small business test 2

Comparable Sales Approach

Sales which have similar characteristics as the subject property are used for analysis in the appraisal process relying on the principle that a property is generally worth what other, similar properties are worth.

discounted cash flows

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

lean business practices

eliminating waste and producing a minimum viable product

Me-too enterprises

familiar to customers. often taking after another company

Bootstrapping

finding a low-cost or no-cost way to do something

strategic partnerships

formal or informal with others who provide support to your efforts at starting your business

caveat emptor

let the buyer beware

Buyouts

offers of lump-sum payments to government employees in exchange for their agreement to retire from government service

workout

owner pays off the debt by working another job

pass off

pass off a business to another with no bounds

franchisee

pays a fee and agrees to the conditions and standards

serial entrepreneur

person who starts one business, runs it, and then starts and runs additional businesses in succession

steps of due diligence

product review customer references executive team references legal review financial modeling market analysis competitive analysis and financial audit

heuristics

rules of thumb used to estimate firm value in relation to some easily observable characteristics of the business

sell off

sell a business or part of it / sell something cheaply because you need the money or don't need it

effectual reasoning

something an entrepreneur uses when they imagine what can be accomplished with the resources at hand

Bankruptcy

the legal proceeding by which a bankrupt person's assets are distributed among those to whom he or she owes debts

bulk asset purchases/key resource acquisitions

the only way sole proprietorship is purchased

Affordable loss

the practice of bringing your product/service to market with the minimum expenditure of capital, effort, and time

Bricolage

the practice of using whatever you have at hand

point of indifference

the price at which a buyer is indifferent about buying or not buying the business

due diligence

the process of investigating to determine the full and complete implications of buying a business - nothing is taken for granted

earnings multiple

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

Synergy

the value and performance of two companies combined will be greater than the sum of the separate individual parts

success does what to a firm

transfers OR terminates

disadvantages of startups

No initial name recognition Require significant time Very difficult to finance Cannot easily gain revolving credit May not have experienced managers and workers

three methods used to estimate a firm's assets

- book value - bet realizable value - replacement value

ownership transfer

- do not wait under the founders death - gradual transfer is preferable to a single inheritance - the transfer of ownership is complex and unique to each family business

key ideas of bootstrapping

- do without as long as you can and cut all expenses to the bone - borrow, barter, rent or lease rather than buy and consider offering equity if you must buy - borrow money from yourself first - minimize debt and limit credit card balances - always keep track of your cash

disadvantages of buying an existing business

- finding a successful firm for sale - determining a firm's worth - existing staff may resist change - the firm may have a bad reputation - the firm may be in decline due to changed in technology - facilities near repair

Advantages of buying an existing business

- immediate cash flows - having business processes in place - low cash outlay required

due diligence two primary goals

- look for any wrongdoing - look for inefficiencies

sources to find the right business to purchase

- make some calls - the internet - networking - trade journals - consider a broker

2 problems with comparable sales approach

- no two firms are exactly alike - there are of the no recent sales to use for comparison

if a business grows large enough...

- the business starts to decline - professional managers are hired to share the management load

four forms of franchising

- trade name franchising - product distribution franchising - conversion franchising - business format franchising some companies sell "master franchises" which sell sub-franchises

lean operations and bootstrapping share three ideas

- waste not, want not - create, standardize, repeat - keep in touch

four elements of a franchise agreement

-The franchisor grants the legal right to sell the company's products -The franchisor provides marketing -The franchisee can use the branding -The franchisee pays a fee for rights this agreement is valued by - the rights granted - cash flow potential to the franchisee

five paths to business ownership

1. You may start a new business 2. You may buy an existing business 3. You may franchise a business 4. You may inherit a business 5. You can work in a small business and eventually gain ownership

steps in a successful family business transition

1. define the process of selecting a successor 2. stakeholder buy-in to ensure the process is understood 3. manage the experience to allow feedback and maintain harmony

Increasing the Odds of Start-Up Success

1. start the business in an incubator or accelerator 2. take part in a mentoring program 3. have a detailed start-up budget 4. produce a product/service with problem demand 5. secure outside investment 6. start with more than one founder for synergy 7. have experience managing small firms 8. have industry experience 9. have precious experience in creating a start-up business

accelerator

A business accelerator is a program that gives developing companies access to mentorship, investors and other support that help them become stable

start-ups

A newly formed organization with limited or no operational history. 87% of start-ups issuing an incubator are still in operation after 5 years.

advantages of start-ups

Begin with a clean slate Use the most up-to-date technologies Provide new, unique products or services Can be kept small deliberately to limit the magnitude of possible losses

walkaway

Business termination in which the entrepreneur ends the business with its obligations met.

takeovers

This is when another business buys out another by purchasing a majority stake in the target company

Franchise

an agreement between the franchisor who sets conditions and grants permissions

Employee Stock Ownership Plan (ESOP)

a compensation system that awards employees shares of company stock in addition to their regular compensation

turnkey

a program or product that the vendor executes without further involvement from the client

Casual or predictive reasoning

a useful technique regardless of whether you want a full-time or part-time business