ENFUCO_MOD5

• Right Location


  Refers to that one which will bring highest possible benefits to the firm. Is where the small business operators decide to place their business to operate
• General Criteria for Selecting a Business Location

  • population growth
  • average annual income of families
  • proximity to markets
  • proximity to supply of raw materials
  • labor supply
  • business climate
  • population trends
  • local laws and regulations
  • competition
  • compatibility with the community
  • transportation
  • public services
  • police and fire protection
  • reputation of the location
• Steps in selecting a Business Location for Retailers

  1. Choosing a viable community

  2. Selecting the Trading Area

  3. Evaluating the specific site
• Viable community


  One that has the capacity to provide an adequate and profitable sales volume for the small business
• Trading area


  The geographic area from which a business draws its customers. Trade area is also known as market area in which a commercial enterprise transacts business
• Types of Location


  • Central Business District
  • Shopping Center
  • Free-Standing Location
• Procedure in Locating a Small Manufacturing Firm

  Manufacturing firms located in a small town just outside the boundary of the city
• Locating the Service Firm

  The choice of a location for service firm will depend on the traits of the target customer
• Promotion


  Activities, including advertising, personal sellings, sales promotions, public relations and direct marketing, used by SBO's to persuade prospective customers to buy the company's products or services
• Types of Customer Demand

  • established demand
  • newly created demand (referred to as promoted demand)
• Methods of Promotion


  • advertising
  • personal selling
  • publicity
  • sales promotion
  • word of mouth
• Types of Advertising Media

  • television
  • radio
  • newspapers
  • magazines
  • outdoor billboards
  • specialty advertising
  • public transportation
  • yellow pages
  • direct mail
  • local cable tv
  • cinema (movie houses)
  • other means such as catalogs, samples, handouts, etc.
• Types of Advertising


  • Retail advertising
  • Service advertising
  • Trade advertising
  • Industrial advertising
  • Institutional advertising
• Personal Selling


  That method of promotion that is direct, personal, and often a face to face interchange between the company's salesperson and the consumer
• Types of Salespersons


  • order getters
  • order takers
  • support personnel
• The Selling Process


  1. prospecting and qualifying

  2. pre approach

  3. approach

  4. presentation and demonstrations

  5. handling objections

  6. closing

  7. follow-up
• Publicity


  A method of promotion where news is generated about the firm or its products or services and appearing in print, broadcast, or electronic media and not paid for by the firm
• Types of Publicity


  • news publicity
  • business feature articles
  • service feature articles
  • finance releases
  • product releases
  • pictorial releases
  • background editorial releases
  • emergency publicity
• Sales Promotion


  A method of promotion other than advertising, personal selling, and publicity that increases sale through temporary sales incentives
• Types of Sales Promotion

  • point-of-purchase displays
• Types of business feature articles

  • Detailed stories about the firm or its offerings, most often appearing in business magazines
  • Lighter stories focusing on personal care, household items and recipes
• Types of media releases

  • Finance releases - stories targeted to appear in the business sections of newspapers
  • Product releases - new products and products improvements ad aimed at all forms of media for publicity
  • Pictorial releases - illustrations or pictures distributed to media
  • Background editorial releases - extra information given to media writers and editors
  • Emergency publicity - special media releases regarding disasters or serious problems
• Types of sales promotion

  • Point-of-purchase displays - items used by sellers to attract attention, inform and persuade prospectives customers to buy
  • Premium - special incentive in the form of a gift that is made available to customers who buy certain products
  • Trading stamps - sales promotion tools in which customers are given in relations to the amount of their purchase
  • Sampling and demonstrations - manufacturers give away free samples to introduce a new product, customers are given the opportunity to observe the product benefits and performance
  • Retailers coupons - a promotional device that motivates consumers to buy from the retailer
  • Consumer contests and sweepstakes - customers compete for prizes, customers are given an entry or raffle
  • Rebates - a rebate offers the return of money based on proof of purchase
  • Trade show - temporary exhibitions of products and services
• Word of mouth


  A method of promotion wherein people are encouraged to tell other people products or services they have enjoyed
• Financial planning


  Analyzing the financial flows of the firm as a whole, forecasting the consequences of various investments, financing, profit decision, and weighing the effects of various alternatives
• Budget


  An estimate of the income and expenditures for a future period of time, usually in one year
• Steps in budget preparation

  1. Project the best estimate of the volume of products or services expected and the revenue that will be received

  2. Divide the estimate into monthly figures

  3. Obtain an estimate of monthly cost of sales or rentals, by product or service

  4. Determine anticipated fixed costs

  5. Establish projected non-operating income and cost
• Types of budgets applicable to small business

  • Cash budget - forecast of future cash receipts and cash disbursements
  • Production budget - estimate of the quality of goods to be manufactured
  • Merchandise purchases budget - identifies the quality of each item that must be purchases for resale, the unit cost of the items, and the total purchase cost
  • Sales budget - identifies each service and its quality that will be sold
• Financial analysis


  The process of interpreting the past, present, and the future financial condition of a firm
• Basic requirements for financial analysis of a small business

  • Financial statements
  • Break-even analysis
  • Financial ratio analysis
• Major classes of financial statements

  • Balance sheet - gives a financial profile of a business at any given point, showing its assets, liabilities and net worth
  • Income statement - shows the revenue and other income, expenses, and net income for the small business covering a period of time, usually one year
  • Statement of changes in financial position - explains the financial changes that occur in a company from one accounting period to the next
• Break-even analysis


  A means to determine at what point in a business activity the total revenue equals to expenses
• Calculating the break-even point


  1. Break-even point in units = Fixed cost / (Price per unit - Variable cost per unit)

  2. Break-even point in pesos = Fixed cost / (1 - Variable cost per unit / Price per unit)
• Classification of financial ratios

  • Liquidity ratios - reveal the firm's ability to pay debts as they become due
  • Activity ratios - provide a glimpse of how effectively the firm is using its assets
  • Profitability ratios - measure the overall financial performance of a firm
  • Leverage ratios - measure the extent to which a firm relies on debt financing
• Types of liquidity ratios

  • Current ratio - measures the ability of the firm to meet current debt
  • Quick ratio - measures a firm's ability to pay its debts on time
• Types of activity ratios

  • Accounts receivable turnover - relates accounts receivable to sales
  • Inventory turnover - measures the number of times inventory turn over during the year
• Types of profitability ratios


  • Profit margin on sales - shows how much after-tax profits are generated by each peso of sales
  • Rate of return on equity - measures the rate of return on the book value
• Types of leverage ratios

  • Debt ratio - compares the total liabilities of the firm to its total assets
  • Debt-equity ratio - compares debt to equity
• Sources of financing for small businesses

  • Debt capital
  • Equity capital - additional capital infusion from the sole proprietor, additional capital generated through a partnership agreement, sale of stocks through a corporate form of business
• Risk


  The uncertainty about loss or injury