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PREFACE:

Preface

We have written this textbook for the over 90 percent of business owners in the United States who own sole proprietorships, partnerships, or small nonpublic corporations. We are targeting those individuals who wish to learn more about the financial aspects of small business entrepreneurship. We omit complex theory and discuss vital issues with a direct and clear delivery of material. We apply many of the techniques that are found in traditional corporate finance texts to small businesses at an understandable level.

Most people who desire to start a business come from technical and engineering backgrounds. Their formal education is in technology rather than business. This book is written primarily for the community college and junior college market that caters to the concerns of individuals wishing to enhance their abilities in those areas of business that lead to successful entrepreneurship. This text also can be used as a supplementary text by technical colleges and universities offering programs in entrepreneurship. Of the over 20 million businesses in the United States, approximately 74 percent are sole proprietorships, 7 percent are partnerships, and 9 percent are subchapter S-corporations. Fewer than 10 percent are publicly traded; however, typical financial textbooks are written for the corporate finance market. Additionally, over 87 percent of all business establishments have fewer than twenty employees. For these businesses, the owner usually is the chief financial officer, the chief executive officer, and the chief operating officer. Such business owners need a working knowledge of finance because they have no staffsupport on a full-time basis to assist in planning. In addition, the resources used in writing a business plan often omit many of the financial aspects that owners may need to determine the financial health of an existing or future business.

Our textbook differs from the typical financial textbook in the following areas. Most financial texts are written with an emphasis on publicly traded corporations. They are written for college juniors, seniors, or graduate students, with the assumption that the student has had several courses in accounting. They assume that this student will be working for a major corporation. These may be valid assumptions; however, they do not always apply to a small business and these texts typically do not provide specific examples for the noncorporate market. Our textbook fills this void. Also, because many students who enter into business come from a technical background rather than having a prior formal business education, we begin our text by outlining the basic economic factors affecting finance. We then discuss the advantages and disadvantages of various forms of business ownership. The text provides examples of financial statements for each type of business ownership. We devote more time than most financial texts to discussing working capital and inventory management, because even though the sales of a small business may increase, that business may fail because of poor working capital and inventory management techniques. Most business managers have been trained to judge the profitability of a project in terms of payback and breakeven analysis. We have taken corporate capital budgeting techniques and adapted them to small business by showing the weighted average cost of capital as it exists for a small business owner. We also demonstrate the importance of the time ,.value of money as a tool in both business planning and personal financial planning, and we simplify the use of this tool.

Most individuals who work for the traditional publicly traded corporation have access to a 401k or other formal retirement plan. Traditional financial textbooks, for this reason, do not cover personal financial planning. Small business owners are often so involved with current operations that they neglect to plan for their own personal financial future. We believe that it is imperative for small business owners not only to run their business successfully on a day-to-day basis, but also to have those skills that will enable them to plan for their personal future. Therefore, we have included a chapter on personal financial planning. This chapter includes an in-depth discussion of risk management as well as those investment vehicles that enable the entrepreneur to plan for personal financial goals.

Acknowledgments

The authors would like to extend their appreciation to the following professors for their contributions to this second edition. We wish to thank John Lavaliere, Sault College of Applied Arts & Technology, Sault Ste. Marie Ontario and Bill Hefter, San Francisco State University.

The following professors at DeVry Institute of Technology were extremely helpful and highly professional in their review and contributions to this second edition. We wish to thank Joyce Barden, John Draftz, Dr. Evelyn L. Plummer, and Sean T. Wright and acknowledge their individual contributions to this second edition.

Professor Draftz made significant contributions to chapter 8. His eagle eye, attention to detail and contribution of many problems and practice tests are very much appreciated. Professor Wright contributed several problems and provided valuable feedback on the textbook in general. Professors Plummer and Barden made several valuable suggestions on the presentation of both financial statements and financial data. Additionally, we have included several of Professor Draftz' and Professor Wright's problems in the instructor's CD as part of our special instructional package.

Philip J. Adelman
Alan M. Marks