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Participants Manual Part I Startup and Business Activity with a special introduction from Abdul Quadir Molvi et al, Institute of Business Management Karachi, of the bicycle industry in Pakistan
Version 4.2
Contents
I - VI
1 1.1 1.2 1.3 1.4 1.5 1.6 2 2.1 2.2 2.3 2.3.1 2.3.1.1 2.3.1.2 2.3.1.3 2.3.1.4 2.3.1.5 2.3.1.6 2.3.1.7 2.3.1.8 2.3.1.9 2.3.1.10 2.3.1.11 2.3.1.12 2.3.1.13 2.3.1.14 2.3.1.15 2.3.1.16 2.4 3 4 4.1 4.1.1 4.1.2 4.1.2.1 4.1.2.2 4.1.2.3 4.1.3 4.1.4 4.1.5 4.2 4.3 4.3.1 4.3.2 4.4
Introduction ............................................................................................................................ 4 What is the purpose of this manual? ......................................................................................... 8 What is TOPSIM Startup! all about?....................................................................................... 8 Simulation between Theory and Practice ................................................................................ 10 TOPSIM Startup! Learning Goals ......................................................................................... 10 How the Seminar Works ......................................................................................................... 11 Short Description of Your Business Idea ................................................................................. 12 Business Plan ....................................................................................................................... 13 Information Sources ............................................................................................................... 13 Creating a Business Plan........................................................................................................ 13 Using the Business Plan Assistant .......................................................................................... 14 Step-by-Step Guide ................................................................................................................ 15 Management Concept / Business Idea .................................................................................... 15 Product Idea / Service Concept .............................................................................................. 15 Sales Prognosis ..................................................................................................................... 15 Market Structure / Competitors ............................................................................................... 16 Production and Logistics Planning .......................................................................................... 16 Business Strategy and Marketing Mix ..................................................................................... 16 Future Outlook........................................................................................................................ 17 Personnel Planning ................................................................................................................ 17 Investments ............................................................................................................................ 18 Further Expenses Incurred in Starting and Expanding your Company ..................................... 18 Financial Planning .................................................................................................................. 18 Debt Service Calculation ........................................................................................................ 18 Profit and Loss Account .......................................................................................................... 19 Budgeted Balance Sheet ........................................................................................................ 19 Company Value ...................................................................................................................... 20 Entrepreneurial Team ............................................................................................................. 20 Data Transfer ......................................................................................................................... 20 Creation of the Company ..................................................................................................... 22 Market Entry and Activity on the Market ............................................................................. 22 Sales ...................................................................................................................................... 22 Price....................................................................................................................................... 22 Advertising ............................................................................................................................. 22 Print Advertising ..................................................................................................................... 23 Sales Promotion ..................................................................................................................... 23 Corporate Identity Expenses................................................................................................... 23 Wholesalers ........................................................................................................................... 23 Internet Presence ................................................................................................................... 23 Sales Representatives ............................................................................................................ 23 Purchasing ............................................................................................................................. 25 Administration ........................................................................................................................ 25 Purchasing and Administrative Personnel ............................................................................... 25 Administration Costs............................................................................................................... 25 Research and Development.................................................................................................... 25
4.5 4.5.1 4.5.1.1 4.5.1.2 4.5.2 4.6 4.6.1 4.6.2 4.7 4.7.1 4.7.1.1 4.7.1.2 4.7.1.3 4.7.2 4.7.3
Goods and Services ............................................................................................................... 25 Production Lines..................................................................................................................... 25 Production Lines Investment / Disinvestment .......................................................................... 26 Number of Production Workers ............................................................................................... 26 Business Space...................................................................................................................... 26 Personnel ............................................................................................................................... 26 Personnel Costs and Services ................................................................................................ 27 Hirings and Dismissals ........................................................................................................... 27 Finance and Accounting ......................................................................................................... 28 Financial Decisions................................................................................................................. 28 Short-Term Loans................................................................................................................... 28 Long-Term Loans ................................................................................................................... 28 Overdraft Credit / Minimum Cash Balance .............................................................................. 28 Capital Investment / Securities ............................................................................................... 28 Taxes ..................................................................................................................................... 29
This is document on Bicycle Industry of Pakistan was provided courtesy of students Sheroz Parrez, Ahsan and M.Shoib of entrepreneurship class of summersession (2012). This report was supervised by class instructor Abdul Quadir Molvi, Institute of Business Management.
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1
1.1
Introduction
What is the purpose of this manual?
You can use this manual to prepare for the TOPSIM Startup! management simulation. The list of contents and Chapter 1 give an overview of the content of the manual. In order to prepare for the seminar, it is advisable to study chapters 2, 3 and 4 in depth. During the simulation you can use the manual for reference and to help you make decisions. Besides the main body of the manual, there is also an appendix, which the instructor will provide you with later. The appendix explains the reports and the decision form, which will help you to approach the simulation systematically later on. The appendix also includes a detailed manual for the initial periods. This gives you a step-by-step guide to help you work through the complexities of the initial periods. In addition, the Startup! Web will provide you with important information for your entrepreneurial decisions. Therefore, the manual does not give all of the answers, such as the exact values for certain influential factors like salary and price. In order to find this information you will have to conduct your own research (just like a real entrepreneur). In reality, almost all important information can be found on the Internet, and the TOPSIM Startup! simulation therefore includes a model of the World Wide Web (WWW) called the Startup! Web.
1.2
active will seem like a complex system, involving inevitable conflicts of goals which you must resolve.
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1.3
TATA Interactive Systems is aware that a simulation cannot recreate reality in its entirety. Nor is this the intention. For didactic reasons, simplifications are necessary to ensure that you are not distracted from what is essential. A simulation which is too complex, would be counterproductive towards effective learning.
1.4
Learning to recognize and deal with problems and important success factors for startups. Finding your way through the information jungle you face as an entrepreneur, and extracting the necessary information for the current decision. Creating a business plan, recognizing the crucial elements, and becoming sensitive to the points and criteria important for a real investor. Learning to clearly see the consequences of decisions you have made. Formulating and implementing management goals. Improving strategic thinking, linking strategies to goals, and using them when making decisions. Improving teamwork and organization.
This Startup! module deals with a startup in the production sector. It also includes the following learning goals for this sector: Interpreting market situations and market results correctly and implementing them in goal-oriented decisions. Critically analyzing complex business management relationships. Recognizing success factors and the relationship between print advertising and sales promotion, reputation, quality of products, prices, and demand generated. Providing sufficient production capacity and avoiding the high costs associated with producing over capacity. Achieving growth and surviving seasonal fluctuation. Holistic thinking: recognizing correlations between decision areas and coordinating decisions. Using break-even analysis and production figures for business management.
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1.5
In the first phase of the Startup! simulation you develop your business concept. A basic business idea is provided to ensure that all participating firms are competing on the same market. To work out a detailed business concept in the form of a business plan you have access to a business plan assistant. This provides you with a structure for your answers, and thus ensures that the information you give can be used. All information and production figures you provide when creating your business plan will subsequently be evaluated by the instructor. As the simulation continues, the most important production figures will serve as a rough indicator used to measure the business development of your firm. After the instructor has evaluated your business plan and made a decision regarding your capital resources, you can set up your company. For this second phase of the simulation you are provided with decision forms. You should fill in your decisions for the periods and hand them in to the instructor, and/or you can feed your data into the computer and then give the instructor a USB stick with the data saved onto it (or your instructor might also be able to access the information via the internet). After starting up your company, you must make decisions for each subsequent period in sales, purchasing and logistics, production, human resources, investments and financing. For the purposes of the management simulation, one period represents one quarter. Based on the data, the computer will simulate all business transactions and activities resulting from the decisions made for the current period. However, periods can only be simulated once all participants have completed the decision forms. Therefore, in order to ensure that the competition is fair, it is important that you keep to the deadlines and hand in your decision forms on-time, even if you need more time.
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After a period has been simulated, each company will receive nine different reports, which will serve as a basis for the next periods decisions. Also at the beginning of each period, you will receive business news which will give you information on the economic situation. This information will provide you with additional clues in assisting you with your decisions. For example, it may prompt you to change price and personnel policies. As opposed to the real business world, the management simulation gives you the advantage of recognizing the effects of your decisions after a short period of time. This overview shows Phase 2 of the simulation as described above.
1.6
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2
2.1
Business Plan
Information Sources
To help you create your business plan, there are a number of information sources available to you. Here you will find basic information about startups, markets, potential competitors, possible sponsors, and so on: Startup! Web: The Startup! website is intended to complement the Startup! simulation and can be accessed with any web browser. If you have access to the Internet, there will sometimes be a reference to information on the real World Wide Web. However, this is not essential for you to be able to create your business plan, nor to be able to participate in the simulation. News is brought to you in the form of an industry newsletter including current information for each period. However, this information must be interpreted and tested for its relevance. Information Broker: You have access to the following data: market research reports, survey results, technical studies, and other relevant reports. They are of high quality and up-to-date. However, these reports are not free of charge. You can find further information on this subject on the Startup! Web.
2.2
1. Management Concept / Business Idea 2. Product Idea / Service Concept 3. Sales Prognosis 4. Market Structure / Competitors 5. Production and Logistics Planning (I) 6. Production and Logistics Planning (II) 7. Business Strategy and Marketing Mix 8. Future Outlook 9. Human Resources Planning 10. Investments 11. Other Expenses incurred in Starting and Expanding a Company 12. Financial Planning 13. Debt Service Calculation 14. Profit and Loss Account 15. Budgeted Balance Sheet 16. Company Value 17. Entrepreneurial Team Personal Data 18. Entrepreneurial Team Special Qualifications
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2.3
- New line: Alt + Return - Bold: Ctrl + Shift + F - Italics: Ctrl+ Shift + K
- Underline: Ctrl + Shift + U Navigation
Previous Page
Menu
Help
Next Page
Important: When you activate a field and enter values, you must confirm your entry (for large sections of text, you do this by clicking on a different part of the table with your mouse, and for short entries (like numbers) by pressing the return key). If you do not confirm your entry, it is NOT possible to use the navigation buttons!
In reality, creating a business plan takes several weeks. For the purposes of the Startup! simulation you will be working on a simplified business plan which should give you a feel for the crucial elements of such a document. This business plan assistant is not suitable for creating a business plan for a real startup.
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2.3.1 2.3.1.1
First of all, the main concept is described. For a promising business idea the following three points are vital and should be looked at closely:
2.3.1.2
2.3.1.3
Sales Prognosis
Market Volume You must predict the expected market volume of the entire market in units (this must be done separately for each of the two products). From your expected share of the market you can derive the planned sales per unit for your company. All figures you provide should be based on solid arguments. Therefore, it is very important that you make realistic predictions and that you can give comprehensible reasons for them (the reasons for your predictions are the subject of the next page of your business plan). Sales Channels It is also important, of course, to consider which sales channels your products will be sold through. For instance, selling via the Internet would mean additional transport costs. Products delivered to a wholesaler generally have to be sold at lower prices. Detailed sales figures result from a percentage distribution of your sales over the three sales channels (Important: the percentage you give will always be standardized to 100%. This means that if you enter 80% and 40%, your sales will be redistributed as 66% and 33%!). Average Sales Price When you have finished planning your sales figures and set an average sales price, your sales will be calculated in PKS. These estimates will be used again in other parts of the business plan as expected sales returns, so you should thoroughly research the likelihood of your figures. Expected Receipt of Payment in the Current Period To be able to carry out your financial planning, you need to estimate what percentage of the sales from one period are collectible. The remaining payments constitute accounts receivables and are carried over into the next period.
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2.3.1.4
2.3.1.5
2.3.1.6
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Distribution policy Which sales channels are available to you? Which sales channels are important, and which are not so important?
Promotion policy Which advertising strategy do you want to follow? How do expenses for print advertising, sales promotion and corporate identity, for example, stand in relation to one another? What role does advertising actually play in the strategy you are following?
For your financial and profit/loss accounts it is also important to know which investments you will probably need to make in order to carry out your advertising strategy.
2.3.1.7
Future Outlook
"A mans wisdom can best be measured by the way he considers the future or the end."
Georg Christoph Lichtenberg To start with, think about industry development. Pay heed to your planned sales and other decisions from 2.2.2.4. Market Structure / Competitors. These are some of the important questions concerning industry development:
How will the relevant market develop? How many competitors can be expected in the near future? Are there high barriers to market entry? Is it to be expected that competition will be tough or even that other competitors will be driven out? Can several suppliers exist simultaneously?
Development of your own company compared to the industry: Here it would be interesting to know which expansion opportunities there are, and which of these opportunities you want to seize and when. Here you can also explain your figures. For instance, why is the large investment, which would only bring returns much later, necessary in the early periods, or to what extent is your business dependent on seasonal or economic factors?
2.3.1.8
Personnel Planning
One very important factor with regards to your financial planning is the ongoing cost for personnel. In general it will be difficult to adapt your personnel to your companys needs for the short-term. Furthermore, hiring and dismissals also involve additional costs (e.g. contract negotiations, orientation/training, etc.). Therefore, it is important that you accurately plan the number of people you will need to employ! Information, you may need to know:
Prospective salaries Worker productivity (e.g. how many products a worker can produce per period) etc.
All of this information can be found on the Startup! Web. The expected personnel costs in PKS will then be carried over into your financial planning and planned profit and loss account. Important: A sufficient amount of well-trained personnel is one of the crucial prerequisites for a firm to be successful in the market. The founders themselves are of course usually available as part of the workforce from the very beginning and take on key functions in the young company. (This also applies in the Startup! simulation. The individual members of your
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entrepreneurial team take on different tasks depending on their qualifications (e.g. R&D, sales, production) and therefore also constitute part of your personnel.
2.3.1.9
Investments
Here you plan how much you will probably need to invest in your production lines, office furniture and equipment. Reliable figures and good capacity planning are also very important here. You can find information on prices, etc. on the Startup! Web. The depreciation for office furniture and equipment will be calculated automatically. You will have to enter the depreciation for individual production lines manually, as their lives depend on the types of production lines they are used in.
2.3.1.10
2.3.1.11
Financial Planning
"If you want to know the value of money, try and borrow some." Benjamin Franklin
Before you start your financial planning, you should complete steps 1 to 11, as the figures predicted there are needed for financial planning purposes. Your financial planning serves to calculate how much financing you need. When you have fed all figures from Steps 1 to 11 into the software, the cash balance will show you how much additional liquidity your company needs in each period, or how much money is left. Generally, there will be a deficit here which indicates how much financing you need. To cover these requirements you have the following two possibilities (which, of course, can be implemented at the same time): Venture Capital In the startup period you can enter the amount of venture capital you expect to receive. Excess financial means should of course be invested so that you can profit from the interest. Venture capitalists want to be a part of your enterprise. The extent to which they are involved is subject to negotiation (See 2.2.2.15 Company Value). Loans / Subsidies If you do not want to give up a share of your company, you will have to finance your investments with standard loans and subsidies. In order to do this, you must find a bank which is convinced by your business concept and awards you the necessary loans. In general, this will be much more difficult than finding a venture capitalist (perhaps even impossible!). Another disadvantage of this method is the additional burden of paying interest on the loan! Dont forget to take into account the forecasted interest rates when making financial decisions (at the bottom of the page)!
2.3.1.12
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2.3.1.13
2.3.1.14
Share capital: corresponds to stock, i.e. the nominal value of the issued share capital.
Capital reserves: arise through an agio when new shares are issued Retained earnings (revenue reserves): result from the excess after tax from the previous periods by not distributing dividends.
Profit / Loss carried forward: Deficits from the previous periods do not immediately reduce reserves, but can be set against surpluses that occur later.
Net profit / loss for period: The result of the current period will be taken entirely into account by the closing balance. For the accounting department, use of the periods surplus (see the profit and loss account) for distribution, building reserves, or offsetting accumulated deficits can only take place in the new period.
LIABILITIES Liabilities are all obligations towards financial institutions. These include: subsidies, loans with a residual term of over 5 years, loans with a residual term of under 1 year, and overdraft agreements.
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2.3.1.15
Company Value
Calculating Cash Flow Cash flow = result of normal business activity + ESE depreciation + depreciation Company Value The companys value is calculated as the current value of the cash flow, by discounting the cash flow interest with the interest rate expected. As opposed to alternative rates of return, this interest rate should include an industry or company-related risk surcharge! Accepting the premise of the company as a going concern, the cash flow expected for the ninth period is the discounted value for the following periods. You can work out the percentage of investment by investors and founders later in negotiations with your venture capital sponsors. In your business plan you should give a realistic percentage estimation which would suit you.
2.3.1.16
Entrepreneurial Team
"I invest in people, not ideas."
Eugene Kleiner, Venture Capitalist Information on the entrepreneurial team is almost as important for potential investors as the business concept itself. If the founders cannot sell or put into practice their idea, have no business experience, or are no good at teamwork or personnel management, the whole enterprise is generally doomed to fail before it even starts. Therefore, in a business plan for a real startup, it is particularly important that the entrepreneurs qualifications are listed in detail and that all aspects relevant to putting the idea into practice are particularly highlighted. For your Startup! Business Plan it may sometimes be difficult to give useful information here. However, think about all the points made so far and try to show your qualifications for the Startup! business idea in the best light possible. This part of the Business Plan also serves to highlight important aspects to which potential entrepreneurs may not yet have paid attention (e.g. what is my motivation for starting up a company?, etc.).
2.4
Data Transfer
In your business plan, you formulated your companys goals and the resulting strategies and measures to be taken. Therefore, after startup your business plan will be very important: it serves to guide and control your business activity. You could make comparisons of actual/target figures based on your calculations in the business plan, for example. There is a transfer function at your disposal for you to import the actual values from the simulation. Whenever you read your results using the participants system, certain values will be prepared for import into the business plan. To import these values, go to the Business Plan Assistant main menu and select Data Transfer. On the following page, click Update Values. Apart from importing values from the simulation, it is also possible to copy values you have chosen as goals from the planning tool over to the business plan. You can insert these values into the yellow table beneath the transfer table as follows:
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Important:
Open the planning tool (the business plan stays open in the background) Select the transfer table Click preparing values for export Highlight the yellow boxes by clicking on the box at the top and dragging the mouse downwards Copy the values (with Ctrl + C or select Edit and Copy in the MS Excel menu) Go back to the business plan (go to Window in the menu and select BP Assistant) Select the column in the yellow table in which you wish to insert the values Insert the values (with Ctrl + V or select Edit and Insert in the MS Excel menu)
1. You can also enter values in the yellow table manually at any time. 2. If values are already in the yellow table ALWAYS overwrite these (manually or by copying them from the planning tool), i.e. values imported from the simulation. Therefore, to be able to import values for a certain period you must ensure that the relevant column in the yellow table is empty before you click update values. 3. You can delete the imported values (in the blue table) manually at any time. 4. You can click update values as often as you like. Each time the values prepared by the participants system will be read and then replaced, if necessary with values from the yellow table.
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Expenses incurred will be capitalized as ESE (Expenditure for Startup and Expansion, see the Profit and Loss Account in the business plan).
4.1 4.1.1
Sales Price
First of all, a selling price can be set for every product in the bike shop (in PKS/item). The effect of the price on the market depends on the price level set by your competitors. If you offer your products at a relatively low price, your sales will be higher; but if your price is higher than that of your competitors, you will sell less. You will find an overview of your future sales market and the usual price levels of your competitors on the Startup! Web.
4.1.2
Advertising
To increase your companys publicity, you have three different advertising instruments at your disposal. Advertising affects both your bike shop sales and what you may sell later via the Internet. Here it is important to find the right mix in order to increase your profile and hence your share of the market, which means that advertising costs should stand in reasonable relation to the sales you are aiming at. All advertising methods have different temporal effects and can also influence the markets behaviour as a whole (i.e. heightened advertising activity by all competitors can lead to a general increase in the market volume). Take a look at the following tips by marketing strategists: To give your startup a higher profile it could make sense to spend slightly more on advertising at the beginning. Established firms in your industry invest 5-10% of their sales on average. The advertising budget is generally divided up as follows: Print advertising Sales promotion CI 50% 20% 30%
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Effect of marketing expenditure for advertising Effect ... Print advertising Sales promotion CI ... current period Strong Strong Neutral ... following periods Lasting Little Lasting
4.1.2.1
Print Advertising
Print advertising includes advertising in print media or on billboards. According to advertising experts, this classic form of advertising is excellent for sales promotion in the current period, but also has a lasting effect on sales in subsequent periods. In the initial phase, this would be a good way for your company to gain a profile in your region and to motivate customers to come and have a look at your bike shop.
4.1.2.2
Sales Promotion
Sales promotion is a very effective method of acquiring new customers. It includes all expenditures like gift vouchers, coupons, raffles and so on. They have a strong effect in the period in which they are used.
4.1.2.3
4.1.3
Wholesalers
Apart from selling bikes in your bike shop you may also be able to cooperate with large chain stores. These wholesalers buy large numbers of products and sell them under a different name (and generally at a lower price). This also gives you the opportunity to seize new sales potential. However, in general it will be necessary to promise wholesalers prices lower than those in the local sales market. The prices are each set by the wholesaler. You can then decide how many bikes you want to deliver at this price.
4.1.4
Internet Presence
In the first period there will be no demand for bikes over the Internet. However, experts expect that consumer behaviour will change significantly over the next few months. In a year or so, it may already be possible to sell bikes over the Internet. This, of course, also gives small local firms the opportunity to sell their products to a wider circle of customers. An entirely new market could also be opened up by an e-commerce offering to include customers from all over the world. You can influence the quality of your e-commerce solution by how much you invest in your Internet presence. Good quality (characterized, for example, by the speed of your website and a high standard of security) leads to more trust and greater satisfaction on the part of your Internet customers, and thus to more sales via the web.
4.1.5
Sales Representatives
The job of the sales representative is to advise the customers in your bike shop. The better the support provided by competent sales personnel, the more likely the customer is to buy a product.
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Note: On the decision form you should give the number of sales representatives working at the end of the period (not including appointments and dismissals).
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4.2
Purchasing
The purchase price is a determining factor as to whether the contribution margin can be generated with one article (compare the comments on break-even analysis in the appendix). It is therefore important to carefully consider how much input material should be purchased per period. With a higher purchase order quantity, you can profit from economies of scale. However, you should take into consideration that any surplus input materials which are not needed for manufacturing will be put into storage. This causes your company to incur storage costs and fixed capital costs.
4.3
Administration
No decisions can be made regarding administration. The system automatically takes into account the necessary number of employees and other costs incurred in the administrative area.
4.3.1
4.3.2
Administration Costs
Also incurred are administrative fixed costs of 120.000 PKR per period and sales dependent administrative costs of 1% of sales (e.g. for office supplies).
4.4
4.5 4.5.1
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4.5.1.1
4.5.1.2
4.5.2
Business Space
With regards to the site of your company, you have three different options. At all sites, expanding your business later on is relatively unproblematic, as plenty of additional space is available. The leased properties differ in terms of the lease amount, surface area, incidental costs, etc. The site location is also important, as a suitable location can have a positive influence on sales. Some of your departments have certain basic needs regarding space. Furthermore, you must also take into consideration the need for additional space depending on the number of employees. Every time you expand your business premises, all additional space will automatically be provided with basic office furniture and equipment (OFE) (e.g. lamps, shelves, desks). These costs depend on the amount of extra space leased. The OFE will be charged at a fixed amount every quarter. Note: The amount of depreciation is a combination of an immediate depreciation of low value fixed assets, five-year depreciation and ten-year depreciation. If you overuse your space, this will affect the productivity of your production workers, who will not be able to perform their tasks effectively because of lack of space. Need for space, effective use of space, and possible declines in productivity will be reported in Participants Report No.3 Use of space.
4.6
Personnel
Your decisions regarding personnel could have an important impact on the success of your company. It is not just about determining your manpower requirements, nor your hirings and dismissals. As has already been mentioned, you can train your production workers. You can also decide how far you want to raise your non-salary staff costs above the legal minimum rate. How many sales/administrative personnel you need depends on sales generated.
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Overview of decisions to make: Number of sales and R&D personnel (at the close of the period) Hirings / Dismissals in production Training methods in production Non-salary staff costs
4.6.1
4.6.2
4.7
4.7.1
Financial Decisions
It is possible to take out short-term and long-term loans and buy stocks and bonds at any time. To apply for subsidies and venture capital, your business concept has to be convincing. The instructor will decide how money is allocated.
4.7.1.1
Short-Term Loans
Short-term loans with a term of one quarter can be taken out in every period. The loan is automatically paid back in the following period. This means that the loan must be reentered on the decision form every period. Interest payments are made in the current period (the period in which the loan was taken out). The size of the short-term loan is unlimited. An increasing debt-equity ratio (measured against private equity) means a clear increase in interest rates due to higher risk. You will find the exact interest rates on the Startup! Web.
4.7.1.2
Long-Term Loans
Long-term loans have a fixed term of 10 years, during which time they cannot be paid off. They have lower interest rates than the other loans. As mortgage credits, these loans are subject to general interest rate fluctuations, i.e. interest rates can change over the periods. Because long-term loans cannot be paid off earlier, they are particularly appropriate for financing large investments which mean a permanent long-term gap in liquidity. However, it is worth considering to what extent an investment should be financed by a long-term loan. If all financing is long-term, the debited interest cannot be reduced at any time during the entire simulation. Possible surplus cannot be used to pay off the loan, which would mean that the operating income would always be reduced by the same interest expenditure.
4.7.1.3
4.7.2
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4.7.3
Taxes
Tax is calculated as follows: Result of normal business activity +/= * = extraordinary income taxable income tax rate Tax to be paid
These figures appear in the profit and loss account. The tax rate applicable for your company is on the Startup! Web. Any losses from previous periods will be set against your taxable income. Therefore, you do not pay taxes until you have made a profit over all periods. Taxes are then paid in the current period.
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