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# Chapter 7 notes - PowerPoint PPT Presentation

Chapter 6 & 7. Starting New Business. Valuing Intangible Assets. Income Statement Method Value tangible net assets (I.e., \$224,000) Determine before-tax rate of return (15%) Represents normal profit (\$224,000 * 15% = \$33,600) Determine actual average profit (\$83,600)

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### Chapter 6 & 7

• Income Statement Method

• Value tangible net assets (I.e., \$224,000)

• Determine before-tax rate of return (15%)

• Represents normal profit (\$224,000 * 15% = \$33,600)

• Determine actual average profit (\$83,600)

• Determine average salary (\$40,000)

• Determine capitalization rate

• Typically negotiated between buyer and seller (25%)

• Value goodwill:

• \$224,000 - \$40,000 - \$33,600 = \$10,000

• Capitalize goodwill:

• \$10,000/25% = \$40,000

• Planning Succession: the major cause of family business failure is lack of business succession planning for the following reasons:

• Difficult for senior family members to address their own mortality.

• Concern for next generation’s commitment

• Transfer of control is put off until too late

• Seniors are too personally tied to the business

• Ability to create distinctive competitive advantage

• Risk of failure is higher among startups

• May have trouble identifying market needs

• May be tough to get noticed initially

• Lots of details

• Labor Intensive: is a business that is more dependent on the services of people than on money and equipment

• Chiropractic offices

• Capital Intensive: is a business that depends greatly upon equipment and capital for its operations.

• Car manufacturer

• Window of Opportunity: the period of time in which an opportunity is available.

• Windows continuously open and close

• Windows of opportunity correlate with the product life cycle.

• Product Life Cycle:stages of introduction, growth, maturity, and decline.

• During the introduction stage, the window of opportunity is open and little competition exists.

• Planning:

• Develop market analysis - gather and analyze information about your customers.

• Develop competitive analysis - understand what other businesses do and how they are perceived.

• Identify startup costs - how much money will you need to start your business?

• Planning:

• Develop a marketing plan

• Consider information technology and computer integration

• IT can make operations more efficient (ie, use in inventory management)

• IT can reduce employee overhead (ie, computers could fill out claim forms thereby eliminating a lot of time)

• IT can enhance customer service (ie, computers could automatically send out patient reminders or update letters or insurance follow-up)

• Operational Excellence - creates a competitive advantage by holding down costs to provide customers with the lowest-priced products.

• Dell computer

• Product Leaders - creates a competitive advantage based on providing the highest-quality products possible.

• New Balance tennis shoes

• Customer Intimacy - creates a competitive advantage by maintaining a long-term relationship with customers through superior service.

• Land’s end