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'