Tag Archives | operations

Debtor in Possession

Debtor in Possession

A debtor in possession, or DIP, is a company undergoing a Chapter 11 bankruptcy reorganization. In Chapter 11 bankruptcy, the debtor remains in possession of its assets and continues normal business operations while reorganizing debt obligations and repayment plans. This is in contrast to a Chapter 7 liquidation, in which the debtor’s assets are sold to pay off debts and the bankrupt company ceases operations. In some cases, debtor-in-possession may refer to a legally appointed trustee, someone other than the actual company that is in bankruptcy, who oversees the assets during the reorganization.

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debtor in possession

See Also:
Chapter 11 Bankruptcy
Chapter 12 Bankruptcy
Bankruptcy Costs
Bankruptcy Courts
Chapter 13 Bankruptcy
Bankruptcy Code
Bankruptcy Information
Secrets of Successful Out of Court Debt Restructures
Tips on How to Manage your Lawyer
Relationship With Your Lender

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Comprehensive Income

See Also:
Accounting Income vs. Economic Income
Accounting Income Definition
Economic Income
Income Statement
Net Income
Debt Restructuring
Maximizing Your Bottom Line In 3 Simple Steps
Net Profit Margin Analysis

Define Comprehensive Income

Define Comprehensive Income as the overall change in wealth for a company during a period. This includes not only the growth through income and size but also reflects equity changes among the firm as well as market conditions that arise. All of this information is generally summarized on the comprehensive income statement.

Meaning

This type of accounting was established to try and gauge a company better because it is left out of the calculation of net income. This was done because the items in comprehensive income do little to gauge the economic performance of the company. However, this type of income and net income differ in that the comprehensive income effects the assets and liabilities that are reported on the balance sheet.

Comprehensive Income Formula

Use the following comprehensive income formula:

Gross Profit Margin (RevenueCOGS)
Operating Expenses
(+/-) Other Income items
(+/-) Discontinued Operations (add if savings, subtract if loss)
Comprehensive Income

Comprehensive Income Example

For example, Casa entertainment is a company that provides VHS, DVD, TVs, as well as speaker system products to it’s customers. The company invest in securities on the side. They recently discontinued its VHS operation due to the fact that it has become unprofitable. Finally, the company asked Annie an accountant to calculate the comprehensive income given the following information for Casa Entertainment:

Gross Profit = $20 million
Operating expenses = $5 million
Other Income (Profit in Security Investments)= $2 million
Discontinued Operations (Savings from disposal of VHS operations) = $1 million

Thus using this equation above comes out to $18 million dollars.

If you want to learn how to price profitably, then click here to download the free Pricing for Profit Inspection Guide.

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Bankruptcy Information

See Also:

Chapter 7 Bankruptcy
Chapter 11 Bankruptcy
Bankruptcy Code
Chapter 13 Bankruptcy
Bankruptcy Costs
Chapter 12 Bankruptcy
Courts – Bankruptcy

Bankruptcy Information

Bankruptcy is the legal condition of being unable to repay debts. It can apply to individuals or organizations. There are two types of bankruptcy: voluntary and involuntary.

Voluntary bankruptcy occurs when the debtor, the party that owes money, files for bankruptcy. Involuntary bankruptcy occurs when the creditor – the party owed money – files a petition for bankruptcy against the debtor. Voluntary bankruptcy is more common than involuntary bankruptcy.

The idea is to settle the debtor’s debts in an orderly manner that forgives the debt and at least partially repays the creditors. When an entity files for bankruptcy, the creditor values the assets. Then they make arrangements to pay off all or some of the entity’s outstanding debt. After successfully completing the bankruptcy proceedings, the debtor is relieved of its prior debt obligations. This allows them to resume operations.

Bankruptcy laws are stated in the chapters of the Bankruptcy Code. These proceedings take place in Bankruptcy Court.

Bankruptcy Pros & Cons

There are advantages and disadvantages of bankruptcy proceedings. First, filing for bankruptcy allows an entity facing financial distress to settle its debts and essentially start over again. Second, bankruptcy regulations allow creditors to collect at least a portion of what is owed to them. Also, bankruptcy regulations are a sort of safety net, encouraging entrepreneurial individuals and businesses to take risks.

On the other hand, bankruptcy proceedings are expensive for the debtor. An entity filing for bankruptcy may incur legal costs, operational inefficiencies, asset write-downs and liquidation losses, and a higher cost of capital. Also, in bankruptcy proceedings, creditors rarely recoup the full amount owed to them.

Although bankruptcy can be great option for a company with no end in sight, we need to start looking at the valuation aspect. Download the Top 10 Destroyers of Value to maximize the value of your company.

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Business Plan

See Also:
Value Drivers: Building Reliable Systems to Sustain the Growth of the Business
Business Cycle
Business Intelligence and Finance
Make-or-Buy Business Decision
Acquisition Capital
Marketing Plan

Business Plan Definition

The business plan definition is the plan of action for business operations which has the goal of creating and growing sustainable profits. It is necessary for any business venture. A business plan has 3 main purposes: forming a strategic plan for future business initiatives, serving as a retrospective measure of the success of the business and it’s plans for expansion, and an explanation of the business for the purpose of raising capital. Business plans can vary greatly depending on creator, industry, operations, needs, phase in the business cycle, and more. Ultimately, the term business plan is used to describe a myriad of written documents which lay out the plans a business has for the future. Despite this, the goal is the same; creating profits for the shareholders of the venture.

Business Plan Explanation

Business plans are either internally or externally focused. Internally focused plans serve as a document to “rally the troops”; organize the stakeholders, especially employees, of a business and give an overall strategy to each of their regular tasks and actions. This has particular benefit for organization and motivation around the strategic goals that company leaders want to achieve. An internal business plan is the tool used to communicate these goals in a clear, effective, and calculated manner.

External business plans serve the purpose of raising capital. Banks constantly visit with small businesses desiring a loan to finance a new project. Meanwhile, venture capital firms accept roughly 1 out of 1000 companies that contact them for financing. An external business plan serves as a tool to show that the business concept is developed, evaluated, and planned. Investors and lenders want to eliminate as much risk as possible, and an external business plan provides them a way to measure and mitigate these risks. In short, an external business plan is a way for a developing company to stand out from other businesses while showing that goals and aspirations have been considered and documented.

These plans begin by following boilerplate sections and explanations. They then become unique documents. They are customized based on a variety of factors. For example, a web marketing firm has little use for the structure of an operations plan which is common to a manufacturing firm. In a similar fashion, a retail e-commerce store will even have a different business plan from a brick-and-mortar retail store. The factors of success, operations, marketing, risk, and measurement dictate this.

A Living Document

A business plan is often referred to as a “living document”. This is because a these plans are constantly changing. Whenever new developments in competition, marketing tools, the legal factors which relate to an industry, or others change a business plan must be updated so as to keep relevant. In this way a business plan is constantly evolving. A simple business plan is generally 20 pages, where a complicated one should not exceed 40 pages, on average.


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Business Plan Format

For a business plan, combine parts to make a whole. These parts, though different for each plan, generally follow common purposes. The standard business plan format is as follows:

1) Executive Summary

2) Business Description

3) Products and/or Services

4) Marketing Plan

5) Operations Plan

6) Management and Organizational Structure

7) Benchmarks and Milestones

8) Legal Entity Structure

9) Capitalization

10)Financial Plan and Projections

11) Appendix

Example

For example, Alejandro has decided to start a micro-lending firm in his native country of Mexico. Combining philanthropy with his enlightened self-interest, Alejandro plans to make a profit while also fostering the entrepreneurial spirit in people who face a difficult future. Alejandro is excited to start his company and therefore, make his impact on the world.

Alejandro knows that he has to create a business plan for his new venture. Despite this, he is a young adult and is not sure where to begin. Determined, Alejandro starts by searching the internet for the term how to write a business plan. He finds some results which begin his thought process. Alejandro picks up a few books from his local bookstore and begins his journey.

Writing the Business Plan

To start the business plan format, Alejandro starts by writing his executive summary. This process is difficult. Alejandro then learns from his research that to write the executive summary after the rest of the business plan. Alejandro stops this section and begins the business explanation.

After writing a rough draft explanation of his business, he begins the competitive analysis. Here, he does as much research as possible into competitors on the market. Alejandro searches the web and personal contacts for this information.

Then, Alejandro assembles industry statistics and information for his industry analysis section of the business plan. He will need to summarize these into a section which serves his purposes.

Alejandro continues and eventually finishes the plan. With a rough draft in his hand, he seeks some advice for what he has made. Alejandro knows that he has a lot to learn, so he prepares himself for a lot of criticism. He finds his local S.C.O.R.E. chapter and prepares to begin the mentoring process.

In conclusion, Alejandro knows that he has a lot to learn. Still, he realizes that anyone who has achieved greatness started somewhere. Alejandro prepares his plan more, parks his ego at the door, and walks into his meeting with a smile.

Template

Find a variety of business plan templates at S.C.O.R.E.

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

business plan definition, Business Plan Format

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Administrative Costs

See Also:
Administration Expenses
Example Chart of Accounts for Selling General and Administrative Expenses
Agency Costs
Commercial Agents

Administrative Costs Definition

Define administrative costs as the costs not directly related to operations. Generally, they are incurred in the process of directing a company. These costs, though indirect, are still important because they assist those who operate and sell company products by making their work more efficient.

Administrative Costs Explanation

Administrative costs, explained as the cost incurred in the administration of company directives, are a very important expenditure. Two main types of costs exist: direct and indirect. While direct costs are incurred in the process of direct company operations (such as sales or distribution), indirect costs supports this. These indirect costs, including administrative costs, enable those directly involved in company operations to complete their tasks rather then being distracted by other tasks. An example makes this evident: rather than putting each marketing cost in a company accounting system the marketing department spends the budget it has and keeps invoices. The accounting department, a section of the total administrative costs accounting for the company finances, then takes these invoices and compares them to company accounts. Administrative costs allow the maximization of effort in the expertise of each department: marketing, inventory, and even accounting.


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Administration Costs Example

For example, Kent is an entrepreneur who is starting his first business: an e-commerce store. Kent is new to the game and has a lot to learn. Still, his drive to his goal combined with his professionalism give him a good chance of success.

When Kent begins to create his company, he is all departments: marketing, fulfillment, administration, and even the company cleaning person. Kent begins his business like this in order to minimize costs. Though he has savings, he cannot risk losing them to employee salaries when he could better spend the money elsewhere.

Business is Booming

Three years into the future Kent’s business is booming. Kent hardly has time to keep track of all the tasks in his day. When he began to grow beyond his ability to ship orders, he created a small shipping warehouse. He then hired 2 dedicated workers. When Kent grew beyond his ability to research inventory, he hired a young college student who could find average market prices. Kent had more important things to do. Kent even hired a marketing firm for his company. Now Kent spends most of his time leading the various departments he created for his business.

Administrative Staff5

Kent has also hired administrative staff. This includes an assistant. Kent tasks his executive assistant with keeping appointments, light bookkeeping, and communicating between Kent and the departments of his company. Though he only has one assistant, he also now has administrative costs.

Kent sees his administrative costs as a worthy expenditure. Now, he can now focus on tasks more essential to his business. Kent appreciates this expense and now wonders how he once lived without it.


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administrative costs

 

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Recession Strategies for Business

Once you find yourself in a recession your first goal is to stabilize your operations. But having achieved that goal you need to look beyond the present and develop a longer term strategy. Our goal for this recession is to “come out of the recession better and stronger than we went in!”

Recession Strategies for Business

How do you do that? The answer is in improving your capabilities in the following areas. We immediately began improving our marketing efforts and results. While cutting expenses in other areas we increased our marketing efforts and budget dollars. We began to increase the frequency and improve the quality of our marketing techniques with the goal of being in a better position to compete when the economy came back.

The next area we invested in was improving and documenting our systems. We documented our best practices and began to institutionalized them throughout the organization. This exercise led to increase training of our employees. We took advantage of the resulting down time to train and develop new skills for our staff.

Finally, all of this combined effort led to the development of new products that could be sold to our customer base. We are now generating sales with less expensive products that are needed in the recession.

So what is your company doing to position themselves for the recovery? Are you going to come out of the recession leapfrogging your competition or playing catch up? When you find your business slow are you just taking time off instead of investing in yourself and your company? The success of tomorrow rests on the efforts of today!

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Recession Strategies

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