Starting a Business  Start with a concept or general idea  Create a business plan  Devise a strategy for planning & development  Make decisions  Form of ownership  Financing  Acquire existing business or start new  Buy a franchise © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 24

The Business Plan A precise statement of the business rationale 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 Establish strategy for acquiring sufficient funds to keep the business going Revised periodically to ensure the firm’s goals and strategies adapt to changes in the environment 2 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Forms of Business Ownership After developing a business plan, the entrepreneur has to decide on an appropriate legal form of business ownership  Sole Proprietorship  Partnership  Corporation 3 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Financial Resources  Often, the small-business owner has to put up a significant percentage of the necessary capital  Cash money  Obtain capital  Financing options:  Equity financing  Debt Financing 4 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Equity Financing  Referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business  Can also obtain equity financing by finding investors for their operations and selling stock in the business to family members, friends, employees or other investors 5 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Venture Capitalists Persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock  Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful  Although this form of equity financing has helped many small businesses, they require that the small- business owner share the profits of the business (and sometimes the control, as well) with the investors 6 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Venture Capitalists –Usually experienced and successful business people and investors who find businesses in which to invest Certain standards a startup has to meet before they will be considered for investment If a startup does not have any real evidence of success, VCs will be reluctant to invest because of the high level of risk 7 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Angel Investors –Affluent people who invest their own money and may or may not have business or investing experience Tend to judge a startup less harshly than a VC, and may be prone to invest because they believe in the business 8 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Debt Financing (1 of 3) New businesses sometimes borrow more than half of their financial resources $ Banks are the main suppliers of external financing $ Federal level: the Small Business Administration (SBA) offers financial assistance to qualifying business $ Look to family and friends as sources for long-term loans or other assets for an ownership interest in the business State the agreement clearly in writing before money changes hands © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 32

Debt Financing (2 of 3) © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.  Collateral A financial interest in the property or fixtures of the business, to guarantee payment of the debt  Mortgage May have to provide personal property as collateral, if the business fails then they may eventually claim/sell the collateral  Line of Credit An agreement by which a financial institution promises to lend a business a predetermined sum on demand 10

Debt Financing (3 of 3) © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.  Trade Credit Suppliers allow the business to take possession of the needed goods and services and pay for them at a later date/installments  Bartering Trading their own products for the goods and services offered by other businesses 11

Starting from Scratch vs. Buying an Existing Business  Starting from scratch can be expensive and requires promotional efforts to familiarize customers with the business  Existing businesses have the advantage of a built-in network of customers, suppliers, and distributors  Reduces some of the guesswork inherent in starting a new business  Entrepreneur who buys an existing business also takes on any problems the business already has 12 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Franchising Franchise 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 13 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Advantages of Franchises Advantages Training and support Brand name appeal Standardized quality of goods & services National/local advertising Financial assistance Proven products/format Centralized buying power Site selection & territorial protection Greater chance for success 14 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Disadvantages of Franchises Disadvantages Fees and profit sharing Standardized operations Restrictions on purchasing Limited product line Possible market saturation Less freedom in decisions 15 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Top Ten Fastest Growing Franchises 1.Subway 2.7-Eleven Inc. 3.Mac Tools 4.Jan-Pro Franchising Int’l Inc. 5.Dunkin’ Donuts 6.Cruise Planners 7.Vanguard Cleaning Systems 8.Jimmy John’s Gourmet Sandwiches 9.Great Clips 10.Pizza Hut Inc. © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 39

Top Ten Hottest New Franchises 1.Mac Tools 2.Bricks 4 Kidz 3.Orange Leaf Frozen Yogurt 4.Sears Hometown & Outlet Stores 5.Fitness Revolution 6.The Ground Guys LLC 7.Paul Davis Emergency Services 8.Doc Popcorn 9.Title Boxing Club 10.Fuzzy’s Taco Shop © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 40

Help for Small-Business Managers ☼ Organizations and programs exist to help small- business managers o National publications such as Inc. and Entrepreneur o Small Business Administration (SBA) Small Business Development Centers (SBDCs) Service Corps of Retired Executives (SCORE) Active Corps of Executives (ACEs) o Small Business Institutions (SBIs) o U.S. and Local Departments of Commerce o Other small businesses © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 41