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