Entrepreneur Retail Entrepreneurship Simulation Jera

Entrepreneur
Retail Entrepreneurship Simulation
Jerald R. Smith, Florida Atlantic University
Peggy A. Golden, Florida Atlantic University
Michael Deighan, Interpretive Simulations
Charlottesville, Virginia, USA
ENTREPRENEUR STUDENT MANUAL
ii
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Copyright © 1987–2007 Peggy A. Golden and Jerald R. Smith
Copyright © 2008–2022 Interpretive Software, Inc.
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ENTREPRENEUR STUDENT MANUAL iii
Contents
Introduction 1
Entrepreneur Quick Start Guide 3
Entrepreneur Manual 4
Entrepreneur Case 5
Location 6
Product Line 7
Business Name 8
Finance 8
Inventory Management 10

Hours 11
Return Policy 11
Pricing 11
Marketing 12
Staffing 13
Overhead and Other Expenses 14
Incidents 14
Reports 14
Performance Measures 16
Next Step 17
Entrepreneurship Essentials 19
Planning, Organizing, and Controlling 21
Financial Statements 23
Team Dynamics 25
Simulation Objectives 26
Appendix 27
Worksheets 28
Glossary 32
Image Attribution 38
Index 39
Printed June 16, 2022
iv

About the Authors
Dr. Peggy Golden is currently Professor Emeritus of
management and international business at
Florida Atlantic University, where she has taught graduate and
doctoral courses in strategy and
the environment of business. She has also taught courses on
global competition in Spain and to
computer industry executives in Asia. Prior to her arrival at
FAU, Golden taught at the University
of Louisville for five years in a variety of areas including the
management of information systems.
All courses have been taught through extensive use of cases,
experiential exercises, and
simulation experiences to reinforce the learning process.
In addition to teaching college courses, Dr. Golden has also
conducted numerous workshops in
the development of competitive strategy, general management
principles, special topics for
women managers, time management, decision-making, and
team-building. Consulting activities
include strategic planning, systems analysis and design, and
management of change.
Dr. Golden has been an active researcher and writer. For
example, she has studied corporate
reputation and the interaction of corporate governance on top
management team pay disparity.
She has published seven management simulation games, and she
has published numerous
articles and papers in the areas of strategy formulation, strategy
implementation, simulation
development, and simulation use.
The late Dr. Jerald Smith authored eight simulation games

spanning many interest areas in
management and marketing. He served as a Professor of
Business Strategy and Policy at Florida
Atlantic University, and he taught a broad range of courses at
the undergraduate, masters, and
doctoral level. He was one of the first to teach an online MBA
course for on-the-go professionals.
Dr. Smith consulted for Fortune 100 companies in diverse areas
such as ethics training and
supervision, and he helped formulate strategic initiatives for
these companies. He also authored
numerous articles.
Michael Deighan is a coauthor on the web-based editions of
Airline, Corporation, Entrepreneur,
and HRManagement. His expertise, insight, and creativity
proved invaluable and made it possible
to convert these models to their current web-based versions.
Michael joined Interpretive
Simulations in 1989 as lead software developer and has served
as manager of technology and
content development.
He is coauthor on a number of Interpretive simulations:
PharmaSim, BizCafe, StratSimMarketing,
StratSimManagement, StratSimChina, CountryManager, and
MarketShare. In addition to
developing software, he has been teaching computer
programming classes at Piedmont Virginia
Community College in Charlottesville, Virginia, since 1990.
Michael received his B.A. in German
and Economics from Washington and Lee University, and an
M.A. in German from the University
of Virginia.

ENTREPRENEUR STUDENT MANUAL v
Acknowledgements
A project of this magnitude cannot occur without the input and
support of many people and
organizations. Special thanks go to the following people:
The Dean, Bruce Mallen, faculty in the Department of
Management, International Business, and
Entrepreneurship and its chair, Darab Unwalla, and the
Graduate School of Business at Florida
Atlantic University for support of our interest in management
simulation and software. Our
supportive families are always in the background: Adele,
Barbara, Michael, Charles, David,
Flossie, Susan, Jennifer, Matthew, and Willie.
The genesis for this endeavor is in the strong entrepreneurship
program at Florida Atlantic
University. SUCCESS magazine studied over 250
entrepreneurship programs in the country and
published their list of the “Top 50 Business Schools to Study
Entrepreneurship.” Florida Atlantic
University was among the colleges listed. The Entrepreneurship
team at FAU includes the
director, Larry Klatt, and includes Paul Gugliemino, Kunal
Banerji, Dennis Boyer and Bob Keltie.
This team believes that simulations are valuable teaching tools
for entrepreneurship. This is a
real “Learn by Doing” pedagogical philosophy.
Professor Richard Hoogerwerf at Miriam College for beta
testing the simulation in his classes.
Richard gave us 110% in testing and many valuable suggestions.

Professor Marc Dollinger at
Indiana University for a foundation in entrepreneurship, and
Professor James Gray at Florida
Atlantic University for making several suggestions in the field
of retailing.
Early adopters and champions of the cause include: Mary Beth
Pinto, Jeff Jones, Richard
Hoogerwerf, Judy Harris, Aston Moss, Salim Jiwa, Don
Gudmenson, Ken Klatz, and John Pal.
Thanks to the team at Houghton Mifflin, Kathy Hunter, Susan
Kahn, Florence Cadran, and Melissa
Russell. A special thanks to Pat Menard who is undoubtedly the
most precise copy editor in the
business. Not only does she edit for typos but makes helpful
grammatical suggestions and makes
sure all the numbers are correct.
Those brave souls who tested the beta version were of great
help: Steven Maranville, Mary Beth
Pinto, Brian Hoekstra, Chris Scalzo, Connie Nott, Philip Little,
Walt Bogumil, Rod Borer. Thanks to
all!
In this revision, we attempted to use all the comments and
suggestions made by the many users
of the first edition of this simulation. If we tried to name all the
contributors, we would surely
omit one or more, so we will simply thank all of you. We had
some users who wanted a much
more complex simulation with a heavy international emphasis.
Others said to keep the simplicity
of the second edition in order that students who had never
played a simulation could do so
without getting deep in the many “rules” of a complex
simulation. Unfortunately, we could not

do both, so we have opted for a less complex simulation in this
edition.
vi
1
Introduction
ENTREPRENEUR

2
Welcome to the exciting world of simulations! Entrepreneur is a
dynamic business simulation
covering entrepreneurship, ownership, retailing, and the ethical
dimensions of management. The
Entrepreneur simulation provides an opportunity for you to
manage a small retail clothing store
in a college town. You have the unique opportunity to make
business decisions, see how the
decisions work out, and then try again! In the process, you will
get “hands-on” experience
operating a retail store.
In Entrepreneur, you will typically be making decisions as part
of a student management team
and competing against your peers. All teams start from the same
position and compete in the
same environment. Teamwork is increasingly important in
business today, and a valuable part of
the simulation experience is learning how to make the best
decisions when confronted with
several different opinions. Your group will have to decide how
to sort out your priorities and
objectives in the context of limited resources and a changing
environment.
At startup, your team will need to name the shop, decide its
location, determine how to finance
it, and pick a product line to best meet your business objectives.
You will then make decisions
each simulated quarter to purchase product, price and promote
your line of clothing, set shop
hours, and hire staff. In addition, you may have to respond to
issues raised by “incidents” (mini-
cases), and complete supplemental assignments chosen by your

instructor. Through the
simulation, you will gain experience in areas including
management, marketing, operations, and
finance.
You will need to understand the business in order to make good
decisions. Therefore, take some
time to familiarize yourself with the case before beginning the
simulation. While working through
your decisions, you will find it helpful to refer to the manual
for information and management
tips.
To get the most out of the Entrepreneur experience, we
recommend the approach outlined on
the following page.
ENTREPRENEUR STUDENT MANUAL 3
Entrepreneur Quick Start Guide

READ THE CASE
• Industry background
• Company starting situation
START-UP DECISIONS
• Access simulation from course website
• Input a company name
• Choose location, financing, and product
• Finalize start-up to allow access to period decisions
PERIOD DECISIONS
• Operations
• Pricing
• Marketing
• Staffing
• Finance
DECISION ANALYSIS

• Break-even
• Forecast
EVALUATE RESULTS
• Company reports
• Environment
SIM ADVANCES
• Check schedule for times
• Complete decisions BEFORE deadline
SIMULATION ENDS
• Evaluate team performance
• Review what you have learned
Your instructor may require additional assignments during the
simulation.
Check the schedule and messages on your course website for
details.
4
Entrepreneur Manual
The remainder of this manual is divided into the sections
described below. Your understanding
and success in Entrepreneur will be greatly enhanced by reading

this manual before you begin
the simulation. The sections listed below will answer most of
the questions students typically
have during the simulation experience, and reading them has the
added benefit of improving
your competitiveness. Finally, the case and help notes are
available online in the simulation
software.
Section 1: The Entrepreneur Case presents information on your
retail clothing store in a form
similar to a business school case. A thorough understanding of
your business, its current
situation, and opportunities will help your group decision-
making process.
Section 2: Entrepreneurship Essentials provides a brief
introduction to entrepreneurial
management: what it is, why it is important, and what concepts
will be used in the simulation. In
addition, each of the basic functional areas covered in
Entrepreneur are discussed.
Appendix: This section includes worksheets to help with
decision making, a glossary containing
business terms that are used in the simulation, and an index.

Entrepreneur Case

ENTREPRENEUR
6
You are purchasing a store that sells casual clothes, a specialty
business in the retail apparel
industry with a long history in the local community. It has been
a family-owned business for many
years, selling tops and pants for work and recreation at

moderate prices. The youngest members
of the family pursued careers in other fields, and the retiring
owners are interested in selling the
business to ambitious entrepreneurs who can update the image
and carry the business forward.
Location
The store has been in the same location for many years, across
from the college campus. The
college location appeals to the student population, and there is a
fair amount of trade from
surrounding neighborhoods. Rent is $5,000 per quarter, and the
store is about 1,500 square feet,
including both display area and storage space. While parking is
limited, foot traffic in the area is
constant, and the previous owners have been moderately
successful in this location. Their sales
last year were $400,000, and their after-tax profit was just over
$11,000. The lease expires now,
so you have the opportunity to renew the lease at the current
rent or relocate.
If you plan to continue selling a medium-priced casual line of
clothing, then staying at the college
location should be a good choice. On the other hand, if you are
targeting a different customer
base, another location might make more sense. Small retail
apparel stores can be found in a
variety of locations. Although they are most prevalent in retail
malls, successful operations can
be found in shopping plazas, downtown stores, and other types
of retail space (e.g., adjacent to
drive-in grocery convenience stores, former gas stations, and
hotel arcades). Each type of

location attracts a unique clientele, and it is important to be
able to identify which population
your store is serving and whether there is a large enough
segment available to generate profits.
Consider the customer base and segment population in your
location and be aware of their needs
and expectations.
The average floor space required for this type of retail outlet is
1,000 to 2,000 square feet with
additional stockroom space of 500 to 1,500 square feet. In
addition to the college location, you
have three other choices, as described next.
• You may lease space in a shopping center located in a newly
developed subdivision, about a mile
from the college. The rent is $6,000 per quarter for 2,000 square
feet. The Merchants Association
at the center provides a moderate amount of free advertising
through flyers. Parking is close and
plentiful.
• A store along the main street of the town is available for lease
at $6,000 per quarter. The street
is steadily becoming a shopping area; many stores are moving
there and making improvements.
There is parking along the street and in back of the stores. Other
merchants report there is usually
enough parking available. The store is 1,800 square feet.
• A corner property between the college and downtown is
available. It currently has a closed service
station on it, but the owner will convert it to a retail store of

1,500 square feet with new interior
and exterior. There is parking for several cars, and it is located
on a busy intersection with good
visibility. The landlord will rent it at $4,000/quarter for the first
year, with a clause to raise the
rent in the second year to no more than $4,500.
None of the locations are inherently bad, but one choice may be
better than the others
depending on your product line, price range, and customer base.
Your team needs to choose the
location carefully, since you will not be able to change it after
the start of the simulation.
Product Line
The tops and pants store that you will be operating is a specialty
business in the retail apparel
industry. Retailers report that they carry several types of pants
and an equivalent array of tops,
depending on the clientele they wish to attract. The type of
population or market segment will
affect the type of inventory carried in an individual store.
Although the early entrants in this
market limited their inventory to jeans, most of the successful
operations have broadened their
offerings to include a variety of styles of pants and tops (jeans,
slacks, fatigues, T-shirts, blouses,
casual shirts, etc.). This provides a more complete product mix

for customers. Depending on your
local market, your team may wish to offer a specialty line of
garments, such as ethnic, designer,
or uniforms for healthcare, food, and other service
professionals. Your store’s relationship with
its suppliers is excellent. Your primary vendor has offered to
replace the existing stock if you
change your product line when you take over the business, as
long as the product is in the same
price range. You can choose one of the following lines of
clothing.
• Ethnic: You can choose to sell specialty clothing specific to a
region or ethnicity. This includes
African, Asian, and Hispanic styles, as well as Western
Cowboy.
• Casual: Your current inventory is casual clothing for the
contemporary shopper. It includes jeans,
t-shirts, sweaters, and sports apparel.
• Designer: Designer clothes display the label or logo of a
fashion designer. Designer brands use
name recognition to help sell the pants and tops.
• Ultra-Trendy: Ultra-trendy apparel appeals to the more
fashion-conscious buyer. It includes pants
and tops that are the latest fad, as well as higher fashion
clothing.

• Uniforms: The uniforms line provides apparel for healthcare,
food, and other service
professionals. This choice includes a casual line of surgical
scrubs.
You can be successful with any of the product lines, though you
need to coordinate your choice
with your location and target customers. While you may change
to any of the product lines at
any time, you will be charged a 10% restocking fee for your
inventory of old product. Also, keep
in mind that when you switch clothing lines, it will take some
time to reach normal sales volume.
Frequently changing your product line will confuse customers.
8
Business Name
One of the most important decisions an entrepreneur makes is
naming the business. This is also
a legal issue since names are usually registered in a
governmental office for the locale in which
the business operates.
Once your business has a new name, the image and reputation
for the store immediately begins

to take form. Although it is possible to rename your business if
the first name selected turns out
to be unsatisfactory, it is important to select a name that will
stand the test of time. It should also
be adaptable to a new product line if you desire to change the
line sometime during simulation
play. Factors you may want to take into consideration in naming
your business and some
good/bad examples follow.
• Is the name descriptive of what you sell?
Campus Clothing Corner vs. The Corner Store
• Does it avoid meaningless words or initials?
The Jeans Shop vs. The JGD Shop
• Is the name distinctive and easy to remember?
Jerry’s Jeans vs. Emily Lanahan’s Clothing Store
• Does the name adapt to changes in products?
Casual Clothes, Etc. vs. Just Tops
Of course, some of these factors have conflicting requirements.
It can be difficult to come up
with a name that is both descriptive and flexible. You will need
to determine which factors are
most important for your store’s image. In any event, be sure to
choose a business name that is
descriptive, yet flexible.
Finance

Sales for the past four quarters have ranged from $80,000 in the
first quarter (January–March)
to $110,000 in the fourth (October–December), with average
quarterly revenue of $100,000.
After-tax profit for the year was about $11,200. Your
accountant has audited the books and
believes that the business is a healthy going concern, especially
since it could be operated more
efficiently than it had been by the previous owners. In her
opinion, the purchase price of $55,000
is fair since it includes $21,000 in inventory, equipment valued
at $8,400, some residual
advertising, and the good reputation of the firm.
The following is a summary of the income statement for last
year, along with the balance sheet
at of the end of the year.
Figure 1: Income Statement (last year)
Gross Revenue $400,000 100.0%
Cost of Goods Sold $200,000 50.0%
Gross Margin $200,000 50.0%
Marketing $45,000 11.3%
Staffing $96,000 24.0%
Overhead & Other $43,000 10.8%
Total Expenses $ 184,000 46.0%

Profit Before Taxes $16,000 4.0%
Less Tax (30%) $4,800 1.2%
Profit after Taxes $11,200 2.8%
Figure 2: Balance Sheet (end of year)
Cash $6,600 Loans Payable $8,000
Rent Deposit $5,000 Total Liabilities $8,000
Inventory $21,000
Equipment $12,000 Retained Earnings $33,000
Depreciation $3,600 Total Equity $33,000
Net Equipment $8,400
Total Assets $41,000 Total Liab. and Equity $41,000
Your team must put together $75,000 to get the business started:
$55,000 to purchase the
business, $10,000 for rent deposit, and $10,000 in working
capital. There are several ways to
raise the capital needed, including selling stock (to the team
members, friends or an angel
investor) and borrowing the balance of funds needed. Your team
has formed a corporation and
has “pooled resources” of $50,000 that will become the equity
in the business—that is, 5,000
shares of common stock will be issued at $10 a share, for
$50,000 in equity. For the remaining
$25,000, you have three options.
• You have been pre-approved for a $25,000 loan at 8% interest
from a local bank through a
program with the Small Business Administration. In addition to
the interest due, the bank will

automatically deduct $2,500 each quarter for principal
reduction. This loan is a good choice for
those who want to have scheduled payments to pay back their
debt.
• A parent of one of the stockholders will grant a $25,000 loan
to the company at 10% interest. The
terms require you to pay quarterly interest, but you can repay
the loan principal at any time. This
is an interest-only loan; it is up to you to make principal
repayments to reduce the debt. While
10
the interest rate is higher than the bank loan, you will have
more flexibility in managing your cash
flow.
• An angel investor has offered to buy 50% of the stock shares
for $25,000; the team would then
control the remaining 50% of the stock. The total number of
shares would remain at 5,000.
Advantage: no loan interest or loan principal to pay each
quarter. If additional funds are needed,
a bank will loan funds at 12% interest, and an automatic $2,500
loan payment on principal will
then be imposed.

In addition to cash to purchase the business, you will need
working capital to operate it. Liquid
assets are required for everyday business functions: adding
employees, purchasing inventory,
paying utilities and rent, etc. While you start with $10,000 in
working capital, there may be times
when cash gets tight and you need additional funds. In that case,
your lender will advance you
additional funds from a line of credit, charging you a one-time
fee of 3% of the advance, plus
interest at the regular annual rate (8%, 10%, or 12%, depending
on your financing choice).
Inventory Management
Good inventory management is critical to running your
business. Before you can sell to customers
each quarter, you will need to purchase tops and pants. You
must pay for your purchases in the
quarter you order them, and the value of the unsold product will
be shown as an asset on the
inventory line of the balance sheet. Buying too much product
can cause problems with cash flow,
so you will need to coordinate your sales projections with your
product purchases to avoid
running short of cash. Buying too little means customers will
not be able to find the items they’re
looking for. Also, keep in mind that the appearance of your
store can affect sales. Both
overstocked, crowded shelves and under-stocked shelves with
poor selection can hurt sales. The
previous owners typically maintained 40 to 45 days of
inventory.

Sales forecasting is difficult, especially when you do not have a
sales history to review. The
previous owners averaged about $100,000 in sales per quarter,
or about 2,000 tops and 2,000
pants in the medium price range per quarter. Keep in mind that
this is an average, and demand
will be lower in the first quarter of the year (January–March)
than around the holiday season
(October–December). Demand for your products will also vary
with your choice of pricing (low,
medium, high), and you should also not expect to sell exactly
the same number of tops as pants,
so be sure to adjust your forecast, keeping all these factors in
mind. While your initial forecast
may be off a bit, your projections will improve as you gain
experience.
Whenever merchandise is displayed on open shelves and
available for customer handling, there
is the possibility of it becoming soiled, stolen, lost in some way
(getting swept off into the waste
can) or returned for credit. Goods are often pushed back on
shelves, in drawers, or in the
stockroom until they are out of season and it is too late to have
an end-of-season sale. No money
is received for these items, and they are written off the
inventory at cost, with the expense
assigned to shrinkage. The more inventory you carry, the higher
your shrinkage.
Hours

Your store should be open at times that are convenient to
customers. While longer hours will
provide more convenience for your customers, they will also
require more staff. The former
owners kept their shop open 10 hours per day, but you have the
option to be open as few as 8
hours each day or as many as 12 hours. You will have to decide
if it is better to be open more or
fewer hours, based on customer traffic at your store and the cost
of staffing.
Return Policy
Your team will need to decide on the type of return policy your
store will have. As you have likely
experienced yourself, there can be a vast difference in return
policies from one store to another.
A stringent policy could result in somewhat fewer sales but will
reduce shrinkage. A liberal policy
will please customers but increase shrinkage. You may change
your policy in the future, but for
customer satisfaction, you should not change frequently without
thoughtful reasons.
Pricing
Prices must be established for pants/jeans as well as
tops/blouses/shirts. Markup is the amount
added to the cost of goods to establish the selling price of a
product. This is usually 100% of cost,
meaning if the wholesale cost of the item is $10, the retail price
will be $20 ($10 + 100% x $10 =
$20). However, retailers often express markup as a percentage

of retail price, in which case a
product that cost $10 and retails for $20 has a markup of 50% of
retail ($10 ÷ [100% - 50%] =
$20). Retail outlets occasionally take advantage of buyouts of
job lots and pass the savings on to
their customers at the same profit margins as the regular stock.
These are commonly advertised
as “special buys.”
The previous owners of the store offered medium-priced
clothing for sale (around $20 for tops,
$30 for pants). You will have the option of offering low ($10–
14 tops, $20–24 pants), medium
($18–22 tops, $28–32 pants), or high-priced ($26–30 tops, $36–
40 pants) apparel in your store.
Your choice will affect the quality of the products you purchase
and should target the population
to whom you are trying to sell.
In the simulation, any time you change the price range (e.g.,
from medium to low), you will need
to return your existing inventory and pay a 10% restocking fee,
which will be charged to “other
expense.” You must then order more product of the appropriate
quality to replenish your stock.
You may price your tops in a different range from your pants,
but if the difference is too great, it
could affect customer perception of your products, and sales
may suffer.

12
Marketing
It is important that your store communicates value to its
customers. The right mix of products,
competitive prices, a courteous and efficient staff, and effective
marketing can maximize sales.
Build a marketing strategy that promotes customer awareness in
your community with the
appropriate advertising media for the population segment you
are targeting. Remember that
your store can create a positive image or marketing presence
through effective advertising.
Retail apparel outlets advertise their merchandise in a number
of ways. The most common is
newspaper advertising that is prepared by an agency and paid
for as an expense of the business.
In addition, a manufacturer may provide co-op advertising if the
retail outlet is carrying an item
that the manufacturer selects for promotion. Advertising of this
type (that promotes the item
rather than the store) can save the retailer about 50% in
advertising costs and provide a residual
image to consumers. An example is a Levi-Strauss promotion of
a new line of jeans with an
announcement that they can be purchased at a specified outlet.
Some shopping centers include “flyer” advertising as a benefit
of tenancy; alternatively, some
shopping centers require that tenants participate in promotions
and charge for the advertising.
Clothing retailers are able to reach their target segments

effectively through this flyer type of
publication, if they have chosen their location wisely.
Other forms of advertising are effective only if the media are
chosen carefully for their
reach/cost relationship. For example, the campus newspaper
may reach students, but have
trouble reaching the typical downtown customer. When trying
new media, it is recommended
that you do not use a random, unthinking method of making
decisions, but rather plan to hold
certain variables constant while manipulating others. Thi s
allows you to begin to determine
which marketing elements are more effective in generating
sales. Expect to spend from 5% to
10% of gross sales on advertising. Below is a table with
descriptions of the advertising options,
all of which are implemented with the help of professionals.
Advertising Type Cost Description
Website $4,000 Includes domain name, hosting, content with
current line and
promotions, and search engine optimization.
Radio $4,016 Run 30-second spot several times a day on a radio
station.
Anticipated reach is 5,000–10,000 listeners.
Television $8,128 Covers production and running of 15 second
ad on local TV. Run
every other week to increase frequency.
Social Media $3,004 Use of two social media accounts to keep
customers up to date

about promotions and new product offerings.
Community Newspaper $6,064 Quarter page ad run several
times a week in local newspaper
with circulation of around 15,000.
Campus Newspaper $1,601 Eighth page ad run once a week.
Reaches around 5,000 readers,
mainly students and faculty.
Advertising Type Cost Description
Direct Mail $3,209 Combination of postcard mailings to local
residences and
purchase of a targeted contact list for email.
Flyers $2,002 Production and posting of 1,000 flyers around
town advertising
your business.
While advertising can help get customers into the store,
promotional activity will help get product
into their hands. End-of-season reductions run approximately
10–35% off the retail selling price,
producing narrow profit margins on sale merchandise, and are
accounted for on the income
statement as a promotion expense. The promotion budget is also
used to create attractive
displays. As a guide, you should spend from $500 to $5,000 on
promotion. For example, $2,500
would allow you to run a 10% sale on select items and update
your displays.

Staffing
Smaller retail pants and tops outlets of this size typically have a
sales force of two people at all
times, except for weekend afternoons and peak seasons such as
“back-to-school” and Christmas
rush when more salespeople are necessary. Staffing includes a
full-time manager or assistant
manager at all times, but you will need to hire additional part-
time help to sufficiently staff the
store. Part-timers work 15 hours per week, and the number of
workers you need will vary,
depending on the number of hours you are open as well as the
time of year. For the average
quarter, if you are open 10 hours per day (60 hours a week), you
will need 4–5 part-timers to
bring the store to full staff.
Insufficient staff will result in lost sales when customers cannot
find assistance, while having too
many staff may overwhelm customers and be unproductive. If
there is not enough sales help on
the floor, there is a greater chance of shoplifting.
Inexperienced, overworked, or lower-paid sales
clerks will also be less inclined to notice shoplifting or
incorrectly stored goods.
Full-time staff cost is fixed at $15,000 per quarter, which
covers salary, vacation, and sick pay
benefits. You may have the option to add health benefits at
some point in the simulation. Part-
time staff receive no benefits, but you need to decide on their
hourly wage. Higher wages will
attract better employees, which may be especially important

when selling higher-end products.
In addition to wages and salaries, your payroll costs include a
10% tax to cover social security and
accident insurance.
New hires will need training to get up to speed working in the
store. Even experienced employees
benefit from extra training, which can show them better ways to
handle their job. Each quarter,
you should expect to spend $100–$200 on training for each new
hire and $50–$100 for existing
staff.
14
Overhead and Other Expenses
Overhead refers to the ongoing expense of operating your
business, regardless of the level of
sales. Each quarter you will need to pay a fixed amount for rent
(which includes electric and
water), telephone, and insurance. Telephone expense is
estimated at $600 per quarter. The basic
insurance cost of $700 includes group life and disability for
full-time employees, and store
liability, but not property insurance to cover loss in case of fire
or storms. You may have the
opportunity to buy a separate insurance policy to cover property

loss as a one-time “incident”
decision.
The simulation assumes that 70% of your sales will be by credit
card. The credit card company
will charge a 4% service fee on all credit card sales. Therefore,
if you have sales of $100,000, the
bank will charge 4% of $70,000, or $2,800 for the quarter.
From time to time you may incur expenses that do not fit one of
the regular categories. For
example, your response to certain incidents may involve a cost,
and returning inventory when
you change the quality of your stock (due to a price level
change) will result in a one-time
restocking fee. These kinds of costs will be shown as “other
expenses” on your income statement.
Incidents
If your instructor selects this option, each simulated quarter you
will have an “incident” which
you will need to address. An incident is like a mini-case. Your
team will need to discuss the issue
presented and enter an appropriate response. Consider your
options carefully as incident
decisions cannot be undone. Any costs associated with an
incident will automatically appear on
the income statement under “other expenses.”
Reports
An entrepreneur must think about the integration of business
decisions. When reviewing your

pricing decisions, can you determine the impact a change in
price has on other functional areas
of your business? What impact does it have on product demand?
...on staffing needs? ...on your
product purchases? ...on your net income? As the owner of a
small retail clothing store, you must
make sure that all functional areas of your business are in line
with your firm’s overall objectives
and that all of your decisions are integrated —working toward
producing the desired results.
There are a number of reports you can use to track performance
as you operate your business.
These include the Balance Sheet, Income Statement, Cash
Analysis, and Inventory reports. You
can access these reports from the Company menu category. Be
sure to check the Dashboard as
well for tips on running your business, alerts about upcoming
decisions, and feedback on issues
in the store.
The Inventory report gives an accounting of your stock of tops
and pants, showing purchases,
sales, and shrinkage. By keeping a close watch on the report,
you can monitor your inventory
and become more effective with your purchasing practices. You
will want to manage inventory
efficiently to minimize your cost while providing an attractive
array of goods to the consumer.
The days inventory is especially helpful in determining if you
have the “right” amount of product

on hand. In the simulation, a value of 45 days is a good target.
The Cash Analysis shows the sources and uses of cash in
running your store. When you purchase
product, pay employees, advertise, and pay rent and utilities,
cash goes out. When you sell tops
and pants, cash comes in. Monitoring your cash balance will
give you a good idea of how good a
job you are doing at keeping a positive cash flow. Note that
cash going out is not always the same
as an expense. For example, when you purchase more product,
you are exchanging one asset
(cash) for another (inventory). Only when you sell your
inventory will the cost of goods be booked
as an expense.
You must keep at least $2,000 in cash on hand for operating
expenses. If you fall below the
minimum, cash will be brought up to $2,000 using a draft on the
line of credit, and the borrowed
amount will be added to your loan balance. Any cash over
$2,000 will be invested in a money
market fund and the interest will appear on the income
statement the following period.
In addition to your cash flow, you will want to keep track of the
bottom line—your after-tax profit.
The Income Statement provides a summary of the revenues and
expenses each quarter and how
profitable your business was for the quarter. Use the sales line
items for tops and pants to identify
sales trends. Tracking marketing and staffing expenses as a
percent of revenue over time is a
good way to monitor the effectiveness of your decisions in
those areas.

The Balance Sheet provides a summary of your assets and
liabilities, as well as your equity in the
company. It includes several current assets: cash, money market
funds, rent deposit, and the
value of inventory (at cost). It also includes fixed assets under
equipment, which is depreciated.
Since the property is leased, it is not included as a fixed asset.
Your liabilities include any unpaid
loan balance. Owner’s equity includes the stock that you sold
and retained earnings. Retained
earnings are the total profits of the firm, to date, less any
dividends that were paid.
If you are playing in competitive mode, a market research firm
will conduct studies of the local
clothing stores and sell information to you as needed, after the
first quarter. The cost varies from
$100 to $400 per report each period. Your firm may purchase
these reports to learn how your
competitors are positioned. Selecting the appropriate market
research report can aid in
compiling decision data. Such data will keep your firm informed
about unit sales and pricing,
product line, and marketing expenditures for each competitor in
your industry.
16

ROI = cumulative profit / investment
Performance Measures
There are several measures you can use to track performance as
you operate your business. The
first is your sales revenue. Since seasonality can affect
performance independent of your
decisions, it is best to compare current sales with the previous
year’s sales during the same
quarter. Unfortunately, that is not possible in your first year of
operation, so an alternative would
be to track sales per employee. To do this, you will need to
convert the hours worked by part-
time employees to the equivalent of full-time employees, then
divide sales by the calculated
number of full-time employees. Since you have two full-time
employees, the full calculation is
shown below:
Tracking profit after taxes each quarter will give you a good
idea of overall performance, but you
may also want to calculate return on sales (ROS) to measure the
efficiency of your business. This
ratio shows how much profit you are making per dollar of sales,
and is calculated by dividing
profit by revenue. Both numbers can be found on the Income
Statement, though you will need
to add sales of tops and pants to get total revenue. Return on
sales will vary by industry, but in
Entrepreneur an ROS of 7% indicates an efficient operation.

Return on investment (ROI) is another useful profitability
measure. It allows you to compare the
profitability of your company with other investment
opportunities. This measure divides the
cumulative profit of the store by the investment made to acquire
the business. Both numbers are
found on the Balance Sheet, with the stock line item showing
the investment, and the retained
earnings the cumulative profit, though you will need to add
back any dividends distributed. The
calculation is:
In order to purchase the store, your team contributed $50,000 in
exchange for 5,000 shares of
stock at $10 per share. If you choose the angel investor option
to finance the rest of the purchase,
then 2,500 of those shares will be sold to the investor for
$25,000. In any case, $10 will be the
starting stock price. You can check how you are doing by
comparing your stock price in a given
quarter with its starting price. Although the company is actually
“private” (i.e., the stock does not
sell actively on the open market), it will be assumed the stock
does have value in the over-the-
counter market.
Investor whims concerning poor performance one quarter could
make the stock price decline,
perhaps more than it should. Investors may not know of the
firm’s overall plans and what it is
Sales per Employee = total sales / ( PT employees × 15/40 + 2

FT )
trying to accomplish, thus undervaluing the stock. The point is
that you need to continue to
operate your company as best you can, regardless of the stock
price.
Some of the factors that affect stock price are:
• Total sales
• Return on sales (profit divided by total sales)
• Customer satisfaction (optimum inventory and good service)
• Company image (advertising, promotion, good business ethics)
• Dividends paid
Next Step
The small retail clothing store is in a stable segment of the
retail clothing business and can be
operated profitably, if organized and managed efficiently. What
you learn, and the challenges
you face in the Entrepreneur simulation, are adaptable to many
types of businesses and
situations. Any entrepreneur who attempts to operate a
profitable business will face similar
circumstances. The simulation provides you with an opportunity
to manage a retail specialty-
clothing store, make decisions, test marketing options, and
make mistakes—all without any
actual money being spent. Now that you have some background

on the general context of
Entrepreneur, we wish you success in running your retail
clothing store!
Decision Description Value Ranges
Company
Name
Enter a name for your business before making the
first period decision. Up to 30 characters.
Location
The existing location is near the college. You can
move to a different location when you acquire the
business.
Choose: College,
Shopping Center, Main
St., or Corner
Financing You need to raise $25,000 in addition to a $50,000
investment.
Choose: Bank Loan,
Personal Loan, or
Angel Investor
Product Line
The store you are acquiring sold casual clothing. You
can choose another product line at start-up, or
change the line at a later time.
Choose: Ethnic,
Casual, Designer,

Trendy, or Uniforms
Hours Open Select the number of hours to be open each day. 8–
12
Product
Purchase
Tops and pants must be purchased each quarter to
provide stock for the store. 0–10,000
Return Policy
Customers are more likely to shop at the store if it
has a generous return policy, while a more
restrictive policy can reduce shrinkage.
Choose: no receipt, 30
days, 10 days, 10 days
if defective, or 7 days
if defective
18
Decision Description Value Ranges
Tops Price
Choose a price range (low, medium, high) and price
for your tops. This represents an average for tops
sold.
Low: $10–14
Med: $18–22

High: $26–30
Pants Price
Choose a price range (low, medium, high) and price
for your pants. This represents an average for pants
sold.
Low: $20–24
Med: $28–32
High: $36–40
Advertising
Advertising makes potential customers aware of
your store. Select media options appropriate for
your location and target market.
Choose 0 or more:
Website, Radio,
Television, Social
Media, Community
News, Campus News,
Direct Mail, Flyers
Promotion Promotion spending is used for special discounts
and displays. $0–25,000
Hiring
The store has two full-time employees, but requires
part-time staff to help serve customers. Use a
negative number to fire staff.
0–20 for hiring; fire
zero to current
number of part-timers
Hourly Wage

Part-time staff are paid an hourly wage. Higher
wages may attract more qualified employees and
reduce turnover.
$8–25/hour
Training Training employees helps with customer experience,
shrinkage, and retention. $0–10,000
Dividend Profits distributed to stockholders. $0–quarterly profit
Extra Loan
Payment
If there is a loan outstanding, extra payments can be
made to reduce the balance. $0–loan balance
Incident Each period you may have to respond to issues
raised by an “incident” (mini-case).
Choices vary by
incident.
Entrepreneurship
Essentials
ENTREPRENEUR

20
Entrepreneurship is usually associated with the start-up of an
innovative business. This
simulation is more about the day-to-day operation of the small
firm. However, the authors hope
that students will carry into their play of the game the spirit of
entrepreneurship, which includes
risk and profits, operating under uncertainty, creation of new
products and services, and
innovative approaches to thinking. As Marc Dollinger suggests,
an excellent role model for the
entrepreneur is Sam Walton, founder of Wal-Mart. Sam
Walton’s 10 rules of leadership and
entrepreneurship are jewels for the student of any
entrepreneurial endeavor. They are:
• Commit to your business and believe in it.
• Share your profits with your employees.
• Motivate your employees, challenge them, and keep score.
• Communicate everything.
• Appreciate your associates with well-chosen words.
• Celebrate your successes.
• Listen to everyone and get them talking.
• Exceed your customers’ expectations.
• Control your expenses.
• Break all the rules. Swim upstream. Go the other way.

A key to success as an entrepreneur is planning. After strategy
for a business is formulated, the
next step is to prepare the business plan. If a business is seeki ng
outside financing for its
operations, the bank, venture capitalist, or other lending entity
often requires a business plan.
The business plan has some of the same information as
contained in the strategic plan, but in
addition usually contains a great deal more marketing and
financial information (e.g., market
analysis, demand forecasts, production and operations
management details, financial forecasts
and plans, and human resource plans).
Many texts describe the functions of a manager as planning
what tasks are to be accomplished,
organizing resources to accomplish the tasks, directing the
accomplishment of the tasks, and
controlling the tasks from inception to completion.
NOTE: The spirit of entrepreneurship includes willingness to
take risks, operating under
uncertainty, creation of new products and services, and
innovative approaches to thinking.

Planning, Organizing, and Controlling
Mission
The establishment of a mission for your store is the first step in
the strategic planning process.
This short statement denotes exactly what the organization
should be doing and why it exists. It
specifies the nature of the business and the markets served. An
example might be: “To provide
moderately priced clothes and accessories to support the
lifestyle of young working
professionals.” Such a statement is broad enough to permit
diversification but provides an image
of the store’s position in the marketplace.
Objectives
Objectives specify the action commitments that are being made
to achieve the organization’s
purpose. They describe the results that the organization wishes
to achieve. Objectives provide
management with the direction needed for effective
coordination of human, financial, physical,
and information resources. They can also serve to motivate
those in the organization and provide
a basis for control processes. Objectives should be established
in the following areas:
• Innovation and creativity in the business
• Market standing
• Financial resources
• Physical resources

• Management development
• Human resources
• Productivity
• Profitability
Merely establishing objectives falls far short of completing the
planning tasks. The management
team must have a plan of action to accomplish the desired
objectives. These plans have different
names in different organizations, including “action plans,”
“strategies,” “tactical plans,” etc. For
the purpose of this simulation, the term action plan will be
used.
Policies
After the team has established the general direction that the
store should take, specific day-to-
day guidelines must be prepared. These statements are called
policies, and they give guidance to
daily activities while providing some latitude to the manager in
his or her decision-making.
Policies should be established in all of the areas for which there
are objectives. An example of a
marketing policy in this simulation is: “The advertising and
promotion budget will be 5% of the
previous quarter’s gross revenues.” A human resource policy
might state, “All part-time
employees will receive the equivalent of one working week
vacation after one year.” These policy
statements facilitate routine decisions and continuity of
business practices.

22
Controlling―The Management Audit
The management processes are not complete until there is some
way of analyzing the outcomes
of operations. This is called the control function of
management. One method of accomplishing
this is through an internal management audit. The purpose of
this audit is to review your store’s
results over a certain period of time (generally four quarters or
one year), compare them with
your plans for the simulation when you started, and make any
changes that you deem desirable
in order to improve your performance and your own learning
experience. If this audit occurs at
the midpoint of the simulation, you will have the opportunity to
take corrective action. If it occurs
at the end, your conclusions will be a “report card” of your
success. This differs from an
accounting audit in that you will be concerned with management
issues as well as variances from
planned revenues and expenses.
The audit process begins by reviewing the stated mission,
objectives, and action plans for your
store. Even if you did not write them down at the beginning of
the simulation, you may ask
yourself, “What was our original strategy? Are we still on
course?” The next step is to measure
progress toward achievement of this plan. Teams usually find it
helpful to graph their revenues
and expenses so they can monitor fluctuations more easily.
Review your decision log. Do your

decisions seem to implement your plans? How might you have
done things differently?
Company Log
In order to provide continuity of decisions, each team may want
to keep a logbook containing
some or all of the following items. An assortment of forms,
worksheets, and charts (see Appendix
A) will help management teams maintain the records needed for
good decision-making. A
suggested list of additional items is given next.
• Written rationale for selection of business name
• Written rationale of each quarter’s decisions
• Organization chart
• Objectives for your company
• A printout of each quarter’s decision summary
• Printouts of the quarterly Income Statements, Inventory, and
Balance Sheets
• Any other information that would be of help in operating the
firm
Assets = Liabilities + Equity
Financial Statements
Tracking results is essential to the control function of
management, and the financial statements

provide necessary data to decide if you are meeting your goals.
The balance sheet tells where
the business stands at a particular point in time, while the
income statement tells how well the
business did over a period of time. Financial transactions are
recorded using a double-entry
system of debits and credits, and the results are reported on the
income statement and balance
sheet at the end of each quarter.
The Balance Sheet
The balance sheet shows the financial condition of a business at
a point in time. The business
owns certain assets which it uses to produce something of value.
The product is then sold in
exchange for other assets, typically cash. In order to acquire the
assets needed for operating the
business, the company can raise capital either by borrowing or
issuing stock. Loans must be paid
back and are considered liabilities on the balance sheet. Stock
represents an investment in the
company and gives the owner a share in the equity, but there is
no guarantee that the investment
will be returned. If the company is managed well, then income
from the business will be added
to the equity in the form of retained earnings. The balance sheet
is a list of assets, liabilities, and
equity, and is “balanced” by the following equation:
Assets can be current or fixed, tangible or intangible. Current,
or liquid, assets can be exchanged
for goods, services, or other assets quickly. Examples of current
assets are cash, short-term
investments, inventory, and accounts receivable. Fixed, or long-

term, assets cannot be easily
converted into cash, but are used in the operation of the
company. They can be tangible or
intangible. Examples of tangible fixed assets are buildings and
equipment. Goodwill and
trademarks are examples of intangible assets.
Like assets, liabilities can be current or long term. Current
liabilities must be paid within the next
accounting period. Examples are accounts payable (bills that are
due) and bank overdrafts.
Installment loans and mortgages are examples of long-term
liabilities.
Equity can be thought of as whatever is left over when the
liabilities are subtracted from the
assets. It consists of the investment of the owners through the
original purchase of stock plus all
the retained earnings from the operation of the company. Note
that there is a difference
between the book value of a company and the market value. The
book value is the owner’s equity
from the balance sheet, while the market value is the stock price
times the number of shares
outstanding. Book value is calculated from the balance sheet
and shows the state of the company
at the end of the reporting period. Market value indicates what
investors think the company is
24

Net Income = Revenues - Expenses
worth and includes sentiment about what might happen in the
future. Comparing the book value
with the market value of a business can provide information
about whether a stock is overvalued
or undervalued.
Looking at the owner’s equity on a balance sheet provides a
quick check of the health of a
company. A more detailed analysis involves matching up
current assets with current liabilities to
see if there may be a problem with cash flow in the company’s
future.
The Income Statement
The purpose of the Income Statement, also called a statement of
profit and loss, is to show how
well a company performed over a period of time, such as a year
or a quarter. It shows the revenue
received for products or services, and the expenses required for
producing the products or
services. The difference between the two is net income, or
profit.
Revenue can come from the direct sale of product, or it can
come from other sources such as
interest earned on investments owned by the company. Sales
may be shown in the aggregate or
broken down by product category. When an expense is directly
connected with the sale of a
product, it is often useful to show it as the cost of goods sold

and report the difference as gross
profit. In a retail store, for example, the total revenue from the
sale of a product would be
reduced by the cost of acquiring the product to calculate the
gross margin.
Expenses can be a direct, or variable, cost of a sale or service,
or a cost that is incurred during the
period regardless of how much product is sold. Marketing
expense, payroll, rent and utilities, and
interest on loans are examples of expenses that do not vary with
revenue. Expenses that are fixed
and cannot be changed from period to period are considered
overhead. Examples would be rent,
utilities, insurance, and interest expense. Salaries of full -time
employees could be considered
overhead, while the wages of part-time employees might not if
they are seasonal.
It is important to distinguish here between an expense and the
purchase of an asset. When
product is purchased to stock a store, we are converting one
asset (cash), into another
(inventory). It is only when the product is sold that the cost of
acquiring it is booked as an
expense. In short, purchasing inventory affects the balance
sheet, while selling the product
affects both the balance sheet and the income statement. Other
fixed assets, such as buildings
or equipment, are depreciated, or expensed over time, as they
are used.
Subtracting expenses from revenue yields the taxable income
for the business. The tax paid on
this amount is then subtracted to produce the net income or
profit for the period. The profit can

then be distributed to the owners in the form of dividends, or it
can be kept by the company and
added to retained earnings. At the end of each financial period,
all revenue and expense accounts
are zeroed out after the net income has been transferred to
retained earnings and reports have
been generated.
The Accounting Cycle
Following the accounting steps involved in purchasing
inventory and selling it to a customer may
help in understanding the purpose of the balance sheet and
income statement. The sequence
starts with the purchase of inventory. This transaction involves
an increase in one asset
(inventory) and a decrease in another (cash). Both sides of the
transaction must be recorded;
these are the debits and credits of accounting. As long as the
inventory sits in the store, there is
no change in the financial statements. But when a customer
comes and buys the goods, the
transaction needs to be accounted for. Cash is exchanged for the
product, so cash increases while
inventory decreases. But inventory decreases only by what the
company paid for the product,
not the full sale price, so the credit will not match the debit.
The mismatch is handled by offsetting
the increase in cash by an increase in revenue, and the decrease
in inventory by a corresponding
increase in cost of goods sold. Now the assets are accounted for
correctly on the balance sheet,

and the difference in revenue and expense will be captured as
profit on the income statement.
Note that during a financial period, assets will not equal
liabilities plus equity, as transactions are
posted as revenues and expenses. At the end of the financial
period, the net income is added to
retained earnings on the balance sheet, bringing it back into
balance. With the income statement
and balance sheet produced, the period can be closed and the
cycle starts again.
Team Dynamics
You will likely be making decisions as a team. It may be the
first time you have done this. Since
more firms are becoming increasingly participative in
management style, this is a good time for
you to practice your interpersonal skills in a team setting. In
short, it takes a lot of give and take.
It also requires participation by all team members. It is unfair
for any team member to not do
his or her fair share and equally unfair for any team member to
monopolize the decision-making.
You may find a Peer Evaluation form online which your
instructor will ask you to use for rating
each team member’s contribution/performance. Performance
evaluation is one of the toughest
jobs of a manager. You need to force yourself to be objective
about the evaluation. If someone
has not pulled his or her fair share, it is your responsi bility to
indicate that in the evaluation form

online.
In addition, if your team is having interpersonal problems, you
should first try to work it out, as
you would do in an actual work situation, and then discuss it
with your instructor. Making
decisions and playing a simulation game should be an enjoyable
experience, and you need to
approach it with that always in mind.
26
A Team’s Risk Quotient
What is your risk quotient? What will be the risk quotient of
your team? You may have some
team members who want to stay very safe and others who want
to go for it. The purpose of
having teams to make and enter decisions in a simulation is to
allow you to experience group
dynamics in a team decision-making environment. At times, you
may have to give in and at other
times, you will have your way. You need to understand your
own level of risk-taking as well as
that of your teammates.
Transforming Your Group into a Team
There is a big difference between a group and a team. A group
is a cluster of people, whereas a
team is a group that has been organized to get a job done. For a
group to become a team, the

members must have a high degree of trust, mutual respect for
ideas, open communication, equal
participation, and constructive confrontational skills. This
process is not easy. The dynamics of a
group becoming a team include four phases:
1. Forming: awareness and acceptance of others
2. Storming: conflict over leadership and style of decision-
making
3. Norming: cooperation results from involvement and support
4. Performing: achievement of the desired productivity
Simulation Objectives
A key objective of the simulation is to optimize profits.
Although profits in the short term should
not be under-emphasized, your team might choose to forgo some
short-term profits while
building the store for future higher payoffs. At the end of the
simulation, the stockholders
(represented by your instructor) will be expecting to evaluate a
“healthy, going concern.” Other
objectives that the instructor or you may want to establish may
include:
• Use of marketing strategies that capture optimum market
share.
• Management of operations in a cost-effective manner.

• Observation of good business ethics that will increase the
value of the firm’s goodwill.
• Maintenance of reasonable inventories.
• Accumulation of knowledge about marketing mix relationships
through experimentation
and good market research practices.
Appendix

ENTREPRENEUR
28
Worksheets
This section contains various worksheets and forms for
analyzing the simulation. Your instructor
will indicate if any are required work. You may want to
replicate some of the forms as
spreadsheets and keep the results of your team’s progress
electronically.

A list of forms is given below:
• Marketing Data Analysis
• Quarterly Budget Variance
• Log of Quarterly Decisions
Marketing Data Analysis
Quarter _______ Industry _____________ Company
___________________________
This form should aid in analyzing relationships between price
and sales, and marketing budget
(advertising + promotion) and sales. This can provide insight
into how marketing variables relate
to sales demand.
Qtr # Advertising
Budget
Promotion
Budget
Price
Tops
Price

Pants
Sales
Tops
Sales
Pants
% Increase or %
Decrease
Marketing
to Sales
Ratio
0
1
2
3
4
5
6
7
8
9

10
11
12
Marketing to Sales ratio = (Advertising $ + Promotion $) / Sales
$
30
Quarterly Budget Variance
___________________________
Sales Revenues Planned Actual
1. Units pants sold ______ @ $ ________ =
$_________ $_________
2. Units tops sold ______ @ $ ________ =
$_________ $_________
3. Interest and Other Income $_________ $_________
4. Total revenues and Interest (1,2, & 3) $_________

$_________
Expenses
5. Total pants ordered ______ @ $ ________ =
$_________ $_________
6. Total tops ordered ______ @ $ ________ =
$_________ $_________
7. Regular labor $_________ $_________
8. Part-time labor $_________ $_________
9. Advertising $_________ $_________
10. Promotion $_________ $_________
11. Rent and utilities $_________ $_________
12. Insurance and telephone $_________ $_________
13. Credit card expenses $_________ $_________
14. Market research $_________ $_________
15. Loan payments $_________ $_________
16. Interest expense $_________ $_________
17. Payroll taxes $_________ $_________
18. Shrinkage $_________ $_________
19. Total expenses & loan payments (Add 5 through 18)
$_________ $_________

20. Net Receipts (Item 4 minus item 19) $_________
$_________
Log of Quarterly Decisions
___________________________
(Record key decisions and major changes in strategy. You may
need to submit this log.)
DECISION:
RATIONALE:
DECISION:
RATIONALE:
DECISION:
RATIONALE:

DECISION:
RATIONALE:
DECISION:
RATIONALE:
DECISION:
RATIONALE:
DECISION:
RATIONALE:
32
Glossary
Advertising
Presence
Each advertising medium reaches different customers, but all

are intended to
establish your store as a “presence” and give you a better
community image.
Your customers will be unaware of your presence if you do not
broadcast your
presence sufficiently.
Angel Investor
An individual who provides capital to either start-up ventures or
small
companies who wish to expand but do not have access to public
funding.
Typically, the angel is willing to invest in a medium- to high-
risk business in
exchange for a high rate of return.
Annualized
Return
Annualized return, or “average annual return,” describes the
return gained, on
average, each year of a multi-year period rather than a
cumulative return. The
calculation is:
Annualized Return = [(investment + gain) / investment](1 /
years) – 1
See also: “Return on Investment”
Assets Things a company owns, such as inventory or cash
deposits.
“Bait and Switch”
When off-quality merchandise is offered at extremely low prices

yet is
advertised as “designer” or “brand-name” merchandise. Usually,
the sale
offering is a mix of low-quality merchandise with a few (very
small size) designer
label goods added in, yet the advertiser claims there is actual
designer and
brand-name merchandise on sale. The ads state the price is
“below normal cost”
or “a buy-out price,” and the price appears in the ads to be well
below the usual
cost of high-quality, brand-name goods. However, when
customers get to this
store’s sale and compare the sale merchandise to the regular
merchandise, they
realize the quality is not the same and usually end up buying the
regular line,
which has the normal markup.
Balance Sheet
The balance sheet shows the assets of the business and the
claims of ownership
against those assets at the end of each period. Your balance
sheet includes only
current Assets: cash, money market funds, rent deposit, and the
value of
inventory on hand (at cost). Since all of your property and
fixtures are leased,
there are no fixed assets shown. Your Liabilities will include
your unpaid loan.
Owner’s Equity includes the stock that you sold and retained
earnings. Retained
earnings are the total profits of the firm, to date, less any
dividends that were
paid.

Breakeven
The point at which the cost of operations equals the revenues
from sales is
called the breakeven point. It is calculated using the formula:
Breakeven Volume = fixed costs / (unit selling price – unit cost)
In the simulation, fixed costs include both overhead (rent,
utilities, insurance)
and decision expenses that do not vary with sales (marketing,
staffing
expenses). Since tops and pants have different unit costs, fixed
costs are
allocated to each and the breakeven for each is calculated
separately.
Bureau of Illegal
Practices
Usually referred to as the Better Business Bureau. Better
Business Bureaus are
nonprofit organizations that work to maintain standards in
business and
advertising. Supported by local businesses, they aim to serve
businesses and
consumers by encouraging voluntary ethical business practices
and providing
services to the public.
Business
Objectives

Objectives specify the action commitments that are being made
to achieve the
organization’s purpose. They describe the results that the
organization wishes
to achieve. Objectives provide management with the direction
needed for
effective coordination of human, financial, physical, and
information resources.
They can also serve to motivate those in the organization and
provide a basis
for control processes.
Business Plan
The business plan has some of the same information as
contained in the
strategic plan, but in addition usually contains a great deal more
marketing and
financial information (e.g., market analysis, demand forecasts,
production and
operations management details, financial forecasts and plans,
and human
resource plans). If a business is seeking outside financing for its
operations, the
bank, venture capitalist, or other lending entity often requires a
business plan.
Business Policies
After the team has established the general direction that the
store should take,
specific day-to-day guidelines must be prepared. These
statements are called
policies, and they give guidance to daily activities while
providing some latitude

to the manager in his or her decision-making. Policies should be
established in
all of the areas for which there are objectives. These policy
statements facilitate
routine decisions and continuity of business practices.
Cash Flow
Analysis
Analyzing a firm’s cash position is essential to understanding
its financial health.
Investors need to know how the company is generating or
obtaining its cash (the
cash sources) and where that cash is being expended (cash
uses).
Control Function
of Management
An analysis of the outcomes of operations. One method of
analysis is through
an internal management audit. This differs from an accounting
audit in that you
will be concerned with management issues as well as variances
from planned
revenues and expenses.
Co-op Advertising
Advertising of this type promotes the item rather than the store,
can save the
retailer about 50% in advertising costs, and provides a residual
image to
consumers. An example is a Levi-Strauss promotion of a new
line of jeans with
an announcement that they can be purchased at a specified

outlet. Some
shopping centers include “flyer” advertising as a benefit of
tenancy;
alternatively, some shopping centers require that tenants
participate in mall
promotions and charge for the advertising. Clothing retailers are
able to reach
their target segments effectively through this flyer type of
publication if they
have chosen their location wisely.
Cottage Industry
A small garment cooperative that represents many small shops
in homes around
the area. Often a “cottage industry” will produce a look-alike
product of very
high quality.
34
Credit Card
Expense
Sales made to customers who use a credit card are subject to a
bank fee to cover
the cost of processing the charge and collecting the money. In
Entrepreneur, it
is assumed that 70% of your sales are credit card purchases, and
that the fee is
4% of the sale.

Days Inventory
The amount of time you would still have merchandise in stock if
sales continued
at their current rate without any shrinkage or increases in
inventory:
inventory / sales × 91 days per quarter
A high value indicates that you may be ordering too much
product relative to
sales, which could lead to cash flow problems. A low value
means that you are
probably losing sales because of a lack of selection. In the
simulation, a value of
45 days is a good target.
Demand Note A loan that has no fixed date for repayment, but
the lender can demand
repayment in full at any time (subject to the terms of the note).
Dividends Dividends are a payment to stockholders for the
investment they have made in
the firm.
Economic
Development
Commission
A commission appointed by the county commission to recruit,
assist, and retain
businesses.
Equity The amount invested in a business by shareholders;
equity on the balance sheet
is the difference between assets and liabilities.
Financial Report

An accounting statement detailing financial data, including
income from all
sources, expenses, assets, and liabilities. A financial report may
also be an
itemized accounting that shows how grant funds were used by
an organization.
Goodwill An intangible asset accounting for the difference
between the purchase price of
a business and its tangible assets.
Gross Profit
Margin
Gross profit margin equals gross profit divided by revenue,
expressed as a
percentage. The percentage represents the amount of each dollar
of revenue
that results in gross profit. Gross profit equals revenue minus
cost of goods sold
(COGS). It identifies the amount available to cover other
operating expenses.
Income
Statement
A quarterly or annual financial statement that shows a
corporation’s business
results. It shows all revenues, expenses, and taxes. Subtracting
the expenses
from the revenue gives the net profit.
Intangible Asset Something owned by a business which is not
physical, such as a patent or
goodwill.

Interest Income
If your firm has any income other than sales and interest, it will
be shown with
interest income on the income statement. Typically, interest
income is the type
of income generated by bank deposits, bonds, GICs, treasury
bills, and fixed
income investments.
Inventory / Sales
Ratio
A ratio showing the inventory available relative to sales. On the
inventory
report, it is calculated separately for tops and pants by dividing
ending inventory
by unit sales for the quarter. A high ratio indicates that you may
be ordering too
much product relative to sales, which could lead to cash flow
problems. A low
ratio means that you are probably losing sales due to a lack of
selection. A ratio
of about 0.5 is a good target in the Entrepreneur simulation.
Inventory
Turnover
A ratio for evaluating sales effectiveness that is often calculated
by dividing sales
by ending inventory (i.e., how fast new inventory is purchased
and then resold

to customers). Low turnover is an unhealthy sign, indicating
excess stock and/or
poor sales.
Kickbacks
A payment made to someone for referral of a customer or
business. Generally
speaking, kickbacks are illegal. The reason is that, unlike a
commission, a
kickback is made without the customer’s knowledge; thus, the
referral could
have been made without the customer’s best interest at heart.
Liabilities Things a company owes, such as the balance on a
loan.
Line of Credit
Loan
A line of credit is a type of open-ended automatic loan that the
entrepreneur
may add to or pay back at any time without going through the
formal motions
of applying for a new loan every time the firm needs additional
working capital.
Management
Audit
Reviews your store’s results over a certain period of time
(generally four
quarters or one year). In the simulation, the purpose of the
management audit
will be to make a comparison to these results with your plans
for the simulation

when you started, and then to make any changes that you deem
desirable in
order to improve your performance and your own learning
experience. If this
audit occurs at the midpoint of the simulation, you will have the
opportunity to
take corrective action. If it occurs at the end, your conclusions
will be a “report
card” of your success. This differs from an accounting audit in
that you will be
concerned with management issues as well as variances from
planned revenues
and expenses.
Market Research
Reports
Market research reports provide information about your
competitors or
customers in a market. In competitive industries of the
simulation, the sales,
pricing, and promotion reports contain data about the local
retail clothing
market, which consists of the teams competing in your industry.
Markup
The amount added to the unit cost of a product to get the retail
selling price.
The markup can be expressed as a percent of cost or a percent
of retail price. If
the wholesale cost of the item is $10, the retail price will be $20
using a
markup of 100% of cost ($10 + 100% x $10) or 50% of retail
($10 ÷ [100% -
50%]). See also “Gross Profit Margin.”

Negative Cash
Balance
When a firm makes cash payments that exceed its availabl e
cash, it creates a
negative cash balance. This is generally a sign of poor cash
management. If it
occurs in the simulation, an automatic loan feature will advance
enough funds
to bring your cash balance up to $2,000, but you will be charged
a fee equal to
3% of the loan, and your stock price will suffer.
Organizational
Chart
A chart which represents the structure of an organization in
terms of rank. The
chart usually shows the managers and sub-workers who make up
an
organization. The chart also shows relationships between staff
in the
organization.
Overhead
Refers to an ongoing expense of operating a business. The term
overhead is
usually used to group expenses that are necessary to the
continued functioning
of the business, but that do not directly generate profits. Typical
examples of
overhead expenses include rent, utilities, business permits, and
commercial
liability insurance. See also “Breakeven.”

http://en.wikipedia.org/wiki/Structure
http://en.wikipedia.org/wiki/Organization
36
Payroll Taxes
Taxes based on payroll (wages) that are used to finance the
Social Security and
Medicare programs. In the simulation, you will be charged (in a
separate budget
item) 10% of the total payroll for the employer’s share of social
security taxes
and mandatory on-the-job accident insurance (termed workers’
compensation
in many states). This includes the manager’s salary as well as
the part-time
wages.
Point of
Diminishing
Returns
This is the point of dollar expenditure that does not add as much
effect as the
previous dollar; the cost will not be offset by the gains.
“Pull” Marketing
Strategy
Advertising is a part of marketing that lures customers into the

specific store.
These subtle influences that affect consumer behavior are called
“pull”
marketing strategies. Most retailers use a combination of
advertising and sales
promotions (“pull” and “push” strategies).
“Push” Marketing
Strategy
Sales promotion is known as a “push” marketing strategy.
Typical promotional
activities include coupons and attractive point-of-sale displays
that push
merchandise into a customer’s hands. Most retailers use a
combination of
advertising and sales promotions (“pull” and “push” strategies).
Retail Clothing
Merchants
Association
Local and regional level retail associations, whose membership
is typically
comprised of small-to-mid-size independent retailers.
Retained Earnings Accumulated net earnings not paid out as
dividends.
Return on Assets ROA measures management’s efficiency in
using a company’s assets to generate
a profit. It is calculated by dividing profit by total assets.
Return on
Investment

The return on investment (ROI), or rate of return (ROR), or
sometimes just
“return,” is the gain or loss on an investment, divided by the
amount invested.
Return can also refer to the monetary amount of gain or loss.
ROI is usually given
as a percent. See also “Annualized Return.”
Return on
Marketing
The ratio of net income to total marketing expenses. Total
marketing expenses
is the sum of advertising and promotion expenditures.
Return on Sales
A ratio used to evaluate a company’s operational efficiency.
ROS is also known
as a firm’s “operating profit margin.” This measure provides
insight into how
much profit is being produced per dollar of sales. As with many
ratios, it is best
to compare a company’s ROS over time to look for trends, and
compare it to
other companies in the industry. An increasing ROS indicates
the company is
growing more efficient, while a decreasing ROS could signal
looming financial
troubles.
Risk Averse
Risk aversion is the reluctance of a person to accept a bargain
with an uncertain
payoff rather than accepting another bargain that has a more
certain payoff, but

with a possibly lower return. (Also referred to as risk
tolerance.)
Sales per
Employee
Average sales for each full-time equivalent employee. Part-time
employees are
converted to full-time equivalents using a weight of 15/40 (part-
time hours to
full-time hours). Sales per employee can help identify
productivity problems, as
well as measure the effectiveness of other decisions, such as
marketing.
Sales per Employee = sales / (2 + part-timers x 15/40)
Sales Revenue per
Dollar of
Employee Cost
A formula that provides a benchmark for understanding the
relationship
between employee efficiency and sales; expressed as an
equation.
Sales per Dollar of Employee Cost = sales / wages & salaries
Shrinkage
Any merchandise that has been soiled, stolen, lost in some way
(getting swept
off into the waste can), or perhaps returned for credit. It is

assumed that no
monies are received for these units. They are simply written off
the inventory at
their cost.
Small Business
Administration
The U.S. Small Business Administration (SBA) was created in
1953 as an
independent agency of the federal government to aid, counsel,
assist, and
protect the interests of small business concerns, to preserve free
competitive
enterprise, and to maintain and strengthen the overall economy.
The SBA helps
Americans start, build, and grow businesses. The SBA provides
a number of
financial assistance programs for small businesses. Though the
SBA does not
provide grants to help you start a business, it does provide
information on
organizations and sites that can assist you in locating special
purpose grants.
Social Media
Social media are technologies that facilitate two-way
communication between
a business and its customers. Examples include mobile
applications, blogs,
Twitter, and Facebook.
Stock Out Selling completely out of inventory is termed as a
“stock out.”
Tangible Asset Something owned by a business which is
physical, such as cash or inventory.

Venture Capitalist
An investor or organization who provides capital to start-up
ventures or
supports small companies who wish to expand but do not have
access to public
funding.
38
Image Attribution
The following images contain material from third parties:
Description Page Attribution
Cover i iStockphoto.com/portfolio/NataliIllar
Introduction / Entrepreneur Case section
headings 1, 5 iStockphoto.com/portfolio/Alija
Entrepreneurship Essentials section
heading 19 iStockphoto.com/portfolio/shironosov
Appendix section heading 27 iStockphoto.com/portfolio/jayfish
Index

A
accounting cycle ............................................................... 25
action plan .................................................................. 21, 22
advertising .................................................................. 12, 36
co-op ............................................................................ 12
flyer ............................................................................. 12
media ........................................................................... 12
after-tax profit .................................................................. 15
angel investor ................................................................... 10
assets ................................................................................ 23
audit of your firm ........................................................ 22, 33
B
balance sheet .............................................................. 23, 32
business
plan .............................................................................. 20
business name .................................................................... 8
C
cash flow ..................................................................... 10, 15
cash minimum .................................................................. 15
company
objectives .............................................................. 21, 33
policies ................................................................... 21, 33
control function of management ................................ 22, 33
cost of goods ...................................... ............................... 15
costs
payroll taxes ................................................................ 36

credit card fee ................................................................... 14
customer perception ........................................................ 11
D
depreciation ...................................................................... 24
dividends........................................................................... 34
E
entrepreneurship essentials ............................................. 20
equity ................................................................................ 23
expenses ........................................................................... 24
F
financing options ................................................................ 9
G
gross margin ..................................................................... 24
gross profit ....................................................................... 24
group dynamics ................................................................ 26
I
income statement ............................................................ 24
income, other ................................................................... 34
insurance policy................................................................ 14
inventory .......................................................................... 24
L
liabilities ........................................................................... 23
line of credit ..................................................................... 15
logbook............................................................................. 22
M
management audit ............................................... 22, 33, 35
marketing presence .......................................................... 12
marketing strategy ........................................................... 12
mission of your firm ......................................................... 21

N
naming your business ......................................................... 8
net income ....................................................................... 24
net profit .......................................................................... 24
O
other expenses ................................................................. 14
overhead .......................................................................... 14
P
peer evaluation ......................................................... ....... 25
performance
tracking your ............................................................... 16
planning tasks ................................................................... 21
price
margin .............................................. ........................... 11
range ........................................................................... 11
product
line ................................................................................ 7
mix ................................................................................ 7
perception of .............................................................. 11
40
promotion budget............................................................. 36
promotional activities ....................................................... 13
property loss ..................................................................... 14

R
restocking fee ............................................................. 11, 14
retained earnings .............................................................. 24
return policy ..................................................................... 11
revenue ............................................................................. 24
risk quotient ...................................................................... 26
S
sales forecast .................................................................... 10
shrinkage .......................................................................... 10
special buys ....................................................................... 11
staff
hours............................................................................ 13
motivation ....................................... ............................ 13
new hires ..................................................................... 13
training ........................................................................ 13
stock
factors that affect price............................................... 17
investors ...................................................................... 16
undervaluation ............................................................ 17
valuation ..................................................................... 16
store
hours ........................................................................... 11
location ......................................................................... 6
return policy ................................................................ 11
T
taxable income ................................................................. 24
team dynamics ................................................................. 25
training staff ..................................................................... 13

V
value
communicate .............................................................. 12
IntroductionEntrepreneur Quick Start GuideEntrepreneur
ManualEntrepreneur CaseLocationProduct LineBusiness
NameFinanceInventory ManagementHoursReturn
PolicyPricingMarketingStaffingOverhead and Other
ExpensesIncidentsReportsPerformance MeasuresNext
StepEntrepreneurship EssentialsPlanning, Organizing, and
ControllingMissionObjectivesPoliciesControlling―The
Management AuditCompany LogFinancial StatementsThe
Balance SheetThe Income StatementThe Accounting CycleTeam
DynamicsA Team’s Risk QuotientTransforming Your Group
into a TeamSimulation
ObjectivesAppendixWorksheetsMarketing Data
AnalysisQuarterly Budget VarianceLog of Quarterly
DecisionsGlossaryImage AttributionIndex
Anne's Beauty Salon, Inc
Income Statement
For the Year 20XX
Sales (Revenue)
$125,000.00
Cost of Goods Sold
25,000.00
Gross Profit
100,000.00
Payroll Expense

67,500.00
Sales, General, Administrative Expense
5,000.00
Rent Expense
1,400.00
Utilities Expense
1,670.00
Insurance Expense
500.00
Depreciation Expense
2,500.00
Total Operating Expense
78,570.00
Total Operating Income
21,430.00
Income Taxes
6,430.00
Net Income
$15,000.00

Statement of Retained Earnings
For the Month Ending December 31, 20XX
Retained Earnings, December 1
$5,000.00
Add: Net Income
15,000.00
Subtract: Dividends
(2,402.50)
Retained Earnings, December 31
$17,597.50
Balance Sheet
At December 31, 20XX
Assets
Liabilities

Current Assets
Current Liabilities
Cash
$949.50
Accounts Payable
$5,000.00
Accounts Receivable
11,948.00
Unearned Revenue
200.00
Supplies
20,500.00
Total Current Liabilities
5,200.00
Prepaid Rent
8,400.00
Prepaid Insurance
6,000.00
Total Current Assets
47,797.50
Note Payable
15,000.00

Equipment
$25,000.00
Total Liabilities
20,200.00
Less: Accumulated
Stockholders' Equity
Depreciation
(5,000.00)
20,000.00
Common Stock
30,000.00
Total Long-Term Assets
Retained Earnings
17,597.50
Total Assets
$67,797.50
Total Liabilities and
$67,797.50
Stockholders' Equity

Copyright Post University 2022, All Rights Reserved
image1.emf
Entrepreneur Retail Entrepreneurship Latest Simulation Results
Macomb Community College Fall 2022
benchmark: Clothing Depot (maco)
............................................................................... 3
Decisions And Results Notice
...............................................................................................
..... 3
Quarter Start
...............................................................................................
................................. 3 Decisions
...............................................................................................
................................... 3
Intro - Start-up
...............................................................................................
................... 3 Decisions - Management/Staffing
...................................................................................... 4
Decisions - Marketing
...............................................................................................

......... 4
Decisions - Operations
...............................................................................................
....... 5
Decisions - Pricing
...............................................................................................
.............. 5
Results (for Quarter 1)
...............................................................................................
.............. 5 Performance Measures
...............................................................................................
....... 5
Quarter 1
...............................................................................................
........................................ 5 Simulation Advice
...............................................................................................
..................... 5
Decisions
...............................................................................................
................................... 5
Intro - Start-up
...............................................................................................
................... 5
...............................................................................................
...............................................................................................
....... 6
Quarter 2
...............................................................................................
...............................................................................................
..................... 6
Decisions
...............................................................................................
................................... 7

...............................................................................................
...............................................................................................
....... 7
Quarter 3
...............................................................................................
...............................................................................................
..................... 7
Decisions
...............................................................................................
................................... 7
Results (for Quarter 4) ...........................................
..............................................................................................
5
...............................................................................................
.............. 6
...............................................................................................
....... 6
Quarter 2
...............................................................................................
........................................ 6
Simulation Advice
...............................................................................................
..................... 6
Decisions
...............................................................................................
................................... 7
...............................................................................................
.............. 7
...............................................................................................

Entrepreneur Retail Entrepreneurship Simulation Jera

Entrepreneur Retail Entrepreneurship Simulation Jera

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