PLANNING AND CONTROL FOR SMALL BUSINESS ENTERPRISES

Jesse’s Security Alarms case study

SECTION ONE: Understanding the small business environment

What this means is that when starting a small business enterprise, there are various steps which need to be taken into consideration that are essential in planning, preparing as well as managing the business- while taking care also of the startup legalities (Barrow, 2012). Although not all of the steps do work or apply to all business enterprises, basically working through them effectively offers a sense of all that needs the owner’s attention and what he can check off.  In choosing this business, personal preferences together with other mental and physical capabilities will be the main deciding factors. In addition to that, the focus ought to be on the demand of the targeted market as well as its limitations which assists in determining whether the business will be successful.

Operating the business from home typically provides convenient, flexible, and affordable option. Regardless of that there are legal requirements or restrictions which will be associated with it. In most cases such requirements keeps on varying from one council to another and because of that, it is clear that home-based business enterprises do not require special operating permits in case the building that the business will be working from is the primary place of residence (Barrow, 2012).  Contrary to that, in case workers will be hired from outside Jesse’s immediate family, it then means that such considerations will change. This is to say that it will be the requirement by the law to have a permit if the business will end up hiring more than one employee who does not share the owner’s home (Stokes & Wilson, 2006).

In addition to that, the size of the floor area to be covered by the business will also affect the nature of the kind of permit that will be required for the business to be operated from the home setting. It should be noted that majority of councils do stipulate that for those business that are to be operated from home, such a business should not occupy more than 50square meters or just a third of the total area of the owner’s home.   Moreover, there will also be other restrictions which will be imposed prior to running the business out of an apartment. Conversely, in case operating it from home will also make it to be a meeting avenue for its customers, the council may demand extra off-street parking space to be provided or just a separate entrance to be provided for the business customers (Bloomsbury, 2012). If this will be the case or even if the owner will wish to erect any signage, it is likely that he or she will have to submit a Development Application (DA), requiring the approval of the council before any necessary alterations are to be made at the owner’s home. Furthermore, additional information, for instance site plan, a Statement of Environmental Effects and existing floor layout plans might also be required.

Despite of the above requirements or restrictions, there will be the need of giving the business a name. Therefore, choosing the name of the business will be an important step in its planning process. The reason for this is because not only the name will be reflecting the business’s brand identity or awareness but also it will ensure that it’s properly registered as well as protected for the long term (Bloomsbury, 2012). Moreover, there are various factors to consider when selecting the name and one of them is the legal requirement. After choosing the name, it means that that there is the ensuring that the name complies with the law. In most cases registering the name of the business remains to be a confusing area for majority of new business owners. Therefore, registering the name of the business will involve the process termed as Doing Business As (DBA) trade name. This process should not be confused with incorporation process since it doesn’t provide trade mark protection.

This means that registering the business will be the opportunity of letting the state’s local authority to know what the business doing as the name will suggest.  Whenever the business will be expanding, it is the requirement by the law that the name of the business should be distinguishable from the names of other business organizations on the record of the state (Pakroo & Stewart, 2016). Nonetheless, it is the requirement by the law that the name of the business should include certain words which indicates the business structure.

On the other hand, there is the need of managing all the resources of the business especially the accounts receivables. Accounts receivables, or at times referred to as A/R, is basically the money which the business will end up receiving from its clients for all the goods and services to be provided at the end of the day.   Therefore, the main reason for this consideration is because they are the lifeblood of the cash flow of the business. They will remain to be the most essential part of not only calculating the profitability of the business but also the clearest indicator of its income. In the long-run, they should be considered as an asset since they will be representing money which will be received into the business. Keeping track of the accounts receivables will also be a better opportunity of having documentation supporting proof of returns at tax time.

Nevertheless, the business will be needing money for the purpose of purchasing materials for resale, settling employees’ salaries as well as covering all of the other operating expenses. Thus the revenues to be collected are the ones which will be used to cater for that and also turn out as the realized profit. On the balance sheet, the accounts receivable will be regarded as assets since they are the guaranteed money which will be coming back to the business. The reason for this is because the client will have the legal application of paying the business and it will be an issue which the business could, in an extreme case, take to court for payment on the contract to be entered. As much as the accounts receivables will be the most visible asset on its balance sheet, it management will be a paramount activity since poor receivables management might hinder the business cash flow hence causing it to incur bad debt expenses (Richmond & Powers, 2009). Debt collection, credit application, early pay discounts, and timely invoicing will be the main practices that should be considered when managing these receivables.

SECTION TWO: Financial preparation & analysis - budgeting

C

Key performance indicators that can be obtained from the Profit & Loss budget

1. I) Stock turnover-days_ this will assist in reflecting the number of days which will be consumed in selling inventory. This means that the lower the ratio the quicker the stock will be sold.
2. II) Debtors turnover-days_ this will ultimately reflect the average length of time form making sales as well as cash collection. The lower the ratio, the quicker the accounts are to be paid. From the viewpoint, it will be essential to keep the days outstanding to a minimum (McGrail, 2008).

III) Current ratio_ this will be used for the purpose of indicating the extent at which the business’s short-term assets will be in the position of covering its current liabilities (McGrail, 2008). It will also be the measure of the business’s capacity of meeting its short-term liabilities. This ratio should be 2:1. This is to imply that for every $1 of the liabilities the must be at least $2 short-term assets to be used in meeting such liabilities.

1. IV) Debt/equity_ this will be used for the purpose of measuring the degree at which the business will rely on external borrowing for the need of funding its on-going operations. After estimation, it will be found that the higher the ratio the more heavily that the debt financing is to be.
2. V) Gross profit margin_ this will be not only an indication of the business’s profitability but also a reflector of the control over costs of sales as well as its pricing policies. This ratio will be compared with preceding periods and with any other available industry data (Coles, 1997).
3. VI) Breakeven sales _ this will assist in reflecting the sales which must be generated for the purpose of covering all the expenses to be incurred. In other words, this will be the level of activity in which neither losses nor profit will be made or whether total costs will be equal to total returns. This will be an important ratio which the owner must monitor on each monthly basis (Coles, 1997).

Reasons why the cash flow budget is an important tool

In case the business will end up running out of cash or will not be able to obtain new finances, it will finally become insolvent. In the long-run there will be no excuse that the owner did not see such flow crisis coming. The inflow and outflow of cash for a start-up business enterprise must be regarded as being its life-blood. Because of this consideration, the identification of any potential shortfall in the cash balances will be the main reason as to way cash flow forecast will be essential. On the other hand, this forecast will assist in ensuring that the business has the ability of paying suppliers and workers. This is important because in case suppliers will not be paid in time they will be likely to stop supplying the business with resources but it will be worse if workers will not be paid on time (Fleming, 2000). 

Moreover, cash flow forecasting will be essential in that it will aid in spotting problems associated with customer payments. This will be easier due to the fact that preparing the cash flow forecast will encourage the enterprise to look on how quick the clients are settling their debts. Additionally, as much as this will be an important discipline of financial planning, it will remain to be a significant management process just the same way as preparing a business budget (Weygandt et al, 2010).

Discuss the use of variances: Actual vs Budget

Majority of small scale business enterprises do assume the other half of budgeting. This means that although the owner will be preparing the budget for the purpose of planning the evolution of the business, the budgeted expenses will assist in setting prices, sales, as well as estimating profits (Carroll, 2007). For various reasons, revenues and costs might become higher or lower that calculated. Therefore, budget variance analysis will aid in not only addressing such differences but also adjusting the procedures so as to avoid similar discrepancies from happening in the near future. 

Furthermore, when the business will be comparing budgets with actual figures, variance has the ability of including changes in sales, material costs, or labor costs (Hansen et al, 2009). Variance will in turn remain to be favorable in case revenues will be higher or costs are to be lower and vice versa.   Ultimately, variance will arise from expenses or changes in price and volume.

SECTION THREE (3): Financial preparation & analysis – forecasting

Mostly, creating financial forecasts from old information becomes daunting for most business managers. Financial forecasting of the business should be considered as a technique or method which will assist in estimating the business’s future aspect or other operation. This is because the long-term success of this business will be closely tied to the extent at which its management is capable of foreseeing its future as well as developing appropriate strategies to be used for dealing with future scenarios (Sivanandam et al, 2006).  Awareness, good judgment and intuition on how well the economy will be doing will in turn give the business owner a rough idea of what is to be expected or likely to evolve in the near future. Forecasting method, for instance regression, will be beneficial in the sense that it will aid the management of the business in estimating many such future prospects of its on-going operations.

For instance, assume that those who will be in charge of financial preparation and analysis are required to provide an estimation of the total sales for a particular product for the next there quarters. Basically, at the end it will be noted that various decisions will be impacted by such estimates or forecasts of sales to be offered by the business’s forecaster. Clearly, policies regarding inventories, production schedules, sales quotas, and raw material purchasing plans will end up affecting such forecasts (Sivanandam et al, 2006). As a result of this, it means that poor or ineffective forecasting can result into poor planning hence increased operating expenses to the enterprise.

SECTION FOUR (4): Financial preparation & analysis – finance options

For effective running of any business enterprise, there is need of having sufficient capital outlay. Conversely for the need of renovating the business’s existing property, acquire new equipments as well as an additional employee will depend on the availability of cash in order to meet or that. On the other hand, it might be that such cash cannot be available immediately but there are various options that the owner can take in meeting his financial obligations;

1) Raise money from family and friends_ hitting up friends and family will be the most common means of obtaining fiancés. It should be noted that when the owner will end up turning his loved ones into creditors, it will imply that he will be risking their financial future as well as jeopardizing significant personal relationship (Ang, 2015). Another mistake will be approaching family and friends before any formal business plan is in place. Therefore, in order to avoid this, the business should supply formal financial projections which will act as an evidence-based assessment. The goodness for this is that it will limit the likelihood of any unpleasant surprises. It will also let any willing investor to know that the owner will take their money seriously.

2) Venture capital_ This refers to the fiancés which comes from companies or other individuals in the enterprise. This usually offers finance to any small scale business organization for exchange for the ownership share of the enterprise. In most cases, venture capital firms does not desire to participate in initial business financing unless the business will proved a proven track record of its finances. Generally, they do prefer to be investing in other business organizations which have not only managed to receive important equity investment from its founders but are already profitable (Ang, 2015).

In seeking for venture capital, the owner should also understand that these individuals or companies do prefer business organizations which have a strong value proposition for instance proven demand for their products or diversified competitive advantage. This usually take a hand-on approach of their investments, hiring managers or just requiring representation on the board of directors. They have the ability of offering valuable guidance and advice to the business. Regardless of that, they will be looking for considerable returns for their investments as well as their objectives might be at cross purpose with the business owner.

Equally, although they at time remain to be focused on short-term returns, they will be creating an investment portfolio for any business that has high-growth potential which arises from high rates of returns.

3) Banks and other financial lenders _ Banks and commercial lender remains to be a popular sources of business financing. For this reason, the owner should know that most lenders will demand a positive track record, solid business plan or plenty of collateral.  Although usually this may not be the case for a start-up business, once the enterprise will be underway, the business will have the opportunity of borrowing additional funds whilst presenting cash flow budgets, profit and loss statement, and a net worth statement (Fullen, 2006).

4) Commercial finance companies_ Moreover, commercial finance companies can also be regarded as being a good source of finances in case the owner will not be in the position of securing finances from other commercial sources. Such firms may be willing to depend on the quality of the business’s collateral in repaying the loan unlike its profit projections or track record. Despite that one, a commercial finance company cannot lend it money in case the business will not have substantial collateral or personal assets (Fullen, 2006)..

 SECTION FIVE (5): Succession planning

To

JESSE TAWONG

 JESSE’S SECURITY ALARMS

Dear Sir,

            RE: SUCCESSION PLANNING

Effective succession mainly deals with the development of variety of feeder groups of individuals. Usually, succession planning remains does not remain to be an issue that majority of business enterprises address in a systematic way. The reason for this is because at times many nonprofits are small or they may be facing various organizational challenges, for instance about who will be the next manager or what might be encountered in case the financial director leaves (Rothwell, 2010). Therefore, there exist many reasons which will compel the organization to consider having succession planning. The most significant reason of all is the dependence of the staff in carrying out the business’s mission, provision of services as well as meeting its set objectives (Dahlke, 2012). Therefore, there is the need of first thinking of what might evolve or happen to such services or the capacity of fulfilling the business mission in case the staff member leaves.

Another reason to be focused during the succession planning is mainly the changing realities of the business’s workplace. The awaiting retirement of the baby boomers will be expected to be having major impacts on the workforce capacity. Moreover, with careful preparation and planning, the enterprise will be in the position of managing the changes which will result from generational transfer of leadership and other ongoing changes which will evolve repeatedly whenever key workers are to leave the business.

Nonetheless, despite the fact that the type and extent of the succession planning will be different at the end of the day, the organization will be required to have sort of succession plan. The reason for that is because it is the effective succession planning which will support the organizational stability as well as sustainability through ensuring that there will be establishment process of meeting its staff requirement (Clutterbuck, 2012). Executive directors and boards can also demonstrate leadership through ensuring that processes and strategies are in place so as to ensure that such transitions have to occur smoothly, with little or no disruption to the business.

This is to imply that, with succession planning, the organization will be forced to ensure that workers are to be recruited as well as developed in order to fill each key role within it.  Thus, through this process, there will be the need of not only recruiting superior workers but also developing their knowledge, skills, and capabilities as well as preparing them for promotion into ever more demanding duties in the business. Conversely, actively pursuing this process will ultimately ensure that workers will be constantly developed so as to fill each position in the business. This is to say that this will guarantee that there still will be enough workers to fill new roles.

 

 

 

 

Reference

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