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Entrepreneur

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is 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 those opportunities

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Characteristics of an Entrepreneur

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1. Desire and willingness to take initiative 2. Preference for moderate risk 3. Confidence in their ability to succeed 4. Self-reliance 5. Perseverance 6. Desire for immediate feedback 7. High level of energy 8. Competitiveness 9. Future orientation 10. Sill at organizing 11. Value of achievement over money 12. High degree of commitment 13. Tolerance for ambiguity 14. Flexibility 15. Tenacity

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Serial Entrepreneurs

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those who create multiple companies, often running more than one simultaneously

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Creativity

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

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Innovation

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

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How to spot entrepreneurial opportunities

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1. Monitor trends and exploit them early on 2. Take a different approach to an existing market 3. Put a new twist on an old idea 4. look for creative ways to use existing resources 5. Realize that others have the same problem you do 6. Notice what is missing

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Benefits to owning a small business

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1. Opportunity to gain control over your own destiny 2. Opportunity to make a difference 3. Opportunity to reach your full potential 4. Opportunity to reap impressive profits 5. Opportunity to contribute to society and be recognized for your efforts 6. Opportunity to do what you enjoy doing

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Social Entrepreneurs

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Business builders who seek to find innovative solutions to some of society's most pressing and most challenging problems. Ex. providing low-cost, sturdy housing for families in developing countries

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Drawbacks of Entrepreneurishp

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uncertainty of income risk of losing your entire invested capital long hours and hard work lower quality of life until the business gets established high levels of stress complete responsibility discouragement

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Age of most entrepreneurs

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25-44

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Fuel feeding the entrepreneurial fire

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1. entrepreneurs as heroes 2. entrepreneurial education 3. economic and demographic factors 4. shift to a service economy - service sector accounts for about 80% of the jobs 5. technology advancements 6. independent lifestyles 7. e-commerce and www 8. international opportunities

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Women owned firms %

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nearly 50%

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Home-based business owners %

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49%

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small business

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is one that employs fewer than 100 people

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% of new businesses that fail within first 4 years

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54%

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How to avoid failing

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know your business prepare a business plan manage financial resources understand financial statements learn to manage people effectively set your business apart from the competition maintain a positive attitude

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intellectual capital

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is likely to be the source of its competitive advantage in the marketplace comprised of three components 1. human capital 2. structural capital 3. customer capital

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Human capital

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the talents, skills, and abilities of a company's workforce

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structural capital

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the accumulated knowledge and experience in its industry and in business in general that a company possesses. It can take many forms including processes, software, patents, copyrights, and most importantly, the knowledge and experience of people in company

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customer capital

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the established customer base, positive reputation, ongoing relationships, and goodwill a company builds up over time with its customers

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Competitive advantage

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the aggregation of factors that sets the small business apart from its competitors and gives it a unique and superior position in the market

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core competencies

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are a unique set of skills, knowledge, or abilities that a company develops in key areas, such as superior quality, customer service, innovation, engineering, team building, and others that allow it to perform vital process to world=class standards and to vault past competitors

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Strategic Management Process

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1 Develop a clear vision and translate it into meaningful mission statement 2 assess the company's strengths and weaknesses 3 scan the environment for significant opportunities and threats facing the business 4 identify the key factors for success in the business 5 analyze the competition 6 create company goals and objectives 7 formulate srategic options and select the appropriate strategies 8 translate strategic plans into action plans 9 establish accurate controls

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1 Develop a clear vision and translate it into meaningful mission statement Vision and Mission defintion

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Vision - is the organizational sixth sense that tells us why we make a difference in the world Mission - addresses the first question of any business venture "what business am I in?"

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Elements of a Mission Statement

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the purpose of the company the business we are in the values

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2 assess the company's strengths and weaknesses Definition of strengths and weaknesses

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Strengths - are positive internal factors that contribute to the accomplishment of a company's mission, goals, and objectives Weaknesses - are negative internal factors that inhibit the accomplishment of its mission, goals, and objectives

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3 scan the environment for significant opportunities and threats facing the business Opportunities and Threats def

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Opportunities - are positive external option that a company can exploit to accomplish its objectives Threats - are negative external factors that hamper a company's ability to achieve its objectives

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4 identify the key factors for success in the business Key Success Factors

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a variety of different patterns depending on the industry. They are the factors that determine a company's ability to compete successfully in an industry

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5 analyze the competition

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identify the greatest challenge they face, and one of the most common response is competition

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5 analyze the competition Types of competitors

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direct competitors significant competitors indirect competitors

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Direct competitors

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offer the same products and services

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Significant competitors

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offer some of the same products and services, although they may be somewhat different

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Indirect competitors

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offer the same or similar products or services only in a small number of areas, and their target customers seldom overlap yours

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Competitive profile market

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allows entrepreneurs to evaluate their firms against the major competitors on the key success factors for their market segments

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6 create company goals and objectives Goals and objectives def

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Goals - are broad, long-range attributes that a business seeks to accomplish; they tend to be general and sometimes even abstract Objectives - are more specific targets of performance, address profitability, productivity, growth, efficiency, markets, financial resources, etc.

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Objective Characteristcs

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specific measurable assignable realistic yet challenging timely written down

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7 formulate strategic options and select the appropriate strategies Strategy def

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evaluate strategic options and then prepare a game plan designed to achieve the company's mission, goals, and objectives Strategy - a road map an entrepreneur draws up of the actions necessary to fulfill a company's mission, goals, and objectives

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3 strategic options

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cost leadership differentiation focus

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cost leadership

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strives to be the lowest-cost producer relative to its competitors in the industry

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differentiation

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seeks to build customers loyally by positioning its goods or services in a unique or different fasion

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Focus

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to select one or more segments; identify customers special needs, wants, and interests and approach them with a good or service designed to excel in meeting these needs, wants, and interests

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8 translate strategic plans into action plans

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Purpose scope contribution resource requirements timing

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Purpose

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what is the project designed to accomplish

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scope

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which areas of the company will be involved in the project

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contribution

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how does the project relate to other projects and to the overall strategic plan

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resource requirements

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what human and financial resources are needed to complete the project successful

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timing

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which schedules and deadlines will ensure project competion

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9 establish accurate controls

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control projects and keep them on schedule means that the owner must identify and track key performance indicators

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Balance scorecards

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is a set of measurements unique to a company that include both financial and operational measures and gives managers a quick yet comprehensive picture of the company's total performance against the strategic plan

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Things to consider when choosing a form of ownership

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tax considerations liability exposure start up and future capital requirements control managerial ability business goals management succession plans cost of formation

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Sole Proprietorship

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Simplest and most popular one owner 70% of all businesses

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Advantages of Sole Proprietorship

answer

simple to create least costly profit incentive total decision making no special legal restrictions easy to discontinue

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Disadvantages of Sole Proprietorship

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unlimited personal liability limited access to capital limited skills and abilities feeling of isolation lack of continuity for business

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Partnership

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is an association of 2 or more people

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Partnership agreement

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a document that states all of the terms of operation the partnership for the protection of each partner involved

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Revised uniform partnership act

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when an agreement does not exist codifies the body of law dealing with partnerships in the US

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Advantage of a partnership

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easy to establish complementary skills division of profits larger pool of capital ability to attract limited partners minimal gov regulation flexibility taxation - the partnership its self is not subject to federal taxation and avoid double taxation

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general partners

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partners who take an active role in managing a company and who share in its rewards, liabilities, and responsibilities

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Limited partners

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are financial investors who do not want to participate in the day to day affairs of the partnership and seek to limit their risk

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silent partners

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are not active in a business but generally are known to be associated with the business

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Dormant partners

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are neither active nor generally known to be associated with the business

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Disadvantages of the partnership

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unlimited liability of at least one partner capital accumulation difficulty in disposing of partnership interest without dissolving the partnership lack of continuity potential for personality and authority conflicts bound by the law of the agency

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dissolution

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occurs when a general partner ceases to be associated with the business

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Limited partnerships

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is a modification of a general partnership, are composed of at least one general partner and at least one limited partner

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Master Limited Partnerships

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similar to regular limited partnerships except their shares are traded on stock exchanges like corporation limited liability

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limited liability partnerships

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in which all partners of the business are limited, having only limited liability for the debts

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Corporations

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creations of the states, accepting the regulations and restrictions of the state in which they are incorporated and any other state in which they choose to conduct business

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Domestic corporations

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that conducts business in the state in which its incorporated in

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foreign corporations

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conducts business in another state

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alien corporations

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that are formed in other countries and conduct business in the united states

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closely held corporations

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shares that are controlled by a relatively small number of people, often family members. stock is not traded on any stock exchange but is yet passed from one generation to the next

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publicity held corporations

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have large numbers of shareholders, and their stock is usually traded on one of the large stock exchanges

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Advantages to corps

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limited liability of stockholders ability to attract capital ability to contribute interdependently transferable ownership

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disadvantages to corps

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cost and time involved in the incorporation process double taxation potential for diminished managerial incentives legal requirements and regulatory red tape potential loss of control by the founders piercing the corporate veil

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Professional corp

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offers professionals the advantage of the corp form of ownership

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S corp

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is a distinction that is made only for federal income tax purposes and is no different from any corp

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advantages of an s corp

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all advantages of regular corp it passes all of its profits or losses through to the individual shareholders and its income is taxed only once at the individual tax rate no double taxation

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disadvantages of an s corp

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would lose attractiveness if 1. personal income tax rates rose above those of C corp rates or 2. c corp rates were lowered below personal income tax rates

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limited liability company

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possess hybrid characteristics of a partnership and a corp, similar to s corp, is the fastest growing form of business ownership

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LLC Articles of org

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establish the company's name, its method of management, duration, and the names and addresses of each organizer

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joint venture

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like a partnership except that it is formed for a specific limited purpose

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syndicate

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private investment group that is formed for the purpose of financing a large commercial project whose scope is larger than the capacity of a single investor to finance alone

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Fanchise

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a legal and business relationship between the owner of a trademark, service mark, trade name, or advertising symbol, and an entrepreneur who pays for the right to use that identification for his or her business

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franchisee

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who pays fees and royalties to a parent company - the franchisor

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franchisor

answer

for the right to sell products or services under the franchisor's trade name

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Trade name franchising

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involves being associated with a brand name. Trade name franchising facilitates purchasing the right to become identified wtith the franchisor's trade name without disturbing particular products exclusively under the manufacture's name ex. True Value Hardware

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product distribution franchising

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involves licensing the franchise to sell specific products under the manufacture's brand name and trademark through a selective, limited distribution network. Ex - chevron or Pepsi

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pure franchising (comprehensive or business format franchise)

answer

involves providing the franchisee wit a complete business format. includes a license name, the products, or services. purchase the rights to use all the elements of a fully integrated business operation

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benefits of franchise

answer

business system management training and support brand name appeal standardized quality of goods and services national advertising programs financial assistance proven products and business formats centralized buying power site selection territorial protection increased chance of success - after 5 years 90% are in business after 4 years where only 40% of independent businesses are still in business

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drawbacks of franchise

answer

franchise fees and revenue sharing strict adherence to standardized operations restrictions on purchasing limited product line unsatisfactory training programs market saturation limited freedom

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uniform franchise disclosure document

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requires all franchisors to disclose detailed information on their operations at least 14 days before a franchise contract is signed or money is paid

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buying an existing business advantages

answer

may continue to be successful levering the experience of the previous owner superior location employees and supplies in place installed equipment inventory in place established trade credit easier access to financing high value

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disadvantages of buying an existing business

answer

cash requirements paying for ill will current employees suck location has become unsatisfactory obsolete or inefficient equipment and facilities change and innovation challenges obsolete inventory the value of accounts receivable business may be overpriced

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Balance sheet equation

answer

assets - liabilities = net worth

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oportunity costs

answer

represent the cost of forgoing a choice; what revenues does the potential buyer give up by purchasing the business

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feasibility analysis

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the process of determining whether an idea is a viable foundation for creating a successful business

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elements of the feasibility analysis

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industry and market feasibility financial feasibility product or service feasibility

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a product or service feasibility analysis

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determines the degree to which a product or service idea appeals to potential customers

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primary research

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involves collecting data firsthand and analyzing it ex: customer surveys focus groups

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secondary research

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involves gathering data that has already been complied and is available, often at a very reasonable cost or sometimes for free ex: direct mail lists census data

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Major elements in a financial feasibility analysis

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initial capital requirements, estimated earnings, and the resulting return on investment

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Business plan functions

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1. guides the company's operations by charting its future course and devising a strategy for direction (mission, vision, goals) 2. to attract lenders and investors

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target market

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who are the company's target markets

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What lenders/investors look for in a business plan

answer

capital capacity - cash flow collateral - assets the entrepreneur pledges to a lender as security for repayment of the loan character condition

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Business plan format

answer

exec summary vision/mission company history industry profile and overview business strategy company products/services marketing strategy location/layout competitor analysis description of management team plan of operation financial forecasts loan/investment proposal appendices

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parts of a financial reports

answer

the balance sheet, income statement, and the statement of cash flows

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balance sheet

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assets = liabilities + owner's equity

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assets

answer

valued at cost, not actual market value, the total value of everything the business owns

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current assets

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consist of cash and items to be converted into cash within one year or within a normal operating cycle of the compnay

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fixed assets

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acquired for long-term use in the business

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intangible assets

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include items that are valuable but not tangible such as copyrights, goodwill

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liabilities

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the creditors claims against the company's assets

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current liabilities

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are those debts that must be paid within one year or within the normal operating cycle of the company

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long term liabilities

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are those that are due after on year

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owner's equity

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value of the owners investment

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income statement

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profit or loss compares expenses against revenues over a certain period of time which equals net income

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gross profit

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net sale revenues - cost of goods

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gross profit margin

answer

...

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operating expenses

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costs that contribute directly to the manufacture and distribution of goods

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net income (or loss)

answer

total rev - total expenses

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statement of cash flow

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changes in a company's working capital from the beginning of the accounting period by listing the sourves of funds and the use of these funds

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Net profit margin equation

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net profit margin = net profit/net sales (annual)

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ratio analysis

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a method of expressing the relationships between any two accounting elements, provides a convenient technique for performing financial analysis

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liquidity ratios

answer

tells whether a small business will be able to meet its maturing obligations as they come due

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current ratio

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measures a small company's solvency by indicating its ability to pay current liabilities from current assets

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quick ratio

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is more conservative measures of a firm's liquidity because it shows the extent to which is most liquid assets covers its current liabilities

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leverage ratios

answer

measure the financing supplied by a company's owners against that supplied by its creditors they show the relationship between the contributions of investors and creditors to a company's capital base

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operating ratios

answer

helps evaluate their company's performances and indicate how effectively their businesses are using their resources

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profitability ratios

answer

indicate how efficiently a small company is being managed

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breakeven analysis

answer

is the level of operation (sales dollars or production quantity) at which it neither earns a profit nor incurs a loss

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cash management

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

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cash flow

answer

measures a company's liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time

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cash budget

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cash map showing the amount and the timing of cash receipts and the cash disbursements week by week or month by month

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5 steps to a cash budget

answer

determining an adequate min. cash balance forecasting sales forecasting cash receipts forecasting cash disbursements estimating the end of month cash balance

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marketing

answer

the process of creating and delivering desired goods and services to customers and involves all of the activities associated with winning and retaining loyal customers

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guerrilla marketing plan

answer

1. it should pinpoint the target markets the small company will serve. 2. it should determine customer needs, wants, and characteristics through market research 3. it should analyze a company's competitive advantages and build a marketing strategy around them 4. it should help create a marketing mix that meets customer needs and wants

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target market

answer

first step the group of customers at whom the company aims its products and services

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market reserach

answer

the vehicle for gathering the information that serves as the foundation for the marketing plan - systematically collecting, analyzing, and interpreting data pertaining to the small company's market, customers, and competitors

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how to conduct market reserach

answer

1. define the object 2. collect data 3. analyzing and interpret data 4. put the information to work

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relationship marketing or customer relationship management (CRM)

answer

developing, maintaining, and managing long-term relationships with customers so that they will want to keep coming back to make repeat purchases

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guerrilla marketing principles

answer

find a niche and fill it don't just sell: entertain connect with customers on an emotional level build a consistent branding strategy start a blog strive to be unique focus on customer retain existing customers devotion to quality

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total quality management

answer

quality not just in the product/service itself but also in every aspect of the business and its relationship with the customer and in continuous improvement in the quality delivered to customers

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time compression management

answer

philosophy of speed 1. speeding new products to market 2. shortening customers response time in manufacturing and delivery 3. reducing the administrative time required to fill an order

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four P's of marketing

answer

product place price promotion

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product

answer

have form and shape, services with no physical form

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place

answer

or method of distribution has grown in importance as customers expect greater service and more convenience from busineses

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4 common channels of distribution under place

answer

manufacture to consumer manufacture to retailer to consumer manufacturer to wholesaler to retailer to customer manufacturer to wholesaler to wholesaler to retailer to consumer

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price

answer

affects both sales volume and profits, and without the right price, both sales and profits will suffer

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promotion

answer

involves both advertising and personal selling

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unique selling proposition

answer

a key customer benefit or a product or service that sets it apart from its competition

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promotion

answer

is any form of persuasive communication designed to inform consumers about a product or service and to influence them to purchase these goods or services

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3 types of promotion

answer

publicity personal selling advertising

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publicity

answer

any commercial news covered by the media that boosts sales but for which the small business does not pay - telling your story to the people you want to reach namely the news media, potential customers

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personal selling

answer

the personal contact between sales people and potential customers that comes from sales efforts

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advertising

answer

any sales presentation that is non-personal in nature and is paid for by an identified sponsor

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two types of advertising costs

answer

absolute cost relative cost

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absolute cost

answer

the actual dollar outlay a business owner must make to place an ad in a particular medium for a specific time period

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relative cost

answer

the ad's cost per potential customer reached cost per thousand

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media options

answer

word of mouth special events, sponsorship, product placement newspapers tv specialty advertising

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how to advertise big on a small budget

answer

cooperative advertising shared advertising stealth advertising publicty

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cooperative advertising

answer

manufacturing company shares the costs of advertising with a retailer if the retailer features its products in those ads

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shared advertising

answer

a group of similar businesses forms a syndicate to produce generic ads that allow the individual businesses to dub in local information

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stealth advertising

answer

includes innovative ads that do not necessarily look like traditional ads and often are located in unexpected places

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publicity

answer

getting your business known by the media

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price

answer

monetary value of a good or service it is a measure of what a customer must give up to obtain a good/service

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price range

answer

the area between the price floor and price ceiling

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price floor

answer

total cost to produce the product or provide the service

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price ceiling

answer

the most the target customers are willing to pay

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3 pricing forces

answer

image competition value

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image

answer

pricing policy can be a powerful tool for establishing a brand and for creating a desired image among its target customers

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competition

answer

tracking competitors prices regularly, the prices that competitors are charging is just one variable in the pricing mix. when setting prices take account of competitions prices but should not automatically match the price

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value

answer

the value it provides for a customer

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3 new product pricing strategies

answer

penetration skimming life cycle pricing

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penetration pricing

answer

enables the business to build market share quickly and establish itself as the market leader

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skimming pricing

answer

used when a company introduces a unique product into a market with little or no competition

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life cycling pricing

answer

introduces a product/service at a high price, then lowers

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pricing techniques for established products/service

answer

odd pricing price lining dynamic pricing leader pricing geographic pricing opportunistic pricing discounts multiple unit bundling

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pricing technique for retailers

answer

markup

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pricing techniques for manufactures

answer

cost plus pricing

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cost plus pricing

answer

a price composed of direct materials, direct labor, factory overhead, selling and administrative costs, plus a desired profit margin

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absorption pricing

answer

traditional method of product pricing because all manufacturing and overhead costs are absorbed into the finished product's total cost

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variable (or direct) costing

answer

the cost of the products manufactured includes only those costs that vary directly with the quantity produced

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independent sales organizations

answer

before it can accept credit cards, a business must obtain merchant status from either a bank or an independent sales organization (ISO)

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e commerce

answer

the buying and selling of product or service over electronic systems such as the Internet and other computer networks

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trade credit

answer

customer charge accounts

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benefits to selling on the web

answer

the opportunity to increase rev attract new customers ability of brick-and-mortar retailers to drive online customers into their stores and increase sales there ability to expand to global markets ability to remain open 24/7 capacity to use the web's interactive nature to enhance customers the power to educate and to inform the ability to lower the cost of doing business capacity to improve the efficiency of purchasing and inventory control processes spot new business opportunities and capitalize on them track sale results opportunity to building credibility and a brand identity

question

% of companies that do not have websites

answer

40%

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common e-commerce mistakes

answer

selling the wrong product online lack of marketing poorly designed web site failing to stay current clumsy checkout procedure no privacy policy poorly planned order fulfillment lack of focus failure to recognize the importance of security

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strategies for e-success

answer

focus on a niche in the market develop a community freebies email customer but don't spam make it credible consider forming strategic alliances promote the site online and off-line develop a search engine optimization strategy

question

3 types of basic search engine results

answer

natural/organic listing pain or sponsored listing pain inclusion

question

natural/organic listing

answer

arise as a result of "spiders" powerful program search engines use to crawl around the web, analyzing sites for key words, links, and other data

question

web analytics

answer

tools that measure a web site's ability to attract customers, generate sales, and keep customers coming back

question

layered financing

answer

piecing together capital from multiple sources

question

capital

answer

any form of wealth employed to produce more wealth - exists in cash, inventory, plant, and equipment

question

fixed capital

answer

needed to purchase a business's permanent or fixed assets such as buildings, land, computers, and equipment

question

working capital

answer

temporary funds, the capital used to support short term ops

question

growth capital

answer

not related to the seasonal fluctuations of a small business, growth capital requirements surface when an exisint business is expanding or changing its primary direction

question

sources of equity financing

answer

1. personal savings 2. friends/family 3. angels 4. partners 5. corp venture capital 6. venture capital companies

question

equity financing

answer

personal investment of the owner or owners and is called risk capital because the owners assume the primary risk of losing their funds

question

personal savings

answer

first place

question

angels

answer

private investors - wealthy individuals who invest in business start ups in exchange for equity stakes in the companies early stages before venture capital firms

question

corp venture capital

answer

large corps 19% of all venture capital deals involve corp venture cap looking not only for financial returns but also innovative products that can benefit them about 300 large corps across the globe

question

venture capital companies

answer

private, for profit orgs that purchase equity positions in young businesses they believe have high growth and high profit potential, producing annual returns of 300 - 500% over 5 to 7 years more than 1300 across the US either in early stage or rapid growth stage only 1/10,000 entrepreneurs worldwide receives venture capital funding at start up

question

initial public offering

answer

go public by selling shares of stock to outside investors a company raises capital by selling shares of its stock to the general public for the first time

question

Note to self - not much on chapter 14 on Sources of Equity Financing

answer

Note to self - not much on chapter 14 on Sources of Equity Financing

question

going public invovles

answer

choosing the underwriter negotiating a letter of intent preparing the registration statement filling with the SEC meeting state requirements

question

advantages of going public

answer

raising the large amounts of capital, improved access to future financing, improved corporate image, and gaining listing on stock exchange

question

disadvantages of going public

answer

include dilution of the founder's ownership, loss of privacy, reporting to the SEC, filing expenses, and accountability to shareholders

question

debt financing

answer

involves the funds that the small business owner borrows and must repay with interest small companies in the US rely heavily on debt capital to start and feed their growing businesses

question

prime rate

answer

the interest rate banks charge their most creditworthy customers, plus two or more percentage points

question

reason business owners should borrow money

answer

increasing the company's workforce and/or inventory to boost sales gaining market share purchasing new equipment refinancing existing debt taking advantage of cash discounts buying the building in which the business is located establishing a relationship with a lender retiring debt held by a non relationship creditor foreseeing a downturn in business

question

sources of debt capital

answer

commercial banks nonbank sources of debt capital Small business admin state and local development programs internal methods of financing

question

commercial banks

answer

greatest number and variety of loans to small businesses provide 64.7% of all traditional debt to small businesses most loans are for <$100,000 short term loans intermediate and long term loans

question

short term loans

answer

extended less than one year most common used to replenish the working capital account to finance the purchase of inventory, boost output, finance credit sales to customers, or take advantage of cash discounts types -commercial loans, lines of credit, floor panning

question

commercial loans or traditional bank loans

answer

the basic short term loan is the commercial bank's specialty repaid in a lump sum within 3-6 months unsecured loans owners do not have to promise collateral

question

lines of credit

answer

most common requests owners make of a bank is to establish line of credit a short term loan with a preset limit that provides much needed flow for day to day operations

question

floor planning

answer

form of financing frequently employed by retailers of "big ticket items that are easily distinguishable from one another by serial number such as cars, RVs, boats

question

Intermediate and long term loans

answer

banks will make some types - term loans, installment loans, discounted installment contracts, character loans,

question

term loans

answer

another common type of loan banks make to small businesses typically unsecured banks grant these loans to businesses whose past operating history suggests a high probability of repayment impose restrictions called covenants on the business decisions an entrepreneur makes concerning the company's operations

question

covenants

answer

restrictions the banks make on the loans ex. may set limits on owners' salaries, prohibit further borrowing without the banks approval

question

installment loans

answer

made to small firms for purchasing equipment, facilities, real estate, and other fixed assets ex. financing equipment the bank usually lends 60 to 80% of the equipment's value in return for a security interest in the equipment

question

discounted installment contracts

answer

banks also extend loans to small businesses when the owner pledges installment contracts as collateral

question

character loans

answer

banking regulatory changes intended to create jobs by increasing the credit available to small and medium sized companies now allow banks to make character loans based on owner's reputation

question

Non bank sources of debt capital

answer

asset based lenders trade credit equipment suppliers commercial finance companies savings loans associations stock brokerage houses insurance companies credit unions private placements small business investment companies small business lending companies federally sponsored programs

question

asset based lenders

answer

smaller commercial banks, commercial financing companies, or specialty lenders allow small businesses to borrow money by pledging otherwise idle assets such as accounts receivable, inventory, or purchase orders as collateral

question

trade credit

answer

extremely important source of financing involves convincing vendors and suppliers to sell goods and services without requiring payment up front in a form of delayed payments

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equipment suppliers

answer

encourage business owners to purchase their equipment by offering to finance the purchase over time

question

commercial finance companies

answer

when denied bank loans second only to banks in making loans to small businesses and, unlike their conservative counterparts, are willing to tolerate more risk in their loans portfolios

question

savings loans associations

answer

loans for real property financing on commercial and industrial property

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stock brokerage houses

answer

make loans and offer them to customers at lower interest rates called margin loans

question

margin loans

answer

carry lower rates because the collateral supporting them - the stocks and bonds in the customer's portfolio is high quality and in high liquidity

question

margin call

answer

the broker can call the loan in and require the borrower to provide more cash and securities as collateral

question

insurance companies

answer

offer two types of loans policy loans and mortgage loans

question

policy loans

answer

are extended on the basis of the amount of money paid through premiums into the insurance policy; with a policy loan, a business owner serves as a him or her bank, borrowing against the money accumulated in the investment portion of an insurance policy

question

mortgage loans

answer

on long term basis on real property worth a min. of $500000 they are based primarily on the value of the real property being purchased

question

credit unions

answer

non profit financial cooperatives that promote saving and provided loans to their members, are best known for making consumer and car loans

question

private placements

answer

invovles selling debt to one or a smlal number of investors, usually insurance companies or pension funds hybrid between a conventional loan and a bond terms are tailored to the borrower's individual needs as a loan would be

question

small business investment companies

answer

privately owned financial institutions that are licensed and regulated by the SBA provided $48 billion in long term debt and equity financing to more than 100,000 small businesses prefer later round financing and leveraged buyouts over funding raw startups

question

small business lending companies

answer

make only intermediate and long term SBA guaranteed loans they specialize in loans that many banks would not condsider and operate on nation wide.

question

federally sponsored programs

answer

have suffered from budget reductions in the past several years reducing its involvement in the leading business but many programs are still active types: economic development admin department of housing and urban development us dep of ag rural business cooperative service small business innovation research program small business tech transfer program

question

bonds

answer

are corporate IOUs are popular for large companies

question

convertible bonds

answer

bonds that give the buyer the option of converting the debt to equity by purchasing the company's stock at a fixed price in the future, have become more popular for small companies in exchange for offering the option to convert the bond into stock, the small company issuing the convertible bonds gets the benefit of paying a lower interest rate on the bond than on a traditional bond

question

industrial developing revenue bonds

answer

small manufactures needing money for fixed assets with long repayment schedules have access to an attractive, relatively inexpensive source of finds in it

question

Small Business Admin

answer

has several programs designed to help finance both start up and existing small companies that cannot qualify for traditional loans because of their thin asset base and their high risk of failure has helped 20 million companies 7(A) Loan Guaranty Program - the most popular SBA loan program Can be a partner

question

certified lender

answer

when a lender makes enough good loans to qualify as a certified lender the SBA promises a fast turnaround time for the loan decision, 3 to 10 business days

question

preferred lender

answer

a lender becomes a preferred lender, it makes the final lending decision itself, subject to SBA review

question

SBA Express Program

answer

lenders use their own loan procedures and applications to make loans of up to $350,000 also helps to streamline the app process for SBA loan guarantees

question

Note to self

answer

More about the different SBA loans on page 526

question

Small Business Investment Companies (SBICs and SSBICs)

answer

About 400 SBICs operate in the U.S. Use a combination of private capital and federally guaranteed debt to provide long-term capital to small companies Licensed and managed by the SBA Both equity and debt financing

question

Internal Methods of finacing

answer

factoring accounts receivable leasing credit cards

question

bootstrap financing

answer

the business itself has the capacity to generate capital. it is available to virtually every small business and encompasses factoring, leasing rather than purchasing equipment using credit cards and managing the business frugally

question

factoring accounts receivable

answer

a factor buys a company's accounts receivable and pays for them in two parts the first payment, which the factor makes immediately is for 50 to 80% of the accounts agreed upon value which is typically discounted at a rate of 3 to 5 % of the value of the invoice second payment, of 15 to 18% which makes up the balance less the factor's services fees, when the original customer pays the invoice

question

leasing

answer

can lease virtually any kind of asset, office space by leasing, a small business owner is able to use them without trying by valuable capital for an extended period of time can reduce the long term capital requirements of their businesses by leasing equipment and facilities, and they are not investing their capital in depreciating assets

question

credit cards

answer

ready source of temp financing interest

question

Where not to seek funds

answer

guaranteed a loan for whatever amount he needs from a nonexistent bank with false credentials - con artist, and in the meantime he must pay a percentage of the loan amount as an advance fee con artist who claims to be a rep of the SBA and promises the cash hungry owner a SBA loan if the owner pays a small processing fee, then disappears

question

Steps in selecting the best location

answer

selecting the region selecting the state selecting the city

question

Location

answer

i. Customer Access ii. Labor Supply iii. Logistics iv. Tax Rates v. Near universities vi. Temperate climate vii. High quality of life i. Survival ii. Growth rate iii. Success

question

selecting the region

answer

i. US Census Bureau i. American community survey ii. Economic census

question

selecting the state

answer

Factors to consider i. Proximity to markets ii. Proximity to needed raw materials iii. Labor supply iv. Wage rates v. Business climate vi. Tax rates vii. Internet access

question

selecting the city

answer

i. Population trends ii. Population density iii. Competition i. Clustering iv. Costs v. Local laws and regulations i. Zoning vi. Compatibility with community vii. Quality of life viii. Transportation networks ix. Police and fire protection x. Public services xi. Location's reputation

question

location criteria for retail and service businesses

answer

trade area size customer traffic parking expansion potential visibility

question

trade area size

answer

retail compatibility - clusters, complementary businesses degree of competition - size, location, and activity of competing businesses transportation network - highways, roads, and public service routes physical, cultural, or emotional barrier - rivers, lakes political barrier - federal, state, county, or city boundaries

question

location options for retail and service busiensses

answer

central business district - downtown neighborhood locations shopping centers/malls near competitors outlying areas home based businesses

question

types of shopping centers

answer

neighborhood center - day to day needs, 3-12 stores community center - apparel and other soft goods, 12 to 50 stores power center - dominated by severl large anchors, including discount department stores, warehouses theme/festival center - employ a unifying theme that is carried out by the individual shops in their architectural design

question

foreign trade zone

answer

specially designated area that allows resident companies to import materials and components from foreign countries; assemble process, package, or manufacture them

question

enterprise and empowerment zones

answer

offer tax breaks on investments they make within geographic zone boundaries

question

business incubators

answer

an organization that contributes low cost, flexible rental space with a multiple of support services for its small business residents

question

layout and design consideration

answer

layout size and adaptability external appearance entrances ADA signage interiors lighting scent

question

layout: max rev, increasing efficiency, and reducing costs

answer

layout for retailers - well designed floor displays for more info go to page 575

question

Purchasing

answer

involves the acquisition of needed materials, supplies, services, and equipment of the right quality, in the proper quantities, for reasonable prices, at the appropriate time, and form the right to vendor

question

major objective for purchasing

answer

is to acquire enough but not too much stock to ensure smooth sales

question

quality products

answer

fewer defects but also to lower costs, higher productivity, and higher customer retention rates

question

total quality management

answer

companies define a quality product as one that conforms to predetermined standards that satisfy customer's demands that means getting everything from delivery and invoicing to installation and follow up right the first time fundamental principles on page 586

question

six sigma

answer

like TQM uses data drive statistical techniques to improve the quality and the efficiency of any process and to increase customer satisfaction just average 3.4 defects per one million opps

question

four key tenets of the six sigma

answer

delight customers with quality and speed constantly improve the process use teamwork to improve the process make changes to the process based on facts, not guesses

question

cost of units

answer

simply the number of units demanded for a particular time period multiplied by the cost per unit total annual cost of units = (annual demand in units) x ( cost of a single unit $)

question

holding costs

answer

holding inventory = costs of storage, insurance, taxes, interest, depreciation, damage, or spoilage, etc. total holding cost = (Quantity of inventory ordered)/2 x (holding cost per unit)

question

set up costs

answer

total annual setup (ordering) costs = (annual demand)/(quantity of inventory) x setup ordering costs for a single order

question

3 types of discounts vendors offer

answer

trade quantity cash

question

trade discounts

answer

are established on a graduated scale and depend on a small firm's position in the channel of distribution recognize the fact that manufactures, wholesalers, and retailer perform a variety of vital functions at various stages in the channel of distribution and compensate them for providing these needed activities

question

Quantity discounts

answer

designed to encourage a business to order large quantities of merchandise and supplies manufactures sells at $80 --> wholesaler buys at $80 and sells at $100 --> retailer buys at $100 and sells at $175 --> customer buys at 175

question

cash discounts

answer

offered to customers as an incentive to pay for merchandise promptly 2/10 net 30 meaning the total amount of the invoice is due 30 days after date, but if the customer pays the bill within 10 days he or she may deduct 2 % from the total 2/10 EMO means end of month the buyer may deduct 2 % if paid by the 10th of the month after purchase

question

lead time

answer

is the time gap between placing an order with a vendor and actually receiving the goods

question

safety stock

answer

to avoid stockouts a firm establishes a min. level of inventory greater than zero

question

supply chain management

answer

enables companies to reduce their inventories, get products to market much faster, increase quality, and improve satisfaction

question

the final decision of chain managment

answer

number of suppliers to buy from reliability proximity services collaboration price negotiations

question

legal issues affecting purchasing

answer

title identification risk of loss insurable interest

question

Inventory

answer

inventory represents the largest investment for the typical small business the cost of inventory will strain the firm's budget and cut into its profitability

question

goal of inventory

answer

is to balance the cost of holding and maintaining inventory with meeting the customer demand

question

Pareto's Law

answer

Inventory law 80/20 rule 80% of the value of the firm's inventory is about 20% of the items in stock

question

three types of inventory control systems

answer

perpetual visual partial

question

perpetual inventory

answer

are designed to maintain a running count of the items in inventory although expensive and cumberson to operate by hand, affordable computtory systems is the most common method

question

visual inventory

answer

most common method of controlling merchanidise in a samll business works best when shortages are not likely to cause major problems

question

partial inventory

answer

most effective for businesses with limited time and money operate on the basis of the 80/20 rule

question

ABC system

answer

part of partial inventory - that divides the firms inventory into three categories depending on each item's dollar usuage volume A items are most closely controlled by perpetual inventory B items are basic analytical tool C items are controlled by very simple techniques such as two bin systems

question

How to reduce losses from slow moving inventory

answer

monitoring the company's inventory turnover ration; slow moving items result in losses from spoilage or obsolescence slow moving items can be liquidated by markdowns, eye catching displays, or quantity discounts

question

Employee theft

answer

accounts for the majority of the business losses due to theft

question

shoplifting

answer

most common business crime, most are amateurs

question

three strategies most useful in deterring shop lifters

answer

1 employees well trained for signs 2 store layout designed with theft deterrence in mind anti theft devices should be installed in the store

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