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Chapter 13
 

Chapter 13

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    Chapter 13 Chapter 13 Presentation Transcript

    • CHAPTER 13 DISCUSSION QUESTIONS1) Explain the difference & the advantages/disadvantages ofequity capital & debt capital.2) Discuss the following sources of equity capital:A) AngelsB) Corporate Venture CapitalC) Venture Capital Companies3) Explain the following federal loan programs aimed at smallbusinesses:A) EDAB) HUDC) USDAD) SBIRE) STTR
    • CAPITAL-”ANY FORM OF WEALTH EMPLOYED TO PRODUCE MORE WEALTH.”-3 MAIN FORMS6) CASH7) INVENTORY8) EQUIPMENT
    • ENTREPRENEURS NEED 3 DIFFERENT TYPES OF CAPITAL 4) FIXED CAPITAL 5) WORKING CAPITAL 6) GROWTH CAPITAL
    • 1) FIXED CAPITAL-”CAPITAL NEEDED TO PURCHASE A COMPANY’SPERMANENT OR FIXED ASSETS.”-MAIN TYPES OF PERMANENT/FIXED ASSETS:1) LAND2) BUILDINGS3) EQUIPMENT-MONEY INVESTED IN FIXED ASSETS TENDS TO BEFROZEN BECAUSE IT CANNOT BE USED FOR ANY OTHERPURPOSE.
    • 2) WORKING CAPITAL-”CAPITAL NEEDED TO SUPPORT A COMPANY’S SHORT- TERM OPERATIONS.”-CURRENT ASSETS MINUS CURRENT LIABILITIES.-WORKING CAPITAL IS NORMALLY USED TO:6) BUY INVENTORY.7) PAY BILLS.8) FINANCE CREDIT SALES.9) PAY WAGES & SALARIES.10)TAKE CARE OF UNEXPECTED EMERGENCIES.
    • 3) GROWTH CAPITAL-”CAPITAL NEEDED TO FINANCE A COMPANY’S GROWTH OR EXPANSION IN A NEW DIRECTION.”-GROWTH CAPITAL FINANCES:• EXPANSION OR PURCHASING NEW BUILDINGS• HIRING ADDITIONAL WORK FORCE• INCREASING INVENTORY
    • EQUITY CAPITAL VS DEBT CAPITALFINANCING THE CAPITAL REQUIREMENTS OF A START-UP BUSINESS
    • DEBT CAPITAL-”THE FINANCING THAT A SMALL BUSINESS OWNER HASBORROWED & MUST REPAY.”-FEW ENTREPRENEURS HAVE ENOUGH SAVINGS TOCOVER START-UP COSTS, SO THEY MUST RELY ON SOMEFORM OF DEBT CAPITAL TO LAUNCH THEIR COMPANIES.•PRIMARY ADVANTAGE:-ENTREPRENEURS KEEP TOTAL OWNERSHIP & CONTROLOF BUSINESS.•PRIMARY DISADVANTAGE:-SMALL BUSINESS LOANS ARE DIFFICULT TO OBTAIN.
    • EQUITY CAPITAL-”CAPITAL THAT REPRESENTS THE PERSONAL INVESTMENT OFTHE OWNER(S) OF A COMPANY.-SOMETIMES CALLED RISK CAPITAL.-PRIMARY ADVANTAGE:•DOES NOT HAVE TO BE PAID BACK LIKE A LOAN DOES.-EQUITY INVESTORS ARE ENTITLED TO SHARE IN THECOMPANY’S EARNINGS & USUALLY HAVE A VOICE IN THECOMPANY’S FUTURE DIRECTION.-PRIMARY DISADVANTAGE:•THE ENTREPRENEUR MUST GIVE UP SOME, SOMETIMES MOST,OF THE OWNERSHIP IN THE BUSINESS TO OUTSIDERS.-GIVING UP CONTROL OF A COMPANY FOR AN ENTREPRENEURIS AN OXYMORON.
    • SOURCES OF EQUITY FINANCING
    • ANGELS-”WEALTHY INDIVIDUALS WHO INVEST IN BUSINESSSTART-UPS IN EXCHANGE EQUITY STAKES IN THECOMPANIES.”-TODAY, THE LARGEST SOURCE OF EXTERNAL FINANCINGFOR COMPANIES IN THE START-UP PHASES.
    • VENTURE CAPITAL-”FUNDS MADE AVAILABLE FOR STARTUP FIRMS WITHEXCEPTIONAL GROWTH POTENTIAL.”CORPORATE VENTURE CAPITAL-LARGE CORPORATIONS THAT INVEST IN FLEDGLINGCOMPANIES, MOST OFTEN THOSE IN THE PRODUCTDEVELOPMENT & SALES GROWTH STAGES.VENTURE CAPITAL COMPANIES-PRIVATE, FOR-PROFIT COMPANIES THAT PURCHASEEQUITY POSITIONS IN YOUNG BUSINESSES THEY BELIEVEHAVE HIGH-GROWTH & HIGH-PROFIT POTENTIAL.
    • THE BOSTON BEER COMPANY: BREWING THE AMERICAN DREAM•Small business loans from $500-$25,000: Food and beverage small business owners canget the capital needed to expand or start a business, purchase inventory or equipment,market a business, pay licensing fees, etc.•Financial and business education seminars: Through free seminars, The Boston BeerCompany gives top-line guidance, answers questions and helps solve small businesschallenges.•Speed coaching events: Small business owners can meet with The Boston BeerCompanys employees to gain customized business advice on a range of topics:marketing, distribution, accounting, etc.
    • FEDERAL LOAN PROGRAMS
    • ECONOMIC DEVELOPMENT ADMINISTRATION (EDA)-A BRANCH OF THE COMMERCE DEPARTMENT, THATOFFERS LOAN GUARANTEES TO CREATE NEW BUSINESS& TO EXPAND EXISTING BUSINESSES IN IN AREAS WITHBELOW-AVERAGE INCOME & HIGH UNEMPLOYMENT.
    • DEPARTMENT OF HOUSING & URBAN DEVELOPMENT (HUD)-SPONSORS LOAN PROGRAMS TO ASSIST QUALIFIEDENTREPRENEURS TO START SMALL BUSINESSES THATWILL STRENGTHEN THE LOCAL ECONOMY .-GRANTS ARE AIMED AT CITIES & TOWNS IN NEED OFREVITALIZATION & ECONOMIC STIMULATION.
    • RURAL BUSINESS-COOPERATIVE SERVICE (RBS)-PROVIDED BY THE U.S. DEPARTMENT OF AGRICULTURE.-A FINANCIAL ASSISTANCE PROGRAM OPEN TO ALLTYPES OF BUSINESSES DESIGNED TO CREATE NONFARMEMPLOYMENT OPPORTUNITIES IN RURAL AREAS.
    • SMALL BUSINESS INNOVATION RESEARCH PROGRAM (SBIR)-A PROGRAM OF 11 FEDERAL AGENCIESTHAT AWARD CASH GRANTS OR LONG-TERM CONTRACTS TO COMPANIESWANTING TO INITIATE OR TO EXPAND THEIRRESEARCH & DEVELOPMENT EFFORTS.-SBIR GRANTS GIVE INNOVATIVE SMALLCOMPANIES THE OPPORTUNITY TOATTRACT EARLY-STAGE CAPITALINVESTMENTS WITHOUT HAVING TO GIVEUP SIGNIFICANT EQUITY STAKES ORTAKING ON BURDENSOME LEVELS OFDEBT.
    • SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM (STTR)-USES COMPANIES TO EXPLOIT THE VAST RESERVOIR OFCOMERCIALLY PROMISING IDEAS THAT ORIGINATE IN UNIVERSITIES,FEDERALLY FUNDED R&D CENTERS, & NONPROFIT RESEARCHINSTITUTIONS.