GoVentureCEO BusinessSuperhero

Mathew Georghiou
YOUR BUSINESS SUPERHERO

ORIGIN STORY BEGINS NOW!
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Printed Book ISBN 978-1-894353-40-3

Electronic Book ISBN 978-1-894353-43-4
Copyright ©2021 by Mathew Georghiou
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Contents
1 Business Basics 5
2 Management and Entrepreneurship 16
3 Ownership 40
4 Startup 47
5 Business Plan 73
6 Market Demand 79
7 Pricing and Profit 87
8 Consumer Profiles 96
9 Strategy 111
10 Inventory Management 120
11 Sales and Marketing 127
12 Human Resources 137
13 Ethics 146
14 Financing 149
15 Currency 164
16 Accounting 172
17 Cash Flow and Budget 190
18 Income Statement 199
19 Balance Sheet 210
20 Experience! 224
21 Glossary of Business Terms 226
Business Superhero
Businesses and Products
A business is an organization that sells goods or services.
Good
A tangible item that can be used once or multiple
times. Ownership of the good is normally transferred to
the person who purchases it. Examples are cars, shoes,
pens, and computers.
Service
An action that someone does for you. A service is
intangible. Examples are car repair, haircut, teaching,
legal and medical services.
The term product is often used to mean goods or both goods

and services. In this document, it will be used to mean both
goods and services.
6 Georghiou.com
1. Business Basics
Complete the table below.
PRODUCTS TANGIBLE OR INTANGIBLE
GOODS
SERVICES
Some businesses make the products that they sell. Some

businesses make the parts used to make other products.
And, some businesses sell the finished product.
Example:
Ford designs and makes automobiles.
7
Business Superhero
The parts that make up an automobile are made by
hundreds of other businesses. These businesses are called
suppliers, because they supply the parts. Ford assembles
automobiles using these parts.
Ford then ships the automobiles to dealers. The dealers
sell the automobiles to people. The people who buy and
use a product are called consumers.
Ford dealers sell consumers both goods (the automobiles)
and services (automotive repair).
Complete the table below by entering consumers, suppliers, or

dealers in the correct cell.
SUPPLY PARTS, PURCHASE

SELL
INGREDIENTS, AND USE
RAW MATERIALS
AUTOMOBILES
AUTOMOBILES
8 Georghiou.com
1. Business Basics
Stores and Resellers

Dealers may also be called resellers, because they re-sell a
product that was made by another business or person. Products
that are commonly sold by resellers include furniture, clothing,
smartphones, televisions, and groceries. Amazon and Walmart
are resellers.
Not every business sells products through resellers. Some

businesses sell their products directly to the consumer. This
is called direct sales. Examples are computers, restaurants,
artisans, banks, law firms, and accountants.
Some businesses use both direct sales and resellers. For

example, Apple sells its products on its own website, in its
own stores, and through other retail and electronics stores and
telecommunication companies.
A store is a place where consumers can view and purchase

products. The term usually refers to a physical location that you
can visit, but sometimes it may refer to an online store, website,
or software app.
9
Business Superhero
A business can also do direct sales by selling in a print catalog,
through postal mail, or with its own salespeople who call, email,
or visit people.
Complete the table below by entering reseller, direct sales, or

store in the correct cell.
PLACE WHERE BUSINESS THAT

CONSUMERS SELLING
SELLS PRODUCTS
CAN VIEW AND DIRECTLY TO
PURCHASE
MADE BY
CONSUMERS
PRODUCTS OTHERS
Customers and Consumers
Consumers are individuals or organizations that purchase and

use a product. Consumers are also called customers, but there
is a difference between the two terms.
A customer is an individual or an organization that purchases

a product. The difference between a consumer and customer
is that a consumer is the person or organization that uses the
product. This is also sometimes called the end-consumer.
10 Georghiou.com
1. Business Basics
A customer may or may not be the person or organization that
uses a product. A consumer may be both the customer and
the end-consumer, but a customer may or may not be an
end-consumer.
In the Ford example, all of the many suppliers that provide parts
to make the automobiles consider Ford their customer. Ford
purchases their products (the automotive parts) and therefore is
their customer. But, Ford does not use the parts – instead, Ford
assembles automobiles and then ships them to dealers who
then sell them to the end consumers. To the parts suppliers,
Ford is the customer but not the consumer. The consumer is the
person or organization that drives the automobile.
When Ford purchases furniture to use in the company offices,

Ford is both the customer and the consumer to the furniture
company.
Customers and consumers can be individual people or

organizations. Organizations include companies, governments,
schools, hospitals, and other groups. These are often called
business or organizational customers, and they have different
reasons for buying than individual users, and may buy in larger
quantities.
Complete the table below by entering customer, consumer, or

organizational customer in the correct cell.
BUYS A PRODUCT
NOT AN
USES A BUT MAY OR MAY
INDIVIDUAL
PRODUCT NOT USE THE
CUSTOMER
PRODUCT
11
Business Superhero
Business Creation
The creation of a business usually starts with an idea. An idea to

make and/or sell goods or services. Anyone can start a business
at any time.
An individual can do some activities, similar to a business,

without formally registering as a business. But, certain types
of activities require that a business be registered with the
government.
Profit Versus Not-For-Profit

Profit means to make money. More specifically, it means to
achieve financial gain – a surplus of money. With profit, this
means to create more money than you started with.
Review the examples in the table on the next page and

complete the final example.
12 Georghiou.com
1. Business Basics
MONEY IN $100 $1,000 $500
MONEY SPENT $70 $800 $400
PROFIT $30 $200

MONEY IN – MONEY SPENT = $100 - $70 = $1,000 - $800 $
A business can be for-profit or not-for-profit.
For-Profit
A business that is intended to create profit for its
owners to use as they choose. The owners may choose
to use the profit money to grow the business, start a
new business, or improve their personal lifestyles or
savings.
Not-For-Profit
Sometimes spelled as nonprofit, this is a business that
is intended to support a social cause. This may include
charity, medical research, local community, industry
association, or other initiative.
With a nonprofit, any profit that is generated by the

business must be used to further the mission of the
business. Profit cannot be given to the owners of the
business, because a nonprofit does not have owners.
Instead, a nonprofit is managed by a person or group
of people who act as members or directors. Their
responsibility is to ensure that the nonprofit uses its
money and resources to support its mission.
Normally, nonprofits are not called businesses, even

though, technically, they may be businesses. A more
commonly-used term is nonprofit organization.
13
Business Superhero
Business, Company, and Corporation
The terms business, company, and corporation are often

used to mean the same thing, but there are differences.
Business can broadly refer to the act of doing business – the

exchange of goods and services. While this exchange does
mean “doing business,” it does not always mean that business is
being done as a company or a corporation.
The words business and company are often used to mean the
same thing, but a person doing business selling items at a local
market may not consider themselves a company. A food truck
may not consider the business a company.
To some, the word company suggests an organization that

is created and structured to do business. Some definitions
14 Georghiou.com
1. Business Basics
go further to suggest that company means the same as
corporation.
Corporation is a legal term used to describe a specific form of

business registration. A corporation is an entity that has been
created to conduct business – for profit or nonprofit – and is
effectively recognized as a person under law.
A corporation has one or more owners (called shareholders) and

does not legally represent a particular person, because it is an
entity of its own.
Corporations are normally required to have a specific term

included in their legal names to identify their status. Examples
from various countries include: Incorporated (Inc.), Corporation
(Corp.), Limited(Ltd.), LLC, PLC, GmbH, AG, SARL, SA SL, AB, Oy.
All corporations are businesses, but not all businesses are

corporations.
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15
2. Management and Entrepreneurship
Managing a Business
Managing a business means making the short-term and long-

term decisions that are needed to operate the business and
make it financially successful.
Most businesses sell goods or services – often called products.

They may produce the product, or they may resell or distribute a
product created by another organization.
Products are sold to consumers. Consumers are the people

or organizations that use a product. They pay money for the
product and that money goes to the business that offers and/
or makes the product. To the business, this money is called
revenue or income.
The objective of a business is to generate more money than

it spends. This is called profit. You must manage the various
functions of your business to achieve your desired profit.
17
Business Superhero
To achieve your desired profit, you should define a strategy for

your business and then make decisions that adhere to your
strategy. Monitor your progress and adjust your strategy when
needed.
Review the examples in the table below and complete the final
example.
REVENUE FROM
$200 $1,000 $500
PRODUCT SALES
MONEY SPENT TO
MAKE AND SELL $150 $600 $300
PRODUCTS
PROFIT $50 $400

= $200 - $150 = $1,000 - $600 $
18 Georghiou.com
Entrepreneurship
An entrepreneur is a person who starts and operates a business,

while assuming the risks and rewards. This is one common
definition, but there are varied opinions about how broadly or
narrowly this definition should be applied.
Most entrepreneurs own and run small businesses, such as a

retail store, gas station, flower shop, software developer ... the
possibilities are endless.
Sometimes, small businesses turn into very large businesses.

Walmart, Amazon, Apple, and many other companies were all
started by entrepreneurs who launched small businesses that
turned into global companies.
Becoming a successful entrepreneur is not easy. You need a

good idea, dedication, sometimes money, and always a great
deal of hard work and effort. Some say luck may also contribute
to success.
19
Business Superhero
The
The
Entrepreneur
Entrepreneur
You pursue newly
discovered, fleeting
You pursue newly
opportunities.
discovered,
You seek freedom,
financial reward,
fleeting
opportunities.
creativity, and controlYou
of your own future.
seek
You arefreedom,
clever and financial
resourceful.
reward, creativity, and
Your supporters depend
control
upon you and of cheer
your own
your success, often as
future. You
bystanders, but
are clever
and resourceful.
sometimes with an
offer of a hand up.
Meanwhile, the
Your supporters
naysayers anticipate
your failure, yet you
depend upon you and
remain one step ahead.
cheer youraresuccess,
In the distance
visions of victory and
often as bystanders,
cries of defeat from
fellow entrepreneurs.
but sometimes with
Against the odds, you
an offer
remain of a hand
determined
and focused. You’ve
up. Meanwhile,
invested your heart,
the
naysayers anticipate
energy, and savings to
achieve your goal.
your failure, yet you
The risks and sacrifices
remain
are many. oneSo are step
the ahead.
rewards. You are an
entrepreneur!
In the distance are
visions of victory and
cries of defeat from
fellow entrepreneurs.
Against the odds, you

remain determined
and focused. You’ve
invested your heart,
energy, and savings to
achieve your goal.
The risks and sacrifices

are many. So are the
rewards. You are an
entrepreneur!
“If a picture is worth a

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20 Georghiou.com
Why Entrepreneurship?
The word entrepreneurship is the act of being an
entrepreneur. An entrepreneur does entrepreneurship and
acts entrepreneurially.
Entrepreneurship is important in society. Entrepreneurs create

businesses, which provide jobs and income to people in a local
community or around the world. Businesses solve small and
large problems, provide much-needed goods and services, and
pay taxes that help the government function.
Entrepreneurship also enables individuals to exercise their

freedom to pursue opportunities and a life of their choosing.
There are many reasons why someone would want to run and
take on the risk of operating a business. The most common
reasons include being your own boss, setting your own work
schedule, being part of something that you own, having control
of your destiny, and perhaps even the possibility of generating
enough wealth to gain financial freedom. There are many other
reasons as well.
There are many challenges associated with being an

entrepreneur. For example, since you own the business, if it
does not do as well as you expect, you are still responsible
for it. You may have to work many hours each day managing
and dealing with problems that arise. You may not even make
enough money to pay yourself a salary. If your business is not
successful, you may lose all the money you invested in it, as well
as some of your personal assets.
Running a business is a risky proposition with many advantages

and disadvantages.
21
Business Superhero
Who Can Be an Entrepreneur?
Anyone can be an entrepreneur. Age, gender, or race does not

decide who can be an entrepreneur.
A person determines if they want to be an entrepreneur by

having an interest in starting and running a business, and
the willingness to take the initiative, risk, and leadership
responsibility associated with this endeavor.
There is no pre-set profile of an entrepreneur that you must

match. Entrepreneurs do not look or think alike. They can be as
different as any two individuals can be.
Only you can decide if being an entrepreneur is what you

want to be. Understanding entrepreneurship will help you in
whatever you do.
22 Georghiou.com
Success in Entrepreneurship
Measuring success in entrepreneurship is not a simple task.

Each entrepreneur evaluates success differently.
For example, someone may consider a business successful

only if the business generates good profits, regardless of the
other issues involved in operating the business. Others may
consider a successful business one that treats its customers and
employees very well and generates just enough revenue and
profit to get by.
There are many entrepreneurs who may not be financially

wealthy, but consider themselves successful.
There are many factors, both tangible and intangible, that need
to be considered when measuring success in entrepreneurship.
23
Business Superhero
Tangible Factors
Revenue and profit
Business growth and reach
Market share
Length of time in business
Ownership value and personal wealth
Intangible Factors
Brand value
Customer satisfaction and loyalty
Employee morale
Contribution to community
Personal time available for family and friends
Personal stress
Sense of freedom and control
Overall learning experience
Personal satisfaction being an entrepreneur
Each individual will apply a different level of importance to each

of the factors above when determining the success of their own
entrepreneurship experience.
24 Georghiou.com
Evaluating Success
Following are more detailed explanations of the success factors.
Profit
Profit means to create more money than you started with. A

business must generate profits in order to survive in the long
term. It is common for new businesses to lose money in the first
few years. Initial losses, or having losses in other years, does not
mean the business will not be successful. However, over time,
the trend must be to generate ongoing profits, otherwise the
business will run out of money and have to shut down.
example.
REVENUE FROM
$400 $1,000 $500
SALES
COST OF
OPERATING THE $350 $500 $200
BUSINESS
PROFIT $50 $500

= $400 - $350 = $1,000 - $500 $
25
Business Superhero
Profit for the business owners can also be generated by selling
the business at the right price. Review the examples in the table
below and complete the final example.
INVESTMENT
MADE IN THE $500 $600 $1,000
BUSINESS
SELLING PRICE OF
$800 $1,000 $2,000
THE BUSINESS
PROFIT $300 $400

= $800 - $500 = $1,000 - $600 $
Maximizing profit is not always the best strategy. You can

achieve profit in the short term by cutting corners or doing
things that may not be sustainable in the long term. For
example, a business that reduces the quality of its product to
save money, may find that customers will stop purchasing. A
business that underpays its employees may show more profit in
the short term, but employee morale may become so low that
operations will be inefficient and employees may eventually
quit.
Achieving and maintaining profit is a difficult balancing act.
Revenue
Revenue is the money given to a business by customers
purchasing its goods and services. A business that has high
revenue has demonstrated that it offers a product that is desired
by consumers. Review the examples in the table on the next
page and complete the final example.
26 Georghiou.com
PRODUCT
$10 $50 $100
SELLING PRICE
QUANTITY OF
5 20 50
PRODUCT SOLD
REVENUE $50 $1,000

= $10 x 5 = $50 x 20 $
But, generating revenue without profit can be problematic. For

example, a business can offer a product at an unusually low
price, thereby attracting significant sales and revenue. But, if the
business loses money with each sale, it may eventually run out
of money. The only way to keep such a business operating is to
raise money by borrowing or by selling shares.
example.
PRODUCT
$10 $10 $20
SELLING PRICE
COST TO MAKE
AND SELL $9 $11 $22
PRODUCT
PROFIT $1 -$1
= $10 - $1 = $10 - $11 $
Proving that a business can sell products and generate revenue

is a valuable achievement. And, even if the business may have
difficulty achieving profit, it may be an attractive business for
someone to purchase and make profitable using a different
strategy.
27
Business Superhero
Equity
Equity means the value of a business. Business value is
generated in one of two ways:
Generating profit – and keeping that profit in the business,

instead of distributing it to the owners (shareholders).
Raising money by selling shares in the business.
example.
VALUE OF
$10 $10 $20
BUSINESS
NEW PROFIT
FROM SELLING $2 $5 $4
PRODUCTS
NEW VALUE OF $12 $15

BUSINESS = $10 + $2 = $10 + $15 $
Review the example in the table below and complete the final
example.
VALUE OF
$20 $20 $50
BUSINESS
MONEY RAISED
$3 $5 $6
SELLING SHARES
NEW VALUE OF $23 $25

BUSINESS = $20 + $3 = $20 + $5 $
28 Georghiou.com
The two achievements above will increase the financial value
of a business. But, there are other ways to increase the value of a
business, including:
Growing revenues
Increasing the number of customers
Types of customers
Products and processes that are difficult to duplicate
Patents and trademarks
Each of the achievements above, and some others, can increase
the goodwill value of a business, which means the business
will be more valuable even though the financial numbers (like
equity) may not show this value.
Market Share
The percentage of customers or sales a business wins in
comparison to other businesses of the same type is called
market share. A business with high market share may
dominate its competitors, and can increase the value of the
business.
Review the examples in the table on the next page and

complete the final example.
29
Business Superhero
NUMBER OF
100 100 100
CUSTOMERS
PURCHASE FROM
70 50 30
BUSINESS A
PURCHASE FROM
30 50 70
BUSINESS B
MARKET SHARE 70% 50%

BUSINESS A = 70 ÷ 100 x 100% = 50 ÷ 100 x 100% $
Brand, Reach, and Growth

Brand is how people feel about your business or product. An
entrepreneur who creates a product that people feel good
about and may be known widely, and even admired, could
be considered a success for the entrepreneur. And, the more
people that are reached and influenced by the business can
enhance this success.
Consider how you feel about these well-known brands …
30 Georghiou.com
Customer Satisfaction and Loyalty

Without customers, a business has no sales. A customer that
uses a product and is pleased with it is sometimes described as
a satisfied customer.
Satisfied customers return and buy again, and may also tell
their friends and promote a business through word-of-mouth
– which is like free advertising, and often the best type of
endorsement a business can receive.
A customer that repeatedly buys from the same business, and is

reluctant to change, is called a loyal customer.
A customer that is unsatisfied with a product may or may

not express their dissatisfaction to the business, but they are
less likely to return to the business. And, they may share their
unhappy experience with others, which will negatively affect the
business.
A business that has achieved high customer satisfaction and

loyalty has a significant advantage.
Complete the table below by using the terms defined above.
CUSTOMER THAT
PLEASED REPEATEDLY TYPE OF FREE
CUSTOMER BUYS FROM SAME ADVERTISING
BUSINESS
31
Business Superhero
Employee Morale
Running a successful business means hiring and training an
efficient workforce. Insufficient employees or a workforce with
low morale can result in lost sales and unhappy customers.
Morale represents the emotional well-being and attitude

employees have towards their work, work environment, and
employer. Employees who enjoy their jobs and related benefits
will have higher morale than those who do not.
Happy employees tend to work harder, more efficiently, and

interact with customers in a more positive manner.
For a business to maintain good employee morale, it takes effort

and money. This investment of time and money is a cost for the
business, but it may have a positive effect that helps make the
company more successful.
Time in Business
Many businesses fail or are shut down within the first few years
of starting. Surviving and keeping a business running for a
length of time can be considered a success.
Community
A business directly and indirectly contributes to the community
in which it operates. Businesses create jobs, provide incomes,
purchase goods and services, and keep or bring in money to the
local community. They also pay taxes to help fund government.
All of this is made possible by the initiative and risk taken by the
entrepreneur who starts the business
32 Georghiou.com
Even a business that fails financially will have made a positive
contribution to the local community.
Personal Wealth
A successful business returns some level of personal wealth to
the owners. This may be through a higher salary for owners that
work in the business, a payout of company profits (dividends), or
a financial gain if the business is sold.
Many businesses fail and the owners end up losing money.

With businesses that are successful, it often takes years before
a business can earn enough profit or value to generate wealth
for the owners. And, even when that happens, many business
owners will allow a business to keep its profits so that they can
be used to operate and grow the business further.
Stress and Personal Time

An entrepreneur is exposed to tremendous pressures by being
responsible for everything in a business. This is particularly true
of new businesses that may have limited financial and human
resources.
Entrepreneurs are challenged with finding a balance between

business and personal commitments. Starting and growing a
business can require significant personal time and focus, and an
entrepreneur may sacrifice sleep, nutrition, exercise, family time,
and other important life activities.
Business and personal-life challenges can create emotional

stress for the entrepreneur. Stress is a physical, chemical, or
emotional factor that causes physical or mental tension. Stress
has been linked to increased chance of illness.
33
Business Superhero
In the short term, most entrepreneurs can survive periods
of high stress. In the long term, stress will impact the
entrepreneur’s ability to manage the business successfully.
An entrepreneur who is frequently ill, or sick for a long period of

time, may not be able to devote enough focus on the business.
This may result in the slowing down, closure, or premature sale
of the business.
Stress can be reduced through a number of ways, including:
Increasing personal time

Better nutrition
Exercise
Deep breathing
Reduced work hours
More sleep
Taking a vacation
By keeping stress at a low level, an entrepreneur can improve
productivity, clarity of thinking, health, and happiness.
Freedom, Learning, and Personal Satisfaction

Entrepreneurship enables individuals to exercise their freedom
to pursue opportunities and a life of their choosing. This can
create a feeling of empowerment for the entrepreneur.
The various small and large successes that are achieved may also
provide personal satisfaction and a sense of meaning in their
lives.
34 Georghiou.com
Entrepreneurs are constantly learning through their experiences.
This is particularly true of new entrepreneurs. There is no end to
the knowledge and skill that can be gained as an entrepreneur,
including:
Critical thinking
Problem solving
Managed risk taking
Leadership
Team building
Planning
Organization
Decision making
35
Business Superhero
Managing Risk
Starting and operating a business has significant risk. Risk is the

likelihood that the business will fail and the entrepreneur will
lose the time and money invested in the business.
Businesses frequently fail because there are many factors that

need to work out favourably in order to achieve success.
Operating a business involves taking and managing risk. It

requires decisions to be made with imperfect knowledge.
Budgets are set, employees hired, and inventory purchased all
on the expectations of what may happen.
Nothing is certain – now or forever. Even long-established

industries have collapsed due to unpredicted changes in
technologies or economic environments.
36 Georghiou.com
A successful business owner or manager must be willing to take
risks. They must also understand how to take acceptable risks,
and know when to avoid risk – making all these decisions on
incomplete information.
Risk is not the same as gambling. Entrepreneurs are risk-takers,

but not necessarily gamblers. With most gambling, you have
little or no control or influence over the result. Buying a lottery
ticket or tossing dice has fixed odds of failure and success that
you cannot change. In business, risk is something that can be
evaluated and often reduced with the right strategy.
Business owners and managers take these calculated risks based

on their expectations for potential returns (financial gain). All
businesses want some sort of return for their efforts, and the
higher the risk taken, the greater the return expected.
Review the examples in the table below to see how the risk
should match the expected return.
MONEY INVESTED $100 $100 $100
10% = $10 25% = $25 100% = $100

RETURN LOW HIGH
MODERATE
TOTAL $110 $125 $200
RISK LOW MODERATE HIGH
37
Business Superhero
Upside and Downside

Two terms often used in entrepreneurship are upside and
downside.
Upside refers to the rewards that can be earned if successful.
Downside refers to the losses that may be experienced through

failure.
Entrepreneurs run towards the upside opportunity, while other

people run away from the downside risk.
Experience and Decision Making

There are countless books, websites, videos, and experts that
say they can lead you to success in operating a business. It
is important to recognize that there really are no resources
available which an entrepreneur can use to find the right answer
for every challenge that will be encountered.
Business challenges may appear similar, but there is always the

context of how and when potential solutions may be applied.
Nearly every decision an entrepreneur makes has both positives

and negatives in some way. For example, providing higher pay
to an employee may make that employee happier and more
productive, but it will also increase the costs of the business.
When deciding what equipment to purchase, is it better to
purchase the less-expensive used equipment that could be
unreliable, or the new and more-expensive equipment that
includes a warranty?
38 Georghiou.com
Every decision has consequences – some of which may be
known or unknown. The best an entrepreneur can do is try to
choose the decision that provides the best balance. While an
entrepreneur can seek advice from many sources, it is research,
planning, and experience that ultimately assure that the best
decisions are made.
to S t a r t o r L e v e l U p
Ready u s in e s s ?
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39
3. Ownership
Business Ownership
The creation of a business usually starts with an idea. An idea to
make and/or sell goods or services. Anyone can start a business
at any time. But, how is business ownership determined?
With a nonprofit organization, no one actually owns the

organization. The people who start the organization assign
directors or members to be responsible for the organization.
These directors and members may change over time, based on
rules set up when the organization is created.
With a for-profit business, the person or people who start the

business own the business. They are often called the business
founders.
If one person starts the business, that person will own 100% of
the business. If two people start a business, they will agree on
how the ownership will be divided. They may agree to evenly
divide the ownership to own 50% each. Or, they may agree that
one of the founders will own 70%, while the other will own 30%.
Any combination is possible and the ownership percentage

should align with the amount of effort, risk, and money that the
owners are individually contributing.
An owner of a business – specifically, a corporation – is called

a shareholder. This is because ownership in a corporation
is established by owning a percentage – or share – of the
business.
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A business can be divided into any number of shares.
A business can have one share owned by one person –
which means they own 100% of the business.
If a business has 10 shares owned by one person, that
person also owns 100% of the business. Or, the 10 shares
can be separated where one person owns 7 shares (70%)
and another person owns 3 shares (30%).
A business can have millions of shares.
A person does not have to work in the business to be a
shareholder or founder of the business.
Shares are also called stock.
example.
NUMBER OF
100 100 100
SHARES
SHARES OWNED
70 60 50
BY PERSON A
SHARES OWNED 30 40
BY PERSON B = 100 – 70 = 100 – 60
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3. Ownership
To demonstrate ownership in a business, shareholders may be
issued a paper document called a stock or share certificate.
Below is a Facebook share certificate. Share ownership is
primarily recorded electronically, so issuing printed share
certificates is not as common as it used to be.
Buying Ownership in a Business

Businesses often raise money to fund their operations by selling
a percentage of ownership in the business. This is done by
selling shares in the business.
For example, a business might offer to sell 10% of the ownership

in the business for $10,000. The business will then use that
money to fund its operations. And, the person or organization
who purchased the shares (the shareholders) will be able to
share in the profits generated by the business.
If the business generates $20,000 in profit this year, these

shareholders may earn a share of the profits equal to 10% or
$2,000. When a business pays out profit to the owners, it is
called issuing a dividend. Not all businesses issue dividends.
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If the business is sold for $150,000, these shareholders may
be entitled to 10% or $15,000 of this money.
Note that when a business sells shares to raise money, this
new money goes to the business, not to the shareholders
or anyone else.
The financial benefits of being a shareholder in a business are
actually more complex than described above.
example.
PROFIT EARNED BY A
$100 $100 $100
BUSINESS
PROFIT ISSUED AS
$40 $70 $50
DIVIDENDS
PERCENTAGE OF
10% 10% 10%
BUSINESS OWNED
AMOUNT EARNED BY $4 $7
SHAREHOLDER = 40 x 10% = 70 x 10% $
Selling ownership in a business is not the same as taking out a loan.

A loan is when money is borrowed and has to be repaid, usually
with interest (an additional fee). Many businesses borrow money
to fund their operations instead of selling ownership. Borrowing
money is much less complicated than selling ownership.
Selling ownership also means that the shareholders will have some
say in the business, often with the right to vote on important issues,
including who runs the company and how profits are used.
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3. Ownership
Money raised by selling ownership in a business does not
have to be repaid like a loan. Instead, the shareholders benefit
by potentially sharing in the future profits of the business
operations or when the business is sold.
Selling ownership in a business is also called selling equity in

the business.
To sell shares in a business, the organization has to be registered

as a for-profit company. A nonprofit business or organization
cannot sell shares. The for-profit business has to be registered as
a corporation.
Private Versus Public Company

Every business starts as a private organization. Private means
that the internal operations and finances of the business can
remain confidential to the owners and managers of the business
and certain departments within government. They do not have
to disclose this information to the public or anyone else.
When a business wants to raise money by selling shares, it has

to follow certain government regulations. These regulations
outline how a company can raise money and who it can raise
money from.
The regulations are designed to protect the public from

investing in businesses that do not have proper structure and
shareholder rights.
One requirement is that the business has to be registered as a for-

profit corporation. When a business is registered as a corporation,
the company starts as a private – not public – organization.
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Additional regulations significantly restrict how a company can
raise money, effectively only allowing the business to reach out
to a small number of potential investors.
If a company wants to be able to widely promote its sale of

shares and allow anyone in the general public to purchase its
shares, then the business must become a public company.
Although, some regions allow a company to remain private for
certain types of equity-based crowdfunding campaigns.
A public company is required to disclose its financial information

to the public. This information can no longer be kept
confidential, as it can in a private company. By making financial
and other information public, people can better assess the value
and risk of purchasing shares in the business. To clarify, a public
company can still keep much of its internal business information
confidential.
Once a company is public, it can buy, sell, and trade its shares
more easily and widely. This is often done by listing the
company on a stock exchange.
A stock exchange, often called a stock market, is a physical or

online marketplace where shares of companies can easily be
bought and sold (traded) by the public.
An important feature of the stock market is where the money

goes when shares are traded. When a company wants to raise
money, it issues new shares to investors who buy the shares.
This money goes directly to the company. But, when an existing
shareholder sells shares to another person, the money goes to
the shareholder who sold the shares.
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Business Superhero
The Idea
Every business starts with an idea to make and/or sell goods or

services. Ideas are easy, but executing an idea successfully is
very difficult.
There are many questions to be considered at this stage:
What is the problem being solved or need being served?

Is the idea viable as a business – will the business generate
a positive return on investment?
Is this a new type of business, a business similar to others,
or a franchise business?
What type of people and experience are needed to run
the business?
Will you start (found) the business on your own or partner
with others (cofounders)? What contribution will each
partner make and what percentage of ownership will each
receive?
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4. Startup
Do you have the financing needed to start and operate
the business?
What are your personal goals for undertaking this
endeavor?
Are you prepared to take on the risk and sacrifices needed?
Will you have to quit a money-earning job? How will that
affect your personal life and finances? Can you start the
business part time without leaving your job?
Most ideas do not have the potential to become viable
businesses. An idea could have good business potential, but
there may already be entrenched competition that will be
difficult to overcome. Or you may not have the right experience
and resources needed to achieve success.
Business Model
To determine if a business idea is viable, a number of factors
have to be considered. The most important are as follows:
Product
What are the features and benefits of the product? If the
product is a good, can it be made? Some goods may be
too difficult, too costly, or impossible to manufacture.
Differentiation
Determine how the product will be different than
competing products or options. This could be by price,
features, quality, or other factors. The product and its
differentiation describe the value proposition offered
to customers.
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Business Superhero
Addressable Market
Determine the number of consumers that are likely to
purchase the product and how much money can be
made from these sales. This must also account for sales
of competing products and other options.
Marketing and Distribution

Determine how consumers will be made aware of the
product and how they can purchase and receive the
product.
Costs
Determine the costs of making, marketing, and
providing the product and all the other costs
associated with operating the business. Subtract these
costs from the potential revenue that can be generated
to determine if profitability is possible.
The factors above form what is called the business model

for the business. An idea that is investigated more closely
to determine a potential business model will often reveal
challenges that may be too difficult to overcome. If profitability
cannot be achieved, then the idea is generally not worth
pursuing as a for-profit business.
Most people do not get past the idea or business model stage.
That may be fine, as it is better to avoid starting a business that
is sure to fail.
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4. Startup
Mission, Vision, and Values
A business should identify what it wants to achieve and how it

plans to do so, using brief and simple terms.
A Vision Statement is a phrase that describes the future state

of the business, if it is successful.
A Mission Statement describes how the business will achieve

its vision.
A Vision Statement uses broad and wishful thinking, while a

Mission Statement is more specific and measurable.
Examples:
Vision Statement Mission Statement

To be the leading To manufacture the lightest
manufacturer of widgets and most reliable widgets in
in North America. the automotive industry.
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Notice that in the Vision Statement, the term leading is not
defined – it could be revenue, innovation, or other factor. The
Mission Statement is more specific, using terms lightest and most
reliable, which are specific differentiators that can be measured
when compared to competing products.
With the example above, the business strives to be the leading

manufacturer by making the lightest and most reliable widgets.
The business may have chosen this strategy because competing
widgets may be too heavy or unreliable. Another approach may
be to manufacture the least expensive widgets.
Consider a restaurant with one Vision and two possible Mission

Statements to choose from:
Vision Statement
To be the most family-
friendly restaurant in the
city.
Mission Statement
To provide a children’s menu Mission Statement
with the greatest variety of To provide the largest
affordable, tasty, and healthy indoor play structure in
meal options in the city. the city.
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4. Startup
These examples show how a business could achieve the same
vision by pursuing a different mission. Both missions are easily
measured and can help guide the business owner to stay true to
the selected strategy.
If a competing restaurant expands its children’s menu or builds

a large play structure, then the mission calls for the business
owner to consider doing the same in order to stay in the lead.
Or, the business owner may decide that a new vision and
mission should be pursued.
As time passes, things change, markets develop, and new

information is discovered. This may prompt the business owner
to adjust strategy – and perhaps make a significant shift in vision
and mission – this is sometimes called a pivot.
Values are the core principles or standards that guide the way
the people in a business operate. They may include beliefs and
attitudes with how people should behave towards each other,
suppliers, and customers, and the ethical standards by which the
business strives to abide.
Values form the foundation for decision making within the

organization. Vision and Mission Statements may change over
time, but values generally do not. Values may not always be
documented, but they are evident by observing how the people
within a business act, internally and externally.
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Business Name
Every business needs a name. The name of your business can
give a significant amount of information and emotion about
your business. The name is how the business will be recognized
and remembered by your potential customers.
A business name can be long or short, descriptive of what your

business does, or not. It is up to you.
Consider these business names and if the names are

representative of the business they are in…
If you will be doing business in a multicultural region, it is also

important to keep in mind that the name you choose should
translate well into other languages.
If you operate a franchise, however, the name of your business

will take on the same name as the franchise, like the examples
below.
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4. Startup
Although, with a franchise, you do not have a choice in names,
having the name of a popular franchise may give you instant
recognition with consumers. This is called brand awareness or
brand recognition.
Brand Awareness can be very valuable for attracting customers,

because the more people who know about a business, the
better. But, Brand Awareness can also be negative for a business
that is thought to sell low-quality products or services, or treat
customers or employees unfairly.
When choosing a business name, it is important to be careful not

to choose a name that is too similar to one that is trademarked. A
trademark is a combination of letters, words, sounds, or designs that
distinguishes the goods or services offered by one organization from
those of others in the marketplace. Trademarks can be registered
with the government to prohibit competing businesses from using
similar Trademarks that may cause confusion with consumers.
Logo
A logo is a unique visual identifier that distinguishes your business.
Similar to a business name, a logo can impart a significant amount
of information and emotion about your business, and how it will be
recognized and remembered by your potential customers.
A logo can become so well known that people can instantly

identify the name of the company it belongs to. For example,
the Nike swoosh or McDonald’s golden arches.
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Business Superhero
A logo normally includes text (the name of the business) and a
graphic. Sometimes, a logo does not include a graphic image,
instead, the text is stylized – this is called a wordmark.
Similar to a business name, care should be taken not to use a

logo that is Trademarked.
Your logo should be used on all business communication

materials, including letterhead, business cards, and on the
storefront. Having a consistent design with all materials helps
build brand identity, as shown below.
Legal Structure
Every business must be legally registered with the government
and must follow the required regulations. The three most
common types of legal structures for businesses are sole
proprietorship, partnership, and corporation.
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4. Startup
Each type has advantages and disadvantages, and careful
consideration is necessary when selecting the appropriate
structure. In some cases, the structure of a business can be
changed in the future.
Sole Proprietorship
A sole proprietorship is owned by one person.
Advantages
The simplest legal structure and the least expensive to
set up.
There is minimal paperwork required to register.
All business decisions are made exclusively by the
owner – called the sole proprietor – consequently it
tends to be the most flexible business to run.
The sole proprietor is personally responsible for
everything, including debts, and the profits or losses
of the business are reported as part of the owner’s
personal tax return.
Disadvantages
Unlimited liability – the sole proprietor is personally
liable for all business liabilities. If the business cannot
pay the bills or gets sued, the owner could lose his or
her personal assets (savings, automobile, house, etc).
It may be more difficult to raise money. Usually,
banks and investors prefer to provide financing to
partnerships and corporations. And, the business can
only request debt financing – selling ownership equity
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Business Superhero
is not an option because a sole proprietorship does
not have any share structure – it is an individual person
not a company.
The business can suffer if the owner becomes ill for an
extended period of time.
Very profitable businesses may have to pay higher
taxes, because of the personal tax laws.
Partnership
A partnership is similar to a sole proprietorship but owned by
two or more people. The owners form an agreement about
ownership percentages and responsibilities. The profits and
losses of the business are divided and shared according to these
percentages, and included on each partner’s personal tax return.
There must be at least one general partner – who, like a sole
proprietor, is personally responsible for all liabilities.
Advantages
The business will have the combined resources and
skills of more than one person.
All business decisions are made exclusively by the partners.
The partners are personally responsible for everything,
and the profits or losses of the business are reported
as part of the partners’ personal tax returns.
Disadvantages
Unlimited liability – the partners are personally liable
for all business liabilities. If the business cannot pay
the bills or gets sued, the owners could lose their
personal assets (savings, automobiles, houses, etc).
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4. Startup
Business decisions can be more difficult when two or
more partners must agree.
If one partner cannot continue the relationship, then
the partnership becomes automatically dissolved, and
a new agreement must be written if the business is
to continue. This can incur significant business and
administration costs.
Depending on the structure of the business, a
partnership may or may not have shares that can be
sold like a company.
Very profitable businesses may have to pay higher
taxes, because of the personal tax laws.
Corporation
A corporation is an entity that has been created to conduct
business – for profit or nonprofit – and is effectively recognized as
a person under law. A corporation has one or more owners and
– unlike a sole proprietorship or partnership – does not legally
represent a particular person, because it is an entity of its own.
Corporations issue shares of stock to their owners (called

shareholders). There can be one shareholder, or the corporation
could sell its shares to millions of shareholders.
This is the only legal structure which has limited liability. This
means that the company, as a separate entity, is legally liable for
its own actions and debts – not the owners.
To clarify, the owners (shareholders) can still lose money they

invested in the business, but if the business cannot pay the bills
or is sued, the owners cannot (normally) be held liable.
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Business Superhero
Company profits and losses are not added to the owners’ (or
shareholders’) personal tax returns – the corporation submits
its own corporate tax return. The company can decide to share
part of its profits with its employees and/or it can pay dividends
to its owners, the shareholders.
Advantages
Limited liability – the shareholders’ personal assets are
not in jeopardy if the business fails.
There are certain corporate tax advantages that are
not available to a Sole Proprietorship or Partnership.
Financing may be more easily obtained.
A Corporation will continue even after the death or
withdrawal of one of the founding members.
Disadvantages
Registering a corporation is more complex and costly.
Owning a corporation with shareholders requires that
financial and business reporting be done.
The company is ultimately owned by the shareholders.
If a single person or group owns more than 50% of a
company’s voting shares, then they have control over
the company. They could even vote to fire the founders.
Although a corporation has limited liability, there are instances
where the board of directors has been held liable for the actions
of the company. In addition, it is common with small companies
for lenders to require personal guarantees for loans, which
essentially ties the personal liability for the debt back to the
guarantor.
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4. Startup
Summary of legal structures…
SOLE
PARTNERSHIP CORPORATION
PROPRIETORSHIP
SIMPLEST
AND LEAST
EXPENSIVE TO
SET UP
ALLOWS FOR
MORE THAN
ONE OWNER
SEPARATE
ENTITY
LIMITED
LIABILITY
Seed Financing
Financing means money. Seed financing is the money needed
to start a new business. This money is used to cover startup costs,
like business registration, equipment, permits, insurance, building
renovations, and more.
Money may also be needed to buy product inventory and cover

operating expenses until the business becomes profitable. This
operating money is called working capital. The total of startup
costs plus initial working capital equals the amount of seed
financing needed.
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Seed Financing = Startup Costs + Working Capital

Types of seed financing include debt, equity, and grants – each
is described in detail under § Financing. Below is an example of
seed financing for a hot dog stand business.
Startup Costs Working Capital

Cart (Used) $1,000 Propane
Equipment $250 Hot Dogs, Buns, Toppings
Signage $100 Utensils, Napkins
Insurance $150 Wages for help
Permits $175
Total $1,675 Estimate $500/week
Seed Financing = $1,675 + $500/week x 10 weeks = $6,675
Sources of Financing
When seeking seed financing to start a new business,
entrepreneurs can explore the sources listed below – each is
described in detail under § Financing.
Love Money
Government
Angel Investors
Venture Capital
Banks and Other Lenders
Customers and Strategic Partners
Public Markets
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4. Startup
Due Diligence
The people being asked
to give or loan money to a
business or buy shares in the
business will conduct due
diligence before making their
financing decision.
Due diligence means

reviewing and researching
the business and its owners
and founders. A variety of
information may be requested,
including a business plan,
financial statements, share
structure, market information,
and more.
Confidentiality
Business owners must frequently determine which confidential
business information they may be comfortable sharing with
people inside and outside the company. A business is not
obligated to share its confidential information unless required
by law or regulation.
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Sharing confidential information may be necessary to
accomplish business tasks, establish partnerships, secure
financing, and more. Normally, confidential business information
should only be shared on a need-to-know basis.
Business owners should conduct due diligence before

sharing confidential information to make sure that disclosure
is necessary and that it will be with a trusted person or
organization.
Businesses often use a non-disclosure agreement (NDA)

to protect their confidential information. An NDA is a legal
contract where one or more parties agree not to disclose
confidential information that they have shared with each other.
When and how to use an NDA depends on the circumstances of

when confidentiality protection is needed.
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4. Startup
Business Location
The best location for a business will vary depending on the type
of business. For some businesses, choosing the right location
can be the difference between success and failure.
For example, a manufacturing, research, or similar business that

does not interact directly with consumers may not need to be
located in a high-traffic area. A more suitable location would be
one that provides lower rent and taxes, easy commute access for
employees, and less expensive shipping and receiving.
With a business that interacts directly with consumers, such as

a restaurant or retail store, being located in a high-traffic area
can be very advantageous. Understanding local traffic patterns,
weather effects, and the profile of consumers who live and work
nearby are important considerations when deciding on suitable
locations.
A business that is operated by remote workers may not need a

physical location. A mailing address for the business is always
needed, but office space may not be.
Location selection is also limited by local zoning regulations.

Most municipalities identify zones in their towns and cities
where businesses are allowed to operate.
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Site Selection
Once a location is selected for a business, the next step is to

select the site or building which will house the business and its
workers. Issues to consider are:
Purchase or rent (lease) cost and the terms for the

purchase or lease.
Utilities – energy and communications costs.
Renovations needed (called leaseholds if renting the
space).
Parking for employees and customers.
Maintenance, security, garbage pickup, landscaping, and
snow-clearing responsibilities.
Equipment Selection
Equipment for a business includes items common to most
businesses, such as furniture, telephones, and computers. There
is also equipment specific to the type of business, as described
in the examples below.
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4. Startup
Restaurant
Cash register, dishes, pots and
pans, oven, grill, deep fryer,
refrigerator, freezer.
Clothing Store
Cash register, display shelves
and racks, hangers, mirrors,
security devices.
Furniture Manufacturing
Woodworking equipment,
paint machines, forklift, large
storage shelves, safety gear.
When purchasing equipment, there are four primary

considerations:
Cost
Cost is an important factor in all purchases. Consider that the
least expensive option may not always be the best choice.
Something that may seem like a good bargain today, could turn
out to be more costly in the long run if it has other drawbacks.
Capacity
With manufacturing equipment, capacity determines how
quickly an item can be produced. With a restaurant or retail
outlet, equipment capacity determines how many customers
can be served at any one time. Purchase enough capacity to
avoid losing sales during time with high demand. But, higher-
capacity equipment can be more expensive, so finding the
proper balance is necessary.
Reliability
Equipment that does not work properly can cause problems if
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Business Superhero
products cannot be produced and sold. Consider the expected
reliability of the equipment that is being purchased. Used
equipment may cost less, but may break down sooner or require
costly repairs. Newer equipment may be more expensive.
Design
With manufacturing equipment, consider if the design provides
for efficient use by the operator. With a retail store, the design
should be consistent with the visual theme and identity of the
business.
Selecting the appropriate equipment for a business can directly

affect the success of the business.
Permits and Licenses

When starting a business, administrative work is necessary. It
is important to file and receive all the required documents and
approvals in a timely manner.
Regulations and requirements vary

for each type of business and the
location of that business – country,
state or province, and municipality. It
is the business owners’ responsibility
to find out exactly what is required for
the business by contacting the appropriate authorities.
A business owner cannot claim to not have known about a

requirement. If proper processes are not followed, the business
owners could be fined, sued, and the business could be shut down.
Examples of permits and licenses:
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4. Startup
Business Registration
All new businesses must register with the government.
Tax Registration
Tax registration with the government may be required,
depending on the location of the business and in what
regions of the world it does business.
Supplier
A permit may be required for selling goods.
Import and Export

A permit may be required for bringing physical goods
into the country or exporting them out of the country.
Food Service
Required for food service businesses to maintain safety
for public health.
Fire Safety
A permit required for new business locations to verify
that fire-safety regulations are met.
Health and Safety

Businesses that employ workers who could be injured
on the job must meet certain regulations to protect
workers.
Environmental
Businesses that work with materials or processes
that could impact the environment may be required
to adhere to certain regulations to protect the
environment.
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Business Superhero
Utilities
Establishing energy and telecommunications services
at a designated office or building requires coordination
with utilities companies.
Insurance
Certain types of insurance may be required for the
business to operate properly. Insurance coverage may
include fire, theft, business interruption, general liability,
professional liability, health and life insurance, and
more.
Zoning Regulations
Most municipalities identify zones in their towns
and cities where businesses are allowed to operate.
Businesses must be sure to locate within designated
zones.
Intellectual Property
Intellectual property (IP) is comprised of ideas, designs,
creations, and inventions. Individuals and businesses can
register their IP with the government to help protect the IP from
competitors who may try to duplicate the IP. Countries treat IP
differently – laws and protection will vary. Common types of IP
are described below.
Trademark
A trademark is a word, symbol, design, or a
combination of these, used to distinguish the
goods or services of one person or organization
from those of others in the marketplace. For
example, the word Coca-Cola is a registered
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4. Startup
trademark of the Coca-Cola Company. The
symbol ® is used to identify a registered
trademark. The symbol ™ is used to identify a
trademark that has not yet been registered.
Copyright
A copyright applies to all original literary,
dramatic, musical, and artistic works. For
example, if you write an original book, then you
own the copyright to that book and no one else
has the right to copy it without your permission.
The symbol © is used to identify copyrighted
work.
Patent
A patent applies to new inventions or processes
that offer innovative and useful functions. For
example, if you invent a new kind of mousetrap,
you can apply for a patent to help protect your
invention from being exploited by others.
Industrial Design
An industrial design is the shape, pattern, or
ornamentation applied to a manufactured
article. This may include things such as
the shape of a piece of furniture or the
ornamentation on the handle of a tool.
Integrated Circuit Topography

Integrated circuit topographies are the three-
dimensional configurations of electronic circuits
embodied in integrated circuit products or
layout designs. Examples include things such as
computers, smartphones, and televisions.
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Business Superhero
IP is complicated and, while it can provide some protection to
the registered owner, it is up to the IP owner to take action on
anyone that infringes on their intellectual property rights. But,
such action may be time-consuming, expensive, and may or
may not result in the desired outcome.
Business Advisors
Nearly all businesses require professional or expert advice

to properly operate and reduce potential risks. The business
owner must seek out business advisors who match their needs.
Business advisors include:
Accountant
Helps with bookkeeping, taxes, and other financial issues.
Lawyer
Helps with business law, business registration,
share structure, employee and customer contracts,
trademarks, and more.
Banker
Helps with banking and financial services.
Insurance
Helps with insurance policies, such as fire, theft,
business interruption, general liability, professional
liability, health and life insurance, and more.
Other types of advisors and consultants may also be helpful,
depending on the needs of the business.
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Business Superhero
Overview
Once the business idea and business model
have been determined, the next step is to
develop a business plan.
A business plan is a document that

describes, with some detail, how
the business founders, owners, and
managers plan to achieve success.
Purpose
A business plan has three main purposes:
1. For the entrepreneur to go through the process of carefully

considering all aspects of the business that are needed
to achieve success. Going through this process makes it
easier to discover risks, challenges, and opportunities and
how to navigate the business successfully. This process
also helps identify the viability and potential of the
business.
2. As a tool for communicating with investors, partners, and
employees. All these stakeholders need to have a clear
understanding of the business in order to work together to
make it successful.
3. For the business management to monitor and measure
success based on the path set out in the business plan.
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5. Business Plan
Format
A business plan normally covers at least the first year of
operation, and most often up to 3 years. Some business plans
attempt to project up to 5 years.
Most business plans range from just a few pages to 20 or 30

pages and will include a one-page summary at the front (called
the executive summary).
Normally, only the summary is sent to potential collaborators.

The full business plan is sent after there is agreement to explore
further.
A slide deck may also be prepared that has the primary

elements of the business plan summary. This is called a pitch
deck. The pitch deck is most often used in presentations, as
shown below.
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An elevator pitch may be
prepared that summarizes the
business in a few sentences.
The elevator pitch is used in
face-to-face conversations
or included in email or other
messages. The term elevator
comes from the idea that
the pitch should be concise
enough to be said in a brief
elevator ride with someone
you just met.
Key Topics
Business plans, executive summaries, and pitch decks tend to
include the same key information about a business. The order
in which the information is presented may vary. Below is a list of
topics that are usually included.
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5. Business Plan
Business Description
What the business wants to achieve and how it plans to do so,
using brief and simple terms – this could be the Mission and
Vision statements.
The Opportunity
The problem being solved or need being served by the
business. Profile of the consumers that are being targeted and
potential sales that can be generated.
The Product
Description of the product (goods or services) and price
structure.
Competition
Competing products and businesses and how the new product
and business is different enough to win sales.
Marketing and Sales Strategy

How the business will reach consumers and convince them to
buy.
The Team
Professional biographies of the founding team and key
managers.
Funding Requirements and Exit Strategy

Amount and type of financing needed. If seeking equity
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investment, include an exit strategy describing how investors
will make money.
Financials
Financial statements that show the current and future projected
state of the business. This includes Balance Sheet, Income
Statement (Profit & Loss or P&L), and Cash Flow. Collectively,
these financial statements are sometimes called pro forma
financials.
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Marketing
Marketing is sometimes described as:
Selling the right product (goods or services)

… to the right people
… at the right price
… at the right place
… with the right promotion
… at the right time.
A market is all the people who might buy a particular type of

product and the amount of money collectively spent on the
purchases.
A market can be divided into smaller groups, called market

segments, of similar potential buyers.
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6. Market Demand
Market segments might be set up by geographic region, age,
gender, economic status, language, family status, or many other
descriptive groupings that help guide marketing and sales
programs to reach these various groups of potential customers.
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Market Demand
Market demand is the amount of money that is spent by
consumers to purchase a type of product.
When you know the market demand, you can estimate the
number of product units that can be sold to consumers, as
shown in the table below using this formula:
Product Units Sold = Market Demand ÷ Product Price
MARKET DEMAND $100 $20,000 $150,000
PRODUCT PRICE $2 $20 $1,000
PRODUCT
50 1,000 150
UNITS SOLD
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6. Market Demand
Complete the table below with additional examples.
MARKET
$50 $40,000 $300,000
DEMAND
PRODUCT
UNITS SOLD $ $ $
Potential Revenue
Money your business receives by selling products is called
revenue.
Revenue is calculated by multiplying the number of products

sold by the product price, as follows:
Revenue = Price x Units Sold
PRODUCT UNITS
50 1,000 150
SOLD
REVENUE $100 $20,000 $150,000
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PRODUCT UNITS
50 1,000 150
SOLD
REVENUE $ $ $
Competition
Your ability to make sales and meet the market demand
depends on a number of factors, one of which is competition.
If two competing companies are offering similar products at the

same price, then it is likely that some consumers will buy one
product while some consumers will buy the other.
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6. Market Demand
The table below shows two competing products selling the
same number of product units.
MARKET DEMAND $100
PRODUCT PRICE $2
PRODUCT
50
UNITS SOLD
PRODUCT A PRODUCT B
PRODUCT
25 = 50% 25 = 50%
UNITS SOLD
The table below shows Product A selling many more units than
Product B.
MARKET DEMAND $100
PRODUCT PRICE $2
PRODUCT
50
UNITS SOLD
PRODUCT A PRODUCT B
PRODUCT
40 = 80% 10 = 20%
UNITS SOLD
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Product Differentiation
Why would Product A sell more than Product B? This could
happen for one or more reasons:
Better price (price is same in

the example above)
Better features
Better quality
Better brand
Better marketing
Better placement
(easier to find)
Available product inventory
(available, not out of stock)
What does better mean? Better means that one product
matches the needs of consumers better than the other.
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Pricing and Profit

Price is the money a customer gives to a business to buy its
product. Setting the price of a product is an important and
difficult decision.
How much should a sandwich cost? How about a car or a sofa?

How should a business that sells such products price them?
Your answer to the above may be influenced by your own life

experience. If you have purchased a particular product in the
real world, you may have a price in mind. This is sometimes
called price anchoring.
Be careful with price anchoring, because your own experience

may or may not represent a comprehensive assessment of the
marketplace. For example, location (country or region) may
have certain products priced much higher or lower than in other
regions or countries.
Variations in products can also greatly affect their cost. This is why
certain restaurants can charge much higher prices for their food,
while other restaurants compete on low price. Should a hamburger
cost $5 or $20? It depends. Will consumers pay $20? It depends.
What does it depend on? It depends on the consumer

profiles. These are the demographics and psychographics that
define the needs and desires of a consumer.
And, it depends on the profitability needs of the business.

The higher the price of a product, the more money that can
be made on each product sold. But, as price increases, fewer
products may be sold, which may reduce the total amount of
money made on all products sold.
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7. Pricing and Profit
Discovering the perfect balance between price, units sold, cost,
and profit can be complicated. These concepts are explored
below.
Price
Price is the amount of money (revenue) you receive when your
product is sold.
Cost of goods sold (COGS) is the cost to buy or make the

products that you have sold.
PRICE $10 $20,000 $500
COGS $3 $8,000 $600
PROFIT $7 $12,000 –$100
As shown in the table above, the price should be higher than

the COGS in order to achieve a profit on each product sold.
Otherwise, you will lose money on every product sold.
PRICE $50 $15,000 $700
COGS $20 $8,000 $825
PROFIT $ $ $
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Gross and Net Profit

If the price is higher than the COGS, then you are making a
gross profit on each product sold, but this does not fully
account for all costs and actual profit. The tables above show
gross profit.
Gross Profit = Price – COGS
Net Profit = Price – COGS – All Other Expenses
All Other Expenses includes costs for
sales, marketing, operations, and more.
When setting the price for your product, you must account
for COGS and all expenses required to operate your business,
otherwise you may lose money.
PRICE $10 $20,000 $500
COGS $3 $8,000 $600
GROSS PROFIT $7 $12,000 –$100
ALL OTHER
EXPENSES $8 $4,000 $250
NET PROFIT –$1 $8,000 –$350
As shown in the table above, when all other expenses are

included, only one of the products has positive net profit.
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PRICE $50 $15,000 $700
COGS $20 $8,000 $825
ALL OTHER
$12 $8,000 $200
EXPENSES
NET PROFIT $ $ $
Calculating Costs
To determine profitability, you must calculate all costs to make
and sell your product.
NUMBER OF PRODUCTS MADE 100
COST OF GOODS $6,000
SALES & MARKETING $5,000
OPERATIONS $2,000
ALL COSTS $13,000

Add the three costs above
COST PER PRODUCT $130

ALL COSTS divided by
NUMBER OF PRODUCTS MADE
$13,000 ÷ 100
Should be higher
PRICE
than $130
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NUMBER OF PRODUCTS MADE 100 5,000
COST OF GOODS $2,000 $5,000,000
SALES & MARKETING $2,000 $1,500,000
OPERATIONS $1,000 $1,000,000

ALL COSTS
Add the three costs above $ $
COST PER PRODUCT

ALL COSTS divided by $ $
NUMBER OF PRODUCTS MADE
PRICE SHOULD BE
HIGHER THAN $ $
Cost-Plus and Market Pricing

There are two ways to price products: Cost-plus pricing and
market pricing.
Cost-plus pricing means determining all the costs to make and

sell your product and setting a price that is a set amount above
this amount.
ALL COSTS $30 $10,000 $700
20% DESIRED
$6 $2,000 $140
PROFIT
PRICE $36 $12,000 $840

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ALL COSTS $40 $12,000 $500
20% DESIRED
PROFIT $ $ $
PRICE $ $ $
Market pricing means determining what consumers are

willing to pay for your product and setting the price to this
amount.
ALL COSTS $30 $10,000 $700
CONSUMERS
$40 $11,000 $950
WILLING TO PAY
PRICE $40 $11,000 $950
ALL COSTS $40 $12,000 $500
CONSUMERS
$52 $14,000 $750
WILLING TO PAY
PRICE $ $ $
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Selling Price Versus Retail Price

The retail price is what consumers pay for your product.
Consumers are the people who will actually use your product.
Some businesses do not sell directly to the end consumer.

Instead, they sell their product to a reseller or distributor, who
then sells the product to the end consumer.
The selling price is the money the reseller or distributor pays you for
your product. The reseller or distributor will then sell your product at
a higher price — the retail price — to the end consumer.
If you are selling your product to a reseller or distributor, your

pricing and profit calculations must include the difference
between the retail price and the selling price. This difference in
price is sometimes called the reseller discount, commission,
wholesale price, wholesale discount, or other similar term.
RETAIL PRICE $30 $10,000 $700
SELLING PRICE $21 $7,000 $560
DIFFERENCE 30% = $9 30% = $3,000 20% = $140

RESELLER DISCOUNT
RETAIL PRICE $20 $5,000 $1,000
SELLING PRICE $ $ $
DIFFERENCE 20% = $4 30% = $1,500 40% = $400

RESELLER DISCOUNT
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Cost-Plus Pricing with Reseller Discount

RETAIL PRICE $50 $10,000 $700
RESELLER DISCOUNT 20% = $10 30% = $3,000 40% = $280
ALL COSTS $30 $5,000 $300
PROFIT PER
$10 = 25% $2,000 = 29% $80 = 19%
PRODUCT
Cost-Plus Pricing with Reseller Discount

CONSUMERS
$50 $10,000 $700
WILLING TO PAY
RETAIL PRICE $50 $10,000 $700
RESELLER DISCOUNT 20% = $10 30% = $3,000 40% = $280
ALL COSTS $30 $5,000 $300
PROFIT PER
$10 = 25% $2,000 = 29% $120 = 29%
PRODUCT
Price Expectation
The amount of money consumers expect to pay for a product
depends on a number of factors. This includes the influence of price
anchoring, need, brand, and most importantly – consumer profiles.
Consumer profiles are the demographics and psychographics

that define the needs and desires of a consumer.
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8. Consumer Profiles
Consumer Needs
Consumers are the people or organizations who purchase and
use your product.
Needs are the desired preferences of consumers. Consumers

seek out and purchase products that match their needs.
When there are multiple products available, consumers will,

generally, purchase the product that most closely matches their
needs.
See the examples below.
CONSUMER NEED Low-priced product
PRODUCT A PRODUCT B
PRICE $2 $5
CLOSEST MATCH TO
CONSUMER NEEDS
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CONSUMER NEED High-quality product
PRODUCT A PRODUCT B
QUALITY Moderate Quality High Quality
CLOSEST MATCH TO
CONSUMER NEEDS
CONSUMER NEED Moderate-quality product at a low price
PRODUCT A PRODUCT B
PRICE $2 $4
QUALITY Moderate Quality High Quality
CLOSEST MATCH TO
CONSUMER NEEDS
CONSUMER NEED Moderate-quality product
PRODUCT A PRODUCT B
PRICE $2 $3
QUALITY Moderate Quality Moderate Quality
CLOSEST MATCH TO
CONSUMER NEEDS
In the final example above, both products match the consumers’

needs. But, Product A may sell more than Product B because of
the lower price.
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Demographics and Psychographics
You can determine consumer needs by investigating consumer

demographics and psychographics.
Demographics include gender, age, income, location,

and other statistical data.
Psychographics are how a consumer thinks, including

attitudes, aspirations, and other psychological criteria.
For example, if you sell an expensive luxury product,

you may want to focus on consumers who have high
income (demographics) and who desire luxury products
(psychographics).
If you sell a sports fitness product, you may want to focus on

consumers who play sports (demographics) and have a desire to
stay fit (psychographics).
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4 Ps of Marketing
Marketing is often summarized using what are called the 4 Ps:
Product The features of the product.
Price The price that consumers pay for the product.
The effectiveness of the sales and marketing

Promotion
invested in the product, and the brand.
The availability of the product where consumers

Place
are most likely to find and buy it.
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The table below shows an example of some of the factors that
consumers will consider when purchasing a soft drink.
A price-conscious consumer is more likely to purchase

Price
a lower-priced product.
A taste-conscious consumer is more likely to purchase

Taste
a better-tasting product.
A health-conscious consumer is more likely to

Health purchase a product that offers the most health
benefits.
A brand-conscious consumer is more likely to

purchase a product with greater brand equity. Brand
equity represents the brand awareness and brand
loyalty you have created for your business. Brand
awareness is how well-known your brand is versus the
competition. It can be improved with advertising and
Brand
sales promotion. Brand loyalty is the likelihood that a
customer who has already experienced your product
will purchase it again. It can be improved by getting
repeat or new customers to purchase your product,
with the hope that they will have a positive experience
with the product.
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Consumer Psychographics
In the soft-drink example above, each consumer has their own
level of concern for the four factors shown.
For example, Consumer A may be 100% Price conscious,

meaning they will always buy the least expensive soft drink. This
can be represented with the pie chart below.
PRICE
100%
Consumer B may be 100% Health conscious, and seek out the

healthiest product.
HEALTH
100%
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Consumer C may desire a soft drink that has a good balance
of Taste and Health and is willing to pay a higher Price for
the product that best matches their needs. This might be
represented by saying that this consumer has 50% concern with
Health, 50% concern with Taste, and 0% concern with Price. A
pie chart of this Consumer would look like the one below –
notice that it adds up to 100%.
PRICE HEALTH
100% 100%
Combining all four factors shown in the table above for a

particular consumer might look like the one below.
BRAND
TASTE 20%
30%
HEALTH
PRICE 30%
20%
Notice that all 4 factors add up to 100%. Some factors, like Health
and Taste, influence this consumer more than Price and Brand.
The product that most closely matches the consumer’s needs

will win the sale.
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Consumer Groups
Most markets have a variety of consumers, each with different

needs. From a marketing perspective, when looking closely at
consumer needs, patterns tend to appear.
These patterns tend to identify consumers who have similar

psychographics and group them together. These are called
consumer groups.
Consumer groups are a collection of thousands or millions of

consumer profiles into like-minded groups. This makes it easier
for a business to target specific types of consumers.
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For example, a market may have 10 consumer groups, each with
different needs, as shown below.
Targeting Consumer Groups

Complete the table below to identify the psychographics of the
given consumer groups from the chart above.
CONSUMER
PRICE BRAND TASTE HEALTH
GROUP
GROUP 1 100% 0% 0% 0%
GROUP 2 80% 10% 10% 0%
GROUP 3 % % % %
GROUP 4 % % % %
GROUP 5 % % % %
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A business that competes against other businesses to sell a soft-
drink product to the consumers above should consider all 10
consumer groups to identify which specific groups the business
will target.
Because the psychographics of each consumer group are so

varied, it is too difficult for one product to properly match the
needs of all 10 of the consumer groups shown above. Most
companies will identify specific consumer groups to target and
then define their product, price, place, and promotion to closely
match the needs of those consumers.
For example, a business that targets consumer groups 1 and 2

above should attempt to sell a product at the lowest price in the
market. Why? Because consumer group 1 is 100% concerned
about Price, and consumer group 2 is 80% concerned about
Price. To these groups, Price is the most important factor when
choosing which product to buy. A product that is very healthy
or tasty but much more expensive is not likely to appeal to these
two consumer groups.
A business that targets consumer group 8 should focus on

providing a product that is healthier than competing products.
Such a product, if priced well, will also likely win sales from
consumer group 3. And, possibly consumer groups 6, 7, and 10,
which also have Health as a concern.
Price is Always a Concern

Even if a consumer profile has 0% for Price concern, this does not
mean that the consumer is willing to pay anything for a product.
Nearly all consumers have price concern, even if they are wealthy
and can easily afford a product. Price is always a factor.
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A consumer profile that has 0% for Price concern should be
interpreted as meaning that these consumers put much more
emphasis on everything other than price and they will purchase
the product that best meets their needs, even if that product is
quite a bit more expensive. But, not if the Price is exorbitantly or
unreasonably expensive, as compared to other products in the
market.
What does exhorbitant or unreasonable mean when

it comes to Price? It depends on how closely the more
expensive product matches the needs of the consumer and
how much other competing products miss the mark.
If the more expensive product perfectly matches the needs of

the consumer, while less expensive products completely miss
the mark, then it is possible that the consumer will pay double
or triple the cost of the other products that miss the mark.
CONSUMER NEED 100% Health
PRODUCT A PRODUCT B
PRICE $2 $2
HEALTH Very High Very Low
CLOSEST MATCH TO Perfect match Does not match needs

CONSUMER NEEDS and has no price of consumer as well
difference. This as Product A, yet is the
product will capture same price. May only
most of the sales. capture few sales.
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But, the higher the price difference, the more likely that some
consumers may compromise their needs and either choose
the less expensive product … or choose not to purchase any
product at all, preferring to wait until a product is available that
better meets their needs. See the table below.
CONSUMER NEED 100% Health
PRODUCT A PRODUCT B
PRICE $4 $2
HEALTH Very High Very Low
CLOSEST MATCH TO Perfect match but Does not match needs

CONSUMER NEEDS price is double that of consumer as well
of Product B. This as Product A, but the
product will capture much lower price
a lot of sales, but might still attract sales.
will also lose sales to
Product B and some
consumers may
choose not to buy
anything.
Market Size
When considering which Consumer Groups to target, another
important factor is the market demand or population
percentage of each individual consumer group.
These numbers show how much of the money spent in the

marketplace is spent by each individual consumer group. This
is important because it helps you determine if a consumer
group is large enough to be profitable. If a consumer group
only represents a small percentage of the market, there may
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not be enough potential sales revenue for your business to be
successful.
Or, if more than one company targets the same consumer

group, the market demand dollars spent by that consumer
group will be split among different products, making it difficult
for the companies to be profitable.
In the chart above, consumer group 1 (navy blue) is the largest

of the 10 groups, which means group 1 spends the most money.
It appears as though group 1 represents over 30% of the entire
market.
Consumer group 2 (purple) is so small that it cannot be seen

on the chart. Group 2 spends so little money that it may not be
profitable for any business to target this group.
With group 1 being the largest of the groups, many companies

may immediately target this group. But, keep in mind that
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Business Superhero
if too many businesses target the same group, the market
demand dollars spent by that group will be split among the
competing products. Targeting smaller groups can also be a
profitable strategy, if there are fewer competitors.
Market Data
Where does a business obtain market and consumer data like
the type above?
Market data is collected through market research, which may

include interviews, surveys, sales results, and other methods for
collecting data.
Collecting accurate market data can be difficult, time-

consuming, and expensive. Larger companies can afford to
purchase or commision market research. Smaller businesses
have to find it through more affordable sources, which may
include industry associations, media reports, and government
statistics.
While it would be ideal for every business to have access to

accurate and easy-to-understand market data, the reality is that
most businesses make decisions without the benefit of such
data. This is one of the inherent risks of business.
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Strategy
Strategy is how a business plans to achieve its goals.
There are four steps for a successful business strategy:
1. Define the strategy

2. Make decisions that align with the strategy
3. Evaluate adherence to strategy
4. Adjust the strategy as needed
The 4 Steps
(1) Define the strategy
Defining your business strategy means identifying your primary
business goal and then determining how to best achieve the
goal.
For example, the primary goal may be profit. To be profitable,

you have to sell a product at a price that is higher than your cost
to make and deliver the product.
You may be competing against other companies offering

similar products. You must differentiate your product in the
marketplace. And, you must determine the features and price
of your product, where you will sell it, and how much you will
invest in promotion.
You should consider consumer profiles and identify specific

consumer groups that you will target. You may choose to offer
a high quality, high-priced product. Or, you may choose to be
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9. Strategy
the moderate quality, lower-priced product. Or, somewhere in
between. Your choice is your strategy.
Review § Consumer Profiles for more insight on this subject.
Here is a simplified strategy for a soft-drink manufacturing

business:
Objective = Net Profit
Pricing = Below Average
Production = Above Average
Taste = Low
Health = High
This suggests that the business strategy is to target consumer
groups that want a healthy product, who do not care as much
about taste, but also want a less expensive price.
With price below average, you expect that you will sell a high
volume of product and therefore production must also be
above average.
Complete the table below by identifying if each product feature

should be High, Medium, or Low for a soft-drink business that is
trying to achieve the strategy shown.
STRATEGY Very healthy Product that Balance of taste

product but tastes great at an and health at an
somewhat average price average price
expensive
PRICE
HEALTH
TASTE
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The next step is to make decisions that align with your strategy.
(2) Make decisions that align with the strategy

Once you have defined your strategy, you must then use your
budget money to invest in areas that will enable you to achieve
your strategy.
In the example above, the defined strategy is to have a healthy

product with no focus on taste. This means you should
invest as much money as you think is necessary to have one
of the healthiest products on the market, as compared with
competing products.
When just starting out, you may not have as much information
to know how healthy competing products are or will be, so you
will have to make an educated guess at how much you should
invest to be close to hitting your target.
For taste, you may want to make little or no investment, since

that is not a focus of your strategy. Your budget money may be
better used in other areas that align with your strategy.
Using a similar example as above, identify in the table below

where your money should be invested. Enter 100% or 50%
making sure each column adds up to 100%.
STRATEGY Very healthy product Product that Balance of taste

but somewhat tastes great at an and health at an
expensive average price average price
HEALTH % % %
TASTE % % %
TOTAL 100% 100% 100%
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9. Strategy
For production, you have to forecast how many product units
you may sell, based on your stated strategy.
Review § Pricing and Profit and § Market Demand for
more insight on this subject.
(3) Evaluate adherence to strategy

Once you have actual business and market results, you may now
have the data available to evaluate adherence to your strategy.
This means determining if the decisions you made achieved the

results you expected. A business cannot assess the effectiveness
of its strategy unless it is actually executing on its strategy.
For example, in the strategy above, health was a primary focus.

Try to assemble data to determine how your product compares
to competing products.
Did you achieve the healthiest product? If yes, then you are on
target and adhering to your strategy. If no, then you have to
make decisions to help you get there.
Same with taste. Taste was not a focus of your strategy. Have you
invested the right amount of money in taste? Not too much?
The table below shows a strategy, the actual results, and

whether the strategy is on target or not.
STRATEGY Product that tastes great at an average price
PRICE Below Average
HEALTH Average
TASTE Above Average

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Complete the table below by identifying if each item is
On Target or Off Target.
STRATEGY Balance of taste and health at an average price
PRICE Above Average
HEALTH Average
TASTE Average
How were sales? Were your forecasts on target or missed the

mark? Did you produce too many or too few products?
Evaluate these and other results to discover if your decisions

adhered to your strategy or not. If your decisions did not adhere
to your strategy, then it is difficult to determine if the strategy is
working or not.
(4) Adjust the strategy as needed

Once you are properly executing on your stated strategy, then
the effectiveness of your strategy can be measured by the
overall financial results.
Once you have determined adherence to your strategy, make

adjustments to align even closer to your strategy and optimize
your investments.
For example, take a closer look at health to consider if you may

have invested more money than necessary. If your product is
the healthiest in the market by a large margin, then perhaps you
invested more than you needed to.
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9. Strategy
See the example in the table below that shows the action that
should be taken based on the results that have been revealed.
STRATEGY Product that tastes great at an average price
PRICE Below Average ACTION: Increase Price
HEALTH Average ACTION: Reduce Investment
TASTE Above Average ACTION: Continue Investment
Complete the table below by identifying that actions that

should be taken.
STRATEGY Balance of taste and health at an average price
PRICE Above Average
HEALTH Average
TASTE Average
Determine if your strategy is working or not. If you have

adhered to your strategy, but it’s not working as well as you had
hoped, then consider changing your strategy.
Keep in mind that your competitors are also thinking through

this process and may adjust their strategies as well. Their
decisions will affect the marketplace and your results. Try to
predict what they may do as well, so that you can respond.
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Business Strategy Tips

When determining a strategy, keep the following in mind:
Understand consumer behavior.

If you do not understand how customers make purchase
decisions, you will not know how to best position your
business to serve their needs.
Generally, a business will not have enough cash to
be the best at everything — in the case of a soft-drink
business: price, taste, health, and brand. Choose a limited
number of features to be the best at.
Know the market demographics/psychographics.
Consumer profile groups vary in size. Make sure you are
targeting a large enough segment of the market to be
profitable. For example, if you are running a soft-drink
business and you are targeting taste-conscious consumers
because your product is the taste leader, make sure this
consumer profile group is large enough to make you
profitable.
Price your products carefully. Price your products high
enough to cover all of your costs (production, distribution,
reseller, research and development, sales and marketing),
and add an amount of profit that is achievable based on
your competitors’ prices and product features.
Know your competition. Understanding the strengths
and weaknesses of your competitors enables you to better
position your business. For example, if you are running a
soft-drink business and you notice that a large consumer
profile group is health-conscious but your competitors’
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9. Strategy
products are weak in health benefits, then you may want
to consider investing heavily to become the health leader.
If you are losing money, it could be for one or more of
these reasons: Price is too low; Did not produce enough
units to sell; Your product is not as attractive as your
competitors’; Too many companies are targeting the same
consumer profile group; Insufficient sales and marketing
efforts.
Consider being contrarian. If most competitors are
pursuing the largest consumer profile groups, the market
may become too competitive for profitability (i.e., a big
pie that is divided into too many small pieces). Consider
pursuing smaller consumer profile groups where you may
have minimal competition (i.e., a bigger piece of a small
pie).
Timing and luck matter. A great strategy may still fail
due to bad timing and luck. You never know when an
unexpected event may happen, or a competitor may
drastically drop price or pursue some other market-
changing strategy.
Ready to Start
or Level Up Your
Career in Business?
119
10. Inventory Management
Inventory
Inventory refers to the units of your product that are fully
completed and ready to be sold.
Producing (making) products costs money. Having products

stored in inventory, unsold, also costs money. Your business
objective is to keep your inventory as low as possible, while not
missing sales.
Review the table below that shows how unsold products remain
in inventory.
UNITS PRODUCED 100 100 100
UNITS SOLD 0 70 100
UNITS IN INVENTORY 100 30 0
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UNITS SOLD 35 650 350
UNITS IN INVENTORY
Producing Too Few Units

If customers want to buy your product but you have no product
units in inventory, then you will miss sales and the revenue from
those sales. Review the examples in the table below.
UNITS PRODUCED 110 100
CONSUMER DEMAND 100 120
MISSED SALES 0 20
PRODUCT SELLING PRICE $2 $2
MISSED REVENUE $0 $40

0 x $2 20 x $2
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UNITS PRODUCED 500 500
MISSED SALES
PRODUCT SELLING PRICE $3 $5
MISSED REVENUE $ $
Producing Too Many Products

If you produce too many products, meaning more than
required to meet the sales demand, then you will have products
remaining in inventory.
There are costs and risks to having unsold products in inventory,

including:
Cash Flow
The money it costs you to produce the unsold products
is now tied up in those products. This money is not
lost, as you still have sellable products, but the money
cannot be used in other areas of the business.
For example, $10,000 spent to produce products that

are unsold could have been used in sales, marketing,
R&D, or other business function.
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Carrying Costs
This includes costs associated with storing the product
inventory, making sure it is secure and undamaged,
insurance costs, potential depreciation in value of the
product, and more.
For example, a car that is unsold for many months

could lose much of its value when a new model year is
released. Similarly, a smartphone loses its value when a
newer version becomes available.
Spoilage
Nondurable consumer goods, such as food, will expire
or spoil after a certain amount of time. The money
invested in making a product that spoils before it is sold
is completely lost.
The table below shows example costs.
UNITS SOLD 0 70 90
UNITS IN INVENTORY 100 30 10
PRODUCTION COST PER UNIT $5 $10 $50
CARRYING COST PER UNIT $1 $1 $2
AVERAGE SPOILAGE 10% 10 3 1
COST OF INVENTORY $150 $60 $70

100 x $1 + 10 x $5 30 x $1 + 3 x $10 10 x $2 + 1 x $50
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UNITS PRODUCED 300 850 1,500
UNITS SOLD 250 780 1,200
UNITS IN INVENTORY
PRODUCTION COST PER UNIT $10 $20 $50
CARRYING COST PER UNIT $2 $3 $5
AVERAGE SPOILAGE 10%
COST OF INVENTORY $ $ $
Forecasting
You should try to produce exactly the number of products you
expect to sell. Meeting this objective is difficult because you
have to forecast (predict) the future and the future is uncertain.
This is one of the many risks in business.
To forecast sales, use current market data and historical sales to

help determine estimates, as shown in the tables below.
The following examples use the market demand that you expect
to win from the overall market. The following formula is used to
determine how many units are expected to be sold:
Units Sold = Market Demand ÷ Product Retail Price
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MARKET DEMAND
$100 $500 $15,000
YOU EXPECT TO WIN
PRODUCT
$2 $10 $150
RETAIL PRICE
UNITS EXPECTED
TO BE SOLD 50 50 100
This is how many you
should produce
MARKET DEMAND
$200 $700 $40,000
YOU EXPECT TO WIN
PRODUCT
$5 $25 $150
RETAIL PRICE
UNITS EXPECTED
TO BE SOLD
This is how many you
should produce
The tables above demonstrate a method to determine how

many products could be sold. You should also review past sales
to determine how consistent your forecast is with past market
data. Review competitor sales information to gain further
insight into sales potential.
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Sales Versus Marketing

Sales and marketing are interlinked, usually done
simultaneously, and may be indistinguishable at times. But,
there are key differences between sales and marketing.
Marketing generally refers to the activities that need to be

done to generate leads or prospects. Leads and prospects are
terms used to describe people or organizations that may be
likely to purchase your product or service. (Prospect is short for
prospective customer.)
A person or organization is likely to purchase your product if they

have a need for the product and the money to buy it. They must
also have a desire to purchase, and that’s where Sales comes in.
Sales are the activities needed to directly persuade a lead or

prospect to actually buy a product or service.
Marketing generates the leads and sales turns them into

purchases.
MARKETING Generates Leads
SALES Converts Leads into Sales
Market
A market is all the people or organizations who might buy your
product or service, either from you or from a competitor.
A market can be broken down into smaller groups, called

market segments, of similar potential buyers (sometimes
called consumer groups).
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11. Sales and Marketing
The graphic below shows the market as the large circle divided
into market segments or consumer groups of various sizes.
Market segments might be set up by geographic region, age,

gender, economic status, language, family status, or many other
descriptive groupings. These descriptions help you develop
marketing and sales programs to reach these various groups of
potential customers.
Review § Consumer Profiles for more details.
Customer Types
Potential customers (prospects) and customers can be
segmented into two types:
Individuals who buy goods and services for themselves

or for a friend or family member. These types of customers
are called consumers or retail customers.
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Businesses or organizations that buy goods and
services to use in making their own products or making
their business run. These organizations include companies,
governments, schools, hospitals and other organizations.
These are business or organizational customers, and they
have different reasons for buying than individual users.
Sales Methods
There are three basic ways to sell your products or services:
Direct Sales
The customer buys your product or service from your
business:
Selling in a retail store.

Selling with a company sales force or telemarketing
group.
Selling through a company catalog or online.
Distribution Channels
The customer buys your product from another
business, your company receives its money from selling
to “middlemen,” including:
Selling wholesale to distributors or resellers.

Selling through sales representatives and partner
companies.
Combination
Using both direct sales and distribution channels.
130 Georghiou.com
The table below shows some products and how they are sold.
DIRECT SALES DISTRIBUTION CHANNELS
Apple Stores Telecommunication

APPLE iPHONE
and Website Companies
Apple Stores
APPLE WATCH
and Website
Convenience Stores, Grocery

COCA-COLA Stores, Vending Machines,
and other outlets
FORD
Automotive Dealerships
AUTOMOBILES
TESLA Tesla
AUTOMOBILES Dealerships
Once you understand where your potential customers are

located and how they buy, selecting the right sales methods will
be more obvious.
Promotion
There are three ways to promote your company and its products:
Product Line and Brand Advertising

Promotes the overall product line and brand to build
awareness and generate sales.
Sales Promotion
Utilizes in-store displays, contests, and other sales
tactics to reach the consumer directly.
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Price Discount Advertising
Promotes a price discount (or sale) to boost sales. Price
discounts are usually temporary and it is advisable to
inform consumers about the sale.
Brand
Brand is how people feel about your business or product. The
better they feel about you, the more likely they are to try your
product and stay loyal to your business.
You cannot dictate how people feel, but you can influence this
feeling with your brand personality, brand promise, tone of
voice, visual identity, brand associations, and more.
Brand Personality
The human personality characteristics that are associated
with a brand. For example, RedBull (energy drink)
might be considered adventurous or brave, while Ben &
Jerry’s (ice cream) might be fun or playful.
Brand Promise
The promise for the kind of experience people will have
with your company or product.
Visual Identity
Visible elements of a brand, including color, form, and
shape. Includes color, logo, type, imagery, packaging
design, and more.
Tone of Voice
Refers to the written word, not spoken. The language
used, the way sentences are constructed, the order and
132 Georghiou.com
sound of words, and the personality communicated. It
is not what a company says, but how it says it.
Brand Association
Relationship to other brands.
Brand is complicated and frequently misunderstood. Two

measurable elements of brand are brand awareness and
brand loyalty.
Brand awareness is how well-known your brand

is versus the competition. It can be improved by
advertising and sales promotion.
Brand loyalty is the likelihood that a customer who

has already experienced your product will purchase
it again. It can be improved by getting repeat or new
customers to purchase your product, with the hope
that they will have a positive experience with it.
Territories
Selling your product or service to more geographic territories
increases your potential revenue opportunities, but comes with
additional costs and challenges.
When selling a product or service, you should identify specific

geographic territories that you will target. Even though your
potential customers could be located anywhere in the world, it is not
efficient to spread your sales and marketing investment too widely.
For example, if your product requires knowledge of the English

language, spending money on promoting the product in
countries where English is not widely spoken may not result in a
good return on investment.
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Different regions of the world may also have different needs and
expectations for a product. This could be influenced by language,
culture, economic factors, and more. Your product may or may
not align to these needs as well as competing products.
The table below shows examples of products and the

territories that may be best to target. Complete the table by
indicating Yes or No.
UPPER INCOME LOWER INCOME

MOSTLY URBAN MOSTLY RURAL
FITNESS EQUIPMENT Yes No
SOLAR PANELS No Yes
SPORTS CARS
FARM EQUIPMENT
Many countries also have their own monetary currency, which

adds another complexity to your business as you have to
determine the effects of the currency exchange rates on your
potential costs and profitability.
Entering a new territory often requires additional investment to

prepare your product and company to service the new region.
And, your business will have different brand equity in each
territory that you have to invest in separately to grow.
To identify the best territories to target, you should consider the

market demand and consumer profiles.
This will help you identify the best opportunities that align with
your strategy.
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Inventory Distribution
When selling a physical product, you have to consider transportation
costs and logistics. This becomes more complicated when you sell
into multiple territories because you may have to determine how
much product inventory to allocate to each territory.
If you allocate too little inventory in a territory, you may miss sales.
If you allocate too much inventory, you may increase your costs by
having unsold products — and those same products could have
helped win sales in another territory. See the example below.
TERRITORY USA CANADA
UNITS DISTRIBUTED 110 100
MISSED SALES 0 20
TERRITORY USA CANADA
UNITS DISTRIBUTED 700 200
MISSED SALES
Currency
Many countries have their own monetary currency, which adds
another complexity to your business as you have to determine the
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Business Superhero
effects of the currency exchange rates on your potential costs and
profitability.
Review § Currency for more details.
Advertising
Advertising is a subset of marketing. Advertisements are
messages paid for by those who send them and are intended to
inform or influence people who receive them.
For a business, advertising is used to inform consumers about a

company and/or its products and services. The objective is to
influence consumers to feel good about the company and to
buy its products and services.
TV & Video Magazine Billboard
Radio, Music, Direct Mail Social Media
Podcast Events Email
Newspaper Sponsorship
There are many advertising channels available to

communicate a message. Channels refers to the medium used
to communicate the message. Examples are shown below.
Most businesses use one or more channels. How and which

channels are used is called the advertising mix.
Different channels will reach different consumers, so it is

important to understand which advertising channels reach
the consumer groups you are targeting. Spending money on
advertising that will not directly reach and influence your target
consumers is a wasted investment.
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Employees
Human resources (HR) refers to people hired to work directly for
your company. People who work for and in the company are
called employees. An employee is someone who does work in
exchange for some form of compensation, such as wages. An
employer is an individual or organization that provides a job to
an employee.
Some people in a company directly manage employees,

including their daily work, productivity, morale, and more.
Senior executives in larger companies tend to manage business
units or business functions, instead of individual employees.
The more customers that a business attracts, the more work that
is needed to serve those customers. The maximum number
of customers that can be served may depend on the capacity
of the business location, the capacity of equipment, and the
number of employees working.
Depending on the type of business and product offered, there

may be other factors that limit the number of customers that
can be served.
Hiring
A business (the employer) can hire employees at any time,
as long as it has enough money to compensate the future
employees. The first step in the hiring process it to write a job
description outlining the details of the job, the skills required to
do it, and how to apply for the job.
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12. Human Resources
The job description can then be promoted to encourage people
to apply. The wider the job description is promoted, the more
likely it is that qualified candidates will be found.
Candidates will submit resumes that the employer can review

to identify people that may be most qualified to do the job. The
employer can then choose to interview candidates in person or
over the telephone or other method. The interview provides an
opportunity to find out more about the candidate and for the
candidate to find out more about the employer. An employer
may also request references that can provide more information
about the candidate.
Once a candidate is selected for the job, the employer can

submit an employment offer for the candidate to review. If the
candidate accepts the employment offer, he or she will become
an employee of the business.
It is advisable to document employment relationships in writing to

avoid misunderstandings that can lead to financial and legal trouble.
Choosing the right employee for the job is very important

for the success of a business and should be done with care.
Employers must also be aware of and follow local employment
guidelines to assure that candidates for employment and
employees are treated properly. Asking a candidate certain
questions can even get the employer in trouble.
Managing
Once employees are hired, the employer must be prepared
to properly manage them. This means providing appropriate
training for the job, scheduling, and ongoing direction.
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A business that manages and treats its employees well is more
likely to succeed in the long term
Hiring and Severance Costs

Hiring Cost is the cost to hire one new employee, including:
Recruiting
Time and cost to post and promote the job opening,
identify candidates, interview candidates, and select
someone for the job.
Orientation
Time and cost to introduce the new employee to their
job function and the company processes and systems.
Basic job training

Time and cost to train the employee on how to do their
job and other tasks related to their role.
example.
EMPLOYEES HIRED 1 5 8
HIRING COST $1,000 $5,000 $
Severance Cost is the cost to layoff or fire one employee.

Severance Cost varies by company and employee, but could
include unpaid vacation pay, unused sick time, compensation
for loss of seniority, payment if no advance notice of job loss,
and other benefits.
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12. Human Resources
Review the examples in the table below and complete the third
item.
EMPLOYEES DISMISSED 1 3 7
SEVERANCE COST $2,000 $6,000 $
Salary and Benefits

Salary (or wage) is the money paid to an employee for working.
Some employees are paid a certain amount of money for each
hour they work. Most countries and regions have a minimum
wage that must be paid for one hour of work.
Some employees are paid a set salary for consistently working,

instead of hourly pay. For example, most full-time employees
work 30 to 40 hours each week and may be paid a set salary for
the entire year of work — often paid every 2 weeks or once a
month.
Part-time employees normally work less than 20 hours each

week. The number of hours an employee is expected to work is
negotiated between the company and the employee.
example.
EMPLOYEES 1 3 8
SALARY COST $30,000 $90,000 $
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Benefits and programs are compensation, perks, and
incentives that businesses may choose to offer in order to
maintain or improve employee morale, loyalty, productivity,
recruiting, and turnover.
examples. The cost of benefits is shown as a percentage of
salary.
SALARY COST $30,000 $40,000 $60,000
BENEFITS COST % 10% 10% 10%
BENEFITS COST $ $3,000 $ $
Employee Morale
Morale represents the emotional well-being and attitude
employees have towards their work, work environment, and
employer.
Higher employee morale may result in increased job satisfaction,

higher productivity, better customer service, reduced
absenteeism, lower job turnover, and other benefits.
Employee morale may be influenced by compensation,

productivity, work environment, management relations,
company reputation, and other factors.
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12. Human Resources
Productivity
Productivity is the labor output, efficiency, or efficient use of
an employee, machine, system, materials, etc.
For example, a fast-food restaurant may be able to serve 100

customers an hour with 5 people working in the kitchen. If the
restaurant upgrades the kitchen equipment and is able to serve
120 customers an hour, it will have increased productivity by
20% = (120 ÷ 100 – 1) x 100%
Another way to achieve the same productivity increase is for the

restaurant to improve its work processes to serve 100 customers
an hour with only 4 employees instead of 5. This will result in a
productivity increase of 20% = 1 – (4 ÷ 5) x 100%
Productivity can be more complicated than the simplified

examples above demonstrate. Increasing productivity can have
negative consequences, such as reducing quality or customer
service. Care must be taken to consider all the implications.
Productivity can be influenced by processes, equipment,

materials, and many other factors that may have tangible and
measurable costs and benefits.
Productivity with employees can be more difficult to manage

because of intangible factors. When more employees are
needed to accomplish tasks, business costs increase by
having to pay more salary and benefits. Sometimes, these
additional costs can be justified, while other times there may be
inefficiencies that can be improved.
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Employee productivity may be affected by training, turnover
rate, and morale.
Training
Training an employee can increase their efficiency with
completing job tasks and increase confidence and job
satisfaction.
Turnover Rate
Reducing and maintaining a low employee turnover
rate maintains and increases productivity by not having
to continually train new employees. Longer-serving
employees can also build their knowledge of the
internal workings of the company and their personal
expertise in doing their jobs.
Morale
Employees who have higher morale may work faster
and smarter to accomplish their tasks.
Turnover
Turnover is when an employee leaves a company, or is laid off or fired.
Employees choose to leave companies for a variety of personal

reasons.
Companies choose to lay off employees if they have a shortage

of work, financial challenges, a change in strategy, or if the
employee is not performing their job as well as required.
Companies may fire employees for misconduct or other reason

that justifies dismissing the employee.
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12. Human Resources
Turnover rate is the percentage of employees that leave a
business in a year. For example, a business that has 10%
turnover means that 10% of all of its employees (such as 10
out of 100) are replaced every year. Companies with high
turnover may suggest that employees are not pleased with their
compensation, work, or the company.
example.
TOTAL EMPLOYEES 100 100 200
TURNOVER RATE 10% 10% 10%
EMPLOYEES REPLACED 10 15
Reducing and maintaining a low employee turnover rate saves a

company money by not having to incur hiring costs each time
an employee is replaced, and severance costs each time an
employee is let go.
Having a low turnover rate may also maintain and increase

productivity by not having to continually train new employees.
Longer-serving employees can also build their knowledge of the
internal workings of the company and their personal expertise
in doing their jobs.
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13. Ethics
Business Ethics
Business ethics refers to the values and principles that your
company maintains in managing business risks and stakeholder
relations.
Stakeholders include employees, customers, suppliers, the

community, and more.
Ethics is a key decision that will affect every aspect of your

business, internally and externally.
A company that is ethically weak is more likely to take

advantage of its customers, exploit its workers, and perhaps
mislead its shareholders and the public. The result may be
short-term financial gain, but with the risk of negative long-term
consequences as the weak ethical practices are discovered and
exposed.
WEAK ETHICS BENEFITS CONSEQUENCES
May take Short-term Long-term loss of

advantage of financial gain, such sales, consumer
customers, as lower costs and confidence,
exploit workers, maybe more sales brand equity,
and mislead from increased and exposure to
shareholders and brand awareness. lawsuits.
public.
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A company that is ethically strong is more likely to be careful
and fair in all of its interactions with customers, workers,
shareholders, and the public. The result may be increased costs
but improved goodwill, customer loyalty, employee retention
and commitment, supplier partnerships as well as many other
benefits.
STRONG ETHICS BENEFITS CONSEQUENCES
More careful Increased brand Increased costs

and fair in all equity, customer required to
interactions with loyalty, employee implement and
customers, workers, retention, supplier monitor ethical
shareholders, and partnerships, practices.
public. goodwill, and more.
Ready to Start
or Level Up Your
Career in Business?
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Business Superhero
Business Financing
Financing means money. Businesses often need money to
start a business, grow a business, buy new equipment, conduct
research and development, expand operations, or achieve other
objectives.
Businesses commonly raise money using one or both of these

methods:
Debt Financing
Taking out a loan is debt financing. Debt means
borrowing money that must be repaid, often with
interest.
Equity Financing
Issuing stock is equity financing. This means selling a
share of the business (equity) in return for money. This
money is not repaid like a loan. In the real world, a
shareholder may be entitled to a share of profits and
other benefits. Distribution of profits to shareholders is
called issuing dividends.
A third method is grant financing, but this is less common –

more on grant financing below. Entrepreneurs may use their
own personal savings to finance a business – this money is
usually invested into the company in the form of debt or equity
financing.
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14. Financing
Debt Financing
Banks and other lenders provide money to businesses in the
form of loans. Lenders make their money by charging interest
on the loan. This means you have to pay back more than you
borrow. Normally, a loan is repaid by making monthly payments
over a specified period of time (the term).
Qualifying for a loan to finance a new business is not easy.

Loaning money to new businesses is considered risky because
if the business fails, the loan may not be repaid. To reduce the
risk, lenders may request that a business loan be personally
guaranteed by the owner or be secured with collateral.
A personal guarantee is a promise made by the business

owner (or an affiliated person) to repay the loan personally, if
the business is unable to do so. If the business owner does not
have money to repay the loan, the lender could force the sale of
personal assets.
Collateral is when a loan is tied to a particular item of value

(asset). For example, a loan to purchase a home (called a
mortgage) uses the house as collateral. If the owner cannot
pay the mortgage, the lender will take ownership of the house.
This is also common with an automobile loan, where the
automobile is the collateral.
A loan made to a business may use the business assets as

collateral, which may include equipment, inventory, vehicles,
trademarks, patents, and other tangible and intellectual
property. If the business assets are not of significant value,
personal guarantees may be required.
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Applying for a Loan

When a business receives a loan, it raises new money that
increases cash. Loan terminology:
Loan Principal
The amount of money to be borrowed.
Interest
The extra amount of money to be paid back in addition
to the loan principal.
Interest Rate
The interest to be paid, stated as a percentage of the
loan principal.
Compounding Period
How often Interest is calculated on the loan.
Payment Period
The frequency in which loan payments will be made.
Amortization Period
The length of time it will take to repay the loan with
interest.
Amortization Schedule
The amounts and dates due for each loan payment.
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14. Financing
Loan Example
You apply for a loan…
PRINCIPAL $10,000
INTEREST RATE PER YEAR 10%

COMPOUNDED YEARLY
PAYMENT PERIOD MONTH
AMORTIZATION PERIOD 4 YEARS

(48 MONTHS)
When you receive the loan principal, your cash will increase
by $10,000. Your loan payments will be withdrawn from cash
each month. Each payment includes a portion of principal and
interest.
Review the example in the table below that shows how much
loan interest is repaid, then complete the other examples.
PRINCIPAL $10,000 $25,000 $20,000
INTEREST RATE 10% 10% 20%

COMPOUNDED COMPOUNDED COMPOUNDED
PER YEAR YEARLY YEARLY YEARLY
PAYMENT
1 YEAR 1 YEAR 1 YEAR
PERIOD
AMORTIZATION $1,000
PERIOD $10,000 x 10 ÷ 100% $ $
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Equity Financing
An equity investment is when a person or organization gives
money in return for a percentage or share of ownership in a
business. The investment does not have to be repaid like a loan,
but does have other considerations.
Having investors in a company can be beneficial because it

is in their best interest to help the company succeed. But,
sometimes investors may try to influence the operations and
direction of the company more than the original founders or
owners would like.
See § Ownership for more details about selling shares or stock

in a business.
Equity Example
When raising money by selling shares, a business must
determine a share price for the shares. The share price will
determine how many shares will be issued to the investors
providing the financing or other benefit to the company.
The following formula applies with examples in the table below:
Money Raised = Share Price x Number of Shares
SHARE PRICE $1 $2 $5
NEW SHARES
1,000 1,000 2,000
ISSUED (SOLD)
MONEY RAISED $1,000 $2,000 $10,000

= $1 x 1,000 = $2 x 1,000 = $5 x 2,000
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14. Financing
To raise more money, the number of shares issued has to be
increased or the share price has to be increased – or both.
NEW SHARES
1,000 1,000 2,000
ISSUED (SOLD)
MONEY RAISED $ $ $
Share Price
A business sets its share price based on the total value of the
company – called the company valuation. Determining the
value of a company is a complex topic, but once the value of a
company is determined, the share price is easily calculated by
dividing the value of the company by the total number of shares
issued and outstanding, as follows:
Share Company Number of Shares

Price
= Valuation
÷ Issued and Outstanding
COMPANY
$10,000 $50,000 $50,000
VALUATION
SHARES
ISSUED AND 1,000 1,000 2,000
OUTSTANDING

= $10,000 ÷ 1,000 = $50,000 ÷ 1,000 = $50,000 ÷ 2,000
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COMPANY
$60,000 $100,000 $200,000
VALUATION
SHARES
ISSUED AND 1,000 100,000 2,000
OUTSTANDING
SHARE PRICE $ $ $
With a public company that is trading on a stock exchange, the

price of shares that are already issued and outstanding is set by
traders buying and selling the shares on the stock exchange.
However, when raising money, a public company can issue new

shares at a price that is different than what is being traded on
the stock exchange. Take note that the money used to buy and
sell shares on a stock exchange does not go to the company
that issued the shares. The money stays with the buyers and
sellers, because they are trading shares that were already
issued previously by the company (and for which the company
has already received money from the person who originally
purchased the shares). For a company to raise new money, it
must issue new shares from the company.
When a company wants to raise money by issuing new shares,

it must find investors who are willing to purchase the new
shares at a share price that is agreeable to the investors and
the company. This makes determining the value of a company
even more complicated and much more than a mathematical
exercise.
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14. Financing
Earnings Per Share

One of the primary metrics that influences the value of a
company is net profit – also called earnings. When a company
makes a profit, it can choose to distribute some or all of the
profits to its shareholders – called a dividend.
A company that consistently distributes significant profits

(dividends) to its shareholders tends to be more desirable to
own because shareholders know that they can earn income by
owning shares in the business.
Earnings (profit) are distributed to shareholders based on the

number of shares owned. For example, a shareholder that owns
10% of the shares issued and outstanding of a company will
receive 10% of the earnings that are distributed.
The earnings to be distributed are often described as earnings

per share — meaning the amount of money to be distributed
to each individual share owned. This is calculated as follows:
Earnings Total Profit To Total Shares Issued

Per Share = Be Distributed ÷ & Outstanding
Review the table below and complete the final example.
TOTAL PROFIT TO BE
$20,000 $30,000
DISTRIBUTED
SHARES ISSUED AND

1,000 3,000
OUTSTANDING
EARNINGS PER SHARE $20

= $20,000 ÷ 1,000 $
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Dilution
Issuing new shares to sell risks negatively impacting earnings
per share because there will be more shares outstanding. This
results in less profit per share, as shown in the table below.
Complete the final example.
TOTAL PROFIT TO BE
$20,000 $20,000 $20,000
DISTRIBUTED
SHARES ISSUED AND

1,000 1,250 2,000
OUTSTANDING
EARNINGS PER SHARE $20 $16

= $20,000 ÷ 1,000 = $20,000 ÷ 1,250 $
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14. Financing
Issuing and selling new shares does not immediately change
the current share price because money is provided in return for
the shares, as shown in the table below. Complete the second
example.
SHARE PRICE $10 $15
TOTAL SHARES ISSUED

100 100
AND OUTSTANDING
COMPANY VALUATION $1,000

= $10 x 100 $
NEW SHARES ISSUED (SOLD) 20 20
PRICE PER SHARE SOLD $10 $15
NEW MONEY RAISED $200 $

= 20 x $10
TOTAL SHARES ISSUED & 120

OUTSTANDING = 100 + 20
COMPANY VALUATION $1,200

= $10 x 120 $
As shown above, even though company value has increased

with the new money, the share price has stayed the same
because now there are more shares outstanding.
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Profit
Raising money by issuing stock or taking out a loan does not
increase profit. A business can only generate profit by selling
products or services or through grants or investment gains.
Raising money gives a business more money to invest in areas such

as sales, marketing, production, and other business functions.
By having more money to invest, a business may be able to

generate more revenue and profit. But, if a business does not
invest the new money wisely, it could end up losing the money.
Having more money to spend means there is a risk of losing

even more money, as shown in the table below. Complete the
final example.
BUDGET SPENT $30,000 $50,000 $60,000
REVENUE $20,000 $20,000 $25,000
LOSS –$10,000 –$30,000 –$
Sources of Financing
Sources of financing are the people and organizations that
provide money to businesses, as listed below.
Love Money
Money from family and friends is called love money and is one of the
most common sources of financing for small businesses. Accepting
money from family and friends is risky because if the business fails or
the money is not repaid, personal relationships can become strained.
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14. Financing
Government
Various government departments and agencies want to
encourage entrepreneurship and have set up programs to
help finance business startup and expansion. Money is usually
provided as grants or loans.
Unlike a loan, a grant is money that does not have to be

repaid. Loans usually have to be repaid, but sometimes they are
provided as provisionally repayable. This means the loan only
has to be repaid if the business achieves certain milestones or
financial success.
Angel Investors
Angel investors are wealthy individuals who invest in private
businesses. Angels may provide loans or equity financing.
Angels are focused on generating a return on investment. Some
angels may also want to help support budding entrepreneurs,
and so may be willing to accept an investment that may be
higher risk or lower return.
Venture Capital
Venture capital refers to professionally-organized funds that are
raised specifically for the purpose of investing in businesses that
can generate a high return on investment.
People operate these funds as a business and they are often

referred to as VCs. VCs generally only buy equity in high-
growth businesses – this excludes the majority of businesses.
VCs normally invest larger amounts of money, usually in the
hundreds of thousands of dollars in a business, but more often
in the millions of dollars.
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Banks and Other Lenders

Banks and other lenders provide money to businesses in the
form of loans. Qualifying for a loan to finance a new business
is not easy. Loaning money to new businesses is considered
risky because if the business fails, the loan may not be repaid.
To reduce the risk, lenders may request that a business loan be
personally guaranteed or be secured with collateral.
A number of online services are available that make it easier for

new businesses to seek debt financing from people around the
world.
Customers and Strategic Partners

A business with a unique product may be able to pre-sell the
product to a customer and generate revenue, or other type of
financial investment, even before the product is completed. This
is not a common method of financing, but it is possible.
A business may also be able to convince another business to

finance the new business. The investing business may have a
strategic interest in seeing the new business succeed. This can
result in the new business acting as a subsidiary of the investing
business, or as an independent business of its own.
Crowdfunding
A newer and popular method of raising money to launch a new
product or business is through crowdfunding. This involves
creating a website or registering with an online service that
enables individuals from around the world to pre-purchase a
new product that is not yet available for sale, or to invest money
in a new business in return for product or equity.
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14. Financing
Public Markets
Raising money from public markets normally refers to being
listed on a stock exchange or similar service. A new business
cannot access the public markets as it must be in business for
a period of time and follow specific government and other
regulations. Doing so can be quite expensive and does not fit
the profile for most businesses. Newer crowdfunding methods
may also be considered a type of public financing, but are quite
different than stock exchanges.
y to S t a r t o r L e v e l U p
Rea d
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15. Currency
Global Currencies
Different regions of the world use different monetary currency.

Currency refers to the system of money used in a country. A
currency symbol is a sign that represents the Currency.
Examples are shown below.
COUNTRY CURRENCY SYMBOL

USA US Dollar $
CANADA Canadian Dollar $
AUSTRALIA Australian Dollar $
UNITED KINGDOM British Pound £
JAPAN Japanese Yen ¥
MEXICO Mexican Peso $
Chinese Yuan or
CHINA ¥
Renminbi
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Complete the table below with additional examples. Search the
Internet for the answers.
COUNTRY CURRENCY
FRANCE
GERMANY
ITALY
INDIA
SOUTH AFRICA
SAUDI ARABIA
EGYPT
PHILIPPINES
BRAZIL
ALGERIA
RUSSIA
Exchange Rate
Exchange rate is the value of one currency compared to another
currency. Not all currencies carry the same value, and the value
changes over time.
In the example below, currency A has 20% more value than

currency B. If you had 1.00 of currency A, you could exchange it
for 1.20 in currency B.
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15. Currency
CURRENCY A 1.00
CURRENCY B 1.20
Another example:
US DOLLAR 1.00
CANADIAN DOLLAR 1.20
In the example above, the US Dollar is 20% stronger than the

Canadian Dollar.
If you had $1.00 US Dollar, exchanging it to Canadian Dollars

would provide you with $1.20 Canadian Dollars
($1.00 + 20% = $1.20).
If you had $1.00 Canadian Dollar, exchanging it to US Dollars

would provide you with $0.83 US Dollars
($0.83 + 20% = $1.00).
Buying or Selling
When doing an exchange rate calculation, you have to know
which currency you are selling and which you are buying.
If you have US Dollars and want to convert them to Canadian

Dollars, you are buying Canadian and selling US dollars.
Complete the table below by adding the current exchange rates

in comparison to the US Dollar when selling US Dollars. Search
the Internet for the answers.
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Business Superhero
EXCHANGE
RATE
COUNTRY CURRENCY
SELLING US
DOLLARS
USA US Dollar 1.00
CANADA Canadian Dollar
AUSTRALIA Australian Dollar
UNITED KINGDOM British Pound
JAPAN Japanese Yen
MEXICO Mexican Peso
Chinese Yuan or
CHINA
Renminbi
Currency can be exchanged at banks and other financial

institutions. This can be done in person with cash or online
using electronic money transfer and brokerage accounts.
Currency exchange also carries a fee that you must pay for the
service, which is normally a few percentage points of the value
of the transaction.
Impact of Exchange Rates

The currency where your business is located is often called the
domestic currency. All other currencies are then considered
foreign currencies.
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15. Currency
When selling into territories that have a different currency than
where your business is located, you have to consider the impact
that the exchange rates will have on your costs and potential
profit. This applies if you are accepting payment from customers
in different currencies.
Review the example below.
Your business is The cost to make and sell your product in

located in the US. the US is $5.
You sell your product in the US at a price of $7. This provides you
with $2 in profit ($7 - $5).
You sell the same product in Japan

and price it at ¥700 in Japanese Exchange rates
Yen. You set this price because the change all the time
current exchange rate is ¥100 for and now the Japanese Yen
$1 and it will provide you the same has increased in value to
profit per product sale as in the US. ¥140 for $1.
¥700 = $7 price.
Your price in Japan still remains at ¥700. But when you make a sale
and exchange the ¥700 for US Dollars, the new rate means you will
only receive $5 (¥700 ÷ ¥140), instead of the $7 you had received
previously. This means you now have $0 profit on this sale.
Your profit is now gone because of the

change in exchange rate.
The example above shows what can happen if the foreign

exchange rate increases in value in comparison to your
domestic exchange rate. The result is that you lose money.
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Business Superhero
But what happens if the foreign exchange rate reduces in value
in comparison to your domestic exchange rate? The result
is that you will make more money, as shown in the example
below.
Using the same example above but with the Japanese Yen
decreasing in value to ¥78 for $1.
Your price in Japan still remains at ¥700. When you make a sale
and exchange the ¥700 for US Dollars, the new rate means you
will receive $9 (¥700 ÷ ¥78), instead of the $7 you had received
previously. This means you now have an additional $2 profit on this
sale for a total profit of $4.
Your profit has increased because of the

change in exchange rate.
Reducing Risk
What can a business do about fluctuating exchange rates?
From the example above where profit fell, you could consider
raising your price in Japan. But, what if raising the price might
deter customers from buying? What if there are competing
products that are better priced? What happens when the
exchange rate changes again? There are no simple answers.
Some businesses choose to sell their product in only one

currency. This forces all customers to only pay in that currency.
This can work for some online businesses, but does not work
for sales that are made in store because people in a particular
country normally only carry money in their domestic currency.
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15. Currency
Imagine if at a Wal-Mart in the US the prices were all in Japanese
Yen — how would consumers react?
Some businesses will set their price on only one currency, but
allow customers to purchase in their own domestic currency.
You often see this with online businesses where the price may
be set using US Dollars but you can choose to pay in a different
currency. The online payment system will automatically do the
currency exchange rate conversion so the customer can see the
price in their own domestic currency before completing the
purchase.
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171
16. Accounting
Business Accounting
Accounting is the process of tracking financial transactions and
reporting the results of the transactions.
A financial transaction occurs every time that money or

something of value moves in or out of a business. Examples of
financial transactions include:
Making a sale
Delivering a product to a customer
Converting raw materials into a finished product
Buying advertising
Paying employees
Receiving loan money
Making a payment on a loan
Paying rent
Buying office supplies
Collecting taxes
and more.
Tracking financial transactions is called bookkeeping.
Once financial transactions are recorded, financial reports can be

generated to display the results of those transactions.
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Double-Entry Bookkeeping
Businesses use a system called double-entry bookkeeping to
record their financial transactions. This system is believed to
have been developed over 600 years ago.
A personal checkbook is an example of a single-entry

bookkeeping system. Each time you record a payment or
deposit, you write it down once and add or subtract the amount
from your bank balance. Each entry will either increase cash or
decrease cash.
DESCRIPTION AMOUNT CASH BALANCE

700
make a
Rent -500 200 Easy to ake
ist
math m
Utilities -125 75
Paycheck +1,000 1,075
It is easy to make a mistake using single-entry bookkeeping. This

could result in the balance of money available to be incorrect.
A business needs a system which will not have this potential for
error. And, a business has to categorize all its transactions very
carefully. Double-entry bookkeeping solves these challenges.
Double-entry means each item gets entered twice – once to

record the impact on cash and once to record the category of
the transaction.
By recording the amounts twice (in different subtotals), the

system tracks finances more carefully and crosschecks the
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16. Accounting
totals to make sure they are the same. This is similar to how a
crossword puzzle requires letters to fit both down and across the
puzzle.
Below are three transactions recorded using double-entry

bookkeeping. Notice how each transaction has two entries –
one to show the effect on Cash and the other to show the effect
on a related account.
For example, when a business buys an office chair for $50, Cash
is reduced by the $50 used to pay for the chair, and Assets are
increased by $50 because the business now owns a chair valued
at $50. The business did not lose $50. It converted $50 of value
from Cash to an Asset.
DESCRIPTION CASH ACCOUNT OTHER ACCOUNT

Buy office chair -50 +50 Assets
Sell product +100 +100 Revenue
Buy Product to resell -75 +75 Assets
Double-entry bookkeeping reduces the possibility of error because

if an amount is entered incorrectly, it might cause the accounting to
unbalance, which can immediately be seen and corrected.
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Business Superhero
Traditionally, bookkeeping was done using paper books and
pen, but most businesses now use accounting software to save
time and provide better reporting.
Accounts
A proper accounting system does more than just track cash in
and out of a business – it also tracks how cash is used and how
any item of value is moved in an out of the business, or changes
value within the business.
The example above used three types of accounts – Cash,

Revenue, and Assets. Accounts are a way of categorizing
financial transactions in accounting.
There are five major categories (or classes) of accounts

commonly used in business accounting:
Assets – Items of value, like cash and product

inventory.
Liabilities – Debts that the business owes.
Equity – Money from selling shares (ownership) in the

business and holds retained profit.
Revenue – Money received from customers and others.
Expenses – Goods and services purchased by the business.
Each category may have subcategories. For example, Assets

could have Cash, Furniture, Equipment, Property, and Product
Inventory as subcategories.
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16. Accounting
Debits and Credits

Every time a financial transaction is recorded in accounting, at
least two of the categories above must be modified.
Repeating the earlier example, buying an office chair for $50,

Cash is reduced by the $50 used to pay for the chair, and Assets
are increased by $50 because the business now owns a chair
valued at $50.
DESCRIPTION CASH ACCOUNT OTHER ACCOUNT

Buy office chair -50 +50 Assets
Another way to show the above transaction is to use the

accounting terms debits and credits, as shown here.
ACCOUNT DEBIT CREDIT DESCRIPTION

Cash 50 Buy office chair
Assets 50 Buy office chair
Debit means to increase Assets or Expenses and

decrease Liabilities or Equity or Revenue.
Credit means to decrease Assets or Expenses and

increase Liabilities or Equity or Revenue.
In the example above, the Cash account is credited (decreased)

by $50 and the Assets account is debited (increased) by $50.
The description is the same for both because they form part of
the same transaction.
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Accounting prefers the terms debits and credits, which are
sometimes abbreviated DR and CR. These terms are used to
avoid the confusion that could arise with the use of plus, minus,
increase, decrease.
DEBIT CREDIT
Assets
Liabilities
Equity
Revenue
Expenses
Cash Versus Accrual Accounting

When creating accounting systems for a business, one of the
decisions that needs to be made first is whether to use cash or
accrual basis accounting.
The difference between the two methods is the timing of when

transactions are recorded in accounting.
With cash basis accounting, revenue is recorded when cash is

received from customers, and expenses are recorded when cash
is paid out.
With accrual basis accounting, revenue is recorded when the

sale is made, whether or not the cash money is received from
customers. Expenses are recorded when they are incurred,
whether or not the cash money has been paid out. See
examples below.
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16. Accounting
TRANSACTION CASH ACCRUAL

Product sale $100 Post $100 sale on Post $100 sale on
on January 1. February 1. January 1. Post
Customer pays on again on February
February 1. 1 when cash is
received.
Purchase office chair Post $50 expense on Post $50 expense on

$50 on January February 1. January 1. Post again
1. Pay for chair on on February 1 when
February 1. cash is paid.
Cash basis accounting is simpler but may not give an accurate

picture of the company’s current financial condition. This is
because revenue may be earned on a particular date, but this
will not be reflected in the accounting until the cash is received.
Similarly, a company may owe a debt that may not appear in the
accounting until it is paid.
Accrual basis accounting is the standard practice for most

businesses, except for some very small businesses.
Accounts Payable & Receivable

With accrual basis accounting, a business normally uses
two accounts to track the purchase and sale of goods when
payment is not immediately made:
Accounts Payable is used to record purchases of

goods and services made by the business for which the
business has not yet paid, but expects to pay within
one year. It is a liability that is abbreviated as A/P.
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Business Superhero
Accounts Receivable is used to record sales made
of goods or services by the business for which the
business has not yet received payment, but expects to
within one year. It is an asset that is abbreviated as A/R.
With accrual basis accounting, a product may be sold today

but payment may not be received for some time in the future.
This means the business is owed money and this debt to the
business should appear in accounting as an asset until payment
is received, at which point it appears as cash.
For example, when a furniture business sells an office chair for

$50, this is recorded as Revenue at the time the sale is made.
But, if the payment is not yet received, it is posted in Accounts
Receivable as money that is due to the company and expected
to be received in a few days, weeks, or longer – up to one year
(based on whatever payment terms are negotiated).

Revenue 50 Sold office chair
A/R 50 Sold office chair
Once the customer pays $50 for the office chair, the furniture
company records the payment by moving the $50 from
Accounts Receivable to Cash, as shown below.

A/R 50 Sold office chair
Cash 50 Sold office chair
The net result is Revenue +50, Cash +50, A/R 0.
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16. Accounting
The date on which the office chair was sold is different than
the date on which payment was received. This time difference
is properly tracked with accrual basis accounting and assures
that the $50 owed to the furniture business is recorded in
accounting from the moment the office chair was sold to the
moment payment was received.
With cash basis accounting, Accounts Payable and Accounts

Receivable are not used because all financial transactions are
posted in accounting when cash is exchanged. So, the time
between when a product is purchased or sold and when
payment is made or received is not recorded.
Now, consider the above transaction from the customer’s

point of view, instead of the furniture company. Assuming
the Ford company purchases the office chair for use in one
of its buildings, the transaction records the purchase of the
office chair as an Asset and the money owed for the chair as an
Accounts Payable.

Asset 50 Buy office chair
A/P 50 Buy office chair
Ford has a new asset in its possession worth $50, but Ford owes
the furniture company $50, which is shown as an Accounts
Payable liability. Everything balances with $50 in value minus
$50 owed for a difference of $0.
When Ford pays for the office chair, Ford moves $50 out of Cash
for the payment and reduces Accounts Payable by the same
amount because it no longer owes the money and therefore has
no liability.
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Cash 50 Buy office chair
A/P 50 Buy office chair
The net result is Assets +50, Cash -50, A/P 0.
Buying and Selling Products

The examples above describe how a product can be purchased
and paid for at a later date. The purchase and payment of a
product is normally documented using order forms, purchase
orders, and invoices.
Order Form
An order form is a document, online form, or online shopping
cart provided by a seller to be used by customers to place orders
for products.
An order form includes product names, prices, tax information,

and payment options. A buyer submits a completed order form
to the seller. Payment may be required at the time the order is
submitted, or at some designated time in the future.
Examples:
In a quick-serve restaurant, a customer places their order at

a cash register or self-serve kiosk as soon as they enter the
business and pays immediately upon ordering. The food is
then prepared and delivered to the customer.
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16. Accounting
In a full-service restaurant, a customer will first be seated
and then a server will take their order and send it to the
kitchen. The food is then delivered to the customer. After
the customer has finished their meal, payment will be
made.
When purchasing from an online store, a customer will
add products to an electronic shopping cart and then
checkout by making a payment. The order is transmitted
to the seller to fulfill.
Some businesses allow customers to order and receive a
product before they have to pay. This happens in the full-
service restaurant above. But in that example, the customer is
physically inside the business, so there is a high assurance that
the customer will pay the amount owing.
What if the customer is not physically present? How does

the seller assure that payment will be made after a product is
delivered to the customer?
This is accomplished using a purchase order.
Purchase Order
A purchase order (PO) is a document used to place an order for
goods or services. The buyer prepares and sends a PO to the
seller, indicating the product to be purchased, the price, and
payment method. If the seller agrees with the offer in the PO,
the seller will provide the product to the buyer.
A PO usually has payment terms where the buyer will receive

the product and then have a few days or longer before making
payment for the product.
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To properly document the delivery of the product and the
required payment, the seller will issue an invoice to the buyer –
more on this below.
A PO is a legally-binding agreement that helps assure that the

product requested by the buyer will be delivered by the seller,
and that payment will be made by the buyer. While there are no
guarantees that everything will go smoothly, this is a common
business practice to build trust between parties.
A PO is also a way for a buyer to control who in the organization

is authorized to make purchases on behalf of the company. For
example, if a company has many employees, normally, only
a select few will have the authority to make purchases in the
name of the company. By using a valid PO to place an order,
an employee is providing the seller with the assurance that
they have the authority to act on behalf of the company that is
placing the order.
Bill and Invoice

When a customer eats at a full-service restaurant, they place an
order for their food. Sometime later, the customer is given a bill
– a document that lists the goods and services consumed with a
total cost that they are expected to pay. The goods and services
were delivered and payment is due immediately.
Similarly, a telephone company provides communications

services and then issues a bill to the customer for payment.
A bill is also called an invoice. The terms are often used to

mean the same thing, but for accounting purposes a business
that provides a product and expects to be paid will issue an
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16. Accounting
invoice to a customer. The customer that receives the invoice
records the invoice as a bill.
Accounts Receivable (seller) records invoices

Accounts Payable (buyer) records bills
Another example to demonstrate the distinction between a
bill and an invoice is with a restaurant. The customers who
buy from the restaurant are issued bills by the restaurant. The
suppliers who provide food and drinks to the restaurant will
issue invoices to the restaurant – and the restaurant considers
these as bills.
When a business sells a product for which it is not immediately

paid, it is common for the business to issue an invoice to the
customer.
An invoice is a document that includes the following

information:
The word INVOICE prominently displayed.
Invoice number – unique for every invoice.
Name, address, and telephone number of the business
issuing the invoice.
Name and address of the customer.
Date of invoice, which is usually when the product was
given or delivered to the customer.
Name or description of the product sold.
Quantity of product sold.
Price of the product, including discounts, taxes, and fees.
Payments made by the customer, if any.
Terms describing when the remaining payment is due.
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Payment terms are often described as Net 30, Net 60, or other
timeframe. Net means the remaining balance owing. 30, 60 or
other number means the number of the calendar days by which
the full payment is due.
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16. Accounting
Receipt
A receipt is a document that confirms that something of
value has been transferred from one person or organization to
another.
Most often, receipts are issued by businesses to customers when

a payment is made by the customer. A receipt normally includes
the amount paid, the name or description of the product or
item of value purchased by the customer (transferred), the date
of the transaction, and how payment was made.
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Financial Statements
Financial statements report the current and past financial state
of the business. Proper accounting makes it easy to generate
accurate reports for many aspects of a business.
There are three primary financial statements for a business:
Balance Sheet, Income Statement (sometimes called a Profit

and Loss or P&L), and Cash Flow statement.
Cash Flow Statement

Shows the timing of money flowing in and out of
the business. This report is particularly important in
helping make sure the business does not run out of
money, unexpectedly.
Income Statement
Shows all of the money flowing in and out of the
business to determine if the business is profitable or not.
Balance Sheet
Shows the value of the business by adding up
everything the business owns and subtracting
everything that the business owes. The actual value
of a business is often more complex than the Balance
Sheet shows, but the Balance Sheet provides an
accurate view of its financial position.
The reports above are described in detail, further in this book.
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16. Accounting
General Ledger
The General Ledger (GL) provides a record of each financial
transaction that takes place during the life of an operating
company.
Accounting accounts appear in the General Ledger, with each

account showing the debits and credits made on the account
and the running balance.
A trial balance can be generated from the General Ledger that

shows the balance of each account. The balance of debits and
credits can then be compared to assure they are identical and
that the accounting is mathematically correct.
Accounting Standards
Accounting rules may vary based on the different standards
used around the world.
Businesses in the USA, Canada, and some other countries use

Generally Accepted Accounting Principles – GAAP.
The International Financial Reporting Standards – IFRS

– is another common standard used in many countries.
There are several other less-popular standards.
189
17. Cash Flow and Budget
Importance of Cash
Running out of money (cash) is the most severe problem a
business can face. Without money, employees cannot be paid,
products cannot be made or shipped, customers cannot be
served, and everything eventually comes to a full stop.
Managing cash is of critical importance. Proper planning is

needed because the timing of when cash is received by a
business and when it has to be paid out is constantly changing.
This is particularly challenging when a business is not profitable
and has more cash going out than coming in.
Cash Flow
Money flowing in and out of a business is described as cash
flow:
Cash Flow = Money IN – Money OUT

Money IN
All sources of incoming cash, such as revenue and
other income.
Money OUT
Everything that requires money to be paid.
MONEY IN
REVENUE $15,000
OTHER INCOME $1,000
TOTAL $16,000
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Business Superhero
MONEY OUT
MANUFACTURING $5,000
SALES & MARKETING $4,000
WAGES $3,000
OPERATIONS $2,000
OTHER $1,000
TOTAL $15,000
CASH FLOW
MONEY IN $16,000
MONEY OUT $15,000
MONEY IN – MONEY OUT $1,000
Knowing how much money is coming in and going out is

important, but equally important is knowing the timing of when
money is coming in and going out.
Timing can be difficult to predict because it is not always known

exactly when customers will pay bills, or other payments will be
made.
Even very successful businesses can run into cash flow

problems.
192 Georghiou.com
Cash Flow Statement

A Cash Flow statement is a report that projects the timing
of money in and money out in the immediate future. The
report includes a time period and duration. The period is the
segments of time in which the report shows money IN and
money OUT – such as weekly, monthly, quarterly, or other time
period. The duration is the length of time in the future being
projected.
Most often, Cash Flow statements use monthly periods

projected 12 months into the future. Review the example in the
table below that projects three months forward.
CASH FLOW JAN FEB MAR
MONEY IN $16,000 $14,000 $15,000
MONEY OUT $15,000 $16,000 $15,000
MONEY IN – MONEY OUT $1,000 - $2,000 $0
CASH FLOW APR MAY JUN
MONEY IN $13,000 $14,000 $15,000
MONEY OUT $12,000 $12,000 $17,000
MONEY IN – MONEY OUT $ $ $
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Cash Flow statements include one more important item – a
running balance of the cash surplus or deficiency. Review the
example in the table below where the Balance for the current
month is added to the total Balance of all the previous months.
MONEY IN $16,000 $14,000 $15,000
MONEY OUT $15,000 $16,000 $15,000
MONEY IN – MONEY OUT $1,000 - $2,000 $0
BALANCE $1,000 - $1,000 - $1,000

Starting Balance = $0 = $0 + $1,000 = $1,000 – $2,000 = – $1,000 – $0
In the example above:
January Balance equals the Starting Balance of $0 plus the

result of January $1,000 for an ending Balance of $1,000.
February Balance equals the Balance of January $1,000
plus the result of February – $2,000 for an ending Balance
of – $1,000.
March Balance equals the Balance of February – $1,000 plus
the result of March $0 for an ending Balance of – $1,000.
194 Georghiou.com
Complete the table below.
MONEY IN $22,000 $21,000 $18,000
MONEY OUT $20,000 $20,000 $20,000
MONEY IN – MONEY OUT $2,000 $1,000 - $2,000
BALANCE
Starting Balance = $0 $ $ $
In the examples above, the Starting Balance was $0. This makes
it easier to see if future projections will result in a surplus or
deficit. Sometimes, a business will use its actual cash balance
in the Cash Flow statement as this makes it easier to see if the
business risks running low on cash.
Repeat the example above using a Starting Balance of $2,000.
CASH FLOW JUL AUG SEP
MONEY IN $22,000 $21,000 $18,000
MONEY OUT $20,000 $20,000 $20,000
MONEY IN – MONEY OUT $2,000 $1,000 - $2,000
BALANCE
Starting Balance = $2,000 $ $ $
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Budget and Cash

Budget is an amount of money a business has reserved to invest
in a project or business function in a given period of time – week,
month, quarter, year.
Budget is not money already spent – it is money set aside to be

spent. Examples:
Budget $10,000 to spend on an advertising campaign in

the month of February.
Budget $5,000 to conduct a market research survey.
Budget $100,000 to develop a mobile app.
Budget $20,000 to spend on the purchase of new furniture
during the calendar year.
Using budgets serves three purposes:
1. Knowing how much money could be spent on individual

activities within the company helps the business manage
cash flow and the overall cash available in the business.
In basic terms, it helps the company avoid running out of
money, or spending more money than desired.
2. Budgets help guide the people who will be spending the
money on the project or business function for which they
are responsible. By having a specific budget, the scope
of the effort can be scaled so that the desired goal is
achievable with the money available.
3. Helps the business measure and compare results, which
helps with future decision making.
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Budget should not be confused with cash. Cash is the amount
of money a business has available, often in bank accounts and
short-term liquid investments.
Budget is taken from cash, but is usually only a small portion of

the cash available in the business. Cash is needed to operate
a business and a good amount of cash needs to always be
available to provide working capital for the business. This is why
the budget is only a small portion of cash.
CASH $100,000
BUDGET $20,000
BUDGET AS % OF CASH 20%
The board of directors and management of a company

determine how much cash is allocated to individual budgets. A
company may have many budgets for different activities that
the business must undertake.
Over and Under Spending

Once a budget amount is set aside for a specific activity, should
the entire budget be spent on that activity? The best answer is
that as much of the budget should be spent as is necessary to
achieve the desired goals.
Achieving a specific goal may require the full budget or only a

portion of it.
Spending more money in certain business functions can

increase the opportunity to make more profit, but it can also risk
losing the business more money.
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Business Superhero
For example, investing more money to produce more products
provides a business with more products to sell and thereby the
opportunity to generate more revenue. But, if the business does
not sell all of the extra products produced, the business may
end up losing money.
Similarly, spending more money on sales and marketing could

help generate more sales. But, if the business strategy does not
work, then all of that extra money spent on sales and marketing
will be lost.
MONEY INVESTED $20,000 $20,000 $20,000
SALES REVENUE $25,000 $18,000 $8,000
PROFIT (LOSS) $5,000 - $2,000 - $12,000
MONEY INVESTED $50,000 $30,000 $18,000
SALES REVENUE $52,000 $45,000 $8,000
PROFIT (LOSS) $ $ $
In business, spending money always offers you both

opportunity and risk.
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Business Superhero
There are two primary financial statements for a business:
Balance Sheet and the Income Statement (sometimes called

a Profit and Loss or P&L).
The Income Statement shows all of the money flowing

in and out of the business to determine if the business is
profitable or not.
The Balance Sheet shows the value of the business by adding

up everything the business owns and subtracting everything
that the business owes. The actual value of a business is often
more complex than the Balance Sheet shows, but the Balance
Sheet provides an accurate view of its financial position.
Revenue and Expenses

To understand the Income Statement, you must first
understand some key definitions.
Revenue or Income
This is money earned by selling a product or service.
You receive this money directly from end consumers,
resellers, or distributors.
Cost of Goods Sold (COGS)

The cost to produce the products you have sold are
recorded as COGS. For clarity, COGS is only for products
that have been sold, not for products that are in
inventory and not yet sold.
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18. Income Statement
Expenses
This is money paid out to sell your products and
operate the business. It can include employee wages,
sales and marketing expenses, interest on loans, and
more.
Profit
This is the money generated from your business activity
that exceeds the costs of the business. If revenue
minus COGS minus expenses is positive, it means you
have generated a profit. If it is negative, you have
losses. Profit is also called earnings.
The Income Statement adds up all the revenue, COGS, and

expenses and applies this formula:
Revenue – COGS – Expenses = Profit

If the formula above results in a positive number, then the
business has generated a profit. If the number is negative, then
the business has suffered losses. Here is the Income Statement
formula visually:
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Business Superhero
Here is an example that applies the Income Statement formula:
Revenue – COGS – Expenses = Profit
REVENUE
Product Sales $5,000
$5,000
COGS & EXPENSES COGS $1,000

$3,000 Expenses $2,000
PROFIT
$2,000
$2,000
The business above has generated a profit of $2,000.
Product Sales Product Sales $6,000

REVENUE
$8,000 Sale of Services $2,000
COGS $2,500 COGS $3,000

COGS & EXPENSES
Expenses $1,000 Expenses $6,000
PROFIT $ $
If profit is negative, the company has suffered a loss. Losses in

accounting are sometimes shown with negative numbers or
numbers in parenthesis, like this:
– $100 or ($100)
Both of the above mean negative $100 or a loss of $100.
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Net Profit and Gross Profit

The Income Statement often shows two different profit
numbers: Gross profit and net profit.
Net Profit is as described above, using the P&L formula:
Revenue – COGS – Expenses = Net Profit

Gross Profit uses this formula:
Revenue – COGS = Gross Profit

Gross profit is the revenue generated from product sales minus
the cost of good sold (COGS). Unlike net profit, gross profit
does not account for other expenses, like sales and marketing,
operations costs, interest paid, and more.
See the example below.
Revenue $5,000
COGS $1,000
$4,000 = Gross Profit
Expenses $3,000
$1,000 = Net Profit
Net profit generally means the final, bottom line, profit. This is
also called earnings.
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Business Superhero
REVENUE $8,000 $6,000
COGS $2,500 $3,000
GROSS PROFIT $ $
EXPENSES $2,000 $4,000
NET PROFIT $ $
COGS and COS

Cost of goods sold (COGS) is normally used to refer to physical
products (goods).
When selling services, the term cost of sales (COS) is often used
instead.
Cost of revenue is also a common term, and could apply to

both goods and services.
COGS normally includes all costs associated with producing a

product. This includes raw materials, parts, assembly, and the
transportation costs to bring everything together. Human labor
costs needed to make the product are also included in COGS.
Costs that are not directly associated with making a product

are not included in COGS. This includes sales and marketing,
financing costs, employee wages that are not involved in the
making of the product, and more. These are all considered
Expenses not COGS. And, COGS only includes the costs of
products that are already sold, not the cost of products that
remain in inventory.
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The concepts above also apply to services and cost of services.
Other Income
Sometimes, a business will generate money (revenue or income)
in ways that are not part of its primary business. This money is
normally classified as other income.
For example, a company that makes and sells widgets as its

primary business may also earn income from interest on the
money it has in the bank. The company may also receive a
government grant (a grant is a financial incentive that does not
have to be repaid).
This new money that is not derived from the primary business
is classified as Other Income, and appears on the Income
Statement as shown below.
Revenue – COGS – Expenses + Other Income = Net Profit
REVENUE
Widget Sales $5,000
$5,000
COGS & EXPENSES COGS $1,000

$3,000 Expenses $2,000
OTHER INCOME Bank Interest $1,000

$1,500 Grant $500
NET PROFIT
$3,500
$3,500
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REVENUE Widget Sales $7,000 Widget Sales $6,000
COGS & COGS $3,000 COGS $5,000

EXPENSES Expenses $2,000 Expenses $3,000
Bank Interest $750 Bank Interest $1,000

OTHER INCOME
Grant $750 Grant $1,000
NET PROFIT $ $
Period
When generating an Income Statement, you have to choose
two dates: The starting (From) date and the ending (To) date.
The data that will be displayed will include all transactions
between and including the dates you select.
Retained Earnings
An important term that appears in financial statements is
retained earnings.
Earnings is another word for net profit.
“Retained” means held or kept.
Retained earnings is net profit that remains in the company

— as opposed to profit or earnings that are paid out to
company shareholders.
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Some companies will pay out a portion of net profits to the
company owners (the shareholders). This payout is called a
dividend.
When a dividend is paid, the net profits held (retained) in the

company are reduced. This means the retained earnings are
reduced.
Retained earnings are a running total of all the profits

accumulated and held in a business. The Income Statement
may show both the net profit of the current time period, and the
cumulative net profit from the entire history of the company.
The table below shows how retained earnings is a running total

of the profits from past years and the current year.
YEAR 1 YEAR 2 YEAR 3
NET PROFIT $1,000 $2,000 $1,500
RETAINED $3,000 $4,500

$1,000
EARNINGS = $1000 + $2,000 = $3,000 + $1,500
The table below shows how dividends paid out will reduce
retained earnings.
NET PROFIT $1,000 $2,000 $1,500
DIVIDENDS $0 $500 $1,000
RETAINED $2,500 $3,000

$1,000
EARNINGS = $1000 + $2,000 - $500 = $2,500 + $1,500 - $1,000
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NET PROFIT $2,000 $4,000 $3,000
DIVIDENDS $0 $1,000 $2,000
RETAINED
EARNINGS $ $ $
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Sample Income Statement
209
19. Balance Sheet
There are two primary financial statements for a business:
Balance Sheet and the Income Statement (sometimes called

a Profit and Loss or P&L).
The Income Statement shows all of the money flowing in and

out of the business to determine if the business is profitable or
not.
The Balance Sheet shows the value of the business by adding

up everything the business owns and subtracting everything
that the business owes. The actual value of a business is often
more complex than the Balance Sheet shows, but the Balance
Sheet provides an accurate view of its financial position.
Assets and Liabilities

To understand a Balance Sheet, you must first understand some
key definitions.
Asset
This is something that a business owns. This could be cash,
furniture, property, buildings, computer software, and more.
Liability
This is something that a business owes. This could be money
owed to employees, vendors, the government, or loans owed to
banks and others.
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Business Superhero
The Balance Sheet adds up all the assets and the liabilities and
then applies this simple formula:
Assets – Liabilities
If the business owns more value in assets than it owes in
liabilities, then it has positive equity. Equity is the value held in
the business and is the third component of the Balance Sheet
formula, as shown here:
Here is an example that applies the Balance Sheet formula:
Assets – Liabilities = Equity
Cash $4,000
ASSETS
Furniture $600
$5,000
Computer $400
LIABILITIES Bank Loan $2,000

$3,000 Credit Card $1,000
EQUITY
$2,000
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19. Balance Sheet
One way to read the above is to say that if the business is shut
down and everything in it sold (liquidated) and the liabilities
paid off to $0, there would be $2,000 left over. This is how much
value currently exists in the business.
Cash $8,000 Cash $12,000

ASSETS Furniture $700 Unpaid Sales $1,000
Computer $400 Land $10,000
Bank Loan $2,500 Bank Loan $9,500

LIABILITIES
Credit Card $900 Owed to Suppliers $6,000
EQUITY $ $
Business Value
Intangible Assets
The concept of business value is somewhat simplified in the
examples above, as a business may also have intangible assets
which contribute to its value.
Intangible assets may include patents, trademarks, customer

contracts, goodwill, and more. Intangible means something
that is not physical and cannot be touched. Furniture and
computers are tangible assets — they have physical form.
Assigning value to intangible assets can be subjective, but

generally equates to the value of what the intangible asset
could be sold for if it had to be sold. This means that there has
to be a reasonable expectation that a buyer can be found that
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Business Superhero
is willing and able to purchase the intangible asset at the price
set. However, sometimes intangible assets are valued differently
based on generally-accepted accounting principles.
This is an advanced topic beyond the scope of this document,

but is noted here to help frame the Balance Sheet.
See the table below and complete the second example. Notice
that intangible assets (patents and customer contracts) have
been added to the Balance Sheet.
BALANCE SHEET
Cash $8,000 Cash $12,000
ASSETS Furniture $1,000 Land $10,000
Patents $2,000 Customer Contracts $2,000
LIABILITIES Bank Loan $7,000 Bank Loan $12,000
EQUITY $4,000 $
Tangible Assets
Another element that affects business value is the value of
the tangible assets on the Balance Sheet. The value shown for
assets is not the original purchase price, but the depreciated
value of the asset. Depreciation is also an advanced topic, but
it generally means that most assets will lose value over time,
and so the Balance Sheet should properly reflect this change in
value.
For example, a computer may cost $900 brand new today, but
if you tried to sell that computer in one year, you may only get a
214 Georghiou.com
19. Balance Sheet
few hundred dollars for it. The Balance Sheet should show the
computer at this reduced value.
See the table below and complete the additional example.

Notice that the value of the computer has changed from Year 1
to Year 2 on the Balance Sheet because it has depreciated.
YEAR 1 YEAR 2
Cash $8,000 Cash $8,000

ASSETS
Computer $900 Computer $400
EQUITY $1,900 $
Equity
How does a business create value, or equity? Reviewing the
Balance Sheet formula:

This may suggest to increase assets. But, how does a business
increase the value of an asset? Most assets lose value over
time, like furniture and computers. Real estate may or may not
increase in value over time.
Buying a new asset will not increase equity. This is because if

a business buys a new asset, then cash may be reduced to pay
for the new asset. In this case, the equity has not changed, as
shown in the table below.
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Business Superhero
Cash $6,000
ASSETS Cash $8,000
Computer $2,000
EQUITY $1,000 $1,000
What if the business buys the computer using a credit card? In

this case, the credit card balance will appear as a liability, and
again the equity does not change, as shown in the table below.
Cash $8,000
ASSETS Cash $8,000
Computer $2,000
Bank Loan $7,000
Credit Card $2,000
EQUITY $1,000 $1,000
Buying, renting, or leasing assets does not increase the value

or equity of a business. It’s what the business does with those
assets that may contribute to increasing equity.
For example, buying a new computer may allow you to serve

more customers to sell more product and generate more
revenue and profit. This additional profit increases equity.
Buying the computer did not directly increase equity, but how it
was used did.
Again, reviewing the Balance Sheet formula:
216 Georghiou.com
19. Balance Sheet
This may suggest that decreasing Liabilities will increase equity.
But, decreasing a liability normally means using an asset, like
cash.
For example, you can pay off a $7,000 bank loan to eliminate the
liability, but if you use cash to pay the loan, then your asset will
also decrease, as shown in the table below.
ASSETS Cash $8,000 Cash $1,000
EQUITY $1,000 $1,000
Increasing Equity
Equity is most often increased in two ways:
Profit
As a business generates profits over its history, the total
cumulative profits (and losses) over its entire time in
business are added to its equity.
Selling Shares
When a business sells stock or shares in the business,
which means ownership in the business, those who
buy the shares give the money to the business and this
money is recorded as equity.
Equity is reduced if the business suffers losses (negative

profit) or if the business issues dividends to its shareholders
(owners). A dividend is simply a share of the profits (which
are shown as equity).
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Business Superhero
Profit (Retained Earnings)

Profit increases equity. For example, if you make or buy 100
widgets for $5 each and sell them for $7, you will make a profit
of $2 per widget, as shown in the table below. This assumes
there were no other expenses incurred with buying and selling
the widgets.
BUY
100 Widgets $5 Each
$500
SELL
100 Widgets $7 Each
$700
PROFIT
$700 - $500
$200
The $200 profit shown above gets added to the equity on the
Balance Sheet, as shown in the table below. Notice that before
the widgets are purchased, you have $1,000 cash. Then $500 is
used to purchase the widgets, so cash is reduced by $500 and
widgets are added as an asset that you own. Then, the widgets
are sold for $700 that is added to cash, and the widgets no
longer appear as assets.
BEFORE DURING AFTER
Cash $500
Widgets $500
LIABILITIES
EQUITY $1,000 $1,000 $1,200
218 Georghiou.com
19. Balance Sheet
Profit is the most common way that businesses increase Equity.
Profit is tracked on the Income Statement (or Profit and Loss or
P&L). The profit (more specifically, the net profit) at the bottom
of the Income Statement is added to the equity on the Balance
Sheet.
Profit is added under equity as what is called retained

earnings — more on this below.
Selling Shares
When a business sells stock (shares) in the business, which
means ownership in the business, those who buy the shares
give the money to the business and this money is recorded as
equity.
For example, let’s say you sell a certain number of shares for a
total of $500. The new shareholder gives your company $500
cash and you record this transaction on the Balance Sheet
by increasing cash by $500 and increasing equity by $500, as
shown in the table below. Money gained through the sales
of shares is not considered profit and does not appear on the
Income Statement.
Notice that the Balance Sheet equation still remains in balance:

BEFORE AFTER
LIABILITIES $0 $0
EQUITY $1,000 $1,500
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Business Superhero
Balance
The Balance Sheet has the word “balance” in the name to
indicate that it must always remain in balance. This means that
the formula always remains true:

The formula can also be rearranged as follows:
Assets – Equity = Liabilities
Liabilities + Equity = Assets

Whichever format the formula takes, it must always balance,
otherwise it indicates that there has been an accounting error
made that needs to be corrected. See the example below.
IN BALANCE OUT OF BALANCE
EQUITY $2,000 $2,000
220 Georghiou.com
19. Balance Sheet
In the table below, identify if each Balance Sheet example is in or
out of balance and by how much. Enter $0 if in balance.
Cash $2,500 Cash $3,500

ASSETS Cash $5,500
Computer $300 Furniture $500
Bank Loan Bank Loan Bank Loan $2,000

LIABILITIES
$1,500 $2,000 Credit Card $500
EQUITY $4,000 $900 $1,000
IN OR OUT OF
BALANCE? $ $ $
Dividends and Retained Earnings

Profit is added under equity as what is called retained earnings.
“Earnings” means profit. “Retained” means held or kept — as
opposed to profit or earnings that are paid out to company
shareholders.
When profit is paid out to the company shareholders, it is called

a dividend. When profit is paid out of a company, the equity in
the company is reduced, as shown in the table below. Notice also
that cash has been reduced by the amount of the dividend paid.
BEFORE AFTER
$1,000 DIVIDEND $1,000 DIVIDEND
EQUITY $8,000 $7,000
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BEFORE AFTER
$2,000 DIVIDEND $2,000 DIVIDEND
ASSETS Cash $7,000 Cash $
EQUITY $5,000 $
Period
When generating a Balance Sheet, you have to choose a date.
The data that will be displayed will include all past history up to
and including the date you select.
Connecting the Balance Sheet and Income

Statement
The Income Statement and the Balance Sheet are connected
through one number: Retained Earnings.
The Balance Sheet shows the current value of the business.

Value includes the total net profit accumulated by the business,
minus dividends paid out to shareholders — what is known as
retained earnings. This appears under Equity, along with money
invested in the business by shareholders.
INCOME STATEMENT BALANCE SHEET

REVENUE ASSETS
COGS & EXPENSES LIABILITIES
NET PROFIT EQUITY + RETAINED EARNINGS
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19. Balance Sheet
In the table above, net profit from the Income Statement is
added to Equity on the Balance Sheet.
Sample Balance Sheet
223
20. Experience!
Experience!
Now that you have learned the fundamental concepts of
business and entrepreneurship, you are ready to put your
knowledge to practice.
Gain experience by doing business-related activities or starting

your own business.

Discover books, games, courses,

and answers to the activities in
this book at Georghiou.com
225
21
Glossary of
Business Terms
21. Glossary
INDEX Consumers
Copyright
G
Good
Corporation
A Cost of Goods Sold H
Accounting (COGS)
I
Accounts Payable Cost-Plus Pricing
Income Statement
Accounts Receivable Credit
Industrial Design
Accrual Basis Crowdfunding
Integrated Circuit
Accounting Currency Topography
Amortization Period Currency Symbol Interest Rate
Amortization Schedule Customer Inventory
Angel Investor
Assets
D J
Dealer K
B Debit
Balance Sheet Debt Financing L
Benefits Demographics Liabilities
Bookkeeping Direct Sales Liability
Brand Distribution Channel Loan Principal
Brand Personality Dividend Logo
Brand Promise Domestic Currency Love Money
Budget Double-Entry Loyal Customer
Business Bookkeeping
M
Business Ethics
E Market
Business Founder
Elevator Pitch Market Data
Business Plan
End Consumer Market Demand
C Entrepreneur Market Pricing
Carrying Costs Equity Market Share
Cash Basis Accounting Equity Financing Marketing
Cash Flow Exchange Rate Marketing and Sales
Cash Flow Statement Executive Summary Strategy
Collateral Expenses Mission Statement
Company N
F
Company Valuation Nonprofit or Not-For-
Financials
Compound Period Profit
Financial Transaction
Consumer Groups Organization
For-Profit Organization
Consumer Profiles
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Business Superhero
O S
Order Form Salary
Organizational Sales
Customer Sales Promotion
Satisfied Customer
P
Seed Financing
Partnership
Selling Price
Patent
Service
Payment Period
Severance Cost
Personal Guarantee
Shareholder
Pitch Deck
Sole Proprietorship
Price
Spoilage
Price Anchoring
Stock Certificate
Price Discount
Advertising Stock Exchange or Stock
Market
Private Organization
Store
Product
Strategy
Product Line and Brand
Advertising Supplier
Productivity T
Profit Trademark
Psychographics Turnover
Public Company
Purchase Order U
Q V
Values
R Venture Capital
Receipt Vision Statement
Reseller
Retained Earnings W
Revenue Wordmark
Word-of-mouth
Working Capital
X
Y
Z
228 Georghiou.com
21. Glossary
Accounting Amortization Period

The process of tracking financial The length of time over which
transactions and reporting the a loan is scheduled to be fully
results of the transactions. A repaid.
financial transaction occurs
every time that money or
something of value moves in or
Amortization Schedule
out of a business. A list of the dates and
payment amounts due to be
made on a loan.
Accounts Payable
An accounting account
used to record purchases of
Angel Investor
goods and services made A wealthy individual who
by a business for which the invests in a private business
business has not yet paid, but by providing debt or equity
expects to pay within one year. financing.
Accounts Receivable Assets

An accounting account used Something of value that a
to record sales made of goods business owns.
or services by a business for This could be cash, furniture,
which the business has not property, buildings, computer
yet received payment, but software, and more.
expects to within one year.
Balance Sheet
Accrual Basis Accounting A financial report that shows
An accounting method where the value of a business by
revenue and expenses are adding up everything the
recorded when the transaction business owns and subtracting
occurs rather than when everything that the business
payment is received or made. owes. The Balance Sheet
229
Business Superhero
formula is Assets minus Brand Promise
Liabilities equals Equity.
The promise made for the
kind of experience people will
Benefits have with a business, good, or
Compensation, perks, and service.
incentives that a business may
choose to offer employees in Budget
order to maintain or improve
An amount of money a
employee morale, loyalty,
business reserves to invest in
productivity, recruiting, and
a project or business function,
turnover.
sometimes within a given
period of time.
Bookkeeping
A system for tracking financial Business
transactions.
An organization that sells
goods or services.
Brand
How people feel about a Business Ethics
business, good, or service. This
The values and principles that
feeling may be influenced
a company follows to sustain
by a brand promise, brand
its brand, manage business
personality, visual identity, and
risks, and maintain good
tone of voice.
stakeholder relations.
Brand Personality Business Founder

The human personality
The person or people who
characteristics that are
start a business and usually
associated with a brand.
own the business in the early
stages of startup.
230 Georghiou.com
21. Glossary
Business Plan Collateral

A document that describes, Something of value in a loan
with some detail, how the agreement that is pledged
business founders, owners, by the borrower as security
and managers plan to achieve for repayment of a loan. The
success. collateral may be forfeited to
the lender if the loan is not
repaid.
Carrying Costs
Costs associated with storing
inventory, making sure it Company
is secure and undamaged. An organization that is created
Carrying costs may also and structured to do business.
include insurance costs,
potential depreciation in value
of the goods, and more.
Company Valuation
The value of a company if it
were to be sold.
Cash Basis Accounting
An accounting method where
revenue and expenses are
Compound Period
recorded when payments are The span of time between
received or made. when interest on a loan was
last compounded and when it
will be compounded again.
Cash Flow
Money moving in and out of a
business.
Consumer Groups
A collection of consumer
profiles that indicate similar
Cash Flow Statement psychographics.
A report that projects the
timing of money moving in
and out of a business.
231
Business Superhero
Consumer Profiles Cost-Plus Pricing

The demographics and A pricing method that sets
psychographics that define the selling price of a good or
the needs and desires of a service at a set amount higher
consumer. than the cost to make and sell
the good or service.
Consumers
Individuals or organizations Credit
that purchase and use a good Used in accounting to record
or service. a decrease in Assets or
Expenses or an increase in
Liabilities, Equity, or Revenue.
Copyright
A type of intellectual property Used in finance to borrow
protection that applies to money or access goods
original literary, dramatic, or services with the
musical, and artistic works. understanding that payment
will be made at a future date.
Corporation Used in personal finance to
A legal term used to describe measure the reliability of a
a specific form of business borrower to repay a lender.
registration. A corporation
is an entity that has been
created to conduct business
Crowdfunding
– for profit or nonprofit – and A website or an online service
is effectively recognized as a that enables individuals from
person under law. around the world to pre-
purchase a new product that
is not yet available for sale,
Cost of Goods Sold (COGS) or to invest money in a new
The cost to buy or make a business in return for goods or
good that has been sold. equity.
232 Georghiou.com
21. Glossary
Currency Debt Financing

The system of money used in Borrowed money that must
a country, such as dollar, euro, be repaid, often with interest.
or yen.
Demographics
Currency Symbol A person’s gender, age,
A text character that identifies income, location, and other
a specific monetary currency, statistical data.
such as $ for dollar, € for euro,
and ¥ for yen.
Direct Sales
Selling goods or services
Customer directly to the consumer,
An individual or an without an intermediary.
organization that purchases a
good or service.
Distribution Channel
An intermediary through
Dealer which a good or service
An organization that resells passes until it reaches the final
goods made by other consumer.
businesses.
Dividend
Debit Distribution of business profit
Used in accounting to record paid to shareholders.
an increase in Assets or
Expenses or a decrease in
Liabilities, Equity, or Revenue.
Domestic Currency
Monetary currency used in the
country in which a business is
located.
233
Business Superhero
Double-Entry Equity Financing

Bookkeeping Money given to a business by a
person or organization in return
An accounting system
for a percentage or share of
whereby each transaction gets
ownership in the business.
entered twice, so that every
entry to any one account
requires a corresponding and Exchange Rate
opposite entry to a different The value of one monetary
account. currency compared to another
monetary currency.
Elevator Pitch
A short text script or verbal Executive Summary
presentation that summarizes A brief summary of a business
a business in a few sentences. plan.
End Consumer Expenses

A person or organization that The financial costs to
uses a good or service. operate a business, including
employee wages, sales and
Entrepreneur marketing costs, interest on
loans, and more.
A person who starts and
operates a business, while
assuming its risks and rewards. Financials
Financial reports that show
Equity the current and projected
future state of a business.
The value of a business as
Most commonly refers to
calculated on a Balance Sheet
the Balance Sheet, Income
using the formula: Equity
Statement (Profit & Loss), and
equals Assets minus Liabilities.
Cash Flow Statement.
234 Georghiou.com
21. Glossary
Financial Transaction Integrated Circuit

A record of money, or Topography
something of value, moving in
A type of intellectual
or out of a business.
property protection for three-
dimensional configurations of
For-Profit Organization electronic circuits embodied
A business that is intended to in integrated circuit products
create profit for its owners to or layout designs.
use as they choose.
Interest Rate
Good The percentage of interest to
A tangible item that can be be paid on the principal of a
used once or multiple times. loan.
Income Statement Inventory

A financial report that shows The goods and materials that
all of the money flowing a business holds and expects
in and out of a business to to sell.
determine if the business is
profitable or not. Liabilities
The debts that a business
Industrial Design owes. Plural of liability.
A type of intellectual property
protection for the shape, Liability
pattern, or ornamentation
Something of value that a
applied to a manufactured
business owes.
article.
235
Business Superhero
Loan Principal Market Data

The amount of money In sales and marketing,
to be borrowed in a loan quantitative and qualitative
agreement. information about a market.
Logo Market Demand

A unique visual identifier that In sales and marketing,
distinguishes a business. the amount of money that
is spent by consumers to
purchase a type of good or
Love Money service.
The money invested in a
business by family and friends
of the business founders and Market Pricing
owners. A pricing method that sets
the price of a good or service
to what consumers are
Loyal Customer estimated to be willing to pay.
A customer that repeatedly
buys from the same business
and is reluctant to change. Market Share
The percentage of customers
or sales a business wins
Market in comparison to other
In sales and marketing, market businesses in the same type of
is the profile and number business.
of people who might buy a
particular type of good or
service and the amount of Marketing
money those people may Activities that generate leads
collectively spend on such or prospects for the purchase
purchases. of a good or service.
236 Georghiou.com
21. Glossary
Marketing and Sales Organizational Customer

Strategy A customer that is a company,
government, school, hospital,
A plan for how to reach
or other organization that is
consumers and sell them a
not an individual person.
specific good or service.
Mission Statement Partnership

A legal term used to describe
A description of how a
a specific form of business
business will achieve its vision.
registration, similar to a sole
proprietorship, but created by
Nonprofit or Not-For- two or more people who are
Profit Organization personally responsible for all
business obligations.
A business or other type of
organization that is intended
to support a social cause Patent
without distributing profits A type of intellectual
external to the organization. property protection for new
This may include a charity, inventions or processes that
medical research, local offer innovative and useful
community, industry functions.
association, or other initiative.
Payment Period
Order Form The frequency in which loan
A document, online form, or payments will be made.
online shopping cart provided
by a seller to be used by
customers to place orders for
goods or services.
237
Business Superhero
Personal Guarantee Private Organization

A promise made by a business An organization that is not
owner, or an affiliated obligated to disclose its
person, to repay a loan using financials or operations to
personally-owned assets, if the the public, and which places
business is unable to do so. limits on how its stock can be
traded.
Pitch Deck
A slide presentation of a Product
business plan summary. A tangible item or service that
is made available for sale by a
business.
Price
The money a customer gives
to a business to buy goods or Product Line and Brand
services. Advertising
A promotion to build awareness
Price Anchoring and generate sales of an overall
The price a consumer expects product line and brand, as
to pay for a good or service, opposed to the promotion of a
based on a previous purchase specific good or service.
of the same or similar good
or service, or based on some Productivity
other influence.
The labor output, efficiency, or
efficient use of an employee,
Price Discount Advertising machine, system, or material.
The promotion of a sale or
other price reduction of goods Profit
or services.
A financial gain or an earned
surplus (often referring to
money).
238 Georghiou.com
21. Glossary
Psychographics Retained Earnings

In sales and marketing, how Cumulative net profit
a consumer thinks, including generated by a business and
attitudes, aspirations, and which remains in a business
other psychological criteria. (not paid out as dividends).
Public Company Revenue

A business that is required to The money given to a
disclose its financial information business by customers
to the public, and which has purchasing its goods and
greater flexibility in how its services.
stock can be traded.
Salary
Purchase Order The money paid to an
A document used to place an employee for working.
order for goods or services.
Sales
Receipt The activities needed to
A document that confirms directly persuade a lead or
that something of value has prospect to actually buy a
been transferred from one good or service.
person or organization to
another.
Sales Promotion
In-store displays, contests, and
Reseller other sales tactics to directly
An organization or person reach a consumer to build
that resells goods or services awareness and generate sales
made or provided by another of a specific good or service.
organization or person.
239
Business Superhero
Satisfied Customer Shareholder

A customer that is pleased An owner of a business –
with the results of using a specifically, a corporation.
specific good or service.
Sole Proprietorship
Seed Financing A legal term used to describe
The money used to a specific form of business
cover business startup registration where a business
costs, such as business is owned by one person
registration, equipment, with no share structure and
permits, insurance, building the owner is personally
renovations, and more. responsible for all business
obligations.
Selling Price
The money a reseller, Spoilage
distributor, or customer pays a Expiration of or damage to a
business for a good or service. nondurable consumer good.
Service Stock Certificate

An action that someone A paper document issued to a
does, usually in return for shareholder that demonstrates
compensation. Unlike a ownership in a business.
good, a service is intangible,
such as car repair, haircut,
teaching, legal advice, medical
Stock Exchange or Stock
procedures, and more. Market
A physical or online
Severance Cost marketplace where shares of
companies can be bought
The direct financial cost to
and sold (traded) by the
dismiss an employee.
public.
240 Georghiou.com
21. Glossary
Store Turnover
A place where consumers can The rate at which employees
view and purchase goods and leave a workforce and are
services. Usually refers to a replaced. May also refer to
physical location but may also business revenue.
be an online store, website, or
software app.
Values
The core principles and
Strategy standards that guide the
A plan for how a business will way the people in a business
achieve its goals. operate. May include beliefs
and attitudes about how
people should behave
Supplier towards each other, suppliers,
An organization that supplies and customers, and the
parts or services used by ethical standards by which a
another organization to business strives to abide.
produce its own goods or
services.
Venture Capital
A professionally-managed
Trademark fund that is raised specifically
A type of intellectual property for the purpose of investing in
protection for combinations businesses that can generate
of letters, words, sounds, or a high return on investment.
designs that distinguish the
goods or services offered by
one organization from those Vision Statement
of others in the marketplace. A phrase that describes the
future state of a business, if it
is successful.
241
Business Superhero
Wordmark
Stylized text used as a logo.
Word-of-mouth
In sales and marketing, when
a person, usually a satisfied
customer, informs other
people about a business,
good, or service.
Working Capital
The money used to buy
product inventory and pay
the operating expenses for a
business.
242 Georghiou.com
U S I N E S S
YOU R B
P E R H E RRO
S U TRY
O
O R I G I N S
S N OW !
BEG I N
e s , c o u rses,
b o o k s, gam
Discov e r
e a c t i v i t ies in
a n s w e r s to th . com
and rg h i o u
s b o o k a t Geo
thi
This book is a powerfully clear and
concise guide to the basics
of business and entrepreneurship.
There are no stories, opinions, or
other extraneous information.
Just the fundamentals —
presented in a style that is
quick to read and easy to
understand.
About the Author

Mathew Georghiou is an engineer,
inventor, and entrepreneur who has
founded and operated several businesses
in education, entertainment, and technology.
An expert in experiential learning, he has
designed educational games and simulations
that have transformed business education
and entrepreneurship training for millions
of learners around the world, through
thousands of schools, universities,
nonprofits, and businesses. Find out
more at Georghiou.com
Discover more books, games,

and other resources at
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YOUR BUSINESS SUPERHERO

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Businesses and Products

A business is an organization that sells goods or services.

The term product is often used to mean goods or both goods

PRODUCTS TANGIBLE OR INTANGIBLE

Some businesses make the products that they sell. Some

 Ford designs and makes automobiles.

Complete the table below by entering consumers, suppliers, or

SUPPLY PARTS, PURCHASE

Stores and Resellers

Not every business sells products through resellers. Some

Some businesses use both direct sales and resellers. For

A store is a place where consumers can view and purchase

Complete the table below by entering reseller, direct sales, or

PLACE WHERE BUSINESS THAT

Customers and Consumers

Consumers are individuals or organizations that purchase and

A customer is an individual or an organization that purchases

When Ford purchases furniture to use in the company offices,

Customers and consumers can be individual people or

Complete the table below by entering customer, consumer, or

The creation of a business usually starts with an idea. An idea to

An individual can do some activities, similar to a business,

Profit Versus Not-For-Profit

Review the examples in the table on the next page and

MONEY IN $100 $1,000 $500

MONEY SPENT $70 $800 $400

PROFIT $30 $200

A business can be for-profit or not-for-profit.

With a nonprofit, any profit that is generated by the

Normally, nonprofits are not called businesses, even

Business, Company, and Corporation

The terms business, company, and corporation are often

Business can broadly refer to the act of doing business – the

To some, the word company suggests an organization that

Corporation is a legal term used to describe a specific form of

A corporation has one or more owners (called shareholders) and

Corporations are normally required to have a specific term

All corporations are businesses, but not all businesses are

Managing a business means making the short-term and long-

Most businesses sell goods or services – often called products.

Products are sold to consumers. Consumers are the people

The objective of a business is to generate more money than

To achieve your desired profit, you should define a strategy for

PROFIT $50 $400

An entrepreneur is a person who starts and operates a business,

Most entrepreneurs own and run small businesses, such as a

Sometimes, small businesses turn into very large businesses.

Becoming a successful entrepreneur is not easy. You need a

Against the odds, you

The risks and sacrifices

“If a picture is worth a

GoVenture educational games

Entrepreneurship is important in society. Entrepreneurs create

Entrepreneurship also enables individuals to exercise their

There are many challenges associated with being an

Running a business is a risky proposition with many advantages

Ford designs and makes automobiles.

Generating profit – and keeping that profit in the business,

Increasing personal time

If the business generates $20,000 in profit this year, these