ENTERPRENURESHIP6. Describe how to prepare the basic financial statements & use them to manage a small

business.

Financial Statement:Financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly breakdowns. Financial statements have a value that goes far beyond preparing tax returns or applying for loans.

Preparing Financial Statements and Business Management:

Preparing general-purpose financial statements can be simple or complex depending on the size of the company. Some statements need footnote disclosures while other can be presented without any. Details like this generally depend on the purpose of the financial statements.

For instance, banks often want basic financials to verify the a company can pay its debts, while the SEC required audited financial statements from all public companies.

Financial statements are prepared by transferring the account balances on the adjusted trial balance to a set of financial statement templates Once the adjusting entries have been made or entered into a worksheet, the financial statements can be prepared using information from the ledger accounts. Because some of the financial statements use data from the other statements, the following is a logical order for their preparation:

Income statement Statement of retained earnings Balance sheet Cash flow statement

Income Statement

The income statement reports revenues, expenses, and the resulting net income. It is prepared by transferring the following ledger account balances, taking into account any adjusting entries that have been or will be made:

Revenue Expenses Capital gains or losses

Statement of Retained Earnings

The retained earnings statement shows the retained earnings at the beginning and end of the accounting period. It is prepared using the following information:

Beginning retained earnings, obtained from the previous statement of retained earnings. Net income, obtained from the income statement Dividends paid during the accounting period

Balance Sheet

The balance sheet reports the assets, liabilities, and shareholder equity of the company. It is constructed using the following information:

Balances of all asset accounts such cash, accounts receivable, etc. Balances of all liability accounts such as accounts payable, notes, etc. Capital stock balance Retained earnings, obtained from the statement of retained earnings

Cash Flow Statement

The cash flow statement explains the reasons for changes in the cash balance, showing sources and uses of cash in the operating, financing, and investing activities of the firm. Because the cash flow statement is a cash-basis report, it cannot be derived directly from the ledger account balances of an accrual accounting system. Rather, it is derived by converting the accrual information to a cash-basis using one of the following two methods:

Direct method: cash flow information is derived by directly subtracting cash disbursements from cash receipts.

Indirect method: cash flow information is derived by adding or subtracting non-cash items from net income.

Marketing Management

1. How can companies differentiate products? And Elaborate Product Mix Pricing?

Product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own products.

There are three types of product differentiation:

1. Simple: based on a variety of characteristics

2. Horizontal: based on a single characteristic but consumers are not clear on quality

3. Vertical: based on a single characteristic and consumers are clear on its quality[5]

The brand differences are usually minor; they can be merely a difference in packaging or

an advertising theme. The major sources of product differentiation are as follows.

Differences in quality which are usually accompanied by differences in price

Differences in functional features or design

Ignorance of buyers regarding the essential characteristics and qualities of goods they are

purchasing

Sales promotion activities of sellers and, in particular, advertising

Differences in availability (e.g. timing and location).

Product Mix Pricing Strategies

Pricing is a critical element of the marketing mix and companies must make strategic choices

about how to price their products to best achieve their business goals. The product mix is the

collection of products and services that a company chooses to offer its market. Pricing strategies

range from being the cost leader to being a high-value, luxury option for consumers.

Cost PlusCost-plus pricing is the most basic type of pricing and simply represents setting the cost of a product at some level above the cost of producing and distributing that product. So, for instance, a jeweler might decide to price products at a 100 percent mark-up based on the costs that go into creating the product.

Competition BasedCompetition-based pricing is pricing that is established specifically to address and respond to the prices of competitors' products. Businesses may decide to price either higher or lower or at about the same levels of the competition, but their decisions are based on an evaluation of what competitors are doing and how they want to position their product mix.

Related Reading: New-Product Pricing Vs. Market-Penetration PricingSkimmingSkimming is a pricing strategy used most frequently by new entrants to a market or by companies who have developed new products that have little to no competition. Skimming establishes pricing at a high price point to take advantage of sales that will occur before competitors enter the market--which they ultimately will.

PenetrationPenetration pricing is a product mix pricing strategy designed to gain market share by introducing a new product or service at a low price point to encourage consumers to try the product. Companies using penetration pricing may even price their products at lower than cost to raise awareness and capture a large share of the market.

How do we define and classify services and how do they differ from goods?

A service is any act of performance that one party can offer another that is essentially intangible

and does not result in the ownership of anything; its production may or may not be tied to a

physical product. Some service sectors are government, business, retail, manufacturing and

private non-profit.

Categories of Service Mix

The service component can be a minor or a major part of the total offering.

Pure tangible good

Tangible good with accompanying services

Hybrid: Offering consists of equal parts goods and services. Eg: Restaurant

Major service with accompanying minor goods and services: Eg: Airline

Pure service

Service Distinctions

• Equipment-based or people-based

• Service processes: Companies can choose among different processes to deliver their

service. Eg: Restaurant may opt for cafeteria style, fast food, buffet or candlelight.

• Client’s presence required or not

• Personal needs or business needs

• Objectives and ownership: Objective – profit or not for profit, ownership – private or

public

Service characteristics

Intangibility:

Tangibilize the service through good exterior and interior (place, few waiting lines), good

personnel (people), good equipment, communication material, meaningful symbols and use of

price (eg: dominoes – free if delivered later than 30min)

Inseparability:

Services are produced and consumed simultaneously. Provider-client interaction eg: barber and

client.

Variability:

Some doctors have an excellent bedside manner, others are apathetic. Service guarantees reduce

perceived risks due to variability. To increase quality control, invest in good hiring and training

procedures, standardize the service-performance process throughout the organization and

monitor customer satisfaction.

Perishability:

This can be a problem when demand fluctuates. Demand or yield management is critical. On the

demand side: Have differential pricing, cultivate non peak demand, complementary services to

waiting customers and reservation systems. On the supply side, part-time employees can serve

peak demand, peak time efficiency routines can allow employees to perform only essential tasks,

increased customer participation can be encouraged, shared services can improve offerings

(medical equipment shared between hospitals) and facilities for future expansion can be a good

investment.

What is a marketing channel system and Categories of Buyers?

A marketing channel is a set of practices or activities necessary to transfer the ownership of

goods from the point of production to the point of consumption. It is the way products and

services get to the end-user, the consumer; and is also known as a distribution channel.

Types of Marketing Channels

There are four main types of marketing channels:

Producer --> Customer

The producer sells the goods or provides the service directly to the consumer with no

involvement with a middle man such as an intermediary, a wholesaler, a retailer, an agent, or

a reseller. The consumer goes directly to the producer to buy the product without going through

any other channel. This type of marketing is most beneficial to farmers who can set the prices of

their products without having to go through the Canadian Federation of Agriculture.

Producer --> Retailer --> Consumer

Retailers, like Walmart and Target, buy the product from the manufacturer and sell them directly

to the consumer. This channel works best for manufacturers that produce shopping goods

like, clothes, shoes, furniture, tableware, and toys

Producer --> Wholesaler/Distributor --> Customer

Wholesalers, like Costco, buy the products from the manufacturer and sell them to the consumer.

In this channel, consumers can buy products directly from the wholesaler in bulk. By buying the

items in bulk from the wholesaler the prices of the product are reduced. 

Producer --> Agent/Broker --> Wholesaler or Retailer --> Customer

This distribution channel involves more than one intermediary before the product gets into the

hands of the consumer. This middleman, known as the agent, assists with the negotiation

between the manufacturer and the seller.

Types of Buyers:

There are a number of different types of middlemen acting in marketing channels. There are

important differences between the most common intermediaries:

Agents

Agents do not take ownership or physical possession of the products they represent. They act on

a producer's behalf and take a commission on any sales they negotiate with a third party.

Producers' agents

Producers' agents tend to work for a bigger amount of different producers and with non-

competitive or complementary products in a specific geographic area. They are normally

involved in delivering the sales function.

Sales agents

Sales agents usually deal with one producer and have to deliver a full range of marketing

activities for this concrete client (e.g. creating distribution, pricing and promotional policies).

These agents are commonly used by small companies with limited resources or by producers that

are moving into an unknown market, especially which is located overseas (here: the sales agent

can provide essential local knowledge).

Brokers

Brokers strive to bring potential buyers and sellers together by negotiating specific contracts.

They are supposed to not have a long-term relationship. Brokers, like agents, do not take

ownership, nor do they physically handle the product and they act on a commission basis.

Wholesalers

Wholesalers, on the contrary, take title to the goods they handle and are involved in the physical

distribution of those products. They sell mostly to other middlemen or directly to industrial,

commercial or institutional customers rather than individual consumers. There are two types of

wholesalers: full service wholesalers and limited service wholesalers.

Retailers

Retailers sell goods and services directly to the end consumer. Retailers take title to the goods

they stock which.