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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

Chapter 6 & 7

Starting New Business

valuing intangible assets
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)
      • 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
taking over family businesses
Taking Over Family Businesses
  • 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
advantages disadvantages of starting from scratch
Advantages & Disadvantages of Starting from Scratch
  • Advantages:
    • Freedom to mold your new business
    • Ability to create distinctive competitive advantage
  • Disadvantages:
    • Risk of failure is higher among startups
    • May have trouble identifying market needs
    • May be tough to get noticed initially
    • Lots of details
types of new businesses
Types of New Businesses
  • 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
evaluating potential startups
Evaluating Potential Startups
  • 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.
getting started
Getting Started
  • Planning:
    • Write a business plan
    • 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?
    • Decide on the legal form of your business
getting started9
Getting Started
  • Planning:
    • Determine the location of your business
    • 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)
how will you compete
How Will You Compete?
  • 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
how will you compete11
How Will You Compete?
  • Customer Intimacy - creates a competitive advantage by maintaining a long-term relationship with customers through superior service.
      • Land’s end
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