Principles of Business BUS101

1
Principles of Business(BUS101)

• Donald R. Simon, Esq.
• Adjunct Professor - Digital Photography
• Fall, 2008

2
Principles of Business - Class 2

• Go over Small Business Aptitude Test
• Lecture Timing Your Start-Up
• Lecture Financing Options
• Lecture Drafting a Business Plan
• Assignment Business Plan

3
Principles of Business - Class 2

• Small Business Aptitude Test
• 80 to 100 Go for it. If you continue to show a
  willingness to be a sponge, you should succeed!
• 60 to 79 You probably have what it takes to
  successfully run your own biz, but take some time
  to look back over the questions you scored the
  lowest on and see if you can discern any trends.
• 40 to 59 Too close to call. Review the
  questions on which you scored poorly and don't
  scrimp on learning more to tilt the scales in
  your favor.
• 0 to 39 We could be wrong, but youre probably
  better off working as an employee or pursuing one
  of the other alternatives to starting your own
  biz.

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Principles of Business - Class 2

• Timing Your Start-Up
• When is the best time to start your biz?
• Should you start when the economy is strong?
• Should you start during a recession?
• Or dies it even matter?
• By and large, the economy doesnt matter!

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Principles of Business - Class 2

• Timing Your Start-Up
• When the economy is booming
• People are in a strong buying mode.
• But interest rates are higher (which means
  borrowing money is more expensive), and
• Unemployment is usually low (which means good
  employees are often hard to find and maintain).

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Principles of Business - Class 2

• Timing Your Start-Up
• When the economy is in recession
• Consumers are often wary buyers and wary buyers
  mean low profit margins.
• Interest rates are usually low and unemployment
  is usually high, resulting in cheaper money and
  more choices for employees.
• Serves as sort out timemeaning that weak biz
  disappear leaving strong ones behind who will
  eventually benefit when the economy bounces back.

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Principles of Business - Class 2

• Timing Your Start-Up
• When is the best time to start your biz?
• Dont let the economy decide.
• If you are prepared in terms of finances,
  experience, and you are passionate about what you
  do, then the time is right for you.

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Principles of Business - Class 2

• Financing Options

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Principles of Business - Class 2

• Financing Options
• Must Determine Your Start-up Cash Requirements.
• One-Time Start-up Costs.
• Legal fees
• Licenses and permits
• Deposits
• Furniture and fixtures and
• Signage, inventory, and leasehold improvements.

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Principles of Business - Class 2

• Financing Options
• Must Determine Your Start-up Cash Requirements.
• Working Capital.
• Amount of cash you need to keep running until you
  become consistently profitable and can fund
  operations out of your generated cash flow.
• This includes employee salaries, replacement
  inventory, and other general operation expenses.

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Principles of Business - Class 2

• Financing Options
• Must Determine Your Start-up Cash Requirements.
• Reserve.
• to overcome forecasting mistakes and/or
  variances from your budget.
• Several months worth of .

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Bootstrapping internal sources of funding that
  comes from you, friends, and family.
• Outsourcing external sources of funding that
  comes form banks and outside investors.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Bootstrapping.
• Much more likely source of for your start-up.
• Before asking for , make sure you first
  estimate your cash needs!
• Nothing screams inexperience more than having to
  go back to your source and ask for more .

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Bootstrapping.
• Look to yourself first.
• Savings, investments, salable assets
• Life insurance
• Credit cards (BE CAREFUL!) and
• Home equity.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Bootstrapping.
• Gingerly approach parents and family.
• Known as relationship investing or
  relationship lending.
• Use great care and be clear with family as to the
  risks of the investment.
• Sign a promissory note.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Bootstrapping.
• Ask friends.
• Seek out those friends who can bring expertise to
  the table along with their .
• Can have the same downside as relationship
  investing.
• Sign a promissory note.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Bootstrapping.
• Look for a biz partner.
• Seek out someone with and complementary
  skills.
• Sign a partnership agreement.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Outsourcing.
• Banks
• Small Biz Administration
• Angel investors
• Venture capitalists and
• Minority funding resources.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Outsourcing.
• Banks
• Most banks dont loan to small biz unless you
  have collateral to cover 100 of the loan.
• Banks primary role is funding growth and
  expansion for an existing biz.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Outsourcing.
• Small Biz Administration
• Govt agency providing low interest loans
  (www.sba.gov).
• Owner must have invested at least 30 of the
  capital needed.
• Active participation in the business and clean
  credit history.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Outsourcing.
• Angel investors
• Usually ex-entrepreneurs.
• Have and experience, but usually want to take
  and active role in the biz.
• Difficult to find.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Outsourcing.
• Venture capitalists
• Offer in exchange for an equity (ownership)
  interest in the biz.
• Focus on future prospects rather than past
  performance.
• Very few start-ups qualify for venture capital
  funding.

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Principles of Business - Class 2

• Financing Options
• Two basic methods with which to finance your
  start-up
• Outsourcing.
• Minority funding resources
• Resources for low-income and minority-owned
  (which includes women) biz.
• Minority BIZ Development Agency (www.mbda.gov).

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Principles of Business - Class 2

• Drafting a Business Plan

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Principles of Business - Class 2

• Drafting a Business Plan
• Identifies the who, what, where, when, and how of
  your proposed venture.
• Describes your biz and market
• Projects profit potential and operating costs
• Discusses the goods and services you will offer
  and
• A reflection of your ability to manage.

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Principles of Business - Class 2

• Drafting a Business Plan
• A biz plan serves 2 purposes
• A road map.
• Brings into focus what your biz will be and what
  goods and services it will offer.
• Forces you to research and think through
  solutions at the outset.
• Anticipate and minimize the chance for major
  problems later on.

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Principles of Business - Class 2

• Drafting a Business Plan
• A biz plan serves 2 purposes
• A tool for financing.
• A sophisticated investor, a potential biz
  partner, or a loan officer at a bank will mostly
  likely ask for one.
• Its the first official indication of the kind of
  work you can do.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Description of the Biz.
• Provides reader with an overview of the biz.
• Reader should understand exactly what biz youre
  in, its corporate structure, and how you intend
  to differentiate your biz from its competitors.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Description of the Biz.
• Executive Summary answers the question, What
  biz am I in?
• Mission Statement.
• Written, easy-to-remember sentence, short list of
  bullet points, or a paragraph illustrating your
  biz goals and purposes.
• Guides you (and your employees) in making
  critical decisions.

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Principles of Business - Class 2

• Drafting a Business Plan
• Sample Mission Statements
• To promote the visibility of women
  photographers and their work through a variety of
  programs, exhibitions, juried competitions and
  publications.
• Women in Photography International
• For every client to know that they have been
  provided the best quality photography services
  available.
• DFM Photography (Wedding Photographer)
• Dedicated to helping create an appreciation
  awareness and concern for our environment through
  the power of education and photography.
• Gary D. Tonhouse (Nature Photographer)

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Principles of Business - Class 2

• Drafting a Business Plan
• Sample Mission Statements
• To serve the commercial community with creative
  photographic images, custom tailored to "State of
  the Art" digital capture cameras and digital
  assembly tools. Delivered on time and in the
  appropriate form.
• To seek a fair and equitable trade or currency
  for our service.
• To continually seek ways of improving and
  expanding our service through the education of
  ourselves and others.
• Joel Becker (Digital Photographer)

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Description of the Biz.
• Legal Description
• Here youll mention whether your biz is (or will
  be) a sole proprietorship, general partnership,
  S corp, or LLC.
• For purposes of this assignment, youll be a sole
  proprietorship.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Description of the Biz.
• Competitive Edge
• Who are your competitors and what (in your
  opinion) is currently their competitive edge?
• What are your competitors weaknesses?
• What will distinguish your services from your
  competitors?

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Management.
• Most important section if you intend biz plan to
  be a vehicle to raise .
• Investors recognize that the success of or
  failure of a biz hinges on the quality of the
  management team.
• Biographies of the principle members of the
  bizeducation, prior positions, and noteworthy
  achievements, etc.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Marketing Plan.
• Can be a stand alone plan.
• More on this in 2 weeks.
• Operations.
• Covers a wide range of functions.
• Deals with issues from employees to purchasing
  and from vendors to maintaining biz accounting
  records.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Operations.
• Employees
• Most small biz are 1-person operations, so you
  will most likely not encounter this right away.
• But if you plan to have employees, you need to
  think about certain issues.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Operations.
• Employees
• Where will you find employees?
• What benefits will you offer them?
• How will you train your employees?
• More on finding and keeping good employees in a
  few weeks.

38
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Operations.
• Compensation
• Objectively define basics of your compensation
  plan for hourly, salary and commissioned-based
  employees.
• Bonus plans and perks?

39
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Operations.
• Vendors and Outside Resources
• What vendors and outside resources do you intend
  to use?
• How do you plan to form relationships with these
  vendors?

40
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Operations.
• Accounting and Bookkeeping
• Will you be hiring or outsourcing a bookkeeper,
  CPA, or Controller?
• Do you intend to computerize your accounting
  system?
• If so, what accounting software will you use?

41
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Risk Factors.
• Be forthright about risks associated with
  starting a photography biz.
• Many risks will be similar to any small biz
  inexperience of the biz owner, competition, and
  general economic factors, etc.
• But in a photography biz, durability and expense
  of the equipment, market for freelance services,
  general need for your market niche, etc.

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Financial Management.
• BE REALISTIC ABOUT THE FINANCIAL SIDE OF YOUR
  BIZ.
• Perform a lot of research and really look at the
  costs involved in starting and maintaining your
  biz.
• Make projections for about the first three years
  of the biz.
• When compiling this information, use 3 types of
  financial statements

43
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Financial Management.
• Pro Forma Profit and Loss Statement
• Summarizes your estimated revenue and expenses
  over time.
• Make assumptions about your sales, costs of goods
  and services, equipment costs, rent, utilities,
  etc.
• The more accurate you can be the
  betterespecially if youre seeking investors!

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Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Financial Management.
• Pro Forma Balance Sheet
• Measures your companys resources (assets) and
  obligations (liabilities) at a particular time.
• Make projections about your companys assets and
  depreciation of those assets over time.

45
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Financial Management.
• Pro Forma Cash Flow Statement
• Measures the amount of cash that moves through
  your business in the form of receipts and
  expenses.
• Cash flow represents the cash required to keep
  your business operating on a day-to-day basis.

46
Principles of Business - Class 2

• Drafting a Business Plan
• Divided roughly into 6 sections
• Financial Management.
• To assist you in making these pro forma
  statements, hire a tax advisor, biz plan
  consultant, or purchase a biz plan software
  package.
• Make projections for about the first three years
  of the biz.

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Principles of Business - Class 2

• Drafting a Business Plan
• Assignment (Due 9/22/08)
• Executive Summary
• Mission Statement
• Competitive Edge
• Risk Factors
• Sources of funding.
• 12 pt. type, 1 margins, no page requirement.

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Principles of Business - Class 3

• Go over Business Plans
• Lecture Structuring Your Business
• Lecture Buying or Leasing a Space