Chapter 6 - Small Business Entry: Paths to Entrepreneurship

Business format franchising

an agreement that provides a complete business format, including trade name, operational procedures, marketing and products of services to sell

Termination

an endgame strategy where the owner closes down a business

Affordable loss

the minimum possible expenditure of capital and other resources in order to bring an entrepreneurial idea to market

Due diligence

the process of investigating a business to determine its value

Earnings multiple

the ratio of the value of a firm to its annual earnings

Caveat emptor: Latin

let the buyer beware

Heuristic

a common sense rule; a rule of thumb

Franchise

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

Pass off

a type of business transfer where the owner gives the business to someone else without payment. This is most often done to maintain employment for the staff and service for the customers, but the business not profitable enough to give the original owner any revenue

Effectual reasoning

a logical process in which one analyzes the resources available and restraints on the use of resources to create an attainable goal

Conversion franchising

an agreement that provides an organization through which individual businesses combine resources

Trade name franchising

an agreement that provides only the rights to use the franchisor's trade name and or trademarks

Product distribution franchising

an agreement that provides specific brand named products which are resold by the franchisee in a specified territory

Lean business practices

an application created by Eric Ries that addresses the specifics of new business creation, particularly Internet-based businesses, where rapid experimentation and constant monitoring of viewers' choices are possible

Transfer

an endgame strategy where ownership is moved from one person or group to another

Bankruptcy

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

Walkaway

business terminations where the entrepreneur ends the business with its obligations met

Strategic partnerships

formal or informal relationships with customers, vendors, or mentors to ensure the success of an entrepreneurial venture

Founders

people who create or start a new business

Leverage contingencies

the practice of and ability to seize upon novel opportunities that become apparent during the conduct of business

Point of indifference

the price at which a buyer is indifferent between buying and not buying the business

Causal (predictive) reasoning

the process of setting a goal and then determining the strategy and resources required to attain the goal

Intangibles

things of value that have no physical existence, for example patents and trade secrets

Bootstrapping

using low-cost or free techniques to minimize your cost of doing business

Start-up

a new business that is started from scratch

Employee stock ownership plan (ESOP)

Employee Stock Option Plan a method for employees to purchase the business for which they work

Accelerator

an organization that supports start-ups, typically of a particular type with a financial investment, free or inexpensive office space, mentoring, a variety of free or low-cost support services, and other resources. The goal of an accelerator is to accelerate a start-up from its early stages to being ready to pitch for investment. Most accelerators take an equity stake in the companies they help

Buyout

purchasing substantially all of an existing business

Takeover

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

Spin-off

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

Synergy

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

Minimum viable product

a concept central to lean start-up where you make a minimum product, but one that can be sold. By selling to customers and collecting feedback, an entrepreneur can develop a product at minimum cost

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

Workout

a form of business termination where the firm's legal or financial obligations are not fully met at closing

Serial entrepreneur

a person who opens multiple businesses throughout his or her career

Buy-in

a purchase of substantially less than 100% of a business

Sell-off

a type of business transfer where the seller gets only a fraction of the value of the business. This is most often done to maintain employment for the staff and service for the customers, but the business can generate only a small amount of profit with which the original owner can be paid, or the new owner does not have much money to buy the business

Bricolage

a word derived from the French verb bricoler ("to tinker"). In entrepreneurial usage, bricolage refers to the process of analyzing the resources available and creating a product or service from them

Discounted cash flows

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

Asset

something the business owns that is expected to have economic value in the future

Net realizable value

the amount for which an asset will sell less the costs of selling

Replacement value

the cost to acquire an essentially identical asset

Book value

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