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What is Equity and Why is it Important to Your Business

What is Equity and Why is it Important to Your Business
What is Equity and Why is it Important to Your Business?   So, you’ve finally started your own business. You are officially an entrepreneur. While you might feel a fleeting sense of accomplishment, it may not last forever. For many new business owners, the thrill of starting a business wears off quickly and is replaced, at least in part, by worry. Will your business be profitable? Have you taken every legal step possible to make it a legitimate endeavor? Did you borrow too much money to start your business? How long will it take to be profitable? While there are many notions to understand as a business owner, equity is a key concept and you should have a firm knowledge base of how it works. It is essentially what will drive your business and its profitability.   What is Equity? Equity is essentially the value of any asset, in this case your business, minus any liabilities on that asset. A liability may be a loan or debt that is owed against the business. Here is an example: If you bought your business’s physical building for $400,000 and the mortgage balance is $200,000, your equity is $200,000.   There is also the concept of owner’s equity. This is essentially the total amount of equity you, as the owner, have in your company. Let’s look at this in another example. If your company has $200,000 in total assets but also carries $50,000 in total debt, your total equity in the business is $150,000. A simpler way to think of owner’s equity is that it is the amount of money that would be left over if you sold all of your business assets and then paid off all of your business debts. The lower your debts, the likelier you are to have positive equity in your business and the higher the probability you would make a profit should you decide to sell it.   Negative Equity Negative equity, as its name suggests, is not a good thing for any business owner. It applies to the concept of when your ownership interest in your business is equal to less than your liabilities and debts. So, for example, if you purchased your business’s building for $300,000 and took out a loan for $250,000 to pay for it but the value drops to $200,000, you now have negative equity. That is because the value of the building is now less than the balance owed on it. You want to avoid negative equity as much as possible. You would not be able to sell your business for a profit if you had negative equity.   Types of Equity You can have both tangible and intangible assets in your business. Tangible assets are those that you can physical touch. If you run a business that keeps an inventory of product, that inventory is a tangible asset. An intangible asset cannot be touched but may even be more valuable than a tangible one. An intangible asset might be the reputation of your business. This can obviously bring you more customers. Another intangible asset might be brand identity. Everyone knows, for example, that golden arches represent McDonald’s. The more recognizable your brand, the better. If customers know you, they may use you for your services or goods.   Importance of Equity Equity is of the utmost importance when it comes to your business. As your owner’s equity increases as time goes on, you can potentially sell your business and turn a profit. So, if you want to eventually make a profitable business, you need to be consistently building equity in it. This means the value of your business should...
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Types of Plant Layout and Advantages

Types of Plant Layout and Advantages
Types of Plant Layout Layouts can be classified into the following categories: Process Layout Product Layout Fixed Position Layout Combination Layout Group Layout Become a Product Manager | Learn the Skills & Get the Job The most complete course available on Product Management. 13+ hours of videos, activities, interviews, & more Process Layout Process layouts are found primarily in job shops, or firms that manufacture customized, low-volume products that may require different processing requirements and sequences of operations. Process layouts are facility configurations in which operations of a similar nature or function are grouped together. As such, they occasionally are referred to as functional layouts. Their purpose is to process goods or provide services that involve a variety of processing requirements. Process layouts are also quite common in non-manufacturing environments. Examples include hospitals, colleges, banks, auto repair shops, and public libraries. Process Layout Advantages: Better machine utilization Highly flexible in allocating personnel and equipment because general purpose machines are used. Diversity of tasks for personnel Greater incentives to individual worker Change in Product design and process design can be incorporated easily More continuity of production in unforeseen conditions like breakdown, shortages, absenteeism Process Layout Disadvantages: Increased material handling Increased work in process Longer production lines Critical delays can occur if the part obtained from previous operation is faulty Routing and scheduling pose continual challenges This is a typical store layout of Walmart: Product Layout Product layouts are found in flow shops (repetitive assembly and process or continuous flow industries). Flow shops produce high-volume, highly standardized products that require highly standardized, repetitive processes. In a product layout, resources are arranged sequentially, based on the routing of the products. This type of layout is generally used in systems where a product has to be manufactured or assembled in large quantities. In product layout the machinery and auxiliary services are located according to the processing sequence of the product without any buffer storage within the line itself. Plant Layout of Coca-Cola: Product Layout Advantages: Low material handling cost per unit Less work in process Total production time per unit is short Low unit cost due to high volume Less skill is required for personnel Smooth, simple, logical, and direct flow Inspection can be reduced Delays are reduced Effective supervision and control Product Layout Disadvantages: Machine stoppage stops the line Product design change or process change causes the layout to become obsolete Slowest station paces the line Higher equipment investment usually results Less machine utilization Less flexible Two types of lines are used in product layouts: paced and unpaced. Paced Lines: Paced lines can use some sort of conveyor that moves output along at a continuous rate so that workers can perform operations on the product as it goes by. For longer operating times, the worker may have to walk alongside the work as it moves until he or she is finished and can walk back to the workstation to begin working on another part (this essentially is how automobile manufacturing works). Unpaced Lines: On an unpaced line, workers build up queues between workstations to allow a variable work pace. However, this type of line does not work well with large, bulky products because too much storage space may be required. Also, it is difficult to balance an extreme variety of output rates without significant idle time. Fixed Position Layout A fixed-position layout is appropriate for a product that is too large or too heavy to move. For example, battleships are not produced on an assembly line. Other fixed-position layout examples include construction (e.g., buildings, dams, and electric or nuclear power plants), shipbuilding, aircraft, aerospace, farming, drilling for oil, home repair, and automated car washes. THE A...
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Cash Accounting

Cash Accounting
Some Definitions of Cash Accounting: 1. An accounting method where receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. Cash accounting is one of the two forms of accounting. The other is accrual accounting, where revenue and expenses are recorded when they are incurred. Small businesses often use cash accounting because it is simpler and more straightforward, and it provides a clear picture of how much money the business actually has on hand. Corporations, however, are required to use accrual accounting under generally accepted accounting principles. 2. An accounting system that doesn’t record accruals but instead recognizes income (or revenue) only when payment is received and expenses only when payment is made. There’s no match of revenue against expenses in a fixed accounting period, so comparisons of previous periods aren’t possible. 3. An accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Cash basis accounting does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action (sale or purchase) and its result (payment or receipt of money). It is, however, simpler than the accrual basis accounting and quite suitable for small organizations that transact business mainly in cash. Also called cash accounting. Cash Accounting Basics It is the simplest method of accounting. Transactions are recorded only on the actual flow of cash in or out of business. Revenue is recognized only when cash is received from the customer while expenses are recorded only when cash is paid. There cannot be any match of the revenue against expenses in an accounting period. Cash accounting is ideal for sole proprietors or businesses with no inventory. Cash basis is considered beneficial from the taxation point of view as recording income can be put off to the next year and expenses can be booked immediately. Advantages of Cash Basis of Accounting: It is very simple as adjustment entries are not required for prepaid and outstanding expenses. This approach is more objective as very few judgements are required. This is suitable for all organizations whose transactiona are on cash basis. Data can be taken from minimal sources – bank statements, cheque book, deposit book. People with limited accounting knowledge can more easily understand the financial reports,. Disadvantages of Cash Basis of Accounting: It ignores prepaid and outstanding expenses, accrued income and income received in advance. It does not follow the matching principle of accounting. This does not differentiate revenue and capital items, and as a result there is no consistency in the profits of consecutive years. Less insight into long term trends. No structure for invoicing. Does not conform to...
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Top 5 Productivity Killers and Solutions

Top 5 Productivity Killers and Solutions
What can be the top 5 productivity killers in your office? I’d like to start this discussion with an apt quote by Timothy Ferriss that says “Focus on being productive instead of busy”. Productivity Killer 1 – PAY OR COMPENSATION Though there is a general argument that pay is not the primary motivating factor for employees, I feel it is. Employees are always smart who are well versed with the current industry position, financial constraints faced by the company, revenue deficits, and increased competition. Problems arise only when the management is not giving a pay rise periodically and more so when the workers feel there is no equity in financial treatment with their peers both inside and outside the company. It is true that the most contented and engaged employees feel they work for something more than just money. It’s the management’s responsibility to provide that sense of belonging and implication. Statistics : The category “Quits” (more than 2 million Americans are voluntarily leaving their jobs every month even in a climate of business uncertainty and an unemployment rate of 7.8 percent) show that inadequate compensation is by far the number one reason that dissatisfied employees want to leave their job. It has been proven time and again that fair pay practices benefit not only the employee, but also the employer. Solution: Open Reward System and make them stake holders in your company. Read On: A very informative blog post about why teamwork is important when it comes to virtual teams, from Virtualhub.com Ways to Improve Work Performance: Getting the Best from Your Virtual Assistant   Finding the Productivity Sweet Spot – View this infographic from NICE systems on time wasted at work to understand if fantasy football or facebook causes us to procrastinate more:   Productivity Killer 2 – UNPRODUCTIVE OFFICE SPACE The right kind of workspace can greatly enhance employees’ peace of mind and productivity. It only calls for a few simple design fixes in your office environment to make it much more productive. The Color Affects System, developed by world-renown color psychologist Angela Wright, establishes that while individuals might have certain preferences for color, the effects of color influence people universally. It the secret lies in the saturation and intensity of the color choice where highly saturated, bright colors will motivate while softer, gentle hues tend to be soothing.   Pic Courtesy: Marieclaire.com Letting in a lot of natural light increases productivity, energy and creativity. Ensure that employees have the space to get up and take a walk occasionally and not chained to their cubicles rightly termed as monolithic insanity, or maybe a lounge area where they can relax for a while instead of sitting in the same place all day. Statistics: A nation-wide survey conducted on behalf of Ask.com, in which they canvassed more than 2,060 professionals ages 18 and up, to unearth the preferences and habits of U.S. office workers when it comes to an optimally productive environment. As it turns out, telecommuting, group projects, impromptu meetings, cubicles, sitting next to the boss, and face-to-face interactions are other big culprits. Solution: Good Ergonomics is good economics and creating a personal space where you can tune out the outside world and maximize output is considered more valuable. Related: Smart Ways to Compensate Employees   Productivity Killer 3 – PERSONAL USE OF TECHNOLOGY When it comes to office distractions or diversions, it is no wonder that the leading problem is the personal use of technology. A surprising one in four workers confessed to spending at least one hour a day on personal calls, emails or texts while on the clock. One in five said she/he spent at least one...
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Goals Vs Objectives

Goals Vs Objectives

A goal has the word ‘go’ in it. Your goals should go forward in an unambiguous direction. However, goals are more about everything you accomplish on your journey, rather than getting to that distant point. Goals will often go into undiscovered territory and you therefore can’t even know where the end will be.

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