Chapter 6

intangibles

assets that have no physical existence

patent

example of intangible

walkaway

Business termination in which the entrepreneur ends the business with its obligations met.

True

Research shows that family-owned businesses fail after the death or retirement of the owner

Partnerships and proprietorships

________________________ technically do not exist separately from the owners and thus cannot be purchased

synergy

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

Heuristic

a commonsense rule; a rule of thumb

workout

a form of business termination in which the firms legal or financial obligations are not fully met at closing

start up

a new business that is started from scratch

serial entrepreneur

a person who owns multiple businesses throughout his or her career

franchise

a prepackaged business bought, rented, or leased from a company called the franchisor

Begin with a clean slate You can do it your way Have the opportunity to use the most up-to-date technology You can have new and unique products You can keep the business size to the one you want

advantages to start up

Broker

advertise and facilitate the sale of businesses for a fee, usually a percentage of the ultimate selling price

trade name franchising

an agreement that provides only the rights to use the franchisors name/and or trademarks

termination

an endgame strategy in which the owner closes down a business

Trasfer

an endgame strategy in which the owner is moved from one person or group to another

bankruptcy

an extreme form of business termination that uses legal method for closing a business and paying off creditors when debts are substantially greater than assets

caveat emptor

let the buyer beware

30,000

mcdonalds has over _____ sites in more than 100 countries

profit; risks of failure

properly doing due diligence maximizes ______ and minimizes __________

true

start up is the most common way to get into small business

Replacement value

the cost to acquire an essentially identical asset

Book value

the difference between the original acquisition cost and the amount of accumulated depreciation

Due dilligence

the process of investigating a business to determine its value and potential for investment

Takeover

the seizing of control of a business by purchasing its stock to be able to select the board of directors

Buyout

the purchase of substantially all of an existing business

Buy-in

the purchase of substantially less than 100% of a business

buying an existing business

2nd most common

Entrepreneur starts a completely new business Purchase a franchise Bought an already operating business Worked in a small business and eventually gained ownership Inheriting a business from a family member

5 paths to owning a business

You will have no name recognition Significant amount of time to get established and provide positive cash flows Very difficult to finance You don't have experienced managers or workers Will be faced with training people

Disadvantages of start-up

13%

Fewer than ______ of family owned business succeed long enough to be inherited by the third generation

30%

Fewer than_____ of family owned business are successfully transferred to a second generation

true

In canada, sales of businesses for a price less then 200,000 are tightly regulated, 200,000 and above are not regulated at all

false

In the United states, it is not your responsibility to fully investigate the business and come to your own independent evaluation of its value

True

Rather than waiting for the owner to die, a gradual transfer of ownership is ideal when owner is still functional

Technical knowledge Financial knowledge People skills Leadership skills Knowledge of your own limitations

The successor must have these essential skills

discounted cash flow

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