University of Newcastle upon Tyne
Business School Partner’s
Programme
Session 6, 7 & 8
Accounting
Finance for the SME
Marketing
Important Considerations
• Cash
• Profit
• Business Planning
Brief Introduction to financial
statements
• Working in groups of
4-5 discuss what you
need to know about a
business to judge its
financial position?
Types of Financial Statements
• Profit & Loss Account (P&L) – shows the
business income, expenditure and profit for the
period (usually one year)
• Cashflow statement – a working example of the
effects of cash in and cash out
• Balance Sheet – this is the company’s statement
of assets and liabilities at a specific time (usually
at the end of the year)
Why prepare a P&L account and a
cash flow statement?
• Profit is not a measure of cashflow
• Businesses fail because they run out of cash
• Being in profitiable does not mean you are going
to survive as a business
• In companies that are not operating in retail
(cash business) most sales and purchases are
made on credit and recorded when made.
• Timing difference between recording the income
and expenditure in the accounts and
receiving/paying the cash
Continued…
• Fixed assets (which are?) have to account
for depreciation.
• The cost is spread over their expected
useful life and charged against profit –
HOWEVER the cash outflow occurs when
the company pays for them and is
therefore impacts on the cashflow of the
business
Continued…
• Accountants make many adjustments so
that the reported profit figure reflects all
the income earned during a period (usually
a year) and all the expenditure incurred.
• The link between income, expenditure and
cashflow in therefore tenuous
Cash is King!
• Working in your
groups discuss why
you think the above
statement is
important?
So which is most important cash or
profit?
• If you run out of cash you will go out of
business
• If you don’t make a profit you will
eventually go out of business
• Pricing your product or service is critical
and needs careful consideration
Business Planning
• As you will see by considering the case study
company financial planning is paramount to
business success
• This is normally presented in a business plan
format
• Forecasts the funding requirements for start-up,
predicted sales, cash required
• Able to monitor predicted sales to the actual so
that the business can make adjustments
P&L Account - Key words!
• Gross profit – sales less cost of sales
• Expenses – other costs of running the
business
• Depreciation – cost of equipment charged
over its useful life
• Net profit – profit after all expenses but
before tax
P & L - Key words continued…
• Interest - on borrowings
• Tax – corporation tax on profits made
• Retained profit - left and ploughed back
into the business (shown on balance sheet
as capital and reserves
Balance Sheet
• Based on the principle that capital and
reserves = total assets less liabilities – the
trick is to get the balance sheet to ‘balance’
• Fixed assets – long lasting ones such as
fittings, vehicles, software, hardware are
shown at cost and consider depreciation over
time
• Current assets – short term assets such as
debtors and cash
• Liabilities – money owed, loans, tax
• Capital & reserves = after tax from P& L
Cashflow
• Cashflow in and out monthly
• Includes loans & grants which do not
appear in the P&L account
• Includes input and output VAT which does
not appear in the P&L account
• Capital expenditure
• Shows opening and closing bank balance
Watch out for…
• Monthly allocation – rent, rates, electricity,
telephone etc which are equal
• Monthly allocation of sales and
expenditure which are not equal – WHY?
Considerations
• What is a budget?
• Why do we need a budget cashflow
separate from income and expenditure?
• What a does a balance sheet show you?
• Which is more important cash or profit?
Finance For The Small to Medium
size Enterprise (SME)
Raising the Money
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Needs careful Planning
Think about the long term
How much money?
Who to approach?
Security you can offer
backers?
• Know the business plan,
financial figures & market
place
Setting up a small business!
• What do you need the
finance for?
In groups of 4-5 discuss
– and be prepared to
discuss your answer
in class!
Raising the Money – where can we
expect to find it?
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Personal Investment
Friends, family & fools!
Bank
Private investor
Venture capital fund
Government & local authorities
Other companies
Combination of the above
Personal Investment
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Money tucked away - Redundancy
Second mortgage on home
Personal guarantee
Tax relief on a loan for a business
Remember you have to find the money if things
go wrong
• Give careful consideration before giving
personal guarantees
• Take legal advice
Friends Fools & Family
•
•
•
•
Do not enter this lightly
More easy to convince your family?
Have a family plan if things go wrong
Have a strategy ‘if things go wrong’ – are
you prepared to move house to a smaller
one?
• Business is enough pressure without
having family ones
External investment
• Rule of thumb – raise five times as much
from an outsider as you are putting in
yourself ( absolute maximum) usually
match or 1-2-3x
• Worst case scenario – nothing!
• Personal commitment to the business
• Financial commitment is relative to the
individual!
When should you and your Investor
Invest?
• Wisest course is to
prepare forecasts &
business plan
• Approach possible
sources BEFORE you
start your business
• BEFORE you need the
money
• Planning ahead and
getting a commitment
in advance is crucial!!
Banks!
• Less than 20% of business start ups get
funding from a bank!
• Don’t blow the opportunity – be well
rehearsed
• Use the personal touch – i.e. long standing
personal account
• Often managers only have discretionary
lending limit
• Shop around – ask for lending rate!
Banks – two sources of funding!
1. Overdraft – short
term
2. Loan – longer term
Investors
• Private Investor
• Venture capital
(money put up by
pension funds,
insurance companies,
banks, investment
trusts, industrial
corporations, RDA’s
• Mainly for expanding
businesses
Government, Local Authorities,
Charities
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Grant
Allowances
Cheap loans
Prizes
Small Firms Loan Guarantee
Business Link
Princes Trust
Other companies
What to Expect
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Indifference
Lack of interest
Disbelief
Doubt
You have to convince sober business
people about your idea – this will not be
achieved by over statement or rash
predictions
• Demonstrate competence and skill
Fixed and working capital
• The need for finance is known as fixed
and working capital
• What is the difference?
Where can the small business get
finance?
• Working in two’s list in
order of priority where
you would go to get
money to support
your new business
idea
Any Questions?
The case-study: Garbeau
• Working in groups of 4-5 and considering
your assignment – write down five
questions you think will be appropriate to
ask Jessica – for the next session on 9
July 9.30 -10.30 pm
• Best individual question will receive a free
Garbeau shirt of your choice!
Marketing
Entrepreneurs World
• Start with the idea – personal
experience
• Find the market – rather than
careful planning
• So – no assessment of market
needs – rather investigating of
customer reaction
Remember!
• “Entrepreneurial ventures are more likely
to start with incremental adjustments to
existing products/services or markets
rather than large scale developments”
• David Stokes
Entrepreneurial Marketing
• The product or service idea selected by
the new owner of a small business is most
likely to be determined by their previous
experience
• Knowledge of the customer base
• Knowledge of the market
• No formal market research
Entrepreneurial marketing
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•
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Innovations – the product or service
Identification - the customer
Interactive marketing – word of mouth
Informal - gathering of information
•
David Stokes 4 I’s of entrepreneurial marketing
Definitions of Marketing
Marketing is the management process
responsible for identifying, anticipating and
satisfying consumer’s requirements profitably.
The UK Chartered Institute of Marketing
Marketing is a social and managerial process by
which individuals and groups obtain what they
need and want through creating, offering and
exchanging products of value with others
Kotler P. (1997)
The Evolution of Marketing
The production era:
• Demand exceeds supply
• Quantity is all-important
• Maximise output from the factory
The sales era:
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Demand & supply are in equilibrium
The ability to maximise production no longer guarantees success
The ability to seek out and sell to customers has become important
The idea of finding customers for products is paramount
The Marketing Era
• Customers are more sophisticated &
powerful
• More competition
• Necessary to understand & satisfy
customer needs in detail
• The ideas of finding products for
customers is paramount
HENCE THE MARKETING CONCEPT
Aims of Marketing
• Break into new specific markets
• Increase net profits
• To introduce & market new & additional product
lines to existing customers
• Improve & increase gross profit & contribution
• To introduce planning & structure to business
development opportunities & improve practical
awareness of ‘real’ business situations
The Marketing Mix
• The marketing mix has been described as one
of the key concepts in modern marketing theory.
Basically this consists of the ingredients a firm
puts together to construct its ‘offering’ for the
target audience. Kotler (1997) defines the
marketing mix as:
‘the set of tools that the firm uses to pursue its
marketing objectives in the target market’
The Marketing Mix
(the 4P’s)
• Product/service – the tangible & the
intangible attempt to satisfy customer needs
• Price – the monetary summation of the
conditions that give value to the product or
service
• Promotion – the means by which the firm
communicates its message to the market
• Place – delivery/distribution, the means by
which the product/service reaches the market
• Getting the right goods to the right people, in
the right place at the right time and at the
right price
The Marketing Mix (the 7P’s)
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Product/service
Price
Promotion
Place
Participants
Physical Evidence
Process
The Product
• Core product – what the product is!
• Augmented product – giving the core
product distinctive values which
distinguish it from the competition
• The total product concept
The Price
• There are only two fools in every market.
One charges too little and the other
charges too much!
• The marketers job is to ensure that the
price selected for a product fulfils the
various objectives envisaged by the
marketing plan and at the same time
meets the needs of the market ‘place’.
The Price
(factors to consider)
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•
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Strategic objectives of the company
Competitors price and their strategic objective
Customers ability to buy
Price in relation to the company’s cost and profit
goals
• Understanding of the product life-cycle
• Recognition of legal requirements and
regulations
• Structure and size of the company
The Price
(factors to consider)
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Time to market/market penetration objective
Market stabilisation
Product differentiation
Branding
Cash recovery
Preventing new entry
Loss leader policy
Price bundling
Place
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Distribution methods
Transportation
Middlemen/retailers
Location/site
Delivery frequency
Promotion
• Promotional activity is the means by which
organisations communicate with their
markets.
• The only fundamental justification for
expenditure on promotion is to bring about
profit.
• The organisation may need to involve a
variety of communication activities
Promotional Mix
Tools available for communicating with the market are
collectively known as the promotional mix
Personal Methods
Direct selling
Telephone selling
Retail selling
Text messaging
E-mail
Exhibitions
Impersonal Methods
Advertising
Direct mail
Publicity/PR
Leaflets/brochures
Catalogue
Sales promotions
Sponsorship
Internet
Promotion
• The separate elements are normally used in
concert, combining for example advertising
and sales promotion in the promotion of fast
moving consumer goods (fmcg), or
advertising and personal selling in the market
of industrial products.
• Two-way communication is personal selling.
IMPORTANT when selling complex products
and services
Segmentation & Targeting
Market segmentation
can be defined as
“the subdividing of the
total market into
groups that represent
distinct marketing
opportunities and
have to be reached
with a distinct
marketing package”
Kotler
Benefits of Segmentation
• Opportunities can be identified more
effectively as a result of better market
knowledge
• Marketing effort can be made more
effective through better targeting
• The marketing mix can be tailored to the
specific needs of the customer
Segmentation
• Demographic – age, gender, social grade,
family life-cycle
• Geographic – location
• Psychographics – lifestyle, personality, selfconcept
• Behaviouristic – benefits sought, user rate
• Geodemographic – lifestyle/location
• Biographic – transactional data (e.g.store
cards)
Some Segmentation Classifications
• SKIPPIES – school kids with income and
purchasing power
• MOBYS – mother, older baby, younger
baby
• DINKS – double income no kids
• DEWKS – dual earners with kids
• PUPPIES – poor urban professionals
• WOOFS – well off older folks
The Customer
There are three broad classes of customer:
• The final customer (consumer) – uses
product/service without adding value
• The intermediary customer – adds value and
sells on
• The internal customer – uses the output on
another part of the organisation
Marketing is about keeping in touch with
your customer and giving them the product
or service they want!!
Marketing & Resources
• Entrepreneurs pursue opportunities
without regard to the resources required
• Need to consider:
– What resources are needed
– Where will they come from
– How they will be used
– How they will be controlled & monitored
Small firms need to demonstrate a
competitive advantage - USP
• Product
• Service
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Quality
Extra benefits
Durability
Reliability
Performance
Design
Extra service: delivery
guarantee, installation
customer service
Evaluate Competitive Advantage
is the differentiation:
• A benefit that
meets customer’s
needs?
• Something
customers will pay
for?
• Distinct?
• Better than
competitors?
• Profitable to the
business?
• Hard to copy?
REMEMBER!!
• Unless a business
has a sound
marketing ‘base’, it
will have difficulty in
growing successfully,
because it has to be
able to find and meet
customer needs.
Think about….
The Augmented Product?
The Augmented Product
Core
Product
?
The Augmented Product
brand
service
price
reputation
quality
Core
accessibility
Product
image
Existing customers
Group Work
• Working in groups of
2-3 write down the
core product of
Garbeau and discuss
the augmented
products. Can you
identify the unique
selling points of the
company?
Any Questions?