Good Example Of Small Business Management Chapters 5 And 7: Discussion Questions From The Book Essay

Chapter 5:

#1)
An entrepreneur who buys an existing business can gain several advantages versus one who starts from scratch. Some advantages are: (a) employees/suppliers in place already, (b) turn-key business in proven excellent location, (c) known capacity of ready-installed equipment, and (d) trade and inventory established represent key reasons why it’s a good idea, according to Scarborough (129). Money is not to be forgotten! In terms of obtaining great financing opportunities many are more likely to recognize the reliability and track record of a well-known, and familiar profit maker – such as a quality pizza/wings business. Sometimes owners must sell quickly, for any reason. Maybe a death in the family causes them to suddenly re-locate, so you may find a bargain, “that is below its actual worth” (130). In this case, go for it.
#2)
First, be honest in assessing your own capabilities, skills, desires, and be realistic about your interests. Do not just ‘choose’ one to earn money. List a sensible criteria. For example, enumerate the tasks involved you would be responsible for, create a roster of possible choices, explore angel investors or other kinds of financing (including negotiations), too (134). Scarborough suggests a fairly detailed list of an analysis of your skills and preparation of candidates. He recommends deciding on what you enjoy, remember to avoid ones you hate, honestly ascertain your business skills, count your available money, and use available resources to identify acquisition candidates online, industrial sources, bankers, or what-have-you (134). In this manner, you can weed out the unfruitful and problems, while focusing on the success parts.
#4)
Scarborough clearly lists the areas for evaluating an existing business, as an entrepreneur considering purchase. These five include: motivation, asset valuation, market potential, legal issues, and financial condition (136). Each element answers the following questions, and are common sense. Why does the owner wish to sell? What is the true asset’s value? What potential exists to expand/improve goods or service sales? How complex are the legalities? And, are you inheriting financial headaches?
#8)
The reason why it is so difficult for buyers and sellers to agree upon a price is because they each have different goals. The buyer wants to secure a profitable future, in terms of his or her livelihood and obviously payout the lowest price (151). The same page says that sellers want to receive the highest price possible, and ensure the buyer adheres to all financial payment agreements down the road.
#10)
Sellers may structure deals by using a straight-up business sale, only sell controlling interest, or re-structure the company creatively – such as selling only an aspect, like the printing section in a mailbox center (154, 155). Of course naturally, there are variations. A straight-up business sale most likely means the owner is handing over 94% of the “assets,” with a tiny percentage leftover for stocks (154). So do your homework.

Chapter 7:

#2)
A small business manager must use the ratios mentioned in this chapter, to gain a better understanding of how to best gauge and read financial statements, in the first place. For example, obviously it is important to be able to understand the elements in preparation of the financial statement and leveraging that information to apply to the business. But after these sheets and figures have been established, the ratio analysis technique mostly serves as a kind of barometer. It helps to steer the continual movement of business activities in the right direction, or make corrections if revenues are not going as they should. The main three consist of: liquidity, leverage, and operating ratios. Each regulates an owner’s understanding of what needs to be done. An operating ratio, for example, in the average inventory turnover ratio looks at how long it takes during a period for goods (and how often) they ‘turnover.’ Page 210. The debt ratio, under the leveraged category, indicates a company’s financing strength against in terms of its creditors. So, if a Times Interest Earned Ratio is high shows a company can pay the interest on its debts.
#5)
In the creation stages of financial statement planning, the pro forma is so important because as a projection type of balance sheet, it helps to inform potential invested about the small business’ cash flow, needs, and if it has a weak or strong footing. It is especially important since the pro forma is based upon real data, and financial statistics which utilizes “research to derive forecasts of the income statement” (Scarborough, 179).
#6)
A break-even analysis helps an entrepreneur to find out when they might be losing money. Thereby helping them to watch for a cut-off point, just in case for example, he or she has overspent. A company knows it cannot hope to stay in business, or profitable if it goes much beyond the ‘break-even’ point, because then they will be in the red. Thereby helping to gauge its operating leverage, and other area ratio measures, can help the owner to identify trouble spots in their revenues relative to costs, profit margins, sales volume, net income, and so on. Page 217.

Works Cited

Scarborough, Norman M. Effective Small Business Management: An Entrepreneurial Approach.
10th ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2012. Print.