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FIN 444 Week 3 Notes

by: Patricia Soto

FIN 444 Week 3 Notes FIN 444

Patricia Soto
GPA 3.89

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Week 3 of Class notes
Small Business Finance
John Bintz
Class Notes
25 ?




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This 4 page Class Notes was uploaded by Patricia Soto on Saturday February 6, 2016. The Class Notes belongs to FIN 444 at University of Illinois at Chicago taught by John Bintz in Winter 2016. Since its upload, it has received 66 views. For similar materials see Small Business Finance in Finance at University of Illinois at Chicago.

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Date Created: 02/06/16
FIN  444   Week 3 Successful Venture Life Cycle – stages of a successful venture’s llfe • Development stage • Start up stage • Survival stage • Rapid growth stage • Maturity stage What can a company do with money? • Pay Dividends (Large mature companies) • Reinvest into the company (HR, R&D, equipment) • Acquisitions (Product Diversification, Vertical Integration, Synergies, Integration) • Retire Debt • Keep it (save it for a rainy day) • You can buy back your own stock (to rise the price) o Shareholders hate when companies do nothing with their cash on the balance sheet. Selected Financing Definitions • Seed Financing – funds needed to determine whether the idea can be conveted into a viable business opportunity • Startup Financing – funds needed to take the venture from having established a viable business opportunity to initial production and sales Vocab • Venture Capital • Venture capitalists • Business Angels • Investment Banker • First Round Financing • IPO Chapter 2 Various Types of Firms • Salary replacement firms- firms that provide their owners with income levels comparable to what they could have earned working for much larger firms • Lifestyle firms- firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do • Serial Entrepreneurs Best Financial Practices • Prepare monthly financial plans for the next year & annual financial plans for the next five years FIN  444   • Anticipate & obtain multiple rounds of financing as the venture grows • Efficiently & effectively manage the firm’s assets, financial resource, & operating performance • Plan an exit strategy Best Management Practice • Most critical part of the organization, organizational chart usually as follows: Chairman Board members – usually an odd number CEO (C-Suite) COO CMO CFO CAO President Accounting Finance o Time to Market and Other Timing Implication • Business Opportunities exist in real time • Most ideas have a relatively narrow window of opportunity to become a successful business venture • Sometimes ideas are ahead of their time • Of course, being “first to market” does not necessarily ensure success Qualitative Screening: interview • Four factor categories initially evaluating a potential venture’s attractiveness: o The Big Picture o Know Thy Customer o Production and Development Challenges o Financial Fortune Telling Quantitative Screening: VOS Indicator • Attempt to quantify the following areas o Industry/Market o Pricing/Profitability o Financial/ Harvest o Factor Category: Industry/Market • Potential Attractiveness o Market Size Potential § Average: $20-100 million o Venture Growth Rate § Average 10%-30% o Market Share (Year 3) § Average: 5%-20% o Entry Barriers FIN  444   § Average: Timing/Size Key Elements of a Business Plan • Business Plan – written document that describes the proposed product or service opportunity, current resources, & financial projections • Cover page – should identify the venture & provide the name, address & phone number of the entrepreneur or other contact person • Confidentiality Statement- Ex. This business plan contains information that (the firm) considers proprietary. By accepting this business plan the recipient acknowledges…” 1. Executive Summary 2. Business Description 3. Marketing Plan & Strategy 4. Operations and Support 5. Management Team 6. Financial Plans and Projections (3 Years) 7. Risks and Opportunities 8. Appendix Chapter 3 Forms of Business Organization • Proprietorships – business venture owned by an individual who is personally liable for the venture’s liabilities o Unlimited liabilities – personal obligation to pay a venture’s liabilities not covered by the venture’s assets • Partnerships o General o Limited • Corporations o C Corporations o S (or Subchapter S) companies • Limited Liability Companies (LLCs) Number of Owners & Ease of Startup • Proprietorship – one; low time & legal costs • Partnership (general) – two or more; moderate time & legal costs • Investor Liability • Propertiership – unlimited Taxation • Properitership – personal tax rate • Partnership (general) – personal tax rates • Limited Partnership – personal tax rates FIN  444   • C- corp – corporate taxation dividends subject to personal tax rates • S –corp – income flows to shareholders; taxed at personal tax rates • LLC – income flows to owners; taxed at personal tax rates Protecting Valuable Intangible Assets • Patents – granted for inventions, useful, novel and non- obvious • Trade Secrets • Trademarks • Copyrights Utility Patents: Application Process • Develop or conceive an invention • Prepare (you, or a registered patent attorney on your behalf) a patent application • File the application in U.S. Patent & Trademark Office • If successful, the utility patent life will be 20 years (prior to mid- 1995 the life was 17 years) Other Methods for Protecting Intellectual Property • Confidential Disclosure Agreements – documents used to protect an idea or other forms of intellectual property when disclosure must be made to another individual organization • Employment contracts – agreements between an employer and employee whereby the employer employs the employee in exchange for the employee agreeing to keep confidential information secret Seed and Startup financing • Financial Bootstrapping – minimizing need for financial capital and finding unique ways to find  


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