1) Assume you are going to start a simple e-business from scratch, using no existing equipment or materials. Briefly describe the business, and then do a rough calculation of startup costs, following the list provided in Section 4.1.1 of the textbook. Research costs that is realistic for the area in which you live. Be generous in your estimates and avoid cutting corners on any expenses.

2) Publicly held e-commerce companies (Yahoo.com, for example) must publish financial statements with their annual reports, which are available online. Access a recent annual report for one of these companies and review the balance sheet. List which company and record amounts for the following: current assets, total assets, current liability, total liability, and owner�s equity. Prove that the balance sheet balances by applying the appropriate equation.

3) Your e-commerce site was successful in its first year of operation; however, you would like additional financing for expansion. You are intrigued by venture capital. Is it usually a good financing source for a small e-business?

Part 1

Information Technology e-business

An Information e-business idea is an excellent venture because most people want to and are searching the internet to obtain information. The information people seek in the internet can be research information, entertainment, business, sports and political information. There are many online sources of information but they will never satisfy the needs of the increasing number of researchers. An information e-business idea in the field of Information Technology is a wonderful business venture because I am an expert in this field.

This idea will enable me to provide information on advances in technology, hardware and software, new trends and careers in Information Technology. Since they are many websites, starting an online business will require investment of time and resources to make sure that the business will be noticed and taken seriously, (Greg, Shannon, Joel & Jason, 2008). Below are some startup costs for an Information Technology e-business.

The website will aim at boosting its ranking in the search engines. With increasing success of the e-business, the website traffic will increase which will lead to increase of the cost of web hosting. The prices for sending e-mails includes sending marketing HTML e-mails and these prices will be determined by the number of e-mails sent per month and the required tracking services. The start up costs in the table above represents costs per month except the costs for starting up the website.

Part 2

Google Inc. is a company that provides search engine facility and because of their simple approach in searching and its high quality search results, its popularity has grown over time. Below are the details obtained from the company’s 2010 annual financial report that is used to determine whether the balance sheet actually balances or not.

Google Inc. Annual Data for Period ending 31 December 2010

Current Assets = 41,562,000 

Total Assets = 57,851,000 

Current Liability = 9,996,000 

Total liability = 11,610,000

Owner’s equity = 46,241,000

The total assets of the company include all property owned by the corporation while the total liabilities represent the sum of all monetary obligations of the company and all claims that creditors have on the company’s assets. The owner’s equity represents what the business owes the shareholders because they have invested in the business.

Total Assets = Total Liability + Owner’s Equity

Total Assets (Google Inc.) = 11,610,000+ 46,241,000

                                             = 57,851,000 

From the calculated amount for total assets, it can be seen that it matches with the amount provided in the Google’s annual data for the period ending 31 December 2010. This shows that the balance sheet balanced.

Part 3

Venture capital is the money that is obtained from other sources and is a source of financing for a new, normally high risk business venture such as introducing a new service or product or to expand the business. In this case, the Information Technology e-business has been successful and there is a desire is to expand it.

Venture capitalists usually get interested in businesses that they think will turn into a successful investment. The institutions that provide venture capital expect very high returns because they take a high risk when they invest in the business. The venture capitalists may lend their expertise to help the business to succeed. Venture capital firms take an ownership stake in the companies they invest in and they usually need access to the financial information of the company.

The Information Technology e-business is small but it is successful. This would make the venture capital firms to have an interest in investing in it. Therefore an elaborate business plan for the expansion of the business should be drawn before approaching the venture capital firm. The decision to seek venture capital in expanding the e-business will be determined by the willingness to share decision making power with the venture capital firm.

REFERENCES

Greg H., Shannon B., Joel E., Jason R. (2008), Wiley Pathways, E-Business, Rich John Wiley &

Sons, ISBN 9780470198575 

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