MODULE IN ABM 12

ENTREPRENEURSP
Second Quarter
Week 4

MOST ESSENTIAL LEARNING COMPETENCY

Demonstrate understanding of the 4M’s of operations ( TLE_ICTAN11/12EM-Ia-2)

OBJECTIVES
The learner shall be able to understand on how to demonstrate understanding of the 4M’s of operations in
relation to;
•
recruit qualified people for one’s business enterprise •
forecast the revenues of the business
• forecast the costs to be incurred

Recruit qualified people for one’s business enterprise

What’s In
Hiring the right people is crucial for the success of your business and that is why entrepreneurs should have a formal hiring process in
place when looking for new staff. By putting time and work into finding the right people, you will improve your chances of hiring the
best performers and avoiding costly and painful mistakes.

Here are 7 steps to avoid bad hiring decisions.

1. Assess your company's culture
To recruit the best people you need to know what your company needs. What is its mission? What are its values? What type of
individuals fit in? What mindset are you looking for?
Look at potential candidates with this bigger picture in mind and see how they rate. 2. Create
detailed job descriptions
Create job descriptions for each position in the company, reflecting the responsibilities, level of skills and experience required.
Make sure to clearly communicate the job requirements to candidates during interviews. 3. Prepare
well-structured interviews
Create an evaluation scorecard that can be used to grade and compare the performance of candidates on a series of criteria.
Use behavior-based interviewing techniques. These involve inviting candidates to describe how they have handled specific challenges
in previous positions. Past performance is one of the best predictors of future performance. You can also present them with a scenario
involving a difficult situation and ask them how they would handle it.
4. Test
Another important element in the hiring process should be to require candidates to complete an assignment that requires the skills for
which the person is being hired.
5. Look beyond the CV
The best qualified candidates on paper may not be the best fit for the job. Ask about the candidates' interests, ambitions and
priorities. If working for a big company with a big salary is their dream, they might have a hard time working for a small firm.
6. Ask for references
It is always safer to take the time to verify references. Reference checks remain one of the best sources of information about candidates.
Also consider doing a bit of independent research by seeking out people who know or have worked with the candidate in the past.
7. Bring them onboard
Research indicates the retention rate of new employees can be increased by as much as 40% with a solid orientation program. Besides
patient training, you might want to consider pairing the new employee with a more experienced staffer who can mentor and coach the
person during his or her early days in the workplace. Finally, keep in mind two simple principles—job-relatedness and consistency.
Make sure you document each step of the process and have solid, objective, evidenced-based reasons for deciding to hire someone or
not. Proper financial forecasts will help you develop operational and staffing plans that will help make your business a success.
 Forecast the revenues of the business

Here's some detail on how to go about building financial forecasts when you're just getting your business off the ground and don't
have the luxury of experience.

1. Forecast revenues using both a conservative case and an aggressive case. Most entrepreneurs, constantly fluctuate
between conservative reality and an aggressive dream state which keeps them motivated and helps inspire others. This state called
"audacious optimism."
For example, conservative revenue projections might have the following assumptions: ∙ low price point
∙
two marketing chan∙ nels
no sales staff
∙
one new product or service introduced each year for the first three years

2. Check the key ratios to make sure your projections are sound. After making aggressive revenue forecasts, it is easy to
forget about expenses. Many entrepreneurs will optimistically focus on reaching revenue goals and assume the expenses can be
adjusted to accommodate reality if revenue does not materialize. The best way to reconcile revenue and expense projections is by a
series of reality checks for key ratios. Here are a few ratios that should help guide your thinking:
Gross margin. What's the ratio of total direct costs to total revenue during a given quarter or given year? This is one of the areas
in which aggressive assumptions typically become too unrealistic. Beware of assumptions that make your gross margin increase from
10 to 50 percent. If customer service and direct sales expenses are high now, they'll likely be high in the future.
Operating profit margin. What's the ratio of total operating costs--direct costs and overheard, excluding financing costs-- to total
revenue during a given quarter or given year? You should expect positive movement with this ratio. As revenues grow, overhead costs
should represent a small proportion of total costs and your operating profit margin should improve. The mistake that many
entrepreneurs make is they forecast this break-even point too early and assume they won't need much financing to reach this point.
Total headcount per client. If you're a one-man-army entrepreneur who plans to grow the business on your own, pay special
attention to this ratio. Divide the number of employees at your company--just one if you are a jack-of-all-trades--by the total number
of clients you have. Ask yourself if you will want to be managing that many accounts in five years when the business has grown. If
not, you will need to revisit your assumptions about revenue or payroll expenses or both. Building an accurate set of growth
projections for your startup will take time.
When you are in the startup stage, it is much easier to forecast expenses than revenues. So, start with estimates for the most
common categories of expenses as follows:

Forecast the costs to be incurred

Fixed Costs/Overhead Variable Costs Rent

Cost of Goods sold
Utility bills Materials and supplies Materials and supplies
Accounting/bookkeeping services Packaging
Legal/insurance/licensing fees Direct Labor Costs Technology
Customer service
Advertising & Marketing Direct sales
Salaries Direct marketing

Here are some rules of thumb you should follow when forecasting expenses:

Marketing. Double your estimates for advertising and marketing costs since they always escalate beyond expectations.

Legal and Insurance. Triple your estimates for legal, insurance and licensing fees since they are very hard to predict without
experience and almost always exceed expectations.

Sales and Customer Service. Keep track of direct sales and customer service time as a direct labor expense even if you’re doing
these activities yourself during the startup stage because you willl want to forecast this expense when you have more clients.
Information about Other Businesses. If you have experience in the type of business you are starting—for example, you worked
at a similar business before striking out on your own—you will probably have some idea of realistic financial projections, or may be
able to talk to someone who can give you more information.

Accountants Can Help. Enlisting an accountant familiar with small businesses and startups in your industry such as a professional
firm will help. An accountant will know what type of expenses, sales and profits a well-run business in your industry can expect, and
will be able to help you come up with realistic financial projections.

Industry Info. Industry associations and publications can help you