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HOW TO START and MANAGE YOUR OWN BUSINESS

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Title: HOW TO START and MANAGE YOUR OWN BUSINESS


1
HOW TOSTART and MANAGEYOUR OWN BUSINESS
2
www.score476.org
3
Introduction
The intent of this workshop is to provide each
entrepreneur with the fundamental information
that should be considered in planning and
conducting a successful business. In selecting
the workshop subjects and their content, SCORE
has oriented its approach to the needs of persons
who are planning to go into business and those
who have recently started a business.   It has
become apparent during the conduct of these
workshops that some attendees have been in
business for a considerable period of time. We
find that many of these individuals attend
because their business experience has taught them
to search for the fundamentals of how to plan and
operate a business, or because they feel a need
for a refresher, or both. In any case, they too
benefit from what they learn at this workshop.
Rev. 08/08
3
4
Agenda
  • The Owner / Managers Role
  • The Business Plan
  • Issues for a Small Business
  • Business Record-Keeping
  • Business Organization and Regulations
  • Financial Factors and Sources of Capital
  • Marketing Advertising
  • Sources of Information

Rev. 08/08
4
5
TheOwner / Managers Role
Rev. 08/08
5
6
Americas Small Business The Pride of America
  • 28 Million Small Businesses
  • Generate 55 of All Goods Services
  • Employ 57 of the Nations Workers

Rev. 08/08
6
7
Small Business Provides
  • Long-Term Rewards
  • Substantial Income
  • Financial Security
  • Independence
  • Recognition
  • Satisfaction
  • Short-Term Risks
  • Failure Can Mean the Loss of
  • Income
  • Investment
  • Home or Other Collateral
  • Self-Esteem
  • Personal and Family Relationships

Rev. 08/08
7
8
Why Businesses Fail
  • Owner/Manager Shortcomings
  • Inadequate Understanding of Business
  • No Experience or Knowledge of Specific Business
  • Owner/Manager Inability
  • To Manage Tasks
  • Direct Others
  • Lack of Passion
  • POOR PLANNING!!!

Rev. 08/08
8
9
Owner/Manager Wears Nine Hats
  1. Leadership
  2. Planning
  3. Decision-Making
  4. Problem-Solving
  5. Controlling
  6. Marketing / Advertising
  7. Financial Records
  8. Business Records
  9. Personnel

Rev. 08/08
9
10
You May be Uncomfortable Wearing Many Hats
  • Find a Mentor
  • Establish an Advisory Board
  • Request Help from SCORE
  • Hire an Expert in That Area

Rev. 08/08
10
11
Your Business Plan
Rev. 08/08
11
12
Why Do You Need It?
  • A Means to Communicate to
  • Employees
  • Investors
  • The Bank
  • A Guide to
  • Measure Performance
  • Manage the Business
  • A Roadmap to
  • Represent Your Direction
  • Define Your Resources
  • Guide Your Success

Rev. 08/08
12
13
Business Plan Outline
  • Executive Summary
  • Objectives / Goals
  • Mission Statement
  • Business Description
  • Market Analysis
  • Financial Projections

Rev. 08/08
13
14
Executive Summary
  • Brief Outline and Description of the Business
  • Marketing Plan
  • Unique Features
  • Overall Strategy and Direction
  • Financial Glimpse
  • Objectives and Proposal
  • Brief Management Profile
  • Financial Need and for What Purpose

Rev. 08/08
14
15
The Plan Itself
  • IS A WRITTEN STATEMENT ABOUT THE BUSINESS
  • What the Business Is
  • How the Business Will
  • Be Operated and Managed
  • Address the Marketplace
  • Function Financially
  • The Strengths and Weaknesses of Your Competition

Rev. 08/08
15
16
Business Description
  • Ownership and Legal Structure
  • History
  • Services and/or Products Offered
  • Intellectual Property
  • Location
  • Facilities and Other Fixed Assets
  • Sources of Supply
  • Manufacturing / Retailing / Service Processes

Rev. 08/08
16
17
The Marketing Plan
  • Who Are Your Target Customers?
  • Where Are They?
  • Who and Where is Your Competition?
  • How Does Your Competition Operate?
  • Trends
  • And How You Intend To Capitalize On It

Rev. 08/08
17
18
Basic Business Objectives
  • Align with Personal Goals
  • Should be Measurable
  • Sales
  • Profits
  • Costs
  • Market Share
  • Number of Customers
  • New Product and/or Service Introductions
  • ACHIEVABLE

Rev. 08/08
18
19
Business Objectives
  • Quantifiable, Measurable
  • and
  • Achievable
  • Establish a Website by July 1, 2007
  • Make 20 Cold Calls per Day
  • Achieve 1 Million in Sales by December 31, 2007
  • Attain Break-even by August 2007

Rev. 08/08
19
20
Planning
  • Provides for
  • Staffing
  • Materials
  • Equipment
  • Facilities
  • Operating Systems (Methods and Procedures)
  • Money

Rev. 08/08
20
21
Financial Projections
  • Establish Pricing and Margins
  • Determine Operating Expenses
  • Fixed/Variable
  • Establish Budgets
  • Develop Cash Flow Projections
  • Determine Start-up Expenses

Rev. 08/08
21
22
Proforma Financial Statements
  • Cash Flow Statement
  • Profit and Loss Statement
  • Balance Sheet
  • Break-Even

Rev. 08/08
22
23
Inadequate Controls
  • Could Mean Failure, so
  • Start with Good Records
  • Review Records Regularly A MUST!
  • Too Busy is Unacceptable
  • Measure Results Against Budget
  • Implement Corrective Action Without Delay

Rev. 08/08
23
24
Discussion Review
  • The Owner/Managers Role
  • Risks and Rewards of Business Ownership
  • Steps to Minimize Risk
  • The Business Plan

Rev. 08/08
24
25
HELP is AVAILABLE
  • SCORE can HELP YOU BEAT THE ODDS!
  • Workshops
  • FREE Counseling
  • At Your Place of Business
  • At a SCORE Counseling Site www.score476.org
  • Telephone 718 727 1221
  • E-mail Info_at_score476.org

Rev. 08/08
25
26
Issuesfor aSmall Business
27
AGENDA
  • The Start-Up Process
  • Lenders
  • Real Estate
  • Considerations for Success

Rev. 07/2008
27
28
Make a Checklist of Necessary Steps
  • Obtain Licensing
  • Establish a Separate Bank Account
  • Make Credit Card Arrangements
  • Create Purchasing Arrangements
  • Inventory and Supplies
  • Develop Marketing and Sales Materials
  • Create an Internet Website
  • Find a Location
  • Hire and Train Employees
  • Set-up Accounting Controls

Rev. 07/2008
28
29
Research Opportunities in San Diego
  • Small Business Administration (SBA)
  • www.sba.gov
  • SCORE - Free Business Resources
  • www.score476.org
  • Trade Associations
  • Suppliers
  • Customers
  • Competitors
  • Business Improvement Districts (BIDs)
  • Franchise Prospectuses

Rev. 07/2008
29
30
Dealing with Professionals
  • Attorneys
  • Proper Paperwork
  • Form of Organization, Contracts, Leases, etc.
  • How Do They Bill?
  • Hourly or Fraction Hours, Fixed Project Price
  • Kick-out Clause
  • This contract is subject to approval by my
    attorney, no later than 3 days from the date
    below.

Rev. 07/2008
30
31
Dealing with Professionals(Continued)
  • Accountants (CPA vs. Bookkeeper)
  • QuickBooks
  • Understand Cash Flow
  • Tax Preparation
  • Insurance Brokers
  • Litigious State
  • Use Broker Who Represents Numerous Companies
  • Real Estate and Business Brokers
  • Caveat Emptor Buyer Beware
  • Brokers are paid by the Seller or Lessor
  • But, the money comes from the Buyer or Lessor

Rev. 07/2008
31
32
Franchise Is It The Best Way?
  • Buy Only Proven Concepts
  • Up-Front Fees
  • Location Financing
  • of Gross Revenue
  • Obtain a Prospectus
  • Provides All the Details
  • Talk to Existing Franchisees

Rev. 07/2008
32
33
Lenders
  • Family and Friends
  • Have a Completed Business Plan
  • Provide All Details of Loan or Equity Investment
    in Writing
  • Bankers Institutional Lenders
  • MUST HAVE a Business Plan
  • Sources of Loans
  • SBA Guaranteed Loans
  • Certified Development Company (CDC)
  • AcciÓn
  • Home Equity
  • Suppliers, Business Sellers
  • Customers
  • Landlords
  • Credit Cards
  • Good Credit
  • Availability at Low Rates
  • Know Your FICO Score
  • 300 850
  • www.myfico.com
  • Obtain Free Credit Report
  • Experian, Equifax, TransUnion
  • Auto Equipment Leasing

Rev. 07/2008
33
34
Real Estate
  • Rent or Buy Comparable Rates
  • Location
  • If in Retail, DO NOT Compromise on Location
  • Space
  • Add 15-20 More Space Than Immediately Needed
  • Parking Availability

Rev. 07/2008
34
35
Real Estate(Continued)
  • Type of Lease / Terms / Option to Renew
  • Sublease and Assignment
  • Lessee reserves the right to sublet to any
    reasonable person.
  • Lessee reserves the right to cancel with two
    months penalty payment.
  • Basic Lease
  • Example 2 Years with 3 One-Year Options
  • Everything is Negotiable
  • Triple Net (Gross Lease / Net Lease)
  • Have an attorney review before signing

Rev. 07/2008
35
36
Considerations For Success
  • Capital Requirements
  • Company Finances One Year of Living Expenses
  • Employee Compensation and Retaining Key People
  • Theft Protection Systems
  • Accounts Receivable Collection Policy
  • Visa / MasterCard / American Express
  • Partners / Investors

Rev. 07/2008
36
37
Discussion Review
  • Make a Checklist
  • Conduct Research
  • Work With Professionals
  • Seek Financing
  • Determine Real Estate Needs
  • Consider Keys to Success

Rev. 07/2008
37
38
Business Record-KeepingHow to Keep Scoreon
Your Operations
39
What Are the Uses
  • Information on the Financial Health of Your
    Business
  • Reports to Insurers, Lenders, etc.
  • Reports to Governmental Agencies

Rev. 08/2008
39
40
Accounting Methods
  • Cash
  • Accrual

Rev. 08/2008
40
41
Elements of a Record-Keeping System
  • Chart of Accounts
  • Documents
  • Financial Statements

Rev. 08/2008
41
42
Pro-Forma Financial Statements
Rev. 08/2008
42
43
Cash Flow
March March April April
Plan Actual Plan Actual
Beginning Cash on Hand A 5,000 X 1,000
Cash In B 2,000 Y 4,000
- Cash Out C (6,000) Z (3,000)
Ending Cash on Hand (A B) - C 1,000 (X Y) - Z 2,000
Rev. 08/2008
43
44
Profit and Loss

Sales (Revenues) 2,000
Less Cost of Sales (1,000)
Gross Profit 1,000
Less Operating Expenses
Rent 250
Advertising 100
Insurance 100
Office Supplies 50
Transportation 0
Equipment 0
Utilities 100
Total Operating Expenses (600)
Net Profit (Before taxes) 400
Rev. 08/2008
44
45
Balance Sheet
Assets
Current Assets
Cash on Hand (Deposits) 5,000
Accounts Receivable 500
Reserve for Bad Debts
Inventory 0
Prepaid Expenses 300
Total Current Assets 5,800
Fixed Assets
Equipment 4,000
Less Depreciation (400)
Net Fixed Assets 3,600
Total Assets 9,400
Liabilities Net Worth
Current Liabilities
Accounts Payable 4,000
Total Current Liabilities 4,000

Owners Equity
Investment 5,800
Profit Year-to-Date 400
Net Worth 5,400


Liabilities Net Worth 9,400
Rev. 08/2008
45
46
Break-Even
  • Tells You
  • When the Business Will Stop Costing Money
  • How Much Cash You Will Need
  • Made Simple
  • 40,000 in Sales Required to Reach Break-Even

Monthly Costs A 10,000
Gross Profit B 25
Sales Needed to Earn 10,000 A B 10,000 25 40,000
Rev. 08/2008
46
47
Chart of Accounts
  • Revenues
  • Cost of Goods Sold
  • Expenses
  • Current Assets
  • Fixed Assets
  • Other Assets
  • Current Liabilities
  • Long Term Liabilities
  • Equity

Rev. 08/2008
47
48
Supporting Documents
  • Vendor Invoices
  • Checks Bank Reconciliations
  • Customer Records
  • Employee Records, Personnel Files, etc.
  • Records related to Tax Filings
  • Car, home, etc.
  • Other

Rev. 08/2008
48
49
Daily / Weekly Procedures
  • Record Transactions
  • Prepare and Mail Invoices
  • Deposit Receipts / Pay Bills
  • File Documents
  • Follow-Up on Accounts Receivable
  • Count New Customer Accounts Opened

Rev. 08/2008
49
50
Semi-Monthly Procedures
  • Prepare Payroll for Processing
  • Review Payables

Rev. 08/2008
50
51
Monthly / Quarterly Procedures
  • Prepare Financial Statements
  • Analyze Results
  • Take Necessary Corrective Action
  • Reconcile Bank Statement
  • Prepare Reports to Government Agencies
  • Age Accounts Receivables
  • Pay Sales and Payroll Taxes, etc.
  • Check and Reconcile Inventory on Hand

Rev. 08/2008
51
52
Annual Procedures
  • Prepare Financial Reports
  • Prepare and File Annual Reports with Government
    Agencies
  • Prepare Operating and Cash Flow Budgets for
    Coming Year

Rev. 08/2008
52
53
Selecting the Record-Keeping Method
  • Manual Spread Sheets
  • Personal Computer - QuickBooks
  • Computer Systems - ERP
  • Outside Service Providers

Rev. 08/2008
53
54
Evaluation of Operations
  • Balance Sheet
  • Income Statement
  • Statement of Cash Flow
  • Financial Ratios

Rev. 08/2008
54
55
Business OrganizationandRegulations
56
Legal Structure
  • Proprietorships
  • Partnerships
  • General
  • Limited
  • Joint Venture
  • Corporations
  • Statutory Closed
  • General Law
  • Chapter S Election
  • Out of State (Foreign)
  • Limited Liability Companies
  • Member Managed
  • Manager Managed
  • Operating Agreement

Rev. 08/2008
56
57
Business Name and Other Intellectual Property
  • Fictitious Business Name Statement
  • Filing
  • Publication
  • Trade Name, Trademark and Service Mark
  • Difference between Trade Name and Marks
  • Reason for Use of Marks
  • Common Law Protection vs Federal Protection
  • Reservation of Corporate Name
  • E-Commerce
  • Domain Site Registration
  • Domain Names vs. Trademarks

Rev. 08/2008
57
58
Independent Contractors
  • Who are they?
  • Distinction between
  • Independent Contractors
  • Employees
  • IRS Guidelines                     

Rev. 08/2008
58
59
Financial FactorsandSources of Capital
60
Types of Financial Institutions
  • Commercial Banks and Size of Loan
  • Credit Unions
  • Commercial Finance Companies
  • CDC Micro Loans (from 1,000 to 50,000)
    Start-ups can qualify.
  • Acciòn

61
Type of Loans
  • Short
  • Intermediate Term
  • Long Term
  • SBA Guaranteed Loans

62
Purpose of Loans, Terms Conditions
  • Working Capital
  • Inventory
  • Equipment
  • Business Acquisition
  • Real Estate
  • Other

63
Interest Rates
  • Risk vs. Rate
  • Type of Lender
  • Competition
  • Finding the Best Rate

64
Credit Qualifications
  • Five Cs of Credit
  • Character
  • Capacity
  • Collateral
  • Capital
  • Conditions (Loan and Economic)
  • Lenders Point of View
  • Dont like much risk
  • Safety Concerns
  • Qualification for Start-ups
  • Good credit
  • Business plan
  • 25-35 Own cash
  • Loan Interview
  • Decision Making Process

65
The Loan Package / Proposal
  • See Recommended Checklist (attached)
  • Borrower Must Know the Package (Details)
  • Borrower Must Do the Homework

66
Marketingand Advertising
67
What is Marketing?
  • The Process of
  • Identifying potential customers
  • Creating customers
  • Keeping customers

68
Successful Marketing Depends on
  • Knowing who your customer is
  • Knowing all about your competition
  • Understanding your market trends

69
Why Do You Need to Know All About Your Customer?
  • Project market size
  • Identify customer needs
  • Select Price, Product, Presentation

70
What Do You Need to Know About Your Customers?
  • Where they live
  • Where they work
  • Gender
  • Educational level
  • Income level and how they spend
  • Age
  • Race and nationality
  • Family size and status
  • How you locate and reach them

71
What Do You Need to Know About Your Business
Customers?
  • Business Type
  • Business Size
  • Location
  • How is the purchase decision made
  • The key decision maker
  • Financial strength

72
How Can You Learn More About Your Business
Customers?
  • Experience
  • Someone else in the same business
  • Communication
  • Trade associations
  • Suppliers

73
What Do You Need to Know About Your Competition?
  • EVERYTHING!
  • Who and where they are
  • Strengths
  • Weaknesses
  • Customer Policies Pricing / Terms / Variety

74
Understand Your Market Trends
  • What Creates a Demand for
  • Your Product or Service?
  • Technology changes in your industry
  • Distribution changes
  • Consolidation changes
  • Technology changes that create new opportunities
  • Population and demographic changes
  • Lifestyle changes
  • Changes in local or federal government

75
Image
  • Create an Image
  • for Your Business that . . .
  • Matches your customer needs
  • You feel comfortable with
  • Separates you from your competitors

76
Marketing Strategies
77
Existing Products to Existing Customers
  • Establish an image that makes customers feel
    comfortable
  • Build high level of trust and confidence with
    customers
  • Train employees to learn more about each customer
  • Target promotions on incentives to buy more
  • Direct advertising
  • Create a Newsletter or other communication
  • Focused sales calls

78
Existing Products to New Customers
  • Identify the competitor from which you are most
    likely to gain customers
  • Direct advertising and promotion toward these
    customers
  • Develop customer referrals
  • Focus sales presentations and advertising to show
    advantages over competitors
  • Train employees to stress these advantages

79
New Product to Existing Customers
  • Develop a clear understanding of existing
    customers
  • Introduce product or service to meet their needs
  • Create image of trust and confidence with
    existing customers
  • Use sales of existing products or services to
    promote new products or services
  • Direct advertising
  • Make sales calls
  • Train employees on benefits

80
New Product to New Customers
  • Find a niche Find a need and fill it
  • Create promotions
  • Focus advertising on niche customers
  • Offer seminars and presentations
  • Make sales calls on customers
  • Train employees about needs of potential
    customers
  • Focus on product benefits

81
Pricing
Price is Determined by The value of your
product or service to the client Competition
82
Effective Advertising
  • Know Your Customer
  • Focus advertising on current and potential
    customers
  • Establish advertising goals and measure results

83
Effective Ads
A I D A
ttention nterest esire ction
84
Advertising Media
  • Direct Mail
  • TV
  • Radio
  • Newspapers
  • Internet
  • Email
  • Press Releases
  • Newsletters
  • Seminars
  • Trade Shows
  • Yellow Pages
  • Sponsorships

85
Referrals
  • From other businesses
  • From satisfied customers

86
The Sales Call
  • Build a relationship
  • Offer incentives
  • Coordinate with advertising and promotions
  • Follow-up, Follow-up, Follow-up, Follow-up

87
Sources of Information
88
About Competitors
  • Suppliers
  • Trade Associations
  • Visual
  • Interview Customers
  • RMA (Risk Management Association)
  • Annual Statement Studies
  • Prepare a Competitive Matrix

89
www.score476.org
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