Entrepreneurship: Chapter 8

CHAPTER 8:  ACCOUNTING RECORDS AND FINANCIAL STATEMENTS

Discuss the importance and uses of financial records in a small business

You need financial records so you can make managerial decisions on topics concerning how much money is owed to your business, how much money you owe and how to identify financial problems before they become serious dilemmas. Financial records are also needed to prepare your tax returns and to inform your banker and investors about your business’s financial status. Without accurate financial records, you cannot exercise the kind of clear sighted management control needed to survive in a competitive marketplace.

Itemize the accounting records needed for a small business

The accounting records of your small business need to follow the standards of generally accepted accounting principles (GAAP). From your source documents such as sales slips, purchase invoices, and check stub, you should record all the transactions in journals. Information from your journals should then be posted in (transferred into) a general ledger.  Financial statements like your balance sheet, income statement, and statement of cash flow are produced from the transactions in our general ledger.

Explain the ratios used to analyze financial statements

Ration analysis enales you to compare the financial condition of your business to its performance in previous time periods or to the performance of similarly sized businesses within your industry. Foru important types of financial ratios discussed in this chapter are:-

• liquidity (current and quick, or acid-test, ratios)
• activity (inventory, turnover, average collection period, fixed asset turnover, total asset turnover)
• leverage (debt and times interest earned)
• profitability ratios (net profit margin, return on assets, return on equity)

Illustrate the importance of and procedures for managing cash flow

Cash flow is the different between the amount of cash actually brought into your business and the amount paid out in a given period of time. cash flow represents the lifeblood of your business because if you do not have enough moeny to pay for your operating expenses, your are out of busienss.

•  My View:  When a small business well-funded by investors, it is important to hire a qualify accountant to keep the book clean & up-to-date. Investors rely heavily on the objectivity and integrity of those who prepare financial statements. When that fiduciary bond is broken, and the reliability of financial statements is called into question. In that case, any confidence that may have been invested in the reporting system is destroyed. In the eyes of the investor, it they cannot trust your financial statements, how can they trust you to continue leading the company.
  
  

Entrepreneurship: Chapter 7

CHAPTER 7: STARTING A NEW BUSINESS

The advantages and disadvantages of starting a business from scratch

When starting a business from scratch, you have no worry on any negative impact or unhappy customers, or bad debt credit from prior mistake to overcome, as if you compare with purchasing an existing business. Furthermore, you may enjoy your creation of a success business and pride of ownership. However, the risk of failure is higher for a startup because there are more uncertainties and variables regarding the market acceptance to your product.

The common types of new businesses and characteristics of fast-growth companies

New businesses include E-businesses, home-based businesses and part-time businesses have completely changed the small business landscape. Some of the small businesses are hyper growth companies. These companies are generally led by teams of seasoned people with prior experiences or entrepreneurial spirit people who turn their idea into a new business.

Evaluating potential startups and ideas

When a brand new product idea being introduce, you may have a great chance of success if people want and will buy your product. As the product progresses through the product life cycle, the window of opportunity closes, as more competition enters the market and it impacts the pricing and the profit margin may drop. Most people get their idea from prior employment or their hobbies turn into business or someone suggestions. Sometimes business ideas occur by chance.

Getting started

It is a big challenge to turn your dream into reality. You need to carefully plan and consider the costs of starting a new business, and they must analyze the market and competitive landscape to ensure the competitive advantage really exist and your product can really sell. Next, customer service is the basis for establishing a long-term relationship with customers. Startups have legal requirements. Entrepreneurs must file the business name with the state of origin and obtain local business licenses and any industry-specific permits required. They must also apply for a tax identification number to collect and process sales taxes.

My View: I founded a business from scratch many years ago. I started the business because I thought about creating wealth and reaching personal satisfaction. Based on my past experience, there are several important pros and cons considerations for starting a successful business. Besides of all the key elements mentioned in the textbook, I would say the #1 most essential for me to start a business is not money but to have a right partner and a right team from the beginning. If you have a right team, many obstacles can be gradually resolved over time.

Entrepreneurship: Chapter 6

CHAPTER 6: TAKING OVER AN EXISTING BUSINESS

The advantages and disadvantages of buying an existing business

The advantages of buying an existing business are it comes with existing customer base and the business is already functioning operation. You do not have to start from the ground up. The disadvantages include the difficulty of changing the business’s image, the outdated inventory, equipment, unsatisfied location, liabilities for previous contracts, etc.

How to find a business for sale

There are several sources to find a business for sale. You can find it on newspaper advertising, Craiglists.com, word of mouth through friends and family, bankers, lawyers, accountants, business brokers, internet search, etc.

The means of measuring a business’s condition and determining why it is being sold
When a

The difference between tangible and intangible assets

Tangible assets are those that can be seen and examined. Real estate, inventory, and equipment are important tangible assets. Intangible assets, though unseen, are no less valuable. Goodwill, leases, contracts, and patents, copyrights and trademarks are exmples.

The price to pay for a business

The offering price to pay for a business is calculated by adding the adjusted value of tangible assets to the value of intangible assets (including goodwill, if appropriate)



Factors important when finalizing the purchase of a business

Once the price of a business is agreed upon, the terms of sale need to be negotiated including setting up installment provisions and thinning of the assets. Before the closing date the buyer puts an agreed upon amount of money into an escrow account.

My View: Taking over an existing business is a lot like founding your own. The big difference is that you do not have to start from scratch. You take responsibility for an organization that already has its own strength and weaknesses. Many years ago, a group of thirtheen of us bought out an existing support service business.  We all have great technical experience in support the customer base. Since we have an in-depth understanding of the business, its structure, and its business nature. We did fairly good in the business.

Entrepreneurship: Chapter 5

CHAPTER 5: FRANCHISING

• Explain what a franchise is and how it operates
• Franchising is a legal agreement that allows a franchisee to use a product, service, or method of the franchisor in exhange for fees and royalties.
• A franchisee is an independent businessperson who agrees to operate under the policies and procedures set up by the franchisor.

• Articulate the difference between product-distribution franchises and business-format franchises
• Product-distribution franchises allow the franchisee to purchase the right to use the trade name of the manufacturer and to buy or sell the manufacturer's products.
• Business-format franchises allow the franchisee to duplicate the franchisor's way of doing business

• Compare the advantages and disadvantages of franchising
• There are eight major advantages of franchising from the franchisee's perspective:
• Proven product or service
• Marketing expertise
• Financial assistance
• Technical and managerial assistance
• Opportunity to learn
• Quality control standards
• Efficiency
• Opportunity for growth
• The primary disadvantages to the franchisee include fees, restrictions on his freedom to operate the business.

• Explain how to evaluate a potential franchise
• To evaluate a franchise opportunity, you should send for a copy of the company's disclosure statement, research the company through business periodicals, talk to current and former franchisees, and check out the franchisor's reputation with the international franchise association.

My View: Franchising looks attractive to extend a successful brand, but we should beware the high costs and business challenges.

Entrepreneurship: Chapter 4

CHAPTER 4: THE BUSINESS PLAN

• Explain the purpose and importance of the business plan
• Business plans are importnt to:
• Raise capital
• Provide a road map for future operations
• Prevent omissions

• Describe the components of a business plan
• The major sections of a business plan include the cover page, table of contents, executive summary, company, environmental and industry analysis, products or services, marketing research and evaluation, manufacturing and operations plan, management team, timeline, critical risks and assumptions, benefits to the community, exit strategy financial plan, and appendix

• Recognize the importance of reviewing your business plan
• Like any project involving a number of complex steps and calculations, your business plan should be carefully reviewed and revised before you present it to potential investors.

• My View: I already have the basic understanding of the importance of an executive summary in my business plan. I found a startup in 2004 named Nanno Solutions. I spent a lot of times presenting my executive summary as a mechanism to communicate with the angels and venture capital investors. Nevertheless, CALMAT’s marketing and entrepreneurship courses have taught me how to write a better executive summary report that will help information flow more efficiently within a business venture.

Entrepreneurship: Chapter 3

CHAPTER 3: SOCIAL RESPONSIBILITY, ETHICS, AND STRATEGIC PLANNING

• Explain the relationship between social responsibility, ethics, and strategic planning
• The social responsibility and ethics of your business are the commitments you make to doing what is right
• Strategic planning is the process of deciding where yo want yout busienss to go and how it will get there.
• All three concepts work together to form the foundation on which your entire business rests.

• Name the level of social responsibility
• You have an economic responsibility to make your business profitable. Without profit, your business cannot contribute anything to society
• Your legal obligation to obey the law describes the minimal behavior expected for your firm to be part of society
• Your ethical responsibility covers your obligation to do what is right.

• Discuss how to establish a code of ethics for your business
• a code of ethics offers a way for you to communicate your ethical expectations to everyone involved in your business
• The code should represent your ethical ideals, be concise enough to be remembered, be written clearly, and apply to everyone in the organization

• Describe each step in the strategic planning process, and explain the importance of competitive advantage
• The strategic planning process includes defining your mission statement, conducting an environmental analysis (internal and external, or SWOT, analysis)
• Analyzing the competition and defining your competitive advantage
• Identifying strategic alternatives, setting goals, and establishing systems to measure effectiveness
• A competitive advantage is the facet of your business that gives your company an edge over the competition
• The strategic planning helps you to identify and establish competitive advantage by analyzing the environment and the competitive landscape

Entrepreneurship: Chapter 2

CHAPTER 2: FORMS OF BUSINESS ORGANIZATION

The differences between the small business manager and entrepreneur

• An entrepreneur is a person who takes advantage of an opportunity and assumes the risk involved in creating a business for the purpose of making a profit. A small business manager is involved in the day-to-day operation of an established business.  Each faces significant challenges, but they are at different stages of development in the entrepreneurship and small business management model.

The steps in preparing for small business ownership

• The entrepreneurship process involves an innovative idea for a new product, process, or service. Implementation is the stage at which the entrepreneur forms a business management process is growth, which usually means the business is becoming large enough to generate enough profit to support itself and its owner. The maturity stage is reached when the business is stable and well established.

The advantages and disadvantages of self-employment

• The advantages of self-employment include the opportunity for independence, the chance for a better lifestyle, and potential for significant profit.  The disadvantages include the personal liability you would face should the business fail, the uncertainty of an income, and the long working hours.

The characteristics of the forms of small business ownership

• There are several choices for the form of ownership of your small business. The most common is the sole proprietorship. If you choose a partnership, you have the choice of a general partnership, in which all partners are fully liable for the business, or a limited partnership, in which at least one partner retains unlimited liability. A corporation offers its owners limited liability.  In forming a corporation, you are creating a legal entity that has the same rights as a person. Variations of corporations include S corporations, limited-liability companies, and nonprofit corporation.

• My View: The importance of a business organziational structure constructs a hierarchical system to be implemented into the organization to make its operation more efficient and productive. One bad example is I used to work for acompany with 300 employee. The organization structure involved a chain of 36 Vice President who makes the decisions and accountabled for various duties. Due to the high cash burn rate and poor organizational structure, it turned company into ashes with a few years.