Page 274 - Encyclopedia of Business and Finance

eobf_E 7/5/06 3:00 PM Page 251

Entrepreneurship

such as displays, counters, offices, windows, signs, fix- times an entrepreneur will already have all the funds
tures, lighting, and such), and publicity. The effectiveness needed, but more often these must be acquired from fam-
of promotional strategies must be monitored so that pro- ily members, private lending agencies, and/or governmen-
motional dollars are spent on strategies that are contribut- tal loan programs.
ing to the achievement of business goals. Another statement included in the financial plan is
the income statement, which may be referred to as a
Management Plan. Another major section of a business profit-and-loss statement or operating statement. This
plan is the management plan. The four basic functions of statement is a projection of the sales expected in a given
management are planning, organizing, directing, and con- period of time, the cost of the merchandise that will be
trolling. sold, and the operating expenses of the business. From this
Planning involves the determination of goals and information, projected profits or losses are determined.
objectives for the business, including the actual results A financial plan also includes a beginning balance
sought by the firm. A set of policies and procedures are sheet. This form provides a list of the assets, liabilities, and
determined that guide the identification of specific activi- net worth of a business on a given day. Assets are tangible
ties that will lead to these goals. Planning does not end
items that are owned by the business, liabilities are the
with the creation of a business plan, however, as it contin- debts of a business, and net worth is the amount of invest-
ues throughout the life of the business.
ment that the owner(s) has in the business.
To implement the plan, the entrepreneur organizes
the personnel and other resources of the business. An The financial plan also includes a cash-flow analysis
and a break-even analysis. The cash-flow analysis identi-
organizational chart is created that shows the hierarchy of
the people working in the business. After the number of fies the cash generated after expenses and loan principal
employees and their qualifications are determined, appli- payments are deducted. This projection is calculated for
cants are recruited and, once hired, are trained. Other several years into the future. The break-even analysis iden-
types of resources that are organized by management are tifies the break-even point, which is the level of sales and
facilities, equipment, materials, and supplies. expenses, including loan principal payments, at which a
The third management function is directing. Man- business has no profit and no loss.
agers direct the work of the business by applying leader-
ship and management skills. They model desired behavior RESOURCES
while supervising, motivating, and evaluating their
Information that can help the budding entrepreneur is
employees. Finally, comparing the plan with the actual available from people, printed material, and the Internet.
results is called controlling. By observing and studying
All entrepreneurs need people they can go to for advice.
financial statements, managers can understand the status
Accountants and attorneys are especially important. An
of the business and adjust activities where necessary to accountant not only provides the financial data and state-
contribute toward the achievement of the business goals. ments for the business but also interprets the information
The controlling function also includes evaluation of
employees. for the entrepreneur. This is important because business
decisions must be based on a variety of considerations,
including financial ones. Attorneys provide legal advice
Financial Plan. The financial aspects of the business must throughout the process of purchasing or creating a busi-
also be planned. The financial plan includes several finan-
cial statements. One of these statements is the statement ness and owning and managing it.
of financial requirements, which identifies the projected Other sources of information include financial insti-
expenses and the assets they will create for a specified time tutions, the Chamber of Commerce, educational institu-
period. Among the expenses listed are those for rent, tions, insurance agents, and suppliers of products used in
insurance, telephone, and inventory. The entrepreneur the business. Publications provide up-to-date informa-
also needs money to meet personal expenses as the busi- tion: books from major publishers, magazines such as
ness grows. These expenses are also included in this state- Entrepreneur and Inc., and newsletters and journals offered
ment. The expenses are used to create assets. Assets are by associations are available. Many types of businesses are
items of value that are owned by the business. For exam- served by trade associations such as the American Hotel
ple, if a business purchases land upon which to place a and Motel Association, which is comprised of owners and
facility for the business, the money needed for the pur- operators of lodging businesses throughout the country.
chase is an expense that then creates the asset of land. Along with providing publications, these organizations
The financial plan also includes the source(s) of the hold conferences and workshops and provide networking
funds needed to meet the financial requirements. Some- opportunities. Various government agencies are also avail-

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 251