1 Why is it often easier to start a service business than a

1. Why is it often easier to start a service business than a goods-producing business?

2. At CanGo, are the fluctuations in the business cycle predictable?

3. The lack of capital can often be linked to the failure of a small firm. Considering this, what factors should you consider before selecting financing alternatives for CanGo?

4. When Cango learns about a threat that could place the safety of its workers or its customers at risk, is management obligated to immediately inform these parties of the threat? Explain your answer.

Solution

1. It is easier to start a service business than a goods producing business because of the following reasons:

a) Service producing business requires lesser capital. It does not require any plant and machinery. It simply needs an office from where operations can be managed. A business of millions can be operated from a office of 500 square feet area.

b) Service producing business involves lesser fixed costs. Variable costs are incurred only when services are demanded. In their case, demand preceeds supply and there is no probability of production which could not be sold.

c) Service business requires one kind of expertise which owner may have and he need not rely on hired workers who may cheat but production of goods require different types of expertise which one individual can never have.

2. Yes, it is possible in case of any service producing company to predict fluctuations in the business cycle to great extent. prediction can never be perfect but it is largely predictable as impact gets visible within weeks.

3.

Repayment Terms: Consider how long the financing arrangement is structured to last. Longer loans can build up a significant amount of interest over time, but loans with shorter terms can require larger periodic payments. Consider the amount of the periodic payment and how often you are required to pay. Also take into account the allocation of each payment to principal and interest; look for loans with a higher allocation to principal to minimize the total long-term cost.

Interest and Fee Structures: Add up all of the costs associated with each financing method before making a decision. Common costs for loans include interest rates, origination fees and brokers\' fees. Financing through investment can carry much different costs. Money from venture capitalists, for example, may not require repayment for years, at which time the investor may expect to be repaid at a steep premium all at once. Financing through stock offerings can lead to a change in management and a shifting in strategic focus.

Financing Requirements: Consider the personal requirements each lender and investor places on applicants. Pursue financing from sources whose requirements you meet in full. Common financing requirements include credit score requirements and specific financial ratio tests, such as the debt-to-equity or interest coverage ratios. Discuss the requirements placed on applicants with each lender before preparing a loan application package.

Additional Requirements: If you are thinking about financing your business through investment, look into all the ramifications of your decision before moving ahead. Venture capitalists often require an ownership stake in the company, which they expect you to buy back at a premium after a period of rapid growth. Before you buy the ownership stake back, however, the investor may assert a great deal of influence on managerial and strategic decisions.

Selling shares of stock to finance a business has its own set of vital considerations, including the possibility of losing managerial control in the future and falling victim to a takeover from a larger company.

4. Yes, when Cango learns about a threat that could place the safety of its workers or its customers at risk, management is obligated to immediately inform these parties of the threat. It must maintain the following records to keep consumers and employees updated on security issues

If these parties are not informed timely, their wrong decision would create a negative godwill in the market. In case of a service business, if negative goodwill gets created, it becomes almost impssible to reestablish business.