Income statement

• • summarizes the financial activity of the organization over a specific period of time

  • allows the manager to monitor performance and compare against goals and objectives

• Cash Flow Statement

• • shows the difference between revenues and expenses for the monthly period

  • allows the manager to know if it is necessary to borrow additional cash or to invest excess cash

  • all data for the cash flow statements comes from the income statement

• Balance Sheet

• shows the financial condition of the organization at a specific point in time, usually the end of the month

• an idea as to what the company owns and owes, as well as the amount invested by shareholders

• assets = liabilities + shareholders' equity (net worth)

• Break-even analysis

• • helps determine how much must be sold at a given price in order to cover cost

  • to know what level of activity must be exceeded in order for the enterprise to be profitable

• Year-to-date YTD comparisons

• • comparing actual YTD totals in budget categories with anticipated totals to totals recorded at the same point in time in previous years

• Product development

• • goods and services are developed in response to the express or anticipated need of a market with which the business desires to have a commercial exchange

  • may be developed to replace less efficient products

  • help maintain interest in a market where variety and novelty are considered highly desirable, such as commercial rec and tourism

• Product Diffusion

• • process by which innovations are spread to members of a social system

  • innovations are adapted by various types of people over time

  • time periods could be very short or it could be many years

• Sole proprietorship:

• Owned by one person, most simplest form

• General partnership:

• Two or more persons as owners and should have an “article of co-ownership”

• Limited Partnership:

• Don’t share in management of the company (investors)

• Corporation:

• Owned by stockholders

• S-Corp:

• Owned by less than 36 stock holders

• LLC

• Cross between corporation and partnership, taxed like a partnership but protects personal liability from debts of business

• Section 6: Financial Analysis

• In section 6 you research start-up costs, operating costs, and operating revenues

  • Business initiation expense

    • Things you buy before you officially open business (ex: licenses, franchise fee, consultants)

  • Capital expense

    • Land, buildings, major equipment, displays, fixtures, etc…

  • Pre-opening operations (first month to first 3 months if necessary)

  • Salary for owners/managers, utility deposits, installation, staff training costs, initial maintenance, advertising

Feasibility Recommendations

• In section 7 you finally make a decision whether or not to open up shop based on financial analysis and consideration of the risk and assumptions involved.

• Section 5: Market Analysis

• • In section 5 you research your market area to help minimize business risks, spot problems and identify good opportunities

    • Look at who are the customers, what are their needs, how much/often do they purchase

    • Competition analysis

      • Brand level competition

        • Different companies but offer same thing (ex: movie theaters)

      • Product line competition

        • Different companies but offer different types of recreation (ex: the movies and bowling)

• Section 4: Management Analysis

• • In section 4 you decide who needs to work for you, how you’re going to get them to work for you, and you determine major operational considerations

    • Develop Summary of job descriptions

    • Look at availability of proper staff

    • Do they need any specific skills or certifications

    • What are good compensation’s and benefits for employees

    • Look at maintenance scheduling and downtime

    • Look at what you need to comply with if you franchise

• Section 3: Location Analysis

• • In section 3 you look at the overall community of a specific location and determine based off of demographics if that is a good location for your business

    • Look at overall demographics

    • Look at community environment

      • Employee availability, competition, transportation availability, community character, etc…

    • Look at business environment

      • Tax rates, real estate costs/availability, business trends

• Section 2: Regulator and Risk Analysis

• • In section 2 you find out what taxes/regulations need to be paid

    • What taxes will be paid

    • What licenses will you need

    • What insurance will you need

    • What regulations will there be

• Section 1: Description of Business

• • In section one you give a detailed description of the business

    • What type of Legal Entity will you have

    • Will you start in an Established Market or New Market

    • What is the life cycle of the industry

    • What are you competitive differences

    • What is your image and market platform

• innovators

• adventuresome risk takers, younger, better educated, and more socially mobile, use commercial media in making purchase decisions

• early adopters

are willing to take calculated risk on products, but they are also concerned with failure

• early majority

• cautious, adopt a product earlier than most, but only after proven success

• late majority

• skeptical about new products, respond more to social pressure than advertising, try new products when there is a decrease in availability

• laggards

• oriented towards the past, are the last ones to buy a product

• 2.6% innovators

• 13.5% early adopters

• 34% early majority

• 34% late majority

• 16% laggards

• Break-even analysis

• Determines how much needs to be sold to break-even

• Ratio Analysis

• Best way to measure relative efficiency of a business

• Year to date comparisons

• Compare actual year to date totals in budget categories with anticipated year to date totals

• Twelve-month trend analysis

• Helps determine seasonality of your business

• steps for establishing a budget

• • Budgets should reflect current market conditions

  • Be conservative when estimating revenue

  • Be liberal when estimating expenses

• product life cycle, product life course

- Introduction Stage

- Take off stage

- Maturity Stage

- Decline Stage

- Product Withdrawal

• introduction stage

• • gradual adaption by customers, hopeful in steady increases in consumption

  • disproportionate amount of management attention at this stage

• take off stage

• • once a product has proven itself, the product ussually begins to enjoy a sharp increase in popularity

  • common to see product offered elsewhere and, perhaps, at a lower price or with added features

• Maturity stage

• • market is aware of the product and has decided to consume or not consume

  • the market is stable, loyal, and about as large as it can be

• decline stage

• it's popularity begins to decline and, unless appropriate actions are taken, the product will be abandoned by the consumer

• Product withdrawal

• not necessarily a negative action

• can be withdrawn because they are no longer needed (wooden tennis raquets)

or because they use company resources that might be more efficiently employed in a product with greater growth

• Product withdrawal

• not necessarily a negative action

• can be withdrawn because they are no longer needed (wooden tennis raquets)

or because they use company resources that might be more efficiently employed in a product with greater growth

• sources of innovation

• SOURCE I: The unexpected Success or Failure

• • the unexpected success or the unexpected failure of a company product or services can point to new opportunities

  • no other area offers richer opportunities

    • ex. ski equipment in dallas, tx

• SOURCE II: Incongruities

• discrepancy or a dissonance between an existing situation and what should logically be happening

• an underlying fault that may not manifest itself in sales figures or reports

• ex. youth soccer program in Virginia

• SOURCE III: Process Need

• • innovation that improves a process that already exist by replacing a weak link or redesigning an existing process

  • to be successful, there must be a high consumer receptivity

  • ex. movie theatre concession stands

SOURCE IIII: Industry and Market Structures

• • idea is to search for a flaw in the basic nature of the industry

  • is effective when an industry has been dominated by a few large companies who have become unchallenged and arrogant

  • if innovation is successful, difficult for large companies to change

    • ex. southwest airlines, scottrade

• Source 5: Demographics

• • innovations based on demographic changes are the clearest and have the most predictable consequences

  • demographic shifts have long lead times and are measured by numerous organizations

  • becomes a question of which entrepreneur best interprets and exploits the demographic shift

    • ex X-games, Dew Tour

• Source 6: Changes in Perception

• when changes in peoples perceptions take place, facts do not change, but meanings do

• physiological benefits of exercise have been known for years

  • ex fitness industry

    • fitness is now associated with quality of life and social interaction

• Source 7: New Knowledge

• innovations based on new knowledge are “superstars” of entrepreneurship

• does not have to be scientific or technology based, but usually are

• long lead time required to bring an idea to the marketplace

• great expense and receptivity gamble

  • ex advances in computer chip technology

• Source 8: The Bright Idea

• • seven out of every 10 patents filed belong in this category

  • typically unorganized and out of synch with any particular market brand

  • often simple ideas such as zippers or pull tabs on beer cans

  • riskiest and least successful form of innovations

    • ex recreational “bright ideas” include the hula hoop or frisbee

• faces of the entrepreneur

• • Four Faces of the Entrepreneur

    • The entrepreneur needs to have all four faces to succeed:

• The Explorer

• enjoys the search for ideas, an in-depth analysis of your own field, or a search of entirely different field

• The Artist

• transforms what the explorer finds into a working concept

• The Judge

• evaluates the artist's concept and may modify it, ask questions about the market, the costs, the time required to implement the idea

• The Warrior

• goes to battle for the idea, must have passion for the idea

• Price Penetration

• sets the price of a product or service at or below cost in order to capture customers

• should only be used for a brief introductory period

• Price Skimming

• sets a relatively high initial price for a new product or service and then gradually reduce the price over time

• helps generate quick profits

• Going-rate pricing

• matches the prices charged by the other companies for the same product

• service, convienient and appealing location can generate sales without a price inducement

• Variable-Cost Pricing

• a single, unchanged price is not always necessary to produce profits

• golf courses: charge higher prices during weekends than during the week