Welcome to MT209 Small Business Management Professor Charles A. Fail, Ph.D. Unit 9 Seminar Managing Operations, Assets, and Risks This seminar is being recorded

Thank You!!! Before we begin our final seminar this evening I want to extend my heartfelt thanks to everyone who so faithfully supported out Class Discussions and our Class Seminars throughout this term! This has been particularly challenging given the earlier systems issues. Again, Thanks!

Agenda Review of Unit 8 Questions Review of Unit 9 Questions Look Ahead at Unit 10 Questions Conclusion of Seminar

UNIT 8 -Entrepreneurial Leadership What is Leadership? -Involves pointing the way: creating and communicating the entrepreneur’s vision of the firm. -Varies in a business as it grows larger and more mature. Leadership Qualities of Founders -A tolerance for ambiguity -A capacity for adaptation

Entrepreneurial Leadership (cont’d) What Makes an Effective Leader? One who is focused intently on attaining the firm’s business goals. One who creates a significant personal relationship with employees based on loyalty and respect. One who directly influences employees’ understanding of how the firm operates (e.g., its ethics). One who makes the firm attractive to new employees.

Entrepreneurial Leadership (cont’d) Leadership Styles -Visionary leaders mobilize people toward a vision. -Coaching leaders develop people, establishing a relationship and trust. -Affiliative leaders create emotional bonds. -Democratic leaders build consensus through participation. -Pacesetting leaders set high standards and expect excellence. -Commanding leaders demand immediate compliance. -Which type are you??

Entrepreneurial Leadership (cont’d) Leaders Shape the Culture of the Organization -Empowerment -Giving employees authority to make decisions and take actions on their own -Work teams -Groups of self-managed employees with the freedom to function without close supervision -Working environment -Workers are affected by their surrounding -Good Hiring -Employees who fit the personality of the firm

Stages in Firm Growth and Management Growth StageEntrepreneur’s Workload Stage 1. One-Person OperationDoing all of the work. Making contact with customers. Stage 2. Player-CoachContinuing to do some of the basic work, although learning to hire and supervise. Stage 3. Intermediate SupervisionRising above hands-on management; working through intermediate managers. Stage 4. Formal OrganizationUsing plans and budgets; following policies and procedures.

Managing Versus Doing

Creating an Organizational Structure The Unplanned Structure -Structure evolves as the firm evolves. -Growth creates the need for structural change. Chain of Command -The official, vertical channel of communication in an organization -A channel for two-way communication Span of Control -The number of subordinates supervised by one manager

Exhibit 19.2Line-and-Staff Organization

Recruiting Personnel The Need for Quality Employees -Employee performance directly or indirectly affects the capability of the firm to service customer needs. -Employee performance affects profitability. -Payroll costs affect firm’s bottom line. -Quality of employees determines the long-term competitive potential of the firm.

Diversity in the Workforce Workforce Diversity -Differences among employees in terms of such dimensions as gender, age, and race. -Diversity is increasing with higher proportions of women, older workers, and racial minorities entering the workforce.

Any questions ?

Unit 9 Information Theme: Managing Operations, Assets, & Risks Readings: Longenecker – Chapters 21, 22, & 23 (pages 547 to 622) Discussion Board: Modern Postcard (page 547) (40 points) Review: Chapters 19 through 23 (Part 5 of textbook) (40 points) Final Project: Business Plan (200 points) Seminar: Conducted on Scheduled Day/Time Please note that the Unit 9 Final Project (Business Plan & MS PowerPoint Presentation) must be submitted no later than the end of Unit 9. No late submissions of this important assignment will be accepted to allow time for grading and submission of final grades for the term.

Operations Management and Quality Quality as a Competitive Tool -Quality is a must in international competition Quality -The features of a product or service that enable it to satisfy customers’ needs. -A perception of the customer as to the suitability of the product or service of a firm. Total Quality Management (TQM) -An aggressive, all-encompassing management approach to providing superior, high-quality products and services.

Tools and Techniques of TQM Employee Participation -Employee performance is a critical quality variable. -The implementation of work teams and empowerment of employees to build workplace involvement. -Quality circle -A group of employees who meet regularly to discuss quality-related problems.

Exhibit 21.3 Essential Features of Total Quality Management

Customer Focus of Quality Management Customer Expectations -Quality is the extent to which a product or service satisfies customer’s needs and expectations. -Product quality -Service quality -Product and service quality combinations -“The customer is the focal point of quality efforts.” Customer Feedback -Customers are the eyes and ears of the business for quality matters.

“The Basic Seven” Quality Tools Cause-and-Effect Diagram Control Chart Pareto Chart Flow Chart Scatter Diagram Histogram Check Sheet Solving Quality Problems

Any questions ?

The Working-Capital Cycle Working-Capital Management -The management of current assets and current liabilities Net Working Capital -The sum of a firm’s current assets (cash, account receivable, and inventories) less current liabilities (short-term notes, accounts payable, and accruals) Working-Capital Cycle -The daily flow of resources through a firm’s working-capital accounts

1 Collect the accounts receivable (decreases accounts payable and increases cash). Sell inventory for cash; sell inventory for credit (accounts receivable). The Working Capital Cycle Purchase or produce inventory for sale, which increases accounts payable. Pay the accounts payable (decreases cash and accounts payable). 234 Begin cycle again. 5

Exhibit 22.1 Working-Capital Cycle

Exhibit 22.2 Working-Capital Time Line Day a. Inventory is ordered in anticipation of future sales. Day b. Inventory is received. Day c. Inventory is sold on credit. Day d. Accounts payable come due and are paid. Day e. Accounts receivable are collected. Cash conversion period— the time required to convert paid-for inventories and accounts receivable into cash.

Exhibit 22.3 Working-Capital Time Lines for Pokey, Inc., and Quick Turn Company

Pokey, Inc.’s Beginning Balance Sheet

Pokey, Inc.’s Monthly Balance Sheets JulyAug.Sept. Cash400 (100) Accounts receivable000 Inventory0500 Fixed assets600 Accumulated depreciation000 TOTAL ASSETS1,0001,5001,000 Accounts payable05000 Accrued operating expenses000 Income tax payable000 Long-term debt300 Common debt700 Retained earnings000 TOTAL DEBT AND EQUITY1,0001,5001,000 Changes: August to September –500

Pokey, Inc.’s Monthly Balance Sheets JulyAug.Sept.Oct. Cash400 (100) Accounts receivable Inventory Fixed assets600 Accumulated depreciation000(50) TOTAL ASSETS1,0001,5001,0001,350 Accounts payable Accrued operating expenses Income tax payable00025 Long-term debt300 Common debt700 Retained earnings00075 TOTAL DEBT AND EQUITY1,0001,5001,0001,350 Changes: September to October +900 –500 –

Changes in Pokey’s Balance Sheet Change in the Balance SheetEffect on Income Statement Increase accounts receivable of $900  Sales$900 Decrease inventories of $500  Cost of goods sold$500 Increase in accrued operating  Operating expenses$250 expenses of $250 Increase accumulated depreciation of $50  Depreciation expense$50 Increase accrued taxes of $25  Tax expense$25

Pokey, Inc.’s Monthly Balance Sheets

Pokey’s November Income Statement Sales revenue900 Cost of goods sold500 Gross Profit400 Operating expenses: Cash250 Depreciation50 Total operating expenses300 Operating income100 Income tax (25%)25 Net income75

Any questions ?

What is Risk? Risk -The possibility of suffering harm or loss. Business Risk -The possibility of losses associated with the assets and the earnings potential of a firm. Market Risk -The uncertainty (gain or loss) associated with an investment decision. Pure Risk -The uncertainty associated with a situation where only loss or no loss can occur—there is no potential for gain (only downside). -Only form of risk that is insurable.

Property Risks Real Property -Land and anything physically attached to the land, such as buildings Personal Property -Machinery, equipment, furniture, fixtures, stock, and vehicles Replacement Value of Property -The cost to replace or replicate property at today’s prices Actual Cash Value (ACV) -An insurance term that refers to the depreciated value of a property

Property Risks (cont’d) Peril -A cause of loss, either through natural events or through the acts of people Direct Loss -A loss in which physical damage to property reduces its value to the property owner Indirect Loss -A loss arising from inability to carry on normal operations due to a direct loss to property

Liability Risks: Statutory Liability Workers’ Compensation Legislation -Laws obligating the employer to pay the employee for an employment-related injury or illness, regardless of fault

Liability Risks: Statutory Liability Workers’ Compensation Legislation -Laws obligating the employer to pay the employee for an employment-related injury or illness, regardless of fault Contractual Liability -Performance or financial obligations (risks) that firms assume when entering into contracts with other parties Indemnification Clause -A contractual clause that requires one party to assume the financial consequences of another party’s legal liabilities.

Liability Risks: Contractual Liability Torts -Wrongful acts or omissions for which an injured can take legal action against the wrongdoer for monetary damages Establishing Negligence -A legal duty between parties to act (or not to act) to cause injury (damage) -A failure to provide the appropriate standard of care -The presence of actual injury or damages -Action that was proximate cause of injury or damage

Liability Risks: Contractual Liability (cont’d) Reasonable (Prudent Person) Standard -The typical standard of care, based on what a reasonable or prudent person would have done under similar circumstances. Compensatory Damages -Economic or noneconomic damages intended to make the claimant whole, by indemnifying the claimant for any injuries or damage arising from the negligent action

Torts: Types of Damages Economic Damages -Compensatory damages related to an economic loss, such as medical expense, loss of income, or the cost of property replacement/restoration Noneconomic Damages -Compensatory damages for such losses as pain and suffering, mental anguish, and loss of consortium Punitive Damages -Damages intended to punish wrongdoers for gross negligence or a callous disregard for the interests of others and to have a deterrent effect

Sources of Tort Liability Automobile Liability Product Liability Completed Operations Liability Premises Liability Operations Liability Professional Liability Employers’ Liability Directors and Officers Liability

Product Liability Manufacturing Defect -A defect resulting from a problem that occurs during the manufacturing process causing the product to subsequently not be made according to specifications. Design Defect -A defect resulting from a dangerous design, even though the product was made according to specifications. Marketing Defect -A defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use.

Personnel Risks -Risks that directly affect individual employees, but may have an indirect impact on a business as well. -Premature death -Poor health -Insufficient retirement income

Risk Management -Ways of coping with risk that are designed to preserve assets and the earning power of a firm. -Involves finding the best way possible to reduce the cost of dealing with risk. -Insurance is only one of several approaches to minimizing the pure risks a firm is sure to encounter.

1 Implement the decision. Evaluate risks. The Process of Risk Management Identify and understand risks. Select methods to manage risks. 234 Review and evaluate. 5

Any questions ?

Unit 9: Final Project Activity: Financial Management Financial Management -This portion of your mini-business plan should contain summary information on what financial resources you will need to launch your business, what types of expenses you will have over the first three years of operation, and what your financial goals are for the first three years of operation. Be sure to draw on your work from the Unit 5 Activity for this segment of the Final Project. Please remember: As a guide to help you develop your mini-business plan, please refer to the content of the Atayne, LLC business plan on pages 675 to 695 of our textbook.

Unit 10 Information Theme: Reflecting on MT209 – Small Business Management Discussion Board: Reflections on MT209 – Small Business Management (ungraded) WAC Writing Assignment: MT209 Reflections (40 points) Seminar: No Seminar in Unit 10 Please note that the Unit 10 Writing Assignment must be submitted no later than the end of Unit 10. No late submissions of this important assignment will be accepted to allow time for grading and submission of final grades for the term.

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Thank You for Joining Me This Evening! Good Night All! (770) (770) (cell) AIM: charlesfail