Entrepreneurship

Testing Purchases

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1 Red Paperclip

admin — Thu, 12 Nov 2009 08:16:11 +0000

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Glossary

Hatano Online — Thu, 16 Jul 2009 05:28:33 +0000

Here is a simple, yet always growing, glossary of entrepreneurship.

Capital Expenditure

Money spent/ Items purchased to improve a business. For example, equipment purchased, building renovations can count as a capital expenditure. Basically, the purchase or improvement of anything that can be counted as an asset is considered a capital expenditure.

C-Corporation

A type of company that is a separate entity from its owners. Owners own shares in the company. The C-Corporation is taxed separately from its owners. C-corporations are highly regulated, requiring strict financial records, records of minutes, and a specific structure of ownership and management.

EBIT

Earnings Before Interests and Taxes, also sometimes referred to as Net Profit. As the name implies, this is the income of a company minus all expenses, but before interest and taxes are factored in.

Entrepreneur

Someone who undertakes a new venture or starts a new organization, usually associated with a for-profit business.

Franchise

A franchise is a business partnership in which a franchiser grants a license to a franchisee for royalty fees and/or a share of the profits. While many famous examples abound, such as McDonald’s, Subway, Coca-Cola, etc., these well-known franchises only represent a small fraction of the types of franchising available. Franchises like McDonald’s license the entire business process, but some franchises only license out the right to distribution of a product, the brand name, or the right to supply. A wide variety of franchise models exist today.

Gross Profit

Gross Profit is calculated by subtracting the cost of the products from revenues. Another way to say it is Net Income minus Cost of Goods Sold. In industries where the product is a service, the cost of delivering the service is subtracted from revenue. This is different from Net Profit. Gross Profit is usually a bigger number than Net Profit as Net Profit subtracts more.

LLC

Limited Liability Company- A type of company formation in the United States. An LLC is a separate business entity from its owners, but is a pass-through entity for tax purposes.

Net Profit

Calculated after Gross Profit, this is the amount of money that remains after calculating all expenses- salaries, administration overhead, etc. This is usually calculated before taxes (EBIT) but is also considered by some to be the profit that remains after taxes. Net Profit can be calculated after earnings or expenses from the interest on loans. So, in banking for example, Net Profit can sometimes be higher than Gross Profit.

Pass-Through Entity

A “pass-through entity” is a company that is not taxed directly. Taxes are “passed through” to the owners or investors. This avoids taxes in some instances but can add to taxes in others (i.e. capital expenditures) and can sometimes cause high personal taxation with zero income (when the business holds onto cash instead of paying out to the owners, the owners are still taxed at the end of the year based on their portion of ownership).

S-Corporation

A Corporation that chooses to be classified as a “pass-through” tax entity. It is basically the same as a C-Corporation, except that shareholders of S-Corporations must report earning on their personal income statements of their share of the profits. A couple rules: maximum 100 shareholders, only 1 type of stock allowed, owners must be U.S. citizens or residents.

Social Entrepreneurship

Entrepreneurship that is primarily focused on social or environmental goals or change. This can take the form of non-profits or businesses with social goals beyond profit. A significant recent contribution to social entrepreneurship is the book by Muhammad Yunus called Creating a World Without Poverty: Social Business and the Future of Capitalism.

Sole Proprietorship

A business which is owned by one person and is not separate from that person. All the liabilities and taxes are the responsibility of the owner. The business does not pay any corporate tax, but the owner must pay self-employment tax.

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Solve a Big Problem

Hatano Online — Thu, 16 Jul 2009 04:45:17 +0000

In the middle of difficulty lies opportunity.

Albert Einstein

Sometimes when things get difficult we try get away from the situation too quickly to avoid the pain. Instead, look for the opportunity that lies in the midst of that problem. This is the heart of entrepreneurship.
Watch Larry Page (co-founder of Google) talk about his Tips for Entrepreneurs.4

“Don’t be afraid to solve the whole hard problem.”

Larry Page

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Business Formation

Hatano Online — Thu, 16 Jul 2009 02:33:07 +0000

When identifying the rules of starting a business, one of the most important aspects is determining how to legally form your business.

This will effect your bottom line. The type of business formation you choose will have significant implications in regards to taxes, liability protection, equity sharing, and control (among other more specific areas).

A business’ strategy needs to be closely linked to its legal formation. So what are the basic rules of Business formation?

Well, they vary from country to country, so let’s start with the issues to consider when identifying the Rules of Business Formation:

1. Taxation

How will the business and owners be taxed- separately or together? How is the tax burden shared?
Types of tax burden- What kind of taxes needed to be paid? i.e. social insurance, health, employment taxes, etc.
Amount of tax burden- How much tax will the business need to face?
Tax Points- Where in business operations will taxes happen? How frequently? i.e. sales/consumption taxes, employee salary taxes, taxes at supply, on capital holdings, dividend payments, etc. It’s important to look at where taxes happen, not just within the company, but along the capital chain from supply to customers to owners.
Exemptions- What are allowed tax exemptions for each type of formation?
Flexibility- How much room is there to adjust the way a company is taxed?

2. Liability Protection

Separation- Is the business a separate entity or an extension of the owners?
Protection of Personal Assets- How much protection is afforded to the owners’ and/or managers’ personal assets if the business is found liable?
Protection of Business Assets- How much protection is given to the business from claims against an owner of the business? Is your business protected if your partner hasn’t paid her debtors?
Strength of Precedent- How reliable is the expected protection? Has liability been tested in the courts? Have court decisions always come down the same way? This can very with type of formation as well as location of formation.

3. Equity

Flexibility- How flexible can the equity be shared? Is there unlimited flexibility or are there boundaries to who, how many, and circumstances of ownership? How easy is it to change equity ownership?
Trading- Can equity be sold or traded from any owner to another? Or equity be sold to new owners? What rules govern the exchange of equity.
Value- How is value of equity set? Who controls it’s change?

4. Control

Who- Who has control over the company? Owners? Managers? How much control does each group have?
Election flexibility- How easy is it to transfer control of the company?

While the names of business formations vary from country to country, there are generally 4 types of formation:

Sole Proprietorship- This type of formation puts the entire burden of the business on a single person. Taxes are shared with the business, and liability is also shared.
Partnership- This is like a sole-proprietorship but ownership is shared among more than one person.
Limited Company- This is a type of company that is generally considered a separate entity, protecting owners from liability of claims against the company. Taxes, on the other hand, are passed through to the owners.
Corporation- This is a company that is separate in liability and taxes from its owners.

Information on business formation, incorporation, and LLC formations in the U.S.- Click here.

Starting a Business in Delaware.
Starting a Business in Nevada.

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Resources

Hatano Online — Fri, 10 Jul 2009 02:48:04 +0000

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Opportunity in Difficulty

Hatano Online — Thu, 09 Jul 2009 06:37:54 +0000

Entrepreneurship

Hatano Online — Wed, 08 Jul 2009 03:22:05 +0000

The Entrepreneur’s Code:

1. Be honest and transparent in every deal.

2. Take full responsibility in every venture.

3. Make new connections for the greater good.

4. Disrupt to improve.

5. Never start unless committed to results.

6. Never compete unless committed to winning.

7. Creation above competition.

8. Excellence above originality.

9. Generosity above hoarding.

10. Building up above quick cash.

11. Growth above re-distribution.

12. Hypotheses above ideas.

13. Thorough Preparation.

14. Acute strategy.

15. Effective action

16. Designing the future.

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Rules of the Game

Hatano Online — Wed, 08 Jul 2009 03:21:33 +0000

Business is, in its essence, a game. It’s a real life game where losing is no laughing matter. But it is a game in the sense that there are rules and strategies that determine winning and losing.

Whenever starting a business, its important to identify the rules that determine who wins (in that industry or market) and the best strategies for profitability. The exciting part is that the rules never stay the same. This means that the rules need to be continually updated. We can, however, pin down the categories of rules and factors influencing them as these change less often.

Factors Influencing Business Rules:

Governmental Laws
Technological Landscape
Market Landscape
General Society
Environment

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Skills

Hatano Online — Wed, 08 Jul 2009 03:20:53 +0000

Entrepreneurship

Testing Purchases

1 Red Paperclip

Glossary

Solve a Big Problem

Business Formation

Resources

Opportunity in Difficulty

Entrepreneurship

The Entrepreneur’s Code:

Rules of the Game

Business Rules Categories:

Factors Influencing Business Rules:

Skills