Assignment 226

Chapter Six

Planning, Organizing, and

Managing a Small Business

Copyright © 2018 by McGraw-Hill Education. All rights reserved.

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Learning Objectives

Tell why planning is so important—yet so neglected—in small businesses.

Explain the role of strategic and operational planning, and give some examples.

Explain the role of financial planning, and give some examples of it.

Tell why a business plan is needed and what purpose it should serve.

Prepare a sample business plan.

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Why Is Planning So Important to Small Businesses?

Planning

The process of setting objectives and determining actions to reach them.

Criteria

Be prepared.

Be patient.

Know where to get help.

Form your own support system.

Know the power of vertical integration.

Never rest on you own laurels.

What business am I in?

What finances do I need?

What is my sales strategy?

Where can I find needed personnel?

How much profit can I expect?

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Why Is Planning So Important to Small Businesses?

Planning should be the first in performing a series of managerial functions because it sets the future course of action for all aspects of business.

Planning is the foundation you build on.

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How Planning Relates to Other Managerial Functions

Figure 6.1

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How Planning Relates to Other Managerial Functions

Well-developed plans can:

Interest moneyed people in investing in your business.

Guide the owner and managers in operating the business

Give direction to and motivate employees.

Provide an environment to attract customers and prospective employees.

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Why Small Business Owners Neglect Planning

Day-to-day activities leave them little or no time for planning.

They fear the problems and weaknesses planning may reveal.

They lack knowledge of how to plan.

They feel that future changes cannot be planned for.

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Some of the Most Important Types of Plans and Planning Functions

Table 6.1

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The Role of Strategic Planning

Strategic planning

Provides comprehensive long-term direction to help a business accomplish its mission.

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The Role of Strategic Planning

Do I have the ability to develop a comprehensive strategic plan to take the company to the next level?

Do I have the experience and life lessons necessary for furthering the strategic vision of the company?

Do I have the leadership skills the organization needs to grow?

Do the investors relate to and trust me?

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Examples of Strategic Planning

Selecting the type of business to enter.

Formulating the mission of the company.

Deciding whether to start a new business, buy an existing one, or buy a franchise.

Choosing the product or service to sell.

Deciding on the market niche to exploit.

Choosing the type of organization to use.

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SWOT Analysis

SWOT Analysis

Study is made of the opportunities and threats in the external environment and the strengths and weaknesses in the internal environment.

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Mission and Objectives

Vision

Explains what the business I stressing to become in the future.

Mission statement

Defines the present business scope and broadly describes the organization’s present capabilities, focus, and activities.

Objectives

The purposes, goals, and desired results for the business and its parts.

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Strategic Umbrella

Figure 6.2

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Example of How Objectives
Can Be Set

Table 6.2

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Internal Resources and Competitive Edge

Human resources

The personnel that make up the business’s work force.

To keep the company competitive, these people must be motivated, imaginative, qualified, and dedicated.

Financial resources

Include the cash flow, debt capacity, and equity available to finance operations.

To be competitive, finances must be adequate to maintain current levels of activities, and to take advantage of future opportunities.

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Internal Resources and Competitive Edge

Physical resources

The buildings, tools and equipment, and service and distribution facilities that are needed to carry on the business.

For the company to become competitive, these resources must be strategically located, be productive, be low in operating costs, be effective distributors, and make the proper product.

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Competitive Edge

Competitive edge

A particular characteristic that makes a firm more attractive to customers than are its rivals.

A small business must align its mission, objectives, and resources with its environment.

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Strategies

Strategies

The means by which a business achieves its objectives and fulfills its mission.

They should combine the activities, such as marketing, production or operations, research and development, finance, and personnel in order to use the firm’s resources most effectively.

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Three Types of Planning

Strategic planning before starting the business.

A business plan to attract investors, financiers, and prospective employees.

Continuous operational planning and control before and after the business starts operating.

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Setting Up Policies, Methods, Procedures, and Budgets

Operational planning

Sets policies, procedures, and standards for achieving objectives.

Policies

General statements that serve as guides to managerial decision making and supervisory activities.

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Setting Up Policies, Methods, Procedures, and Budgets

Methods and procedures

Provide standing instructions to employees on how to perform their jobs.

Budgets

Detailed plans, expressed in monetary terms, of the results expected from officially recognized programs for a given future period.

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Planning to Operate the Business

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Location, Location, Location!

The type of business influences most of your location decisions, as they relate to access to customers, suppliers, employees, utilities, and transportation, as well as compliance with zoning regulations, and other laws.

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The Role of Financial Planning

Financial planning

Involves determining what funds are needed, where they can be obtained, and how they can be controlled.

Estimating income and expenses.

Estimating initial investment required.

Locating sources of funds.

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Estimating Income and Expenses

Net profit

The amount of revenue (sales) over and above the total amount of expenses (costs) of doing business.

Cash flow

The amount of cash available at a given time to pay expenses.

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Estimating Income and Expenses

Variable expenses

Change in relation to volume of output: when output is low, the expenses are low, and when output is high, expenses rise.

Fixed expenses

Do not vary with output, but remain the same.

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Locating Sources of Funds

Equity investors are those who actually become part owners of the business.

Lenders are those outsiders who provide business owners money for a limited time at a fixed rate of interest.

Microloans are small short term loan provided by the SBA through intermediaries.

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The Role of the Business Plan in Strategic and Operational Planning

Business plan

A formal plan prepared to serve as a tool for attracting the other components of the business formation package, including people and
money.

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What the Plan Should Include

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How to Prepare a Business Plan

Figure 6.7

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A Well-written Business Plan Should Answer Questions

Is the business formation package complete?

Would it be attractive to potential investors?

Does the proposed business plan have a reasonable chance for success?

Does it have any long-run competitive advantages to the owner? The investor? The employees?

Can the product be produced efficiently?

Can it be marketed effectively?

Can the production and marketing of the product be economically feasible?

Can the new company’s business functions-operations, distribution, finance, and human resources-be properly managed?

Are the needed employees available?

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Typical Business Plan Format

Figure 6.8

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Writing The Plan

Executive summary

Brief overview of the most important information in a business plan.

Should be written after the plan itself is finished.

Be honest.

se the third person.

Use transitional words, such as but, still, and therefore.

Avoid redundancies.

Use short, simple words.

Use visuals.

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Typical Business Plan Format

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The Oral Presentation

Present the plan in person to investors or lenders, from their perspective.

They will be watching you, to see what kind of person you are because you are the business. Make their first impression of you a great one., as you may only have one chance.

Demonstrate that you have a marketable product and that the business has a feasible plan for aggressively marketing it – at a profit.

Use visual aids.

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The Oral Presentation

Be Prepared to answer questions concerning the following:

The adequacy of the research and development behind the product.

The validity of the market research.

Your understanding of the business.

Financial projections and why they will work.

Your ability to “Make it Happen.”

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