Entrepreneurship Chapter 10 1

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1 Operations Management Lesson 10.1 Operating Procedures Goals Define the functions of management. Describe types of policies that should be included in an operations manual. Vocabulary manager management organizational structure authoritative management democratic management operations manual Management Functions manager the person responsible for, organizing, staffing, implementing and the operations of a business management the process of goals by establishing operating procedures making use of people and other resources Planning Strategic planning for the three to five years ahead setting broad, long-range Intermediate-range planning for a one-year period set target dates for task completion Short-term planning for daily operations Organizing Assignment of tasks which employee is responsible for specific tasks Grouping of tasks into departments closely related tasks together a plan that shows how the various jobs in a company relate to one another often in a chart Allocation of resources across the organization determining the most use of resources Staffing Managing the needs of a business through: obtaining compensating Implementing Implementing involves and leading people to accomplish the goals of an organization. management style the way a manager toward and works with employees Entrepreneurship Chapter 10 1

2 authoritative management the manager is and controlling democratic management employees are involved in making the manager provides less direction mixed management a of authoritative and democratic management Controlling Controlling is the process of: setting standards ensuring those standards are met comparing actual revenues and expenses with projected revenue and expenses if operations are running effectively inspecting products and services to ensure they are meeting performance standards Operations Manual operations manual contains all the rules, policies, and that a business should to function effectively employee handbook details the rules,, and procedures that apply to employees Operating Policies Set daily hours that are convenient for customers. Customer Service Policies Customer is the goal. returns follow-up Delivery Policies often offered for customer The policy should cover: whether you will offer delivery fee timeframe Hiring Policies process testing requirements checks Safety Policies Employees should be in emergency procedures. Entrepreneurship Chapter 10 2

3 Lesson 10.2 Inventory Management Goals a purchasing plan for inventory. Describe the perpetual and periodic inventory methods. how much inventory to keep in stock. Vocabulary perpetual inventory method stock card point-of-sale software system periodic inventory method stock turnover rate Meet Inventory Needs inventory the stock of goods a has for sale Inventory costs include: storage taxes purchase price of must be well managed if you want to make a profit. Purchasing Plan The sales forecast can be used to required inventory. Ending inventory = Beginning inventory + Purchases Sales Track Your Inventory You will need to take a inventory once or twice a year. Perpetual Method perpetual inventory method monitors levels daily efficient avoids shortages stock card a paper record for a single item electronic versions available reorder point the minimum amount you want to keep in indicates when you should place an order to receive more units Use a Computer point-of-sale (POS) software system updates as each sale happens provides up-to-date levels Periodic Inventory Method taking a physical count of at regular intervals Take a Physical Entrepreneurship Chapter 10 3

4 the number of items in stock should be done once or twice a year can highlight caused by a failure to record sales theft damage Manage Your Inventory Costs of Carrying Costs can increase for many reasons including: obsolescence interest fees insurance Costs of Being Out of Stock Stock shortages can lead to: loss of loss of customer loyalty Stock Turnover Rate the rate at which is sold and replaced with new inventory Months of inventory to stock = Months in year Stock turnover rate Entrepreneurship Chapter 10 4

5 Lesson 10.3 Financial Management Goals Describe strategies for cash flow. Evaluate a business s performance through financial statement analysis. Vocabulary cash budget gross sales net sales Manage Your Cash Flow Create a Cash Budget cash budget shows the of your cash coming in and going out estimated cash flow actual cash flow the between the two Improve Your Cash Flow Increase Cash Receipts for timely payment tighter credit policies collect unpaid accounts hold shipments to customers with unpaid bills Decrease Cash Disbursements reductions reducing the payroll use from suppliers reduce variable expenses Prepare and Analyze Financial Statements Prepare Statements cash flow statement cash cash outflows income statement expenses net income or loss over a specific period or time balance sheet liabilities owner s equity Analyze Sales Sales records can: show and patterns be used to forecast future sales Analyze Sales by Products helps you decide what type of to stock helps you sales and profits Entrepreneurship Chapter 10 5

6 Analyze Net Profit on Sales Net profit on sales = Net income after taxes Net sales Calculate Net Sales gross sales dollar of all sales net sales = gross sales returns Calculate Net Income After Taxes Gross profit = Net sales Cost of sold Net from operations = Gross profit Operating expenses Net income before taxes= Net income from Interest expense Net income after taxes = Net income taxes Income tax paid Calculate and Analyze Net Profit on Sales Net on sales = Net income after taxes Net sales Net helps to determine the profitability of your business. can compare with prior years can compare against standards Set and Meet Profit Goals Profit goals the amount of profit you hope to earn during a particular year. Perform Breakeven Analysis breakeven point the volume of sales that must be made to all business expenses Profit occurs after the breakeven point is. Analyze Debt and Equity The key areas entrepreneurs should review using data from the balance sheet are: Ability to debt as it comes due Return on assets Amount of the company is using Rate of return by the owners on their equity investment Ability to Pay Debt A company is if it has enough money to pay off any debt. Current ratio = Current assets Current Return on Assets ROA indicates how a company is relative to the total amount of assets invested in the company. Return on assets = Net income Total assets Debt Ratio Entrepreneurship Chapter 10 6

7 The amount of debt, relative to total, used to finance a business should be examined. Debt ration = Total debt Total assets Return on Equity The ROE is the rate of return the owners are on their equity investment. Return on equity = Net income Owner s equity Entrepreneurship Chapter 10 7

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