1. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-1 Chapter 2 Financial Management and Planning

2. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-2 Learning Objectives  Describe the five basic functions of a manager and how they relate to a business.  Distinguish between strategic plans and functional plans.  Understand the three factors that must be addressed when establishing goals.  Describe the financial goals for a for-profit organization.

3. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-3  Trace the three-step process that you must take when using control.  Compare and contrast the basic forms of business ownership (sole proprietor, partnership, and corporation).  Distinguish between limited and unlimited liability.  Compare and contrast general partnership, limited partnership, and a limited liability company. Learning Objectives (continued)

4. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-4  Understand the role that the franchise plays when establishing a business.  Understand the basic components of a SWOT analysis.  Know what basic factors are required to complete a business plan. Learning Objectives (continued)

5. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-5 Management Functions  Planning is a systematic process that takes us from some current state to some future desired state. › Strategic planning involves establishing an overall plan for the business. › Functional planning is driven by strategic plans and is related to specific functional areas of a business such as accounting, marketing, or human resources.

6. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-6 Management Functions (continued)  Goal setting is precursor to establishing a plan. › Goals must be measurable, achievable, and have a time frame. › Basic financial goals of a for-profit organization: –To maximize the wealth of the business owners (investors) over the life of the business –To meet interest payments on debt –To grow

7. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-7 Management Functions (continued)  Organizing is the second function of the manager and defines the structure of the business. › Who will do it? › What skills do they need? › What is the time frame that we have set in which to have it accomplished? › Where will it be accomplished? › How do we get it accomplished?

8. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-8  Staffing requires that the manager obtain the most capable personnel to implement the business plans. › Determine job requirements. › Develop a job description.  Directing (leading). Providing proper guidance and direction to others to accomplish the organization’s mission. Management Functions (continued)

9. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-9  Controlling is a three-step process: 1) Establishing a standard of measurement 2) Measuring actual performance against the standard 3) Taking corrective action when actual performance varies from the established standard Management Functions (continued)

10. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-10 Forms of Business Ownership SOURCE: Internal Revenue Service, SOI Bulletin, Historical Table, Summer 2005. Excel ver. 4. August 2005. Securities & Exchange Commission filings.

11. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-11 Forms of Business Ownership (continued)  A sole proprietorship is operated by an individual for profit.  A partnership is an association of two or more persons who carry out a business as co-owners for a profit. › General partnership › Limited partnership › Limited liability company

12. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-12  The corporation is a legal entity according to U.S. law. › Incorporated in one of the fifty states or territories of the United States. –Public Corporation: stock is sold to the public. –Private Corporation: Stock is not sold to the public. –All corporations are formed as C corporations unless they meet the requirements of and request Subchapter S tax status. Subchapter S corporation: Private corporation with special tax status granted by Internal Revenue Service (IRS) Maximum of 100 shareholders No double taxation Forms of Business Ownership (continued)

13. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-13  A Limited Liability Company (LLC) is a hybrid business entity having features of both partnerships and corporations. › Taxed as a partnership › Has limited liability for its owners › Flows through income and losses to individual owner’s tax returns Forms of Business Ownership (continued)

14. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-14 Forms of Business Ownership (continued)  Franchise not an actual form of ownership. A franchise is a business in which the buyer, who is the franchisee, purchases the right to sell the goods or services of the seller, who is the franchiser.

15. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-15 Starting a Business  Run a SWOT analysis › Strengths are the core competencies of a business. They are those factors that will make your business succeed because you perform in these areas better than your competitor. › Weaknesses are those areas of your company that definitely need improvement. › Opportunities are factors that exist outside of your business, but that if taken advantage of, will help your business to grow and prosper (e.g., low interest rates for business loans). › Threats are factors that exist in the environment that may impede the growth of your business, directly or indirectly (e.g., new competition).

16. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-16 Development of a Business Plan  Executive summary: Part of business plan that investors review to determine if they want to read further. Two pages or fewer, the executive summary should contain: › Business strategy for success › Brief description of the market and what makes your business unique › Brief description of the product or service › Brief description of management teams’ qualifications › Summary of revenue and expense projections › Estimate of how much money is needed and how it will be used

17. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-17  General Company Description: › Mission Statement: –Company goals –Company objectives –Business philosophy › Form or forms of business ownership › Products and services › Marketing plan –Price –Product –Promotion –Place › Operational plan › Management and organization › Personal financial statement of each owner or major stockholder › Startup expenses and capitalization › Financial plan; a 4-year projection of profit Development of a Business Plan (continued)

18. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-18 Development of a Business Plan (continued)  Appendices › Brochures, advertising materials, business cards › Industry studies › Maps and photos of location › List of equipment owned or purchased › Copies of leases or contracts › Letters of support from suppliers and future customers › Market research studies › List of assets available for a loan

19. $$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 2-19 Financing a Business or Raising Capital  Suppliers of funds include lenders and investors › Lenders increase debt and include banks and any other lender › Investors increase company equity and expect a positive return on their investment: –Company owners –Angel investors provide seed money and mentoring to start-up businesses –Venture capitalist normally invests in companies with proven track record