4 Ms of Production & Business Model

• The following are study notes based on the text provided.

4 M's of Production and Business Model

• Manpower refers to the human labor force involved in producing goods.
• Materials are the raw materials needed to produce a product.
• Machine is the equipment used to manufacture goods or deliver services.
• Method, or production method, is transforming raw materials to finished products.
• Brand Name is a name, symbol, or feature distinguishing a seller's goods or services.
• An entrepreneurial venture can be a sole proprietorship, partnership, or corporation, involved in merchandising, manufacturing, or service.
• An entrepreneur introduces innovation from the production process to the marketing stage.
• An ordinary businessperson imitates business practices and procedures.

Production System Elements

• Three important elements are input, production process, and output.
• Input includes manpower, materials, machine, design, and instructions.
• The production process transforms materials into the final product using manpower and machine.
• Output is the final product from the production process distributed to customers.

Product Characteristics

• A product is the physical output of the whole production process.
• A product can be heterogeneous or homogeneous.
• Heterogeneous products have dissimilar characteristics, parts, and physical appearances, like furniture, bags, and home decor.
• Homogeneous products have a physical appearance, taste, or chemical content that is hard to distinguish, such as soft drinks and medicines.

Product Information

• The product description promotes and explains what a product is and provides customers with details.
• A prototype is a product duplication that may contain details like color, graphics, packaging, and directions.
• The value chain is a method or set of activities where a company adds value, with production, marketing, and after-sales included.
• The supply chain is a structure of organizations, people, activities, data, and resources involved in moving a product from supplier to customer.
• A business model describes how an organization creates, delivers, and captures value in economic, social, and cultural contexts.

Business Plan Utility

• A business plan guides entrepreneurs throughout the process and is written before starting an enterprise.
• Business plans written during the first few years of the enterprise guide the entrepreneur.
• Business plans are useful for;
  • Serving the entrepreneur in setting a navigational course.
  • Serving investors and financiers as a source of information.
  • Serving managers and staff by providing knowledge of the enterprise's strategies and programs.

Business Plan Elements

• Introduction explains what the business plan is about.
• An executive summary is written last but presented first.
• The management section explains managing the business and the personnel needed.
• The marketing section shows the product/service design, pricing, and where and how it will be sold.
• The financial section shows the money needed, income, and expenses.
• The production section shows the resources and equipment needed.
• Competitive analysis is identifying main competitors and researching their products, sales, and marketing strategies.
• The market refers to the people who will buy the products or services.
• The organizational chart is a diagram that graphically shows the relation of one official to another.

Revenue and Costs

• Revenue occurs when sales exceed the cost to produce goods or render services.
• Sales is a term used when the type of businesses is merchandising or retailing.
• Service income records the revenues earned by rendering services.
• Cost refers to the money used to produce goods/merchandise.
• Forecasting is planning aimed to support a business owner's desire to adjust and cope with uncertainties, based on past and present data.

Factors in Forecasting Revenue

• Economic condition of the country affects consumer experience.
• Observation on the competition and what they are doing
• Changes happening in the community, that give the entrepreneur a better perspective about the market.
• Internal aspect of the business affects forecasting revenues.
• Mark up is the amount added to the cost to come up with the selling price.

Price-Related Formulas

• Mark Up Price = (Cost x Desired Mark Up Percentage). E.g., Mark Up for T-shirt = (90.00 x .50) = 45.00
• Selling Price = Cost + Mark Up. E.g., Selling Price for T-shirt = 90.00 + 45.00 = 135.00
• Cost per Unit = (A).
• Mark-up _% = (B)= (A x .50)
• Selling Price = (C)= (A+B)
• Projected Volume & Average No. of Items Sold (Daily)= (D)
• Projected Revenue (E) & (Daily)= (C x D)
• Monthly Projected Revenue = Projected Daily Revenue x 30 days
• Yearly Projected Revenue = Projected Daily Revenue x 365 days

Monthly and Yearly Revenue Formulas

• Selling Price = (C)= (A+B)
• Projected Volume & Average No. of Items Sold (Monthly) = F= (D x 30 days)
• Projected Revenue & (Monthly) = G= (C x F)
• Projected Volume & Average No. of Items Sold (Yearly) = H= (D x 365 days)
• Projected Revenue & (Yearly) = I= (C x H)

Revenue Increase/Decrease

• Projected Monthly Revenue (Increase) = Revenue (Month) x 5 % Increase.
• Projected Revenue for February = Revenue (Month) + Amount of Increase.
• Projected Monthly Revenue (Decrease) = Revenue (Month) x 5 % Increase.
• Projected Revenue = Revenue (Month) - Amount of Decrease.

Costs and Inventory

• Cost of Goods Sold/Cost of Sales is the amount of merchandise or goods sold by the business for a period.
• Computed by adding the beginning inventory to the Net Amount of Purchases to arrive with goods for sale from which the Merchandise Inventory end is subtracted.
• Merchandise Beginning Inventory refers to goods and merchandise at the beginning of operation of business or accounting period.
• Purchases refer to the merchandise or goods purchased.
• Merchandise Inventory end refers to goods and merchandise left at the end of operation or accounting period.
• Freight-in refers to the amount paid to transport goods or merchandise purchased from the supplier to the buyer.

Forecasting to Profit

• Forecasting is information that could help us prepare and get ready for any unexpected event.
• Forecasting is used in planning to support management or a business owner.
• Profit is the gross income.
• Cost refers to the purchase price of the product including the total outlay required in producing it.
• Gross Profit Margin = Gross Profit / Net Sales

Rate Margins

• Gross Profit measures the percentage of gross profit to sales, indicating the profit that the business realizes from sales.
• Operating Profit Margin is the excess of gross profit from operating expenses.
• Operating Profit Margin Rate = Operating Profit Margin / Net Sales
• Net profit margin rate = Net Profit / Net Sales

Liquidity Status

• Current Ratio = Current assets / Current Liabilities
• Quick Ratio = (Current Assets - Inventories)/ Current Liabilities
• Current liabilities = (Cash and Equivalents + Marketable Securities + Accounts Receivable)
• Quick ratio measures its short-term obligations with its most liquid assets and therefore excludes inventories from its current assets.
• Return of investment (ROI) measures the amount of net income per peso invested in the business.
• Return of Investment = Net Income / Average Total Assets

Making Profit

• Profit = The money you get from sales, cost of stock, and expenses you incurred
• Profit is the amount gained after selling a product.
• Profit Formula = Sales - Cost of Goods Sold = Gross Profit
• Gross Profit is the difference between net sales and cost of sales.
• Variable costs change based on the amount of product being made and are incurred as a direct result of producing the product.
• Variable costs include materials used, direct labor, packaging, freight, plant supervisor salaries, utilities for a plant/warehouse, depreciation expense on production equip, and machinery
• Fixed costs generally are more static.

Fixed costs include

• Office expenses (supplies, utilities, telephone), salaries and wages of office staff, salespeople, officers, and owners, payroll taxes and employee benefits.
• Advertising, promotional and other sales expenses, insurance, auto expenses for salespeople, professional fees, and rent.

Business Plan Guidelines

• Objectives should be clear for the entrepreneur.
• Tasks to perform must be known to realize the objectives.
• Time allocation should be set to follow every task so that the tasks will be accomplished timely.
• The entrepreneur should monitor the development of the tasks and the accomplishment of the objectives.

Startup- Requirements in the Philippines

• Securities and Exchange Commission (SEC) Registration - for partnership or Corporation
• Department of Trade and Industry (DTI) Registration - for your business tradename
• Mayor's Business Permit - for getting a license in the city/municipality and payment of local business taxes
• Bureau of Internal Revenue (BIR) Registration - for getting TIN, official receipts and invoices, registering books of accounts and paying your national Internal revenue taxes
• SSS, PhilHealth, and Pag-Ibig Fund registration - for registering yourself or your company as an employer and for remitting your employees' contribution.

Starting Operation Steps

• Set up an accounting system or hire an accountant.
• Advertise the business by what customers do not know about on social media.
• Secure insurance for the business.
• Consider life and disability insurance, health insurance, and fire insurance when you are leasing an office or storefront.

Keeping Records

• Keeping Good records can help protect the business, measure performance, and maximize profit.
• Records are the source documents, both physical and electronic, that specify transaction dates and amounts, legal agreements and private customer and business details.
• Systematic recording allows you to plan and work more efficiently; meet legal and tax requirements; measure profit and performance; protect your rights; and manage potential risks.
• Bookkeeping follows systematic and chronological order and principles, and the transactions are recorded by date of occurrence.
• The bookkeeper is in charge to record, maintain, and update business records from all sorts of financial transactions using account titles, and uses the Book of Accounts to record the business transactions.

Account Books

• The book of accounts is composed of the Journal and Ledger.
• Journal is referred as the book of original entry.
• The General Journal is the most basic journal, which provides columns for date, account titles and explanations, folio or references and a separate column for debit and credit entries.
• General Ledger is a group of all accounts that can be found in the chart of accounts.
• Subsidiary Ledger is a group of accounts directly associated with the general ledger.
• Account Receivable Ledger records all credit sales made, and is useful for segregating all amounts invoiced to customers.
• Account Payable Ledger shows the detail for all invoices received from suppliers.
• Debit is the left-hand side entry also known in accounting as "Value Received."
• Credit is the right-hand side entry also known in accounting as “Value Parted With."
• The rules of Debit and Credit are essential to ensure accurate recording and sound decision-making.

T- Account facts

• The T-Account is the most convenient and fastest way of posting journal entries to the ledger.
• Left-hand (debit side & value received)
• Right-hand (credit side & value parted with)
• Asset - It is the first account of the five major accounts.
• Liability - It is the second account of the five major accounts.
• Owner's Equity - It is the third account of the five major accounts.
• Revenue - It is the fourth account of the five major accounts.
• Expense - It is the fifth and last account of the five major accounts.
• Trial balance is a list of all ledger accounts with closed or final balances on a certain period arranged according to the assets, liabilities, capital, revenue and expense.
• Adjusting entry is an entry made to update the financial data already recorded.

Adjusting entries include

• Depreciation expense and Deferred expenses of prepaid expenses
• Deferred income of unearned income and Accrued expenses of accrued liabilities
• Accrued income or acerued assets
• Salvage Value represents the selling price of the asset upon reaching the useful life.
• Useful Life refers to the expected economic or productive life of the asset.
• Deferred expenses or prepaid expenses are expected to become expenses over time.
• Deferred income or unearned income are expected to become income over time
• Accrued expenses or accrued liabilities have been incurred but not been recorded and paid.
• Accrued income or accrued assets have been earned but not been recorded and paid.
• Depreciation allocates the cost of an asset to an expense over the accounting periods.

Annual Depreciation Formula

• Annual Depreciation =((Acquisition Cost - Salvage or Residual Value) / Useful Life)
• Acquisition Cost – the actual cost of the asset acquired.