Entrepreneurship Ch. 20

Decline Stage

-sales and profits fall -ads/promotions near elimination

Walkaways

Close down business with all debts paid **most typical type of bankruptcy

IPO

Initial public offering -business sells stock to public on major exchange

Liquidity enhancement

Life insurance policy in your name held by heirs to generate cash to cover the estate taxes

Ideal goal of an entrepreneur

To harvest some value of the work they put into the firm and to get maximum value that they can for their business

Walkaways/Workouts main goals

To maintain goodwill and reputation

Chapter 7 Bankruptcy

All of your assets can be sold with proceeds given to credits -able to keep clothes and household goods

Estate freeze

Assets from entrepreneur to heirs when they are worthless (GRAT)

Mergers and Acquisitions

One firm combines (merges) or absorbs (acquires) another through a purchase

Takeoff

Period of exceptional business growth -expanding, big contracts -business must understand the nature & demands of growth & have control over it -most small businesses never go through this stage

Employee stock ownership plan

Tax protected way to sell a firm to its employees **very rare

How to fight customer complacency

a. Recency: thank you's & appreciation b. Frequency: staying in touch w/ customers c. Potency: customers remembering your business d. Recommendation: customers building character in your business

Tax management

Structure transfer to make tax payments as small and manageable as possible

Chapter 11 Bankruptcy

-Firm stays in business -Usually only big businesses -Firm to reorganize operations and renegotiate with creditors to forgive some of the debt and lengthen remaining debt payments

Chapter 13 Bankruptcy

-Reorganization -firm stays in business -remaining debt renegotiated so a portion of it is forgiven if remainder is paid off from your income over set period of time **if you don't qualify for chapter 13, you will face chapter 7**

Resource Maturity

-Stable level of sales -profits over several years -function areas: the market; the challenge of maturity is to avoid complacency

Growth Stage

-acceptance of product -rapid growth -consumers aware of product -ads/promotions less crucial -maximize market share

Family business succession

-business transfer to people in family -usually occur only among the largest of small businesses

Liabilities of newness

-falls under existence stage -problem of mastering business life cycle because getting more experience takes too long

Slack Resources

-falls under success stage -extra profits that can be re-channeled into the business if needed (flexibility) success stage lasts a long time -high growth businesses take this step to lay groundwork for period of takeoff

Emergence

-first stage in business life cycle -riskiest stage -think about & take action towards starting firm

Introduction Stage

-first stage of product life cycle -sales low/profits unlikely -more innovative the product, slower the sales

Relative advantage

-introduction stage -best sales method -relates how easy to use product is and the overall functionality to competition -conveys a superior display of product -most products in this stage get revised based on consumer reactions

Service life cycle

-must easier to change "on the run" -changes are relatively quick so if they don't work out they can be removed easily

Maturity Stage

-rapid growth slows -sales level off -weaker competition leaves market -rise in price competition -ads focus on coupons & rebates -company repositioning of product to appeal to new markets -manufacture focus on cutting costs -appeal to repeat consumers

Existence

-second stage in business life cycle -second riskiest stage -business in operation but not yet stable with markets, operations, finances

"On the run" changes

-services starts new life cycles with each tweaking of its existing offering **a new service has no impact on existing ones

Success

-third stage in business life cycle -firm is established in its market -has developed info, skills, routines to grow profits

Transfer ownership

-when you transfer ownership you have a greater chance of continuing the jobs/purchases and product/service deliveries

Two possibilities for small businesses

1. Transfers: moving ownership from one legal entity to another *gifts are a major way to transfer ownership 2. Termination: closing down a business -3 methods: walkaways, workouts, bankruptcies

Workouts

Arranges to pay off all debts after the business is officially closed -owner makes arrangements to pay off creditors

Bankruptcy

Closing business and paying off creditors

Consolidation

Company buying smaller competitors to form a giant firm

Sell off

Firms assets are sold to another business to pay off firms remaining debts -key to success: find customers for assets/determine price for different assets

Critical Success Factors

Processes, benchmarks, and components of business that are essential for business to be profitable and competitive in it's market. -Be incorporated (lawyer advice) -Extreme startup capital (best to have no startup capital or $50k+) -Protectable intellectual property (patents and trademarks) -Brand name partners