Assignment: Start-up Budgeting For this assignment, you will decide what type of

Question

Assignment: Start-up Budgeting

For this assignment, you will decide what type of budget to implement for a start-up company.

Write a three to four (3-4) page paper in which you:

Summarize the type of manufacturing company you plan to start up and determine how you will design the value chain for your manufacturing company.

Describe the type of budget you plan to implement in your company, and outline the budgeting review steps necessary to ensure that your company reaches the financial forecast.

Select at least four (4) specific benchmarks you will utilize in your company. Explain the benchmarks selected and their benefit(s) to your company.

Explain the type of cost system you plan to implement in your company, and identify any major challenge(s) in implementing your cost system. Suggest a way to overcome the identified challenge(s).

Integrate at least one (1) quality resource using in-text citations and a reference page in your assignment. Note: Wikipedia, Investopedia, and similar Websites do not qualify as quality resources. Format your assignment according to the following formatting requirements: Typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page is not included in the required page length. Include a reference page. Citations and references must follow APA format. The reference page is not included in the required page length.

Explanation / Answer

Introduction to Start-up Budgeting:

Start-up Budgeting is the maximum time initially on researching the market, benchmarking competition and seeking to fund from friends and family. When you start searching for manufacturers and talking to them, it all starts to feel real. But finding the right manufacturer is not easy.

Most of the entrepreneurs either owned their manufacturing center or had years of experience dealing with third-party contractors. Here is their advice for avoiding pitfalls in the transition from idea to product for sale:

Set-up a mutually beneficial partnership. As a start-up, you may not take seriously enough by the big manufacturers. The volume of business you bring to their table is not significant either. Consequently, it is imperative for you to create an incentive for the manufacturer to work with you.

Related: Avoiding the Pitfalls of a Bad Alliance

George Burciaga, CEO of elevate DIGITAL, contended with this exact situation while starting up his business building interactive touch-screen based digital displays. His assembler was fairly large but did not build products in this particular category. Burciaga persuaded them the partnership would be mutually beneficial since the assembler would expand into a new category.This is a strategy that is absolutely necessary at every level of growth.

Check references. Finding the right manufacturer is difficult, said Kevin Lavelle, the co-founder and CEO of Mizzen+Main, an innovative men's lifestyle brand. Unlike programmers, few manufacturers have a digital presence. Checking for references is paramount.

“It’s important to check out their references,'' Lavelle said. "Take small steps when first working together. You won’t regret it!” Take baby steps. Setting up your own manufacturing unit takes a lot of time and money. You cannot afford mistakes. Cricket Allen, the founder of The Perfect Snaque, a nutritious snack company, said entrepreneurs must avoid risks in the initial stages by leasing or renting space and equipment instead of buying them immediately. Depend more on manual labor and low-investment tools in the first few months since the product will undergo several minute changes in that period. “Our mantra in manufacturing, and overall, is crawl, walk, run,” she said.

Related: How to Find a Manufacturer For Your Product Research.

Regardless if you are looking for a manufacturer or setting up your own manufacturing unit, you need to do extensive research before you make a decision. Trade journals and fairs are good avenues to research and connect with manufacturers.

“Research the people you want to do business with and don’t settle for the first one you find. Make sure you have options,” said Lawson Nickol, co-founder of All American Clothing.

Have multiple open partnerships. Have multiple reliable options, rather than zeroing in on just one good vendor. Mary Apple, the founder of Pretty Pushers, a firm that makes special labor gowns for women, advised having a list of good vendors and alternating among them for risk diversification and competitive pricing.

“Your once grateful vendor might ignore you when he’s got a bigger customer, or your timely guy might have a factory fire and go out of business for a few months,'' Apple said. "I mean, these scenarios are endless. The key is having a handful of good, or OK, vendors that you can bounce between.”

Get the legal details sorted out. Myra Banks of HerbanLuxe advises business owners to visit local government websites and talk to people in the know about the kind of licenses and certifications required to set up shop. Once this is done, you can confidently go ahead with buying equipment and hiring employees for your business.

Know the people you work with. Your manufacturers are critical to your business. It is imperative that you know them well before working with them. This is true regardless if your manufacturers are in the neighborhood or another country. Nick Paradise, CEO of ThreadBuds, said that it is a good idea to use emails, phone calls and translators in the initial stages, then visit personally to iron out the details.

Benchmarks:

Success in business can be measured in many different ways. The most prominent measures tend to be cash-flow related to that if there is money available at the end of an accounting cycle, company officials typically feel pretty good about what they’ve accomplished. However, the most prominent, progressive and profitable firms tend to be those in which company officials continually ask themselves these types of questions:

Benchmarking should be the primary method used by companies to answer these questions and to measure/evaluate various aspects of production, marketing and customer service processes in relation to the best management practices in the industry. Benchmarking allows firms to develop plans on how to adopt best practices, usually with the goal of increasing some aspect of performance.

There are many references available and processes defined for development of benchmarking.

Generally, at the top level the following steps apply:

As with benchmarking processes, there are many descriptions and definitions of benchmarking. The most usable summary is to define benchmarking on the basis of comparison:

The Benchmarking Wheel (pictured, below), is designed to aggregate the attributes of approximately 60 distinct models.

Cost: The traditional approach to cost-allocation consists of three basic steps: accumulate costs within a production or nonproduction department; allocate nonproduction department costs to production departments; and allocate the resulting (revised) production department costs to various products, services, or customers. Costs derived from this traditional allocation approach suffer from several defects that can result in distorted costs for decision-making purposes. For example, the traditional approach allocates the cost of idle capacity to products. Accordingly, such products are charged for resources that they did not use. Seeking to remedy such distortions, many companies have adopted a different cost-allocation approach called activity-based costing (ABC).

While ABC systems are rather complex and costly to implement but ABC systems results in various benefits for manufacturing industries :

Margin accuracy for individual products and services, as well as customer classifications, is becoming increasingly difficult to achieve given that direct labor is rapidly being replaced with automated equipment. Accordingly, a company's shared costs (i.e., indirect costs) are becoming the most significant portion of total cost.

Since the rapid pace of technological change continues to reduce product life cycles, companies do not have time to make price or cost adjustments once costing errors are detected. Companies with inaccurate cost measurements tend to lose bids due to over-costed products, incur hidden losses due to under-costed products, and fail to detect activities that are not cost-effective.

Since computer technology costs are decreasing, the price of developing and operating ABC systems also has decreased. For example: In 2004 John Karolefski cited the following benefits realized by foodservice distributors and restaurants that have converted to activity-based costing practices:

Implementation costs are an obstacle to some, who feel that ABC is just a fad or will show little benefit. According to Karolefski, "ABC works better if it's kept simple" (2004, pp. 18). Nevertheless, when implemented properly ABC yields benefits to the company, its business partners, and to consumers.

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