Chapter 2: What Skills Do Entrepreneurs Need?

Communication Skills: Section 2.1

• Goals– Develop good skills for writing, speaking, and

listening.

What do you think?

• Can you think of a situation where you dealt with a business and communication was poor on unclear? Maybe walked into a restaurant and you couldn’t understand the menu? As a consumer were you likely to give that business return business?

Good Entrepreneurs Need To Effectively Communicate.

• Many entrepreneurs need to communicate with customers, suppliers, and employees, among others.

• Entrepreneurs need good business writing skills to communicate ideas clearly.

Writing Skills

• Good writers communicate ideas clearly.

• Good business writing gets results by being positive and persuasive.

• Good business writing should convince the reader that they should accept what the writer is communicating.

Business Communication Tip (From Mr. McLead)

• If you need a record of a communication: PUT IT IN WRITING.

• People conveniently forget conversations; if it is not in writing, it may be hard to prove that a discussion ever existed.

Business Letters

• Basic rules for writing business letters.– Key all formal correspondence.

– Be sure to spell all names correctly and have the correct address.

– Always date you business correspondence.

– Use names and titles appropriately.• (Dr., Mr., Mrs. Ms., or Miss.)

Business Letters

• Basic rules for writing business letters continued.– Be direct and positive.– Be persuasive and specific.– Avoid using fancy language.– Be polite.– Use and appropriate closing.

• (Sincerely, Cordially, Sincerely yours, Cordially yours,)

– Proofread for spelling and grammatical errors.

Did you know? (Page 27)

• Today, 25 percent of the students enrolled at America’s top business schools are from foreign countries.– Why do you think so many people come to

America to study business?

– Do you think as a country we provide a good example of business practices and ethics to the rest of the world?

Effective Business Memos

• A memorandum is a short form of business communication with a set format.

• Memo is short for memorandum.

Business Communication Tip (From Mr. McLead)

• With memos remember K.I.S.S.

No not these guys from the 80’s rock group.

K.I.S.S.

• K.I.S.S. stands for Keep It Simple Stupid (Silly according to Mrs. McLead)

• Memorandums like most business communications should convey information in a clear precise manner, without a lot of extra wording.

What Do You Think?

• In small groups of no greater than three:– Suggest at least nine situations where a business

letter is the most appropriate form of communication.

– Suggest at least nine situations where a memo would be an appropriate form of business communication.

Speaking Skills

• Just like in the rest of your life most of your communication as an entrepreneur will be verbal communication.

Telephone Conversations

• A lot of business communications are made over the telephone.

• Remember the following tips for effective telephone conversation.

Telephone Conversation Tips.

• Speak clearly, and talk directly into the receiver.

• Be cheerful.

• Always speak politely.

Telephone Conversation Tips Continued.

• Think about what you are going to say before you make the call.– If you have a lot to go over, write out the questions

or topics you want to discuss beforehand.– And consult your notes during the phone

conversation.

• Take notes about the conversations.– I highly recommend that you keep a log of who

you talk to, what you talked about, and when you talked to them.

Meeting With Customers and Suppliers

• Many times you will have to meet with customers and suppliers face to face.

• Be prepared. (Time is money. So know what you want to cover beforehand.)

Tips for Meetings with Customers and Suppliers

• Shake hands and make eye contact with the person you are meeting.

• Show an interest in what the other person is saying.

• Speak clearly.

• Do not appear rushed or anxious to be somewhere else.

• Thank the person at the end of the meeting.

Listening Skills

• Listening skills are an essential part of business communication.

Listening Skills Tip

• Focus your attention on the person who is speaking.

• Think about and try to understand what the other person is saying.

• Ask questions to make sure that you understand what the other person is saying.

• Take notes to confirm what you are hearing.

Assessment 2.1 page 31

• Think Critically– Answer questions 1, 2, and 3.

• Make Connections– Answer questions 4 and 5.

Communication Skills: Section 2.2

• Goals– Use basic math skills.

– Complete sales transactions.

– Calculate percentages for business purposes.

Basic Math Skills

• You will need to have good knowledge of basic math skills to run a business.

• Basic math skills helps to keep you from making costly mistakes.

• Or worst getting ripped off by someone.

Addition And Subtraction

• It seems so simple but basic addition and subtraction skills essential to running a business.– Purchase price + markup = sale price.

– All about $$$$$$

– You don’t know what you have unless you can add it up.

• Basic accounting.

Multiplication

• Multiplications solves a whole host of business problems.

• Average Monthly Sales X Months in a Year = Income

$24,000 X 12 = $288,000.00.

Averages Using Division

• Averages are great for giving a round figure.

• Averages are great for giving an estimate, either for a quick answer or to predict the future.

• Whenever an exact number either cannot be obtained or is cost prohibitive to obtain.

Averages Using Division

– Average for all three months sales.

– Month 1 + Month 2 + Month 3 = Total Sales

12 + 22 + 14 = 48

– Sales Total / Number of Months = Average

48 / 3 = 16

Sales Transactions.

• Most entrepreneurs make sales transactions every day.

• The sales transactions an entrepreneur deals with are:– Purchase order.

– Invoices.

– Sales tax.

– Sales slips.

Purchase Orders.

• Purchase orders are a record of fact that a buyer has placed an order with a company.

• Purchase orders help the company keep track of order and are proof that an order was placed.

Purchase Orders.

• Purchase orders should include.– The address of both the buyer and the seller.– A purchase order number.– The date of the transaction.– A listing of:

• Each item purchased.• The quantity of each item purchased.• The cost of each item.• The total item cost.

– The total amount due.

Purchase Orders.

• Total item cost.• Quantity of item X Unit Cost = Amount Due.

5 X $4.99 = $24.95

Sales Tax.

• Retail sales transactions involve sales tax.– Federal.

• U.S.A. 0%• Canada 0%• Mexico 10% in Mexican / U.S. boarder areas; 15%

throughout the rest of the country.– State.

• PA 6%• NJ 7% (3.5% state + 3.5% municipality)• DE 0%

– Local Government. • Philadelphia 1% on most items.

Sales Tax.

• For retail sales you have to charge and collect sales tax.

• Just times the price the goods are being sold at times the sales tax amount.

Sales Tax.

• Price of purchase X Tax Rate = Amount of Sales Tax

$23.92 X 0.07 = $1.67

• Price of + Amount of = Total Sales

purchase Sales Tax Charge

$23.92 + $1.68 = $25.59

Sales Slip

• Sales Slips are used for two types of transactions:– Cash sales.

– Credit card sales.

Case Sales Slip for Adventure World

Cash Sales Slip for Adventure World

Stock No. Qty. Description Unit Cost Total

784 2 Skateboard $32.50 $65.00

912 1 Helmet $15.00 $15.00

Subtotal $80.00

Sales Tax $4.80

Total $84.80

Sales Slips

• Remember that credit card purchases are not as profitable for a business as cash purchases.

• Credit card companies charge businesses a fee for being able to accept their card.

Internet Activity

• Go to website:

• www.ideas-in-action.swlearning.com• Click on: the book 3rd Edition.

• Click on: Student Activities

• Select Chapter 2

• Download Texas Sales and Use Tax Return (01-114) using link.

• Complete Chapter 2 activity.

Managing a Cash Drawer

• Most businesses use electronic cash drawers to generate sales slips

• You still need to verify the beginning cash amounts and balance the cash drawer at the end of the day.

• To verify the starting cash in the drawer, you should manually count the money and record each amount on a form or a piece of paper.

• Some businesses always begin with a set amount in their cash drawer, such as $50.

Balancing the cash Drawer

• Add all receipts– Paper money– Checks– Credit slips

• Subtract amount of cash you started with

Cash $348.62Checks $154.20+ Credit sales $218.98Total receipts $721.80- Refunds $21.47Adjusted receipts $700.33- Opening cash $50.00Actual receipts $650.33

Add these receipts

To get total receipts

Subtract refunds from total receipts

To get the adjusted receipts

Finally, subtract the opening cash from the adjusted receipts

To determine your actual receipts

checkpoint

• What are the four types of sales transactions?

checkpoint

• Describe how you balance a cash drawer.

Percentages

• Important in:– Calculating growth rates– Interest payments– Markups and markdowns

Working with Percents

• Requires converting percents to decimals• Remember – 100% in decimal form is 1.00

• To convert a percent to a decimal, move the decimal two places to the left

• So… 23% becomes .23• And 7% is .07

Please convert from a percent to a decimal.

45% 0.45

97%0.97

115%1.15

20%0.2

76.2%0.762

• To go from decimals to percents, move the decimal two places to the right.

• So.. 0.345 becomes 34.5%

• And 0.58 is 58%

Please convert from a decimal to percent.

0.9292%

0.6565%

0.033%

0.45645.6%

1.12112%

Growth Rates

Calculate by comparing sales for one period with sales for a different period

Sales in one period

Sales in another period

Sales increase

• Maria wants to know how sales at her pharmacy business grew in August, when sales reached $26,710. Comparing August sales with July sales of $26,533.

August Sales$26,710

July Sales$26,533

August Increase$177

Percent Increase

• Now, Maria wants to determine her percent increase in total sales.

August increase$177

July Sales$26,533

Percent Increase0.00667, or 0.7%

Average Monthly Growth Rate

• Please refer to the chart on the top of page 37 of your text book.

• To determine Maria's average growth rate, she must find the total monthly growth and divide by the number of months for which Maria has data.

Using Math to Project Sales

• Maria will use the average monthly growth to project sales into the next year

• She multiplies each month sales by the growth rate to create sales projections for the next six months.

checkpoint

• On page 37, you can see Maria’s projections through June. Please project from July though December

Interest Earned

interest – an amount that can be earned on money that is invested or paid on money that is borrowed

Methods your bank uses to calculate interest affects the rate at which your savings grows

• Simple interest is paid at the end of the year and only one time per year on the average balance of your savings account.

• Compound interest is paid on the principal amount you deposited on the interest your money has earned.

Simple Interest

• If you invested $100 for one year at a rate of 3%, you would calculate your interest at the end of the year like so:

Investment Rate of interest

Interest earned

$100 0.03 $3

Compound Interest

• The same $100 invested for 1 year at a 3% interest rate compounded quarterly will give you an extra 4 cents at the end of the year.

• Let’s divide 3% into 4 parts – that’s .75% interest each quarter

Investment Rate of interest

Interest earned

$100 0.75 $0.75

$100.75 0.75 $0.76

$101.51 0.75 $0.76

$102.27 0.75 $0.77

checkpoint

• How much interest will a $1,000 investment earn for one year invested at 4% using the simple interest method?

checkpoint

• How much interest will a $1,000 investment earn for one year invested at 4% using the compound interest method compounded quarterly?

Interest Payments

• Principal – amount of money borrowed in a loan

• Rate of interest – the percent that is the basis for interest earned or paid

• Term – number of year for which the loan is extended

Loan Amount

Rate of interest Interest paid

• Suppose you borrowed $25,000 at a rate of 9.5%, you can apply the above formula to find out how much interest you would have to pay in a year.

$25,000 0.095 $2,375

• Now, suppose you only pay interest for five years. You would pay:

Interest each year

Number of years

Total interest

$2,375 5 $11,875

Exact Interest Method• Interest is not always calculated for a full year; a

daily rate is used – let’s say you borrowed $2,000 at 5% exact interest for 85 days.

Amount Borrowed

Rate of interest

Total InterestTime

$2,000 0.05 $23.29365

85

Ordinary Interest Method• Also called the banker’s interest method;

same as exact interest method, but we use 360 days instead.

Amount Borrowed

Rate of interest

Total InterestTime

$2,000 0.05 $23.61360

85

checkpoint

• How much simple interest would you pay a year on a $30,000 loan at a rate of 8.25%?

• How much would you pay for 65 days using the exact interest method?

• Using the ordinary interest method?

Markups and Markdowns

• Markup – an amount added to the cost price to determine the sales price (allow you to cover expenses and earn a profit)

• Markdown – an amount deducted from the retail price to determine the sales price

Calculating Markups

• Please use the following formulas to complete the In-Class Activity on page 39.

Purchase Price

Percent Markup Markup

Purchase Price Markup Selling Price

Calculating Markdowns

Original Price Sales Price Markdown

Markdown Original Price

Markdown Percentage

checkpoint

• How much of a markup is there on an item that you purchase for $45 and sell for $54?

Discounts

• Discount – a reduction in the retail or wholesale price of a product or service

Retail price Discount percent

Amount of discount

Assessment 2.2 page 41

• Think Critically– Answer questions 1, 2, and 3.

• Make Connections– Answer questions 4 and 5.

Problem Solving Skills: Section 2.3

• Goals– Use the six step problem-solving model.

– Recognize the importance of group decision making.

Use a Problem Solving Process

• A formal problem solving model helps business people solve problems in a logical manner.

• A problem solving process helps guide you to making an informed decision.

Problem-Solving ProcessDefine the Problem

Gather Information

Identify Various Solutions

Evaluate Alternative and Select the Best Option

Take Action

Evaluate the Action

Step #1 Define the Problem

• It is important to define the problem.– Remember you must identify the problem at this

point.

– Make sure you treat the problem itself not just a symptom.

Step #1 Define the Problem

• Try to quantify the problem if possible.– This allows you to set a goal and realize you have

achieved it.

– Quantifying the problem helps you to realize how much solving the problem is worth to you.

Example of Quantifying a Problem.

• Problem: Shipments of inventory come in late every day and you miss customer sales on Friday afternoons.

• So, if you on miss 5 sales every Friday afternoon at the approximately $75 per sale in 3 months (12 weeks) you lost $375.00 in those three months.

Step # 2 Gather Information

• Gather information that will help you solve the problem.– Talk to anyone affected by the problem:

• Suppliers, employees, customers etc...

– Look at company records, industry data, etc…

Step #3 Identify Various Solutions

• Many problems will have more than one solution.

• You will want to come up with as many solutions as possible.

Step #4 Evaluate Alternative and Select the Best Possible Solution

• You will have to look at all of the solutions and evaluate them.

• Make lists.

• Look at the pros and cons of each solution.

Step #5 Take Action

• You must implement your solution.

• This is where you work your plan.

Step #6 Evaluate the Action

• Is your plan working?

• Do you need to change your plan?

• Would you have done anything differently?

Group Problem Solving

• Most of the problem solving an entrepreneur completes is on his or her own.

• Sometimes it is best to solve a problem in a group.

Brainstorming

• This is where a group of people try to come up with creative new ideas to solve a problem.

• Usually the meeting is informal, and everyone is encouraged to participate ideas.

• Usually at this stage the ideas are not critiqued just generated; and no idea is thrown out.

Consensus-Based Decision Making

• A consensus is an agreement among a group of people.

• At this stage all parties are heard out of mutual respect.

Assessment 2.3 page 47

• Think Critically– Questions 1, 2, and 3.

• Making Connections– Questions 4, 5, and 6.