Starting New Business

1
Chapter 6 7

• Starting New Business

2
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

3
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 generations commitment
• Transfer of control is put off until too late
• Seniors are too personally tied to the business

4
Succession Model of Family Business
5
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

6
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

7
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.

8
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

9
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)

10
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

11
How Will You Compete?

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