Managing a Small Business - Assignment Example

Topic: Managing a Small Business Name of Student: Course Code: Institution: Tutor’s name: Date Due: Assessment activity 1 1. In this venture, the business that will be operated will be a courier service company. a. When the business is started, the start-up costs to be incurred will include: Cost of renting offices Cost of purchasing vehicles and motor bikes Cost of purchasing furniture and stationery Cost of recruitment and orientation of staff Lighting costs b. The main operating costs that will be incurred by the business include: Monthly rent (fixed) Water bill (fixed) Electricity bill(variable) Warehouse costs (variable) Fuel costs (variable) Repair and maintenance costs (variable) Salaries and wages (fixed) 2. Consider the statement: Small businesses require money to operate. As long as you are careful with your spending there is no need to keep track of business costs. If money needs to be spent you have to spend it. Do you agree? I do not agree with the statement because in a business environment, there is the need for accountability for all expenditure so that financial records can be balanced. Furthermore, the option of not being accountable can lure a business operator to use funds for other activities that are not related to the business and can result into collapse of the business (McKeever 2012). Assessment Activity 3 1. Breakeven point The formula for BEP = Fixed Costs/ (sale price of an item-cost of an item) In this case, Cost of a item = £6, while sales price of an item = £ 24 Hence BEP = 15000/ (24-60) = 833 units. This implies that the company must sell 833 units in order to get the costs of investments. 2. When the owner decides to increase the selling price of the 3-D glass to £ 30, the new BEP will be obtained as follows: BEP = 1500/ (30-6) = 625. This shows that the owner will need to sell 625 units in order to breakeven. Assessment Activity 4 1. Choose a new established small business. You could choose to create one which has not yet been established. What products/services will be sold? What pricing strategies would be appropriate? Explain your choice. The business is involved in the sales of imported clothes and includes both men’s wear and women’s clothes. The pricing strategy to be used will be market strategy. The prices of clothes of similar kinds will be established and the price of the clothes will be set according to the price in the market. This will be used because; it will ensure the business gets enough profits in a similar manner to its competitors. 2. Suggest a pricing strategy to these products/ services: a. One kilogram packet of no name washing powder Market based pricing b. French perfume Market based pricing c. Items to be sold in a new supermarket in a shopping center with a competitor close Premium pricing d. Body wrap treatment at a day spa Premium pricing 3. Give an example of these types of discounting strategies: a. Quantity/ volume discount Discount given to a wholesaler when goods are bought from a manufacturer b. Cumulative quantity discount Discount resulting from continued purchases in a given company c. Seasonal discounts Discount given when customers make purchase during a particular season such as during Christmas d. Cash discount When a person buys a product buy paying cash e. Promotional discount Discount given when a product is bought at the time of promotion Assessment Activity 5 1. Consider this statement: A projection is only as good as the assumptions on which it is based. Do you agree? Explain. This is not true because the business has to align its activities in a manner that it reaches the projections. Furthermore, there are circumstances that a business undergoes which prevents it from achieving the targets of the projection (Pinson 2008). These include unexpected customer decline to buy the goods or seasonal changes in cost of production. 2. Describe the benefits to a small business owner of preparing a statement which projects profits over three year time frame. i. The business is able to focus its activities towards achievement of that target ii. The business is able to allocate funds so that the target is achieved iii. Difficulties that are likely to be encountered along the process of attaining the projections can be determined so that a course of action to prevent them can be taken. 3. The following email can be sent to Hillary to advise her about factors she should consider when forecasting the income likely to be received. Dear Hillary, it is possible to forecast income to be received in the future in your business. In order to do this, you can consider a number of factors that affect profitability of businesses in general. First you need to determine whether there will be high demand for your products as well as estimates of sales in the future. This will give you an overview of the expected sales. In addition, you need to determine the expected costs likely to be incurred such as cost of sales, cost of transport and taxation. By comparing costs and revenues, it is possible to come up with an estimate of profit statement form the future. I hope will be helpful to you if you put it in practice Thank you and welcome. Assessment Activity 6 1. Explain why it is important for an owner of a small business to establish profit goals. 2. In the business of selling Skate plates a. Strategies that can be used to set up the right goals or targets i. The ability of the business owner to communicate ad convince customers about the business so that customers can be attracted to his products ii. A marketing strategy should be used which ensures target consumers are reached iii. Quality should be a first priority so that customers can be satisfied with his products b. Profit goals/targets to be used in the short term, in two years and in five years i. Increase the quantity of sales of the products considerably ii. Increase customer awareness within the locality of the business iii. Reach a breakeven point within a year Summary The booklet provides a number of factors to consider when planning a small business. This involves an analysis of how costs of starting a business can be classified. The costs that are explained include fixed costs, variable costs, semi fixed costs and step costs. In addition, the booklet explains expenses that will be incurred by a small business planner. The main ration analyses that the booklet expounds include average debtors’ value, liquidity ratio and inventory turnover. The importance of rations is explained to be its importance in understanding performance of the business so that the right action can be taken. The article also explains that a business planner can use financial ratios to set targets. For instance, it acts as a method which enables the business owner knows whether to reduce the number of debtors so that its financial position can improve. During planning of a small business, there are costs which are incurred by the business. This booklet suggests that during setting of the price of a product to be sold by a business, it is important to factor these costs. Indirect costs that affect business performance are also explained in the booklet. These include costs such as electricity cost, rent, stationery and wages. The booklet also explains that effective operation of a small business requires establishment of job costing. For instance, it recommends application of job costing technique when different products are supplied. In the case of a manufacturing business, the booklet explains that it is important to determine costs such as direct costs and overhead costs. Costs such as labor costs should be effectively accounted for because they contribute to the use of assets of the business to achieve production objectives. Another knowledge that an entrepreneur should have is how to document job cost in terms of tome, money and resources. For instance, the entrepreneur must know how to record these activities in a job cost form which can be documented. In order to keep accounting records for all transactions of a business, the booklet suggest the need to understand the use of T accounts in recording business transactions. These are accounts that allow entry of a transaction on either left side or right side, hence the name T accounts. During the process of conducting business activities, a businessman may need to know when the initial investment will be recovered as a result of gains from business operations. In order to achieve this, the booklet explains the application of breakeven point concept so that a business can know initial investments can be recovered. It also illustrates the concepts of contribution margin. This is the difference between the total revenues of a business and the total variable costs. When setting the price of a product in relation to market conditions, it is required that the price of a product should be set so that the business owner is able to retain a percentage of the sales value. In order to know the sales price at which a product should be sold, a businessman needs to know mark-ups and margins of a sale of a product. This booklet explains how a person involved in planning a small business can determine mark-up and margin so that the right selling price is set for his products and services. The booklet also explains approach to identifying the right pricing strategy. This is achieved by explaining the process of developing a market strategy, estimation of the demand curve, calculation of the cost, understanding factors that exist in the environment, setting price objectives and determining prices. There are two major approaches used to set prices of products of a business. The approach of cost-based pricing is where the price of a product is set irrespective of the market conditions, but with the aim of obtaining a particular percentage of profit. In the market based strategy, prices are set after conducting market research and products are charged based on the level of competition in the market. However, the booklet suggests that a business can refine their pricing strategy by using premium pricing strategy, perceived value pricing strategy, penetration pricing strategy and volume pricing. When a business is involved in production of a product, various product line strategies are suggested. These include optional product pricing, captive product pricing, promotional pricing and geographical pricing. The booklet also explains various forms of discounts that a business can encounter while conducting its business activities. The main forms of discounts discussed include cumulative quantity discounts, seasonal discounts, trade discounts and cash discounts. In the process of performing business activities, the business owner may need to understand the expected profits of the business. This can be achieved by computing projected profit and loss statement. Other financial statements that need to be prepared by a business include balance sheets, income statements, statement of cash flows and statement of owners’ equity. The booklet also suggests that a business owner should know how to prepare revenue statements. The main components of revenue statement that are explained include total revenues, total expenses and net income. During the process of operating the business, there are possibilities that assets will depreciate. The booklet explains that the management of a small business must account for depreciation of its assets. In the process of running a business, it is not always easy to have all the resources to run the business. For instance, there may be lack of premises or land to conduct business activities. This booklet suggests that additional capital can be obtained through leasing and mortgages. In addition, the booklet suggests that there are legal requirements to be followed when performing business activities. The information about legal requirements for the activities of a business can be obtained from federal government departments, territory departments, local chamber of commerce and professional associations. The booklet also suggests that a business owner must be aware of employees’ work health and safety (WHS) in the business. For instance, the main components of WHS in a business are explained to be ensuring hazards are established in the workplace, establishing methods that can be used to control the hazards. Cash flow projections are sources of information for understanding future forecast of a business. The booklet explains the steps that can be followed during creation of cash flow statements. References McKeever, M. P. 2012. How to write a business plan. Berkeley, CA: Nolo. Pinson, L. 2008. Anatomy of a business plan: A step-by-step guide to building the business and securing your company's future. Tustin, CA: Out of Your Mind & into the Marketplace. Read More