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61 Cards in this Set
- Front
- Back
Entrepreneur
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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
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Characteristics of an Entrepreneur
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Willingness to take initiative
Preference for moderate risk Confidence in their ability to succeed Self-reliance Perseverance Desire for immediate feedback High level of energy Competitiveness Future orientation Skilled at organizing (priority) Value achievement over money |
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Benefits of Small Business Ownership
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The opportunity to:
Control your own destiny Make a difference Reach your full potential Reap impressive profits Contribute to society and to be recognized for your efforts Do what you enjoy and to have fun at it |
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Drawbacks of Small Business Ownership
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Uncertainty of income
Risk of losing your entire investment Long hours and hard work -Average work week is 54 hours |
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Characteristics of Small Business
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Make up 99.7% of all the 29.3 million businesses in the U.S
. Employ 52% of the nation’s private sector workforce Pay 45% of total private payroll Create more jobs than big businesses -1996 to 2006: Between 60% and 80% of all net new jobs in the U.S. |
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9 Step Strategic Management Process
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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 and objectives Step 7: Formulate strategies Step 8: Translate plans into actions Step 9: Establish accurate controls |
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Companies Strengths
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Positive internal factors that contribute to accomplishing the mission, goals, and objectives
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Companies Weaknesses
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Negative internal factors that inhibit the company’s ability to accomplish its mission, goals, and objectives
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Companies Opportunities
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Positive external options the company can exploit to accomplish its mission, goals, and objectives
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Companies Threats
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Negative external forces that inhibit the company’s ability to accomplish its mission, goals, and objectives
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Companies Goals
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broad, long-range attributes to be accomplished; general and abstract
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Companies Objectives
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more detailed, specific targets of performance that are S.M.A.R.T.
-Specific -Measurable -Assignable -Realistic (yet challenging) -Timely |
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Companies Strategy
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How to reach its mission, goals, and objectives
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Three Strategic Options
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-Cost Leadership
-Differentiation -Focus |
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Advantages of Sole Ownership
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-Easiest to create
-Least expensive form to begin -Profit incentive -Total decision-making authority -No special tax restrictions -Easy to discontinue |
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Partnership
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An association of two or more people who co-own a business for the purpose of making a profit
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Corporation
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A separate legal entity from its owners
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Disadvantages of Sole Ownership
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-Unlimited personal liability
-Limited access to funds -Limited skills and abilities -Feelings of isolation -Lack of continuity |
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Advantages of a Partnership
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-Shared financial commitment.
-You can pool resources, expertise, and strengths. -Limited startup costs. -Flexibility -Taxation |
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Disadvantages of a Partnership
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-Partners are personally liable for business debts and liabilities.
-Each partner may also be liable for debts incurred, decisions made, and actions taken by the other partner or partners. -Capital accumulation low compared to corporation ownership -Difficulty in selling interest of one of the partners -Partners bound by the law of agency |
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Advantages of Corporation
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-Limited liability of the stockholders
-Ability to attract capital -Ability to continue for sure |
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Disadvantages of Corporation
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-Potential for diminished managerial motivation (New hiring)
-Cost and time of incorporating -Potential loss of control by founder(s) |
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The Franchiser
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Determines product or service line
Can only recommend prices Establishes quality standards; provides list of approved suppliers; Develops and coordinates national ad campaign; may require minimum level ofspending on local advertising Sets quality standards and enforces them with inspections; trains franchisees |
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The Franchisee
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Modifies only with franchiser’s approval
Sets actual prices Must meet quality standards; must purchase only from approved suppliers; must purchase from supplier if required Pays for national ad campaign; ;gets franchiser approval on local ads Maintains quality standards; trains employeesto implement quality systems |
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Benefits of Franchising
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-Business system
-Management training and support -Brand name appeal -Standardized quality of goods and services -National advertising program -Site selection and territorial protection -Greater chance for success -Financial assistance -Proven products and business formats |
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Disadvantages of Franchising
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-Franchise fees and profit sharing
-Average franchise start-up cost is $200,000 -Royalty: 1% to 12% of sales -Strict adherence to standardized operations Limited product line -Unsatisfactory training programs -Market saturation -Less freedom |
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Advantages of Buying an Existing Business
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-Turn key business
-Superior location -Established customer base -Employees familiar with the business |
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Disadvantages of Buying an Existing Business
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-Cash requirements
-Unsatisfactory location -Value of accounts receivable -Unsuitable conditions -Dated equipment, facilities, and inventory |
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Analyzing an Existing Business
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Why does the owner want to sell...the real reason?
What is the physical condition of the business and its assets? What is the market potential for the company's products or services? What legal aspects must I consider? |
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Negotiating the Deal
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-Know what you want to have
-Develop a negotiation strategy -Recognize the other party’s needs -Be a good listener -Focus on the issue, not on the person -The other side is not your enemy -Be patient -Remember that “no deal” is an option -Be flexible and creative |
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Industry and Market Feasibility Analysis
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-Determining how attractive an industry is
-Identifying possible niches a small business can occupy profitably |
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Five Forces Model for analyzing an industry's attractiveness
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-Rivalry among companies in the industry
-Bargaining power of suppliers -Bargaining power of buyers -Threat of new entrants -Threat of substitute products or services |
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Rivalry Among Competitors
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Strongest of the five forces
Industry is more attractive when: -Number of competitors is low, or, at the other extreme, quite large. -Industry is growing fast -Opportunity to sell a differentiated product or service exists |
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Bargaining Power of Suppliers
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-The greater the leverage of suppliers, the less attractive the industry
-Industry is more attractive when: -Many suppliers sell a commodity product -Substitutes are available -Switching costs are inexpensive (from one supplier to another or substitute products) |
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Bargaining Power of Buyers
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Buyers’ influence is high when number of customers is small and cost of switching to a competitor’s product is low
Industry is more attractive when: -Customers’ switching costs are high -Number of buyers is large -Customers want differentiated products -Customers find it difficult to collect information for comparing suppliers |
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Threat of New Entrent
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The more new entrants there are, the less attractive an industry will be
Industry is more attractive to new entrants when: -Advantages of economies of scale are absent -Capital requirements to enter are low -Buyers are not loyal to existing brands -Government does not restrict the entrance of new companies |
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Threat of Substitutes
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Industry is more attractive to new entrants when:
-Quality substitutes are not readily available -Prices of substitute products are not significantly lower than those of the industry’s products -Buyers’ switching costs are high |
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Product of Service Feasibility Analysis
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Are customers willing to purchase our good or service?
Can we provide the product or service to customers at a profit? |
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Financial Feasibility Analysis
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Capital requirements – must have an estimate of how much start-up capital is required to launch the business
Estimated Profits – forecasted income statements Return on Investment – combining the previous two estimates to determine how much investors can expect their investments to return |
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Key Elements of a Business Plan
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-Title page and table of contents
-Executive summary -Mission statement -Company history -Business and industry profile -Business strategy -Description of products/services -Marketing strategy -Competitors Analysis -Owners’ and managers’ résumés -Plan of operation -Financial forecasts -Loan/investment proposal |
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Financial Forecasts
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-Projected financial statements
Monthly for one year Quarterly for next two -Income statement -Balance sheet -Cash Flow -Capital expenditures |
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Balance Sheet
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estimates the firm's worth on a given date; built on the accounting equation: Assets = Liabilities + Owner's Equity
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Income Statement
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compares the firm's expenses against its revenue over a period of time to show its net income (or loss):
Net Income = Sales Revenue - Expenses |
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Liquidity Ratios
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Tell whether or not 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 solvency by showing a firm's ability to pay current liabilities out of current assets
Current Assets/Current Liabilities Rule of Thumb 2 to 1 or use industry average |
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Quick Ratio
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Shows the extent to which a firm's most liquid assets cover its current liabilities
Quick Assets / Current Liabilities 1 to 1 rule Important if company relies on selling inventory to pay current debts |
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Quick Assets
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Current Assets - Inventory
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Leverage Ratios
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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
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Debt Ratio
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Measures the percentage of total assets financed by creditors rather than owners
Total Debt / Total Assets |
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Operating Ratios
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Evaluate a firm's overall performance and show how effectively it is putting its resources to work
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Average Inventory Turnover Ratio
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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 |
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Average Inventory
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Beginning Inventory + Ending Inventory / 2
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Average Collection Period Ratio
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Tells the average number of days required to collect accounts receivable
Two Steps: Receivables Turnover Rate = Credit Sales / Accounts receivable Days in accounting period/ receivable turnover rate |
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Average Payable Period Ratio
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Tells the average number of days required to pay accounts payable
Two Steps: Payable Turnover Rate = Purchases / Accounts Payable Days in Accounting Period/Payable turnover rate |
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Profitability Ratios
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Measure how efficiently a firm is operating; offer information about a firm's "bottom line"
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Net Profit on Sales Ratio
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Measures a firm's profit per dollar of sales revenue
Net Income/Net Sales |
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Net Profit Equity Ratio
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Measures the owner's rate of return on the investment in the business
Net Income/Owner's Equity |
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Cash Management
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forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly
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Bg 3 of Cash Management
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-Accounts Receivable
-Accounts Payable -Inventory |
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Marketing
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The process of creating and delivering desired goods and services to customers
All of the activities associated with retaining loyal customers Understand target customers’ needs, demands, and wants before competitors can Provide customers with quality, service, convenience, and value so they will keep coming back |
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Market Research
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the vehicle for gathering the information that serves as the foundation for the marketing plan
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