part CHAPTER 5 Small Business, Entrepreneurship, and Franchising 2 CHAPTER 4 Options for Organizing Business FHF 5-2

[] FHF Entrepreneurship 5-3 The process of creating and managing a business to achieve desired objectives

FHF What is Small Business?  “Smallness” is relative  Small business is any independently owned and operated business, not dominant in its competitive area  Employs less than 500 people (in USA) 5-4

FHF Impact of Small Businesses 5-5

FHF Small Business Innovation Small businesses represent 55% of all innovations Airplane Audio tape recorder Double-knit fabric Fiber-optic examining equipment Heart valve Optical scanner Personal computer Soft contact lenses Zipper … and much more 5-7

FHF Popular Industries for Small Business Especially attractive industries to entrepreneurs:  Retailing and wholesaling  Services  Manufacturing  High technology 5-9

FHF Small Business Ownership 5-13 AdvantagesDisadvantages IndependenceHigh stress level CostsHigh failure rate 50% of all new businesses fail within the first 5 years FlexibilityUndercapitalization Lack of funds to operate normally FocusManagerial inexperience or incompetence ReputationInability to cope with growth

FHF Starting a Business  Start with a concept or general idea  Create a business plan  Devise a strategy to guide planning & development  Make decisions Form of ownership Financing Acquire existing business or start new business? Buy a franchise 5-14

FHF The Business Plan A precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Acts as a guide and reference document. Explanation of the business Analysis of competition Income/Expense estimates 5-15

FHF Forms of Business Ownership  Sole Proprietorship  Partnership  Corporation 5-16

FHF Financial Resources Provide your own personal capital  Cash money  Obtain capital Financing options  Loans  Stocks  Equity financing 5-17

[] FHF Equity Financing Selling or borrowing against the value of an asset such as an (automobile, insurance policy, savings account) to obtain funds to operate a business 5-18

[] FHF Venture Capitalists Persons/organizations that agree to provide funding for a new business in exchange for an ownership interest or stock. Usually requires a sharing of ownership/control 5-19

[] FHF Debt Financing Borrowing financial resources typically from a bank or lending institution– often collateral is needed 5-20

FHF Starting from Scratch vs. Buying an Existing Business Starting from scratch can be expensive and will require a lot of promotional efforts to familiarize customers with the business  Existing businesses have the advantage of a built-in network of customers, suppliers and distributors  Reduces guesswork  Involves taking on any problems the business already had 5-22

FHF FranchiseFranchise A license to sell another’s products or to use another’s name in business, or both  Franchiser  The company that sells a franchise  Franchisee  The purchaser of a franchise 5-23

FHF FranchisesFranchises 5-24 AdvantagesDisadvantages Training & supportFees and profit sharing Brand name appealStandardized operations National advertisingRestrictions on purchasing Financial assistanceLimited product line Proven productsPossible market saturation Greater chance for successLess freedom in decisions