MGT3960 Entrepreneurship Management Fall 2015

11/11/15

What financial measurements should be prepared to measure company performance?

A financial plan to measure financial performance is an important management tool and is very important information for potential investors in a business. There are three methods for measuring financial performance:

• Measuring sales value: View performance in terms of sales. Use the percentage of increased sales or new business. This should be used when increased sales equals to higher profits.
• Measuring profits: View performance in terms of profits. Defined as the difference between revenues and expenses.
• Measuring cash generated: It is important to project cash flow. Companies should have adequate cash so they will not be forced into bankruptcy.

What are the categories and steps in preparing a financial budget?

A standard budget is divided into 11 major categories. A financial budget presents a projection of revenues and expenses used for projecting other financial statements.

1. Sales: Includes sales by product line and by customer, geographical region, and goals for each sales representative.
2. Cost of Goods Sold: Include both materials and shipping costs.
3. Gross Profit: Includes the gross profit. Sales less those costs directly incurred to achieve the sale.
4. Operating Expenses:
5. Operating Profit/Loss: Operating expenses identified by sales categories. An operating profit/loss for each sales category should be calculated.
6. Other Income and Expenses: Includes detailed interest expense and other income and expenses not related to the normal operations of the business.
7. Pretax Income: Income before taxes is calculated.
8. Income Taxes: The management’s estimate of the taxes that will be owed on the earnings. Federal and state taxes.
9. Net Income: The amount available for dividends or reinvestment in the company.
10. EBIT: Net income before interest expense, interest income, and income taxes. Measures profitability of a company without the impact of debt or investments.
11. EBITDA: Earnings before interest expense, interest income, income taxes, depreciation, and amortization. Measures the profitability of a company without the impact of debt, investments, and long-term assets.

The steps in preparing a financial document are:

1. Consider Cash Flow Revenues: Find a realistic basis for estimating sales each month.
2. Consider Cash Flow Disbursements: Project each of the various expense categories. Begins with a summary for each month of the cash payments to suppliers, wages, rent, and equipment.
3. Reconcile the Revenues and Disbursements: Begins by showing the balance carried over from the previous month’s operations.

Describe the breakeven technique in the decision making model to determine profit and loss.

The breakeven technique is a model that helps determine whether a certain volume of output will result in a profit or loss. Breaking even occurs when the volume of output at which total revenue is equal to the total cost. To use this technique you only need to know:

• The fixed costs of operation
• The variable costs of production
• The price per unit

Why is building a corporate culture to match a company’s mission important?

The ability to lead a business on a mission where everyone is involved every day in moving towards clearly defined goals makes the difference between success and failure. The leaders of a business need to get a good team and know how to keep them happy and motivated. Not all employees are motivated by the same things, some are motivate by intrinsic things, like knowing they are doing good to the community or matching donations, and others by extrinsic things like money. Company culture is very important because the employees are more likely to go the extra mile if they believe in the company and enjoys working there. When dealing with a small business having employees that make the customers feel comfortable can create loyal customers.

Select six leadership attributes that you feel are the most important when building a strong culture. Why?

1. Honest: You have to trust the people that work for you and know they will have the best interest of the company.
2. Flexible: Must be able to work with new rules and goals.
3. Communicative: A leader must know how to communicate with others in order to have the business functioning at its peak.
4. Innovative: A leader must be able to see a problem and try to solve it in the best way. They can see a point of pain and bring up new ways to resolve the conflict.
5. Respectful: Must be able to treat others with respect especially in difficult situations.
6. Supportive: They encourage new ideas and approaches. Employees must feel comfortable going to their leader.

Name three important factors that you must take into account when hiring key people.

• Values: Look for people where their personal values match the company’s culture. For example, for my Daycare I hire people who love children and want to give them the best childhood we can by teaching them while keeping them safe and entertained.
• Personal relationships: Be careful when bringing friends into the company. Judgment can be clouded. If that person doesn’t work out and has to be fired it will be much harder and things done wrong by that person might be overlooked to avoid conflict.
• Professional help: You may want to use a professional recruiter for key positions. It is pricey but in most cases it is worth having a non-biased professional evaluate the skills needed for a position.

1. What financial measurements should be prepared to measure company performance?

Budgets, cash flow forecasts, breakeven analysis, measuring sales volume, measuring profits, and measuring cash generated.

2. What are the categories and steps in preparing a financial budget?

• 1. Sales
• 2. Cost of Goods Sold
• 3. Gross Profit 
• 4. Operating Expenses
• 5. Operating Profit/Loss
• 6. Other Income and Expenses
• 7. Pretax Income
• 8. Income Taxes (management’s estimates of what taxes will be owed on its earnings.)
• 9. Net Income (the amount available for dividends or reinvestment in the company)
• 10. EBIT (earnings before interest expense, interest income, and income taxes. It measures the profitability of the company’s current operations as if it had no debt or investment.)
• 11. EBITDA (earnings before interest expense, interest income, income taxes, depreciation, and amortization. It measures the profitability of a company’s operations without the impact of its debt, investments, and long-term assets)

4. Describe the breakeven technique in the decision-making model to determine profit and loss.

The breakeven technique helps the entrepreneur determine whether a certain volume of output will result in a profit or loss. the point at which breaking even occurs is the volume of output at which total revenues equal total costs. To use this technique you need only know the fixed costs of operation, variable costs of production, and price per unit.

A quick way to calculate the breakeven point is to use the following formula. The price per unit (P) multiplied by the number of units sold (X) is equal to the fixed costs (F) plus the variable costs (V) multiplied by the number of units produced expressed by the following formula:

P(X) = F + V(X)

6. Why is building a corporate culture to match a company’s mission important?

Because the ability to lead an organization on a mission where everyone is involved every day in moving toward clearly defined goals makes the difference between success and failure.

7. Select six leadership attributes that you feel are the most important when building a strong culture. Why?

Honesty is important because people within an organization need to trust their environment. I believe alignment is important since employees need to understand the goals/objectives of the company they work for. Teams in order to increase performance. Empowerment and support  will make employees feel better on the workplace and make they more inclined to generate new ideas. Good communication eases interaction among the whole business and make the company faster to respond to problems.

8. Name three important factors that you must take into account when hiring key people.

• Do they have the necessary skills?
• Do the have the will/determination?
• Are they going to fit in the existing team?

Financial measurements that need to be prepared to measure a company’s performance are:

• The balance sheet
• Income statements (profit-and- loss statement)
• Cash flow statements (source and use of funds)

There are 11 major categories in preparing a financial budget:

1. Sales
2. Cost of Goods Sold
3. Gross Profit
4. Operating Expenses
5. Operating Profit / Loss
6. Other Income and Expenses
7. Pretax Income
8. Income Taxes
9. Net Income
10. EBIT
11. EBITDA

The breakeven technique is a decision making model that helps entrepreneurs determine whether a certain size of production will result in a profit of loss. This technique shows the point at which breaking even occurs, when total revenues equals total costs. Total revenues are equal to the price from the sale of one unit times the amount of units sold. The total cost breaks down to two parts, fixed and variable. Fixed costs are expenses that do not change. Variable cost depends on the volume produced. The breakeven point is when total profit is zero.

Building a corporate culture to match a company’s mission is important because involving everyone everyday moving toward a clearly defined goal or goals makes the difference between success and failure. Building this corporate culture takes strong leadership skills and the ability to interact and bring everyone together for a single goal. As we know ourselves communicating with each other at work makes a big difference in accomplishing certain goals. If everyone did their own thing, the whole picture would not come together.

The 6 skills I feel are important for building a strong culture are:

• Honesty – This allows employees at work to be open to one another. This makes work environment feel more like home.
• Alignment – this makes the company goals easier to reach when everyone is going towards the same goals.
• Teams – If working by yourself is good, think of working as a team challenging each other to do better.
• Empowerment – This shows that you as a manager trusts the employees to make the right decisions that steers the company in the right direction.
• Engagement – This attribute is important because communication in between Managers and employees can help the company grow.
• Support – I always believed supporting others are a good thing. This way if one does not believe in themselves, others are there to help.

The three important factors one must consider when hiring key people are:

• Match values
• Use professional recruiter
• Work experience

There are at least three financial measurements should be prepared to measure company performance.

1. The balance sheet
2. The income statement
3. The statement of cash flows

In order to prepare an annual financial budget, there are 11 major categories and steps.

1. sales
2. cost of goods sold
3. gross profit
4. operating expenses
5. operating profit/loss
6. other income and expenses
7. pretax income
8. income taxes
9. net income
10. EBIT
11. EBITDA

1.  What financial measurements should be prepared to measure company procedures?

There are 3 methods of measuring financial performance:

• Measuring sales volume
• Measuring profits
• Measuring cash generated

2. What are the categories and steps in preparing a financial budget?

• The 11 categories to preparing a financial budget are: sales, cost of goods sold, gross profit, operating expenses, operating profits/loss, other income and expenses, pretax income, income taxes, net income, EBIT, EBITDA.

4. Describe the break even technique in the decision-making model to determine profit and loss.

• It a mathematical formula used to help determine whether a certain volume of output will result in profit or loss. Break-even occurs when the total revenue is equal to the total costs. P(x) = F + V(x)

6. Why is building a corporate culture to match a companys mission important?

• Its important because companies that do build a corporate culture to match a companys mission perform on a much higher scale and are often times much more successful. The book refers to Michael Dell as an example. He succeeded where others did not because he was able to lead his organization on a mission where everyone was involved and clear concise goals were established.

7. Select six leadership attributes that you feel are the most important when building a strong culture. Why?

• Freedom:  Youre not forcing too much control over the individual/ suffocating them
• Empowerment: Lets the employee know we can trust in their skills to handle issues
• Honesty: An honest and open environment builds confidence in the work environment
• Support: Should know that their ideas will never go unnoticed/ unsupported
• Alignment: Having clear goals makes it easier foe the employee to follow the same goals
• Teams: Should never feel as if they have to accomplish a difficult task(s) on their own

8. Name three important factors that you must take into account when hiring key people.

• Matching Values
• Check references
• Hire professional recruiter for key positions

1. What financial measurements should be prepared to measure company performance?

There are three main financial documents that need to be prepared to measure the economically performance of your company:

1. The balance sheet
2. The income statement; and
3. The statement of cash flows

2. What are the categories and steps in preparing a financial budget?

1. Prepare Financial Projections
   1. Measuring sales volume
   2. Measuring profits
   3. Measuring cash generated

2. Preparing An Annual Budget
   1. Sales
   2. Cost of goods sold
   3. Gross profit
   4. Operating expenses
   5. Operating profit/loss
   6. Other income and expenses
   7. Pretax income
   8. Income taxes
   9. Net income
   10. Earnings before interest expenses, interest income, and income taxes (EBIT)
   11. Earning before interest expense, interest income, income taxes, and amortization (EBITDA)

3. Preparing A Cash Flow Forecast
   1. Consider cash flow revenues
   2. Consider cash flow disbursements
   3. Reconcile the revenues and disbursements

3. Describe the breakeven technique in the decision-making model to determinate profit and loss.

 The break-even point is the point where the business’s sales have generated enough income to cover all of its fixed costs and expenses. At that point, all of the business’s incoming revenue is profit as long as the expenses and costs are not increased and the sales amounts are not reduced. To use this technique you only need to know the fixed costs of operations, variable costs of production, and price per unit.

The break-even point identifies the total amount of sales the business needs before profit can be earned. When analyzed closely, the break-even analysis also helps the business to identify excessive fixed costs. Since the break-even point is directly related to the fixed costs, reducing and controlling these costs aids the business in achieving a lower break-even point for quicker profitability.

4. Why is building a corporate culture to match a company’s mission important?

Every organization, from small businesses to large corporations, has a culture. The culture refers to the values and attitudes of employees in the business or organization. In a business with an unhealthy culture, employees act as individuals, performing their duties to meet their own needs, such as a paycheck or health benefits. A healthy corporate culture values each employee in the organization regardless of his job duties, which results in employees working as a team to meet the company’s and their own personal needs. Healthy corporate culture improves the performance of a business in a number of areas.

Your company culture defines the way in which your organization interacts with one another and how the team interacts with the outside world, specifically your partners and suppliers. It’s the formula that guides the team, as well as inspires and motivates employees. It is also responsible for attracting and attaining great talent, as well as creating a fun, happy and exciting work environment.

A great company culture also attracts a great partner, which, in turn, creates great success. People will want to do business with you because of what you believe in and stand for, rather than solely on your products alone.

5. Select six leadership attributes that you feel are the most important when building a strong culture. Why?

1. Honesty – Whatever ethical plane you hold yourself to, when you are responsible for a team of people, its important to raise the bar even higher. Your business and its employees are a reflection of yourself, and if you make honest and ethical behavior a key value, your team will follow suit.
2. Organized – Are you prepared for meetings, presentations, events and confident that people around you are prepared and organized as well? You are a reflection of your company, and your employees see and evaluate you as much, if not even more, as you do them. Be organized.
3. Evaluative – Evaluation of events and programs is essential for an organization/group to improve and progress. An exceptional leader will constantly evaluate and change programs and policies that are not working.
4. Respectful – Treating others with respect will ultimately earn respect.
5. Well Educated – Knowledge is power. Work to be well educated on community policies, procedures, organizational norms, etc. Further, your knowledge of issues and information will only increase your success in leading others.
6. Communicative – Being able to clearly and succinctly describe what you want done is extremely important. If you can’t relate your vision to your team, you won’t all be working towards the same goal.

6. Name three important factors that you must take into account when hiring key people.

1. Work experience – Work experience might be one of the most important considerations you have for key jobs at your company.
2. Skills set – The specific skills set of potential key employees is a critical factor that can often determine who you hire and who you do not.
3. Confidence – An applicant who approaches you with a confident attitude makes a good first impression. This is also probably the way this person will approach your clients. An applicant who exudes self-confidence believes in him-/herself. (S)he will believe (s)he can handle the job and exceed expectations. Self-belief is important for facing and succeeding in challenges. Your workplace will benefit from the hiring of individuals who are confident they can learn and perform as needed.