ENCYCLOPEDIA of Small Business SECOND EDITION A-I VOLUME Kevin Hillstrom Laurie Collier Hillstrom ENCYCLOPEDIA of Small Business SECOND EDITION A-I VOLUME Kevin Hillstrom and Laurie Collier Hillstrom, Editors Gale Group Staff Jane A Malonis, Senior Editor Erin Braun, Managing Editor Paul Lewon, Technical Training Specialist Mary Beth Trimper, Production Director Evi Seoud, Assistant Production Manager Cynthia Baldwin, Product Design Manager Eric Johnson, Art Director While every effort has been made to ensure the reliability of the information presented in this publication, Gale Group does not guarantee the accuracy of the data contained herein Gale accepts no payment for listing; and inclusion in the publication of any organization, agency, institution, publication, service, or individual does not imply endorsement of the editors or publisher Errors brought to the attention of the publisher and verified to the satisfaction of the publisher will be corrected in future editions Library of Congress Cataloging-in-Publication Data Hillstrom, Kevin, 1963Encyclopedia of small business / Kevin Hillstrom, Laurie Collier Hillstrom —2nd ed p cm Includes bibliographical references and index ISBN 0-7876-4906-6 (set : hardcover : alk paper)—ISBN 0-7876-4907-4 (vol 1)—ISBN 0-7876-4908-2 (vol.2) Small business—Management—Encyclopedias Small business— Finance—Encyclopedias I Hillstrom, Laurie Collier, 1965— II Title HD62.7 H5553 2001 658.02’2-dc21 2001033781 This publication is a creative work fully protected by all applicable copyright laws, as well as by misappropriation, trade secret, unfair competition, and other applicable laws The authors of this work have added value to the underlying factual material herein through one or more of the following: unique and original selection, coordination, expression, arrangement, and classification of the information All rights to this publication will be vigorously defended ᭧ 2002 Gale Group, Inc 27500 Drake Rd Farmington Hills, MI 48331-3535 All rights reserved including the right of reproduction in whole or in part in any form Printed in the United States of America No part of this book may be reproduced in any form without permission in writing from the publisher, except by a reviewer who wishes to quote brief passages or entries in connection with a review written for inclusion in a magazine or newspaper Gale Group and Design is a trademark used herein under license ISBN 0-7876-4906-6 (set), ISBN 0-7876-4907-4 (Vol 1), ISBN 0-7876-4908-2 (Vol 2) CONTENTS Introduction and User’s Guide xiii Annuities 51 Application Service Providers 54 VOLUME 1, A—I Absenteeism Accelerated Cost Recovery System (ACRS) Accounting Accounting Methods Accounts Payable Accounts Receivable 10 Activity-Based Costing 11 Advertising Agencies Advertising Budget Annual Percentage Rate (APR) 47 Annual Reports 48 13 16 Advertising, Evaluation of Results 19 Advertising Media—Audio 20 Advertising Media—Infomercials 21 Advertising Media—Internet 22 Advertising Media—Print 23 Advertising Media—Video 25 Advertising Strategy Affirmative Action Age Discrimination Age Discrimination in Employment Act AIDS in the Workplace Alien Employees Alternative Dispute Resolution (ADR) Americans with Disabilities Act (ADA) Amortization ‘‘Angel’’ Investors 26 29 32 34 36 38 40 42 45 46 Apprenticeship Programs 54 Articles of Incorporation 55 Assembly Line Methods 56 Assets 57 Assumptions 59 Audits, External 60 Audits, Internal 64 Automated Guided Vehicle (AGV) 68 Automated Storage and Retrieval Systems (AS/RS) 69 Automation 70 Automobile Leasing 72 Baby Bonds Balance Sheet Bankruptcy Banks and Banking Banner Advertisements Bar Coding Barriers to Market Entry Bartering Benchmarking Best Practices Better Business Bureaus (BBBs) Biometrics Blue Chip E N C Y C L O P E D I A O F S M A L L 75 76 77 80 82 84 85 86 89 90 91 92 94 B U S I N E S S v Bonds 95 Bookkeeping 96 Boundaryless 97 Brainstorming 98 Brand Equity 99 Brands and Brand Names 101 Break-Even Analysis 103 Budget Deficit 105 Budget Surplus 106 Budgets and Budgeting 106 Business Appraisers 113 Business Associations 114 Business Brokers 115 Business Cycles 117 Business Education 120 Business Ethics 121 Business Expansion 123 Business Failure and Dissolution 127 Business Hours 129 Business Incubators 130 Business Information Sources 133 Business Insurance 135 Business Interruption Insurance 139 Business Literature 140 Business Name 141 Business Plan 142 Business Planning 146 Business Proposals 151 Business Travel 152 Business-to-Business Marketing 154 Buying an Existing Business 157 C Corporation 163 Cannibalization 166 Capital 167 Capital Gain/Loss 169 Capital Structure 170 Career and Family 171 Career Planning and Changing 174 Cash Conversion Cycle 176 Cash Flow Statement 177 Cash Management 180 Casual Business Attire 182 Census Data 184 Certified Lenders 185 Certified Public Accountants 185 Chambers of Commerce 187 Charitable Giving 188 Child Care 190 vi E N C Y C L O P E D I A O F S M A L L Children’s Online Privacy Protection Act (COPPA) Choosing a Small Business Clean Air Act Clean Water Act 193 195 197 199 Closely Held Corporations Clusters Collateral Collegiate Entrepreneurial Organizations 200 201 203 204 Communication Systems Community Development Community Relations Comp Time 204 208 209 210 Corporations Competitive Analysis 211 Competitive Bids 214 Comprehensive Environmental Response Cleanup and Liability Act (CERCLA) 216 Computer Applications 218 Computer Crimes 221 Computer-Aided Design (CAD) and Computer-Aided Manufacturing (CAM) 224 Computers and Computer Systems Consolidated Omnibus Budget Reconciliation Act (COBRA) Construction Constructive Discharge Consultants Consulting Consumer Advocacy Consumer Price Index (CPI) Consumer Product Safety Commission (CPSC) Contracts Cooperative Advertising Cooperatives Copyright Corporate Culture Corporate Image Corporate Logo Corporate Sponsorship Cost Control and Reduction Cost Sharing Cost-Benefit Analysis Costs Coupons Credit Credit Bureaus Credit Card Financing B U S I N E S S 226 229 232 233 235 237 241 241 242 244 246 247 249 254 255 257 259 261 263 264 265 268 269 273 275 Credit Evaluation and Approval 276 Eldercare 369 Credit History 278 Electronic Bulletin Boards Crisis Management 279 Electronic Data Interchange 372 Cross-Cultural/International Communication 282 Electronic Mail 374 Cross-Functional Teams 285 Emerging Markets 371 Electronic Tax Filing 376 377 Cross-Training 289 Employee Assistance Programs Customer Retention Employee Benefits 291 378 382 Customer Service 292 Employee Compensation 386 Data Encryption 295 Employee Hiring 388 Database Administration 296 Employee Leasing Programs 391 Day Trading 300 Employee Manuals 394 Debt Collection 302 Employee Motivation 395 Debt Financing 304 Employee Performance Appraisals 398 Decision Making 307 Employee Privacy 401 Decision Support Systems 310 Employee References 403 Delegation 312 Employee Registration Procedures 405 Delivery Services 315 Employee Reinstatement 406 Demographics 316 Employee Retention Depreciation 318 Employee Retirement Income Security Act (ERISA) 408 Desktop Publishing 319 Difficult Customers 320 406 Difficult Employees 322 Employee Reward and Recognition Systems 409 Direct Mail 324 Employee Rights 412 Direct Marketing 327 Employee Screening Programs 413 Direct Public Offerings 331 Employee Stock Ownership Plans (ESOPs) 415 Disability Insurance 334 Employee Strikes 417 Disabled Customers 336 Employee Suggestion Systems 419 Disaster Assistance Loans 337 Employee Termination 421 Disaster Planning 338 Employee Theft Discount Sales 341 Employer Identification Number (EIN) 426 Discounted Cash Flow 344 Employment Applications 427 Discretionary Income 345 Employment Contracts 428 Distribution Channels 346 Employment Interviews 430 Distributorships and Dealerships 349 Employment of Minors 432 Diversification 352 Employment Practices Liability Insurance 435 Dividends 353 Empowerment Zones Endorsements and Testimonials Enterprise Resource Planning (ERP) Entrepreneurial Couples Entrepreneurship Environmental Audit Environmental Law and Business Environmental Protection Agency (EPA) Equal Employment Opportunity Commission Equipment Leasing Dot-coms 354 Double Taxation Downloading Issues Drug Testing Due Diligence Economic Order Quantity Economies of Scale Economies of Scope 8(a) Program Elasticity (EOQ) 356 357 359 361 363 364 365 366 369 E N C Y C L O P E D I A 424 O F S M A L L 436 438 440 443 445 449 452 455 456 457 B U S I N E S S vii Equity Financing Ergonomics Estate Tax European Union (EU) Expense Accounts Export-Import Bank Exporting Exporting—Financing and Pricing Facility Layout and Design Facility Management Factoring Family Limited Partnership Family and Medical Leave Act Family-Owned Businesses Feasibility Study Federal Trade Commission (FTC) FICA Taxes Fiduciary Duty Finance Companies Finance and Financial Management Financial Analysis Financial Planners Financial Ratios Financial Statements Firewalls Fiscal Year Fixed and Variable Expenses Flexible Benefit Plans Flexible Spending Account (FSA) Flexible Work Arrangements Flow Charts Focus Groups Forecasting Fortune 500 401(k) Plans Franchising Free-lance Employment/Independent Contractors Gender Discrimination Globalization Goodwill Government Procurement Graphical User Interface Green Marketing Green Production Grievance Procedures Groupthink Groupware viii E N C Y C L O P E D I A O F S M A L L 459 462 463 464 467 468 469 473 477 479 482 484 486 488 491 492 495 496 497 498 498 501 502 505 509 511 512 513 514 516 519 520 523 525 526 529 533 537 540 542 543 546 547 550 551 553 554 Health Insurance Options 557 Health Maintenance Organizations and Preferred Provider Organizations 560 Health Promotion Programs 562 High-Tech Business Home Offices 563 565 Home-Based Business 568 Hoteling 571 HTML 572 HUBZone Empowerment Contracting Program 574 Human Resource Management 575 Human Resource Management and the Law 579 Human Resource Policies 580 Income Statements 583 Incorporation 585 Individual Retirement Accounts (IRAs) 589 Industrial Safety 591 Industry Analysis 593 Industry Life Cycle 595 Information Brokers 597 Initial Public Offerings 598 Innovation 602 Insurance Pooling 603 Intellectual Property 604 Intercultural Communication 605 Interest Rates 607 Internal Revenue Service (IRS) 609 International Exchange Rate 610 International Marketing 611 Internet Domain Names 614 Internet Payment Systems 615 Internet Security 618 Internet Service Providers (ISPs) 621 Internships 624 Interpersonal Communication 626 Intranet 627 Intrapreneurship 630 Inventions and Patents 632 Inventory 635 Inventory Control Systems 639 Investor Presentations Investor Relations and Reporting IRS Audits ISO 9000 B U S I N E S S 641 643 644 645 VOLUME 2, J—Z Job Description Job Sharing Job Shop Joint Ventures Keogh Plan Labor Surplus Area Labor Unions Labor Unions and Small Business Layoffs and Downsizing Learning Curves Leasing Property Legal Services Letter of Intent Leveraged Buyouts Liabilities Licensing Licensing Agreements Life Insurance Limited Liability Company Liquidation and Liquidation Values Loan Proposals Loans Local Area Networks (LANs) Loss Leader Pricing Mailing Lists Mail-Order Business Management Information Systems (MIS) Management by Objectives Manager Recruitment Managing Organizational Change Manufacturers’ Agents Market Analysis Market Questionnaires Market Research Market Segmentation Market Share Marketing Markup Material Requirements Planning (MRP) Medicare and Medicaid Meetings Mentoring Merchandise Displays Mergers and Acquisitions Metropolitan Statistical Area (MSA) Mezzanine Financing Minimum Wage Minority Business Development Agency 747 649 651 653 654 657 659 660 664 667 669 670 674 676 678 680 681 684 685 687 689 691 692 694 697 699 702 706 707 709 710 712 714 715 716 719 722 723 727 728 730 731 735 736 738 742 743 745 Minority-Owned Businesses 748 Mission Statement 751 Mobile Office 752 Modem 753 Money Market Instruments 755 Multicultural Work Force 756 Multilevel Marketing 760 Multiple Employer Trust 761 Multitasking 762 Myers-Briggs Type Indicator (MBTI) Mystery Shopping 763 764 National Association of Small Business Investment Companies (NASBIC) 767 National Association of Women Business Owners 768 National Business Incubation Association (NBIA) 769 National Labor Relations Board (NLRB) 770 National Venture Capital Association (NVCA) 771 Negotiation 772 Nepotism 774 Net Income 775 Net Worth 776 Networking 776 New Economy 778 Newsgroups 779 Non-Competition Agreements 781 Nonprofit Organizations 782 Nonprofit Organizations, and Human Resources Management 787 Nonprofit Organizations, and Taxes 790 Nonqualified Deferred Compensation Plans Nontraditional Financing Sources Nonverbal Communication North American Free Trade Agreement (NAFTA) North American Industry Classification System (NAICS) Occupational Safety and Health Administration (OSHA) Office Automation Office Romance Office Security Office Supplies Online Auctions E N C Y C L O P E D I A O F S M A L L 793 796 797 797 800 805 809 812 815 818 819 B U S I N E S S ix Operations Management Opportunity Cost Optimal Firm Size Oral Communication Organization Chart Organization Theory Organizational Behavior Organizational Development Organizational Growth Organizational Life Cycle Organizational Structure Original Equipment Manufacturer (OEM) Outsourcing Overhead Expense Overtime Packaging Partnership Partnership Agreement Part-Time Business Part-Time Employees Patent and Trademark Office (PTO) Payroll Taxes Penetration Pricing Pension Plans Per Diem Allowances Personal Selling Physical Distribution Point of Sale Systems Portability of Benefits Postal Costs Pregnancy in the Workplace Present Value Press Kits Press Releases Price/Earnings (P/E) Ratio Pricing Private Labeling Private Placement of Securities Privatization Pro Forma Statements Probationary Employment Periods Product Costing Product Development Product Liability Product Life Cycle Product Positioning Productivity Professional Corporations x E N C Y C L O P E D I A O F S M A L L 821 824 825 825 827 828 832 833 836 837 839 840 841 844 845 847 850 854 855 857 859 861 863 864 866 867 869 872 873 874 875 878 879 879 881 882 886 888 890 893 896 897 899 902 904 906 908 911 Profit Center 913 Profit Impact of Market Strategies (PIMS) 916 Profit Margin 917 Profit Sharing 918 Program Evaluation and Review Technique (PERT) 920 Promissory Notes 921 Proprietary Information 922 Prototype 923 Proxy Statements 925 Public Relations 925 Purchasing 929 Quality Circles 933 Quality Control 935 Racial Discrimination 941 Rebates 944 Reciprocal Marketing 946 Record Retention 946 Recruiting 948 Recycling 950 Reengineering 953 Refinancing 955 Regulation D 956 Regulatory Flexibility Act 957 Relocation 959 Remanufacturing 961 Renovation 963 Request for Proposal 965 Research and Development 966 Resumes 971 ´ ´ Retail Trade 972 Retirement Planning 973 Return on Assets (ROA) 977 Return on Investment (ROI) 978 Return Policies 979 Revenue Streams 980 Right-to-Know (RTK) Laws 981 Risk Management 984 Risk and Return 986 Robotics 987 Royalties 989 Royalty Financing 993 Rural Businesses 994 S Corporation 997 Sales Commissions 999 Sales Contracts 1002 Sales Force 1003 Sales Forecasts 1004 B U S I N E S S INVENTIONS AND PATENTS PATENT ATTORNEYS Before making an arrangement with a patent attorney, savvy inventors take steps to ensure that they have found competent, responsible legal counsel The first step is to make sure that the lawyer is registered with the Patent and Trademark Office Attorneys listed with the PTO are required to have minimum academic and professional qualifications, and must pass a PTO examination Inventors should also make certain that their legal counsel is familiar with the field or industry in which the invention would be used In addition, they should their best to insure that their attorney has all relevant information needed to make the best possible patent application Finally, experts counsel inventors to shop around to find the best combination of price and value, and they encourage them to secure written agreements on attorney fees PATENT DRAWINGS Patent experts advise inventors to secure the services of an experienced patent draftsmen when the time comes to make patent drawings ‘‘The requirements for drawings are strictly enforced,’’ warned Levy ‘‘Professional draftsmen will stand behind their work and guarantee revisions if requested by the PTO due to inconsistencies in the drawings Because the design patent is granted for the appearance of the article, the drawing in the design patent is more critical than the drawing in a utility patent The design drawing is the disclosure of the claimed design, whereas the utility drawing is intended to provide only an exemplary illustration of some aspects of the mechanism described in the specification and claims.’’ PATENTS AND THE PTO It generally takes the Patent and Trademark Office a little over 18 months to process patent applications and issue approved patents Examinations of patent applications, which are undertaken in the order in which they are received, are arduous exercises, encompassing inspection of legal compliance and comprehensive searches to ensure the invention’s legitimacy If an application is approved, then the inventor can proceed with his business plan, whether that involved launching a small business or seeking buyers for the invention Many applications, however, are rejected when they are first submitted Even applications for genuinely new products or designs sometimes need changes to meet PTO requirements In instances in which the application is rejected, the inventor has limited options The inventor can prepare a response to the examiner’s stated grounds for rejection, explaining why he or she believes that the examiner erred; this is a viable step, and one which sometimes convinces examiners to reconsider The inventor can also offer amendments to the application designed to assuage the examiner’s objections On many occasions, however, the examiner will remain unswayed and will reject the inventor’s claims If this happens, the inventor can lodge appeals with the PTO commissioner and, after that, the Board of Patent Appeals and Interferences If the application is still deemed unacceptable, and the inventor remains determined to pursue the issue, he or she can then turn to the U.S court system The Court of Appeals for the Federal Circuit and the U.S District Court for the District of Columbia have both heard such cases FEES Recipients of patents must pay fees to the PTO for services rendered when a patent is reviewed In 1982 a law was passed that cut some of these fees (patent application, extension of time, revival, appeal, patent issues, statutory disclaimer, maintenance on patents) for ‘‘small entities.’’ Small entities were held to include independent inventors, small businesses, and nonprofit organizations In addition, all utility patents are subject to the payment of maintenance fees which must be paid to keep the patent going These payments are made at several different points of the patent’s life Inventors need to heed this payment schedule closely, for nonpayment may result in the premature expiration of the patent (a six-month grace period is typically provided during which the fee can be paid, albeit with a surcharge) Inventors who secure the services of a patent attorney generally not have to worry about this scenario as much, since a competent attorney will notify them of impending maintenance fee payments In recent years, the government’s decision to retool the PTO so that it could operate without federal funding has triggered significant increases in PTO fees In 1991 Congress dramatically raised patent application fees to cover the Office’s operating costs, but by the mid-1990s this income was being redistributed to pay for other government programs or address the federal budget deficit The PTO was subsequently forced to mull additional fee increases, which angered many members of the small business community who felt that such increases disproportionately impact individual inventors and entrepreneurs However, one of the provisions of the American Inventors Protection Act of 1999 reduced certain patent fees U.S PATENTS AND GATT The 1994 General Agreement on Tariffs and Trade (GATT) also brought significant changes to U.S patent law The biggest one changed the duration of patent protection Prior to GATT, patents lasted for 17 years (14 years for design patents) from the date that the patent was granted After GATT, patent terms were extended to 20 years from the date at which the patent application was first filed This is a significant change, for as Levy noted, under the new arrangement, a competitor could conceivably file a long stream of fraudulent interference objections (claims that it had developed a similar 634 E N C Y C L O P E D I A O F S M A L L B U S I N E S S GATT does provide some patent rules of potential advantage to small inventors For example, it provides for the issuance of ‘‘provisional patent applications,’’ which in effect allows inventors to file a preliminary application that establishes the data of invention The provisional application does not replace the regular PTO application, but it gives inventors additional time to prepare for that step Other GATT rules changed import/export rules regarding intellectual property and expanded the number of scenarios under which interference proceedings could be launched AMERICAN INVENTORS PROTECTION ACT The most recent domestic legislation that has impacted the patent and invention process is the American Inventors Protection Act of 1999 This law contained many provisions of interest to inventors, including the following: ● Establishes the Patent and Trademark Office as an agency within the Department of Commerce ● Reduced the risk of patent infringement lawsuits against various industries, most notably financial services companies, whose ‘‘methods of doing business’’ had been claimed as proprietary by patent holders ● Requires invention promotion companies to provide complete disclosure of various aspects of their operational history, including their customers success in receiving net financial profit and license agreements as a direct result of the invention promotion services ● Reduces fees for international patent applications and initial maintenance fees, and authorizes the PTO director to adjust trademark fees without regard to fluctuations in the Consumer Price Index ● Extends the terms of patents to compensate for processing delays and delays in the prosecution of applications pending for more than three years Provides minimum of 17year patent term for diligent applicants ● Provides for publication of patent applications 18 months after filing unless the applicant requests otherwise and certifies that the invention has not and will not be patented in another country FILING PATENTS IN THE U.S AND ABROAD Most experienced inventors and patent experts counsels inventors to file for a patent as soon as possible In the United States you have to apply for a patent within one year of the time you first disclose the device or start selling it At the conclusion of that year, a valid patent may not be obtained Inventors should also note that a U.S patent will not provide him or her with protection in other countries; patent applications need to be made in every country in which protection is desired Moreover, in other countries, inventors have to apply for the patent before it is publicly disclosed INVENTORY product or design at the same time) in order to delay the issuance of a patent, ‘‘thereby reducing the patent’s life when it does issue.’’ Many observers fear that entrepreneurs and small businesses could be hurt by this arrangement Finally, the PTO notes that in most instances, American inventors seeking to secure a patent in another country must first get a license from the Commissioner of Patents and Trademarks This requirement is waived, however, if the filing in the foreign country takes place more than six months after the U.S filing took place There are two major international patent treaties that should be studied by inventors hoping to market their products abroad The Paris Convention for the Protection of Industrial Property, which was signed by the United States and nearly 100 other nations, stipulates that each signing nation provide the same rights in patents and trademarks to citizens of other participating nations that it does to its own The Patent Cooperation Treaty, meanwhile, is a patent agreement that includes more than 50 nations FURTHER READING: Campanelli, Melissa ‘‘Patent Fever.’’ Entrepreneur December 2000 Chun, Janean ‘‘Patent Lather.’’ Entrepreneur June 1997 Dzenitis, Talis ‘‘American Inventors Protection Act of 1999 Summary.’’ U.S Patent and Trademark Office, 1999 Field, Thomas Avoiding Patent, Trademark and Copyright Problems Small Business Administration, 1992 GATT Implementing Legislation Intellectual Property Owners Association, 1994 Levy, Richard C The Inventor’s Desktop Companion Visible Ink Press, 1995 Signore, Philippe ‘‘The New Provisional Rights Provision.’’ Journal of the Patent and Trademark Office Society October 2000 SEE ALSO: Intellectual Property; Licensing INVENTORY An inventory is a detailed, itemized list or record of goods and materials in a company’s possession 635 E N C Y C L O P E D I A O F S M A L L B U S I N E S S INVENTORY ‘‘The main components of inventory,’’ wrote Transportation and Distribution contributors David Waller and Barbara Rosenbaum, ‘‘are cycle stock: the order quantity or lot size received from the plant or vendor; in-transit stock: inventory in shipment from the plant or vendor or between distribution centers; [and] safety stock: each distribution center’s inventory buffer against forecast error and lead time variability.’’ Writing in Production and Operations Management, Howard J Weiss and Mark E Gershon observed that, historically, there have been two basic inventory systems: the continuous review system and the periodic review system With continuous review systems, the level of a company’s inventory is monitored at all times Under these arrangements, businesses typically track inventory until it reaches a predetermined point of ‘‘low’’ holdings, whereupon the company makes an order (also of a generally predetermined level) to push its holdings back up to a desirable level Since the same amount is ordered on each occasion, continuous review systems are sometimes also referred to as event-triggered systems, fixed order size systems (FOSS), or economic order quantity systems (EOQ) Periodic review systems, on the other hand, check inventory levels at fixed intervals rather than through continuous monitoring These periodic reviews (weekly, biweekly, or monthly checks are common) are also known as time-triggered systems, fixed order interval systems (FOIS), or economic order interval systems (EOI) INVENTORY AND THE GROWING COMPANY Most successful small companies find that as their economic fortunes rise, so too the complexity of inventory logistics This increase in inventory management is primarily due to two factors: 1) greater volume and variety of products, and 2) increased allocation of company resources (such as physical space and financial capital) to accomodate that growth in inventory ‘‘The transition from seat-of-the-pants ordering policies and little or no record keeping to a formal inventory system that includes specific ordering policies and a formalized inventory record file is a difficult one for most companies to make,’’ stated Weiss and Gershon ‘‘It is but one of the many sources of growing pains that emerging companies experience, especially those in the fast-growing industries, such as fast food or high technology This transition requires the creation of new job functions to identify the costs (holding, shortage) associated with inventory and to implement the inventory analysis The inventory record file also must be maintained by someone, and, on a periodic basis, it must be audited by someone In addition, the transition requires more coordination between different company functions.’’ This transition, they note, often leads into computeri- zation of inventory management This can be a daunting prospect, particularly for companies lacking employees with appropriate data management backgrounds JUST-IN-TIME INVENTORY CONTROL ‘‘Just-in-time production is a simple idea that may be difficult to implement,’’ wrote Gershon and Weiss ‘‘The basic concept is that finished goods should be produced just in time for delivery, and raw materials should be delivered just in time for production When this occurs, materials or goods never sit idle, which means that a minimum amount of money is tied up in raw materials, semifinished goods, and finished goods The just-in-time approach calls for slashing production and purchase lot sizes and also buffer stocks— but incrementally, a little at a time, month after month, year after year The result is sustained productivity and quality improvement with greater flexibility and delivery responsiveness.’’ This production concept, which originated in Japan and became immensely popular in American industries in the early and mid-1990s, continues to be hailed by proponents as a viable alternative for businesses looking for a competitive edge SETTING AN INVENTORY STRATEGY No single inventory strategy is equally effective for all businesses Indeed, there are many different factors that can impact the usefulness of a given inventory strategy, including positioning of inventory, rationalization, segmentation, and continuous improvement efforts Moreover, small businesses in particular often face financial and logistical limitations when erecting their inventory systems And of course, different industries have different inventory needs Consumer goods producers, for instance, need to have well-balanced inventories at the point of sale, while producers of industrial and commercial products typically not have clients that require the same degree of delivery lead time When a company is faced with a need to establish or reevaluate its inventory control systems, business experts often counsel their corporate clients to engage in a practice commonly known as ‘‘inventory segmenting’’ or ‘‘inventory partitioning.’’ This practice is in essence a breakdown and review of total inventory by classifications, inventory stages (raw materials, intermediate inventories, finished products), sales and operations groupings, and excess inventories Proponents of this method of study say that such segmentation break the company’s total inventory into much more manageable parts for analysis KEY CONSIDERATIONS Inventory management is a key factor in the successful operation of fledgling businesses and long-time industry veterans alike For both kinds of companies, determining whether their 636 E N C Y C L O P E D I A O F S M A L L B U S I N E S S According to business experts, perhaps no factor is more important in ensuring successful inventory management than regular analysis of policies, practices, and results Companies that hope to establish or maintain an effective inventory system should make sure that they the following on a regular basis: ● Regularly review product offerings, including the breadth of the product line and the impact that peripheral products have on inventory ● Ensure that inventory strategies are in place for each product and reviewed on a regular basis ● Review transportation alternatives and their impact on inventory/warehouse capacities ● Undertake periodic reviews to ensure that inventory is held at the level that best meets customer needs; this applies to all levels of business, including raw materials, intermediate assembly, and finished products ● Regularly canvas key employees for information that can inform future inventory control plans ● Determine what level of service (lead time, etc.) is necessary to meet the demands of customers ● Establish and regularly review a system for effectively identifying and managing excess or obsolete inventory, and determining why these goods reached such status ● Devise a workable system wherein ‘‘safety’’ inventory stocks can be reached and distributed on a timely basis when the company sees an unexpected rise in product demand ● Calculate the impact of seasonal inventory fluctuations and incorporate them into inventory management strategies ● Review the company’s forecasting mechanisms and the volatility of the marketplace, both of which can (and do) have a big impact on inventory decisions ● Institute ‘‘continuous improvement’’ philosophy in inventory management ● Make inventory management decisions that reflect a recognition that inventory is deeply interrelated with many other areas of business operation INVENTORY inventory systems are successful or not is predicated on one fundamental question: Does the inventory strategy insure that the company has adequate stock for production and goods shipments while at the same time minimizing inventory costs? If the answer is yes, then the company in question is far more likely to be a successful one Conversely, if the answer is no, then the business is operating under twin burdens that can be of considerable consequence to its ability to survive, let alone flourish To summarize, inventory management systems should be regularly reviewed from top to bottom as an essential part of the annual strategic and business planning processes Indeed, even cursory examinations of inventory statistics can sometimes provide business owners with valuable insights into the company’s foundations Business consultants and managers alike note that if an individual business has an inventory turnover ratio that is low in relation to the average for the industry in which it operates, or if it is low in comparison with the average ratio for the business, it is pretty likely that the business is carrying a surplus of obsolete or otherwise unsalable stock inventory Conversely, they note that if a business is experiencing unusually high inventory turnover when compared with industry or business averages, then the company may be losing out on sales because of a lack of adequate stock on hand ‘‘It will be helpful to determine the turnover rate of each stock item so that you can evaluate how well each is moving,’’ noted The Entrepreneur Magazine Small Business Advisor ‘‘You may even want to base your inventory turnover on more frequent periods than a year For perishable items, calculating turnover periods based on daily, weekly, or monthly periods may be necessary to ensure the freshness of the product This is especially important for foodservice operations.’’ INVENTORY ACCOUNTING The way in which a company accounts for its inventory can have a dramatic affect on its financial statements Inventory is a current asset on the balance sheet Therefore, the valuation of inventory directly affects the inventory, total current asset, and total asset balances Companies intend to sell their inventory, and when they do, it increases the cost of goods sold, which is often a significant expense on the income statement Therefore, how a company values its inventory will determine the cost of goods sold amount, which in turn affects gross profit (margin), net income before taxes, taxes owed, and ultimately net income It is clear, then, that a company’s inventory valuation approach can cause a ripple effect throughout its financial picture One may think that inventory valuation is relatively simple For a retailer, inventory should be valued for what it cost to acquire that inventory When an inventory item is sold, the inventory account should be reduced (credited) and cost of goods sold should be increased (debited) for the amount paid for each inventory item This works if a company is operating 637 E N C Y C L O P E D I A O F S M A L L B U S I N E S S INVENTORY under the Specific Identification Method That is, a company knows the cost of every individual item that is sold This method works well when the amount of inventory a company has is limited and each inventory item is unique Examples would include car dealerships, jewelers, and art galleries The Specific Identification Method, however, is cumbersome in situations where a company owns a great deal of inventory and each specific inventory item is relatively indistinguishable from each other As a result, other inventory valuation methods have been developed The best known of these are the FIFO (first-in, first out) and LIFO (last-in, first-out) methods FIFO First-in, first-out is a method of inventory accounting in which the oldest stock items in a company’s inventory are assumed to have been the first items sold Therefore, the inventory that remains is from the most recent purchases In a period of rising prices, this accounting method yields a higher ending inventory, a lower cost of goods sold, a higher gross profit, and a higher taxable income The FIFO Method may come the closest to matching the actual physical flow of inventory Since FIFO assumes that the oldest inventory is always sold first, the valuation of inventory still on hand is at the most recent price Assuming inflation, this will mean that cost of goods sold will be at its lowest possible amount Therefore, a major advantage of FIFO is that it has the effect of maximizing net income within an inflationary environment The downside of that effect is that income taxes will be at their greatest LIFO Last-in, first-out, on the other hand, is an accounting approach that assumes that the most recently acquired items are the first ones sold Therefore, the inventory that remains is always the oldest inventory During economic periods in which prices are rising, this inventory accounting method yields a lower ending inventory, a higher cost of goods sold, a lower gross profit, and a lower taxable income The LIFO Method is preferred by many companies because it has the effect of reducing a company’s taxes, thus increasing cash flow However, these attributes of LIFO are only present in an inflationary environment The other major advantage of LIFO is that it can have an income smoothing effect Again, assuming inflation and a company that is doing well, one would expect inventory levels to expand Therefore, a company is purchasing inventory, but under LIFO, the majority of the cost of these purchases will be on the income statement as part of cost of goods sold Thus, the most recent and most expensive purchases will increase cost of goods sold, thus lowering net income before taxes, and hence net income Net income is still high, but it does not reach the levels that it would if the company used the FIFO method Given the importance differences that exist between the various inventory accounting methodologies, it is imperative that the inventory footnote be read carefully in financial statements, for this part of the document will inform the reader of the method of inventory valuation chosen by a company Assuming inflation, FIFO will result in higher net income during growth periods and a higher, and more realistic inventory balance In periods of growth, LIFO will result in lower net income and lower income tax payments, thus enhancing a company’s cash flow During periods of contraction, LIFO will result in higher income levels, but it will also undervalue inventory over time Small business owners weighing a switch to a LIFO inventory valuation method should note that while making the change is a relatively simple process (the company files IRS Form 970 with its tax return), switching away from LIFO is not so easy Once a company adopts the LIFO method, it can not switch to FIFO without securing IRS approval DONATING EXCESS INVENTORY In recent years, many small (and large) businesses have gained valuable tax deductions by donating obsolete or excess inventory to charitable organizations, churches, and disaster relief efforts The type of deduction that can be claimed depends on the business structure of the donating company ‘‘If you’re organized as an S corporation, a partnership, or a sole proprietorship and you donate inventory to a charity that uses the goods to assist the sick, the poor, or children, you’re generally able to take a tax deduction for the cost of producing the inventory,’’ stated Joan Szabo in Entrepreneur C Corporations, meanwhile, can deduct the cost of the inventory plus half the difference between the production cost and the inventory’s fair market value, provided the deduction does not exceed twice the cost of the donated goods A number of organizations have been established for the express purpose of distributing donated inventory Gifts in Kind International (based in Alexandria, Virginia) distributes used computers, high-tech equipment, and other donated inventory to approximately 50,000 domestic and international charities The Galesburg, Illinois-based National Association for the Exchange of Industrial Resources (NAEIR), meanwhile, distributes excess inventory to more than 5,000 schools, churches, homeless shelters, and other charitable organizations Office supplies comprise much of the NAEIR goods, but clothing, janitorial supplies, and computer equipment are also distributed The NAEIR estimates that it has distributed more than $1 billion in corporate inventory donations to American schools and nonprofit organizations since 1977 638 E N C Y C L O P E D I A O F S M A L L B U S I N E S S Allen, Kelley L ‘‘Lose that Inventory Baggage.’’ Across the Board January 2000 ‘‘Companies Count on Inventory Management for Accuracy, Convenience, Piece of Mind.’’ Chain Store Age Executive with Shopping Center Age May 1997 Gleckman, Howard ‘‘A Tonic for the Business Cycle.’’ Business Week April 4, 1994 ‘‘Good Business Ushers in More Inventory Problems.’’ Purchasing April 3, 1997 Haire, Kevlin C ‘‘Keeping the Merchandise Moving.’’ Baltimore Business Journal August 2, 1996 Krupp, James A ‘‘Measuring Inventory Management Performance.’’ Production and Inventory Management Journal Fall 1994 ‘‘Manage Your Space.’’ Transportation and Distribution May 1996 Ross, Julie Ritzer ‘‘Inventory Management Systems Cut Costs While Keeping Store Shelves Full.’’ Stores July 1997 Scanlon, Patrick C ‘‘Controlling Your Inventory Dollars.’’ Production and Inventory Management Journal Fall 1993 Szabo, Joan ‘‘Spring Cleaning.’’ Entrepreneur April 1999 Valero, Greg ‘‘Minimize Inventory for Maximum Success.’’ U.S Distribution Journal July-August 1997 Waller, David G., and Barbara A Rosenbaum ‘‘Plan Inventory Decisions to Cut Costs.’’ Transportation and Distribution November 1990 Weiss, Howard J., and Mark E Gershon Production and Operations Management Boston: Allyn and Bacon, 1989 INVENTORY CONTROL SYSTEMS Inventory control systems maintain information about activities within firms that ensure the delivery of products to customers The subsystems that perform these functions include sales, manufacturing, warehousing, ordering, and receiving In different firms the activities associated with each of these areas may not be strictly contained within separate subsystems, but these functions must be performed in sequence in order to have a well-run inventory control system In today’s business environment, even small and mid-sized businesses have come to rely on computerized inventory management systems Certainly, there are plenty of small retail outlets, manufacturers, and other businesses that continue to rely on manual means of inventory tracking Indeed, for some small businesses, like convenience stores, shoe stores, or nurseries, purchase of an electronic inventory tracking system might constitute a wasteful use of financial resources But for other firms operating in industries that feature high volume turnover of raw materials and/or finished products, computerized tracking systems have emerged as a key component of business strategies aimed at increasing productivity and main- taining competitiveness Moreover, the recent development of powerful computer programs capable of addressing a wide variety of record keeping needs— including inventory management—in one integrated system have also contributed to the growing popularity of electronic inventory control options Given such developments, it is little wonder that business experts commonly cite inventory management as a vital element that can spell the difference between success and failure in today’s keenly competitive business world Writing in Production and Inventory Management Journal, Godwin Udo described telecommunications technology as a critical organizational asset that can help a company realize important competitive gains in the area of inventory management He noted that companies that make good use of this technology are far better equipped to succeed than those who rely on outdated or unwieldy methods of inventory control INVENTORY CONTROL SYSTEMS FURTHER READING: COMPUTERS AND INVENTORY Automation can dramatically impact all phases of inventory management, including counting and monitoring of inventory items; recording and retrieval of item storage location; recording changes to inventory; and anticipating inventory needs, including inventory handling requirements This is true even of standalone systems that are not integrated with other areas of the business, but many analysts indicate that productivity—and hence profitability—gains that are garnered through use of automated systems can be increased even more when a business integrates its inventory control systems with other systems such as accounting and sales to better control inventory levels As Dennis Eskow noted in PC Week, business executives are ‘‘increasingly integrating financial data, such as accounts receivable, with sales information that includes customer histories The goal: to control inventory quarter to quarter, so it doesn’t come back to bite the bottom line Key components of an integrated system are general ledger, electronic data interchange, database connectivity, and connections to a range of vertical business applications.’’ THE FUTURE OF INVENTORY CONTROL SYSTEMS In the latter part of the 1990s, many businesses invested heavily in integrated order and inventory systems designed to keep inventories at a minimum and replenish stock quickly But business owners have a variety of system integration options from which to choose, based on their needs and financial liquidity At the same time that these integrated systems have increased in popularity, business observers have suggested that ‘‘stand-alone’’ systems are falling into disfavor A 1996 study by the International Mass Retail Association (IMRA), for example, concluded that stand alone Warehouse Management System 639 E N C Y C L O P E D I A O F S M A L L B U S I N E S S INVENTORY CONTROL SYSTEMS (WMS) packages acquired to perform individual functions will soon become obsolete because they not integrate well with other systems Another development of which small business vendors should be aware is a recent trend wherein powerful retailers ask their suppliers to implement vendor-managed inventory systems These arrangements place the responsibility for inventory management squarely on the shoulders of the vendors Under such an agreement, the vendors obtain warehouse or point of sale information from the retailer and use that information to make inventory restocking decisions WAREHOUSE LAYOUT AND OPERATION The move toward automation in inventory management naturally has moved into the warehouse as well Citing various warehousing experts, Sarah Bergin contended in Transportation and Distribution magazine that ‘‘the key to getting productivity gains from inventory management is placing real-time intelligent information processing in the warehouse This empowers employees to take actions that achieve immediate results Real-time processing in the warehouse uses combinations of hardware including material handling and data collection technologies But according to these executives, the intelligent part of the system is sophisticated software which automates and controls all aspects of warehouse operations.’’ Another important component of good inventory management is creation and maintenance of a sensible, effective warehousing design A well-organized, user-friendly warehouse layout can be of enormous benefit to small business owners, especially if they are involved in processing large volumes of goods and materials Conversely, an inefficient warehouse system can cost businesses dearly in terms of efficiency, customer service, and, ultimately, profitability Transportation and Distribution magazine cited several steps that businesses utilizing warehouse storage systems can take to help ensure that they get the most out of their facilities It recommended that companies utilize the following tools: Stock locator database—‘‘The stock locator database required for proactive decision making will be an adjunct of the inventory file in a state-of-the-art space management system A running record will be maintained of the stock number, lot number, and number of pallet loads in each storage location Grid coordinates of the reserve area, including individual rack tier positions, must therefore be established, and the pallet load capacity of all storage locations must be incorporated into the database.’’ Grid coordinate numbering system—Warehouse numbering system should be developed in conjunction with the storage layout, and should be user- friendly so that workers can quickly locate currently stocked items and open storage spaces alike Communication systems—Again, this can be a valuable investment if the business’s warehouse requirements are significant Such facilities often utilize fork lift machinery that can be used more effectively if their operators are not required to periodically return to a central assignment area Current technology makes it possible for the warehouse computer system to interact with terminal displays or other communications devices on the fork lifts themselves ‘‘Task assignment can then be made by visual display or printout, and task completion can be confirmed by scanning, keyboard entry, or voice recognition,’’ observed Transportation and Distribution Maximization of storage capacity—Warehouses that adhere to rigid ‘‘storage by incoming lot size’’ storage arrangements not always make the best use of their space Instead, businesses should settle on a strategy that eases traffic congestion and best eases problems associated with ongoing turnover in inventory Some companies choose to outsource their warehouse functions ‘‘This allows a company that isn’t as confident in running their own warehousing operations to concentrate on their core business and let the experts worry about keeping track of their inventory,’’ wrote Bergin Third-party inventory control operations can provides companies with an array of valuable information, including analysis of products and spare parts, evaluations of their time sensitivity, and information on vendors Of course, businesses weighing whether to outsource such a key component of their operation need to consider the expense of such a course of action, as well as their feelings about relinquishing that level of control FURTHER READING: Andel, Tom, and Daniel A Kind ‘‘Flow It, Don’t Stow It.’’ Transportation and Distribution May 1996 Bergin, Sarah ‘‘Make Your Warehouse Deliver: New Developments in Warehouse Management Systems Inspire New Productivity in Needy Operations.’’ Transportation and Distribution February 1997 Eskow, Dennis ‘‘Rising Stock: Integrated Inventory Systems Help Companies Shoot Economic Rapids.’’ PC Week June 5, 1995 Haaz, Mort ‘‘How to Establish Inventory Levels.’’ Gift and Decorative Accessories April 1999 Safizadeh, M Hossein, and Larry P Rizman ‘‘Linking Peformance Drivers in Production Planning and Inventory Control to Process Choice.’’ Journal of Operations Management November 1997 Udo, Godwin J ‘‘The Impact of Telecommunications on Inventory Management.’’ Production and Inventory Management Journal Spring 1993 Weisfeld, Barry ‘‘Automated Ordering Puts Profits in Sight.’’ Transportation and Distribution February 1997 640 E N C Y C L O P E D I A O F S M A L L B U S I N E S S INVESTOR PRESENTATIONS Investor presentations are an important but often overlooked aspect of entrepreneurial efforts to secure financing for their businesses Presentations are particularly important to small business owners hoping to raise money from private investors Whereas institutional investors such as banks rely primarily on financial statements, business plans, etc., in making their lending decisions (though presentations to loan officers can also be important), private investors are more likely to be swayed by other factors, such as the owner’s vision of a new product’s appeal, knowledge of the marketplace, or ability to present a compelling picture of future profits for both the owner and the investor Business advisors note, however, that poor investor presentations can also close the door on potential avenues of financing as well, even if the entrepreneur’s idea for a new business or product is a good one ‘‘Putting together a winning presentation isn’t as easy as it might seem,’’ said David R Evanson in Nation’s Business ‘‘Whatever the forum—a formal dog-and-pony show before a roomful or institutional investors, a clubby luncheon with 10 to 15 wealthy individuals, or a one-on-one meeting with a venture capitalist—founders have often shown they can shoot themselves in the foot with deadly accuracy.’’ Entrepreneurs and small business owners seeking expansion capital, then, need to make certain that their presentations grab the attention of investors in a favorable way KEYS TO SUCCESSFUL INVESTOR PRESENTATIONS Business experts point to several considerations that small businesspeople should keep in mind when planning their presentations to potential investors These range from tips on public speaking to recommendations on presentation content Tailor Presentation to Audience Some business owners make investor presentations that are only negligibly different from presentations that they make to internal salespeople or to customers This choice— which is often a byproduct of laziness more than anything else—can have a negative impact on the owner’s chances of landing an investor ‘‘Topics such as product features, new technology and customer service—the things that matter to customers—are of interest to investors only as part of an overall menu of competitive advantages that will help drive sales,’’ said Evanson Moreover, no two investors are alike; one individual may have a reputation for daring business initiatives; another may be predisposed toward (or away from) involvement in a specific industry; still another may be most interested in receiving assurances about the competence of the enterprise’s management team Entrepreneurs preparing to make a pitch toward private investors should find out as much as possible about their audience’s interests and investment philosophies beforehand INVESTOR PRESENTATIONS SEE ALSO: Enterprise Resource Planning; Material Requirements Planning Judicious Use of Visual Aids Visual aids should augment the presentation, not dominate it Slides and overheads can be valuable tools in a presentation, but their use contains a number of potential pitfalls for entrepreneurs Some people place so much importance on the visual component of their presentation that they flounder in situations where they have to deviate from their script Others cram their visual aids so full of information that viewers are unable to digest it all, which merely triggers resentment or annoyance from potential investors However, visual support— when intelligently utilized—can be most helpful in providing context and illustrating key points Presentation-graphics computer programs are utilized frequently today for such purposes Such programs have several advantages They can compose impressive displays and their content can be altered quickly to reflect needed changes Moreover, their portability is a big improvement over big slide carousels, overhead projectors, and display boards But many of the advantages associated with computer displays hinge on a certain level of program mastery Live Demonstrations It may be tempting for an entrepreneur to make a live demonstration or his or her product as part of the total presentation package, but demonstrations have a pretty hefty downside This is especially true of technology products, which can end up looking hopeless because of some minor glitch ‘‘As people with sales experience will tell you, the customer has a picture in mind of what the product is and what it’s supposed to do,’’ wrote Evanson ‘‘Any uncontrolled situation that distorts that image is ultimately counterproductive to closing the sale.’’ Of course, there may be situations wherein the presenter is pointedly asked for a live demonstration by a potential investor Not granting such a request may throw prospects for financial assistance in jeopardy as well, so entrepreneurs should be prepared to make such a demonstration if it seems necessary Finally, there are certain categories of products (generally involving simpler, non-technological designs) that can be more safely demonstrated than others Each presenter has to judge the potential risks of a live demonstration for his or her self 641 E N C Y C L O P E D I A O F S M A L L B U S I N E S S INVESTOR PRESENTATIONS Relevance Presentations that spend excessive amounts of time on relatively unimportant points are unlikely to attract investors Instead, presentations should remain focused on the basic information that investors are likely to want to hear, such as company background, ownership/management background, key employees, product development, market opportunities, existing competition, present and future marketing plans, and financial analysis Communication Abilities This element of presentation encompasses several different areas First of all, the presenter should ideally be able to speak in an authoritative, confident, and smooth manner Fairly or not, public speaking ability can make a profound difference in an entrepreneur’s success in securing investors for his or her business or product ‘‘There are a number of golden rules in making a presentation and plenty of speakers break them all,’’ observed Sue Bryant in Marketing ‘‘No eye contact No pauses Patronizing the audience by putting text on screen and reading it out loud Writing a speech, failing to rehearse and reading it woodenly Fumbling with equipment and muttering: ‘Now, how I work this thing ’ ’’ Indeed, Bryant pointed out that excessive use of visual aids can often be traced to a presenter’s discomfort with public speaking Given the importance of a good delivery, then, entrepreneurs who are uncomfortable with speaking in public should consider investing in one of the many courses that are available to help people with such difficulties Presenters also need to make sure that the presentation itself is appropriately focused and understandable Karen Kalish, author of How to Give a Terrific Presentation, stated that effective presentations have seven key organizational elements: ● Audience-grabbing opening ● Well-organized information (including examples, analogies, and anecdotes where appropriate) ● Logical transitions ● Short sentences ● Understandable language ● Good closing ● Appropriate responses to questions Entrepreneurs seeking funding for high-tech products are particularly prone to straying off track They have to beware of paying excessive attention to relatively esoteric subjects that may bore the prospective investors ‘‘Yes, the technical aspects of your company’s product or service are important,’’ wrote Evanson and Art Beroff in Entrepreneur, ‘‘inasmuch as they deliver competitive advantages, open new markets or change the balance of power in an existing market—but to investors, technology is not important in and of itself.’’ Honest Presentation Presenting projected financial performance for a company or product is an important and delicate part of the investor presentation process Entrepreneurs naturally want to put their prospects in a good light, but consultants warn that private investors are wary of overly optimistic numbers, and view misleading data in this area as a clear sign that they should withhold assistance ‘‘With so many exciting opportunities in the marketplace, you’ve got to walk a very fine line between numbers that are exciting enough to attract investors and those that will turn them off because they’re simply unrealistic,’’ one successful business founder told Entrepreneur Length of Presentation Most experts advise entrepreneurs to limit their presentation to 20-30 minutes It may be tempting to devote more time than that—and in some cases it may be warranted (the potential investor has already indicated that he or she wants a full accounting, the entrepreneur’s idea is a complex one)—but for the most part, entrepreneurs should limit themselves as indicated above Whereas excessively long presentations can bore investors and unduly short ones can leave investors wondering if they are being told everything, presentations of 20-30 minutes can usually provide an adequate overview and leave sufficient time to answer investor questions Question-and-Answer Sessions Questions from investors are an inevitable part of investor presentations Entrepreneurs who avoid answering certain questions, answer with rambling sermons in ‘‘techspeak,’’ or respond in an arrogant, ‘‘know it all’’ fashion are unlikely to favorably impress their audience Follow-Up Entrepreneurs should follow up with investors within a few days of the presentation, but they should be careful not to badger him or her with multiple queries ‘‘When raising capital, particularly from individual investors, the old rule is that yes comes fast, and no takes forever,’’ commented Evanson and Beroff ‘‘Still, many investors test the mettle of the business owner by seeing how long it take him or her to follow up If it’s not forthcoming, even for reasons of perceived courtesy, many investors get turned off On the other side of the coin, calling every day doesn’t work, either.’’ FURTHER READING: Arthur, Audrey ‘‘Keeping Up Public Appearances: Master the Fine Art of Public Speaking and Give a Great Presentation Every Time.’’ Black Enterprise July 1997 Bryant, Sue ‘‘Speak for Yourself.’’ Marketing October 31, 1996 642 E N C Y C L O P E D I A O F S M A L L B U S I N E S S Evanson, David R ‘‘Capital Pitches that Succeed.’’ Nation’s Business May 1997 Evanson, David R., and Art Beroff ‘‘Perfect Pitch.’’ Entrepreneur March 1998 Greer, John, and Francie Murphy ‘‘Be Prepared When Making Multimedia Presentations.’’ Los Angeles Business Journal September 22, 1997 Greising, David ‘‘Hunting Investors Who Will Go the Distance.’’ Business Week November 9, 1992 Kalish, Karen How to Give a Terrific Presentation AMACOM, 1997 Malouf, Doug, Carolyn Dickson, and Paula DePasquale ‘‘The Seven Deadly Sins of Speakers.’’ Training & Development November 1995 Martin, Larry ‘‘The Fate of Business Often Comes Down to the Quality of the Presentation.’’ Public Relations Quarterly Spring 1995 INVESTOR RELATIONS AND REPORTING Once a privately held company issues shares of stock to the public—through an initial public offering (IPO), for example—it incurs a number of new responsibilities related to investor relations and reporting requirements Also known as ‘‘going public,’’ an IPO transforms a small business from a privately owned and operated entity into one that is owned by public stockholders An IPO is a significant stage in the growth of many small businesses, as it provides them with access to the public capital market and also increases their credibility and exposure Becoming a public entity involves significant changes for a small business, though, including a loss of flexibility and control for management ‘‘Along with fresh infusions of capital come the shareholders who invest in them Now the company has a large number of new owners who want to see their CEO and their company perform,’’ David P Sutton and M William Benedetto wrote in Initial Public Offerings: A Strategic Planner for Raising Equity Capital ‘‘The CEO may have 1,000 or more new bosses overnight.’’ Public companies must comply with all the rules and regulations set forth by the Securities Act of 1934, not only during the IPO process, but also afterward Small business owners who take their companies public must comply with regular reporting procedures required by the Securities and Exchange Commission (SEC) In addition to the periodic reports known as 8A, 10K, and 10Q, public companies also must issue annual reports, quarterly reports, proxy statements, and press releases in order to keep shareholders, financial analysts, and regulatory agencies informed of their actions Form 8A is the main form for registering a stock issue with the SEC It must be filed if the shares will be traded on a major stock exchange (NYSE, AMEX, or NASDAQ), if the firm will have more than 500 shareholders, or if it has more than $3 million in assets Companies that register their stock offerings using Form 8A must also file periodic reports until they no longer meet the aforementioned requirements These updates are an important means of communication with shareholders, who use the information in making investment decisions All public companies are required to file Form 10K annually within 90 days of end of their fiscal year This form requires disclosure of the company’s audited financial statements, a summary of operations, a description of the overall business and its physical property, identification of any subsidiaries or affiliates, disclosure of the revenues contributed by major products or departments, and information on the number of shareholders, the management team and their salaries, and the interests of management and shareholders in certain transactions The idea of Form 10K is to update on an annual basis the information that the company provided for its initial filing INVESTOR RELATIONS AND REPORTING ‘‘Elements of a Great Speech.’’ Industry Week February 17, 1997 Form 10Q, which must be filed within 45 days of the end of each of the first three quarters in a company’s fiscal year, includes audited financial statements with management discussion, as well as details of any corporate events that had a significant impact on the company Another important reporting requirement is Form 8K, which discloses major changes in corporate control or assets due to such events as mergers, acquisitions, or bankruptcy Several other types of filings are required for specific events, such as a significant increase or decrease in the amount of outstanding stock, or distributions to shareholders in the form of stock splits or dividends In addition, public companies are required to inform stockholders of impending meetings or votes and send out proxy statements Finally, insider trading laws require that public companies disclose any changes in the holdings of managers or directors who own more than 10 percent of the company’s stock The most recent rule governing dissemination of information to investors is the so-called Fair Disclosure Regulation, enacted in 2000 This rule stipulates that companies have to broadly and publicly disseminate information through means (such as news releases, Web sites or Web casts, or SEC filings) that are equally accessible to all investors, instead of distributing information selectively to certain analysts or investors In addition to SEC reporting requirements, public companies also face the responsibility of maintaining good investor relations Although it is not legally required, it is nonetheless important for public compa643 E N C Y C L O P E D I A O F S M A L L B U S I N E S S IRS AUDITS nies to establish systems to deal with stockholders, financial analysts, the media, and the overall community ‘‘A key responsibility of management, over and above filing all necessary reports, is to keep the company name in front of investors,’’ Sutton and Benedetto noted ‘‘Remember, the only way to have a rising stock price is to have more buyers than sellers That means more than just increased earnings It means investors, both current and prospective ones, must know about the company.’’ It is therefore vital that interested outsiders are presented with a complete and accurate picture of what is happening within the company In some cases, this may entail obtaining the services of a public relations firm that specializes in investor relations Such firms can guide newly public companies through the maze of information that they must disseminate In addition, many smaller companies with limited resources will utilize the services of outside consultants who can help them meet their goal of providing full, accurate, and accessible information for disclosure to investors Companies who decide to pursue this route should consider the following when selecting a consultant: Reputation References, qualifications, and experience of prospective investor relations firms should be closely examined Methodology Consultants have different methodologies, strategies, and philosophies, and it is the small business owner’s obligation to research these variables and determine which firm is the best fit for his or her own company IRS AUDITS Each year, the Internal Revenue Service (IRS) conducts audits on individuals and businesses to ensure that they are in compliance with U.S tax law The percentage of people and businesses subject to these audits is relatively small—in 1996, for instance, the IRS audited only percent of tax returns filed by partnerships, 2.3 percent of returns filed by corporations, and percent of individual returns—but the prospect of being targeted does provoke dread among a certain portion of the American public Indeed, many business analysts believe that smaller businesses in certain industries are at greater risk of being subjected to an audit because of historically higher levels of noncompliance in those industries, many of which are primarily composed of small firms Home-based businesses that are characterized by cash-based transactions are particularly likely to undergo formal IRS review Many business and tax experts, however, contend that small businesses that conduct their operations honestly and maintain good recordkeeping practices should be able to weather an IRS audit without too much difficulty Indeed, some small business owners have been known to actually request an audit in instances where they have a dispute with the IRS over tax obligations When providing advice on IRS audits, tax advisors counsel small business owners to adhere to the following guidelines: ● Be honest in business operations and in claiming deductions ● If you prepare your own returns, be familiar with IRS rules regarding deductions and other tax matters; if not, make certain that you hire an accountant or tax advisor who is knowledgeable in these areas ● Keep all receipts and maintain sound and thorough record keeping practices ● Keep expenses in line with industry norms ● Compensation structure Investor relations consultants maintain a wide array of compensation and billing structures ‘‘Understand how the billing is done, how expenses are allocated, and what services the company will receive,’’ counseled Michael Noonan in Houston Business Journal ‘‘Clearly identify the terms and responsibility for each party and put the deal in writing.’’ At the same time, companies seeking assistance in this area need to undertake a frank appraisal of their own budgetary constraints Make sure that the auditing agent is knowledgeable about the industry in which you operate ● Be cooperative; promptly answer all communications from the IRS and make every effort to provide the auditing agent with all requested information ● If you are unhappy with the results of an IRS audit, consider making a written appeal; the Internal Revenue service maintains an independent division specifically designed to hear such appeals FURTHER READING: Arkebauer, James B., and Ronald M Schultz Cashing Out: The Entrepreneur’s Guide to Going Public HarperBusiness, 1991 Noonan, Michael D ‘‘Proper Investor Relations Plans May Require Outside Consultants.’’ Houston Business Journal September 15, 2000 Roberts, Holme, and Harold A.S Bloomenthal Going Public Handbook Clark Boardman, 1991 Sutton, David P., and M William Benedetto Initial Public Offerings: A Strategic Planner for Raising Equity Capital Probus, 1988 644 E N C Y C L O P E D I A O F S M A L L B U S I N E S S TAX FRAUD AND THE IRS Accounting irregularities, such as discrepancies between amounts reported on various financial statements ● Inadequate recordkeeping, such as missing or incomplete financial records ● Failure to report all income ● Improper claims for deductions (such as inflated claims of business costs) FURTHER READING: ● Allocation of income to related taxpayers, especially if the recipient pays lower taxes Baran, Dan, and Gerald Bernard The IRS Audit Protection and Survival Guide Series vols Wiley, 1997-1998 As the Internal Revenue Service goes about the annual routine of gathering and processing tax statements from businesses and individuals, one of the agency’s principal responsibilities is to be on the lookout for cases of potential tax evasion or fraud Business experts cite several primary scenarios that are likely to prompt further investigation: Financial Status Audit One of the primary means by which the IRS conducts audits is the financial status audit Under this form of audit, the investigating agent compares the amount of income reported against the assets and lifestyle of the taxpayer The visibility of this type of audit has fluctuated in recent years, however In fact, the financial status audit became a lightning rod for criticism of the IRS in the mid-1990s, when the agency announced that it intended to provide increased training in this area in order to increase its use of this type of audit Resistance to this focus was strong and immediate ‘‘Many practitioners and the AICPA [Association of Independent Certified Public Accountants] were concerned about the intrusive nature of these audits and the alarming rate at which they were being performed,’’ claimed Philip Fink and Charles Gibson in CPA Journal ‘‘There was great concern that this type of audit was being performed when there was not a perceived need for it Many CPAs thought the use of the financial status audit presumed a suspicion on the part of the examiner that the tax return had been prepared fraudulently and recognized that an attorney’s services would therefore by required.’’ The adverse reaction to the IRS decision reached a culmination in 1998, when the IRS Restructuring and Reform Act of 1998 was passed into law This legislation placed limits on the use of the financial status audit, although it did not put an end to them MARKET SEGMENT SPECIALIZATION PROGRAM (MSSP) The Market Segment Specialization Program, established in 1992, is an IRS initiative designed to conduct and analyze in-depth studies and actual audits of industries with unique business practices MSSP ISO 9000 ● Audit Technique Guides aim to improve the auditing process by creating and distributing auditor training guides on these specific industries These guides, which were originally developed for reference use by auditors and IRS revenue agents, can also be useful to businesses preparing for IRS audits or researching their tax liability Each of the available guides— which cover industries ranging from air charter services and architectural firms to mortuaries and gas retailers—include an overview of industry issues, outlines of the books and records that may be maintained for tax purposes, examination techniques, industry terminology, and highlights of the prevailing business practices in that industry All MSSP Audit Technique Guides are available through the U.S Government Printing Office ‘‘Burden of Proof: Your Rights in IRS Audits and Examinations.’’ The Business Owner May-June 2000 David, Theodore M Dealing with the New IRS: Laws, Forms, and Practices American Law Institute, 2001 Fink, Philip R., and Charles Gibson ‘‘The IRS’s New Approach to Financial Status Audits.’’ CPA Journal June 1999 Goldberg, Seymour How to Handle an IRS Audit Garden City, NY: IRG Publications Griffin, Cynthia E ‘‘Audit Alert: The Key to Surviving an IRS Audit.’’ Entrepreneur July 1997 Jacksack, Susan, ed Start, Run and Grow a Successful Small Business CCH, Inc., 1998 Pryde, Joan ‘‘When the IRS Comes to Check.’’ Nation’s Business October 1997 SEE ALSO: Record Retention; Tax Returns ISO 9000 ISO 9000 is a set of international standards of quality management that have become increasingly popular for large and small companies alike ‘‘ISO is grounded on the ‘conformance to specification’ definition of quality,’’ wrote Francis Buttle in the International Journal of Quality and Reliability Management ‘‘The standards specify how management operations shall be conducted ISO 9000’s purpose is to ensure that suppliers design, create, and deliver products and services which meet predetermined standards; in other words, its goal is to prevent non-conformity.’’ Used by both manufacturing and service firms, ISO 9000 had been adopted by more than 100 nations as their national quality management/quality assurance standard by the end of 1997 645 E N C Y C L O P E D I A O F S M A L L B U S I N E S S ISO 9000 This quality standard was first introduced in 1987 by the International Organization for Standards (ISO) in hopes of establishing an international definition of the essential characteristics and language of a quality system for all businesses, irrespective of industry or geographic location Initially, it was used almost exclusively by large companies, but by the mid-1990s, increasing numbers of small- and mid-sized companies had embraced ISO 9000 as well In fact, small and moderate-sized companies account for much of the growth in ISO 9000 registration over the past several years The total number of ISO 9000 registrations in the United States increased from a little more than 2,200 in 1993 to more than 17,000 in 1998; of those 17,000 registrations, nearly 60 percent were held by companies with annual sales of $100 million or less The increased involvement of small and midsized firms in seeking ISO 9000 registration is generally attributed to several factors Many small businesses have decided to seek ISO 9000 certification because of their corporate customers, who began to insist on it as a method of ensuring that their suppliers were paying adequate attention to quality Other small business owners, meanwhile, have pursued ISO 9000 certification in order to increase their chances of securing new business or simply as a means of improving the quality of their processes ‘‘The pressure for companies to become ISO 9000-certified is absolutely increasing and will continue to increase,’’ predicted one management consultant in an interview with Nation’s Business ‘‘The question many smaller companies have to ask is when, not if, they [will] get ISO 9000-registered.’’ ELEMENTS OF ISO 9000 QUALITY MANAGEMENT SYSTEMS The standards of ISO 9000 detail 20 requirements for an organization’s quality management system in the following areas: ● Management Responsibility ● Quality System ● Order Entry ● Design Control ● Document and Data Control ● Purchasing ● Control of Customer Supplied Products ● Product Identification and Tractability ● Process Control ● Inspection and Testing ● Control of Inspection, Measuring, and Test Equipment ● Inspection and Test Status ● Control of Nonconforming Products ● Corrective and Preventive Action ● Handling, Storage, Packaging, and Delivery ● Control of Quality Records ● Internal Quality Audits ● Training ● Servicing ● Statistical Techniques MODELS OF ISO 9000 The ISO 9000 quality standards are broken down into three model sets—ISO 9001, ISO 9002, and ISO 9003 Each of these models, noted Industrial Management contributors Stanislav Karapetrovic, Divakar Rajamani, and Walter Willborn, ‘‘stipulate a number of requirements on which an organization’s quality system can be assessed by an external party (registrar)’’ in accordance with the ISO’s quality system audits standard ‘‘A quality system,’’ they added, ‘‘involves organizational structure, processes, and documented procedures constituted towards achieving quality objectives.’’ Each of the three sets concentrates on a different quality area ISO 9001 is the most wide-ranging, for it specifies the various operating requirements in such areas as product design and development, production, installation, and servicing ISO 9002 is concerned with quality assurance at the production and installation stages ISO 9003 covers testing and inspections As Karapetrovic, Rajamani, and Willborn noted, ‘‘if the minimum requirements are met [for the above operating areas], a registrar accredited by a national accreditation institution issues a certificate of compliance and the organization’s quality system becomes ISO 9001, 9002, or 9003 registered.’’ It is worth noting that certification is handed out for individual quality systems, not companies; this means that one company may hold more than one ISO 9000 registration Moreover, Harvey R Meyer pointed out in Nation’s Business that ‘‘the standards not certify the quality of a product or service Rather, they attest that a company has fully documented its quality-control processes and consistently adheres to them If that’s done, quality products and services generally follow.’’ In addition to ISO 9000, two related quality standards emerged in American industries in the late 1990s ISO 14000, also known as the Environmental Management Systems Standards, is intended to combine environmental management systems with the ISO 9000 quality system The second system, QS9000 is an adaptation of ISO 9000 to meet the specific 646 E N C Y C L O P E D I A O F S M A L L B U S I N E S S ADVANTAGES OF ISO 9000 The advantages associated with ISO 9000 certification are numerous, as both business analysts and business owners will attest These benefits, which can impact nearly all corners of a company, range from increased stature to bottom-line operational savings They include: ● ● Increased marketability—Nearly all observers agree that ISO 9000 registration provides businesses with markedly heightened credibility with current and prospective clients alike Basically, it proves that the company is dedicated to providing quality to its customers, which is no small advantage whether the company is negotiating with a long-time customer or endeavoring to pry a potentially lucrative customer away from a competitor This benefit manifests itself not only in increased customer retention, but also in increased customer acquisition and heightened ability to enter into new markets; indeed, ISO 9000 registration has been cited as being of particular value for small and mid-sized businesses hoping to establish a presence in international markets Reduced operational expenses—Sometimes lost in the many discussions of ISO 9000’s public relations cache is the fact that the rigorous registration process often exposes significant shortcomings in various operational areas When these problems are brought to light, the company can take the appropriate steps to improve its processes These improved efficiencies can help companies garner savings in both time and money ‘‘The cost of scrap, rework, returns, and the employee time spent analyzing and troubleshooting various products are all considerably reduced by initiating the discipline of ISO 9000,’’ confirmed Richard B Wright in Industrial Distribution ● Better management control—The ISO 9000 registration process requires so much documentation and self-assessment that many businesses that undergo its rigors cite increased understanding of the company’s overall direction and processes as a significant benefit ● Increased customer satisfaction—Since the ISO 9000 certification process almost inevi- ● Improved internal communication—The ISO 9000 certification process’s emphasis on self-analysis and operations management issues encourages various internal areas or departments of companies to interact with one another in hopes of gaining a more complete understanding of the needs and desires of their internal customers ● Improved customer service—The process of securing ISO 9000 registration often serves to refocus company priorities on pleasing their customers in all respects, including customer service areas It also helps heighten awareness of quality issues among employees ● Reduction of product-liability risks—Many business experts contend that companies that achieve ISO 9000 certification are less likely to be hit with product liability lawsuits, etc., because of the quality of their processes ● ISO 9000 tably uncovers areas in which final product quality can be improved, such efforts often bring about higher levels of customer satisfaction In addition, by seeking and securing ISO 9000 certification, companies can provide their clients with the opportunity to tout their suppliers’ dedication to quality in their own business dealings needs of the ‘‘big three’’ American automobile manufacturers — Ford, General Motors, and DaimlerChrysler Both systems were expected to have a substantial impact on U.S companies Attractiveness to investors—Business consultants and small business owners alike agree that ISO-9000 certification can be a potent tool in securing funding from venture capital firms DISADVANTAGES OF ISO 9000 Despite the many advantages associated with ISO 9000, however, business owners and consultants caution companies to research the rigorous certification process before committing resources to it Following is a list of potential hurdles for entrepreneurs to study before committing to an initiative to gain ISO 9000 certification: ● Owners and managers not have an adequate understanding of the ISO 9000 certification process or of the quality standards themselves—Some business owners have been known to direct their company’s resources toward ISO 9000 registration, only to find that their incomplete understanding of the process and its requirements results in wasted time and effort ● Funding for establishing the quality system is inadequate—Critics of ISO 9000 contend that achieving certification can be a very 647 E N C Y C L O P E D I A O F S M A L L B U S I N E S S legitimacy with international customers, and knowledge of small business issues ISO 9000 costly process, especially for smaller firms Indeed, according to a 1996 Quality Systems Update survey, the average cost of ISO certification for small firms (those registering less than $11 million in annual sales) was $71,000 ● ● Some small firms choose to appoint an employee as their ISO 9000 representative rather than hire an outside consultant Many companies have done this successfully, but small business owners should take great care in making this decision ‘‘The ISO 9000 representative [should be] a person who encompasses a genuine and passionate commitment to quality and success, knowledge of processes and systems within the company, and power to influence employees at all levels,’’ wrote Karapetrovic, Rajamani, and Willborn ‘‘He should be familiar with the standards If this is not the case, there are ample training opportunities available to acquire sufficient expertise.’’ Heavy emphasis on documentation—The ISO 9000 certification process relies heavily on documentation of internal operating procedures in many areas, and as Meyer stated, ‘‘many say ISO’s exacting documentation requirements gobble up time Indeed, there are horror stories about companies losing substantial business because a documentation obsession redirected their priorities.’’ According to Nation’s Business, small business owners need to find an appropriate balance between ISO documentation requirements, which are admittedly ‘‘one is ISO 9000’s hallmarks,’’ and attending to the fundamental business of running a company: ‘‘Strike a balance among obsessively writing down every employee’s task, offering training for the work, and letting common sense dictate how a task is to be performed.’’ For more information on ISO 9000 registration, small business owners can contact several different organizations, including the American Society for Quality and American National Standards Institute FURTHER READING: Buttle, Francis ‘‘ISO 9000: Marketing Motivations and Benefits.’’ International Journal of Quality and Reliability Management July 1997 Johnson, P.L ISO 9000: Meeting the New International Standards McGraw-Hill, 1993 Length of the process—Business executives and owners familiar with the ISO 9000 registration process warn that it is a process that takes many months to complete The 1996 Quality Systems Update survey indicated that it took businesses an average of 15 months to move from the early stages of the process to passage of the final audit, and that processes of 18-20 months or even longer were not that uncommon SELECTING A LEADER FOR THE ISO 9000 REGISTRATION PROCESS ISO 9000 experts and businesses that have gone through the rigorous process of certification agree that businesses that appoint someone to guide the process are much more likely to be able to undergo the process in a healthy, productive manner than are firms that have murky reporting relationships Hiring an outside consultant is one option for businesses ‘‘An ISO 9000 advisor could give you a rough sketch of the registration process and help you get started,’’ stated Nation’s Business ‘‘Or the consultant could counsel you through the entire process, writing the company’s quality policy statement and even specific operating procedures.’’ In addition, firms should hire an ISO9000 registrar with a background in their industry, Kanji, G.K ‘‘An Innovative Approach to Make ISO 9000 Standards More Effective.’’ Total Quality Management February 1998 Karapetrovic, Stanislav, Divakar Rajamani, and Walter Willborn ‘‘ISO 9000 for Small Business: Do It Yourself.’’ Industrial Management May-June 1997 Meyer, Harvey R ‘‘Small Firms Flock to Quality System.’’ Nation’s Business March 1998 Rabbit, J.T The ISO 9000 Book: A Global Competitor’s Guide to Compliance and Registration Quality Resources, 1993 Rayner, P., and L.J Porter ‘‘BS 5750/ISO 9000: The Experience of Small and Medium-Sized Firms.’’ International Journal of Quality and Reliability Management Vol 8, no 6, 1991 Simmons, Bret L., and Margaret A White ‘‘The Relationship between ISO 9000 and Business Performance: Does Registration Really Matter?’’ Journal of Managerial Issues Fall 1999 Van der Wiele, Tom, et al ‘‘ISO 9000 Series and Excellence Models: Fad to Fashion to Fit.’’ Journal of General Management Spring 2000 Voehl, F., P Jackson, and D Ashton ISO 9000: An Implementation Guide for Small to Mid-Sized Businesses St Lucie Press, 1994 Wilson, L.A ‘‘Eight-Step Process to Successful ISO 9000 Implementation: A Quality Management System Approach.’’ Quality Progress January 1996 Wright, Richard B ‘‘Why We Need ISO 9000.’’ Industrial Distribution January 1997 SEE ALSO: Quality Control; Total Quality Management 648 E N C Y C L O P E D I A O F S M A L L B U S I N E S S .. .ENCYCLOPEDIA of Small Business SECOND EDITION A-I VOLUME Kevin Hillstrom Laurie Collier Hillstrom ENCYCLOPEDIA of Small Business SECOND EDITION A-I VOLUME Kevin Hillstrom and Laurie Collier Hillstrom, ... efforts and overall marketing objectives of the business STAGES OF ADVERTISING STRATEGY As a business begins, one of the major goals of advertising must be to generate awareness of the business and. .. resource for small businesses and their owners, and according to the Entrepreneur Magazine Small Business Advisor, ‘‘Accountants help business owners comply with a number of laws and regulations