Business Quantification and Implementation Flashcards

Business Quantification and Implementation

Business implementations represent the primary driving force behind all corporate activities that strive to accomplish one or more objectives outlined in a business plan. By understanding business implementations and effectively overseeing them, entrepreneurs can ensure their teams work consistently toward company objectives. A strategic plan is considered essential for a business because it provides a clear direction to follow, ensuring the attainment of goals, providing value to customers, and achieving ultimate success. There must be a plan to guarantee that the desired performance will be achieved. The transcript notes that having a roadmap does not guarantee that a traveler will reach their desired destination, emphasizing that execution is key. Effective business implementation serves as a powerful tool for companies to gain a competitive advantage.

Sales Forecasting and Resource Allocation

Once an entrepreneur identifies the profit potential of a business concept, they must assess the expected daily, monthly, and annual revenue through a process known as forecasting. Forecasting involves using past and present data and patterns to make predictions or estimates about future events or trends. This process plays a crucial role in enabling businesses to identify risks and opportunities and efficiently allocate resources by estimating future demand for products or services. These informed predictions empower businesses to make well-informed decisions that drive success.

Factors Influencing Sales Forecasting

Several internal and external factors must be considered when creating a sales forecast, as they directly impact sales volume. Competition is a primary factor; if a competitor performs well, a business may employ tactics such as discounting to maintain its presence. Alternatively, if a competitor goes out of business, a company can seize the opportunity to capture market share. Macroeconomic factors, ranging from regional to global changes, also affect sales; selling goods is generally easier in a solid economic climate and more challenging during an economic downturn.

Specific events affecting the national or global economy can have varied impacts. For instance, the recent pandemic caused many businesses to struggle but massively benefited producers of hand sanitizer and face masks. Legal factors, such as changes in regulations or legal requirements, can impact sales if a product or business structure is affected. Seasonal factors are also significant; an ice cream shop will have excellent projections for the summer but slim projections for the winter, while toy stores project large spikes near Christmas.

Internal factors, specifically employees, also affect forecasts. Tech startups often hire a large number of salespeople upon receiving funding because the number of people working to sell a product directly impacts sales volume. New businesses must also factor in the time required to set up sales pipelines and establish relationships with stakeholders. A sales forecast estimates the number of goods and services a business believes it can sell over time, including production costs and estimated profit.

Revenue Forecasting Formulas

The following formulas are used to quantify business revenue and pricing strategies:

Markup=Cost per unit×Desired MarkupMarkup = \text{Cost per unit} \times \text{Desired Markup}

SellingPrice=Cost Per Unit×Markup PriceSelling Price = \text{Cost Per Unit} \times \text{Markup Price}

ProjectedDailyRevenue=Selling Price×Volume of Items SoldProjected Daily Revenue = \text{Selling Price} \times \text{Volume of Items Sold}

ProjectedItemsSoldMonthly=Items Sold Daily×30 DaysProjected Items Sold Monthly = \text{Items Sold Daily} \times 30\,\text{Days}

ProjectedMonthlyRevenue=Selling Price×Projected Items Sold MonthlyProjected Monthly Revenue = \text{Selling Price} \times \text{Projected Items Sold Monthly}

ProjectedItemsSoldAnnually=Items Sold Monthly×365 DaysProjected Items Sold Annually = \text{Items Sold Monthly} \times 365\,\text{Days}

ProjectedAnnualRevenue=Selling Price×Projected Items Sold AnnuallyProjected Annual Revenue = \text{Selling Price} \times \text{Projected Items Sold Annually}

(Note: While the bulleted list in the transcript provides the multiplication formula for Selling Price, the subsequent case study tables utilize an additive approach: C=A+BC = A + B.)

Case Study: La Mirabella RTW Shop

Ms. Mira Bella launched "La Mirabella RTW Shop" in January 2022, an online boutique for fashionable ready-to-wear clothes for teenagers and young adults. Based on interviews, she discovered average daily sales for summer dresses were 2020 pieces and ripped jeans were 1616 pieces. She partnered with a local dealer where summer dresses cost P83.00P83.00 and ripped jeans cost P215.00P215.00. She applies a 50%50\% markup.

For Summer Dresses: Cost per Unit=P83.00\text{Cost per Unit} = P83.00Markup Price=P83.00×0.50=P41.50\text{Markup Price} = P83.00 \times 0.50 = P41.50Selling Price=P83.00+P41.50=P124.50\text{Selling Price} = P83.00 + P41.50 = P124.50Forecasted Daily Revenue=P124.50×20=P2,490.00\text{Forecasted Daily Revenue} = P124.50 \times 20 = P2,490.00Projected Monthly Items=20×30=600\text{Projected Monthly Items} = 20 \times 30 = 600Forecasted Monthly Revenue=P124.50×600=P74,700.00\text{Forecasted Monthly Revenue} = P124.50 \times 600 = P74,700.00Projected Annual Items=20×365=7,300\text{Projected Annual Items} = 20 \times 365 = 7,300Projected Annual Revenue=P124.50×7,300=P908,850.00\text{Projected Annual Revenue} = P124.50 \times 7,300 = P908,850.00

For Ripped Jeans: Cost per Unit=P215.00\text{Cost per Unit} = P215.00Markup Price=P215.00×0.50=P107.50\text{Markup Price} = P215.00 \times 0.50 = P107.50Selling Price=P215.00+P107.50=P322.50\text{Selling Price} = P215.00 + P107.50 = P322.50Forecasted Daily Revenue=P322.50×16=P5,160.00\text{Forecasted Daily Revenue} = P322.50 \times 16 = P5,160.00Projected Monthly Items=16×30=480\text{Projected Monthly Items} = 16 \times 30 = 480Forecasted Monthly Revenue=P322.50×480=P154,800.00\text{Forecasted Monthly Revenue} = P322.50 \times 480 = P154,800.00Projected Annual Items=16×365=5,840\text{Projected Annual Items} = 16 \times 365 = 5,840Projected Annual Revenue=P322.50×5,840=P1,883,400.00\text{Projected Annual Revenue} = P322.50 \times 5,840 = P1,883,400.00

The total combined forecasted daily revenue is P7,650.00P7,650.00. The total combined monthly revenue is P229,500.00P229,500.00. The total combined annual revenue is P2,792,250.00P2,792,250.00.

Adjusted Monthly Revenue Sales Forecasts

Revenue is adjusted throughout the year 2022 based on assumed seasonal factors. From February to May, there is a 5%5\% increase from the previous month's revenue due to peak season. In June, a 10%10\% increase occurs due to the start of the school season. July and August see a 2%2\% decrease each month. September and October see a 9%9\% decrease each month. November sees a 6.5%6.5\% increase and December sees a 14.7%14.7\% increase due to the Christmas season.

Monthly Revenue breakdown:

  • January: P229,500.00P229,500.00
  • February: P344,250.00P344,250.00 (+5%+5\%
  • March: P361,462.50P361,462.50 (+5%+5\%
  • April: P379,535.63P379,535.63 (+5%+5\%
  • May: P398,512.41P398,512.41 (+5%+5\%
  • June: P438,363.65P438,363.65 (+10%+10\%
  • July: P429,596.38P429,596.38 (−2%-2\%
  • August: P421,004.45P421,004.45 (−2%-2\%
  • September: P383,114.05P383,114.05 (−9%-9\%
  • October: P348,633.77P348,633.77 (−9%-9\%
  • November: P371,294.97P371,294.97 (+6.5%+6.5\%
  • December: P425,875.33P425,875.33 (+14.7%+14.7\%

Profitability Ratio Analysis

A financial ratio compares two numbers from financial statements to show their relationship and evaluate financial health. Profitability ratios assess a company's ability to generate shareholder returns by comparing net income to revenue, assets, or equity.

Return on Investment (ROI), also known as Return on Equity (ROE), compares income or profit after taxes to average stockholder's equity. Average assets are calculated by adding the beginning and ending balance and dividing by two. Return on Investment=Net Income/(Average Assets/2)\text{Return on Investment} = \text{Net Income} / (\text{Average Assets} / 2) Example: With a beginning asset of P100,000P100,000, ending asset of P25,000P25,000, and net income of P30,000P30,000ROI=P30,000/((P100,000+P25,000)/2)=0.48ROI = P30,000 / ((P100,000 + P25,000) / 2) = 0.48

Operating Income Ratio (OIR) shows the percentage of profit generated from each peso of investment. Creditors prefer a higher ratio, with 4:14:1 or higher being desirable. If this drops, the credit rating may fall. Operating Income Ratio=(Operating Expenses+Cost of goods sold)/Net Sales\text{Operating Income Ratio} = (\text{Operating Expenses} + \text{Cost of goods sold}) / \text{Net Sales} Example (Apple): Net sales of $59.68$ billion, COGS of $37.00$ billion, OpEx of $9.59$ billion. OIR=(37.00+9.59)/59.68=0.78OIR = (37.00 + 9.59) / 59.68 = 0.78

Return on Assets (ROA) measures asset utilization related to operations by dividing operating income by average total assets. Return on Assets=Operating Income/Average Total Assets\text{Return on Assets} = \text{Operating Income} / \text{Average Total Assets} Example: Net Income of $500,000$ and Total Assets of $2,500,000$. ROA=500,000/2,500,000=0.2ROA = 500,000 / 2,500,000 = 0.2

Financial Health and Liquidity Ratios

Financial Health Ratios determine the capacity to pay short-term and long-term obligations. Stockholder's Ratio shows long-term financial stability. Stockholder’s Ratio=Total Equity/Total Assets\text{Stockholder's Ratio} = \text{Total Equity} / \text{Total Assets} Example: Total assets of 1,000,0001,000,000 and equity of 800,000800,000 yields a ratio of 0.80.8.

Debt Ratio compares total debt to assets. Lower ratios indicate a stronger financial position. Debt Ratio=Total Liabilities/Total Assets\text{Debt Ratio} = \text{Total Liabilities} / \text{Total Assets} Example (Company XYZ): Debt of $500,000$ and assets of $1,000,000$ yields a ratio of 0.50.5.

Debt-to-Equity Ratio shows financing from suppliers and lenders versus shareholder investment. Lower percentages indicate less leverage. Debt-to-Equity Ratio=Total Liabilities/Total Shareholder’s Equity\text{Debt-to-Equity Ratio} = \text{Total Liabilities} / \text{Total Shareholder's Equity} Example (Company ABC): Debt of $1,500,000$ and equity of $2,500,000$ yields a ratio of 0.60.6.

Liquidity Ratios assess short-term obligation payments. The Quick Ratio (Acid-Test Ratio) measures the ability to meet obligations with liquid assets. A ratio below 11 depends on inventory, while a ratio that is too high might indicate excessive cash or collection problems. Quick Ratio=Quick Assets/Current Liabilities\text{Quick Ratio} = \text{Quick Assets} / \text{Current Liabilities} Example (Company XYZ): Cash $50,000$, AR $30,000$, Inventory $20,000$, Short-term investments $10,000$, Current Liabilities $40,000$. Quick Assets=50,000+30,000+10,000=90,000\text{Quick Assets} = 50,000 + 30,000 + 10,000 = 90,000Quick Ratio=90,000/40,000=2.25\text{Quick Ratio} = 90,000 / 40,000 = 2.25

Current Ratio compares current assets to current liabilities. A 2:12:1 ratio means P2P2 of assets for every P1P1 of liability. Current Ratio=Current Assets/Current Liabilities\text{Current Ratio} = \text{Current Assets} / \text{Current Liabilities} Example: Assets of $100,000$ and liabilities of $50,000$ yields a ratio of 22.

Value Chain Analysis (VCA) Model

The value chain represents internal activities transforming inputs into outputs. VCA identifies primary and support activities to reduce costs or increase differentiation. Primary activities include Inbound Logistics (raw materials handling), Operations (machining, assembling, testing), Outbound Logistics (warehousing and distribution), Marketing and Sales (advertising and pricing), and Service (repair and installation). Secondary or Support activities include Firm Infrastructure (management, finance), Human Resource Management (recruiting, training), Technology Development (R&D), and Procurement (purchasing raw materials and machines).

The Eight Rs of Human Resource Management

A people strategy involves attracting, developing, retaining, and inspiring a workforce. Morato (2016) identifies the Eight Rs:

  1. Recruiting: Finding and attracting candidates with required attitudes.
  2. Routing: Assessing potential for various future roles and versatility.
  3. Retaining: Keeping desirable workers through just wages and work-life balance.
  4. Resonating: Ensuring employees internalize company goals to improve productivity.
  5. Reviewing: Measuring performance against organizational goals and promotion potential.
  6. Rewarding: Monetary or non-monetary compensation and recognition.
  7. Retooling: Re-orienting employees to new directions and creating corporate culture.
  8. Recycling: Allowing employees to change jobs or careers within or outside the organization.

Business Model Canvas (BMC)

A BMC is a plan outlining financial goals, customer base, value provision, and financing specifics on a single page. It consists of nine components:

  1. Customer Segment: The specific groups an enterprise aims to serve.
  2. Customer Relationship: Personal, automated, or transactional interactions affecting experience.
  3. Channels: How a company reaches customer groups to deliver value.
  4. Revenue Streams: Verifies profitability; the difference between cost and revenue.
  5. Key Activities: Crucial actions needed to run smoothly and generate revenue.
  6. Key Resources: Assets needed to reach markets and maintain relationships.
  7. Key Partners: Relationships with suppliers or manufacturers that make the model work.
  8. Cost Structure: Focuses on cutting costs and maximizing the value of every expense.
  9. Value Proposition: The specific products/services that solve customer problems.

Philippine Business Permits and Licenses

Opening a business in the Philippines requires several registration steps. Basic requirements include a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR) for year-end tax statements. Businesses with employees must also register with the Social Security System (SSS) for insurance benefits under RA No. 8282, the Philippine Health Insurance Corporation (PhilHealth) for health insurance, and the Pag-IBIG Fund for housing loans.

Specific clearances include the Barangay Clearance, certifying compliance with local village requirements, which requires a community tax certificate (cedula) and government ID. The Department of Trade and Industry (DTI) provides a Business Name Registration Certificate valid for five years for Filipino citizens aged 18+. The Mayor's Permit ensures safety under city ordinances and must be renewed annually. Corporations and partnerships must also secure a Securities and Exchange Commission (SEC) Registration Certificate, which involves submitting articles of incorporation and by-laws.