Binder 1

SMALL BUSINESS
MANAGEMENT
Chapter 1
The Role of Small Business and
Entrepreneurship in Canada
The Entrepreneurial Revolution
Increase in the number of business

establishments
Increase in the number of
employees of small business
Increases in government interest
and programs
Increases in the number of small

business related courses at colleges
and universities
Increase in entrepreneurial
activities in large businesses
Increases in political power of small
businesses
Improvement in the image of small
businesses
What Is Small Business?
Comparison and Evaluation

Government Programs
Lending Programs
Number of employees
Total Revenue
Profits
Management-Ownership Structure
Current State of Small Business in

Canada
Young Entrepreneurs
Female Entrepreneurs
Immigrant Entrepreneurs
Entrepreneurial Activity by Industry
Entrepreneurial Activity by Region
Contributions
Labour Intensity
Innovations and Inventions
Productivity and Profitability
bias for action

staying close to the customer
autonomy and entrepreneurship
productivity through people
hands-on value driven
simple form - lean staff
Contributions (cont)
Flexibility
Canadian Ownership
Small Business Health as a Link to
Economic Growth
Social Contributions
Small Business and the Future
Change
Technology
Consumer Demographics and
Buying Patterns
Competitive Aspects of Markets
NAFTA, Global Markets, Large Business

Response
The Economy
The Political Climate
The Social Climate
Concept Checks
Why has there been an increase in

entrepreneurial activity throughout
the world in recent years?
What evidences are there that there
is an entrepreneurial revolution
occurring ?
Why is it important to define small
business?
Concept Checks
What are the criteria used to make

the small business definition?
What is the extent of small business
in Canada?
What two demographic groups have
shown an increase in proprietorship
in recent years in Canada?
Concept Checks
What are the contributions small

businesses can make to society?
What are the positive and negative
factors which may influence the
small business community in the
future?
SMALL BUSINESS
MANAGEMENT
Chapter 1
The Role of Small Business and
Entrepreneurship in Canada
Increase in the number of business

establishments
Increase in the number of
employees of small business
Increases in government interest
and programs
Increases in the number of small

business related courses at colleges
and universities
Increase in entrepreneurial
activities in large businesses
Increases in political power of small
businesses
Improvement in the image of small
businesses
What Is Small Business?
Comparison and Evaluation

Government Programs
Lending Programs
Number of employees
Total Revenue
Profits
Management-Ownership Structure
Current State of Small Business in

Canada
Young Entrepreneurs
Female Entrepreneurs
Immigrant Entrepreneurs
Entrepreneurial Activity by Industry
Entrepreneurial Activity by Region
Contributions
Labour Intensity
Innovations and Inventions
Productivity and Profitability
bias for action

staying close to the customer
autonomy and entrepreneurship
productivity through people
hands-on value driven
simple form - lean staff
Contributions (cont)
Flexibility
Canadian Ownership
Small Business Health as a Link to
Economic Growth
Social Contributions
Change
Technology
Consumer Demographics and
Buying Patterns
Competitive Aspects of Markets
NAFTA, Global Markets, Large Business

Response
The Economy
The Political Climate
The Social Climate
Concept Checks
Why has there been an increase in

entrepreneurial activity throughout
the world in recent years?
What evidences are there that there
is an entrepreneurial revolution
occurring ?
Why is it important to define small
business?
Concept Checks
What are the criteria used to make

the small business definition?
What is the extent of small business
in Canada?
What two demographic groups have
shown an increase in proprietorship
in recent years in Canada?
Concept Checks
What are the contributions small

businesses can make to society?
What are the positive and negative
factors which may influence the
small business community in the
future?
SMALL BUSINESS
MANAGEMENT
Chapter 2
The Small Business Decision

Personal
Evaluation
Advantages of Small Business

Ownership
More
personal contacts with people

Independence
Skill Development
Potential Financial Rewards
Challenge
Enjoyment
Disadvantages of Small
Business Ownership
Risk
Stress
Need
for Many Abilities

Limited Financial Rewards
People Conflicts
Time Demands
Demographic Characteristics
of Entrepreneurs
Parents
owned business
Foreign parents
High school degree or less
College or more
Age 31 and under
Age 40 or more
Personality Characteristics Required

by Successful Entrepreneurs
Achievement
Orientation
Risk
Taking
Independence, Self Confidence, Self
Assurance
Innovativeness
Strong Verbal and Numerical Skills
Selling Skills
6
Personality Characteristics Required

by Successful Entrepreneurs (cont)
Problem Solving Abilities

Strategic Planning
Perseverance

Organizational
Evaluation
Small Business Successes

Alertness
to Change
Ability to Attract and Hold Competent
Employees
Staying Close to the Consumer

Thoroughness
with Operating Details

Ability to Obtain Needed Capital
Effective Handling of Laws, Rules, and
Regulations
10

Entrepreneurial
Success in a Large Business
Ten Commandments for Intrapreneur Success
11
Small Business Failures

Bankruptcies
12
Entrepreneurialship and Small

Business Management
Entrepreneurial
Skills
Characteristics
creativity,
innovativeness, independence, risktaking, idea oriented
Situations
generating
ideas and solutions to problems, starting

a new business, expanding or opening new products
13
Entrepreneurialship and Small

Business Management
Managerial
Skills
Characteristics
develops
strategy and goal setting, prefers to know

outcomes of actions or activities, team player, works
through others, skills in finance, marketing, personnel,
operations
Situations
reaching
performance objectives, maintaining control of

operations
14
Concept Checks
1.
List the advantages of owning a small

business.
2. List the disadvantages of owning a small
business.
3. What are the characteristics of successful
small business owners?
15
Concept Checks
4.
What are the major cases of business

failure?
5. What is the difference between an
entrepreneur and a manager?
16
SMALL BUSINESS
MANAGEMENT
Chapter 3
Evaluation of a Business Opportunity
Non-Quantitative Assessment of
Business Opportunities
Goals
Content
of Work
Lifestyle
Capabilities
Good health, management fundamentals,

financial base
Experience
Breaking Into The Market

Three
Ways
offer a totally new product

offer an existing product to a different market
offer a product or service similar to those existing in
the same market
Developing
a Strategic Competitive Advantage
the right industry

the right business
the right aspect of the business
3
Collection of Information
Sources
of Information
Secondary data
Primary data
observations
surveys
mail
surveys, telephone surveys, personal

interviews, focus groups
test marketing
4
Quantitative Assessment of Business

Opportunities
Preparing
the Feasibility Analysis
Step One - Calculate the Market Potential

Step Two - Calculate the Market Share
Step Three - Calculate the Net Income and
Cash Flow

Opportunities
Step
One - Calculate the Market Potential
Determine the market area and its population

Obtain revenue , (sales) statistics for the
product or service in the area
Adjust the market potential total as necessary

Opportunities
Step
Two - Calculate the Market Share

Retail Firm
1. Estimate the total amount of selling space in

the market devoted to the merchandise the new
business will sell
2. Estimate the size of the proposed store
3. Calculate the market share based on selling
space
7

Opportunities
Step

Retail Firm (cont)
4. Make adjustments to reflect any competitor

strengths and weaknesses regarding the
proposed store
5. Multiply the revised market share percentage
by the market potential estimate obtained in
step 1.
8

Opportunities
Step

Manufacturing Firm
1. Estimate the total productive capacity in the
market for the product to be manufactured.
2. Estimate the total productive capacity of the
proposed manufacturing plant.
3. Calculate the market share based on productive
capacity.
9

Opportunities
Step

Manufacturing Firm (cont.)
4. Make adjustments to reflect competitive
strengths and weaknesses the competitive plant
may possess
5. Multiply the estimated market share percentage
by the market share potential estimate obtained
in Step One.
10

Opportunities
Step

Service Firm
1. Estimate the total capacity of the service
available in the market area.
2. Estimate the service capacity of the proposed
business.
3. Calculate the market share based on the
capacity base.
11

Opportunities
Step

Service Firm (cont.)
4. Make adjustments similar to those made for a
retail store.
5. Multiply the revised market share percentage
by the market potential estimated in Step One.
12

Opportunities
Step
Three - Calculate net income and cash
flow
1. Using the market share from Step Two,
calculate the expenses expected
cost
of goods sold and gross profit percentages; cash

operating expenses; interest and depreciation
2. Subtract expenses from revenue to determine

projected net income in the first year and
subsequent years.
13
Self Assessment for a Small

Business Opportunity
Personality
Nature
Abilities
Experience
Financial
base
Feasibility
14
Concept Checks
1.
What non-quantitative factors should be

considered in the selection of a small
business?
2. What are three ways of entering the
market?
3. What are two methods of collecting
information? In what situations would they
be most useful?
15
Concept Checks
4.
What are the three methods of collecting

primary data? Which is the most relevant to
a small business?
5. What steps are involved in determining
the financial feasibility of a retail store?
16
SMALL BUSINESS
MANAGEMENT
Chapter 4
The Business Plan
Getting Started
Establishing the Business
Advantages
of Organizing a Business from
Scratch
Disadvantages of Organizing a Business
from Scratch
The Small Business Plan

There
are ten components in a plan:
1. Prepare a table of contents.

2. Prepare a synopsis of the plan in an executive
summary and background statement.
3. Describe the management team.
4. Describe the business objective.
5. Plan the marketing approach.
The Small Business Plan

Components
of the Plan (cont.)
6. Describe the selection of the location.

7. Determine the physical facilities.
8. Plan the financing.
9. Plan the personnel.
10. Investigate the legal requirements.
Components of the Plan

1.
Prepare a table of contents.

Overview of the plan
Quick access to the various parts of the plan

2.
Prepare synopsis of the plan in an

executive summary and background
statement.
completed at the end of the complete plan

history of the project to date
statement of the intended mission of the venture

3.
Describe the management team.

rsum and background of those making the
decisions for the organization

4.
Establish business objectives.

Business Size
Production Levels
Performance Levels

5.
Plan the marketing approach.

Have a clear concept of the target market.
Understand the target markets needs, wants
and purchasing habits
Answer
the following questions: where, when, what,

how much, why.

5.
Plan the marketing approach (cont.)

Be aware of any uncontrollable factors that
might affect the marketing of the product or
service such as
existing
or pending legislation relevant to the

business.
state of the economy in the market.
extent and strategies of the competition.
cultural norms of the market.
new technologies that might offset the business.
10

5.
Plan the marketing program (cont.)

the
product or service
the distribution system
promotion
pricing
11

6.
Describe the selection of the location.

the trading area
the
Economic Base
attitude of the trading area towards new

businesses
Competition
Costs
12

6.
Describe the selection of the location.

The Site
accessibility,
site costs, restrictions, site history,

proximity to other businesses, physical
characteristics
The Buy-or-Lease Decision

cost
of the lease, length of the lease, restrictions,

repairs and lease hold improvements, insurance
coverage
Running the Business from Ones Home

13

7.
Determine the physical facilities.

insurance types
loss or damage to the property
business interruption
liability and disability
life insurance
insurance decisions
what kind to purchase, how much to purchase, from whom to

purchase the insurance
14

8.
Plan the financing.

establish capital requirements
make feasibility projections
determine the sources of funding
plan the accounting, and bookkeeping systems
determine the financial evaluation measures
15

9.
Plan the personnel.

Administrative structure
Employee recruitment and training
Personnel Policies
16

10.
Investigate the legal requirements.
Legal Structure (four styles)

1.Sole
2.
Proprietorship
advantages and disadvantages
Partnership
3.
Limited, General
advantages and disadvantages
Cooperative
one member-one vote vs each share a vote
17

(cont.)
4.
Corporation
advantages and disadvantages of a corporation

steps in incorporation
selection of the business name
development of the share structure, directors,
restrictions on share transfers, etc.
description of the company operations
acquiring the necessary supplies
18

10.
Investigate the legal requirements.

(cont.)
5.
Joint Ventures
Licenses and Taxes

Federal
Government
income tax, goods and services taxes, excise tax
Provincial
income tax, licenses, sales tax
Municipal
Government
Governments
licenses, property taxes, business taxes
Intellectual Property Protection
patent steps
search and file
19
Concept Checks
1.
What are the advantages and

disadvantages of owning a small business?
2. What steps are involved in preparing a
business plan?
3. What criteria must be evaluated before
choosing a trading area?
4. When is it advantageous to lease instead
of owning?
20
Concept Checks
5.
What information should be investigated

before construction starts and purchasing
equipment?
6. Why is insurance purchased? What are
some small business insurance types?
7. What major financial aspects should be
planned in advance of business operation?
8. What are four legal structures that an
owner can utilize?
21
Concept Checks
9.

disadvantages of incorporation?
10. What level of government issues
business licences?
11. What taxes are levied by the federal
government?
12. What are the steps required to register a
patent?
22
Appendices
Appendix
A - Checklist for a Small

Business Plan
Appendix B - Sample Business Plans (2)
The Sock Hop, Quality Cuts
Appendix
C - Incorporation of Companies
and Associations
Appendix D - Jurisdiction of Licenses and
Taxes
23
SMALL BUSINESS
MANAGEMENT
Chapter 5
Buying a Business
Purchasing an Existing Business
Advantages of Purchasing
Reduction of Risk
Reduction of Time and Setup Expenses
Reduction of Competition
Capitalization of Business Strength
Possible Assistance from Previous
Owner
Easier Planning
Purchasing an Existing Business
Disadvantages of Purchasing
Physical Facilities
Personnel
Inventory
Accounts Receivable
Financial Condition
Market
Deciding on the Price
Sources of Businesses For Sale
Classified Ads
Government Departments
Trade Journals
Real Estate Brokers
Other Professionals
Word of Mouth
Evaluating a Business For Sale
Industry Analysis
Sales and Profit Trends in the Industry
The Previous Owner

Financial Condition of the Business
Validity of the Financial Statements

Evaluation of the Financial Statements
Condition of the Assets
Liquid Assets (Cash and Investments)

Accounts Receivable
Inventory
Building and Equipment
Real Estate
Goodwill
Quality of Personnel
External Relationships of the
Business
Conditions of the Records
Determining the Price or Value of a

Business
Market Value
Asset value
Earnings Value
Book Value
Replacement Value
Capitalization of Earnings Method
Times Earnings Method
Combination Method
Analytical Method
Historical Method
The Purchase Transaction
Coverage
purchase price, including principal and interest

amounts
payment dates - when and to whom
detailed list of assets included in the purchase
conditions of the purchase - nonfinancial
requirements
provisions for noncompliance with conditions
and penalties for breaches
collateral or security pledged
Negotiating the Deal
Concept Checks
1. What are the potential

advantages and disadvantages of
owning a small business?
2. What are the common sources of
determining which businesses are
for sale?
3. In addition to experience what
key areas should be investigated in
an industry analysis?
Concept Checks
4. Why is it important to investigate

the background of the previous
owner?
5. What parts of the business should
be analysed to determine the financial
condition of the business?
6. Under what conditions would it be
advantageous to purchase a business
even though it isnt financially sound?
Concept Checks
7. What nonfinancial aspects of the

business should be evaluated ?
8. What methods are available in
determining a price for a business
that is for sale?
Concept Checks
9. What steps are involved in

determining the selling price using
the combination method?
10. What areas should be included
in the purchase agreement?
Appendix A
Checklist of Considerations in
Purchasing a Business
The Industry
The Previous Owner
Financial Conditions of the Business
Condition of Assets
Quality of Personnel
Conditions of External Relationships
Conditions of Records
SMALL BUSINESS
MANAGEMENT
Chapter 6
Franchising
History and Background of

Franchising
Most
rapid growth in North America since

the 1950s.
1960s: Franchisee associations formed and
legislation to protect rights of franchisees
and franchisors.
More than 40% of all retail sales resulted
from franchising in North America in the
last decade.
2
What Is Franchising?
Manufacturer-Directed
Franchise
Wholesaler-Retailer-Directed Franchise
Franchising Company
Advantages of Franchising
Proven
market for the product or service.

Services the Franchisor May Provide
1. Selection of Location
2. Purchase or Construction of Site, Buildings,
and Equipment
3. Provision of Financing
Advantages of Franchising
Services
the Franchisor May Provide (cont.)
4. Standardized Methods of Operating

5. Advertising
6. Purchasing Advantages
7. Training
Potential Disadvantages of
Franchising
Lack
of Independence
Cost of the Franchise
Unfulfilled Promises
Restrictions of the Contract
Product or Service Offered
Line Forcing
Termination
6
Potential Disadvantages of
Franchising (cont)
Saturation
of the Market
Lack of Security
Cost of Merchandise
Effectiveness of Promotion
Exaggeration of Financial Success
Evaluation of a Franchise
Opportunity
Franchisor
Industry
Associations
Professionals
Other Franchisees
Government Agencies
Additional Areas to Investigate
The Entrepreneur as Franchisor

What
businesses can be franchised?
The Entrepreneur as Franchisor

How
does one become a franchisor?
1. Establish a prototype.
2. Prepare the necessary information.
4. Develop a planned and standardized program
of operations.
5. Obtain adequate financing.
10
Franchising in the Future

Piggybacking:
Two or more franchise

operating in one outlet.
Branchising: Converting existing chain
outlets to franchises.
Mini-franchises: Small satellite versions
of larger franchises.
Growth of service-based and home-based
franchises
11
Concept Checks
1.
Why is franchising enjoying such rapid

growth in the Canadian economy?
2.
What are the three general categories of

franchises?
3.
What are the potential advantages of

franchising?
12
Concept Checks
4.
What are the potential disadvantages of

franchising?
5.
When investigating purchasing a

franchise what sources of information are
available to assist in making the decision?
6.
What steps are involved in becoming a

successful franchisor?
13
Appendices
A.
A Sampling of Franchises Operating in

Canada
B. Trade Associations and Government
Departments that Assist Franchisors and
Franchisees
C. A Checklist for the Potential Franchisee;
Questions to Answer Affirmatively before
Going into Franchising
D. Franchise Contract Clauses
14
SMALL BUSINESS
MANAGEMENT
Chapter 7
Financing the Small Business
Small Business Financing

Reasons
For Financing of Ongoing

Operations
New Products and Services

Acquisition / Joint Venture
Expansion
Capital expenditures
Working capital needs
Small Business Financing

Other
management problems affecting

financing
underestimating financial requirements

lack of knowledge of sources of equity and debt capital
lack of skills in presenting a proposal for financing
failure to plan in advance for needs
poor financial control of operations
Determining the Amount of Funds

Needed
Start-up
Costs
Ongoing Operating Costs
The Owners Net Worth
Determining Types of Financing

Equity
(Ownership) Financing
Private Investors
Corporate Investors
Government
Business Development bank of Canada (BDC)
Canada Development Corporation (CDC)
Provincial
Programs
Advantages of Equity Financing

no
obligations for dividends or interest

investor expertise
equity expands borrowing power
equity spreads risk of failure
Disadvantages of Equity Financing

dilutes
ownership and independence

disagreements
compromises
legal costs
Debt Financing
Advantages
Obtain higher ROI by using leverage debt

Interest costs are tax deductible; dividends from
equity are not
No loss of ownership control and greater
flexibility with debt financing
Easier to obtain than equity capital
Debt Financing
Disadvantages
Interest must be paid on borrowed money

Increased paperwork requirements and lender
monitoring
Total risk on part of the owner
Sources of Debt Financing

Private
lenders
shareholder loans
Corporate
lenders
regular private lending institutions

trust companies, credit unions, finance companies
chartered banks
Government
Lenders
10
Determining Terms of Financing

Types
Short term (demand), medium term, long term

Sources
banks, private sources, factors, confirming

houses; term lenders, leasing companies,
foreign banks; trust companies
11
Preparing A Proposal to Obtain

Financing
Criteria
Used in the Loan Decision
1. The Applicants Management Ability

How
much the applicant knows about the business
How
much care was taken in preparing the proposal
12

Financing
Criteria
Used in the Loan Decision (cont)
2.The Proposal
level of working capital

current ratio
quick ratio
debt-to-equity ratio
Collateral
13

Financing
Criteria
Used in the Loan Decision (cont)
3. Applicants background and

creditworthiness
personal
information
present debt and past lending history
amount of equity the applicant has invested
will the applicant bank with the lender
Lender
Relations
14
Concept Checks
1.
What problems are often the result of lack of

management competence and experience ?
2.
What are some of the operating costs involved

in determining the start up capital needed ?
3.
Why is it important to determine the owners

net worth?
15
Concept Checks
4.
What are the sources of equity financing

for the small business ?
5.

disadvantages of equity financing ?
6.

disadvantages of debt financing ?
16
Concept Checks
7.
What are the major sources of debt

financing ?
8. What are the potential advantages and
disadvantages of borrowing through
government lenders ?
9. What criteria do lenders use in making
the loan decision ?
17
Concept Checks
10.
What can the entrepreneur do if he/she

is unsuccessful in obtaining financing ?
18
Appendices
Provincial
Equity Capital Programs

Federal Government Assistance Programs
for Small Business
Provincial Government Financial
Assistance Programs and Agencies for
Small Business
Venture Capital Firms in Canada
19
SMALL BUSINESS
MANAGEMENT
Chapter 9
Small Business and Electronic
Commerce
Small Business and Electronic

Commerce
What Is Electronic Commerce?
E-commerce is the use of computers &

electronic communication networks to
connect with other relevant
organizations
Growth of E-Commerce
Types of E-Commerce
Business
to Consumer (B2C)
Business to Business (B2B)
Business to Government (B2G)
Consumer to Consumer (C2C)
Consumer to Business (C2B)
E-Commerce Models
Brokers
Advertising Model
Infomediary Model
Merchant Model
Manufacturer Model
Affiliate Model
Community Model
Subscription Model
Utility Model
Advantages of E-Commerce
Expand
Markets
Maximize Customer Relationships
Create New Services
Reduce Costs
Problems with E-Commerce
Security Concerns
Authentication
Access control or authorization
Data integrity
Copyright and Intellectual Property

Threats
Payment systems
E- cash
E wallets
Smart Cards
Credit & Debit cards
Paypal
Planning a Website
Identify Objectives
-
level 1, level 2, or level 3
Strategies for Website Development

-
buy a ready made solution

rent space in a network based ecommerce solution
build the system from scratch
Choosing a Web Host
Types of Hosts
-
Shared Hosting
Dedicated Hosting
Colocated Hosting
Advantages of Using a Web Host
Attracting Customers to the Website
Register With a Search Engine

Request Links on Industry Sites
Include URL on Stationary, Business
Cards and Literature
Request Reciprocal Links
Issue News Releases
Capture Visitor E-mail Addresses
Attracting Customers to the Website

(cont.)
Publish an E-mail Newsletter

Set Up a Signature in the E-mail
Program
Promote the Site in Mailing Lists
and News Groups
Begin an Affiliate Program
Concept Checks
1. What activities does e-commerce

encompass ?
2. Why is market expansion a
popular use for e-commerce?
3. When developing a security
policy, what concerns should be
addressed ?
4. What are the different payment
systems available to e-commerce?
Concept Checks
5. When developing a website what

are some important aspects to
consider?
6. What are the methods of
attracting customers to a website?
SMALL BUSINESS
MANAGEMENT
Chapter 10
Financial Management
The Need for Financial Records
Uses of Accounting Information

Entrepreneurs
To plan and control
To motivate employees
Investors
To evaluate performance
Lenders
To evaluate creditworthiness
Government
To verify taxes owed
To approve new stock issues
2
The Accounting Cycle

Recording
Transactions
Classifying Transaction Totals
Summarizing Data
Balance Sheet (Statement of Financial Position)
Income Statement (Statement of Profit and
Loss)
Cash Flow Statement and/or Changes in
Financial Position
3
Accounting Systems for Small Business

One-Book
System
One-Write System
Multi-journal System
Outsourcing Financial Activities
Accounting Systems for Small Business

Small
Business Computer Systems

Disadvantages
Cost
Obsolescence
Employee Resistance
Capabilities
Setup Time
Failure to Compensate for Poor Bookkeeping
5
Management of Financial Information for

Planning
Short
Term Financial Planning
Clarification of Objectives
Coordination
Evaluation and Control

Planning
Long
Term Financial Planning
The Capital Investment Decision

rate
of return method
present value method
payback method
The Capacity Decision

break
even point

Planning
Long
Term Financial Planning (cont.)
The Expansion Decision

Effect
of fixed cost adjustments

Effect of variable cost adjustments
Evaluation of Financial Performance

Management
of Current Financial Position
length of time for payments

three essential components
time
taken to pay accounts payable

time taken to sell inventory
time taken to receive payment for inventory

Evaluation
of Financial Statements
Ratio Analysis
Liquidity ratios
current
ratio = current assets / current liabilities
over 1:1, usually between 1:1 and 2:1

Acid
test/ Quick ratio = current assets-inventories/

current liabilities
1:1 is considered healthy
10

Evaluation
Ratio Analysis
Productivity ratios
Inventory
turnover = COGS / Average inventory at

average cost
Inventory turnover = Sales / Average inventory at
retail price
Collection period = Accounts receivable / Daily
credit sales
11

Evaluation
Ratio Analysis
Profitability ratios
Gross
margin = sales - COGS

Profit on sales = net profit before tax / sales
Expense ratio = Expense item / Sales
Return on Investment = Net profit before tax /
owners equity
12

Evaluation
Ratio Analysis
Debt ratio
Total debt to equity = Total debt / owners equity

not greater than 4:1
13
Credit and the Small Business

Advantages
of Credit Use
will undoubtedly increase sales

necessary to remain competitive
credit customers exhibit more store loyalty
credit customers are more concerned with
quality of service vs. price
credit records can be used for future planning
14

Disadvantages
of Credit Use
will be some bad debts - depends on credit

policy and monitoring
slow payers cause lost interest and capital
increases bookkeeping, mailing and collection
expenses
15

Management
of a Credit Program
Determine Administrative Policies

Set Criteria for Granting Credit
Set up a System to Monitor Accounts
Establish a Procedure for Collection
16

Use
of Bank Credit Cards
17
Concept Checks
1.
Describe the three steps in the accounting

cycle.
2.
What are the three financial statements ,

as discussed in the text, that are valuable to
a small business owner?
3.
List the bookkeeping systems used by a

small business.
18
Concept Checks
4.
What are some of the capabilities of

computers which can benefit small
business?
5.
What are some possible disadvantages of

computer ownership?
6.
In the short term, why is budgeting a

valuable tool?
19
Concept Checks
7.
What are the three types of long-term

financial planning decisions that could
affect the business?
8. What measure can be used to evaluate the
results which are found in the financial
statements?
9. What is the business cycle of a small
business? Why is it important?
20
Concept Checks
10.
Why is ratio analysis important?
21
Appendices
A.
Checklist for buying a small business

computer
B. Use of Financial Ratios for a Small
Business (Car Dealer)
22
SMALL BUSINESS
MANAGEMENT
Chapter 11
Operations Management
Management of Internal Operations

Part
of Physical Facilities Plan

Maintaining Quality and Control
Areas
cash flow, production costs, product quality,

inventory management, physical facilities
issues.
The Production Process

Converts
money, people, machines, inventories
Into
Inputs
Outputs
products and/or services
PERT
= Priority Evaluation Review and

Technique
Total Quality Management
3
Physical Facilities
Buildings - age, space, configuration, appearance,
frontage, access
Interior utilization - floor space, room dimensions,
ceiling heights, stairways, elevators, window space, utility
services
Improvement potential - building exterior and
interior,site, surrounding, streets, walks, access, expansion
Site and Environment - street and service areas
setback and frontage, parking, surrounding businesses,
area environment
4
Layout
Layouts
for Manufacturing Firms
product layout, process layout, fixed position layout
Layouts
for Retail Firms
selling vs. nonselling space, space among departments

and/or products, classification of merchandise, display
locations and product shelving
grid layout, free-flowing layout
Layouts
for Service Firms

5
Purchasing and Controlling

Inventories
Sources
of Supply
Evaluating Suppliers
dependability, cost, services offered
Determining
Order Quantities
order lead time, sales or production estimate, minimum

inventory levels needed, inventory currently on hand,
methods for determining order quantities,
administration of the buying process (minimum
turnover method, maxmin, opentobuy, eoq, abc
analysis)
6
Purchasing and Controlling

Inventories
Inventory
Control
unit of control,
valuation,
monitoring,
periodic
vs. perpetual
security of inventory
The Small Business-Supplier

Relationship
EXAMPLE OF POLICY
1. Define clear, identifiable, and measurable objectives for
your supplier management strategy.
2. Be prepared to work with the supplier to identify and
define the roles that each will perform.
3. Attempt to employ technology to share data relating to
forecasting, product movement, and financial evaluation.
4. Evaluate suppliers regularly with an objective
standardized framework that is both quantitative and
qualitative.
8
Concept Checks
1.
What is the production process?
2.
Why is it important to continually

monitor the state of the physical facilities?
3.
What are the three types of layouts used

in the production process?
Concept Checks
4.
In planning the layout of a retail store,

what key areas should be analyzed?
5.
What are the two types of layouts used by

a retail store?
6. What are the pros and cons of

purchasing from one supplier?
10
Concept Checks
7.
What items of information are required to

estimate the quantities of inventories to
order?
8. What specific methods can be used to
determine order quantities?
9. What are the three essential aspects of
inventory control?
11
SMALL BUSINESS
MANAGEMENT
Chapter 12
Human Resources Management
Human Resources Management and

the Small Business
Planning
Hiring
Management
Planning for Human Resources

Determine
Personnel Requirements
Set Organization Structure
Prepare Job Descriptions
Develop Personnel Policies
job descriptions, working conditions, holidays and

leaves, remuneration and pay, employee benefits,
grievance procedure
The Hiring Process

Sources
from within, other businesses, employee referrals,

advertising, employment agencies, educational
institutions
The
of Employees
Screening Process
Application form, the employment interview, checking

references, tests
Notification
of the Hiring Decision

4
Personnel Management
The
Introduction Period
The first week

The
Probationary Period
Training
On-the-job training, formal classroom training
The
Owner-Manager as Personnel Manager
Leadership Style
Time Management
Recognize the Importance of Time
Re-examine and Clarify Priorities
Analyze Present Time-Consuming Activities
Implement Time Management Principles
Motivation
and Loyalty
working conditions , employee needs
Paying
employees
Fringe benefits
job rotation, job sharing, working from home, flexible

hours, employee suggestion systems
Controlling
and Evaluating Performance
pinpoint, record, involve, coach, evaluate

7
Handling
Grievances
implement a method for expression grievances

assure that concerns will not affect relationships
minimal red tape
offer alternative methods for concerns
(suggestion box)
Handling
Grievances (cont.)
unionization and the small business

Labor Relations Act
deals
with wages , benefits and working conditions

bargain in good faith
no discrimination for participation
binding terms and conditions
interpretations resolved by an arbitrator
Government
Requirements and Assistance
Federal Government
job
entry program
skill shortage and skill investment programs
job development program
innovation programs
community future programs
10
Provincial Government
job
discrimination
pay and employment equity
working conditions and compensation
employment standards
employment safety and health
workers compensation
wage subsidy programs
provincial training programs
11
Municipal Government
licensing
zoning
operation hours
property taxes
building codes
12
Recordkeeping
for Employers
Employee Remittance Number

Payroll Book
Monthly Remittance
Year-End Statements
Contract
Employees
13
Concept Checks
1.
Why is sound personnel management

important for small business managers ?
2.
What is the purpose of the organizational

chart ?
3.
Why is it important for small business to

have written personnel policies ?
14
Concept Checks
4.
What are some policies which should be

included in the policy manual ?
5.
What are potential sources of employees

for small business ?
6.
What are the methods for screening

employees ?
15
Concept Checks
7.
Why is it important that an interviewer

use a common interview format for each
applicant ?
8. What are some of the general personnel
management principles that an ownermanager can apply ?
9. What can be done to improve the ownermanagers use of time ?
16
Concept Checks
10.
What can be done to ensure that the

employee has a smooth transition into a new
job ?
11. What are the two major principles of
human relations management ?
12. List the different types of compensation
plans that may be used by a small business.
17
Concept Checks
13. What are the fringe benefits available to
the employee ?
14. What are the five steps in the simplified
M.B.O. process ?
!5. What are some of the important
principles of grievance management ?
16. What are the steps in administering a
payroll for a small business ?
18
Appendices
Interview Guide for a Small Business

Labour Legislation Jurisdiction
Provincial Labour Departments
19
SMALL BUSINESS
MANAGEMENT
Chapter 13
Tax Management
Taxation and Small Business

History
of Taxation
Income
Taxes
complexity of principles and frequency of

legislative changes
General Tax Management Principles

Nine
fundamental areas
1. Continual tax planning
through the year requirements
2.
Tax Deferral
3. Income Splitting
4. Marginal Tax Rates

(cont.)
5.
Deductibles
accounting and legal expenses
advertising
business entertaining
automobile expenses
interest expense
repairs and improvements
office expenses
4

(cont)
6.
Government Tax-Related Programs

Special Tax Rate Deductions
Small
Business Deduction (SBD)

Manufacturing and Processing Deduction
Investment Tax Credit
Deferral Programs
deferred profit sharing

registered retirement savings plan
bonus deferral

6.
Government Tax-Related Programs

(cont.)
7.
Accelerated Capital Cost Allowance

Small Business Financing Programs
The Incorporation Question

corporation vs. proprietorship vs. partnership

(cont)
8.
The Remuneration Question
compensation salary or dividend
9.
Transferring the Business: Capital Gains

capital gains and family members
Goods and Service Tax (GST) and

Provincial Sales Tax (PST)
7
Concept Checks
1.
Why is it imperative that the small

business owner have some tax knowledge?
2.
What is continual tax planning?
3.
What are two good reasons to defer

taxes?
4.
What is income splitting?

8
Concept Checks
5.
What are the nine fundamental areas of

tax management of which an owner should
be aware ?
6.
What is the definition of a deductible ?
7.
List the six government related programs

available to small businesses.
Concept Checks
8.
Why would a company wish to

incorporate ?
9. From a tax perspective, would it be better
to take a salary or dividends from an
incorporated company ?
10
Appendices
A.
Federal and Provincial Tax Rates for

Individuals
B. Tax Reference Tables
11
SMALL BUSINESS
MANAGEMENT
Chapter 14
Managing Growth
The Business Cycle

Introduction
Growth
Maturity
Decline
Problems Created by Growth

Owner-Manager
Fatigue and Stress

Lack of Communication
Lack of Coordination
Shortage of Cash
Low Profitability
Problems Created by Growth

(cont.)
Breakdowns
in Production Efficiency
Lack of Information
Decreasing Employee Morale
Owner Lifestyle
Evaluating the Growth Question

Is
the business one that can grow ?

Is the business owner prepared to make the
effort ?
Does the owner-manager have the
capabilities to grow?
How should the owner-manager pursue
growth ?
5
Evaluating the Growth Question

(cont.)
Growth
options
new markets for the product or service

increased sales by increasing frequency of use.
add new products or services or modify existing
ones.
new uses for present products or services
acquire other small companies
Planning for Growth

The
Expansion Plan
set objectives
determine alternatives
select the best alternative
Planning for Growth (cont)

Understanding
the Requirements of Growth
Greater Management Depth

Intelligent Expansion
Additional capital
Financial Information
Organizational Change
Implementing Managerial Controls
Monitoring the External Environment
8
Concept Checks
1.
What concepts can help the ownermanager deal effectively with growth
problems?
2.
What are the four stages of the business

cycle?
3.
What are the problems created by

growth?
9
Concept Checks
4.
How can the owner-manager deal

effectively with growth?
5. Why dont small business owners use
more formal planning?
6. What are the steps in the growth plan?
7. What are the requirements of growth?
10
SMALL BUSINESS
MANAGEMENT
Chapter 15
Managing the Transfer of the
Business
Managing the Transfer of the

Business
Long
Range Planning
Alternative Outcomes for the Business
transferring ownership to heirs

selling the business to outsiders
closing down the business or declaring
bankruptcy
Transferring Ownership to Heirs

Potential
Problems in a Family Business
high emotional level

blurring of roles
incompetence
non-family employee attitudes
objectives of family owners
Planning for Succession

Keeping
Communication Lines Open

Tax and Legal Implications of Transferring
the Business to Family Members
Methods of Transferring the Business to
Family Members
through a will,purchase and sale, gifting

program, life estate, joint ownership
Principles of Success for Family

Businesses
Recognize
the Importance of Objectivity

Create Clear Role Structures
Ensure Competence
Provide Incentives for Non-Family
Employees
Clarify Objectives of Family Owners
Selling the Business to Outsiders

Going
Public
Private Placement
Closing Down or Going Bankrupt

Closing
Down
Business Bankruptcy
Concept Checks
1.
What are some methods of transferring

ones business to ones children?
2. What is the importance of capital gains in
this transfer?
3. What are the unique problems of a family
owned business ?
4. Why is the emotional level higher in a
family business ?
8
Concept Checks
5.
What can be done with an incompetent

family member employee ?
6. What can be done to prevent nonfamily
employees from leaving the business ?
7. Why is it important to set long-term
goals in a family business ?
8. How can family succession be made
easier ?
9
Concept Checks
9.
Why is open communication so important

in a family business ?
10. What budget change has effected the
selling of a small business ?
11. How do you know if your company
should go public ?
12. What is the priority order for creditors
in a bankruptcy case ?
10

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SMALL BUSINESS

The Entrepreneurial Revolution

Increase in the number of business

The Entrepreneurial Revolution

Increases in the number of small

What Is Small Business?

Comparison and Evaluation

Current State of Small Business in

bias for action

Small Business and the Future

NAFTA, Global Markets, Large Business

Small Business and the Future

Why has there been an increase in

What are the criteria used to make

What are the contributions small

The Entrepreneurial Revolution

Increase in the number of business

The Entrepreneurial Revolution

Increases in the number of small

What Is Small Business?

Comparison and Evaluation

Current State of Small Business in

bias for action

Small Business and the Future

NAFTA, Global Markets, Large Business

Small Business and the Future

Why has there been an increase in

What are the criteria used to make

What are the contributions small

The Small Business Decision

Advantages of Small Business

personal contacts with people

for Many Abilities

Personality Characteristics Required

Personality Characteristics Required

Problem Solving Abilities

The Small Business Decision

Small Business Successes

Small Business Successes

with Operating Details

Small Business Successes

Success in a Large Business

Ten Commandments for Intrapreneur Success

Small Business Failures

Entrepreneurialship and Small

innovativeness, independence, risktaking, idea oriented

ideas and solutions to problems, starting

Entrepreneurialship and Small

strategy and goal setting, prefers to know

performance objectives, maintaining control of

List the advantages of owning a small

What are the major cases of business

Good health, management fundamentals,

Breaking Into The Market

offer a totally new product

a Strategic Competitive Advantage

the right industry

surveys, telephone surveys, personal

Quantitative Assessment of Business

the Feasibility Analysis

Step One - Calculate the Market Potential

Quantitative Assessment of Business

One - Calculate the Market Potential