ASSIGNMENT MEMORANDUM

Transcription

1 Page 1 of 5 ASSIGNMENT MEMORANDUM SUBJECT : ENTREPRENEURSHIP (ENT) ASSIGNMENT : 1 st SEMESTER 2010 Prescribed textbook: Longenecker, J.G., Moore, C.W., and Perry, J.W Small Business Management: An Entrepreneurial Emphasis. 14 th ed. South Western College. Students may also use the 2006, 1 st international edition. SECTION A [45 MARKS] QUESTION 1 [45] 1.1 See Longenecker et al. (2008: ) IPO (initial public offering) process: Step 1: The organisation s owners decide to go public November Step 2: If it is not yet done, the organisation must have its financial statements for the past three years audited by a certified public accountant/ organisation Mary Jo-Blidge. Step 3: An investment banker is selected to guide management in the IPO process John Nabusa. Step 4: A registration statement is filed with the Securities Exchange Commission/Johannesburg Stock Exchange, which requires one month to complete Dec2008/Jan2009. Step 5: Management responds to comments made by the SEC/JSE and issues a prospectus (red herring), describing the organisation and the offering February 2009 Management: Tom Blank, Koekie Veldblom & Mavis Moage. Step 6: Management spends the next days on the road presenting the organisation to potential investors 1-15 February, Management: Tom Blank, Koekie Veldblom & Mavis Moage travel to Johannesburg and Cape Town to present their prospectus.

2 Page 2 of 5 Step 7: On the day before the offering is released to the public, the actual offering price is set. Based on the demand for the offering, the shares are priced to create active trading of the stock On 4 March 2009 you recalculate the price of the stock by adding 25% to the initial price of R10 per share = R12,50 based on the demand. Step 8: Months of work come to fruition in a single event when the stock is offered to members of the public and received by them 5 March (16 1 mark for each step explained and 1 mark for each example provided per step.) IPO benefits: An IPO is one way to signal to investors that an organisation is a quality business and will likely perform well in the future. An organisation whose stock is traded publically has access to more investors when it needs to raise capital to grow the business. Being publicly traded helps create an ongoing interest in the company and its continued development. Publicly traded stock is more attractive to key personnel whose incentive pay includes the organisation s stock. (4 1 mark each.) 1.2 See Longenecker et al. (2008: ) Sources close to home Personal savings Friends & family (including work colleagues and even strangers) Credit cards Bank financing Loans - lines of credit - term loans - mortgages Business suppliers and asset-based lenders Accounts payable trade credit Equipment loans and leases Asset based lending Private equity investors Business angels (private individual) Venture capital firms Government NGOs; government programmes, etc. Other: large organisations; (stock etc.) (15 1 mark to identify at least 5 main sources and 2 marks each to explain each of them.)

3 Page 3 of See Longenecker et al. (2008: 491) Services provided by business incubators (any 5 of the following) - Low cost space - Credibility - Management counselling - Links to accounting, legal and other professional services - Access to financial resources - Entrepreneurial education - Receptionist, photocopying and word-processing services - Computer services - Practical business expertise. (10 1 mark to identify and 1 mark to give a practical example to illustrate.) QUESTION 2 [45] 2.1 See Longenecker et al. (2008: ) Customer accessibility shopping malls, parking, close to where A and B income groups live and work, etc. Business environment conditions zoning, city, local and provincial rules and regulations, growing markets, etc. Site availability and costs stores to rent in malls, land to develop/ build facilities, rental factory space, rental price per square metre, etc. Resource availability nearness of raw materials, available labour and transport, etc. Entrepreneur s personal preference close to home, area of preference, coast, city or rural, etc. (15 1 mark to identify; 1 mark to explain & 1 mark each for an example.) 2.2 See Longenecker et al. (2008: ) Recommendations for writing an effective business plan: Insist on confidentiality Use good grammar Limit the presentation to a reasonable length Go for an attractive, professional appearance Provide solid evidence for any claims Describe the product in lay terms Emphasise the qualifications of the management team Analyse the market thoroughly Include financial statements that are neither overly detailed nor incomplete Don t hide any weaknesses identify potential flaws. (10 1 mark for each recommendation presented.)

4 Page 4 of See Longenecker et al. (2008: 129) Family business Desire-based ( want to ) Obligation-based ( ought to ) Turnover and performance Cost-based ( have to ) Need-based ( need to ) (5 1 mark for each item presented in picture.) 2.4 See Longenecker et al. (2008: 83-86) Selecting strategies that capture opportunities Broad based: Cost strategy A plan of action that requires an organisation to be a lowest-cost producer within its market. E.g. to minimise production costs of her linen, lamps etc. in order to provide more affordable goods or an additional low price range to customers and also include other income groups as customers who are more price sensitive. Broad based: Differentiation strategy A plan of action designed to provide a product or service with unique attributes that are valued by consumers. E.g. to include unique products in her current range or unique fabrics or designs which are different from other suppliers of linen, lamps and tableware. Focus strategy A plan of action that isolates an organisation from competitors and other market forces by targeting a restricted market segment. E.g. to only provide a specific range to high income customers which is not found at her competition because of a specific product/design etc. here Leigh must focus only on a well defined and specific market and not try to serve all A and B income people.

5 Page 5 of 5 (15 1 mark to identify each of the three strategies, 2 marks to explain each of the strategies and 2 marks to apply each strategy considering the given situation.) PRESENTATION [10]