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Business Accelerator

See also:
Dilemma of Financing a Start Up Company
Why do most startups fail?
Financing a Startup

Business Accelerator Definition

The business accelerator definition is a program that includes mentorship, education, and typically a “demo day” where companies are able to pitch their business to the business community. This business community is typically comprised of potential vendors, investors, partners, and customers.

Start ups, early stage companies, or subsidiaries of existing companies participate in business accelerators to accelerate their sales, operations, and financials.

Business accelerators are either publicly or privately funded. Publicly funded accelerators are funded by the government. They typically do not take any equity. But they generally focus on a specific industry – including biotech, fin tech, med tech, and clean tech. Whereas privately funded accelerators are funded by private entities. Because there is a higher risk for the investors, they typically take some equity or provide capital as debt.

Regardless of the type of business accelerator, it’s important to note that they are highly competitive. Application processes are usually extensive as each accelerator needs to protect their reputation – the companies they “pump” out.

As an introvert, business accelerators can seem daunting, but it is great networking place! Click here to download our Networking for Introverts Guide.

Purpose of a Business Accelerator

The purpose of a business accelerator or accelerator programs is to grow young companies by nourishing them with the support, connections, and knowledge they need to be successful. Many times universities will have an accelerator program to monetize the intellectual property created. Likewise, governments will host these programs to fill a gap in their initiatives.

Should You be a Part of a Business Accelerator?

Now that you know what an accelerator can do for you, should you be a part of an accelerator? It all depends on the size of your company, whether you need further mentorship and coaching, and if you are preparing for a round of financing.

Need to Mentorship & Coaching

Many of our clients don’t realize how valuable mentorship and coaching until they become coaching participants in our Financial Leadership Workshop. Mentorship and coaching can help further your network, your product, your process, and your brand. They provide a non-filtered, un-biased support that, while may sometimes be harsh, will help further your company.

Preparation for Financing

If you are preparing for your Series A, seed capital, venture capital, or angel investment, it’s important that you see all your options. As more companies are starting up, you will see the investor pool growing. Just because you know only one Angel investor now does not mean that is your only option. Accelerators help connect the right investor for your company to you.

Business Accelerator vs. Business Incubator

One question we get often is, “what’s the difference between a business accelerator and a business incubator?” A business accelerator can often last anywhere from a couple weeks up to a year. Whereas a business incubator holds companies from a year up to several years. An incubator’s goal is to develop a successful company, so until they are ready to fly, they continue to incubate them.

Need guidance in networking and taking advantage of your business accelerator experience? Download your free Networking for Introverts guide and start building your network today.

Business Accelerator

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Black Friday

In America, Black Friday is an event that is not only the most shopped on day during a typical year, but it also generates huge sales.

“Only in America do people trample others for sales exactly one day after being thankful for what they already have.”

~Author Unknown

Black Friday Definition

The Black Friday definition is a retail store sale that occurs the Friday after Thanksgiving – an American holiday in November. Many consider this event to be the kick-off to the Christmas shopping season. Many retailers, such as Walmart, Kohls, Kmart, Macy’s, Express, and other major retailers, open their stores in the early hours of the morning to receive the first rush of customers. Door busters, sales, huge discounts, and giveaways are all part of this event.

The History Of Black Friday

Black Friday originated in 1952 as the start of the Christmas shopping season. Because many states in the United States considered the day after Thanksgiving to be a holiday as well, retail shops realized that there were enormous amounts of potential shoppers available during this four-day weekend. But since 2005, this event has launched into record numbers for sales, shoppers, etc. For example, sales dropped for the first time since the 2008 recession in 2014. Yet, sales boasted $50.9 billion over that weekend.

Although not all states in the United States permit workers to work on national holidays or even the day after Thanksgiving, companies have broken many boundaries to take advantage of this rush of customers. Over time, retail stores and e-commerce platforms have expanded on Black Friday to include Cyber Monday. It’s become a tradition to many.

Cyber Monday

Because Black Friday became such a hit, online companies created another shopping event – Cyber Monday. It occurs the Monday after Thanksgiving and encourages shoppers to purchase more gifts and things on Monday. Originally, it was launched in 2005.

The Cost of Black Friday

While it may be tempting to join in on Black Friday specials and sales, you have to consider the cost. Remember, a sale isn’t necessarily a good sale. It has to be a profitable sale.

Some of the costs associated with Black Friday include.

How to Win on Black Friday

In order to win on Black Friday, you have to price your products for profit. Especially since you project to sell large quantities of product, you need to make sure you don’t start with a pricing problem. If you cut prices off a product that is already not profitable, then you will loose more potential profit. Before you start planning for Black Friday, make sure your pricing is in check. Click here to download our Pricing for Profit Inspection Guide.

Price for Profit During These Sales

Each sale you make has to return a profit. Therefore, you need to allocate as many costs to each good to make it easier. How much inventory do you need to push in order to turn a profit? But also, what prices are customers willing to spend? The trick with Black Friday is that since everyone is competing for the best deal, you must know what others are pricing the same product at.

Reduce DSO by Turning Over Inventory

The risk for big sales like Black Friday is that there will be some that cancel their credit card transaction for $1,800 worth of product. Because you are putting a lot of cash up front to increase inventory, you need to collect cash as quickly as possible. For example, you can offer discounts for cash only. For other pricing tips, download the free Pricing for Profit Inspection Guide to learn how to price profitably.

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Shareholders’ Equity Definition

Shareholders’ Equity Definition

The Shareholders’ Equity Definition is one of the three primary components of the balance sheet: assets, liabilities, shareholders’ (or owners’) equity. These three components comprise the well-known accounting equation of assets = liabilities + shareholders’ equity. This equation is important when beginning to think about what shareholders’ equity means for a business.

The owners’ equity category includes two things: investments into the company and retained earnings from each period. The investments can be from when the company launched and from later points in time. The important part is recording the investment under the shareholders’ equity section on the balance sheet. These two combine to fill the gap between the value of a company’s assets and liabilities. Using this logic, you can see how it is equally important to know the value of your assets, liabilities, and shareholders’ equity. If any component is incomplete or inaccurate, the financials will not be complete.

Shareholders’ Equity Example

For example Company A started with a $100,000 investment from the sole owner. In the beginning, the owner’s equity account is equivalent to the owner’s investment. After one year of business, the company has $60,000 in net profit. The owner decides to pay $10,000 in dividends and sends the other $50,000 to retained earnings. Thus, the owner’s equity account grew by the same amount as the retained earnings for that period.

When discussing shareholders’ equity, it makes a difference whether the company is private/public or mature/startup. Private companies often use separate terms for things like stocks, owners’ equity, and dividends. Public companies have more regulations and shareholders to please, so the financials of public companies usually look different than those of a private company. It is important to know whether a company is mature or a startup when looking at the financials. For example, if a startup has a very large retained earnings account under owners’ equity, something is either incorrect or extraordinary. Similarly, if a mature company’s shareholders’ equity is largely composed of owner investments and new partners’ investments, it could represent a struggling business. If the business is not creating enough net profit to reinvest into the company, it would have more owner investments than retained earnings.

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Business Valuation Purposes

See Also:
EBITDA Valuation
Valuation Methods
Multiple of Earnings

Business Valuation Definition

Business valuation is the process of determining the economic value of a business or company. It assesses a variety of factors to determine the fair market value in a sale, but there is no one way to verify the worth of a company. Business valuation can depend on the values of the assessor, tangible and intangible assets, and varying economic conditions. Business valuation provides an expected price of sale; however, the real price of sale can very.

Traditional approaches to business valuation employ financial statements, cash flow models, and comparisons to competitive companies within a similar field or industry.

Business Valuation Methods

Income Approach: determines business value based on income. This type of valuation focuses on net cash flow, discretionary cash flow, and capitalization of earnings.

Asset Approach: determines business value based on assets. This type of valuation focuses on both asset accumulation (assets minus liabilities) and capitalized excess earnings.

Market Approach: determines business value in relation to similar companies. This type of valuation focuses on the comparative transaction method and appraises competitive sales of comparable businesses to estimate economic performance looking at revenue or profits primarily.

(Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

Business Valuation Purposes

Although the primary purpose of business valuation is preparing a company for sale, there are many purposes. The following are a few examples:

Shareholder Disputes: sometimes a breakup of the company is in the shareholder’s best interests. This could also include transfers of shares from shareholders who are withdrawing.

Estate and Gift: a valuation would need to be done prior to estate planning or a gifting of interests or after the death of an owner. This is also required by the IRS for Charitable donations.

Divorce: when a divorce occurs, a division of assets and business interests is needed.

Mergers, Acquisitions, and Sales: valuation is necessary to negotiate a merger, acquisition, or sale, so the interested parties can obtain the best fair market price.

Buy-Sell Agreements: this typically involves a transfer of equity between partners or shareholders.

Financing: have a business appraisal before obtaining a loan, so the banks can validate their investment.

Purchase price allocation: this involves reporting the company’s assets and liabilities to identify tangible and intangible assets.

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Goodwill Impairment

See Also:
Goodwill Accounting Term
Fair Market Value
Asset Market Value vs Asset Book Value

Goodwill Impairment Definition

Goodwill impairment is goodwill that is now lower in value than at the time of purchase. Goodwill is an intangible asset that sellers are willing to pay for; brand, reputation, a large customer base, strong customer service, and important patents all increase a company’s goodwill. Many contrary factors contribute to impairment of goodwill such as negative publicity from high-ranking company officials, unpopular changes in product line, or a decrease in customer loyalty or brand recognition.

How to Calculate Goodwill Impairment

Goodwill impairment occurs when the goodwill value exceeds the fair value (the estimated value of a company’s assets and liabilities).

Goodwill Impairment Example

Let’s say there is a athletic clothing company called Freeform. Freeform has $20,000,000 in annual sales and a reported Goodwill value of $10,000,000 due to an exceptional product, consistent customer service, and a loyal fan base. The following year a larger athletic company called AltaCorp purchases Freeform for $30,000,000 (combining the sales and Goodwill values).

Unfortunately, after the purchase is complete, sales fall 50% the consecutive year. AltaCorp’s CEO was removed for disparaging comments made towards his female customers. Furthermore, Adidas unfolds a new campaign targeting young women and gains a cult following that competes with Freeform’s largest customer base. Because of the drop in sales and the AltaCorp’s reputation, as well as the increase of competition in the marketplace, Freeform’s fair market value drops to $15,000,000. Now, the company is worth less than AltaCorp paid for it. So the Goodwill must be reduced, which reduces the overall Total Assets. This is a significant hit to AltaCorp as Goodwill can represent a large portion of the company’s net worth.

(Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

Goodwill Impairment Analysis

It is important to note that Goodwill Impairment is relative and can be difficult to calculate; in most cases, it’s in the eye of the buyer. Test Goodwill annually against the fair value to manage a buyer or seller’s expectations if the company is undergoing business valuation.

Goodwill impairment gained wider attention in the 21st century after many companies discovered they had unrealistically increased their goodwill. Thus creating an inaccurate valuation of their company. As a result, stricter accounting standards exist to monitor and calculate goodwill.

Goodwill Impairment

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ROCE (Return on Capital Employed)

See Also:
ROE (Return on Equity)
ROIC (Return on Invested Capital)

ROCE (Return on Capital Employed) Definition

ROCE stands for Return on Capital Employed; it is a financial ratio that determines a company’s profitability and the efficiency the capital is applied. A higher ROCE implies a more economical use of capital; the ROCE should be higher than the capital cost. If not, the company is less productive and inadequately building shareholder value.

ROCE Formula

The formula for calculating the ROCE =  EBIT/Capital Employed.

EBIT = Earnings Before Interest and Tax
Capital Employed = Total AssetsCurrent Liabilities.

Calculating ROCE is a useful means of comparing profits across companies based on the amount of capital. It is insufficient to look at the EBIT alone to determine which company is a better investment. You also have to look at the capital and calculate the ROCE. Many consider ROCE a more reliable formula than ROE for calculating a company’s future earnings because current liabilities and expenses.

(Are you trying to maximize the value of your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

ROCE Example

Look at the table below to see the importance of ROCE in action.

Screen Shot 2016-06-08 at 8.32.42 PM

Both Company A and Company B sell computers. Company A represents the Old Factory model; they are a distribution company that sells business to business. Company B is the New Factory; they are also a distribution company, but they sell on the Internet via credit card. Due to this modern convenience, Company B is able to receive payment within two days instead of the forty-five it takes Company A.

If you were to just consider EBIT, Company A looks like the better investment at 7% return on sales compared to Company B’s 5%; however, with such a large DSO number, Company A is out $6,000,000 more than Company B at any given time. This means Company B needs less capital invested in the company which would result in a higher return on equity (ROE).

Thirty years ago, a similar scenario played out between IBM (Company A) and Dell (Company B). In his college dorm room, Michael Dell started taking credit card sales over the phone and was able to grow a billion dollar company with very little capital.
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ROE (Return on Equity)

See Also:
Return On Equity Example
Return on Asset
Financial Leverage
Gross Profit Margin Ratio Analysis
Return on Equity Analysis
Fixed Asset Turnover Analysis

Return on Equity (ROE)

The return on equity, or ROE, is defined as the amount of profit or net income a company earns per investment dollar. It reveals how much profit a company earns with the money shareholders have invested. The investment dollars differ in that it only accounts for common shareholders. This is often beneficial because it allows companies and investors alike to see what sort of return the voting shareholders are getting, if preferred, and other types of shares that are not counted.

The term can be confusing as it has various aliases. For example, Return on Equity used to be called Return on Common Equity; however, ROCE now refers to Return on Capital Employed. Return on Equity is also the equivalent to Return on Net Worth (RONW).

Return on Equity Explanation (ROE) 

ROE is a measure of how well a company uses its investment dollars to generate profits; often times, it is more important to a shareholder than return on investment (ROI). It tells common stock investors how effectively their capital is being reinvested. For example, a company with high return on equity (ROE) is more successful in generating cash internally. Thus, investors are always looking for companies with high and growing returns on common equity. However, not all high ROE companies make good investments. Instead, the better benchmark is to compare a company’s return on common equity with its industry average. The higher the ratio, the better the company.

(Are you trying to maximize the value of your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

Return on Equity (ROE) Formula

The return on equity formula is as follows:

ROE = Net Income (NI)/ Average Shareholder’s Equity

The Net Income accounts for the full fiscal year (prior to dividends paid to common stock holders and after dividends paid to preferred stock holders).

Find the average shareholder’s equity by combining the beginning common stock for the year, on the balance sheet, and the ending common stock value. Then divide these two values by two for the average amount in the year and do not include preferred shares.

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