Chapter 6 & 7

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# Chapter 6 & 7 - 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

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Presentation Transcript

### Chapter 6 & 7

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
• 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
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
• 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?
Getting Started
• Planning: