Entrepreneur   (p. 11) You should probably form the business as a corporation if potential lawsuits are of prime concern. The corporate form of organization protects your personal property from lawsuits directed at the business and places only the corporation’s resources at risk. A downside of the corporate form is double taxation: The corporation must pay taxes on its income, and you normally must pay taxes on any money distributed to you from the business (even though the corporation already paid taxes on this money). You should also examine the ethical and socially responsible aspects of starting a business in which you anticipate injuries to others. Formation as an LLC or S corp. should also be explored.

Retailer   (p. 18) You can use the accounting equation (Assets = Liabilities + Equity) to help identify risky customers to whom you would likely not want to extend credit. A balance sheet provides amounts for each of these key components. The lower a customer’s equity is relative to liabilities, the less likely you would extend credit. A low equity means the business has little value that does not already have creditor claims to it.

Business Owner   (p. 20) The 19% return on assets for the manufacturer exceeds the 14% industry return (and many others). This is a positive factor for a potential purchase. Also, the purchase of this manufacturer is an opportunity to spread your risk over two businesses as opposed to one. Still, you should hesitate to purchase a business whose return of 19% is lower than your current resort’s return of 21%. You are probably better off directing efforts to increase investment in your resort, assuming you can continue to earn a 21% return.

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