PREFACE xvii
PART I ENTREPRENEURIAL PERSPECTIVE
CHAPTER 1 SMALL BUSINESS AND THE ENTREPRENEUR 3
1.1 What is Entrepreneurial Finance? 3
1.2 Significance of the Small Business 5
1.3 Entrepreneurship and the Entrepreneur 9
1.4 The Idea and the Opportunity 12
1.5 From an Idea to Reality 16
1.6 Summary 18
Key Concepts 18
Discussion Questions 19
CHAPTER 2 SMALL BUSINESS OPTIONS 20
2.1 Starting a New Business 20
2.2 Buying an Existing Business 22
2.3 Purchase Options 24
2.4 Franchise 26
2.5 Home Business and Family Business 30
2.6 Summary 34
Key Concepts 34
Discussion Questions 34
CHAPTER 3 SMALL BUSINESS PURCHASE PRICE 36
3.1 Asset-Based Value 36
3.2 Cash Flow–Based Value 39
3.3 Market-Based Value 40
3.4 Capitalized Earnings–Based Value 41
3.5 Financial Ratios–Based Value 43
3.6 Summary 44
Key Concepts 45
Discussion Questions 45
PART II ENTREPRENEURIAL ORGANIZATION
CHAPTER 4 FORMS OF BUSINESS OWNERSHIP 49
4.1 Sole Proprietorship 49
4.2 Partnership 50
4.3 Corporation 54
4.4 Other Forms of Business Ownership 58
4.5 Summary 62
Key Concepts 62
Discussion Questions 63
CHAPTER 5 THE BUSINESS PLAN 64
5.1 What is a Business Plan? 64
5.2 Contents of the Plan 66
5.3 Other Elements of the Plan 76
5.4 Reviewing the Plan 79
5.5 Anticipating and Preparing Responses to Potential Risks 82
5.6 Financing the Plan 83
5.7 Presenting the Plan 84
5.8 Updating the Plan 86
5.9 Grooming the Plan 86
5.10 Summary 88
Key Concepts 88
Discussion Questions 89
PART III ENTREPRENEURIAL FINANCE AND VALUATION
CHAPTER 6 FINANCIAL STATEMENTS AND THEIR ANALYSIS 93
6.1 The Balance Sheet 93
6.2 Income–Expenses Statement 97
6.3 Financial Statement Analysis 99
6.4 Ratio Analysis 102
6.5 The DuPont Model 115
6.6 Summary 117
Key Concepts 118
Discussion Questions 118
CHAPTER 7 CAPITAL STRUCTURE AND LEVERAGE 120
7.1 Debt and Equity Capital 120
7.2 The Optimal Capital Structure 125
7.3 Leverage 133
7.4 Summary 145
Key Concepts 146
Discussion Questions 146
CHAPTER 8 PROFIT AND THE COST–VOLUME ANALYSIS 148
8.1 Profit Concept Between Economics and Accounting 148
8.2 Profit Margin and Markup 149
8.3 Profit and Cash Flow 152
8.4 Profitability and Earning Power 154
8.5 When Would a Firm Start Collecting Profits? 156
8.6 Break-Even Quantity and Break-Even Revenue 158
8.7 Break-Even Graphics 162
8.8 Desired Profit and the Break-Even Point 164
8.9 Non-Cash Charges and the Break-Even Point 166
8.10 Profit Planning 168
8.11 Summary 169
Key Concepts 170
Discussion Questions 170
CHAPTER 9 PRO FORMA STATEMENT AND FINANCIAL FORECASTING 172
9.1 Basic Pro Forma Statements 173
9.2 Pro Forma and the Sales Ratio 176
9.3 Change in Sales (ΔS) and the Needed Fund 178
9.4 Role of Financial Forecasting 179
9.5 Basic Steps of Forecasting 180
9.6 Types of Forecasting Models 181
9.7 The Analysis of Time Series 184
9.8 Fitting the Model 185
9.9 Adjusting for Seasonality 189
9.10 The Smoothed Forecasts 197
9.11 Barometric Forecasting 204
9.12 Testing Forecasting Accuracy 206
9.13 Summary 212
Key Concepts 213
Discussion Questions 213
CHAPTER 10 WORKING CAPITAL 214
10.1 What is Working Capital? 214
10.2 Working Capital and Profit-Risk Manipulation 215
10.3 Working Capital and Financing Strategies 218
10.4 Summary 221
Key Concepts 221
Discussion Questions 221
CHAPTER 11 FINANCIAL MANAGEMENT OF WORKING CAPITAL 223
11.1 Cash Management 223
11.2 Marketable Securities Management 228
11.3 Account Receivable 229
11.4 Account Payable and Trade Discounts 238
11.5 Summary 241
Key Concepts 241
Discussion Questions 242
CHAPTER 12 INVENTORY MANAGEMENT AND CONTROL 243
12.1 What is Inventory? 243
12.2 Economic Order Quantity (EOQ) 245
12.3 The Reorder Point 255
12.4 JIT-Inventory System 260
12.5 Summary 260
Key Concepts 261
Discussion Questions 261
CHAPTER 13 INVESTMENT PROJECT EVALUATION AND RISK MANAGEMENT 263
13.1 Categories of Investment Purposes 264
13.2 Steps for Project Selection 265
13.3 Types of Projects 266
13.4 Patterns of Cash Flow 267
13.5 Project Evaluation Techniques 269
13.6 Risk and its Sources 287
13.7 Methods of Risk Management 288
13.8 Sensitivity Analysis, Scenario Analysis, and Simulation 297
13.9 Summary 300
Key Concepts 301
Discussion Questions 301
CHAPTER 14 BUSINESS VALUATION AND HARVESTING 303
14.1 What is Business Valuation? 303
14.2 Valuation Tools 304
14.3 Valuation Techniques 305
14.4 What is Business Harvesting? 311
14.5 Harvesting Strategies 312
14.6 Summary 317
Key Concepts 317
Discussion Questions 317
PART IV ENTREPRENEURIAL MANAGEMENT AND CONTROL
CHAPTER 15 BASIC ENTREPRENEURIAL MANAGEMENT 321
15.1 Planning 322
15.2 Organizing 324
15.3 Staffing 326
15.4 Directing 326
15.5 Controlling 329
15.6 Business Strategies 330
15.7 Summary 331
Key Concepts 332
Discussion Questions 332
CHAPTER 16 LOCATION AND LAYOUT 334
16.1 Factors Affecting the Selection of Location 335
16.2 Types of Business Outlets and Locations 337
16.3 Site Selection 341
16.4 Site Alternatives 347
16.5 Layout and Design 348
16.6 Summary 357
Key Concepts 357
Discussion Questions 358
CHAPTER 17 OPERATIONS, BUDGETING, AND TAXES 359
Operations 359
17.1 Material and Supplies: Buying or Making? 360
17.2 Product Quality 361
17.3 Budgetary Variance and Flexible Budgeting 364
17.4 Types of Budgets 365
17.5 Considerations for Budgetary Control 368
17.6 Types of Taxes 369
17.7 Taxes and Forms of Business Ownership 371
17.8 Considerations and Strategies 371
17.9 Summary 373
Key Concepts 374
Discussion Questions 374
CHAPTER 18 MARKETING, PROMOTION, AND DISTRIBUTION 375
18.1 Market and Customer 375
18.2 Marketing and Customer’s Decisions 378
18.3 Marketing Research 381
18.4 Product 383
18.5 Price 389
18.6 Place 393
18.7 Promotion 396
18.8 Summary 400
Key Concepts 400
Discussion Questions 401
CHAPTER 19 HUMAN RESOURCE MANAGEMENT 402
19.1 Job Analysis 402
19.2 Personnel Planning 404
19.3 Summary 419
Key Concepts 420
Discussion Questions 420
APPENDIX 421
GLOSSARY 427
FURTHER READING 439
INDEX 441
