I am an Entrepreneur!

11/25/15

Equity Financing

• What are various sources of equity investments?
  • Super Angels: Well off individuals who have higher amounts of money to invest in innovative ventures.
  • Private Equity: Venture capital, growth capital, mezzanine capital, leverage buyout
  • Public Stock: Holding shares or selling shares from the company.

• What guidelines should entrepreneurs follow when they are selecting a venture capitalist?
  • Scrutinize business with a critical eye
  • Beef up management
  • Keep a high profile so the VCs will visit, attract potential investors
  • Target the search
  • Keep a lookout for smaller VC firms
  • Investigate possible venture partners so when in a meeting it can run smoothly and be successful

• What are the differences between a single-hit and a home-run business?
  • Single-hit:
    • Does not have a sustainable business model
    • Does not have a sustainable product/service
  • Home-run:
    • Long-period business
    • Needs more investing
    • Needs more innovations if you want to continue with new products

• What are the four key factors that a banker seeks before providing a corporate loan?
  • Characters that includes talent, reliability and honesty.
  • Cash Flow to cover debt throughout the term.
  • Collateral to support part of the loan should the company not be able to meet its obligations.
  • Contribution by the entrepreneur towards the funding requirement.

 

10/14/15

Gaby’s Daycare Center- Venture Idea (Elevator Pitch)

• Address your business’s Sustainability, Scalability, and Profitability
  • Business Sustainability: In this day in age and in the city we live in, rising costs are requiring both parents in a household to work. Along with the already clients of single mothers, childcare facilities are a very smart business opportunity. There will always be mothers (and fathers) needing the services and it is very important to the social development of children.
  • Scalability: Centers have roughly 60 or more children in a commercial location. We can open centers in low-income neighborhoods throughout the state. Then expand to other states.
  • Profitability: The weekly rate for a 2 year old in New York is about $280.50. The weekly rate for infants is $371.75. Payment options including HRA (government assistance). In addition, we are proud to partner with quality education and development programs to better serve our families. Some of the programs can include the new programs offered in NYC: Early Learn NYC and Universal Pre-K.

 

• What’s your value proposition?
  • Gaby’s Daycare Center will go above and beyond to make sure parents are comfortable with leaving their children in our care. We will have new technologies to help the children be tech savvy like the program ABC Mouse as well as help them create important social skills, which are needed to have a successful life.

 

• What problem are you solving?
  • Parents need a trustworthy place to leave their young children in while they work or continue their studies. We will be open from 8am to 6pm to accommodate the parents.

 

• Is the business viable?
  • My venture has the ability to survive because we will offer different services to the children. We will concentrate on low-income communities where we can receive payment from government agencies, which guarantees payment.

 

• Who are your target customers?
  • Working parents or parents who want to continue their studies.

 

• How’s the competition?
  • There are some independent daycare centers but our main competitor is Brightside Academy. They are a string of centers that will provide to the same target customers. The difference will be my experience and the extras provided to the children.

 

• How can you make money?
  • Income:
    • The weekly rate for a child 2 years old and over is about $280.50.
    • The weekly rate for infants is $371.75.

• • Some Expenses are:(can use bootstrapping techniques for most)
    • Rent
    • Children’s furniture – cribs, high-chairs, playpens, etc.
    • Commercial trash removal services
    • Business phone service
    • Fire alarm system
    • Health and liability insurance
    • Food/snacks
    • Funds to pay staff
    • Extra supplies- bottles, diapers, formula

 

 

 

What sources of funding are available to entrepreneurs at the early stage of the company?

 

• Personally Secured Bank Loans: A loan that has to be paid back with interest and may require the entrepreneur to personally guarantee part or all of the money.
• Self-funding: Using personal resources, savings or personal equity.
• Bootstrapping: Using existing personal resources and not relying on investments.
• Moonlighting and Consulting: Using the capital from the owner’s other full time job or using their knowledge to consult to other firms while their business grows and provides a stable income.
• Family and Friends/Angels: Can be a good source for start-up capital because they are not as worried about quick profits as are professional investors. Angels are high-net-worth individuals who have some funds they are willing to risk in start-up companies.
• Micro-Equity, Micro-Loans: An entrepreneur without a business plan can submit an idea on the web sites of micro-equity organizations where they can provide you with cash to live near their offices for a few months and develop plans and work on a prototype. Micro-loan is the opportunity to be lent a small amount of money if you don’t have much or any collateral by anyone.
• Factoring and Supplier Financing: Alternative to conventional bank loans. You can use purchase orders to guarantee the debt instead of providing personal or asset-backed guarantees.
• Government Programs: Federal agencies which help small businesses by aiding them and providing them with loans and venture capital financing.

 

What are “virtual” companies? What tools help them function? Why are they of interest to an entrepreneur?

 

• Virtual companies are companies that use the growth of the Internet to conserve cash and maintain flexibility in their plans. They are used to help reduce the level of monthly fixed costs.
• Virtual companies can be supported by the many management tools which can be accessed free of charge in the Internet. They can also use cloud computing which are more sophisticated management tools. Skype can be used for video conferencing, BaseCamp for projects and document management, and ADP for payroll and tax management. They can also find experts on the Internet or through personal recommendations.
• This type of company can be very appealing to entrepreneurs because they have lower operating costs. In my daycare I have to pay rent, electricity, water, etc. but a virtual company has no offices, low number of employees, low legal costs, etc.

 

Describe seven techniques for bootstrapping that you could use if you started a company?

 

• No or Low Rent: Do not spend on a separate place for an office or workplace. You can use your residence when starting off. Avoid signing long-term leases in expensive locations. For my daycare I use half of the space of the house for the children and the other half for personal use. This was an important decision in the type of license I chose for the daycare.
• Used Equipment: In the early stages it is possible to find used equipment that can fill short-term needs. You can also find used office furniture. Companies that are in bankruptcy or moving will often give away furniture or sell at low prices. When I was opening my second daycare I was very fortunate to have someone from a center in Harlem call me and ask if I wanted their furniture because they were closing. It is important to have a good network to be able to get unique opportunities.
• Cooperative Purchases: Find ways to work with other small companies to create a buyers club to get access to reduced costs.
• Outsourcing: Contract professional services that are not required full time from outside sources as needed. These services can include legal and accounting. For my daycare I use a legal company that I pay a fee to every month but have access to their services whenever I need them. The small monthly fee provides me with an inexpensive way to have unlimited legal advise and papers written and a large discount if I need legal representation in the future.
• Credit Cards: Credit cards can be used if equity or bank loans are not available. By carrying more than one credit card you can considerably boost the total amount you can use.
• Suppliers’ and Customers’ Help: Suppliers may be willing to help in many ways in the hope that the new company will become a major and loyal customer. When I was starting my daycare I created a good relationship with the managers of an early learning store that called me when they were able to sell furniture and large items that were on display in the store for a great price.
• Access to Expensive Equipment: Some universities and government institutions have labs and programs, which can help small companies by allowing them access to their equipment.

 

Why is bootstrapping important for (a) closely held companies and (b) early-stage, high-growth companies seeking equity investors?

 

• Closely held companies: To retain control of the company.
• Early-stage, high-growth companies: Used to defer the stage of equity funding.

In my experience I did not want to lose or share any control over my daycares, which is why I used many of the bootstrapping techniques explained in this chapter. I am very grateful I did that because now that the daycares are making great income I am able to keep all of the profit.

 

What is meant by: factoring of purchase orders?

 

If you are unable or unwilling to provide personal guarantee for a loan you can provide them with purchase orders from reputable customers to secure funding. They lend only a percentage of the sales order with high interest rates. The payments go directly from your customers to the lenders.

 

How can suppliers help in providing working capital?

Suppliers may be able to give you a line of credit, which is very important if you don’t have the cash on hand. You must show that you have reputable customers that will provide you with steady purchase orders.

 

11/11/15

 

 

What financial measurements should be prepared to measure company performance?

A financial plan to measure financial performance is an important management tool and is very important information for potential investors in a business. There are three methods for measuring financial performance:

• Measuring sales value: View performance in terms of sales. Use the percentage of increased sales or new business. This should be used when increased sales equals to higher profits.
• Measuring profits: View performance in terms of profits. Defined as the difference between revenues and expenses.
• Measuring cash generated: It is important to project cash flow. Companies should have adequate cash so they will not be forced into bankruptcy.

 

What are the categories and steps in preparing a financial budget?

A standard budget is divided into 11 major categories. A financial budget presents a projection of revenues and expenses used for projecting other financial statements.

1. Sales: Includes sales by product line and by customer, geographical region, and goals for each sales representative.
2. Cost of Goods Sold: Include both materials and shipping costs.
3. Gross Profit: Includes the gross profit. Sales less those costs directly incurred to achieve the sale.
4. Operating Expenses:
5. Operating Profit/Loss: Operating expenses identified by sales categories. An operating profit/loss for each sales category should be calculated.
6. Other Income and Expenses: Includes detailed interest expense and other income and expenses not related to the normal operations of the business.
7. Pretax Income: Income before taxes is calculated.
8. Income Taxes: The management’s estimate of the taxes that will be owed on the earnings. Federal and state taxes.
9. Net Income: The amount available for dividends or reinvestment in the company.
10. EBIT: Net income before interest expense, interest income, and income taxes. Measures profitability of a company without the impact of debt or investments.
11. EBITDA: Earnings before interest expense, interest income, income taxes, depreciation, and amortization. Measures the profitability of a company without the impact of debt, investments, and long-term assets.

 

The steps in preparing a financial document are:

1. Consider Cash Flow Revenues: Find a realistic basis for estimating sales each month.
2. Consider Cash Flow Disbursements: Project each of the various expense categories. Begins with a summary for each month of the cash payments to suppliers, wages, rent, and equipment.
3. Reconcile the Revenues and Disbursements: Begins by showing the balance carried over from the previous month’s operations.

 

Describe the breakeven technique in the decision making model to determine profit and loss.

The breakeven technique is a model that helps determine whether a certain volume of output will result in a profit or loss. Breaking even occurs when the volume of output at which total revenue is equal to the total cost. To use this technique you only need to know:

• The fixed costs of operation
• The variable costs of production
• The price per unit

 

Why is building a corporate culture to match a company’s mission important?

The ability to lead a business on a mission where everyone is involved every day in moving towards clearly defined goals makes the difference between success and failure. The leaders of a business need to get a good team and know how to keep them happy and motivated. Not all employees are motivated by the same things, some are motivate by intrinsic things, like knowing they are doing good to the community or matching donations, and others by extrinsic things like money. Company culture is very important because the employees are more likely to go the extra mile if they believe in the company and enjoys working there. When dealing with a small business having employees that make the customers feel comfortable can create loyal customers.

 

Select six leadership attributes that you feel are the most important when building a strong culture. Why?

1. Honest: You have to trust the people that work for you and know they will have the best interest of the company.
2. Flexible: Must be able to work with new rules and goals.
3. Communicative: A leader must know how to communicate with others in order to have the business functioning at its peak.
4. Innovative: A leader must be able to see a problem and try to solve it in the best way. They can see a point of pain and bring up new ways to resolve the conflict.
5. Respectful: Must be able to treat others with respect especially in difficult situations.
6. Supportive: They encourage new ideas and approaches. Employees must feel comfortable going to their leader.

 

Name three important factors that you must take into account when hiring key people.

• Values: Look for people where their personal values match the company’s culture. For example, for my Daycare I hire people who love children and want to give them the best childhood we can by teaching them while keeping them safe and entertained.
• Personal relationships: Be careful when bringing friends into the company. Judgment can be clouded. If that person doesn’t work out and has to be fired it will be much harder and things done wrong by that person might be overlooked to avoid conflict.
• Professional help: You may want to use a professional recruiter for key positions. It is pricey but in most cases it is worth having a non-biased professional evaluate the skills needed for a position.

11/4/15

 

New technological innovations have to adopt and fit into the existing market conditions. Some factors that impact how new technological innovation fits existing market conditions are path dependencies, network effects, standards and compatibilities.

• Path dependencies: the person must take into account the history of developments that are already being embedded in business. A new innovation must fit into an existing environment.
• Network effects: the impact that one user of a product or service has on the value for others.
• Standards and compatibilities: A new product or service can enter the market more easily if it is compatible with existing products and can meet standards already in the market.

 

Two factors that impact the “market window of opportunity” are hype and adoption cycles.

• Hype Cycle: Product or service popularized by the press as the next big thing.
• Adoption Cycles: Describes the acceptance of a new product or innovation.

 

An early adopter is a person who pays attention to new and innovative products. They are often referred to as opinion leaders because they are the first to try products. A product that is currently being used by early adopters is a drone. Drones are small aircrafts boarded by a high-resolution camera used to capture pictures and videos long distance. Only recently have the media put a spotlight on drones and their abilities. Drones are so new the government is in the process of making laws pertaining to privacy and where they can be used.

10/28/15

 

The primary drivers of social entrepreneurs are issues that deal with the well being of the planet. These issues include social warming, pollution, etc. Another good description of a social entrepreneur is a person that innovates solutions to society’s most pressing social problems. In my opinion green ventures should be classified as social entrepreneurs because the pollution and disintegration of our planet is a very big social problem, which needs attention. Nevertheless, I feel many businesses that deal with the care of people can also be classified as social entrepreneurships. In the case of my Daycares, I am serving my community by helping the young generation be model citizens. It is also better for the children to be entertained by using educational materials and games instead of being out in a bad neighborhood and getting into trouble by roaming the streets. A social venture can be formed as a non-profit. Some negatives for choosing a nonprofit is the limited resources you will have. By not having a market driven business there will be no income circulating only the donations. If you do not have profit it is very hard to earn income to help society. Stakeholders view social ventures differently from a traditional venture. This is because there are more emotions involved then merely ambition for making money. People have to believe in your vision for your social venture to work. Stakeholders also more carefully scrutinize a social venture because they want to know in detail how their money is being used. Some of the growth challenges of a social venture include the opinions and emotions employees have towards the social venture and its mission. Since employees tend to be emotionally invested in the venture they will have problems staying in the company if the mission has shifted or if they feel the venture should have taken different decisions.

 

CSR means corporate social responsibility. It is a management concept which companies integrate social and environmental concerns into their business. In a CSR business they make decisions that help benefit society. This type of business cares for the people, planet and also making profit. Philanthropy can be defined as a charity. It is the concept of giving donations of money to good causes that promote the welfare of others and the planet. Nevertheless, it is not limited to donating money; it is also an idea, event or action which helps society. Social entrepreneurship uses business techniques to find solutions to social problems. This is different to a regular business because it focuses on making a positive change in today’s society and the environment.

10/7/15

 

• What are the factors in deciding what form of ownership is best suited for the potential business?
  • The first thing I think of in deciding the type of ownership for a business is how much control you are willing to give up. For my Daycares I chose to own the business as a sole proprietorship because I wanted to be the only one making the decisions of the business.
  • Another factor to consider is how much capital is needed to start the business. If you cannot generate enough money to fund your own start up you will have to either get a loan or find investors which can become partners in the company.
  • An important question to ask is: How big do you want the company to grow or have the potential to grow? Since I knew my Daycares have a limit to how many children I can have at each location in total, I was not worried about getting partners or investors to grow the business because the department of health put a limit to it. Nevertheless for a product based business or a service without such limitations you can choose to incorporate your business to be able to have stocks in the future.
  • Will the company be big enough to continue after you no longer can be there to manage the company? This can include death and incapacitation. Can you pass it down to your children depending on the form of ownership you choose?
  • A very important question to ask is how much liability do you want to personally be responsible for? With my Daycares I am responsible for any failures because I am the sole proprietor. Therefore I get the full benefits if my business succeeds but I will also be liable if it fails.

 

• Briefly describe the advantages and disadvantages of a sole proprietorship and partnership.
  • A sole proprietorship is a form of business with a single owner.
    • The advantages are: The start up for this type of business is easier because it only requires a business license to open. The business can be closed/terminated easily. Since there is only one owner, he or she has the right to make all business decisions. For paying taxes, the business and owner are not taxed twice; it is taxed as income or loss directly to the owner.
    • The disadvantages of a sole proprietorship include having limited access to money. Unless the owner has money to grow the business themselves, it will be stuck and not be able to grow because the fund are limited. The skills and capabilities of the owner are also limited and there is no one else to help the business be successful or grow. When there is only one owner you tend to think that your way of doing something or solving a problem is the only way, nevertheless, if there were partners involved there would be more ideas, education, knowledge and experience. The biggest disadvantage is being unlimitedly personally liable if something goes wrong. Any debts can be collected from the sole proprietor using their personal items like their house, car or any savings.
  • A partnership is an association of two or more people being co-owners of a business.
  • The advantages are: A general partnership is fairly easy to establish and is also inexpensive. Although it does require a registration. Another advantage is that there are more people to help run the business. Therefore there is more knowledge and skills then with just one person. It is also better because having multiple partners can increase the amount of money that can be available for the business.
  • The disadvantages are: There has to be at least one general partner, which assumes unlimited personal liability. This can give way to conflicts within a partnership between the partners. If a partner wants to leave the business or dies the business might dissolute and there are many restrictions in the way the partners can leave the company.
  • Explain the corporate form of ownership and how a business is incorporated.
    • First you have to choose the name of your business and check if no one else is using that name. You can check on the Clerks Commissions website. You then have to choose what state to register in and see if you will need an agent to represent the corporation for a fee if you are not a resident of that state. The next step is to prepare the certificate of incorporation and have the filing fee.
  • List the differences between the S-Corporation and the limited liability company.
    • S-Corporation: Is taxed like a partnership. They are limited to only 100 owners and to one class of stock. Only individuals and certain trusts may own stock. This type of corporation has many tax consequences if S-Corp status is broken. An S-Corp is not easy to form and there are restrictions to ownership.
    • Limited Liability Company: There are no restrictions on the number and types of owners. There can also be different classes of memberships. LLC’s are not a tax paying entity. The company cannot be taken public. Nevertheless it is an easy company to form and maintain.

9/30/15

 

Why do business plans fail?

 

A successful business plan is one that is able to attract investors and funding. It is used by entrepreneurs as a guide for the company and shows investors what the business is about, a market analysis for the product or service you will be providing, who are the competitors, how will you market your product, how will the business be managed, how much funding is necessary and what are the business’ financial projections in different time periods. There are many reasons why a business plan can fail. I think the most common mistake is that entrepreneurs do not set realistic values in their plans. Entrepreneurs should take ample time to study the market and know how their product or service will be received in the market. Business plans need to have specific information about their target audience, they can use primary or secondary market research although secondary is the most cost effective and most common. The text states that another common mistake is the lack to mention how the investors will be repaid with a return/interest. Investors want to be sure their money will be put to work and not only there to make the dreams of an entrepreneur a reality but they want to get richer too. The investors need to feel they can trust in the company therefore all the information in the business plan must be real and honest, even the resumes used must be of real potential employees that are qualified for the positions. Business plans that are not specific, relevant, honest, and valuable will most likely fail.

9/2/15

 

My definition of being an entrepreneur is having the innovation, ambition and courage to start your own business from the ground up, not always having a back-up plan. Entrepreneurs give everything to have their business succeed and have creative new ideas to set them apart from other similar businesses. Before reading the first chapter of the textbook I have always thought that to be an entrepreneur you have to have different types of businesses. From my point of view a small business owner is different because they can own a business without being creative, for example a franchise owner. A small business owner would have to have some characteristics of an entrepreneur because there are always risks but there does not have to be innovation.

When I started with my first daycare I expected and continue to expect to always be in control. Maybe because I like to interact with children and am committed to their safety and happiness, nevertheless, I would like to open a bigger center in which I am willing to share control to make more money as long as I am still able to oversee the wellbeing of the children. If that task is taken away I would lose the personal connection with my business and it will become just another paycheck.

Some growth issues entrepreneurs face are staying small because they do not want to lose control, or expose the business to many investors which become stockholders. In my opinion an entrepreneur should have a passion business and venture on to open other businesses that can build their wealth.

• What definition of business model do you find most useful and why?
  • Both definitions of a business model include increasing value to your company, which in my opinion is one of the most fundamental points in a business in order for it to be successful. The first definition, “A business model is a description of how your company intends to create value in the marketplace. It includes that unique combination of products, services, image, and distribution that your company carries forward. It also includes the underlying organization of people, and the operational infrastructure that they use to accomplish their work.” is much more specific and includes all the major parts of a business that have a big impact on the customer. I agree that a business’ “unique combination” makes the difference, there has to be a reason customers choose to use your business and those reasons can create loyal customers. This definition also takes into account the way they accomplish their work because customers are interested in the marketing, selling and delivery of a product or service.
• What are the similarities and differences between the two tools for designing business models?
  • Similarities: Both models require the identification of their value of the business. What makes them valuable to customers? Both models ask the business to identify the relationship between the customers and suppliers and their business.
  • Differences: Model 1 asks to formulate the competitive strategy, where as Model 2 asks how to get new customers. Model 1 asks to identify the cost structure and profit potential, where Model 2 asks where are the major costs for resources and activities. In my opinion Model 2 is more personal and therefore better if a company wants to add value.
• Why was Greif Packaging able to capture more of the value in the supply chain? Where did the extra value come from, and were there others who lost the value they were selling?
  • Greif Packaging is a supplier of metal drums who was able to increase their profits by supplying more than just a product. They saw their customers did not want to go through the hassle of getting the permits, cleaning & refurbishing the drums, and finding who they can hire to dispose of the metal drums which contain toxic waste, amongst other things. Therefore, Greif Packaging turned their business by eliminating the customers’ points of pain and taking care of the whole process of disposing toxic chemicals which makes things a lot easier for their customers. The customers recognize the value and dedication this company has to its clients compared to the competition and therefore become long-lasting clients of Greif Packaging.
• Name three similarities and three differences between a franchise and a license.
  • Similarities: (1) Both licensors and franchisors create revenue in the forms of fees for using their products. (2) Both license and franchise agreements have to be as specific as possible to avoid legal disputes. (3) Not all licensing agreements are beneficially equal in all parts of the world, the licensee and franchisee needs to intensively review the marketing presence in that location.
  • Differences: (1) A license is used for intellectual property and a franchise agreement is used for trademarks, service marks, trade names, or advertising symbols.  (2) The franchisor has strict requirements in the presentation of the business because most aspects have to be uniformed throughout that franchise. Therefore is not much room for improvements. On the other hand,  licensees may or may not have much freedom but there can be room for improvements, which the licensor may have right to. (3) Since many people try to open a franchise without the proper legal advise, all franchisors are required to disclose a document which includes sales information called the UFOC.