MGT 3200 Chapter 6
Earnings Multiple
ratio of the value of a form to its annual earnings
Book Value
the difference between the original acquisition cost and the amount of accumulated depreciation
Affordable Loss
the minimum possible expenditure of capital and other resources in order to bring an entrepreneurial idea to the market
Cavet Emptor
"Let the buyer beware" which has been made into a philosophy sometimes used by businesses to put the bur-den for consumer protection onto the customer
Revolving Credit
A credit agreement that allows the borrower to pay back part or all of the balance at any time As the loan balance is paid off, if becomes available to borrow again
Franchise
A legal agreement that allows a business to be operated using the name and business procedures of another firm
Buy-In
the purchase of sustainability less than 100 percent of the business
4 sets of resources
1. Access to capital 2. own skills and abilities 3. own knowledge 4. Network of friends and business associates
Steps to starting your own business
1. Goal (what is your venture) 2. Strategy (how to achieve this goal) 3. Test Feasibility to determine the market
Increasing Odds of Start-Up Success
1. Start Business in business incubator: Agency whose purpose is to help start-up firms 2. Take Part in Mentoring Programs: avoid mistakes and good managing advice 3. Have a detailed start-up budget 4. Produce a product or service for which their is a proven demand 5. Secure outside investment 6. Start with more than one founder 7. Have experience managing small firms 8. Have Industry experience
5 Paths to Business Ownership
1. Start a new Business 2. Buy an existing Business 3. Franchise a business 4. Inherit a business 5. Be a manager of a business
Spin-Off
A business what is created by separating part of an operating business into a separate entity
Synergy
A combination in which the whole is greater than the sum of its parts
Minimum Viable Product
A concept central to lean business practices 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
Discounted Cash Flow
Cash flows that have been reduced in value because they are to be received in the future
Replacement Value
Cost to acquire an essentially identical asset
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 cost of selling
Lean Business Practices
(Created by Eric Ries) addresses the specifics of new business creation, particularly internet-based businesses where rapid experimentation and constant monitoring of viewers choices are possible
3 Principles of reasoning
Affordable loss strategic partnership leveraging of contingencies
Business Format Franchising
An agreement that provides a complete business format including trade name, operational procedures, marketing and products/services to sell
conversion Franchising
An agreement that provides an organization through which independent businesses may combine resources
Production Distribution Franchising
An agreement that provides specific brand-name products that are resold by the franchise in a specified territory
Trade Name Franchising
An agreement that provides to the franchise only the rights to use the franchisor's trade name and/or trademark
Transfer
An endgame strategy in which ownership is moved from one person or group to another
Termination
An endgame strategy in which the owner closes down a business
Bankruptcy
An extreme form of business termination that uses a legal method for closing a business and paying off creditors when debts are substantially greater than assets
Intangibles
Assets, such as patents or trademarks, and liabilities such as accounts payable that have no physical existence
BASIC
Beginner's All-purpose Symbolic Instruction Code
Walkaway
Business termination in which the entrepreneur ends the business with the obligations met
Workout
Business termination in which the firm's legal or financial obligations are not fully met at closing
Strategic Partnerships
Formal or informal relationships with customers, vendors or mentors to ensure the success of an entrepreneurial venture
Effectual Reasoning
Logical process in which one analyzes the resources available and restraints on the use of resources to create an attainable good
Founders
People who create or start a new business
Serial Entrepreneur
Person who opens multiple businesses throughout their career
Casual (Predictive) Reasoning
Process of setting a goal, determining the strategy and resources required to attain the goal
Takeover
Seizing of control of a business by purchasing the stock to be able to select the board of directors
Leveraging 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 about buying or not buying the business
Due Diligence
The process of investigating a business to find its value
Buyout
The purchase of substantially all of an existing business
Sell-Off
Type of business transfer where the seller gets only a fraction of the value of the business This is done to maintain employment of the staff and service for the customers....
Bootstrapping
Using low-cost or free techniques to minimize your cost of doing business
Employee Stock Ownership Plan (ESOP)
a formalized legal method to transfer some or all of the ownership of a business to its employees
Start-up
a new business that is started from scratch
heuristic
a rule of thumb (commonsense)
Bricolage
the process of analyzing the resources available and creating a product or service from them
Pass-Off
type of business transfer where the owner gives the business to someone else without payment. Done often times to maintain employment of staff and service for the customers