A helpful exercise when starting or analyzing a business is to conduct an appraisal of the business’ structure, relationships and obligations, which reveals a kind of “business web” of connectivity. One way to do this is to use a graphic organizer focused on a specific area of concern. Suppose that ABC Entity is having cash flow problems and is concerned about their ability to meet future obligations. They could create a graphic organizer focused on their financial obligations and their relationships. Here is a simple way to develop a business web.
- List the related entities, (companies with shared or common ownership), on the left side of the page, with Assets and Liabilities under the entity in the “entity box.”
- Connect the entities to the left with any business relationship.
- For each entity, list the relevant parties on the right side of the page, such as owners, lenders, landlords, employees and vendors.
- Draw a center line on the paper.
- Place each agreement connecting the entities to parties.
- Connect each entity and party based on the benefit and obligations of the agreement.
The resulting organizer might look like this (note that this business web doesn’t show any related entities to ABC Entity):
The business web should show the connection between each entity and party based on the benefits and obligations of their agreements. A loan, for example, provides funds to an entity. The entity incurs debt and often provides collateral. Owners in the entity may be required to personally guarantee the funds provided by the loan. In the above example, the loan agreement has five connections, (ABC Entities assets and liabilities, each owner and the bank).