Entrepreneurship Final

Small Profitable venture:

A venture in which the entrepreneur does not want venture sales to become so large that he or she must relinquish equity or ownership position and thus give up control over cash flows and profits, which it is hoped it will be substantial.

Business plan

A written document that details the proposed venture: ➢ Describes the current status, expected needs, and projected results of the new business. ➢ Covers the project, marketing, research and development, manufacturing, management, critical risks, financing, and milestones or a timetable. Demonstrates a clear picture of what that venture is, where it is projected to go, and how the entrepreneur proposes it will get there—a road map for a successful enterprise

Limited liability partnership

Allows professionals the tax benefits of a partnership while avoiding personal liability for the malpractice of other partners.

Income statement

Also called profits and loss statement. A statement summarizing the income of a business during a specific period.

Balance sheet

An itemized statement listing the total assets and liabilities of your business at a given moment. Also called statemnt of condition

Pro forma statement

Are projections of a firm's financial position over a future period (pro forma income statement) or on a future date (pro forma balance sheet). Using beginning balance sheet balances, they depict projected changes on the operating and cash-flow budgets which are added to create projected balance sheet totals.

Entrepreneurial Leadership:

Arises when an entrepreneur attempts to manage the fast-paced, growth oriented company. Can be defined as the entrepreneur's ability to anticipate, envision, maintain flexibility, think strategically and work with others to initiate changes that will create a viable future for the organization.

What 3 financial statements are mandatory for the financial segment of the business plan?

Balance sheet, income statement, cash flow statement

Briefly describe each of the major segments to be covered in a business plan according to Dr. Fortenberry's outline and your class assignment

Business Description Marketing segment Environmental and competitive analysis Organization staffing and management Service or product line/manufacturing Financial preparation Economic conditions and critical risks Milestone schedule Executive summary

Current assets

Cash and assets that can be easily converted to cash such as accounts receivable and inventory. Current assets should exceed current liabilities.

What are some of the reasons new ventures fail and the 3 major categories of causes for new venture failure?

Product/market problems: poor timing, product design problems, innapropriate distribution strategy, unclear business definition, overreliance on one customer Financial difficulties: Initial undercapitalization, assuming debt too early, venture capital relationship problems Managerial Problems: concept of team approach, human resource problems

How can entrepreneurs build an adaptive firm?

Share the entrepreneur's vision -Increase the perception of opportunity -Institutionalize change as the venture's goal -Instill the desire to be innovative: • A reward system • An environment that allows for failure • Flexible operations • The development of venture teams

Accounts receivable financing

Short term financing that involves either the pledge of receivables as collateral for a loan or the outright sale of receivables.

Sole proprietorship advantages and disadvantages

Sole proprietorship: Advantages: Ease of formation ➢ Sole ownership of profits ➢ Decision making and control vested in one owner ➢ Flexibility ➢ Relative freedom from governmental control ➢ Freedom from corporate business taxes ➢ Sole Proprietorship Disadvantages: Unlimited liability ➢ Lack of continuity ➢ Less available capital ➢ Relative difficulty obtaining long-term financing ➢ Relatively limited viewpoint and experience

S corporation

Takes its name from Subchapter S of the Internal Revenue Code. ➢ Is commonly known as a "tax option corporation"—it is taxed similarly to a partnership. ➢ Avoids the imposition of income taxes at the corporate level yet retain the benefits of a corporate form (especially the limited liability).

Breakeven analysis

a technique commonly used to assess expected product profitability. It helps determine how many units must be sold to break even at a particular selling price.

Trademark

distinctive name, mark, symbol, or motto identified with a company's product(s) and registered at the Patent and Trademark office

B Corporation

for-profit companies certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency

Unlimited liability

his or her business and personal assets stand behind the operation. If the company cannot meet its financial obligations the owner may be forced to sell the family car, house etc.

What are the benefits of the budgeting process?

length of time required to pay back the original investment, it is simple to use compared to other methods Budgeting process: technique entrepreneurs can use to help plan for capital expenditures. Identifies cash flows and their timing. Plans expenditures on assets, preparation of the sales forecast.

Venture Life-cycle Stages

new venture development, start up activities, growth, business stabilization, innovation or decline

Generic Meaning

the allowance of a trademark to represent a general grouping of products or services. For example, cellophane has come to represent plastic wrap and scotch tape has come to represent adhesive tape.

Equity financing

the sale of some ownership in a venture in order to gain capital for start up

Net worth

the same as equity net profit is the total income for the period less total expenses for the period.

Cash flow statement

the schedule of your cash receipts and reimbursements

Milestone schedule:

timing and objectives, deadlines and milestones, relationship of events

Equity

what remains after the firms liabilities are subtracted form its assets. The claim the owners have against the firm's assets.

High growth venture

when sales and profit growth are expected to be significant enough to attract venture capital money and funds raised through public or private placements.

Identify the benefits of a business plan (a) for an entrepreneur, and (b) for financial sources.

• For the Entrepreneur: ➢ The time, effort, research, and discipline required to create a formal business plan forces the entrepreneur to view operating strategies and expected results critically and objectively. For Outside Evaluators: • Details the market potential and plans for securing a share of that market. • Shows how the venture's intends to service debt or provide an adequate return on equity. • Identifies critical risks and crucial events with a discussion of contingency plans. • Contains the necessary information for a thorough business and financial evaluation.

Be able discuss the 10 guidelines to be used for preparing a business plan.

• Keep the plan respectably short • Organize and package the plan appropriately • Orient the plan toward the future • Avoid exaggeration • Highlight critical risks • Give evidence of an effective entrepreneurial team • Do not over-diversify • Identify the target market • Keep the plan written in the third person • Capture the reader's interest

Corporations Advantages and Disadvantages

➢ Corporations Advantages: Limited liability ➢ Transfer of ownership ➢ Unlimited life ➢ Relative ease of securing capital in large amounts ➢ Increased ability and expertise ➢ Disadvantages: Activity restrictions ➢ Lack of representation ➢ Regulation ➢ Organizing expenses ➢ Double taxation

Patent

an intellectual property right granted to an inventor, giving him or her the exclusive right to make, use, or sell an invention for a limited time period; must be novel, not obvious, and useful

Private placements

another method of raising capital, small ventures often use this approach. The SEC provides Regulation D which allows smaller firms to sell stock through what is referred to as direct public offerings. This eases the regulation for the reports and statements required for selling stock to private parties.

Finance companies

are asset bases lenders that lend money against assets such as receivables, inventory and equipment, The advantages of dealing with a commercial finance company is that it often will make loans that banks will not. The interest rate varies from 2 to 6 % over that charged by a bank.

Value Added

basic form of contribution analysis in which: sales - raw materials costs = value added

Debt financing:

borrowing money for short or long term periods for working capital or for purchasing property and equipment.

Trade Secrets

business processes and information that cannot be patented, copyrighted, or trademarked but makes an individual company unique and has value to a competitor

Fixed assets

consists of land, building, equipment, and other assets expected to remain with the firm for an extended period

Long term liabilities

debts that are not due and payable within the next 12 months such as mortgages on a building or a five year loan.

Current liabilities

debts you must pay within a year

What are some of the benefits of strategic planning?

-Cost Saving -Fewer Cash flow problem -faster decision making -More accurate forecast -reduced feeling of uncertainty -More efficient resource allocation -Improved competitive position -more timely information

What are considered to be five critical factors for new venture development that must be considered during the prestart-up, the start-up phase and poststart-up?

-Uniqueness of venture -investment size -sales growth expectations (lifestyle ventures, small profitable ventures, high-growth ventures) -product availability -customer availability

What are some components to consider in the proper packaging of a plan?

1. Determine the characteristics of the venture and its industry. 2. Determine the financial structure of the plan (amount of debt or equity investment required). 3. Read the latest balance sheet (to determine liquidity, net worth, and debt/equity). 4. Determine the quality of entrepreneurs in the venture (sometimes the most important step). 5. Establish the unique feature in this venture (find out what is different). 6. Read the entire plan over lightly (this is when the entire package is paged through for a casual look at graphs, charts, exhibits, and other plan components).

Be able to identify the five unique managerial concerns of growing a business.

1. Distinctiveness of small size 2. Continuous learning 3. One person-band syndrome 4. Time management 5. Community pressures

Why is the executive summary segment of a business plan written last?

Executive summary is written last because in this way particular phrases or descriptions from each segment can be identified for inclusion in the summary. Since the executive summary is first, and sometimes the only part of a plan read by potential investors, it must present the quality of the entire report.

Angel Investor

Invest in small startups or entrepreneurs. Often are family and friends. may be a one-time investment or an ongoing injection of money to support and carry the company through its difficult early stages.

Strategic planning

The formulation of long-range plans for the effective management of environmental opportunities and threats in light of a venture's strengths and weaknesses. Includes: • Defining the venture's mission • Specifying achievable objectives • Developing strategies • Setting policy guidelines

Intellectual property:

The result of a unique discovery and patent holders are provided protection against infringement by others,

Major Stages in a Venture Life cycle

Venture Development-mission, scope, general philosophy, direction Start Up activities-business plan, look for capital, marketing activities Growth-Go from entrepreneurial one person focus to managerial team Business Stabilization-"Swing" stage Swings toward greater profitability or toward decline and failure Innovation or Decline- Either continues its success by acquiring other innovative firms or goes into decline

Under Capitalization

When a company does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow or is unable to access forms of financing such as debt or equity

Limited Liability

a hybrid form of business enterprise that offers the limited liability of a corporation but the tax advantages of a partnership

L3C

a legal form of business entity in the United States that was created to bridge the gap between non-profit and for-profit investing by providing a structure that facilitates investments in socially beneficial, for-profit ventures by simplifying compliance; low profit limited liability company

Bankruptcy

a legal process for insolvent debtors who are unable to pay debts as they become due. Occurs when a venture's financial obligations are greater than its assets, Liquidation requires the debtor to surrender all property to a trustee appointed by the court.

Copyright

a legal protection that provides exclusive rights to creative individuals for the protection of their literary or artistic productions; an intangible property right

Lifestyle venture

a small venture in which the primary driving force include independence, autonomy and control

Strategic positioning

often are not obvious, and finding them requires creativity and insight. Entrepreneurs frequently discover unique positions that have been available but simply overlooked by established competitors. Approaches to strategic positioning include establishing and defending a defensible position, leveraging resources to dominate a market and pursuing opportunities to establish new markets. Most commonly new positions open up because of change.

Variable cost

one that changes in direct proportion to changes in operating activity. Direct labor, direct materials and sales commissions.

Fixed cost

one that does not change in response to changes in activity such as rent, depreciation, and certain salaries.

Net Profit

owners equity represented by total assets minus total liabilities, what is owed vs. owned

Critical risk segment:

potential problems, obstacles and risks, alternative courses of action

Venture Capitalists

professional investors who invest in business ventures, providing potential for start up, early stage or expansion. Venture capitalist are looking for a higher rate of return than would be given by more traditional investments.

Collateral

property you own that you pledge to the lender a security on a loan until the loan is repaid. Can be a cra, home stocks bonds or equipment.

Be able to describe some of the mistakes or fatal visions that entrepreneurs fall prey to in their attempt to implement a strategy

➢ Fatal Vision #1: Misunderstanding industry attractiveness ➢ Fatal Vision #2: No real competitive advantage ➢ Fatal Vision #3: Pursuing an unattainable competitive position ➢ Fatal Vision #4: Compromising strategy for growth ➢ Fatal Vision #5: Failure to explicitly communicate the venture's strategy to employees

General Partnership Advantages and Disadvantages

➢ General Partnerships Advantages: Ease of formation ➢ Direct rewards ➢ Growth and performance facilitated ➢ Flexibility ➢ Relative freedom from governmental control and regulation ➢ Possible tax advantage ➢ Diadvantages: Unlimited liability of at least one partner ➢ Lack of continuity ➢ Relative difficulty obtaining large sums of capital ➢ Bound by the acts of general partner ➢ Difficulty of disposing of partnership interest

What are key questions to be considered by entrepreneurs before structuring their venture; i.e. deciding how to organize it as a partnership, corporation, or sole proprietorship?

➢ How easily the form of business organization can be implemented ➢ The amount of capital required to implement the form of business organization ➢ Legal considerations that might limit the options available to the entrepreneur ➢ The tax effects of the form of organization selected ➢ The potential liability to the owner of the form of organization selected

What are the critical factors to be considered when preparing a business plan?

➢ Realistic goals. These must be specific, measurable, and set within time parameters. ➢ Commitment. The venture must be supported by all involved—family, partners, employees, team members. ➢ Milestones. Subgoals must be set for continual and timely evaluation of progress. ➢ Flexibility. Obstacles must be anticipated, and alternative strategies must be formulated.

What is the importance of financial information for entrepreneurs?

➢ The importance of ratio analysis in planning ➢ Techniques and uses of projected financial statements ➢ Techniques and approaches for designing a cash-flow schedule ➢ Techniques and approaches for evaluating the capital budget