Flashcards MGMT 340 Exam 2 Son Le La Tech

How does an entrepreneur build a strong ethical culture for their new venture?

- Lead by example

-Establish a Code of Conduct

-Implement an Ethics Training Program

ethical dilemma

a situation that involves doingsomething that is beneficial to oneself or the organization, but may be unethical.

Noncompete agreement

prevents an individual from competing against a former employer for a specific period of time.

Nondisclosure agreement

binds an employee or other party (such as a supplier) to not disclose a company's trade secrets.

Sole Proprietorship

a form of business organization involving one person, and the person and the business are essentially the same.

The sole proprietor is responsible for everything

Advantages of Sole Proprietorship

• Creating one is easy and inexpensive.

• The owner maintains complete control of the business and retains all of the profits.

• Business losses can be deducted against the sole proprietor's other sources of income.

• It is not subject to double taxation (explained later).

• The business is easy to dissolve.

Disadvantages of Sole Proprietorship

• Liability on the owner's part is unlimited.

The business relies on the skills and abilities of a single owner to be successful. Of course, the owner can hire employees who have additional skills and abilities.

• Raising capital can be difficult.

• The business ends at the owner's death or loss of interest in the business.

• The liquidity of the owner's investment is low

partnership

are organized as either general or limited liability partnerships.

Advantages of Partnership

Creating one is relatively easy and inexpensive compared to a corporation or limited liability company.

• The skills and abilities of more than one individual are available to the firm.

• Having more than one owner may make it easier to raise funds

• Business losses can be deducted against the partners' other sources of income.

• It is not subject to double taxation (explained later).

Disadvantages of Partnership

• Liability on the part of each general partner is unlimited.

• The business relies on the skills and abilities of a fixed number of partners. Of course, the owners can hire employees who have additional skills and abilities.

• Raising capital can be difficult.

• Because decision making among the partners is shared, disagreements can occur.

• The business ends with the death or withdrawal of one partner unless otherwise stated in the partnership agreement.• The liquidity of each partner's investment is low.

C corporation

The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders

Advantages of C corporation

• Owners are liable only for the debts and obligations of the corporation up to the amount of their investment.

• The mechanics of raising capital is easier.

• No restrictions exist on the number of shareholders, which differs from subchapter S corporations.

• Stock is liquid if traded on a major stock exchange.

• The ability to share stock with employees through stock options or other incentive plans can be a powerful form of employee motivation.

Disadvantages of C corporation

• Setting up and maintaining one is more difficult than for a sole proprietorship or a partnership.

• Business losses cannot be deducted against the shareholder's other sources of income.

• Income is subject to double taxation, meaning that it is taxed at the corporate and the shareholder levels.

• Small shareholders typically have little voice in the management of the firm.

S corporation

a form of corporation that avoids double taxation by having its income taxed as if it were a partnership

Advantages of S corporation

-Avoids double taxation of a corporation

-Retains the corporation's legal benefit of limited liability

Disadvantages of S corporation

- Can only have one class of stock issued

- can have only 100 stockholders

- with only rare exceptions, each stockholder must be a US citizen

limited liability company

a company that combines the limited liability advantage of the corporation with the tax advantages of a partnership. Also does not pay taxes, Profits & losses are passed through to the tax returns

Advantages of a Limited Liability Company

• Members are liable for the debts and obligations of the business only up to the amount of their investment.

• The number of shareholders is unlimited.

• An L L C can elect to be taxed as a sole proprietor, partnership, S corporation, or corporation, providing much flexibility.

• Because profits are taxed only at the shareholder level, there is no double taxation

Disadvantages of a Limited Liability Company

•Setting up and maintaining one is more difficult and expensive.• Tax accounting can be complicated.

• Some of the regulations governing LLCs vary by state.

• Because LLCs are a relatively new type of business entity, there is not as much legal precedent available for owners to anticipate how legal disputes might affect their business.

• Some states levy a franchise tax on LLCs—which is essentially a fee the LLC pays the state for the benefit of limited liability.

Financial Management

deals with two things: raising money and managing a company's finances in a way that achieves the highest rate of return

Financial Objectives of a Firm

- profitability

- liquidity

- efficiency

- stability

Forecasts

an estimate of a firm's future income and expenses, based on past performance, its current circumstances, and its future plans.

Budgets

itemized forecasts of a company's income, expenses, and capital needs and are also an important tool for financial planning and control.

Financial Statements

Financial reports that summarize the financial condition and operations of a business

Financial Ratios

Depict relationships between items on a firm's financial statements.

pro forma financial statements

projections for future periods based on forecasts and are typically completed for two to three years in the future. Not required by the SEC

Income statement

Reflects the results of the operations of a firm over a specified period of time. It records all the revenues and expenses for the given period and shows whether the firm is making a profit or is experiencing a loss

Balance sheet

a snapshot of a company's assets, liabilities, and owner's equity at a specific point in time.

Liability of newness

situation that often causes new firms to falter because the people who start the firms can't adjust quickly enough to their new roles, and because the firm lacks a "track record" with customers and suppliers

Effective Characteristics of Founding teams

- Teams that have worked together before have an edge.

- members of the team are heterogeneous, meaning that they are diverse in terms of their abilities and experiences, rather than homogeneous, meaning that their areas of expertise are very similar to one another.

- Team is not too big, sweet spot is two to three founders

Skills Profile

a chart that depicts the most important skills that are needed and where skills gaps exist

Three reasons start-ups need funding

1. cash flow challenges

2. capital investments

3. lengthy product development cycles

Personal savings

majority of founders contribute personal funds, along with sweat equity, to their ventures

Friends & Family

the second source of funds for many new ventures

Bootstrapping

is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost cutting, or any means necessary.

Equity Financing

exchanging partial ownership in a firm, usually in the form of stock, for funding.

Important Sources of equity financing

- Angel Investors

- Venture capital

- Initial Public Offering

Advantages of Equity vs debt financing

Disadvantages of equity vs debt financing

Marketing Process

1. Understand the marketplace and customer needs and wants

2. Design a customer-driven marketing strategy

3. Construct an integrated marketing program that delivers superior value

4. Build profitable relationships and create customer delight

5. Capture value from customers to create profits and customer equity

Market Segmenation

The process of classifying people who form a given market into even smaller groups

Positioning strategy

The key themes or concepts an organization features for communicating the distinctiveness of its product or service to the target segment.

Four elements of a firm's marketing mix

product, price, promotion, place

Four key forms of intellectual property protection

patents, trademarks, copyrights, trade secrets

Three Types of Patents

utility patents, design patents, and plant patents

Three requirements for a patent to be granted

Useful, Novelty, Not Obvious

Trademark

any word, name, symbol, or device used to identify the source or origin of products or services and to distinguish those product or services from others

Copyright

a form of intellectual property protection that grants to the owner of a work of authorship the legal right to determine how the work is used and to obtain the economic benefits from the work

Trade secret

any formula, pattern, physical device, idea, process, or other information that provides the owner of the information with a competitive advantage in the marketplace

How to prepare for growth?

1.) Appreciate the Nature Of Business Growth: Not all businesses have the potential to be aggressive growth firms.

A Business can grow too fast

Business success doesn't always scale

2.) Stay Committed to a Core strategy: It is important that a business not lose sight of its core strategy as it prepares to grow

3.) Plan for Growth: A firm should establish

growth-related plans.

Writing a business plan

greatly assists in preparing

growth plans.

It's also important for a firm

to determine, as soon as

possible, what its growth

strategies will be

What are Entrepreneurial services

Recognition of new market, product, and service opportunities

What are managerial services

Administration of the routine functions of the firm and the execution of new business opportunities

Moral Hazards

as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours and may even try to avoid hard work

Adverse selection

as the number of employees a firm needs increases, it becomes increasingly difficult for the firm to find the right employees, place them in appropriate positions, and provide adequate supervision

Internal growth strategies

Involve efforts taken within the firm itself, such as new product development,other product-related strategies, and international expansion

Advantages of internal growth strategies

•Incremental, even-paced growth.

•Provides maximum control.

•Preserves organizational culture.

•Encourages internal entrepreneurship.

•Allows firms to promote from within.

Disadvantages of internal growth strategies

-Slow form of growth

-Need to develop new resources

-Investment in a failed internal effort can be difficult to recoup

-Adds to industry capacity

External growth strategies

Rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising

Advantages of external growth strategies

- reducing competition

- gaining access to proprietary products or services

- gaining access to new products and markets

- obtaining access to technical expertise

- gaining access to an established brand name

- economies of scale

- diversification of business risk

Disadvantages of external growth strategies

- incompatibility of top management

- clash of corporate cultures

- operational problems

- increased business complexity

- loss of organizational flexibility

- antitrust implications