What should be considered in analyzing a small, closely held business?
What will be an ideal response?
ANSWER: When analyzing small, closely held businesses, entrepreneurs should not make comparisons with larger corporations. Many factors distinguish these types of corporations, and valuation factors that have no effect on large firms may be significantly important to smaller enterprises. For example, many closely held ventures have the following shortcomings:
•Lack of management depth. The degrees of skills, versatility, and competence are limited.
•Undercapitalization. The amount of equity investment is usually low (often indicating a high level of debt).
•Insufficient controls. Because of the lack of available management and extra capital, measures in place for monitoring and controlling operations are usually limited.
•Divergent goals. The entrepreneur often has a vision for the venture that differs from the investors' goals or stockholders' desires, thus causing internal conflicts in the firm.
These weaknesses indicate the need for careful analysis of the small business
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