Chapter 2

The Pathways
New or Acquired Ventures

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 New-new approach
◦ New products or services entering the market
 New-old approach
◦ An individual “piggybacks” on someone else’s idea

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 Market analysis
◦ Market analysis can help a prospective business entrepreneur
determine whether a demand for a particular food or service
exists
 The scientific method: four steps
1. Fact gathering
2. Organizing the facts
3. Analysis of the facts
4. Implementation of an action plan (covers three areas)
1. The entrepreneur as a person
2. The financial picture
3. Other key factors (marketing, insurance, building, etc.)

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 Personal questions
◦ Are you a self-starter?
◦ How do you feel about others?
◦ Can you lead people?
◦ Can you take responsibility?
◦ Are you an organizer?
◦ Are you a hard worker?
◦ Can you make decisions?
◦ Can people rely on your word?
◦ Can you stick with it?
◦ How good is your health?

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 Evaluation
◦ How much will it cost to stay in business for the
first year?
◦ How much revenue will the firm generate during
this time period?
 Upside gain and downside loss
 Risk versus reward analysis
 Other key factors
◦ The location/building
◦ Merchandise and equipment
◦ Record keeping
◦ Insurance and legal concerns
◦ Marketing and personnel

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Buying an Ongoing Venture
 Advantages of buying an ongoing venture
1. Because the enterprise is already in operation, its
successful future operation is likely
2. The time and effort associated with starting a
new enterprise are eliminated
3. It sometimes is possible to buy an ongoing
business at a bargain price

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 Why is the business being sold?
 What is the current physical condition of the
business?
 What is the condition of the inventory?
 What is the state of the company’s other assets?
 Intangible assets? (goodwill, patents, franchise
rights, noncompete agreements)
 How many of the employees will remain?
 What type of competition does the business face?
 What is the status of the firm’s financial picture?
◦ The company’s profitability

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 Assessing the price
1. Book value
2. Replacement value
3. Liquidation value
4. Past earnings
5. Cash flow

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Determining the Value of a
Business: A 6-Step Process

1. Spending time in the trenches

2. Create a sound business plan
3. Secure working capital and backup resources
4. Invest in a strong brand / image
5. Keep accurate and complete records
6. Make a profit

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 Four critical elements should be recognized:
1. Information
2. Time
3. Pressure
4. Alternatives

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1. Have a seller retain a minority interest in the
business
2. Never rely on oral statements
3. Have an accountant examine the books and
check the cash flow
4. Investigate, investigate, investigate
5. Interview the employees
6. Find out the real reason the company is for
sale

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