full-summary-be322

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Chapter 1
Starting Your Small Business
What is meant by the term business?
A business is an organization engaged in the trade of goods, services, or both to consumers.
SBA definition is:
“…a small business is one that is independently owned and operated and is not dominant in its
field of operation.”
Distinguishing between entrepreneurial venture and small business:
Entrepreneurial venture: is one in which the principal objectives of the entrepreneur are
profitability and growth.
Small business, sometimes called a micro business is any business that is independently owned
and operated and is not dominant in its field.
Distinguishing between Small Business owner and an Entrepreneur:
Small Business owner: Establishes a business primarily to further personal goals including
making a profit.
Entrepreneur: Include achievement, profit, and growth achieved through innovation and
strategic management.
Some reasons for the increased interest in small business:
 The number of small businesses is growing rapidly.
The value of goods and services they produce and the new jobs they generate make the small
business sector one of the greatest economic powers in world.
 Small firms generate most new private employment.
 The public favors small businesses.
Generally, small business owners and managers believe in the free enterprise system, with its
emphasis on individual freedom, risk taking, initiative, thrift, and frugality and hard work.
 There is increasing interest in small business entrepreneurship at high schools and colleges.
Another indication of the growing popularity of small business is its acceptance as part of the
mission of many high schools, colleges, and universities, where entrepreneurship and small
business management are now academically respected disciplines.
 There is a growing trend toward self-employment.
The growth rate for self-employment is greater than the growth rate of the general work-force.
Small business grew rapidly from the mid-1980s to the mi-1990s as investors become more
willing to assume the risk of starting or revitalizing small businesses. Many of these were
middle-aged executives from large corporations who were eager to put their management skills
to work in reviving smaller companies in aging industries.
 Entrepreneurship is attractive to people of all ages.
Entrepreneurship knows no age limits from the very young to the very old, people are starting
new businesses at a rapid rate.
Developed and Full summary for BE322
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Some feature of the small business:
 Management is Independent, because the manager usually owns the business.
 Capital is supplied and ownership is held by an individual or a Few Individuals.
 The area operations are primarily local.
 The business is small in comparison with the larger competitors in its industry.
Some unique contributions of Small businesses:
1) Encourage innovation and flexibility.
Smaller businesses are often sources of new ideas, materials, processes, and services that larger
firms may be unable or reluctant to provide. In small businesses, experiments can be conducted,
innovations initiates, and new operations starts or expanded.
2) Maintain close relationships with customers and the community.
Small businesses tend to be in close touch with their communities and customers. They can do a
mire individualizes job than big firms can, thereby attracting customers in the basis of specialty
products, quality, and personal services rather than solely in the basis of price.
3) Keep larger firms competitive.
By introduction of new products and services, small businesses encourage competition, if not in
price, then at least in design and efficiency.
4) Provide employees with comprehensive learning experience.
Small businesses provides employees with a variety of learning experiences not open to
individuals holding more specialized jobs in larger companies. Along with performing a greater
variety of function, small business employees also have more freedom to make decisions, which
can lend zest and interest to their work experience. Small businesses train people to become
better leaders and managers and to develop their talents and energies more effectively.
5) Develop risk takers.
Small businesses owners have relative freedom to enter or leave a business at will, to start small
and grow big, to expand or contract, and to succeed or fail, which is the basis of our free
enterprise system.
6) Generate new employment.
Small businesses generate employment by creating job opportunities.
7) Provide greater employee job satisfaction.
Small companies also provide greater employee job satisfaction.
Some problems facing small businesses:
 Recession/ current economic issues.
 Retirement or transition
 Capital or financing issues.
 Unexpected growth.
 Succession.
Difference between inadequate financing and inadequate management:
Inadequate financing without adequate funds, the small business owner is unable to acquire
and maintain facilities.
Inadequate management limited business knowledge, poor management, inadequate planning,
and inexperience.
Developed and Full summary for BE322
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Trends challenging small business owners:
 Exploding technology:
The primary challenge of exploding technology for small companies will be to improve the
selection and training of workers and overcome their resistance to change.
 Occupational and industry shifts which include:
Technological advances in automation, computers, robotics, and electronic communication,
along with changing markets resulting from cultural and economic changes, have affected
traditional industries.
 Reinvention: The fundamental redesign of a business, often resulting in reduction in size and
markets.
 Reengineering: The redesign of operations starting from scratch.
 Downsizing (right sizing): Reducing the number of employees to increase efficiency.
 Global Challenges:
One result of this global challenge is the growing number of large and small businesses that are
or become foreign owned. These foreign-owned companies tend to have different management
styles from their original owners, which mean small businesses owners and managers, must
learn to adjust and adapt to nontraditional styles.
Why people start small businesses:
(1) Satisfying personal objectives:
The personal objectives of owners of small businesses differ from those of managers of larger
firms. Managers of large companies tend to seek security, place, power, high income and
benefits. By contrast, the primary objectives of small businesses owners are as follows:

Achieve independence.

Obtain additional income.

Help their families.

Provide product not available elsewhere.
(2) Achieve Business Objectives:
Objectives determine the character of the firm because they give the business its direction and
provide standards by which to measure individual performance.
 Service Objective: The objective of a business to serve customers by reducing and selling
goods or services at a cost that is a fair price to the customer.
 Profit Objective:
Profit is the revenue received by a business in excess of the expenses paid. Profit Motive is
entering a business to make a profit, which is the reward for taking risks.
 Social Objective:
 Social Objective means helping various groups in the community including customers and
employees.
 Growth Objective:
Owners of small businesses should be concerned with growth and should select a growth
objective which will depend on answers to questions like “Will I be satisfied for my
business to remain small?” "Do I want it grow and challenge larger firms?"
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 Need to Mesh Objectives:
Personal and business objectives can be integrated in small business. In fact, there is a close
connection between profitability, customer satisfaction, and manager satisfaction. There is
an increased chance of success when the objectives of the business are meshed with the
owner’s personal objectives.
Characteristics of successful entrepreneurs:
1) Desire independence.
2) Have a strong sense of initiative.
3) Are motivated by personal and family considerations.
4) Expect quick and concrete results.
5) Are able to react quickly.
6) Are dedicated to their business.
7) Enter business as much as by chance as by design.
What leads to success in managing a small business?
1) Serving a well-defined market for the product.
2) Acquiring sufficient capital.
3) Recruiting and using human resources effectively.
4) Obtaining and using timely information.
5) Coping effectively with government regulations.
6) Having expertise in the field on the part of both the owner and the employees.
7) Being flexible.
Factors affecting the future of industry or business:
1) Technology- thinking machines, laser beams, new energy sources and amount of spending
for research and development.
2) Economics- interest rates, inflation rates, employment levels and opportunities in foreign market.
3) Lifestyle- career expectation, consumer activism, health concerns, education.
4) Political- environmental protection laws, foreign trade regulation, tax changes, child care
legislation.
5) Demographics- population growth rate, age and regional shifts and ethnic moves and life
expectancy.
Areas of concern for small business owner:
 Poorly Planned Growth.
Poorly planned growth appears to be a built-in obstacle facing many small businesses. Clearly,
if the owners are incapable, inefficient, or lacking in initiative, their businesses may flounder
and eventually fail, or if the owners are mediocre, their businesses remain small. However, if
the owners are efficient and capable and their organization succeed and grow, but in a poorly
planned way, they risk losing the very things they seek from their companies.
1) Loss of independence or Control.
With growing, owners must pleas more people, including employees, customers, and public.
There are new problems, such as hiring and rewarding managers and supervising other people,
exercising the very authority small business owners may resent in others.
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Many otherwise creative entrepreneurs are poor managers. They can generate ideas and found
the business but are unable to manage it on a day-to-day basis. If the firm becomes large enough
to require outside capital for future success and growth, the owner may lose control over the
company.
2) Typical Growth Pattern.
The length of service of professional managers in small business tends to be relatively short;
they move from one company to another as they progress upward in tank and earnings. Often,
owners must give managers a financial interest in the business to hold them. Thus, the business
takes on the form, the characteristics, and many of the problems of a big business. If
entrepreneurs plan poorly, and fail to foresee these growth patterns, they may run into trouble.
 Threat of failure:
The Threat of failure and Discontinuance is a reality for many small businesses.
1) Discontinuance: Discontinuance is a voluntary decision to quit.
2) Failure: results from inability to make a go of the business.
Types of failure are:
 Formal Failure: ending up in court with some kind of loss to creditors.
 Personal (informal failure): where the owner cannot make it financially and so voluntarily
calls it quits.
Discontinuance or Failure results from one or more of the following weaknesses:
1) too much was left to chance
2) too many decisions were based on a hunch or intuition
3) Crucial obstacles want unnoticed for too long.
4) The amount of time and physical effort demanded of the small business manager was not
recognized and planned for.
5) The amount of capital needed was either not estimated or grossly underestimate.
The causes of failure in business startups including:
1) Lack of managerial experience.
2) Lack of financial backing.
3) Poor location.
4) Unexpected growth.
5) Communication skills.
One source to help avoid startup disaster is the national business incubation association (NBIA):
Business incubators: Nurture young firms and help them to survive and grow during the
startup period when they are most vulnerable.
End of chapter1
Look to the questions in page 2
Developed and Full summary for BE322
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Chapter 2
Family Owned Business
The Role of the family owned business:
 The family firm institutes are the backbone of America that around 90% of all US
companies are family owned.
 These companies can be a source of unresolved family tension and conflict which create
obstacles to achieving even the most basic business goals.
 When more than one family member is involved, emotions and differing value systems can
cause conflicts between members.
 Sometimes the family run business get bad impact which may receive a bad publicity for
some reason and the public tend to attach a negative feeling toward the family name or the
company may be a part of scandal that tend to tarnish the family as a whole.

The family and the Business
All the business require well written and an appropriate mission statement for successful
operations to provide direction for coping with 24/7 necessities of operations.

Della Cava states that the written statement is important for family members who own and
operate small business and includes the children in making decisions and setting goals.

Family discussion help parents stay in touch with each other and not lose the sight of
family value.
 Family Mission Statement
 Start From Trust/Openness
 Unanimous Agreement On Values & Vision
 Copies To All
 Avoid Rushing Family, Favoring an Agenda or Forgetting Purpose
 Trends in Family Business
1. Kids Start Business & Get Capital from Parents to start the venture. Parent Given Executive
Position in the company and including a seat on the company’s board.
2. Spouses Working Together which means some of business are equally owned by both men
and women and that is needs clear chain Of Command at least in a given management area.
Tips for Spousal Ownership
 Don’t be blinded by romance; follow the rules
 Define each person’s role and highlight each other’s talents
 Don’t ignore business conflicts in an attempt to spare a personal relationship.
 Agree or disagree – set the ground rules.
 Be clear and specific about your expectation of each other.
 Set aside family time and stick to it.
 Set up a system for recognizing and rewarding hard work done by family members.
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 Patricia suggests that daughter who are interested in leading the family business should:
♀ Express Interest
♀ Outside Experience
♀ Learn From Seniors
♀ Be Sensitive
♀ Get Involved
♀ Meet Women
♀ Define Yourself
♀ Develop A Vision
Family interaction
 Usually the founder is the head of a small business and the relatives may place in high position
in the company while the other positions are filled by non-family members.
 Family member’s sense of ownership can be a strong, positive motivator in building the
business and leading to greater cooperation.
 Conflict might occur because some relatives are look to business from different perspective.
 Relatives such as stockholder or directors see only dollar signs when judging capital
expenditure or growth while the relatives are involved in daily operations may judge those
matters from the viewpoint of marketing, operations to make the firm successful.
How to deal with incompetent family members?
 Inability of family members to make objective decision and ill feeling may spread and include
non-family employees.
 The solution is to convince them that their interests are best served by profitable firm with
strong leadership.
 Some members want to become the head of the business but do not have the talents or training
needed. Others may have talents but because of their ages or inexperience might be not
recognized by other family members.
 Members with little ability can be placed in jobs in which they do not disturb other employees.
 Relative can demoralize the business by loafing on the job or avoiding unpleasant tasks. Such
relative should be assigned to jobs allowing minimal contact with other employees.
How to compensate family members:
 Compensation and dividing the profit is can be difficult because some of them feel they
contribute more to success the firms than others.
 Compensation should be based on the job performances not family position.
 Deferred profit sharing plan, pension plan, and insurance program are effective in placating
unhappy family members as managerial title if deserved.
 A title is perceived as a confirmation of the job well done and tends to serve as a motivator.
Developed and Full summary for BE322
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Family limitations (explain how family relationship can affect the business).
 Limit of skill to family member do not make good general manager to enter the business.
 Bottle necks that work against efficient operations can be caused by personality clashes and
emotional reactions.
 Authority and responsibility in the company must be clear and separated from those within the
family circle because the person’s age often determine the line of authority in a family while
the ability must be the primary guide in any business.
 Some families organize their business by hiring professional managers to run them when no
family members can’t manage or run the company.
Advantage:
 using professional management
 Freeing family time for other purpose and reducing friction.
Disadvantages:
 Reduce of family employment.
 Lower income.
 Difficulties in finding and keeping a good management team.
 Loss personal touch.
 Divorce might cause problem but with some protection steps like:
1. Having the business appraisal
2. Negotiating a buyout agreement
3. Decide What To Do With Stock
4. Consulting competent professionals for help in tax issues.
Culture and the family business
 Some cultures encourage women to stay at home and care for their children.
 Stay at home moms develops hobbies into home based business such as launch own website
called MomsVoice.com
 “Dadpreneures” can access many online resources for support. Example: At homeDad.com is
a network for primary care dads who want to start or join activities to help connect at home
dads.
Family Resources
 Borrow Capital
 Sell Stock
 Selling Personal Assets
 Other
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Preparing the next generation
 Helping children to like the business requires helping them discover what things they like to
do and then matching those individual interests to the needs of the family business.
 The concept of doing what ones likes is as a motivator to meet the challenge of joining any
business.
1. Start at part time or full time jobs:
 Let children work on simple jobs or on a part time basis.
 Working for another company to enhance their training and background.
2. Start at entry level or Higher level position:






Working for someone else at least two years before work in senior management.
Rotate person in varying position.
Spent some time for training and teaching.
Give promotion only as they are earned.
Do not take business matters home.
If Prepared, Give Responsibility
Preparing for management succession
 Key job require much training and experiences because the decisions the person makes can
vitally affect the company and its future.
 To prevent any disaster the owner should do two things.
 Plan Early & Carefully
 Groom Successor.
Why succession is a problem
 Many small business owners have their own concern about passing the business to their
children.
 Two evident: the next generation not only need the ability to operate the business but also
need the education, certifications, talent and desire to carry on the services.
 The main concern how to treat all children fairly and also the reaction of non-family
employees. Moreover, the family communication, conflicts and estate taxes as concerns.
 A survey of owners of family business with two or more children working for the company
revealed that some groom one child from an early age to take over.
 Others plan to let children compete and to choose one or more successors with or without help
from the board of directors.
 When the choice of replacement is limited, the owner may consider re-organizing present
assignment and using present manager more effectively.
 Everybody should participate in this planning to feel more contribution to the decision.
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Discuss the important and method of preparing for management succession
 Plan Ahead
 Management succession occurs when the family leader dies, leave the company, become
incapacitated ‫ عاجز‬and retire.
 To avoid this, the entrepreneur should start plan early for their replacements. This plan should
be flexible enough to include:
Sudden Departure
 A successful business must continue to operate even when the owner manager leaves for any
reason.
 Good plan and on the job training is provided for those left in charge will solve this problem.
 Sudden death or incapacity of owner makes conflict opinions about what should be done.
 Owner should make a will and keep it current including instructions about what should be
done in or with the business.
Planned Departure
 There is NO problem in Corporation Company if the owner plan to leave or retire because
replacement top officer should know about that and the transition going smoothly.
 Entire family tends to become involved in the replacement decision.
 In planning departure the owner should look for someone in the family able to take over. This
person recognized as the “heir apparent”
Selling to Family members:
 If the transition is been complete, the business and the responsibility is handed over to the
offspring
Advantages:
1. The business stay in the family
2. Source of family employment
3. The family’s Stature is maintained
4. Owner be free to relax or travel
5. Pleasure when the successor is successful
6. Strengthen family bonds rather than produce friction.
Selling to outsider
If NO relative will taking the responsibility to run the business; the owner can sell out to outsider.
Advantage:
 Assured income
 Lack of worry about what will happen
 Release tension
 Free from responsibility
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 Possible opportunity to consult
Disadvantages:
 Loss of family identification
 Loss = sadness
Making the transition easier
To make transition easier the owner need to:
1. Broaden their focus
2. Devote more time to hobbies and outside group activities
3. Gradually turn over control.
Tax and Estate Planning
Planning is needed to minimize estate taxes and should be reviewed frequently.
- Tax Planning
 Consider that there is an influence taxes on profit and the business’s capital structure.
 A knowledge that the tax law and regulation change frequently.
 Have Annual planning conference well versed in business tax matters.
- Estate Planning
 Estate planning is preparing for the orderly transfer of the owner’s equity in the business
when death occurs.
 The Major concerns are the perpetuation of a family business and maintain liquidity.
- Small Business Standpoint; Estate planning can:
 Reduce Cash Strain
 Maintain Beneficiaries’ Interest
 Smooth Transition
-
Estate planning can be in the form of:
 Gift to children
 Stock sales to family members
 Living trust
 Family limited partnerships
 Buy/sell agreement
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- Family limited partnership allow business owner to pass assets to heirs with minimum of
income and estate tax cost while retaining control of assets during their lifetime.
- Method of value the business
 Determine the value of a comparable business
 Earning capitalization
 Book value
 Buy – sell agreement provides for the corporation to buy back a shareholder’s stock when he
or she leaves the company.
- Several issues are involved in Estate Planning:
 Trying to minimize taxes
 Retaining control
 Maintain flexibility of operation.
Estate planning techniques:
Following can be used to minimize estate tax:
o Gift family
Start giving part of it to your family as soon as feasible.
o Establish a family limited partnership
Form a family limited partnership to take money out of the company at lower tax rate.
o Sell stock to children
Sell all or part of business to children but such thing is complicated.
First, the children need a source of income to make non-deductible payment.
Second, paid capital gains tax on the stock you sell.
o Establishing a living trust
 A living trust resembles a will but, in addition to providing for distributing personal assets on
maker’s death, contains instruction for managing assets.
 Putting a property into a living trusts while you are still alive; then when you die; the property
automatically goes to the heirs without go to court which saving time and expense.
Disadvantage:
1. Change the title on all estate, securities because the owner is change.
2. Beneficiaries are still taxed.
Advantage:
1. Bypass the probate process
End of chapter 2
Look to the questions in page 32
Developed and Full summary for BE322
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Chapter 3
Form of ownership of small businesses
Define the proprietorship? What are the advantages and disadvantages of it?
 A proprietorship is a business that is owned by one person.
 Single proprietors own all the assets of the business and the profit generated by it.
 Most small business owners prefer the proprietorship because it is simple to enter, operate and
terminate and provide freedom of action and control.
Advantages
1. Secrecy
2. Unique tax advantages
3. Owner does not have to share profit
4. Freedom of action and control
5. Easiest and simple form of organize and operate.
Disadvantages
1. Limited capital.
2. Difficulty in obtain credit.
3. Inadequate management and employee skill.
4. Limited life.
5. Unlimited liability for the firm’s debts.
Define the partnership? What are the advantages and disadvantages of it?
 Partnership is a business owned by two or more persons to carry on as co-owners of a
business for profit.
 In partnership, two or more people share ownership of a single business.
 The partner should have a legal agreement that set forth how decision will be made, how the
profit will share.
 In partnership, they should decide up front how much time and capital will contribute.
 Partnership is more effective than proprietorships in raising funds and in obtaining better ideas
and management.
Advantages:
1. Easy to form
2. Divisions of labor and management responsibility
3. Can use idea and plan of more than one person
4. Specialized skills available from individual partner
5. Obtain financial resources from different person
Disadvantages
1. Limited life
2. Unlimited liability for debts of the firm
3. Death of anyone of partner terminates the partnership
4. No protection against the acts from other partner
5. Impasse may develop from incompatible partner
Article of co partnership: are drawn up during preparing period to show rights, duties, and
responsibilities of each partner.
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How partnership operates?
Each partnership is responsible for the acts of all the other partners. All partners except in a
limited partnership are liable for all the debts of the firms even the personal property of each
partner can be used to satisfy the debts of the partnership. Each partner is bound by the
actions of the other partners.
Impasse can be developed easily and the business may become inoperative.
What are the types of partnership?
 In a general partnership, each partner actively participates as an equal in managing the
business and being liable for the acts of other partners.
 In limited partnership, there are one or more general partner conduct the business while one
or more limited partners contribute capital but do not participate in management.
Define the corporation? What are the advantages and disadvantages of it?
 A corporation is a business owned by a group of people called stockholder given special
rights, privileges and limited liabilities by law.
 It is an artificial being, invisible, intangible and existing only in contemplation of the law.
 The traditional form is called a C corporation (Inc. or Ltd).
 C Corporation is regular corporations that provide the protection of limited liability for
shareholder but its earning is taxed at both level of corporate and shareholders level.
 Corporation is to be the vehicle that made the world safe for investment.
Advantages:
1. Have representative management
2. Ease of raising capital
3. Legal entity separate
4. Owner’s liability limited to their investment in it.
5. Permanent and life is not affected by loss of any shareholders.
Disadvantages:
1. Impersonal
2. Owners have limited interest in firm’s activities.
3. High fees and taxes
4. Power limited to those stated in charter.
5. Burdensome procedure required by government.
How to form corporation?
 Articles of incorporation must be prepared and files with the state in exchange for a
corporate charter which states what the business can do and provide other information. The
procedures, report and statement required for operating a corporation are cumbersome and
because the limited of owners power it may be difficult to do the business in other state. The
article of organization must specify the dates of the LLCs existence the also dissolve at the
death or bankruptcy of members. Also, include buy sell agreement which explains how
stockholders can buy out each other’s interest.
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 Article of incorporation are the instrument by which a corporation is formed under the
corporation laws of the given dates.
 A corporate charter states what the business can do and provides other organizational and
financial information.
How a corporation is governed?
Stockholder:
Stockholders are the corporation’s owners and be able to control it. In large company, the
holder of as 10% can be able control the company.
Board of directors
The board of directors are represents the stockholders in managing the company and also
help set goals and plan marketing, production and financing. Some owners prefer to run the
company alone without someone “looking over their shoulder”
Corporate officer
Include chairman or president directs the day to day operation of the business.
The S corporation
 S corporation is a special type of corporation fewer 100 shareholder that is exempt from
multiple taxation and excessive paperwork.
 They pay taxes on it at their individual rates.
 Significant cost to electing S corporation status.
 One class of stock common.
 Limit equity financing in some cases.
 Performed by many venture capitalists.
 Shareholder must individual or estates.
What are other forms of business?
The limited liability company (LLC)
Combine the advantages of a corporation such as liability protection with the benefits of a
partnership such as tax advantages. It is provide benefits similar to the S corporation without
the special eligibility requirement. It is hybrid business structure. It designed to provide the
limited liability features of a corporation and the tax efficiencies and operational flexibility
of partnership. Formation is more complex and formal than that of a general partnership.
The limited liability partnership (LLP)
It is organized to protect individual partners from personal liability for the negligent acts of
other partners or employees. It is not recognized by every state and limited to organizations
that provide professional services such as law.
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The family limited partnership (FLP)
It is the organization type where the majority of the partners are related to each other as
spouses, parents and grandparent. The most type of organization is agriculture or family
farms. It is offer the same advantage as other LLPs.
The professional service corporation (PSC)
It must be organized for the sole purpose of providing a professional service for which each
shareholder is licensed. The advantage is limited personal liability for shareholder.
Nonprofit Corporation
It is formed for civic, educational and religious purposes and limited personal liability. It is
managed by a board of directors or trustees. Assets must be transfer to another nonprofit
group if the corporation is dissolved.
The cooperative
It is a business owned by and operated for the benefit of patrons using its services. Usually
associated with farm products such purchasing, selling and financing equipment and
materials.
Joint venture
It is a form of temporary partnership whereby two or more firms join in a single endeavor to
make a profit. Joint venture is becoming quite popular in both domestic and global operation.
Fractional ownership
It can be defined as a percentage share of an expensive asset. It is used for aircraft, sports
and real property. In fractional ownership, the purchaser owns part of the title to the asset.
End of chapter 3
Look to the questions in page 52
Developed and Full summary for BE322
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CHAPTER 4
Maintaining Good Government relations and business ethics


Understanding the legal Environment
All law affecting small businesses are based on the federal or state constitution.
The making, administrating and interpreting of laws are separated into three distinct
branches of government: legislative, executive and judicial.
Some basic Laws Affecting Small business
- The uniform commercial code
Because laws affecting business vary greatly; the massive efforts have been made to
draft a set of uniform mode statutes to govern business and commercial transaction in all
50 states consisting of nine parts.
1. General provision
2. Sales
3. Commercial paper
4. Bank deposit and collections
5. Letters of credit
6. Bulk transfer
7. Document of title
8. Investment securities
9. Secured transaction
- Torts
 A tort is a wrongful act by one party, not covered by criminal law that result in injury
to a second party’s person, property or reputation for which the first party is liable.
 Tort law provide a means by which society compensate those who have suffered an
injury as a result of wrongful acting by other.
 Law dealing with torts provide for the performance of duties and compensation for the
physical, mental or economics injuries resulting from faulty products or actions of
others.
- Bankruptcy
 Bankruptcy is a formal legal condition of inability to repay debts. People or
businesses can petition the courts to be relieved of this financial obligation.
 There are two type of bankruptcy:
o Ordinary bankruptcy occurs when a debtor files an application with a court claiming
that debts exceed assets and asks to be declared bankrupt.
o Involuntary bankruptcy occurs when one or more creditors file the bankruptcy petition
against the debtor.
The firm can continue to operate while its debts are being repaid.
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Government helps for small businesses
1. Small business administration (SBA)
 SBA provides many types of direct and guaranteed loans for small firms.
 SBA provides help through publication such as its series of management Aid, local
workshops, small business development center and small business institutes.
 SBA sponsors SCORE is made up of volunteer members who specialize in helping
people develop their business idea.
 SCORE like to answer the important and details questions you might have about
setting up a business
 SBA helps is by encouraging small business owner to try to perform more effectively
by making notational award for the small business persons of the year. Which been
announced in White House by USA president.
2. Small business development centers (SBDCs)
 It is delivered up to date counseling, training and technical assistance in all aspects of
small business management.
 Services include assistance with financial, marketing, production, and engineering and
feasibility studies.
 SBDCs are funded in part by the SBA. They are over 1100 location to meet small
business needs.
 SBDCs operate in every state with 63 lead centers. These lead centers are the basis for
the network of local centers housed in colleges, economic development corporation
and universities.
3. U.S. Department of Commerce
 U.S. department of commerce offers assistance through its international Trade
Administration (ITA), U.S. and foreign commercial service agency (USFCSA), and
minority business development agency (MBDA), Department’s Census Bureau.
4. Other government agencies
 Other agencies helping small business is U.S. Department of Agriculture which
provide assistance through:




Cooperative Extension Service
Federal Land Bank Association
Production Credit Association
Farmers Home Administration
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Government Regulations & Paperwork (describe some burdensome aspects of
government regulations and paperwork.)
Dealing with regulatory agencies
 Regulator agency is more flexible and sensitive to the needs of society than congress
can be.
 Less time is needed to develop and issue new regulation.
 Small firms are subject to many regulations and these regulations are often complex
and contradictory
Some benefits of government regulation
 No profit mechanism is to measure the government regulation outweigh the cost.
 Both cost and benefits are hard to determine, estimate must be made.
 Some regulation is truly cost-effective.
 When the regulations are imposed on one industry they often generate opportunities for
other small business.
Problems with Government Regulation
 Difficulty Understanding some of regulations.
 Enormous Amount of Paperwork which need to comply with government regulation
and in maintaining record need to satisfy the regulators.
 Difficulty/Cost Of Compliance
 Discourages Firms from Hiring by federal laws and regulations.
How owners can cope with government regulations
1. Learn as much as you can about the law if it is possible that law can help you.
2. Challenge harmful laws by joining organization such as National small business
association.
3. Become involved in the legal political system to elect official of your choosing who
will help you to change the law.
4. Find a better legal environment even leave to another city.
5. Learn to live with the laws and regulations






Dealing with government regulators
The guidelines are created to ensure professional conduction in different areas which
include ethics, technical knowledge, competence and compliance.
Choosing and using lawyer
One of the first things to start or operate small business is to retain a competent lawyer.
Lawyer has several role:
Education
Knowledge of the law
Ability to see the big picture
Considering alternatives.
Developed and Full summary for BE322
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 Choosing the lawyer
A. Where to look:
There are numbers of ways to find a lawyer to help you with problem
1. Personal referral from someone whose opinion you value such as your minister or
banker.
2. The Martindale Hubbell law directory which include professional biographies of
most of the lawyers
3. Lawyer referral and information services
4. Advertising which lawyer can advertise certain information in newspapers
B. What to look:
1. Appropriate experience with your type of small business
2. Compatibility between layer and clients
3. Availability in any time
4. Cost and fees. Lawyer time is expensive.
 Maintaining relationship with lawyer:
Lawyers usually have three basic ways of charging their services:
 A flat fee charged for specific assignment
 Contingency fee
 Hourly fee based on type of activities
Socially and ethically responsible behavior
 Social responsibility
Social responsibility is a business’s obligation to follow desirable courses of action in
terms of society’s values and objective.
Usually take the form of:
1. Consumerism:
 “consumer is always right”
 The movement to protect the valid interest of consumers is major force in small
business today.
Consumerism is the organized effort of independent, government and business group
to protect consumers from undesirable effect of poorly designed and procured
products.
Example: the child protection and toy safety act to set safety standard requiring label
on unsafe product.
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2. Employee relations:
 An employee relation involves a concern for employee rights such as employment,
training, development, promotions, health and safety.
 Also include sexual harassment, family leave, care for children.
 Business owner should consider the ethical aspects.
3. Environmental protection
 Environmental protection is trying to maintain a healthy balance between people and
their environment.
 Take two forms:
1. Pollution control is trying to prevent the contamination of destruction of the natural
environment.
2. Conservation means practicing the most effective use of resources while considering
society current’s and future needs. Conservation is recycling.
4. Community Relations:
There are areas of social responsibility in which small firms participate:
 Education and medical assistance
 Urban development and renewal
 The arts, culture and recreation
- Business ethics
 Business Ethics are the standards used to judge the rightness or wrongness of a
business’s relations to others.
 Small business people are needs to deal ethically with customers, employees,
competitors and others.
 Many large and small business companies are embracing business ethics to be socially
responsible while other do it to enhance profits.
 There are three levels of ethical behavior:
1. Lowest level is obeying the laws of the land.
2. Governed by any codes of ethics issued by group to which they belong.
3. The individual’s personal ethics. The person own belief system that tells him what to
do.
 Personal Ethics Points
1. Control Your Attitude by setting and review goals.
2. Control Your Associations by listening to ethical winners
3. Control Your Discipline
4. Work On Yourself
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 “Four Way Test” Of ethical behavior:
1) Is it the Truth?
2) Is it fair to all?
3) Will it Build Goodwill?
4) Will it Beneficial to All?
 We must understand that ethics statement and code of conduct are like the white lies
either side of the road. They give us freedom and indicate boundaries.
 People make mistakes but when it is a mistake in judgment the cost can stagger a small
business.
End of chapter 4
Look to the question in page 74
Developed and Full summary for BE322
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22
CHAPTER 5
Becoming the owner of a small business
How to go into your business for yourself?
 First thing, determine what really want to do?
 The proper planning becomes more important to chart the new venture.
 Decide the ownership and management of the business
 Obtain resources in the form of people, buildings and equipment, materials and supplies and
the money to finance them.
- How can you identify a business you would like to own?
The best place to start searching is to find your appropriate market niche. This process is called
niche marketing which is the process of finding a small but profitable demand for something,
then producing a custom made product for that market.
- What characteristic do you have that would help make business successful. Or
The steps involved in the procedure recommend for going into business?
1)Identify needed product.
2)Study Market
3)Start, Buy Existing Or Franchise
4)Set Mission, Objectives, Strategies ( strategic plan )
5)Make Operational Plans include budgets, procedure and plan
6)Make Financial Plans include estimate income, expenses investment.
7)Develop Business Plan
8)Implement Plan
How to decide on a product? How can the right product be found?
 Most new businesses were at one time uncommon or innovative such as selling or renting
video type.
 Talking to large companies may help you identify opportunities that can be handled better by a
small business.
 Newspaper are filled with advertisement for business opportunities, business for sale, new
product for sale and other opportunities to become one’s own boss.
 The needed of services and product often comes up in social conversation.
salespeople or someone else can be good sources for ideas.
Banker,
 Search and identification of product requires innovative and original thinking including
putting the ideas together in organized form.
 Looking into the future requires extensive reading and making contact with different people.
 Questioning analysis of products and services provide ideas.
 Innovation is alive and well for continuing surge ahead.
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- What are some important factors to consider in choosing the type of business to enter?
Choosing the business to enter
1. Eliminate the least attractive ideas from consideration and then concentrate on selecting the
most desirable one to do not what someone else wants for you.
2. Get down to the serious business which you plan to devote your energy and resources.
3. Talk to friends, various small business owners and financial advisers to find out what kinds of
product are needed but not available.
4. Consider the market for the kind of products and businesses they have suggested.
5. Get help from professional groups such as (SCORE) service corps of retired executives.
They help potential entrepreneurs finding the niche and assist them in surviving startup,
operating and even personal problem.
6. After discussing the need for the product with other people, select the business seems best for
you.
7. To be more methodical and objective in evaluation, you might prepare survey checklist or
criteria to help people to decide what business to enter.
Q3 - How to determine the market for product? Your share of that market?
1. After selecting the product and business; look at the market potential for each one.
2. Small businesses are usually select one segment of the population for their customer or choose
one product niche because they do not have sufficient resources to cover the whole market.
3. Concentrate its effort on the customers it can serve most effectively.
4. Doing market research which consists of gathering, recording, classifying, analyzing, and
interpreting data related to the marketing of goods and services.
5. Formal research is valuable in giving direction.
6. Computers are helping to increase the amount of information gathering while reducing the
cost.
7. Search in existing literature; you can find some in library.
8. Department of commerce another sources of information.
What are some characteristic you should consider in studding the potential market for a
proposed business?
1. Estimating the size of the market:
Before launching a business you should ask some question whether the market is large to
accommodate newcomers.
 How large is the industry?
 Where is the market for the company and how large is it?
 What are the number and size of competitor?
 What is the success rate?
 What are the size and distribution of income within the population?
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2. Estimating the competition:
 Analysis of competitor activities may indicate how effectively a new company can compete.
 Is the market enough for another firm?
 What feature such as lower price, better product?
 The natural advantage goes to the excellent companies large or small that strives for low
overhead, no frills assets and look for a better real estate deal.
 Small companies should stay out of the path of focused market leaders and deliver unique
value to the chosen customer in their market niche.
3. Estimate your share of the market:
 Determine the geographic boundaries of the market area.
 Estimate how much of your product might be purchased.
 Make an educated guess as to what part of this market you might attracts.
- What are some reasons for and against starting a new business?
Reason for:
 Many owners start business because they want others to recognize that the success is all there.
 Define the nature of business
 Create the preferred type of physical facilities.
 Obtain fresh inventory
 Selecting and developing personnel.
 Take the advantage of the latest technology.
 Select a competitive environment.
Reason against or NOT:
 Problem in finding the right business.
 Problems with assembling the resources, including the location, building equipment.
 Lack of an established product line
 Production problem
 Lack of establish market and channel distribution.
 Problem in establishing basic management system and controls.
 Risk of failure is higher in small business start-up.
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- What are some reasons for and against buying an existing business?
Reason for:
 Personnel are already working.
 Facilities are already available.
 Product is already being produced.
 Location may be desirable.
 Relationships have been established with banks.
 Revenues and profits are being generated.
Reason for against or NOT:
 Facilities may be Old/Obsolete
 Poor Employees attitude.
 Account receivable may past due or uncollectible.
 Bad Location
 Poor Financial Condition/Relations
 Inventory may be Poor/Obsolete
What are some reasons for and against buying a franchise?










Reason for:
The franchiser brings proven and successful methods of operation and business image
Experience guidance by obtaining a franchise.
Available in wide range of endeavors.
Combines talents and desires.
Having many of the requirements for success.
Franchiser can provide supplemental help through its experiences and concentrated study of
the field.
Reason for against or NOT:
Expenses are includes investment, fees and royalty payments.
New franchisees face financial risk than established ones.
Not give enough independence.
Overpriced, poorly run, uninteresting and white elephant are disastrous.
Franchisers tend to hold an advantage as below:
Selected benefit to the franchisee
Selected benefit to the franchiser
Brand recognition
Management training and assistance
Economies of large scale buying
Financial assistance
Share in local or national promotion
Developed and Full summary for BE322
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Faster expansion
Franchisee motivation
Franchisee attention to detail
Lower operating costs
26
What is franchising?
 Franchising is marketing system whereby an individual owner conducts business according to
the terms and conditions by the franchiser.
 Franchise is an agreement whereby an independent businessperson is given exclusive rights
to sell a specified good or service.
 Franchiser is the company that owns the franchise’s name and licenses others to sell its
products.
 Franchisee is independent business person who agrees to operate and sell the product
according to the franchiser’s requirements.
Q7 -What are the two most important forms of franchising? Describe each.
1. Product and trademark franchising is arrangement under which the franchisee is granted
the right to sell a widely recognized product or brand. Such franchisees concentrate on
handling one product line. Example: Automobile, gasoline service station and truck
dealership.
2. Business format franchising is relationship in which the franchisee is granted the right to
market the product and trademark and to use a complete operating system. Example:
restaurant, hotels and motels and automotive products and services.
Q8 – Why franchising is growing in importance?
1. Franchiser has already identified a consumer need and created a product to meet that needs.
Example: few people want to spend precious ‫ ثمين‬time preparing meal, so they head for a
fast food outlet.
2. Harlan said one of the best ways to succeed in small business is to buy an established
franchise because 80% of independent businesses fail in the first five year.
3. Franchisees have the support of established management system for bookkeeping, marketing,
operations and control.
Drawback to franchising: the paperwork needed to provide disclosure documents to potential
franchises. These statement required by federal trade commission provide background and
financial position information about the franchiser and the franchise offering.
What the franchise can do for you?
A franchise fee is one-time fee paid by the franchisee to the franchiser for the business
concept, right to use of trademarks, management and other related services from the
franchiser.
A royalty fee is continuous fee paid by the franchisee to the franchiser usually based on a
percentage of the franchisee’s gross revenue.
Investigate the franchise
 By sure to look at more than one franchise and investigate similar franchise in the same line of
business.
 Review the brief descriptions of franchises.
 Federal Trade Commission requires that a franchise give prospective franchises formal
agreement at least 10 days before the contract is executed.
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 Prospectus or disclosure statement should provide background on the franchiser and its
financial position.
 Seek those who have been in the business for several years.
Obtain professional advice
Legal advice is the most important professional assistance you need before investing in a
franchise. A lawyer can advise you about your legal rights and obligation in relation to the
franchise agreement and may be able to suggest important changes in it that will protect your
interest better.
A lawyer should also tell you of any laws that may affect the franchise
especially taxation and personal liability aspect.
The future of franchising
The future of franchising are expected to continue to grow.
- What are some expected areas of growth for franchising in the future?
Restaurants:
The success of restaurants especially offering fast food because of:
 Their demographic factors such as of high percentage of young people in population and
increasing of women working outside the home.
 Positive influence of product that appeal to growing segment of the market, fast service,
healthy environment, building that easy to recognizable.
 Offering new dieting selection such as children meals in McDonald, Burger King.
Motels:
The motel industry has experienced explosive growth since the national high way system
began in 1956.
Convenience stores
Convenience store is usually associated with food outlet; it can cover other types of specialty
shops. Ex. T-shirt plus and health Mart.
Technology
With the rapid growth in electronics fields such computer franchising has naturally followed.
Today most business in the USA own at least one computer which indicates opportunities for
franchises.
Automotive Parts
Automotive franchises have been around for a long time as retail outlets for parts and
accessories. Also, there is increase in service shop which providing technical assistance.
Other area of expected development
 In packaging and shipping the franchise offer services such as private mailbox rentals, faxing
and photocopying.
 Changing in demographics is need for new franchise such as health care and fitness.
 With expansion there are needs for synergy to become greater by combing non-competing
franchises into one location.
 Synergy ‫ التآزر‬is the concept that two or more people working together in a coordinated way to
accomplish more than the sum of their independent efforts.
 Combination, Multiformat, Dual Branding, Complementary Branding big name
franchising offer companies’ product under the same roof.
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– Why is franchising growing globally?
 Franchises help the U.S balance of trade. Germany, Canada, Japan are the biggest sources of
export revenue.
 Global operation help the franchiser increase their revenues from foreign sales such as
McDonald’s.
 Fast food franchises have been particularly successful abroad because it is not as well
developed in other countries. Example: McDonalds, Pepsi.
End of chapter 5
Look to the question in page 96
Developed and Full summary for BE322
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Chapter 6
Planning, organizing, and managing a small business
Planning is the process of setting objectives and determining action to reach them.
1.
2.
3.
4.
5.
6.
Criteria for Planning:
Be Prepared
Be Patient
Know When To Get Help
Form Support System
Know Power Of Vertical Integration
Never Rest On Laurels
How planning relates to other managerial functions?
Look figure 6.1 page 129
Why small business owner need to plan?
Planning Provides Internally
1) Course Of Action
2) Bases For Change
3) Means To Delegate
1)
2)
3)
4)
Planning Provides Externally:
Interest From Investors/Lenders
Guide Owner/Managers In Operations
Give Direction/Motivation To Employees
Attracts Customers & Prospective Employees.
1.
2.
3.
4.
5.
A.
B.
6.
Why small business owners Neglect Planning
Day-To-Day Activities Get In Way ( have little time to planning for )
Fear of What planning Might Reveal of weaknesses and problems.
Lack Of Planning Knowledge
They Feeling Future Cannot Be Planned For
Planning Requires:
Original Thinking
Time
To Difficult to do.
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Types Of Planning ;
1- Strategic 2- operational
Strategic Planning
Comprehensive Long-Term Direction To Help Business Accomplish Its Mission.
Parts Of Strategic Plan:
Mission: Long-Term Direction
Objectives: Short-Term Ends
Strategies: Means To Achieve Objectives For
Total Firm
Functional Area
Areas For Strategic Planning
1. Business Selection
2. Determining Mission
3. Deciding On Start, Buy, Franchise
4. Choosing Product/Service
5. Identifying Target Market
6. Picking Legal Structure
7. Shaping Financial Needs
8. Selecting Location.
Operational Planning :
Sets Policies, Procedures, and Standards for Achieving Objectives.
Parts of Operational Plan
1- Polices: Guides For Consistent Action
2- Methods & Procedures Manner Of Operating
3- Budgets & Standards: Measures Of Control For Activities
Areas Of Operational Planning
1- Choosing Location
2- Planning Facilities
3- Developing Sources Of Supply
4- Planning HR Needs
5- Setting Up Legal Structure
6- Determining Approach To Market
7- Establishing Record System
8- Setting Up Schedule.
What is a SWOT analysis?
It is one tool that most strategic planners use to scan the business`s environment and base
objectives. The key is to eliminate weaknesses and threats and to capitalize on the strengths and
opportunities.
-strengths are the factor that makes you achieve a goal. Example, new product line.
-weaknesses are factors that do not make you achieve a goal. Example, narrow product line.
-opportunities allow the organization to exist and develop. Example, expanding foreign
markets.
-threats are factors that are damaging now or in future. Example, attack a core of the business
Developed and Full summary for BE322
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12345-
External Environment
Legal & Political Factors
Economy
Clients
Changing Demographics
Foreign Competition
Internal Resources(Competitive Edge)
1- Human Resource ( they are the personnel that make up the business's work force)ex. Sales
personal
2- Physical Resource (are the buildings, tools and equipment and service that need to carry on the
business )
3- Financial Resource ( including the cash flow, dept capacity and equity available to finance
operations )
Some important definitions:
Competitive edge: it is a particular characteristic that makes a firm more attractive to
customers than are its rivals.
Strategies: are the means by which a business achieves its objective and fulfills its mission.
Human resource planning: it is the process of converting the business`s plans and programs
into an effective work force.
Mission: a business`s mission statement define the present business scope and broadly
describes the organization`s present capabilities and focus.
Objectives: they are goals that give direction to the business as for measuring performances.
Financial planning: involves determining what funds are needed, where they can be obtained,
and how they can be controlled.
Net profit: the amount of revenue over the total amount of expenses of doing business.
Equity investors: are those who actually become part owners of the business.
Lenders: provide money for a limited time at fixed rate of interest.
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The role of financial planning
Financial planning can be quite simple or very complex but it should involve at lease the
following:
-
Estimating income and expenses:
Income from sales can be estimated by studying the market and expenses can be calculated from
past experience and other sources.

Variable expenses: change in relation to volume of output; when output is low, the
expenses is low and when output is high the expenses is high.

-
Fixed expenses: do not vary with the output, but remain the same.
Estimating initial investment:
To start business owner must pay for items such as buildings, equipment, materials, personal
inventory, machines, sales promotion at the outset before income from sales start providing the
means to pay these expenses from internal. To keep the investment and borrowing low, cash flow
projections must be made.
-
Locating source of funds:
Small business owner are finding the funds from various sources to start and operate the business.
First is using their own fund and another one is using from others.
Sources of Funds
1- Your Own Funds
2- Funds From Others
a. Equity Investors are those who actually become part owners of the business.
b. Lenders provide money for a limited time at fixed rate of interest.
Also owner can find interested investors such as relatives, friends, bankers or security lenders.
What is business plan?
Business plan is a formal plan to serve as a tool for attracting the other component of the
business.
Purposes Of Business Plan
1- Keeps On Target
2- Keeps Creativity Focused
3- Concentrates Power On Goal
A.
B.
C.
D.
E.
F.
Plan Should Include
Proposed Product
Expected Market
Industry Strengths & Weaknesses
Marketing Policies
Operations/Production Methods
Financial Aspects
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12345-
Preparing Business Plan
Business Current Status
Where Would Business Like To Be- Objective
What Will It Take To Get Business To Objective- Strategy
Owner Should Prepare
Create Action Steps
1234-
Components Of Business Plan ( page 145 )
Cover Sheet
Executive Summary ( look figure 6.9 page 146 )
Table Of Contents
History
5- Description Of Business
6- Definition Of Market
7- Description Of Products & Services
8- Management Structure
9- Objectives & Goals
10- Financial Data
11- Appendixes
123456-
Writing The Plan
Be Honest
Use The Third Person
Use Transitional Words
Avoid Redundancies
Use Short, Simple Words
Use Visuals
123456-
Preparation For Presentation
Adequacy Of Research & Development
Validity Of Research
Understanding Of Business
Financial Projections
Priority Of Objectives
Ability To “Make It Happen
End of chapter 6
Look to the question in page 126
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34
Chapter 7
How to obtain the right financing for your business
Estimating financial needs
The degree of uncertainty surrounding small firms long term financial needs primarily
depends on whether the business is already operating or is just starting. If the business has
an operating history its future needs can be estimated with relative accuracy even with large
growth.
Using Cash Budget:



The useful tool for estimated financial needs is a cash budget. Such a budget estimate what
the out of pocket expenses will be incurred and when revenues from these sales are to be
collected.
Sales are not constant over the year and the revenue is varying from one period to another.
Cash budget can help the manager predict when these financing needs will be the good and
plan the firm’s funding accordingly.
- Discuss the basic rule to follow in financing a business venture?
1. A new business or any expansion of major business should be evaluated with great care.
2. Paying particular attention to its capital requirements. Example: the firm’s fixed assets
should be financed with equity funds or with debt funds.
3. NO business can be financed entirely with debt funding nor would such as capitalization is
desirable ever the creditor were willing to lend all the funds required. This will be risky for
both creditor and business.
-Why should small business manager assess working capital needs in advance?
1. Working capital which include the current assets, less current liabilities that a firm uses to
produce goods and services and finance the extension of credit to customers. These assets
include items such as cash, accounts receivable and inventories.
2. Management of working capital is always a central concern because they are
undercapitalized cash receipt to pay for recurring expenses.
3. Small business managers must accurately estimate their working capital needs in advance to
cover the needs plus the buffer for unexpected emergencies.
- What are some reasons small business entrepreneurs use equity and Debt financing?
1. Equity financing:
 It is the owner’s share of the assets of company. The nature of this claim depends on the
legal form of ownership.
 For the proprietorship and partnerships the claim on the assets of the firm is that they are the
same as the owner`s personal assets
 Equity financing in a corporation is evidenced by shares of either common or preferred
stock.

Role of Equity Financing:
It is serving as a buffer that protects creditors from loss in case of financial difficulty.
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2. Debt financing

It comes from lender who will be repaid at a specified interest rate within specified time
span.

Small business uses it for several reasons:
1. The cost of interesting paid on debt capital is usually lower than the cost of outside equity
and interest payment are tax deductible expenses.
2. An entrepreneur may be able to raise more total capital with debt funding than from equity
source alone.
3. Because of debt payment are fixed cost, any remaining profit belong solely to the owners.

One type of financing debt is leasing facilities which is a contract that permit you to use
someone else’s property such as real estate.
Benefit:
1. The payment are tax deductible
2. It may possible to lease equipment when unable to secure debt financing.
What type of Debt and Equity Securities?
1. Equity securities

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All firms must have equity capital to start any business.
Common stock which representing the owner’s interest usually consist of many identical
share. Each of which gives the holder one vote in all corporate elections.
Preferred Stock has a fixed par value and a fixed dividend payment, expressed as a
percentage of pare value. It is usually conveys no voting rights to its holder.
Small company offering registration (SCOR) is the sale of common stock to the public
through a regulated board such as AMEX
2. Debt Securities
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Debt securities are usually in the form of loan.
Is usually made among short term securities mature in one year or less
Intermediate term securities mature in one to five years.
Long term securities mature after five years or longer.
Bonds are a form of debt security with a standard denomination, method of interest
payment and method of principal repayment.
Mortgage Loan is long term debt that is secured by real property.
Chattel Mortgage loan is debt backed by some physical asset other than land such as
machinery.
Many prefer asset based financing which accept as collateral the assets of a firm in
exchange for the loan
Different between common and preferred stockholders:
Common stockholders: are the owners of a corporation with claim to a share of its profits and
the right to vote on certain corporate decisions.
Preferred stockholders: are owners with superior claim to a share of the firm`s profits but they
often have no voting rights.
Developed and Full summary for BE322
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- list and discuss the primary sources of equity financing?
1.




Self
Owner of small firms rely on their own capital which important source of financing.
More dependent on short term debt the long term debt.
Use external financing only occasionally
Owner prefers using their own funds to be comfortable and do not want to share control of the
firm.
2. Small Business Investment companies (SBICs)


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
SBICs are private firms licensed and regulated the SBA to make venture investments in small
firms.
It is supply equity capital and unsecured loan to small firms
Intend to make profit making institution
SBICs prefer to make loans to small firms rather than equity investment.
3. Venture capitalists:
 Serve as a form of security blanket when needed
 Makes investments based on projected future income and generally require a large return as
either equity or profit.
4. Angel Capitalists
 These angel capitalist or business angles are wealthy local business people and other investors
who may be external sources of equity funding.
 Provide up to four times as much total investment capital as venture capital.
5. Other sources
 Business incubators help in managing in house and revolving loan funds, connection with
angle investor and assist with loan application.
 Employee stock ownership plans allow business to gain tax advantage and cash flow
advantage by selling stock shares to workers.
 Customer
 Bartering consist of two companies exchange item of roughly equal value. The uses such as
business travel, debt collection, closing sale
- list and discuss the primary sources of debt financing?
1. Trade Credit
 Is extended by vendors on purchase of inventory, equipment and supplies.
 With consignment selling payment to supplier are made only when the product are sold rather
than when they are received in stock.
2. Commercial and other financial institutions
 Provide small business owner with borrowed funds which is high than other alternatives but
may be the most accessible.
 Commercial bank which is dominant supplier of external financing to small firms. A line of
credit permits a business to borrow up to a set amount without red tape.
 Credit card another form of credit line.
 Insurance companies are good source for small firms especially real estate ventures.
Developed and Full summary for BE322
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- Evaluate the role of the SBA in providing operating and venture capital?
1. The primary purpose is to help small firms find financing.
2. Help small firms in several way such offering guarantees on loans and offering direct
specialized financing.
3. Provide some venture capital through SBICs.
4. Licensed SBICs include specialized SBICs (SSBICs) to assist socially disadvantaged
enterprise.
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Guaranteed loans:
Guarantees 30 to 40 % of all long term loans to small business and guaranteeing repayment for
a certain percentage of the loan.
Look for a debt to net worth ratio not more than 3:1 after the loan is granted.
Look for management ability and experience in the field of operation
Look for feasible business plan
Look for ability to repay the loan.
Specialized Program
Government contracts to be awarded to small, disadvantaged business along with counseling
and bonding assistance.
Low documentation (LowDoc) loan program which can be used for loans of less than
$100,000.
CAPLine revolving Line of credit initiative which obtain short term working capital through
an established line of credit.
Women prequalification Loan program which allow women to receive prequalification from
SBA for a loan guarantee of up to $250,000 before going to bank.
- Some others definitions:
Financial leverage: is using fixed charge financing usually dept, to fund a business operation.
A lease: is a contract that permits use of someone else`s property for a specified time period.
Barter: consists of two or more companies exchanging items of roughly equal value.
A green product: is an environmentally friendly product offered for sale commercially.
End of chapter 7
Look to the question in page 178
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Chapter 8
How to market Goods and Services


- What is the marketing concept and why is it so important to small firms?
The marketing concept involves giving special consideration to the needs, desires, and wishes
of present and prospective customers.
Emphasize that the survival of any business depend on providing services.
 Involve of three elements:
1. Customer orientation.
Small firm will try to identify the group of people or firms to buy their product and to produce
goods or services that meet the needs of the market.
2. Goal orientation
The firm must not lose vision of its own goals. Goals in profit seeking firms typically center on
financial criteria.
3. Use of system approach
In system all parts of the business work together. The consumer needs are identified and
internal procedures are set up to ensure that the right goods and services are produced,
distributed and sold to meet the needs.



Meeting customer’s needs
Understanding customers’ needs mean being aware of the timing of the purchasing, what
customer like and dislike.
Marketing concept is guide the attitude of the firm’s salesperson who should encourage
building personal relationship with customer.
Customer satisfaction involve other factor such as store design, method of payment
Implementing the marketing concept
1. Be conscious of image
 You should evaluate the business frequently to see what kind of image it projects from the
customer’s point of view.
 You should ask: can my customer find what they want? When they want it? Where they want
it?
 You should use a relationship building technique
2. Practice consumerism
 Consumerism involves prodding business to improve the quality of their products and to
expand consumer knowledge.
 Concern about the right of consumer to buy safe product, to be informed and to be able to
choose and to be heard.
3. Look for danger signals
 There are some signals that can indicate when the marketing concept is not being followed such
as making more errors, lacking knowledge of store.
- How is the key success factor for a firm related to its competitive edge?


A competitive edge is a particular characteristic that makes one firm more attractive to
customers than its competitors.
Some factors that provide advantage are quality, reliability, integrity, service and lower prices.
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1.
2.
3.
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1.
2.
3.
4.
5.
Innovation can provide a competitive edge.
In small business, it can be as courtesy, friendliness and helpfulness.
It may involves developing and managing cost effective databases which provide information
indicating who should be contact –when can be contacted –how to contact them.
Competitive edge based on providing goods and services that are better, cheaper and faster
which can increase the value of the firms.
E-commerce is the technology mediated exchange goods and services between parties by using
internet.
- why is marketing research so important to a small business?
Marketing research is the systematic gathering, recording and analyzing of data relating to the
marketing of goods and services.
It Help you to decide:
Whether develop new or different products.
Expand at the original location or open additional locations.
When and where to change emphasis on activities such as channel of distribution or advertising.
Marketing research can aid marketing by:
Identify customers for the firm’s product.
Determining customer’s needs
Evaluating sales.
Selecting the appropriate distribution channel.
Evaluating advertising and promotional effectiveness.
- How to do marketing research
1.



2.


3.
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
Defining the problem
Identification of problem is the most important step in the process.
You should look at influences that may have caused it.
You should look beyond the signs of a problem to get at the real cause.
Gathering and evaluating information
Through using existing or generate new information to help in taking the right decision.
Gathering right information will minimize making wrong decision.
Using existing information
Using record and files of sales record, complaints and receipt.
Such things give more information about the customers where he live and work and what they
buy.
4. Doing Primary Research
 Can be through asking customer or supplier how they feel about the business.
 Through questionnaires, telephone or surveys and test marketing.
5. Using specialized research techniques
 Include license plate analysis, telephone number analysis and coded coupons.
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Developing Marketing strategy
1. Setting Objective
 Marketing objectives should be tied in with the competitive edge and flow from your mission
statement.
 Objectives must consider customer needs as well as the survival of the business.
2. Choosing Target Markets
1. Market segmentation
 Is identifying and evaluating various layers of a market.
 It is effective because:
1. Identifying the characteristics of two or more segments of the total market. Then, distinguish
among the customers in each segment on factors such as age and gender. Example: adults
prefer table-service restaurants while teenagers prefer fast-food restaurants.
2. Determine whether any of those market segments is large enough and has sufficient buying
power to make a profit for your business.
3.
Align your marketing effort to reach the selected segment of the market profitably.
2. Shifting target markets
Due to change in consumer characteristic, small business owner should study the external
environment for shift in such factors as population patterns, age, income level and consumption.


3. Population and age shifts
The factor is determined consumer demand is the number and type of people with the
purchasing power to buy a given product.
Important population factor is household size, formation, education and the number of married
and un-married, children.
4. Regional differences in purchases
Purchasing habit and patterns also vary by region. These differences are signification for where
people live is indications as to what they buy.
3. Marketing mix:
 It is consists of variables that the firm combines to satisfy the target market.
 Types of variables:
1. Product: the right product for the market must be developed.
2. Place: refers to the channels of distribution.
3. Promotion: refers to any method that communicates to the target market.
4. Price: the right price should be set to attract customers and make a profit.
- What are the major stages of product life cycle and how do marketing strategies differ at
each stage?
Product life cycle: Consists of four stages: Production, growth, maturity and decline.
1.
Introduction stage: Begins when a product first appears on the market. Prices are high and
sales are low. Profits are negative because of high development.
2. Growth stage: Sales rise rapidly and profit peak. As competitors enter the market, they
attempt to develop the best product.
3. Maturity stage: Competition becomes more aggressive. Declining prices and profits.
Competitors cut prices to attract businesses; new firms enter and increase competition.
4. Decline stage: Sales fall rapidly, especially if a new technology is involved.
Developed and Full summary for BE322
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

- In what the Packaging is important for small firms and their customer?
Packaging protects and promotes the product, it is important to you as well as to your
customers.
Packaging can make a product more useful to use or store and can reduce spoiling or damage.
Good packaging makes products easier to identify and promotes the brand at the store, also
It influences customers in buying the product.
Packaging can also improve product safety.



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

-What are the three basic considerations in pricing product?
Pricing can make the difference between success and failure.
Divided into four categories:
Customer
Company
Competition
Constraints

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Customer and company categories are internal and within the control of the owner or manager.
Competition and constraints are external and beyond the control of the business.

1.
2.
3.
There are three practical aspects of pricing:
The price must be suitable for the customer to purchase.
You must set your prices to expand your market share or profit.
If you want to make a profit on a new product, the price must be greater than the cost to cover
the operating costs.
-Establishing Pricing Policies
1. Effective of product life cycle
You have to alternatives to introduce new product.
 Skimming price: Is one set relatively high initially in order to rapidly skim of the ‘cream’ of
profits.
 Penetration price: Is one set relatively low to secure market acceptance.
2. Meeting the competition
You can set prices by meeting the competition that is following the pricing practices of
competitors. Small firms can attractive and the unique product should not afraid to charge what
the product is worth.
3. Cost oriented pricing
 Cost is basic to all pricing policies.
 Total cost provides the floor below which prices should not be permitted to go especially for
long period.
 Cost oriented pricing involves adding a markup to the cost of item.
4. Markup
 Markup: the amount added to the product’s cost to determine the selling price
 The amount of the markup is determined by the type of product sold, the amount of services
performed by the retailer, how rapidly the product sells, and the amount of planned profit.
 Markup may be expressed in term of dollars or cents or as percentage.
Dollar amount of markup
Markup as percentage of cost = _________________________
Cost of the item
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5. Discounts and allowances
 Discount: A reduction from a product’s normal list price is given to customers as an
inducement to buy the item.
 Allowance: Are given to customers for accepting quality or quantity reduction.
- explains how service firms, retailers, wholesalers, manufactures, building contractor
actually set prices?
1. By Services firms
They try to set prices based on the cost of labor and materials used to provide the service as
well as direct charge, such as transportation cost, and profit margin. Many firms charge
customers an hourly rate based on the time require performing the services.
2. By retailer
 Different types of product are priced differently.
 By Customary prices are what customer expects to pay because of custom, tradition or social
habit.
 By Using unit pricing which is listing the products price in term of some unit such as yard.
 By loss leader is an item priced at or below cost to attract customer to buy more items.
3. By wholesalers
 Prices based on a markup set for each product line.
 Sometimes quote different prices to different buyers for the same product.
4. By producer
Many set the prices relative to the cost of product using a breakeven analysis.
5. By building contractors
By use cost plus pricing is basing the price on all costs plus a markup for profit.
Q11- How does marketing of services differ from the marketing of goods?
There are few objective standards for measuring service quality, but quality should be
emphasized because customers measure services subjectively.
Price competition in
standardized services is quite severe; however output of services firms is often difficult to
standardize and services cannot stored in inventory. Special features important sources of a
competitive edge for service business.
- Implementing Marketing strategy
 The introductory stage
1. Analyze market situations
This step is determines the opportunities that lie in present and future market situation and the
problems and adverse environment that will affect your company.
2. Fit product to market
You should design the product to fit the market and find other market that fit those products.
3. Evaluate company resources
Your company strengths, its limitation should be determined at each stage of marketing process.
Cost, competitive and timing pressure must be viewed realistically. Success and failure need to
be understood as important learning experience.
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 The growth stage
1. Expand product to reach new market
Find new application in new market; add customized product and upgrading quality. This is
diversification which tends to increase profit, contribute to long range growth, and fill out
product line. It is involve adding products that are unrelated to the present product line.
2. Increase penetration of present market
If you want to increase the sales of existing products to existing customers, you might reduce
the number and variety of products and models to produce substantial operation economies.
3. Make No marketing innovation
The strategy of retaining current marketing practices without trying to innovate may suit your
company if its strength lies in its technical competence.
Some important definitions:
Competitive edge: Sometimes called competitive advantage is something that customers want
and only you can supply, which gives you an advantage over competitors.
E-commerce: It is a technology- mediated exchanges between two parties as well as the enter
organizational activities that facilitate such exchanges.
Market research: It is the systematic gathering, recording and analyzing of data relating to the
marketing of goods.
Database marketing: It is a quick process for acquiring customers that involves obtaining
meaningful consumer information and making marketing decisions. Example: Lands End
Target market: It is part of the total market toward which promotional efforts are concentrated.
End of chapter 8
Look to the question in page 198
Developed and Full summary for BE322
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Chapter 9
Promoting and Distributing
Advertising: Informs customers of the availability of the product.
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Types of advertising:
Institutional Advertising: It is selling an idea about the company. Example: the awareness
programs like breast cancer.
Product Advertising: Calls attention to or explains a specific product. Example: coffee
Types of sales promotion are:
Trade promotion: include advertising specialists for example, free goods.
Sales and Force promotion: consists of benefits such as contests for example.
Consumer promotion: coupons, discounts, contests.
Types of global marketing are:
 Importing: Involves purchasing and marketing other nation’s products.
 Exporting: Involves marketing our products to other nations.
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
Reasons for importing:
Imported goods may be the product that the company sells to customers. The small company
must decide whether to purchase U.S products, or import foreign products.
Companies from other countries are just interested in selling to U.S markets.
Small business owners capitalize on the fact that some American prefers foreign goods. Example:
Japanese Cars
Problems with importing:
Foreign goods flooding U.S markets at the same time that some of our producers is suffering
from lack of customers or even going out of business.
What is distribution and what is its process?
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-
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Distribution: Involves the physical movement of a product from the production line to the final
consumer.
Process of distributing:
Storing: Public warehouses useful to small firms wanting to place goods close to customers for
quick delivery.
Order processing: Order processing begins with the moment the customer places an order. The
order goes to the office, on an order form, after the order if filled the goods are sent to the
customer. Example: Free delivery of KFC food.
Transportation modes: Are the methods used to transfer products from place to place.
Distribution channel: Consists of the marketing organizations responsible for the flow of goods
and services from the producer to the consumer.
Factors to consider in choosing a distribution channel:
Geographical market and consumer types arranged in order of importance.
Whether the product will be distributed through many outlets or not.
Kind and amount of marketing effort the producer intends to exert.
Need for receiving feedback about the product.
Adequate incentives to motivate resellers.
Developed and Full summary for BE322
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What is the intermediates and list its types?
Intermediates: Are those unites or institutions in the channel of distribution that take title and
discuss about the product.




Types of intermediates:
Brokers: Bringing buyers and sellers of goods together to discuss the purchase of sales.
Agents: Market a product to others for a fee.
Wholesalers: Take actual physical possession of goods and then market them to retailers.
Retailers: Sell goods and services directly to the customer.
- Steps in creative selling process:

Preparation: Before any customer contact is made, the salesperson should know the company’s
policies, procedures, and rules.

Prospecting: Consists of taking the initiative in dealing with new and regular customers by going
to them with a new product idea. Example: When a salesperson calls a bride-to-be and tells her
about goods that are appropriate

Making initial Contact: Serving customers should be given top priority. Nothing is more
annoying to a customer than waiting for a clerk to finish his discussion on the phone.

Presenting the Product: You should stress its benefits to the buyer. Get the customer involved
in the presentation by demonstrating several features of the product.

Handling Objections: If the customer presents objections, you should recognize this as a sign of
progress, because a customer who does not plan to buy will seldom seek information in this way.

Closing the Sale: Some closing techniques you can use to help the customer make the buying
decision such as ‘May we deliver it to you this afternoon?’

Suggestion Selling: When a customer buys fabric, you should offer matching thread or buttons.

Sales follow up: Follow up should be part of every sale. The close ‘Thank you for shopping with
us’ is a form of sales follow up if said with sincerity.
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
-
Attributes of a Creative Salesperson
Mental Attributes: Judgment is essential for effective selling. Example: Good salespeople do
not argue with customers or criticize the business in front of customers.

Physical Attributes: Personal appearance is important for success. Example: A slim salesperson
would be more appropriate than a larger person for a health spa.
Some other Definitions:
Infomercials: Also known as paid programming teleshopping, they are long usually half-hour
TV ads hosted by hyper ‘sell evangelist’ selling a relatively new product.
Immediate- response advertising: Tries to get the customer to buy a product within a short time
so that the response can be easily measured.
Merchandising: Promoting the sale of a product at the point of purchase. Example: when you go
to the store Extra and you constantly see a guy with a microphone constantly talking about a
product to try and attract customers in buying the product.
Sales promotion: Activities that try to make other sales effort such as advertising more effective.
Example: An advertisement of 2% to try to promote your sales.
Trade show: Also known as trade fair an exhibition of products or services by companies in the
same industry.
Publicity: Free advertising.
Global marketing: involves products that are produced and bought, sold or used almost
anywhere in the world
Off- price retailers are those who buy designer labels and well-known brands of clothing at low
prices and sell them at less than typical retail prices. Example: T. J MAXX
End of chapter 9
Look to the question in page 230
Developed and Full summary for BE322
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47
Chapter 10
How to obtain and manage Human Resources and Diversity in
Small Companies
Planning for Human Resources Needs
1. Determine type of employee needed
 The smallest business should have some type of job specification which is statement s of the
mental, physical, and other qualifications required of a person to do the job.
 Job specification begin with a job description which a list to of the job’s duties and
responsibilities of a given job.
 Job description should be flexible in very small firms to give the owner more freedom in
assigning work to available employee wither the work fits their job description or not.
2. Develop sources to recruit employees
1. Internal sources
 Filling the job opening with present employees rather than going outside the business makes
good sense.
 Upgrading involve retraining workers so they can do increasingly complex work.
 Transferring is moving employee from one job to another without changing job title or pay.
 Promoting is moving an employee to a higher position usually with increasing title or pay.
2. External sources
 Former employees
 Friends and relative
 Applicant received in person or by mail
 Competing firms
 School and college
 Social and professional organization
 Retirees and older worker
 Part time and temporary workers
 Leased manpower
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1.
2.
3.
4.
5.
6.
7.
Methods of recruiting employees
Recruitment is reaching out to attract a supply of potential employee.
It is done by:
Advertising
Networking is the process of establishing and maintaining contacts with another organization
as informal development or promotion systems.
Employment agencies
Scouting such as campus recruiting.
Employee referral such as recommendation of present employees.
Temporary help services such as agencies provide part time employees.
Internet or website.
Developed and Full summary for BE322
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Method of selecting the right person
 Selection involves choosing the applicant who has qualifications to perform the job.
 Selection procedure involves:
1. Gathering Information about the applicant
2. Using employee input
3. Preliminary screening through formal interview or reviewing candidate application form.
4. Gathering biographical information such as school record, resume.
5. Giving pre-employment test which must be job related.
6. Interviewing applicant in depth or diagnostic interview to determine the applicant character
and other aspects of personality.
7. Checking references (personal, academic and past employment)
8. Giving physical examinations
9. Making a job offer include details of working condition
10. Orienting the new employee include introduction to co-worker and some explanation about
business, procedure, policies and benefits.
Ways of training Non-Managerial Employees
1. On the job training or on the job learning occur when the workers perform their job under
supervision and guidance of the owner.
Advantage: Not cost much and production is continues during training.
Disadvantages: is too much waste caused by poor learning environment.
2. Apprenticeship Training mixtures OJT with learning of theory in the classroom.
3. Internship training combines education at a school or college with OJT training at a
cooperation business.
4. Cross training involves workers learning many job skills.
5. E-training involves computer interaction with specific software or online sites for training.
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
49
Selecting and developing manager
1.
2.
3.
4.
-Selecting managers
Many business hired college graduates for management trainee program that the characteristic
to be developed to produce a good manager are creativity, producing, self-motivation and
innovativeness.
-Developing manager
Coaching: managers provide guidance to the employee while the employees perform their
regular job.
Planned progression: the company outlines the path of promotion that lies ahead of anew
manager.
Job rotation: managers learn various operating procedures by performing many jobs in
different areas temporarily.
Executive development program: this program to develop managers is performed outside the
company.
Compensating employees

Legal influences
There are many federal and state laws that affect how much small business owners pay their
employees.
 Setting rates of pay
You pay whatever you must to attract the people you really need and can afford.
 Using money to motivate
1. Merit increase is based on the employee’s ability and performance.
2. Incentive payments can be paid in the form of incentives wages, bonuses, commission and
push money.
 Incentive wages which are the extra compensation paid for all production over a specified
amount.
 A commission is given amount per sale or percentage of sales.
 Bonus is a reward for exceeding production quotes.
 Push money is a commission paid to a salesperson to push a specific item.
3. Profit sharing, employee receives a prearranged share of the company’s profit.

Providing employee benefits
Employee benefits are the rewards and services provided to workers in addition to their regular
earning.
1. Legally required benefits:
 Social security is a federal program that provided support for the retired and their dependents.
 Unemployment insurance provides some financial support employees laid off for reasons
beyond their control.
 Worker’s compensation involves payment made to employee for losses from industrial
accident or occupational diseases.
2. Some other popular benefits
 There are voluntary benefits such as health and accident insurance, life and disability insurance,
sick leave, pay for time off.
Factors influencing workers health and safety
1. Type of industry which have a relationship with safety.
2. Type of occupation.
3. Human variables such as personal characteristic or job satisfaction.
End of chapter 10
Look to the question in page 260
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
50
Chapter 11
How to Maintain Relationships with our employees and their
representatives




- How would you define good human relations?
It is difficult to define the human relations because it is different things to different people.
Human relations involve the interaction among people in the organization.
A human relation involves the cooperative and friendly interaction of people in the areas of
leadership, communication and motivations.
Good human relation occurs when employees and small business owner develop a form of
social contract which outlines their rights and duties.

- What is the leadership? Why is it important in small business?
Leading is one of the basic management function is getting employees to do the things you
want them to do by communication with motivating and punishing them.

Leadership is the ability of one person to influence others to achieve objectives.

It is important to encourage worker to achieve their goals or business’s objectives.
- Why communication is important in small business? What is the barrier to effective
communication? How these barriers are overcome?

Communication is the process of transferring meaning (idea or information) from one person
to another.

Communication is important because people need and want to know what is going on so they
can do their jobs properly. Owners, employees and others need to coordinate their work.

Communication must be clear and complete.
Communication process
1.
2.
3.
4.
5.
6.
Source has an idea or impression that.
Is needed to encode or translated into word or symbols that.
Are transmitted or sent as message to receiver.
The receiver picks up the symbols and
Decodes or retranslated the back into idea and
Sends some form feedback to the senders.
Barriers to effective communication:
1. The owner’s position of authority, employees tend to believe what the owners say regardless of
whether it is true or not.
2. The imprecise use of language also serves as barrier especially those from high tech fields.
3. Simply inattention and poor listening from the owner’s may not pay attention to employee
feedback.
Rules of Communication
1- Keep It Simple
2- Recruit Initial Users
3- Encourage Diversity
4- Enlist Cheerleaders
5- Archive Best Advice
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
51
How to improve or overcome the barriers of communication
1.
2.
3.
4.
5.
6.
Clarifying your ideas.
Consider the environment in which the communication occurs.
Consider emotional overtones.
Following up the communication.
Being a good listener.
Take the advantage of new technology like using telephone.
- What is the motivation? Why is it important in small business?
 Motivation is giving your employees the reason to perform better.
 Motivating can either positively or negatively.
 Employee performance is product of the employee’s ability to do the job and the application of
positive motivation.
Performance = Ability X Motivation
 Motivation is give employees a reason to perform better. But if there are something frustrating
or annoying the employees they will react negatively.
 Motivation is important because:
1. Attracting potential employees
Through using incentives include a good income or promotion and bonus.
2. Improving performance
To improve performance and efficiency by giving employee more responsibility or merit
increase.
3. Retaining good employees
Motivation used to retain employees through reward the employee who stay with company.
How to motivate employee
The motivational process (page 300)
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
52
Practical ways to improve employee motivation
1. Quality circles are small employee group that meet periodically to improve quality and output.
2. Zero defects approach uses pride in workmanship to get workers to do their work right the
first time.
3. Job enrichment is granting workers greater responsibility and authority in their job.
4. Variable work schedule allow employee to work at time other than the standard work.
5. Flextime allows employees to schedule their own hours.
6. Job splitting is dividing a single full time job into different parts, each one doing one of the
parts.
7. Job sharing is job shared by other worker doing it at another time.








1.
2.
3.
4.

1.
2.
3.


- What is the purpose of performance appraisals? Why are they so important?
Performance appraisal is the process of evaluating workers to see how well they are
performing.
It helps to evaluate the performance and progress of employee’s and reward are given for above
average performance.
It is determine merit salary increases or promotion transfers.
Can be used for disciplinary action such as suspension or discharges.
Employee appraisals are usually based on such factors as quantity and quality or work
performed.
Appraisals are usually doe by the employee direct supervisor or the subordinates.
They can also be used to motivate employee if the evaluation are translated into reward.
Performance appraisal are based on:
Ability and qualities lead to
Job behaviors that
Result in Work performance that
Cab be identified and measured.
- Discuss the areas are requiring counseling? How can improve the counseling in those
areas?
Counseling is designed to help employees do a better job by helping them understand their
relations with supervisors, customer and workers.
Job related Areas needing counseling:
Health and safety
The whole complex area of health and safety requires counseling and guidance.
Retirement or termination
Counseling is help workers to find other employment or how to deal with their coming life.
Stress
Stress can be a killer for a small business when the individuals are placed in a work
environment that is incompatible with their professionals work style. Stress can result in job
burnout.
Personal problem
Many employees suffer personal problem which reduce productivity. Those problems are
controlled substance related while the other tends to be emotional problems. Employers are
coping with the problems through counseling, referral to trained professionals and employee
assistance programs.
Handling employee complaints:
You should encourage employee to inform you when they think something is wrong and needs
to be corrected. Unresolved complaints can lead to more problems, so you have listen and deal
with them and make a decision to solve it.
Developed and Full summary for BE322
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53
Imposing Discipline
Discipline involves fairly enforcing a system of rules and regulation to obtain order.
Encouraging self-discipline:
Your employee should have confidence in their ability to perform their job and know you will
provide support if they run into difficulties. You should encourage self-discipline among
employees rather than rely on direct control.
Using positive discipline:
Positive discipline is to improve morale and lower turnover. It is deal with an employee’s
breach of conduct by issuing an oral reminder then a written reminder followed by a paid days
off. So the employee can decide if he wants to keep the job.
1.
2.
3.
4.
5.
How to discipline employee legally:
Setting definite rules.
Acting promptly on violations.
Deciding what action to take
Recorded the action taken and follow up on the outcomes
Setting up courses of action and evaluate them
Terminating Employees
That is mean the employee may fire employees with or with without cause at any time they
choose. The courts and legislators are applying “good faith and fair dealing” concept which
the termination must be reasonable.





Setting up the organizational structure
Organizational structure of business governs relationships between the owner, managers and
employees.
Organizing is determining those activities that are necessary to achieve a firm’s objectives and
assigning them to responsible persons.
A major problem with small business owners is that they do not organize their activities
properly.
Issues can be solved by standard practices manual or standard operation procedures manual.
It will help to clarify the employee or employer role and serve as defense in many employee
related courts action.
Explain some basic organization concepts used in small business?
1. Delegation
 Delegation is assigning responsibilities to subordinates for doing certain activities and giving
them the authority to perform those activities.
2. Specialization
 Specialization is using employees to do the work that they are best suited for and according to
their talents and desires.
 Specialization can result in some employee’s being idle while others overworked.
 Judgment is needed in assigning responsibilities.
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
54
Some ways to organizing a small business
1. By type of authority
 In the line organization, the owner has direct line of command over employees
 A line and staff organization is the owner is directly responsible for seeing that the employees
do these things.
 The informal organization is the set of interpersonal relationships that arise on and off the job.
2.






By activities to be performed
Function Performed such as production
Product Sold such as ladies wear
Process Used such as X-rays
Area Served such as urban
Type Of Customer such as commercial
Project such as constructing a store
Types of Teams management to improve performance
1.
Problem-Solving Team
Meet on a regular basis to discuss ways to improve quality, efficiency and the work
environment
2.
Self-Managing Team
Take over managerial duties and produce an entire product.
3.
Cross-Functional Team
Formed to monitor, standardize and improve work process that cut across different part of the
organization.
End of chapter 11
Look to the question in page 292
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
55
Chapter 14
Basic financial planning


What is the profit planning?
It is series steps to be taken to ensure the profit will be made.
To make profit, your prices must cover all direct and indirect cost and include a markup for
planned profit.
- “if a small firm is making a profit, there is no danger of its failing”. Do you agree? Why
or why not?
Not agree, because of some small firms make profit and still fail, since profits are not
necessarily in the form of cash. The healthy sales income does not guarantee a profit. It is
important to determine the true cost of a product in order to set a fair price and budget and plan
accordingly. Account receivable may reflect profits but many of those accounts may not be
collectible. Too much money may be tied up in other assets and not available t pay bills as they
come due.
What is the financial structure of business?


It is the assets, liabilities and equity accounts of a business which are interrelated and interact
with each other.
The balance sheet is prepared to show the assets, liabilities and owners equity of the business
at given time. Balance sheet can be used as gauge of the financial health of your company.
1. Assets
 They are the things a business owns such as land, equipment or building.
 Current assets are expected to turn over that is to change from one form to another within a
year. Account receivable is current assets resulting from selling a product on credit.
2. Liabilities
 They are the financial obligations of a business.
 Accounts payable are obligations to pay for goods and services purchased and usually due
within 30 or 60 days depending on the credit terms.
3. Owner Equity
 It is the owner’s share of the business after liabilities are subtracted from assets. The owners
receive income from profit in the form of dividend or increase in their share of company
through an increase in retained earnings.
Profit making activities of a business






These activities are influence the financial structure of business. It is reflected in revenue and
expenses accounts.
Net income (profit) = Revenue (income) – expenses (costs)
These revenues and expenses shown in income statements periodically from a firm's operations.
Revenue called sales income is the value received by a firm in return for services or goods.
Expenses are the cost of labor, goods and services include wages, materials and insurance.
These costs are deducted from revenue.
Profit also called income and is the differences between revenues earned and expenses
incurred. Also called gross income, operating profit, net income.
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
56
How to plan for profit in small business OR What are the steps are needed in profit
planning?
1. Establish the profit goal
A profit goal is the specific amount of profit one expects to achieve.
2. Determine the planned sales volume
A sales forecast is an estimate of the amount of revenue expected from sales for a given period
in the future. These forecasts are used to estimate revenues for the next quarter or year.
Learning how to forecast can spell the difference between growth and stagnation of your
business.
3. Estimate expenses for planned sales volume
First track your expenses closely for a month or two, and then record last year's figures as part
of this step. Then adjust them for changes in economic conditions, changes in expenses needed
to attain the planned sales, improved methods of production and reasonable salary for year
services as the owner.
4. Determine the estimated profit
You first deduct the figure for estimated expenses from the estimated sales income. Then add
the total of any other income such as interest.
5. Compare estimated profit with profit goal
In this step compare the estimated profit with your profit goal you set in step 1 either less or
more than you wish. Your decision to continue with steps 6 through 10.
6. List possible alternatives to improve profits
 Change the planned sales income by:
 Increasing planned volume of unit by Increase sales promotion, improving quality, making it
available.
 Increase or decrease unit price.
 Decrease planned expenses by:
 Establishing a better control system
 Increasing productivity of people and machine through improving method and use of
machinery.
 Redesigning the product by developing new materials, machine or methods.
 Reduce cost per unit by:
 Using idle capacity innovatively.
 Adding a summer product to a winter line of products.
 Making some parts that are purchased from the outside.
 Subcontract work.
7. Determine how expenses vary with changes in sales volume
This is can be done by reviewing your expected expenses in step 3 and varying them up and
down. Some are fixed and some vary with level of sales.
8. Determine how profit vary with changes in sales volume
 This can be done by using fixed expenses, variable expenses and the resulting profit before
income taxes. These figure incorporated into a chart. These figures called breakeven point.
 Breakeven point is that volume of sales where total revenue and expenses are equal so there is
neither profit nor loss.
Developed and Full summary for BE322
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57
9. Analyze alternatives from a profit standpoint
Using information from steps 6, 7 and 8 can lead to consider alternatives such as the following:
 Change sales prices
 Change media for advertising
 Change quality of products
10. Select and implement the plan
Action of selection the plan is depending on your judgment to what will most benefit the
business.
End of chapter 14
Look to the question in page 364
‫ال اسألكم غير الدعاء واتمنى التوفيق للكل‬
Developed and Full summary for BE322
)7 ‫(فتى مدريد‬BY Ahmed al-Kaldi
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