
- limited (unequal with active and passive partner)
Short term financing options
- trade credit (allows additional time to pay)
- line of credit/operating loan
- commercial paper (unsecured by collateral, higher interest, sold to investors at discounted rate)
- factoring (selling block of accounts receivables at discounted rate)
- crowdfunding
What is commercial paper?
A loan unsecured by collateral with higher interest rates that are sold to investors at discounted rates
What is factoring?
Selling blocks of accounts receivables at discounted rates
What are the three types of crowd funding?
1- equity (backer becomes investor)
2- debt (backer becomes lender)
3- donations (backer becomes donor)
Long term financing options
- business loan
- leasing (long-term rental)
- equity financing (borrowing against equity)
- personal savings
- venture capital
- going public/stocks
- retained earnings / profits
What is ERM
Enterprise risk management
Difference between risk and issue?
Risk - future
Issue - present
Types of risks (7)
- personal (health, finances, relationship)
- business (instability, management, financial etc)
- competition
- operational (internal processes, systems, staffing etc)
- hazard (legal liability)
- strategic
- reputational
Asymmetrical risks
Low probability with a high impact - black swan events
How do you calculate risk rating?
The probability X the severity
Probability ranking
1-very unlikely to 5-almost certain
Risk Severity ranking system (including financial, reputation, operational and stakeholder impacts)
1-minimal (less than 1% of budget, no impact on reputation, negligible impact on operation, some of one group of stakeholders impacted)
2-minor (1 to 5% of budget, 1 to 2 weeks impact to reputation, no admin difficulty, one group of stakeholders impacted)
3-significant (5 to 10% of budget, short-term 1 to 6 months impact to reputation, short-term delays, more than one group of stakeholders impacted)
4-major (10 to 15% of budget, medium 6 to 12 months reputation impact, medium-term delays and several stakeholders impacted)
5-massive (greater than 15% budget, long-term one year plus impact to reputation, long-term delays or failure to achieve, most stakeholders impacted)
Existing risk control ratings
1) excessive- meats requirements, possibly using too many resources
2) robust - meets requirements, prevention strategies with redundancies
3) adequate - meets requirements, some preventative measures
4) week-insufficient controls, limited preventative measures
5) non-existent
Risk tolerance levels
Monitor-risk is tolerable, existing controls are adequate or better
Treat - risk is tolerable but existing controls are insufficient
Avoid - cannot live with risk, must avoid
GAAP
Generally accepted accounting principles
Types of accounting reports
1) audited statement- high level of assurance and disclosure, high complexity
2) review engagement - moderate level of assurance and disclosure, moderate to high complexity
3) notice to reader or compilation engagement- low complexity and no gaap compliance required
Revenue recognition principle
Revenue should be recognized when earned
Cost principal
Cost not market value are recorded for assets not including HST or GST
Matching principle
Expenses associated with revenue are recognized in the same period
Material principle
Don’t sweat the small stuff, recognizing small expenses as made
Objectivity principle
Accounting info verified with objective and verifiable data
Consistency principle
Recording transactions in generally consistent manner
Asset classes
Tangible/intangible
Current/non-current
Financial/non-financial
Accounting equation
Assets-liabilities=owner’s equity/capital
Income statement
Revenue -expenses=profit/loss
What are the 2 methods.of depreciation?
Straight line method and declining balance method
What is the formula for the straight line method of depreciation?
Depreciation=(asset cost-residual value)/recovery period of asset
Depreciation is the same every year
Is the formula for the declining balance method of depreciation?
Depreciation=cost remaining X depreciation rate
What are the two types of cash flow statements?
Direct method - recording transactions as they happen
Indirect method - based on change in income
Profit Margin formula
Net income over sales
Return on investment formula
Net income over average total assets
Return on equity formula
Net income over average owners equity
Quality of earnings formula
Cash flows from operating activities over net income
How do you calculate the long-term debt ratio
Total non-current liabilities over total non-current liabilities plus owner’s equity
What is the debt ratio
Total liabilities over total liabilities plus owner’s equity
What is the debt/equity ratio
Total liabilities over owner’s equity
What is the times interest earned equation
Net income before interest and income taxes over interest expense
What is the cash coverage equation
Cash flow from operating activities over interest expense
What is the current ratio calculation
Current assets over current liabilities
What is the quick ratio
Calculate short-term liquidity
Current net assets over current liabilities
What is the cash ratio
Cash and cash equivalents over current liabilities
Steps in budgeting
1-define objectives
2-business planning
3-refine the budget
4-presentation to management and stakeholders
5-approval of the budget
6-ongoing monitoring of actual results to budget
What are tax loopholes?
Tax avoidance
What are zero rated goods & services?
Taxes reduced to zero, includes basic groceries, prescription drugs and dispensing fees
What is GST/HST exempt?
- previously occupied residential building
- long-term residential rents (greater than 1 month), low cost (less than $20 per day), and short-term (less than 1 month)
- residential condo fees
- services by financial institutions
- insurance
- licensing fees
- zoning/assessment info
- No tax credits for exempt items
What is active income?
Active income or business income involves time labor and attention
What is passive income?
Property income or passive income involves little time or attention
What is a Capital expenditure?
Non recurring expense with benefits that last longer than the current year
Characteristics of current/operating expenses
Used quickly, repairs or restores a property to previous condition, repair or replace a portion, small expense, genuine repair crisis that may result in impairment (I.e. flood)
Characteristics of capital expenditure
Long lasting, upgrades to property, replacing an entire asset, larger expense
What is capital cost allowance
The CRA method of depreciation for capital assets
To qualify for CCA, asset must:
As it must be depreciable, asset must be acquired for purpose of earning income
What is the first year rule for CCA?
Depreciation will be 50% of the regular rate regardless of date of purchase in the first year
What is the final year rule for CCA?
CCA cannot be claimed in the year the asset is disposed of
What is CCA recapture?
If the sale or disposition of the asset exceeds the cost and depreciation so far the difference is claimed as income
What is capital gains
An amount by which proceeds of resale of an asset surpassed the adjusted cost profit - 50% taxable as income
What are capital losses?
The shortfall amount between the resale amount and adjusted cost as a loss the difference between the remaining depreciated value and the resale amount is a terminal loss which is 100% deductible but can only be deducted from capital gains
What are employer obligations from tax/deductions perspective?
- must deduct cpp, EI premiums, income tax from pay and submit
- failing to do so results in employer paying both the employee and employer portions
What factors indicate whether someone is an employee or a contractor?
- control over worker
- ownership of tools/equipment
- subcontracting work or hiring assistants
- degree of financial risk by the worker
- responsibility for investment/management
- workers opportunity for profit and/or loss
What home office deductions are available for an employee
Rent, utilities, repairs
What deductions are available for a home office commissioned sales employee?
Rent, utilities, repairs, insurance, property taxes
What deductions are available for a home office contractor?
Rent, utilities, repairs, insurance, property taxes, interest, CCA
When do taxes need to be filed for a self-employed individual?
By June 15th
When do taxes need to be filed for a corporation?
Within 6 months of fiscal year end
What is the penalty for late filed tax returns?
5% of unpaid taxes plus 1% for each month outstanding to a maximum of 12 months
What is common law?
Legal principles flowing from judge decisions
What is stare decesis?
Judges are to let the former decision stand
What is statute law?
Laws passed by government, government powers per Constitution
What is public law?
The relationship between individuals and the state or public as a whole
What is civil law?
The relationship between individuals, no direct concern of the state
What are the seven elements of a contract?
1-offer 2-acceptance 3-consideration 4-intention to enter a binding contract 5-legal/mental capacity of parties 6-Lawful objective/subject matter 7 - genuine consent
Under what circumstances is a contract terminated or expired?
- time limit was specified and passed
- condition was not meant
- no time limit specified but reasonable time has passed
- offer revokes before acceptance
- either party becomes insane or dies before acceptance
- Offree makes a counter offer
- Offery rejects the offer
What are contracts made under seal?
These contracts are binding without consideration and either have a red legal seal or the word seal.
Who does not have the capacity to contract?
An infant, no capacity to contract until legal age of majority.
Impaired mental capacity, party was impaired and because of impairment party was not capable of rational understanding of implications and the other party knew or should have known.
What is a void contract?
A contract that never existed at law and never had legal effect for example fraud
What is a voidable contract?
A legal contract exists, but can be voided by a party (for example an infant can void a contract but the other party would have been bound if the contract wasn’t voided)
What is an unenforceable contract?
A contract exists but performance of the party’s obligations is not enforceable (for example a contract to appraise a dwelling that has since burned down)
What is a mistake?
One or both parties may have been mistaken about an element of the contract which can cause a contract to be void or voidable.
In order to be legally significant a mistake must relate to one of the following:
- terms of the contract
- subject matter of the contract
- identity of a party to the contract
- nature of a signed contract
If a contract mistake is proven or agreed upon what are the three options?
1- void contract
2 - declare contract voidable
3 - rectify/correct the contract
What is misrepresentation?
A false statement of fact usually made during negotiations which can result in a void or voidable contract.
What requirements must be met in order to void or deem a contract voidable due to misrepresentation?
- a misrepresentation occurred and
- the false statement induced the other party to enter into the contract and
- the false statement is one that would have induced a reasonable person to enter into the contract
What is a breach of contract?
Failing to meet conditions which are essential terms and the purpose of the contract as well as warranties which are terms of a lesser importance
What are the remedies to breach of contract?
1-damages (goal is to make whole)
2-specific performance (forcing an action)
3-injunctions (forbidding an action)
What is tort liability?
A tort is a private civil wrong other than a breach of contract, resulting from a violation of legal rights of one person by another
What are the three types of misrepresentation?
- innocent misrepresentation (injured party to be made whole, no additional damages)
- fraudulent (a tort of deceit where the injured party is to made whole plus receive additional damages)
- negligent misrepresentation (operates even if there is no contractual relationship between the parties-i.e. advice)
What conditions must be met to be liable for negligent misrepresentation?
- must be a duty of care (skilled person/expert gives advice that is reasonably going to be relied upon)
- representation and question must be untrue, inaccurate or misleading
- the representer must have acted negligently in making the representation
- the representee must have relied on the misrepresentation in a reasonable manner
- the reliance must have been detrimental (damages)
How can you avoid negligible misrepresentation claims?
You can avoid by refusing to give advice or clearly qualifying that no responsibility is accepted for accuracy or reliability
What is csr- corporate social responsibility?
The voluntary activities undertaken by a company in an economic, social and environmentally sustainable manner
What is the marketing concept?
Identify/understand the customer then build viable business around that customer
What are the five ways to segment the market?
- demographic
- geographic
- psychographic
- benefit
- usage
What are the shopping behavior model goods?
Specialty goods
Shopping goods
Convenience good
Unsought goods
What are the steps in the process model of buying behavior?
Felt need, pre-purchase activity, purchase activity, post purchase activity
What are the three types of competitive advantages?
Price, differential, niche
What is the marketing mix (4Ps)?
1- product
2 - place
3 - price
4 - promotion
What is product positioning?
The position a product or service holds within the clients and customers minds
What are the types of marketing activities?
1-advertising
2 - personal selling, face-to-face
3 - public relations, relationships with the public that are not advertising or personal sales
4 - publicity, communications not from within the firm
5 - sales promotion, non-personal selling, not included (swag, YouTube etc)
What are the sources of power?
Legitimate, reward, coercive, expert, referent
What are the types of power
Sense of obligation, perceived dependence, belief in managers expertise, identification with the manager
What is a contingency theory?
Found it on the proposition that most effective leadership behavior is contingent on the characteristics of the situation the leader is in
What is Fiedler’s contingency theory?
Based on leadership orientation versus situational favorableness. Task oriented versus relationship oriented and leader member relations, task structure, position power.
What is path goal theory?
In order to be successful a leader must select the appropriate style between directive leadership, supportive leadership, participative leadership, achievement-oriented goal setting leadership.
What is filtering?
Messages can be delayed distorted or blocked when moving up or down the chain of command.
What is perceptual defense?
The tendency to protect self from the info they perceive as threatening - here only what they want to
What is stereotyping?
Inferring attributes based on a category
What is projection?
Attributing your own thoughts and or motives etc to others
What is expectancy?
Basing perception on past experience
What is paralanguage?
Intonation, speech rate, volume etc
What are proxemics?
Nonverbal communication tied to interpersonal distances and/or seating plans
What is a job analysis?
The process of determining the nature of the job by collecting and organizing info
What are the two important pieces of documentation provided by the job analysis?
The job specification- qualification and experience required, duties and responsibilities as well as position within hierarchy
A job description - provides a clear picture of duties / responsibilities as well as the context in which they are carried out
What are the methods of job analysis?
Observation, interview, combination, questionnaire
What is the Halo and Horn effect?
Overall perception of an employee being applied to other areas
What is the recency bias?
Focus on recent results instead of overall performance
What are the performance appraisal methods?
1 - job results indices (production/accomplishments)
2 - essay method (unstructured, tends to be open to bias)
3 - critical incident method (snapshots of especially good or bad, highlights minimal feedback)
4-ranking (comparing employees to each other)
5- graphic rating (using 5 to 7 points scale for individual traits)
What is Maslow’s hierarchy of needs theory?
1 - physiological needs 2 - safety needs 3 - belongingness 4 - esteem 5 - self-actualization
What is the ERG theory?
1 - existence needs
2 - relatedness needs
3-growth needs
What is vroom’s expectancy theory?
Expectancy - beliefs regarding probability of performance
Outcomes - consequence / result of performance
Instrumentality - probability that performance will lead to given results
Valance - numerical representation of personal satisfaction of person expects
What is goal setting theory?
- goal clarity (SMART)
- goal challenge (not too easy and failing to stimulate, not too hard)
- Goal acceptance (buy-in)
- Feedback
What are the methods of job evaluation?
1 - simple ranking
2-classification
3 - point method (most used, evaluates on factors/metrics)
4- market pricing
What elements should be included in a succession plan?
- process and schedule for owner departure
- current and projected challenges
- skills and experiences or core competencies new owner will need
- process of developing leaders/owner
- and honest and ongoing review of the business
- the selection process, including who makes decisions
- transition plan between owners/leaders
What are common exit strategies?
- transfer interest to family Trust
- pass Enterprise on to family
- transfer ownership to parties/key employees by way of management buyout
- selling
- clothes / wind up
What is a shotgun clause?
Can be written in to partnerships or shareholder agreement, forces sale from one partner/shareholder to another by person one making offer to sell. if offer is rejected, the other person buys out at that price.
What is a leveraged buyout?
Substantially financed with multiple lenders
What is vendor financing
Vendor take back loan, typically higher interest
What is an earn out?
Paid for an installments, conditional and future earnings
What is a share exchange?
Shares are issued instead of cash
What is an estate freeze?
Locking in value at a specific date thereby locking in the tax liability upon the owner’s death
