WEEK 5 TO DO
DISCUSSION
The purpose of the discussion question is to allow you to demonstrate your understanding of the week’s key learning points and how you might apply them in a given situation. Participating in the discussion question forum provides you with an opportunity to compare your ideas to ideas from others in your class.
Question:
Buzz Price, the location expert who helped Disney and other entrepreneurs find the ideal locations for their businesses, described the location decision in the following way: “Guessing is dysfunctional. Using valid numbers to project performance is rational.” How can entrepreneurs find “valid numbers” to help them project the performance of their businesses in different locations?
Remember to cite your sources!
To earn full credit, post an initial response of a minimum of 500 words that includes at least one APA citation and the associated reference
ASSIGNMENT
Ralph Lucci, owner of The Automobile Film Club of America in Stapleton, New York, operates a true niche market business. Lucci’s business rents vintage and specialty cars for use in movies and television shows filmed in the New York City area. The Automobile Film Club of America has been operating since 1993. Although the business suffered in the aftermath of 9/11, it survived that setback, and Lucci was able to rebuild the company as film and television production returned to New York.
At its peak, the business grew to 14 full-time employees who helped support the more than 300 cars the company rented for film and television productions. However, over the next few years the business faced more challenges. The company lost the lease on the lot it used to store the cars, and Lucci could not find a lot large enough to keep his entire inventory, forcing him to sell off many of the cars. Revenues declined, and soon the business could support only him and his wife on the payroll. When hurricane Irene hit in 2011, the company took another financial hit due to damage to its property and lost business.
However, the worst was yet to come.
When hurricane Sandy hit in October 2012, the storm surge flooded Lucci’s car lot and garage, completely submerging almost all of his cars in saltwater. The cars and much of his equipment were a total loss. The building he used for offices and car maintenance also was severely damaged by the flooding. He estimated that the total loss was more than $400,000. The only insurance he carried on the business was for liability, so there was no coverage for his lost property.
Lucci, who is 60 years old, must decide whether he is willing to use his personal assets, including his home, as collateral and attempt to secure a business loan to restart his company.
Aaron Hoffman grew up in the restaurant business. His father, William “Wogie” Hoffman, operated several pizza restaurants in Philadelphia. When Aaron opened his Philly cheesesteak restaurant, he named it Wogies in honor of his father. Aaron and his wife decided to expand their restaurant by opening a small bakery to bake their own rolls in the basement of the cheesesteak shop. They ordered the equipment and began the expansion. However, the bank loan they had assumed would come through never materialized. The couple needed $50,000, and they needed it fast, to pay for the expansion they had already begun. Having no success getting financing through a traditional bank, the couple turned to a merchant cash advance on credit card sales. Although they got the funding they needed, it was at much higher closing costs and interest rate than they would pay for a typical bank loan. A typical merchant cash advance charges 20 to 25 percent of the loan as a closing fee in addition to the equivalent of a 30 to 60 percent annual interest rate.
Although not happy with paying a 20 percent fee on the loan amount at closing, Hoffman says that he had no alternative. Write a 5-7 page paper in APA format (not including the cover page and reference page) providing details about:-
- Which of the funding sources described in this chapter do you recommend that Ralph Lucci and Aaron Hoffman consider for financing their businesses? Which sources do you recommend they not use? Why?
- What can entrepreneurs do to increase the probability that bankers will approve their loan requests?
- Provide ways these entrepreneurs could attract the capital they need for their businesses. What steps do you recommend they take before they approach the potential sources of funding you have identified?
