Final Flashcards
3 important perspectives for the business plan
entrepreneur’s, marketing, investor’s
what is the executive summary section of a business plan?
2-3 pages summarizing complete business plan, should stimulate investors’ interest and address issues the reader might have
environmental analysis
assessment of external uncontrollable variables that may impact the business plan
industry analysis
reviews industry trends and competitive strategies
description of venture
provides complete overview of products, services, and operations of new venture
production plan
details how the products will be manufactured
operations plan
describes flow of goods and services from production to customer
marketing plan
describes market conditions and strategy related to how the products and services will be distributed, priced, and promoted
organizational plan
describes form of ownership and lines of authority and responsibility of members of new venture
assessment of risk
identifies potential hazards and alternative strategies to meet business plan goals and objectives
financial plan
projections of key financial data that determine economic feasibility and necessary financial investment commitment
main reasons for business plan failure
goals are not reasonable or measurable
not enough commitment to venture
no experience
no customer need established for product or service
business plan
written document prepared by entrepreneur that describes all relevant external and internal elements involved in starting a new venture
3 basic legal forms of business formation
proprietorship, partnership, corporation
proprietorship
single owner who has unlimited liability, ,controls all decisions, and receives all profits
partnership
2 or more individuals having unlimited liability who have pooled resources to own a business
C corporation
most common form of corporation, treated as a separate legal entity
tax advantages for propietorship
no double tax on profits; no capital stock tax or penalty for retained earnings
limited partners liability in general partnership
only liable for the amount of their investment
corporation tax advantages
corporate tax rate may be lower than individual tax rate, also gets more deductions
corporate tax disadvantage
double taxation
S corporation
special type of corporation where profits are distributed to stockholders and taxed as income
limited liability company
partnership-corporation hybrid that has members instead of stockholders
management teams must be able to accomplish what 3 functions?
execute business plan
identify changes in the business as they occur
make adjustments to plan based on changes
functions of the board of directors
reviewing budgets develop long term strategies for growth support day-to-day activities resolve conflicts ensure proper use of assets develop network of information sources for entrepreneur
board of advisors
more loosely tied to organization and serve only in advisory capacity
pro forma income
projected net profit calculated from projected revenue minus projected costs
cash flow
difference between actual cash receipts and cash payments
pro forma cash flow
projected cash available calculated from projected cash accumulations minus projected cash disbursements
pro forma balance sheet
summarizes projected assets, liabilities, and net worth of venture
when is the balance sheet prepared?
at periodic intervals (quarterly, annually)
owner’s equity
amount owners have invested and/or retained from the venture
penetration strategy
encouraging existing customers to buy more of the firm’s current products
market development strategy
selling the firm’s existing products to new groups of customers
new groups of customers in market development strategies
geographical, demographic, product use
product development strategy
developing and selling new products to people who are already purchasing the firm’s existing products
diversification strategy
selling a new product to a new market
backward integration
step back (up) in value-added chain toward raw materials
forward integration
step forward (down) on value-added chain toward customers
horizontal integration
occurs at the same level of the value-added chain but involves a different, complementary, value-added chain
major areas of pressure during growth
existing financial resources, human resources, management of employees, and entrepreneur’s time
managing cash flow drivers
accounts receivable, inventory, accounts payable
participative style of management
manager involves others in decision-making process
how to institute a more participative style of management
establish team spirit communicate with employees provide feedback delegate some responsibility to employees provide continuous training
informal risk-capital market
consists mainly of individuals (angel investors)
venture-capital market
consisting of formal firms of investors
public equity market
consisting of publicly owned stocks of companies
equity participation
taking an ownership position through stock, warrants, and/or convertible securities
SBIC
small business investment company
types of venture capital organizations
SBIC, private venture, corporate, state-sponsored, university-sponsored
what 3 things does a venture capitalist expect before investing?
strong management team
unique product or market opportunity
significant capital appreciation
factors in valuation
nature & history of the business outlook of economy overall financial condition future earning capacity future dividend-paying capacity assessment of goodwill/intangibles previous stock sales market value of similar companies' stock
present value of future cash flow
valuing a company based on its future sales & profits
earnings approach
determining the worth of a company by looking at its present & future earnings, using a price-earnings multiple; most widely used to compute ROI
liquidation value
worth of a company if everything was sold today
