(BUS511) Resources, Franchising and Financing Assignment Writing

Introduction

This lesson begins with an examination of the third element of the Timmons Model—managing resources. Successful strategies and techniques used by entrepreneurs to gain control over and minimize resources are discussed, including bootstrapping, using other people’s resources, and decisions and issues related to setting up informal and formal boards.

Entrepreneurs do things differently: they minimize ownership and maximize control over resources. They apply the principle of “committing and de-committing” quickly, and thereby enjoy advantageous positioning to abandon weak opportunities early, and to seize new, more promising ones.

By controlling resources, instead of owning them, entrepreneurs reduce some of the risk, including:

1. Less capital is required, reducing the financial exposure and dilution of the founder’s equity.
2. Staged capital commitments.

• The absolute amount of initial capital is smaller.
• The capital infusions are staged to match critical milestones.

1. More flexibility.

• Entrepreneurs are in a better position to commit and decommit quickly.
• Decision windows are often small and elusive.
• Ideas can be tried and tested without committing assets.
• Inflexibility can occur when a company commits permanently to a certain technology.

1. Low sunk costs give the venture the option to abort at any point.
2. Lower costs: Fixed costs, and thus breakeven, are reduced.
3. Reduced risk of resource obsolescence.

Next, we examine the process of franchising. Franchising is an inherently entrepreneurial endeavor. We argue that opportunity, scale, and growth are at the heart of the franchise experience. The success of franchising is demonstrated by the fact that it accounts for more than one-third of all U.S. retailing. Equally important is the demonstrated performance of the top franchise companies, which consistently outperform the Standard & Poor's 500. Franchising shares profits, risk, and strategic implementation between the franchisor and the franchisee.

Unique aspects of franchising as entrepreneurship are the wide spectrum of opportunity that exists and the matching of scale to appetite for a broad spectrum of entrepreneurs. Two tools are provided to help the entrepreneur. For those interested in creating a franchise, the franchise relationship model articulates the dynamic construction of the franchisor franchisee alliance. For the prospective franchisee, the franchise risk profile helps the budding entrepreneur assess the risk–return scenario for any given franchise opportunity.

Finally, we look at entrepreneurial finance. Cash is king and queen. Happiness is a positive cash flow. More cash is preferred to less cash. Cash sooner is preferred to cash later. Less risky cash is preferred to more risky cash.

Financial know-how, issues, and analysis are often the entrepreneurs' Achilles' heels. Entrepreneurial finance is the art and science of quantifying value creation, slicing the value pie, and managing and covering financial risk. Determining capital requirements, crafting financial and fund-raising strategies, and managing and orchestrating the financial process are critical to new venture success. Harvest strategies are as important to the entrepreneurial process as value creation itself. Value that is unrealized may have no value.

Lesson Learning Objectives

By the conclusion of this lesson you should be able to:

• Identify the important issues in the selection and effective utilization of outside professionals, such as members of a board of directors, lawyers, accountants, and consultants.
• Create simple cash flow and income statements and a balance sheet.
• Analyze the franchise relationship model and its use as a guide for developing a high potential franchise venture.
• Describe critical issues in financing new ventures.
• Demonstrate the process of crafting financial and fund-raising strategies and the critical variables involved, including identifying the financial life cycles of new ventures, a financial strategy framework, and investor preferences.

Reading

Study Chapters 11, 12, and 13 of the text.

View the Power Points for Chapters 11, 12, and 13.

Web Resources

Chapter 11

Resources for Chapter 11

http://online.wsj.com/small-business - Small business resources from The Wall Street Journal.

http://www.gmarketing.com/ - Guerilla Marketing offers creative marketing tips to help you outsmart the competition.

http://www.score.org - SCORE, “Counselors to America’s Small Business,” is a popular source of free and confidential small business advice for entrepreneurs.

Chapter 12

http://www.aafd.org/ - The AAFD is a national nonprofit trade association focused on market-driven solutions to improve the franchising community.

https://www.franchiseopportunities.com - A searchable database of franchise information and opportunities.

http://www.franchise.org/ - The International Franchise Association (IFA).

http://www.franchisehelp.com/ - Help for those considering a franchise: how it works and when to invest.

Chapter 13

Resources for Chapter 13

www.businessfinace.com/ - Funding sources for small businesses.

www.exim.gov/ - The Export–Import Bank supports the financing of U.S. goods and services.

Assignments

The following Assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Submit your responses to these questions in one WORD document. List the question first, and then your response.

Your response must adequately cover the question without being wordy or relying on “yes” or “no” responses.

Short Answer Questions

1. Entrepreneurs think and act ingeniously when it comes to resources. What does this mean and why is it so important?
2. Describe at least two creative bootstrapping resources.
3. Why will the Internet become an increasingly important gateway to controlling resources?
4. In selecting outside advisors, a board, consultants, and the like, what are the most important criteria, and why?
5. What are the five components of the franchise relationship model? Can you describe the interactive nature of these components?
6. Why do you think the public franchisors consistently outperformed the S&P 500?
7. Why is entrepreneurial finance simultaneously both the least and most important part of the entrepreneurial process? Explain this paradox.
8. What is meant by free cash flow, and why do entrepreneurs need to understand this?

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