Chapter 06 – Planning, Organizing, and Managing a Small Business
6-1
CHAPTER
Planning, Organizing, and
Managing a Small Business
CHAPTER CONTENTS
Learning Objectives 6.2
Chapter Overview 6.2
Brief Chapter Outline 6.2
6
Chapter 06 – Planning, Organizing, and Managing a Small Business
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LEARNING OBJECTIVES
After studying the material in this chapter, the student will be able to:
1. Tell why planning is so important—yet so neglected—in small businesses.
2. Explain the role of strategic and operational planning, and give some examples.
CHAPTER OVERVIEW
Chapter 6 focuses on planning. The Profile illustrates some of the problems and steps in-
volved in planning, organizing, and developing new business. The first three of those were dis-
BRIEF CHAPTER OUTLINE
I. WHY IS PLANNING SO IMPORTANT TO SMALL BUSINESSES?
A. Why Small Businesses Need to Plan
B. Why Small Businesses Neglect Planning
II. THE ROLE OF STRATEGIC PLANNING
A. SWOT Analysis
Chapter 06 – Planning, Organizing, and Managing a Small Business
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IV. THE ROLE OF FINANCIAL PLANNING
A. Estimating Income and Expenses
V. THE ROLE OF THE BUSINESS PLAN IN STRATEGIC AND OPERATIONAL
PLANNING
A. Purposes of the Plan
B. What the Plan Should Include
VI. PREPARING THE PLAN
A. Who Should Prepare the Plan?
B. Developing Action Steps
VII. COMPONENTS OF THE PLAN
A. Cover Sheet
B. Executive Summary
K. Appendices
VIII. PRESENTING THE PLAN
A. Writing the Plan
IX. IMPLEMENTING THE PLAN
X. SAMPLE BUSINESS PLAN
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CHAPTER OUTLINE AND TEACHING NOTES
CHAPTER OPENING PROFILE:
Sam and Teresa Davis Do Their Homework Before Launch
Sam and Teresa Davis, decided to open a school supply company. They started their ven-
ture the right way—by doing extensive strategic and operational planning. Then they gathered all
I. WHY IS PLANNING SO IMPORTANT TO
SMALL BUSINESS? (You Must Look
Ahead!)
Learning Objective 1.
Tell why planning is so important—yet so neglected—in
small businesses.
A. PLANNING is the process of setting ob-
jectives and determining actions to reach
them.
1. Answers questions:
a. What business am I in?
2. Criteria of Terry Thomas, business
owner.
a. Be prepared.
b. Be patient.
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CHAPTER OUTLINE AND TEACHING NOTES
f. Never rest on your own laurels.
B. Why Small Businesses Need to Plan
1. Planning, one of the most difficult ac-
2. Well-developed plans can:
a. Interest moneyed people in in-
vesting in your business.
b. Guide the owner and managers
C. Why Small Businesses Neglect Planning
1. Day-to-day activities leave owners lit-
tle time for planning.
II. THE ROLE OF STRATEGIC PLANNING
Learning Objective 2.
Explain the role of strategic and operational planning, and
give some examples.
Chapter 06 – Planning, Organizing, and Managing a Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
A. STRATEGIC PLANNING provides com-
prehensive long-term directions to help a
business accomplish its mission.
1. Mission Example from Chapter 4:
2. Examples of strategic planning
a. Selecting the type of business to
enter.
b. Formulating the company’s mis-
sion.
c. Deciding whether to start a new
REAL WORLD EXAMPLE 6.1
A recent study by three CPAs focused on the importance
of location to small business. Firms that succeeding were
those that differentiated themselves from the mainstream.
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CHAPTER OUTLINE AND TEACHING NOTES
B. SWOT Analysis
1. A SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis
is a tool to scan the business’s envi-
C. VISION, A Business Vision Explains
what the business is striving to be-
come in the future.
D. Mission and Objectives
1. A business’ MISSION statement de-
fines the present business scope and
broadly describes the organization’s
present capabilities, focus, and activi-
ties.
a. A clear definition of the mission
Real World Example 6.2
Carpe Diem (Beginning Profile for Chapter 14) developed a
mission statement that covered business goals, community ob-
jectives, and social needs.
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CHAPTER OUTLINE AND TEACHING NOTES
c. OBJECTIVES are the purposes,
goals, and desired results for the
business and its parts.
2. The External Environment
a. External environmental factors to
consider include:
(1) Competitors.
(2) The U.S. market climate.
b. This is part of the SWOT analy-
sis—opportunities and threats.
c. Changes in the external environ–
3. The Internal Resources and Competi-
tive Edge
a. HUMAN RESOURCES are the
personnel that make up the busi-
ness’ workforce.
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CHAPTER OUTLINE AND TEACHING NOTES
(1) Human resources includes
both management and non-
B PHYSICAL RESOURCES are
the buildings, tools and equip-
ment, and service and distribu-
tion facilities that are needed to
carry on the business.
(1) These resources must be
c. FINANCIAL RESOURCES in-
clude cash flow, debt capacity,
and equity available to run the
business.
(1) To make the company com-
petitive, company finances
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CHAPTER OUTLINE AND TEACHING NOTES
4. A COMPETITIVE EDGE is a particu-
lar characteristic that makes a firm
D. Strategies
1. STRATEGIES are the means by
which a business achieves its objec-
tives and fulfills its mission.
a. Should give the business.
III. THE ROLE OF OPERATIONAL PLANNING
A. Three types of planning improve a small
business owner’s chances of success:
1. Strategic planning before starting the
business.
B. Setting Up Policies, Methods, Proce-
dures, and Budgets
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CHAPTER OUTLINE AND TEACHING NOTES
1. OPERATIONAL PLANNING sets
policies, methods and procedures,
budgets, for achieving objectives.
2. POLICIES are general statements
that serve as guides to managerial
4. METHODS AND PROCEDURES
provide standing instructions to em-
ployees on how to perform their jobs.
5. BUDGETS are detailed plans, ex-
pressed in monetary terms, of the re-
C. Planning to Operate the Business
should include:
1. Choosing your location:
a. The type of business influences
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CHAPTER OUTLINE AND TEACHING NOTES
2. Planning operations and physical fa-
cilities ( A firm’s ability to sell its
product is based on its ability to pro-
duce that good, or service, as well as
on its market potential.)
a. Good selection and efficient ar-
rangement of physical facilities.
b. Too much capacity increases
3. Developing sources of supply for
goods and materials
a. The largest expense for compa-
nies selling products usually is
purchasing materials, supplies,
4. Planning your human resource re-
quirements
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CHAPTER OUTLINE AND TEACHING NOTES
a. HUMAN RESOURCE PLAN-
NING is the process of convert-
ing the business’ plans and pro-
grams into an effective work
force. (Chapters 10 and 11 also
covers HR.)
(1) The less time the owner can
5. Setting up the legal and organiza-
tional structure
a. Retaining too much authority can
kill the business. Be aware of
d. The administration structure
should be based on:
(1) The strategic plan.
(2) The owner’s personal and
bility relationships.
6. Determining your approach to the
market
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CHAPTER OUTLINE AND TEACHING NOTES
a. If the environmental study shows
b. The selected target market then
has to be reached, including
sales promotion and distribution.
(1) You must tell potential cus-
a. Consider your product.
(1) What qualities make it
REAL WORLD EXAMPLE 6.3
Earl Tupper didn’t accept rejection by large retailers. He
took his rubber dustpan directly to consumers, and Tupper-
ware was born.
7. Establishing an efficient records sys-
tem:
a. Keep track of activities and obli-
gations.
b. Keep records of information de-
Chapter 06 – Planning, Organizing, and Managing a Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
d. Inventories, accounts receivable,
and accounts payable.
IV. THE ROLE OF FINANCIAL PLANNING
Learning Objective 3.
Explain the role of financial planning, and give some ex-
amples of it.
A. FINANCIAL PLANNING involves deter-
mining what funds are needed, where
they can be obtained, and how they can
be controlled; it should include at least
these activities:
1. Estimating income and expenses.
B. Estimating Income and Expenses
1. Income from sales (revenue) can be
estimated by market study.
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CHAPTER OUTLINE AND TEACHING NOTES
3. VARIABLE EXPENSES change in
relation to volume of output: when
output is low, the expenses are low,
and when output is high, expenses
rise.
4. FIXED EXPENSES do not vary with
output, but remain the same.
5. Do not forget to prepare a personal
C. Estimating Initial Investment
1. To start your business, you must pay
for buildings, equipment, personnel,
inventory, machines, business forms,
and sales promotions.
3. Starting Inventory is an illustration of
buying goods inn one period, and
selling them in another.
4. Inventories of goods and supplies—in
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CHAPTER OUTLINE AND TEACHING NOTES
5. Funds obtained from investments in
the business or from loans must con-
tinue for its life unless they are paid
off.
D. Locating Sources of Funds
1. There are basically two sources of
2. Using Your Own Funds
a. Decide how much money you
and others will put into the busi-
ness, and how much will come
from other sources.
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CHAPTER OUTLINE AND TEACHING NOTES
3. Using Funds of Others.
a. EQUITY INVESTORS are those
b. LENDERS are those outsiders
who provide business owners
money for a limited time at a
fixed rate of interest.
(1). Investors accept risk for the
b. Microloan is a small short-term
loan provided by the SBA
through intermediaries.
c. Venture Capitalists capitalize a
business start-up in return for
partial ownership.
g. Start-up Accelerators are programs
that include mentorship and educa-
tional components, culminating in a
pitch event on Demo Day.
Chapter 06 – Planning, Organizing, and Managing a Small Business
CHAPTER OUTLINE AND TEACHING NOTES
E. Jump-start Our Business Startup Act
1. The Jobs Act of 2012 is a way
2. Investors see modest profits
small business get much-needed
cash, allowing them to add jobs
and become a healthy presence
in the community.
REAL WORLD EXAMPLE 6.4
Lucy Valena received a $4,000 microloan through the
Samuel Davis Brewing American Dream program to help
launch her coffee business.
V. THE ROLE OF THE BUSINESS PLAN
IN STRATEGIC AND OPERATIONAL
PLANNING
Learning Objective 4.