Entrepreneurship
EntrepreneurshipFrom Wikipedia, the free encyclopedia
Entrepreneurship is the act of being an entrepreneur or "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses (referred as Startup Company); however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spin-off organizations.[1]
According to Paul Reynolds, entrepreneurship scholar and creator of the Global Entrepreneurship Monitor, "by the time they reach their retirement years, half of all working men in the United States probably have a period of self-employment of one or more years; one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among U.S. workers over the course of their careers." [2] And in recent years has been documented by scholars such as David Audretsch to be a major driver of economic growth in both the United States and Western Europe. "As well, entrepreneurship may be defined as the pursuit of opportunity without regard to resources currently controlled (Stevenson,1983)" [3]
Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high value" entrepreneurial ventures seek venture capital or angel funding (seed money) in order to raise capital to build the business. Angel investors generally seek annualized returns of 20-30% and more, as well as extensive involvement in the business.[4]Many kinds of organizations now exist to support would-be entrepreneurs including specialized government agencies, business incubators, science parks, and some NGOs. In more recent times, the term entrepreneurship has been extended to include elements not related necessarily to business formation activity such as conceptualizations of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship have emerged.
Contents [hide]
- 1 History
- 2 Characteristics of an entrepreneur
- 3 Concept
- 4 Promotion
- 5 Financial Bootstrapping
- 6 External financing
- 7 See also
- 8 References
- 9 Further reading
- 10 External links
[edit]HistoryThe entrepreneurness is a factor in microeconomics, and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early 18th centuries, but was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics in the last 40 years.
In the 20th century, the understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. In Schumpeter, an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation.[5] Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part inferior innovations across markets and industries, simultaneously creating new products including new business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. The supposition that entrepreneurship leads to economic growth is an interpretation of the residual in endogenous growth theory and as such is hotly debated in academic economics. An alternate description posited by Israel Kirzner suggests that the majority of innovations may be much more incremental improvements such as the replacement of paper with plastic in the construction of a drinking straw.
For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of currently existing inputs. Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformational but did not require the development of a new technology, merely the application of existing technologies in a novel manner. It did not immediately replace the horsedrawn carriage, but in time, incremental improvements which reduced the cost and improved the technology led to the complete practical replacement of beast drawn vehicles in modern transportation. Despite Schumpeter's early 20th-century contributions, traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks (instead assuming that resources would find each other through a price system). In this treatment the entrepreneur was an implied but unspecified actor, but it is consistent with the concept of the entrepreneur being the agent of x-efficiency.
Different scholars have described entrepreneurs as, among other things, bearing risk. For Schumpeter, the entrepreneur did not bear risk: the capitalist did.
Some notable persons and their works in entrepreneurship history.
For Frank H. Knight [6] (1921) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture. Knight classified three types of uncertainty.
- Risk, which is measurable statistically (such as the probability of drawing a red color ball from a jar containing 5 red balls and 5 white balls).
- Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing 5 red balls but with an unknown number of white balls).
- True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict statistically (such as the probability of drawing a red ball from a jar whose number of red balls is unknown as well as the number of other colored balls).
The acts of entrepreneurship are often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never exists. However, even if a market already exists, there is no guarantee that a market exists for a particular new player in the cola category.
The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic theory (which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries. William Baumol has added greatly to this area of economic theory and was recently honored for it at the 2006 annual meeting of the American Economic Association.[7]
The entrepreneur is widely regarded as an integral player in the business culture of American life, and particularly as an engine for job creation and economic growth. Robert Sobelpublished The Entrepreneurs: Explorations Within the American Business Tradition in 1974. Zoltan Acs and David Audretsch have produced an edited volume surveying Entrepreneurship as an academic field of research,[8] and more than a hundred scholars around the world track entrepreneurial activity, policy and social influences as part of theGlobal Entrepreneurship Monitor (GEM)[9] and its associated reports.
[edit]Characteristics of an entrepreneurThis section does not cite anyreferences or sources.Entrepreneurs have many of the same character traits as leaders, similar to the early great man theories of leadership; however trait-based theories of entrepreneurship are increasingly being called into question. Entrepreneurs are often contrasted with managers and administrators who are said to be more methodical and less prone to risk-taking. Such person-centric models of entrepreneurship have shown to be of questionable validity, not least as many real-life entrepreneurs operate in teams rather than as single individuals. Still, a vast literature studying the entrepreneurial personality found that certain traits seem to be associated with entrepreneurs:
- beryl John - primarily motivated by an overwhelming need for achievement and strong urge to build.
- Collins and Moore - tough, pragmatic people driven by needs of independence and achievement. They seldom are willing to submit to authority.
- Bird - mercurial, that is, prone to insights, brainstorms, deceptions, ingeniousness and resourcefulness. they are cunning, opportunistic, creative, and unsentimental.
- Cooper, Woo, & Dunkelberg - argue that entrepreneurs exhibit extreme optimism in their decision-making processes.
- Busenitz and Barney - prone to overconfidence and over generalizations.
- Cole - found there are four types of entrepreneur: the innovator, the calculating inventor, the over-optimistic promoter, and the organization builder. These types are not related to the personality but to the type of opportunity the entrepreneur faces.
- John Howkins - focused specifically on creative entrepreneurship. He found that entrepreneurs in the creative industries needed a specific set of traits including the ability to prioritise ideas over data, to be nomadic and to learn endlessly. [10]
[edit]ConceptIt has assumed super importance for accelerating economic growth both in developed and developing countries. It promotes capital formation and creates wealth in country. It is hope and dreams of millions of individuals around the world. It reduces unemployment and poverty and it is a pathway to prosper. Entrepreneurship is the process of exploring the opportunities in the market place and arranging resources required to exploit these opportunities for long term gain. It is the process of planning, organising, opportunities and assuming. Thus it is a risk of business enterprise. It may be distinguished as an ability to take risk independently to make utmost earnings in the market. It is a creative and innovative skill and adapting response to environment.
[edit]PromotionGiven entrepreneurship's potential to support economic growth, it is the policy goal of many governments to develop a culture of entrepreneurial thinking. This can be done in a number of ways: by integrating entrepreneurship into education systems, legislating to encourage risk-taking, and national campaigns. An example of the latter is the United Kingdom's Enterprise Week, which launched in 2004 which is one of the essential part of organisation.
Outside of the political world, research has been conducted on the presence of entrepreneurial theories in doctoral economics programs. Dan Johansson, fellow at the Ratio Institute in Sweden, finds such content to be sparse. He fears this will dilute doctoral programs and fail to train young economists to analyze problems in a relevant way.[11]
Many of these initiatives have been brought together under the umbrella of Global Entrepreneurship Week, a worldwide celebration and promotion of youth entrepreneurship, which started in 2008.
[edit]Financial BootstrappingFinancial bootstrapping is a term used to cover different methods for avoiding using the financial resources of external investors. Bootstrapping can be defined as “a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors”.[12] The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including Dell Computers and Facebook were founded this way.
There are different types of bootstrapping:
- Owner financing
- Sweat equity
- Minimization of the accounts receivable
- Joint utilization
- Delaying payment
- Minimizing inventory
- Subsidy finance
- Personal Debt
[edit]External financingMany businesses need more capital than can be provided by the owners themselves, and in this case a range of options are available including:
Some of these source provide not only funds, but also financial oversight, accountability for carrying out tasks and meeting milestones, and in some cases business contacts and experience - in many cases in return for an equity stake.
[edit]See alsoEconomics portal
Book: EntrepreneurshipWikipedia books are collections of articles that can be downloaded or ordered in print.- Business opportunity
- Business plan
- Corporate Social Entrepreneurship
- Entrepreneurship Ecosystem
- Entrepreneurship education
- Junior enterprise
- University spin-off
[edit]References- ^ Shane, Scott "A General Theory of Entrepreneurship: the Individual-Opportunity Nexus", Edward Elgar, 2003, ISBN 1-84376-996-4
- ^ Reynolds, Paul D. "Entrepreneurship in the United States", Springer, 2007, ISBN 978-0-387-45667-6
- ^ "Frontiers of Entrepreneurship Research 1997 Edition", "LEVERAGING RESOURCES: BUILDING AN ORGANIZATION ON AN ENTREPRENEURIAL RESOURCE BASE". by Myra M.Hart, Patricia G.Greene, Candida G.Brush,Babson College ,1997
- ^ Angel Investing, Mark Van Osnabrugge and Robert J. Robinson
- ^ Schumpeter, Joseph A. "Capitalism, Socialism and Democracy", 1942
- ^ Knight, Francis A. "Risk, Uncertainty and Profit"
- ^ "Searching for the invisible man". The Economist (The Economist Newspaper Limited): pp. 67. 2006-03-11. Retrieved 2008-03-05.
- ^ Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction
- ^ www.gemconsortium.org
- ^ Howkins, John, “The Creative Economy: How People Make Money From Ideas”, Penguin, 2001, p.155-158
- ^ Johansson, Dan. "Economics Without Entrepreneurship or Institutions: A Vocabulary Analysis of Graduate Textbooks" (December 2004). [1]
- ^ Ebbena, Jay; Johnson, Alec, "Bootstrapping in small firms: An empirical analysis of change over time", Journal of Business Venturing, Volume 21, Issue 6, November 2006, Pages 851-865
Personal Entrepreneurial Competencies (PECs)
For reference, I'm posting here the ten Personal Entrepreneurial Competencies (PECs) which seems to be used in the Business Technology/Entrepreneurship programs of the Technology and Livelihood Education (T.L.E.) subject.
The original research by McClelland and McBer identified 14 PECs; the EMPRETEC [a UN program for small businesses; from the Spanish words emprendedores (entrepreneurs) and tecnologÃa (technology)] clustered these into just 10:
Achievement Cluster
I. Opportunity Seeking and Initiative
* Does things before asked or forced to by events
* Acts to extend the business into new areas, products or services
* Seizes unusual opportunities to start a new business, obtain financing, equipment, land work space or assistance
II. Risk Taking
* Deliberately calculates risks and evaluates alternatives
* Takes action to reduce risks or control outcomes
* Places self in situations involving a challenge or moderate risk
III. Demand for Efficiency and Quality
* Finds ways to do things better, faster, or cheaper
* Acts to do things that meet or exceed standards of excellence
* Develops or uses procedures to ensure work is completed on time or that work meets agreed upon standards of quality
IV. Persistence
* Takes action in the face of a significant obstacle
* Takes repeated actions or switches to an alternative strategy to meet a challenge or overcome an obstacle
* Takes personal responsibility for the performance necessary to achieve goals and objectives
V. Commitment to the Work Contract
* Makes a personal sacrifice or expends extraordinary effort to complete a job
* Pitches in with workers or in their place to get a job done
* Strives to keep customers satisfied and places long term good will over short term gain
Planning Cluster
VI. Information Seeking
* Personally seeks information from clients, suppliers or competitors
* Does personal research on how to provide a product or service
* Consults experts for business or technical advice
VII. Goal setting
* Sets goals and objectives that are personally meaningful and challenging
* Articulates clear and specific long range goals
* Sets measurable short term objectives
VIII. Systematic Planning and Monitoring
* Plans by breaking large tasks down into time-constrained sub-tasks
* Revises plans in light of feedback on performance or changing circumstances
* Keeps financial records and uses them to make business decisions
Power Cluster
IX. Persuasion and Networking
* Uses deliberate strategies to influence or persuade others
* Uses key people as agents to accomplish own objectives
* Acts to develop and maintain business contracts
X. Independence and self-confidence
* Seeks autonomy from the rules or control of others
* Sticks with own judgement in the face of opposition or early lack of success
* Expresses confidence in own ability to complete a difficult task or meet a challenge
The following studies might be useful for those who are studying these PECs:
* The Personal Entrepreneurial Competencies of BS Entrepreneurship Students of the Cordillera Administrative Region and
Practicing Entrepreneurs in the Cities of Baguio, Dagupan, and San Fernando, La Union: A Comparison
* An analysis of the personal entrepreneurial competencies of students: implications to
curriculum designing of entrepreneurship program
http://eduphil.org/personal-entrepreneurial-competencies-pecs.html
Elements of a Business Plan
There are seven major sections of a business plan, and each one is a complex document. Read this selection from our business plan tutorial to fully understand these components.
Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn't include, how to work the numbers and additional resources you can turn to for help. With that in mind, jump right in.
Executive Summary
Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you're asking for in the summary.
The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no longer than one page. Within that space, you'll need to provide a synopsis of your entire business plan. Key elements that should be included are:
- Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what will be sold, to whom and why the business will hold a competitive advantage.
- Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment.
- Financial requirements. Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity, you should also specify the source of collateral.
- Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel.
- Major achievements. Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.
When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.
http://www.entrepreneur.com/article/38308
Business Description
Tell Them All About It
The business description usually begins with a short description of the industry. When describing the industry, discuss the present outlook as well as future possibilities. You should also provide information on all the various markets within the industry, including any new products or developments that will benefit or adversely affect your business. Base all of your observations on reliable data and be sure to footnote sources of information as appropriate. This is important if you're seeking funding; the investor will want to know just how dependable your information is, and won't risk money on assumptions or conjecture.
When describing your business, the first thing you need to concentrate on is its structure. By structure we mean the type of operation, i.e. wholesale, retail, food service, manufacturing or service-oriented. Also state whether the business is new or already established.
In addition to structure, legal form should be reiterated once again. Detail whether the business is a sole proprietorship, partnership or corporation, who its principals are, and what they will bring to the business.
You should also mention who you will sell to, how the product will be distributed, and the business's support systems. Support may come in the form of advertising, promotions and customer service.
Once you've described the business, you need to describe the products or services you intend to market. The product description statement should be complete enough to give the reader a clear idea of your intentions. You may want to emphasize any unique features or variations from concepts that can typically be found in the industry.
Be specific in showing how you will give your business a competitive edge. For example, your business will be better because you will supply a full line of products; competitor A doesn't have a full line. You're going to provide service after the sale; competitor B doesn't support anything he sells. Your merchandise will be of higher quality. You'll give a money-back guarantee. Competitor C has the reputation for selling the best French fries in town; you're going to sell the best Thousand Island dressing.
How Will I Profit?
Now you must be a classic capitalist and ask yourself, "How can I turn a buck? And why do I think I can make a profit that way?" Answer that question for yourself, and then convey that answer to others in the business concept section. You don't have to write 25 pages on why your business will be profitable. Just explain the factors you think will make it successful, like the following: it's a well-organized business, it will have state-of-the-art equipment, its location is exceptional, the market is ready for it, and it's a dynamite product at a fair price.
If you're using your business plan as a document for financial purposes, explain why the added equity or debt money is going to make your business more profitable.
Show how you will expand your business or be able to create something by using that money.
Show why your business is going to be profitable. A potential lender is going to want to know how successful you're going to be in this particular business. Factors that support your claims for success can be mentioned briefly; they will be detailed later. Give the reader an idea of the experience of the other key people in the business. They'll want to know what suppliers or experts you've spoken to about your business and their response to your idea. They may even ask you to clarify your choice of location or reasons for selling this particular product.
The business description can be a few paragraphs in length to a few pages, depending on the complexity of your plan. If your plan isn't too complicated, keep your business description short, describing the industry in one paragraph, the product in another, and the business and its success factors in three or four paragraphs that will end the statement.
While you may need to have a lengthy business description in some cases, it's our opinion that a short statement conveys the required information in a much more effective manner. It doesn't attempt to hold the reader's attention for an extended period of time, and this is important if you're presenting to a potential investor who will have other plans he or she will need to read as well. If the business description is long and drawn-out, you'll lose the reader's attention, and possibly any chance of receiving the necessary funding for the project.
Market Strategies
Define Your Market
Market strategies are the result of a meticulous market analysis. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to garner its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and promotional strategies that will allow the company to become profitable within a competitive environment. In addition, it provides an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future of your business.
Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential.
The total aggregate sales of your competitors will provide you with a fairly accurate estimate of the total potential market. Once the size of the market has been determined, the next step is to define the target market. The target market narrows down the total market by concentrating on segmentation factors that will determine the total addressable market--the total number of users within the sphere of the business's influence. The segmentation factors can be geographic, customer attributes or product-oriented.
For instance, if the distribution of your product is confined to a specific geographic area, then you want to further define the target market to reflect the number of users or sales of that product within that geographic segment.
Once the target market has been detailed, it needs to be further defined to determine the total feasible market. This can be done in several ways, but most professional planners will delineate the feasible market by concentrating on product segmentation factors that may produce gaps within the market. In the case of a microbrewery that plans to brew a premium lager beer, the total feasible market could be defined by determining how many drinkers of premium pilsner beers there are in the target market.
It's important to understand that the total feasible market is the portion of the market that can be captured provided every condition within the environment is perfect and there is very little competition. In most industries this is simply not the case. There are other factors that will affect the share of the feasible market a business can reasonably obtain. These factors are usually tied to the structure of the industry, the impact of competition, strategies for market penetration and continued growth, and the amount of capital the business is willing to spend in order to increase its market share.
Projecting Market Share
Arriving at a projection of the market share for a business plan is very much a subjective estimate. It's based on not only an analysis of the market but on highly targeted and competitive distribution, pricing and promotional strategies. For instance, even though there may be a sizable number of premium pilsner drinkers to form the total feasible market, you need to be able to reach them through your distribution network at a price point that's competitive, and then you have to let them know it's available and where they can buy it. How effectively you can achieve your distribution, pricing and promotional goals determines the extent to which you will be able to garner market share.
For a business plan, you must be able to estimate market share for the time period the plan will cover. In order to project market share over the time frame of the business plan, you'll need to consider two factors:
- Industry growth which will increase the total number of users. Most projections utilize a minimum of two growth models by defining different industry sales scenarios. The industry sales scenarios should be based on leading indicators of industry sales, which will most likely include industry sales, industry segment sales, demographic data and historical precedence.
- Conversion of users from the total feasible market. This is based on a sales cycle similar to a product life cycle where you have five distinct stages: early pioneer users, early users, early majority users, late majority users and late users. Using conversion rates, market growth will continue to increase your market share during the period from early pioneers to early majority users, level off through late majority users, and decline with late users.
Defining the market is but one step in your analysis. With the information you've gained through market research, you need to develop strategies that will allow you to fulfill your objectives.
Positioning Your Business
When discussing market strategy, it's inevitable that positioning will be brought up. A company's positioning strategy is affected by a number of variables that are closely tied to the motivations and requirements of target customers within as well as the actions of primary competitors.
Before a product can be positioned, you need to answer several strategic questions such as:
- How are your competitors positioning themselves?
- What specific attributes does your product have that your competitors' don't?
- What customer needs does your product fulfill?
Once you've answered your strategic questions based on research of the market, you can then begin to develop your positioning strategy and illustrate that in your business plan. A positioning statement for a business plan doesn't have to be long or elaborate. It should merely point out exactly how you want your product perceived by both customers and the competition.
Pricing
How you price your product is important because it will have a direct effect on the success of your business. Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:
- All prices must cover costs.
- The best and most effective way of lowering your sales prices is to lower costs.
- Your prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.
- Prices must be established to assure sales. Don't price against a competitive operation alone. Rather, price to sell.
- Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.
- Prices must be set to preserve order in the marketplace.
There are many methods of establishing prices available to you:
- Cost-plus pricing. Used mainly by manufacturers, cost-plus pricing assures that all costs, both fixed and variable, are covered and the desired profit percentage is attained.
- Demand pricing. Used by companies that sell their product through a variety of sources at differing prices based on demand.
- Competitive pricing. Used by companies that are entering a market where there is already an established price and it is difficult to differentiate one product from another.
- Markup pricing. Used mainly by retailers, markup pricing is calculated by adding your desired profit to the cost of the product. Each method listed above has its strengths and weaknesses.
Distribution
Distribution includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose will depend upon the industry and the size of the market. A good way to make your decision is to analyze your competitors to determine the channels they are using, then decide whether to use the same type of channel or an alternative that may provide you with a strategic advantage.
Some of the more common distribution channels include:
- Direct sales. The most effective distribution channel is to sell directly to the end-user.
- OEM (original equipment manufacturer) sales. When your product is sold to the OEM, it is incorporated into their finished product and it is distributed to the end user.
- Manufacturer's representatives. One of the best ways to distribute a product, manufacturer's reps, as they are known, are salespeople who operate out of agencies that handle an assortment of complementary products and divide their selling time among them.
- Wholesale distributors. Using this channel, a manufacturer sells to a wholesaler, who in turn sells it to a retailer or other agent for further distribution through the channel until it reaches the end user.
- Brokers. Third-party distributors who often buy directly from the distributor or wholesaler and sell to retailers or end users.
- Retail distributors. Distributing a product through this channel is important if the end user of your product is the general consuming public.
- Direct Mail. Selling to the end user using a direct mail campaign.
As we've mentioned already, the distribution strategy you choose for your product will be based on several factors that include the channels being used by your competition, your pricing strategy and your own internal resources.
Promotion Plan
With a distribution strategy formed, you must develop a promotion plan. The promotion strategy in its most basic form is the controlled distribution of communication designed to sell your product or service. In order to accomplish this, the promotion strategy encompasses every marketing tool utilized in the communication effort. This includes:
- Advertising. Includes the advertising budget, creative message(s), and at least the first quarter's media schedule.
- Packaging. Provides a description of the packaging strategy. If available, mockups of any labels, trademarks or service marks should be included.
- Public relations. A complete account of the publicity strategy including a list of media that will be approached as well as a schedule of planned events.
- Sales promotions. Establishes the strategies used to support the sales message. This includes a description of collateral marketing material as well as a schedule of planned promotional activities such as special sales, coupons, contests and premium awards.
- Personal sales. An outline of the sales strategy including pricing procedures, returns and adjustment rules, sales presentation methods, lead generation, customer service policies, salesperson compensation, and salesperson market responsibilities.
Sales Potential
Once the market has been researched and analyzed, conclusions need to be developed that will supply a quantitative outlook concerning the potential of the business. The first financial projection within the business plan must be formed utilizing the information drawn from defining the market, positioning the product, pricing, distribution, and strategies for sales. The sales or revenue model charts the potential for the product, as well as the business, over a set period of time. Most business plans will project revenue for up to three years, although five-year projections are becoming increasingly popular among lenders.
When developing the revenue model for the business plan, the equation used to project sales is fairly simple. It consists of the total number of customers and the average revenue from each customer. In the equation, "T" represents the total number of people, "A" represents the average revenue per customer, and "S" represents the sales projection. The equation for projecting sales is: (T)(A) = S
Using this equation, the annual sales for each year projected within the business plan can be developed. Of course, there are other factors that you'll need to evaluate from the revenue model. Since the revenue model is a table illustrating the source for all income, every segment of the target market that is treated differently must be accounted for. In order to determine any differences, the various strategies utilized in order to sell the product have to be considered. As we've already mentioned, those strategies include distribution, pricing and promotion.
Competitive Analysis
Identify and Analyze Your Competition
The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.
The first step in a competitor analysis is to identify the current and potential competition. There are essentially two ways you can identify competitors. The first is to look at the market from the customer's viewpoint and group all your competitors by the degree to which they contend for the buyer's dollar. The second method is to group competitors according to their various competitive strategies so you understand what motivates them.
Once you've grouped your competitors, you can start to analyze their strategies and identify the areas where they're most vulnerable. This can be done through an examination of your competitors' weaknesses and strengths. A competitor's strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market.
To determine just what constitutes a key asset or skill within an industry, David A. Aaker in his book, Developing Business Strategies, suggests concentrating your efforts in four areas:
- The reasons behind successful as well as unsuccessful firms
- Prime customer motivators
- Major component costs
- Industry mobility barriers
According to theory, the performance of a company within a market is directly related to the possession of key assets and skills. Therefore, an analysis of strong performers should reveal the causes behind such a successful track record. This analysis, in conjunction with an examination of unsuccessful companies and the reasons behind their failure, should provide a good idea of just what key assets and skills are needed to be successful within a given industry and market segment.
Through your competitor analysis, you will also have to create a marketing strategy that will generate an asset or skill competitors don't have, which will provide you with a distinct and enduring competitive advantage. Since competitive advantages are developed from key assets and skills, you should sit down and put together a competitive strength grid. This is a scale that lists all your major competitors or strategic groups based upon their applicable assets and skills and how your own company fits on this scale.
Create a Competitive Strength Grid
To put together a competitive strength grid, list all the key assets and skills down the left margin of a piece of paper. Along the top, write down two column headers: "weakness" and "strength." In each asset or skill category, place all the competitors that have weaknesses in that particular category under the weakness column, and all those that have strengths in that specific category in the strength column. After you've finished, you'll be able to determine just where you stand in relation to the other firms competing in your industry.
Once you've established the key assets and skills necessary to succeed in this business and have defined your distinct competitive advantage, you need to communicate them in a strategic form that will attract market share as well as defend it. Competitive strategies usually fall into these five areas:
- Product
- Distribution
- Pricing
- Promotion
- Advertising
Many of the factors leading to the formation of a strategy should already have been highlighted in previous sections, specifically in marketing strategies. Strategies primarily revolve around establishing the point of entry in the product life cycle and an endurable competitive advantage. As we've already discussed, this involves defining the elements that will set your product or service apart from your competitors or strategic groups. You need to establish this competitive advantage clearly so the reader understands not only how you will accomplish your goals, but also why your strategy will work.
Design and Development Plan
What You'll Cover in This Section
The purpose of the design and development plan section is to provide investors with a description of the product's design, chart its development within the context of production, marketing and the company itself, and create a development budget that will enable the company to reach its goals.
There are generally three areas you'll cover in the development plan section:
- Product development
- Market development
- Organizational development
Each of these elements needs to be examined from the funding of the plan to the point where the business begins to experience a continuous income. Although these elements will differ in nature concerning their content, each will be based on structure and goals.
The first step in the development process is setting goals for the overall development plan. From your analysis of the market and competition, most of the product, market and organizational development goals will be readily apparent. Each goal you define should have certain characteristics. Your goals should be quantifiable in order to set up time lines, directed so they relate to the success of the business, consequential so they have impact upon the company, and feasible so that they aren't beyond the bounds of actual completion.
Goals For Product Development
Goals for product development should center on the technical as well as the marketing aspects of the product so that you have a focused outline from which the development team can work. For example, a goal for product development of a microbrewed beer might be "Produce recipe for premium lager beer" or "Create packaging for premium lager beer." In terms of market development, a goal might be, "Develop collateral marketing material." Organizational goals would center on the acquisition of expertise in order to attain your product and market-development goals. This expertise usually needs to be present in areas of key assets that provide a competitive advantage. Without the necessary expertise, the chances of bringing a product successfully to market diminish.
Procedures
With your goals set and expertise in place, you need to form a set of procedural tasks or work assignments for each area of the development plan. Procedures will have to be developed for product development, market development, and organization development. In some cases, product and organization can be combined if the list of procedures is short enough.
Procedures should include how resources will be allocated, who is in charge of accomplishing each goal, and how everything will interact. For example, to produce a recipe for a premium lager beer, you would need to do the following:
- Gather ingredients.
- Determine optimum malting process.
- Gauge mashing temperature.
- Boil wort and evaluate which hops provide the best flavor.
- Determine yeast amounts and fermentation period.
- Determine aging period.
- Carbonate the beer.
- Decide whether or not to pasteurize the beer.
The development of procedures provides a list of work assignments that need to be accomplished, but one thing it doesn't provide are the stages of development that coordinate the work assignments within the overall development plan. To do this, you first need to amend the work assignments created in the procedures section so that all the individual work elements are accounted for in the development plan. The next stage involves setting deliverable dates for components as well as the finished product for testing purposes. There are primarily three steps you need to go through before the product is ready for final delivery:
- Preliminary product review. All the product's features and specifications are checked.
- Critical product review. All the key elements of the product are checked and gauged against the development schedule to make sure everything is going according to plan.
- Final product review. All elements of the product are checked against goals to assure the integrity of the prototype.
Scheduling and Costs
This is one of the most important elements in the development plan. Scheduling includes all of the key work elements as well as the stages the product must pass through before customer delivery. It should also be tied to the development budget so that expenses can be tracked. But its main purpose is to establish time frames for completion of all work assignments and juxtapose them within the stages through which the product must pass. When producing the schedule, provide a column for each procedural task, how long it takes, start date and stop date. If you want to provide a number for each task, include a column in the schedule for the task number.
Development Budget
That leads us into a discussion of the development budget. When forming your development budget, you need to take into account all the expenses required to design the product and to take it from prototype to production.
Costs that should be included in the development budget include:
- Material. All raw materials used in the development of the product.
- Direct labor. All labor costs associated with the development of the product.
- Overhead. All overhead expenses required to operate the business during the development phase such as taxes, rent, phone, utilities, office supplies, etc.
- G&A costs. The salaries of executive and administrative personnel along with any other office support functions.
- Marketing & sales. The salaries of marketing personnel required to develop pre-promotional materials and plan the marketing campaign that should begin prior to delivery of the product.
- Professional services. Those costs associated with the consultation of outside experts such as accountants, lawyers, and business consultants.
- Miscellaneous Costs. Costs that are related to product development.
- Capital equipment. To determine the capital requirements for the development budget, you first have to establish what type of equipment you will need, whether you will acquire the equipment or use outside contractors, and finally, if you decide to acquire the equipment, whether you will lease or purchase it.
Personnel
As we mentioned already, the company has to have the proper expertise in key areas to succeed; however, not every company will start a business with the expertise required in every key area. Therefore, the proper personnel have to be recruited, integrated into the development process, and managed so that everyone forms a team focused on the achievement of the development goals.
Before you begin recruiting, however, you should determine which areas within the development process will require the addition of personnel. This can be done by reviewing the goals of your development plan to establish key areas that need attention. After you have an idea of the positions that need to be filled, you should produce a job description and job specification.
Once you've hired the proper personnel, you need to integrate them into the development process by assigning tasks from the work assignments you've developed. Finally, the whole team needs to know what their role is within the company and how each interrelates with every position within the development team. In order to do this, you should develop an organizational chart for your development team.
Assessing Risks
Finally, the risks involved in developing the product should be assessed and a plan developed to address each one. The risks during the development stage will usually center on technical development of the product, marketing, personnel requirements, and financial problems. By identifying and addressing each of the perceived risks during the development period, you will allay some of your major fears concerning the project and those of investors as well.
Operations and Management Plan
The Purpose Of This Section
The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business. In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section.
The financial tables that you'll develop within the operations plan include:
- The operating expense table
- The capital requirements table
- The cost of goods table
There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.
Organizational Structure
The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses. This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.
Although every company will differ in its organizational structure, most can be divided into several broad areas that include:
- Marketing and sales (includes customer relations and service)
- Production (including quality assurance)
- Research and development
- Administration
These are very broad classifications and it's important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals.
The four stages for organizing a business are:
1. Establish a list of the tasks using the broadest of classifications possible.
2. Organize these tasks into departments that produce an efficient line of communications between staff and management.
3. Determine the type of personnel required to perform each task.
4. Establish the function of each task and how it will relate to the generation of revenue within the company.
Calculate Your Personnel Numbers
Once you've structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals. In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure: C / S = P
In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements. For instance, if the number of customers for first year sales is projected at 10,110 and one marketing employee is required for every 200 customers, you would need 51 employees within the marketing department: 10,110 / 200 = 51
Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense. The factors that need to be considered when calculating labor expense (LE) are the personnel requirements (P) for each department multiplied by the employee salary level (SL). Therefore, the equation would be: P * SL = LE
Using the marketing example from above, the labor expense for that department would be: 51 * $40,000 = $2,040,000
Calculate Overhead Expenses
Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed. These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed (those that must be paid, usually at the same rate, regardless of the volume of business) and variable or semivariable (those which change according to the amount of business).
Overhead expenses usually include the following:
- Travel
- Maintenance and repair
- Equipment leases
- Rent
- Advertising & promotion
- Supplies
- Utilities
- Packaging & shipping
- Payroll taxes and benefits
- Uncollectible receivables
- Professional services
- Insurance
- Loan payments
- Depreciation
In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee. Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead (OH) expense: OH = NE * EE
Develop a Capital Requirements Table
In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase the equipment you'll use to establish and continue operations. It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.
In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.
Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: testing equipment, assembly equipment and packaging equipment.
With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle. This is important because capital requirements are a product of income, which is produced through unit sales. In order to meet sales projections, a business usually has to invest money to increase production or supply better service. In the business plan, capital requirements are tied to projected sales as illustrated in the revenue model shown earlier in this chapter.
For instance, if the capital equipment required is capable of handling the needs of 10,000 customers at an average sale of $10 each, that would be $100,000 in sales, at which point additional capital will be required in order to purchase more equipment should the company grow beyond this point. This leads us to another factor within the capital requirements equation, and that is equipment cost.
If you multiply the cost of equipment by the number of customers it can support in terms of sales, it would result in the capital requirements for that particular equipment element. Therefore, you can use an equation in which capital requirements (CR) equals sales (S) divided by number of customers (NC) supported by each equipment element, multiplied by the average sale (AS), which is then multiplied by the capital cost (CC) of the equipment element. Given these parameters, your equation would look like the following: CR = [(S / NC) * AS] * CC
The capital requirements table is formed by adding all your equipment elements to generate the total new capital for that year. During the first year, total new capital is also the total capital required. For each successive year thereafter, total capital (TC) required is the sum of total new capital (NC) plus total capital (PC) from the previous year, less depreciation (D), once again, from the previous year. Therefore, your equation to arrive at total capital for each year portrayed in the capital requirements model would be: TC = NC + PC - D
Keep in mind that depreciation is an expense that shows the decrease in value of the equipment throughout its effective lifetime. For many businesses, depreciation is based upon schedules that are tied to the lifetime of the equipment. Be careful when choosing the schedule that best fits your business. Depreciation is also the basis for a tax deduction as well as the flow of money for new capital. You may need to seek consultation from an expert in this area.
Create a Cost of Goods Table
The last table that needs to be generated in the operations and management section of your business plan is the cost of goods table. This table is used only for businesses where the product is placed into inventory. For a retail or wholesale business, cost of goods sold--or cost of sales--refers to the purchase of products for resale, i.e. the inventory. The products that are sold are logged into cost of goods as an expense of the sale, while those that aren't sold remain in inventory.
For a manufacturing firm, cost of goods is the cost incurred by the company to manufacture its product. This usually consists of three elements:
1. Material
2. Labor
3. Overhead
As in retail, the merchandise that is sold is expensed as a cost of goods, while merchandise that isn't sold is placed in inventory. Cost of goods has to be accounted for in the operations of a business. It is an important yardstick for measuring the firm's profitability for the cash-flow statement and income statement.
In the income statement, the last stage of the manufacturing process is the item expensed as cost of goods, but it is important to document the inventory still in various stages of the manufacturing process because it represents assets to the company. This is important to determining cash flow and to generating the balance sheet.
That is what the cost of goods table does. It's one of the most complicated tables you'll have to develop for your business plan, but it's an integral part of portraying the flow of inventory through your operations, the placement of assets within the company, and the rate at which your inventory turns.
In order to generate the cost of goods table, you need a little more information in addition to what your labor and material cost is per unit. You also need to know the total number of units sold for the year, the percentage of units which will be fully assembled, the percentage which will be partially assembled, and the percentage which will be in unassembled inventory. Much of these figures will depend on the capacity of your equipment as well as on the inventory control system you develop. Along with these factors, you also need to know at what stage the majority of the labor is performed.
Financial Components
Financial Statements to Include
Financial data is always at the back of the business plan, but that doesn't mean it's any less important than up-front material such as the business concept and the management team. Astute investors look carefully at the charts, tables, formulas and spreadsheets in the financial section, because they know that this information is like the pulse, respiration rate and blood pressure in a human--it shows whether the patient is alive and what the odds are for continued survival.
Financial statements, like bad news, come in threes. The news in financial statements isn't always bad, of course, but taken together it provides an accurate picture of a company's current value, plus its ability to pay its bills today and earn a profit going forward.
The three common statements are a cash flow statement, an income statement and a balance sheet. Most entrepreneurs should provide them and leave it at that. But not all do. But this is a case of the more, the less merry. As a rule, stick with the big three: income, balance sheet and cash flow statements.
These three statements are interlinked, with changes in one necessarily altering the others, but they measure quite different aspects of a company's financial health. It's hard to say that one of these is more important than another. But of the three, the income statement may be the best place to start.
Income Statement
The income statement is a simple and straightforward report on the proposed business's cash-generating ability. It's a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred. It draws information from the various financial models developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of goods. By combining these elements, the income statement illustrates just how much your company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result--which is either a profit or a loss.
For a business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second, and annually for each year thereafter. It's formed by listing your financial projections in the following manner:
- Income. Includes all the income generated by the business and its sources.
- Cost of goods. Includes all the costs related to the sale of products in inventory.
- Gross profit margin. The difference between revenue and cost of goods. Gross profit margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue.
- Operating expenses. Includes all overhead and labor expenses associated with the operations of the business.
- Total expenses. The sum of all overhead and labor expenses required to operate the business.
- Net profit. The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities.
- Depreciation. Reflects the decrease in value of capital assets used to generate income. Also used as the basis for a tax deduction and an indicator of the flow of money into new capital.
- Net profit before interest. The difference between net profit and depreciation.
- Interest. Includes all interest derived from debts, both short-term and long-term. Interest is determined by the amount of investment within the company.
- Net profit before taxes. The difference between net profit before interest and interest.
- Taxes. Includes all taxes on the business.
- Profit after taxes. The difference between net profit before taxes and the taxes accrued. Profit after taxes is the bottom line for any company.
Following the income statement is a short note analyzing the statement. The analysis statement should be very short, emphasizing key points within the income statement.
Cash Flow Statement
The cash-flow statement is one of the most critical information tools for your business, showing how much cash will be needed to meet obligations, when it is going to be required, and from where it will come. It shows a schedule of the money coming into the business and expenses that need to be paid. The result is the profit or loss at the end of the month or year. In a cash-flow statement, both profits and losses are carried over to the next column to show the cumulative amount. Keep in mind that if you run a loss on your cash-flow statement, it is a strong indicator that you will need additional cash in order to meet expenses.
Like the income statement, the cash-flow statement takes advantage of previous financial tables developed during the course of the business plan. The cash-flow statement begins with cash on hand and the revenue sources. The next item it lists is expenses, including those accumulated during the manufacture of a product. The capital requirements are then logged as a negative after expenses. The cash-flow statement ends with the net cash flow.
The cash-flow statement should be prepared on a monthly basis during the first year, on a quarterly basis during the second year, and on an annual basis thereafter. Items that you'll need to include in the cash-flow statement and the order in which they should appear are as follows:
- Cash sales. Income derived from sales paid for by cash.
- Receivables. Income derived from the collection of receivables.
- Other income. Income derived from investments, interest on loans that have been extended, and the liquidation of any assets.
- Total income. The sum of total cash, cash sales, receivables, and other income.
- Material/merchandise. The raw material used in the manufacture of a product (for manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.
- Production labor. The labor required to manufacture a product (for manufacturing operations only) or to perform a service.
- Overhead. All fixed and variable expenses required for the production of the product and the operations of the business.
- Marketing/sales. All salaries, commissions, and other direct costs associated with the marketing and sales departments.
- R&D. All the labor expenses required to support the research and development operations of the business.
- G&A. All the labor expenses required to support the administrative functions of the business.
- Taxes. All taxes, except payroll, paid to the appropriate government institutions.
- Capital. The capital required to obtain any equipment elements that are needed for the generation of income.
- Loan payment. The total of all payments made to reduce any long-term debts.
- Total expenses. The sum of material, direct labor, overhead expenses, marketing, sales, G&A, taxes, capital and loan payments.
- Cash flow. The difference between total income and total expenses. This amount is carried over to the next period as beginning cash.
- Cumulative cash flow. The difference between current cash flow and cash flow from the previous period.
As with the income statement, you will need to analyze the cash-flow statement in a short summary in the business plan. Once again, the analysis statement doesn't have to be long and should cover only key points derived from the cash-flow statement.
The Balance Sheet
The last financial statement you'll need to develop is the balance sheet. Like the income and cash-flow statements, the balance sheet uses information from all of the financial models developed in earlier sections of the business plan; however, unlike the previous statements, the balance sheet is generated solely on an annual basis for the business plan and is, more or less, a summary of all the preceding financial information broken down into three areas:
1. Assets
2. Liabilities
3. Equity
To obtain financing for a new business, you may need to provide a projection of the balance sheet over the period of time the business plan covers. More importantly, you'll need to include a personal financial statement or balance sheet instead of one that describes the business. A personal balance sheet is generated in the same manner as one for a business.
As mentioned, the balance sheet is divided into three sections. The top portion of the balance sheet lists your company's assets. Assets are classified as current assets and long-term or fixed assets. Current assets are assets that will be converted to cash or will be used by the business in a year or less. Current assets include:
- Cash. The cash on hand at the time books are closed at the end of the fiscal year.
- Accounts receivable. The income derived from credit accounts. For the balance sheet, it's the total amount of income to be received that is logged into the books at the close of the fiscal year.
- Inventory. This is derived from the cost of goods table. It's the inventory of material used to manufacture a product not yet sold.
- Total current assets. The sum of cash, accounts receivable, inventory, and supplies.
Other assets that appear in the balance sheet are called long-term or fixed assets. They are called long-term because they are durable and will last more than one year. Examples of this type of asset include:
- Capital and plant. The book value of all capital equipment and property (if you own the land and building), less depreciation.
- Investment. All investments by the company that cannot be converted to cash in less than one year. For the most part, companies just starting out have not accumulated long-term investments.
- Miscellaneous assets. All other long-term assets that are not "capital and plant" or "investments."
- Total long-term assets. The sum of capital and plant, investments, and miscellaneous assets.
- Total assets. The sum of total current assets and total long-term assets.
After the assets are listed, you need to account for the liabilities of your business. Like assets, liabilities are classified as current or long-term. If the debts are due in one year or less, they are classified as a current liabilities. If they are due in more than one year, they are long-term liabilities. Examples of current liabilities are as follows:
- Accounts payable. All expenses derived from purchasing items from regular creditors on an open account, which are due and payable.
- Accrued liabilities. All expenses incurred by the business which are required for operation but have not been paid at the time the books are closed. These expenses are usually the company's overhead and salaries.
- Taxes. These are taxes that are still due and payable at the time the books are closed.
- Total current liabilities. The sum of accounts payable, accrued liabilities, and taxes.
Long-term liabilities include:
- Bonds payable. The total of all bonds at the end of the year that are due and payable over a period exceeding one year.
- Mortgage payable. Loans taken out for the purchase of real property that are repaid over a long-term period. The mortgage payable is that amount still due at the close of books for the year.
- Notes payable. The amount still owed on any long-term debts that will not be repaid during the current fiscal year.
- Total long-term liabilities. The sum of bonds payable, mortgage payable, and notes payable.
- Total liabilities. The sum of total current and long-term liabilities.
Once the liabilities have been listed, the final portion of the balance sheet-owner's equity-needs to be calculated. The amount attributed to owner's equity is the difference between total assets and total liabilities. The amount of equity the owner has in the business is an important yardstick used by investors when evaluating the company. Many times it determines the amount of capital they feel they can safely invest in the business.
In the business plan, you'll need to create an analysis statement for the balance sheet just as you need to do for the income and cash flow statements. The analysis of the balance sheet should be kept short and cover key points about the company.
Source: The Small Business Encyclopedia, Business Plans Made Easy, Start Your Own Business and Entrepreneur magazine.
Lesson 1 - Work area, file browser and history palette
Image types, selecting tools in different ways and viewing images in different ways, keyboard shortcuts, managing palettes and context sensitive and on-line help. Using the History palette and snapshots to correct mistakes and go back to earlier states of your work. Using the File Browser to manage image collections.
Adobe Photoshop 7 Lesson One: Getting to Know the Work Area
In this class we will be working “continuous-tone images”, that is,
photographs that have been scanned, taken with a digital camera,
obtained on-line or copied from CD’s. They are digital images that can
be manipulated on a computer. The information that makes up the
image is stored as pixels, short for “picture elements” and The density of
these pixels, described as image resolution in pixels per inch, along with
the document's dimensions, contributes to the image’s total file size,
expressed in kilobytes or megabytes.
You can also create images directly in Photoshop. Photoshop is a
bit–mapped graphics program. – or “paint” program, which produces a
collection of pixels. Each pixel has additional data associated with it,
describing its hue, saturation and brightness. A pixel is stored internally as
bits, and a map of these bits make up the image, hence the term “bit
mapped.” The more bits that make up each pixel, the more information it
can carry and the greater the range of color in an image. One bit pixels
can be either “on” or “off” and thus be only black or white. An eight bits
image can display 256 colors and 24 bits can display 16 million color
values.
To modify a shape created in a paint program, you must modify the
pixels in the part of the shape that you want to change. This contrasts with
images created in drawing applications such as Adobe Illustrator. These
are called vector images and are described mathematically by lines and
curves. Vector images can be enlarged or reduced without affecting
their output quality, while bit-mapped images are resolution–dependent
and may display jagged edges or otherwise lose quality if enlarged too
much beyond their original input. Vector graphics are useful for logos,
illustrations and graphs, whereas bit mapped graphics programs are
better able to handle photographs.
There are four clusters of tools in Photoshop that you need to be
familiar with – the Menu Bar at the top of the work area, the floating
Toolbox, the Tool Options Bar below the menu bar, and the Palette
Groups. The important thing to remember is that there is more than one
way to do most things in Photoshop. Use whatever method feels most©2004 E. Barbara Meyer - Educational Technologies Center – Life Sciences -2-
comfortable, but I urge you to make an effort to learn keyboard
commands when they’re available.
http://www.life.illinois.edu/edtech/training/ps/PS7intro.pdf
The Toolbox in Photoshop 7.0
1. Select a tool with the mouse or by a keyboard shortcut.
2. Position mouse over the tool to see the name appear.
3. A small triangle on the lower right of a tool icon means there are
“hidden” tools underneath that are revealed by clicking and
dragging.
4. Tools are roughly clustered by category.
Tool Options Bar
1. If a tool behaves unexpectedly, check its options to see if they’ve
been reset. Click the tool icon on the left to reset values back to
default.
2. Options are context sensitive. Some features are common to many
tools, others are unique.
3. The options toolbar can be moved around if you like.
4. It has a “palette well” where you can stash frequently used palettes.
Palettes
1. Show and hide palettes with Window Menu or Tab key.-
2. A palette can be moved by dragging its title bar, reordered by
clicking on its tabs, and resized by clicking and dragging on the
lower right.
3. You will definitely need to resize the history palette and very likely
the layers palette as well.
4. Palettes have their own menus, which are generally subsets of those
on the Menu bar. Click and hold on the black triangle in the upper
right corner of a palette in order to see them.
5. Hint: create your own custom palette of the features you use most,
by “tearing off” tabs and putting them on top of one another.©2004 E. Barbara Meyer - Educational Technologies Center – Life Sciences-3-
6. Palettes positions are saved when you exit Photoshop. To return
them to their default locations, choose Window>reset palette
locations.
Customizing your workspace
You’ll find that certain types of Photoshop projects will make frequent
use of some palettes and rarely need others. You can open and close
palettes, recombine them and you can save different combinations.
Additionally, you can reset all palette locations back to default.
1. To reset palettes to their default locations:
Window>Workspace>Reset Palette Locations.
2. To save a particular workspace: Window>Workspace>Save
workspace. Give it a name for the particular task.
Viewing an image
Remember that when you change the view of an image, you are only
changing the way it looks on your monitor, not it’s actual print or file size.
There are multiple ways to change the view of an image.
1. Use the View Menu - View>Zoom in/Out; Fit on Screen, etc.
2. Zoom tool “z” – double clicking returns image to 100%
3. Hand tool "h" – double clicking makes the image “fit on screen”
4. Spacebar – Command + spacebar zooms in; Command + option +
spacebar zooms out.
5. Navigator palette
6. Info bar – just enter in the new percentage you'd like
7. Select the hand tool to scroll an image that’s larger than your
document window . Use the spacebar anytime while using another
tool will tinvoke it temporaily.
Context Sensitive Menus
Display a list of actions relevant to the tool you’re using by command
clicking on the image. (Right click on the PC)
Online Help
Online help has a table of contents, an index and a keyword search
feature, as well as hyperlinks to related topics and color example
images.
Lesson 2 - Basic Photo Corrections and saving for the web
Choosing the correct resolution, cropping, resizing, adjusting the tonal range, removing color casts, adjusting saturation and brightness, clone tool to eliminate unwanted parts of an image, pattern stamp tool, healing brush, patch tool and history brush, sharpening an image. Optimizing an image for the web.
Basic Guide to Photoshop CorrectionPhoto Correction in Photoshop 7.0
In general you should complete the steps in this order, though not all processes might be necessary for every image. Some touchups such as increasing color saturation or sharpening might be best done on only a selected portion of an image. Before you start, always make a copy of your untouched image and save it as a backup and archive.
Step 1. Determine the correct dimensions and image resolution for your final work.
This will depend on what you plan to do with it. Image resolution refers to the number of small squares, called pixels, that make up the image and provide it’s detail and colors. The greater the number of pixels an image contains, the larger the file size.
In computer graphics, there are different types of resolution. Image resolution refers to the number of pixels per unit length in an image and is measured in ppi (pixels per inch)
The number of pixels per unit length on a monitor is called monitor resolution, measured in dpi (dots per inch) In day-to-day use, these units are used interchangeably, though they are not the same and can cause some confusion when your image resolution is higher than your monitor resolution. In this case, the image will appear larger on screen than it’s specified print dimensions. This is because in Photoshop, image pixels are translated into directly into monitor pixels, therefore, a 1 inch by 1 inch image at 144 ppi will display as a 2 inch by 2 inch image on a 72 dpi monitor. It will print as 1 by 1, but display larger. If you’re working with images greater than 72 ppi, it’s a good idea to display rulers and or check the print size to monitor the “real” dimensions of your work.
If you plan to print the image, then you have to be aware of the output resolution of your printer. A higher resolution printer will get best results from higher resolution images. If you are working with a service bureau or journal the easiest thing to do is ask them what resolution (and image format) is best. If you are printing on a standard laser printer in Life Sciences, 120 to 150 dpi is about right. If you have your own color inkjet, it’s best to experiment but it will probably be in the same range.
The two most important things to remember about image resolution:
Step 2. Crop the image
Virtually every image needs at least some cropping to remove unwanted detail that distracts from the subject and creates unnecessary file size.
Step 3. Adjust the tonal range using Image>Adjustments> Levels.
It’s a rare photo that isn’t improved by some adjustment to it’s highlights, shadows and midtones . This can also be done automatically by Image> Adjustments> Autocontrast, which is handy when you’re in a hurry, but in general you get better results by doing it manually with Levels.
Step 4. Remove unwanted artifacts and repair image
The clone stamps, healing brush and patch tool, along with the history palette, are powerful tools that can be pure magic. Use them wisely. The Rubber Stamp hase been probably the most widely used of the retouching tools. You first have to determine the area of the image you want to clone FROM – them press Option(or Alt on the PC) to “pick up” the pattern there. Next, move your cursor to the unwanted object, then drag or click on it. You’ll see a crosshair appear at the original source point, indicating where you’re copying from. Clicking randomly here and there on your unwanted object usually results in more realistic results, as the human eye is very good at picking up the repeated patterns that can occur from smooth dragging. Aligning the source point with the destination point is usually more precise in keeping lighting conditions and shadows similar, and changing source points frequently when erasing a larger area also reduces unwanted patterns.
Photoshop 7.0's new healing brush and patch tool are amazing though, in that they preserve the texture of the unlaying object.
Hint: For removing an object from a plain, relatively flat background with even lighting, simply making a selection of the background with one of the selection tools and pasting it over the object will do the trick. If you select the “feather” option (4 or 5 pixels) before making the selection, you’ll have a softer edge that will likely blend in better.
Hint: The Dust and Scratches Filter is a quick way to rid a scanned image of bits of dirt and and imperfections.
Step 5. Remove unwanted color casts with Image>Adjustments>Color Balance
Improper color casts can be artifacts from digital cameras or scanners; aged photos or slides. If present, they are easy to correct in Photoshop. Even if you can’t see them it pays sometimes to play with color balance to see if it improves the image.
Note on the Retouching Tools:
You might want to improve the color, tone or contrast of selected parts of the image with the retouching tools. All of them use the Brushes Palette to determine their size, and many have an opacity setting and blending modes to consideras well.
Step 6. Adjust saturation and brightness if necessary with Imagements>Adjust> Hue / Saturation.
This can be overdone, but is invaluable for a dull image. Often Powerpoint images will display much better if they are a little oversaturated. Sometimes just part of an image could stand some brightening with the sponge tool.
Step 7. Sharpen image if necessary with Filters>Sharpen> Unsharp Mask.
There are several sharpening tools in Photoshop, and all work by increasing the contrast between neighboring pixels. Sharpenand Sharpen More sharpens the entire image, or a selection, if you’ve made one. Sharpen Edges affects only those areas with the highest contrast.
But the rather pecularly named Unsharp Mask is the most powerful. It’s name refers to an older film compositing technique that corrects blurring introduced during the production process. By highlighting the edges of an image by combining a blurred film negative with the original film positive, it's able to by locate “edges”, or pixels that differ from adjacent pixels by an amount you specify, and accentuate them. Its affects are far more pronounced on screen than when printed, so you may have to experiment. You can also get good results by using the sharpening tool on parts of an image as well.
Amount – the degree (up to 500%) with which you want to sharpen the image. The higher the value, the more dramatic the effect. Values between 25 and 50% generally produce subtle effects. Between 50 and 300% are more pronounced.
Radius – the thickness of the sharpened edge. The higher the value, the more contrast. The ideal value depends on the resolution of your images (dots per inch) and the edge detail already present, and might be affected by old, grainy photographs and imperfections. For on-screen images such as web graphics, 0.5 results in fine, crisp edges. For printing, with a resolution of from 120 to 180 dpi, use a value of 1.0. Though the edges may appear more pronounced on-screen, on paper they’ll look better.
Threshold – how different two adjacent pixels have to be to be considered an edge. The value, from 0 to 255, is the “brightness value”. The lower the value, the lower the threshold, and they will be considered different and sharpened. The higher the threshold, the more likely they are to be excluded from the sharpening.
Hint: Sharpen incrementally by doing Command+F (Control +F in Windows) after you sharpen the first time. Using a filter once moves it to the “Last Filter” slot in the Filter Menu. The Command/Control F keyboard shortcut invokes Last Filter and you can continue to use it until you go too far. Back up a step with Command/Control Z or use the History Palette to back up even further.
Step 8. Save the image in the appropriate format. We’ll talk more about formats in another handout.
Notes:
Photoshop 7.0 - Correcting Red Eye
"Red eye" in photographs is caused by the camera's flash reflecting off the the back of the subject's eye. The spookey red glow results from the fact that the retina is rich with blood vessels. It appears worse if the photo is taken in a darkened room, when the pupils are more dilated.
Most of the new digital cameras have a "red eye reduction" setting involving an extra flash or series of flashes that allow the pupils to adjust and contract, reducing the surface area of retina exposed to the flash. In my experience this feature is worse useless when it comes to photographing critters, as most will flee or cower after the first blaze of light. While you can ask a human to look away from the camera, or warn them ahead of time about the oncoming barrage, generally one chance is all you get with most animals, so it's better to be prepared to do some tweaking later on the digital file.
Based on a lesson at About.com, and excellent source of graphics tips:http://graphicssoft.about.com/cs/photoshop/ht/apsredeye.htm?terms=redeye
1. First, make two copies of the image, so you'll have three copies open.
a. Make a duplicate the image with Edit>Duplicate. This will make a copy that will not change as you edit, so you can compare your changes to the original so gauge your progress.
b. Open another copy in a new window by going to Window > Document> New Window. This will allow you to work with the original at a high magnification and view the changes in real time at 100% magnification on this copy
2. In the original, zoom in on the eyes, leave the other copies at 100%. Arrange the windows so you can see all of them, plus the layers palette.
3. Create a new layer.
4. Using the eyedropper, pick up a color from the outside of the iris that best represents the true eye color. It should have just a touch of color with a gray cast.
5. On the new layer, carefully paint over just the red part of the eyes.
6. You may want to gently soften the edges with the smudge tool or Filter>Blur>Gaussian Blur, set to 1 pixel.
7. Set the layer blend mode to Saturation. This will preserve the highlights, but might leave the eyes too gray and hollow looking. If so try the next step.
8. Duplicate the saturation layer and change the mode to Hue, which should put some color back but still preserve the highlights. If the color is too strong, reduce the opacity of this layer. You can darken the pupil area with the burn tool if necessary.
Merge layers when satisfied with the results.
© 2003 - E. Barbara Meyer - EdTech Center - Life Sciences - University of Illinois - Urbana, IL USA
Return to Barbara's Photoshop Notes
http://www.life.illinois.edu/edtech/training/ps/correct/redeye.html
Retouching Tools in Photoshop 7.0
Lesson 3- Working with Selections
Basics of selecting and moving objects - which is primary to working in Photoshop. Selecting parts of an image with a variety of tools, using multiple selection tools to make complex selections, moving and duplicating selections, adding, subtracting and rotating selections.
Making and moving selections
Marquee Tools
The marquee tool (and it's buddies) lets you create rectangular, elliptical, single row selections and lets you crop the image too. You click and drag it over the desired area with these tools.
Lasso Tools
The lasso tools allow you to draw freehand selections - either smooth or polygon shaped.
The magic wand tool lets you select an area based on color similarities of adjacent pixels. (Note: the Select>Color range command also selects on the basis of color, but it selects non-adjacent pixels as well)
Move Tool
The move tool is used to drag a selection when no selection tool is active.
Lesson 4 - Layer Basics
Learn how create and or ganize an image with layers and how layers affect file size, learn the Layers palette and how to select, view, hide, link and reorder layers. Apply blending modes and add a gradient and text and layer effects. Save a flattened image without layers.
What are layers and what's the big deal anyway?Layers are like sheets of acetate, transparent except where there is artwork on them. You can view all of them at once, or selectively "hide" individual layers to view only one or a few. They allow a high degree of control over your artwork, as each layer can be moved, reordered and edited independently.All layers have opacity sliders, so that you can allow the background or underlying layers to show through.Layers can be reordered in the "stack" by dragging the layer up or down in the layers palette.You can copy a layer into another document by having both documents open and dragging the layer name from the layers palette of the first document and dropping it into the image window of the second.You can "lock layers" together, and a single effect will apply to all layers locked together this way.A layer is transparent until you paint something on it, but once it contains pixels, you can confine editing to only that artwork by selecting "Preserve Transparency" in the Layers Palette.How many layers can you have?You can have up to 100 layers, depending on computer memory. When you create a new document in Photoshop, it has only one layer - the background layer. It's like the canvas of a painting. It can't be moved up within the layer hierachy unless you first convert it to a layer in it's layer options palette. You do have an option when creating a new document of not having a background layer by choosing the Transparent option in the New dialog box. You can also add a background to an image that doesn't have one by selecting the Background mode in the New layer dialog box.How do I create layers?For a new, blank layer - click on the new layer icon on the bottom of the Layers Palette. Or - you can use the Layer Menu bar selection and select "New Layer".You can create a layer from a selection by first making the selection, then going up to the Layers Menu bar selection to New Layer and selecting "Layer via copy" or "Layer via cut"You can also create new layers by pasting or by using the text tool. (See below)You can have up to 100 layers, depending on computer memory.Whoa! My document has layers! I didn't put them there. Who did?Whenever you paste or move a selection in a document, it's automatically pasted into a new layer and appears just above the active layer. You can also copy a selection into a new layer with Layer>New>Layer via Copy (or cut). Text also is placed into its own layer.How do layers effect image format and file size?Images with layers, or images with no backgrounds, can be stored only in Photoshop format.Having layers adds to the size of the document, as the information for each must be stored independently. The storage requirements for each layer are proportional to the amount of pixel information on the layer.Transparent areas to not count.Once you have completed work on more than one layer you can merge them together to help keep the file size down, while you continue working on the document. When finished, you should merge all layers into a "flattened image" containing only one layer. Be certain you are finished though, as once merged or flattened, layers cannot be retrieved. It's best to save a copy of the document in Photoshop format with all it's layers if you think you'll need to go back and edit it.What does the "Preserve Transparency" check box do?Checking this option will allow you to work only on those parts of the layer that are "pigmented" - i.e. have pixel information. The parts of the layer that have no "paint" on them will be "see through" - and will not be affected. Certain filters - like the blur - will not work on a layer with this option is selected, as they need to be able to spread "paint" into transparent areas.© 2003 - E. Barbara Meyer - EdTech Center - Life Sciences - University of Illinois - Urbana, IL USA
Selecting Colors in Photoshop 7.0Color Palette
...a mini version of the color picker, it is less precise but may be quicker to use. It allows you to select foreground and background colors by clicking on the foreground/background icon in the palette. As with the color picker, you can specify colors numerically as well.
Swatches Palette
... contains 122 swatches from the image. It also allows you so save a color to the palette.
Eye Dropper Tool
... allows you to select colors from the image itself and can be temporarily invoked by pressing the spacebar while using any other tool. The new color can also be "carried" to the swatches palette by the paint bucket tool and saved.
Lesson 5 - Masks and Channels
Using quick masks to refine a selection, saving a permanent as an alpha channel, loading a saved selection and applying effects, create and use a gradient mask, applying filter effects, making intricate selections by using the extract command.
Mask and ChannelsMasks and Channels
What are Channels?
Channels are "containers" for storing information. There are two kinds - color and selection. You can have up to 24 of them in an image.
What are masks?
Masks are like stencils that protect parts of an image. There are also two kinds - temporary (quick masks) and permanent (alpha channels)
Color Channels
An RGB image has four color channels - red, green, blue and a composite RGB channel. You can perform color corrections on individual channels for precise adjustments.
Alpha Channels
These contain selection information. When you make a selection using one of the selection tools, the area within the selection is editable and the area outside is protected - or masked. You can store selections as alpha channel where they will be saved for use again in the future. When you display an alpha channel, the masked area is black and the selected area is white. The masks can be edited with the painting tools while in the alpha channel
What is a mask?
A mask is like a stencil placed over the image that allows you to edit only a part of the image while the rest - the area covered by the stencil - is protected. Both the protected area and the selection can be edited. Quick Masks are temporary masks which can be invoked from the toolbar and created with selection and painting tools . They can be converted to selections or saved as alpha channels.
Lesson 6 - Pen tool, Paths and vector graphics
Drawing straight and curved lines with the pen tool, editing, saving, filling and stroking paths, converting paths to selections and selections to paths. Differentiate between bitmap and vector graphics, draw and edit layer shapes and layer paths, create complex layer shapes by combining or subtracting different shapes, combine vector paths to create a shape, use edit mode to add or edit a text layer, use a text layer to create a work path, use work path to create a vector mask. Load and apply custom layer shapes
Image types, selecting tools in different ways and viewing images in different ways, keyboard shortcuts, managing palettes and context sensitive and on-line help. Using the History palette and snapshots to correct mistakes and go back to earlier states of your work. Using the File Browser to manage image collections.
Adobe Photoshop 7 Lesson One: Getting to Know the Work Area
In this class we will be working “continuous-tone images”, that is,
photographs that have been scanned, taken with a digital camera,
obtained on-line or copied from CD’s. They are digital images that can
be manipulated on a computer. The information that makes up the
image is stored as pixels, short for “picture elements” and The density of
these pixels, described as image resolution in pixels per inch, along with
the document's dimensions, contributes to the image’s total file size,
expressed in kilobytes or megabytes.
You can also create images directly in Photoshop. Photoshop is a
bit–mapped graphics program. – or “paint” program, which produces a
collection of pixels. Each pixel has additional data associated with it,
describing its hue, saturation and brightness. A pixel is stored internally as
bits, and a map of these bits make up the image, hence the term “bit
mapped.” The more bits that make up each pixel, the more information it
can carry and the greater the range of color in an image. One bit pixels
can be either “on” or “off” and thus be only black or white. An eight bits
image can display 256 colors and 24 bits can display 16 million color
values.
To modify a shape created in a paint program, you must modify the
pixels in the part of the shape that you want to change. This contrasts with
images created in drawing applications such as Adobe Illustrator. These
are called vector images and are described mathematically by lines and
curves. Vector images can be enlarged or reduced without affecting
their output quality, while bit-mapped images are resolution–dependent
and may display jagged edges or otherwise lose quality if enlarged too
much beyond their original input. Vector graphics are useful for logos,
illustrations and graphs, whereas bit mapped graphics programs are
better able to handle photographs.
There are four clusters of tools in Photoshop that you need to be
familiar with – the Menu Bar at the top of the work area, the floating
Toolbox, the Tool Options Bar below the menu bar, and the Palette
Groups. The important thing to remember is that there is more than one
way to do most things in Photoshop. Use whatever method feels most©2004 E. Barbara Meyer - Educational Technologies Center – Life Sciences -2-
comfortable, but I urge you to make an effort to learn keyboard
commands when they’re available.
http://www.life.illinois.edu/edtech/training/ps/PS7intro.pdf
The Toolbox in Photoshop 7.0
1. Select a tool with the mouse or by a keyboard shortcut.
2. Position mouse over the tool to see the name appear.
3. A small triangle on the lower right of a tool icon means there are
“hidden” tools underneath that are revealed by clicking and
dragging.
4. Tools are roughly clustered by category.
Tool Options Bar
1. If a tool behaves unexpectedly, check its options to see if they’ve
been reset. Click the tool icon on the left to reset values back to
default.
2. Options are context sensitive. Some features are common to many
tools, others are unique.
3. The options toolbar can be moved around if you like.
4. It has a “palette well” where you can stash frequently used palettes.
Palettes
1. Show and hide palettes with Window Menu or Tab key.-
2. A palette can be moved by dragging its title bar, reordered by
clicking on its tabs, and resized by clicking and dragging on the
lower right.
3. You will definitely need to resize the history palette and very likely
the layers palette as well.
4. Palettes have their own menus, which are generally subsets of those
on the Menu bar. Click and hold on the black triangle in the upper
right corner of a palette in order to see them.
5. Hint: create your own custom palette of the features you use most,
by “tearing off” tabs and putting them on top of one another.©2004 E. Barbara Meyer - Educational Technologies Center – Life Sciences-3-
6. Palettes positions are saved when you exit Photoshop. To return
them to their default locations, choose Window>reset palette
locations.
Customizing your workspace
You’ll find that certain types of Photoshop projects will make frequent
use of some palettes and rarely need others. You can open and close
palettes, recombine them and you can save different combinations.
Additionally, you can reset all palette locations back to default.
1. To reset palettes to their default locations:
Window>Workspace>Reset Palette Locations.
2. To save a particular workspace: Window>Workspace>Save
workspace. Give it a name for the particular task.
Viewing an image
Remember that when you change the view of an image, you are only
changing the way it looks on your monitor, not it’s actual print or file size.
There are multiple ways to change the view of an image.
1. Use the View Menu - View>Zoom in/Out; Fit on Screen, etc.
2. Zoom tool “z” – double clicking returns image to 100%
3. Hand tool "h" – double clicking makes the image “fit on screen”
4. Spacebar – Command + spacebar zooms in; Command + option +
spacebar zooms out.
5. Navigator palette
6. Info bar – just enter in the new percentage you'd like
7. Select the hand tool to scroll an image that’s larger than your
document window . Use the spacebar anytime while using another
tool will tinvoke it temporaily.
Context Sensitive Menus
Display a list of actions relevant to the tool you’re using by command
clicking on the image. (Right click on the PC)
Online Help
Online help has a table of contents, an index and a keyword search
feature, as well as hyperlinks to related topics and color example
images.
Lesson 2 - Basic Photo Corrections and saving for the web
Choosing the correct resolution, cropping, resizing, adjusting the tonal range, removing color casts, adjusting saturation and brightness, clone tool to eliminate unwanted parts of an image, pattern stamp tool, healing brush, patch tool and history brush, sharpening an image. Optimizing an image for the web.
Basic Guide to Photoshop CorrectionPhoto Correction in Photoshop 7.0
In general you should complete the steps in this order, though not all processes might be necessary for every image. Some touchups such as increasing color saturation or sharpening might be best done on only a selected portion of an image. Before you start, always make a copy of your untouched image and save it as a backup and archive.
Step 1. Determine the correct dimensions and image resolution for your final work.
This will depend on what you plan to do with it. Image resolution refers to the number of small squares, called pixels, that make up the image and provide it’s detail and colors. The greater the number of pixels an image contains, the larger the file size.
In computer graphics, there are different types of resolution. Image resolution refers to the number of pixels per unit length in an image and is measured in ppi (pixels per inch)
The number of pixels per unit length on a monitor is called monitor resolution, measured in dpi (dots per inch) In day-to-day use, these units are used interchangeably, though they are not the same and can cause some confusion when your image resolution is higher than your monitor resolution. In this case, the image will appear larger on screen than it’s specified print dimensions. This is because in Photoshop, image pixels are translated into directly into monitor pixels, therefore, a 1 inch by 1 inch image at 144 ppi will display as a 2 inch by 2 inch image on a 72 dpi monitor. It will print as 1 by 1, but display larger. If you’re working with images greater than 72 ppi, it’s a good idea to display rulers and or check the print size to monitor the “real” dimensions of your work.
If you plan to print the image, then you have to be aware of the output resolution of your printer. A higher resolution printer will get best results from higher resolution images. If you are working with a service bureau or journal the easiest thing to do is ask them what resolution (and image format) is best. If you are printing on a standard laser printer in Life Sciences, 120 to 150 dpi is about right. If you have your own color inkjet, it’s best to experiment but it will probably be in the same range.
The two most important things to remember about image resolution:
- Bit-mapped images can become enormous, and the quality of the output is determined by the resolution of the output device. If your ultimate goal is for the display on a web page or on a computer screen, such as a Powerpoint presentation, then save the image at no more than 72 ppi.
- “Resizing” an image in Powerpoint, Word or a page layout program changes only the display of the image, it does not reduce file size. If you fill your Powerpoint slide show with 300 ppi, 11 by 14 images, then shrink them down to fit the slide, all that pixel information remains, and you are going to end up with an enormous, unwieldy file. Reduce file size "for real" in Photoshop, then save as copies for Powerpoint.
Step 2. Crop the image
Virtually every image needs at least some cropping to remove unwanted detail that distracts from the subject and creates unnecessary file size.
Step 3. Adjust the tonal range using Image>Adjustments> Levels.
It’s a rare photo that isn’t improved by some adjustment to it’s highlights, shadows and midtones . This can also be done automatically by Image> Adjustments> Autocontrast, which is handy when you’re in a hurry, but in general you get better results by doing it manually with Levels.
Step 4. Remove unwanted artifacts and repair image
The clone stamps, healing brush and patch tool, along with the history palette, are powerful tools that can be pure magic. Use them wisely. The Rubber Stamp hase been probably the most widely used of the retouching tools. You first have to determine the area of the image you want to clone FROM – them press Option(or Alt on the PC) to “pick up” the pattern there. Next, move your cursor to the unwanted object, then drag or click on it. You’ll see a crosshair appear at the original source point, indicating where you’re copying from. Clicking randomly here and there on your unwanted object usually results in more realistic results, as the human eye is very good at picking up the repeated patterns that can occur from smooth dragging. Aligning the source point with the destination point is usually more precise in keeping lighting conditions and shadows similar, and changing source points frequently when erasing a larger area also reduces unwanted patterns.
Photoshop 7.0's new healing brush and patch tool are amazing though, in that they preserve the texture of the unlaying object.
Hint: For removing an object from a plain, relatively flat background with even lighting, simply making a selection of the background with one of the selection tools and pasting it over the object will do the trick. If you select the “feather” option (4 or 5 pixels) before making the selection, you’ll have a softer edge that will likely blend in better.
Hint: The Dust and Scratches Filter is a quick way to rid a scanned image of bits of dirt and and imperfections.
Step 5. Remove unwanted color casts with Image>Adjustments>Color Balance
Improper color casts can be artifacts from digital cameras or scanners; aged photos or slides. If present, they are easy to correct in Photoshop. Even if you can’t see them it pays sometimes to play with color balance to see if it improves the image.
Note on the Retouching Tools:
You might want to improve the color, tone or contrast of selected parts of the image with the retouching tools. All of them use the Brushes Palette to determine their size, and many have an opacity setting and blending modes to consideras well.
Step 6. Adjust saturation and brightness if necessary with Imagements>Adjust> Hue / Saturation.
This can be overdone, but is invaluable for a dull image. Often Powerpoint images will display much better if they are a little oversaturated. Sometimes just part of an image could stand some brightening with the sponge tool.
Step 7. Sharpen image if necessary with Filters>Sharpen> Unsharp Mask.
There are several sharpening tools in Photoshop, and all work by increasing the contrast between neighboring pixels. Sharpenand Sharpen More sharpens the entire image, or a selection, if you’ve made one. Sharpen Edges affects only those areas with the highest contrast.
But the rather pecularly named Unsharp Mask is the most powerful. It’s name refers to an older film compositing technique that corrects blurring introduced during the production process. By highlighting the edges of an image by combining a blurred film negative with the original film positive, it's able to by locate “edges”, or pixels that differ from adjacent pixels by an amount you specify, and accentuate them. Its affects are far more pronounced on screen than when printed, so you may have to experiment. You can also get good results by using the sharpening tool on parts of an image as well.
Amount – the degree (up to 500%) with which you want to sharpen the image. The higher the value, the more dramatic the effect. Values between 25 and 50% generally produce subtle effects. Between 50 and 300% are more pronounced.
Radius – the thickness of the sharpened edge. The higher the value, the more contrast. The ideal value depends on the resolution of your images (dots per inch) and the edge detail already present, and might be affected by old, grainy photographs and imperfections. For on-screen images such as web graphics, 0.5 results in fine, crisp edges. For printing, with a resolution of from 120 to 180 dpi, use a value of 1.0. Though the edges may appear more pronounced on-screen, on paper they’ll look better.
Threshold – how different two adjacent pixels have to be to be considered an edge. The value, from 0 to 255, is the “brightness value”. The lower the value, the lower the threshold, and they will be considered different and sharpened. The higher the threshold, the more likely they are to be excluded from the sharpening.
Hint: Sharpen incrementally by doing Command+F (Control +F in Windows) after you sharpen the first time. Using a filter once moves it to the “Last Filter” slot in the Filter Menu. The Command/Control F keyboard shortcut invokes Last Filter and you can continue to use it until you go too far. Back up a step with Command/Control Z or use the History Palette to back up even further.
Step 8. Save the image in the appropriate format. We’ll talk more about formats in another handout.
Notes:
- Always archive the original unedited image in Photoshop format and do your retouching on a copy.
- The higher the resolution the greater the file size.
- Correcting color and brightness (steps 4 – 6) is not always necessary, but virtually any image can be improved by cropping and adjusting tonal range.
- Results on screen may be different from printed results, so you may have to experiment, particularly for color correction and sharpening. The History Brush allows you to selectively bring back parts of an image that you’ve saved as “Shapshots” in the History Palette.
Photoshop 7.0 - Correcting Red Eye
"Red eye" in photographs is caused by the camera's flash reflecting off the the back of the subject's eye. The spookey red glow results from the fact that the retina is rich with blood vessels. It appears worse if the photo is taken in a darkened room, when the pupils are more dilated.
Most of the new digital cameras have a "red eye reduction" setting involving an extra flash or series of flashes that allow the pupils to adjust and contract, reducing the surface area of retina exposed to the flash. In my experience this feature is worse useless when it comes to photographing critters, as most will flee or cower after the first blaze of light. While you can ask a human to look away from the camera, or warn them ahead of time about the oncoming barrage, generally one chance is all you get with most animals, so it's better to be prepared to do some tweaking later on the digital file.
Based on a lesson at About.com, and excellent source of graphics tips:http://graphicssoft.about.com/cs/photoshop/ht/apsredeye.htm?terms=redeye
1. First, make two copies of the image, so you'll have three copies open.
a. Make a duplicate the image with Edit>Duplicate. This will make a copy that will not change as you edit, so you can compare your changes to the original so gauge your progress.
b. Open another copy in a new window by going to Window > Document> New Window. This will allow you to work with the original at a high magnification and view the changes in real time at 100% magnification on this copy
2. In the original, zoom in on the eyes, leave the other copies at 100%. Arrange the windows so you can see all of them, plus the layers palette.
3. Create a new layer.
4. Using the eyedropper, pick up a color from the outside of the iris that best represents the true eye color. It should have just a touch of color with a gray cast.
5. On the new layer, carefully paint over just the red part of the eyes.
6. You may want to gently soften the edges with the smudge tool or Filter>Blur>Gaussian Blur, set to 1 pixel.
7. Set the layer blend mode to Saturation. This will preserve the highlights, but might leave the eyes too gray and hollow looking. If so try the next step.
8. Duplicate the saturation layer and change the mode to Hue, which should put some color back but still preserve the highlights. If the color is too strong, reduce the opacity of this layer. You can darken the pupil area with the burn tool if necessary.
Merge layers when satisfied with the results.
© 2003 - E. Barbara Meyer - EdTech Center - Life Sciences - University of Illinois - Urbana, IL USA
Return to Barbara's Photoshop Notes
http://www.life.illinois.edu/edtech/training/ps/correct/redeye.html
Retouching Tools in Photoshop 7.0
Lesson 3- Working with Selections
Basics of selecting and moving objects - which is primary to working in Photoshop. Selecting parts of an image with a variety of tools, using multiple selection tools to make complex selections, moving and duplicating selections, adding, subtracting and rotating selections.
Making and moving selections
Marquee Tools
The marquee tool (and it's buddies) lets you create rectangular, elliptical, single row selections and lets you crop the image too. You click and drag it over the desired area with these tools.
Lasso Tools
The lasso tools allow you to draw freehand selections - either smooth or polygon shaped.
The magic wand tool lets you select an area based on color similarities of adjacent pixels. (Note: the Select>Color range command also selects on the basis of color, but it selects non-adjacent pixels as well)
Move Tool
The move tool is used to drag a selection when no selection tool is active.
Lesson 4 - Layer Basics
Learn how create and or ganize an image with layers and how layers affect file size, learn the Layers palette and how to select, view, hide, link and reorder layers. Apply blending modes and add a gradient and text and layer effects. Save a flattened image without layers.
What are layers and what's the big deal anyway?Layers are like sheets of acetate, transparent except where there is artwork on them. You can view all of them at once, or selectively "hide" individual layers to view only one or a few. They allow a high degree of control over your artwork, as each layer can be moved, reordered and edited independently.All layers have opacity sliders, so that you can allow the background or underlying layers to show through.Layers can be reordered in the "stack" by dragging the layer up or down in the layers palette.You can copy a layer into another document by having both documents open and dragging the layer name from the layers palette of the first document and dropping it into the image window of the second.You can "lock layers" together, and a single effect will apply to all layers locked together this way.A layer is transparent until you paint something on it, but once it contains pixels, you can confine editing to only that artwork by selecting "Preserve Transparency" in the Layers Palette.How many layers can you have?You can have up to 100 layers, depending on computer memory. When you create a new document in Photoshop, it has only one layer - the background layer. It's like the canvas of a painting. It can't be moved up within the layer hierachy unless you first convert it to a layer in it's layer options palette. You do have an option when creating a new document of not having a background layer by choosing the Transparent option in the New dialog box. You can also add a background to an image that doesn't have one by selecting the Background mode in the New layer dialog box.How do I create layers?For a new, blank layer - click on the new layer icon on the bottom of the Layers Palette. Or - you can use the Layer Menu bar selection and select "New Layer".You can create a layer from a selection by first making the selection, then going up to the Layers Menu bar selection to New Layer and selecting "Layer via copy" or "Layer via cut"You can also create new layers by pasting or by using the text tool. (See below)You can have up to 100 layers, depending on computer memory.Whoa! My document has layers! I didn't put them there. Who did?Whenever you paste or move a selection in a document, it's automatically pasted into a new layer and appears just above the active layer. You can also copy a selection into a new layer with Layer>New>Layer via Copy (or cut). Text also is placed into its own layer.How do layers effect image format and file size?Images with layers, or images with no backgrounds, can be stored only in Photoshop format.Having layers adds to the size of the document, as the information for each must be stored independently. The storage requirements for each layer are proportional to the amount of pixel information on the layer.Transparent areas to not count.Once you have completed work on more than one layer you can merge them together to help keep the file size down, while you continue working on the document. When finished, you should merge all layers into a "flattened image" containing only one layer. Be certain you are finished though, as once merged or flattened, layers cannot be retrieved. It's best to save a copy of the document in Photoshop format with all it's layers if you think you'll need to go back and edit it.What does the "Preserve Transparency" check box do?Checking this option will allow you to work only on those parts of the layer that are "pigmented" - i.e. have pixel information. The parts of the layer that have no "paint" on them will be "see through" - and will not be affected. Certain filters - like the blur - will not work on a layer with this option is selected, as they need to be able to spread "paint" into transparent areas.© 2003 - E. Barbara Meyer - EdTech Center - Life Sciences - University of Illinois - Urbana, IL USA
Selecting Colors in Photoshop 7.0Color Palette
...a mini version of the color picker, it is less precise but may be quicker to use. It allows you to select foreground and background colors by clicking on the foreground/background icon in the palette. As with the color picker, you can specify colors numerically as well.
Swatches Palette
... contains 122 swatches from the image. It also allows you so save a color to the palette.
Eye Dropper Tool
... allows you to select colors from the image itself and can be temporarily invoked by pressing the spacebar while using any other tool. The new color can also be "carried" to the swatches palette by the paint bucket tool and saved.
Lesson 5 - Masks and Channels
Using quick masks to refine a selection, saving a permanent as an alpha channel, loading a saved selection and applying effects, create and use a gradient mask, applying filter effects, making intricate selections by using the extract command.
Mask and ChannelsMasks and Channels
What are Channels?
Channels are "containers" for storing information. There are two kinds - color and selection. You can have up to 24 of them in an image.
What are masks?
Masks are like stencils that protect parts of an image. There are also two kinds - temporary (quick masks) and permanent (alpha channels)
Color Channels
An RGB image has four color channels - red, green, blue and a composite RGB channel. You can perform color corrections on individual channels for precise adjustments.
Alpha Channels
These contain selection information. When you make a selection using one of the selection tools, the area within the selection is editable and the area outside is protected - or masked. You can store selections as alpha channel where they will be saved for use again in the future. When you display an alpha channel, the masked area is black and the selected area is white. The masks can be edited with the painting tools while in the alpha channel
What is a mask?
A mask is like a stencil placed over the image that allows you to edit only a part of the image while the rest - the area covered by the stencil - is protected. Both the protected area and the selection can be edited. Quick Masks are temporary masks which can be invoked from the toolbar and created with selection and painting tools . They can be converted to selections or saved as alpha channels.
Lesson 6 - Pen tool, Paths and vector graphics
Drawing straight and curved lines with the pen tool, editing, saving, filling and stroking paths, converting paths to selections and selections to paths. Differentiate between bitmap and vector graphics, draw and edit layer shapes and layer paths, create complex layer shapes by combining or subtracting different shapes, combine vector paths to create a shape, use edit mode to add or edit a text layer, use a text layer to create a work path, use work path to create a vector mask. Load and apply custom layer shapes