Tag Archives | opportunity

Capital Budgeting Phases

See Also: Capital Budgeting Methods

Capital Budgeting Phases

The phases of the capital budgeting process include the following:

  • Description of the need or opportunity
  • Identification of alternatives
  • Evaluation of the options and the relevant cash flows of each
  • Selection of best alternative
  • Conducting a post-completion audit of the projects.

Examples

To identify capital projects, refer to functional needs or opportunities. Although many are also identified as a result of risk evaluation or strategic planning. Some typical long-term decisions include whether or not to:

  • Buy new office equipment, cars or trucks
  • Add to or renovate existing facilities, including the purchase of new capital equipment/machinery
  • Expand plant or process operations
  • Invest in facilities for a new product line or to expand services
  • Continue or discontinue an existing product line
  • Replace existing capital equipment/machinery with new equipment/machinery
  • Invest in software to meet technology-based needs or systems designed to help improve process and/or efficiency
  • Invest in R&D or intangible assets
  • Build or expanding a foreign or satellite operation
  • Reorganize assets or services
  • Acquire another company.

Refer to capital investment (expenditure) decisions as capital budgeting decisions. They involve resource allocation, particularly for the production of future goods and services, and the determination of cash out-flows and cash-inflows, which need to be planned and budgeted over a long period of time. Because of the complexity of this accounting issues, get involved yourself right from the beginning. Guide them through the whole process.

Project Evaluation

Develop an objective methodology with the upper management. Then evaluate alternate capital projects on a reasonable basis. Consider both quantitative and qualitative issues and use the whole organization as a resource.

Marketing should provide data on sales trends, new demand and opportunities for new products. Managers at every level should be identifying resources that are available to upper-management that may lead to the use of existing facilities to resolve the need/take advantage of the opportunity. They should also be communicating any needs they/their departments or divisions have that should be part of the capital decision.

Financial analysts should also identify the target cost of capital, the evaluation of startup costs, and the calculation of cash flows for those projects chosen for evaluation purposes. If your financial analysts are absent, then refer to qualified external financial experts. By calculating the appropriate discount rate and calculating conservative cash flows, you are contributing to a critical part of this process. As a result, have an independent accounting firm look at the project/these issues impartially. Estimation bias can be dangerous.

Evaluate (predict) how well each capital asset alternative will do. Then, determine whether the net benefits are consistent with the required capital allocation. When doing this, consider that most firms face the scarcity of resources.

capital budgeting phases

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Are You Collecting Business Data?

See Also:
Value Drivers: Building Reliable Systems to Sustain Growth
Mining the Balance Sheet for Working Capital
Inventory to Working Capital
How to Run an Effective Meeting
How to evaluate IT systems

Are You Collecting Business Data?

It seems simple enough. You’re making a decent gross profit. You know who your customers are, you know how much you are charging them for your product and you know how much they are buying. So no worries, right? Well, do you know how much it costs you to sell to each customer? What if you are generating substantial sales from one customer, yet find yourself spending a large amount servicing that customer in terms of custom orders and/or shipping costs? The biggest question is… Are you collecting business data?

Not only must you know how much you are making by product line, but you should have an idea of what your gross profit looks like for each customer, especially your key large customers. Perhaps you are missing out on opportunities to reduce shipping costs through aggregating shipments. Maybe you are missing out on opportunities to head off costly service calls through greater communication with the customer up front.

What You Need to Know

In addition, you need to know how you make money. As simple as it sounds, many entrepreneurs don’t figure this out. Are you making a larger margin on the product sale itself or on the sale of complementary products and/or services?

How long does it take you to collect receivables? Do you find yourself spending an inordinate amount of time trying to collect on a relatively small customer? What are your credit terms?

Greater detail can help you wring more costs out of your business plus identify opportunities for additional sales. You need to be able to put together realistic, detailed projections of your future monthly performance in terms of your gross profit as well as your working capital in order to gauge future capital requirements so you can plan for them today.

Do not wait. Start collecting that business data and build that model today!

Download your free Internal Analysis worksheet to start developing and enhancing your strengths as well as start reducing and resolving your weaknesses.

are you collecting business data, business data

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Arbitrage

See Also:
Arbitrage Pricing Theory
Market Positioning
Capitalization
Inventory to Working Capital Analysis
Mining the Balance Sheet for Working Capital

Arbitrage Definition

Arbitrage is the practice of profiting from the mispricing of an asset that trades in multiple markets. For arbitrage to be possible, an asset must trade in at least two different markets. If the same asset is trading in two different markets with two different prices, there is an arbitrage opportunity. The idea is to buy the asset where it is cheaper, sell it where it is more expensive, and pocket the difference.

Arbitrage Examples

For example, imagine you can buy an apple at the supermarket for fifty cents and sell it to tourists on the sidewalk for one dollar. This is an arbitrage opportunity. You would buy apples at the supermarket and sell them to the tourists. For each apple, you would profit 50 cents.

Similarly, if one US dollar is worth .5000 British pounds in London, and one US dollar is worth .5001 British pounds in New York, the arbitrageur might want to purchase dollars with pounds in London and then sell the dollars for pounds in New York. Depending on the volume and the transaction costs, this could be a profitable arbitrage opportunity.

Arbitrage and Market Efficiency

Due to market efficiency, arbitrage opportunities are hard to find. When they do exist, they are typically small and fleeting. Profiting significantly from arbitrage often requires timely action and large sums of money. And because of market efficiency, the very act of engaging in arbitrage serves to eliminate the arbitrage opportunity.

arbitrage definition

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Should You Pay Your Interns?

Have you ever wondered if you should pay your interns? You have probably heard others praising the benefits of hiring low-cost, energetic, and eager-to-learn interns. But the question on your mind is, should you pay your interns?

Should You Pay Your Interns?

As an entrepreneur and CEO, I often feel like I have too many ideas and too little time to follow through on those ideas. That is where an intern comes in. Every summer, I design an internship program with meaningful internship projects to follow through on my ideas and concepts from the past year. For my thoughts on how to design an effective internship program, check out this video:

I believe in paid internships. My moral and business obligation is to treat my employees with fairness and to compensate employees for their work. Not only do paid internship programs lead to higher quality internship candidates, but they also lead to more motivated, loyal, and hard-working interns.

If the employer and the organization benefit from the interns’ work, then the employer should pay the interns. There are many competitive paid internship positions available. So why would I risk losing quality internship candidates on the grounds that they went looking somewhere else for a paid internship program? While I focus on growing my business, my interns help me follow through and implement my business ideas that would have otherwise remained stagnant.

Fair Labor Standards Act

Some might argue that unpaid internships are fair for the intern and the organization. Interns gain skills and experience which may lead to higher paid positions soon after. Internship programs also provide the interns with exposure to networking opportunities, expertise, and experience in an industry. I agree with these benefits of internship programs for interns, however, unpaid internships violate minimum wage laws if your company does not follow these six requirements under the Fair Labor Standards Act:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If one meets all of the factors listed above, then an employment relationship does not exist under the FLSA. The Act’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.

Conclusion

Your conclusion of whether you pay your interns should be an educated decision based on what’s right for your company.  So, should you pay your interns? I strongly believe that paid internship programs lead to better-quality and more dedicated intern candidates. They are mostly likely going to have enhanced skills that your business will benefit from.

Do you believe in paid internship programs?  Let us know your thoughts. For more information on this topic, check out this article.

Should You Pay Your Interns

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UP Experience in Houston 2012

Laura Koch and Barbara Corcoran

Laura and I attended the UP Experience in Houston 2012 last week.  For the past several years, a friend of mine had encouraged me to go.  I finally decided to take his advice and sign up and I’m glad I did!

Check out this photo from the event of Laura with Barbara Corcoran from ABC’s Shark Tank…

UP Experience in Houston 2012

Over the course of the day, there were over sixteen speakers who were leaders in their field. We heard topics from new battery technology to gaming theory. One of the most inspiring speakers was Marcus Luttrell, the author of Lone Survivor. Out of the day I came away with a few trends and ideas.

  • The key to living longer is to seek out new experiences and novelty.
  • The 80+ age group is the fastest growing demographic group.
  • Key to avoiding Alzheimer disease is to eat fish and lower your blood pressure.
  • Marcus Luttrell: “See what you will become not what you are!”, “Have a Never Quit Attitude no matter how many times you fail!”
  • Barbara Corcoran: “Be great at failure; Perception creates reality; There are two kinds of people, expanders and containers; Fun is good for business; Fun is the birthplace of creativity.”
  • Gary Vaynerchuk: “The goal of social media is to develop an online relationship with your customer; Information and data are becoming a commodity; Give away intellectual property to open up opportunities.”
  • Tony Danza: “For education to be effective students have to be convinced to take ownership of their education.”

The most important benefit of the day was getting away from the office and sharing ideas with the other attendees. I definitely plan to attend the UP Experience in Houston 2013. I hope you will too!

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

UP Experience

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UP Experience

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Are You Collecting the Data You Need to Run Your Business?

“It seems simple enough. You’re making a decent gross profit. You know who your customers are, you know how much you are charging them for your product and you know how much they are buying. So no worries, right?

Are You Collecting the Data You Need to Run Your Business?

Well, do you know how much it costs you to sell to each customer? What if you are generating substantial sales from one customer, yet find yourself spending a large amount servicing that customer in terms of custom orders and/or shipping costs?

Not only must you know how much you are making by product line, but you should have an idea of what your gross profit looks like for each customer, especially your key large customers. Perhaps you are missing out on opportunities to reduce shipping costs through aggregating shipments. Maybe you are missing out on opportunities to head off costly service calls through greater communication with the customer up front.

In addition, you need to know how you make money…”

More at WikiCFO.com

collecting the data you need to run your business

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Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

collecting the data you need to run your business

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Death By Networking

With so many people looking for work or trying to generate sales, networking has taken on a frenzy that I haven’t seen in over ten years! Everyone is trying to reconnect or meet new people. I try to meet with as many people as possible but I am caught in a predicament.

Death By Networking

I am torn between leaving no stone unturned and possibly missing a good opportunity versus going broke by not generating sales. If I were to meet with everyone that requested a meeting when they wanted to meet, I would not generate any revenue. I would be spending all of my time on future relationships and not nurturing existing ones that will pay off today.

On the other hand there are some very talented people out there forging new relationships. So of these contacts will lead to future sales or opportunities.

Networking Strategies

In an attempt to balance future opportunities with current sales needs I have adopted the following strategies:

First, I limit my new introductions to no more than three per week on average.

Second, I first visit on the phone to decide how I might best help that individual. Sometimes all it takes to make a difference is to point someone to the right people.

Finally, for those individuals that I want to meet with I either bundle my meetings into one day or schedule the meetings on non-prime time hours (either breakfast or after work).

Regardless of the burden it is important for all of us to help each other. I believe the axiom that if you help others get what they want (or need) they will help you in return! Need guidance in networking? Download your free Networking for Introverts guide and start building your network today. 

networking

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