Entrepreneurship Final

key resources

physical, human, financial, intellectual

used car dealerships

$21 per day to hold a car in inventory. Goal: 35-45 days' worth of used cars in stock. If you sell a used car within 20 days, profit is about $2000. If you sell the same car at 80 days, gross profit is about $740.

average cost to start a business in the us

$78405

luxury car dealerships

$90 per day to hold car in inventory, goal is 50-60 days' worth of new cars in stock

52

% of angel investments that lose money

19

% of business loans made by large banker to small companies

32

% of business loans made by midsize banks are to small companies

58

% of business loans made by small banks are to small companies

35

% of small business owners say they are unable to obtain adequate financing for their companies

Net promoter score

% promoters-% detractors

Regulation D

Rule 504, Rule 505, Rule 506

72

__% of N. American franchisers use conversion franchising as growth strategy

20-40

how many pages is the range for a business plan

adaptation

key to success for international franchising

2-12

most small companies sell for ____ times EBIT

book value of net worth

total assets-total liabilities

present value calculation

weighted average*present values factor

above

you want current ratio to be _____ median so you can pay short-term debts

above

you want quick ratio to be _____ industry median so you can sell inventory to satisfy short term debt.

higher

you want your net sales to assets ratio to be _____ than industry median.

cash sponges

young, growing companies

savings

(credit sales*annual interest rate* # of days average collection period lowered)/365

value of business in discounted future earnings

(discounted earnings in years 1-5)+(discounted earnings in years 6-on)

benefits of small business ownership

- control your own destiny - make a difference - reach full potential - reap impressive profits - contribute to society and to be recognized for your efforts - do what you enjoy and have fun at it

how to spot entrepreneurial opportunities

- creativity v. innovation - monitor trends and exploit them early on - travel and be inspired - take a different approach to an existing market - put a new twist on an old idea - look for creative ways to use existing resources - realize that others have the same problem that you do - take time to play - notice what is missing

characteristics of entrepreneurs

- the ability to spot opportunities and the willingness to capitalize on them - Desire for responisbility - preference for moderate risk - confidence in ability to succeed - self reliance - perseverance - desire for immediate feedback - high level of energy - competitive spirit - future orientation - skilled at organizing - value achievement over money - high degree of commitment - tolerance for ambiguity - creativity - flexibility - resourcefulness - willingness to work hard - tenacity - diversity

drawbacks of small business ownership

- uncertainty of income - risk of losing entire investment - long hours and hard work - lower quality of life until business is established - high levels of stress - complete responsibility - discouragement

cultural diversity of entrepreneurship

- young entrepreneurs - women entrepreneurs - minority entrepreneurs - part time entrepreneurs - home based business owners - family business owners - copreneurs (husband wife teams) - corporate castoffs - encore entrepreneurs - retired baby boomers

5 aspects of competitive edge

1) products they sell 2) service they provide 3) pricing they offer 4) way they sell 5) values to which they are committed

executive summary

1. Context. What does your company do - in easy-to-understand words? 2. Benefit. What benefit or advantage does your company offer customers? 3. Target customers. For whom does your company provide the benefit? 4. Point of differentiation. How is your company different from other companies that provide similar solutions? 5. Clincher. Can you leave the listener or reader with a memorable, bottom-line sound bite about your company?

steps of a cash budget

1. Determine a Minimum Cash Balance 2. Forecast Sales 3. Forecast Cash Receipts 4. Forecast Cash Disbursements 5. Estimate End-of-Month Cash Balance

calculating breakeven point

1. Determine the expenses the business can expect to incur 2. Categorize the expenses in step 1 into fixed expenses and variable expenses 3. Calculate the ratio of variable expenses to net sales. Compute the contribution margin (1-(variable expenses/net sales estimate)) 4. Compute breakeven point (total fixed costs/contribution margin)

essential functions of a business plan

1. Guiding the company by charting its future course and defining its strategy for following it. 2. Attracting lenders and investors who will provide needed capital

Stages in product life cycle

1. Introductory stage 2. Growth and acceptance stage 3. Maturity and competition stage 4. Market saturation stage 5. Product decline stage

Time compression management

1. Speeding new products to market 2. Shortening customer response time in manufacturing and delivery 3. Reducing the administrative time required to fill an order

Financial forecasts

1. Start up expenses - one time 2. Projected financial statements (income statement, balance sheet, cash flow) 3. Monthly for one year 4. Quarterly for one year

7 sentence guerilla marketing strategy

1. What is the purpose of your marketing? 2. What primary benefit does your company offer customers (your USP)? 3. Who is your target market? 4. Which marketing tools will you use to reach your target customers? 5. What is your company's niche in the marketplace? 6. What is your company's identity in the marketplace? 7. How much money will you spend on your marketing effort?

business plan

1. a systematic evaluation of a venture's chances for success. 2. a way to determine the risks facing a venture. 3. a game plan for managing a business successfully. 4. a tool for comparing actual and target results. 5. an important tool for attracting capital. Written summary of: an entrepreneur's proposed business model its operational and financial details its marketing opportunities and strategy its managers' skills and abilities.

5 c's of credit

1. capital 2. capacity 3. collateral 4. character 5. conditions

excess earnings method

1. compute adjusted tangible net worth 2. calculate opportunity costs of investing 3. project earnings for next year 4. compute extra earning power (eep) 5. estimate the value of the intangibles 6. determine the value of the business

market approach

1. compute average price-earnings ratio for as many similar businesses as possible 2. multiply the average p-e ratio by next years' forecasted earnings

reasons startups fail

1. no market need for product or service 2. lack of sufficient capital 3. failure to assemble the right team 4. superior competition 5. pricing and cost problems

discounted future earnings method

1. project earnings five years into the future 2. discount weighted average of future earnings at the appropriate present value rate 3. estimate the earnings stream beyond 5 years 4. discount this estimate using present value factor for year 6 5. compute value of business

elements of a business plan

1. title page and table of contents 2. executive summary 3. Mission statement 4. Company history 5. Business and industry profile 6. Business strategy 7. Description of products and services 8. Marketing strategy 9. Competitor Analysis 10. Description of management team 11. Plan of operation 12. Financial forecasts 13. Request for funds

present value factor

1/(1+k)^t where K is the rate of return on a similar risk investment and t is the time period

Regulations S-B and S-K

2009: SEC eliminated Reg S-B and transferred most of its provisions into Reg S-K. Company must have revenue < $50 million

small business investment companies

292 SBICs operate in the U.S. Use a combination of private capital and federally guaranteed debt to provide long-term capital to small companies. Since 1958, SBICs have provided more than $60 billion in financing to 107,000 small companies.

data mining

A process in which computer software that uses statistical analysis, database technology, and artificial intelligence finds hidden patterns, trends, and connections in data so business owners can make better marketing decisions and predictions about customers' behavior

what to look for in a franchise

A unique concept or marketing approach Profitability A registered trademark A business system that works A solid training program Affordability A positive relationship with franchisees

advantages of going public

Ability to raise large amounts of capital Improved corporate image Improved access to future financing Attracting and retaining key employees Using stock for acquisitions Listing on a stock exchange

how to buy a business

Analyze your skills, abilities, and interests. Develop a list of criteria. Prepare a list of potential candidates (Remember the "hidden market"). Investigate and evaluate candidate businesses and select the best one. Negotiate the deal. Explore financing options. Ensure a smooth transition.

18

Angels finance ____x as many companies as venture capital companies.

accelerating accounts receivable

Ask customers to fax or e-mail orders Send invoices when goods are shipped Highlight the due date on invoices Restrict customers' credit until past-due bills are paid Deposit checks and credit card receipts daily Identify the top 20% of your customers and monitor them closely Ask customers for up-front payments Watch for signs that a customer may be about to declare bankruptcy Use cycle billing Track the results of your company's collection efforts

6-7

Average sale multiplier for small companies' Ebit

67

Average time to close an angel deal in days

markets of greatest interest to franchisers

BRIC, Middle East, N. Africa. Fast growing populations, rising levels of disposable income, growing middle class, keen interest in American brands.

major global franchising markets

Brazil, Russia, India, and China (BRIC), nations in Middle East and North African region

Quality guidelines

Build quality into the process; don't rely on inspection to obtain quality Emphasize simplicity in design Foster teamwork Establish long term ties time with select suppliers Provide managers and employees with the training needed to produce quality Empower workers at all levels of organization Get managers' commitment to the quality philosophy Rethink the processes the company uses now Reward employees for quality work Develop a company wide strategy for continuous improvement of product and service quality

advantages to buying a business

Business may continue to be successful Can use experience of previous owner "Hit the ground running" Business may have best location Employees and suppliers are in place Equipment is installed Inventory is in place and trade credit exists Easier time finding financing It's a bargain

benefits of franchising

Business system Management training and support Brand name appeal Standardized quality of goods and services National advertising program Financial assistance proven products and business formats Centralized buying power Site selection and territorial protection Greater chance for success

limited partners

Cannot participate in the day-to-day management of a company. Have limited liability for the partnership's debts.

State and Local Loan Programs

Capital Access Programs, Revolving loan fund, community development financial institutions

secrets to successful financing

Choosing the right sources of capital is a decision that will influence a company for a lifetime. 2. The money is out there; the key is knowing where to look. 3. Raising money takes time and effort. 4. Creativity counts. Entrepreneurs have to be as creative in their searches for capital as they are in developing their business ideas. 5. The Internet puts at entrepreneur's fingertips vast resources of information that can lead to financing; use it. Put social media to work to locate potential investors (e.g., Naked Pizza). 7. Be thoroughly prepared before approaching lenders and investors. 8. Entrepreneurs cannot overestimate the importance of the right "chemistry" with funding sources. 9. Plan an exit strategy - even as you start your business. Today's reality: Layered financing - piecing together financing from multiple sources: thredUp

Detecting dishonest franchisers

Claims that the contract is "standard; no need to read it." Failure to provide a copy of the required disclosure documents. Marginally successful prototype or no prototype. Poorly prepared operations manual. Unsolicited testimonial from "a highly successful franchisee." Unusual amount of litigation by franchisees. Promises of future earnings with no documentation. High franchisee turnover or termination rate. Attempts to discourage your attorney from evaluating the contract before signing it. No written documentation. High pressure sale. Claims to be exempt from federal disclosure laws. "Get rich quick" schemes, promising huge profits with minimal effort. Reluctance to provide a list of existing franchisees. Evasive, vague answers to your questions.

conservative lenders

Commercial banks. Significant owner investment Sufficient cash flow for repayment Ample collateral as security SBA loan guarantee Personal guarantee

ways to trim overhead costs

Conduct periodic expense audits Lease rather than buy Avoid nonessential cash outlays Negotiate fixed loan payments to coincide with your company's cash flow Buy used equipment Look for simple ways to cut costs Hire part-time employees and freelancers Outsource Control employee loans and advances Use e-mail rather than mail Use credit cards to make small purchases Establish an internal security and control system Devise a method to battle check fraud Change shipping terms Switch to zero-based budgeting

to make an IPO

Consistently high growth rate Scalability Strong record of earnings (BUT, since 2011, 60% of companies making IPOs have had negative earnings!) 3 to 5 years of audited financial statements Solid position in a rapidly-growing industry Sound management team with experience and a strong board of directors

disadvantages of corporation

Cost and time of incorporating "Double taxation" Potential for diminished managerial incentives Legal requirements and regulatory "red tape" Potential loss of control by founder(s) Piercing the corporate veil

5 perspectives of balanced scorecard

Customer: How do customers see us? Internal Business: At what must we excel? Innovation and Learning: Can we continue to improve and create value? Financial: How do we look to shareholders? Corporate Citizenship: What must we do to meet our social responsibility to society as a whole, the environment, the community, and other stakeholders?

how to conduct market research

Define the objective. Collect the data. Analyze and interpret the data. Put the information to work.

Quality DMAIC process

Define, measure, analyze, improve, control

disadvantages of going public

Dilution of founder's ownership Loss of control Loss of privacy Regulatory requirements and reporting to the SEC Filing expenses Accountability to shareholders Pressure for short-term performance Loss of focus Timing

advantages of the partnership

Easy to establish Complementary skills of partners Division of profits Larger pool of capital Ability to attract limited partners Minimal government regulation Flexibility Taxation

federally sponsored programs of debt capital

Economic Development Administration (EDA) Department of Housing and Urban Development (HUD) U.S. Department of Agriculture's Rural Business-Cooperative Service Small Business Innovation Research (SBIR) Small Business Technology Transfer programs Small Business Administration (SBA) - largest single backer of small businesses in the nation

franchises

Employ more than 9.1 million people in more than 300 industries in the U.S. Total output = $944 billion. Account for 2.9% of GDP ($552 billion).

beating the cash crisis accounts receivable

Establish a firm credit-granting policy. Screen credit customers carefully. Send invoices promptly. (20% of owners forget!) Cycle billing When an account becomes overdue, take action immediately. Add finance charges to overdue accounts (check the law first!). Develop a system of collecting accounts.

guidelines for buying a business

Estimate the value of the company using several methods and use the one that makes the most sense. The deal must be financially feasible for both parties. The potential buyer must have access to all business records. Transparency counts. Values must be based on facts, not fiction. The best surprise is no surprise.

how to buy a franchise

Evaluate yourself, research the market, consider your franchise options, get a copy of the franchiser's FDD and study it, talk to existing franchisees (use item 20 in FDD), ask the franchiser some tough questions, make your choice.

5.7 million

In the US, entrepreneurs start more than _______ _________ businesses each year.

Patriot Express

For veterans; guarantees up to 85% of the $500,000 loan ceiling

airbnb

Founded in August 2008 and based in San Francisco, California, _______ is a trusted community marketplace for people to list, discover, and book unique accommodations around the world — online or from a mobile phone. Whether an apartment for a night, a castle for a week, or a villa for a month, _______ connects people to unique travel experiences, at any price point, in more than 34,000 cities and 190 countries. With world-class customer service and a growing community of users, ______ is the easiest way for people to monetize their extra space and showcase it to an audience of millions.

Why buy a franchise

Franchisees are buying the franchiser's experience. "Going into business for yourself but not by yourself." Franchisees get a proven business system and avoid having to learn by trial-and-error. Before buying, ask: "What can a franchise do for me that I cannot do for myself?"

myths of franchising

Franchising is the safest way to go into business because franchises never fail. I'll be able to open my franchise for less money than the franchiser estimates. The bigger the franchise organization, the more successful I'll be. I'll use 80 percent of the franchiser's business system, but I'll improve upon it by substituting my experience and know-how. All franchises are the same. I don't have to be a "hands-on" manager. I can be an absentee owner and be very successful. Anyone can be a satisfied, successful franchise owner. Franchising is the cheapest way to get into business for yourself. The franchiser will solve my business problems for me; after all, that's why I pay an on-going royalty. Once I open my franchise, I'll be able to run things the way I want to.

bad

If the payable period ratio is too great, it is a ____ thing

benefits of cash management

Increase amount and speed of cash flowing in Reduce the amount and speed of cash flowing out Develop a sound borrowing and repayment program Impress lenders and investors Reduce borrowing costs by borrowing only when necessary Take advantage of money-saving opportunities such as cash discounts Make the most efficient use of available cash Finance seasonal business needs Provide funds for expansion Plan for investing surplus cash

why to consider borrowing money

Increase your work force and/or inventory to boost sales Gain market share Purchase new equipment Refinance existing debt Take advantage of cash discounts Buy the building in which your business is located Establish a relationship with a lender Retire debt held by a "non-relationship" creditor Deal with a downturn in business

opportunity cost of investment

Investment=adjusted net worth*rate of return; add to salary

angel profile

Invests in one company per year Has 14.5 years of entrepreneurial experience and has founded 2.7 companies on average 86% are men (average age is 57) Well-educated: 99% have college degrees Accept 10% to 15% of proposed deals

relationship marketing

Involves developing, maintaining, and managing long-term relationships with customers so that they will keep coming back to make repeat purchases Steps: Build database of customer information Identify best and most profitable customers Develop lasting relationships with these customers Attract more customers like them

7-9

It costs _____x as much to attract a new customer as it does to sell an existing one

disadvantages to buying a business

It's a loser Possible "ill will" from previous owner Employees may not be suitable Location may be unsatisfactory Equipment may be obsolete Change and innovation can be difficult Inventory may be obsolete Accounts receivable may be worth less than face value Change and innovation can be difficult Inventory may be obsolete Accounts receivable may be worth less than face value Business may be overpriced

credit cards

Kauffman Foundation study: 7% of capital for start-up companies comes from credit cards 58% of new businesses use credit cards to finance operations in their first year

Franchise disclosure document

Key tool for protection that franchisers must deliver before any offer or sale of a franchise. Contains information on 23 topics, including: Franchiser's business experience Franchise fees and costs Lawsuits involving the franchiser Financial assistance available Territorial protection granted Restrictions on purchasing

commercial banks

Lenders of first resort for small business owners Outstanding small business bank loans total $600 billion. Average micro business loan (those < $100,000) = $7,500. Average small business loan (those between $100,000 and $1 million) = $226,400. Focus on a company's ability to generate positive cash flow when evaluating loan proposals

disadvantages of sole proprietorship

Limited access to capital Limited skills and abilities Feelings of isolation Lack of continuity Unlimited personal liability

Microloan Program

Maximum loan = $50,000 Average loan is $11,800 with a maturity of 3 years (Maximum is 6 years). 37% go to business start-ups, despite no SBA guarantee.

beating the cash crisis inventory

Monitor it closely; it can drain a company's cash. Typical grocery store stocks 42,700 items, 3x as many as 20 years ago. Only about 20% of a typical company's inventory turns over quickly. Avoid inventory overbuying. It ties up valuable cash at a zero rate of return. Carrying inventory is expensive: "hidden costs." Mark down items that aren't selling. Schedule inventory deliveries at the latest possible date. Negotiate quantity discounts with suppliers when possible. Consider suppliers that can make fast, frequent deliveries.

corporate venture capital

More than 300 large corporations across the globe invest in start-up companies. About 8.7% of all venture capital investments come from corporations. Average CVC investment = $4.23 million. Capital infusions are just one benefit; corporate partners may share marketing and technical expertise. About 14% of all VC deals involve CVC.

venture capital companies

More than 400 venture capital firms operate across the U.S. Most venture capitalists seek investments in the $3,000,000 to $10,00,000 range in companies with high-growth and high-profit potential. Average VC investment = $7.5 million. Typical year: VCs invest in only 3,700 of the 27 million small companies in the U.S. Average time to close a VC deal = 80 days. Business plans are subjected to an extremely rigorous review - less than 1% accepted. GEM study: Only 1 in 10,000 entrepreneurs worldwide receives VC funding at start-up Usually take an active role in managing the companies in which they invest. Focus their investments in specific industries with which they are familiar. Invest in a company across several stages. Most common stages: Expansion Later-stage Early stage

credit unions

More than 6,100 credit unions; 37% make business loans. Nearly $60 billion in small business loans annually. 43% approval rate (compared to 22 percent at big banks and 49 percent at small banks). Average business loan = $212,000

beating the cash crisis accounts payable

Negotiate the best possible terms with your suppliers. Be honest with creditors; avoid the "the check is in the mail" syndrome. Schedule controllable cash disbursements to come due at different times. Stretch out payment times as long as possible without damaging your credit rating. Verify all invoices before paying them. Take advantage of cash discounts (e.g., "2/10, net 30").

49

New products accounted for _____% of profits, more than 2x as much as less innovative competitors

S corporation

No different from any other corporation from a legal perspective. For tax purposes, however, an S corporation is taxed like a partnership, passing all of its profits (or losses) through to the individual shareholders. To elect "S" status, all shareholders must consent, and the corporation must file with the IRS within the first 75 days of its tax year. Must be a U.S.-based corporation No nonresident alien shareholders Only one class of common stock No more than 100 shareholders (increased from 75) No more than 20% of corporate income from passive investment sources Corporations and partnerships cannot be shareholders

25-80

Seller financing is _____% of selling price

What franchisers want in franchisees

People skills 94% Ability to be coached 87% General business skills86% Access to capital 84% Entrepreneurial mindset 76% Specific industry skills 29%

sources of equity financing

Personal savings Friends and family members Angels Crowd funding Partners Corporations Venture capital companies Public stock sale

4 objectives of a guerrilla marketing plan

Pinpoint the target markets a company will serve Determine customer needs, wants, and characteristics through market research Analyze a company's competitive advantages and build a marketing strategy around them Create a marketing mix that meets customer needs and wants

most common reasons for selling a business

Planned retirement Not making enough money in the business Lifestyle reasons - health, boredom, or burnout Pending changes in the business or its environment that will adversely affect its future

Marketing mix

Product, place, price, promotion

Extra earning power (eep)

Projected net earnings-total opportunity costs

factors that increase EBIT multiple

Proprietary products and patents Strong, diversified customer base Above-average growth rate Strong, balanced management team Dominant market share

marketing strategy

Prove that a market exists (Show customer interest Document market claims with research (business prototyping)) Describe target customers Advertising and promotion Market size and trends Location analysis Pricing Distribution

Total quality management

Quality not just in the product or service itself, but in every aspect of the business and it's relationship with the customer and continuous improvement in the quality delivered to customers

Simplified Registrations and Exemptions

Regulations S-B and S-K, Regulation D, Section 4 (6), Rule 147, Regulation A

How Americans define quality

Reliability Durability Ease of use Known or trusted brand name Low price

67

Repeat customers spend ____% more than new customers

when success rate is highest

Requires franchisees to have prior industry experience Does not allow "absentee" owners Has built a strong brand name Offers training programs

limited liability company

Resembles an S Corporation but is not subject to the same restrictions. Two documents: -Articles of organization -Operating agreement An LLC cannot have more than two of these four corporate characteristics: 1)Limited liability 2)Continuity of life 3)Free transferability of interest 4)Centralized management

drawbacks of franchising

Restrictions on purchasing and pricing Limited product line Contract terms and renewal Unsatisfactory training programs Market saturation Less freedom No guarantee of success

popular sba programs

SBA Express program, patriot express program, small loan advantage program, community advantage program, 7(a) loan guaranty program, the CAPLine program, the micro loan program, 504 certified development company program, several export loan programs, the disaster loan program

small business administration loan programs

SBA has helped 20 million small companies acquire the start-up and growth capital. SBA - $99 billion loan portfolio - largest single financial backer of small businesses in the U.S. - guarantees 52,000 loans annually. 7(a) Loan Guaranty Program CAPLine Program International Trade Programs Section 504 Certified Development Company Program Microloan Program Disaster Loan Program

GEDI score bottom 5 countries

Sierra Leone, Mauritania, Malawi, Burundi, Chad

advantages of sole proprietorship

Simple to create Least costly form to begin Profit incentive Total decision making authority No special legal restrictions Easy to discontinue

forms of ownership

Sole Proprietorship Partnership Corporation S Corporation Limited Liability Company Joint Venture

guerilla marketing principles

Sponsor events that attract your target customers Transform an offbeat holiday into an entertailing event Let customers interact with your products Use technology creatively Remember: the goal is to sell Strive to be unique Connect with customers on an emotional level Create an identity for your business through branding Embrace social networking Start a blog Strive to be unique Focus on the customer Retain existing customers Devotion to quality Attention to convenience Concentration on innovation Dedication to service and customer satisfaction Emphasis on speed

forecast cash disbursements

Start with those disbursements that are fixed amounts due on certain dates. Review the business checkbook to ensure accurate estimates. Add a cushion to the estimate to account for "Murphy's Law."

Strategic management process

Step 1: Develop a vision and translate it into a mission statement. Step 2: Assess strengths and weaknesses. Step 3: Scan environment for opportunities and threats. Step 4: Identify key success factors. Step 5: Analyze competition. Step 6: Create goals & objectives. Step 7: Formulate strategies. Step 8: Translate plans into actions. Step 9: Establish accurate controls.

exit strategies

Straight business sale Family limited partnership (FLP) Sell controlling interest Restructure the company Use a two-step sale Establish and employee stock ownership plan (ESOP)

estimate end of month balance

Take Beginning Cash Balance... Add Cash Receipts... Subtract Cash Disbursements Result is Cash Surplus or Cash Shortage (Repay or Borrow?)

general partners

Take an active role in managing a business. Have unlimited liability for the partnership's debts. Every partnership must have at least one general partner.

crowd funding

Taps the power of social networking and allows entrepreneurs to post their pitches and proposed investment terms on crowd funding Web sites to raise money (currently small amounts of $) from "ordinary people." Web sites charge about 4% to host a funding request.

factors to consider in choosing ownership form

Tax considerations Liability exposure Start-up capital requirements Control Managerial ability Business goals Management succession plans Cost of formation

goal

The ______ of accounts receivable is to collect your company's cash as fast as you can

Innovation

The key to future success, one of the greatest strengths of the entrepreneur

44

The percentage of small businesses that use social media to connect with customers or to attract new ones

early stage

These companies are refining their initial products or services in pilot tests or in the market. Even though the product or service is available commercially, it typically generates little or no revenue. These companies have been in business less than three years

expansion stage

These companies' products or services are commercially available and are producing strong revenue growth. Businesses at this stage may not be generating a profit yet, however.

later stage

These companies' products or services are widely available and are producing ongoing revenue and, in most cases, positive cash flow. Businesses at this stage are more likely to be generating a profit. Sometimes these businesses are spin-offs of already established successful private companies.

seed stage

This is the initial stage in which companies are just beginning to develop their ideas into products or services. Typically, these businesses have been in existence less than 18 months and are not yet fully operational.

letter of intent

Two types of underwriting agreements:Firm commitment and best efforts Minimum number of shares offered is usually 400,000 to 500,000. Total offering is usually at least $8 to $15 million. Initial share price is usually between $10 and $20 per share

12-20

Typical company must attract ______ new customers to offset the impact of losing one Lou's customer

GEDI score top 5 countries

US, Canada, Australia, Denmark, Sweden

core competencies

Unique set of capabilities that a company develops in key areas such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors.

small corporate offering registration

Use Reg D Rule 504, Rule 147, or Reg A to make SCOR offering Ceiling is $1 million Share price must be at least $1 per share Must file Form U-7, a standardized disclosure statement Can issue almost any kind of security through SCOR

how to avoid cash crunch

Use bartering, exchanging goods and services for other goods and services, to conserve cash. Trim overhead costs Start selling gift cards Invest surplus cash Be on the lookout for shoplifting and employee theft Build a cash cushion. Invest surplus cash. Keep your business plan current

5 things to analyze for existing business

Why does the owner want to sell.... the real reason? What is the physical condition of the business? What is the potential for the company's products or services? What legal aspects must I consider? Is the business financially sound?

publicity

Write an article Sponsor an event Involve celebrities "on the cheap" Publish a newsletter Speak Sponsor a seminar Write press releases Serve on community boards Promote a cause

61

__% of US based franchise companies have international locations

74

__% of franchisers plan to accelerate the growth of their global franchised units in the near future

40

__% of new franchisees sign contracts without reading them

32

__% of the units of the 200 largest US franchisers lie outside the US

20

_____% of a typical company's customers account for about 80% of its sales

fast

______ growth puts a strain on small companies' cash flow

sales

_______ are ultimately transformed into cash receipts and cash disbursements

50-75

_______% of business sales that are initiated fall through

500000-1 million

________________ small businesses sold within a typical year

strategy

a road map that guides a company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives.

balanced scorecard

a set of measurements unique to a company that includes both financial and operational measures. Gives managers a quick yet comprehensive picture of a company's overall performance.

individualized marketing

a system of gathering data on individual customers and then developing a marketing plan designed specifically to appeal to their needs, tastes, and preferences

big three of cash management

accounts receivable, accounts payable, inventory. They interact to create a company's cash flow cycle, the length of time required to cover inventory and accounts payable into sales and accounts receivable and finally back to cash.

mission

addresses question: "what business are we in?". A written expression of how the company will reflect the owner's values, beliefs, and vision. Sets the tone for the entire company and guides the decisions people make.

asset based lenders

allow small businesses to borrow money by pledging otherwise idle assets

1/4

amount of small businesses that have been unable to obtain adequate funding.

partnership

an association of 2+ people who co-own a business for the purpose of making a profit.

vision

an expression of what an entrepreneur stands for and believes in; the "sixth sense that tells us why we make a difference in the world."A clearly defined _____ provides direction, determines decisions, motivates people, allows for perseverance in the face of adversity.

2.6

average angel return on investment

$25147

average franchise fee

$200000

average franchise start up cost

4.4

average inventory turnover ratio

years of profit figure

average of the 12 factors' scores used in calculating intangibles in excess earnings method

6.7%

average royalty fee for franchises

7.5 million

average venture capital investment

income statement

compares the firm's expenses against its revenue over a period of time to show net income (net income=sales revenue-expenses)

threshold attributes

benefits that customers expect from a brand

excitement attributes

benefits that customers get excited about that have the capacity to differentiate your company's brand from all others.

performance attributes

benefits that your brand can offer customers that are superior to those that your competitors offer

eda

branch of the commerce dept. makes loan guarantees to create and expand small businesses in economically depressed areas

goals

broad, long range attributes to be accomplished, general and abstract

advantages of established franchise

business concept and brand are well known, franchisor has experience in delivering value to franchisees, franchisor has had time to work out the bugs in the system, customer base is established

advantages of new franchise

business concept can be fresh and unique possibility of lower fees as a pioneer of the concept potential for high return on investment contract terms may be negotiable

contract assignment

buyer's ability to assume rights under seller's existing contracts

trends shaping franchising

changing face of franchisees, international opportunities (global markets offer fast growth opportunities), smaller, nontraditional locations, conversion franchising, multiple unit franchising, area development ant master franchising, refranchising, co-branding

key activities

checklist of what you must do to operate successfully

the registration process

choose the underwriter, negotiate a letter of intent, prepare the registration statement, file with the SEC, wait to "go effective" and road show, meet state requirements

short term loans

commercial banks' specialty. Home equity loans, commercial loans, lines of credit, floor planning, installment loans, term loans,

sources debt capital

commercial banks, asset-based lenders, vendors, equipment suppliers, commercial finance companies, saving and loan associations, stock brokerage houses, credit unions, bonds, private placements, small business investment companies, small business lending companies, federally sponsored programs

multiples of a company's earnings, ebit

common methods of determining the value of a business

channels

communication, distribution, and service

differentiation

company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. the idea is to be better than the competition at something customers value. You have to build basis for _________ on distinctive competence, something that a small company is uniquely good at doing in comparison to its competitors.

focus

company selects one or more customer segments in a market, identifies customers' special needs, wants, or interests, and then targets them with a product or service designed specifically for them.

disadvantages of new franchise

concept is not tested or established, brand isn't well known, franchisor may lack the experience to deliver value to franchisees, concept may be fad with no staying power

disadvantages of established franchise

concept may be on the wane, high franchise fees and costs, brand and trade dress may require updating, contract terms usually are non-negotiable

restrictive covenant

contract in which a business seller agrees not to compete with the buyer within a specific time and geographic area.

foreign corporation

corporation chartered in one state and doing business in another state

domestic corporation

corporation doing business in the state in which it is incorporated

alien corporation

corporation forme din another country but doing business in the US

closely held corporation

corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.

publicly held corporation

corporation that has a large number of shareholders and whose stock usually is traded on one of the large stock exchanges

lien

creditors' claims against an asset

true economic indicators

critical performance areas that determine a company's ability to be profitable

2:1

current ratio rule of thumb

cash conversion cycle

days inventory+days sales outstanding-days payable

liability

debt financing is carried as a _____________ on the company's balance sheet.

feature

descriptive fact about a product or service

USDA RBS loan program

designed to create non-farm employment opportunities in rural areas through loans and loan guarantees

3 common methods of asset based borrowing

discounting accounts receivable, inventory financing, purchase order financing

yes

do Franchisers offer direct financial assistance to franchisees?

ebit

earnings before interest and taxes

entertailing

entails retail locations with entertainment elements

balance sheet

estimates the firm's worth on a given date; built on accounting equation assets=liabilities + owner's equity

operating ratios

evaluate a firm's overal performance and show how effectively it is putting its resources to work (average inventory turnover ratio, average collection period ratio, average payable period ratio, net sales to total assets ratio)

competitive test

evaluates a company's position relative to its customers, management's ability to create a company that will gain an edge over its rivals

International trade programs

export working capital program, international trade program

policy loans

extended to the owner against the cash surrender value of insurance policies.

hud

exteneds grants (such as cdbgs) to cities that, in turn, lend and grant money to small businesses in an attempt to strengthen the local economy

intangibles

extra earning power*years of profit figure

Internal methods of financing

factoring, leasing assets rather than buying them, credit cards

key success factors

factors that influence a company's ability to compete successfully in an industry; the keys to unlocking the secrets of succeeding in a particular market segment

drivers

features that are both important to customers and are highly differentiated from those of competitors

antes

features that are important to customers but all competitors provide them

neutrals

features that are irrelevant to customers

fool's gold

features that are unique to your company but do not drive customers' loyalty to your product and services

Debt Financing

financing that must be repaid with interest. Can be just as difficult to secure as equity financing, even though sources of debt financing are more numerous

entrepreneur

first introduced in 1755 by Richard Cantillon who called it a producer with non fixed income and uncertain returns. Schumpeter called them "change agents in society". It is defined as one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them.

cash management

forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly

difficulty

higher debt ratios (above industry median) may cause ______ when borrowing

cost leadership

goal: to be the low cost producer in the industry or market segment. works well when buyers are sensitive to price changes, competing firms sell the same commodity products, and a company can benefit from economies of scale.

bhags

goals that occur at the intersection of a company's mission, vision, and values; its distinctive competencies, and the industry's key success factors.

SBA Express

guarantees of 50% on loans up to $350,000. Average loan = $107,000

value proposition

how your product or service meets customers' needs and creates value for them

lean start up principles

identify a meaningful main point, get a minimum viable product into potential customers' hands, refine business model and repeat

cushion

if the times interest earned ratio is higher than the median, the business has a ________ in meeting its interest payments

Benjamin Franklin

in 1729 at age 21 raised capital to purchase a newspaper.

Rule 147

intrastate offerings

sbir

involves 11 federal agencies that award cash grants or long term contracts to small companies wanting to initiate or expand their research and development efforts

strategic management

involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives and to keep it on its desired course.

no

is there one best form of ownership?

higher

it is better to have a ______ return on investment than lower.

unique selling proposition

key customer benefit that sets a company, its products, and its services apart from the competition, no more than 10 words.

avoiding the pitfalls of small business failure

know business in depth, build a viable business model and test it, develop a solid business plan, use lean start up principles, know when to pivot, manage financial resources, understand financial statements, learn to manage people effectively, set your business apart from the competition, maintain a positive attitude.

debt to net worth ratio

leverage ratio that compares what a business owes to what it is worth (total debt/tangible net worth)

times interest earned

leverage ratio that measures a firm's ability to make the interest payments on its debt (Earnings before interest and taxes/total interest expense)

debt ratio

leverage ratio that measures the percentage of total assets financed by creditors rather than owners (total debt/total assets)

advantages of corporation

limited liability of stockholders ability to attract capital ability to continue indefinitely transferable ownership

current ratio

liquidity ratio that measures solvency by showing a firm's ability to pay current liabilities out of current assets (current assets/current liabilities)

quick ratio

liquidity ratio that shows the extent to which a firm's most liquid assets cover its current liabilities (quick assets/current liabilities)

mortgage loan

made for large amounts and are based on the value of the land being purchased

small businesses

make up 99.7% of the 28.2 million businesses in the US, employ 48.5% of the nation's private sector workforce, pay 42% of the total private payroll, create more jobs than big businesses, are leaders in offering training and advancement opportunities to workers, produce 48.5% of the nation's private GDP, account for 47% of business sales, produce 16x more patents per employee than large companies

leverage ratios

measure the financing provided by a firm's owners against that supplied by its creditors; a gauge of the depth of a company's debt (debt ratio, debt to net worth ratio, times interest earned)

profitability ratio

measures how efficiently a firm is operating; offers information about a firm's "Bottom line". (Net profit on sales ratio, net profit to assets ratio, net profit to equity ratio)

ideal cause

mission statement+personal passion+customer demographics

objectives of goals

more specific and detailed targets of performance that are SMART (specific, measurable, assignable, realistic, timely)

threats

negative external forces that inhibit the company's ability to accomplish its mission, goals, and objectives

weaknesses

negative internal factors that inhibit the company's ability to accomplish its mission, goals, and objectives

4.0

net profit to assets ratio industry median

commercial finance companies

offer loan type banks but are risk oriented in lending practices. Emphasize accounts receivable financing and inventory loans

stock brokerage houses

offer loans to prospective entrepreneurs at lower interest rates than banks because they have high quality, liquid collateral

indirect competitors

offer same or similar products in only a small number of areas

significant competitors

offer some of the same or similar products or services, product or service lines overlap but not completely

direct competitors

offer the same products and services; customers often compare prices, features, and deals among these competitors when they shop

regulation A

offerings up to $5 million over 12 months

net sales to total assets ratio

operating ratio that measures a firm's ability to generate sales given its asset base. (Net sales/total assets)

average payable period ratio

operating ratio that tells the average number of days required to pay accounts payable. 2 steps: Payables turnover ratio=purchases/accounts payable, average payable period ratio (days in accounting period/payables turnover ratio)

average collection period ratio

operation ratio that tells the average number of days required to collect accounts receivable. First, find receivables turnover ratio (credit sales/accounts receivable). Then find average collection period ratio (days in accounting period/receivables turnover ratio)

average inventory turnover ratio

operation ratio that tells the average number of times a firm's inventory is "turned over" or sold out during the accounting period. (cost of goods sold/average inventory). Average inventory=(beginning inventory+ending inventory)/2

ongoing legal liabilities

physical premises, product liability, and labor relations.

value of market approach

p-e ratio*forecasted earnings for the next year

limited partnership

partnership composed of at least one general partner and one or more limited partners. General partner in this is treated exactly as in general partnership. Limited partner has limited liability and is treated as an investor in the business.

1

percent default rate on bank loans

14

percent default rate on family and friend loans

15-30

percentage of a small company angels invest in

7

percentage of angel investments that produce returns more than 10x the original investment

43

percentage of banks who use a bank loan as equity financing

31

percentage of businesses that use credit cards as equity financing

33

percentage of businesses that use earnings of the business as equity financing

21

percentage of college grads that started businesses out of necessity

3 forecasts

pessimistic, most likely, optimistic

opportunities

positive external options the company can exploit to accomplish its mission, goals, and objectives

strengths

positive internal factors that contribute to accomplishing the mission, goals, and objectives

5 p's of negotiation

preparation patience persuasiveness persistence poise

angels

private investors who invest in emerging business start ups in exchange for empty stakes in the company. Fastest growing segment of the small business capital market. Ideal source of financing for companies that have outgrown the capacity of friends and family members but are still to small to attract the interest of venture capital companies. Most likely to finance deals in the $10,000 to $2 million range. Average angel investment = $330,000

business model

process a company will use to create value for customers and generate sales and profit. 7 components: A definition of your company's target customers and how you will reach them The customer value proposition your company offers Point of differentiation Pricing Selling process Distribution system Customer support

net profit on sales ratio

profitability ratio that measures a firm's profit per dollar of sales revenue (net income/net sales)

net profit to equity ratio

profitability ratio that measures the owner's rate of return on the investment in the business (net income/owner's equity)

net profit to assets ratio

profitability ratio that tells how much profit a company generates for each dollar of assets that it owns (net income/total assets)

value test

proves that a venture offers investors or lenders an attractive rate of return or high probability of repayment

reality test

proves that market really does exist for your product or service, and you can actually build or provide it for the cost estimates in the plan

insurance companies

provide financing through policy and mortgage loans.

elements of a mission statement

purpose, business we are in, values

advantages of cost leadership

reaching buyers who buy on the basis of price, power to set the industry's price floor

3 tests business plan must pass

reality test, competitive test, value test

forecasting cash receipts

record all cash receipts when actually received; determine the collection pattern for credit sales, then add cash sales

equity capital

represents the personal investment of the owners in the business. Is called risk capital because investors assume the risk of losing their money if the business fails or hitting it big if the company succeeds. Does not have to be repaid with interest like a loan does. This means that the entrepreneur must give up some ownership in the company to outside investors.

1:1

rule of thumb for quick ratio

factoring

selling accounts receivable outright. More expensive than traditional bank loans (high interest rates; often 36% or more), 70% of factoring deals are without recourse

franchising

semi-independent business owners pay fees and royalties to a parent company in exchange for the right to sell its products and services under the franchiser's trade name and often to use its business format and system

corporation

separate legal entity from its owners

cash budget

shows amount and timing of a firm's cash receipts and cash disbursements over time, predicts the amount of cash a company will need to operate smoothly, visualizes the firm's cash receipts and cash disbursements and the resulting cash balance

breakeven analysis

shows entrepreneurs minimum level of activity required to stay in business

statement of cash flows

shows the change in the firm's working capital over a period of time by listing the sources of funds and the uses of these funds

The franchisee

site selection: chooses site with franchiser's approval design: pays for and implements design employees: hires, manages, and fires employees products and services: modifies only with franchiser's approval Prices: sets final prices Purchasing: Must meet quality standards; must purchase only from approved suppliers; must purchase from supplier if required. Advertising: Pays for national ad campaign; complies with local advertising requirements; gets franchisor approval on local ads Quality control: maintains quality standards, trains employees to implement quality systems support: operates business on a day to day basis with franchiser's support

the franchiser

site selection: oversees and approves, may choose site design: provides prototype design employees: makes general recommendations and training suggestions products and services: determines product or service line prices: can only recommend prices purchasing: establishes quality standards; provides list of approved suppliers; may require franchisees to purchase from the franchisor advertising: Develops and coordinates national ad campaign; may require minimum level of spending on local advertising quality control: Sets quality standards and enforces them with inspections; trains franchisees Support: Provides support through an established business system

2-3

small companies pay ______x the prime rate

factors of competition

smarter rivals, more price competition, increased customer awareness

low cost

source of competitive advantage: low cost target market: industry

cost focus

source of competitive advantage: low cost position target market: niche

differentiation

source of competitive advantage: uniqueness perceived by the customer target market: industry.

differentiation focus

source of competitive advantage: uniqueness perceived by the customer target market: niche

Thomas Jefferson

started a nailery in 1794 and purchased high tech equipment in 1796 to increase productivity

Capital Access Programs

state and local loan programs designed to encourage lenders to make loans to businesses that do not qualify for traditional financing. Three parties: borrower, bank, and CAP.

Revolving loan fund

state and local loan programs that combine private and public funds to make small business loans

key partners

suppliers, web designers, fulfillment companies who can help you leverage your business model

value in excess earnings method

tangible net worth+value of intangibles

customer segments

target market definition

liquidity ratios

tell whether or not a small business will be able to meet its maturing obligations as they come due (current ratio, quick ratio)

innovation

the ability to apply creative solutions to problems and opportunities to enhance or enrich people's lives

creativity

the ability to develop new ideas and to discover new ways of looking at problems and opportunities

3400

the amount of asset-based lenders across the US

competitive advantage

the combination of factors that sets a company apart from its competitors and gives it a unique position in the market that is superior to its rivals

personal savings

the first place an entrepreneur should look for money. A very common source of equity capital for starting a business

target market

the group of customers at whom the company aims its products or services.

commercial banks

the heart of the financial market for small businesses

prime rate

the interest rate that banks charge their most credit-worthy customers

breakeven point

the level of operation at which a business neither earns a profit nor incurs a loss

200000

the median selling price of a private company

collecting accounts receivable

the most challenging cash flow process to manage

7(a) Loan Guaranty Program

the most popular SBA loan program. About 3,500 lenders Average 7(a) loan = $368,725 Average duration = 12 years

advance rate

the percentage of an asset's value that a lender will lend

63

the percentage of young people in their twenties have already started businesses or aspire to.

cash flow cycle

the time lag between paying suppliers for merchandise and receiving payment from customers

value proposition

the value that a company's goods and services delivers to customers. must be authentic. 3 Variations - product or service leadership/customer intimacy/operational excellence

market research

the vehicle for gathering the information that serves as the foundation for the marketing plan.

types of franchising

tradename, product distribution, pure (business format)

true

true or false: a business can be earning a profit and be forced to close because it runs out of cash

35

typical entrepreneur provides ____% of the initial cash requirement.

5

typical multi unit owner has _ units

guerilla marketing plan

unconventional, low cost, creative techniques that allow a company to wring a big bang from it's marketing bucks

disadvantages of the partnership

unlimited liability of at least one partner capital accumulation difficulty in disposing of partnership interest lack of continuity potential for personality and authority conflicts

trade credit

used extensively by small business as source of financing.

seed capital

used for the start of a new business

growth capital

used to help the small business expand or change its primary direction

fixed capital

used to purchase the permanent or fixed assets of the business

working capital

used to support the small company's normal short-term operations

seven sources of equity funding

using personal savings to fund the business and to support the living expenses of the entrepreneur as the business gets started, contributing personal assets to the business such as computers and vehicles, taking out unsecured personal loans, taking out a second mortgage on the entrepreneur's home, pledging personal assets such as investments to secure a business loan, working a second job while starting the business, using bootstrapping

9 components of a business model

value proposition, customer segments, customer relationships, channels, key activities, key resources, key partners, revenue streams, cost structure

capitalized earnings method

value=net earnings (after deducting owner's salary)/rate of return

main street buyers

want: business that is manageable and easy to run alone or with a small group of employees revenue range: up to $1 mil risk tolerance: low focus: current and past earnings, often want seller to stay on to assist with transition

financial buyers

want: profitable companies that offer "hot" products or services and are ready to grow rapidly revenue range: $10 million-100 million (or more) risk tolerance: medium to high (often are VC's or angels) focus: highly profitable exit within 5-7 years. Goal is to add capital to the company to turbocharge its growth exchanges: health care, communications, energy

serial entrepreneurs

want: profitable companies with sound management in place revenue range: less than $10 million risk tolerance: medium to high Focus: building a portfolio of companies in different industries, sectors, or markets; want businesses they can run themselves examples: computer services, rental properties

corporate refugees

want: service businesses with commercial clients and existing contract revenue revenue range: less than $5 million risk tolerance: low to medium focus: ability to build on his or her corporate experience examples: consulting firms, landscaping, advertising, manufacturing

earnings stream beyond 5 years

weighted average earnings in year 5*(1/rate of return)

projected earnings calculation

weighted average of the earnings: (pessimistic*(4xmost likely)*optimistic)/6

benefit

what a customer gains from the product or service feature

initial public offering

when a company raises capital by selling shares of its stock to the public for the first time. Average number of companies per year is 111.

when you pay them

when do you record cash disbursements