Business Barriers
No business is instantaneously successful. There are multiple obstacles referred to as barriers all owners and managers have to overcome. There are three primary groups of barriers for every business out there.
Capital
Capital has several different definitions when used in a business context. The most common definition is the amount invested in a business or an asset. It is viewed in the equity section of the balance sheet that quantifies the amount invested by owners/stockholders in a business operation.
Debt or Equity in Small Business – Fundamentals
Small business books and manuals explain the formula used to determine whether additional debt increases the return for investors commonly known as return on investment (ROI). I find this laughable in our modern economic times given the low cost of financing.
Hospitality Industry Characterized by High Fixed Costs
There is one unique financial characteristic that is synonymous with the hospitality industry; that is high fixed costs. Or another way of stating the same financial attribute is to simply state that the hospitality industry has low variable costs.
How Much is a Fair Profit? – Part IV of V Return on Capital
For all investors in business, capital is the fronted equity an investor risks in exchange for a return. This return can range from zero to infinity depending on the success of the business. A fair profit is really a function of four different factors.
Three Primary Characteristics of Successful Businesses
Over the last 19 years of working in the world of accounting, I have become convinced that to be successful in business, you must have three primary characteristics. It is the common thread that binds all successful operations in every industry I have witnessed.
Shareholder Agreement – Capitalization Clause
The shareholder agreement lays out the rules of the relationship between the shareholders of a company. Most often the agreement is poorly written because the legal team fails to understand the business aspect of each of the respective sections. One of these sections is referred to as the Article of Capitalization or commonly called the Capitalization Clause.
Stock
The one single term mostly equated to capitalism is ‘Stock’. When a business is incorporated, stock is the core medium of exchange for the investment. The company issues a certificate referred to as stock in exchange for the investment – most often cash. This is the one true form of pure risk. Most other forms of investments generally have some form of collateral, credit, or cash flow to substantiate the investment.
Syndication
Syndication refers to a group of individuals or business entities working together to achieve a set goal(s). In business, the goals vary. The most common goal is to acquire capital and use the combined power of the group in exercising that capital for a better than average rate of return.
Internal Revenue Service (IRS) Definition of an Expense
The Internal Revenue Service defines a business expense as ‘ordinary’ and ‘necessary’. Ordinary expenses are those costs typically incurred in your industry. So a restaurant would not ordinarily purchase vaccines. And a medical practice would not purchase 50 heads of lettuce.
Capitalizing a New Home Builder Business
Bankrolling any startup business is difficult enough. Capitalizing a new home builder operation is a leap forward in required funds. Typically, small businesses can be capitalized on a shoestring budget, for a new home contractor, just a little bit isn’t going to work.
