Entrepreneurship 3

  1. reasons to buy an existing business
    • quicker easier start-up
    • reduced risk
    • bargain potential your knowledge can be beneficial
  2. potential pitfalls of buying an existing business
    • failure to disclose
    • business may be a poor fit
    • use due dillagence
    • investment requirements
    • buying someone elses problems
  3. bought business problems
    • dissatisfied customers, suppliers, employees, or creditors
    • plant or equipment obsolete or inefficient
    • lack of innovation or market trends
    • patents no longer valid
  4. business broker
    a company or individual that buys or sells businesses for a fee
  5. due dilligence
    the exercise of reasonable care in the evaluation of a business opportunity
  6. due dilligence proccess
    • identify real reason owner is selling
    • lack of sufficient cash flow
    • unprofitability
    • staffing
    • change in industry or market conditions
    • new competitors
    • litigation
  7. nondisclosure agreement
    a legal document enumerating the type of information that is to remain confidential
  8. asset valuation
    a method that analyzes the inderlying value of the firms assets as a basis for negotiating price
  9. four standards of asset valuation
    • book value
    • adjusted book value
    • liquidation value
    • replacement value
  10. earnings valuation
    a method that assesses the value of the firm based upon a stream of earnings that is multiplied either by an agreed-upon factor (the capitalization factor) or by the p/e ratio (for a publicly traded company)
  11. earnings valuation process
    • historical earnings
    • future earnings under current ownership
    • future earnings under new ownership
  12. cash flow valuation
    a method of calculating the worth of a business by using projected future cash flows and the time value of money
  13. how to determine the value of a business
    • assset valuation
    • earnings valuation
    • cash flow valuation
    • consider value of nonfinancial factors
    • arrive at offer and max price before entering negotiations
  14. family business
    a firm that has two or more members of the same family managing and or working in it, that is owned or operated for the benefit of that family's members
  15. identify and evaluate purchase opportunities
    • identify personal goals and objectives to create best match
    • use resources available to identify prospective purchases
    • due dillegence for most complete and accurate information
  16. negotiate and close deal
    • recoginize mutual goal despite differing individual goals
    • negotiate price and set terms
    • holf formal closing and coplete all legal documents with support of qualified legal and accounting counsel
Card Set
Entrepreneurship 3
Chapter 3