Exam 14: Accessing Resources for Growth From External Sources

When an entrepreneur bootstraps the purchase of a company,the entrepreneur usually puts down 10-20% in cash and then financing the remainder of the price with long-term debt paid back through the company's earnings.

Most ventures that are available for sale:

The integrative aspect of negotiation:

The most common type of joint venture is between two or more public sector companies.

Which of the following would be an advantage of an acquisition?

Which of the following is not a qualitative technique an entrepreneur can use to evaluate the asking price of an LBO?

International joint ventures are decreasing in popularity.

The bargaining zone is the range of outcomes between the entrepreneur's reservation price and the reservation price of the other party.

Joint ventures can involve a wide variety which include:

Often,when a business changes hands,key employees move into the acquiring company.

Explain the potential issues that could occur in establishing an international joint venture.

One disadvantage to an acquisition is that they are often a slow way to expand.

Cultural differences between international joint venture partners can create management difficulties.

In evaluating the potential profit for a new franchise the entrepreneur should request data from the franchisor so they can develop pro forma income and cash flow statements.

Discuss the main advantages of an acquisition.

The two most common means of acquisition are the entrepreneur's direct purchase of the firm's entire stock or assets or the bootstrap purchase of these assets.

A new franchisee can be expected to be required to undergo considerable training on operating the business.

Discuss the main disadvantages of an acquisition. A.Marginal success record.Most ventures that are for sale have an erratic,marginally successful,or even unprofitable track record.It is important to review the records and meet with important constituents to assess that record in terms of the business's future potential. B.Overconfidence in ability.Sometimes an entrepreneur may assume that he or she can succeed where others have failed.This is why a self-evaluation is so important before entering into any purchase agreement.Even though the entrepreneur brings new ideas and management qualities,the venture may never be successful for reasons that are not possible to correct.Often managers are overconfident in their ability to overcome cultural differences between their current business and the one being acquired. C.Key employee loss.Often,when a business changes hands,key employees also leave.Key employee loss can be devastating to an entrepreneur who is acquiring a business since the value of the business is often a reflection of the efforts of the employees.This is particularly evident in a service business,where it is difficult to separate the actual service from the person who performs it.In the acquisition negotiations,it is helpful for the entrepreneur to speak to all employees individually to obtain some assurance of their intentions as well as to inform them of how important they will be to the future of the business.Incentives can sometimes be used to ensure that key employees will remain with the business. D.Overvaluation.It is possible that the actual purchase price is inflated due to the established image,customer base,channel members,or suppliers.If the entrepreneur has to pay too much for a business,it is possible that the return on investment will be unacceptable.It is important to look at the investment required in purchasing a business and at the potential profit and establish a reasonable payback to justify the investment.

A ________ occurs when an entrepreneur or an employee group uses borrowed funds to purchase an existing venture for cash.

For the franchisor,the capital required to expand a venture quickly is more than it would be without franchising.