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BU121 - Q&A.docx

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Jessica Harrison

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Finance What is Cash Burn and how do you calculate it? Cash burn is how much CASH a company will spend in a certain period (dependant on time of financial record.) Cash Burn = Operating Expenses + Interest Paid + Taxes + Increase in Inventories – (Increase in Payables + Increase in Accruals)+Capital Expenditures (add back depreciation if given net) What is Cash Build and how do you calculate it? Net Sales – (Increase in Accounts Receivable). It is how much CASH you generate in a certain period of time. What is Net Cash Build, and then how do you find monthly Cash Burn, monthly Cash Build, and Monthly Net Cash Build and what it means in comparison to current cash? Net Cash Build is Cash Burn – Cash Build. This will show you how much you are net burning or building per period. Divide by the months (If it is yearly data, or by 3 if quarterly) and find the monthly net cash burn rate. Then take this against the cash you have remaining and will see how much time you have left until your money runs out. Good indication of if you’re in need of external financing. What are good Analytical Measures at certain points in a ventures lifecycle?  Development/ Start-up: Cash Burn Rates / Liquidity / Conversion Periods. These would be used by the entrepreneurs and angel investors. Good indication of if the company is financially viable.  Survival Stage: Every ratio + Leverage and Profitability Ratios. These last two are relevant because they have had a bit of experience so Chartered Banks can now look into how they have performed, and how they have chosen to get their initial financing and how financially leveraged they are.  Rapid Growth Stage: All the same ratios, more in depth into the Leverage + Profitablity because most of the risk is gone at this point. Investment bankers will start to take a look at this stage. What do liquidity ratios help with? These ratios let us know quickly what kind of financial position the venture is in, and their ability to pay their immediate obligations (current liabilities). They can be used to compare you to earlier years, or to industry standards. Deals with how you manage your money that is readily available. How do conversion period ratios help? Measure the average time it takes you to get through your business processes. Need to make sure that you have a C3 very close to zero or else external financing will be needed to stay afloat. How do leverage ratios help? These are a good indicator of how you are financing your company. To be highly leveraged means you are taking on a lot of debt to finance your business. This is ok IF you can handle it. Debt Financing can sometimes be a better decision than Equity Financing because you don’t lose control of your company, and you can use the interest payments as a tax deduction. Remember “Risk and Expected reward go hand in hand”. Why use profitability and efficiency ratios? This is the core of the company. It measures how efficiently a venture uses their assets to generate revenues and controls their expenses. What is operating leverage? This deals with how you are relating your fixed costs with your variables. If you choose to take on fixed costs for less variable, you need to find the production level that accompanies this to make it viable. For example, if you bought a new machine that would cut down half the time of production, are you going to be able to produce that much more and WILL YOU HAVE THE DEMAND for it. Negotiation What is negotiation? Negotiation is an ongoing process in which two parties that may not have the same views on a situation, work towards a viable agreement. Describe the EASY Process:  Engage: Realize that you are in a negotiation and review your strategies. Don’t get left behind because of ignorance.  Assess: Try to think of your tendencies in negotiations compared to their negotiation tactics. Determine which of your skills will work well in this situation.  Strategize: Pick the best strategy for negotiation to try and bring the best result.  Your one minute drill: You should take the time every time you are in a negotiation to try and work out these first 3 steps. List and describe the negotiation strategies:  Avoidance: Lose – Lose. Completely stay away from any negotiation situation and try and forget about it. Can completely tear relations.  Accommodation: Lose – Win. This is the strategy that you let them take the bigger portion of the pie. Let the person walk all over you and lose a lot of your power in the future.  Competition: Win – Lose. Very aggressive strategy where you go in trying to get the biggest piece of the pie possible. This may sever relations and make people not want to deal with you again.  Collaboration: Win – Win. This is the idea that the pie is not fixed. Can ask questions and get to the real meaning of why the people want what they want and work from there. Best method if available.  Compromising: Idea that both sides need to give up a bit of what they want to come to an agreement. However, remember negotiation isn’t just a series of comprimises. What are the two categories of Collaborators?  Dreamers: People that think they are collaborating however are actually compromising. It can be very dangerous because you are most likely losing your negotiations.  Sages: People that can actually collaborate if the time is right. They also have the ability to be competitive against a competitive strategy and take them down. Only about 20% of the population can actually Collaborate, but it brings 80% better results when they do. What are the 4 basic styles of interaction?  Drivers (Dominant): These people are constantly running the negotiations. Try to get them done quickly and efficiently. Afraid of failure. Can collaborate when the conditions are right.  Engaging (Influencers): Love to interact with people, but will want to get the negotiation done quickly. Afraid of boredom. Strong ability to collaborate in certain scenarios.  Amiable (Steady) : Ultimate avoiders. Want to keep things the way they are (afraid of change). Also afraid of conflict. Will hold grudges if they lose negotiations.  Analytical (Complaint): These are the people that like to know everything about the situation and take a while to make a decision. Work at a slow pace and are unemotional. Afraid of making a mistake. When to use the 5 Negotiation Strategies?  Avoidance: Use when it is such a small issue that it is almost better not to deal with. Make sure you clarify why you are avoiding it though. Remember the example of the “free invoice” where if you forgot to charge a person a little amount, send them a free invoice so they know it won’t be free next time.  Accommodation: Use when you know you are not in a position to bargain. However, remember the more you know about a situation the better. Let people know you won’t accommodate all the time. Use words like “we can do it this time but…”.  Competition: Use when you are in a position where you can win the negotiation, or against a very accommodating person. Use when a person is not collaborating. You will either win or lose very quickly. Need to look past the “wanting the more pie” and open up the real meaning of the negotiation.  Collaboration: Use when there is a significant opportunity to collaborate. Need to know that only 20% of the population can collaborate. Need to be prepared to collaborate yourself, it won’t just happen.  Compromising: Use near the end of the negotiation when the main problem has been dealt with. Basically tying up loose ends to bring an agreement. Describe Principled vs Positional Bargaining  Principled: The idea that the pie can be expanded. There are 4 basic principles: Separate the people from the problem, focus on interests and not positions, generate a variety of solutions, and get the results based on the objectives of both people. If this is followed, you will almost guaranteed get better results. Great strategy because it is efficient and amiable.  Positional: The idea that the pie is fixed and has to be struggled over to get the biggest piece. Operations What is the difference between service and manufacturing companies?  Manufacturing: Take raw inputs from suppliers and turned in to a finished good. Rated on terms of the quality of the finished good. These goods can be stored (can run in to inventory issues) are tangible, and commonly generic. Remember products are PRODUCED. Manufacturing can run 24/7  Service: Raw inputs are the people that need the service, they have something that needs to be done. PERFORMED, not produced. Service is completely demand based. Intangible, completely customizable, and cannot be stored. The whole process is judged, not just the final product. This means you need the basics; cleanliness, great service, great employees, and reliability. You need to think of how much interaction you need with the customer in order to run your demand schedule. What are the implications for operations from a service and manufacturing business?  Manufacturing: Your demand and capacity should line up closely. You need to set your capacity a little higher than your demand just in case. If you can’t keep up, possibly outsource in the short term to keep up. On the flipside, it is expensive to keep inventory idle or have a lot less demand yet have high capacity. You can look to change pricing to keep up with the seasonality of your product (ex. Golf Town has a winter sale).  Service: If high contact is needed, schedule for peak demand always. If low, like auto repair, you can spread out your demand to save some expenses. Describe Mass Customization vs. Mass Production  Mass Production: Used to be that you could produce as much as you could sell, so companies would produce tons of generic products for consumption. Now things are changing.  Mass Customization: The idea that customers want more for their money, so products are produced to a generic stage at some point near the end of production, however they have a customizable ending option. This is a constant learning cycle to better your product. What is the triple bottom line? How is it measured?  People: The idea that you need to produce the goods that the customers are demanding.  Profit: You still want to have a viable business and make money in doing so.  Planet: Newest addition. Need to produce in a way that will not harm the environment for future generations. They should be able to produce in the same way that we do.  Measurements:  Dow Jones Sustainability Index: Ranks companies on sustainability, most of the high ranks are to the most successful companies.  Global 100 most sustainable companies  Global reporting initiative: 1000 companies, and 80% of fortune 150 companies. This is for companies that are looking for a more holistic image. What do they mean by the next industrial revolution? This is the idea that companies are shifting towards being more environmentally sustainable instead of purely demand and profit driven. The sense that you shouldn’t stop growth, but redesign it. The environmental impacts of today will eventually have to be paid tomorrow. What is the cradle to grave design, and compare to cradle to cradle.  Cradle-to-grave: Take, make, waste design- very inefficient. Trying to reduce, reuse, and recycle, however it does not completely stop the problem because most components are non-recyclable and people don’t always follow.  Cradle-to-Cradle: The idea that you can use the waste from the product just as efficiently as it was meant to be initially. Eco –EFFCTIVE designs on closed loops. It will bring as much benefit again and again. Our waste is natures food, so if we can make it healthy for nature it will benefit us in time (ex. Sunchips biodegradable bag). This eliminates the concept of waste. Example is when Nike had shoes that could be entirely broken down and used as tracks, tennis courts, etc. instead of being wasted. What is Biomimicry? Biomimicry is the idea that we should not look to what we can take from nature; rather what we can learn. Using natures designs to make eco efficient products ourselves. Example is Velcro inspired by burrs on a dog. What is Product Stewardship? The responsible and ethical management of your product and its results through the entire lifecycle. You need to think of health, safety, and environmental implications of your product. Implementing an Extended Producer Responsibility to keep track of your harmful product after disposal is a very good way to show stewardship. Issues like the computers being ripped apart for working parts in China show bad product stewardship. What is Sustainability through servicing? This is the idea that if you are manufacturing, you will most likely lose demand over time because of market saturation. If you add services to your business that make up for this or even use it as an advantage, you will see your demand keep steady. You will also build stronger relations with your customers because of the increased contact. Example is Xerox becoming the document efficiency company, going to other companies and helping them become more document efficient through service. Describe Sustainability of the Supply Chain? This is the idea that you should be keeping your entire process, whether it be your supplies, manufacturing, or selling, completely sustainable and it should be monitored regularly. Remember, when you outsource, you aren’t outsourcing responsibility. Example; Walmart went and looked at the efficiencies of their suppliers and noticed they could be cutting down costs by using less resources and electricity, and found better ways to do them. It helps the environment and also the costs. Timberland designed their eco boots not only to be put together entirely of recycled materials, but also be easily recycled themselves. This keeps the integrity of your brand in the public eye. What is Greenwashing, and the 6 deadly sins?  Greenwashing: The act of misleading customers to think that your business practices or your product/service is environmentally friendly. 6 Deadly Sins:  Sin of hidden trade offs: Tell the customer what they eco benefits are, however are doing something else poorly to be able to do it.  Sin of no proof: No evidence to back up the claim  Sin of Vagueness: Not letting the customer know the details of your eco benefits.  Sin of irrelevance: What you’re saying isn’t actually helping the environment  Sin of fibbing: Complete lie  Sin of lesser 2 evils: Environmental benefits from something that is considered a “bad” product to begin with. Ex organic tobacco. Human Resources: What is a realistic approach to hiring? You want to find the right people and hold on to them. You need to let potential employees the pros, AS WELL as the cons to the job they are applying to. This is vital because they will feel betrayed if the job is not what they were expecting. This may lead to additional costs for you if they leave the job; having trained someone for nothing. What is employer branding?  Need to define the target market; know the type of person you want to fill the job and go out and
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