PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)

<< PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)

PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….) >>

Entrepreneurship MGT602

Lesson 40

PREPARING FOR THE NEW

VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued....)

MOTIVATING AND LEADING THE TEAM

The entrepreneur will usually be a role model for any other employees.

Good work ethic will go a long way toward achieving financial and emotional success. During the early

stages employees need incentives to remain committed and loyal to the long run success of the new

venture.

It is important that the founder assume the role of leader to the management team and employees.

Leadership is also influencing and inspiring others in the organization to strive to meet the mission of the

venture. Below are some behaviors that can exhibit the leadership qualities necessary for the new venture.

Set an example with an ethical set of values for other managers and employees. Show respect and concern

for the personal well being of employees. Don't try to do everything yourself. Recognize the diversity of

employees and how they should be treated. Encourage and praise others in the organization when

deserved. Provide incentives and awards for quality work effort and new ideas. Recognize the importance

of employees having fun at their jobs. Be aware of the need for future strategic planning.

Communication with managers and employees is one of the most important leadership qualities.

FINANCIAL CONTROL

The entrepreneur will need some knowledge of how to provide appropriate controls to ensure that

projections and goals are met. Financial skills are needed for the entrepreneur to manage during early years.

The cash flow statement, income statement, and balance sheet are key areas needing careful management

and control. Some financial skills are necessary for the entrepreneur to manage the venture during the early

years.

Managing Cash Flow

An up-to-date assessment of cash position, such as a monthly cash flow statement, is needed. The cash

flow statement may show the actual amounts next to the budgeted amounts. It is useful for adjusting the

pro forma and indicating potential cash flow problems. A cash flow crisis can occur suddenly and

unexpectedly.

Cash flow analysis can also involve sensitivity analysis: for each monthly expected cash flow the

entrepreneur can use a +/-5% that would provide a pessimistic and optimistic cash estimate. For the very

new venture it may be necessary to prepare a daily cash sheet. Comparison of budgeted or expected cash

flows with actual cash flows can provide an assessment of potential cash needs and indicate possible

problems in the management of assets and control of costs.

Managing Assets

In addition to cash management, other items such as accounts receivable and inventory also need to be

controlled. Management of credit may include acceptance of credit cards or use of internal credit. Using

outside credit cards shifts the credit risk to the outside company but increases costs. Using internal credit

makes the firm responsible for collecting delinquent payments, and payment delays can create negative cash

flows. The entrepreneur will need to be sensitive to major changes in accounts receivable and should always

compare actual with budgeted amounts. Inventory is an expensive asset, and requires careful balance.

If inventory is low and the firm cannot meet demand, sales will be lost. Carrying excess inventory can be

costly. An inventory control system allows the company to monitor key figures, such as inventory turnover

and percentage of customer complaints. The entrepreneur will need to determine the value of inventory

and determine how it affects the cost of goods sold. Most firms use a FIFO (first-in, first-out) system since

it reflects truer inventory and cost values. There are good arguments for the use of LIFO (last-in, first-out)

in times of inflation. The decision to convert from a FIFO to a LIFO system is complex and requires

careful evaluation. It is necessary to decide if inventory is to be grouped into categories or to cost each item

individually. All inventories must be costed by searching through historical records.

Entrepreneurship MGT602

An average inventory cost must be calculated. Conversion to LIFO can typically be beneficial if the

following conditions exist: Rising labor, materials, and other production costs are anticipated. The business

and inventory are growing. The business has some computer-assisted inventory control method capability.

The business is profitable. The entrepreneur must keep careful records of inventory using perpetual

inventory systems followed by a periodic physical count. Fixed assets have certain costs related to them,

such as depreciation. If the entrepreneur cannot afford to buy equipment or fixed assets, leasing could be

an alternative. Leasing may be a good alternative to buying depending on the terms of the lease and type of

asset. Leases for automobiles may be more expensive than a purchase. However, lease payments represent

an expense and can be used as a tax deduction. Leases are also valuable for equipment that becomes

obsolete quickly. The entrepreneur should consider all costs associated with a lease-or-buy decision as well

as the impact on cash flows.

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