PROMOTING SMALL

BUSINESS
BETONIO, MIRAMONTES, PASCO,
ROJAS, TORILLO
 PROMOTION DEFINED
•Promotion may be defined as activities including advertsing, personal selling, sales
promotions, public relations, and direct marketing used by SBOs to persuade
prospective customers to buy the company´s products or services.

PROMOTION AND CUSTOMER DEMAND

•Promotion and Customer Demand are related in some ways. There are instances when
promotion increases the total customer demand for the firm´s products or services.
In some cases, a little promotional effort brings large increases in customer demand.
Sometimes, however, promotion does little to improve the company´s total revenues. These
results will depend on the nature of the product or service , the stage of the firm´s
development, and the nature of competition. It will be very useful to the SBO to know how
he can use the various methods of promotion to his advantage.
 TYPES OF CUSTOMER DEMAND
To understand the value of promotion, it is important for the SBO to know the
type of customer demand. They are the following :
1.Established demand
2.Newly created demand (also preferred as promoted demand)
 1. ESTABLISHED DEMAND
● This refers to purchases made by people from a certain firm as a
result of any or all of the following :
1. The positive experience with the firm´s product;
2. The convenient location of the firm ; and
3. The attractive appearance of the firm.
 Customer Demand Sale
Exposure Result Outcome

Positive
Established Certain levels
Contacts with
Demand of Sales
the Firm

Newly
Promotion Certain Level
created
of Sales
Demand

Positive
Contacts with
Established
the Firm
plus Newly Higher level
Created of sales
Demand
Promotion
2. NEWLY CREATED DEMAND
•When the firm engages in activities designed to attract
people to buy from the firm, the resulting demand is
called newly created demand.
•This is also sometimes referred to as ¨promoted
demand¨
•Successful promotional activities made by some firms
are able to create new demand.
 METHODS OF PROMOTION
•In promoting the small business may be undertaken by using any or all of the
following methods :
1.Advertising
2.Personal Selling
3.Publicity
4.Sales Promotion
5.Word-of-Mouth
 1. ADVERTISING
Advertising is any paid form of nonpersonal presentation and promotion of
ideas, goods, services by an identified sponsor. The great number of product or
service endorsements we see,hear, or read on television, newspapers, or radio are
advertising efforts designed to motivate prospective customers to patronize
certain products, services, or companies.
TYPES OF ADVERTISING
1. RETAIL ADVERTISING - is
made by various retail stores as
grocery stores and bakeries to
attract customers
2. SERVICE ADVERTISING - is
made by various service
establishments such as
transportation, recreation and
insurance
3.TRADE ADVERTISING - is made 4.INDUSTRIAL ADVERTISING - is
by manufacturers to motivate made by manufacturers to motivate
wholesalers and retailers to carry their other manufacturers to use their
products products and services.
5. INSTITUTIONAL ADVERTISING
– is designed to create a favorable image
for a firm.
1.Television TYPES OF ADVERTISING
2.Radio MEDIA
3.Newspapersa
4.Magazines
5.Outdoor billboards
6.Specially advertising (distribution of items such as pencil,
calendars, shopping bags, wall clocks, and others)
7.Public transportations
8.Yellow pages
9.Direct mail
10.Local cable TV
11. Cinema
12.Other means such as catalogs, samples, handouts, and the like.
 2. PERSONAL SELLING
● Personal Selling is that method of promotion that is direct, personal, and
often face-to-face interchange between the company’s salesperson and the
consumer.
● It is a very important complement of the other methods of promotion. When
a potential customer cannot be motivated to make a final purchasing decision
with the use of the other promotional methods, personal selling may be able
to finally clinch a sale.
TYPES OF SALESPERSON
Current customers
Order
Getters
New business

SALES Order Field order

PERSON Takers
Inside order

Missionary

Support Trade
Personnel
Technical
Order Getters
The task of the order getter is to increase the firm’s
sales by selling to new customers and by increasing
sales to present customers. Order Getters are classifies
as follows:

1. Current Customer Salesperson - concentrates

on current customers and seeks more sales from
them
2. New business Customers - locates prospects and
converts them to buyers.
Order Taker The responsibility of the order taker is to
seek repeat sales from current customers
by making sure that product quantities are
there where and when they are needed.
They are classified as follows:

1. Inside order taker - stays inside the

sales office and from there receives
orders by mail, telephone, or directly
from persons coming in.
2. Field order taker - travels to
customers and from their places, order
are taken.
Support Personnel
The responsibility of the support personnel is to facilitate the selling function.
Their functions include locating prospects, educating customers,building
goodwill and providing service after sale. They are classified as follows:

1. Missionary Salesperson - usually employed by a

manufacturer who wants to establish presence in a
certain area.
2. Trade Salesperson - help’s the company’s customers,
especially retail stores, promote the product.
3. Technical Salesperson - gives technical assistance to
the firm’s current customers in the form of advice on
product characteristics and application systems design,
and installation procedures.
 The Selling Process.
Is a process consisting of the following major steps :

1. Prospecting and qualifying

2. Preapproach

3. Approach

4. Presentation and demonstration

5. Handling objections

6. Closing

7. Follow up
3.PUBLICITY
● A method of promotion where news is generated about the firm or its products or
services and appearing in print, broadcast, or electronic media and not paid for by the
firm.
● Is one of the promotional methods which can be tapped by the cash-strapped small
businessmen. The only requirement is a prepared publicity release describing any of
the following :
1. Existence of the firm and the products or services offered.
2. Unique characteristics of the new products or services offered
3. Firm’s unique method of doing business.
TYPES OF PUBLICITY
1. News Publicity - deals with events of national, regional and local interest.
a. Spontaneous News Publicity - one made as a result of a fire, union strike, lahar
onslaught, bank holdups, and other major occurences.
b. Planned News Publicity - one based on news releases prepared and distributed by
small business on a regular basis.

2. Business Feature Articles - refer to detailed stories about the firm or its offerings, most
often appearing in business magazines.

3. Service Feature Articles - refer to lighter stories focusing on personal care, household
items, and recipes which find their way in the pages of newspapers and magazines.
4. Finance Releases - are stories hat are targeted to appear in he business sections of
newspapers and magazines.

5 . Product Releases - refer to new products and product improvements and aimed at all
forms of media for publicity.

6. Pictorial Releases - refer to illustrations or pictures distributed to media.

7. Background editorial releases - refer to extra information (biography of the firm’s

general manager) given to media writers and editors.

8. Emergency Publicity - refers to special media releases regarding disasters or serious

problems like the 2009 swine flu threat.
4. SALES PROMOTIONS

● A method of promotion other than

advertising, personal selling, and publicity
that increase sale through temporary sales
incentives. Sale Promotion enhances and
supplements the other forms of promotion.
● Major Tools of Sales Promotion:

1. Point-of-purchase Display -items used by sellers to attract attention, inform and

persuade prospective customers to buy.
2. Premium - a special incentive in form of a gift that is made available to customers
who buy certain products of the firm.
3. Trading Stamps - are sales promotion tools in which customers are given in relation
to the amount of their purchase. These stamps can ba redeemed later for merchandise
or cash.
4. Sampling - refers to the process by which manufacturers give away free samples to
introduce a new product.
5. Product Demonstrations - customers are given the opportunity to observe the product
benefits and performance before purchasing.
6. Retailer Coupons - a coupon is a sales promotion that motivates consumers to buy
from the retailer.
7. Consumer Contests - a type of sale promotion where customers compete for prices by
completing a contest.
8. Sweepstakes - these are sales promotion tools which require the participants to submit
some kind of entry form but are pusrelt games of chance requiring no analytical or creative
effort by the consumer.
9. Rebates - a rebate offers the return of money based on the proof of purchase.
10. Trade Shows - these are temporary exhibitions of products and services. it is where
direct purchases are made. It is also in trade shows where salespersons get leads on
potential customers.
5. WORD OF MOUTH
● A method of promotion wherein people are encouraged to tell other people products
or services they have enjoyed. If the SBO wants to reap the benefits of positive word-
of-mouth, te following must be maintained:
1. Competent employee
2. Proper treatment of people
3. Not overcharging
4. Not using false claims in advertising
5. Keeping promises to customers
6. Having a good product or service
7. Keeping customers happy
 MANAGING SMALL
BUSINESS
BETONIO, MIRAMONTES, PASCO,
ROJAS, TORILLO
 MANAGING SMALL BUSINESS FINANCE
Sources and Importance of Financial Planning
Application of Funds are
two of the most important Financial planning provides the small
concerns of the small business operator with a detailed approach to
business owner. Errors in managing the financial activities of the firm.
decision making regarding Decisions can be made in advance minimizing
these two concerns could the risk of errors brought by making choices
put in jeopardy the in the middle of operations without the benefit
existence and survival of of careful analysis.
the firm.
Financial Planning
Financial planning involves an analysis of possible future events and how these
events might affect the firm. It is an activity that involves analyzing the financial flows of
the firm as a whole, forecasting the consequences of various investments,financing,profit
decisions, and weighing the effects of various alternatives.

Budget
Budget is an estimate of the income and expenditures for a future period of time.
A budget must be made with the objective of satisfying the target market, employees and
management goals.
Steps in Budget Preparation
1. Build the foundation of the budget
2. Divide the estimate into monthly figures.
3. Establish projected non - operating income and costs.

Types of Budgt Applicable to Small Business

1. Cash Budgets - for all types of firms
2. Production Budgets - for small manufacturing firms
3. Sales Budgets - for small service firms
Cash Budget
The cash budget is a forecast of future cash receipts and cash disbursements
over various intervals of time. It is also alternately referred to as ash receipts and
cash disbursements statement.

1. Total cash available

2. Cash disbursements
3. Cash excess or deficiency
4. Financing
5. Cash Balance
The cash available section identifies the beginning cash balance and the expected
cash receipts.

The cash disbursement section lists all cash outlays for the period except for
interest payments on short/term loans.

The cash excess or deficiency is shown by subtracting cash available from cash
needs.

In the event of a deficiency, the financing section will show the planned
borrowings and repayments, including interests.

The cash balance is a result of cash available plus borrowings less cash
disbursements.
Production Budget
Is an estimate of the quality of goods to be manufactured during the budget
period. It describes how many units must be produced in order to meet sales needs and
satisfy ending inventory requirements.

The production budget is the primary basis for planning the following:

1. Raw material requirements;

2. Labor needs;
3. Capital additions;
4. Factory cash requirement; and
5. Factory costs.
The Merchandise Purchase Budget
In a retailing firm, the merchandise purchase budget is the equivalent of the
manufacturing firm’s production budget. It identifies the quality of each item that must be
purchased for resales, the unit cost of the items, and the total purchase cost.

Usually includes the following:

1. Planning of sales
2. Stocks
3. Reductions
4. Markdowns
5. Employee discounts
6. Stock shortages
7. Purchase
8. Gross margin
The Sales Budget
● The sales budget that is applicable to service firms identifies each service and its
quality that will be sold. THe services produced are identical to services sold.

Financial Analysis
● Refers to the process of interpreting the past, present, and future financial condition to
a firm.
● In making financial analysis of a small business, the following are basic
requirements;
1. Financial statements
2. Break-even analysis
3. Financial ratio analysis
1. Financial Statement
There are three major classes of financial statement that provides major
financial data about a small business.

The following are:

1. Balance sheet
2. Income statement
3. Statement of changes in financial position.
1.1 Balance Sheet
● Gives a financial profile of a business at any
given point, showing assets, liabilities and net
worth.
● Shows at a glance the financial health of the
firm. The information becomes more relevant if
compared with the company’s balance sheet of
previous years.
● Assets and Liabilities may be categorized as
a. Current - those due within a year (inventory)
b. Non-Current - have a life more than one year
(plant,equipment)
 ● Net Worth/ Equity - residual amount left after deducting the total libailities
from total assets.
1.2 Income Statement
● Shows the revenue and other income, expenses,
and net income for the small business covering a
period of time, usually one year.
● Four different profit measure:
1. Gross profit (sales - cost goods sold)
2. Operating Profit (gross profit - operating expenses)
3. Profit before tax (operating profit + other income -
interest expenses on borrowed funds)
4. Net Profit (profit before tax - the tax liability)
1. 3 Statement of Changes in Financial Position
● Designed to explain the financial
changes that occur in a company
from one accounting period to the 2. Break- even Analysis
next.
● Very useful tool in managing
● Reflects the firm’s ability to meet its
the finances of a small firm.
operating expenses and to purchase
● It is a means to determine at
additional merchandise for resale.
what point a business activity
the total revenue equals
expenses.
● Break-even analysis is used o determine the following information:
1. Sales in pesos for a period, resulting on a zero net income
2. Sales in pesos for a period, resulting in a reasonably calculated net income
3. Sale in pesos for a period, resulting in maximum net income for capacity
available.
● Calculating the Break-even Point- the breakeven point may by determined
by using the followin formulas:
1. BEPU = F/P - V (in units)
2. BEPP = F/1 - V/P (in pesos)
where:
P = price per unit
F = fixed cost
V = variable cost per unit
3. Financial Ratio Analysis
● Useful tools used by SBOs to determine the financial health of the firm.
● Used to spot trends (good or bad), get a better way of handling cash, and
forecast the effect of operations on profitability.
● Used as a basis for determining which course of action to take to correct a
problem.

It can be classified as follows:

1. Liquidity ratios;
2. Activity ratios;
3. Profitability ratios; and
4. Leverage ratios.
3.1 Liquidity Ratios
● Firm´s ability to pay debts as they became due.
● The most commonly used liquidity ratios are: (1) current ratio and (2) quick
ratio.

Current ratio is used to measure the ability of the firm to meet current debts. It is
calculated by dividing current assets with current liabilities.

Current ratio = current assets / current liabilities

Quick ratio is also used to measure a firm's ability to pay its debts on time. It is
more stringent than current ratio because inventory is excluded from the
calculations.

Quick ratio = current assets less inventory / current liabilities

3.2 Activity Ratios
● Referred to as turnover ratios
● It provides a glimpse on how effective the firm is using its assets.
● The following ratios are useful in determining activity: (1) accounts
receivable turnover and (2) inventory turnover.

Accounts receivable turnover is the type of activity ratio that relates accounts
receivable to sales. It provides an understanding about the appropriate level of
accounts of receivable .
Total yearly sales
Accounts receivable turnover = Outstanding accounts
receivable at year end
The average collection period must also be calculated along with the accounts
receivable turnover to determine how long the accounts receivable are collected.
The formula of the average collection period is:

Accounts receivable
Average collection period =
Daily sales

Daily Sales = annual sales / 360 days

Inventory turnover ratio measures the number of times inventory turns over
during the year. A high inventory turnover means good quality, while low
inventory turnover may mean the company is overstocking, or has trouble selling
its products.
Cost of goods sold
Inventory turnover = Inventory beginning
+ inventory end / 2
3.3 Profitability Ratios
● This term refers to a class of financial ratios that measures the overall
financial performance of a firm.
● The ratio shows the ability of the firm to generate revenues in excess of
operating costs and other expenses
● These ratio is computed by comparing the earnings of the firm with the total
sales or investment.

The most common profitability ratios are:

1. Net profit margin on sales;

2. Rate of return on equity.
The net profit margin ratio may be calculated by using this formula:

Net margin = net profits / sales

The rate of return on equity measures the rate of return.

1.4 Leverage Ratios
● Ratios that measures the extent to which a firm relies on the debt financing.
● They describe the financing strategy of the firm and are used to evaluate the
risk accusing to the creditos, or the risk the firm faces in its financing
operations.

The two most commonly used leverage ratios are:

1. Debt ratios;
2. Debt - equity ratio

The Debt ratios compares the total liabilities of the firm to its total assets. It may
be calculated by using this formula

Debt ratio = total liabilities / total assets

The debt-equity ratio compares debt to equity. It will be calculated using this
formula.

Debt-equity ratio = liabilities / equity

Sources of Financing
● In managing small business finance, one of the major concerns of the SBO is
managing the firm’s sources of financing.
● The SBOs responsibility is to choose and tap the best source of funds that the
company can use to finance its operation.
● Sources of funds fall into 2 major caterogies:
1. Debit Capital
2. Equity Capital

Debit Capital
● Represents funds obtained through borrowing. Debt financing may be
classified according to the length of maturity which are as follows:
1. Short-term capital - short-term borrowings need to be repaid within one year. Has
two alternative sources : (1) trade credits (2) banks

Trade Credit refers to products/services provided by suppliers to small business on

deferred payment, usually short-term. This allows to keep a bigger inventory of stock
and the use of much needed equipment with less pressure on his working capital.

1. Intermediate financing - high rates of failure of small business have caused much
worry to bankers ad they shy away from lending to small firms.
2. Long-term financing
Equity Capital
● Financing fund requirements through equity consists of the following
options:
1. Additional capital infusion from the sole proprietor
2. Additional capital generated through a partnership agreement
3. Sale of stock through a corporate form of business