1.  What potential problems, if any, might a financial partnership lead to in the future?


1ld a.  According to Schaefer, since a partnership is typically much easier to get into than to get out, you’ll want to achieve absolute clarity at its onset. Avoid any potential problems by making sure duties and responsibilities of each partner are detailed in a legal agreement. This agreement should include and set forth: division of labor including who’ll be responsible for making purchase decisions; how much capital each will contribute; who owns what; how decisions will be made, profits will be shared, disputes will be resolved; a buy-sell agreement; and who will be entitled to what if the partnership doesn’t work out.


Is a Business Partnership The Right Choice for You? Retrieved fromhttp://www.businessknowhow.com/startup/partnership.htm


1ld b.  According to Monroe (2012) Where’s the exit? Normally there is no clear exit strategy when a financial partner invests in a company, but the philosophy of the exit strategy needs to be understood. How many years is it before your financial partner wants to exit? Does your financial partner have the ability to force a sale (that means the partner can force the company to be sold if the company has not been sold after a given period)? What are the financial partner’s expectations on its return“does the partner want a 20 percent return or a 40 percent return? What are the two types of financial partners?


Monroe, D. L. (2012, September). Good Partners, Bad Partners. Franchise Times,  1-2.


1km c.  Unfortunately, the problem with most partnerships is that someone gets greedy or that one partner is far more conservative with cash flow than the other. When entering into a partnership every single detail (especially the responsibilities, contribution of capital, hours, and pay of the partners) should be put in writing, signed by both parties, and notarized. People often go into business with family members, and they believe they can trust them so they don’t put enough information in writing. Because of that, they then realize they have different ideas of how the company should work, and the business will end up failing. My mother-in-law (Tina) opened a pet store with her sister (Terry) and didn’t put anything in writing. Her sister was supposed to handle the finances while she handled the animals. According to her sister, they didn’t make a profit the whole first year so neither of them received a paycheck during that time. They were supposed to split the profits instead of paying themselves a salary, which is not a good idea anyway. Shortly after their first year, Terry was hospitalized. Tina started looking at the financial information and discovered that Terry hadn’t been recording the transactions of the dogs, some of the lizards, and the snakes for the last three months. She confronted her sister. Turns out, she’d been pocketing the money. She had planned to pay it back and record everything, but bills kept piling up, etc. This happens so often, and we would never have thought Terry was capable of something like that. If you want to avoid these issues, you have to put each detail in writing. You also need to look at financials and contracts on a regular basis and discuss everything with your partner. Otherwise, you may not even find out if you’re being taken advantage of.


1sg d. A business match is much like a marriage, and just as one would normally take great care, time and consideration in the selection of a mate, so it should be in the selection of a business partner.   A few problems that can arise from a business partnership include the following:

  • Partners in a general partnership are jointly and individually liable for the business activities of the other. If your partner skips town, you’ll be liable for all the debts, not just half of them.
  • The profits of the business have to be divided between partners.  You must establish who gets what or there will be fallout.
  • You do not have total control over the business. Decisions are shared, and differences of opinion can lead to disagreements, a œfalling out, or even one partner buying out the other.
  • A friendship may not survive a partnership. Keep in mind John D. Rockefeller’s famous words: œA friendship founded on business is a good deal better than a business founded on friendship.


1ld e.  According to Mears (2010), it’s really easy, as entrepreneurs, to believe that your way is the best way. In fact, many of us got into business, because we were pretty convinced of this, and, if your business is successful, you have ample support of that view.


But no one is right all of the time, and having a business partner to whom you have to justify your reasoning is a great way to make sure you’re making decisions soundly and not just because you like the sound of your own ideas.


Business Partnerships, Pros and Cons. Retrieved from http://www.bcbusinessonline.ca/bcb/bc-blogs/boss-ladies/2010/05/12/business-partnerships-pros-and-cons


2. How might inventory and accounts receivables be leveraged for short-term financing?


2sg.  Companies that benefit most from asset-based loans are businesses that have well performing receivables and are expanding faster than their cash intake or those that can’t afford operating expenses due to a lack of capital funding.   Car financing or mortgages are examples of asset-based lending. However, the term generally refers to a business receiving short-term loans leveraged against their inventory, accounts receivable, machinery and other equipment to cover immediate expenses.   Banks would rather lend against physical assets, but will consider positively achieving receivables for lower amount loans. Lending based on equity is usually the best option when other avenues of acquiring working capital such as stock sales, mortgage-secured or unsecured loans aren’t possible and money is needed quickly for things like payroll, inventory, mergers, acquisitions or other time-sensitive costs.


2km.  A small business that needs to obtain a loan for whatever reason can do so without using machinery, equipment, or land as collateral. They can use their inventory or their accounts receivables instead. With inventory, they have to have a specified amount. If the amount is not paid, possession of the inventory is taken over by the lendor. They can also set up the pay back by taking the money from the sold inventory immediately after it’s until the loan is paid. With accounts receivable, the amounts owed to the borrowing company from the debtors can be sold to the lending company. Another way to handle the contract is to use the AR as collateral. If they miss a payment, the lending company can take possession of the AR. Both of these work better in the short-term because it is easier to determine whether or not the loan will be paid.


2zc.  In order to leverage your inventory or accounts receivable for short-term financing you will need to find an institution that offers it. Your interest rates are usually higher than on a traditional loan from a bank but it is another way to raise working capital or money needed for daily operations.

Once you have the financing, you are still responsible as the owner to collect the debts from your customers. Usually, your lender will only accept those receivables as collateral that are not overdue or if the credit extended to the customer is too long it may be rejected as well. Then the lender will evaluate these receivables to determine how much money they are willing to lend you. Now if you default on this loan the lender then takes over the accounts receivables and collects those debts as their own.

Inventory financing is when the loan is secured by using the firm’s inventory as collateral. The business can then afford to keep large amounts of inventory on hand. There are several forms of inventory financing each allowing a business to obtain a revolving line of credit that can be used toward purchasing additional inventory or to get through seasonal fluctuations in cash flow.

3.  What is involved in a public offering and why do companies decide to go public?