In the grand scheme of the global economy we all are becoming one. The lines seperating continents are disolving as the global marketplace continues to connect businesses. The potential profits to be made through the international marketplace is astounding, but is profit really the only thing that matters?
Call me a homebody, but I prefer to call it a love for my community and the small businesses that make it unique. With small business ventures generating more that 75%of the Gross National Product, it is needless to say how truely facinating they are. Entrepreneurs are the creativity of our community. They are the reason tourism driven economies survive and the reason why niche markets continue to arise. Each and everyone different from the other.
As a small business owner I would not enter the international marketplace with a good or service. The concept of "buy local" and support your local economy have really hit home during the recent economic recession. As the economy began to take a hit the small business owners, the chamber of commerce, the local Downtown Merchant Association and more band together to encourage a buy local movement. The power of the local dollar is astounding. A dollar spent in a locally owned business has a greater impact on the local community vs. a dollar spent in an international conglomerate that travels to company headquarters.
Profits are not everything. Don't get me wrong, they are helpful, but they are not what being a business owner is about. Hapiness is in pursueing your dream, opening your start up venture and freedom of being your own boss. Entrepreneurialism encompases much more than profit generation or the quest of international product expansion. What does it mean to you?
Wednesday, May 5, 2010
Is a Just In Time Inventory Systems Right For Your Business
Just in Time inventory control has been mastered by major conglomerates including the infamous Toyota Motor Company and Dell. According to Wikipedia JIT is, " an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs." In lay mans terms, keeping exactly enough inventory on hand to meet demand, without tying up operational dollars in excess back stock. In theory the overall concept is genius, but in actuality the a JIT system does have its drawbacks.
Pros
In addition to an increase in company profits, a lean inventory system will also allow your company to decrease both the space of your warehouse and the costs associated with maintaining it. According to a company spokesman for Dell, "With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be." A smaller warehouse will equate to a lower rent/mortgage payment,lower wage expenses as less staff will be required to maintain overstock merchandise, and possibly greater production output.
JIT has a tendency to generate additional profits for a business through the reduction in "clearance"/obsolete merchandise. Less overstock will allow a business to be better responsive to their customers needs. With less inventory on hand, a change in demand for a certain product or a change in technology, will have less of an impact. Remaining inventory should be minimal and easily replaced with new merchandise.
Cons
A Just in Time inventory system requires a company to have the right amount of material/product at the right time. Thus leaving the company vulnerable a drastic change in the demand or supply of a product. For example a tire company may only keep (8) tires of a specific brand in stock at a time to meet their forecasted demand. Unfortunately, three customers have entered the store on the same day requesting this specific brand of tire. The company does not have enough inventory on hand to meet the required demand and will loose the potential income from the third prospective customer. On the opposite end of the spectrum, a small soap making company uses a specific scent that it only purchase from certain manufacturers. The company must order enough of the scent to meet their anticipate demand, but due to a hiccup further down the supply chain, the scent is unavailable. This unforeseen problem also equates to a loss in potential income.
Environmental Concerns also pose an issue to the JIT concept. Keeping the right material on hand at the right time will require additional shipments from suppliers. Each shipment equates to additional fossil fuel and material usage. With the focus on "green" business practices. Environmentally conscious customers, employees and business owners may shy away from the concept.
As with any inventory system, Just in Time has many strengths and weaknesses. You the business owner must determine if the JIT concept is right for your business. Regardless of whether you choose to implement the JIT system you can implement lean inventory practices to increase your operating profit.
Wikipedia, Just in Time (business). 30 Apr. 2010..
Just in Time Inventory Management Strategy and Lean Manufacturing. Academicmind.com. 1 May. 2010.
Pros
In addition to an increase in company profits, a lean inventory system will also allow your company to decrease both the space of your warehouse and the costs associated with maintaining it. According to a company spokesman for Dell, "With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be." A smaller warehouse will equate to a lower rent/mortgage payment,lower wage expenses as less staff will be required to maintain overstock merchandise, and possibly greater production output.
JIT has a tendency to generate additional profits for a business through the reduction in "clearance"/obsolete merchandise. Less overstock will allow a business to be better responsive to their customers needs. With less inventory on hand, a change in demand for a certain product or a change in technology, will have less of an impact. Remaining inventory should be minimal and easily replaced with new merchandise.
Cons
A Just in Time inventory system requires a company to have the right amount of material/product at the right time. Thus leaving the company vulnerable a drastic change in the demand or supply of a product. For example a tire company may only keep (8) tires of a specific brand in stock at a time to meet their forecasted demand. Unfortunately, three customers have entered the store on the same day requesting this specific brand of tire. The company does not have enough inventory on hand to meet the required demand and will loose the potential income from the third prospective customer. On the opposite end of the spectrum, a small soap making company uses a specific scent that it only purchase from certain manufacturers. The company must order enough of the scent to meet their anticipate demand, but due to a hiccup further down the supply chain, the scent is unavailable. This unforeseen problem also equates to a loss in potential income.
Environmental Concerns also pose an issue to the JIT concept. Keeping the right material on hand at the right time will require additional shipments from suppliers. Each shipment equates to additional fossil fuel and material usage. With the focus on "green" business practices. Environmentally conscious customers, employees and business owners may shy away from the concept.
As with any inventory system, Just in Time has many strengths and weaknesses. You the business owner must determine if the JIT concept is right for your business. Regardless of whether you choose to implement the JIT system you can implement lean inventory practices to increase your operating profit.
Wikipedia, Just in Time (business). 30 Apr. 2010.
Just in Time Inventory Management Strategy and Lean Manufacturing. Academicmind.com. 1 May. 2010.
Sunday, May 2, 2010
The Woes of Credit and Fraud
Small businesses are more vulnerable to fraud than their larger counterparts. According to a study conducted by the Association for Certified Fraud Examiners, "The current report (Spring, 2008) indicates that frauds perpetrated against small businesses continue to cost more on average than those against larger firms. The average cost of a fraud event targeting businesses with fewer than 100 employees was $200,000 for the period of January 2006 through February 2008." Staggering figures such as these can have a profound impact on the bottom line of small businesses nationwide.
The primary reason larger firms are hit with less internal fraud is because of their strict systems of checks and balances. Employees (often screened by an background check) understand the internal control systems at hand when they are hired. They are aware of the procedures the company has implemented to monitor both monetary and inventory transactions.
A breakdown in the internal controls of a small business venture in some cases may lead to fraud. Sadly enough, the most precedented form of fraud in the small business world is internal theft. Otherwise known as occupational fraud. Fraudulant practices can include, but are not limited to missapropriation of cash and/or assets (the most common), false invoicing, check tampering, embezzelment, false register voids, and the list continues. These dishonest business practices made by the employees that you work with daily and often those whom you trust can equate to major financial losses. Employees are aware of the consequences if they choose to conduct dishonest business practices.
How can you prevent internal fraud as a small business owner? Ensure that you have the internal controls in place to deter such actions and enforce them. Begin with hiring the right employees for your team. Conduct extensive background checks, contact references and have them take an approved drug test. Secondly, ensure that your internal controls are in place, that enployees understand that a system of checks and balances are in place. Thirdly, monitor the cash flow within your business. Practices including cash/till audits, inventory audits, security surveilance systems, and more will allow you to keep an eye on what goes in an out of your business. Other steps including, making yourself the final approval for all expenditures. Notice that the credit card bill for gas for the company van is a little high? Are you sure that your employees are not filling up their personal vehicle while they are at the station? Lastly, ensure that you have an employee policy on fraud. The policy should state your stance on fradulant business practices and the consequences for such actions.
Are you trying to obtain financing for your start-up venture? Review the 4 C's of Credit to ensure that you are prepared to exceed the expectations of your lending institution.
The 4 C's of Credit are frequently used to determine/evaluate credit risk.
Character
Creditors will delve into the financial history of a potential borrower to determine their financial character prior to lending. Your credit history and your credit score will give potential lenders great insight into your financial past. The higher the credit score the greater the chance of obtaining credit.
Capacity
The ability of your venture to generate the revenues required to fulfill the payments on your loan is referred to as your capacity. Capacity is often difficult to determine when a business is in the start-up phase without a proven track record. Creditors wish to obtain as little risk as possible, thus a financial history with a positive cash flow will make the process of obtaining a loan much easier.
Capital
As a small business owner, capital equals the assets within the scope of your business venture. Your machinery, office equipment, building (if owned), inventory, liquid cash and more are considered capital by a lending institution. While these assets are considered with care, primarily due to the depreciation and liquidation value, they do add credibility to your financial history.
Collateral
This is the point where potentials determine exactly how much you are willing to risk to secure financing for your business. Collateral is the personal investment you the business owner is willing to contribute. Whether you are using hard earned cash, the equity in your home, or another form, all equate to collateral that lessens the risk for the potential lender. The borrower is willing to invest their personal cash and assets into obtaining financing for their business will be much more likely to obtain financing for their venture.
Business Owners Toolkit. Detecting and Deteering Fraud. 28, Apr. 2010.http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P14_1000.
The primary reason larger firms are hit with less internal fraud is because of their strict systems of checks and balances. Employees (often screened by an background check) understand the internal control systems at hand when they are hired. They are aware of the procedures the company has implemented to monitor both monetary and inventory transactions.
A breakdown in the internal controls of a small business venture in some cases may lead to fraud. Sadly enough, the most precedented form of fraud in the small business world is internal theft. Otherwise known as occupational fraud. Fraudulant practices can include, but are not limited to missapropriation of cash and/or assets (the most common), false invoicing, check tampering, embezzelment, false register voids, and the list continues. These dishonest business practices made by the employees that you work with daily and often those whom you trust can equate to major financial losses. Employees are aware of the consequences if they choose to conduct dishonest business practices.
How can you prevent internal fraud as a small business owner? Ensure that you have the internal controls in place to deter such actions and enforce them. Begin with hiring the right employees for your team. Conduct extensive background checks, contact references and have them take an approved drug test. Secondly, ensure that your internal controls are in place, that enployees understand that a system of checks and balances are in place. Thirdly, monitor the cash flow within your business. Practices including cash/till audits, inventory audits, security surveilance systems, and more will allow you to keep an eye on what goes in an out of your business. Other steps including, making yourself the final approval for all expenditures. Notice that the credit card bill for gas for the company van is a little high? Are you sure that your employees are not filling up their personal vehicle while they are at the station? Lastly, ensure that you have an employee policy on fraud. The policy should state your stance on fradulant business practices and the consequences for such actions.
Are you trying to obtain financing for your start-up venture? Review the 4 C's of Credit to ensure that you are prepared to exceed the expectations of your lending institution.
The 4 C's of Credit are frequently used to determine/evaluate credit risk.
Character
Creditors will delve into the financial history of a potential borrower to determine their financial character prior to lending. Your credit history and your credit score will give potential lenders great insight into your financial past. The higher the credit score the greater the chance of obtaining credit.
Capacity
The ability of your venture to generate the revenues required to fulfill the payments on your loan is referred to as your capacity. Capacity is often difficult to determine when a business is in the start-up phase without a proven track record. Creditors wish to obtain as little risk as possible, thus a financial history with a positive cash flow will make the process of obtaining a loan much easier.
Capital
As a small business owner, capital equals the assets within the scope of your business venture. Your machinery, office equipment, building (if owned), inventory, liquid cash and more are considered capital by a lending institution. While these assets are considered with care, primarily due to the depreciation and liquidation value, they do add credibility to your financial history.
Collateral
This is the point where potentials determine exactly how much you are willing to risk to secure financing for your business. Collateral is the personal investment you the business owner is willing to contribute. Whether you are using hard earned cash, the equity in your home, or another form, all equate to collateral that lessens the risk for the potential lender. The borrower is willing to invest their personal cash and assets into obtaining financing for their business will be much more likely to obtain financing for their venture.
Business Owners Toolkit. Detecting and Deteering Fraud. 28, Apr. 2010.http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P14_1000.
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