Chapter 6

spin-off

a business that is created by separating part of an operating business into a separate identity

revolving credit

a credit agreement that allows the borrower to pay all or part of the balance at any time; as the loan balance is paid off, it becomes available to be borrowed again

brokers

advertise and facilitate the sale of a business for a fee

intangibles

assets, such as patents or trademarks, and liabilities, such as accounts payable, that have no physical existence

discounted cash flows

cash flows that have been reduced in value because they are to be received in the future

synergy

combination in which the whole is greater than the sum of its component parts

franchise

legal agreement that allows a business to be operated using the name and business procedures of another firm

start-up

new business started from scratch

Business Incubator

organization that provides financial, technical, and managerial help to start-up businesses

founder

people who create or start a new business

two thirds of all start-ups are based on:

prior work experience, hobbies, and family business

due diligence

the process of investigating a business to determine its value

buyout

the purchase of substantially all of an existing business

Lean Entrepreneurial Methods

1. Waste not want not 2. Create, standardize, repeat 3. Keep in touch

Advantages of start-ups

1. begin with a clean slate 2. provides the owner with opportunity to use the most up-to-date technologies 3. can provide new, unique products or services 4. can be kept small deliberately to limit magnitude of possible losses

Three ways to start a business with established customers:

1. create a spin-off 2. start a business to directly compete with your employer 3. start a business to sub-contract services to other established businesses

Advantages of purchasing an existing business

1. established customers 2. business processes are already in place 3. seller often provides financing that makes it possible to buy the business

Disadvantages of purchasing an existing business

1. finding a successful business appropriate for you is difficult 2. difficult to determine the worth of a small business 3. existing staff may resist change 4. reputation of the business may hinder future success 5. business may be declining due to changes in technology 6. facilities and equipment may be obsolete or need repair

Disadvantages of start-ups

1. no initial name recognition 2. requires significant time to become established and provide positive cash flows 3. very difficult to finance 4. cannot easily gain revolving credit 5. may not have experienced staff

Five paths to business ownership

1. start a new business 2. buy an existing business 3. franchise a business 4. inherit a business 5. be hired to be the professional manager of a business

Increasing odds of start-up success

1. start in a business incubator 2. take part in a mentoring program 3. have detailed start-up budget 4. produce a product or service with a proven demand 5. secure outside investment 6. start w/ more than one founder 7. have experience managing small firms 8. have industry experience 9. have previous experience in creating a start-up business 10. choose a business that produces high margins 11. start the business with established customers 12. build trust in your 'story'