ch18 - 1 CHAPTER 18 Business Formation Growth and Valuation...

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CHAPTER 18 Business Formation, Growth, and Valuation Learning Objectives 1. Explain why the choice of organizational form is important, and describe two financial considerations that are especially important in starting a business. 2. Describe the key components of a business plan and explain what a business plan is used for. 3. Explain the three general approaches to valuation and value a business using common business valuation approaches. 4. Explain how valuations can differ between public and private companies and between young and mature companies, and discuss the importance of control and key person considerations in valuation. I. Chapter Outline 18.1 Starting a Business Individuals go into business for a variety of reasons. Regardless of their motivation, the first decision they must make is whether they want to found a business or acquire an existing business. Starting a business is inherently more risky than buying and growing a business that someone else has already established. 1
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The founder of a company must start from scratch and make several critical decisions, including: Choosing the product(s) to sell Choosing the markets to sell them in Choosing the best strategy for selling them Raising the money necessary to develop the product(s) Acquiring the necessary assets Hiring the right people As the business is being built, the founder must also manage the day-to-day operations to ensure that his or her overall plan is being implemented. A. Making the Decision to Proceed According to the SBA, over 627,200 businesses were started in 2008 in the United States, but less than 45 percent of them will still be in business by 2012. Businesses fail for a number of different reasons including: Lack of acceptance of the products by customers. Poorly thought-out strategy Poor management skills to properly execute a good strategy. Underestimating how much money it will take to get their businesses up and running. Chances of succeeding in a business can improve if you Do not jump into a business without careful thought. 2
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Don’t overanalyze opportunities to the point where you are just convincing yourself not to proceed. Take on calculated risks. Don’t think that failure will ruin your chances of ultimately achieving business success. B. Choosing the Right Organizational Form In addition to the organizational forms discussed in Chapter 1—sole proprietorship, partnerships, and corporations—two other forms of organizations are discussed here. They are the limited liability companies (LLC) and the S-corporation . An LLC is a hybrid of a limited partnership and a corporation. It was first developed in Wyoming in 1977.
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This note was uploaded on 04/01/2012 for the course BUSINESS 100 taught by Professor Bens during the Spring '12 term at FIU.

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ch18 - 1 CHAPTER 18 Business Formation Growth and Valuation...

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