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Also known as a practice company or a practice enterprise, a practice firm is a virtual business simulation that is operated in a manner that mimics real-life scenarios that might face an actual business. The idea behind the practice firm is to allow students to hone their skills at setting up and operating a business, with attention paid to every aspect that would apply in a real world situation. Guided by facilitators, the students go through all the motions of creating a business plan, incorporating the operation, designing the corporate structure, and even establishing relationships with virtual vendors, creating a sales team, and making sales to other practice enterprises.
The value of the practice firm model is that it allows entrepreneurs and others interested in running a business to actually put their ideas to the test before engaging in the process in a real world situation. Every aspect of a real business is incorporated into this virtual enterprise. Products are developed, markets for those products identified, and sales and marketing plans are drafted. A process for production and order fulfillment is determined. Even the accounting effort, involving keeping virtual financial records and the issuing of invoices to the practice firms serving as customers is as meticulously maintained as if the practice company was the real thing.
There are several benefits to making use of this practice firm model. For people who are thinking of starting their own business, this test run helps them to fully understand the type of commitment and the skills necessary to successfully launch a business enterprise. By equipping the students with not only the skills but also the practical experience that is gained through the practice firm, the chances of them sidestepping a number of issues once they do create a business in the real world are greatly increased. Even for students who have no intention of starting a business, the practice company model helps them understand the inner workings of a company in greater detail, a trait that in turn will make them more valuable to employers.
A solid practice firm project will address every issue that a business is likely to face. Along with the challenges of launching a business, students will also deal with issues such as delays in receipt of materials necessary to production, losing a large customer, dealing with shifts in consumer demand, and even adjusting production to deal with shifts in the economy. While intense, this approach to learning the business world prepares students in ways that simply learning theory in a standard classroom would never accomplish.