1. Copyright Atomic Dog Publishing, 2005 Small Business Management: A Planning Approach Joel Corman Suffolk University, Emeritus Robert Lussier Springfield College Lori Pennel Bunker Hill Community College

2. Copyright Atomic Dog Publishing, 2005 CHAPTER 14 Controlling Assets, Risks, and Computer Applications PART 4 Controlling and Evaluating Performance

3. Copyright Atomic Dog Publishing, 2005 14-1 The Interrelationship between Controlling and the Other Business Plan Components Controlling is a process of establishing methods ensuring that the business objectives are achieved. Controlling is a management function. It’s a method of ensuring implementation of plans in different functional areas such as:  Marketing  Accounting and finance  Production/operations  Human resources Business planning and control are inseparable activities. Control systems for production, sales, delivery, and accounting must be coordinated to ensure customer satisfaction.

4. Copyright Atomic Dog Publishing, 2005 14-2 The Control Process The control process includes:  Setting objectives  Establishing standards  Methods and times for measuring performance  Measuring and comparing performance to standards  Reinforcing or correcting There are three types of controls:  Input  Process  Output At different times, budgets represent all three types of control.

5. Copyright Atomic Dog Publishing, 2005 14-2 The Control Process (contd.) Steps in the control process

6. Copyright Atomic Dog Publishing, 2005 14-3 Quality Combination of attributes commensurate with the price of a product/service that the customer expects Quality is the most powerful weapon small businesses have over the large corporation. Total Quality Management (TQM):  Everyone in the organization requires to continually improve products and services.  Statistical process control is used as a feedback method to maintain consistent quality within narrow limits.  Quality is a virtue of design.  Some recommend striving for zero defects as part of the TQM system.

7. Copyright Atomic Dog Publishing, 2005 14-4 Controlling Quality Poor quality has a direct effect on costs and profits. Poor-quality products result in loss of customers and legal suits for causing damages. Causes of poor quality:  Resources  Management  Training  Production/operations Six guidelines to ensure quality:  Use quality resources and systems.  Set clear standards and train employees.  Talk about and reward quality.  Enforce standards.  Use employee suggestions.  Keep records and plan improvements.

8. Copyright Atomic Dog Publishing, 2005 14-5 Controlling Cost One of the major costs today for small businesses is healthcare. Companies should join organizations to get group rates. Relationship between quality and cost:  Losing customers  Lawsuits  Returns  Corrective actions cause additional costs. Poor quality cost business 20%–40% of sales value. What managers do to control cost:  Emphasize profit and not cost.  Set clear cost standards.  Talk about and reward cost consciousness.  Enforce standards.  Use employee suggestions.  Keep records and plan improvements.

9. Copyright Atomic Dog Publishing, 2005 14-5 Controlling Cost (contd.) Controlling quality and cost

10. Copyright Atomic Dog Publishing, 2005 14-6 Controlling Crime Business crime includes:  Employee theft  Shoplifting  Burglary and robbery The U.S. Chamber of Commerce estimates  30% all business failures are caused by costs stemming from employee dishonesty.  Small businesses are 35 times more likely to be a victim of crime than large companies. Managers should develop a security system for their business. Estimated spent on security systems is 10% of theft losses

11. Copyright Atomic Dog Publishing, 2005 14-6a Employee Theft Majority of criminal losses to businesses are due to employee theft, and not shoplifting. The Justice Department estimates that 30% of all employees are “hard-core” pilferers. Many thefts are small but accumulation over time makes the amount very large. Prevent by:  Selecting honest employees.  Screen prospective employees for criminal history.  Establish formal controls and procedures.  Maintain proper inventory and cash accounting procedures.  Have at least two people involved in fiscal transactions.

12. Copyright Atomic Dog Publishing, 2005 14-6b Shoplifting Customer leaving the business with unpaid merchandise About half of the shoplifters are juveniles. Well-trained and alert employees are the best defense against shoplifters. Some traits of shoplifters:  Nervous and spend time looking around to see who is watching  Shy away from store personnel  Often use props such as bags, large pocketbooks, baby carriages  Tend to wear loose and bulky clothing

13. Copyright Atomic Dog Publishing, 2005 14-6b Shoplifting (contd.) Some prevention steps:  The store layout should enable cashiers to see the entire store, mirrors can help.  Lock expensive items in display cases.  Surveillance cameras  Mechanical devices such as electronic tags. Employees should be careful  Do not make false accusations.  Apprehend shoplifters outside the store.  Talk to the shoplifter and get him back into the store and call the police to prosecute.

14. Copyright Atomic Dog Publishing, 2005 14-6c Burglary and Robbery Burglary is the unlawful entry into an establishment with the intent to commit a felony. Some preventive steps that must be taken:  Always lock doors and windows.  Install alarm systems.  Install proper lighting.  Have a safe Robbery is the taking of another’s property by violence, force, or fear.  Managers first concern should be the safety of the employees.  Surveillance cameras can help in describing the robbers accurately.  Generally not safe to use weapons as robbers would be forced to use theirs, and could cause injuries or even cause loss of lives.

15. Copyright Atomic Dog Publishing, 2005 14-7 Credit Collection Failure to collect debts results in loss of the firm’s assets. Many businesses have large sums tied up in accounts receivable. The decision to sell on credit is influenced by the following:  The type of business  Competitors’ credit policy  Income level of customers Kinds of Credit:  Trade  Consumer credit

16. Copyright Atomic Dog Publishing, 2005 14-7 Credit Collection (contd.) Trade Credit  Typically extended from one business to another  Small business should keep good records and pay within the discount period.  E.O.M. is a trade credit where buyer is billed at the end of month for all credit purchases during the month.  Generally, the longer the time to sell the product (turnover period), the more time is given to pay.  Decision to extend credit should be based on credit rating.

17. Copyright Atomic Dog Publishing, 2005 14-7 Credit Collection (contd.) Consumer Credit  Typically extended from the business to the end customer  Extending credit card facility sharply reduces the investment in accounts receivable.  Aging of accounts receivable is a technique for keeping track of how old each debt is and thus measures the quality of the receivables.  It is advisable to write credit-collections policy and procedures in a manual and follow it.  Important to control the average collection period  The longer the dues, the less the odds of receiving it  Can sell accounts receivables to a factoring company Control techniques

18. Copyright Atomic Dog Publishing, 2005 14-7 Credit Collection (contd.) Aging of account receivables

19. Copyright Atomic Dog Publishing, 2005 14-8 Risk Management The efforts to prevent loss of assets and earnings Four types of risk management strategies:  Risk avoidance  Risk reduction  Risk anticipation or self-insurance  Risk transfer or risk spreading Developing a risk management program involves:  Identify the risk to which the business will be subjected.  Evaluate the probability of the occurrence.  Choose the right strategy.  Control the risk by implementing the best risk strategy.

20. Copyright Atomic Dog Publishing, 2005 14-9 Insurance The process of transferring risk to protect against loss of assets and earnings Insuring against loss of assets:  Property insurance  Liability insurance  Employer’s liability  Workers’ compensation  Unemployment insurance  Crime insurance

21. Copyright Atomic Dog Publishing, 2005 14-9 Insurance (contd.) Insuring against loss of earnings:  Health insurance  Disability insurance  Life insurance -Key-person insurance  Pensions Selecting insurance  Seek advise from agents. -Direct insurance writers -Independent insurance agents

22. Copyright Atomic Dog Publishing, 2005 14-10 Controlling with Computers Computers increase productivity. Used for planning and controlling  Quality and cost, crime, credit, budget preparation, cash flow, and financial scenarios Aid in determining risk that should be insured against

23. Copyright Atomic Dog Publishing, 2005 14-10 Controlling with Computers (contd.) Applications Software  Word processing  Spreadsheet  Database management  Accounting -General ledger -Accounts payable and receivable -Inventory control -Purchasing -Payroll and financial statement preparation  Graphics  Internet and email

24. Copyright Atomic Dog Publishing, 2005 14-10 Controlling with Computers (contd.)  Integrated software like office suites -Designed to make use of multiple programs easier and faster  Personal Digital Assistants (PDAs)  Business planning -Software packages specifically designed to help develop a business plan.  Other programs like project management, CAD, CAM, expert systems Doing business on the World Wide Web  Small companies cannot ignore the power of conducting business over the Internet.  In 2000, online revenues reached $44.5 billion.  Credit card fraud risk involved

25. Copyright Atomic Dog Publishing, 2005 14-10b Buying the Computer System Determine which operations to automate.  Buying hardware and software go together. -Hardware must be powerful enough to run all the different software programs one intends to use. It is usually advisable to:  Know what your business system requires.  Select software to meet requirements.  Select hardware. Sales reps can help to determine business software applications and help make the hardware selection. Computer consultants can also help in determining the needs. Its always advisable to shop around and not overbuy.

26. Copyright Atomic Dog Publishing, 2005 14-10c Computer Training Companies often spend money on buying expensive computers but do not properly train employees to use them, resulting in a big waste of money. Recent study found that computer users utilize only a small percentage of a word processor’s features. People best learn technology by using it in real situations. Computer training should be viewed as an investment. Train-the-trainer model proves cost-effective. Small business development centres that offer low-cost or free training programs.